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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 1998 Commission File Number 0-15428
PXRE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 06-1183996
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
399 Thornall Street, 14th Floor
Edison, NJ 08837
Telephone: (732) 906-8100
(Address including zip code, and telephone number, including area code
of registrant's principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: COMMON STOCK, par
value $0.01 per share
Securities registered pursuant to Section 12(g) of the Act: NONE
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 19, 1999 computed by reference to
the closing price of such common equity as of the close of business on March 19,
1999 was $232,676,257. As of March 19, 1999, 11,856,115 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 3, 1999.
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
Overview
PXRE Corporation ("PXRE") is a Delaware holding company, with national and
international underwriting and service operations, which conducts its business
primarily through its principal operating subsidiaries, PXRE Reinsurance Company
("PXRE Reinsurance"), PXRE Managing Agency Limited ("PXRE Managing Agency"),
PXRE Limited and Transnational Insurance Company ("Transnational Insurance").
PXRE Reinsurance is both a brokerage market reinsurer and a direct writing
reinsurer with approximately $447 million of policyholders' surplus which
principally underwrites treaty and facultative reinsurance for property
(including marine and aerospace) and short tail casualty risks. PXRE Reinsurance
is licensed or authorized to transact business in 41 states and the District of
Columbia, Puerto Rico and Mexico and operates a branch in Belgium ("PXRE's
Brussels Branch").
PXRE Managing Agency manages PG Butler Syndicate 1224 ("PXRE Lloyd's
Syndicate") at Lloyd's of London ("Lloyd's") which has initial underwriting
capacity of approximately ('L')35 million ($58 million at December 31, 1998
exchange rates). PXRE Limited, which carries on business as a corporate member
of Lloyd's, is the sole member of PXRE Lloyd's Syndicate. PXRE Lloyd's Syndicate
underwrites specialty types of insurance and reinsurance (including short tail
excess of loss medical coverages and personal accident business as well as
catastrophe related coverages, marine and aerospace reinsurance and facultative
reinsurance) on a worldwide basis. Underwriting premium volume and loss
experience related to the business of PXRE Lloyd's Syndicate is included in
PXRE's consolidated results on a one quarter lag basis, commencing in the
quarter ended June 30, 1997.
Transnational Insurance is an excess and surplus lines carrier
specializing in non-standard and excess property insurance risks. Currently,
Transnational Insurance, which is a wholly-owned subsidiary of PXRE Reinsurance,
has over $100 million of capital and is eligible to write business on a surplus
lines basis in 36 states and the District of Columbia, Guam and the U.S. Virgin
Islands.
PXRE also employs its property and casualty underwriting expertise to
generate management fee income by managing business for other insurers and
reinsurers. See "Business--Retrocessional Agreements." The term "PXRE," as used
herein, refers to one or more of PXRE Reinsurance, PXRE Managing Agency, PXRE
Lloyd's Syndicate and Transnational Insurance in discussions of these entities'
business and refers to PXRE Corporation in all other circumstances.
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History
PXRE was organized in July 1986 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 19, 1999, Phoenix Home Life owned 5.17% 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").
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.
Following the Merger, Transnational Reinsurance became a wholly-owned subsidiary
of PXRE Reinsurance and was re-named Transnational Insurance Company. The Merger
has been accounted for using the purchase method of accounting; therefore net
income of TREX (including Transnational Reinsurance/Transnational Insurance) has
been included in PXRE's consolidated results of operations from the date of the
Merger.
In December 1996, PXRE completed the organization of PXRE Managing Agency
and PXRE Lloyd's Syndicate, thereby establishing a direct presence in the
Lloyd's market.
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 the first quarter of 1998, PXRE's newly established excess and surplus
lines carrier, Transnational Insurance, commenced underwriting operations,
specializing in non-standard and excess property insurance risks.
In June 1998, PXRE announced the addition of direct writing and
international teams, composed of eight direct writing reinsurance professionals
and three international reinsurance executives, respectively. The direct writing
team operates as the Direct Treaty Division of PXRE Reinsurance which provides
reinsurance on a direct basis (directly with the primary company) primarily on
short tail casualty and, to a lesser extent, non-catastrophe related property
business.
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The international team's focus is property and short tail casualty reinsurance
in the brokerage market. Subsequently in 1998, PXRE further strengthened its
Direct Treaty Division, and has also strengthened PXRE Managing Agency and
PXRE's Brussels Branch, with the successful recruitment of additional
reinsurance professionals.
Ratings
PXRE Reinsurance is rated "A" (Excellent) by A.M. Best Company ("A.M.
Best"), an independent insurance industry rating organization which rates
insurance companies based upon factors of concern to policyholders. PXRE Lloyd's
Syndicate enjoys the benefit of ratings of Lloyd's, which has been rated "A"
(Excellent) by A.M. Best and has been assigned an A+ claims paying ability
rating by Standard & Poor's Corporation ("S&P"). Transnational Insurance is
rated "A" (Excellent) by A.M. Best. These ratings are based upon factors that
may be of concern to policyholders, agents and intermediaries, but may not
reflect the considerations applicable to an investment in a reinsurance or
insurance company. A change in any such rating is in the discretion of the
respective rating agencies.
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General
PXRE, through its subsidiaries, is principally engaged in providing treaty
and facultative reinsurance to primary insurers and other reinsurers (also known
as ceding companies) of commercial and personal property risks and short tail
casualty risks. Since its formation more than a decade ago, PXRE has specialized
in property reinsurance, including a strong focus on catastrophe- related
products. In mid-1998 PXRE added new reinsurance lines and expanded its
capabilities in existing areas, including establishing a direct writing
reinsurance unit to complement its existing brokerage-based reinsurance
operations and offering excess of loss short tail casualty products (including
general liability, commercial auto and personal auto) for casualty markets in
which PXRE had not previously had a significant presence. These steps are
expected over time to reduce the volatility associated with PXRE's catastrophe
coverages which are expected to fall below 50% of gross premiums written in
1999. 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
retrocessional agreements and surrenders to such reinsurers a portion of the
premiums it receives from ceding companies.
Reinsurance provides ceding companies with three principal benefits:
reducing net exposure on individual risks, protecting against catastrophic
losses and maintaining acceptable regulatory ratios. Retrocessions provide
reinsurers with similar benefits. Reinsurance, including retrocessions, does not
legally discharge the reinsured from its liability with respect to its
obligations to the policyholder.
PXRE writes property and casualty treaty and property facultative business
both through reinsurance brokers and on a direct basis.
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, and in general depends on
the original underwriting decisions made by the ceding company. Such dependence
subjects the reinsurer to the risk that the primary insurer has not adequately
determined the risk to be reinsured and, accordingly, the premium ceded to the
reinsurer in connection therewith may not adequately compensate the reinsurer
for the risk assumed. Treaty reinsurance contributed approximately 94.4% of
PXRE's gross premiums written in 1998.
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Treaty reinsurance can be written on either a pro rata or an excess of
loss basis. In pro rata reinsurance, the reinsurer agrees, in return for a
percentage of the premiums, to share in a proportional amount of the losses up
to the limit, if any, of the reinsurance agreement. Premiums that the ceding
company pays to the reinsurer are proportional to the premiums that the ceding
company receives, and the reinsurer generally pays the ceding company a ceding
commission to reimburse the ceding company for the expenses incurred in
obtaining the business. In excess of loss treaty reinsurance, the reinsurer
indemnifies the ceding company for a portion of the losses on underlying
policies which exceed a specified loss retention amount up to an amount
specified in the reinsurance agreement. Premiums paid by the ceding company for
excess of loss coverage may not be directly proportional to the premiums on the
underlying policies because the reinsurer does not assume a proportional share
of the underlying risk.
Excess of loss treaty reinsurance can, in turn, be written on a per risk
or catastrophe basis. Per risk excess of loss reinsurance protects the ceding
company against a loss resulting from a single risk or location. Catastrophe
excess of loss reinsurance protects a ceding company from an accumulation of a
large number of related losses resulting from a variety of risks which may occur
in a given catastrophe, and hence is a highly volatile business.
Catastrophe-related coverages include catastrophe coverage provided to ceding
insurance companies and retrocessional catastrophe coverage provided to other
reinsurers. Catastrophe-related coverages have represented the majority of
PXRE's gross premiums written during the past three fiscal years.
Facultative reinsurance is the reinsurance of individual risks; rather
than an agreement to reinsure a specified portion of a type or category of risk,
the reinsurer separately rates and underwrites each risk. In some cases, risks
covered by facultative reinsurance are those excluded from coverage by treaty
reinsurance. Facultative reinsurance contributed only approximately 3.3% of
PXRE's gross premiums written in 1998.
PXRE also writes primary insurance business primarily through
Transnational Insurance, specializing in non-standard and excess property risks.
PXRE also manages business for other insurers and reinsurers thereby
generating management fee income. During 1998, PXRE earned $2,172,000 in
management fees. See "Business--Retrocessional Agreements."
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Mix of Business
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
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<CAPTION>
Year Ended December 31,
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As Reported Pro Forma (1)
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1998 1997 1996 1996
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Type of Business Amount Percent Amount Percent Amount Percent Amount Percent
- ---------------- ------ ------- ------ ------- ------ ------- ------ -------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property Treaty
Reinsurance:
Catastrophe-Related $ 83,166 61.1% $ 85,285 67.6% $ 78,013 68.2% $100,589 69.8%
Marine & Aerospace 14,440 10.6 11,408 9.0 15,619 13.7 19,644 13.6
Risk Excess 7,762 5.7 11,592 9.2 9,278 8.1 12,316 8.6
Medical and Other 9,396 6.9 4,328 3.4 -- -- -- --
Pro Rata 8,266 6.1 7,636 6.1 3,126 2.7 3,126 2.2
Property Facultative
Reinsurance 4,569 3.3 5,983 4.7 8,312 7.3 8,312 5.8
Property Insurance 3,072 2.3 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total Property $130,671 96.0% $126,232 100.0% $114,348 100.0% $143,987 100.0%
-------- -------- -------- -------- -------- -------- -------- --------
Casualty Treaty
Reinsurance:
Risk Excess 864 0.6 -- -- -- -- -- --
Pro Rata 4,680 3.4 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total Casualty 5,544 4.0 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total $136,215 100.0% $126,232 100.0% $114,348 100.0% $143,987 100.0%
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
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(1) PXRE and TREX merged on December 11, 1996. Results for 1998 and 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.
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Although catastrophe-related coverages experienced substantial
improvements in pricing from 1993 to 1994 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 over the periods
indicated.
Marine and aerospace premium volume increased in 1998 due to an increase
in satellite coverage premium volume, while premium volume for marine coverages
continued to decline.
PXRE wrote a small number of property risk excess contracts in 1996 and
1997. The decline in risk excess business in 1998 reflects primarily the
cancellation of one of those contracts in 1998.
Medical and Other constitutes a new line of business derived from PXRE
Lloyd's Syndicate. Medical consists predominantly of short tail medical expense
business providing protection to U.S. based self-funded single employer benefit
trusts. Coverage protects the trust against large individual claims or an
abnormally high frequency of claims. "Other" is primarily personal accident
business which covers individuals and groups against death or disablement
resulting from accident or sickness. The portfolio includes white collar
accident, travel package and protection to U.S. workers' compensation writers
against large individual or catastrophic claims arising from accident or injury
while at work.
Treaty pro rata business in 1998 and 1997 primarily represents insurance
business within binding authorities written through PXRE Lloyd's Syndicate and
new business written by the new international team. Management had deemphasized
property pro rata business because competition among reinsurers for such
business and the levels of premium rates charged by primary insurers for
property insurance had adversely impacted the profitability of such business. In
addition, pro rata business incurred substantial losses from Hurricane Andrew in
1992, reflecting the vulnerability of these lines of business to a major
catastrophic event.
Property facultative reinsurance premium volume represented approximately
3% of PXRE's gross premiums written for 1998, compared to 5% in 1997 and 7% (6%
on a pro forma basis) in 1996, reflecting decreased premium volume in the United
States. The property facultative operation in the United States was closed in
1998.
Property insurance is comprised principally of non-standard and excess of
loss property insurance risks written by Transnational Insurance which commenced
underwriting operations in 1998.
While PXRE only entered the casualty market with short tail excess of loss
casualty products in the latter half of 1998, such product offerings are
expected to constitute an increased percentage of PXRE's gross premiums written
in 1999.
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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:
Year Ended December 31,
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As Reported Pro Forma(1)
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1998 1997 1996 1996
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(in thousands)
Gross premiums written $136,215 $126,232 $114,348 $143,987
Reinsurance premiums ceded:
Managed business participants 21,542 16,534 21,238 21,238
Catastrophe coverage 25,979 9,643 5,427 6,145
TREX Management Agreement(2) 0 0 19,965 0
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Total reinsurance premiums
ceded 47,521 26,177 46,630 27,383
-------- -------- -------- --------
Net premiums written $ 88,694 $100,055 $ 67,718 $116,604
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(1) PXRE and TREX merged on December 11, 1996. Results for 1998 and 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."
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 1998, 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, 1999, is referred to
as the AMA. The AMA is a pool consisting of a number of insurance companies (the
"Pool"), for which PXRE acts as reinsurance manager. In 1998, 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 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.
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 based on premiums ceded, as well as a contingent profit commission
equal to a percentage of any ultimate underwriting profits in connection with
the
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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, 1999, is with Trenwick America Reinsurance Corporation ("Trenwick
Group"). PXRE receives, as reinsurance manager, a management fee based on
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"). This arrangement, which was renegotiated in 1998, involves a
five-year fee based undertaking by PXRE to produce and underwrite business with
Select Re. The undertaking, which is subject to adjustment based on Select Re's
shareholders' equity, was approximately $10.6 million in aggregate premium for
1998 and is expected to be at least $20 million for 1999. PXRE receives an
override commission on premiums ceded to Select Re. 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. The Board of Directors of Select Re
includes PXRE's Chief Executive Officer.
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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:
Year Ended December 31,
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1998 1997 1996
------- ------- -------
(in thousands)
Commission $ 2,247 $ 879 $ 1,043
Contingent profit commission(1) (75) 2,127 2,477
------- ------- -------
Total $ 2,172 $ 3,006 $ 3,520
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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 prior to 1998 under the arrangement with
Select Re.
PXRE also purchases catastrophe retrocessional coverage for its own
protection, depending on market conditions. PXRE significantly increased its
purchases of such coverage in 1998 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. In 1998, opportunistic
purchases of catastrophe retrocessional protection increased catastrophe written
premiums ceded partially due to a change in the payment mode, in part due to
reinstatement premiums associated with Hurricane Georges and in part due to
additional coverage associated with new operations. PXRE's property business is
protected by a series of retrocessional agreements which currently provide
protection principally against unusual severity of loss and are not designed to
protect PXRE's exposure to smaller, more frequent loss occurrences.
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, 1998, estimated losses recoverable (including incurred but
not reported losses) from retrocessionaires were $41,261,000 including
$7,911,000 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.
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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 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, and Transnational Reinsurance shared in certain specified business
of PXRE and Transnational Reinsurance paid PXRE Reinsurance an annual basic
management fee under the TREX Management Agreement equal to 5% of gross premiums
written 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 for 1996.
The TREX Management Agreement was terminated in December, 1996. Effective
December 11, 1996, PXRE Reinsurance entered into a new management agreement (the
"Transnational Management Agreement") with Transnational Insurance under which
PXRE Reinsurance provides various organizational, operational and management
services. Under the Transnational Management Agreement, expenses attributable to
Transnational Insurance are allocated to Transnational Insurance at cost.
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 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.
PXRE's management believes that its overall liability for losses and loss
expenses maintained as of December 31, 1998 is adequate. Because of the inherent
uncertainty in the reserving process, however, there is a risk that PXRE's
liability for losses and loss expenses could prove to be greater than expected
in any year, with a consequent adverse impact on future earnings and
stockholders' equity. Estimating the ultimate liability for losses and loss
expenses is an imprecise science subject to variables that are influenced by
both internal and external factors. Historically, PXRE has focused on property
related coverages. 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 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.
Although historically PXRE has written a small amount of casualty
reinsurance, in 1998 PXRE began underwriting new casualty lines of business and
PXRE expects to expand its casualty business even further in 1999 and future
years. With respect to casualty business, significant delay, ranging up to
several years or more, can be expected between the reporting of a loss to PXRE
and the settlement of PXRE's liability for that loss. As a result, such future
claim settlements could be influenced by changing rates of inflation and other
economic conditions, changing legislative, judicial and social environments and
changes in PXRE's claims handling procedures. While the reserving process is
difficult and subjective for ceding companies, the inherent uncertainties of
estimating such reserves are even greater for a reinsurer, due primarily to the
longer time between the date of the occurrence and the reporting of any
attendant claims to the reinsurer, the diversity of development patterns among
different types of reinsurance treaties or facultative contracts, the necessary
reliance on the ceding companies for information regarding reported claims and
differing reserving practices among ceding companies.
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PXRE's difficulty in accurately predicting casualty losses may also be
exacerbated by the limited amount of statistically significant historical data
regarding losses on PXRE's new casualty lines of business. PXRE must therefore
rely on the inherently less reliable historical loss patterns reported by ceding
companies and industry loss standards in calculating its casualty reserves.
Thus, the actual casualty losses and loss expenses may deviate, perhaps
substantially, from estimates of liabilities reflected in PXRE's consolidated
financial statements.
PXRE engages an independent actuarial firm to review the methods and
assumptions used by PXRE in estimating losses and loss expenses. As stated in
its actuarial review, such firm believes that the methods and assumptions used
by PXRE are reasonable and appropriate for use in setting loss reserves as of
December 31, 1998.
The following table provides a reconciliation of beginning and ending loss
and loss expense liabilities under GAAP for the fiscal years ended December 31,
1998, 1997 and 1996. PXRE does not discount such liabilities; that is, it does
not calculate them on a present value basis.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1998 1997 1996
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Gross GAAP liability for losses and
loss expenses at beginning of year .............. $ 57,189 $ 70,978 $ 72,719
Add: Gross provision for losses and loss expenses--
Occurring in current year ....................... 94,003 19,344 27,327
Occurring in prior years ........................ 90 (4,721) 10,510
--------- --------- ---------
Total gross provision(1) ...................... 94,093 14,623 37,837
--------- --------- ---------
Less: Gross payments for losses and loss expenses--
Occurring in current year ....................... 19,582 4,705 6,469
Occurring in prior years ........................ 29,108 23,707 42,698
--------- --------- ---------
Total gross payments .......................... 48,690 28,412 49,167
--------- --------- ---------
Gross GAAP liability for losses
and loss expenses at end of year ................ $ 102,592 $ 57,189 $ 61,389
Add: Gross reserves of TREX
at date of Merger(2) ........................... -- -- 9,589
--------- --------- ---------
Total gross liability ......................... $ 102,592 $ 57,189 $ 70,978
========= ========= =========
Ceded GAAP liability for losses
and loss expenses at end of year ................ (33,350) (12,734) (27,154)
--------- --------- ---------
Net GAAP liability for losses
and loss expenses at end of year ................ $ 69,242 $ 44,455 $ 43,824
========= ========= =========
Foreign currency adjustment ....................... (193) 482 (145)
========= ========= =========
Gross SAP liability for losses and
loss expenses at end of year .................... $ 102,399 $ 57,671 $ 70,833
========= ========= =========
</TABLE>
- ---------
(1) The GAAP provision for losses and loss expenses includes net foreign
currency exchange (losses) gains of ($675,000), $627,000 and ($41,000) for
1998, 1997 and 1996, respectively.
(2) Liabilities assumed from TREX at December 11, 1996.
-14-
<PAGE>
<PAGE>
The following table presents the development of PXRE's GAAP balance sheet
liability for losses and loss expenses for the period 1988 through 1998 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
(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 1998 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 reporting purposes. Furthermore, it is not practicable for PXRE
currently to reconstruct this information.
-15-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992
-------- --------- --------- --------- --------- --------- ---------
(in thousands, except percentages)
<S> <C> <C> <C> <C> <C> <C> <C>
Liabilities for losses and
loss expenses .................. $102,592 $ 57,189 $ 61,389 $ 72,719 $ 81,836 $ 71,442 $ 88,668
Cumulative amount of
liability paid through:
One year later ................. 29,108 23,708 42,698 41,601 37,820 59,773
Two years later ................ 40,673 55,620 58,968 54,400 79,926
Three years later .............. 67,296 67,630 60,850 89,519
Four years later ............... 76,762 64,566 94,261
Five years later ............... 69,414 96,895
Six years later ................ 99,864
Seven years later ..............
Eight years later ..............
Nine years later ...............
Ten years later ................
Liabilities reestimated as of:
One year later ................. 57,280 66,257 83,228 87,818 78,188 101,423
Two years later ................ 63,292 85,162 87,750 76,902 103,632
Three years later .............. 83,178 90,409 74,683 105,165
Four years later ............... 89,284 75,392 103,801
Five years later ............... 74,880 104,330
Six years later ................ 104,222
Seven years later ..............
Eight years later ..............
Nine years later ...............
Ten years later ................
Gross reserves of TREX at date of
merger ......................... 9,589 5,242 2,067 26
Gross cumulative redundancy
(deficiency) through
December 31, 1998:
Amount ......................... (91) 7,686 (5,217) (5,381) (3,412) (15,554)
Percentage ..................... 0% 11% (7%) (6%) (5%) (18%)
Retrocessional recoveries ........ 623 (365) 7,555 3,246 1,309 3,069
Net cumulative redundancy
(deficiency) through
December 31, 1998:
-------- --------- --------- --------- --------- --------- ---------
Amount ......................... 532 7,321 2,338 (2,135) (2,103) (12,485)
Percentage ..................... 1% 13% 4% (4%) (5%) (35%)
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1991 1990 1989 1988
--------- --------- --------- ---------
(in thousands, except percentages)
<S> <C> <C> <C> <C>
Liabilities for losses and
loss expenses .................. $ 62,664 $ 31,632 $ 37,963 $ 34,627
Cumulative amount of
liability paid through:
One year later ................. 35,575 15,688 18,421 16,183
Two years later ................ 48,393 25,466 28,178 21,597
Three years later .............. 52,301 29,066 31,852 23,779
Four years later ............... 55,022 30,117 33,980 24,689
Five years later ............... 56,976 31,528 34,434 25,980
Six years later ................ 58,822 32,137 35,408 26,085
Seven years later .............. 61,235 33,202 36,003 26,531
Eight years later .............. 33,624 36,980 27,167
Nine years later ............... 37,301 27,378
Ten years later ................ 27,444
Liabilities reestimated as of:
One year later ................. 67,165 33,874 37,211 31,863
Two years later ................ 62,262 33,726 37,800 29,506
Three years later .............. 62,827 33,488 36,588 27,944
Four years later ............... 63,032 33,682 36,881 27,480
Five years later ............... 62,593 34,310 37,023 27,751
Six years later ................ 63,632 33,777 37,667 27,878
Seven years later .............. 63,792 34,714 37,166 28,063
Eight years later .............. 34,815 37,998 27,959
Nine years later ............... 38,124 28,065
Ten years later ................ 28,080
Gross reserves of TREX at date of
merger .........................
Gross cumulative redundancy
(deficiency) through
December 31, 1998:
Amount ......................... (1,128) NA NA NA
Percentage ..................... (2%) NA NA NA
Retrocessional recoveries ........ (1,640) NA NA NA
Net cumulative redundancy
(deficiency) through
December 31, 1998:
--------- --------- --------- ---------
Amount ......................... (2,768) (3,183) (161) 6,547
Percentage ..................... (7%) (10%) 0% 19%
</TABLE>
-16-
<PAGE>
<PAGE>
During 1998, PXRE experienced savings of $532,000 net, for prior year
losses and loss expenses primarily related to the triggering of the
retrocessional recovery on a 1994 aviation loss offset in part by adverse
development due to the 1997 German, Polish and Czech floods.
During 1997, PXRE experienced savings of $3,917,000 net, for prior-year
losses 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 redundancies in
1995-1997 demonstrated by the above table, and that the strengthening of
reserves in 1990-1994, 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 redundancy in 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.
-17-
<PAGE>
<PAGE>
Conditions and trends that have affected reserve development in the past
may not necessarily occur in the future. Accordingly, it would not be
appropriate to extrapolate future redundancies or deficiencies based on the
foregoing.
Investments
PXRE's management has established general procedures and guidelines for
its investment portfolio and oversees investment management carried out by
Phoenix Investment Partners, Limited (formerly Phoenix Duff & Phelps
Corporation), a public majority-owned subsidiary of Phoenix Home Life, and by
selected other investment managers. PXRE's invested assets include equities and
investments in limited partnerships, real estate investment trusts ("REITS"),
emerging market debt and other high yield bonds, 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, 1998, PXRE's investment portfolio
consisted primarily of fixed maturities and short-term investments. As at
December 31, 1998, PXRE had invested $41,146,000 in equity securities. PXRE also
held $65,164,000 of other invested assets at December 31, 1998 comprised
principally of investments in various limited partnerships accounted for under
the equity method, whereby both the investment income and any change in the
market value are recorded through the investment income line of the income
statement. The investment policies of PXRE stress conservation of principal,
diversification of risk, and liquidity, and all investments of PXRE are approved
by its Board of Directors.
-18-
<PAGE>
<PAGE>
The following table summarizes the investments of PXRE at December 31,
1998 and 1997:
Analysis of Investments
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------ ------------------
Amount Percent Amount Percent
------ ------- ------ -------
(in thousands, except percentages)
<S> <C> <C> <C> <C>
Fixed maturities (at amortized cost):
United States government securities $113,030 23.9% $165,576 32.2%
Foreign government securities 43,815 9.3 28,112 5.5
United States government agency
mortgage and asset-backed securities 1,087 0.2 24,095 4.7
Other mortgage and asset-backed
securities 43,175 9.1 72,200 14.1
Obligations of states and political
subdivisions 97,470 20.6 104,001 20.2
Public utilities, industrial and
miscellaneous securities 10,081 2.1 5,161 1.0
-------- ----- -------- -----
Total fixed maturities 308,658 65.2 399,145 77.7
Equity securities (at cost) 41,146 8.7 21,049 4.1
Short-term investments (at cost) 57,244 12.1 51,049 9.9
Other invested assets (at cost) 66,588 14.0 42,375 8.3
-------- ----- -------- -----
Total investments $473,636 100.0% $513,618 100.0%
======== ===== ======== =====
</TABLE>
At December 31, 1998, the fair value of PXRE's investment portfolio
exceeded its amortized cost by $841,000. At December 31, 1997, the fair value of
PXRE's investment portfolio exceeded its amortized cost by $7,842,000.
-19-
<PAGE>
<PAGE>
The following table indicates the composition of PXRE's fixed maturity
investments (at amortized cost), including short-term investments (at cost), by
time to maturity at December 31, 1998 and 1997:
Composition of Investments By Maturity
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------- -------------------
Amount Percent Amount Percent
------ ------- ------ -------
(in thousands, except percentages)
<S> <C> <C> <C> <C>
Maturity(1)
One year or less $ 73,955 20.2% $100,892 22.4%
Over 1 year through 5 years 121,627 33.2 149,944 33.3
Over 5 years through 10 years 65,077 17.8 57,660 12.8
Over 10 years through 20 years 27,777 7.6 20,223 4.5
Over 20 years 33,204 9.1 25,180 5.6
-------- ----- -------- -----
321,640 87.9 353,899 78.6
United States government agency
and other mortgage-backed
securities 44,262 12.1 96,295 21.4
-------- ----- -------- -----
Total $365,902 100.0% $450,194 100.0%
======== ===== ======== =====
</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, 1998 and December 31, 1997 was 5.9% and 6.1%, respectively. At
December 31, 1998, the fair value of PXRE's fixed maturities portfolio exceeded
its amortized cost by $819,000. At December 31, 1997, the fair value of PXRE's
fixed maturities portfolio exceeded its amortized cost by $6,805,000.
-20-
<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, 1998 and 1997:
Composition of Fixed Maturities Portfolio By Rating
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
Amount Percent Amount Percent
------ ------- ------ -------
(in thousands, except percentages)
<S> <C> <C> <C> <C>
Ratings(1)
- ----------
United States government securities $113,030 36.6% $165,576 41.5%
United States government agency
mortgage and asset-backed securities 1,087 0.4 24,095 6.0
Other mortgage and asset-backed securities
Aaa and/or AAA 34,558 11.2 57,245 14.4
Aa and/or AA -- -- 12,955 3.2
A2 and/or A 8,000 2.6 -- --
Baa2 and/or BBB 616 0.2 -- --
Ba2 and/or BB -- -- 2,000 0.5
Obligations of states and political
subdivisions
Aaa and/or AAA 64,883 21.0 61,521 15.4
Aa2 and/or AA 32,587 10.6 40,470 10.2
A2 and/or A -- -- 2,010 0.5
Public utilities and industrial and
miscellaneous securities
A2 and/or A 749 0.2 -- --
Baa2 and/or BBB 4,226 1.4 -- --
Ba2 and/or BB 3,117 1.0 5,161 1.3
B2 and/or B 1,989 0.6 -- --
Foreign government securities
Baa2 and/or BBB 3,820 1.2 3,787 0.9
Ba2 and/or BB 30,196 9.8 16,458 4.1
B2 and/or B 8,618 2.8 7,867 2.0
CA and/or CC 1,182 0.4 -- --
-------- ----- -------- -----
Total $308,658 100.0% $399,145 100.0%
======== ===== ======== =====
</TABLE>
- ----------
(1) Ratings as assigned by Moody's Investors Service, Inc. ("Moody's") and
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 total returns while maintaining liquidity and superior credit
quality. Consistent with the foregoing, during 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
-21-
<PAGE>
<PAGE>
markets securities, tax-free municipals, investment grade Yankee bonds, a number
of limited partnership investments and, to a lesser extent, equity investments.
During 1998, PXRE continued this repositioning of its portfolio adding to
various of the new sectors and adding a broad cross section of REITS. PXRE
expects to continue this repositioning in 1999. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations --Liquidity and
Capital Resources -- Market Risk."
Marketing
In the United States, PXRE currently reinsures both national and regional
insurance and reinsurance companies and specialty insurance companies. PXRE also
provides reinsurance for international insurance and reinsurance companies
principally headquartered in the United Kingdom, Continental Europe, Australia,
and Asia.
Historically, PXRE has obtained most of its facultative and substantially
all of its treaty reinsurance business through reinsurance intermediaries which
represent reinsureds in negotiations for the purchase of reinsurance. None of
the reinsurance intermediaries through which PXRE obtains this 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 22.6%, 14.0% and 10.5% of gross premiums written in fiscal
year 1998 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.
In mid-1998 PXRE established a direct writing reinsurance unit to
complement its existing brokerage-based reinsurance operations.
Competition
Competitive forces in the property and casualty reinsurance and insurance
business are substantial. PXRE Reinsurance operates in a reinsurance industry
which 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 Reinsurance competes with numerous major national
and international reinsurance and insurance companies. These competitors, many
of which have substantially greater financial, marketing and management
-22-
<PAGE>
<PAGE>
resources than PXRE Reinsurance, include independent reinsurance companies,
subsidiaries or affiliates of established worldwide insurance companies,
reinsurance departments of certain commercial insurance companies, and
underwriting syndicates. PXRE Reinsurance 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 Reinsurance.
Although PXRE Reinsurance historically has obtained most of its
facultative and substantially all of its treaty reinsurance business through
reinsurance intermediaries or brokers, it competes indirectly with reinsurers
who obtain business directly from primary insurers because PXRE Reinsurance's
brokers must compete with direct reinsurers for business to be forwarded to PXRE
Reinsurance, and newly established direct writing reinsurance unit competes
directly with other direct reinsurers. PXRE Reinsurance therefore competes both
with reinsurers that obtain business directly from reinsureds and with
reinsurers that obtain their business through intermediaries and brokers.
Competition in the types of reinsurance business which PXRE Reinsurance
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, Vermont and Washington) and the
District of Columbia, Puerto Rico and Mexico, and PXRE Reinsurance's Brussels
Branch operates from Belgium.
Transnational Insurance operates in the highly competitive excess and
surplus lines insurance market and, as a new entrant to the market,
Transnational Insurance faces substantial competition from established domestic
and foreign insurers, many of which are larger and have greater financial,
marketing and management resources. Competition in the domestic property and
casualty surplus lines insurance market is based on many factors, including
financial strength of the insurer, A.M. Best rating, surplus lines eligibility,
premiums charged, policy terms and conditions, reputation, services offered and
broker commissions. Moreover, the market is subject to significant cycles of
fluctuating capacity and wide disparities in pricing adequacy. Transnational
Insurance is eligible to write business on a surplus lines basis in 36 states
and the District of Columbia, Guam and the U.S. Virgin Islands. Transnational
Insurance is currently seeking approval as an "eligible" surplus lines insurer
in an additional 13 states and in Puerto Rico.
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. Although the venture has developed
-23-
<PAGE>
<PAGE>
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,
1998.
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.
In addition, PXRE, PXRE Reinsurance and Transnational Insurance are
subject to regulation by state insurance authorities under the 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 their insurance holding
company system, unless they have first notified the Connecticut Insurance
Commissioner of their 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
-24-
<PAGE>
<PAGE>
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 1999, without regulatory approval, is
$44,722,900. During 1998, $57,388,000 in dividends were paid by PXRE Reinsurance
to PXRE. During 1998, no dividends were paid by Transnational Insurance to PXRE
Reinsurance. 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, 1998, 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 take affect in 2001, 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.
-25-
<PAGE>
<PAGE>
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, 1998, 1997 and 1996,
PXRE Reinsurance's results were within the usual values for each of the eleven
ratios, except for one ratio in 1996 and one in 1998. PXRE's management believes
that the ratio fell outside the usual range in 1996 due to the increase in
surplus after Transnational Insurance became a wholly-owned subsidiary of PXRE
Reinsurance and that the ratio fell outside the usual range in 1998 due to the
substantial turmoil in global securities markets and the resulting decline in
the value of certain limited partnership investments. During the 1996-8 period,
Transnational Insurance's results were within the usual values for each of the
eleven ratios except for two ratios in 1997, when Transnational Insurance 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, and except for one ratio in 1998 which fell outside
the usual range due primarily to the change in net writings associated with
business written in 1994 to 1996.
PXRE Limited, PXRE Managing Agency and PXRE Lloyd's Syndicate are subject
to regulation by Lloyd's. 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. PXRE Lloyd's Syndicate has to comply with accounting
regulation, internal reporting and periodic examinations of compliance. The
Lloyd's market is regulated externally by the Financial Services Authority,
although the day to day regulation of the market remains the responsibility of
the Council of Lloyd's.
Transnational Insurance is only licensed to underwrite insurance business
in the State of Connecticut. In the various other states, Transnational
Insurance is underwriting its insurance business on an excess and surplus lines
basis. Surplus lines laws permit unlicensed insurers to underwrite risks when
the desired coverage is not available from licensed companies. Surplus lines
placements are regulated generally by permitting specially licensed surplus
lines brokers to place business with "eligible" or "approved" surplus lines
insurers. Qualification as an eligible surplus lines insurer requires
Transnational Insurance to satisfy certain capital and surplus requirements and
reporting requirements and to establish trust funds for the benefit of
policyholders in such states, and also requires brokers placing business with
Transnational Insurance to submit evidence to state insurance authorities that
the same coverage is not available from a licensed insurer. Transnational
Insurance currently maintains a trust fund in the amount of $2,500,000.
-26-
<PAGE>
<PAGE>
In a number of states, the determination of whether an insurer qualifies
as an "eligible" surplus lines insurer is made by the state insurance
authorities, who maintain a list of such "eligible" or "approved" insurers. In
the remaining states, the determination of whether an insurer is "eligible" is
made by the surplus lines broker.
Employees
PXRE employed 77 full-time employees as at December 31, 1998. 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 43,244 square feet of office space in
Edison, New Jersey (PXRE's corporate headquarters), Norwalk, Connecticut,
Richmond, Virginia, San Francisco, California, 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. PXRE is
negotiating for an additional 24,000 square feet of office space at its
corporate headquarters.
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 stockholders holders during the
fourth quarter of PXRE's 1998 fiscal year.
-27-
<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". 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 and cash dividends per share of common
stock declared and subsequently paid:
Bid Price
-------------
High Low Dividends
---- --- ---------
1997:
First Quarter $ 26.875 $ 24.500 $ 0.21
Second Quarter 31.438 24.750 0.21
Third Quarter 31.688 29.500 0.21
Fourth Quarter 34.000 29.563 0.25
1998:
First Quarter $ 35.250 $ 29.375 $ 0.25
Second Quarter 32.875 29.000 0.25
Third Quarter 30.500 25.625 0.25
Fourth Quarter 26.688 20.625 0.26
These prices represent quotations by dealers and do not include markups,
markdowns, or commissions, and do not necessarily represent actual transactions.
As of March 19, 1999, there were 11,856,115 shares of the common stock issued
and outstanding, which shares were held by approximately 180 shareholders of
record and, based on PXRE's best information, by approximately 1500
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.
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
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<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 PXRE's bank credit agreement 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 PXRE's bank credit agreement and under state insurance
law.
