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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 1995 Commission File Number 0-15428
PXRE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1183996
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
399 THORNALL STREET, 14TH FLOOR
EDISON, NJ 08837
TELEPHONE: (908) 906-8100
(Address including zip code, and telephone number, including area code
of registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, PAR
VALUE $0.01 PER SHARE
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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 20, 1996 computed by reference to the closing price of
the stock as of the close of business on March 20, 1996 was $200,576,075. As of
March 20, 1996, 8,751,616 shares of the registrant's common stock were issued
and outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
Part III Portions of PXRE Corporation's definitive Proxy
Statement for the Annual Meeting of Shareholders to be
held on June 6, 1996.
Part IV Portions of PXRE Corporation's Proxy Statement dated
May 3, 1995.
Part IV Portions of PXRE Corporation's Proxy Statement dated
April 22, 1994.
Part IV Portions of PXRE Corporation's Proxy Statement dated
April 12, 1991.
Part IV Portions of PXRE Corporation's Proxy Statement dated
April 13, 1990.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
PXRE Corporation ("PXRE"), through its wholly-owned subsidiary PXRE
Reinsurance Company ("PXRE Reinsurance"), provides treaty and facultative
reinsurance to primary insurers and reinsurers (also known as ceding companies)
on commercial and personal property risks, marine and aviation risks and certain
casualty risks. Ceding companies purchase reinsurance principally to reduce
their liability on individual risks, to protect themselves against catastrophic
losses and to enhance their ratio of total net liabilities to capital and
surplus. In consideration for providing reinsurance, PXRE receives a share of
the premiums written by the ceding company. In certain instances, PXRE in turn
purchases reinsurance protection from other reinsurers pursuant to retrocession
agreements and surrenders to such reinsurers a portion of the premiums it
receives from ceding companies. PXRE solicits its treaty and facultative
reinsurance business from the worldwide brokerage market.
PXRE also employs its property reinsurance underwriting expertise and
generates management fee income by managing business for other insurers and
reinsurers, either by retroceding some of its underwritten risks 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. See "Business--Management Agreement" and "--Retrocession Agreements".
PXRE was organized in July 1986 as a Delaware corporation by Phoenix
Home Life Mutual Insurance Company ("Phoenix Home Life") to succeed, through
PXRE Reinsurance, to the property and casualty reinsurance business carried on
since 1982 by Phoenix General Insurance Company, formerly a wholly-owned
subsidiary of Phoenix Home Life. As of March 20, 1996, Phoenix Home Life owned
approximately 7.3% of the outstanding Common Stock of PXRE.
There are two principal types of reinsurance: facultative reinsurance
and treaty reinsurance. In facultative reinsurance, the reinsurer separately
underwrites each individual risk. In treaty reinsurance, the reinsurer and the
ceding company negotiate a contractual arrangement which reinsures all or a
portion of a specified type or category of risk. In the underwriting of treaty
reinsurance, the reinsurer does not separately evaluate each individual
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risk assumed, as it must in the underwriting of facultative reinsurance, and in
general depends on the original underwriting decisions made by the ceding
company.
Treaty reinsurance can be written on either a pro rata or an excess of
loss basis. In pro rata reinsurance, the reinsurer agrees, in return for a
percentage of the premiums, to share in a proportional amount of the losses up
to the limit, if any, of the reinsurance agreement. Premiums that the ceding
company pays to the reinsurer are proportional to the premiums that the ceding
company receives, and the reinsurer generally pays the ceding company a ceding
commission to reimburse the ceding company for the expenses incurred in
obtaining the business. In excess of loss treaty reinsurance, the reinsurer
indemnifies the ceding company for a portion of the losses on underlying
policies which exceed a specified loss retention amount up to an amount
specified in the reinsurance agreement. Premiums paid by the ceding company for
excess of loss coverage may not be directly proportional to the premiums on the
underlying policies because the reinsurer does not assume a proportional share
of the underlying risk.
Excess of loss treaty reinsurance can, in turn, be written on a per
risk or catastrophe basis. Per risk excess of loss reinsurance protects the
ceding company against a loss resulting from a single risk or location.
Catastrophe excess of loss reinsurance protects a ceding company from an
accumulation of a large number of related losses resulting from a variety of
risks which may occur in a given catastrophe, and hence is a highly volatile
business.
CORPORATE STRATEGY
PXRE's strategy is to commit and withhold its underwriting capacity
and to alter its mix of business at any given point in time to focus on business
where management believes that above average underwriting results can be
achieved, and to supplement its underwriting capacity and generate management
fee income by managing business for other insurers and reinsurers.
PXRE has been pursuing a strategy of focusing on catastrophe related
coverages. Catastrophe related coverages include catastrophe coverage provided
to ceding insurance companies and retrocessional catastrophe coverage provided
to other reinsurers. 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 experienced by
the worldwide reinsurance industry since 1987, but which have
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moderated since the beginning of 1995. For 1995, catastrophe related coverages
represented approximately 68% of PXRE's gross premiums written, as compared to
69% and 66% in 1994 and 1993, respectively.
PXRE has also been diversifying its exposures and taking advantage of
business opportunities in international reinsurance markets. For 1995,
international reinsurance (principally the United Kingdom, Continental Europe,
Australia and Asia) represented approximately 71% of gross written premiums, up
from approximately 64% and 52% in 1994 and 1993, respectively. This business
includes both reinsurance contracts protecting risks underwritten by United
States ceding companies for the foreign operations of their United States
insureds and reinsurance in which the reinsured is foreign-based. See Note 12 of
Notes to Consolidated Financial Statements.
PXRE's catastrophe retrocessional facilities and associated net
exposures have fluctuated with PXRE's commitment and withholding of its
underwriting capacity.
BUSINESS WRITTEN
Substantially all of the reinsurance that PXRE currently writes is on
property risks, both commercial and personal. (Although PXRE has written some
casualty reinsurance in the past, it substantially reduced its writing of such
reinsurance in 1986 and currently confines its casualty reinsurance activities
to the marine and aviation business.) Catastrophe coverage by its nature
protects both commercial and personal property risks since such coverage
protects a ceding company from an accumulation of individual losses (commercial
and personal) arising from a catastrophic event. The majority of PXRE's pro rata
and risk excess business is written on commercial property risks.
Treaty reinsurance represents the major portion of PXRE's reinsurance
portfolio. PXRE typically participates in treaties with other reinsurers. PXRE
occasionally will underwrite 100% of a treaty, but it usually underwrites a
substantially smaller percentage. PXRE believes that underwriting treaty
reinsurance on this basis potentially involves less risk in the long term than
underwriting facultative reinsurance on the basis of an independent re-analysis
of underwritten risks, due to the fact that the risks which generally are
available for facultative reinsurance are usually more difficult to assess and
often protect against more hazardous exposures than those available for treaty
reinsurance. Emphasis on treaty reinsurance also
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allows PXRE to maintain a smaller staff than would be necessary to write the
same volume of facultative reinsurance.
PXRE's mix of business on a gross premiums written basis is set forth
in the following table for the periods indicated:
DISTRIBUTION OF GROSS PREMIUMS WRITTEN
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1995 1994 1993
--------------------- -------------------- -------------------
Type of Business Amount Percent Amount Percent Amount Percent
- ---------------- ------ ------- ------ ------- ------ -------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C>
Reinsurance:
Treaty:
Catastrophe Related $105,985 68.2% $122,990 68.5% $ 77,163 66.0%
Pro Rata 3,427 2.2 6,132 3.4 14,957 12.8
Marine & Aviation 26,155 16.8 31,176 17.3 12,656 10.8
Risk Excess 10,894 7.0 11,163 6.2 7,400 6.3
Facultative 8,919 5.8 8,225 4.6 4,695 4.0
Primary Insurance -- -- (2) -- 104 0.1
-------- ----- -------- ----- -------- -----
Total $155,380 100.0% $179,684 100.0% $116,975 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
Catastrophe related coverages experienced substantial improvements in
pricing and other terms following the high levels of catastrophic loss activity
experienced by the international and domestic reinsurance markets since 1987.
These improvements in the pricing of catastrophe related coverages have
moderated since the beginning of 1995. In response, PXRE maintained the amount
of its catastrophe related reinsurance at approximately 68% of gross premiums
written for 1995 compared with approximately 69% and 66% in 1994 and 1993,
respectively.
In late 1992, management decided to deemphasize pro rata and risk
excess business because competition among reinsurers for such business and the
levels of premium rates charged by primary insurers for property insurance had
adversely impacted the profitability of such business. In addition, pro rata and
risk excess business incurred substantial losses from Hurricane Andrew in 1992
reflecting the vulnerability of these lines of business to a major catastrophic
event.
PXRE has, in recent years, increased its writing of marine and
aviation business. This business represented
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approximately 17% of PXRE's gross premiums written in 1995 and 1994, up from
approximately 11% in 1993.
Facultative reinsurance represented approximately 6% of PXRE's
gross premiums written for 1995, up from 5% and 4% in 1994 and 1993,
respectively.
RETROCESSION AGREEMENTS
The following table sets forth certain information regarding the
volume of premiums PXRE has ceded to other reinsurers pursuant to retrocession
agreements for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1995 1994 1993
---------- ---------- ---------
(in thousands)
<S> <C> <C> <C>
Gross premiums written $155,380 $179,684 $116,975
Reinsurance premiums ceded:
Managed business participants 26,774 29,842 23,387
Catastrophe coverage 6,359 12,183 14,918
TREX management agreement(1) 24,790 28,722 270
Other (179) 419 894
-------- -------- --------
Total reinsurance premiums ceded 57,744 71,166 39,469
-------- -------- --------
Net premiums written $ 97,636 $108,518 $ 77,506
======== ======== ========
</TABLE>
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(1) Consists of premiums written by PXRE and retroceded to Transnational
Reinsurance Company as required by the management agreement to which such
companies are parties. See "Business--Management Agreement".
PXRE has been able to increase its underwriting commitments and to
generate management fee income by retroceding some of its underwritten risks to
other reinsurers through various retrocessional arrangements whereby it manages
business for such participants. In 1995, PXRE was a party to two such
arrangements. The first such arrangement, which is subject to renewal each
January 1 and which has been renewed effective January 1, 1996, is referred to
as the AMA. The AMA is a pool currently consisting of the following three
reinsurance or insurance companies (the "Pool"), for which PXRE acts as
reinsurance manager: Merrimack Mutual Fire Insurance Company, Pennsylvania
Lumbermens Mutual Insurance Company and NRMA Insurance Limited. It is PXRE's
policy that in order to join the Pool, companies must have a rating by A.M. Best
Company, Inc. ("A.M. Best") of "A-" or better, other than foreign companies,
most of which (including the foreign participant in the AMA) are not rated by
A.M. Best, an independent insurance industry rating organization which rates
insurance companies upon factors of concern to policyholders. Under the terms of
the agreements governing the Pool, if a participating company's rating falls
below "A-", it generally will be required to withdraw from the Pool in the
following
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year. Pursuant to the AMA arrangement, PXRE cedes 6% of its underwritten risks
to the AMA, subject to a maximum liability per reinsurance program of
approximately $600,000. PXRE receives, as reinsurance manager, a commission of
5% of premiums ceded as well as a contingent profit commission equal to a
percentage of any ultimate underwriting profits in connection with the
reinsurance ceded. The contingent profit commission is paid over a three year
period and is subject to adjustment based on cumulative experience.
The second such retrocessional arrangement, which became effective on
April 1, 1993, but for certain reinsurance ceded thereunder was retroactive to
January 1, 1993, is with Trenwick America Reinsurance Corporation ("Trenwick
Group"). This arrangement was renewed effective January 1, 1996. Pursuant to
this arrangement, PXRE has undertaken to increase its commitments on its treaty
reinsurance business and, in turn, Trenwick Group has undertaken to assume a 15%
quota share of PXRE's new and renewal treaty business, subject to a maximum
liability per reinsurance program of approximately $1,500,000. PXRE receives, as
reinsurance manager, a management fee of 5% of premiums ceded as well as a
contingent profit commission equal to a percentage of any ultimate underwriting
profits in connection with the reinsurance ceded. The contingent profit
commission is paid over a three-year period and is subject to adjustment based
on cumulative experience. Trenwick Group is currently rated "A+ (Superior)" by
A.M. Best.
The following table sets forth PXRE's earned commissions from
retrocessionaires pursuant to its two managed business arrangements (not
including Transnational) for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1995 1994 1993
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Commission $1,376 $1,532 $1,169
Contingent profit commission(1) 1,515 2,096 1,936
------ ------ ------
Total $2,891 $3,628 $3,105
====== ====== ======
</TABLE>
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(1) Contingent profit commission is paid over a three year period and is subject
to adjustment based on cumulative experience.
Effective January 1, 1996, PXRE has entered into a retrocessional
arrangement with Investors Reinsurance Ltd., a Barbados insurer ("Investors
Re"), pursuant to which PXRE has agreed to offer to cede to Investors Re in each
of the years 1996 through 2000 a quota share of PXRE's business. The quota share
to be ceded to Investors Re in each such year will vary
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based upon, among other things, the volume of business written by PXRE, subject
to a minimum annual cession ($3 million in 1996). Pursuant to this arrangement,
PXRE receives an override commission of 4.2% of premiums ceded as well as a
profit commission equal to a percentage of the net profits in respect of the
reinsurance ceded. Because Investors Re is not licensed in any jurisdiction in
the United States, the retrocessional arrangement provides that a trust fund
must be maintained and/or letters of credit established by Investors Re for the
benefit of PXRE to secure Investors Re's obligations.
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, recently the cost of catastrophe retrocessional
facilities has declined, and PXRE has begun again selectively to purchase such
coverages.
PXRE has a committee consisting of its chief executive officer and
senior underwriting executives responsible for the selection of reinsurers as
managed business participants or as participating reinsurers in the catastrophe
coverage protecting PXRE. Proposed reinsurers are evaluated at least annually
based on consideration of a number of factors including the management,
financial statements and the historical experience of the reinsurer. This
procedure is followed whether or not a rating has been assigned to a proposed
reinsurer by any rating organization. All reinsurers, whether obtained through
direct contact or the use of reinsurance intermediaries, are subject to approval
by PXRE.
At December 31, 1995, estimated losses recoverable (including incurred
but not reported losses) from retrocessionaires (including Transnational
Reinsurance Company) were $34,097,000 including $5,855,000 of paid loss
recoverables. Since its inception, PXRE Reinsurance has had minimal amounts of
uncollectible reinsurance. It may not be appropriate to extrapolate future
experience from such historical experience. In the event that retrocessionaires
are unable to meet their contractual obligations, PXRE Reinsurance would be
liable for such defaulted amounts.
MANAGEMENT AGREEMENT
Since November 8, 1993, PXRE Reinsurance has been party to a
management agreement (the "Management Agreement")
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with Transnational Re Corporation ("TREX") and TREX's wholly-owned subsidiary,
Transnational Reinsurance Company ("Transnational"). See "Business--Other
Operations".
Under the Management Agreement, PXRE Reinsurance has responsibility
for the day-to-day operations of TREX and 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 Reinsurance 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
PXRE Reinsurance's "new business" (defined to mean reinsurance business from
insurers and reinsurers which have not ceded reinsurance to PXRE Reinsurance
during the twelve months preceding the date of the Management Agreement and,
therefore, are not deemed current clients of PXRE Reinsurance) and "additional
business" (defined to mean reinsurance for current clients of PXRE Reinsurance
which does not replace existing coverage) classified as property retrocessional
reinsurance business, marine and aviation retrocessional reinsurance or marine
and aviation reinsurance and facultative excess of loss reinsurance.
Transnational is entitled to share similarly in other property reinsurance
business, if any, which PXRE Reinsurance may, from time to time, propose that
Transnational underwrite and which Transnational's Board of Directors may
approve.
PXRE Reinsurance, with respect to the foregoing business, is required
to endeavor to write for Transnational a line generally at least equal to PXRE
Reinsurance's retained line (i.e., gross line net after pro rata cessions to
third party companies under existing or substantially equivalent managed
business retrocessional agreements), provided that the maximum amount written
for Transnational may not exceed three times the amount retained by PXRE
Reinsurance (i.e., 75% Transnational; 25% PXRE Reinsurance). In the event it is
not practical or feasible to write reinsurance direct for Transnational, PXRE
Reinsurance is required to use its best efforts to retrocede such amount of the
line written by it so as to achieve the foregoing proportionate sharing formula,
subject to the establishment of appropriate security in respect of
Transnational's obligations thereunder. As a result, in 1995 PXRE wrote gross
premiums written of $24,790,000 which were retroceded to Transnational.
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With respect to the renewal of policies written under the Management
Agreement, Transnational is entitled to at least the same proportion of the
combined lines of Transnational and PXRE Reinsurance as it had originally,
subject to the foregoing limits.
Although Transnational is not entitled to share in any business
written by PXRE Reinsurance for current clients (as described above) or any
renewals thereof, PXRE Reinsurance has agreed to endeavor to increase the amount
of reinsurance written by it with respect to such current clients, which
increase is considered "additional business" for the purposes of the Management
Agreement, and is generally allocated first to Transnational to the extent
required to obtain for Transnational a line at least equal to PXRE Reinsurance's
net line.
Transnational pays PXRE Reinsurance 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 Reinsurance 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 Reinsurance'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 is scheduled to renew automatically for successive three year terms unless
either PXRE Reinsurance 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. The Management Agreement may
also be terminated upon events constituting a "change of control" (as defined in
the Management Agreement) of TREX, Transnational or PXRE, material breaches of
the Management Agreement by any party or if any party is subject to insolvency
or similar proceedings. If the Management Agreement is terminated for any
reason, PXRE Reinsurance is required, except in specified circumstances, to
continue to provide reinsurance underwriting and/or the other services and
facilities contemplated by the Management Agreement, if
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requested by TREX and Transnational, for up to twelve months, to enable TREX and
Transnational to locate facilities, equipment, personnel and management to
continue their operations.
Pursuant to the Management Agreement, PXRE Reinsurance's liability to
TREX and Transnational in respect thereof is limited to PXRE Reinsurance's
willful misconduct or gross negligence, and TREX and Transnational have
undertaken to hold PXRE Reinsurance and certain other specified persons and
entities (collectively, "PXRE Indemnitees") harmless from any loss, claim,
damage, liability or expense (collectively, "losses") resulting to such PXRE
Indemnitees, based upon or related to the conduct by PXRE Reinsurance of TREX's
and Transnational's business, except for losses caused by PXRE Reinsurance's
willful misconduct or gross negligence in respect of which PXRE Reinsurance has
agreed to indemnify TREX and Transnational. The Management Agreement provides
that in no event, however, will PXRE Reinsurance be responsible for losses in
respect of retrocessional and other reinsurance written by Transnational after
the Offering. Nonetheless, business which is written on Transnational's behalf
by PXRE Reinsurance and ceded to Transnational remains the primary liability of
PXRE Reinsurance in the event that Transnational is unable to meet its
contractual responsibilities.
The following table sets forth PXRE's earned management fees from
Transnational (basic management fee) and TREX (contingent management fee)
pursuant to the Management Agreement for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Basic management fee(1) $3,526 $3,364 $53
Contingent profit commission(2) 0 0 0
------ ------ ---
Total $3,526 $3,364 $53
====== ====== ===
</TABLE>
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(1) The Management Agreement became effective on November 8, 1993.
(2) The first management year for which a contingent management fee could become
due was 1994.
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LOSS LIABILITIES AND CLAIMS
PXRE establishes losses and loss expense liabilities (to cover
expenses related to settling claims, including legal and other fees) to provide
for the ultimate cost of settlement and administration of claims for losses,
including claims that have been reported to it by its reinsureds and claims for
losses that have occurred but have not yet been reported to PXRE. Under United
States generally accepted accounting principles ("GAAP"), PXRE is not permitted
to establish loss reserves until an event which may give rise to a claim occurs.
For reported losses, PXRE first establishes liabilities when it
receives notice of the claim. It is PXRE's general policy to establish
liabilities for reported losses in an amount equal to the liability set by the
reinsured. In certain instances, PXRE will conduct an investigation to determine
if the amount established by the reinsured is appropriate or if it should be
adjusted.
For incurred but not reported losses, a variety of methods have been
developed in the insurance industry for use in determining such liabilities. In
general, these methods involve the extrapolation of reported loss data to
estimate ultimate losses. PXRE's loss calculation methods generally rely upon a
projection of ultimate losses based upon the historical patterns of reported
loss development. Additionally, PXRE makes provision through its liabilities for
incurred but not reported losses for any identified deficiencies in the
liabilities for reported losses set by its reinsureds.
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The following table provides a reconciliation of beginning and ending
loss and loss expense liabilities under GAAP for the fiscal years ended December
31, 1995, 1994 and 1993. PXRE does not discount such liabilities; that is, it
does not calculate them on a present value basis.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross GAAP liability for losses and
loss expenses at beginning of year.............. $81,836 $71,739 $88,668
Less: Gross reserves of subsidiary
at date subsidiary was sold..................... -- 297 --
Add: Gross provision for losses and loss
expenses--
Occurring in current year....................... 43,388 85,805 43,687
Occurring in prior years........................ 5,982 6,746 12,755
------- ------- -------
Total gross provision(1)...................... 49,370 92,551 56,442
------- ------- -------
Less: Gross payments for losses and loss
expenses--
Occurring in current year....................... 16,886 44,337 13,598
Occurring in prior years........................ 41,601 37,820 59,773
------- ------- -------
Total gross payments.......................... 58,487 82,157 73,371
------- ------- -------
Gross GAAP liability for losses
and loss expenses at end of year................ $72,719 $81,836 $71,739
------- ------- -------
Less: Gross reserves of subsidiary
at date subsidiary was sold..................... -- -- 297
Ceded GAAP liability for losses
and loss expenses at end of year(2)............. (28,295) (35,788) (27,981)
-------- -------- --------
Net GAAP liability for losses
and loss expenses at end of year................ $44,424 $46,048 $43,461
======= ======= =======
Foreign currency adjustment....................... (86) (124) 214
======== ======== =======
Gross SAP liability for losses and
loss expenses at end of year.................... $72,633 $81,712 $71,656
======= ======= =======
</TABLE>
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(1) The GAAP provision for losses and loss expenses includes net foreign
currency exchange gains (losses) of $39,000, ($338,000) and ($205,000) for
1995, 1994 and 1993, respectively.
