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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 JUNE 30, 1999
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
filing requirements for the past 90 days. Yes [X] No
----- -----
As of August 9, 1999, 11,742,581 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 June 30, 1999
and December 31, 1998 3
Consolidated Statements of Income for the three and six months
ended June 30, 1999 and 1998 4
Consolidated Statements of Stockholders' Equity for the three and six
months ended June 30, 1999 and 1998 5
Consolidated Statements of Cash Flow for the three and six months
ended June 30, 1999 and 1998 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 31
2
PXRE Consolidated Balance Sheets
Corporation (Unaudited)
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June 30, December 31,
1999 1998
---- ----
Assets Investments:
Fixed maturities, available-for-sale, at fair value (amortized
cost $337,153,000 and $308,658,000, respectively) $ 329,382,668 $ 309,477,075
Equity securities, at fair value (cost $29,871,000 and $41,146,000) 27,988,306 40,974,283
Short-term investments 46,517,364 58,861,983
Other invested assets, at equity (cost $69,627,903 and $66,588,000) 73,753,483 65,163,581
-------------- -------------
Total investments 477,641,821 474,476,922
Cash 4,753,130 16,117,473
Accrued investment income 4,925,829 5,330,419
Receivables:
Unreported premiums 24,156,125 18,440,954
Balances due from intermediaries and brokers 17,381,942 14,631,140
Other receivables 25,739,891 21,293,256
Reinsurance recoverable 37,674,169 41,260,657
Ceded unearned premiums 16,247,426 8,231,130
Deferred acquisition costs 8,071,725 4,122,603
Income tax recoverable 11,977,468 19,569,364
Other assets 10,492,313 9,217,218
-------------- -------------
Total assets $ 639,061,839 $ 632,691,136
============== =============
Liabilities Losses and loss expenses $ 101,640,369 $ 102,592,394
Unearned premiums 43,633,503 20,541,326
Debt payable 50,000,000 50,000,000
Other liabilities 35,266,255 25,664,972
-------------- -------------
Total liabilities 230,540,127 198,798,692
-------------- -------------
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 99,518,977 99,516,938
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;
15,162,818 and 14,938,262 shares issued, respectively 151,628 149,382
Additional paid-in capital 263,494,315 259,147,554
Accumulated other comprehensive income:
Net unrealized (depreciation) appreciation on investments, net of
deferred income tax (benefit) expense of $(3,364,000) and $3,400 (6,498,086) 6,253
Retained earnings 135,908,176 139,842,939
Treasury stock at cost (3,425,946 and 2,614,498 shares) (77,662,302) (61,420,025)
Restricted stock at cost (362,890 and 167,832 shares) (6,390,996) (3,350,597)
-------------- -------------
Total stockholders' equity 309,002,735 334,375,506
-------------- -------------
Total liabilities and stockholders' equity $ 639,061,839 $ 632,691,136
============== =============
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 Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Revenues Net premiums earned $ 28,694,483 $ 21,378,386 $ 52,525,433 $ 41,092,354
Net investment income 10,922,120 4,436,722 18,122,712 11,997,781
Net realized investment gains (losses) 1,193,499 427,454 (1,382,512) 1,652,097
Management fees 403,699 678,947 1,300,315 1,504,628
-------------- -------------- ------------- --------------
41,213,801 26,921,509 70,565,948 56,246,860
-------------- -------------- ------------- --------------
Losses and Losses and loss expenses incurred 17,969,860 2,951,664 36,867,922 6,522,461
Expenses Commissions and brokerage 6,138,823 4,288,096 12,545,751 8,280,112
Other operating expenses 7,079,920 3,600,868 13,317,713 7,950,721
Interest expense 842,700 601,890 1,673,985 1,146,171
Minority interest in consolidated subsidiary 2,218,328 2,231,923 4,326,769 4,463,807
-------------- -------------- ------------- --------------
34,249,631 13,674,441 68,732,140 28,363,272
-------------- -------------- ------------- --------------
Income before income taxes 6,964,170 13,247,068 1,833,808 27,883,588
Income tax provision (benefit) 1,918,000 4,058,000 (450,000) 8,708,000
-------------- -------------- ------------- --------------
Net income $ 5,046,170 $ 9,189,068 $ 2,283,808 $ 19,175,588
============== ============== ============= ==============
Comprehensive Other comprehensive income (loss), net of tax:
Income Net unrealized depreciation on investments (3,068,383) (2,963,187) (6,504,339) (2,612,165)
-------------- -------------- ------------- --------------
Comprehensive income (loss) $ 1,977,787 $ 6,225,881 $ (4,220,531) $ 16,563,423
============== ============== ============= ==============
Per Share Basic:
Net income $ 0.44 $ 0.67 $ 0.20 $ 1.40
============== ============== ============= ==============
Average shares outstanding 11,439,018 13,650,563 11,694,417 13,676,914
============== ============== ============= ==============
Diluted:
Net income $ 0.44 $ 0.67 $ 0.19 $ 1.39
============== ============== ============= ==============
Average shares outstanding 11,584,551 13,722,006 11,809,238 13,755,041
============== ============== ============= ==============
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 Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Common Stock: Balance at beginning of period $ 151,314 $ 148,453 $ 149,382 $ 148,063
Issuance of shares 314 892 2,246 1,282
-------------- -------------- ---------------- ----------------
Balance at end of period $ 151,628 $ 149,345 $ 151,628 $ 149,345
============== ============== ================ ================
Additional Balance at beginning of period $262,909,165 $256,322,483 $ 259,147,554 $ 255,060,792
Paid-in Capital: Issuance of common shares 603,096 2,726,588 4,504,173 3,984,577
Other (17,946) 13,120 (157,412) 16,822
-------------- -------------- ---------------- ----------------
Balance at end of period $263,494,315 $259,062,191 $ 263,494,315 $ 259,062,191
============== ============== ================ ================
Unrealized
Appreciation Balance at beginning of period $ (3,429,703) $ 3,524,028 $ 6,253 $ 3,173,006
(Depreciation) Change in fair value for the period (3,068,383) (2,963,187) (6,504,339) (2,612,165)
-------------- -------------- ---------------- ----------------
on Investments: Balance at end of period $ (6,498,086) $ 560,841 $ (6,498,086) $ 560,841
============== ============== ================ ================
Retained Balance at beginning of period $133,917,715 $157,286,353 $ 139,842,939 $ 150,749,451
Earnings: Net income 5,046,170 9,189,068 2,283,808 19,175,588
Dividends paid to common stockholders (3,055,709) (3,419,234) (6,218,571) (6,868,852)
