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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 1999 Commission File Number 1-15259
PXRE GROUP LTD.*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BERMUDA 98-0214719
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
99 FRONT STREET SUITE 231
HAMILTON HM 12 12 CHURCH STREET
BERMUDA HAMILTON HM 11
(ADDRESS, INCLUDING ZIP CODE, BERMUDA
OF PRINCIPAL EXECUTIVE OFFICES) (MAILING ADDRESS)
(441) 296-5858
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act: COMMON SHARES, PAR VALUE $1.00 PER SHARE
NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X * No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of March 24, 2000 computed by reference to
the closing price of such common equity as of the close of business on March 24,
2000 was $151,427,255. As of March 24, 2000, 11,758,174 of the registrant's
common shares were issued and outstanding.
*PXRE Group Ltd. ("PXRE") is the parent corporation of PXRE Corporation
("PXRE Delaware") (Commission File No. 001-12595; I.R.S. Employer
Identification No. 06-1183996) which became an indirect wholly owned subsidiary
of PXRE at the close of business on October 5, 1999 in connection with the
reorganization of PXRE Delaware. Simultaneously therewith, holders of PXRE
Delaware common stock, $.01 par value per share, automatically became holders of
the same number of PXRE common shares, $1.00 par value per share, which
shares continue to trade under the same New York Stock Exchange ticker symbol
PXT. In connection with the reorganization, PXRE has become subject to the
reporting requirements of the Securities Exchange Act of 1934 and has filed all
reports required to be filed thereafter.
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DOCUMENTS INCORPORATED BY REFERENCE
Part III Portions of PXRE's definitive Proxy Statement for the Annual
General Meeting of Shareholders to be held on May 16, 2000.
Part IV Portions of PXRE Corporation's Proxy Statement dated April 12, 1991.
PART I
ITEM 1. BUSINESS
OVERVIEW
PXRE Group Ltd. ("PXRE" or the "Company") -- with operations
principally in Bermuda, Barbados, the United States, the United Kingdom and
Europe -- provides reinsurance products and services to a worldwide market
place. The Company primarily emphasizes commercial and personal property and
casualty reinsurance risks, and it offers both broker-based and direct-writing
distribution capabilities. PXRE also provides marine and aerospace reinsurance
products and services. The Company's shares trade on the New York Stock Exchange
under the symbol PXT. On October 5, 1999 PXRE Corporation, a Delaware holding
company ("PXRE Delaware") completed a reorganization that resulted in the
Company becoming the ultimate parent holding company of PXRE Delaware. Holders
of PXRE Delaware common stock automatically became holders of the same number
of PXRE common shares. The reorganization also involved the establishment of a
Bermuda based reinsurance company, PXRE Reinsurance Ltd. ("PXRE Bermuda"), and
operations in Barbados through PXRE (Barbados) Ltd. ("PXRE Barbados").
The Company conducts its business primarily through its principal
operating subsidiaries, PXRE Delaware, PXRE Reinsurance Company ("PXRE
Reinsurance"), PXRE Solutions Inc. ("PXRE Solutions"), PXRE Bermuda, PXRE
Barbados, PXRE Managing Agency Limited ("PXRE Managing Agency"), PXRE Limited,
the sole member of PG Butler Syndicate 1224 ("PXRE Lloyd's Syndicate") and
Transnational Insurance Company ("Transnational Insurance"). The term "PXRE," as
used herein, refers to one or more of PXRE Delaware, PXRE Reinsurance, PXRE
Solutions, PXRE Bermuda, PXRE Barbados, PXRE Managing Agency, PXRE Lloyd's
Syndicate and Transnational Insurance in discussions of these entities' business
and refers to PXRE Group Ltd. in all other circumstances.
PXRE Reinsurance is both a brokerage market reinsurer and a direct
writing reinsurer, with approximately $399 million of statutory capital and
surplus, which principally underwrites treaty and facultative reinsurance for
property (including marine and aerospace) and casualty risks. PXRE Reinsurance
is licensed or authorized to transact business in 46 states and the District of
Columbia, Puerto Rico, Columbia and Mexico and operates a branch in Belgium
("PXRE's Brussels Branch").
PXRE Bermuda is a quota share reinsurer of PXRE Reinsurance (30% in the
fourth quarter of 1999) and PXRE Reinsurance provides aggregate excess of loss
reinsurance protection for PXRE Bermuda. PXRE Bermuda, with approximately $25.2
million of statutory capital and surplus, also provides structured/finite
coverages. PXRE Bermuda is not licensed or admitted as an insurer in any
jurisdiction other than Bermuda. PXRE Solutions performs certain limited
reinsurance intermediary activities on behalf of a number of Bermuda reinsurers,
including PXRE Bermuda.
PXRE Managing Agency manages PXRE Lloyd's Syndicate, which has an
underwriting capacity of approximately 'L'35 million ($57 million at
December 31, 1999 exchange rates), and manages, on a fee basis, other syndicates
at Lloyd's of London ("Lloyds") with an aggregate underwriting capacity of
approximately 'L'250 million ($402 million at December 31, 1999 exchange
rates). PXRE Limited, which carries on business as a corporate member of
Lloyd's, is the sole member of PXRE Lloyd's Syndicate. PXRE Lloyd's Syndicate
underwrites specialty types of property and casualty insurance and reinsurance
(including certain accident and health coverages as well as catastrophe-type
coverages, aerospace reinsurance and facultative reinsurance) on a worldwide
basis. Underwriting premium volume and loss experience related to the business
of PXRE Lloyd's Syndicate is included in PXRE's consolidated results on a one
quarter lag basis, from 1997 through the third quarter of 1999. Beginning with
the fourth quarter of 1999, PXRE Lloyd's Syndicate reports its results
currently.
-4-
Transnational Insurance is an excess and surplus lines carrier which
has specialized in non-standard and excess property insurance risks.
Transnational Insurance, which is a wholly-owned subsidiary of PXRE Reinsurance,
has approximately $99 million of capital and is eligible to write business on a
surplus lines basis in 45 states and the District of Columbia, Guam and the U.S.
Virgin Islands.
The property and casualty reinsurance industry has been experiencing an
extended period of soft market conditions characterized by inadequate pricing.
The industry is also consolidating through mergers and other acquisitions. PXRE
competes with numerous companies, many of which have substantially greater
financial, marketing and management resources.
PXRE has specialized in property reinsurance, including a strong focus
on catastrophe-type products. Coverage terms for these products have
deteriorated in recent years, and PXRE has reduced commitments on marginally
priced business.
Meanwhile, PXRE has adopted an ambitious diversification strategy
involving:
the establishment of a direct presence in the Lloyd's market;
the addition of a reinsurance platform offering primarily casualty
products directly to customers;
the enhancement of its international broker market reinsurance
platform to include additional lines of business including casualty
risks;
the start-up of an excess and surplus lines insurance company;
an acceleration of business offerings to one of its managed business
participants;
the formation of a finite reinsurance unit; and
the establishment of a direct presence in the Bermuda market.
At December 31, 1999, PXRE was a party to retrocessional arrangements
with a number of insurers and reinsurers. Under these arrangements, PXRE cedes
some of its underwritten risks to the participants, subject to maximum aggregate
liabilities per reinsurance program. PXRE receives a management fee or
commission, initially based on premium volume, adjusted in some cases through
contingent profit commissions related to underwriting results measured over a
period of years. Future management fee income is dependent upon the amount of
business ceded to the participants and the profitability of that business.
Another arrangement with Select Reinsurance Ltd. ("Select Re"), a Bermuda
reinsurer, formerly Investors Reinsurance Ltd., involves a multi-year fee based
undertaking by PXRE through the year ending December 31, 2003 to produce and
underwrite business with Select Re. Gerald Radke (Chairman, President and Chief
Executive Officer of PXRE) and Jeffrey Radke (Executive Vice President of PXRE
and President of PXRE Bermuda) are on the Board of Directors of Select Re and
are shareholders of Select Re. Gerald Radke is Co-Vice Chairman of Select Re and
Jeffrey Radke was formerly the President of Select Re.
PXRE also purchases catastrophe retrocessional coverage for its own
protection, depending on market conditions. PXRE significantly increased its
purchases of such coverage in 1998 and 1999 in light of the continued general
deterioration in catastrophe reinsurance pricing and the opportunity to buy
protection at more favorable terms than in previous years.
HISTORY
PXRE Delaware was organized in July 1986 by Phoenix Home Life Mutual
Insurance Company ("Phoenix Home Life") to succeed, through PXRE Reinsurance, to
the property and casualty reinsurance business carried on since 1982 by Phoenix
General Insurance Company, formerly a wholly-owned subsidiary of Phoenix Home
Life. As of February 29, 2000, Phoenix Home Life owned 1,131,700 PXRE common
shares.
-5-
In November 1993, PXRE Delaware sponsored the initial public offering
of Transnational Re Corporation ("TREX") to raise capital and take advantage of
favorable conditions in the worldwide retrocessional reinsurance market. PXRE
Delaware, through PXRE Reinsurance, retained a 21% ownership position in TREX
and had responsibility for the day-to-day operations of TREX, including all the
reinsurance operations of its subsidiary, Transnational Reinsurance Company
("Transnational Reinsurance").
On December 11, 1996, TREX merged into PXRE Delaware (the "Merger"),
and each share of common stock of TREX was converted into the right to receive
1.0575 shares of PXRE Delaware common stock. Following the Merger, Transnational
Reinsurance became a wholly-owned subsidiary of PXRE Reinsurance and was
re-named Transnational Insurance Company. The Merger has been accounted for
using the purchase method of accounting; therefore net income of TREX (including
Transnational Reinsurance/Transnational Insurance) has been included in PXRE
Delaware's consolidated results of operations from the date of the Merger.
In December 1996, PXRE Delaware completed the organization of PXRE
Managing Agency and PXRE Lloyd's Syndicate, thereby establishing a direct
presence in the Lloyd's market. In 1999, PXRE Managing Agency expanded its
operations to managing for a fee other syndicates at Lloyd's.
In June 1998, PXRE Delaware added direct writing and international
teams, composed of eight direct writing reinsurance professionals and three
international reinsurance executives, respectively. The direct writing team
operates as the Direct Treaty Division of PXRE Reinsurance which provides
reinsurance on a direct basis (directly with the primary company) primarily on
casualty and, to a lesser extent, non-catastrophe type property business.
-6-
The international team's focus is property and casualty reinsurance in
the brokerage market. Subsequently in 1998, PXRE Delaware further strengthened
its Direct Treaty Division, and has also strengthened PXRE Managing Agency with
the recruitment of additional reinsurance professionals.
In mid 1999, PXRE Reinsurance formed a finite reinsurance unit to
provide structured/finite coverages combining elements of risk transfer and
managing the impact of such risks on a cedent's financial statements and cash
flow.
On October 5, 1999, PXRE Delaware completed a reorganization that
resulted in the Company becoming the ultimate parent holding company of PXRE
Delaware. The reorganization also involved the establishment of PXRE Bermuda,
a Bermuda based reinsurance company, operations in Barbados through PXRE
(Barbados) Ltd., and PXRE Solutions, a reinsurance intermediary.
RATINGS
PXRE Reinsurance is rated "A" (Excellent) by A.M. Best Company ("A.M.
Best"), an independent insurance industry rating organization. Transnational
Insurance also is rated "A" (Excellent) by A.M. Best. PXRE Bermuda is not
rated by A.M. Best, although it and PXRE Reinsurance and Transnational
Insurance have been assigned an A+ financial strength rating by Standard &
Poor's Corporation ("S&P"). PXRE Lloyd's Syndicate enjoys the benefit of ratings
of Lloyd's, which has been rated "A" (Excellent) by A.M. Best and has been
assigned an A+ financial strength rating by S&P. These ratings are based upon
factors that may be of concern to policyholders, agents and intermediaries, but
may not reflect the considerations applicable to an investment in a reinsurance
or insurance company. A change in any such rating is at the discretion of the
respective rating agencies.
-7-
GENERAL
Reinsurance is an arrangement in which a reinsurer agrees to indemnify
a primary insurer or another reinsurer (also known as a ceding company) against
all or a portion of the insurance risks underwritten by the ceding company under
one or more insurance contracts. Reinsurance can provide a ceding company with
several benefits, including a reduction in exposure on individual risks,
protection against catastrophic losses and assistance in maintaining acceptable
financial ratios. Reinsurance, however, does not legally discharge the ceding
company from its liability to policyholders.
There are two basic types of reinsurance arrangements: treaty and
facultative reinsurance. In treaty reinsurance, the reinsurer and the ceding
company negotiate a contractual arrangement which reinsures a specified portion
of a type or category of risk. Treaty reinsurers, including PXRE, do not
separately evaluate each individual risk assumed, and, consequently, after a
review of the ceding company's underwriting practices, are largely dependent on
the original underwriting decisions made by the ceding company. Such dependence
subjects reinsurers in general, including PXRE, to the risk that the primary
insurer has not adequately determined the risks to be reinsured and,
accordingly, that the premium ceded to the reinsurer in connection therewith may
not adequately compensate the reinsurer for the risk assumed. Treaty reinsurance
contributed approximately 97.4% of PXRE's gross premiums written in 1999.
Treaty reinsurance can be written on either a pro rata basis or an
excess of loss basis. In pro rata reinsurance, the reinsurer agrees, in return
for a percentage of the premiums, to share in a proportional amount of the
losses up to the limit, if any, of the reinsurance agreement. Premiums that the
ceding company pays to the reinsurer are proportional to the premiums that the
ceding company receives, and the reinsurer generally pays the ceding company a
ceding commission to reimburse the ceding company for the expenses incurred in
obtaining the business. In excess of loss treaty reinsurance, the reinsurer
indemnifies the ceding company for a portion of the losses and expenses on
underlying policies which exceed a specified dollar amount (known as the ceding
company's retention or the reinsurer's attachment point) generally subject to a
negotiated reinsurance contract limit. Premiums paid by the ceding company for
excess of loss coverage may not be directly proportional to the premiums on the
underlying policies because the reinsurer does not assume a proportional share
of the underlying risk.
Excess of loss treaty reinsurance can, in turn, be written on a per
risk or catastrophe basis. Per risk excess of loss reinsurance protects the
ceding company against a loss resulting from a single risk or location.
Catastrophe excess of loss reinsurance protects a ceding company from an
accumulation of a large number of related losses resulting from a variety of
risks which may occur in a given catastrophe, and hence is a highly volatile
business. Catastrophe-type coverages include catastrophe coverage provided to
ceding insurance companies and retrocessional catastrophe coverage provided to
other reinsurers. Catastrophe-type coverages have represented the majority of
PXRE's net premiums written during the past three fiscal years, although they
have declined in percentage terms from 84% in 1997 to 52% in 1999. See
"Underwriting Operations."
Facultative reinsurance is the reinsurance of individual risks; rather
than an agreement to reinsure a specified portion of a type or category of risk,
the reinsurer separately rates and underwrites each risk. In some cases, risks
covered by facultative reinsurance are those excluded from coverage by treaty
reinsurance. Facultative reinsurance contributed only approximately 2.6% of
PXRE's net premiums written in 1999.
Reinsurers typically purchase reinsurance to cover their own risk
exposure. Reinsurance of a reinsurer's business is called a retrocession.
Reinsurance companies cede risks under retrocessional agreements to other
reinsurers, known as retrocessionaires, for reasons similar to those that cause
ceding companies to purchase reinsurance.
-8-
Reinsurance can be written through professional reinsurance brokers or
directly for ceding companies. From a ceding company's perspective, both the
broker market and the direct market have advantages and disadvantages. A ceding
company's decision to select one market over the other will be influenced by its
perceptions of such advantages and disadvantages relative to the reinsurance
coverage being placed. PXRE writes property and casualty treaty and property
facultative business both through professional reinsurance brokers and on a
direct basis.
UNDERWRITING OPERATIONS
PXRE, through its subsidiaries, is principally engaged in providing
treaty and facultative reinsurance to primary insurers and other reinsurers of
commercial and personal property and casualty risks. PXRE also provides marine
and aerospace reinsurance products and services. PXRE has specialized in
property reinsurance, including a strong focus on catastrophe-type products. In
mid-1998, PXRE added new reinsurance lines and expanded its capabilities in
existing areas, including establishing a direct-writing reinsurance unit to
complement its existing brokerage-based reinsurance operations and offering
excess of loss casualty products (including general liability, commercial auto
and personal auto) for casualty markets in which PXRE had not previously had a
significant presence. In late 1999, PXRE established Bermuda underwriting
operations.
PXRE operates in four reportable property and casualty segments --
catastrophe and risk excess, casualty, structured/finite business and all
other lines -- based on the Company's method of internal management reporting.
In addition, the Company operates in two geographic segments -- North American
representing North American based risks written by North American based
reinsureds and International (principally the United Kingdom, Continental
Europe, Australia and Asia) representing all other premiums written. The
reportable segments were redefined during 1999 once the platform for the
diversification strategy was largely in place. The prior year segment
information has been restated to be consistent with the 1999 segments. The
following tables present the distribution of PXRE's net premiums written, net
premiums earned and underwriting operations for the years ended December 31,
1999, 1998 and 1997:
-9-
Net Premiums Written (1)
Year Ended December 31,
1999 1998 1997
------ ------ -----
Amount Percent Amount Percent Amount Percent
---------------------------------------------------------
(in thousands, except percentages)
Catastrophe and Risk Excess
North American $ 26,704 $ 12,795 $ 21,724
International 63,957 58,595 63,154
Excess of loss cessions (18,883) (3,938) (409)
--------- --------- ---------
Subtotal 71,778 52% 67,452 76% 84,469 84%
--------- --------- ---------
Casualty
North American 13,148 650 --
International 12,851 4,433 --
--------- --------- ---------
25,999 19% 5,083 6% --
--------- --------- ---------
Structured/Finite Business
North American -- -- --
International -- -- --
--------- --------- ---------
-- -- --
--------- --------- ---------
Other Lines
North American 12,073 2,054 4,848
International 28,995 14,105 10,738
--------- --------- ---------
41,068 29% 16,159 18% 15,586 16%
--------- --- --------- --- --------- ---
Total $ 138,845 100% $ 88,694 100% $ 100,055 100%
========= === ========= === ========= ===
-10-
Net Premiums Earned (1)
Year Ended December 31,
1999 1998 1997
------ ------ -------
Amount Percent Amount Percent Amount Percent
----------------------------------------------------------------------------
(in thousands, except percentages)
Catastrophe and Risk Excess
North American $ 26,155 $ 13,561 $ 21,877
International 61,241 63,830 60,148
Excess of loss cessions (14,958) (2,869) (353)
--------- -------- --------
Subtotal 72,438 56% 74,522 81% 81,672 89%
--------- -------- --------
Casualty
North American 11,593 (152) --
International 9,794 2,207 --
--------- -------- --------
21,387 17% 2,055 2% --
--------- -------- --------
Structured/Finite Business
North American -- -- --
International -- -- --
--------- -------- --------
-- -- --
--------- -------- --------
Other Lines
North American 11,296 3,234 5,650
International 23,383 12,575 4,093
--------- -------- --------
34,679 27% 15,809 17% 9,743 11%
--------- --- -------- --- -------- ---
Total $ 128,504 100% $ 92,386 100% $ 91,415 100%
========= === ======== === ======== ===
-11-
Underwriting Operations (2)
Year Ended December 31,
1999 1998 1997
------ ------ -------
Amount Percent Amount Percent Amount Percent
----------------------------------------------------------------------------
(in thousands, except percentages)
Catastrophe and Risk Excess
North American $ (31,591) $ 6,970 $ 13,655
International (32,039) 7,081 48,197
Excess of loss cessions 15,476 8,372 2,407
--------- -------- --------
Subtotal (48,154) 87% 22,423 141% 64,259 102%
--------- -------- --------
Casualty
North American (279) (409) --
International (242) 87 --
--------- -------- --------
(521) 1% (322) (2)% --
--------- -------- --------
Structured/Finite Business
North American -- -- --
International 411 -- --
--------- -------- --------
411 (1)% -- -- --
--------- -------- --------
Other Lines
North American (715) (1,442) (2,075)
International (6,166) (4,794) 573
--------- -------- --------
(6,881) 13% (6,236) (39)% (1,502) (2)%
--------- --- -------- --- -------- ---
Total $ (55,145) 100% $ 15,865 100% $ 62,757 100%
========= === ======== === ======== ===
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(1) Premiums written and earned are expressed on a net basis (after
deduction for ceded reinsurance premiums) to reflect more accurately
business written for PXRE's own account.
(2) Underwriting operations include premiums earned, losses incurred and
commission and brokerage net of management fees, but do not include
investment income, realized gains or losses, interest expense,
operating expenses, unrealized foreign exchange gains or losses on
losses incurred or management fees on weather contracts.
-12-
The catastrophe and risk excess portfolio consists principally of
property catastrophe excess of loss, property retrocessional, property risk
excess, property London Market Excess ("LMX") and marine and aerospace excess
reinsurance coverages. This portfolio can be characterized on a longer term
basis as being comprised of coverages involving higher margins and greater
volatility than other coverages written by the Company. In 1999, $90,661,000 of
net premiums written were attributable to the catastrophe and risk excess
portfolio, or $71,778,000 net of excess of loss retrocessional reinsurance ceded
to other reinsurers. Over the periods indicated pricing and other coverage terms
deteriorated and in response PXRE moved to layers of risk less affected by
competitive pressures, or reduced commitments. Notwithstanding these moves, in
1999 this portfolio produced an underwriting loss of $48,154,000 as a
consequence of major events. In contrast, this portfolio produced underwriting
profits of $22,423,000 and $64,259,000 in 1998 and 1997, respectively. The
increase in premium volume for catastrophe and risk excess coverages in 1999 was
attributable to reinstatement premiums on 1999 catastrophe activity, offset, in
part, by the purchase of increased amounts of retrocessional protection. The
exposures underlying the North American portion of this portfolio emanate from
East Coast and Gulf hurricanes, Midwest and West Coast earthquakes, major oil
rig explosions, cruise ship disasters, satellite failures, commercial airplane
crashes and similar risks. The exposures underlying the International portion of
this portfolio emanate from European, Japanese and Carribbean windstorm, flood
and earthquake.
The casualty portfolio consists principally of North American general
liability, commercial and personal auto liability risk excess and other
liability coverages and International pro rata casualty coverages. This
portfolio can be characterized on a longer term basis as being comprised of
coverages involving lower margins and less volatility than the Company's
catastrophe and risk excess portfolio. Casualty accounted for $25,999,000 of net
premiums written in 1999, split approximately equally between the Company's
North American and International geographical segments. Premiums written in 1999
represented a substantial increase over 1998, when PXRE entered the market in
the latter half of the year. In 1999, the casualty portfolio produced an
underwriting loss of $521,000 before investment income, realized gains and
losses and overhead expenses.
PXRE entered the structured/finite business in the latter part of 1999
with products combining elements of risk transfer and managing the impact of
such risk on a cedent's financial statements and cash flow. Premiums in this
segment are expected to vary widely from period to period.
PXRE's other lines portfolio consists of many different coverages,
principally accident and health coverages, of which North American and
International accounted for $6,980,000 and $13,324,000, respectively, of net
premiums written in 1999, property pro rata business and binding and lineslip
authorities written through PXRE Lloyd's Syndicate. The Company's other lines
portfolio produced a North American underwriting loss of $715,000 and
International underwriting loss of $6,166,000, up modestly in the aggregate from
1998.
See Note 10 of Notes to Consolidated Financial Statements for
additional information regarding PXRE's reportable segments and geographic
areas.
PXRE's treaty underwriting process emphasizes a team approach among the
Company's underwriters, actuaries and claims staff. Treaties are reviewed for
compliance with PXRE's general underwriting standards and certain treaties are
evaluated in part based upon actuarial analyses conducted by the Company. PXRE's
facultative underwriters operate within guidelines specifying acceptable types
of risks, limits and maximum risk exposure. The Company manages its risk of loss
through a combination of aggregate exposure limits, underwriting guidelines that
take into account risks, prices and coverage and retrocessional agreements. As
PXRE underwrites risks from a large number of insurers based on information
generally supplied by reinsurance brokers, there is a risk of developing a
concentration of exposure to loss in certain geographic areas prone to specific
types of catastrophes. The Company has developed systems and software tools to
monitor and manage the accumulation of its exposure to such losses. Management
has established guidelines for maximum tolerable losses from a single or
multiple catastrophic event based on historical data. However, no assurance can
be given that these maximums will not be exceeded in some future catastrophe.
-13-
MARKETING
PXRE provides reinsurance for international insurance and reinsurance
companies principally headquartered in the United Kingdom, Continental Europe,
Australia and Asia. In the United States, PXRE currently reinsures both national
and regional insurance and reinsurance companies and specialty insurance
companies.
Historically, PXRE has obtained most of its facultative and
substantially all of its treaty reinsurance business through reinsurance
intermediaries which represent reinsureds in negotiations for the purchase of
reinsurance. None of the reinsurance intermediaries through which PXRE obtains
this business are authorized to arrange any business in the name of PXRE without
PXRE's approval. PXRE pays such intermediaries or brokers commissions based on
the amount of premiums and type of business ceded. These payments constitute
part of PXRE's total acquisition costs and are included in its underwriting
expenses. PXRE generally pays reinsurance brokerage fees believed to be
comparable to industry norms.
Approximately 19.1%, 10.7% and 13.2% of gross premiums written in
fiscal year 1999 were arranged through the worldwide branch offices of Aon Group
Ltd., Guy Carpenter & Company, Inc. (subsidiary of Marsh & McLennan Companies,
Inc.) and Benfield Greig Ltd., respectively. The commissions paid by PXRE to
these intermediaries are generally at the same rates as those paid to other
intermediaries.
In mid-1998 PXRE established a U.S. based direct writing reinsurance
unit to complement its existing brokerage-based reinsurance operations.
Approximately 88.1% and 11.9% of PXRE's 1999 net premiums written were written
in the broker and direct markets, respectively. PXRE's U.S. based direct
writings are comprised principally of casualty business. PXRE's ability to write
reinsurance both through brokers and directly with ceding companies gives it the
flexibility to pursue business regardless of the ceding company's preferred
reinsurance purchasing method.
COMPETITION
Competitive forces in the property and casualty reinsurance and
insurance business are substantial. PXRE operates in a reinsurance industry
which is highly competitive and is undergoing a variety of challenging
developments. The industry has in recent years moved toward greater
consolidation as ceding companies have placed increased importance on size and
financial strength in the selection of reinsurers. Additionally, reinsurers are
tapping new markets and complementing their range of traditional reinsurance
products with innovative new products which bring together capital markets and
reinsurance experience. PXRE competes with numerous major reinsurance and
insurance companies. These competitors, many of which have substantially
greater financial, marketing and management resources than PXRE, include
independent reinsurance companies, subsidiaries or affiliates of established
worldwide insurance companies, reinsurance departments of certain commercial
insurance companies, and underwriting syndicates. PXRE also may face competition
from new market entrants or from market participants that determine to devote
greater amounts of capital to the types of business written by PXRE.
Although PXRE historically has obtained most of its facultative and
substantially all of its treaty reinsurance business through reinsurance
intermediaries or brokers, it competes indirectly with reinsurers who obtain
business directly from primary insurers because PXRE's brokers must compete with
direct reinsurers for business to be forwarded to PXRE. PXRE's recently
established direct writing reinsurance unit competes directly with other direct
reinsurers. PXRE therefore competes both with reinsurers that obtain business
directly from reinsureds and with reinsurers that obtain their business through
intermediaries and brokers.
Competition in the types of reinsurance business which PXRE underwrites
is based on many factors, including the perceived overall financial strength of
the reinsurers, premiums charged, other terms and conditions,
-14-
ratings of A.M. Best, S&P and Moody's Investors Service, Inc. ("Moody's"),
service offered, speed of service (including claims payment), and perceived
technical ability and experience of staff. The number of jurisdictions in which
a reinsurer is licensed or authorized to do business is also a factor. PXRE
Reinsurance is licensed, accredited, or otherwise authorized or permitted to
conduct reinsurance business in all states (except Arkansas, Minnesota, Oklahoma
and Washington) and the District of Columbia, Puerto Rico, Columbia and Mexico,
and PXRE's Brussels Branch operates from Belgium. PXRE Bermuda is licensed to
do business only in Bermuda.
RETROCESSIONAL AGREEMENTS
The following table sets forth certain information regarding the volume
of premiums PXRE has ceded to other reinsurers pursuant to retrocessional
agreements for the periods indicated:
Year Ended December 31,
-----------------------------------------
1999 1998 1997
(in thousands)
Gross premiums written $221,349 $136,215 $126,232
Reinsurance premiums ceded:
Managed business participants 42,549 21,542 16,534
Catastrophe coverage and other
reinsurance 39,955 25,979 9,643
Total reinsurance premiums
ceded 82,504 47,521 26,177
-------- -------- --------
Net premiums written $138,845 $ 88,694 $100,055
======== ======== ========
PXRE has been able to increase its underwriting commitments and to
generate management fee income by retroceding some of its underwritten risks to
other reinsurers through various retrocessional arrangements whereby it manages
business for such participants. In 1999, PXRE was a party to three such
arrangements. The first such arrangement, which is subject to renewal each
January 1 and which has been renewed effective January 1, 2000, is referred to
as the AMA. The AMA is a pool consisting of a number of insurance companies (the
"Pool"), for which PXRE acts as reinsurance manager. In 1999, the Pool was
comprised of Merrimack Mutual Fire Insurance Company, Pennsylvania Lumbermens
Mutual Insurance Company, NRMA Insurance Limited, Auto-Owners Insurance Company
and the Kyoei Mutual Fire & Marine Insurance Company. It is PXRE's policy that
in order to join the Pool, companies must have a rating by A.M. Best of "A-" or
better, other than foreign companies, most of which (including the foreign
participants in the AMA) are not rated by A.M. Best. Under the terms of the
agreements governing the Pool, if a participating company's rating falls below
"A-", it generally will be required to withdraw from the Pool in the following
year. PXRE receives, as reinsurance manager, a commission based on premiums
ceded, as well as a contingent profit commission equal to a percentage of any
ultimate underwriting profits in connection with the reinsurance ceded. The
contingent profit commission is paid after a three-year period and is subject to
adjustment based on cumulative experience.
The second such retrocessional arrangement, which was not renewed upon
its expiration December 31, 1999, was with Trenwick America Reinsurance
Corporation ("Trenwick Group"). Under this arrangement PXRE receives, as
reinsurance manager, a management fee based on premiums ceded, as well as a
contingent profit commission equal to a percentage of any ultimate underwriting
profits in connection with the reinsurance ceded. The contingent profit
commission is paid after a three-year period and is subject to adjustment based
on cumulative experience. Trenwick Group is currently rated "A" (Excellent) by
A.M. Best.
-15-
The third such retrocessional arrangement is with Select Re. This
arrangement involves a multi-year fee based undertaking by PXRE through the year
ending December 31, 2003 to produce and underwrite business with Select Re. The
undertaking, which is subject to adjustment based on Select Re's shareholders'
equity, was approximately $29.5 million in aggregate premium for 1999. PXRE
receives an override commission on premiums ceded to Select Re. Because Select
Re is not licensed in any jurisdiction in the United States, the retrocessional
arrangement provides that a trust fund and/or letter of credit be established by
Select Re for the benefit of PXRE to secure Select Re's obligations. Net assets
due from Select Re at December 31, 1999 of $14,932,000 is secured by a trust
agreement and letter of credit. As previously discussed, the Chief Executive
Officer and an Executive Officer of PXRE are on the Board of Directors and are
shareholders of Select Re. The Chief Executive Officer of PXRE is Co-Vice
Chairman of Select Re and the Executive Officer of PXRE was formerly the
President of Select Re.
