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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
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
COMMISSION FILE NUMBER 0-15428
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PXRE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 06-1183996
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
399 THORNALL STREET, 14TH FLOOR
EDISON, NJ 08837
TELEPHONE: (732) 906-8100
(ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Common Stock, par value $0.01 per share
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None
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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 [ ]
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 and non-voting common equity held
by non-affiliates of the registrant as of March 20, 1998 computed by reference
to the closing price of such common equity as of the close of business on March
20, 1998 was $414,767,713. As of March 20, 1998, 13,796,847 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 4, 1998.
Part IV Portions of PXRE Corporation's Proxy Statement dated April 30, 1997.
Part IV Portions of PXRE Corporation's Proxy Statement dated May 3, 1995.
Part IV Portions of PXRE Corporation's Proxy Statement dated April 23, 1993
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 reinsurance products and
services to a national and international marketplace, with principal emphasis on
commercial and personal property risks and marine and aerospace risks, and with
a particular focus on catastrophe-related coverages. 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.
See 'Business -- 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, 1998, Phoenix Home Life owned less than 5% of
the outstanding common stock of PXRE.
In November 1993, PXRE sponsored the initial public offering of
Transnational Re Corporation ('TREX') to raise capital and take advantage of
favorable conditions in the worldwide retrocessional reinsurance market. PXRE,
through PXRE Reinsurance, retained a 21% ownership position in TREX and had
responsibility for the day-to-day operations of TREX, including all the
reinsurance operations of its subsidiary, Transnational Reinsurance Company
('Transnational Reinsurance'). TREX and Transnational Reinsurance had no paid
employees.
On December 11, 1996, PXRE completed the merger of TREX with and into PXRE
(the 'Merger'), pursuant to which each share of common stock of TREX was
converted into the right to receive 1.0575 shares of PXRE common stock. The
Merger resulted from the realization by the management and Boards of Directors
of both PXRE and TREX that conditions had become more competitive in the
retrocessional reinsurance marketplace, and that the reinsurance markets, rating
agencies and the capital markets were placing increased importance on the size
and financial strength of reinsurance companies, which size and financial
strength would be augmented by the Merger. Following the Merger, Transnational
Reinsurance became a wholly-owned subsidiary of PXRE Reinsurance. The Merger has
been accounted for using the purchase method of accounting; therefore net income
of TREX (including Transnational Reinsurance) has been included in PXRE's
consolidated results of operations from the date of the Merger.
In December 1996, PXRE completed an investment in Lloyd's of London,
forming a new syndicate, PG Butler Syndicate 1224, and a presence in London. The
new syndicate has an initial capacity to underwrite `L'35 million in annual
premiums ($57.4 million at December 31, 1997 exchange rates). Underwriting
premium volume and loss experience related to Syndicate 1224's
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different mix of business is included in the consolidated results on a one
quarter lag basis, commencing in the quarter ended June 30, 1997. See
'Business -- Lloyd's Syndicate 1224.'
In September 1997, PXRE and Phoenix Home Life completed the formation of a
joint venture, Cat Bond Investors L.L.C. ('Cat Bond Investors'), with an initial
committed capital of $20 million. The joint venture specializes in investing in
instruments the returns on which are determined, in whole or in part, by the
nature, magnitude and/or effect of certain catastrophic events or meteorological
conditions.
In November 1997, PXRE announced the formation of an excess and surplus
lines operation which will specialize in short-tail property type risks to be
written as insurance in Transnational Insurance Company ('Transnational
Insurance'), formerly Transnational Reinsurance. This new venture, with initial
capital of approximately $100 million, is expected to commence its operations
during the first quarter of 1998.
INDUSTRY BACKGROUND
Primary insurers and certain reinsurers (also known as 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.
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 a specified
portion of a type or category of risk. In the underwriting of treaty
reinsurance, the reinsurer does not separately evaluate each individual 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
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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.
Retrocessional reinsurance is reinsurance provided by one reinsurer (the
retrocessionaire) to another reinsurer (the ceding company or retrocedent) who
purchases retrocessional reinsurance for reasons similar to those that cause a
primary insurer to purchase reinsurance: principally to reduce its liability on
individual risks, to protect itself against catastrophic losses and to maintain
acceptable regulatory ratios. In consideration for providing reinsurance, a
retrocessionaire receives a share of the premiums written by the ceding company.
While PXRE's retrocessional coverage focuses on the property market, PXRE also
writes marine and aerospace retrocessional reinsurance.
CORPORATE STRATEGY
PXRE's strategy is to commit and withhold its underwriting capacity and to
alter its mix of business to concentrate its underwriting capacity at any given
point in time on those types of business where management believes that above
average underwriting results can be achieved, and to supplement its underwriting
commitments 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 in both the national and international markets. Catastrophe-related
coverages include catastrophe coverage provided to ceding insurance companies
and retrocessional catastrophe coverage provided to other reinsurers.
Catastrophe-related coverages have represented approximately 68% of PXRE's gross
premiums written as reported during the past three fiscal years. Gross premiums
written are considered domestic (or national) when they 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). Domestic gross premiums written represented approximately
27%, 29% and 29% of total gross premiums written for 1997, 1996 and 1995,
respectively, while international gross premiums written represented 73%, 71%
and 71% of total gross premiums written for those respective periods. See Note
12 of Notes to Consolidated Financial Statements.
PXRE has also been diversifying its sources of business and the types of
risks it underwrites. PXRE's new Lloyd's Syndicate 1224 has an initial capacity
to underwrite `L'35 million in annual premiums ($57.4 million at December 31,
1997 exchange rates), although in the current competitive environment the
syndicate is not expected to utilize its full underwriting capacity.
Syndicate 1224 writes short-tail excess of loss medical coverages and personal
accident business as well as
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catastrophe-related coverages, marine and aerospace reinsurance and facultative
reinsurance. Transnational Insurance, PXRE's new excess and surplus lines
operation, is expected to commence operations during the first quarter of 1998,
specializing in short-tail property type risks to be written as insurance.
In addition, PXRE has been utilizing its experience with traditional
reinsurance products to evaluate, and where appropriate invest in, through Cat
Bond Investors and otherwise, innovative new products which bring together
capital markets and reinsurance experience.
PXRE's strategy also encompasses repositioning its investment portfolio in
response to market conditions. Consistent with the foregoing, and in light of
the increasingly competitive reinsurance environment, PXRE has been
repositioning its investment portfolio out of U.S. Treasury, GNMA and short-term
investments into new sectors believed by management to possess greater total
return potential.
BUSINESS WRITTEN
Substantially all of the reinsurance that PXRE currently writes is on
property risks, both commercial and personal, and marine and aerospace risks.
(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 aerospace
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 allows PXRE to maintain a
smaller staff than would be necessary to write the same volume of facultative
reinsurance.
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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,
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AS REPORTED PRO FORMA(1) AS REPORTED
---------------------------------------- ------------------ ------------------
1997 1996 1996 1995
------------------ ------------------ ------------------ ------------------
TYPE OF BUSINESS AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
- ---------------------------------- -------- ------- -------- ------- -------- ------- -------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Reinsurance:
Treaty:
Catastrophe-Related........... $ 85,285 67.6% $ 78,013 68.2% $100,589 69.8% $105,985 68.2%
Marine & Aerospace............ 11,408 9.0 15,619 13.7 19,644 13.6 26,155 16.8
Risk Excess................... 11,592 9.2 9,278 8.1 12,316 8.6 10,894 7.0
Medical and Other............. 4,328 3.4 -- -- -- -- -- --
Pro Rata...................... 3,305 2.6 3,126 2.7 3,126 2.2 3,427 2.2
Facultative....................... 10,314 8.2 8,312 7.3 8,312 5.8 8.919 5.8
-------- ------- -------- ------- -------- ------- -------- -------
Total................... $126,232 100.0% $114,348 100.0% $143,987 100.0% $155,380 100.0%
-------- ------- -------- ------- -------- ------- -------- -------
-------- ------- -------- ------- -------- ------- -------- -------
</TABLE>
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(1) As previously reported, PXRE and TREX merged on December 11, 1996. Results
for 1997 therefore reflect the consolidated operations and business of PXRE
and TREX combined, whereas the 1996 results under purchase accounting
reflect the historical results of PXRE as reported, excluding TREX prior to
December 11, 1996. For comparative purposes the distribution of gross
premiums written is also presented for 1996 as if PXRE and TREX had merged
at January 1, 1996.
Although catastrophe-related coverages experienced substantial improvements
in pricing and other terms following high levels of catastrophic loss activity
experienced by the worldwide reinsurance industry, coverage terms have been
deteriorating since the beginning of 1995. In response, PXRE has been moving to
layers of risk that are less affected by competitive pressures, or reducing
commitments when necessary, which has resulted in the contraction in premium
volume for catastrophe-related coverages since 1995.
PXRE also writes marine and aerospace reinsurance, although its premium
volume for these coverages has been contracting since 1995 in response to
increasing competition.
Medical and other constitutes a new line of business derived from PXRE's
Lloyd's Syndicate. Medical consists of short tail excess of loss coverage,
providing protection primarily to U.S. based employer trusts against large
individual claims or an abnormal frequency of claims. "Other" is personal
accident policies sold primarily to individuals or groups in white-collar
occupations, but could include occupational accident carveout reinsurance.
Management has 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 have adversely impacted
the profitability of such business.
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In addition, pro rata and risk excess business incurred substantial losses from
Hurricane Andrew, reflecting the vulnerability of these lines of business to a
major catastrophic event.
Facultative reinsurance premium volume has not changed significantly during
the period and represented approximately 8% of PXRE's gross premiums written for
1997, compared to 7% (6% on a pro forma basis) in 1996 and 6% in 1995, due to
increased premium volume in 1997 from PXRE's new Lloyd's Syndicate and to the
contraction in premium volumes of other types of business.
RETROCESSIONAL AGREEMENTS
The following table sets forth certain information regarding the volume of
premiums PXRE has ceded to other reinsurers pursuant to retrocessional
agreements for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
AS REPORTED PRO FORMA(1) AS REPORTED
-------------------- ------------ -----------
1997 1996 1996 1995
-------- -------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Gross premiums written...................................... $126,232 $114,348 $143,987 $155,380
Reinsurance premiums ceded:
Managed business participants.......................... 16,534 21,238 21,238 26,774
Catastrophe coverage................................... 9,643 5,427 6,145 6,180
TREX Management Agreement(2)........................... 0 19,965 0 24,790
-------- -------- ------------ -----------
Total reinsurance premiums ceded.................. 26,177 46,630 27,383 57,744
-------- -------- ------------ -----------
Net premiums written........................................ $100,055 $ 67,718 $116,604 $ 97,636
-------- -------- ------------ -----------
-------- -------- ------------ -----------
</TABLE>
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(1) As previously reported, PXRE and TREX merged on December 11, 1996. Results
for 1997 therefore reflect the consolidated operations and business of PXRE
and TREX combined, whereas the 1996 results under purchase accounting
reflect the historical results of PXRE as reported, excluding TREX prior to
December 11, 1996. For comparative purposes the volume of premiums PXRE
ceded to other reinsurers is also presented for 1996 as if PXRE and TREX had
merged at January 1, 1996.
(2) Consists of premiums written by PXRE and retroceded to Transnational
Reinsurance as required by the management agreement to which such companies
were parties prior to the Merger. See 'Business -- TREX Management
Agreement.'
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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 1997, PXRE was a party to three such
arrangements. The first such arrangement, which is subject to renewal each
January 1 and which has been renewed effective January 1, 1998, is referred to
as the AMA. The AMA is a pool consisting of a number of insurance companies
(the 'Pool'), for which PXRE
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acts as reinsurance manager. In 1997, the Pool was comprised of Merrimack
Mutual Fire Insurance Company, Pennsylvania Lumbermens Mutual Insurance Company,
NRMA Insurance Limited and Auto-Owners Insurance Company. 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 year. 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 was renewed effective
January 1, 1998, is with Trenwick America Reinsurance Corporation ('Trenwick
Group'). 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 third such retrocessional arrangement is with Select Reinsurance Ltd.,
a Bermuda reinsurer, formerly Investors Reinsurance Ltd., a Barbados reinsurer
('Select Re'), pursuant to which PXRE has agreed to offer to cede to Select Re a
quota share of PXRE's business and may offer to cede to Select Re additional
risks underwritten by PXRE. Pursuant to this arrangement, PXRE receives an
override commission of 4.2% (5% commencing in 1998) of premiums ceded as well as
a profit commission equal to a percentage of the net profits in respect of the
reinsurance ceded. Because Select Re is not licensed in any jurisdiction in the
United States, the retrocessional arrangement provides that a trust fund,
letters of credit and other security arrangements satisfactory to PXRE be
established by Select Re for the benefit of PXRE to secure Select Re's
obligations.
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The following table sets forth PXRE's earned commissions from
retrocessionaires pursuant to its three managed business arrangements (not
including Transnational Reinsurance) for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1997 1996 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Commission................................................................. $ 879 $1,043 $1,376
Contingent profit commission(1)............................................ 2,127 2,477 1,515
------ ------ ------
Total................................................................. $3,006 $3,520 $2,891
------ ------ ------
------ ------ ------
</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 under the AMA and Trenwick
Group arrangements and is paid annually under the arrangement with Select
Re.
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PXRE also purchases catastrophe retrocessional coverage for its own
protection, depending on market conditions. PXRE increased its purchases of such
coverage in 1997 in light of the continued general deterioration in catastrophe
reinsurance pricing and the opportunity to buy protection at more favorable
terms than in prior years.
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, 1997, estimated losses recoverable (including incurred but
not reported losses) from retrocessionaires were $14,242,000 including
$1,509,000 of paid loss recoverables. Since its inception, PXRE 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 would
be liable for such defaulted amounts.
LLOYD'S SYNDICATE 1224
In December 1996, PXRE completed an investment in Lloyd's of London,
forming a new syndicate, PG Butler Syndicate 1224, and a presence in London. The
new syndicate has an initial capacity to underwrite `L'35 million in annual
premiums ($57.4 million at December 31, 1997 exchange rates). Syndicate 1224 has
its own underwriting team and writes short-tail excess of loss medical coverages
and personal accident business as well as catastrophe-related coverages, marine
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and aerospace reinsurance and facultative reinsurance. PXRE Managing Agency
Limited ('PXRE Managing Agency') the managing agent of PXRE Limited, which
carries on business as a corporate member of Lloyds and sole member of Syndicate
1224, has contracted with third party vendors to provide corporate management
and investment services. See 'Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources.'
TREX MANAGEMENT AGREEMENT
From November 8, 1993 until the Merger, PXRE Reinsurance was party to a
management agreement (the 'TREX Management Agreement') with TREX and
Transnational Reinsurance.
Under the terms of the TREX Management Agreement, PXRE Reinsurance had
responsibility for the day-to-day operations of TREX and Transnational
Reinsurance, including all the reinsurance operations of Transnational
Reinsurance. TREX and Transnational Reinsurance had no paid employees.
Under the terms of the TREX Management Agreement, Transnational Reinsurance
shared in certain specified business of PXRE classified as property
retrocessional reinsurance business, marine and aerospace retrocessional
reinsurance or marine and aerospace reinsurance and facultative reinsurance.
Transnational Reinsurance paid PXRE Reinsurance an annual basic management
fee under the TREX Management Agreement equal to 5% of gross premiums written
(including reinstatement premiums less return premiums) of Transnational
Reinsurance as reflected in Transnational Reinsurance's statutory quarterly and
annual statements filed with state insurance authorities. TREX and Transnational
Reinsurance also paid all expenses directly attributable to them. PXRE's earned
management fees from Transnational Reinsurance pursuant to the TREX Management
Agreement were $2,512,000 and $3,526,000 for 1996 and 1995, respectively.
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
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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,
1997, 1996 and 1995. PXRE does not discount such liabilities; that is, it does
not calculate them on a present value basis.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross GAAP liability for losses and loss expenses at beginning of year........... $70,978 $72,719 $81,836
Add: Gross provision for losses and loss expenses --
Occurring in current year................................................... 19,344 27,327 43,388
Occurring in prior years.................................................... (4,721) 10,510 5,982
------- ------- -------
Total gross provision(1)............................................... 14,623 37,837 49,370
------- ------- -------
Less: Gross payments for losses and loss expenses --
Occurring in current year................................................... 4,705 6,469 16,886
Occurring in prior years.................................................... 23,707 42,698 41,601
------- ------- -------
Total gross payments................................................... 28,412 49,167 58,487
------- ------- -------
Gross GAAP liability for losses and loss expenses at end of year................. $57,189 $61,389 $72,719
Add: Gross reserves of TREX at date of Merger(2)................................. -- 9,589 --
------- ------- -------
Total gross liability.................................................. $57,189 $70,978 $72,719
------- ------- -------
------- ------- -------
Ceded GAAP liability for losses and loss expenses at end of year................. (12,734) (27,154) (28,295)
------- ------- -------
Net GAAP liability for losses and loss expenses at end of year................... $44,455 $43,824 $44,424
------- ------- -------
------- ------- -------
Foreign currency adjustment...................................................... 482 (145) (86)
------- ------- -------
------- ------- -------
Gross SAP liability for losses and loss expenses at end of year.................. $57,671 $70,833 $72,633
------- ------- -------
------- ------- -------
</TABLE>
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(1) The GAAP provision for losses and loss expenses includes net foreign
currency exchange gains (losses) of $627,000, ($41,000) and $39,000 for
1997, 1996 and 1995, respectively.
(2) Liabilities assumed from TREX at December 11, 1996.
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The following table presents the development of PXRE's GAAP balance sheet
liability for losses and loss expenses for the period 1987 through 1997 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 when the reestimated liability at each December 31 is less
(greater) than the prior liability estimate. The 'cumulative redundancy
11
<PAGE>
<PAGE>
(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 1991 to be
$150,000 was first reserved in 1988 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 1988-1990 shown below. This table does not
present accident or policy year development data.
Loss and loss expense liabilities for fiscal years 1991 through 1997 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.
12
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
------- ------- ------- ------- ------- -------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities for losses
and loss expenses...... $57,189 $61,389 $72,719 $81,836 $71,442 $ 88,668 $62,664 $31,632 $37,963 $34,627 $30,301
Cumulative amount of
liability paid through:
One year later....... 23,708 42,698 41,601 37,820 59,773 35,575 15,688 18,421 16,183 11,416
Two years later...... 55,620 58,968 54,400 79,926 48,393 25,466 28,178 21,597 19,107
Three years later.... 67,630 60,850 89,519 52,301 29,066 31,852 23,779 20,673
Four years later..... 64,566 94,261 55,022 30,117 33,980 24,689 21,280
Five years later..... 96,895 56,976 31,528 34,434 25,980 21,783
Six years later...... 58,822 32,137 35,408 26,085 22,632
Seven years later.... 33,202 36,003 26,531 22,724
Eight years later.... 36,980 27,167 22,955
Nine years later..... 27,378 23,435
Ten years later...... 23,466
Liabilities reestimated
as of:
One year later....... 66,257 83,228 87,818 78,188 101,423 67,165 33,874 37,211 31,863 28,663
Two years later...... 85,162 87,750 76,902 103,632 62,262 33,726 37,800 29,506 26,765
Three years later.... 90,409 74,683 105,165 62,827 33,488 36,588 27,944 25,354
Four years later..... 75,392 103,801 63,032 33,682 36,881 27,480 23,829
Five years later..... 104,330 62,593 34,310 37,023 27,751 23,604
Six years later...... 63,632 33,777 37,667 27,878 23,874
Seven years later.... 34,714 37,166 28,063 23,898
Eight years later.... 37,998 27,959 24,018
Nine years later..... 28,065 23,954
Ten years later...... 23,946
Gross reserves of TREX at
date of merger......... 9,589 5,242 2,067 26
Gross cumulative
redundancy (deficiency)
through December 31,
1997:
Amount............... 4,721 (7,201) (6,506) (3,924) (15,662) (968) NA NA NA NA
Percentage........... 7% (9%) (8%) (5%) (18%) (2%) NA NA NA NA
Retrocessional
recoveries......... (804) 6,715 2,220 1,650 3,179 (1,720) NA NA NA NA
Net cumulative redundancy
(deficiency) through
December 31, 1997:
------- ------- ------- ------- ------- -------- ------- ------- ------- ------- -------
Amount............... 3,917 (486) (4,286) (2,274) (12,483) (2,688) (3,082) (35) 6,562 6,355
Percentage........... 7% (1%) (8%) (5%) (35%) (7%) (10%) 0% 19% 21%
</TABLE>
13
<PAGE>
<PAGE>
During 1997, PXRE experienced savings of $3,917,000 net, for prior-year
loss and loss expenses primarily related to the Eurotunnel fire and Hurricane
Fran where redundant reserves were recognized in 1997 of approximately
$1,644,000 and $1,440,000, respectively. In addition, included in the savings of
$3,917,000 were prior-year losses originally thought to have triggered market
loss coverage thresholds which have proven to be redundant by approximately
$1,800,000 offset, in part, by development on prior-year facultative losses.
During 1996, PXRE incurred development from prior year losses amounting to
$3,249,000 primarily due to Hurricanes Marilyn and Luis. During 1995, PXRE
incurred development from prior year losses amounting to $4,311,000 primarily as
a result of losses from the Northridge earthquake. 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 aerospace reinsurance
business. PXRE commenced writing marine and aerospace 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 cumulative reserve redundancy in 1997
demonstrated by the above table, and that the strengthening of reserves in
fiscal years 1991 through 1996, 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 cumulative reserve redundancies in 1987 and
1988 demonstrated by the above table was attributable principally to significant
changes in primary insurance rates commencing in 1986 and a favorable change in
loss activity during the period.
PXRE's management believes that its overall liability for losses and loss
expenses at December 31, 1997 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 than for reinsurers of risks which have an established historical
pattern of losses. In addition, insured
14
<PAGE>
<PAGE>
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 primarily 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, PXRE's invested assets include equities and investments in limited
partnerships, and PXRE's investments are subject to market-wide risks and
fluctuations, as well as to risk inherent in particular securities. As at
December 31, 1997, 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. As at December 31, 1997, PXRE had invested $21,049,000
in equity securities. PXRE also held $42,857,000 of other invested assets at
December 31, 1997 comprised of investments in various limited partnerships
accounted for under the equity method. The investment policies and all
investments of PXRE are approved by its Board of Directors.
15
<PAGE>
<PAGE>
The following table summarizes the investments of PXRE at December 31, 1997
and 1996:
ANALYSIS OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------- -------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- ------- -------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
Fixed maturities (at amortized cost):
United States government securities.............................. $165,576 32.2% $180,519 39.2%
Foreign government securities.................................... 28,112 5.5 -- --
United States government agency mortgage and asset-backed
securities..................................................... 24,095 4.7 87,861 19.1
Other mortgage and asset-backed securities....................... 72,200 14.1 55,314 12.0
Obligations of states and political subdivisions................. 104,001 20.2 70,268 15.2
Public utilities, industrial and miscellaneous securities........ 5,161 1.0 -- --
-------- ------- -------- -------
Total fixed maturities...................................... 399,145 77.7 393,962 85.5
Equity securities (at cost)........................................... 21,049 4.1 6,850 1.5
Short-term investments (at cost)...................................... 51,049 9.9 59,792 13.0
Other invested assets (at cost)....................................... 42,375 8.3 -- --
-------- ------- -------- -------
Total investments........................................... $513,618 100.0% $460,604 100.0%
-------- ------- -------- -------
-------- ------- -------- -------
</TABLE>
16
<PAGE>
<PAGE>
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, 1997 and 1996:
COMPOSITION OF INVESTMENTS BY MATURITY
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------- -------------------
MATURITY(1) AMOUNT PERCENT AMOUNT PERCENT
- ---------------------------------------------------------------------- -------- ------- -------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
One year or less...................................................... $100,892 22.4% $ 89,868 19.8%
Over 1 year through 5 years........................................... 149,944 33.3 151,500 33.4
Over 5 years through 10 years......................................... 57,660 12.8 58,449 12.9
Over 10 years through 20 years........................................ 20,223 4.5 10,762 2.4
Over 20 years......................................................... 25,180 5.6 -- --
-------- ------- -------- -------
353,899 78.6 310,579 68.5
United States government agency and other mortgage and asset-backed
securities.......................................................... 96,295 21.4 143,175 31.5
-------- ------- -------- -------
Total....................................................... $450,194 100.0% $453,754 100.0%
-------- ------- -------- -------
-------- ------- -------- -------
</TABLE>
- ------------
(1) Based on stated maturity dates with no prepayment assumptions.
The average market yield to maturity of PXRE's fixed maturities portfolio
at December 31, 1997 and December 31, 1996 was 6.1% and 5.7%, respectively. At
December 31, 1997, the fair value of PXRE's fixed maturities portfolio exceeded
its amortized cost by $6,805,000. At December 31, 1996, the fair value of PXRE's
fixed maturities portfolio exceeded its amortized cost by $589,000.
17
<PAGE>
<PAGE>
The following table indicates the composition of PXRE's fixed maturities
portfolio (at amortized cost), excluding short-term investments, by rating at
December 31, 1997 and 1996:
COMPOSITION OF FIXED MATURITIES PORTFOLIO BY RATING
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------- -------------------
RATINGS(1) AMOUNT PERCENT AMOUNT PERCENT
- ---------------------------------------------------------------------- -------- ------- -------- -------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C>
United States government securities................................... $165,576 41.5% $180,519 45.8%
United States government agency mortgage and asset-backed
securities.......................................................... 24,095 6.0 87,861 22.3
Other mortgage and asset-backed securities
Aaa and/or AAA................................................... 57,245 14.4 50,318 12.8
Aa and/or AA..................................................... 12,955 3.2 -- --
Baa2 and/or BBB.................................................. -- -- 4,996 1.3
Ba2 and/or BB.................................................... 2,000 0.5 -- --
Obligations of states and political subdivisions
Aaa and/or AAA................................................... 61,521 15.4 30,726 7.8
Aa and/or AA..................................................... 40,470 10.2 37,511 9.5
A1 and/or A...................................................... 2,010 0.5 2,031 0.5
Public utilities and industrial and miscellaneous securities
Ba2 and/or BB.................................................... 5,161 1.3 -- --
Foreign government securities
Baa1 and/or BBB.................................................. 3,787 0.9 -- --
Ba1 and/or BB.................................................... 16,458 4.1 -- --
B2 and/or B...................................................... 7,867 2.0 -- --
-------- ------- -------- -------
Total....................................................... $399,145 100.0% $393,962 100.0%
-------- ------- -------- -------
-------- ------- -------- -------
</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.
---------------------------
PXRE's management continually evaluates the composition of the investment
portfolio and repositions the portfolio in response to market conditions in
order to improve returns while maintaining liquidity and superior credit
quality. Consistent with the foregoing, during the first quarter of 1997, PXRE
repositioned a portion of its portfolio out of U.S. Treasury, GNMA and
short-term investments into new sectors including asset and corporate
mortgage-backed securities, emerging markets securities, tax free municipals and
investment grade Yankee bonds. During the second and third quarters of 1997,
PXRE further repositioned the portfolio into a number of limited partnership
investments and to a lesser extent equity investments.
18
<PAGE>
<PAGE>
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 which 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 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
reinsurance brokerage fees believed to be comparable to industry norms.
Approximately 26.0%, 17.8% and 11.2% of gross premiums written in fiscal
year 1997 were arranged through the worldwide branch offices of Aon Group Ltd.,
Guy Carpenter & Company, Inc. (subsidiary of Marsh & McLennan Companies, Inc.)
and Benfield Greig Ltd., respectively. 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 national
and international 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.
19
<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,
Minnesota, Missouri, Nebraska, Oklahoma, Tennessee, Vermont and Washington) and
Puerto Rico.
PXRE Reinsurance is rated 'A (Excellent)' by A.M. Best. 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 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'). As a result of the Merger, this venture is now wholly-owned by
PXRE, which has committed $5 million to it. Although the 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,
1997.
REGULATION
PXRE, PXRE Reinsurance and Transnational Insurance are subject to
regulation under the insurance statutes of various states, including
Connecticut, the domiciliary state of PXRE Reinsurance and Transnational
Insurance. The regulation and supervision to which PXRE Reinsurance and
Transnational Insurance are subject relate primarily to the standards of
solvency that must be met and maintained, licensing requirements for reinsurers
and insurers, 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 or insured, methods of accounting, periodic examinations of the
financial condition and affairs of reinsurers and insurers, 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 policyholders, rather than investors.
20
<PAGE>
<PAGE>
In addition, PXRE, PXRE Reinsurance and Transnational Insurance 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 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 and Transnational Insurance may
not enter into certain transactions, including certain reinsurance agreements,
management agreements, and service contracts, with members of its insurance
holding company system, unless it 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 and
income taxes, debt service obligations, and dividends by PXRE are the receipt of
dividends and net tax allocation payments from PXRE Reinsurance and
Transnational Insurance. Under the Connecticut insurance laws, the maximum
amount of dividends or other distributions that PXRE Reinsurance may declare or
pay to PXRE, and that Transnational Insurance may declare or pay to PXRE
Reinsurance, 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 or Transnational Insurance
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. The maximum amount of
dividends or distributions that PXRE Reinsurance may declare and pay during
1998, without regulatory approval, is $57,388,000. During 1997, no dividends
were paid by PXRE Reinsurance to PXRE. During 1997, $58,877,000, including an
extraordinary dividend approved by the Insurance Department of the State of
Connecticut, was paid by Transnational Reinsurance to PXRE Reinsurance with the
objective that Transnational Insurance commence 1998 with
21
<PAGE>
<PAGE>
approximately $100 million of surplus. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources.'
Additionally, Connecticut has adopted 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, 1997, PXRE Reinsurance's surplus and Transnational
Insurance's surplus substantially exceeded their respective calculated
risk-based capital.
In addition, from time to time various regulatory and legislative changes
have been proposed in the U.S. insurance industry, some of which could have an
effect on reinsurers and insurers. 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.
Furthermore, the NAIC has commenced a project to codify statutory accounting
practices, the result of which is expected to constitute the only source of
'prescribed' statutory accounting practices. Accordingly, that project, which is
expected to be completed in 1999, will likely change the definitions of what
constitutes prescribed versus permitted statutory accounting practices and will
likely result in changes to the accounting policies that insurance enterprises
use to prepare their statutory financial statements. 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, 1997, 1996 and 1995,
PXRE Reinsurance's results were within the usual values for each of the 11
ratios, except for one ratio in 1996. PXRE's management believes this ratio fell
outside the usual range in 1996 due to the increase in surplus after
Transnational Reinsurance became a wholly-owned subsidiary of PXRE Reinsurance.
During this period, Transnational Reinsurance's results were within the usual
values for each of the 11 ratios except for 2 ratios in 1997, when Transnational
Reinsurance did not write any business and paid a dividend, including an
extraordinary dividend, of $58,877,000 to PXRE Reinsurance, affecting the change
in net writings ratio and change in surplus ratio.
22
<PAGE>
<PAGE>
PXRE Limited, PXRE Managing Agency and Syndicate 1224 are subject to
regulation by Lloyd's of London. The form of that regulation is prescribed by
the Lloyd's Act of 1982 and Lloyd's internal regulatory by-laws and directions.
The regulation and supervision to which PXRE Limited is subject relates
primarily to the maintenance of a risk based capital requirement (by way of a
deposit of securities and a letter of credit with Lloyd's to support its
underwriting) and methods of accounting. PXRE Managing Agency must satisfy a
solvency requirement, methods of accounting and periodic examinations of
compliance with Lloyd's by-laws and other purposes. Syndicate 1224 has to comply
with accounting regulation, internal reporting and periodic examinations of
compliance. The U.K. Government has recently announced that the Lloyd's market
will be regulated externally by the Financial Services Authority, although the
day to day regulation of the market will remain the jurisdiction of the Council
of Lloyd's.
EMPLOYEES
PXRE employs 58 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 28,400 square feet of office space in
Edison, New Jersey (PXRE's corporate headquarters), New York, New York (a
satellite office), London, England 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.
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 1997 fiscal year.
23
<PAGE>
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since December 31, 1996, PXRE's common stock has been listed on the New
York Stock Exchange under the symbol 'PXT'. Prior to December 31, 1996, PXRE's
common stock was traded 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 the New York Stock Exchange
since December 31, 1996 and NASDAQ prior to December 31, 1996 and cash dividends
per share of common stock declared and subsequently paid:
<TABLE>
<CAPTION>
BID PRICE
----------------
HIGH LOW DIVIDENDS
------ ------ ---------
<S> <C> <C> <C>
1996:
First Quarter....................................................... $ 28.00 $ 24.00 $0.18
Second Quarter...................................................... 27.00 23.75 0.18
Third Quarter....................................................... 24.50 22.25 0.18
Fourth Quarter...................................................... 25.50 22.875 0.21
1997:
First Quarter....................................................... 26.875 24.50 0.21
Second Quarter...................................................... 31.438 24.75 0.21
Third Quarter....................................................... 31.688 29.50 0.21
Fourth Quarter...................................................... 34.00 29.563 0.25
</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, 1998, there were 13,796,847 shares of the common stock issued
and outstanding, which shares were held by approximately 160 shareholders of
record and, based on PXRE's best information, approximately 2,000 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, in the
fourth quarter of 1995 to $0.18 per share, in the fourth quarter of 1996 to
$0.21 per share and in the fourth quarter of 1997 to $0.25 per share.
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
24
<PAGE>
<PAGE>
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 and Transnational Insurance to pay
dividends to PXRE's shareholders. PXRE Reinsurance and Transnational Insurance
are subject to state laws that may restrict their 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.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1997(1) 1996(1) 1995 1994 1993(2)(3)
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Gross premiums written.......................... $126,232 $114,348 $155,380 $179,684 $116,975
Premiums ceded.................................. (26,177) (46,630) (57,744) (71,166) (39,469)
-------- -------- -------- -------- --------
Net premiums written............................ 100,055 67,718 97,636 108,518 77,506
Change in unearned premiums..................... (8,640) 5,078 (494) 2,083 1,422
-------- -------- -------- -------- --------
Net premiums earned............................. 91,415 72,796 97,142 110,601 78,928
Net investment income........................... 31,191 16,782 14,730 13,786 8,011
Net realized investment gains (losses).......... 2,467 94 85 (1,164) (1,526)
Gain on sale of subsidiary(2)................... -- -- -- -- 10,564
Management fee(1)............................... 3,006 6,032 6,417 6,992 3,158
-------- -------- -------- -------- --------
Total revenues............................. 128,079 95,704 118,374 130,215 99,135
-------- -------- -------- -------- --------
Losses and loss expenses incurred............... 12,491 18,564 34,716 52,647 40,570
Commissions and brokerage....................... 19,138 12,874 13,251 15,026 13,339
Other operating expenses........................ 15,716 12,262 11,237 8,365 8,917
Interest expense................................ 3,325 6,957 7,143 7,789 2,740
Minority interest in consolidated subsidiary.... 8,184 -- -- -- --
-------- -------- -------- -------- --------
Total losses and expenses.................. 58,854 50,657 66,347 83,827 65,566
-------- -------- -------- -------- --------
Income before income taxes, extraordinary item
and equity in net earnings of TREX............ 69,225 45,047 52,027 46,388 33,569
Equity in net earnings of TREX(2)............... 0 3,898 5,948 4,141 84
Income tax provision............................ 22,198 15,644 18,189 15,700 11,008
-------- -------- -------- -------- --------
Net income (before extraordinary loss).......... 47,027 33,301 39,786 34,829 22,645
Extraordinary loss on debt redemption, net of
tax........................................... 2,774 -- -- -- --
-------- -------- -------- -------- --------
Net income...................................... $ 44,253 $ 33,301 $ 39,786 $ 34,829 $ 22,645
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Preferred stock dividend(4)..................... 0 0 599 2,005 2,056
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net income available to common stockholders..... $ 44,253 $ 33,301 $ 39,187 $ 32,824 $ 20,589
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
(table continued on next page)
25
<PAGE>
<PAGE>
(table continued from previous page)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1997(1) 1996(1) 1995 1994 1993(2)(3)
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges(5)........... 6.59 7.15 7.90 6.73 12.12
Ratio of earnings to combined fixed charges and
preferred dividends(5)........................ 6.59 7.15 7.04 4.90 6.02
Basic earnings per common share:
Net income (before extraordinary item)..... $ 3.41 $ 3.73 $ 4.81 $ 4.99 $ 3.47
Extraordinary loss......................... 0.20 -- -- -- --
-------- -------- -------- -------- --------
Net income................................. $ 3.21 $ 3.73 $ 4.81 $ 4.99 $ 3.47
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Average common shares outstanding(4)....... 13,776 8,922 8,150 6,580 5,940
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Diluted earnings per common share:
Net income (before extraordinary item)..... $ 3.39 $ 3.69 $ 4.52 $ 3.99 $ 2.75
Extraordinary loss......................... 0.20 -- -- -- --
-------- -------- -------- -------- --------
Net income................................. $ 3.19 $ 3.69 $ 4.52 $ 3.99 $ 2.75
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Average common shares outstanding(1)....... 13,893 9,020 8,812 8,719 8,240
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Cash dividends per common share................. $ 0.88 $ 0.75 $ 0.63 $ 0.375 $ 0.225
Other Operating Data:
GAAP loss ratio(6).............................. 13.7% 25.5% 35.7% 47.6% 51.4%
GAAP underwriting expense ratio(6).............. 34.8% 26.2% 18.6% 14.8% 24.21%
-------- -------- -------- -------- --------
GAAP combined ratio(6).......................... 48.5% 51.7% 54.3% 62.4% 75.6%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and investments............................ $527,738 $467,078 $269,089 $231,789 $248,949
Total assets.................................... 608,952 543,324 393,465 353,794 349,251
Losses and loss expenses........................ 57,189 70,977 72,719 81,836 71,442
Minority interest in consolidated subsidiary.... 99,513 -- -- -- --
Notes payable................................... 21,414 64,725 67,775 69,700 75,000
Total stockholders' equity...................... 386,688 357,678 211,162 166,771 142,690
Book value per common share..................... $ 28.10 $ 25.63 $ 24.15 $ 21.27 $ 18.06
Statutory capital and surplus of PXRE
Reinsurance................................... $451,321 $400,133 $250,231 $211,988 $185,844
</TABLE>
- ------------
(1) On December 11, 1996, PXRE merged with TREX. The Merger has been accounted
for as a purchase. Accordingly, TREX has been included in PXRE's
consolidated results of operations from the date of acquisition, which
resulted in incremental earnings of $1,253,000 in 1996. For the period from
January 1, 1996 until December 11, 1996, PXRE
(footnotes continued on next page)
26
<PAGE>
<PAGE>
(footnotes continued from previous page)
recorded equity in net earnings of TREX amounting to $3,898,000. Diluted
average shares outstanding reflects the 5,680,256 weighted shares issued
to holders of TREX common shares in connection with the Merger. Included
in management fee was $2,512,000, $3,526,000 and $3,364,000 in 1996, 1995
and 1994, respectively, earned from TREX prior to the Merger. If the Merger
had taken place at the beginning of 1996 and 1995, consolidated revenues
would have been $153,410,000 and $193,972,000 for 1996 and 1995,
respectively. Consolidated pro forma net income and diluted net income per
share would have been $49,161,000 and $3.42 in 1996 and $60,755,000 and
$4.19 in 1995. Such pro forma amounts are not necessarily indicative of
what the actual consolidated results might have been if the Merger had been
effected prior to December 11, 1996.
(2) 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 was declared effective. In conjunction with the
formation of TREX, 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 to constitute
approximately 21% of all of the outstanding common stock of TREX immediately
after the Offering. 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 until December 11, 1996, PXRE
accounted for its investment in TREX on the equity method as described in
Note 1.
(3) During the second quarter of 1992, PXRE completed an offering of 1,059,800
depository shares, each representing 1/100 of a share of PXRE's Series A
Cumulative Convertible Preferred Stock. The net proceeds of $24,403,000 were
contributed to PXRE Reinsurance's surplus. 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.
(4) During 1995, all of the outstanding shares of Series A Preferred Stock were
converted into shares of PXRE's common stock. To 1995, these convertible
preferred shares were the principal reason for the difference between basic
and diluted earnings per share.
(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. 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.
(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.
27
<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 national and
international marketplace, with principal emphasis on commercial and personal
property risks and marine and aerospace 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 business 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
national and international markets.
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, until the Merger
with TREX described below, by managing the underwriting and other day-to-day
operations of a publicly-owned reinsurance group.
At December 31, 1997, PXRE was a party to three such retrocessional
arrangements. One such arrangement is with a group of insurers and reinsurers
referred to as the AMA; another is with Trenwick Group; and a third arrangement
is with Select Re. Under these arrangements, PXRE cedes some of its underwritten
risks to the participants, subject to maximum aggregate liabilities per
reinsurance program. PXRE receives a management fee or commission of 5% of
premiums ceded (4.2% for Select Re prior to 1998) and a percentage of any
ultimate underwriting profits in connection with the reinsurance ceded. Under
the arrangements with these participants, such percentage of ultimate
underwriting profits is subject to adjustment based on cumulative experience.
