PXT Pxre Grp. Ltd

HAMILTON, Bermuda, Aug. 6 /PRNewswire-FirstCall/ -- PXRE Group Ltd. (NYSE:PXT) today announced results for the second quarter ended June 30, 2007. Notable items for the quarter included: -- On a fully diluted basis, book value per share decreased during the quarter by $0.18 to $6.12 at June 30, 2007 -- Net loss before convertible preferred share dividends was $11.6 million for the second quarter of 2007 compared to net income before convertible preferred share dividends of $2.1 million for the second quarter of 2006 -- On a fully diluted basis, book value per share decreased during the first six months of 2007 by $0.29 to $6.12 at June 30, 2007 -- Net loss before convertible preferred share dividends was $18.8 million for the first six months of 2007 compared to net income before convertible preferred share dividends of $43.8 million for the first six months of 2006 All conditions to the closing of the pending merger between PXRE and Argonaut Group have been satisfied and the merger transaction is expected to close shortly. The net loss before convertible preferred shares for the second quarter of 2007 was largely due to a decrease in net premiums earned, as virtually all of the policies written by the Company in 2006 expired as of December 31, 2006. Additionally, PXRE has written only a limited number of new property catastrophe reinsurance contracts during the second quarter of 2007 through its newly formed Bermuda subsidiary Peleus Reinsurance Ltd. Net premiums earned in the second quarter of 2007 decreased 146%, or $22.4 million, to negative $7.1 million from $15.3 million for the same period of 2006. The negative net premiums earned in the second quarter of 2007 are the result of $5.9 million of ceded premiums earned primarily on two multi-year ceded reinsurance treaties, which will be utilized by Peleus Re in future periods, and $1.2 million of adjustments of prior-year reinstatement premiums and estimated premiums receivable. Revenues and Net Premiums Earned Three Months Ended Six Months Ended ($000's) June 30, June 30, 2007 2006 Change % 2007 2006 Change % Revenues $5,764 $25,206 (77) $12,041 $115,737 (90) Net Premiums Earned: Cat & Risk Excess $(7,139) $15,442 (146) $(12,347) $92,438 (113) Exited 28 (133) 121 42 (42) 200 $(7,111) $15,309 (146) $(12,305) $92,396 (113) Net premiums written in the second quarter of 2007 increased 102%, or $28.4 million, to $0.5 million from negative $27.9 million for the same period of 2006 due to the fact that PXRE has written a limited number of new property catastrophe reinsurance contracts during the second quarter of 2007. Net Premiums Written Three Months Ended Six Months Ended ($000's) June 30, June 30, 2007 2006 Change % 2007 2006 Change % Net Premiums Written: Cat & Risk Excess $454 $(27,772) 102 $(16,098) $51,034 (132) Exited 28 (134) 121 42 (47) 189 $482 $(27,906) 102 $(16,056) $50,987 (131) Net investment income for the second quarter of 2007 decreased 1%, or $0.1 million, to $13.1 million for the three months ended June 30, 2007 from $13.2 million in the comparable period of 2006. The slight decrease in net investment income was due to a $3.1 million decrease in income from our fixed maturity and short-term investment portfolios, which was caused by a decrease in invested assets attributable to cash flow used principally for the payment of claims. The net return on the fixed maturity and short-term investment portfolios increased to 5.3% for the second quarter of 2007, on an annualized basis, compared to 5.1% during the comparable prior year period due to improved yields throughout the portfolio. This decrease in income from our fixed maturity and short-term investment portfolios was offset by a $2.4 million decrease in investment expenses as a result of the commutation of several reinsurance contracts that required PXRE to credit interest to the counterparties to these transactions, when these contracts were in place in 2006, and a $0.6 million increase in income from our hedge fund and other invested asset portfolios during the second quarter of 2007. As previously communicated, PXRE submitted redemption notices for its entire hedge fund portfolio in February 2006, and as a result income from hedge funds will continue to decrease in future quarters as we receive the remaining