-------------- -------------- ---------------- ----------------
Balance at end of period $135,908,176 $163,056,187 $ 135,908,176 $ 163,056,187
============== ============== ================ ================
Treasury Stock: Balance at beginning of period $(75,326,133) $(21,884,586) $ (61,420,025) $ (21,660,108)
Repurchase of common stock (2,289,569) (4,119,004) (16,195,677) (4,312,129)
Other (46,600) 0 (46,600) (31,353)
-------------- -------------- ---------------- ----------------
Balance at end of period $(77,662,302) $(26,003,590) $ (77,662,302) $ (26,003,590)
============== ============== ================ ================
Restricted Stock: Balance at beginning of period $ (6,579,063) $ (1,726,709) $ (3,350,597) $ (782,808)
Issuance of restricted stock (474,750) (2,646,987) (4,224,844) (3,838,227)
Amortization of restricted stock 616,217 214,225 1,137,845 430,211
Other 46,600 0 46,600 31,353
-------------- -------------- ---------------- ----------------
Balance at end of period $ (6,390,996) $ (4,159,471) $ (6,390,996) $ (4,159,471)
============== ============== ================ ================
Total Balance at beginning of period $311,643,295 $393,670,022 $ 334,375,506 $ 386,688,396
Stockholders' Issuance of common shares 603,410 2,727,480 4,506,419 3,985,859
Equity: Repurchase of common stock (2,289,569) (4,119,004) (16,195,677) (4,312,129)
Restricted stock, net 141,467 (2,432,762) (3,086,999) (3,408,016)
Unrealized (depreciation) appreciation on
investments net of deferred income tax (3,068,383) (2,963,187) (6,504,339) (2,612,165)
Net income 5,046,170 9,189,068 2,283,808 19,175,588
Dividends (3,055,709) (3,419,234) (6,218,571) (6,868,852)
Other (17,945) 13,123 (157,411) 16,825
-------------- -------------- ---------------- ----------------
Balance at end of period $309,002,735 $392,665,506 $ 309,002,735 $ 392,665,506
============== ============== ================ ================
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 Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Cash Flow Net income $ 5,046,170 $ 9,189,068 $ 2,283,808 $ 19,175,588
from Operating Adjustments to reconcile net income to net cash
Activities provided by operating activities:
Losses and loss expenses 10,232,478 (3,990,538) (952,025) (10,779,965)
Unearned premiums 79,076 (6,010,999) 15,075,881 2,681,993
Deferred acquisition costs (743,093) 225,956 (3,949,122) (705,348)
Receivables 20,621,140 3,832,037 (11,271,839) (11,998,990)
Reinsurance balances payable (7,557,935) (1,737,627) (1,315,563) 7,127,631
Reinsurance recoverable (3,990,836) (547,941) 3,586,488 (187,310)
Income tax recoverable 2,581,378 (4,493,338) 10,476,378 1,194,540
Other (20,007,317) 4,268,712 (10,270,735) (1,865,069)
------------- ------------- -------------- --------------
Net cash provided by operating activities 6,261,061 735,330 3,663,271 4,643,069
------------- ------------- -------------- --------------
Cash Flow Cost of fixed maturity investments (39,296,734) (47,398,419) (82,611,245) (94,113,268)
from Investing Fixed maturity investments matured/disposed 15,298,682 62,938,849 52,803,814 133,446,003
Activities Payable for securities (579,098) 4,219,586 10,220,990 4,219,586
Cost of equity securities (1,045,999) (4,163,718) (6,950,398) (6,211,960)
Equity securities disposed 1,603,831 104,838 22,299,690 184,828
Net change in short-term investments 29,803,859 12,981,219 14,445,804 (2,111,703)
Other invested assets purchased (9,979,202) (24,285,774) (14,283,942) (28,168,532)
Other invested assets disposed 222,996 0 11,245,712 0
------------- ------------- -------------- --------------
Net cash (used) provided by investing
activities (3,971,665) 4,396,580 7,170,425 7,244,953
------------- ------------- -------------- --------------
Cash Flow Proceeds from issuance of common stock 63,295 80,496 216,210 147,635
from Financing Cash dividends paid to common stockholders (3,055,710) (3,419,234) (6,218,572) (6,868,852)
Activities Repurchase of debt 0 (1,040,170) 0 (1,040,170)
Cost of treasury stock (2,289,569) (4,119,004) (16,195,677) (4,312,129)
------------- ------------- -------------- --------------
Net cash used by financing activities (5,281,984) (8,497,911) (22,198,039) (12,073,516)
------------- ------------- -------------- --------------
Net change in cash (2,992,588) (3,366,001) (11,364,343) (185,492)
Cash, beginning of period 7,745,718 9,458,385 16,117,473 6,277,876
------------- ------------- -------------- --------------
Cash, end of period $ 4,753,130 $ 6,092,383 $ 4,753,130 $ 6,092,383
============= ============= ============== ==============
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") in the
United States. 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, Cat Fund
L.P., PXRE Capital Trust I, PXRE Ltd., PXRE Managing Agency Limited and PXRE
Direct Underwriting Managers, Inc. The U.K. operations of PXRE Ltd. and PXRE
Managing Agency Limited are included in the consolidated results on a one
quarter lag period beginning in June 1997. In addition, following the merger of
PXRE and Transnational Re Corporation ("TREX") as described further in Note 2,
the consolidated operations include Transnational Insurance Company
("Transnational Insurance"), formerly Transnational Reinsurance Company, and
TREX Trading Corporation since December 11, 1996. During the period from January
1, 1996 to December 11, 1996, PXRE owned approximately 21% of TREX, which in
turn owned 100% of Transnational Insurance, and accounted for this investment
under the equity method. Following the merger, Transnational Insurance became a
wholly-owned subsidiary of PXRE Reinsurance. 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 1998 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 1998 were reclassified to be consistent with the
1999 presentation.
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. Deferred acquisition costs are
7
PXRE Notes to Consolidated Financial Statements (Unaudited)
Corporation
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reviewed to determine that they do not exceed recoverable amounts, after
considering 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. 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 deemed other than 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. PXRE invests in certain weather indexed contracts. Such
investments are carried at estimated fair value and such adjustments to
estimated fair value are included in realized gains and losses.
8
PXRE Notes to Consolidated 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.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including certain instruments
embedded in other contracts. It requires that all derivatives be recognized as
either assets or liabilities in the balance sheet and measured at fair value.
