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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, 1996
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 13, 1996, 8,752,694 shares of common stock, $.01 par value per
share, of the Registrant were outstanding.
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PXRE CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Consolidated Balance Sheets at March 31, 1996
and December 31, 1995 3
Consolidated Statements of Income for the three months
ended March 31, 1996 and 1995 4
Consolidated Statements of Stockholders' Equity for the
three months ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flow for the three months
ended March 31, 1996 and 1995 6
Notes to Consolidated Interim Financial Statements 7
Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION 22
2
<PAGE>
<PAGE>
PXRE Consolidated Balance Sheets
Corporation (Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C> <C>
Assets Investments:
Fixed maturities, available for sale, at fair value (amortized
cost $229,873,000 and $216,348,000, respectively) $ 229,515,378 $ 221,356,767
Equity securities, at fair value (cost $5,000,000) 5,633,584 5,172,428
Short-term investments 38,643,625 41,721,656
------------- -------------
Total investments 273,792,587 268,250,851
Cash 3,823,030 838,548
Accrued investment income 4,327,697 3,343,505
Receivables:
Unreported premiums 19,751,188 23,376,727
Balances due from intermediaries and brokers 11,688,173 6,335,593
Other receivables 4,715,599 4,175,443
Reinsurance recoverable: TREX 10,242,281 8,966,592
Non-affiliates 20,577,856 25,130,816
Ceded unearned premiums 9,128,565 5,433,030
Deferred acquisition costs 1,952,925 1,564,926
Income tax recoverable 0 479,473
Investment in equity of TREX 36,827,909 36,003,384
Receivable from TREX 406,919 446,799
Other assets 9,085,272 9,119,750
------------- -------------
Total assets $ 406,320,001 $ 393,465,437
------------- -------------
Liabilities Losses and loss expenses $ 64,911,136 $ 72,718,914
Unearned premiums 23,306,996 13,685,391
Reinsurance balances payable: TREX 8,959,064 5,647,532
Non-affiliates 9,381,477 8,698,862
Notes payable 67,775,000 67,775,000
Income tax payable 2,729,319 0
Deferred income tax payable 1,614,472 3,653,102
Payable for securities 7,359,920 2,496,232
Other liabilities 4,982,554 7,628,228
------------- -------------
Total liabilities 191,019,938 182,303,261
------------- -------------
Stockholders' Serial preferred stock, $.01 par value --
equity 500,000 shares authorized; 0 and 10,009 Series A 8% cumulative
convertible shares issued and outstanding 0 0
Common stock, $.01 par value --
20,000,000 shares authorized; 9,015,158 and 8,983,896 shares issued 90,151 89,839
Additional paid-in capital 118,126,189 117,668,048
Net unrealized appreciation on investments, net of
deferred income tax expense of $96,000 and $1,813,000 282,117 3,782,500
Retained earnings 99,617,739 91,882,834
Treasury stock at cost (263,755 and 238,755 shares) (2,344,459) (1,719,459)
Restricted stock at cost (34,000 shares) (471,674) (541,586)
------------- -------------
Total stockholders' equity 215,300,063 211,162,176
------------- -------------
Total liabilities and stockholders' equity $ 406,320,001 $ 393,465,437
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
-3-
<PAGE>
<PAGE>
PXRE Consolidated Statements of Income
Corporation (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1996 1995
---- ----
<S> <C> <C> <C>
Revenues Net premiums earned $ 19,420,401 $ 23,556,101
Net investment income 3,911,470 3,427,447
Net realized investment losses (74,937) 0
Management fees: TREX 706,828 822,944
Non-affiliate 1,765,398 1,198,196
------------ ------------
25,729,160 29,004,688
------------ ------------
Losses and Losses and loss expenses incurred 4,939,674 10,750,624
expenses Commissions and brokerage 3,555,589 2,903,343
Other operating expenses 3,184,722 1,869,649
Interest expense 1,717,123 1,752,711
------------ ------------
13,397,108 17,276,327
------------ ------------
Income before income taxes and equity in net
earnings of TREX 12,332,052 11,728,361
Equity in net earnings of TREX 1,293,188 1,259,231
Income tax provision 4,316,000 4,114,000
------------ ------------
Net income $ 9,309,240 $ 8,873,592
============ ============
Preferred stock dividend $ 0 $ 500,450
============ ============
Operating income available to common
stockholders $ 9,309,240 $ 8,373,142
============ ============
Per share Primary:
Net income $ 1.05 $ 1.19
============ ============
Average shares outstanding 8,862,762 7,050,633
============ ============
Fully diluted:
Net income $ 1.05 $ 1.00
============ ============
Average shares outstanding 8,881,863 8,851,874
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
-4-
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<PAGE>
PXRE Consolidated Statements of Stockholders' Equity
Corporation (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------
1996 1995
---- ----
<S> <C> <C> <C>
Common stock: Balance at beginning of period $ 89,839 $ 69,216
Issuance of shares 312 2,786
------------- -------------
