<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________________ to ___________________
Commission File Number 0-15428
PXRE CORPORATION
(Formerly Phoenix Re Corporation)
(Exact name of registrant as specified in its charter)
Delaware 06-1183996
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
399 Thornall Street
Edison, New Jersey 08837
(Address of principal executive offices) (Zip Code)
(908) 906-8100
(Registrant's telephone number, including area code)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
--- ---
As of November 8, 1995, 8,745,141 shares of common stock, $.01 par value
per share, of the Registrant were outstanding.
================================================================================
<PAGE>
PXRE CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets at September 30, 1995
and December 31, 1994 3
Consolidated Statements of Income for the three and
nine months ended September 30, 1995 and 1994 4
Consolidated Statements of Stockholders' Equity for the
three and nine months ended September 30, 1995 and 1994 5
Consolidated Statements of Cash Flow for the three and
nine months ended September 30, 1995 and 1994 6
Notes to Consolidated Interim Financial Statements 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION 21
2
<PAGE>
<TABLE>
PXRE Consolidated Balance Sheets
Corporation (unaudited at September 30, 1995)
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Assets Investments:
Fixed maturities, available for sale, at fair value (amortized
cost $212,194,000 and $212,465,000, respectively) $214,283,920 $204,587,171
Equity securities, at fair value 3,000,000 0
Short-term investments 50,493,735 26,812,546
------------ ------------
Total investments 267,777,655 231,399,717
Cash 2,377,920 389,249
Accrued investment income 4,000,117 3,164,703
Receivables:
Unreported premiums 22,471,576 22,718,835
Balances due from intermediaries and brokers 7,131,608 2,864,930
Other receivables 5,002,449 5,499,648
Receivable from affiliates 367,457 73,423
Income tax recoverable 2,832,698 1,601,844
Reinsurance recoverable: Affiliates 7,662,272 5,348,637
Non-affiliates 28,394,402 40,055,458
Ceded unearned premiums 8,972,409 4,702,678
Deferred acquisition costs 2,242,967 863,138
Deferred income taxes benefit 0 1,358,229
Investment in equity of Transnational Re Corporation 34,254,242 28,883,788
Other assets 8,831,932 4,870,139
------------ ------------
Total assets $402,319,704 $353,794,416
------------ ------------
Liabilities Losses and loss expenses $76,151,023 $81,835,558
Unearned premiums 26,036,446 12,263,128
Reinsurance balances payable: Affiliates 2,686,884 4,966,732
Non-affiliates 11,530,891 9,398,128
Notes payable 67,775,000 69,700,000
Deferred income taxes payable 2,033,050 0
Payable for securities 10,638,757 0
Other liabilities 5,673,496 8,859,928
------------ ------------
Total liabilities 202,525,547 187,023,474
------------ ------------
Stockholders' Serial preferred stock, $.01 par value --
Equity 500,000 shares authorized; 0 and 10,009 Series A 8%
cumulative convertible shares issued and outstanding 0 100
Common stock, $.01 par value --
20,000,000 shares authorized; 8,983,024 and 6,921,609 shares 89,830 69,216
issued
Additional paid-in capital 117,650,135 116,888,369
Net unrealized appreciation (depreciation) on investments, net
of deferred income tax expense (benefit) of $731,000 and
($2,757,000) 1,515,978 (5,976,354)
Retained earnings 82,869,171 57,933,848
Treasury stock at cost (238,755 and 258,370 shares) (1,719,459) (1,860,687)
Restricted stock at cost (34,000 and 14,385 shares) (611,498) (283,550)
------------ ------------
Total stockholders' equity 199,794,157 166,770,942
------------ ------------
Total liabilities and stockholders' equity $402,319,704 $353,794,416
============ ============
The accompanying notes are an integral part of these statements.
3
<PAGE>
PXRE Consolidated Statements of Income
Corporation
</TABLE>
<TABLE>
<CAPTION>
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues Net premiums earned $24,320,379 $26,650,824 $73,018,528 $81,540,465
Net investment income 3,874,380 4,451,585 10,805,037 10,022,346
Net realized investment gains (losses) 282,068 0 (486,212) (1,217,584)
Management fees : Affiliate 924,618 780,593 2,596,881 2,318,418
Non-affiliate 730,669 1,716,217 2,406,821 3,214,809
----------- ----------- ----------- -----------
30,132,114 33,599,219 88,341,055 95,878,454
----------- ----------- ----------- -----------
Losses and Losses and loss expenses incurred 12,050,871 9,803,738 27,051,454 39,609,969
expenses Commissions and brokerage 3,159,969 3,945,641 9,726,620 11,420,646
Other operating expenses 3,007,294 2,327,918 8,068,649 6,279,859
Interest expense 1,891,543 1,907,042 5,423,472 5,720,885
----------- ----------- ----------- -----------
20,109,677 17,984,339 50,270,195 63,031,359
----------- ----------- ----------- -----------
Income before income taxes and equity in net
earnings of Transnational Re Corporation 10,022,437 15,614,880 38,070,860 32,847,095
Equity in net earnings of Transnational Re
Corporation 1,406,155 1,268,954 4,451,849 3,120,849
Income tax provision 3,555,000 5,426,000 13,325,000 11,189,000
----------- ----------- ----------- -----------
Net income $7,873,592 $11,457,834 $29,197,709 $24,778,944
=========== =========== =========== ===========
Preferred stock dividend $0 $501,200 $598,928 $1,503,600
=========== =========== =========== ===========
Operating income available to common
stockholders $7,873,592 $10,956,634 $28,598,781 $23,275,344
=========== =========== =========== ===========
Per share Primary:
Net income $0.89 $1.62 $3.54 $3.46
=========== =========== =========== ===========
Average shares outstanding 8,860,923 6,764,067 8,077,213 6,736,538
=========== =========== =========== ===========
Fully diluted:
Net income $0.89 $1.30 $3.29 $2.81
=========== =========== =========== ===========
Average shares outstanding 8,887,193 8,828,208 8,877,290 8,820,766
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
4
<PAGE>
PXRE Consolidated Statements of Stockholders' Equity
Corporation
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
Common stock: Balance at beginning of period $ 89,616 $ 68,268 $ 69,216 $ 67,849
Issuance of shares 214 242 20,614 661
------------- ------------ ------------ ------------
Balance at end of period $ 89,830 $ 68,510 $ 89,830 $ 68,510
