HAMILTON, Bermuda, March 14 /PRNewswire-FirstCall/ -- PXRE Group Ltd. today announced results for the fourth quarter ended December 31, 2006. Notable items for the quarter included:
* On a fully diluted basis, book value per share decreased during the
quarter by $0.24 to $6.41 at December 31, 2006
* Net loss before convertible preferred share dividends was $19.7 million
for the fourth quarter of 2006 compared to $446.5 million for the fourth
quarter of 2005
* On a fully diluted basis, book value per share increased during the year
by $0.40 to $6.41 at December 31, 2006
* Net income before convertible preferred share dividends was
$28.5 million for the year ended December 31, 2006 compared to a net
loss before convertible preferred share dividends of $697.6 million for
the year ended December 31, 2005
On March 14, 2007, the Company separately announced that it had entered into an Agreement and Plan of Merger with Argonaut Group, Inc.
For the quarter ended December 31, 2006, net loss before convertible preferred share dividends was $19.7 million compared to $446.5 million for the fourth quarter of 2005. The net loss before convertible preferred shares for the fourth quarter of 2006 is primarily attributable to $17.6 million in termination charges arising from the early commutation of a reinsurance contract with Atlantic & Western Re Limited ("A&W Reinsurance Contract"), a decrease in net premiums earned due to the cancellation and non-renewal of the majority of our reinsurance portfolio following our ratings downgrades in February 2006, offset by the absence of any significant loss events in the quarter as well as net favorable development on our loss and loss expense reserves. The net loss in the fourth quarter of 2005 principally reflects losses from Hurricane Wilma and increased estimates of losses from Hurricanes Katrina and Rita.
Net premiums earned for the quarter decreased 109%, or $170.2 million, to negative $13.5 million from $156.7 million for the same period of 2005. This decrease in net premiums earned can be attributed to the cancellation and non- renewal of the majority of our reinsurance portfolio following our ratings downgrades by the major rating agencies in February 2006. The negative net earned premium in the fourth quarter of 2006 is due to the termination charges of $17.6 million related to the A&W Reinsurance Contract.
Revenues and Net Premiums Earned
Three Months Ended Twelve Months Ended
($000's) December 31, December 31,
2006 2005 Change % 2006 2005 Change %
Revenues $1,776 $157,097 (99) $137,802 $419,821 (67)
Net Premiums
Earned:
Cat & Risk
Excess $(13,469) $157,193 (109) $84,948 $389,582 (78)
Exited (14) (540) (97) (419) (1,258) (67)
$(13,483) $156,653 (109) $84,529 $388,324 (78)
Net premiums written in the fourth quarter of 2006 decreased 114%, or $148.9 million, to negative $18.2 million from $130.7 million for the same period of 2005. This decrease in net premiums written is due to the cancellation and non-renewal of the majority of our reinsurance portfolio following our ratings downgrades by the major rating agencies in February 2006. The negative net written premium in the fourth quarter of 2006 is due to the termination charges of $17.6 million related to the A & W Reinsurance Contract.
Net Premiums Written Three Months Ended Twelve Months Ended ($000's) December 31, December 31, 2006 2005 Change % 2006 2005 Change % Net Premiums Written: Cat & Risk Excess $(18,154) $131,205 (114) $53,934 $408,271 (87) Exited (15) (540) (97) (425) (1,266) (66) $(18,169) $130,665 (114) $53,509 $407,005 (87)
Net investment income for the fourth quarter of 2006 increased 2%, or $0.3 million, to $14.9 million from $14.6 million for the corresponding period of 2005. This increase is primarily as a result of a $5.5 million increase in income from our short-term investment portfolio and a $1.5 million decrease in investment expenses, offset, in part, by a $4.9 million decrease in income from our fixed maturity portfolio and a $1.8 million decrease in income from our hedge funds. The increase in income from our short-term investment portfolio was due to an increase in invested assets attributable to cash flow principally from the proceeds of capital raising activities in the fourth quarter of 2005, the Company's decision to sell approximately $490 million of fixed maturity securities in February 2006 as a result of our ratings downgrades and reinvest the proceeds in short-term investments and from the redemption of our hedge fund investments during 2006. The net return on the fixed maturity and short-term investment portfolios increased to 5.3% for the quarter, on an annualized basis, compared to 4.2% during the comparable prior year period. As previously communicated, PXRE submitted redemption notices for its entire hedge fund portfolio in February 2006, and as a result income from hedge funds will continue to decrease in future quarters as we receive the remaining proceeds from our various hedge fund investments. As of December 31, 2006, we have received redemption proceeds from 92% of the hedge fund assets held as of December 31, 2005.
