PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED AUGUST 9, 2004

5,251,686 Shares

[PXRE LOGO]

PXRE GROUP LTD.

Common Shares

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We are selling 3,724,803 of our common shares and the selling shareholders
are selling 1,526,883 of our common shares. We will not receive any of the
proceeds from the sale of the common shares by the selling shareholders.

Our common shares are listed on the New York Stock Exchange under the symbol
"PXT." The last reported sale price on the New York Stock Exchange on
November 17, 2004 was $24.01 per share.

The underwriters have an option to purchase a maximum of 787,753 additional
common shares to cover overallotments of shares, of which we would sell
657,318 additional common shares and the selling shareholders would sell
130,435 additional common shares.

INVESTING IN OUR COMMON SHARES INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE
S-9 OF THIS PROSPECTUS SUPPLEMENT AND PAGE 5 OF THE ACCOMPANYING PROSPECTUS.

UNDERWRITING PROCEEDS TO THE
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS PXRE SHAREHOLDERS
------------ ------------- ----------- ---------------

Per Share ........................................................ $23.75 $1.1875 $22.5625 $22.5625
Total ............................................................ $124,727,543 $6,236,377 $84,040,868 $34,450,298

Delivery of the common shares will be made on or about November 23, 2004.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus supplement or the prospectus to which it relates is truthful
or complete. Any representation to the contrary is a criminal offense.

CREDIT SUISSE FIRST BOSTON KEEFE BRUYETTE & WOODS

DOWLING & PARTNERS SECURITIES FOX-PITT, KELTON LAZARD

The date of this prospectus supplement is November 17, 2004.

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TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT

PAGE

PROSPECTUS SUPPLEMENT SUMMARY ..............................................S-1
THE OFFERING................................................................S-5
CAUTIONARY STATEMENTS REGARDING
FORWARD-LOOKING STATEMENTS ...............................................S-7
RISK FACTORS ...............................................................S-9
USE OF PROCEEDS ...........................................................S-25
PRICE RANGE OF COMMON SHARES AND
DIVIDEND POLICY .........................................................S-25
CAPITALIZATION ............................................................S-26
SELECTED CONSOLIDATED FINANCIAL DATA ......................................S-27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATION ...............................................................S-31

PAGE

BUSINESS ..................................................................S-48
MANAGEMENT ................................................................S-65
SELLING SHAREHOLDERS AND RELATED
INFORMATION .............................................................S-68
CERTAIN TAX MATTERS .......................................................S-70
UNDERWRITING ..............................................................S-79
NOTICE TO CANADIAN RESIDENTS ..............................................S-81
LEGAL MATTERS..............................................................S-82
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS .................................F-1

PROSPECTUS

PAGE

SUMMARY ......................................................................1
WHERE YOU CAN FIND MORE INFORMATION ..........................................4
RISK FACTORS..................................................................5
CAUTIONARY STATEMENT REGARING FORWARD-
LOOKING STATEMENTS .........................................................20
CONSOLIDATED RATIOS OF EARNINGS TO FIXED
CHARGES AND EARNINGS TO FIXED CHARGES
AND PREFERRED SHARE DIVIDENDS ..............................................21
USE OF PROCEEDS..............................................................22
PXRE GROUP LTD...............................................................22
DESCRIPTION OF DEBT SECURITIES...............................................23
DESCRIPTION OF WARRANTS......................................................35

PAGE

DESCRIPTION OF SHARE CAPITAL.................................................36
DESCRIPTION OF THE DEPOSITARY SHARES.........................................48
FORMS OF SECURITIES..........................................................51
SELLING SHAREHOLDERS.........................................................53
PLAN OF DISTRIBUTION.........................................................55
LEGAL MATTERS................................................................56
EXPERTS......................................................................56
CERTAIN ERISA CONSIDERATIONS.................................................57
BERMUDA MONETARY AUTHORITY...................................................58
UNENFORCEABILITY OF CERTAIN UNITED
STATES JUDGMENTS............................................................59
DIFFERENCE IN CORPORATE LAWS.................................................59

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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS
LEGAL TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE
ACCURATE ON THE DATE OF THIS DOCUMENT.

[This Page Intentionally Left Blank]

PROSPECTUS SUPPLEMENT SUMMARY

The description below is a summary of the prospectus supplement and the
material terms of the offering, and does not contain all of the information
that may be important to you. You should read this entire prospectus
supplement and the accompanying prospectus carefully, including "Risk Factors"
beginning on page S-9 of this prospectus supplement and page 5 in the
accompanying prospectus and the consolidated financial statements and related
notes included or incorporated by reference in this prospectus supplement and
the accompanying prospectus.

PXRE

PXRE Group Ltd. is an insurance holding company organized in Bermuda. We
provide reinsurance products and services to a worldwide marketplace through
our wholly owned subsidiary operations located in Bermuda, Barbados, Europe
and the United States. Our primary business is catastrophe and risk excess
reinsurance, which accounted for approximately 99% and 96% of net premiums
written for the nine months ended September 30, 2004 and the year 2003.

Our catastrophe and risk excess business includes property catastrophe
excess of loss, property catastrophe retrocessional, property risk excess, and
marine excess and aerospace excess reinsurance products. Catastrophe and risk
excess business has been our primary focus since our predecessor company was
formed in 1986. This focus on short-tail, high-severity, low-frequency lines
of business exposes us to short term volatility. We have been able to
successfully underwrite these products over the long term, as evidenced by our
cumulative average catastrophe and risk excess loss ratio of 51.6% for the
period from 1987 to September 30, 2004.

Property catastrophe reinsurance generally covers claims arising from large
catastrophes around the world such as hurricanes, windstorms, hailstorms,
earthquakes, volcanic eruptions, fires, industrial explosions, freezes, riots,
floods and other man-made or natural disasters. In underwriting our property
catastrophe portfolio, we seek to diversify our exposures geographically and
by peril in order to manage the risk assumed and maximize the return on our
portfolio. Substantially all of our property catastrophe reinsurance and
retrocessional products are offered on an excess-of-loss basis with aggregate
limits on our exposure to losses. This means that we do not begin to pay our
clients' claims until their claims exceed a certain contractually specified
amount and our obligation to pay those claims is limited to a contractually
specified aggregate amount. For the nine months ended September 30, 2004,
75.5% of our property catastrophe and risk excess net premiums written
emanated from clients located outside North America, including clients located
in the United Kingdom, Continental Europe, Latin America, the Caribbean,
Australia and Asia.

We provide property catastrophe products to both insurers and reinsurers. As
of September 30, 2004, insurance and reinsurance companies comprise 79% and
21%, respectively, of our total number of clients, based solely on client
count.

The reinsurance of a reinsurer or retrocedent is referred to as
retrocessional reinsurance. Retrocessional business generally carries
substantially higher risk premiums than property catastrophe reinsurance
business. We believe this risk premium is required because retrocessional
coverage is characterized by higher volatility, principally due to the fact
that retrocessional contracts expose a reinsurer to an uncertain level of
correlation with other existing reinsurance contracts. In addition, the
information available to retrocessional underwriters concerning the original
primary risk is often less precise than the information received from primary
insurers directly. Moreover, exposures from retrocessional business can change
within a contract term as the underwriters of a retrocedent alter their book
of business after retrocessional coverage has been bound. There are
substantially fewer competitors offering this type of coverage due to the
risks entailed in underwriting retrocessional business.

S-1

business has allowed us to develop the relationships and market knowledge
necessary to manage the risk associated with a retrocedent's alteration of its
book of business after we have bound coverage.

We also offer our clients property per-risk, marine and aerospace
reinsurance and retrocessional products. Unlike property catastrophe
reinsurance, which protects against the accumulation of a large number of
related losses arising out of one catastrophe, per-risk excess of loss
reinsurance protects our clients against a large loss arising from a single
risk or location. Substantially all of our property per-risk business is also
written on an excess-of-loss basis with contractual aggregate limits on our
exposure to losses. Our aerospace reinsurance business includes both excess of
loss aviation business and pro rata satellite reinsurance business.

The events of September 11, 2001, combined with industry-wide reserve
deficiencies recognized subsequently and poor investment performance, resulted
in considerable increases in pricing in conjunction with improved terms and
conditions for the insurance industry for the underwriting years 2002 through
2004. As a direct result, we experienced significant rate increases and strong
profitability in our core property catastrophe and risk excess segment.
Operating in this favorable environment, we had net income before convertible
preferred share dividends of $64.5 million in 2002 and $96.6 million in 2003.

Primarily as a result of losses from hurricanes Charley, Frances, Ivan and
Jeanne, we incurred net losses before convertible preferred share dividends of
$73.2 million and $9.9 million in the quarter and nine month period ended
September 30, 2004, respectively. During the three and nine month period ended
September 30, 2003, we had net income before convertible preferred share
dividends of $23.7 million and $68.8 million, respectively.

OUR COMPETITIVE STRENGTHS

o Experienced Underwriting Team With Proven Long-Term Track Record at PXRE.
Our underwriters have an average of 22 years of experience in the
reinsurance industry. We believe this cohesive and experienced
underwriting team has shown its ability to generate superior risk
selection and attractive returns. Our underwriting capability is
evidenced by our long-term track record of success in our core business.
Our cumulative average catastrophe and risk excess loss ratio for the
period from 1987 to September 30, 2004 was 51.6%.

o Established Franchise. Our predecessor, PXRE Corporation, was organized
in July 1986 by Phoenix Life Insurance Company as the successor to the
property and casualty reinsurance business carried on since 1982 by a
former subsidiary of Phoenix Life. Since that time, we have consistently
provided property catastrophe reinsurance products to insurers and
reinsurers on a global basis. Our commitment to the sector, claims paying
record, proven catastrophe risk management, responsive underwriting
approach and extensive industry relationships have allowed us to develop
our strong standing and credibility within the reinsurance community and
with clients worldwide.

o Financial Strength. Our reinsurance company subsidiaries, PXRE
Reinsurance Ltd., which we call "PXRE Bermuda," and PXRE Reinsurance
Company, which we call "PXRE Reinsurance," have financial strength
ratings of "A" from A.M. Best Company and from Standard & Poor's Ratings
Services, a division of the McGraw-Hill Companies, Inc. Management
believes that these ratings position us well within the reinsurance
marketplace, and that maintenance of these ratings is important in the
conduct of our business and to preserve our ability to access and to
selectively choose the risks we underwrite. Management believes that
losses incurred in the third quarter of 2004 will not negatively impact
our financial strength ratings.

o Bermuda-Based Operations. Our operations, including our CEO and all of
our underwriters, are based in our main offices in Bermuda. This allows
us to maintain a highly centralized underwriting and risk management
operation. In addition, operating out of Bermuda allows us to benefit
from an established network of reinsurance and insurance brokers and a
supportive regulatory environment.

OUR STRATEGY

Our strategy consists of several key components:

S-2

o Focus on Historically Profitable Short-tail Segments. We intend to
maintain PXRE's focus and emphasis on catastrophe reinsurance and other
short-tail products, including property-per-risk, marine and aerospace
reinsurance and retrocessional products.

o Adjust the Level of Our Underwriting Commitments to the Underwriting
Cycle and Proactively Manage our Capital. We intend to monitor and
proactively adjust the level of our underwriting commitments in response
to changing market conditions, increasing the size of our book of
business in times of attractive pricing and reducing the size of our book
in times of lower pricing in order to maximize the effective and
efficient use of our capital.

o Maintain Strict Management of Risk. We are committed to rigorously
measure and manage our risks in order to maintain our financial strength.
We utilize third-party catastrophe modeling products, as well as our
proprietary Crucible risk management system, to strictly control and
manage the aggregation and correlation of the risks in our reinsurance
business using aggregation limits and real-time portfolio techniques.

o Apply Extensive Technical Analysis to Our Underwriting. We are committed
to continue using a broad array of catastrophe modeling and analytical
systems, both commercial and proprietary, in both the pricing and
selection of reinsurance risks. These various catastrophe modeling
systems help us to establish target pricing for each contract submission
received. We then use our proprietary Crucible risk management system to
measure, in real-time, each proposed transaction's impact on the expected
performance of our portfolio as well as the optimal risk-adjusted return
on capital. Notwithstanding our use of computer modeling and analytical
systems, we maintain a healthy dose of skepticism as we believe that one
of the critical components of successful underwriting is application of
experienced underwriting judgment at each step of the underwriting
process.

RECENT DEVELOPMENTS

o Florida and Caribbean Hurricanes. We incurred losses from hurricanes
Charley, Frances, Ivan and Jeanne, net of reinsurance recoverables and
reinstatement premiums, of $111.0 million pre-tax. For the quarter and
nine month period ended September 30, 2004, the four hurricanes were the
primary reason for the net loss before convertible preferred share
dividends of $73.2 and $9.9 million, respectively. We have received only
a limited number of claims since these events occurred. We have therefore
recorded our best estimate of incurred loss from the hurricanes based
primarily on our extensive modeling, our detailed review of affected
contracts and numerous discussions with our clients. The ultimate impact
of losses from the hurricanes on our results of operations might
therefore differ substantially from our estimated loss.

o Other Catastrophes. Various catastrophes also occurred outside the United
States, most notably the typhoons and earthquake in Japan. Management
does not believe that we have incurred a loss of greater than $5.0 million
from any one of these catastrophes.

o Moderate Rate Increase Anticipated. Although there can be no assurance,
we expect that the four major hurricanes that struck the United States
and other recent international catastrophes will have a favorable impact
on reinsurance pricing. We believe that retrocessional rates will
increase moderately, North America catastrophe pricing will be stable
with potential increases and the recent rate decline on international
catastrophe business will be moderated.

RISKS RELATING TO PXRE

As part of your evaluation of an investment in our common shares, you should
take into account the risks discussed in the section entitled "Risk Factors"
beginning on page S-9 of this prospectus supplement and page 5 of the
accompanying prospectus.

S-3

PRINCIPAL EXECUTIVE OFFICES

Our principal executive offices are located at PXRE House, 110 Pitts Bay
Road, Pembroke HM 08, Bermuda. Our telephone number is (441) 296-5858. You may
also obtain additional information about us from our website, www.pxre.com.
The information on our website is not part of this prospectus supplement or
the accompanying prospectus.

S-4

THE OFFERING

Common shares offered by:

PXRE . . . . . . . . . . . . . . . . . . . 3,724,803 shares

Selling Shareholders . . . . . . . . . . . 1,526,883 shares

Total. . . . . . . . . . . . . . . . . . 5,251,686 shares

Common shares outstanding after the offering. . 19,681,571 shares

Use of proceeds . . . . . . . . . . . . . . . . We estimate that our net
proceeds from our sale of our
common shares in this offering,
after deducting underwriting
discounts and estimated expenses
of the offering, will be
approximately $83.0 million, or
$97.9 million if the
underwriters exercise their
overallotment option in full. We
intend to contribute these net
proceeds to PXRE Bermuda to
support the underwriting of
additional reinsurance business
during the January 1, 2005
renewal period and throughout
the balance of 2005.

We will not receive any of the
proceeds from the sale of common
shares by the selling
shareholders.

Dividend policy . . . . . . . . . . . . . . . . We have paid a cash dividend on
our common shares at a quarterly
rate of $0.06 per share since
the third quarter of 1999.
Although we have no current
intention of changing our
dividend policy, our board of
directors periodically reviews
our dividend policy and may
change it in the future in
accordance with our capital
needs.

We pay a dividend on our
preferred shares quarterly, at a
rate per annum of 8% of the sum
of the stated value on each
share plus any accrued and
unpaid dividends thereon. To
date, these dividends have been
paid in kind. As of and
following April 4, 2005,
dividends declared on the
preferred shares by our Board of
Directors will be payable in
cash.

Ownership limitation. . . . . . . . . . . . . . Our bye-laws provide that,
subject to certain exceptions
and waiver procedures, the
voting rights with respect to
our shares owned by any
shareholder will be limited to a
voting power of 9.9%. We have
waived this requirement with
respect to only one non-U.S.
preferred shareholder.

New York Stock Exchange symbol. . . . . . . . . PXT

Unless we indicate otherwise, all information in this prospectus supplement
excludes:

o 657,318 common shares that may be issued by us and 130,435 common
shares that may be sold by the selling shareholders upon exercise of
the underwriters' overallotment option;

o 12,028,730 common shares plus accrued dividends from September 30, 2004
that may be issued upon conversion at the option of the owners of
16,215 preferred shares outstanding as of November 17, 2004. On an as
converted basis, these outstanding preferred shares represented
approximately 37.9% of all common shares outstanding as of November 17,
2004, as adjusted for the offering, compared to 43.0% prior to the
offering. For a discussion of our preferred shares,

S-5

dividends payable on preferred shares and the related conversion price
adjustment features, see "Description of Share Capital -- Outstanding
Preferred Shares" in the accompanying prospectus;

o 2,029,216 common shares issuable pursuant to outstanding options at a
weighted average exercise price of $19.96 per share as of November 17,
2004; and

o 965,223 additional common shares reserved for future issuance from time
to time under our equity benefit plans.

S-6

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

This prospectus supplement, the accompanying prospectus and the documents we
incorporate by reference contain various forward-looking statements and
include assumptions concerning our operations, future results and prospects.
Statements included in such documents, as well as statements made by us or on
our behalf in press releases, written statements or other documents filed with
the Securities and Exchange Commission, or the "SEC," or in our 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 and Section 27A of the Securities
Act of 1933, as amended. These forward-looking statements, identified by words
such as "intend," "believe," "anticipate," or "expect" or variations of such
words or similar expressions are based on current expectations and are subject
to risks and uncertainties. In light of the risks and uncertainties inherent
in all future projections, these forward-looking statements should not be
considered as a representation by us or any other person that our objectives
or plans will be achieved. We caution 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:

o because of exposure to catastrophes, our financial results may vary
significantly from period to period;

o we may be overexposed to losses in certain geographic areas for certain
types of catastrophe events;

o we operate in a highly competitive environment;

o reinsurance prices may decline, which could affect our profitability;

o underwriting reinsurance includes the application of judgment, the
assessment of probabilities and outcomes, and assumption of correlations,
which are subject to inherent uncertainties;

o reserving for losses includes significant estimates which are also
subject to inherent uncertainties;

o a decline in the credit rating assigned to our claim-paying ability may
impact our potential to write new or renewal business;

o a decline in our ratings may require us to transfer premiums retained by
us into a beneficiary trust or may allow clients to terminate their
contract with us;

o our investment portfolio is subject to market and credit risks which
could result in a material adverse impact on our financial position or
results;

o because we depend on a few reinsurance brokers for a large portion of
revenue, loss of business provided by them could adversely affect us; and
our reliance on reinsurance brokers exposes us to their credit risk;

o we may be adversely affected by foreign currency fluctuations;

o retrocessional reinsurance subjects us to credit risk and may become
unavailable on acceptable terms;

o the impairment of our ability to provide collateral to cedents could
affect our ability to offer reinsurance in certain markets;

o the reinsurance business is historically cyclical, and we may experience
periods with excess underwriting capacity and unfavorable premium rates;
conversely, we may have a shortage of underwriting capacity when premium
rates are strong;

o regulatory constraints may restrict our ability to operate our business;

o contention by the United States Internal Revenue Service that we or our
offshore subsidiaries are subject to U.S. taxation could result in a
material adverse impact on our financial position or results; and

S-7

o changes in tax laws, tax treaties, tax rules and interpretations could
result in a material adverse impact on our financial position or results.

In addition to the factors outlined above that are directly related to our
business, we are 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. The factors listed above should not be construed as
exhaustive.

We undertake no obligation to release publicly the results of any future
revisions we may make to forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

S-8

RISK FACTORS

An investment in our securities involves a number of risks. You should
carefully consider the following information about these risks, together with
the other information contained or incorporated by reference in this
prospectus and prospectus supplement, before investing in our securities. The
risks and uncertainties described below are not the only ones we face.
However, these are the risks our management believes are material. Additional
risks not presently known to us or that we currently deem immaterial may also
impair our business or results of operations. Any of the risks described below
could result in a significant or material adverse effect on our results of
operations or financial condition, and a corresponding decline in the market
price of our securities. You could lose all or part of your investment.

RISKS RELATED TO OUR BUSINESS

BECAUSE OF EXPOSURE TO CATASTROPHES, OUR FINANCIAL RESULTS MAY VARY
SIGNIFICANTLY FROM PERIOD TO PERIOD.

As a reinsurer of property catastrophe-type coverages in the worldwide
marketplace, our 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, hailstorms, earthquakes, volcanic eruptions, fires,
industrial explosions, freezes, riots and floods. For example, the four
Florida hurricanes in the third quarter of 2004 resulted in pre-tax losses of
$111 million, net of reinsurance recoverables and reinstatement premiums, for
that quarter. While we may, depending on market conditions, purchase
catastrophe retrocessional coverage for our own protection, the occurrence of
one or more major catastrophes in any given period could nevertheless have a
material adverse impact on our results of operations and financial condition
and result in substantial liquidation of investments and outflows of cash as
losses are paid.

WE MAY BE OVEREXPOSED TO LOSSES IN CERTAIN GEOGRAPHIC AREAS FOR CERTAIN TYPES
OF CATASTROPHE EVENTS.

As we underwrite risks from a large number of insurers based on information
generally supplied by reinsurance brokers, we may develop a concentration of
exposure to loss in certain geographic areas prone to specific types of
catastrophes. For example, we are significantly exposed to losses arising from
hurricanes in the southeastern United States, earthquakes in California, the
midwest United States and Japan, and to windstorms in northern Europe. We have
developed systems and software tools to monitor and manage the accumulation of
our exposure to such losses and have established guidelines for maximum
tolerable losses from a single event 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.

WE OPERATE IN A HIGHLY COMPETITIVE ENVIRONMENT.

We compete with numerous companies, many of which have substantially greater
financial, marketing and management resources. The level of competition has
increased in the wake of the September 11, 2001 terrorist attacks with the
formation of a number of large and well-capitalized Bermuda reinsurance
companies. In addition, a number of our pre-existing competitors were
successful in raising substantial levels of additional capital. Although we
have increased our capital as well since the September 11th attacks, we remain
smaller than most of our competitors.

In particular, we compete with reinsurers that provide property-based lines
of reinsurance, such as ACE Tempest Reinsurance Ltd., Arch Reinsurance Ltd.,
Aspen Insurance Holdings Limited, AXIS Reinsurance Company, Endurance
Specialty Insurance Ltd., Everest Reinsurance Company, IPC Re Limited, Lloyd's
of London syndicates, Montpelier Reinsurance Ltd., Munich Reinsurance Company,
Partner Reinsurance Company Ltd., Platinum Underwriters Reinsurance, Inc.,
Renaissance Reinsurance Ltd., Swiss Reinsurance Company and XL Re Ltd.
Competition varies depending on the type of business being insured or
reinsured and whether we are in a leading position or acting on a following
basis.

REINSURANCE PRICES MAY DECLINE, WHICH COULD AFFECT OUR PROFITABILITY.

Demand for reinsurance depends on numerous factors, including the frequency
and severity of catastrophic events, levels of capacity, general economic
conditions and underwriting results of primary

S-9

property insurers. The supply of reinsurance is related to prevailing prices,
recent loss experience and levels of surplus capacity. All of these factors
fluctuate and may contribute to price declines generally in the reinsurance
industry. Our recent, and anticipated, growth relates in part to improved
industry pricing. Premium rates or other terms and conditions of trade may
vary in the future. If any of these factors were to cause the demand for
reinsurance to fall or the supply to rise, our profitability could be
adversely affected.

RESERVING FOR LOSSES INCLUDES SIGNIFICANT ESTIMATES, WHICH ARE ALSO SUBJECT TO
INHERENT UNCERTAINTIES.

Our success is dependent upon our ability to assess accurately the risks
associated with the businesses that we insure and reinsure. Claim reserves
represent estimates involving actuarial and statistical projections, at a
given point in time, of our expectations of the ultimate settlement and
administration costs of claims incurred. We utilize actuarial models as well
as historical insurance industry loss development patterns to assist in the
establishment of appropriate claim reserves. In our casualty and finite
business, given our limited experience we do not have established historical
loss development patterns that can be used to establish these loss
liabilities. For these lines of business, we rely on loss development patterns
that have been estimated from industry or client data, which may not
accurately represent the true development pattern for the business we wrote.
For property lines of business, reserves may differ from ultimate settlement
values due to the infrequency of some types of catastrophe losses, the
incompleteness of information in the wake of a major catastrophe and delay in
receiving that information. We are also seeking to commute certain exited
lines reinsurance contracts, which could result in additional losses. Actual
claims and claim expenses paid may deviate, perhaps substantially, from the
reserve estimates reflected in our financial statements.

If our loss reserves are determined to be inadequate, we will be required to
increase loss reserves at the time of such determination with a corresponding
reduction in our net income in the period in which the deficiency is
rectified. It is possible that claims in respect of events that have occurred
could exceed our loss reserves and have a material adverse effect on our
results of operations, in a particular period, or our financial condition in
general. As a compounding factor, although most insurance contracts have
policy limits, the nature of property and casualty insurance and reinsurance
is that losses can exceed policy limits for a variety of reasons and could
significantly exceed the premiums received on the underlying policies, thereby
further adversely affecting our financial condition.

A DECLINE IN THE RATING ASSIGNED TO OUR CLAIMS-PAYING ABILITY MAY IMPACT OUR
POTENTIAL TO WRITE NEW AND RENEWAL BUSINESS.

The property catastrophe reinsurance market is highly sensitive to the
ratings assigned by the rating agencies. If either of Standard & Poor Ratings
Services, a division of the McGraw-Hill Companies, Inc., which we refer to as
"S&P", or A.M. Best Company, an independent insurance industry rating
organization, were to downgrade us, such downgrade would likely have a
material negative impact on our ability to expand our reinsurance portfolio
and renew all of our existing reinsurance agreements, especially if we were to
be downgraded more than one level from the "A" category to the "B" category.
In 1999, we were downgraded from A+ to A, which downgrade was considered by us
to have no material effect on our core short tail property business. Although
impossible to quantify, we believe the downgrade did have some impact on our
ability to expand the direct casualty reinsurance business that we have since
discontinued.

A DECLINE IN OUR RATINGS MAY REQUIRE US TO TRANSFER PREMIUMS RETAINED BY US
INTO A BENEFICIARY TRUST.

Certain of our ceded excess of loss reinsurance contracts require us to
transfer premiums currently retained by us on a funds withheld basis into a
trust for the benefit of the reinsurers if A.M. Best were to downgrade us
below "A-". In addition, certain of our other ceded excess of loss reinsurance
contracts contain provisions that give the reinsurer the right to cancel the
contract and require us to pay a termination fee. The amount of the
termination fee would be dependent upon various factors, including level of
loss activity.

A DECLINE IN OUR RATINGS MAY ALLOW CLIENTS TO TERMINATE THEIR CONTRACTS WITH
US.

S-10

agencies and a majority of our contracts now contain such clauses. Typically
such cancellation clauses are triggered if A.M. Best or S&P were to downgrade
us below "A-". Currently, our claims paying rating is "A" by A.M. Best and
S&P. Whether a client would exercise such rights would depend, among other
things, on the reasons for such a downgrade, the extent of the downgrade, the
prevailing market conditions, the degree of unexpired coverage, and the
pricing and availability of replacement reinsurance coverage. We cannot
predict in advance whether and how many of our clients would actually exercise
such rights or what effect such cancellations would have on our financial
condition or future prospects, but such an effect could potentially be
materially adverse. A downgrade, therefore, could result in a substantial loss
of business if insurers, ceding companies and brokers that place such business
move to other insurers and reinsurers with higher ratings. For example, 54%
(by premium volume) of our reinsurance contracts that incepted at January 1,
2004 contained provisions allowing clients additional rights upon a decline in
our ratings.

OUR INVESTMENT PORTFOLIO IS SUBJECT TO SIGNIFICANT MARKET AND CREDIT RISKS
WHICH COULD RESULT IN AN ADVERSE IMPACT ON OUR FINANCIAL POSITION OR RESULTS.

Our invested assets consist primarily of debt instruments with fixed
maturities, short-term investments, a diversified portfolio of hedge funds
and, to a lesser extent, interests in mezzanine bond and equity limited
partnerships. At September 30, 2004, 87.3% of the Company's investment
portfolio consisted of fixed maturities and short-term investments and 12.7%
consisted of hedge funds and other investments. These investments are subject
to market-wide risks and fluctuations as well as to risks inherent in
particular securities. Although we seek to preserve our capital, we have
invested in a portfolio of hedge funds and other privately held securities.
These investments are designed to provide diversification of risk; however,
such investments entail substantial risks. There can be no assurance that our
investment objectives will be achieved, and results may vary substantially
over time. In addition, although we seek to employ investment strategies that
are not correlated with our reinsurance exposures, losses in our investment
portfolio may occur at the same time as underwriting losses and, therefore,
exacerbate such losses' adverse effect on us. While our primary objective is
capital preservation, all of our portfolios have a degree of risk.

Risks Related to our Fixed Maturity Investments. We are exposed to potential
losses from the risks inherent in our fixed maturity investments. The two most
significant risks inherent in our fixed income portfolio are interest rate
risk and credit risk:

o Interest Rate Risk

Our principal fixed maturity market risk exposure is to changes in U.S.
interest rates. Changes in interest rates may affect the fair value of our
fixed maturity portfolio, borrowings (in the form of trust preferred
securities) and an interest rate swap. Our holdings subject us to exposures in
the treasury, municipal, corporate and various asset-backed sectors. Changes
in interest rates could also cause a potential underperformance in our exited
finite coverages and shortfalls in cash flows necessary to pay fixed rate
amounts due to exited finite contract counterparties.

o Credit Risk

We are also exposed to potential losses from changes in probability of
default and from defaulting counter-parties with respect to our investments. A
majority of our investment portfolio consists of fixed maturities and short-
term investments rated "A2" or "A" or better by Moody's Investors Service,
Inc., or S&P. The average credit rating of the fixed maturity and short-term
investments at September 30, 2004 is AA+. Our investment portfolio also
contains privately held fixed maturities that are not traded on a recognized
exchange. A deterioration in the credit quality of our investments or our
inability to liquidate any of our privately held investments promptly could
have an adverse effect on our financial condition.

Risks Related to our Hedge Fund Investments. We are exposed to potential
losses from the risks inherent in our portfolio of hedge funds. Our investment
policies with respect to our hedge fund investments generally do not restrict
us from participating in particular markets, strategies or investments.
Further, our hedge fund investments may generally be deployed and redeployed
in whatever investment strategies are deemed appropriate under prevailing
economic and market conditions in an attempt to achieve capital appreciation,

S-11

including, if appropriate, a concentration of investments in a relatively
small group of strategies or hedge fund managers.

The three most significant risks inherent in our hedge fund portfolio are
liquidity risk, credit risk and market risk:

o Liquidity Risk

Liquidity risk exists in the hedge fund portfolio in that there are delays
between giving notice to redeem a hedge fund investment and receiving
proceeds. The redemption terms are defined in the offering documents and
generally require notice periods and time scales for settlement. We remain at
risk during the notice period, which typically specifies a month or quarter
end reference point at which to calculate redemption proceeds. The risk also
exists that a hedge fund may be unable to meet its redemption obligations. A
hedge fund may be faced with excessive redemption notices and illiquid
underlying investments.

o Credit Risk

Credit risk exists in the hedge fund portfolio where hedge funds are net
long in a particular security, or group of correlated securities. Where a
hedge fund is net long in a security that defaults, or suffers an adverse
credit event, we are exposed to loss. Our exposure to any individual hedge
fund is limited to the carrying value of the investment, and we invest in a
diversified portfolio of hedge funds that utilize different strategies and
markets, to reduce this risk. However, different hedge funds in the portfolio
may be net long in the same or correlated securities at the same time, which
could have an adverse effect on the value of the portfolio and thus our
financial condition.

o Market Risk

We invest in hedge funds that trade in securities using strategies that are
generally market neutral. The hedge fund investments do not generally benefit
from rising equity or bond markets, and have demonstrated historically low
correlation of returns to equity market indices. However, the hedge funds may
maintain leveraged net long positions, and this can expose us to market risks.

BECAUSE WE DEPEND ON A FEW REINSURANCE BROKERS FOR A LARGE PORTION OF REVENUE,
LOSS OF BUSINESS PROVIDED BY THEM COULD ADVERSELY AFFECT US.

We market our reinsurance products worldwide exclusively through reinsurance
brokers. Four, four and five brokerage firms accounted for approximately 76%,
78% and 84% of our gross premiums written for the nine months ended
September 30, 2004 and the years ended December 31, 2003 and 2002,
respectively. Approximately 26%, 22%, 15% and 13% of gross premiums written in
the nine months ended September 30, 2004 were arranged through Benfield Greig
Ltd., the worldwide branch offices of Guy Carpenter & Company, Inc. (a
subsidiary of Marsh & McLennan Companies, Inc.), Aon Group Ltd. and Willis Re.
Inc., respectively. Loss of all or a substantial portion of the business
provided by these brokers could have a material adverse effect on our
business.

THE IMPACT OF RECENTLY ANNOUNCED INVESTIGATIONS OF BROKER FEE AND PLACEMENT
ARRANGEMENTS COULD ADVERSELY IMPACT OUR ABILITY TO WRITE MORE BUSINESS.

Recent investigations of broker placement and compensation practices
initiated by the Attorney General's office of certain states including New
York, together with recently filed class action lawsuits initiated against
such broker entities and certain reinsurance companies, have challenged the
legality of certain activities conducted by these brokers and companies.
Various brokers with whom we do business are included within these
investigations and lawsuits. The investigations and suits challenge, among
other things, the appropriateness of setting fees paid to brokers based on the
volume of business placed by a broker with a particular insurer or reinsurer;
the payment of contingent fees to brokers by insurers or reinsurers because of
an alleged conflict of interest arising from such fee arrangements; the
nondisclosure by brokers to their clients of contingent fees paid to them by
insurers and reinsurers, bid rigging and tying the receipt of direct insurance
to placing reinsurance through the same broker. Because these investigations
and suits have only recently been commenced, it is not possible to determine
their ultimate impact upon the broker reinsurance

S-12

market and reinsurers, including us. However, because of our reliance on the
broker reinsurance market for future business, any governmental actions or
judicial decisions which had the effect of impairing the broker reinsurance
market could materially impact our ability to underwrite business. In
addition, to the extent that any of the arrangements into which we routinely
enter with our brokers were determined to be unlawful, we could be fined or
otherwise penalized. Further, to the extent that any of the brokers with whom
we do business suffer financial difficulties as a result of the investigations
or proceedings, we could suffer increased credit risk. See "--Our reliance on
reinsurance brokers exposes us to their credit risk" below.

WE HAVE EXITED THE FINITE REINSURANCE BUSINESS, BUT CLAIMS IN RESPECT OF THE
BUSINESS WE WROTE COULD HAVE AN ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS.

Finite risk reinsurance contracts are highly customized and typically
involve complicated structural elements. GAAP governs whether or not a
contract should be accounted for as reinsurance. Contracts that do not meet
these GAAP requirements may not be accounted for as reinsurance and are
required to be accounted for as deposits. As reported recently in the press,
certain finite insurance and reinsurance arrangements are coming under
scrutiny by the New York Attorney General's Office, the Securities and
Exchange Commission and other governmental authorities. According to the
press, investigators have asserted that the contracts in question were
accounted for in an improper or fraudulent manner.

We sold finite reinsurance prior to June 30, 2004, and from time to time,
have purchased finite reinsurance. Any claim challenging the appropriateness
of the accounting treatment of the finite contracts we underwrote or purchased
could result in negative publicity, costs and, in the event of any regulatory
or judicial decision being entered against us, ultimately fines and penalties,
all of which could have a material adverse effect on our business and results
of operations.

OUR RELIANCE ON REINSURANCE BROKERS EXPOSES US TO THEIR CREDIT RISK.

In accordance with industry practice, we frequently pay amounts owed on
claims under our policies to reinsurance brokers, and these brokers, in turn,
pay these amounts over to the insurers that have reinsured a portion of their
liabilities with us (we refer to these insurers as ceding insurers). In some
jurisdictions, if a broker fails to make such a payment, we might remain
liable to the ceding insurer for the deficiency. Conversely, in certain
jurisdictions, when the ceding insurer pays premiums for these policies to
reinsurance brokers for payment over to us, these premiums are considered to
have been paid and the ceding insurer will no longer be liable to us for those
amounts, whether or not we have actually received the premiums. We are aware
of one instance in recent years, involving an insignificant amount in which a
broker did not forward premiums to us. Consequently, in connection with the
settlement of reinsurance balances, we assume a degree of credit risk
associated with brokers around the world.

WE MAY BE ADVERSELY AFFECTED BY FOREIGN CURRENCY FLUCTUATIONS.

Although our functional currency is the U.S. dollar, premium receivables and
loss reserves include business denominated in currencies other than U.S.
dollars. We are exposed to the possibility of significant claims in currencies
other than U.S. dollars. We may, from time to time, experience losses
resulting from fluctuations in the values of these non-U.S. currencies, which
could adversely affect our operating results. While we hold positions
denominated in foreign currencies to mitigate, in part, the effects of
currency fluctuations on our results of operations, we currently do not hedge
our currency exposures before a catastrophic event that may produce a claim.

RETROCESSIONAL REINSURANCE SUBJECTS US TO CREDIT RISK AND MAY BECOME
UNAVAILABLE ON ACCEPTABLE TERMS.

In order to limit the effect of large and multiple losses upon our financial
condition, we buy reinsurance for our own account. This type of insurance is
known as retrocessional reinsurance. From time to time, market conditions have
limited, and in some cases have prevented reinsurers from obtaining, the types
and amounts of reinsurance which they consider adequate for their business
needs. Accordingly, we may not be able to obtain our desired amounts of
retrocessional reinsurance. In addition, even if we are able to obtain such
retrocessional reinsurance, we may not be able to negotiate terms as favorable
to us as in prior years. In

S-13

difficult market conditions, pricing for our retrocessional reinsurance
products may improve, but conversely, obtaining retrocessional reinsurance for
our own account on favorable terms can become more difficult.

A retrocessionaire's insolvency or its inability or unwillingness to make
payments under the terms of a retrocessional reinsurance treaty with us could
have a material adverse effect on us. Therefore, our retrocessions subject us
to credit risks because the ceding of risk to retrocessionaires does not
relieve us of our liability to our clients. In the event that we cede business
to a retrocessionaire, we must still pay on claims of our cedent even if we
are not paid by the retrocessionaire.

OUR INABILITY TO PROVIDE THE NECESSARY COLLATERAL COULD AFFECT OUR ABILITY TO
OFFER REINSURANCE IN CERTAIN MARKETS.

PXRE Bermuda is not licensed or admitted as an insurer in any jurisdiction
other than Bermuda. Because many jurisdictions do not permit insurance
companies to take credit for reinsurance obtained from unlicensed or non-
admitted insurers on their statutory financial statements unless appropriate
security mechanisms are in place, we anticipate that our reinsurance clients
will typically require PXRE Bermuda to post a letter of credit or other
collateral. If we are unable to arrange for security on commercially
reasonable terms, PXRE Bermuda could be limited in its ability to write
business for certain of our clients.

THE INSURANCE AND REINSURANCE BUSINESS IS HISTORICALLY CYCLICAL, AND WE MAY
EXPERIENCE PERIODS WITH EXCESS UNDERWRITING CAPACITY AND UNFAVORABLE PREMIUM
RATES; CONVERSELY, WE MAY HAVE A SHORTAGE OF UNDERWRITING CAPACITY WHEN
PREMIUM RATES ARE STRONG.

Historically, insurers and reinsurers have experienced significant
fluctuations in operating results due to competition, frequency and severity
of catastrophic events, levels of capacity, general economic conditions and
other factors. The supply of insurance and reinsurance is related to
prevailing prices, the level of insured losses and the level of industry
surplus which, in turn, may fluctuate in response to changes in rates of
return on investments being earned in the insurance and reinsurance industry.
As a result, the insurance and reinsurance business historically has been a
cyclical industry characterized by periods of intense price competition due to
excessive underwriting capacity as well as periods when shortages of capacity
permitted favorable premium levels. Our recent, and anticipated, growth
relates in part to improved industry pricing, but the supply of insurance and
reinsurance may increase, either by capital provided by new entrants or by the
commitment of additional capital by existing insurers or reinsurers, which may
cause prices to decrease. Any of these factors could lead to an adverse effect
on our profits. In addition to these considerations, changes in the frequency
and severity of losses suffered by insureds and insurers may affect the cycles
of the insurance and reinsurance business significantly, and we expect to
experience the effects of such cyclicality.

RISKS RELATED TO REGULATION

REGULATORY CONSTRAINTS MAY RESTRICT OUR ABILITY TO OPERATE OUR BUSINESS.

General. Our insurance and reinsurance subsidiaries may not be able to
obtain or maintain necessary licenses, permits, authorizations or
accreditations in locales where we currently engage in business or in new
locales, or may be able to do so only at significant cost. In addition, we may
not be able to comply fully with, or obtain appropriate exemptions from, the
wide variety of laws and regulations applicable to insurance or reinsurance
companies or holding companies. Failure to comply with or to obtain
appropriate authorizations and/or exemptions under any applicable laws could
result in restrictions on our ability to do business or certain activities
that are regulated in one or more of the jurisdictions in which we operate and
could subject us to fines and other sanctions, which could have a material
adverse effect on our business.

PXRE Bermuda. PXRE Bermuda is a registered Class 3 Bermuda insurance and
reinsurance company. Among other matters, Bermuda statutes, regulations and
policies of the Bermuda Monetary Authority, or "BMA", require PXRE Bermuda to
maintain minimum levels of statutory capital, surplus and liquidity, to meet
solvency standards, to obtain prior approval of ownership and transfer of
shares and to submit to certain periodic examinations of its financial
condition. These statutes and regulations may, in effect, restrict PXRE
Bermuda's ability to write insurance and reinsurance policies, to make certain
investments and to distribute funds.

S-14

The offshore insurance and reinsurance regulatory environment has become
subject to increased scrutiny in many jurisdictions, including the United
States and various states within the United States. Compliance with any new
laws or regulations regulating offshore insurers or reinsurers could have a
material adverse effect on our business. In addition, although PXRE Bermuda
does not believe it is or will be in violation of insurance laws or
regulations of any jurisdiction outside Bermuda, inquiries or challenges to
PXRE Bermuda's insurance or reinsurance activities may still be raised in the
future.