Balance at end of period $ 90,151 $ 72,002
============= =============
Preferred stock: Balance at beginning of period $ 0 $ 100
Conversion of shares 0 (14)
------------- -------------
Balance at end of period $ 0 $ 86
============= =============
Additional Balance at beginning of period $ 117,668,048 $ 116,888,369
paid-in capital: Issuance of common shares 301,014 34,340
Conversion of preferred shares 0 (2,746)
Other 157,127 9,138
------------- -------------
Balance at end of period $ 118,126,189 $ 116,929,101
============= =============
Unrealized Balance at beginning of period $ 3,782,500 $ (5,976,354)
appreciation Change in fair value for the period (3,188,942) 2,812,907
(depreciation) Equity in net change in TREX
on investments: (depreciation) appreciation (311,441) 462,474
------------- -------------
Balance at end of period $ 282,117 $ (2,700,973)
============= =============
Retained earnings: Balance at beginning of period $ 91,882,834 $ 57,933,848
Net income 9,309,240 8,873,592
Dividends paid to common stockholders (1,574,335) (1,041,270)
Dividends accrued to preferred stockholders 0 (500,450)
------------- -------------
Balance at end of period $ 99,617,739 $ 65,265,720
============= =============
Restricted stock: Balance at beginning of period $ (541,586) $ (283,550)
Amortization of restricted stock 69,912 29,778
------------- -------------
Balance at end of period $ (471,674) $ (253,772)
============= =============
Treasury stock: Balance at beginning of period $ (1,719,459) $ (1,860,687)
Repurchase of common stock (625,000) 0
------------- -------------
Balance at end of period $ (2,344,459) $ (1,860,687)
============= =============
Total Balance at beginning of period $ 211,162,176 $ 166,770,942
stockholders' Issuance of common shares 301,326 37,126
equity: Conversion of preferred stock 0 (2,760)
Repurchase of common stock (625,000) 0
Restricted stock 69,912 29,778
Unrealized (depreciation) appreciation on investments
net of deferred income tax (3,500,383) 3,275,381
Net income 9,309,240 8,873,592
Dividends (1,574,335) (1,541,720)
Other 157,127 9,138
------------- -------------
Balance at end of period $ 215,300,063 $ 177,451,477
============= =============
</TABLE>
The accompanying notes are an integral part of these statements
-5-
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<PAGE>
PXRE Consolidated Statements of Cash Flow
Corporation (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1996 1995
---- ----
<S> <C> <C> <C>
Cash flow Net income $ 9,309,240 $ 8,873,592
from operating Adjustments to reconcile net income to net cash
activities provided by operating activities:
Losses and loss expenses (7,807,778) (2,564,382)
Unearned premiums 5,926,070 12,444,347
Deferred acquisition costs (387,999) (1,480,604)
Receivables (2,227,317) (8,991,013)
Reinsurance balances payable 3,994,147 4,141,068
Reinsurance recoverable 3,277,271 4,858,592
Income tax recoverable/payable 4,980,390 3,200,656
Equity in net earnings of TREX (1,135,966) (1,132,115)
Other (5,280,446) (5,724,688)
------------ ------------
Net cash provided by operating activities 10,647,612 13,625,453
------------ ------------
Cash flow Cost of fixed maturity investments (19,578,598) (4,842,297)
from investing Fixed maturity investments matured/disposed 5,871,758 23,783,944
activities Payable for securities 4,863,688 0
Investment in joint venture 0 (2,000,000)
Net change in short-term investments 3,078,031 (27,027,071)
------------ ------------
Net cash used by investing activities (5,765,121) (10,085,424)
------------ ------------
Cash flow Proceeds from issuance of common stock 301,326 34,377
from financing Cash dividends paid to preferred stockholders 0 (500,450)
activities Cash dividends paid to common stockholders (1,574,335) (1,041,270)
Cost of treasury stock (625,000) 0
------------ ------------
Net cash used by financing activities (1,898,009) (1,507,343)
------------ ------------
Net change in cash 2,984,482 2,032,686
Cash, beginning of period 838,548 389,249
------------ ------------
Cash, end of period $ 3,823,030 $ 2,421,935
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
-6-
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PXRE
Corporation NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The accompanying interim consolidated financial statements have been
prepared in conformity with generally accepted accounting principles ("GAAP").
These statements reflect the consolidated operations of PXRE Corporation and its
subsidiaries PXRE Reinsurance Company and PXRE Trading Corporation (collectively
referred to as "PXRE").
The interim consolidated financial statements are unaudited; however,
in the opinion of management, the foregoing consolidated 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 1995 audited
consolidated financial statements and related notes. The preparation of interim
consolidated 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 ASSUMED AND CEDED
Premiums on reinsurance business assumed are recorded as earned on a pro
rata basis over the contract period based on estimated subject premiums.
