<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 June 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 August 10, 1995, 8,724,142 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 June 30, 1995
and December 31, 1994 3
Consolidated Statements of Income for the three and
six months ended June 30, 1995 and 1994 4
Consolidated Statements of Stockholders' Equity for the
three and six months ended June 30, 1995 and 1994 5
Consolidated Statements of Cash Flow for the three and
six months ended June 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 24
</TABLE>
-2-
<PAGE>
PXRE Consolidated Balance Sheets
Corporation
(unaudited at June 30, 1995)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
<S> <C> <C>
Assets Investments:
Fixed maturities, available for sale, at market (amortized
cost $197,863,000 and $212,465,000, respectively) $199,579,728 $204,587,171
Short-term investments 40,682,768 26,812,546
------------ ------------
Total investments 240,262,496 231,399,717
Cash 3,537,237 389,249
Accrued investment income 3,329,431 3,164,703
Receivables:
Unreported premiums 21,550,459 22,718,835
Balances due from intermediaries and brokers 11,710,539 2,864,930
Other receivables 5,470,516 5,499,648
Receivable from affiliates 269,589 73,423
Income tax recoverable 1,568,550 1,601,844
Reinsurance recoverable: Affiliates 7,868,150 5,348,637
Non-affiliates 30,751,743 40,055,458
Ceded unearned premiums 6,571,610 4,702,678
Deferred acquisition costs 1,667,478 863,138
Deferred income tax benefit 0 1,358,229
Investment in equity of Transnational Re Corporation 32,756,033 28,883,788
Other assets 8,635,953 4,870,139
------------ ------------
Total assets $375,949,784 $353,794,416
============ ============
Liabilities Losses and loss expenses $75,153,691 $81,835,558
Unearned premiums 19,140,578 12,263,128
Reinsurance balances payable: Affiliates 5,631,913 4,966,732
Non-affiliates 5,562,192 9,398,128
Notes payable 69,700,000 69,700,000
Deferred income tax 1,809,811 0
Other liabilities 6,562,109 8,859,928
------------ ------------
Total liabilities 183,560,294 187,023,474
------------ ------------
Stockholders' Serial preferred stock, $.01 par value --
Equity 500,000 shares authorized; 0 and 10,009 Series A 8%
cumulative convertible shares issued 0 100
Common stock, $.01 par value --
20,000,000 shares authorized; 8,961,575 and 6,921,609 shares issued 89,616 69,216
Additional paid-in capital 117,292,178 116,888,369
Net unrealized appreciation (depreciation) on investments, net
of deferred income tax expense (benefit) of $580,000 and
($2,757,000) 1,102,208 (5,976,354)
Retained earnings 76,306,357 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) (681,410) (283,550)
------------ ------------
Total stockholders' equity 192,389,490 166,770,942
------------ ------------
Total liabilities and stockholders' equity $375,949,784 $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 Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues Net premiums earned $25,142,048 $24,662,327 $48,698,149 $54,889,641
Net investment income 3,503,210 2,897,976 6,930,657 5,570,761
Net realized investment losses (768,280) (543,063) (768,280) (1,217,584)
Management fees : Affiliate 849,319 816,039 1,672,263 1,537,825
Non-affiliate 477,956 169,536 1,676,152 1,498,592
----------- ----------- ----------- -----------
29,204,253 28,002,815 58,208,941 62,279,235
----------- ----------- ----------- -----------
Losses and Losses and loss expenses incurred 4,249,959 8,093,991 15,000,583 29,806,231
expenses Commissions and brokerage 3,663,308 3,114,688 6,566,651 7,475,005
Other operating expenses 3,191,706 2,213,113 5,061,355 3,951,941
Interest expense 1,779,218 1,906,967 3,531,929 3,813,843
----------- ----------- ----------- -----------
12,884,191 15,328,759 30,160,518 45,047,020
----------- ----------- ----------- -----------
Income before income taxes and equity in
net earnings of
Transnational Re Corporation 16,320,062 12,674,056 28,048,423 17,232,215
Equity in net earnings of
Transnational Re Corporation 1,786,463 1,366,808 3,045,694 1,851,895
Income tax provision 5,656,000 4,275,000 9,770,000 5,763,000