The following table sets forth PXRE's earned commissions from
retrocessionaires pursuant to its three managed business arrangements for the
periods indicated:
Year Ended December 31,
------------------------------------------
1999 1998 1997
--------- ---------- ---------
(in thousands)
Commission $3,851 $2,247 $ 879
Contingent profit commission(1) (761) (75) 2,127
------ ------ ------
Total $3,090 $2,172 $3,006
====== ====== ======
- -------------------
(1) Contingent profit commission is paid after a three-year period and is
subject to adjustment based on cumulative experience under the AMA and
Trenwick Group arrangements and prior to 1998 under the arrangement with
Select Re.
PXRE also purchases catastrophe retrocessional coverage for its own
protection, depending on market conditions. PXRE significantly increased its
purchases of such coverage in 1998 and 1999. In 1999 and 1998, catastrophe and
other reinsurance ceded premiums written increased due to additional coverage
associated with new operations and to opportunistic purchases of catastrophe
retrocessional protection. Certain business fronted on behalf of other
reinsurers also contributed to the 1999 increase in catastrophe and other
reinsurance ceded premiums written. PXRE's property business is protected by a
series of retrocessional agreements which currently provide protection
principally against unusual severity of loss and are not designed to protect
PXRE's exposure to smaller, more frequent loss occurrences.
PXRE has a committee consisting of its chief executive officer and
senior underwriting executives responsible for the selection of reinsurers as
managed business participants or as participating reinsurers in the catastrophe
coverage protecting PXRE. Proposed reinsurers are evaluated at least annually
based on consideration of a number of factors including the management,
financial statements and the historical experience of the reinsurer. This
procedure is followed whether or not a rating has been assigned to a proposed
reinsurer by any rating organization. All reinsurers, whether obtained through
direct contact or the use of reinsurance intermediaries, are subject to approval
by PXRE.
At December 31, 1999, estimated losses recoverable (including incurred
but not reported losses ("IBNR")) from retrocessionaires were $106,702,000
including $5,667,000 of paid loss recoverables. Although management carefully
selects its retrocessionaires, PXRE is subject to credit risk with respect to
its retrocessions because the ceding of risk to retrocessionaires does not
relieve the Company of its liability to ceding companies.
LOSS LIABILITIES AND CLAIMS
PXRE establishes loss and loss expense liabilities (to cover expenses
related to settling claims, including legal and other fees) to provide for the
ultimate cost of settlement and administration of claims for losses, including
claims that have been reported to it by its reinsureds and claims for losses
that have occurred but have not yet been
-16-
reported to PXRE. Under United States generally accepted accounting principles
("GAAP"), PXRE is not permitted to establish loss reserves until an event which
may give rise to a claim occurs.
For reported losses, PXRE establishes liabilities when it receives
notice of the claim. It is PXRE's general policy to establish liabilities for
reported losses in an amount equal to the liability set by the reinsured. In
certain instances, PXRE will conduct an investigation to determine if the amount
established by the reinsured is appropriate or if it should be adjusted.
For incurred but not reported losses, a variety of methods have been
developed in the insurance industry for use in determining such liabilities. In
general, these methods involve the extrapolation of reported loss data to
estimate ultimate losses. PXRE's loss calculation methods generally rely upon a
projection of ultimate losses based upon the historical patterns of reported
loss development. Additionally, PXRE makes provision through its liabilities for
incurred but not reported losses for any identified deficiencies in the
liabilities for reported losses set by its reinsureds.
PXRE's management believes that its overall liability for losses and
loss expenses maintained as of December 31, 1999 is adequate. Because of the
inherent uncertainty in the reserving process, however, there is a risk that
PXRE's liability for losses and loss expenses could prove to be greater than
expected in any year, with a consequent adverse impact on future earnings and
shareholders' equity. Estimating the ultimate liability for losses and loss
expenses is an imprecise science subject to variables that are influenced by
both internal and external factors. Historically, PXRE has focused on property
related coverages. In contrast to casualty losses, which frequently are slow to
be reported and may be determined only through the lengthy, unpredictable
process of litigation, property losses tend to be reported more promptly and
usually are settled within a shorter time period. However, the estimation of
losses for catastrophe reinsurers is inherently less reliable than for
reinsurers of risks which have an established historical pattern of losses. In
addition, insured events which occur near the end of a reporting period, as well
as, with respect to PXRE's retrocessional book of business, the significant
delay in losses being reported to insurance carriers, reinsurers and finally
retrocessionaires, require PXRE to make estimates of losses based on limited
information from ceding companies and based on its own underwriting data.
Although historically PXRE has written a small amount of casualty
reinsurance, in 1998 PXRE began underwriting new casualty lines of business and
PXRE substantially expanded its casualty business in 1999. With respect to
casualty business, significant delay, ranging up to several years or more, can
be expected between the reporting of a loss to PXRE and the settlement of PXRE's
liability for that loss. As a result, such future claim settlements could be
influenced by changing rates of inflation and other economic conditions,
changing legislative, judicial and social environments and changes in PXRE's
claims handling procedures. While the reserving process is difficult and
subjective for ceding companies, the inherent uncertainties of estimating such
reserves are even greater for a reinsurer, due primarily to the longer time
between the date of the occurrence and the reporting of any attendant claims to
the reinsurer, the diversity of development patterns among different types of
reinsurance treaties or facultative contracts, the necessary reliance on the
ceding companies for information regarding reported claims and differing
reserving practices among ceding companies.
-17-
PXRE's difficulty in accurately predicting casualty losses may also be
exacerbated by the limited amount of statistically significant historical data
regarding losses on PXRE's new casualty lines of business. PXRE must therefore
rely on the inherently less reliable historical loss patterns reported by ceding
companies and industry loss standards in calculating its casualty reserves.
Thus, the actual casualty losses and loss expenses may deviate, perhaps
substantially, from estimates of liabilities reflected in PXRE's consolidated
financial statements.
The following table provides a reconciliation of beginning and ending
loss and loss expense liabilities under GAAP for the fiscal years ended December
31, 1999, 1998 and 1997. PXRE does not discount such liabilities; that is, it
does not calculate them on a present value basis.
Year Ended December 31,
1999 1998 1997
-------- -------- --------
(in thousands)
Gross GAAP liability for losses and
loss expenses at beginning of year................................. $ 102,592 $ 57,189 $ 70,978
Add: Gross provision for losses and loss expenses--
Occurring in current year.......................................... 200,132 94,003 19,344
Occurring in prior years........................................... 57,129 90 (4,721)
-------- -------- --------
Total gross provision(1)......................................... 257,261 94,093 14,623
-------- -------- --------
Less: Gross payments for losses and loss expenses--
Occurring in current year.......................................... 17,508 19,582 4,705
Occurring in prior years........................................... 80,794 29,108 23,707
-------- -------- --------
Total gross payments............................................. 98,302 48,690 28,412
-------- -------- --------
Gross GAAP liability for losses
and loss expenses at end of year................................... $ 261,551 $102,592 $ 57,189
========= ======== ========
Ceded GAAP liability for losses
and loss expenses at end of year................................... (101,035) (33,350) (12,734)
-------- -------- --------
Net GAAP liability for losses
and loss expenses at end of year................................... $ 160,516 $ 69,242 $ 44,455
========= ======== ========
Foreign currency adjustment.......................................... 249 (193) 482
========= ======== ========
Gross SAP liability for losses and
loss expenses at end of year(2).................................... $ 261,800 $102,399 $ 57,671
========= ======== ========
- ----------------
(1) The GAAP provision for losses and loss expenses includes net foreign
currency exchange (losses) gains of $442,000, ($675,000) and $627,000 for
1999, 1998 and 1997, respectively.
(2) SAP is U.S. statutory accounting principles.
The following table presents the development of PXRE's GAAP balance
sheet liability for losses and loss expenses for the period 1989 through 1999.
The top line of the table shows the liabilities at the balance sheet date for
each of the indicated years. This reflects the estimated amount of losses and
loss expenses for claims arising in that year and all prior years that are
unpaid at the balance sheet date, including losses incurred but not yet
reported to PXRE. The upper portion of the table shows the cumulative amounts
subsequently paid as of successive years with respect to the liability. The
lower portion of the table shows the reestimated amount of previously recorded
liability based on experience as of the end of each succeeding year. The
estimates change as more information becomes known about the frequency and
severity of claims for individual years. A redundancy (deficiency) exists when
the reestimated liability at each December 31 is less (greater) than the prior
liability estimate. The "cumulative redundancy (deficiency)" depicted in the
table, for any particular calendar year, represents the aggregate change in the
initial estimates over all subsequent calendar years.
Each amount in the table below includes the effects of all changes in
amounts for prior periods. For example, if a loss determined in 1992 to be
$150,000 was first reserved in 1989 at $100,000, the $50,000 deficiency (actual
loss minus original estimate) would be included in the cumulative redundancy
(deficiency) in each of the years 1989-1991 shown below. This table does not
present accident or policy year development data.
-18-
Loss and loss expense liabilities for fiscal years 1991 through 1999
are presented on a gross basis (excluding the effects of losses recoverable from
retrocessionaires). Loss and loss expense liabilities for December 31, 1990 and
prior periods are stated on a net basis (after deduction for losses recoverable
from retrocessionaires) because gross incurred but not reported liability data
were not developed by PXRE at any date prior to December 31, 1991 as it was not
required for reporting purposes. Furthermore, it is not practicable for PXRE
currently to reconstruct this information.
-19-
Year Ended December 31,
-------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
------- ------- ------- ------ ------ ------ ------ ------ ------ ------ ------
(in thousands, except percentages)
Liabilities for losses and
loss expenses................. $261,551 $102,592 $57,189 $61,389 $72,719 $81,836 $71,442 $88,668 $62,664 $31,632 $37,963
Cumulative amount of
liability paid through:
One year later................ 75,814 29,108 23,708 42,698 41,601 37,820 59,773 35,575 15,688 18,421
Two years later............... 39,853 40,673 55,620 58,968 54,400 79,926 48,393 25,466 28,178
Three years later............. 46,545 67,296 67,630 60,850 89,519 52,301 29,066 31,852
Four years later.............. 70,676 76,762 64,566 94,261 55,022 30,117 33,980
Five years later.............. 79,433 69,414 96,895 56,976 31,528 34,434
Six years later............... 70,392 99,864 58,822 32,137 35,408
Seven years later............. 100,724 61,235 33,202 36,003
Eight years later............. 62,130 33,624 36,980
Nine years later.............. 33,956 37,301
Ten years later............... 37,485
Liabilities reestimated as of:
One year later................ 135,227 57,280 66,257 83,228 87,818 78,188 101,423 67,165 33,874 37,211
Two years later............... 55,271 63,292 85,162 87,750 76,902 103,632 62,262 33,726 37,800
Three years later............. 61,178 83,178 90,409 74,683 105,165 62,827 33,488 36,588
Four years later.............. 82,129 89,284 75,392 103,801 63,032 33,682 36,881
Five years later.............. 88,326 74,880 104,330 62,593 34,310 37,023
Six years later............... 74,173 104,222 63,632 33,777 37,667
Seven years later............. 103,854 63,792 34,714 37,166
Eight years later............. 63,633 34,815 37,998
Nine years later.............. 34,777 38,124
Ten years later............... 38,084
Gross reserves of TREX at date
of merger..................... 9,589 5,242 2,067 26
Gross reserves for elimination
of one quarter lag for
U.K. subsidiary............... (1,191)
Gross cumulative redundancy
(deficiency) through
December 31, 1999:
Amount........................ (33,826) 1,918 9,800 (4,168) (4,423) (2,705) (15,186) (969) NA NA
Percentage.................... (33%) 3% 14% (5%) (5%) (4%) (17%) (2%) NA NA
Retrocessional recoveries....... 14,045 (749) (1,517) 6,796 2,500 726 2,689 1,936 NA NA
Net cumulative redundancy
(deficiency) through
December 31, 1999:
------- ----- ------ ------ ------ ------ ------ ----- ------ -----
Amount....................... (19,781) 1,169 8,283 2,628 (1,923) (1,979) (12,497) (2,905) (3,145) (111)
Percentage................... (29%) 3% 15% 5% (4%) (5%) (35%) (8%) (10%) 0%
-20-
During 1999, PXRE incurred development from prior year losses amounting
to $19,781,000 net as a result of changes in estimates of insured events in
prior years, primarily Hurricanes Georges and Mitch and accident and health and
facultative reserve strengthening in PXRE Lloyd's Syndicate.
During 1998, PXRE experienced savings of $532,000 net, for prior year
losses and loss expenses primarily related to the triggering of a retrocessional
recovery on a 1994 aviation loss offset in part by adverse development due to
the 1997 German, Polish and Czech floods.
During 1997, PXRE experienced savings of $3,917,000 net, for prior-year
losses and loss expenses primarily related to the Eurotunnel fire and Hurricane
Fran where redundant reserves were recognized in 1997 of approximately
$1,644,000 and $1,440,000, respectively. In addition, included in the savings of
$3,917,000 were prior-year losses originally thought to have triggered market
loss coverage thresholds which proved to be redundant by approximately
$1,800,000 offset, in part, by development on prior-year facultative losses.
During 1996, PXRE incurred development from prior year losses amounting
to $3,249,000 primarily due to Hurricanes Marilyn and Luis. During 1995, PXRE
incurred development from prior year losses amounting to $4,311,000 primarily as
a result of losses from the Northridge earthquake. During 1994, PXRE incurred
development from prior year losses amounting to $3,261,000 primarily as a result
of marine pro rata losses and 1993 Midwest flood activity. During 1993, PXRE's
management strengthened the liability for incurred but not reported losses
occurring in prior years by $10,499,000, of which approximately $5,394,000 was
the result of additional information received with respect to Hurricanes Andrew
and Iniki and approximately $3,330,000 was the result of losses under a number
of pro rata reinsurance treaties. During 1992, PXRE's management strengthened
the liability for incurred but not reported losses occurring in prior years by
$2,355,000 of which $2,036,000 was the result of additional information received
with respect to losses under a number of pro rata reinsurance treaties. In 1991,
PXRE's management strengthened the liability for losses and loss expenses
occurring in prior years by $2,242,000, of which $1,196,000 was due to
unfavorable development experienced on PXRE's marine and aerospace reinsurance
business. PXRE commenced writing marine and aerospace reinsurance in 1988 and
estimated the amounts of losses and loss expenses for claims on such business
during 1988 and subsequent periods based on cumulative experience as of such
time. As more information became available, prior estimates were revised.
Approximately $740,000 of the balance of the liability strengthening in 1991 was
attributable to changes in 1991 in the loss amounts applicable to catastrophes
which occurred in 1989 and 1990, years impacted by high levels of catastrophe
loss activity.
Management of PXRE believes that the cumulative reserve redundancies in
1995, 1996 and 1997 demonstrated by the above table, and that the strengthening
of reserves in 1989-1994 and 1998, is attributable to the factors described
above and not to any material changes in reserving methods or assumptions.
-21-
Conditions and trends that have affected reserve development in the
past may not necessarily occur in the future. Accordingly, it would not be
appropriate to extrapolate future redundancies or deficiencies based on the
foregoing.
INVESTMENTS
PXRE's management has established general procedures and guidelines for
its investment portfolio and oversees investment management carried out by
Phoenix Investment Partners, Limited (formerly Phoenix Duff & Phelps
Corporation), a public majority-owned subsidiary of Phoenix Home Life, and by
Mariner Investment Group, Inc. ("Mariner") the sole shareholder of which is the
Chairman of the Board and a founding shareholder of Select Re. PXRE's invested
assets consist primarily of fixed maturities and limited partnerships, but also
include equities, real estate investment trusts ("REITS") and short-term
investments. PXRE's investments are subject to market-wide risks and
fluctuations, as well as to risk inherent in particular securities. As at
December 31, 1999, PXRE had $26,214,000 in equity securities (at cost) and
$93,147,000 in various limited partnerships (at cost). The limited partnerships
primarily include a fund of funds investing in a multiple number of hedge
strategies. Short-term investments includes one limited partnership which
invests primarily in marketable fixed income securities and provides for fund
withdrawals upon 30 days' notice. Limited partnership investments are accounted
for under the equity method, whereby both the investment income and any change
in the market value are recorded through the investment income line of the
income statement. Included in investments in limited partnerships are
investments (at cost) aggregating $55,517,000 in various limited partnerships
affiliated with Mariner, including an investment of $17,517,000 in Mariner
Select, L.P., which provided approximately $10,618,000 of investment income for
PXRE in 1999. See Note 3 of Notes to Consolidated Financial Statements. The
investment policies of PXRE stress conservation of principal, diversification of
risk and liquidity.
-22-
The following table summarizes the investments of PXRE at December 31,
1999 and 1998:
ANALYSIS OF INVESTMENTS
December 31, 1999 December 31, 1998
----------------------------- ---------------------------
Amount Percent Amount Percent
------ ------- ------ -------
(in thousands, except percentages)
Fixed maturities (at amortized cost):
United States government securities $104,034 21.1 $113,030 23.9
Foreign government securities 10,116 2.0 43,815 9.3
United States government agency
mortgage and asset-backed securities 25,417 5.1 1,087 0.2
Other mortgage and asset-backed
securities 69,105 14.0 43,175 9.1
Obligations of states and political
subdivisions 94,692 19.2 97,470 20.6
Public utilities, industrial and
miscellaneous securities 26,598 5.4 10,081 2.1
-------- ----- -------- ----
Total fixed maturities 329,962 66.8 308,658 65.2
Equity securities (at cost) 26,214 5.3 41,146 8.7
Short-term investments (at cost) 44,384 9.0 57,244 12.1
Limited Partnership assets (at cost) 93,147 18.9 66,588 14.0
-------- ---- -------- ----
Total investments $493,707 100 $473,636 100
======== ==== ======== ====
At December 31, 1999, the fair value of PXRE's investment portfolio
exceeded its amortized cost by $15,861,000 due to equity accounting on the
limited partnerships amounting to $25,949,000, offset in part by unrealized
depreciation on fixed maturities and equity securities amounting to $10,088,000.
At December 31, 1998, the fair value of PXRE's investment portfolio exceeded its
amortized cost by $841,000.
-23-
The following table indicates the composition of PXRE's fixed maturity
investments (at amortized cost), including short-term investments (at cost), by
time to maturity at December 31, 1999 and 1998:
COMPOSITION OF INVESTMENTS BY MATURITY
December 31, 1999 December 31, 1998
------------------ --------------------
Amount Percent Amount Percent
------ ------- ------ -------
(in thousands, except percentages)
Maturity(1)
One year or less $ 50,963 13.6 $73,955 20.2
Over 1 year through 5 years 118,566 31.7 121,627 33.2
Over 5 years through 10 years 79,630 21.3 65,077 17.8
Over 10 years through 20 years 10,659 2.8 27,777 7.6
Over 20 years 18,929 5.1 33,204 9.1
-------- ---- -------- -----
278,747 74.5 321,640 87.9
United States government agency
and other mortgage and asset-backed
securities 95,599 25.5 44,262 12.1
-------- ---- -------- ----
Total $374,346 100 $365,902 100
======== ==== ======== ====
- ------------------------
(1) Based on stated maturity dates with no prepayment assumptions.
The average market yield to maturity of PXRE's fixed maturities
portfolio at December 31, 1999 and December 31, 1998 was 6.6% and 5.9%,
respectively. At December 31, 1999, the fair value of PXRE's fixed maturities
portfolio was less than its amortized cost by $8,714,000. At December 31, 1998,
the fair value of PXRE's fixed maturities portfolio exceeded its amortized cost
by $819,000.
-24-
The following table indicates the composition of PXRE's fixed maturities
portfolio (at amortized cost), excluding short-term investments, by rating at
December 31, 1999 and 1998:
COMPOSITION OF FIXED MATURITIES PORTFOLIO BY RATING
December 31, 1999 December 31, 1998
------------------- -------------------
Amount Percent Amount Percent
------ ------- ------ -------
(in thousands, except percentages)
Ratings(1)
- -----------
United States government securities $104,034 31.5 $113,030 36.6
United States government agency
mortgage and asset-backed securities 25,416 7.7 1,087 0.4
Other mortgage and asset-backed securities
Aaa and/or AAA 57,321 17.4 34,558 11.2
Aa2 and/or AA 3,168 1.0 -- --
A2 and/or A 8,000 2.4 8,000 2.6
Baa2 and/or BBB 615 0.1 616 0.2
Obligations of states and political
subdivisions
Aaa and/or AAA 70,053 21.2 64,883 21.0
Aa2 and/or AA 24,639 7.5 32,587 10.6
Public utilities and industrial and
miscellaneous securities
Aaa and/or AAA 2,499 0.8 -- --
Aa2 and/or AA 5,871 1.8 -- --
A2 and/or A 3,379 1.0 749 0.2
Baa2 and/or BBB 4,549 1.4 4,226 1.4
Ba2 and/or BB 7,444 2.3 3,117 1.0
B2 and/or B 2,856 0.9 1,989 0.6
Foreign government securities
Baa2 and/or BBB 2,908 0.9 3,820 1.2
Ba2 and/or BB 4,873 1.5 30,196 9.8
B2 and/or B 2,337 0.6 8,618 2.8
Ca and/or CC -- -- 1,182 0.4
-------- --- -------- ---
Total $329,962 100 $308,658 100
======== === ======== ===
- ----------------------------
(1) Ratings as assigned by Moody's and S&P, respectively. Such ratings are
generally assigned upon the issuance of the securities, subject to
revision on the basis of ongoing evaluations.
PXRE's management continually evaluates the composition of the
investment portfolio and repositions the portfolio in response to market
conditions in order to improve total returns while maintaining liquidity and
superior credit quality. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources -- Market
Risk."
-25-
REGULATION
PXRE, PXRE Reinsurance and Transnational Insurance are subject to
regulation under the insurance statutes of various U.S. states, including
Connecticut, the domiciliary state of PXRE Reinsurance and Transnational
Insurance. The regulation and supervision to which PXRE Reinsurance and
Transnational Insurance are subject relate primarily to the standards of
solvency that must be met and maintained, licensing requirements for reinsurers
and insurers, the nature of and limitations on investments, restrictions on the
size of risks which may be insured, deposits of securities for the benefit of a
reinsured or insured, methods of accounting, periodic examinations of the
financial condition and affairs of reinsurers and insurers, the form and content
of reports of financial condition required to be filed, reserves for losses, and
other purposes. In general, such regulation is for the protection of the
reinsureds and policyholders, rather than investors.
In addition, PXRE, PXRE Reinsurance and Transnational Insurance are
subject to regulation by U.S. state insurance authorities under the insurance
holding company statutes of various states, including Connecticut. These laws
and regulations vary from state to state, but generally require an insurance
holding company and insurers and reinsurers that are subsidiaries of an
insurance holding company to register with the state regulatory authorities and
to file with those authorities certain reports including information concerning
their capital structure, ownership, financial condition, and general business
operations. Moreover, PXRE Reinsurance and Transnational Insurance may not enter
into certain transactions, including certain reinsurance agreements, management
agreements, and service contracts, with members of their insurance holding
company system, unless they have first notified the Connecticut Insurance
Commissioner of their intention to enter into any such transaction and the
Connecticut Insurance Commissioner has not disapproved of such transaction
within the period specified by the Connecticut insurance statute. Among other
things, such transactions are subject to the requirements that their terms be
fair and reasonable, charges or fees for services performed be reasonable and
the interests of policyholders not be adversely affected.
U.S. state laws also require prior notice or regulatory agency approval
of direct or indirect changes in control of an insurer, reinsurer, or its
holding company, and of certain significant intercorporate transfers of assets
within the holding company structure. An investor who acquires shares
representing or convertible into more than 10% of the voting power of the
securities of PXRE would become subject to at least some of such regulations,
would be subject to approval by the Connecticut Insurance Commissioner prior to
acquiring such shares, and would be required to file certain notices and reports
with the Commissioner prior to such acquisition. See "Market for Registrant's
Common Equity and Related Stockholder Matters" for a discussion of other
limitations on voting and ownership of PXRE securities contained in PXRE's
Bye-Laws.
The principal sources of cash for the payment of operating expenses and
income taxes, debt service obligations, and dividends by PXRE are the receipt of
dividends and net tax allocation payments from PXRE Reinsurance, Transnational
Insurance and PXRE Bermuda. Under the Connecticut insurance laws, the maximum
amount of dividends or other distributions that PXRE Reinsurance may declare or
pay, and that Transnational Insurance may declare or pay to PXRE Reinsurance,
within any twelve-month period, without regulatory approval, is limited to the
lesser of (a) earned surplus or (b) the greater of 10% of policyholder surplus
at December 31 of the preceding year, or 100% of net income for the twelve-month
period ended December 31 of the preceding year, all determined in accordance
with U.S. statutory accounting principles ("SAP"). Accordingly, the Connecticut
insurance laws could limit the amount of dividends available for distribution by
PXRE Reinsurance or Transnational Insurance without prior regulatory approval,
depending upon a variety of factors outside the control of PXRE, including the
frequency and severity of catastrophe and other loss events and changes in the
reinsurance market, in the insurance regulatory environment and in general
economic conditions. The maximum amount of dividends or distributions that PXRE
Reinsurance may declare and pay during 2000, without regulatory approval, is
limited to approximately $39,901,000. Transnational Insurance may not declare or
pay any dividend to PXRE Reinsurance in 2000, without regulatory approval.
During 1999, $35,525,695 in dividends were paid by PXRE Reinsurance, including
extraordinary dividends and $10,000,000 was paid by Transnational Insurance to
PXRE Reinsurance, including extraordinary dividends. In both cases authorization
was obtained from the Insurance Department of the State of Connecticut. See
below for a discussion of Bermuda dividend restrictions applicable to PXRE
Bermuda.
-26-
See also "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
Additionally, Connecticut has adopted regulations respecting certain
minimum capital requirements for property and casualty companies, based upon a
model adopted by the National Association of Insurance Commissioners (the
"NAIC"). The risk-based capital regulations provide for the use of a formula to
measure statutory capital and surplus needs based on the risk characteristics of
a company's products and investment portfolio to identify weakly capitalized
companies. As at December 31, 1999, PXRE Reinsurance's surplus and Transnational
Insurance's surplus substantially exceeded their respective calculated
risk-based capital.
In addition, from time to time various regulatory and legislative
changes have been proposed in the U.S. insurance industry, some of which could
have an effect on reinsurers and insurers. Among the proposals that have in the
past been or are at present being considered are the possible introduction of
federal regulation in addition to, or in lieu of, the current system of state
regulation of insurers, the initiative to create a federally guaranteed disaster
reinsurance pool prefunded by insurers, and proposals in various state
legislatures (some of which proposals have been enacted) to conform portions of
their insurance laws and regulations to various model acts adopted by the NAIC.
Furthermore, the NAIC has commenced a project to codify statutory accounting
practices, the result of which is expected to constitute the only source of
"prescribed" statutory accounting practices. Accordingly, that project, which is
expected to take affect in 2001, will likely change the definitions of what
constitutes prescribed versus permitted statutory accounting practices and will
likely result in changes to the accounting policies that insurance enterprises
use to prepare their statutory financial statements. The NAIC is an organization
which assists state insurance supervisory officials in achieving insurance
regulatory objectives, including the maintenance and improvement of state
regulation. See also, "Taxation of PXRE and its Subsidiaries -- Legislation"
PXRE is unable to predict what effect, if any, the foregoing developments may
have on its operations and financial condition in the future.
The NAIC's Insurance Regulatory Information System ("IRIS") was
developed by a committee of state insurance regulators and is primarily intended
to assist state insurance departments in executing their statutory mandates to
oversee the financial condition of insurance companies operating in their
respective states. IRIS identifies eleven industry ratios and specifies "usual
values" for each ratio. Departure from the usual values on four or more of the
ratios can lead to inquiries from individual state insurance commissioners as to
certain aspects of an insurer's business. For the years ended December 31, 1999,
1998 and 1997, PXRE Reinsurance's results were within the usual values for each
of the eleven ratios, except for one ratio in each of 1999 and 1998. PXRE's
management believes that the ratio fell outside the usual range in 1999 due to
the unusual level of catastrophe losses in 1999 and in 1998 due to the
substantial turmoil in global securities markets and the resulting decline in
the value of certain limited partnership investments. In 1999, Transnational
Insurance's results were within the usual values for each of the eleven ratios
except for one due to the increase in net writings arising from an intercompany
pooling agreement in 1999 with its parent PXRE Reinsurance. In 1998 one ratio
was outside the usual range due primarily to the change in net writings
associated with business written in 1994 to 1996. In 1997, two ratios were
outside the usual range, when Transnational Insurance did not write any business
and paid a dividend, including an extraordinary dividend, of $58,877,000 to PXRE
Reinsurance, affecting the change in net writings ratio and change in surplus
ratio.
PXRE Limited, PXRE Managing Agency and PXRE Lloyd's Syndicate are
subject to regulation by Lloyd's. The form of that regulation is prescribed by
the Lloyd's Act of 1982 and Lloyd's internal regulatory by-laws and directions.
The regulation and supervision to which PXRE Limited is subject relates
primarily to the maintenance of a risk based capital requirement (by way of a
deposit of securities and a letter of credit with Lloyd's to support its
underwriting) and methods of accounting. PXRE Managing Agency must satisfy a
solvency requirement, methods of accounting and periodic examinations of
compliance with Lloyd's by-laws and other purposes. PXRE Lloyd's Syndicate has
to comply with accounting regulation, internal reporting and periodic
examinations of compliance. The Lloyd's market is regulated externally by the
Financial Services Authority, although the day to day regulation of the market
remains the responsibility of the Council of Lloyd's. All invested
-27-
assets of PXRE Lloyd's Syndicate amounting to approximately $11,253,000 at
December 31, 1999, are restricted from being paid as a dividend for at least
three years.
The Insurance Act 1978 of Bermuda and related regulations
(collectively, the "Act") imposes on Bermuda insurance companies, including PXRE
Bermuda, solvency and liquidity standards and auditing and reporting
requirements and grants to the Minister of Finance powers to supervise,
investigate and intervene in the affairs of insurance companies.
The Act provides that the value of the general business assets of a
Class 3 insurer must exceed the amount of its general business liabilities by at
least the prescribed minimum solvency margin. PXRE Bermuda, as a Class 3
insurer, is required to maintain a minimum solvency margin equal to the greatest
of: (A) $1,000,000, (B) 20% of net premiums written up to $6,000,000 plus 15% of
net premiums written over $6,000,000, and (C) 15% of loss reserves. In addition,
PXRE Bermuda is prohibited from declaring or paying any dividends during any
financial year it is in breach of its minimum solvency margin or minimum
liquidity ratio or if the declaration or payment of such dividends would cause
it to fail to meet such margin or ratio (if it fails to meet its minimum
solvency margin or minimum liquidity ratio on the last day of any financial
year, the insurer will be prohibited, without the approval of the Minister, from
declaring or paying any dividends during the next financial year).
As a Class 3 insurer, PXRE Reinsurance also is prohibited, without the
approval of the Minister, from reducing by 15% or more its total statutory
capital, as set out in its previous year's financial statements, and if it
appears to the Minister that there is a risk of the insurer becoming insolvent
or that it is in breach of the Insurance Act or any conditions imposed upon its
registration, the Minister may, in addition to the restrictions specified above,
direct the insurer not to declare or pay any dividends or any other
distributions or may restrict it from making such payments to such extent as the
Minister may think fit.
The Act provides a minimum liquidity ratio for general business. An
insurer engaged in general business is required to maintain the value of its
relevant assets at not less than 75% of the amount of its relevant liabilities.
Relevant assets include cash and time deposits, quoted investments, unquoted
bonds and debentures, first liens on real estate, investment income due and
accrued, accounts and premiums receivable and reinsurance balances receivable.
There are certain categories of assets which, unless specifically permitted by
the Minister, do not automatically qualify as relevant assets such as unquoted
equity securities, investments in and advances to affiliates, real estate and
collateral loans. The relevant liabilities are total general business insurance
reserves and total other liabilities less deferred income tax and sundry
liabilities (by interpretation, those not specifically defined).
