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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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)
(732) 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
requirements for the past 90 days. Yes X No
----- -----
As of May 13, 1998, 13,656,123 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 March 31, 1998
and December 31, 1997 3
Consolidated Statements of Income for the three months
ended March 31, 1998 and 1997 4
Consolidated Statements of Stockholders' Equity for the three
months ended March 31, 1998 and 1997 5
Consolidated Statements of Cash Flow for the three months
ended March 31, 1998 and 1997 6
Notes to Consolidated Interim Financial Statements 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION 23
2
PXRE CONSOLIDATED BALANCE SHEETS
CORPORATION (Unaudited)
- --------------------------------------------------------------------------------
March 31, December 31,
1998 1997
---- ----
Assets Investments:
Fixed maturities, available-for-sale, at fair value (amortized
cost $374,466,000 and $399,145,000, respectively) $380,296,422 $405,949,411
Equity securities, at fair value (cost $23,018,000 and $21,049,000) 23,239,900 19,748,877
Short-term investments 68,984,583 52,904,819
Other invested assets, at fair value (cost $45,875,000 and $42,375,000) 46,228,124 42,857,341
------------ ------------
Total investments 518,749,029 521,460,448
Cash 9,458,385 6,277,876
Accrued investment income 5,682,525 6,257,162
Receivables:
Unreported premiums 13,394,487 14,131,034
Balances due from intermediaries and brokers 20,458,673 5,978,439
Other receivables 23,367,395 20,575,692
Reinsurance recoverable 13,881,647 14,242,278
Ceded unearned premiums 6,432,513 2,531,453
Deferred acquisition costs 3,897,045 2,965,741
Other assets 9,772,415 14,531,423
------------ ------------
Total assets $625,094,114 $608,951,546
============ ============
Liabilities Losses and loss expenses $ 50,400,027 $ 57,189,454
Unearned premiums 31,079,093 18,485,042
Notes payable 21,414,000 21,414,000
Other liabilities 29,016,862 25,661,460
------------ ------------
Total liabilities 131,909,982 122,749,956
------------ ------------
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 99,514,110 99,513,194
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;
14,845,345 and 14,806,347 shares issued, respectively 148,453 148,063
Additional paid-in capital 256,322,483 255,060,792
Net unrealized appreciation on investments, net of
deferred income tax expense of $2,129,000 and $1,940,000 3,524,028 3,173,006
Retained earnings 157,286,353 150,749,451
Treasury stock at cost (1,048,498 and 1,042,752 shares) (21,884,586) (21,660,108)
Restricted stock at cost (82,632 and 64,403 shares) (1,726,709) (782,808)
------------ ------------
Total stockholders' equity 393,670,022 386,688,396
------------ ------------
Total liabilities and stockholders' equity $625,094,114 $608,951,546
============ ============
The accompanying notes are an integral part of these statements.
3
PXRE CONSOLIDATED STATEMENTS OF INCOME
CORPORATION (Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
1998 1997
---- ----
Revenues Net premiums earned $19,713,968 $22,299,903
Net investment income 7,561,058 8,954,051
Net realized investment gains (losses) 1,224,643 (439,208)
Management fees 825,681 915,296
----------- -----------
29,325,350 31,730,042
----------- -----------
Losses and Losses and loss expenses incurred 3,570,797 2,115,805
Expenses Commissions and brokerage 3,992,016 4,696,511
Other operating expenses 4,349,853 3,881,875
Interest expense 544,280 1,562,039
Minority interest in consolidated subsidiary 2,231,884 1,488,502
----------- -----------
14,688,830 13,744,732
----------- -----------
Income before income taxes and extraordinary item 14,636,520 17,985,310
Income tax provision 4,650,000 5,939,450
----------- -----------
Income before extraordinary loss 9,986,520 12,045,860
Extraordinary loss on debt redemption, net of
$879,450 income tax benefit, respectively 0 1,633,200
----------- -----------
Net income $ 9,986,520 $10,412,660
=========== ===========
Per Share Basic:
Income before extraordinary item $ 0.73 $ 0.86
Extraordinary loss 0.00 0.12
----------- -----------
Net income $ 0.73 $ 0.74
=========== ===========
Average shares outstanding 13,744,975 13,926,340
=========== ===========
Diluted:
Income before extraordinary item $ 0.72 $ 0.86
Extraordinary loss 0.00 0.12
----------- -----------
Net income $ 0.72 $ 0.74
=========== ===========
Average shares outstanding 13,862,678 14,008,651
=========== ===========
The accompanying notes are an integral part of these statements.