----------- ----------- ----------- -----------
Net income $12,450,525 $ 9,765,864 $21,324,117 $13,321,110
=========== ============ =========== ===========
Preferred stock dividend 98,478 501,200 598,928 1,002,400
=========== ============ =========== ===========
Operating income available to common
stockholders $12,352,047 $ 9,264,664 $20,725,189 $12,318,710
=========== ============ =========== ===========
Per share Primary:
Net income $1.48 $1.38 $2.70 $1.84
=========== ============ =========== ===========
Average shares outstanding 8,341,774 6,722,139 7,684,412 6,706,758
=========== ============ =========== ===========
Fully diluted:
Net income $1.41 $1.11 $2.41 $1.52
=========== ============ =========== ===========
Average shares outstanding 8,842,170 8,792,323 8,835,606 8,787,120
=========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
PXRE Consolidated Statements of Stockholders' Equity
Corporation
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Common stock: Balance at beginning of period $ 72,002 $ 67,980 $ 69,216 $ 67,849
Issuance of shares 17,614 288 20,400 419
------------ ------------ ------------ ------------
Balance at end of period $ 89,616 $ 68,268 $ 89,616 $ 68,268
============ ============ ============ ============
Preferred stock: Balance at beginning of period $ 86 $ 100 $ 100 $ 100
Conversion of shares (86) 0 (100) 0
------------ ------------ ------------ ------------
Balance at end of period $ 0 $ 100 $ 0 $ 100
============ ============ ============ ============
Additional Balance at beginning of period $116,929,101 $114,544,320 $116,888,369 $114,336,608
paid-in capital: Issuance of common shares 378,818 351,671 413,158 514,222
Conversion of preferred shares (17,514) 0 (20,260) 0
Other 1,773 349,212 10,911 394,373
------------ ------------ ------------ ------------
Balance at end of period $117,292,178 $115,245,203 $117,292,178 $115,245,203
============ ============ ============ ============
Unrealized Balance at beginning of period $ (2,700,973) $(1,551,367) $ (5,976,354) $ 2,667,621
appreciation Change in market value for the
(depreciation) period 3,385,431 (249,101) 6,198,338 (4,131,413)
on investments: Equity in net change in
Transnational Re appreciation
(depreciation) 417,750 (58,709) 880,224 (395,385)
------------ ------------ ------------ ------------
Balance at end of period $ 1,102,208 $ (1,859,177) $ 1,102,208 $ (1,859,177)
============ ============ ============ ============
Retained earnings: Balance at beginning of period $ 65,265,720 $ 30,149,746 $ 57,933,848 $ 27,584,795
Net income 12,450,525 9,765,864 21,324,117 13,321,110
Dividends paid to common
stockholders (1,311,410) (492,636) (2,352,680) (981,731)
Dividends accrued to preferred
stockholders (98,478) (501,200) (598,928) (1,002,400)
------------ ------------ ------------ ------------
Balance at end of period $ 76,306,357 $ 38,921,774 $ 76,306,357 $ 38,921,774
============ ============ ============ ============
Restricted stock: Balance at beginning of period $ (253,772) $ 0 $ (283,550) $ 0
Issuance of restricted stock (499,005) (364,084) (499,005) (364,084)
Amortization of restricted stock 71,367 0 101,145 0
------------ ------------ ------------ ------------
Balance at end of period $ (681,410) $ (364,084) $ (681,410) $ (364,084)
============ ============ ============ ============
Treasury stock: Balance at beginning of period $(1,860,687) $ (1,966,743) $ (1,860,687) $ (1,966,743)
Issuance of treasury stock 141,228 106,056 141,228 106,056
------------ ------------ ------------ ------------
Balance at end of period $ (1,719,459) $ (1,860,687) $ (1,719,459) $ (1,860,687)
============ ============ ============ ============
Total Balance at beginning of period $177,451,477 $141,244,036 $166,770,942 $142,690,230
stockholders' Issuance of common shares 396,432 351,959 433,558 514,641
equity: Conversion of preferred stock (17,600) 0 (20,360) 0
Issuance of treasury stock 141,228 106,056 141,228 106,056
Restricted stock (427,638) (364,084) (397,860) (364,084)
Unrealized appreciation
(depreciation) on investments
net of deferred income tax 3,803,181 (307,810) 7,078,562 (4,526,798)