Future management fee income is dependent upon the amount of business ceded to
the participants and the profitability of that business.
PXRE also purchases catastrophe retrocessional coverage for its own
protection, depending on market conditions. PXRE has increased its purchases of
such coverage in light of the continued general deterioration in catastrophe
reinsurance pricing and the opportunity to buy protection at more favorable
terms than in recent years.
28
<PAGE>
<PAGE>
In November 1993, PXRE sponsored the initial public offering of TREX to
raise capital and take advantage of favorable conditions in the worldwide
retrocessional reinsurance market. PXRE, through PXRE Reinsurance, retained a
21% ownership position in TREX and had responsibility for the day-to-day
operations of TREX, including all the reinsurance operations of its subsidiary,
Transnational Reinsurance, under the TREX Management Agreement. TREX and
Transnational Reinsurance had no paid employees.
Under the terms of the TREX Management Agreement, Transnational Reinsurance
shared in certain specified business of PXRE classified as property
retrocessional reinsurance business, marine and aerospace retrocessional
reinsurance or marine and aerospace reinsurance and facultative reinsurance.
Transnational Reinsurance paid PXRE an annual basic management fee under
the TREX Management Agreement equal to 5% of gross premiums written (including
reinstatement premiums less return premiums) by Transnational Reinsurance as
reflected in Transnational Reinsurance's statutory quarterly and annual
statements filed with state insurance authorities. TREX and Transnational
Reinsurance also paid all expenses directly attributable to them.
On December 11, 1996, PXRE completed the merger of TREX with and into PXRE
(the 'Merger'), pursuant to which each share of common stock of TREX was
converted into the right to receive 1.0575 shares of PXRE common stock. The
Merger resulted from the realization by the management and Boards of Directors
of both PXRE and TREX that conditions had become more competitive in the
retrocessional reinsurance marketplace, and that the reinsurance markets, rating
agencies and the capital markets were placing increased importance on the size
and financial strength of reinsurance companies, which size and financial
strength would be augmented by the Merger. Following the Merger, Transnational
Reinsurance became a wholly-owned subsidiary of PXRE Reinsurance. The Merger
has been accounted for using the purchase method of accounting; therefore
net income of TREX (including Transnational Reinsurance) has been included
in PXRE's consolidated results of operation from the date of the Merger.
In December 1996, PXRE completed an investment in Lloyd's of London,
forming a new syndicate, PG Butler Syndicate 1224, and a presence in London.
Underwriting premium volume and loss experience related to Syndicate 1224's
different business mix is included in the consolidated results on a one quarter
lag basis, commencing in the quarter ended June 30, 1997. See 'Liquidity and
Capital Resources.'
In November 1997, PXRE announced the formation of an excess and surplus
lines operation which will specialize in short-tail property type risks to be
written as insurance in Transnational Insurance Company ('Transnational
Insurance'), formerly Transnational Reinsurance. Its operations are expected to
commence during the first quarter of 1998.
29
<PAGE>
<PAGE>
CERTAIN RISKS AND UNCERTAINTIES
As a reinsurer principally of property catastrophe-related coverages in
both the national and international 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. While PXRE may, depending
on market conditions, purchase catastrophe retrocessional coverage for its own
protection, the occurrence of one or more major catastrophes in any given period
could nevertheless have a material adverse impact on PXRE's results of
operations and financial condition and result in substantial liquidation of
investments and outflows of cash as losses are paid.
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 shorter period of time
than casualty losses.
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(s) 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.
30
<PAGE>
<PAGE>
Although PXRE's investment guidelines stress conservation of principal,
diversification of risk and liquidity, PXRE's invested assets include equities
and investments in limited partnerships, and PXRE's 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.
Premium receivables 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, in part, the effects of
currency fluctuations on its results of operations, it currently does not hedge
its currency exposures before a catastrophic event which may produce a claim.
PXRE relies primarily on cash dividends and net tax allocation payments
from its subsidiaries PXRE Reinsurance and Transnational Insurance to pay its
operating expenses, to meet its debt service obligations and to pay dividends to
PXRE's stockholders. The payment of dividends by PXRE Reinsurance to PXRE, and
by Transnational Insurance to PXRE Reinsurance, is subject to limits imposed
under the insurance laws and regulations of Connecticut, the state of
incorporation and domicile of PXRE Reinsurance and Transnational Insurance, as
well as certain restrictions arising in connection with PXRE's outstanding
indebtedness.
In the event the amount of dividends available, together with other sources
of funds, are not sufficient to permit PXRE to meet its debt service, its other
obligations and to pay cash dividends, it would be necessary to obtain the
approval of the Connecticut Insurance Commissioner prior to the payment of
additional dividends by PXRE Reinsurance (or Transnational Insurance). If such
approval were not obtained, PXRE 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 national and international reinsurance and insurance companies, many of
which have substantially greater financial, marketing and management resources
than PXRE.
COMPARISON OF 1997 WITH 1996
As reported previously, PXRE and TREX merged on December 11, 1996. Results
for 1997 therefore reflect the consolidated operations and business of PXRE and
TREX combined, whereas the 1996 results under purchase accounting reflect the
historical results of PXRE as reported,
31
<PAGE>
<PAGE>
excluding TREX. For comparative purposes, certain selected pro forma results
are also presented for 1996 as if PXRE and TREX had merged at January 1, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
AS REPORTED PRO FORMA
-------------------- ----------------------
INCREASE INCREASE
1997 1996 (DECREASE) 1996 (DECREASE)
-------- -------- ---------- -------- ----------
(000'S) % (000'S) %
<S> <C> <C> <C> <C> <C>
Gross premiums written.............................. $126,232 $114,348 10.4 $143,987 (12.3)
Ceded premiums:
Managed business participants.................. 16,534 21,238 (22.1) 21,238 (22.1)
TREX Management Agreement...................... 0 19,965 N/A 0 N/A
Catastrophe coverage........................... 9,643 5,427 77.7 6,145 56.9
-------- -------- --------
Total reinsurance premiums ceded.......... 26,177 46,630 (43.9) 27,383 (4.4)
-------- -------- --------
Net premiums written................................ $100,055 $ 67,718 47.8 $116,604 (14.2)
-------- -------- --------
-------- -------- --------
Earned premiums..................................... $ 91,415 $ 72,796 25.6 $123,042 (25.7)
Revenues............................................ 128,079 95,704 33.8 153,410 (16.5)
Income before extraordinary loss.................... 47,027 33,301 41.2 49,161 (4.3)
Net income.......................................... 44,253 33,301 32.9 49,161 (10.0)
Per share diluted:
Before extraordinary loss...................... $ 3.39 $ 3.69 (8.1) $ 3.42 (0.9)
Net income..................................... $ 3.19 $ 3.69 (13.6) $ 3.42 (6.7)
Diluted average shares outstanding.................. 13,893 9,020 14,389
</TABLE>
Gross premiums written for 1997 increased 10.4% to $126,232,000 from
$114,348,000 for the corresponding period of 1996 as reported and decreased
12.3% from $143,987,000 on a pro forma basis in the corresponding period of
1996. Net premiums earned for the year ended December 31, 1997, increased 25.6%
to $91,415,000 from $72,796,000 for the comparable period of 1996 as reported,
and decreased 25.7% from $123,042,000 on a pro forma basis in the corresponding
period of 1996. Net premiums written for the year ended December 31, 1997,
increased 47.8% to $100,055,000 from $67,718,000 for the corresponding period of
1996 as reported, and decreased 14.2% from $116,604,000 in the corresponding
period of 1996 on a pro forma basis. Gross written, net written and net earned
premium for 1997 declined from prior-year levels on a pro forma basis reflecting
a continuation of the increasingly competitive business environment which has
marked recent renewal seasons. Lower reinstatement premiums as a result of
reduced losses and additional reinsurance purchased at favorable rates
contributed to these declines. PXRE continued its planned
32
<PAGE>
<PAGE>
response to this increasingly competitive environment by withdrawing capacity
from areas of coverage not offering appropriate compensation for the exposure.
Management anticipates that this trend will continue during 1998, although
business written by PXRE's newly-established Lloyd's syndicate (PG Butler
Syndicate 1224) has partially cushioned reductions elsewhere in PXRE's business.
Underwriting premium volume and loss experience related to Syndicate 1224 is
included in the consolidated results on a one quarter lag basis, commencing in
the second quarter of 1997.
Premiums ceded by PXRE to its managed business participants decreased 22.1%
to $16,534,000 for 1997 compared with $21,238,000 for the corresponding period
of 1996. The decrease in premiums ceded to these programs was due to reduced
amounts of premiums written by PXRE and a change in the percentage ceded as
agreed with the participants. During 1996, before the Merger, PXRE ceded
$19,965,000 of premiums to Transnational Reinsurance in lieu of direct
reinsurance writings by Transnational Reinsurance. During 1997 PXRE increased
its purchases of catastrophe retrocessional coverage for its own protection in
light of the continued general deterioration in catastrophe reinsurance pricing
and the opportunity to buy protection at more favorable terms than in recent
years.
Management fee income from all sources for 1997 decreased to $3,006,000
from $6,032,000 for the corresponding period of 1996 as reported, reflecting a
decline of premiums ceded to managed business participants, as well as
management fee income of $2,512,000 earned by PXRE from TREX, before the Merger,
in 1996. Management fee income decreased to $3,006,000 for 1997 from $3,520,000
for the corresponding period of 1996 on a pro forma basis, reflecting the
decreased amount of ceded premium, offset in part by more profitable business.
The underwriting results of a property and casualty insurer are discussed
frequently by reference to its loss ratio, underwriting expense ratio and
combined ratio. The loss ratio is the result of dividing losses and loss
expenses incurred by net premiums earned. The underwriting expense ratio is the
result of dividing underwriting expenses (reduced by management fees, if any) by
net premiums written for purposes of SAP and net premiums earned for purposes of
GAAP. The combined ratio is the sum of the loss ratio and the underwriting
expense ratio. A combined ratio under 100% indicates underwriting profits and a
combined ratio exceeding 100% indicates underwriting losses. The combined ratio
does not reflect the effect of investment income on operating results. The
ratios discussed below have been calculated on a GAAP basis.
The loss ratio was 13.7% for 1997 compared with 25.5% for 1996 as reported,
and 28.8% for 1996 on a pro forma basis. The loss ratio for 1997 reflected a
reversal of catastrophe losses of $1,457,000 gross and $964,000 net for 1997 and
prior accident years, after taking into account, among other things, the German,
Poland and Czech flood losses referred to below. In comparison, the loss ratio
for 1996 reflected incurred catastrophe losses of $18,487,000 gross and
$9,166,000 net for 1996 and prior accident years as reported, and $27,522,000
gross and $17,689,000 net for 1996 and prior accident years on a pro forma
basis.
33
<PAGE>
<PAGE>
Significant catastrophe and risk losses affecting the year ended December
31, 1997 loss ratio are as follows:
<TABLE>
<CAPTION>
AMOUNT OF LOSSES
------------------
LOSS EVENT GROSS NET
- ---------------------------------------------------------------------------------- ------ ------
(IN THOUSANDS)
<S> <C> <C>
German, Poland and Czech floods................................................... $1,739 $1,457
</TABLE>
Significant catastrophe and risk losses affecting the year ended December
31, 1996 loss ratio are as follows:
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
---------------- -----------------
AMOUNT OF LOSSES
-------------------------------------
LOSS EVENT GROSS NET GROSS NET
- ---------------------------------------------------------------- ------ ------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Hurricanes Marilyn and Luis..................................... $8,064 $2,995 $11,978 $6,876
Hurricane Fran.................................................. 4,218 2,827 5,621 3,980
Northridge earthquake........................................... 1,646 1,438 1,198 1,083
Eurotunnel fire................................................. 1,260 1,022 2,238 2,000
Credit Lyonnais fire............................................ 2,669 723 4,606 2,647
</TABLE>
The provision for losses and loss expenses and the loss ratio includes the
effect of foreign exchange movements on PXRE's liability for losses and loss
expenses, resulting in a foreign currency exchange gain of $627,000 for 1997
compared to a loss of $41,000 for 1996 as reported, and a loss of $56,000 for
the corresponding period of 1996 on a pro forma basis.
During 1997, PXRE experienced savings of $3,917,000 net for prior-year loss
and loss expenses primarily related to the Eurotunnel fire and Hurricane Fran
where redundant reserves were recognized in 1997 of approximately $1,644,000 and
$1,440,000, respectively. In addition, included in the savings of $3,917,000
were prior-year losses originally thought to have triggered market loss coverage
thresholds which have proven to be redundant by approximately $1,800,000, offset
in part by development on prior year facultative losses. The loss ratio for 1996
was unfavorably affected by increases to reserves of $3,249,000 net for
prior-year losses and loss expenses, as reported, and $8,986,000 net for
prior-year losses and loss expenses on a pro forma basis, related principally to
Hurricanes Marilyn and Luis.
34
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<PAGE>
The underwriting expense ratio was 34.8% for 1997 compared with 26.2% for
the comparable period of 1996 as reported, and 27.6% for the corresponding
period of 1996 on a pro forma basis. As a result of the above, the combined
ratio was 48.5% for 1997 compared with 51.7% for the corresponding period of
1996 as reported, and 56.4% for the corresponding period of 1996 on a pro forma
basis. The increase in underwriting expense ratio was substantially due to the
Lloyd's syndicate operations, the decline in premiums earned on a pro forma
basis, the decline in management fee income and the foreign exchange losses
discussed below.
Other operating expenses increased to $15,716,000 for 1997 from $12,262,000
in the comparable period of 1996 as reported, and $15,195,000 for the
corresponding period of 1996 on a pro forma basis. Included in other operating
expenses were foreign currency exchange losses of $1,221,000 for 1997 compared
to gains of $143,000 for the corresponding period of 1996 as reported, and gains
of $210,000 for the corresponding period of 1996 on a pro forma basis. Operating
expenses were $17,191,000 excluding foreign exchange losses and amortization of
negative goodwill of $2,696,000 in 1997 compared with $18,101,000 in 1996 pro
forma results excluding the same items. This decrease was primarily due to the
non recurring costs related to the TREX merger in 1996.
During 1997, interest expense decreased to $3,325,000 as compared to
$6,957,000 in the corresponding period in the prior-year as reported due to the
effect of the repurchase of $43.3 million of PXRE's 9.75% Senior Notes in open
market purchases through the end of the third quarter of 1997. In addition in
1997, PXRE incurred minority interest expense amounting to $8,184,000 related to
the $100 million of newly-issued 8.85% Capital Trust Pass-through Securities'sm'
(TRUPS'sm') (as described below under 'Liquidity and Capital Resources').
In 1997, PXRE recorded an extraordinary loss of $2,774,000, net of tax, in
connection with the purchase of $43.3 million of PXRE's 9.75% Senior Notes and
the associated write-off of the pro rata share of the unamortized debt issuance
costs.
Net investment income for 1997 increased 85.9% to $31,191,000 from
$16,782,000 for the comparable period of 1996 as reported. The increase in net
investment income was caused primarily by $9,201,000 of investment income from
Transnational Reinsurance, $2,213,000 from incremental total return income
(including unrealized gains and losses) from higher yielding limited partnership
investments from the planned repositioning of the investment portfolio and the
remainder from increased average assets, which in part was due to proceeds of
the 8.85% TRUPS'sm' in excess of Senior Notes repurchased in 1997. PXRE's pre-
tax investment yield was 6.3% for 1997 compared with 6.4% for the corresponding
period in 1996 as reported, both calculated using amortized cost and investment
income before investment expenses. Net realized investment gains for 1997 were
$2,467,000 compared to gains of $94,000 for the corresponding period of 1996
reflecting the active management of the portfolio. During 1997, PXRE recorded
directly to equity an after-tax unrealized gain of $2,605,000 in the value of
its investment portfolio ($0.19 book value per share), reflecting the effect of
decreasing interest rates during the period.
35
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<PAGE>
The net effects of foreign currency exchange fluctuations were losses of
$594,000 in 1997 and gains of $102,000 for 1996. See 'Liquidity and Capital
Resources.'
Net income for the year ended December 31, 1996 included $3,898,000 which
represented PXRE's approximately 22.1% equity share of TREX's net earnings
before the Merger.
For the reasons discussed above, net income was $44,253,000 for 1997
compared to $33,301,000 for the comparable period of 1996 as reported, and
$49,161,000 for the corresponding period of 1996 on a pro forma basis. Diluted
income per common share before extraordinary loss was $3.39 for 1997 compared to
$3.69 for the prior comparable period as reported, and $3.42 on a pro forma
basis. Diluted net income per common share was $3.19 for 1997 compared to $3.69
for the corresponding period of 1996 as reported, and $3.42 for the
corresponding period of 1996 on a pro forma basis based on average shares
outstanding of approximately 13,893,000 in 1997, 9,020,000 in the comparable
period of 1996 as reported, and 14,389,000 in the corresponding period of 1996
on a pro forma basis.
COMPARISON OF 1996 AND 1995
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------
1996 1995 DECREASE
-------- -------- --------
(IN THOUSANDS) %
<S> <C> <C> <C>
Gross premiums written.................................................... $114,348 $155,380 (26.4)
Ceded premiums:
Managed business participants........................................ 21,238 26,774 (20.7)
TREX Management Agreement............................................ 19,965 24,790 (19.5)
Catastrophe coverage................................................. 5,427 6,180 (12.2)
-------- --------
Total reinsurance premiums ceded................................ 46,630 57,744 (19.2)
-------- --------
Net premiums written...................................................... $ 67,718 $ 97,636 (30.6)
-------- --------
-------- --------
</TABLE>
Gross premiums written for 1996 decreased 26.4% to $114,348,000 from
$155,380,000 for 1995. Net premiums earned for the year ended December 31, 1996
decreased 25.1% to $72,796,000 from $97,142,000 in the year-earlier period. Net
premiums written for the year ended December 31, 1996 decreased 30.6% to
$67,718,000 from $97,636,000 for the corresponding period of 1995. Gross
written, net written and net earned premium for 1996 declined from prior-year
levels reflecting the increasingly competitive business environment. PXRE
continued its planned response to this situation by withdrawing capacity from
areas of coverage not offering appropriate compensation for the exposure. Net
premiums written and earned were also adversely
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<PAGE>
affected by a $3,798,000 reduction in reinstatement premiums resulting from a
reduced level of loss activity in 1996, as well as by $2,522,000 of cessions
related to a retrocessional arrangement with the predecessor of Select Re.
Premiums ceded by PXRE to its managed business participants decreased 20.7%
to $21,238,000 for 1996 compared with $26,774,000 for 1995. The decrease in
premiums ceded to these programs was due to the decrease in the amount of
premiums written by PXRE. During 1996, prior to the Merger, PXRE ceded
$19,965,000 of premiums, compared to $24,790,000 during the twelve months of
1995, to Transnational Reinsurance in lieu of direct reinsurance writings by
Transnational Reinsurance. Ceded premiums for catastrophe programs for 1996
decreased 12.2% to $5,427,000 from $6,180,000 for the comparable period of 1995
primarily because of the lower cost of coverage purchased.
Management fee income from all sources for 1996 decreased to $6,032,000
from $6,417,000 in 1995. The decrease reflected lower premium volume, offset, in
part, by an improvement in the profitability of business ceded to managed
business participants. Included in management fee income was $2,512,000 earned
from TREX in 1996 prior to the Merger and $3,526,000 in 1995.
The loss ratio was 25.5% for 1996 compared with 35.7% for 1995. Catastrophe
losses were $18,487,000 gross and $9,166,000 net for 1996 and prior accident
years as compared with $28,439,000 gross and $20,073,000 net for 1995 and prior
accident years.
Significant catastrophe and risk losses affecting the year ended December
31, 1996 loss ratio are as follows:
<TABLE>
<CAPTION>
AMOUNT OF LOSSES
------------------
LOSS EVENT GROSS NET
- ------------------------------------------------------------------------ ------ ------
(IN THOUSANDS)
<S> <C> <C>
Hurricanes Marilyn and Luis............................................. $8,064 $2,995
Hurricane Fran.......................................................... 4,218 2,827
Northridge earthquake................................................... 1,646 1,438
Eurotunnel fire......................................................... 1,260 1,022
Credit Lyonnais fire.................................................... 2,669 723
</TABLE>
37
<PAGE>
<PAGE>
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 fire........................................................ 7,314 5,932
</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 $41,000 for 1996 compared to a gain of
$39,000 for 1995.
During 1996, PXRE experienced a deficiency of $3,249,000, net, for prior
year losses and loss expenses primarily due to Hurricanes Marilyn and Luis. The
loss ratio for 1995 was unfavorably affected by increases to reserves of
$4,311,000, net, for prior year losses and loss expenses primarily from the 1994
Northridge earthquake.
The underwriting expense ratio was 26.2% for 1996 compared with 18.6% for
1995. The increase was substantially due to the increased operating expenses
discussed below and the decline in premiums earned. As a result of the above,
the combined ratio was 51.7% for 1996 compared with 54.3% for 1995.
Other operating expenses increased to $12,262,000 for 1996 from $11,237,000
in 1995. The operating expense increase for 1996 primarily reflected an increase
of $301,000 related to changes in benefit plans, additional staff salaries,
increased incentive compensation and other related benefits. Included in other
operating expenses were foreign currency exchange gains of $143,000 for 1996
compared to gains of $196,000 for 1995.
Interest expense decreased to $6,957,000 in 1996 from $7,143,000 in 1995
due to the purchase of approximately $3.1 million of PXRE's 9.75% Senior Notes
during the second and third quarters of 1996 at an average price of 106.1%.
Net investment income for 1996 increased 13.9% to $16,782,000 from
$14,730,000 for 1995. The increase in net investment income was caused by an
increase in average investments for 1996 compared with the previous year, as
well as an increase in PXRE's pre-tax investment yield to 6.4% for 1996 compared
to 5.9% for 1995, both calculated using amortized cost and investment
38
<PAGE>
<PAGE>
income before investment expenses. The increase in pre-tax investment yield
primarily reflected the redeployment of PXRE's tax-exempt investment portfolio
into taxable securities, including some higher yielding mortgage and
asset-backed securities, in the fourth quarter of 1995 and throughout 1996. Net
realized investment gains for 1996 were $94,000 compared with net realized gains
of $85,000 for 1995. PXRE recorded directly to equity a $3,214,000 after-tax
unrealized decrease in the value of its investment portfolio during 1996,
reflecting the effect of an increase in interest rates during the first half of
1996.
The net effects of foreign currency exchange fluctuations were gains of
$102,000 in 1996 and gains of $235,000 for 1995. See 'Liquidity and Capital
Resources' below.
Net income for the year ended December 31, 1996 included $3,898,000 which
represented PXRE's approximately 22.1% equity share of TREX's net earnings
through December 11, 1996 as compared with $5,948,000 representing PXRE's
approximately 21.9% share of TREX's net earnings in 1995. Net income for 1996
also reflected $1,253,000 attributable to 100% of incremental earnings following
the Merger on December 11, 1996 through the end of the year.
For the reasons discussed above, net income was $33,301,000 for the year
ended December 31, 1996 compared to $39,786,000 for the year ended December 31,
1995. Basic net income per common share was $3.73 for 1996 compared to $4.81 for
1995 (after provision for cumulative dividends of $598,900 on the Series A
Preferred Stock) based on average shares outstanding of 8,922,000 in 1996 and
8,150,000 in 1995. The change in the number of basic shares outstanding relates
to the conversion of the preferred shares outstanding to common shares in the
second quarter of 1995. Diluted net income per common share was $3.69 for 1996
compared to $4.52 for 1995 based on average shares outstanding of 9,020,000 in
1996 and 8,812,000 in 1995. The change in the number of diluted shares
outstanding relates to the 1.0575 shares of PXRE common stock exchanged for each
share of common stock of TREX in connection with the Merger.
LIQUIDITY AND CAPITAL RESOURCES
PXRE relies primarily on cash dividends and net tax allocation payments
from its subsidiaries PXRE Reinsurance and Transnational Insurance 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 and by Transnational Insurance to PXRE Reinsurance is subject to limits
imposed under the insurance laws and regulations of Connecticut, the state of
incorporation and domicile of PXRE Reinsurance and Transnational Insurance, as
well as certain restrictions arising in connection with PXRE indebtedness
discussed below. Under the Connecticut insurance law, the maximum amount of
dividends or other distributions that PXRE Reinsurance may declare or pay to
PXRE, and that Transnational Insurance may declare or pay to PXRE Reinsurance,
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
39
<PAGE>
<PAGE>
preceding year, all determined in accordance with SAP. Accordingly, the
Connecticut insurance laws could limit the amount of dividends available for
distribution by PXRE Reinsurance or Transnational Insurance 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. The maximum amount of dividends or
distributions that PXRE Reinsurance may declare and pay during 1998, without
regulatory approval, is $57,388,000. During 1997, no dividends were paid by PXRE
Reinsurance to PXRE. During 1997, $58,877,000, including an extraordinary
dividend approved by the Insurance Department of the State of Connecticut, was
paid by Transnational Reinsurance to PXRE Reinsurance with the objective that
Transnational Insurance commence 1998 with approximately $100 million of
surplus.
Other sources of funds available to PXRE include proceeds of financings not
contributed to PXRE Reinsurance and not otherwise utilized and net tax
allocation payments by PXRE Reinsurance and Transnational Insurance.
In the event the amount of dividends available, together with other sources
of funds, are not sufficient to permit PXRE 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 the payment of
additional dividends by PXRE Reinsurance (or Transnational Insurance). If such
approval were not obtained, PXRE 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 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 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.
On January 29, 1997, PXRE Capital Trust I, a Delaware statutory business
trust and a wholly-owned subsidiary of PXRE ('PXRE Capital Trust') issued
$100,000,000 principal amount of its 8.85% TRUPS'sm' due February 1, 2027 in an
institutional private placement. Proceeds from the sale of these securities were
used to purchase PXRE's 8.85% Junior Subordinated Deferrable Interest Debentures
due February 1, 2027 (the 'Subordinated Debt Securities'). On April 23, 1997,
PXRE and PXRE Capital Trust completed the registration with the Securities and
Exchange Commission of an exchange offer for these securities and the securities
were exchanged for substantially similar securities (the 'Capital Securities').
Distributions on the Capital Securities (and interest on the related
Subordinated Debt Securities) are payable semi-annually, in arrears, on February
1 and August 1 of each year, commencing August 1, 1997. Minority interest
expense, including amortization of debt offering costs, for 1997 in respect of
the Capital Securities (and related Subordinated Debt Securities) amounted to
approximately $8,184,000. On or after February 1, 2007, PXRE has the right to
redeem the Subordinated Debt Securities, in whole at any time or in part from
time to time, subject to certain conditions, at call prices of 104.180% at
February 1, 2007,
40
<PAGE>
<PAGE>
declining to 100.418% at February 1, 2016, and 100% thereafter. PXRE has the
right, at any time, subject to certain conditions, to defer payments of interest
on the Subordinated Debt Securities for Extension Periods (as defined in
the applicable indenture), each not exceeding 10 consecutive semi-annual
periods; provided that no Extension Period may extend beyond the maturity
date of the Subordinated Debt Securities. As a consequence of PXRE's extension
of the interest payment period on the Subordinated Debt Securities,
distributions on the Capital Securities would be deferred (though such
distributions would continue to accrue interest at a rate of 8.85% per annum
compounded semi-annually). In the event that PXRE exercises its right to
extend an interest payment period, then during any Extension Period, subject to
certain exceptions, (i) PXRE shall not declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock or rights to
acquire such capital stock or make any guarantee payments (subject to specified
exceptions) with respect to the foregoing, and (ii) PXRE shall not make any
payment of interest on, or principal of (or premium, if any, on), or repay,
repurchase or redeem, any debt securities issued by PXRE which rank pari passu
with or junior to the Subordinated Debt Securities. Upon the termination of any
Extension Period and the payment of all amounts then due, PXRE may commence a
new Extension Period, subject to certain requirements.
PXRE has used, and expects to use, the net proceeds from the sale of the
Capital Securities for general corporate purposes, including the redemption or
the purchase, from time to time, in the open market or in privately negotiated
transactions or otherwise, of outstanding indebtedness and common stock of PXRE.
In August 1993, PXRE 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 1997 in respect of the Senior Notes amounted to
approximately $3,325,000. In addition, PXRE incurred an extraordinary loss of
$2,774,000, net of tax, associated with the premium paid to acquire $43.3
million of the Senior Notes and the pro rata share of the debt offering costs
during 1997. 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
41
<PAGE>
<PAGE>
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 (as defined) 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. The consent of holders of PXRE's Senior Notes to certain amendments
to the Indenture governing the Senior Notes was obtained in connection with
the issuances of the Capital Securities.
PXRE's Board of Directors has authorized the purchase of Senior Notes in
negotiated or open market transactions. During 1997, PXRE or PXRE Reinsurance
purchased $43.3 million principal amount of Senior Notes at an average price of
107.4%. The principal amount of Senior Notes outstanding at December 31, 1997
was $21,414,000.
PXRE files federal income tax returns for itself and all of its direct or
indirect subsidiaries that satisfy the stock ownership requirements for
consolidation for federal income tax purposes (collectively, the
'Subsidiaries'). PXRE is party to an Agreement Concerning Filing of Consolidated
Federal Income Tax Returns (the 'Tax Allocation Agreement') pursuant to which
each domestic Subsidiary makes tax payments to PXRE 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 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 domestic 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.
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 and dividends from Transnational Insurance. Funds are applied
primarily to the payment of claims, operating expenses, income taxes and to the
purchase of investments. Premiums are typically received in advance of related
claim payments.
Net cash flow provided by operations was $19,626,000 during 1997 compared
with net cash flow provided by operations of $28,033,000 during the
corresponding period of 1996, as reported, due to the effects of timing of
collection of receivables and reinsurance recoverables and payments of losses.
42
<PAGE>
<PAGE>
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 are subject to market-wide risks and
fluctuations, as well as to risk inherent in particular securities. At December
31, 1997, PXRE's investment portfolio consisted primarily of fixed maturities
and short-term investments. As at December 31, 1997, 88.0% of PXRE's investment
portfolio, at fair value, consisted of fixed maturities and short-term
investments, while the balance was in equity securities and other invested
assets primarily in the form of investments in various mutual funds and limited
partnerships. The investment policies and all investments of PXRE are approved
by its Board of Directors.
Of PXRE's fixed maturities portfolio at December 31, 1997, 91.1% of the
fair value was in obligations rated 'A1' or 'A' or better by Moody's or S&P's,
respectively. Mortgage and asset-backed securities accounted for 23.9% of fixed
maturities based on fair value at December 31, 1997. 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, 1997 and 1996,
as reported, was 6.1% and 5.7%, respectively. During the first quarter of 1997,
PXRE repositioned a portion of its portfolio out of Treasury, GNMA and
short-term investments into new sectors including asset and corporate
mortgage-backed securities, emerging markets securities, tax-free municipals
and investment grade Yankee bonds. During the second and third quarters of 1997,
PXRE further repositioned the portfolio into a number of limited partnership
investments and to a lesser extent equity investments.
Fixed maturity and equity 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 stockholders' equity a
$2,605,000 after-tax unrealized gain in the value of its investment portfolio
($0.19 book value per share) at December 31, 1997 including an after-tax
unrealized loss of $1,475,000 ($0.11 book value per share) during the three
months ended December 31, 1997, the latter reflecting principally the value of
its equity portfolio, market volatility in debt and equity securities in Asia,
and the effect of an increase in interest rates during the quarter. Short-term
investments are carried at amortized cost, which approximates fair value. PXRE's
short-term investments, principally high-grade commercial paper, U.S. Treasury
bills and investments in limited partnerships which invest primarily in U.S.
Treasury bills, were $52,905,000 at December 31, 1997 compared to $59,792,000 at
December 31, 1996. The decrease at December 31, 1997 was principally due to the
redeployment of cash flow into new sectors. Other invested assets amounting to
$42,857,000 at December 31, 1997, which were comprised of limited partnerships,
were accounted for under the equity method. The amount of equity income included
in short-term investments and other invested assets in 1997 amounted to
$2,298,000.
Dividends incurred in 1997 were $12,209,000 compared to $6,479,000 in the
corresponding period of 1996, as a result of the increased quarterly dividend
from $0.18 to $0.21 in the fourth quarter of 1996, as well as the increased
number of outstanding shares following the Merger with
43
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<PAGE>
TREX. The expected annual dividend based on shares outstanding at December 31,
1997 will be approximately $13,764,000 reflecting a dividend increase to $0.25
per quarter commencing in the fourth quarter of 1997.
Book value per common share was $28.10 at December 31, 1997.
As announced in April 1997, PXRE's Board of Directors authorized a new
stock repurchase program and 1.7 million of the authorization remains. There
were no repurchases of common stock since the second quarter of 1997.
PXRE may be subject to gains and losses resulting from currency
fluctuations because substantially all of its investments are denominated in
U.S. dollars, while some of its net liability exposure is in currencies other
than U.S. dollars. PXRE holds, and expects to continue to hold, currency
positions and has made, and expects to continue to make, investments denominated
in foreign currencies to mitigate, in part, the effects of currency fluctuations
on its results of operations. Currency holdings and investments denominated in
foreign currencies do not constitute a material portion of PXRE's investment
portfolio and, in the opinion of PXRE's management, are sufficiently liquid for
its needs.
In December 1996, PXRE completed an investment in Lloyd's of London,
forming a new syndicate, PG Butler Syndicate 1224, and a presence in London. The
new syndicate has an initial capacity to underwrite 'L'35 million in annual
premiums ($57.4 million at December 31, 1997 exchange rates). In connection with
the capitalization of the syndicate, PXRE has placed on deposit $43,175,000 par
value of U.S. government securities as collateral for Lloyd's. In addition, PXRE
issued a letter of credit for the benefit of Lloyd's in the amount of
$15,355,000, which is collateralized by U.S. government securities in
approximately the same amount. In addition, PXRE has provided a 'L'5,000,000
($8,200,000 at December 31, 1997 exchange rates) line of credit to PXRE Managing
Agency for liquidity purposes. There has been no drawdown of these amounts.
In September 1997, PXRE and Phoenix Home Life completed the formation of a
joint venture, Cat Bond Investors, with initial committed capital of $20
million. The joint venture specializes in investing in instruments the returns
on which are determined, in whole or in part, by the nature, magnitude and/or
effects of certain catastrophic events or meteorological conditions.
In November 1997 PXRE announced the formation of an excess and surplus
lines operation, using Transnational Insurance. Consistent with the PXRE
underwriting philosophy, this new venture, with initial capital of approximately
$100 million, will specialize in short-tail property type risks to be written as
insurance. PXRE is obtaining the necessary state and regulatory approvals,
designing a reinsurance program and identifying potential sources of business
for this operation. Its operations are expected to commence during the first
quarter 1998.
All amounts classified as reinsurance recoverable at December 31, 1997 are
considered by management of PXRE to be collectible in all material respects.
44
<PAGE>
<PAGE>
PXRE is in the process of evaluating the impact of the Year 2000 problem on
its operations. PXRE plans to either upgrade or rewrite two existing software
systems during 1998, the cost of which is not expected to be material. PXRE
continues to seek assurances from third parties on whose systems and services it
relies to a significant extent that such third parties' systems are or will be
Year 2000 compliant. There can be no assurance that the systems of such third
parties will be Year 2000 compliant or that any third party's failure to have
Year 2000 compliant systems would not have a material adverse effect on PXRE's
systems or operations.
INCOME TAXES
PXRE's effective tax rate for 1997, 1996, and 1995 was 32.1%, 32.0%, and
31.4%, respectively, which differs from the statutory rate principally due to
negative goodwill amortization, state and local taxes and tax-exempt income and
in 1996 and 1995 tax on undistributed earnings of unconsolidated affiliates.
45
<PAGE>
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-K contains various forward-looking statements and
includes assumptions concerning PXRE's operations, future results and prospects.
Statements included herein which are not historical in nature are intended to
be, and are hereby identified as, 'forward-looking statements' for purposes of
the safe harbor provided by Section 21E of the Exchange Act. These
forward-looking statements are based on current expectations and are subject to
risk and uncertainties. PXRE cautions the reader that actual results or events
could differ materially from those set forth or implied by the forward-looking
statements and related assumptions, depending on the outcome of certain
important factors including the following: (i) significant catastrophe losses,
the timing and extent of which are difficult to predict; (ii) changes in the
level of competition in the reinsurance or primary insurance markets that impact
the volume or profitability of the property-casualty reinsurance business (these
changes include, but are not limited to, the intensification of price
competition, the entry of new competitors, existing competitors exiting the
market and the development of new products by new and existing competitors);
(iii) changes in the demand for reinsurance, including changes in the amount of
ceding companies' retentions; (iv) adverse development on loss reserves related
to business written in prior years; (v) lower than estimated retrocessional
recoveries on unpaid losses, including the effects of losses due to a decline in
the creditworthiness of PXRE's retrocessionaires; (vi) increases in interest
rates, which cause a reduction in the market value of PXRE's interest rate
sensitive investments, including its fixed income investment portfolio; (vii)
decreases in interest rates causing a reduction of income earned on net cash
flow from operations and the reinvestment of the proceeds from sales, calls or
maturities of existing investments; (viii) market fluctuations in equity
securities and securities underlying limited partnership investments; and (ix)
changes in management's evaluation of the impact of the Year 2000 problem on its
operations.
In addition to the factors outlined above that are directly related to
PXRE's business, PXRE is also subject to general business risks, including, but
not limited to, adverse state, federal or foreign legislation and regulation,
adverse publicity or news coverage, changes in general economic factors and the
loss of key employees.
46
<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, 1997 and 1996............................................. F-2
Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995................ F-3
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and
1995................................................................................................. F-4
Consolidated Statements of Cash Flow for the years ended December 31, 1997, 1996 and 1995............. 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, 1997.
47
<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 1997 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 1997 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 1997 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 1997 fiscal year.
48
<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:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
(1) Financial Statements
PXRE Corporation:
Report of Independent Accountants..................................................................... F-1
Consolidated Balance Sheets at December 31, 1997 and 1996............................................. F-2
Consolidated Statements of Income for the years ended December 31, 1997, 1996 and 1995................ F-3
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and
1995................................................................................................. F-4
Consolidated Statements of Cash Flow for the years ended December 31, 1997, 1996 and 1995............. F-5
Notes to Consolidated Financial Statements............................................................ F-6
(2) Financial Statements Schedules
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-26
Schedule III -- Supplementary Insurance Information................................................... F-27
</TABLE>
49
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Schedule IV -- Reinsurance (The information required by this Schedule is presented in the financial
statements and the notes thereto included in this Form 10-K.)........................................ --
Schedule VI -- Supplemental Information Concerning Property/Casualty Insurance Operations............ F-27
Report of Independent Accountants on the Financial Statement Schedules and Consent of Independent
Accountants.......................................................................................... F-28
</TABLE>
All other financial statement schedules have been omitted as inapplicable.
(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. The 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. The
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. The Certificate of Amendment dated December
9, 1996 to PXRE's Restated Certificate of Incorporation was previously filed
with PXRE's Registration Statement on Form S-3 dated January 3, 1997 (File No.
333-19207), and is incorporated herein by reference. The Certificate of Merger
of Transnational Re Corporation into PXRE Corporation, dated December 11, 1996,
was previously filed as Exhibit 3 to the Annual Report on Form 10-K of PXRE for
the fiscal year ended December 31, 1996 (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, was previously filed as Exhibit 3 to the Annual
Report on Form 10-K of PXRE for the fiscal year ended December 31, 1995 (File
No. 0-15428), and
50
<PAGE>
<PAGE>
is incorporated herein by reference. Article IV, Sections 8, 9, 10, 11 and 12
of the By-laws of PXRE Corporation was amended on October 16, 1997 and is
attached hereto as Exhibit 3.
(4) Instruments Defining the Rights of Security Holders.
4.1 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).
4.2 Supplemental Indenture, dated as of January 24, 1997, between PXRE
and State Street Bank and Trust Company, as Successor Trustee, relating to
$75,000,000 original principal amount of 9.75% Senior Notes of PXRE due
2003 (Exhibit 4.2 to PXRE's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (File No. 0-15428), and incorporated herein by
reference).
4.3 Indenture, dated as of January 29, 1997, between PXRE and First
Union National Bank, as Trustee (Exhibit 4.3 to PXRE's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996 (File No. 0-15428),
and incorporated herein by reference).
4.4 First Supplemental Indenture, dated as of January 29, 1997,
between PXRE and First Union National Bank, as Trustee, in respect of
PXRE's 8.85% Junior Subordinated Deferrable Interest Debentures due 2027
(Exhibit 4.4 to PXRE's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 0-15428), and incorporated herein by
reference).
4.5 Amended and Restated Declaration of Trust of PXRE Capital Trust I,
dated as of January 29, 1997, among PXRE, as sponsor, the Administrators
thereof, First Union Bank of Delaware, as Delaware Trustee, First Union
National Bank, as Institutional Trustee, and the holders from time to time
of undivided interests in the assets of PXRE Capital Trust I (Exhibit 4.5
to PXRE's Annual Report on Form 10-K for the fiscal year ended December 31,
1996 (File No. 0-15428), and incorporated herein by reference).