4
PXRE CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CORPORATION (Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
1998 1997
---- ----
Common Stock: Balance at beginning of period $ 148,063 $ 147,058
Issuance of shares 390 674
------------ ------------
Balance at end of period $ 148,453 $ 147,732
============ ============
Additional Balance at beginning of period $255,060,792 $252,978,182
Paid-in Capital: Issuance of common shares 1,257,989 1,368,350
Other 3,702 177,612
------------ ------------
Balance at end of period $256,322,483 $254,524,144
============ ============
Unrealized
Appreciation Balance at beginning of period $ 3,173,006 $ 568,405
(Depreciation) Change in fair value for the period 351,022 (4,103,377)
on Investments: ------------ ------------
Balance at end of period $ 3,524,028 $ (3,534,972)
============ ============
Retained Balance at beginning of period $150,749,451 $118,705,257
Earnings: Net income 9,986,520 10,412,660
Dividends paid to common stockholders (3,449,618) (2,944,108)
------------ ------------
Balance at end of period $157,286,353 $126,173,809
============ ============
Treasury Stock: Balance at beginning of period $(21,660,108) $(14,090,289)
Repurchase of common stock (193,125) (2,360,209)
Other (31,353) (100,484)
------------ ------------
Balance at end of period $(21,884,586) $(16,550,982)
============ ============
Restricted Stock: Balance at beginning of period $ (782,808) $ (630,835)
Issuance of restricted stock (1,191,240) (741,988)
Amortization of restricted stock 215,986 159,212
Other 31,353 0
------------ ------------
Balance at end of period $ (1,726,709) $ (1,213,611)
============ ============
Total Balance at beginning of period $386,688,396 $357,677,778
Stockholders' Issuance of common shares 1,258,379 1,369,024
Equity: Repurchase of common stock (193,125) (2,360,209)
Restricted stock, net (975,254) (582,776)
Unrealized appreciation (depreciation) on
investments net of deferred income tax 351,022 (4,103,377)
Net income 9,986,520 10,412,660
Dividends (3,449,618) (2,944,108)
Other 3,702 77,128
------------ ------------
Balance at end of period $393,670,022 $359,546,120
============ ============
The accompanying notes are an integral part of these statements.
5
PXRE CONSOLIDATED STATEMENTS OF CASH FLOW
CORPORATION (Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
1998 1997
---- ----
Cash Flow Net income $ 9,986,520 $ 10,412,660
from Operating Adjustments to reconcile net income to net cash
Activities provided by operating activities:
Losses and loss expenses (6,789,427) (8,953,992)
Unearned premiums 8,692,991 13,702,962
Deferred acquisition costs (931,304) (1,075,969)
Receivables (15,831,027) (15,422,025)
Reinsurance balances payable 8,865,258 2,242,043
Reinsurance recoverable 360,631 1,296,136
Income tax recoverable 5,687,878 6,644,394
Other (6,133,781) (3,818,849)
------------ -------------
Net cash provided by operating activities 3,907,739 5,027,360
------------ -------------
Cash Flow Cost of fixed maturity investments (46,714,849) (188,986,480)
from Investing Fixed maturity investments matured/disposed 70,507,154 152,156,266
Activities Payable for securities 0 6,487,760
Cost of equity securities (2,048,242) (1,641,334)
Equity securities disposed 79,990 1,855,232
Net change in short-term investments (15,092,921) (35,800,092)
Net change in other invested assets (3,882,758) 0
------------ -------------
Net cash provided (used) by investing activities 2,848,374 (65,928,648)
------------ -------------
Cash Flow Proceeds from issuance of common stock 67,139 475,068
from Financing Cash dividends paid to common stockholders (3,449,618) (2,944,108)
Activities Issuance of minority interest in consolidated subsidiary 0 99,509,000
Repurchase of debt 0 (26,795,625)
Cost of treasury stock (193,125) (2,360,209)
------------ -------------
Net cash (used) provided by financing activities (3,575,604) 67,884,126
------------ -------------
Net change in cash 3,180,509 6,982,838
Cash, beginning of period 6,277,876 4,938,481
------------ -------------
Cash, end of period $ 9,458,385 $ 11,921,319
============ =============
The accompanying notes are an integral part of these statements.