Under Bermuda law, PXRE Bermuda may not lawfully declare or pay a
dividend unless there are reasonable grounds for believing that it is, or will
after payment of the dividend be, able to pay its liabilities as they become
due, and that the realizable value of its assets will, after payment of the
dividend, be greater than the aggregate value of its liabilities, issued share
capital and share premium accounts. PXRE Bermuda is also required to maintain
statutory assets in an amount that permits it to meet the prescribed minimum
solvency margin for the net premium income level of its business from time to
time. In addition, the directors of PXRE Bermuda are, as a matter of prudence,
required to ensure that any dividend declared or paid is not of an amount that
will reduce the reserves of PXRE Bermuda to a level that is not sufficient to
meet the reserve requirements of its business.
At December 31, 1999 PXRE Bermuda's solvency and liquidity margins and
statutory capital and surplus were in excess of the minimum levels required by
Bermuda regulations.
TAXATION OF PXRE AND ITS SUBSIDIARIES
The following summary of the taxation of PXRE, PXRE Bermuda, PXRE
Barbados and PXRE's U.S. subsidiaries, including PXRE Reinsurance, Transnational
Insurance, PXRE Trading Corporation, TREX Trading Corporation, PXRE Solutions
Inc., PXRE Direct Underwriting Managers, Inc. and PXRE Underwriting Managers,
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Inc. (collectively, the "PXRE U.S. Companies") is based upon current law.
Legislative, judicial or administrative changes may be forthcoming that could
affect this summary. See, for example, "Legislation" below. Certain subsidiaries
and branch offices of PXRE are subject to taxation related to operations in the
United Kingdom and Belgium.
Bermuda
PXRE and PXRE Bermuda have each received from the Minister of Finance
an assurance under The Exempted Undertakings Tax Protection Act, 1966 of
Bermuda, to the effect that in the event of there being enacted in Bermuda any
legislation imposing tax computed on profits or income, or computed on any
capital asset, gain or appreciation, or any tax in the nature of estate duty or
inheritance tax, then the imposition of any such tax shall not be applicable to
PXRE or PXRE Bermuda or to any of their operations or the shares, debentures or
other obligations of PXRE or PXRE Bermuda until March 28, 2016. These assurances
are subject to the proviso that they are not construed so as to prevent the
application of any tax or duty to such persons as are ordinarily resident in
Bermuda (PXRE and PXRE Bermuda are not currently so designated) or to prevent
the application of any tax payable in accordance with the provisions of The Land
Tax Act of 1967 of Bermuda or otherwise payable in relation to the land leased
to PXRE or PXRE Bermuda.
Barbados
PXRE Barbados is subject to a Barbados corporation tax, assessed at a
rate of 2.5% on profits and gains of up to 10 million Barbados Dollars
(approximately U.S. $5 million), and at declining rates on profits and gains
exceeding 10 million Barbados Dollars. PXRE Barbados may elect to take a credit
in respect of taxes paid to a country other than Barbados provided that such an
election does not reduce the tax payable in Barbados to a rate less than 1% of
the profits and gains of PXRE Barbados in any income year.
United States
The PXRE U.S. Companies carry on business in, and are subject to
taxation in, the United States. PXRE believes that it and its subsidiaries,
other than the PXRE U.S. Companies, have operated and will continue to operate
their business in a manner that will not cause them to be treated as engaged in
a trade or business within the United States. Tax conventions between the United
States and Bermuda or Barbados may provide relief to PXRE Bermuda and PXRE
Barbados, respectively, if either such company is deemed to be engaged in the
conduct of a U.S. trade or business. Under the tax convention between Bermuda
and the United States (the "Bermuda Treaty"), a Bermuda company predominantly
engaged in the insurance business, such as PXRE Bermuda, is subject to U.S.
income tax on its insurance income found to be effectively connected with a U.S.
trade or business only if that trade or business is conducted through a
permanent establishment in the United States. (As a holding company that is not
predominantly engaged directly in an insurance business, PXRE Group Ltd. is not
entitled to the benefits of the Bermuda Treaty.) Similarly, under the tax
convention between Barbados and the United States (the "Barbados Treaty"), a
corporation that is a Barbados resident will not be subject to U.S. income tax
on income that is effectively connected with a U.S. business, unless such
business is conducted through a permanent establishment in the United States.
Each of PXRE Group Ltd., PXRE Bermuda and PXRE Barbados will operate under
guidelines that are intended to minimize the risk that it will be treated as
engaged in a U.S. trade or business, and each of PXRE Bermuda and PXRE Barbados
will operate under guidelines that are intended to minimize the risk that it
will be found to have a U.S. permanent establishment.
On this basis, PXRE does not expect that it and its subsidiaries,
other than the PXRE U.S. Companies, will be required to pay U.S. federal
corporate income taxes (other than withholding taxes on certain U.S. source
investment income and excise taxes on reinsurance premiums as described below).
However, irrespective of such guidelines, there can be no assurance that PXRE
Bermuda and PXRE Barbados will qualify for the Bermuda Treaty and the Barbados
Treaty, respectively, now or in the future, or that the Bermuda Treaty or the
Barbados Treaty will not be
-29-
terminated or revised in a manner that could adversely affect any protection
from U.S. corporate tax that it currently provides. In addition, because there
is uncertainty as to the activities which constitute being engaged in a trade or
business in the United States, there can be no assurances that the U.S. Internal
Revenue Service will not contend successfully that PXRE or a non-U.S. subsidiary
is engaged in a trade or business in the United States. The maximum federal tax
rates currently are 35% for a corporation's income which is effectively
connected with being engaged in a trade or business in the United States. In
addition, the U.S. branch profits tax of 30% is imposed each year on a
corporation's earnings and profits (with certain adjustments) effectively
connected with its U.S. trade or business deemed repatriated out of the United
States, for a potential maximum effective tax rate of approximately 54% on the
net business connected with a U.S. trade or business.
Foreign corporations not engaged in a trade or business in the United
States are subject to U.S. income tax, effected through withholding by the
payor, on certain "fixed or determinable annual or periodic gains, profits and
income" derived from sources within the United States as enumerated in Section
881(a) of the U.S. Internal Revenue Code (the "Code").
The United States also imposes an excise tax on insurance and
reinsurance premiums paid to foreign insurers or reinsurers with respect to
risks located in the United States. The rate of tax applicable to reinsurance
premiums paid to PXRE Bermuda is 1% of gross premiums.
Legislation
PXRE understands that certain U.S.-based insurance companies are
advocating an amendment to the Code which would impose federal income tax on a
domestic insurer which is controlled by a foreign reinsurer on the deemed
investment income on its reserves on U.S. risks ceded to one or more foreign
reinsurers. At this point, the Company is unable to predict whether this
legislative effort will be successful, what form any such legislation may
ultimately take and what impact any such legislation would have on the Company.
EMPLOYEES
PXRE employed 103 full-time employees as at December 31, 1999. None of
PXRE's employees is represented by a labor union, and management considers its
relationship with its employees to be excellent.
Bermuda based employees of PXRE, including senior management of PXRE
Group Ltd. and PXRE Bermuda, are employed pursuant to work permits granted by
Bermuda authorities. These permits expire at various times over the next few
years. The Company has no reason to believe that these permits would not be
extended at expiration upon request, although no assurance can be given in this
regard.
ITEM 2. PROPERTIES
PXRE leases a total of approximately 69,500 square feet of office space
in Hamilton, Bermuda (PXRE's corporate headquarters), Edison, New Jersey,
Norwalk, Connecticut, New York, New York, Richmond, Virginia, San Francisco,
California, London, England and Brussels, Belgium. The Hamilton, Bermuda lease,
which covers approximately 2,618 square feet of office space, was signed in 1999
and is for a term of two (2) years at a fixed annual rent of approximately
$102,000 and additional rents on account of PXRE's proportionate share of
services. The Edison, New Jersey space is comprised of (i) a 1994 lease of
approximately 24,000 square feet of office space, for a term of 15 years at a
fixed annual rent of approximately $370,000 (inclusive of basic electricity) and
additional rents on account of PXRE Corporation's proportionate share of
increases in building operating expenses and property taxes over calendar year
1994, and (ii) a November 1999 lease of approximately 24,000 square feet of
additional office space for a term of 10 years expiring on October 31, 2009 at
fixed rentals of approximately $582,000 for years 1-5 of the term and $676,000
for years 6-10 of the term, in each case plus additional rents on account of
PXRE Corporation's proportionate share of taxes and operating expenses
attributable to the building. Relatedly, in February 2000 PXRE Corporation
subleased approximately 11,000 square feet of the additional space for a three
year term ending on the
-30-
36th month next following the date that the premises are delivered to the
subtenant. The sublease provides for the subtenant to pay fixed rent to PXRE
Corporation at the rate of approximately $274,000 per annum, together with
electricity at the rate of approximately $16,500 per annum. The subtenant is
additionally required to pay its proportionate share of taxes and operating
expenses payable by PXRE Corporation under the lease.
ITEM 3. PENDING LEGAL PROCEEDINGS
PXRE is subject to litigation and arbitration in the ordinary course of
its business. Management does not believe that the eventual outcome of any such
pending litigation or arbitration is likely to have a material adverse effect on
the Company's financial condition or business. Pursuant to PXRE's insurance and
reinsurance arrangements, disputes are generally required to be finally settled
by arbitration.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a special meeting of the stockholders of PXRE Corporation on October
5, 1999, the holders of PXRE Corporation common stock approved the following:
(1) The approval and adoption of the Agreement and Plan of Merger,
dated July 7, 1999 (the "Merger Agreement") among PXRE
Corporation, PXRE Group Ltd. and PXRE Merger Corp.
Broker
Votes For Votes Against Abstentions Non-Votes
--------- ------------- ------------ ----------
Approval of the
Merger Agreement 6,989,981 2,065,714 18,941 2,549,966
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PXRE's common shares are listed on the New York Stock Exchange under
the symbol "PXT". The following table sets forth for the periods indicated the
high and low bid quotations for PXRE's common shares as reported by the New York
Stock Exchange and cash dividends per common share declared and subsequently
paid:
Bid Price
---------------
High Low Dividends
---- --- ---------
1998:
First Quarter $ 35.25 $ 29.375 $ 0.25
Second Quarter 32.875 29.00 0.25
Third Quarter 30.50 25.625 0.25
Fourth Quarter 26.688 20.625 0.26
1999:
First Quarter $ 26.25 $ 18.00 $ 0.26
Second Quarter 21.25 16.00 0.26
Third Quarter 19.0625 14.3125 0.06
Fourth Quarter 14.50 10.00 0.06
These prices represent quotations by dealers and do not include
markups, markdowns, or commissions, and do not necessarily represent actual
transactions. As of March 24, 2000, there were 11,758,174 common shares issued
and outstanding, which shares were held by approximately 90 shareholders of
record and, based on PXRE's best information, by approximately 2200 beneficial
owners of the common shares. See Notes 8 and 9 of Notes to Consolidated
Financial Statements for information with respect to shares reserved for
issuance under employee benefit and stock option plans.
The payment of dividends on the common shares is subject to the
discretion of the Board of Directors which will consider, among other factors,
PXRE's operating results, overall financial condition, capital requirements and
general business conditions. There can be no assurance that dividends will be
paid in the future.
As a holding company, PXRE is largely dependent upon dividends and net
tax allocation payments from its subsidiaries including PXRE Reinsurance,
Transnational Insurance and PXRE Bermuda, to pay dividends to PXRE's
shareholders. PXRE Reinsurance and Transnational Insurance are subject to U.S.
state laws, and PXRE Bermuda is subject to Bermuda law, that may restrict their
ability to distribute dividends. In addition, certain covenants in PXRE's bank
credit agreement may restrict PXRE's ability to pay dividends. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Business--Regulation" for
further information concerning restrictions contained in PXRE's bank credit
agreement and under U.S. and Bermuda law.
Under PXRE's Bye-Laws, subject to certain exceptions and to waiver by
PXRE's board of directors on a case by case basis, no transfer of PXRE shares is
permitted if such transfer would result in a shareholder owning, directly or
indirectly, more than 9.9% of the voting power of the outstanding shares,
including common shares, of
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PXRE or more than 9.9% of the outstanding shares of any class of PXRE's stock.
Ownership is broadly defined in PXRE's Bye-Laws.
PXRE may refuse to register any such transfer on PXRE's share transfer
records. A transferee will be permitted to promptly dispose of any PXRE shares
purchased which violate the restriction and as to the transfer of which
registration is refused. The transferor of such PXRE shares will be deemed to
own such shares for dividend, voting and reporting purposes until a transfer of
such shares has been so registered.
In addition, in the event that PXRE becomes aware of a shareholder
owning more than 9.9% of the voting power of PXRE's outstanding shares after a
transfer of shares has been registered, PXRE's Bye-Laws provide that, subject to
the same exceptions and waiver procedures, the voting rights with respect to
PXRE shares owned by any such shareholder will be limited to a voting power of
9.9%. The voting rights with respect to all shares held by such person in excess
of the 9.9% limitation will be allocated to the other holders of PXRE common
shares. Such allocation will be pro rata based on the number of PXRE common
shares held by all such other holders of PXRE common shares, subject only to the
further limitation that no shareholder allocated any such voting rights may
exceed the 9.9% limitation as a result of such allocation.
Recent Sales of Unregistered Securities (Information required by Item 701 of
Regulation S-K):
(a) On June 4, 1999, 12,000 PXRE common shares were issued.
(b) The securities were issued to the PXRE Purpose Trust in connection
with the Bermuda redomestication.
(c) The securities were issued for $12,000 and the PXRE Purpose Trust made
subsequent capital contributions, of $865,000 in respect of such
shares.
(d) Exemption from registration was claimed pursuant to Section 4(2) of the
Securities Act of 1933. There was no public offering and the
participants in the transaction were the Company and the PXRE Purpose
Trust, a trust established and funded by PXRE Corporation in connection
with that corporation's Bermuda redomestication.
(e) Not applicable.
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ITEM 6. SELECTED FINANCIAL DATA.
Year Ended December 31,
-----------------------
1999 1998 1997 1996 1995
(1)(2) (1)(2) (1)(2) (3)
------ ------- ------ ------- ------
(in thousands, except per share data and ratios)
INCOME STATEMENT DATA:
Gross premiums written $221,349 $136,215 $126,232 $114,348 $155,380
Premiums ceded (82,504) (47,521) (26,177) (46,630) (57,744)
--------- --------- --------- --------- ---------
Net premiums written 138,845 88,694 100,055 67,718 97,636
Change in unearned premiums (10,341) 3,692 (8,640) 5,078 (494)
--------- --------- ---------- ---------- ----------
Net premiums earned 128,503 92,386 91,415 72,796 97,142
Net investment income 47,173 19,612 31,191 16,782 14,730
Net realized investment (losses) gains (3,766) (3,862) 2,467 94 85
Management fees(3) 3,590 2,172 3,006 6,032 6,417
--------- --------- ---------- ---------- ----------
Total revenues 175,500 110,308 128,079 95,704 118,374
------- ------- -------- --------- --------
Losses and loss expenses incurred 159,259 57,793 12,491 18,564 34,716
Commissions and brokerage 27,703 20,563 19,138 12,874 13,251
Other operating expenses 30,052 19,313 15,716 12,262 11,237
Interest expense 3,915 1,395 3,325 6,957 7,143
Minority interest in consolidated subsidiary 8,790 8,928 8,184 -- --
-------- --------- --------- ----------- -------------
Total losses and expenses 229,719 107,992 58,854 50,657 66,347
------- ------- -------- -------- ---------
(Loss) income before income taxes, cumulative effect
of accounting change, extraordinary (54,219) 2,316 69,225 45,047 52,027
item and equity in net earnings of TREX
Equity in net earnings of TREX(3) 0 0 0 3,898 5,948
Income tax (benefit) provision (12,775) (1,206) 22,198 15,644 18,189
-------- ------- ---------- -------- --------
(Loss) income before cumulative effect of (41,444) 3,522 47,027 33,301 39,786
accounting change and extraordinary loss
Cumulative effect of accounting change, net of tax 695 -- -- -- --
Extraordinary loss on debt redemption, net of tax 0 843 2,774 -- --
--------- ------ -------- -------- --------
Net (loss) income $(42,139) $2,679 $ 44,253 $ 33,301 $ 39,786
========= ====== ======== ======== ========
Preferred stock dividend(4) 0 0 0 0 599
========= ====== ======== ======== ========
Net (loss) income available to common
stockholders $(42,139) $2,679 $ 44,253 $ 33,301 $ 39,187
========= ====== ======== ======== ========
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1999 1998 1997 1996 1995
(1)(2) (1)(2) (1)(2) (3)
------ ------- ------- ------ ------
(in thousands, except per share data and ratios)
Ratio of earnings to fixed charges(5) -- 1.09 6.59 7.15 7.90
Ratio of earnings to combined fixed charges --
and preferred dividends(5) 1.09 6.59 7.15 7.04
Basic earnings per common share:
(Loss) income before cumulative effect of
accounting change and extraordinary item $ (3.58) $ 0.26 $ 3.41 $ 3.73 $ 4.81
Cumulative effect of accounting change (0.06) -- -- -- --
Extraordinary loss -- 0.06 0.20 -- --
-------- -------- ------- ------- -------
Net (loss) income $ (3.64) $ 0.20 $ 3.21 $ 3.73 $ 4.81
======== ======= ======= ======= =======
Average common shares outstanding(3)(4) 11,568 13,339 13,776 8,922 8,150
====== ====== ======== ======= =======
Diluted earnings per common share:
(Loss) income before cumulative effect of
accounting change and extraordinary item $ (3.58) $ 0.26 $ 3.39 $ 3.69 $ 4.52
Cumulative effect of accounting change (0.06) -- -- -- --
Extraordinary loss -- 0.06 0.20 -- --
-------- -------- ------- ------- -------
Net (loss) income $ (3.64) $ 0.20 $ 3.19 $ 3.69 $ 4.52
======== ======= ======= ======= =======
Average common shares outstanding(3) 11,568 13,452 13,893 9,020 8,812
====== ====== ====== ======= ========
Cash dividends per common share $ 0.64 $ 1.01 $ 0.88 $ 0.75 $ 0.63
OTHER OPERATING DATA:
GAAP loss ratio(6) 123.9% 62.6% 13.7% 25.5% 35.7%
GAAP underwriting expense ratio(6) 43.0% 40.9% 34.8% 26.2% 18.6%
------- ------- ------- ----- -----
GAAP combined ratio(6) 166.9% 103.5% 48.5% 51.7% 54.3%
====== ====== ======= ===== =====
As of December 31,
-----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- ------
BALANCE SHEET DATA: (in thousands, except per share data and ratios)
Cash and investments $524,303 $490,594 $527,738 $467,078 $269,089
Total assets 780,180 632,691 608,172 543,324 396,084
Losses and loss expenses 261,551 102,592 57,189 70,977 72,719
Minority interest in consolidated subsidiary 99,521 99,517 99,513 -- --
Debt payable 75,000 50,000 21,414 64,725 67,775
Total stockholders' equity 263,279 334,376 386,688 357,678 211,162
Book value per common share $ 22.54 $ 27.13 $ 28.10 $ 25.63 $ 24.15
Statutory capital and surplus of
PXRE Reinsurance $399,007 $447,229 $451,321 $400,133 $250,231
Statutory capital and surplus of PXRE Bermuda(1) $25,200 -- -- -- --
- -------------------
(1) PXRE Group Ltd. was incorporated on June 1, 1999 as a Bermuda holding
company and a wholly owned subsidiary of PXRE Purpose Trust, a purpose
trust established under the laws of Bermuda. On October 5, 1999, PXRE
Corporation,
-35-
a publicly held Delaware holding company ("PXRE Delaware") completed a
reorganization pursuant to which the Company became the ultimate parent
holding company of PXRE Delaware. PXRE Delaware and its subsidiaries
provide property and casualty reinsurance and insurance products to a
national and international market place. In connection with the
reorganization, the Company repurchased for $1.00 per share 100% of
the common shares owned by PXRE Purpose Trust and each outstanding
share of PXRE Delaware common stock (other than shares held by PXRE
Delaware and its subsidiaries) was converted into one common share of
the Company. After the consummation of the reorganization the Company
commenced carrying on the holding company functions previously
conducted by PXRE Delaware.
(2) In the fourth quarter of 1999, PXRE changed the reporting period for
its U.K. operations from a fiscal year ending September 30 to a
calendar year ending December 31. The results of operations for the
period from October 1, 1998 to December 31, 1998 amounted to a loss of
approximately $140,000. This loss was charged to retained earnings
during the year in order to report only twelve months operating
results. The U.K. operations of PXRE Limited and PXRE Managing Agency
are included in the consolidated results on a one quarter lag basis
from 1997 through the third quarter of 1999.
(3) On December 11, 1996, PXRE merged with TREX. The Merger has been
accounted for as a purchase. Accordingly, TREX has been included in
PXRE's consolidated results of operations from the date of acquisition,
which resulted in incremental earnings of $1,253,000 in 1996. For 1994
and 1995 and for the period from January 1, 1996 until December 11,
1996, PXRE recorded equity in net earnings of TREX. Diluted average
shares outstanding reflects the 5,680,256 weighted shares issued to
holders of TREX common shares in connection with the Merger. Included
in management fee was $2,512,000, $3,526,000 and $3,364,000 in 1996,
1995 and 1994, respectively, earned from TREX prior to the Merger. If
the Merger had taken place at the beginning of 1996 and 1995,
consolidated revenues would have been $153,410,000 and $193,972,000
for 1996 and 1995, respectively. Consolidated pro forma net income and
diluted net income per share would have been $49,161,000 and $3.42 in
1996 and $60,755,000 and $4.19 in 1995. Such pro forma amounts are not
necessarily indicative of what the actual consolidated results might
have been if the Merger had been effected prior to December 11, 1996.
(4) During 1995, all of PXRE's outstanding shares of Series A Cumulative
Convertible Preferred Stock were converted into shares of PXRE's common
stock.
(5) The ratios of earnings to fixed charges were determined by dividing
consolidated earnings by total fixed charges. For purposes of these
computations (i) earnings consist of consolidated income before
considering income taxes, fixed charges and minority interest and (ii)
fixed charges consist of interest on indebtedness and that portion of
rentals which is deemed by PXRE's management to be an appropriate
interest factor. Earnings were inadequate to cover fixed charges by
$55,288,000 for the year ended December 31, 1999. The ratios of
earnings to combined fixed charges and preferred dividends were
determined by dividing consolidated earnings by total fixed charges and
preferred dividends. Earnings were inadequate to cover fixed charges
and preferred dividends by $55,288,000 for the year ended December 31,
1999.
(6) The loss, underwriting expense and combined ratios included under
"Other Operating Data" have been derived from the audited consolidated
statements of income of PXRE prepared in accordance with U.S. GAAP.
-36-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
PXRE Group Ltd. ("PXRE" or the "Company") - with operations principally
in Bermuda, Barbados, the United States, the United Kingdom and Europe -
provides reinsurance products and services to a worldwide market place. The
Company primarily emphasizes commercial and personal property and casualty
reinsurance risks and it offers both brokerbased and direct-writing distribution
capabilities. PXRE also provides marine and aerospace reinsurance products and
services. The Company's shares trade on the New York Stock Exchange under the
symbol PXT. On October 5, 1999 PXRE Corporation, a Delaware holding company
("PXRE Delaware") completed a reorganization that resulted in the formation of
the Company which became the ultimate parent holding company of PXRE Delaware.
Holders of PXRE Delaware common stock automatically became holders of the same
number of PXRE common shares. The reorganization also involved the establishment
of a Bermuda based reinsurance company, PXRE Reinsurance Ltd. ("PXRE Bermuda"),
and operations in Barbados through PXRE (Barbados) Ltd ("PXRE Barbados").
The Company conducts its business primarily through its principal
operating subsidiaries, PXRE Delaware, PXRE Reinsurance Company ("PXRE
Reinsurance"), PXRE Solutions Inc. ("PXRE Solutions"), PXRE Bermuda, PXRE
Barbados, PXRE Managing Agency Limited ("PXRE Managing Agency"), PXRE Limited,
the sole member of PG Butler Syndicate 1224 ("PXRE Lloyd's Syndicate"), and
Transnational Insurance Company ("Transnational Insurance"). The term "PXRE" as
used herein, refers to one or more of PXRE Delaware, PXRE Reinsurance, PXRE
Solutions, PXRE Bermuda, PXRE Barbados, PXRE Managing Agency, PXRE Lloyd's
Syndicate and Transnational Insurance in discussions of these entities'
businesses and refers to PXRE Group Ltd. in all other circumstances.
The property and casualty reinsurance industry has been experiencing an
extended period of soft market conditions characterized by inadequate pricing.
The industry is also consolidating through mergers and other acquisitions. PXRE
competes with numerous companies, many of which have substantially greater
financial, marketing and management resources.
Since its formation more than a decade ago, PXRE has specialized in
property reinsurance, including a strong focus on catastrophe-type products.
Coverage terms for these products have deteriorated in recent years, and PXRE
has reduced commitments on marginally priced business.
37
Meanwhile, PXRE has adopted an ambitious diversification strategy
involving:
- the establishment of a direct presence in the Lloyd's market;
- the addition of a reinsurance platform offering primarily casualty
products directly to customers;
- the enhancement of its international broker market reinsurance
platform to include additional lines of business including casualty
risks;
- the start-up of an excess and surplus lines insurance company;
- an acceleration of business offerings to one of its managed business
participants;
- the formation of a finite reinsurance unit; and
- the establishment of a direct presence in the Bermuda market.
At December 31, 1999, PXRE was a party to retrocessional arrangements
with a number of insurers and reinsurers. Under these arrangements, PXRE cedes
some of its underwritten risks to the participants, subject to maximum aggregate
liabilities per reinsurance program. PXRE receives a management fee or
commission, initially based on premium volume, adjusted in some cases through
contingent profit commissions related to underwriting results measured over a
period of years. Future management fee income is dependent upon the amount of
business ceded to the participants and the profitability of that business.
Another arrangement with Select Reinsurance Ltd. ("Select Re"), a Bermuda
reinsurer, formerly Investors Reinsurance Ltd., involves a multi-year fee based
undertaking by PXRE through the year ending December 31, 2003 to produce and
underwrite business with Select Re. Gerald Radke (Chairman, President and Chief
Executive Officer of PXRE) and Jeffrey Radke (Executive Vice President of PXRE
and President of PXRE Bermuda) are on the Board of Directors of Select Re and
are shareholders of Select Re. Gerald Radke is Co-Vice Chairman of Select Re and
Jeffrey Radke was formerly the President of Select Re.
PXRE also purchases catastrophe retrocessional coverage for its own
protection, depending on market conditions. PXRE significantly increased its
purchases of such coverage in 1998 and 1999 in light of the continued general
deterioration in catastrophe reinsurance pricing and the opportunity to buy
protection at more favorable terms than in previous years.
CERTAIN RISKS AND UNCERTAINTIES
As a reinsurer of property catastrophe-type coverages in the worldwide
market place, PXRE's operating results in any given period depend to a large
extent on the number and magnitude of natural and man-made catastrophes such as
hurricanes, windstorms, floods, earthquakes, spells of severely cold weather,
fires and explosions. While PXRE may, depending on market conditions, purchase
catastrophe retrocessional coverage for its own protection, the occurrence of
one or more major catastrophes in any given period could nevertheless have a
material adverse impact on PXRE's results of operations and financial condition
and result in substantial liquidation of investments and outflows of cash as
losses are paid.
38
The estimation of losses for catastrophe reinsurers is inherently less
reliable than for reinsurers of risks which have an established historical
pattern of losses. In addition, insured events which occur near the end of a
reporting period, as well as with respect to PXRE's retrocessional book of
business, the significant delay in losses being reported to insurance carriers,
reinsurers and finally retrocessionaires require PXRE to make estimates of
losses based on limited information from ceding companies and based on its own
underwriting data. Because of the uncertainty in the process of estimating its
losses from insured events, there is a risk that PXRE's liabilities for losses
and loss expenses could prove to be inadequate, with a consequent adverse impact
on future earnings and stockholders' equity. Additionally, as a consequence of
its emphasis on property reinsurance, PXRE may forgo potential investment income
because property losses are typically settled within a shorter period of time
than casualty losses.
In addition, the potential for uncertainty for recent underwriting
years is greater than in past years because of the increased casualty exposures
assumed by PXRE. Unlike property losses that tend to be reported more promptly
and usually are settled within a shorter time period, casualty losses are
frequently slower to be reported and may be determined only through the lengthy,
unpredictable process of litigation. Moreover, given its recent expansion of
casualty business, PXRE does not have an established historical loss pattern
that can be used to establish casualty loss liabilities. PXRE must therefore
rely on the inherently less reliable historical loss patterns reported by ceding
companies and industry loss standards in calculating its liabilities.
As PXRE underwrites risks from a large number of insurers based on
information generally supplied by reinsurance brokers, there is a risk of
developing a concentration of exposure to loss in certain geographic areas prone
to specific types of catastrophes. PXRE has developed systems and software tools
to monitor and manage the accumulation of its exposure to such losses.
Management has established guidelines for maximum tolerable losses from a single
or multiple catastrophic events based on historical data; however, no assurance
can be given that these maximums will not be exceeded in some future
catastrophe.
Premiums on reinsurance business assumed are recorded as earned on a
pro rata basis over the contract period based upon estimated subject premiums.
Management must estimate the subject premiums associated with the treaties in
order to determine the level of earned premiums for a reporting period. Such
estimates are based on information from brokers, which can be subject to change
as new information becomes available. Because of the inherent uncertainty in
this process, there is the risk that premiums and related receivable balances
may turn out to be higher or lower than reported.
PXRE's invested assets consist primarily of fixed maturities and
limited partnerships, but also include equities, real estate investment trusts
("REITS") and short-term investments. PXRE's investments are subject to market-
wide risks and fluctuations, as well as to risk inherent in particular
securities. Additionally, the estimated fair value of PXRE's investments does
not necessarily represent the amount which could be realized upon future sale
particularly if PXRE were required to liquidate a substantial portion of its
portfolio to fund catastrophic losses. PXRE's investment guidelines stress
conservation of principal, diversification of risk and liquidity.
39
Premium receivables and loss reserves include business denominated in
currencies other than U.S. dollars. PXRE is exposed to the possibility of
significant claims in currencies other than U.S. dollars. While PXRE holds
positions denominated in foreign currencies to mitigate, in part, the effects of
currency fluctuations on its results of operations, it currently does not hedge
its currency exposures before a catastrophic event which may produce a claim.
PXRE and its non-U.S. subsidiaries intend to operate their business in
a manner that will not cause them to be treated as engaged in a trade or
business in the United States and, thus, will not require them to pay U.S.
federal corporate income taxes (other than withholding taxes on certain U.S.
source investment income and excise taxes on reinsurance premiums). However,
because there is uncertainty as to the activities which constitute being engaged
in a trade or business within the United States, there can be no assurances that
the U.S. Internal Revenue Service will not contend successfully that PXRE Group
or a non-U.S. subsidiary is engaged in a trade or business in the United States.
The company understands that certain U.S.-based insurance companies are
advocating an amendment to the U.S. Internal Revenue Code which would impose
federal income tax on a domestic insurer which is controlled by a foreign
reinsurer on the deemed investment income on its reserves on U.S. risks ceded
to one or more foreign reinsurers. At this point, the Company is unable to
predict whether this legislative effort will be successful, what form any such
legislation may ultimately take and what impact any such legislation would have
on the Company. If PXRE Group or any of its non-U.S. subsidiaries were subject
to U.S. income tax, PXRE Group's shareholders' equity and earnings could be
materially adversely affected.