proceeds from our various hedge fund investments. As of June 30, 2007 we have received redemption proceeds from 99.4% of the hedge fund assets held as of December 31, 2005 and the balance is expected to be received in full by the end of 2007. Net realized investment losses for the second quarter of 2007 were $0.2 million compared to $3.4 million for the second quarter of 2006. For both periods the losses were caused by write-downs of investment securities due to other than temporary impairment charges. The Company had losses and loss expenses incurred for the quarter of $1.0 million. The losses and loss expenses incurred were almost entirely due to net adverse development on prior-year losses and loss expenses during the quarter. Losses and loss expenses incurred in the second quarter of 2006 were $0.9 million. There were no significant property catastrophe losses during the second quarter of both 2007 and 2006. Operating expenses decreased 13%, or $1.5 million, to $9.9 million in the second quarter of 2007 compared to $11.4 million in the second quarter of 2006 principally due to reduced human resource and facility related costs. On a fully diluted basis, book value per share decreased for the second quarter of 2007 by $0.18 to $6.12 at June 30, 2007 primarily due to the net loss in the quarter. During the second quarter of 2007, PXRE recorded a change in net after-tax unrealized depreciation in investments of $2.1 million in other comprehensive income. PXRE - with operations in Bermuda, Europe and the United States - provides reinsurance products and services to a worldwide marketplace. The Company's primary focus is providing property catastrophe reinsurance and retrocessional coverage. The Company also provides marine, aviation and aerospace products and services. The Company's shares trade on the New York Stock Exchange under the symbol "PXT." PXRE Group Ltd. will conduct an investor call on Tuesday, August 7, 2007 at 9:00 a.m. Eastern Time. The conference call can be accessed by visiting the investor relations section of PXRE Group's Web page, which can be found at http://www.pxre.com/. The dial-in numbers are (800) 289-0544, passcode 6741562, for U.S. and Canadian callers and (913) 981-5533 for international callers, passcode 6741562. Following the conclusion of the presentation, the webcast replay of the conference call will be available online approximately one hour after the call's completion at http://www.pxre.com/ or by telephone at (888) 203-1112, passcode 6741562. International callers can access the conference call replay by dialing (719) 457-0820, passcode 6741562. Quarterly financial statements are expected to be available on the Company's website under the press release section of News and Events on August 7, 2007. To request other printed investor material from PXRE or additional copies of this news release, please call (441) 296-5858, send e-mail to , or visit http://www.pxre.com/. Statements in this release that are not strictly historical are forward- looking and are based upon current expectations and assumptions of management. Statements included herein, as well as statements made by or on behalf of PXRE 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, identified by words such as "intend," "believe," "anticipate," or "expects" or variations of such words or similar expressions are based on current expectations, speak only as of the date thereof, and are subject to risk and uncertainties. In light of the risks and uncertainties inherent in all future projections, the forward-looking statements in this report should not be considered as a representation by us or any other person that the Company's objectives or plans will be achieved. The Company 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) we face risks related to our proposed merger with Argonaut; (ii) if the merger with Argonaut is not completed, unless the Board of Directors identifies and implements a different operating strategic solution, we will not write or earn any material premiums in the future and, as a result, we expect to incur material operating losses since our remaining revenue is insufficient to cover our projected operating and other expenses; (iii) if the merger is not consummated, we may not be able to identify or implement a strategic