-29-
<PAGE>
<PAGE>
Item 6. Selected Financial Data.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1998 1997 1996 1995 1994
(1)(2) (1)(2) (2)
--------- --------- --------- --------- ---------
(in thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Gross premiums written $ 136,215 $ 126,232 $ 114,348 $ 155,380 $ 179,684
Premiums ceded (47,521) (26,177) (46,630) (57,744) (71,166)
--------- --------- --------- --------- ---------
Net premiums written 88,694 100,055 67,718 97,636 108,518
Change in unearned premiums 3,692 (8,640) 5,078 (494) 2,083
--------- --------- --------- --------- ---------
Net premiums earned 92,386 91,415 72,796 97,142 110,601
Net investment income 19,612 31,191 16,782 14,730 13,786
Net realized investment (losses) gains (3,862) 2,467 94 85 (1,164)
Management fee(2) 2,172 3,006 6,032 6,417 6,992
--------- --------- --------- --------- ---------
Total revenues 110,308 128,079 95,704 118,374 130,215
--------- --------- --------- --------- ---------
Losses and loss expenses incurred 57,793 12,491 18,564 34,716 52,647
Commissions and brokerage 20,563 19,138 12,874 13,251 15,026
Other operating expenses 19,313 15,716 12,262 11,237 8,365
Interest expense 1,395 3,325 6,957 7,143 7,789
Minority interest in consolidated subsidiary 8,928 8,184 -- -- --
--------- --------- --------- --------- ---------
Total losses and expenses 107,992 58,854 50,657 66,347 83,827
--------- --------- --------- --------- ---------
Income before income taxes, extraordinary
item and equity in net earnings of TREX 2,316 69,225 45,047 52,027 46,388
Equity in net earnings of TREX(2) 0 0 3,898 5,948 4,141
Income tax (benefit) provision (1,206) 22,198 15,644 18,189 15,700
--------- --------- --------- --------- ---------
Net income (before extraordinary loss) 3,522 47,027 33,301 39,786 34,829
Extraordinary loss on debt redemption,
net of tax 843 2,774 -- -- --
--------- --------- --------- --------- ---------
Net income $ 2,679 $ 44,253 $ 33,301 $ 39,786 $ 34,829
========= ========= ========= ========= =========
Preferred stock dividend(3) 0 0 0 599 2,005
========= ========= ========= ========= =========
Net income available to common
stockholders $ 2,679 $ 44,253 $ 33,301 $ 39,187 $ 32,824
========= ========= ========= ========= =========
</TABLE>
-30-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
(1)(2) (1)(2) (2)
--------- --------- --------- --------- ---------
(in thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges(4) 1.09 6.59 7.15 7.90 6.73
Ratio of earnings to combined fixed charges
and preferred dividends(4) 1.09 6.59 7.15 7.04 4.90
Basic earnings per common share:
Net income
(before extraordinary item) $ 0.26 $ 3.41 $ 3.73 $ 4.81 $ 4.99
Extraordinary loss 0.06 0.20 -- -- --
--------- --------- --------- --------- ---------
Net income $ 0.20 $ 3.21 $ 3.73 $ 4.81 $ 4.99
========= ========= ========= ========= =========
Average common shares outstanding(2)(3) 13,339 13,776 8,922 8,150 6,580
========= ========= ========= ========= =========
Diluted earnings per common share:
Net income
(before extraordinary item) $ 0.26 $ 3.39 $ 3.69 $ 4.52 $ 3.99
Extraordinary loss 0.06 0.20 -- -- --
--------- --------- --------- --------- ---------
Net income $ 0.20 $ 3.19 $ 3.69 $ 4.52 $ 3.99
========= ========= ========= ========= =========
Average common shares outstanding(2) 13,452 13,893 9,020 8,812 8,719
========= ========= ========= ========= =========
Cash dividends per common share $ 1.01 $ 0.88 $ 0.75 $ 0.63 $ 0.375
Other Operating Data:
GAAP loss ratio(5) 62.6% 13.7% 25.5% 35.7% 47.6%
GAAP underwriting expense ratio(5) 40.9% 34.8% 26.2% 18.6% 14.8%
--------- --------- --------- --------- ---------
GAAP combined ratio(5) 103.5% 48.5% 51.7% 54.3% 62.4%
========= ========= ========= ========= =========
<CAPTION>
As of December 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(in thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and investments $ 490,594 $ 527,738 $ 467,078 $ 269,089 $ 231,789
Total assets 632,691 608,172 543,324 396,084 353,794
Losses and loss expenses 102,592 57,189 70,977 72,719 81,836
Minority interest in consolidated subsidiary 99,517 99,513 -- -- --
Debt/notes payable 50,000 21,414 64,725 67,775 69,700
Total stockholders' equity 334,376 386,688 357,678 211,162 166,771
Book value per common share $ 27.13 $ 28.10 $ 25.63 $ 24.15 $ 21.27
Statutory capital and surplus of
PXRE Reinsurance $ 447,229 $ 451,321 $ 400,133 $ 250,231 $ 211,988
</TABLE>
- ----------
(1) The U.K. operations of PXRE Limited and PXRE Managing Agency are included
in the consolidated results on a one quarter lag basis beginning in 1997.
(2) 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 1994 and 1995
and for the period from January 1, 1996 until December
-31-
<PAGE>
<PAGE>
11, 1996, PXRE recorded equity in net earnings of TREX. 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.
(3) During 1995, all of PXRE's outstanding shares of Series A Cumulative
Convertible 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.
(4) 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.
(5) 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.
-32-
<PAGE>
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
The property and casualty reinsurance industry has been experiencing
an extended period of soft market conditions. Competition has increased in
recent years as a result of the ability of companies to raise additional capital
and the use of both traditional and non-traditional reinsurance products. The
level of excess capital has also been aided by favorable financial markets and
the lower than normal number of major catastrophe losses in recent years.
Consolidation has been, and continues to be, another dominant trend in the
reinsurance industry. Companies are now larger, offer significantly more
capacity to ceding companies and have greater access to capital through capital
markets or their parent organizations. Further, Lloyd's has rebounded from a
period of uncertainty and is now aggressively competitive. The result is an
oversupply of capacity in the industry.
Despite soft market conditions, PXRE has taken advantage of both the
availability of capital in the financial markets and new opportunities in the
business. PXRE has raised additional capital for its reinsurance operations to
increase its capacity to underwrite risks and to position PXRE to take advantage
of market opportunities. Since its formation more than a decade ago, PXRE has
specialized in property reinsurance, including a strong focus on
catastrophe-related products. Although catastrophe-related coverages experienced
substantial improvements in pricing in 1993 to 1994 and other terms following
high levels of catastrophic loss activity experienced by the worldwide insurance
industry, coverage terms have been deteriorating since the beginning of 1995. In
response, PXRE has moved to layers of risk that are less affected by competitive
pressures and has reduced commitments on marginally priced business. Meanwhile,
PXRE has taken a number of initiatives to enable it to write new business, and
position itself for renewed growth during the current soft market. In late 1996,
PXRE completed the organization of PXRE Managing Agency and PXRE Lloyd's
Syndicate, thereby establishing a direct presence in the Lloyd's market and
accessing specialty types of insurance and reinsurance on a worldwide basis.
Underwriting premium volume and loss experience related to the business of PXRE
Lloyd's Syndicate is included in PXRE's consolidated results on a quarter lag
basis, commencing in the quarter ended June 30, 1997. In addition, in the first
quarter of 1998 Transnational Insurance (formerly Transnational Reinsurance),
PXRE's newly established excess and surplus lines carrier, commenced operations,
specializing in non-standard and excess property insurance risks. In mid-1998,
PXRE added teams of direct writing reinsurance professionals to establish a
direct writing reinsurance unit and international reinsurance executives both to
complement PXRE's existing brokerage-based reinsurance operations and to provide
excess of loss short tail casualty products for casualty markets, primarily
commencing with January 1999 renewals. PXRE has not previously had a significant
presence in any casualty markets. These steps are expected over time to reduce
the volatility associated with PXRE's catastrophe coverages which are expected
to fall below 50% of gross premiums written in 1999. Also in 1998, PXRE further
strengthened its Lloyd's unit with additional professionals and that unit is now
expanding into the provision of services to start-up syndicates and captives at
Lloyd's.
-33-
<PAGE>
<PAGE>
At December 31, 1998, PXRE was a party to retrocessional arrangements with
a number of insurers and reinsurers. 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, initially based on premium volume, adjusted in some cases through
contingent profit commissions related to underwriting results measured over a
period of years. Future management fee income is dependent upon the amount of
business ceded to the participants and the profitability of that business.
Another arrangement with Select Re, a Bermuda reinsurer, formerly Investors
Reinsurance Ltd, was renegotiated in 1998, and involves a five-year fee based
undertaking to produce and underwrite business with Select Re. The Board of
Directors of Select Re includes PXRE's Chief Executive Officer.
PXRE also purchases catastrophe retrocessional coverage for its own
protection, depending on market conditions. PXRE has significantly increased its
purchases of such coverage in 1998 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.
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.
In addition, the potential for uncertainty for the 1998 underwriting year
is greater than in the past years because of the increased casualty exposures
assumed by PXRE. Unlike property losses that tend to be reported more promptly
and usually are settled within a shorter time period, casualty losses are
frequently slower to be reported and may
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<PAGE>
<PAGE>
be determined only through the lengthy, unpredictable process of litigation.
Moreover, given its recent expansion of casualty business, PXRE's does not have
an established historical loss pattern that can be used to establish casualty
loss liabilities. PXRE must therefore rely on the inherently less reliable
historical losses patterns reported by ceding companies and industry loss
standards in calculating its liabilities.
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 events 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.
PXRE's invested assets include equities and investments in limited
partnerships, real estate investment trusts, emerging market debt and other high
yield bonds and 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. PXRE's
investment guidelines stress conservation of principal, diversification of risk
and liquidity.
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
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<PAGE>
<PAGE>
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 1998 with 1997
Year Ended December 31,
Increase
1998 1997 (Decrease)
---- ---- ----------
(000's) %
Gross premiums written $136,215 $126,232 7.9
Ceded premiums:
- ---------------
Managed business participants 21,542 16,534 30.3
Catastrophe coverage 25,979 9,643 169.4
-------- --------
Total reinsurance premiums ceded 47,521 26,177 81.5
-------- --------
Net premiums written $ 88,694 $100,055 (11.4)
======== ========
Gross premiums written for 1998 increased 7.9% to $136,215,000 from
$126,232,000 for 1997. Net premiums written for the year ended December 31, 1998
decreased 11.4% to $88,694,000 from $100,055,000 as PXRE increased the purchase
of reinsurance and retrocessional coverage in 1998. Net premiums earned for the
year ended December 31, 1998, increased 1.1% to $92,386,000 from $91,415,000 in
1997. The contribution of PXRE Lloyd's Syndicate operation, which commenced in
the first quarter of 1997, together with PXRE's new business initiatives
commenced in 1998, more than offset the continued impact of an intensely
competitive market on PXRE's other business lines and helped PXRE increase its
premium volume during the fourth quarter of 1998. New business expansion in 1998
included an international treaty underwriting team, excess and surplus lines
written by Transnational Insurance, new international facultative business, and
PXRE's new direct writing team.
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<PAGE>
<PAGE>
Premiums ceded by PXRE to its managed business participants increased
30.3% to $21,542,000 for 1998 compared with $16,534,000 for 1997. The increase
in premiums ceded to these programs was due primarily to an increased cession
rate to Select Re and cessions from new operations offset in part by the effect
of declines in gross premiums written in PXRE's traditional operations.
In 1998, opportunistic purchases of catastrophe retrocessional protection
increased catastrophe written premiums ceded partially due to a change in the
payment mode, in part due to reinstatement premiums associated with Hurricane
Georges and in part due to additional coverage associated with new operations.
PXRE's property business is protected by a series of retrocessional agreements
which currently provide protection principally against unusual severity of loss
and are not designed to protect PXRE's exposure to smaller, more frequent loss
occurrences.
Management fee income from all sources for the year ended December 31,
1998 decreased 27.7% to $2,172,000 from $3,006,000 for 1997, reflecting a
reduced profit commission primarily associated with Hurricane Georges and the
two aerospace catastrophes discussed below and a higher combined ratio on the
change in business mix reflected in the higher ceded premiums written, offset,
in part, by an increase in management fee income earned from Select Re.
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 62.6% for 1998 compared with 13.7% for 1997 largely due
to Hurricane Georges, two aerospace catastrophes and the higher average loss
ratio from the PXRE Lloyd's Syndicate operation, the new excess and surplus
lines business and new international operations. The loss ratio for 1998
reflected incurred catastrophe losses of $55,564,000 gross and $29,437,000 net
for 1998 and prior accident years. In comparison, the loss ratio for 1997
reflected a re-estimation, which reduced catastrophe losses by $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.
Significant catastrophe and satellite losses affecting the year ended
December 31, 1998 loss ratio are as follows:
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<PAGE>
<PAGE>
Amount of Losses
----------------
Loss Event Gross Net
- ---------- ----- ---
(in thousands)
Hurricane Georges $49,106 $25,753
Hailstorms 4,521 3,597
Swissair and Delta 3 Satellites 4,087 3,399
Significant catastrophe and risk losses affecting the year ended December 31,
1997 loss ratio are as follows:
Amount of Losses
----------------
Loss Event Gross Net
- ---------- ----- ---
(in thousands)
German, Poland and Czech Floods $1,739 $1,457
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 loss of $675,000 for 1998
compared to a gain of $627,000 for 1997.
During 1998, PXRE experienced savings of $532,000 net for prior-year loss
and loss expenses primarily related to the triggering of a retrocessional
recovery on a 1994 aviation loss offset in part by adverse development due to
the 1997 German, Poland and Czech floods. The loss ratio for 1997 was favorably
affected by decreases to reserves 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 underwriting expense ratio was 40.9% for 1998 compared with 34.8% for
1997. The increase in underwriting expense ratio was substantially due to higher
acquisition expenses and contingent commissions on certain business. In
addition, PXRE's diversification strategy announced in the second quarter of
1998, involving the addition of direct writing and international teams, and
PXRE's strengthening of its Lloyd's and Brussel's units contributed a
significant portion of the $3,597,000 of additional overhead expenses in 1998 in
addition to expenses associated with the first year of underwriting operations
for Transnational Insurance.
As a result of the above, the combined ratio was 103.5% for 1998 compared
with 48.5% for 1997.
Other operating expenses increased to $19,313,000 for the year ended
December 31, 1998 from $15,716,000 in 1997. The increase was mainly due to
salary and benefits expenses associated with new operations. Included in other
operating expenses were foreign currency exchange gains of $204,000 for 1998
compared to losses of $1,221,000 for the corresponding period of 1997.
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<PAGE>
<PAGE>
During 1998, interest expense decreased to $1,395,000 as compared to
$3,325,000 in 1997 due to the effect of repurchases of PXRE's 9.75% Senior Notes
in open market purchases and the redemption of the remaining Senior Notes on
August 15, 1998 (see "Liquidity and Capital Resources"). In addition, during
1998 PXRE incurred minority interest expense amounting to $8,928,000 related to
PXRE's $100 million of 8.85% Capital Trust Pass-through Securities `sm' (TRUPS
`sm') (as described below under "Liquidity and Capital Resources") compared to
$8,184,000 in 1997. The increase in 1998 reflects the fact that the obligation
was only outstanding during a portion of 1997.
In 1998, PXRE recorded an extraordinary loss of $843,000, net of tax, in
connection with the redemption of $20.4 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 the year ended December 31, 1998 decreased 37.1%
to $19,612,000 from $31,191,000 for 1997. The decrease in net investment income
was largely due to the substantial turmoil witnessed in global securities
markets during the third and fourth quarters of 1998 and the resulting decline
in value of certain of PXRE's limited partnership investments. PXRE's pre-tax
investment yield was 4.3% for 1998 compared with 6.3% for 1997, both calculated
using amortized cost and investment income before investment expenses. The
decline in yield was primarily due to returns on the limited partnership
investments. Net realized investment losses for 1998 were $3,862,000 compared to
gains of $2,467,000 for 1997, which includes trading in investment products
having characteristics similar to the types of reinsurance PXRE traditionally
assumes. In 1998, PXRE recorded the markdown of a Russian bond that is in
technical default. This loss was recorded as realized which resulted in a
pre-tax loss of $6,600,000.
The net effects of foreign currency exchange fluctuations were losses of
$471,000 in 1998, as compared to losses of $594,000 for 1997.
For the reasons discussed above, net income was $2,679,000 for 1998
compared to net income of $44,253,000 for 1997. Diluted income per common share
before extraordinary loss was $0.26 for 1998 compared to $3.39 for the prior
year. Diluted net income per common share was $0.20 for 1998 compared to $3.19
for 1997 based on diluted average shares outstanding of approximately 13,452,000
in 1998 and 13,893,000 in 1997.
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<PAGE>
<PAGE>
Comparison of 1997 and 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, 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 1996 as reported and decreased 12.3% from $143,987,000 on a pro
forma basis in 1996. Net premiums earned for the year ended December 31, 1997,
increased 25.6% to $91,415,000 from $72,796,000 for 1996 as reported, and
decreased 25.7% from $123,042,000 on a pro forma basis in 1996. Net premiums
written for the year ended December 31, 1997, increased 47.8% to $100,055,000
from $67,718,000 for 1996 as reported, and decreased 14.2% from $116,604,000 in
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 response to this
increasingly competitive environment by withdrawing capacity from areas of
coverage not offering appropriate compensation for the exposure.
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<PAGE>
<PAGE>
Premiums ceded by PXRE to its managed business participants decreased
22.1% to $16,534,000 for 1997 compared with $21,238,000 for 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 it's 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 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 1996 on a pro forma basis,
reflecting the decreased amount of ceded premium, offset in part by more
profitable business.
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.
Significant catastrophe and risk losses affecting the year ended December
31, 1997 loss ratio are as follows:
Amount of Losses
----------------
Loss Event Gross Net
- ---------- ----- ---
(in thousands)
German, Poland and Czech floods $1,739 $1,457
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<PAGE>
<PAGE>
Significant catastrophe and risk losses affecting the year ended December
31, 1996 loss ratio are as follows:
As Reported Pro Forma
----------- ---------
Amount of Losses
----------------
Loss Event Gross Net Gross Net
- ---------- ----- --- ----- ---
(in thousands)
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
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
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.
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
PXRE 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 1996 as reported, and $15,195,000 for 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 1996 as reported, and
gains of $210,000 for 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.
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<PAGE>
<PAGE>
During 1997, interest expense decreased to $3,325,000 as compared to
$6,957,000 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 PXRE's $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 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 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 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.
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 1996 as reported, and $49,161,000 for 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 1996 as reported, and $3.42 for 1996 on a pro forma
basis based on average shares outstanding of approximately 13,893,000 in 1997,
9,020,000 in 1996 as reported, and 14,389,000 in 1996 on a pro forma basis.
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<PAGE>
<PAGE>
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 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
1999, without regulatory approval, is $44,722,900. During 1998, no dividends
were paid by Transnational Insurance to PXRE Reinsurance. During 1998,
$57,388,000 in dividends were paid by PXRE Reinsurance to PXRE.
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.
In December 1998 PXRE entered into a Credit Agreement dated as of December
30, 1998 (the "Credit Agreement") with First Union National Bank ("First Union")
as Agent and as a Lender, pursuant to which First Union and additional Lenders
which may become parties thereto agree to make available to PXRE a revolving
credit facility. As at December 31, 1998, PXRE had outstanding borrowings under
the Credit Agreement of $50,000,000, the net proceeds of which were contributed
to the capital of PXRE Reinsurance. Loans under the Credit Agreement bear
interest at an annual rate equal to First Union's base rate, as in effect from
time to time, for
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<PAGE>
<PAGE>
base rate loans or at a margin (.875% as of December 31, 1998) over First
Union's Eurodollar rate for periods of 30, 60, 90 or 180 days for LIBOR loans.
In connection with the Credit Agreement, PXRE and First Union entered into an
interest rate swap which, effective December 31, 1998, has the intended effect
of converting such $50 million borrowings by PXRE into a fixed rate borrowing at
an annual interest of 6.215%. Commitments under the Credit Agreement terminate
on March 31, 2005 and are subject to annual reductions of 13 1/3% commencing
March 31, 2000 and 33 1/3% on March 31, 2005, and, unless due or paid sooner,
the aggregate principal of the loans are due and payable in full on March 31,
2005.
The Credit Agreement contains covenants which, among other things, limit
the ability of PXRE and its subsidiaries (including PXRE Reinsurance,
Transnational Insurance and PXRE Limited): (a) to incur additional Indebtedness
(other than certain permitted Indebtedness); (b) to create Liens upon their
properties or assets (other than Permitted Liens); (c) to sell, transfer or
otherwise dispose of their assets, business or properties (other than certain
permitted dispositions); (d) to make additional Investments (other than certain
permitted Investments, including Permitted Acquisitions and other Investments in
compliance with, among other things, applicable law and the limitations set
forth in the investment policy of PXRE Reinsurance in effect on December 30,
1998 and not exceeding specified limits); (e) to pay dividends or repurchase
stock if after giving effect thereto a Default or Event of Default exists or the
Fixed Charge Coverage Ratio would be less than 1.5 to 1.0 as defined in the
Credit Agreement; (f) to enter into certain transactions with Affiliates; (g) to
engage in any business other than (1) the businesses engaged in on December 30,
1998 and businesses and activities reasonably related thereto or (2) in the case
of any Insurance Subsidiary, the sale of any property and casualty insurance or
reinsurance products; (h) to enter into or remain a party to certain ceded
reinsurance agreements (1) with certain reinsurers that are neither rated "A-"
or better by A.M. Best nor have financial strength ratings of "A-" or better by
S&P or Moody's unless such reinsurers are Lloyd's syndicates and Lloyd's
maintains a rating of "A-" or better by A.M. Best or S&P or such reinsurers have
provided appropriate collateral in respect of their obligations, or (2) which
constitute Surplus Relief Agreements and which increase Combined Statutory
Capital and Surplus by more than 5% as of the most recent fiscal year end; or
(i) to consolidate, merge or otherwise combine (or agree to do any of the
foregoing) unless, among other things, (1) PXRE is the surviving entity in such
merger or consolidation, (2) such merger or consolidation constitutes a
Permitted Acquisition and the conditions and requirements of the Credit
Agreement are complied with and (3) immediately thereafter no Default or Event
of Default exists. The Credit Agreement also requires PXRE and PXRE Reinsurance
where applicable to meet Leverage Ratio, Fixed Charge Coverage Ratio, Risk-Based
Capital Ratio and Combined Statutory Surplus requirements. As at December 31,
1998 PXRE was in compliance with the covenants contained in the Credit
Agreement.
The Credit Agreement enumerates various Events of Default, including but
not limited to, if: (1) any Person or group becomes the "beneficial owner" of
securities of PXRE representing 20% or more of the combined voting power of the
then outstanding securities of PXRE ordinarily having the right to vote in the
election of directors; or (2) the Board of Directors of PXRE ceases to consist
of a majority of the individuals who constituted the Board as of December 30,
1998 or who subsequently become members after having been nominated, or
otherwise approved in writing, by at least a majority of individuals who
constituted the
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<PAGE>
<PAGE>
Board as of December 30, 1998 (or their approved replacements). A copy of the
Credit Agreement is filed as Exhibit 4.8 and is incorporated herein by
reference.
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 1998 in respect of
the Capital Securities (and related Subordinated Debt Securities) amounted to
approximately $8,928,000. 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, 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 the net proceeds from the sale of the Capital Securities for
general corporate purposes, including the redemption and the purchase 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 expense, including
amortization of debt offering costs, for 1998 in respect of the Senior Notes
amounted to approximately $1,395,000. As previously announced, PXRE elected to
redeem on August 15, 1998, all of the outstanding 9.75% Senior Notes due August
15, 2003, issued under the Indenture dated August 31, 1993.
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<PAGE>
<PAGE>
The Notes were redeemed at a price of 103.656% of the principal amount,
plus accrued interest thereon to August 15, 1998, and, as a result, PXRE
recorded an extraordinary loss of $843,000, net of tax, in the third quarter of
1998, including the remaining unamortized offering costs.
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 to PXRE (or will be
entitled to receive a credit if payments exceed the separate return tax
liability of the subsidiary).
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 and, 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 $4,955,000 in 1998 compared with
net cash flow provided by operations of $19,626,000 during 1997, due to a
decrease in net income and the effects of timing of collection of receivables
and reinsurance recoverables and payments of losses.
PXRE's management has established general procedures and guidelines for
its investment portfolio and oversees investment management carried out by
Phoenix Investment Partners, Limited (formerly Phoenix Duff & Phelps
Corporation), a public majority-owned subsidiary of Phoenix Home Life, and by
selected other investment managers. PXRE's invested assets include equities and
investments in limited partnerships, REITS, emerging market debt and other high
yield bonds, and PXRE's investments are subject to market-wide risks and
fluctuations, as well as to risk inherent in particular securities. At December
31, 1998, PXRE's investment portfolio consisted primarily of fixed maturities
and short-term investments. As at December 31, 1998, 77.6% of PXRE's investment
portfolio, at fair value, consisted of fixed maturities and short-term
investments, while the balance was in equity securities including various mutual
funds and other invested assets primarily in the form of limited partnerships.
The investment policies stress conservation of principal, diversification of
risk and liquidity and are approved by its Board of Directors.
Of PXRE's fixed maturities portfolio at December 31, 1998, 84.4% of the
fair value
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<PAGE>
<PAGE>
was in obligations rated "A2" or "A" or better by Moody's or S&P, respectively.
Mortgage backed securities accounted for 14.7% of fixed maturities based on fair
value at December 31, 1998. At December 31, 1998 PXRE had no investments in real
estate or commercial mortgage loans; however, PXRE has invested in common and
preferred shares of publicly traded REITS. The average market yield to maturity
of PXRE's fixed maturities portfolio at December 31, 1998 and 1997, was 5.9% and
6.1%, respectively. Starting in the first quarter of 1997, PXRE has 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, investment grade Yankee bonds,
a number of limited partnership investments and, to a lesser extent, equity
investments and a diversified REIT portfolio.
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
$3,167,000 after-tax unrealized loss in the value of its investment portfolio
($0.26 book value per share) at December 31, 1998, primarily from its emerging
market securities and from its overall bond and common stock portfolio
reflecting volatile market conditions during 1998.
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 investment in a limited partnership which invests
primarily in U.S. Treasury bills, were $58,862,000 at December 31, 1998 compared
to $52,905,000 at December 31, 1997. The increase at December 31, 1998 was
principally due to liquidity requirements associated with the PXRE Lloyd's
Syndicate operation. Other invested assets amounting to $65,164,000 at December
31, 1998, which were comprised principally of limited partnerships, were
accounted for under the equity method. The amount of equity loss included in
short-term investments and other invested assets at December 31, 1998 amounted
to $5,029,000 primarily from limited partnership investments in commodities.
During December 1998 and January 1999, PXRE divested itself of 80% of this
investment.
Dividends declared in 1998 were $13,585,333 compared to $12,209,000 in
1997, as a result of the increase in the per share quarterly dividend from $0.21
to $0.25 in the fourth quarter of 1997. The expected annual dividend based on
shares outstanding at December 31, 1998 will be approximately $12,817,000
reflecting a per share dividend increase to $0.26 per quarter commencing in the
fourth quarter of 1998.
Book value per common share was $27.13 at December 31, 1998.
During the fourth quarter of 1998, PXRE acquired 992,700 shares of common
stock under its current authorized stock repurchase program and, subsequent to
December 31, 1998 and through to March 19, 1999, PXRE has purchased an
additional 651,800 shares of common stock. PXRE continues to have authorization
under that plan to repurchase up to 648,200 shares. PXRE had 12,323,764 common
shares outstanding as of December 31, 1998.
PXRE may be subject to gains and losses resulting from currency
fluctuations because
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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 connection with the capitalization of PXRE Lloyd's Syndicate, PXRE has
placed on deposit $46,287,000 par value of U.S. government securities and
municipal bonds 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 municipal bonds for approximately $17,835,000. In addition,
PXRE has provided a ('L')5,000,000 ($8.3 million at December 31, 1998 exchange
rates) line of credit to PXRE Managing Agency for liquidity purposes. There has
been no drawdown of these amounts through December 31, 1998.
In September 1997, PXRE and Phoenix Home Life completed the formation of a
joint venture, Cat Bond Investors L.L.C., 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.
All amounts classified as reinsurance recoverable at December 31, 1998 are
considered by management of PXRE to be collectible in all material respects.
Market Risk
PXRE is exposed to market risks that are principally interest rate and
equity price risks. PXRE is exposed to potential losses from changes in interest
rates with respect to its investments, borrowings, and a related interest rate
swap. PXRE is exposed to potential losses from changes in equity prices with
respect to its investments. PXRE believes its exposure to foreign exchange risk
and exposures to other market risks represented by weather contracts, are not
currently material.
PXRE risk management strategy is to accept certain levels of market risks,
principally through its investment activities, in order to offset its insurance
exposures that may be considered actuarial rather than financial. The objectives
of PXRE's investment activities are to generate the required return from
selected market sectors and limit its exposures to market risks that may prevent
PXRE from servicing its insurance obligations. PXRE's Board of Directors
approves investment guidelines and the selection of external investment advisers
who manage PXRE's portfolios. The investment managers make tactical investment
decisions within the established guidelines. Management monitors the external
advisers through written reports that are reviewed and approved by the Board of
Directors. Management also manages diversification strategies across the
portfolios in order to limit PXRE's potential loss from any single market risk.
The performance and risk profiles of the portfolio are reported in various forms
throughout the fiscal year to management, the Board of Directors, rating
agencies,
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regulators, and to shareholders.
The investment portfolio of PXRE is summarized in the Notes to the
Financial Statements, Item 7, Management's Discussion and Analysis and Item 1,
Business.
Interest Rate Risk
PXRE's principal market risk exposure is to changes in domestic interest
rates. Changes in interest rates may affect the fair value of PXRE's
fixed-income portfolio, borrowings (Bank Debt and Trust Preferred) and a related
interest rate swap. PXRE's holdings subject it to exposures in the treasury,
municipal, and various asset-backed sectors. These sectors consist primarily of
investment grade securities whose fair value is subject to interest rate and
prepayment risk. All investment positions are long with no 'short' or derivative
positions.
PXRE's investment in foreign sovereign debt securities are subject to
interest rate risk which is included in the sensitivity analysis below. However,
the major risk factor with these sectors is credit risk. The fair values of
these securities reflect their below investment grade credit ratings. During the
third and fourth quarter of 1998, these sectors were subjected to substantial
declines in fair value during the instabilities from the emerging market crisis.
However, the value recovered substantially in the fourth quarter of 1998. The
potential loss estimated in this sensitivity analysis does not include a
separate estimate of losses from changes in credit spreads which, the Company
has experienced in the last two fiscal quarters. The Company does not expect
similar losses due to changes in credit spreads.
PXRE believes that reinsurance receivables and payables do not expose it
to significant interest rate risk and are excluded from the analysis below.
In order to measure PXRE's exposure to changes in interest rates a
sensitivity analysis was performed. Potential loss is measured as a change in
fair value. The fair value of the fixed income portfolio, borrowings and related
interest rate swap at year-end was re-measured from the fair values reported in
the financial statements assuming a 10% parallel increase in rates across the
U.S. dollar yield curve. The potential loss in fair value due to interest rate
exposure was estimated at $1 million.
The estimated potential loss reflects the prepayment risk of the
mortgage-related securities. The mortgage sector is a minor portion of the
portfolio at year-end and was largely liquidated soon thereafter. The estimate
assumes a similar change in fair value across security sectors with no
adjustment for change in value due to credit risk. The interest rate risk
related to the investments of the Lloyd's Syndicate is diminimus. The average
maturity of these investments is under one year.
Credit Risk
PXRE's exposure to potential loss due to changes in credit spreads was
simulated through a sensitivity analysis assuming an increase in credit spreads
of 200 basis points with
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respect to the foreign sovereign securities holdings. The estimated potential
loss in fair value due to changes in credit spreads was estimated at $5 million.
This analysis excludes the impact of changes in credit spreads on other
portfolio sectors and borrowings that may be offsetting.
Foreign Exchange Risk
PXRE's exposure to foreign exchange risk from its foreign denominated
securities is not material. Only a small portion of PXRE's investment portfolio
is denominated in currencies other than U.S. dollars. Additionally the carrying
value of certain receivables and payables denominated in foreign currencies are
carried at fair value. For these reasons, these items have been excluded from
the market risk disclosure.
Equity Price Risk
PXRE is exposed to equity price risk in the form of a limited number of
equity investments, including holdings in the common stock of domestic REIT's.
Based on a 10% decrease in equity prices the potential loss in fair value is
estimated to be $4 million.
Diversification Benefit
PXRE's risk management strategy includes investments that are expected to
reflect offsetting changes in fair value in response to various changes in
market risks. PXRE's exposure to interest risk in its fixed income portfolio is
expected to be offset in part by the change in value of its REIT's. PXRE also
invests in REIT's to limit the potential loss due to exposures to changes in
interest rates; this loss limit is based on the expected minimum value of the
real estate holdings of the trusts.
PXRE also holds other investments that are excluded from this disclosure
that are expected to provide positive returns under most market conditions
representing adverse changes in interest rates and other market factors (See
Note 5 to the Financial Statements).
To compare the magnitude of changes in fair value due to interest rate
changes with those of other risk factors in the investment portfolio, reference
should be made to Footnote 5 to the Financial Statements related to realized and
unrealized gains and losses on investments.
Income Taxes
PXRE recognized a tax benefit of $1,661,000 in 1998 compared to tax
expense in 1997 and 1996 of $20,705,000 and $15,644,000, respectively. The tax
benefit reported by PXRE for 1998 is attributable primarily to tax-exempt income
and amortization of negative goodwill. Tax expense in 1997 and 1996 differed
from the statutory rate principally due to the relative proportion of
underwriting and taxable investments versus tax exempt investments, negative
goodwill amortization and state and local taxes.
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Year 2000 Update
PXRE's Year 2000 Project is proceeding on schedule. The Project is
addressing the issue of computer programs and embedded computer chips being
unable to distinguish between the year 1900 and the year 2000. PXRE believes
that the impact of Year 2000 issues on its internal computer systems will not be
material. PXRE wrote and upgraded most of its software over the last four years
in an Oracle based software environment that has been certified as Year 2000
compliant. It has been PXRE's internal standard to develop or, where necessary,
redevelop internally based systems using 4 digit date fields for all
calculations.
Two older legacy systems have been identified as not being year 2000
compliant. One is a vendor provided general ledger system, which was replaced
with a new, Year 2000 certified general ledger system in December 1998. This
system has been implemented, tested and converted and is working properly
effective with year-end 1998. Another system, which was internally developed,
was upgraded and rewritten by December 31, 1998.
PXRE has replaced or upgraded, as part of its normal upgrade of hardware
and software, most of its mission critical servers, personal computers and
related desktop or network software to Year 2000 compliant versions. The cost of
replacing or upgrading any remaining non-compliant equipment is not expected to
be material. PXRE budgeted and expended $300,000 in 1998 for the upgrade and
replacement of software systems and hardware for this purpose. Management of
PXRE does not anticipate any material expenditures to replace or upgrade
hardware or software in 1999 related to Year 2000 compliance.
PXRE has been in contact with its other material business partners to
determine their state of readiness with regard to the Year 2000 issue and the
potential impact on PXRE. PXRE has identified the following categories of
business partners as material to PXRE's ability to conduct its operations: banks
and investment advisors, reinsurance intermediaries, major reinsurance clients,
telecommunications providers and utilities.
In connection with reinsurance intermediaries and reinsurance clients,
PXRE has the ability to verify their calculations of reinsurance transactions so
that material errors brought on by a failure of their systems are capable of
being detected.
Where PXRE has determined that the relationship with a business partner is
material to its ability to conduct normal operations, PXRE has sent letters to
that partner requesting an update on the status of its Year 2000 initiative.
Where deemed necessary, PXRE is following up with the business partner to obtain
additional information. Based on these assurances and PXRE's internal reviews of
the information provided, PXRE has not currently identified a material business
partner that will not be compliant. However, there can be no assurance that all
business partners will supply accurate or up-to-date information regarding their
preparedness for the Year 2000, and there can be no assurance that all material
business partners will be compliant. Such non-compliance could have a material
effect on PXRE's financial position and results of operations. PXRE expects to
complete its review of material business partners by June 30, 1999.
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PXRE has made the decision to evaluate the potential Year 2000 exposures
emanating from its reinsurance business by conducting an analysis of each
individual customer's risk exposures. Where appropriate, PXRE intends to require
that an exclusion be added to the reinsurance contract or letter of intent be
received. PXRE began adding exclusions to reinsurance contracts in early 1998.
Additionally, it is PXRE's position, in common with others in the industry that
Year 2000 exposures are not fortuitous losses and thus are not covered under
reinsurance contracts even without specific exclusions. For these reasons, PXRE
believes that its exposures to Year 2000 claims will not be material. However,
as was the case with environmental exposures, changing social and legal trends
may create unintended coverage for exposures by reinterpreting reinsurance
contracts and related exclusions. It is impossible to predict what, if any,
exposure reinsurance companies may ultimately have for Year 2000 claims whether
coverage for the issue is specifically excluded or included.
PXRE is reviewing its disaster recovery procedures and testing its ability
to redeploy its computer and staff operations to a remote hot site location in
the event of failure on the part of public utilities to provide electrical power
or communication links following a Year 2000 problem. Additional formal
contingency plans will not be formulated until PXRE has identified specific
areas where there is a substantial risk of Year 2000 problems occurring, and no
such areas have been identified as of this date.
Readers are cautioned that forward-looking statements contained in this
Year 2000 Update should be read in conjunction with the Company's disclosures
under the heading: "CAUTIONARY STATEMENT REGARDING FORWARD LOOKING
STATEMENTS."
Cautionary Statement Regarding Forward-Looking Statements
This report contains various forward-looking statements and includes
assumptions concerning PXRE's operations, future results and prospects.
Statements included herein, as well as statements made by or on behalf of PXRE
in press releases, written statements or other documents filed with the
Securities and Exchange Commission, or in its communications and discussions
with investors and analysts in the normal course of business through meetings,
phone calls and conference calls, 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 Securities Exchange
Act of 1934 as amended. These forward-looking statements are based on current
expectations and are subject to risk and uncertainties. PXRE cautions investors
and analysts 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, but not limited
to, the following: (i) the frequency and severity of catastrophic events; (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
intensity 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 and changes in the demand
for excess and surplus lines insurance coverages; (iv) the ability of PXRE to
execute its diversification initiatives in markets in which PXRE has not had a
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significant presence; (v) adverse development on loss reserves related to
business written in prior years; (vi) lower than estimated retrocessional
recoveries on unpaid losses, including the effects of losses due to a decline in
the creditworthiness of PXRE's retrocessionaires; (vii) 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; (viii)
decreases in interest rates causing a reduction of income earned on new cash
flow from operations and the reinvestment of the proceeds from sales, calls or
maturities of existing investments; (ix) market fluctuations in equity
securities and securities underlying limited partnership investments, (x)
changes in the composition of PXRE's investment portfolio; and (xi) 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.