PXRE U.S. Subsidiaries. PXRE Corporation ("PXRE Delaware") and PXRE
Reinsurance are subject to regulation under the insurance statutes of various
U.S. states, including Connecticut, the domiciliary state of PXRE Reinsurance.
The regulation and supervision to which PXRE Reinsurance is subject relates
primarily to the standards of solvency that must be met and maintained,
licensing requirements for reinsurers, the nature of and limitations on
investments, deposits of securities for the benefit of a reinsured, methods of
accounting, periodic examinations of the financial condition and affairs of
reinsurers, the form and content of reports of financial condition required to
be filed, reserves for losses and other matters. In general, such regulation
is for the protection of the reinsureds and policyholders, rather than
investors.

In recent years, the U.S. insurance regulatory framework has come under
increased federal scrutiny, and some state legislators have considered or
enacted laws that may alter or increase state regulation of insurance and
reinsurance companies and holding companies. Moreover, the National
Association of Insurance Commissioners ("NAIC"), which is an association of
the insurance commissioners of all 50 states and the District of Columbia, and
state insurance regulators regularly reexamine existing laws and regulations.

Barbados. PXRE Barbados is subject to regulation under Barbados' Insurance
Act, 1996. Under the Barbados Act, PXRE Barbados may only pay a dividend out
of the realized profits of the company and may not pay a dividend unless (a)
after payment of the dividend it is able to pay its liabilities as they become
due, and (b) the realizable value of its assets is greater than the aggregate
value of its liabilities and (c) the stated capital accounts are maintained in
respect of all classes of shares.

PXRE Barbados is also required to maintain assets in an amount that permits
it to meet the prescribed minimum solvency margin for the net premium income
level of its business. In respect of its general insurance business, PXRE
Barbados is required to maintain margins of solvency. PXRE Barbados is not
required at the present time to maintain any additional statutory deposits or
reserves relative to its business.

Changes in the laws and regulations to which our insurance and reinsurance
subsidiaries are subject or the interpretation of these laws and regulations
could have a material adverse effect on our business or results of operations.

IF PXRE BERMUDA BECOMES SUBJECT TO INSURANCE STATUTES AND REGULATIONS IN
JURISDICTIONS OTHER THAN BERMUDA OR THERE IS A CHANGE TO BERMUDA LAW OR
REGULATIONS OR APPLICATION OF BERMUDA LAW OR REGULATIONS, THERE COULD BE A
SIGNIFICANT AND NEGATIVE IMPACT ON OUR BUSINESS.

As a registered Bermuda Class 3 insurer, PXRE Bermuda is subject to
regulation and supervision in Bermuda. Bermuda insurance statutes, regulations
and policies of the BMA require PXRE Bermuda to, among other things:

o maintain a minimum level of capital, surplus and liquidity;

o satisfy solvency standards;

o restrict dividends and distributions;

o obtain prior approval of ownership and transfer of shares;

o maintain a principal office and appoint and maintain a principal
representative in Bermuda; and

o provide for the performance of certain periodic examinations of PXRE
Bermuda and its financial condition.

These statutes and regulations may, in effect, restrict our ability to write
reinsurance policies, to distribute funds and to pursue our investment
strategy.

S-15

We do not presently intend that PXRE Bermuda will be admitted to do business
in any jurisdiction in the United States, the United Kingdom or elsewhere
(other than Bermuda). However, we cannot assure you that insurance regulators
in the United States, the United Kingdom or elsewhere will not review the
activities of PXRE Bermuda, or related companies or its agents and claim that
PXRE Bermuda is subject to such jurisdiction's licensing requirements. If any
such claim is successful and PXRE Bermuda must obtain a license, we may be
subject to taxation in such jurisdiction. In addition, PXRE Bermuda is subject
to indirect regulatory requirements imposed by jurisdictions that may limit
its ability to provide insurance or reinsurance. For example, PXRE Bermuda's
ability to write insurance or reinsurance may be subject, in certain cases, to
arrangements satisfactory to applicable regulatory bodies. Proposed
legislation and regulations may have the effect of imposing additional
requirements upon, or restricting the market for, alien insurers or reinsurers
with whom domestic companies place business.

Generally, Bermuda insurance statues and regulations applicable to PXRE
Bermuda are less restrictive than those that would be applicable if it were
governed by the laws of any state in the United States. In the past, there
have been congressional and other initiatives in the United States regarding
proposals to supervise and regulate insurers domiciled outside the United
States. If in the future PXRE Bermuda becomes subject to any insurance laws of
the United States or any state thereof or of any other jurisdiction, we cannot
assure you that PXRE Bermuda would be in compliance with those laws or that
coming into compliance with those laws would not have a significant and
negative effect on PXRE Bermuda's business.

The process of obtaining licenses is very time consuming and costly, and we
may not be able to become licensed in a jurisdiction other than Bermuda,
should we choose to do so. The modification of the conduct of our business
resulting from our becoming licensed in certain jurisdictions could
significantly and negatively affect our business. In addition our inability to
comply with insurance statutes and regulations could significantly and
adversely affect our business by limiting our ability to conduct business as
well as subjecting us to penalties and fines.

Because we are incorporated in Bermuda, we are subject to changes of Bermuda
law and regulation that may have an adverse impact on our operations,
including imposition of tax liability or increased regulatory supervision. In
addition, we will be exposed to changes in the political environment in
Bermuda. The Bermuda insurance and reinsurance regulatory framework recently
has become subject to increased scrutiny in many jurisdictions, including in
the United States and in various states within the United States. We cannot
predict the future impact on our operations of changes in the laws and
regulations to which we are or may become subject.

WE MAY BE UNABLE TO OBTAIN EXTENSIONS OF WORK PERMITS FOR OUR EMPLOYEES, WHICH
MAY CAUSE OUR BUSINESS TO BE ADVERSELY AFFECTED.

Under Bermuda law, non-Bermudians (other than spouses of Bermudians) may not
engage in any gainful occupation in Bermuda without the specific permission of
the appropriate government authority. The Bermuda government will issue a work
permit for a specific period of time, which may be extended upon showing that,
after proper public advertisements, no Bermudian (or spouse of a Bermudian) is
available who meets the minimum standards for the advertised position. The
Bermuda government has a policy that limits the duration of work permits to
six years, subject to certain exemptions for key employees. Substantially all
of our key officers, including our Chief Executive Officer, Chief Financial
Officer, and key reinsurance underwriters are working in Bermuda under work
permits that will expire at various times over the next three years. The
Bermuda government could refuse to extend these work permits. If any of our
senior executive officers were not permitted to remain in Bermuda, our
operations could be disrupted and our financial performance could be adversely
affected.

S-16

RISKS RELATED TO THIS OFFERING

OUR STOCK PRICE AND TRADING VOLUME MAY BE SUBJECT TO SIGNIFICANT FLUCTUATIONS.
WE ARE UNCERTAIN AS TO WHETHER A MORE ACTIVE TRADING MARKET IN OUR COMMON
STOCK WILL DEVELOP FOLLOWING ANY OFFERING OF OUR COMMON SHARES. OUR STOCK
PRICE AND TRADING VOLUME MAY FLUCTUATE IN RESPONSE TO A NUMBER OF EVENTS AND
FACTORS, INCLUDING:

o quarterly variations in our operating results;

o changes in the market's expectations about our future operating results;

o changes in financial estimates and recommendations by securities analysts
concerning us or the reinsurance industry generally;

o operating and stock price performance of other companies that investors
may deem comparable;

o news reports relating to our business and trends in our markets;

o changes in the laws and regulations affecting our business;

o acquisitions and financings by us or others in our industry; and

o sales or acquisitions of substantial amounts of our common stock by our
directors and executive officers or principal shareholders, or the
perception that such sales could occur.

In addition, in recent years the stock market has experienced extreme price
and volume fluctuations. This volatility has had a significant effect on the
market prices of securities issued by many companies for reasons unrelated to
their operating performance. These broad market fluctuations may materially
adversely affect our stock price, regardless of our operating results.

WE ARE A HOLDING COMPANY AND IF OUR SUBSIDIARIES DO NOT MAKE DIVIDEND PAYMENTS
TO US, WE MAY NOT BE ABLE TO PAY DIVIDENDS OR OTHER OBLIGATIONS.

We are a holding company with no operations or significant assets other than
the capital stock of our subsidiaries. We rely primarily on cash dividends and
net tax allocation payments from PXRE Reinsurance, PXRE Bermuda and PXRE
Barbados to pay our operating expenses, including debt service payments,
shareholder dividends, if any, income taxes and other obligations that may
arise from time to time. We expect future dividends and other permitted
payments from these subsidiaries to be our principal source of funds to pay
expenses and dividends. The payment of dividends by our reinsurance
subsidiaries to us is limited under Bermuda law and under certain insurance
statutes of various U.S. states in which they are licensed to transact
business. PXRE Reinsurance is subject to state regulatory restrictions that
limit the maximum amount of annual dividends or other distributions, including
loans or cash advances, available to stockholders without prior approval of
the Insurance Commissioner of the State of Connecticut. Bermuda insurance laws
require PXRE Bermuda to maintain certain measures of solvency and liquidity,
and further limit the amount by which we can reduce surplus without prior
regulatory approval. Under Barbados law, PXRE Barbados may only pay a dividend
out of its realized profits and may not pay a dividend unless (a) it is able
to pay its liabilities as they become due after payment of the dividend, (b)
the realizable value of its assets is greater than the aggregate value of its
liabilities, and (c) the stated capital accounts are maintained in respect of
all classes of shares. The securities to be offered under this prospectus are
unsecured subordinated obligations and, therefore cash dividend payments to be
made by us on our preferred shares and common shares or interest payments on
our debt securities may also be affected by any inability to rely on payments
from our subsidiaries.

SOME ASPECTS OF OUR CORPORATE STRUCTURE AND INSURANCE REGULATIONS MAY
DISCOURAGE THIRD-PARTY TAKEOVERS AND TRANSACTIONS AND MAY RESULT IN THE
ENTRENCHMENT OF INCUMBENT MANAGEMENT.

S-17

defined in our bye-laws. We may refuse to register any such transfer on our
share transfer records. A transferee will be permitted to promptly dispose of
any of our shares purchased which violate the restriction and as to the
transfer of which registration is refused. The transferor of such shares will
be deemed to own such shares for dividend, voting and reporting purposes until
a transfer of such shares has been so registered.

Our bye-laws provide for a classified board of directors. The directors of
the class elected at each annual general meeting hold office for a term of
three years, with the term of each class expiring at successive annual general
meetings of shareholders. Under our bye-laws, the vote of 66 2/3% of the
outstanding shares entitled to vote and the approval of a majority of the
board is required to amend bye-laws regarding appointment and removal of
directors, remuneration, powers and duties of the board, indemnification of
directors and officers, director's interests and the procedures for amending
bye-laws.

In the event that we become aware of a shareholder owning more than 9.9% of
the voting power of our outstanding shares after a transfer of shares has been
registered, our bye-laws provide that, subject to the same exceptions and
waiver procedures, the voting rights with respect to our shares owned by any
such shareholder will be limited to a voting power of 9.9%, subject only to
the further limitation that no shareholder allocated any such voting rights
may exceed the 9.9% limitation as a result of such limitation. The board of
directors may waive this limitation, and has determined to waive this
limitation with respect to Capital Z Financial Services Fund II, L.P., Capital
Z Financial Services Private Fund II, L.P. (which, together with Capital Z
Financial Services Fund II, L.P., we refer to as "Capital Z") and certain of
Capital Z's affiliates.

In addition, our ownership of U.S. subsidiaries can, under applicable state
insurance company laws and regulations, delay or impede a change of control of
us. Under applicable insurance regulations, any proposed purchase of 10% or
more of our voting securities would require the prior approval of the relevant
insurance regulatory authorities.

The provisions described above may have the effect of making more difficult
or discouraging unsolicited takeover bids from third parties. To the extent
that these effects occur, shareholders could be deprived of opportunities to
realize takeover premiums for their shares and the market price of their
shares could be depressed. In addition, these provisions could also result in
the entrenchment of incumbent management.

U.S. PERSONS WHO OWN OUR COMMON SHARES MAY HAVE MORE DIFFICULTY IN PROTECTING
THEIR INTERESTS THAN U.S. PERSONS WHO ARE SHAREHOLDERS OF A U.S. CORPORATION.

The Bermuda Companies Act of 1981, as amended (the "Companies Act"), which
applies to us, differs in certain material respects from laws generally
applicable to U.S. corporations and their shareholders. Set forth below is a
summary of certain significant provisions of the Companies Act which includes,
where relevant, information on modifications thereto adopted pursuant to our
bye-laws, applicable to us, which differ in certain respects from provisions
of Delaware corporate law. Because the following statements are summaries,
they do not discuss all aspects of Bermuda law that may be relevant to us and
our shareholders.

Interested Directors. Under Bermuda law and our bye-laws, a transaction
entered into by us, in which a director has an interest, will not be voidable
by us, and such director will not be liable to us for any profit realized
pursuant to such transaction, provided the nature of the interest is disclosed
at the first opportunity at a meeting of directors, or in writing to the
directors. In addition, our bye-laws allow a director to be taken into account
in determining whether a quorum is present and to vote on a transaction in
which that director has an interest following a declaration of the interest
pursuant to the Companies Act provided that the director is not disqualified
from doing so by the chairman of the meeting. Under Delaware law, such
transaction would not be voidable if:

o the material facts as to such interested director's relationship or
interests were disclosed or were known to the board of directors and the
board of directors in good faith authorized the transaction by the
affirmative vote of a majority of the disinterested directors;

o such material facts were disclosed or were known to the shareholders
entitled to vote on such transaction and the transaction was specifically
approved in good faith by vote of the majority of shares entitled to vote
thereon; or

S-18

o the transaction was fair as to the corporation as of the time it was
authorized, approved or ratified. Under Delaware law, such interested
director could be held liable for a transaction in which such director
derived an improper personal benefit.

Certain Transactions with Significant Shareholders. As a Bermuda company, we
may enter into certain business transactions with our significant
shareholders, including asset sales, in which a significant shareholder
receives, or could receive, a financial benefit that is greater than that
received, or to be received, by other shareholders with prior approval from
our board of directors but without obtaining prior approval from our
shareholders. Amalgamations require the approval of the board of directors
and, except in the case of amalgamations with and between wholly-owned
subsidiaries, a resolution of shareholders approved by the affirmative vote of
shareholders holding a majority of the voting power of the then outstanding
shares entitled to vote. If we were a Delaware corporation, we would need,
subject to certain exceptions, prior approval from shareholders holding at
least two-thirds of our outstanding common stock not owned by such interested
shareholder to enter into a business combination (which, for this purpose,
includes mergers and asset sales of greater than 10% of our assets that would
otherwise be considered transactions in the ordinary course of business) with
an interested shareholder for a period of three years from the time the person
became an interested shareholder, unless we opted out of the relevant Delaware
statute.

Shareholders' Suits. The rights of shareholders under Bermuda law are not as
extensive as the rights of shareholders in many U.S. jurisdictions. Class
actions and derivative actions are generally not available to shareholders
under the laws of Bermuda. However, the Bermuda courts ordinarily would be
expected to follow English case law precedent, which would permit a
shareholder to commence an action in our name to remedy a wrong done to us
where an act is alleged to be beyond our corporate power, is illegal or would
result in the violation of our memorandum of association or bye-laws.
Furthermore, consideration would be given by the court to acts that are
alleged to constitute a fraud against the minority shareholders or where an
act requires the approval of a greater percentage of our shareholders than
actually approved it. The winning party in such an action generally would be
able to recover a portion of attorneys' fees incurred in connection with such
action. Our bye-laws provide that shareholders waive all claims or rights of
action that they might have, individually or in our right, against any
director or officer for any act or failure to act in the performance of such
director's or officer's duties, except with respect to any fraud or dishonesty
of such director or officer. Class actions and derivative actions generally
are available to shareholders under Delaware law for, among other things,
breach of fiduciary duty, corporate waste and actions not taken in accordance
with applicable law. In such actions, the court has discretion to permit the
winning party to recover attorneys' fees incurred in connection with such
action.

Indemnification of Directors and Officers. Under Bermuda law and our bye-
laws, we may indemnify our directors, officers or any other person appointed
to a committee of the board of directors (and their respective heirs,
executors or administrators) to the full extent permitted by law against all
actions, costs, charges, liabilities, loss, damage or expense incurred or
sustained by such person by reason of any act done, concurred in or omitted in
the conduct of our business or in the discharge of his/her duties; provided
that such indemnification shall not extend to any matter in which any of such
persons is found, in a final judgement or decree not subject to appeal, to
have committed fraud or dishonesty. Under Delaware law, a corporation may
indemnify a director or officer of the corporation against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred in defense of an action, suit or proceeding by reason of
such position if (i) such director or officer acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation and (ii) with respect to any criminal action or proceeding,
such director or officer had no reasonable cause to believe his conduct was
unlawful. To further understand the risks associated with U.S. persons who own
our common shares, see "Difference In Corporate Laws" on page 59 of the
accompanying prospectus for more information on the differences between
Bermuda and Delaware corporate laws.

Committees of the Board of Directors. Our bye-laws provide, as permitted by
Bermuda law, that the board of directors may delegate any of its powers to
committees that the board appoints, and those committees may consist partly or
entirely of non-directors. Delaware law allows the board of directors of a
corporation to delegate many of its powers to committees, but those committees
may consist only of directors.

S-19

YOU MAY HAVE DIFFICULTY EFFECTING SERVICE OF PROCESS ON US OR ENFORCING
JUDGMENTS AGAINST US IN THE UNITED STATES.

We are incorporated pursuant to the laws of Bermuda and our business is
based in Bermuda. In addition, certain of our directors and officers reside
outside the United States, and all or a substantial portion of our assets and
the assets of such persons are located in jurisdictions outside the United
States. As such, we have been advised that there is doubt as to whether:

o A holder of our common shares would be able to enforce, in the courts of
Bermuda, judgments of United States courts against persons who reside in
Bermuda based upon the civil liability provisions of the United States
federal securities laws;

o A holder of our common shares would be able to enforce, in the courts of
Bermuda, judgments of United States courts based upon the civil liability
provisions of the United States federal securities laws; and

o A holder of our common shares would be able to bring an original action
in the Bermuda courts to enforce liabilities against us or our directors
or officers, as well as the experts named in this prospectus, who reside
outside the United States based solely upon United States federal
securities laws.

Further, we have been advised that there is no treaty in effect between the
United States and Bermuda providing for the enforcement of judgments of United
States courts, and there are grounds upon which Bermuda courts may not enforce
judgments of United States courts. Because judgments of United States courts
are not automatically enforceable in Bermuda, it may be difficult for you to
recover against us based on such judgments.

THE ANTI-DILUTION PROTECTION AFFORDED TO THE HOLDERS OF OUR OUTSTANDING
PREFERRED SHARES COULD CAUSE SUBSTANTIAL DILUTION TO THE HOLDERS OF OUR COMMON
SHARES. THE SALE, FOLLOWING CONVERSION, OF SUBSTANTIAL AMOUNTS OF OUR COMMON
SHARES BY THE HOLDERS OF THE PREFERRED SHARES COULD CAUSE THE MARKET PRICE OF
OUR COMMON SHARES TO DECLINE SIGNIFICANTLY.

In April 2002, we privately placed Series A, Series B and Series C
convertible preferred shares with several private equity investors. These
investors, sometimes referred to herein as the selling shareholders, have the
right to nominate four directors for election to the board of directors, and
were granted demand and other registration rights. The interest of the
preferred share investors may differ materially from the interests of our
common shareholders, and these investors could take actions or make decisions
that are not in the best interests of our common shareholders.

The anti-dilution protections afforded to the preferred shareholders could
have a material dilutive effect on our common shareholders. Each preferred
share, in whole or in part, is convertible at any time at the option of the
holder into convertible common shares for that series according to a formula
set forth in the description of stock filed as an exhibit to the registration
statement of which this prospectus forms a part. The convertible common shares
are, in turn, convertible into common shares on a one-for-one basis. The
number of convertible common shares per preferred shares issuable upon any
conversion will be determined by dividing a liquidation preference for the
series equal to the aggregate original purchase price of the preferred shares
plus accrued but unpaid dividends thereon, by the conversion price then in
effect. The conversion price is subject to adjustment to avoid dilution in the
event of recapitalization, reclassification, stock split, consolidation,
merger, amalgamation or other similar event or an issuance of additional
common shares in a private placement below the fair market value or in a
registered public offering below 95% of fair market value or without
consideration. In addition, the conversion price is subject to adjustment for
certain loss and loss expense development on reserves for losses incurred on
or before September 30, 2001 and for any liability or loss arising out of
pending material litigation on December 10, 2001. As of September 30, 2004,
the outstanding preferred shares were ultimately convertible into 13,555,613
common shares, or 48.4% of our outstanding common shares on a fully converted
basis and using the adjusted conversion price of $13.48.

However, because the conversion price for the preferred shares is subject to
adjustment for a variety of reasons, including if we have certain types of
adverse loss development, the number of our common shares

S-20

into which the preferred shares are ultimately convertible and, accordingly,
the amount of dilution experienced by our common shareholders, could increase.
For demonstrative purposes, if we were to experience $5.0 million of net
after-tax adverse reserve development on the lines of business subject to the
conversion price adjustment, then the adjusted conversion price would be
reduced by $0.34, while $7.5 million of such development would decrease the
adjusted conversion price by $0.51 and $10.0 million of such development would
result in a $0.67 decrease.

All A1 Preferred Shares, B1 Preferred Shares and C1 Preferred Shares (the
"First Tranche Preferred Shares"), which constitute two-thirds of the
outstanding preferred shares as of September 30, 2004, will be mandatorily
converted on April 4, 2005. Under the terms of the preferred shares, the
holders have the right to request a binding reserve audit by an independent
actuary in connection with their anti-dilution protections. In anticipation of
the April 4, 2005 conversion date, we and the preferred share investors have
agreed to have a nationally recognized independent actuarial firm perform an
actuarial review of our reserves for loss and loss expenses as of December 31,
2004. The conclusions of the independent actuary will be binding and, as
respects the First Tranche Preferred Shares, will conclusively determine the
final adjustment, if any, for certain loss and loss expense development on
reserves for losses incurred on or before September 30, 2001. The same
actuarial firm performed an independent analysis of our general liability line
of business during the quarter ended September 30, 2003. During that quarter,
we recorded $10.1 million of adverse development attributable to our exited
direct casualty reinsurance operations, which was primarily caused by
$8.2 million of general liability development. For a detailed discussion of
the conversion features of the preferred shares and the convertible common
shares, including adjustments to the conversion price, see "Description of
Share Capital--Outstanding Preferred Shares--Conversion" and "Description of
Share Capital--Convertible Common Shares" in the accompanying prospectus.

Furthermore, upon conversion, sales of substantial amounts of common shares
by these investors, or the perception that these sales could occur, could
adversely affect the market price of the common shares, as well as our ability
to raise additional capital in the public equity markets at a desirable time
and price.

RISKS RELATED TO TAXATION

WE AND OUR BERMUDA SUBSIDIARIES MAY BECOME SUBJECT TO BERMUDA TAXES AFTER
2016.

Bermuda currently imposes no income tax on corporations. We have obtained an
assurance from the Bermuda Minister of Finance, under The Exempted
Undertakings Tax Protection Act 1966 of Bermuda, that if any legislation is
enacted in Bermuda that would impose tax computed on profits or income, or
computed on any capital asset, gain or appreciation, or any tax in the nature
of estate duty or inheritance tax, then the imposition of any such tax will
not be applicable to our Bermuda subsidiaries until March 28, 2016. We cannot
assure you that we or our Bermuda subsidiaries will not be subject to any
Bermuda tax after that date.

WE AND OUR NON-U.S. SUBSIDIARIES MAY BE SUBJECT TO U.S. TAX, WHICH MAY HAVE A
MATERIAL ADVERSE EFFECT ON OUR FINANCIAL CONDITION AND RESULTS OF OPERATION.

We and our non-U.S. subsidiaries intend to operate our business in a manner
that will not cause us to be treated as engaged in a trade or business in the
United States (and, in the case of those non-U.S. companies qualifying for
treaty protection, in a manner that will not cause us to be doing business
through a permanent establishment in the United States) and, thus, will not
subject us to U.S. federal income taxes or branch profits tax (other than
withholding taxes on certain U.S. source investment income, dividends from
PXRE Delaware to PXRE Barbados and excise taxes on insurance or reinsurance
premiums). However, because there is uncertainty as to the activities that
constitute being engaged in a trade or business within the United States, and
what constitutes a permanent establishment under the applicable tax treaties,
there can be no assurances that the U.S. Internal Revenue Service ("IRS") will
not contend successfully that we are or that a non-U.S. subsidiary of ours is
engaged in a trade or business, or carrying on business through a permanent
establishment in the United States.

We and/or our non-U.S. subsidiaries could be subject to U.S. federal income
tax on a portion of our income that is earned from U.S. sources if we or our
non-U.S. subsidiaries are considered to be a personal holding company (or a
"PHC") for U.S. federal income tax purposes. This status will depend on
whether

S-21

more than 50% of our shares could be deemed to be owned by five or fewer
individuals and the percentage of our income, or that of our subsidiaries,
that consists of "personal holding company income" ("PHCI threshold"), as
determined for U.S. federal income tax purposes. We believe, based upon
information made available to us regarding our existing shareholder base, that
neither we nor any of our subsidiaries should be considered a PHC.
Additionally, we intend to operate our business to minimize the possibility
that we will meet the PHCI threshold. However, due to the lack of complete
information regarding our ultimate share ownership, we cannot be certain that
we will not be characterized as a PHC, or that the amount of U.S. federal
income tax that would be imposed if it were not the case would be minimal.

Pursuant to recently enacted legislation, foreign corporations, such as PXRE
and our non-U.S. subsidiaries, will be excluded from the application of the
PHC rules of the Internal Revenue Code of 1986, as amended (the "Code")
effective for taxable years of foreign corporations beginning after
December 31, 2004, and taxable years of U.S. shareholders with or within which
such taxable years of foreign corporations end.

UNDER A RECENTLY RATIFIED PROTOCOL TO THE US-BARBADOS INCOME TAX TREATY (THE
"BARBADOS TREATY"), DIVIDENDS PAID BY PXRE DELAWARE TO PXRE BARBADOS WILL NOT
BE ELIGIBLE FOR A U.S. WITHHOLDING TAX RATE REDUCTION UNDER THE TREATY.

PXRE Delaware is a Delaware corporation wholly owned by PXRE Barbados. Under
U.S. federal income tax law, dividends paid by a U.S. corporation to a non-
U.S. shareholder are generally subject to a 30% withholding tax, unless
reduced by treaty.

The United States and Barbados recently ratified a protocol to the Barbados
Treaty modifying the current Barbados Treaty to cause any future dividends
paid by PXRE Delaware to PXRE Barbados to be subject to a U.S. withholding tax
of 30% effective January 1, 2005. The imposition of withholding tax at such
rate could have a material adverse effect on our financial condition and
results of operations.

IF WE ARE CLASSIFIED AS A FOREIGN PERSONAL HOLDING COMPANY ("FPHC"), YOUR
TAXES WOULD INCREASE.

Although it is not anticipated that we or any of our non-U.S. subsidiaries
will be classified as a FPHC for U.S. federal income tax purposes, if we or
any of our non-U.S. subsidiaries are classified as a FPHC, a United States
person that directly or indirectly owns our common shares would be subject to
adverse tax consequences.

Pursuant to recently enacted legislation, FPHC rules of the Code have been
repealed effective for the taxable years of foreign corporations beginning
after December 31, 2004, and taxable years of U.S. shareholders with or within
which such taxable years of foreign corporations end.

IF YOU ACQUIRE MORE THAN 10% OF OUR SHARES AND WE OR OUR NON-U.S. SUBSIDIARIES
ARE CLASSIFIED AS A CONTROLLED FOREIGN CORPORATION ("CFC"), YOUR TAXES WOULD
INCREASE.

Each U.S. person (as defined in Section 7701(a)(30) of the Code of a foreign
corporation that is a CFC for an uninterrupted period of 30 days or more
during a taxable year, and who owns, directly or indirectly through foreign
entities on the last day of the CFC's taxable year, at least 10% of the total
combined voting power of all classes of shares of the CFC entitled to vote,
must include in its gross income for U.S. federal income tax purposes its pro
rata share of the CFC's "subpart F income," even if the subpart F income is
not distributed. A foreign corporation is considered a CFC if "United States
Shareholders" own (directly, indirectly through foreign entities or by
attribution by application of the constructive ownership rules (i.e.,
"constructively")) more than 50% of the total combined voting power of all
classes of voting stock of such foreign corporation, or the total value of all
stock of such corporation. A "United States Shareholder" is a U.S. person who
owns (directly, indirectly through foreign entities or constructively) at
least 10% of the total combined voting power of all classes of stock entitled
to vote of the foreign corporation. For purposes of taking into account
insurance income, a CFC also includes a foreign insurance company in which
more than 25% of the total combined voting power of all classes of stock (or
more than 25% of the total value of the stock) is owned by United States
Shareholders, on any day during the taxable year of such corporation, if the
gross amount of premiums or other consideration for the reinsurance or the
issuing of insurance or annuity contracts exceeds 75% of the gross amount of
all premiums or other consideration in respect of all risks.

S-22

We believe that because of the anticipated dispersion of our share
ownership, provisions in our organizational documents that limit voting power
and other factors, no U.S. person who owns our shares directly or indirectly
through one or more foreign entities should be treated as owning (directly,
indirectly through foreign entities or constructively) 10% or more of the
total voting power of all classes of our shares.

However, due to the attribution provisions of the Code regarding
determination of beneficial ownership, there is a risk that the IRS could
assert that one or more of our non-U.S. subsidiaries are CFCs and that U.S.
persons of our common shares who own 10% or more of the value of our common
shares should be treated as owning 10% or more of the total voting power of
all classes of our shares notwithstanding the reduction of voting power
discussed above.

IF WE OR A NON-U.S. SUBSIDIARY IS DETERMINED TO HAVE "RELATED PARTY INSURANCE
INCOME" ("RPII"), YOU MAY BE SUBJECT TO U.S. FEDERAL INCOME TAXATION ON YOUR
PRO RATA SHARE OF SUCH INCOME.

If the RPII of any of our non-U.S. insurance subsidiaries were to equal or
exceed 20% of such company's gross insurance income in any taxable year and
direct or indirect insureds (and persons related to such insureds) own (or are
treated as owning directly or indirectly through entities) 20% or more of our
voting power or value, then a U.S. person who owns our shares (directly or
indirectly through foreign entities) on the last day of the taxable year would
be required to include in its income for U.S. federal income tax purposes such
person's pro rata share of such non-U.S. insurance subsidiary's RPII for the
entire taxable year, determined as if such RPII were distributed
proportionately only to U.S. persons at that date regardless of whether such
income is distributed. In addition, any RPII that is includible in the income
of a U.S. tax-exempt organization may be treated as unrelated business taxable
income. The amount of RPII earned by the non-U.S. insurance subsidiaries
(generally, premium and related investment income from the direct or indirect
insurance or reinsurance of any direct or indirect U.S. holder of common
shares or any person related to such holder) will depend on a number of
factors, including the geographic distribution of the non-U.S. insurance
subsidiaries' business and the identity of persons directly or indirectly
insured or reinsured by the non-U.S. insurance subsidiaries. We believe that
the gross RPII of each non-U.S. insurance subsidiary did not in prior years of
operation and is not expected in the foreseeable future to equal or exceed 20%
of such subsidiary's gross insurance income, and we do not expect the direct
or indirect insureds of the non-U.S. insurance subsidiaries (and related
persons) to directly or indirectly own 20% or more of either the voting power
or value of our common shares, but we cannot be certain that this will be the
case because some of the factors that determine the existence or extent of
RPII may be beyond our knowledge and/or control.

The RPII rules provide that if a U.S. person disposes of shares in a foreign
insurance corporation in which U.S. persons own 25% or more of the shares
(even if the amount of RPII is less than 20% of the corporation's gross
insurance income and the ownership of its shares by direct or indirect
insureds and related persons is less than the 20% threshold), any gain from
the disposition will generally be treated as ordinary income to the extent of
the holder's share of the corporation's undistributed earnings and profits
that were accumulated during the period that the holder owned the shares
(whether or not such earnings and profits are attributable to RPII). In
addition, such a holder will be required to comply with certain reporting
requirements, regardless of the amount of shares owned by the holder. These
RPII rules should not apply to dispositions of our common shares because we
will not ourselves be directly engaged in the insurance business. The RPII
provisions, however, have never been interpreted by the courts or the U.S.
Treasury Department in final regulations, and regulations interpreting the
RPII provisions of the Code exist only in proposed form. It is not certain
whether these regulations will be adopted in their proposed form or what
changes or clarifications might ultimately be made thereto or whether any such
changes, as well as any interpretation or application of RPII by the IRS, the
courts or otherwise, might have retroactive effect. The U.S. Treasury
Department has authority to impose, among other things, additional reporting
requirements with respect to RPII. Accordingly, the meaning of the RPII
provisions and the application of those provisions to us and our subsidiaries
is uncertain.

S-23

IF WE ARE CLASSIFIED AS A PASSIVE FOREIGN INVESTMENT COMPANY ("PFIC"), YOUR
TAXES WOULD INCREASE.

Although it is not anticipated that we will be classified as a PFIC for U.S.
federal income tax purposes, if we are classified as a PFIC, it would have
material adverse tax consequences for U.S. persons that directly or indirectly
own our common shares, including subjecting such U.S. persons to a greater tax
liability than might otherwise apply and subjecting such U.S. persons to tax
on amounts in advance of when tax would otherwise be imposed. There are
currently no regulations regarding the application of the PFIC provisions to
an insurance company. New regulations or pronouncements interpreting or
clarifying these rules may be forthcoming. We cannot predict what impact, if
any, such guidance would have on persons subject to U.S. federal income tax
that directly or indirectly own our common shares.

OUR REINSURANCE AGREEMENTS BETWEEN US, OUR NON-U.S. SUBSIDIARIES, AND OUR U.S.
SUBSIDIARIES MAY BE SUBJECT TO RECHARACTERIZATION OR OTHER ADJUSTMENT FOR U.S.
FEDERAL INCOME TAX PURPOSES, WHICH MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Under Section 845 of the Code, as further clarified by recently enacted
amendments to the Code, the IRS may allocate income, deductions, assets,
reserves, credits and any other items related to a reinsurance agreement among
certain related parties to a reinsurance agreement, recharacterize such items,
or make any other adjustment, in order to reflect the proper source, character
or amount of the items for each party for U.S. federal income tax purposes. No
regulations have been issued under Section 845 of the Code. Accordingly, the
application of such provisions to us and our subsidiaries is uncertain and we
cannot predict what impact, if any, such provisions may have on us and our
subsidiaries.

CHANGES IN U.S. FEDERAL INCOME TAX LAW COULD BE RETROACTIVE AND MAY SUBJECT US
OR OUR NON-U.S. SUBSIDIARIES TO U.S. FEDERAL INCOME TAXATION.

The tax laws and interpretations regarding whether a company is engaged in a
U.S. trade or business or whether a company is a CFC or PFIC, or has RPII are
subject to change, possibly on a retroactive basis. There are currently no
regulations regarding the application of the PFIC rules to an insurance
company. The IRS recently announced that it intends to scrutinize insurance
companies domiciled outside the U.S. and apply the PFIC rules to companies
that are not active insurance companies, and to the portion of a non-U.S.
insurance company's income not derived in the active conduct of an insurance
business. Additionally, the regulations regarding RPII are still in proposed
form. New regulations or pronouncements interpreting or clarifying such rules
will likely be forthcoming from the IRS. We are not able to predict if, when
or in what form such guidance will be provided and whether such guidance will
be applied on a retroactive basis.

THE ORGANIZATION FOR ECONOMIC COOPERATION AND DEVELOPMENT AND THE EUROPEAN
UNION ARE CONSIDERING MEASURES THAT MIGHT INCREASE OUR TAXES AND REDUCE OUR
NET INCOME.

A number of multinational organizations, including the European Union, the
Organization for Economic Cooperation and Development, also referred to in
this prospectus as OECD, the Financial Action Task Force and the Financial
Stability Forum, also referred to in this prospectus as FSF, have all recently
identified some countries as not participating in adequate information
exchange, engaging in harmful tax practices or not maintaining adequate
controls to prevent corruption, such as money laundering activities.
Recommendations to limit such harmful practices are under consideration by
these organizations, and a report published on November 27, 2001 by the OECD
at the behest of FSF titled "Behind the Corporate Veil: Using Corporate
Entities for Illicit Purposes," contains an extensive discussion of specific
recommendations. The OECD has threatened non-member jurisdictions that do not
agree to cooperate with the OECD with punitive sanctions by OECD member
countries, though specific sanctions have yet to be adopted by OECD member
countries. It is as yet unclear what these sanctions will be, who will adopt
them and when or if they will be imposed. In a June 26, 2000 report, Bermuda
was not listed as a tax haven jurisdiction by the OECD because it previously
signed a letter committing itself to eliminating harmful tax practices by the
end of 2005 and to embrace international tax standards for transparency,
exchange of information, and the elimination of regimes for financial and
other services that attract businesses with no substantial domestic activity.
We cannot assure you, however, that the action taken by Bermuda would be
sufficient to preclude all effects of the measures or sanctions described
above, which, if ultimately adopted, could adversely affect Bermuda companies
such as us.

S-24

USE OF PROCEEDS

We estimate that our net proceeds from our sale of our common shares in this
offering, after deducting underwriting discounts and estimated expenses of the
offering, will be approximately $83.0 million, or $97.9 million if the
underwriters exercise their overallotment option in full. We intend to
contribute these net proceeds to PXRE Bermuda to support the underwriting of
additional reinsurance business during the January 1, 2005 renewal period and
throughout the balance of 2005.

We will not receive any proceeds from the sale of common shares by the
selling shareholders.

PRICE RANGE OF COMMON SHARES AND DIVIDEND POLICY

Our common shares are listed on the New York Stock Exchange under the symbol
"PXT." The high and low closing sales prices per share are set forth below for
the quarters indicated.

CLOSING PRICE
----------------------------
HIGH LOW DIVIDENDS
------ ------ ---------

Calendar 2002:
First Quarter..................................................................................... $24.00 $16.88 $0.06
Second Quarter.................................................................................... 26.65 22.73 0.06
Third Quarter..................................................................................... 24.20 18.60 0.06
Fourth Quarter.................................................................................... 24.50 18.86 0.06
Calendar 2003:
First Quarter..................................................................................... $26.00 $19.00 $0.06
Second Quarter.................................................................................... 22.00 19.05 0.06
Third Quarter..................................................................................... 19.90 16.90 0.06
Fourth Quarter ................................................................................... 24.20 17.75 0.06
Calendar 2004:
First Quarter..................................................................................... $28.70 $23.54 $0.06
Second Quarter.................................................................................... 28.10 23.10 0.06
Third Quarter..................................................................................... 26.00 22.23 0.06
Fourth Quarter (through November 17, 2004)........................................................ 24.81 22.30 0.06

We declared and paid cash dividends on our common shares of $0.06 per share
in each quarter since the third quarter of 1999. Although we have no current
intention of changing our dividend policy, our board of directors periodically
reviews our dividend policy and may change it in the future in accordance with
our capital needs.

We are a holding company and have no direct operations. Our ability to pay
dividends depends, in part, on the ability of our principal operating
subsidiaries, PXRE Reinsurance, PXRE Bermuda and PXRE Barbados, to pay
dividends to us. These subsidiaries are subject to significant regulatory
restrictions limiting their ability to declare and pay dividends.
Additionally, we are subject to Bermuda regulatory constraints that will
affect our ability to pay dividends on our common shares and make other
payments. Under the Bermuda Companies Act, we may declare or pay a dividend
out of distributable reserves only if we have reasonable grounds for believing
that we are, and would after the payment be, able to pay our liabilities as
they become due and if the realizable value of our assets would thereby not be
less than the aggregate of our liabilities and issued share capital and share
premium accounts.

S-25

CAPITALIZATION

The following table sets forth our capitalization as of September 30, 2004:

o on an actual basis; and

o on an adjusted basis to give effect to the issue and sale by us of
3,724,803 common shares at the public offering price of $23.75 per share
less underwriting discounts and estimated offering expenses.

The following should be read in conjunction with our consolidated financial
statements and the related notes included or incorporated by reference in this
prospectus supplement and the accompanying prospectus.

AS OF SEPTEMBER 30,
2004
----------------------
ACTUAL AS ADJUSTED
-------- -----------
($000'S EXCEPT SHARE AND PER SHARE DATA)

Cash ................................................. $ 21,044 $104,085
-------- --------
Subordinated debt (1) ................................ $167,073 $167,073
-------- --------
Shareholders' equity:
Serial convertible preferred shares, $1.00 par
value, $10,000 stated value -- 10 million shares
authorized, 18,273 shares issued and outstanding,
actual; 16,215 shares issued and outstanding, as
adjusted (2)....................................... 182,730 162,148
Common shares, $1.00 par value -- 50 million shares
authorized; 14,426,432 shares issued and
outstanding, actual; 19,678,118 shares issued and
outstanding, as adjusted (2)....................... 14,426 19,678
Additional paid-in capital .......................... 215,334 313,705
Accumulated other comprehensive income net of
deferred income tax benefit of $0.1 million........ (1,117) (1,117)
Retained earnings ................................... 165,673 165,673
Restricted common shares at cost (428,677 shares) ... (7,800) (7,800)
-------- --------
Total shareholders' equity......................... 569,246 652,287
-------- --------
Total capitalization ............................ $736,319 $819,360
======== ========

- ---------------
(1) Represents debt due to subsidiary capital trusts issuing capital pass-
through securities. For discussion of the issuances of the capital pass-
through securities, see Note 5 to our consolidated financial statements for
the years ended December 31, 2003, 2002 and 2001, incorporated by reference
to our annual report on Form 10-K for the year ended December 31, 2003 and
Note 9 to our unaudited consolidated financial statements for the nine
months ended September 30, 2004, included elsewhere in this prospectus.
(2) For information with respect to common shares reserved for issuance upon
conversion of our convertible preferred shares and under our employee
benefit and share option plans, see Notes 7, 10 and 11 to our consolidated
financial statements for the years ended December 31, 2003, 2002 and 2001
incorporated by reference to our annual report on Form 10-K for the year
ended December 31, 2003 and Note 7 to our consolidated financial statements
for the nine months ended September 30, 2004.