(2) Effective January 1, 1993, PXRE adopted the Financial Accounting Standards
Board's ("FASB") SFAS No. 113.
The following table presents the development of PXRE's GAAP balance
sheet liability for losses and loss expenses for the period 1985 through 1995
for PXRE and its predecessor. The top line of the table shows the liabilities at
the balance sheet date for each of the indicated years. This reflects the
estimated amounts of losses and loss expenses for claims arising in that year
and all prior years that are unpaid at the balance sheet date, including losses
incurred but not yet reported to PXRE. The upper portion of the table shows the
cumulative amounts subsequently paid as of successive years with respect to the
liability. The lower portion of the table shows the reestimated amount of
previously recorded liability based on experience as of the end of each
succeeding year. The estimates change as more information becomes known about
the frequency and severity of claims for individual years. A redundancy
(deficiency) exists
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when the reestimated liability at each December 31 is less (greater) than the
prior liability estimate. The "cumulative redundancy (deficiency)" depicted in
the table, for any particular calendar year, represents the aggregate change in
the initial estimates over all subsequent calendar years.
Each amount in the table below includes the effects of all changes in
amounts for prior periods. For example, if a loss determined in 1988 to be
$150,000 was first reserved in 1985 at $100,000, the $50,000 deficiency (actual
loss minus original estimate) would be included in the cumulative redundancy
(deficiency) in each of the years 1985-1987 shown below. This table does not
present accident or policy year development data.
Loss and loss expense liabilities for December 31, 1995, 1994, 1993,
1992 and 1991 are presented on a gross basis (excluding the effects of losses
recoverable from retrocessionaires). Loss and loss expense liabilities for
December 31, 1990 and prior periods are stated on a net basis (after deduction
for losses recoverable from retrocessionaires) because gross incurred but not
reported liability data were not developed by PXRE at any date prior to December
31, 1991 as it was not required for statutory reporting purposes. Furthermore,
it is not practicable for PXRE currently to reconstruct this information.
- 14 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ -----
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities for losses and
loss expenses........... $72,719 $81,836 $71,442 $88,668 $62,664 $31,632 $37,963 $34,627 $30,301 $23,671 $18,320
Cumulative amount of
liability paid through:
One year later.......... 41,601 37,820 59,773 35,575 15,688 18,421 16,183 11,416 9,597 9,614
Two years later......... 54,400 79,926 48,393 25,466 28,178 21,597 19,107 12,212 14,178
Three years later....... 89,519 52,301 29,066 31,852 23,779 20,673 16,564 15,627
Four years later........ 55,022 30,117 33,980 24,689 21,280 17,175 19,424
Five years later........ 31,528 34,434 25,980 21,783 17,574 19,969
Six years later......... 35,408 26,085 22,632 17,821 20,294
Seven years later....... 26,531 22,724 18,584 20,473
Eight years later....... 22,955 18,745 21,197
Nine years later........ 19,139 21,323
Ten years later......... 21,697
Liabilities reestimated as of:
One year later.......... 87,818 78,188 101,423 67,165 33,874 37,211 31,863 28,663 20,688 21,662
Two years later......... 76,902 103,632 62,262 33,726 37,800 29,506 26,765 19,549 21,536
Three years later....... 105,165 62,827 33,488 36,588 27,944 25,354 19,185 21,290
Four years later........ 63,032 33,682 36,881 27,480 23,829 19,370 20,977
Five years later........ 34,310 37,023 27,751 23,604 19,000 21,746
Six years later......... 37,667 27,878 23,874 18,838 21,413
Seven years later....... 28,063 23,898 19,207 21,284
Eight years later....... 24,018 19,448 21,612
Nine years later........ 19,603 21,899
Ten years later......... 22,071
Gross cumulative redundancy
(deficiency) through
December 31, 1995:
Amount.................. (5,982) (5,460) (16,497) (368) NA NA NA NA NA NA
Percentage.............. (7%) (8%) (19%) (1%) NA NA NA NA NA NA
Retrocessional recoveries. 1,671 1,919 3,341 (1,813) NA NA NA NA NA NA
Net cumulative redundancy
(deficiency) through
December 31, 1995:
------ ------ ------- ------ ------ ------- ------ ------ ------ ------
Amount.................. (4,311) (3,541) (13,156) (2,181) (2,678) 296 6,564 6,283 4,068 (3,751)
Percentage.............. (9%) (8%) (37%) (6%) (8%) 1% 19% 21% 17% (20%)
</TABLE>
- 15 -
<PAGE>
<PAGE>
During 1995, PXRE incurred development from prior year losses
amounting to $4,311,000 primarily as a result of Northridge earthquake activity.
During 1994, PXRE incurred development from prior year losses amounting to
$3,261,000 primarily as a result of marine pro rata losses and 1993 Midwest
flood activity. During 1993, PXRE's management strengthened the liability for
incurred but not reported losses occurring in prior years by $10,499,000, of
which approximately $5,394,000 was the result of additional information received
with respect to Hurricanes Andrew and Iniki and approximately $3,330,000 was the
result of losses under a number of pro rata reinsurance treaties. During 1992,
PXRE's management strengthened the liability for incurred but not reported
losses occurring in prior years by $2,355,000 of which $2,036,000 was the result
of additional information received with respect to losses under a number of pro
rata reinsurance treaties. In 1991, PXRE's management strengthened the liability
for losses and loss expenses occurring in prior years by $2,242,000, of which
$1,196,000 was due to unfavorable development experienced on PXRE's marine and
aviation reinsurance business. PXRE commenced writing marine and aviation
reinsurance in 1988 and estimated the amounts of losses and loss expenses for
claims on such business during 1988 and subsequent periods based on cumulative
experience as of such time. As more information became available, prior
estimates were revised. Approximately $740,000 of the balance of the liability
strengthening in 1991 was attributable to changes in 1991 in the loss amounts
applicable to catastrophes which occurred in 1989 and 1990, years impacted by
high levels of catastrophe loss activity. Management of PXRE believes that the
strengthening of reserves in fiscal years 1995, 1994, 1993, 1992 and 1991 is
attributable to the factors described above and not to any material changes in
reserving methods or assumptions. Management of PXRE further believes that the
volatility in cumulative reserve redundancies (deficiencies) through 1988
demonstrated by the above table was attributable principally to the following:
the lack of sufficient company-specific historical data in the early years of
PXRE's operations (i.e., through 1985), significant changes in primary insurance
rates commencing in 1985, and a favorable change in loss activity during the
period 1986 through 1988.
PXRE's management believes that its overall liability for losses and
loss expenses at December 31, 1995, is adequate. In contrast to casualty losses,
which frequently are slow to be reported and may be determined only through the
lengthy, unpredictable process of litigation, property losses tend to be
reported more promptly and usually are settled within a shorter time period.
However, the estimation of losses for catastrophe reinsurers is inherently less
reliable
-16-
<PAGE>
<PAGE>
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 inherent uncertainty in the reserving process, as well as
PXRE's writings of a small amount of casualty reinsurance, there is a risk that
PXRE's liability for losses and loss expenses could prove to be inadequate in
any year, with a consequent adverse impact on future earnings and stockholders'
equity. Moreover, such risk could be exacerbated to the extent management of
PXRE forgoes catastrophe retrocessional coverage. Also, conditions and trends
that have affected reserve development in the past may not necessarily occur
in the future. Accordingly, it would not be appropriate to extrapolate future
redundancies or deficiencies based on the foregoing.
INVESTMENTS
PXRE's management has established general procedures and guidelines
for its investment portfolio and oversees investment management carried out by
Phoenix Duff & Phelps Corporation ("Phoenix Duff & Phelps"), a public
majority-owned subsidiary of Phoenix Home Life. 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 December 31, 1995,
PXRE's investment portfolio consisted primarily of fixed maturities and
short-term investments. In 1994, PXRE's Board of Directors approved a resolution
allowing PXRE to invest up to 15% of its consolidated net worth in equities.
During 1995, PXRE invested $5,000,000 in equity securities. The investment
policies and all investments of PXRE Reinsurance are approved by its Board of
Directors.
The following table summarizes the investments of PXRE (at amortized
cost) at December 31, 1995 and 1994:
- 17 -
<PAGE>
<PAGE>
ANALYSIS OF INVESTMENTS
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------------- ----------------------
Amount Percent Amount Percent
-------- ------- -------- -------
(in thousands, except percentages)
<S> <C> <C> <C> <C>
Fixed maturities:
United States government securities $165,406 62.9% $ 70,849 29.6%
United States government agency
mortgage-backed
securities/asset-backed
securities 50,942 19.3 41,494 17.4
Obligations of states and
political subdivisions -- -- 100,122 41.8
-------- ----- -------- -----
Total fixed maturities 216,348 82.2 212,465 88.8
Equity securities 5,000 1.9 -- --
Short-term investments 41,722 15.9 26,813 11.2
-------- ----- -------- -----
Total investments $263,070 100.0% $239,278 100.0%
======== ===== ======== =====
</TABLE>
In 1995, PXRE sold its holdings of municipal bonds and reinvested the
proceeds principally in Treasury securities.
The following table indicates the composition of PXRE's fixed maturity
investments (at amortized cost), including short-term investments, by time to
maturity at December 31, 1995 and 1994:
COMPOSITION OF INVESTMENTS BY MATURITY
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------------- -----------------------
Amount Percent Amount Percent
------ ------- ------ -------
(in thousands, except percentages)
<S> <C> <C> <C> <C>
Maturity(1)
One year or less $50,694 19.7% $52,190 21.8%
Over 1 year through 5 years 89,860 34.8 84,367 35.3
Over 5 years through 10 years 66,574 25.8 47,360 19.8
Over 10 years through 20 years -- -- 5,747 2.4
Over 20 years -- -- 8,120 3.4
-------- ------ ------- ------
207,128 80.3 197,784 82.7
United States government agency
mortgage-backed securities/
asset-backed securities 50,942 19.7 41,494 17.3
-------- ------ -------- ------
Total $258,070 100.0% $239,278 100.0%
======== ====== ======== ======
</TABLE>
- ----------
(1) Based on stated maturity dates with no prepayment assumptions.
- 18 -
<PAGE>
<PAGE>
The average market yield to maturity of PXRE's fixed maturities
portfolio at December 31, 1995 and December 31, 1994 was 5.3% and 5.8%,
respectively. At December 31, 1995, the fair value of PXRE's fixed maturities
portfolio exceeded its amortized cost by $5,009,000. At December 31, 1994, the
amortized cost of PXRE's fixed maturities portfolio exceeded its fair value by
$7,878,000.
The following table indicates the composition of PXRE's fixed
maturities portfolio (at amortized cost), excluding short-term investments, by
rating at December 31, 1995 and 1994:
COMPOSITION OF FIXED MATURITIES PORTFOLIO BY RATING
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
----------------------- ----------------------
Amount Percent Amount Percent
------ ------- ------ -------
(in thousands, except percentages)
<S> <C> <C> <C> <C>
Ratings(1)
United States government securities $165,406 76.5% $ 70,849 33.3%
United States government agency
mortgage-backed securities/
asset-backed securities 50,942 23.5 41,494 19.5
Aaa and/or AAA -- -- 48,937 23.0
Aa and/or AA -- -- 43,916 20.7
A1 and/or A -- -- 6,280 3.0
Baa and/or BBB -- -- 989 0.5
-------- ------ -------- ------
Total $216,348 100.0% $212,465 100.0%
======== ====== ======== ======
</TABLE>
- ----------------
(1) Ratings as assigned by Moody's Investors Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P"), respectively. Such ratings are
generally assigned upon the issuance of the securities, subject to revision
on the basis of ongoing evaluations.
MARKETING
In the United States, PXRE currently reinsures both national and
regional insurance and reinsurance companies headquartered mainly in the
Northeast and Midwest. PXRE also provides reinsurance for international
insurance and reinsurance companies principally headquartered in the United
Kingdom, Continental Europe, Australia, and Asia.
PXRE obtains most of its facultative business and substantially all of
its treaty business through reinsurance intermediaries who represent reinsureds
in negotiations for the purchase of reinsurance. None of the reinsurance
intermediaries through which PXRE obtains business are authorized to arrange any
business in the name of PXRE without
- 19 -
<PAGE>
<PAGE>
PXRE's approval. PXRE pays such intermediaries or brokers commissions based on
the amount of premiums and type of business ceded. These payments constitute
part of PXRE's total acquisition costs and are included in its underwriting
expenses. PXRE generally pays a reinsurance brokerage fee of 10% on excess of
loss business and between 1% and 2% on pro rata business, which rates are
believed to be comparable to industry norms.
Approximately 21.5% of gross premiums written in fiscal year 1995 were
arranged through the worldwide branch offices of Guy Carpenter & Company, Inc.,
a subsidiary of Marsh & McLennan Companies, Inc. Approximately 12% of gross
premiums written in fiscal year 1995 were arranged through Alexander Howden
Reinsurance Brokers Ltd. The commissions paid by PXRE to these intermediaries
are generally at the same rates as those paid to other intermediaries.
COMPETITION
The reinsurance industry is highly 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. These
competitors, many of which have substantially greater financial, marketing, and
management resources than PXRE, include independent reinsurance companies,
subsidiaries, or affiliates of established worldwide insurance companies,
reinsurance departments of certain commercial insurance companies, and
underwriting syndicates. PXRE also may face competition from new market entrants
or from market participants that determine to devote greater amounts of capital
to the types of business written by PXRE.
Although PXRE obtains most of its facultative business and
substantially all of its treaty business through reinsurance intermediaries or
brokers, it competes indirectly with reinsurers who obtain business directly
from primary insurers because PXRE's brokers must compete with direct reinsurers
for business to be forwarded to PXRE. PXRE therefore competes both with
reinsurers that obtain business directly from reinsureds and with reinsurers
that obtain their business through intermediaries and brokers.
- 20 -
<PAGE>
<PAGE>
Competition in the types of reinsurance business which PXRE
underwrites is based on many factors, including the perceived overall financial
strength of the reinsurers, premiums charged, other terms and conditions, A.M.
Best rating, service offered, speed of service (including claims payment), and
perceived technical ability and experience of staff. The number of jurisdictions
in which a reinsurer is licensed or authorized to do business is also a factor.
PXRE Reinsurance is licensed, accredited, or otherwise authorized or permitted
to conduct reinsurance business in all states (except Arkansas, Hawaii, Kansas,
Oklahoma, Vermont, and Washington) and the District of Columbia and Puerto Rico.
In the second quarter of 1995, A.M. Best affirmed PXRE Reinsurance's
rating of "A (Excellent)". Management believes that this rating enhances the
competitive position of PXRE Reinsurance. A.M. Best is an independent insurance
rating organization whose ratings are based on an analysis of the financial
condition and operating performance of an insurance or reinsurance company as
they relate to the industry in general. These ratings represent an independent
opinion of a company's financial strength and ability to meet its obligations to
policyholders, although such ratings may not reflect the considerations
applicable to an investment in an insurance or reinsurance company. A.M. Best
reviews its ratings at least annually and there can be no assurance that this
rating will be maintained in the future.
OTHER OPERATIONS
In 1993, PXRE's management began exploring alternative business
strategies to capitalize on perceived opportunities in the property
retrocessional reinsurance markets, including the possibility of creating a
property retrocessional reinsurance specialist company. Management believed that
the additional capital needed for this purpose could be obtained by PXRE
Reinsurance's subsidiary, Transnational, from third party investors. In this
regard, PXRE incorporated TREX as a wholly-owned subsidiary in August 1993 and
in November 1993, in connection with an initial public offering effected that
month by TREX, caused PXRE Reinsurance to contribute all of the outstanding
capital stock of Transnational to TREX. Upon completion of the TREX initial
public offering, PXRE Reinsurance owned shares constituting approximately 21% of
TREX's total issued and outstanding common stock and entitling PXRE Reinsurance
to designate two of TREX's five directors. In addition, in connection with the
TREX initial public offering, PXRE Reinsurance became party to the Management
Agreement, whereby PXRE Reinsurance undertook, for a fee, to manage the
businesses of TREX and Transnational, including the
- 21 -
<PAGE>
<PAGE>
reinsurance operations of Transnational. See "Business-- Management Agreement".
Pursuant to the Management Agreement, Transnational now specializes principally
in providing brokered property retrocessional reinsurance and marine and
aviation retrocessional reinsurance in the United States and international
markets. Prior to November 1993, Transnational, which was organized by PXRE in
1989 as a primary insurance unit, specialized in insuring property risks in the
excess and surplus lines market but wrote only a nominal amount of business due
to management's unfavorable evaluation of conditions in the excess and surplus
lines market.
In March 1995, PXRE and TREX entered into a joint venture arrangement
to trade in catastrophe futures and option contracts on the Chicago Board of
Trade (the "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 December 31, 1995.
In 1995, PXRE established a wholly-owned London based subsidiary, PXRE
Ltd., and is currently exploring ways to participate in the London marketplace.
REGULATION
PXRE and PXRE Reinsurance are subject to regulation under the
insurance statutes of various states, including Connecticut, the domiciliary
state of PXRE Reinsurance. The regulation and supervision to which PXRE
Reinsurance is subject relate primarily to the standards of solvency that must
be met and maintained, licensing requirements for reinsurers, the nature of and
limitations on investments, restrictions on the size of risks which may be
insured, deposits of securities for the benefit of a reinsured, methods of
accounting, periodic examinations of the financial condition and affairs of
reinsurers, the form and content of reports of financial condition required to
be filed, and reserves for losses, and other purposes. In general, such
regulation is for the protection of the reinsureds and, ultimately, their
policyholders, rather than investors.
In addition, PXRE and PXRE Reinsurance are subject to regulation by
state insurance authorities under the insurance statutes and insurance holding
company statutes of various states, including Connecticut. These laws and
regulations vary from state to state, but generally require an insurance holding
company and insurers and reinsurers that are subsidiaries of an insurance
holding company to register with
- 22 -
<PAGE>
<PAGE>
the state regulatory authorities and to file with those authorities certain
reports including information concerning their capital structure, ownership,
financial condition, and general business operations. Moreover, PXRE Reinsurance
may not enter into certain transactions, including certain reinsurance
agreements, management agreements, and service contracts, with members of its
insurance holding company system, unless PXRE Reinsurance has first notified the
Connecticut Insurance Commissioner of its intention to enter into any such
transaction and the Connecticut Insurance Commissioner has not disapproved of
such transaction within the period specified by the Connecticut insurance
statute. Among other things, such transactions are subject to the requirements
that their terms be fair and reasonable, charges or fees for services performed
be reasonable and the interests of policyholders not be adversely affected.
State laws also require prior notice or regulatory agency approval of
direct or indirect changes in control of an insurer, reinsurer, or its holding
company, and of certain significant intercorporate transfers of assets within
the holding company structure. An investor who acquires shares representing or
convertible into more than 10% of the voting power of the securities of PXRE
would become subject to at least some of such regulations, would be subject to
approval by the Connecticut Insurance Commissioner prior to acquiring such
shares, and would be required to file certain notices and reports with the
Commissioner prior to such acquisition.
The principal sources of cash for the payment of operating expenses,
debt service obligations, and dividends by PXRE are the receipt of dividends and
net tax allocation payments from PXRE Reinsurance. Under the Connecticut
insurance laws, 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 ended December 31 of the
preceding year, all determined in accordance with statutory accounting
principles ("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 approximately $81,382,000, as defined, and policyholder
surplus of $250,231,000 and its net income for
- 23 -
<PAGE>
<PAGE>
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 1995, $6,000,000 in dividends was approved and
paid by PXRE Reinsurance to PXRE. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
Additionally, Connecticut adopted, effective September 28, 1994,
regulations respecting certain minimum capital requirements, for property and
casualty companies, based upon a model adopted by the National Association of
Insurance Commissioners (the "NAIC"). The risk-based capital regulations provide
for the use of a formula to measure statutory capital and surplus needs based on
the risk characteristics of a company's products and investment portfolio to
identify weakly capitalized companies. As at December 31, 1995, PXRE
Reinsurance's surplus substantially exceeded its calculated risk-based capital.
In addition, from time to time various regulatory and legislative
changes have been proposed in the insurance industry, some of which could have
an effect on reinsurers. Among the proposals that have in the past been or are
at present being considered are the possible introduction of federal regulation
in addition to, or in lieu of, the current system of state regulation of
insurers, the initiative to create a federally guaranteed disaster reinsurance
pool prefunded by insurers, and proposals in various state legislatures (some of
which proposals have been enacted) to conform portions of their insurance laws
and regulations to various model acts adopted by the NAIC. The NAIC is an
organization which assists state insurance supervisory officials in achieving
insurance regulatory objectives, including the maintenance and improvement of
state regulation. PXRE is unable to predict what effect, if any, the foregoing
developments may have on its operations and financial condition in the future.
The NAIC's Insurance Regulatory Information System ("IRIS") was
developed by a committee of state insurance regulators and is primarily intended
to assist state insurance departments in executing their statutory mandates to
oversee the financial condition of insurance companies operating in their
respective states. IRIS identifies eleven industry ratios and specifies "usual
values" for each ratio. Departure from the usual values on four or more of the
ratios can lead to inquiries from individual state insurance commissioners as to
certain aspects of an insurer's business. For the years ended December 31, 1995,
1994 and 1993, PXRE Reinsurance's results were within the usual values for each
of the
- 24 -
<PAGE>
<PAGE>
11 ratios, except for one ratio in 1994 and three ratios in 1993. PXRE's
management believes these ratios fell outside the usual range due largely to
PXRE Reinsurance's expansion of net premiums written resulting from rate
increases on new and renewal catastrophe related business and financing
transactions which generated capital to support these writings.