alternative for PXRE; (iv) if the merger is not consummated and our Board of Directors concludes that no other feasible strategic alternative would be in the best interests of our shareholders, it may determine that the best course of action is to place the reinsurance operations of PXRE into runoff and eventually commence an orderly winding up and liquidation of PXRE operations over some period of time that is not currently determinable; (v) if the merger is not consummated and the Board of Directors elects to pursue a strategic alternative that does not involve the continuation of meaningful property catastrophe reinsurance business, there is a risk that the Company could incur additional material charges or termination fees in connection with our collateralized catastrophe facility and certain multiyear ceded reinsurance agreements; (vi) our ability to continue to operate our business, consummate the merger and to identify, evaluate and complete any other strategic alternative is dependent on our ability to retain our management and other key employees, and we may not be able to do so; (vii) adverse events in 2006 negatively have affected the market price of our common shares, which may lead to further securities litigation, administrative proceedings or both being brought against us; (viii) reserving for losses includes significant estimates, which are also subject to inherent uncertainties; (ix) because of potential exposure to catastrophes in the future, our financial results may vary significantly from period to period; (x) we operate in a highly competitive environment and no assurance can be given that we will be able to compete effectively in this environment; (xi) reinsurance prices may decline, which could affect our profitability; (xii) we may require additional capital in the future; (xiii) our investment portfolio is subject to significant market and credit risks which could result in an adverse impact on our financial position or results; (xiv) we have exited the finite reinsurance business, but claims in respect of finite reinsurance could have an adverse effect on our results of operations; (xv) our reliance on reinsurance brokers exposes us to their credit risk; (xvi) we may be adversely affected by foreign currency fluctuations; (xvii) retrocessional reinsurance subjects us to credit risk and may become unavailable on acceptable terms; (xviii) we have exhausted our retrocessional coverage with respect to Hurricane Katrina, leaving us exposed to further losses; (xix) recoveries under our collateralized facility are triggered by modeled loss to a notional portfolio, rather than our actual losses arising from a catastrophe event, which creates a potential mismatch between the risks assumed through our inwards reinsurance business and the protection afforded by this facility; (xx) our inability to provide the necessary collateral could affect our ability to offer reinsurance in certain markets; (xxi) the insurance and reinsurance business is historically cyclical, and we may experience periods with excess underwriting capacity and unfavorable premium rates; conversely, we may have a shortage of underwriting capacity when premium rates are strong; (xxii) regulatory constraints may restrict our ability to operate our business; (xxiii) any determination by the United States Internal Revenue Service ("IRS") that we or our offshore subsidiaries are subject to U.S. taxation could result in a material adverse impact on the our financial position or results; and (xxiv) any changes in tax laws, tax treaties, tax rules and interpretations could result in a material adverse impact on our financial position or results. 