Adjustments based on actual 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 LOSS EXPENSE LIABILITIES
Liabilities for losses and loss expenses are established in amounts
estimated to settle incurred losses. Losses and loss expense liabilities are
based on individual case estimates provided for reported losses for known events
and estimates of incurred but not reported losses. Losses and loss expense
liabilities are necessarily based on estimates and the ultimate liabilities may
vary from such estimates primarily because of the significant delay in losses
being reported to insurance carriers and reinsurers, such as PXRE. 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.
7
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PXRE
Corporation NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
4. INVESTMENTS
Fixed maturity investments and unaffiliated equity securities are
considered available for sale and are reported at fair value. Unrealized gains
and losses as a result of temporary changes in fair value over the period such
investments are held are reflected net of income taxes in stockholders' equity.
Unrealized losses which are not temporary are charged to operations. Short-term
investments are carried at amortized cost which approximates fair value.
Realized gains or losses on disposition of investments are determined on the
basis of specific identification. The amortization of premiums and accretion of
discounts for fixed maturity investments are computed utilizing the interest
method. The effective yield under the interest method is adjusted for
anticipated prepayments.
5. MANAGEMENT FEES
Management fees are recorded as earned under various arrangements,
whereby PXRE Reinsurance Company acts as underwriting manager for other insurers
and reinsurers. These fees are initially based on premium volume, but are
adjusted through contingent profit commissions related to underwriting results
measured over a period of years.
6. DEFERRED ACQUISITION COSTS
Acquisition costs consist of commissions and brokerage expenses
incurred in connection with contract issuance, net of acquisition costs ceded.
These costs are deferred and amortized over the period in which the related
premiums are earned. Deferred acquisition costs are reviewed periodically to
determine that they do not exceed recoverable amounts after allowing for
anticipated investment income.
7. TREASURY STOCK
In April 1995, PXRE was authorized to repurchase up to 700,000 shares
of its stock. During the first quarter of 1996, PXRE repurchased 25,000 of the
700,000 shares authorized at a cost of $625,000.
8
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PXRE
Corporation NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
8. SUBSEQUENT EVENT
On May 10, 1996, PXRE delivered to Transnational Re Corporation
"Transnational Re" a proposal for a strategic business combination of PXRE and
Transnational Re on a tax-free basis. Under the proposal, PXRE would enter into
a merger agreement with Transnational Re pursuant to which PXRE Corporation, or
a newly organized subsidiary of PXRE, would exchange 0.98 shares of PXRE common
stock for each share of Transnational Re Class A common stock, $.01 par value.
The proposal is conditioned upon the negotiation and execution of a
definitive merger agreement mutually satisfactory to PXRE and Transnational Re
and is further conditioned upon the effectiveness of the registration of PXRE
securities to be issued in the merger, the receipt of all regulatory approvals
and third-party consents necessary or advisable to accomplish the transaction
and approvals by the boards of directors of PXRE and Transnational Re (including
a committee of Transnational Re's independent directors) and by the shareholders
of both companies.
It is anticipated that a business combination would be accounted for
as a purchase transaction.
9
<PAGE>
<PAGE>
PXRE MANAGEMENT'S DISCUSSION AND ANALYSIS OF
Corporation FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
GENERAL
PXRE provides reinsurance products and services to a domestic and
international marketplace, with principal emphasis on commercial and personal
property risks and marine and aviation risks, and with a particular focus on
catastrophe related coverages.
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 businesses
where management believes that above average underwriting results can be
achieved. PXRE has been pursuing a strategy of focusing on catastrophe related
coverages in both the international and domestic markets. This strategy has been
designed to capitalize on the substantial improvements in pricing and other
terms of these coverages which evolved following the high levels of catastrophic
loss activity, in terms of both frequency and severity of loss, experienced by
the worldwide reinsurance industry since 1987, but which have moderated since
the end of 1994. 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. Since that time, PXRE has also increased its writing of marine and
aviation business.
PXRE also generates management fee income by managing business for
other insurers and reinsurers, either by accepting additional amounts of
coverage on underwritten risks and retroceding such additional amounts to
participants through various retrocessional arrangements or, in one case, by
managing the underwriting and other day-to-day operations of a publicly-owned
reinsurance group.
At March 31, 1996, PXRE was a party to three such retrocessional
arrangements. One such arrangement is with a group of insurers and reinsurers
referred to as the AMA, another is with Trenwick America Reinsurance Corporation
("Trenwick Group") and a third arrangement is with Investors Reinsurance Ltd.