6
PXRE Notes to Consolidated Financial Statements (Unaudited)
Corporation
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1. Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying 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., PXRE Managing Agency Limited, Transnational
Insurance Company and TREX Trading Corporation. The U.K. operations of PXRE Ltd.
and PXRE Managing Agency Limited are included in the consolidated results on a
one quarter lag period. All material transactions between the consolidated
companies have been eliminated in preparing these consolidated financial
statements.
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amount of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
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 1997 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.
Certain amounts in 1997 were reclassified to be consistent with the 1998
presentation.
Investment at Equity
Investments in affiliated companies which are less than majority owned
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 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.
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.
7
PXRE Notes to Consolidated Financial Statements (Unaudited)
Corporation
- --------------------------------------------------------------------------------
Management Fees
Management fees are recorded as earned under various arrangements
whereby PXRE Reinsurance acts as underwriting manager for other insurers and
reinsurers. These fees are initially based on premium volume, but are adjusted
in some cases 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 during 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. Short term investments
also include limited partnerships which invest primarily in Treasury securities
and provide for fund withdrawals upon 30 days notice; these are reported under
the equity method. 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
discount for fixed maturity investments is computed utilizing the interest
method. The effective yield under the interest method is adjusted for
anticipated prepayments.
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.
Debt Issuance Costs
Debt issuance costs associated with the issuance of Senior Notes and the
issuance of $100 million 8.85% Capital Trust Pass-through Securities `sm' (TRUPS
`sm') are being amortized over the term of the related outstanding debt on a
straight-line method.
8
PXRE Notes to Consolidated Financial Statements (Unaudited)
Corporation
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Excess of Fair Market Value of Net Assets of Business Acquired Over Cost
The excess of fair market value of net assets of Transnational Re
Corporation business acquired over cost is included in other liabilities and 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.
The effect of the translation adjustments for the Lloyd's of London
operations will be recorded as a cumulative translation adjustment in a separate
component of stockholders' equity, net of applicable deferred income taxes; the
translation adjustment at December 31, 1997 was not material.
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
Effective December 31, 1997, PXRE adopted Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("SFAS No. 128") which requires
replacing primary earnings per share with basic earnings per share disclosure
and fully diluted earnings per share with diluted earnings per share disclosure.
Basic earnings per share are determined by dividing net earnings (after
deducting cumulative preferred stock dividends) by the weighted average number
of common shares outstanding. On a diluted basis both net earnings and shares
outstanding are adjusted to reflect the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity, unless the effect of the assumed conversion is
anti-dilutive. SFAS No. 128 requires restatement of all prior period earnings
per share data presented.
Stock-Based Compensation
PXRE accounts for its stock options in accordance with the provisions of
Accounting Principles Board Opinion No. 25 ("APB"). The effect of SFAS No. 123,
Accounting for Stock-Based compensation is not material on net income and
earnings per share.
9
PXRE Management's Discussion and Analysis of
Corporation Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
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 business 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, by accepting additional amounts of coverage on
underwritten risks and retroceding such additional amounts to participants
through various retrocessional arrangements.
At March 31, 1998, 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, initially based on premium volume,
adjusted in some cases through contingent profit commissions related to
underwriting results measured over a period of years. 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.
10
PXRE Management's Discussion and Analysis of
Corporation Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
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's
business is included in the consolidated results on a one quarter lag basis,
commencing in the quarter ended June 30, 1997. See "Liquidity and Capital
Resources".
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 in Transnational Insurance Company ("Transnational
Insurance"), formerly Transnational Reinsurance Company. Its operations
commenced during the first quarter of 1998.
In May 1998 Management announced that it had been reviewing PXRE's
strategic direction, including the potential benefits to be derived by further
diversifying its lines and sources of business, and that Management was actively
proceeding on a number of different fronts to position PXRE for the future.
Naturally, there can be no assurance that Management's efforts in this regard
will prove to be successful.
Certain Risks and Uncertainties
As a reinsurer principally of property 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
11
PXRE Management's Discussion and Analysis of
Corporation Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
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 events 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.
Although PXRE's investment guidelines stress conservation of principal,
diversification of risk and liquidity, PXRE's invested assets include equities,
investments in limited partnerships and emerging market debt, and 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 Insurance 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 Insurance 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 Insurance, 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 Insurance). If such
approval were not obtained, PXRE would have to adopt one
12
PXRE Management's Discussion and Analysis of
Corporation Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
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 national and international reinsurance and insurance companies, many of
which have substantially greater financial, marketing and management resources
than PXRE.
