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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
['ch'] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 001-12595
PXRE CORPORATION
(FORMERLY PHOENIX RE CORPORATION)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1183996
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
399 THORNALL STREET
EDISON, NEW JERSEY 08837
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(908) 906-8100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes 'ch' No
------- -------
As of November 13, 1997, 13,765,928 shares of common stock, $.01 par
value per share, of the Registrant were outstanding.
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PXRE CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets at September 30, 1997
and December 31, 1996 3
Consolidated Statements of Income for the three and
nine months ended September 30, 1997 and 1996 4
Consolidated Statements of Stockholders' Equity for the three
and nine months ended September 30, 1997 and 1996 5
Consolidated Statements of Cash Flow for the three and
nine months ended September 30, 1997 and 1996 6
Notes to Consolidated Interim Financial Statements 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II. OTHER INFORMATION 32
2
PXRE Consolidated Balance Sheets
Corporation (Unaudited)
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September 30, December 31,
1997 1996
---- ----
Assets Investments:
Fixed maturities, available-for-sale, at fair value (amortized
cost $398,414,000 and $393,962,000, respectively) $ 405,341,223 $ 394,551,703
Equity securities, at fair value (cost $17,083,000 and $6,850,000) 17,970,169 7,796,392
Short-term investments 51,868,193 59,791,879
Other invested assets 42,487,500 0
------------- -------------
Total investments 517,667,085 462,139,974
Cash 4,808,122 4,938,481
Accrued investment income 5,222,987 5,046,899
Receivables:
Unreported premiums 14,461,175 16,849,578
Balances due from intermediaries and brokers 11,808,409 6,279,368
Other receivables 21,036,334 9,281,392
Reinsurance recoverable 13,703,871 18,065,126
Ceded unearned premiums 4,536,718 3,728,424
Deferred acquisition costs 3,065,655 1,449,050
Income tax recoverable 2,367,831 2,204,026
Deferred income tax asset 784,303 3,586,489
Other assets 8,593,245 9,755,399
------------- -------------
Total assets $ 608,055,735 $ 543,324,206
============= =============
Liabilities Losses and loss expenses $ 55,709,255 $ 70,977,449
Unearned premiums 27,665,834 11,042,260
Reinsurance balances payable 1,020,880 4,635,449
Notes payable 21,414,000 64,725,000
Payable for securities 2,026,351 0
Contingent commission payable 4,592,266 12,772,478
Excess of fair market value of net assets of TREX 5,920,485 7,942,374
Other liabilities 8,531,533 13,551,418
------------- -------------
Total liabilities 126,880,604 185,646,428
------------- -------------
Minority Interest in Consolidated Subsidiary:
Company-Obligated Mandatorily Redeemable Capital Trust
Pass-through Securities of Subsidiary Trust holding solely a
Company-Guaranteed Related Subordinated Debt 99,512,305 0
Stockholders' Serial preferred stock, $.01 par value -- 500,000 shares authorized;
Equity 0 shares issued and outstanding 0 0
Common stock, $.01 par value -- 40,000,000 shares authorized;
14,797,884 and 14,705,782 shares issued, respectively 147,979 147,058
Additional paid-in capital 254,937,711 252,978,182
Net unrealized appreciation on investments, net of
deferred income tax expense of $2,735,000 and $306,000 4,648,285 568,405
Retained earnings 144,510,613 118,705,257
Treasury stock at cost (1,040,346 and 750,876 shares) (21,660,108) (14,090,289)
Restricted stock at cost (66,809 and 53,279 shares) (921,654) (630,835)
------------- -------------
Total stockholders' equity 381,662,826 357,677,778
------------- -------------
Total liabilities and stockholders' equity $ 608,055,735 $ 543,324,206
============= =============
The accompanying notes are an integral part of these statements.
3
PXRE Consolidated Statements of Income
Corporation (Unaudited)
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Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
Revenues Net premiums earned $ 20,099,586 $ 17,793,201 $ 66,782,922 $ 54,312,964
Net investment income 8,144,342 4,065,756 24,858,629 12,175,914
Net realized investment gains (losses) 955,190 (44,575) 815,589 (220,264)
Management fees : Non-affiliate 726,083 868,581 2,454,337 3,266,320
TREX 0 674,342 0 2,016,103
------------ ------------ ------------ ------------
29,925,201 23,357,305 94,911,477 71,551,037
------------ ------------ ------------ ------------
Losses and Losses and losses expenses incurred 1,156,652 6,072,159 6,441,725 15,172,580
Expenses Commissions and brokerage 4,153,134 3,015,707 12,289,058 9,654,928
Other operating expenses 3,561,247 2,623,326 11,847,996 9,149,658
Interest expense 433,218 1,713,471 2,790,388 5,317,709
Minority interest in Consolidated Subsidiary 2,231,444 0 5,950,480 0
------------ ------------ ------------ ------------
11,535,695 13,424,663 39,319,647 39,294,875
------------ ------------ ------------ ------------
Income before income taxes, extraordinary item and
equity in net earnings of TREX 18,389,506 9,932,642 55,591,830 32,256,162
Equity in net earnings of TREX 0 1,159,611 0 3,143,731
Income tax provision 6,007,000 3,477,000 18,248,000 11,290,000
------------ ------------ ------------ ------------
Income before extraordinary loss 12,382,506 7,615,253 37,343,830 24,109,893
Extraordinary loss on debt redemption, net of $99,000
and $1,493,000 income tax benefit, respectively 184,750 0 2,773,690 0
------------ ------------ ------------ ------------
Net income $ 12,197,756 $ 7,615,253 $ 34,570,140 $ 24,109,893
============ ============ ============ ============
Per Share Primary:
Income before extraordinary item $ 0.89 $ 0.86 $ 2.67 $ 2.73
Extraordinary loss 0.01 0.00 0.20 0.00
------------ ------------ ------------ ------------
Net income $ 0.88 $ 0.86 $ 2.47 $ 2.73
============ ============ ============ ============
Average shares outstanding 13,892,012 8,820,090 13,988,018 8,844,660
============ ============ ============ ============
Fully diluted:
Income before extraordinary item $ 0.89 $ 0.86 $ 2.67 $ 2.72
Extraordinary loss 0.01 0.00 0.20 0.00
------------ ------------ ------------ ------------
Net income $ 0.88 $ 0.86 $ 2.47 $ 2.72
============ ============ ============ ============
Average shares outstanding 13,902,553 8,820,090 14,018,750 8,851,023
============ ============ ============ ============
The accompanying notes are an integral part of these statements.
4
PXRE Consolidated Statements of Stockholders' Equity
Corporation (Unaudited)
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Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
Common Stock: Balance at beginning of period $ 147,912 $ 90,164 $ 147,058 $ 89,839
Issuance of shares 67 15 921 340
------------- ------------- ------------- -------------
Balance at end of period $ 147,979 $ 90,179 $ 147,979 $ 90,179
============= ============= ============= =============
Additional Balance at beginning of period $ 254,809,413 $ 118,509,473 $ 252,978,182 $ 117,668,048
Paid-in Capital: Issuance of common shares 118,959 30,877 1,677,021 715,175
Other 9,339 0 282,508 157,127
------------- ------------- ------------- -------------
Balance at end of period $ 254,937,711 $ 118,540,350 $ 254,937,711 $ 118,540,350
============= ============= ============= =============
Unrealized Balance at beginning of period $ 1,980,343 $ (1,568,130) $ 568,405 $ 3,782,500
Appreciation Change in fair value for the period 2,667,942 389,537 4,079,880 (4,455,868)
(Depreciation) Equity in net change in TREX depreciation 0 66,239 0 (438,986)
on Investments: ------------- ------------- ------------- -------------
Balance at end of period $ 4,648,285 $ (1,112,354) $ 4,648,285 $ (1,112,354)
============= ============= ============= =============
Retained Balance at beginning of period $ 135,203,189 $ 105,220,515 $ 118,705,257 $ 91,882,834
Earnings: Net income 12,197,756 7,615,253 34,570,140 24,109,893
Dividends paid to common stockholders (2,890,332) (1,577,282) (8,764,784) (4,734,241)
------------- ------------- ------------- -------------
Balance at end of period $ 144,510,613 $ 111,258,486 $ 144,510,613 $ 111,258,486
============= ============= ============= =============
Treasury Stock: Balance at beginning of period $ (21,660,108) $ (2,177,714) $ (14,090,289) $ (1,719,459)
Repurchase of common stock 0 (5,143,025) (7,464,583) (5,768,025)
Issuance of treasury stock 0 0 0 166,745
Other 0 0 (105,236) 0
------------- ------------- ------------- -------------
Balance at end of period $ (21,660,108) $ (7,320,739) $ (21,660,108) $ (7,320,739)
============= ============= ============= =============
Restricted Stock: Balance at beginning of period $ (1,041,472) $ (860,619) $ (630,835) $ (541,586)
Issuance of restricted stock 0 0 (741,988) (501,027)
Amortization of restricted stock 119,818 114,892 446,417 296,886
Other 0 0 4,752 0
------------- ------------- ------------- -------------
Balance at end of period $ (921,654) $ (745,727) $ (921,654) $ (745,727)
============= ============= ============= =============
Total Balance at beginning of period $ 369,439,277 $ 219,213,689 $ 357,677,778 $ 211,162,176
Stockholders' Issuance of common shares 119,026 30,892 1,677,942 715,515
Equity: Issuance of treasury shares 0 0 0 166,745
Repurchase of common stock 0 (5,143,025) (7,464,583) (5,768,025)
Restricted stock, net 119,818 114,892 (295,571) (204,141)
Unrealized appreciation (depreciation) on
investments net of deferred income tax 2,667,942 455,776 4,079,880 (4,894,854)
Net income 12,197,756 7,615,253 34,570,140 24,109,893
Dividends (2,890,332) (1,577,282) (8,764,784) (4,734,241)
Other 9,339 0 182,024 157,127
------------- ------------- ------------- -------------
Balance at end of period $ 381,662,826 $ 220,710,195 $ 381,662,826 $ 220,710,195
============= ============= ============= =============
The accompanying notes are an integral part of these statements.
