<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 March 31, 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 May 9, 1995, 8,703,180 shares of common stock, $.01 par value per
share, of the Registrant were outstanding.
<PAGE>
PXRE CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Consolidated Balance Sheets at March 31, 1995
and December 31, 1994 ............................................ 3
Consolidated Statements of Income for the three months
ended March 31, 1995 and 1994 .................................... 4
Consolidated Statements of Stockholders' Equity for the
three months ended March 31, 1995
and 1994 ......................................................... 5
Consolidated Statements of Cash Flow for the three months
ended March 31, 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 ............................................... 20
</TABLE>
-2-
<PAGE>
PXRE Consolidated Balance Sheets
Corporation
(unaudited at March 31, 1995)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
-------- -----------
<S> <C> <C> <C>
Assets Investments:
Fixed maturities, available for sale, at market (amortized
cost $193,451,000 and $212,465,000, respectively) $189,900,684 $204,587,171
Short-term investments 53,339,617 26,812,546
------------ ------------
Total investments 243,240,301 231,399,717
Cash 2,421,935 389,249
Accrued investment income 3,475,593 3,164,703
Receivables:
Unreported premiums 20,463,728 22,718,835
Balances due from intermediaries and brokers 14,100,404 2,864,930
Other receivables 5,553,717 5,499,648
Receivable from affiliates 30,000 73,423
Income tax recoverable 0 1,601,844
Reinsurance recoverable: Affiliates 7,382,225 5,348,637
Non-affiliates 33,163,278 40,055,458
Ceded unearned premiums 10,901,761 4,702,678
Deferred acquisition costs 2,343,742 863,138
Deferred income tax benefit 123,269 1,358,229
Investment in equity of Transnational Re Corporation 30,478,377 28,883,788
Other assets 8,495,071 4,870,139
------------ ------------
Total assets $382,173,401 $353,794,416
============ ============
Liabilities Losses and loss expenses $ 79,271,176 $ 81,835,558
Unearned premiums 30,906,558 12,263,128
Reinsurance balances payable: Affiliates 10,515,565 4,966,732
Non-affiliates 7,990,363 9,398,128
Notes payable 69,700,000 69,700,000
Income tax payable 2,341,305 0
Other liabilities 3,996,957 8,859,928
------------ ------------
Total liabilities 204,721,924 187,023,474
------------ ------------
Stockholders' Serial preferred stock, $,01 par value --
Equity 500,000 shares authorized; 8,652 and 10,009 Series A 8%
cumulative convertible shares issued and outstanding
(convertible into 1,760,012 and 2,036,005 common shares:
aggregate liquidation value $21,630,550 and $25,022,500) 86 100
Common stock, $,01 par value --
20,000,000 shares authorized; 7,200,200 and 6,921,609 shares 72,002 69,216
issued
Additional paid-in capital 116,929,101 116,888,369
Net unrealized depreciation on investments, net of deferred
income tax benefit of $1,243,000 and $2,757,000 (2,700,973) (5,976,354)
Retained earnings 65,265,720 57,933,848
Treasury stock at cost (258,370 shares) (1,860,687) (1,860,687)
Restricted stock at cost (14,385 shares) (253,772) (283,550)
------------ ------------
Total stockholders' equity 177,451,477 166,770,942
------------ ------------
Total liabilities and stockholders' equity $382,173,401 $353,794,416
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
PXRE Consolidated Statements of Income
Corporation
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
---- ----
<S> <C> <C> <C>
Revenues Net premiums earned $23,556,101 $30,227,314
Net investment income 3,427,447 2,672,785
Net realized investment losses 0 (674,521)
Management fees: Affiliate 822,944 721,786
Non-affiliate 1,198,196 1,329,056
----------- -----------
$29,004,688 $34,276,420
----------- -----------
Losses and Losses and loss expenses incurred 10,750,624 21,712,240
expenses Commissions and brokerage 2,903,343 4,360,317
Other operating expenses 1,869,649 1,738,828
Interest expense 1,752,711 1,906,876
----------- -----------
17,276,327 29,718,261
----------- -----------
Income before income taxes and equity in net earnings
of Transnational Re Corporation 11,728,361 4,558,159
Equity in net earnings of Transnational Re Corporation 1,259,231 485,087
Income tax provision 4,114,000 1,488,000
----------- -----------
Net income $ 8,873,592 $ 3,555,246
=========== ===========
Preferred stock dividend 500,450 501,200
=========== ===========
Operating income available to common stockholders $ 8,373,142 $ 3,054,046
=========== ===========
Per share Primary:
Net income $ 1.19 $ 0.45
=========== ===========
Average shares outstanding 7,050,633 6,724,711
=========== ===========
Fully diluted:
Net income $ 1.00 $ 0.41
=========== ===========
Average shares outstanding 8,851,874 8,769,929
=========== ===========
The accompanying notes are an integral part of these statements.
