Fitch Ratings announced that its existing ratings of the Bermuda-based PXRE Group Ltd. would remain on “Rating Watch Negative” following several recent announcements by the reinsurer.
Fitch placed PXRE on Rating Watch Negative on Feb. 17, 2006 following the reinsurer’s announcement that the company had increased its pre-tax net loss estimates for hurricanes Katrina, Rita, and Wilma by $281 million-$311 million, and was exploring “strategic alternatives.” Fitch concurrently downgraded its Insurer Financial Strength (IFS) rating on PXRE’s lead operating subsidiaries, PXRE Reinsurance Ltd. and PXRE Reinsurance Company, to ‘BB+’ from ‘BBB+’.
AM Best Co. and Standard & Poor’s took similar action following the announcement. PXRE’s publication last week of its first quarter results was accompanied by further warnings that the Company was close to runoff (See IJ Website May 11).
Fitch said it was maintaining its negative credit watch due to the following key factors:
— Continued uncertainty related to PXRE’s future viability and business direction as the company continues to explore strategic alternatives. Fitch believes such actions often signal a distressed situation and potential run-off.
— Additional disruptions in senior management. Fitch notes that the company’s Chief Operating Officer has given notice of his resignation effective July 17, 2006.
— Shareholder lawsuits that Fitch anticipated have now become reality, with their ultimate financial impact unknown.
— Concerns regarding the company’s ability to continue to operate profitably given its reduced premium base and the potential for inadequately set reserves. Roughly 65 percent of PXRE’s in-force business as of Jan. 1, 2006 has either been non-renewed or cancelled.
— Fitch’s belief that PXRE has limited financial flexibility going forward.
However, Fitch did note a positive development. It indicated that, “through the first quarter of 2006, PXRE did not experience adverse loss reserve development related to its 2005 hurricane losses, and its catastrophe risk has been reduced since a large amount of its premium base has non-renewed or cancelled. Fitch expects this will continue to be the trend.”
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