Net income 12,450,525 9,765,864 21,324,117 13,321,110
Dividends (1,409,888) (993,836) (2,951,608) (1,984,131)
Other 1,773 349,212 10,911 394,373
------------ ------------ ------------ ------------
Balance at end of period $192,389,490 $150,151,397 $192,389,490 $150,151,397
============ ============ ============ ============
</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 Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flow Net income $12,450,525 $9,765,864 $21,324,117 $13,321,110
from operating Adjustments to reconcile net income to
activities net cash provided by operating activities
Losses and loss expenses (4,117,485) (3,252,706) (6,681,867) 12,417,894
Unearned premiums (7,435,829) (11,312,057) 5,008,518 961,640
Deferred acquisition costs 676,264 885,849 (804,340) 335,665
Receivables 1,146,746 4,536,054 (7,844,267) (8,068,087)
Reinsurance balances payable (7,311,824) (4,580,822) (3,170,756) 3,298,681
Reinsurance recoverable 1,925,610 557,537 6,784,202 (7,240,258)
Income tax recoverable (3,908,087) (644,165) (707,431) 1,536,500
Equity in net earnings of affiliate (1,859,930) (1,366,808) (2,992,045) (1,851,895)
Other 2,806,568 5,520,937 (2,918,120) 2,884,179
---------- ---------- ---------- ----------
Net cash (used) provided by operating
activities (5,627,442) 109,683 7,998,011 17,595,429
---------- ---------- ---------- ----------
Cash flow Cost of fixed maturity investments (72,873,047) (22,317,180) (77,715,344) (39,933,093)
from investing Fixed maturity investments matured/disposed 68,181,955 10,268,254 91,965,899 34,438,151
activities Payable for securities 0 0 0 (28,493,966)
Investment in joint venture 0 0 (2,000,000) 0
Net change in short-term investments 13,156,849 10,180,497 (13,870,222) 18,247,164
---------- ---------- ---------- ----------
Net cash provided (used) by
investing activities 8,465,757 (1,868,429) (1,619,667) (15,741,744)
---------- ---------- ---------- ----------
Cash flow Proceeds from issuance of common stock 21,055 443,143 55,432 650,986
from financing Cash dividends paid to preferred stockholders (432,611) (501,200) (933,061) (1,002,400)
activities Cash dividends paid to common stockholders (1,311,457) (492,636) (2,352,727) (981,731)
---------- ---------- ---------- ----------
Net cash used by financing activities (1,723,013) (550,693) (3,230,356) (1,333,145)
---------- ---------- ---------- ----------
Net change in cash 1,115,302 (2,309,439) 3,147,988 520,540
Cash, beginning of period 2,421,935 5,063,235 389,249 2,233,256
---------- ---------- ---------- ----------
Cash, end of period $3,537,237 $2,753,796 $3,537,237 $2,753,796
========== ========== ========== ==========
</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 have been
Presentation 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 recorded as
Assumed earned on a pro rata basis over the contract period based on
and Ceded estimated subject premiums. Adjustments based on actual and
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 established in
Loss Expense amounts estimated to settle incurred losses. Losses and loss
Liabilities 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 six months 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 brokerage
Acquisition expenses incurred in connection with contract issuance, net
Costs 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
<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 June 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. 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
Second Quarter
Results for
1995 with 1994
<TABLE>
<CAPTION>
Three Months Ended June 30, Increase/
1995 1994 (Decrease)
---- ---- ----------
(in thousands) %
<S> <C> <C> <C>
Gross premiums written $27,038 $27,519 (2)
Ceded premiums:
Managed business 4,518 4,702 (4)
TREX Management Agreement 3,750 4,893 (23)
Catastrophe 1,257 4,345 (71)
Other (193) 229 (184)
----- ---
9,332 14,169 (34)
----- ------
Net premiums written $17,706 $13,350 33
======= =======
</TABLE>
Net premiums written for the three months ended
June 30, 1995 increased 33% to $17,706,000 from
$13,350,000 for the corresponding period of 1994.