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Item 8. Financial Statements and Supplementary Data
The following financial statements are filed as part of this Form 10-K:
Page
----
PXRE Corporation:
Report of Independent Accountants F-1
Consolidated Balance Sheets
at December 31, 1998 and 1997 F-2
Consolidated Statements of Income and
Comprehensive Income for the years
ended December 31, 1998, 1997 and 1996 F-3
Consolidated Statements of
Stockholders' Equity for the years
ended December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Cash Flow
for the years ended December 31,
1998, 1997 and 1996 F-5
Notes to Consolidated Financial
Statements F-6
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, 1998.
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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 1998 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 1998 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 1998 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 1998 fiscal year.
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PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this Form 10-K:
(1) Financial Statements
Page
----
PXRE Corporation:
Report of Independent Accountants F-1
Consolidated Balance Sheets at
December 31, 1998 and 1997 F-2
Consolidated Statements of Income and
Comprehensive Income for the years
ended December 31, 1998, 1997 and 1996 F-3
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Cash Flow for the years
ended December 31, 1998, 1997 and 1996 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-27
Schedule III - Supplementary Insurance Information F-28
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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-28
Report of Independent Accountants on the Financial Statement
Schedules and Consent of Independent Accountants F-29
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. A copy of the By-laws of PXRE Corporation as amended to
date is attached hereto as Exhibit 3.
(4) Instruments Defining the Rights of Security Holders.
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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).
4.8 Credit Agreement dated as of December 30, 1998 among PXRE Corporation,
the banks and financial institutions listed on the signature pages thereto or
that subsequently become parties thereto (collectively, the "Lenders") and First
Union National Bank ("First Union") as agent for the Lenders (Exhibit 4.8 to
PXRE's Form 8-K dated January 8, 1999 (File No. 0-15428), and incorporated
herein by reference).
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(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); cover notes respecting January 1999 renewals by N.R.M.A.,
Pennsylvania Lumbermens, Auto-Owners and The Andover Companies (a Merrimack
company) (attached hereto as Exhibit 10.3).
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
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(Exhibit 10.3 to the Annual Report on Form 10-K of PXRE for the fiscal year
ended December 31, 1991 (File No. 0-15428), and incorporated herein by
reference).
10.7 Amendment No. 2 to Investment Advisory Agreement between PXRE
Reinsurance Company and Phoenix Investment Counsel, Inc., effective as of
November 1, 1989. (Exhibit 10.4 to the Annual Report on Form 10-K of PXRE for
the fiscal year ended December 31, 1991 (File No. 0-15428), and incorporated
herein by reference).
10.8 Amended and Restated Agreement Concerning Filing of Consolidated
Federal Income Tax Returns dated as of August 23, 1993 between PXRE and PXRE
Reinsurance (Exhibit 10.8 to the Annual Report on Form 10-K of PXRE for the
fiscal year ended December 31, 1993 (File No. 0-15428), and incorporated herein
by reference).
10.9 Employee Stock Purchase Plan, as amended (Appendix A to PXRE's Proxy
Statement dated April 23, 1993, and incorporated herein by reference).(M)
10.10 Executive Long-Term Bonus Plan (Exhibit 10.6 to PXRE's Annual Report
on Form 10-K for the fiscal year ended December 31, 1991 (File No. 0-15428), and
incorporated herein by reference) and Amendment thereto made as of August 22,
1991 (Exhibit 10.14 to PXRE's Form S-2 Registration Statement dated February 21,
1992, as amended by Amendment No. 1 thereto dated April 1, 1992 and by Amendment
No. 2 thereto dated April 13, 1992 and by Amendment No. 3 thereto dated April
23, 1992 (File No. 33-45893), and incorporated herein by reference).(M)
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)
- ----------
(M) Indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
-61-
<PAGE>
<PAGE>
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)
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 ("Trenwick Group") (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); cover note
respecting January 1999 renewal by Trenwick Group (attached hereto as Exhibit
10.17).
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.
-62-
<PAGE>
<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 to the Annual
Report on Form 10-K of PXRE for the fiscal year ended December 31, 1997 (File
No. O-15428), and incorporated herein by reference.).(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.
-63-
<PAGE>
<PAGE>
10.31 Management Agreement dated September 16, 1997 between PXRE Managing
Agency and Whittington Insurance Services Limited (attached hereto as Exhibit
10.31 to the Annual Report on Form 10-K of PXRE for the fiscal year ended
December 31, 1997 (File No. O-15428), and incorporated herein by reference).
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 to the Annual Report on Form 10-K of PXRE for the fiscal year ended
December 31, 1997 (File No. O-15428), and incorporated herein by reference).
10.33 Letter of Credit dated November 22, 1996 issued by The Chase
Manhattan Bank by order of PXRE Reinsurance for the benefit of Lloyds' (attached
hereto as Exhibit 10.33 to the Annual Report on Form 10-K of PXRE for the fiscal
year ended December 31, 1997 (File No. O-15428), and incorporated herein by
reference).
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 to the Annual Report on Form 10-K of PXRE for the fiscal year
ended December 31, 1997 (File No. O-15428), and incorporated herein by
reference).
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 to the Annual Report on Form 10-K of PXRE for the fiscal year
ended December 31, 1997 (File No. O-15428), and incorporated herein by
reference).
10.36 Undertaking dated September 1, 1998 between PXRE Reinsurance Company
and Select Reinsurance Ltd., Amended and Restated Facultative Obligatory Quota
Share Retrocessional Agreement between PXRE Reinsurance Company and Select
Reinsurance Ltd. and Variable Quota Share Retrocessional Agreement between PXRE
Reinsurance Company and Select Reinsurance Ltd. (attached hereto as Exhibit
10.36).
10.37 Employment Agreement dated July 16, 1998 between PXRE Managing
Agency Limited and Peter G. Butler (attached hereto as Exhibit 10.37).(M)
10.38 Employment Agreement dated June 8, 1998 between PXRE Corporation
and Michael J. Toman (attached hereto as Exhibit 10.38).(M)
(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).
- ----------
(M) Indicates a management contract or compensatory plan or arrangement in
which the directors and/or executive officers of PXRE participate.
-64-
<PAGE>
<PAGE>
(21) List of Subsidiaries. At December 31, 1998, 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 Limited., 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); Cat Bond Investors
L.L.C. (of which PXRE and Phoenix Home Life are the only members); PXRE Direct
Underwriting Managers, Inc., a Connecticut corporation; and T-REX Underwriting
Managers, Inc., a Virginia corporation. (See the discussion in this Form 10-K
under the captions "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations.")
(23) Consents of Experts and Counsel. The consent of
PricewaterhouseCoopers 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.
-65-
<PAGE>
<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.
-66-
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, PXRE Corporation has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PXRE CORPORATION
By: /s/ Gerald L. Radke
-------------------------------------
Gerald L. Radke
Its Chairman of the Board,
President and Chief
Executive Officer
Date: March 25, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of PXRE
Corporation and in the capacity and on the dates indicated:
By: /s/ Gerald L. Radke By: /s/ Sanford M. Kimmel
---------------------- ---------------------
Gerald L. Radke Sanford M. Kimmel
Its Chairman of the Board, Its Senior Vice President,
President and Chief Treasurer and Chief
Executive Officer Financial Officer
(Principal Executive (Principal Financial
Officer) and Director Officer and Principal
Accounting Officer)
Date: March 25, 1999 Date: March 25, 1999
By* By*
---------------------- ---------------------
Robert W. Fiondella Franklin D. Haftl
Director Director
Date: March 25, 1999 Date: March 25, 1999
-67-
<PAGE>
<PAGE>
By* By*
---------------------- ---------------------
Bernard Kelly Wendy Luscombe
Director Director
Date: March 25, 1999 Date: March 25, 1999
By* By*
---------------------- ---------------------
Edward Lyons Philip R. McLoughlin
Director Director
Date: March 25, 1999 Date: March 25, 1999
By* By*
---------------------- ---------------------
David W. Searfoss Donald H. Trautlein
Director Director
Date: March 25, 1999 Date: March 25, 1999
By*
----------------------
Wilson Wilde
Director
Date: March 25, 1999
*By: /s/ Gerald L. Radke
---------------------
Gerald L. Radke
Attorney-in-Fact
-68-
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
PXRE Corporation
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income and comprehensive income,
stockholders' equity and cash flow present fairly, in all material respects, the
financial position of PXRE Corporation and its subsidiaries at December 31, 1998
and 1997, and the results of their operations and their cash flow for each of
the three years in the period ended December 31, 1998, 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.
PricewaterhouseCoopers LLP
New York, New York
February 11, 1999
F-1
<PAGE>
<PAGE>
PXRE Consolidated Balance Sheets
Corporation
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
---- ----
<S> <C> <C> <C>
Assets Investments:
Fixed maturities, available-for-sale, at fair value (amortized
cost $308,658,000 and $399,145,000, respectively) $ 309,477,075 $ 405,949,411
Equity securities, at fair value (cost $41,146,000 and $21,049,000) 40,974,283 19,748,877
Short-term investments 58,861,983 52,904,819
Other invested assets, at equity (cost $66,588,000 and $42,375,000) 65,163,581 42,857,341
------------- -------------
Total investments 474,476,922 521,460,448
Cash 16,117,473 6,277,876
Accrued investment income 5,330,419 6,257,162
Receivables:
Unreported premiums 18,440,954 14,131,034
Balances due from intermediaries and brokers 14,631,140 5,978,439
Other receivables 21,293,256 20,575,692
Reinsurance recoverable 41,260,657 14,242,278
Ceded unearned premiums 8,231,130 2,531,453
Deferred acquisition costs 4,122,603 2,965,741
Income tax recoverable 19,569,364 5,677,667
Other assets 9,217,218 8,074,260
------------- -------------
Total assets $ 632,691,136 $ 608,172,050
============= =============
Liabilities Losses and loss expenses $ 102,592,394 $ 57,189,454
Unearned premiums 20,541,326 18,485,042
Debt payable 50,000,000 0
Notes payable 0 21,414,000
Other liabilities 25,664,972 24,881,964
------------- -------------
Total liabilities 198,798,692 121,970,460
------------- -------------
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 99,516,938 99,513,194
Stockholders' Serial preferred stock, $.01 par value -- 500,000 shares authorized;
Equity 0 shares issued and outstanding 0 0
Common stock, $.01 par value -- 40,000,000 shares authorized;
14,938,262 and 14,806,347 shares issued, respectively 149,382 148,063
Additional paid-in capital 259,147,554 255,060,792
Accumulated other comprehensive income:
Net unrealized appreciation on investments, net of
deferred income tax expense of $3,400 and $1,940,000 6,253 3,173,006
Retained earnings 139,842,939 150,749,451
Treasury stock at cost (2,614,498 and 1,042,752 shares) (61,420,025) (21,660,108)
Restricted stock at cost (167,832 and 64,403 shares) (3,350,597) (782,808)
------------- -------------
Total stockholders' equity 334,375,506 386,688,396
------------- -------------
Total liabilities and stockholders' equity $ 632,691,136 $ 608,172,050
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
<PAGE>
PXRE Consolidated Statements of Income and Comprehensive Income
Corporation
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Revenues Net premiums earned $ 92,386,326 $ 91,415,240 $ 72,795,454
Net investment income 19,611,889 31,190,625 16,782,371
Net realized investment (losses) gains (3,862,189) 2,467,338 94,158
Management fees 2,172,131 3,005,657 6,032,006
------------ ------------ ------------
110,308,157 128,078,860 95,703,989
------------ ------------ ------------
Losses and Losses and loss expenses incurred 57,793,626 12,491,324 18,563,608
Expenses Commissions and brokerage 20,562,688 19,137,822 12,873,668
Other operating expenses 19,313,425 15,716,150 12,261,949
Interest expense 1,394,811 3,324,900 6,957,057
Minority interest in consolidated subsidiary 8,927,863 8,183,514 0
------------ ------------ ------------
107,992,413 58,853,710 50,656,282
------------ ------------ ------------
Income before income taxes, extraordinary item and
equity in net earnings of TREX 2,315,744 69,225,150 45,047,707
Equity in net earnings of TREX 0 0 3,897,568
Income tax (benefit) provision (1,206,077) 22,198,000 15,644,000
------------ ------------ ------------
Income before extraordinary loss 3,521,821 47,027,150 33,301,275
Extraordinary loss on debt redemption, net of $454,000
and $1,493,000 income tax benefit 843,000 2,773,690 0
------------ ------------ ------------
Net income 2,678,821 44,253,460 33,301,275
------------ ------------ ------------
Comprehensive Other comprehensive (loss) income, net of tax:
Income Net unrealized appreciation (depreciation) on investments (3,166,753) 2,604,601 (3,214,095)
------------ ------------ ------------
Comprehensive (loss) income $ (487,932) $ 46,858,061 $ 30,087,180
============ ============ ============
Per Share Basic:
Income before extraordinary item $ 0.26 $ 3.41 $ 3.73
Extraordinary loss 0.06 0.20 0.00
------------ ------------ ------------
Net income $ 0.20 $ 3.21 $ 3.73
============ ============ ============
Average shares outstanding 13,339,479 13,775,844 8,921,886
============ ============ ============
Diluted:
Income before extraordinary item $ 0.26 $ 3.39 $ 3.69
Extraordinary loss 0.06 0.20 0.00
------------ ------------ ------------
Net income $ 0.20 $ 3.19 $ 3.69
============ ============ ============
Average shares outstanding 13,451,731 13,892,760 9,019,655
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
<PAGE>
PXRE Consolidated Statements of Stockholders' Equity
Corporation Years Ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Additional Other
Preferred Common Paid-in Comprehensive Retained Treasury
Stock Stock Capital Income Earnings Stock
----- ----- ------- ------ -------- -----
<S> <C> <C> <C> <C> <C> <C>
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
Unrealized depreciation on investments, net (2,799,292)
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)
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
Unrealized appreciation on investments, net 2,604,601
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)
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)
Net income 2,678,821
Unrealized depreciation on investments, net (3,166,753)
Issuance of common stock 1,319 4,069,940
Repurchase of treasury stock (39,728,564)
Issuance of restricted stock
Amortization of restricted stock
Dividends paid to common stockholders (13,585,333)
Other 16,822 (31,353)
--------------------------------------------------------------------------------------
Balance at December 31, 1998 $ 0 $149,382 $259,147,554 $ 6,253 $139,842,939 $(61,420,025)
======================================================================================
</TABLE>
Total
Restricted Stockholders'
Stock Equity
----- ------
Balance at December 31, 1995 $ (541,586) $ 211,162,176
Net income 33,301,275
Unrealized depreciation on investments, net (2,799,292)
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)
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
Unrealized appreciation on investments, net 2,604,601
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)
Other 4,752 233,606
------------------------------
Balance at December 31, 1997 (782,808) 386,688,396
Net income 2,678,821
Unrealized depreciation on investments, net (3,166,753)
Issuance of common stock 4,071,259
Repurchase of treasury stock (39,728,564)
Issuance of restricted stock (3,838,227) (3,838,227)
Amortization of restricted stock 1,239,085 1,239,085
Dividends paid to common stockholders (13,585,333)
Other 31,353 16,822
------------------------------
Balance at December 31, 1998 $ (3,350,597) $ 334,375,506
==============================
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
<PAGE>
PXRE Consolidated Statements of Cash Flow
Corporation
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Cash Flow Net income $ 2,678,821 $ 44,253,460 $ 33,301,275
from Operating Adjustments to reconcile net income to net cash
Activities provided by operating activities:
Losses and loss expenses 45,402,940 (13,787,994) (12,964,561)
Unearned premiums (3,643,393) 8,639,753 (5,077,857)
Deferred acquisition costs (1,156,862) (1,516,691) 1,284,615
Receivables (16,603,791) (12,764,637) 14,313,128
Reinsurance balances payable 10,021,725 (5,082,885) (3,431,682)
Reinsurance recoverable (27,018,379) 3,822,847 4,511,644
Income tax recoverable (7,591,759) (3,139,559) 1,126,162
Equity in net earnings of TREX 0 0 (3,574,171)
Other 2,865,764 (797,805) (1,455,299)
------------- ------------- -------------
Net cash provided by operating activities 4,955,067 19,626,489 28,033,254
------------- ------------- -------------
Cash Flow Cost of fixed maturity investments (178,648,802) (294,637,213) (83,760,831)
from Investing Fixed maturity investments matured/disposed 262,534,237 290,013,188 62,189,176
Activities Payable for securities 0 0 (2,496,232)
Cost of equity securities (22,871,893) (17,372,574) (1,849,539)
Equity securities disposed 2,817,183 3,172,678 0
Cash acquired from merger with TREX 0 0 1,260,611
Net change in short-term investments (6,053,033) 8,742,789 22,485,844
Other invested assets disposed 7,040,660
Other invested assets purchased (34,325,097) (42,375,000) 0
------------- ------------- -------------
Net cash provided (used) by investing activities 30,493,255 (52,456,132) (2,170,971)
------------- ------------- -------------
Cash Flow Proceeds from issuance of common stock 233,032 855,570 489,327
from Financing Cash dividends paid to common stockholders (13,585,333) (12,209,266) (6,478,852)
Activities Issuance of minority interest in consolidated subsidiary 0 99,509,000 0
Purchase of debt (22,527,860) (46,521,683) (3,235,250)
Proceeds of debt 50,000,000 0 0
Cost of treasury stock (39,728,564) (7,464,583) (12,537,575)
------------- ------------- -------------
Net cash (used) provided by financing activities (25,608,725) 34,169,038 (21,762,350)
------------- ------------- -------------
Net change in cash 9,839,597 1,339,395 4,099,933
Cash, beginning of period 6,277,876 4,938,481 838,548
------------- ------------- -------------
Cash, end of period $ 16,117,473 $ 6,277,876 $ 4,938,481
============= ============= =============
Supplemental disclosure of cash flow information
Non cash investing and financing activities:
Fair value of assets acquired $ 0 $ 0 $ 161,130,734
Liabilities assumed 0 0 28,496,767
============= ============= =============
Stock issued in merger with TREX $ 0 $ 0 $ 132,633,967
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
<PAGE>
PXRE Notes to Consolidated Financial Statements
Corporation Years Ended December 31, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
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") in
the United States. 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, Cat Fund
L.P., PXRE Capital Trust I, PXRE Ltd., PXRE Managing Agency Limited and PXRE
Direct Underwriting Managers, Inc. The U.K. operations of PXRE Ltd. and PXRE
Managing Agency Limited are included in the consolidated results on a one
quarter lag period beginning in June 1997. 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 since December 11, 1996. During the period from January
1, 1996 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 1997 and 1996 to
conform to the 1998 presentation.
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.
F-6
<PAGE>
<PAGE>
Deferred Acquisition Costs
Acquisition costs consist of commission and brokerage expenses
incurred in connection with contract issuance, net of acquisition costs ceded.
These costs are deferred and amortized over the period in which the related
premiums are earned. Deferred acquisition costs are reviewed to determine that
they do not exceed recoverable amounts, after considering investment income.
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 in some cases
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 deemed other than 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 includes a limited partnership that invests primarily in
Treasury securities and provides for fund withdrawals upon 30 days notice; this
partnership is 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. PXRE invests in certain weather indexed contracts.
Such investments are carried at estimated fair value and such adjustments to
estimated fair value are included in realized gains and losses.
F-7
<PAGE>
<PAGE>
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.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement establishes
accounting and reporting standards for derivative instruments, including certain
instruments embedded in other contracts. It requires that all derivatives be
recognized as either assets or liabilities in the balance sheet and measured at
fair value. Gains or losses from changes in the derivative values are to be
accounted for based on how the derivative was used and whether it qualifies for
hedge accounting.
The statement is effective for all fiscal periods beginning after
June 15, 1999. PXRE is currently assessing the effect of adopting this
statement. It is not expected, however, that the adoption of this statement will
have a material effect on PXRE's financial position or results of operations.
Debt Issuance Costs
Debt issuance costs associated with the issuance of $100 million
8.85% Capital Trust Pass-through Securities `sm' (TRUPS `sm') and the issuance
of a note under a $50 million Credit Agreement are being amortized over the term
of the related outstanding debt on a constant yield basis.
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 U.K. 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, 1998 and 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.
F-8
<PAGE>
<PAGE>
Comprehensive Income
During 1998, PXRE adopted SFAS No. 130, Reporting Comprehensive
Income, which establishes standards for reporting and presentation of
comprehensive income and its components. Comprehensive income is comprised of
net income and other comprehensive income. Other comprehensive income consists
of the change in the net unrealized appreciation or depreciation of investments,
net of tax, and the change in foreign currency translation adjustments, net of
tax.
Earnings Per Share
Effective December 31, 1997, PXRE adopted SFAS No. 128, Earnings Per
Share 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 earnings 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").
Segments of an Enterprise and Related Information
Effective December 31, 1998, PXRE adopted SFAS No. 131, Disclosure
about Segments of an Enterprise and Related Information. This statement requires
that companies report certain information about their operating segments,
including information about the products and services from which the revenues
are derived, the geographic areas of operation, and information about major
customers. The statement defines operating segments based on internal management
reporting and management's method of allocating resources and assessing
performance.
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.
F-9
<PAGE>
<PAGE>
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, consolidated net
revenues would have been $153,410,000 for 1996. Consolidated unaudited pro forma
net income and diluted net income per share would have been $49,161,000 and
$3.42 in 1996. 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 1996.
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. Included in
management fee income in 1996 was $2,512,000 earned from Transnational
Insurance.
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 and short tail
casualty risks, as well as 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 property and other similar short-tail lines
of business. PXRE's excess and surplus lines operation specializes in short-tail
non-standard and excess property insurance risks in Transnational Insurance
commencing in 1998.
PXRE solicits its treaty and facultative reinsurance business
primarily from the worldwide reinsurance brokerage market and to a lesser extent
directly from primary companies, 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.
F-10
<PAGE>
<PAGE>
4. Underwriting Programs
Premiums written and earned for the years ended December 31, 1998,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Premiums written
- ----------------
Assumed $ 133,143,629 $ 126,231,727 $ 114,347,965
Direct 3,071,559 0 0
------------- ------------- -------------
Gross premiums written 136,215,188 126,231,727 114,347,965
------------- ------------- -------------
Ceded: Managed business participants (21,542,915) (16,533,918) (21,237,657)
Catastrophe coverage (25,978,462) (9,642,815) (5,427,393)
TREX management agreement 0 0 (19,965,317)
------------- ------------- -------------
Total reinsurance premiums ceded (47,521,377) (26,176,733) (46,630,367)
------------- ------------- -------------
Net premiums written $ 88,693,811 $ 100,054,994 $ 67,717,598
============= ============= =============
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Premiums earned
- ---------------
Assumed $ 133,010,858 $ 119,609,970 $ 120,727,383
Direct 424,822 0 0
Ceded (41,049,354) (28,194,730) (47,931,929)
------------- ------------- -------------
Net premiums earned $ 92,386,326 $ 91,415,240 $ 72,795,454
============= ============= =============
</TABLE>
Substantially all premiums written were assumed through reinsurance
brokers or intermediaries. In 1998, 1997 and 1996, three, three and two
reinsurance intermediaries, respectively, individually accounted for more than
10% of gross premiums written, and collectively accounted for approximately 47%,
55% and 36% of gross premiums written, respectively.
Under the terms of the management agreement described in Note 2,
PXRE retroceded $19,965,000 of premiums written to Transnational Insurance in
1996. As discussed earlier in Note 2, the agreement was terminated upon
acquisition of TREX by PXRE.
Included in ceded premiums written to managed business participants
is $10,565,000, $3,023,000 and $2,641,000 of premiums ceded to a reinsurer whose
Board of Directors includes PXRE's Chief Executive Officer. Net assets due from
the reinsurer at December 31, 1998 is $6,259,000 which is secured by a trust
agreement.
PXRE also purchases catastrophe retrocessional coverage for its own
protection, depending on market conditions. In the event that retrocessionaires
are unable to meet their contractual obligations, PXRE would be liable for such
defaulted amounts.
F-11
<PAGE>
<PAGE>
The components of reinsurance recoverable as stated in the December
31, 1998 and 1997 consolidated balance sheets are as follows:
1998 1997
---- ----
Losses and loss expense liabilities $33,350,054 $12,733,457
Loss payments 7,910,603 1,508,821
----------- -----------
$41,260,657 $14,242,278
=========== ===========
The components of losses and loss expenses incurred as shown in the
December 31, 1998, 1997 and 1996 consolidated statements of income are as
follows:
1998 1997 1996
---- ---- ----
Assumed $ 94,093,389 $ 14,622,683 $ 37,837,120
Ceded (36,299,763) (2,131,359) (19,273,512)
------------ ------------ ------------
Net $ 57,793,626 $ 12,491,324 $ 18,563,608
============ ============ ============
Activity in the losses and loss expense liability for the years
ended December 31, 1998, 1997 and 1996 is summarized as follows:
1998 1997 1996
---- ---- ----
Net balance January 1 $ 44,455,998 $ 55,309,304 $ 44,424,388
Plus reinsurance recoverables 12,733,456 15,668,145 28,294,526
------------ ------------ ------------
Gross balance at January 1 57,189,454 70,977,449 72,718,914
------------ ------------ ------------
Gross reserves of TREX at date of
Acquisition 0 0 9,588,507
Incurred related to:
Current year 94,002,959 19,343,536 27,327,387
Prior years 90,430 (4,720,853) 10,509,733
------------ ------------ ------------
Total incurred 94,093,389 14,622,683 37,837,120
------------ ------------ ------------
Paid related to:
Current year 19,582,174 4,703,497 6,468,736
Prior years 29,108,275 23,707,181 42,698,356
------------ ------------ ------------
Total paid 48,690,449 28,410,678 49,167,092
------------ ------------ ------------
Gross balance at December 31 $102,592,394 $ 57,189,454 $ 70,977,449
============ ============ ============
As a result of changes in estimates of insured events in prior
years, the provision for losses and loss expenses experienced savings of
$532,000 on a net basis in 1998. The loss ratio was favorably affected by a
decrease to reserves of $3,917,000 in 1997. The loss ratio for 1996 was
unfavorably affected by an increase to reserves of $3,249,000 net for prior-year
losses and loss expenses.
F-12
<PAGE>
<PAGE>
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, 1998 and 1997 are shown below:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
1998
- ----
<S> <C> <C> <C> <C>
United States government securities $113,029,756 $ 1,771,592 $ 159,367 $114,641,981
Foreign government securities 43,815,569 242,591 5,286,056 38,772,104
United States government agency
Mortgage-backed securities 1,087,492 17,031 0 1,104,523
Other mortgage-backed securities 43,174,814 1,271,787 181,569 44,265,032
Obligations of states and political
subdivisions 97,469,857 4,467,662 27,311 101,910,208
Public utilities and industrial and
miscellaneous securities 10,080,619 0 1,297,392 8,783,227
------------ ------------ ------------ ------------
Total fixed maturities $308,658,107 $ 7,770,663 $ 6,951,695 $309,477,075
============ ============ ============ ============
Equity securities $ 41,146,001 $ 3,661,597 $ 3,833,315 $ 40,974,283
============ ============ ============ ============
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
1997
- ----
<S> <C> <C> <C> <C>
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
============ ============ ============ ============
</TABLE>
Included in other comprehensive income in 1998 is $3,166,753 of net unrealized
depreciation on investments which includes $7,028,942 of unrealized net losses
arising during the year less $3,862,189 of reclassification adjustments for net
losses, included in net income.
F-13
<PAGE>
<PAGE>
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:
1998 1997 1996
---- ---- ----
Proceeds from Sale
- ------------------
Fixed maturities $ 234,195,041 $ 281,200,500 $ 54,359,191
============= ============= =============
Equity securities $ 3,871,056 $ 3,883,703 $ 1,532,961
============= ============= =============
Gross Gains
- -----------
Fixed maturities $ 4,298,138 $ 3,443,425 $ 540,687
Equity securities 1,046,699 807,238 85,711
Other 2,346,612 0 0
------------- ------------- -------------
7,691,449 4,250,663 626,398
Gross Losses
- ------------
Fixed maturities (10,615,978) (1,621,134) (532,240)
Equity Securities (23,056) 0 0
Other (914,604) (162,191) 0
------------- ------------- -------------
(11,553,638) (1,783,325) (532,240)
Net realized (losses) gains $ (3,862,189) $ 2,467,338 $ 94,158
============= ============= =============
Included in gross losses on fixed maturities for 1998 is a realized
loss on the permanent writedown of a bond in technical default in the amount of
$6,600,000.
The components of net investment income were as follows:
1998 1997 1996
---- ---- ----
Fixed maturity investments $ 22,654,993 $ 25,835,051 $ 15,642,139
Equity securities 579,718 180,956 42,062
Short-term investments 2,044,876 5,646,704 1,744,703
Other invested assets (4,933,361) 442,504 0
------------ ------------ ------------
20,346,226 32,105,215 17,428,904
Less investment expenses 734,337 914,590 646,533
------------ ------------ ------------
Net investment income $ 19,611,889 $ 31,190,625 $ 16,782,371
============ ============ ============
Investment expenses primarily represent fees paid to Phoenix Investment
Partners, Limited (formerly Phoenix Duff & Phelps Corporation), a public
majority-owned subsidiary of Phoenix Home Life Mutual Insurance Company which
owned 5.17%, 4.6% and 4.6% of the outstanding common stock of PXRE at December
31, 1998, 1997 and 1996 respectively.
F-14
<PAGE>
<PAGE>
Investment Maturity Distributions
---------------------------------
The amortized cost and estimated fair value of fixed maturity
investments at December 31, 1998 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.
Estimated
Amortized % Fair %
Cost - Value -
---- -----
Maturity
- --------
One year or less $ 16,710,895 5.4 $ 16,777,875 5.4
Over 1 through 5 years 121,627,390 39.4 122,885,427 39.7
Over 5 through 10 years 65,076,435 21.1 66,121,508 21.4
Over 10 through 20 years 27,777,056 9.0 25,453,984 8.2
Over 20 years 33,204,025 10.8 32,868,726 10.6
------------ ----- ------------ -----
264,395,801 85.7 264,107,520 85.3
United States government agency and
other mortgage-backed securities 44,262,306 14.3 45,369,555 14.7
------------ ----- ------------ -----
Total $308,658,107 100.0 $309,477,075 100.0
============ ===== ============ =====
In addition to fixed maturities, PXRE held $58,862,983 and
$52,905,819 of short-term investments at December 31, 1998 and 1997,
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 $65,164,000 and $42,857,000 of other invested assets at
December 31, 1998 and 1997, respectively, comprised of investments in various
limited partnerships accounted for under the equity method, as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
$ Ownership % $ Ownership %
- ------------ - -----------
<S> <C> <C> <C> <C>
Mariner Select LP 26,652,967 51.62% 8,156,105 23.04%
MS Commodity Investment Portfolio II, LP 10,421,528 21.69% 24,019,966 15.40%
Other 28,089,086 10,681,270
---------- ----------
Total 65,163,581 42,857,341
========== ==========
</TABLE>
Total assets of Mariner Select L.P. amounted to $51,809,576 and
$35,579,876 at December 31, 1998 and 1997.
Restricted Assets
-----------------
Under the terms of certain reinsurance agreements, irrevocable
letters of credit in the amount of $480,000 were issued at December 31, 1998, 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 $11,926,000 at December 31, 1998 were
on deposit with various state insurance departments in order to comply with
insurance laws.
F-15
<PAGE>
<PAGE>
PXRE, in connection with the startup of PXRE Ltd.'s Syndicate No.
1224, has placed on deposit $46,287,000 par value of United States government
securities and municipal 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 municipal
bonds of approximately $17,835,000. All invested assets of Syndicate 1224
amounting to $21,698,000 at December 31, 1998 are restricted from being paid as
a dividend for two to three years.
PXRE has $24.0 million in commitments for funding certain
investments in certain limited partnerships of which $6.3 million has been
funded at December 31, 1998.
6. Notes Payable and Credit Arrangements
In January 1997, PXRE issued $100,000,000 of 8.85% TRUPS. The fair
value of the TRUPS is $99,086,425 and $105,194,000 at December 31, 1998 and
1997, respectively. 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.
On August 15, 1998, PXRE redeemed the remaining balance of
$20,414,000 of its 9.75% Senior Notes due August 15, 2003 at a premium of
103.656%. In connection with the redemption of the Senior Notes, PXRE recorded
an extraordinary charge of $843,000, net of tax reflecting the write-off of the
remaining unamortized debt issuance costs and related redemption premium.
Interest paid, including the minority interest in consolidated
subsidiary, was $11,687,000, $8,707,000, and $6,469,000 for 1998, 1997 and 1996,
respectively.
On December 30, 1998 PXRE entered into a Credit Agreement with First
Union National Bank ("First Union") to arrange and syndicate for PXRE a
revolving credit facility of up to $75 million. At December 31, 1998, $50
million of the total $75 million was underwritten and committed to by First
Union. Under the Credit Agreement, the additional $25 million of the revolving
credit facility was to be made available through First Union's best efforts
syndication of the loan to other financial institutions. Borrowings under this
Credit Agreement bear interest at the First Union's base rate or at a margin
over the financial institutions' LIBOR rate for periods of 30, 60, 90, or 180
days for LIBOR loans. The interest rate as of December 31, 1998 was 7.75%. In
addition, the Credit Agreement requires PXRE and certain subsidiaries, where
applicable, to maintain certain financial ratios including minimum fixed charge
coverage, maximum consolidated debt to total capitalization, minimum Statutory
Capital and Surplus, and minimum risk based capital ratios. Commitments under
this Credit Agreement terminate on March 31, 2005 and are subject to annual
reductions of 13 1/3% commencing March 31, 2000 and 33 1/3% on March 31, 2005.
At December 31, 1998, $50 million was outstanding under this agreement. The
Credit Agreement requires that PXRE pay a commitment fee of 25 basis points on
the unused portion of the loan.
PXRE entered into an interest rate swap agreement with First Union
that locks in the interest rate on the $50 million portion of the loan to 5.34%
plus a 0.875% credit margin (subject to adjustment in syndication) or 6.215%.
The swap agreement coincides with the maturity of the Credit Agreement. The fair
value of the loan and the interest rate swap agreement at December 31, 1998 is
approximately $50,084,000.
F-16
<PAGE>
<PAGE>
7. Income Taxes
The components of the (benefit) provision for income taxes for the
years ended December 31, 1998, 1997 and 1996 are as follows:
1998 1997 1996
---- ---- ----
Current
Federal $ 3,321,000 $ 18,014,000 $ 14,310,000
State and local 21,000 515,000 319,000
Foreign 0 706,000 539,000
------------ ------------ ------------
3,342,000 19,235,000 15,168,000
Deferred federal (2,396,000) 2,963,000 476,000
Deferred foreign (2,152,000) 0 0
------------ ------------ ------------
Income tax (benefit) provision
before extraordinary loss (1,206,000) 22,198,000 15,644,000
Income tax benefit from
extraordinary loss 454,000 1,493,000 0
------------ ------------ ------------
Income tax (benefit) provision $ (1,660,000) $ 20,705,000 $ 15,644,000
============ ============ ============
Income taxes paid $ 10,900,000 $ 23,460,000 $ 15,730,000
============ ============ ============
The income tax (benefit) 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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income taxes at statutory rates $ 357,000 $ 22,735,000 $ 15,767,000
Tax-exempt interest income (1,231,000) (1,284,000) (48,000)
Foreign tax provision (2,152,000) 706,000 1,022,000
Foreign tax credit 2,152,000 (706,000) (1,105,000)
Amortization of negative goodwill (753,000) (753,000) 0
Other, net (33,000) 7,000 8,000
------------ ------------ ------------
Total income tax (benefit) provision $ (1,660,000) $ 20,705,000 $ 15,644,000
============ ============ ============
</TABLE>
The significant components of the net deferred tax (benefit)
provision for the years ended December 31, 1998, 1997 and 1996 are as follows:
1998 1997 1996
---- ---- ----
Discounted reserves and unearned
premiums $ (540,000) $ 127,000 $ 607,000
Deferred acquisition costs (360,000) 537,000 (213,000)
Deferred compensation and benefits 194,000 740,000 (75,000)
Credit carryforwards (2,412,000) 384,000 (110,000)
Investment and unrealized foreign
exchange (1,652,000) 1,180,000 246,000
Other, net 222,000 (5,000) 21,000
----------- ----------- -----------
Total deferred tax (benefit)
provision $(4,548,000) $ 2,963,000 $ 476,000
=========== =========== ===========
F-17
<PAGE>
<PAGE>
The significant components of the net deferred income tax asset
(liability) are as follows:
Deferred tax asset: 1998 1997
---- ----
Discounted reserves and unearned
premiums $ 3,116,000 $ 2,576,000
Deferred compensation and benefits 500,000 694,000
Credit carryforwards 3,434,000 1,022,000
Other, net 154,000 293,000
----------- -----------
Total deferred income tax asset 7,204,000 4,585,000
----------- -----------
Deferred income tax liability:
Deferred acquisition costs (678,000) (1,038,000)
Tax effect of net unrealized
appreciation on investments (236,000) (1,940,000)
Investments and unrealized foreign
exchange (621,000) (2,273,000)
Other, net (195,000) (113,000)
----------- -----------
Total deferred income tax liability (1,730,000) (5,364,000)
----------- -----------
Net deferred income tax asset (liability) $ 5,474,000 $ (779,000)
=========== ===========
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 14,938,262 shares as of December 31, 1998 and
40,000,000 and 14,806,347 as of December 31, 1997, respectively.
In addition, at December 31, 1998, 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.
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 years then
ended, as filed with insurance regulatory authorities are as follows:
1998 1997 1996
---- ---- ----
PXRE Reinsurance
Statutory capital and surplus $447,229,000 $451,321,000 $400,133,000
------------ ------------ ------------
Statutory net income $ 4,835,000 $ 57,388,000 $ 51,177,000
------------ ------------ ------------
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.
F-18
<PAGE>
<PAGE>
As of December 31, 1998, the maximum amount of dividends and other
distributions which may be made by PXRE Reinsurance during 1999 without prior
approval is limited to approximately $44,722,900. Accordingly, the remaining
amount of its capital and surplus is considered restricted. Under the terms of
the Credit Agreement, dividends to PXRE stockholders in any year are limited as
described in Note 6.