============= ============ ============ ============
Preferred stock: Balance at beginning of period $ 0 $ 100 $ 100 $ 100
Conversion of shares 0 0 (100) 0
------------- ------------ ------------ ------------
Balance at end of period $ 0 $ 100 0 100
============= ============ ============ ============
Additional Balance at beginning of period $ 117,292,178 $115,245,203 $116,888,369 $114,336,608
paid-in capital: Issuance of common shares 261,798 301,510 674,956 815,732
Conversion of preferred shares 0 0 (20,260) 0
Other 96,159 114,191 107,070 508,564
------------- ------------ ------------ ------------
Balance at end of period $ 117,650,135 $115,660,904 $117,650,135 $115,660,904
============= ============ ============ ============
Unrealized Balance at beginning of period $ 1,102,208 $ (1,859,177) $ (5,976,354) $ 2,667,621
appreciation Change in fair value for the period 280,672 (1,595,165) 6,479,010 (5,726,578)
(depreciation) Equity in net change in Transnational Re
on investments: appreciation (depreciation) 133,098 (153,350) 1,013,322 (548,735)
------------- ------------ ------------ ------------
Balance at end of period $ 1,515,978 $ (3,607,692) $ 1,515,978 $ (3,607,692)
============= ============ ============ ============
Retained earnings: Balance at beginning of period $ 76,306,357 $ 38,921,774 $ 57,933,848 $ 27,584,795
Net income 7,873,592 11,457,834 29,197,709 24,778,944
Dividends paid to common stockholders (1,310,778) (494,454) (3,663,458) (1,476,185)
Dividends accrued to preferred stockholders 0 (501,200) (598,928) (1,503,600)
------------- ------------ ------------ ------------
Balance at end of period $ 82,869,171 $ 49,383,954 $ 82,869,171 $ 49,383,954
============= ============ ============ ============
Restricted stock: Balance at beginning of period $ (681,410) $ (364,084) $ (283,550) $ 0
Issuance of restricted stock 0 0 (499,005) (364,084)
Amortization of restricted stock 69,912 0 171,057 0
------------- ------------ ------------ ------------
Balance at end of period $ (611,498) $ (364,084) $ (611,498) $ (364,084)
============= ============ ============ ============
Treasury stock: Balance at beginning of period $ (1,719,459) $ (1,860,687) $ (1,860,687) $ (1,966,743)
Issuance of treasury stock 0 0 141,228 106,056
------------- ------------ ------------ ------------
Balance at end of period $ (1,719,459) $ (1,860,687) $ (1,719,459) $ (1,860,687)
============= ============ ============ ============
Total Balance at beginning of period $ 192,389,490 $150,151,397 $166,770,942 $142,690,230
stockholders' Issuance of common shares 262,012 301,752 695,570 816,393
equity: Conversion of preferred stock 0 0 (20,360) 0
Issuance of treasury stock 0 0 141,228 106,056
Restricted stock 69,912 0 (327,948) (364,084)
Unrealized appreciation (depreciation) on
investments net of deferred income tax 413,770 (1,748,515) 7,492,332 (6,275,313)
Net income 7,873,592 11,457,834 29,197,709 24,778,944
Dividends (1,310,778) (995,654) (4,262,386) (2,979,785)
Other 96,159 114,191 107,070 508,564
------------- ------------ ------------ ------------
Balance at end of period $ 199,794,157 $159,281,005 $199,794,157 $159,281,005
============= ============ ============ ============
The accompanying notes are an integral part of these statements.
5
<PAGE>
PXRE Consolidated Statements of Cash Flow
Corporation
</TABLE>
<TABLE>
<CAPTION>
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flow Net income $7,873,592 $11,457,834 $29,197,709 $24,778,944
from operating Adjustments to reconcile net income to net cash
activities provided by operating activities:
Losses and loss expenses 997,332 2,113,589 (5,684,535) 14,531,483
Unearned premiums 4,495,069 8,535,777 9,503,587 9,497,417
Deferred acquisition costs (575,489) (777,874) (1,379,829) (442,209)
Receivables 4,028,013 (638,415) (3,816,254) (8,706,502)
Reinsurance balances payable 3,023,670 4,067,395 (147,086) 7,366,076
Reinsurance recoverable 2,563,220 (5,343,567) 9,347,422 (12,583,825)
Income tax recoverable (1,167,989) 3,885,972 (1,875,420) 5,422,472
Equity in net earnings of affiliate (1,365,110) (1,268,953) (4,357,155) (3,120,849)
Other (1,335,035) (3,888,169) (4,253,155) (1,003,989)
----------- ----------- ------------ -----------
Net cash provided by operating
activities 18,537,273 18,143,589 26,535,284 35,739,018
----------- ----------- ------------ -----------
Cash flow Cost of fixed maturity investments (23,859,953) (9,917,756) (101,575,297) (49,850,849)
from investing Fixed maturity investments matured/disposed 9,400,487 6,685,621 101,366,386 41,123,772
activities Payable for securities 10,638,750 8,052,531 10,638,750 (20,441,435)
Cost of equity securities (3,000,000) 0 (3,000,000) 0
Investment in joint venture 0 0 (2,000,000) 0
Net change in short-term investments (9,810,967) (22,803,115) (23,681,189) (4,555,951)
----------- ----------- ------------ -----------
Net cash used by investing activities (16,631,683) (17,982,719) (18,251,350) (33,724,463)
----------- ----------- ------------ -----------
Cash flow Proceeds from issuance of common stock 262,012 415,941 317,444 1,066,927
from financing Cash dividends paid to preferred 0 (501,200) (933,061) (1,503,600)
activities stockholders
Cash dividends paid to common stockholders (1,310,731) (494,454) (3,663,458) (1,476,185)
Repurchase of debt (2,016,188) 0 (2,016,188) 0
----------- ---------- ----------- -----------
Net cash used by financing activities (3,064,907) (579,713) (6,295,263) (1,912,858)
----------- ---------- ----------- -----------
Net change in cash (1,159,317) (418,843) 1,988,671 101,697
Cash, beginning of period 3,537,237 2,753,796 389,249 2,233,256
----------- ----------- ------------ -----------
Cash, end of period $2,377,920 $2,334,953 $2,377,920 $2,334,953
=========== =========== ============ ===========
The accompanying notes are an integral part of these statements.
6
<PAGE>
PXRE Notes to Consolidated Interim Financial Statements (Unaudited)
Corporation
- --------------------------------------------------------------------------------
1. Basis of The accompanying interim financial statements have
Presentation been prepared in conformity with generally accepted
accounting principles ("GAAP"). These statements reflect
the consolidated operations of PXRE Corporation and its
subsidiaries PXRE Reinsurance Company and PXRE Trading
Corporation (collectively referred to as PXRE).
