S&P Downgrades PXRE to ‘BBB-‘

February 24, 2006

Standard & Poor’s Ratings 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. (collectively referred to as PXRE) to “BBB-” from “BBB+.” S&P had already lowered the ratings from “A-” following PXRE’s profit warning (See IJ Website Feb. 20).

S&P also said that it has lowered its counterparty credit ratings on holding companies PXRE Group Ltd. and PXRE Corp. to “BB-” from “BB+”. In addition all of the ratings remain on CreditWatch with negative implications, where they were placed on Feb. 16, 2006.

“The downgrades reflect PXRE’s announcement of a writedown of its deferred tax asset, the adverse impact of two counterparties canceling their reinsurance contracts, and an increase in the group’s estimated 2005 hurricane losses,” explained S&P credit analyst Steven Ader. (See also IJ Website Feb. 23).

The rating agency noted: “Although PXRE’s capital and liquidity are sufficient to meet known obligations, its competitive position has materially diminished, as demonstrated by its disclosure that a substantial loss in premium volume could result from current reinsurance clients exercising their right to cancel their reinsurance contracts. This possibility also materially hampers PXRE’s financial flexibility, borne from its prospective business opportunities, previously incorporated into the rating. Financial flexibility is further hampered by the group’s disclosure that it is currently precluded under Bermuda holding company law from declaring or paying dividends, subject to a shareholder vote in April 2006.

“The ratings remain on CreditWatch negative because of the fluid nature of developing events relative to PXRE’s competitive position, financial flexibility, capital adequacy, and liquidity.”

S&P said it “expects to resolve the CreditWatch status of the ratings within the next 90 days. The absence of further material negative events will likely result in the ratings being affirmed. Alternatively, the ratings could be lowered again if there is further material adverse reserve development or an unanticipated capital and liquidity impact from ongoing commutations. The current ratings reflect PXRE’s good liquidity, good capital adequacy, and a favorable long-term debt maturity structure. Offsetting these strengths are PXRE’s materially diminished competitive position and weak financial flexibility.”

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