COMPARISON OF 1999 WITH 1998
Year Ended December 31,
Increase
1999 1998 (Decrease)
---- ---- ----------
(000's) %
Gross premiums written $221,349 $136,215 62.5
Ceded premiums:
Managed business participants 42,549 21,542 97.5
Catastrophe coverage and other
reinsurance 39,955 25,979 53.8
-------- --------
Total reinsurance premiums ceded 82,504 47,521 73.6
-------- --------
Net premiums written $138,845 $ 88,694 56.5
======== ========
Gross premiums written for 1999 increased 62.5% to $221,349,000 from
$136,215,000 for 1998. Net premiums written for the year ended December 31,
1999 increased 56.5% to $138,845,000 from $88,694,000 for 1998. Net premiums
earned for the year ended December 31, 1999 increased 39.1% to $128,503,000
40
from $92,386,000 in 1998. Gross written, net written and net earned premiums
for 1999 increased from prior year levels reflecting new business written
through PXRE's diversification program and approximately $7,548,000 of
additional reinstatement premiums generated by 1999 loss activity.
Premiums ceded by PXRE to its managed business participants increased
97.5% to $42,549,000 for 1999 compared with $21,542,000 for 1998. The increase
in premiums ceded to these programs was due primarily to the increase in gross
premiums written, including reinstatement premiums on 1999 catastrophe losses,
and to fronting certain businesses on behalf of other reinsurers.
In 1999, catastrophe coverage and other reinsurance ceded premiums
written increased due to PXRE fronting certain business on behalf of other
reinsurers, to additional coverage associated with new operations and to
opportunistic purchases of catastrophe retrocessional protection. PXRE's
property business is protected by a series of retrocessional agreements which
currently provide protection principally against unusual severity of loss and
are not designed to protect PXRE's exposure to smaller, more frequent loss
occurrences.
The following tables summarize the 1999 and 1998 net written and earned
premium by PXRE's business segments:
Net Premiums Written
(000's except %'s)
1999 1999 1998 1998
---- ---- ---- ----
Amount % Amount %
------ --- ------ ---
Catastrophe and Risk Excess
North American $ 26,704 $ 12,795
International 63,957 58,595
Excess of loss cessions (18,883) (3,938)
-------- ---------
Subtotal 71,778 52% 67,452 76%
-------- ---------
Casualty
North American 13,148 650
International 12,851 4,433
-------- ---------
25,999 19% 5,083 6%
-------- ---------
Structured/Finite Business
North American 0 0
International 0 0
-------- ---------
0 0% 0 0%
-------- ---------
Other Lines
North American 12,073 2,054
International 28,995 14,105
-------- ---------
41,068 29% 16,159 18%
-------- ---------
Total $138,845 100% $ 88,694 100%
======== ==== ========= ====
41
Net Premiums Earned
(000's except %'s) 1999 1999 1998 1998
---- ---- ---- ----
Amount % Amount %
------ --- ------ ---
Catastrophe- and Risk Excess
North American $ 26,155 $ 13,561
International 61,241 63,830
Excess of loss cessions (14,958) (2,869)
---------- -----------
Subtotal 72,438 56% 74,522 81%
---------- -----------
Casualty
North American 11,593 (152)
International 9,794 2,207
---------- ----------
21,387 17% 2,055 2%
---------- ----------
Structured /Finite Business
North American 0 0
International 0 0
---------- ----------
0 0% 0 0%
---------- ----------
Other Lines
North American 11,296 3,234
International 23,383 12,575
---------- ----------
34,679 27% 15,809 17%
---------- --- ---------- ----
Total $ 128,504 100% $ 92,386 100%
========== ==== ========== ====
Management fee income from all sources for the year ended December 31,
1999 increased 65.3% to $3,590,000 from $2,172,000 for 1998, reflecting higher
ceded premiums written, including higher management fee income earned from
Select Re, offset in part by reduced profit commission from 1999 catastrophe
losses.
The underwriting results of a property and casualty insurer are
discussed frequently by reference to its loss ratio, underwriting expense ratio
and combined ratio. The loss ratio is the result of dividing losses and loss
expenses incurred by net premiums earned. The underwriting expense ratio is the
result of dividing underwriting expenses (reduced by management fees, if any) by
net premiums written for purposes of U.S. SAP and net premiums earned for
purposes of U.S. GAAP. The combined ratio is the sum of the loss ratio and the
underwriting expense ratio. A combined ratio under 100% indicates underwriting
profits and a combined ratio exceeding 100% indicates underwriting losses. The
combined ratio does not reflect the effect of investment income on operating
results. The ratios discussed below have been calculated on a U.S. GAAP basis.
The loss ratio was 123.9% for 1999 compared with 62.6% for 1998 largely
due to fifteen catastrophe events in 1999, primarily in the fourth quarter when
$59,635,000 of the $79,465,000 in net catastrophe losses for 1999 occurred. The
loss ratio for 1999 reflected incurred catastrophe losses of $170,477,000 gross
and $92,687,000 net. In comparison, the loss ratio for 1998 reflected incurred
catastrophe losses of $55,564,000 gross and $29,437,000 net largely due to
Hurricane Georges and two aerospace catastrophes.
42
Significant catastrophe and risk losses affecting the year ended
December 31, 1999 loss ratio are as follows:
Amount of Losses
----------------
Loss Event Gross Net
- ---------- ----- ---
(in thousands)
French Storm Martin $31,300 $24,000
French Storm Lothar 51,900 20,600
Hurricane Floyd 20,900 13,700
Danish Storms 14,800 11,400
Hurricane Lenny 4,300 3,300
Hurricane Bart 5,800 2,500
Three Risk Losses 11,300 3,500
Significant catastrophe and satellite losses affecting the year ended
December 31, 1998 loss ratio are as follows:
Amount of Losses
----------------
Loss Event Gross Net
- ---------- ----- ---
(in thousands)
Hurricane Georges $49,106 $ 25,753
Hailstorms 4,521 3,597
Swissair and Delta 3 Satellites 4,087 3,399
The provision for losses and loss expenses and the loss ratio includes
the effect of foreign exchange movements on PXRE's liability for losses and
loss expenses, resulting in a foreign currency exchange gain of $442,000 for
1999 compared to a loss of $675,000 for 1998.
During 1999, PXRE experienced adverse development of $19,781,000 net
for prior-year loss and loss expenses primarily related to $8,400,000 of
Hurricane Georges, $1,400,000 of Hurricane Mitch and other 1998 events,
including $3,381,000 in PXRE Lloyd's Syndicate, primarily due to accident and
health and facultative reserve strengthening. During 1998, PXRE experienced
savings of $532,000 net for prior-year loss and loss expenses primarily related
to the triggering of a retrocessional recovery on a 1994 aviation loss offset in
part by adverse development due to the 1997 German, Polish and Czech floods.
The underwriting expense ratio was 43.0% for 1999 compared with 40.9%
for 1998. The increase in underwriting expense ratio was substantially due to an
increase in salary and benefits incurred in building the diversified business.
As a result of the above, the combined ratio was 166.9% for 1999
compared with 103.5% for 1998. The increase in PXRE's GAAP combined ratio was
primarily caused by the catastrophe activity previously discussed.
43
The following table summarizes the 1999 and 1998 underwriting
profit and loss by segment:
Underwriting
(000's except %'s)
1999 1999 1998 1998
---- ---- ---- ----
Amount % Amount %
------ ---- ------ ----
Catastrophe and Risk Excess
North American $(31,591) $ 6,970
International (32,039) 7,081
Excess of loss cessions 15,476 8,372
--------- -------
Subtotal (48,154) 87% 22,423 141%
--------- -------
Casualty
North American (279) (409)
International (242) 1% 87
--------- -------
(521) (322) (2%)
--------- -------
Structured/Finite Business
North American 0 0
International 411 0
--------- -------
411 (1%) 0 (0%)
--------- -------
Other Lines
North American (715) (1,442)
International (6,166) (4,794)
--------- -------
(6,881) 13% (6,236) (39%)
--------- --- ------- ----
Total $(55,145) 100% $ 15,865 100%
========= ==== ========== ====
Underwriting operations include premiums earned, losses incurred and
commission and brokerage net of management fees, but do not include investment
income, realized gains or losses, interest expense, operating expenses,
unrealized foreign exchange gains or losses incurred or management fees on
weather contracts.
The catastrophe and risk excess underwriting portfolio can be
characterized on a longer term basis as being comprised of coverages involving
higher margins and greater volatility than other coverages written by PXRE. Over
the periods indicated pricing and other coverage terms deteriorated and in
response PXRE moved to layers of risk less affected by competitive pressure; or
reduced commitments. Notwithstanding these moves, in 1999 this portfolio
produced an underwriting loss as a result of major events.
Other operating expenses increased to $30,052,000 for the year ended
December 31, 1999 from $19,313,000 in 1998, as a result of the costs incurred to
implement PXRE's planned diversification including an increase in salary and
related benefit costs of $6,329,000 and data processing costs of $1,462,000.
Included in other operating expenses were foreign currency exchange losses of
$836,000 for 1999 compared to gains of $204,000 for the corresponding period of
1998. In addition, PXRE incurred charges of approximately $1,087,000 after-tax
in connection with the redomestication as well as tax charges discussed below.
Also in 1999, PXRE incurred $695,000 in after-tax expenses associated with a
change in accounting in accordance with the American Institute of Certified
Public Accountants Statement of Position 98-5, for organizational and start-up
costs capitalized in prior years.
During 1999, interest expense increased to $3,915,000 as compared to
$1,395,000 in 1998. The increase in interest expense relates to a drawdown of
$50,000,000 under a credit facility at a fixed rate of 6.34% on December 30,
1998, and a drawdown of the remaining $25,000,000 of this facility in the fourth
quarter of 1999, at a variable annual rate of 7.12%. See "Liquidity and
Capital Resources". Interest in 1998 reflected $21,400,000 of PXRE's 9.75%
Senior Debt which was retired in August 1998. In addition, during 1999
PXRE incurred minority interest expense amounting to $8,790,000 related to
PXRE's $100 million of 8.85% Capital Trust Pass-through Securities'sm'
(TRUPS'sm')
44
(as described below under "Liquidity and Capital Resources") compared to
$8,928,000 in 1998.
Net investment income for the year ended December 31, 1999 increased,
140.5% to $47,173,000 from $19,612,000 for 1998. The increase in net investment
income was caused primarily by strong limited partnership investment returns
amounting to $25,700,000 (which are carried on the equity method). PXRE's
pre-tax investment yield was 10.4% for 1999 compared with 4.3% for 1998, both
calculated using amortized cost and investment income before investment
expenses. Net realized investment losses for 1999 were $3,766,000, reflecting
losses from trading of weather contracts compared to losses of $3,862,000 for
1998 from volatile emerging market bonds offset, in part, by net gains from sale
of other securities.
The net effects of foreign currency exchange fluctuations were losses
of $394,000 in 1999, as compared to losses of $471,000 for 1998.
In 1999, PXRE changed the reporting period for its UK operations from a
fiscal year ending September 30, to a calendar year ending December 31. The
results of operations for the period from October 1, 1998 to December 31, 1998,
amounted to a loss of approximately $140,000. This loss was charged to retained
earnings during the year in order to report only 12 months of operating results.
The increase in losses in the fourth quarter of 1999 amounted to $3,517,000,
primarily related to the European storms.
The tax benefit includes a one-time income tax charge in connection
with the Bermuda redomestication of approximately $1.8 million related to the
cancellation of shares of PXRE Delaware held by its subsidiary. In addition,
PXRE incurred a tax charge of $2,314,000 upon payment of a dividend by PXRE
Delaware in connection with the redomestication.
For the reasons discussed above, the net loss was $42,139,000 for 1999
compared to net income of $2,679,000 for 1998. The diluted loss per common share
before cumulative effect of accounting change and extraordinary loss was $3.58
for 1999 compared to net income of $0.26 for the prior year. The diluted net
loss per common share was $3.64 for 1999 compared to net income of $0.20 for
1998 based on diluted average shares outstanding of approximately 11,568,000
in 1999 and 13,452,000 in 1998.
45
COMPARISON OF 1998 AND 1997
Year Ended December 31,
Increase
1998 1997 (Decrease)
---- ---- ----------
(000's) %
------ ---
Gross premiums written $136,215 $126,232 7.9
Ceded premiums:
Managed business participants 21,542 16,534 30.3
Catastrophe coverage 25,979 9,643 169.4
--------- --------- ------
Total reinsurance premiums ceded 47,521 26,177 81.5
--------- --------- -------
Net premiums written $ 88,694 $100,055 (11.4)
======== ======== ======
Gross premiums written for 1998 increased 7.9% to $136,215,000 from
$126,232,000 for 1997. Net premiums written for the year ended December 31, 1998
decreased 11.4% to $88,694,000 from $100,055,000 as PXRE increased the purchase
of reinsurance and retrocessional coverage in 1998. Net premiums earned for the
year ended December 31, 1998, increased 1.1% to $92,386,000 from $91,415,000 in
1997. The contribution of PXRE Lloyd's Syndicate operation, which commenced in
the first quarter of 1997, together with PXRE's new business initiatives
commenced in 1998, more than offset the continued impact of an intensely
competitive market on PXRE's other business lines and helped PXRE increase its
premium volume during the fourth quarter of 1998. New business expansion in 1998
included an international treaty underwriting team, excess and surplus lines
written by Transnational Insurance, new international facultative business, and
PXRE's new direct writing team.
Premiums ceded by PXRE to its managed business participants increased
30.3% to $21,542,000 for 1998 compared with $16,534,000 for 1997. The increase
in premiums ceded to these programs was due primarily to an increased cession
rate to Select Re and cessions from new operations offset in part by the effect
of declines in gross premiums written in PXRE's traditional operations.
In 1998, opportunistic purchases of catastrophe retrocessional
protection and additional coverage associated with new operations increased
catastrophe written premiums ceded.
Management fee income from all sources for the year ended December 31,
1998 decreased 27.7% to $2,172,000 from $3,006,000 for 1997, reflecting a
reduced profit commission primarily associated with Hurricane Georges and the
two aerospace catastrophes discussed below and a higher combined ratio on the
change in business mix reflected in the higher ceded premiums written, offset,
in part, by an increase in management fee income earned from Select Re.
The loss ratio was 62.6% for 1998 compared with 13.7% for 1997 largely
due to Hurricane Georges, two aerospace catastrophes and the higher average loss
ratio from the PXRE Lloyd's Syndicate operation, the new excess and surplus
46
lines business and new international operations. The loss ratio for 1998
reflected incurred catastrophe losses of $55,564,000 gross and $29,437,000
net for 1998 and prior accident years. In comparison, the loss ratio for 1997
reflected a re-estimation, which reduced catastrophe losses by $1,457,000 gross
and $964,000 net for 1997 and prior accident years, after taking into account,
among other things, the German, Polish and Czech flood losses referred to below.
Significant catastrophe and satellite losses affecting the year ended
December 31, 1998 loss ratio are as follows:
Amount of Losses
----------------
Loss Event Gross Net
----- ---
(in thousands)
Hurricane Georges $49,106 $25,753
Hailstorms 4,521 3,597
Swissair and Delta 3 Satellites 4,087 3,399
Significant catastrophe and risk losses affecting the year ended
December 31, 1997 loss ratio are as follows:
Amount of Losses
-----------------
Loss Event Gross Net
----- ----
(in thousands)
German, Polish and Czech Floods $1,739 $1,457
The provision for losses and loss expenses and the loss ratio includes
the effect of foreign exchange movements on PXRE's liability for losses and loss
expenses, resulting in a foreign currency exchange loss of $675,000 for 1998
compared to a gain of $627,000 for 1997.
During 1998, PXRE experienced savings of $532,000 net for prior-year
loss and loss expenses primarily related to the triggering of a retrocessional
recovery on a 1994 aviation loss offset in part by adverse development due to
the 1997 German, Polish and Czech floods. The loss ratio for 1997 was favorably
affected by decreases to reserves of $3,917,000 net for prior-year loss and loss
expenses primarily related to the Eurotunnel fire and Hurricane Fran where
redundant reserves were recognized in 1997 of approximately $1,644,000 and
$1,440,000 respectively. In addition, included in the savings of $3,917,000 were
prior-year losses originally thought to have triggered market loss coverage
thresholds which proved to be redundant by approximately $1,800,000, offset in
part by development on prior year facultative losses.
The underwriting expense ratio was 40.9% for 1998 compared with 34.8%
for 1997. The increase in underwriting expense ratio was substantially due to
higher acquisition expenses and contingent commissions on certain business. In
addition, PXRE's diversification strategy announced in the second quarter of
1998, involving the addition of direct writing and international teams, and
PXRE's strengthening of its Lloyd's and Brussels' units contributed a
significant portion of the $3,597,000 of additional overhead expenses in 1998 in
addition to expenses associated with the first year of underwriting operations
for Transnational Insurance.
47
As a result of the above, the combined ratio was 103.5% for 1998
compared with 48.5% for 1997.
Other operating expenses increased to $19,313,000 for the year ended
December 31, 1998 from $15,716,000 in 1997. The increase was mainly due to
salary and benefits expenses associated with new operations. Included in other
operating expenses were foreign currency exchange gains of $204,000 for 1998
compared to losses of $1,221,000 for the corresponding period of 1997.
During 1998, interest expense decreased to $1,395,000 as compared to
$3,325,000 in 1997 due to the effect of repurchases of PXRE's 9.75% Senior Notes
in open market purchases and the redemption of the remaining Senior Notes on
August 15, 1998 (see "Liquidity and Capital Resources"). In addition, during
1998 PXRE incurred minority interest expense amounting to $8,928,000 related
to PXRE's $100 million of 8.85% Capital Trust Pass-through Securities'sm'
(TRUPS'sm') (as described below under "Liquidity and Capital Resources")
compared to $8,184,000 in 1997. The increase in 1998 reflects the fact that
the obligation was only outstanding during a portion of 1997.
In 1998, PXRE recorded an extraordinary loss of $843,000, net of tax,
in connection with the redemption of $20.4 million of PXRE's 9.75% Senior Notes
and the associated write-off of the pro rata share of the unamortized debt
issuance costs.
Net investment income for the year ended December 31, 1998 decreased
37.1% to $19,612,000 from $31,191,000 for 1997. The decrease in net investment
income was largely due to the substantial turmoil witnessed in global securities
markets during the third and fourth quarters of 1998 and the resulting decline
in value of certain of PXRE's limited partnership investments. PXRE's pre-tax
investment yield was 4.3% for 1998 compared with 6.3% for 1997, both calculated
using amortized cost and investment income before investment expenses. The
decline in yield was primarily due to returns on the limited partnership
investments. Net realized investment losses for 1998 were $3,862,000 compared to
gains of $2,467,000 for 1997, which included trading in investment products
having characteristics similar to the types of reinsurance PXRE traditionally
assumes. In 1998, PXRE recorded the markdown of a Russian bond that was in
technical default. This loss was recorded as realized which resulted in a
pre-tax loss of $6,600,000.
The net effects of foreign currency exchange fluctuations were losses
of $471,000 in 1998, as compared to losses of $594,000 for 1997.
For the reasons discussed above, net income was $2,679,000 for 1998
compared to net income of $44,253,000 for 1997. Diluted income per common share
before extraordinary loss was $0.26 for 1998 compared to $3.39 for the prior
year. Diluted net income per common share was $0.20 for 1998 compared to $3.19
for 1997 based on diluted average shares outstanding of approximately 13,452,000
in 1998 and 13,893,000 in 1997.
48
LIQUIDITY AND CAPITAL RESOURCES
PXRE relies primarily on cash dividends and net tax allocation payments
from its subsidiaries, including PXRE Reinsurance, Transnational Insurance and
PXRE Bermuda to pay its operating expenses and income taxes, to meet its debt
service obligations and to pay dividends. The payment of dividends by PXRE
Reinsurance and by Transnational Insurance to PXRE Reinsurance is subject to
limits imposed under the insurance laws and regulations of Connecticut, the
state of incorporation and domicile of PXRE Reinsurance and Transnational
Insurance, as well as certain restrictions arising in connection with PXRE
indebtedness discussed below. Under the Connecticut insurance law, the maximum
amount of dividends or other distributions that PXRE Reinsurance may declare or
pay, and that Transnational Insurance may declare or pay to PXRE Reinsurance,
within any twelve-month period, without regulatory approval, is limited to the
lesser of (a) earned surplus or (b) the greater of 10% of policyholders' surplus
at December 31 of the preceding year or 100% of net income for the twelve-month
period ending December 31 of the preceding year, all determined in accordance
with U.S. SAP. Accordingly, the Connecticut insurance laws could limit the
amount of dividends available for distribution by PXRE Reinsurance or
Transnational Insurance without prior regulatory approval, depending upon a
variety of factors outside the control of PXRE, including the frequency and
severity of catastrophe and other loss events and changes in the reinsurance
market, in the insurance regulatory environment and in general economic
conditions. The maximum amount of dividends or distributions that PXRE
Reinsurance may declare and pay during 2000, without regulatory approval, is
$39,901,000. Transnational Insurance may not declare or pay any dividend to
PXRE Reinsurance in 2000 without regulatory approval. During 1999, $35,525,695
in dividends was paid by PXRE Reinsurance, including extraordinary dividends
and $10,000,000 was paid by Transnational Insurance to PXRE Reinsurance,
including extraordinary dividends. In both cases authorization was obtained
from the Insurance Department of the State of Connecticut. Under Bermuda
law, PXRE Bermuda may not pay a dividend unless after payment of the
dividend it is able to pay its liabilities as they become due, and the
realizable value of its assets are greater than the aggregate value of its
liabilities, issued share capital and share premium accounts. PXRE Bermuda is
also required to maintain statutory assets in an amount that permits it to meet
the prescribed minimum solvency margin for the net premium income level of its
business from time to time. In addition, any dividend paid cannot be in an
amount that will reduce the reserves of PXRE Bermuda to a level that is not
sufficient to meet the reserve requirements of its business.
Dividends and other permitted payments from PXRE Delaware to PXRE
Barbados are expected to be subject to U.S. withholding taxes at the rate
of 5% (reduced from 30% under the tax convention between the United States and
Barbados) and a 2 1/2 % Barbados corporate income tax.
In the event the amount of dividends available, together with other
sources of funds, are not sufficient to permit PXRE to meet its debt service and
other obligations and to pay cash dividends, it would be necessary to obtain the
approval of the Connecticut Insurance Commissioner prior to the payment of
additional dividends by PXRE Reinsurance (or Transnational Insurance) or the
approval of the Bermuda Minister of Finance prior to the payment of additional
dividends by PXRE Bermuda. If such approval were not obtained, PXRE would have
to adopt one or more alternatives, such as refinancing or restructuring its
indebtedness or seeking additional equity. There can be no assurance that any of
49
these strategies could be effected on satisfactory terms, if at all. In the
event that PXRE were unable to generate sufficient cash flow and were otherwise
unable to obtain funds necessary to meet required payments of principal and
interest on its indebtedness, PXRE could be in default under the terms of the
agreements governing such indebtedness. In the event of such default, the
holders of such indebtedness could elect to declare all of the funds borrowed
thereunder to be due and payable together with accrued and unpaid interest.
PXRE Delaware entered into a Credit Agreement dated as of December 30,
1998 (the "Credit Agreement") with First Union National Bank ("First Union") as
Agent and as a Lender, pursuant to which First Union agreed to make available to
PXRE Delaware a $75,000,000 revolving credit facility. On May 18, 1999, pursuant
to various Joinder Agreements and Assignment and Acceptance Agreements, First
Union syndicated the revolving credit facility, joining Fleet National Bank,
Credit Lyonnais New York Branch and Bank One (formerly, The First National Bank
of Chicago) as additional lenders (collectively with First Union, the
"Lenders"). As at December 31, 1998, PXRE Delaware had outstanding borrowings
under the Credit Agreement of $50,000,000, and in October 1999, the remaining
$25,000,000 was borrowed.
The terms of the Credit Agreement have been amended three times
pursuant to a First Amendment and Waiver to Credit Agreement, dated May 18,
1999, and a second Amendment and Waiver to Credit Agreement, dated June 25, 1999
and the First Amended and Restated Credit Agreement dated August 31, 1999. The
First Amendment increased the applicable margin percentage for LIBOR loans under
the Credit Agreement by 1/8% and changed the governing law from North Carolina
to New York law. The Second Amendment modified various covenants related to the
investments that PXRE and its subsidiaries are permitted to make under the
Credit Agreement. The First Amended and Restated Credit Agreement was undertaken
to address the Bermuda redomestication and to provide for PXRE Group Ltd. and
PXRE (Barbados) Ltd. as guarantors of the loan obligation.
As amended, loans under the Credit Agreement bear interest at an annual
rate equal to First Union's base rate, as in effect from time to time, for base
rate loans or at a margin (1.00% as of December 31, 1999) over First Union's
Eurodollar rate for periods of 30, 60, 90 or 180 days for LIBOR loans. In
connection with the Credit Agreement, PXRE Delaware and First Union entered into
an interest rate swap which, effective December 31, 1998, has the intended
effect of converting the initial $50,000,000 borrowings by PXRE Delaware into a
fixed rate borrowing at an annual interest of 6.34%. The remaining $25,000,000,
was borrowed at a variable annual rate of 7.12%. Commitments under the Credit
Agreement terminate on March 31, 2005 and are subject to annual reductions of
$10,000,000 commencing March 31, 2000 and $25,000,000 on March 31, 2005, and,
unless due or paid sooner, the aggregate principal of the loans are due and
payable in full on March 31, 2005.
The Credit Agreement contains covenants which, among other things,
limit the ability of PXRE and its subsidiaries and affiliates: (a) to incur
additional Indebtedness (other than certain permitted Indebtedness); (b) to
create Liens upon their properties or assets (other than Permitted Liens); (c)
to sell, transfer or otherwise dispose of their assets, business or properties
(other than certain permitted dispositions); (d) to make additional Investments
50
(other than certain permitted Investments, including Permitted Acquisitions and
other Investments in compliance with, among other things, applicable law and the
limitations set forth in the companies' investment policies and not exceeding
specified limits); (e) to pay dividends or repurchase stock if after giving
effect thereto a Default or Event of Default exists or the Fixed Charge Coverage
Ratio would be less than 1.5 to 1.0 as defined in the Credit Agreement; (f) to
enter into certain transactions with Affiliates; (g) to engage in any unrelated
business (h) to enter into or remain a party to certain ceded reinsurance
agreements or (i) to consolidate, merge or otherwise combine (or agree to do any
of the foregoing) unless, among other things, (1) PXRE Group Ltd. is the
surviving entity in such merger or consolidation, (2) such merger or
consolidation constitutes a Permitted Acquisition and the conditions and
requirements of the Credit Agreement are complied with and (3) immediately
thereafter no Default or Event of Default exists. The Credit Agreement also
requires compliance with Leverage Ratio, Fixed Charge Coverage Ratio, Risk-Based
Capital Ratio and Combined Statutory Surplus requirements. As at December 31,
1999, there was no default under the Credit Agreement.
The Credit Agreement enumerates various Events of Default, including
but not limited to, if: (1) any Person or group becomes the "beneficial owner"
of securities of PXRE Group Ltd. representing 20% or more of the combined voting
power of the then outstanding securities of PXRE Group Ltd. ordinarily having
the right to vote in the election of directors; or (2) the Board of Directors of
PXRE Group Ltd. ceases to consist of a majority of the individuals who
constituted the Board as of the date of the Credit Agreement or who subsequently
become members after having been nominated, or otherwise approved in writing, by
at least a majority of individuals who constituted the Board as of the date of
the Credit Agreement (or their approved replacements). A copy of the First
Amended and Restated Credit Agreement dated August 31, 1999 is filed as Exhibit
4.5 and is incorporated herein by reference.
On January 29, 1997, PXRE Capital Trust I, ("PXRE Capital Trust") a
Delaware statutory business trust and a wholly-owned subsidiary of PXRE Delaware
issued $100,000,000 principal amount of its 8.85% TRUPS'sm' due February 1,
2027 in an institutional private placement. Proceeds from the sale of these
securities were used to purchase PXRE Delaware's 8.85% Junior Subordinated
Deferrable Interest Debentures due February 1, 2027 (the "Subordinated Debt
Securities"). On April 23, 1997, PXRE Delaware and PXRE Capital Trust completed
the registration with the Securities and Exchange Commission of an exchange
offer for these securities and the securities were exchanged for substantially
similar securities (the "Capital Securities"). Distributions on the Capital
Securities (and interest on the related Subordinated Debt Securities) are
payable semi-annually, in arrears, on February 1 and August 1 of each year,
commencing August 1, 1997. Minority interest expense, including amortization of
debt offering costs, for the twelve months ended December 31, 1999 in respect of
the Capital Securities (and related Subordinated Debt Securities) amounted to
$8,790,000. On or after February 1, 2007, PXRE Delaware has the right to redeem
the Subordinated Debt Securities, in whole at any time or in part from time to
time, subject to certain conditions, at call prices of 104.180% at February 1,
2007, declining to 100.418% at February 1, 2016, and 100% thereafter. PXRE
Delaware has the right, at any time, subject to certain conditions, to defer
payments of interest on the Subordinated Debt Securities for Extension Periods
(as defined in the applicable indenture), each not exceeding 10 consecutive
51
semi-annual periods; provided that no Extension Period may extend beyond the
maturity date of the Subordinated Debt Securities. As a consequence of PXRE
Delaware's extension of any interest payment period on the Subordinated Debt
Securities, distributions on the Capital Securities would be deferred (though
such distributions would continue to accrue interest at a rate of 8.85% per
annum compounded semi-annually). In the event that PXRE Delaware exercises its
right to extend an interest payment period, then during any Extension Period,
subject to certain exceptions, (i) PXRE Delaware may not declare or pay any
dividend on, make any distributions with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of its capital
stock or rights to acquire such capital stock or make any guarantee payments
(subject to specified exceptions) with respect to the foregoing, and (ii) PXRE
Delaware may not make any payment of interest on, or principal of (or premium,
if any, on), or repay, repurchase or redeem, any debt securities issued by
PXRE Delaware which rank pari passu with or junior to the Subordinated Debt
Securities. Upon the termination of any Extension Period and the payment of all
amounts then due, PXRE Delaware may commence a new Extension Period, subject to
certain requirements.
PXRE Delaware has used the net proceeds from the sale of the Capital
Securities for general corporate purposes, including the redemption and the
purchase of outstanding indebtedness and common stock of PXRE Delaware.
PXRE Delaware files U.S. income tax returns for itself and all of its
direct or indirect subsidiaries that satisfy the stock ownership requirements
for consolidation (collectively, the "Subsidiaries"). PXRE Delaware is party to
an Agreement Concerning Filing of Consolidated Federal Income Tax Returns (the
"Tax Allocation Agreement") pursuant to which each U.S. Subsidiary makes tax
payments to PXRE Delaware in an amount equal to the federal income tax payment
that would have been payable by such Subsidiary for such year if it had filed a
separate income tax return for such year. PXRE Delaware is required to provide
for payment of the consolidated federal income tax liability for the entire
group. If the aggregate amount of tax payments made in any tax year by a U.S.
Subsidiary is less than (or greater than) the annual tax liability for such
Subsidiary on a stand-alone basis for such year, such Subsidiary will be
required to make up such deficiency to PXRE Delaware (or will be entitled to
receive a credit if payments exceed the separate return tax liability) of the
Subsidiary.
The primary sources of liquidity for PXRE's principal operating
subsidiaries are net cash flow from operating activities (including interest
income from investments), the maturity or sale of investments, borrowings,
capital contributions and advances and in the case of PXRE Reinsurance,
dividends from Transnational Insurance. Funds are applied primarily to the
payment of claims, operating expenses, income taxes and to the purchase of
investments. Premiums are typically received in advance of related claim
payments.
Net cash flow provided by operations was $17,512,000 in 1999 compared
with $4,955,000 during 1998, due to the effects of timing of collection of
receivables and reinsurance recoverables and payments of losses.
52
PXRE's management has established general procedures and guidelines for
its investment portfolio and oversees investment management carried out by
Phoenix Investment Partners, Limited, a public majority-owned subsidiary of
Phoenix Home Life Mutual Insurance Company, and by Mariner Investment Group,
Inc. ("Mariner") the sole shareholder of which is the Chairman of the Board and
a founding shareholder of Select Re. PXRE's invested assets consist primarily of
fixed maturities and limited partnerships, but also include equities, REITS
and short term investments. PXRE investments are subject to market-wide risks
and fluctuations, as well as to risk inherent in particular securities. As at
December 31, 1999, 72.9% of PXRE's investment portfolio, at fair value,
consisted of fixed maturities and short-term investments, while the balance
was in various mutual funds, limited partnerships and equity securities.