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, the loss of key employees and other factors set forth in PXRE's SEC filings. The factors listed above should not be construed as exhaustive. Therefore, actual results or outcomes may differ materially from what is expressed or forecasted in such forward- looking statements. PXRE undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events (including catastrophe events), or otherwise. PXRE Group Ltd. Unaudited Financial Highlights (Dollars in thousands except per share amounts) Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 Gross premiums written ($474) ($22,098) ($2,553) $99,287 Net premiums written $482 ($27,906) ($16,056) $50,987 Revenues $5,764 $25,206 $12,041 $115,737 Losses and expenses (17,261) (23,066) (30,734) (71,985) (Loss) income before income taxes and convertible preferred share dividends (11,497) 2,140 (18,693) 43,752 Income tax expense 68 - 69 - Net (loss) income before convertible preferred share dividends ($11,565) $2,140 ($18,762) $43,752 Net (loss) income per diluted common share ($0.18) $0.01 ($0.29) $0.57 Average diluted shares outstanding (000's) 72,147 71,986 72,095 77,025 Average diluted shares outstanding when antidilutive (000's) 72,147 71,986 72,095 - June 30, Dec. 31, 2007 2006 Cash and investments $1,022,074 $1,216,392 Total assets 1,168,748 1,401,343 Reserve for losses and loss expenses 425,343 603,241 Shareholders' equity 476,086 496,767 Book value per common share (1) 6.12 6.41 Statutory surplus: Peleus Reinsurance Ltd. 214,550 (2) - PXRE Reinsurance Ltd. 386,423 (2) 564,209 (3) PXRE Reinsurance Company 138,994 (4) 137,974 Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 GAAP Ratios: (5) Loss ratio NM 5.6% NM 20.2% Expense ratio NM 104.5% NM 41.8% Combined ratio NM 110.1% NM 62.0% Losses Incurred by Segment: Cat & Risk Excess $493 $1,654 ($4,070) $17,533 Exited 475 (804) 1,856 1,117 $968 $850 ($2,214) $18,650 Commission and Brokerage, Net of Fee Income by Segment: (6) Cat & Risk Excess ($62) $4,336 ($474) $16,078 Exited 11 267 12 229 ($51) $4,603 ($462) $16,307 Underwriting (Loss) Income by Segment: (7) Cat & Risk Excess ($7,570) $9,452 ($7,803) $58,827 Exited (458) 404 (1,826) (1,388) ($8,028) $9,856 ($9,629) $57,439 Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 Underwriting (Loss) Income Reconciled to (Loss) Income Before Income Taxes and Convertible Preferred Share Dividends: Underwriting (loss) income (7) ($8,028) $9,856 ($9,629) $57,439 Net investment income 13,078 13,249 26,758 31,161 Net realized investment losses (219) (3,379) (2,491) (8,038) Other fee income - - 45 - Other reinsurance related expense (2,965) (2,255) (4,738) (5,976) Operating expenses (9,937) (11,392) (21,778) (22,357) Foreign exchange gains (losses) 199 (338) 377 (1,265) Interest expense (3,625) (3,601) (7,237) (7,212) (Loss) income before income taxes and convertible preferred share dividends ($11,497) $2,140 ($18,693) $43,752 (1) After considering convertible preferred shares. (2) Estimated and before inter-company eliminations. (3) Before inter-company eliminations. (4) Estimated. (5) The loss ratio, expense ratio and combined ratio are not meaningful for the three and six months ended June 30, 2007. (6) Commission and Brokerage, Net of Fee Income by Segment excludes fee income earned by a consulting subsidiary. (7) Underwriting (Loss) Income by Segment (a GAAP financial measure): The Company's reported underwriting results are its best measure of profitability for its individual underwriting segments and accordingly are disclosed in the footnotes to the Company's financial statements required by SFAS 131, Disclosures about Segments of an Enterprise and Related Information. Underwriting (Loss) Income by Segment is calculated by subtracting losses and loss expenses incurred and commission and brokerage, net of fee income from net earned premiums. PXRE does not allocate net investment income, net realized investment gains (losses), other fee income, other reinsurance related expense, operating expenses, foreign exchange gains or losses, or interest expense to its respective underwriting segments. These preliminary financial statements are unaudited and do not include footnotes that customarily accompany a complete set of financial statements; these footnotes will be furnished when the Company makes its filing on Form 10-Q for the quarter ended June 30, 2007. PXRE Consolidated Balance Sheets Group Ltd. (Dollars in thousands, except par value per share) June 30, December 31, 2007 2006 (Unaudited) Assets Investments: Fixed maturities, at fair value: Available-for-sale (amortized cost $461,714 and $502,307, respectively) $460,858 $502,254 Trading (cost $12,848 and $14,794, respectively) 13,720 15,497 Short-term investments, at fair value 532,229 671,197 Hedge funds, at fair value (cost $762 and $11,583, respectively) 1,077 12,766 Other invested assets, at fair value (cost $1,068 and $1,717, respectively) 