The interim consolidated financial statements are
unaudited; however, in the opinion of management, the
foregoing financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary
for a fair statement of the results for the interim
period. These interim statements should be read in
conjunction with the 1994 audited consolidated financial
statements and related notes. The preparation of interim
financial statements relies significantly upon estimates.
Use of such estimates, and the seasonal nature of a
portion of the reinsurance business, necessitates caution
in drawing specific conclusions from interim results.
2. Premiums Premiums on reinsurance business assumed are recorded
Assumed as earned on a pro rata basis over the contract period
and Ceded based on estimated subject premiums. Adjustments based on
actual and 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.
3. Losses and Liabilities for losses and loss expenses are
Loss Expenses established in amounts estimated to settle incurred
Liabilities 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.
PXRE has provided approximately $11 million (before
reinstatement premiums) with respect to losses from
hurricanes Luis and Marilyn in the third quarter of 1995.
Because of the significant delay in losses being reported
to insurance carriers and reinsurers, such as PXRE, PXRE's
loss estimate is necessarily based on broad assumptions
and is subject to possible revision.
4. 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 over the period such
investments are held are reflected net of income taxes in
stockholders' equity. Unrealized losses which are not
temporary are charged to operations. Short-term
investments are carried at amortized cost which
approximates fair value. Realized gains or losses on
disposition of investments are determined on the basis of
specific identification. The amortization of premiums and
accretion of discounts for fixed maturity investments are
computed utilizing the interest method. The effective
yield under the interest method is adjusted for
anticipated prepayments.
In March 1995, PXRE and Transnational Re Corporation
("TREX") entered into a joint venture arrangement to trade
in catastrophe futures and options contracts on the
Chicago Board of Trade. PXRE and TREX have each
contributed $2.5 million to capitalize this venture. No
significant trading activities have occurred during the
nine months ended September 30, 1995.
7
<PAGE>
PXRE Notes to Consolidated Interim Financial Statements (Unaudited)
Corporation
- --------------------------------------------------------------------------------
5. Management Fees Management fees are recorded as earned under various
arrangements whereby PXRE Reinsurance Company acts as
underwriting manager for other insurers and reinsurers.
These fees are initially based on premium volume, but are
adjusted through contingent profit commissions related to
underwriting results measured over a period of years.
6. Deferred Acquisition costs consist of commissions and brokerage
Acquisition expenses incurred in connection with contract issuance,
Costs 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 periodically to determine that they do not exceed
recoverable amounts after allowing for anticipated
investment income.
7. Preferred PXRE exercised its option to redeem PXRE's Series A
Stock Preferred Stock (and the related Depositary Shares) on May
Conversion 1, 1995. At December 31, 1994, there were 10,009 shares of
Series A Preferred Stock (1,000,900 Depositary Shares)
outstanding. At March 31, 1995, there were 8,652.22 shares
of Series A Preferred Stock (865,222 Depositary Shares)
outstanding. During the second quarter of 1995, all of the
outstanding shares of Series A Preferred Stock were
converted into shares of PXRE's Common Stock resulting in
the issuance of approximately 1,760,000 shares of PXRE's
Common Stock. Each Depositary Share had a conversion price
of $12.29 per Depositary Share and was valued for
conversion purposes at $25.00, resulting in approximately
2.0342 shares of Common Stock for each Depositary Share
converted.
8. Treasury In April 1995, PXRE was authorized to repurchase up to
Stock 700,000 shares of its stock. PXRE has not yet repurchased
any shares of its stock.
9. Notes During the third quarter of 1995, PXRE Reinsurance
Payable Company repurchased $1,925,000 par value of Senior Notes
at an aggregate cost of $2,016,000.
10. Subsequent PXRE does not anticipate any significant losses in the
Events fourth quarter from hurricane Opal given the current
market loss estimates of under $3.0 billion or from
typhoon Angela in the Philippines.
8
<PAGE>
PXRE Management's Discussion and Analysis of Financial
Corporation Condition and Results of Operations
- -------------------------------------------------------------------------------
General As a reinsurer principally of property risks, 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. PXRE writes a significant amount of international
business to achieve geographic diversification of its
catastrophe exposures and to allow it to take advantage of
business opportunities abroad which, because of possible
differences in timing of the reinsurance cycle in different
regions, may at times offer more favorable terms than those
available in the domestic reinsurance market.
PXRE exercises discipline in committing and withholding
its underwriting capacity and altering its mix of business to
concentrate its underwriting capacity at any given point in
time on those types of business where management believes that
above average underwriting results can be achieved. PXRE is
currently pursuing a strategy of focusing on catastrophe
related coverages in both the international and domestic
markets. This strategy has been designed to capitalize on the
substantial improvements in pricing and other terms of these
coverages which evolved following the high levels of
catastrophic loss activity, in terms of both frequency and
severity of loss, experienced by the worldwide reinsurance
industry since 1987, but which has moderated since the
beginning of 1995. PXRE also has been reducing, upon renewal,
its catastrophe retrocessional facilities (and associated
premiums ceded) and bearing the increase in net exposures. In
view of the increased underwritings of catastrophe related
reinsurance and the larger net exposure being retained by PXRE
as a consequence of its reduction in its catastrophe
retrocessional facilities, the occurrence of one or more major
catastrophes in any given period (such as Hurricanes Andrew
and Iniki in 1992 and the Northridge earthquake in 1994) could
have a material adverse impact on PXRE's results of operations
and financial condition and result in substantial outflows of
cash as losses are paid. Moreover, no assurances can be given
that the pricing and other terms of catastrophe related
coverages currently in effect will continue, particularly in
view of heightened competition from new market entrants and
other market participants. PXRE has, in recent years,
increased its writing of marine and aviation business. In the
fourth quarter of 1992, PXRE decided to reduce significantly
its writing of traditional pro rata and risk excess
reinsurance business due to management's unfavorable
evaluation of the condition of such business.
PXRE generates management fee income by managing business
for other insurers and reinsurers, either by accepting
additional amounts of coverage on underwritten risks and
retroceding such additional amounts to participants through
various retrocessional arrangements or, in one case, by
managing the underwriting and other day-to-day operations of a
publicly-owned reinsurance group.
At September 30, 1995, PXRE was a party to two such
retrocessional arrangements, one with a group of insurers and
reinsurers referred to as the AMA, and one with Trenwick
America Reinsurance Corporation ("Trenwick Group"). Under
these arrangements, both of which were renewed effective
January 1, 1995, PXRE cedes some of its underwritten risks to
the participants, subject to maximum aggregate liabilities per
reinsurance program (approximately $600,000 in the case of the
AMA and approximately $1,500,000 in the case of Trenwick
Group). PXRE receives a management fee or commission of 5% of
premiums ceded and a percentage of any ultimate underwriting
profits in connection with the reinsurance ceded. Such
percentage of ultimate underwriting profits is in each case
paid over a three-year period and is subject to adjustment
based on cumulative experience.