The limited partnerships primarily include a fund of funds investing in a
multiple number of hedge strategies. The investment policies of PXRE are
approved by its Board of Directors.
Of PXRE's fixed maturities portfolio at December 31, 1999, 89.0% of the
fair value was in obligations rated "A2" or "A" or better by Moody's or S&P,
respectively. Mortgage and asset-backed securities accounted for 28.9% of fixed
maturities based on fair value at December 31, 1999. At December 31, 1999, PXRE
had no investments in real estate or commercial mortgage loans; however, PXRE
has invested in common and preferred shares of publicly traded REITS. The
average market yield to maturity of PXRE's fixed maturities portfolio at
December 31, 1999 and 1998, was 6.6% and 5.9%, respectively.
Fixed maturity and equity investments are reported at fair value, with
the net unrealized gain or loss, net of tax, reported as a separate component of
stockholders' equity. PXRE recorded directly to stockholders' equity a
$6,752,000 after-tax unrealized loss in the value of its investment portfolio at
December 31,1999 primarily due to an increase in interest rates.
Short-term investments are carried at amortized cost, which
approximates fair value. PXRE's short-term investments, principally high-grade
commercial paper, marketable fixed income securities and investments in limited
partnerships which invest primarily in marketable fixed income securities, were
$50,004,000 at December 31, 1999 compared to $58,862,000 at December 31, 1998.
Limited partnership assets amounting to $113,476,000 at December 31, 1999, were
accounted for under the equity method. The amount of equity income included in
short-term investments and limited partnership assets as of December 31, 1999
amounted to $25,740,000.
Dividends declared in 1999 were $7,629,925 compared to $13,585,333 in
1998, as a result of the decrease in the per share quarterly dividend from $.26
to $.06 in the third quarter of 1999 in anticipation of the Bermuda
redomestication as well as share repurchases in 1999. The expected annual
dividend based on shares outstanding at December 31, 1999 is approximately
$2,803,000.
Book value per common share was $22.54 at December 31, 1999.
During 1999, PXRE acquired 884,700 shares of common stock under its
stock repurchase program. In December 1999, PXRE announced a new stock
53
repurchase program of up to 1,000,000 shares. PXRE had approximately 11,680,000
common shares outstanding as of December 31, 1999.
PXRE may be subject to gains and losses resulting from currency
fluctuations because substantially all of its investments are denominated in
U.S. dollars, while some of its net liability exposure is in currencies other
than U.S. dollars. PXRE holds, and expects to continue to hold, currency
positions and has made, and expects to continue to make, investments denominated
in foreign currencies to mitigate, in part, the effects of currency fluctuations
on its results of operations. Currency holdings and investments denominated in
foreign currencies do not constitute a material portion of PXRE's investment
portfolio and, in the opinion of PXRE's management, are sufficiently liquid for
its needs.
In connection with the capitalization of PXRE Lloyd's Syndicate, PXRE
has placed on deposit $46,587,000 par value of U.S. government securities and
municipal bonds as collateral for Lloyd's. In addition, PXRE issued a letter of
credit for the benefit of Lloyd's in the amount of $15,355,000, which is
collateralized by municipal bonds of approximately $17,835,000. All invested
assets of PXRE Lloyd's Syndicate amounting to $11,253,000 at December 31, 1999
are restricted from being paid as a dividend for at least three years. In
addition, PXRE Reinsurance has provided a 'L'5,000,000 ($8,091,000 at
December 31, 1999 exchange rates) line of credit to PXRE Managing Agency for
liquidity purposes of which $7,111,000 had been drawn.
In September 1997, PXRE and Phoenix Home Life completed the formation
of a joint venture, Cat Bond Investors L.L.C., with initial committed capital of
$20 million. The joint venture specializes in investing in instruments, the
returns on which are determined, in whole or in part, by the nature, magnitude
and/or effects of certain catastrophe events or meteorological conditions.
All amounts classified as reinsurance recoverable at December 31, 1999
are considered by management of PXRE to be collectible in all material respects.
MARKET RISK
PXRE is exposed to market risks that are principally interest rate and
equity price risks. The potential for losses from changes in interest rates with
respect to its investments, borrowings, and a related interest rate swap exists.
PXRE is exposed to potential losses from changes in equity prices with respect
to its investments. However, PXRE believes its exposure to foreign exchange risk
and exposures to other market risks represented by weather contracts, are not
currently material. PXRE has no open weather contracts as of December 31, 1999.
PXRE risk management strategy is to accept certain levels of market
risks, principally through its investment activities, in order to offset its
insurance exposures that may be considered actuarial rather than financial. The
objectives of PXRE's investment activities are to generate the required return
from selected market sectors and limit its exposures to market risks that may
prevent PXRE from servicing its insurance obligations. PXRE's Board of Directors
approves investment guidelines and the selection of external investment
54
advisers who manage PXRE's portfolios. The investment managers make tactical
investment decisions within the established guidelines. Management monitors the
external advisers through written reports that are reviewed and approved by the
Board of Directors. Management also manages diversification strategies across
the portfolios in order to limit PXRE's potential loss from any single market
risk. The performance and risk profiles of the portfolio are reported in
various forms throughout the fiscal year to management, the Board of Directors,
rating agencies, regulators, and to shareholders.
The investment portfolio of PXRE is summarized in the Notes to the
Financial Statements, Item 7, Management's Discussion and Analysis and Item 1,
Business.
INTEREST RATE RISK
PXRE's principal fixed maturity market risk exposure is to changes in
U.S. interest rates. Changes in interest rates may affect the fair value of
PXRE's fixed-income portfolio, borrowings (Bank Debt and Trust Preferred) and a
related interest rate swap. PXRE's holdings subject it to exposures in the
treasury, municipal, and various asset-backed sectors. These sectors consist
primarily of investment grade securities whose fair value is subject to interest
rate, credit and prepayment risk. All investment positions are long with no
'short' or derivative positions.
PXRE's investments in emerging market debt securities are subject to
interest rate risk which is included in the analysis below. During 1999, PXRE
substantially reduced its investment in emerging market debt securities to less
than 4% of the fixed maturity portfolio. Therefore, the level of credit exposure
associated with these securities has been substantially reduced.
PXRE believes that reinsurance receivables and payables do not expose
it to significant interest rate risk and are excluded from the analysis below.
In order to measure PXRE's exposure to changes in interest rates a
sensitivity analysis was performed. Potential loss is measured as a change in
fair value. The fair value of the fixed income portfolio, borrowings and related
interest rate swap at year-end was re-measured from the fair values reported in
the financial statements assuming a 10% increase in interest rates. The
potential loss in fair value due to interest rate exposure was estimated at $3
million at December 31, 1999 and $1 million at December 31, 1998.
The estimated potential loss is net of prepayment risk associated with
the mortgage-related securities. The mortgage sector is a minor portion of the
portfolio at year-end. The estimate assumes a similar change in fair value
across security sectors with no adjustment for change in value due to credit
risk. The interest rate risk related to the investments of PXRE Lloyd's
Syndicate is diminimus. The average maturity of these investments is under one
year.
CREDIT RISK
PXRE's exposure to potential loss due to changes in credit spreads was
simulated through a sensitivity analysis assuming an increase in credit spreads
of 200 basis points with respect to the emerging market securities holdings.
55
The estimated potential loss in fair value due to changes in credit spreads was
estimated at $5 million at December 31, 1998. This analysis excluded the impact
of changes in credit spreads on other portfolio sectors and borrowings that may
be offsetting. PXRE has significantly reduced its investments in emerging
market securities in 1999. Therefore the credit risk related to the investment
is diminimus at December 31, 1999.
FOREIGN EXCHANGE RISK
PXRE's exposure to foreign exchange risk from its foreign denominated
securities is not material. Only a small portion of PXRE's investment portfolio
is denominated in currencies other than U.S. dollars. Additionally the carrying
value of certain receivables and payables denominated in foreign currencies are
carried at fair value. For these reasons, these items have been excluded from
the market risk disclosure.
EQUITY PRICE RISK
PXRE is exposed to equity price risk in the form of a limited number of
equity investments, including holdings in the common stock of U.S. REIT's. Based
on a 10% decrease in equity prices the potential loss in fair value is estimated
to be $2.4 million and $4 million at December 31, 1999 and 1998, respectively.
The decrease reflects the reduction in the size of the equity portfolio at
December 31, 1999.
DIVERSIFICATION BENEFIT
PXRE's risk management strategy includes investments that are expected
to reflect offsetting changes in fair value in response to various changes in
market risks. PXRE's exposure to interest risk in its fixed income portfolio is
expected to be offset in part by the change in value of its REIT's. PXRE also
invests in REIT's to limit the potential loss due to exposures to changes in
interest rates; this loss limit is based on the expected minimum value of the
real estate holdings of the trusts.
PXRE also holds other investments that are excluded from this
disclosure that are expected to provide positive returns under most market
conditions representing adverse changes in interest rates and other market
factors (See Note 3 of Notes to Consolidated Financial Statements).
To compare the magnitude of changes in fair value due to interest rate
changes with those of other risk factors in the investment portfolio, reference
is made to Note 3 of Notes to Consolidated Financial Statements related to
realized and unrealized gains and losses on investments.
INCOME TAXES
PXRE recognized a tax benefit in 1999 and 1998 of $13,149,000, and
$1,660,000, respectively, compared to tax expense in 1997 of $20,705,000. The
tax benefit reported by PXRE for 1999 and 1998 is primarily attributable to
underwriting losses, tax-exempt income and amortization of negative goodwill.
56
The tax benefit in 1999 was offset, in part, by non recurring charges including
approximately $1.8 million in connection with the Bermuda redomestication
related to the cancellation of shares of PXRE Delaware held by its subsidiary
and by $2.3 million in connection with the redomestication related to dividends
paid by PXRE Delaware. Tax expense in 1997 differed from the statutory rate
principally due to the relative proportion of underwriting and taxable
income versus tax exempt income and negative goodwill amortization. See Note 5
of Notes to Consolidated Financial Statements.
57
YEAR 2000 UPDATE
PXRE's Year 2000 Readiness Project was successfully concluded prior to
December 31, 1999. The Company did not experience any Y2K-related problems at
year-end or thereafter.
PXRE contacted and where appropriate re-contacted its material business
partners to determine their Year 2000 date processing capabilities. To date none
of these partners has reported or evidenced any date-related difficulty.
PXRE continues to maintain disaster recovery procedures and the ability
to re-deploy computer and staff to a remote hot site.
PXRE continues to evaluate potential Year 2000 exposures emanating from
its reinsurance business by conducting an analysis of each individual customer's
risk exposures. Where appropriate, PXRE requires that an exclusion be added to
the reinsurance contract or that a letter of intent be received. PXRE began
adding exclusions to reinsurance contracts in early 1998. Additionally, it is
PXRE's position, in common with others in the industry, that Year 2000 exposures
in and of themselves are not fortuitous losses and thus are not covered under
reinsurance contracts even without specific exclusions. For these reasons, PXRE
believes that its exposures to Year 2000 claims will not be material. However,
as was the case with environmental exposures, changing social and legal trends
may create unintended coverage for exposures by causing courts to reinterpret
reinsurance contracts and related exclusions. It is impossible to predict what,
if any, exposure reinsurance companies may ultimately have for Year 2000 claims
whether coverage for the issue is specifically excluded or included.
Readers are cautioned that forward-looking statements contained in this
Year 2000 Update should be read in conjunction with the Company's disclosures
under the heading: "CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS."
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains various forward-looking statements and includes
assumptions concerning PXRE's operations, future results and prospects.
Statements included herein, as well as statements made by or on behalf of PXRE
in press releases, written statements or other documents filed with the
Securities and Exchange Commission, or in its communications and discussions
with investors and analysts in the normal course of business through meetings,
phone calls and conference calls, which are not historical in nature are
intended to be, and are hereby identified as, "forward-looking statements" for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934 as amended. These forward-looking statements, identified by words
such as "intend", "believe", or "expects" or variations of such words or similar
expressions are based on current expectations and are subject to risk and
uncertainties. PXRE cautions investors and analysts that actual results or
events could differ materially from those set forth or implied by the
forward-looking statements and related assumptions, depending on the outcome of
certain important factors including, but not limited to, the following: (i) the
58
frequency and severity of catastrophic events; (ii) changes in the level of
competition in the reinsurance or primary insurance markets that impact the
volume or profitability of business (these changes include, but are not limited
to, the intensity of price competition, the entry of new competitors, existing
competitors exiting the market and competitors'development of new products);
(iii) changes in the demand for reinsurance, including changes in the amount of
ceding companies' retentions and changes in the demand for excess and surplus
lines insurance coverages; (iv) the ability of PXRE to execute its
diversification initiatives in markets in which PXRE has not had a significant
presence; (v) adverse development on loss reserves related to business written
in prior years; (vi) lower than estimated retrocessional recoveries on unpaid
losses, including the effects of losses due to a decline in the creditworthiness
of PXRE's retrocessionaires; (vii) increases in interest rates, which cause a
reduction in the market value of PXRE's interest rate sensitive investments,
including its fixed income investment portfolio; (viii) decreases in interest
rates causing a reduction of income earned on new cash flow from operations and
the reinvestment of the proceeds from sales, calls or maturities of existing
investments; (ix) market fluctuations in equity securities and securities
underlying limited partnership investments; (x) foreign currency fluctuations
resulting in exchange gains or losses; (xi) changes in the composition of
PXRE's investment portfolio; (xii) changes in tax laws, tax treaties, tax rules
and interpretations; and (xiii) changes in management's evaluation of the impact
of the Year 2000 problem on its operations.
In addition to the factors outlined above that are directly related to
PXRE's business, PXRE is also subject to general business risks, including, but
not limited to, adverse U.S. state and federal or non-U.S. legislation and
regulation, adverse publicity or news coverage, changes in general economic
factors and the loss of key employees.
59
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are filed as part of this Form 10-K:
Page
PXRE Group Ltd.:
Report of Independent Accountants F-1
Consolidated Balance Sheets
at December 31, 1999 and 1998 F-2
Consolidated Statements of Operations and
Comprehensive Income for the years
ended December 31, 1999, 1998 and 1997 F-3
Consolidated Statements of
Stockholders' Equity for the years
ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Cash Flow
for the years ended December 31,
1999, 1998 and 1997 F-5
Notes to Consolidated Financial
Statements F-6
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No disclosure hereunder is required as PXRE has not changed its
accountants since December 31, 1997.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is contained in PXRE's Proxy
Statement, which information is incorporated herein by reference and which Proxy
Statement will be filed within 120 days of the end of PXRE's 1999 fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is contained in PXRE's Proxy
Statement, which information is incorporated herein by reference and which Proxy
Statement will be filed within 120 days of the end of PXRE's 1999 fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is contained in PXRE's Proxy
Statement, which information is incorporated herein by reference and which Proxy
Statement will be filed within 120 days of the end of PXRE's 1999 fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is contained in PXRE's Proxy
Statement, which information is incorporated herein by reference and which Proxy
Statement will be filed within 120 days of the end of PXRE's 1999 fiscal year.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
(1) Financial Statements
Page
PXRE Group Ltd.:
Report of Independent Accountants F-1
Consolidated Balance Sheets at
December 31, 1999 and 1998 F-2
Consolidated Statements of Operations and
Comprehensive Income for the years
ended December 31, 1999, 1998 and 1997 F-3
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Cash Flow for the years
ended December 31, 1999, 1998 and 1997 F-5
Notes to Consolidated Financial Statements F-6
(2) Financial Statements Schedules
Schedule I - Summary of Investments
(The information required by this Schedule is presented in the
financial statements and the notes thereto included in this
Form 10-K.) --
Schedule II - Condensed Financial Information of Registrant F-31
Schedule III - Supplementary Insurance Information F-32
Schedule IV - Reinsurance
(The information required by this Schedule is presented
in the financial statements and the notes thereto included
in this Form 10-K.) ---
Schedule VI -- Supplemental Information Concerning
Property/Casualty Insurance Operations F-32
Report of Independent Accountants on the Financial Statement
Schedules and Consent of Independent Accountants F-33
All other financial statement schedules have been omitted as
-62-
inapplicable.
(3) Exhibits
3.1 Memorandum of Association and Bye-laws of PXRE Group Ltd. (Exhibits
3.1 and 3.2, respectively, to PXRE's Form S-4 Registration Statement dated
August 18, 1999 (File No. 333-85451), and incorporated herein by reference).
(4) Instruments Defining the Rights of Security Holders.
4.1 Form of Specimen Common Share certificate, par value $1.00 per
share, of PXRE (Exhibit 4.1 to PXRE's Form S-4 Registration Statement dated
August 18, 1999 (File No. 333-85451), and incorporated herein by reference).
4.2 Credit Agreement dated as of December 30, 1998 among PXRE
Corporation, the banks and financial institutions listed on the signature pages
thereto or that subsequently become parties thereto (collectively, the
"Lenders") and First Union National Bank ("First Union") as agent for the
Lenders (Exhibit 4.8 to PXRE Corporation's Form 8-K dated January 8, 1999 (File
No. 0-15428), and incorporated herein by reference).
4.3 First Amendment and Waiver to Credit Agreement dated as of May 18,
1999 among PXRE Corporation, the Lenders and First Union, Joinder Agreements
dated May 18, 1999 by Fleet National Bank and Credit Lyonnais New York Branch,
Assignments and Acceptances dated May 18, 1999 between First Union and Fleet
National Bank and between First Union and The First National Bank of Chicago,
respectively (Exhibit 4.9 to PXRE Corporation's Form 10-Q for the quarterly
period ended June 30, 1999 (File No. 0-15428), and incorporated herein by
reference).
4.4 Second Amendment and Waiver to Credit Agreement dated as of June
25, 1999 among PXRE Corporation, the Lenders and First Union, (Exhibit 4.9 to
PXRE Corporation's Form 10-Q for the quarterly period ended June 30, 1999 (File
No. 0-15428), and incorporated herein by reference).
4.5 First Amended and Restated Credit Agreement among PXRE Corporation,
as borrower, PXRE Group Ltd. and PXRE (Barbados) Ltd., as guarantors, the
Lenders named therein and First Union as agent (Exhibit 4.5 to PXRE's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1999 (File No. 1-15259)
and incorporated herein by reference).
4.6 Indenture, dated as of January 29, 1997, between PXRE Corporation
and First Union National Bank, as Trustee (Exhibit 4.3 to PXRE Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (File No.
0-15428), and incorporated herein by reference).
4.7 First Supplemental Indenture, dated as of January 29, 1997, between
PXRE Corporation and First Union National Bank, as Trustee, in respect of PXRE
Corporation's 8.85% Junior Subordinated Deferrable Interest Debentures due 2027
(Exhibit 4.4 to the Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1996 (File No. 0-15428), and incorporated herein
by reference).
4.8 Amended and Restated Declaration of Trust of PXRE Capital Trust I,
dated as of January 29, 1997, among PXRE Corporation, as sponsor, the
Administrators thereof, First Union Bank of Delaware, as Delaware Trustee, First
Union National Bank, as Institutional Trustee, and the holders from time to time
of undivided interests in the assets of PXRE Capital Trust I (Exhibit 4.5 to the
Annual Report on Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1996 (File No. 0-15428), and incorporated herein by reference).
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4.9 Capital Securities Guarantee Agreement, dated as of January 29,
1997, between PXRE Corporation and First Union National Bank, as Guarantee
Trustee (Exhibit 4.6 to the Annual Report on Form 10-K of PXRE Corporation for
the fiscal year ended December 31, 1996 (File No.0-15428), and incorporated
herein by reference).
4.10 Common Securities Guarantee Agreement, dated as of January 29,
1997, executed by PXRE Corporation (Exhibit 4.7 to the Annual Report on Form
10-K of PXRE Corporation for the fiscal year ended December 31, 1996 (File No.
0-15428), and incorporated herein by reference).
4.11 Registration Rights Agreement, dated January 29, 1997, among PXRE
Corporation, PXRE Capital Trust I and Salomon Brothers Inc, as Representative of
the Initial Purchasers (Exhibit 10.1 to the Annual Report on Form 10-K of PXRE
Corporation for the fiscal year ended December 31, 1996 (File No. 0-15428), and
incorporated herein by reference).
4.12 Purchase Agreement among PXRE Corporation, PXRE Capital Trust I
and Salomon Brothers Inc, as Representative of the Initial Purchasers, dated
January 24, 1997 (Exhibit 10.2 to the Annual Report on Form 10-K of PXRE
Corporation for the fiscal year ended December 31, 1996 (File No. 0-15428), and
incorporated herein by reference).
(10) Material Contracts. The material contracts of PXRE are as
follows:
10.1 PXRE Reinsurance Company Management Agreement among PXRE
Reinsurance Company and, among others, Merrimack Mutual Fire Insurance Company
("Merrimack"), Pennsylvania Lumbermens Mutual Insurance Company ("Pennsylvania
Lumbermens"), and NRMA Insurance Limited ("NRMA") (Exhibit 10.1 to the Annual
Report on Form 10-K of PXRE Corporation for the fiscal year ended December 31,
1991 (File No. 0-15428), and incorporated herein by reference); letter dated
November 28, 1990 from Pennsylvania Lumbermens confirming reduced participation
(Exhibit 10.7 to PXRE Corporation's Form S-2 Registration Statement dated
February 21, 1992, as amended by Amendment No. 1 thereto dated April 1, 1992 and
by Amendment No. 2 thereto dated April 13, 1992 and by Amendment No. 3 thereto
dated April 23, 1992 (File No. 33-45893), and incorporated herein by reference);
cover notes respecting January 1997 renewals by Merrimack, Pennsylvania
Lumbermens and NRMA and cover note respecting participation commencing January
1, 1997 by Auto-Owners Insurance Company ("Auto-Owners") (Exhibit 10.3 to the
Annual Report on Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1996 (File No. 0-15428), and incorporated herein by reference);
cover notes respecting January 1999 renewals by NRMA, Pennsylvania Lumbermens,
Auto-Owners and The Andover Companies (a Merrimack company) (Exhibit 10.3 to the
Annual Report on Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1998 (File No. 0-15428), and incorporated herein by reference);
and cover note respecting participation commencing January 1, 1999 by the
Kyoei Mutual Fire & Marine Insurance Company.
10.2 Quota Share Retrocessional Agreement between PXRE Reinsurance
Company and Trenwick America Reinsurance Corporation ("Trenwick Group") (Exhibit
10.21 to the Annual Report on Form 10-K of PXRE Corporation for the fiscal year
ended December 31, 1993 (File No. 0-15428), and incorporated herein by
reference); cover note respecting January 1999 renewal by Trenwick Group
(Exhibit 10.17 to the Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1998 (File No. 0-15428), and incorporated herein
by reference).
10.3 Undertaking dated September 1, 1998 between PXRE Reinsurance
Company and Select Reinsurance Ltd., Amended and Restated Facultative Obligatory
Quota Share Retrocessional Agreement between PXRE Reinsurance Company and Select
Reinsurance Ltd. and Variable Quota Share Retrocessional Agreement between PXRE
Reinsurance Company and Select Reinsurance Ltd. (Exhibit 10.36 to the Annual
Report on Form
-64-
10-K of PXRE Corporation for the fiscal year ended December 31, 1998 (File No.
0-15428), and incorporated herein by reference); letter dated November 1, 1999
regarding Undertaking extension; and endorsement regarding Select Reinsurance
Ltd. participation for 2000.
10.4 Tax Settlement Agreement dated June 21, 1991 between PXRE
Corporation, PXRE Reinsurance Company and PM Holdings, Inc. (Exhibit 10.2 to the
Annual Report on Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1991 (File No. 0-15428), and incorporated herein by reference).
10.5 Investment Advisory Agreement between PXRE Reinsurance Company and
Phoenix Investment Counsel, Inc., dated February 25, 1987 and effective as of
January 1, 1987 (Exhibit 10.10 to Amendment No. 1 dated February 19, 1987 to
PXRE Corporation's Form S-1 Registration Statement dated August 29, 1986, as
subsequently amended by Amendment No. 2 thereto dated March 25, 1987 (File No.
33-8406), and incorporated herein by reference); Amendment to Investment
Advisory Agreement between PXRE Reinsurance Company and Phoenix Investment
Counsel, Inc., effective retroactively as of January 1, 1987 (Exhibit 10.3 to
the Annual Report on Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1991 (File No. 0-15428), and incorporated herein by reference);
Amendment No. 2 to Investment Advisory Agreement between PXRE Reinsurance
Company and Phoenix Investment Counsel, Inc., effective as of November 1, 1989
(Exhibit 10.4 to the Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1991 (File No. 0-15428), and incorporated herein
by reference); Amendment No. 3 to Investment Advisory Agreement between PXRE
Reinsurance Company and Phoenix Investment Counsel, Inc. effective June 1, 1995
(Exhibit 10.26 to the Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1995 (File No. 0-15428), and incorporated herein
by reference).
10.6 Investment Management Agreement, effective January 29, 1997
between PXRE Corporation and Phoenix Investment Counsel, Inc. (Exhibit 10.29 to
the Annual Report on Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1996 (File No. 0-15428), and incorporated herein by reference).
10.7 Amended and Restated Investment Advisory Agreement between
Transnational Reinsurance Company and Phoenix Investment Counsel, Inc., dated
November 8, 1993 (Exhibit 10.4 to Transnational Re Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-22376) and
incorporated herein by reference), as amended by the Amendment thereto,
effective June 1, 1995 (Exhibit 10.11 to Transnational Re Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995 (File No.
0-22376) and incorporated herein by reference).
10.8 Investment Management Agreement effective October 15, 1999 between
PXRE Group Ltd. and Phoenix Investment Counsel, Inc.
10.9 Investment Management Agreement effective October 15, 1999 between
PXRE Reinsurance Ltd. and Phoenix Investment Counsel, Inc.
10.10 Investment Advisory Services Agreement between PXRE Reinsurance
Ltd. and Mariner Investment Group, Inc. dated October 1, 1999.
10.11 Amended and Restated Agreement Concerning Filing of Consolidated
Federal Income Tax Returns dated as of August 23, 1993 between PXRE Corporation
and PXRE Reinsurance Company (Exhibit 10.8 to the Annual Report on Form 10-K of
PXRE Corporation for the fiscal year ended December 31, 1993 (File No. 0-15428),
and incorporated herein by reference); Addendum No. 2 dated November 10, 1994 to
the PXRE Corporation Amended and Restated Agreement Concerning Filing of
Consolidated Federal Income Tax Returns (Exhibit 10.22 to the Annual Report on
Form 10-K of PXRE Corporation for the fiscal year ended December 31, 1994 (File
No. 0-15428), and incorporated herein by reference); and Addendum No. 3 dated as
of December 11, 1996 to the PXRE Corporation Amended and Restated Agreement
Concerning Filing of Consolidated Federal
-65-
Income Tax Returns (Exhibit 10.22 to the Annual Report on Form 10-K of PXRE
Corporation for the fiscal year ended December 31, 1996 (File No. 0-15428), and
incorporated herein by reference).
10.12 Employee Stock Purchase Plan, as amended (Appendix C to PXRE's
Proxy Statement for the 2000 annual general meeting of shareholders, and
incorporated herein by reference). (M)
10.13 Executive Severance Plan (Exhibit 10.10 to PXRE's Form S-4
Registration Statement dated August 18, 1999 (File No. 333-85451) and
incorporated herein by reference). (M)
10.14 1988 Stock Option Plan, as amended (Exhibit A to the first
Prospectus forming part of PXRE's Form S-8 and S-3 Registration Statement dated
June 21, 1990 (File No. 33-35521), and incorporated herein by reference). (M)
10.15 Restated Employee Annual Incentive Bonus Plan, as amended
(Appendix A to PXRE's Proxy Statement for the 2000 annual general meeting of
shareholders, and incorporated herein by reference).(M)
10.16 1992 Officer Incentive Plan, as amended (Appendix B to PXRE's
Proxy Statement for the 2000 annual general meeting of shareholders and
incorporated herein by reference).(M)
10.17 Director Stock Plan (Appendix D to PXRE's Proxy Statement
for the 2000 annual general meeting of shareholders and incorporated herein by
reference).(M)
10.18 Director Equity and Deferred Compensation Plan (Appendix E to
PXRE's Proxy Statement for the 2000 annual general meeting of shareholders,
and incorporated herein by reference).(M)
10.19 Non-Employee Director Deferred Stock Plan (Appendix A to PXRE
Corporation's Proxy Statement dated April 12, 1991, and incorporated herein by
reference).(M)
10.20 Management Agreement dated as of November 8, 1993 among PXRE
Reinsurance Company, Transnational Re Corporation and Transnational Reinsurance
Company (Exhibit 10.22 to the Annual Report on Form 10-K of PXRE Corporation for
the fiscal year ended December 31, 1993 (File No. 0-15428), and incorporated
herein by reference), as amended by Amendment No. 1 thereto, dated December 1,
1994 (Exhibit 10.21 to the Annual Report on Form 10-K of PXRE Corporation for
the fiscal year ended December 31, 1994 (File No. 0-15428), and incorporated
herein by reference).
10.21 Agreement and Plan of Merger dated as of August 22, 1996 between
PXRE Corporation and Transnational Re Corporation, as amended by Amendment No. 1
dated as of September 27, 1996 and Amendment No. 2 dated as of October 24, 1996
(Annex A to PXRE Corporation's Form S-4 Registration Statement dated October 30,
1996 (File No. 333-15087), and incorporated herein by reference).
10.22 Excess of Loss Reinsurance Agreement, effective as of January 1,
1998, between PXRE Reinsurance Company and Transnational Insurance Company.
- --------
(M) INDICATES A MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT IN WHICH
THE DIRECTORS AND/OR EXECUTIVE OFFICERS OF PXRE PARTICIPATE.
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10.23 Reinsurance Pooling Agreement, effective as of January 1, 1999,
between PXRE Reinsurance Company and Transnational Insurance Company. (Exhibit
10.21 to PXRE's Form S-4 Registration Statement dated August 18, 1999 (File No.
333-85451), and incorporated herein by reference).
10.24 Agreement and Plan of Merger dated as of July 7, 1999 among PXRE
Corporation, PXRE Group Ltd. and PXRE Merger Corp. (Annex A to PXRE's Form S-4
Registration Statement dated August 18, 1999 (File No. 333-85451), and
incorporated herein by reference).
10.25 Facultative Obligatory Quota Share Retrocessional Agreement
effective October 1, 1999 between PXRE Reinsurance Company and PXRE Reinsurance
Ltd. and Aggregate Excess of Loss Agreement effective October 1, 1999 between
PXRE Reinsurance Ltd. and PXRE Reinsurance Company.
10.26 Lease dated May 9, 1994 between Thornall Associates, L.P. and
PXRE Corporation (Exhibit 10.24 to the Annual Report on Form 10-K of PXRE
Corporation for the fiscal year ended December 31, 1994 (File No. 0-15428), and
incorporated herein by reference) and Lease dated November 1, 1999 between
Thornall Associates, L.P. and PXRE Corporation.
10.27 Lloyd's Deposit Trust Deed (Third Party Deposit) dated November
29, 1996 between PXRE Limited and PXRE Reinsurance Company (Exhibit 10.32 to the
Annual Report on Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1997 (File No. 0-15428), and incorporated herein by reference).
10.28 Letter of Credit dated November 22, 1996 issued by The Chase
Manhattan Bank by order of PXRE Reinsurance Company for the benefit of Lloyd's
(Exhibit 10.33 to the Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1997 (File No. 0-15428), and incorporated herein
by reference).
10.29 Lloyd's Security Trust Deed (Letter of Credit and Bank Guarantee)
dated November 29, 1997 between PXRE Limited and Lloyd's (Exhibit 10.34 to the
Annual Report on Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1997 (File No. 0-15428), and incorporated herein by reference).