1,722 2,427 Total investments 1,009,606 1,204,141 Cash 12,468 12,251 Accrued investment income 3,806 3,830 Premiums receivable, net 57,391 93,325 Other receivables 6,192 7,321 Reinsurance recoverable on paid losses 4,861 3,324 Reinsurance recoverable on unpaid losses 34,874 35,327 Ceded unearned premiums 4,375 - Deferred acquisition costs 76 8 Other assets 35,099 41,816 Total assets $1,168,748 $1,401,343 Liabilities Losses and loss expenses $425,343 $603,241 Unearned premiums 737 113 Subordinated debt 167,095 167,089 Reinsurance balances payable 8,930 34,649 Deposit liabilities 52,001 54,425 Income tax payable 575 597 Other liabilities 37,981 44,462 Total liabilities 692,662 904,576 Shareholders' Equity Serial convertible preferred shares, $1.00 par value, $10,000 stated value -- 30 million shares authorized, 0.01 million and 0.01 million shares issued and outstanding, respectively 58,132 58,132 Common shares, $1.00 par value -- 350 million shares authorized, 72.6 million and 72.4 million shares issued and outstanding, respectively 72,568 72,351 Additional paid-in capital 873,824 873,142 Accumulated other comprehensive loss (650) (100) Accumulated deficit (524,798) (503,711) Restricted shares at cost (0.4 million and 0.4 million shares, respectively) (2,990) (3,047) Total shareholders' equity 476,086 496,767 Total liabilities and shareholders' equity $1,168,748 $1,401,343 PXRE Consolidated Statements of Operations and Comprehensive Operations Group (Dollars in thousands, except per share amounts) Ltd. Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 (Unaudited) Revenues Net premiums earned $(7,111) $15,309 $(12,305) $92,396 Net investment income 13,078 13,249 26,758 31,161 Net realized investment losses (219) (3,379) (2,491) (8,038) Fee income 16 27 79 218 5,764 25,206 12,041 115,737 Losses and Expenses Losses and loss expenses incurred 968 850 (2,214) 18,650 Commission and brokerage (35) 4,630 (428) 16,525 Other reinsurance related expense 2,965 2,255 4,738 5,976 Operating expenses 9,937 11,392 21,778 22,357 Foreign exchange (gains) losses (199) 338 (377) 1,265 Interest expense 3,625 3,601 7,237 7,212 17,261 23,066 30,734 71,985 (Loss) income before income taxes and convertible preferred share dividends (11,497) 2,140 (18,693) 43,752 Income tax provision 68 - 69 - Net (loss) income before convertible preferred share dividends $(11,565) $2,140 $(18,762) $43,752 Convertible preferred share dividends 1,162 1,375 2,325 2,538 Net (loss) income to common shareholders $(12,727) $765 $(21,087) $41,214 Comprehensive Operations, Net of Tax Net (loss) income before convertible preferred share dividends $(11,565) $2,140 $(18,762) $43,752 Net change in unrealized depreciation on investments (2,278) (4,087) (3,037) (11,715) Reclassification adjustments for losses included in net (loss) income 215 3,374 2,487 8,033 Minimum additional pension liability - - - 123 Comprehensive (loss) income $(13,628) $1,427 $(19,312) $40,193 Per Share Basic: (Loss) income before convertible preferred share dividends $(0.16) $0.03 $(0.26) $0.61 Net (loss) income to common shareholders $(0.18) $0.01 $(0.29) $0.57 Average shares outstanding (000's) 72,147 71,986 72,095 71,927 Diluted: Net (loss) income $(0.18) $0.01 $(0.29) $0.57 Average shares outstanding (000's) 72,147 71,986 72,095 77,025 PXRE Consolidated Statements of Shareholders' Equity Group (Dollars in thousands) Ltd. Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 (Unaudited) Convertible Preferred Shares Balance at beginning and end of period $58,132 $58,132 $58,132 $58,132 Common Shares Balance at beginning of period $72,588 $72,410 $72,351 $72,281 (Cancellation) issuance of common shares, net (20) (2) 217 127 Balance at end of period $72,568 $72,408 $72,568 $72,408 Additional Paid-in Capital Balance at beginning of period $873,929 $875,228 $873,142 $875,224 (Cancellation) issuance of common shares, net (105) (580) 682 (576) Balance at end of period $873,824 $874,648 $873,824 $874,648 Accumulated Other Comprehensive Operations Balance at beginning of period $1,413 $(8,314) $(100) $(5,468) Change in unrealized losses on investments (2,063) (713) (550) (3,682) Change in minimum additional pension liability - - - 123 Balance at end of period $(650) $(9,027) $(650) $(9,027) (Accumulated Deficit) Balance at