Gains or losses from changes in the derivative values are to be accounted for
based on how the derivative was used and whether it qualifies for hedge
accounting.
The statement is effective for the first quarter of 2001. PXRE is
currently assessing the effect of adopting this statement. It is not expected,
however, that the adoption of this statement will have a material effect on
PXRE's financial position or results of operations.
Debt Issuance Costs
Debt issuance costs associated with the issuance of $100 million 8.85%
Capital Trust Pass-through Securities `sm' (TRUPS `sm') and the issuance of a
note under a $50 million Credit Agreement are being amortized over the term of
the related outstanding debt on a constant yield basis.
Excess of Fair Market Value of Net Assets of Business Acquired Over Cost
The excess of fair market value of net assets of TREX 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 U.K. 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 June 30, 1999 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.
9
PXRE Notes to Consolidated Financial Statements (Unaudited)
Corporation
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Comprehensive Income
During 1998, PXRE adopted SFAS No. 130, Reporting Comprehensive Income,
which establishes standards for reporting and presentation of comprehensive
income and its components. Comprehensive income is comprised of net income and
other comprehensive income. Other comprehensive income consists of the change in
the net unrealized appreciation or depreciation of investments, net of tax, and
the change in foreign currency translation adjustments, net of tax.
Earnings Per Share
Effective December 31, 1997, PXRE adopted SFAS No. 128, Earnings Per
Share 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").
Segments of an Enterprise and Related Information
Effective December 31, 1998, PXRE adopted SFAS No. 131, Disclosure
about Segments of an Enterprise and Related Information. This statement requires
that companies report certain information about their operating segments,
including information about the products and services from which the revenues
are derived, the geographic areas of operation, and information about major
customers. The statement defines operating segments based on internal management
reporting and management's method of allocating resources and assessing
performance.
10
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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GENERAL
PXRE Corporation ("PXRE") is a Delaware holding company, with
national and international underwriting and service operations, which conducts
its business primarily through its principal operating subsidiaries, PXRE
Reinsurance Company ("PXRE Reinsurance"), PXRE Managing Agency Limited ("PXRE
Managing Agency"), PXRE Limited, the sole member of PG Butler Syndicate 1224
("PXRE Lloyd's Syndicate") and Transnational Insurance Company ("Transnational
Insurance"). The term "PXRE" as used herein, refers to one or more of PXRE
Reinsurance, PXRE Managing Agency, PXRE Lloyd's Syndicate and Transnational
Insurance in discussions of these entities' businesses and refers to PXRE
Corporation in all other circumstances.
The property and casualty reinsurance industry has been experiencing an
extended period of soft market conditions. Competition has increased in recent
years as a result of the ability of companies to raise additional capital and
the use of both traditional and non-traditional reinsurance products. The level
of excess capital has also been aided by favorable financial markets and the
lower than normal number of major catastrophe losses in recent years.
Consolidation has been, and continues to be, another dominant trend in the
reinsurance industry. Companies are now larger, offer significantly more
capacity to ceding companies and have greater access to capital through capital
markets or their parent organizations. Further, Lloyd's of London ("Lloyd's")
has rebounded from a period of uncertainty and is now aggressively competitive.
The result is an oversupply of capacity in the industry.
Despite soft market conditions, PXRE has taken advantage of both the
availability of capital in the financial markets and new opportunities in the
business. PXRE has raised additional capital for its reinsurance operations to
increase its capacity to underwrite risks and to position PXRE to take advantage
of market opportunities. Since its formation more than a decade ago, PXRE has
specialized in property reinsurance, including a strong focus on
catastrophe-related products. Although catastrophe-related coverages experienced
substantial improvements in pricing and other terms in 1993 to 1994 following
high levels of catastrophic loss activity experienced by the worldwide insurance
industry, coverage terms have been deteriorating since the beginning of 1995. In
response, PXRE has moved to layers of risk that are less affected by competitive
pressures and has reduced commitments on marginally priced business. Meanwhile,
PXRE has taken a number of initiatives to enable it to write new business, and
position itself for renewed growth during the current soft market. In late 1996,
PXRE completed the organization of PXRE Managing Agency and PXRE Lloyd's
Syndicate, thereby establishing a direct presence in the Lloyd's market and
accessing specialty types of insurance and reinsurance on a worldwide basis.
Underwriting premium volume and loss experience related to the business of PXRE
Lloyd's Syndicate is included in PXRE's consolidated results on a quarter lag
basis, commencing in the quarter ended June 30, 1997. In addition, in the first
quarter of 1998 Transnational Insurance (formerly Transnational Reinsurance
Company), PXRE's newly established excess and surplus lines carrier, commenced
operations, specializing in non-standard and excess property insurance risks. In
mid-1998, PXRE added teams of direct
11
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
writing reinsurance professionals to establish a direct writing reinsurance unit
and international reinsurance executives both to complement PXRE's existing
brokerage-based reinsurance operations and to provide excess of loss short tail
casualty products for casualty markets, primarily commencing with January 1999
renewals. PXRE has not previously had a significant presence in any casualty
markets. These steps are expected over time to reduce the financial statement
volatility associated with PXRE's catastrophe coverages which are expected to
fall below 50% of gross premiums written in 1999. Also in 1998, PXRE further
strengthened its Lloyd's unit with additional professionals and that unit is now
expanding into the provision of services to start-up syndicates and captives at
Lloyd's.
At June 30, 1999, PXRE was a party to retrocessional arrangements with a
number of insurers and reinsurers. 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.
Another arrangement with Select Reinsurance Ltd. ("Select Re"), a Bermuda
reinsurer, formerly Investors Reinsurance Ltd., was renegotiated in 1998, and
involves a five-year (commencing 1998) fee based undertaking to produce and
underwrite business with Select Re. The Board of Directors of Select Re includes
PXRE's Chief Executive Officer.
PXRE also purchases catastrophe retrocessional coverage for its own
protection, depending on market conditions. PXRE has significantly increased its
purchases of such coverage in 1998 and 1999 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.
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.
12
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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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.
In addition, the potential for uncertainty for the 1999 underwriting
year is greater than in past years because of the increased casualty exposures
assumed by PXRE. Unlike property losses that tend to be reported more promptly
and usually are settled within a shorter time period, casualty losses are
frequently slower to be reported and may be determined only through the lengthy,
unpredictable process of litigation. Moreover, given its recent expansion of
casualty business, PXRE does not have an established historical loss pattern
that can be used to establish casualty loss liabilities. PXRE must therefore
rely on the inherently less reliable historical loss patterns reported by ceding
companies and industry loss standards in calculating its liabilities.