5
PXRE Consolidated Statements of Cash Flow
Corporation (Unaudited)
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Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
Cash Flow Net income $ 12,197,756 $ 7,615,253 $ 34,570,140 $ 24,109,893
from Operating Adjustments to reconcile net income to net cash
Activities provided by operating activities:
Losses and loss expenses (3,794,773) (1,333,491) (15,268,193) (7,543,252)
Unearned premiums 7,658,211 3,989,857 15,815,281 3,556,954
Deferred acquisition costs (751,211) (502,455) (1,616,606) (176,311)
Receivables (14,823,392) 1,805,774 (23,075,792) 5,645,233
Reinsurance balances payable (2,786,171) (697,260) (3,614,569) (952,812)
Reinsurance recoverable 1,166,908 (307,426) 4,361,255 690,509
Income tax recoverable (110,387) 1,198,881 118,693 (516,959)
Equity in net earnings of TREX 0 (1,064,751) 0 (2,874,777)
Other (5,727,021) (1,545,053) (5,733,206) (3,063,211)
------------ ------------ ------------ ------------
Net cash (used) provided by operating activities (6,970,080) 9,159,329 5,557,003 18,875,267
------------ ------------ ------------ ------------
Cash Flow Cost of fixed maturity investments (46,803,002) (35,820,983) (229,218,396) (66,014,903)
from Investing Fixed maturity investments matured/disposed 77,113,933 36,707,441 226,391,890 49,748,611
Activities Payable for securities (5,445,407) 0 2,026,351 (2,496,232)
Cost of equity securities (8,961,661) (1,447,250) (12,909,176) (1,447,250)
Equity securities disposed 648,313 0 2,675,320 0
Net change in short-term investments 24,309,251 3,574,616 9,304,707 22,314,454
Net change in other invested assets (41,500,000) 0 (41,500,000) 0
------------ ------------ ------------ ------------
Net cash (used) provided by investing activities (638,573) 3,013,824 (43,229,304) 2,104,680
------------ ------------ ------------ ------------
Cash Flow Proceeds from issuance of common stock 119,031 30,892 783,992 381,233
from Financing Cash dividends paid to common stockholders (2,890,332) (1,577,282) (8,764,784) (4,734,241)
Activities Issuance of minority interest in consolidated subsidiary 0 0 99,509,000 0
Repurchase of debt (1,806,950) (794,375) (46,521,683) (3,235,250)
Cost of treasury stock 0 (5,143,025) (7,464,583) (5,768,025)
------------ ------------ ------------ ------------
Net cash (used) provided by financing activities (4,578,251) (7,483,790) 37,541,942 (13,356,283)
============ ============ ============ ============
Net change in cash (12,186,904) 4,689,363 (130,359) 7,623,664
Cash, beginning of period 16,995,026 3,772,849 4,938,481 838,548
------------ ------------ ------------ ------------
Cash, end of period $ 4,808,122 $ 8,462,212 $ 4,808,122 $ 8,462,212
============ ============ ============ ============
The accompanying notes are an integral part of these statements.
6
PXRE NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
CORPORATION
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1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
The accompanying interim consolidated financial statements have been
prepared in conformity with generally accepted accounting principles ("GAAP").
These statements reflect the consolidated operations of PXRE Corporation and its
subsidiaries (collectively referred to as "PXRE"), PXRE Reinsurance Company
("PXRE Reinsurance"), PXRE Trading Corporation ("PXRE Trading"), CAT Fund L.P.,
PXRE Capital Trust I, PXRE Ltd. and PXRE Managing Agency Limited. Operations of
PXRE Ltd. and PXRE Managing Agency Limited are included in the consolidated
results on a one quarter lag period. In addition, following the merger of PXRE
and Transnational Re Corporation ("TREX") on December 11, 1996, the consolidated
operations include Transnational Reinsurance Company ("Transnational
Reinsurance") and TREX Trading Corporation ("TREX Trading"). During the two
years ended December 31, 1995 and 1994 and the period up to December 11, 1996,
PXRE owned approximately 21% of TREX, which in turn owned 100% of Transnational
Reinsurance, and accounted for this investment under the equity method.
Following the merger, Transnational Reinsurance became a wholly-owned subsidiary
of PXRE Reinsurance. All material transactions between the consolidated
companies have been eliminated in preparing these consolidated financial
statements.
The interim consolidated financial statements are unaudited; however, in
the opinion of management, the foregoing consolidated financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the interim periods. These
interim statements should be read in conjunction with the 1996 audited
consolidated financial statements and related notes. The preparation of interim
consolidated financial statements relies significantly upon estimates. Use of
such estimates, and the seasonal nature of a portion of the reinsurance
business, necessitates caution in drawing specific conclusions from interim
results.
INVESTMENT AT EQUITY
Investments in affiliated and subsidiary companies are accounted for
under the equity method.
PREMIUMS ASSUMED AND CEDED
Premiums on reinsurance business assumed are recorded as earned on a pro
rata basis over the contract period based on estimated subject premiums.
Adjustments based on actual and subject premium are recorded once ascertained.
The portion of premiums written relating to unexpired coverages at the end of
the period is recorded as unearned premiums. Reinsurance premiums ceded are
recorded as incurred on a pro rata basis over the contract period.
7
PXRE NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
CORPORATION
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DEFERRED ACQUISITION COSTS
Acquisition costs consist of commissions and brokerage expenses incurred
in connection with contract issuance, net of acquisition costs ceded. These
costs are deferred and amortized over the period in which the related premiums
are earned. Deferred acquisition costs are reviewed periodically to determine
that they do not exceed recoverable amounts after allowing for anticipated
investment income.
MANAGEMENT FEES
Management fees are recorded as earned under various arrangements,
whereby PXRE Reinsurance acts as underwriting manager for other insurers and
reinsurers, including TREX up to the date of its merger with PXRE. These fees
are initially based on premium volume, but are adjusted through contingent
profit commissions related to underwriting results measured over a period of
years.
LOSSES AND LOSS EXPENSE LIABILITIES
Liabilities for losses and loss expenses are established in amounts
estimated to settle incurred losses. Losses and loss expense liabilities are
based on individual case estimates provided for reported losses for known events
and estimates of incurred but not reported losses. Losses and loss expense
liabilities are necessarily based on estimates and the ultimate liabilities may
vary from such estimates. Any adjustments to these estimates are reflected in
income when known. Reinsurance recoverable on paid losses and reinsurance
recoverable on unpaid losses are reported as assets. Reinsurance recoverable on
paid losses represent amounts recoverable from retrocessionaires at the end of
the period for gross losses previously paid. Provisions are established for all
reinsurance recoveries which are considered doubtful.
INVESTMENTS
Fixed maturity investments and unaffiliated equity securities are
considered available-for-sale and are reported at fair value. Unrealized gains
and losses as a result of temporary changes in fair value over the period such
investments are held are reflected net of income taxes in stockholders' equity.
Unrealized losses which are not temporary are charged to operations. Short-term
investments which have an original maturity of one year or less are carried at
amortized cost which approximates fair value. Other invested assets include
investments in limited partnerships reported under the equity method which
includes the cost of the investment and subsequent proportional share of the
partnership earnings. Realized gains or losses on disposition of investments are
determined on the basis of specific identification. The amortization of premiums
and accretion of discounts for fixed maturity investments are computed utilizing
the interest method. The effective yield under the interest method is adjusted
for anticipated prepayments.