9
<PAGE>
Future management fee income is dependent upon the amount of
business ceded to the participants and the profitability of
that business.
In the past, PXRE has entered into other retrocessional
arrangements providing catastrophic protection. As discussed
above, PXRE has reduced its own catastrophe retrocessional
facilities (and associated premiums ceded) and is bearing the
increase in net exposures. PXRE elected not to purchase any
significant retrocessional coverage in 1994, and does not
expect to purchase any significant retrocessional coverage in
1995. However, as the cost of catastrophe retrocessional
facilities declines, PXRE may selectively purchase such
coverages.
Since November 8, 1993, PXRE has been party to a
management agreement (the "Management Agreement") under which
PXRE has responsibility for the day-to-day operations of TREX
and its subsidiary Transnational Reinsurance Company
("Transnational"), including all the reinsurance operations of
Transnational. TREX and Transnational do not have any
operating properties, systems or paid employees. Pursuant to
the Management Agreement, PXRE provides all the operating
facilities, systems, equipment and management and clerical
employees required to conduct the businesses of TREX and
Transnational.
Under the terms of the Management Agreement, Transnational
shares in certain specified business of PXRE that is
classified as property retrocessional reinsurance business,
marine and aviation retrocessional reinsurance or marine and
aviation reinsurance and facultative excess of loss
reinsurance. Transnational is also entitled to share similarly
in other property reinsurance business, if any, which PXRE
may, from time to time, propose that Transnational underwrite
and which Transnational's Board of Directors may approve.
Transnational pays PXRE an annual basic management fee
under the Management Agreement equal to 5% of gross premiums
written (including reinstatement premiums less return
premiums) of Transnational and its consolidated subsidiaries
(if any) as reflected in Transnational's statutory quarterly
and annual statements filed with state insurance authorities.
In addition, PXRE is entitled to receive from TREX a
contingent fee equal to 20% of "net income" (as defined) in
excess of a 20% "return on equity" (as defined) of TREX for
each year, or part thereof, that the Management Agreement
remains effective (the first such year for such purpose having
commenced on January 1, 1994). TREX and Transnational also pay
all expenses directly attributable to them, including a
proportionate share of PXRE's rental expenses with respect to
office space based on gross premiums written for the
management year.
The Management Agreement has an initial term ending
December 31, 1998 and will automatically renew for successive
three year terms unless either PXRE gives or TREX and
Transnational give at least one year's advance written notice
of non-renewal. The Management Agreement may be terminated by
TREX and Transnational if Transnational's gross written
premiums for a calendar year fall below specified levels.
10
<PAGE>
Comparison of
Third Quarter
Results for
1995 with 1994
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Sept. 30, Increase/
1995 1994 (Decrease)
---- ---- ---------
(in thousands) %
<S> <C> <C> <C>
Gross premiums written $45,720 $55,784 (18.0)
Ceded premiums:
Managed business 8,409 9,023 (6.8)
TREX Management Agreement 7,082 9,715 (27.1)
Catastrophe 1,411 1,833 (23.0)
Other 3 26 (88.5)
- --
16,905 20,597 (17.9)
------ ------
Net premiums written $28,815 $35,187 (18.1)
======= =======
</TABLE>
Net premiums written for the three months ended September
30, 1995 decreased 18.1% to $28,815,000 from $35,187,000 for
the corresponding period of 1994. Gross premiums written for
the third quarter of 1995 decreased 18.0% to $45,720,000 from
$55,784,000 for the comparable period of 1994. Net premiums
earned for the third quarter of 1995 decreased 8.7% to
$24,320,000 from $26,651,000 in the year-earlier period. Gross
written, net written and net earned premiums for the third
quarter of 1995 were all affected by non-renewal of business
due to the inadequacy of prices on certain lines of business
(mainly catastrophe related business) that do not meet the
underwriting criteria of PXRE, moderating rate levels, a
movement of some coverage to layers paying less premium but
which PXRE believes have better risk/reward ratios because
they are further removed from loss, and reduced income from
aviation and pro rata business caused by a change in the
products offered as PXRE responded to the poor experience in
these lines of business in 1994.
Premiums ceded by PXRE to its managed business
participants decreased 6.8% to $8,409,000 for the third
quarter of 1995 compared with $9,023,000 for the corresponding
period of 1994. The decrease in gross premiums written which
were ceded to these programs was due principally to the
decrease in the amount of premiums written by PXRE discussed
above. In addition, the percentage of premiums ceded to the
AMA program decreased in the third quarter of 1995 according
to the contract terms compared with the corresponding quarter
of the prior year. During the third quarter of 1995, pursuant
to the Management Agreement, PXRE also ceded $7,082,000 of
premiums to Transnational in lieu of direct reinsurance
writings by Transnational as compared with $9,715,000 in the
same period of 1994. Management fee income from all sources
for the third quarter of 1995 decreased 33.7% to $1,655,000
compared with $2,497,000 for the corresponding period of 1994.
The decrease was due to both the loss activity for the quarter
which resulted in decreased profitability of business ceded to
PXRE's managed business participants and a reduction of
business ceded to those participants.
Ceded premiums for catastrophe programs were 23.0% lower
for the third quarter of 1995 compared to the corresponding
period of 1994, primarily because of management's decision not
to renew certain of its retrocessional coverages that expired
in April 1995.
11
<PAGE>
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 statutory accounting practices ("SAP") and net
premiums earned for purposes of 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 GAAP basis.
The loss ratio was 49.6% for the third quarter of 1995
compared with 36.8 % for the comparable quarter of 1994. The
loss ratio for the third quarter of 1995 reflected incurred
catastrophe losses of $9,612,000 gross and $8,068,000 net for
1995 and prior accident years as compared with $15,599,000
gross and $6,903,000 net in the same period of 1994 for 1994
and prior accident years.
Significant losses affecting the third quarter of 1995
loss ratio are as follows:
<TABLE>
<CAPTION>
Amount of Losses
----------------
Loss Event Gross Net
---------- ----- ---
(in thousands)
<S> <C> <C>
Hurricane Marilyn $10,317 $8,150
Hurricane Luis 3,544 2,800
Risk Losses 2,250 1,832
Kobe Earthquake (3,856) (3,055)
</TABLE>
During the third quarter of 1995, PXRE partially reversed
its original first quarter provision for loss of $4.0 million
for the Kobe, Japan earthquake based upon current reports of
losses and industry estimates.