Gross premiums written for the second quarter of
1995 decreased 2% to $27,038,000 from $27,519,000
for the comparable period of 1994. Net premiums
earned for the second quarter of 1995 increased 2%
to $25,142,000 from $24,662,000 in the year-earlier
period. Gross written, net written and net earned
premiums for the second quarter of 1995 were all
affected by lower reinstatement premiums resulting
from a reduced level of loss activity in the period,
reduced income from aviation business
11
<PAGE>
caused by a change in the products offered as PXRE
responded to the poor experience in this line of
business in 1994, 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. Notwithstanding such factors, net
premiums written during the second quarter of 1995
increased compared to the year-earlier period
principally due to the $3,088,000 decrease in
catastrophe premiums ceded to retrocessionnaires.
Premiums ceded by PXRE to its managed business
participants decreased 4% to $4,518,000 for the
second quarter of 1995 compared with $4,702,000 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 second quarter of 1995, pursuant to the
Management Agreement, PXRE also ceded $3,750,000 of
premiums to Transnational in lieu of direct
reinsurance writings by Transnational as compared
with $4,893,000 in the same period of 1994.
Management fee income from all sources for the
second quarter of 1995 increased 35% to $1,327,000
compared with $986,000 for the corresponding period
of 1994. The increase is due to the improved
underwriting results in the current period. The
second quarter 1995 management fee included
contingent profit commissions of $663,000 compared
with $305,000 for the comparable period in 1994,
attributable to the Trenwick Group and AMA programs.
The 1995 contingent profit commissions included in
the management fee increased due to the effect of
lower catastrophic losses in 1995 compared with the
corresponding period in 1994.
Ceded premiums for catastrophe programs were 71%
lower for the second 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 16.9% for the second quarter
of 1995 compared with 32.8 % for the comparable
quarter of 1994. The loss ratio for the
12
<PAGE>
second quarter of 1995 reflected incurred
catastrophe losses of $4,127,000 gross and
$2,369,000 net for 1995 and prior accident years as
compared with $10,496,000 gross and $4,546,000 net
in the same period of 1994 for 1994 and prior
accident years.
Significant losses, net of reinsurance,
affecting the second quarter of 1995 loss ratio are
as follows:
<TABLE>
<CAPTION>
Amount of Losses
Loss Event Gross Net
---------- ----- ---
(in thousands)
<S> <C> <C>
Northridge Earthquake $3,770 $2,313
Significant events affecting the same period of 1994 included
the following:
Amount of Losses
Loss Event Gross Net
---------- ----- ---
(in thousands)
Northridge earthquake $9,564 $3,643
Two aviation losses 2,101 1,686
</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
$157,000 for the second quarter of 1995 compared to
a loss of $313,000 for the second quarter of 1994.
During the second quarter of 1995, PXRE
experienced a deficiency of $1,936,000 net for prior
years' losses and loss expenses which resulted from
the increase in the Northridge loss. The loss ratio
for the comparable quarter in 1994 was favorably
affected by decreases to reserves of $736,000 net
for prior years' losses and loss expenses.
The underwriting expense ratio was 22.0% for the
second quarter of 1995 compared with 17.6% 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 combined ratio was 38.9% for the second quarter
of 1995, compared with 50.4% for the comparable
period of 1994.