EMPLOYEES
PXRE employs 49 full-time employees. None of PXRE's employees is
represented by a labor union, and management considers its relationship with its
employees to be excellent.
ITEM 2. PROPERTIES
PXRE leases a total of approximately 25,500 square feet of office
space in Edison, New Jersey and Brussels, Belgium. The Edison, New Jersey lease,
which covers approximately 24,000 square feet of office space, was signed in
1994 and is for a term of 15 years at a fixed annual rent of approximately
$370,000 (inclusive of basic electricity) and additional rents on account of
PXRE's proportionate share of increases in building operating expenses and
property taxes over calendar year 1994. PXRE's lease of 21,000 square feet of
office space in New York, New York expires in July 1996. PXRE plans to utilize
this space until such expiration date.
ITEM 3. PENDING LEGAL PROCEEDINGS
PXRE is not a party to any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of PXRE's 1995 fiscal year.
- 25 -
<PAGE>
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
PXRE's Common Stock trades on The NASDAQ Stock Market under the symbol
"PXRE". The following table sets forth for the periods indicated the high and
low bid quotations for PXRE's Common Stock as reported by NASDAQ and cash
dividends per share of Common Stock declared and subsequently paid:
<TABLE>
<CAPTION>
Bid Price
-------------------
High Low Dividends
---- --- ---------
<S> <C> <C> <C>
1994:
First Quarter 27.25 19.50 0.075
Second Quarter 27.50 18.50 0.075
Third Quarter 29.00 23.00 0.075
Fourth Quarter 28.25 23.25 0.15
1995:
First Quarter 28.75 21.75 0.15
Second Quarter 26.50 21.00 0.15
Third Quarter 29.75 23.50 0.15
Fourth Quarter 27.50 22.75 0.18
</TABLE>
These prices represent quotations by dealers and do not include
markups, markdowns, or commissions, and do not necessarily represent actual
transactions. As of March 20, 1996, there were 8,751,616 shares of the Common
Stock issued and outstanding, which shares were held by approximately 135
shareholders of record and, based on PXRE's best information, in excess of 1,500
beneficial owners of the Common Stock. See Notes 10 and 11 of Notes to
Consolidated Financial Statements for information with respect to shares
reserved for issuance under employee benefit and stock option plans.
Beginning in the fourth quarter of 1989, PXRE has each quarter
declared and subsequently paid cash dividends on its Common Stock. The dividend
rate, which initially was $0.05 per share, was increased in the fourth quarter
of 1993 to $0.075 per share, in the fourth quarter of 1994 to $0.15 per share
and in the fourth quarter of 1995 to $0.18 per share.
- 26 -
<PAGE>
<PAGE>
The payment of dividends on the Common Stock is subject to the
discretion of the Board of Directors which will consider, among other factors,
PXRE's operating results, overall financial condition, capital requirements and
general business conditions. There can be no assurance that dividends will be
paid in the future.
As a holding company, PXRE is largely dependent upon dividends and net
tax allocation payments from PXRE Reinsurance to pay dividends to PXRE's
shareholders. PXRE Reinsurance is subject to state laws that restrict its
ability to distribute dividends. In addition, certain covenants in the indenture
governing PXRE's Senior Notes may restrict PXRE's ability to pay dividends. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Business--Regulation" for
further information concerning restrictions contained in the indenture governing
PXRE's Senior Notes and under state insurance law.
- 27 -
<PAGE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1995 1994 1993 1992 1991
(1)(2)(3)(4) (1)(3) (1)
--------- -------- ------------ ------ ------
(in thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Gross premiums written $ 155,380 $ 179,684 $ 116,975 $ 100,951 $ 66,462
Premiums ceded (57,744) (71,166) (39,469) (51,320) (23,660)
--------- --------- --------- --------- ---------
Net premiums written 97,636 108,518 77,506 49,631 42,802
Change in unearned premiums (494) 2,083 1,422 (1,196) (751)
--------- --------- --------- --------- ---------
Net premiums earned 97,142 110,601 78,928 48,435 42,051
Net investment income 14,730 13,786 8,011 5,083 4,692
Net realized investment
gains (losses) 85 (1,164) (1,526) 392 1,509
Gain on sale of subsidiary(4) -- -- 10,564 -- --
Management fee 6,417 6,992 3,158 809 336
Agency commissions -- -- -- 257 313
--------- --------- --------- --------- ---------
Total revenues 118,374 130,215 99,135 54,976 48,901
--------- --------- --------- --------- ---------
Losses and loss expenses incurred 34,716 52,647 40,570 39,778 28,861
Commissions and brokerage 13,251 15,026 13,339 13,162 11,115
Other operating expenses 11,237 8,365 8,917 9,332 7,209
Interest expense 7,143 7,789 2,740 319 576
--------- --------- --------- --------- ---------
Total losses and expenses 66,347 83,827 65,566 62,591 47,761
--------- --------- --------- --------- ---------
Income (loss) before income taxes,
equity in net earnings of Transnational
Re Corporation and cumulative
effect of accounting change 52,027 46,388 33,569 (7,615) 1,140
Equity in net earnings of
Transnational Re Corporation(4) 5,948 4,141 84 -- --
Income tax provision (benefit) 18,189 15,700 11,008 (3,322) 188
--------- --------- --------- --------- ---------
Net income (loss)
(before cumulative effect
of accounting change) 39,786 34,829 22,645 (4,293) 952
Cumulative effect of adopting
FASB No. 109 -- -- -- 433 --
--------- --------- --------- --------- ---------
Net income (loss) $ 39,786 $ 34,829 $ 22,645 $ (3,860) $ 952
========= ========= ========= ========= =========
Preferred stock dividend(7) 599 2,005 2,056 1,419 --
========= ========= ========= ========= =========
Net income (loss) available to
common stockholders (before
cumulative effect of accounting
change) $ 39,187 $ 32,824 $ 20,589 $ (5,712) $ 952
========= ========= ========= ========= =========
</TABLE>
- 28 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1995 1994 1993 1992 1991
(1)(2)(3)(4) (1)(3) (1)
--------- -------- ------------ ------ ------
(in thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges(5) 7.90 6.73 12.12 -- 2.35
Ratio of earnings to combined
fixed charges and preferred
dividends(5) 7.04 4.90 6.02 -- 2.35
Primary earnings per common share:
Net income (loss)
(before cumulative effect
of accounting change) $ 4.74 $ 4.89 $ 3.34 $ (1.48) $ 0.25
Cumulative effect of
accounting change -- -- -- 0.11 --
------ ------ ------ ------- ------
Net income (loss) $ 4.74 $ 4.89 $ 3.34 $ (1.37) $ 0.25
====== ====== ====== ======= ======
Average common
shares outstanding(7) 8,275 6,710 6,170 3,851 3,872
====== ====== ====== ======= ======
Fully diluted earnings per common
share:
Net income (loss)
(before cumulative effect
of accounting change) $ 4.48 $ 3.94 $ 2.70 $ (1.48) $ 0.25
Cumulative effect of
accounting change -- -- -- 0.11 --
------ ------ ------ ------- ------
Net income (loss) $ 4.48 $ 3.94 $ 2.70 $ (1.37) $ 0.25
====== ====== ====== ======= ======
Average common shares outstanding 8,874 8,847 8,380 3,851 3,872
====== ====== ====== ======= ======
Cash dividends per common share $ 0.63 $0.375 $0.225 $ 0.20 $ 0.20
OTHER OPERATING DATA:
GAAP loss ratio(6) 35.7% 47.6% 51.4% 82.1% 68.6%
GAAP underwriting expense ratio(6) 18.6% 14.8% 24.2% 44.2% 42.0%
GAAP combined ratio(6) 54.3% 62.4% 75.6% 126.3% 110.6%
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and investments $269,089 $231,789 $248,949 $ 81,994 $ 68,264
Total assets 393,465 353,794 349,251 205,484 138,414
Losses and loss expenses 72,719 81,836 71,442 88,668 62,664
Note payable 67,775 69,700 75,000 5,250 6,000
Total stockholders' equity 211,162 166,771 142,690 69,728 51,269
Book value per common share $ 24.15 $ 21.27 $ 18.06 $ 11.20 $ 13.34
Statutory capital and surplus of
PXRE Reinsurance $250,231 $211,988 $185,844 $ 65,221 $ 50,440
</TABLE>
- --------------------
(1) Effective January 1, 1993, PXRE adopted the FASB's SFAS No. 113,
"Accounting and Reporting for Reinsurance of Short-Duration and
Long-Duration Contracts". As a result of such adoption, PXRE effected a
December 31, 1992 and 1991 balance sheet reclassification to assets of
$53,314,969 and $25,369,685 of reinsurance recoverables on losses and
loss expense liabilities and $5,529,292 and $3,395,276 of ceded unearned
premiums in 1992 and 1991, respectively, both of which were previously
deducted from liabilities. The adoption of SFAS No. 113 had no effect on
PXRE's net income for the years ended December 31, 1993 or 1992.
- 29 -
<PAGE>
<PAGE>
(2) During the first quarter of 1993, PXRE completed an offering of
2,300,000 shares of common stock. The net proceeds of $46,942,000
(except for $5,000,000 which was retained by PXRE for general corporate
purposes) were contributed to PXRE Reinsurance's surplus. During the
third quarter of 1993, PXRE completed an offering of $75,000,000
principal amount of 9.75% Senior Notes due 2003. The net proceeds of
$72,150,000 (except for approximately $3,938,000 which was used by PXRE
to repay all amounts outstanding under and retire a term loan facility
and $15,000,000 which was retained by PXRE to provide support for debt
service on the Senior Notes) were contributed to PXRE Reinsurance's
surplus.
(3) The FASB's Emerging Issues Task Force ("EITF") reached a consensus on
July 22, 1993 regarding Issue No. 93-6, "Accounting for Multiple-Year
Retrospectively-Rated Contracts by Ceding and Assuming Enterprises". The
EITF consensus requires that affected companies should accrue the lesser
of termination penalties or the effect of prospective adjustments in
rates or coverages triggered by the loss event in the period that a loss
is recorded. The EITF mandate required adoption of this consensus no
later than the third quarter of 1993. As described in Note 2 to PXRE's
Consolidated Financial Statements for the year ended December 31, 1993,
PXRE had certain retrocessional catastrophe coverage for its principal
types of business. Certain of these contracts provided for terms of
three or more years and had contractual adjustments regarding rates
and/or coverages when losses are recovered under these contracts.
Although PXRE was provided with the opportunity to cancel some of these
contracts without penalty, PXRE chose to continue the contracts to
obtain the coverage provided thereunder. Accordingly, PXRE believed that
the appropriate application of the EITF's consensus was to record in the
third quarter of 1992 incremental premiums that resulted from Hurricane
Andrew loss recoveries under these contracts. This change increased 1992
third quarter ceded earned premiums by $5,772,000, deferred income tax
benefit by $1,962,000, net loss by $3,810,000 and loss per common share
by $0.99. These adjustments were determined on the basis of losses
estimated by PXRE at December 31, 1992. The financial statements for
years prior to 1992 are not affected. Also, due to additional
information received during the first six months of 1993 with respect to
Hurricane Andrew losses, PXRE reported, in the second quarter of 1993,
an additional $2,500,000 of ceded premium expenses through the
application of the EITF consensus. The statutory capital and surplus of
PXRE Reinsurance has not been adjusted.
(4) Until the fourth quarter of 1993, Transnational Reinsurance was a
wholly-owned subsidiary of PXRE Reinsurance. On November 1, 1993, a
registration statement relating to an initial public offering (the
"Offering") by TREX of 5,750,000 shares of Class A common stock at
$20.00 per share was declared effective. In conjunction with the
formation of TREX and registration of TREX's Class A common stock in the
Offering, all of the outstanding capital stock of Transnational
Reinsurance was contributed by PXRE Reinsurance to TREX in exchange for
the issuance of 1,535,848 shares of TREX's Class B common stock which
caused PXRE Reinsurance's holdings of TREX's Class B common stock (when
combined with the 100 shares of Class B common stock contributed to PXRE
Reinsurance by PXRE in connection with the closing of the Offering) to
constitute approximately 21% of all of the outstanding common stock of
TREX immediately after the Offering. TREX, through Transnational
Reinsurance, now specializes principally in providing brokered property
retrocessional reinsurance and marine and aviation retrocessional
reinsurance in the United States and international markets pursuant to a
Management Agreement with PXRE Reinsurance. As a result of this
transaction, PXRE recorded a gain on sale in the fourth quarter of 1993
amounting to $10,564,000 on a pre-tax basis, representing the difference
between PXRE Reinsurance's interest in the net assets of Transnational
Reinsurance immediately after the Offering and the historical book value
of its investment in Transnational Reinsurance. Subsequent to the
Offering, PXRE accounts for its investment in TREX on the equity method.
(5) The historical ratios of earnings to fixed charges were determined by
dividing consolidated earnings by total fixed charges. For purposes of
these computations (i) earnings consist of consolidated income before
considering income taxes, fixed charges and minority interest and (ii)
fixed charges consist of interest on indebtedness and that portion of
rentals which is deemed by PXRE's management to be an appropriate
interest factor. Earnings were inadequate to cover fixed charges by
$7,615,000 for the year ended December 31, 1992. The historical ratios
of earnings to combined fixed charges and preferred dividends were
determined by dividing consolidated earnings by total fixed charges and
preferred dividends. Earnings were inadequate to cover fixed charges and
preferred dividends by $9,034,000 for the year ended December 31, 1992.
(6) The loss, underwriting expense and combined ratios included under "Other
Operating Data" have been derived from the audited consolidated
statements of income of PXRE prepared in accordance with GAAP.
(7) During 1995, all of the outstanding shares of Series A Preferred Stock
were converted into shares of 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.
- 30 -
<PAGE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 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 beginning of 1995. 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 December 31, 1995, PXRE was a party to two such retrocessional
arrangements, one with a group of insurers and reinsurers referred to as the
AMA, and one with Trenwick Group. Under these arrangements, both of which were
renewed effective January 1, 1996, 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
- 31 -
<PAGE>
<PAGE>
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. 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 declined, PXRE has begun again selectively to purchase such
coverages.
Since November 8, 1993, PXRE has been party to the Management
Agreement under which PXRE has responsibility for the day-to-day operations of
TREX and its subsidiary 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 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
- 32 -
<PAGE>
<PAGE>
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.
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 hurricanes Andrew and Iniki in 1992
and the Northridge earthquake in 1994) could have a material adverse impact on
PXRE's results
- 33 -
<PAGE>
<PAGE>
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.
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 $45,417,000 at December 31, 1995,
which represent 11.5% of its total assets and 21.5% 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.
- 34 -
<PAGE>
<PAGE>
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 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 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.
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.
- 35 -
<PAGE>
<PAGE>
COMPARISON OF 1995 AND 1994
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------- Increase/
1995 1994 (Decrease)
---- ---- ----------
(in thousands) %
<S> <C> <C> <C>
Gross premiums written $ 155,380 $ 179,684 (13.5)
Ceded premiums:
Managed business
participants 26,774 29,842 (10.3)
TREX Management Agreement 24,790 28,722 (13.7)
Catastrophe coverage 6,359 12,183 (47.8)
Other (179) 419 (142.7)
-------- ---------
Total reinsurance premiums ceded 57,744 71,166 (18.9)
-------- ---------
Net premiums written $ 97,636 $ 108,518 (10.0)
======== =========
</TABLE>
Net premiums written for the year ended December 31, 1995, decreased
10.0% to $97,636,000 from $108,518,000 for the corresponding period of 1994.
Gross premiums written for 1995 decreased 13.5% to $155,380,000 from
$179,684,000 for 1994. Net premiums earned for the year ended December 31, 1995,
decreased 12.2% to $97,142,000 from $110,601,000 in the year-earlier period.
Gross written, net written and net earned premium decreases for 1995 reflected
PXRE's planned response to the continued trend of increased competition in the
property catastrophe reinsurance market experienced since the end of 1994 and to
recent loss activity in the aviation business. The increased level of
competition continued to affect the 1996 annual renewals. During this period,
PXRE experienced a reduction in premiums, based on current signed lines of
approximately 19% from the 1995 renewal season which is primarily attributable
to reductions in underwriting commitments and to a lesser extent rate
reductions. In response to these pressures during 1995, PXRE continued to accept
some price concessions when consistent with exposures, moved to layers of risk
that are less affected by competitive pressures, or reduced commitments where
warranted. Although the initial indications from renewals for 1996 are not
necessarily representative of what premium levels may be for the full year, they
do indicate that in 1996 premiums are likely to decline more than in 1995.
Premiums ceded by PXRE to its managed business participants decreased
10.3% to $26,774,000 for 1995 compared with $29,842,000 for 1994. The decrease
in premiums ceded to these programs was due to the decrease in the amount
and percentage of gross premiums written by PXRE on behalf of the managed
business participants. During 1995, pursuant to the Management Agreement,
PXRE also ceded
- 36 -
<PAGE>
<PAGE>
$24,790,000 of premiums compared to $28,722,000 during the corresponding period
of 1994 to Transnational in lieu of direct reinsurance writings by
Transnational. Management fee income from all sources for 1995 decreased to
$6,417,000 from $6,992,000 in 1994. The decrease reflected loss activity that
resulted in decreased profitability of business managed for other companies.
Ceded premiums for catastrophe programs for 1995 decreased 47.8% 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 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 under SAP and net premiums earned under 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 35.7% for 1995 compared with 47.6% for 1994. The
loss ratio for 1995 reflected incurred catastrophe losses of $28,439,000 gross
and $20,073,000 net for 1995 and prior accident years as compared with
$69,833,000 gross and $37,213,000 net for 1994 and prior accident years.
Significant catastrophe and risk losses affecting the year ended
December 31, 1995 loss ratio are as follows:
<TABLE>
<CAPTION>
Amount of Losses
---------------------
Loss Event Gross Net
---------- ----- ---
(in thousands)
<S> <C> <C>
Hurricane Marilyn $13,463 $9,886
Northridge earthquake 8,899 6,030
Hurricane Luis 5,119 3,710
Milliken Factory 7,314 5,932
</TABLE>
- 37 -
<PAGE>
<PAGE>
Significant events affecting the year ended December 31, 1994 loss
ratio included the following:
<TABLE>
<CAPTION>
Amount of Losses
--------------------
Loss Event Gross Net
---------- ----- ---
(in thousands)
<S> <C> <C>
Northridge earthquake $42,709 $21,180
Three satellite losses 12,045 8,022
Four aircraft losses 10,600 5,138
</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 $39,000 for 1995 compared to a
loss of $338,000 for 1994.
During 1995, PXRE experienced a deficiency of $4,311,000, net, for
prior year losses and loss expenses primarily from the 1994 Northridge
earthquake. The loss ratio for 1994 was unfavorably affected by increases to
reserves of $3,261,000, net, for prior year losses and loss expenses.
The underwriting expense ratio was 18.6% for 1995, compared with 14.8%
for 1994. The increase was substantially due to the effect of a provision for
contingent commissions related to the low level of losses incurred. As a result
of the above, the combined ratio was 54.3% for 1995, compared with 62.4% for
1994.
Other operating expenses increased to $11,237,000 for 1995, from
$8,365,000 in 1994. The operating expense increase for 1995 primarily reflects
an increase of $1,653,000 related to changes in benefit plans, additional staff
salaries, increased incentive compensation and other related benefits. Also
contributing to the increases were additional costs of $216,000 under a new
lease in Edison, New Jersey, and an increase in depreciation expense from the
capital expenditures of $3,200,000 for PXRE's new facilities including additions
to electronic data processing equipment. Included in other operating expenses
were foreign currency exchange gains of $196,000 for 1995 compared to gains of
$1,156,000 for 1994.
Interest expense decreased to $7,143,000 in 1995, from $7,789,000 in
1994 due to repurchase of $5,300,000 par value of PXRE's 9.75% Senior Notes, at
prices from 99.25 to 99.625 during the fourth quarter of 1994 and the repurchase
of $1,925,000 par value of Senior Notes at prices ranging from
- 38 -
<PAGE>
<PAGE>
104.625 to 105.0 during the third quarter of 1995. The loss on repurchase
was not material.
Net investment income for 1995 increased 6.8% to $14,730,000 from
$13,786,000 for 1994. The increase in net investment income was caused by a 5.0%
increase in average investments for 1995 compared with the previous year, as
well as an increase in PXRE's pre-tax investment yield to 5.9% for 1995 compared
to 5.8% for 1994. Net realized investment gains for 1995 were $85,000 compared
with net realized losses of $1,164,000 for 1994. PXRE recorded directly to
equity a $9,759,000 after-tax unrealized increase in the value of its investment
portfolio during 1995, resulting from the decline in interest rates since
December 31, 1994.
The net effects of foreign currency exchange fluctuations were losses
of $235,000 in 1995 and gains of $818,000 for 1994. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations-- Liquidity and
Capital Resources".
Net income for the year ended December 31, 1995 includes $5,948,000
which represents PXRE's approximately 21.9% equity share of TREX's net earnings
as compared with $4,141,000 representing PXRE's approximately 21.2% share of
TREX's net earnings in 1994. The change in the equity in TREX's earnings
reflects the higher level of TREX's net income and the change in PXRE's
ownership. The change in PXRE's ownership of TREX resulted from the repurchase
by TREX of 270,100 shares of its publicly owned Class A shares.