8
PXRE NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
CORPORATION
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FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values of certain assets and liabilities are based on published
market values, if available, or estimates based upon fair values of similar
issues.
LEASEHOLD IMPROVEMENTS, FURNITURE AND EQUIPMENT AND OTHER ASSETS
Leasehold improvements, furniture and equipment, included in other
assets, are carried at depreciated cost. Depreciation and amortization are
calculated on a straight-line method principally over 15 years. Acquired
insurance licenses are carried at amortized cost.
DEBT ISSUANCE COSTS
Debt issuance costs associated with the August 1993 issuance of Senior
Notes, the January 1997 issuance of $100 million 8.85% Capital Trust
Pass-through Securities `sm' (TRUPS `sm') and the related registration of the
TRUPS `sm' are being amortized over the term of the related outstanding debt on
a straight-line method.
EXCESS OF FAIR MARKET VALUE OF NET ASSETS OF BUSINESS ACQUIRED OVER COST
The excess of fair value of net assets of TREX business acquired over
cost is amortized on a straight-line basis over three years.
FOREIGN EXCHANGE
Foreign currency assets and liabilities are translated at the exchange
rate in effect at the balance sheet date. Resulting gains and losses are
reflected in income for the period.
FEDERAL INCOME TAXES
Deferred tax assets and liabilities reflect the expected future tax
consequences of temporary differences between carrying amounts and the tax bases
of PXRE's assets and liabilities.
EARNINGS PER SHARE
Earnings per share are determined by dividing net earnings by the
weighted average number of shares outstanding of common stock and common stock
equivalents.
9
PXRE NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
CORPORATION
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STOCK-BASED COMPENSATION
Effective January 1, 1996, PXRE adopted Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS No.
123"). SFAS No. 123 establishes a "fair value based method" of accounting for
all stock options, but allows for the continued application of the intrinsic
value concept under existing accounting rules prescribed by Accounting
Principles Board Opinion No. 25 ("APB"). PXRE will continue to value its stock
options using the guidance of APB 25, as permitted by SFAS No. 123.
10
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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GENERAL
PXRE Corporation ("PXRE") provides reinsurance products and services to
a national and international marketplace, with principal emphasis on commercial
and personal property risks and marine and aerospace risks, and with a
particular focus on catastrophe-related coverages.
PXRE exercises discipline in committing and withholding its underwriting
capacity and altering its mix of business to concentrate its underwriting
capacity at any given point in time on those types of businesses where
management believes that above average underwriting results can be achieved.
PXRE has been pursuing a strategy of focusing on catastrophe-related coverages
in both the national and international markets.
PXRE also generates management fee income by managing business for other
insurers and reinsurers, either by accepting additional amounts of coverage on
underwritten risks and retroceding such additional amounts to participants
through various retrocessional arrangements or, in one case, until the merger
with Transnational Re Corporation ("TREX") described below, by managing the
underwriting and other day-to-day operations of a publicly-owned reinsurance
group.
At September 30, 1997, PXRE was a party to three such retrocessional
arrangements. One such arrangement is with a group of insurers and reinsurers
referred to as the AMA; another is with Trenwick America Reinsurance Corporation
("Trenwick Group"); and a third arrangement is with Select Reinsurance Ltd.
("Select Re"), a Bermuda reinsurer, formerly Investors Reinsurance Ltd. Under
these arrangements, PXRE cedes some of its underwritten risks to the
participants, subject to maximum aggregate liabilities per reinsurance program.
PXRE receives a management fee or commission of 5% of premiums ceded (4.2% for
Select Re) and a percentage of any ultimate underwriting profits in connection
with the reinsurance ceded. Under the arrangements with these participants, such
percentage of ultimate underwriting profits is subject to adjustment based on
cumulative experience. Future management fee income is dependent upon the amount
of business ceded to the participants and the profitability of that business.
PXRE also purchases catastrophe retrocessional coverage for its own
protection, depending on market conditions. PXRE has increased its purchases of
such coverage in light of the continued general deterioration in catastrophe
reinsurance pricing and the opportunity to buy protection at more favorable
terms than in recent years.
11
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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In November 1993, PXRE sponsored the initial public offering of TREX to
raise capital and take advantage of favorable conditions in the worldwide
retrocessional reinsurance market. PXRE, through PXRE Reinsurance Company ("PXRE
Reinsurance"), retained a 21% ownership position in TREX and had responsibility
for the day-to-day operations of TREX, including all the reinsurance operations
of its subsidiary, Transnational Reinsurance Company ("Transnational
Reinsurance") under a management agreement (the "Management Agreement"). TREX
and Transnational Reinsurance had no paid employees.
Under the terms of the Management Agreement, Transnational Reinsurance
shared in certain specified business of PXRE classified as property
retrocessional reinsurance business, marine and aerospace retrocessional
reinsurance or marine and aerospace reinsurance and facultative reinsurance.
Transnational Reinsurance paid PXRE an annual basic management fee under
the Management Agreement equal to 5% of gross premiums written (including
reinstatement premiums less return premiums) by Transnational Reinsurance and
its consolidated subsidiaries (if any) as reflected in Transnational
Reinsurance's statutory quarterly and annual statements filed with state
insurance authorities. TREX and Transnational Reinsurance also paid all expenses
directly attributable to them.
On December 11, 1996, PXRE completed the merger of TREX with and into
PXRE (the "Merger"), pursuant to which each share of common stock of TREX was
converted into the right to receive 1.0575 shares of PXRE common stock. The
Merger resulted from the realization by the management and Boards of Directors
of both PXRE and TREX that conditions had become more competitive in the
retrocessional reinsurance marketplace, and that the reinsurance markets, rating
agencies and the capital markets are placing increased importance on the size
and financial strength of reinsurance companies, which size and financial
strength would be augmented by the Merger. Following the Merger, Transnational
Reinsurance became a wholly-owned subsidiary of PXRE Reinsurance. The Merger has
been accounted for using the purchase method of accounting; therefore net income
of TREX (including Transnational Reinsurance) has been included in PXRE's
consolidated results of operation from the date of the Merger.
In December 1996, PXRE completed an investment in Lloyd's of London,
forming a new syndicate, PG Butler Syndicate 1224, and a presence in London.
Underwriting premium volume and loss experience related to Syndicate 1224 is
included in the consolidated results on a one quarter lag basis, commencing in
the quarter ended June 30, 1997.
In November 1997, PXRE announced the formation of an Excess and Surplus
Lines operation which will specialize in short-tail property type risks to be
written as insurance. Its operations are expected to commence during the first
quarter of 1998.
12
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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CERTAIN RISKS AND UNCERTAINTIES
As a reinsurer principally of property and catastrophe-related coverages
in both the national and international markets, PXRE's operating results in any
given period depend to a large extent on the number and magnitude of natural and
man-made catastrophes such as hurricanes, windstorms, floods, earthquakes,
spells of severely cold weather, fires and explosions. While PXRE may, depending
on market conditions, purchase catastrophe retrocessional coverage for its own
protection, the occurrence of one or more major catastrophes in any given period
could nevertheless have a material adverse impact on PXRE's results of
operations and financial condition and result in substantial liquidation of
investments and outflows of cash as losses are paid.
The estimation of losses for catastrophe reinsurers is inherently less
reliable than for reinsurers of risks which have an established historical
pattern of losses. In addition, insured events which occur near the end of a
reporting period, as well as with respect to PXRE's retrocessional book of
business, the significant delay in losses being reported to insurance carriers,
reinsurers and finally retrocessionaires, require PXRE to make estimates of
losses based on limited information from ceding companies and based on its own
underwriting data. Because of the uncertainty in the process of estimating its
losses from insured events, there is a risk that PXRE's liabilities for losses
and loss expenses could prove to be inadequate, with a consequent adverse impact
on future earnings and stockholders' equity. Additionally, as a consequence of
its emphasis on property reinsurance, PXRE may forgo potential investment income
because property losses are typically settled within a shorter period of time
than casualty losses.
As PXRE underwrites risks from a large number of insurers based on
information generally supplied by reinsurance brokers, there is a risk of
developing a concentration of exposure to loss in certain geographic areas prone
to specific types of catastrophes. PXRE has developed systems and software tools
to monitor and manage the accumulation of its exposure to such losses.
Management has established guidelines for maximum tolerable losses from a single
or multiple catastrophic event based on historical data; however, no assurance
can be given that these maximums will not be exceeded in some future
catastrophe.
Premiums on reinsurance business assumed are recorded as earned on a pro
rata basis over the contract period based upon estimated subject premiums.
Management must estimate the subject premiums associated with the treaties in
order to determine the level of earned premiums for a reporting period. Such
estimates are based on information from brokers which can be subject to change
as new information becomes available. Because of the inherent uncertainty in
this process, there is the risk that premiums and related receivable balances
may turn out to be higher or lower than reported.