S-26

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected historical consolidated financial
information for PXRE Group Ltd. as of and for the nine months ended
September 30, 2004 and 2003 and as of and for the years ended December 31,
2003, 2002, 2001, 2000 and 1999. The financial data for the nine months ended
September 30, 2004 and 2003 are derived from our unaudited consolidated
financial statements and include, in the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the data for the periods. The results for the nine months ended
September 30, 2004 may not be indicative of the results for the full year. The
financial data for the years ended December 31, 2003, 2002 and 2001 are
derived from our audited consolidated financial statements audited by KPMG
LLP. The financial data for the years ended December 31, 2000 and 1999 are
derived from our audited consolidated financial statements audited by
PricewaterhouseCoopers and PricewaterhouseCoopers LLP. Our consolidated
financial statements for the years ended December 31, 2003, 2002 and 2001 are
incorporated by reference to our annual report on Form 10-K for the year ended
December 31, 2003. Our unaudited consolidated financial statements for the
nine months ended September 30, 2004 and 2003 are included elsewhere in this
prospectus supplement. The following information should be read in conjunction
with our consolidated financial statements and financial information included
or incorporated by reference in this prospectus supplement.

NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------ ------------------------------------------------------
($000'S EXCEPT PER SHARE DATA AND RATIOS) 2004(1)(4) 2003(1)(8) 2003(1)(8) 2002(1)(3)(8) 2001(1)(8) 2000(1)(8)
---------- ---------- ---------- ------------- ---------- ----------

INCOME STATEMENT DATA:
Gross premiums written ................... $285,847 $274,123 $339,140 $366,768 $ 290,213 $268,990
Premiums ceded ........................... (32,320) (52,692) (60,729) (72,285) (135,735) (96,289)
-------- -------- -------- -------- --------- --------
Net premiums written ..................... 253,527 221,431 278,411 294,483 154,478 172,701
Change in unearned premiums .............. (25,211) 16,439 42,522 (25,123) 7,647 (12,495)
-------- -------- -------- -------- --------- --------
Net premiums earned ...................... 228,316 237,870 320,933 269,360 162,125 160,206
Net investment income .................... 16,941 20,026 26,931 24,893 30,036 30,037
Net realized investment gains (losses) ... 11 611 2,447 8,981 4,023 3,191
Fee income ............................... 1,556 3,533 5,014 3,432 5,786 5,483
-------- -------- -------- -------- --------- --------
Total revenues ........................... 246,824 262,040 355,325 306,666 201,970 198,917
-------- -------- -------- -------- --------- --------
Losses and loss expenses incurred ........ 192,551 112,500 157,599 125,361 153,122 139,124
Commissions and brokerage ................ 28,286 37,863 47,360 53,391 30,350 34,899
Other operating expenses ................. 30,760 29,451 39,701 34,228 28,870 34,796
Foreign exchange (gains) losses .......... (22) 676 142 (273) (683) (748)
Interest expense ......................... 10,947 2,504 2,506 2,939 4,424 4,778
Minority interest in consolidated
subsidiaries(4) ......................... -- 7,350 10,528 8,646 8,877 8,875
-------- -------- -------- -------- --------- --------
Total losses and expenses ................ 262,522 190,344 257,836 224,292 224,960 221,724
-------- -------- -------- -------- --------- --------
(Loss) income before income taxes,
cumulative effect of accounting change
and convertible preferred share
dividends ............................... (15,698) 71,696 97,489 82,374 (22,990) (22,807)
Income tax (benefit) provision .......... (6,844) 2,887 841 17,829 (4,704) (12,007)
-------- -------- -------- -------- --------- --------
(Loss) income before cumulative effect of
accounting change and convertible
preferred share dividends ............... (8,854) 68,809 96,648 64,545 (18,286) (10,800)
Cumulative effect of accounting change,
net of tax .............................. (1,053) -- -- -- 319 --
-------- -------- -------- -------- --------- --------
Net (loss) income before convertible
preferred share dividends ............... $ (9,907) $ 68,809 $ 96,648 $64,545 $ (17,967) $(10,800)
Preferred share dividends ................ (10,540) (9,737) (13,113) (9,077) -- --
-------- -------- -------- -------- --------- --------
Net (loss) income available to common
shareholders ............................ $(20,447) $ 59,072 $ 83,535 $ 55,468 $ (17,967) $(10,800)
======== ======== ======== ======== ========= ========

YEAR ENDED
DECEMBER 31,
-------------
($000'S EXCEPT PER SHARE DATA AND RATIOS) 1999(1)(2)(8)
-------------

INCOME STATEMENT DATA:
Gross premiums written ................... $221,349
Premiums ceded ........................... (82,504)
--------
Net premiums written ..................... 138,845
Change in unearned premiums .............. (10,342)
--------
Net premiums earned ...................... 128,503
Net investment income .................... 47,173
Net realized investment gains (losses) ... (3,766)
Fee income ............................... 3,590
--------
Total revenues ........................... 175,500
--------
Losses and loss expenses incurred ........ 160,504
Commissions and brokerage ................ 27,702
Other operating expenses ................. 29,217
Foreign exchange (gains) losses .......... (409)
Interest expense ......................... 3,915
Minority interest in consolidated
subsidiaries(4) ......................... 8,790
--------
Total losses and expenses ................ 229,719
--------
(Loss) income before income taxes,
cumulative effect of accounting change
and convertible preferred share
dividends ............................... (54,219)
Income tax (benefit) provision .......... (12,775)
--------
(Loss) income before cumulative effect of
accounting change and convertible
preferred share dividends ............... (41,444)
Cumulative effect of accounting change,
net of tax .............................. (695)
--------
Net (loss) income before convertible
preferred share dividends ............... $(42,139)
Preferred share dividends ................ --
--------
Net (loss) income available to common
shareholders ............................ $(42,139)
========

S-27

NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------- -------------------------------------------------------
($000'S EXCEPT PER SHARE DATA AND RATIOS) 2004(1) 2003(1) 2003(1) 2002(1)(3) 2001(1) 2000(1) 1999(1)(2)
------- ------- ------- ---------- ------- ------- ----------

Ratio of earnings to fixed charges (6) ... -- 4.87 5.22 4.64 -- -- --
Ratio of earnings to combined fixed
charges and convertible preferred
dividends ............................... -- 3.15 3.32 3.07 -- -- --
BASIC EARNINGS PER COMMON SHARE:
(Loss) income before cumulative effect of
accounting change and preferred share
dividends ............................... $ (0.64) $ 5.77 $ 8.06 $ 5.47 $ (1.58) $ (0.95) $ (3.58)
Cumulative effect of accounting change ... (0.08) -- -- -- 0.03 -- (0.06)
Convertible preferred share dividends .... (0.77) (0.82) (1.09) (0.77) -- -- --
------- ------- ------- ------- ------- ------- -------
Net (loss) income available to common
shareholders ............................ $ (1.49) $ 4.95 $ 6.97 $ 4.70 $ (1.55) (0.95) $ (3.64)
------- ------- ------- ------- ------- ------- -------
Average common shares outstanding ........ 13,753 11,931 11,992 11,802 11,578 11,394 11,568
======= ======= ======= ======= ======= ======= =======
DILUTED EARNINGS PER COMMON SHARE:
(Loss) income before cumulative effect of
accounting change ....................... $ (1.41) $ 2.97 $ 4.10 $ 3.28 $ (1.58) $ (0.95) $ (3.58)
Cumulative effect of accounting change ... (0.08) -- -- -- 0.03 -- (0.06)
------- ------- ------- ------- ------- ------- -------
Net (loss) income ........................ $ (1.49) $ 2.97 $ 4.10 $ 3.28 $ (1.55) $ (0.95) $ (3.64)
======= ======= ======= ======= ======= ======= =======
Average common shares outstanding ........ 13,753 23,201 23,575 19,662 11,578 11,394 11,568
======= ======= ======= ======= ======= ======= =======
Cash dividends per common share .......... $ 0.18 $ 0.18 $ 0.24 $ 0.24 $ 0.24 $ 0.24 $ 0.64
OTHER OPERATING DATA:
GAAP loss ratio (7) ...................... 84.3% 47.3% 49.1% 46.5% 94.5% 86.8% 124.9%
GAAP underwriting expense ratio (7) ...... 25.2 26.8 25.6 31.3 33.0 40.1 42.3
------- ------- ------- ------- ------- ------- -------
GAAP combined ratio (7) .................. 109.5% 74.1% 74.7% 77.8% 127.5% 126.9% 167.2%
======= ======= ======= ======= ======= ======= =======

AS OF SEPTEMBER 30, AS OF DECEMBER 31,
----------------------- --------------------------------------------------------------
($000'S EXCEPT PER SHARE DATA) 2004(1) 2003(1) 2003(1) 2002(1) 2001(1) 2000(1) 1999(1)(2)
---------- ---------- ---------- ---------- ---------- -------- ----------

BALANCE SHEET DATA:
Cash and investments.................. $1,093,330 $1,011,299 $1,012,327 $ 805,331 $ 531,233 $505,101 $524,303
Total assets.......................... 1,426,491 1,388,091 1,359,647 1,237,142 1,005,938 784,747 780,180
Losses and loss expenses.............. 517,501 437,310 450,635 447,829 453,705 251,619 261,551
Subordinated debt (4)(5).............. 167,073 -- -- -- -- -- --
Minority interest in consolidated
subsidiaries (4)(5).................. -- 126,839 156,841 94,335 99,530 99,525 99,521
Debt payable.......................... -- -- -- 30,000 55,000 65,000 75,000
Total shareholders' equity............ 569,246 520,132 564,516 453,464 239,780 259,386 263,279
Book value per common share........... $ 20.34 $ 21.72 $ 22.24 $ 20.33 $ 20.20 $ 21.94 $ 22.54
Statutory capital and surplus:
PXRE Reinsurance Ltd. (9)............ $ 494,000 $ 328,922 $ 425,839 $ 70,609 $ 34,332 $ 29,982 $ 24,598
PXRE Reinsurance
Company (9)........................ $ 314,700 $ 411,022 $ 425,210 $ 457,217 $ 331,959 $348,858 $399,007

- ---------------
(1) PXRE Group Ltd. was incorporated on June 1, 1999 as a Bermuda exempted
company and a wholly owned subsidiary of PXRE Purpose Trust, a purpose
trust established under the laws of Bermuda. On October 5, 1999, PXRE
Corporation completed a reorganization pursuant to which PXRE Group Ltd.
became the ultimate parent holding company of PXRE Corporation. PXRE
Corporation and its subsidiaries provided property and casualty reinsurance
and insurance products to a national and international marketplace. In
connection with the reorganization, PXRE Group Ltd. repurchased for $1.00
per share 100% of the common shares owned by PXRE Purpose Trust and each
outstanding share of PXRE Corporation common stock (other than shares held
by PXRE Corporation and its subsidiaries) was converted into one common
share of PXRE Group Ltd. After the consummation of the reorganization, PXRE
Group Ltd. commenced carrying on the holding company functions previously
conducted by PXRE Corporation.

S-28

(2) In the fourth quarter of 1999, PXRE Group Ltd. changed the reporting period
for its U.K. operations from a fiscal year ending September 30 to a
calendar year ending December 31. The results of operations for the period
from October 1, 1998 to December 31, 1998, amounted to a loss of
approximately $0.1 million. This loss was charged to retained earnings
during 1999 in order to report only twelve months' operating results. The
U.K. operations of PXRE Limited and PXRE Managing Agency are included in
the consolidated results on a one-quarter lag basis from 1998 through the
third quarter of 1999.
(3) FASB issued Statement of Financial Accounting Standard ("FASB") No. 145,
"Rescission of FASB Statements Nos. 4 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections", on April 30, 2002, which rescinds the
requirement to present gains and losses from extinguishment of debt as an
extraordinary item. We have adopted the new standard effective January 1,
2002. As a result, a gain of $1.4 million on the repurchase of $5.2 million
of minority interest in consolidated subsidiaries was classified with net
realized investment gains during 2002.
(4) In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("FIN 46"), which requires consolidation of
all "Variable Interest Entities" ("VIEs") by the "primary beneficiary," as
these terms are defined in FIN 46, and on October 9, 2003 the FASB issued
FASB Staff Position FIN 46-6, "Effective Date of FASB Interpretation No.
46, Consolidation of VIE's", which required PXRE to implement FIN 46 during
the quarter ended March 31, 2004. The adoption of this statement resulted
in PXRE deconsolidating the five special purpose trusts which issued PXRE's
trust preferred securities. As a result, the subordinated loans from the
trusts are reflected as liabilities under the caption "Subordinated debt"
on PXRE's September 30, 2004 Consolidated Balance Sheet, while PXRE's
investments of approximately $5.2 million in such trusts in the form of
equity, which prior to March 31, 2004 were eliminated on consolidation, are
reflected as assets under the caption "Other assets" with a corresponding
increase in liabilities under the caption "Subordinated debt." FIN 46 did
not permit these changes to be made retroactively. In addition, gains on
the repurchase of $5.2 million of PXRE's trust preferred securities in
prior periods of $1.1 million, net of tax, that were previously accounted
for as extinguishments of debt, were reversed during the quarter ended
March 31, 2004 and presented as a cumulative effect of an accounting change
in PXRE's Consolidated Statement of Operations and Comprehensive Operations
during 2004. These repurchased securities are reflected in PXRE's
September 30, 2004 Consolidated Balance Sheet under the caption "Fixed
Maturities: Available-for-sale."
(5) In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
This statement establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within the scope of the statement as a liability or an
asset in some circumstances. PXRE adopted this statement during the quarter
ended September 30, 2003, however, due to certain parts of this statement
being deferred by the FASB, the adoption of this statement did not have any
impact on PXRE's Consolidated Financial Statements, financial position or
results of operations until the quarter ended March 31, 2004. Accordingly,
as of March 31, 2004, PXRE's mandatorily redeemable capital trust pass-
through securities were reclassified on its Consolidated Balance Sheet to
liabilities and entitled "Subordinated debt." In PXRE's Consolidated
Statements of Operations and Comprehensive Operations for the nine months
ended September 30, 2004, the interest expense related to these securities
was included with "Interest expense," whereas for the nine months ended
September 30, 2003 it was included with "Minority interest in consolidated
subsidiaries" as SFAS 150 did not permit these changes to be made
retroactively.
(6) The ratios of earnings to fixed charges were determined by dividing
consolidated earnings by total fixed charges. For purposes of these
computations, (i) earnings consist of consolidated income before
considering income taxes, fixed charges and minority interest, and (ii)
fixed charges consist of interest on indebtedness, interest expense on
premiums withheld under certain ceded reinsurance contracts and that
portion of rentals which is deemed by PXRE's management to be an
appropriate interest factor. Earnings were inadequate to cover fixed
charges by $15.7 million, $22.5 million, $22.8 million and $55.3 million
for the nine months ended September 30, 2004 and the years ended
December 31, 2001, 2000, and 1999 respectively. The ratios of earnings to
combined fixed charges and preferred dividends were determined by dividing
consolidated earnings by total fixed charges and preferred dividends.
Earnings were inadequate to cover fixed charges and preferred dividends by
$15.7 million, $22.5 million, $22.8 million

S-29

and $55.3 million for the nine months ended September 30, 2004 and the
years ended December 31, 2001, 2000, and 1999 respectively.
(7) The loss, underwriting expense and combined ratios included under "Other
Operating Data" have been derived from unaudited and audited consolidated
statements of income prepared in accordance with GAAP.
(8) Certain balances were reclassified to be consistent with 2004
classifications.
(9) Estimated for September 30, 2004.

S-30

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION

GENERAL

Unless the context otherwise requires, references to the "Company" refer to
PXRE Group Ltd., a Bermuda holding company, while "PXRE", "we", "us" and "our"
include PXRE Group Ltd. and its subsidiaries, which principally include PXRE
Corporation ("PXRE Delaware"), PXRE Reinsurance Company ("PXRE Reinsurance"),
PXRE Reinsurance Ltd. ("PXRE Bermuda"), PXRE Reinsurance (Barbados) Ltd.
("PXRE Barbados"), PXRE Solutions Inc. ("PXRE Solutions"), PXRE Solutions,
S.A. ("PXRE Europe") and PXRE Limited. References to GAAP refer to accounting
principles generally accepted in the United States ("GAAP"). References to SAP
refer to statutory accounting principles ("SAP") in either the State of
Connecticut, where PXRE Reinsurance is domiciled, or Bermuda, where PXRE
Bermuda is domiciled, as applicable.

The following is a discussion and analysis of PXRE's results of operations
for the three and nine months ended September 30, 2004 compared with the three
and nine months ended September 30, 2003, and also a discussion of our
financial condition as of September 30, 2004. This discussion and analysis
should be read in conjunction with the attached unaudited consolidated
financial statements and notes thereto and PXRE's Annual Report on Form 10-K
for the year ended December 31, 2003 (the "10-K"), including the audited
consolidated financial statements and notes thereto, the discussion of Certain
Risks and Uncertainties and the discussion of Critical Accounting Policy
Disclosures contained in the 10-K.

OVERVIEW

PXRE Group Ltd. is an insurance holding company organized in Bermuda. We
provide reinsurance products and services to a worldwide marketplace through
our wholly owned subsidiary operations located in Bermuda, Barbados, Europe
and the United States. Our primary business is catastrophe and risk excess
reinsurance, which accounted for 100% of net premiums written for the three
months ended September 30, 2004. Our catastrophe and risk excess business
includes property catastrophe excess of loss, property catastrophe
retrocessional, property risk excess, marine excess and aerospace excess and
pro rata reinsurance products.

As a result of catastrophe losses during the quarter, namely, hurricanes
Charley, Frances, Ivan and Jeanne, we generated a net loss before convertible
preferred share dividends of $73.2 million in the quarter ended September 30,
2004 compared to the net income before convertible preferred share dividends
of $23.7 million generated in the third quarter of 2003.

Our ability and willingness to generate significant premium growth are
highly dependent upon the premium pricing levels in the reinsurance market.
Pricing in our catastrophe and risk excess business was healthy during the
third quarter of 2004 following the significant rate increases experienced in
2002 and 2003. During 2004, pricing has been generally flat to up slightly in
our North America property catastrophe and world-wide retrocessional
businesses. We experienced single-digit rate decreases in our international
property catastrophe business.

In 2005, we believe the occurrence and the resulting losses of the four
significant hurricanes as well as typhoons in Japan will drive moderate rate
increases in our worldwide retrocessional business, increase or stabilize
pricing in our North American property catastrophe business and moderate rate
decreases in our international property catastrophe business.

COMPARISON OF THIRD QUARTER RESULTS FOR 2004 WITH 2003

For the quarter ended September 30, 2004, net loss before convertible
preferred share dividends was $73.2 million compared to net income before
convertible preferred share dividends of $23.7 million for the comparable
period of 2003. Net loss per diluted common share was $5.48 for the third
quarter of 2004 compared to net income per diluted common share of $1.01 for
the third quarter of 2003, based on diluted average shares outstanding of
approximately 14.0 million in the third quarter of 2004 and 23.6 million in
the

S-31

third quarter of 2003. As the Company incurred a loss from continuing
operations, in accordance with Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share," it did not include 13.5 million of
average shares in its calculation of net loss per diluted common shares that
are anti-dilutive, as shown in Note 5 to the Consolidated Financial
Statements, which is the primary reason for the decrease in the number of
diluted average shares outstanding in the third quarter of 2004 compared to
the third quarter of 2003.

PREMIUMS

Gross and net premiums written for the third quarter of 2004 and 2003 were
as follows:

THREE MONTHS ENDED
SEPTEMBER 30,
($000'S) ------------------- % INCREASE
2004 2003 (DECREASE)
-------- -------- ----------

Gross premiums written........................................................................ $125,529 $ 95,275 32
Ceded premiums written........................................................................ (12,938) (25,233) (49)
-------- --------
Net premiums written.......................................................................... $112,591 $ 70,042 61
======== ========

Gross premiums written for the thirdquarter of 2004 increased $30.3 million,
or 32%, to $125.5 million from $95.3 million in the third quarter of 2003.
Gross premiums written in our core catastrophe and risk excess segment
increased $27.0 million, or 27%, compared to the corresponding period of 2003
due to increased business written and reinstatement premiums associated with
catastrophe losses that occurred during the third quarter of 2004, namely,
hurricanes Charley, Frances, Ivan and Jeanne. Gross reinstatement premiums
written related to the catastrophe and risk excess business increased by
$24.0 million to $24.6 million in the third quarter of 2004 from $0.6 million
in the corresponding period of 2003.

Ceded premiums written decreased $12.3 million, or 49%, to $12.9 million for
the third quarter of 2004 from $25.2 million for the third quarter of 2003, as
a result of a decrease in ceded premiums written related to excess of loss
retrocessional catastrophe treaties of $7.8 million compared to the year
earlier period and to $6.8 million of ceded premiums written to Select
Reinsurance Ltd. ("Select Re") under a quota share retrocessional contract
that was in place in 2003 but was not renewed at January 1, 2004.

Net premiums written for the third quarter of 2004 increased $42.5 million,
or 61%, to $112.6 million from $70.0 million in the third quarter of 2003. Net
premiums written in our catastrophe and risk excess segment increased
$39.8 million, or 54%, during the third quarter of 2004 compared to the
comparable prior year period. The increase in this segment is due to the same
factors that caused the increase in gross premiums written and decrease in
ceded premiums written as explained above.

Gross and net premiums earned for the third quarter of 2004 and 2003 were as
follows:

THREE MONTHS ENDED
SEPTEMBER 30,
($000'S) ------------------- % INCREASE
2004 2003 (DECREASE)
-------- -------- ----------

Gross premiums earned......................................................................... $101,623 $ 83,053 22
Ceded premiums earned......................................................................... (11,824) (13,971) (15)
-------- --------
Net premiums earned........................................................................... $ 89,799 $ 69,082 30
======== ========

Gross premiums earned for the third quarter of 2004 increased $18.6 million,
or 22%, to $101.6 million from $83.1 million in the third quarter of 2003.
Gross premiums earned in our catastrophe and risk excess segment increased
$22.5 million, or 28%, to $101.7 million in the third quarter of 2004 compared
to $79.2 million in the corresponding period of 2003. Gross reinstatement
premiums earned related to the catastrophe and risk excess business increased
by $24.0 million compared to $24.6 million in the third quarter of 2004 from
$0.6 million in the corresponding period of 2003. The change in this segment
is due to similar factors as those discussed above in gross premiums written.
Offsetting this increase, in part, was a planned decrease in our exited lines
segment of $4.0 million compared to the year earlier period.

Ceded premiums earned decreased $2.1 million, or 15%, to $11.8 million for
the third quarter of 2004 from $14.0 million for the third quarter of 2003,
primarily as a result of a decrease of $5.2 million of ceded

S-32

earned premiums to Select Re under the quota share retrocessional contract
discussed above that was not renewed at January 1, 2004. Offsetting this
decrease, in part, was an increase in ceded premiums earned related to excess
of loss catastrophe retrocessional treaties.

Net premiums earned for the third quarter of 2004 increased $20.7 million,
or 30%, to $89.8 million from $69.1 million for the corresponding period of
2003. Net premiums earned in the catastrophe and risk excess segment increased
$25.2 million, or 39%, for the third quarter of 2004 as compared to the
corresponding prior-year period. The change in this segment is due to similar
factors as those discussed above in gross and net premiums written. Offsetting
this increase, in part, was a planned decrease in our exited lines segment of
$4.5 million compared to the year earlier period.

As part of our efforts to return to our core catastrophe and risk business,
we have ceased underwriting finite business, and during the quarter ended
June 30, 2004 we began to include the results of this business in our exited
lines segment. During the year ended December 31, 2003 and the quarter ended
March 31, 2004, this business was focused on a limited group of cedents and on
policies that did not contain significant risk transfer. Finite contracts that
do not contain sufficient risk transfer are not recorded as reinsurance
arrangements but are treated as deposits for accounting purposes. As such, the
income related to these transactions is recorded as fee income, and
liabilities, if any, are recorded as deposit liabilities. There will be an
insignificant amount of finite premiums earned in future periods.

A summary of our net premiums written and earned by business segment for the
three months ended September 30, 2004 and 2003 is included in Note 8 to the
Consolidated Financial Statements.

RATIOS

The underwriting results of a property and casualty insurer are discussed
frequently by reference to its loss ratio, expense ratio (including the
commission and brokerage ratio, net of fee income, if any, and the operating
expense ratio) and combined ratio. The loss ratio is the result of dividing
losses and loss expenses incurred by net premiums earned. The expense ratio is
the result of dividing underwriting expenses (including commission and
brokerage, net of fee income, if any, and the operating expenses) by net
premiums earned. The combined ratio is the sum of the loss ratio and the
expense ratio. A combined ratio less than 100% indicates underwriting profits
and a combined ratio greater than 100% indicates underwriting losses. The
combined ratio does not reflect the effect of investment income on
underwriting results. The ratios discussed below have been calculated on a
GAAP basis.

The following table summarizes the loss ratio, expense ratio and combined
ratio for the quarters ended September 30, 2004 and 2003, respectively:

THREE MONTHS
ENDED
SEPTEMBER30,
(%) ------------
2004 2003
----- ----

Loss ratio ..................................................... 174.1 51.0
Expense ratio .................................................. 18.3 17.2
----- ----
Combined ratio ................................................. 192.4 68.2
===== ====
Catastrophe and risk excess loss ratio ......................... 151.4 17.5
===== ====

LOSSES AND LOSS EXPENSES

Losses and loss expenses incurred amounted to $156.3 million in the third
quarter of 2004 compared to $35.2 million in the third quarter of 2003. The
loss ratio was 174.1% for the third quarter of 2004 compared to 51.0% for the
comparable prior-year period largely due to $135.7 million in incurred losses,
net of reinsurance, primarily from hurricanes Charley, Frances, Ivan and
Jeanne that occurred during the third quarter of 2004. As noted above in the
discussion of Premiums, the hurricanes triggered $24.0 million of
reinstatement premiums earned during the third quarter of 2004, which somewhat
offset the impact of the hurricane losses on net income.

S-33

Also during the third quarter of 2004, we experienced net adverse
development of $12.2 million for prior-year losses and loss expenses,
comprised of $7.8 million cat and risk excess net favorable development and
$20.0 million exited lines net adverse development. The favorable development
in the cat and risk excess business was primarily related to case reserve
takedowns from past significant catastrophes, such as the 2002 European
floods. The $20.0 million net adverse development related to exited lines is
due primarily to recording additional loss reserves of $14.7 million relating
to an excess of loss retrocessional reinsurance agreement (the "XOL Retro
Treaty") with Lumbermens Mutual Casualty Company ("LMC") (See "Commitments,
Contingencies and Contractual Obligations") and several treaties with a ceding
company for which we wrote general liability business within our direct
casualty operations. These treaties were commuted in the third quarter of
2004.

During the third quarter of 2003, we experienced net adverse development of
$9.8 million for prior-year loss and loss expenses, $10.1 million of which was
due to adverse loss development on our exited direct casualty reinsurance
operations.

UNDERWRITING EXPENSES

The expense ratio was 18.3% for the third quarter of 2004 compared to 17.2%
during the comparable year-earlier period. The commission and brokerage ratio,
net of fee income, was 9.1% for the third quarter of 2004 compared with 3.0%
for the third quarter of 2003, with the prior-year ratio affected by a large
negative commission on a finite contract. The catastrophe and risk excess
commission and brokerage ratio, net of fee income, was 9.9% for the third
quarter of 2004 compared to 10.0% for the third quarter of 2003.

PXRE is not a party to any so-called Market Service Agreements or Placement
Service Agreements, nor does PXRE engage in any of the contingent commission
or other practices that we understand to be the focus of the ongoing
investigations by the New York State Attorney General's Office, as reported in
the press.

The operating expense ratio was 9.2% for the three months ended September 30,
2004 compared with 14.2% for the comparable period of 2003. The decrease is
the result of increased net premiums earned and a decrease in incentive
compensation expense associated with catastrophe activity during the quarter.
Other operating expenses decreased 15% to $8.3 million for the three months
ended September 30, 2004 from $9.8 million in the comparable period of 2003.
This decrease in operating expenses is primarily a result of a decrease in
incentive compensation costs partially offset by increased costs in the third
quarter of 2004 associated with consulting costs from Sarbanes-Oxley
Section 404 compliance.

INTEREST EXPENSE AND MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES

Interest expense, including minority interest in consolidated subsidiaries,
increased to $3.8 million for the three months ended September 30, 2004 from
$2.8 million in the comparable period of 2003. This increase is primarily due
to $0.6 million of additional interest on $30.9 million of trust preferred
securities issued subsequent to September 30, 2003. As discussed in Note 2 to
the Consolidated Financial Statements, following the implementation of SFAS
150 and FIN 46 during the quarter ended March 31, 2004, the interest on trust
preferred securities is now shown as interest expense, whereas it was
previously recorded as minority interest in consolidated subsidiaries.

NET INVESTMENT INCOME

Net investment income for the third quarter of 2004 decreased 14% to
$5.2 million from $6.0 million in the third quarter of 2003, primarily as a
result of a $1.5 million decrease in income from our hedge fund portfolio,
offset by $0.9 million additional income from the other invested asset
portfolio. Investment income related to our hedge fund portfolio decreased to
$0.9 million in the third quarter of 2004 from $2.4 million in the third
quarter of 2003 as investments in hedge funds produced a return of 0.7% for
the third quarter of 2004 compared with 2.1% in the comparable prior-year
period. Offsetting this decrease was an increase in the balance of our fixed
maturities and short-term investment portfolios partially offset by a decrease
in the book yield to 3.1% during the third quarter of 2004 from 3.5% during
the comparable prior-year period.

S-34

Investment income for the quarter was also affected by various finite and
other reinsurance contracts where premiums payable under such contracts were
retained on a funds withheld basis. In order to reduce credit risk or to
comply with regulatory credit for reinsurance requirements, a portion of
premiums paid under such reinsurance contracts is retained by the cedent
pending payment of losses or commutation of the contract. Investment income on
such withheld funds is typically for the benefit of the reinsurer and the
cedent may provide a minimum investment return on such funds. We have both
ceded and assumed reinsurance contracts that involve the withholding of
premiums by the cedent. On assumed reinsurance contracts, cedents held
premiums and accrued investment income due to us of $0.0 million and
$26.0 million as of September 30, 2004 and 2003, respectively, for which we
have recognized $0.0 million and $0.4 million of investment income for the
third quarter of 2004 and 2003, respectively. On ceded reinsurance contracts,
we held premiums and accrued investment income of $84.7 million and
$123.0 million due to reinsurers as of September 30, 2004 and 2003,
respectively, for which we recognized a charge to investment income of
$1.8 million and $2.2 million for the third quarter of 2004 and 2003,
respectively. On a net basis, this reduction to investment income was
$1.0 million and $0.8 million for the quarters ended September 30, 2004 and
2003, respectively, representing the difference between the stated investment
return under such contracts and the overall yield achieved on our total
investment portfolio for the quarter. The weighted average contractual
investment return on the funds held by PXRE is 8.0% and 6.8% for the quarters
ended September 30, 2004 and 2003, respectively, and we expect to be obligated
for this contractual investment return for the life of the underlying
liabilities, which is expected to be two years as of September 30, 2004 on a
weighted average basis.

INCOME TAXES

PXRE recognized a tax benefit of $8.2 million in the third quarter of 2004
compared to a tax expense of $1.0 million in the comparable prior-year period.
The tax benefit in the third quarter of 2004 differed from the U.S. statutory
rate primarily due to the reinsurance business written in our Bermuda
reinsurance subsidiary.

COMPARISON OF YEAR-TO-DATE RESULTS FOR 2004 WITH 2003

For the nine months ended September 30, 2004, net loss before convertible
preferred share dividends was $9.9 million compared to net income before
convertible preferred share dividends of $68.8 million for the comparable
period of 2003. Net loss per diluted common share was $1.49 for the first nine
months of 2004 compared to net income per diluted common share of $2.97 for
the first nine months of 2003, based on diluted average shares outstanding of
approximately 13.8 million in the first nine months of 2004 and 23.2 million
in the first nine months of 2003. As the Company incurred a loss from
continuing operations, in accordance with SFAS No. 128, "Earnings Per Share,"
it did not include 13.2 million of average shares in its calculation of net
loss per diluted common shares that are anti-dilutive, as shown in Note 5 to
the Consolidated Financial Statements, which is the primary reason for the
decrease in the number of diluted average shares outstanding in the nine
months ended September 30, 2004 compared to the corresponding period of 2003.

PREMIUMS

Gross and net premiums written for the nine months ended September 30, 2004
and 2003 were as follows:

NINE MONTHS ENDED
SEPTEMBER 30,
($000'S) ------------------- % INCREASE
2004 2003 (DECREASE)
-------- -------- ----------

Gross premiums written........................................................................ $285,847 $274,123 4
Ceded premiums written........................................................................ (32,320) (52,692) (39)
-------- --------
Net premiums written.......................................................................... $253,527 $221,431 14
======== ========

Gross premiums written for the nine-month period ended September 30, 2004
increased $11.7 million, or 4% to $285.8 million from $274.1 million in the
corresponding prior-year period. Gross premiums written in

S-35

our core catastrophe and risk excess segment increased $14.3 million, or 5%,
compared to the corresponding period of 2003. This increase was caused
primarily by $29.7 million of reinstatement premiums, $24.6 million of which
were from the hurricanes Charley, Frances, Ivan and Jeanne. Reinstatement
premiums in the nine-month period ended September 30, 2003 were $5.0 million.
This increase was offset, in part, by rate decreases in our international
property catastrophe business and the non-renewal of several programs due to
decreases in market pricing. In addition, there was a planned decrease in our
exited lines segment of $2.6 million, or 44%, compared to the year earlier
period.

Ceded premiums written decreased by $20.4 million, or 39%, to $32.3 million
for the nine-month period ended September 30, 2004 from $52.7 million for the
corresponding prior-year period, as a result of a decrease of $16.0 million of
ceded premiums written to Select Re in 2003 under a quota share retrocessional
contract that was in place in 2003 but was not renewed at January 1, 2004 and
a $4.6 million decrease in ceded premiums written related to excess of loss
retrocessional catastrophe treaties.

Net premiums written for the nine-month period ended September 30, 2004
increased $32.1 million, or 14%, to $253.5 million from $221.4 million in the
corresponding prior-year period. Net premiums written in our catastrophe and
risk excess segment increased $34.7 million, or 16%, to $250.4 million in the
first nine months of 2004 from $215.7 million in the first nine months of
2003. Net premiums written in the exited lines segment decreased $2.6 million,
or 45%, during the nine-month period ended September 30, 2004 versus the
prior-year comparable period. The changes in these segments are due to similar
factors that caused the increase in gross premiums written and decrease in
ceded premiums written as explained above.

Gross and net premiums earned for the nine-month period ended September 30,
2004 and 2003 were as follows:

NINE MONTHS ENDED
SEPTEMBER 30,
------------------- % INCREASE
($000'S) 2004 2003 (DECREASE)
-------- -------- ----------

Gross premiums earned......................................................................... $263,856 $282,210 (7)
Ceded premiums earned......................................................................... (35,540) (44,340) (20)
-------- --------
Net premiums earned........................................................................... $228,316 $237,870 (4)
======== ========

Gross premiums earned for the first nine months of 2004 decreased
$18.4 million, or 7%, to $263.9 million from $282.2 million in the first nine
months of 2003. This decrease is primarily due to a planned decrease in our
exited lines segment of $36.8 million as compared to the corresponding period
of 2003. Gross premiums earned in our catastrophe and risk excess segment
increased $18.5 million, or 8%, to $257.7 million in the first nine months of
2004 from $239.2 million in the corresponding period of 2003. The changes in
these segments are due to similar factors as those discussed above in gross
premium written.

Ceded premiums earned decreased $8.8 million, or 20%, to $35.5 million for
the nine- month period ended September 30, 2004 from $44.3 million for the
corresponding prior-year period, primarily as a result of a decrease of
$12.5 million of ceded earned premiums to Select Re under the quota share
retrocessional contract discussed above that was not renewed at January 1,
2004. Offsetting this decrease, in part, was an increase in ceded premiums
earned related to excess of loss catastrophe retrocessional treaties.

Net premiums earned for the first ninemonths of 2004 decreased $9.6 million,
or 4% to $228.3 million from $237.9 million for the corresponding period of
2003. Net premiums earned in the exited lines segment decreased $36.9 million,
or 86%, for the first nine months of 2004 as compared to the first nine months
of 2003. Net premiums earned in the catastrophe and risk excess segment
increased $27.3 million, or 14%, to $222.3 million for the nine months ended
September 30, 2004 from $195.0 million in the corresponding prior-year period.
The changes in these segments are due to the same factors as those discussed
above in gross and net premiums written.

S-36

arrangements but are treated as deposits for accounting purposes. As such, the
income related to these transactions is recorded as fee income, and
liabilities, if any, are recorded as deposit liabilities. There will be an
insignificant amount of finite premiums earned in future periods.

A summary of our net premiums written and earned by business segment for the
nine months ended September 30, 2004 and 2003 is included in Note 8 to the
Consolidated Financial Statements.

RATIOS

The following table summarizes the loss ratio, expense ratio and combined
ratio for the nine months ended September 30, 2004 and 2003, respectively:

NINE MONTHS
ENDED
SEPTEMBER 30,
-------------
(%) 2004 2003
----- ----

Loss ratio ..................................................... 84.3 47.3
Expense ratio .................................................. 25.2 26.8
----- ----
Combined ratio ................................................. 109.5 74.1
===== ====
Catastrophe and risk excess loss ratio ......................... 75.2 25.3
===== ====

LOSSES AND LOSS EXPENSES

Losses and loss expenses incurred amounted to $192.6 million for the nine
months ended September 30, 2004 compared to $112.5 million in the
corresponding prior year period. The loss ratio was 84.3% for the first nine
months of 2004 compared to 47.3% for the comparable prior-year period largely
due to $135.7 million in incurred losses, net of reinsurance, primarily from
hurricanes Charley, Frances, Ivan and Jeanne that occurred during the third
quarter of 2004. As noted above in the discussion of Premiums, the hurricanes
triggered $24.0 million of reinstatement premiums earned during the third
quarter of 2004, which somewhat offset the impact of the hurricane losses on
net income.

Also during the first nine months of 2004, we experienced net adverse
development of $11.6 million for prior-year losses and loss expenses,
comprised of $7.8 million cat and risk excess net favorable development and
$19.4 million exited lines net adverse development. The favorable development
in the cat and risk excess business was primarily related to case reserve
takedowns from past significant catastrophes, such as the 2002 European
floods. The $19.4 million net adverse development related to exited lines is
due primarily to recording additional loss reserves of $14.7 million relating
to the XOL Retro Treaty with LMC (See "Commitments, Contingencies and
Contractual Obligations") and several treaties with a ceding company for which
we wrote general liability business within our direct casualty operations.
These treaties were commuted in the third quarter of 2004.

During the first nine months of 2003, we experienced net adverse development
of $40.7 million for prior-year loss and loss expenses, primarily due to
$19.7 million on our exited direct casualty reinsurance operations,
$9.1 million adverse loss development from aerospace claims primarily arising
from our first receipt of notice that the increase in industry losses related
to a 1998 air crash had resulted in the exhaustion of deductibles under three
aerospace contracts between the Company and Reliance Insurance Company and
$6.0 million of loss development from finite contracts.

UNDERWRITING EXPENSES

The expense ratio was 25.2% for the first nine months of 2004 compared to
26.8% during the comparable year-earlier period. The commission and brokerage
ratio, net of fee income, was 11.7% for the first nine months of 2004 compared
with 14.4% for the comparable prior-year period, with the prior-year ratio
affected by the higher proportion of exited lines premium. The catastrophe and
risk excess commission and brokerage ratio, net of fee income, was 11.2% for
the first nine months of 2004 compared with 12.2% for the first nine months of
2003, primarily due to $4.0 million of structuring fees related to a
reinsurance agreement with P-1 Re Ltd. and the subsequent commutation thereof
in the first nine months of 2003. The exited lines

S-37

commission and brokerage ratio, net of fee income, was 30.5% for the first
nine months of 2004 compared with 24.7% during the first nine months of 2003.

The operating expense ratio was 13.5% for the first nine months of 2004
compared with 12.4% for the comparable period of 2003. The increase is the
result of the decrease in net premiums earned, offset, in part, by a decrease
in incentive compensation expense associated with catastrophe activity during
the quarter. Other operating expenses increased 4% to $30.8 million for the
nine months ended September 30, 2004 from $29.5 million in the comparable
period of 2003. This increase is primarily due to severance expenses during
the nine months ended September 30, 2004 related to a 10.0% reduction in
personnel and increased costs associated with consulting costs from Sarbanes-
Oxley Section 404 compliance.

INTEREST EXPENSE AND MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES

Interest expense, including minority interest in consolidated subsidiaries,
increased to $10.9 million for the nine months ended September 30, 2004 from
$9.9 million in the comparable period of 2003. This increase is due to
$2.8 million of additional interest on $64.4 million of trust preferred
securities which replaced $30.0 million of bank debt in 2003, offset by the
non-recurrence of $1.5 million of expense reflected in 2003 from an interest
rate swap that became ineffective as a hedging instrument during the quarter
ended March 31, 2003. As discussed in Note 2 to the Consolidated Financial
Statements, following the implementation of SFAS 150 and FIN 46 during the
quarter ended March 31, 2004, the interest on trust preferred securities is
now shown as interest expense, whereas it was previously recorded as minority
interest in consolidated subsidiaries.

NET INVESTMENT INCOME

Net investment income for the first nine months of 2004 decreased 15% to
$16.9 million from $20.0 million in the comparable prior-year period primarily
as a result of a $4.7 million decrease in income from our hedge fund
portfolio, offset by a $2.4 million increase in income from our fixed maturity
and short-term investment portfolios. Investment income related to our hedge
fund portfolio decreased to $5.2 million in the first nine months ended
September 30, 2004 from $9.9 million in the comparable prior-year period as
investments in hedge funds produced a return of 4.2% for the first nine months
of 2004 compared with 8.8% in the comparable prior-year period. Offsetting
this decrease was an increase in the balance of our fixed maturity and short-
term investment portfolios partially offset by a decrease in the book yield to
3.2% during the first nine months of 2004 from 3.7% during the comparable
prior-year period.