The Company had negative incurred losses for the quarter of $0.2 million. This negative incurred loss amount was due to net favorable development of $2.2 million in the 2006 accident year loss reserves which was caused by lower than expected reported losses for the 2006 accident year on a year-to-date basis along with the absence of any significant property catastrophe events in the fourth quarter, offset, in part, by $2.0 million of net adverse development on prior-year losses and loss expenses during the quarter. Losses and loss expenses incurred in the fourth quarter of 2005 were $533.0 million, which was primarily attributable to Hurricane Wilma and increased estimates of losses from Hurricanes Katrina and Rita.
The expense ratio was negative 78.2% for the fourth quarter of 2006 compared to 17.1% for the fourth quarter of 2005 due to the decrease in net premiums earned to a negative amount in 2006 and an increase in operating expenses of $0.6 million in 2006. The increase in operating expenses was largely related to additional fees to attorneys and financial advisors which have been incurred as a result of our ratings downgrades, the Board of Directors' decision to explore strategic alternatives for the Company, the class action securities lawsuits filed against the Company during the second quarter of 2006 as well as employee severance and retention expenses.
GAAP Ratios
Three Months Ended Twelve Months Ended
December 31, December 31,
2006 2005 2006 2005
Loss Ratio, All Lines 1.8% 340.2% 14.7% 260.5%
Expense Ratio (78.2) 17.1 73.7 21.9
Combined Ratio (76.4%) 357.3% 88.4% 282.4%
Loss Ratio, Cat
& Risk Excess 28.6% 339.0% 7.6% 257.9%
In the fourth quarter of 2005, PXRE entered into a collateralized catastrophe facility which was determined to be a derivative and recorded at fair value on the Company's consolidated balance sheet. Other reinsurance related expense increased $6.2 million to $7.1 million in the fourth quarter of 2006 from $0.9 million for the corresponding period of 2005. This increase was due to the change in fair value of this derivative during the quarter ended December 31, 2006.
Operating results reflect a tax expense of $0.6 million for the fourth quarter of 2006 compared to a tax expense of $39.5 million for the fourth quarter of 2005. The tax expense in the fourth quarter of 2005 reflected the decision to recognize a full valuation allowance on the Company's deferred tax asset due to uncertainty with respect to the amount of future taxable income following downgrades of the Company's credit ratings.
On a fully diluted basis, book value per share decreased for the fourth quarter of 2006 by $0.24 to $6.41 at December 31, 2006. During the fourth quarter of 2006, PXRE recorded a change in net after-tax unrealized appreciation in investments of $0.1 million in other comprehensive income. In addition, PXRE recorded a $1.2 million increase in other comprehensive income due to a reduction in additional minimum pension liability and the effect of adoption of FAS 158 on its pension obligations.
PXRE -- with operations in Bermuda, Europe and the United States -- provides reinsurance products and services to a worldwide marketplace. The Company's primary focus is providing property catastrophe reinsurance and retrocessional coverage. The Company also provides marine, aviation and aerospace products and services. The Company's shares trade on the New York Stock Exchange under the symbol "PXT."
PXRE Group Ltd. and Argonaut Group, Inc. will conduct a joint investor call to discuss the merger on Thursday, March 15, 2007 at 9:00 a.m. Eastern Time. The conference call can be accessed by visiting the investor relations section of PXRE Group's Web page, which can be found at http://www.pxre.com/. The dial-in numbers are (800) 659-2037 , passcode 60496582, for U.S. and Canadian callers and (617) 614-2713 for international callers, passcode 60496582. Following the conclusion of the presentation, the webcast replay of the conference call will be available online approximately one hour after the call's completion at http://www.pxre.com/ or by telephone at (888) 286-8010, passcode 56228008. International callers can access the conference call replay by dialing (617) 801-6888, passcode 56228008.