4.6 Capital Securities Guarantee Agreement, dated as of January 29,
1997, between PXRE and First Union National Bank, as Guarantee Trustee
(Exhibit 4.6 to PXRE's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No.0-15428), and incorporated herein by reference).
4.7 Common Securities Guarantee Agreement, dated as of January 29,
1997, executed by PXRE (Exhibit 4.7 to PXRE's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 (File No. 0-15428), and
incorporated herein by reference).
51
<PAGE>
<PAGE>
(10) Material Contracts. The material contracts of PXRE are as follows:
10.1 Registration Rights Agreement, dated January 29, 1997, among
PXRE, PXRE Capital Trust I and Salomon Brothers Inc, as Representative of
the Initial Purchasers (Exhibit 10.1 to PXRE's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 (File No. 0-15428), and
incorporated herein by reference).
10.2 Purchase Agreement among PXRE, PXRE Capital Trust I and Salomon
Brothers Inc, as Representative of the Initial Purchasers, dated January
24, 1997 (Exhibit 10.2 to PXRE's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 (File No. 0-15428), 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); cover notes respecting
January 1997 renewals by Merrimack, Pennsylvania Lumbermens and NRMA and
cover note respecting participation commencing January 1, 1997 by Auto-
Owners Insurance Company ('Auto-Owners') (Exhibit 10.3 to PXRE's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 (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 31, 1991 (File No. 0-15428), and incorporated herein by
reference).
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).
52
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<PAGE>
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)
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)
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 30, 1997, 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.
53
<PAGE>
<PAGE>
10.16 1992 Officer Incentive Plan, as amended (Appendix B to PXRE's
Proxy Statement dated April 30, 1997 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), as amended by Amendment No. 1 thereto, dated December
1, 1994 (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).
10.19 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 Services Agreement dated as of December 11, 1996 between PXRE
Reinsurance Company and Transnational Reinsurance Company (Exhibit 10.20 to
PXRE's Annual Report on Form 10-K for the fiscal year ended December 31,
1996 (File No. 0-15428), and incorporated herein by reference).
10.21 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).
10.22 Addendum No. 3 dated as of December 11, 1996 to the PXRE Group
Amended and Restated Agreement Concerning Filing of Consolidated Federal
Income Tax Returns (Exhibit 10.22 to PXRE's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 (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.
54
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<PAGE>
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) and Amendment
thereto made as of April 17, 1997 (attached hereto as Exhibit 10.25).(M)
10.26 Amendment No. 3 to Investment Advisory Agreement between PXRE
Reinsurance Company and Phoenix Investment Counsel, Inc. effective June 1,
1995 (Exhibit 10.26 to the Annual Report on Form 10-K of PXRE for the
fiscal year ended December 31, 1995 (File No. 0-15428), and incorporated
herein by reference).
10.27 Agreement and Plan of Merger dated as of August 22, 1996 between
PXRE and Transnational Re Corporation, as amended by Amendment No. 1 dated
as of September 27, 1996 and Amendment No. 2 dated as of October 24, 1996
(Annex A to PXRE's Form S-4 Registration Statement dated October 30, 1996
(File No. 333-15087), and incorporated herein by reference).
10.28 Amended and Restated Investment Advisory Agreement between
Transnational Reinsurance Company and Phoenix Investment Counsel, Inc.,
dated November 8, 1993 (Exhibit 10.4 to Transnational Re Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1993
(File No. 0-22376) and incorporated herein by reference), as amended by the
Amendment thereto, effective June 1, 1995 (Exhibit 10.11 to Transnational
Re Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 (File No. 0-22376) and incorporated herein by reference).
10.29 Investment Management Agreement, effective January 29, 1997
between PXRE Corporation and Phoenix Investment Counsel, Inc. (Exhibit
10.29 to PXRE's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 0-15428), and incorporated herein by
reference).
10.30 Director Equity and Deferred Compensation Plan (Appendix C to
PXRE's Proxy Statement dated April 30, 1997, 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
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<PAGE>
10.31 Management Agreement dated September 16, 1997 between PXRE
Managing Agency and Whittington Insurance Services Limited (attached hereto
as Exhibit 10.31).
10.32 Lloyd's Deposit Trust Deed (Third Party Deposit) dated November
29, 1996 between PXRE Limited and PXRE Reinsurance (attached hereto as
Exhibit 10.32).
10.33 Letter of Credit dated November 22, 1996 issued by The Chase
Manhattan Bank by order of PXRE Reinsurance for the benefit of Lloyd's
(attached hereto as Exhibit 10.33).
10.34 Lloyd's Security Trust Deed (Letter of Credit and Bank
Guarantee) dated November 29, 1997 between PXRE Limited and Lloyds'
(attached hereto as Exhibit 10.34).
10.35 Operating Agreement of Cat Bond Investors, effective as of June
9, 1997 among Cat Bond Investors, Phoenix Home Life and PXRE (attached
hereto as Exhibit 10.35).
(11) Statement re computation of earnings per share (The information
required by this Exhibit is presented in the financial statements and the notes
thereto included in this Form 10-K.)
(12) Statement re computation of ratios (attached hereto as Exhibit 12).
(21) List of Subsidiaries. At December 31, 1997, PXRE had the following
subsidiaries: PXRE Reinsurance Company, a Connecticut insurance company;
Transnational Insurance Company, a Connecticut insurance company; PXRE Capital
Trust I, a Delaware statutory business trust; PXRE Ltd., an English company (the
sole member of PG Butler Syndicate 1224 at Lloyd's); PXRE Managing Agency
Limited (the managing agency for PG Butler Syndicate 1224 at Lloyd's); PXRE
Trading Corporation, a Delaware corporation; TREX Trading Corporation, a
Delaware corporation; PX/TX Associates, a Delaware general partnership (of which
PXRE Trading and TREX Trading are the only partners); CAT Fund, L.P., a
Delaware limited partnership (of which PX/TX Associates is the sole general
partner and PXRE Trading and TREX Trading are the only limited partners); and
Cat Bond Investors L.L.C. (of which PXRE and Phoenix Home Life are the only
members). (See the discussion in this Form 10-K under the captions 'Business --
Introduction,' ' -- Lloyd's Syndicate 1224,' ' -- TREX 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, Franklin D. Haftl, Bernard Kelly, Wendy Luscombe, Edward
P. Lyons, Philip R.
56
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<PAGE>
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.
57
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<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 25, 1998
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:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/S/ GERALD L. RADKE Its Chairman of the Board, President and March 25, 1998
......................................... Chief Executive Officer (Principal
(GERALD L. RADKE) Executive Officer) and Director
/S/ SANFORD M. KIMMEL Its Senior Vice President, Treasurer and March 25, 1998
......................................... Chief Financial Officer (Principal
(SANFORD M. KIMMEL) Financial Officer and Principal Accounting
Officer)
* Director March 25, 1998
.........................................
(ROBERT W. FIONDELLA)
* Director March 25, 1998
.........................................
(FRANKLIN D. HAFTL)
* Director March 25, 1998
.........................................
(BERNARD KELLY)
* Director March 25, 1998
.........................................
(WENDY LUSCOMBE)
* Director March 25, 1998
.........................................
(EDWARD LYONS)
* Director March 25, 1998
.........................................
(PHILIP R. MCLOUGHLIN)
* Director March 25, 1998
.........................................
(DAVID W. SEARFOSS)
* Director March 25, 1998
.........................................
(DONALD H. TRAUTLEIN)
* Director March 25, 1998
.........................................
(WILSON WILDE)
*By: /S/ GERALD L. RADKE
.........................................
(GERALD L. RADKE)
ATTORNEY-IN-FACT
</TABLE>
58
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<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, 1997 and 1996, and the results
of their operations and their cash flow for each of the three years in the
period ended December 31, 1997, 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 12, 1998
F-1
<PAGE>
<PAGE>
PXRE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, available-for-sale, at fair value (amortized cost
$399,145,000 and $393,962,000, respectively)................................. $405,949,411 $394,551,703
Equity securities, at fair value (cost $21,049,000 and $6,850,000)............. 19,748,877 7,796,392
Short-term investments......................................................... 52,904,819 59,791,879
Other invested assets, at fair value (cost $42,375,000)........................ 42,857,341 0
------------ ------------
Total investments........................................................... 521,460,448 462,139,974
Cash............................................................................. 6,277,876 4,938,481
Accrued investment income........................................................ 6,257,162 5,046,899
Receivables:
Unreported premiums............................................................ 14,131,034 16,849,578
Balances due from intermediaries and brokers................................... 5,978,439 6,279,368
Other receivables.............................................................. 20,575,692 9,281,392
Reinsurance recoverable.......................................................... 14,242,278 18,065,126
Ceded unearned premiums.......................................................... 2,531,453 3,728,424
Deferred acquisition costs....................................................... 2,965,741 1,449,050
Other assets..................................................................... 14,531,423 15,545,914
------------ ------------
Total assets........................................................... $608,951,546 $543,324,206
------------ ------------
------------ ------------
LIABILITIES
Losses and loss expenses......................................................... $ 57,189,454 $ 70,977,449
Unearned premiums................................................................ 18,485,042 11,042,260
Notes payable.................................................................... 21,414,000 64,725,000
Other liabilities................................................................ 25,661,460 38,901,719
------------ ------------
Total liabilities...................................................... 122,749,956 185,646,428
------------ ------------
Minority Interest in Consolidated Subsidiary:
Company-obligated mandatorily redeemable capital trust pass-through
securities of subsidiary trust holding solely a company-guaranteed related
subordinated debt........................................................... 99,513,194 0
STOCKHOLDERS' EQUITY
Serial preferred stock, $.01 par value -- 500,000 shares authorized; 0
shares issued and outstanding.................................................. 0 0
Common stock, $.01 par value -- 40,000,000 shares authorized; 14,806,347 and
14,705,782 shares issued, respectively......................................... 148,063 147,058
Additional paid-in capital....................................................... 255,060,792 252,978,182
Net unrealized appreciation on investments, net of deferred income tax
expense of $1,940,000 and $306,000............................................. 3,173,006 568,405
Retained earnings................................................................ 150,749,451 118,705,257
Treasury stock at cost (1,042,752 and 750,876 shares)............................ (21,660,108) (14,090,289)
Restricted stock at cost (64,403 and 53,279 shares).............................. (782,808) (630,835)
------------ ------------
Total stockholders' equity............................................. 386,688,396 357,677,778
------------ ------------
Total liabilities and stockholders' equity........................ $608,951,546 $543,324,206
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
<PAGE>
PXRE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
------------ ----------- ------------
<S> <C> <C> <C>
Revenues
Net premiums earned............................................ $ 91,415,240 $72,795,454 $ 97,141,693
Net investment income.......................................... 31,190,625 16,782,371 14,729,566
Net realized investment gains.................................. 2,467,338 94,158 85,302
Management fees: Non-affiliate................................. 3,005,657 3,519,703 2,891,128
TREX.......................................... 0 2,512,303 3,526,213
------------ ----------- ------------
128,078,860 95,703,989 118,373,902
------------ ----------- ------------
Losses and expenses
Losses and loss expenses incurred.............................. 12,491,324 18,563,608 34,716,270
Commissions and brokerage...................................... 19,137,822 12,873,668 13,251,070
Other operating expenses....................................... 15,716,150 12,261,949 11,236,843
Interest expense............................................... 3,324,900 6,957,057 7,143,097
Minority interest in consolidated subsidiary................... 8,183,514 0 0
------------ ----------- ------------
58,853,710 50,656,282 66,347,280
------------ ----------- ------------
Income before income taxes, extraordinary item and equity in net
earnings of TREX............................................... 69,225,150 45,047,707 52,026,622
Equity in net earnings of TREX................................... 0 3,897,568 5,947,956
Income tax provision............................................. 22,198,000 15,644,000 18,189,000
------------ ----------- ------------
Income before extraordinary loss................................. 47,027,150 33,301,275 39,785,578
Extraordinary loss on debt redemption, net of $1,493,000 income
tax benefit.................................................... 2,773,690 0 0
------------ ----------- ------------
Net income....................................................... $ 44,253,460 $33,301,275 $ 39,785,578
------------ ----------- ------------
------------ ----------- ------------
Preferred stock dividend......................................... $ 0 $ 0 $ 598,928
------------ ----------- ------------
------------ ----------- ------------
Net income available to common stockholders...................... $ 44,253,460 $33,301,275 $ 39,186,650
------------ ----------- ------------
------------ ----------- ------------
Per share
Basic:
Income before extraordinary item............................. $3.41 $3.73 $4.81
------------ ----------- ------------
Extraordinary loss........................................... 0.20 0.00 0.00
------------ ----------- ------------
------------ ----------- ------------
Net income................................................... $3.21 $3.73 $4.81
------------ ----------- ------------
------------ ----------- ------------
Average shares outstanding................................... 13,775,844 8,921,886 8,149,833
------------ ----------- ------------
------------ ----------- ------------
Diluted:
Income before extraordinary item............................. $3.39 $3.69 $4.52
Extraordinary loss........................................... 0.20 0.00 0.00
------------ ----------- ------------
Net income................................................... $3.19 $3.69 $4.52
------------ ----------- ------------
------------ ----------- ------------
Average shares outstanding................................... 13,892,760 9,019,655 8,811,504
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
<PAGE>
PXRE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
UNREALIZED
ADDITIONAL APPRECIATION
PREFERRED COMMON PAID-IN (DEPRECIATION) RETAINED TREASURY
STOCK STOCK CAPITAL ON INVESTMENTS EARNINGS STOCK
--------- -------- ------------ -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995........... $ 100 $ 69,216 $116,888,369 $ (5,976,354) $ 57,933,848 $ (1,860,687)
Net income........................... 39,785,578
Conversion of preferred stock........ (100) (20,260)
Issuance of common stock............. 20,623 692,869
Issuance of treasury stock........... 141,228
Issuance of restricted stock.........
Amortization of restricted stock.....
Dividends:
Preferred stock.................. (598,928)
Common stock..................... (5,237,664)
Change in fair value for the year,
net................................ 8,488,420
Equity in net change in TREX
appreciation....................... 1,270,434
Other................................ 107,070
--------- -------- ------------ -------------- ------------ ------------
Balance at December 31, 1995......... 0 89,839 117,668,048 3,782,500 91,882,834 (1,719,459)
Net income........................... 33,301,275
Issuance of common stock............. 417 823,192
Issuance of common stock in TREX
merger............................. 56,802 134,304,932
Issuance of treasury stock........... 166,745
Repurchase of treasury stock......... (12,537,575)
Issuance of restricted stock.........
Amortization of restricted stock.....
Dividends paid to common
stockholders....................... (6,478,852)
Change in fair value for the year,
net................................ (2,799,292)
Equity in net change in TREX
depreciation....................... (414,803)
Other................................ 182,010
--------- -------- ------------ -------------- ------------ ------------
Balance at December 31, 1996......... 0 147,058 252,978,182 568,405 118,705,257 (14,090,289)
Net income........................... 44,253,460
Issuance of common stock............. 1,005 1,748,520
Repurchase of treasury stock......... (7,464,583)
Issuance of restricted stock.........
Amortization of restricted stock.....
Dividends paid to common
stockholders....................... (12,209,266)
Change in fair value for the year,
net................................ 2,604,601
Other................................ 334,090 (105,236)
--------- -------- ------------ -------------- ------------ ------------
Balance at December 31, 1997......... $ 0 $148,063 $255,060,792 $ 3,173,006 $150,749,451 $(21,660,108)
--------- -------- ------------ -------------- ------------ ------------
--------- -------- ------------ -------------- ------------ ------------
<CAPTION>
TOTAL
RESTRICTED STOCKHOLDERS'
STOCK EQUITY
---------- -------------
<S> <C> <C>
Balance at January 1, 1995................. $ (283,550) $ 166,770,942
Net income................................. 39,785,578
Conversion of preferred stock.............. (20,360)
Issuance of common stock................... 713,492
Issuance of treasury stock................. 141,228
Issuance of restricted stock............... (499,005) (499,005)
Amortization of restricted stock........... 240,969 240,969
Dividends:
Preferred stock........................ (598,928)
Common stock........................... (5,237,664)
Change in fair value for the year, net..... 8,488,420
Equity in net change in TREX appreciation.. 1,270,434
Other...................................... 107,070
---------- -------------
Balance at December 31, 1995............... (541,586) 211,162,176
Net income................................. 33,301,275
Issuance of common stock................... 823,609
Issuance of common stock in TREX merger.... 134,361,734
Issuance of treasury stock................. 166,745
Repurchase of treasury stock............... (12,537,575)
Issuance of restricted stock............... (501,027) (501,027)
Amortization of restricted stock........... 411,778 411,778
Dividends paid to common stockholders...... (6,478,852)
Change in fair value for the year, net..... (2,799,292)
Equity in net change in TREX depreciation.. (414,803)
Other...................................... 182,010
---------- -------------
Balance at December 31, 1996............... (630,835) 357,677,778
Net income................................. 44,253,460
Issuance of common stock................... 1,749,525
Repurchase of treasury stock............... (7,464,583)
Issuance of restricted stock............... (741,988) (741,988)
Amortization of restricted stock........... 585,263 585,263
Dividends paid to common
stockholders............................. (12,209,266)
Change in fair value for the year, net..... 2,604,601
Other...................................... 4,752 233,606
---------- -------------
Balance at December 31, 1997............... $ (782,808) $ 386,688,396
---------- -------------
---------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
<PAGE>
PXRE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1997 1996 1995
------------- ------------ -------------
<S> <C> <C> <C>
Cash flow from operating activities
Net income................................................ $ 44,253,460 $ 33,301,275 $ 39,785,578
Adjustments to reconcile net income to net cash provided
by operating activities:
Losses and loss expenses............................. (13,787,994) (12,964,561) (9,116,644)
Unearned premiums.................................... 8,639,753 (5,077,857) 691,911
Deferred acquisition costs........................... (1,516,691) 1,284,615 (701,788)
Receivables.......................................... (12,764,637) 14,313,128 (3,177,725)
Reinsurance balances payable......................... (5,082,885) (3,431,682) (18,467)
Reinsurance recoverable.............................. 3,822,847 4,511,644 11,306,688
Income tax recoverable.................................... (3,139,559) 1,126,162 477,805
Equity in net earnings of TREX............................ 0 (3,574,171) (5,849,161)
Other..................................................... (797,805) (1,455,299) (985,918)
------------- ------------ -------------
Net cash provided by operating activities....... 19,626,489 28,033,254 32,412,279
------------- ------------ -------------
Cash flow from investing activities
Cost of fixed maturity investments........................ (294,637,213) (83,760,831) (176,462,916)
Fixed maturity investments matured/disposed............... 290,013,188 62,189,176 171,764,371
Payable for securities.................................... 0 (2,496,232) 2,496,232
Cost of equity securities................................. (17,372,574) (1,849,539) (5,000,000)
Equity securities disposed................................ 3,172,678 0 0
Investment in joint venture............................... 0 0 (2,000,000)
Cash acquired from merger with TREX....................... 0 1,260,611 0
Net change in short-term investments...................... 8,742,789 22,485,844 (14,909,109)
Net change in other invested assets....................... (42,375,000) 0 0
------------- ------------ -------------
Net cash used by investing activities........... (52,456,132) (2,170,971) (24,111,422)
------------- ------------ -------------
Cash flow from financing activities
Proceeds from issuance of common stock.................... 855,570 489,327 335,355
Cash dividends paid to preferred stockholders............. 0 0 (933,061)
Cash dividends paid to common stockholders................ (12,209,266) (6,478,852) (5,237,664)
Issuance of minority interest in consolidated
subsidiary.............................................. 99,509,000 0 0
Repurchase of debt........................................ (46,521,683) (3,235,250) (2,016,188)
Cost of treasury stock.................................... (7,464,583) (12,537,575) 0
------------- ------------ -------------
Net cash provided (used) by financing
activities.................................... 34,169,038 (21,762,350) (7,851,558)
------------- ------------ -------------
Net change in cash........................................ 1,339,395 4,099,933 449,299
Cash, beginning of period................................. 4,938,481 838,548 389,249
------------- ------------ -------------
Cash, end of period....................................... $ 6,277,876 $ 4,938,481 $ 838,548
------------- ------------ -------------
------------- ------------ -------------
Supplemental disclosure of cash flow information
Non cash investing and financing activities:
Fair value of assets acquired........................ $ 0 $161,130,734 $ 0
Liabilities assumed.................................. 0 28,496,767 0
------------- ------------ -------------
Stock issued in merger with TREX................ $ 0 $132,633,967 $ 0
------------- ------------ -------------
------------- ------------ -------------
</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, 1997, 1996 AND 1995
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION AND CONSOLIDATION
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles ('GAAP'). These
statements reflect the consolidated operations of PXRE Corporation and its
subsidiaries (collectively referred to as 'PXRE'), PXRE Reinsurance Company
('PXRE Reinsurance'), PXRE Trading Corporation ('PXRE Trading'), Cat Fund L.P.,
PXRE Capital Trust I, PXRE Ltd. and PXRE Managing Agency Limited. The U.K.
operations of PXRE Ltd. and PXRE Managing Agency Limited are included in the
consolidated results on a one quarter lag period. In addition, following the
merger of PXRE and Transnational Re Corporation ('TREX') as described further in
Note 2, the consolidated operations include Transnational Insurance Company
('Transnational Insurance'), formerly Transnational Reinsurance Company and TREX
Trading Corporation ('TREX Trading') since December 11, 1996. During the year
ended December 31, 1995 and the period up to December 11, 1996, PXRE owned
approximately 21% of TREX, which in turn owned 100% of Transnational Insurance,
and accounted for this investment under the equity method. Following the merger,
Transnational Insurance became a wholly-owned subsidiary of PXRE Reinsurance.
All material transactions between the consolidated companies have been
eliminated in preparing these consolidated financial statements.
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amount of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Certain reclassifications have been made for 1996 and 1995 to conform with
the 1997 presentation.
INVESTMENT AT EQUITY
Investments in affiliated companies which are less than majority 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.
F-6
<PAGE>
<PAGE>
PXRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
MANAGEMENT FEES
Management fees are recorded as earned under various arrangements whereby
PXRE Reinsurance acts as underwriting manager for other insurers and reinsurers,
including TREX up to the date of the merger, as discussed in Note 2. 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 represent amounts recoverable from retrocessionaires at the end of
the period for gross losses previously paid. Provisions are established for all
reinsurance recoveries which are considered doubtful.
INVESTMENTS
Fixed maturity investments and unaffiliated equity securities are
considered available-for-sale and are reported at fair value. Unrealized gains
and losses, as a result of temporary changes in fair value 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. Short term investments
also include limited partnerships which invest primarily in Treasury securities
and provide for fund withdrawals upon 30 days notice; these are reported under
the equity method. Other invested assets include investments in limited
partnerships reported under the equity method which includes the cost of the
investment and subsequent proportional share of the partnership earnings.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair values of certain assets and liabilities are based on published market
values, if available, or estimates based upon fair values of similar issues.
Fair values are reported in Notes 5 and 6.
F-7
<PAGE>
<PAGE>
PXRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
DEBT ISSUANCE COSTS
Debt issuance costs associated with the issuance of Senior Notes and the
issuance of $100 million 8.85% Capital Trust Pass-through Securities'sm'
(TRUPS'sm') are being amortized over the term of the related outstanding debt
on a straight-line method.
EXCESS OF FAIR MARKET VALUE OF NET ASSETS OF BUSINESS ACQUIRED OVER COST
The excess of fair market value of net assets of TREX business acquired
over cost is included in other liabilities and is amortized on a straight-line
basis over three years.
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.
The effect of the translation adjustments for the Lloyd's of London
operations will be recorded as a cumulative translation adjustment in a separate
component of stockholders' equity, net of applicable deferred income taxes; the
translation adjustment at December 31, 1997 was not material.
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
Effective December 31, 1997, PXRE adopted Statement of Financial Accounting
Standards No. 128, Earnings Per Share ('SFAS No. 128') which requires replacing
primary earnings per share with basic earnings per share disclosure and fully
diluted earnings per share with diluted earnings per share disclosure. Basic
earnings per share are determined by dividing net earnings (after deducting
cumulative preferred stock dividends) by the weighted average number of common
shares outstanding. On a diluted basis both net earnings and shares outstanding
are adjusted to reflect the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the entity, unless the effect of the assumed conversion is
anti-dilutive. SFAS No. 128 requires restatement of all prior period earning per
share data presented.
STOCK-BASED COMPENSATION
PXRE accounts for its stock options in accordance with the provisions of
Accounting Principles Board Opinion No. 25 ('APB'). The effect of SFAS No. 123,
Accounting for Stock-Based compensation is not material on net income and
earnings per share.
F-8
<PAGE>
<PAGE>
PXRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
2. ACQUISITION
On December 11, 1996, PXRE acquired TREX. The acquisition was accounted for
using the purchase method of accounting, and, accordingly, the purchase price
has been allocated to the assets purchased and the liabilities assumed based
upon the fair values at the date of merger. The excess of the fair value of the
net assets acquired over the purchase price, amounting to approximately
$8,087,000, has been recorded as negative goodwill in other liabilities and is
being amortized on a straight-line basis over 3 years.
The net income of TREX included in PXRE's consolidated results of
operations from the date of acquisition amounted to $1,253,000 in 1996. On the
basis of unaudited pro forma consolidation of the results of operations as if
the acquisition had taken place at the beginning of 1996 and 1995, consolidated
net revenues would have been $153,410,000 and $193,972,000 for 1996 and 1995
respectively. Consolidated unaudited pro forma net income and diluted net income
per share would have been $49,161,000 and $3.42 in 1996 and $60,755,000 and
$4.19 in 1995. Such unaudited pro forma amounts are not necessarily indicative
of what the actual consolidated results of net income might have been if the
merger had been effective at the beginning of 1995.
MANAGEMENT AGREEMENT
Under the Management Agreement between TREX, Transnational Insurance and
PXRE Reinsurance, Transnational Insurance paid PXRE Reinsurance an annual basic
management fee equal to 5% of Transnational Insurance's gross written premiums.
TREX was also required to reimburse PXRE for all expenses directly attributable
to it. This agreement terminated upon the acquisition.
3. BUSINESS, RISKS AND OTHER MATTERS
PXRE, through its wholly-owned subsidiaries PXRE Reinsurance and
Transnational Insurance provides treaty and facultative reinsurance to primary
insurers and reinsurers on commercial and personal property risks, and marine
and aerospace risks. Its London-based managing agency oversees the operations of
PXRE's underwriting syndicate at Lloyd's-PG Butler Syndicate 1224, which
commenced operations in 1997, extending PXRE's underwriting opportunities in
these and other similar short-tail lines of business. PXRE's newly formed excess
and surplus lines operation will specialize in short-tail property type risks to
be written as insurance commencing in 1998.
F-9
<PAGE>
<PAGE>
PXRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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.
4. UNDERWRITING PROGRAMS
Premiums written and earned for the years ended December 31, 1997, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Premiums written
Assumed.......................................... $126,231,727 $114,347,965 $155,380,180
------------ ------------ ------------
Ceded: Managed business participants............. (16,533,918) (21,237,657) (26,773,867)
Catastrophe coverage...................... (9,642,815) (5,427,393) (6,180,126)
TREX management agreement................. 0 (19,965,317) (24,790,377)
------------ ------------ ------------
Total reinsurance premiums ceded................. (26,176,733) (46,630,367) (57,744,370)
------------ ------------ ------------
Net premiums written............................. $100,054,994 $ 67,717,598 $ 97,635,810
------------ ------------ ------------
------------ ------------ ------------
Premiums earned
Assumed.......................................... $119,609,970 $120,727,383 $154,155,712
Ceded............................................ (28,194,730) (47,931,929) (57,014,019)
------------ ------------ ------------
Net premiums earned.............................. $ 91,415,240 $ 72,795,454 $ 97,141,693
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Substantially all premiums written were assumed through reinsurance brokers
or intermediaries. In 1997, 1996 and 1995, three, two and two reinsurance
intermediaries, respectively, individually accounted for more than 10% of gross
premiums written, and collectively accounted for approximately 55%, 36% and 34%
of gross premiums written, respectively.
Under the terms of the management agreement described in Note 2, PXRE
retroceded $19,965,000 and $24,790,000 of premiums written to Transnational
Insurance in 1996 and 1995, respectively.
PXRE also purchases catastrophe retrocessional coverage for its own
protection, depending on market conditions. PXRE has increased its purchases of
such coverage in light of the continued general deterioration in catastrophe
reinsurance pricing and the opportunity to buy protection at more favorable
terms than in recent years. In the event that retrocessionaires are unable to
meet their contractual obligations, PXRE would be liable for such defaulted
amounts.
F-10
<PAGE>
<PAGE>
The components of reinsurance recoverable as stated in the December 31,
1997 and 1996 consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Losses and loss expense liabilities............................ $12,733,457 $15,633,287
Loss payments.................................................. 1,508,821 2,431,839
----------- -----------
$14,242,278 $18,065,126
----------- -----------
----------- -----------
</TABLE>
The components of losses and loss expenses incurred as shown in the
December 31, 1997, 1996 and 1995 consolidated statements of income are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Assumed................................................... $14,622,683 $37,837,120 $49,370,127
Ceded..................................................... (2,131,359) (19,273,512) (14,653,857)
----------- ----------- -----------
Net....................................................... $12,491,324 $18,563,608 $34,716,270
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Activity in the losses and loss expense liability for the years ended
December 31, 1997, 1996 and 1995 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net balance January 1..................................... $55,309,304 $44,424,388 $46,044,699
Plus reinsurance recoverables........................ 15,668,145 28,294,526 35,790,859
----------- ----------- -----------
Gross balance at January 1................................ 70,977,449 72,718,914 81,835,558
----------- ----------- -----------
Gross reserves of TREX at date of acquisition............. 0 9,588,507 0
Incurred related to:
Current year......................................... 19,343,536 27,327,387 43,388,163
Prior years.......................................... (4,720,853) 10,509,733 5,981,969
----------- ----------- -----------
Total incurred.................................. 14,622,683 37,837,120 49,370,132
----------- ----------- -----------
Paid related to:
Current year......................................... 4,703,497 6,468,736 16,885,840
Prior years.......................................... 23,707,181 42,698,356 41,600,936
----------- ----------- -----------
Total paid...................................... 28,410,678 49,167,092 58,486,776
----------- ----------- -----------
Gross balance at December 31.............................. $57,189,454 $70,977,449 $72,718,914
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
As a result of changes in estimates of insured events in prior years, the
net provision for losses and loss expenses experienced savings of $3,917,000 in
1997 primarily related to the Eurotunnel fire and Hurricane Fran where redundant
reserves were recognized of approximately $1,644,000 and $1,440,000,
respectively. In addition, prior-year losses originally thought to have
triggered market loss coverage thresholds have now proven to be redundant by
approximately $1,800,000 resulting in the reversal of recorded losses in the
first quarter of 1997. The loss ratio was unfavorably affected by increase to
reserves of $3,249,000 in 1996 due primarily to Hurricanes Marilyn and Luis and
$4,311,000 in 1995 primarily due to the Northridge earthquake.
F-11
<PAGE>
<PAGE>
PXRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
5. 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, 1997 and 1996 are shown below:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
1997
United States government securities................. $165,575,920 $1,921,776 $ 49,670 $167,448,026
Foreign government securities....................... 28,112,102 1,238,962 258,908 29,092,156
United States government agency mortgage and
asset-backed securities........................... 24,095,423 716,453 1,205,225 23,606,651
Other mortgage and asset-backed securities.......... 72,199,621 1,203,520 43,839 73,359,302
Obligations of states and political subdivisions.... 104,000,786 3,487,315 32,925 107,455,176
Public utilities and industrial and miscellaneous
securities........................................ 5,160,680 83,662 256,242 4,988,100
------------ ---------- ---------- ------------
Total fixed maturities......................... $399,144,532 $8,651,688 $1,846,809 $405,949,411
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
Equity securities................................... $ 21,049,420 $1,162,275 $2,462,818 $ 19,748,877
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
1996
United States government securities................. $180,519,485 $1,570,671 $ 876,482 $181,213,674
United States government agency mortgage and
asset-backed securities........................... 87,861,645 1,515,801 2,743,510 86,633,936
Other mortgage and asset-backed securities.......... 55,313,776 645,089 252,128 55,706,737
Obligations of states and political subdivisions.... 70,267,795 810,409 80,848 70,997,356
------------ ---------- ---------- ------------
Total fixed maturities......................... $393,962,701 $4,541,970 $3,952,968 $394,551,703
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
Equity securities................................... $ 6,849,538 $ 946,854 $ 0 $ 7,796,392
------------ ---------- ---------- ------------
------------ ---------- ---------- ------------
</TABLE>
F-12
<PAGE>
<PAGE>
PXRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Proceeds, gross realized gains, and gross realized losses from sales of
fixed maturity investments before maturity date or securities that prepay and
from sales of equity securities were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- ------------
<S> <C> <C> <C>
Proceeds
Fixed maturities........................ $281,200,500 $54,359,191 $126,497,804
------------ ----------- ------------
------------ ----------- ------------
Equity securities....................... $ 3,883,703 $ 1,532,961 $ 0
------------ ----------- ------------
------------ ----------- ------------
Gross gains
Fixed maturities........................ $ 3,443,425 $ 540,687 $ 2,303,300
Equity securities....................... 807,238 85,711 0
------------ ----------- ------------
4,250,663 626,398 2,303,300
Gross losses
Fixed maturities........................ (1,621,134) (532,240) (2,217,998)
Other................................... (162,191) 0 0
------------ ----------- ------------
(1,783,325) (532,240) (2,217,998)
Net realized gains........................... $ 2,467,338 $ 94,158 $ 85,302
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
The components of net investment income were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- ------------
<S> <C> <C> <C>
Fixed maturity investments................... $25,835,051 $15,642,139 $12,896,608
Equity securities............................ 180,956 42,062 76,704
Short-term investments....................... 5,646,704 1,744,703 2,019,693
Other invested assets........................ 442,504 0 0
------------ ----------- ------------
32,105,215 17,428,904 14,993,005
Less investment expenses..................... 914,590 646,533 263,439
------------ ----------- ------------
Net investment income........................ $31,190,625 $16,782,371 $14,729,566
------------ ----------- ------------
------------ ----------- ------------
</TABLE>
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 4.6% of the outstanding common stock of PXRE at
December 31, 1997.
F-13
<PAGE>
<PAGE>
PXRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
INVESTMENT MATURITY DISTRIBUTIONS
The amortized cost and estimated fair value of fixed maturity investments
at December 31, 1997 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.................................. $ 49,842,981 12.5% $ 49,945,841 12.3%
Over 1 through 5 years............................ 149,943,785 37.6 151,624,989 37.4
Over 5 through 10 years........................... 57,659,423 14.5 59,703,791 14.7
Over 10 through 20 years.......................... 20,223,270 5.0 20,752,816 5.1
Over 20 years..................................... 25,180,029 6.3 26,956,021 6.6
------------ ----- ------------ -----
302,849,488 75.9 308,983,458 76.1
United States government agency and other mortgage
and asset-backed securities..................... 96,295,044 24.1 96,965,953 23.9
------------ ----- ------------ -----
Total........................................ $399,144,532 100.0% $405,949,411 100.0%
------------ ----- ------------ -----
------------ ----- ------------ -----
</TABLE>
In addition to fixed maturities, PXRE held $52,905,000 and $59,792,000 of
short-term investments at December 31, 1997 and 1996, respectively, comprised
principally of high-grade commercial paper, U.S. Treasury bills and other
investments with original maturities of one year or less. PXRE also held
$42,857,000 of other invested assets at December 31, 1997 comprised of
investments in various limited partnerships accounted for under the equity
method.
RESTRICTED ASSETS
Under the terms of certain reinsurance agreements, irrevocable letters of
credit in the amount of $1,595,000 were issued at December 31, 1997, in respect
of reported loss reserves and unearned premiums. Investments with a par value of
$4,000,000 have been pledged as collateral with issuing banks. In addition,
securities with a par value of $11,126,000 at December 31, 1997 were on deposit
with various state insurance departments in order to comply with insurance laws.
PXRE, in connection with the startup of PXRE Ltd.'s Syndicate No. 1224, has
placed on deposit $43,175,000 par value of United States government securities
as collateral for Lloyd's of London. In addition, PXRE issued a letter of credit
for the benefit of Lloyd's of London in the amount of $15,355,000. The letter of
credit is collateralized by United States government securities of approximately
the same amount. All invested assets of Syndicate 1224 amounting to $2,846,000
at December 31, 1997 are restricted from being paid as a dividend for three
years.
F-14
<PAGE>
<PAGE>
PXRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
6. NOTES PAYABLE AND CREDIT ARRANGEMENTS
In January 1997, PXRE issued $100,000,000 of 8.85% Company-Obligated
Mandatorily Redeemable Capital Trust Pass-through Securities of Subsidiary Trust
holding solely a Company-Guaranteed Related Subordinated Debt ('TRUPS'). The
fair value of the TRUPS is $105,194,000 at December 31, 1997. Interest is
payable on the TRUPS semi-annually. The notes are redeemable on or after
February 1, 2007 at the option of PXRE, initially at 104.180% declining to
100.418% at February 1, 2016, and 100% thereafter.
PXRE has 9.75% Senior Notes with a net balance outstanding at December 31,
1997 of $21,414,000 which approximates fair value. Interest is payable on the
Senior Notes semi-annually. The notes are due August 15, 2003 and 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 notes contain certain restrictions on the ability to incur
additional indebtedness, issue stock, pay dividends, repurchase stock, sell or
transfer assets and certain other matters.
Interest paid was $8,707,000, $6,469,000 and $6,728,000 for 1997, 1996 and
1995, respectively.
7. INCOME TAXES
The components of the provision for income taxes for the years ended
December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current
Federal.............................................. $18,014,000 $14,310,000 $15,265,000
State and local...................................... 515,000 319,000 374,000
Foreign.............................................. 706,000 539,000 2,109,000
----------- ----------- -----------
19,235,000 15,168,000 17,748,000
Deferred.................................................. 2,963,000 476,000 441,000
----------- ----------- -----------
Income tax provision before extraordinary loss............ 22,198,000 15,644,000 18,189,000
Income tax benefit from extraordinary loss................ 1,493,000 0 0
----------- ----------- -----------
Income tax provision...................................... $20,705,000 $15,644,000 $18,189,000
----------- ----------- -----------
----------- ----------- -----------
Income taxes paid......................................... $23,460,000 $15,730,000 $16,507,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-15
<PAGE>
<PAGE>
PXRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income taxes at statutory rates........................... $22,735,000 $15,767,000 $18,209,000
Tax-exempt interest income................................ (1,284,000) (48,000) (1,086,000)
Foreign tax provision..................................... 706,000 1,022,000 2,109,000
Foreign tax credit utilized............................... (706,000) (1,105,000) (2,284,000)
Other, net................................................ (746,000) 8,000 1,241,000
----------- ----------- -----------
Total income tax provision........................... $20,705,000 $15,644,000 $18,189,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The significant components of the net deferred tax provision (benefit) for
the years ended December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ----------
<S> <C> <C> <C>
Discounted reserves and unearned premiums...................... $ 127,000 $ 607,000 $ 46,000
Deferred acquisition costs..................................... 537,000 (213,000) 220,000
Deferred compensation and benefits............................. 740,000 (75,000) (266,000)
Credit carryforwards........................................... 384,000 (110,000) (893,000)
Investment and unrealized foreign exchange..................... 1,180,000 246,000 1,306,000
Other, net..................................................... (5,000) 21,000 28,000
---------- --------- ----------
Total deferred tax provision.............................. $2,963,000 $ 476,000 $ 441,000
---------- --------- ----------
---------- --------- ----------
</TABLE>
The significant components of the net deferred income tax asset (liability)
are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Deferred tax asset:
Discounted reserves and unearned premiums............................ $ 2,576,000 $ 2,703,000
Deferred compensation and benefits................................... 694,000 1,434,000
Credit carryforwards................................................. 1,022,000 1,406,000
Other, net........................................................... 293,000 248,000
----------- -----------
Total deferred income tax asset................................. 4,585,000 5,791,000
----------- -----------
Deferred income tax liability:
Deferred acquisition costs........................................... (1,038,000) (501,000)
Tax effect of net unrealized appreciation on investments............. (1,940,000) (538,000)
Investments and unrealized foreign exchange.......................... (2,273,000) (1,093,000)
Other, net........................................................... (113,000) (72,000)
----------- -----------
Total deferred income tax liability............................. (5,364,000) (2,204,000)
----------- -----------
Net deferred income tax asset (liability)................................. $ (779,000) $ 3,587,000
----------- -----------
----------- -----------
</TABLE>
F-16
<PAGE>
<PAGE>
PXRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
8. STOCKHOLDERS' EQUITY AND DIVIDEND RESTRICTIONS
STOCKHOLDERS' EQUITY
Authorized and issued common stock (1 cent par value) of PXRE consisted of
40,000,000 and 14,806,347 shares as of December 31, 1997 and 40,000,000 and
14,705,782 as of December 31, 1996, respectively.