For the reasons discussed above, net income was $39,786,000 for the
year ended December 31, 1995, compared to net income of $34,829,000 for the year
ended December 31, 1994. Primary net income per common share was $4.74 for 1995
(after provision for cumulative dividends of $598,900 on the Series A Preferred
Stock) compared to primary net income per common share of $4.89 for 1994 (after
provision for cumulative dividends of $2,005,000 on the Series A Preferred
Stock) based on average shares outstanding of 8,275,000 in 1995 and 6,710,000 in
1994. The change in the number of shares outstanding relates primarily to the
conversion of all the remaining convertible preferred shares to common shares in
May 1995. Fully diluted net income per common share was $4.48 for 1995 compared
to $3.94 for 1994 based on average shares outstanding of 8,874,000 in 1995
and 8,847,000 in 1994.
- 39 -
<PAGE>
<PAGE>
COMPARISON OF 1994 AND 1993
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------ Increase/
1994 1993 (Decrease)
---- ---- ----------
(in thousands) %
<S> <C> <C> <C>
Gross premiums written $179,684 $116,975 54.0
Ceded premiums:
Managed business participants 29,842 23,387 28.0
TREX Management Agreement 28,722 270 ----
Catastrophe coverage 12,183 14,918 (18.0)
Other 419 894 (53.0)
-------- --------
Total reinsurance
premiums ceded 71,166 39,469 80.0
-------- --------
Net premiums written $108,518 $77,506 40.0
======== ========
</TABLE>
Net premiums written for the year ended December 31, 1994 increased
40% to $108,518,000 from $77,506,000 for the corresponding period of 1993. Gross
premiums written for the year 1994 increased 54% to $179,684,000 from
$116,975,000 for the same period of 1993. The increase in net and gross premiums
written resulted principally from increased participations on renewal business
and new business written for new and existing reinsureds, the majority of which
was catastrophe related. Premium growth also occurred in PXRE's marine,
aviation, facultative and treaty risk excess reinsurance accounts. PXRE
experienced reduced written premiums in pro rata in 1994 because of inadequate
premium rates and terms caused by the continuing competition in these lines. Net
premiums earned for 1994 increased 40% to $110,601,000 from $78,928,000 in 1993
because of the increase in net premiums written.
Premiums ceded by PXRE to its managed business participants increased
28% to $29,842,000 (17% of gross premiums written) for 1994 compared with
$23,387,000 (20% of gross premiums written) for 1993. The increase in gross
premiums written ceded to these programs was due principally to the increase in
the amount of premiums written by PXRE to accommodate the larger participation
of Trenwick Group starting January 1, 1994. Pursuant to the Management
Agreement, in 1994 PXRE also ceded $28,722,000 of premiums to Transnational in
lieu of Transnational directly assuming reinsurance writings.
Management fee income for 1994 increased 121% to $6,992,000 from
$3,158,000 in 1993. The increase was principally due to the increased amounts of
business ceded to PXRE's managed business participants (Trenwick Group and the
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<PAGE>
<PAGE>
AMA) and the business written for Transnational pursuant to the Management
Agreement.
Ceded premiums for catastrophe programs were 18% lower compared to
1993, primarily because of management's decision not to renew certain
retrocessional coverages in 1994. Other ceded premiums declined principally as a
result of a reduction in facultative business and termination of a pro rata
retrocession of that business.
The loss ratio was 47.6% for 1994 compared with 51.4% for 1993. The
1994 loss ratio reflected incurred catastrophe losses of $69,833,000 gross and
$37,213,000 net for 1994 and prior accident years as compared with $29,265,000
gross and $16,017,000 net in 1993 for 1993 and prior accident years. Significant
events affecting the 1994 loss ratio included the following:
<TABLE>
<CAPTION>
Amount of Losses
----------------
Loss Event Gross Net
---------- ----- ---
(in thousands)
<S> <C> <C>
Northridge earthquake $42,709 $21,180
Three satellite losses 12,045 8,022
Four aircraft losses 10,600 5,138
</TABLE>
Significant events affecting the same period of 1993 included the
following:
<TABLE>
<CAPTION>
Amount of Losses
----------------
Loss Event Gross Net
---------- ----- ---
(in thousands)
<S> <C> <C>
World Trade Center bombing $6,346 $2,285
March 1993 winter storm 2,746 1,825
Swiss floods 1,848 1,625
Additional losses incurred
on hurricane Andrew 10,523 4,458
</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 $338,000 for 1994 compared to a
loss of $205,000 in 1993.
The loss ratio for 1994 was unfavorably affected by increases to
reserves of $3,261,000 net for prior years' losses and loss expenses which was
principally attributable to
- 41 -
<PAGE>
<PAGE>
loss development on a number of marine pro rata reinsurance contracts and losses
from the 1993 Midwest floods. During 1993, PXRE incurred losses and loss
expenses of $10,499,000 net for prior years' losses and loss expenses, of which
approximately $5,394,000 were due to additional information received with
respect to hurricanes Andrew and Iniki, approximately $3,330,000 were the result
of losses under a number of pro rata reinsurance treaties and the remainder were
principally attributable to the other 1993 catastrophes.
The underwriting expense ratio was 14.8% for 1994 compared with 24.2%
in 1993. The decrease was substantially due to the increase in net premiums
earned, as well as a decrease in the amount of pro rata reinsurance written,
which carries higher commissions than the excess of loss business which replaced
it. As a result of the above, the combined ratio was 62.4% for 1994, compared
with 75.6% for 1993.
Other operating expenses decreased to $8,365,000 for 1994 from
$8,917,000 for 1993 mainly because of foreign exchange gains in 1994 offset in
part by an increase in salary related expenses and incentive compensation costs.
Included in other operating expenses were foreign currency exchange gains of
$1,156,000 for 1994 compared to losses of $397,000 for 1993.
Interest expense increased to $7,789,000 in 1994 from $2,740,000 in
1993 reflecting the public offering in September 1993 of $75 million of 9.75%
Senior Notes. In December 1994, PXRE Corporation (parent company) repurchased
$5,300,000 par value of its Senior Notes at prices from 99.25 to 99.625.
Net investment income for 1994 increased 72% to $13,786,000 from
$8,011,000 for 1993. The increase in net investment income was caused by an
increase in average investments for 1994 compared with the previous year, and in
part by an increase in PXRE's pre-tax investment yield to 5.8% for 1994 compared
with 5.0% for 1993. The increase in average investments reflects investment of
the proceeds of the public offerings of 9.75% Senior Notes during the third
quarter of 1993 (net proceeds of approximately $72,150,000) and of Common Stock
during the first quarter of 1993 (net proceeds of approximately $46,942,000).
The pre-tax yield increased principally because of investment and reinvestment
of available funds at generally higher interest rates during 1994. Additionally,
net investment income was increased by a retroactive adjustment of $1,603,000 to
the amortization of premiums on Government National Mortgage Association
mortgage-backed securities ("GNMAs") because of a significant slowing of
prepayments on those securities. Net realized investment
- 42 -
<PAGE>
<PAGE>
losses for 1994 were $1,164,000 compared with net realized losses of $1,526,000
for 1993. A gain of $10,564,000 in 1993 was attributable to the TREX initial
public offering. The realized losses resulted from prepayments on
mortgage-backed securities, principally GNMAs.
The net effect of foreign currency exchange fluctuations was a gain of
$818,000 in 1994 and a loss of $602,000 in 1993. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources".
Net income for 1994 and 1993 included $4,141,000 and $84,000,
respectively, which represented PXRE's approximately 21% equity share of TREX's
net earnings.
For the reasons discussed above, net income was $34,829,000 for 1994
compared to $22,645,000 for 1993. Primary net income per common share increased
to $4.89 for 1994 (after provision for cumulative dividends of $2,005,000 on the
Series A Preferred Stock) compared to net income per common share of $3.34 for
1993 (after provision for cumulative dividends of $2,056,000 on the Series A
Preferred Stock) based on average shares outstanding of 6,710,000 in 1994 and
6,170,000 in 1993. Fully diluted net income per common share increased to $3.94
for 1994 compared to $2.70 for 1993 based on average shares outstanding of
8,847,000 in 1994 and 8,380,000 in 1993.
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
- 43 -
<PAGE>
<PAGE>
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 1995, $6,000,000 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 (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 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
- 44 -
<PAGE>
<PAGE>
$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.
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
- 45 -
<PAGE>
<PAGE>
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.
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 fixed
maturity and short-term investments. Premiums are typically received in advance
of related claim payments. Net cash flow provided by operations was $32,412,000
during 1995, compared with net cash flow provided by operations of $30,988,000
and $35,792,000 during 1994 and 1993, respectively, 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, a public majority-owned subsidiary of Phoenix Home Life.
Although these investment guidelines stress conservation of principal,
diversification of risk and liquidity, investments
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<PAGE>
<PAGE>
are subject to market-wide risks and fluctuations, as well as to risk inherent
in particular securities. As at December 31, 1995, 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.
Of PXRE's fixed maturities portfolio at December 31, 1995, 100% of the
fair value was in obligations rated "A1" or "A" or better by Moody's or S&P,
respectively, or in government or government-backed securities. Mortgage-backed
securities (principally GNMAs) accounted for 22.6% of fixed maturities based on
fair value at December 31, 1995. PXRE has no investments in real estate or
commercial mortgage loans. The average market yield to maturity of PXRE's fixed
maturities portfolio at December 31, 1995 and 1994 was 5.3% and 5.8%,
respectively.
Fixed maturity investments are reported at fair value, with the net
unrealized gain or loss, net of tax, reported as a separate component of
stockholders' equity. PXRE recorded directly to equity a $9,759,000 after-tax
unrealized increase in the value of its investment portfolio during 1995
reflecting a decrease 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
$41,722,000 at December 31, 1995 compared to $26,813,000 at December 31, 1994.
The increase at December 31, 1995 was principally due to a planned buildup of
short-term investments as PXRE approached the period of the year with a maximum
probability of hurricane activity. Such level of short-term investments was not
reduced as rapidly as usual in the latter part of the fourth quarter of 1995
after the period of maximum wind exposure. Cash flow requirements arising from
the August 1995 hurricanes Marilyn and Luis required additional liquidity.
In November 1993, an initial public offering by TREX, a subsidiary of
PXRE, of 5,750,000 shares of Class A Common Stock at $20 per share, was
completed. In connection with this offering, PXRE contributed all of the capital
stock of Transnational to TREX. TREX, through Transnational, now specializes
principally in providing brokered property retrocessional reinsurance and marine
and aviation retrocessional reinsurance in the United States and international
markets pursuant to the Management Agreement with PXRE. PXRE owns approximately
21.9% of the total issued and outstanding common stock of TREX and is entitled
to designate two of TREX's five directors.
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<PAGE>
<PAGE>
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.
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 diluted earnings per share.
Because of the conversion, that difference will be eliminated in future periods.
Book value per share was $24.15 at December 31, 1995.
In April 1995, PXRE's Board of Directors authorized the repurchase of
up to 700,000 shares of its common stock from time-to-time in open market 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. 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 December 31, 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
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<PAGE>
<PAGE>
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 December 31,
1995, are considered by management of PXRE to be collectible in all material
respects.
In May 1994, PXRE signed a lease for approximately 24,000 square feet
of office space in Edison, New Jersey, for a term of 15 years at a fixed annual
rental of approximately $370,000. In conjunction with its relocation to that
facility in April 1995, PXRE incurred capital expenditures of approximately
$3,200,000 for construction costs and furniture and related electronic data
processing equipment. 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 1995, 1994 and 1993 was 31.4%, 31.1% and
32.7%, 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.
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<PAGE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are filed as part of this Form
10-K:
<TABLE>
<CAPTION>
Page
----
<S> <C>
PXRE Corporation:
Report of Independent Accountants F-1
Consolidated Balance Sheets
at December 31, 1995 and 1994 F-2
Consolidated Statements of Income
for the years ended December 31,
1995, 1994 and 1993 F-3
Consolidated Statements of
Stockholders' Equity for the years
ended December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Cash Flow
for the years ended December 31,
1995, 1994 and 1993 F-5
Notes to Consolidated Financial
Statements F-6
</TABLE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
No disclosure hereunder is required as PXRE has not changed its
accountants during the 24 months preceding December 31, 1995.
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<PAGE>
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is contained in PXRE's Proxy
Statement, which information is incorporated herein by reference and which Proxy
Statement will be filed within 120 days of the end of PXRE's 1995 fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is contained in PXRE's Proxy
Statement, which information is incorporated herein by reference and which Proxy
Statement will be filed within 120 days of the end of PXRE's 1995 fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is contained in PXRE's Proxy
Statement, which information is incorporated herein by reference and which Proxy
Statement will be filed within 120 days of the end of PXRE's 1995 fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is contained in PXRE's Proxy
Statement, which information is incorporated herein by reference and which Proxy
Statement will be filed within 120 days of the end of PXRE's 1995 fiscal year.
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<PAGE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Form 10-K:
(1) Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
PXRE Corporation:
Report of Independent Accountants F-1
Consolidated Balance Sheets
at December 31, 1995 and 1994 F-2
Consolidated Statements of Income
for the years ended December 31,
1995, 1994 and 1993 F-3
Consolidated Statements of
Stockholders' Equity for the years
ended December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Cash Flow
for the years ended December 31,
1995, 1994 and 1993 F-5
Notes to Consolidated Financial
Statements F-6
</TABLE>
(2) Financial Statements Schedules
<TABLE>
<S> <C>
Schedule I - Summary of Investments (The information required by this
Schedule is presented in the financial statements and the notes thereto
included in this Form 10-K.) ---
Schedule II - Condensed Financial
Information of Registrant F-20
Schedule III - Supplementary Insurance
Information F-21
</TABLE>
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<PAGE>
<PAGE>
<TABLE>
<S> <C>
Schedule IV - Reinsurance (The information required by this Schedule is
presented in the financial statement and the notes thereto included in
this Form 10-K.) ---
Schedule VI -- Supplemental Information
Concerning Property/Casualty Insurance
Operations F-21
Report of Independent Accountants on the
Financial Statement Schedules and Consent
of Independent Accountants F-22
All other financial statement schedules have been omitted as
inapplicable.
</TABLE>
(3) Exhibits
(3) Certificate of Incorporation and By-laws of PXRE Corporation. The
Restated Certificate of Incorporation and By-laws of PXRE Corporation were
previously filed with PXRE's Registration Statement on Form S-1 dated August 29,
1986, as amended by Amendment No. 1 thereto dated February 19, 1987 and by
Amendment No. 2 thereto dated March 25, 1987 (File No. 33-8406), as Exhibits 3.1
and 3.2 thereto, and are incorporated herein by reference. The Certificate of
Designations designating the Series A Cumulative Convertible Preferred Stock of
PXRE Corporation was previously filed with PXRE's Registration Statement on Form
S-2 dated February 21, 1992, as amended by Amendment No. 1 thereto dated April
1, 1992 and by Amendment No. 2 thereto dated April 13, 1992 and by Amendment No.
3 thereto dated April 23, 1992 (File No. 33-45893) as Exhibit 4.5 thereto, and
is incorporated herein by reference. A Certificate of Amendment dated May 20,
1993 to PXRE's Restated Certificate of Incorporation was previously filed with
PXRE's Registration Statement on Forms S-8 and S-3 dated June 3, 1993 (File No.
33-63768) as Exhibit 4.3 thereto, and is incorporated herein by reference. A
Certificate of Amendment dated May 19, 1994 to PXRE's Restated Certificate of
Incorporation was previously filed as Exhibit 3 to the Annual Report on Form
10-K of PXRE for the fiscal year ended December 31, 1994 (File No. 0-15428), and
is incorporated herein by reference. Article IV, Section 1 of the By-laws of
PXRE Corporation, as amended on June 8, 1995, is attached hereto as Exhibit 3.
(4) Instruments Defining the Rights of Security Holders. Trust
Indenture dated as of August 31, 1993 between PXRE, as issuer, and The First
National Bank of Boston, as trustee, relating to $75,000,000 principal amount of
9.75%
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<PAGE>
<PAGE>
Senior Notes of PXRE due 2003 (Exhibit 4.1 to PXRE's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993 (File No. 0-15428), and
incorporated herein by reference).
(10) Material Contracts. The material contracts of PXRE are as
follows:
10.1 Lease dated January 29, 1986 between Phoenix General Insurance
Company and 80 Maiden Lane Associates for office facilities located at 80 Maiden
Lane, New York, New York (Exhibit 10.1 to PXRE's Form S-1 Registration Statement
dated August 29, 1986, as amended by Amendment No. 1 thereto dated February 19,
1987 and by Amendment No. 2 thereto dated March 25, 1987 (File No. 33-8406), and
incorporated herein by reference).
10.2 Assignment and Assumption of Lease dated September 30, 1986
between Phoenix General Insurance Company and PXRE Reinsurance Company (Exhibit
10.2 to Amendment No. 1 dated February 19, 1987 to PXRE's Form S-1 Registration
Statement dated August 29, 1986, as subsequently amended by Amendment No. 2
thereto dated March 25, 1987 (File No. 33-8406), and incorporated herein by
reference).
10.3 PXRE Reinsurance Company Management Agreement among PXRE
Reinsurance and, among others, Merrimack Mutual Fire Insurance Company
("Merrimack"), Pennsylvania Lumbermens Mutual Insurance Company ("Pennsylvania
Lumbermens"), and NRMA Insurance Limited ("NRMA") (Exhibit 10.1 to PXRE's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991 (File No.
0-15428), and incorporated herein by reference); letter dated November 28, 1990
from Pennsylvania Lumbermens confirming reduced participation (Exhibit 10.7 to
PXRE's Form S-2 Registration Statement dated February 21, 1992, as amended by
Amendment No. 1 thereto dated April 1, 1992 and by Amendment No. 2 thereto dated
April 13, 1992 and by Amendment No. 3 thereto dated April 23, 1992 (File No. 33-
45893), and incorporated herein by reference); and forms of cover notes
respecting January 1995 renewals by Merrimack, Pennsylvania Lumbermens and NRMA
(Exhibit 10.3 to the Annual Report on Form 10-K of PXRE for the fiscal year
ended December 31, 1994 (File No. 0-15428) and incorporated herein by
reference).
10.4 Tax Settlement Agreement dated June 21, 1991 between PXRE
Corporation, PXRE Reinsurance Company and PM Holdings, Inc. (Exhibit 10.2 to the
Annual Report on Form 10-K of PXRE for the fiscal year ended December 3, 1991
(File No. 0-15428), and incorporated herein by reference).
- 54 -
<PAGE>
<PAGE>
10.5 Investment Advisory Agreement between PXRE Reinsurance Company
and Phoenix Investment Counsel, Inc., dated February 25, 1987 and effective as
of January 1, 1987 (Exhibit 10.10 to Amendment No. 1 dated February 19, 1987 to
PXRE's Form S-1 Registration Statement dated August 29, 1986, as subsequently
amended by Amendment No. 2 thereto dated March 25, 1987 (File No. 33-8406), and
incorporated herein by reference).
10.6 Amendment to Investment Advisory Agreement between PXRE
Reinsurance Company and Phoenix Investment Counsel, Inc., effective
retroactively as of January 1, 1987 (Exhibit 10.3 to the Annual Report on Form
10-K of PXRE for the fiscal year ended December 31, 1991 (File No. 0-15428), and
incorporated herein by reference).
10.7 Amendment No. 2 to Investment Advisory Agreement between PXRE
Reinsurance Company and Phoenix Investment Counsel, Inc. effective as of
November 1, 1989. (Exhibit 10.4 to the Annual Report on Form 10-K of PXRE for
the fiscal year ended December 31, 1991 (File No. 0-15428), and incorporated
herein by reference).
10.8 Amended and Restated Agreement Concerning Filing of Consolidated
Federal Income Tax Returns dated as of August 23, 1993 between PXRE and PXRE
Reinsurance (Exhibit 10.8 to the Annual Report on Form 10-K of PXRE for the
fiscal year ended December 31, 1993 (File No. 0-15428), and incorporated herein
by reference).
10.9 Employee Stock Purchase Plan, as amended (Appendix A to PXRE's
Proxy Statement dated April 23, 1993, and incorporated herein by reference).(M)
10.10 Executive Long-Term Bonus Plan (Exhibit 10.6 to PXRE's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991 (File No.
0-15428), and incorporated herein by reference) and Amendment thereto made as of
August 22, 1991 (Exhibit 10.14 to PXRE's Form S-2 Registration Statement dated
February 21, 1992, as amended by Amendment No. 1 thereto dated April 1, 1992 and
by Amendment No. 2 thereto dated April 13, 1992 and by Amendment No. 3 thereto
dated April 23, 1992 (File No. 33-45893), and incorporated herein by
reference).(M)
- ---------------------
(M) indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
- 55 -
<PAGE>
<PAGE>
10.11 Executive Severance Plan (Exhibit 10.1 to the Annual Report on
Form 10-K of PXRE for the fiscal year ended December 31, 1989 (File No.
0-15428), and incorporated herein by reference).
10.12 1988 Stock Option Plan, as amended (Exhibit A to the first
Prospectus forming part of PXRE's Form S-8 and S-3 Registration Statement dated
June 21, 1990 (File No. 33-35521), and incorporated herein by reference).(M)
10.13 1987 Stock Option Plan, as amended (Appendix B to PXRE's Proxy
Statement dated April 13, 1990, and incorporated herein by reference).(M)
10.14 Non-Employee Director Deferred Stock Plan (Appendix A to PXRE's
Proxy Statement dated April 12, 1991, and incorporated herein by reference).(M)
10.15 Restated Employee Annual Incentive Bonus Plan, as amended
(Appendix A to PXRE's Proxy Statement dated April 22, 1994, and incorporated
herein by reference).(M)
10.16 1992 Officer Incentive Plan, as amended (Appendix B to PXRE's
Proxy Statement dated April 22, 1994 and incorporated herein by reference).(M)
10.17 Quota Share Retrocessional Agreement between PXRE Reinsurance
and Trenwick America Reinsurance Corporation (Exhibit 10.21 to the Annual Report
on Form 10-K of PXRE for the fiscal year ended December 31, 1993 (File No.