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 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.
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PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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PXRE's invested assets consist primarily of fixed maturities and
short-term investments, but also include equities and investments in limited
partnerships, real estate investment trusts ("REITS"), emerging market debt and
other high yield bonds. PXRE's investments are subject to market-wide risks and
fluctuations, as well as to risk inherent in particular securities.
Additionally, 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. PXRE's investment guidelines stress
conservation of principal, diversification of risk and liquidity.
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 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.
14
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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COMPARISON OF SECOND QUARTER RESULTS FOR
1999 WITH 1998
Three Months Ended June 30,
---------------------------
Increase
1999 1998 (Decrease)
---- ---- ----------
(000's) %
Gross premiums written $ 39,245 $ 24,624 59.4
Ceded premiums:
Managed business participants 5,309 3,767 40.9
Catastrophe coverage and surplus reinsurance 5,162 5,489 (6.0)
-------- --------
Total reinsurance premiums ceded 10,471 9,256 13.1
-------- --------
Net premiums written $ 28,774 $ 15,368 87.2
======== ========
Gross premiums written for the three months ended June 30, 1999,
increased 59.4% to $39,245,000 from $24,624,000 for the corresponding period of
1998. Net premiums written for the second quarter of 1999, increased 87.2% to
$28,774,000 from $15,368,000 for the corresponding period of 1998. Net premiums
earned for the second quarter of 1999, increased 34.2% to $28,694,000 from
$21,378,000 for the comparable period of 1998. Gross written, net written and
net earned premium for the three months ended June 30, 1999 increased from
prior-year levels reflecting new international, casualty and direct writing
business written by PXRE's new teams of underwriters and by PXRE Lloyd's
Syndicate. Underwriting results related to PXRE Lloyd's Syndicate are included
in the consolidated results on a one quarter lag basis.
Premiums ceded by PXRE to its managed business participants increased
40.9% to $5,309,000 for the three months ended June 30, 1999 compared with
$3,767,000 for the corresponding period of 1998. The increase in premiums ceded
to these programs was due primarily to the increase in gross premiums written.
Management fee income from all sources for the three months ended June
30, 1999 decreased 40.5% to $404,000 from $679,000 for the corresponding period
of 1998, reflecting a reduced profit commission from a higher combined ratio
offset, in part, by an increase in premiums ceded to managed business
participants.
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
15
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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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 62.6% for the second quarter of 1999 compared with
13.8% for the comparable period of 1998 largely due to the impact of new
business units (approximately $9.9 million of losses and loss expenses in the
second quarter of 1999 relating to the Company's recent diversification
efforts), and continued loss development related to Hurricane Georges ($3.5
million) and miscellaneous losses ($2.3 million). The loss ratio for the second
quarter of 1999 reflected incurred catastrophe losses of $8,977,000 gross and
$4,469,000 net for the 1999 and prior accident years. In comparison, the loss
ratio for the second quarter of 1998 reflected incurred catastrophe losses of
$79,000 gross and favorable development of catastrophe losses of $1,182,000 net
for 1998 and prior accident years. The favorable development of the net
catastrophe losses was primarily due to a recovery in respect of a 1994 aviation
loss.
Significant catastrophe losses affecting the second quarter 1999 loss
ratio are as follows:
Amount of Losses
----------------
Loss Event Gross Net
- ---------- ----- ---
(in thousands)
Hurricane Georges $5,298 $3,463
One Risk Loss 2,735 802
PXRE did not experience any significant catastrophic losses for the
second quarter of 1998.
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 $72,000 for the three
months ended June 30, 1999 compared to a loss of $339,000 for the corresponding
period of 1998.
During the second quarter of 1999, PXRE experienced adverse development
of $4,909,000 net for prior-year loss and loss expenses primarily related to
Hurricane Georges. The loss ratio for the comparable period of 1998 was
favorably affected by decreases to reserves of $2,441,000 net for prior-year
losses and loss expenses related to the triggering of a retrocessional recovery
on a 1994 aviation loss.
The underwriting expense ratio was 44.7% for the second quarter of 1999
compared with 33.7% for the comparable period of 1998. The increase in the
underwriting expense ratio was substantially due to higher commission rates from
new business and overhead associated with the newer operations. The combined
ratio was 107.3% for the second quarter of 1999 compared with 47.5% for the
corresponding period of 1998.
16
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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Other operating expenses increased to $7,080,000 for the three months
ended June 30, 1999 from $3,601,000 in the comparable period of 1998. The
increase was mainly related to salaries and benefits associated with the new
underwriting teams as part of the planned diversification efforts. Included in
other operating expenses were foreign currency exchange losses of $168,000 for
the three months ended June 30, 1999 compared to gains of $26,000 for the
corresponding period of 1998.
During the second quarter of 1999, interest expense increased to
$843,000, as compared to $602,000 in the corresponding period of 1998. Interest
for the three months ended June 30, 1999 reflected the drawdown of $50 million
principal balance at a rate of 6.3%. This is part of PXRE's Credit Agreement
with a syndicate of lenders (as described under "Liquidity and Capital
Resources"). Interest in the three months ended June 30, 1998, reflected $21.4
million of PXRE's 9.75% Senior Debt which was retired in August, 1998. In
addition, in the second quarter of 1999 and 1998, PXRE incurred minority
interest expense amounting to $2,218,000 and $2,231,000 respectively related to
the $100 million of 8.85% Capital Trust Pass-through Securities 'sm' (TRUPS
'sm') (as described below under "Liquidity and Capital Resources").
Net investment income for the three months ended June 30, 1999 increased
146.2% to $10,922,000 from $4,437,000 for the comparable period of 1998. The
increase in net investment income was caused primarily by strong limited
partnership investment returns amounting to $5.4 million (which are carried on
the equity method) offset in part by a decrease in investment income on fixed
income securities due to a reduction in average assets invested in such assets
during the period. PXRE's pre-tax annualized investment yield was 9.6% for the
second quarter of 1999 compared with 3.7% for the corresponding period in 1998,
both calculated using amortized cost and investment income before investment
expenses. Net realized investment gains for the second quarter of 1999 were
$1,193,000 compared to gains of $427,000 for the corresponding period of 1998.
The net effects of foreign currency exchange fluctuations were losses of
$96,000 in the second quarter of 1999 and losses of $313,000 for the comparable
quarter of 1998. See "Liquidity and Capital Resources."
