The Bermuda-based PXRE Group Ltd. reported a net loss before convertible preferred share dividends of $446.5 million for the quarter ended December 31, 2005 compared to net income before convertible preferred share dividends of $32.8 million in the fourth quarter of 2004.
The bulletin said the “net loss in the fourth quarter of 2005 principally reflects losses from Hurricane Wilma and increased estimates of losses from Hurricanes Katrina and Rita. On a fully diluted basis, book value per share decreased to $6.01 at December 31, 2005 from $13.01 per share at September 30, 2005. Fully diluted shares outstanding as of December 31, 2005 are approximately 77.4 million. The Company’s shareholders’ equity was $465.3 million as of December 31, 2005.”
President and CEO Jeffrey L. Radke commented: “As we indicated last week, our fourth quarter results reflect the severe losses associated with Hurricane Wilma and significant development on Hurricanes Katrina and Rita. Although the fourth quarter loss and recent rating actions are extremely disappointing, PXRE remains financially sound and able to meet all of our obligations to clients. We also have sufficient liquidity to meet all currently foreseen needs and have taken a number of steps to even further improve our liquidity in order to meet contingencies that may arise.
“We have built a 23-year track record of promptly paying claims and providing superior underwriting services to our clients,” Radke continued. ” We are hopeful that our financial soundness and strong service track record will allow us to continue trading with our clients and brokers. Nevertheless, more than 75 percent of our current reinsurance clients, as measured by the premium volume, have the right to cancel their reinsurance contracts as a result of either the recent ratings downgrade or reduction of our capital, which, if such rights were exercised, could cause a substantial loss in premium volume. We are therefore continuing to explore a range of strategic alternatives for the Company.”
The bad news came as no surprise. PXRE had issued a bulletin on Feb. 16 noting the increased loss estimates. As a result the three major rating agencies, A.M. Best, Standard & Poor’s and Fitch, downgraded their ratings on PXRE (See IJ Website Feb. 17 & 20).
The company noted their actions. “The recent downgrade of the Company’s credit ratings below the “A-” level has created uncertainty with regard to the ultimate realization of the Company’s income tax recoverables,” said the earnings bulletin. “As a result, the Company has recorded a valuation allowance against certain of these assets, which reduced the income tax recoverable to $6.3 million as of December 31, 2005. Such amount represents expected tax refunds related to prior periods that are expected to be received in 2006. A result of the recording of this valuation allowance is the reversal of approximately $30.9 million of tax benefits that had previously reduced the net impact of Hurricanes Katrina and Rita on the Company’s results at September 30, 2005.”
As December 31, 2005 PXRE estimated the gross and net impact from the three hurricanes as follows:
Hurricane Katrina – $771.01 million gross; $602.606 million net.
Hurricane Rita – $68.894 million gross; $66.329 million net.
Hurricane Wilma – $174.602 million gross; $138.005 million net.
Total losses – $1.014506 billion gross; $806.940 million net.
As a result of the losses, PXRE announced that it would be unable to pay dividends in conformity with applicable Bermuda laws.
It also announced that “Robert Fiondella has retired from the Company’s Board of Directors effective immediately due to health reasons.” Radke noted that Fiondella had served on PXRE’s board since the Company’s origination in 1982, and had “made significant contributions to PXRE’s development over the past 23 years.”
The entire earnings report may be obtained on the Company’s Website at: www.pxre.com. PXRE has also scheduled a conference call with respect to its fourth quarter financial results on Thursday, February 23, 2006 at 5:00 p.m. Eastern Time. The call had originally been scheduled for 8:30 am ET on Thursday. A live webcast of the conference call will be available on the Website. Dial-in numbers are (800) 289-0726 for U.S. and Canadian callers and (913) 981-5545 for international callers.
Following the conclusion of the presentation, the webcast will remain available online through March 23, 2006. A replay of the call will be available from February 23, 2006 – March 2, 2006 by dialing (888) 203-1112. Callers dialing from outside the U.S. and Canada can access the replay by dialing (719) 457-0820. Please enter 7618403 as the conference ID.
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