Investment income for the first nine months of 2004 was also affected by
various finite and other reinsurance contracts where premiums payable under
such contracts were retained on a funds withheld basis. In order to reduce
credit risk or to comply with regulatory credit for reinsurance requirements,
a portion of premiums paid under such reinsurance contracts is retained by the
cedent pending payment of losses or commutation of the contract. Investment
income on such withheld funds is typically for the benefit of the reinsurer
and the cedent may provide a minimum investment return on such funds. We have
both ceded and assumed reinsurance contracts that involve the withholding of
premiums by the cedent. On assumed reinsurance contracts, cedents held
premiums and accrued investment income due to us of $0.0 million and
$26.0 million as of September 30, 2004 and 2003, respectively, for which we
have recognized $0.9 million and $1.3 million of investment income for the
first nine months of 2004 and 2003, respectively. On ceded reinsurance
contracts, we held premiums and accrued investment income of $84.7 million and
$123.0 million due to reinsurers as of September 30, 2004 and 2003,
respectively, for which we recognized a charge to investment income of
$6.2 million and $6.9 million for the first nine months of 2004 and 2003,
respectively. On a net basis, this reduction to investment income was
$2.7 million and $1.8 million for the nine months ended September 30, 2004 and
2003, respectively, representing the difference between the stated investment
return under such contracts and the overall yield achieved on our total
investment portfolio for the nine month period. The weighted average
contractual investment return on the funds held by PXRE is 7.4% and 7.0% for
the nine months ended September 30, 2004 and 2003, respectively, and we expect
to be obligated for this contractual investment return for the life of the
underlying liabilities, which is expected to be two years as of September 30,
2004 on a weighted average basis.

S-38

INCOME TAXES

PXRE recognized a tax benefit of $6.8 million in the first nine months of
2004 compared to a tax expense of $2.9 million in the comparable prior-year
period. The tax benefit in the first nine months of 2004 differed from the
U.S. statutory rate primarily due to the reinsurance business written in our
Bermuda reinsurance subsidiary.

CUMULATIVE ADJUSTMENT

The Company adopted the provisions of FIN 46 during the first quarter of
2004. The cumulative effect of this accounting pronouncement reduced net
income for the nine months ended September 30, 2004 by $1.1 million but did
not materially impact shareholders' equity.

FINANCIAL CONDITION

CAPITAL RESOURCES

The Company relies primarily on dividend payments from its subsidiaries,
including PXRE Reinsurance and PXRE Bermuda, to pay its operating expenses, to
meet its debt service obligations and to pay dividends. During the nine months
ended September 30, 2004, PXRE Reinsurance paid $42.5 million in dividends. In
addition, PXRE Reinsurance distributed capital of $57.5 million in the third
quarter of 2004 as approved by the Insurance Department of the State of
Connecticut. PXRE Bermuda did not pay any dividends during the same period.
Based on the statutory surplus as of December 31, 2003, the aggregate
dividends that remain available to be paid during 2004, without prior
regulatory approval, by PXRE Reinsurance and PXRE Bermuda are $155.1 million.
We anticipate that this available dividend capacity will be sufficient to fund
our liquidity needs during 2004.

LIQUIDITY

The primary sources of liquidity for PXRE Reinsurance and PXRE Bermuda, our
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. Funds are applied
primarily to the payment of claims, operating expenses, income taxes, the
purchase of investments and payment of capital costs. Premiums are typically
received in advance of related claim payments.

Financings

As of September 30, 2004, PXRE had $167.1 million in subordinated debt
securities outstanding as follows:

($000'S) SEPTEMBER 30, 2004
------------------

8.85% fixed rate due February 1, 2027 .................. $102,638
7.35% fixed/floating rate due May 15, 2033 ............. 18,042
9.75% fixed rate due May 23, 2033 ...................... 15,464
7.70% fixed/floating rate due October 29, 2033 ......... 20,619
7.58% fixed/floating rate due September 30, 2033 ....... 10,310
--------
$167,073
========

Share Dividends and Book Value

Dividends to common shareholders declared in the third quarter of 2004 and
2003 were $0.9 million and $0.7 million, respectively. The expected annual
dividend based on common shares outstanding at September 30, 2004 is
approximately $3.4 million. Book value per common share was $20.34 at
September 30, 2004 after considering convertible preferred shares.

S-39

quarterly basis. As of September 30, 2004, 18,273 convertible preferred shares
were issued and outstanding. Dividends to preferred shareholders, paid in
kind, during the third quarter of 2004 and 2003 amounted to $3.6 million and
$3.3 million, respectively.

On December 16, 2003, the Company completed an offering of 2.2 million of
its common shares at $21.75 per share, pursuant to a Shelf Registration on
Form S-3, filed in 2003 for $150.0 million. Of the 2.2 million shares sold,
1.1 million were offered by PXRE and 1.1 million were offered by Phoenix Life
Insurance Company ("Phoenix"), one of the Company's common shareholders. The
Company did not receive any of the proceeds from the sale of shares by
Phoenix. On January 22, 2004, the underwriters of the above mentioned share
offering exercised in-full their over-allotment option to purchase 0.3 million
additional common shares at $21.75 per share. As a result of the exercise of
the option, the Company received additional proceeds, net of offering costs,
of $6.5 million. We used the net proceeds for general corporate purposes,
including contributions to the capital of PXRE Bermuda. After giving effect to
the sale of the over-allotment shares, a total of 2.5 million shares were sold
in the offering.

Cash Flows

Net cash flows provided by operations were $33.6 million in the third
quarter of 2004 compared to $11.7 million in the third quarter of 2003 due to
the timing of losses paid, the sale of trading investment portfolio assets in
the third quarter of 2004 without any similar disposals in the third quarter
of 2003 and the payment of funds under deposit contracts during the third
quarter of 2004 as opposed to the receipt of funds associated with deposit
contracts in the third quarter of 2003. Because of the nature of the coverages
we provide, which typically can produce infrequent losses of high severity, it
is not possible to predict accurately our future cash flows from operating
activities. As a consequence, cash flows from operating activities may
fluctuate, perhaps significantly, between individual quarters and years.

Net cash used by investing activities were $34.1 million in the third
quarter of 2004 compared to $72.1 million in the third quarter of 2003 due
primarily to purchases of securities for investment partially offset by
proceeds received on sale or maturity of investments.

The Company is subject to large losses, including natural perils such as
hurricanes and earthquakes. Since the timing and amount of losses from such
exposures is unknown, the Company invests its assets so that should an event
occur, it would have sufficient liquidity to pay claims on the underlying
contracts. A portion of the invested assets is notionally allocated to a
Primary Capital Portfolio. The guidelines of this portfolio are designed in
such a manner that securities are available to pay claims from a potential
loss. For example, the securities, which are of high credit quality, have a
duration that approximates the duration of the cash outflows of past large
losses incurred by PXRE. The purpose of the Primary Capital Portfolio is to
maintain a pool of assets whose underlying durations and maturities
approximate that of the potential future cash outflows. Should an event
actually occur, the Company may dedicate assets, including cash equivalents
and other short-term investments, in such a manner that cash is always on hand
to pay claims.

This asset/liability matching strategy is evidenced by the Company's overall
2.2 year duration of its fixed income and short-term investments. Due to this
relatively short duration portfolio, the company does not believe selling
securities before anticipated will have a material adverse impact on its
financial position.

The Company has $200 million in letter of credit (LOC) facilities that allow
it to provide LOCs to its ceding companies if such LOC is required under the
terms of the contract. The Company must transfer eligible assets to a
collateral account prior to the banks issuing the LOC. Since eligible assets
include fixed income investments, such securities need not be sold in order to
qualify as eligible collateral.

Commitments, Contingencies and Contractual Obligations

We do not have any material off-balance sheet arrangements. We are updating
the contractual obligations disclosed in the Company's Annual Report on Form
10-K for the year ended December 31, 2003, to include additional disclosure on
the Company's loss and loss expense reserves. Other contractual obligations
disclosed in the Form 10-K for the year ended December 31, 2003 are not
presented herein as they have not materially changed.

S-40

Loss and loss expense reserves represent management's best estimate of the
ultimate cost of settling the underlying reinsurance claims. As more fully
discussed in Update on Critical Accounting Policies--Estimation of Loss and
Loss Expenses, the estimation of loss and loss expense reserves is based on
various complex and subjective judgments. Actual losses and loss expenses paid
may deviate, perhaps substantially, from the reserve estimates reflected in
our financial statements. Similarly, the timing for payment of our estimated
losses is not fixed and is not determinable on an individual or aggregate
basis. The assumptions used in estimating the likely payments due by periods
are based on the Company's historical claims payment experience, but due to
the inherent uncertainty in the process of estimating the timing of such
payments, there is a risk that the amounts paid in any such period can be
significantly different than the amounts disclosed below.

PAYMENT DUE BY PERIOD
-----------------------------------------------------------------
MORE THAN
($000'S) TOTAL LESS THAN 1 YEAR 1-3 YEARS 3-5 YEARS 5 YEARS
-------- ---------------- --------- --------- ---------

Losses and loss expenses $517,501 $252,680 $143,819 $50,497 $70,505

As of September 30, 2004, other commitments and pledged assets include (a)
LOCs of $8.1 million which are secured by cash and securities amounting to
$9.2 million, (b) securities with a par value of $9.1 million on deposit with
various state insurance departments in order to comply with insurance laws,
(c) securities with a fair value of $67.7 million deposited in a trust for the
benefit of a cedent in connection with certain finite reinsurance
transactions, (d) funding commitments to certain limited partnerships of
$0.3 million, (e) a commitment to lend a further $0.1 million to finance the
completion of the construction of an office building that we currently use as
our headquarters in Bermuda, (f) a contingent liability amounting to
$1.2 million under the Restated Employee Annual Incentive Bonus Plan, (g)
commitments under the capital trust pass-through securities discussed above,
and (h) commitment fees of $0.2 million per annum under a Letter of Credit
Facility Agreement, dated June 25, 2004, between PXRE Bermuda and Barclays
Bank PLC.

In connection with the capitalization of PXRE Lloyd's Syndicate 1224, PXRE
Reinsurance has on deposit a $22.5 million par value U.S. Treasury security as
collateral for Lloyd's. Cash and invested assets held by PXRE Lloyd's
Syndicate 1224, amounting to $12.5 million at September 30, 2004, are
restricted from being paid as a dividend until the run-off of our exited
Lloyd's business has been completed.

We entered into a joint venture agreement, dated June 2001 (the "JV
Agreement"), with BF&M Properties Limited to form a Bermuda corporation,
Barr's Bay Properties Limited ("Barr's Bay"). Barr's Bay was formed to
construct an office building in Hamilton, Bermuda, in which we will have the
option to lease office space for three consecutive five-year terms. We own 40%
of the outstanding shares of Barr's Bay. Pursuant to the JV Agreement, we
agreed to lend up to $7.0 million to Barr's Bay to finance the construction of
the subject office building, $6.9 million of which has been advanced as of
September 30, 2004. The loans are secured by a first mortgage on the property.

In April 2000, PXRE Reinsurance entered into the XOL Retro Treaty with LMC.
In the XOL Retro Treaty, PXRE Reinsurance reinsured a portfolio of treaties
underwritten by a former business unit of LMC, which had been divested.
Pursuant to this XOL Retro Treaty, PXRE Reinsurance agreed to indemnify LMC
for losses in excess of a 75% paid loss ratio on this underlying portfolio of
treaties up to a 100% paid loss ratio, subject to an aggregate limit of
liability of $50.0 million. The latest loss reports related to the XOL Retro
Treaty provided by LMC forecast an ultimate net loss ratio in excess of 100%,
which could result in a full limit loss to PXRE.

In June 2003, PXRE Reinsurance performed an audit of this portfolio of
treaties reinsured under the XOL Retro Treaty. As a result of this audit,
management identified problems and believes that LMC defrauded PXRE, breached
its duty of utmost good faith, and breached its contractual obligations and
fiduciary duties under the agreement. PXRE Reinsurance therefore filed suit
against LMC on July 24, 2003 in a United Stated District Court seeking
rescission of the agreement and/or compensatory and punitive damages.

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binding of the XOL Retro Treaty. PXRE Reinsurance disagrees with the court's
decision. PXRE Reinsurance is filing a motion for reconsideration based upon
recent deposition testimony by the former president of the subject former LMC
business unit which had not been considered by the court prior to its decision
on LMC's motion. If that motion is unsuccessful, PXRE Reinsurance intends to
seek to appeal the order to the United States Court of Appeals for the Seventh
Circuit.

The court did not address PXRE Reinsurance's breach of contract claims and
allegations arising out of LMC's post-binding activity and such claims remain
pending.

Unless the court order is reconsidered or overturned on appeal, rescission
may no longer be available as a remedy in our suit against LMC. At this stage
of the lawsuit, it is difficult to estimate the scope and amount of potential
damages relating to PXRE Reinsurance's breach of contract claims. We have
therefore recorded additional loss reserves of $14.7 million relating to the
XOL Retro Treaty as of September 30, 2004, which is equal to the remaining
portion of the $50.0 million aggregate limit of liability under the XOL Retro
Treaty. Accordingly, PXRE Reinsurance will have no exposure to additional
losses relating to the contract. This results in a negative after tax impact
of $9.6 million on earnings in the quarter ended September 30, 2004.

Although the ultimate outcome of the litigation cannot presently be
determined, management believes that PXRE Reinsurance's claims are meritorious
and intends to continue to prosecute its suit.

INVESTMENTS

As of September 30, 2004, our investment portfolio, at fair value, was
allocated 63.7% in fixed maturities, 23.6% in short-term investments, 12.1% in
hedge funds and 0.6% in other investments.

The following table summarizes our investments at September 30, 2004 and
December 31, 2003 at fair value:

ANALYSIS OF INVESTMENTS
------------------------------------------
SEPTEMBER 30, 2004 DECEMBER 31, 2003
-------------------- ------------------
($000'S, EXCEPT PERCENTAGES) AMOUNT PERCENT AMOUNT PERCENT
---------- ------- -------- -------

Fixed maturities:
United States treasury securities ....... $ 70,611 6.6% $ 40,237 4.2%
Foreign denominated securities .......... 14,160 1.3 21,451 2.3
United States government sponsored
agency debentures...................... 99,047 9.2 115,440 12.2
United States government sponsored
agency mortgage-backed securities...... 105,304 9.8 134,323 14.2
Other mortgage and asset-backed
securities.............................. 178,639 16.7 146,196 15.4
Municipal securities .................... 1,578 0.2 18,584 2.0
Corporate securities .................... 213,522 19.9 162,878 17.2
---------- ----- -------- -----
Total fixed maturities ................ 682,861 63.7 639,109 67.5
Short-term investments ................... 252,893 23.6 175,771 18.6
---------- ----- -------- -----
Total fixed maturities and short-term
investments .......................... 935,754 87.3 814,880 86.1
Hedge funds .............................. 129,601 12.1 121,466 12.8
Other investments ........................ 6,931 0.6 10,173 1.1
---------- ----- -------- -----
Total investment portfolio ............ $1,072,286 100.0% $946,519 100.0%
========== ===== ======== =====

At September 30, 2004, 98.3% of the fair value of our fixed maturities and
short-term investments portfolio was in obligations rated "A" (strong) or
better by Moody's or S&P. Mortgage and asset-backed securities accounted for
30.3% of fixed maturities and short-term investments or 26.5% of our total
investment portfolio based on fair value at September 30, 2004.

Fixed maturity investments, other than trading securities, are reported at
fair value, with the net unrealized gain or loss, net of tax, reported as a
separate component of shareholders' equity. Fixed maturity investments
classified as trading securities are reported at fair value, with the net
unrealized gain or loss

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reported as investment income. At September 30, 2004, an after-tax unrealized
loss of $1.1 million was included in shareholders' equity.

Short-term investments are carried at amortized cost, which approximates
fair value. Our short-term investments, principally short-term agencies and
United States treasuries, amounted to $252.9 million at September 30, 2004,
compared to $175.8 million at December 31, 2003.

A significant component of our investment strategy is investing a portion of
our invested assets in a diversified portfolio of hedge funds. At September 30,
2004, total hedge fund investments amounted to $129.6 million, representing
12.1% of the total investment portfolio. At December 31, 2003, total hedge
fund investments amounted to $121.5 million, representing 12.8% of the total
investment portfolio. For the nine months ended September 30, 2004, our hedge
funds yielded a return of 4.2% compared to 8.8% in the nine months ended
September 30, 2003. At September 30, 2004, hedge fund investments with fair
values ranging from $1.0 million to $16.9 million were administered by
eighteen managers.

As of September 30, 2004, our investment portfolio also included $6.9 million
of other invested assets of which 99% is in two mezzanine bond funds. The
remaining aggregate cash call commitments in respect of such investments are
$0.3 million.

Hedge funds and other limited partnership investments are accounted for
under the equity method. Total investment income for the nine months ended
September 30, 2004, included $6.0 million attributable to hedge funds and
other investments.

Our hedge fund and other privately held securities program should be viewed
as exposing us to the risk of substantial losses, which we seek to reduce
through our diversified investment strategies and managers. There can be no
assurance, however, that this approach will prove to be successful.

TAXES

PXRE Delaware files U.S. income tax returns for itself and all of its direct
or indirect U.S. subsidiaries that satisfy the stock ownership requirements
for consolidation. PXRE Delaware is party to a tax allocation agreement
concerning filing of consolidated federal income tax returns pursuant to which
each of these U.S. subsidiaries makes tax payments to PXRE Delaware in an
amount equal to the federal income tax payment that would have been payable by
the relevant U.S. subsidiary for the year if it had filed a separate income
tax return for that year. PXRE Delaware is required to provide 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 one of these U.S.
subsidiaries is less than (or greater than) the annual tax liability for that
U.S. subsidiary on a stand-alone basis for that year, the U.S. subsidiary will
be required to make up the deficiency to PXRE Delaware (or will be entitled to
receive a credit if payments exceed the separate return tax liability of that
U.S. subsidiary).

CERTAIN RELATED PARTY TRANSACTIONS

Since 1997, PXRE has entered into various reinsurance agreements with Select
Re, a privately held Bermuda reinsurance company. The primary reinsurance
agreement between PXRE and Select Re was a quota share retrocessional
agreement ("Obligatory Quota Share Treaty"), pursuant to which we have ceded
varying proportional shares of our non-casualty reinsurance business ranging
from a high of 16.5% in 2001 to a low of 2.62% in 1997. These cessions
satisfied an undertaking we entered into with Select Re to use commercially
reasonable efforts to present Select Re with aggregate annual premiums equal
to a minimum of 20% of Select Re's shareholders' equity (as defined in the
undertaking). This undertaking was amended in November 2002 and extended until
2005. In return, Select Re was obligated to pay us a management fee of 15%
based on the gross premiums ceded to them under the Obligatory Quota Share
Treaty, which resulted in fee income of $0.5 million for the nine months ended
September 30, 2004. The cession percentage under the Obligatory Quota Share
Treaty was reduced to 0% on January 1, 2004.

Select Re has decided to explore a different strategic direction.
Accordingly, as of September 30, 2004, Select Re and PXRE have mutually agreed
to terminate the Obligatory Quota Share Treaty and the related 20%
undertaking. We further agreed to commute all outstanding liabilities under
the Obligatory Quota Share Treaty and a number of other reinsurance agreements
between PXRE and Select Re. As a result, Select Re

S-43

paid PXRE a commutation payment of $23.1 million as consideration for the
commutation, which was effected pursuant to a commutation agreement, dated as
of September 30, 2004 (the "Select Commutation Agreement"). The commutation
resulted in underwriting income of $1.9 million during the quarter ended
September 30, 2004.

Following the commutation, only one in-force excess of loss treaty and two
expired excess of loss treaties remain in effect between PXRE and Select Re
(the "Non-Commuted Contracts"). As of September 30, 2004, net assets of
$28.5 million were due to us in the aggregate from Select Re with respect to
the Non-Commuted Contracts. Select Re has deposited $38.5 million in various
reinsurance trusts to secure its obligations under the Non-Commuted Contracts.

Mr. William Michaelcheck is a member of the Board of Select Re and also one
of its founding shareholders. Mr. Michaelcheck is also the President and a
major shareholder of Mariner Investment Group, Inc. ("Mariner"), which acts as
the investment manager for our hedge fund and alternative investment
portfolio. During the nine months ended September 30, 2004 and 2003, we
incurred investment management fees of $0.7 million and $0.6 million,
respectively, relating to services provided by Mariner.

The Company's Board of Directors reviews the various transactions with
Select Re at each of its meetings. In addition, the Board of Directors
requires the prior approval of the Company's Chief Financial Officer for any
transaction entered into with Select Re.

UPDATE ON CRITICAL ACCOUNTING POLICY DISCLOSURES

The Company's Annual Report on Form 10-K for the year ended December 31,
2003 contains a discussion concerning critical accounting policy disclosures
(See Item 7--Management's Discussion and Analysis of Financial Condition and
Results of Operations--Critical Accounting Policy Disclosures contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 2003). We
disclose our significant accounting policies in the notes to the Consolidated
Financial Statements which should be read in conjunction with the notes to the
interim Consolidated Financial Statements and the 2003 audited Consolidated
Financial Statements and notes. Several of these policies are critical to the
portrayal of our financial condition and results since they require management
to establish estimates based on complex and subjective judgments. This
included disclosure concerning our estimation of losses and loss expenses.

ESTIMATION OF LOSS AND LOSS EXPENSES

As a property catastrophe reinsurer, incurred losses are inherently more
volatile than those of primary insurers and reinsurers of risks that have an
established historical pattern of losses. Because of the uncertainty in the
process of estimating our loss from insured events, there is a risk that our
reserves for loss and loss expenses could prove to be inadequate, with a
consequent adverse impact on our future earnings and shareholders' equity. In
reserving for catastrophe losses, our estimates are influenced by underwriting
information provided by our clients, industry catastrophe models and our
internal analyses of this information. This reserving approach can cause
significant development for an accident year when events occur late in the
reporting period, as happened in 1999. As an event matures, we rely more and
more on our own development patterns by type of event as well as contract
information to project ultimate losses for the event. This process can cause
our ultimate estimates to differ significantly from initial projections. The
French Storm Martin that occurred on December 27, 1999 presents an extreme
example of these potential uncertainties. We based our reserves to a
significant degree on industry estimates, which were approximately $1.0
billion. In 2001, the cost was estimated to be $2.5 billion by SIGMA, a widely
used industry publication. Our gross loss estimate at December 31, 1999 for
this event was $31.3 million. Our gross loss estimate at September 30, 2004
for this event was $67.5 million. Thus, the original industry loss estimate
increased by 150%, and our loss estimate increased by 116%.

Excluding the extraordinary development of 1999 French storms Martin and
Lothar in 2000, during the last 10 years, reserve development in any single
year from prior year losses, expressed as a percentage of shareholders'
equity, ranged from 15% adverse development in 1993 (primarily arising from
Hurricane Andrew) to 4% favorable development in 1996.

S-44

In reserving for non-catastrophe losses for recent periods, we are required
to make assumptions concerning the expected loss ratio usually for broad lines
of business, but sometimes on an individual contract basis. We consider
historical loss ratios for each line of business and utilize information
provided by our clients and estimates provided by underwriters and actuaries
concerning the impact of pricing and coverage changes. As experience emerges,
we will revise our prior estimates concerning pricing adequacy and non-
catastrophe loss potential for our coverages and we will eventually rely
solely on our indicated loss development patterns to estimate ultimate losses.

In addition, the risk for recent underwriting years includes the increased
casualty exposures assumed by us through our casualty and finite businesses.
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 our limited experience in the casualty
and finite businesses, we do not have established historical loss development
patterns that can be used to establish these loss liabilities. We must
therefore rely on the inherently less reliable historical loss development
patterns reported by our clients and industry loss development data in
calculating our liabilities. PXRE's loss reserve estimation process takes into
consideration the facts and circumstances related to reported losses; however,
for immature accident years, reported casualty losses are relatively
insignificant when compared to ultimate losses. As such, it is difficult to
determine how facts and circumstances related to early-notified claims will
impact future reported losses. When reported losses grow to a magnitude at
which they suggest a trend, PXRE can, and does, re-estimate loss reserves.

The Company has historically been involved in very few disputes with ceding
companies, especially those that enter into contracts that the Company
includes in its catastrophe and risk excess segment.

There is an additional risk of uncertainty in the Company's estimation of
loss due to the fact that the Company writes only reinsurance business and no
insurance business. As a result, losses, unearned premiums and premiums
written are all recorded based on reports received from the ceding companies.
PXRE does not receive loss information from the underlying insureds; however,
since the Company's primary reinsurance business focuses on short-tail lines
such as property catastrophe, retrocessional property catastrophe, risk-excess
and aerospace, the delay from the time of the underlying loss to the report
date to PXRE is not as significant a risk as it would be if the Company
underwrote a significant amount of casualty business; however, with respect to
insured events that occur near the end of a reporting period, as well as with
respect to our retrocessional book of business, a delay in losses being
reported to insurance carriers, reinsurers and finally retrocessionaires may
require us to make estimates of losses based on limited information from our
clients, industry loss estimates and our own underwriting data.

The Company derives almost all of its business from reinsurance
intermediaries. As a result, the ceding company reports claims to the
intermediary and the intermediary in turn reports the data to all the
reinsurers included in the underlying program. Controls in place require that
certain claims must be approved by the underwriter or a member of senior
management. The underwriter, based on his knowledge and judgment, may question
the broker or ceding company if he did not expect a loss of a certain
magnitude to impact a certain layer. Since many of PXRE's losses are from
events that are well known, such as large hurricanes and earthquakes, the
underwriter may in fact expect losses to certain layers and therefore would
not question the accuracy of such loss reports. If the underwriter does
question the loss data, PXRE will perform audits at the underlying ceding
company in order to determine the accuracy of the amounts ceded. The Company's
risk management and underwriting systems provide a list of impacted or
potentially impacted contracts by peril and by geographic zone. This assists
PXRE in determining the completeness of losses, as the Company will contact
intermediaries and the ceding companies for which it believes underlying
contracts are impacted subsequent to an event to request information.

Currently, the Company does not have any backlog related to the processing
of assumed reinsurance information. When a large loss occurs, the Company
shifts personnel from various functions to assist the claims personnel in the
processing and evaluation of claims data.

Finally, the Company records reserves for losses that have been incurred but
not yet reported to PXRE, which are generally referred to as IBNR reserves.
The IBNR includes both losses from events which PXRE is

S-45

not aware of and losses from events which PXRE is aware of but has not yet
received reports from ceding companies.

During the third quarter of 2004, we experienced net adverse development of
$12.2 million for prior-year losses and loss expenses, comprised of
$7.8 million cat and risk excess net favorable development and $20.0 million
exited lines net adverse development. The favorable development in the cat and
risk excess business was primarily related to case reserve takedowns from past
significant catastrophes, such as the 2002 European floods. The $20.0 million
net adverse development related to exited lines is due primarily to recording
additional loss reserves of $14.7 million relating to the XOL Retro Treaty
with LMC (See "Commitments, Contingencies and Contractual Obligations") and
several treaties with a ceding company for which we wrote general liability
business within our direct casualty operations. These treaties were commuted
in the third quarter of 2004.

Loss and loss expense liabilities as estimated by PXRE's actuaries and
recorded by management in the statement of financial position as of
September 30, 2004 were as follows:

($000'S) GROSS NET
-------- --------

Catastrophe and Risk Excess ............................. $315,200 $260,938
Exited Lines ............................................ 202,301 193,957
-------- --------
Total ................................................... $517,501 $454,895
======== ========

On an overall basis, the low and high ends of a range of reasonable net loss
reserves are $31.0 million below and $33.2 million above the $454.9 million
best estimate displayed above. Note that the range around the overall estimate
is not the sum of the ranges about the component segments due to the impact of
diversification when the reserve levels are considered in total. The low and
high ends of a range of reasonable net loss reserves around the best estimate
displayed in the table above with respect to each segment are as follows:

($000'S) LOW END BEST ESTIMATE HIGH END
-------- ------------- --------

Catastrophe and Risk Excess................................................................ $232,561 $260,938 $291,429
Exited Lines............................................................................... 181,541 193,957 207,261

ESTIMATION AND RECOGNITION OF ASSUMED AND CEDED PREMIUMS

Our premiums on reinsurance business assumed are recorded as earned on a pro
rata basis over the contract period based upon estimated subject premiums. The
Company's assumed premium is comprised of both minimum and deposit premium and
an estimate of premium. Minimum and deposit premium is billed and collected in
accordance with the provisions of the contracts and is usually billed
quarterly or semi-annually. A premium estimate is also recorded if the
estimate of the ultimate premium is greater than the minimum and deposit
premium. The final or ultimate premium for most contracts is the product of
the provisional rate and the ceding company's subject net earned premium
income (SNEPI). Since this portion of the premium is reasonably estimable, the
Company records and recognizes it as revenue over the period of the contract
in the same manner as the minimum and deposit premium. The key assumption
related to the premium estimate is the estimate of the amount of the ceding
company's SNEPI, which is a significant element of PXRE's overall underwriting
process. 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.

For the first nine months of 2004, the catastrophe and risk excess assumed
premium estimate is $8.3 million, which is 3.7% of the total gross current
underwriting year premium written, excluding reinstatement premiums, of
$226.9 million. The estimated premium receivable included in premiums
receivable was $18.7 million at September 30, 2004.

The company records an allowance for doubtful accounts that we believe
approximates the exposure for all potential uncollectible assets.

The premiums on reinsurance business ceded are recorded as incurred on a pro
rata basis over the contract period. Certain ceded reinsurance contracts
contain provisions requiring us to pay additional

S-46

premiums or reinstatement premiums in the event that losses of a significant
magnitude are ceded under such contracts. Under GAAP, we are not permitted to
establish reserves for potential additional premiums or record such amounts
until a loss occurs that would trigger the obligation to pay such additional
or reinstatement premiums. As a result, the net amount recoverable from our
reinsurers in the event of a loss may be reduced by the payment of additional
premiums and reinstatement premiums. Frequently, the impact of such premiums
will be offset by additional premiums and reinstatement premiums payable to us
by our clients on our assumed reinsurance business. No assurance can be given,
however, that assumed reinstatement and additional premiums will offset ceded
reinstatement and additional premiums. For example, in the case of the
September 11, 2001 terrorist attacks, our net premiums earned during 2001 were
reduced by $26.3 million as a result of net additional premiums and
reinstatement premiums due to that loss.

S-47

BUSINESS

OVERVIEW

We have been able to achieve a significant position in the property
catastrophe retrocessional market and have considerable experience in
successfully underwriting property catastrophe retrocessional business. We
have developed proprietary risk models that take into account the lack of
transparency in the underwriting information and allow us to view this
business within the context of our entire portfolio. Our tenure in this
business has allowed us to develop the relationships and market knowledge
necessary to manage the risk associated with a retrocedent's alteration of its
book of business after we have bound coverage.

We also offer our clients property per-risk, marine and aerospace
reinsurance and retrocessional products. Unlike property catastrophe
reinsurance, which protects against the accumulation of a large number of
related losses arising out of one catastrophe, per-risk excess of loss
reinsurance protects our clients against a large loss arising from a single
risk or location. Substantially all of our property catastrophe reinsurance
and retrocessional products are offered on an excess-of-loss basis with
contractual aggregate limits on our

S-48

exposure to losses. This means that we do not begin to pay our clients' claims
until their claims exceed a certain specified amount and our obligation to pay
those claims is limited to a specified aggregate amount. Our aerospace
reinsurance business includes both excess of loss aviation business and pro
rata satellite reinsurance business.

The events of September 11, 2001, combined with industry-wide reserve
deficiencies recognized subsequently and poor investment performance, resulted
in considerable increases in pricing in conjunction with improved terms and
conditions for the insurance industry for the underwriting years 2002 through
2004. As a direct result, we experienced significant rate increases and strong
profitability in our core property catastrophe and risk excess segment, which
is reflected in our results of operations for the year ended December 31, 2003
and for the nine months ended September 30, 2004. Operating in this favorable
environment, we had net income before convertible preferred share dividends of
$64.5 million in 2002 and $96.6 million in 2003.

Primarily as a result of losses from hurricanes Charley, Frances, Ivan and
Jeanne, we incurred net losses before convertible share dividends of $73.2 and
$9.9 million in the three and the nine month period ended September 30, 2004,
respectively. During the quarter and nine month period ended September 30,
2003, we had net income before convertible share dividends of $23.7 million
and $68.8 million, respectively.

Following a diversification effort into Lloyd's and the casualty sectors
during the soft reinsurance market of the late 1990's, we decided during 2000
and 2001 to exit these businesses, and are today focused on our traditional
core property reinsurance operations. In 2004, market conditions for finite
risk deteriorated sufficiently for us to exit this line of business.
Accordingly, finite risk is included in the exited lines segment. We have
exited all of our other lines of business in order to concentrate our
management and financial resources on our core operations. We believe that
this strategic and financial realignment positions us to capitalize on
opportunities in our most profitable business segments, based on our
underwriting strength and industry experience. While our core businesses are
volatile due to significant potential loss severity, we have been a successful
underwriting organization over the long term.

As of September 30, 2004, we had approximately 392 clients, including many
of the leading insurance and reinsurance companies in the world. Our clients
include both primary insurance companies and other reinsurance companies.

We conduct our business primarily through our principal operating
subsidiaries, PXRE Bermuda, PXRE Reinsurance, PXRE Barbados and PXRE Europe.
PXRE Bermuda is a broker-market reinsurer with $494 million of estimated
statutory capital and surplus as of September 30, 2004, which principally
underwrites treaty reinsurance for property (including marine and aerospace)
risks. PXRE Bermuda's reinsurance business is also supported by a parental
guarantee from us and an aggregate excess of loss reinsurance treaty from PXRE
Reinsurance that provides $80.0 million of reinsurance protection. PXRE
Bermuda is neither licensed nor admitted as an insurer in any jurisdiction
other than Bermuda.

PXRE Reinsurance is a broker-market reinsurer with $314.7 million of
estimated statutory capital and surplus as of September 30, 2004, which
principally underwrites treaty reinsurance for property (including marine and
aerospace) risks. PXRE Reinsurance is licensed, accredited or permitted to do
business in each of the 50 states and the District of Columbia, Puerto Rico,
Bermuda, Colombia and Mexico and until January 31, 2003 operated a branch in
Belgium, which we refer to as PXRE's Brussels Branch.

PXRE Barbados was licensed as an insurance company in March 2001 under
Barbados' Insurance Act, 1996 and changed its name from PXRE (Barbados) Ltd.
to PXRE Reinsurance (Barbados) Ltd. It is neither licensed nor admitted as an
insurer in any jurisdiction other than Barbados. PXRE Barbados commenced
underwriting business in 2001. PXRE Barbados provided finite reinsurance
coverages to clients and provided reinsurance coverage to other PXRE entities.

PXRE Europe, a Belgian reinsurance intermediary, and PXRE Solutions, a U.S.
reinsurance intermediary, perform reinsurance intermediary activities on
behalf of PXRE Bermuda, PXRE Reinsurance and PXRE Barbados.

S-49

OUR STRATEGY

Our strategy consists of several key components:

o Focus on Historically Profitable Short-tail Segments. We intend to
maintain PXRE's focus and emphasis on catastrophe reinsurance and other
short-tail products including property-per-risk, marine and aerospace
reinsurance and retrocessional products. We and our predecessor
organizations have been an established presence in the catastrophe
reinsurance market since 1986, and have generated superior underwriting
results in our short-tail lines of business due to the skill of our
underwriters, our client relationships, long history in the market and
our extensive collection of underwriting data.

o Adjust the Level of Our Underwriting Commitments to the Underwriting
Cycle and Proactively Manage Our Capital. We intend to monitor and
proactively adjust the level of our underwriting commitments in response
to changing market conditions, increasing the size of our book of
business in times of attractive pricing and reducing the size of our book
in times of lower pricing in order to maximize the effective and
efficient use of our capital. Recent events have impacted the insurance
markets considerably and have produced significant rate increases and
strong profitability in our core property catastrophe and risk excess
segment in 2002 and 2003. The current state of the market has allowed us
to grow in terms of increased premiums per unit of risk, increased
participation on existing programs and participation in new programs. We
believe that the catastrophes of 2004 will improve the rate environment
in 2005 for many of our lines of business and will moderate the expected
rate decline in others. However, should market conditions change, we plan
to adjust the level of our underwriting commitments accordingly. We
believe this approach is fundamental to success in our business and to
generating adequate risk adjusted returns for our shareholders.

o Maintain a Conservative and Diversified Investment Strategy Designed to
Complement Our Underwriting Operation. We intend to continue our
investment strategy of maintaining the majority of our investment
portfolio in high quality fixed income investments with modest duration,
while allocating a limited portion of the portfolio to well diversified
and conservative hedge fund investments. As of September 30, 2004,
approximately 87.3% of our investment portfolio was comprised of fixed
maturity and short-term investments with a weighted average credit rating
of AA+ and approximately 12.7% of our portfolio was comprised of
investments in 21 different hedge funds and other limited partnerships.
Our diversified managed hedge fund strategy has generated only one
quarter of negative returns over the past eight years. Our general goal
is to achieve a low correlation between risks in our underwriting
operation and risks in our investment portfolio, and we intend to
continue utilizing outside portfolio managers with strict oversight by
management and our Board.

UNDERWRITING OPERATIONS

We operate in two reportable property and casualty segments: catastrophe and
risk excess, as one segment, and exited lines, as the second segment.
Delineation of the segments is based on our approach to

S-50

managing the business. Commencing with the 2002 underwriting renewal season,
we returned our focus to our core catastrophe and risk excess and finite
business. In 2004, we exited the finite risk business. Businesses that were
not renewed in 2002, as well as finite risk, are reported as exited lines. Our
segments for 2000, 2001, 2002 and 2003, were reclassified to be comparable to
the 2004 segments used for our method of managing the business. In addition,
we operate in two geographic segments -- North American, representing North
America based risks written by North American based clients, and International
(principally the United Kingdom, Continental Europe, Latin America, the
Caribbean, Australia and Asia), representing all other premiums written.

There are no differences among the accounting policies of the segments as
compared to PXRE's consolidated financial statements.

CATASTROPHE AND RISK EXCESS

Our key business is our catastrophe and risk excess business. Our
catastrophe and risk excess portfolio consists principally of property
catastrophe excess of loss, property retrocessional, property risk excess, and
marine excess and aerospace excess reinsurance coverages. The catastrophe and
risk excess segment accounted for approximately 97.4% and 81.7%, respectively,
of net premiums earned for the nine months ended September 30, 2004 and the
year ended December 31, 2003. This portfolio can be characterized as being
comprised of coverages involving higher expected margins and volatility.

Net premiums earned in this segment were $222.3 million and $195.0 million
for the nine months ended September 30, 2004 and 2003, respectively. Net
premiums earned in this segment were $64.4 million, $184.2 million and
$262.1 million in the years 2001, 2002 and 2003, respectively. The increase in
premium volume for the catastrophe and risk excess segment since 2001 was
largely attributable to increases in the volume of business underwritten, and
the rates charged, in the aftermath of the events of September 11, 2001.

Following a catastrophe and risk excess segment underwriting loss of
$13.0 million in 2001 due to losses arising from the events of September 11,
2001, the segment produced underwriting profit of $113.9 million and
$160.3 million in 2002 and 2003, respectively. Largely as a result of the
occurrence of hurricanes Charley, Frances, Ivan and Jeanne, the catastrophe
and risk excess segment produced underwriting income of only $30.2 million in
the nine months ended September 30, 2004, compared to underwriting income of
$121.9 million in the prior year period.

Our property catastrophe and risk excess business is diversified
geographically. For both the nine months ended September 30, 2004 and the year
ended December 31, 2003, approximately 75.5% of our property catastrophe and
risk excess net premiums written were derived from clients located outside
North America, including clients located in the United Kingdom, Continental
Europe, Latin America, the Caribbean, Australia and Asia.

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The following table presents the distribution of our net premiums written,
net premiums earned, losses incurred, commission and brokerage, net of fee
income and our underwriting income (loss) for the periods indicated under our
catastrophe and risk excess segment.

NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
CATASTROPHE AND RISK EXCESS SEGMENT ------------------- -------------------------------
($000'S) 2004 2003 2003 2002 2001
-------- -------- -------- -------- --------

Net Premiums Written (1)
North American ........................... $ 67,532 $ 56,151 $ 71,921 $ 59,479 $ 32,067
International. ........................... 208,495 189,713 221,622 153,121 91,118
Excess of Loss Cessions .................. (25,638) (30,186) (27,320) (28,652) (60,485)
-------- -------- -------- -------- --------
$250,389 $215,678 $266,223 $183,948 $ 62,700
======== ======== ======== ======== ========
Net Premiums Earned (1)
North American ........................... $ 64,257 $ 53,978 $ 71,123 $ 58,489 $ 30,350
International ............................ 186,257 164,830 218,265 148,793 92,886
Excess of Loss Cessions .................. (28,218) (23,810) (27,325) (23,052) (58,839)
-------- -------- -------- -------- --------
$222,296 $194,998 $262,063 $184,230 $ 64,397
======== ======== ======== ======== ========
Losses Incurred
North American ........................... $ 36,985 $ 15,132 $ 22,879 $ 3,486 $ 60,297
International ............................ 133,510 34,956 49,798 53,197 104,045
Excess of Loss Cessions .................. (3,275) (736) (1,514) (4,402) (85,339)
-------- -------- -------- -------- --------
$167,220 $ 49,352 $ 71,163 $ 52,281 $ 79,003
======== ======== ======== ======== ========
Commissions and Brokerage, Net of Fee
Income
North American ........................... $ 7,683 $ 5,859 $ 7,631 $ 6,986 $ 2,178
International ............................ 16,763 14,522 19,922 14,787 6,434
Excess of Loss Cessions .................. 448 3,329 3,062 (3,768) (10,198)
-------- -------- -------- -------- --------
$ 24,894 $ 23,710 $ 30,615 $ 18,005 $ (1,586)
======== ======== ======== ======== ========
Underwriting Income (Loss) (2)
North American ........................... $ 19,589 $ 32,987 $ 40,613 $ 48,017 $(32,125)
International ............................ 35,984 115,352 148,545 80,809 (17,593)
Excess of Loss Cessions .................. (25,391) (26,403) (28,873) (14,882) 36,698
-------- -------- -------- -------- --------
$ 30,182 $121,936 $160,285 $113,944 $(13,020)
======== ======== ======== ======== ========

- ---------------
(1) Premiums written and earned are expressed on a net basis in order to more
accurately reflect business written for our own account. The amounts shown
in the North American and International geographic segments are presented
net of proportional reinsurance and allocated excess of loss reinsurance
cessions, but gross of corporate catastrophe excess of loss reinsurance
cessions, which are separately itemized where applicable.
(2) Underwriting income (loss) includes premiums earned, losses incurred and
commission and brokerage net of fee income, but does not include investment
income, net realized investment gains or losses, interest expense,
operating expenses, unrealized foreign exchange gains or losses on losses
incurred. See Note 12 of our consolidated financial statements for the
years ended December 31, 2003, 2002 and 2001 incorporated by reference to
our annual report on Form 10-K for the year ended December 31, 2003.