beginning of period $(512,071) $(486,900) $(503,711) $(527,349) Net (loss) income before convertible preferred share dividends (11,565) 2,140 (18,762) 43,752 Dividends to convertible preferred shareholders (1,162) (1,375) (2,325) (2,538) Balance at end of period $(524,798) $(486,135) $(524,798) $(486,135) Restricted Shares Balance at beginning of period $(3,694) $(6,846) $(3,047) $(7,502) Cancellation (issuance) of restricted shares, net 204 743 (825) 603 Amortization of restricted shares 500 615 882 1,411 Balance at end of period $(2,990) $(5,488) $(2,990) $(5,488) Total Shareholders' Equity Balance at beginning of period $490,297 $503,710 $496,767 $465,318 (Cancellation) issuance of common shares, net (125) (582) 899 (449) Restricted shares, net 704 1,358 57 2,014 Unrealized depreciation on investments (2,063) (713) (550) (3,682) Minimum additional pension liability - - - 123 Net (loss) income before convertible preferred share dividends (11,565) 2,140 (18,762) 43,752 Dividends to convertible preferred shareholders (1,162) (1,375) (2,325) (2,538) Balance at end of period $476,086 $504,538 $476,086 $504,538 PXRE Consolidated Statements of Cash Flows Group (Dollars in thousands) Ltd. Three Months Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 (Unaudited) Cash Flows from Operating Activities Premiums collected, net of reinsurance $(17,383) $(6,157) $(5,841) $136,501 Losses and loss adjustment expenses paid, net of reinsurance (47,496) (139,269) (176,768) (402,590) Commission and brokerage (paid) received, net of fee income (247) 4,179 41 (4,816) Operating expenses paid (10,782) (14,560) (23,042) (27,701) Net investment income received 11,959 9,472 24,075 27,400 Interest paid (1,372) (1,360) (7,166) (7,154) Income taxes (paid) recovered - (123) (91) 91 Trading portfolio purchased - (52,175) - (101,714) Trading portfolio disposed 2,042 52,445 2,042 92,566 Deposit liabilities paid (1,462) (8,275) (2,424) (11,812) Other 488 (726) (2,521) (3,607) Net cash used by operating activities (64,253) (156,549) (191,695) (302,836) Cash Flows from Investing Activities Fixed maturities available for sale purchased (43,099) (47) (43,248) (67,038) Fixed maturities available for sale disposed or matured 66,658 34,304 82,491 603,837 Hedge funds purchased - - - (4,000) Hedge funds disposed 4,893 104,248 12,173 117,364 Other invested assets purchased - (35) - (35) Other invested assets disposed 654 598 1,410 1,171 Net change in short- term investments 38,001 19,704 138,968 (342,334) Payable for securities - 100 - 100 Net cash provided by investing activities 67,107 158,872 191,794 309,065 Cash Flows from Financing Activities Proceeds from issuance of common shares 124 162 217 419 Cash dividends paid to preferred shareholders - (1,375) - (2,538) Cost of shares repurchased - - (99) (263) Net cash provided (used) by financing activities 124 (1,213) 118 (2,382) Net change in cash 2,978 1,110 217 3,847 Cash, beginning of period 9,490 17,241 12,251 14,504 Cash, end of period $12,468 $18,351 $12,468 $18,351 Reconciliation of net (loss) income to net cash used by operating activities: Net (loss) income before convertible preferred share dividends $(11,565) $2,140 $(18,762) $43,752 Adjustments to reconcile net (loss) income to net cash used by operating activities: Losses and loss expenses (44,639) (168,131) (177,898) (478,217) Unearned premiums 7,593 (43,215) (3,751) (41,408) Deferred acquisition costs (76) 9,825 (68) 5,106 Receivables 7,706 24,902 37,063 102,161 Reinsurance balances payable (25,043) (2,365) (25,719) (7,916) Reinsurance recoverable (1,889) 29,711 (1,084) 59,125 Income taxes 68 (123) (22) 91 Equity in earnings of limited partnerships (654) (167) (1,188) (6,039) Trading portfolio purchased - (52,175) - (101,714) Trading portfolio disposed 2,042 52,445 2,042 92,566 Deposit liability (1,462) (8,275) (2,424) (11,812) Receivable on commutation - - - 35,154 Other 3,666 (1,121) 116 6,315 Net cash used by operating activities $(64,253) $(156,549) $(191,695) $(302,836) DATASOURCE: PXRE Group Ltd. CONTACT: Robert P. Myron, Chief Financial Officer, PXRE Group Ltd., +1-441-296-5858, ; or Investors, Jamie Tully or Lesley Bogdanow, Sard Verbinnen & Co, +1-212-687-8080, , for PXRE Group Ltd. Web site: http://www.pxre.com/

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