("Investors Re"), a Barbados company. Under these arrangements which were
renewed or commenced effective January 1, 1996, PXRE cedes some of its
underwritten risks to the participants, subject to maximum aggregate liabilities
per reinsurance program (approximately $1,200,000 in the case of the AMA,
approximately $3,000,000 in the case of Trenwick Group and $620,000 in the case
of Investors Re). PXRE receives a management fee or commission of 5% of premiums
ceded (4.2% for Investors Re) and a percentage of any ultimate underwriting
profits in connection with the reinsurance ceded. Such percentage of ultimate
underwriting profits 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.
10
<PAGE>
<PAGE>
In the past, PXRE has entered into other retrocessional arrangements
providing catastrophic protection. In recent years, PXRE reduced, upon renewal,
its own catastrophe retrocessional facilities and has borne the associated
increase in net exposures. Although PXRE elected not to purchase any significant
retrocessional coverage in 1995, as the cost of catastrophe retrocessional
facilities has declined, PXRE has again commenced selectively to purchase such
coverages in 1996.
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 Transnational Re Corporation ("TREX") and its
subsidiaries, including all the reinsurance operations of Transnational
Reinsurance Company ("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
its subsidiaries.
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 reinsurance. Transnational is also
entitled to share similarly in other property reinsurance business, if any,
which PXRE may, from time-to-time, propose that Transnational underwrite and
which Transnational's Board of Directors may approve.
Transnational pays PXRE an annual basic management fee under the
Management Agreement equal to 5% of gross premiums written (including
reinstatement premiums less return premiums) of Transnational and its
consolidated subsidiaries (if any) as reflected in Transnational's statutory
quarterly and annual statements filed with state insurance authorities. In
addition, PXRE is entitled to receive from TREX a contingent fee equal to 20% of
"net income" (as defined) in excess of a 20% "return on equity" (as defined) of
TREX for each year, or part thereof, that the Management Agreement remains
effective (the first such year 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 and time spent by officers and
employees of PXRE in connection with the preparation of reports filed by TREX
with the SEC and proxy materials and annual reports sent to TREX shareholders.
11
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<PAGE>
The Management Agreement has an initial term ending December 31, 1998,
and is scheduled to 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 premiums written for a calendar year fall
below specified levels.
CERTAIN RISKS AND UNCERTAINTIES
As a reinsurer principally of property and catastrophe related
coverages in both the international and domestic markets, 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.
The estimation of losses for catastrophe reinsurers is inherently less
reliable than for reinsurers of risks which have an established historical
pattern of losses. In addition, insured events which occur near the end of a
reporting period, as well as, with respect to PXRE's retrocessional book of
business, the significant delay in losses being reported to insurance carriers,
reinsurers and finally retrocessionaires, require PXRE to make estimates of
losses based on limited information from ceding companies and based on its own
underwriting data. Because of the uncertainty in the process of estimating its
losses from insured events, there is a risk that PXRE's liabilities for losses
and loss expenses could prove to be inadequate, with a consequent adverse impact
on future earnings and stockholders' equity. Additionally, as a consequence of
its emphasis on property reinsurance, PXRE may forgo potential investment income
because property losses are typically settled within a short period of time.
PXRE maintains only minimal catastrophe retrocessional coverage. In
view of the increased underwritings of catastrophe related reinsurance and the
net exposure being retained by PXRE, the occurrence of one or more major
catastrophes in any given period (such as hurricane 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
liquidation of investments and outflows of cash as losses are paid.
As PXRE underwrites risks from a large number of insurers based on
information generally supplied by reinsurance brokers, there is a risk of
developing a concentration of exposure to loss in certain geographic areas prone
to specific types of catastrophes. PXRE has developed systems and software tools
to monitor and manage the accumulation of its exposure to such losses.
Management has established guidelines for maximum tolerable losses from a single
or multiple catastrophic event based on historical data, however no assurance
can be given that these maximums will not be exceeded in some future
catastrophe.
12
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<PAGE>
Premiums on reinsurance business assumed are recorded as earned on a
pro rata basis over the contract period based upon estimated subject premiums.
Management must estimate the subject premiums associated with the treaties in
order to determine the level of earned premiums for a reporting period. Such
estimates are based on information from brokers which can be subject to change
as new information becomes available. Because of the inherent uncertainty in
this process there is the risk that premiums and related receivable balances may
turn out to be higher or lower than reported.
Although PXRE's 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.
Accordingly, the estimated fair value of PXRE's investments does not necessarily
represent the amount which could be realized upon future sale particularly if
PXRE were required to liquidate a substantial portion of its portfolio to fund
catastrophic losses. In addition, PXRE's investment in and receivables from TREX
amount to approximately $47,477,000 at March 31, 1996, which represent 11.7% of
its total assets and 22.1% of its stockholders' equity.
Premiums receivable and loss reserves include business denominated in
currencies other than U.S. dollars. PXRE is exposed to the possibility of
significant claims in currencies other than U.S. dollars. While PXRE holds
positions denominated in foreign currencies to mitigate the effects of currency
fluctuations on its results of operations, it does not hedge its currency
exposures before a catastrophic event which may produce a claim.