Comparison of First Quarter Results for
1998 with 1997
Three Months Ended March 31,
------------------------------
Increase
1998 1997 (Decrease)
---- ---- ----------
(000's) %
Gross premiums written $40,638 $44,980 (9.7)%
Ceded premiums:
Managed business participants 6,140 6,921 (11.3)
Catastrophe coverage 6,141 2,056 198.7
------- -------
Total reinsurance premiums ceded 12,281 8,977 36.8
------- -------
Net premiums written $28,357 $36,003 (21.2)
======= =======
Gross premiums written for the three months ended March 31, 1998,
decreased 9.7% to $40,638,000 from $44,980,000 for the corresponding period of
1997. Net premiums written for the first quarter of 1998, decreased 21.2% to
$28,357,000 from $36,003,000 for the corresponding period of 1997. Net premiums
earned for the first quarter of 1998, decreased 11.6% to $19,714,000 from
$22,300,000 for the comparable period of 1997. Gross written, net written and
net earned premium for the three months ended March 31, 1998 declined from
prior-year levels reflecting intensely competitive market conditions. PXRE's
decision to buy additional retrocessional coverage also contributed to the
declines in net written and net earned premium. Business written by PXRE's
Lloyd's 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.
13
PXRE Management's Discussion and Analysis of
Corporation Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Premiums ceded by PXRE to its managed business participants decreased
11.3% to $6,140,000 for the first quarter of 1998 compared with $6,921,000 for
the corresponding period of 1997. The decrease in premiums ceded to these
programs was due primarily to reduced amounts of premiums written by PXRE.
Management fee income from all sources for the three months ended March
31, 1998 decreased to $826,000 from $915,000 for the corresponding period of
1997, reflecting a decline of premiums ceded to managed business participants
offset, in part, by an increase in the rate of management fee income in some
cases.
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.
The loss ratio was 18.1% for the first quarter of 1998 compared with
9.5% for the comparable period of 1997. The loss ratio for the first quarter of
1998 reflected a reversal of previously recorded catastrophe losses of $126,000
gross and $64,000 net for 1998 and prior accident years. In comparison, the loss
ratio for the first quarter of 1997 reflected a reversal of previously recorded
catastrophe losses of $881,000 gross and $333,000 net for 1997 and prior
accident years. Additionally, the increase in the loss ratio resulted from the
onset of operations of PXRE's Lloyd's Syndicate. The syndicate participates in
certain non-catastrophic lines of business having a higher average loss ratio
than PXRE's traditional lines of business. PXRE did not experience any new
significant catastrophic losses for the first quarter of 1998 or 1997.
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 $28,000 for the three
months ended March 31, 1998 compared to a gain of $617,000 for the corresponding
period of 1997.
During the first quarter of 1998, PXRE experienced a deficiency of
$744,000 net for prior-year loss and loss expenses primarily related to the
German, Poland and Czech floods. The loss ratio for the comparable period of
1997 was favorably affected by decreases to reserves of $344,000 net for
prior-year losses and loss expenses related principally to Hurricanes Marilyn
and Luis.
14
PXRE Management's Discussion and Analysis of
Corporation Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
The underwriting expense ratio was 38.1% for the first quarter of 1998
compared with 34.4% for the comparable period of 1997. As a result of the above,
the combined ratio was 56.2% for the first quarter of 1998 compared with 43.9%
for the corresponding period of 1997. The increase in underwriting expense ratio
was substantially due to the Lloyd's syndicate operations, Transnational
Insurance start up operations and the decline in premiums earned.
Other operating expenses increased to $4,350,000 for the three months
ended March 31, 1998 from $3,882,000 in the comparable period of 1997. The
primary reason for the increase in operating expenses reflects the onset of
operations of PXRE's Lloyd's Syndicate which added $804,000 to the first quarter
1998 operating expenses. Additionally there was $187,000 of expenses related to
the start up of Transnational's excess and surplus operation. Included in other
operating expenses were foreign currency exchange losses of $74,000 for the
three months ended March 31, 1998 compared to losses of $729,000 for the
corresponding period of 1997.
During the first quarter of 1998, interest expense decreased to $544,000
as compared to $1,562,000 in the corresponding period of 1997 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
first quarter of 1998, PXRE incurred minority interest expense amounting to
$2,232,000 related to the $100 million of 8.85% Capital Trust Pass-through
Securities 'sm' (TRUPS 'sm') (as described below under "Liquidity and Capital
Resources") compared to $1,489,000 in the similar quarter of 1997 following the
issuance on January 29, 1997.