Quarterly financial statements are expected to be available on the Company's website under the press release section of News and Events on March 14, 2006. To request other printed investor material from PXRE or additional copies of this news release, please call (441) 296-5858, send e-mail to
Statements in this release that are not strictly historical are forward- looking and are based upon current expectations and assumptions of management. Statements included herein, as well as statements made by or on behalf of PXRE 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," "anticipate," or "expects" or variations of such words or similar expressions are based on current expectations, speak only as of the date thereof, and are subject to risk and uncertainties. In light of the risks and uncertainties inherent in all future projections, the forward-looking statements in this report should not be considered as a representation by us or any other person that the Company's objectives or plans will be achieved. The Company 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) we face risks related to our proposed merger with Argonaut; (ii) if the merger with Argonaut is not completed, unless the Board of Directors identifies and implements a different operating strategic solution, we will not write or earn any material premiums in the future and, as a result, we expect to incur material operating losses since our remaining revenue is insufficient to cover our projected operating and other expenses; (iii) if the merger is not consummated, we may not be able to identify or implement a strategic alternative for PXRE; (iv) if the merger is not consummated and our Board of Directors concludes that no other feasible strategic alternative would be in the best interests of our shareholders, it may determine that the best course of action is to place the reinsurance operations of PXRE into runoff and eventually commence an orderly winding up and liquidation of PXRE operations over some period of time that is not currently determinable; (v) if the merger is not consummated and the Board of Directors elects to pursue a strategic alternative that does not involve the continuation of meaningful property catastrophe reinsurance business, there is a risk that the Company could incur additional material charges or termination fees in connection with our collateralized catastrophe facility and certain multiyear ceded reinsurance agreements; (vi) our ability to continue to operate our business, consummate the merger and to identify, evaluate and complete any other strategic alternative is dependent on our ability to retain our management and other key employees, and we may not be able to do so; (vii) adverse events in 2006 negatively have affected the market price of our common shares, which may lead to further securities litigation, administrative proceedings or both being brought against us; (viii) reserving for losses includes significant estimates, which are also subject to inherent uncertainties; (ix) because of potential exposure to catastrophes in the future, our financial results may vary significantly from period to period; (x) we operate in a highly competitive environment and no assurance can be given that we will be able to compete effectively in this environment; (xi) reinsurance prices may decline, which could affect our profitability; (xii) we may require additional capital in the future; (xiii) our investment portfolio is subject to significant market and credit risks which could result in an adverse impact on our financial position or results; (xiv) we have exited the finite reinsurance business, but claims in respect of finite reinsurance could have an adverse effect on our results of operations; (xv) our reliance on reinsurance brokers exposes us to their credit risk; (xvi) we may be adversely affected by foreign currency fluctuations; (xvii) retrocessional reinsurance subjects us to credit risk and may become unavailable on acceptable terms; (xviii) we have exhausted our retrocessional coverage with respect to Hurricane Katrina, leaving us exposed to further losses; (xix) recoveries under our collateralized facility are triggered by modeled loss to a notional portfolio, rather than our actual losses arising from a catastrophe event, which creates a potential mismatch between the risks assumed through our inwards reinsurance business and the protection afforded by this facility; (xx) our inability to provide the necessary collateral could affect our ability to offer reinsurance in certain markets; (xxi) the insurance and reinsurance business is historically cyclical, and we may experience periods with excess underwriting capacity and unfavorable premium rates; conversely, we may have a shortage of underwriting capacity when premium rates are strong; (xxii) regulatory constraints may restrict our ability to operate our business; (xxiii) any determination by the United States Internal Revenue Service ("IRS") that we or our offshore subsidiaries are subject to U.S. taxation could result in a material adverse impact on the our financial position or results; and (xxiv) any changes in tax laws, tax treaties, tax rules and interpretations could result in a material adverse impact on our financial position or results. 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 state, federal or foreign legislation and regulation, adverse publicity or news coverage, changes in general economic factors, the loss of key employees and other factors set forth in PXRE's SEC filings. The factors listed above should not be construed as exhaustive. Therefore, actual results or outcomes may differ materially from what is expressed or forecasted in such forward- looking statements.
