The Bermuda-based PXRE Group announced third quarter results, which were impacted by the Florida hurricanes. The net loss for the period was $73.2 million compared to net income of $23.7 million in the third quarter of 2003.
Net operating loss per adjusted diluted share was $2.67 compared to net operating income per diluted share of $1.02 in the third quarter of 2003. The underwriting loss was $74.7 million. On a fully diluted basis, book value per share was $20.34 at September 30, 2004.
In an unrelated announcement the company said it, and certain selling shareholders, “expect to make a public offering of its common shares having an aggregate selling price of approximately $100 million (4.08 million shares at the closing price on the NYSE on November 3, 2004) in November 2004. Of these common shares, 85 percent are to be offered by PXRE and 15 percent are to be offered by the Company’s preferred shareholders. The common shares will be offered by the Company and the preferred shareholders under the terms of a shelf registration statement that has been declared effective by the Securities and Exchange Commission.”
Commenting on the financial results, President and CEO Jeffrey L. Radke stated: “The third quarter was dominated by the effects of the four Florida hurricanes, which will likely result in the largest industry losses ever incurred in any single year. Despite this unusual frequency and severity, PXRE’s risk controls limited our losses to approximately 40 percent of our annual catastrophe and risk excess premium, which compares favorably with the figures announced by most of our competitors. We continue to believe that the net impact of the hurricane losses will fall within the previously announced $80 to $105 million range. Given the inherent uncertainties in reserving for multiple catastrophes, we recorded the high end of our estimate.”
He also pointed to the opportunities created by the catastrophes, indicating that PXRE expects to see rate increases of between 5 to 15 percent in its core business lines.
He also noted that the company had “made significant progress this quarter in addressing legacy items on our balance sheet,” by increasing reserves for one outstanding lawsuit as a consequence of an unfavorable judgment (which the company is contesting), and by a “favorable development on prior-year Cat & Risk reserves, which more than offset the remaining $3.9 million after-tax exited lines underwriting loss.” PXRE also commuted a number of “assumed and ceded contracts, including a large general liability program,” during the third quarter.
Addressing the ongoing investigations of the insurance industry, Radke stressed that “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 recent investigations by the New York State Attorney General’s Office as publicly reported.”
The hurricanes, however, will severely impact PXRE’s 2004 earnings, which are now estimated at between 70 and 90 cents a share. The original forecast had been $4.45 to $4.85 per diluted share. “Absent the third quarter storms, our guidance today would be affirmed as the better than anticipated results in our core property business have largely offset the impact of the unfavorable judgment in the lawsuit and the modest remaining exited lines loss,” Radke noted.
Other highlights (in summarized form) were as follows:
— Revenue increased 25 percent for the third quarter of 2004 to $95.6 million from $76.7 million for the same period a year ago, largely as a result of reinstatement premiums associated with hurricanes Charley, Frances, Ivan and Jeanne.
— Net premiums earned for the quarter increased 30 percent to $89.8 million from $69.1 million for the year-earlier period.
— Net premiums earned in the Company’s core Catastrophe and Risk Excess segment for the quarter were $89.9 million compared to $64.7 million for the year-earlier period.
— Net premiums written increased 61 percent to $112.6 million for the third quarter of 2004 from $70.0 million for the same period of 2003.
— Net investment income for the third quarter of 2004 decreased 14 percent to $5.2 million from $6.0 million for the corresponding period of 2003, primarily as a result of a $1.5 million decrease in income from hedge funds, offset by $0.9 million of additional income from the other invested asset portfolio
— PXRE’s GAAP loss ratio for the third quarter of 2004 was 174.1 percent compared with 51 percent for the third quarter of 2003. The loss ratio in the Company’s core Catastrophe and Risk Excess segment was 151.4 percent, reflecting the catastrophic events in the quarter.
The full report may be obtained on the company’s website along with a replay of its earnings conference call at: http://www.pxre.com.
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