13
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Although PXRE's investment guidelines stress conservation of principal,
diversification of risk, and liquidity, PXRE's invested assets include equities
and investments in limited partnerships, and PXRE's investments are subject to
market-wide risks and fluctuations, as well as to risk inherent in particular
securities. Accordingly, the estimated fair value of PXRE's investments does not
necessarily represent the amount which could be realized upon future sale
particularly if PXRE were required to liquidate a substantial portion of its
portfolio to fund catastrophic losses.
Premium receivables and loss reserves include business denominated in
currencies other than U.S. dollars. PXRE is exposed to the possibility of
significant claims in currencies other than U.S. dollars. While PXRE holds
positions denominated in foreign currencies to mitigate, in part, the effects of
currency fluctuations on its results of operations, it currently does not hedge
its currency exposures before a catastrophic event which may produce a claim.
PXRE relies primarily on cash dividends and net tax allocation payments
from its subsidiaries PXRE Reinsurance and Transnational Reinsurance to pay its
operating expenses, to meet its debt service obligations and to pay dividends to
PXRE's stockholders. The payment of dividends by PXRE Reinsurance to PXRE, and
by Transnational Reinsurance to PXRE Reinsurance, is subject to limits imposed
under the insurance laws and regulations of Connecticut, the state of
incorporation and domicile of PXRE Reinsurance and Transnational Reinsurance, as
well as certain restrictions arising in connection with PXRE's outstanding
indebtedness.
In the event the amount of dividends available, together with other
sources of funds, are not sufficient to permit PXRE to meet its debt service,
its other obligations and to pay cash dividends, it would be necessary to obtain
the approval of the Connecticut Insurance Commissioner prior to the payment of
additional dividends by PXRE Reinsurance (or Transnational Reinsurance). If such
approval were not obtained, PXRE would have to adopt one or more alternatives,
such as refinancing or restructuring its indebtedness or seeking additional
equity. There can be no assurance that any of these strategies could be effected
on satisfactory terms, if at all.
The reinsurance business is increasingly competitive and is undergoing a
variety of challenging developments. The industry has in recent years moved
toward greater consolidation as ceding companies have placed increased
importance on size and financial strength in the selection of reinsurers.
Additionally, reinsurers are tapping new markets and complementing their range
of traditional reinsurance products with innovative new products which bring
together capital markets and reinsurance experience. PXRE competes with numerous
major domestic and international reinsurance and insurance companies, many of
which have substantially greater financial, marketing and management resources
than PXRE.
14
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
COMPARISON OF THIRD QUARTER RESULTS FOR
1997 WITH 1996
As reported previously, PXRE and TREX merged on December 11, 1996.
Results for the third quarter of 1997 therefore reflect the consolidated
operations and business of PXRE and TREX combined, whereas the third quarter
1996 results under purchase accounting reflect the historical results of PXRE as
reported, excluding TREX. For comparative purposes, certain selected pro forma
results are also presented for the third quarter of 1996 as if PXRE and TREX had
merged at January 1, 1996.
Three Months Ended September 30,
--------------------------------------------
As Reported Pro Forma
---------------------------------- --------------------
Increase Increase
1997 1996 (Decrease) 1996 (Decrease)
---- ---- ---------- ---- ----------
(000's) % (000's) %
GROSS PREMIUMS WRITTEN $35,186 $36,282 (3.0) $45,620 (22.9)
CEDED PREMIUMS:
Managed business participants 4,613 6,947 (33.6) 6,946 (33.6)
TREX Management Agreement -0- 6,329 N/A -0- N/A
Catastrophe coverage 2,815 1,223 130.12 1,451 94.0
------- ------- -------
Total reinsurance premiums
ceded 7,428 14,499 (48.8) 8,397 (11.5)
------ ------- -------
NET PREMIUMS WRITTEN $27,758 $21,783 27.4 $37,223 (25.4)
======= ======= =======
Earned premiums $20,100 $17,793 13.0 $31,280 (35.7)
Revenues 29,925 23,357 28.1 38,631 (22.5)
Income before extraordinary loss 12,383 7,615 62.6 12,219 1.3
Net income 12,198 7,615 60.2 12,219 (0.2)
PER SHARE FULLY DILUTED:
Before extraordinary loss $0.89 $0.86 3.5 $0.84 6.0
Net income $0.88 $0.86 2.3 $0.84 4.8
Fully diluted average shares
outstanding 13,903 8,820 14,534
Net premiums written for the three months ended September 30, 1997
increased 27.4% to $27,758,000 from $21,783,000 for the corresponding period of
1996 as reported, and decreased 25.4% from $37,223,000 on a pro forma basis in
the corresponding period of 1996. Gross premiums written for the third quarter
of 1997 decreased 3.0% to $35,186,000 from $36,282,000 for the comparable period
of 1996 as reported, and decreased 22.9% from $45,620,000 on a pro forma basis
in the corresponding period of 1996. Net premiums earned for the third quarter
of 1997 increased 13.0% to $20,100,000 from $17,793,000 in the corresponding
period of 1996 as
15
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
reported, and decreased 35.7% from $31,280,000 in the corresponding period of
1996 on a pro forma basis. Net earned premiums for the third quarter of 1997
declined from prior-year levels on a pro forma basis reflecting a continuation
of the increasingly competitive business environment which has marked recent
renewal seasons. Lower reinstatement premiums as a result of reduced losses,
additional reinsurance purchased at favorable rates, and the accounting effects
of experience related contracts also contributed to these declines. PXRE
continued its planned response to this increasingly competitive environment by
withdrawing capacity from areas of coverage not offering appropriate
compensation for the exposure. Management anticipates that this trend will
continue, although business written by PXRE's newly established Lloyd's of
London syndicate, PG Butler Syndicate 1224, has partially cushioned reductions
elsewhere in PXRE's business. Underwriting premium volume and loss experience
related to Syndicate 1224 is included in the consolidated results on a one
quarter lag basis, commencing in the second quarter of 1997.
Premiums ceded by PXRE to its managed business participants decreased
33.6% to $4,613,000 for the third quarter of 1997 compared with $6,947,000 for
the corresponding period of 1996. The decrease in premiums ceded to these
programs was due to a change in the percentage ceded as agreed with the
participants. During the third quarter of 1996, before the Merger, PXRE ceded
$6,329,000 of premiums to Transnational Reinsurance in lieu of direct
reinsurance writings by Transnational Reinsurance. Management fee income from
all sources for the third quarter of 1997 decreased to $726,000 from $1,543,000
for the corresponding period of 1996 as reported, reflecting a decline of
premiums ceded to managed business participants, as well as management fee
income of $674,000 earned by PXRE from TREX, before the Merger, in the third
quarter of 1996. Management fee income decreased to $726,000 for the third
quarter of 1997 from $770,000 for the corresponding period of 1996 on a pro
forma basis, reflecting the decreased amount of ceded premium, offset in part by
more profitable business.
The underwriting results of a property and casualty insurer are
discussed frequently by reference to its loss ratio, underwriting expense ratio
and combined ratio. The loss ratio is the result of dividing losses and loss
expenses incurred by net premiums earned. The underwriting expense ratio is the
result of dividing underwriting expenses (reduced by management fees, if any) by
net premiums written for purposes of statutory accounting practices ("SAP") and
net premiums earned for purposes of GAAP. The combined ratio is the sum of the
loss ratio and the underwriting expense ratio. A combined ratio under 100%
indicates underwriting profits and a combined ratio exceeding 100% indicates
underwriting losses. The combined ratio does not reflect the effect of
investment income on operating results. The ratios discussed below have been
calculated on a GAAP basis.
16
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The loss ratio was 5.7% for the third quarter of 1997 compared with
34.1% for the comparable quarter in 1996 as reported, and 34.1% for the
corresponding quarter of 1996 on a pro forma basis. The loss ratio for the third
quarter of 1997 reflected incurred catastrophe losses of $1,157,000 gross and
$950,000 net for 1997 and prior accident years. In comparison, the loss ratio
for the third quarter of 1996 reflected incurred catastrophe losses of
$5,572,000 gross and $3,369,000 net for 1996 and prior accident years as
reported, and $7,911,000 gross and $5,637,000 net for 1996 and prior accident
years on a pro forma basis.
Significant catastrophe and risk losses affecting the third quarter 1997
loss ratio are as follows:
AMOUNT OF LOSSES
----------------
LOSS EVENT GROSS NET
- ---------- ----- ---
(in thousands)
German, Poland and Czech floods $2,798 $2,343
Incurred catastrophe losses of $950,000 net for 1997 and prior accident
years includes savings on a number of catastrophe losses, which offset, in part,
the German, Poland and Czech floods.