Other operating expenses increased to $3,192,000
for the second quarter of 1995 from $2,213,000 in
the comparable period of 1994. Operating expenses in
the second quarter of 1995 reflect $769,000 in
incentive compensation cost compared to $540,000 for
the corresponding period in 1994. Included in other
operating expenses were foreign currency exchange
gains of $196,000 for the second quarter of 1995
compared to gains of $505,000 for the corresponding
period of 1994.
13
<PAGE>
Interest expense decreased to $1,779,000 in the
second 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.
Net investment income for the second quarter of
1995 increased 20.8% to $3,503,000 from $2,898,000
for the same period of 1994. The increase in net
investment income was caused primarily by an
increase in average investments for the second
quarter of 1995 compared with the corresponding
quarter in the previous year, and by an increase in
PXRE's pre-tax investment yield to 5.8% for 1995
compared with 5.1% for 1994. Net realized investment
losses for the second quarter of 1995 were $768,000
resulting from the sale of $43.3 million of
municipal bonds compared with net realized losses of
$543,000 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 second
quarter of 1995 and gains of $192,000 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 June 30,
1995 includes $1,786,000 which represents PXRE's
equity share of TREX's net earnings compared with
$1,367,000 for the comparable period in 1994.
For the reasons discussed above, net income was
$12,451,000 for the second quarter of 1995 compared
to net income of $9,766,000 for the comparable
quarter of 1994. Primary net income per common share
was $1.48 for the second quarter of 1995 (after
provision for cumulative dividends of $98,478 on the
Series A Preferred Stock) compared to net income per
common share of $1.38 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 8,341,800 in the
second quarter of 1995 and 6,722,100 in the
comparable quarter of 1994. Fully diluted net income
per common share was $1.41 for the second quarter of
1995 compared to net income per common share of
$1.11 for the comparable quarter of 1994 based on
average shares outstanding of 8,842,100 in the
second quarter of 1995 and 8,792,300 in the
comparable quarter of 1994.
14
<PAGE>
Comparison of
Year-to-date Results
for 1995 with 1994
<TABLE>
<CAPTION>
Six Months Ended June 30, Increase/
1995 1994 (Decrease)
---- ---- ----------
(in thousands) %
<S> <C> <C> <C>
Gross premiums written $83,233 $94,273 (12)
Ceded premiums:
Managed business 13,978 16,066 (13)
TREX Management Agreement 12,458 13,560 (8)
Catastrophe 3,467 8,550 (59)
Other (179) 246 (173)
----- ---
29,724 38,422 (23)
------ ------
Net premiums written $53,509 $55,851 (4)
======= =======
</TABLE>
Net premiums written for the six months ended June
30, 1995 decreased 4% to $53,509,000 from $55,851,000
for the corresponding period of 1994. Gross premiums
written for 1995 decreased 12% to $83,233,000 from
$94,273,000 for 1994. Net premiums earned for the six
months ended June 30, 1995 decreased 11% to
$48,698,000 from $54,890,000 in the year-earlier
period. Gross written, net written and net earned
premiums for the first six months of 1995 were all
affected by lower reinstatement premiums resulting
from a reduced level of loss activity in the period,
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,
termination of business due to the inadequacy of
prices on certain lines of business that do not meet
the underwriting criteria of PXRE, 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 13% to $13,978,000 for 1995
compared with $16,066,000 for 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 on behalf of the
AMA Group. During the first six months of 1995,
pursuant to the Management Agreement, PXRE also
ceded $12,458,000 of premiums compared to
$13,560,000 during the corresponding period of 1994
to Transnational in lieu of direct reinsurance
writings by Transnational. Management fee income
from all sources for 1995 increased to $3,348,000
from $3,036,000 in 1994. The increase is due to the
improved underwriting results in the current period.
The 1995 management fee included contingent profit
commissions of $813,000 compared with $458,000 for
the corresponding period in 1994, attributable to
the Trenwick Group and AMA programs. The 1995
contingent profit commissions included in
15
<PAGE>
the management fee increased due to the effect of
lower catastrophic losses in 1995 compared with the
corresponding period in 1994.