4
<PAGE>
PXRE Consolidated Statements of Stockholders' Equity
Corporation
(unaudited)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
---- ----
<S> <C> <C> <C>
Common stock: Balance at beginning of period $ 69,216 $ 67,849
Issuance of shares 2,786 131
------------ ------------
Balance at end of period $ 72,002 $ 67,980
============ ============
Preferred stock: Balance at beginning of period $ 100 $ 100
Conversion of shares (14) 0
------------ ------------
Balance at end of period $ 86 $ 100
============ ============
Additional Balance at beginning of period $116,888,369 $114,336,608
paid-in capital: Issuance of common shares 34,340 162,551
Conversion of preferred shares (2,746) 0
Other 9,138 45,161
------------ ------------
Balance at end of period $116,929,101 $114,544,320
============ ============
Unrealized Balance at beginning of period $ (5,976,354) $ 2,667,621
appreciation Change in market value for the period 2,812,907 (3,882,312)
(depreciation) Equity in net change in Transnational Re
on investments: appreciation (depreciation) 462,474 (336,676)
------------ ------------
Balance at end of period $ (2,700,973 $ (1,551,367)
============ ============
Retained earnings: Balance at beginning of period $ 57,933,848 $ 27,584,795
Net income 8,873,592 3,555,246
Dividends paid to common stockholders (1,041,270) (489,095)
Dividends paid to preferred stockholders (500,450) (501,200)
------------ ------------
Balance at end of period $65,265,720 $30,149,746
============ ============
Restricted stock: Balance at beginning of period $ (283,550) $ 0
Amortization of restricted stock 29,778 0
------------ ------------
Balance at end of period $ (253,772) $ 0
============ ============
Treasury stock: Balance at beginning of period $ (1,860,687) $ (1,966,743)
Purchase of treasury stock 0 0
------------ ------------
Balance at end of period $ (1,860,687) $ (1,966,743)
============ =============
Total Balance at beginning of period $166,770,942 $142,690,230
stockholders' Issuance of common shares 37,126 162,682
equity: Conversion of preferred stock (2,760) 0
Unrealized appreciation on investments net of deferred
income tax benefit 3,275,381 (4,218,988)
Net income 8,873,592 3,555,246
Dividends (1,541,720) (990,295)
Amortization of restricted stock 29,778 0
Other 9,138 45,161
------------ ------------
Balance at end of period $177,451,477 $141,244,036
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
PXRE Consolidated Statements of Cash Flow
Corporation
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1994
---- ----
<S> <C> <C> <C>
Cash flow Net income $ 8,873,592 $ 3,555,246
from operating Adjustments to reconcile net income to net cash
activities provided by operating activities
Losses and loss expenses (2,564,382) 15,670,600
Unearned premiums 12,444,347 12,273,697
Deferred acquisition costs (1,480,604) (550,184)
Receivables (8,991,013) (12,604,141)
Reinsurance balances payable 4,141,068 7,879,503
Reinsurance recoverable 4,858,592 (7,797,795)
Current income tax 3,200,656 2,180,665
Equity in net earnings of affiliate (1,132,115) (485,087)
Other (5,724,688) (2,636,758)
------------ ------------
Net cash provided by operating activities 13,625,453 17,485,746
------------ ------------
Cash flow Cost of fixed maturity investments (4,842,297) (17,615,913)
from investing Fixed maturity investments matured/disposed 23,783,944 24,169,897
activities Payable for securities 0 (28,493,966)
Investment in joint venture (2,500,000) 0
Net change in short-term investments (26,527,071) 8,066,667
------------ ------------
Net cash provided (used) by investing
activities (10,085,424) (13,873,315)
------------ ------------
Cash flow Proceeds from issuance of common stock 34,377 207,843
from financing Cash dividends paid to preferred stockholders (500,450) (501,200)
activities Cash dividends paid to common stockholders (1,041,270) (489,095)
------------ ------------
Net cash (used) provided by financing
activities (1,507,343) (782,452)
------------ ------------
Net change in cash 2,032,686 2,829,979
Cash, beginning of period 389,249 2,233,256
------------ -----------
Cash, end of period $ 2,421,935 $ 5,063,235
============ ============
</TABLE>
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
Presentation have been prepared in conformity with generally
accepted accounting principles ("GAAP"). These
statements reflect the consolidated operations of
PXRE Corporation and its subsidiary PXRE Reinsurance
Company (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
Assumed recorded as earned on a pro rata basis over the
and Ceded contract period 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 Expense 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 $4 million
(before reinstatement premiums) with respect to
losses from the Kobe, Japan earthquake in the first
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 are considered
available for sale and are reported at fair value.