For the reasons discussed above, net income was $5,046,000 for the three
months ended June 30, 1999 compared to $9,189,000 for the comparable period of
1998. Diluted income per common share was $0.44 for the second quarter of 1999
compared to $0.67 for the prior comparable period based on diluted average
shares outstanding of approximately 11,585,000 in 1999 and 13,722,000 in the
corresponding period of 1998.The decrease in shares outstanding is due to a
share repurchase program.
17
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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COMPARISON OF YEAR-TO-DATE RESULTS FOR
1999 WITH 1998
Six Months Ended June 30, 1999
------------------------------
Increase
1999 1998 (Decrease)
---- ---- ---------
(000's) %
Gross premiums written $101,452 $65,262 55.5
Ceded premiums:
Managed business participants 12,684 9,907 28.0
Catastrophe coverage and surplus
reinsurance 21,167 11,630 82.0
------ -------
Total reinsurance premiums ceded 33,851 21,537 57.2
------ -------
Net premiums written $67,601 $43,725 54.6
======= =======
Gross premiums written for the first six months of 1999 increased 55.5%
to $101,452,000 from $65,262,000 for the comparable period of 1998. Net premiums
written for the six months ended June 30, 1999 increased 54.6% to $67,601,000
from $43,725,000 for the corresponding period of 1998. Net premiums earned for
the first six months of 1999 increased 27.8% to $52,525,000 from $41,092,000 in
the corresponding period of 1998. Gross written, net written and net earned
premium for the six months ended June 30,1999 increased from prior-year levels
reflecting new international, casualty and direct writing business written by
PXRE's new teams of underwriters and by PXRE Lloyd's Syndicate. PXRE's decision
to buy additional retrocessional coverage reduced the level of increase in net
written and net earned premium. Underwriting results related to PXRE Lloyd's
Syndicate are included in the consolidated results on a one-quarter lag basis.
Catastrophe written premiums ceded increased in part due to additional
coverage associated with new operations and in part due to opportunistic
purchases of catastrophe protection. PXRE's property business is protected by a
series of retrocessional agreements which currently provide protection
principally against unusual severity of loss and are not designed to protect
PXRE's exposure to smaller more frequent loss occurrences.
Premiums ceded by PXRE to its managed business participants increased
28.0% to $12,684,000 for the first six months of 1999 compared with $9,907,000
for the corresponding period of 1998. The increase in premiums ceded to these
programs was due primarily to increased amounts of premiums written by PXRE.
Management fee income from all sources for the six months ended June 30,
1999 decreased
18
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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- --------------------------------------------------------------------------------
13.6% to $1,300,000 from $1,505,000 for the corresponding period of 1998
reflecting a decrease in profit commission from a higher combined ratio offset,
in part, by an increase of premiums ceded to managed business participants.
The loss ratio was 70.2% for the six months ended June 30, 1999 compared
with 15.9% for the corresponding period of 1998 largely due to the impact of new
business units (approximately $16.3 million) and continued loss development
related to Hurricanes Georges ($9.3 million) and Mitch ($1.3 million) and other
1998 events ($3.3 million). The loss ratio for the first half of 1999 reflected
incurred catastrophe losses of $23,786,000 gross and $13,428,000 net for the
1999 and prior accident years. The loss ratio for the first six months of 1998
reflected a reversal of previously recorded catastrophe losses of $81,000 gross
and $1,247,000 net for 1998 and prior accident years. The reversal of the net
catastrophe losses was primarily due to the retrocessional recovery on the 1994
aviation loss.
Significant catastrophe losses affecting the six months ended June 30, 1999 loss
ratio are as follows:
Amount of Losses
----------------
Loss Event Gross Net
- ---------- ----- ---
(in thousands)
Hurricane Georges $13,834 $9,319
One Risk Loss 4,880 2,044
Hurricane Mitch 2,529 1,329
There were no significant catastrophe losses which occurred in the first
half of 1998.
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 $531,000 for the
first six months of 1999 compared to a loss of $366,000 for the corresponding
period of 1998.
During 1999, PXRE experienced adverse development of $14,105,000 net for
prior-year loss and loss expenses primarily related to Hurricane Georges and
Mitch. The loss ratio for the comparable period of 1998 experienced savings of
$1,697,000 net for prior-year loss and loss expenses primarily related to the
triggering of a recovery on the 1994 aviation loss discussed earlier offset in
part by adverse development in the first quarter of 1998 due to the German,
Poland and Czech floods.
The underwriting expense ratio was 46.8% for the six months ended June
30, 1999 compared with 35.8% for the comparable quarter of 1998. The expense
ratio reflects higher commissions from new business as well as an increase in
salary and benefits incurred in building the diversified business. The
commission and brokerage ratio was 21.4% in the first half of 1999, compared
with 16.5% in the prior year period. The operating expense ratio was 25.4% in
the first half of 1999, compared to 19.3% in the year earlier period. The
19
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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combined ratio was 117.0% for the first six months of 1999 compared with 51.7%
for the corresponding period of 1998.
Other operating expenses increased to $13,318,000 for the six months
ended June 30, 1999 from $7,951,000 in the comparable period of 1998. The
increase was primarily related to salaries and benefits associated with PXRE's
new underwriting teams as part of the planned diversification efforts. Included
in other operating expenses were foreign currency exchange losses of $632,000
for the first six months of 1999 compared to losses of $48,000 for the
corresponding period of 1998.
During the first six months of 1999, interest expense increased to
$1,674,000 as compared to $1,146,000 in the corresponding period in 1998 . The
increase in interest expenses relates to a drawdown of $50 million principal
balance at a rate of 6.3%. This is part of PXRE's Credit Agreement with a
syndicate of lenders (as described under "Liquidity and Capital Resources").
Interest in the first six months of 1998 reflected $21.4 million of PXRE's 9.75%
Senior Debt which was retired in August, 1998. In addition in the first six
months of 1999, PXRE incurred minority interest expense amounting to $4,327,000
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 $4,464,000 in the similar period of 1998.
Net investment income for the six months ended June 30, 1999 increased
51.1% to $18,123,000 from $11,998,000 for the same period of 1998. The increase
in net investment income was caused primarily by strong limited partnership
investment returns amounting to $7.9 million (which are carried on the equity
method) offset in part by a decrease in investment income on fixed income
securities due to a reduction in average assets invested in such assets during
the period. PXRE's pre-tax annualized investment yield was 8.2% for the six
months ended June 30, 1999 compared with 5.0% for the corresponding period in
1998, both calculated using amortized cost and investment income before
investment expenses. Net realized investment losses for the first six months of
1999 were $1,383,000 compared to gains of $1,652,000 for the corresponding
period of 1998 reflecting losses from trading of weather contracts in the first
quarter of 1999 offset, in part, by net gains from sale of securities.