PXRE Corporation (parent company) relies primarily on cash dividends
and net tax allocation payments from its subsidiary PXRE Reinsurance to pay its
operating expenses, to meet its debt service obligations and to pay common stock
dividends to PXRE's stockholders. The payment of dividends by PXRE Reinsurance
to PXRE Corporation (parent company) 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 Corporation's (parent company) outstanding indebtedness.
In the event the amount of dividends available, together with other
sources of funds, are not sufficient to permit PXRE Corporation (parent company)
to meet its debt service, 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 Corporation (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.
13
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<PAGE>
The reinsurance business is increasingly competitive and is undergoing
a variety of challenging developments. The industry has in recent years moved
toward greater consolidation as ceding companies have placed increased
importance on size and financial strength in the selection of reinsurers.
Additionally, reinsurers are tapping new markets and complementing their range
of traditional reinsurance products with innovative new products which bring
together capital markets and reinsurance experience. PXRE competes with numerous
major international and domestic reinsurance and insurance companies, many of
which have substantially greater financial, marketing and management resources
than PXRE.
COMPARISON OF FIRST QUARTER RESULTS FOR
1996 WITH 1995
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------- Increase/
1996 1995 (Decrease)
---- ---- ----------
(in thousands) %
<S> <C> <C> <C>
Gross premiums written $41,854 $56,195 (25.5)
Ceded premiums:
Managed business participants 8,255 9,461 (12.7)
TREX Management Agreement 7,123 8,707 (18.2)
Catastrophe coverage 1,131 2,210 (48.8)
Other (1) 14 (107.1)
-------- -------
Total reinsurance premiums ceded 16,508 20,392 (19.0)
-------- -------
Net premiums written $25,346 $35,803 (29.2)
======= =======
</TABLE>
Net premiums written for the three months ended March 31, 1996
decreased 29.2% to $25,346,000 from $35,803,000 for the corresponding period of
1995. Gross premiums written for the first quarter of 1996 decreased 25.5% to
$41,854,000 from $56,195,000 for the comparable period of 1995. Net premiums
earned for the first quarter of 1996 decreased 17.6% to $19,420,000 from
$23,556,000 in the year-earlier period. Gross written, net written and net
earned premiums for the first quarter of 1996 declined from prior-year levels as
PXRE continued its planned response to the increased competitive trends that
have characterized the property catastrophe and marine reinsurance markets since
the end of 1994. Premiums written and earned were also adversely affected by a
$1,600,000 reduction in reinstatement premiums resulting from a reduced level of
loss activity in the first quarter of 1996 , as well as by $900,000 of cessions
related to the new retrocessional arrangement with Investors Re.
Premiums ceded by PXRE to its managed business participants decreased
12.7% to $8,255,000 for the first quarter of 1996 compared with $9,461,000 for
the corresponding period of 1995. The decrease in premiums ceded to these
programs was due to the decrease in the amount of premiums written by PXRE on
behalf of the managed business participants. During the first quarter of 1996,
pursuant to the Management Agreement, PXRE also ceded $7,123,000
14
<PAGE>
<PAGE>
of premiums to Transnational in lieu of direct reinsurance writings by
Transnational as compared with $8,707,000 in the same period of 1995. Management
fee income from all sources for the first quarter of 1996 increased 22.3% to
$2,472,000 from $2,021,000 for the corresponding period of 1995 reflecting
higher profit commissions resulting from a lower level of loss activity for the
quarter, offset slightly by a lower level of management fee income caused by a
decline of premiums.
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 25.4% for the first quarter of 1996 compared with
45.6 % for the comparable quarter in 1995. The loss ratio for the first quarter
of 1996 reflected incurred catastrophe losses of $1,534,000 gross and $689,000
net for 1996 and prior accident years as compared with $7,402,000 gross and
$4,696,000 net in the same period of 1995 for 1995 and prior accident years.
There were no significant catastrophe losses for the first quarter of 1996.
Significant losses affecting the first quarter 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
Milliken Factory 4,200 3,300
</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 $59,000 for the first quarter
of 1996 compared to a loss of $300,000 for the first quarter of 1995.
During the first quarter of 1996, PXRE experienced a deficiency of
$980,000 net for prior year losses and loss expenses. The loss ratio for the
comparable quarter in 1995 was unfavorably affected by increases to reserves of
$820,000 net for prior year losses and loss expenses.
15
<PAGE>
<PAGE>
The underwriting expense ratio was 22.0% for the first quarter of 1996
compared with 11.7% for the comparable quarter of 1995. The increase was
substantially due to the increased operating expenses discussed below, increased
contingent commission payable to clients related to profitable business and the
decline in premiums earned. As a result of the above, the combined ratio was
47.4% for the first quarter of 1996 compared with 57.3% for the comparable
period of 1995.