In the first quarter of 1997, PXRE recorded an extraordinary loss of
$1,633,000, net of tax, in connection with the purchase of $24.9 million of
PXRE's 9.75% Senior Notes and the associated write-off of the pro rata share of
the unamortized debt issuance costs. There were no purchases of Senior Notes
during the first quarter of 1998.
Net investment income for the three months ended March 31, 1998
decreased 15.6% to $7,561,000 from $8,954,000 for the comparable period of 1997.
The decrease in net investment income was caused primarily by a decrease in
average assets, which in part was due to the purchase of $43.3 million of PXRE's
Senior Notes during the second and third quarters of 1997 with proceeds from the
$100 million TRUPS securities issued in January, 1997. This was offset in part,
by $866,000 from incremental total return income (including unrealized gains and
losses) from higher yielding limited partnership investments from the planned
repositioning of the investment portfolio. PXRE's pre-tax annualized investment
yield was 6.4% for the first quarter of 1998 compared with 6.8% for the
corresponding period in 1997, both calculated using amortized cost and
investment income before investment expenses. Net realized investment gains for
the first quarter of 1998 were $1,225,000 compared to losses of $439,000 for the
corresponding period of 1997 reflecting the active management of the portfolio.
During the first quarter of 1998, PXRE recorded directly to equity an after-tax
unrealized gain of $351,000 in the value of its investment portfolio ($0.03 book
value per share), reflecting the effect of its equity investments.
15
PXRE Management's Discussion and Analysis of
Corporation Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
The net effects of foreign currency exchange fluctuations were losses of
$102,000 in the first quarter of 1998 and losses of $112,000 for the comparable
quarter of 1997. See "Liquidity and Capital Resources".
For the reasons discussed above, net income was $9,987,000 for the three
months ended March 31, 1998 compared to $10,413,000 for the comparable period of
1997. Diluted income per common share was $0.72 for the first quarter of 1998
compared to $0.74 for the prior comparable period based on average shares
outstanding of approximately 13,863,000 in 1998 and 14,009,000 in the
corresponding period of 1997.
Liquidity and Capital Resources
PXRE relies primarily on cash dividends and net tax allocation payments
from its subsidiaries PXRE Reinsurance and Transnational Insurance 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 Insurance 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 Insurance, 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 Insurance 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
Insurance 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 during
1998, without regulatory approval, is $57,388,000. Transnational Insurance may
not pay any dividends to PXRE Reinsurance in 1998, without regulatory approval.
During the first quarter of 1998, no dividends were paid by PXRE Reinsurance to
PXRE.
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 Insurance.
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
16
PXRE Management's Discussion and Analysis of
Corporation Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
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 Insurance). 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 three months
ended March 31, 1998 in respect of the Capital Securities (and related
Subordinated Debt Securities) amounted to approximately $2,232,000. 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 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
17
PXRE Management's Discussion and Analysis of
Corporation Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
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 has used the net proceeds from the sale of the Capital Securities
for general corporate purposes, including 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 three months ended March 31, 1998 in respect of the
Senior Notes amounted to approximately $544,000. 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 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.
18
PXRE Management's Discussion and Analysis of
Corporation Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
PXRE's Board of Directors has authorized the purchase of Senior Notes in
negotiated or open market transactions. There were no purchases of Senior Notes
during the first quarter of 1998. The principal amount of Senior Notes
outstanding at March 31, 1998 was $21,414,000.
PXRE files federal income tax returns for itself and all of its direct
or indirect 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 domestic 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 domestic 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 to PXRE (or will be
entitled to receive a credit if payments exceed the separate return tax
liability) of the subsidiary.
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 Insurance. Funds are applied
primarily to the payment of claims, operating expenses and, income taxes and to
the purchase of investments. Premiums are typically received in advance of
related claim payments.
Net cash flow provided by operations was $3,908,000 during the first
quarter of 1998 compared with net cash flow provided by operations of $5,027,000
during the corresponding period of 1997, 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 Investment Partners, Limited, (formerly 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 March 31, 1998, PXRE's investment portfolio consisted primarily
of fixed maturities and short-term investments. As at March 31, 1998, 86.6% 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.
19
PXRE Management's Discussion and Analysis of
Corporation Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Of PXRE's fixed maturities portfolio at March 31, 1998, 82.0% of the
fair value was in obligations rated "A1" or "A" or better by Moody's Investors
Service Inc. or Standard & Poor's Corporation, respectively. Mortgage and
asset-backed securities accounted for 24.4% of fixed maturities based on fair
value at March 31, 1998. PXRE has no investments in real estate or commercial
mortgage loans. The average market yield to maturity of PXRE's fixed maturities
portfolio at March 31, 1998 and 1997, was 6.4% and 6.1%, respectively. Starting
in 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, a number of limited partnership
investments and to a lesser extent equity investments.