Significant events affecting the same period of 1994
included the following:
<TABLE>
<CAPTION>
Amount of Losses
----------------
Loss Event Gross Net
---------- ----- ---
(in thousands)
<S> <C> <C>
Northridge earthquake $4,021 $1,844
Four aviation losses 9,521 4,001
</TABLE>
The provision for losses and loss expenses includes the
effect of foreign exchange movements on PXRE's liability for
losses and loss expenses, resulting in a foreign currency
exchange gain of $123,000 for the third quarter of 1995
compared to a loss of $36,000 for the third quarter of 1994.
During the third quarter of 1995, PXRE experienced a
savings of $316,000 net for prior years' losses and loss
expenses. The loss ratio for the comparable quarter in 1994
was unfavorably affected by increases to reserves of $816,000
net for prior years' losses and loss expenses.
The underwriting expense ratio was 18.6% for the third
quarter of 1995 compared with 14.2% for the comparable quarter
of 1994. The increase was substantially due to the increased
operating expenses discussed below. As a result of the above,
the
12
<PAGE>
combined ratio was 68.2% for the third quarter of 1995,
compared with 51.0% for the comparable period of 1994.
Other operating expenses increased to $3,007,000 for the
third quarter of 1995 from $2,328,000 in the comparable period
of 1994. Operating expenses in the third quarter of 1995
reflect a foreign currency exchange loss of $409,000 compared
to gains of $235,000 for the corresponding period of 1994.
Interest expense decreased to $1,892,000 in the third
quarter of 1995 compared to $1,907,000 in the same period of
1994 due to the repurchase of $5,300,000 par value of PXRE's
9.75% Senior Notes at prices from 99.25 to 99.625 during the
fourth quarter of 1994 and the repurchase of $1,925,000 par
value of Senior Notes at prices ranging from 104.625 to 105.0
during the third quarter of 1995. The loss on repurchase was
not material.
Net investment income for the third quarter of 1995
decreased 13.0% to $3,874,000 from $4,452,000 for the same
period of 1994. The decrease in net investment income was
caused by a $1,300,000 retroactive adjustment in the third
quarter of 1994 related to prepayments on Government National
Mortgage Association mortgage-backed securities. Net realized
investment gains for the third quarter of 1995 were $282,000
resulting primarily from the sale of $6,916,000 of U.S.
Treasury securities compared with net realized gains of $0 for
the comparable period in 1994.
The net effects of foreign currency exchange fluctuations
were losses of $286,000 in the third quarter of 1995 and gains
of $199,000 for the comparable quarter of 1994. See
"Management's Discussion and Analysis of Financial Condition
and Results of Operations-Liquidity and Capital Resources."
Net income for the three months ended September 30, 1995
includes $1,406,000 which represents PXRE's equity share of
TREX's net earnings compared with $1,269,000 for the
comparable period in 1994.
For the reasons discussed above, net income was $7,874,000
for the third quarter of 1995 compared to net income of
$11,458,000 for the comparable quarter of 1994. Primary net
income per common share was $.89 for the third quarter of 1995
compared to net income per common share of $1.62 for the
comparable quarter of 1994 (after provision for cumulative
dividends of $501,200 on the Series A Preferred Stock).
Because PXRE converted its Series A Preferred Stock into
shares of common stock during the second quarter of 1995,
there is no preferred dividend in the third quarter of 1995,
and average shares outstanding were 8,860,900 in the third
quarter of 1995 compared to 6,764,100 in the comparable
quarter of 1994. Fully diluted net income per common share was
$.89 for the third quarter of 1995 compared to net income per
common share of $1.30 for the comparable quarter of 1994 based
on average shares outstanding of 8,887,200 in the third
quarter of 1995 and 8,828,200 in the comparable quarter of
1994.
13
<PAGE>
Comparison of
Year-to-date Results
for 1995 with 1994
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30,
-------------------------- Increase/
1995 1994 (Decrease)
---- ---- ----------
(in thousands) %
<S> <C> <C> <C>
Gross premiums written $128,953 $150,057 (14.1)
Ceded premiums:
Managed business 22,388 25,089 (10.8)
TREX Management Agreement 19,539 23,275 (16.1)
Catastrophe 4,878 10,382 (53.0)
Other (176) 273 (164.5)
------- -------
46,629 59,019 (21.0)
------- -------
Net premiums written $82,324 $91,038 (9.6)
======= =======
</TABLE>
Net premiums written for the nine months ended September
30, 1995, decreased 9.6% to $82,324,000 from $91,038,000 for
the corresponding period of 1994. Gross premiums written for
1995 decreased 14.1% to $128,953,000 from $150,057,000 for
1994. Net premiums earned for the nine months ended September
30, 1995, decreased 10.5% to $73,019,000 from $81,540,000 in
the year-earlier period. Gross written, net written and net
earned premiums for the first nine months of 1995 were all
affected by lower reinstatement premiums resulting from a
reduced level of loss activity in the period, non-renewal of
business due to the inadequacy of prices on certain lines of
business (mainly catastrophe related business) that do not
meet the underwriting criteria of PXRE, moderating rate
levels, a movement of some coverage to layers paying less
premium but which PXRE believes have better risk/reward ratios
because they are further removed from loss, and reduced income
from aviation and pro rata business caused by a change in the
products offered as PXRE responded to the poor experience in
these lines of business in 1994.
Premiums ceded by PXRE to its managed business
participants decreased 10.8% to $22,388,000 for 1995 compared
with $25,089,000 for 1994. The decrease in gross premiums
written which were ceded to these programs was due principally
to the decrease in the amount and percentage of premiums
written by PXRE on behalf of the managed business
participants. During the first nine months of 1995, pursuant
to the Management Agreement, PXRE also ceded $19,539,000 of
premiums compared to $23,275,000 during the corresponding
period of 1994 to Transnational in lieu of direct reinsurance
writings by Transnational. Management fee income from all
sources for 1995 decreased to $5,004,000 from $5,533,000 in
1994. The decrease reflected decreased business ceded to
PXRE's managed business participants.
Ceded premiums for catastrophe programs for the first nine
months of 1995 decreased 53.0% from the comparable period of
1994 primarily because of the lower level of ceded
reinstatement premiums resulting from the reduced level of
loss activity in the first nine months of 1995 and
management's decision to commute certain reinsurance coverages
subsequent to the first quarter of 1994.