Unrealized gains and losses as a result of temporary
changes in market 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 market value. 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.
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 in the first quarter of
1995.
7
<PAGE>
PXRE Notes to Consolidated Interim Financial Statements (Unaudited)
Corporation
5. Management Fee 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
Acquisition brokerage expenses incurred in connection with
Costs 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 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
Stock A Preferred Stock (and the related Depositary Shares)
Conversion 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
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
<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. 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
9
<PAGE>
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 March 31, 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 America Re"). 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 America Re). 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. 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.
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
10
<PAGE>
(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.
Comparison of
First Quarter
Results for
1995 with 1994
<TABLE>
<CAPTION>
Three Months Ended Mar. 31,
---------------------------- Increase/
1995 1994 (Decrease)
---- ---- ----------
(in thousands)
<S> <C> <C> <C>
Gross premiums written $56,195 $66,755 (16)%
Ceded premiums:
Managed business 9,461 11,364 (17)%
TREX Management Agreement 8,707 8,667
Catastrophe 2,210 4,204 (47)%
Other 14 19 (26)%
-- --
20,392 24,254 (16)%
------ ------
Net premiums written $35,803 $42,501 (16)%
======= =======
</TABLE>
Net premiums written for the three months ended
March 31, 1995 decreased 16% to $35,803,000 from
$42,501,000 for the corresponding period of 1994.
Gross premiums written for the first quarter of 1995
decreased 16% to $56,195,000 from $66,755,000 for the
comparable period of 1994. Net premiums earned for
the first quarter of 1995 decreased 22% to
$23,556,000 from $30,227,000 in the year-earlier
period. Gross written, net written and net earned
premiums for the first quarter of 1995 were all
affected by lower reinstatement premiums resulting
11
<PAGE>
from a reduced level of loss activity in the period,
a drop in pro-rata premium income caused by PXRE's
virtual withdrawal from this line of business over
the past year, and reduced income from aviation
business caused by a change in the products offered
as PXRE responded to the poor experience in this line
of business in 1994. These factors accounted for 61%
of the decrease in net written premiums and 93% of
the change in net earned premiums for the quarter.
The balance of the decrease resulted from moderating
rate levels and 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.
Premiums ceded by PXRE to its managed business
participants decreased 17% to $9,461,000 for the
first quarter of 1995 compared with $11,364,000 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.
During the first quarter of 1995, pursuant to the
Management Agreement, PXRE also ceded $8,707,000 of
premiums to Transnational in lieu of direct
reinsurance writings by Transnational as compared
with $8,667,000 in the same period of 1994.
Management fee income from all sources for the first
quarter of 1995 remained virtually unchanged at
$2,021,000 compared with $2,051,000 for the
corresponding period of 1994.
Ceded premiums for catastrophe programs were 47%
lower for the first quarter of 1995 compared to the
corresponding period of 1994, primarily because the
lower level of ceded reinstatement premiums resulting
from the reduced level of loss activity in the first
quarter of 1995 and management's decision to commute
certain reinsurance coverages subsequent to the first
quarter of 1994.
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 45.6% for the first quarter
of 1995 compared with 71.8 % for the comparable
quarter in 1994. The loss ratio for the first quarter
of 1995 reflected incurred catastrophe losses of
$7,402,000 gross and $4,696,000 net for 1995 and
prior accident years as compared with $31,113,000
gross and $17,621,000 net in the same period of 1994
for 1994 and prior accident years.