In addition, at December 31, 1997, 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. All outstanding shares were redeemed
by PXRE on May 1, 1995.
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 GAAP. The amount of statutory capital and surplus at
December 31 and statutory net income of PXRE Reinsurance for the periods then
ended, as filed with insurance regulatory authorities are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
PXRE Reinsurance
Statutory capital and surplus.................... $451,321,000 $400,133,000 $250,231,000
Statutory net income............................. $ 57,388,000 $ 51,177,000 $ 37,996,000
</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, 1997, the maximum amount of dividends and other
distributions which may be made by PXRE Reinsurance during 1998 without prior
approval is limited to approximately $57,388,000. 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 referred to in Note 6.
F-17
<PAGE>
<PAGE>
PXRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
9. EARNINGS PER SHARE
A reconciliation of income before extraordinary item and shares which
affect basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Income available to common stockholders:
Income before extraordinary loss..................... $47,027,150 $33,301,275 $39,785,578
Extraordinary loss................................... 2,773,690 0 0
----------- ----------- -----------
Net income........................................... 44,253,460 33,301,275 39,785,578
Preferred stock dividend............................. 0 0 598,928
----------- ----------- -----------
Net income available to stockholders................. $44,253,460 $33,301,275 $39,186,650
----------- ----------- -----------
----------- ----------- -----------
Weighted average shares of common stock outstanding:
Weighted average common shares outstanding (basic)... 13,775,844 8,921,886 8,149,833
Preferred conversions................................ 0 0 569,872
Equivalent shares of stock options................... 70,770 63,677 77,898
Equivalent shares of restricted stock................ 46,146 34,092 13,901
----------- ----------- -----------
Weighted average common equivalent shares
(diluted).......................................... 13,892,760 9,019,655 8,811,504
----------- ----------- -----------
----------- ----------- -----------
Per share amounts:
Basic
Income before extraordinary loss................ $3.41 $3.73 $4.81
Net income...................................... $3.21 $3.73 $4.81
Diluted
Income before extraordinary loss................ $3.39 $3.69 $4.52
Net income...................................... $3.19 $3.69 $4.52
</TABLE>
10. EMPLOYEE BENEFITS
BENEFIT PLANS
Effective January 1, 1993, PXRE adopted a non-contributory defined benefit
pension plan covering all U.S. 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
non-qualified and provides certain key employees benefits in excess of normal
pension benefits.
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):
F-18
<PAGE>
<PAGE>
PXRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service cost of benefits earned.................................... $265,216 $254,748 $185,584
Interest cost on projected benefit obligations..................... 220,404 194,999 268,173
Return on plan assets.............................................. (7,989) (747) (633)
Net amortization of deferred prior service cost.................... 92,904 112,338 166,318
-------- -------- --------
Pension expense.................................................... $570,535 $561,338 $619,442
-------- -------- --------
-------- -------- --------
</TABLE>
The following table sets forth the funded status of the plans and amounts
recognized in the consolidated balance sheets:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits...................................................... $ 1,648,861 $ 1,229,468
Non vested........................................................... 325,640 176,466
----------- -----------
Accumulated benefit obligation............................................ 1,974,501 1,405,934
Effect of future salary increases......................................... 1,810,231 1,512,094
----------- -----------
Projected benefit obligation.............................................. 3,784,732 2,918,028
Plan assets at fair value................................................. 315,222 26,076
----------- -----------
Funded status............................................................. (3,469,510) (2,891,952)
Unrecognized net gain..................................................... 542,413 159,862
Unrecognized prior service cost........................................... 1,261,493 1,355,864
----------- -----------
Accrued pension liability................................................. $(1,665,604) $(1,376,226)
----------- -----------
----------- -----------
</TABLE>
The assumptions used in computing the information above were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Discount rate-pension expense................................................... 7.0 % 7.5 %
Expected long-term rate of return............................................... 8.0 % 8.0 %
Future compensation growth rate................................................. 5.0 % 5.0 %
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
PXRE maintains an Employee Stock Purchase Plan under which it has reserved
32,086 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.
11. STOCK OPTIONS AND GRANTS
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,
1997, 320,146 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.
F-19
<PAGE>
<PAGE>
PXRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
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 1997 and 1996, $1,553,000 and $1,673,000, 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, 1997, 70,727 restricted shares had been granted under this plan.
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 in four equal
annual installments commencing 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, 1997, 318,082 options and
11,579 shares of restricted stock had been granted under this plan.
Information regarding the option plans described above is as follows:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE
OF SHARES PER SHARE RANGE
--------- ------------------
<S> <C> <C>
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
Options granted..................................................... 73,748 $24.75
Options exercised................................................... 36,659 $8.75 - $25.00
Options canceled.................................................... 6,966 $23.875 - $25.00
---------
Outstanding at December 31, 1996......................................... 373,023 $8.00 - $25.00
Options granted..................................................... 82,169 $26.688
Options exercised................................................... 64,504 $8.00 - $25.00
---------
Outstanding at December 31, 1997......................................... 390,688
---------
---------
</TABLE>
Total authorized common stock reserved for grants of stock options and
restricted stock under the above plans is 767,375 shares. Total shares of
210,040 relate to stock options which are vested and exercisable at December 31,
1997, at exercise prices between $8.75 and $26.688. All options become
exercisable upon a change of control of PXRE as defined by the plans.
F-20
<PAGE>
<PAGE>
PXRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
In 1995, PXRE adopted a non-employee Director Stock Option Plan which
provides for an annual grant of 1,000 options per director from 1995 to 1996 and
3,000 options per director from 1997 to 2005 inclusive as amended. Options
granted under the plan have a term of 10 years from the date of grant and are
vested and 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, 1997, 43,000 options were granted
and 8,000 were exercisable.
As discussed in Note 1, PXRE adopted SFAS No. 123 as of January 1, 1996. As
permitted by SFAS No. 123, PXRE has elected to continue to account for its stock
option plans under the accounting rules prescribed by APB 25, under which no
compensation costs are recognized as an expense. Had compensation costs for the
stock options been determined using the fair value method of accounting as
recommended by SFAS No. 123, net income and earnings per share for 1997 and 1996
would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Net income
As reported............................................... $44,253,460 $33,301,275
Pro forma................................................. 43,789,779 33,028,582
Basic income per share
As reported............................................... $3.21 $3.73
Pro forma................................................. 3.18 3.70
Diluted income per share
As reported............................................... $3.19 $3.69
Pro forma................................................. 3.15 3.66
</TABLE>
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
The fair value of each option granted in 1997 and 1996 was estimated on the
date of grant using the Black-Scholes option pricing model with the following
weighted average assumptions: risk-free interest of 5.89% for 1997 and 5.94% for
1996; expected lives of 5 years for 1997 and 1996; expected volatility of 30.70%
for 1997 and 36.25% for 1996; and expected dividend yield of 2.63% for 1997 and
3.03% for 1996.
F-21
<PAGE>
<PAGE>
PXRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
A summary of the status of the employee and director stock option plans at
December 31, 1997, 1996 and 1995 and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Options outstanding at beginning of year.......... 389,023 19.04 350,900 16.93
Options granted................................... 109,169 27.05 81,748 24.77
Options exercised................................. 64,504 12.17 36,659 10.52
Options canceled.................................. 0 0 6,966 24.58
------- -------
Options outstanding at end of year................ 433,688 20.49 389,023 19.04
------- -------
Options exercisable at end of year................ 217,960 18.65 217,069 14.62
------- -------
Weighted average fair value per share of options
granted......................................... 9.92 9.45
</TABLE>
Options outstanding at December 31, 1997 included 88,174 options with
exercise prices ranging from $8.75 to $11.50 per share and a weighted average
remaining contractual life of 3.34 years and 345,511 options with exercise
prices ranging from $23.25 to $28.14 per share and a weighted average remaining
contractual life of 6.61 years. Options exercisable at December 31, 1997
included 88,174 options with a weighted average remaining contractual life of
3.34 years and 129,786 options with a weighted average remaining contractual
life of 6.03 years.
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 12,000 shares of stock granted to Board members who
are not employees of PXRE or Phoenix Home Life Mutual Insurance Company 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 Mutual Insurance Company were
issued on August 24, 1993.
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>
1997 % 1996 % 1995 %
------------ --- ------------ --- ------------ ---
<S> <C> <C> <C> <C> <C> <C>
Gross premiums written:
Domestic............................... $ 33,982,000 27% $ 32,594,000 29% $ 44,824,000 29%
International.......................... 92,250,000 73 81,754,000 71 110,556,000 71
------------ --- ------------ --- ------------ ---
$126,232,000 100% $114,348,000 100% $155,380,000 100%
------------ --- ------------ --- ------------ ---
------------ --- ------------ --- ------------ ---
</TABLE>
F-22
<PAGE>
<PAGE>
PXRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
PXRE has offices in the United States, Belgium and beginning in 1997 the
United Kingdom. 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
------------ ----------- ------------
<S> <C> <C> <C>
1997
Net premiums earned.................................... $ 77,019,775 $14,395,465 $ 91,415,240
Operating profit before interest expense, income taxes
and corporate expenses............................... $ 77,711,786 $ 2,867,023 $ 80,578,809
Identifiable assets.................................... $550,130,183 $58,821,363 $608,951,546
1996
Net premiums earned.................................... $ 65,276,931 $ 7,518,523 $ 72,795,454
Operating profit before interest expense, income taxes
and corporate expenses............................... $49,036,857.. $ 3,435,216 $ 52,472,073
Identifiable assets.................................... $501,902,023 $41,422,183 $543,324,206
</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, 1997 and 1996. 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 New
York Stock Exchange after December 31, 1996, and by the NASDAQ National Market
System in prior periods.
F-23
<PAGE>
<PAGE>
PXRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Net premiums written................................ $36,003,000 $18,838,000 $27,758,000 $17,456,000
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Revenues:
Net premiums earned............................ $22,299,903 $24,383,433 $20,099,586 $24,632,318
Net investment income.......................... 8,954,051 7,760,235 8,144,342 6,331,997
Realized investment (losses) gains............. (439,208) 299,607 955,190 1,651,749
Management fees: Non-affiliate................. 915,296 812,958 726,083 551,320
----------- ----------- ------------- -----------
Total revenues............................ 31,730,042 33,256,233 29,925,201 33,167,384
----------- ----------- ------------- -----------
Losses and expenses:
Losses and loss expenses incurred.............. 2,115,805 3,169,267 1,156,652 6,049,600
Commissions and brokerage...................... 4,696,511 3,439,413 4,153,134 6,848,764
Other operating expenses....................... 3,881,875 4,404,873 3,561,247 3,868,155
Interest expense............................... 1,562,039 795,132 433,218 534,511
Minority interest in consolidated subsidiary... 1,488,502 2,230,534 2,231,444 2,233,034
----------- ----------- ------------- -----------
Total expenses............................ 13,744,732 14,039,219 11,535,695 19,534,064
----------- ----------- ------------- -----------
Income before income taxes and extraordinary item... 17,985,310 19,217,014 18,389,506 13,633,320
Income tax provision................................ 5,939,450 6,301,550 6,007,000 3,950,000
----------- ----------- ------------- -----------
Income before extraordinary loss.................... 12,045,860 12,915,464 12,382,506 9,683,320
----------- ----------- ------------- -----------
Extraordinary loss on debt redemption net of income
tax benefit....................................... 1,633,200 955,740 184,750 0
----------- ----------- ------------- -----------
Net income.......................................... $10,412,660 $11,959,724 $12,197,756 $ 9,683,320
----------- ----------- ------------- -----------
Basic earnings per common share:
Income before extraordinary item............... $0.86 $0.94 $0.90 $0.71
Extraordinary loss............................. 0.12 0.07 0.01 0.00
----------- ----------- ------------- -----------
Net income..................................... $0.74 $0.87 $0.89 $0.71
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Average shares outstanding..................... 13,926,340 13,808,230 13,727,284 13,734,243
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Diluted earnings per common share:
Income before extraordinary item............... $0.86 $0.93 $0.89 $0.70
Extraordinary loss............................. 0.12 0.07 0.01 0.00
----------- ----------- ------------- -----------
Net income..................................... $0.74 $0.86 $0.88 $0.70
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Average shares outstanding..................... 14,008,651 13,908,221 13,855,874 13,866,724
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Dividends paid per common share..................... $ 0.21 $ 0.21 $ 0.21 $ 0.25
Price range of common stock:
High........................................... $26.875 $31.438 $31.688 $34.00
Low............................................ $24.50 $24.75 $29.50 $29.563
</TABLE>
F-24
<PAGE>
<PAGE>
PXRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Net premiums written................................ $25,346,471 $10,740,389 $21,783,058 $ 9,847,680
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Revenues:
Net premiums earned............................ $19,420,401 $17,099,362 $17,793,201 $18,482,490
Net investment income.......................... 3,911,470 4,198,688 4,065,756 4,606,457
Realized investment (losses) gains............. (74,937) (100,752) (44,575) 314,422
Management fees: Non-affiliate................. 1,765,398 632,341 868,581 253,382
TREX.......................... 706,828 634,933 674,342 496,200
----------- ----------- ------------- -----------
Total revenues............................ 25,729,160 22,464,572 23,357,305 24,152,951
----------- ----------- ------------- -----------
Losses and expenses:
Losses and loss expenses incurred.............. 4,939,674 4,160,747 6,072,159 3,391,028
Commissions and brokerage...................... 3,555,589 3,083,632 3,015,707 3,218,740
Other operating expenses....................... 3,184,722 3,341,610 2,623,326 3,112,290
Interest expense............................... 1,717,123 1,887,115 1,713,471 1,639,348
----------- ----------- ------------- -----------
Total expenses............................ 13,397,108 12,473,104 13,424,663 11,361,406
----------- ----------- ------------- -----------
Income before income taxes and equity in net
earnings of TREX.................................. 12,332,052 9,991,468 9,932,642 12,791,545
Equity in net earnings of TREX...................... 1,293,188 690,932 1,159,611 753,837
Income tax provision................................ 4,316,000 3,497,000 3,477,000 4,354,000
----------- ----------- ------------- -----------
Net income.......................................... $ 9,309,240 $ 7,185,400 $ 7,615,253 $ 9,191,382
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Basic earnings per common share:
Net income..................................... $1.07 $0.82 $0.88 $0.97
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Average shares outstanding..................... 8,724,061 8,747,772 8,699,027 9,509,538
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Diluted earnings per common share:
Net income..................................... $1.05 $.81 $0.87 $0.96
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Average shares outstanding..................... 8,831,438 8,841,846 8,789,112 9,603,675
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
Dividends paid per common share..................... $ 0.18 $ 0.18 $ 0.18 $ 0.21
Price range of common stock:
High........................................... $28.00 $27.00 $24.50 $25.50
Low............................................ $24.00 $23.75 $22.25 $22.875
</TABLE>
F-25
<PAGE>
<PAGE>
SCHEDULE II
PARENT COMPANY INFORMATION
PXRE Corporation's summarized financial information (parent company only)
is as follows:
BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Fixed maturities, at amortized cost.............................................. $ 16,996,151 $ 0
Short-term investments........................................................... 5,126,828 18,499,162
Equity securities................................................................ 3,023,866 0
Other invested assets............................................................ 14,684,287 0
Cash............................................................................. 445,647 448,154
Investment income receivable..................................................... 377,245 0
Other receivables................................................................ 213,194 167,656
Receivable from subsidiaries..................................................... 2,020,325 0
Income tax recoverable........................................................... 8,494,980 3,420,931
Equity in subsidiaries........................................................... 460,780,439 409,691,515
Deferred income tax benefits..................................................... 5,106,561 940,912
Other assets..................................................................... 7,171,828 7,411,113
------------ ------------
Total assets................................................................ $524,441,351 $440,579,443
------------ ------------
------------ ------------
LIABILITIES
Note payable..................................................................... $ 27,689,000 $ 69,700,000
Payable to subsidiaries.......................................................... 0 293,977
Excess of fair market value over cost............................................ 5,246,522 7,942,374
Other liabilities................................................................ 5,304,239 4,965,314
------------ ------------
Total liabilities........................................................... 38,239,761 82,901,665
------------ ------------
Minority interest in consolidated subsidiary..................................... 99,513,194 0
Stockholders' equity............................................................. 386,688,396 357,677,778
------------ ------------
Total liabilities and stockholders' equity.................................. $524,441,351 $440,579,443
------------ ------------
------------ ------------
</TABLE>
INCOME STATEMENT
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Interest earned.................................................. $ 2,799,937 $ 131,928 $ 1,102,447
Realized gain on investment...................................... 433,966 0 0
Interest expense................................................. (12,005,863) (7,063,730) (7,063,857)
Other operating expenses......................................... 154,757 (1,671,164) (872,681)
------------ ------------ ------------
Loss before tax benefit.......................................... (8,617,203) (8,602,966) (6,834,091)
Income tax benefit............................................... 4,713,952 3,146,456 2,432,000
------------ ------------ ------------
(3,903,251) (5,456,510) (4,402,091)
Equity in earnings of subsidiary................................. 50,930,401 38,757,785 44,187,669
------------ ------------ ------------
Net income before extraordinary loss............................. 47,027,150 33,301,275 39,785,578
Extraordinary loss............................................... 2,773,690 0 0
------------ ------------ ------------
Net income....................................................... $ 44,253,460 $ 33,301,275 $ 39,785,578
------------ ------------ ------------
------------ ------------ ------------
CASH FLOW STATEMENT
Cash from operating activities:
Net income.................................................. $ 44,253,460 $ 33,301,275 $ 39,785,578
Adjustments to reconcile net income to cash provided by
operating acitvities:
Equity in earnings of subsidiaries..................... (50,930,401) (38,757,785) (44,187,669)
Cash dividends from subsidiaries....................... 0 21,000,000 6,000,000
Receivable from TREX................................... 0 (334,422) (55,630)
Investment income receivable........................... (377,245) 0 0
Intercompany accounts.................................. (2,314,302) 5,421,549 2,214,333
Deferred income taxes.................................. (4,165,649) (741,980) 0
Income tax (recoverable) payable....................... (5,074,049) (3,218,458) (2,566,935)
Other.................................................. 4,459,559 2,030,968 (2,024,244)
------------ ------------ ------------
Net cash provided (used) by operating
activities...................................... (14,148,627) 18,701,147 (834,567)
------------ ------------ ------------
Cash flow from investing activities:
Investment in equity of PXRE Trading Corporation............ 0 0 (2,500,000)
Net change in short-term investments........................ 13,372,334 205,160 (8,202,595)
Cost of fixed maturity investments.......................... (32,981,953)
Cost of equity securities................................... (3,023,866) 0 0
Fixed maturity investments matured/disposed................. 15,994,850 0 17,626,750
Net change in other invested assets......................... (14,684,287) 0 0
------------ ------------ ------------
Net cash provided (used) by investing
activities...................................... (21,322,922) 205,160 6,924,155
------------ ------------ ------------
Cash flow from financing activities:
Proceeds from issuance of common stock...................... 855,570 489,327 335,355
Cash dividends paid to common stockholders.................. (12,209,262) (6,478,852) (5,237,664)
Cash dividends paid to preferred stockholders............... 0 0 (933,061)
Repurchase from issuance of debt............................ (45,221,683) 0 0
Cost of treasury stock...................................... (7,464,583) (12,537,575) 0
Issuance of minority interest in consolidated subsidiary.... 99,509,000 0 0
------------ ------------ ------------
Net cash used by financing activities............. 35,469,042 (18,527,100) (5,835,370)
------------ ------------ ------------
Net change in cash............................................... (2,507) 379,207 254,218
Cash, begining of period......................................... 448,154 68,947 (185,271)
------------ ------------ ------------
Cash, end of period.............................................. $ 445,647 $ 448,154 $ 68,947
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-26
<PAGE>
SCHEDULE III
PXRE CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
------------ ----------- ---------------- ---------------- ---------------- ------------
FUTURE
POLICY
BENEFITS, OTHER
DEFERRED LOSSES, POLICY
SEGMENT- POLICY CLAIMS AND CLAIMS AND
PROPERTY AND ACQUISITION LOSS UNEARNED BENEFITS PREMIUM
CASUALTY COST EXPENSES PREMIUMS PAYABLE REVENUE
INSURANCE (CAPTION 7) (CAPTION 13-A-1) (CAPTION 13-A-2) (CAPTION 13-A-3) (CAPTION 1)
------------ ----------- ---------------- ---------------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1997... $ 2,966,000 $ 57,189,000 $ 18,485,000 $0 $91,415,000
1996... 1,449,000 70,977,000 11,042,000 0 72,796,000
1995... 1,565,000 72,719,000 13,685,000 0 97,142,000
<CAPTION>
COLUMN G COLUMN H COLUMN I COLUMN J COLUMN K
----------- ----------- --------------- ----------- ------------
BENEFITS
CLAIMS, AMORTIZATION OF
NET LOSSES AND DEFERRED
INVESTMENT SETTLEMENT POLICY OTHER
INCOME EXPENSES ACQUISITION OPERATING PREMIUMS
(CAPTION 2) (CAPTION 4) COSTS EXPENSE WRITTEN
----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1997.. $31,191,000 $12,491,000 $19,138,000 $15,716,000 $100,055,000
1996.. 16,782,000 18,564,000 12,874,000 12,262,000 67,718,000
1995.. 14,730,000 34,716,000 13,251,000 11,237,000 97,636,000
</TABLE>
SCHEDULE VI
PXRE CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY 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
1997... Property $ 2,966,000 $ 57,189,000 $ 0 $18,485,000 $91,415,000
1996... Casualty 1,449,000 70,977,000 0 11,042,000 72,796,000
1995... Entities 1,565,000 72,719,000 0 13,685,000 97,142,000
<CAPTION>
COLUMN G COLUMN H COLUMN I COLUMN J COLUMN K
----------- -------------------------- --------------- ----------- ------------
CLAIMS AND CLAIM
ADJUSTMENT EXPENSES
INCURRED RELATED TO AMORTIZATION OF PAID
-------------------------- DEFERRED CLAIMS AND
NET (1) (2) POLICY CLAIM
INVESTMENT CURRENT PRIOR ACQUISITION ADJUSTMENT PREMIUMS
INCOME YEAR YEARS COSTS EXPENSES WRITTEN
----------- ----------- ----------- --------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
1997.. $31,191,000 $16,408,000 $(3,917,000) $19,138,000 $23,379,000 $100,055,000
1996.. 16,782,000 15,315,000 3,249,000 12,874,000 28,753,000 67,718,000
1995.. 14,730,000 30,405,000 4,311,000 13,251,000 36,337,000 97,636,000
</TABLE>
F-27
<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 12, 1998 appearing on page F-1 of PXRE Corporation's
Annual Report on Form 10-K for the year ended December 31, 1997, 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 12, 1998
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 Forms S-8 (Nos. 33-82908, 333-4897, 333-31817, 333-31819 and
333-31821) of PXRE Corporation of our report dated February 12, 1998 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 23, 1998
F-28
STATEMENT OF DIFFERENCES
------------------------
The service mark symbol shall be expressed as......................... 'sm'
The section symbol shall be expressed as.............................. 'SS'
The British pound sterling sign shall be expressed as................. 'L'
<PAGE>
<PAGE>
EXHIBIT 3
PXRE CORPORATION
Revised By-Law Sections 8, 9, 10, 11 and 12,
as adopted by the Board of Directors on October 16, 1997
Section 8. Chief Executive Officer. Subject to the direction
of the Board of Directors, the Chief Executive Officer shall have general charge
of the business, affairs and property of the Corporation and general supervision
over its officers and agents. If present, he shall, in the absence or disability
of the Chairman of the Board, preside at all meetings of stockholders and he
shall effectuate or cause to be effectuated all orders and resolutions of the
Board of Directors. He may sign, with any other officer thereunto duly
authorized, certificates of stock of the Corporation, the issuance of which
shall have been duly authorized (his signature to which may be a facsimile
signature), and may sign and execute in the name of the Corporation deeds,
mortgages, bonds, contracts, agreements and other instruments, except in cases
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to some other officer or agent. From time to time, he shall
report to the Board of Directors all matters within his knowledge which the
interests of the Corporation may require to be brought to their attention. He
shall also perform such other duties as are given to him by these By-Laws or as
from time to time may be assigned to him by the Board of Directors.
Section 9. President. The President shall, in the absence or
disability of the Chief Executive Officer, perform all of the duties and, when
so acting, shall have all of the powers and be subject to all restrictions upon
the Chief Executive Officer. The President shall also perform such other duties
as are given to him by these By-Laws or as from time to time may be assigned to
him by the Board of Directors or the Chief Executive Officer.
Section 10. Vice Presidents. The Vice Presidents in the order
of their seniority, unless otherwise determined by the Board of Directors,
shall, in the absence or disability of the President, perform the duties and
exercise the powers of the President. They may sign and execute in the name of
the Corporation deeds, mortgages, bonds, contracts, agreements and other
instruments, except in cases where the signing and execution thereof shall be
expressly delegated by the Board of Directors to some other officer or agent.
They shall also perform other duties and have such other powers as the Chairman
of the Board, the President or the Board of Directors may from time to time
prescribe.
Section 11. Treasurer. The Treasurer shall have charge and
custody of, and be responsible for, all funds and securities of the Corporation
and shall deposit all such funds in the name of the Corporation in such banks or
other depositories as shall be selected by the Board of Directors. He shall
exhibit at all reasonable times his books of account and records to any of the
directors of the Corporation upon application during business hours at the
office of the
<PAGE>
<PAGE>
Corporation where such books and records shall be kept; when requested by the
Board of Directors, he shall render a statement of the condition of the finances
of the Corporation at any meeting of the Board or at the annual meeting of
stockholders; he shall receive, and give receipt for, moneys due and payable to
the Corporation from any source whatsoever; and in general, he shall perform all
the duties incident to the office of Treasurer and such other duties as from
time to time may be assigned to him by the Chairman of the Board, the Chief
Executive Officer, the President, any Vice President or the Board of Directors.
The Treasurer shall give such bond, if any, for the faithful discharge of his
duties as the Board of Directors may require.
Section 12. Secretary. The Secretary, if present, shall act as
secretary at all meetings of the Board of Directors and of the stockholders and
keep the minutes thereof in a book or books to be provided for that purpose; he
shall see that all notices required to be given by the Corporation are duly
given and served; he shall have charge of the stock records of the Corporation;
he shall see that all reports, statements and other documents required by law
are properly kept and filed; and in general, he shall perform all the duties
incident to the office of Secretary and such other duties as from time to time
may be assigned to him by the Chairman of the Board, the Chief Executive
Officer, the President, any Vice President or the Board of Directors.
2
<PAGE>
<PAGE>
EXHIBIT 10.31
DATED: 16 SEPTEMBER, 1997
PXRE MANAGING AGENCY
LIMITED (1)
AND
WHITTINGTON INSURANCE
SERVICES
LIMITED (2)
AGREEMENT
FOR THE PROVISION OF INSURANCE AND
CORPORATE MANAGEMENT SERVICE
WHITTINGTON GROUP
110 FENCHURCH STREET
LONDON EC3M 5NE
REF. JM8/17.9.97
<PAGE>
<PAGE>
INDEX
CLAUSE HEADING PAGE NUMBER
1 DEFINITIONS AND INTERPRETATION 3
2 RECITALS 6
3 PERIOD OF AGREEMENT 6
4 APPOINTMENT OF MANAGER 6
5 POWERS AND DUTIES OF MANAGER 7
6 OBLIGATIONS OF THE COMPANY 9
7 TERMINATION 11
8 MANAGER'S DUTY OF CARE 13
9 APPOINTMENT OF SUB-AGENTS 13
10 DOCUMENTS 13
11 SUPPLEMENTAL ACTS 14
12 CONFIDENTIALITY AND REPUTATION 14
13 INTELLECTUAL PROPERTY 14
14 RESTRICTIONS 14
15 NOTICES 15
16 MISCELLANEOUS PROVISIONS 15
17 LAW AND JURISDICTION 16
THE FIRST SCHEDULE
Remuneration and expenses payable
by the Company to the Manager 18
THE SECOND SCHEDULE
Services and Procedures Manual 20
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THIS AGREEMENT is made the day of 16 September 1997
BETWEEN:-
(1) PXRE MANAGING AGENCY LIMITED, a company (registered in England under No.
3251363) whose registered office is at One Whittington Avenue, London EC3V
1LE ("the Company"); and
(2) WHITTINGTON INSURANCE SERVICES LIMITED, a company (registered in England
under No. 1918744) whose registered office is at One Whittington Avenue,
London EC3V 1LE ("the Manager").
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement (including the Schedule) the expressions set forth
below (where the context so admits) bear the meanings stated beside them
respectively: -
Expression Meaning
"Accounting Year" the period from the lst January to the
31st December (inclusive) in each year and
for the purposes of this Agreement the first
Accounting Year shall be the period from the
lst January 1997 to the 31st December 1997
(inclusive);
"Authorised Persons" those persons who have been duly
authorised by the Company to give Proper
Instructions, and whose identity as such has
been notified in writing by the Company to
the Manager;
"the Bank Accounts" the bank accounts to be opened and
maintained by the Company pursuant to
Clause 6.2;
"the Board" the board of directors of the Company;
"Confidential Information" information of a confidential
nature concerning and relating to the
goodwill of the Undertaking or the Manager
(as the case may be), including (without
prejudice to the generality of the
foregoing) information as to customers,
clients, finances, business policy and the
like;
"the Core Functions" the core functions of the
Company comprised in the Managing Agent's
Agreement and which Lloyd's require shall
not be sub-contracted namely compliance,
underwriting contracts of insurance at
Lloyd's, reinsuring such contracts in
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whole or in part, paying claims on such
contracts and syndicate monitoring;
"the Dedicated Staff" the employees of the Group who are employed
wholly or mainly to provide the Services
and who are identified in the Services and
Procedures Manual (and any replacements
thereof or additions thereto agreed to in
writing by the parties);
"the Deed of Undertaking" the Composite Undertaking dated 20th
December 1996 and made between PXRE
Corporation (1), the Company (2), the
executive directors of the Company (3),
PXRE (4) and Lloyd's (5);
"Designated Persons" those persons, including officers and/or
employees of corporations other than the
Company, to whom an Authorised Person has,
either wholly or in part, and either on a
permanent or temporary basis, delegated his
authority to give Proper Instructions, and
written notice confirming this fact, duly
signed by such Authorised Person, will be
conclusive proof of such authority, unless
written notice to the contrary is given by
the Company or Authorised Person to the
Manager, in which event the Designated
Person's authority to give Proper
Instructions will terminate forthwith:
"the Group" the group of companies (as defined by
Section 42 of the Landlord and Tenant Act
1954) of which the Manager is a member
company;
"Insurance" any policies, slips, certificates,
contracts, covers or other written or oral
evidence of insurance or reinsurance or
indemnity or guarantees including any
contract or policy which would normally be
treated as similar to a contract or policy
of insurance by underwriters carrying on
business in Great Britain;
"the Laws" the laws of England and Wales (including
delegated legislation and regulations of any
competent authority);
"Lloyd's" the Society incorporated by Lloyd's Act 1871
by the name of Lloyd's;
"the Managing the Managing Agent's Agreement (Corporate
Member) dated
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Agent's Agreement" 23rd September 1996 and made between PXRE
(1) and the Company (2);
"Proper Instructions" all instructions to the Manager given by
Authorised Persons or Designated Persons
concerning any of the matters referred to in
this Agreement, which instructions must be
given either in writing and signed by the
Authorised Person or Designated Person
concerned, or telephonically, provided such
telephonic instructions are confirmed in
writing and signed by the Authorised Person
or Designated Person concerned within 5 days
after they were given;
"PXRE" PXRE Limited (a Corporate Member of Lloyd's
registered in England);
"the Services" the services to be performed by the Manager
in terms of this Agreement and in the
Services and Procedures Manual;
"the Services and the Manual, a copy of which forms the Second
Procedures Manual" Schedule hereto, and which sets out (inter
alia) the Services to be provided by the
Manager hereunder and the procedures to be
observed in relation thereto by the parties
and any amendments or substitutions thereto
agreed in writing by the parties from time
to time;
"the Undertaking: the business operations and undertakings of
the Company.
1.2 In this Agreement, unless the context otherwise requires:-
1.2.1 any reference to a Clause or Schedule is a reference to a
Clause of or Schedule to this Agreement; and the Schedules
form part of and are deemed to be incorporated in this
Agreement;
1.2.2 any reference to persons includes a reference to firms,
corporations or unincorporated associations,
1.2.3 any reference to the singular includes a reference to the
plural and vice versa, and any reference to the masculine
includes a reference to the feminine and vice versa; and
1.2.4 words and expressions defined in the Companies Act 1985 bear
the same respective meanings.
1.3 In this Agreement headings and titles are used for ease of reference
only, and do not affect the interpretation of this Agreement.
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2. RECITALS
2.1 The Company is the managing agent of PXRE which carries on business as a
Corporate Member of Lloyd's.
2.2 The Manager is a company providing (inter alia) insurance and corporate
management services and the parties hereto have agreed that the Manager
shall provide such services to the Company on the terms hereinafter
appearing.
3. PERIOD OF AGREEMENT
This Agreement shall (subject to the provisions for earlier termination
contained in Clause 7 and the First Schedule) be for the term commencing
on the 1st day of January 1997 and expiring on the 31st day of December
1997 and, thereafter, shall continue from year to year until determined
in accordance with the provisions of Clause 7.
4. APPOINTMENT OF MANAGER
4.1 The Company hereby appoints the Manager to provide the Services
and, subject to the overall direction by the Company by means of
Proper Instructions, the Manager shall:-
4.1.1 provide the Services in a proper and a businesslike
manner; and
4.1.2 have full power and authority to carry out the
Services on behalf of the Company and to exercise all
such powers which may be necessary in the ordinary
course of the business of the Company to effect
provision of the Services, including (but without
limiting the generality of the foregoing) the power
to enter into binding contracts on behalf of the
Company, and to exercise such powers, authorities and
discretions in relation to the Company as are vested
in the Board and on its behalf as the Company may,
with the agreement of the Manager, from time to time
by Proper Instructions delegate to the Manager.
4.2 The Manager hereby accepts such appointment and agrees to carry out its
obligations set forth herein upon the terms herein contained and in
accordance with the Laws until its appointment shall be terminated as
herein provided.
4.3 Save where specifically provided in the Services and Procedures Manual,
nothing contained in this Agreement shall:-
4.3.1 impose on the Manager any obligation to control, manage or
provide underwriting accounts in respect of any insurance
business underwritten pursuant to the Managing
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Agent's Agreement or otherwise on behalf of or in the name of
PXRE, or to deal with or settle any claims arising out of or in
connection therewith; or
4.3.2 permit the Manager to exercise any of the powers and discretions
specifically vested in the Company pursuant to this Agreement, or
on behalf of the Company to waive or amend the terms hereof, or
of any of the Proper Instructions given by the Company hereunder.
5. POWERS AND DUTIES OF MANAGER
In the exercise of its powers and duties hereunder and without prejudice
to the foregoing generality thereof the Manager shall:-
5.1 have the powers, authorities and duties set out in the Services and
Procedures Manual;
5.2 perform, on behalf of the Company, those functions and obligations
referred to in the Managing Agent's Agreement which relate to the
provision of insurance and corporate management services but not those
which relate to the provision of investment management services,
PROVIDED THAT such functions and obligations which it performs in terms
of this Clause shall be deemed not to be sub-contracted to the Manager
if and to the extent that they relate to Core Functions;
5.3 promptly pay into the appropriate Bank Accounts all sums (if any)
received by the Manager for and on behalf of the Company AND:-
5.3.1 receipt of monies in any currencies other than pounds sterling,
US dollars or other currencies for which accounts have been
opened shall, at the discretion of the Manager, either be
converted into pounds sterling or US dollars as soon as
reasonably possible following their receipt, or be retained in
the currency in which they were originally received; and
5.3.2 operate the Bank Accounts on behalf of the Company and draw
monies therefrom in accordance with the requirements of the
Undertaking and the various limits and restrictions in relation
thereto to be agreed in accordance with the terms of the Services
and Procedures Manual, but not so as to raise an overdraft or
otherwise to borrow against such accounts without having obtained
the prior written consent thereto of the Company;
5.4 notify the Company forthwith if the monies in the Bank Accounts are at
any time, in the opinion of the Manager:-
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5.4.1 insufficient to meet the current overall requirements of the
Undertaking, and the Company hereby undertakes, on receipt of
such notice, forthwith to transfer funds to the Bank Accounts in
an amount sufficient to make up the shortfall; or
5.4.2 in excess of the current overall requirements of the Undertaking,
and, subject to the provisions of Clause 6.3, the Manager shall
place such excess funds at the disposal of the Company;
5.4.3 PROVIDED THAT the Manager shall not be responsible for the
investment of any monies in the Bank Accounts, except to the
extent provided in the Services and Procedures Manual;
5.5 provide offices and secretarial and clerical staff as will be suitable
and sufficient for the use and day to day running of the Company,
PROVIDED THAT the Company shall not be entitled to the exclusive use of
such offices and secretarial and clerical staff, AND FURTHER PROVIDED
THAT, if the Company wishes to employ insurance underwriting staff and
have the exclusive use of any underwriting premises in connection with
PXRE, it shall provide such staff and premises itself;
5.6 use its best endeavours to advise the Company in regard to the Laws
affecting the Undertaking in the United Kingdom and shall ensure that
the Manager shall not, on behalf of the Company, enter into any contract
in contravention thereof;
5.7 subject to the Company providing the Manager with all necessary
information requested by the Manager in connection therewith, make all
necessary returns to the competent authorities in the United Kingdom in
respect of insurance business on behalf of the Company and in respect of
PXRE and, in particular, shall make all necessary returns to Lloyd's on
behalf of PXRE or, if the Company so requests, shall supply the Company
with the figures required in order for it to complete any such returns
itself;
5.8 use all reasonable endeavours, at the expense of the Company, to collect
any monies due to the Company or collectable by the Company in respect
of PXRE, whether in respect of premiums, reinsurance recoveries or
otherwise, until such time as the Company has appointed its own
personnel to perform such functions;
5.9 cause appropriate books of account and records relating to PXRE and the
Undertaking to be kept;
5.10 subject to the Company providing the Manager with all necessary
information requested by the Manager, cause to be submitted to the
Company on or before the expiration of three months following the end of
each financial year of the Company a draft statement of account in
respect of the Undertaking for such year in such form as may be
reasonably required by
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the Company including a statement of interest and dividends earned from,
and capital gains or losses sustained on, any deposits or investments;
5.11 render to the Company reports in relation to the Company and PXRE in
accordance with the Services and Procedures Manual and cause a
representative of the Manager to attend all such meetings of the Company
in the United Kingdom as the Company may reasonably require;
5.12 permit any officer of the Company or any other person or persons
nominated by the Company for this purpose to examine and make copies of
all books of account, records, reports, documents and statements kept
pursuant to this Clause or otherwise in connection with PXRE and the
Undertaking;
5.13 shall observe and comply with the Laws and with all lawful resolutions
of the Board and other lawful orders and Proper Instructions given to it
from time to time by the Company or its duly appointed officers which
are consistent with the Manager's specific obligations hereunder; and
5.14 comply with the procedures set out in the Services and Procedures
Manual.