The loss ratio was 37.0% for the first nine months of 1995
compared with 48.6% for the corresponding period of 1994. The
loss ratio for the first nine months of 1995 reflected
incurred catastrophe losses of $20,067,000 gross and
$15,133,000 net for 1995 and prior accident years as compared
with $57,157,000 gross and $29,009,000 net in the same period
of 1994 for 1994 and prior accident years.
14
<PAGE>
Significant losses affecting the nine months ended
September 30, 1995 loss ratio are as follows:
<TABLE>
<CAPTION>
Amount of Losses
----------------
Loss Event Gross Net
---------- ----- ----
(in thousands)
<S> <C> <C>
Hurricane Marilyn $10,317 $8,150
Hurricane Luis 3,544 2,800
Risk Losses 6,850 5,667
Northridge Earthquake 5,145 3,489
Kobe Earthquake 1,208 945
</TABLE>
Significant events affecting the same period of 1994
included the following:
<TABLE>
<CAPTION>
Amount of Losses
----------------
Loss Event Gross Net
---------- ----- ----
(in thousands)
<S> <C> <C>
Northridge earthquake $38,032 $18,995
Six aviation losses 16,402 8,908
</TABLE>
The provision for losses and loss expenses includes the
effect of foreign exchange movements on PXRE's liability for
losses and loss expenses, resulting in a foreign currency
exchange loss of $20,000 for the first nine months of 1995
compared to a loss of $583,000 for the corresponding period of
1994.
During 1995, PXRE experienced a deficiency of $2,440,000
net for prior years losses and loss expenses from the 1994
Northridge Earthquake. The loss ratio for the corresponding
period of 1994 was unfavorably affected by increases to
reserves of $1,051,000 net for prior years losses and loss
expenses.
The underwriting expense ratio was 17.5% for the nine
months ended September 30, 1995, compared with 14.9% for the
comparable period of 1994. The increase was substantially due
to the effect of a provision for contingent commissions
related to the low level of losses incurred. As a result of
the above, the combined ratio was 54.5% for the first nine
months of 1995, compared with 63.5% for the corresponding
period of 1994.
Other operating expenses increased to $8,069,000 for the
nine months ended September 30, 1995, from $6,280,000 in the
comparable period of 1994. Operating expenses in the nine
month period of 1995 primarily reflect an increase of $932,000
related to changes in the benefit plans, additional staff
salaries, and other related benefits compared to the year
earlier period. PXRE also incurred additional costs of
$360,000 under a new lease in Edison, New Jersey, and the
increase in depreciation expense from the capital expenditure
of $2,800,000 for its new facilities. Included in other
operating expenses were foreign currency exchange gains of
$440,000 for 1995 compared to gains of $875,000 for 1994.
Interest expense decreased to $5,423,000 in the nine
months ended September 30, 1995, from $5,721,000 in the same
period of 1994 due to repurchase of $5,300,000 par value of
PXRE's 9.75% Senior Notes, at prices from 99.25 to 99.625
during the fourth quarter of 1994 and the repurchase of
$1,925,000 par value of Senior Notes at prices ranging from
104.625 to 105.0 during the third quarter of 1995. The loss on
repurchase was not material.
Net investment income for the nine months ended September
30, 1995, increased 7.8% to $10,805,000 from $10,022,000 for
1994. The increase in net investment income was caused by a
3.3 % increase in average investments for the first nine
15
<PAGE>
months of 1995 compared with the comparable period in the
previous year, and by an increase in PXRE's pre-tax investment
yield to 5.8 % for 1995 compared with 5.6% for 1994. The
increase in average investments reflects investment of the
cash flow from operations during 1995 and reinvestment of
approximately $53,000,000 of municipal bonds into higher
yielding intermediate term treasury securities. Net realized
investment losses for the nine months ended September 30,
1995, were $486,000 compared with net realized losses of
$1,218,000 for the comparable period in 1994. The net realized
loss in 1995 was the result of the sale of $58,000,000 of
municipal bonds whereas the net realized loss in 1994 was
primarily the result of prepayment experience of GNMAs
purchased late in 1993. PXRE recorded directly to equity a
$7,492,000 after tax unrealized increase in the value of its
investment portfolio during the nine months ended September
30, 1995, resulting from the decline of interest rates since
December 31, 1994.
The net effects of foreign currency exchange fluctuations
were gains of $420,000 in the nine months ended September 30,
1995 and gains of $292,000 for the comparable period of 1994.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital
Resources."
Net income for the nine months ended September 30, 1995
includes $4,452,000 which represents PXRE's approximately
21.8% equity share of TREX's net earnings as compared with
$3,121,000 representing approximately 21% share of TREX's
earnings in the comparable period in 1994. The change in the
equity share of TREX's earnings reflects the higher level of
TREX's net income. The change in PXRE's ownership relates to
TREX's repurchase of 270,100 shares of its publicly owned
Class A shares.
For the reasons discussed above, net income was
$29,198,000 for the nine months ended September 30, 1995,
compared to net income of $24,779,000 for the comparable
period of 1994. Primary net income per common share was $3.54
for the nine months ended September 30, 1995 (after provision
for cumulative dividends of $598,900 on the Series A Preferred
Stock) compared to net income per common share of $3.46 for
the comparable period of 1994 (after provision for cumulative
dividends of $1,503,600 on the Series A Preferred Stock) based
on average shares outstanding of 8,077,200 in 1995 and
6,736,500 in 1994. Fully diluted net income per common share
was $3.29 for the nine months ended September 30, 1995
compared to net income per common share of $2.81 for the
comparable period of 1994 based on average shares outstanding
of 8,877,300 in 1995 and 8,820,800 in 1994.
Liquidity PXRE (parent company) relies primarily on cash dividends
and Capital and net tax allocation payments from its subsidiary PXRE
Resources Reinsurance to pay its operating expenses and income taxes, to
meet its debt service obligations and to pay dividends to PXRE
stockholders. The payment of dividends by PXRE Reinsurance to
PXRE is subject to limits imposed under the insurance laws and
regulations of Connecticut, the state of incorporation and
domicile of PXRE Reinsurance, as well as certain restrictions
arising in connection with PXRE's Senior Notes discussed
below. Connecticut insurance law provides that the maximum
amount of dividends or other distributions that PXRE
Reinsurance may declare or pay to PXRE 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
SAP. Accordingly, the Connecticut insurance laws could limit
the amount of dividends available for distribution by PXRE
Reinsurance 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
16
<PAGE>
events and changes in the reinsurance market, in the insurance
regulatory environment and in general economic conditions. As
of December 31, 1994, PXRE Reinsurance had earned surplus of
$44,579,000 and a policyholders' surplus of $211,988,000 and
its net income for 1994 was $33,538,000. The maximum amount of
dividends or distributions that PXRE Reinsurance may declare
and pay in 1995, without regulatory approval, is therefore
$33,538,000. During the first nine months of 1995, $6,000,000
in dividends was approved and paid by PXRE Reinsurance to
PXRE.