PXRE undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events (including catastrophe events), or otherwise.
Contact:
PXRE Group Ltd.
Robert P. Myron
Chief Financial Officer
441-296-5858
These preliminary financial statements are unaudited and do not include footnotes that customarily accompany a complete set of financial statements; these footnotes will be furnished when the Company makes its filing on Form 10-K for the year ended December 31, 2006.
PXRE Consolidated Balance Sheets
Group Ltd. (Dollars in thousands, except par value per share)
December 31,
2006 2005
Assets
Investments:
Fixed maturities, at fair
value:
Available-for-sale
(amortized cost $502,307
and $1,212,299,
respectively) $502,254 $1,208,248
Trading (cost $14,794 and
$28,225, respectively) 15,497 25,796
Short-term investments, at
fair value 671,197 261,076
Hedge funds, at fair value
(cost $11,583 and
$132,690, respectively) 12,766 148,230
Other invested assets, at
fair value (cost $1,717
and $2,806, respectively) 2,427 3,142
Total investments 1,204,141 1,646,492
Cash 12,251 14,504
Accrued investment income 3,830 10,809
Premiums receivable, net 93,325 217,446
Other receivables 7,321 17,000
Reinsurance recoverable on
paid losses 3,324 4,223
Reinsurance recoverable on
unpaid losses 35,327 107,655
Ceded unearned premiums - 1,379
Deferred acquisition costs 8 5,487
Income tax recoverable - 6,295
Other assets 41,816 84,757
Total assets $1,401,343 $2,116,047
Liabilities
Losses and loss expenses $603,241 $1,320,126
Unearned premiums 113 32,512
Subordinated debt 167,089 167,081
Reinsurance balances
payable 34,649 30,244
Deposit liabilities 54,425 68,270
Income tax payable 597 -
Other liabilities 44,462 32,496
Total liabilities 904,576 1,650,729
Shareholders' Equity
Serial convertible
preferred shares, $1.00
par value, $10,000 stated
value -- 30 million shares
authorized, 0.01 million
and 0.01 million shares
issued and outstanding,
respectively 58,132 58,132
Common shares, $1.00 par
value -- 350 million
shares authorized, 72.4
million and 72.3 million
shares issued and
outstanding, respectively 72,351 72,281
Additional paid-in capital 873,142 875,224
Accumulated other
comprehensive loss (100) (5,468)
Accumulated deficit (503,711) (527,349)
Restricted shares at cost
(0.4 million and 0.5
million shares,
respectively) (3,047) (7,502)
Total shareholders' equity 496,767 465,318
Total liabilities and
shareholders' equity $1,401,343 $2,116,047
Consolidated Statements of Operations and Comprehensive
PXRE Operations
Group Ltd. (Dollars in thousands, except per share amounts)
Three Months Ended Twelve Months Ended
December 31, December 31,
2006 2005 2006 2005
Revenues
Net premiums earned $(13,483) $156,653 $84,529 $388,324
Net investment income 14,893 14,643 60,654 45,292
Net realized investment
gains (losses) 172 (14,370) (7,809) (14,736)
Fee income 194 171 428 941
1,776 157,097 137,802 419,821
Losses and Expenses
Losses and loss
expenses incurred (241) 533,002 12,443 1,011,523
Commission and
brokerage 815 17,888 19,126 49,900
Other reinsurance
related expense 7,124 936 17,862 936
Operating expenses 9,732 9,105 43,373 36,208
Foreign exchange
(gains) losses (168) (494) 1,444 (1,547)
Interest expense 3,627 3,615 14,455 14,452
20,889 564,052 108,703 1,111,472
(Loss) income before
income taxes and
convertible preferred
share dividends (19,113) (406,955) 29,099 (691,651)
Income tax provision 597 39,510 597 5,907
Net (loss) income
before convertible
preferred share