6. OBLIGATIONS OF THE COMPANY
The Company shall:-
6.1 pay to the Manager in consideration of its services hereunder
remuneration and expenses in accordance with the provisions of the
Schedule;
6.2 open and maintain with Lloyds Bank plc, Leadenhall Street, London EC3
(and/or such other banks in England as the Company may determine) bank
accounts in pounds sterling, US dollars and in such other currencies as
it may deem necessary for the efficient and proper conduct of the
business of the Company and PXRE, and shall provide the Manager with an
appropriate mandate pursuant to which the Manager will be able to
operate any such accounts to the extent necessary to fulfil its
obligations under this Agreement;
6.3 save and in accordance with the provisions of the Services and
Procedures Manual, not withdraw monies from the Bank Accounts without
giving at least 3 business days' prior written notice of its intention
to do so to the Manager;
6.4 by payments into the Bank Accounts, promptly provide all such monies as
may from time to time be required by the Manager to meet all payments
properly payable out of or chargeable against any of the Bank Accounts;
6.5. indemnify the Manager and any employee of the Group against any losses,
damages, costs, expenses, actions, proceedings, claims or liabilities,
of whatsoever nature, arising out of or
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in connection with this Agreement or which the Manager or such employee
may incur hereunder or otherwise in the provision of the Services,
whether to the Company or to any other person, firm or company
whatsoever, save as a result of or arising from the wilful default,
negligence, recklessness or fraud of the Manager or such employee
PROVIDED THAT:-
6.5.1 the Manager shall provide the Company, as soon as reasonably
possible, with copies of such documentation and/or sufficient
information in relation to any claims, demands, summonses, writs
and related documents which it or any employee may receive and
in respect of which it or any employee may be indemnified in
terms of this Agreement and shall give all such assistance as
the Company may reasonably require in defending or resisting or
otherwise dealing with the same, and the Manager and/or employee
(as the case may be) shall not admit liability thereto or make
any offer of any settlement thereof without the prior written
consent of the Company (which shall not be unreasonably
withheld); and
6.5.2 the Company may, if it so desires, take over the defence of any
such actions or prosecute any such claim in the name of the
Manager or the employee concerned;
6.6 save with the prior written consent of the Manager, not during the
currency of this Agreement appoint or employ any other person, firm or
company to provide services for the Company or PXRE corresponding to the
Services or any part thereof. If, with the due consent of the Manager,
the Company shall appoint any such other person, firm or company, the
Company shall forthwith notify the Manager of such appointment, and
shall provide the Manager with such information in relation thereto as
the Manager may reasonably request;
6.7 procure that a meeting of the Board or such other persons as may be
nominated by the Company for this purpose from time to time shall be
convened:-
6.7.1 at least once in every quarter of the Accounting Year, for the
purpose of considering any statements, accounts, reports and
other relevant documentation from time to time rendered by the
Manager to the Company pursuant to this Agreement; and
6.7.2 within 7 days after the Manager shall, by written notice to the
Company, have requested such meeting, for the purpose of
considering any matters which, in its reasonable opinion, the
Manager requires to be dealt with at such meeting;
6.8 until such time as the Company has appointed its own personnel to
perform such functions, procure that full written particulars of any
reinsurance protection placed for PXRE shall be given to the Manager as
soon as reasonably possible, together with such other information in
relation thereto as the Manager may reasonably require in the
performance of its obligations hereunder;
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6.9 on or before the 21st day of August in each year, or such date as
dictated by Lloyd's regulations, procure that the Company shall, in
consultation with the Manager (and having due regard to the Manager's
representations in relation thereto), prepare and adopt a business plan
for the next following Accounting Year and shall conduct its business in
accordance with such business plan; and
6.10 comply with any specific requirements imposed by Lloyd's in relation to
the conduct of the Company's business and the management of PXRE,
including those contained in the Deed of Undertaking.
7. TERMINATION
7.1 This Agreement may be terminated by either party on not less than 180
days' written notice to the other party expiring on the 31st December in
any year;
7.2 The Company may terminate this Agreement with immediate effect, by
giving written notice to the Manager:-
7.2.1 if the Manager (for any reason) be prevented from carrying out
its obligations under this Agreement; or
7.2.2 if the Manager be in material breach of any of the terms of this
Agreement, which, in the case of a breach capable of remedy, is
not remedied by the Manager within 14 days of receipt by the
Manager of a notice from the Company specifying the breach and
requiring its remedy; or
7.2.3 if the Manager shall fail or refuse, within 14 days of receipt
of written warning, to perform the Services or the duties
reasonably and properly required of it under this Agreement; or
7.2.4 if the Manager becomes bankrupt, enters into liquidation (other
than for the purpose of reconstruction without insolvency) or
makes any composition with its creditors, or has an
administrator or administrative receiver appointed over all or
part of its undertaking or assets (or suffers any process or
event analogous to those referred to in this Clause 7.2.4 in any
other country or jurisdiction); or
7.2.5 if there is a change of control of the Manager from the party
currently having ultimate control of the Manager, being Murray
Lawrence Holdings Limited, and, for the purpose of this Clause
7.2.5, the expression "change of control" shall bear the same
meaning as it has in terms of Section 416 of the Income and
Corporation Taxes Act of 1988; or
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7.2.6 if the Manager be prohibited by law from carrying on its
business or a substantial part thereof in Great Britain.
7.3 The Manager may terminate this Agreement with immediate effect, by
giving written notice to the Company:-
7.3.1 if the Company (for any reason) be prevented from carrying out
its obligations under this Agreement; or
7.3.2 if the Company be in material breach of any of the terms of this
Agreement, which, in the case of a breach capable of remedy is
not remedied by the Company within 14 days of receipt by the
Company of a notice from the Manager specifying the breach and
requiring its remedy; or
7.3.3 if the Company becomes bankrupt, enters into liquidation (other
than for the purpose of reconstruction without insolvency) or
makes any composition with its creditors, or has an
administrator or administrative receiver appointed over all or
part of its undertaking or assets (or suffers any process or
event analogous to those referred to in this Clause 7.3.3 in any
other country or jurisdiction); or
7.3.4 if there is a change of control of the Company from the party
currently having ultimate control of the Company, being PXRE
Corporation, and, for the purpose of this Clause 7.3.4, the
expression "change of control" shall bear the same meaning as it
has in terms of Section 416 of the Income and Corporation, Taxes
Act of 1988; or
7.3.5 if the Company be prohibited by law from carrying on its
business or a substantial part thereof in Great Britain.
7.4 Either party may terminate this Agreement in accordance with the
provisions of sub-clause 1.3.2 and sub-clause 2 of the First Schedule
hereto;
7.5 This Agreement will terminate forthwith upon the termination, for
whatsoever reason, of the Managing Agent's Agreement;
7.6 PROVIDED THAT:-
7.6.1 notice under any of sub-clauses 7.2.2, 7.2.4, 7.3.2 and 7.3.4
above may only validly be served within three months after the
party serving such notice first became aware of the circumstance
giving rise to such right of termination; and
7.6.2 any termination of this Agreement shall not affect any accrued
rights and obligations of the parties hereto, nor shall it
affect the coming into force or continuance in force
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of any provision of this Agreement which is, expressly or by
implication, intended to come into or continue in force at or
after such termination.
8. MANAGER'S DUTY OF CARE
The Manager shall perform its duties in terms hereof in good faith and
with due diligence, and shall employ reasonable care in the exercise of
its authorities and the performance of its duties and obligations under
this Agreement, but the Manager shall not be responsible for any acts or
omissions of the underwriting staff which are directly employed by the
Company or PXRE.
9. APPOINTMENT OF SUB-AGENTS
9.1 Save as provided in the Services and Procedures Manual and in Clause 9.2
of this Agreement, the Manager may not appoint or employ any sub-agents
to perform any of the Services on its behalf without the prior written
consent of the Company.
9.2 The Manager shall be permitted to appoint or employ any member company
of the Group, at its own expense, to exercise and perform all or any of
the Manager's powers and duties under this Agreement.
9.3 If the Manager delegates any of its obligations under this Agreement
pursuant to Clause 9.2 or otherwise in accordance with the Services and
Procedures Manual, then the Manager shall be liable to the Company for
the acts and omissions of the entity to which it has delegated those
obligations under this Agreement to the same extent as it would have
been had those acts and omissions been its own.
10. DOCUMENTS
10.1 The Manager hereby acknowledges that the originals and/or copies of all
records and documents (whether on computer or paper) relating to the
provision of the Services belong to the Company, and the Manager shall,
as soon as reasonably practicable after the termination of this
Agreement, deliver to the Company all such originals and/or copies of
such records and documents as may be in its possession, and shall not be
entitled to any lien over any of them, provided that the Manager shall
be entitled to retain and use copies of any documents which it
specifically requires in order to enable it to comply with any relevant
Laws, but any such documents must be returned to the Company as soon as
their retention in order to comply with such Laws is no longer
necessary.
10.2 The Company shall, for a period of at least 6 years after termination of
this Agreement, preserve in a safe place in England the originals of all
records and documents delivered by the Manager to the Company pursuant
to sub-clause 10.1 and shall permit the Manager, on reasonable prior
written notice, to have access to and, at the Manager's expense, to make
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copies of, such records as may be reasonably required by the Manager in
connection with or in contemplation of any legal proceedings.
11. SUPPLEMENTAL ACTS
The parties hereto shall execute and do all such lawful acts deeds and
things as may be necessary for the purpose of carrying into effect all
the provisions of this Agreement.
12. CONFIDENTIALITY AND REPUTATION
12.1 Neither of the parties hereto shall (except under compulsion of law or
in accordance with the Laws), whether before or after the termination of
this Agreement, disclose to any person not duly authorised by the
relevant party to receive the same, any Confidential Information of
which the other party shall have become possessed during the period of
this Agreement and each party shall employ all reasonable endeavours to
prevent any such disclosure.
12.2 Neither party shall knowingly do or suffer to be done any act or thing
which would or might reasonably be expected to prejudice materially or
bring into disrepute the goodwill, business or reputation of the other
party.
13. INTELLECTUAL PROPERTY
Nothing in this Agreement shall give the Manager any rights in respect
of any trade names or trade marks used by the Company in relation to the
Undertaking or any goodwill associated with it. The Manager acknowledges
that, except as expressly provided in this Agreement, it shall acquire,
in providing the Services, no rights in respect of such trade names,
trade marks or goodwill arising from the Undertaking, and that all such
rights and goodwill are, and shall remain, vested in the Company.
14. RESTRICTIONS
14.1 The parties agree and acknowledge that it is reasonable and necessary
for the protection of the goodwill and trade connections of the
Undertaking that the Manager should be restrained in the terms of the
covenants contained in this Agreement from making available or using for
the benefit of itself or a competitor or potential competitor of the
Company Confidential Information which it has obtained and is likely to
obtain in the course of performing the Services.
14.2 The Company covenants with the Manager (for itself and as agent of the
Group) that the Company will not without the prior written consent of
the Manager at any time during the term of this Agreement and for a
period of one year after the expiration or sooner termination of this
Agreement directly or indirectly attempt to solicit or entice away from
the Group or engage or employ any person who at any time is or has been
employed by the Group in the
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provision of the whole or any part of the Services unless such person
ceased to be employed in the provision of such Services at least twelve
months before such solicitation, enticement, engagement or employment.
14.3 The parties hereby acknowledge and agree that:-
14.3.1 each of the sub-clauses contained in this Clause 14 constitutes
an entirely separate, severable and independent covenant and
restriction;
14.3.2 the duration, extent and application of each of the restrictions
contained in this Clause 14 are no greater than is necessary for
the protection of the goodwill and trade connections of the
Undertaking and/or the Manager (as the case may be); and
14.3.3 in the event that any restriction on either of them contained in
this Clause 14 shall be found void but would be valid if some
part thereof were deleted, such restrictions shall apply with
any such deletion as may be necessary to make it valid and
effective.
15. NOTICES
15.1 All notices hereunder shall be in writing and shall be delivered by
hand, registered post or facsimile transmission to the address of the
relevant party set out in this Agreement or such other address as may be
notified by a party to the other under the provisions of this Clause
15.1 from time to time. Notices posted to an address outside the United
Kingdom shall be sent by prepaid airmail.
15.2 Any notice referred to in Clause 15.1 above shall be deemed to have been
received:-
15.2.1 if delivered by hand, on the date of delivery;
15.2.2 if delivered by post within the United Kingdom, at the end of
the second working day after posting, including the day of
posting if a working day;
15.2.3 if sent by pre-paid airmail, at the end of the seventh working
day after posting, including the day of posting if a working
day; and
15.2.4 if sent by facsimile transmission, on the expiry of 12 hours
after despatch or on commencement of the working day following
despatch, whichever is the later, and a transmission report
confirming uninterrupted transmission to the appropriate
facsimile number shall be prima facie proof of such receipt.
16. MISCELLANEOUS PROVISIONS
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16.1 No failure on the part of either party to exercise, and no delay on its
part in exercising, any right or remedy under this Agreement, nor any
custom or practice of the parties at variance with the terms of this
Agreement, will constitute a waiver thereof, nor will any single or
partial exercise of any such right or remedy preclude any other or
further exercise thereof or the exercise of any other right or remedy.
The rights and remedies provided in this Agreement are cumulative and
not exclusive of any rights or remedies provided by the law.
16.2 No amendment of this Agreement shall be binding upon the parties unless
made in writing and signed by a duly authorised representative of each
of the parties.
16.3 The illegality, invalidity or unenforceability of any provision of this
Agreement under the law of any jurisdiction shall not affect its
legality, validity or enforceability under the law of any other
jurisdiction nor the legality, validity or enforceability of any other
provision, and if any provision or part of any provision of this
Agreement is found by a competent court or other competent authority to
be void or unenforceable, such provision or part of a provision shall be
deleted from this Agreement, and the remaining provisions or parts of
the provisions shall continue in full force and effect.
16.4 Save in accordance with the terms of this Agreement, no party may,
without the prior written consent of the other party, assign or transfer
any of its rights or obligations under this Agreement, in whole or in
part, absolutely or conditionally.
16.5 For the avoidance of doubt nothing in this Agreement shall be
interpreted as indicating that the Manager has any right of ownership in
any part of the Company's business, and nothing in this Agreement shall
constitute a partnership or joint venture between the parties, nor a
relationship of employer and employee.
16.6 This Agreement supersedes all prior agreements, arrangements and
undertakings between the parties, and constitutes the entire agreement
between the parties relating to the subject matter of this Agreement to
the exclusion of all terms and representations (excepting those made
fraudulently) whether express or implied, written or oral.
17. LAW AND JURISDICTION
This Agreement will be governed by the laws of England, and the parties
agree to submit to the non-exclusive jurisdiction of the English Courts.
AS WITNESS the hands of the duly authorised representatives of the parties
hereto the day and year first before written.
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SIGNED by
the duly authorised representative of
PXRE MANAGING AGENCY LIMITED /s/ Michael J. Bleisnick
in the presence of:-
Witness /s/ John Moffat
Address 110 Fenchurch Street
London EC3
Occupation Deputy Compliance Officer
SIGNED by
the duly authorised representative of
WHITTINGTON INSURANCE SERVICES LIMITED /s/ M.J. Walton
in the presence of:- /s/ R.K.L. White
Witness /s/ John Moffat
Address 110 Fenchurch Street
London EC3
Occupation Deputy Compliance Officer
17
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THE FIRST SCHEDULE
REMUNERATION AND EXPENSES PAYABLE
BY THE COMPANY TO THE MANAGER
1. As consideration for the Manager's performance of the Services hereunder
the Company shall pay to the Manager:-
1.1 an initial Management Fee for the period from the lst day of
January 1997 to the 31st day of December 1997 of 'L'135,580
and thereafter such annual Management Fee ("the Management Fee")
as the parties may from time to time agree in writing, such fee
to be payable quarterly in advance on or before the lst day of
January, April, July and October in each year;
1.2 a fee the amount of which shall be calculated by reference to the
amount of time spent by the Dedicated Staff in the performance of
the Services and by applying the agreed hourly time charges set
out against each of the names of the relevant Dedicated Staff in
the Services and Procedures Manual (subject to review as
hereinafter provided). Such fee shall be payable monthly in
arrears upon receipt by the Company of an appropriate invoice and
satisfactory supporting evidence of time incurred;
1.3 PROVIDED THAT:-
1.3.1 in November of each calendar year during the period of
this Agreement the parties will review the Management Fee
and the said hourly time charges referred to in sub-clause
1.2 above, with a view to agreeing to any appropriate or
necessary adjustment thereto for the following year or
years, it being the intention of the parties that the
Management Fee and the said hourly time charges should be
fair and reasonable; and
1.3.2 failing agreement between the parties as to the amount of
the Management Fee or the hourly time charges referred to
in subclause 1.3.1 above, either party hereto shall be
entitled to terminate this Agreement by notice to the
other in writing such termination to take effect from the
end of the period in respect of which there is an agreed
Management Fee and hourly time charges;
1.4 all reasonable travel, subsistence, hotel and the like expenses
actually incurred by the Manager in connection with the provision
of the Services and the performance of its duties under this
Agreement, will be paid by the Company within 30 days of the
Manager providing the Company with a written statement setting
out the details of such expenses, together with original
receipts, invoices or other appropriate evidence of such
expenses.
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2. In the event that the obligations or workload imposed on the Manager
under this Agreement, in the reasonable opinion of the Manager, are
materially increased in consequence of and in order to comply with a
change in any Lloyd's or statutory requirements, the Manager shall be
entitled to require that the terms of this Agreement and the Management
Fee be varied to the extent as reasonably required by the Manager to
compensate for such increase. Failing agreement between the parties as
to the terms of such variation the Manager will be entitled to terminate
this Agreement by not less than 30 days notice in writing.
3. Furthermore, if the Company has given the Manager its specific consent
to the appointment of any professional advisers, sub-agents or other
third parties and has agreed to reimburse the Manager for any fees,
costs or disbursements relating to work undertaken on the Company's
behalf or the Manager's behalf in relation to PXRE and/or the
Undertaking or the performance of the Services by any such persons, then
the Manager may submit details of such fees, costs or disbursements to
the Company, which details shall be supported by appropriate invoices
and receipts, and the Company shall, within 30 days of receipt of such
details, reimburse the Manager for the full cost thereof.
4. All monies payable to the Manager under this Agreement are exclusive of
Value Added Tax which, if applicable, shall be added to such monies and
be payable by the Company at the rate in force at the time when such
monies become due.
5. All monies payable to the Manager under this Schedule shall be paid in
pounds sterling and shall be deemed to accrue from day to day. All such
monies shall be payable at the address of the Manager given under this
Agreement or elsewhere as the Manager may, by written notice to the
Company, direct. In the event of the Company defaulting in payment of
any such monies by the due date then (without prejudice to any other
right or remedy which the Manager may have) the Company shall pay to the
Manager interest on such overdue monies (before as well as after any
judgment obtained in connection therewith) calculated at the rate of 4
per cent per annum above the base rate of Lloyds Bank plc from time to
time from and including the date of default until and including the date
of final payment.
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procedure manual
PXRE
THE SECOND SCHEDULE
SERVICES AND PROCEDURES MANUAL
[In relation to the Agreement between
PXRE Managing Agency Limited
and
Whittington Insurance Services Limited
dated [ ]]
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procedure manual
PXRE
SECTION
1 DEFINITIONS
2. PROPER INSTRUCTIONS
3. DIRECTORS AND OFFICERS
4. SENIOR STAFF
5. COMPLIANCE OFFICER
6. TECHNICIANS
SERVICES AND PROCEDURES
7. INVESTMENT
8. BANKING
9. UNDERWRITING
10. PREMIUM RECORDING
11. ACCOUNTING
12. ANCILLARY SERVICES
13. COMPLAINTS PROCEDURE
14. REPORTING
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procedure manual
PXRE
APPENDICES
I DEDICATED STAFF
II COMPLIANCE OFFICER'S TERMS OF REFERENCE
III UNDERWRITING ACCOUNT
IV SYNDICATE QUARTERLY RETURN
V MANAGING AGENCY SOLVENCY RETURN
22
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procedure manual
PXRE
1. DEFINITIONS
"THE AGREEMENT" The Agreement for the provision of
insurance and corporate management services between
PXRE Managing Agency limited (1) and Whittington
Insurance Serviced Limited (2) dated [ ]
AMIS Advanced Management Information Systems
CPE Continuing Professional Education
IBNR Incurred But Not Reported
IT Information Technology
LCO Lloyd's Claims Office
"LLOYD'S the Society incorporated by Lloyd's Act, 1871,
by the name of Lloyd's
LORS Lloyd's Outwards Reinsurance System
LPSO Lloyd's Policy Signing Office
NAIC National Association of Insurance Commissioners
PIM Premium Income Monitoring
PTF Premiums Trust Fund
PXRE PXRE Managing Agency Limited
RDS Realistic Disaster Scenario
RITC Re Insurance to Close
SCM Syndicate Claims Message
USM Underwriters Signing Message
UK & US GAAP Generally Accepted Accounting Practice
WIS Whittington Insurance Services Limited
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procedure manual
PXRE
2. PROPER INSTRUCTIONS
Persons currently authorised to provide "Proper Instructions" are the officers
of PXRE Managing Agency Limited.
3. DIRECTORS AND OFFICERS
WIS will provide directors and officers in accordance with the applications made
to Lloyd's, with the exception that Brett Childs replaces Stephen Drake. WIS
reserves the right to replace such directors and officers as may be required
from time to time after consultation with the Board.
Time allocation will accord with the requirements specified by Lloyd's and will
be reflected in the applications.
4. SENIOR STAFF
WIS will supply an Appropriate person who will act as the account Executive to
PXRE, and who will be responsible for:
the finance function
money laundering,
taxation
foreign legislation
statutory reporting
WIS will also supply an appropriate person who shall be responsible for: -
IT management
systems analysis
data base maintenance
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procedure manual
PXRE
5. COMPLIANCE OFFICER
The compliance officer will carry out the duties specified in the terms of
reference attached as appendix II hereto.
6. TECHNICIANS
WIS will supply, on a shared service basis, staff to perform the following
services: -
Processing of underwriting transactions
Performing syndicate accounting functions
Performing Agency accounting functions
SERVICES AND PROCEDURES
7. INVESTMENT
WIS will set up automatic sweep facilities for the bank to transfer surplus
funds in the PTF accounts to interest bearing deposit accounts with the bank
appointed by the Board.
PXRE Managing Agency Limited has appointed Whittingdales as investment managers.
WIS will not be responsible for the investment of the syndicate's funds.
Investing funds in alternative securities will be decided by the Investment
Committee of the managing agency and its investment adviser.
8. BANKING
The necessary accounts will be operated in accordance with mandates as defined
by the Board from time to time.
9. UNDERWRITING
WIS will not perform any underwriting activity. All underwriting staff will be
appointed by the Board of PXRE Managing Agency Limited.
The underwriting team will be responsible for referencing all risks.
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procedure manual
PXRE
10. PREMIUM RECORDING
On receipt of details of the signed premium income from the LPSO, on the
syndicate's underwriting system, WIS will match the reference and attach it to
the risk. WIS will be responsible for preparing the various signed premium
income reports as described below in the section titled 'Reports'.
11. ACCOUNTING
WIS will maintain the accounting records of the agency and syndicate on the
Olympic IGL system which also incorporates a management information system
(AMIS) or on such other systems from time to time as may be required.
The accounting records will be maintained in US dollars, Canadian dollars,
Sterling and converted sterling. Transactions will be recorded in their original
settlement currency.
WIS will: -
enter details of all cash movements on all the agency and
syndicate bank accounts including trust accounts.
reconcile the bank accounts on a monthly basis.
reconcile the underwriting transactions to the monthly Lloyd's
Central Accounting statement. Any reconciling differences will
be reported [forthwith] by WIS to the Underwriter.
recharge to the syndicate expenses incurred in terms of the
policy, as approved by the Board.
ensure that all expenses are presented to the underwriter for
authorisation before they are settled. Payment will be effected
by WIS from the agency's bank account/s.
Lloyd's charges will be directly debited by Lloyd's. These will be accounted for
accordingly by WIS.
12. ANCILLARY SERVICES
WIS Will:-
prepare the quarterly VAT return for the agency and syndicate.
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procedure manual
PXRE
complete the annual Syndicate Information Statement reflecting
the US underwriting results and submit this information to
Lloyd's in accordance with the timetable set by them.
provide the underwriter with all necessary information to
facilitate the production of the US surplus lines/reinsurance
business regulatory reporting requirements as set down by the
New York Insurance Department and monitored by Lloyd's Market
Reporting & Solvency Department.
complete the annual return required by the National Association
of Insurance Commissioners (NAIC).
assist the underwriter in agreeing the underwriting result for
each closed year of account with the Inland Revenue.
provide Lloyd's with all information as may be required to make
due return to the Canadian Tax authorities.
through its parent company, provide payroll, personnel,
appropriate office space and equipment as agreed, office
services and equipment as may be necessary which will be
provided at cost by Wittington Group Limited.
13. COMPLAINTS PROCEDURE
Complaints should be addressed to the accounts executive in the first instance
as specified in the Agreement.
14. REPORTING
WIS will prepare the following reports:- (Other reports may be available at a
cost to be agreed calculated on a time and material basis.)
BOARD REPORTS
Cash flows
Actual versus projected cash flow will be reported in tabular or
graphical format depending on the agency Board requirements. Movements
will be broken down between premiums, claims, reinsurance premiums,
reinsurance recoveries, syndicate expenses and Corporate Name charges.
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procedure manual
PXRE
Underwriting Account
This report will be presented in the format required by Lloyd's. A copy
of the standard underwriting account is attached at appendix II.
Syndicate expenses
A breakdown of syndicate expenses into expense categories required by
Lloyd's, as a minimum, with a comparison to budgeted expenses will be
prepared.
Agency Accounts
A profit and loss account and balance sheet will be prepared.
Syndicate Monitoring Forms
These include:
A forecast of the year of account result, based on the underwriter's
forecast of the ultimate loss ratio for the business categories and a
`best' estimate of investment income and syndicate expenses.
An income analysis by business class reflecting a comparison between
budgeted and actual gross and net premium income.
A detailed trading summary by solvency class reflecting a comparison
between actual to date and the underwriter's 36 month estimate of net
premium income and incurred claims by value and as a percentage of
premium income.
Net underwriting progression statistics, or triangulations at least by
whole account.
LLOYD'S REPORTS
Premium Income Monitoring
WIS will assist the underwriter in preparing the PIM reports required by
Lloyd's and in accordance with their reporting requirements.
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procedure manual
PXRE
Syndicate Quarterly Return
WIS will be responsible for producing this return within the timetable
set by Lloyd's. Attached at appendix III is a copy of the return as
prescribed by Lloyd's Regulatory Board. WIS will require assistance from
the Underwriter when completing Form 1, Form 3, Form 6 and Form 14.
Managing Agency Solvency Return
WIS will compete the above return as required by Lloyd's. A copy of the
return (QFI) is attached at appendix IV.
Solvency Return
WIS will complete the annual Solvency Return in the format required by
Lloyd's.
The active underwriter will be responsible for aggregate and RDS
monitoring as well as determining IBNR or RITC.
ANNUAL REPORTS
Annual Financial Statements
An annual report will be prepared for the syndicate covering the year
from 1 January to 31 December. The report will be in the format as
prescribed in terms of the bye-laws set down by Lloyd's of London.
An annual report will be prepared for the agency covering the year from
1 January to 31 December. The report will be in the format as required
by Lloyd's and the Companies Act.
The active underwriter will be responsible for aggregate and RDS
monitoring as well as determining IBNR or RITC.
All the syndicate's reports will be available in the three reporting currencies
and converted sterling. Agency reports will only be in sterling.
29
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EXHIBIT 10.32
DTD(CM)(TP)G93 Member Code: 53624
LLOYD'S DEPOSIT TRUST DEED
(Third Party Deposit)
THIS DEED is made the 29th day of November One thousand nine hundred and ninety
six BETWEEN PXRE LIMITED whose registered office is at 29 ABINGDON ROAD,
KENSINGTON, LONDON W8 6AM and whose registered number is 3099078 (hereinafter
called "the Corporate Member") of the first part and PXRE REINSURANCE COMPANY
(hereinafter called "the Depositor") of the second part and the Society
incorporated by Lloyd's Act 1871 by the name of LLOYD'S (hereinafter called the
"the Society") of the third part.
WHEREAS:
(A) The Corporate Member has applied to become or already is a corporate
underwriting member of the Society and this Deed is made in
consideration of the Corporate Member's admission to such membership or
of the continuance of its existing membership.
(B) In order to comply with the requirement of the Society that
underwriting members should provide security in respect of their
underwriting business at Lloyd's by way of inter alia Lloyd's deposit
the Depositor has at the request of the Corporate Member paid or
transferred to or under the direct or indirect control of the Society
such moneys or other property approved by the Council of Lloyd's as are
entered in the records maintained by the Society to be held by the
Society as trustee upon and with and subject to the trusts powers and
provisions set out herein.
(C) The Corporate Member has executed at the same time as this Deed or will
shortly execute a deed or deeds (in a form approved by the Secretary of
State under the Insurance Companies Act 1982) entitled Lloyd's Premiums
Trust Deed declaring trusts upon which the premiums and other moneys
received by or on behalf of the Corporate Member in connection with
insurance business other than long term insurance business are to be
held.
NOW THIS DEED made for the consideration aforesaid WITNESSETH and it is hereby
AGREED AND DECLARED as follows:
1. In this Deed unless the context otherwise requires:
Definitions
"the Beneficiaries" means all persons to whom the Corporate
Member is or may at any time before the Termination Date
become financially liable by reason of any default in respect
of any of the Corporate Member's Lloyd's obligations and the
singular has a corresponding meaning
"the Committee" means the Committee of Lloyd's
"the Council" means the Council of Lloyd's or (in relation to
any duty responsibility right power or discretion which is
hereby imposed or conferred upon the Council but which has for
the time being been delegated by the Council to the Committee
pursuant to section 6(6)(a) of Lloyd's Act 1982) the Committee
"insurance" includes assurance reinsurance and reassurance
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"Lloyd's obligations" in relation to the Corporate Member
means all underwriting obligations incurred by the Corporate
Member as an underwriting member of the Society at any time
before the Termination Date and includes obligations to the
Society and the Trustees and obligations arising under:
(a) the byelaws regulations rules directions or other
requirements of the Society and
(b) any deed contract instrument or other arrangement of
any kind approved by the Society;
but does not include obligations arising in respect of any
letter of credit guarantee or other security given to secure
the performance of any of the said underwriting obligations in
favour of the person giving such guarantee or other security
"the managing agent" means the person for the time being
acting as the Corporate Member's managing agent in respect of
certain of the Corporate Member's underwriting business at
Lloyd's
"the Premiums Trust Deed" means the deed or deeds referred to
in recital (C) hereof and includes any further such deed which
may hereafter be executed by the Corporate Member in addition
thereto or substitution therefor
"the Premiums Trustees" means the trustees for the time being
of the Premiums Trust Deed
"the Premiums Trust Fund" means the fund of premiums and other
moneys held from time to time by or under the control of the
Premiums Trustees upon the trusts of the Premiums Trust Deed
"property" includes securities and all choses in action
whether the system by which they are recorded held and
transferred is based on written documents or on computer
records or on some combination of the two
"requirements of the Council" means any requirement imposed by
any byelaw or regulation made under Lloyd's Acts 1871 to 1982,
any condition or requirement imposed or direction given under
any such byelaw or regulation, any direction given under
section 6 of Lloyd's Act 1982, any requirement imposed by or
under any undertaking given to the Society or to the Council
by the Corporate Member or the Covenantor and any other
requirement imposed or direction given by the Council under
Lloyd's Acts 1871 to 1982
"securities" includes shares stock and debentures of all
descriptions whether the system by which they are recorded
held and transferred is based on written documents or on
computer records or on some combination of the two
"Special Reserve Funds" means funds set up in accordance with
arrangements referred to in sections 452 to 456 of the Income
and Corporation Taxes Act 1988 or section 175 of, and Schedule
20 to, the Finance Act 1993 (or in each case any amendment or
re-enactment thereof) and the singular has a corresponding
meaning
"the Termination Date" means the 80th anniversary of the date
of this Deed (so that the perpetuity period applicable hereto
shall be 80 years)
"the Trustees" means the Society and the other trustees for
the time being of the trusts hereby created and the singular
has a corresponding meaning
"the Trust Fund" means the moneys or other property referred
to in recital (B) hereof and all moneys and other property
hereafter at any time paid or transferred to or under the
direct or
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indirect control of the Trustees upon the trusts hereof and
all accumulations of income and the investments and other
property hereafter for the time being representing the same.
2. (a) In consideration of the Corporate Member's admission
Declaration and as an underwriting member of the Society (or of the
Covenant continuance of such membership) the Corporate Member
and the Depositor with the intention of establishing
a binding trust of the benefit of the Beneficiaries
hereby irrevocably declare and direct that the Trust
Fund shall henceforth be held by the Trustees upon
and with the subject to the trusts powers and
provisions set out herein;
(b) For the said consideration the Corporate Member
hereby:
(i) covenants with the Trustees that whenever
any sum is paid to the Premiums Trustees or
otherwise applied under clause 5(b) hereof
the Corporate Member will thereafter (if so
required by the Society) procure that before
any further payment is made to the Corporate
Member out of the future profits of the
Corporate Member's underwriting business at
Lloyd's there shall be paid to the Trustees
out of such profits sums equal in the
aggregate to the sum so paid or applied to
be held by the Trustees as an accretion to
the Trust Fund; and
(ii) by way of security for the performance of
the foregoing covenant charges the future
profits of the said business with payment of
all sums from time to time payable to the
Trustees thereunder (subject to any prior
charge contained in the Premiums Trust Deed)
and for that purpose and to that extent
assigns the said profits to the Trustees to
hold upon the trusts hereof.
3. The Trustees shall hold the Trust Fund upon trust that they
Trust to Sell may either allow the same or any part of it to remain as
or Retain actually invested so long as they think fit or may at their
discretion sell call in or convert into money the same or any
part of it and shall invest the moneys produced thereby and
any other capital moneys held upon the trusts hereof in any
investments hereby authorised with power to vary or transpose
any investments for others hereby authorised.
4. The Trustees shall stand possessed of the Trust Fund and the
Powers of income thereof:
Appointment (a) upon such trusts for the benefit of the Beneficiaries
and or any one or more for them exclusive of the others
Determination in such shares and subject to such terms and
limitations and with such discretionary trusts and
powers exercisable by such persons as the Society
shall from time to time (for the purpose for
promoting the effective securing of the Corporate
Member's Lloyd's obligations or the beneficial and
convenient execution and administration of the trusts
hereof) by deed or deeds revocable or irrevocable
executed before the Termination Date but without
infringing the rule against perpetuities appoint;
(b) upon trust if the Society shall at any time or times
before the Termination Date by deed declare that the
trusts hereby created are determined in respect of
the Trust Fund or any part of it to pay and transfer
the same to the Depositor absolutely.
5. In default of and subject to any such appointment or
Trusts declaration the Trustees shall hold the Trust Fund and its
income upon the following trusts:
(a) Until the Termination Date the income of the Trust
Fund shall be held upon and subject to the following
trusts and powers:
(i) subject as hereinafter provided upon trust
for the Depositor absolutely;
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(ii) if and whenever the Trustees determine that
an event has occurred which brings into
operation any of the trusts or powers
contained in clause 5(b) hereof then subject
to those trusts and powers upon trust to
accumulate the subsequent income and add it
to the capital of the Trust Fund;
(iii) whenever the income is subject to
accumulation as aforesaid the Trustees may
at their discretion (exercisable in
accordance with the requirements of the
Council) by written instrument declare that
accumulation shall cease whereupon the
subsequent income shall be subject to all
the provisions of this clause 5(a);
(b) Until the Termination Date the Trust Fund and its
income shall be held upon and subject to the
following trusts or powers:
(i) if and whenever the Corporate Member shall
make default in respect of any of the
Corporate Member's Lloyd's obligations the
Trustees may apply the Trust Fund or its
income or any part thereof in discharging or
making good such default in such manner and
to such extent as the Trustees think fit
(whether by payment direct to the
Beneficiary affected reinsurance purchase of
claims or returns of premiums or otherwise);
(ii) if and whenever it appears to the Trustees
from a certificate or report of auditors
approved by the Council that either
(aa) insufficient assets are available in
the Premiums Trust Fund to meet the
Corporate Member's Lloyd's
obligations; or
(bb) the corporate Member has sustained
on a closed underwriting account an
ascertained loss which has not been
funded
the Trustees may pay or apply the Trust Fund
or its income or any part thereof in any
manner directed by the Premiums Trust Deed
for the payment or application of the
Premiums Trust Fund or may pay the same to
the Premiums Trustees as an accretion to the
Premiums Trust Fund;
(iii) if and whenever it shall be established to
the satisfaction of the Trustees that any
person (including the Society) has at any
time (with or without the knowledge and
consent of the Corporate Member) in good
faith applied moneys not belonging to the
Corporate Member in or towards the discharge
of any claim accepted by the managing agent
upon any contract of insurance underwritten
at Lloyd's by or on account of the Corporate
Member the Trustees may act under sub-clause
(b)(i) above as if the Corporate Member was
in default in respect of such claim and as
if the person so applying such moneys was a
Beneficiary;
(c) Until the Termination Date the Trust Fund and its
income shall be held upon and subject to the
following trusts or powers:
(i) if before the Termination Date the Corporate
Member shall cease (for any reason
whatsoever) to be a person obliged under the
requirements of the Council to maintain
funds at Lloyd's and it shall be established
to the satisfaction of the Trustees that all
the Corporate Member's Lloyd's obligations
have been discharged or otherwise finally
provided for the Trustees shall hold the
Trust Fund and its income upon trust for the
Depositor absolutely;
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(ii) subject as aforesaid the Trustees shall at
the Termination Date pay and transfer the
Trust Fund and its income to the Premiums
Trustees as an accretion to the Premiums
Trust Fund and to be held by them upon the
trusts of the Premiums Trust Deed;
(d) Subject as aforesaid the Trust Fund and its income
shall be held upon trust for the Depositor
absolutely.
6. Notwithstanding anything hereinbefore contained:
Release and
Advancement (a) The Society may at any time or times before the
Termination Date:
(i) by deed release wholly or in part all or any
of the discretionary trusts or powers hereby
conferred on the Trustees in respect of the
whole or any part of the income or capital
of the Trust Fund; or
(ii) by written instrument release wholly or in
part all or any of the Corporate Member's
outstanding obligations under clause 2
hereof;
(b) Section 32 of the Trustee Act 1925 shall apply to the
Trust Fund but as if all the provisos in subsection
(1) were omitted.
7. Subject to the requirements of the Council:
Powers of
Investment (a) Moneys to be invested hereunder may be applied or
invested in the purchase of any investments or
property for the time being authorised by the Council
for the investment of Lloyd's Deposits (whether
producing income or not and whether properly
described as investments or not and whether or not
within the range of investments authorised by law for
the investment of trust funds);
(b) Securities comprised in the Trust Fund may be
deposited with or lent (with or without security) to
any incorporated company or building society or bank
or discount house or local or governmental authority
other than any of the following:
(i) The Corporate Member itself;
(ii) any company which is an associate of the
Corporate Member for the purposes of section
435 of the Insolvency Act 1986 (or any
amendment or re-enactment thereof);
(iii) any other corporate member of the Society;
(c) Any part of the Trust Fund may be pooled with other
property held in the names or under the control of
the Trustees or of the Trustees jointly with other
trustees upon the trusts of other Lloyd's Deposits or
of Lloyd's Special Reserve Funds or Premiums Trust
Funds including the Premiums Trust Fund and may
accordingly be deposited or otherwise applied
together with such other sums and without any
obligation to keep them separate;
(d) Moneys may be invested in securities or property in
any part of the world which are recorded held and
transferred by an officially established or
officially regulated system which is based wholly or
partly on computer records (including in particular
the systems currently operated in the USA under the
names of the "Fedwire" and the Depository Trust
Company).
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8. In the administration of the trusts hereof the Trustees shall
Other Powers have the following powers in addition to those conferred on
them by law:
(a) Power to cause or permit the Trust Fund or any part
of it to be held in the name or under the direct or
indirect control of any nominee approved for the
purpose by the Council (whether or not one of the
Trustees and whether resident within or outside the
United Kingdom) and to pay the remuneration and
expenses of such nominee out of the capital or income
of the Trust Fund;
(b) Power to participate (whether directly or indirectly
through one or more nominees) in any system for the
recording holding or transferring of securities or
any choses in action which is based wholly or partly
on computer records and which is officially
established or officially regulated in any part of
the world (including in particular any system for the
transfer of securities established by the Bank of
England and the Stock Exchange under the Stock
Transfer Act 1982) and including power (when
participating indirectly) to allow a nominee for the
purpose of such participation to mix property
comprised in the Trust Fund with other property held
by that nominee for that purpose;
(c) Power to exercise the voting powers conferred on them
as the holders of any securities from time to time
comprised in the Trust Fund and to concur in and make
any arrangements in connection with any
reconstruction amalgamation or winding up of any
company whose securities are so comprised as if the
Trustees were absolute owners beneficially entitled;
(d) Power to appropriate any investment or property from
time to time forming part of the Trust Fund in its
actual state of investment to or towards any share or
interest in the Trust Fund upon making such
valuations as the Trustees think fit and without
obtaining the consent of any person;
(e) Power at any time or times by revocable written
instrument to delegate to any person for any period
and in any manner and upon any terms (including power
for the delegate to sub-delegate) the exercise of any
of the administrative powers or discretions hereby
conferred on them without being liable for the acts
or defaults of any such delegate or sub-delegate or
for any loss to the Trust Fund resulting therefrom
and power at any time by written instrument to revoke
any such delegation and in particular power so to
delegate their powers under clause 3 hereof to any
person who appears to them to be fit and proper and
who is an authorised or exempted person within the
meaning of the Financial Services Act 1986 (or any
amendment or re-enactment thereof);
(f) Power to raise and pay out of the Trust Fund (without
prejudice to their lien thereon) any taxes charges
expenses or other outgoings for which they may be
accountable or liable as Trustees hereof or otherwise
incurred by the Society or Trustees (in whatever
capacity) in connection with these presents or the
Corporate Member's membership of the Society or
anything done in connection therewith and in this
clause 8(f) "taxes" includes any liability of the
Trustees or the Society to pay to any person (whether
by way of indemnity or otherwise) any amount for or
on account of taxes however the rights of that person
against the Trustees or the Society may arise.
9. (a) Nothing herein contained shall entitle any
Beneficiaries Beneficiary to receive any account of the Trust Fund
Right to Accounts or its income unless the Trustees have decided to pay
or apply some part thereof for his benefit and have
notified him of such decision in writing.