Significant catastrophe and risk losses affecting the third quarter 1996
loss ratio are as follows:
AS REPORTED PRO FORMA
----------- ---------
AMOUNT OF LOSSES
----------------
LOSS EVENT GROSS NET GROSS NET
- ---------- ----- --- ----- ---
(in thousands)
Hurricane Fran $3,943 $2,993 $5,944 $4,993
Three risk losses 1,896 580 2,052 1,590
The provision for losses and loss expenses and the loss ratio includes
the effect of foreign exchange movements on PXRE's liability for losses and loss
expenses, resulting in a foreign currency exchange loss of $22,000 for the third
quarter of 1997 compared to a gain of $56,000 for the third quarter of 1996 as
reported, and $109,000 for the corresponding period of 1996 on a pro forma
basis.
17
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
During the third quarter of 1997, PXRE experienced savings of $4,022,000
net for prior-year loss and loss expenses from a number of previously recorded
catastrophes and facultative losses. The loss ratio for the comparable period in
1996 was favorably affected by decreases to reserves of $430,000 net for
prior-year losses and loss expenses, as reported, and $501,000 net for
prior-year losses and loss expenses on a pro forma basis, related principally to
Hurricane Marilyn.
The underwriting expense ratio was 34.8% for the third quarter of 1997
compared with 23.0% for the comparable quarter of 1996 as reported, and 23.5%
for the corresponding period of 1996 on a pro forma basis. As a result of the
above, the combined ratio was 40.5% for the third quarter of 1997 compared with
57.1% for the corresponding period of 1996 as reported, and 57.6% for the
corresponding period of 1996 on a pro forma basis. The increase in underwriting
expense ratio was substantially due to the foreign exchange losses discussed
below, Lloyd's Syndicate operations and, on a pro forma basis, the decline in
premiums earned.
Other operating expenses increased to $3,561,000 for the third quarter
of 1997 from $2,623,000 in the comparable period of 1996 as reported, and
$2,755,000 for the corresponding period of 1996 on a pro forma basis. Included
in other operating expenses were foreign currency exchange losses of $323,000
for the third quarter of 1997 compared to gains of $105,000 for the
corresponding period of 1996 as reported, and gains of $126,000 for the
corresponding period of 1996 on a pro forma basis. Operating expenses were
$3,912,000 excluding foreign exchange losses and amortization of negative
goodwill of $674,000 in the third quarter of 1997 compared with $3,555,000 in
the third quarter 1996 pro forma results excluding the same items. This increase
was primarily due to the addition of the Lloyd's syndicate operation.
During the third quarter of 1997, interest expense decreased to $433,000
as compared to $1,713,000 in the corresponding period in the prior-year as
reported due to the effect of the repurchase of $43.3 million of PXRE's 9.75%
Senior Notes in open market purchases through the end of the third quarter of
1997. In addition, in the third quarter of 1997, PXRE incurred minority interest
expense amounting to $2,231,000 related to the $100 million of newly-issued
8.85% Capital Trust Pass-through Securities `sm' (TRUPS `sm') (as described
below under "Liquidity and Capital Resources").
In the third quarter of 1997, PXRE recorded an extraordinary loss of
$185,000, net of tax, in connection with the repurchase of $1.7 million of
PXRE's 9.75% Senior Notes.
Net investment income for the third quarter of 1997 increased 100.3% to
$8,144,000 from $4,066,000 for the same period of 1996. The increase in net
investment income was caused primarily by $2,510,000 of investment income from
Transnational Reinsurance, $816,000 from incremental total return income from
higher yielding limited partnership investments from the planned repositioning
of the investment portfolio and the remainder from increased average assets.
PXRE's pre-tax investment yield was 6.7% for the third quarter of 1997 compared
with 6.6% for the corresponding period in 1996 as reported, both calculated
using amortized cost and investment
18
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
income before investment expenses. The increase in yield resulted primarily from
the limited partnership investments. Net realized investment gains for the third
quarter of 1997 were $955,000 compared to losses of $45,000 for the
corresponding period of 1996. During the third quarter of 1997, PXRE recorded
directly to equity an after-tax unrealized gain of $2,668,000 in the value of
its investment portfolio ($0.19 book value per share), reflecting the effect of
decreasing interest rates during the period.
The net effects of foreign currency exchange fluctuations were losses of
$345,000 in the third quarter of 1997 and gains of $161,000 for the comparable
quarter of 1996. See "Liquidity and Capital Resources."
Net income for the three months ended September 30, 1996 included
$1,160,000 which represented PXRE's approximately 22.2% equity share of TREX's
net earnings before the Merger.
For the reasons discussed above, net income was $12,198,000 for the
third quarter of 1997 compared to net income of $7,615,000 for the corresponding
quarter of 1996 as reported, and $12,219,000 for the corresponding quarter of
1996 on a pro forma basis. Fully diluted income per common share before
extraordinary loss was $0.89 for the third quarter of 1997 compared to $0.86 for
the prior comparable period as reported and $0.84 on a pro forma basis. Fully
diluted net income per common share was $0.88 for the third quarter of 1997
compared to $0.86 for the corresponding quarter of 1996 as reported, and $0.84
for the corresponding quarter of 1996 on a pro forma basis based on average
shares outstanding of approximately 13,902,600 in the third quarter of 1997,
8,820,100 in the comparable quarter of 1996 as reported, and 14,534,500 in the
corresponding quarter of 1996 on a pro forma basis.
19
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
COMPARISON OF YEAR-TO-DATE RESULTS FOR
1997 WITH 1996
Nine Months Ended September 30,
--------------------------------------------
As Reported Pro Forma
---------------------------------- --------------------
Increase Increase
1997 1996 (Decrease) 1996 (Decrease)
---- ---- ---------- ---- ----------
(000's) % (000's) %
GROSS PREMIUMS WRITTEN $102,842 $97,934 5.0 $124,431 (17.4)
CEDED PREMIUMS:
Managed business participants 14,382 18,408 (21.9) 18,408 (21.9)
TREX Management Agreement -0- 17,833 N/A -0- N/A
Catastrophe coverage 5,862 3,823 53.3 4,295 36.5
------- ------- --------
Total reinsurance premiums
ceded 20,244 40,064 (49.5) 22,703 (10.8)
------- ------- --------
NET PREMIUMS WRITTEN $82,598 $57,870 42.7 $101,728 (18.8)
======= ======= ========
Earned premiums $66,783 $54,313 23.0 $94,635 (29.4)
Revenues 94,911 71,551 32.6 117,390 (19.1)
Income before extraordinary loss 37,344 24,110 55.0 36,972 1.0
Net income 34,570 24,110 43.4 36,972 (6.5)
PER SHARE FULLY DILUTED:
Before extraordinary loss $2.67 $2.72 (1.8) $2.54 5.1
Net income $2.47 $2.72 (9.2) $2.54 (2.8)
Fully diluted average shares
outstanding 14,019 8,851 14,534
Net premiums written for the nine months ended September 30, 1997
increased 42.7% to $82,598,000 from $57,870,000 for the corresponding period of
1996 as reported, and decreased 18.8% from $101,728,000 on a pro forma basis in
the corresponding period of 1996. Gross premiums written for the nine months of
1997 increased 5.0% to $102,842,000 from $97,934,000 for the comparable period
of 1996 as reported, and decreased 17.4% from $124,431,000 on a pro forma basis
in the corresponding period of 1996. Net premiums earned for the nine months of
1997 increased 23.0% to $66,783,000 from $54,313,000 in the corresponding period
of 1996 as reported, and decreased 29.4% from $94,635,000 in the corresponding
period of 1996 on a pro forma basis. Gross written, net written and net earned
premiums for the nine months of 1997 declined from prior-year levels on a pro
forma basis reflecting a continuation of the increasingly competitive business
environment which has marked recent renewal seasons. Lower reinstatement
premiums as a result of reduced losses, additional reinsurance purchased at
favorable rates, and the accounting effects of experience related contracts also
contributed to these declines. PXRE continued its planned response to this
increasingly competitive environment by withdrawing capacity from areas of
coverage not
20
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
offering appropriate compensation for the exposure. Management anticipates that
this trend will continue, although business written by PXRE's newly established
Lloyd's of London syndicate, PG Butler Syndicate 1224, has partially cushioned
reductions elsewhere in PXRE's business.
Premiums ceded by PXRE to its managed business participants decreased
21.9% to $14,382,000 for the nine months of 1997 compared with $18,408,000 for
the corresponding period of 1996. The decrease in premiums ceded to these
programs was due to a change in the percentage ceded as agreed with the
participants. During the nine months of 1996, before the Merger, PXRE ceded
$17,833,000 of premiums to Transnational Reinsurance in lieu of direct
reinsurance writings by Transnational Reinsurance. Management fee income from
all sources for the nine months ended September 30, 1997 decreased to $2,454,000
from $5,282,000 for the corresponding period of 1996 as reported, and from
$3,085,000 for the corresponding period of 1996 on a pro forma basis, reflecting
a decline of premiums ceded to managed business participants, as well as
management fee income of $2,016,000 earned by PXRE from TREX, before the Merger,
in the nine months of 1996 offset in part by more profitable business.