dividends $(19,710) $(446,465) $28,502 $(697,558)
Convertible preferred
share dividends 1,163 1,162 4,864 7,040
Net (loss) income to
common shareholders $(20,873) $(447,627) $23,638 $(704,598)
Comprehensive Operations, Net of
Tax
Net (loss) income
before convertible
preferred share
dividends $(19,710) $(446,465) $28,502 $(697,558)
Net change in
unrealized
appreciation
(depreciation) on
investments 84 (4,435) (3,929) (12,061)
Reclassification
adjustments for losses
included in net (loss)
income 20 11,952 7,996 12,164
Minimum additional
pension liability 1,847 (716) 1,970 (716)
Comprehensive (loss)
income $(17,759) $(439,664) $34,539 $(698,171)
Per Share
Basic:
(Loss) income before
convertible preferred
share dividends $(0.27) $(8.43) $0.40 $(21.43)
Convertible preferred
share dividends (0.02) (0.02) (0.07) (0.22)
Net (loss) income to
common shareholders $(0.29) $(8.45) $0.33 $(21.65)
Average shares
outstanding (000's) 72,006 52,987 71,954 32,541
Diluted:
Net (loss) income
before cumulative
effect of accounting
change $(0.29) $(8.45) $0.37 $(21.65)
Cumulative effect of
accounting change - - - -
Net (loss) income $(0.29) $(8.45) $0.37 $(21.65)
Average shares
outstanding (000's) 72,006 52,987 77,072 32,541
PXRE Consolidated Statements of Shareholders' Equity
Group Ltd. (Dollars in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
2006 2005 2006 2005
Convertible Preferred Shares
Balance at beginning
of period $58,132 $58,132 $58,132 $163,871
Conversion of
convertible
preferred shares - - - (109,108)
Dividends to
convertible
preferred
shareholders - - - 3,369
Balance at end of
period $58,132 $58,132 $58,132 $58,132
Common Shares
Balance at beginning
of period $72,346 $29,395 $72,281 $20,469
Issuance of common
shares, net 5 42,886 70 51,812
Balance at end
of period $72,351 $72,281 $72,351 $72,281
Additional Paid-in Capital
Balance at beginning
of period $873,009 $445,425 $875,224 $329,730
Issuance
(cancellation) of
common shares, net 133 429,799 (2,082) 544,430
Tax effect of stock
options exercised - - - 1,064
Balance at end of
period $873,142 $875,224 $873,142 $875,224
Accumulated Other
Comprehensive Operations
Balance at beginning
of period $(1,382) $(12,269) $(5,468) $(4,855)
Change in unrealized
gains on investments 104 7,517 4,067 103
Change in minimum
additional pension
liability 1,847 (716) 1,970 (716)
Incremental effect of
applying FAS 158 (669) - (669) -
Balance at end of
period $(100) $(5,468) $(100) $(5,468)
(Accumulated Deficit)/Retained
Earnings
Balance at beginning
of period $(482,838) $(71,041) $(527,349) $194,081
Net (loss) income
before convertible
preferred share
dividends (19,710) (446,465) 28,502 (697,558)
Dividends to
convertible
preferred
shareholders (1,163) (1,162) (4,864) (7,040)
Dividends to common
shareholders - (8,681) - (16,832)
Balance at end of
period $(503,711) $(527,349) $(503,711) $(527,349)
Restricted Shares
Balance at beginning
of period $(3,598) $(9,683) $(7,502) $(6,741)
Cancellation
(issuance) of
restricted shares,
net - 1,503 2,376 (4,566)
Amortization of
restricted shares 551 678 2,079 3,805
Balance at end of
period $(3,047) $(7,502) $(3,047) $(7,502)
Total Shareholders' Equity
Balance at beginning
of period $515,669 $439,959 $465,318 $696,555
Conversion of
convertible
preferred shares - - - (109,108)
Issuance
(cancellation) of
common shares, net 138 472,685 (2,012) 596,242
Restricted shares,
net 551 2,181 4,455 (761)
Unrealized
appreciation on
investments 104 7,517 4,067 103
Minimum additional
pension liability