The net effects of foreign currency exchange fluctuations were losses of
$101,000 in the six months ended June 30, 1999, as compared to losses of
$414,000 for the comparable period of 1998.
For the reasons discussed above, net income was $2,284,000 for the six
months ended June 30, 1999 compared to net income of $19,176,000 for the
corresponding period of 1998. Diluted net income per common share was $0.19 for
the six months ended June 30, 1999 compared to $1.39 for the corresponding
period of 1998 based on diluted average shares outstanding of approximately
11,809,000 in the first six months of 1999 and 13,755,000 in the comparable
period of 1998. The decrease in shares outstanding is due to a share repurchase
program.
20
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
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
1999, without regulatory approval, is $44,722,900. The maximum amount of
dividends or distributions that Transnational Insurance may declare and pay to
PXRE Reinsurance during 1999, without regulatory approval, is $2,901,000. During
the first half of 1999, $16,500,000 was paid by PXRE Reinsurance to PXRE and
authorization was obtained from the Connecticut Insurance Department to pay a
dividend of $10,000,000 by Transnational Insurance to PXRE Reinsurance which was
paid in the first quarter of 1999.
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 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.
21
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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In December 1998 PXRE entered into a Credit Agreement dated as of
December 30, 1998 (the "Credit Agreement") with First Union National Bank
("First Union") as Agent and as a Lender, pursuant to which First Union agreed
to make available to PXRE a $75,000,000 revolving credit facility. On May 18,
1999, pursuant to various Joinder Agreements and Assignment and Acceptance
Agreements, First Union syndicated the revolving credit facility, joining Fleet
National Bank, Credit Lyonnais New York Branch and The First National Bank of
Chicago as additional lenders (collectively with First Union, the "Lenders") As
at June 30, 1999, PXRE had outstanding borrowings under the Credit Agreement of
$50,000,000, the net proceeds of which were contributed to the capital of PXRE
Reinsurance.
The terms of the Credit Agreement have been amended twice pursuant to a
First Amendment and Waiver to Credit Agreement, dated May 18, 1999, and a second
Amendment and Waiver to Credit Agreement, dated June 25, 1999. The First
Amendment increased the applicable margin percentage for LIBOR loans under the
Credit Agreement by 1/8% and changed the governing law from North Carolina to
New York law. The Second Amendment modified various convenants related to the
investments that PXRE and its subsidiaries are permitted to make under the
Credit Agreement.
As amended, loans under the Credit Agreement bear interest at an annual
rate equal to First Union's base rate, as in effect from time to time, for base
rate loans or at a margin (1.00% as of June 30, 1999) over First Union's
Eurodollar rate for periods of 30, 60, 90 or 180 days for LIBOR loans. In
connection with the Credit Agreement, PXRE and First Union entered into an
interest rate swap which, effective December 31,1998, has the intended effect of
converting the initial $50,000,000 borrowings by PXRE into a fixed rate
borrowing at an annual interest of 6.34%. Commitments under the Credit Agreement
terminate on March 31, 2005 and are subject to annual reductions of 13 1/3%
commencing March 31, 2000 and 33 1/3% on March 31, 2005, and, unless due or paid
sooner, the aggregate principal of the loans are due and payable in full on
March 31, 2005.
The Credit Agreement contains covenants which, among other things, limit
the ability of PXRE and its subsidiaries (including PXRE Reinsurance,
Transnational Insurance and PXRE Limited): (a) to incur additional Indebtedness
(other than certain permitted Indebtedness); (b) to create Liens upon their
properties or assets (other than Permitted Liens); (c) to sell, transfer or
otherwise dispose of their assets, business or properties (other than certain
permitted dispositions); (d) to make additional Investments (other than certain
permitted Investments, including Permitted Acquisitions and other Investments in
compliance with, among other things, applicable law and the limitations set
forth in the investment policy of PXRE Reinsurance in effect on December 30,
1998 and not exceeding specified limits); (e) to pay dividends or repurchase
stock if after giving effect thereto a Default or Event of Default exists or the
Fixed Charge Coverage Ratio would be less than 1.5 to 1.0 as defined in the
Credit Agreement; (f) to enter into certain transactions with Affiliates; (g) to
engage in any business other than (1) the businesses engaged in on December 30,
1998 and businesses and activities reasonably related
22
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
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thereto or (2) in the case of any Insurance Subsidiary, the sale of any property
and casualty insurance or reinsurance products; (h) to enter into or remain a
party to certain ceded reinsurance agreements (1) with certain reinsurers that
are neither rated "A-" or better by A.M. Best Company ("A.M. Best") nor have
financial strength ratings of "A-" or better by Standard & Poor's Corporation
("S&P") or Moody's Investors Services Inc. ("Moody's") unless such reinsurers
are Lloyd's syndicates and Lloyd's maintains a rating of "A-" or better by A.M.
Best or S&P or such reinsurers have provided appropriate collateral in respect
of their obligations, or (2) which constitute Surplus Relief Agreements and
which increase Combined Statutory Capital and Surplus by more than 5% as of the
most recent fiscal year end; or (i) to consolidate, merge or otherwise combine
(or agree to do any of the foregoing) unless, among other things, (1) PXRE is
the surviving entity in such merger or consolidation, (2) such merger or
consolidation constitutes a Permitted Acquisition and the conditions and
requirements of the Credit Agreement are complied with and (3) immediately
thereafter no Default or Event of Default exists. The Credit Agreement also
requires PXRE and PXRE Reinsurance where applicable to meet Leverage Ratio,
Fixed Charge Coverage Ratio, Risk-Based Capital Ratio and Combined Statutory
Surplus requirements. As at June 30, 1999, there was no default under the Credit
Agreement.
The Credit Agreement enumerates various Events of Default, including but
not limited to, if: (1) any Person or group becomes the "beneficial owner" of
securities of PXRE representing 20% or more of the combined voting power of the
then outstanding securities of PXRE ordinarily having the right to vote in the
election of directors; or (2) the Board of Directors of PXRE ceases to consist
of a majority of the individuals who constituted the Board as of December 30,
1998 or who subsequently become members after having been nominated, or
otherwise approved in writing, by at least a majority of individuals who
constituted the Board as of December 30, 1998 (or their approved replacements).