Other sources of funds available to PXRE (parent company)
include investments retained by PXRE to provide support for
debt service on its Senior Notes. Net tax allocation payments
by PXRE Reinsurance are also expected to be a source of funds
available to PXRE (parent company).
In the event the amount of dividends available, together
with other sources of funds, are not sufficient to permit PXRE
(parent company) 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 PXRE Reinsurance's payment of additional
dividends. If such approval were not obtained, PXRE (parent
company) 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 these
strategies could be effected on satisfactory terms, if at all.
In the event that PXRE (parent company) 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 (parent company) 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.
In August 1993, PXRE (parent company) completed a public
offering of $75 million principal amount of 9.75% Senior Notes
due August 15, 2003. Interest is payable on the Senior Notes
semi-annually. Interest expense for 1994 in respect of the
Senior Notes amounted to approximately $7,249,000. Interest
expense for 1995 will amount to approximately $6,725,000. On
and after August 15, 1998, the Senior Notes may be redeemed at
the option of PXRE, in whole or in part, at redemption prices
(expressed as percentages of the principal amount), plus
accrued and unpaid interest to the date fixed for redemption,
of 103.656% at August 15, 1998, declining to 100% at August
15, 2001 and thereafter. The Indenture governing the Senior
Notes contains covenants which, among other things, limit the
ability of PXRE and its Restricted Subsidiaries (including
PXRE Reinsurance): (a) to incur additional indebtedness
(except for the incurrence of Permitted Indebtedness and the
incurrence of other Indebtedness by PXRE in circumstances
where no Default or Event of Default exists and the
Consolidated Fixed Charge Coverage Ratio of PXRE would be
greater than 2:1 after giving effect to the incurrence) and,
in the case of the Restricted Subsidiaries, to issue preferred
stock; (b) to pay dividends, repurchase stock and to make
certain other Restricted Payments (other than, among other
things, if no Default or Event of Default exists (x)
Restricted Payments after August 31, 1993, not exceeding in
the aggregate the sum of $3,000,000 plus 50% of Consolidated
Net Income (or minus 100% of any loss) from such date (with
certain adjustments), plus the amounts of certain equity
proceeds and certain reductions in Investments in Unrestricted
Subsidiaries, provided, that at the time of such Restricted
Payment the Consolidated Fixed Charge Coverage Ratio is
greater than 2.0, and (y) in addition to permitted Restricted
Payments referred to in clause (x), the payment of cash
dividends on Qualified Capital Stock after August 31, 1993 of
up to an aggregate of $6,000,000, provided, that such
dividends on Common Stock do not exceed $0.25 per share in any
year);
17
<PAGE>
(c) to sell or permit the issuance of any stock of PXRE
Reinsurance or any other Principal Insurance Subsidiary; (d)
to sell or transfer other assets (other than for at least Fair
Market Value and generally for not less than 75% in cash or
Cash Equivalents); (e) to create liens upon the properties or
assets of PXRE or its Restricted Subsidiaries; or (f) to
engage in any business other than the insurance and
reinsurance businesses and other businesses incidental and
related thereto. The Indenture also provides that within 30
days after a Change of Control of PXRE, PXRE will offer to
purchase all the Senior Notes then outstanding at a purchase
price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of such
purchase.
In the fourth quarter of 1994, PXRE's Board of Directors
authorized the repurchase of up to $20 million principal
amount of Senior Notes in any one calendar year at below par
prices in negotiated or open market transactions. As of
December 31, 1994, PXRE had repurchased $5,300,000 principal
amount of its Senior Notes at an aggregate cost of $5,275,000.
In April 1995, PXRE's Board of Directors authorized such
Senior Note repurchases to be made at or above par prices.
During the third quarter of 1995, PXRE Reinsurance Company
repurchased $1,925,000 principal amount of its parent
company's Senior Notes at an aggregate cost of $2,016,000.
PXRE (parent company) files federal income tax returns for
itself and all of its direct or indirect domestic subsidiaries
that satisfy the stock ownership requirements for
consolidation for federal income tax purposes (collectively,
the "Subsidiaries"). PXRE (parent company) is party to an
Agreement Concerning Filing of Consolidated Federal Income Tax
Returns (the "Tax Allocation Agreement") pursuant to which
each Subsidiary makes tax payments to PXRE (parent company) 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 (parent
company) 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 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 (or receive a credit if payments exceed the
separate return tax liability) to (from) PXRE (parent
company).
The primary sources of liquidity for PXRE Reinsurance are
net cash flow from operating activities (including interest
income from investments), the maturity or sale of investments,
borrowings, and capital contributions and advances from PXRE
(parent company). Funds are applied primarily to the payment
of claims, operating expenses and income taxes and to the
purchase of fixed maturity and short-term investments.
Premiums are typically received in advance of related claim
payments. Net cash flow provided by operations was $26,535,000
during the nine months ended September 30, 1995, compared with
net cash flow provided by the operations of $35,739,000 during
the corresponding period of 1994, due to higher payments on
prior year losses offset in part by the effects of timing of
collection of receivables. Net cash flow provided by
operations was $18,537,000 during the third quarter of 1995
compared with net cash flow provided of $18,144,000 during the
corresponding period of 1994. The increase in net cash flow
provided by operations resulted from the improved collection
of premium receivable and reinsurance recoverables.
PXRE's management has established general procedures and
guidelines for its investment portfolio and oversees
investment management carried out by Phoenix Investment
Counsel, Inc., a subsidiary of Phoenix Home Life Mutual Life
Insurance Company. Although these investment guidelines stress
conservation of principal, diversification of risk and
liquidity, investments are subject to market-wide risks and
fluctuations, as well as to risk inherent in particular
securities. As at September 30,
18
<PAGE>
1995, PXRE's investment portfolio consisted primarily of fixed
maturities and short-term investments. In 1994, PXRE's Board
of Directors approved a resolution allowing PXRE to invest up
to 15% of its consolidated net worth in equities. During the
third quarter of 1995, PXRE invested $3,000,000 in equity
securities. The investment policies and all investments of
PXRE are approved by its Board of Directors.