and effect of
applying FAS 158 1,178 (716) 1,301 (716)
Net (loss) income
before convertible
preferred share
dividends (19,710) (446,465) 28,502 (697,558)
Dividends to
convertible
preferred
shareholders (1,163) (1,162) (4,864) (3,671)
Dividends to common
shareholders - (8,681) - (16,832)
Tax effect of stock
options exercised - - - 1,064
Balance at end of
period $496,767 $465,318 $496,767 $465,318
PXRE Consolidated Statements of Cash Flows
Group Ltd. (Dollars in thousands)
Three Months Ended Twelve Months Ended
December 31, December 31,
2006 2005 2006 2005
Cash Flows from Operating
Activities
Premiums collected,
net of reinsurance $17,302 $10,147 $182,035 $301,982
Losses and loss
adjustment expenses
paid, net of
reinsurance (123,585) (67,112) (620,947) (229,295)
Commission and
brokerage received
(paid), net of fee
income 412 (14,617) (7,154) (28,727)
Operating expenses
paid (11,213) (6,971) (45,967) (31,666)
Net investment income
received 14,191 13,825 57,180 37,788
Interest paid (1,385) (1,374) (14,338) (14,338)
Income taxes (paid)
recovered (31) (144) 6,295 18,328
Trading portfolio
purchased (8,499) - (38,392) (17,685)
Trading portfolio
disposed 7,222 - 50,139 3,369
Deposit paid (1,736) (2,060) (13,845) (3,873)
Other 473 (11,464) 10,747 (8,608)
Net cash (used)
provided by
operating activities (106,849) (79,770) (434,247) 27,275
Cash Flows from Investing
Activities
Fixed maturities
available for sale
purchased (23,068) (360,140) (90,510) (733,076)
Fixed maturities
available for sale
disposed or matured 50,178 58,747 794,485 209,763
Hedge funds purchased - (9,500) (4,000) (129,388)
Hedge funds disposed 6,017 8,170 145,097 123,219
Other invested assets
purchased - - (35) -
Other invested assets
disposed 186 1,494 1,577 3,738
Net change in short-
term investments 65,998 (86,850) (410,121) 35,242
Net cash provided
(used) by investing
activities 99,311 (388,079) 436,493 (490,502)
Cash Flows from Financing
Activities
Proceeds from
issuance of common
shares 138 474,222 628 483,169
Cash dividends paid
to common
shareholders - (8,681) - (16,832)
Cash dividends paid
to preferred
shareholders (1,163) (1,162) (4,864) (3,671)
Cost of shares
repurchased - (36) (263) (603)
Net cash (used)
provided by
financing activities (1,025) 464,343 (4,499) 462,063
Net change in cash (8,563) (3,506) (2,253) (1,164)
Cash, beginning of
period 20,814 18,010 14,504 15,668
Cash, end of period $12,251 $14,504 $12,251 $14,504
Reconciliation of net
(loss) income to net
cash (used) provided
by operating
activities:
Net (loss) income
before convertible
preferred share
dividends $(19,710) $(446,465) $28,502 $(697,558)
Adjustments to
reconcile net (loss)
income to net cash
(used) provided by
operating
activities:
Losses and loss
expenses (124,525) 334,684 (716,885) 860,041
Unearned premiums (4,709) (25,989) (31,020) 18,681
Deferred acquisition
costs 1,316 2,249 5,479 (3,742)
Receivables 17,229 (35,115) 133,800 (106,015)
Reinsurance balances
payable 18,504 (91,242) 4,405 19,307
Reinsurance
recoverable 698 166,359 73,228 (42,661)
Income taxes 566 39,365 6,892 24,507
Equity in earnings of
limited partnerships (264) (2,432) (6,460) (13,000)
Trading portfolio
purchased (8,499) - (38,392) (17,685)
Trading portfolio
disposed 7,222 - 50,139 3,369
Deposit liability (1,736) (2,060) (13,845) (3,873)
Receivable on
commutation - (35,154) 35,154 (35,154)
Other 7,059 16,030 34,756 21,058
Net cash (used)
provided by
operating activities $(106,849) $(79,770) $(434,247) $27,275