(b) All income of the Trust Fund shall be deemed to
accrue wholly on the date of receipt and shall not be
apportionable in respect of time.
<PAGE>
<PAGE>
10. (a) The Society shall be entitled to remuneration for
Society as acting as a trustee in accordance with terms and
Trustee conditions prescribed by the requirements of the
Council.
(b) The Society may retain for its own benefit any fee
commission or share of commission to which it may
become entitled by reason of any deposit loan or
other investment or application of the Trust Fund or
any part of it made in the Society's name.
(c) In the professed execution of the trusts and powers
hereof neither the Society nor the Council nor the
Committee nor any other committee sub-committee or
body of persons nor any other agent employee or
person through which or whom the Society the Council
or the Committee may act shall in any circumstances
incur any liability to the Depositor to the Corporate
Member or to any Beneficiary for negligence.
11. (a) The statutory power of appointing new Trustees shall
New Trustees apply to the trusts hereby created and shall at all
times be vested in the Society.
(b) The Society may at any time by deed remove any
Trustee (but shall not remove a sole Trustee without
appointing at least one other in his place).
(c) A corporation may be appointed as Trustee or
custodian trustee whether or not it is within the
statutory definition of trust corporation.
(d) A trust corporation shall be entitled to remuneration
for its services in accordance with its normal
published terms from time to time and any other
Trustee (including a corporation) engaged in any
profession or business shall be entitled to be paid
all usual professional or proper charges for business
transacted time expended and acts done by him or any
partner or employee of his in connection with the
trusts hereof including acts which a trustee not
being in any profession or business could have done
personally.
(e) Any individual Trustee may act as an officer or
employee of any company whose securities are
comprised in the Trust Fund or of any subsidiary of
any such company and may retain for himself any
remuneration which he may receive as such officer or
employee notwithstanding that any votes or other
rights attached to any such securities may have been
instrumental either alone or in conjunction with
other matters or by reason of their non-exercise in
procuring or continuing for him his position as such
officer or employee or that his qualification for any
such position may be constituted wholly or partly by
the holding of such securities.
(f) In the professed execution of the trusts and powers
hereof no Trustee (including the Society) shall be
liable for any loss to the Trust Fund arising by
reason of any improper investment made in good faith
or the negligence or fraud of any delegate or agent
appointed or employed by him or by any other Trustee
(although such appointment or employment was not
strictly necessary or expedient) or by reason of any
mistakes or omissions made in good faith by any
Trustee or by reason of any other matter or thing
except wilful and individual wrongdoing on the part
of the Trustee who is sought to be made so liable.
12. (a) This Deed shall be read and construed and take effect
English Law in all respects in accordance with English law.
(b) The parties hereto irrevocably and unconditionally
submit for all purposes of and in connection with the
Deed to the exclusive jurisdiction of the English
Courts.
13. The marginal notes herein contained are for reference only and
shall not control the meaning or
<PAGE>
<PAGE>
Marginal effect of this Deed.
Notes
IN WITNESS whereof the parties hereto have duly executed this
instrument as a deed
SIGNED as a DEED )
and DELIVERED by )
PXRE LIMITED acting ) /s/ Gerald L. Radke [Corporate Member]
by two Directors or ) ----------------------------
one Director ) Director
and the Company )
Secretary ) /s/ Sanford M. Kimmel
----------------------------
Director/Secretary
SIGNED as a DEED )
and DELIVERED by )
PXRE REINSURANCE ) /s/ Gerald L. Radke [Depositor]
Company acting by ) ----------------------------
two Directors or ) Director
one Director and the )
Company Secretary ) /s/ Sanford M. Kimmel
----------------------------
Director/Secretary
The common Seal of Lloyd's was hereunto affixed in
the presence of [SEAL]
Authorised Signatory
<PAGE>
<PAGE>
EXHIBIT 10.33
THE CHASE MANHATTAN BANK
TO: Chaseside, Bournemouth BH7 7DB
THE SOCIETY AND CORPORATION OF Telex: 8954681 CMB G
LLOYD'S OF LONDON, c/o THE LLOYD'S Cables: Chamanbank London EC2
CORPORATE MEMBERSHIP UNIT, ONE Swift Address: CHASGB2L
LIME STREET, LONDON Fax Group 3: 01202 342349
EC3M 7HA Telephone: 01202 343941/7
: 0171-962-3931
Date : 22 Nov 1996
Dear Sirs, Re Our Ref : 4674122
WE ARE PLEASE TO INFORM YOU THAT BY ORDER OF PXRE REINSURANCE COMPANY FOR THE
ACCOUNT OF PXRE LIMITED WE, THE CHASE MANHATTAN BANK, HAVE OPENED OUR CLEAN
IRREVOCABLE CREDIT NO 4674122/P-362390 DATED 22 NOVEMBER 1996 IN YOUR FAVOR FOR
A SUM NOT TO EXCEED THE AGGREGATE AMOUNT OF USD 15,355,000.00 EFFECTIVE
IMMEDIATELY AND EXPIRING AT OUR OFFICE WITH THE CLOSE OF BUSINESS ON DECEMBER
31, 2001.
THIS CREDIT IS TO BE AUTOMATICALLY EXTENDED FOR A FUTURE YEARS WITHOUT WRITTEN
AMENDMENT, ON THE FIRST DAY OF JANUARY OF EVERY FUTURE YEAR FROM THE
COMMENCEMENT DATE SO THAT IT IS ALWAYS VALID FOR A MINIMUM PERIOD OF FOUR YEARS
UNLESS, AT LEAST THIRTY DAYS PRIOR TO THE 31ST OF DECEMBER OF THE FINAL YEAR OF
THE CURRENT VALIDITY PERIOD, NOTICE IS GIVEN IN WRITING, SENT BY REGISTERED MAIL
AT THE ABOVE ADDRESS, THAT THIS LETTER OF CREDIT WILL NOT BE EXTENDED BEYOND THE
CURRENT EXPIRY DATE.
FUNDS UNDER THIS LETTER OF CREDIT ARE AVAILABLE TO YOU AGAINST YOUR SIGHT
DRAFT(S) DRAWN ON US MENTIONING, THEREON CREDIT NO. 4674122/P-362390.
THIS CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY
CREDITS (1993 REVISION) INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO. 500.
THIS LETTER OF CREDIT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH
ENGLISH LAW AND WE HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE HIGH
COURT OF JUSTICE IN ENGLAND.
YOUR FAITHFULLY,
AUTHORISED SIGNATURE
FOR AND ON BEHALF OF
THE CHASE MANHATTAN BANK
LONDON BRANCH
<PAGE>
<PAGE>
EXHIBIT 10.34
STD(CM)(TP)G93 Member Code: 53624
LLOYD'S SECURITY AND TRUST DEED
(Letter of Credit and Bank Guarantee)
THIS DEED is made the 29th day of November One thousand nine hundred and ninety
six BETWEEN PXRE LIMITED whose registered office is at 29 ABINGDON ROAD,
KENSINGTON, LONDON W8 6AM and whose registered number is 3099078 (hereinafter
called "the Corporate Member") of the one part and the Society incorporated by
Lloyd's Act 1871 by the name of LLOYD'S (hereinafter called "the Society") of
the other part
WHEREAS:
(A) The Corporate Member has applied to become or already is a corporate
underwriting member of the Society and this Deed is made in
consideration of the Corporate Member's admission to such membership or
of the continuance of its existing membership.
(B) In order to comply with the requirement of the Society that
underwriting members should provide security in respect of their
underwriting business at Lloyd's by way of inter alia Lloyd's Deposit
the Corporate Member has agreed to enter into the covenant hereinafter
contained and has procured that a person approved by the Society to
issue letters of credit or guarantees (hereinafter called "the
Guarantor") will either provide the Trustee with an irrevocable letter
of credit or execute in favour of the Trustee a guarantee in either
case in a form which has been prescribed by the Society.
(C) The Corporate Member has executed at the same time as this Deed or will
shortly execute a deed or deeds (in a form approved by the Secretary of
State under the Insurance Companies Act 1982) entitled Lloyd's Premiums
Trust Deed declaring trusts upon which the premiums and other moneys
received by or on behalf of the Corporate Member in connection with
insurance business other than long term insurance business are to be
held.
NOW THIS DEED made for the consideration aforesaid WITNESSETH and it is hereby
AGREED AND DECLARED as follows:
1. In this Deed unless the context otherwise requires:
Definitions
"the Beneficiaries" means all persons to whom the Corporate
Member is or may at any time before the Termination Date
become financially liable by reason of any default in respect
of any of the Corporate Member's Lloyd's obligations and the
singular has a corresponding meaning
"the Council" means the Council of Lloyd's or (in relation to
any duty responsibility right power or discretion which is
hereby imposed or conferred upon the Council but which has for
the time being been delegated by the Council to the Committee
pursuant to section 6(6)(a) of Lloyd's Act 1982) the Committee
"the Committee" means the Committee of Lloyd's
"funds at Lloyd's" means, at any given time, the amount of the
funds at Lloyd's (as defined in the Membership Byelaw (No. 17
of 1993)) which at that time the Corporate Member is obliged
to maintain in respect of its insurance business other than
long term insurance business under the requirements of the
Council
<PAGE>
<PAGE>
"insurance" includes assurance reinsurance and reassurance
"Lloyd's obligations" in relation to the Corporate Member
means all underwriting obligations incurred by the Corporate
Member as an underwriting member of the Society at any time
before the Termination Date and includes obligations to the
Society and the Trustees and obligations arising under:
(a) The byelaws regulations rules directions or other
requirements of the Society and
(b) any deed contract instrument or other arrangement of
any kind approved by the Society
but does not include obligations arising in respect of any
letter of credit guarantee or other security given to secure
the performance of any of the said underwriting obligations in
favour of the person giving such guarantee or other security
"long term insurance business" means long term business and
includes ordinary long term insurance business as defined in
the Insurance Companies Act 1982 (or any amendment or
re-enactment thereof)
"the managing agent" means the person for the time being
acting as the Corporate Member's managing agent in respect of
any part of the Corporate Member's underwriting business at
Lloyd's
"the Premiums Trust Deed" means the deed or any one of the
deeds referred to in recital (C) hereof and includes any
further such deed which may hereafter be executed by the
Corporate Member in addition thereto or substitution therefor
"the Premiums Trustees" means the trustees for the time being
of the Premiums Trust Deed
"the Premiums Trust Fund" means the fund of premiums and other
moneys held from time to time by or under the control of the
Premiums Trustees upon the trusts of the Premiums Trust Deed
"property" includes securities and all choses in action
whether the system by which they are recorded held and
transferred is based on written documents or on computer
records or on some combination of the two
"qualifying reserves" means, at any given time, the aggregate
value of any funds at Lloyd's maintained by the Corporate
Member otherwise than under this Deed in respect of its
insurance business other than long term insurance business,
such value being determined as at the most recent valuation
date applicable under the requirements of the Council relating
to funds at Lloyd's and being calculated in accordance with
those requirements
"requirements of the Council" means any requirement imposed by
any byelaw or regulation made under Lloyd's Acts 1871 to 1982,
any condition or requirement imposed or direction given under
any such byelaw or regulation, any direction given under
section 6 of Lloyd's Act 1982, any requirement imposed by or
under any undertaking given to the Society or to the Council
by the Corporate Member or the Covenantor and any other
requirement imposed or direction given by the Council under
Lloyd's Acts 1871 to 1982
"securities" includes shares stock and debentures of all
descriptions whether the system by which they are recorded
held and transferred is based on written documents or on
computer records or on some combination of the two
<PAGE>
<PAGE>
"Special Reserve Funds" means funds set up in accordance with
arrangements referred to in sections 452 to 456 of the Income
and Corporation Taxes Act 1988 or section 175 of, and Schedule
20 to, the Finance Act 1993 (or in each case any amendment or
re-enactment thereof) and the singular has a corresponding
meaning
"the Termination Date" means the 80th anniversary of the date
of this Deed (so that the perpetuity period applicable hereto
shall be 80 years)
"the Trustees" means the society and the other trustees for
the time being of the trusts hereby created and the singular
has a corresponding meaning
"the Trust Fund" means the letter of credit or guarantee
mentioned in recital (B) hereof and the Corporate Member's
covenant in clause 2(b) hereof and the full benefit of each of
them and all moneys or other property hereafter at any time
paid or transferred to or under the direct or indirect control
of the Trustees upon the trusts hereof and all accumulations
of income and the investments and other property hereafter for
the time being representing the same.
2. In consideration of the Corporate Member's admission as an
Corporate underwriting member of the society (or of the continuance of
Member's such membership) the Corporate member hereby:
Declaration
and (a) with the intention of establishing a binding trust
Covenant for the benefit of the Beneficiaries irrevocably
declares and directs that the Trust Fund shall
henceforth be held by the Trustees upon and with and
subject to the trusts powers and provisions set out
herein;
(b) covenants with the Trustees that if and whenever the
Trustees on or before the Termination Date serve on
the Corporate Member a written demand for the payment
of a sum on account of its funds at Lloyd's the
Corporate Member will within 30 days thereafter pay
such sum to the Trustees to be held by them upon the
trusts hereof
Provided that the Corporate Member's aggregate
liability hereunder shall be limited to the sum for
the time being required from the Corporate Member by
way of funds at Lloyd's less any qualifying reserves;
(c) covenants with the Trustees that as security for the
Corporate Member's foregoing obligation the Corporate
Member will procure that the Guarantor will:
(i) maintain in full force the letter of credit
or guarantee mentioned in recital (B)
hereof; and
(ii) from time to time so renew or extend the
said letter of credit or guarantee that it
shall at all times be valid and enforceable
for at least the next four years;
(d) covenants with the Trustees that whenever any sum is
paid to the Premiums Trustees or otherwise applied
under clause 5(b) hereof the Corporate Member will
thereafter (if so required by the Society) procure
that before any further payment is made to the
Corporate Member out of the future profits of the
Corporate Member's underwriting business at Lloyd's
there shall be paid to the Trustees out of such
profits sums equal in the aggregate to the sum so
paid or applied to be held by the Trustees as an
accretion to the Trust Fund; and
(e) by way of security for the performance of the
foregoing covenant charges the future profits of the
said business with payment of all sums from time to
time payable to the Trustees thereunder (subject to
any prior charge contained in the Premiums Trust
Deed)
<PAGE>
<PAGE>
and for that purpose and to that extent assigns the
said profits to the Trustees to hold upon the trusts
hereof.
3. The Trustees shall hold the Trust Fund upon trust that they
Trust to Sell may either allow the same or any part of it to remain as
or Retain actually invested so long as they think fit or may at their
discretion sell call in or convert into money the same or any
part of it and shall invest the moneys produced thereby and
any other capital moneys held upon the trusts hereof in any
investments hereby authorised with power to vary or transpose
any investments for others hereby authorised.
4. The Trustees shall stand possessed of the Trust Fund and the
Powers of income thereof:
Appointment
and (a) upon such trusts for the benefit of the Corporate
Determination Member or the Beneficiaries or any one or more of
them exclusive of the others in such shares and
subject to such terms and limitations and with such
discretionary trusts and powers exercisable by such
persons as the Society shall from time to time (for
the purpose for promoting the effective securing
of the Corporate Member's Lloyd's obligations or
the beneficial and convenient execution and
administration of the trusts hereof) by deed or
deeds revocable or irrevocable executed before the
Termination Date but without infringing the rule
against perpetuities appoint;
(b) upon trust if the Society shall at any time or times
before the Termination Date by deed declare that the
trusts hereby created are determined in respect of
the Trust Fund or any part of it to pay and transfer
the same to the Corporate Member absolutely.
5. In default of and subject to any such appointment or
Trusts declaration the Trustees shall hold the Trust Fund and its
income upon the following trusts:
(a) Until the Termination Date the income of the Trust
Fund shall be held upon and subject to the following
trusts and powers:
(i) subject as hereinafter provided upon trust
for the Corporate Member absolutely;
(ii) if and whenever the Trustees determine that
an event has occurred which brings into
operation any of the trusts or powers
contained in clause 5(b) hereof then
(subject to those trusts and powers) upon
trust to accumulate the subsequent income
and add it to the capital of the Trust Fund;
(iii) whenever the income is subject to
accumulation as aforesaid the Trustees may
at their discretion (exercisable in
accordance with the requirements of the
Council) by written instrument declare that
accumulation shall cease whereupon the
subsequent income shall be subject to all
the provisions of this clause 5(a);
(b) Until the Termination Date the Trust Fund and its
income shall be held upon and subject to the
following trusts or powers:
(i) if and whenever the Corporate Member shall
make default in respect of any of the
Corporate Member's Lloyd's obligations the
Trustees may apply the Trust Fund or its
income or any part thereof in discharging or
making good such default in such manner and
to such extent as the Trustees think fit
(whether by payment direct to the
Beneficiary affected reinsurance purchase of
claims or returns of premiums or otherwise);
(ii) if and whenever it appears to the Trustees
from a certificate or report of auditors
approved by the Council that either
<PAGE>
<PAGE>
(aa) insufficient assets are available in
the Premiums Trust Fund to meet the
Corporate Member's Lloyd's
obligations; or
(bb) the Corporate Member has sustained
on a closed underwriting account an
ascertained loss which has not been
funded;
The Trustees may pay or apply the Trust Fund
or its income or any part thereof in any
manner directed by the Premiums Trust Deed
for the payment or application of the
Premiums Trust Fund or may pay the same to
the Premiums Trustees as an accretion to the
Premiums Trust Fund;
(iii) if and whenever it shall be established to
the satisfaction of the Trustees that any
person (including the Society) has at any
time (with or without the knowledge and
consent of the Corporate Member) in good
faith applied moneys not belonging to the
Corporate Member in or towards the discharge
of any claim accepted by the managing agent
upon any contract of insurance underwritten
at Lloyd's by or on account of the Corporate
Member the Trustees may act under sub-clause
(b)(i) above as if the Corporate Member was
in default in respect of such claim and as
if the person so applying such moneys was a
Beneficiary;
(c) Subject as aforesaid the Trust Fund and its income
shall be held upon the following trusts:
(i) if before the Termination Date the Corporate
Member shall cease (for any reason
whatsoever) to be a person obliged under the
requirements of the Council maintain funds
at Lloyd's and it shall be established to
the satisfaction of the Trustees that all
the Corporate Member's Lloyd's obligations
have been discharged or otherwise finally
provided for the Trustees shall hold the
Trust Fund and its income upon trust for the
Corporate Member absolutely;
(ii) subject as aforesaid the Trustees shall at
the Termination Date pay and transfer the
Trust Fund and its income to the Premiums
Trustees as an accretion to the Premiums
Trust Fund and to be held by them upon the
trusts of the Premiums Trust Deed;
(d) Subject as aforesaid the Trust Fund and its income
shall be held upon trust for the Corporate Member
absolutely.
6. Notwithstanding anything hereinbefore contained:
Release and
Advancement (a) The Society may at any time or times before the
Termination Date:
(i) by deed release wholly or in part all or any
of the discretionary trusts or powers hereby
conferred on the Trustees in respect of the
whole or any part of the income or capital
of the Trust Fund; or
(ii) by written instrument release wholly or in
part all or any of the Corporate Member's
outstanding obligations under clause 2
hereof;
(b) Section 32 of the Trustee Act 1925 shall apply to the
Trust Fund but as if all the provisos in subsection
(1) were omitted.
7. Subject to the requirements of the Council:
Powers of
<PAGE>
<PAGE>
Investment (a) Moneys to be invested hereunder may be applied or
invested in the purchase of any investments or
property for the time being authorised by the Council
for the investment of Lloyd's Deposits (whether
producing income or not and whether properly
described as investments or not and whether or not
within the range of investments authorised by law for
the investment of trust funds);
(b) Securities comprised in the Trust Fund may be
deposited with or lent (with or without security) to
any incorporated company or building society or bank
or discount house or local or governmental authority
other than any of the following:
(i) the corporate Member itself;
(ii) any company which is an associate of the
Corporate Member for the purposes of section
435 of the Insolvency Act 1986 (or any
amendment or re-enactment thereof);
(iii) any other corporate member of the Society.
(c) Any part of the Trust Fund may be pooled with other
property held in the names or under the control of
the Trustees or of the Trustees jointly with other
trustees upon the trusts of other Lloyd's Deposits or
of Lloyd's Special Reserve Funds or Premiums Trust
Funds including the Premiums Trust Fund and may
accordingly be deposited or otherwise applied
together with such other sums and without any
obligation to keep them separate;
(d) Moneys may be invested in securities or property in
any part of the world which are recorded held and
transferred by an officially established or
officially regulated system which is based wholly or
partly on computer records (including in particular
the systems currently operated in the USA under the
names of the "Fedwire" and the Depository Trust
Company).
8. In the administration of the trusts hereof
the Trustees shall have the following powers
in addition
Other Powers to those conferred on them by law:
(a) Power to cause or permit the Trust Fund or
any part of it to be held in the name or
under the direct or indirect control of any
nominee approved for the purpose by the
Council (whether or not one of the Trustees
and whether resident within or outside the
United Kingdom) and to pay the remuneration
and expenses of such nominee out of the
capital or income of the Trust Fund;
(b) Power to participate (whether directly or indirectly
through one or more nominees) in any system for the
recording holding or transferring of securities or
any choses in action which is based wholly or partly
on computer records and which is officially
established or officially regulated in any part of
the world (including in particular any system for the
transfer of securities established by the Bank of
England and the Stock Exchange under the Stock
Transfer Act 1982) and including power (when
participating indirectly) to allow a nominee for the
purpose of such participation to mix property
comprised in the Trust Fund with other property held
by that nominee for that purpose;
(c) Power to exercise the voting powers conferred on them
as the holders of any securities from time to time
comprised in the Trust Fund and to concur in and make
any arrangements in connection with any
reconstruction amalgamation or winding up of any
<PAGE>
<PAGE>
company whose securities are so comprised as if the
Trustees were absolute owners beneficially entitled;
(d) Power to appropriate any investment or property from
time to time forming part of the Trust Fund in its
actual state of investment to or towards any share or
interest in the Trust Fund upon making such
valuations as the Trustees think fit and without
obtaining the consent of any person;
(e) Power at any time or times by revocable written
instrument to delegate to any person for any period
and in any manner and upon any terms (including power
for the delegate to sub-delegate) the exercise of any
of the administrative powers or discretions hereby
conferred on them without being liable for the acts
or defaults of any such delegate or sub-delegate or
for any loss to the Trust Fund resulting therefrom
the power at any time by written instrument to revoke
any such delegation, and in particular power so to
delegate their powers under clause 3 hereof to any
person who appears to them to be fit and proper and
who is an authorised or exempted person within the
meaning of the Financial Services Act 1986 (or any
amendment or re-enactment thereof);
(f) Power to raise and pay out of the Trust Fund (without
prejudice to their lien thereon) any taxes charges
expenses or other outgoings for which they may be
accountable or liable as Trustees hereof or otherwise
incurred by the Society or Trustees (in whatever
capacity) in connection with these presents or the
Corporate Member's membership of the Society or
anything done in connection therewith and in this
clause 8(f) "taxes" includes any liability of the
Trustees or the Society to pay to any person (whether
by way of indemnity or otherwise) any amount for or
on account of taxes however the rights of that person
against the Trustees or the Society may arise.
9. (a) Nothing herein contained shall
entitle any Beneficiary to receive
any account of the Trust
Accounts and Fund or its income unless the Trustees have decided
Apportionment to pay or apply some part thereof for his benefit and
have notified him of such decision in writing.
(b) All income of the Trust Fund shall be deemed to
accrue wholly on the date of receipt and shall not be
apportionable in respect of time.
10. (a) The Society shall be entitled to
remuneration for acting as a trustee
in accordance with
Society as terms and conditions prescribed by the requirements
Trustee of the Council.
(b) The Society may retain for its own benefit any fee
commission or share of commission to which it may
become entitled by reason of any deposit loan or
other investment or application of the Trust Fund or
any part of it made in the Society's name.
(c) In the professed execution of the trusts and powers
hereof neither the Society nor the Council nor the
Committee nor any other committee sub-committee or
body of persons nor any other agent employee or
person through or by which or whom the Society the
Council or the Committee may act shall in any
circumstances incur any liability to the Corporate
Member or to any Beneficiary for negligence.
11. (a) The statutory power of appointing
new Trustees shall apply to the
trusts hereby
Trustees created and shall at all times be vested in the
Society.
<PAGE>
<PAGE>
(b) The Society may at any time by deed remove any
Trustee (but shall not remove a sole Trustee without
appointing at least one other in his place).
(c) A corporation may be appointed as Trustee or
custodian trustee whether or not it is within the
statutory definition of trust corporation.
(d) A trust corporation shall be entitled to remuneration
for its services in accordance with its normal
published terms from time to time and any other
Trustee (including a corporation) engaged in any
profession or business shall be entitled to be paid
all usual professional or proper charges for business
transacted time expended and acts done by him or any
partner or employee of his in connection with the
trusts hereof including acts which a trustee not
being in any profession or business could have done
personally.
(e) Any individual Trustee may act as an officer or
employee of any company whose securities are
comprised in the Trust Fund or of any subsidiary of
any such company and may retain for himself any
remuneration which he may receive as such officer or
employee notwithstanding that any votes or other
rights attached to any such securities may have been
instrumental either alone or in conjunction with
other matters or by reason of their non-exercise in
procuring or continuing for him his position as such
officer or employee or that his qualification for any
such position may be constituted wholly or partly by
the holding of such securities.
(f) In the professed execution of the trusts and powers
hereof no Trustee (including the Society) shall be
liable for any loss to the Trust Fund arising by
reason of any improper investment made in good faith
or the negligence or fraud of any delegate or agent
appointed or employed by him or by any other Trustee
(although such appointment or employment was not
strictly necessary or expedient) or by reason of any
mistakes or omissions made in good faith by any
Trustee or by reason of any other matter or thing
except wilful and individual wrongdoing on the part
of the Trustee who is sought to be made so liable.
12. (a) This Deed shall be read and
construed and take effect in all
respects in accordance with
English Law English law.
(b) The parties hereto irrevocably and unconditionally
submit for all purposes of and in connection with the
Deed to the exclusive jurisdiction of the English
Courts.
13. The marginal notes herein contained are for
reference only and shall not control the
meaning or
Marginal effect of this Deed.
Notes
IN WITNESS whereof the parties hereto have duly executed this
instrument as a deed the day and year first before written
EXECUTED AS A DEED AND
DELIVERED BY PXRE LIMITED
acting by
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/s/ Gerald L. Radke
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Director
/s/ Sanford M. Kimmel
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Director/Secretary
The common Seal of Lloyd's was hereunto affixed in
the presence of [SEAL]
Authorised Signatory
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EXHIBIT 10.35
OPERATING AGREEMENT
BY AND AMONG
CAT BOND INVESTORS, L.L.C.
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
AND
PXRE CORPORATION
EFFECTIVE AS OF JUNE 9, 1997
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TABLE OF CONTENTS
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ARTICLE 1 DEFINITIONS...................................................................................1
Section 1.1. Affiliate............................................................................1
Section 1.2. Arbitration..........................................................................2
Section 1.3. Arbitration Notice...................................................................2
Section 1.4. Available Member's Interest..........................................................2
Section 1.5. Budget...............................................................................2
Section 1.6. Business Day.........................................................................2
Section 1.7. Business Plan........................................................................2
Section 1.8. Buy/Sell Offer.......................................................................2
Section 1.9. Capital Account......................................................................2
Section 1.10. Capital Contribution.................................................................2
Section 1.11. Catastrophe Bonds....................................................................2
Section 1.12. Certificate..........................................................................2
Section 1.13. Code.................................................................................2
Section 1.14. Company..............................................................................2
Section 1.15. Company Notice.......................................................................2
Section 1.16. Company Option.......................................................................3
Section 1.17. Company Option Period................................................................3
Section 1.18. Confidential Material................................................................3
Section 1.19. Designated Investment................................................................3
Section 1.20. Dispute..............................................................................3
Section 1.21. Distribution.........................................................................3
Section 1.22. Electing Member......................................................................3
Section 1.23. Exercising Member....................................................................3
Section 1.24. Fiscal Year..........................................................................3
Section 1.25. Initial Capital Contribution.........................................................3
Section 1.26. Interest.............................................................................3
Section 1.27. Interested Person....................................................................3
Section 1.28. IRS..................................................................................3
Section 1.29. LLC Act..............................................................................4
Section 1.30. Majority in Interest of the Members..................................................4
Section 1.31. Member...............................................................................4
Section 1.32. Member Option Period.................................................................4
Section 1.33. Net Profits..........................................................................4
Section 1.34. Net Losses...........................................................................4
Section 1.35. Non-selling Members..................................................................4
Section 1.36. Notice of Election...................................................................4
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Section 1.37. Notice of Offer......................................................................4
Section 1.38. Offer................................................................................4
Section 1.39. Operating Agreement..................................................................4
Section 1.40. PDPC Fees............................................................................4
Section 1.41. Percentage Interest..................................................................4
Section 1.42. Person...............................................................................4
Section 1.43. Purchase Option......................................................................4
Section 1.44. Regulation or Regulations............................................................5
Section 1.45. Regulatory Allocations...............................................................5
Section 1.46. Securities Act.......................................................................5
Section 1.47. Selling Member.......................................................................5
Section 1.48. Special Interest.....................................................................5
Section 1.49. Supermajority in Interest of the Members.............................................5
Section 1.50. TMP..................................................................................5
Section 1.51. Total Commitment.....................................................................5
Section 1.52. Transfer or Transferred..............................................................5
ARTICLE 2 THE COMPANY AND ITS BUSINESS..................................................................5
Section 2.1. Formation............................................................................5
Section 2.2. Company Name.........................................................................5
Section 2.3. Business.............................................................................6
Section 2.4. Term.................................................................................6
Section 2.5. Registered Agent and Office..........................................................6
Section 2.6. Other Offices........................................................................6
Section 2.7. Fiscal Year..........................................................................6
Section 2.8. Members..............................................................................6
ARTICLE 3 MANAGEMENT OF COMPANY BUSINESS;
POWERS OF MEMBERS.............................................................................7
Section 3.1. Management and Control...............................................................7
Section 3.2. Personal Liability...................................................................7
Section 3.3. Interested Members...................................................................7
Section 3.4. Supermajority Voting Requirements....................................................8
Section 3.5. Disposition of Designated Investments................................................9
ARTICLE 4 OFFICERS......................................................................................9
Section 4.1. Officers.............................................................................9
Section 4.2. Election, Term of Office and Resignations...........................................10
Section 4.3. Subordinate Officers, Committees and Agents.........................................10
Section 4.4. Removal of Officers and Agents......................................................10
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Section 4.5. Vacancies...........................................................................11
Section 4.6. Authority and Duties of Officers....................................................11
Section 4.7. The General Managers................................................................11
Section 4.8. The Managers........................................................................11
Section 4.9. The Secretary.......................................................................11
Section 4.10. The Treasurer.......................................................................11
Section 4.11. Salaries............................................................................11
ARTICLE 5 CAPITAL CONTRIBUTIONS........................................................................12
Section 5.1. Total Commitments...................................................................12
Section 5.2. Initial Capital Contributions.......................................................12
Section 5.3. Additional Capital Contributions....................................................12
Section 5.4. No Interest on Capital Contributions................................................12
Section 5.5. Return of Capital Contributions.....................................................13
Section 5.6. Additional Members..................................................................13
Section 5.7. Special Interests...................................................................13
ARTICLE 6 CAPITAL ACCOUNTS; ALLOCATIONS................................................................13
Section 6.1. Capital Accounts....................................................................13
Section 6.2. General Allocations of Net Profits and Net Losses...................................14
Section 6.3. Special Allocations.................................................................15
Section 6.4. Profits and Losses from Designated Investments......................................18
ARTICLE 7 DISTRIBUTIONS TO MEMBERS.....................................................................18
Section 7.1. Distributions.......................................................................18
Section 7.2. Distributions Respecting a Special Interest.........................................18
ARTICLE 8 MEMBERSHIP STRUCTURE.........................................................................19
Section 8.1. Admission of Members................................................................19
Section 8.2. Classes and Rights; Member List.....................................................19
ARTICLE 9 MEETINGS OF AND VOTING BY MEMBERS............................................................20
Section 9.1. Annual and Regular Meetings.........................................................20
Section 9.2. Special Meetings....................................................................20
Section 9.3. Waiver of Notice....................................................................20
Section 9.4. Quorum and Voting...................................................................20
Section 9.5. Action Without a Meeting............................................................20
ARTICLE 10 TRANSFER OF INTERESTS AND WITHDRAWALS OF MEMBERS.............................................21
Section 10.1. Limitations on Transfers of Memberships............................................21
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Section 10.2. Permitted Transfers.................................................................21
Section 10.3. Compliance with Additional Requirements.............................................22
Section 10.4. Reasonableness of Limitations.......................................................22
Section 10.5. No Transfer of Special Interests....................................................22
ARTICLE 11 FINANCIAL, TAX AND OTHER MATTERS.............................................................23
Section 11.1. Business Transactions of Member with the Company....................................23
Section 11.2. Liability to Third Parties..........................................................23
Section 11.3. Budget and Business Plan............................................................23
Section 11.4. Access to Information; Records......................................................24
Section 11.5. Checks..............................................................................24
Section 11.6. Contracts...........................................................................25
Section 11.7. Deposits............................................................................25
Section 11.8. Tax Matters Partner.................................................................25
Section 11.9. Tax Returns.........................................................................26
Section 11.10. Elections...........................................................................27
Section 11.11. Appointment of Accountants and Legal Counsel........................................27
Section 11.12. Notice of Regulatory Inquiries, etc.................................................27
ARTICLE 12 INDEMNIFICATION OF OFFICERS AND
OTHER AUTHORIZED REPRESENTATIVES.............................................................27
Section 12.1. Scope of Indemnification............................................................27
Section 12.2. Proceedings Initiated by Indemnified Representatives................................29
Section 12.3. Advancing Expenses..................................................................29
Section 12.4. Securing of Indemnification Obligations.............................................29
Section 12.5. Payment of Indemnification..........................................................29
Section 12.6. Contribution........................................................................30
Section 12.7. Mandatory Indemnification of Members, Officers, etc.................................30
Section 12.8. Contract Rights; Amendment or Repeal................................................30
Section 12.9. Scope of Article....................................................................30
Section 12.10. Reliance on Provisions..............................................................30
Section 12.11. Interpretation......................................................................30
ARTICLE 13 DISSOLUTION..................................................................................30
Section 13.1. Dissolution.........................................................................30
Section 13.2. Events of Bankruptcy of Member......................................................31
Section 13.3. Judicial Dissolution................................................................31
Section 13.4. Winding Up..........................................................................32
Section 13.5. Distributions Upon Dissolution and Termination......................................32
Section 13.6. Cancellation of Certificate.........................................................32
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ARTICLE 14 DISPUTE RESOLUTION...........................................................................33
Section 14.1. Arbitration.........................................................................33
Section 14.2. Buy/Sell Arrangement................................................................33
ARTICLE 15 CONFIDENTIALITY..............................................................................34
Section 15.1. Confidentiality.....................................................................34
ARTICLE 16 MISCELLANEOUS................................................................................35
Section 16.1. Further Assurances..................................................................35
Section 16.2. Amendments..........................................................................35
Section 16.3. Representations and Warranties of the Members.......................................35
Section 16.4. Jurisdiction; Service of Process....................................................36
Section 16.5. Waiver Of Jury Trial; Remedies......................................................36
Section 16.6. Notices.............................................................................37
Section 16.7. Counterparts........................................................................38
Section 16.8. Governing Law.......................................................................38
Section 16.9. Successors and Assigns..............................................................38
Section 16.10. Construction; etc...................................................................38
Section 16.11. Entire Agreement....................................................................38
Section 16.12. No Right to Partition...............................................................38
Exhibit A -- Members
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OPERATING AGREEMENT
OF
CAT BOND INVESTORS, L.L.C.
(a Delaware Limited Liability Company)
This OPERATING AGREEMENT, effective as of June 9, 1997, by and among
CAT BOND INVESTORS, L.L.C., a Delaware limited liability company (the
"Company"), PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY, a New York mutual
insurance company ("PHL") and PXRE CORPORATION, a Delaware corporation ("PXRE"),
PHL and PXRE being the initial members of the Company and this Operating
Agreement being the "limited liability company agreement" of the Company under
the Delaware Limited Liability Company Act, 6 Del. C. 'SS' 18-101 et seq., as
amended, or any successor statute (the "LLC Act").
W I T N E S S E T H :
WHEREAS, PHL and PXRE have agreed to organize and operate a limited
liability company to serve as a fund, and to serve as a general partner and/or
managing member of other entities organized, to hold, sell, trade and otherwise
invest in securities and other financial instruments, all in accordance with the
terms and subject to the conditions set forth in this Operating Agreement;
WHEREAS, the Certificate of Formation of the Company (the
"Certificate") was filed in the office of the Secretary of State of the State of
Delaware on June 9, 1997; and
WHEREAS, PHL and PXRE wish to set forth certain matters with respect to
the conduct of the affairs of the Company.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which the parties hereby acknowledge, the parties, intending to
be legally bound, agree as follows:
ARTICLE 1
DEFINITIONS
Section 1.1. "Affiliate" means, with respect to any Person, any Person
directly or indirectly controlling, controlled by, or under common control with,
such first Person. For purposes of this definition, "control" (including, with
its correlative meanings, the terms
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"controlled" and "under common control with"), as used with respect to any
Person, shall mean the right, directly or indirectly, to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of securities, by contract, or otherwise.
Section 1.2. "Arbitration" has the meaning ascribed thereto in Section
14.1 hereof.
Section 1.3. "Arbitration Notice" has the meaning ascribed thereto in
Section 14.1 hereof.
Section 1.4. "Available Member's Interest" has the meaning ascribed
thereto in Section 10.2(a) hereof.
Section 1.5. "Budget" has the meaning ascribed thereto in Section
11.3(c) hereof.
Section 1.6. "Business Day" means any day excluding Saturday, Sunday,
and any day that is a legal holiday under the laws of the United States of
America or the State of Delaware, or is a day on which banking institutions
located in such State are authorized or required by law or other governmental
action to close.
Section 1.7. "Business Plan" has the meaning ascribed thereto in
Section 11.3(c) hereof.
Section 1.8. "Buy/Sell Offer" has the meaning ascribed thereto in
Section 14.2(a) hereof.
Section 1.9. "Capital Account" has the meaning ascribed thereto in
Section 6.1(a) hereof.
Section 1.10. "Capital Contribution" means the amount of cash
contributed by a Member to the Company, including the amount of the Company's
liabilities that are assumed by the Member (other than liabilities secured by
property distributed to the Member by the Company or to which such property is
subject and other than increases in the Member's share of the Company's
liabilities), and the fair market value of any other property contributed by the
Member to the Company (net of liabilities secured by the property or to which
the property is subject).
Section 1.11. "Catastrophe Bonds" has the meaning ascribed thereto in
Section 3.4(b) hereof.
Section 1.12. "Certificate" has the meaning ascribed thereto in the
Recitals hereof.
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Section 1.13. "Code" means the United States Internal Revenue Code of
1986, as amended from time to time, or any successor statute.
Section 1.14. "Company" has the meaning ascribed thereto in the heading
of this Operating Agreement.
Section 1.15. "Company Notice" has the meaning ascribed thereto in
Section 10.2(b) hereof.
Section 1.16. "Company Option" has the meaning ascribed thereto in
Section 10.2(b) hereof.
Section 1.17. "Company Option Period" has the meaning ascribed thereto
in Section 10.2(b) hereof.
Section 1.18. "Confidential Material" has the meaning ascribed thereto
in Section 15.1 hereof.
Section 1.19. "Designated Investment" has the meaning ascribed thereto
in Section 5.7 hereof.
Section 1.20. "Dispute" has the meaning ascribed thereto in Section
14.1 hereof.
Section 1.21. "Distribution" means the amount of cash distributed by
the Company to a Member, including the amount of such Member's liabilities that
are assumed by the Company (other than liabilities secured by property
contributed to the Company by the Member or to which such property is subject
and other than decreases in such Member's share of Company liabilities), and the
fair market value of other property distributed by the Company to the Member
(net of liabilities secured by the property or to which the property is
subject).
Section 1.22. "Electing Member" has the meaning ascribed thereto in
Section 14.2(a) hereof.
Section 1.23. "Exercising Member" has the meaning ascribed thereto in
Section 14.2(a) hereof.
Section 1.24. "Fiscal Year" has the meaning ascribed thereto in Section
2.7 hereof.
Section 1.25. "Initial Capital Contribution" means, with respect to
each member, the amount of cash and any other property to be contributed by such
Member to the Company upon the execution of this Operating Agreement, as set
forth opposite such Member's name under the heading "Initial Capital
Contribution" on Exhibit A hereto.
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Section 1.26. "Interest" means, with respect to each Member, its
ownership interest in the Company, excluding any Special Interest of such
Member.