Fixed maturity and equity 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 stockholders' equity a $351,000
after-tax unrealized gain in the value of its investment portfolio ($0.03 book
value per share) at March 31,1998 reflecting principally the value of its equity
portfolio. Short-term investments are carried at amortized cost, which
approximates fair value. PXRE's short-term investments, principally high-grade
commercial paper, U.S. Treasury bills and investments in limited partnerships
which invest primarily in US Treasury bills, were $68,985,000 at March 31, 1998
compared to $52,905,000 at December 31, 1997. Other invested assets amounting to
$46,228,000 at March 31, 1998, which were comprised of limited partnerships,
were accounted for under the equity method. The amount of equity income included
in short-term investments and other invested assets as of March 31, 1998
amounted to $3,164,000.
Dividends incurred in the first quarter of 1998 were $3,450,000 compared
to $2,944,000 in the corresponding period of 1997, as a result of the increase
in the per share quarterly dividend from $0.21 to $0.25 in the fourth quarter of
1997. The expected annual dividend based on shares outstanding at March 31, 1998
will be approximately $13,797,000.
Book value per common share was $28.53 at March 31, 1998.
As announced in April 1997, PXRE's Board of Directors authorized a new
stock repurchase program and at March 31, 1998 1.7 million of the authorization
remained. There were no repurchases of common stock since the second quarter of
1997 through March 31, 1998. In April, 1998 PXRE repurchased another 141,800
shares of common stock in open market purchases.
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,
20
PXRE Management's Discussion and Analysis of
Corporation Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
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 (35 million in annual
premiums ($58.5 million at March 31, 1998 exchange rates). In connection with
the capitalization of the syndicate, PXRE has placed on deposit $43,175,000 par
value 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 municipal bonds and U.S. government
securities in approximately the same amount. In addition, PXRE has provided a
'L'5,000,000 ($8,357,000 at March 31, 1998 exchange rates) line of credit to
PXRE Managing Agency Limited for liquidity purposes. There has been no
drawdown of these amounts.
In September 1997, PXRE and Phoenix Home Life completed the formation of
a joint venture, Cat Bond Investors L.L.C., with initial committed capital of
$20 million. The joint venture specializes in investing in instruments, the
returns on which are determined, in whole or in part, by the nature, magnitude
and/or effects of certain catastrophic events or meteorological conditions.
In November 1997 PXRE announced the formation of an excess and surplus
lines operation, using Transnational Insurance. This new venture, with initial
capital of approximately $100 million, will specialize in short-tail property
type risks to be written as insurance. Its operations commenced during the first
quarter 1998.
All amounts classified as reinsurance recoverable at March 31, 1998 are
considered by management of PXRE to be collectible in all material respects.
PXRE is in the process of evaluating the impact of the Year 2000 problem
on its operations. PXRE plans to either upgrade or rewrite two existing software
systems during 1998, the cost of which is not expected to be material. PXRE
continues to seek assurances from third parties on whose systems and services it
relies to a significant extent that such third parties' systems are or will be
Year 2000 compliant. There can be no assurance that the systems of such third
parties will be Year 2000 compliant or that any third party's failure to have
Year 2000 compliant systems would not have a material adverse effect on PXRE's
systems or operations.
Income Taxes
PXRE's effective tax rate for the first quarter of 1998 and 1997 was
31.8% and 32.7%, respectively, which differs from the statutory rate principally
due to negative goodwill amortization, state and local taxes and tax-exempt
income.
21
PXRE Management's Discussion and Analysis of
Corporation Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Cautionary Statement Regarding Forward-Looking Statements
This report 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
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; (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; (viii) market fluctuations in equity
securities and securities underlying limited partnership investments, and (ix)
changes in management's evaluation of the impact of the Year 2000 problem on its
operations.
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.
22
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
23
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
May 13, 1998 By: /s/ Sanford M. Kimmel
---------------------------
Sanford M. Kimmel
Senior Vice President, Treasurer
and Chief Financial Officer
24
STATEMENT OF DIFFERENCES
------------------------
The service mark symbol shall be expressed as......................... 'sm'
The British pound sterling sign shall be expressed as................. 'L'