Property Catastrophe Excess of Loss Reinsurance. Our property catastrophe
excess of loss reinsurance business reinsures catastrophic perils for
insurance companies on a treaty basis and provides protection for most
catastrophic losses that are covered in the underlying insurance policies
written by our clients. The perils in our portfolio underlying the North
American portion of this segment emanate principally from East Coast and Gulf
hurricanes and Midwest and West Coast earthquakes. The perils underlying the
International portion of this segment emanate principally from European,
Japanese and Caribbean windstorm, flood and

S-52

earthquake risks, major oil rig explosions, cruise ship disasters, satellite
failures, commercial airplane crashes and similar risks. This business is
comprised of reinsurance contracts that incur losses only when events occur
that impact more than one risk or insured. Coverage for other perils may be
negotiated on a case-by-case basis. Protection under property catastrophe
treaties is generally provided on an occurrence basis, allowing our ceding
company clients to combine losses that have been incurred in any single event
from multiple underlying policies. The multiple claimant nature of property
catastrophe reinsurance requires careful monitoring and control of cumulative
aggregate exposure.

The property catastrophe excess of loss reinsurance business generally
operates on a subscription basis, with reinsurance intermediaries seeking
participation for specific treaties among a number of reinsurers. All
subscribing reinsurers participate at substantially the same pricing and terms
and conditions. Generally, our normal maximum capacity on any one program is
$30.0 million per event.

Property Catastrophe Retrocessional Reinsurance. We enter into
retrocessional contracts that provide property catastrophe coverage to other
reinsurers or retrocedents. In providing retrocessional coverage, we focus on
reinsurance that covers the retrocedent on an excess of loss basis when
aggregate claims and claim expenses from a single occurrence of a covered
peril and from a multiple number of reinsureds exceed a contractually
specified attachment point. The coverage provided under excess of loss
retrocessional contracts may be on a worldwide basis or limited in scope to
selected geographic areas. Coverage can also vary from "all property" perils
to limited coverage on selected perils, such as "earthquake only" coverage.

Retrocessional coverage is characterized by high volatility, principally
because retrocessional contracts expose a reinsurer to an uncertain level of
correlation with other existing reinsurance contracts. In addition, the
information available to retrocessional underwriters concerning the original
primary risk can be less precise than the information received from primary
companies directly. Moreover, exposures from retrocessional business can
change within a contract term if the underwriters of a retrocedent
dramatically alter their book of business after retrocessional coverage has
been bound.

Property Risk Excess Reinsurance. Our property risk excess business
reinsures individual property risks of ceding companies on a treaty basis.
This business is comprised of a highly diversified portfolio of property risk
excess reinsurance contracts covering claims from individual insurance
policies issued by our ceding company clients. Loss exposures in this business
include the perils of fire, explosion, collapse, riot, vandalism, wind,
tornado, flood and earthquake. For the nine months ended September 30, 2004,
approximately 12.3% of the clients reinsured by us in this business were
located in North America and approximately 87.7% were located internationally,
based on net premiums written.

Because the reinsurance contracts written in this business are exposed to
losses on an individual policy basis, we underwrite and price the agreements
based on anticipated claims frequency. We use actuarial techniques to examine
our ceding companies' underwriting results as well as the underwriting results
from the ceding companies with comparable books of business and pertinent
industry results. These experience analyses are compared against actuarial
exposure analyses to refine our pricing assumptions. Our pricing also takes
into account our variable and fixed expenses and our assessment of an
appropriate return on the capital required to support each individual contract
relative to our portfolio of risks.

Reinsurance contracts that provide coverage of individual underlying
insurance policies may contain significant risk of accumulation of exposures
to natural and other perils. Our underwriting process explicitly recognizes
these exposures. Natural perils, such as windstorm, earthquake and flood, are
analyzed through our catastrophe modeling systems. Other perils, such as fire
and terrorism events, are considered on a contract-by-contract basis and
monitored for cumulative aggregate exposure.

S-53

This property per risk business operates as a subscription market. Those
reinsurers that ultimately subscribe to any given treaty participate at
substantially the same pricing and terms and conditions. Generally, our normal
maximum capacity on any one program is $5.0 million on any one risk.

Aerospace Reinsurance. Our aerospace business includes hull, aircraft
liability, aircraft products and space coverages. We write all of these
exposures as reinsurance and retrocessional coverages. In all cases, we track
our exposures by original insured in order to monitor our maximum exposures by
major airline and by major manufacturer. The space business includes satellite
launch and in-orbit coverage. We have chosen to write space business
predominately on a proportional reinsurance basis where we seek to provide
retrocessional support to underwriters that have demonstrated a track record
in this business.

Marine Reinsurance. The marine portfolio is currently very limited and
provides retrocessional coverage primarily against large insured market losses
in the off-shore energy, protection and indemnity, and pollution business
segments.

EXITED LINES

Our exited lines segment consists principally of North American general
liability, commercial and personal auto liability, risk excess and other
liability coverages and International pro-rata casualty coverages, all
business written through PXRE Lloyd's Syndicate 1224, credit coverages and
finite risk coverages. In the third quarter of 2000, we ceased accepting new
and renewal risks at PXRE Lloyd's Syndicate 1224. We ceased underwriting
virtually all of the other non finite business within the exited lines segment
in 2001 and all premiums written and earned relate to reinsurance contracts
that were entered into prior to September 2001, but for which coverage had not
expired. We ceased underwriting finite risk business in 2004. The exited lines
segment accounted for $3.1 million and $12.2 million, respectively, of net
premiums written for the nine months ended September 30, 2004 and the year
ended December 31, 2003. Net premiums written for the year ended December 31,
2003 for this segment decreased 89% from net premiums written for 2002.
Virtually all of the premiums under these contracts have now been earned and
we do not expect to report a material amount of premiums in this segment in
2005. For the nine months ended September 30, 2004 and the year ended
December 31, 2003, the exited lines segment produced underwriting losses of
$21.1 million and $39.3 million, respectively. Underwriting losses for the
exited lines segment in the nine months ended September 30, 2004 relate
primarily to litigation described in Note 11 in Notes to Consolidated
Financial Statements on page F-15.

S-54

NINE MONTHS ENDED YEAR ENDED
EXITED LINES SEGMENT SEPTEMBER 30, DECEMBER 31,
------------------- ------------------------------
2004 2003 2003 2002 2001
-------- -------- -------- -------- -------
($000'S)

Net Premiums Written (1)
North American ........................... $ 3,201 $ 4,288 $ 9,061 $111,255 $67,330
International ............................ (63) 1,465 3,127 (720) 24,448
-------- -------- -------- -------- -------
$ 3,138 $ 5,753 $ 12,188 $110,535 $91,778
-------- -------- -------- -------- -------
Net Premiums Earned (1)
North American ........................... $ 6,087 $ 41,353 $ 55,671 $ 75,951 $65,474
International ............................ (67) 1,519 3,199 9,179 32,254
-------- -------- -------- -------- -------
$ 6,020 $ 42,872 $ 58,870 $ 85,130 $97,728
-------- -------- -------- -------- -------
Losses Incurred
North American ........................... $ 30,631 $ 56,716 $ 76,158 $ 65,177 $44,607
International ............................ (5,300) 6,432 10,278 7,903 29,512
-------- -------- -------- -------- -------
$ 25,331 $ 63,148 $ 86,436 $ 73,080 $74,119
-------- -------- -------- -------- -------
Commissions and Brokerage, Net of Fee
Income
North American ........................... $ 1,451 $ 10,483 $ 11,354 $ 28,512 $15,900
International ............................ 385 115 357 3,351 9,738
-------- -------- -------- -------- -------
$ 1,836 $ 10,598 $ 11,711 $ 31,863 $25,638
-------- -------- -------- -------- -------
Underwriting Income (Loss) (2)
North American ........................... $(25,995) $(25,846) $(31,841) $(17,738) $ 4,967
International ............................ 4,848 (5,028) (7,436) (2,075) (6,996)
-------- -------- -------- -------- -------
$(21,147) $(30,874) $(39,277) $(19,813) $(2,029)
======== ======== ======== ======== =======

- ---------------
(1) Premiums written and earned are expressed on a net basis (after deduction
for ceded reinsurance premiums) in order to more accurately reflect
business written for our own account.
(2) Underwriting income (loss) includes premiums earned, losses incurred and
commission and brokerage net of fee income, but does not include investment
income, net realized investment gains or losses, interest expense,
operating expenses, unrealized foreign exchange gains or losses on losses
incurred. See Note 12 of our consolidated financial statements for the
years ended December 31, 2003, 2002 and 2001 incorporated by reference to
our annual report on Form 10-K for the year ended December 31, 2003.

UNDERWRITING

We pursue a core strategy of leveraging the specialized analytical and
underwriting expertise of our reinsurance professionals in short-tail, high-
severity, low-frequency lines of business. Our underwriting process emphasizes
a team approach among our underwriters and is strictly geared toward
profitability rather than market share, with a resulting willingness to reduce
underwriting commitments in a soft market.

Reinsurance treaties are reviewed for compliance with our general
underwriting standards and certain treaties are evaluated in part based upon
our internal actuarial analysis. We manage our risk of loss through a
combination of aggregate exposure limits, underwriting guidelines that take
into account risks, prices and coverage and retrocessional agreements. As we
underwrite risks from a large number of clients 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. We have developed systems and software tools to monitor and
manage the accumulation of our exposure to such losses. We have established
guidelines for maximum tolerable losses from a single or multiple catastrophic
events based on

S-55

historical data. However, no assurance can be given that these maximums will
not be exceeded in some future catastrophe.

We utilize a two-tier approach to risk management, including both overall
risk limits and a portfolio optimization system. Our portfolio optimization
system incorporates third-party catastrophe modeling software and internally
developed models. Our software tools use exposure data provided by our ceding
company clients to simulate catastrophic losses. We have high standards for
the quality and level of detail of the exposure data that we require and have
an expressed preference for data at the zip code or postal code level or
finer.

Data output from the commercial modeling software is incorporated in our
proprietary model for multiple purposes. First, the data is used to estimate
the amount of reinsurance premium that is required to pay the long-term
expected losses under the proposed contracts. Second, the data is used to
estimate correlation among the contracts we have written. The degree of
correlation is used to estimate the incremental capital required to support
our participation on each proposed contract. Finally, the data is used to
monitor and control our cumulative exposure to individual perils across all of
our businesses. This system is used to price each reinsurance contract based
on marginal capital requirements, and enables our underwriters to dynamically
evaluate potential new business and exposures against the background of our
existing business to optimize the overall portfolio. Any new business bound is
incorporated in this analytical approach to enable a real-time assessment of
the portfolio.

Our pricing of property catastrophe reinsurance contracts is based on a
combination of modeled loss estimates, actual ceding company loss history,
surcharges for potential unmodeled exposures, fixed and variable expense
estimates and profit requirements. The profit requirements are based on
incremental capital usage estimates described above and our required return on
consumed capital.

Our portfolio is also subject to management-specified risk limits for the
business as a whole, by territory and by type of event. Our management
believes that the portfolio model is a valuable tool to supplement, but not
replace, the experience and judgment of our underwriters.

We maintain strict limits on our departmental underwriting authority. All
risks of up to $1.5 million per treaty program must be approved by a minimum
of two underwriters, one of whom must be the department head. All risks above
$1.5 million must be referred to our underwriting committee. The committee is
comprised of our Chairman, Chief Executive Officer, Chief Operating Officer
and one senior underwriter. The number of committee members required for
approval of a program increases with the amount of risk involved. One
underwriter and at least one member of the underwriting committee other than
the underwriter's department head must approve treaty program lines in excess
of $1.5 and up to $5.0 million. At least two members of the underwriting
committee must approve any treaty program lines that are greater than
$5.0 million or any programs that are deemed outside the predominant risk
distribution of the overall portfolio.

MARKETING

We provide reinsurance for international insurance and reinsurance companies
headquartered, principally, in the United Kingdom, Continental Europe, Latin
America, the Caribbean, Australia and Asia. In the United States, we currently
reinsure both national and regional insurance and reinsurance companies and
specialty insurance companies.

Historically, we have obtained substantially all of our reinsurance business
through reinsurance intermediaries, which represent our clients in
negotiations for the purchase of reinsurance. None of the reinsurance
intermediaries through whom we obtain this business are authorized to arrange
any business in our name without our approval. We pay commissions to these
intermediaries or brokers that vary in size based on the amount of premiums
and type of business ceded. These commission payments constitute part of our
total acquisition costs and are included in our underwriting expenses. We
generally pay reinsurance brokerage commissions believed to be comparable to
industry norms.

S-56

Approximately 99% and 96%, respectively, of our gross premiums written, were
written in the broker market during the nine months ended September 30, 2004
and the year ended December 31, 2003, respectively. Approximately 76% of gross
premiums written for the nine months ended September 30, 2004 were arranged
through brokers individually representing 10% or more of gross premiums
written including Benfield Greig Ltd. (approximately 26%), the worldwide
branch offices of Guy Carpenter & Company, Inc. (a subsidiary of Marsh &
McLennan Companies, Inc.) (approximately 22%), Aon Group Ltd. (approximately
15%), and Willis Re. Inc. (approximately 13%). The commissions we paid to
these intermediaries are generally at the same rates as those paid to other
intermediaries. The Company's policy is not to pay commissions based on
volume.

COMPETITION

Competitive forces in the property and casualty reinsurance and insurance
industry are substantial. We operate in an industry that is highly competitive
and is undergoing a variety of challenging developments. The industry has in
recent years placed increased importance on size and financial strength in the
selection of reinsurers. This trend became more pronounced in the wake of
September 11, 2001, with the formation of a number of large, well capitalized
reinsurance companies in Bermuda and the significant level of additional
capital raised by existing competitors. Additionally, reinsurers are tapping
new markets and complementing their range of traditional reinsurance products
with innovative new products that bring together capital markets and
reinsurance experience. We compete with numerous major reinsurance and
insurance companies. These competitors, many of which have substantially
greater financial, marketing and management resources than us, include
independent reinsurance companies, subsidiaries or affiliates of established
worldwide insurance companies, reinsurance departments of certain commercial
insurance companies and underwriting syndicates. We also may face competition
from new market entrants or from market participants that decide to devote
greater amounts of capital to the types of business written by us.

Competition in the types of reinsurance business that we underwrite is based
on many factors, including the perceived overall financial strength of a
reinsurer, premiums charged, other terms and conditions, ratings of A.M. Best
and S&P's, service offered, speed of service (including claims payment), and
perceived technical ability and experience of staff. The number of
jurisdictions in which a reinsurer is licensed or authorized to do business is
also a factor. PXRE Reinsurance is licensed, accredited, or otherwise
authorized or permitted to conduct reinsurance business in each of the 50
states and the District of Columbia, Puerto Rico, Bermuda, Colombia and
Mexico, and until January 31, 2003, PXRE Reinsurance operated a branch in
Belgium. PXRE Bermuda is licensed to do business only in Bermuda. PXRE
Barbados is licensed only in Barbados.

CEDED REINSURANCE AGREEMENTS

We selectively increase our underwriting commitments and generate fee income
by retroceding some of our underwritten risks to other reinsurers through
various retrocessional arrangements. We have an underwriting committee
consisting of our Chief Executive Officer, Chief Operating Officer, Chief
Financial Officer and one senior underwriter responsible for the selection of
reinsurers as quota share reinsurers or as participating reinsurers in the
catastrophe coverage protecting us. Proposed reinsurers are evaluated at least
annually based on consideration of a number of factors including the
management, financial statements and the historical experience of the
reinsurer. This procedure is followed whether or not a rating has been
assigned to a proposed reinsurer by any rating organization. All reinsurers,
whether obtained through direct contact or the use of reinsurance
intermediaries, are subject to our approval. Although management carefully
selects our retrocessionaires, we are subject to credit risk with respect to
our retrocessionaires because the ceding of risk to retrocessionaires does not
relieve us of our liability to clients.

S-57

We had reinsurance recoverables of $78.8 million as of September 30, 2004,
which represents a 51% decrease from the reinsurance recoverables of
$162.4 million at December 31, 2003. The decrease in reinsurance recoverables
is primarily attributable to commutations and payment of outstanding balances.
Approximately 90% of our reinsurance recoverables at September 30, 2004 are
either fully collateralized or reside with entities rated "A-" or its
equivalent or higher by A.M. Best or S&P. Our top ten largest reinsurance
recoverables as of September 30, 2004, ranked by the amount of the reinsurance
recoverable, are listed below:

AMOUNT OF
AMOUNT OF REINSURANCE
REINSURANCE RECOVERABLE,
REINSURER RECOVERABLE NET OF COLLATERAL RATING(1)
- ----------------------------------------------------------------------------------- ----------- ----------------- ---------
($000,000'S)

Select Reinsurance Ltd............................................................. $24.8 $ 0.0 NR
GE ERC Strategic Reinsurance Limited............................................... 16.1 0.0 A
Swiss Reinsurance America Corporation.............................................. 10.8 8.6 AA
Auto-Owners Insurance Company...................................................... 4.3 3.3 AAA
American Healthcare Indemnity Company.............................................. 2.4 1.7 B
Trenwick America Reinsurance Corporation........................................... 2.1 1.9 NR
Merrimack Mutual Fire Insurance Company............................................ 2.0 1.7 A+
Allianz Risk Transfer Ltd.......................................................... 2.0 1.7 AA-
Continental Casualty Company....................................................... 1.7 1.7 A-
Farm Bureau Mutual Insurance Co. of MI............................................. 1.3 0.0 BBB
----- -----
$67.5 $20.6
===== =====

- ---------------
(1) Ratings were assigned as of October 6, 2004. All ratings were as assigned
by S&P, except the rating for Merrimack Mutual Fire Insurance Company and
GE ERC Strategic Reinsurance Limited, which were assigned by A.M. Best.

The following table sets forth certain information regarding the volume of
premiums we ceded to reinsurers pursuant to retrocessional agreements for the
periods indicated:

NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- --------------------------------
($000'S) 2004 2003 2003 2002 2001
-------- -------- -------- -------- ---------

Gross premiums written.......... $285,847 $274,123 $339,140 $366,768 $ 290,213
Reinsurance premiums ceded:
Quota share reinsurers ........ (5,581) (22,925) (27,943) (31,699) (50,271)
Exited lines segment .......... -- 584 608 (7,466) (13,573)
Catastrophe coverage, surplus
reinsurance and other........ (26,739) (30,351) (33,394) (33,120) (71,891)
-------- -------- -------- -------- ---------
Total reinsurance premiums ceded (32,320) (52,692) (60,729) (72,285) (135,735)
-------- -------- -------- -------- ---------
Net premiums written............ $253,527 $221,431 $278,411 $294,483 $ 154,478
======== ======== ======== ======== =========

LOSS LIABILITIES AND CLAIMS

We establish loss and loss expense liabilities (to cover expenses related to
settling claims, including legal and other fees) to provide for the ultimate
cost of settlement and administration of claims for losses, including claims
that have been reported to us by our reinsureds and claims for losses that
have occurred but have not yet been reported to us. Under GAAP, we are not
permitted to establish loss reserves until an event that may give rise to a
claim occurs.

For reported losses, we establish liabilities when we receive notice of the
claim. It is our general policy to establish liabilities for reported losses
in an amount equal to the liability set by the reinsured. In certain
instances, we will conduct an investigation to determine if the amount
established by the reinsured is appropriate or if it should be adjusted.

S-58

For incurred but not reported losses, a variety of methods have been
developed in the insurance industry for use in determining our provision for
such liabilities. In general, these methods involve the extrapolation of
reported loss data to estimate ultimate losses. Our loss calculation methods
generally rely upon a projection of ultimate losses based upon the historical
patterns of reported loss development. Additionally, we make provision through
our liabilities for incurred but not reported losses for any identified
deficiencies in the liabilities for reported losses set by our reinsureds.

In reserving for catastrophe losses, our estimates are influenced by
underwriting information provided by our clients, industry catastrophe models
and our internal analyses of this information. This reserving approach can
cause significant development for an accident year when events occur late in
the year, as happened in 1999. As an event matures, we rely more and more on
our own development patterns by type of event as well as contract information
to project ultimate losses for the event.

In reserving for non-catastrophe losses from recent years, we are required
to make assumptions concerning the expected loss ratio usually for broad lines
of business, but sometimes on an individual contract basis. We consider
historical loss ratios for each line of business and utilize information
provided by our clients and estimates provided by underwriters and actuaries
concerning the impact of pricing and coverage changes. As experience emerges,
we revise our prior estimates concerning pricing adequacy and non-catastrophe
loss potential for our coverages and we will eventually rely solely on our
estimated development pattern in projecting ultimate losses.

Management believes that our overall liability for losses and loss expenses
recorded as of September 30, 2004 is adequate. There is a risk that our
liability for losses and loss expenses could prove to be greater than expected
in any year, because of the inherent uncertainty in the reserving process with
a consequent adverse impact on future earnings and shareholders' equity.
Estimating the ultimate liability for losses and loss expenses is an imprecise
science subject to variables that are influenced by both internal and external
factors. Historically, we have focused on property related coverages. In
contrast to casualty losses, which frequently are slow to be reported and may
be determined only through the lengthy, unpredictable process of litigation,
property losses tend to be reported more promptly and usually are settled
within a shorter time period. However, the estimation of losses for
catastrophe reinsurers is inherently less reliable than for reinsurers of
risks that have an established historical pattern of losses. In addition, we
are required to make estimates of losses based on limited information from
ceding companies as well as our own underwriting data due to the significant
reporting delays that normally occur under our retrocessional book of business
and with respect to insured losses that occur near the end of a reporting
period.

Historically, we have underwritten a small amount of casualty reinsurance.
In 1998, we began underwriting new casualty lines of business and, in 1999 and
2000, we substantially expanded our casualty and finite businesses. In
September 2001, we ceased underwriting non-finite casualty business. In 2004,
we ceased underwriting finite risk business. With respect to our casualty
business, significant delays, ranging up to several years or more, can be
expected between the reporting of a loss to us and settlement of our liability
for that loss. As a result, such future claim settlements could be influenced
by changing rates of inflation and other economic conditions, changing
legislative, judicial and social environments and changes in our claims
handling procedures. In addition, most of the risks reinsured in our finite
business are also casualty risks and are subject to some of the same risks as
our casualty business. While the reserving process is difficult and subjective
for ceding companies, the inherent uncertainties of estimating such reserves
are even greater for a reinsurer, due primarily to the longer time between the
date of the occurrence and the reporting of any attendant claims to the
reinsurer, the diversity of development patterns among different types of
reinsurance treaties, the necessary reliance on the ceding companies for
information regarding reported claims and differing reserving practices among
ceding companies.

Our difficulty in accurately predicting casualty losses may also be
exacerbated by the limited amount of statistically significant historical data
regarding losses on our casualty lines of business. We must therefore rely on
the inherently less reliable historical loss patterns reported by ceding
companies and industry loss standards in calculating our casualty reserves.
Thus, the actual casualty losses and loss expenses may deviate, perhaps
substantially, from estimates of liabilities reflected in our consolidated
financial statements.

S-59

The following table provides a reconciliation of beginning and ending loss
and loss expense liabilities under GAAP for the periods indicated. Except with
respect to certain workers' compensation liabilities, discounted by
$0.6 million and $0.8 million at December 31, 2003 and 2002, respectively. We
do not discount our loss and loss expense liabilities; that is, we do not
calculate them on a present value basis.

YEARS ENDED DECEMBER 31,
----------------------------------
($000'S) 2003 2002 2001
--------- --------- ---------

Gross GAAP liability for losses and loss expenses, beginning of year......................... $ 447,829 $ 453,705 $ 251,620
Gross provision for losses and loss expenses:
Occurring in current year................................................................... 119,889 118,345 318,373
Occurring in prior years.................................................................... 58,121 41,352 34,339
--------- --------- ---------
Total gross provision (1)................................................................... 178,010 159,697 352,712
--------- --------- ---------
Gross payments for losses and loss expenses:
Occurring in current year................................................................... (27,304) (19,753) (63,960)
Occurring in prior years.................................................................... (142,803) (151,264) (85,904)
--------- --------- ---------
Total gross payments........................................................................ (170,107) (171,017) (149,864)
--------- --------- ---------
Retroactive reinsurance assumed.............................................................. (8,074) 2,818 (763)
Foreign exchange and other adjustments....................................................... 2,977 2,626 --
--------- --------- ---------
Gross GAAP liability for losses and loss expenses, end of year............................... $ 450,635 $ 447,829 $ 453,705
========= ========= =========
Ceded GAAP liability for losses and loss expenses, end of year............................... (146,924) (207,444) (245,906)
--------- --------- ---------
Net GAAP liability for losses and loss expenses, end of year................................. $ 303,711 $ 240,385 $ 207,799
========= ========= =========

- ---------------
(1) The GAAP provision for losses and loss expenses includes net foreign
currency exchange gains (losses) of $(3,272), $(7) and $981 for the years
ended December 31, 2003, 2002, and 2001, respectively.

We incurred losses from hurricanes Charley, Frances, Ivan and Jeanne, net of
reinsurance recoverables and reinstatement premiums, of $111 million pre-tax.
We have only received a limited number of claims since these events. Our
incurred loss for these events represents our best estimate, which is
primarily based on extensive modeling, a detailed review of affected contracts
and numerous discussions with its clients. The ultimate impact of losses from
these hurricanes on our results of operations might therefore differ
substantially from our estimated loss.

INVESTMENTS

Our investment strategy focuses on maintaining the majority of our
investment portfolio in high quality fixed income investments while allocating
a percentage of the portfolio to a well diversified and conservative portfolio
of hedge fund investments. As of September 30, 2004, approximately 87.3% of
our investment portfolio was comprised of fixed maturity and short-term
securities with a weighted average credit rating of AA+ and approximately
12.7% of the carrying value of our portfolio was comprised of investments in
21 different hedge funds and other limited partnerships. Our diversified
managed hedge fund strategy has generated only one quarter of negative returns
over the past eight years. Our general goal is to achieve a low correlation
between risks in our underwriting operation and risks in our investment
portfolio. We utilize outside portfolio managers to manage our investments,
with strict oversight by management and our Board.

We have established general procedures and guidelines for our investment
portfolio. General Re-New England Asset Management, Inc. and Mariner
Investment Group, Inc., a specialist in alternative investments, are our
principal investment managers. Our investment policies stress conservation of
principal, diversification of risk and liquidity. Our invested assets consist
primarily of bonds with fixed maturities, hedge funds, and short-term
investments, but also include limited amounts of other non-hedge fund limited
partnership investments. Our investments are subject to market-wide risks and
fluctuations, as well as to risks inherent in particular securities.

S-60

As of September 30, 2004, we had, at fair value, $682.9 million in fixed
maturities, $252.9 million in short-term investments, $129.6 million in hedge
fund limited partnerships, and $6.9 million in other invested assets that are
comprised of other limited partnerships.

The following table summarizes our investments at carrying value as of the
date indicated:

Fixed Maturities:
United States treasury securities ................................................... $ 70,611 6.6% $ 40,237 4.2%
Foreign denominated securities ...................................................... 14,160 1.3 21,451 2.3
United States government sponsored agency debentures ................................ 99,047 9.2 115,440 12.2
United States government sponsored agency mortgage-backed securities ................ 105,304 9.8 134,323 14.2
Other mortgage and asset-backed securities .......................................... 178,639 16.7 146,196 15.4
Municipal securities ................................................................ 1,578 0.2 18,584 2.0
Corporate securities ................................................................ 213,522 19.9 162,878 17.2
---------- ----- -------- -----
Total fixed maturities .............................................................. 682,861 63.7 639,109 67.5
Short-term investments .............................................................. 252,893 23.6 175,771 18.6
---------- ----- -------- -----
Total ............................................................................... 935,754 87.3 814,880 86.1
Hedge funds ......................................................................... 129,601 12.1 121,466 12.8
Other invested assets ............................................................... 6,931 0.6 10,173 1.1
---------- ----- -------- -----
Total investment portfolio .......................................................... $1,072,286 100.0% $946,519 100.0%
========== ===== ======== =====

At September 30, 2004, the fair value of our investment portfolio exceeded
its cost by $40.0 million, of which $39.7 million related to limited
partnerships and other invested assets and $0.3 million related to unrealized
appreciation on fixed maturities. At December 31, 2003, the fair value of our
investment portfolio exceeded its cost by $39.5 million, of which $35.7 million
related to limited partnerships and trading portfolios and $3.8 million
related to unrealized appreciation on fixed maturities.

The following table indicates the composition of our fixed maturity
investments, including short-term investments, at fair value, by time to
maturity as of the date indicated:

COMPOSITION OF INVESTMENTS BY MATURITY
----------------------------------------
SEPTEMBER 30, 2004 DECEMBER 31, 2003
------------------ ------------------
($000'S, EXCEPT PERCENTAGES) AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- -------

Maturity (1)
One year or less ...................................................................... $294,269 31.5% $197,757 24.3%
Over 1 year through 5 years ........................................................... 549,716 58.7 435,373 53.4
Over 5 years through 10 years ......................................................... 77,909 8.3 172,737 21.2
Over 10 years through 20 years ........................................................ 5,239 0.6 392 --
Over 20 years ......................................................................... 8,621 0.9 8,621 1.1
-------- ----- -------- -----
Total fixed maturities and short-term investments ..................................... $935,754 100.0% $814,880 100.0%
======== ===== ======== =====

- ---------------
(1) Based on expected maturity dates, which consider call options and
prepayment assumptions.

The average yield to maturity of our fixed maturities portfolio, including
short-term investments, at September 30, 2004 and December 31, 2003 and 2002,
was 3.2%, 3.2% and 3.3%, respectively.

S-61

The following tables indicate the composition of our fixed maturities
portfolio, at fair value, excluding short-term investments, as of the date
indicated:

COMPOSITION OF FIXED MATURITIES
PORTFOLIO BY RATING(1)
----------------------------------------
SEPTEMBER 30, 2004 DECEMBER 31, 2003
------------------ ------------------
($000'S, EXCEPT PERCENTAGES) AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- -------

United States treasury securities ..................................................... $ 70,611 10.3% $ 40,237 6.3%
Foreign denominated securities
Aaa and/or AAA ....................................................................... 12,261 1.8 15,808 2.5
Aa2 and/or AA ........................................................................ 1,899 0.3 5,643 0.9
United States government sponsored agency debentures
Aaa and/or AAA ....................................................................... 98,525 14.4 114,926 18.0
Aa2 and/or AA ........................................................................ 522 0.1 514 0.1
United States government sponsored agency mortgage-backed securities .................. 105,304 15.4 134,323 21.0
Other mortgage and asset-backed securities
Aaa and/or AAA ........................................................................ 167,834 24.6 130,256 20.4
Aa2 and/or AA ........................................................................ 10,759 1.6 12,271 1.9
A2 and/or A .......................................................................... -- -- 3,447 0.5
B2 and/or BB or below ................................................................ 46 -- 222 0.1
Municipal securities
Aaa and/or AAA ....................................................................... 822 0.1 11,540 1.8
Aa2 and/or AA ........................................................................ 756 0.1 7,044 1.1
Corporate securities
Aaa and/or AAA ....................................................................... 18,980 2.8 5,332 0.8
Aa2 and/or AA ........................................................................ 28,404 4.1 16,918 2.6
A2 and/or A .......................................................................... 150,091 22.0 123,588 19.3
Baa2 and/or BBB ...................................................................... 10,808 1.6 16,811 2.6
Ba2 and/or BB ........................................................................ 5,239 0.8 229 0.1
-------- ----- -------- ------
Total fixed maturities.............................................................. $682,861 100.0% $639,109 100.0%
======== ===== ======== ======
Aaa and/or AAA ........................................................................ $474,337 69.4% $452,422 70.8%
Aa2 and/or AA ......................................................................... 42,340 6.2 42,390 6.6
A2 and/or A ........................................................................... 150,091 22.0 127,035 19.9
Baa2 and/or BBB ....................................................................... 10,808 1.6 16,811 2.6
Ba2 and/or BB and/or below ............................................................ 5,285 0.8 451 0.1
-------- ----- -------- ------
Total fixed maturities.............................................................. $682,861 100.0% $639,109 100.0%
======== ===== ======== ======

- ---------------
(1) Ratings as assigned by Moody's and S&P, respectively. Such ratings are
generally assigned upon the issuance of the securities, subject to revision
on the basis of ongoing evaluations. Where Moody's and S&P have different
ratings for a security, the lower rating is used for classification.

S-62

The following table summarizes investments with unrealized losses at fair
value by length of continuous unrealized loss position as of September 30,
2004:

ONE YEAR OR LESS OVER ONE YEAR
----------------------- -----------------------
UNREALIZED UNREALIZED
($000'S) FAIR VALUE LOSS FAIR VALUE LOSS
---------- ---------- ---------- ----------

United States government securities ......................................... $ 52,181 $ (35) $ -- $ --
United States government sponsored agency debentures ........................ 56,615 (484) -- --
United States government sponsored agency mortgage-backed securities ........ 46,881 (94) 6,771 (165)
Other mortgage and asset-backed securities .................................. 97,224 (1,487) 5,025 (198)
Obligations of states and political subdivisions ............................ 756 (1) -- --
Corporate securities ........................................................ 137,112 (2,114) 17,528 (420)
-------- ------- ------- -----
Total temporarily impaired securities ...................................... $390,769 $(4,215) $29,324 $(783)
======== ======= ======= =====

A significant component of our investment strategy is investing a portion of
our invested assets in a diversified portfolio of hedge funds. At September 30,
2004, total hedge fund investments amounted to $129.6 million, representing
12.1% of the total investment portfolio. At December 31, 2003, total hedge
fund investments amounted to $121.5 million, representing 12.8% of the total
investment portfolio. For the nine months ended September 30, 2004, our hedge
funds yielded a return of 4.2% as compared to 8.8% in the nine months ended
September 30, 2003. As of September 30, 2004, hedge fund investments were
allocated among eighteen managers, with fair values ranging from $1.0 million
to $16.9 million.

Through our hedge fund managers, we may invest or trade in any securities or
instruments including, but not limited to, U.S. and non U.S. equities and
equity-related instruments, currencies, commodities and fixed-income and other
debt-related instruments and derivative instruments. Hedge fund managers may
use both over-the-counter and exchange traded instruments (including
derivative instruments such as swaps, futures and forward agreements), trade
on margin and engage in short sales. Substantially all hedge fund managers are
expected to employ leverage, to varying degrees, which magnifies both the
potential for gain and the exposure to loss, which may be substantial.
Leverage may be obtained through margin arrangements, as well as repurchase,
reverse repurchase, securities lending and other techniques. Trades may be on
or off exchanges and may be in thinly traded securities or instruments, which
creates the risk that attempted purchases or sales may adversely affect the
price of a particular investment or its liquidation and may increase the
difficulty of valuing particular positions.

Our hedge fund managers invest in a variety of markets utilizing a variety
of strategies, generally through the medium of private investment companies or
other entities. Criteria for the selection of hedge fund managers include,
among other factors, the historical performance and/or recognizable prospects
of the particular manager and a substantial personal investment by the manager
in the investment program. However, managers without past trading histories or
substantial personal investment may also be considered.

Generally, our hedge fund managers may be compensated on terms that may
include fixed and/or performance-based fees or profit participations.

While we seek capital appreciation with respect to our hedge fund
investments, we are also concerned with preservation of capital. Therefore,
our hedge fund portfolio is designed to take advantage of broad market
opportunities and diversify risk. Nevertheless, our investment policies with
respect to our hedge fund investments generally do not restrict us from
participating in particular markets, strategies or investments. Further, our
hedge fund investments may generally be deployed and redeployed in whatever
investment strategies are deemed appropriate under prevailing economic and
market conditions in an attempt to achieve capital appreciation, including, if
appropriate, a concentration of investments in a relatively small group of
strategies or hedge fund managers. Accordingly, the identity and number of
hedge fund managers is likely to change over time.

S-63

Mariner, as investment advisor, allocates assets to the hedge fund managers.
Mariner monitors hedge fund performance and periodically reallocates assets in
its discretion with strict oversight by PXRE management and our Board.

As of September 30, 2004, ourinvestment portfolio also included $6.9 million
of other invested assets, of which 99% is in two mezzanine bond funds. The
remaining aggregate cash call commitments in respect of such investments are
$0.3 million.

Hedge funds and other limited partnership investments are accounted for
under the equity method, under which our equity in the earnings of the
partnerships (both realized gains and unrealized gains) is recorded in our net
investment income. Total investment income for the nine months ended
September 30, 2004, included $6.0 million attributable to hedge funds and
other investments.

We seek to reduce the risk of substantial losses from our hedge fund and
other privately held securities program through our multi-asset and multi-
management strategy. We believe that this approach constitutes an effective
way to limit our exposure to substantial losses in this program.

RATINGS

A.M. Best maintains a letter scale rating system ranging from "A++"
(superior) to "F" (in liquidation). S&P maintains a letter scale rating system
ranging from "AAA" (extremely strong) to "R" (under regulatory supervision).
PXRE Group Ltd., including its main operating subsidiaries PXRE Reinsurance
and PXRE Bermuda, is rated "A" (Excellent) by A.M. Best, which is the third
highest of fifteen rating levels, and "A" (Strong) by S&P, which is the sixth
highest of twenty-one rating levels.

The property catastrophe reinsurance market is highly sensitive to the
ratings assigned by the rating agencies. If A.M. Best or S&P were to downgrade
us, such downgrade would likely have a material negative impact on our ability
to expand our reinsurance portfolio and renew our existing reinsurance
portfolio, especially if we were to be downgraded more than one level. These
ratings are based upon factors that may be of concern to policyholders, agents
and intermediaries, but may not reflect the considerations applicable to an
investment in a reinsurance or insurance company. A change in any such rating
is at the discretion of the respective rating agencies.

It is increasingly common for our assumed reinsurance contracts to contain
terms that would allow our clients to cancel the contract if we are downgraded
below various rating levels by one or more rating agencies. Whether a client
would exercise such rights would depend, among other things, on the reasons
for such a downgrade, the extent of the downgrade, the prevailing market
conditions, and the pricing and availability of replacement reinsurance
coverage. We cannot predict in advance whether and how many of our clients
would actually exercise such rights or what effect such cancellations would
have on our financial condition or future prospects, but such an effect could
potentially be materially adverse.

In addition, certain of our ceded excess of loss reinsurance contracts
require us to transfer premiums currently retained by us on a funds withheld
basis into a trust for the benefit of the reinsurers if A.M. Best were to
downgrade us below "A-." In addition, certain other ceded excess of loss
reinsurance contracts contain provisions that give the reinsurer the right to
cancel the contract and require us to pay a termination fee. The amount of the
termination fee would be dependent upon various factors, including level of
loss activity.

S-64

MANAGEMENT

Our senior management team and board of directors consists of:

NAME AGE POSITION
--------------------------- -------- ----------------------------------------------------------------------------------------

Gerald L. Radke ............ 60 Chairman of the Board of Directors of PXRE
Jeffrey L. Radke ........... 36 Chief Executive Officer and President of PXRE
John Daly .................. 48 Executive Vice President -- International Operations
Guy D. Hengesbaugh ......... 46 President of PXRE Reinsurance Ltd., and Chief Operating Officer of
PXRE
John M. Modin .............. 39 Executive Vice President and Chief Financial Officer for PXRE
Bruce J. Byrnes ............ 36 General Counsel and Secretary of PXRE Corporation and PXRE
Reinsurance Company
F. Sedgwick Browne ......... 62 Director of PXRE and Deputy Chairman of the Board
Bradley E. Cooper .......... 38 Director of PXRE
Robert W. Fiondella ........ 62 Director of PXRE
Susan Fleming Cabrera ...... 35 Director of PXRE
Franklin D. Haftl .......... 70 Director of PXRE
Craig A. Huff .............. 40 Director of PXRE
Mural Josephson ............ 55 Director of PXRE
Wendy Luscombe ............. 53 Director of PXRE
Philip R. McLoughlin ....... 58 Director of PXRE
Robert Stavis .............. 42 Director of PXRE

GERALD L. RADKE has served as the Chairman of the Board of Directors since
June 1995. Prior to June 30, 2003, Mr. Radke also served as the Chief
Executive Officer and a director of PXRE (and its predecessor PXRE
Corporation) since 1986.

JEFFREY L. RADKE has been the Chief Executive Officer and President of PXRE
since June 2003. Prior to June 2003, Mr. Radke had served as President and
Chief Operating Officer of PXRE since May 2002. Mr. Radke was Executive Vice
President of PXRE from November 1999 to May 2002. Prior to November 1999,
Mr. Radke served as President of Select Reinsurance Ltd. From 1996 to 1998, he
was Senior Vice President -- Capital Markets Products of CAT Limited, prior to
which he was a Vice President of Guy Carpenter & Company, a reinsurance
brokerage firm. Jeffrey Radke is Gerald Radke's son.

JOHN DALY is Executive Vice President of PXRE's international operations. He
has been with PXRE since November 2002. Prior to joining PXRE, John was the
Active Underwriter for Syndicate 566 in Lloyd's and a board director of Limit
Underwriting Agency. From 1982 to 1998, Mr. Daly worked for Hartford Fire
Insurance Company's U.K. subsidiaries, and from 1992 served as president of
Hartford's European reinsurance operations.

GUY D. HENGESBAUGH is President of PXRE Reinsurance Ltd., and Chief
Operating Officer of PXRE. Prior to joining PXRE in August of 2002,
Mr. Hengesbaugh was President and Chief Executive Officer of LaSalle Re
Holdings Limited since 1999 and prior to that held various position with
LaSalle Re Holdings Limited since 1993.

JOHN M. MODIN is Executive Vice President and Chief Financial Officer for
PXRE. Prior to joining PXRE in September 2002, Mr. Modin was the Chief
Financial Officer of Enterprise Reinsurance Holdings Corporation. Prior to
joining Enterprise in 1997, Mr. Modin, a CPA, was a Senior Manager with KPMG
in New York where he served clients in the property and casualty, life,
reinsurance, financial guarantor, and brokerage insurance sectors.