Ceded premiums for catastrophe programs for the
first six months of 1995 decreased 59% 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 six months of 1995 and management's
decision to commute certain reinsurance coverages
subsequent to the first quarter of 1994.
The loss ratio was 30.8% the first six months of
1995 compared with 54.3% for the corresponding
period of 1994. The loss ratio for the first six
months of 1995 reflected incurred catastrophe losses
of $11,529,000 gross and $7,065,000 net for 1995 and
prior accident years as compared with $41,558,000
gross and $22,138,000 net in the same period of 1994
for 1994 and prior accident years.
Significant losses, net of reinsurance,
affecting the six months ended June 30, 1995 loss
ratio are as follows:
<TABLE>
<CAPTION>
Amount of Losses
Loss Event Gross Net
---------- ----- ---
(in thousands)
<S> <C> <C>
Northridge Earthquake $5,657 $3,482
Kobe Earthquake 5,063 4,000
Risk Losses 4,600 3,835
Significant events affecting the same period of 1994 included
the following:
Amount of Losses
Loss Event Gross Net
---------- ----- ---
(in thousands)
Northridge earthquake $34,012 $17,151
Four aviation losses 6,881 4,907
</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
$143,000 for the first six months of 1995 compared
to a loss of $547,000 for the corresponding period
of 1994.
During 1995, PXRE experienced a deficiency of
$2,756,000 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
$235,000 net for prior years losses and loss
expenses.
The underwriting expense ratio was 17.0% for the
six months ended June 30, 1995 compared with 15.3%
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 47.8% for the first six
16
<PAGE>
months of 1995, compared with 69.6% for the
corresponding period of 1994.
Other operating expenses increased to $5,061,000
for the six months ended June 30, 1995 from
$3,952,000 in the comparable period of 1994.
Operating expenses in the six month period of 1995
reflect $1,146,000 in incentive compensation cost
compared to $635,000 for the corresponding period in
1994. Included in other operating expenses were
foreign currency exchange gains of $849,000 for 1995
compared to gains of $640,000 for 1994. Interest
expense decreased to $3,532,000 in the six months
ended June 30, 1995 from $3,814,000 in the same
period of 1994.
Net investment income for the six months ended
June 30, 1995 increased 24% to $6,931,000 from
$5,571,000 for 1994. The increase in net investment
income was caused by a 2.25% increase in average
investments for the first six 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 4.8%
for 1994. The increase in average investments
reflects investment of the cash flow from operations
during late 1994 and during the first six months of
1995 and the redeployment of the proceeds of the
public offering in August 1993, which was originally
invested in short term investments into intermediate
term Treasury securities and municipal bonds. Net
realized investment losses for the six months ended
June 30, 1995 were $768,000 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 $43.3 million of municipal
bonds whereas the net realized loss in 1994 was
primarily the result of prepayment experience of
GNMAs purchased late in 1993. The Company recorded
directly to equity a $7,079,000 after tax unrealized
increase in the value of its investment portfolio
during the six months ended June 30, 1995 resulting
from the decline of interest rates since December
31, 1994.
The net effects of foreign currency exchange
fluctuations were gains of $706,000 in the six
months ended June 30, 1995 and gains of $93,000 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 six months ended June 30,
1995 includes $3,046,000 which represents PXRE's
approximately 21.8% equity share of TREX's net
earnings as compared with $1,852,000 representing
approximately 21.1% share of TREX's earnings in the
comparable period in 1994. The change in the equity
share of TREX earnings primarily 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
$21,324,000 for the six months ended June 30, 1995
compared to net income of $13,321,000 for the
comparable period of 1994. Primary net income per
common share was $2.70 for the six months ended June
30, 1995 (after provision for cumulative dividends
of $598,900 on the Series A Preferred Stock)
17
<PAGE>
compared to net income per common share of $1.84 for
the comparable period of 1994 (after provision for
cumulative dividends of $1,002,400 on the Series A
Preferred Stock) based on average shares outstanding
of 7,684,000 in 1995 and 6,707,000 in 1994. Fully
diluted net income per common share was $2.41 for
the six months ended June 30, 1995 compared to net
income per common share of $1.52 for the comparable
period of 1994 based on average shares outstanding
of 8,836,000 in 1995 and 8,787,000 in 1994.
