Fitch Lowers PXRE’s Debt Ratings; Operating Subs IFS Rating to ‘BBB+’

November 7, 2005

Fitch Ratings announced that it has downgraded the long-term rating of the Bermuda-based PXRE Group Ltd. to “BB+” from “BBB-.” Fitch also downgraded the rating on PXRE Capital Trust I’s preferred securities to “B” from “BB+” and the insurer financial strength rating on PXRE’s lead operating subsidiaries, PXRE Reinsurance Ltd. and PXRE Reinsurance Company, to “BBB+” from “A-.” It has removed all the ratings from its credit watch, but has assigned them a negative outlook.

Fitch said its rating action “follow PXRE’s announcement of third-quarter 2005 earnings and updated estimates for hurricane losses, and reflect the rating agency’s “updated view of the catastrophe risk inherent in PXRE’s book of business and the resultant capital and earnings volatility.”

Fitch notes that PXRE’s hurricane loss exposures are currently around $350 million, not including Hurricane Wilma, “which equates to roughly half of PXRE’s beginning of the year shareholders’ equity. This is higher than Fitch’s expectations for the rating category, even for a company with PXRE’s business profile, which includes an expectation of periodic high severity losses. Additionally, the losses roughly equate to 3 times (x) its annualized six-month 2005 net income. Fitch further notes that PXRE’s loss estimates are based on an industry loss estimate of $35 billion-$40 billion, and with some estimates of the industry loss as high as $60 billion, it is very possible that PXRE’s losses could develop adversely.”

As a result, Fitch indicated that it “does not believe PXRE’s current profile fits within Fitch’s ‘A-‘ rating category. While PXRE has replenished lost capital, the downgrade is less reflective of near-term capital levels and more reflective of Fitch’s lack of confidence in PXRE’s future performance and core underwriting abilities.”

The negative outlook expresses the rating agency’s “ongoing concerns about the concentration of risk in PXRE’s book of business,” the bulletin continued. “While PXRE has indicated its plans to somewhat revise its risk profile going forward, Fitch is uncertain of the timing, magnitude, and ultimate effect on exposure these changes will have. Additionally, there remains the possibility of further development in hurricane loss estimates as well as new exposure from Hurricane Wilma.

“Fitch’s ratings on PXRE will also reflect its evolving views on catastrophe risk and capital management and how its assessment of these factors could affect its ratings on the company going forward. Fitch views this as especially important given PXRE’s exposure to catastrophe-related losses and recent underwriting performance.”

On the positive side Fitch did note 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, future reinsurance pricing.”

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