Fitch Maintains PXRE’s Watch Negative After Capital Raising

October 11, 2005

Fitch Ratings indicated that its ratings for the bermuda-based PXRE Group Ltd. and its operating subsidiaries would “remain on Rating Watch Negative following PXRE’s successful capital raising in the form of common stock and the private placement of perpetual preferred shares, which together raised approximately $474 million, net of transaction costs.”

Fitch said that the additional capital was a “positive credit event, ” and noted that it “is more than PXRE’s current estimate of its net loss from Hurricanes Katrina and Rita of between $265 million and $340 million.” Fitch also indicated that, “in the past, major insurance losses have spurred significant increases in insurance and/or reinsurance prices. PXRE’s ability to successfully raise capital is an indication of the capital market’s confidence in both PXRE’s organization and future reinsurance pricing.”

However, Fitch noted that PXRE’s “loss estimates are significant, with losses from Hurricane Katrina alone representing between 30 percent and 40 percent of PXRE’s June 30, 2005 shareholders’ equity. This represents a greater loss than Fitch had expected from a single event. The additional capital raised will help to replenish losses and replace capital; however, the onus will be on the company to manage risks appropriately so as to not unduly expose the new or existing capital to further loss.”

Fitch also said: “Significant uncertainties remain. Loss estimates from Hurricane Katrina continue to develop, and Fitch believes this event presents unprecedented risks to the insurance industry. Thus, Fitch believes that it may take longer than normal for these losses to fully develop. Fitch further notes that PXRE’s loss estimates are based on an industry loss estimate of $30 billion-$40 billion. With some estimates of the industry loss as high as $60 billion, it is very possible that PXRE’s loss could grow beyond the high end of its estimated range.

Fitch indicated that resolving the company’s credit watch status would depend on an “updated assessment of PXRE’s risk concentration relative to its capital base net of storm losses and capital replenishment.”

The rating agency added that it “believes there is the possibility that some catastrophe reinsurers are materially under-estimating overall catastrophe exposure based in part on extensive reliance on catastrophe modeling and assumptions.”

Fitch said it “expects to be able to resolve the Rating Watch Negative once it believes there is a reasonably stable estimate of the industry’s and PXRE’s ultimate loss from Hurricane Katrina. Given the very unusual nature of the losses, this could take an extended period of time but no sooner than the reporting of third-quarter 2005 financial results.”

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