Liquidity PXRE (parent company) relies primarily on cash
and Capital dividends and net tax allocation payments from its
Resources 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 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
six months 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
18
<PAGE>
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, 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
19
<PAGE>
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 six
months ended June 30, 1995. In April 1995, PXRE's
Board of Directors authorized such Senior Note
repurchases to be made at or above par prices.
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 used by operations was
$5,627,000 during the second quarter of 1995
compared with net cash flow provided of $110,000
during the corresponding period of 1994. The
decrease in net cash flow provided by operations
resulted from the timing of payments on losses for
prior years, shifting of
20
<PAGE>
payment terms of premium receivable and reinsurance
recoverables and payables, 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 June 30, 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 June
30, 1995, over 98% 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 17.9% of fixed
maturities based on fair value at June 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 at June 30,
1995 and 1994 was 6.0% and 5.1%, 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 $7,079,000 after-tax unrealized increase in
the value of its investment portfolio during the six
months ended June 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
$40,628,000 at June 30, 1995 compared to $26,813,000
at December 31, 1994. The increase at June 30, 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 third quarter 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
21
<PAGE>
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 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 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 currently paid on PXRE's Common
Stock). To date, these convertible preferred shares
were the principal reason for the difference between
primary and fully diluted earnings per share.
Because of the conversion, that difference will be
eliminated in future periods. Book value per share
was $22.06 at June 30, 1995.
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 six 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 June 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
22
<PAGE>
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 Taxes PXRE's effective tax rate for the second quarter
of 1995 and 1994 was 35% and 34%, 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.
23
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
None.
Exhibit 27 -- Financial Data Schedule
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
August 14, 1995 By: /s/ Sanford M. Kimmel
--------------------------
Sanford M. Kimmel
Its Senior Vice President, Treasurer
and Chief Financial Officer
-24-
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains financial information extracted from PXRE Corporation
Inc.'s Form 10-Q for the period ended June 30, 1995 and is
qualified in its entirety by reference to such financial information
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<DEBT-HELD-FOR-SALE> 197,863,000
<DEBT-CARRYING-VALUE> 199,579,728
<DEBT-MARKET-VALUE> 199,579,728
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 240,262,496
<CASH> 3,537,237
<RECOVER-REINSURE> 38,619,893
<DEFERRED-ACQUISITION> 1,667,478
<TOTAL-ASSETS> 375,949,784
<POLICY-LOSSES> 75,153,691
<UNEARNED-PREMIUMS> 19,140,578
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 69,700,000
<COMMON> 89,616
0
0
<OTHER-SE> 192,299,874
<TOTAL-LIABILITY-AND-EQUITY> 375,949,784
48,698,149
<INVESTMENT-INCOME> 6,930,657
<INVESTMENT-GAINS> (768,280)
<OTHER-INCOME> 3,348,415
<BENEFITS> 15,000,583
<UNDERWRITING-AMORTIZATION> 6,566,651
<UNDERWRITING-OTHER> 5,061,355
<INCOME-PRETAX> 28,048,423
<INCOME-TAX> 9,770,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,324,117
<EPS-PRIMARY> 2.70
<EPS-DILUTED> 2.41
<RESERVE-OPEN> 81,835,558
<PROVISION-CURRENT> 16,850,328
<PROVISION-PRIOR> 7,118,208
<PAYMENTS-CURRENT> 3,666,399
<PAYMENTS-PRIOR> 26,984,004
<RESERVE-CLOSE> 75,153,691
<CUMULATIVE-DEFICIENCY> 7,118,208
</TABLE>