10.30 Operating Agreement of Cat Bond Investors, effective as of June
9, 1997 among Cat Bond Investors, Phoenix Home Life and PXRE Corporation
(Exhibit 10.35 to the Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1997 (File No. 0-15428), and incorporated herein
by reference).
10.31 Employment Agreement dated July 16, 1998 between PXRE Managing
Agency Limited and Peter G. Butler (Exhibit 10.37 to the Annual Report on Form
10-K of PXRE Corporation for the fiscal year ended December 31, 1998 (File No.
0-15428) and incorporated herein by reference). (M)
10.32 Employment Agreement dated June 8, 1998 between PXRE Corporation
and Michael J. Toman (Exhibit 10.38 to the Annual Report on Form 10-K of PXRE
Corporation for the fiscal year ended December 31, 1998 (File No. 0-15428) and
incorporated herein by reference). (M)
10.33 Employment Agreement dated April 14, 1999 between PXRE
Reinsurance Company and Jeffrey Mayer (Exhibit 10.39 to PXRE Corporation's Form
10-Q for the quarterly period ended June 30, 1999 (File No. 0- 15428) and
incorporated herein by reference). (M)
10.34 Investment Advisory Services Agreement between PXRE Corporation
and Mariner Investment Group, Inc. dated March 14, 2000.
- --------
(M) INDICATES A MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT IN WHICH
THE DIRECTORS AND/OR EXECUTIVE OFFICERS OF PXRE PARTICIPATE.
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(11) Statement re computation of earnings per share (The
information required by this Exhibit is presented in the financial statements
and the notes thereto included in this Form 10-K.)
(12) Statement re computation of ratios (attached hereto as
Exhibit 12).
(21) List of Subsidiaries. At December 31, 1999, PXRE had the following
subsidiaries: PXRE Reinsurance Ltd., a Bermuda insurance company; PXRE
(Barbados) Ltd., a Barbados company; PXRE Corporation, a Delaware corporation;
PXRE Reinsurance Company, a Connecticut insurance company; Transnational
Insurance Company, a Connecticut insurance company; PXRE Capital Trust I, a
Delaware statutory business trust; PXRE Limited., an English company (the sole
member of PG Butler Syndicate 1224 at Lloyd's); PXRE Managing Agency Limited
(the managing agency for PG Butler Syndicate 1224 at Lloyd's); PXRE Trading
Corporation, a Delaware corporation; TREX Trading Corporation, a Delaware
corporation; PX/TX Associates, a Delaware general partnership (of which PXRE
Trading and TREX Trading are the only partners); CAT Fund, L.P., a Delaware
limited partnership (of which PX/TX Associates is the sole general partner and
PXRE Trading and TREX Trading are the only limited partners); Cat Bond Investors
L.L.C. (of which PXRE Delaware and Phoenix Home Life are the only members); PXRE
Solutions Inc., a Connecticut corporation; PXRE Direct Underwriting Managers,
Inc., a Connecticut corporation; and PXRE Underwriting Managers, Inc., a
Virginia corporation. (See the discussion in this Form 10-K under the captions
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations.")
(23) Consents of Experts and Counsel. The consent of
PricewaterhouseCoopers, independent accountants to PXRE, is included as part of
Item 14(a)(2) of this Form 10-K.
(24) Power of Attorney. Copies of the powers of attorney executed by
each of F. Sedgwick Browne, Robert W. Fiondella, Franklin D. Haftl, Bernard
Kelly, Wendy Luscombe, Philip R. McLoughlin, David W. Searfoss and Wilson Wilde
are attached hereto as Exhibit 24.
(27) Financial Data Schedule. Exhibit 27 included in electronic filing
only.
(28) Information from reports furnished to state insurance regulatory
authorities. Filed in paper under cover of Form SE.
(b) Current Reports.
None.
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(2) above.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, PXRE Group Ltd. has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PXRE GROUP LTD.
By: /s/ Gerald L. Radke
Gerald L. Radke
Its Chairman of the Board,
President and Chief
Executive Officer
Date: March 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of PXRE
Group Ltd. and in the capacity and on the dates indicated:
By:/s/ Gerald L. Radke By:/s/ James F. Dore
Gerald L. Radke James F. Dore
Its Chairman of the Board, Its Executive Vice President
President and Chief and Chief Financial
Executive Officer Officer
(Principal Executive (Principal Financial
Officer) and Director Officer and Principal
Accounting Officer)
Date: March 29, 2000 Date: March 29, 2000
By*_______________________ By*______________________
F. Sedgwick Browne Franklin D. Haftl
Director Director
Date: March 29, 2000 Date: March 29, 2000
By*_______________________ By*______________________
Robert W. Fiondella Wendy Luscombe
Director Director
Date: March 29, 2000 Date: March 29, 2000
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By*_______________________ By*______________________
Bernard Kelly Philip R. McLoughlin
Director Director
Date: March 29, 2000 Date: March 29, 2000
By*_______________________ By*_______________________
David W. Searfoss Wilson Wilde
Director Director
Date: March 29, 2000 Date: March 29, 2000
*By:/s/ Gerald L. Radke
Gerald L. Radke
Attorney-in-Fact
Attorney-in-Fact
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REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
PXRE GROUP LTD. (Successor Registrant of PXRE Corporation)
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and comprehensive income, of
stockholders' equity and of cash flows present fairly, in all material respects,
the financial position of PXRE Group Ltd. (Successor Registrant of PXRE
Corporation) and its subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers
Hamilton, Bermuda
February 7, 2000
F-1
PXRE
Group Ltd. Consolidated Balance Sheets
- --------------------------------------------------------------------------------
December 31,
1999 1998
---- ----
Assets Investments:
Fixed maturities, available-for-sale, at fair value (amortized
cost $329,962,000 and $308,658,000, respectively) $ 321,247,527 $ 309,477,075
Equity securities, at fair value (cost $26,214,000 and $41,146,000) 24,840,360 40,974,283
Short-term investments 50,004,473 58,861,983
Limited partnerships, at equity (cost $93,147,000 and $66,588,000) 113,475,717 65,163,581
------------- -------------
Total investments 509,568,077 474,476,922
Cash 14,735,040 16,117,473
Accrued investment income 4,186,849 5,330,419
Receivables:
Unreported premiums 40,216,340 18,440,954
Balances due from intermediaries and brokers, net 21,549,113 14,631,140
Other receivables 22,971,088 21,293,256
Reinsurance recoverable 106,702,307 41,260,657
Ceded unearned premiums 19,582,260 8,231,130
Deferred acquisition costs 7,809,971 4,122,603
Current income tax recoverable 12,628,414 14,095,364
Deferred tax asset 11,531,000 5,474,000
Other assets 8,699,650 9,217,218
------------- -------------
Total assets $ 780,180,109 $ 632,691,136
============= =============
Liabilities Losses and loss expenses $ 261,551,353 $ 102,592,394
Unearned premiums 42,218,837 20,541,326
Debt payable 75,000,000 50,000,000
Other liabilities 38,609,857 25,664,972
------------- -------------
Total liabilities 417,380,047 198,798,692
------------- -------------
Minority interest in consolidated subsidiary:
Company-obligated mandatorily redeemable capital trust
pass-through securities of subsidiary trust holding solely a
company-guaranteed related subordinated debt 99,521,079 99,516,938
Stockholders' Serial preferred stock, $1.00 par value -- 10,000,000 shares authorized
Equity respectively; 0 shares issued and outstanding 0 0
Common stock, $1.00 par value and $.01 respectively -- 50,000,000 shares
authorized 11,679,769 and 14,938,262 shares issued 11,679,769 149,382
Additional paid-in capital 173,682,802 259,147,554
Treasury stock at cost ( 0 and 2,614,498 shares) 0 (61,420,025)
Accumulated other comprehensive income:
Net unrealized (depreciation) appreciation on investments, net of
deferred income tax (benefit) expense of $3,520,000 and $3,400 (6,752,002) 6,253
Retained earnings 89,932,620 139,842,939
Restricted stock at cost (369,483 and 167,832 shares) (5,264,206) (3,350,597)
------------- -------------
Total stockholders' equity 263,278,983 334,375,506
------------- -------------
Total liabilities and stockholders' equity $ 780,180,109 $ 632,691,136
============= =============
The accompanying notes are an integral part of these statements.
F-2
PXRE
Group Ltd. Consolidated Statements of Operations and Comprehensive Income
- --------------------------------------------------------------------------------
Years Ended December 31,
1999 1998 1997
---- ---- ---
Revenues Net premiums earned $ 128,503,110 $ 92,386,326 $ 91,415,240
Net investment income 47,172,616 19,611,889 31,190,625
Net realized investment (losses) gains (3,765,816) (3,862,189) 2,467,338
Management fees 3,590,337 2,172,131 3,005,657
---------------- ------------- ------------
175,500,247 110,308,157 128,078,860
---------------- ------------- ------------
Losses and Losses and loss expenses incurred 159,259,413 57,793,626 12,491,324
Expenses Commissions and brokerage 27,701,644 20,562,688 19,137,822
Other operating expenses 30,052,310 19,313,425 15,716,150
Interest expense 3,915,098 1,394,811 3,324,900
Minority interest in consolidated subsidiary 8,790,106 8,927,863 8,183,514
--------------- ------------- ------------
229,718,571 107,992,413 58,853,710
---------------- ------------- ------------
(Loss) income before income taxes, cumulative effect of accounting
change, and extraordinary item (54,218,324) 2,315,744 69,225,150
Income tax benefit (provision) 12,774,971 1,206,077 (22,198,000)
---------------- ------------- ------------
(Loss) income before cumulative effect of accounting change
and extraordinary loss (41,443,353) 3,521,821 47,027,150
Cumulative effect of accounting change, net of $374,381 tax benefit 695,278 0 0
Extraordinary loss on debt redemption, net of $454,000
income tax benefit 0 843,000 2,773,690
================ ============= ============
Net (loss) income $ (42,138,631) $ 2,678,821 $ 44,253,460
================ ============= ============
Comprehensive Other comprehensive (loss) income, net of tax:
Income Net unrealized (depreciation) appreciation on investments (6,758,255) (3,166,753) 2,604,601
================ ============= ============
Comprehensive (loss) income $ (48,896,886) $ (487,932) $ 46,858,061
================ ============= ============
Per Share Basic:
(Loss) income before cumulative effect of accounting change
and extraordinary item $ (3.58) $ 0.26 $ 3.41
Cumulative effect of accounting change (0.06) 0.00 0.00
Extraordinary loss 0.00 (0.06) (0.20)
---------------- ------------- ------------
Net (loss) income $ (3.64) $ 0.20 $ 3.21
================ ============= ============
Average shares outstanding 11,568,494 13,339,479 13,775,844
================ ============= ============
Diluted:
(Loss) income before cumulative effect of accounting change
and extraordinary item $ (3.58) $ 0.26 $ 3.39
Cumulative effect of accounting change (0.06) 0.00 0.00
Extraordinary loss 0.00 (0.06) (0.20)
---------------- ------------- ------------
Net (loss) income $ (3.64) $ 0.20 $ 3.19
================ ============= ============
Average shares outstanding 11,568,494 13,451,731 13,892,760
=============== ============= ============
The accompanying notes are an integral part of these statements.
F-3
PXRE
Group Ltd. Consolidated Statements of Stockholders' Equity
- ------------------------------------------------------------------------------
Years Ended December 31, 1999, 1998 and 1997
Accumulated
Additional Other
Preferred Common Paid-in Treasury Comprehensive Retained
Stock Stock Capital Stock Income Earnings
----- ----- ------- ----- ------ --------
Balance at December 31, 1996 $0 $ 147,058 $ 252,978,182 $ (14,090,289) $ 568,405 $118,705,257
Net income 44,253,460
Unrealized appreciation on investments, net 2,604,601
Issuance of common stock 1,005 1,748,520
Repurchase of treasury stock (7,464,583)
Issuance of restricted stock
Amortization of restricted stock
Dividends paid to common stockholders (12,209,266)
Other 334,090 (105,236)
-------------------------------------------------------------------------------------
Balance at December 31, 1997 0 148,063 255,060,792 (21,660,108) 3,173,006 150,749,451
Net income 2,678,821
Unrealized depreciation on investments, net (3,166,753)
Issuance of common stock 1,319 4,069,940
Repurchase of treasury stock (39,728,564)
Issuance of restricted stock
Amortization of restricted stock
Dividends paid to common stockholders (13,585,333)
Other 16,822 (31,353)
-------------------------------------------------------------------------------------
Balance at December 31, 1998 0 149,382 259,147,554 (61,420,025) 6,253 139,842,939
Net loss (42,138,631)
Unrealized depreciation on investments, net (6,758,255)
Increase in par value upon redomestication 11,501,792 (11,501,792)
Issuance of common stock 28,595 4,928,345
Repurchase of common stock (17,169,725)
Cancellation of treasury stock (78,697,992) 78,697,992
Issuance of restricted stock
Amortization of restricted stock
Dividends paid to common stockholders (7,629,924)
Elimination of quarter lag in results of
UK subsidiary (141,764)
Other (193,313) (108,242)
-------------------------------------------------------------------------------------
Balance at December 31, 1999 $0 $11,679,769 $ 173,682,802 $ 0 $(6,752,002) $ 89,932,620
=====================================================================================
Total
Restricted Stockholders'
Stock Equity
----- ------
Balance at December 31, 1996 $ (630,835) $ 357,677,778
Net income 44,253,460
Unrealized appreciation on investments, net 2,604,601
Issuance of common stock 1,749,525
Repurchase of treasury stock (7,464,583)
Issuance of restricted stock (741,988) (741,988)
Amortization of restricted stock 585,263 585,263
Dividends paid to common stockholders (12,209,266)
Other 4,752 233,606
---------------------------
Balance at December 31, 1997 (782,808) 386,688,396
Net income 2,678,821
Unrealized depreciation on investments, net (3,166,753)
Issuance of common stock 4,071,259
Repurchase of treasury stock (39,728,564)
Issuance of restricted stock (3,838,227) (3,838,227)
Amortization of restricted stock 1,239,085 1,239,085
Dividends paid to common stockholders (13,585,333)
Other 31,353 16,822
---------------------------
Balance at December 31, 1998 (3,350,597) 334,375,506
Net loss (42,138,631)
Unrealized depreciation on investments, net (6,758,255)
Increase in par value upon redomestication 0
Issuance of common stock 4,956,940
Repurchase of common stock (17,169,725)
Cancellation of treasury stock 0
Issuance of restricted stock (4,385,780) (4,385,780)
Amortization of restricted stock 2,409,665 2,409,665
Dividends paid to common stockholders (7,629,924)
Elimination of quarter lag in results of
UK subsidiary (141,764)
Other 62,506 (239,049)
-----------------------------
Balance at December 31, 1999 $ (5,264,206) $ 263,278,983
=============================
The accompanying notes are an integral part of these statements.
- --------------------------------------------------------------------------------
F-4
PXRE
Group Ltd. Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
Years Ended December 31,
1999 1998 1997
---- ---- ----
Cash Flows Net (loss) income $ (42,138,631) $ 2,678,821 $ 44,253,460
from Operating Adjustments to reconcile net income to net cash
Activities provided by operating activities:
Losses and loss expenses 158,958,959 45,402,940 (13,787,994)
Unearned premiums 15,512,597 (3,643,393) 8,639,753
Deferred acquisition costs (3,687,368) (1,156,862) (1,516,691)
Receivables (29,151,184) (16,603,791) (12,764,637)
Reinsurance balances payable 10,385,580 10,021,725 (5,082,885)
Reinsurance recoverable (70,627,866) (27,018,379) 3,822,847
Income tax recoverable 3,132,135 (7,591,759) (3,139,559)
Equity in earnings of limited partnerships (23,608,098) 5,059,230 (2,298,232)
Other (1,263,685) (2,193,466) 1,500,427
--------------- ---------------- ------------------
Net cash provided by operating activities 17,512,439 4,955,067 19,626,489
--------------- ---------------- ------------------
Cash Flows Cost of fixed maturity investments (129,792,417) (178,648,802) (294,637,213)
from Investing Fixed maturity investments matured/disposed 103,388,412 262,534,237 290,013,188
Activities Payable for securities 2,076,557 0 0
Cost of equity securities (9,835,512) (22,871,893) (17,372,574)
Equity securities disposed 28,382,068 2,817,183 3,172,678
Net change in short-term investments 12,717,651 (6,053,033) 8,742,789
Limited partnerships disposed 30,391,215 7,040,660 0
Limited partnerships purchased (56,883,257) (34,325,097) (42,375,000)
--------------- ---------------- ------------------
Net cash (used) provided by investing activities (19,555,283) 30,493,255 (52,456,132)
--------------- ---------------- ------------------
Cash Flows Proceeds from issuance of common stock 505,795 233,032 855,570
from Financing Cash dividends paid to common stockholders (7,629,924) (13,585,333) (12,209,266)
Activities Issuance of minority interest in consolidated subsidiary 0 0 99,509,000
Repurchase of debt 0 (22,527,860) (46,521,683)
Proceeds of debt 25,000,000 50,000,000 0
Cost of stock repurchased (17,215,460) (39,728,564) (7,464,583)
--------------- ---------------- ------------------
Net cash provided(used) by financing activities 660,411 (25,608,725) 34,169,038
--------------- ---------------- ------------------
Net change in cash (1,382,433) 9,839,597 1,339,395
Cash, beginning of period 16,117,473 6,277,876 4,938,481
--------------- ---------------- ------------------
Cash, end of period $ 14,735,040 $ 16,117,473 $ 6,277,876
================== ================ ===============
The accompanying notes are an integral part of these statements.
F-5
PXRE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
GROUP LTD. YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
On October 5, 1999, PXRE completed a reorganization that involved the
formation of PXRE Group Ltd., a Bermuda-based holding company which became the
holding company for PXRE Corporation and its other operations. The
reorganization also involved the establishment of a Bermuda-based reinsurance
subsidiary, PXRE Reinsurance Ltd., and operations in Barbados through PXRE
(Barbados) Ltd. The accompanying consolidated financial statements have been
prepared in U.S. dollars in conformity with generally accepted accounting
principles ("GAAP") in the United States. The 1999 financial statements reflect
the consolidated operations of PXRE Group Ltd. (collectively referred to as
"PXRE"), and its subsidiaries PXRE Corporation, PXRE Reinsurance Company ("PXRE
Reinsurance"), PXRE Solutions Inc., PXRE Direct Underwriting Managers, Inc.,
Transnational Insurance Company ("Transnational"), PXRE Trading Corporation,
TREX Trading Corporation, Cat Fund L.P., PXRE Capital Trust I, PXRE Limited,
PXRE Managing Agency Limited, PXRE Reinsurance Ltd., and PXRE (Barbados) Ltd.
The 1998 and 1997 financial statements reflect the financial position and
results of operations of PXRE Corporation and subsidiaries.
PXRE, through its wholly-owned subsidiaries, principally provides
property and casualty reinsurance products and services through broker-based and
direct-writing distribution capabilities. PXRE also provides marine and
aerospace reinsurance products and services. All material transactions between
the consolidated companies have been eliminated in preparing these consolidated
financial statements.
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Certain reclassifications have been made for 1998 and 1997 to conform
to the 1999 presentation.
PREMIUMS ASSUMED AND CEDED
Premiums on reinsurance business assumed are recorded as earned on a
pro rata basis over the contract period based on estimated subject premiums.
Adjustments based on actual subject premium are recorded once ascertained. The
portion of premiums written relating to unexpired coverages at the end of the
period is recorded as unearned premiums. Reinsurance premiums ceded are recorded
as incurred on a pro rata basis over the contract period.
DEFERRED ACQUISITION COSTS
Acquisition costs consist of commission and brokerage expenses incurred
in connection with contract issuance, net of acquisition costs ceded. These
costs are deferred and amortized over the period in which the related premiums
are earned. Deferred acquisition costs are reviewed to determine that they do
not exceed recoverable amounts, after considering investment income.
F-6
MANAGEMENT FEES
Management fees are recorded as earned under various arrangements
whereby PXRE Reinsurance acts as underwriting manager for other insurers and
reinsurers. These fees are initially based on premium volume, but are adjusted
in some cases through contingent profit commissions related to underwriting
results measured over a period of years.
LOSSES AND LOSS EXPENSE LIABILITIES
Liabilities for losses and loss expenses are established in amounts
estimated to settle incurred losses. Losses and loss expense liabilities are
based on individual case estimates provided for reported losses for known events
and estimates of incurred but not reported losses. Losses and loss expense
liabilities are necessarily based on estimates and the ultimate liabilities may
vary from such estimates. Any adjustments to these estimates are reflected in
income when known. Reinsurance recoverable on paid losses and reinsurance
recoverable on unpaid losses are reported as assets. Reinsurance recoverable on
paid losses represent amounts recoverable from retrocessionaires at the end of
the period for gross losses previously paid. Provisions are established for all
reinsurance recoveries which are considered doubtful.
INVESTMENTS
Fixed maturity investments and equity securities are considered
available-for-sale and are reported at fair value. Unrealized gains and losses,
as a result of temporary changes in fair value during the period such
investments are held, are reflected net of income taxes in stockholders' equity.
Unrealized losses which are deemed other than temporary are charged to
operations. Short-term investments, which have an original maturity of one year
or less, are carried at amortized cost which approximates fair value. Short-term
investments also includes a limited partnership that invests primarily in
marketable fixed income securities and provides for fund withdrawals upon 30
days notice; this partnership is reported under the equity method. Investments
in limited partnerships are reported under the equity method, which includes the
cost of the investment and subsequent proportional share of the partnership
earnings. Realized gains or losses on disposition of investments are determined
on the basis of specific identification. The amortization of premiums and
accretion of discount for fixed maturity investments is computed utilizing the
interest method. The effective yield under the interest method is adjusted for
anticipated prepayments. Investments in weather indexed contracts are carried at
estimated fair value and such adjustments to estimated fair value are included
in realized gains and losses.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values of certain assets and liabilities are based on published
market values, if available, or estimates based upon fair values of similar
issues. Fair values are reported in Notes 3 and 4.
F-7
DEBT ISSUANCE COSTS
Debt issuance costs associated with the issuance of $100 million 8.85%
Capital Trust Pass-through Securities'sm' (TRUPS'sm') and the issuance of a
note under a $75 million Credit Agreement are being amortized over the term of
the related outstanding debt on the interest method.
EXCESS OF FAIR MARKET VALUE OF NET ASSETS OF BUSINESS ACQUIRED OVER COST
The excess of fair market value of net assets of business acquired over
cost is included in other liabilities and is amortized on a straight-line basis
over three years.
FOREIGN EXCHANGE
Foreign currency assets and liabilities are translated at the exchange
rate in effect at the balance sheet date. Resulting gains and losses are
reflected in income for the period.
FEDERAL INCOME TAXES
Deferred tax assets and liabilities reflect the expected future tax
consequences of temporary differences between carrying amounts and the tax bases
of PXRE's assets and liabilities.
COMPREHENSIVE INCOME
Comprehensive income is comprised of net income and other comprehensive
income. Other comprehensive income consists of the change in the net unrealized
appreciation or depreciation of investments, net of tax.
EARNINGS PER SHARE
Basic earnings per share are determined by dividing net earnings (after
deducting cumulative preferred stock dividends) by the weighted average number
of common shares outstanding. On a diluted basis both net earnings and shares
outstanding are adjusted to reflect the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity, unless the effect of the assumed conversion is
anti-dilutive.
STOCK-BASED COMPENSATION
PXRE accounts for its stock options in accordance with the provisions
of Accounting Principles Board Opinion No. 25 ("APB").
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
Effective December 31, 1998, PXRE adopted SFAS No. 131, Disclosure
about Segments of an Enterprise and Related Information. This statement requires
that companies report certain information about their operating segments,
including information about the products and services from which the revenues
are derived, the geographic areas of operation, and information about major
customers. The statement defines operating segments based on internal management
reporting and management's method of allocating resources and assessing
performance.
F-8
REPORTING YEAR FOR U.K. OPERATIONS
In 1999, PXRE changed the reporting period for its U.K. operations from
a fiscal year ending September 30 to a calendar year ending December 31. The
results of operations for the period from October 1, 1998 to December 31, 1998
amounted to a loss of approximately $140,000. This loss was charged to retained
earnings during the year in order to report only 12 months' operating results.
ORGANIZATIONAL AND START-UP COSTS
Effective for 1999, PXRE adopted Statement of Position 98-5 "Reporting
on the Costs of Start-Up Activities" issued by the American Institute of
Certified Public Accountants. This statement requires that companies expense
organizational and start-up costs as incurred, and that initial application be
reported as the cumulative effect of a change in accounting principle. As a
result, PXRE expensed $695,000 in such expenses, net after tax, 1999.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 133, Accounting for Derivative Instruments and
Hedging Activities. This statement establishes accounting and reporting
standards for derivative instruments, including certain instruments embedded in
other contracts. It requires that all derivatives be recognized as either assets
or liabilities in the balance sheet and measured at fair value. Gains or losses
from changes in the derivative values are to be accounted for based on how the
derivative was used and whether it qualifies for hedge accounting.
The statement has been deferred and is now effective for all fiscal
periods beginning after June 15, 2000. PXRE is currently assessing the effect of
adopting this statement. It is not expected, however, that the adoption of this
statement will have a material effect on PXRE's financial position or results of
operations.
2. UNDERWRITING PROGRAMS
Premiums written and earned for the years ended December 31, 1999, 1998
and 1997 are as follows:
1999 1998 1997
---- ---- ----
Premiums written
Assumed $218,507,032 $133,143,629 $126,231,727
Direct 2,842,139 3,071,559 0
------------- -------------- -------------
Gross premiums written 221,349,171 136,215,188 126,231,727
Ceded premiums written (82,504,050) (47,521,377) (26,176,733)
-------------- ------------- -------------
Net premiums written $138,845,121 $ 88,693,811 $100,054,994
============= ============= =============
1999 1998 1997
---- ---- ----
Premiums earned
Assumed $198,342,728 $133,010,858 $119,609,970
Direct 2,113,403 424,822 0
Ceded (71,953,021) (41,049,354) (28,194,730)
-------------- ------------- -------------
Net premiums earned $128,503,110 $ 92,386,326 $ 91,415,240
============== ============= =============
F-9
Premiums written were assumed principally through reinsurance brokers
or intermediaries. In 1999, 1998 and 1997 three reinsurance intermediaries
individually accounted for more than 10% of gross premiums written, and
collectively accounted for approximately 43%, 47% and 55% of gross premiums
written, respectively.
Included in ceded premiums written to managed business participants is
$29,466,000, $10,565,000 and $3,023,000 of premiums ceded to a reinsurer, Select
Reinsurance Ltd., whose Board of Directors includes PXRE's Chief Executive
Officer and an Executive Officer, both of whom are shareholders of the
reinsurer. Net assets due from the reinsurer at December 31, 1999, are
$14,932,000 which is secured by a trust agreement and letter of credit.
PXRE also purchases catastrophe retrocessional coverage for its own
protection, depending on market conditions. In the event that retrocessionaires
are unable to meet their contractual obligations, PXRE would be liable for such
defaulted amounts.
Activity in the net losses and loss expense liability for the years
ended December 31, 1999, 1998 and 1997 is as follows:
1999 1998 1997
---- ---- ----
Net balance January 1 $ 69,242,355 $44,455,998 $55,309,304
Adjustment to eliminate quarter lag on U.K. subsidiary (1,677,529) 0 0
Incurred related to:
Current year 139,478,230 58,325,429 16,443,586
Prior years 19,781,183 (531,903) (3,917,410)
------------ ---------- ----------
Total incurred 159,259,413 57,793,526 12,526,176
------------ ---------- ----------
Paid related to:
Current year 17,855,659 11,112,999 4,295,293
Prior years 48,452,350 21,894,173 19,084,189
------------ ---------- ----------
Total paid 66,308,009 33,007,172 23,379,482
------------ ---------- ----------
Net balance at December 31 160,516,230 69,242,352 44,455,998
Reinsurance recoverable on unpaid losses and loss expenses 101,035,123 33,350,042 12,733,456
------------ ------------- ----------
Gross balance at December 31 $261,551,353 $102,592,394 $57,189,454
============ ============ ==========
As a result of changes in estimates of insured events in prior years,
the provision for losses and loss expenses experienced deficiencies of
$19,781,000 on a net basis in 1999, primarily due to Hurricanes Georges and
Mitch and accidents and health and facultative reserve strengthening in
PXRE Lloyd's Syndicate. The net loss ratio was favorably affected by a
savings to reserves of $532,000 in 1998 and $3,917,000 in 1997.
F-10
3. INVESTMENTS
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair value of investments in fixed maturities and equity securities as
of December 31, 1999 and 1998 are shown below:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
1999
United States government securities $ 104,034,363 $ 54,370 $ 2,568,969 $ 101,519,764
Foreign government securities 10,115,674 0 1,373,084 8,742,590
United States government agency
mortgage-backed securities 25,416,497 0 817,661 24,598,836
Other mortgage and asset-backed
securities 69,105,382 8,288 1,900,332 67,213,338
Obligations of states and political
subdivisions 94,691,998 422,315 1,163,694 93,950,619
Public utilities and industrial and
miscellaneous securities 26,598,316 9,120 1,385,056 25,222,380
--------------- --------------- ------------ ---------------
Total fixed maturities $ 329,962,230 $ 494,093 $ 9,208,796 $ 321,247,527
=============== =============== ============ ===============
Equity securities $ 26,214,265 $ 0 $ 1,373,905 $ 24,840,360
=============== ================ ============ ===============
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- -------- --------
1998
United States government securities $ 113,029,756 $ 1,771,592 $ 159,367 $ 114,641,981
Foreign government securities 43,815,569 242,591 5,286,056 38,772,104
United States government agency
mortgage-backed securities 1,087,492 17,031 0 1,104,523
Other mortgage-backed securities 43,174,814 1,271,787 181,569 44,265,032
Obligations of states and political
subdivisions 97,469,857 4,467,662 27,311 101,910,208
Public utilities and industrial and
miscellaneous securities 10,080,619 0 1,297,392 8,783,227
--------------- --------------- ------------ ---------------
Total fixed maturities $ 308,658,107 $ 7,770,663 $ 6,951,695 $ 309,477,075
=============== ================ ============ ===============
Equity securities $ 41,146,001 $ 3,661,597 $ 3,833,315 $ 40,974,283
=============== ================ ============ ===============
F-11
Included in other comprehensive income in 1999 is $6,758,000 of net
unrealized depreciation on investments which includes $10,524,000 of unrealized
net losses arising during the year less $3,766,000 of reclassification
adjustments for net losses, included in net income.
Proceeds, gross realized gains, and gross realized losses from sales of
fixed maturity investments before maturity date or securities that prepay and
from sales of equity securities were as follows:
1999 1998 1997
---- ---- ----
Proceeds from Sale
Fixed maturities $ 86,040,075 $ 234,195,041 $281,200,500
============ ============= ============
Equity securities $ 28,382,068 $ 3,871,056 $ 3,883,703
============ ============= ============
Gross Gains
Fixed maturities $ 1,936,898 $ 4,298,138 $ 3,443,425
Equity securities 4,307,178 1,046,699 807,238
Other 3,661,831 2,346,612 0
------------ ------------- ------------
9,905,907 7,691,449 4,250,663
------------ ------------- ------------
Gross Losses
Fixed maturities (6,316,161) (10,615,978) (1,621,134)
Equity Securities (687,055) (23,056) 0
Other (6,668,507) (914,604) (162,191)
------------ ------------- ------------
(13,671,723) (11,553,638) (1,783,325)
------------ ------------- ------------
Net realized (losses) gains $ (3,765,816) $ (3,862,189) $ 2,467,338
============ ============= ============
Included in gross losses on fixed maturities for 1998 is a realized
loss on the permanent write down of a bond in technical default in the amount of
$6,600,000, which was sold in 1999 at a gain of $596,000.