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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income available to common stockholders:
Income before extraordinary loss $ 3,521,821 $47,027,150 $33,301,275
Extraordinary loss 843,000 2,773,690 0
----------- ----------- -----------
Net income available to stockholders $ 2,678,821 $44,253,460 $33,301,275
=========== =========== ===========
Weighted average shares of common stock
outstanding:
Weighted average common shares
outstanding (basic) 13,339,479 13,775,844 8,921,886
Equivalent shares of stock options 62,218 70,770 63,677
Equivalent shares of restricted stock 50,034 46,146 34,092
----------- ----------- -----------
Weighted average common equivalent shares
(diluted) 13,451,731 13,892,760 9,019,655
=========== =========== ===========
Per share amounts:
Basic
- -----
Income before extraordinary loss $ .26 $ 3.41 $ 3.73
Net income $ .20 $ 3.21 $ 3.73
Diluted
- -------
Income before extraordinary loss $ .26 $ 3.39 $ 3.69
Net income $ .20 $ 3.19 $ 3.69
</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-19
<PAGE>
<PAGE>
1998 1997 1996
---- ---- ----
Components of net periodic cost
Service cost $ 308,916 $ 265,216 $ 254,748
Interest cost 247,025 220,404 194,999
Expected return on
assets (29,802) (9,680) (1,099)
Amortization of prior
service costs 94,147 94,996 94,996
Recognized net
actuarial costs 8,734 (401) 17,694
--------- --------- ---------
Net periodic benefit
costs $ 629,020 $ 570,535 $ 561,338
========= ========= =========
The following table sets forth the funded status of the plans and
amounts recognized in the consolidated balance sheets:
1998 1997
---- ----
Reconciliation of benefit obligation
- ------------------------------------
Benefit obligation
January 1 $ 3,784,732 $ 2,918,028
Service cost 308,916 265,216
Interest cost 247,025 220,404
Amendments 0 625
Actuarial gain/(loss) (43,342) 380,459
----------- -----------
Benefit obligation
December 31 $ 4,297,331 $ 3,784,732
=========== ===========
Reconciliation of plan assets
- -----------------------------
Fair value of plan
assets as of January 1 $ 315,222 $ 26,076
Return on plan assets 33,459 7,989
Employer contributions 104,837 281,157
----------- -----------
Fair value of plan
assets December 31 $ 453,518 $ 315,222
=========== ===========
Reconciliation of funded status
- -------------------------------
Funded status $(3,843,813) $(3,469,510)
Unrecognized prior
service cost 1,167,346 1,261,493
Unrecognized net
gain/(loss) 486,680 542,413
----------- -----------
Prepaid benefit/(cost) $(2,189,787) $(1,665,604)
=========== ===========
Weighted average assumptions as
- -------------------------------
of December 31,
- ---------------
Discount rate 6.75% 7.00%
Expected return on
plan assets 8.00% 8.00%
Rate of compensation
increase 4.50% 5.00%
The overseas Brussels and London operations cover employees under a
defined contribution type plan. The provision for such plans is $246,000,
$131,000 and $0 for 1998, 1997 and 1996 respectively.
F-20
<PAGE>
<PAGE>
Employee Stock Purchase Plan
----------------------------
PXRE maintains an Employee Stock Purchase Plan under which it has
reserved 26,405 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, 1998, 321,646 options had been exercised under the 1988 Stock
Option Plan. In 1992, the Board of Directors resolved to freeze the 1988 Stock
Option Plan as of December 31, 1992, so that no further options could be granted
thereafter under this plan.
In 1992, a Restated Employee Annual Incentive Bonus Plan was
approved. Incentive compensation is based in part on return on equity compared
to a target return on equity and in part on the discretion of the Restated Bonus
Plan Committee. In 1998 and 1997, $1,240,000 and $1,553,000, 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 which vests in
36 months. As of December 31, 1998, 78,495 restricted shares had been granted
under this plan.
In 1992, PXRE adopted a 1992 Officer Incentive Plan that 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, 1998, 342,848 options and
96,656 shares of restricted stock had been granted under this plan.
Information regarding the option plans described above is as
follows:
Number Option Price
of Shares Per Share Range
--------- ---------------
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
Options granted 91,589 $30.72 - $32.94
Options exercised 4,626 $10.875 - $24.88
Options canceled 4,624 $24.75 - $26.69
-------
Outstanding at December 31, 1998 473,024 $8.75 - $32.94
=======
F-21
<PAGE>
<PAGE>
Total authorized common stock reserved for grants of stock options
and restricted stock under the above plans is 1,164,307 shares. Total shares of
307,417 relate to stock options which are vested and exercisable at December 31,
1998, at exercise prices between $8.75 and $34.46. All options become
exercisable upon a change of control of PXRE as defined by the plans.
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, 1998, 70,000 options were
granted and 22,190 were exercisable.
Beginning January 1, 1998 PXRE allowed its directors to elect to
convert their Board of Directors retainer fee to options. At December 31, 1998,
18,448 ten year options were granted at a price of $33.455 which are 100% vested
and immediately 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 1998, 1997
and 1996 would have been reduced to the following pro forma amounts:
1998 1997 1996
---- ---- ----
Net income
As reported $2,678,821 $44,253,460 $33,301,275
Pro forma 1,987,264 43,789,779 33,028,582
Basic income per share
As reported $0.20 $3.21 $3.73
Pro forma 0.15 3.18 3.70
Diluted income per share
As reported $0.20 $3.19 $3.69
Pro forma 0.15 3.15 3.66
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. Such options vested in 1998.
The fair value of each option granted in 1998, 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 5.07% for
1998, 5.89% for 1997 and 5.94% for 1996; expected lives of 5 years for each of
1998, 1997 and 1996; expected volatility of 24.94% for 1998, 30.70% for 1997 and
36.25% for 1996; and expected dividend yield of 4.01% for 1998, 2.63% for 1997
and 3.03% for 1996.
F-22
<PAGE>
<PAGE>
A summary of the status of the employee and director stock option
plans at December 31, 1998 and 1997 and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>
1998 1997
---- ----
Weighted Weighted
-------- --------
Average Average
------- -------
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Options outstanding at beginning of year 433,688 20.49 389,023 19.04
Options granted 137,037 32.42 109,169 27.05
Options exercised 4,626 20.25 64,504 12.17
Options canceled 4,624 25.46 0 0
------- -------
Options outstanding at end of year 561,475 24.58 433,688 20.49
------- -------
Options exercisable at end of year 307,417 21.19 217,960 18.65
------- -------
Weighted average fair value per
share of options granted 7.50 9.92
</TABLE>
Options outstanding at December 31, 1998 included 86,674 options
with exercise prices ranging from $8.75 to $11.50 per share and a weighted
average remaining contractual life of 2.31 years and 474,801 options with
exercise prices ranging from $23.25 to $33.455 per share and a weighted average
remaining contractual life of 6.47 years. Options exercisable at December 31,
1998 included 86,674 options with a weighted average remaining contractual life
of 2.31 years and 220,743 options with a weighted average remaining contractual
life of 5.20 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>
1998 % 1997 % 1996 %
---- - ---- - ---- -
Gross premiums written:
<S> <C> <C> <C> <C> <C> <C>
Domestic $ 26,521,000 19 $ 33,982,000 27 $ 32,594,000 29
International 109,694,000 81 92,250,000 73 81,754,000 71
------------ --- ------------ --- ------------ ---
$136,215,000 100 $126,232,000 100 $114,348,000 100
============ === ============ === ============ ===
</TABLE>
F-23
<PAGE>
<PAGE>
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
---------- ---------- ------------
1998
- ----
<S> <C> <C> <C>
Net premiums earned $ 69,437,869 $ 22,948,457 $ 92,386,326
Consolidated income (loss) before
income taxes and extraordinary items $ 9,054,992 $ (6,739,248) $ 2,315,744
Identifiable assets $548,325,223 $ 84,365,913 $632,691,136
1997
- ----
Net premiums earned $ 77,019,775 $ 14,395,465 $ 91,415,240
Consolidated income (loss) before
income taxes and extraordinary items $ 66,358,127 $ 2,867,023 $ 69,225,150
Identifiable assets $549,350,687 $ 58,821,363 $608,172,050
</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, 1998 and 1997. 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.
F-24
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
1998
- ----
<S> <C> <C> <C> <C>
Net premiums written $28,357,000 $15,368,000 $ 24,001,000 $ 20,968,000
=========== =========== ============ ============
Revenues:
Net premiums earned $19,713,968 $21,378,386 $ 27,644,965 $ 23,649,007
Net investment income 7,561,058 4,436,722 (851,792) 8,465,901
Realized investment gains (losses) 1,224,643 427,454 1,328,034 (6,842,320)
Management fees 825,681 678,947 (33,227) 700,730
----------- ----------- ------------ ------------
Total revenues 29,325,350 26,921,509 28,087,980 25,973,318
----------- ----------- ------------ ------------
Losses and expenses:
Losses and loss expenses incurred 3,570,797 2,951,664 32,936,993 18,334,172
Commissions and brokerage 3,992,016 4,288,096 7,376,058 4,906,518
Other operating expenses 4,349,853 3,600,868 5,414,708 5,947,996
Interest expense 544,280 601,890 248,641 0
Minority interest in consolidated
subsidiary 2,231,884 2,231,923 2,232,051 2,232,005
----------- ----------- ------------ ------------
Total expenses 14,688,830 13,674,441 48,208,451 31,420,691
----------- ----------- ------------ ------------
Income (loss) before income taxes and
extraordinary item 14,636,520 13,247,068 (20,120,471) (5,447,374)
Income tax provision (benefit) 4,650,000 4,058,000 (7,484,000) (2,430,077)
----------- ----------- ------------ ------------
Income (loss) before extraordinary loss 9,986,520 9,189,068 (12,636,471) (3,017,297)
----------- ----------- ------------ ------------
Extraordinary loss on debt redemption
net of income tax benefit 0 0 843,000 0
----------- ----------- ------------ ------------
Net income (loss) $ 9,986,520 $ 9,189,068 $(13,479,471) $ (3,017,297)
----------- ----------- ------------ ------------
Basic earnings (loss) per common share:
Income (loss) before extraordinary
item $ 0.73 $ 0.67 $ (0.93) $ (0.24)
Extraordinary loss 0.00 0.00 0.06 0.00
----------- ----------- ------------ ------------
Net income (loss) $ 0.73 $ 0.67 $ (0.99) $ (0.24)
=========== =========== ============ ============
Average shares outstanding 13,744,975 13,650,563 13,596,222 12,691,058
=========== =========== ============ ============
Diluted earnings (loss) per common share:
Income (loss)before extraordinary
item $ 0.72 $ 0.67 $ (0.93) $ (0.24)
Extraordinary loss 0.00 0.00 0.06 0.00
----------- ----------- ------------ ------------
Net income (loss) $ 0.72 $ 0.67 $ (0.99) $ (0.24)
=========== =========== ============ ============
Average shares outstanding 13,862,678 13,722,006 13,596,222 12,691,058
=========== =========== ============ ============
Dividends paid per common share $ 0.25 $ 0.25 $ 0.25 $ 0.26
Price Range of Common Stock:
High $ 35.25 $ 32.875 $ 30.500 $ 26.6875
Low $ 29.375 $ 29.00 $ 25.625 $ 20.6250
</TABLE>
F-25
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
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 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-26
<PAGE>
<PAGE>
PARENT COMPANY INFORMATION
<TABLE>
<CAPTION>
PXRE Corporation's summarized financial information (parent company only) is as follows:
December 31,
---------------------
1998 1997
---- ----
<S> <C> <C>
BALANCE SHEET
Assets
Fixed maturities, at amortized cost $ -- $ 16,996,151
Short-term investments 1,012,031 5,126,828
Equity securities 3,069,554 3,023,866
Other invested assets 5,490,561 14,684,287
Cash 232,157 445,647
Investment income receivable 0 377,245
Receivable from subsidiaries 3,384,100 2,020,325
Income tax recoverable 10,402,439 8,494,980
Deferred income tax benefits 6,741,946 5,106,561
Equity in subsidiaries 457,193,174 460,780,439
Other assets 7,108,574 7,385,022
-------------- -------------
Total assets $ 494,634,536 $ 524,441,351
============= =============
Liabilities
Debt payable $ 50,000,000 $ 0
Note payable 0 27,689,000
Loan to subsidiary 3,416,886 0
Excess of fair market value over cost 2,550,671 5,246,522
Other liabilities 4,774,535 5,304,239
------------- -------------
Total liabilities 60,742,092 38,239,761
------------- -------------
Minority Interest in Consolidated Subsidiary 99,516,938 99,513,194
Stockholders' equity 334,375,506 386,688,396
------------- -------------
Total liabilities and stockholders' equity $ 494,634,536 $ 524,441,351
============= =============
</TABLE>
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
INCOME STATEMENT
Investment (loss) income $ (1,839,856) $ 2,799,937 $ 131,928
Realized gain on investment 1,458,142 433,966 0
Management fee 300,380 0 0
Interest expense (11,046,269) (12,005,863) (7,063,730)
Other operating expenses (36,349) 154,757 (1,671,164)
------------- ------------- ------------
Loss before tax benefit (11,163,952) (8,617,203) (8,602,966)
Income tax benefit 5,505,896 4,713,952 3,146,456
------------- ------------- ------------
(5,658,056) (3,903,251) (5,456,510)
Equity in earnings of subsidiary 9,179,877 50,930,401 38,757,785
------------- ------------- -----------
Net income before extraordinary loss 3,521,821 47,027,150 33,301,275
Extraordinary loss, net of tax 843,000 2,773,690 0
============= ============= ============
Net income $ 2,678,821 $ 44,253,460 $ 33,301,275
============= ============= ============
CASH FLOW STATEMENT
Cash from operating activities:
Net income $ 2,678,821 $ 44,253,460 $ 33,301,275
Adjustments to reconcile net income to cash
provided by operating acitvities:
Equity in earnings of subsidiaries (9,179,877) (50,930,401) (38,757,785)
Cash dividends from subsidiaries 57,388,000 0 21,000,000
Contribution of capital to subsidiaries (49,745,731) 0 0
Receivable from TREX 0 0 (334,422)
Investment income receivable 377,245 (377,245) 0
Intercompany accounts 2,053,111 (2,314,302) 5,421,549
Deferred income taxes (1,580,912) (4,165,649) (741,980)
Income tax recoverable (1,907,459) (5,074,049) (3,218,458)
Other (4,716,339) 4,025,593 2,030,968
------------- ------------- ------------
Net cash (used) provided by operating activities (4,633,141) (14,582,593) 18,701,147
------------- ------------- ------------
Cash flow from investing activities:
Investment in equity of PXRE Trading Corporation 3,444,305 0 0
Net change in short-term investments 4,114,797 13,372,334 205,160
Cost of fixed maturity investments 0 (32,981,953) 0
Cost of equity securities (45,688) (3,023,866) 0
Fixed maturity investments matured/disposed 18,482,376 16,428,816 0
Net change in other invested assets 9,193,726 (14,684,287) 0
------------- ------------- ------------
Net cash provided (used) by investing activities 35,189,516 (20,888,956) 205,160
------------- ------------- ------------
Cash flow from financing activities:
Proceeds from issuance of common stock 233,032 855,570 489,327
Cash dividends paid to common stockholders (13,585,333) (12,209,262) (6,478,852)
Repurchase of debt (27,689,000) (45,221,683) 0
Proceeds from issuance of debt 50,000,000 0 0
Cost of treasury stock (39,728,564) (7,464,583) (12,537,575)
Issuance of minority interest in consolidated subsidiary 0 99,509,000 0
------------- ------------- ------------
Net cash (used) provided by financing activities (30,769,865) 35,469,042 (18,527,100)
------------- ------------- ------------
Net change in cash (213,490) (2,507) 379,207
Cash, beginning of period 445,647 448,154 68,947
------------- ------------- ------------
Cash, end of period $ 232,157 $ 445,647 $ 448,154
============= ============= ============
</TABLE>
F-27
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Schedule III
PXRE CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
Column A Column B Column C Column D Column E Column F Column G Column H
-------- -------- -------- -------- -------- -------- -------- --------
Future
policy
benefits, Other
losses, policy Benefits,
Segment- Deferred claims and claims and claims,
property policy loss Unearned benefits Net losses and
and acquisition expenses premiums payable Premium investment settlement
casualty cost (caption (caption (caption revenue income expenses
insurance (caption 7) 13-a-1) 13-a-2) 13-a-3) (caption 1) (caption 2) (caption 4)
--------- ----------- ------- ------- ------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1998 $ 4,123,000 $ 102,592,000 $ 20,541,000 $ 0 $ 92,386,000 $ 19,612,000 $ 57,794,000
1997 2,966,000 57,189,000 18,485,000 0 91,415,000 31,191,000 12,491,000
1996 1,449,000 70,977,000 11,042,000 0 72,796,000 16,782,000 18,564,000
<CAPTION>
Column I Column J Column K
-------- -------- --------
Amortiza-
tion of
deferred
policy Other
acquisition operating Premiums
costs expense written
----- ------- -------
<S> <C> <C> <C>
1998 $ 20,563,000 $ 19,313,000 $ 88,694,000
1997 19,138,000 15,716,000 100,055,000
1996 12,874,000 12,262,000 67,718,000
</TABLE>
<TABLE>
<CAPTION>
Schedule VI
PXRE CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS
Column A Column B Column C Column D Column E Column F Column G
-------- -------- -------- -------- -------- -------- --------
Reserves for
unpaid
Deferred claims Discount,
Affiliation policy and claim if any Net
with acquisition adjustment deducted in Unearned Earned investment
registrant costs expenses Column C premiums premiums income
---------- ----- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 Consolidated $ 4,123,000 $ 102,592,000 $ 0 $ 20,541,000 $ 92,386,000 $ 19,612,000
1997 Property 2,966,000 57,189,000 0 18,485,000 91,415,000 31,191,000
1996 Casualty 1,449,000 70,977,000 0 11,042,000 72,796,000 16,782,000
<CAPTION>
Column H Column I Column J Column K
-------- -------- -------- --------
Claims and Claim Amortiza-
adjustment expenses tion of Paid
incurred related to deferred claims
(1) (2) policy and claim
Current Prior acquisi- adjustment Premiums
year years tion costs expenses written
---- ----- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
1998 $ 58,326,000 $ (532,000) $ 20,563,000 $ 33,007,000 $ 88,694,000
1997 16,408,000 (3,917,000) 19,138,000 23,379,000 100,055,000
1996 15,315,000 3,249,000 12,874,000 28,753,000 67,718,000
</TABLE>
F-28
<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 11, 1999 appearing on page F-1 of PXRE Corporation's Annual
Report on Form 10-K for the year ended December 31, 1998, 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.
PRICEWATERHOUSECOOPERS LLP
New York, New York
February 11, 1999
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 11, 1999 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.
PRICEWATERHOUSECOOPERS LLP
New York, New York
March 25, 1999
F-29
STATEMENT OF DIFFERENCES
------------------------
The British pound sterling sign shall be expressed as ..................... 'L'
The service mark symbol shall be expressed as ............................. 'sm'
<PAGE>
<PAGE>
BYLAWS
OF
PXRE CORPORATION
(A Delaware Corporation)
ARTICLE I
Offices
Section 1. Offices. The Corporation may have a principal or other office
at such other place or places, either within or without the State of Delaware,
as the Board of Directors may from time to time determine or as shall be
necessary or appropriate for the conduct of the business of the Corporation.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meetings. All annual and special meetings of the
stockholders shall be held at such place or places, within or without the State
of Delaware, as may from time to time be fixed by the Board of Directors, or as
shall be specified in the respective notices or waivers of notice thereof.
Section 2. Annual Meetings. Each annual meeting of stockholders for the
election of directors and the transaction of other business shall be held on
such date and at such time as the Board of Directors may determine. At each
annual meeting the stockholders entitled to vote shall elect a Board of
Directors and may transact such other corporate business as may be brought
before the meeting.
<PAGE>
<PAGE>
Section 3. Special Meetings. A special meeting of the stockholders (or of
any class thereof entitled to vote) for any purpose or purposes may be called at
any time by the Chairman of the Board, the President or by order of the Board of
Directors and shall be called by the President or the Secretary upon the written
request of stockholders holding of record at least twenty percent (20%) of the
outstanding voting power of the shares of stock of the Corporation entitled to
vote at such meeting. Such written request shall state the purpose or purposes
for which such meeting is to be called.
Section 4. Notice of Meetings. Except as otherwise expressly required by
law, notice of each meeting of stockholders, whether annual or special, shall be
given at least ten (10) days before the date on which the meeting is to be held
to each stockholder of record entitled to vote thereat by delivering a notice
thereof to him personally or by mailing such notice in a postage prepaid
envelope directed to him at his address as it appears on the stock ledger of the
Corporation, unless he shall have filed with the Secretary of the Corporation a
written request that notices intended for him be directed to another address, in
which case such notice shall be directed to him at the address designated in
such request. Every notice of a special meeting of the stockholders, besides
stating the time and place of the meeting, shall state briefly the objects or
purposes thereof. Notices of any meeting of stockholders shall not be required
to be given to any stockholder who shall attend such meeting in person or by
proxy; and, if any stockholder shall, in person or by attorney thereunto
authorized, in writing or by telegraph, cable or wireless, waive notice of any
meeting of the stockholders, whether prior to or after such meeting, notice
thereof need not be given to him. Notice of any adjourned meeting of the
stockholders shall not be required to be given, except as expressly required by
law.
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Section 5. List of Stockholders. It shall be the duty of the Secretary or
other officer of the Corporation who shall have charge of the stock ledger to
prepare and make, at least ten (10) days before every election of directors, a
complete list of the stockholders entitled to vote thereat, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in his name. Such list shall be open for ten (10) days at
the place where said election is to be held to the examination of any
stockholder during ordinary business hours and shall be produced and kept at the
time and place of the election during the whole time thereof and subject to the
inspection of any stockholder who may be present. The original or duplicate
stock ledger shall be the only evidence as to who are the stockholders entitled
to examine such list or the books of the Corporation or to vote in person or by
proxy at such election.
Section 6. Quorum. At each meeting of the stockholders, the holders of
record of shares representing a majority of the issued and outstanding voting
power of the stock of the Corporation entitled to vote at such meeting, present
in person or by proxy, shall constitute a quorum for the transaction of
business, except where otherwise provided by law, the Certificate of
Incorporation or these Bylaws. In the absence of a quorum, any officer entitled
to preside at, or act as Secretary of, such meeting shall have the power to
adjourn the meeting from time to time until a quorum shall be constituted. At
any such adjourned meeting at which a quorum shall be present any business may
be transacted which might have been transacted at the meeting as originally
called, but only those stockholders entitled to vote at the meeting as
originally noticed shall be entitled to vote at any adjournment or adjournments
thereof.
3
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<PAGE>
Section 7. Voting. Except as otherwise provided in the Certificate of
Incorporation, at every meeting of stockholders each holder of record of the
issued and outstanding stock of the Corporation entitled to vote at such meeting
shall be entitled to such voting power per share as is set forth in the
Certificate of Incorporation, but no proxy shall be voted after eleven (11)
months from its date unless the proxy provides for a longer period, and, except
where the transfer books of the Corporation shall have been closed or a date
shall have been fixed as the record date for the determination of stockholders
entitled to vote, no share of stock shall be voted on at any election for
directors which shall have been transferred on the books of the Corporation
within twenty (20) days next preceding such election of directors. Shares of its
own capital stock belonging to the Corporation directly or indirectly shall not
be voted upon directly or indirectly. At all meetings of the stockholders, a
quorum being present, all matters shall be decided by holders of shares
representing a majority of the voting power of the shares of stock entitled to
vote held by stockholders present in person or by proxy, except as otherwise
required by the laws of the State of Delaware. Unless demanded by a stockholder
of the Corporation present in person or by proxy at any meeting of the
stockholders and entitled to vote thereat or so directed by the Chairman of the
meeting or required by the laws of the State of Delaware, the vote thereat on
any question need not be by ballot. On a vote by ballot, each ballot shall be
signed by the stockholder voting, or in his name by his proxy, if there be such
proxy, and shall state the number of shares voted by him and the number of votes
to which each share is entitled. Whenever the vote of stockholders at a meeting
thereof is required or permitted to be taken in connection with any corporate
action by any provisions of the laws of the State of Delaware or of the
Certificate of Incorporation or of these Bylaws, the meeting and vote of
stockholders may be
4
<PAGE>
<PAGE>
dispensed with if such number of stockholders who would have been entitled to
vote upon the action if such meeting were held, and who hold sufficient voting
power to approve such action without a meeting under Delaware law, shall consent
in writing to such corporate action being taken.
ARTICLE III
Board of Directors
Section 1. General Powers. The property, business and affairs of the
Corporation shall be managed by the Board of Directors.
Section 2. Term of Office. Except as otherwise provided in the Certificate
of Incorporation, each director shall hold office until the annual meeting of
the stockholders next following his election and until his successors shall have
been elected and shall qualify, or until his earlier death, resignation or
removal.
Section 3. Quorum and Manner of Acting. Unless otherwise provided by law,
the presence of one-third (1/3) of the whole Board of Directors, regardless of
which class of stock may have voted upon their election, and in any case not
less than three (3) directors, shall be necessary to constitute a quorum for the
transaction of business. In the absence of a quorum, a majority of the directors
present may adjourn the meeting from time to time until a quorum shall be
present. Notice of any adjourned meeting need not be given. At all meetings of
the directors, a quorum being present, all matters shall be decided by the
affirmative vote of a majority of the directors present, except as otherwise
required by the Certificate of Incorporation or the laws of the State of
Delaware.
5
<PAGE>
<PAGE>
Section 4. Place of Meetings, Books and Records. The Board of Directors
may hold its meetings and keep the books and records of the Corporation, at such
place or places within or without the State of Delaware, as the Board may from
time to time determine.
Section 5. Annual Meeting. As promptly as practicable after each annual
meeting of stockholders for the election of directors, the Board of Directors
shall meet for the purpose of organization, the election of officers and the
transaction of other business. Notice of such meeting need not be given. Such
meeting may be held at any other time or place as shall be specified in a notice
given as hereinafter provided for special meetings of the Board of Directors or
in a waiver of notice thereof signed by all the directors.
Section 6. Regular Meetings. Regular meetings of the Board of Directors
may be held at such time and place, within or without the State of Delaware, as
shall from time to time be determined by the Board of Directors. After there has
been such determination, and notice thereof has been given to each member of the
Board of Directors, regular meetings may be held without further notice being
given.
Section 7. Special Meetings and Notice Thereof. Special meetings of the
Board of Directors shall be held whenever called by the Chairman of the Board,
the President or by a majority of the directors. Notice of each such meeting
shall be mailed to each director, addressed to him at his residence or usual
place of business, at least two (2) days before the date on which the meeting is
to be held, or shall be sent to him at such place by telegraph, cable, radio or
wireless, or be delivered personally or by telephone, not later than the day
before the day on which such meeting is to be held. Each such notice shall state
the time and place of the meeting and the purpose thereof. In lieu of the notice
to be given as set forth above, a waiver thereof in
6
<PAGE>
<PAGE>
writing, signed by the director or directors entitled to said notice, whether
before or after the time stated therein, shall be deemed equivalent thereto for
purposes of this Section 7. No notice to or waiver by any director with respect
to any special meeting shall be required if such director shall be present at
said meeting.
Section 8. Resignation. Any director of the Corporation may resign at any
time by giving written notice thereof to the Chairman of the Board, the
President or the Secretary of the Corporation. The resignation of any director
shall take effect upon receipt of notice thereof or at such later time as shall
be specified in such notice; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 9. Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director, unless otherwise provided by the Certificate of
Incorporation or the laws of the State of Delaware.
Section 10. Compensation of Directors. Directors, as such, shall not
receive any stated salary for their services, but, by resolution of the Board, a
specific sum may be fixed by the Board as an annual fee or for attendance at
each regular or special meeting of the Board or any committee thereof and the
Board may also authorize the reimbursement of any expenses reasonably incurred
in connection with such services; provided that nothing herein contained shall
be construed to preclude any director from serving the Corporation or any
subsidiary thereof in any other capacity and receiving compensation therefor.
Section 11. Committees. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of
7
<PAGE>
<PAGE>
two or more directors of the Corporation, without regard to the class of stock
that may have voted upon their election, which, to the extent provided in the
resolution or in these Bylaws, shall have and may exercise such powers of the
Board in the management of the business and affairs of the Corporation
(including the power to authorize the seal of the Corporation to be affixed to
all papers which may require it), as the Board may by resolution determine and
specify in the respective resolutions appointing them, subject to such
restrictions as may be contained in the Certificate of Incorporation. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors. The committees
shall keep regular minutes of their proceedings and report the same to the Board
when required. A majority of all the members of any such committee may fix its
rules of procedure, determine its action and fix the time and place, whether
within or without the State of Delaware, of its meetings and specify what notice
thereof, if any, shall be given, unless the Board of Directors shall otherwise
provide. The Board of Directors shall have power to change the membership of any
such committee at any time, to fill vacancies thereon and to discharge any such
committee, either with or without cause, at any time.
Section 12. Action Without Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if a written consent thereto is signed by all members
of the Board or of such committee, as the case may be, and such written consent
is filed with the minutes or proceedings of the Board or committee.
Section 13. Removal of Directors. Notwithstanding any other provisions of
the Certificate of Incorporation of the Corporation or these Bylaws (and
notwithstanding the fact that
8
<PAGE>
<PAGE>
some lesser percentage may be specified by law, the Certificate of Incorporation
or these Bylaws), any director or the entire Board of Directors of the
Corporation may be removed at any time with or without cause only by the
affirmative vote, at a meeting of the shareholders called for that purpose, by
the holders of 66 2/3 or more of the Voting Shares (as that term is defined in
the Corporation's Certificate of Incorporation) that elected the director.
ARTICLE IV
Officers
Section 1. Number. The Board of Directors shall elect from its members a
Chief Executive Officer, who shall also have the title of President and/or
Chairman of the Board as the Board shall determine. The other principal officers
of the Corporation shall be a President, one or more Vice Presidents, a
Treasurer and a Secretary. The Corporation may also have, at the discretion of
the Board of Directors, such other officers as may be appointed in accordance
with the provisions of these Bylaws. One person may hold the offices and perform
the duties of any two or more of said offices, except the offices and duties of
President and Secretary.
Section 2. Election or Appointment and Term of Office. The principal
officers of the Corporation shall be chosen annually by the Board of Directors
at the annual meeting thereof. Each such officer shall hold office until his
successor shall have been duly chosen and shall qualify, or until his earlier
death, resignation or removal.
Section 3. Subordinate Officers. In addition to the principal officers
enumerated in Section 1 of this Article IV, the Corporation may have one or more
Assistant Treasurers, one or more Assistant Secretaries and such other officers,
agents and employees as the Board of Directors may deem necessary or
appropriate, each of whom shall hold office for such period,
9
<PAGE>
<PAGE>
have such authority, and perform such duties as the Chairman of the Board, the
President, or the Board of Directors may from time to time determine. The Board
of Directors may delegate to any principal officer the power to appoint and to
remove any such subordinate officers, agents or employees.
Section 4. Removal. Any of the principal officers enumerated in Section 1
of this Article IV may be removed, either with or without cause, at any time, by
resolution adopted by the Board of Directors at any regular meeting of the Board
or at any special meeting of the Board called for that purpose at which a quorum
is present. Any of the officers holding office pursuant to Section 3 of this
Article IV may be removed, either with or without cause by the Board of
Directors or by any principal officer to whom the power has been delegated
pursuant to such Section 3 of this Article IV.
Section 5. Resignations. Any officer may resign at any time by giving
written notice to the Chairman of the Board, to the Board of Directors, to the
President or to the Secretary. Any such resignation shall take effect upon
receipt of such notice or at any later time specified therein; and, unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 6. Vacancies. A vacancy in any office may be filled for the
unexpired portion of the term in the manner prescribed in these Bylaws for
election or appointment to such office for such term.
Section 7. Chairman of the Board. The Chairman of the Board shall preside
at all meetings of stockholders and at all meetings of the Board of Directors.
He shall perform such
10
<PAGE>
<PAGE>
other duties and have such other powers as the Board of Directors may from time
to time prescribe.
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 Bylaws 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 Bylaws or as from time to time may be assigned to him by
the Board of Directors or the Chief Executive Officer.
11
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<PAGE>
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
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.
12
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<PAGE>
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.
Section 13. Salaries. The salaries of the principal officers shall be
fixed from time to time by the Board of Directors, and the salaries of any other
officers may be fixed by the Chairman of the Board or the President.
ARTICLE V
Shares and Their Transfer
Section 1. Certificate for Stock. Every stockholder of the Corporation
shall be entitled to a certificate or certificates, in such form as the Board of
Directors shall prescribe, certifying the number of shares of the capital stock
of the Corporation owned by him.
Section 2. Stock Certificates. Any stock certificate which certifies the
number of shares owned by any stockholder of the Corporation shall be numbered
in the order in which it shall be issued and shall be signed by the Chairman of
the Board or the President or any Vice President, and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
Corporation and shall have the seal of the Corporation affixed thereto;
provided,
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<PAGE>
however, that, where any such certificate is signed (1) by a transfer agent or
an assistant transfer agent or (2) by a transfer clerk acting on behalf of the
Corporation and a registrar, if the Board shall by resolution so authorize, the
signatures of such Chairman of the Board, President, Vice President, Treasurer,
Secretary, Assistant Treasurer or Assistant Secretary and the seal of the
Corporation may be facsimiles thereof. In case any officer or officers of the
Corporation who shall have signed, or whose facsimile signature or signatures
shall have been used on, any such certificates shall cease to be such officer or
officers, whether by reason of death, resignation or otherwise, before such
certificate shall have been delivered by the Corporation, such certificate may
nevertheless be adopted by the Corporation and be issued and delivered as though
the person or persons who signed such certificate, or whose facsimile signature
or signatures shall have been affixed thereto, had not ceased to be such officer
or officers.
Section 3. Stock Ledger. A record shall be kept by the Secretary, transfer
agent or by any other officer, employee or agent designated by the Board of
Directors of the name of the person, firm or corporation holding the stock
represented by such certificate, the number of shares represented by such
certificate, and the date thereof, and in case of cancellation, the date of
cancellation.
Section 4. Cancellation. Every certificate surrendered to the Corporation
for exchange or transfer shall be canceled, and no new certificate or
certificates shall be issued in exchange for any existing certificate until such
existing certificate shall have been so cancelled, except in cases provided for
in Section 7 of this Article V.
Section 5. Transfer of Stock. Transfers of shares of the capital stock of
the Corporation shall be made only on the books of the Corporation by the
registered holder thereof,
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<PAGE>
or by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the Corporation or with a transfer clerk or a
transfer agent appointed as in Section 6 of this Article V provided, and on
surrender of the certificate or certificates for such shares properly endorsed
and the payment of all transfer taxes thereon. The person in whose name shares
of stock stand on the books of the Corporation shall be deemed the owner thereof
for all purposes as regards the Corporation; provided, however, that whenever
any transfer of shares shall be made for collateral security, and not
absolutely, such fact, if known to the Secretary of the Corporation, shall be so
expressed in the entry of transfer.
Section 6. Regulations. The Board of Directors may make such rules and
regulations as it may deem expedient, not inconsistent with the Certificate of
Incorporation or these Bylaws, concerning the issue, transfer and registration
of certificates for shares of the stock of the Corporation. It may appoint, or
authorize any principal officer or officers to appoint, one or more transfer
clerks or one or more transfer agents and one or more registrars, and may
require all certificates of stock to bear the signature or signatures of any of
them.
Section 7. Lost, Stolen, Mutilated or Destroyed Certificates. As a
condition to the issue of a new certificate of stock in the place of any
certificate theretofore issued and alleged to have been lost, stolen, mutilated
or destroyed, the Board of Directors, in its discretion, may require the owner
of any such certificate, or his legal representative, to give the Corporation a
bond in such sum and in such form as it may direct to indemnify the Corporation
against any claim that may be made against it on account of the alleged loss,
theft, mutilation or destruction of any such certificate or the issuance of such
new certificate. Proper evidence of such loss, theft, mutilation or destruction
shall be procured for the Board of Directors, if required by the
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<PAGE>
Board. The Board of Directors, in its discretion, may authorize the issuance of
such new certificate without any bond when in its judgment it is proper to do
so.
Section 8. Record Date. The Board may fix a date in advance of the date of
any meeting of stockholders, or the date for the payment of any dividend, or the
date for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect or a date in connection with
obtaining any written consent to corporate action without a meeting, as a record
date for the determination of the stockholders entitled to notice of, and to
vote at, such meeting, and any adjournment thereof, or to receive payment of any
dividend, or to receive any such allotment of rights, or to exercise the rights
in respect of any such change, conversion, or exchange of capital stock or to
give such written consent, as the case may be, notwithstanding any transfer of
any stock on the books of the Corporation after any record date so fixed.
ARTICLE VI
Miscellaneous Provisions
Section 1. Corporate Seal. The Board of Directors shall provide a
corporate seal, which shall be in the form of a circle and shall bear the name
of the Corporation and words and figures showing that it was incorporated in the
State of Delaware in the year 1986. The Secretary shall be the custodian of the
seal. The Board of Directors may authorize a duplicate seal to be kept and used
by any other officer.
Section 2. Fiscal Year. The fiscal year of the Corporation shall be as
specified by the Board of Directors.
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Section 3. Voting of Stocks Owned by the Corporation. The Board of
Directors may authorize any person on behalf of the Corporation to attend, vote
and grant proxies to be used at any meeting of stockholders of any corporation
(except this Corporation) in which the Corporation may hold stock.
Section 4. Dividends. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefor, at any regular or special meeting, declare dividends upon the capital
stock of the Corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the Corporation available
for dividends such sum or sums as the directors from time to time in their
discretion may deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors may deem conducive to the interests of the Corporation.
Section 5. Amendments. These Bylaws may be amended in the manner provided
for in the Certificate of Incorporation of the Corporation.