BRUCE J. BYRNES is the General Counsel and Secretary of PXRE Corporation and
PXRE Reinsurance Company. Prior to joining us in May 2001, Mr. Byrnes was an
Associate of the law firm of Morgan, Lewis & Bockius LLP from September 1998,
where he specialized in corporate and reinsurance matters. Prior to that,
Mr. Byrnes was an associate of the law firm of Baker & McKenzie, where he also
specialized in corporate and reinsurance matters.

S-65

F. SEDGWICK BROWNE retired as counsel at Sidley Austin Brown & Wood LLP, a
law firm, specializing in the insurance and reinsurance industry on
September 30, 2004. Prior to becoming counsel at Sidley Austin Brown & Wood
LLP on September 5, 2002, he was senior counsel at Morgan, Lewis & Bockius
LLP. Prior to becoming senior counsel at Morgan Lewis & Bockius LLP, he was a
partner of that firm. Mr. Browne was elected a director of PXRE Corporation in
June 1999.

BRADLEY E. COOPER is a Partner and co-founder of Capital Z. Prior to joining
Capital Z in 1998, Mr. Cooper served in similar roles at Insurance Partners
Advisors, L.P. ("Insurance Partners") from 1994 to 1998 and International
Insurance Investors, L.P. from 1990 to 1994. Prior to the formation of
Insurance Partners, Mr. Cooper was a Vice President of International Insurance
Advisors, Inc. from 1990 to 1994 and was an investment banker in the Financial
Institutions Group at Salomon Brothers, Inc. from 1988 to 1990. Mr. Cooper
currently serves on the Board of Directors of CERES Group, Inc. and Universal
American Financial Corp.

ROBERT W. FIONDELLA retired as Chairman of the Board of The Phoenix
Companies, Inc. and of Phoenix Life on March 31, 2003. Prior thereto he had
served as Chairman of the Board of The Phoenix Companies, Inc. since November
2000 and of Phoenix Life since February 1994. He also served as Chief
Executive Officer of The Phoenix Companies, Inc. from November 2000 to
December 2002 and of Phoenix Life from February 1994 to December 2002. From
February 1989 to February 1994, he was President and Chief Operating Officer
of Phoenix Life. Mr. Fiondella was also a director and officer of various
other Phoenix Life subsidiaries, and currently a director of Hilb Rogal &
Hobbs Company, an insurance brokerage firm, and of NextGen Ventures, Inc.

SUSAN FLEMING CABRERA was a Partner of Capital Z until December 31, 2003,
when she left to pursue academic and consulting interests. Prior to joining
Capital Z in 1998, Ms. Fleming served as Vice President of Insurance Partners
from 1994 to 1998 and was an investment banker in the Mergers and Acquisitions
Financial Institutions Group at Morgan Stanley & Co. from 1992 to 1994.
Ms. Fleming currently serves on the Board of Directors of CERES Group, Inc.
since 2000 and Universal American Financial Corp. since 1999.

FRANKLIN D. HAFTL was elected a director of PXRE Corporation in February
1997 and has been in the insurance and reinsurance industry since 1958. He
served as President and Chief Executive Officer of Unione Italiana Reinsurance
Company of America, Inc. from October 1988 to March 1994. Mr. Haftl is a
certified arbiter member of the ARIAS (AIDA Reinsurance and Insurance
Arbitration Society) and has served and continues to serve as an umpire on
numerous arbitration panels adjudicating commercial insurance and reinsurance
related disputes.

CRAIG A. HUFF is the President and co-founder of Reservoir Capital Group, a
New York based private investment firm. Prior to co-founding Reservoir in
1997, he was a partner at Ziff Brothers Investments, a generalist investment
firm managing Ziff family capital from 1993 to 1997. Previously, he served as
a Nuclear Submarine Officer in the U.S. Navy. Mr. Huff currently serves on the
Board of Directors of ARC Systems, Inc.

MURAL JOSEPHSON retired from Kemper Insurance Companies in 2002. During his
5-year tenure at Kemper, he held key management positions, including senior
vice president and chief financial officer and senior vice president of
finance. Prior to joining Kemper, Mr. Josephson held several senior level
positions at KPMG LLP, including 19 years as a senior audit partner. While at
KPMG, he was a member of the National Insurance Practice Committee and a
member of the Professional Practice Review Committee. He is currently a member
of the board of directors and chairman of the audit committee of UICI, a NYSE-
listed insurance holding company. He also serves on the board of directors of
SeaBright Insurance Holdings, Inc. and the board of directors of its wholly
owned subsidiary, SeaBright Insurance Company.

WENDY LUSCOMBE was elected a director of PXRE Corporation in November 1993
and has been a principal of WKL Associates, a company which provides U.S. real
estate investment advisory services to U.K. companies, since May 1994.
Ms. Luscombe has served as principal real estate advisor or CEO to the US
entities of Prudential UK and British Coal Pension Funds. Ms. Luscombe has
been a director of Zweig Fund and Zweig Total Return Fund since February 2001
and has also been a director of Endeavour Real Estate Securities since
November 2000. Ms. Luscombe has also served as Chairman and Member of the

S-66

Management Oversight Committee of the Deutsche Bank Real Estate Opportunities
Fund since December 2003. Ms. Luscombe has been a director of Acadia Realty
Trust since May 2004.

PHILIP R. MCLOUGHLIN was a director, Chairman and Chief Executive Officer of
Phoenix Investment Partners, Ltd. from October 1995 to September 2002. Phoenix
Investment Partners, Ltd. is an investment management company and a subsidiary
of The Phoenix Companies, Inc. Mr. McLoughlin was Executive Vice President,
Chief Investment Officer and a Director of the Phoenix Companies, Inc. from
November 2000 to July 2002 and he also served in various positions, including
Chief Investment Officer for Phoenix Life Insurance Company and its
subsidiaries until September 2002. Mr. McLoughlin currently serves as a
Director of many of Phoenix's mutual funds.

ROBERT STAVIS is a Partner of Bessemer Venture Partners, a private venture
capital firm, and focuses on investments in financial services technologies
and business process automation. Prior to joining Bessemer in July 2000, he
was the co-head of global arbitrage trading for Salomon Smith Barney, where he
worked since 1985. While at Salomon Smith Barney, Mr. Stavis served as a
member of the firm's operating committee, risk management committee and the
control and compliance committee. He currently serves on the Board of
Directors of AIT Group, Limited, Gerson Lehrman Group and Soleil Securities
Group, Inc.

S-67

SELLING SHAREHOLDERS AND RELATED INFORMATION

The following table sets forth information relating to the selling
shareholders' beneficial ownership of our common stock as of September 30,
2004:

COMMON SHARES BENEFICIALLY
OWNED PRIOR TO THE OFFERING
---------------------------
MAXIMUM MAXIMUM
PERCENT OF NUMBER OF NUMBER OF NUMBER OF
COMMON CONVERTIBLE CONVERTIBLE COMMON
SHARES PREFERRED COMMON SHARES
SELLING SHAREHOLDERS NUMBER(2) OUTSTANDING(3) SHARES(4) SHARES(5) OFFERED(6)
----------------------------------------- ---------- -------------- ----------- ----------- ----------

Capital Z Financial Services Fund II,
L.P. & Capital Z Financial Services
Private Fund II, L.P. (8)............... 6,788,640 24.3% 9,136.484 6,777,807 358,277
Reservoir Capital Master Fund, L.P. &
Reservoir Capital Partners, L.P. (9).... 3,554,956 12.7 4,580.423 3,397,940 701,910
RER Reinsurance Holdings, L.P. (10) ...... 2,168,898 7.7 2,923.674 2,168,898 448,028
Robert Stavis (11) ....................... 104,593 0.4 121.820 90,371 18,668
---------- ---- ---------- ---------- ---------
Total .................................... 12,617,087 45.1% 16,762.401 12,435,016 1,526,883
========== ==== ========== ========== =========

COMMON SHARES BENEFICIALLY
OWNED AFTER THE OFFERING(1)
----------------------------
PERCENT OF
COMMON
SHARES
SELLING SHAREHOLDERS NUMBER(7) OUTSTANDING
----------------------------------------- ---------- -----------

Capital Z Financial Services Fund II,
L.P. & Capital Z Financial Services
Private Fund II, L.P. (8)............... 6,430,363 20.3%
Reservoir Capital Master Fund, L.P. &
Reservoir Capital Partners, L.P. (9).... 2,853,046 9.0
RER Reinsurance Holdings, L.P. (10) ...... 1,720,870 5.4
Robert Stavis (11) ....................... 85,925 0.3
---------- ----
Total .................................... 11,090,204 35.0%
========== ====

- ---------------
(1) Excludes 130,435 common shares that may be sold by the selling
shareholders if the underwriters exercise their overallotment option in
full.
(2) Includes common shares held on the date hereof, plus common shares
issuable upon conversion of preferred shares, plus common shares issuable
upon exercise of options and/or warrants exercisable within 60 days of
the date hereof, plus restricted common shares.
(3) Applicable percentage ownership is based on 14,429,885 common shares
outstanding as of November 17, 2004, plus 13,555,613 common shares
issuable upon conversion of the preferred shares, plus 13,221 common
shares issuable upon exercise of options held by the selling shareholders
exercisable within 60 days, plus 18,500 restricted common shares held by
the selling shareholders and 150,350 common shares beneficially owned by
the selling shareholders. Assumes a conversion price equal to $13.48
(4) Includes issued and outstanding Series A Preferred Shares, Series B
Preferred Shares and Series C Preferred Shares.
(5) Assumes all of the preferred shares held by the selling shareholders are
converted into convertible common shares at a conversion price equal to
$13.48.
(6) Includes only common shares issuable upon conversion of the convertible
common shares into which the issued and outstanding preferred shares
convert.
(7) Assumes the conversion of that number of preferred shares by each selling
shareholder necessary to yield the number of common shares offered by
such selling shareholder hereunder, and the sale by such selling
shareholder of all of such common shares.
(8) According to the Company's Share Register, Capital Z holds 9,136.484
preferred shares, which includes 6,058.716 A1 Preferred Shares and
3,029.359 A2 Preferred Shares owned by Capital Z Fund and 32.272 A1
Preferred Shares and 16.136 A2 Preferred Shares owned by Capital Z
Private Fund. The 9,136.484 preferred shares held by Capital Z are
convertible into 6,777,807 common shares. In addition, Capital Z
Management, LLC holds 7,500 common shares, 5,834 of which are restricted
common shares, and options exercisable within 60 days to purchase 3,333
common shares that were granted to it under our Director Stock Plan as
the designee of Susan Fleming Cabrera and Bradley Cooper, members of our
Board of Directors.
(9) According to the Company's Share Register, Reservoir Capital Master Fund,
L.P. ("Reservoir Master Fund") and Reservoir Capital Partners, L.P.
("Reservoir Partners" and, together with Reservoir Master Fund,
"Reservoir") hold the 4,580.423 preferred shares, which includes
2,613.894 B1 Preferred Shares and 1,306.948 B2 Preferred Shares owned by
Reservoir Partners and 439.721 B1 Preferred Shares and 219.860 B2
Preferred Shares owned by Reservoir Master Fund. The 4,580.423 preferred
shares held by Reservoir are convertible into 3,397,940 common shares.
According to an Amended Schedule 13D filed on July 15, 2002 by Reservoir,
Reservoir holds 150,350 common shares. In addition, Reservoir Capital
Group, L.L.C. hold 5,000 common shares, 4,167 of which are restricted
common shares, and options

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exercisable within 60 days to purchase 1,666 common shares that were
granted to it under our Director Stock Plan as a designee of Craig Huff,
a member of our Board of Directors.
(10) According to the Company's Share Register, RER holds the 2,923.674
preferred shares, consisting of 1,949.116 C1 Preferred Shares and 974.558
C2 Preferred Shares owned by Rainwater. The 2,923.674 preferred shares
held by RER are convertible into 2,168,898 common shares. Based on the
Amended Schedule 13D filed on July 15, 2002, we believe Richard
Rainwater, as the sole general partner of RER, has the sole voting and
dispositive power with respect to the 2,923.674 preferred shares held by
RER.
(11) Includes 6,000 common shares, 4,501 of which are restricted common
shares, and options exercisable within 60 days to purchase 8,222 common
shares. Mr. Stavis also holds 121.820 preferred shares, consisting of
81.214 C1 preferred shares and 40.606 C2 preferred shares. The 121.820
preferred shares are convertible into 90,371 common shares.

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CERTAIN TAX MATTERS

The following summary of the taxation of PXRE and the taxation of our
shareholders is based upon current law and is for general information only.

The summary does not purport to be a complete analysis of all of the tax
considerations that may be applicable to a decision to acquire our common
shares. This summary does not deal with the tax consequences applicable to all
categories of investors, some of which (such as broker-dealers, investors who
hold ordinary shares as part of hedging or conversion transactions, investors
whose functional currency is not the U.S. dollar, and tax-exempt
organizations) may be subject to special rules.

The following summary (including and subject to the matters and
qualifications set forth in such summary) of certain tax considerations (a)
under "--Taxation of PXRE and Subsidiaries--Bermuda" and "--Taxation of
Shareholders--Bermuda" is based upon the advice of Conyers Dill & Pearman,
Hamilton, Bermuda and (b) under "--Taxation of PXRE and Subsidiaries--United
States," "--Taxation of Shareholders--United States--Taxation of U.S.
Holders," is based upon the advice of Sidley Austin Brown & Wood LLP (the
advice of such firms does not include accounting matters, determinations or
conclusions relating to the business or activities of PXRE). The tax treatment
of a holder of our common shares, or of a person treated as a holder of our
common shares for U.S. federal income, state, local or non-U.S. tax purposes,
may vary depending on the holder's particular tax situation. Further, future
legislative, judicial or administrative changes or interpretations could be
retroactive and could affect the conclusions in this summary. PROSPECTIVE
INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL,
STATE, LOCAL AND NON-U.S. INCOME AND OTHER TAX CONSEQUENCES OF OWNING OUR
COMMON SHARES.

TAXATION OF PXRE AND SUBSIDIARIES

Bermuda

Under current Bermuda law, we are not subject to tax on income or capital
gains. We have obtained from the Minister of Finance under the Exempted
Undertakings Tax Protection Act 1966 an assurance that, in the event that
Bermuda enacts legislation imposing tax computed on profits, income, any
capital asset, gain or appreciation, or any tax in the nature of estate duty
or inheritance, the imposition of any such tax shall not be applicable to us
or to any of our operations or our shares, debentures or other obligations
until March 28, 2016. We could be subject to taxes in Bermuda after that date.
This assurance will be subject to the proviso that it is not to be construed
so as to prevent the application of any tax or duty to such persons as are
ordinarily resident in Bermuda (we are not so currently affected) or to
prevent the application of any tax payable in accordance with the provisions
of the Land Tax Act 1967 or otherwise payable in relation to any property
leased to us or our insurance subsidiary. We pay annual Bermuda government
fees, and our Bermuda reinsurance subsidiary pays annual insurance license
fees. In addition, all entities employing individuals in Bermuda are required
to pay a payroll tax and several other taxes payable, directly or indirectly,
to the Bermuda government.

Jurisdictions other than Bermuda and the United States

PXRE has subsidiaries domiciled in jurisdictions other than the United
States and Bermuda. These subsidiaries will be subject to taxation in those
jurisdictions. Dividends and other amounts paid by these subsidiaries may be
subject to withholding taxes unless reduced by treaty.

In addition, in certain cases, our subsidiaries may be subject to tax in
jurisdiction other than their domicile, either because they are considered
doing business in that jurisdiction, are considered to have income sourced in
that jurisdiction, or because they are considered to have an establishment in
that jurisdiction. We and our subsidiaries intend to conduct operations in a
manner that minimizes our taxation in jurisdictions other than the
jurisdiction of domicile.

If we or any of our subsidiaries is subject to tax in a jurisdiction other
than our domicile, our results of operations and your investment in our common
shares could be materially affected.

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United States

General

The following is a summary of material U.S. federal income tax matters
relating to our operations. PXRE and our non-U.S. subsidiaries intend to
conduct our operations such that we should not be engaged in a trade or
business in the United States and, therefore, should not be required to pay
U.S. federal income taxes (other than withholding taxes on dividends and
certain other U.S. source investment income). However, because definitive
identification of activities which constitute being engaged in a trade or
business in the United States is not provided by the Internal Revenue Code of
1986, as amended (the "Code"), or regulations or court decisions, there can be
no assurance that the U.S. Internal Revenue Service ("IRS") will not contend
successfully that PXRE or its non-U.S. subsidiaries are engaged in a trade or
business in the United States. A foreign corporation deemed to be so engaged
would be subject to U.S. federal income tax, as well as the branch profits
tax, on its income, which is treated as effectively connected with the conduct
of that trade or business unless the corporation is entitled to relief under
the permanent establishment provisions of a tax treaty. Such income tax, if
imposed, would be based on effectively connected income computed in a manner
generally analogous to that applied to the income of a domestic corporation,
except that deductions and credits generally are not permitted unless the
foreign corporation has timely filed a U.S. federal income tax return in
accordance with applicable regulations. Penalties may be assessed for failure
to file tax returns. The 30% branch profits tax is imposed on net income after
subtracting the regular corporate income tax and making certain other
adjustments.

If PXRE Bermuda is entitled to the benefits of the income tax treaty between
Bermuda and the United States (the "Bermuda Treaty"), PXRE Bermuda should only
be subject to U.S. federal income tax on any insurance premium income found to
be effectively connected with a U.S. trade or business if that trade or
business is conducted through a permanent establishment in the United States.
No regulations interpreting the Bermuda Treaty have been issued. PXRE intends
to conduct its business so that PXRE Bermuda does not have a permanent
establishment in the United States. An insurance enterprise would not be
entitled to the benefits of the Bermuda Treaty if (i) less than 50% of its
stock were beneficially owned, directly or indirectly, by Bermuda residents or
U.S. citizens or residents, or (ii) any such enterprises' income were used in
substantial part to make disproportionate distributions to, or to meet certain
liabilities to, persons who are not Bermuda residents or U.S. citizens or
residents. We cannot be certain that our Bermuda insurance subsidiary will be
eligible for treaty benefits immediately following the offering due to
uncertainty regarding the citizenship and residency of our shareholders. PXRE
would not be eligible for benefits under the Bermuda Treaty because we are not
an insurance company.

Foreign insurance companies engaged in an insurance business in the United
States have a portion of their net investment income characterized as
effectively connected with a U.S. trade or business. The amount so
characterized depends on a formula. It is unclear whether the Bermuda Treaty
applies to the characterization of net investment income and, if so, whether
PXRE Bermuda is eligible for benefits under the Bermuda Treaty. If a portion
of PXRE Bermuda's investment income is characterized as subject to U.S.
federal income tax, it could materially adversely affect the value of your
investment in our shares.

Foreign corporations not engaged in a trade or business in the United States
are subject to U.S. federal income tax on certain "fixed or determinable
annual or periodic gains, profits and income" (such as dividends and certain
interest on investments) derived from sources within the United States. Such
income is generally collected by withholding of the payment unless the
withholding rate is reduced by a tax treaty. The Bermuda Treaty does not
provide for such a reduction.

U.S. Subsidiaries. Our U.S. subsidiaries will be subject to U.S. federal
tax on their net worldwide income and gains at regular corporate rates. Our
U.S. subsidiaries will not be subject to the "branch profits" tax. Dividends
and interest paid by PXRE Delaware to PXRE Barbados will be subject to a 30%
withholding tax.

Personal Holding Company Rules. A corporation will not be classified as a
personal holding company (a "PHC") in a given taxable year unless both (i) at
some time during the last half of such taxable year, five or fewer individuals
(without regard to their citizenship or residency) own or are deemed to own
(pursuant to certain constructive ownership rules) more than 50% of the
corporation's shares by value, and (ii) at least

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60% of the adjusted ordinary gross income of the corporation for such taxable
year consists of PHC income. PHC income includes, among other things,
dividends, interest, royalties, annuities and, under certain circumstances,
rents. The PHC rules contain an exception for foreign corporations that are
classified as foreign personal holding companies (as discussed below).

We believe, based upon information available to us regarding our existing
shareholder base, that neither PXRE nor any of our subsidiaries will be
considered a PHC. Due to the lack of complete information regarding our
ultimate share ownership and factual and legal uncertainties regarding the
constructive ownership rules, PXRE's future years income and other
circumstances, we cannot be certain that this will be the case, or that the
amount of U.S. tax that would be imposed if it were not the case would be
immaterial.

We will use reasonable best efforts to cause PXRE and each of its
subsidiaries not to meet the gross income threshold set forth in Section 542(a)
of the Code. If, however, we or any of our subsidiaries is or were to become a
PHC in a given taxable year, such company would be subject to a 15% PHC tax on
its "undistributed PHC income" (which, in our case and the case of our non-
U.S. subsidiaries, would include only PHC income that is from U.S. sources and
foreign source income to the extent that such income is effectively connected
with the conduct of a trade or business in the U.S.). For taxable years
beginning after December 31, 2008, the PHC tax rate would be the highest
marginal rate on ordinary income applicable to individuals. PHC income
generally would not include underwriting income or, in our case and the case
of our non-U.S. subsidiaries, investment income derived from non-U.S. sources
or dividends received from non-U.S. subsidiaries.

There can be no assurance that we and each of our subsidiaries are not or
will not become a PHC immediately following this offering or in the future
because of factors including factual uncertainties regarding the application
of the PHC rules, the makeup of our shareholder base and other circumstances
that affect the application of the PHC rules to us and our subsidiaries.

Pursuant to recently enacted legislation, foreign corporations will be
excluded from the application of the PHC rules of the Code effective for
taxable years of foreign corporations beginning after December 31, 2004, and
taxable years of U.S. shareholders with or within which such taxable years of
foreign corporations end.

U.S. Federal Excise Tax on Insurance and Reinsurance Premiums. The United
States imposes an excise tax on insurance and reinsurance premiums paid to
non-U.S. insurers or reinsurers with respect to certain U.S. risks. The rates
of excise tax applicable to such premiums are 4% for direct casualty insurance
and indemnity bonds and 1% for reinsurance premiums and direct insurance of
life, sickness and accident policies and annuity contracts. Certain income tax
treaties contain exemptions from the federal excise tax on insurance and
reinsurance premiums. The excise tax provisions of the Bermuda Treaty,
however, are not effective. Accordingly, any insurance or reinsurance premiums
paid to our Bermuda subsidiary with respect to U.S. risks will be subject to
the excise tax. Although payment of the tax is generally the responsibility of
the person who pays the premium, in the event that the tax is not paid by the
purchaser of the insurance, our non-U.S. subsidiaries would be liable for the
tax. In addition, the IRS has taken the position that when a foreign insurer
or reinsurer cedes U.S. risks to a foreign reinsurer that is not eligible for
the excise tax exemption under an applicable treaty, an additional excise tax
may be imposed.

TAXATION OF SHAREHOLDERS

Bermuda

Currently, there is no Bermuda withholding or other tax on dividends paid by
us.

United States

The following summary sets forth certain material U.S. federal income tax
considerations related to the purchase, ownership and disposition of our
common shares. Unless otherwise stated, this summary deals only with
shareholders that are U.S. Holders (as defined below) who purchase their
common shares in this offering and who hold their common shares as capital
assets within the meaning of the Code. The following discussion is only a
general summary of the U.S. federal income tax matters described herein and
does not purport to address all of the U.S. federal income tax consequences
that may be relevant to a particular shareholder in light of such
shareholder's specific circumstances. In addition, except as otherwise
provided,

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the following summary does not describe the U.S. federal income tax
consequences that may be relevant to certain types of shareholders, such as
banks, insurance companies, regulated investment companies, real estate
investment trusts, financial asset securitization investment trusts, dealers
in securities or traders that adopt a mark-to-market method of tax accounting,
tax exempt organizations, expatriates or persons who hold the common shares as
part of a hedging or conversion transaction or as part of a straddle, who may
be subject to special rules or treatment under the Code. This discussions is
based upon the Code, the Treasury regulations promulgated thereunder and any
relevant administrative rulings or pronouncements or judicial decisions, all
as in effect on the date hereof and as currently interpreted, and does not
take into account possible changes in such tax laws or interpretations
thereof, which may apply retroactively. This discussion does not include any
description of the tax laws of any state or local governments within the
United States, or of any foreign government, that may be applicable to the
common shares or the shareholders.

For purposes of this discussion, the term "U.S. Holder" means an owner of
shares that is for U.S. federal income tax purposes:

o a citizen or resident of the United States,

o a corporation or entity treated as a corporation created or organized in
or under the laws of the United States, or any political subdivision
thereof,

o an estate the income of which is subject to U.S. federal income taxation
regardless of its source,

o a trust if either (x) a court within the United States is able to
exercise primary supervision over the administration of such trust and
one or more U.S. persons have the authority to control all substantial
decisions of such trust or (y) the trust has a valid election in effect
to be treated as a U.S. Person for U.S. federal income tax purposes, or

o any other person or entity that is treated for U.S. federal income tax
purposes as if it were one of the foregoing.

If a partnership holds the common shares, the tax treatment of a partner
will generally depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership holding common shares, you
should consult your tax advisor.

Persons considering making an investment in the common shares should consult
their own tax advisors concerning the application of the U.S. federal tax laws
to their particular situations as well as any tax consequences arising under
the laws of any state, local or foreign taxing jurisdiction prior to making
such investment.

TAXATION OF U.S. HOLDERS

Taxation of Dividends. Subject to the discussions below relating to the
potential application of the controlled foreign corporation ("CFC"), related
person insurance income ("RPII"), foreign personal holding company ("FPHC")
and passive foreign investment company ("PFIC") rules, cash distributions, if
any, made with respect to the common shares will constitute dividends for U.S.
federal income tax purposes to the extent paid out of our current or
accumulated earnings and profits (as computed using U.S. federal income tax
principles). U.S. Holders generally will be subject to U.S. federal income tax
on the receipt of such dividends. Dividends received by U.S. Holders that are
corporations generally will not be eligible for a dividends received
deduction. To the extent that a distribution exceeds our earnings and profits,
the distribution will be treated first as a return of the U.S. Holder's basis
to the extent of such basis, and then as gain from the sale of a capital
asset. The character of such gain is described below under "Sale, Exchange or
Other Disposition."

Under the Code, "qualified dividend income" received by individuals from
U.S. corporations or "qualified foreign corporations" in taxable years
beginning on or before December 31, 2008 is subject to tax at capital gain
rates (generally, 15%). A "qualified foreign corporation" is a foreign
corporation which is either incorporated in a possession of the United States
or is eligible for the benefits of a tax treaty that the U.S. Treasury
Department considers a "comprehensive income tax treaty." The U.S. Treasury
Department has determined that the Bermuda Treaty is not a comprehensive
income tax treaty.

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A foreign corporation not otherwise treated as a qualified foreign
corporation will be treated as such with respect to any dividend paid on stock
which is readily tradable on an established securities market in the United
States. However, the term "qualified foreign corporation" does not include a
corporation treated as a foreign personal holding company (described below), a
foreign investment company (as defined in Code section 1246(b)), or a passive
foreign investment company (described below). Special rules apply to
"extraordinary" dividends, dividends on stock held for less than 60 days, and
to dividends received from certain corporations or which are taxed under other
Code provisions. No final regulations have been issued by the U.S. Treasury
Department as of the date of this prospectus supplement. The reduced rate of
taxation for qualified dividend income does not apply to taxable years
beginning after December 31, 2008.

In any event, the rate reduction will not apply to dividends received to the
extent a U.S. Holder elects to treat the dividends as "investment income"
which may be offset by investment expense. Furthermore, the rate reduction
will apply only to dividends that are paid to a U.S. Holder with respect to
stock meeting certain holding period requirements and where the U.S. Holder is
not obligated to make related payments with respect to positions in
substantially similar or related property.

We believe that dividends paid by PXRE will currently qualify for capital
gains treatment as our common stock is readily tradable on an established
securities market in the United States. We can give no assurance that our
stock will remain readily tradable on an established securities market in the
United States, or that we will remain a "qualified foreign corporation."
Prospective investors are advised to consult their own tax advisors with
respect to the application of these rules.

Sale, Exchange or Other Disposition. Upon a sale, exchange or other
disposition of common shares, a U.S. Holder generally will recognize gain or
loss in an amount equal to the difference between the amount realized on the
sale, exchange or other disposition and the U.S. Holder's adjusted tax basis
in such common shares. Subject to the discussion relating to the potential
application of the CFC, FPHC and PFIC rules, such gain or loss generally will
be capital gain or loss and will be long-term capital gain or loss if the U.S.
Holder has held the common shares for more than one year. The rate of federal
income tax and treatment of such gain or loss depends on whether the U.S.
Holder is an individual or an entity, and on the holding period of the shares.

Controlled Foreign Corporation Rules. A foreign corporation is treated as a
CFC if "United States Shareholders" collectively own directly, indirectly
through foreign persons or constructively (by application of the rules set
forth in Section 958(b) of the Code, generally applying to options, family
members, partnerships, estates, trusts or controlled corporations) more than
50% of the total combined voting power or total value of the corporation's
stock. In addition, a special CFC rule applies to insurance companies, such as
PXRE Bermuda and PXRE Barbados: a foreign insurance (or reinsurance) company
will be treated as a CFC if more than 25% of the stock (measured by vote or
value) is owned directly or indirectly by "United States Shareholders" and if
more than 75% of its gross premiums are attributable to insurance or
reinsurance policies that would produce "insurance income." Under
Section 951(b), any United States person (as defined in Section 7701(a)(30) of
the Code) who owns, on the last day of the CFC's taxable year, directly,
indirectly through foreign persons, or constructively, 10% or more of the
total combined voting power of all classes of stock of the foreign corporation
for an uninterrupted period of 30 days or more during a taxable year will be
considered to be a "United States Shareholder." Under Section 951(a) of the
Code, each United States Shareholder of a CFC, who owns shares directly or
indirectly through foreign entities on the last day of the CFC's taxable year
must include in its gross income for U.S. federal income tax purposes its pro
rata share of the CFC's "subpart F income," even if the subpart F income is
not distributed. In addition, gain on the sale of stock of a CFC by a United
States Shareholder will be recharacterized as a dividend and taxed as ordinary
income, rather than as capital gain to the extent of the United States
Shareholder's share of the CFC's earnings and profits. See the discussion
below under "Dispositions of common shares if we or our subsidiaries are a CFC
or subject to RPII."

A U.S. person will be treated as owning indirectly a proportion of the
common shares of our non-U.S. subsidiaries corresponding to the ratio that the
U.S. person's common stock bears to the value of our capital stock. Our bye-
laws prohibit the issuance, redemption, repurchase or transfer of any shares
that results in any shareholder (together with any persons whose stock would
be attributable to such shareholder under Code sections 544, 554, and 958 or
Section 13(d) of the Exchange Act) owning or controlling more than 9.9% of

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all our issued and outstanding shares. Our board of directors may refuse to
register a transfer that violates this prohibition.

Our bye-laws further provide that the direct and indirect voting power of
each shareholder will be limited to no more than 9.9% of the total combined
voting power of all classes of our shares. Because of the attribution
provisions of the Code regarding determination of beneficial ownership, this
requirement may have the effect of reducing the voting rights of a shareholder
whether or not such shareholder directly holds of record more than 9.9% of our
voting shares. Further, our board of directors has the authority to request
from any shareholder certain information for the purpose of determining
whether such shareholder's voting rights are to be reduced. Failure to respond
to such a notice gives our board of directors the authority to make
assumptions it deems necessary to determine such shareholder's ownership and
to calculate a reduction in voting power to comply with the 9.9% limitation.
The Board has sole discretion as to the applicability of this bye-law and to
the calculation of reduction in voting power. One shareholder, Capital Z has
been given a waiver of the 9.9% requirement with respect to its preferred
shares.

We believe that the anticipated dispersion of our share ownership and the
provisions of the bye-laws restricting transfer, issuance and voting power of
our common shares should prevent any U.S. person who (directly, indirectly
through one or more foreign entities or constructively) owns our common shares
from becoming a United States Shareholder (as defined above) of PXRE. However,
due to the attribution provisions of the Code regarding determination of
beneficial ownership, it is possible that one or more of our non-U.S.
subsidiaries may be CFCs and U.S. persons may be treated as owning 10% or more
of the total voting power of a subsidiary, notwithstanding the reduction of
voting rights discussed above. The vote reduction provisions, however, have
not been directly passed on by the IRS, or by any court. There can be no
assurance that if a U.S. person were to become a United States Shareholder of
PXRE and/or our non-U.S. subsidiaries, such United States Shareholder would
not have to include in gross income its allocable share of subpart F income of
our non-U.S. subsidiaries. You should consult your tax advisor if you believe
you may become a United States Shareholder of our non-U.S. subsidiaries.

Related Person Insurance Income Rules. A different definition of CFC is
applicable in the case of a non-U.S. corporation which earns related person
insurance income ("RPII"). RPII is any subpart F insurance income attributable
to policies of insurance or reinsurance with respect to which the person
(directly or indirectly) insured or reinsured is a RPII shareholder (described
below) of the non-U.S. corporation or a related person (described below) to
such a RPII shareholder. In general, and subject to certain limitations,
insurance income is income (including premium and investment income)
attributable to the issuing of any insurance or reinsurance contract which
would be taxed under the portions of the Code relating to insurance companies
if the income were earned by a domestic insurance company. PXRE will not be
licensed as an insurance company, so we do not anticipate that PXRE will have
insurance income.

For purposes only of taking into account RPII, and subject to the exceptions
described above, a PXRE non-U.S. subsidiary will be treated as a CFC under the
RPII rules (a "RPII CFC") if RPII shareholders collectively own, directly or
indirectly through non-U.S. entities or constructively, 25% or more of the
total combined voting power or value of such entity's stock on any day during
a taxable year. If any of PXRE's non-U.S. subsidiaries is a RPII CFC for an
uninterrupted period of at least 30 days during any taxable year, a U.S.
person who owns, directly or indirectly through non-U.S. entities, shares of
such entity on the last day of any such taxable year must include in its gross
income for U.S. federal income tax purposes its allocable share of RPII of
such entity for the entire taxable year, subject to certain modifications. For
purposes of inclusion of RPII in the income of U.S. persons who own common
shares, unless an exception applies, a RPII shareholder is a U.S. person who
owns, directly or indirectly through non-U.S. entities, any amount (rather
than 10% or more) of our shares. Generally, for purposes of the RPII rules, a
related person is someone who controls or is controlled by the RPII
shareholder or someone who is controlled by the same person or persons which
control the RPII shareholder. Control is measured by stock ownership of either
more than 50% in value or more than 50% in voting power after applying certain
constructive ownership rules.

The special RPII rules do not apply if (i) the direct and indirect insureds
and persons related to such insureds, whether or not U.S. persons, are treated
at all times during the taxable year as owning, directly or indirectly through
non-U.S. entities, less than 20% of the voting power and less than 20% of the
value of the stock of a non-U.S. insurance company; (ii) the RPII of a non-
U.S. insurance company, determined on a

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gross basis, is less than 20% of the company's gross insurance income for such
taxable year; (iii) the non-U.S. insurance company elects to be taxed on their
RPII as if it is engaged in a U.S. trade or business and waives all treaty
benefits; or (iv) the non-U.S. insurance company elects under Code section
953(d) to be treated as a U.S. corporation for tax purposes. If no exception
applies, each U.S. person who owns directly or indirectly shares of a RPII CFC
on the last day of such entities' taxable year will be required to include in
gross income for U.S. federal income tax purposes his or her share of RPII for
the entire taxable year. The amount includible will be determined as if all
such RPII were distributed proportionately only to such U.S. persons at that
date.

A U.S. person recognizing RPII would increase the basis in his or her common
shares by the amount of RPII included in income. Amounts distributed out of
previously taxed RPII would be excluded from the shareholder's income, and the
shareholder's basis in the common shares would be reduced by the amount so
excluded. We do not expect the gross RPII of any of our non-U.S. insurance
subsidiaries to equal or exceed 20% of its gross insurance income in any
taxable year for the foreseeable future and do not expect the direct or
indirect insureds (and related persons) of any such subsidiary to directly or
indirectly own 20% or more of either the voting power or value of our common
shares. Consequently, while we can give no assurances, we do not expect any
U.S. person owning common shares to be required to include RPII income in
gross income for U.S. federal income tax purposes. In addition, the RPII
provisions have not been interpreted by the Courts and regulations are in
proposed form. Due to these uncertainties, prospective investors should
consult with their tax advisors.

Tax-Exempt Shareholders. Tax-exempt entities will be required to treat
certain subpart F insurance income, including RPII, that is includible in
income by the tax-exempt entity as unrelated business taxable income.
Prospective investors that are tax exempt entities are urged to consult their
tax advisors as to the potential impact of the unrelated business taxable
income provisions of the Code. A tax-exempt organization that is treated as a
United States Shareholder or a RPII shareholder also must file IRS Form 5471
in the circumstances described below in "--Information Reporting and Backup
Withholding."

Dispositions of common shares if we or our subsidiaries are a CFC or subject
to RPII. Section 1248 of the Code provides that if a U.S. person sells or
exchanges stock in a foreign corporation and such person owned, directly,
indirectly through certain foreign entities or constructively, 10% or more of
the voting power of the corporation at any time during the five-year period
ending on the date of disposition when the corporation was a CFC, any gain
from the sale or exchange of the shares will be treated as a dividend to the
extent of the CFC's earnings and profits (determined under U.S. federal income
tax principles) during the period that the shareholder held the shares and
while the corporation was a CFC (with certain adjustments). In such case, the
U.S. person may be required to file Form 5471 to report the disposition of
shares in the CFC.

Section 953(c)(7) of the Code generally provides that Section 1248 of the
Code will apply to the sale or exchange by a U.S. person of shares in a
foreign corporation that is characterized as a RPII CFC regardless of whether
such person is a United States Shareholder or whether the corporation
qualifies for either the RPII 20% ownership exception or the RPII 20% gross
income exception. Although existing Treasury Department regulations do not
address the question, proposed Treasury regulations issued in April 1991
create some ambiguity as to whether Section 1248 and the requirement to file
Form 5471 would apply when the foreign corporation has a foreign insurance
subsidiary that is a CFC for RPII purposes and that would be taxed as an
insurance company if it were a domestic corporation.

As noted above, we believe that the provision in our bye-laws limiting the
voting power of each shareholder and the anticipated dispersion of our shares
will cause no U.S. person to be treated as owning 10% of our stock. We also
believe that Section 1248 and the requirement to file Form 5471 will not apply
to U.S. Holders who are not United States Shareholders under the RPII rules
because PXRE is not directly engaged in the insurance business. There can be
no assurance, however, that the IRS will not challenge the Bye-Law's
provisions or interpret the proposed RPII regulations in this manner or that
the Treasury Department will not take the position that Section 1248 and the
requirement to file Form 5471 will apply to dispositions of common shares in a
corporation like PXRE which is engaged in the insurance business indirectly
though subsidiaries.

S-76

If the IRS was to make the Form 5471 filing requirement applicable to the
sale of our common shares under Section 1248, we would notify shareholders
that the requirement to file Form 5471 will apply to dispositions of our
common shares. Thereafter, we would send a notice after the end of each
calendar year to all persons who were shareholders during the year notifying
them that the requirement to file a Form 5471 applies to dispositions of our
common shares by U.S. Holders. We would attach to this notice a copy of Form
5471 completed with all our information and instructions for completing the
shareholder information.

Foreign Personal Holding Company Rules. A foreign corporation will not be
classified as an FPHC unless both (i) at any time during the taxable year,
five or fewer individuals who are U.S. citizens or residents own or are deemed
to own (pursuant to certain constructive ownership rules) 50% or more of all
classes of its shares measured by voting power or value and (ii) at least 60%
(or in general 50% for any year after the first year that a corporation is an
FPHC) of its gross income is FPHC income for U.S. federal income tax purposes.

If, we or any of our subsidiaries are or were to become an FPHC, a portion
of such company's "undistributed foreign personal holding company income" (as
defined in the Code) would be imputed to all of our U.S. Holders. Such income
would be taxable as a dividend, even if no cash dividend were actually paid.
In such event, subsequent cash distributions would first be treated as a tax-
free return of any previously taxed and undistributed amounts. Dividends from
a FPHC would not be eligible for the recently enacted reduced rate of tax on
dividends. In addition, if we or any of our subsidiaries are or become an FPHC
in any year, the heirs or estate of any individual U.S. Holder who dies in the
immediately following year (whether or not we or any of our subsidiaries are
an FPHC in such year) would not be entitled to a "step-up" in the basis of the
common shares which might otherwise be available under U.S. income tax laws.
Moreover, each U.S. person who owns, directly or indirectly, 10% or more of
the value of an FPHC is required to file Form 5471.

There can be no assurance that we and each of our subsidiaries are not or
will not become an FPHC because of factors including factual uncertainties
regarding the application of the FPHC rules, the makeup of our shareholder
base and other circumstances that could affect the application of the FPHC
rules to us and our subsidiaries. We will use reasonable best efforts to
conduct our affairs such that neither PXRE nor our non-U.S. subsidiaries will
exceed the gross income percentage for any taxable year. If we or any of our
non-U.S. subsidiaries are or were to become an FPHC, such company would not be
subject to the PHC rules described above.

Pursuant to recently enacted legislation, the FHPC rules of the Code have
been repealed effective for taxable years of foreign corporations, such as
PXRE and our non-U.S. subsidiaries, beginning after December 31, 2004, and
taxable years of U.S. shareholders with or within which such taxable years of
foreign corporations end.

Passive Foreign Investment Companies. Sections 1291 through 1298 of the
Code contain special rules applicable with respect to foreign corporations
that are "passive foreign investment companies" ("PFICs"). In general, a
foreign corporation will be a PFIC if 75% or more of its income constitutes
"passive income" or 50% or more of its assets produce passive income. The PFIC
statutory provisions contain a look- through rule which states that, for
purposes of determining whether a foreign corporation is a PFIC, such foreign
corporation shall be treated as if it "received directly its proportionate
share of the income" and as if it "held its proportionate share of the assets"
of any other corporation in which it owns at least 25% of the stock. If we
were to be characterized as a PFIC, U.S. Holders would be subject to a penalty
tax at the time of their sale of or receipt of an "excess distribution" with
respect to their common shares. In general, a shareholder receives an "excess
distribution" if the amount of the distribution is more than 125% of the
average distribution with respect to the shares during the three preceding
taxable years (or shorter period during which the taxpayer held the stock). In
general, the penalty tax is equivalent to an interest charge on taxes that are
deemed due during the period the shareholder owned the shares, computed by
assuming that the excess distribution or gain (in the case of a sale) with
respect to the shares was taxable in equal portions throughout the holder's
period of ownership. The interest charge is equal to the applicable rate
imposed on underpayments of U.S. federal income tax for such period. In
addition, a dividend distribution paid by a PFIC is not eligible for the
recently enacted reduced rate of tax on dividends.

