S&P Lowers PXRE Ratings

September 30, 2005

Standard & Poor’s Rating Services announced that it has lowered its counterparty credit and financial strength ratings on Bermuda-based PXRE Reinsurance Ltd. and U.S.-based PXRE Reinsurance Co. to “A-” from “A”. S&P also lowered its counterparty credit and senior unsecured debt ratings on PXRE Group Ltd. and PXRE Corp. to “BBB-” from “BBB”, its subordinated debt rating to “BB+” from “BBB-“, and its preferred stock rating to “BB” from “BB+”.

In addition S&P noted that the “ratings remain on CreditWatch with negative implications, where they were placed on Sept. 9, 2005. This reflects the material impact that Katrina losses, estimated by PXRE to be $235 million-$300 million, represents to its equity capital base measuring $763 million as of June 30, 2005.”

The announcement follows the reinsurer’s statement that the claims from the two hurricanes would result in both a third quarter and full year loss (See IJ Website Sept. 29).

S&P credit analyst Steven Ader commented: “The ratings actions reflect our view that although PXRE’s current initiatives to address the capital uncertainty introduced by Hurricane Katrina will somewhat reduce prospective earnings and capital volatility, the inherent volatility from PXRE’s monoline property catastrophe will continue to result in a level of earnings and capital volatility that is inconsistent with the prior rating level. The CreditWatch negative reflects the potential that PXRE may be unsuccessful in replenishing its capital base,” he added.

S&P said: “The ratings reflect PXRE’s strong competitive position in the Bermuda catastrophe reinsurance and retrocessional market, its historically strong operating performance, and the prospective replacement of capital currently depleted by Katrina losses. The ratings also reflect the relatively high capital and earnings volatility borne from a monoline property catastrophe profile, as compared with more diversified, multiline peers, and incorporate the expectation that capital-raising initiatives will be successful in replenishing capital adequacy to no less than pre-Katrina levels affording PXRE the opportunity to pursue profitable business in 2006.”

The rating agency added that “upon the successful replenishment of capital to a level that offsets both the known and uncertain nature of Katrina losses,” it will evaluate “management’s progress in reducing prospective earnings and capital volatility,” and would then “most likely affirm the ratings with a stable outlook, or, if there’s lack of material progress in reducing prospective earnings and capital volatility, a negative outlook.”

However, S&P warned, “if PXRE is unsuccessful in replenishing capital within a short period of time, Standard & Poor’s, reflecting the unmitigated capital impact from Katrina losses and a reduced view of financial flexibility resulting from the inability to replace the material capital depletion in a short period of time, will consider further adverse ratings actions.”

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