17
<PAGE>
<PAGE>
EXHIBIT 10.17
<TABLE>
<S> <C>
REASSURED: PXRE REINSURANCE COMPANY
PERIOD: Continuous from January 1, 1994, subject to 90 days written notice
of cancellation. Resigning at January 1, 1999.
TYPE: Quota Share Treaty.
CLASS: All business written by the Reassured.
TERRITORIAL
SCOPE: As per original business written by Reassured.
TREATY DETAIL: Reassured will cede up to a maximum of $20,000,000 any one
program for 100%, on all business written and retained net.
COMMISSION: As original plus 5% override on Gross Written Premium as
reimbursement for expenses.
PROFIT
COMMISSION: 20% of underwriting profits after commissions, including override.
Reinsurers Management Expense 5%. Profit commission period
to be 3 year block basis commencing January 1, 1999. Any deficit
from prior periods to be carried forward against profits in
subsequent three year blocks.
REPORTS: Quarterly accounting reports and underwriting statistical reports.
CASH LOSSES: Special Cash request for individual losses and/or catastrophe losses
above $250,000.
GENERAL
CONDITIONS: Special Termination Clause as per wording
Access to Records
Errors and Omissions
Insolvency Clause
Arbitration Clause
Offset Clause
ACCEPTED: 5% of 100% ($1,000,000 per program).
DATED: Feb. 23, 1999
COMPANY: TRENWICK AMERICA REINSURANCE COMPANY
AUTHORIZED SIGNATURE: [SIGNATURE ILLEGIBLE]
REFERENCE NO.: 100321699
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<S> <C>
REASSURED: PXRE REINSURANCE COMPANY
PERIOD: Continuous from January 1, 1995, subject to 90 days written notice
of cancellation. Resigning at January 1, 1999.
TYPE: Quota Share Treaty.
CLASS: All business written by the Reassured.
TERRITORIAL
SCOPE: As per original business written by Reassured.
TREATY DETAIL: Reassured will cede up to a maximum of $20,000,000 any one
program for 100%, on all business written and retained net.
COMMISSION: As original plus 5% override on Gross Written Premium as
reimbursement for expenses.
PROFIT
COMMISSION: 20% of underwriting profits after commissions, including override.
Reinsurers Management Expense 5%. Profit commission period
to be 3 year block basis commencing January 1, 1999. Any deficit
from prior periods to be carried forward against profits in
subsequent three year blocks.
REPORTS: Quarterly accounting reports and underwriting statistical reports.
CASH LOSSES: Special Cash request for individual losses and/or catastrophe losses
above $250,000.
GENERAL
CONDITIONS: Special Termination Clause as per wording
Access to Records
Errors and Omissions
Insolvency Clause
Arbitration Clause
Offset Clause
ACCEPTED: 1.8% ($360,000 per program)
DATED: 2/18/99
COMPANY: THE ANDOVER COMPANIES
AUTHORIZED SIGNATURE: [SIGNATURE ILLEGIBLE]
REFERENCE NO.:
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<S> <C>
REASSURED: PXRE REINSURANCE COMPANY
PERIOD: Continuous from January 1, 1995, subject to 90 days written notice
of cancellation. Resigning at January 1, 1999.
TYPE: Quota Share Treaty.
CLASS: All business written by the Reassured.
TERRITORIAL
SCOPE: As per original business written by Reassured.
TREATY DETAIL: Reassured will cede up to a maximum of $20,000,000 any one
program for 100%, on all business written and retained net.
COMMISSION: As original plus 5% override on Gross Written Premium as
reimbursement for expenses.
PROFIT
COMMISSION: 20% of underwriting profits after commissions, including override.
Reinsurers Management Expense 5%. Profit commission period
to be 3 year block basis commencing January 1, 1999. Any deficit
from prior periods to be carried forward against profits in
subsequent three year blocks.
REPORTS: Quarterly accounting reports and underwriting statistical reports.
CASH LOSSES: Special Cash request for individual losses and/or catastrophe losses
above $250,000.
GENERAL
CONDITIONS: Special Termination Clause as per wording
Access to Records
Errors and Omissions
Insolvency Clause
Arbitration Clause
Offset Clause
ACCEPTED: 0.6% ($120,000 per program)
DATED: February 26, 1999
COMPANY: THE PENNSYLVANIA LUMBERMENS MUTUAL INS. CO.
AUTHORIZED SIGNATURE: FRED R. PHILLIPS
Senior Vice Pres. - Secretary
REFERENCE NO.: 918
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<S> <C>
REASSURED: PXRE REINSURANCE COMPANY
PERIOD: Continuous from January 1, 1995, subject to 90 days written notice
of cancellation. Resigning at January 1, 1999.
TYPE: Quota Share Treaty.
CLASS: All business written by the Reassured.
TERRITORIAL
SCOPE: As per original business written by Reassured.
TREATY DETAIL: Reassured will cede up to a maximum of $20,000,000 any one
program for 100%, on all business written and retained net.
COMMISSION: As original plus 5% override on Gross Written Premium as
reimbursement for expenses.
PROFIT
COMMISSION: 20% of underwriting profits after commissions, including override.
Reinsurers Management Expense 5%. Profit commission period
to be 3 year block basis commencing January 1, 1999. Any deficit
from prior periods to be carried forward against profits in
subsequent three year blocks.
REPORTS: Quarterly accounting reports and underwriting statistical reports.
CASH LOSSES: Special Cash request for individual losses and/or catastrophe losses
above $250,000.
GENERAL
CONDITIONS: Special Termination Clause as per wording
Access to Records
Errors and Omissions
Insolvency Clause
Arbitration Clause
Offset Clause
ACCEPTED: 1.8% ($360,000 per program)
DATED: 19/3/99
COMPANY: N.R.M.A. INSURANCE LTD.
A.C.N. 000 016 722
[SEAL]
AUTHORIZED SIGNATURE: [SIGNATURE ILLEGIBLE]
REFERENCE NO.: 99PX0035
</TABLE>
<PAGE>
<PAGE>
<TABLE>
<S> <C>
REASSURED: PXRE REINSURANCE COMPANY
PERIOD: Continuous from January 1, 1995, subject to 90 days written notice
of cancellation. Resigning at January 1, 1999.
TYPE: Quota Share Treaty.
CLASS: All business written by the Reassured.
TERRITORIAL
SCOPE: As per original business written by Reassured.
TREATY DETAIL: Reassured will cede up to a maximum of $20,000,000 any one
program for 100%, on all business written and retained net.
COMMISSION: As original plus 5% override on Gross Written Premium as
reimbursement for expenses.
PROFIT
COMMISSION: 20% of underwriting profits after commissions, including override.
Reinsurers Management Expense 5%. Profit commission period
to be 3 year block basis commencing January 1, 1999. Any deficit
from prior periods to be carried forward against profits in
subsequent three year blocks.
REPORTS: Quarterly accounting reports and underwriting statistical reports.
CASH LOSSES: Special Cash request for individual losses and/or catastrophe losses
above $250,000.
GENERAL
CONDITIONS: Special Termination Clause as per wording
Access to Records
Errors and Omissions
Insolvency Clause
Arbitration Clause
Offset Clause
ACCEPTED: 0.8% ($160,000 per program)
DATED: February 22, 1999
COMPANY: AUTO OWNERS INSURANCE COMPANY
AUTHORIZED SIGNATURE: JOHN A. WALLACE
REFERENCE NO.: 08101
</TABLE>
<PAGE>
<PAGE>
[Letterhead of PXRE Reinsurance Company]
September 1, 1998
Select Reinsurance Ltd.
Continental Building
25 Church Street
P.O. Box HM824
Hamilton HMCX
Bermuda
Attention: Jeff Radke
Gentlemen:
This will confirm our agreement with respect to the following matters:
1. Effective January 1, 1998, the Amended and Restated Facultative
Obligatory Quota Share Retrocessional Agreement, dated as of October 1, 1997
together with the four Endorsements thereto two for the 1996 calendar year and
one each for the 1997 and 1998 calendar years (collectively, the "Obligatory
Treaty") between Select Reinsurance Ltd. ("Select Re") and PXRE Reinsurance
Company ("PXRE Reinsurance"), Variable Quota Share Retrocessional Agreement,
dated as of April 1, 1997 (the "Variable Treaty") between Select Re and PXRE
Reinsurance and Trust Agreement, dated as of January 31, 1996 and Amendment No.
1 thereto, dated as of October 1, 1997, between PXRE Reinsurance, Select Re and
The Chase Manhattan Bank, as trustee, shall be in the forms annexed hereto as
Exhibits A, B and C, respectively.
2. In each of the five calendar years 1998 through 2002, PXRE Reinsurance
and its affiliates will use reasonable efforts to offer to Select Re business
with aggregate premiums equal to a minimum of 20% of Select Re's shareholders'
equity at April 1, 1998, earnings thereon, additional capital of Select Re
specifically consented to for this purpose in writing by PXRE Reinsurance and
earnings on such additional capital; provided, however, for calendar year 1998
PXRE Reinsurance and its affiliates will use reasonable efforts to offer to
Select Re business with aggregate premiums of not less than 20% of Select Re's
shareholders' equity as at April 1, 1998 ($68 million) and for any particular
calendar year subsequent to 1998 PXRE Reinsurance and its affiliates will use
reasonable efforts to offer to Select Re business with aggregate
<PAGE>
<PAGE>
Select Reinsurance Ltd.
September 1, 1998
Page 2
premiums of not less than 20% of Select Re's shareholders' equity as at December
31 of the prior calendar year (to the extent consented to by PXRE Reinsurance as
provided above), in each case unless otherwise agreed in writing by the parties.
PXRE Reinsurance and its affiliates shall undertake such reasonable efforts to
offer to Select Re business with such aggregate premiums through a combination
of offers under the Obligatory Treaty, the Variable Treaty or otherwise, even
though neither the Obligatory Treaty nor the Variable Treaty by its terms
requires PXRE Reinsurance to undertake such efforts. For purposes of the
foregoing, (a) premiums shall include only (i) premiums on risks on which PXRE
Reinsurance and/or its affiliates have retained a minimum of one-third of the
risk offered to be ceded to Select Re, unless otherwise agreed in writing by
Select Re, and (ii) premiums on risks (similar in nature to those offered under
the Obligatory Treaty) introduced directly to Select Re by PXRE Reinsurance or
its affiliates, in each case whether or not such risks shall be written by
Select Re, and (b) premiums shall include any amounts deemed deposits under
United States generally accepted accounting principles if the associated risks
shall be written by Select Re or, if not written by Select Re, if PXRE
Reinsurance at the time such risks are offered to Select Re advises Select Re in
good faith that in PXRE Reinsurance's judgment such amounts should be treated as
premiums, and not as deposits, under United States generally accepted accounting
principles. Notwithstanding the foregoing, Select Re and PXRE Reinsurance agree
that Select Re shall have the right to accept or reject any risk offered by PXRE
Reinsurance or its affiliates and that the minimum undertaking for a particular
calendar year shall be appropriately adjusted in the event that during such
calendar year Select Re's shareholders' equity is adversely impacted by
insurance, investment or other losses.
3. With respect to risks introduced directly to Select Re by PXRE
Reinsurance or its affiliates (i.e., otherwise than pursuant to the Obligatory
Treaty or the Variable Treaty) following a favorable underwriting recommendation
by PXRE Reinsurance or its affiliates, or substantially similar risks written by
Select Re with the same cedant or an affiliate of such cedant or with others
utilizing proprietary information or techniques developed by or for PXRE
Reinsurance, Select Re shall within forty-five (45) days after the close of each
calendar quarter (until all amounts owing under this Paragraph 3 by Select Re
shall have been paid) pay to PXRE Reinsurance or its affiliates:
(a) 15% of gross premiums received by Select Re on business
primarily involving excess property, marine and aerospace risks;
(b) 20% of Select Re's margin on finite risks; and
<PAGE>
<PAGE>
Select Reinsurance Ltd.
September 1, 1998
Page 3
(c) 5% of gross premiums received by Select Re on other business,
including casualty and pro rata property, marine and aerospace risks.
With respect to any risks introduced directly by PXRE Reinsurance or its
affiliates and written directly by Select Re without a favorable underwriting
recommendation by PXRE Reinsurance or its affiliates, Select Re shall make such
payment to PXRE Reinsurance in respect thereof as PXRE Reinsurance and Select Re
may agree on a case by case basis.
Return premiums (as defined in the Obligatory Treaty) not previously taken
into account shall be taken into account in calculating the commissions set
forth above.
This Agreement may be terminated (a) by PXRE Reinsurance by notice to
Select Re in the event that Select Re's shareholders' equity (calculated under
United States generally accepted accounting principles) shall have declined by
50% or more from the amount of such shareholders' equity as at the previous
December 31, (b) by PXRE Reinsurance upon (i) a material breach by Select Re or
any of its subsidiaries or affiliates of its obligations under this Agreement or
under any reinsurance agreement (or related agreement) between the parties
hereto or any of their subsidiaries or affiliates (x) which breach has not been
cured within ten (10) days following receipt by Select Re of written notice of
such breach or (y) if such breach is not susceptible to cure within such ten
(10) day period steps reasonably designed to cure such breach are not commenced
within such period, such steps are not diligently pursued or such breach is not
cured within a reasonable period following such written notice of breach or (ii)
the conviction of, or plea of nolo contendere by, Select Re or any of its
subsidiaries or affiliates or any of their respective directors (other than any
designated by PXRE Reinsurance) or executive officers ("Select Re Persons") to a
felony or a crime involving moral turpitude, or the entry of a judgment no
longer subject to appeal against Select Re or any of its subsidiaries or
affiliates or any of the Select Re Persons finding a common law fraud, or other
unlawful conduct by Select Re or any of its subsidiaries or affiliates or any of
the Select Re Persons that is injurious to the financial condition or reputation
of, or is otherwise materially injurious to, PXRE Reinsurance or any of its
subsidiaries or affiliates or (c) by Select Re upon (i) a material breach by
PXRE Reinsurance or any of its subsidiaries or affiliates of its obligations
under this Agreement or under any reinsurance agreement (or related agreement)
between the parties hereto or any of their subsidiaries or affiliates (x) which
breach has not been cured within ten (10) days following receipt by PXRE
Reinsurance of written notice of such breach or (y) if such breach is not
susceptible to cure within such ten (10) day period steps reasonably designed to
cure such breach are not commenced within such period, such steps are not
diligently pursued or such breach is
<PAGE>
<PAGE>
Select Reinsurance Ltd.
September 1, 1998
Page 4
not cured within a reasonable period following such written notice of breach or
(ii) the conviction of, or plea of nolo contendere by, PXRE Reinsurance or any
of its subsidiaries or affiliates or any of their respective directors or
executive officers (the "PXRE Reinsurance Persons") to a felony or a crime
involving moral turpitude, or the entry of a judgment no longer subject to
appeal against PXRE Reinsurance or any of its subsidiaries or affiliates or any
of the PXRE Reinsurance Persons finding a common law fraud, or other unlawful
conduct by PXRE Reinsurance or any of its subsidiaries or affiliates or any of
the PXRE Reinsurance Persons that is injurious to the financial condition or
reputation of, or is otherwise materially injurious to, Select Re or any of its
subsidiaries or affiliates. The party desiring to terminate this Agreement
pursuant to clause (a) through (c) above shall give prompt written notice of
such termination to the other party. No termination of this Agreement pursuant
to clause (a) through (c) above by a party will relieve the other party from any
liability for any breach of this Agreement or any such reinsurance agreement (or
related agreement) or from the performance of any obligation due with respect to
any period preceding such termination.
If the foregoing correctly reflects our agreement, please sign and return
to the undersigned the enclosed copy of this letter.
Sincerely yours,
PXRE REINSURANCE COMPANY
By /s/ Gerald L. Radke
-----------------------------------
Name: Gerald L. Radke
Title: President
ACCEPTED AND AGREED:
SELECT REINSURANCE LTD.
By /s/ Jeffrey L. Radke
---------------------------
Name: Jeffrey L. Radke
Title: President
<PAGE>
<PAGE>
AMENDED AND RESTATED
FACULTATIVE OBLIGATORY
QUOTA SHARE RETROCESSIONAL AGREEMENT
between
PXRE REINSURANCE COMPANY
and
SELECT REINSURANCE LTD.
<PAGE>
<PAGE>
AMENDED AND RESTATED FACULTATIVE OBLIGATORY QUOTA SHARE RETROCESSIONAL
AGREEMENT, dated as of October 1, 1997 (hereinafter referred to as the
"Agreement"), between SELECT REINSURANCE LTD., a Bermuda company (hereinafter
referred to as "Reinsurer"), and PXRE REINSURANCE COMPANY, a Connecticut
corporation (hereinafter referred to as "Company").
W I T N E S S E T H :
WHEREAS, the Company and Investors Reinsurance Ltd., a Barbados company
("Investors Re") entered into a Facultative Obligatory Quota Share
Retrocessional Agreement dated January 31, 1996 (the "Existing Retrocession
Agreement");
WHEREAS, Investors Re and the Reinsurer have entered into an Asset Purchase
Agreement, dated as of August 14, 1997 (the "Asset Purchase Agreement") pursuant
to which the assets of Investors Re are being sold to, and the liabilities of
Investors Re are being assumed by, the Reinsurer;
WHEREAS, pursuant to the Asset Purchase Agreement, Investors Re is assigning its
rights under the Existing Retrocession Agreement to the Reinsurer, and the
Reinsurer is assuming the obligations and liabilities of Investors Re
thereunder;
WHEREAS, the Company has consented to the assignment of the Existing
Retrocession Agreement to the Reinsurer, subject to the assumption by the
Reinsurer of all of the obligations and liabilities of Investors Re thereunder;
and
WHEREAS, the Company and the Reinsurer desire to amend and restate the terms and
provisions of the Existing Retrocession Agreement, effective as of the closing
under the Asset Purchase Agreement, and to further amend and restate certain of
such terms and provisions effective January 1, 1998, all as further described in
this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein
contained and of the mutual benefits herein provided, and as an inducement to
the consent by the Company to the assignment of the Existing Retrocession
Agreement to the Reinsurer and as an inducement to the assumption by the
Reinsurer of the obligations and liabilities of Investors Re, the Company and
the Reinsurer hereby agree as follows:
ARTICLE I
CLASSES OF BUSINESS REINSURED
This Agreement shall cover liability ceded under all Contracts written by the
Company in
<PAGE>
<PAGE>
the manner set forth in ARTICLE II - REINSURANCE CLAUSE and subject to the
exclusions set forth in ARTICLE V - EXCLUSIONS. The terms "Contracts",
"Contracts written by the Company" and "Contracts of the Company" shall mean any
and all binders, policies, certificates, agreements and contracts of property,
marine and aerospace reinsurance and insurance issued, accepted or held, covered
provisionally or otherwise in the name of the Company, and, effective from 12:01
a.m. Eastern Time, January 1, 1998, shall mean any and all binders, policies,
certificates, agreements and contracts of reinsurance and insurance issued,
accepted or held, covered provisionally or otherwise in the name of the Company.
ARTICLE II
REINSURANCE CLAUSE
Commencing with the effective date of this Agreement, the Company shall offer to
cede to the Reinsurer in accordance with the Participant Agreement dated as of
January 31, 1996 between the Company, Investors Re and its parent (the
"Participant Agreement") in respect of periods ending on or prior to December
31, 1997, and may offer to cede to the Reinsurer in the sole discretion of the
Company for periods subsequent to December 31, 1997, a quota share for a given
Policy Year ("Quota Share"), as indicated on the applicable Endorsement for such
Policy Year (which Endorsement shall be in the form of Annex 1 hereto), of the
Company's Net Retained Line on all Contracts coming within the scope of this
Agreement. The Reinsurer shall have the right to accept or reject such cession
offer in respect of any Contract (or all such Contracts), in its sole
discretion, but shall be deemed to have accepted each Contract cession not
rejected by notice given in writing to the Company promptly following receipt of
underwriting detail in respect of the proposed Contract cession. Each Contract
cession accepted (or deemed accepted) by the Reinsurer shall be deemed a
Contract ceded to, and in force under, this Agreement. An Endorsement shall be
executed for each Policy Year during the term of this Agreement. For purposes of
this Agreement, the term "Policy Year" shall mean the calendar year.
Limitations per reinsurance program, if any, on cessions to this Agreement in
any Policy Year shall also be set forth on such Endorsement.
Subject to the conditions of the following paragraph, the term "Net Retained
Line" shall mean the amount of liability which the Company maintains per
reinsurance program after deduction of liability ceded, if any, to any general
or specific retrocessions to protect the Company and its quota share reinsurers
(including, without limitation, the Reinsurer).
The term "reinsurance program" shall be defined as:
-2-
<PAGE>
<PAGE>
1. Treaty Underlying Reinsurance Program - The portion of a ceding company's
program consisting of Pro Rata Treaties and/or Risk Excess of Loss Contracts
involving one or more layers where appropriate, and subject to the same loss
from an original insured.
2. Treaty Catastrophe Reinsurance Program - The portion of a ceding company's
program consisting of Catastrophe Excess of Loss and/or Aggregate Excess of Loss
Contracts involving one or more layers where appropriate.
ARTICLE III
TERM AND CANCELLATION
The Existing Retrocession Agreement became effective as at 12:01 a.m. Eastern
Time, January 1, 1996. This Agreement (as amended and restated) shall be
effective from 12:01 a.m. Eastern Time, October 1, 1997, except for the
provisions specified herein as being effective as of 12:01 a.m. Eastern Time,
January 1, 1998 which shall be effective as of such time. This Agreement shall
be continuously in force until 11:59 p.m. Eastern Time, December 31, 2000 and,
effective January 1, 1998, shall be continuously in force until 11:59 p.m.
Eastern Time, December 31, 2002 (the "Termination Date"); provided, that this
Agreement shall in no way affect the terms and provisions of the Existing
Retrocession Agreement prior to the effective date hereof or in any way relieve
the Reinsurer of any liabilities under the Existing Retrocession Agreement
assumed from Investors Re; provided, further, this Agreement may be terminated
(a) by the Company prior to the Termination Date by notice to the Reinsurer in
the event that the Reinsurer's shareholders' equity (calculated under United
States generally accepted accounting principles) shall have declined by 50% or
more from the amount of such shareholders' equity as at the previous December
31, (b) by the Company prior to the Termination Date upon (i) a material breach
by the Reinsurer of its obligations under this Agreement (x) which breach has
not been cured within ten (10) days following receipt by the Reinsurer of
written notice of such breach or (y) if such breach is not susceptible to cure
within such ten (10) day period steps reasonably designed to cure such breach
are not commenced within such period, such steps are not diligently pursued or
such breach is not cured within a reasonable period following such written
notice of breach or (ii) the conviction of, or plea of nolo contendere by, the
Reinsurer or any of its directors (other than any designated by the Company) or
executive officers ("Reinsurer Persons") to a felony or a crime involving moral
turpitude, or the entry of a judgment no longer subject to appeal against the
Reinsurer or any of the Reinsurer Persons finding a common law fraud, or other
unlawful conduct by the Reinsurer or any of the Reinsurer Persons that is
injurious to the financial condition or reputation of, or is otherwise
materially injurious to, the Company or any of its subsidiaries or affiliates or
(c) by the Reinsurer prior to the Termination Date upon (i) a material breach by
the Company of its obligations under this Agreement (x) which breach has not
been cured
-3-
<PAGE>
<PAGE>
within ten (10) days following receipt by the Company of written notice of such
breach or (y) if such breach is not susceptible to cure within such ten (10) day
period steps reasonably designed to cure such breach are not commenced within
such period, such steps are not diligently pursued or such breach is not cured
within a reasonable period following such written notice of breach or (ii) the
conviction of, or plea of nolo contendere by, the Company or any of its
directors or executive officers (the "Company Persons") to a felony or a crime
involving moral turpitude, or the entry of a judgment no longer subject to
appeal against the Company or any of the Company Persons finding a common law
fraud, or other unlawful conduct by the Company or any of the Company Persons
that is injurious to the financial condition or reputation of, or is otherwise
materially injurious to, the Reinsurer or any of its subsidiaries or affiliates.
The party desiring to terminate this Agreement pursuant to clause (a) through
(c) above shall give prompt written notice of such termination to the other
party. No termination of this Agreement pursuant to clause (a) through (c) above
by a party will relieve the other party from any liability for any breach of
this Agreement or from the performance of any obligation due with respect to any
period preceding such termination.
In the event of the termination of this Agreement, the Reinsurer shall remain
liable for all cessions in force prior to the termination until the natural
expiration date and final disposition of all losses and loss expenses occurring
hereunder during the period of its participation, and any amounts due under this
Agreement applicable to periods prior to termination (for whatever reason) shall
remain due after such termination.
Notwithstanding the foregoing, in the event of a termination of this Agreement
prior to its Termination Date as provided in clauses (a) or (b) above the
Company may, at its option, reassume all reinsurances in force at such
termination in which case the Reinsurer shall return to the Company the unearned
premium reserve calculated as of such date less the related Commissions.
ARTICLE IV
TERRITORY
This Agreement shall follow the territorial scope of the Contracts written by
the Company.
-4-
<PAGE>
<PAGE>
ARTICLE V
EXCLUSIONS
This Agreement shall be subject to the exclusions contained in the original
Contracts of the Company.
ARTICLE VI
ORIGINAL
The true intent of this Agreement being that the Reinsurer shall follow the
fortunes of the Company, all reinsurances hereunder shall be subject to the same
rates, terms, conditions, waivers and modifications as the respective Contracts
of the Company, and the Reinsurer shall be credited with its exact proportion of
the original premium written by the Company, subject to the provisions of the
second sentence of ARTICLE II hereof.
The second paragraph of ARTICLE IX hereof and ARTICLES X and XI hereof are
effective January 1, 1998, but are not intended to be in derogation of the
provisions of this ARTICLE VI for any periods of time.
ARTICLE VII
PREMIUM AND COMMISSION
The Company shall keep a record of each and every Contract ceded to this
Agreement and shall cede to the Reinsurer its applicable quota share part of all
gross premiums written by the Company in respect of such ceded Contracts after
deducting from such premiums any Return Premiums (as defined herein).
The Reinsurer shall allow the Company a commission on the Contracts ceded
hereunder equal to the applicable quota share part of the actual acquisition
cost paid by the Company in obtaining said Contracts ("Written Commission"). For
purposes of this Agreement, actual acquisition cost shall mean original
commission plus premium tax and any brokerage paid by the Company.
In addition, the Reinsurer shall allow the Company the following override
commissions as an allowance for the Company's overhead expense ("Override
Commission"; together with
-5-
<PAGE>
<PAGE>
the Written Commission, the "Commissions"):
1. For periods through 11:59 p.m. Eastern Time, December 31, 1997: 4.2% of
the applicable Quota Share part of all gross premiums written in respect
of Contracts ceded to this Agreement (after deducting Return Premiums).
2. Effective 12:01 a.m. Eastern Time, January 1, 1998:
A. Excess property, marine and aerospace business: 15% of the
applicable Quota Share part of all gross premiums written in respect
of Contracts ceded to this Agreement (after deducting Return
Premiums) primarily involving such business.
B. Finite business (i.e., reinsurance contracts which transfer both
insurance and investment risk, which have relatively large premiums
with correspondingly large expected losses, and where the finite
risk reinsurer's ultimate profitability depends on both the level of
insurance losses, the timing of the payout of such losses, and the
investment performance while holding the premium): 20% of the
Reinsurer's margin on Contracts ceded to this Agreement primarily
involving such business.
C. Other business, including casualty and pro rata property, marine and
aerospace: 5% of the applicable Quota Share part of all gross
premiums written in respect of Contracts ceded to this Agreement
(after deducting Return Premiums) primarily involving such business.
In addition to the Commissions paid the Company as set forth herein, the
Reinsurer shall pay the Company in respect of each Policy Year commencing prior
to January 1, 1998 a profit commission ("Profit Commission") allowance of 16.8%
on the applicable Quota Share part of the net profits in respect of all
Contracts ceded to this Agreement and incepting or renewing during such Policy
Year, computed as follows:
INCOME
1. Premiums earned during the Period.
OUTGO
2. Losses incurred during the Period.
3. Written Commission, brokerage and Override Commission plus deferred
acquisition costs at the beginning of the Period less deferred acquisition
costs at the end of the Period.
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4. Federal excise taxes ("FET") paid during the Period.
5. Allowances for Reinsurer's management expense equal to five percent (5%)
of the premiums earned in (1) above.
The calculation of income and outgo shall be made by the Company within ninety
(90) days after each anniversary of the close of a Policy Year commencing prior
to January 1, 1998 and any monies due shall be remitted forty five (45) days
thereafter. The first calculation shall be made as of December 31, 1997 for the
Policy Year January 1, 1996 through December 31, 1996 with subsequent
calculations made annually thereafter in respect of Policy Years commencing
prior to January 1, 1998.
If for any Period commencing prior to January 1, 1998 the total of premiums
earned as shown under Income exceed the total of the items under Outgo, the
Company shall calculate for the Reinsurer 16.8% of the difference payable for
each annual calculation; provided, however, if for any such Period the items
under Outgo exceed the total of premiums earned as shown under Income (the
amount of such excess, if any, hereinafter the "Deficit"), the amount of the
Deficit shall be carried forward as a debit item in the calculation of income
and outgo for the ensuing Policy Year(s) commencing prior to January 1, 1998
until the Deficit has been made good; provided, further, in no event shall any
portion of any such Deficit otherwise be recoverable from the Company, whether
on termination of this Agreement or otherwise.
In the event of termination of this Agreement on a cut-off basis in respect of
any Policy Year commencing prior to January 1, 1998, the Period shall be from
the beginning of the Period through the date of termination.
Should this Agreement be terminated on a runoff basis in respect of any Policy
Year commencing prior to January 1, 1998, where the Reinsurer continues to be
liable for losses after the date of termination, such run-off period shall be
considered as part of the last Period.
For the purposes of this Agreement, the following definitions will apply:
(a) "Period" shall mean the actual time covered by each calculation of income
and outgo as set forth in this Agreement.
(b) "Premiums earned" shall mean the total of the net written premiums ceded to
the Reinsurer during the Period less unearned premiums at the close of the
Period, if any, plus unearned premiums at the beginning of the Period, if any.
(c) "Net written premiums" shall mean gross premiums written and ceded to the
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Reinsurer as recorded by the Company less any returns and/or cancellations also
recorded.
(d) "Losses incurred" shall mean losses paid, plus loss adjustment expense paid,
by the Reinsurer, less salvages or subrogations recovered, during the Period,
plus loss and loss adjustment expenses outstanding (included IBNR) at the end of
the Period, less loss and loss adjustment expenses (including IBNR) outstanding
at the beginning of the Period, if any.
ARTICLE VIII
REPORTS AND REMITTANCES
Within forty five (45) days after the close of each quarter, the Company will
furnish the Reinsurer with a report summarizing the reported and estimated
written premiums ceded less the related reported and estimated Commissions and
FET, and less reported losses paid and reported loss adjustment expense paid,
and the net balance (disregarding estimated items) due either party. In
addition, the Company will furnish the Reinsurer a quarterly statement showing
the total reserves for outstanding losses, loss adjustment expense, unearned
premiums, Profit Commissions (if any) and such other information as may be
required by the Reinsurer for completion of any reports or statements required
to be filed with Bermuda or other applicable insurance regulatory authorities.
Reinsurer agrees (i) to provide to the Company such information as may be
reasonably requested from time to time by the Company which information is
required by the Company to comply with any requests or requirements of
applicable insurance regulatory authorities (including, without limitation, the
Connecticut Insurance Department) and (ii) to take such other commercially
reasonable actions as the Company shall request, which actions are necessary or
desirable in order for the Company to comply with any applicable insurance
regulatory requirements respecting its ability to take credit, or reduce its
liabilities, by reason of the reinsurance cessions which are the subject of this
Agreement.
The Reinsurer agrees that it will on its books and records maintain reserves for
outstanding losses and loss adjustment expense (including IBNR) that are at
least equal to the amounts set forth in the statements provided by the Company
respecting the Contracts ceded to this Agreement.
Amounts due the Reinsurer by the Company will be remitted with the quarterly
report. Amounts due the Company by the Reinsurer will be remitted within forty
five (45) days following receipt of the report. Should payment due from the
Reinsurer exceed $250,000 as respects any one loss, the Company may give the
Reinsurer notice of payment made, or its intention to make payment, on a certain
date. If the Company has paid the loss,
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payment will be made by the Reinsurer immediately. If the Company intends to pay
the loss by a certain date and has submitted a satisfactory proof of loss or
similar document, payment will be due from the Reinsurer twenty four (24) hours
prior to that date, provided the Reinsurer has a period of five (5) business
days after receipt of said notice to dispatch the payment. Cash loss amounts
specifically remitted by the Reinsurer as set forth herein will be credited to
its next quarterly report in which such cash loss amounts are reported. If the
Statutory Trust Amount already includes assets set aside for such loss, the
Company shall either draw from the Statutory Trust the amount due from the
Reinsurer, or if such amount has been paid to the Company by the Reinsurer,
authorize the Reinsurer to draw the amount paid from the Statutory Trust.
ARTICLE IX
LOSSES AND LOSS ADJUSTMENT EXPENSES
All loss settlements (other than ex-gratia payments), whether under strict
policy conditions or by way of compromise, shall be unconditionally binding upon
the Reinsurer in the amount of its applicable Quota Share part thereof. The
Reinsurer shall bear its applicable Quota Share part of all loss adjustment
expenses incurred under the ceded Contracts.
In addition to indemnity amounts recoverable hereunder, the Reinsurer shall bear
its proportionate share of all expenses incurred by the Company in the
investigation, adjustment, appraisal or defense of all claims under policies
reinsured hereunder (excluding office expenses and compensation of officers and
regular employees of the Company, other than staff field adjusters and out of
pocket expense of the Company's officers incurred in connection with the loss),
and shall receive its proportionate share of any recoveries of such expenses.
ARTICLE X
EXTRA CONTRACTUAL OBLIGATIONS
The Reinsurer shall be liable hereunder for its share of 100% of any loss to the
Company in respect of Extra Contractual Obligations.
"Extra Contractual Obligations" are defined as those liabilities (excluding
office expenses and compensation of officers and regular employees of the
Company, other than staff field adjusters and out of pocket expense of the
Company's officers incurred in connection with the loss) not covered under any
other provision of this Agreement and which arise from the handling of any claim
on business covered hereunder, such
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liabilities arising because of, but not limited to, the following: failure by
the Company to settle within the policy limit, or by reason of alleged or actual
negligence, fraud or bad faith in rejecting an offer of settlement or in the
preparation of the defense or in the trial of any action against its insured or
reinsured or in the preparation or prosecution of an appeal consequent upon such
action.
The date on which any Extra Contractual Obligation is incurred by the Company
shall be deemed, in all circumstances, to be the date of the original loss. The
time any amount is due from the Reinsurer hereunder shall be based upon the time
the Company has made a payment to which these provisions relate.
For purposes of Extra Contractual Obligations coverage there shall be no
recovery hereunder where the loss has been incurred due to or to the extent
caused by fraud by a member of the board of directors or a corporate officer of
the Company acting individually or collectively or in collusion with any
individual or corporation or other organization or party involved in the
presentation, defense or settlement of a claim on behalf of the Company.
ARTICLE XI
JUDGMENTS IN EXCESS OF POLICY LIMITS
This Agreement shall protect the Company for the Reinsurer's share in connection
with 100% of any loss in excess of the limit of its original policy, such loss
in excess of the limit having been incurred because of failure by the Company to
settle within the policy limit or by reason of alleged or actual negligence,
fraud or bad faith in rejecting an offer of settlement, or in the preparation of
the defense, or in the trial of any action against its insured or reinsured or
in the preparation or prosecution of an appeal consequent upon such action.
However, this Article shall not apply where the loss has been incurred due to or
to the extent caused by fraud by a member of the board of directors or a
corporate officer of the Company acting individually or collectively or in
collusion with any individual or corporation or any other organization or party
involved in the presentation, defense or settlement of any claim.
For purposes of this Article the word "loss" shall mean any amounts for which
the Company would have been contractually liable to pay had it not been for the
limit of the original policy (excluding office expenses and compensation of
officers and regular employees of the Company, other than staff field adjusters
and out of pocket expense of the Company's officers incurred in connection with
the loss).
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ARTICLE XII
FUNDING AND DEPOSITS
The obligations of the Reinsurer hereunder shall be secured by one or more trust
accounts and/or by one or more clean, irrevocable and unconditional letters of
credit and/or by other security arrangements, all as more fully described below.
A. Statutory Trust Account
Investors Re has established, and the Reinsurer has assumed, a trust account for
the benefit of the Company (the "Statutory Trust") pursuant to a Trust Agreement
with Chase Manhattan Bank dated as of January 31, 1996, as amended by Amendment
No. 1 thereto (collectively, the "Statutory Trust Agreement"). At all times
during the term of this Agreement, the Statutory Trust Agreement and Statutory
Trust account must be in a form and with a bank acceptable to the Company and to
the Connecticut Insurance Department and any other insurance regulatory
authorities having jurisdiction over the Company's loss reserves and must
otherwise comply with all applicable insurance regulatory requirements.
At all times during the term of this Agreement, the Reinsurer shall have on
deposit in the Statutory Trust assets equal to (i) the amount of the Obligations
(as hereinafter defined) as of the last day of the immediately preceding fiscal
quarter plus, in respect of periods prior to April 1, 1998, (ii) the cumulative
underwriting profit, if any, of the Reinsurer for such immediately preceding
fiscal quarter and the prior three fiscal quarters (the "Statutory Trust
Amount"); provided, that the amount of the assets so deposited in the Statutory
Trust may be less than the Statutory Trust Amount if the Reinsurer provides the
Company with one or more letters of credit complying with Section B of this
ARTICLE XII; provided, further, that for purposes of clause (ii) above only, any
assets of the Reinsurer on deposit in a similar trust account (which meets the
applicable insurance regulatory requirements) for the benefit of the Company or
any subsidiary of the Company pursuant to a similar clause under other
reinsurance or retrocessional agreements between the Company or any subsidiary
of the Company and the Reinsurer shall be deducted therefrom. The term
"Obligations" shall mean (x) the Reinsurer's share, pursuant to Contracts ceded
to this Agreement, of: (i) reinsurance losses, allocated loss adjustment
expenses, contingent commissions, no claim bonuses, profit commissions and
return premiums upon cancellation, paid by the Company but not recovered from
the Reinsurer (by netting against amounts owed to the Reinsurer or otherwise);
(ii) reserves for reinsured losses reported and outstanding; (iii) reserves for
reinsured losses incurred but not reported; (iv) reserves for allocated loss
adjustment expenses; (v) reserves for unearned premiums; and (vi) reserves for
contingent commissions, no claim bonuses and profit commissions owed by the
Company to third parties; plus (y) any Commissions, Profit Commissions or other
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amounts the Company claims are due under this Agreement, but not recovered from
the Reinsurer (by netting against amounts owed to the Reinsurer or otherwise).