The components of net investment income were as follows:
1999 1998 1997
---- ---- ----
Fixed maturity investments $ 19,096,242 $ 22,654,993 $25,835,051
Equity securities 1,282,199 579,718 180,956
Short-term investments 1,984,366 2,044,876 5,646,704
Limited partnerships 25,703,702 (4,933,361) 442,504
------------- ------------- -----------
48,066,509 20,346,226 32,105,215
Less investment expenses 893,893 734,337 914,590
------------- ------------- -----------
Net investment income $ 47,172,616 $ 19,611,889 $31,190,625
============= ============= ===========
Investment expenses primarily represent fees paid to Phoenix Investment
Partners, Limited (formerly Phoenix Duff & Phelps Corporation), a public
majority-owned subsidiary of Phoenix Home Life Mutual Insurance Company which
owned 7.8%, 5.17% and 4.6% of the outstanding common stock of PXRE at December
31, 1999, 1998 and 1997, respectively.
F-12
INVESTMENT MATURITY DISTRIBUTIONS
The amortized cost and estimated fair value of fixed maturity
investments at December 31, 1999 by contractual maturity date is shown below.
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
Estimated
Amortized Fair
Cost Value
---- -----
Maturity
One year or less $ 6,578,422 $ 6,659,434
Over 1 through 5 years 118,566,069 116,668,834
Over 5 through 10 years 79,630,444 76,727,334
Over 10 through 20 years 10,659,376 11,300,517
Over 20 years 18,928,560 17,204,092
United States government agency and
other mortgage and asset-backed securities 95,599,359 92,687,316
------------ -------------
Total $329,962,230 $ 321,247,527
============ =============
In addition to fixed maturities, PXRE held $50,004,000 and $58,862,000
of short-term investments at December 31, 1999 and 1998, respectively, comprised
principally of high-grade commercial paper, U.S. Treasury bills and other
investments with original maturities of one year or less. PXRE also held
$113,476,000 and $65,164,000 of limited partnership assets at December 31, 1999
and 1998, respectively, accounted for under the equity method, as follows:
1999 1998
---- ----
$ Ownership % $ Ownership %
- ------------ - -----------
Mariner Select L.P. 27,229,000 47.35 26,652,967 51.62
Other 86,246,717 38,510,614
---------- ----------
Total 113,475,717 65,163,581
=========== ==========
Total net assets and net income of the Mariner Select L.P. Fund
amounted to $57,511,000 and $16,795,000 in 1999, and $51,621,000 and $2,456,000
in 1998. Mariner Partners L.P., which is included in short-term investments, has
total net assets and net income of $41,493,000 and $7,250,000 in 1999, and
$51,440,000 and net loss of $408,000 in 1998.
The sole shareholder of Mariner Investment Group is the Chairman of
the Board and a founding shareholder of Select Reinsurance Ltd. which owns
approximately 9.5% of PXRE.
F-13
RESTRICTED ASSETS
Under the terms of certain reinsurance agreements, irrevocable letters
of credit in the amount of $480,000 were issued at December 31, 1999, in respect
of reported loss reserves and unearned premiums. Investments with a par value of
$4,000,000 have been pledged as collateral with issuing banks. In addition,
securities with a par value of $15,376,000 at December 31, 1999 were on deposit
with various state insurance departments in order to comply with insurance laws.
PXRE, in connection with the startup of PXRE Ltd.'s Syndicate No. 1224,
has placed on deposit $46,587,000 par value of United States government
securities and municipal securities as collateral for Lloyd's of London. In
addition, PXRE issued a letter of credit for the benefit of Lloyd's of London in
the amount of $15,355,000. The letter of credit is collateralized by municipal
bonds of approximately $17,835,000. All invested assets of Syndicate 1224
amounting to $11,253,000 at December 31, 1999 are restricted from being paid as
a dividend for at least three years.
PXRE has $25 million in commitments for funding certain investments in
certain limited partnerships of which $18.5 million has been funded at December
31, 1999.
4. NOTES PAYABLE AND CREDIT ARRANGEMENTS
In January 1997, PXRE Corporation issued $100,000,000 of 8.85% TRUPS.
The fair value of the TRUPS is $87,677,919 and $99,086,425 at December 31, 1999
and 1998, respectively. Interest is payable on the TRUPS semi-annually. The
notes are redeemable on or after February 1, 2007 at the option of PXRE
Corporation, initially at 104.180% declining to 100.418% at February 1, 2016,
and 100% thereafter.
On August 15, 1998, PXRE Corporation redeemed the remaining balance of
$20,414,000 of its 9.75% Senior Notes due August 15, 2003 at a premium of
103.656%. In connection with the redemption of the Senior Notes, PXRE
Corporation recorded an extraordinary charge of $843,000, net of tax reflecting
the write-off of the remaining unamortized debt issuance costs and related
redemption premium.
Interest paid, including the minority interest in consolidated
subsidiary, was $12,705,000, $11,687,000, and $8,707,000 for 1999, 1998 and
1997, respectively.
On December 30, 1998 PXRE Corporation entered into a Credit Agreement
with First Union National Bank ("First Union") to arrange and syndicate for it a
revolving credit facility of up to $75 million. At December 31, 1998, $50
million of the total $75 million was underwritten and committed to by First
Union. The additional $25 million of the revolving credit facility was drawn
down October 6, 1999 and PXRE Group Ltd. and PXRE (Barbados) Ltd. were added as
guarantors under the Credit Agreement. First Union syndicated the $75 million
revolving credit facility, joining Fleet National Bank, Credit Lyonnais, New
York Branch and Bank One (formerly, The First National Bank of Chicago) as
additional lenders (collectively with First Union, the "Lenders"). The $75
million borrowings under the Credit Agreement bear interest at First Union's
base rate or at the financial institution's LIBOR rate for periods of 30, 60, 90
or 180 days plus a 1% credit margin. The interest rate as of December 31, 1999,
was 7.12% on the $25
F-14
million loan. The interest rate charged on the $50 million portion of the loan
at December 31, 1999 and 1998 was 6.936% and 7.75%, respectively. In addition,
the Credit Agreement requires PXRE and certain subsidiaries, where applicable,
to maintain certain financial ratios including minimum fixed charge coverage,
maximum consolidated debt to total capitalization, minimum statutory capital and
surplus, and minimum risk based capital ratios. Commitments under this Credit
Agreement terminate on March 31, 2005 and are subject to annual reductions of
$10 million commencing March 31, 2000 and $25 million on March 31, 2005. At
December 31, 1999 and 1998, $75 million and $50 million was outstanding under
this Credit Agreement. The Credit Agreement requires that PXRE Corporation pay a
commitment fee of 25 basis points on any unused portion of the loan.
PXRE Corporation entered into an interest rate swap agreement with First
Union that locks in the interest rate on the $50 million portion of the loan to
5.34% plus a 1.00% credit margin or 6.34%. The swap agreement coincides with the
maturity of the Credit Agreement. The fair value of the loan and the interest
rate swap agreement at December 31, 1999 and 1998 was approximately $72,908,000
and $50,084,000, respectively.
5. INCOME TAXES
PXRE is incorporated under the laws of Bermuda and, under current
Bermuda law, is not obligated to pay any taxes in Bermuda based upon income or
capital gains. The company has received an undertaking from the Minister of
Finance in Bermuda pursuant to the provisions of the Exempted Undertakings Tax
Protection Act, 1966, which exempts the company, from any Bermuda taxes computed
on profits, income or any capital asset, gain or appreciation, or any tax in the
nature of estate duty or inheritance tax, at least until the year 2016.
PXRE does not consider itself to be engaged in a trade or business in
the United States and accordingly does not expect to be subject to direct United
States income taxation.
The United States subsidiaries of PXRE file a consolidated U.S. federal
income tax return.
Pretax (loss) income from operations before cumulative effect of
accounting change for the years ended December 31, was taxed under the following
jurisdictions;
1999 1998 1997
---- ---- ----
U.S. $(43,808,000) $2,316,000 $69,225,000
Bermuda (11,437,000) 0 0
Barbados 1,027,000 0 0
------------ ---------- -----------
Total $(54,218,000) $2,316,000 $69,225,000
============ ========== ===========
F-15
The components of the (benefit) provision for income taxes for the
years ended December 31, 1999, 1998 and 1997 are as follows:
1999 1998 1997
---- ---- ----
Current
U.S. $(12,819,000) $ 3,321,000 $ 18,014,000
State and local 0 21,000 515,000
Foreign 2,314,000 0 706,000
------------ ------------ ----------
Subtotal (10,505,000) 3,342,000 19,235,000
Deferred U.S. (2,270,000) (2,396,000) 2,963,000
Deferred foreign 0 (2,152,000) 0
------------ ------------ ----------
Income tax (benefit) provision
before extraordinary loss and
change in accounting (12,775,000) (1,206,000) 22,198,000
Income tax benefit from
extraordinary loss 0 454,000 1,493,000
Income tax benefit from change in
accounting (374,000) 0 0
------------ ------------ ----------
Income tax (benefit) provision $(13,149,000) $ (1,660,000) $ 20,705,000
============ ============ ============
Income taxes paid $ 1,930,000 $ 10,900,000 $ 23,460,000
============ ============ ============
The entire 1999 net operating loss will be carried back to 1997.
The significant components of the net deferred income tax asset
(liability) are as follows:
Deferred tax asset: 1999 1998
---- ----
Discounted reserves and unearned
premiums $ 7,177,000 $ 3,116,000
U.K. losses not currently deductible 6,478,000 1,027,000
Unrealized depreciation on investments 3,550,000 0
Deferred compensation and benefits 1,020,000 500,000
Credit carryforwards 1,433,000 3,434,000
Other, net 265,000 0
------------ ------------
Total deferred income tax asset 19,923,000 8,077,000
------------ ------------
Deferred income tax liability:
Deferred acquisition costs (1,969,000) (678,000)
Unrealized
appreciation on investments (4,690,000) (236,000)
Investments and unrealized foreign
exchange (1,587,000) (621,000)
Other, net (146,000) (1,068,000)
------------ ------------
Total deferred income tax liability (8,392,000) (2,603,000)
------------ ------------
Net deferred income tax asset $ 11,531,000 $ 5,474,000
============ ============
F-16
Management has reviewed PXRE's deferred tax asset, and has concluded that it is
realizable and no valuation allowance is necessary.
The provision for income taxes differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax rate of
35% to pretax income from operations as a result of the following differences.
1999 1998 1997
---- ---- ----
Statutory U.S. rate $(18,976,000) $ 357,000 $ 22,735,000
Tax exempt interest (1,781,000) (1,231,000) (1,284,000)
Amortization of intangibles (753,000) (753,000) (753,000)
Reciprocal shares 1,815,000 0 0
Foreign tax credit expiration 920,000 0 0
Bermuda loss 4,003,000 0 0
Foreign Income - Barbados (359,000) 0 0
Barbados tax 2,314,000 0 0
Other net (332,000) (33,000) 7,000
------------ ------------ ------------
Total provision $(13,149,000) $ (1,660,000) $ 20,705,000
============ ============ ============
6. STOCKHOLDERS' EQUITY AND DIVIDEND RESTRICTIONS
STOCKHOLDERS' EQUITY
PXRE was incorporated on June 1, 1999 as a Bermuda holding company and a wholly
owned subsidiary of PXRE Purpose Trust, a purpose trust established under the
laws of Bermuda.
In connection with the reorganization, PXRE repurchased for $1.00 per share,
100% of the common shares owned by PXRE Purpose Trust and each outstanding share
of PXRE Corporation common stock (other than shares held by PXRE Corporation and
its subsidiaries) was converted into one common share of PXRE. In addition, PXRE
retired all of its treasury shares.
On August 9, 1999 PXRE's Board of Directors unanimously approved a resolution to
increase the number of authorized shares from 12,000 to 60,000,000 consisting
of 50,000,000 common shares and 10,000,000 preferred shares. In addition, PXRE's
Board of Directors authorized an increase in par value of its common shares from
$0.01 per share to $1.00 per share.
The Company's bye-laws restrict the ownership and voting rights of any
shareholder who directly or indirectly would own more that 9.9% of the
outstanding common shares of the Company. The restriction requires the prompt
disposition of any shares held in violation of the provision and limits the
voting power of a shareholder with more than 9.9% of the outstanding shares to
the voting power of a shareholder with 9.9% or less of the outstanding common
shares.
F-17
DIVIDEND RESTRICTIONS
The Insurance Department of the State of Connecticut, in which PXRE
Reinsurance is domiciled, recognizes as net income and surplus (stockholders'
equity) those amounts determined in conformity with statutory accounting
practices ("SAP") prescribed or permitted by the department, which differ in
certain respects from U.S. GAAP. The amount of statutory capital and surplus at
December 31, and statutory net income of PXRE Reinsurance for the years then
ended, as filed with insurance regulatory authorities are as follows:
1999 1998 1997
---- ---- ----
(Unaudited)
PXRE Reinsurance
Statutory capital and surplus $ 399,007,000 $ 447,229,000 $ 451,321,000
Statutory net (loss) income $ (1,327,000) $ 4,835,000 $ 57,388,000
PXRE Reinsurance is subject to state regulatory restrictions, which
limit the maximum amount of annual dividends or other distributions, including
loans or cash advances, available to stockholders without prior approval of the
Insurance Commissioner of the State of Connecticut.
As of December 31, 1999, the maximum amount of dividends and other
distributions which may be made by PXRE Reinsurance during 2000 without prior
approval is limited to approximately $39,901,000. Accordingly, the remaining
amount of its capital and surplus is considered restricted. Under the terms of
the Credit Agreement, dividends to PXRE shareholders in any year are limited as
described in Note 4.
F-18
7. EARNINGS PER SHARE
A reconciliation of income before extraordinary item and change in
accounting, and shares, which affect basic and diluted earnings per share, is as
follows:
1999 1998 1997
---- ---- ----
(Loss) income available to common stockholders:
(Loss) income before extraordinary loss and
change in accounting $(41,443,353) $ 3,521,821 $ 47,027,150
Extraordinary loss 695,278 843,000 2,773,690
Change in accounting 0 0 0
------------ ------------ ------------
Net (loss) income available to stockholders $(42,138,631) $ 2,678,821 $ 44,253,460
============ ============ ============
Weighted average shares of common stock outstanding:
Weighted average common shares
outstanding (basic) 11,568,494 13,339,479 13,775,844
Equivalent shares of stock options 0 62,218 70,770
Equivalent shares of restricted stock 0 50,034 46,146
------------ ------------ ------------
Weighted average common equivalent shares
(diluted) 11,568,494 13,451,731 13,892,760
============ ============ ============
Per share amounts:
Basic
(Loss) income before extraordinary loss and
change in accounting $ (3.58) $ .26 $ 3.41
Net (loss) income $ (3.64) $ .20 $ 3.21
Diluted
(Loss) income before extraordinary loss and
change in accounting $ (3.58) $ .26 $ 3.39
Net (loss) income $ (3.64) $ .20 $ 3.19
F-19
8. EMPLOYEE BENEFITS
BENEFIT PLANS
Effective January 1, 1993, PXRE adopted a non-contributory defined
benefit pension plan covering all U.S. employees with one year or more of
service and who had attained age 21. Benefits are generally based on years of
service and compensation. PXRE funds the plan in amounts not less than the
minimum statutory funding requirement nor more than the maximum amount that can
be deducted for U.S. income tax purposes.
PXRE also sponsors a supplemental executive retirement plan. This plan
is non-qualified and provides certain key employees benefits in excess of normal
pension benefits.
The net pension expenses for the company-sponsored plans included the
following components at December 31, based on a January 1 valuation date (the
latest actuarial estimate):
1999 1998 1997
---- ---- ----
Components of net periodic cost
Service cost $ 455,892 $ 308,916 $ 265,216
Interest cost 352,348 247,025 220,404
Expected return on
assets (44,166) (29,802) (9,680)
Amortization of prior
service costs 110,301 94,147 94,996
Recognized net
actuarial costs 75,280 8,734 (401)
--------- --------- ---------
Net periodic benefit
costs $ 949,655 $ 629,020 $ 570,535
========= ========= =========
F-20
The following table sets forth the funded status of the plans and
amounts recognized in the consolidated balance sheets:
1999 1998
---- ----
Reconciliation of benefit obligation
Benefit obligation
January 1 $ 4,297,331 $ 3,784,732
Service cost 455,892 308,916
Interest cost 352,348 247,025
Amendments 199,305 0
Actuarial loss (137,982) (43,342)
----------- -----------
Benefit obligation
December 31 $ 5,166,894 $ 4,297,331
=========== ===========
Reconciliation of plan assets
Fair value of plan
assets as of January 1 $ 453,518 $ 315,222
Return on plan assets 40,327 33,459
Employer contributions 308,942 104,837
----------- -----------
Fair value of plan
assets December 31 $ 802,787 $ 453,518
=========== ===========
Reconciliation of funded status
Funded status $(4,364,107) $(3,843,813)
Unrecognized prior
service cost 1,256,350 1,167,346
Unrecognized net
gain 277,257 486,680
----------- -----------
Prepaid cost $(2,830,500) $(2,189,787)
=========== ===========
Weighted average assumptions as of December 31,
Discount rate 7.75% 6.75%
Expected return on
plan assets 8.00% 8.00%
Rate of compensation
increase 5.00% 4.50%
The Brussels and London operations cover employees under a defined
contribution type plan. The provision for such plans is $326,000, $246,000 and
$131,000 for 1999, 1998 and 1997 respectively.
EMPLOYEE STOCK PURCHASE PLAN
PXRE maintains an Employee Stock Purchase Plan under which it has
reserved 6,029 common shares for issuance to PXRE personnel. The price per share
is the lesser of 85% of the fair market value at either the date granted or the
date exercised.
F-21
9. STOCK OPTIONS AND GRANTS
In 1988, PXRE adopted a stock option plan (the "1988 Stock Option
Plan") which provides for the grant of incentive stock options and non-qualified
stock options to officers and key employees. Options granted under the 1988
Stock Option Plan have a term of 10 years and become exercisable in four equal
annual installments. The exercise price for options granted pursuant to the plan
must be equal to or exceed the fair market value of the common shares on the
date the option is granted. In 1992, the Board of Directors resolved to freeze
the 1988 Stock Option Plan as of December 31, 1992. At December 31, 1999 and
1998, 73,380 and 86,674 options are exercisable under this plan.
In 1992, a Restated Employee Annual Incentive Bonus Plan was approved.
Incentive compensation to employees is based in part on return on equity
compared to a target return on equity and in part at the discretion of the
Restated Bonus Plan Committee.
In 1992, PXRE adopted a 1992 Officer Incentive Plan that provides for
the grant of incentive stock options, non-qualified stock options and awards of
shares subject to certain restrictions. Options granted under the plan have a
term of 10 years and generally become exercisable in four equal annual
installments commencing one year from the date of grant. The exercise price for
the incentive shares options must be equal to or exceed the fair market value of
the common shares on the date the option is granted. The exercise price for the
non-qualified options may not be less than the fair market value of the common
stock on the date of grant. At December 31, 1999 and 1998, options for 256,631
and 220,743 shares respectively, were exercisable under this plan.
In 1999, 1998, and 1997, $3,170,000, $1,240,000, and $1,553,000,
respectively was incurred under these plans, including 30% of any bonus granted
to certain levels of employees paid in restricted shares which vest in 36
months.
F-22
Information regarding the option plans described above is as follows:
Number Option Price
of Shares Per Share Range
---------- ---------------
Outstanding at December 31, 1996 373,023 $8.00 - $25.00
Options granted 82,166 $26.688
Options exercised 64,504 $8.00 - $25.00
-------
Outstanding at December 31, 1997 390,688
Options granted 91,586 $30.72 - $32.94
Options exercised 4,626 $10.875 - $24.88
Options canceled 4,624 $24.75 - $26.69
-------
Outstanding at December 31, 1998 473,024 $8.75 - $32.94
Options granted 0 $0
Options exercised 13,294 $10.625 - $11.50
Options canceled 7,256 $24.75 - $32.938
-------
Outstanding at December 31, 1999 452,474 $8.75 - $32.938
=======
In 1995, PXRE adopted a non-employee Director Stock Option Plan, which
provided for an annual grant of 1,000 options per director from 1995 to 1996 and
provides for 3,000 options per director from 1997 to 2005 inclusive as amended.
Options granted under the plan have a term of 10 years from the date of grant
and are vested and exercisable in three equal annual installments commencing one
year from the date of grant. The exercise price of the options is the fair
market value on the date of grant. As of December 31, 1999, options for 250,000
shares were authorized and 91,191 were exercisable.
Beginning January 1, 1998, PXRE allowed its directors to elect to
convert their Board of Directors retainer fee to options. At December 31, 1999,
ten year options for 48,461 shares were granted at prices ranging from $17.704
to $33.455 which are 100% vested and immediately exercisable.
Total authorized common shares reserved for grants of stock options and
restricted stock under the above plans is 2,141,754 shares. Total shares of
415,452 relate to stock options which are vested and exercisable at December 31,
1999, at exercise prices between $8.75 and $33.455. All options become
exercisable upon a change of control of PXRE as defined by the plans.
As permitted by SFAS No. 123, PXRE has elected to continue to account
for its stock option plans under the accounting rules prescribed by APB 25,
under which no compensation costs are recognized as an expense. Had compensation
costs for the stock options been determined using the fair value method of
accounting as recommended by SFAS No. 123, net income and earnings per share for
1999, 1998 and 1997 would have been reduced to the following pro forma amounts:
F-23
1999 1998 1997
---- ---- ----
Net income
As reported $(42,138,631) $ 2,678,821 $ 44,253,460
Pro forma (42,612,003) 1,987,264 43,789,779
Basic income per share
As reported $ (3.64) $ 0.20 $ 3.21
Pro forma (3.68) 0.15 3.18
Diluted income per share
As reported $ (3.64) $ 0.20 $ 3.19
Pro forma (3.68) 0.15 3.15
The fair value of each option granted in 1999, 1998 and 1997 was
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions:
1999 1998 1997
---- ---- ----
Risk-free rate 6.72% 5.07% 5.89%
Dividend yield 1.85% 4.01% 2.63%
Volatility factor 26.71% 24.94% 30.70%
Weighted average expected life 5 5 5
A summary of the status of the employee and director stock option plans
at December 31, 1999 and 1998 and changes during the years then ended is
presented below:
1999 1998
---- ----
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
Options outstanding at beginning of year 561,475 24.58 433,688 20.49
Options granted 58,146 25.87 137,037 32.42
Options exercised 13,294 11.11 4,626 20.25
Options canceled 7,259 28.62 4,624 25.46
--------- ---------
Options outstanding at end of year 599,068 24.80 561,475 24.58
--------- ---------
Options exercisable at end of year 421,202 21.33 307,417 21.19
--------- ---------
Weighted average fair value per share of options granted 10.68 7.50
F-24
Options outstanding at December 31, 1999 included:
Weighted Weighted Weighted
Range of Average Average Average
Exercise Number Outstanding at Remaining Exercise Number Exercisable at Exercise
Prices December 31, 1999 Life Price December 31, 1999 Price
- ------ ----------------- ---- ----- ----------------- ---------
$8.75 to $11.50 73,380 1.61 9.80 73,380 9.80
$23.25 to $33.455 525,688 6.69 26.89 347,822 25.79
In 1990, PXRE adopted a non-employee Director Deferred Stock Plan
granting 2,000 shares to each non-employee Board member at the time specified in
the plan. The 12,000 shares granted to Board members who are not employees of
PXRE or Phoenix Home Life Mutual Insurance Company will be issued to Board
members at or after their retirement according to the option selected from those
defined in the plan. The 6,000 shares granted to Board members who are employees
of Phoenix Home Life Mutual Insurance Company were issued on August 24, 1993.
10. SEGMENT INFORMATION
PXRE operates in four reportable property and casualty segments -
catastrophe and risk excess casualty structured / finite business and all
other lines based on the Company's method of internal management reporting.
In addition, the Company operates in two geographic segments - North American
representing North American based risks written by North American based
reinsureds and International (principally the United Kingdom, Continental
Europe, Australia and Asia) representing all other premiums
written.
The reportable segments were redefined during 1999. Segment information
for 1998 and 1997 was restated to be consistent with 1999 segments.
There are no significant differences among the accounting policies of
the segments as compared to the Company's consolidated financial statements.
PXRE does not maintain separate balance sheet data for each of its
operating segments. Accordingly, PXRE does not review and evaluate the financial
results of its operating segments based upon balance sheet data.
F-25
Net Premiums Written
(000's except %'s)
1999 1999 1998 1998 1997 1997
---- ---- ---- ---- ---- ----
Amount % Amount % Amount %
------ - ------ - ------ -
Catastrophe and Risk Excess
North American $ 26,704 $ 12,795 $ 21,724
International 63,957 58,595 63,154
Excess of loss cessions (18,883) (3,938) (409)
-------- ------- -----
Subtotal 71,778 52% 67,452 76% 84,469 84%
-------- ------- ------
Casualty
North American 13,148 650 0
International 12,851 4,433 0
------- ------ -------
25,999 19% 5,083 6% 0 0%
------- ------ -------
Structured/Finite Business
North American 0 0 0
International 0 0 0
------- ------ --------
0 0% 0 0% 0 0%
------- ------ --------
Other Lines
North American 12,073 2,054 4,848
International 28,995 14,105 10,738
------ ------ ------
41,068 29% 16,159 18% 15,586 16%
------ -- ------ -- ------ ----
Total $ 138,845 100% $ 88,694 100% $ 100,055 100%
========== ==== ======== ==== ========= ====
Net Premiums Earned
(000's except %'s)
1999 1999 1998 1998 1997 1997
---- ---- ---- ---- ---- ----
Amount % Amount % Amount %
Catastrophe- and Risk Excess
North American $ 26,155 $ 13,561 $ 21,877
International 61,241 63,830 60,148
Excess of loss cessions (14,958) (2,869) (353)
-------- -------- ------
Subtotal 72,438 56% 74,522 81% 81,672 89%
------- -------- ------
Casualty
North American 11,593 (152) 0
International 9,794 2,207 0
------ ------- ------
21,387 17% 2,055 2% 0 0%
------- ------- ------
Structured /Finite Business
North American 0 0 0
International 0 0 0
------- ------- ------
0 0% 0 0% 0 0%
------- ------- ------
Other Lines
North American 11,296 3,234 5,650
International 23,383 12,575 4,093
34,679 27% 15,809 17% 9,743 11%
------- --- ------- --- ------ ---
Total $128,504 100% $ 92,386 100% $ 91,415 100%
======== ==== ========= ==== ========= ====
F-26
Underwriting Profit (Loss)
(000's except %'s)
1999 1999 1998 1998 1997 1997
---- ---- ---- ---- ---- ----
Amount % Amount % Amount %
------ - ------ - ------ -
Catastrophe and Risk Excess
North American $ (31,591) $ 6,970 $ 13,655
International (32,039) 7,081 48,197
Excess of loss cessions 15,476 8,372 2,407
----------- ------------ ---------
Subtotal (48,154) 87% 22,423 141% 64,259 102%
----------- ------------ ---------
Casualty
North American (279) (409) 0
International (242) 87 0
----------- ------------ -------
(521) 1% (322) (2%) 0 0%
----------- ------------ -------
Structured/Finite Business
North American 0 0 0
International 411 0 0
----------- ------------ -------------
411 (1%) 0 0% 0 0%
----------- ------------ -------------
Other Lines
North American (715) (1,442) (2,075)
International (6,166) (4,794) 573
----------- ------------ ------------
(6,881) 13% (6,236) (39%) (1,502) (2%)
----------- --- ------------ ----- ------------ ----
Total $ (55,145) 100% $ 15,865 100% $ 62,757 100%
=========== ==== ============ ==== =========== ====
The following table reconciles the underwriting operations for the
operating segments to income before tax as reported in the consolidated
statements of operations and comprehensive income:
(000's) 1999 1998 1997
---- ---- ----
Underwriting (loss) profit $(55,145) $ 15,865 $ 62,757
Net investment income 47,173 19,612 31,191
Net realized investment (losses) gains (3,766) (3,862) 2,467
Interest expense (3,915) (1,395) (3,325)
Minority interest in consolidated
subsidiary (8,790) (8,928) (8,184)
Operating expenses (30,052) (19,313) (15,716)
Other income 277 336 35
------- ------- -------
(Loss) income before income taxes,
cumulative effect of accounting change,
and extraordinary item $(54,218) $ 2,315 $ 69,225
========= ========== ========
F-27
11. QUARTERLY CONSOLIDATED RESULTS OF OPERATIONS (UNAUDITED)
The following are unaudited quarterly results of operations on a
consolidated basis for the years ended December 31, 1999 and 1998. Quarterly
results necessarily rely heavily on estimates. This and certain other factors,
such as catastrophic losses, call for caution in drawing specific conclusions
from quarterly results. Due to changes in the number of average shares
outstanding, quarterly earnings per share may not add to the total for the year.
The common share price ranges are bid quotations as reported by the New
York Stock Exchange.
Results for the quarter ended September 30, 1999, includes results of
operations of PXRE prior to the redomestication of PXRE Corporation and
subsidiaries.