Section 1.27. "Interested Person" has the meaning ascribed thereto in
Section 3.3(a) hereof.
Section 1.28. "IRS" has the meaning ascribed thereto in Section 11.8(c)
hereof.
Section 1.29. "LLC Act" has the meaning ascribed thereto in the heading
of this Operating Agreement.
Section 1.30. "Majority in Interest of the Members" means Members whose
Percentage Interests represent more than 50% of the Percentage Interests of all
Members.
Section 1.31. "Member" means each Person identified as such on the
signature pages to this Operating Agreement (i.e., initially PHL and PXRE) and
any Person who subsequently is admitted as a Member of the Company.
Section 1.32. "Member Option Period" has the meaning ascribed thereto
in Section 10.2(c) hereof.
Section 1.33. "Net Profits" has the meaning ascribed thereto in Section
6.2(b) hereof.
Section 1.34. "Net Losses" has the meaning ascribed thereto in Section
6.2(b) hereof.
Section 1.35. "Non-selling Members" has the meaning ascribed thereto in
Section 10.2(a) hereof.
Section 1.36. "Notice of Election" has the meaning ascribed thereto in
Section 14.2(a) hereof.
Section 1.37. "Notice of Offer" has the meaning ascribed thereto in
Section 10.2(a) hereof.
Section 1.38. "Offer" has the meaning ascribed thereto in Section
10.2(a) hereof.
Section 1.39. "Operating Agreement" means this Operating Agreement,
including all exhibits and schedules hereto, each as may be amended from time to
time.
Section 1.40. "PDPC Fees" has the meaning ascribed thereto in Section
6.3(g) hereof.
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Section 1.41. "Percentage Interest" means, with respect to each Member,
the percentage set forth under the heading "Percentage Interest" on Exhibit A
hereto, as the same may be amended from time to time.
Section 1.42. "Person" means and includes any individual, corporation,
partnership, association, limited liability company, trust, estate, or other
entity.
Section 1.43. "Purchase Option" has the meaning ascribed thereto in
Section 10.2(c) hereof.
Section 1.44. "Regulation" or "Regulations" means one or more of the
Treasury Regulations, including any temporary regulations, from time to time
promulgated under the Code.
Section 1.45. "Regulatory Allocations" has the meaning ascribed thereto
in Section 6.3(g) hereof.
Section 1.46. "Securities Act" means the Securities Act of 1933, as
amended.
Section 1.47. "Selling Member" has the meaning ascribed thereto in
Section 10.2(a) hereof.
Section 1.48. "Special Interest" has the meaning ascribed thereto in
Section 5.7 hereof.
Section 1.49. "Supermajority in Interest of the Members" means Members
whose Percentage Interests represent more than 75% of the Percentage Interests
of all Members.
Section 1.50. "TMP" has the meaning ascribed thereto in Section 11.8
hereof.
Section 1.51. "Total Commitment" means, with respect to each Member,
the amount set forth opposite such Member's name under the heading "Total
Commitment" on Exhibit A hereto, as such exhibit may be amended from time to
time.
Section 1.52. "Transfer" or "Transferred" means, with respect to an
Interest, a sale, transfer, assignment, pledge, hypothecation, or other
disposition of any nature of such Interest or any beneficial interest therein.
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ARTICLE 2
THE COMPANY AND ITS BUSINESS
Section 2.1. Formation. The Members have formed the Company pursuant to
the provisions of the LLC Act and this Operating Agreement.
Section 2.2. Company Name. The name of the Company shall be Cat Bond
Investors, L.L.C. All properties of the Company shall be held, all contracts
shall be made, all instruments and documents shall be executed, and all acts of
the Company shall be done in the name of Cat Bond Investors, L.L.C. The Company
shall have the full and exclusive ownership of and right to use the Company
name. At no time during the existence of the Company, as between the Members and
for the purpose of determining the Capital Account of any Member, shall any
value be placed upon the Company's name, the right to its use, or to any
goodwill attached thereto.
Section 2.3. Business. The purpose of the Company is (i) to serve as a
fund to hold, sell, trade and otherwise invest in securities and other financial
instruments of any name and nature which exist now or are hereafter created and
rights and options relating thereto, (ii) to serve as the general partner of one
or more limited partnerships, and/or as the managing member of one or more
limited liability companies, organized to hold, sell, trade and otherwise invest
in securities and other financial instruments of any name and nature which exist
now or are hereafter created and rights and options related thereto, and (iii)
subject to the terms of this Operating Agreement, to carry on such other lawful
business, purpose, or activity (with the exception of transacting the business
of insurance as defined in 'SS' 102 and 'SS' 103 of Title 18 of the Delaware
Code, or banking as defined in 'SS'126 of Title 8 of the Delaware Code) as the
Members may from time to time determine. Subject to the terms of this Operating
Agreement, the Company shall possess and may exercise all the powers and
privileges granted by the LLC Act or by any other law, together with any powers
incidental thereto, so far as such powers and privileges are necessary or
convenient to the conduct, promotion, or attainment of the business, purposes,
or activities of the Company. The Company shall apply for, obtain and maintain
in effect such licenses and authorizations as may be required for the conduct of
its business.
Section 2.4. Term. The Company commenced on the date of the filing of
its Certificate with the office of the Secretary of State of the State of
Delaware. The Company shall continue until terminated as hereinafter provided in
Article 13.
Section 2.5. Registered Agent and Office. The registered agent for
service of process and the registered office of the Company in the State of
Delaware shall be The Corporation Trust Company, 1209 Orange Street, Wilmington,
Delaware 19801, until otherwise established by an amendment to the Certificate
filed with the Secretary of State of Delaware in the manner provided by law.
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Section 2.6. Other Offices. The Company may also have offices at such
other places within or without the State of Delaware as the Members may from
time to time appoint or the business of the Company may require.
Section 2.7. Fiscal Year. The fiscal year ("Fiscal Year") of the
Company shall be the calendar year.
Section 2.8. Members. The name, present mailing address and facsimile
number, taxpayer identification number, Total Commitment, Initial Capital
Contribution, and Percentage Interest of each Member are set forth on Exhibit A
hereto.
ARTICLE 3
MANAGEMENT OF COMPANY BUSINESS; POWERS OF MEMBERS
Section 3.1. Management and Control. The Members shall have full and
complete charge of all affairs of the Company, and management and control of the
operations of the Company shall be vested exclusively in the Members, who shall
have the power, on behalf of and in the name of the Company, to carry out any
and all of the purposes of the Company and to perform all acts and enter into
and perform all contracts and other undertakings which the Members may deem
necessary or advisable in furtherance thereof or incidental thereto. Any Member
may at any time and from time to time designate one or more Persons to represent
and act on behalf of such Member at any meeting of the Members and in any other
matters relating to the Company, its business and affairs. Members shall have
access to the Company's premises, properties, books, records, employees, agents,
business contacts, and banking records, including without limitation, records
maintained by the Company's banks.
Section 3.2. Personal Liability. A Member shall not be personally
liable, as such, for monetary damages, including, without limitation, any
judgment, amount paid in settlement, penalty, punitive damages, or expense of
any nature (including, without limitation, attorneys' fees and disbursements),
for any action taken, or any failure to take any action, unless (i) the Member
has breached or failed to perform the duties of his position under the LLC Act,
the Certificate, or this Operating Agreement; and (ii) the breach or failure to
perform constitutes self-dealing, willful misconduct, or recklessness. The
provisions of the preceding sentence shall not apply to the responsibility or
liability of a Member pursuant to any criminal statute.
Section 3.3. Interested Members.
(a) Subject to Section 3.4, a contract or transaction
between the Company and one or more of its Members or officers or between the
Company and another limited liability company, corporation, partnership, joint
venture, trust, or other enterprise in which one or more
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of its Members or officers are members, shareholders, directors, or officers or
have a financial or other interest (any such Member or officer being an
"Interested Person"), shall not be void or voidable solely for that reason, or
solely because such Interested Person is present at or participates in the
meeting of the Members that authorizes the contract or transaction, or solely
because its votes are counted for that purpose, if (i) the material facts as to
its relationship or interest and as to the contract or transaction are disclosed
or are known to the Members entitled to vote thereon and the contract or
transaction is specifically approved in good faith by vote of those Members; or
(ii) the contract or transaction is fair as to the Company as of the time it is
authorized, approved, or ratified by the Members.
(b) Interested Persons may be counted in determining the
presence of a quorum at a meeting of the Members which authorizes a contract or
transaction as specified in subsection (a) above.
Section 3.4. Supermajority Voting Requirements. Notwithstanding
anything to the contrary in this Operating Agreement, no Member and no officer
shall, unless approved by a Supermajority in Interest of the Members, undertake
on behalf of the Company any of the following:
(a) Approving the Budget and Business Plan or any material
modification thereof, including incurring any obligations or making any
expenditures not provided for in the Budget or the Business Plan in
excess of $10,000 in any one case or $100,000 in the aggregate in any
Fiscal Year.
(b) Investing the Company's funds in, or liquidating the
Company's holdings of, securities and other financial instruments the
returns on which are determined, in whole or in part, by insured losses
from catastrophic events (collectively, "Catastrophe Bonds").
(c) Incurring any indebtedness for borrowed money from any
source, including any Member, or guaranteeing or securing any
obligations of another Person except indebtedness and guarantees in the
ordinary course of the Company's business (including, but not limited
to, margin arrangements).
(d) Lending or advancing any funds or other assets of the
Company other than in connection with investment transactions.
(e) Mortgaging or pledging or otherwise encumbering any
assets or rights of the Company, except encumbrances in the ordinary
course of the Company's business (including, without limitation, in
connection with margin arrangements).
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(f) Initiating, compromising, settling, or confessing of
judgment with respect to any arbitral or legal proceedings in each
instance involving more than $10,000 in dispute.
(g) Making any Distributions of cash or other property from
the Company to the Members (other than Distributions in respect of
Special Interests).
(h) Taking any action with respect to any acquisition of all
or substantially all of the stock, properties or assets of another
Person, any merger, consolidation, reorganization, recapitalization or
similar transaction involving the Company, or any sale, lease, exchange
or other disposition of all or substantially all of the properties or
assets of the Company.
(i) Engaging in transactions or entering into agreements
with one or more Members or any Affiliate thereof or in which one or
more Members or any of their respective Affiliates has a material
economic interest.
(j) Altering the Company's Fiscal Year.
(k) Admitting additional Members to the Company or
permitting any Member to acquire a Special Interest.
(l) Exercising the Company Option.
(m) Initiating or participating as intervenor in proceedings
contemplated by Section 12.2 hereof.
(n) Amending this Operating Agreement.
(o) Taking any action that would cause the Company to be
classified as an "investment company" within the meaning of the U.S.
Investment Company Act of 1940, as amended, or to be classified as a
"commodity pool" under the U.S. Commodity Exchange Act, or the rules
and regulations promulgated thereunder.
(p) Engaging in the issuance and distribution of any
promotional or presentational materials or press releases regarding the
activities of the Company.
(q) Organizing, or causing to be organized, any limited
partnership of which the Company will serve as a general partner or any
limited liability company of which the Company will serve as the
managing member.
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Section 3.5. Disposition of Designated Investments. Notwithstanding
anything to the contrary in this Operating Agreement, the Company may not sell,
transfer or otherwise dispose of a Designated Investment without the consent of
the Member holding the Special Interest relating to such Designated Investment.
ARTICLE 4
OFFICERS
Section 4.1. Officers.
(a) Without limiting the provisions of Article 3, the
following officers of the Company may be elected by the Members: one or more
General Managers, one or more Managers, a Secretary, and a Treasurer. Officers
may, but need not be, Members (or representatives of Members) of the Company.
Any number of offices except those of General Manager and Secretary may be held
by the same Person.
(b) The Company may secure the fidelity of any or all of its
officers by bond or otherwise.
(c) An officer of the Company shall not be personally
liable, as such, to the Company or its Members for monetary damages, including,
without limitation, any judgment, amount paid in settlement, penalty, punitive
damages, or expense of any nature (including, without limitation, attorneys'
fees and disbursements) for any action taken, or any failure to take any action,
unless the officer has breached or failed to perform the duties of his office
under the Certificate, this Operating Agreement, or the applicable provisions of
law and the breach or failure to perform constitutes self-dealing, willful
misconduct, or recklessness. The provisions of this subsection shall not apply
to the responsibility or liability of an officer pursuant to any criminal
statute.
Section 4.2. Election, Term of Office and Resignations.
(a) Unless otherwise determined by the Members, the officers
of the Company, except those elected by delegated authority pursuant to Section
4.3, shall be elected by the Members at the annual meeting of the Members and,
unless otherwise determined by the Members, shall be elected to hold office
until the next annual meeting of the Members. Each officer shall hold office for
the term for which he is elected and until a successor has been selected and
qualified or until his earlier death, incapacity, resignation, or removal.
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(b) Any officer may resign at any time upon written notice
to the Company. The resignation shall be effective upon receipt thereof by the
Company or at such subsequent time as may be specified in the notice of
resignation.
Section 4.3. Subordinate Officers, Committees and Agents. The Members
may from time to time elect such other officers and appoint such committees,
employees, or other agents as the business of the Company may require
(including, without limitation, one or more Assistant Secretaries or Assistant
Treasurers), each of whom shall hold office for such period, have such
authority, and perform such duties as are provided in this Operating Agreement,
or as the Members may from time to time determine. The Members may delegate to
any officer or committee the power to elect subordinate officers and to retain
or appoint employees or other agents, or committees thereof, and to prescribe
the authority and duties of such subordinate officers, committees, employees, or
other agents.
Section 4.4. Removal of Officers and Agents. Any officer or agent of
the Company may be removed by the Members with or without cause. The removal
shall be without prejudice to the contract rights, if any, of any Person so
removed. Election or appointment of an officer or agent shall not of itself
create contract rights.
Section 4.5. Vacancies. A vacancy in any office because of death,
incapacity, resignation, removal, disqualification, or any other cause, may be
filled by the Members.
Section 4.6. Authority and Duties of Officers. The officers of the
Company shall have such authority, and shall exercise such powers and perform
such duties as may be specified in this Operating Agreement.
Section 4.7. The General Managers. The General Managers shall be the
co-chief executive officers of the Company, each having general supervision over
the business and operations of the Company, subject however to the control of
the Members. Each General Manager shall have authority to sign, execute, and
acknowledge, in the name of the Company, deeds, mortgages, bonds, contracts, or
other instruments, authorized by the Members, except in cases where the signing
and execution thereof shall be expressly delegated by the Members or by this
Operating Agreement to some other officer or agent of the Company; and, in
general, each General Manager shall perform all duties incident to the office of
General Manager and such other duties as from time to time may be assigned by
the Members.
Section 4.8. The Managers. The Managers shall perform the duties of the
General Managers in the absence of the General Managers and such other duties as
may from time to time be assigned to them by the Members or any General Manager.
Section 4.9. The Secretary. The Secretary or an Assistant Secretary
shall attend all meetings of the Members and shall record all the votes of the
Members and the minutes of the
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meetings of the Members in a book or books to be kept for that purpose; shall
see that notices are given and that records and reports are properly kept and
filed by the Company as required by law; and, in general, shall perform all
duties incident to the office of Secretary, and such other duties as may from
time to time be assigned by the Members or any General Manager.
Section 4.10. The Treasurer. The Treasurer or an Assistant Treasurer
shall have or provide for the custody of the funds or other property of the
Company; shall collect and receive or provide for the collection and receipt of
moneys earned by or in any manner due to or received by the Company; shall
deposit all funds in his custody as Treasurer in such banks or other places of
deposit as the Members may from time to time designate; shall, whenever so
required by the Members, render an account showing all transactions as
Treasurer, and the financial condition of the Company; and, in general, shall
discharge such other duties as may from time to time be assigned by the Members
or any General Manager.
Section 4.11. Salaries. The salaries, if any, of the officers elected
by the Members shall be fixed from time to time by the Members or by such
officer as may be designated by resolution of the Members. The salaries or other
compensation of any other officers, employees and other agents shall be fixed
from time to time by the officer or committee to which the power to elect such
officers or to retain or appoint such employees or other agents has been
delegated pursuant to Section 4.3. No officer shall be prevented from receiving
such salary or other compensation by reason of the fact that the officer is also
a Member (or a representative of a Member) of the Company.
ARTICLE 5
CAPITAL CONTRIBUTIONS
Section 5.1. Total Commitments. The Total Commitment of each Member is
set forth under the heading "Total Commitment" on Exhibit A hereto. The Total
Commitments of all Members shall aggregate $20 million. A Member's Total
Commitment represents the maximum amount of Capital Contributions that such
Member may be directed to make pursuant to this Operating Agreement; provided,
however, that any Capital Contribution made in connection with the acquisition
of a Special Interest by a Member pursuant to Section 5.7 hereof shall not be
counted against such Member's Total Commitment.
Section 5.2. Initial Capital Contributions. Upon the execution of this
Operating Agreement, the Members shall contribute to the Company cash and
securities in the amounts respectively set forth under the heading "Initial
Capital Contribution" on Exhibit A hereto. The Members agree that the
contributed securities described on Exhibit A as "USAA Bond" have a fair market
value equal to their principal amount.
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Section 5.3. Additional Capital Contributions. Upon at least three (3)
business days' written notice from the Company, each Member will make a Capital
Contribution to the Company (by making payment to an account designated from
time to time by the Company) in an amount equal to the product of (x) the
aggregate amount of the Capital Contributions being requested at such time and
(y) such Member's Percentage Interest; provided, that no Member shall be
required to make any such Capital Contribution if, after giving effect thereto,
the total of all Capital Contributions by such Member (excluding any Capital
Contributions made in connection with the acquisition of a Special Interest)
would exceed its Total Commitment. The Company may direct Members to make
additional Capital Contributions to the Company in connection with proposed
investments in Cat Bonds or other securities, to pay any expenses incurred by
the Company or otherwise as deemed necessary or appropriate by the officers of
the Company, subject to the provisions of Section 3.4 hereof.
Section 5.4. No Interest on Capital Contributions. The Members shall
not be paid interest on their Capital Contributions.
Section 5.5. Return of Capital Contributions. Except as otherwise
expressly provided in this Operating Agreement, (i) no Member shall have the
right to demand the return of all or any part of any Capital Contribution until
the Company has been liquidated and terminated, and then only to the extent
provided in Article 13 hereof and (ii) no Member shall have the right to demand
or receive property other than cash in return for its Capital Contributions or
to have priority over another Member, either as to the return of Capital
Contributions or as to Net Profits, Net Losses, or Distributions, or as to
compensation by way of income.
Section 5.6. Additional Members. Upon the affirmative vote of a
Supermajority in Interest of the Members, the Company may accept capital
subscriptions from other Persons and admit such other Persons as Members
hereunder with an agreed upon Percentage Interest, subject to Section 8.1(b)
hereof.
Section 5.7. Special Interests. From time to time, subject to Section
3.4 hereof, a Member may acquire an additional membership interest in the
Company without voting rights and with only such other rights as hereinafter
described (a "Special Interest"). In the event that, in connection with a
proposed investment by the Company in a specified Catastrophe Bond, the Company
believes that it will be able to acquire a greater amount of such Catastrophe
Bond than it has initially determined to acquire, a Member may request, subject
to receipt of the approval required by Section 3.4 hereof, that it be issued a
Special Interest and, in connection therewith, that the Company acquire an
additional amount of such Catastrophe Bond (a "Designated Investment"). In
connection with the acquisition of a Special Interest, the acquiring Member
shall be required (i) to make a Capital Contribution in an amount equal to the
purchase price of the Designated Investment and (ii) to pay a fee to the Company
equal to (x) the purchase price of the Designated Investment multiplied by (y)
.0075. Such fee shall be allocated to each of the Members in accordance with
their Percentage Interests.
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ARTICLE 6
CAPITAL ACCOUNTS; ALLOCATIONS
Section 6.1. Capital Accounts.
(a) A separate capital account (each a "Capital Account")
shall be established and maintained for each Member in all respects in
accordance with Section 704(b) of the Code and the Regulations thereunder. It is
intended that the Capital Accounts of all Members shall be maintained in
compliance with the provisions of Regulation Section 1.704-1(b), and all
provisions of this Operating Agreement relating to the maintenance of Capital
Accounts shall be interpreted and applied in a manner consistent with that
Regulation. Without limiting the foregoing, (i) the initial balance of the
Capital Account for each Member shall be the amount of the Member's Initial
Capital Contribution to the Company; and (ii) the balance of the Capital Account
for each Member shall from time to time be increased or decreased, as the case
may be, for additional Capital Contributions and for allocations and
Distributions to such Member in accordance with the provisions of this Operating
Agreement. If any Interest in the Company is Transferred pursuant to the terms
of this Operating Agreement, the transferee shall succeed to the Capital Account
of the transferor to the extent the Capital Account is attributable to the
Transferred Interest.
(b) Except as otherwise provided in this Article or as may
be required by law, no Member shall have any obligation to the Company or to
another Member to restore any negative balance in his Capital Account.
Section 6.2. General Allocations of Net Profits and Net Losses.
(a) Except as otherwise provided in Section 6.3, Net Profits
and Net Losses (and items thereof) shall be allocated to the Members in
proportion to their respective Percentage Interests.
(b) "Net Profits" or "Net Losses" of the Company shall mean,
for each Fiscal Year, the Company's taxable income or loss, excluding profits
and losses relating to Designated Investments, determined on the accrual basis
of accounting in accordance with Code Section 703(a), with the following
adjustments:
(i) all items of income, gain, loss, deduction, or
credit required to be stated separately pursuant to Code Section
703(a)(1) shall be included in computing taxable income or loss;
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(ii) any tax-exempt income of the Company, not
otherwise taken into account in computing Net Profits or Net Losses,
shall be included in computing taxable income or loss;
(iii) any expenditures of the Company described in
Code Section 705(a)(2)(B) (or treated as such pursuant to Regulation
Section 1.704-1(b)(2)(iv)(i)) and not otherwise taken into account in
computing Net Profits or Net Losses, shall be subtracted from taxable
income or loss;
(iv) gain or loss resulting from any taxable
disposition of Company property shall be computed by reference to the
adjusted book value of the property disposed of, notwithstanding the
fact that the adjusted book value differs from the adjusted basis of
the property for federal income tax purposes;
(v) in lieu of the depreciation, amortization, or
cost recovery deductions allowable in computing taxable income or loss,
there shall be taken into account the depreciation computed based upon
the adjusted book value of the asset;
(vi) in the event the book value of any property is
adjusted pursuant to Regulation Section 1.704-1(b)(2)(iv)(f), the
amount of such adjustment shall be taken into account as gain or loss
(as the case may be) from the disposition of such property for purposes
of computing Net Profits or Net Losses;
(vii) in the event that any property of the Company
is distributed in kind, the unrealized income, gain, loss and deduction
inherent in such property on the date of distribution (and not
previously reflected in the Capital Accounts of the Members) shall be
taken into account as gain or loss (as the case may be) from the
disposition of such property for purposes of computing Net Profits or
Net Losses, in accordance with Regulation Section 1.704-1(b)(2)(iv)(e);
(viii) any nonrecourse deductions, within the
meaning of Regulation Section 1.704-2(b)(1), shall be included in such
taxable income or loss; and
(ix) notwithstanding any other provision of this
definition, any items which are specially allocated pursuant to Section
6.3 hereof shall not be taken into account in computing Net Profits or
Net Losses.
Section 6.3. Special Allocations.
(a) Minimum Gain Chargeback. Subject to the exceptions set
forth in Regulation Section 1.704-2(f), if, during any taxable year, there is a
net decrease in Minimum Gain, each Member, prior to any other allocation
pursuant to this Section 6.3, shall be specially
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allocated items of income and gain for such taxable year (and, if necessary, for
subsequent taxable years) in an amount equal to that Member's share of the net
decrease in Minimum Gain, computed in accordance with Regulation Section
1.704-2(g). For this purpose, "Minimum Gain" has the meaning set forth in
Regulation Section 1.704-2(d). Minimum Gain shall be computed separately for
each Member in a manner consistent with the Regulations under Code Section
704(b). Allocations pursuant to this Section 6.3(a) shall be made in accordance
with Regulation Section 1.704-2(f). It is the intent of the parties hereto that
any allocation pursuant to this paragraph (a) shall constitute a "minimum gain
chargeback" under Regulation Section 1.704-2(f), and this paragraph (a) shall
be interpreted consistently therewith.
(b) Member Loan Nonrecourse Debt Minimum Gain Chargeback.
Subject to the exceptions set forth in Regulation Section 1.704-2(i)(4), if
there is a net decrease in Member Loan Nonrecourse Debt Minimum Gain during a
Fiscal Year attributable to a Member Loan Nonrecourse Debt, each Member with a
share of Member Loan Nonrecourse Debt Minimum Gain attributable to such Member
Loan Nonrecourse Debt, determined in accordance with Regulation Section
1.704-2(i)(5), shall be specially allocated items of income and gain for such
Fiscal Year (and, if necessary, for subsequent fiscal years) in an amount equal
to such Member's share of the net decrease in Member Loan Nonrecourse Debt
Minimum Gain for such Fiscal Year attributable to such Member Loan Nonrecourse
Debt (which share of such net decrease shall be determined under Regulation
Sections 1.704-2(i)(4) and 1.704-2(g)(2)). "Member Loan Nonrecourse Debt Minimum
Gain" means an amount of gain characterized as "partner nonrecourse debt minimum
gain" with respect to the Company under Regulation Sections 1.704-2(i)(2) and
1.704-2(i)(3). "Member Loan Nonrecourse Debt" means liabilities of the Company
that are treated as "partner nonrecourse debt" under Regulation Section 1.704-
2(b)(4). It is intended that this paragraph (b) shall constitute a "chargeback
of partner nonrecourse debt minimum gain" as provided by Regulation Section
1.704-2(i)(4), and this paragraph (b) shall be interpreted consistently
therewith.
(c) Member Loan Nonrecourse Deductions. Any Member Loan
Nonrecourse Deduction for any Fiscal Year shall be specially allocated to the
Member who bears the Economic Risk of Loss with respect to the loan to which
such Member Nonrecourse Deductions are attributable, in accordance with
Regulation Section 1.704-2(i)(1). For this purpose, "Member Loan Nonrecourse
Deductions" means the deductions, losses, and nondeductible expenditures
described in Section 705(a)(2)(B) of the Code that are characterized as "partner
nonrecourse deductions" under Regulation Sections 1.704-2(i)(1) and
1.704-2(i)(2). "Economic Risk of Loss" has the meaning provided in Regulation
Sections 1.704-2(b)(4) and 1.752-2.
(d) Qualified Income Offset. In the event that a Member
unexpectedly receives any adjustment, allocation or distribution described in
Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Company income
and gain (consisting of a pro rata portion of each item of Company income,
including gross income, and gain for such year) shall be
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specially allocated to such Member in the manner required by Regulation Section
1.704-1(b)(2)(ii)(d) to eliminate, to the extent required by such Regulation,
such Member's Adjusted Capital Account Deficit as quickly as possible. This
paragraph (d) is intended to comply with, and shall be interpreted consistently
with, the "qualified income offset" provisions of the Regulations promulgated
under Code Section 704(b). For this purpose, "Adjusted Capital Account Deficit"
means, with respect to any Member, the deficit balance, if any, in the Member's
Capital Account as of the end of the relevant Fiscal Year, after giving effect
to the following adjustments: (i) the deficit shall be decreased by the amount
which the Member is obligated to restore or is deemed obligated to restore
pursuant to Regulation Sections 1.704-1(b)(2)(ii)(c) and 1.704-1(b)(2)(ii)(d)
(as modified by Regulation Sections 1.704-2(g)(1) and 1.704-2(i)(5)); and (ii)
the deficit shall be increased by the items described in Regulation Section
1.704-1(b)(2)(ii)(d)(4), (5), and (6).
(e) Tax Allocations with Respect to Book Property.
(i) Except as provided below, income, gain, loss,
and deduction as computed for tax purposes shall be allocated to the Members in
the same manner as the corresponding items as computed for book purposes were
allocated to the Members. Any elections or other decisions relating to
allocations pursuant to this paragraph (e) shall be made by the TMP in any
manner that reasonably reflects the purpose and intent of this Operating
Agreement. Allocations pursuant to this paragraph (e) are solely for federal,
state, and local income tax purposes and shall not affect, or in any way be
taken into account in computing, any Member's Capital Account.
(ii) Notwithstanding subparagraph (i) above, items
of income, gain, loss, and deduction as computed for tax purposes with respect
to property that is properly reflected on the books of the Company at a book
value that differs from the adjusted tax basis of such property, within the
meaning of Regulation Section 1.704-1(b)(2)(iv)(g)(1) ("Book Property"), shall,
solely for tax purposes, be allocated among the Members so as to take account of
any variation between the adjusted basis of such property to the Company for
federal income tax purposes and its book value, and otherwise in accordance with
the manner in which the corresponding items as computed for book purposes are
allocated, all in accordance with Code Sections 704(b) and 704(c) and applicable
Regulations.
(f) Certain Reallocations. Notwithstanding anything to the
contrary contained in this Operating Agreement, if the allocation of any item of
income, gain, loss, deduction, or expenditure pursuant to Section 6.2(a), (A)
does not have substantial economic effect under Regulation Section 1.704-1(b)(2)
and (B) is not in accordance with the Members' Interests in the Company within
the meaning of Regulation Section 1.704-1(b)(3), then such item shall be
reallocated in such manner as (1) either to have substantial economic effect or
to be in accordance with the Members' Interests in the Company, and (2) to
result as nearly as possible in the respective balances of the Capital Accounts
that would have been obtained if such item had
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instead been allocated under the provisions of Section 6.2(a) without giving
effect to the provisions of this paragraph (f).
(g) Investment Management Expenses. Any fees payable to
Phoenix Investment Counsel Inc. or any Affiliate thereof for investment
management services provided to the Company (other than reimbursement for
out-of-pocket expenses incurred in providing such services) shall be allocated
only to PHL (the "PDPC Fees").
(h) Order of Application, Etc. In the event that allocations
are required for any Fiscal Year under more than one of Sections 6.2 and 6.3,
allocations shall be made first under Section 6.3, and then under Section 6.2.
If any amount is allocated pursuant to the regulatory allocations required by
Section 6.3(a), (b), (c), (d) or (f), (the "Regulatory Allocations"), then,
notwithstanding anything to the contrary in Section 6.2, but subject to the
Regulatory Allocations, Net Profits and Net Losses (and items thereof) shall
thereafter first be allocated in such manner and to such extent as may be
necessary so that, after such allocation, the respective balances in the Capital
Accounts will equal the balances that would have obtained if the amount
allocated pursuant to the Regulatory Allocations, and the amount allocated
pursuant to this paragraph, had instead been allocated under Section 6.2 without
giving effect to the Regulatory Allocations or to this paragraph.
(i) Tax Credits. Any available tax credits shall be
allocated to the Members in proportion to the Members' Capital Contributions,
except as may be otherwise required by Regulation Section 1.704-1(b)(4)(ii).
Section 6.4. Profits and Losses from Designated Investments. Any
profits or losses derived from a Designated Investment during a Fiscal Year
shall be allocated only to the Member to whom the Special Interest respecting
such Designated Investment was issued, and shall not be treated as part of the
"Net Profits" or "Net Losses" of the Company allocable pursuant to Section
6.2(a) hereof.
ARTICLE 7
DISTRIBUTIONS TO MEMBERS
Section 7.1. Distributions. Except as otherwise provided in Article 13
hereof, all Distributions of cash or other property from the Company to the
Members, excluding any Distribution arising in respect of a Special Interest
(whether in cash or of a Designated Investment), shall be made to the Members
pro rata in accordance with their respective Percentage Interests at such time
or times, and in such amounts, as a Supermajority in Interest of the Members
deem appropriate (but in no event less than once each year unless at least a
Supermajority in Interest of the Members shall so elect), and subject to (i) any
reserve which a
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Supermajority in Interest of the Members in their discretion may retain and (ii)
in the case of PHL, reduction by an amount equal to the excess of (A) the
aggregate of PDPC Fees over (B) prior reductions in distributions to PHL on
account of PDPC Fees.
Section 7.2. Distributions Respecting a Special Interest. Promptly
following the receipt by the Company of any interest, dividends or other cash
distributions arising in respect of a Designated Investment, including the
proceeds from a sale thereof, the Company shall distribute such amounts
received, in cash, to the Member holding the Special Interest relating to such
Designated Investment. At the written request of a Member holding a Special
Interest, the Company shall distribute in kind, to such Member, the whole or any
part of the Designated Investment to which such Member's Special Interest
relates.
ARTICLE 8
MEMBERSHIP STRUCTURE
Section 8.1. Admission of Members.
(a) A Person acquiring an Interest in the Company in
connection with its formation shall be admitted as a Member of the Company upon
the later to occur of the formation of the Company or the time when the
admission of the Person is reflected in the records of the Company.
(b) After the formation of the Company, a Person acquiring
an Interest in the Company from the Company (other than a Special Interest)
shall be admitted as a Member of the Company upon the consent of a Supermajority
in Interest of the Members and when the admission of the Person is reflected in
the records of the Company. Any such newly-admitted Member shall sign and
deliver to the Company a counterpart of the signature page of this Operating
Agreement thereby acknowledging and agreeing to the terms and conditions of this
Operating Agreement; provided, however, that notwithstanding the foregoing, all
provisions of the Certificate and this Operating Agreement shall be deemed
accepted and shall apply in all respects to any such newly-admitted Member
whether or not such counterpart signature page is so signed and delivered.
(c) A Member shall have no interest in specific Company
property.
Section 8.2. Classes and Rights; Member List.
(a) The Company shall have only one class of general
memberships. The voting, profit and loss, distribution, and other rights of
Members will be based on their respective Percentage Interests and such rights
shall be the same, except as expressly provided for in this
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Operating Agreement. Notwithstanding the foregoing, the Company shall also have
special membership interests which may only by held by Members. The holder of
the Special Interest relating to a Designated Investment shall, in addition to
its rights as a Member hereunder, have those rights specifically provided for
herein relating to the profits and losses from, and distributions of or in
respect of, Designated Investments. No Member, other than the holder of the
Special Interest relating to a Designated Investment, shall have any profit and
loss, distribution, or other rights with respect to such Designated Investment.
(b) The Company shall maintain a listing of all Members and
their respective Percentage Interests and Special Interests.
ARTICLE 9
MEETINGS OF AND VOTING BY MEMBERS
Section 9.1. Annual and Regular Meetings. The annual meeting of the
Members for choosing officers and transacting other proper business shall be
held on the 1st day of May of each year or at such other time as shall be
selected by the Members. The Members from time to time may provide by resolution
for the holding of regular meetings and fix their time and place within or
outside the State of Delaware. Notice of such annual and regular meetings need
not be in writing, provided that written notice of any change in the time or
place of such meetings shall be sent promptly, in the manner provided in Section
9.2 for notice of special meetings, to each Member not present at the meeting at
which such change was made. Members may participate in any meeting of Members by
means of a conference telephone or similar communications equipment by means of
which all Persons participating in the meeting can hear each other at the same
time, and participation by such means shall constitute presence in person at
such meeting.
Section 9.2. Special Meetings. Special meetings of the Members may be
held at any time or place and for any purpose when called by any General Manager
or by any Member. Notice of special meetings, stating the time and place, shall
be (a) mailed to each Member at his residence or regular place of business at
least three days before the day on which a special meeting is to be held or (b)
delivered to him personally or transmitted to him by facsimile, telegraph, cable
or other communication leaving a visual record at least one day before the
meeting.
Section 9.3. Waiver of Notice. No notice of any meeting need be given
to any Member who is present at the meeting or who waives notice of such meeting
in writing (which waiver shall be filed with the records of such meeting),
whether before or after the time of the meeting.
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Section 9.4. Quorum and Voting. At all meetings of the Members, the
presence of at least a Supermajority in Interest of the Members shall constitute
a quorum for the transaction of business. In the absence of a quorum, a Majority
in Interest of the Members present may adjourn the meeting, from time to time,
until a quorum shall be present. The action of a Majority in Interest of the
Members present at a meeting at which a quorum is present shall be the action of
the Members, unless the concurrence of a greater proportion is required for such
action by law or by this Operating Agreement.
Section 9.5. Action Without a Meeting. In lieu of holding a meeting,
Members may vote or otherwise take action by a written instrument indicating the
consent of a Supermajority in Interest of the Members.
ARTICLE 10
TRANSFER OF INTERESTS AND WITHDRAWALS OF MEMBERS
Section 10.1. Limitations on Transfers of Memberships. Except as
otherwise provided in this Article 10, no Member may Transfer all or any portion
of such Member's Interest.
Section 10.2. Permitted Transfers.
(a) No transfer may be effected unless it is the subject of
a bona fide written offer to purchase for cash a part or all of a Member's
Interest (an "Offer") delivered to such Member (a "Selling Member") by one or
more potential transferees (including, without limitation, any other Member). If
a Selling Member desires to accept such Offer, such Selling Member shall provide
written notice (the "Notice of Offer"), which shall be irrevocable for a period
of sixty (60) days after delivery thereof, of the portion of such Member's
Interest proposed to be transferred (the "Available Member's Interest") and the
terms of the proposed Transfer of the Available Member's Interest to the Company
and all other Members (the "Non-selling Members"). The Selling Member shall also
provide to the Company and the Non-selling Members evidence that the proposed
transferee(s) intends, and is financially able, to consummate such transaction
on the terms set forth in the Notice of Offer.
(b) The Company shall have the irrevocable option, but not
the obligation (the "Company Option"), to redeem the Available Member's Interest
on the terms set forth in the Notice of Offer. If the Company elects to exercise
the Company Option, it shall do so by giving written notice hereof (the "Company
Notice") to the Selling Member and all of the Non-selling Members within thirty
(30) days following the date of the Notice of Offer (the "Company Option
Period"). Failure by the Company to give a Company Notice within the Company
Option Period shall be deemed to constitute an election by the Company not to
exercise the Company Option.
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If the Company exercises the Company Option, the Company shall then have the
obligation to redeem the Available Member's Interest on the terms set forth in
the Notice of Offer on a date specified by the Company, which date shall be
within sixty (60) days following the date of the Notice of Offer.
(c) If the Company does not exercise the Company Option to
redeem the Available Member's Interest, each of the Non-selling Members shall
have the irrevocable option, but not the obligation (the "Purchase Option"), to
purchase any or all of the Available Member's Interest on the terms set forth in
the Notice of Offer. Any Non-selling Member that elects to exercise the Purchase
Option shall do so by giving written notice thereof to the Selling Member, all
of the other Non-selling Members and the Company, within thirty (30) days
following the expiration of the Company Option Period (the "Member Option
Period"), that such Non-selling Member elects to exercise the Purchase Option.
If the aggregate amount of Available Member's Interest elected to be purchased
by all electing Non-selling Members exceeds the Available Member's Interest,
then the Available Member's Interest shall be allocated on a pro rata basis
among such electing Non-selling Members based on the Interests owned by each
such electing Non-selling Member and the total Interests owned by all electing
Non-selling Members and taking into account the amount of Available Member's
Interest each such Non-selling Member wishes to purchase. If the Non-Selling
Members exercise the Purchase Option, the closing of the purchase of the
Available Member's Interest shall be held at the corporate office of the Company
at a time mutually agreed by the parties no later than ninety (90) days
following the date of the Notice of Offer.
(d) If, upon the expiration of the Member Option Period, all
of the Available Member's Interest has not been elected to be purchased, then
all rights of the Non-selling Members with respect to the Purchase Option shall
be deemed to have been extinguished and the Selling Member may effect the
Transfer of its Interest pursuant to the Offer; provided, however, that the
conditions specified in Section 10.3 hereof are satisfied.
(e) Notwithstanding anything to the contrary contained in
this Section 10, each of PHL and PXRE may, solely upon compliance with Section
10.3 hereof, transfer any of its Interest to any Affiliate.
Section 10.3. Compliance with Additional Requirements. No Transfer
shall occur unless the following conditions are satisfied: (a) the Transfer will
not require registration of the Interest under any federal or state securities
laws; (b) the transferee delivers to the Company a written instrument agreeing
to be bound by the terms of this Article 10; (c) the Transfer will not result in
the termination of the Company pursuant to Code Section 708 or in the Company
becoming a publicly-traded partnership for federal income tax purposes; (d) the
Transfer will not result in the Company being subject to the Investment Company
Act of 1940, as amended; and (e) the transferor or the transferee delivers the
following information to the Company: (x) the transferee's taxpayer
identification number and (y) the transferee's initial tax basis in the
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Transferred Interests. Upon compliance with all of the conditions of this
Article 10, a Person to whom an Interest in the Company has been Transferred
shall become a Member.
Section 10.4. Reasonableness of Limitations. Each Member hereby
acknowledges the reasonableness of the prohibitions contained in this Article in
view of the purposes of the Company and the relationship of the Members. The
Transfer of any Interest in the Company in violation of the prohibitions
contained in this Article shall be deemed invalid, null and void, and of no
force or effect. Any Person to whom an Interest in the Company is attempted to
be Transferred in violation of this Article shall not be entitled to vote on
matters coming before the Members, participate in the management of the Company,
act as an agent of the Company, receive Distributions from the Company, or have
any other rights in or with respect to any such Interest.