S-77

A U.S. shareholder may avoid some of the adverse tax consequences of owning
shares in a PFIC by making a qualified electing fund or a "mark-to-market"
election. The availability of these elections requires that we provide
information to shareholders making the election. We cannot assure you that
such information will be made available to persons who own our ordinary
shares.

For purposes of the PFIC sales, "passive income" generally includes
interest, dividends, annuities and other investment income. The PFIC statutory
provisions contain an express exception from the definition of passive income
for income "derived in the active conduct of an insurance business by a
corporation which is predominantly engaged in an insurance business." This
exception is intended to ensure that income derived by a bona fide insurance
company is not treated as passive income, except to the extent such income is
attributable to financial reserves in excess of the reasonable needs of the
insurance business. We expect that for purposes of the PFIC rules, our non-
U.S. subsidiaries engaged in the insurance business will be predominately
engaged in the insurance business and unlikely to have reserves in excess of
the reasonable needs of their insurance businesses. Accordingly, none of the
income or assets of the non-U.S. subsidiaries engaged in the insurance
business should be treated as passive. In addition, we expect the PXRE and
each of our non-U.S. subsidiaries will have sufficient non-passive income and
assets either directly or through the look-through rule and thus should not be
treated as PFICs.

No regulations interpreting the substantive PFIC provisions have yet been
issued. Additionally, the IRS recently announced that it intends to scrutinize
non-U.S. insurance companies and apply the PFIC rules to companies that are
not active insurance companies, and to apply the PFIC rules to a non-U.S.
company's income not derived in the active conduct of an insurance business.
We cannot be certain, therefore, that the IRS will not challenge our position
that neither we or our non-U.S. subsidiaries are not PFICs. Each U.S. Holder
should consult his tax advisor as to the effects of these rules.

Foreign Tax Credit. Because it is anticipated that U.S. corporations,
citizens and residents will own a majority of our shares, only a portion of
the dividends paid by us and current income inclusions, if any, under the CFC,
RPII and PFIC rules (including sales of common shares treated as a dividend
under Code Section 1248) will be treated as foreign source income for purposes
of computing a U.S. Holder's foreign tax credit limitations. The limitation on
foreign taxes eligible for the U.S. foreign tax credit is calculated
separately with respect to specific classes of income. The foreign tax credit
rules are complex, and U.S. Holders should consult their own tax advisors
regarding the availability of a foreign tax credit under their particular
circumstances.

Information Reporting and Backup Withholding. Dividends on, and proceeds
from the sale or other disposition of common shares paid to a U.S. Holder
generally will be subject to the information reporting requirements of the
Code and may be subject to backup withholding unless the holder:

o establishes that it is a corporation or other exempt holder, or

o provides an accurate taxpayer identification number on a properly
completed IRS Form W-9 and certifies that no loss of exemption from
backup withholding has occurred.

The amount of any backup withholding from a payment to a holder will be
allowed as a credit against the U.S. Holder's U.S. federal income tax
liability and may entitle such holder to a refund, provided that certain
required information is furnished to the Internal Revenue Service.

Additionally, RPII shareholders, United States shareholders in a CFC, and in
certain circumstances, U.S. persons who acquire 10% of the vote or value of a
foreign corporation which is not a CFC, may be required to file Form 5471 with
the IRS. As noted above, in any year in which we determine that any non-U.S.
insurance subsidiary has RPII and no exception applies, we will provide each
U.S. Holder with a completed Form 5471 or the information necessary to
complete such form. Failure to file Form 5471 may result in penalties.

OTHER TAX LAWS

Shareholders should consult their own tax advisors with respect to the
applicability to them of the tax laws of other jurisdictions.

S-78

UNDERWRITING

Under the terms and subject to the conditions contained in an underwriting
agreement dated November 17, 2004, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston LLC is acting as
representative, the following respective numbers of common shares:

NUMBER
UNDERWRITER OF SHARES
----------- ---------

Credit Suisse First Boston LLC.................................... 2,625,843
Keefe, Bruyette, & Woods, Inc..................................... 1,575,506
Dowling & Partners Securities, LLC................................ 525,169
Fox-Pitt, Kelton, Inc............................................. 262,584
Lazard Freres & Co. LLC........................................... 262,584
---------
Total ........................................................... 5,251,686

The underwriting agreement provides that the underwriters are obligated to
purchase all the common shares common stock in the offering if any are
purchased, other than those common shares covered by the over-allotment option
described below. The underwriting agreement also provides that if an
underwriter defaults the purchase commitments of non-defaulting underwriters
may be increased or the offering of common shares may be terminated.

We and the selling shareholders have granted to the underwriters a 30-day
option to purchase on a pro rata basis up to 787,753 additional common shares,
657,318 of which will be sold by us and 130,435 of which will be sold by the
selling shareholders at the initial public offering price less the
underwriting discounts and commissions. The option may be exercised only to
cover any over-allotments of common shares.

The underwriters propose to offer the common shares initially at the public
offering price on the cover page of this prospectus supplement and to selling
group members at that price less a selling concession of $0.7125 per share.
The underwriters and selling group members may allow a discount of $0.10 per
share on sales to other broker/dealers. After the initial public offering the
representative may change the public offering price and concession and
discount to broker/dealers.

The following table summarizes the compensation and estimated expenses we
and the selling shareholders will pay.

PER SHARE TOTAL
-------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------

Underwriting Discounts and Commissions paid by us ........... $1.1875 $1.1875 $4,423,204 $5,203,769
Expenses payable by us ...................................... $0.27 $0.23 $1,000,000 $1,000,000
Underwriting Discounts and Commissions paid by selling
shareholders............................................... $1.1875 $1.1875 $1,813,174 $1,968,065
Expenses payable by the selling shareholders ................ $0.00 $0.00 $0.00 $0.00

We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933
(the "Securities Act") relating to any common shares, or securities
convertible into or exchangeable or exercisable for any common shares, or
publicly disclose the intention to make any offer, sale, pledge, disposition
or filing, without the prior written consent of Credit Suisse First Boston LLC
for a period of 90 days after the date of this prospectus.

Our officers and directors and the selling shareholders have agreed that
they will not offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, any common shares or securities convertible into or
exchangeable or exercisable for any common shares, enter into a transaction
that would have the same

S-79

effect, or enter into any swap, hedge or other arrangement that transfers, in
whole or in part, any of the economic consequences of ownership of our common
shares, whether any of these transactions are to be settled by delivery of our
common shares or other securities, in cash or otherwise, or publicly disclose
the intention to make any offer, sale, pledge or disposition, or to enter into
any transaction, swap, hedge or other arrangement, without, in each case, the
prior written consent of Credit Suisse First Boston LLC for a period of 90
days after the date of this prospectus; provided, however, that our Chief
Executive Officer will be permitted to transfer common shares with a fair
market value of $640,000 to his former wife pursuant to a consent order
entered in connection with his divorce proceeding.

We and the selling shareholders have agreed to indemnify the underwriters
against liabilities under the Securities Act, or contribute to payments that
the underwriters may be required to make in that respect.

Certain of the underwriters and their respective affiliates have from time
to time performed, and may in the future perform, various financial advisory,
commercial banking and investment banking services for us and our affiliates
in the ordinary course of business, for which they received, or will receive,
customary fees and expenses.

In connection with the offering, the underwriters may engage in stabilizing
transactions, over-allotment transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act.

o Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.

o Over-allotment involves sales by the underwriters of common shares in
excess of the number of common shares the underwriters are obligated to
purchase, which creates a syndicate short position. The short position
may be either a covered short position or a naked short position. In a
covered short position, the number of common shares over-allotted by the
underwriters is not greater than the number of common shares that they
may purchase in the over-allotment option. In a naked short position, the
number of common shares involved is greater than the number of common
shares in the over-allotment option. The underwriters may close out any
covered short position by either exercising their over-allotment option
and/or purchasing common shares in the open market.

o Syndicate covering transactions involve purchases of the common shares in
the open market after the distribution has been completed in order to
cover syndicate short positions. In determining the source of common
shares to close out the short position, the underwriters will consider,
among other things, the price of common shares available for purchase in
the open market as compared to the price at which they may purchase
common shares through the over-allotment option. If the underwriters sell
more common shares than could be covered by the over-allotment option, a
naked short position, the position can only be closed out by buying
common shares in the open market. A naked short position is more likely
to be created if the underwriters are concerned that there could be
downward pressure on the price of the common shares in the open market
after pricing that could adversely affect investors who purchase in the
offering.

o Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common shares originally sold by the
syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions.

These stabilizing transactions, syndicate covering transactions and penalty
bids may have the effect of raising or maintaining the market price of our
common shares or preventing or retarding a decline in the market price of the
common shares. As a result the price of our common shares may be higher than
the price that might otherwise exist in the open market. These transactions
may be effected on The New York Stock Exchange or otherwise and, if commenced,
may be discontinued at any time.

A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters, or selling group members, if
any, participating in this offering and one or more of the underwriters
participating in this offering may distribute prospectuses electronically. The
representatives may agree to allocate a number of common shares to
underwriters and selling group members for sale to their online brokerage
account holders. Internet distributions will be allocated by the underwriters
and selling group members that will make internet distributions on the same
basis as other allocations.

S-80

NOTICE TO CANADIAN RESIDENTS

RESALE RESTRICTIONS

The distribution of the common shares in Canada is being made only on a
private placement basis exempt from the requirement that we and the selling
shareholders prepare and file a prospectus with the securities regulatory
authorities in each province where trades of the common shares are made. Any
resale of the common shares in Canada must be made under applicable securities
laws which will vary depending on the relevant jurisdiction, and which may
require resales to be made under available statutory exemptions or under a
discretionary exemption granted by the applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal advice prior to any
resale of the common shares.

REPRESENTATIONS OF PURCHASERS

By purchasing common shares in Canada and accepting a purchase confirmation
a purchaser is representing to us, the selling shareholders and the dealer
from whom the purchase confirmation is received that:

o the purchaser is entitled under applicable provincial securities laws to
purchase the common shares without the benefit of a prospectus qualified
under those securities laws,

o where required by law, that the purchaser is purchasing as principal and
not as agent, and

o the purchaser has reviewed the text above under Resale Restrictions.

RIGHTS OF ACTION--ONTARIO PURCHASERS ONLY

Under Ontario securities legislation, a purchaser who purchases a security
offered by this prospectus supplement and the accompanying prospectus during
the period of distribution will have a statutory right of action for damages,
or while still the owner of the common shares, for rescission against us and
the selling shareholders in the event that this prospectus supplement or the
accompanying prospectus contains a misrepresentation. A purchaser will be
deemed to have relied on the misrepresentation. The right of action for
damages is exercisable not later than the earlier of 180 days from the date
the purchaser first had knowledge of the facts giving rise to the cause of
action and three years from the date on which payment is made for the common
shares. The right of action for rescission is exercisable not later than 180
days from the date on which payment is made for the common shares. If a
purchaser elects to exercise the right of action for rescission, the purchaser
will have no right of action for damages against us or the selling
shareholders. In no case will the amount recoverable in any action exceed the
price at which the common shares were offered to the purchaser and if the
purchaser is shown to have purchased the securities with knowledge of the
misrepresentation, we and the selling shareholders will have no liability. In
the case of an action for damages, we and the selling shareholders will not be
liable for all or any portion of the damages that are proven to not represent
the depreciation in value of the common shares as a result of the
misrepresentation relied upon. These rights are in addition to, and without
derogation from, any other rights or remedies available at law to an Ontario
purchaser. The foregoing is a summary of the rights available to an Ontario
purchaser. Ontario purchasers should refer to the complete text of the
relevant statutory provisions.

ENFORCEMENT OF LEGAL RIGHTS

All of our directors and officers as well as the experts named herein and
the selling shareholders may be located outside of Canada and, as a result, it
may not be possible for Canadian purchasers to effect service of process
within Canada upon us or those persons. All or a substantial portion of our
assets and the assets of those persons may be located outside of Canada and,
as a result, it may not be possible to satisfy a judgment against us or those
persons in Canada or to enforce a judgment obtained in Canadian courts against
us or those persons outside of Canada.

S-81

TAXATION AND ELIGIBILITY FOR INVESTMENT

Canadian purchasers of common shares should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
shares in their particular circumstances and about the eligibility of the
common shares for investment by the purchaser under relevant Canadian
legislation.

LEGAL MATTERS

The validity of the issuance of the common shares offered hereby will be
passed upon for us by Sidley Austin Brown & Wood LLP, New York, New York.
Certain legal matters in connection with this offering will be passed upon for
the underwriters by Simpson Thacher & Bartlett LLP, New York, New York.

S-82

PXRE GROUP LTD.

INDEX

PAGE
----

Consolidated Balance Sheets as of September 30, 2004 and December 31,
2003................................................................... F-1

Consolidated Statements of Operations and Comprehensive Operations for
the three and nine months ended September 30, 2004 and 2003............ F-2

Consolidated Statements of Shareholders' Equity for the three and nine
months ended September 30, 2004 and 2003............................... F-3

Consolidated Statements of Cash Flows for the three and nine months
ended September 30, 2004 and 2003...................................... F-4

Notes to Consolidated Financial Statements .............................. F-5

PXRE GROUP LTD.

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE PER SHARE)

SEPTEMBER 30, DECEMBER 31
2004 2003
------------- -----------
(UNAUDITED)

Assets
Investments:
Fixed maturities:
Available-for-sale (amortized cost $668,807
and $613,833, respectively)................ $ 668,701 $ 617,658
Trading (cost $13,725 and $20,370,
respectively).............................. 14,160 21,451
Short-term investments........................ 252,893 175,771
Hedge funds (cost $91,056 and $87,691,
respectively).............................. 129,601 121,466
Other invested assets (cost $5,837 and $9,365,
respectively).............................. 6,931 10,173
---------- ----------
Total investments ........................... 1,072,286 946,519
Cash ........................................... 21,044 65,808
Accrued investment income ...................... 6,911 5,490
Premiums receivable, net ....................... 90,088 79,501
Other receivables .............................. 45,937 30,695
Reinsurance recoverable on paid losses ......... 16,175 15,494
Reinsurance recoverable on unpaid losses ....... 62,606 146,924
Ceded unearned premiums ........................ 7,001 10,454
Deferred acquisition costs ..................... 4,362 2,495
Income tax recoverable ......................... 30,221 14,133
Other assets ................................... 69,860 42,134
---------- ----------
Total assets ................................ $1,426,491 $1,359,647
========== ==========
Liabilities
Losses and loss expenses ....................... $ 517,501 $ 450,635
Unearned premiums .............................. 42,994 21,566
Subordinated debt .............................. 167,073 --
Reinsurance balances payable ................... 26,800 53,373
Deposit liabilities ............................ 75,138 80,583
Other liabilities .............................. 27,739 32,133
---------- ----------
Total liabilities ........................... 857,245 638,290
---------- ----------
Minority interest in consolidated subsidiaries:
Company-obligated mandatorily redeemable
capital trust pass-through securities of
subsidiary trusts holding solely a company-
guaranteed related subordinated debt ........ -- 156,841
---------- ----------
Shareholders' Equity
Serial convertible preferred shares, $1.00 par
value, $10,000 stated value - 10 million
shares authorized, 0.02 million shares issued
and outstanding............................... 182,730 172,190
Common shares, $1.00 par value - 50 million
shares authorized, 14.4 million and 13.3
million shares issued and outstanding,
respectively.................................. 14,426 13,277
Additional paid-in capital ..................... 215,334 192,078
Accumulated other comprehensive (loss) income
net of deferred income tax (benefit) expense
of $(98) and $1,242, respectively............. (1,117) 1,692
Retained earnings .............................. 165,673 188,670
Restricted shares at cost (0.4 million and 0.3
million shares, respectively)................. (7,800) (3,391)
---------- ----------
Total shareholders' equity .................. 569,246 564,516
---------- ----------
Total liabilities and shareholders' equity .. $1,426,491 $1,359,647
========== ==========

The accompanying notes are an integral part of these statements.

F-1

PXRE GROUP LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
2004 2003 2004 2003
-------- ------- -------- --------
(UNAUDITED)

Revenues
Net premiums earned ................................................................. $ 89,799 $69,082 $228,316 $237,870
Net investment income ............................................................... 5,157 5,994 16,941 20,026
Net realized investment (losses) gains .............................................. (40) 502 11 611
Fee income .......................................................................... 695 1,148 1,556 3,533
-------- ------- -------- --------
95,611 76,726 246,824 262,040
-------- ------- -------- --------
Losses and Expenses
Losses and loss expenses incurred ................................................... 156,335 35,245 192,551 112,500
Commissions and brokerage ........................................................... 8,900 3,218 28,286 37,863
Operating expenses .................................................................. 8,272 9,788 30,760 29,451
Foreign exchange (gains) losses ..................................................... (382) 927 (22) 676
Interest expense .................................................................... 3,817 -- 10,947 2,504
Minority interest in consolidated subsidiaries ...................................... -- 2,817 -- 7,350
-------- ------- -------- --------
176,942 51,995 262,522 190,344
-------- ------- -------- --------
(Loss) income before income taxes, cumulative effect of accounting change and
convertible preferred share dividends.............................................. (81,331) 24,731 (15,698) 71,696
Income tax (benefit) provision ...................................................... (8,157) 1,007 (6,844) 2,887
-------- ------- -------- --------
(Loss) income before cumulative effect of accounting change and convertible
preferred share dividends.......................................................... (73,174) 23,724 (8,854) 68,809
Cumulative effect of accounting change, net of $0.2 million tax expense ............. -- -- (1,053) --
-------- ------- -------- --------
Net (loss) income before convertible preferred share dividends ...................... $(73,174) $23,724 $ (9,907) $ 68,809
-------- ------- -------- --------
Convertible preferred share dividends ............................................... 3,583 3,310 10,540 9,737
-------- ------- -------- --------
Net (loss) income available to common shareholders .................................. $(76,757) $20,414 $(20,447) $ 59,072
======== ======= ======== ========
Comprehensive Income, Net of Tax
Net (loss) income before convertible preferred share dividends ...................... $(73,174) $23,724 $ (9,907) $ 68,809
Net unrealized appreciation (depreciation) on investments ........................... 6,556 (4,008) (2,809) (2,262)
Net unrealized appreciation on cash flow hedge ...................................... -- -- -- 946
-------- ------- -------- --------
Comprehensive (loss) income ......................................................... $(66,618) $19,716 $(12,716) $ 67,493
======== ======= ======== ========
Per Share
Basic:
(Loss) income before cumulative effect of accounting change and convertible
preferred share dividends ........................................................ $ (5.22) $ 1.99 $ (0.64) $ 5.77
Cumulative effect of accounting change............................................. -- -- (0.08) --
Convertible preferred share dividends.............................................. (0.26) (0.28) (0.77) (0.82)
-------- ------- -------- --------
Net (loss) income available to common shareholders................................. $ (5.48) $ 1.71 $ (1.49) $ 4.95
======== ======= ======== ========
Average shares outstanding (000's)................................................. 13,995 11,925 13,753 11,931
======== ======= ======== ========
Diluted:
(Loss) income before cumulative effect of accounting change........................ $ (5.48) $ 1.01 $ (1.41) $ 2.97
Cumulative effect of accounting change............................................. -- -- (0.08) --
-------- ------- -------- --------
Net (loss) income.................................................................. $ (5.48) $ 1.01 $ (1.49) $ 2.97
======== ======= ======== ========
Average shares outstanding (000's)................................................. 13,995 23,583 13,753 23,201
======== ======= ======== ========

The accompanying notes are an integral part of these statements.

F-2

PXRE GROUP LTD.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
2004 2003 2004 2003
--------- -------- --------- --------
(UNAUDITED)

Convertible Preferred Shares
Balance at beginning of period ................................................... $ 179,147 $165,504 $ 172,190 $159,077
Dividends to convertible preferred shareholders .................................. 3,583 3,310 10,540 9,737
--------- -------- --------- --------
Balance at end of period........................................................ $ 182,730 $168,814 $ 182,730 $168,814
========= ======== ========= ========
Common Shares
Balance at beginning of period ................................................... $ 14,384 $ 12,169 $ 13,277 $ 12,030
Issuance of shares, net .......................................................... 42 8 1,149 147
--------- -------- --------- --------
Balance at end of period........................................................ $ 14,426 $ 12,177 $ 14,426 $ 12,177
========= ======== ========= ========
Additional Paid-in Capital
Balance at beginning of period ................................................... $ 214,703 $172,096 $ 192,078 $168,866
Issuance of shares ............................................................... 615 118 21,832 3,259
Other ............................................................................ 16 -- 1,424 89
--------- -------- --------- --------
Balance at end of period........................................................ $ 215,334 $172,214 $ 215,334 $172,214
========= ======== ========= ========
Accumulated Other Comprehensive Income
Balance at beginning of period ................................................... $ (7,673) $ 9,834 $ 1,692 $ 7,142
Change in unrealized gains ....................................................... 6,556 (4,008) (2,809) (2,262)
Change in cash flow hedge ........................................................ -- -- -- 946
--------- -------- --------- --------
Balance at end of period .......................................................... $ (1,117) $ 5,826 $ (1,117) $ 5,826
========= ======== ========= ========
Retained Earnings
Balance at beginning of period ................................................... $ 243,297 $145,256 $ 188,670 $108,062
Net (loss) income before convertible preferred share dividends ................... (73,174) 23,724 (9,907) 68,809
Dividends to convertible preferred shareholders .................................. (3,583) (3,310) (10,540) (9,737)
Dividends to common shareholders ................................................. (867) (731) (2,550) (2,195)
--------- -------- --------- --------
Balance at end of period........................................................ $ 165,673 $164,939 $ 165,673 $164,939
========= ======== ========= ========
Restricted Shares
Balance at beginning of period ................................................... $ (8,654) $ (4,328) $ (3,391) $ (1,713)
Issuance of restricted shares .................................................... -- 26 (7,336) (4,582)
Amortization of restricted shares ................................................ 854 464 2,927 2,457
Balance at end of period........................................................ $ (7,800) $ (3,838) $ (7,800) $ (3,838)
--------- -------- --------- --------
Total Shareholders' Equity
Balance at beginning of period ................................................... $ 635,204 $500,531 $ 564,516 $453,464
Issuance of shares ............................................................... 657 126 22,981 3,406
Restricted shares, net ........................................................... 854 490 (4,409) (2,125)
Unrealized appreciation (depreciation) on investments, net of deferred income tax 6,556 (4,008) (2,809) (2,262)
Unrealized appreciation on cash flow hedge, net of deferred income tax ........... -- -- -- 946
Net (loss) income before convertible preferred share dividends ................... (73,174) 23,724 (9,907) 68,809
Dividends to common shareholders ................................................. (867) (731) (2,550) (2,195)
Other ............................................................................ 16 -- 1,424 89
--------- -------- --------- --------
Balance at end of period........................................................ $ 569,246 $520,132 $ 569,246 $520,132
========= ======== ========= ========

The accompanying notes are an integral part of these statements.

F-3

PXRE GROUP LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
2004 2003 2004 2003
--------- --------- --------- ---------
(UNAUDITED)

Cash Flow from Operating Activities
Premiums collected, net of reinsurance ......................................... $ 73,662 $ 58,581 $ 216,037 $ 209,775
Loss and loss adjustment expenses paid, net of reinsurance ..................... (27,310) (25,453) (65,103) (59,172)
Commission and brokerage paid, net of fee income ............................... (9,972) (1,262) (27,543) (19,403)
Operating expenses paid ........................................................ (8,951) (9,599) (30,644) (24,839)
Net investment income received ................................................. 3,516 4,757 12,798 9,941
Interest paid .................................................................. (5,978) (5,381) (13,346) (10,175)
Income taxes paid .............................................................. (132) (1,170) (6,093) (12,793)
Trading portfolio purchased .................................................... -- -- -- (5,688)
Trading portfolio disposed ..................................................... 6,965 -- 6,965 8,496
Deposit (paid) received ........................................................ 2,373 6,450 (5,445) 40,668
Other .......................................................................... (571) (15,257) (15,269) (17,734)
--------- --------- --------- ---------
Net cash provided by operating activities..................................... 33,602 11,666 72,357 119,076
--------- --------- --------- ---------
Cash Flow from Investing Activities
Fixed maturities available for sale purchased .................................. (133,889) (176,403) (350,946) (330,862)
Fixed maturities available for sale disposed or matured ........................ 58,133 149,005 296,853 213,581
Hedge funds purchased .......................................................... (8,123) (5,000) (13,123) (12,000)
Hedge funds disposed ........................................................... 4,127 3,095 10,160 19,936
Other invested assets purchased ................................................ -- (12) -- (133)
Other invested assets disposed ................................................. 1,425 530 4,083 1,568
Net change in short-term investments ........................................... 44,199 (88,880) (77,122) (99,328)
Payable for securities ......................................................... 48 45,548 30 82,919
--------- --------- --------- ---------
Net cash used by investing activities......................................... (34,080) (72,117) (130,065) (124,319)
--------- --------- --------- ---------
Cash Flow from Financing Activities
Proceeds from issuance of common shares ........................................ 690 129 16,432 671
Cash dividends paid to common shareholders ..................................... (866) (731) (2,550) (2,195)
Proceeds from issuance of minority interest in consolidated subsidiaries ....... -- -- -- 32,500
Repayment of debt .............................................................. -- -- -- (30,000)
Cost of shares repurchased ..................................................... (32) 24 (938) (1,848)
--------- --------- --------- ---------
Net cash (used) provided by financing activities.............................. (208) (578) 12,944 (872)
--------- --------- --------- ---------
Net change in cash ............................................................. (686) (61,029) (44,764) (6,115)
Cash, beginning of period ...................................................... 21,730 101,544 65,808 46,630
--------- --------- --------- ---------
Cash, end of period ............................................................ $ 21,044 $ 40,515 $ 21,044 $ 40,515
========= ========= ========= =========
Reconciliation of Net (Loss) Income to Net Cash Provided by Operating
Activities:
Net (loss) income before convertible preferred share dividends ................. $ (73,174) $ 23,724 $ (9,907) $ 68,809
Adjustments to reconcile net (loss) income to net cash provided by operating
activities:
Losses and loss expenses ....................................................... 89,032 (5,687) 66,866 (10,518)
Unearned premiums .............................................................. 22,836 960 24,880 (16,439)
Deferred acquisition costs ..................................................... (2,170) 1,646 (1,867) 14,940
Receivables .................................................................... (22,870) (19,197) (25,827) (9,636)
Reinsurance balances payable ................................................... (15,884) (6,500) (26,573) (21,088)
Reinsurance recoverable ........................................................ 63,050 15,480 83,638 63,847
Income taxes ................................................................... (8,286) (259) (12,933) (10,001)
Equity in earnings of limited partnerships ..................................... (1,328) (1,892) (6,013) (9,741)
Trading portfolio purchased .................................................... -- -- -- (5,688)
Trading portfolio disposed ..................................................... 6,965 -- 6,965 8,496
Deposit liability .............................................................. 2,373 6,450 (5,445) 40,668
Receivable on commutation ...................................................... (23,054) -- (23,054) --
Other .......................................................................... (3,888) (3,059) 1,627 5,427
--------- --------- --------- ---------
Net cash provided by operating activities..................................... $ 33,602 $ 11,666 $ 72,357 $ 119,076
========= ========= ========= =========

The accompanying notes are an integral part of these statements.

F-4

PXRE GROUP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. ORGANIZATION

PXRE Group Ltd. (the "Company" or collectively with its subsidiaries,
"PXRE") is an insurance holding company incorporated in Bermuda. PXRE provides
reinsurance products and services to a worldwide marketplace through
subsidiary operations in Bermuda, Barbados, Europe and the United States.
PXRE's primary focus is providing property catastrophe reinsurance and
retrocessional coverage. PXRE also provides marine, aviation and aerospace
products and services.

The Company was formed in 1999 as part of the reorganization of PXRE
Corporation, a Delaware corporation ("PXRE Delaware"). Prior to the
reorganization, PXRE Delaware was the ultimate parent holding company of the
various PXRE companies and its common shares were publicly traded on the New
York Stock Exchange. As a result of the reorganization, the Company became the
ultimate parent holding company of PXRE Delaware and the holders of PXRE
Delaware common stock automatically became holders of the same number of the
Company's common shares. The reorganization was consummated at the close of
business on October 5, 1999 and, on October 6, 1999 the Company's common
shares commenced trading on the New York Stock Exchange under the symbol
"PXT." The reorganization also involved the establishment of a Bermuda based
reinsurance subsidiary, PXRE Reinsurance Ltd. ("PXRE Bermuda") and a Barbados
based reinsurance subsidiary, PXRE Reinsurance (Barbados) Ltd. ("PXRE
Barbados").

2. SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation

The consolidated financial statements have been prepared in U.S. dollars in
conformity with accounting principles generally accepted ("GAAP") in the
United States of America. These statements reflect the consolidated operations
of the Company and its wholly owned subsidiaries, including PXRE Delaware,
PXRE Reinsurance Company ("PXRE Reinsurance"), PXRE Bermuda, PXRE Barbados,
PXRE Solutions, Inc., PXRE Solutions, S.A. ("PXRE Europe") and PXRE Limited.
All material inter-company transactions have been eliminated in preparing
these consolidated financial statements.

GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent 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. In the opinion
of management, such 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 2003 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 the reinsurance business necessitate caution in drawing
specific conclusions from interim results.

Certain reclassifications have been made for 2003 to conform to the 2004
presentation.

Share-Based Compensation

At September 30, 2004, PXRE has share option plans which are accounted for
under the recognition and measurement principles of the Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related
Interpretations. No share-based compensation cost related to the options
granted under the plans is reflected in net income, as the options granted had
an exercise price equal to the market value of the underlying common shares on
the date of grant. The following table illustrates the effect on net income
and earnings per share if PXRE had applied the fair value recognition
provisions of the Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation" to share-based employee compensation:

F-5

PXRE GROUP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- --------------------
2004 2003 2004 2003
--------- ------- --------- --------

Net (loss) income before convertible preferred share dividends:
As reported ....................................................................... $(73,174) $23,724 $ (9,907) $ 68,809
Deduct:
Total share-based compensation expense
determined under fair value based method
for all awards, net of related tax effects....................................... (393) (537) (1,726) (2,510)
--------- ------- --------- --------
Pro-forma ......................................................................... $(73,567) $23,187 $(11,633) $ 66,299
========= ======= ========= ========
Basic (loss) income per share:
As reported ....................................................................... $ (5.48) $ 1.71 $ (1.49) $ 4.95
Pro-forma ......................................................................... $ (5.51) $ 1.67 $ (1.61) $ 4.74
Diluted (loss) income per share:
As reported ....................................................................... $ (5.48) $ 1.01 $ (1.49) $ 2.97
Pro-forma ......................................................................... $ (5.51) $ 0.98 $ (1.61) $ 2.86

Debt and Equity Classification

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within the scope of the statement as a liability or an asset in some
circumstances. PXRE adopted this statement during the quarter ended September
30, 2003, however, due to certain parts of this statement being deferred by
the FASB, the adoption of this statement did not have any impact on PXRE's
Consolidated Financial Statements, financial position or results of operations
until the quarter ended March 31, 2004. Accordingly, as of March 31, 2004,
PXRE's mandatorily redeemable capital trust pass-through securities were
reclassified on its Consolidated Balance Sheet to liabilities and entitled
"Subordinated debt." In PXRE's Consolidated Statements of Operations and
Comprehensive Operations for the three and nine months ended September 30,
2004, the interest expense related to these securities was included with
"Interest expense," whereas for the three and nine months ended September 30,
2003 it was included with "Minority interest in consolidated subsidiaries" as
SFAS 150 did not permit these changes to be made retroactively.

Consolidation of Variable Interest Entities

In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities" ("FIN 46"), which requires consolidation of all
"Variable Interest Entities" ("VIEs") by the "primary beneficiary," as these
terms are defined in FIN 46, and on October 9, 2003 the FASB issued FASB Staff
Position FIN 46-6, "Effective Date of FASB Interpretation No. 46,
Consolidation of VIE's", which required PXRE to implement FIN 46 during the
quarter ended March 31, 2004. The adoption of this statement resulted in PXRE
deconsolidating the five special purpose trusts which issued PXRE's trust
preferred securities. As a result, the subordinated loans from the trusts are
reflected as liabilities under the caption "Subordinated debt" on PXRE's
September 30, 2004 Consolidated Balance Sheet, while PXRE's investments of
approximately $5.2 million in such trusts in the form of equity, which prior
to March 31, 2004 were eliminated on consolidation, are reflected as assets
under the caption "Other assets" with a corresponding increase in liabilities
under the caption "Subordinated debt." FIN 46 did not permit these changes to
be made retroactively. In addition, gains on the repurchase of $5.2 million of
PXRE's trust preferred securities in prior periods of $1.1 million, net of
tax, that were previously accounted for as

F-6

PXRE GROUP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

2. SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)

extinguishments of debt, were reversed during the quarter ended March 31, 2004
and presented as a cumulative effect of an accounting change in PXRE's
Consolidated Statement of Operations and Comprehensive Operations during 2004.
These repurchased securities are reflected in PXRE's September 30, 2004
Consolidated Balance Sheet under the caption "Fixed Maturities: Available-for-
sale."

Consolidated Statement of Changes in Cash Flow

In the first quarter of 2004, the Company changed the presentation of its
Consolidated Statement of Changes in Cash Flow to the direct cash flow method,
replacing the indirect cash flow method as previously presented. Amounts
presented for the three and nine months ended September 30, 2003 were
reclassified to be consistent with the new presentation.

3. UNDERWRITING

Premiums written and earned for the three and nine months ended September
30, 2004 and 2003 are as follows:

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- % INCREASE ------------------- % INCREASE
($000'S) 2004 2003 (DECREASE) 2004 2003 (DECREASE)
-------- -------- ---------- -------- -------- ----------

Premiums written
Gross premiums written $125,529 $ 95,275 $285,847 $274,123
Ceded premiums written (12,938) (25,233) (32,320) (52,692)
-------- -------- -------- --------
Net premiums written.. $112,591 $ 70,042 61 $253,527 $221,431 14
======== ======== ======== ========
Premiums earned
Gross premiums earned. $101,623 $ 83,053 $263,856 $282,210
Ceded premiums earned. (11,824) (13,971) (35,540) (44,340)
-------- -------- -------- --------
Net premiums earned... $ 89,799 $ 69,082 30 $228,316 $237,870 (4)
======== ======== ======== ========

PXRE from time to time purchases catastrophe retrocessional coverage for its
own protection, depending on market conditions. PXRE purchases reinsurance
primarily to reduce its exposure to severe losses related to any one event or
catastrophe. PXRE currently has reinsurance treaties in place with several
different coverages, territories, limits and retentions that serve to reduce a
large gross loss emanating from any one event. In addition, primarily related
to PXRE's exposure assumed on per-risk treaties, PXRE purchases clash
reinsurance protection which allows PXRE to recover losses ceded by more than
one reinsured related to any one particular property. In the event that
retrocessionaires are unable to meet their contractual obligations, PXRE would
remain liable for the underlying covered claims.

F-7

PXRE GROUP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

4. INVESTMENTS

The following table summarizes investments with unrealized losses at fair
value by length of continuous unrealized loss position as of September 30,
2004:

ONE YEAR OR LESS OVER ONE YEAR
----------------------- -----------------------
UNREALIZED UNREALIZED
($000'S) FAIR VALUE LOSS FAIR VALUE LOSS
---------- ---------- ---------- ----------

United States government securities ......................................... $ 52,181 $ (35) $ -- $ --
United States government sponsored agency debentures ........................ 56,615 (484) -- --
United States government sponsored agency mortgage-backed securities ........ 46,881 (94) 6,771 (165)
Other mortgage and asset-backed securities .................................. 97,224 (1,487) 5,025 (198)
Obligations of states and political subdivisions ............................ 756 (1) -- --
Corporate securities ........................................................ 137,112 (2,114) 17,528 (420)
-------- ------- ------- -----
Total temporarily impaired securities..................................... $390,769 $(4,215) $29,324 $(783)
======== ======= ======= =====

F-8

PXRE GROUP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

5. EARNINGS PER SHARE

The table below presents the computation of basic and diluted earnings per
share:

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
($000'S, EXCEPT PER SHARE DATA) 2004 2003 2004 2003
-------- ------- -------- -------

Net (loss) income available to common shareholders:
(Loss) income before cumulative effect of
accounting change and convertible
preferred share dividends ......................................................... $(73,174) $23,724 $ (8,854) $68,809
Cumulative effect of accounting change, net
of tax ............................................................................ -- -- (1,053) --
-------- ------- -------- -------
Net (loss) income before convertible
preferred share dividends ......................................................... (73,174) 23,724 (9,907) 68,809
Convertible preferred share dividends ................................................ (3,583) (3,310) (10,540) (9,737)
-------- ------- -------- -------
Net (loss) income available to common
shareholders ...................................................................... $(76,757) $20,414 $(20,447) $59,072
======== ======= ======== =======
Weighted average common shares outstanding:
Weighted average common shares outstanding
(basic) ........................................................................... 13,995 11,925 13,753 11,931
Equivalent shares of underlying options .............................................. 284 162 398 239
Equivalent number of restricted shares ............................................... 144 76 144 113
Equivalent number of convertible preferred
shares ............................................................................ 13,116 11,420 12,670 10,918
-------- ------- -------- -------
Weighted average common equivalent shares
(diluted) ......................................................................... 27,539 23,583 26,965 23,201
======== ======= ======== =======
Weighted average common equivalent shares
when anti-dilutive ................................................................ 13,995 -- 13,753 --
======== ======= ======== =======
Per share amounts:
Basic:
(Loss) income before cumulative effect of
accounting change and convertible
preferred share dividends ......................................................... $ (5.22) $ 1.99 $ (0.64) $ 5.77
Cumulative effect of accounting change ............................................... -- -- (0.08) --
Convertible preferred share dividends ................................................ (0.26) (0.28) (0.77) (0.82)
-------- ------- -------- -------
Net (loss) income available to common
shareholders ...................................................................... $ (5.48) $ 1.71 $ (1.49) $ 4.95
======== ======= ======== =======
Diluted:
Net (loss) income before cumulative effect of
accounting change ................................................................. $ (5.48) $ 1.01 $ (1.41) $ 2.97
Cumulative effect of accounting change ............................................... -- -- (0.08) --
-------- ------- -------- -------
Net (loss) income .................................................................... $ (5.48) $ 1.01 $ (1.49) $ 2.97
======== ======= ======== =======

F-9

PXRE GROUP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

6. INCOME TAXES

The Company is incorporated under the laws of Bermuda and, under current
Bermuda law, is not obligated to pay any taxes in Bermuda based upon income or
capital gains. The Company has received an undertaking from the Supervisor of
Insurance in Bermuda pursuant to the provisions of the Exempted Undertakings
Tax Protection Act, 1966, which exempts the Company from any Bermuda taxes
computed on profits, income or any capital asset, gain or appreciation, or any
tax in the nature of estate duty or inheritance tax, at least until the year
2016.

The Company does not consider itself to be engaged in a trade or business in
the United States and, accordingly, does not expect to be subject to direct
United States income taxation.

The United States subsidiaries of the Company file a consolidated U.S.
federal income tax return.

7. SHAREHOLDERS' EQUITY

On December 16, 2003, the Company completed a public offering of 2.2 million
of its common shares at $21.75 per share, pursuant to a Shelf Registration
Statement on Form S-3 that was filed in 2003 for up to $150.0 million of
various types of securities. Of the 2.2 million shares sold, 1.1 million were
offered by PXRE and 1.1 million were offered by Phoenix Life Insurance Company
("Phoenix"), one of the Company's common shareholders. The underwriters were
given an option to purchase up to an additional 0.3 million common shares from
the Company, which they exercised on January 22, 2004. As a result of the
offering and the exercise of the option, the Company received total net
proceeds of approximately $26.9 million. The Company did not receive any of
the proceeds from the sale of shares by Phoenix.

On April 4, 2002, the Company issued $150.0 million of additional capital
comprised of 15,000 convertible voting preferred shares in a private placement
not involving a public offering under Section 4(2) of the Securities Act of
1933, as amended. The convertible preferred share investment occurred pursuant
to a share purchase agreement, dated as of December 10, 2001, between the
Company and certain investors. On February 12, 2002, the shareholders approved
the sale and issuance of three series of convertible preferred shares pursuant
to the share purchase agreement, including 7,500 Series A convertible
preferred shares, 5,000 Series B convertible preferred shares, and 2,500
Series C convertible preferred shares. Proceeds of the offering of the
convertible preferred shares, net of offering expenses of $9.1 million,
amounted to $140.9 million. As of September 30, 2004, 18,273 convertible
preferred shares were issued and outstanding.

The convertible preferred shares accrue cumulative dividends per share at
the rate per annum of 8% of the sum of the stated value of each share plus any
accrued and unpaid dividend thereon payable on a quarterly basis. The
shareholders also voted to approve the division of 20.0 million of PXRE's 50.0
million authorized common shares into three new classes of convertible common
shares including 10.0 million Class A convertible voting common shares, 6.7
million Class B convertible voting common shares, and 3.3 million Class C
convertible voting common shares. No convertible voting common shares of any
class are currently outstanding.

Convertible preferred shares are convertible into convertible common shares
at the option of the holder at any time at a conversion price equal to the
original conversion price, subject to adjustment if PXRE experiences adverse
development on losses incurred prior to September 30, 2001 in excess of a $7.0
million after-tax threshold. The number of convertible common shares issued
upon the conversion of each convertible preferred share would be equal to the
sum of the original purchase price ($10,000) of such convertible preferred
share plus accrued but unpaid dividends divided by the adjusted conversion
price. Certain adverse development, excluding that related to most of the
adverse development on loss reserves within the exited lines segment and all
of the losses arising from the events of September 11, 2001, is subject to a
cap of $12.0 million after-tax. Adverse development on the reserves excluded
is not subject to any cap or limit. As of September 30, 2004, after giving
effect to the $12.0 million cap referred to above, PXRE has incurred $32.9
million of net after-tax adverse development above this $7.0 million
threshold, resulting in an adjusted

F-10

PXRE GROUP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

7. SHAREHOLDERS' EQUITY -- (CONTINUED)

conversion price of $13.48 as of September 30, 2004. Two-thirds of the
convertible preferred shares mandatorily convert by April 4, 2005, and the
balance by April 4, 2008. Convertible preferred shares vote on a fully
converted basis on all matters brought before the shareholders other than the
election of directors.