Adjustments to the Statutory Trust Amount shall be made within thirty (30) days
of Reinsurer's receipt of the report provided for in Article VIII.
Assets deposited in the Statutory Trust shall be valued according to their
current fair market value and shall consist only of cash (United States legal
tender), certificates of deposit (issued by a United States bank and payable in
United States legal tender), and investments of the types permitted for a
domestic property/casualty reinsurance company under the provisions of the
applicable insurance laws and regulations of the State of Connecticut, or any
combination of the above, provided that any such investments are not issued by
an institution that is the parent, subsidiary, or affiliate of either the
Company or the Reinsurer.
Upon notification by the Company that the value of the assets on deposit in the
Statutory Trust is less than the Statutory Trust Amount (unless a letter of
credit has been provided for the amount of such deficiency), the Reinsurer
shall, within ten (10) days of receipt of such notice, deposit sufficient
additional assets in the Statutory Trust to increase the value of the assets or
deposit therein to the Statutory Trust Amount.
The Reinsurer, prior to depositing assets in the Statutory Trust, shall execute
assignments, endorsements in blank, or transfer legal title to the trustee of
all shares, obligations or any other assets requiring assignments, in order that
the Company, or the trustee upon the direction of the Company, may whenever
necessary negotiate, withdraw or dispose of any such assets without consent or
signature from the Reinsurer or any other entity.
The Reinsurer and the Company agree that, notwithstanding any other provision of
this Agreement, the assets in the Statutory Trust established pursuant to the
provisions of this Agreement may be withdrawn by the Company at any time,
without notice to the Reinsurer, upon the presentation of a letter signed by the
President or any Vice President of the Company stating that amounts are due and
owing with respect to this Agreement and stating the amounts due. Such withdrawn
assets shall be utilized and applied by the Company or its successors in
interest by operation of law, including without limitation any liquidator,
rehabilitator, receiver, or conservator of the Company, without diminution
because of the insolvency of the Company or the Reinsurer, only for the
following purposes:
1. To reimburse the Company for the Reinsurer's share of premiums returned to
the owners of Contracts ceded to this Agreement because of cancellations
of such Contracts ("Return Premiums").
2. To reimburse the Company for the Reinsurer's share of losses, allocated
loss
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adjustment expenses, contingent commissions, no claim bonuses and profit
commissions paid by the Company pursuant to the provisions of the
Contracts ceded to this Agreement.
3. To fund an account with the Company in an amount at least equal to the
deduction, for reinsurance ceded, from the Company's liabilities for
Contracts ceded to this Agreement, including, but not be limited to,
amounts for claims and losses incurred (including losses incurred but not
reported), allocated loss adjustment expenses, unearned premium reserves
and reserves for contingent commissions, no claim bonuses and profit
commissions to third parties.
4. To pay any Commissions, Profit Commissions or other amounts the Company
claims are due under this Agreement.
The Company agrees to return to the Reinsurer any amounts withdrawn from the
Statutory Trust which are in excess of the actual amounts required for items 1,
2 and 3 above or, in the case of item 4 above, any amounts that are subsequently
determined not to be due.
The Company further agrees to utilize all of the assets in the Statutory Trust
prior to drawing on any letter of credit established pursuant to Section B of
this ARTICLE XII and prior to utilizing any assets deposited in other trusts,
drawing down on any letters of credit or realizing on any other security
arrangements, in each case established pursuant to Section C of this ARTICLE
XII.
B. Letters of Credit
By January 1 of each year during the term of this Agreement, the Reinsurer
shall, in the event that assets equal to the Statutory Trust Amount are not on
deposit in the Statutory Trust, establish and provide to the Company one or more
clean, irrevocable and unconditional letters of credit with a minimum duration
of one year, for the benefit of the Company and in a form and with a bank that
is acceptable to the Connecticut Department of Insurance and any other insurance
regulatory authorities having jurisdiction over the Company's loss reserves and
which otherwise complies with all applicable insurance regulatory requirements.
The letter(s) of credit respecting any year during the term of this Agreement
shall be for an aggregate amount equal to the Statutory Trust Amount minus the
value of any assets on deposit in the Statutory Trust.
Any letter of credit provided by the Reinsurer pursuant to the provisions of
this Agreement shall contain an issue date and date of expiration and shall
stipulate that the Company need only draw a sight draft under the letter of
credit and present it to obtain funds and that no other document need be
presented. Such letter of credit must contain a statement to the effect that the
obligation of the issuing bank under the letter
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of credit is in no way contingent upon reimbursement with respect thereto.
The term of any letter of credit provided hereunder shall be for at least one
year and shall contain an "evergreen clause" which prevents the expiration of
the letter of credit without due notice from the issuer. The "evergreen clause"
shall provide for a period of no less than thirty (30) days' notice prior to
expiry date or non-renewal.
The Reinsurer and the Company agree that any letter of credit provided by the
Reinsurer pursuant to the provisions of this Agreement may be drawn upon at any
time, notwithstanding any other provisions in this Agreement, and shall be
utilized by the Company or its successors in interest, without diminution
because of the insolvency of the Company or the Reinsurer, only for the
following purposes:
1. To reimburse the Company for Return Premiums.
2. To reimburse the Company for the Reinsurer's share of losses, allocated
loss adjustment expenses, contingent commissions, no claim bonuses and
profit commissions paid by the Company pursuant to the terms and
provisions of the Contracts ceded to this Agreement.
3. To fund an account with the Company in an amount at least equal to the
deduction, for reinsurance ceded, from the Company's liabilities for
Contracts ceded to this Agreement, including, but not be limited to,
amounts for claims and losses incurred (including losses incurred but not
reported), allocated loss adjustment expenses, unearned premium reserves
and reserves for contingent commissions, no claim bonuses and profit
commissions to third parties.
4. To pay any Commissions, Profit Commissions or other amounts the Company
claims are due under this Agreement.
The Company agrees to return to the Reinsurer any amounts drawn under any such
letter of credit which are in excess of the actual amounts required for items 1,
2 and 3 above or, in the case of item 4 above, any amounts that are subsequently
determined not to be due.
C. Additional Security
In addition to the Statutory Trust and any letters of credit established
pursuant to Sections A and B of this ARTICLE XII, the Reinsurer shall establish
additional security arrangements for the benefit of the Company, with terms
satisfactory to the Company, with respect to the Additional Security Amount (as
hereinafter defined). The "Additional Security Amount" shall be equal to,
without duplication, (i) 90% of the shareholders' equity (calculated in
accordance with United States generally accepted accounting
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principles) of the Reinsurer as of the last day of the immediately preceding
fiscal quarter, minus (ii) the Statutory Trust Amount and any amount held in the
Statutory Trust in excess of the Statutory Trust Amount, minus (iii) any amounts
which at such quarter end were being utilized to collateralize the obligations
of the Reinsurer pursuant to other reinsurance arrangements with the Company or
any affiliate of the Company, and minus (iv) such other amounts as the Company
may agree are not required to secure the Reinsurer's obligations under this
Agreement; provided, however, for any fiscal quarter following a fiscal quarter
as of the last day of which the Reinsurer had shareholders' equity of at least
$100 million, clause (i) above shall be reduced to 125% of the most recent worst
case frequency scenario presented to the Reinsurer by the Company on an annual
or more frequent basis as the Company may determine, in each case applicable to
the risks ceded to the Reinsurer by the Company and its affiliates and utilizing
the methodology and assumptions utilized by the Company and its affiliates for
their internal use.
The Reinsurer and the Company agree that the Company or its successors in
interest may exercise the Company's rights under such additional security
arrangements and apply the proceeds thereof, without diminution because of the
insolvency of the Company or the Reinsurer, only for the following purposes:
1. To reimburse the Company for Return Premiums.
2. To reimburse the Company for the Reinsurer's share of losses, allocated
loss adjustment expenses, contingent commissions, no claim bonuses and
profit commissions paid by the Company pursuant to the terms and
provisions of the Contracts ceded to this Agreement.
3. To fund an account with the Company in an amount at least equal to the
deduction, for reinsurance ceded, from the Company's liabilities for
Contracts ceded to this Agreement, including, but not be limited to,
amounts for claims and losses incurred (including losses incurred but not
reported), allocated loss adjustment expenses, unearned premium reserves
and reserves for contingent commissions, no claim bonuses and profit
commissions to third parties.
4. To pay any Commissions, Profit Commissions or other amounts the Company
claims are due under this Agreement.
The Company agrees to return to the Reinsurer any amounts drawn under any such
additional security arrangements which are in excess of the actual amounts
required for items 1, 2 and 3 above or, in the case of item 4 above, any amounts
that are subsequently determined not to be due.
From time to time, the Company shall reduce the amounts of any letters of credit
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established under this ARTICLE XII, release assets from the Statutory Trust
established pursuant to this ARTICLE XII or release assets from such other
security arrangements as may be established pursuant to this ARTICLE XII by such
amounts as the Company reasonably determines (in its sole discretion) are no
longer required to secure the obligations of the Reinsurer to the Company
hereunder; provided, however, that in no event shall the value of the assets
held in the Statutory Trust plus the amount of such letters of credit be less
than the Reinsurer's Obligations.
ARTICLE XIII
TAXES
In consideration of the terms under which this Agreement is issued, the Company
undertakes not to claim any deduction of the premium hereon when making tax
returns, other than on Income or Profits Tax returns, to any state or territory
of the United States of America or to the District of Columbia.
ARTICLE XIV
FEDERAL EXCISE TAX
The Reinsurer and the Company agree that the Company shall withhold and pay over
to the United States Treasury Department, together with all necessary forms and
reports, the Excise Tax imposed by Section 4371 of the Internal Revenue Code of
1986, as amended, in accordance with the provisions of Sections 4370 through
4374 thereof. The Company will provide the Reinsurer copies of all such returns
and reports. In the event of any Return Premium becoming due hereunder, the
Company will either (i) offset the Excise Tax applicable to the Return Premium
against future Excise Taxes payable to the Treasury Department, or (ii) pay to
the Reinsurer the amount which the Company recovers from the Treasury Department
with respect to the Return Premium. In the event any amount offset pursuant to
subsection (i) of the previous sentence is disallowed by the Internal Revenue
Service, the Reinsurer shall indemnify the Company for any such disallowed
amount. The Company will use reasonable efforts to offset or recover any such
tax previously withheld on the returned portion of the premium and the Reinsurer
will cooperate with the Company to the extent reasonably necessary to assist the
Company in offsetting or recovering the tax previously withheld on the returned
portion of the premium from the Treasury Department.
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ARTICLE XV
CURRENCY
Wherever the word "Dollars" or sign "$" appear in this Agreement they shall be
construed to mean United States Dollars.
For purposes of this Agreement, where the Company receives premiums or pays
losses and/or commissions in currencies other than United States currency, such
premiums or losses and commissions shall be converted into United States Dollars
at the same rates of exchange as entered in the Company's books.
ARTICLE XVI
ACCESS TO RECORDS
The Reinsurer or its duly accredited representatives shall have full access to
the books and records (other than any list or lists of brokers through which the
Company has written the business ceded hereunder) of the Company at all
reasonable times for the purpose of obtaining information concerning this
Agreement or the subject matter hereof. Upon request, the Company shall supply
the Reinsurer, at the Reinsurer's expense, with copies of the whole or any part
of such books and records relating to this Agreement or the subject matter
hereof.
The Reinsurer agrees, on behalf of itself and its representatives, to hold and
keep confidential, and not to disclose to any third party (unless requested or
required by relevant insurance regulatory authorities or otherwise compelled to
do so by applicable law), any confidential and proprietary information of the
Company which it receives or has access to pursuant to the above paragraph. The
Reinsurer further agrees, on behalf of itself and its representatives, that it
shall not use any underwriting or related information received from the Company,
except for the sole purpose of analyzing the risks to be ceded to the Reinsurer
hereunder or in the application of the terms of this Agreement. The Reinsurer
agrees to abide by any determination by the Company that any information
provided to the Reinsurer constitutes confidential and proprietary information.
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ARTICLE XVII
ERRORS AND OMISSIONS
Except as provided in the second sentence of ARTICLE II hereof, any inadvertent
delay, omission, or error shall not be held to relieve either party hereto from
any liability which would attach to it hereunder if such delay, omission or
error had not been made, provided such delay, omission or error is rectified
promptly upon discovery.
ARTICLE XVIII
INSOLVENCY
In the event of the insolvency of the Company, this reinsurance shall be payable
by the Reinsurer directly to the Company, or to its liquidator, receiver,
conservator or statutory successor on the basis of the liability of the Company
without diminution because of the insolvency of the Company or because the
liquidator, receiver, conservator, or statutory successor of the Company has
failed to pay all or portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator, or statutory successor of the Company shall
give written notice to the Reinsurer of the pendency of a claim against the
Company indicating the policy or bond reinsured which claim would involve a
possible liability on the part of the Reinsurer within a reasonable time after
such claim is filed in the conservation or liquidation proceeding or in the
receivership, and that during the pendency of such claim, the Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated any defense or defenses that it may deem
available to the Company or its liquidator, receiver, conservator, or statutory
successor.
The expense thus incurred by the Reinsurer shall be chargeable, subject to the
approval of the court, against the Company as part of the expense of
conservation or liquidation to the extent of a pro rata share of the benefit
which may accrue to the Company solely as a result of the defense undertaken by
the Reinsurer.
Where two or more reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of their respective reinsurance
agreements as though such expense had been incurred by the Company.
The reinsurance shall be payable by the Reinsurer to the Company or its
liquidator, receiver, conservator, or statutory successor, except as provided by
Section 4118(a) of
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the New York Insurance Law or except (a) where the agreement specifically
provides another payee of such reinsurance in the event of the insolvency of the
Company, and (b) where the Reinsurer, with the consent of the direct insured or
insureds, has assumed such policy obligations of the Company as direct
obligations of the Reinsurer to the payees under such policies and in
substitution for the obligations of the Company to such payees.
ARTICLE XIX
ARBITRATION
As a condition precedent to any right of action hereunder, if any dispute, claim
or controversy shall arise between the Company and the Reinsurer with respect to
this Agreement, the interpretation or breach thereof or the rights of the
parties with respect to any transaction contemplated hereunder (a "Dispute"),
whether such Dispute arises before or after termination of this Agreement, such
dispute, upon the written demand of either party, shall be arbitrated in
accordance with this ARTICLE XIX. Any such demand for arbitration shall be made
within a reasonable time after the Dispute has arisen, and in any event shall
not be made after the date when institution of legal or equitable proceedings
based on such Dispute would be barred by the applicable statute of limitations.
Any Dispute to be arbitrated hereunder shall be submitted to three arbitrators,
one to be appointed by each party, and an umpire to be chosen by the two so
appointed. If either party refuses or neglects to appoint an arbitrator within
thirty (30) days after the receipt of written notice from the other party
requesting it to do so, the requesting party may appoint two arbitrators. If the
two arbitrators fail to agree in the selection of the umpire within thirty (30)
days of their appointment, each arbitrator shall nominate three candidates
within ten (10) days thereafter, two of whom the other shall decline, and the
choice between the remaining two shall be made by drawing lots. All arbitrators
shall be active or retired executive officers of insurance or reinsurance
companies or underwriters at Lloyd's, London not under the control of, or having
had in the previous 3 years direct and material business relations with, or
related by birth or marriage to any employee of, either party to this Agreement,
and having no other personal or financial interest in the outcome of the
arbitration. Any determination by a majority of the arbitrators shall be binding
and conclusive upon the parties hereto.
Each party shall submit its case to the arbitrators within thirty (30) days of
the appointment of the umpire. All proceedings before the arbitration panel
shall be informal and the arbitrators shall have the power to fix all procedural
rules relating to the arbitration proceeding.
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The arbitration panel shall render its decision within thirty (30) days after
termination of the proceeding, which decision shall be in writing, stating the
reasons therefor. Judgment upon the final decision of the arbitrators may be
entered in any court having jurisdiction or application may be made to such
court for a judicial confirmation of the award and an order of enforcement, as
the case may be. Unless otherwise allocated by the arbitrators, each party shall
bear the expense of its own arbitrator and shall jointly and equally bear with
the other party the expense of the umpire and of any other expenses of the
arbitration. The arbitration shall take place in the city in which the Company's
head office is located unless some other place is mutually agreed upon by the
Company and the Reinsurer.
Notwithstanding the foregoing provisions of this ARTICLE XIX, it is hereby
agreed that no arbitration panel shall have any power to add to, alter or modify
the terms and conditions of this Agreement or to decide any issue which does not
arise from the interpretation or application of the provisions of this
Agreement.
ARTICLE XX
SERVICE OF SUIT
In the event of the failure of the Reinsurer to pay any amount claimed to be due
hereunder following an arbitration decision, or if court action is necessary to
aid arbitration, the Reinsurer, at the request of the Company, will submit to
the jurisdiction of any court of competent jurisdiction in the State and City of
New York and will comply with all requirements necessary to give such court
jurisdiction. All matters arising hereunder shall be determined in accordance
with the law and practice of such court. Nothing in this ARTICLE XX constitutes
or should be understood to constitute a waiver of the Reinsurer's rights to
commence an action in any court of competent jurisdiction in the United States,
to remove an action to a United States District Court, or to seek a transfer of
a case to another court as permitted by the laws of the United States or of any
state in the United States.
Service of process in such suit may be made upon Alan S. Kramer P.C., 65 East
55th Street, 9th Floor, New York, NY 10022 (the "agent for service of process")
and in any suit instituted upon this Agreement, the Reinsurer will abide by the
final decision of such court or of any appellate court in the event of an appeal
whose decision is no longer subject to appeal. The above-named agent for service
of process is authorized and directed to accept service of process on behalf of
the Reinsurer in any such suit and the Reinsurer hereby agrees that any such
service shall be deemed good and sufficient service under the New York Civil
Practice Laws and Rules.
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Further, pursuant to any statute of any state, territory or district of the
United States of America which requires that the Reinsurer appoint a person
designated by such statute as its agent for service of process, Reinsurer hereby
designates the Superintendent, Commissioner, Director of Insurance, or other
officer specified for that purpose in such statute, or his successor or
successors in office, as its true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of this Agreement, and
hereby designates the agent for service of process as the firm to whom the said
officer is authorized to mail such process or a true copy thereof if such agent
must be in the United States, otherwise such process shall be mailed to the
Reinsurer at its address for notice under Article XXIII hereof.
ARTICLE XXI
RESTRICTIONS ON REINSURER OPERATIONS
For so long as this Agreement is in effect, without the prior written consent of
the Company, which consent shall not be unreasonably withheld, the Reinsurer
shall not (i) negotiate for, agree to or take any action with respect to any
merger, consolidation, reorganization, recapitalization (other than issuances
of, or reclassifications into, equity securities or indebtedness incurred in
accordance with clause (ii) below) or similar transaction involving the
Reinsurer, or sell, lease, exchange or dispose of, in any way, all or
substantially all of the property or assets of the Reinsurer; (ii) authorize the
creation, issuance, assumption or guarantee by the Reinsurer of any indebtedness
for borrowed money involving in excess of U.S.$5 million or extending beyond a
maturity of three years (except for any indebtedness subordinated in right of
payment and in all other respects to the Obligations which subordination shall
be on terms and conditions in form and substance satisfactory to the Company);
(iii) mortgage, pledge or otherwise encumber the assets of the Reinsurer
involving in excess of U.S.$5 million in any single transaction (except for any
mortgages, pledges or encumbrances subordinated in all respects to the
Obligations (and all related security interests of the Company) which
subordination shall be on terms and conditions in form and substance
satisfactory to the Company); provided, however, nothing herein shall preclude
the Board of Directors of the Reinsurer from encumbering the assets of the
Reinsurer by placing them in trust or otherwise encumbering them for the benefit
of the Company or by pledging them as security for payment of letters of credit
issued for the benefit of the Company, any such action, when so taken, to be
deemed in the ordinary course; (iv) engage or dismiss the Reinsurer's
independent accountants; (v) authorize or amend any agreement or other
arrangement between the Reinsurer, on the one hand, and any holder of the
capital stock of the Reinsurer or any affiliate thereof, on the other hand which
agreement, arrangement or amendment thereto reduces the net worth of the
Reinsurer in other
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than an immaterial amount or creates any rights not subordinated to the
Obligations and security interests of the Company as provided in clauses (ii)
and (iii) above; (vi) authorize the formation or acquisition of, or make any
investments in, any subsidiaries; or (vii) declare, set aside, pay or make any
dividend or other distribution or payment in respect of shares of the capital
stock or other securities of the Reinsurer, or, directly or indirectly, redeem,
retire, purchase or otherwise acquire any of such capital stock or other
securities, except as respects repayments of indebtedness incurred in accordance
with clause (ii) above and purchases out of capital required by, and effected in
accordance with the terms of, any securities of the Reinsurer.
For so long as the Reinsurer obtains at least 50% of its gross premiums written
for any year pursuant to this Agreement and any other agreements with the
Company or an affiliate thereof, the Company shall have the right to designate
one (1) individual to serve as a director of the Reinsurer (provided, however,
that if any of such other agreements contain a similar provision, the Company
shall not be entitled to designate more than one (1) individual to serve as a
director of the Reinsurer under all such agreements unless expressly provided).
During the term of this Agreement, Reinsurer agrees that, without the prior
written consent of the Company, which consent shall not be unreasonably
withheld, Reinsurer will not, directly or indirectly, underwrite insurance or
reinsurance business except pursuant to this Agreement and other insurance and
reinsurance agreements with the Company and its affiliates. Nothing in this
Agreement shall be construed to prohibit or otherwise limit the ability of the
Company to cede business to any other person, or to engage in any other business
(including any business competing with Reinsurer).
LLOYD'S SYNDICATE/TRANSNATIONAL INSURANCE COMPANY
Effective January 1, 1998 and for so long as this Agreement is in effect, the
Company shall (i) endeavor to make available to the Reinsurer, on substantially
the same terms as this Agreement (other than commissions which shall be 10% on
all business), a quota share or equivalent interest in the underwriting profits
and losses of the Company's Lloyd's syndicate to the extent of the interests
therein of PXRE Ltd. (U.K.) (currently 100%), and (ii) cause its wholly-owned
subsidiary Transnational Insurance Company ("Transnational") to offer to cede to
the Reinsurer an equivalent quota share of Transnational's net retained line on
all of its contracts on substantially the same terms as this Agreement, in each
case subject to the execution by the Reinsurer of an appropriate agreement in
respect thereof.
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ARTICLE XXII
LIMITATIONS ON LIABILITY
The parties acknowledge that all business ceded under this Agreement shall be
subject to acceptance or rejection by the Reinsurer in its sole judgment.
Accordingly, in no event shall the Company be liable to the Reinsurer respecting
(i) the volume of business ceded pursuant to this Agreement (provided the Quota
Share, if any, is offered to be ceded) or (ii) any losses on any business ceded
pursuant to this Agreement.
Subject to the provisions of the preceding paragraph, the liability of the
Company to the Reinsurer in respect of any failure to comply with the provisions
of this Agreement shall be limited to amounts actually owed hereunder and
damages directly caused by the willful misconduct or gross negligence of the
Company. In no event shall the Company be liable for indirect, incidental,
special or consequential damages.
The parties shall each be entitled to specific performance of the terms of this
Agreement.
ARTICLE XXIII
NOTICES
All notices, requests, demands and other communications hereunder must be in
writing (including facsimile transmission) and shall be deemed to have been duly
given (i) when received if delivered by hand against written receipt, (ii) when
sent if sent by facsimile transmission between 9:00 a.m. and 5:00 p.m. on a day
when the Federal Reserve Bank and the Bank of Bermuda are open for business,
provided such transmission is confirmed by the transmitting machine, (iii) 5
days after being mailed if mailed by prepaid, first class certified mail, return
receipt requested, or (iv) if sent by overnight courier, 2 days after delivery
to a recognized major overnight courier service, fees prepaid. In each case
notices shall be addressed as follows:
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<PAGE>
If to the Company:
PXRE Reinsurance Company
399 Thornall Street
14th Floor
Edison, NJ 08837
Attention: President
Facsimile No.: 908-906-9157
If to the Reinsurer:
(after September 15, 1998)
Select Reinsurance Ltd. Select Reinsurance Ltd.
Continental Building Corner House
25 Church Street 20 Parliament Street, 4th Floor
P.O. Box HM 824 Hamilton HM12
Hamilton HMCX Bermuda
Bermuda Attention: Jeffrey L. Radke
Attention: Jeffrey L. Radke Facsimile No.: 441-296-8459
Facsimile No.: 441-295-1702
Any party by notice in writing sent to the other may change the name, address or
facsimile number to which notices, requests, demands or other communications to
it shall be given.
ARTICLE XXIV
MISCELLANEOUS
Both the Reinsurer and the Company shall have, and may exercise at any time, the
right to offset any balance or balances due from one party to the other or, to
the extent permitted by applicable law, such other's successor, including a
successor by operation of law. Such offset may only include balances due under
this Agreement and any other reinsurance agreements heretofore or hereafter
entered into between the Reinsurer and the Company, regardless of whether such
balances are in respect of premiums, or losses or otherwise, and regardless of
the capacity of any party, whether as reinsurer or reinsured, under the various
agreements involved.
This Agreement (including any Endorsements hereto) contains the entire agreement
between the parties, and supersedes all prior or contemporaneous discussions,
negotiations, representations, or agreements, relating to the subject matter
hereof.
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Nothing in the preceding sentence is intended in derogation of the understanding
of the Company and the Reinsurer expressed in the letter agreement between the
parties executed contemporaneously with the execution of this Agreement.
Contemporaneously with the execution of this Agreement, Reinsurer shall repay to
the Company the facility fee amount of $100,000, together with interest on the
unpaid balance thereof at a rate of 6.75% per annum compounded annually, to the
payment date, whereupon the Participant Agreement shall terminate, effective
12:01 a.m. Eastern Time, October 1, 1997, subject to the provisions of Section
9.3 thereof.
This Agreement shall be construed and enforced in accordance with, and governed
by, the laws of the State of New York (other than any mandatory conflict of law
rule which might result in the application of the law of any other
jurisdiction).
This Agreement is intended for the exclusive benefit of the parties to this
Agreement and their respective successors and permitted assigns, and nothing
contained in this Agreement shall be construed as creating any rights or
benefits in or to any third party.
The captions of the various sections of this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning thereof.
This Agreement may not be modified or amended or any term or provision hereof
waived or discharged except in writing signed by the party against whom such
amendment, modification, waiver or discharge is sought to be enforced.
Except as otherwise provided in this Agreement, any failure or delay on the part
of any party in exercising any power or right hereunder shall not operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power preclude any other or further exercise thereof or the exercise of any
other right or power hereunder or otherwise available at law or in equity.
No party may assign any of its rights or obligations under this Agreement
without the written consent of the other party to this Agreement, which consent
may be arbitrarily withheld by such party, any such non-consented to assignments
being void. Except as otherwise provided in this Agreement, this Agreement shall
be binding upon, inure to the benefit of, and be enforceable by and against the
respective successors and assigns of each party to this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their duly authorized officers.
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Signed in Hamilton, Bermuda, effective this 1st day of October, 1997, except as
to the changes effective January 1, 1998 which are effective as of such date.
SELECT REINSURANCE LTD.
By /s/ Jeffrey L. Radke
-----------------------------------------
Name: Jeffrey L. Radke
Title: President
Signed in Edison, New Jersey, effective this 1st day of October, 1997, except as
to the changes effective January 1, 1998 which are effective as of such date.
PXRE REINSURANCE COMPANY
By /s/ Gerald L. Radke
-----------------------------------------
Name: Gerald L. Radke
Title: President
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ANNEX I
Form of Endorsement
ENDORSEMENT
TO
AMENDED AND RESTATED
FACULTATIVE OBLIGATORY
RETROCESSIONAL AGREEMENT
(hereinafter referred to as the "Reinsurance Agreement")
between
PXRE REINSURANCE COMPANY
(hereinafter referred to as the "Company)
and
SELECT REINSURANCE LTD.
(hereinafter referred to as the "Reinsurer")
It is understood and agreed that for the Policy Year commencing January 1,
_____:
(i) the applicable quota share for purposes of the Reinsurance Agreement
shall be ______________ percent (____%); and
(ii) Cessions to the Reinsurance Agreement shall not exceed $_______ per
reinsurance program.
Signed in _______________________, this _____ day of _______________, ____.
SELECT REINSURANCE LTD.
By
-----------------------------------------
Name:
Title:
Signed in _______________________, this _____ day of ______________, ____.
PXRE REINSURANCE COMPANY
By
-----------------------------------------
Name:
Title:
<PAGE>
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VARIABLE QUOTA SHARE
RETROCESSIONAL AGREEMENT
between
PXRE REINSURANCE COMPANY
and
SELECT REINSURANCE LTD.
<PAGE>
<PAGE>
VARIABLE QUOTA SHARE RETROCESSIONAL AGREEMENT, dated as of April 1, 1997
(hereinafter referred to as the "Agreement"), between SELECT REINSURANCE LTD., a
Bermuda company (hereinafter referred to as the "Reinsurer"), and PXRE
REINSURANCE COMPANY, a Connecticut corporation (hereinafter referred to as the
"Company").
W I T N E S S E T H :
WHEREAS, the Company and the Reinsurer wish to enter into a variable quota share
retrocessional arrangement pursuant to which the Company will offer to cede to
the Reinsurer, and the Reinsurer may assume from the Company, a variable share
of the Company's liabilities arising from certain of the Company's reinsurance
contracts, as determined by the Company, upon the terms and subject to the
conditions described below.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants
contained herein and of the mutual benefits herein provided, the parties hereto
agree as follows:
ARTICLE I
CLASSES OF BUSINESS REINSURED
This Agreement shall cover liability ceded under specified domestic and
international Contracts written by the Company in the manner set forth in
ARTICLE II -- REINSURANCE CLAUSE and subject to the exclusions set forth in
ARTICLE V -- EXCLUSIONS. The terms "Contract(s)", "Contracts written by the
Company" and "Contracts of the Company" shall mean any and all binders,
policies, certificates, agreements and contracts of property, marine and
aerospace reinsurance and insurance issued, accepted or held, covered
provisionally or otherwise in the name of the Company and, effective from 12:01
a.m. Eastern Time, January 1, 1998, shall mean any and all binders, policies,
certificates, agreements and contracts of reinsurance and insurance issued,
accepted or held, covered provisionally or otherwise in the name of the Company.
ARTICLE II
REINSURANCE CLAUSE
Commencing with the effective date of this Agreement, the Company shall inform
the Reinsurer when the Company believes that it has the opportunity to offer
Contract cessions to the Reinsurer
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in excess of the Company's Net Retained Line (as hereinafter defined). The
Reinsurer shall have the right to accept or reject such cession offer in respect
of any Contract upon notice given in writing promptly following receipt by the
Reinsurer of underwriting detail in respect of the proposed Contract cession.
The Company shall, after receiving the acceptance of the Reinsurer in respect of
the business being offered to the Reinsurer, authorize acceptances for the
Company's gross participation including that portion of each acceptance intended
to be ceded to the Reinsurer under this Agreement. Specifically, the Company
will first determine its Net Retained Line and increase its authorization per
acceptance up to three hundred percent (300%) of the Company's Net Retained Line
to allow for a cession to this Agreement subject to the understanding that said
cessions to the Reinsurer shall never be greater than $500,000 per reinsurance
program, unless specifically approved by the President or Board of Directors of
the Reinsurer.
When Company authorizations are accepted, whether in part or in full, that
portion in excess of the Company's Net Retained Line (as outlined above) shall
be ceded to the Reinsurer, and each such Contract cession shall be deemed a
Contract ceded to, and in force under, this Agreement. Final participations by
the Company that are equal to or less than the Company's authorized Net Retained
Line require no cession hereunder to the Reinsurer.
Notwithstanding the above, the Company may elect to omit or restrict cessions
hereunder. Subject to the conditions of the following paragraph, the term "Net
Retained Line" shall mean the amount of liability which the Company maintains
per reinsurance program after deduction of liability ceded, if any, to any
general or specific retrocessions. The Company may purchase specific and/or
catastrophe reinsurance with respect to its Net Retained Lines and it is agreed
that such reinsurance will not violate in any way the terms and conditions of
this Agreement. The Company may recommend the purchase of retrocessional
coverage for the common account of the Company and the Reinsurer with respect to
the business ceded hereunder when the Company deems such purchase appropriate,
and if such retrocessional coverage is accepted by the Reinsurer the Company may
charge the Reinsurer its proportionate share of the cost thereof.
The term "reinsurance program" as used hereunder shall be deemed to apply to a
reinsured company or a group of related reinsured companies, as the case may be,
for each class of Treaty business, separately to each of the two types of Treaty
reinsurance referred to under (1) and (2) and to one or more than one reinsured
company or one or more than one group of related reinsured companies, as the
case may be, for Facultative business as referred to under (3) as follows:
1. Treaty Underlying Reinsurance Program -- The portion of a ceding
company's program consisting of Pro Rata Treaties and/or Risk Excess
of Loss Contracts involving one or more layers where appropriate,
and subject to the same loss from an original insured.
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2. Treaty Catastrophe Reinsurance Program -- The portion of a ceding
company's program consisting of Catastrophe Excess of Loss and/or
Aggregate Excess of Loss Contracts involving one or more layers
where appropriate.
3. Facultative Reinsurance Program -- The portion of a ceding company's
program/programs consisting of excess of loss or pro rata
certificates issued on behalf of one original insured consisting of
one or more layers or classes of business where appropriate.
ARTICLE III
TERM AND CANCELLATION
This Agreement shall be effective from 12:01 a.m., Eastern Time, April 1, 1997,
except for the provisions specified herein as being effective as of 12:01 a.m.
Eastern Time, January 1, 1998 which shall be effective as of such time. This
Agreement shall be continuously in force until 11:59 p.m., Eastern Time,
December 31, 1998 and, effective January 1, 1998, shall be continuously in force
until 11:59 p.m. Eastern Time, December 31, 2002 (the "Termination Date");
provided, that this Agreement may be terminated (a) by the Company prior to the
Termination Date by notice to the Reinsurer in the event that the Reinsurer's
shareholders' equity (calculated under United States generally accepted
accounting principles) shall have declined by 50% or more from the amount of
such shareholders' equity as at the previous December 31, (b) by the Company
prior to the Termination Date upon (i) a material breach by the Reinsurer of its
obligations under this Agreement (x) which breach has not been cured within ten
(10) days following receipt by the Reinsurer of written notice of such breach or
(y) if such breach is not susceptible to cure within such ten (10) day period
steps reasonably designed to cure such breach are not commenced within such
period, such steps are not diligently pursued or such breach is not cured within
a reasonable period following such written notice of breach or (ii) the
conviction of, or plea of nolo contendere by, the Reinsurer or any of its
directors (other than any designated by the Company) or executive officers
("Reinsurer Persons") to a felony or a crime involving moral turpitude, or the
entry of a judgment no longer subject to appeal against the Reinsurer or any of
the Reinsurer Persons finding a common law fraud, or other unlawful conduct by
the Reinsurer or any of the Reinsurer Persons that is injurious to the financial
condition or reputation of, or is otherwise materially injurious to, the Company
or any of its subsidiaries or affiliates or (c) by the Reinsurer upon (i) a
material breach by the Company of its obligations under this Agreement (x) which
breach has not been cured within ten (10) days following receipt by the Company
of written notice of such breach or (y) if such breach is not susceptible to
cure within such ten (10) day period steps reasonably designed to cure such
breach are not commenced within such period, such steps are not diligently
pursued or such breach is not cured within a reasonable period following such
written notice of breach or (ii) the conviction of, or plea of nolo contendere
by, the Company or any of its directors or executive officers (the "Company
3
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<PAGE>
Persons") to a felony or a crime involving moral turpitude, or the entry of a
judgment no longer subject to appeal against the Company or any of the Company
Persons finding a common law fraud, or other unlawful conduct by the Company or
any of the Company Persons that is injurious to the financial condition or
reputation of, or is otherwise materially injurious to, the Reinsurer or any of
its subsidiaries or affiliates. The party desiring to terminate this Agreement
pursuant to clause (a) through (c) shall give prompt written notice of such
termination to the other party. No termination of this Agreement pursuant to
clause (a) through (c) above by a party will relieve the other party from any
liability for any breach of this Agreement or from the performance of any
obligation due with respect to any period preceding such termination.
In the event of the termination of this Agreement, the Reinsurer shall remain
liable for all cessions in force prior to the termination until the natural
expiration date and final disposition of all losses and loss expenses occurring
hereunder during the period of its participation, and any amounts due under this
Agreement applicable to periods prior to termination (for whatever reason) shall
remain due after such termination.
Notwithstanding the foregoing, in the event of a termination of this Agreement
prior to its Termination Date as provided in clauses (a) or (b) above the
Company may, at its option, reassume all reinsurances in force at such
termination in which case the Reinsurer shall return to the Company the unearned
premium reserve calculated as of such date less the related Commissions.
ARTICLE IV
TERRITORY
This Agreement shall follow the territorial scope of the Contracts written by
the Company.
ARTICLE V
EXCLUSIONS
This Agreement shall be subject to the exclusions contained in the original
Contracts of the Company.
4
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ARTICLE VI
ORIGINAL CONDITIONS
The true intent of this Agreement being that the Reinsurer shall follow the
fortunes of the Company, all reinsurances hereunder shall be subject to the same
rates, terms, conditions, waivers and modifications as the respective Contracts
of the Company, and the Reinsurer shall be credited with its exact proportion of
the original premium written by the Company, subject to the provisions of the
second sentence of ARTICLE II hereof.