Section 10.5. No Transfer of Special Interests. No Member may, under
any circumstances, transfer a Special Interest. In the event that a Member
holding a Special Interest intends to Transfer its Interest pursuant to this
Article 10, the Designated Investment(s) relating to such Member's Special
Interest(s) shall be distributed in kind to such Member, and such Member's
Capital Account shall be adjusted to reflect such distribution, prior to the
Transfer of such Member's Interest.
ARTICLE 11
FINANCIAL, TAX AND OTHER MATTERS
Section 11.1. Business Transactions of Member with the Company. Subject
to Section 3.4, a Member may lend money to; borrow money from; act as a surety,
guarantor, or endorser for; guarantee or assume one or more specific obligations
of; provide collateral for; and transact other business with the Company; and,
subject to other applicable law, have the same rights and obligations with
respect to any such matter as a Person who is not a Member.
Section 11.2. Liability to Third Parties. Except as otherwise provided
by the LLC Act, the debts, obligations, and liabilities of the Company, whether
arising in contract, tort, or otherwise, shall be solely the debts, obligations,
and liabilities of the Company, as such, and no Member of the Company shall be
obligated personally for any such debt, obligation, or liability of the Company
solely by reason of being a Member of the Company.
Section 11.3. Budget and Business Plan.
(a) At least 45 days prior to the beginning of each Fiscal
Year of the Company, a General Manager shall cause to be prepared and submitted
to the Members a preliminary operating and capital budget and a business plan
with respect to such Fiscal Year,
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and prior to the beginning of such Fiscal Year the Members shall agree upon a
final operating and capital budget and business plan for the Company for such
Fiscal Year.
(b) No later than 135 days after the beginning of each
Fiscal Year of the Company, a General Manager shall cause to be prepared and
submitted to the Members any proposed amendments or adjustments to the budgets
and the business plan for the second half of such Fiscal Year, and no later than
180 days after the beginning of such Fiscal Year the Members shall approve or
reject any such amendments or adjustments.
(c) Upon approval by a Supermajority in Interest of the
Members, each such proposed operating and capital budget shall together become
the "Budget" and each such proposed business plan shall become the "Business
Plan" for such Fiscal Year, subject to any amendments or adjustments thereto so
approved by the Members. The initial Budget and Business Plan covering the
period from the date hereof through December 31, 1997 shall be approved by a
Supermajority in Interest of the Members at the Organizational Meeting of the
Members or as promptly thereafter as possible.
Section 11.4. Access to Information; Records.
(a) Subject to Section 15.1 hereof, each Member of the
Company shall have the right, at the sole expense of such Member, to inspect and
examine at the principal office of the Company during regular business hours and
to obtain from the Company from time to time upon reasonable demand for any
purpose reasonably related to the Member's interest as a Member of the Company:
(i) true and full information regarding the status of the
business and financial condition of the Company;
(ii) promptly after becoming available, a copy of the
federal, state, and local income tax returns for each year of the
Company;
(iii) a current list of the name and last known business,
residence, or mailing address of each Member;
(iv) a copy of this Operating Agreement, the Certificate and
all amendments thereto, together with executed copies of any written
powers of attorney pursuant to which this Operating Agreement and the
Certificate and all amendments thereto have been executed;
(v) true and full information regarding the amount of cash
and a description and statement of the agreed value of any other
property or services contributed by each
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Member and which each Member has agreed to contribute in the future,
and the date on which each became a Member; and
(vi) other information regarding the affairs of the Company
as is just and reasonable.
(b) The Company may maintain its records in other than a
written form if such form is capable of conversion into written form within a
reasonable time.
(c) Any demand by a Member under this Section shall be in
writing and shall state the purpose of such demand.
Section 11.5. Checks. All checks, notes, bills of exchange, or other
similar orders in writing shall be signed by such one or more officers or
employees of the Company as the Members may from time to time designate.
Section 11.6. Contracts.
(a) The Members may authorize any officer or agent to enter
into any contract or to execute or deliver any instrument on behalf of the
Company, and such authority may be general or confined to specific instances.
(b) Any note, mortgage, evidence of indebtedness, contract
or other document, or any assignment or endorsement thereof, executed or entered
into between the Company and any other Person, when signed by a General Manager
or a Manager of the Company, or such one or more other officers or agents as the
Members may from time to time designate, shall be held to have been properly
executed for and in behalf of the Company, without prejudice to the rights of
the Company against any such Person who shall have executed the instrument in
excess of his actual authority.
Section 11.7. Deposits. All funds of the Company shall be deposited
from time to time to the credit of the Company in such banks, trust companies,
or other depositories as the Members may approve or designate, and all such
funds shall be withdrawn only upon checks signed, or instructions (including,
without limitation, wire transfer instructions) given, by such one or more
officers or employees of the Company as the Members shall from time to time
designate.
Section 11.8. Tax Matters Partner.
(a) The Tax Matters Partner ("TMP"), as that term is defined
in Section 6231(a)(7) or any successor provision of the Code, for the Company
shall be PXRE or
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such other Person as may be designated from time to time by a Majority in
Interest of the Members.
(b) The TMP shall have the right to resign by giving thirty
(30) days' written notice to each Member. Upon the resignation, death, legal
incompetency, or bankruptcy of the person serving as the TMP, a successor to
serve in such capacity shall be designated by vote of a Majority in Interest of
the Members.
(c) The TMP shall employ experienced tax counsel to
represent the Company in connection with any audit or investigation of the
Company by the Internal Revenue Service ("IRS"), and in connection with all
subsequent administrative and judicial proceedings arising out of such audit.
The fees and expenses of such counsel shall be a Company expense and shall be
paid by the Company. Such counsel shall be responsible for representing the
Company; it shall be the responsibility of each Member, at their own expense, to
employ tax counsel to represent their respective separate interests.
(d) The TMP shall keep the Members informed of all
administrative and judicial proceedings as required by Section 6223(g) of the
Code and shall furnish to each Member a copy of each notice or other
communication concerning the Company sent directly to the TMP or the Company by
the IRS; and each Member shall furnish to the TMP a copy of each notice or other
communication concerning the Company sent directly to such Member. All expenses
incurred by the TMP in serving in such capacity shall be a Company expense and
shall be paid by the Company.
(e) The TMP, in its capacity as such, shall not do any of
the following unless such action has been approved by the prior vote of a
Majority in Interest of the Members:
(i) enter into a settlement agreement with the IRS
which purports to bind Members other than the TMP;
(ii) file a petition as contemplated in Section
6226(a) or Section 6228 of the Code;
(iii) intervene in any action as contemplated in
Section 6226(b) of the Code;
(iv) file any request contemplated in Section
6227(c) of the Code; or
(v) enter into an agreement extending the period of
limitation as contemplated in Section 6229(b)(1)(B) of the
Code.
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(f) The relationship of the TMP to the Members is that of a
fiduciary, and the TMP has a fiduciary obligation to perform its duties as TMP
in such manner as will serve the best interests of both the Company and the
Members.
(g) The Company shall indemnify the TMP (including the
officers and directors of a corporate TMP) against judgments, fines, amounts
paid in settlement, and expenses (including attorney fees) reasonably incurred
in any civil, criminal, or investigative proceeding in which they are involved
or threatened to be involved by reason of being the TMP, provided that the TMP
acted in good faith, within what it reasonably believed to be the scope of its
authority, and for a purpose which it reasonably believed to be in the best
interests of the Company and the Members. The TMP shall not be indemnified under
this provision against any liability to the Company or the Members to which it
otherwise would be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of its
office. The indemnification provided hereunder shall not be deemed exclusive of
any other rights to which those indemnified may be entitled under any applicable
statute, agreement, vote of Members, or otherwise.
Section 11.9. Tax Returns. The TMP shall, at the expense of the
Company, prepare or cause to be prepared, and shall file with applicable
governmental authorities, such tax returns as are necessary to comply with
applicable laws before the expiration of any deadline for filing or extension
thereof. Copies of all such tax returns shall be provided to the Members prior
to filing for review and the approval thereof by a Supermajority in Interest of
the Members. In addition, the TMP shall, at the expense of the Company, prepare
or cause to be prepared and shall distribute to each of the Members a report
showing all necessary tax reporting information of the Company required by the
Members for preparation of their income tax returns, including Distributions to
the Members and allocations to the Members of the Company's taxable income,
gains, losses, deductions, credits and items of tax preference.
Section 11.10. Elections. All elections, consents, or revocations of
elections and consents required or permitted to be made by the Company under the
Code or any state or local taxing statute shall be made on behalf of the Company
by the Members in such a manner as a Supermajority in Interest of the Members
shall, in its sole discretion, determine. Notwithstanding the foregoing, no
Member shall take any action inconsistent with characterizing the Company as a
partnership for U.S. federal, state and local tax purposes and the Company and
each Member (including the TMP) shall make any elections necessary for the
Company to be so classified for U.S. federal, state and local tax purposes. All
determinations made on behalf of the Company by the Members with respect to the
treatment of any item or its allocation for federal, state or local tax purposes
shall be binding upon all of the Members unless the determination is
inconsistent with any express provision of this Operating Agreement.
Section 11.11. Appointment of Accountants and Legal Counsel. For so
long as PHL and PXRE are the sole Members of the Company, (i) PHL will have the
right to appoint the
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independent public accountants of the Company and (ii) PXRE will have the right
to appoint the outside legal counsel of the Company. The initial independent
public accountants of the Company shall be Price Waterhouse LLP. The initial
legal counsel of the Company shall be Morgan, Lewis & Bockius LLP.
Section 11.12. Notice of Regulatory Inquiries, etc. Except as may be
specified from time to time by the Members, the Company shall promptly notify
each of the Members upon receipt by the Company of any notice, inquiry, order,
or other communication from regulatory authorities, and shall provide copies of
any such notice, inquiry, order, or communication to each Member upon request.
ARTICLE 12
INDEMNIFICATION OF OFFICERS AND
OTHER AUTHORIZED REPRESENTATIVES
Section 12.1. Scope of Indemnification.
(a) The Company shall indemnify an indemnified
representative against any liability incurred in connection with any proceeding
in which the indemnified representative may be involved as a party or otherwise
by reason of the fact that such Person is or was serving in an indemnified
capacity, including, without limitation, liabilities resulting from any actual
or alleged breach or neglect of duty, error, misstatement, or misleading
statement, negligence, gross negligence, or act giving rise to strict or
products liability, except:
(i) where such indemnification is expressly prohibited by
applicable law;
(ii) where the conduct of the indemnified representative has
been finally determined:
(1) to constitute willful misconduct or
recklessness sufficient in the circumstances to bar
indemnification against liabilities arising from the
conduct; or
(2) to be based upon or attributable to the receipt
by the indemnified representative from the Company of a
personal benefit to which the indemnified representative is
not legally entitled; or
(3) to the extent such indemnification has been
finally determined in a final adjudication to be unlawful.
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(b) If an indemnified representative is entitled to
indemnification in respect of a portion, but not all, of any liabilities to
which such Person may be subject, the Company shall indemnify such indemnified
representative to the maximum extent for such portion of the liabilities.
(c) The termination of a proceeding by judgment, order,
settlement, or conviction or upon a plea of nolo contendere or its equivalent
shall not of itself create a presumption that the indemnified representative is
not entitled to indemnification.
(d) For purposes of this Article:
(i) "indemnified capacity" means any and all past, present,
and future service by an indemnified representative in one or more
capacities as a Member, officer, employee or agent of the Company, or,
at the request of the Company, as a member, manager, director, officer,
employee, agent, fiduciary, or trustee of another limited liability
company, corporation, partnership, joint venture, trust, employee
benefit plan, or other entity or enterprise;
(ii) "indemnified representative" means any and all Members,
representatives of Members and officers of the Company and any other
Person designated as an indemnified representative by the Members of
the Company (which may, but need not, include any Person serving at the
request of the Company, as a member, manager, director, officer,
employee, agent, fiduciary or trustee of another limited liability
company, corporation, partnership, joint venture, trust, employee
benefit plan or other entity or enterprise);
(iii) "liability" means any damage, judgment, amount paid in
settlement, fine, penalty, punitive damages, excise tax assessed with
respect to an employee benefit plan, or cost or expense of any nature
(including, without limitation, attorneys' fees and disbursements); and
(iv) "proceeding" means any threatened, pending or completed
action, suit, appeal or other proceeding of any nature, whether civil,
criminal, administrative or investigative, whether formal or informal,
and whether brought by or in the right of the Company, a class of its
Members or security holders or otherwise.
Section 12.2. Proceedings Initiated by Indemnified Representatives.
Notwithstanding any other provision of this Article, the Company shall not
indemnify under this Article an indemnified representative for any liability
incurred in a proceeding initiated (which shall not be deemed to include
counterclaims or affirmative defenses) or participated in as an intervenor by
the Person seeking indemnification unless such initiation of or participation in
the proceeding is authorized, either before or after its commencement, by the
affirmative vote of a Supermajority
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in Interest of the Members. This Section does not apply to reimbursement of
expenses incurred in successfully prosecuting or defending the rights of an
indemnified representative granted by or pursuant to this Article.
Section 12.3. Advancing Expenses. The Company shall pay the expenses
(including attorneys' fees and disbursements) incurred in good faith by an
indemnified representative in advance of the final disposition of a proceeding
described in Section 12.1 or the initiation of or participation in which is
authorized pursuant to Section 12.2 upon receipt of an undertaking by or on
behalf of the indemnified representative to repay the amount if it is ultimately
determined that such Person is not entitled to be indemnified by the Company
pursuant to this Article. The financial ability of an indemnified representative
to repay an advance shall not be a prerequisite to the making of such advance.
Section 12.4. Securing of Indemnification Obligations. To further
effect, satisfy or secure the indemnification obligations provided in this
Article or otherwise, the Company may maintain insurance, obtain a letter of
credit, act as self-insurer, create a reserve, trust, escrow, cash collateral or
other fund or account, enter into indemnification agreements, pledge or grant a
security interest in any assets or properties of the Company, or use any other
mechanism or arrangement whatsoever in such amounts, at such costs, and upon
such other terms and conditions as a Supermajority in Interest of the Members
shall deem appropriate. Absent fraud, the determination of the Members with
respect to such amounts, costs, terms and conditions shall be conclusive against
all Members, security holders and officers and shall not be subject to
voidability.
Section 12.5. Payment of Indemnification. An indemnified representative
shall be entitled to indemnification within 30 days after a written request for
indemnification has been delivered to the Secretary of the Company.
Section 12.6. Contribution. If the indemnification provided for in this
Article or otherwise is unavailable for any reason in respect of any liability
or portion thereof, the Company shall contribute to the liabilities to which the
indemnified representative may be subject in such proportion as is appropriate
to reflect the intent of this Article or otherwise.
Section 12.7. Mandatory Indemnification of Members, Officers, etc. To
the extent that an indemnified representative of the Company has been successful
on the merits or otherwise in defense of any proceeding or in defense of any
claim, issue or matter therein, such Person shall be indemnified against
expenses (including attorneys' fees and disbursements) actually and reasonably
incurred by such Person in connection therewith.
Section 12.8. Contract Rights; Amendment or Repeal. All rights under
this Article shall be deemed a contract between the Company and the indemnified
representative pursuant to which the Company and each indemnified representative
intend to be legally bound. Any repeal,
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amendment, or modification hereof shall be prospective only and shall not affect
any rights or obligations then existing.
Section 12.9. Scope of Article. The rights granted by this Article
shall not be deemed exclusive of any other rights to which those seeking
indemnification, contribution, or advancement of expenses may be entitled under
any statute, agreement, vote of Members, or otherwise, both as to action in an
indemnified capacity and as to action in any other capacity. The
indemnification, contribution, and advancement of expenses provided by or
granted pursuant to this Article shall continue as to a Person who has ceased to
be an indemnified representative in respect of matters arising prior to such
time, and shall inure to the benefit of the heirs, executors, administrators,
and personal representatives of such a Person.
Section 12.10. Reliance on Provisions. Each Person who shall act as an
indemnified representative of the Company shall be deemed to be doing so in
reliance upon the rights of indemnification, contribution and advancement of
expenses provided by this Article.
Section 12.11. Interpretation. The provisions of this Article are
intended to constitute terms of a limited liability company agreement authorized
by 'SS' 18-108 of the LLC Act.
ARTICLE 13
DISSOLUTION
Section 13.1. Dissolution. The Company shall be dissolved and its
affairs wound up upon the first to occur of the following:
(a) the written consent of a Supermajority in Interest of
the Members;
(b) the bankruptcy, insolvency, dissolution, withdrawal,
resignation, or expulsion of a Member or the occurrence of any other
event which terminates the continued Interest of a Member in the
Company; or
(c) the entry of a decree of judicial dissolution under 'SS'
18-802 of the LLC Act.
Section 13.2. Events of Bankruptcy of Member. For purposes of this
Operating Agreement, a Member shall be considered bankrupt upon the occurrence
of either of the following events:
(a) Such Member takes any of the following actions:
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(i) makes an assignment for the benefit of
creditors;
(ii) files a voluntary petition in bankruptcy;
(iii) is adjudged a bankrupt or insolvent, or has
entered against the Member an order for relief, in any
bankruptcy or insolvency proceeding;
(iv) files a petition or answer seeking for the
Member any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief
under any statute, law, or regulation;
(v) files an answer or other pleading admitting or
failing to contest the material allegations of a petition
filed against the Member in any proceeding of this nature;
or
(vi) seeks, consents to, or acquiesces in the
appointment of a trustee, receiver, or liquidator of the
Member or of all or any substantial part of the properties
of the Member.
(b) 120 days after the commencement of any proceeding
against the Member seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any
statute, law or regulation, if the proceeding has not been dismissed,
or if within 90 days after the appointment without the consent or
acquiescence of the Member, of a trustee, receiver or liquidator of the
Member or of all or any substantial part of the properties of the
Member, the appointment is not vacated or stayed, or within 90 days
after the expiration of any such stay, the appointment is not vacated.
Section 13.3. Judicial Dissolution. On application by or for a Member,
the Delaware Court of Chancery may decree dissolution of the Company whenever it
is not reasonably practicable to carry on the Company's business in conformity
with this Operating Agreement.
Section 13.4. Winding Up.
(a) The Members or a Person approved by a Supermajority in
Interest of the Members, as appropriate, may wind up the affairs of the Company;
but the Court of Chancery, upon cause shown, may wind up the affairs of the
Company upon application of any Member, or the legal representative or assignee
of a Member, and in connection therewith, may appoint a liquidating trustee.
(b) Upon dissolution of the Company and until the filing of
a certificate of cancellation as provided in Section 13.6, and subject to the
requirements of Section 13.5, the
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Persons winding up the affairs of the Company may, in the name of, and for and
on behalf of, the Company, prosecute and defend suits, whether civil, criminal
or administrative, gradually settle and close the business of the Company,
dispose of and convey the property of the Company, discharge the liabilities of
the Company, and distribute to the Members any remaining assets of the Company,
all without affecting the liability of Members and without imposing liability on
a liquidating trustee.
Section 13.5. Distributions Upon Dissolution and Termination.
(a) After all liabilities and obligations of the Company,
including all expenses of liquidation, shall have been paid or provided for
(whether by such reserve as the Persons winding up the affairs of the Company
shall deem appropriate or otherwise), and all items of gain, loss, deduction,
and credit shall have been allocated in accordance with Article 6, any proceeds
from the liquidation of the Company shall be distributed to those Members with
positive Capital Account balances (in proportion to such Capital Account
balances) within the period as may be required pursuant to Regulation Section
1.704-1(b)(2)(ii)(b)(2) or any successor provision, subject to the following
sentence. Any Designated Investment, and the proceeds thereof, shall be
distributed only to the Member holding the Special Interest relating thereto.
(b) If upon termination and liquidation of the Company, the
Persons winding up the Company determine that (i) an immediate sale of part or
all of the assets of the Company would cause undue loss to the Members, and (ii)
the assets of the Company would be readily susceptible to division for
distribution in kind to the Members, then to that extent the assets of the
Company may be distributed to the Members in kind; provided, that any Designated
Investment shall be distributed in kind only upon the request of, and to, the
Member holding the Special Interest relating thereto. For such purposes, the
assets of the Company shall be deemed sold at fair market value at the time of
distribution.
Section 13.6. Cancellation of Certificate. The Certificate shall be
canceled (and a certificate of cancellation filed with the Secretary of State of
the State of Delaware in accordance with 'SS' 18-203 of the LLC Act) upon the
dissolution and the completion of winding up of the Company, or if at any other
time there are less than two Members, or if the Company fails to appoint a
successor registered agent as provided in 'SS' 18-104(d) of the LLC Act, or if
the Company is not the surviving or resulting entity in a merger or
consolidation.
ARTICLE 14
DISPUTE RESOLUTION
Section 14.1. Arbitration. In the event that a dispute on any matter
arises between the Members, between or among the Company and one or more
Members, or, in connection with any
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aspect of this Operating Agreement, the duties or responsibilities of the
Members or their performance hereunder or the interpretation hereof (a
"Dispute"), and such Dispute shall not have been resolved pursuant to good faith
discussions between the Members, then any Member involved in such Dispute may
elect by written notice (the "Arbitration Notice") to the Company or the other
Member(s) involved in such Dispute, as applicable, to have the Dispute subjected
to arbitration as provided in this Section 14.1 (the "Arbitration").
Notwithstanding any provision of this Operating Agreement to the contrary,
nothing in this Section 14.1 or in any other provision of this Operating
Agreement shall preclude a Member from (i) commencing and maintaining a
proceeding prior to the completion of the Arbitration if necessary to prevent
the expiration of any statute of limitations, provided, that the commencing
Member shall endeavor to have such proceeding stayed pending the completion of
the Arbitration, (ii) pursuing its rights pursuant to Article 13 with respect to
the dissolution, winding-up and liquidation of the Company, or (iii) pursuing
its rights pursuant to Section 14.2 hereof. The Arbitration shall be held in New
York, New York, under the rules of the American Arbitration Association then in
effect. The arbitral panel shall consist of three arbitrators appointed in
accordance with such rules. The facts and circumstances of the Dispute and all
other relevant matters shall be presented to the arbitral panel within 60 days
after the effective date of the Arbitration Notice. The arbitrators shall
consider the Dispute and issue a written decision setting forth the resolution
of the Dispute or the method for determining the resolution of the Dispute
decided upon by them. The arbitrators shall be empowered to issue one or more
interim decisions prior to the full hearing of the case, requiring a party to
the proceeding to do or to abstain from doing such acts as shall be specified in
the interim decision. Such interim decision shall be enforceable in the same
manner as the final decision, as set forth below. The Arbitration shall be
completed within six months after its commencement. The fees and expenses of the
arbitrators and the other costs of the Arbitration shall be borne by the Members
involved in the manner determined by the arbitrators. The decision of the
arbitrators pursuant to this Section 14.1 shall be final and binding upon the
Members involved and the Company and judgment thereon may be entered into any
court having jurisdiction.
Section 14.2. Buy/Sell Arrangement.
(a) At any time that PHL and PXRE are the sole Members, any
Member (the "Exercising Member") shall have the right, exercisable by written
notice to the other Member (the "Buy/Sell Offer") to offer to sell its Interest
at a cash purchase price specified in the Buy/Sell Offer. The other Member (the
"Electing Member") shall elect, by written notice (the "Notice of Election")
within thirty (30) days of receipt of the Buy/Sell Offer, either: (x) to
purchase the Exercising Member's Interest at the purchase price specified in the
Buy/Sell Offer or (y) to sell its Interest to the Exercising Member at a cash
purchase price which bears the same proportional relationship to its Interest as
the purchase price set forth in the Buy/Sell Offer bears to the Exercising
Member's Interest.
- 34 -
<PAGE>
<PAGE>
(b) If the Electing Member elects to proceed pursuant to
clause (x) of subsection (a), the Members shall, within 30 days after receipt of
the Notice of Election, execute such documents and instruments reasonably
required to cause the purchase and sale of the Exercising Member's Interest at
the purchase price specified in the Buy/Sell Offer. The closing of such sale
shall take place as soon as practicable, but in any event within thirty (30)
days thereafter. At the closing, the Exercising Member shall transfer its
Interest free and clear of any and all encumbrances.
(c) If the Electing Member elects to proceed pursuant to
clause (y) of subsection (a), the Members shall, within 30 days after receipt of
the Notice of Election, execute such documents and instruments reasonably
required to cause the purchase and sale of the Electing Member's Interest at a
purchase price which bears the same proportional relationship to its Interest as
the purchase price set forth in the Buy/Sell Offer bears to the Exercising
Member's Interest. The closing of such sale shall take place as soon as
practicable, but in any event within thirty (30) days thereafter. At the
closing, the Electing Member shall transfer its Interest free and clear of any
and all encumbrances.
(d) In the event of a sale pursuant to this Section 14.2,
any Designated Investment(s) relating to Special Interest(s) held by the Member
not purchasing the other Member's Interest shall be distributed in kind to such
Member prior to the closing under this Section 14.2.
ARTICLE 15
CONFIDENTIALITY
Section 15.1. Confidentiality. The Company and each Member, each for
itself and for its principals, partners, officers, directors, Affiliates,
agents, employees and servants, agree that, without prior consent, it shall not
disclose to any third party or otherwise make public, any confidential
information about the nature of their relationship or the customers, products,
plans, operations, projections, results, suppliers, investments, business
activities or other business affairs of the Company or of any other Member (the
"Confidential Material"). The term "Confidential Material" does not include
information that (i) is or becomes generally available to the public other than
as a result of a disclosure by the party seeking to disclose such Confidential
Material or by any of such party's principals, partners, directors, officers,
agents, employees or servants, (ii) is developed independently by the party
seeking disclosure without reference to any Confidential Material or (iii)
becomes available to the party seeking to disclose such Confidential Material on
a non-confidential basis from another source, provided that the party seeking to
disclose such Confidential Material has no reason to know that such source is
bound by an obligation of secrecy to the party whose Confidential Material is to
be disclosed. Notwithstanding the foregoing, nothing in this Operating Agreement
shall prevent the disclosure
- 35 -
<PAGE>
<PAGE>
of Confidential Material if such disclosure must be made in response to the
formal request of a governmental authority or is otherwise required under any
applicable law; provided, however, that to the extent possible, the party
required to make any such disclosure of Confidential Information shall inform
the Company and the Members of such request or requirement in order that the
Company or any affected Member, as the case may be, may contest such disclosure
of Confidential Material and each party agrees to cooperate to obtain any type
of protective order or any other remedy or recourse which may be sought in this
regard (any such contest to be at the expense of the affected party).
ARTICLE 16
MISCELLANEOUS
Section 16.1. Further Assurances. Each party to this Operating
Agreement agrees promptly to execute, acknowledge, deliver, file or record such
further certificates, amendments, instruments and documents, and to do all such
other acts and things, as may be required by law, or that, in the opinion of the
Members, may be necessary or advisable to carry out the intents and purposes of
this Operating Agreement.
Section 16.2. Amendments. Except as otherwise provided in this
Operating Agreement, the terms and provisions of this Operating Agreement may be
waived, modified or amended only by written consent of a Supermajority in
Interest of the Members. Except as otherwise provided in this Operating
Agreement, no amendment, modification or waiver, however, shall: (i) enlarge the
obligations of any Member (including, without limitation any enlargement of the
Capital Contributions required of any Member) under this Operating Agreement
without the written consent of such Member; (ii) change the rights or interest
of any Member in Net Profits and Net Losses or Distributions of the Company or
its rights upon liquidation thereof without the written consent of such Member
(except such changes as may result from the admission of additional Members in
accordance with the terms hereof); (iii) alter or waive the terms of this
Section 16.2 without the consent of each Member; or (iv) change the provisions
relating to the termination of the Company without the consent of a
Supermajority in Interest of the Members.
Section 16.3. Representations and Warranties of the Members.
(a) By execution and delivery of this Operating Agreement,
each of the Members represents and warrants that (i) such Member's Interest is
intended to be and is being acquired solely for such Member's own account for
investment and with no present intention of distributing or reselling all or any
part thereof; and (ii) such Member is able and is prepared to bear the economic
risk of making the Capital Contributions contemplated hereby with respect to
- 36 -
<PAGE>
<PAGE>
such Member's Interest and to suffer any loss up to the amount of such Member's
Capital Contribution.
(b) Each Member recognizes that (i) the Interests have not
been registered under the Securities Act, in reliance upon an exemption from
such registration, and agrees that it will not sell, offer for sale, pledge,
hypothecate or otherwise Transfer its Interest in the absence of an effective
registration statement covering such Interest under the Securities Act, unless
such sale, offer of sale, pledge, hypothecation or other Transfer is exempt from
registration for any proposed sale, (ii) the Company has no obligation and does
not expect ever to prepare any such registration statement and (iii) the
restrictions on Transfer may severely affect the liquidity of its investment.
Section 16.4. Jurisdiction; Service of Process. Each Member hereby:
(a) Irrevocably submits to the jurisdiction of the state
courts of the State of Delaware and to the jurisdiction of the United States
District Court for the District of Delaware for the purpose of any suit, action
or other proceeding arising out of or based upon this Operating Agreement or the
subject matter hereof or in any way connected to the dealings of any Member or
the Company in connection with any of the above;
(b) Waives to the extent not prohibited by applicable law,
and agrees not to assert, by way of motion, as a defense or otherwise, in any
such proceeding brought in any of the above-named courts, any claim that such
Member is not subject personally to the jurisdiction of such court, that such
Member's property is exempt or immune from attachment or execution, that such
proceeding is brought in an inconvenient forum, that the venue of such
proceeding is improper, or that this Operating Agreement or the subject matter
hereof may not be enforced in or by such court; and
(c) Agrees that service of process in connection with any
such proceeding may be effected by mailing same in the manner provided in
Section 16.6 hereof.
Section 16.5. Waiver Of Jury Trial; Remedies.
(a) TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT
CANNOT BE WAIVED, EACH MEMBER WAIVES AND COVENANTS THAT SUCH MEMBER WILL NOT
ASSERT (WHETHER AS PLAINTIFF, DEFENDANT, OR OTHERWISE), ANY RIGHT TO TRIAL BY
JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM OR PROCEEDING ARISING OUT OF
THIS OPERATING AGREEMENT OR THE SUBJECT MATTER HEREOF OR IN ANY WAY CONNECTED
WITH THE DEALINGS OF ANY OTHER MEMBER OR THE COMPANY IN CONNECTION WITH ANY OF
THE ABOVE, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER IN
CONTRACT, TORT OR OTHERWISE. The Company or any
- 37 -
<PAGE>
<PAGE>
Member may file an original counterpart or a copy of this paragraph with any
court as written evidence of the consent of the Members to the waiver of their
rights to trial by jury.
(b) The parties hereto acknowledge and agree that, in the
event of an actual or prospective breach or default by any party hereto, the
other parties may not have an adequate remedy at law. Accordingly, in the event
of any such actual or prospective breach or default by any party, the other
parties shall be entitled to such equitable relief, including remedies in the
nature of injunction and specific performance, as may be available to restrain
any Person from causing or participating in any such actual or prospective
breach or default. All remedies hereunder are cumulative and not exclusive, and
nothing herein shall be deemed to prohibit or limit any party from pursuing any
other remedy or relief available at law or in equity for such actual or
prospective breach or default, including the recovery of damages.
Section 16.6. Notices.
(a) Any notice or demand required or permitted to be given
or made to or upon any party hereto pursuant to any of the provisions of this
Operating Agreement shall be deemed to have been duly given or made for all
purposes if (i) it is in writing and delivered by hand or express courier
service against receipt, or sent by certified or registered mail, postage
prepaid, return receipt requested, or (ii) it is sent by facsimile, telegram,
telex or other electronic means and followed by a copy delivered or sent in the
manner provided in clause (i) above, to such party at the address as set forth
below, or such other address as any party hereto at any time, or from time to
time, may direct by notice given to the other parties in accordance with this
Section 16.6. The date of giving or making of any such notice or demand shall be
the earlier of the date of actual receipt, or five Business Days after such
notice or demand is sent or, if sent in accordance with clause (ii), the
Business Day next following the day such notice or demand is actually
transmitted. All notices shall be given as follows:
(i) to the Company at the principal place of business of the
Company;
(ii) to any of the Members at their respective addresses set
forth on Exhibit A hereto; and
(iii) to any Person who hereafter becomes a Member, at such
address as may be designated by him by written notice to the Company.
(b) Notwithstanding the provisions of Section 16.6(a),
routine communications such as Distribution checks or financial statements of
the Company may be sent by first-class mail, postage prepaid; provided, however,
that to the extent any Member timely instructs the Company in writing to make
cash Distributions by wire transfer, cash Distributions shall be made by wire
transfer as so instructed. In computing any period of time under this Operating
Agreement, the day of the act, event or default from which the designated period
of
- 38 -
<PAGE>
<PAGE>
time begins to run shall not be included. The last day of the period so computed
shall be included, unless it is not a Business Day in which event the period
shall run until the end of the next day which is a Business Day.
Section 16.7. Counterparts. This Operating Agreement may be executed in
counterparts, each of which shall constitute an original and all of which, when
taken together, shall constitute one agreement.
Section 16.8. Governing Law. This Operating Agreement in all respects
shall be governed by, interpreted and construed in accordance with, and all
rights and remedies hereunder shall be governed by, the laws of the State of
Delaware, without regard to its conflicts of law principles.
Section 16.9. Successors and Assigns. This Operating Agreement shall be
binding upon the parties hereto and their respective successors, executors,
administrators, legal representatives, heirs and permitted assigns and shall
inure to the benefit of the parties hereto and, except as otherwise provided
herein, their respective successors, executors, administrators, legal
representatives, heirs and permitted assigns.
Section 16.10. Construction; etc. The parties hereto intend that each
provision hereof constitute a separate agreement between them. Accordingly, the
provisions hereof are severable and in the event that any provision of this
Operating Agreement shall be deemed invalid or unenforceable in any respect by a
court of competent jurisdiction, the remaining provisions hereof shall not be
affected, but shall, subject to the discretion of such court, remain in full
force and effect, and any invalid or unenforceable provision shall be deemed,
without further action on the part of the parties hereto, amended and limited to
the extent necessary to render the same valid and enforceable. In the event any
ambiguity or question of intent or interpretation arises under this Operating
Agreement, this Operating Agreement shall be construed as if drafted jointly by
the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Operating Agreement. All headings and captions contained in this Operating
Agreement are for convenience only and shall not be deemed a part of this
Operating Agreement. All pronouns and all variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the Person may require.
Section 16.11. Entire Agreement. This Operating Agreement constitutes
the entire agreement of the Members with respect to the transactions
contemplated hereby and supersedes all prior oral or written agreements and
understandings.
Section 16.12. No Right to Partition. Except as otherwise expressly
provided in this Operating Agreement, the Members, on behalf of themselves and
their shareholders, partners, interest holders, successors and assigns, if any,
hereby specifically renounce, waive and forfeit all
- 39 -
<PAGE>
<PAGE>
rights that any of them may have to maintain any action for partition of any
property of the Company.
IN WITNESS WHEREOF, the parties have executed, or caused
this Operating Agreement to be executed as of the date first set forth above.
CAT BOND INVESTORS, L.L.C.
By: /s/ Steven Goldstein
-------------------------------------------
Name: Steven Goldstein
Title: Manager
MEMBERS:
PHOENIX HOME LIFE MUTUAL
INSURANCE COMPANY
By: /s/ Anthony Zeppetella
-------------------------------------------
Name: Anthony Zeppetella
Title: Senior Vice President
PXRE CORPORATION
By: /s/ Sanford M. Kimmel
-------------------------------------------
Name: Sanford M. Kimmel
Title: Senior Vice President, Treasurer and
Chief Financial Officer
- 40 -
<PAGE>
<PAGE>
Exhibit A to
Operating Agreement
MEMBERS:
<TABLE>
<CAPTION>
Name, Address and
Taxpayer Identification Total Initial Capital Percentage
Numbers of Members Commitment Contribution Interest
- -------------------------------------- ----------------------- ------------------------------ ----------------
<S> <C> <C> <C>
Phoenix Home Life Mutual $10 million $25,000 50%
Insurance Company
One American Row $1.5 million principal
P.O. Box 5056 amount USAA bond
Hartford, CT 06102
Attn: Anthony J. Zeppetella
Facsimile: (860) 403-5518
TIN: 06-0493340
PXRE Corporation $10 million $25,000 50%
399 Thornall Street
Edison, NJ 08837 $1.5 million principal
Attn: Gerald L. Radke amount USAA bond
Facsimile: (908) 906-9157
TIN: 06-1183996
</TABLE>
<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,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income $ 44,253 $ 33,301 $ 39,786 $ 34,829 $ 22,645
Equity in earnings of TREX 0 (3,898) (5,948) (4,141) (84)
----------- ----------- ----------- ------------ -----------
Income before equity in earnings of TREX 44,253 29,403 33,838 30,688 22,561
Income taxes 22,198 15,644 18,189 15,700 11,008
----------- ----------- ----------- ------------ -----------
$ 66,451 $ 45,047 $ 52,027 $ 46,388 $ 33,569
Fixed charges:
Interest expense 11,508 6,957 7,143 7,789 2,740
Appropriated portion (1/3) of rentals 378 365 397 308 279
----------- ----------- ----------- ------------ -----------
Total fixed charges 11,886 7,322 7,540 8,097 3,019
----------- ----------- ----------- ------------ -----------
Earnings before income taxes and fixed charges $ 78,337 $ 52,369 $ 59,567 $ 54,485 $ 36,588
----------- ----------- ----------- ------------ -----------
Preferred dividend requirements $ 0 $ 0 $ 599 $ 2,005 $ 2,056
----------- ----------- ----------- ------------ -----------
Ratio of pre-tax income to net income 1.50 1.53 1.54 1.51 1.49
----------- ----------- ----------- ------------ -----------
Preferred dividend factor $ 0 $ 0 $ 922 $ 3,028 $ 3,063
Total fixed charges 11,886 7,322 7,540 8,097 3,019
----------- ----------- ----------- ------------ -----------
Total fixed charges and preferred dividends $ 11,886 $ 7,322 $ 8,462 $ 11,125 $ 6,082
----------- ----------- ----------- ------------ -----------
Ratio of earnings to fixed charges 6.59 7.15 7.90 6.73 12.12
----------- ----------- ----------- ------------ -----------
Ratio of earnings to combined fixed charges and
preferred dividends 6.59 7.15 7.04 4.90 6.02
----------- ----------- ----------- ------------ -----------
Deficiency in ratio
Deficiency in combined ratio
</TABLE>
<PAGE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
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,
1997, and all amendments or supplements (if any) thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. The undersigned does hereby grant unto such
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 16th day of
March, 1998.
/s/ Franklin D. Haftl
__________________________________
Franklin D. Haftl
<PAGE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
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,
1997, and all amendments or supplements (if any) thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. The undersigned does hereby grant unto such
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 16th day of
March, 1998.
/s/ Robert W. Fiondella
___________________________________
Robert W. Fiondella
<PAGE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
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,
1997, and all amendments or supplements (if any) thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. The undersigned does hereby grant unto such
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 16th day of
March, 1998.
/s/ Bernard Kelly
__________________________________
Bernard Kelly
<PAGE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
director of PXRE Corporation (the "Company"), hereby constitutes and appoints
Gerald L. Radke and Sanford M. Kimmel, and each of them singly, as her 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,
1997, and all amendments or supplements (if any) thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. The undersigned does hereby grant unto such
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 she 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 16th day of
March, 1998.
/s/ Wendy Luscombe
__________________________________
Wendy Luscombe
<PAGE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
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,
1997, and all amendments or supplements (if any) thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. The undersigned does hereby grant unto such
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 16th day of
March, 1998.
/s/ Edward P. Lyons
__________________________________
Edward P. Lyons
<PAGE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
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,
1997, and all amendments or supplements (if any) thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. The undersigned does hereby grant unto such
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 16th day of
March, 1998.
/s/ Philip R. McLoughlin
__________________________________
Philip R. McLoughlin
<PAGE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
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,
1997, and all amendments or supplements (if any) thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. The undersigned does hereby grant unto such
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 16th day of
March, 1998.
/s/ David W. Searfoss
__________________________________
David W. Searfoss
<PAGE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
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,
1997, and all amendments or supplements (if any) thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. The undersigned does hereby grant unto such
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 16th day of
March, 1998.
/s/ Donald H.Trautlein
__________________________________
Donald H. Trautlein
<PAGE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer and/or
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,
1997, and all amendments or supplements (if any) thereto, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission. The undersigned does hereby grant unto such
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 16th day of
March, 1998.
/s/ Wilson Wilde
__________________________________
Wilson Wilde
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<DEBT-HELD-FOR-SALE> 399,144,532
<DEBT-CARRYING-VALUE> 405,949,411
<DEBT-MARKET-VALUE> 405,949,411
<EQUITIES> 19,748,877
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 521,460,448
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<PAGE>