12
<PAGE>
Significant losses, net of reinsurance, affecting
the first quarter of 1995 loss ratio are as follows:
<TABLE>
<CAPTION>
Amount of Losses
----------------
Loss Event Gross Net
- ---------- ----- ----
(in thousands)
<S> <C> <C>
Kobe Earthquake $5,063 $4,000
Risk Losses $4,200 $3,300
</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 $24,448 $13,508
Two aviation losses 4,362 3,026
Midwest floods 1,699 1,121
</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
$300,000 for the first quarter of 1995 compared to a
loss of $234,000 for the first quarter of 1994.
During the first quarter of 1995 PXRE experienced
a deficiency of $820,000 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 $971,000 net for prior years' losses
and loss expenses.
The underwriting expense ratio was 11.7% for the
first quarter of 1995 compared with 13.4% for the
comparable quarter of 1994. The decrease was
substantially due to the increased amount of excess
of loss business written which carries lower
commission expenses. As a result of the above, the
combined ratio was 57.3% for the first quarter of
1995, compared with 85.2% for the comparable period
of 1994.
Other operating expenses increased to $1,870,000
for the first quarter of 1995 from $1,739,000 in the
comparable period of 1994. Included in other
operating expenses were foreign currency exchange
gains of $653,000 for the first quarter of 1995
compared to gains of $135,000 for the corresponding
period of 1994. Operating expenses in the first
quarter of 1995 reflect $377,000 in incentive
compensation cost compared to $95,000 for the
comparable period in 1994.
Interest expense decreased to $1,753,000 in the
first quarter of 1995 compared to $1,907,000 in the
same period of 1994 due to the repurchase of
approximately $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.
13
<PAGE>
Net investment income for the first quarter of
1995 increased 28.2% to $3,427,000 from $2,673,000
for the same period of 1994. The increase in net
investment income was caused primarily by an increase
in average investments for the first quarter of 1995
compared with the corresponding quarter in the
previous year, and by an increase in PXRE's pre-tax
investment yield to 5.6% for 1995 compared with 4.5%
for 1994. During early 1994, management retained a
substantial amount of the capital raised in August
1993 in short-term securities because of the low
interest rate environment at that time. Such capital
was gradually deployed primarily into intermediate
and short-term Treasury securities yielding an
average of 6.9% during the first three quarters of
1994. Net realized investment losses for the first
quarter of 1995 were $0 compared with net realized
losses of $675,000 for the comparable period in 1994,
which resulted from prepayments on Government
National Mortgage Association mortgaged-backed
securities.
The net effects of foreign currency exchange
fluctuations were gains of $353,000 in the first
quarter of 1995 and losses of $99,000 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 March 31,
1995 includes $1,259,000 which represents PXRE's 21%
equity share of TREX's net earnings.
For the reasons discussed above, net income was
$8,874,000 for the first quarter of 1995 compared to
net income of $3,555,000 for the comparable quarter
of 1994. Primary net income per common share was
$1.19 for the first quarter of 1995 (after provision
for cumulative dividends of $500,450 on the Series A
Preferred Stock) compared to net income per common
share of $.45 for the comparable quarter of 1994
(after provision for cumulative dividends of $501,200
on the Series A Preferred Stock) based on average
shares outstanding of 7,050,600 in the first quarter
of 1995 and 6,724,700 in the comparable quarter of
1994. Fully diluted net income per common share was
$1.00 for the first quarter of 1995 compared to net
income per common share of $0.41 for the comparable
quarter of 1994 based on average shares outstanding
of 8,851,900 in the first quarter of 1995 and
8,769,900 in the comparable quarter of 1994.
Liquidity
and Capital
Resources
PXRE (parent company) relies primarily on cash
dividends and net tax allocation payments from
its subsidiary PXRE 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
14
<PAGE>
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
policyholder 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 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 quarter of
1995, $6 million 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
$6,796,000. On and after August 15,
15
<PAGE>
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); (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.
No additional amounts were repurchased in the first
quarter of 1995. In April 1995, PXRE's Board of
Directors authorized such Senior Note repurchases to
be made at or above par prices.