F-28
THREE MONTHS ENDED
------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
1999
- ----
Net premiums written $ 38,828,000 $ 28,774,000 $ 31,960,000 $ 39,283,000
============== ============== ============ ==============
Revenues:
Net premiums earned $ 23,830,950 $ 28,694,483 $ 32,458,734 $ 43,518,943
Net investment income 7,200,592 10,922,120 9,466,325 19,583,579
Realized investment (losses) gains (2,576,011) 1,193,499 (2,194,302) (189,002)
Management fees 896,616 403,699 528,151 1,761,871
-------------- -------------- ------------ --------------
Total revenues 29,352,147 41,213,801 40,258,908 64,675,391
-------------- -------------- ------------ --------------
Losses and expenses:
Losses and loss expenses incurred 18,898,062 17,969,860 29,327,207 93,064,284
Commissions and brokerage 6,406,928 6,138,823 7,871,366 7,284,527
Other operating expenses 6,237,793 7,079,920 7,389,761 9,344,836
Interest expense 831,285 842,700 885,254 1,355,859
Minority interest in consolidated
subsidiary 2,108,441 2,218,328 2,220,046 2,243,291
-------------- -------------- ------------ --------------
Total expenses 34,482,509 34,249,631 47,693,634 113,292,797
-------------- -------------- ------------ --------------
(Loss) income before income taxes and
change in accounting (5,130,362) 6,964,170 (7,434,726) (48,617,406)
Income tax benefit (provision) 2,368,000 (1,918,000) 1,196,130 11,128,841
-------------- -------------- ------------ --------------
(Loss) income before change in
accounting (2,762,362) 5,046,170 (6,238,596) (37,488,565)
Cumulative effect of accounting
change, net of $374,381 tax benefit 0 0 0 695,278
-------------- -------------- ------------ --------------
Net (loss) income $ (2,762,362) $ 5,046,170 $ (6,238,596) $ (38,183,843)
============== ============== ============ ==============
Basic (loss) earnings per common share:
Net (loss) income $ (0.23) $ 0.44 $ (0.55) $ (3.28)
============== ============== ============ ==============
Average shares outstanding 11,889,636 11,439,018 11,441,979 $ 11,449,872
============== ============== ============ ==============
Diluted (loss) earnings per common share:
Net (loss) income $ (0.23) $ 0.44 $ (0.55) $ (3.34)
============== ============== ============ ==============
Average shares outstanding 11,889,636 11,584,551 11,441,979 11,449,872
============== ============== ============ ==============
Dividends paid per common share $ 0.26 $ 0.26 $ 0.06 $ 0.06
Price Range of Common Share:
High $ 26.25 $ 21.25 $ 19.0625 $ 14.50
Low $ 18.00 $ 16.00 $ 14.3125 $ 10.00
F-29
THREE MONTHS ENDED
------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
1998
- ----
Net premiums written $ 28,357,000 $ 15,368,000 $ 24,001,000 $ 20,968,000
============== ============== ============== ==============
Revenues:
Net premiums earned $ 19,713,968 $ 21,378,386 $ 27,644,965 $ 23,649,007
Net investment income 7,561,058 4,436,722 (851,792) 8,465,901
Realized investment gains (losses) 1,224,643 427,454 1,328,034 (6,842,320)
Management fees 825,681 678,947 (33,227) 700,730
-------------- -------------- ------------- ---------------
Total revenues 29,325,350 26,921,509 28,087,980 25,973,318
-------------- -------------- ------------- ---------------
Losses and expenses:
Losses and loss expenses incurred 3,570,797 2,951,664 32,936,993 18,334,172
Commissions and brokerage 3,992,016 4,288,096 7,376,058 4,906,518
Other operating expenses 4,349,853 3,600,868 5,414,708 5,947,996
Interest expense 544,280 601,890 248,641 0
Minority interest in consolidated
subsidiary 2,231,884 2,231,923 2,232,051 2,232,005
-------------- -------------- ------------- ---------------
Total expenses 14,688,830 13,674,441 48,208,451 31,420,691
-------------- -------------- ------------- ---------------
Income (loss) before income taxes and
extraordinary item 14,636,520 13,247,068 (20,120,471) (5,447,374)
Income tax provision (benefit) 4,650,000 4,058,000 (7,484,000) (2,430,077)
-------------- -------------- ------------- ---------------
Income (loss) before extraordinary loss 9,986,520 9,189,068 (12,636,471) (3,017,297)
-------------- -------------- ------------- ---------------
Extraordinary loss on debt redemption
net of income tax benefit 0 0 843,000 0
---------------- ---------------- --------------- ----------------
Net income (loss) $ 9,986,520 $ 9,189,068 $ (13,479,471) $ (3,017,297)
---------------- ---------------- --------------- ----------------
Basic earnings (loss) per common share:
Income (loss) before extraordinary
item $ 0.73 $ 0.67 $ (0.93) $ (0.24)
Extraordinary loss 0.00 0.00 0.06 0.00
-------------- -------------- ------------- ---------------
Net income (loss) $ 0.73 $ 0.67 $ (0.99) $ (0.24)
============== ============== ============= ===============
Average shares outstanding 13,744,975 13,650,563 13,596,222 12,691,058
============== ============== ============= ===============
Diluted earnings (loss) per common share:
Income (loss) before extraordinary
item $ 0.72 $ 0.67 $ (0.93) $ (0.24)
Extraordinary loss 0.00 0.00 0.06 0.00
-------------- -------------- ------------- ---------------
Net income (loss) $ 0.72 $ 0.67 $ (0.99) $ (0.24)
============== ============== ============= ===============
Average shares outstanding 13,862,678 13,722,006 13,596,222 12,691,058
============== ============== ============= ===============
Dividends paid per common share $ 0.25 $ 0.25 $ 0.25 $ 0.26
Price Range of Common Share:
High $ 35.25 $ 32.875 $ 30.500 $ 26.6875
Low $ 29.375 $ 29.00 $ 25.625 $ 20.6250
F-30
Parent Company Information Schedule II
PXRE Group Ltd.'s (successor registrant to PXRE Corporation) summarized
financial information (parent company only) is as follows:
December 31, December 31,
1999 1998
-------------- ---------------
BALANCE SHEET
Assets
Short-term investments $ - $ 1,012,031
Equity securities(market Value) - 3,069,554
Other invested assets - 5,490,561
Cash 391,934 232,157
Receivable from subsidiaries 1,066,356 3,384,100
Other receivables 0 1,621
Income tax recoverable 0 10,402,439
Deferred income tax benefits 0 6,741,946
Equity in subsidiaries 263,737,568 457,193,174
Other assets 0 7,106,953
-------------- ---------------
Total assets $ 265,195,858 $ 494,634,536
============== ===============
Liabilities
Debt payable $ 0 $ 50,000,000
Income tax payable 0 0
Loan from subsidiary 1,877,000 3,416,886
Deferred income tax liabilities 0 0
Excess of fair market value over cost 0 2,550,671
Other liabilities 39,875 4,774,535
-------------- ---------------
Total Liabilities 1,916,875 60,742,092
-------------- ---------------
Minority Interest in Consolidated Subsidiary 0 99,516,938
Stockholders' equity 263,278,983 334,375,506
-------------- ---------------
Total liabilities and stockholders' equity $ 265,195,858 $ 494,634,536
============== ===============
INCOME STATEMENT Years ended December 31,
------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
Investment income (loss) $ 6,361 $ (1,839,856) $ 2,799,937
Realized (loss)/gain on investment 0 1,458,142 433,966
Management fee 44,178 300,380 0
Interest expense 0 (11,046,269) (12,005,863)
Other operating expenses (1,105,792) (36,349) 154,757
-------------- -------------- -------------
Loss before tax benefit, cumulative effect
of accounting change and extraordinary
item (1,055,253) (11,163,952) (8,617,203)
Income tax benefit 0 5,505,896 4,713,952
-------------- -------------- -------------
(1,055,253) (5,658,056) (3,903,251)
Equity in earnings of subsidiary (40,388,100) 9,179,877 50,930,401
-------------- -------------- -------------
Net (loss) income before cumulative effect (41,443,353) 3,521,821 47,027,150
of accounting change and extraordinary loss
Cumulative effect of accounting change, net of tax 695,278 0 0
Extraordinary loss, net of tax 0 843,000 2,773,690
-------------- -------------- -------------
Net (loss) income $ (42,138,631) $ 2,678,821 $ 44,253,460
============== ============== =============
CASH FLOW STATEMENT
Cash from operating activities:
Net (loss) income $ (42,138,631) $ 2,678,821 $ 44,253,460
Adjustments to reconcile net income to cash provided by
operating activities:
Equity in earnings of subsidiaries 41,083,378 (9,179,877) (50,930,401)
Cash dividends from subsidiaries 36,235,000 57,388,000 0
Contribution of capital to subsidiaries (35,000,000) (49,745,731) 0
Investment income receivable 0 377,245 (377,245)
Loan from subsidiary (1,539,886) 0 0
Intercompany accounts 2,317,744 2,053,111 (2,314,302)
Deferred income taxes 6,741,946 (1,580,912) (4,165,649)
Income tax recoverable 10,402,439 (1,907,459) (5,074,049)
Other (3,174,770) (4,716,339) 4,025,593
-------------- -------------- -------------
Net cash provided (used) by operating activities 14,927,220 (4,633,141) (14,582,593)
-------------- -------------- -------------
Cash flow from investing activities:
Investment in equity of PXRE Trading Corporation 0 3,444,305 0
Net change in short-term investments 1,012,031 4,114,797 13,372,334
Cost of fixed maturity investments 0 0 (32,981,953)
Equity securities redomesticated/disposed 3,069,554
Cost of equity securities acquired 0 (45,688) (3,023,866)
Fixed maturity investments matured/disposed 0 18,482,376 16,428,816
Net change in other invested assets 5,490,561 9,193,726 (14,684,287)
-------------- -------------- -------------
Net cash provided (used) by investing activities 9,572,146 35,189,516 (20,888,956)
-------------- -------------- -------------
Cash flow from financing activities:
Proceeds from issuance of common stock 505,796 233,032 855,570
Cash dividends paid to common stockholders (7,629,925) (13,585,333) (12,209,262)
Repurchase of debt 0 (27,689,000) (45,221,683)
Proceeds from issuance of debt 0 50,000,000 0
Cost of treasury stock (17,215,460) (39,728,564) (7,464,583)
Issuance of minority interest in consolidated subsidiary 0 0 99,509,000
-------------- -------------- -------------
Net cash (used) provided by financing activities (24,339,589) (30,769,865) 35,469,042
-------------- -------------- -------------
Net change in cash 159,777 (213,490) (2,507)
Cash, beginning of period 232,157 445,647 448,154
-------------- -------------- -------------
Cash, end of period $ 391,934 $ 232,157 $ 445,647
============== ============== =============
F-31
Schedule III
PXRE CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
Column A Column B Column C Column D Column E Column F Column G Column H
-------- -------- -------- -------- -------- -------- -------- --------
Future
policy
benefits, Other
losses, policy Benefits,
Segment- Deferred claims and claims and claims,
property policy loss Unearned benefits Net losses and
and acquisition expenses premiums payable Premium investment settlement
casualty cost (caption (caption (caption revenue income expenses
insurance (caption 7) 13-a-1) 13-a-2) 13-a-3) (caption 1) (caption 2) (caption 4)
--------- ----------- ------- ------- ------- ----------- ----------- -----------
1999 North American $ 49,044,000 $ 91,589,000
International 94,418,000 99,237,000
Corporate Wide (14,958,000) (31,567,000)
-----------------------------------------------------------------------------------------------------
Total $ 7,810,000 $261,551,000 $42,219,000 $ 0 $128,504,000 $45,185,000 $159,259,000
1998 North American $ 16,643,000 $ 36,531,000
International 78,612,000 32,903,000
Corporate Wide (2,869,000) (11,640,000)
-----------------------------------------------------------------------------------------------------
Total $ 4,123,000 $102,592,000 $20,541,000 $ 0 $ 92,386,000 $19,612,000 $ 57,794,000
1997 North American $ 27,527,000 $ 8,450,000
International 64,241,000 4,684,000
Corporate Wide (353,000) (643,000)
-----------------------------------------------------------------------------------------------------
Total $ 2,966,000 $ 57,189,000 $18,485,000 $ 0 $ 91,415,000 $31,191,000 $ 12,491,000
Column I Column J Column K
-------- -------- --------
Amortiza-
tion of
deferred
policy Other
acquisition operating Premiums
costs expense written
----- ------- -------
1999 North American $ 7,629,000 $ 51,925,000
International 15,899,000 105,803,000
Corporate Wide 4,174,000 (18,883,000)
--------------------------------------------------
Total $ 27,702,000 $28,525,000 $138,845,000
1998 North American $ 6,697,000 $ 15,499,000
International 12,213,000 77,133,000
Corporate Wide 1,653,000 (3,938,000)
--------------------------------------------------
Total $ 20,563,000 $19,313,000 $ 88,694,000
1997 North American $ 10,968,000 $ 26,572,000
International 7,279,000 73,892,000
Corporate Wide 891,000 (409,000)
---------------------------------------------------
Total $ 19,138,000 $15,716,000 $100,055,000
Schedule VI
PXRE CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS
Column A Column B Column C Column D Column E Column F Column G
-------- -------- -------- -------- -------- -------- --------
Reserves for
unpaid
Deferred claims Discount,
Affiliation policy and claim if any Net
with acquisition adjustment deducted in Unearned Earned investment
registrant costs expenses Column C premiums premiums income
---------- ----- -------- -------- -------- -------- ------
1999 Consolidated $ 7,810,000 $ 261,551,000 $ 0 $42,219,000 $ 128,503,000 $ 45,185,000
1998 Consolidated 4,123,000 102,592,000 0 20,541,000 92,386,000 19,612,000
1997 Property 2,966,000 57,189,000 0 18,485,000 91,415,000 31,191,000
Column H Column I Column J Column K
-------- -------- -------- --------
Claims and Claim Amortiza-
adjustment expenses tion of Paid
incurred related to deferred claims
(1) (2) policy and claim
Current Prior acquisi- adjustment Premiums
year years tion costs expenses written
---- ----- ---------- -------- -------
1999 $ 139,478,000 $ 19,781,000 $27,702,000 $ 66,308,000 $ 138,845,000
1998 58,326,000 (532,000) 20,563,000 33,007,000 88,694,000
1997 16,408,000 (3,917,000) 19,138,000 23,379,000 100,055,000
F-32
REPORT OF INDEPENDENT ACCOUNTANTS
ON THE FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of PXRE Group Ltd. (Successor Registrant of PXRE Corporation):
Our audits of the consolidated financial statements referred to in our report
dated February 7, 2000 appearing on page F-1 of PXRE Group Ltd.'s (Successor
Registrant of PXRE Corporation) Annual Report on Form 10-K for the year ended
December 31, 1999, also included an audit of the Financial Statement Schedules
listed in Item 14(a) of this Form 10-K. In our opinion, these Financial
Statement Schedules present fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
PRICEWATERHOUSECOOPERS
Hamilton, Bermuda
February 7, 2000
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-4 (No. 333-85451) of
PXRE Group Ltd. (Successor Registrant of PXRE Corporation) of our report
dated February 7, 2000 appearing on page F-1 of this Form 10-K. We also
consent to the incorporation by reference of our report on the Financial
Statement Schedules, which appears above.
PRICEWATERHOUSECOOPERS
Hamilton, Bermuda
March 29, 2000
F-33
INDEX TO EXHIBITS
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
-------- --------- ------
3.1 Memorandum of Association and Bye-laws of PXRE Group Ltd.
(Exhibits 3.1 and 3.2, respectively, to PXRE's Form S-4
Registration Statement dated August 18, 1999 (File No.
333-85451), and incorporated herein by reference).
4.1 Form of Specimen Common Share certificate, par value $1.00
per share, of PXRE (Exhibit 4.1 to PXRE's Form S-4
Registration Statement dated August 18, 1999 (File No.
333-85451), and incorporated herein by reference).
4.2 Credit Agreement dated as of December 30, 1998 among PXRE
Corporation, the banks and financial institutions listed on
the signature pages thereto or that subsequently become
parties thereto (collectively, the "Lenders") and First
Union National Bank ("First Union") as agent for the
Lenders (Exhibit 4.8 to PXRE Corporation's Form 8-K dated
January 8, 1999 (File No. 0-15428), and incorporated herein
by reference).
4.3 First Amendment and Waiver to Credit Agreement dated as of
May 18, 1999 among PXRE Corporation, the Lenders and First
Union, Joinder Agreements dated May 18, 1999 by Fleet
National Bank and Credit Lyonnais New York Branch,
Assignments and Acceptances dated May 18, 1999 between
First Union and Fleet National Bank and between First Union
and The First National Bank of Chicago, respectively
(Exhibit 4.9 to PXRE Corporation's Form 10-Q for the
quarterly period ended June 30, 1999 (File No. 0-15428),
and incorporated herein by reference).
4.4 Second Amendment and Waiver to Credit Agreement dated as of
June 25, 1999 among PXRE Corporation, the Lenders and First
Union, (Exhibit 4.9 to PXRE Corporation's Form 10-Q for the
quarterly period ended June 30, 1999 (File No. 0-15428),
and incorporated herein by reference).
4.5 First Amended and Restated Credit Agreement among PXRE
Corporation, as borrower, PXRE Group Ltd. and PXRE
(Barbados) Ltd., as guarantors, the Lenders named therein
and First Union as agent (Exhibit 4.5 to PXRE's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999 (File No. 1-15259) and incorporated
herein by reference).
4.6 Indenture, dated as of January 29, 1997, between PXRE
Corporation and First Union National Bank, as Trustee
(Exhibit 4.3 to PXRE Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1996 (File No.
0-15428), and incorporated herein by reference).
4.7 First Supplemental Indenture, dated as of January 29, 1997,
between PXRE Corporation and First Union National Bank, as
Trustee, in respect of PXRE Corporation's 8.85% Junior
Subordinated Deferrable Interest Debentures due 2027
(Exhibit 4.4 to the Annual Report on Form 10-K of PXRE
Corporation for the fiscal year ended December 31, 1996
(File No. 0-15428), and incorporated herein by reference).
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
-------- --------- ------
4.8 Amended and Restated Declaration of Trust of PXRE Capital
Trust I, dated as of January 29, 1997, among PXRE
Corporation, as sponsor, the Administrators thereof, First
Union Bank of Delaware, as Delaware Trustee, First Union
National Bank, as Institutional Trustee, and the holders
from time to time of undivided interests in the assets of
PXRE Capital Trust I (Exhibit 4.5 to the Annual Report on
Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1996 (File No. 0-15428), and incorporated
herein by reference).
4.9 Capital Securities Guarantee Agreement, dated as of January
29, 1997, between PXRE Corporation and First Union National
Bank, as Guarantee Trustee (Exhibit 4.6 to the Annual
Report on Form 10-K of PXRE Corporation for the fiscal year
ended December 31, 1996 (File No.0-15428), and incorporated
herein by reference).
4.10 Common Securities Guarantee Agreement, dated as of January
29, 1997, executed by PXRE Corporation (Exhibit 4.7 to the
Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1996 (File No. 0-15428), and
incorporated herein by reference).
4.11 Registration Rights Agreement, dated January 29, 1997,
among PXRE Corporation, PXRE Capital Trust I and Salomon
Brothers Inc, as Representative of the Initial Purchasers
(Exhibit 10.1 to the Annual Report on Form 10-K of PXRE
Corporation for the fiscal year ended December 31, 1996
(File No. 0-15428), and incorporated herein by reference).
4.12 Purchase Agreement among PXRE Corporation, PXRE Capital
Trust I and Salomon Brothers Inc, as Representative of the
Initial Purchasers, dated January 24, 1997 (Exhibit 10.2 to
the Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1996 (File No. 0-15428), and
incorporated herein by reference).
2
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
-------- --------- ------
10.1 PXRE Reinsurance Company Management Agreement among PXRE
Reinsurance Company and, among others, Merrimack Mutual
Fire Insurance Company ("Merrimack"), Pennsylvania
Lumbermens Mutual Insurance Company ("Pennsylvania
Lumbermens"), and NRMA Insurance Limited ("NRMA") (Exhibit
10.1 to the Annual Report on Form 10-K of PXRE Corporation
for the fiscal year ended December 31, 1991 (File No.
0-15428), and incorporated herein by reference); letter
dated November 28, 1990 from Pennsylvania Lumbermens
confirming reduced participation (Exhibit 10.7 to PXRE
Corporation's Form S-2 Registration Statement dated
February 21, 1992, as amended by Amendment No. 1 thereto
dated April 1, 1992 and by Amendment No. 2 thereto dated
April 13, 1992 and by Amendment No. 3 thereto dated April
23, 1992 (File No. 33-45893), and incorporated herein by
reference); cover notes respecting January 1997 renewals by
Merrimack, Pennsylvania Lumbermens and NRMA and cover note
respecting participation commencing January 1, 1997 by
Auto-Owners Insurance Company ("Auto-Owners") (Exhibit 10.3
to the Annual Report on Form 10-K of PXRE Corporation for
the fiscal year ended December 31, 1996 (File No. 0-15428),
and incorporated herein by reference); cover notes
respecting January 1999 renewals by NRMA, Pennsylvania
Lumbermens, Auto-Owners and The Andover Companies (a
Merrimack company) (Exhibit 10.3 to the Annual Report on
Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1998 (File No. 0-15428), and incorporated
herein by reference); and cover note respecting
participation commencing January 1, 1999 by the Kyoei
Mutual Fire & Marine Insurance Company.*
10.2 Quota Share Retrocessional Agreement between PXRE
Reinsurance Company and Trenwick America Reinsurance
Corporation ("Trenwick Group") (Exhibit 10.21 to the Annual
Report on Form 10-K of PXRE Corporation for the fiscal year
ended December 31, 1993 (File No. 0-15428), and
incorporated herein by reference); cover note respecting
January 1999 renewal by Trenwick Group (Exhibit 10.17 to
the Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1998 (File No. 0-15428), and
incorporated herein by reference).
10.3 Undertaking dated September 1, 1998 between PXRE
Reinsurance Company and Select Reinsurance Ltd., Amended
and Restated Facultative Obligatory Quota Share
Retrocessional Agreement between PXRE Reinsurance Company
and Select Reinsurance Ltd. and Variable Quota Share
Retrocessional Agreement between PXRE Reinsurance Company
and Select Reinsurance Ltd. (Exhibit 10.36 to the Annual
Report on Form 10-K of PXRE Corporation for the fiscal year
ended December 31, 1998 (File No. 0-15428), and
incorporated herein by reference); letter dated November 1,
1999 regarding Undertaking extension; and endorsement
regarding Select Reinsurance Ltd. participation for 2000.*
3
- -------------------------
* Filed herewith
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
-------- --------- ------
10.4 Tax Settlement Agreement dated June 21, 1991 between PXRE
Corporation, PXRE Reinsurance Company and PM Holdings, Inc.
(Exhibit 10.2 to the Annual Report on Form 10-K of PXRE
Corporation for the fiscal year ended December 31, 1991
(File No. 0-15428), and incorporated herein by reference).
10.5 Investment Advisory Agreement between PXRE Reinsurance
Company and Phoenix Investment Counsel, Inc., dated
February 25, 1987 and effective as of January 1, 1987
(Exhibit 10.10 to Amendment No. 1 dated February 19, 1987
to PXRE Corporation's Form S-1 Registration Statement dated
August 29, 1986, as subsequently amended by Amendment No. 2
thereto dated March 25, 1987 (File No. 33-8406), and
incorporated herein by reference); Amendment to Investment
Advisory Agreement between PXRE Reinsurance Company and
Phoenix Investment Counsel, Inc., effective retroactively
as of January 1, 1987 (Exhibit 10.3 to the Annual Report on
Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1991 (File No. 0-15428), and incorporated
herein by reference); Amendment No. 2 to Investment
Advisory Agreement between PXRE Reinsurance Company and
Phoenix Investment Counsel, Inc., effective as of November
1, 1989 (Exhibit 10.4 to the Annual Report on Form 10-K of
PXRE Corporation for the fiscal year ended December 31,
1991 (File No. 0-15428), and incorporated herein by
reference); Amendment No. 3 to Investment Advisory
Agreement between PXRE Reinsurance Company and Phoenix
Investment Counsel, Inc. effective June 1, 1995 (Exhibit
10.26 to the Annual Report on Form 10-K of PXRE Corporation
for the fiscal year ended December 31, 1995 (File No.
0-15428), and incorporated herein by reference).
10.6 Investment Management Agreement, effective January 29, 1997
between PXRE Corporation and Phoenix Investment Counsel,
Inc. (Exhibit 10.29 to the Annual Report on Form 10-K of
PXRE Corporation for the fiscal year ended December 31,
1996 (File No. 0-15428), and incorporated herein by
reference).
10.7 Amended and Restated Investment Advisory Agreement between
Transnational Reinsurance Company and Phoenix Investment
Counsel, Inc., dated November 8, 1993 (Exhibit 10.4 to
Transnational Re Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 (File No.
0-22376) and incorporated herein by reference), as amended
by the Amendment thereto, effective June 1, 1995 (Exhibit
10.11 to Transnational Re Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995 (File
No. 0-22376) and incorporated herein by reference).
4
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10.8 Investment Management Agreement effective October 15, 1999
between PXRE Group Ltd. and Phoenix Investment Counsel,
Inc.*
10.9 Investment Management Agreement effective October 15, 1999
between PXRE Reinsurance Ltd. and Phoenix Investment
Counsel, Inc.*
10.10 Investment Advisory Services Agreement between PXRE
Reinsurance Ltd. and Mariner Investment Group, Inc. dated
October 1, 1999.*
10.11 Amended and Restated Agreement Concerning Filing of
Consolidated Federal Income Tax Returns dated as of August
23, 1993 between PXRE Corporation and PXRE Reinsurance
Company (Exhibit 10.8 to the Annual Report on Form 10-K of
PXRE Corporation for the fiscal year ended December 31,
1993 (File No. 0-15428), and incorporated herein by
reference); Addendum No. 2 dated November 10, 1994 to the
PXRE Corporation Amended and Restated Agreement Concerning
Filing of Consolidated Federal Income Tax Returns (Exhibit
10.22 to the Annual Report on Form 10-K of PXRE Corporation
for the fiscal year ended December 31, 1994 (File No.
0-15428), and incorporated herein by reference); and
Addendum No. 3 dated as of December 11, 1996 to the PXRE
Corporation Amended and Restated Agreement Concerning
Filing of Consolidated Federal Income Tax Returns (Exhibit
10.22 to the Annual Report on Form 10-K of PXRE Corporation
for the fiscal year ended December 31, 1996 (File No.
0-15428), and incorporated herein by reference).
10.12 Employee Stock Purchase Plan, as amended (Appendix C to
PXRE's Proxy Statement for the 2000 annual general meeting
of shareholders, and incorporated herein by reference).(M)
10.13 Executive Severance Plan (Exhibit 10.10 to PXRE's Form S-4
Registration Statement dated August 18, 1999 (File No.
333-85451) and incorporated herein by reference).(M)
10.14 1988 Stock Option Plan, as amended (Exhibit A to the first
Prospectus forming part of PXRE's Form S-8 and S-3
Registration Statement dated June 21, 1990 (File No.
33-35521), and incorporated herein by reference).(M)
10.15 Restated Employee Annual Incentive Bonus Plan, as amended
(Appendix A to PXRE's Proxy Statement for the 2000 annual
general meeting of shareholders, and incorporated herein by
reference).(M)
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* Filed herewith.
(M) Indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
5
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10.16 1992 Officer Incentive Plan, as amended (Appendix B to
PXRE's Proxy Statement for the 2000 annual general meeting
of shareholders, and incorporated herein by reference).(M)
10.17 Director Stock Plan (Appendix D to PXRE's Proxy Statement
for the 2000 annual general meeting of shareholders, and
incorporated herein by reference).(M)
10.18 Director Equity and Deferred Compensation Plan (Appendix E
to PXRE's Proxy Statement for the 2000 annual general
meeting of shareholders, and incorporated herein by
reference).(M)
10.19 Non-Employee Director Deferred Stock Plan (Appendix A to
PXRE Corporation's Proxy Statement dated April 12, 1991,
and incorporated herein by reference).(M)
10.20 Management Agreement dated as of November 8, 1993 among
PXRE Reinsurance Company, Transnational Re Corporation and
Transnational Reinsurance Company (Exhibit 10.22 to the
Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1993 (File No. 0-15428), and
incorporated herein by reference), as amended by Amendment
No. 1 thereto, dated December 1, 1994 (Exhibit 10.21 to the
Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1994 (File No. 0-15428), and
incorporated herein by reference).
10.21 Agreement and Plan of Merger dated as of August 22, 1996
between PXRE Corporation and Transnational Re Corporation,
as amended by Amendment No. 1 dated as of September 27,
1996 and Amendment No. 2 dated as of October 24, 1996
(Annex A to PXRE Corporation's Form S-4 Registration
Statement dated October 30, 1996 (File No. 333-15087), and
incorporated herein by reference).
10.22 Excess of Loss Reinsurance Agreement, effective as of
January 1, 1998, between PXRE Reinsurance Company and
Transnational Insurance Company.*
10.23 Reinsurance Pooling Agreement, effective as of January 1,
1999, between PXRE Reinsurance Company and Transnational
Insurance Company. (Exhibit 10.21 to PXRE's Form S-4
Registration Statement dated August 18, 1999 (File No.
333-85451), and incorporated herein by reference).
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* Filed herewith.
(M) Indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
6
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10.24 Agreement and Plan of Merger dated as of July 7, 1999 among
PXRE Corporation, PXRE Group Ltd. and PXRE Merger Corp.
(Annex A to PXRE's Form S-4 Registration Statement dated
August 18, 1999 (File No. 333-85451), and incorporated
herein by reference).
10.25 Facultative Obligatory Quota Share Retrocessional Agreement
effective October 1, 1999 between PXRE Reinsurance Company
and PXRE Reinsurance Ltd. and Aggregate Excess of Loss
Agreement effective October 1, 1999 between PXRE
Reinsurance Ltd. and PXRE Reinsurance Company.*
10.26 Lease dated May 9, 1994 between Thornall Associates, L.P.
and PXRE Corporation (Exhibit 10.24 to the Annual Report on
Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1994 (File No. 0-15428), and incorporated
herein by reference) and Lease dated November 1, 1999
between Thornall Associates, L.P. and PXRE Corporation.*
10.27 Lloyd's Deposit Trust Deed (Third Party Deposit) dated
November 29, 1996 between PXRE Limited and PXRE Reinsurance
Company (Exhibit 10.32 to the Annual Report on Form 10-K of
PXRE Corporation for the fiscal year ended December 31,
1997 (File No. 0-15428), and incorporated herein by
reference).
10.28 Letter of Credit dated November 22, 1996 issued by The
Chase Manhattan Bank by order of PXRE Reinsurance Company
for the benefit of Lloyd's (Exhibit 10.33 to the Annual
Report on Form 10-K of PXRE Corporation for the fiscal year
ended December 31, 1997 (File No. 0-15428), and
incorporated herein by reference).
10.29 Lloyd's Security Trust Deed (Letter of Credit and Bank
Guarantee) dated November 29, 1997 between PXRE Limited and
Lloyd's (Exhibit 10.34 to the Annual Report on Form 10-K of
PXRE Corporation for the fiscal year ended December 31,
1997 (File No. 0-15428), and incorporated herein by
reference).
10.30 Operating Agreement of Cat Bond Investors, effective as of
June 9, 1997 among Cat Bond Investors, Phoenix Home Life
and PXRE Corporation (Exhibit 10.35 to the Annual Report on
Form 10-K of PXRE Corporation for the fiscal year ended
December 31, 1997 (File No. 0-15428), and incorporated
herein by reference).
10.31 Employment Agreement dated July 16, 1998 between PXRE
Managing Agency Limited and Peter G. Butler (Exhibit 10.37
to the Annual Report on Form 10-K of PXRE Corporation for
the fiscal year ended December 31, 1998 (File No. 0-15428)
and incorporated herein by reference). (M)
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* Filed herewith.
(M) Indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
7
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10.32 Employment Agreement dated June 8, 1998 between PXRE
Corporation and Michael J. Toman (Exhibit 10.38 to the
Annual Report on Form 10-K of PXRE Corporation for the
fiscal year ended December 31, 1998 (File No. 0-15428)
and incorporated herein by reference). (M)
10.33 Employment Agreement dated April 14, 1999 between PXRE
Reinsurance Company and Jeffrey Mayer (Exhibit 10.39 to
PXRE Corporation's Form 10-Q for the quarterly period ended
June 30, 1999 (File No. 0-15428) and incorporated herein by
reference). (M)
10.34 Investment Advisory Services Agreement between PXRE
Corporation and Mariner Investment Group, Inc. dated March
14, 2000.*
11 Statement re computation of earnings per share.
12 Statement re computation of ratios.*
21 List of Subsidiaries. At December 31, 1999, PXRE had the
following subsidiaries: PXRE Reinsurance Ltd., a Bermuda
insurance company; PXRE (Barbados) Ltd., a Barbados
company; PXRE Corporation, a Delaware corporation; PXRE
Reinsurance Company, a Connecticut insurance company;
Transnational Insurance Company, a Connecticut insurance
company; PXRE Capital Trust I, a Delaware statutory
business trust; PXRE Limited., an English company (the sole
member of PG Butler Syndicate 1224 at Lloyd's); PXRE
Managing Agency Limited (the managing agency for PG Butler
Syndicate 1224 at Lloyd's); PXRE Trading Corporation, a
Delaware corporation; TREX Trading Corporation, a Delaware
corporation; PX/TX Associates, a Delaware general
partnership (of which PXRE Trading and TREX Trading are the
only partners); CAT Fund, L.P., a Delaware limited
partnership (of which PX/TX Associates is the sole general
partner and PXRE Trading and TREX Trading are the only
limited partners); Cat Bond Investors L.L.C. (of which PXRE
Delaware and Phoenix Home Life are the only members); PXRE
Solutions Inc., a Connecticut corporation; PXRE Direct
Underwriting Managers, Inc., a Connecticut corporation; and
PXRE Underwriting Managers, Inc., a Virginia corporation.
(See the discussion in this Form 10-K under the captions
"Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations.")
23 Consent of PricewaterhouseCoopers, independent accountants
to PXRE. (Included as part of Item 14(a)(2) of this Form
10-K.)
24 Powers of Attorney.*
27 Financial Data Schedule (electronic filing only).*
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* Filed herewith.
(M) Indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
8
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28 Information from reports furnished to state insurance
regulatory authorities.**
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* Filed in paper under cover of Form SE.
9
STATEMENT OF DIFFERENCES
The registered trademark symbol shall be expressed as...................... 'r'
The service mark symbol shall be expressed as.............................. 'sm'
The British pound sterling sign shall be expressed as...................... 'L'