0-15428), and incorporated herein by reference).
10.18 Management Agreement dated as of November 8, 1993 among PXRE
Reinsurance, Transnational Re Corporation and Transnational Reinsurance Company
(Exhibit 10.22 to the Annual Report on Form 10-K of PXRE for the fiscal year
ended December 31, 1993 (File No. 0-15428), and incorporated herein by
reference).
10.19 Aggregate Excess of Loss Reinsurance Agreement dated as of
November 8, 1993 between PXRE Reinsurance, as reinsurer, and Transnational
Reinsurance Company, as reinsured (Exhibit 10.23 to the Annual Report on Form
10-K of PXRE for the fiscal year ended December 31, 1993 (File No. 0-15428), and
incorporated herein by reference).
- ---------------------
(M) indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
- 56 -
<PAGE>
<PAGE>
10.20 Registration Rights Agreement dated as of November 8, 1993
between PXRE Reinsurance and Transnational Re Corporation (Exhibit 10.24 to the
Annual Report on Form 10-K of PXRE for the fiscal year ended December 31, 1993
(File No. 0-15428), and incorporated herein by reference).
10.21 Amendment No. 1 dated December 1, 1994 to the Management
Agreement dated as of November 8, 1993 between PXRE Reinsurance, Transnational
Re Corporation and Transnational Reinsurance Company (Exhibit 10.21 to the
Annual Report on Form 10-K of PXRE for the fiscal year ended December 31, 1994
(File No. 0-15428), and incorporated herein by reference).
10.22 Addendum No. 2 dated November 10, 1994 to the PXRE Group Amended
and Restated Agreement Concerning Filing of Consolidated Federal Income Tax
Returns (Exhibit 10.22 to the Annual Report on Form 10-K of PXRE for the fiscal
year ended December 31, 1994 (File No. 0-15428), and incorporated herein by
reference).
10.23 Amendment dated August 1994 to the Severance Plan for Certain
Executives of PXRE Corporation (Exhibit 10.23 to the Annual Report on Form 10-K
of PXRE for the fiscal year ended December 31, 1994 (File No. 0-15428), and
incorporated herein by reference).(M)
10.24 Lease dated May 9, 1994 between Thornall Associates and PXRE
Corporation (Exhibit 10.24 to the Annual Report on Form 10-K of PXRE for the
fiscal year ended December 31, 1994 (File No. 0-15428), and incorporated herein
by reference).
10.25 Director Stock Option Plan (Appendix A to PXRE's Proxy Statement
dated May 3, 1995, and incorporated herein by reference).(M)
10.26 Amendment No. 3 to Investment Advisory Agreement between PXRE
Reinsurance Company and Phoenix Investment Counsel, Inc. (predecessor of Phoenix
Duff & Phelps) effective June 1, 1995 (attached hereto as Exhibit 10.26).
(11) Statement re computation of earnings per share (attached hereto
as Exhibit 11).
- ---------------------
(M) indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
- 57 -
<PAGE>
<PAGE>
(12) Statement re computation of ratios (attached hereto as Exhibit
12).
(21) List of Subsidiaries. During 1995, PXRE had three wholly-owned
subsidiaries: PXRE Reinsurance Company, which is chartered in Connecticut as a
property and casualty insurance and reinsurance company, PXRE Trading
Corporation, a Delaware corporation and PXRE Limited, an English company. PXRE
also has an approximately 21.9% interest in Transnational Re Corporation, a
publicly-traded Delaware corporation and its wholly-owned subsidiaries. (See the
discussion in this Form 10-K under the captions "Business--Management
Agreement" and "--Other Operations" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations".)
(23) Consents of Experts and Counsel. The consent of Price Waterhouse
LLP, independent accountants to PXRE, is included as part of Item 14(a)(2) of
this Form 10-K.
(24) Power of Attorney. Copies of the powers of attorney executed by
each of Robert W. Fiondella, Bernard Kelly, Wendy Luscombe, Edward P. Lyons,
Philip R. McLoughlin, David W. Searfoss, Donald H. Trautlein and Wilson Wilde
are attached hereto as Exhibit 24.
(27) Financial Data Schedule. Exhibit 27 included in electronic filing
only.
(28) Information from reports furnished to state insurance regulatory
authorities. Filed in paper under cover of Form SE.
(b) Current Reports.
None.
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(2) above.
- ---------------------
(M) indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
- 58 -
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, PXRE Corporation has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PXRE CORPORATION
By: /s/ Gerald L. Radke
--------------------------------
Gerald L. Radke
Its Chairman of the Board,
President and Chief
Executive Officer
Date: March 29, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of PXRE
Corporation and in the capacity and on the dates indicated:
By: /s/ Gerald L. Radke By: /s/ Sanford M. Kimmel
_______________________________ __________________________
Gerald L. Radke Sanford M. Kimmel
Its Chairman of the Board, Its Senior Vice President,
President and Chief Treasurer and Chief
Executive Officer Financial Officer
(Principal Executive (Principal Financial
Officer) and Director Officer and Principal
Accounting Officer)
Date: March 29, 1996 Date: March 29, 1996
By* By*
_______________________________ __________________________
Robert W. Fiondella Bernard Kelly
Director Director
Date: March 29, 1996 Date: March 29, 1996
By* By*
_______________________________ __________________________
Wendy Luscombe Edward Lyons
Director Director
Date: March 29, 1996 Date: March 29, 1996
- 59 -
<PAGE>
<PAGE>
By* By*
_______________________________ __________________________
Philip R. McLoughlin David W. Searfoss
Director Director
Date: March 29, 1996 Date: March 29, 1996
By* By*
_______________________________ __________________________
Donald H. Trautlein Wilson Wilde
Director Director
Date: March 29, 1996 Date: March 29, 1996
*By: /s/ Gerald L. Radke
__________________________
Gerald L. Radke
Attorney-in-Fact
- 60 -
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
PXRE CORPORATION
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, of stockholders' equity and of cash
flow present fairly, in all material respects, the financial position of PXRE
Corporation and its subsidiaries at December 31, 1995 and 1994, and the results
of their operations and their cash flow for each of the three years in the
period ended December 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
February 15,1996
F-1
<PAGE>
<PAGE>
PXRE Consolidated Balance Sheets
Corporation
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
---- ----
<S> <C> <C>
Assets Investments:
Fixed maturities, available for sale, at fair value (amortized
cost $216,348,000 and $212,465,000, respectively) $ 221,356,767 $ 204,587,171
Equity securities, at fair value (cost $5,000,000) 5,172,428 0
Short-term investments 41,721,656 26,812,546
------------- -------------
Total investments 268,250,851 231,399,717
Cash 838,548 389,249
Accrued investment income 3,343,505 3,164,703
Receivables:
Unreported premiums 23,376,727 21,386,835
Balances due from intermediaries and brokers 6,335,593 4,196,930
Other receivables 4,175,443 5,499,648
Reinsurance recoverable: TREX 8,966,592 5,348,637
Non-affiliates 25,130,816 40,055,458
Ceded unearned premiums 5,433,030 4,702,678
Deferred acquisition costs 1,564,926 863,138
Income tax recoverable 479,473 1,601,844
Deferred income tax benefit 0 1,358,229
Investment in equity of TREX 36,003,384 28,883,788
Receivable from TREX 446,799 73,423
Other assets 9,119,750 4,870,139
------------- -------------
Total assets $ 393,465,437 $ 353,794,416
------------- -------------
Liabilities Losses and loss expenses $ 72,718,914 $ 81,835,558
Unearned premiums 13,685,391 12,263,128
Reinsurance balances payable: TREX 5,647,532 4,966,732
Non-affiliates 8,698,862 9,398,128
Notes payable 67,775,000 69,700,000
Deferred income tax payable 3,653,102 0
Payable for securities 2,496,232 0
Other liabilities 7,628,228 8,859,928
------------- -------------
Total liabilities 182,303,261 187,023,474
------------- -------------
Stockholders' Serial preferred stock, $.01 par value --
equity 500,000 shares authorized; 0 and 10,009 Series A 8% cumulative
convertible shares issued and outstanding 0 100
Common stock, $.01 par value --
20,000,000 shares authorized; 8,983,896 and 6,921,609 shares issued 89,839 69,216
Additional paid-in capital 117,668,048 116,888,369
Net unrealized appreciation (depreciation) on investments, net of
deferred income tax expense (benefit) of $1,813,000 and ($2,757,000) 3,782,500 (5,976,354)
Retained earnings 91,882,834 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) (541,586) (283,550)
------------- -------------
Total stockholders' equity 211,162,176 166,770,942
------------- -------------
Total liabilities and stockholders' equity $ 393,465,437 $ 353,794,416
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
<PAGE>
PXRE Consolidated Statements of Income
Corporation
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenues Net premiums earned $ 97,141,693 $ 110,601,155 $ 78,927,864
Net investment income 14,729,566 13,786,304 8,010,603
Net realized investment gains (losses) 85,302 (1,163,963) (1,525,544)
Gain on sale of subsidiary 0 0 10,563,966
Management fees : TREX 3,526,213 3,364,117 52,826
Non-affiliate 2,891,128 3,627,699 3,105,332
------------- ------------ --------------
118,373,902 130,215,312 99,135,047
------------- ------------ --------------
Losses and Losses and loss expenses incurred 34,716,270 52,647,445 40,570,296
expenses Commissions and brokerage 13,251,070 15,025,774 13,338,647
Other operating expenses 11,236,843 8,365,035 8,916,842
Interest expense 7,143,097 7,789,213 2,739,851
------------- ------------ --------------
66,347,280 83,827,467 65,565,636
------------- ------------ --------------
Income before income taxes and equity in net
earnings of TREX 52,026,622 46,387,845 33,569,411
Equity in net earnings of TREX 5,947,956 4,141,219 83,755
Income tax provision 18,189,000 15,700,000 11,008,000
------------- ------------ -------------
Net income $ 39,785,578 $ 34,829,064 $ 22,645,166
============= ============ =============
Preferred stock dividend $ 598,928 $ 2,004,800 $ 2,056,466
============= ============ =============
Net income available to common
stockholders $ 39,186,650 $ 32,824,264 $ 20,588,700
============= ============ =============
Per share Primary:
Net income $ 4.74 $ 4.89 $ 3.34
============= ============ =============
Average shares outstanding 8,275,125 6,709,823 6,169,871
============= ============ =============
Fully diluted:
Net income $ 4.48 $ 3.94 $ 2.70
============= ============ =============
Average shares outstanding 8,873,785 8,847,045 8,380,464
============= ============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
<PAGE>
PXRE Consolidated Statements of Stockholders' Equity
Corporation
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Common stock: Balance at beginning of period $ 69,216 $ 67,849 $ 41,340
Issuance of shares 20,623 1,367 26,509
------------- ------------- -------------
Balance at end of period $ 89,839 $ 69,216 $ 67,849
============= ============= =============
Preferred stock: Balance at beginning of period $ 100 $ 100 $ 106
Conversion of shares (100) 0 (6)
------------- ------------- -------------
Balance at end of period $ 0 $ 100 $ 100
============= ============= =============
Additional Balance at beginning of period $ 116,888,369 $ 114,336,608 $ 63,339,503
paid-in capital: Issuance of common shares 692,869 2,551,761 52,316,725
Conversion of preferred shares (20,260) 0 (1,319,620)
Other 107,070 0 0
------------- ------------- -------------
Balance at end of period $ 117,668,048 $ 116,888,369 $ 114,336,608
============= ============= =============
Unrealized Balance at beginning of period $ (5,976,354) $ 2,667,621 $ 0
appreciation Change in fair value for the period 8,488,420 (7,788,344) 2,667,621
(depreciation) Equity in net change in TREX
on investments: appreciation (depreciation) 1,270,434 (855,631) 0
------------- ------------- -------------
Balance at end of period $ 3,782,500 $ (5,976,354) $ 2,667,621
============= ============= =============
Retained earnings: Balance at beginning of period $ 57,933,848 $ 27,584,795 $ 8,313,466
Net income 39,785,578 34,829,064 22,645,166
Dividends paid to common stockholders (5,237,664) (2,475,211) (1,317,371)
Dividends accrued to preferred stockholders (598,928) (2,004,800) (2,056,466)
------------- ------------- -------------
Balance at end of period $ 91,882,834 $ 57,933,848 $ 27,584,795
============= ============= =============
Restricted stock: Balance at beginning of period $ (283,550) $ 0 $ 0
Issuance of restricted stock (499,005) (283,550) 0
Amortization of restricted stock 240,969 0 0
------------- ------------- -------------
Balance at end of period $ (541,586) $ (283,550) $ 0
============= ============= =============
Treasury stock: Balance at beginning of period $ (1,860,687) $ (1,966,743) $ (1,966,743)
Issuance of treasury stock 141,228 106,056 0
------------- ------------- -------------
Balance at end of period $ (1,719,459) $ (1,860,687) $ (1,966,743)
============= ============= =============
Total Balance at beginning of period $ 166,770,942 $ 142,690,230 $ 69,727,672
stockholders' Issuance of common shares 713,492 2,553,128 52,343,234
equity: Conversion of preferred stock (20,360) 0 (1,319,626)
Issuance of treasury stock 141,228 106,056 0
Restricted stock (258,036) (283,550) 0
Unrealized appreciation (depreciation) on investments
net of deferred income tax 9,758,854 (8,643,975) 2,667,621
Net income 39,785,578 34,829,064 22,645,166
Dividends (5,836,592) (4,480,011) (3,373,837)
Other 107,070 0 0
------------- ------------- -------------
Balance at end of period $ 211,162,176 $ 166,770,942 $ 142,690,230
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
<PAGE>
PXRE Consolidated Statements of Cash Flow
Corporation
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flow Net income $ 39,785,578 $ 34,829,064 $ 22,645,166
from operating Adjustments to reconcile net income to net cash
activities provided by operating activities:
Losses and loss expenses (9,116,644) 10,393,119 (17,225,953)
Unearned premiums 691,911 (2,280,603) (1,432,506)
Deferred acquisition costs (701,788) 760,020 1,130,368
Receivables (3,177,725) (8,687,535) 11,002,342
Reinsurance balances payable (18,467) 4,458,381 (6,958,091)
Reinsurance recoverable 11,306,688 (10,270,669) 35,049,880
Gain on sale of subsidiary 0 0 (10,563,966)
Income tax recoverable 477,805 2,993,492 (488,707)
Equity in net earnings of TREX (5,849,161) (4,090,535) 0
Other (985,918) 2,883,752 2,633,576
------------- ------------- -------------
Net cash provided by operating activities 32,412,279 30,988,486 35,792,109
------------- ------------- -------------
Cash flow Cost of fixed maturity investments (176,462,916) (70,376,940) (182,190,839)
from investing Fixed maturity investments matured/disposed 171,764,371 50,306,999 47,495,159
activities Payable for securities 2,496,232 (28,493,966) 28,493,966
Cost of equity securities (5,000,000) 0 0
Investment in joint venture (2,000,000) 0 0
Net change in short-term investments (14,909,109) 24,042,715 (46,022,933)
------------- ------------- -------------
Net cash used by investing activities (24,111,422) (24,521,192) (152,224,647)
------------- ------------- -------------
Cash flow Proceeds from issuance of common stock 335,355 1,443,460 52,343,234
from financing Charges from conversion of preferred stock 0 0 (1,319,626)
activities Cash dividends paid to preferred stockholders (933,061) (2,004,800) (2,075,600)
Cash dividends paid to common stockholders (5,237,664) (2,475,211) (1,317,371)
(Repurchase) proceeds from issuance of debt (2,016,188) (5,274,750) 75,000,000
Repayment of note payable 0 0 (5,250,000)
Net change in short-term borrowings 0 0 (3,500,000)
------------- ------------- -------------
Net cash (used) provided by financing activities (7,851,558) (8,311,301) 113,880,637
------------- ------------- -------------
Net change in cash 449,299 (1,844,007) (2,551,901)
Cash, beginning of period 389,249 2,233,256 4,785,157
------------- ------------- -------------
Cash, end of period $ 838,548 $ 389,249 $ 2,233,256
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
<PAGE>
PXRE Corporation
Notes to Consolidated Financial Statements
Years Ended December 31, 1995, 1994 and 1993
1. Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. These statements
reflect the consolidated operations of PXRE Corporation (formerly Phoenix Re
Corporation) and its subsidiaries PXRE Reinsurance Company (formerly Phoenix
Reinsurance Company) ("PXRE Reinsurance"), PXRE Trading Corporation ("PXRE
Trading") and PXRE Ltd. (collectively referred to as "PXRE") and its subsidiary,
Transnational Reinsurance Company (formerly Transnational Insurance Company)
("Transnational Reinsurance"), through October 31, 1993, the month preceding its
contribution to Transnational Re Corporation ("TREX"). As described further in
Note 9, after the closings of TREX's initial public offering on November 9 and
17, 1993, PXRE owned 21% of TREX which now owns 100% of Transnational
Reinsurance Company. Activity from November 1, 1993 to November 9, 1993 was not
material. All material transactions between the consolidated companies have been
eliminated in preparing these consolidated financial statements.
Certain reclassifications have been made for 1994 and 1993 to conform
with the 1995 presentation.
Investment at Equity
Investments in affiliated companies (20% to 50% owned) are accounted for
under the equity method.
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 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.
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. Amortization of acquisition costs amounted to $13,251,000,
$15,026,000 and $13,339,000 in 1995, 1994 and 1993, respectively.
Management Fee
Management fees are recorded as earned under various arrangements
whereby PXRE Reinsurance acts as underwriting manager for other insurers and
reinsurers, including TREX (see Note 9). 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.
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. 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
represents 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.
F-6
<PAGE>
<PAGE>
Investments
Fixed maturity investments and equity securities are considered
available for sale and are reported at fair value. Unrealized losses, as a
result of temporary changes in fair value during 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, which have an original maturity of one year or less, 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 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 (through PXRE Trading) 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 contributed $2.5
million to capitalize 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 December 31,
1995.
Leasehold Improvements, Furniture and Equipment and Other Assets
Leasehold improvements, furniture and equipment, included in other
assets, are carried at depreciated cost. Depreciation and amortization are
calculated principally on a straight-line method over 15 years. Acquired
insurance licenses are carried at amortized cost.
Debt Issuance Costs
Debt issuance costs of $2,850,000 associated with the August 1993
issuance of Senior Notes are being amortized over the term of the related debt
on a straight-line method. Such amortization expense amounted to $324,000,
$456,000 and $95,000 in 1995, 1994 and 1993, respectively, including the pro
rata charge of $59,000 and $171,000 relating to $1,925,000 and $5,300,000 of
repurchased debt in 1995 and 1994, respectively.
Foreign Exchange
Foreign currency assets and liabilities are translated at the exchange
rate in effect at the balance sheet date. Resulting gains and losses are
reflected in income for the period.
Federal Income Taxes
Deferred tax assets and liabilities reflect the expected future tax
consequences of temporary differences between carrying amounts and the tax bases
of PXRE's assets and liabilities.
Earnings Per Share
Primary earnings per share are determined by dividing net earnings
(after deducting cumulative preferred stock dividends) by the weighted average
number of shares outstanding of common stock and common stock equivalents. On a
fully diluted basis, both net earnings and shares outstanding were adjusted to
assume the conversion of convertible preferred stock from the date of issue,
unless the effect of the assumed conversion was antidilutive.
Fair Value of Financial Instruments
Fair values of certain assets and liabilities are disclosed in
the notes to the consolidated financial statements based on published market
values, if available, or estimates based upon fair values of similar issues.
Fair values are reported in Notes 4, 5 and 9.
2. Business, Risks and Other Matters
PXRE, through its wholly-owned subsidiary PXRE Reinsurance Company,
provides treaty and facultative reinsurance to primary insurers and reinsurers
on commercial and personal property risks, and marine and aviation risks. PXRE
solicits its treaty and facultative reinsurance business from the worldwide
reinsurance brokerage market, committing and withholding its underwriting
capacity and altering its mix of business to focus on business where management
believes that above average underwriting results can be achieved. To supplement
its underwriting capacity and generate management fee income, PXRE manages
business for other insurers and reinsurers through retrocessional agreements and
management agreements. In recent years, PXRE has been pursuing a strategy of
focusing on catastrophe related coverages and diversifying its exposures by
writing a substantial amount of international reinsurance. See "Certain Risks
and Uncertainties" in Management's Discussion and Analysis of Financial
Condition and Results of Operations for further information regarding PXRE's
business and risks affecting these consolidated financial statements.
F-7
<PAGE>
<PAGE>
3. Underwriting Programs
Premiums written and earned for the years ended December 31, 1995, 1994
and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Premiums written
----------------
Assumed $155,380,180 $179,685,909 $116,907,941
Direct 0 (1,630) 66,964
Ceded:Managed business participants (26,773,867) (29,841,808) (23,386,788)
Catastrophe coverage (6,358,957) (12,182,898) (14,917,860)
TREX management agreement (24,790,377) (28,722,490) (270,220)
Other 178,831 (418,744) (894,209)
------------- ------------- -------------
Total reinsurance premiums ceded (57,744,370) (71,165,940) (39,469,077)
------------- ------------- -------------
Net premiums written $ 97,635,810 $108,518,339 $ 77,505,828
============= ============ =============
1995 1994 1993
---- ---- ----
Premiums earned
---------------
Assumed $154,155,712 $180,296,809 $120,431,402
Direct 0 (1,630) 248,424
Ceded (57,014,019) (69,694,024) (41,751,962)
------------- ------------- -------------
Net premiums earned $97,141,693 $110,601,155 $78,927,864
============= ============ =============
</TABLE>
Substantially, all premiums written were assumed through reinsurance
brokers or intermediaries. In 1995, 1994 and 1993, two, one and two reinsurance
intermediaries, respectively, individually accounted for more than 10% of gross
premiums written, and collectively accounted for approximately 34%, 21% and 35%
of gross premiums written, respectively.