8. SEGMENT INFORMATION

PXRE operates in two reportable property and casualty segments - (i)
catastrophe and risk excess and (ii) exited lines - based on PXRE's approach
to managing the business. Commencing with the 2002 underwriting renewal
season, PXRE returned its focus to its core property catastrophe and risk
excess business. Businesses that were not renewed in 2002 are reported as
exited lines. Commencing with the 2004 underwriting renewal season, PXRE is
reporting its previously existing "other lines" segment, which in the past has
consisted of a single pro rata treaty, with its catastrophe and risk excess
segment. In addition, PXRE is reporting its previously existing "finite
business" segment with its exited lines segment to reflect its decision during
the second quarter to run-off the in-force finite business and not enter into
any new finite transactions subsequent to March 31, 2004. PXRE's segments for
2003 were restated to be comparable to the two 2004 segments discussed above.
As a result of the above, the exited lines segment now includes business
previously written and classified by the Company as direct casualty, Lloyd's
of London ("Lloyd's"), international casualty and finite. In addition, PXRE
operates in two geographic segments - North American, representing North
American based risks written by North American based clients, and
International (principally the United Kingdom, Continental Europe, Latin
America, the Caribbean, Australia and Asia), representing all other premiums
written.

There are no significant differences among the accounting policies of the
segments as compared to PXRE's consolidated financial statements.

PXRE does not maintain separate balance sheet data for each of its operating
segments, nor does it allocate net investment income, net realized investment
gains or losses, operating expenses, foreign exchange gains or losses and
financing costs to these segments. Accordingly, PXRE does not review and
evaluate the financial results of its operating segments based upon balance
sheet data and these other income statement items.

The following tables summarize the net premiums written, net premiums earned
and underwriting income (loss) by PXRE's business segments. The amounts shown
for the North American and International geographic segments are presented net
of proportional reinsurance but gross of corporate catastrophe excess of loss
reinsurance cessions, which are separately itemized where applicable.

F-11

PXRE GROUP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

8. SEGMENT INFORMATION -- (CONTINUED)

NET PREMIUMS WRITTEN

THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------- -----------------------------------------
2004 2003 2004 2003
($000'S, EXCEPT PERCENTAGES) ------------------ ------------------ ------------------- ------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- ------- --------- ------- -------- -------

Catastrophe and Risk
Excess
North American ............ $ 28,771 $ 20,762 $ 67,532 $ 56,151
International ............. 94,655 70,700 208,495 189,713
Excess of Loss
Cessions................. (10,360) (18,192) (25,638) (30,186)
-------- -------- --------- --------
113,066 100% 73,270 105% 250,389 99% 215,678 97%
-------- -------- --------- --------
Exited Lines
North American ............ (350) (2,023) 3,201 4,288
International ............. (125) (1,205) (63) 1,465
-------- -------- --------- --------
(475) -- (3,228) (5) 3,138 1 5,753 3
-------- --- -------- --- --------- --- -------- ---
Total.................... $112,591 100% $70,042 100% $253,527 100% $221,431 100%
======== === ======== === ========= === ======== ===

NET PREMIUMS EARNED

THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------- -----------------------------------------
2004 2003 2004 2003
($000'S, EXCEPT PERCENTAGES) ----------------- ------------------ ------------------ -------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------- ------- -------- ------- -------- ------- --------- -------

Catastrophe and Risk
Excess
North American ............ $24,517 $ 17,785 $ 64,257 $ 53,978
International ............. 75,139 55,382 186,257 164,830
Excess of Loss
Cessions................. (9,741) (8,489) (28,218) (23,810)
------- -------- -------- ---------
89,915 100% 64,678 94% 222,296 97% 194,998 82%
------- -------- -------- ---------
Exited Lines
North American ............ 15 5,609 6,087 41,353
International ............. (131) (1,205) (67) 1,519
------- -------- -------- ---------
(116) -- 4,404 6 6,020 3 42,872 18
------- --- -------- --- -------- --- --------- ---
Total.................... $89,799 100% $69,082 100% $228,316 100% $237,870 100%
======= === ======== === ======== === ========= ===

F-12

PXRE GROUP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

8. SEGMENT INFORMATION -- (CONTINUED)

Underwriting income (loss) includes premiums earned, losses incurred and
commission and brokerage, net of fee income, but does not include investment
income, net realized investment gains or losses, interest expense, operating
expenses or foreign exchange gains or losses.

UNDERWRITING INCOME (LOSS)

THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------- ------------------------------------------
2004 2003 2004 2003
------------------- ------------------ ------------------- -------------------
($000S, EXCEPT PERCENTAGES) AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
--------- ------- -------- ------- --------- ------- --------- -------

Catastrophe and Risk Excess
North American ........... $ (11,405) $ 15,332 $ 19,589 $ 32,987
International ............ (37,419) 39,233 35,984 115,352
Excess of Loss Cessions .. (6,259) (7,686) (25,391) (26,403)
--------- -------- --------- ---------
(55,083) 74% 46,879 148% 30,182 334% 121,936 134%
--------- -------- --------- ---------
Exited Lines
North American ........... (19,694) (12,507) (25,995) (25,846)
International ............ 36 (2,605) 4,848 (5,028)
--------- -------- --------- ---------
(19,658) 26 (15,112) (48) (21,147) (234) (30,874) (34)
--------- --- -------- --- --------- ---- --------- ---
Total...................... $(74,741) 100% $31,767 100% $9,035 100% $91,062 100%
========= === ======== === ========= ==== ========= ===

The following table reconciles the net underwriting income (loss) for the
operating segments to income (loss) before income taxes and cumulative effect
of accounting change as reported in the Consolidated Statements of Operations
and Comprehensive Operations.

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
($000'S) ------------------ -------------------
2004 2003 2004 2003
-------- ------- -------- --------

Net underwriting (loss) income ....................................................... $(74,741) $31,767 $ 9,035 $ 91,062
Net investment income ................................................................ 5,157 5,994 16,941 20,026
Net realized investment (losses) gains ............................................... (40) 502 11 611
Other operating expenses ............................................................. (8,272) (9,788) (30,760) (29,451)
Foreign exchange gains (losses) ...................................................... 382 (927) 22 (676)
Interest expense ..................................................................... (3,817) -- (10,947) (2,504)
Minority interest in consolidated subsidiaries ....................................... -- (2,817) -- (7,350)
Other ................................................................................ -- -- -- (22)
-------- ------- -------- --------
(Loss) income before income taxes, cumulative effect of accounting change and
convertible preferred share dividends............................................... $(81,331) $24,731 $(15,698) $ 71,696
======== ======= ======== ========

F-13

PXRE GROUP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

9. SUBORDINATED DEBT

Trust preferred securities were classified as minority interest in
consolidated subsidiaries prior to 2004. Trust preferred securities are
mandatorily redeemable subordinated debt securities issued to separate special
purpose trusts holding solely those securities. As discussed in Note 2,
following the implementation of SFAS 150 and FIN 46 during the quarter ended
March 31, 2004, these trusts are no longer consolidated and the securities
issued to these trusts by PXRE (rather than the securities issued by the
trusts as was done previously) are now classified as liabilities on PXRE's
September 30, 2004 Consolidated Balance Sheet. The subordinated debt
securities are as follows:

($000'S) SEPTEMBER 30, DECEMBER 31,
2004 2003
------------- ------------

8.85% fixed rate due February 1, 2027 .......... $102,638 $ 94,341
7.35% fixed/floating rate due May 15, 2033 ..... 18,042 17,500
9.75% fixed rate due May 23, 2033 .............. 15,464 15,000
7.70% fixed/floating rate due October 29, 2033 . 20,619 20,000
7.58% fixed/floating rate due September 30,
2033.......................................... 10,310 10,000
-------- --------
$167,073 $156,841
======== ========

The 8.85% fixed rate capital trust pass-through securities pay interest
semi-annually and are redeemable by PXRE from February 1, 2007 at 104.180%
declining to 100.418% at February 1, 2016, and at par thereafter. The 7.35%
fixed/floating rate capital trust pass-through securities initially pay
interest quarterly at a fixed rate of 7.35% for 5 years and then at a floating
rate of 3 month LIBOR plus 4.1% reset quarterly thereafter, and are redeemable
by PXRE at par on or after May 15, 2008. The 9.75% fixed rate capital trust
pass-through securities pay interest quarterly and are redeemable by PXRE from
May 23, 2008 at 104.875% declining to 100.975% at May 23, 2013, and at par
thereafter. The 7.70% fixed/floating rate capital trust pass-through
securities initially pay interest quarterly at a rate of 7.70% for 5 years and
then at a floating rate of 3 month LIBOR plus 3.85% reset quarterly
thereafter, and are redeemable by PXRE at par on or after October 29, 2008.
The 7.58% fixed/floating rate capital trust pass-through securities initially
pay interest quarterly at a rate of 7.58% for 5 years and then at a floating
rate of 3 month LIBOR plus 3.90% reset quarterly thereafter, and are
redeemable by PXRE at par on or after September 30, 2008.

PXRE has the option to defer interest payments on the capital trust pass-
through securities and redeem them earlier than the due dates, subject to
limits and penalties as set out in the relevant indentures.

F-14

PXRE GROUP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

10. EMPLOYEE BENEFITS

The qualified and non-qualified defined benefit pension plans were curtailed
effective March 31, 2004.

The components of net pension expense for these company-sponsored plans are
as follows:

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
($000'S) ------------- --------------
2004 2003 2004 2003
----- ----- ----- ------

COMPONENTS OF NET PERIODIC COST:
Service cost .......................................................................... $ -- $ 245 $ 303 $ 734
Interest cost ......................................................................... 93 139 322 416
Expected return on assets ............................................................. (109) (110) (321) (323)
Amortization of prior service costs ................................................... -- 50 68 151
Recognized net actuarial costs ........................................................ -- (11) -- (33)
Settlement ............................................................................ 723 -- 723 --
Curtailment ........................................................................... -- 152 (486) 449
----- ----- ----- ------
Net periodic benefit costs ............................................................. $ 707 $ 465 $ 609 $1,394
===== ===== ===== ======

During the nine months ended September 30, 2004, the Company made no
contributions to its pension plans and expects no significant contributions
during 2004.

11. CONTINGENCIES

In April 2000, PXRE Reinsurance entered into an aggregate excess of loss
retrocessional reinsurance agreement (the "XOL Retro Treaty") with Lumbermens
Mutual Casualty Company ("LMC"). In the XOL Retro Treaty, PXRE Reinsurance
reinsured a portfolio of treaties underwritten by a former business unit of
LMC, which had been divested. Pursuant to this XOL Retro Treaty, PXRE
Reinsurance agreed to indemnify LMC for losses in excess of a 75% paid loss
ratio on this underlying portfolio of treaties up to a 100% paid loss ratio,
subject to an aggregate limit of liability of $50.0 million. The latest loss
reports related to the XOL Retro Treaty provided by LMC forecast an ultimate
net loss ratio in excess of 100%, which could result in a full limit loss to
PXRE.

Recently, the court granted partial summary judgment to LMC and dismissed
PXRE Reinsurance's fraud claims and breach of the duty of utmost good faith
arising out of alleged misconduct by LMC prior to the binding of the XOL Retro
Treaty. PXRE Reinsurance disagrees with the court's decision. PXRE Reinsurance
is filing a motion for reconsideration based upon recent deposition testimony
by the former president of the subject former LMC business unit which had not
been considered by the court prior to its decision on LMC's motion. If that
motion is unsuccessful, PXRE Reinsurance intends to seek to appeal the order
to the United States Court of Appeals for the Seventh Circuit.

The court did not address PXRE Reinsurance's breach of contract claims and
allegations arising out of LMC's post-binding activity and such claims remain
pending.

F-15

PXRE GROUP LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

11. CONTINGENCIES -- (CONTINUED)

additional loss reserves of $14.7 million relating to the XOL Retro Treaty as
of September 30, 2004, which is equal to the remaining portion of the $50.0
million aggregate limit of liability under the XOL Retro Treaty. Accordingly,
PXRE Reinsurance will have no exposure to additional losses relating to the
contract. This results in a negative after tax impact of $9.6 million on
earnings in the quarter ended September 30, 2004.

Although the ultimate outcome of the litigation cannot presently be
determined, management believes that PXRE Reinsurance's claims are meritorious
and intends to continue to prosecute its suit.

F-16

PROSPECTUS

PXRE GROUP LTD.

DEBT SECURITIES

COMMON SHARES

PREFERRED SHARES

DEPOSITARY SHARES

WARRANTS

PXRE Group Ltd. may offer from time to time debt securities, common shares,
preferred shares, depositary shares and warrants, together or separately, in
one or more series, and the selling shareholders may from time to time offer
up to 12,981,646 common shares, issuable upon conversion of Class A Common
Shares, Class B Common Shares and Class C Common Shares, which are issuable
upon the conversion of issued and outstanding Series A Preferred Shares,
Series B Preferred Shares and Series C Preferred Shares held by the selling
shareholders with an aggregate offering price of $297,669,142.78. We will not
receive any proceeds from sales of common shares by the selling shareholders.
This prospectus describes the general terms of these securities and the
general manner in which we and the selling shareholders will offer the
securities. The specific terms of any securities we or the selling
shareholders offer will be included in a supplement to this prospectus. The
prospectus supplement will also describe the specific manner in which we and
the selling shareholders will offer the securities. This prospectus may not be
used to sell securities unless accompanied by a prospectus supplement.

As used in this prospectus, except as otherwise specified, the terms "PXRE,"
"we," "us" and "our" refer to PXRE Group Ltd. Our common shares are listed on
the New York Stock Exchange, Inc. under the symbol "PXT." The closing price of
our common shares was $23.00 per share on August 3, 2004.

INVESTING IN OUR SECURITIES INVOLVES RISK. SEE "RISK FACTORS" BEGINNING ON
PAGE 5 AND THE ADDITIONAL RISK FACTORS, IF ANY, INCLUDED IN THE ACCOMPANYING
PROSPECTUS SUPPLEMENT.

------------------------

Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.

------------------------

THIS PROSPECTUS IS DATED AUGUST 9, 2004.

NO OFFERED SECURITIES MAY BE OFFERED OR SOLD IN BERMUDA AND OFFERS MAY ONLY BE
ACCEPTED FROM PERSONS RESIDENT IN BERMUDA, FOR BERMUDA EXCHANGE CONTROL
PURPOSES, WHERE SUCH OFFERS HAVE BEEN DELIVERED OUTSIDE BERMUDA. PERSONS
RESIDENT IN BERMUDA, FOR BERMUDA EXCHANGE CONTROL PURPOSES, MAY REQUIRE THE
PRIOR APPROVAL OF THE BERMUDA MONETARY AUTHORITY IN ORDER TO ACQUIRE ANY OFFERED
SECURITIES.

TABLE OF CONTENTS

PAGE

Summary ................................................................. 1
Where You Can Find More Information ..................................... 4
Risk Factors ............................................................ 5
Cautionary Statement Regarding Forward-Looking Statements ............... 20
Consolidated Ratios of Earnings to Fixed Charges and Earnings to
Fixed Charges and Preferred Share Dividends ........................... 21
Use of Proceeds ......................................................... 22
PXRE Group Ltd .......................................................... 22
Description of Debt Securities .......................................... 23
Description of Warrants ................................................. 35
Description of Share Capital ............................................ 36
Description of the Depositary Shares .................................... 48
Forms of Securities ..................................................... 51
Selling Shareholders .................................................... 53
Plan of Distribution .................................................... 55
Legal Matters ........................................................... 56
Experts ................................................................. 56
Certain ERISA Considerations ............................................ 57
Bermuda Monetary Authority .............................................. 58
Unenforceability of Certain United States Judgments ..................... 59
Difference in Corporate Laws ............................................ 59

SUMMARY

We may offer any of the following securities: debt securities, common
shares, preferred shares, depositary shares and warrants. In addition, the
selling shareholders may offer common shares from time to time in one or more
offerings. The following summary describes these securities in general terms
only. You should read the summary together with the more detailed information
contained in the rest of this prospectus and the applicable prospectus
supplement.

PXRE GROUP LTD................... PXRE Group Ltd. is a holding company
organized in Bermuda. We provide
reinsurance products and services to a
worldwide marketplace through subsidiary
operations in the United States, Europe,
Bermuda and Barbados. Our primary focus
is providing property catastrophe
reinsurance and retrocessional coverage
to a worldwide group of clients. Our
common shares, par value $1.00 per share,
are listed on the New York Stock
Exchange, Inc. under the symbol "PXT."
Our principal executive offices are
located at Swan Building, PXRE House, 110
Pitts Bay Rd, Pembroke HM 208, Bermuda,
telephone: (441) 296-5858.

DEBT SECURITIES.................. Our debt securities offered by this
prospectus may be senior or subordinated
in priority of payment to our existing
and future debt obligations. We will
provide a prospectus supplement that
describes the ranking, whether senior or
subordinated, the specific designation,
the aggregate principal amount, the
purchase price, the maturity, the
redemption terms, the interest rate or
manner of calculating the interest rate,
the time of payment of interest, if any,
the terms for any conversion or exchange,
including the terms relating to the
adjustment of any conversion or exchange
mechanism, the listing, if any, on a
securities exchange and any other
specific terms of the offered debt
securities.

The senior and subordinated debt
securities will be issued under separate
indentures between us and a U.S. banking
institution as trustee. The senior and
subordinated debt indentures will not
limit the amount of other indebtedness or
debt securities, other than certain
secured indebtedness, that we or our
subsidiaries may issue. We have
summarized the general features of the
indentures under the heading "Description
of Debt Securities." We encourage you to
read the indentures, which are exhibits
to the registration statement of which
this prospectus forms a part.

COMMON SHARES.................... We may sell our common shares, par value
$1.00 per share, in one or more
offerings. In a prospectus supplement, we
will describe the specific terms of the
offering of common shares including,
where applicable, the number of shares to
be offered, the offering price or prices
to the extent permitted by applicable
law, whether the common shares will be
issued in certificated or book entry
form, information with respect to any
book-entry procedures, and any additional
terms of the common shares which are not
consistent with the provisions of our
bye-laws.

In addition, up to 12,981,646 common
shares may be sold from time to time in
one or more offerings pursuant to the
registration statement of which this
prospectus forms a part by the selling
shareholders. Such common shares are
common shares to be issued upon
conversion of the convertible preferred
shares issued and outstanding prior to
August 3, 2004. We will not receive any
proceeds from sales of common shares sold
by the selling shareholders.

Each time a selling shareholder sells
common shares, we will provide, if
required, a supplement to this prospectus
that contains specific information about
the offering.

In accordance with the requirements of
the Securities and Exchange Commission,
we also are registering outstanding
convertible preferred shares and
convertible common shares into which the
convertible preferred shares convert. The
convertible preferred shares are held by
the selling shareholders. The selling
shareholders do not intend to offer for
resale either the convertible preferred
shares or any convertible common shares,
and have entered into an agreement with
us not to do so.

WARRANTS......................... We may sell warrants to purchase our
common shares or preferred shares. In a
prospectus supplement, we will specify
the type of warrant and inform you of the
exercise price and other specific terms
of the warrants.

PREFERRED SHARES................. We may sell our preferred shares, par
value $1.00 per share, in one or more
series. In a prospectus supplement, we
will describe the specific designation,
the aggregate number of shares offered,
the dividend rate or manner of
calculating the dividend rate, the
dividend periods or manner of calculating
the dividend periods, the stated value of
the shares of the series, the voting
rights, if any, of the shares of the
series, whether or not and on what terms
the shares of the series will be
convertible or exchangeable, whether and
on what terms we can redeem the shares of
the series, whether we will offer
depositary shares representing shares of
the series and, if so, the fraction or
multiple of a preferred share represented
by each depositary share, whether we will
list the preferred shares or depositary
shares on a securities exchange and any
other specific terms of the series of
preferred shares.

CONVERTIBLE PREFERRED SHARES..... The selling shareholders hold convertible
preferred shares, comprised of Series A
Preferred Shares, Series B Preferred
Shares and Series C Preferred Shares,
which they purchased through a private
placement or received as dividends. The
convertible preferred shares convert upon
sale into convertible common shares,
which convert into common shares of the
Company. The selling shareholders are not
offering for resale any of the
convertible preferred shares (or the
convertible common shares issuable upon
conversion thereof) in accordance with
the terms of an agreement with us.

COVERTIBLE COMMON SHARES......... Upon the conversion of convertible
preferred shares which they hold, the
selling shareholders will hold
convertible common shares. The
convertible common shares are comprised
of three classes, Class A Common Shares,
Class B Common Shares and Class C Common
Shares. The convertible common shares
convert upon sale into common shares of
the Company. The selling shareholders are
not offering for resale any of the
convertible common shares they will hold
in accordance with the terms of an
agreement with us.

TERMS SPECIFIED IN PROSPECTUS
SUPPLEMENTS...................... When we decide to sell particular
securities, or when one or more of the
selling shareholders decides to sell
common shares hereunder, we will prepare
a prospectus supplement describing the
securities offering and the specific
terms of the securities. You should
carefully read this prospectus and the
applicable prospectus supplement.

We will offer our debt securities, common
shares, preferred shares, depositary
shares and warrants to investors on terms
determined by market and other
conditions. Our securities may be sold
for U.S. dollars or foreign currency.
Principal of, and any premium or interest
on, debt securities and cash amounts
payable under warrants may be payable in
U.S. dollars or foreign currency, as we
specifically designate in the related
prospectus supplement.

In any prospectus supplement we prepare,
we will provide the name of and
compensation to each dealer, underwriter
or agent, if any, involved in the sale of
the securities being offered and the
managing underwriters for any securities
sold to or through underwriters. Any
underwriters, including managing
underwriters, dealers or agents in the
United States may include affiliates of
ours.

STRUCTURAL SUBORDINATION; OUR
RECEIPT OF CASH FROM OUR
SUBSIDIARIES MAY BE RESTRICTED... The debt securities, preferred shares and
warrants that may be offered under this
prospectus are unsecured senior or
subordinated obligations of ours, but our
assets consist primarily of equity in our
subsidiaries. As a result, our ability to
make payments on our debt securities
and/or pay dividends on our preferred
shares depends upon our receipt of
dividends, loan payments and other funds
from our subsidiaries. In addition, if
any of our subsidiaries becomes
insolvent, the direct creditors of that
subsidiary will have a prior claim on its
assets, and our rights and the rights of
our creditors, including your rights as
an owner of our debt securities,
warrants, or preferred shares, will be
subject to that prior claim, unless we
are also a direct creditor of that
subsidiary. This subordination of
creditors of a parent company to prior
claims of creditors of its subsidiaries
is commonly referred to as structural
subordination.

In addition, various statutes and
regulations restrict some of our
subsidiaries from paying dividends or
making loans or advances to us. These
restrictions could prevent those
subsidiaries from paying the cash to us
that we need in order to pay you. These
restrictions include:

o insurance laws and regulations
restricting the maximum amount of
dividends or other distributions that
PXRE Reinsurance (Barbados) Ltd.,
which we call "PXRE Barbados," PXRE
Reinsurance Company, which we call
"PXRE Reinsurance," and PXRE
Reinsurance Ltd., which we call "PXRE
Bermuda," may declare or pay within a
certain period without regulatory
approval, and

o the minimum capital requirements under
the laws of Bermuda and Barbados, and
state laws of certain U.S.
jurisdictions, and the rules of some
exchanges and other regulatory bodies,
which apply to some of our principal
subsidiaries, such as PXRE Barbados,
PXRE Bermuda and PXRE Reinsurance.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference room at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on
the public reference room. In addition, the SEC maintains a website that
contains reports, proxy statements and other information that we
electronically file. The address of the SEC's website is http://www.sec.gov.

This prospectus is part of a registration statement we filed with the SEC.
This prospectus omits some information contained in the registration statement
in accordance with SEC rules and regulations. You should review the
information and exhibits in the registration statement for further information
on us and our consolidated subsidiaries and the securities we and the selling
shareholders are offering. Statements in this prospectus concerning any
document we filed as an exhibit to the registration statement or that we
otherwise filed with the SEC are summaries and do not contain all the
information that may be important to you. You should review the complete
document to evaluate these statements.

Our common shares, par value $1.00 per share, are listed on the New York
Stock Exchange, Inc. under the symbol "PXT." You may inspect reports, proxy
statements and other information concerning us and our consolidated
subsidiaries at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005.

The SEC allows us to incorporate by reference much of the information we
file with it, which means that we can disclose important information to you by
referring you to those publicly available documents. The information that we
incorporate by reference in this prospectus is considered to be part of this
prospectus. Because we are incorporating by reference future filings with the
SEC, this prospectus is continually updated and those future filings may
modify or supersede some of the information included or incorporated by
reference in this prospectus. This means that you must look at all of the SEC
filings that we incorporate by reference to determine if any of the statements
in this prospectus or in any document previously incorporated by reference
have been modified or superseded. This prospectus incorporates by reference
the documents listed below and any future filings we make with the SEC under
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act (other than information
in the documents that is deemed not to be filed) after the date of this
prospectus until we complete our offering of the securities to be issued under
the registration statement or, if later, the date on which any of our
affiliates cease offering and selling these securities:

(a) Annual Report on Form 10-K for the fiscal year ended December 31,
2003 (SEC file number 1-15259);

(b) Quarterly Reports on Form 10-Q for the quarters ended March 31, 2004
and June 30, 2004;

(c) Current Reports on Form 8-K filed on March 26, 2004, May 18, 2004,
July 1, 2004 and August 4, 2004 (SEC file number 1-15259 regarding
Items 5 and 7); and

(d) The description of the common shares contained in our registration
statement on Form 8-A filed on August 23, 1999 pursuant to Section
12 of the Exchange Act, including any amendment or report filed for
the purpose of updating the description.

We are not, however, incorporating by reference any documents or portions
thereof that are not deemed "filed" with the SEC, including any information
furnished pursuant to Items 9 or 12 of Form 8-K. You can request a copy of
these documents, excluding exhibits, at no cost, by writing or telephoning us
at the following address:

PXRE House
110 Pitts Bay Rd
Pembroke HM 208
Bermuda
Attention: Treasurer
(441) 296-5858

RISK FACTORS

An investment in our securities involves a number of risks. You should
carefully consider the following information about these risks, together with
the other information contained or incorporated by reference in this
prospectus, before investing in our securities. The risks and uncertainties
described below are not the only ones we face. However, these are the risks
our management believes are material. Additional risks not presently known to
us or that we currently deem immaterial may also impair our business or
results of operations. Any of the risks described below could result in a
significant or material adverse effect on our results of operations or
financial condition, and a corresponding decline in the market price of our
securities. You could lose all or part of your investment. The prospectus
supplement applicable to each type or series of securities we offer will
contain a discussion of the risks applicable to an investment in the
particular securities we are offering under the prospectus supplement.

BECAUSE OF EXPOSURE TO CATASTROPHES, OUR FINANCIAL RESULTS MAY VARY
SIGNIFICANTLY FROM PERIOD TO PERIOD.

As a reinsurer of property catastrophe-type coverages in the worldwide
marketplace, our 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, hailstorms, earthquakes, volcanic eruptions, fires,
industrial explosions, freezes, riots and floods. For example, the terrorist
attacks on September 11, 2001 resulted in a $35.3 million net loss, after tax,
in the third quarter of 2001, which subsequently decreased to a $34.4 million
net loss, after tax, by June 30, 2004. While we may, depending on market
conditions, purchase catastrophe retrocessional coverage for our own
protection, the occurrence of one or more major catastrophes in any given
period could nevertheless have a material adverse impact on our results of
operations and financial condition and result in substantial liquidation of
investments and outflows of cash as losses are paid.

WE MAY BE OVEREXPOSED TO LOSSES IN CERTAIN GEOGRAPHIC AREAS FOR CERTAIN TYPES
OF CATASTROPHE EVENTS.

WE OPERATE IN A HIGHLY COMPETITIVE ENVIRONMENT.

The reinsurance industry has been consolidating in recent years through
mergers and other acquisitions. We compete with numerous companies, many of
which have substantially greater financial, marketing and management
resources. The level of competition has increased in the wake of the September
11, 2001 terrorist attacks with the formation of a number of large and well-
capitalized Bermuda reinsurance companies. In addition, a number of our pre-
existing competitors were successful in raising substantial levels of
additional capital. Although we increased our capital as well, we remain
smaller than most of our competitors.

In particular, we compete with reinsurers that provide property-based lines
of reinsurance, such as ACE Tempest Reinsurance Ltd., Arch Reinsurance Ltd.,
Aspen Insurance Holdings Limited, AXIS Reinsurance Company, Converium
Reinsurance (North America), Inc., Endurance Specialty Insurance Ltd., Everest
Reinsurance Company, IPC Re Limited, Lloyd's of London syndicates, Montpelier
Reinsurance Ltd., Munich Reinsurance Company, Partner Reinsurance Company
Ltd., Platinum Underwriters Reinsurance, Inc., Renaissance Reinsurance Ltd.,
Swiss Reinsurance Company and XL Re Ltd. Competition varies depending on the
type of business being insured or reinsured and whether we are in a leading
position or acting on a following basis.

REINSURANCE PRICES MAY DECLINE, WHICH COULD AFFECT OUR PROFITABILITY.

Demand for reinsurance depends on numerous factors, including the frequency
and severity of catastrophic events, levels of capacity, general economic
conditions and underwriting results of primary property insurers. The supply
of reinsurance is related to prevailing prices, recent loss experience and
levels of surplus capacity. All of these factors fluctuate and may contribute
to price declines generally in the reinsurance industry. Our recent, and
anticipated, growth relates in part to improved industry pricing. Premium
rates or other terms and conditions of trade may vary in the future. If any of
these factors were to cause the demand for reinsurance to fall or the supply
to rise, our profitability could be adversely affected.

UNDERWRITING REINSURANCE INCLUDES THE APPLICATION OF JUDGMENT, THE ASSESSMENT
OF PROBABILITIES AND OUTCOMES, AND ASSUMPTION OF CORRELATIONS, WHICH ARE
SUBJECT TO INHERENT UNCERTAINTIES; RESERVING FOR LOSSES INCLUDES SIGNIFICANT
ESTIMATES, WHICH ARE ALSO SUBJECT TO INHERENT UNCERTAINTIES.

Our success is dependent upon our ability to assess accurately the risks
associated with the businesses that we insure and reinsure. Claim reserves
represent estimates involving actuarial and statistical projections, at a
given point in time, of our expectations of the ultimate settlement and
administration costs of claims incurred. We utilize actuarial models as well
as historical insurance industry loss development patterns to assist in the
establishment of appropriate claim reserves. In our casualty and finite
business, given our limited experience we do not have established historical
loss development patterns that can be used to establish these loss
liabilities. For these lines of business, we rely on loss development patterns
that have been estimated from industry or client data, which may not
accurately represent the true development pattern for the business we wrote.
For property lines of business, reserves may differ from ultimate settlement
values dues to the infrequency of some types of catastrophe losses, the
incompleteness of information in the wake of a major catastrophe and delay in
receiving that information. Actual claims and claim expenses paid may deviate,
perhaps substantially, from the reserve estimates reflected in our financial
statements.

If our claim reserves are determined to be inadequate, we will be required
to increase claim reserves at the time of such determination with a
corresponding reduction in our net income in the period in which the
deficiency is rectified. It is possible that claims in respect of events that
have occurred could exceed our claim reserves and have a material adverse
effect on our results of operations, in a particular period, or our financial
condition in general. As a compounding factor, although most insurance
contracts have policy limits, the nature of property and casualty insurance
and reinsurance is that losses can exceed policy limits for a variety of
reasons and could significantly exceed the premiums received on the underlying
policies, thereby further adversely affecting our financial condition.

A DECLINE IN THE RATING ASSIGNED TO OUR CLAIM-PAYING ABILITY MAY IMPACT OUR
POTENTIAL TO WRITE NEW AND RENEWAL BUSINESS.

The property catastrophe reinsurance market is highly sensitive to the
ratings assigned by the rating agencies. If either of Standard & Poor Ratings
Services, a division of the McGraw-Hill Companies, Inc., which we refer to as
"S&P," or A.M. Best Company, an independent insurance industry rating
organization, were to downgrade us, such downgrade would likely have a
material negative impact on our ability to expand our reinsurance portfolio
and renew all of our existing reinsurance agreements, especially if we were to
be downgraded more than one level from the "A" category to the "B" category.
In 1999, we were downgraded from A+ to A, which downgrade was considered by us
to have no material effect on our core short tail property business. Although
impossible to quantify, we believe the downgrade did have some impact on our
ability to expand the direct casualty reinsurance business that we have since
discontinued.

A DECLINE IN OUR RATINGS MAY REQUIRE US TO TRANSFER PREMIUMS RETAINED BY US
INTO A BENEFICIARY TRUST.

Certain of our ceded excess of loss reinsurance contracts require us to
transfer premiums currently retained by us on a funds withheld basis into a
trust for the benefit of the reinsurers if A.M. Best were to downgrade us
below "A-." In addition, certain of our other ceded excess of loss reinsurance
contracts contain provisions that give the reinsurer the right to cancel the
contract and require us to pay a termination fee. The amount of the
termination fee would be dependent upon various factors, including level of
loss activity.

A DECLINE IN OUR RATINGS MAY ALLOW CLIENTS TO TERMINATE THEIR CONTRACTS WITH
US.

It is increasingly common for our assumed reinsurance contracts to contain
terms that would allow our clients to cancel the contract if we are downgraded
below various rating levels by one or more rating agencies and a majority of
our contracts now contain such clauses. Typically such cancellation clauses
are triggered if A.M. Best or S&P were to downgrade us below "A-." Currently
our rating is "A" by A.M. Best and S&P. Whether a client would exercise such
rights would depend, among other things, on the reasons for such a downgrade,
the extent of the downgrade, the prevailing market conditions, the degree of
unexpired coverage, and the pricing and availability of replacement
reinsurance coverage. We cannot predict in advance whether and how many of our
clients would actually exercise such rights or what effect such cancellations
would have on our financial condition or future prospects, but such an effect
could potentially be materially adverse. A downgrade, therefore, could result
in a substantial loss of business if insurers, ceding companies and brokers
that place such business move to other insurers and reinsurers with higher
ratings. With respect to new or renewed contracts, at January 1, 2004, 54% (by
premium volume) contain provisions allowing clients additional rights upon a
decline in our ratings.

OUR INVESTMENT PORTFOLIO IS SUBJECT TO SIGNIFICANT MARKET AND CREDIT RISKS
WHICH COULD RESULT IN AN ADVERSE IMPACT ON OUR FINANCIAL POSITION OR RESULTS.

Our invested assets consist primarily of debt instruments with fixed
maturities, short-term investments, a diversified portfolio of hedge funds
and, to a lesser extent, interests in mezzanine bond and equity limited
partnerships, and short-term investments. At June 30, 2004, 87% of the
Company's investment portfolio consisted of fixed maturities and short-term
investments and 13% consisted of hedge funds and other investments. These
investments are subject to market-wide risks and fluctuations as well as to
risks inherent in particular securities. Although we seek to preserve our
capital, we have invested in a portfolio of hedge funds and other privately
held securities. These investments are designed to provide diversification of
risk; however, such investments entail substantial risks. There can be no
assurance that our investment objectives will be achieved, and results may
vary substantially over time. In addition, although we seek to employ
investment strategies that are not correlated with our reinsurance exposures,
losses in our investment portfolio may occur at the same time as underwriting
losses and, therefore, exacerbate such losses' adverse effect on us.

o Interest Rate Risk

Our principal fixed maturity market risk exposure is to changes in U.S.
interest rates. Changes in interest rates may affect the fair value of our
fixed maturity portfolio, borrowings (in the form of trust preferred
securities) and a related interest rate swap. Our holdings subject us to
exposures in the treasury, municipal, and various asset-backed sectors.
Changes in interest rates could also cause a potential underperformance in our
finite coverages and shortfalls in cash flows necessary to pay fixed rate
amounts due to finite contract counterparties.

o Credit Risk

We are also exposed to potential losses from changes in probability of
default and from defaulting counter-parties with respect to our investments. A
majority of our investment portfolio consists of fixed maturities and short-
term investments rated "A2" or "A" or better by Moody's Investors Service,
Inc., or S&P. Our investment portfolio also contains privately held fixed
maturities that are not traded on a recognized exchange. A deterioration in
the credit quality of our investments or our inability to liquidate any of our
privately held investments promptly could have an adverse effect on our
financial condition.

appropriate under prevailing economic and market conditions in an attempt to
achieve capital appreciation, including, if appropriate, a concentration of
investments in a relatively small group of strategies or hedge fund managers.

THE THREE MOST SIGNIFICANT RISKS INHERENT IN OUR HEDGE FUND PORTFOLIO ARE
LIQUIDITY RISK, CREDIT RISK AND MARKET RISK:

o Liquidity Risk

o Credit Risk

o Market Risk

BECAUSE WE DEPEND ON A FEW REINSURANCE BROKERS FOR A LARGE PORTION OF REVENUE,
LOSS OF BUSINESS PROVIDED BY THEM COULD ADVERSELY AFFECT US.

We market our reinsurance products worldwide exclusively through reinsurance
brokers. Four, five and four brokerage firms accounted for approximately 78%,
84% and 60%, of our gross premiums written for the years ended December 31,
2003, 2002, and 2001, respectively. Approximately 27%, 21%, 16%, and 15% of
gross premiums written in fiscal year 2003 were arranged through Benfield
Greig Ltd., the worldwide branch offices of Guy Carpenter & Company, Inc. (a
subsidiary of Marsh & McLennan Companies, Inc.), Willis Re. Inc. and Aon Group
Ltd., respectively. Loss of all or a substantial portion of the business
provided by these brokers could have a material adverse effect on our
business.

OUR RELIANCE ON REINSURANCE BROKERS EXPOSES US TO THEIR CREDIT RISK.

WE MAY BE ADVERSELY AFFECTED BY FOREIGN CURRENCY FLUCTUATIONS.

RETROCESSIONAL REINSURANCE SUBJECTS US TO CREDIT RISK AND MAY BECOME
UNAVAILABLE ON ACCEPTABLE TERMS.

A retrocessionaire's insolvency or its inability or unwillingness to make
payments under the terms of a retrocessional reinsurance treaty with us could
have a material adverse effect on us. Therefore our retrocessions subject us
to credit risks because the ceding of risk to retrocessionaires does not
relieve us of our liability to our clients. In the event that we cede business
to a retrocessionaire, we must still pay on claims of our cedent even if we
are not paid by the retrocessionaire.

OUR INABILITY TO PROVIDE THE NECESSARY COLLATERAL COULD AFFECT OUR ABILITY TO
OFFER REINSURANCE IN CERTAIN MARKETS.

RISKS RELATED TO REGULATION

REGULATORY CONSTRAINTS MAY RESTRICT OUR ABILITY TO OPERATE OUR BUSINESS.

PXRE Bermuda. PXRE Bermuda is a registered Class 3 Bermuda insurance and
reinsurance company. Among other matters, Bermuda statutes, regulations and
policies of the Bermuda Monetary Authority, or "BMA" require PXRE Bermuda to
maintain minimum levels of statutory capital, surplus and liquidity, to meet
solvency standards, to obtain prior approval of ownership and transfer of
shares and to submit to certain periodic examinations of its financial
condition. These statutes and regulations may, in effect, restrict PXRE
Bermuda's ability to write insurance and reinsurance policies, to make certain
investments and to distribute funds.

PXRE U.S. Subsidiaries. PXRE Corp. ("PXRE Delaware") and PXRE Reinsurance
are subject to regulation under the insurance statutes of various U.S. states,
including Connecticut, the domiciliary state of PXRE Reinsurance. The
regulation and supervision to which PXRE Reinsurance is subject relates
primarily to the standards of solvency that must be met and maintained,
licensing requirements for reinsurers, the nature of and limitations on
investments, deposits of securities for the benefit of a reinsured, methods of
accounting, periodic examinations of the financial condition and affairs of
reinsurers, the form and content of reports of financial condition required to
be filed, reserves for losses and other matters. In general, such regulation
is for the protection of the reinsureds and policyholders, rather than
investors.

o maintain a minimum level of capital, surplus and liquidity;

o satisfy solvency standards;

o restrict dividends and distributions;

o obtain prior approval of ownership and transfer of shares;

o maintain a principal office and appoint and maintain a principal
representative in Bermuda; and

o provide for the performance of certain periodic examinations of PXRE
Bermuda and its financial condition.

These statutes and regulations may, in effect, restrict our ability to write
reinsurance policies, to distribute funds and to pursue our investment
strategy.

We do not presently intend that PXRE Bermuda will be admitted to do business
in any jurisdiction in the United States, the United Kingdom or elsewhere
(other than Bermuda). However, we cannot assure you that insurance regulators
in the United States, the United Kingdom or elsewhere will not review the
activities of PXRE Bermuda, or related companies or its agents and claim that
PXRE Bermuda is subject to such jurisdiction's licensing requirements. If any
such claim is successful and PXRE Bermuda must obtain a license, we may be
subject to taxation in such jurisdiction. In addition PXRE Bermuda is subject
to indirect regulatory requirements imposed by jurisdictions that may limit
its ability to provide insurance or reinsurance. For example, PXRE Bermuda's
ability to write insurance or reinsurance may be subject, in certain cases, to
arrangements satisfactory to applicable regulatory bodies. Proposed
legislation and regulations may have the effect of imposing additional
requirements upon, or restricting the market for, alien insurers or reinsurers
with whom domestic companies place business.

WE MAY BE UNABLE TO OBTAIN EXTENSIONS OF WORK PERMITS FOR OUR EMPLOYEES, WHICH
MAY CAUSE OUR BUSINESS TO BE ADVERSELY AFFECTED.

Under Bermuda law, non-Bermudians (other than spouses of Bermudians) may not
engage in any gainful occupation in Bermuda without the specific permission of
the appropriate government authority. The Bermuda government will issue a work
permit for a specific period of time, which may be extended upon showing that,
after proper public advertisements, no Bermudian (or spouse of a Bermudian) is
available who meets the minimum standards for the advertised position. The
Bermuda government has a policy that limits the duration of work permits to
six years, subject to certain exemptions for key employees. Substantially all
of our key officers, including our Chief Executive Officer, Chief Financial
Officer, and key reinsurance underwriters are working in Bermuda under work
permits that will expire over the next two years. The Bermuda government could
refuse to extend these work permits. If any of our senior executive officers
were not permitted to remain in Bermuda, our operations could be disrupted and
our financial performance could be adversely affected.