The loss ratio was 9.6% for the nine months ended September 30, 1997
compared with 27.9% for the corresponding period of 1996 as reported, and 32.2%
in the corresponding period of 1996 on a pro forma basis. The loss ratio for the
nine months of 1997 reflected a reversal of previously recorded catastrophe
losses of $865,000 gross and $541,000 net for 1997 and prior accident years. In
comparison, the loss ratio for the nine months of 1996 reflected incurred
catastrophe losses of $17,159,000 gross and $8,179,000 net for 1996 and prior
accident years as reported, and $20,782,000 gross and $16,333,000 net for 1996
and prior accident years on a pro forma basis.
Significant catastrophe and risk losses affecting the nine months ended
September 30, 1997 loss ratio are as follows:
AMOUNT OF LOSSES
----------------
LOSS EVENT GROSS NET
- ---------- ----- ---
(in thousands)
German, Poland and Czech floods $4,220 $3,534
Incurred catastrophe losses of $541,000 net for 1997 and prior accident
years includes savings on a number of catastrophe losses, which offset, in part,
the German, Poland and Czech floods.
21
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Significant catastrophe and risk losses affecting the same period of
1996 loss ratio are as follows:
AS REPORTED PRO FORMA
----------- ---------
AMOUNT OF LOSSES
----------------
LOSS EVENT GROSS NET GROSS NET
- ---------- ----- --- ----- ---
(in thousands)
Hurricane Luis $6,931 $2,698 $7,264 $6,381
Hurricane Fran 3,943 2,993 5,944 4,993
Three risk losses 4,743 1,541 6,152 4,701
The provision for losses and loss expenses and the loss ratio includes the
effect of foreign exchange movements on PXRE's liability for losses and loss
expenses, resulting in a foreign currency exchange gain of $728,000 for the nine
months of 1997 compared to a gain of $140,000 for the corresponding period of
1996 as reported, and $190,000 for the corresponding period of 1996 on a pro
forma basis.
During 1997, PXRE experienced savings of $5,185,000 net for prior-year
losses and loss expenses primarily related to the Eurotunnel fire and Hurricane
Fran where redundant reserves were recognized in the nine months of 1997 of
approximately $1,579,000 and $1,473,000, respectively. In addition, prior-year
losses originally thought to have triggered market loss coverage thresholds have
now proven to be redundant by approximately $1,800,000 resulting in the reversal
of recorded losses in the first quarter of 1997. The loss ratio for the
comparable period in 1996 was unfavorably affected by increases to reserves of
$3,984,000 net for prior-year losses and loss expenses as reported, and
$9,533,000 net for prior-year losses and loss expenses on a pro forma basis
primarily related to Hurricanes Luis and Marilyn.
The underwriting expense ratio was 32.5% for the nine months ended
September 30, 1997 compared with 24.9% for the comparable quarter of 1996 as
reported, and 25.1% for the corresponding period of 1996 on a pro forma basis.
As a result of the above, the combined ratio was 42.1% for the nine months of
1997 compared with 52.8% for the corresponding period of 1996 as reported, and
57.3% for the corresponding period of 1996 on a pro forma basis. The increase in
underwriting expense ratio was substantially due to the foreign exchange losses
discussed below, operations Lloyd's Syndicate, and on a pro forma basis, the
decline in premiums earned.
Other operating expenses increased to $11,848,000 for the nine months
ended September 30, 1997 from $9,150,000 in the comparable period of 1996 as
reported, and $9,938,000 for the corresponding period of 1996 on a pro forma
basis. Included in other operating expenses were foreign currency exchange
losses of $1,173,000 for the nine months of 1997 compared to losses of
22
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
$61,000 for the corresponding period of 1996 as reported, and $170,000 for the
corresponding period of 1996 on a pro forma basis. Operating expenses were
$12,697,000 excluding foreign exchange losses and amortization of negative
goodwill in the nine months of 1997 compared with $11,791,000 in the nine months
of 1996 pro forma results excluding the same items. This increase was primarily
due to the addition of the Lloyd's syndicate operation, some non-recurring fees
amounting to approximately $500,000 incurred in connection with some new
business ventures offset in part, by the expiration of the lease of PXRE's
previous corporate headquarters in New York City.
During the nine months of 1997, interest expense decreased to $2,790,000
as compared to $5,318,000 in the corresponding period in the prior-year as
reported following the repurchase of $43.3 million of PXRE's 9.75% Senior Notes
in open market purchases through the end of the nine months of 1997. In
addition, in the nine months of 1997, PXRE incurred minority interest expense
amounting to $5,950,000 related to the $100 million of newly-issued 8.85% TRUPS
`sm' (as described below under "Liquidity and Capital Resources").
In the nine months of 1997, PXRE recorded an extraordinary loss of
$2,774,000, net of tax, in connection with the repurchase of $43.3 million of
PXRE's 9.75% Senior Notes.
Net investment income for the nine months ended September 30, 1997
increased 104.2% to $24,859,000 from $12,176,000 for the same period of 1996.
The increase in net investment income was caused primarily by $7,394,000 of
investment income from Transnational Reinsurance, $2,202,000 from the investment
of the net proceeds from the issuance of the Capital Trust Pass-through
Securities, $1,130,000 from incremental total return income from higher yielding
limited partnership investments from the planned repositioning of the investment
portfolio and the remainder from increased average assets. PXRE's pre-tax
investment yield was 6.6% for the third quarter of 1997 compared with 6.5% for
the corresponding period in 1996 as reported, both calculated using amortized
cost and investment income before investment expenses. The increase in yield
resulted primarily from the limited partnership investments. Net realized
investment gains for the nine months of 1997 were $816,000 compared to losses of
$220,000 for the corresponding period of 1996.
The net effects of foreign currency exchange fluctuations were losses of
$445,000 in the nine months ended September 30, 1997, gains of $79,000 for the
comparable period of 1996 as reported, and $20,000 for the corresponding period
of 1996 on a pro forma basis.
Net income for the nine months ended September 30, 1996 includes
$3,144,000 which represents PXRE's approximately 22.1% equity share of TREX's
net earnings before the Merger.
23
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the reasons discussed above, net income was $34,570,000 for the nine
months ended September 30, 1997 compared to net income of $24,110,000 for the
corresponding period of 1996 as reported, and $36,972,000 for the corresponding
period of 1996 on a pro forma basis. Fully diluted income per common share
before extraordinary loss was $2.67 for the nine months of 1997 compared to
$2.72 for the prior comparable period as reported and $2.54 on a pro forma
basis. Fully diluted net income per common share was $2.47 for the nine months
ended September 30, 1997 compared to $2.72 for the corresponding period of 1996
as reported, and $2.54 for the corresponding period of 1996 on a pro forma basis
based on average shares outstanding of approximately 14,019,000 in the nine
months of 1997, 8,851,000 in the comparable period of 1996 as reported, and
14,534,500 in the comparable period of 1996 on a pro forma basis.
LIQUIDITY AND CAPITAL RESOURCES
PXRE relies primarily on cash dividends and net tax allocation payments
from its subsidiaries PXRE Reinsurance and Transnational Reinsurance to pay its
operating expenses and income taxes, to meet its debt service obligations and to
pay dividends to PXRE stockholders. The payment of dividends by PXRE Reinsurance
to PXRE and by Transnational Reinsurance to PXRE Reinsurance is subject to
limits imposed under the insurance laws and regulations of Connecticut, the
state of incorporation and domicile of PXRE Reinsurance and Transnational
Reinsurance, as well as certain restrictions arising in connection with PXRE
indebtedness discussed below. Under the Connecticut insurance law, the maximum
amount of dividends or other distributions that PXRE Reinsurance may declare or
pay to PXRE, and that Transnational Reinsurance may declare or pay to PXRE
Reinsurance, within any twelve-month period, without regulatory approval, is
limited to the lesser of (a) earned surplus or (b) the greater of 10% of
policyholders' surplus at December 31 of the preceding year or 100% of net
income for the twelve-month period ending December 31 of the preceding year, all
determined in accordance with SAP. Accordingly, the Connecticut insurance laws
could limit the amount of dividends available for distribution by PXRE
Reinsurance or Transnational Reinsurance without prior regulatory approval,
depending upon a variety of factors outside the control of PXRE, including the
frequency and severity of catastrophe and other loss events and changes in the
reinsurance market, in the insurance regulatory environment and in general
economic conditions. The maximum amount of dividends or distributions that PXRE
Reinsurance may declare and pay in 1997, without regulatory approval, is
$51,177,000. The maximum amount of dividends or distributions that Transnational
Reinsurance may declare and pay in 1997, without regulatory approval, is
$21,874,000. During the nine months of 1997, $5,000,000 was approved and paid by
Transnational Reinsurance to PXRE Reinsurance.