Of PXRE's fixed maturities portfolio as at September 30,
1995, over 97% of the fair value was in obligations rated "A1"
or "A" or better by Moody's or S&P, respectively. Mortgage
backed securities (principally GNMAs) accounted for 21.4% of
fixed maturities based on fair value at September 30, 1995.
PXRE has no investments in real estate or commercial mortgage
loans. The average market yield to maturity of PXRE's fixed
maturities portfolio was 5.0% at September 30, 1995 and 1994.
Fixed maturity 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 equity a $7,942,000 after-tax unrealized increase
in the value of its investment portfolio during the nine
months ended September 30, 1995. Short-term investments are
carried at amortized cost which approximates market value.
PXRE's short-term investments, principally high grade
commercial paper, were $50,494,000 at September 30, 1995
compared to $26,813,000 at December 31, 1994. The increase at
September 30, 1995 was principally due to a planned buildup of
short-term investments as PXRE approached the period of the
year with a maximum probability of hurricane activity. Such
level of short-term investments is increased in the third
quarter to predetermined targets and then reduced in the
latter part of the fourth quarter after the period of maximum
wind exposure has passed.
In November 1993, an initial public offering by TREX, a
subsidiary of PXRE, of 5,750,000 shares of Class A common
stock at $20 per share, was completed. In connection with this
offering, PXRE contributed all of the capital stock of
Transnational to TREX. TREX, through Transnational, now
specializes principally in providing brokered property
retrocessional reinsurance and marine and aviation
retrocessional reinsurance in the United States and
international markets pursuant to the Management Agreement
with PXRE. PXRE owns approximately 21.8% of the total issued
and outstanding common stock of TREX and is entitled to
designate two of TREX's five directors.
During the third quarter of 1995, PXRE raised the
quarterly dividend on its Common Stock from $0.15 per share to
$0.18 per share. The increase in the dividend will result in
an annual additional outlay of approximately $1,049,300.
PXRE exercised its option to redeem PXRE's Series A
Preferred Stock (and the related Depositary Shares) on May 1,
1995. At December 31, 1994, there were 10,009 shares of Series
A Preferred Stock (1,000,900 Depositary Shares) outstanding.
At March 31, 1995, there were 8,652.22 shares of Series A
Preferred Stock (865,222 Depositary Shares) outstanding.
During the second quarter of 1995, all of the outstanding
shares of Series A Preferred Stock were converted into shares
of PXRE's Common Stock resulting in the issuance of
approximately 1,760,000 shares of PXRE's Common Stock. Each
Depositary Share had a conversion price of $12.29 per
Depositary Share and was valued for conversion purposes at
$25.00, resulting in approximately 2.0342 shares of Common
Stock for each Depositary Share converted. As a result of this
transaction, PXRE will save approximately $500,000 in dividend
costs for the preferred shares each quarter. This will be
offset by approximately $264,000 in additional common stock
dividends on shares issued upon conversion (based upon the
quarterly dividend rate in effect at the time of conversion).
To date, these convertible preferred shares were the principal
reason for the difference between primary and fully diluted
earnings per share.
19
<PAGE>
Because of the conversion, that difference will be eliminated
in future periods. Book value per share was $22.85 at
September 30, 1995.
In April 1995, PXRE's Board of Directors authorized the
repurchase of up to 700,000 shares of its common stock from
time-to-time in open market and/or private block purchase
transactions. From inception of this repurchase plan through
November 1995, PXRE has not repurchased any of the 700,000
shares authorized.
In March 1995, PXRE and TREX entered into a joint venture
arrangement to trade in catastrophe futures and options
contracts on the Chicago Board of Trade. PXRE and TREX have
each committed $2.5 million to this venture. No significant
trading activities occurred in the first nine months of 1995.
PXRE may be subject to gains and losses resulting from
currency fluctuations because substantially all of its
investments are denominated in United States 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.
All amounts classified as reinsurance recoverable at
September 30, 1995, are considered by management of PXRE to be
collectible in all material respects.
In May 1994, PXRE signed a lease for approximately 24,000
square feet of office space in Edison, New Jersey, for a term
of 15 years at a fixed annual rental of approximately
$370,000. In conjunction with its relocation to that facility
in April 1995, PXRE incurred capital expenditures of
approximately $2.8 million for construction costs and
furniture. The lease on PXRE's New York office space expires
in July 1996. PXRE presently plans to continue utilization of
the space until such expiration date.
Income PXRE's effective tax rate for the third quarter of 1995
Taxes and 1994 was 31.3% and 31.1%, respectively, which differs from
the statutory rate principally due to tax exempt income and
state and local taxes. The change in the effective rate in
1995 reflects the higher relative proportion of underwriting
activities compared to tax exempt municipal bond income.
20
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report or amendment thereto to be signed on
its behalf by the undersigned thereunto duly authorized.
PXRE CORPORATION
November 13, 1995 By: /s/ Sanford M. Kimmel
--------------------------
Sanford M. Kimmel
Senior Vice President, Treasurer
and Chief Financial Officer
21
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains financial information extracted from PXRE Corporation
Inc.'s Form 10-Q for the period ended September 30, 1995 and is qualified in
its entirety by reference to such financial information.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 212,194,000
<DEBT-CARRYING-VALUE> 214,283,920
<DEBT-MARKET-VALUE> 214,283,920
<EQUITIES> 3,000,000
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 267,777,655
<CASH> 2,377,920
<RECOVER-REINSURE> 36,056,674
<DEFERRED-ACQUISITION> 2,242,967
<TOTAL-ASSETS> 402,319,704
<POLICY-LOSSES> 76,151,023
<UNEARNED-PREMIUMS> 26,036,446
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 67,775,000
<COMMON> 89,830
0
0
<OTHER-SE> 199,704,327
<TOTAL-LIABILITY-AND-EQUITY> 402,319,704
73,018,528
<INVESTMENT-INCOME> 10,805,037
<INVESTMENT-GAINS> (486,212)
<OTHER-INCOME> 5,003,702
<BENEFITS> 27,051,454
<UNDERWRITING-AMORTIZATION> 9,726,620
<UNDERWRITING-OTHER> 8,068,649
<INCOME-PRETAX> 38,070,860
<INCOME-TAX> 13,325,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,197,709
<EPS-PRIMARY> 3.54
<EPS-DILUTED> 3.29
<RESERVE-OPEN> 81,835,558
<PROVISION-CURRENT> 33,287,383
<PROVISION-PRIOR> 6,069,829
<PAYMENTS-CURRENT> 10,542,598
<PAYMENTS-PRIOR> 34,499,154
<RESERVE-CLOSE> 76,151,018
<CUMULATIVE-DEFICIENCY> 6,069,829
</TABLE>