Under the terms of the management agreement described in Note 9, PXRE
retroceded $24,790,000, $28,722,000 and $270,000 of premiums written to
Transnational Reinsurance in 1995, 1994 and 1993, respectively.
In the past, PXRE has entered into retrocessional arrangements providing
catastrophe protection. In recent years, PXRE reduced, upon renewal, its own
catastrophe excess of loss retrocessional facilities (and associated premiums
ceded) and has borne the associated increase in net exposures while pursuing
various retrocessional arrangements whereby it manages business for
participants. Although PXRE elected not to purchase any significant
retrocessional coverage in 1995, as the cost of catastrophe retrocessional
facilities declined, PXRE has begun again to selectively purchase such
coverages. In the event that retrocessionaires are unable to meet their
contractual obligations, PXRE would be liable for such defaulted amounts.
The components of reinsurance recoverable as stated on the December 31,
1995 and 1994 consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Losses and loss expense liabilities $28,242,045 $35,738,376
Loss payments 5,855,363 9,665,719
----------- -----------
$34,097,408 $45,404,095
=========== ===========
</TABLE>
The components of losses and loss expenses incurred as shown in the December 31,
1995, 1994 and 1993 consolidated statements of income are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Assumed $ 49,370,127 $ 92,550,583 $ 56,378,592
Direct 0 0 63,422
Ceded (14,653,857) (39,903,138) (15,871,718)
------------ ------------ ------------
Net $ 34,716,270 $ 52,647,445 $ 40,570,296
============ ============ ============
</TABLE>
F-8
<PAGE>
<PAGE>
Activity in the losses and loss expense liability for the years ended December
31, 1995, 1994 and 1993 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net balance January 1 $ 46,044,699 $ 43,460,531 $ 35,353,423
Plus reinsurance recoverables 35,790,859 27,981,908 53,314,969
-------------- ------------- --------------
Gross balance at January 1 81,835,558 71,442,439 88,668,392
-------------- ------------- --------------
Incurred related to:
Current year 43,388,163 85,804,406 43,687,337
Prior years 5,981,969 6,746,180 12,754,682
-------------- ------------- --------------
Total incurred 49,370,132 92,550,586 56,442,019
-------------- ------------- --------------
Paid related to:
Current year 16,885,840 44,337,530 13,598,923
Prior years 41,600,936 37,819,937 60,069,049
-------------- ------------- --------------
Total paid 58,486,776 82,157,467 73,667,972
-------------- ------------- --------------
Gross balance at December 31 $ 72,718,914 $ 81,835,558 $ 71,442,439
============= ============= =============
</TABLE>
As a result of changes in estimates of insured events in prior years,
the net provision for losses and loss expenses increased by approximately
$4,311,000 in 1995 primarily due to the Northridge earthquake; $3,261,000 in
1994 primarily due to marine pro rata experience and the 1993 Midwest floods and
$10,499,000 in 1993 primarily due to hurricanes Andrew and Iniki.
4. Investments
The amortized cost, gross unrealized gains, gross unrealized losses and
estimated fair value of investments in fixed maturities and equity securities as
of December 31, 1995 and 1994 are shown below.
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
1995
United States government securities $ 165,405,594 $5,855,375 $ 0 $171,260,969
United States government agency
mortgage-backed
securities/asset-backed
securities 50,942,612 12,419 859,233 50,095,798
------------- ---------- ----------- ------------
Total fixed maturities $ 216,348,206 $5,867,794 $ 859,233 $221,356,767
============= ========== =========== ============
Equity securities $ 5,000,000 $ 172,428 $ 0 $ 5,172,428
============= ========== =========== ============
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
1994
- ----
United states government securities $ 70,848,551 $ 0 $ 1,320,977 $ 69,527,574
United States government agency
mortgage-backed
securities/asset-backed
securities 41,493,723 0 2,850,019 38,643,704
Obligations of states
and political subdivisions 100,123,013 599,281 4,306,401 96,415,893
------------- ---------- ----------- ------------
Total fixed maturities $ 212,465,287 $ 599,281 $ 8,477,397 $204,587,171
============= ========== =========== ============
</TABLE>
F-9
<PAGE>
<PAGE>
Proceeds, gross realized gains, and gross realized losses from sales of
fixed maturity investments before maturity date or securities that prepay were
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Proceeds $126,497,804 $ 21,562,415 $ 31,699,377
============ ============ ============
Gross gains $ 2,303,300 $ 0 $ 62,047
Gross losses (2,217,998) (1,163,963) (1,587,591)
------------ ------------ ------------
Net realized gains (losses) $ 85,302 $ (1,163,963) $ (1,525,544)
============ ============ ============
</TABLE>
There were no sales of equity securities during 1995.
Net Investment Income
The components of net investment income were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Fixed maturity investments $ 12,896,608 $ 12,259,456 $ 6,999,064
Equity securities 76,704 0 0
Short-term investments 2,019,693 1,639,348 1,134,459
------------- ------------ ------------
14,993,005 13,898,804 8,133,523
Less investment expenses 263,439 112,500 122,920
------------- ------------ ------------
Net investment income $ 14,729,566 $ 13,786,304 $ 8,010,603
============= ============= ============
</TABLE>
Investment Expenses
Investment expenses primarily represent fees paid to Phoenix Duff &
Phelps Corporation, a public majority-owned subsidiary of Phoenix Home Life
Mutual Insurance Company which owned 7.3% of the outstanding common stock of
PXRE at December 31, 1995.
Investment Maturity Distributions
The amortized cost and estimated fair value of fixed maturity
investments at December 31, 1995 by contractual maturity date is shown below.
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Maturity Cost % Value %
- -------- ---- ----- ----- -----
<S> <C> <C> <C> <C>
One year or less $ 8,971,837 4.2 $ 9,061,250 4.1
Over 1 through 5 years 89,859,465 41.5 92,240,244 41.7
Over 5 through 10 years 66,574,292 30.8 69,959,475 31.6
------------ ----- ------------ -----
165,405,594 76.5 171,260,969 77.4
United States government agency
mortgage-backed
securities/asset-backed
securities 50,942,612 23.5 50,095,798 22.6
------------ ----- ------------ -----
Total $216,348,206 100.0 $221,356,767 100.0
============ ===== ============ =====
</TABLE>
In addition to fixed maturities, PXRE held $41,721,656 of short-term
investments at December 31, 1995, comprised principally of high grade commercial
paper with original maturities of one year or less.
Restricted Assets
Under the terms of certain reinsurance agreements, irrevocable letters
of credit in the amount of $734,895 were issued at December 31, 1995, in respect
of reported loss reserves and unearned premiums. Investments with a par value of
$1,500,000 have been pledged as collateral with issuing banks. In addition,
securities with a par value of $5,122,000 at December 31, 1995 were on deposit
with various state insurance departments in order to comply with insurance laws.
F-10
<PAGE>
<PAGE>
5. Notes Payable and Credit Arrangements
In August 1993, PXRE completed a public offering of $75,000,000 of 9.75%
Senior Notes due August 15, 2003. The balance outstanding at December 31, 1995
and 1994, amounting to $67,775,000 and $69,700,000, respectively, is carried at
par which approximates fair market value. Interest is payable on the Senior
Notes semi-annually commencing February 15, 1994. The notes are redeemable on or
after August 15, 1998 at the option of PXRE, initially at 103.656%, declining to
100% at August 15, 2001 and thereafter, plus accrued and unpaid interest. The
Indenture governing the Senior Notes contains certain covenants which, among
other things, limit the ability of PXRE; (a) to incur certain additional
indebtedness and, in the case of the Restricted Subsidiaries (as defined), to
issue preferred stock; (b) to pay dividends, repurchase stock and to make
certain other Restricted Payments (as defined); (c) to sell or transfer other
assets; (d) to create liens; or (e) to engage in any business other than the
insurance and reinsurance businesses and other businesses incidental and related
thereto. In addition, the Indenture does not permit PXRE to sell or issue any
stock of PXRE Reinsurance or any other Principal Insurance Subsidiary. The
Indenture also provides that in the event of a Change of Control, PXRE will
offer, within 30 days, 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.
PXRE Reinsurance has an unsecured line of credit facility under which it
can borrow up to $10,000,000 at the lending bank's base rate. At December 31,
1995, no amount was outstanding under this line of credit. No commitment fee was
required for this facility.
Interest and commitment fees paid, were $6,728,000, $7,354,000 and
$310,000 for 1995, 1994 and 1993, respectively.
6. Income Taxes
The components of the provision for income taxes for the years ended
December 31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current
Federal $ 15,265,000 $ 10,607,000 $ 5,671,000
State and local 374,000 293,000 168,000
Foreign 2,109,000 3,899,000 764,000
------------ ------------ -----------
17,748,000 14,799,000 6,603,000
Deferred 441,000 901,000 4,405,000
------------ ------------ -----------
Income tax provision $ 18,189,000 $ 15,700,000 $11,008,000
============ ============ ===========
Income taxes paid $ 16,507,000 $ 10,246,000 $ 7,250,000
============ ============ ===========
</TABLE>
The income tax provision for each of the years presented differs from
the amounts determined by applying the applicable U.S. statutory federal income
tax rate to pre-tax income as a result of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income taxes at statutory rates $ 18,209,000 $ 16,235,000 $ 11,749,000
Tax-exempt interest income (1,086,000) (1,520,000) (873,000)
Amortization of intangibles 16,000 16,000 0
Adjustments of prior years' items 244,000 266,000 119,000
Foreign tax provision 2,109,000 3,899,000 764,000
Foreign tax credit utilized (2,284,000) (3,412,000) (669,000)
State and local provision,
net of federal benefit 243,000 191,000 109,000
Other, net 738,000 25,000 (191,000)
------------ ------------ ------------
$ 18,189,000 $ 15,700,000 $ 11,008,000
============ ============ ============
</TABLE>
F-11
<PAGE>
<PAGE>
The significant components of the net deferred tax provision (benefit)
for the years ended December 31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Discounted losses and loss $ 108,000 $ (762,000) $ (192,000)
expenses
Accrued ceded premiums 37,000 1,588,000 396,000
Unearned premiums (62,000) 153,000 103,000
Deferred acquisition costs 220,000 (266,000) (396,000)
Deferred compensation and (266,000) 0 0
benefits
Unrealized foreign exchange (4,000) 168,000 38,000
Operating loss carryforward 0 0 753,000
Foreign tax credit carryforward (893,000) 0 (42,000)
Discount on long term bonds, net 618,000 0 (66,000)
Appreciation on undistributed
earnings of affiliate 692,000 0 0
Gain from sale of subsidiary 0 0 3,697,000
Tax effect of federal corporate
income tax rate increase 0 0 (109,000)
Other, net (9,000) 20,000 223,000
----------- ----------- -----------
$ 441,000 $ 901,000 $ 4,405,000
=========== =========== ===========
</TABLE>
The significant components of the net deferred income tax asset
(liability) are as follows:
<TABLE>
<CAPTION>
Deferred tax asset: 1995 1994
---- ----
<S> <C> <C>
Discounted losses and loss expenses $ 1,952,000 $ 2,060,000
Tax effect of net unrealized depreciation
on investments 0 2,757,000
Unearned premiums 598,000 536,000
Accrued ceded premiums 0 37,000
Deferred compensation and benefits 343,000 0
Foreign tax credit carryforward 893,000 0
Other, net 111,000 247,000
----------- -----------
Total deferred income tax asset $ 3,897,000 $ 5,637,000
----------- -----------
Deferred income tax liability:
Appreciation on undistributed
earnings of affiliate $ (692,000) $ 0
Gain from sale of subsidiary (3,697,000) (3,697,000)
Deferred acquisition costs (522,000) (302,000)
Tax effect of net unrealized
appreciation on investments (1,813,000) 0
Unrealized foreign exchange (198,000) (202,000)
Discount on long term bonds, net (628,000) 0
Other, net 0 (78,000)
----------- -----------
Total deferred income tax liability $(7,550,000) $(4,279,000)
----------- -----------
Net deferred income tax (liability) asset $(3,653,000) $ 1,358,000
=========== ===========
</TABLE>
7. Leases and Rentals
Rental expenses for operating leases, principally with respect to office
space and equipment, amounted to $1,190,000, $923,000 and $837,000 in 1995, 1994
and 1993, respectively.
Future net minimum rental payments under non-cancelable operating leases
aggregate $5,843,000 as follows: 1996--$901,000; 1997--$513,000; 1998--$434,000;
1999--$406,000; 2000--$401,000; and thereafter $3,188,000.
F-12
<PAGE>
<PAGE>
8. Stockholders' Equity and Dividend Restrictions
Stockholders' Equity
Authorized and issued common stock (1 cent par value) of PXRE consisted
of 20,000,000 and 8,983,896 shares as of December 31, 1995.
In addition, at December 31, 1995, there were 500,000 shares of serial
preferred stock (1 cent par value) authorized and none outstanding. The Board of
Directors is authorized to determine the terms of each series of preferred stock
which may be issued. During the second quarter of 1992, PXRE completed an
offering of 1,059,800 depositary shares, each representing 1/100 of a share of
PXRE's Series A Cumulative Preferred Stock. Each depositary share paid dividends
at an annual rate of 8% on its $25 per share liquidation value and was
redeemable at the option of PXRE on or after May 1, 1995.
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.
Dividend Restrictions
The Insurance Department of the State of Connecticut, in which PXRE
Reinsurance is domiciled, recognizes as net income and surplus (stockholders'
equity) those amounts determined in conformity with statutory accounting
practices ("SAP") prescribed or permitted by the department, which differ in
certain respects from generally accepted accounting principles. The amount of
statutory capital and surplus of PXRE Reinsurance at December 31 and statutory
net income for the periods then ended, as filed with insurance regulatory
authorities are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory capital and surplus $250,231,000 $211,988,000 $185,844,000
Statutory net income $ 37,996,000 $ 33,538,000 $ 29,195,000
</TABLE>
PXRE Reinsurance is subject to state regulatory restrictions which limit
the maximum amount of annual dividends or other distributions, including loans
or cash advances, available to stockholders without prior approval of the
Insurance Commissioner of the State of Connecticut.
As of December 31, 1995, the maximum amount of dividends and other
distributions which may be made by PXRE Reinsurance during 1996 without prior
approval is limited to its 1995 statutory net income of approximately
$37,996,000. Accordingly, the remaining amount of its capital and surplus is
considered restricted.
Under the terms of the Senior Notes, dividends to PXRE stockholders in
any year are limited as described in Note 5.
9. Investment in TREX
Public Offering of Subsidiary
On November 1, 1993, a registration statement relating to an initial
public offering (the "Offering") by TREX of 5,750,000 shares of Class A common
stock at $20 per share was declared effective. In conjunction with the formation
of TREX and registration of TREX's Class A common stock in the Offering, all of
the outstanding capital stock of Transnational Reinsurance (formerly a 100%
subsidiary of PXRE Reinsurance) was contributed by PXRE Reinsurance to TREX in
exchange for the issuance of 1,535,848 shares of TREX's Class B common stock
which caused PXRE Reinsurance's holdings of Class B common stock (when combined
with the 100 shares of Class B common stock contributed to PXRE Reinsurance by
PXRE in connection with the closing of the Offering) to constitute approximately
21% of all of the outstanding common stock of TREX immediately after the
Offering. TREX now specializes in providing brokered property retrocessional
reinsurance and marine and aviation retrocessional reinsurance in the United
States and international markets pursuant to a management agreement with PXRE
Reinsurance. As a result of this transaction, PXRE recorded a pre-tax gain on
sale in the fourth quarter of 1993 amounting to $10,563,966 representing the
difference between PXRE Reinsurance's interest in the net assets of
Transnational Reinsurance immediately after the public offering and the
historical book value of its investment in Transnational Reinsurance.
F-13
<PAGE>
<PAGE>
The investment in Class B common stock of TREX representing 21.9% of the
outstanding Class A and B common stock of TREX is accounted for on the equity
method of accounting. Fair value of PXRE's investment in TREX at December 31,
1995 and 1994, based on the closing price of the Class A stock as reported by
the NASDAQ National Market System, was approximately $37,631,000 and
$36,095,000, respectively.
Summarized financial information for TREX at December 31, 1995 and 1994
and for the years then ended, respectively, is as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Total assets $202,441,298 $159,908,509
============ ============
Total stockholders' equity $164,870,961 $136,304,764
============ ============
Revenues $ 79,123,597 $ 71,489,305
============ ============
Net income $ 27,267,276 $ 19,645,252
============ ============
</TABLE>
Management Agreement
Under the Management Agreement between TREX, Transnational Reinsurance
and PXRE Reinsurance, Transnational Reinsurance pays PXRE Reinsurance an annual
basic management fee equal to 5% of Transnational Reinsurance's gross written
premiums. In addition, PXRE Reinsurance will be entitled to receive from TREX a
contingent fee equal to 20% of "net income" in excess of a 20% "return on
equity" of TREX, as defined in the Management Agreement, for each year, or part
thereof, that the Management Agreement remains effective, commencing January 1,
1994. TREX is required to reimburse PXRE for all expenses directly attributable
to it.
Reinsurance Agreement
In connection with the closing of the Offering, Transnational
Reinsurance and PXRE Reinsurance entered into a reinsurance agreement in order
to protect Transnational Reinsurance from adverse loss development and
uncollectible reinsurance relating to business written prior to the closing of
the Offering. As of December 31, 1995, there have been no incurred losses under
this agreement.
10. Employee Benefits
Benefit Plans
Effective January 1, 1993, PXRE adopted a non-contributory defined
benefit pension plan covering all employees with one year or more of service and
who had attained age 21. Benefits are generally based on years of service and
compensation. PXRE funds the plan in amounts not less than the minimum statutory
funding requirement nor more than the maximum amount that can be deducted for
Federal income tax purposes.
PXRE also sponsors a supplemental executive retirement plan. This plan
is nonqualified and provides certain key employees benefits in excess of normal
pension benefits.
Prior to January 1, 1993, PXRE's employees participated in a
non-contributory defined contribution plan and a defined contribution savings
and investment plan for employees with one year or more of service and who
attained age 21.
The net pension expenses for the company-sponsored plans included the
following components at December 31, based on a January 1, valuation date (the
latest actuarial estimate):
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost of benefits earned $ 185,584 $ 71,909 $ 114,497
Interest cost on projected benefit
obligations 268,173 8,578 13,398
Return on plan assets (633) (156) 0
Net amortization of deferred prior
service cost 166,318 (202) 11,962
--------- --------- ---------
Pension expense $ 619,442 $ 80,129 $ 139,857
========= ========= =========
</TABLE>
F-14
<PAGE>
<PAGE>
The following table sets forth the funded status of the plans and
amounts recognized in the consolidated balance sheets:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits $ 1,071,776 $ 0
Non vested 48,568 5,498
----------- -----------
Accumulated benefit obligation 1,120,344 5,498
Effect of future salary increases 1,380,611 182,735
----------- -----------
Projected benefit obligation 2,500,955 188,233
Plan assets at fair value 11,507 10,874
----------- -----------
Funded status (2,489,448) (177,359)
Unrecognized net (loss) gain 140,969 (100,803)
Unrecognized prior service cost 1,519,769 68,894
----------- -----------
Accrued pension liability $ (828,710) $ (209,268)
=========== ===========
</TABLE>
The assumptions used in computing the information above were as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Discount rate-pension expense 7.0% 8.0%
Expected long-term rate of return 8.0% 8.0%
Future compensation growth rate 5.0% 6.0%
</TABLE>
Employee Stock Purchase Plan
PXRE maintains an Employee Stock Purchase Plan under which it has
reserved 41,763 shares of its common stock for issuance to PXRE personnel. The
price per share is the lesser of 85% of the fair market value at either the date
granted or the date exercised. Under the plan 3,768, 3,388 and 3,833 shares of
PXRE common stock were issued for total consideration of approximately $84,000,
$74,000 and $62,000 in 1995, 1994 and 1993, respectively.
11. Stock Options and Grants
The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("SFAS") No. 123 "Accounting for Stock-Based
Compensation" effective for fiscal years beginning after December 15, 1995. This
standard requires disclosure of fair value of all options issued to purchase
PXRE stock. PXRE has not adopted SFAS No. 123 at December 31, 1995 and does not
believe that the adoption of this standard will have an effect on the financial
position of PXRE.
During 1987, PXRE granted six officers options to purchase shares of
common stock. All of these options are currently exercisable and expire on March
25, 1997. At December 31, 1995, 151,800 of these options had been exercised.
PXRE adopted in 1988, a plan which provides for the grant of incentive
stock options and non-qualified stock options to officers and key employees.
Options granted under the 1988 Stock Option Plan have a term of 10 years and
become exercisable in four equal annual installments. The exercise price for
options granted pursuant to the plan must be equal to or exceed the fair market
value of the common stock on the date the option is granted. At December 31,
1995, 234,925 options had been exercised under the 1988 Stock Option Plan. In
1992, the Board of Directors resolved to freeze the 1988 Stock Option Plan as of
December 31, 1992, so that no further options could be granted thereafter under
this plan.
In 1992, a Restated Employee Annual Incentive Bonus Plan was approved.
Incentive compensation is based in part on return on equity compared to a target
return on equity and in part on the discretion of the Restated Bonus Plan
Committee. In 1995 and 1994, $1,757,000 and $1,343,000, respectively, was
incurred under this plan. In addition, 30% of any bonus granted to certain
levels of employees is paid in restricted shares of common stock. As of December
31, 1995, 34,000 restricted shares had been granted under this plan.