Other sources of funds available to PXRE include proceeds of financings
not contributed to PXRE Reinsurance and not otherwise utilized and net tax
allocation payments by PXRE Reinsurance and Transnational Reinsurance.
24
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
In the event the amount of dividends available, together with other
sources of funds, are not sufficient to permit PXRE to meet its debt service and
other obligations and to pay cash dividends, it would be necessary to obtain the
approval of the Connecticut Insurance Commissioner prior to the payment of
additional dividends by PXRE Reinsurance (or Transnational Reinsurance). If such
approval were not obtained, PXRE would have to adopt one or more alternatives,
such as refinancing or restructuring its indebtedness or seeking additional
equity. There can be no assurance that any of these strategies could be effected
on satisfactory terms, if at all. In the event that PXRE were unable to generate
sufficient cash flow and were otherwise unable to obtain funds necessary to meet
required payments of principal and interest on its indebtedness, PXRE could be
in default under the terms of the agreements governing such indebtedness. In the
event of such default, the holders of such indebtedness could elect to declare
all of the funds borrowed thereunder to be due and payable together with accrued
and unpaid interest.
On January 29, 1997, PXRE Capital Trust I, a Delaware statutory business
trust and a wholly-owned subsidiary of PXRE ("PXRE Capital Trust") issued
$100,000,000 principal amount of its 8.85% TRUPS `sm' due February 1, 2027 in an
institutional private placement. Proceeds from the sale of these securities were
used to purchase PXRE's 8.85% Junior Subordinated Deferrable Interest Debentures
due February 1, 2027 (the "Subordinated Debt Securities"). On April 23, 1997,
PXRE and PXRE Capital Trust completed the registration with the Securities and
Exchange Commission of an exchange offer for these securities and the securities
were exchanged for substantially similar securities (the "Capital Securities").
Distributions on the Capital Securities (and interest on the related
Subordinated Debt Securities) are payable semi-annually, in arrears, on February
1 and August 1 of each year, commencing August 1, 1997. Minority interest
expense, including amortization of debt offering costs, for the third quarter of
1997 in respect of the Capital Securities (and related Subordinated Debt
Securities) amounted to approximately $2,231,000. Interest expense, including
amortization of offering costs for the institutional private placement,
associated with the Capital Securities (and related Subordinated Debt
Securities) will amount to approximately $8,187,000 in 1997. On or after
February 1, 2007, PXRE has the right to redeem the Subordinated Debt Securities,
in whole at any time or in part from time to time, subject to certain
conditions, at call prices of 104.180% at February 1, 2007, declining to
100.418% at February 1, 2016, and 100% thereafter. PXRE has the right, at any
time, subject to certain conditions, to defer payments of interest on the
Subordinated Debt Securities for Extension Periods (as defined in the applicable
indenture), each not exceeding 10 consecutive semi-annual periods; provided that
no Extension Period may extend beyond the maturity date of the Subordinated Debt
Securities. As a consequence of PXRE's extension of the interest payment period
on the Subordinated Debt Securities, distributions on the Capital Securities
would be deferred (though such distributions would continue to accrue interest
at a rate of 8.85% per annum compounded semi-annually). In the event that PXRE
exercises its right to extend an interest payment period, then during any
Extension Period, subject to certain exceptions, (i) PXRE shall not declare or
pay any dividend on, make any distributions with respect to, or
25
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
redeem, purchase, acquire or make a liquidation payment with respect to, any of
its capital stock or rights to acquire such capital stock or make any guarantee
payments (subject to specified exceptions) with respect to the foregoing, and
(ii) PXRE shall not make any payment of interest on, or principal of (or
premium, if any, on), or repay, repurchase or redeem, any debt securities issued
by PXRE which rank pari passu with or junior to the Subordinated Debt
Securities. Upon the termination of any Extension Period and the payment of all
amounts then due, PXRE may commence a new Extension Period, subject to certain
requirements.
PXRE expects to use the net proceeds from the sale of the Capital
Securities for general corporate purposes, which may include, from time to time,
the redemption or the purchase, from time to time, in the open market or in
privately negotiated transactions or otherwise, of outstanding indebtedness and
common stock of PXRE.
In August 1993, PXRE completed a public offering of $75,000,000
principal amount of 9.75% Senior Notes due August 15, 2003. Interest is payable
on the Senior Notes semi-annually. Interest expense, including amortization of
debt offering costs, for the nine months of 1997 in respect of the Senior Notes
amounted to approximately $2,790,000. In addition, PXRE incurred an
extraordinary loss of $2,774,000, net of tax, associated with the premium paid
to acquire $43.3 million of the Senior Notes and the pro rata share of the debt
offering costs during the nine months of 1997. Interest expense, including
amortization of debt offering costs, associated with the Senior Notes will
amount to approximately $3,333,000 for 1997 based on interest expense in the
nine months of 1997, as well as the Senior Notes outstanding at September 30,
1997. On and after August 15, 1998, the Senior Notes may be redeemed at the
option of PXRE, in whole or in part, at redemption prices (expressed as
percentages of the principal amount), plus accrued and unpaid interest to the
date fixed for redemption, of 103.656% at August 15, 1998, declining to 100% at
August 15, 2001 and thereafter. The Indenture governing the Senior Notes
contains covenants which, among other things, limit the ability of PXRE and its
Restricted Subsidiaries (including PXRE Reinsurance): (a) to incur additional
indebtedness (except for the incurrence of Permitted Indebtedness and the
incurrence of other Indebtedness by PXRE in circumstances where no Default or
Event of Default exists and the Consolidated Fixed Charge Coverage Ratio of PXRE
would be greater than 2:1 after giving effect to the incurrence) and, in the
case of the Restricted Subsidiaries, to issue preferred stock; (b) to pay
dividends, repurchase stock and to make certain other Restricted Payments (other
than, among other things, if no Default or Event of Default exists (x)
Restricted Payments after August 31, 1993, not exceeding in the aggregate the
sum of $3,000,000 plus 50% of Consolidated Net Income (or minus 100% of any
loss) from such date (with certain adjustments), plus the amounts of certain
equity proceeds and certain reductions in Investments in Unrestricted
Subsidiaries, provided, that at the time of such Restricted Payment the
Consolidated Fixed Charge Coverage Ratio is greater than 2.0, and (y) in
addition to permitted Restricted Payments referred to in clause (x), the payment
of cash dividends on Qualified Capital Stock after August 31, 1993 of up to an
aggregate of $6,000,000, provided, that such dividends on common stock do not
exceed $0.25 per share in any year); (c) to sell or
26
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
permit the issuance of any stock of PXRE Reinsurance or any other Principal
Insurance Subsidiary; (d) to sell or transfer other assets (other than for at
least Fair Market Value and generally for not less than 75% in cash or Cash
Equivalents); (e) to create liens upon the properties or assets of PXRE or its
Restricted Subsidiaries; or (f) to engage in any business other than the
insurance and reinsurance businesses and other businesses incidental and related
thereto. The Indenture also provides that within 30 days after a Change of
Control (as defined) of PXRE, PXRE will offer to purchase all the Senior Notes
then outstanding at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of such purchase.
The consent of holders of PXRE's Senior Notes to certain amendments to the
Indenture governing the Senior Notes was obtained in connection with the
issuances of the Capital Securities.
PXRE's Board of Directors has authorized the repurchase of Senior Notes
in negotiated or open market transactions. During the nine months of 1997, PXRE
or PXRE Reinsurance purchased $43.3 million principal amount of Senior Notes at
an average price of 107.4%. The principal amount of Senior Notes outstanding at
November 4, 1997 was $21,414,000.
PXRE files federal income tax returns for itself and all of its direct
or indirect domestic subsidiaries that satisfy the stock ownership requirements
for consolidation for federal income tax purposes (collectively, the
"Subsidiaries"). PXRE is party to an Agreement Concerning Filing of Consolidated
Federal Income Tax Returns (the "Tax Allocation Agreement") pursuant to which
each Subsidiary makes tax payments to PXRE in an amount equal to the federal
income tax payment that would have been payable by such Subsidiary for such year
if it had filed a separate income tax return for such year. PXRE is required to
provide for payment of the consolidated federal income tax liability for the
entire group. If the aggregate amount of tax payments made in any tax year by a
Subsidiary is less than (or greater than) the annual tax liability for such
Subsidiary on a stand-alone basis for such year, such Subsidiary will be
required to make up such deficiency (or receive a credit if payments exceed the
separate return tax liability) to PXRE.