A copy of the Credit Agreement is filed as Exhibit 4.8 to PXRE's 1998 10-K and
is incorporated herein by reference. Copies of the Joinder Agreements, dated May
18, 1999, Assignment and Acceptance Agreements, dated May 18, 1999, the First
Amendment and Waiver to Credit Agreement, dated May 18, 1999, and the Second
Amendment and Waiver to Credit Agreement, dated June 25, 1999, are filed as
Exhibit 4.9 hereto and are incorporated herein by reference.
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
23
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
offering costs, for the six months ended June 30, 1999, in respect of the
Capital Securities (and related Subordinated Debt Securities) amounted to
approximately $4,327,000. 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 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 and the purchase of
outstanding indebtedness and common stock of PXRE.
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's principal operating
subsidiaries 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 or PXRE
24
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
Reinsurance and in the case of PXRE Reinsurance, 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 $6,261,000 during the second
quarter of 1999 compared with net cash flow provided by operations of $735,000
during the corresponding period of 1998, 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, a public majority-owned subsidiary of
Phoenix Home Life Mutual Insurance Company, and by selected other investment
managers. PXRE's invested assets consist primarily of fixed maturities and
short-term investments, but also include equities, investments in limited
partnerships, REITS, emerging market debt and other high yield bonds. PXRE's
investments are subject to market-wide risks and fluctuations, as well as to
risk inherent in particular securities. As at June 30, 1999, 78.7% of PXRE's
investment portfolio, at fair value, consisted of fixed maturities and
short-term investments, while the balance was in equity securities including,
various mutual funds and other invested assets primarily in the form of limited
partnerships. PXRE's investment policies stress conservation of principal,
diversification of risk and liquidity and are approved by its Board of
Directors.
Of PXRE's fixed maturities portfolio at June 30, 1999, 84.1% of the fair
value was in obligations rated "A3" or "A-" or better by Moody's or S&P,
respectively. Mortgage and asset-backed securities accounted for 24.5% of fixed
maturities based on fair value at June 30, 1999. PXRE had no investments in real
estate or commercial mortgage loans; however, PXRE has invested in common and
preferred shares of publicly traded REITS. The average market yield to maturity
of PXRE's fixed maturities portfolio at June 30, 1999 and 1998 was 6.6% in each
period.
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. At June 30, 1999, PXRE had a $6,498,000 after-tax
unrealized loss in the value of its investment portfolio in stockholders' equity
($0.55 book value per share), primarily due to its emerging market investments
and changes in interest rates.
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 investment in a limited partnership which invests
primarily in U.S. Treasury bills, were $46,517,000 at June 30, 1999 compared to
$58,862,000 at December 31, 1998. Other invested assets amounting to $73,753,000
at June 30, 1999, which were comprised of limited partnerships, were accounted
for under the equity method. The amount of equity income included in short-
25
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
term investments and other invested assets as of June 30, 1999 amounted to
$7,634,000.
Dividends incurred in the six months ended June 30, 1999 were
approximately $6,219,000 compared to $6,869,000 in the corresponding period of
1998, as a result of the increase in the per share quarterly dividend from $0.25
to $0.26 commencing in the fourth quarter of 1998, more than offset by the
decline in outstanding shares resulting from stock repurchases. On July 7, 1999,
PXRE announced a proposed reorganization of the Company as a result of which a
new Bermuda-based holding company, PXRE Group Ltd. would become the parent
holding company of the Company. In anticipation of the reorganization, PXRE
announced that it will pay a quarterly dividend of $0.06 per share beginning in
the third quarter of 1999. The expected annual dividend based on shares
outstanding at June 30, 1999 is approximately $2,816,850.
In connection with the reorganization, PXRE will record a one-time
income tax charge of approximately $1.8 million in the third quarter of 1999
related to the cancellation of shares of PXRE Corporation held by its
subsidiary.
Book value per common share was $26.33 at June 30, 1999.
During the first six months of 1999, PXRE acquired 799,700 shares of
common stock under its currently authorized stock repurchase program. Subsequent
to April, 1999 the company has not purchased any additional shares of common
stock. PXRE continues to have authorization to repurchase approximately 500,300
shares but has suspended this program pending the reorganization. PXRE had
approximately 11,736,900 common shares outstanding as of June 30, 1999.
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 connection with the capitalization of PXRE Lloyd's Syndicate, PXRE
has placed on deposit $46,287,000 par value of U.S. government securities and
municipal bonds 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 for approximately $17,835,000. In addition,
PXRE has provided a 'L'5,000,000 ($7,889,000 at June 30, 1999 exchange rates)
line of credit to PXRE Managing Agency for liquidity purposes. There has been no
drawdown of these amounts through June 30, 1999. Additionally, PXRE has made
loans to PXRE Managing Agency, PXRE Ltd. and PXRE Lloyd's Syndicate in the
amount of
26
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
$7,182,000 to provide liquidity for those operations.
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.
All amounts classified as reinsurance recoverable at June 30, 1999 are
considered by management of PXRE to be collectible in all material respects.
MARKET RISK
PXRE reviewed the change in its exposure to market risks since December
31, 1998. The components of PXRE's holdings in derivatives and other financial
instruments have not materially changed. PXRE's risk management strategy and
objectives have not materially changed. PXRE believes that the potential for
loss in each market risk sector described at year-end has not materially
changed.
INCOME TAXES
PXRE recognized a tax provision of $1,918,000 for the three-month period
ending June 30, 1999 compared to tax expense of $4,058,000 in the corresponding
period of 1998. For the six-month period ended June 30, 1999, the company
recognized a tax benefit of $450,000 compared to a tax expense of $8,708,000 for
the comparable period in 1998. The tax benefit reported by PXRE in 1999 is
attributable primarily to the amount of net income, tax-exempt income and
amortization of negative goodwill.
27
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
YEAR 2000 UPDATE
PXRE's Year 2000 Project is proceeding on schedule. The Project is
addressing the potential vulnerability that the Company may have to computer
chips and programs inside or outside the Company that may fail to properly
process dates associated with the coming millennial year change. PXRE believes
that the impact of Year 2000 issues on its internal computer systems will not be
material.
All of the company's internal computer servers operate in Oracle
database and Sun Microsystems' computing environments that have been certified
as Year 2000 compliant. The critical application software packages running on
these database servers were all developed in-house with the exception of the
Company's general ledger/accounts payable system. This latter system was
identified as not being Year 2000 compliant and was replaced with a new
compliant system in December 1998 to attain various business objectives,
including Year 2000 compliance.
All personal computers and related desktop and network equipment and
software have been inventoried and their Year 2000 compliance status reviewed.