The second paragraph of ARTICLE IX hereof and ARTICLES X and XI hereof are
effective January 1, 1998, but are not intended to be in derogation of the
provisions of this ARTICLE VI for any periods of time.
ARTICLE VII
PREMIUM AND COMMISSION
The Company shall keep a record of each and every Contract ceded to this
Agreement and shall cede to the Reinsurer its proportionate share of all gross
premiums written by the Company in respect of such ceded Contracts after
deducting from such premiums any Return Premiums (as defined herein).
The Reinsurer shall allow the Company a commission on the Contracts ceded
hereunder equal to the Reinsurer's proportionate share of the actual acquisition
cost paid by the Company in obtaining said Contracts ("Written Commission"). For
purposes of this Agreement, actual acquisition cost shall mean original
commission plus premium tax and any brokerage paid by the Company.
In addition, the Reinsurer shall allow the Company the following override
commissions as an allowance for the Company's overhead expense ("Override
Commission"; together with the Written Commission, the "Commissions"):
1. For periods through 11:59 p.m. Eastern Time, December 31, 1997: 5% of the
Reinsurer's proportionate share of all gross premiums written in respect
of Contracts ceded to this Agreement (after deducting Return Premiums).
2. Effective 12:01 a.m. Eastern Time, January 1, 1998:
A. Excess property, marine and aerospace business: 15% of the
Reinsurer's proportionate share of all gross premiums written in
respect of Contracts ceded to
5
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<PAGE>
this Agreement (after deducting Return Premiums) primarily involving
such business.
B. Finite business (i.e., reinsurance contracts which transfer both
insurance and investment risk, which have relatively large premiums
with correspondingly large expected losses, and where the finite
risk reinsurer's ultimate profitability depends on both the level of
insurance losses, the timing of the payout of such losses, and the
investment performance while holding the premium): 20% of the
Reinsurer's margin on Contracts ceded to this Agreement primarily
involving such business.
C. Other business, including casualty and pro rata property, marine and
aerospace: 5% of the Reinsurer's proportionate share of all gross
premiums written in respect of Contracts ceded to this Agreement
(after deducting Return Premiums) primarily involving such business.
In addition to the Commissions paid the Company as set forth herein, the
Reinsurer shall pay the Company in respect of each Policy Year commencing prior
to January 1, 1998 a profit commission ("Profit Commission") allowance of twenty
percent (20%) of the Reinsurer's proportionate share of the net profits in
respect of all Contracts ceded to this Agreement and incepting or renewing
during such Policy Year, computed as follows:
INCOME
1. Premiums earned during the Period.
OUTGO
2. Losses incurred during the Period.
3. Written Commission, brokerage and Override Commission plus
deferred acquisition costs at the beginning of the Period less
deferred acquisition costs at the end of the Period.
4. Federal excise taxes ("FET") paid during the Period.
5. Allowances for Reinsurer's management expense equal to five
percent (5%) of the premiums earned in (1) above.
The calculation of income and outgo shall be made by the Company within ninety
(90) days after each anniversary of the close of a Policy Year commencing prior
to January 1, 1998 and any monies
6
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due shall be remitted forty five (45) days thereafter. The first calculation
shall be made as of December 31, 1998 for the Policy Year April 1, 1997 through
December 31, 1997.
If, for any Period commencing prior to January 1, 1998, the total of premiums
earned as shown under Income exceed the total of the items under Outgo, the
Company shall calculate for the Reinsurer 20% of the difference payable for such
annual calculation; provided, however, if for any such Period the items under
Outgo exceed the total of premiums earned as shown under Income (the amount of
such excess, if any, hereinafter the "Deficit"), no portion of any such Deficit
shall be recoverable from the Company, whether on termination of this Agreement
or otherwise.
In the event of termination of this Agreement on a cut-off basis in respect of
any Policy Year commencing prior to January 1, 1998, the Period shall be from
the beginning of the Period through the date of termination.
Should this Agreement be terminated on a runoff basis in respect of any Policy
Year commencing prior to January 1, 1998, where the Reinsurer continues to be
liable for losses after the date of termination, such run-off period shall be
considered as part of the last Period.
For the purposes of this Agreement, the following definitions will apply:
1) "Period" shall mean the actual time covered by each calculation of income and
outgo as set forth in this Agreement.
2) "Premiums earned" shall mean the total of the net written premiums ceded to
the Reinsurer during the Period less unearned premiums at the close of the
Period, if any, plus unearned premiums at the beginning of the Period, if any.
3) "Net written premiums" shall mean gross premiums written and ceded to the
Reinsurer as recorded by the Company less any returns and/or cancellations also
recorded.
4) "Losses incurred" shall mean losses paid, plus loss adjustment expense paid,
by the Reinsurer, less salvages or subrogations recovered, during the Period,
plus loss and loss adjustment expenses outstanding (including IBNR) at the end
of the Period, less loss and loss adjustment expenses outstanding (including
IBNR) at the beginning of the Period, if any.
5) "Policy Year" shall mean the calendar year.
ARTICLE VIII
REPORTS AND REMITTANCES
7
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Within forty five (45) days after the close of each quarter, the Company will
furnish the Reinsurer with a report summarizing the reported and estimated
written premiums ceded less the related reported and estimated Commissions and
FET, and less reported losses paid and reported loss adjustment expense paid,
and the net balance (disregarding estimated items) due either party. In
addition, the Company will furnish the Reinsurer a quarterly statement showing
the total reserves for outstanding losses, loss adjustment expense, unearned
premiums, Profit Commissions (if any) and such other information as may be
required by the Reinsurer for completion of any reports or statements required
to be filed with Bermuda or other applicable insurance regulatory authorities.
Reinsurer agrees (i) to provide to the Company such information as may be
reasonably requested from time to time by the Company which information is
required by the Company to comply with any requests or requirements of
applicable insurance regulatory authorities (including, without limitation, the
Connecticut Insurance Department) and (ii) to take such other commercially
reasonable actions as the Company shall request, which actions are necessary or
desirable in order for the Company to comply with any applicable insurance
regulatory requirements respecting its ability to take credit, or reduce its
liabilities, by reason of the reinsurance cessions which are the subject of this
Agreement.
The Reinsurer agrees that it will on its books and records maintain reserves for
outstanding losses and loss adjustment expense (including IBNR) that are at
least equal to the amounts set forth in the statements provided by the Company
respecting the Contracts ceded to this Agreement.
Amounts due the Reinsurer by the Company will be remitted with the quarterly
report. Amounts due the Company by the Reinsurer will be remitted within forty
five (45) days following receipt of the report. Should payment due from the
Reinsurer exceed $250,000 as respects any one loss, the Company may give the
Reinsurer notice of payment made, or its intention to make payment, on a certain
date. If the Company has paid the loss, payment will be made by the Reinsurer
immediately. If the Company intends to pay the loss by a certain date and has
submitted a satisfactory proof of loss or similar document, payment will be due
from the Reinsurer twenty four (24) hours prior to that date, provided the
Reinsurer has a period of five (5) business days after receipt of said notice to
dispatch the payment. Cash loss amounts specifically remitted by the Reinsurer
as set forth herein will be credited to its next quarterly report in which such
cash loss amounts are reported. If the Statutory Trust Amount already includes
assets set aside for such loss, the Company shall either draw from the Statutory
Trust the amount due from the Reinsurer, or if such amount has been paid to the
Company by the Reinsurer, authorize the Reinsurer to draw the amount paid from
the Statutory Trust.
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ARTICLE IX
LOSSES AND LOSS ADJUSTMENT EXPENSES
All loss settlements (other than ex-gratia payments), whether under strict
policy conditions or by way of compromise, shall be unconditionally binding upon
the Reinsurer in the amount of its proportionate share thereof. The Reinsurer
shall bear its proportionate share of all loss adjustment expenses incurred
under the ceded Contracts.
In addition to indemnity amounts recoverable hereunder, the Reinsurer shall bear
its proportionate share of all expenses incurred by the Company in the
investigation, adjustment, appraisal or defense of all claims under policies
reinsured hereunder (excluding office expenses and compsensation of officers and
regular employees of the Company, other than staff field adjusters and out of
pocket expense of the Company's officers incurred in connection with the loss),
and shall receive its proportionate share of any recoveries of such expenses.
ARTICLE X
EXTRA CONTRACTUAL OBLIGATIONS
The Reinsurer shall be liable hereunder for its share of 100% of any loss to the
Company in respect of Extra Contractual Obligations.
"Extra Contractual Obligations" are defined as those liabilities (excluding
office expenses and compensation of officers and regular employees of the
Company, other than staff field adjusters and out of pocket expense of the
Company's officers incurred in connection with the loss) not covered under any
other provision of this Agreement and which arise from the handling of any claim
on business covered hereunder, such liabilities arising because of, but not
limited to, the following: failure by the Company to settle within the policy
limit, or by reason of alleged or actual negligence, fraud or bad faith in
rejecting an offer of settlement or in the preparation of the defense or in the
trial of any action against its insured or reinsured or in the preparation or
prosecution of an appeal consequent upon such action.
The date on which any Extra Contractual Obligation is incurred by the Company
shall be deemed, in all circumstances, to be the date of the original loss. The
time any amount is due from the Reinsurer hereunder shall be based upon the time
the Company has made a payment to which these provisions relate.
For purposes of Extra Contractual Obligations coverage there shall be no
recovery hereunder where the loss has been incurred due to or to the extent
caused by fraud by a member of the board of
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directors or a corporate officer of the Company acting individually or
collectively or in collusion with any individual or corporation or other
organization or party involved in the presentation, defense or settlement of a
claim on behalf of the Company.
ARTICLE XI
JUDGMENTS IN EXCESS OF POLICY LIMITS
This Agreement shall protect the Company for the Reinsurer's share in connection
with 100% of any loss in excess of the limit of its original policy, such loss
in excess of the limit having been incurred because of failure by the Company to
settle within the policy limit or by reason of alleged or actual negligence,
fraud or bad faith in rejecting an offer of settlement, or in the preparation of
the defense, or in the trial of any action against its insured or reinsured or
in the preparation or prosecution of an appeal consequent upon such action.
However, this Article shall not apply where the loss has been incurred due to or
to the extent caused by fraud by a member of the board of directors or a
corporate officer of the Company acting individually or collectively or in
collusion with any individual or corporation or any other organization or party
involved in the presentation, defense or settlement of any claim.
For purposes of this Article the word "loss" shall mean any amounts for which
the Company would have been contractually liable to pay had it not been for the
limit of the original policy (excluding office expenses and compsensation of
officers and regular employees of the Company, other than staff field adjusters
and out of pocket expense of the Company's officers incurred in connection with
the loss).
ARTICLE XII
FUNDING AND DEPOSITS
The obligations of the Reinsurer hereunder shall be secured by one or more trust
accounts and/or by one or more clean, irrevocable and unconditional letters of
credit and/or by other security arrangements, all as more fully described below.
A. Statutory Trust Account
Upon the execution of this Agreement, the Reinsurer has established a trust
account for the benefit of the Company (the "Statutory Trust") pursuant to a
Trust Agreement with Chase Manhattan Bank dated as of January 31, 1996, as
amended by Amendment No. 1 thereto (collectively, the "Statutory Trust
Agreement"). At all times during the term of this Agreement, the Statutory Trust
Agreement
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and Statutory Trust account must be in a form and with a bank acceptable to the
Company and to the Connecticut Insurance Department and any other insurance
regulatory authorities having jurisdiction over the Company's loss reserves and
must otherwise comply with all applicable insurance regulatory requirements.
At all times during the term of this Agreement, the Reinsurer shall have on
deposit in the Statutory Trust assets equal to (i) the amount of the Obligations
(as hereinafter defined) as of the last day of the immediately preceding fiscal
quarter plus, in respect of periods prior to April 1, 1998, (ii) the cumulative
underwriting profit, if any, of the Reinsurer for such immediately preceding
fiscal quarter and the prior three fiscal quarters (the "Statutory Trust
Amount"); provided, that the amount of the assets so deposited in the Statutory
Trust may be less than the Statutory Trust Amount if the Reinsurer provides the
Company with one or more letters of credit complying with Section B of this
ARTICLE XII provided, further, that for purposes of clause (ii) above only, any
assets of the Reinsurer on deposit in a similar trust account (which meets the
applicable insurance regulatory requirements) for the benefit of the Company or
any subsidiary of the Company pursuant to a similar clause under other
reinsurance or retrocessional agreements between the Company or any subsidiary
of the Company and the Reinsurer shall be deducted therefrom. The term
"Obligations" shall mean (x) the Reinsurer's share, pursuant to Contracts ceded
to this Agreement, of: (i) reinsurance losses, allocated loss adjustment
expenses, contingent commissions, no claim bonuses, profit commissions and
return premiums upon cancellation, paid by the Company but not recovered from
the Reinsurer (by netting against amounts owed to the Reinsurer or otherwise);
(ii) reserves for reinsured losses reported and outstanding; (iii) reserves for
reinsured losses incurred but not reported; (iv) reserves for allocated loss
adjustment expenses; (v) reserves for unearned premiums; and (vi) reserves for
contingent commissions, no claim bonuses and profit commissions owed by the
Company to third parties; plus (y) any Commissions, Profit Commissions or other
amounts the Company claims are due under this Agreement, but not recovered from
the Reinsurer (by netting against amounts owed to the Reinsurer or otherwise).
Adjustments to the Statutory Trust Amount shall be made within thirty (30) days
of Reinsurer's receipt of the report provided for in Article VIII.
Assets deposited in the Statutory Trust shall be valued according to their
current fair market value and shall consist only of cash (United States legal
tender), certificates of deposit (issued by a United States bank and payable in
United States legal tender), and investments of the types permitted for a
domestic property/casualty reinsurance company under the provisions of the
applicable insurance laws and regulations of the State of Connecticut, or any
combination of the above, provided that any such investments are not issued by
an institution that is the parent, subsidiary, or affiliate of either the
Company or the Reinsurer.
Upon notification by the Company that the value of the assets on deposit in the
Statutory Trust is less than the Statutory Trust Amount (unless a letter of
credit has been provided for the amount of such deficiency), the Reinsurer
shall, within ten (10) days of receipt of such notice, deposit sufficient
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additional assets in the Statutory Trust to increase the value of the assets or
deposit therein to the Statutory Trust Amount.
The Reinsurer, prior to depositing assets in the Statutory Trust, shall execute
assignments, endorsements in blank, or transfer legal title to the trustee of
all shares, obligations or any other assets requiring assignments, in order that
the Company, or the trustee upon the direction of the Company, may whenever
necessary negotiate, withdraw or dispose of any such assets without consent or
signature from the Reinsurer or any other entity.
The Reinsurer and the Company agree that, notwithstanding any other provision of
this Agreement, the assets in the Statutory Trust established pursuant to the
provisions of this Agreement may be withdrawn by the Company at any time,
without notice to the Reinsurer, upon the presentation of a letter signed by the
President or any Vice President of the Company stating that amounts are due and
owing with respect to this Agreement and stating the amounts due. Such withdrawn
assets shall be utilized and applied by the Company or its successors in
interest by operation of law, including without limitation any liquidator,
rehabilitator, receiver, or conservator of the Company, without diminution
because of the insolvency of the Company or the Reinsurer, only for the
following purposes:
1. To reimburse the Company for the Reinsurer's share of premiums returned to
the owners of Contracts ceded to this Agreement because of cancellations
of such Contracts ("Return Premiums").
2. To reimburse the Company for the Reinsurer's share of losses, allocated
loss adjustment expenses, contingent commissions, no claim bonuses and
profit commissions paid by the Company pursuant to the provisions of the
Contracts ceded to this Agreement.
3. To fund an account with the Company in an amount at least equal to the
deduction, for reinsurance ceded, from the Company's liabilities for
Contracts ceded to this Agreement, including, but not be limited to,
amounts for claims and losses incurred (including losses incurred but not
reported), allocated loss adjustment expenses, unearned premium reserves
and reserves for contingent commissions, no claim bonuses and profit
commissions to third parties.
4. To pay any Commissions, Profit Commissions or other amounts the Company
claims are due under this Agreement.
The Company agrees to return to the Reinsurer any amounts withdrawn from the
Statutory Trust which are in excess of the actual amounts required for items 1,
2 and 3 above or, in the case of item 4 above, any amounts that are subsequently
determined not to be due.
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The Company further agrees to utilize all of the assets in the Statutory Trust
prior to drawing on any letter of credit established pursuant to Section B of
this ARTICLE XII and prior to utilizing any assets deposited in other trusts,
drawing down on any letters of credit or realizing on any other security
arrangements, in each case established pursuant to Section C of this ARTICLE
XII.
B. Letters of Credit
By January 1 of each year during the term of this Agreement, the Reinsurer
shall, in the event that assets equal to the Statutory Trust Amount are not on
deposit in the Statutory Trust, establish and provide to the Company one or more
clean, irrevocable and unconditional letters of credit with a minimum duration
of one year, for the benefit of the Company and in a form and with a bank that
is acceptable to the Connecticut Department of Insurance and any other insurance
regulatory authorities having jurisdiction over the Company's loss reserves and
which otherwise complies with all applicable insurance regulatory requirements.
The letter(s) of credit respecting any year during the term of this Agreement
shall be for an aggregate amount equal to the Statutory Trust Amount minus the
value of any assets on deposit in the Statutory Trust.
Any letter of credit provided by the Reinsurer pursuant to the provisions of
this Agreement shall contain an issue date and date of expiration and shall
stipulate that the Company need only draw a sight draft under the letter of
credit and present it to obtain funds and that no other document need be
presented. Such letter of credit must contain a statement to the effect that the
obligation of the issuing bank under the letter of credit is in no way
contingent upon reimbursement with respect thereto.
The term of any letter of credit provided hereunder shall be for at least one
year and shall contain an "evergreen clause" which prevents the expiration of
the letter of credit without due notice from the issuer. The "evergreen clause"
shall provide for a period of no less than thirty (30) days' notice prior to
expiry date or non-renewal.
The Reinsurer and the Company agree that any letter of credit provided by the
Reinsurer pursuant to the provisions of this Agreement may be drawn upon at any
time, notwithstanding any other provisions in this Agreement, and shall be
utilized by the Company or its successors in interest, without diminution
because of the insolvency of the Company or the Reinsurer, only for the
following purposes:
1. To reimburse the Company for Return Premiums.
2. To reimburse the Company for the Reinsurer's share of losses, allocated
loss adjustment expenses, contingent commissions, no claim bonuses and
profit commissions paid by the Company pursuant to the terms and
provisions of the Contracts ceded to this Agreement.
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3. To fund an account with the Company in an amount at least equal to the
deduction, for reinsurance ceded, from the Company's liabilities for
Contracts ceded to this Agreement, including, but not be limited to,
amounts for claims and losses incurred (including losses incurred but not
reported), allocated loss adjustment expenses, unearned premium reserves
and reserves for contingent commissions, no claim bonuses and profit
commissions to third parties.
4. To pay any Commissions, Profit Commissions or other amounts the Company
claims are due under this Agreement.
The Company agrees to return to the Reinsurer any amounts drawn under any such
letter of credit which are in excess of the actual amounts required for items 1,
2 and 3 above or, in the case of item 4 above, any amounts that are subsequently
determined not to be due.
C. Additional Security
In addition to the Statutory Trust and any letters of credit established
pursuant to Sections A and B of this ARTICLE XII, the Reinsurer shall establish
additional security arrangements for the benefit of the Company, with terms
satisfactory to the Company, with respect to the Additional Security Amount (as
hereinafter defined). The "Additional Security Amount" shall be equal to,
without duplication, (i) 90% of the shareholders' equity (calculated in
accordance with United States generally accepted accounting principles) of the
Reinsurer as of the last day of the immediately preceding fiscal quarter, minus
(ii) the Statutory Trust Amount and any amount held in the Statutory Trust in
excess of the Statutory Trust Amount, minus (iii) any amounts which at such
quarter end were being utilized to collateralize the obligations of the
Reinsurer pursuant to other reinsurance arrangements with the Company or any
affiliate of the Company, and minus (iv) such other amounts as the Company may
agree are not required to secure the Reinsurer's obligations under this
Agreement; provided, however, for any fiscal quarter following a fiscal quarter
as of the last day of which the Reinsurer had shareholders' equity of at least
$100 million, clause (i) above shall be reduced to 125% of the most recent worst
case frequency scenario presented to the Reinsurer by the Company on an annual
or more frequent basis as the Company may determine, in each case applicable to
the risks ceded to the Reinsurer by the Company and its affiliates and utilizing
the methodology and assumptions utilized by the Company and its affiliates for
their internal use.
The Reinsurer and the Company agree that the Company or its successors in
interest may exercise the Company's rights under such additional security
arrangements and apply the proceeds thereof, without diminution because of the
insolvency of the Company or the Reinsurer, only for the following purposes:
1. To reimburse the Company for Return Premiums.
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2. To reimburse the Company for the Reinsurer's share of losses, allocated
loss adjustment expenses, contingent commissions, no claim bonuses and
profit commissions paid by the Company pursuant to the terms and
provisions of the Contracts ceded to this Agreement.
3. To fund an account with the Company in an amount at least equal to the
deduction, for reinsurance ceded, from the Company's liabilities for
Contracts ceded to this Agreement, including, but not be limited to,
amounts for claims and losses incurred (including losses incurred but not
reported), allocated loss adjustment expenses, unearned premium reserves
and reserves for contingent profit commission, no claim bonuses and profit
commissions to third parties.
4. To pay any Commissions, Profit Commissions or other amounts the Company
claims are due under this Agreement.
The Company agrees to return to the Reinsurer any amounts drawn under any such
additional security arrangements which are in excess of the actual amounts
required for items 1, 2 and 3 above or, in the case of item 4 above, any amounts
that are subsequently determined not to be due.
From time to time, the Company shall reduce the amounts of any letters of credit
established under this ARTICLE XII, release assets from the Statutory Trust
established pursuant to this ARTICLE XII or release assets from such other
security arrangements as may be established pursuant to this ARTICLE XII by such
amounts as the Company reasonably determines (in its sole discretion) are no
longer required to secure the obligations of the Reinsurer to the Company
hereunder; provided, however, that in no event shall the value of the assets
held in the Statutory Trust plus the amount of such letters of credit be less
than the Reinsurer's Obligations.
ARTICLE XIII
TAXES
In consideration of the terms under which this Agreement is issued, the Company
undertakes not to claim any deduction of the premium hereon when making tax
returns, other than on Income or Profits Tax returns, to any state or territory
of the United States of America or to the District of Columbia.
ARTICLE XIV
FEDERAL EXCISE TAX
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The Reinsurer and the Company agree that the Company shall withhold and pay over
to the United States Treasury Department, together with all necessary forms and
reports, the Excise Tax imposed by Section 4371 of the Internal Revenue Code of
1986, as amended, in accordance with the provisions of Sections 4370 through
4374 thereof. The Company will provide the Reinsurer copies of all such returns
and reports. In the event of any Return Premium becoming due hereunder, the
Company will either (i) offset the Excise Tax applicable to the Return Premium
against future Excise Taxes payable to the Treasury Department or (ii) pay to
the Reinsurer the amount which the Company recovers from the Treasury Department
with respect to the Return Premium. In the event any amount offset pursuant to
subsection (i) of the previous sentence is disallowed by the Internal Revenue
Service, the Reinsurer shall indemnify the Company for any such disallowed
amount. The Company will use reasonable efforts to offset or recover any such
tax previously withheld on the returned portion of the premium and the Reinsurer
will cooperate with the Company to the extent reasonably necessary to assist the
Company in offsetting or recovering the tax previously withheld on the returned
portion of the premium from the Treasury Department.
ARTICLE XV
CURRENCY
Wherever the word "Dollars" or sign "$" appear in this Agreement they shall be
construed to mean United States Dollars.
For purposes of this Agreement, where the Company receives premiums or pays
losses and/or commissions in currencies other than United States currency, such
premiums or losses and commissions shall be converted into United States Dollars
at the same rates of exchange as entered in the Company's books.
ARTICLE XVI
ACCESS TO RECORDS
The Reinsurer or its duly accredited representatives shall have full access to
the books and records (other than any list or lists of brokers through which the
Company has written the business ceded hereunder) of the Company at all
reasonable times for the purpose of obtaining information concerning this
Agreement or the subject matter hereof. Upon request, the Company shall supply
the Reinsurer, at the Reinsurer's expense, with copies of the whole or any part
of such books and records relating to this Agreement or the subject matter
hereof.
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The Reinsurer agrees, on behalf of itself and its representatives, to hold and
keep confidential, and not to disclose to any third party (unless requested or
required by relevant insurance regulatory authorities or otherwise compelled to
do so by applicable law), any confidential and proprietary information of the
Company which it receives or has access to pursuant to the above paragraph. The
Reinsurer further agrees, on behalf of itself and its representatives, that it
shall not use any underwriting or related information received from the Company,
except for the sole purpose of analyzing the risks to be ceded to the Reinsurer
hereunder or in the application of the terms of this Agreement. The Reinsurer
agrees to abide by any determination by the Company that any information
provided to the Reinsurer constitutes confidential and proprietary information.
ARTICLE XVII
ERRORS AND OMISSIONS
Except as provided in the second sentence of ARTICLE II hereof, any inadvertent
delay, omission, or error shall not be held to relieve either party hereto from
any liability which would attach to it hereunder if such delay, omission or
error had not been made, provided such delay, omission or error is rectified
promptly upon discovery.
ARTICLE XVIII
INSOLVENCY
In the event of the insolvency of the Company, this reinsurance shall be payable
by the Reinsurer directly to the Company, or to its liquidator, receiver,
conservator or statutory successor on the basis of the liability of the Company
without diminution because of the insolvency of the Company or because the
liquidator, receiver, conservator, or statutory successor of the Company has
failed to pay all or portion of any claim. It is agreed, however, that the
liquidator, receiver, conservator, or statutory successor of the Company shall
give written notice to the Reinsurer of the pendency of a claim against the
Company indicating the policy or bond reinsured which claim would involve a
possible liability on the part of the Reinsurer within a reasonable time after
such claim is filed in the conservation or liquidation proceeding or in the
receivership, and that during the pendency of such claim, the Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated any defense or defenses that it may deem
available to the Company or its liquidator, receiver, conservator, or statutory
successor.
The expense thus incurred by the Reinsurer shall be chargeable, subject to the
approval of the court, against the Company as part of the expense of
conservation or liquidation to the extent of a pro rata
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share of the benefit which may accrue to the Company solely as a result of the
defense undertaken by the Reinsurer.
Where two or more reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of their respective reinsurance
agreements as though such expense had been incurred by the Company.
The reinsurance shall be payable by the Reinsurer to the Company or its
liquidator, receiver, conservator, or statutory successor, except as provided by
Section 4118(a) of the New York Insurance Law or except (a) where the agreement
specifically provides another payee of such reinsurance in the event of the
insolvency of the Company, and (b) where the Reinsurer, with the consent of the
direct insured or insureds, has assumed such policy obligations of the Company
as direct obligations of the Reinsurer to the payees under such policies and in
substitution for the obligations of the Company to such payees.
ARTICLE XIX
ARBITRATION
As a condition precedent to any right of action hereunder, if any dispute, claim
or controversy shall arise between the Company and the Reinsurer with respect to
this Agreement, the interpretation or breach thereof or the rights of the
parties with respect to any transaction contemplated hereunder (a "Dispute"),
whether such Dispute arises before or after termination of this Agreement, such
dispute, upon the written demand of either party, shall be arbitrated in
accordance with this ARTICLE XIX. Any such demand for arbitration shall be made
within a reasonable time after the Dispute has arisen, and in any event shall
not be made after the date when institution of legal or equitable proceedings
based on such Dispute would be barred by the applicable statute of limitations.
Any Dispute to be arbitrated hereunder shall be submitted to three arbitrators,
one to be appointed by each party, and an umpire to be chosen by the two so
appointed. If either party refuses or neglects to appoint an arbitrator within
thirty (30) days after the receipt of written notice from the other party
requesting it to do so, the requesting party may appoint two arbitrators. If the
two arbitrators fail to agree in the selection of the umpire within thirty (30)
days of their appointment, each arbitrator shall nominate three candidates
within ten (10) days thereafter, two of whom the other shall decline, and the
choice between the remaining two shall be made by drawing lots. All arbitrators
shall be active or retired executive officers of insurance or reinsurance
companies or underwriters at Lloyd's, London not under the control of, or having
had in the previous 3 years direct and material business relations with, or
related by birth or marriage to any employee of, either party to this Agreement,
and having no other personal or financial interest in the outcome of the
arbitration. Any determination by a majority of the arbitrators shall be binding
and conclusive upon the parties hereto.
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Each party shall submit its case to the arbitrators within thirty (30) days of
the appointment of the umpire. All proceedings before the arbitration panel
shall be informal and the arbitrators shall have the power to fix all procedural
rules relating to the arbitration proceeding.
The arbitration panel shall render its decision within thirty (30) days after
termination of the proceeding, which decision shall be in writing, stating the
reasons therefor. Judgment upon the final decision of the arbitrators may be
entered in any court having jurisdiction or application may be made to such
court for a judicial confirmation of the award and an order of enforcement, as
the case may be. Unless otherwise allocated by the arbitrators, each party shall
bear the expense of its own arbitrator and shall jointly and equally bear with
the other party the expense of the umpire and of any other expenses of the
arbitration. The arbitration shall take place in the city in which the Company's
head office is located unless some other place is mutually agreed upon by the
Company and the Reinsurer.
Notwithstanding the foregoing provisions of this ARTICLE XIX, it is hereby
agreed that no arbitration panel shall have any power to add to, alter or modify
the terms and conditions of this Agreement or to decide any issue which does not
arise from the interpretation or application of the provisions of this
Agreement.
ARTICLE XX
SERVICE OF SUIT
In the event of the failure of the Reinsurer to pay any amount claimed to be due
hereunder following an arbitration decision, or if court action is necessary to
aid arbitration, the Reinsurer, at the request of the Company, will submit to
the jurisdiction of any court of competent jurisdiction in the State and City of
New York and will comply with all requirements necessary to give such court
jurisdiction. All matters arising hereunder shall be determined in accordance
with the law and practice of such court. Nothing in this ARTICLE XX constitutes
or should be understood to constitute a waiver of the Reinsurer's rights to
commence an action in any court of competent jurisdiction in the United States,
to remove an action to a United States District Court, or to seek a transfer of
a case to another court as permitted by the laws of the United States or of any
state in the United States.
Service of process in such suit may be made upon Alan S. Kramer P.C., 65 East
55th Street, 9th Floor, New York, NY 10022 (the "agent for service of process")
and in any suit instituted upon this Agreement, the Reinsurer will abide by the
final decision of such court or of any appellate court in the event of an appeal
whose decision is no longer subject to appeal. The above-named agent for service
of process is authorized and directed to accept service of process on behalf of
the Reinsurer
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in any such suit and the Reinsurer hereby agrees that any such service shall be
deemed good and sufficient service under the New York Civil Practice Laws and
Rules.
Further, pursuant to any statute of any state, territory or district of the
United States of America which requires that the Reinsurer appoint a person
designated by such statute as its agent for service of process, Reinsurer hereby
designates the Superintendent, Commissioner, Director of Insurance, or other
officer specified for that purpose in such statute, or his successor or
successors in office, as its true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of this Agreement, and
hereby designates the agent for service of process as the firm to whom the said
officer is authorized to mail such process or a true copy thereof if such agent
must be in the United States, otherwise such process shall be mailed to the
Reinsurer at its address for notice under Article XXIII hereof.
ARTICLE XXI
RESTRICTIONS ON REINSURER OPERATIONS
For so long as this Agreement is in effect, without the prior written consent of
the Company, which consent shall not be unreasonably withheld, the Reinsurer
shall not (i) negotiate for, agree to or take any action with respect to any
merger, consolidation, reorganization, recapitalization (other than the
issuances of, or reclassifications into, equity securities or indebtedness
incurred in accordance with clause (ii) below) or similar transaction involving
the Reinsurer, or sell, lease, exchange or dispose of, in any way, all or
substantially all of the property or assets of the Reinsurer; (ii) authorize the
creation, issuance, assumption or guarantee by the Reinsurer of any indebtedness
for borrowed money involving in excess of U.S.$5 million or extending beyond a
maturity of three years (except for any indebtedness subordinated in right of
payment and in all other respects to the Obligations which subordination shall
be on terms and conditions in form and substance satisfactory to the Company);
(iii) mortgage, pledge or otherwise encumber the assets of the Reinsurer
involving in excess of U.S.$5 million in any single transaction (except for any
mortgages, pledges or encumbrances subordinated in all respects to the
Obligations (and all related security interests of the Company) which
subordination shall be on terms and conditions in form and substance
satisfactory to the Company); provided, however, nothing herein shall preclude
the Board of Directors of the Reinsurer from encumbering the assets of the
Reinsurer by placing them in trust or otherwise encumbering them for the benefit
of the Company or by pledging them as security for payment of letters of credit
issued for the benefit of the Company, any such action, when so taken, to be
deemed in the ordinary course; (iv) engage or dismiss the Reinsurer's
independent accountants; (v) authorize or amend any agreement or other
arrangement between the Reinsurer, on the one hand, and any holder of the
capital stock of the Reinsurer or any affiliate thereof, on the other hand,
which agreement, arrangement or amendment thereto reduces the net worth of the
Reinsurer in other than
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an immaterial amount or creates any rights not subordinated to the Obligations
and security interests of the Company as provided in clauses (ii) and (iii)
above; (vi) authorize the formation or acquisition of, or make any investments
in, any subsidiaries; or (vii) declare, set aside, pay or make any dividend or
other distribution or payment in respect of shares of the capital stock or other
securities of the Reinsurer, or, directly or indirectly, redeem, retire,
purchase or otherwise acquire any of such capital stock or other securities,
except as respects repayments of indebtedness incurred in accordance with clause
(ii) above and purchases out of capital required by, and effected in accordance
with the terms of, any securities of the Reinsurer.
For so long as the Reinsurer obtains at least 50% of its gross premiums written
for any year pursuant to this Agreement and any other agreements with the
Company or an affiliate thereof, the Company shall have the right to designate
one (1) individual to serve as a director of the Reinsurer (provided, however,
that if any of such other agreements contain a similar provision, the Company
shall not be entitled to designate more than one (1) individual to serve as a
director of the Reinsurer under all such agreements unless expressly provided).
During the term of this Agreement, Reinsurer agrees that, without the prior
written consent of the Company, which consent shall not be unreasonably
withheld, Reinsurer will not, directly or indirectly, underwrite insurance or
reinsurance business except pursuant to this Agreement and other insurance and
reinsurance agreements with the Company and its affiliates. Nothing in this
Agreement shall be construed to prohibit or otherwise limit the ability of the
Company to cede business to any other person, or to engage in any other business
(including any business competing with Reinsurer).
ARTICLE XXII
LIMITATIONS ON LIABILITY
The parties acknowledge that all business ceded under this Agreement shall be
subject to acceptance or rejection by the Reinsurer in its sole judgment.
Accordingly, in no event shall the Company be liable to the Reinsurer respecting
(i) the volume of business ceded pursuant to this Agreement or (ii) any losses
on any business ceded pursuant to this Agreement.
Subject to the provisions of the preceding paragraph, the liability of the
Company to the Reinsurer in respect of any failure to comply with the provisions
of this Agreement shall be limited to amounts actually owed hereunder and
damages directly caused by the willful misconduct or gross negligence of the
Company. In no event shall the Company be liable for indirect, incidental,
special or consequential damages.
The parties shall each be entitled to specific performance of the terms of this
Agreement.
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ARTICLE XXIII
NOTICES
All notices, requests, demands and other communications hereunder must be in
writing (including facsimile transmission) and shall be deemed to have been duly
given (i) when received if delivered by hand against written receipt, (ii) when
sent if sent by facsimile transmission between 9:00 a.m. and 5:00 p.m. on a day
when the Federal Reserve Bank and the Bank of Bermuda are open for business,
provided such transmission is confirmed by the transmitting machine, (iii) 5
days after being mailed if mailed by prepaid, first class certified mail, return
receipt requested, or (iv) if sent by overnight courier, 2 days after delivery
to a recognized major overnight courier service, fees prepaid. In each case
notices shall be addressed as follows:
If to the Company:
PXRE Reinsurance Company
399 Thornall Street
14th Floor
Edison, NJ 08837
Attention: President
Facsimile No.: 908-906-9157
If to the Reinsurer:
(after September 15, 1998)
Select Reinsurance Ltd. Select Reinsurance Ltd.
Continental Building Corner House
25 Church Street 20 Parliament Street, 4th Floor
P.O. Box HM 824 Hamilton HM12
Hamilton HMCX Bermuda
Bermuda Attention: Jeffrey L. Radke
Attention: Jeffrey L. Radke Facsimile No.: 441-296-8459
Facsimile No.: 441-295-1702
Any party by notice in writing sent to the other may change the name, address or
facsimile number to which notices, requests, demands or other communications to
it shall be given.
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ARTICLE XXIV
MISCELLANEOUS
Both the Reinsurer and the Company shall have, and may exercise at any time, the
right to offset any balance or balances due from one party to the other or, to
the extent permitted by applicable law, such other's successor, including a
successor by operation of law. Such offset may only include balances due under
this Agreement and any other reinsurance agreements heretofore or hereafter
entered into between the Reinsurer and the Company, regardless of whether such
balances are in respect of premiums, or losses or otherwise, and regardless of
the capacity of any party, whether as reinsurer or reinsured, under the various
agreements involved.
This Agreement contains the entire agreement between the parties, and supersedes
all prior or contemporaneous discussions, negotiations, representations, or
agreements, relating to the subject matter hereof. Nothing in the preceding
sentence is intended in derogation of the understanding of the Company and the
Reinsurer expressed in the letter agreement between the parties executed
contemporaneously with the execution of this Agreement.
This Agreement shall be construed and enforced in accordance with, and governed
by, the laws of the State of New York (other than any mandatory conflict of law
rule which might result in the application of the law of any other
jurisdiction).
This Agreement is intended for the exclusive benefit of the parties to this
Agreement and their respective successors and permitted assigns, and nothing
contained in this Agreement shall be construed as creating any rights or
benefits in or to any third party.