16
<PAGE>
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
$13,625,000 during the first quarter of 1995 compared
with $17,486,000 during the corresponding period of
1994. The decrease in net cash flow provided by
operations resulted from various factors, including
the timing of payments on losses, the timing of
collections of premium receivable and reinsurance
recoverables and payments made for construction
expenditures.
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 March 31, 1995,
PXRE's investment portfolio consisted solely of fixed
maturities and short-term investments. PXRE's
investment portfolio does not currently include any
equity securities, although in 1994, PXRE's Board of
Directors approved a resolution allowing PXRE to
invest up to 15% of its consolidated net worth in
equities. The investment policies and all investments
of PXRE are approved by its Board of Directors.
Of PXRE's fixed maturities portfolio as at March
31, 1995, over 99% of the fair value was in
obligations rated "A1" or "A" or better by Moody's or
S&P, respectively. Mortgage backed securities
17
<PAGE>
(principally GNMAs) accounted for 20% of fixed
maturities based on fair value at March 31, 1995.
PXRE has no investments in real estate or commercial
mortgage loans. The average market yield to maturity
of PXRE's fixed maturities portfolio at March 31,
1995 and 1994 was 5.4% and 4.8%, respectively.
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 $2,813,000 after-tax unrealized increase in
the value of its investment portfolio during the
first quarter of 1995. Short-term investments are
carried at amortized cost which approximates market
value. PXRE's short-term investments (principally
high grade commercial paper) were $53,340,000 at
March 31, 1995 compared to $26,813,000 at December
31, 1994. The increase at March 31, 1995 was
principally due to a planned buildup of short-term
investments as PXRE approaches the period of the year
with a maximum probability of hurricane activity.
Such level of short-term investments is expected to
increase in the second and third quarters to
predetermined targets and then be 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% of
the total issued and outstanding common stock of TREX
and is entitled to designate two of TREX's five
directors.
During the fourth quarter of 1994, PXRE raised the
quarterly dividend on its Common Stock from $0.075
per share to $0.15 per share.
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
18
<PAGE>
shares each quarter. This will be offset by
approximately $264,000 in additional common stock
dividends from shares obtained upon conversion. To
date, these convertible preferred shares were the
principal reason for the difference between primary
and fully diluted earnings per share. With the
conversion, that difference will be eliminated.
Proforma book value per share after considering
conversion of all preferred shares was $20.39.
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 quarter 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 March 31, 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,
PXRE funded deposits and paid for capital
expenditures of approximately $1,100,000 through
March 31, 1995 and will expend approximately $2.7
million for the total of 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 Taxes PXRE's effective tax rate for the first quarter
of 1995 and 1994 were 35% and 30%, 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.
19
<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
May 12, 1995 By: /s/ Sanford M. Kimmel
--------------------------
Sanford M. Kimmel
Its Senior Vice President, Treasurer
and Chief Financial Officer
-20-
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS AND RELATED FOOTNOTES CONTAINED IN
PXRE CORPORATION'S FORM 10-Q FOR THE PERIOD ENDED
MARCH 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS AND FOOTNOTES.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<DEBT-HELD-FOR-SALE> 193,451,000
<DEBT-CARRYING-VALUE> 189,900,684
<DEBT-MARKET-VALUE> 189,900,684
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 243,240,301
<CASH> 2,421,935
<RECOVER-REINSURE> 40,545,503
<DEFERRED-ACQUISITION> 2,343,742
<TOTAL-ASSETS> 382,173,401
<POLICY-LOSSES> 79,271,176
<UNEARNED-PREMIUMS> 30,906,558
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 69,700,000
<COMMON> 72,002
0
86
<OTHER-SE> 177,379,389
<TOTAL-LIABILITY-AND-EQUITY> 382,173,401
23,556,101
<INVESTMENT-INCOME> 3,427,447
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 2,021,140
<BENEFITS> 10,750,624
<UNDERWRITING-AMORTIZATION> 2,903,343
<UNDERWRITING-OTHER> 1,869,649
<INCOME-PRETAX> 11,728,361
<INCOME-TAX> 4,114,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,873,592
<EPS-PRIMARY> 1.19
<EPS-DILUTED> 1.00
<RESERVE-OPEN> 81,835,558
<PROVISION-CURRENT> 11,706,983
<PROVISION-PRIOR> 3,569,812
<PAYMENTS-CURRENT> 2,241,109
<PAYMENTS-PRIOR> 15,600,068
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</TABLE>