Remediation of these non-compliant smaller devices was begun in January 1999 and
by June 30, 1999, was 95% complete. The task of replacing and upgrading the
remaining non-compliant equipment is not expected to be difficult, nor is the
cost expected to be material. PXRE budgeted $100,000 for 1999 for Year 2000
compliance expenditures.
PXRE has been in contact with its other material business partners to
determine their state of readiness with regard to the Year 2000 issue and the
potential impact on PXRE. PXRE has identified the following categories of
business partners as material to PXRE's ability to conduct its operations: banks
and investment advisors, reinsurance intermediaries, major reinsurance clients,
reinsurance providers, telecommunications providers, utilities and office space
providers.
In connection with reinsurance intermediaries and reinsurance clients,
PXRE has the ability to verify their calculations of reinsurance transactions so
that material errors brought on by a failure of their systems are capable of
being detected.
Where PXRE has determined that the relationship with a business partner
is material to its ability to conduct normal operations, PXRE has sent letters
to that partner requesting a statement of its Year 2000 initiative. Where deemed
necessary, PXRE is following up with the business partner to obtain additional
information. Based on these assurances and PXRE's internal reviews of the
information provided, PXRE has not currently identified a material business
partner that will not be compliant. However, there can be no assurance that all
business partners will supply accurate or up-to-date information regarding their
preparedness for the Year 2000, and, in general, there can be no assurance that
all material business partners will be compliant. Such non-compliance could have
a material effect on PXRE's financial position and results of operations.
28
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
PXRE has made the decision to evaluate the potential Year 2000 exposures
emanating from its reinsurance business by conducting an analysis of each
individual customer's risk exposures. Where appropriate, PXRE requires that an
exclusion be added to the reinsurance contract or letter of intent be received.
PXRE began adding exclusions to reinsurance contracts in early 1998.
Additionally, it is PXRE's position, in common with others in the industry that
Year 2000 exposures in and of themselves are not fortuitous losses and thus are
not covered under reinsurance contracts even without specific exclusions. For
these reasons, PXRE believes that its exposures to Year 2000 claims will not be
material. However, as was the case with environmental exposures, changing social
and legal trends may create unintended coverage for exposures by causing courts
to reinterpret reinsurance contracts and related exclusions. It is impossible to
predict what, if any, exposure reinsurance companies may ultimately have for
Year 2000 claims whether coverage for the issue is specifically excluded or
included.
PXRE is reviewing its disaster recovery procedures and testing its
ability to redeploy its computer and staff operations to a remote hot site
location in the event of failure on the part of public utilities to provide
electrical power or communication links following a Year 2000 problem.
Additional formal contingency plans will not be formulated until PXRE has
identified specific areas where there is a substantial risk of Year 2000
problems occurring, and no such other areas have been identified as of this
date.
Readers are cautioned that forward-looking statements contained in this
Year 2000 Update should be read in conjunction with the Company's disclosures
under the heading: "CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS."
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, as well as statements made by or on behalf of PXRE
in press releases, written statements or other documents filed with the
Securities and Exchange Commission, or in its communications and discussions
with investors and analysts in the normal course of business through meetings,
phone calls and conference calls, 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 investors
and analysts 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, but not limited
to, the following: (i) the frequency and severity of catastrophic events; (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
intensity of price competition, the entry of new competitors, existing
competitors exiting the
29
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
CORPORATION FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
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 and changes in the demand for excess and surplus
lines insurance coverages; (iv) the ability of PXRE to execute its
diversification initiatives in markets in which PXRE has not had a significant
presence; (v) adverse development on loss reserves related to business written
in prior years; (vi) lower than estimated retrocessional recoveries on unpaid
losses, including the effects of losses due to a decline in the creditworthiness
of PXRE's retrocessionaires; (vii) 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; (viii) decreases in interest
rates causing a reduction of income earned on new cash flow from operations and
the reinvestment of the proceeds from sales, calls or maturities of existing
investments; (ix) market fluctuations in equity securities and securities
underlying limited partnership investments; (x) changes in the composition of
PXRE's investment portfolio; and (xi) 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.
30
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At PXRE's Annual Meeting of Stockholders held on June 3, 1999, the
holders of Common Stock of PXRE approved the following (in each case, with no
broker non-votes):
(i) The election of three Class I directors to serve until the 2002
Annual Meeting of Stockholders and until their successors have
been elected and have qualified:
Nominee Votes For Votes Withheld
------- --------- --------------
Gerald L. Radke 9,408,508 746,272
Franklin D. Haftl 9,408,508 746,272
Wendy Luscombe 9,408,508 746,272
(ii) The election of one Class III director to serve until the 2001
Annual Meeting of Stockholders and until a successor has been
elected and has qualified:
Nominee Votes For Votes Withheld
------- --------- --------------
F. Sedgwick Browne 9,408,508 746,272
(iii) The election of one class II director to serve until the 2000
Annual Meeting of Stockholders and until a successor has been
elected and has qualified:
Nominee Votes For Votes Withheld
------- --------- --------------
Wilson Wilde 9,379,516 775,264
(iv) The appointment of PricewaterhouseCoopers LLP as PXRE's
independent Accountants for the fiscal year ending December 31,
1999, by the vote of 10,088,677 votes for, 46,626 votes against
and 19,477 abstentions.
(v) The adoption of amendments to the PXRE Corporation Restated
Employee Annual Incentive Bonus Plan, by the vote of 10,052,789
votes for, 89,757 votes against and 17,232 abstentions.
(vi) The adoption of amendments to the PXRE Corporation 1992 Officer
Incentive Plan by a vote of 7,379,997 votes for, 1,568,716 votes
against and 23,568 abstentions.
31
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 4.9:
First Amendment and Waiver to Credit Agreement
Joinder Agreements
Assignment and Acceptance Agreements
Second Amendment and Waiver to Credit Agreement (attached
hereto as Exhibit 4.9)
(b) Exhibit 10.39
Employment Agreement dated April 14, 1999 between PXRE
Reinsurance Company and Jeffrey H. Mayer (attached hereto
as Exhibit 10.39) (m)
(c) Reports on Form 8-K
None
(M) Indicates a management contract or compensatory plan
or arrangement in which the directors and/or executive
officers of PXRE participate.
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
August 12, 1999 By: /s/ James F. Dore
---------------------
James F. Dore
Executive Vice President &
Chief Financial Officer
33
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as................................... 'SS'
The service mark symbol shall be expressed as...............................'sm'
The British pound sterling sign shall be expressed as.......................'L'