The captions of the various sections of this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning thereof.
This Agreement may not be modified or amended or any term or provision hereof
waived or discharged except in writing signed by the party against whom such
amendment, modification, waiver or discharge is sought to be enforced.
Except as otherwise provided in this Agreement, any failure or delay on the part
of any party in exercising any power or right hereunder shall not operate as a
waiver thereof, nor shall any single or partial exercise of any such right or
power preclude any other or further exercise thereof or the exercise of any
other right or power hereunder or otherwise available at law or in equity.
No party may assign any of its rights or obligations under this Agreement
without the written consent of the other party to this Agreement, which consent
may be arbitrarily withheld by such party, any such non-consented to assignments
being void. Except as otherwise provided in this
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Agreement, this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by and against the respective successors and assigns of each party
to this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their duly authorized officers.
Signed in Hamilton, Bermuda, effective this 1st day of April, 1997, except as to
the changes effective January 1, 1998 which are effective as of such date.
SELECT REINSURANCE LTD.
By /s/ Jeffrey L. Radke
-----------------------------------------
Name: Jeffrey L. Radke
Title: President
Signed in Edison, New Jersey, effective this 1st day of April, 1997, except as
to the changes effective January 1, 1998 which are effective as of such date.
PXRE REINSURANCE COMPANY
By /s/ Gerald L. Radke
-----------------------------------------
Name: Gerald L. Radke
Title: President
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PXRE Managing Agency
CONTRACT OF EMPLOYMENT (SENIOR STAFF):
STATEMENT OF PARTICULARS OF TERMS OF EMPLOYMENT
INTRODUCTION
This document forms your terms and conditions of employment.
Reference to the company in this document means the Company referred to as
"Employer". Reference to the Group means PXRE Corporation.
PARTIES TO THE CONTRACT OF EMPLOYMENT
Employer: PXRE Managing Agency Ltd
Employee: Peter George Butler
COMMENCEMENT OF EMPLOYMENT
Your employment commences on 1st September 1996
DATE OF THIS STATEMENT
16th July 1998
TITLE AND GRADE
You will be employed by the Company as Active Underwriter of Syndicate 1224 and
Director of PXRE Managing Agency and will be responsible primarily to the
Managing Director of PXRE Managing Agency Ltd. The Company reserves the right to
change your job title from time to time and the person or persons to whom you
report. Your job is graded Senior Vice President under the Group's job grading
scheme.
LOCATION
You will be based at our offices at 110 Fenchurch St, London EC3. The Company
reserves the right to appoint you to other positions (whether within the Company
or any Group Company) and to base you at other locations whether temporarily or
permanently as the needs of the business require, provided that any relocation
outside England and Wales will only be made with your consent.
You may be expected to travel throughout the UK or elsewhere in the performance
of your duties.
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DUTIES
During your employment you shall:
(a) perform such duties and exercise such powers, authorities and discretion
as the Board of the Company shall from time to time delegate to you;
(b) comply with all reasonable requests, instructions and regulations relating
to the Company or to any Group Company made by the Board or by anyone
authorised by it from time to time;
(c) during your working hours devote the whole of your time and attention and
ability to your duties and well and faithfully serve the Company and the
Group to the best of your ability and use your best endeavours to promote
the interests of the Company and the Group;
(d) at all times comply with such statutory and regulatory rules and
requirements as apply to your employment and your duties from time to
time, including any relevant DTI requirements, Companies Act legislation
and the requirements of the Lloyd's Model Code and with any Bye-laws made
under Lloyd's legislation. It is your responsibility to familiarise
yourself with these. Further information is available from the Compliance
Officer;
(e) not without the written consent of the Company directly or indirectly be
engaged, concerned or interested in any other business whatsoever,
provided that you shall not be prohibited from holding by way of
investment any securities listed or dealt on any Stock Exchange and
comprising not more than 1% of the securities of the class in question.
REMUNERATION
(a) Your basic annual salary will be 'L'145,000.00 per annum and is
payable in twelve equal monthly instalments in arrears, less any statutory
and voluntary deductions. Salaries are reviewed annually on 1 April.
(b) Your basic annual salary shall be inclusive of any fees or remuneration
for all offices held in any Group Company.
(c) You are eligible to participate in the Group Employee Stock Purchase Plan,
full details of which are enclosed as Appendix I.
(d) In addition to your basic annual salary you will also be eligible to
participate in the Company's Profit Related Pay Scheme, full details of
which are enclosed as Appendix II A and IIB.
(e) You will also be eligible to participate in the Company's Executive Share
Option Plan, (known as the Officer Incentive Plan) full details of which
are enclosed as Appendix III.
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CAR ALLOWANCE (if applicable)
You will be provided with a monthly car allowance of 'L'833.33 which is
non-pensionable and non-bonusable. The allowance is directly related to your
basic annual salary and is calculated as follows:
<TABLE>
<CAPTION>
Salary Allowance
------ ---------
<S> <C>
Up to 'L'55,000 11% of Salary
Over 'L'55,000 11% of Salary for first 'L'55,000
and 5% of any salary greater than
'L'55,000, subject to a maximum
annual car allowance which is
currently 'L'10,000
('L'833 per month)
</TABLE>
DEDUCTION OF MONEY OWED
If at any time money is owed and payable by you to the Company (or any Group
Company) whether under this letter of appointment or otherwise, it is agreed
that the Company (or Group Company) may deduct the sum or sums from time to time
owed from any payment due to you from the Company (or Group Company), howsoever
arising and you specifically authorise the Company to do so in such
circumstances.
WORKING HOURS
Your normal hours of work are from 9.30 a.m. to 5.30 p.m., Monday to Friday
(inclusive).
Given the seniority of your position, you will be expected to work such
reasonable hours as the needs of the business dictate. No additional payment is
made for such hours.
ENTITLEMENT TO PAID TIME OFF
In addition to statutory and bank holidays, you are entitled to a number of days
paid time (PTO) off in each calendar year. Paid time off is scheduled to suit
your personal preference wherever possible but must be approved in advance by
your immediate manager. Your entitlement is based on your length of service and
is calculated as follows:
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<TABLE>
<CAPTION>
Length of Service Number of Days PTO Earned
----------------- -------------------------
<S> <C>
Non-Officers:
Less than 6 months 3 days
6 months but less than 1 year 13 days
1 year but less than 2 years 20 days
2 years or more 25 days
Officers:
Less than 6 months 14 days
6 months or more 32 days
</TABLE>
Further details about the operation of PTO are shown as Appendix IV.
On the termination of your employment, you will be entitled to payment in lieu
of days of holiday accrued but not taken (provided that you have not been
summarily dismissed). If you have taken more than your accrued entitlement, the
appropriate deduction will be made to your final salary.
RETIREMENT
The normal retirement age for all employees of the Company is 60 years.
PENSION ARRANGEMENTS
The Company shall in each period of 12 months (commencing on the Commencement
Date) pay for the purpose of pension provision for you a contribution in equal
monthly instalments equal to 25% of your annual salary to such pension plan or
scheme approved under Chapter IV Part XIV of the Income and Corporation Taxes
Act 1988 (subject to any limit impose by the said Chapter IV).
INSURANCE BENEFITS
Subject always to the rules of the schemes from time to time in force, the
Company will provide you with the following insurance benefits:
(a) private health insurance for the benefit of your spouse and any
children under 21 years, at such scale as the Company deems
appropriate.
(b) permanent health insurance.
(c) life assurance which provides 4 x your annual salary in the event of
your death together with a Spouse's pension
Further information on these benefits is enclosed.
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EXPENSES
With the prior approval of the Company and within such limits as the Company may
from time to time lay down, all expenses wholly, exclusively and necessarily
incurred by you in carrying out your duties will be reimbursed to you on
production of appropriate receipts and/or vouchers.
ABSENCE THROUGH SICKNESS
If you are ill or unable to come to work for any reason, you should inform your
immediate manager or any such person as the Company may nominate on the first
working day.
Subject to the rules on Statutory Sick Pay, all other pay for any period when
you are unable to work through injury, sickness or incapacity will be at the
discretion of the Company.
When you are absent from work for less than 7 days you may use your entitlement
to Paid Time Off for the year to satisfy the benefit waiting period of 7 days.
When you are absent from work for more than 7 days you are required to provide
the Company with a medical certificate. Payment for sickness, illness or
disability of more than 7 days constitutes the Company's Salary Continuation
Plan, is based on your length of service and is as follows:
<TABLE>
<CAPTION>
Length of Service Full Pay 2/3rds Pay
----------------- -------- ----------
<S> <C> <C>
Less than 6 months nil 1 week
6 months but less than 1 year 1 week 4 weeks
1 year but less than 2 years 3 weeks 8 weeks
2 years but less than 3 years 7 weeks 18 weeks
3 years but less than 4 years 11 weeks 14 weeks
4 years but less than 5 years 19 weeks 6 weeks
5 or more years 25 weeks nil
</TABLE>
All Officers will have 5 years added to their length of service for the purposes
of calculating the duration of salary continuation.
In the event that you are ineligible for the payment of PHI benefit, the Company
reserves the right to terminate your employment if you are unable to work for
any aggregate of 26 weeks in any 12 month period, through sickness, injury or
incapacity. The Company also reserves the right to require you to undertake a
medical examination at any time.
NOTICE PERIOD
The minimum period of written notice to be given by either you or the Company to
terminate your employment shall be twelve months.
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The Company shall have the right, at its absolute discretion, to pay salary in
lieu of any period of notice.
During any period of notice whether given by you or the Company to the other
party, the Company shall be at liberty at any time, to require you, for a
reasonable period, not exceeding 6 months, to cease performing or exercising any
duties and powers vested in you by the Company. Salary and benefits will not
cease to be payable during such period. You recognise that such a requirement is
fair and reasonable in view of the seniority and scope of your position. The
Company may, at its absolute discretion, require you either to remain away from
work on paid leave or provide you with alternative work of a broadly similar
nature to the work you normally perform.
TERMINATION BY DEFAULT
The Company may forthwith terminate your employment and ask you to resign as a
Director of the Company if:
(a) you are guilty of any gross default, negligence or misconduct in
connection with or affecting the business of the Company or any
Group Company; or
(b) you are in breach or non-observance of any of the terms of this
letter; or
(c) you are disqualified from holding the office of Director; or
(d) you are adjudged bankrupt or make any arrangement with your
creditors; or
(e) you shall become of unsound mind or become a patient for any purpose
of any statute relating to mental health; or
(f) you are in breach or non-observance of the Lloyds Model Code or any
By-laws made under Lloyds legislation from time to time in force; or
(g) you are deemed not to be "fit and proper" under the regulations
covering Individual Registration at Lloyd's to hold office with the
Company or any Group Company.
On the termination of your employment, (howsoever caused), if upon request by
the Company, you fail to resign as a Director or from any other offices you may
hold in any Group Company, you hereby irrevocably authorise the Company to
nominate a person to sign the relevant resignation documentation on your behalf.
GRIEVANCE AND DISCIPLINARY POLICY
You will comply with such rules or procedures regarding disciplinary matters as
may be published by the Company from time to time.
If you have any grievance relating to your employment you should in the first
instance refer the matter to your immediate Manager. The Managing Director of
PXRE Managing Agency Ltd will have the authority to make a decision on any
grievance submitted.
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In the event that the Managing Director's decision does not fully resolve the
grievance, the matter will be referred to the Group Senior Staff Committee which
will make the final decision.
ENTITLEMENT TO COMMISSION
You will not be entitled to receive, whether directly or indirectly, any rebate
or commission in respect of any business transacted (whether or not by you) by
or on behalf of the Company or any Group Company.
CONFIDENTIALITY
You shall not (except in the proper course of your duties or as required by law
including but not limited to Lloyd's Regulations and Bye-laws) either during the
continuance of your employment or at any time thereafter:
(a) divulge or communicate to any person whomsoever or knowingly permit
or enable any person to acquire any Confidential Information which
may have come to your knowledge during or in the course of your
employment with the Company or Group whether post or prior to the
date of this letter ("the Confidential Information"); or
(b) use or attempt to use any Confidential Information for your own use
in any manner which may injure or cause loss either directly or
indirectly to any Group Company or to any of their respective
businesses or may be likely to do so or for any purpose other than
in the discharge of your duties hereunder.
During the continuance of your employment, you shall use your best endeavours to
prevent the unauthorised publication or disclosure of any Confidential
Information or any part thereof.
These restrictions shall not apply to any Confidential Information which shall
come into the public domain, other than through unauthorised disclosure by you.
The copyright, design rights and all other intellectual rights throughout the
world in all works, designs and inventions written or made by you during the
continuance of this agreement (except only those works, designs and inventions
originating, conceived, written or made by you wholly outside your normal
working hours and wholly unconnected with your employment under this agreement)
shall be vested in the Company.
As soon as practicable you shall communicate confidentially to the Company all
inventions, improvements, designs or processes which you may make or discover in
the course of your employment. You shall, if and when required by the Company,
do all acts and things at the cost of the Company as may be necessary and
desirable:
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1. to obtain or join with the Company in obtaining patents or any other
intellectual property right protections in respect of any such invention,
improvement, design or process in the United Kingdom or any other part of
the world; and
2. to vest the same in the Company or as it may direct absolutely for its
exclusive benefit. You shall not otherwise apply for a patent or other
intellectual property right protection for any such inventions,
improvements, designs or processes.
You will at the request and expense of the Company do all things necessary or
desirable to vest/substantiate the rights of the Company as set out above.
RESTRICTIVE COVENANTS
On the termination of your employment, you shall deliver up to the Company all
correspondence, documents, lists, disks and other papers (or other means of
storing or recording information) and all other property belonging to the
Company or any Group Company which may be in your possession or under your
control, and you shall not without the written consent of the Board take any
copies thereof. You will not however be prevented from using for your own or for
another persons benefit any information which by virtue of your employment
becomes a part of your own skill and knowledge, and apart from the provisions of
the Agreement could lawfully be used by you for that purpose.
In order to safeguard the goodwill and Confidential Information of the Company
and all Group Companies, you agree to the restrictions set out in this clause.
You undertake that for a period of 12 months from the termination of your
employment, you will not directly or indirectly in relation to a business in
competition with the Business:-
(i) perform any services or supply goods to any person, firm, company,
government or government body who is or was during the 12 months preceding
the Termination Date a customer, client or supplier or prospective
customer, client or supplier of the Company and with whom you personally
had significant dealings during such period;
(ii) solicit or interfere with or endeavour to entice away from the
Company any person, firm, Company, government or government body who is or
was during the 12 months preceding the Termination Date a customer, client
or supplier or prospective customer, client or supplier of the Company and
with whom you personally had significant dealings during such period;
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(iii) either on your own behalf or for any other person, firm or Company,
solicit interfere with or endeavour to entice away any employee of any
Group Company with whom you had direct contact during the course of your
employment including but not limited to employees with whom you were
managerially responsible.
This restriction shall not apply to junior or clerical staff of any Group
Company.
You agree that each of the sub-paragraphs above constitutes an entirely
separate, severable and independent restriction on you. You agree that if,
during your employment under this agreement or the continuance in force of these
restrictions, you receive an offer of employment or engagement in any capacity
from any person, you will immediately provide that person with a complete and
accurate copy of this agreement.
WARRANTY
You undertake that as at the Commencement Date you are at liberty to take up
employment with the Company and perform all the obligations set out in this
letter of appointment without limitation or breach of any obligations or duties
you have to a third party.
You further agree to indemnify and render harmless the Company and any Group
Company from and against any damages for any loss incurred by them, (including
damages and costs), in respect of any proceedings which may be brought against
the Company or any Group Company by any third party who claims that you are not
so at liberty.
AMENDMENTS
The Company reserves the right reasonably to amend the terms of this contract
from time to time. Any such changes will bc notified to you in writing.
Where applicable this document replaces any previous contract of employment.
ACCEPTANCE
Please sign the enclosed copy of this contract to confirm that you have received
it and that you accept the terms and conditions of employment set out in it and
agree to be bound by them.
9
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<PAGE>
Signed for and on behalf of
the PXRE Managing Agency
Full name: Signed Paul Archard
PAUL ARCHARD ----------------------
MANAGING DIRECTOR
Date 20/7/98
----------------------
I accept and agree to the terms of this contract of employment.
Full name of employee: Signed
PETER GEORGE BUTLER ----------------------
Date
----------------------
10
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<PAGE>
[LETTERHEAD OF PXRE REINSURANCE COMPANY]
EMPLOYMENT AGREEMENT (this "Agreement") dated as of June 8, 1998
between PXRE Reinsurance Company, a Connecticut insurance company (the
"Company"), and Michael J. Toman, an individual residing at 909 Foxboro Drive,
Norwalk, CT 06851 (the "Executive").
WHEREAS, the Company desires to employ the Executive and to enter
into this Agreement to set forth the terms of such employment; and
WHEREAS, the Executive desires to accept such employment and enter
into this Agreement.
NOW, THEREFORE, in consideration of the covenants and agreements
hereinafter set forth, the parties hereto agree as follows:
1. EMPLOYMENT AND DUTIES
1.1. General. The Company hereby employs the Executive, and the
Executive hereby agrees to serve the Company, as Executive Vice President of the
Company, upon the terms and subject to the conditions herein contained.
The Executive shall perform such other duties and services for the
Company and its affiliates, commensurate with the Executive's position, as may
be designated from time to time by the Chief Executive Officer (the "CEO") or
Board of Directors of the Company (the "Board"). The Executive agrees to serve
the Company faithfully and to the best of his ability under the direction of the
CEO and the Board.
1.2. Extent of Services. Except as may otherwise be approved in
advance by the Board, and except during vacation periods and reasonable periods
of absence due to sickness. personal injury or other disability, the Executive
shall devote his full working time throughout his period of employment with the
Company to the services required of him under this Agreement. The Executive
shall use his best efforts, judgment and energy to improve and advance the
business, reputation and interests of the Company in a manner consistent with
the duties of his position.
1.3. Term of Employment. The Executive's employment under this
Agreement shall commence as of June 23, 1998, or earlier should the Executive be
released by his current employer, (the "Effective Date") and shall terminate on
the earliest to occur of the third anniversary of the Effective Date and the
date of termination of the Executive's employment pursuant to Section 4 or 5.
The period commencing on the Effective Date and ending on the third anniversary
of the Effective Date is hereinafter referred to as the "Employment Term".
<PAGE>
<PAGE>
[LOGO PXRE]
1.4. Reimbursement of Business Expenses. The Company shall reimburse
the Executive for reasonable travel and other business expenses incurred by him
in the fulfillment of his duties hereunder upon presentation by the Executive of
an itemized account of such expenditures, in accordance with Company practices
in effect from time to time.
2. COMPENSATION
2.1. Base Salary. From the Effective Date through the end of the
Executive's employment hereunder, the Executive shall be entitled to receive a
base salary ("Base Salary") at a rate of $260,000 per annum, payable in arrears
in equal installments in accordance with the Company's payroll practices, with
such increases as may be provided in accordance with the terms hereof. Once
increased, such higher amount shall constitute the Executive's annual Base
Salary.
2.2. Annual Review. The Executive's Base Salary shall be reviewed by
the CEO, based upon the Executive's performance, not less often than annually,
and may be increased but not decreased.
2.3. Annual Incentive Bonus Plan. Subject to the provisions of
Section 4.2, the Executive shall be entitled to participate annually during the
Employment Term in the Company's Annual Incentive Bonus Plan (the "Bonus Plan"),
or such substitute plan as shall be established from time to time by Company,
which provides for the payment of annual bonuses to key employees of the
Company, subject to the terms and conditions of the Bonus Plan or such
substitute plan, as the case may be. The amount of the Executive's annual bonus
under the Bonus Plan shall range from zero to 82.5% of the Executive's annual
earned Base Salary, based upon the Company's return on equity percentages in any
of its relevant fiscal years, as determined by the Company in its discretion.
The Executive's bonus award under the Bonus Plan (if any) shall be comprised of
a combination of 70% cash and 30% restricted stock, the restricted stock portion
of which shall be subject to vesting following the expiration of three years.
2.4. Equity Grants. Subject to the provisions of Section 4.2, the
Executive shall be entitled to participate annually during the Employment Term
in the Company's 1992 Officer Incentive Plan (the "Incentive Plan"), or such
substitute plan as shall be established from time to time by Company, which
provides for the grant of stock options and restricted shares of Company stock
to key employees of the Company, subject to the terms and conditions of the
Incentive Plan or such substitute plan, as the case may be. In addition, the
Executive shall receive, as of the Effective Date. an initial award of 13,500
restricted shares of the Company pursuant to the Incentive Plan, subject to such
terms and conditions as are set forth in the Incentive Plan, a copy of which is
attached hereto as Exhibit A. Vesting of this grant will be 100% after three
years, with no partial vesting prior to the end of the three-year period.
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3. EMPLOYEE BENEFITS
3.1. In General. The Executive and his dependents shall, during his
employment under this Agreement, be included to the extent eligible thereunder
in all pension, 401(k), health, medical, life, disability or other similar plans
or benefits which shall be established by the Company from time to time for, or
made available to, its executives.
3.2. Automobile Allowance. If the Executive is a Senior Vice
President or higher, in addition to all other compensation and benefits provided
hereunder, the Executive shall be entitled to receive a monthly automobile
allowance in the amount of $600 per month, payable at normal payroll intervals
of the Company.
4. TERMINATION OF EMPLOYMENT
4.1. Termination Without Cause; Resignation for Good Reason.
4.1.1. General. Subject to the provisions of Sections 4.1.2
and 4.1.3, if, prior to the expiration of the Employment Term, the Executive's
employment is terminated by the Company without Cause (as defined in Section
4.3), or if the Executive terminates his employment hereunder for Good Reason
(as defined in Section 4.4), the Company shall pay the Executive severance pay
in an amount equal to the Base Salary (at a rate in effect on the date of such
termination or, if a reduction in Base Salary is the basis for termination for
Good Reason, then the Base Salary in effect immediately prior to such reduction)
for the remainder of the Employment Term (such period being referred to
hereinafter as the "Severance Period"), at such intervals as the same would have
been paid had the Executive remained in the active service of the Company. In
addition, the Executive and his dependents shall continue to participate in
the benefit plans described in Section 3.1 for a period equal to the lesser of
(a) the Severance Period and (b) one year from the date of termination or
resignation pursuant to this Section 4.1.1; provided, however, that the Company
may, at its option, pay to the Executive the present value of the aggregate
dollar value of such benefits, without the necessity to provide the respective
benefits to the Executive set forth in Section 3.1 hereof. Furthermore, the
initial award of 13,500 shares will vest after a three year period as set forth
in Section 2.4. The Executive shall have no further right to receive any other
compensation or benefits after such termination or resignation of employment
except as determined in accordance with the terms of the employee benefit plans
or programs of the Company except that he shall receive payment for earned but
unused vacation. Salary continuation payments made and benefits provided to the
Executive pursuant to this Section 4.1.1 shall be reduced by compensation earned
and benefits received by the Executive from a subsequent employer during the
Severance Period.
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4.1.2. Conditions Applicable to the Severance Period. If,
during the Severance Period, the Executive breaches his obligations under
Section 7 of this Agreement, the Company may terminate the Severance Period and
cease to make any further payments or provide any benefits described in Section
4.1.1.
4.1.3. Death During Severance Period. In the event of the
Executive's death during the Severance Period, payments of Base Salary under
this Section 4 shall cease as of the month immediately following such death.
4.1.4. Date of Termination. The date of termination of
employment without Cause shall be the date specified in a written notice of
termination to the Executive. The date of resignation for Good Reason shall be
the date specified in the written notice of resignation from the Executive to
the Company; provided, however, that no such written notice shall be effective
unless the cure period specified in Section 4.4 has expired without the Company
having corrected the event or events subject to cure. If no date of resignation
is specified in the written notice from the Executive to the Company, the date
of termination shall be the first day following the expiration of such cure
period.
4.2. Termination for Cause; Resignation Without Good Reason.
4.2.1. General. If, prior to the expiration of the Employment
Term, the Executive's employment is terminated by the Company for Cause, or the
Executive resigns from his employment hereunder other than for Good Reason, the
Executive shall be entitled only to payment of his Base Salary as then in effect
through and including the date of termination or resignation together with
payment for earned but unused vacation. The Executive shall have no further
right to receive any other severance, compensation or benefits after such
termination or resignation of employment, except as determined in accordance
with the terms of the employee benefit plans or programs of the Company.
4.2.2. Date of Termination. Subject to the proviso to Section
4.3, the date of termination for Cause shall be the date specified in a written
notice of termination to the Executive. The date of resignation without Good
Reason shall be the date specified in the written notice of resignation from the
Executive to the Company, or if no date is specified therein, 10 business days
after receipt by the Company of written notice of resignation from the
Executive.
4.3. Cause. Termination for "Cause" shall mean termination of the
Executive's employment because of:
(a) any wilful act or omission that constitutes a material breach by
the Executive of any of his obligations under this Agreement;
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(b) the wilful and continued failure or refusal of the Executive to
substantially perform the material duties required of him as an employee
of the Company;
(c) any wilful material violation by the Executive of any law or
regulation applicable to the business of the Company or any of its
subsidiaries or affiliates, or the Executive's conviction of or plea of
nolo contendere to a felony or a crime involving moral turpitude, or any
wilful perpetration by the Executive of a common law fraud; or
(d) any other wilful misconduct by the Executive that is injurious
to the financial condition or business reputation of, or is otherwise
materially injurious to, the Company or any of its subsidiaries or
affiliates;
provided, however, that if any such Cause relates to the Executive's obligations
under this Agreement and is susceptible to cure, the Company shall not terminate
the Executive's employment hereunder unless the Company first gives the
Executive notice of its intention to terminate and of the grounds for such
termination, and the Executive has not, within 10 business days following
receipt of the notice, cured such Cause.
For purposes of this Section 4.3, an "affiliate" of a person or
other entity shall mean a person or other entity that directly or indirectly
controls, is controlled by, or is under common control with, the person or
entity specified.
4.4. Good Reason. For purposes of this Agreement, "Good Reason"
shall mean either of the following (occurring without the Executive's prior
consent):
(a) a decrease in the Executive's base rate of compensation, or a
failure by the Company to pay material compensation due and payable to the
Executive in connection with his employment; or
(b) the failure by the Company to obtain an agreement from a
successor to assume and agree to perform this Agreement in accordance with
the second sentence of Section 8.3;
provided, however, that if any such Good Reason is susceptible of cure, the
Executive may not resign for Good Reason unless the Executive first gives the
Company notice of his intention to resign and of the grounds for such
resignation, and the Company has not, within 10 business days following receipt
of the notice, cured such Good Reason, or in the event that such Good Reason is
not susceptible to cure within such 10 business day period, the Company has not
taken all reasonable steps within such 10 business day period to cure such Good
Reason as promptly as practicable thereafter.
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5. DEATH OR DISABILITY
In the event of termination of the Executive's employment by reason
of death or Permanent Disability (as hereinafter defined), the Executive (or his
estate, as applicable) shall be entitled to Base Salary and benefits determined
under Sections 2 and 3 through the date of termination. Other benefits shall be
determined in accordance with the benefit plans maintained by the Company, and
the Company shall have no further obligation hereunder. For purposes of this
Agreement, "Permanent Disability" means a physical or mental disability or
infirmity of the Executive that prevents the normal performance of substantially
all his duties as an employee of the Company, which disability or infirmity
shall exist, or in the option of an independent physician is reasonably likely
to exist, for any continuous period of 180 days.
6. NO MITIGATION OF DAMAGES
The Executive shall not be required to mitigate the amount of any
payment provided for in Section 4.1 by seeking other employment.
7. NONSOLICITATION; CONFIDENTIALITY; NONCOMPETITION
7.1. Nonsolicitation. For so long as the Executive is employed by
the Company and continuing for two years thereafter, the Executive shall not,
without the prior written consent of the Company, directly or indirectly, as a
sole proprietor, member of a partnership, stockholder or investor, officer or
director of a corporation, or as an employee, associate, consultant, independent
contractor or agent of any person, partnership, corporation or other business
organization or entity other than the Company: (a) solicit or endeavor to entice
away from the Company or any of its subsidiaries any person or entity who is,
or, during the then most recent 12-month period, was, employed by, or had served
as an agent or key consultant of, the Company or any of its subsidiaries, or (b)
solicit or endeavor to entice away from the Company or any of its subsidiaries
any person or entity who is, or was within the then most recent 12-month period,
a customer or client (or reasonably anticipated (to the general knowledge of the
Executive or the public) to become a customer or client) of the Company or any
of its subsidiaries.
7.2. Confidentiality. The Executive agrees that during the
Employment Term and thereafter he will not, except in the performance of his
obligations to the Company hereunder or as may otherwise be approved in advance
by the Board, directly or indirectly, disclose or use (except for the direct
benefit of the Company) any confidential information that he may learn or has
leaned by reason of his association with the Company, any client or any of their
respective subsidiaries and affiliates. The term "confidential information"
includes all data, analyses, reports, interpretations, forecasts, documents and
information concerning or otherwise reflecting information and concerning the
Company and its affairs, including, without limitation, with respect to clients,
products, policies, procedures, methodologies, trade secrets and other
intellectual property, systems, personnel, confidential reports, technical
information, financial information, business transactions, business
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plans, prospects or opportunities, but shall exclude any portion of such
information that (a) was acquired by the Executive prior to his employment by,
or other association with, the Company, (b) is or becomes generally available to
the public or is generally known in the industry or industries in which the
Company operates, in each case other than as a result of disclosure by the
Executive in violation of this Section 7.2 or (c) the Executive is required to
disclose under any applicable laws, regulations or directives of any government
agency, tribunal or authority having jurisdiction in the matter or under
subpoena or other process of law.
7.3. Noncompete. Except as may otherwise be approved in advance by
the Board, (i) for so long as the Executive is (x) employed by the Company, or
(y) receiving salary continuation payments pursuant to Section 4.1.1, and (ii)
in the case of a termination by the Company of the Executive's employment
hereunder for Cause or a resignation by the Executive other than for Good
Reason, continuing for one year after such termination or resignation, the
Executive shall not, directly or indirectly, as a sole proprietor, member of a
partnership, stockholder or investor (other than a stockholder or investor
owning not more than a .05% interest), officer or director of a corporation, or
as an employee, associate, consultant, independent contractor or agent of any
person, partnership, corporation or other business organization or entity other
than the Company or any of its subsidiaries, render any service to or in any way
be affiliated with a competitor (or any person or entity that is reasonably
anticipated (to the general knowledge of the Executive or the public) to become
a competitor) of the Company or any of its subsidiaries or affiliates or
otherwise involved in the businesses in which the Company or any of its
subsidiaries or affiliates is engaged. Notwithstanding anything contained in
this Section 7.3 to the contrary, (a) the period of applicability of this
Section 7.3 shall be extended by an additional day for each day on which the
Executive is in breach hereof and (b) the Board may in its discretion waive the
application of this Section 7.3, including, without limitation, in the event of
the Executive's resignation without Good Reason resulting from a serious family
illness or other serious misfortune.
7.4. Exclusive Property. The Executive confirms that all
confidential information with respect to the Company is and shall remain the
exclusive property of the Company. All business records, papers and documents
kept or made by the Executive relating to the business of the Company shall be
and remain the property of the Company, except for such papers customarily
deemed to be the personal copies of the Executive.
7.5. Injunctive Relief. Without intending to limit the remedies
available to the Company, the Executive acknowledges that a breach of any of the
covenants contained in this Section 7 may result in material and irreparable
injury to the Company and its affiliates and subsidiaries for which there is no
adequate remedy at law, that it will not be possible to measure damages for such
injuries precisely and that, in the event of such a breach or threat thereof,
the Company shall be entitled to seek a temporary restraining order or a
preliminary or permanent injunction restraining the Executive from engaging in
activities prohibited by this Section 7 or such other relief as may be required
specifically to enforce any of the covenants in this Section 7. If for any
reason it is held that the restrictions under this Section 7 are not reasonable
or that consideration
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therefor is inadequate, such restrictions shall be interpreted or modified to
include as much of the duration and scope identified in this Section 7 as will
render such restrictions valid and enforceable.
8. MISCELLANEOUS
8.1. Notices. All notices or communications hereunder shall be in
writing, addressed as follows:
To the Company:
PXRE Reinsurance Company
399 Thornall Street
Edison, New Jersey 08837
Attention: Chief Executive Officer
With a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Attention: F. Sedgwick Browne, Esq.
To the Executive:
Michael J. Toman
909 Foxboro Drive
Norwalk, CT 06851
All such notices shall be conclusively deemed to be received and shall be
effective, (a) if sent by hand delivery or courier service, upon receipt, (b) if
sent by telecopy or facsimile transmission, upon confirmation of receipt by the
sender of such transmission or (c) if sent by registered or certified mail, on
the fifth day after the day on which such notice is mailed.
8.2. Severability. Each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
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8.3. Assignment. The Company's rights and obligations under this
Agreement shall not be assignable by the Company except as incident to a
reorganization, merger or consolidation, or transfer of all or substantially all
the Company's business and properties (or portion thereof in which the Executive
is employed). The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all the business of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Neither this Agreement nor any rights hereunder shall be assignable or otherwise
subject to hypothecation by the Executive.
8.4. Entire Agreement. Except as expressly set forth herein, this
Agreement represents the entire agreement of the parties and shall supersede any
and all previous contracts, arrangements or understandings between the Company
and the Executive. This Agreement may be amended at any time by mutual written
agreement of the parties hereto.
8.5. Withholding. The payment of any amount pursuant to this
Agreement shall be subject to applicable withholding and payroll taxes, and such
other deductions as may be required under the Company's employee benefit plans,
if any.
8.6. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts executed and to be performed entirely within that State.
8.7. Waiver. No waiver by either party of any breach by the other
party of any condition or provision contained in this Agreement to be performed
by such other party shall be deemed a waiver of a similar or dissimilar
condition or provision at the same or any prior or subsequent time. Any waiver
must be in writing and signed by the Executive or an authorized officer of the
Company, as the case may be.
8.8. Headings. The headings of the sections contained in this
Agreement are for convenience of reference only and shall not be deemed to
control or affect the meaning or construction of any provision of this
Agreement.
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8.4. Entire Agreement. Except as expressly set forth herein, this
Agreement represents the entire agreement of the parties and shall supersede any
and all previous contracts, arrangements or understandings between the Company
and the Executive. This Agreement may be amended at any time by mutual written
agreement of the parties hereto.
8.5. Withholding. The payment of any amount pursuant to this
Agreement shall be subject to applicable withholding and payroll taxes, and such
other deductions as may be required under the Company's employee benefit plans,
if any.
8.6. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts executed and to be performed entirely within that State.
8.7. Waiver. No waiver by either party of any breach by the other
party of any condition or provision contained in this Agreement to be performed
by such other party shall be deemed a waiver of a similar or dissimilar
condition or provision at the same or any prior or subsequent time. Any waiver
must be in writing and signed by the Executive or an authorized officer of the
Company, as the case may be.
8.8. Headings. The headings of the sections contained in this
Agreement are for convenience of reference only and shall not be deemed to
control or affect the meaning or construction of any provision of this
Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed and the Executive has hereunto set his hand, as of the day and year
first above written.
PXRE REINSURANCE COMPANY
By Gerald L. Radke
----------------------------
Gerald L. Radke
Chairman, President and
Chief Executive Officer
Date: 6/8/98
----------------------------
EXECUTIVE
By Michael J. Toman
----------------------------
Michael J. Toman
Date: 6/8/98
----------------------------
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<PAGE>
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,
-------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net income $ 2,679 $ 44,253 $ 33,301 $ 39,786 $ 34,829
Equity in earnings of TREX 0 0 (3,898) (5,948) (4,141)
-------- -------- -------- -------- --------
Income before equity in earnings of TREX 2,679 44,253 29,403 33,838 30,688
Income taxes (1,661) 22,198 15,644 18,189 15,700
-------- -------- -------- -------- --------
$ 1,018 $ 66,451 $ 45,047 $ 52,027 $ 46,388
Fixed charges:
Interest expense 10,323 11,508 6,957 7,143 7,789
Appropriated portion (1/3) of rentals 490 378 365 397 308
-------- -------- -------- -------- --------
Total fixed charges 10,813 11,886 7,322 7,540 8,097
-------- -------- -------- -------- --------
Earnings before income taxes and fixed charges $ 11,831 $ 78,337 $ 52,369 $ 59,567 $ 54,485
-------- -------- -------- -------- --------
Preferred dividend requirements $ 0 $ 0 $ 0 $ 599 $ 2,005
-------- -------- -------- -------- --------
Ratio of pre-tax income to net income 0.38 1.50 1.53 1.54 1.51
-------- -------- -------- -------- --------
Preferred dividend factor $ 0 $ 0 $ 0 $ 922 $ 3,028
Total fixed charges 10,813 11,886 7,322 7,540 8,097
-------- -------- -------- -------- --------
Total fixed charges and preferred dividends $ 10,813 $ 11,886 $ 7,322 $ 8,462 $ 11,125
-------- -------- -------- -------- --------
Ratio of earnings to fixed charges 1.09 6.59 7.15 7.90 6.73
-------- -------- -------- -------- --------
Ratio of earnings to combined fixed charges and
preferred dividends 1.09 6.59 7.15 7.04 4.90
-------- -------- -------- -------- --------
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,
1998, 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 11th day of February,
1999.
/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,
1998, 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 11th day of February,
1999.
/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,
1998, 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 11th day of February,
1999.
/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,
1998, 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 11th day of February,
1999.
/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,
1998, 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 11th day of February,
1999.
/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,
1998, 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 11th day of February,
1999.
/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,
1998, 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 11th day of February,
1999.
/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,
1998, 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 11th day of February,
1999.
/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,
1998, 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 11th day of February,
1999.
/s/ WILSON WILDE
-------------------------------------
Wilson Wilde
<PAGE>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<DEBT-HELD-FOR-SALE> 308,658,107
<DEBT-CARRYING-VALUE> 309,477,075
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<EQUITIES> 40,974,283
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<RECOVER-REINSURE> 41,260,657
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0
0
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<INCOME-CONTINUING> 3,521,821
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