Other operating expenses increased to $3,185,000 for the first quarter
of 1996, including non-recurring expenses amounting to $310,000, from $1,870,000
in the comparable period of 1995. The operating expense increase reflects an
increase of $323,000 related to changes in benefit plans, additional staff
salaries and increases in other related employee benefits. Included in other
operating expenses were foreign currency exchange losses of $36,000 for the
first quarter of 1996 compared to gains of $653,000 for the corresponding period
of 1995.
Interest expense decreased to $1,717,000 in the first quarter of 1996
compared to $1,753,000 in the same period of 1995 due to PXRE Reinsurance
Company's purchase of $1,925,000 par value of its parent company's 9.75% Senior
Notes at prices from 104.625 to 105.0 during the third quarter of 1995.
Net investment income for the first quarter of 1996 increased 14.1% to
$3,911,000 from $3,427,000 for the same period of 1995. The increase in net
investment income was caused primarily by an increase in average investments for
the first quarter of 1996 compared with the corresponding quarter in the
previous year, and by an increase in PXRE's pre-tax investment yield to 6.1% for
1996 compared with 5.7% for 1995 both calculated using amortized cost and gross
of investment expenses. The increase is due in part to the sale of municipal
securities in the fourth quarter of 1995 and reinvestment in taxable securities.
Net realized investment losses for the first quarter of 1996 were $75,000.
There were no realized gains or losses during the first quarter of 1995.
The net effects of foreign currency exchange fluctuations were gains of
$23,000 in the first quarter of 1996 and gains of $353,000 for the comparable
quarter of 1995. 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, 1996 includes
$1,293,000 which represents PXRE's approximately 21.9% equity share of TREX's
net earnings as compared with $1,259,000 representing PXRE's approximately 21.3%
share of TREX's net earnings for the first quarter of 1995.
For the reasons discussed above, net income was $9,309,000 for the
first quarter of 1996 compared to net income of $8,874,000 for the comparable
quarter of 1995. Primary net income per common share was $1.05 for the first
quarter of 1996 compared to net income per common share of $1.19 for the
comparable quarter of 1995 (after provision for cumulative dividends of $500,450
on the Series A Preferred Stock). Because PXRE converted its Series A Preferred
Stock into shares of common stock during the second quarter of 1995 there is no
preferred
16
<PAGE>
<PAGE>
dividend in the first quarter of 1996, and average shares outstanding were
approximately 8,862,800 in the first quarter of 1996 compared to 7,050,600 in
the comparable quarter of 1995. Fully diluted net income per common share was
$1.05 for the first quarter of 1996 compared to net income per common share of
$1.00 for the comparable quarter of 1995 based on average shares outstanding of
approximately 8,881,900 in the first quarter of 1996 and 8,851,900 in the
comparable quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
PXRE Corporation (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 Corporation 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
Corporation'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 Corporation within any twelve-month
period, without regulatory approval, is limited to the lesser of (a) earned
surplus or (b) the greater of 10% of policyholders' surplus at December 31 of
the preceding year or 100% of net income for the twelve-month period ending
December 31 of the preceding year, all determined in accordance with SAP.
Accordingly, the Connecticut insurance laws could limit the amount of dividends
available for distribution by PXRE Reinsurance without prior regulatory
approval, depending upon a variety of factors outside the control of PXRE,
including the frequency and severity of catastrophe and other loss events and
changes in the reinsurance market, in the insurance regulatory environment and
in general economic conditions. As of December 31, 1995, PXRE Reinsurance had
earned surplus of $81,382,000, as defined, and a policyholders' surplus of
$250,231,000 and its net income for 1995 was $37,996,000. The maximum amount of
dividends or distributions that PXRE Reinsurance may declare and pay in 1996,
without regulatory approval, is therefore $37,996,000. During the first quarter
of 1996, $4,000,000 in dividends was approved and paid by PXRE Reinsurance to
PXRE Corporation.
Other sources of funds available to PXRE Corporation (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 Corporation (parent company).
In the event the amount of dividends available, together with other
sources of funds, are not sufficient to permit PXRE Corporation (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 Corporation (parent company) would have to
adopt one or more alternatives, such as refinancing or restructuring its
indebtedness
17
<PAGE>
<PAGE>
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 Corporation (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 Corporation (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 Corporation (parent company) completed a public
offering of $75,000,000 principal amount of 9.75% Senior Notes due August 15,
2003. Interest is payable on the Senior Notes semi-annually. Interest expense,
including amortization of debt offering costs, for 1995 in respect of the Senior
Notes amounted to approximately $7,143,000. Interest expense for 1996 will
amount to approximately $6,869,000. 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 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.