The primary sources of liquidity for PXRE Reinsurance are net cash flow
from operating activities (including interest income from investments), the
maturity or sale of investments, borrowings, capital contributions and advances
from PXRE and dividends from Transnational Reinsurance. Funds are applied
primarily to the payment of claims, operating expenses, income taxes and to the
purchase of investments. Premiums are typically received in advance of related
claim payments.
27
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Net cash flow used by operations was $6,970,000 during the third quarter
of 1997 compared with net cash flow provided by operations of $9,159,000 during
the corresponding period of 1996 as reported, due to the effects of timing of
collection of receivables and reinsurance recoverables and payments of losses.
PXRE's management has established general procedures and guidelines for
its investment portfolio and oversees investment management carried out by
Phoenix Duff & Phelps Corporation, a public majority-owned subsidiary of Phoenix
Home Life Mutual Insurance Company. Although these investment guidelines stress
conservation of principal, diversification of risk and liquidity, investments
are subject to market-wide risks and fluctuations, as well as to risk inherent
in particular securities. At September 30, 1997, PXRE's investment portfolio
consisted primarily of fixed maturities and short-term investments. As at
September 30, 1997, 88.3% of PXRE's investment portfolio, at fair value,
consisted of fixed maturities and short-term investments, while the balance was
in equity securities and other invested assets primarily in the form of
investments in various mutual funds and limited partnerships. The investment
policies and all investments of PXRE are approved by its Board of Directors.
Of PXRE's fixed maturities portfolio at September 30, 1997, 88.1% of the
fair value was in obligations rated "A1" or "A" or better by Moody's Investors
Service Inc. or Standard & Poor's, respectively. Mortgage and asset-backed
securities accounted for 30.8% of fixed maturities based on fair value at
September 30, 1997. PXRE has no investments in real estate or commercial
mortgage loans. The average market yield to maturity of PXRE's fixed maturities
portfolio at September 30, 1997 and 1996, as reported, was 6.1% and 6.0%,
respectively, and 6.0% on a pro forma basis. During the first quarter of 1997,
PXRE repositioned a portion of its portfolio out of Treasury, GNMA and
short-term investments into new sectors including asset and corporate
mortgage-backed securities, emerging markets securities, tax-free municipals and
investment grade Yankee bonds. During the second and third quarter of 1997, PXRE
further repositioned the portfolio into a number of limited partnership
investments and to a lesser extent equity investments.
Fixed maturity investments are reported at fair value, with the net
unrealized gain or loss, net of tax, reported as a separate component of
stockholders' equity. PXRE recorded directly to equity a $4,080,000 after-tax
unrealized gain in the value of its investment portfolio ($0.30 book value per
share) during the nine months ended September 30, 1997 including $2,668,000
($0.19 book value per share) during the three months ended September 30, 1997,
reflecting principally a decrease in interest rates during the period.
Short-term investments are carried at amortized cost, which approximates fair
value. PXRE's short-term investments, principally high-grade commercial paper
and U.S. Treasury bills, were $51,868,000 at September 30, 1997 compared to
$59,792,000 at December 31, 1996. The decrease at September 30, 1997 was
principally due to the redeployment of cash flow into new sectors.
28
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Dividends incurred in the nine months ended September 30, 1997 were
$8,765,000 compared to $4,734,000 in the corresponding period of 1996, as a
result of the increased quarterly dividend from $0.18 to $0.21 in the fourth
quarter of 1996, as well as the increased number of outstanding shares following
the Merger with TREX. The expected annual dividend based on shares outstanding
at September 30, 1997 will be approximately $13,757,538 reflecting a dividend
increase to $0.25 per quarter commencing in the fourth quarter of 1997.
Book value per common share was $27.74 at September 30, 1997.
As announced in April 1997, PXRE's Board of Directors authorized a new
stock repurchase program and 1.7 million of the authorization remains. There
were no repurchases of common stock in the third quarter of 1997.
PXRE may be subject to gains and losses resulting from currency
fluctuations because substantially all of its investments are denominated in
U.S. dollars, while some of its net liability exposure is in currencies other
than U.S. dollars. PXRE holds, and expects to continue to hold, currency
positions and has made, and expects to continue to make, investments denominated
in foreign currencies to mitigate, in part, the effects of currency fluctuations
on its results of operations. Currency holdings and investments denominated in
foreign currencies do not constitute a material portion of PXRE's investment
portfolio and, in the opinion of PXRE's management, are sufficiently liquid for
its needs.
In December 1996, PXRE completed an investment in Lloyd's of London,
forming a new syndicate, PG Butler Syndicate 1224, and a presence in London. The
new syndicate has an initial capacity to underwrite 'L'35 million in annual
premiums ($56.7 million at September 30, 1997 exchange rates). In connection
with the capitalization of the syndicate, PXRE has placed on deposit $42,975,000
of U.S. government securities as collateral for Lloyd's. In addition, PXRE
issued a letter of credit for the benefit of Lloyd's in the amount of
$15,355,000, which is collateralized by U.S. government securities in
approximately the same amount. In addition, PXRE has provided a 'L'5,000,000
line of credit to PXRE Managing Agency Limited for liquidity purposes.
29
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The Company recently announced the formation of an Excess and Surplus
Lines operation, using Transnational Reinsurance (which will be renamed
Transnational Insurance Company). Consistent with the PXRE underwriting
philosophy, this new venture, with initial capital of $100 million, will
specialize in short-tail property type risks to be written as insurance,
adhering vigorously to controls of aggregate exposure and recognition of the
effects of the insurance cycle on pricing and coverage terms. The Company is in
the process of obtaining necessary state and regulatory approvals, designing a
reinsurance program and identifying potential sources of business for this
operation. Its operations are expected to commence during the first quarter
1998.
PXRE and Phoenix Home Life Mutual Insurance Company have announced the
formation of a joint venture, Cat Bond Investors L.L.C., with initial committed
capital of $20 million. The joint venture will specialize in investing in
catastrophe bonds with returns that will be determined by insured losses from
catastrophic events. Activity to date has primarily involved start-up
activities.
All amounts classified as reinsurance recoverable at September 30, 1997
are considered by management of PXRE to be collectible in all material respects.
INCOME TAXES
PXRE's effective tax rate for the third quarter of 1997 and 1996 was
32.6% and 31.9% as reported, respectively, which differs from the statutory rate
principally due to negative goodwill amortization, state and local taxes and
tax-exempt income and in 1996 tax on undistributed earnings of unconsolidated
affiliates.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-Q contains various forward-looking statements and
includes assumptions concerning PXRE's operations, future results and prospects.
Statements included herein which are not historical in nature are intended to
be, and are hereby identified as, "forward-looking statements" for purposes of
the safe harbor provided by Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements are based on current expectations
and are subject to risk and uncertainties. PXRE cautions the reader that actual
results or events could differ materially from those set forth or implied by the
forward-looking statements and related assumptions, depending on the outcome of
certain important factors including the following: (i) significant catastrophe
losses, the timing and extent of which are difficult to predict; (ii) changes in
the level of competition in the reinsurance or primary insurance markets that
impact the volume or profitability of the property-casualty reinsurance business
(these changes include, but are not limited to, the intensification of price
30
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
competition, the entry of new competitors, existing competitors exiting the
market and the development of new products by new and existing competitors);
(iii) changes in the demand for reinsurance, including changes in the amount of
ceding companies' retentions; (iv) adverse development on loss reserves related
to business written in prior years; (v) lower than estimated retrocessional
recoveries on unpaid losses, including the effects of losses due to a decline in
the creditworthiness of PXRE's retrocessionaires; (vi) increases in interest
rates, which cause a reduction in the market value of PXRE's interest rate
sensitive investments, including its fixed income investment portfolio; and
(vii) decreases in interest rates causing a reduction of income earned on net
cash flow from operations and the reinvestment of the proceeds from sales, calls
or maturities of existing investments.
In addition to the factors outlined above that are directly related to
PXRE's business, PXRE is also subject to general business risks, including, but
not limited to, adverse state, federal or foreign legislation and regulation,
adverse publicity or news coverage, changes in general economic factors and the
loss of key employees.
31
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K
None
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report or amendment thereto to be signed on its
behalf by the undersigned thereunto duly authorized.
PXRE CORPORATION
November 13, 1997 By:\s\ Sanford M. Kimmel
---------------------
Sanford M. Kimmel
Senior Vice President, Treasurer
and Chief Financial Officer
33
STATEMENT OF DIFFERENCES
------------------------
The checkmark shall be expressed as..................................... 'ch'
The service mark symbol shall be expressed as........................... 'sm'
The British pound sterling sign shall be expressed as................... 'L'