F-15
<PAGE>
<PAGE>
In 1992, PXRE adopted a 1992 Officer Incentive Plan which provides for
the grant of incentive stock options, non-qualified stock options and awards of
shares of common stock subject to certain restrictions. Options granted under
the plan have a term of 10 years and generally become exercisable one year from
the date of grant. The exercise price for the incentive stock options must be
equal to or exceed the fair market value of the common stock on the date the
option is granted. The exercise price for the non-qualified options may be less
than, equal to, or greater than the fair market value of the common stock on the
date of grant, but not less than 50% of such fair market value. As of December
31, 1995, 162,165 options and no shares of restricted stock had been granted
under this plan.
Information regarding the above option plans is summarized below:
<TABLE>
<CAPTION>
Number of Option Price
of Shares Per Share Range
--------- ---------------
<S> <C> <C>
Outstanding at December 31, 1992 595,336 $ 8.00 - $13.00
Options granted 41,214 $25.00
Options exercised 222,374 $ 8.00 - $13.00
Options canceled 37,083 $ 8.00 - $25.00
-------
Outstanding at December 31, 1993 377,093 $ 8.00 - $25.00
Options granted 56,330 $23.875
Options exercised 130,541 $ 8.00 - $13.00
Options canceled 1,486 $ 8.75 - $25.00
-------
Outstanding at December 31, 1994 301,396 $ 8.00 - $25.00
Options granted 64,621 $24.875
Options exercised 22,528 $ 8.75 - $25.00
Options canceled 589 $23.875 - $25.00
-------
Outstanding at December 31, 1995 342,900 $ 8.00 - $25.00
=======
</TABLE>
Total authorized common stock reserved for grants of stock options and
restricted stock under the above plans is 885,746 shares. Total shares of
200,386 relate to stock options which are exercisable at December 31, 1995, at
exercise prices between $8.00 and $25.00. All options become exercisable upon a
change of control of PXRE as defined by the plans.
In 1990, PXRE adopted a non-employee Director Deferred Stock Plan
granting 2,000 shares of its common stock to each non-employee Board member
at the time specified in the plan. The 10,000 shares of stock granted to
Board members who are not employees of PXRE or Phoenix Home Life will be issued
to Board members at or after their retirement according to the option selected
from those defined in the Plan. The 6,000 shares granted to Board members who
are employees of Phoenix Home Life were issued on August 24, 1993. Increases and
(decreases) to the obligations under the Plan amounted to $(25,000), $65,750 and
$358,000 in 1995, 1994 and 1993, respectively.
In 1995, PXRE adopted a non-employee Director Stock Option Plan which
provides for an annual grant of 8,000 options from 1995 to 2005 inclusive.
Options granted under the plan have a term of 10 years from the date of grant
and are exercisable in three equal annual installments commencing one year from
the date of grant. The exercise price of the options is the fair market value on
the date of grant. As of December 31, 1995, 8,000 options were granted and none
were exercisable.
12. Segment Information
PXRE operates in one significant industry segment: property and casualty
reinsurance. Domestic gross premiums written represent U.S. based risks written
by U.S. based reinsureds. All other gross premiums written are considered
international (principally the United Kingdom, Continental Europe, Australia
and Asia).
<TABLE>
<CAPTION>
1995 % 1994 % 1993 %
---- - ---- - ---- -
Gross Premiums Written:
<S> <C> <C> <C> <C> <C> <C>
Domestic $ 44,824,000 29 64,857,000 36 55,684,000 48
International 110,556,000 71 114,827,000 64 61,291,000 52
------------ --- ------------ --- ------------ ---
$155,380,000 100 $179,684,000 100 $116,975,000 100
============ === ============ === ============ ===
</TABLE>
F-16
<PAGE>
<PAGE>
PXRE has offices in New Jersey and Brussels. The following table shows
net premiums earned, operating profit and the aggregate carrying amount of
identifiable assets by operational area:
<TABLE>
<CAPTION>
U.S. Foreign
Operations Operations Consolidated
---------- ---------- ------------
1995
----
<S> <C> <C> <C>
Net premiums earned $ 84,368,246 $12,773,447 $ 97,141,693
Operating profit before interest
expense, income taxes and
corporate expenses 60,074,015 6,610,747 66,684,762
Identifiable assets 359,866,245 33,599,192 393,465,437
1994
----
Net premiums earned $ 97,342,705 $ 13,258,450 $ 110,601,155
Operating profit before interest
expense, income taxes and
corporate expenses 45,569,172 9,747,911 55,317,083
Identifiable assets 330,755,781 23,038,635 353,794,416
</TABLE>
13. Quarterly Consolidated Results of Operations (Unaudited)
The following are unaudited quarterly results of operations on a
consolidated basis for the years ended December 31, 1995 and 1994. Quarterly
results necessarily rely heavily on estimates. This and certain other factors,
such as catastrophic losses, call for caution in drawing specific conclusions
from quarterly results. Due to changes in the number of average shares
outstanding, quarterly earnings per share may not add to the total for the year.
The common stock price ranges are bid quotations as reported by the
NASDAQ National Market System.
F-17
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1995
----
<S> <C> <C> <C> <C>
Net premiums written $ 35,802,653 $ 17,706,219 $ 28,815,447 $ 15,311,490
============ ============ ============ ============
Revenues:
Net premiums earned $ 23,556,101 $ 25,142,048 $ 24,320,379 $ 24,123,165
Net investment income 3,427,447 3,503,210 3,874,380 3,924,529
Realized investment (losses) gains 0 (768,280) 282,068 571,515
Management fees: TREX 822,944 849,319 924,618 929,332
Non-affiliate 1,198,196 477,956 730,669 484,307
------------ ------------ ------------ ------------
29,004,688 29,204,253 30,132,114 30,032,848
------------ ------------ ------------ ------------
Losses and expenses:
Losses and loss expenses incurred (1) 10,750,624 4,249,959 12,050,871 7,664,815
Commissions and brokerage 2,903,343 3,663,308 3,159,969 3,524,450
Other operating expenses 1,869,649 3,191,706 3,007,294 3,168,196
Interest expense 1,752,711 1,779,218 1,891,543 1,719,625
------------ ------------ ------------ ------------
17,276,327 12,884,191 20,109,677 16,077,086
------------ ------------ ------------ ------------
Income before income taxes and
equity in net earnings of TREX 11,728,361 16,320,062 10,022,437 13,955,762
Equity in net earnings of TREX 1,259,231 1,786,463 1,406,155 1,496,107
Income tax provision 4,114,000 5,656,000 3,555,000 4,864,000
------------ ------------ ------------ ------------
Net income $ 8,873,592 $ 12,450,525 $ 7,873,592 $ 10,587,869
============ ============ ============ ============
Preferred stock dividend $ 501,200 $ 98,478 $ 0 $ 0
============ ============ ============ ============
Net income available to
common stockholders $ 8,372,392 $ 12,352,047 $ 7,873,592 $ 10,587,869
============ ============ ============ ============
Primary earnings per common share:
Net income $ 1.19 $ 1.48 $ 0.89 $ 1.19
============ ============ ============ ============
Average shares outstanding 7,050,633 8,341,774 $ 8,860,923 8,876,496
============ ============ ============ ============
Fully diluted earnings per common share:
Net income $ 1.00 $ 1.41 $ 0.89 $ 1.19
============ ============ ============ ============
Average shares outstanding 8,851,874 8,842,170 $ 8,887,193 8,881,911
============ ============ ============ ============
Dividends paid per common share $ 0.150 $ 0.150 $ 0.150 $ 0.180
Price Range of Common Stock:
High $ 28.75 $ 26.50 $ 29.75 $ 27.50
Low $ 21.75 $ 21.00 $ 23.50 $ 22.75
</TABLE>
(1) The losses and loss expenses incurred during the third and fourth
quarters, reflect the release of approximately $3,055,000 and $750,000,
respectively, of loss provisions recorded for the Kobe earthquake in the
first quarter.
F-18
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1994
- ----
<S> <C> <C> <C> <C>
Net premiums written $42,501,008 $13,350,271 $35,186,602 $17,480,458
=========== =========== =========== ===========
Revenues:
Net premiums earned $30,227,314 $24,662,327 $26,650,824 $29,060,690
Net investment income 2,672,785 2,897,976 4,451,585 3,763,958
Realized investment (losses) gains (674,521) (543,063) 0 53,621
Management fee 2,050,842 985,575 2,496,810 1,458,589
----------- ----------- ----------- -----------
34,276,420 28,002,815 33,599,219 34,336,858
----------- ----------- ----------- -----------
Losses and expenses:
Losses and loss expenses incurred 21,712,240 8,093,991 9,803,738 13,037,476
Commissions and brokerage 4,360,317 3,114,688 3,945,641 3,605,128
Other operating expenses 1,738,828 2,213,113 2,327,918 2,085,176
Interest expense 1,906,876 1,906,967 1,907,042 2,068,328
----------- ----------- ----------- -----------
29,718,261 15,328,759 17,984,339 20,796,108
----------- ----------- ----------- -----------
Income before income taxes and equity in
net earnings of TREX 4,558,159 12,674,056 15,614,880 13,540,750
Equity in net earnings of TREX 485,087 1,366,808 1,268,954 1,020,370
Income tax provision 1,488,000 4,275,000 5,426,000 4,511,000
----------- ----------- ----------- -----------
Net income $ 3,555,246 $ 9,765,864 $11,457,834 $10,050,120
=========== =========== =========== ===========
Preferred stock dividend $ 501,200 $ 501,200 $ 501,200 $ 501,200
=========== =========== =========== ===========
Net income available to common
stockholders $ 3,054,046 $ 9,264,664 $10,956,634 $ 9,548,920
=========== =========== =========== ===========
Primary earnings per common share:
Net income $ 0.45 $ 1.38 $ 1.62 $ 1.41
=========== =========== =========== ===========
Average shares outstanding 6,724,711 6,722,139 6,764,067 6,775,208
=========== =========== =========== ===========
Fully diluted earnings per common share:
Net income $ 0.41 1.11 1.30 1.14
=========== =========== =========== ===========
Average shares outstanding 8,769,929 8,792,323 8,828,208 8,853,095
=========== =========== =========== ===========
Dividends paid per common share $ 0.075 $ 0.075 $ 0.075 $ 0.150
Price Range of Common Stock:
High $ 27.250 $ 27.500 $ 29.000 $ 28.250
Low $ 19.500 $ 18.500 $ 23.000 $ 23.250
</TABLE>
F-19
<PAGE>
<PAGE>
Schedule II
Parent Company Information
PXRE Corporation's summarized financial information (parent company only)
is as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
BALANCE SHEET
Assets
Fixed maturities available for sale at market at December 31,
(amortized cost $0 and $17,644,000 at
December 31, 1995 and 1994 respectively) $ -- $ 17,626,750
Short-term investments 14,223,322 6,020,727
Cash 68,947 (185,271)
Other receivables 100,600 100,600
Receivable from TREX 55,630 --
Receivable from subsidiaries 5,220,116 7,434,449
Income tax recoverable 862,112 --
Equity in subsidiaries 257,321,826 206,873,948
Other assets 6,133,635 3,890,215
------------- -------------
Total Assets $ 283,986,188 $ 241,761,418
============= =============
Liabilities
Loan payable $ 69,700,000 $ 69,700,000
Income tax payable -- 1,811,893
Other liabilities 3,124,012 3,478,583
------------- -------------
Total Liabilities 72,824,012 74,990,476
------------- -------------
Stockholders' Equity 211,162,176 166,770,942
------------- -------------
Total Liabilities and Stockholders' Equity $ 283,986,188 $ 241,761,418
============= =============
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
INCOME STATEMENT
Interest earned $ 1,102,447 $ 947,488 $ 358,579
Net realized investment gains -- 25,250 --
Interest expense (7,063,857) (7,774,994) (2,694,912)
Other operating expenses (872,681) (1,140,025) (929,304)
------------- ------------- -------------
Loss before tax benefit (6,834,091) (7,942,281) (3,265,637)
Income tax benefit 2,432,000 2,771,000 969,908
------------- ------------- -------------
(4,402,091) (5,171,281) (2,295,729)
Equity in earnings of subsidiaries 44,187,669 40,000,345 24,940,895
------------- ------------- -------------
Net income $ 39,785,578 $ 34,829,064 $ 22,645,166
============= ============= =============
CASH FLOW STATEMENT
Cash from operating activities:
Net income $ 39,785,578 $ 34,829,064 $ 22,645,166
Adjustments to reconcile net income to cash provided by
operating activities:
Equity in earnings of subsidiaries (44,187,669) (40,000,345) (24,940,895)
Cash dividends from subsidiaries 6,000,000 12,000,000 6,520,000
Receivable from TREX (55,630) 364,996 (364,996)
Investment income receivable -- 165,950 (165,950)
Intercompany accounts 2,214,333 (11,597,441) 3,423,990
Deferred income taxes -- 4,608 473,849
Income taxes (2,566,935) 12,514,287 (6,595,765)
Other (2,024,244) (121,526) (225,039)
------------- ------------- -------------
Net cash (used) provided by operating activities (834,567) 8,159,593 770,360
------------- ------------- -------------
Cash flow from investing activities:
Investment in equity of PXRE Trading Corporation (2,500,000) -- --
Net change in short-term investments (8,202,595) 2,750,199 (2,770,528)
Proceeds from sale of fixed maturity investments 17,626,750 -- --
Cost of fixed maturity investments -- (2,961,029) (20,091,400)
------------- ------------- -------------
Net cash provided (used) by investing activities 6,924,155 (210,830) (22,861,928)
------------- ------------- -------------
Cash flow from financing activities:
Proceeds from issuance of common stock 335,355 1,443,460 52,343,234
Conversion of preferred stock -- -- (1,319,626)
Cash dividends paid to common stockholders (5,237,664) (2,475,211) (1,317,371)
Cash dividends paid to preferred stockholders (933,061) (2,004,800) (2,075,600)
Repayment of note payable -- -- (5,250,000)
(Repurchase) proceeds from issuance of debt -- (5,274,750) 75,000,000
Capital contribution to subsidiaries -- -- (95,127,000)
------------- ------------- -------------
Net cash (used) provided by financing activities (5,835,370) (8,311,301) 22,253,637
------------- ------------- -------------
Net change in cash 254,218 (362,538) 162,069
Cash, beginning of period (185,271) 177,267 15,198
------------- ------------- -------------
Cash, end of period $ 68,947 $ (185,271) $ 177,267
============= ============= =============
</TABLE>
F-20
<PAGE>
<PAGE>
Schedule III
PXRE CORPORATION AND SUBSIDIARY
SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F Column G Column H
-------- ----------- ----------- ----------- -------- ------------ ----------- -----------
Future
policy Other
benefits, policy
losses, claims Benefits,
Segment- Deferred claims and and claims,
property policy loss Unearned benefits Net losses and
and acquisition expenses premiums payable Premium investment settlement
casualty cost (caption (caption (caption revenue income expenses
insurance (caption 7) 13-a-1) 13-a-2) 13-a-3) (caption 1) (caption 2) (caption 4)
-------- ----------- ----------- ----------- -------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995 $1,565,000 $72,719,000 $13,685,000 $0 $ 97,142,000 $14,730,000 $34,716,000
1994 863,000 81,836,000 12,263,000 0 110,601,000 13,786,000 52,647,000
1993 1,623,000 71,442,000 13,087,000 0 78,928,000 8,011,000 40,570,000
<CAPTION>
Column I Column J Column K
- ----------- ----------- ------------
Amortiza-
tion of
deferred
policy Other
acquisition operating Premiums
costs expense written
- ----------- ----------- ------------
<C> <C> <C>
$13,251,000 $11,237,000 $ 97,636,000
15,026,000 8,365,000 108,518,000
13,339,000 8,917,000 77,506,000
</TABLE>
Schedule VI
PXRE CORPORATION AND SUBSIDIARY
SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY -- CASUALTY INSURANCE OPERATIONS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
------------- ----------- ----------- ----------- ----------- ------------
Reserves
for Unpaid
Deferred Claims and Discount,
Affiliation Policy Claim if any
with Acquisition Adjustment deducted in Unearned Earned
Registrant Costs Expenses Column C Premiums Premiums
------------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated
1995 Property $1,565,000 $72,719,000 $ 0 $13,685,000 $ 97,142,000
1994 Casualty 863,000 81,836,000 0 12,263,000 110,601,000
1993 Entities 1,623,000 71,442,000 0 13,087,000 78,928,000
<CAPTION>
Column G Column H Column I Column J Column K
- ---------- -------------------------- ----------- ----------- ------------
Claims and Claim Amortiza-
Adjustment Expenses tion of
Incurred Related to Deferred Paid Claims
Net (1) (2) Policy and Claim
Investment Current Prior Acquisi- Adjustment Premiums
Income Year Years tion Costs Expenses Written
- ---------- ----------- ----------- ----------- ----------- ------------
<C> <C> <C> <C> <C> <C>
$14,730,000 $30,405,000 $ 4,311,000 $13,251,000 $36,337,000 $ 97,636,000
13,786,000 49,385,000 3,262,000 15,026,000 50,061,000 108,518,000
8,011,000 30,071,000 10,499,000 13,339,000 32,209,000 77,506,000
</TABLE>
F-21
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON THE FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
of PXRE Corporation
Our audits of the consolidated financial statements referred to in our report
dated February 15, 1996 appearing on page F-1 of PXRE Corporation's Annual
Report on Form 10-K for the year ended December 31, 1995, also included an audit
of the Financial Statement Schedules listed in Item 14(a) of this Form 10-K. In
our opinion, these Financial Statement Schedules present fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
PRICE WATERHOUSE LLP
New York, New York
February 15, 1996
<PAGE>
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-8/S-3 (Nos. 33-35521
and 33-63768) and Form S-8 (No. 33-82908) of PXRE Corporation of our report
dated February 15, 1996 appearing on page F-1 of this Form 10-K. We also consent
to the incorporation by reference of our report on the Financial Statement
Schedules which appears above.
PRICE WATERHOUSE LLP
New York, New York
March 27, 1996
F-22
<PAGE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------ ------- ------------
<C> <S> <C>
3 Restated Certificate of Incorporation and By-laws of PXRE
(Exhibits 3.1 and 3.2 to PXRE's Form S-1 Registration Statement
dated August 29, 1986, as amended by Amendment No. 1 thereto
dated February 19, 1987 and by Amendment No. 2 thereto dated
March 25, 1987 (File No. 33-8406), and incorporated herein by
reference); PXRE's Certificate of Designations designating the
Series A Cumulative Convertible Preferred Stock of PXRE (Exhibit
4.5 to PXRE's Form S-2 Registration Statement dated February 21,
1992, as amended by Amendment No. 1 thereto dated April 1, 1992
and by Amendment No. 2 thereto dated April 13, 1992 and by
Amendment No. 3 thereto dated April 23, 1992 (File No. 33-45893),
and incorporated herein by reference); Certificate of Amendment
dated May 20, 1993 to PXRE's Restated Certificate of
Incorporation (Exhibit 4.3 to PXRE's Registration Statement on
Forms S-8 and S-3 dated June 3, 1993 (File No. 33-63768);
incorporated herein by reference); Certificate of Amendment dated
May 19, 1994 to PXRE's Restated Certificate of Incorporation
(Exhibit 3 to the Annual Report on Form 10-K of PXRE for the
fiscal year ended December 31, 1994 (File No. 0-15428), and
incorporated herein by reference). Article IV, Section 1 of the
By-laws of PXRE Corporation, as amended on June 8, 1995.*
</TABLE>
- ------------------------
* Filed herewith.
(M) Indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------ ------- ------------
<C> <S> <C>
4 Trust Indenture dated as of August 31, 1993 between PXRE, as
issuer, and The First National Bank of Boston, as trustee,
relating to $75,000,000 principal amount of 9.75% Senior Notes of
PXRE due 2003 (Exhibit 4.1 to PXRE's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993 (File No. 0-15428),
and incorporated herein by reference).
10.1 Lease dated January 29, 1986 between Phoenix General Insurance
Company and 80 Maiden Lane Associates for office facilities
located at 80 Maiden Lane, New York, New York (Exhibit 10.1 to
PXRE's Form S-1 Registration Statement dated August 29, 1986, as
amended by Amendment No. 1 thereto dated February 19, 1987 and by
Amendment No. 2 thereto dated March 25, 1987 (File No. 33-8406),
and incorporated herein by reference).
10.2 Assignment and Assumption of Lease dated September 30, 1986
between Phoenix General Insurance Company and PXRE Reinsurance
(Exhibit 10.2 to Amendment No. 1 dated February 19, 1987 to
PXRE's Form S-1 Registration Statement dated August 29, 1986, as
subsequently amended by Amendment No. 2 thereto dated March 25,
1987 (File No. 33-8406), and incorporated herein by reference).
</TABLE>
- ------------------------
* Filed herewith.
(M) Indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
- 2 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------ ------- ------------
<C> <S> <C>
10.3 PXRE Reinsurance Management Agreement among PXRE Reinsurance and,
among others, Merrimack Mutual Fire Insurance Company
("Merrimack"), Pennsylvania Lumbermens Mutual Insurance Company
("Pennsylvania Lumbermens"), and NRMA Insurance Limited ("NRMA")
(Exhibit 10.1 to PXRE's Annual Report on Form 10-K for the fiscal
year ended December 31, 1991 (File No. 0-15428), and incorporated
herein by reference) and letter dated November 28, 1990 from
Pennsylvania Lumbermens confirming reduced participation (Exhibit
10.7 to PXRE's Form S-2 Registration Statement dated February 21,
1992, as amended by Amendment No. 1 thereto dated April 1, 1992
and by Amendment No. 2 thereto dated April 13, 1992 and by
Amendment No. 3 thereto dated April 23, 1992 (File No. 33-45893),
and incorporated herein by reference); forms of coverslips
respecting January 1995 renewals by Merrimack, Pennsylvania
Lumbermens and NRMA (Exhibit 10.3 to the Annual Report on Form
10-K of PXRE for the fiscal year ended December 31, 1994 (File
No. 0-15428), and incorporated herein by reference).