18
<PAGE>
<PAGE>
In the fourth quarter of 1994, PXRE's Board of Directors authorized the
repurchase of up to $20 million principal amount of Senior Notes in any one
calendar year at below par prices in negotiated or open market transactions. As
of December 31, 1994, PXRE had repurchased $5,300,000 principal amount of its
Senior Notes at an aggregate cost of $5,275,000. In April 1995, PXRE's Board of
Directors authorized such Senior Note repurchases to be made at or above par
prices. During the third quarter of 1995, PXRE Reinsurance Company purchased
$1,925,000 principal amount of its parent company's Senior Notes at an aggregate
cost of $2,016,000. In April 1996, PXRE Reinsurance purchased $2,300,000 par
value of its Senior Notes at a premium.
PXRE Corporation (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 Corporation (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 Corporation (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 Corporation
(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 PXRE Corporation
(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, capital contributions and advances
from PXRE Corporation (parent company). Funds are applied primarily to the
payment of claims, operating expenses, income taxes and to the purchase of
investments. Premiums are typically received in advance of related claim
payments. Net cash flow provided by operations was $10,648,000 during the first
quarter of 1996, compared with net cash flow provided by operations of
$13,625,000 during the corresponding period of 1995, due to reduced premiums
written and due to the effects of timing of collection of receivables and
reinsurance recoverables and payments of losses.
PXRE's management has established general procedures and guidelines for
its investment portfolio and oversees investment management carried out by
Phoenix Duff & Phelps Corporation, a public majority-owned subsidiary of Phoenix
Home Life Mutual 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. At March 31, 1996, PXRE's investment portfolio
consisted primarily of fixed maturities and short-term investments. During the
latter part of 1995, PXRE invested $5,000,000 in equities. The investment
policies and all investments of PXRE are approved by its Board of Directors.
19
<PAGE>
<PAGE>
Of PXRE's fixed maturities portfolio at March 31, 1996, 98.7% of the
fair value was in obligations rated "Aaa" or "AAA" by Moody's Investors Service
Inc. or Standard & Poor's Corporation, respectively, or in government or
government-backed securities. Mortgage-backed and asset-backed securities
(principally GNMAs) accounted for 20.8% of fixed maturities based on fair value
at March 31, 1996. 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, 1996 and 1995 was 5.7% and 5.4%, 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 $3,500,000 after-tax
unrealized decline in the value of its investment portfolio during 1996
reflecting an increase in interest rates during the period. Short-term
investments are carried at amortized cost which approximates fair value. PXRE's
short-term investments, principally high grade commercial paper, were
$38,644,000 at March 31, 1996 compared to $41,722,000 at December 31, 1995. The
decrease at March 31, 1996 was principally due to the cash flow requirements
arising from the August 1995 hurricanes Marilyn and Luis.
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. At March 31, 1996, PXRE
owned approximately 22.3% 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 1995, PXRE raised the quarterly dividend
on its Common Stock from $0.15 per share to $0.18 per share. The increase in the
dividend will result in an annual additional outlay of approximately $1,049,400.
The expected annual dividend based on shares outstanding at March 31, 1996 will
be approximately $6,301,000.
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. 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 $316,800 in additional common stock dividends on shares issued
upon conversion. To date, these convertible preferred shares were the principal
reason for the difference between primary and fully
20
<PAGE>
<PAGE>
diluted earnings per share. Because of the conversion, that difference will be
eliminated in future periods.
Book value per common share was $24.60 at March 31, 1996.
At March 31, 1995 there were 238,755 shares of treasury stock. In
addition, in April 1995, PXRE's Board of Directors authorized the repurchase of
up to 700,000 shares of its common stock from time-to-time in open market or
private block purchase transactions. From inception of this repurchase plan
through March 1996, PXRE repurchased 25,000 of the 700,000 shares authorized at
a cost of $625,000.
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 ("CBOT"). PXRE and TREX have each committed $2.5 million to this venture.
Although the joint venture has developed a number of trading strategies, the low
level of activity in the CBOT market for catastrophe futures has kept trade
volume to a minimum through March 31, 1996.
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, 1996,
are considered by management of PXRE to be collectible in all material respects.
INCOME TAXES
PXRE's effective tax rate for the first quarter of 1996 and 1995 was
31.8% and 31.7%, respectively, which differs from the statutory rate principally
due to tax exempt income, dividend received deduction and state and local taxes.
21
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other Information
On May 10, 1996, PXRE delivered to Transnational Re a proposal for a
strategic business combination of PXRE and Transnational Re on a tax-free basis.
Under the proposal, PXRE would enter into a merger agreement with Transnational
Re pursuant to which PXRE Corporation, or a new organized subsidiary of PXRE,
would exchange 0.98 shares of PXRE common stock for each share of Transnational
Re Class A common stock, $.01 par value.