10.4 Tax Settlement Agreement dated June 21, 1991 between PXRE
Corporation, PXRE Reinsurance and PM Holdings, Inc. (Exhibit 10.2
to the Annual Report on Form 10-K of PXRE for the fiscal year
ended December 31, 1991 (File No. 0-15428), and incorporated
herein by reference).
</TABLE>
- ------------------------
* Filed herewith.
(M) Indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
- 3 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------ ------- ------------
<C> <S> <C>
10.5 Investment Advisory Agreement between PXRE Reinsurance and
Phoenix Investment Counsel, Inc., dated February 25, 1987 and
effective as of January 1, 1987 (Exhibit 10.10 to Amendment No. 1
dated February 19, 1987 to PXRE's Form S-1 Registration Statement
dated August 29, 1986, as subsequently amended by Amendment No. 2
thereto dated March 25, 1987 (File No. 33-8406), and incorporated
herein by reference).
10.6 Amendment to Investment Advisory Agreement between PXRE
Reinsurance and Phoenix Investment Counsel, Inc., effective
retroactively as of January 1, 1987 (Exhibit 10.3 to the Annual
Report on Form 10-K of PXRE for the fiscal year ended December
31, 1991 (File No. 0-15428), and incorporated herein by
reference).
10.7 Amendment No. 2 to Investment Advisory Agreement between PXRE
Reinsurance and Phoenix Investment Counsel, Inc. effective as of
November 1, 1989 (Exhibit 10.4 to the Annual Report on Form 10-K
of PXRE for the fiscal year ended December 31, 1991 (File No.
0-15428), and incorporated herein by reference).
10.8 Amended and Restated Agreement Concerning Filing of Consolidated
Federal Income Tax Returns dated as of August 23, 1993 between
PXRE and PXRE Reinsurance. (Exhibit 10.8 to the Annual Report on
Form 10-K of PXRE for
</TABLE>
- ------------------------
* Filed herewith.
(M) Indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
- 4 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------ ------- ------------
<C> <S> <C>
the fiscal year ended December 31, 1993 (File No. 0-15428), and
incorporated herein by reference).(M)
10.9 Employee Stock Purchase Plan, as amended (Appendix A to PXRE's
Proxy Statement dated April 23, 1993, and incorporated herein by
reference).(M)
10.10 Executive Long-Term Bonus Plan (Exhibit 10.6 to PXRE's Annual
Report on Form 10-K for the fiscal year ended December 31, 1991
(File No. 0-15428), and incorporated herein by reference) and
proposed Amendment thereto made as of August 22, 1991 (Exhibit
10.14 to PXRE's Form S-2 Registration Statement dated February
21, 1992, as amended by Amendment No. 1 thereto dated April 1,
1992 and by Amendment No. 2 thereto dated April 13, 1992 and by
Amendment No. 3 thereto dated April 23, 1992 (File No. 33-45893),
and incorporated herein by reference).(M)
10.11 Executive Severance Plan (Exhibit 10.1 to the Annual Report on
Form 10-K of PXRE for the fiscal year ended December 31, 1989
(File No. 0-15428), and incorporated herein by reference). (M)
10.12 1988 Stock Option Plan, as amended (Exhibit A to the first
Prospectus forming part of PXRE's Form S-8 and S-3 Registration
Statement dated June 21, 1990 (File No. 33-35521), and
incorporated herein by reference).(M)
</TABLE>
- ------------------------
* Filed herewith.
(M) Indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
- 5 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------ ------- ------------
<C> <S> <C>
10.13 1987 Stock Option Plan, as amended (Appendix B to PXRE's Proxy
Statement dated April 13, 1990, and incorporated herein by
reference).(M)
10.14 Non-Employee Director Deferred Stock Plan (Appendix A to PXRE's
Proxy Statement dated April 12, 1991, and incorporated herein by
reference).(M)
10.15 Restated Employee Annual Incentive Bonus Plan, as amended
(Appendix A to PXRE's Proxy Statement dated April 22, 1994, and
incorporated herein by reference).(M)
10.16 1992 Officer Incentive Plan, as amended (Appendix B to PXRE's
Proxy Statement dated April 22, 1994 and incorporated herein by
reference).(M)
10.17 Quota Share Retrocessional Agreement between PXRE Reinsurance and
Trenwick America Reinsurance Corporation (Exhibit 10.21 to the
Annual Report on Form 10-K of PXRE for the fiscal year ended
December 31, 1993 (File No. 0-15428), and incorporated herein by
reference).
10.18 Management Agreement dated as of November 8, 1993 among PXRE
Reinsurance, Transnational Re Corporation and Transnational
Reinsurance Company (Exhibit 10.22 to the Annual Report on Form
10-K of PXRE for the fiscal year ended December 31,
</TABLE>
- ------------------------
* Filed herewith.
(M) Indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
- 6 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------ ------- ------------
<C> <S> <C>
1993 (File No. 0-15428), and incorporated herein by reference).
10.19 Aggregate Excess of Loss Reinsurance Agreement dated as of
November 8, 1993 between PXRE Reinsurance, as reinsurer, and
Transnational Reinsurance Company, as reinsured (Exhibit 10.23 to
the Annual Report on Form 10-K of PXRE for the fiscal year ended
December 31, 1993 (File No. 0-15428), and incorporated herein by
reference).
10.20 Registration Rights Agreement dated as of November 8, 1993
between PXRE Reinsurance and Transnational Re Corporation
(Exhibit 10.24 to the Annual Report on Form 10-K of PXRE for the
fiscal year ended December 31, 1993 (File No. 0-15428), and
incorporated herein by reference).
10.21 Amendment No. 1 dated December 1, 1994 to the Management
Agreement dated as of November 8, 1993 between PXRE Reinsurance,
Transnational Re Corporation and Transnational Reinsurance
Company (Exhibit 10.21 to the Annual Report on Form 10-K of PXRE
for the fiscal year ended December 31, 1994 (File No. 0-15428),
and incorporated herein by reference).
10.22 Addendum No. 2 dated November 10, 1994 to the PXRE Group Amended
and Restated Agreement Concerning Filing of Consolidated Federal
Income Tax Returns (Exhibit 10.22 to the Annual Report on
</TABLE>
- ------------------------
* Filed herewith.
(M) Indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
- 7 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------ ------- ------------
<C> <S> <C>
Form 10-K of PXRE for the fiscal year ended December 31, 1994
(File No. 0-15428), and incorporated herein by reference).
10.23 Amendment dated August 1994 to the Severance Plan for Certain
Executives of PXRE Corporation (Exhibit 10.23 to the Annual
Report on Form 10-K of PXRE for the fiscal year ended December
31, 1994 (File No. 0-15428), and incorporated herein by
reference).(M)
10.24 Lease dated May 9, 1994 between Thornall Associates and PXRE
Corporation (Exhibit 10.24 to the Annual Report on Form 10-K of
PXRE for the fiscal year ended December 31, 1994 (File No.
0-15428), and incorporated herein by reference).
10.25 Director Stock Option Plan (Appendix A to PXRE's Proxy Statement
dated May 3, 1995, and incorporated herein by reference).
10.26 Amendment No. 3 to Investment Advisory Agreement between PXRE
Reinsurance Company and Phoenix Investment Counsel, Inc.
effective June 1, 1995.*
11 Statement re computation of earnings per share.*
12 Statement re computation of ratios.*
</TABLE>
- ------------------------
* Filed herewith.
(M) Indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
- 8 -
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT PAGE
- ------ ------- ------------
<C> <S> <C>
21 List of Subsidiaries of PXRE. (Included as part of Item 14(a)(3)
of this Form 10-K.)
23 Consent of Price Waterhouse LLP, independent accountants
to PXRE. (Included as part of Item 14(a)(2) of this
Form 10-K.)
24 Powers of Attorney.*
27 Financial Data Schedule (electronic filing only).*
28 Information from reports furnished to state insurance
regulatory authorities.**
</TABLE>
- ------------------------
* Filed herewith.
** Filed in paper under cover of Form SE.
(M) Indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
- 9 -
<PAGE>
<PAGE>
EXHIBIT 3
ARTICLE IV, SECTION 1 OF THE BY-LAWS
OF PXRE CORPORATION, AS AMENDED ON JUNE 8, 1995
"Section 1. Number. The Board of Directors shall elect from its
members a Chief Executive Officer, who shall also have the title of President
and/or Chairman of the Board as the Board shall determine. The other principal
officers of the Corporation shall be a President, one or more Vice Presidents, a
Treasurer and a Secretary. The Corporation may also have, at the discretion of
the Board of Directors, such other officers as may be appointed in accordance
with the provisions of these By-Laws. One person may hold the offices and
perform the duties of any two or more of said offices, except the offices and
duties of President and Secretary."
<PAGE>
<PAGE>
EXHIBIT 10.26
AMENDMENT NO. 3 TO
INVESTMENT ADVISORY AGREEMENT
This Amendment to the January 1, 1987 Investment Advisory Agreement as
amended effective January 1, 1987 and November 1, 1989, by and between PHOENIX
INVESTMENT COUNSEL, INC., a Massachusetts corporation (the "Adviser") and PXRE
REINSURANCE COMPANY, a Connecticut corporation (the "Client") (the "Agreement"),
is hereby effective as of the 1st day of June, 1995.
1. Section 3 of the Agreement is hereby amended and restated as follows:
In consideration of the services performed hereunder, the Client shall
pay the Adviser an annual fee in 1995 equal to $200,000. Beginning on
January 1, 1996, the Client shall pay a fee to the Adviser equal to an
annual rate of 0.15% of the average net assets of the Portfolio. Such
fees shall be paid in quarterly installments, each due within fifteen
(15) days of the last day of the calendar quarter. In addition, the
Client shall reimburse the Advisor for any and all out-of-pocket
expenses incurred in managing the Portfolio including, but not limited
to, custodian fees, clearing agent fees, brokerage costs and sales,
service or similar taxes, if any.
2. Any sums heretofore paid for services rendered in 1995 shall be applied
to the sum owed under Section 3 of the Agreement as revised herein.
IN WITNESS WHEREOF, the parties hereto have duly caused this Amendment
No. 3 to the Investment Advisory Agreement to be executed on this 25th day of
July, 1995.
PHOENIX INVESTMENT COUNSEL, INC. PXRE REINSURANCE COMPANY
By: /s/ Michael Haylon By: /s/ Sanford M. Kimmel
------------------------------ ---------------------------
Its: President Its: Senior Vice President, Treasurer
& Chief Financial Officer
<PAGE>
<PAGE>
Exhibit 11
PXRE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income (loss) before cumulative
effect of accounting change $ 39,786 $ 34,829 $ 22,645 $ (4,293) $ 952
Cumulative effect of accounting change 0 0 0 433 0
-------- -------- -------- -------- --------
Net income (loss) $ 39,786 $ 34,829 $ 22,645 $ (3,860) $ 952
======== ======== ======== ======== ========
Dividends payable to preferred stockholders (599) (2,005) (2,056) (1,419) 0
-------- -------- -------- -------- --------
Net income (loss) available to
common stockholders (before cumulative
effect of accounting change) $ 39,187 $ 32,824 $ 20,589 $ (5,712) $ 952
======== ======== ======== ======== ========
Net income (loss) available to common
stockholders $ 39,187 $ 32,824 $ 20,589 $ (5,279) $ 952
======== ======== ======== ======== ========
Average number of shares of common stock
outstanding 8,153 6,570 5,933 3,851 3,841
Add:
Unissued Board of Directors stock grants 10 10 10 0 16
Assumed exercise of dilutive stock options
assuming average common stock
market price 112 130 227 0 15
-------- -------- -------- -------- --------
Average number of shares of common stock
and common stock equivalents outstanding 8,275 6,710 6,170 3,851 3,872
======== ======== ======== ======== ========
Primary income (loss) per common share
assuming exercise of common stock
equivalents before cumulative effect of
accounting change $ 4.74 $ 4.89 $ 3.34 $ (1.48) $ 0.25
======== ======== ======== ======== ========
Primary income (loss) per common share
assuming exercise of common stock
equivalents $ 4.74 $ 4.89 $ 3.34 $ (1.37) $ 0.25
======== ======== ======== ======== ========
Fully diluted income (loss) per common
share before cumulative effect of
accounting change $ 4.48 $ 3.94 $ 2.70 $ (1.48) $ 0.25
======== ======== ======== ======== ========
Fully diluted income (loss) per
common share $ 4.48 $ 3.94 $ 2.70 $ (1.37) $ 0.25
======== ======== ======== ======== ========
</TABLE>
<PAGE>
<PAGE>
Exhibit 12
PXRE CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF CONSOLIDATED EARNINGS TO FIXED
CHARGES AND RATIO OF CONSOLIDATED EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED DIVIDENDS
(In thousands, except ratios)
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net income $39,786 $34,829 $22,645 $(4,293) $ 952
Equity in earnings of minority interest (5,948) (4,141) (84) 0 0
------- ------- ------- ------- -------
Income before equity in earnings of
minority interest 33,838 30,688 22,561 (4,293) 952
Income taxes 18,189 15,700 11,008 (3,322) 188
------- ------- ------- ------- -------
$52,027 $46,388 $33,569 $(7,615) $ 1,140
Fixed charges:
Interest expense 7,143 7,789 2,740 319 576
Appropriated portion (1/3) of rentals 397 308 279 271 266
------- ------- ------- ------- -------
Total fixed charges 7,540 8,097 3,019 590 842
------- ------- ------- ------- -------
Earnings before income taxes and fixed charges $59,567 $54,485 $36,588 $(7,025) $ 1,982
------- ------- ------- ------- -------
Preferred dividend requirements $ 599 $ 2,005 $ 2,056 $ 1,419 $ 0
------- ------- ------- ------- -------
Ratio of pre-tax income to net income 1.54 1.51 1.49 -- --
------- ------- ------- ------- -------
Preferred dividend factor $ 922 $ 3,028 $ 3,063 $ 1,419 $ 0
Total fixed charges 7,540 8,097 3,019 590 842
------- ------- ------- ------- -------
Total fixed charges and preferred dividends $ 8,462 $11,125 $ 6,082 $ 2,009 $ 842
------- ------- ------- ------- -------
Ratio of earnings to fixed charges 7.90 6.73 12.12 (11.91) 2.35
------- ------- ------- ------- -------
Ratio of earnings to combined fixed charges and preferred dividends 7.04 4.90 6.02 (3.50) 2.35
------- ------- ------- ------- -------
Deficiency in ratio 7,615
-------
Deficiency in combined ratio 9,034
-------
-------
</TABLE>
<PAGE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of PXRE
Corporation (the "Company"), hereby constitutes and appoints Gerald L. Radke and
Sanford M. Kimmel, and each of them singly, as his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
acting in the name and on behalf of the undersigned, to sign the Annual Report
on Form 10-K of the Company for the fiscal year ended December 31, 1995, and all
amendments or supplements (if any) thereto, granting unto said attorneys-in-fact
and agents (and either of them) full power and authority to do and perform each
and every act and thing requisite and necessary to be done in such connection,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys in fact and agents (and either
of them), or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF I have hereunto set my hand this 21st day of March,
1996.
/s/ Philip R.McLoughlin
-----------------------------------
Philip R. McLoughlin
<PAGE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of PXRE
Corporation (the "Company"), hereby constitutes and appoints Gerald L. Radke and
Sanford M. Kimmel, and each of them singly, as his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
acting in the name and on behalf of the undersigned, to sign the Annual Report
on Form 10-K of the Company for the fiscal year ended December 31, 1995, and all
amendments or supplements (if any) thereto, granting unto said attorneys-in-fact
and agents (and either of them) full power and authority to do and perform each
and every act and thing requisite and necessary to be done in such connection,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys in fact and agents (and either
of them), or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF I have hereunto set my hand this 21st day of March,
1996.
/s/ Robert W. Fiondella
-----------------------------------
Robert W. Fiondella
<PAGE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of PXRE
Corporation (the "Company"), hereby constitutes and appoints Gerald L. Radke and
Sanford M. Kimmel, and each of them singly, as his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
acting in the name and on behalf of the undersigned, to sign the Annual Report
on Form 10-K of the Company for the fiscal year ended December 31, 1995, and all
amendments or supplements (if any) thereto, granting unto said attorneys-in-fact
and agents (and either of them) full power and authority to do and perform each
and every act and thing requisite and necessary to be done in such connection,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys in fact and agents (and either
of them), or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF I have hereunto set my hand this 21st day of March,
1996.
/s/ David W. Searfoss
-----------------------------------
David W. Searfoss
<PAGE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of PXRE
Corporation (the "Company"), hereby constitutes and appoints Gerald L. Radke and
Sanford M. Kimmel, and each of them singly, as his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
acting in the name and on behalf of the undersigned, to sign the Annual Report
on Form 10-K of the Company for the fiscal year ended December 31, 1995, and all
amendments or supplements (if any) thereto, granting unto said attorneys-in-fact
and agents (and either of them) full power and authority to do and perform each
and every act and thing requisite and necessary to be done in such connection,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys in fact and agents (and either
of them), or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF I have hereunto set my hand this 21st day of March,
1996.
/s/ Bernard Kelly
-----------------------------------
Bernard Kelly
<PAGE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of PXRE
Corporation (the "Company"), hereby constitutes and appoints Gerald L. Radke and
Sanford M. Kimmel, and each of them singly, as his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
acting in the name and on behalf of the undersigned, to sign the Annual Report
on Form 10-K of the Company for the fiscal year ended December 31, 1995, and all
amendments or supplements (if any) thereto, granting unto said attorneys-in-fact
and agents (and either of them) full power and authority to do and perform each
and every act and thing requisite and necessary to be done in such connection,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys in fact and agents (and either
of them), or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF I have hereunto set my hand this 21st day of March,
1996.
/s/ Edward P. Lyons
-----------------------------------
Edward P. Lyons
<PAGE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of PXRE
Corporation (the "Company"), hereby constitutes and appoints Gerald L. Radke and
Sanford M. Kimmel, and each of them singly, as his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
acting in the name and on behalf of the undersigned, to sign the Annual Report
on Form 10-K of the Company for the fiscal year ended December 31, 1995, and all
amendments or supplements (if any) thereto, granting unto said attorneys-in-fact
and agents (and either of them) full power and authority to do and perform each
and every act and thing requisite and necessary to be done in such connection,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys in fact and agents (and either
of them), or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF I have hereunto set my hand this 21st day of March,
1996.
/s/ Donald H. Trautlein
-----------------------------------
Donald H. Trautlein
<PAGE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of PXRE
Corporation (the "Company"), hereby constitutes and appoints Gerald L. Radke and
Sanford M. Kimmel, and each of them singly, as his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
acting in the name and on behalf of the undersigned, to sign the Annual Report
on Form 10-K of the Company for the fiscal year ended December 31, 1995, and all
amendments or supplements (if any) thereto, granting unto said attorneys-in-fact
and agents (and either of them) full power and authority to do and perform each
and every act and thing requisite and necessary to be done in such connection,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys in fact and agents (and either
of them), or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF I have hereunto set my hand this 21st day of March,
1996.
/s/ Wilson Wilde
-----------------------------------
Wilson Wilde
<PAGE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, a director of PXRE
Corporation (the "Company"), hereby constitutes and appoints Gerald L. Radke and
Sanford M. Kimmel, and each of them singly, as his true and lawful
attorneys-in-fact and agents with full power of substitution and resubstitution,
acting in the name and on behalf of the undersigned, to sign the Annual Report
on Form 10-K of the Company for the fiscal year ended December 31, 1995, and all
amendments or supplements (if any) thereto, granting unto said attorneys-in-fact
and agents (and either of them) full power and authority to do and perform each
and every act and thing requisite and necessary to be done in such connection,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys in fact and agents (and either
of them), or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF I have hereunto set my hand this 21st day of March,
1996.
/s/ Wendy Luscombe
-----------------------------------
Wendy Luscombe
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 216,348,206
<DEBT-CARRYING-VALUE> 221,356,767
<DEBT-MARKET-VALUE> 221,356,767
<EQUITIES> 5,172,428
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 268,250,851
<CASH> 838,548
<RECOVER-REINSURE> 34,097,408
<DEFERRED-ACQUISITION> 1,564,926
<TOTAL-ASSETS> 393,465,437
<POLICY-LOSSES> 72,718,914
<UNEARNED-PREMIUMS> 13,685,391
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 67,775,000
<COMMON> 89,839
0
0
<OTHER-SE> 211,072,337
<TOTAL-LIABILITY-AND-EQUITY> 393,465,437
97,141,693
<INVESTMENT-INCOME> 14,729,566
<INVESTMENT-GAINS> 85,302
<OTHER-INCOME> 6,417,341
<BENEFITS> 34,716,270
<UNDERWRITING-AMORTIZATION> 13,251,070
<UNDERWRITING-OTHER> 11,236,843
<INCOME-PRETAX> 52,026,622
<INCOME-TAX> 18,189,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,785,578
<EPS-PRIMARY> 4.74
<EPS-DILUTED> 4.48
<RESERVE-OPEN> 81,835,558
<PROVISION-CURRENT> 43,388,163
<PROVISION-PRIOR> 5,981,969
<PAYMENTS-CURRENT> 16,885,840
<PAYMENTS-PRIOR> 41,600,936
<RESERVE-CLOSE> 72,718,914
<CUMULATIVE-DEFICIENCY> 5,981,969
<PAGE>