The proposal is conditioned upon the negotiation and execution of a
definitive merger agreement mutually satisfactory to PXRE and Transnational Re
and is further conditioned upon the effectiveness of the registration of PXRE
securities to be issued in the merger, the receipt of all regulatory approvals
and third-party consents necessary or advisable to accomplish the transaction
and approvals by the boards of directors of PXRE and Transnational Re (including
a committee of Transnational Re's independent directors) and by the shareholders
of both companies.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
2. The proposal letter of PXRE Corporation dated May 10, 1996
referred to in Item 5 hereof is attached hereto as Exhibit 2.
(b) Reports on Form 8-K:
None
22
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
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 14, 1996 By: /s/ Sanford M. Kimmel
--------------------------------
Sanford M. Kimmel
Senior Vice President, Treasurer
and Chief Financial Officer
23
<PAGE>
<PAGE>
399 Thornall Street
Fourtheenth Floor
Edison, NJ 08837
908 906 8100
908 906 9157 FAX
PXRE CORPORATION [LOGO]
May 10, 1996
Board of Directors
Transnational Re Corporation
399 Thornall Street
Edison, NJ 08837
Dear Sirs:
I am pleased to inform you of our proposal for a strategic business
combination of PXRE Corporation ("PXRE") and Transnational Re Corporation
("Transnational Re"). After careful study and consideration, we have concluded
that the proposed combination is a sound business step for us and, at the same
time, is in the best interests of Transnational Re and its shareholders.
We believe that this combination will benefit our respective
shareholders by allowing them to participate in a larger, financially stronger
company with increased market presence, improved creditworthiness, reduced
operating costs, increased capital management opportunities and increased market
capitalization and float. Additionally, the proposed combination would enable
Transnational Re's shareholders to retain a very substantial continuing equity
interest in the combined businesses and to participate in future opportunities
in reinsurance markets.
Under this proposal, based on our current analysis PXRE and
Transnational Re would enter into a merger agreement pursuant to which PXRE,
either through PXRE itself or a newly organized subsidiary of PXRE, would
exchange 0.98 shares of PXRE common stock for each share of Transnational Re
Class A common stock, which represents a price of $23.50 based on yesterday's
closing price for PXRE of $24.00. It is contemplated that the merger agreement
would be in a form customary for transactions of this type. The transaction
would be designed to be tax-free to Transnational Re shareholders.
Naturally, our proposal is conditioned upon the negotiation and
execution of a definitive merger agreement mutually satisfactory to PXRE and
Transnational Re and is further conditioned upon the effectiveness of the
registration of PXRE securities to be issued in the merger, the receipt of all
regulatory approvals and third-party consents necessary or advisable to
accomplish the transaction and approvals by the boards of
<PAGE>
<PAGE>
[LOGO]
directors of PXRE and Transnational Re (including the approval of a committee of
Transnational Re's independent directors) and by the shareholders of both
companies.
We understand that, in transactions of this nature, it is typical for a
special committee of independent directors to be established to review the
combination proposal. PXRE and its advisors are, of course, prepared to meet
with Transnational Re's committee and its advisors to answer any questions they
may have.
As we stated, we believe the transaction provides an attractive
opportunity for both companies. We hope that you give this proposal your prompt
attention.
Sincerely,
PXRE Corporation
GERALD L. RADKE
Gerald L. Radke
Chairman, President and
Chief Executive Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 229,873,763
<DEBT-CARRYING-VALUE> 229,515,378
<DEBT-MARKET-VALUE> 229,515,378
<EQUITIES> 5,633,584
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 273,792,587
<CASH> 3,823,030
<RECOVER-REINSURE> 30,820,137
<DEFERRED-ACQUISITION> 1,952,925
<TOTAL-ASSETS> 406,320,001
<POLICY-LOSSES> 64,911,136
<UNEARNED-PREMIUMS> 23,306,996
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 67,775,000
<COMMON> 90,151
0
0
<OTHER-SE> 215,209,912
<TOTAL-LIABILITY-AND-EQUITY> 406,320,001
19,420,401
<INVESTMENT-INCOME> 3,911,470
<INVESTMENT-GAINS> (74,937)
<OTHER-INCOME> 2,472,226
<BENEFITS> 4,939,674
<UNDERWRITING-AMORTIZATION> 3,555,589
<UNDERWRITING-OTHER> 3,184,722
<INCOME-PRETAX> 12,332,052
<INCOME-TAX> 4,316,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,309,240
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
<RESERVE-OPEN> 72,718,914
<PROVISION-CURRENT> 6,269,165
<PROVISION-PRIOR> 2,307,152
<PAYMENTS-CURRENT> 1,228,297
<PAYMENTS-PRIOR> 15,155,798
<RESERVE-CLOSE> 64,911,136
<CUMULATIVE-DEFICIENCY> (2,307,152)
</TABLE>
