S&P’s withdraws PXRE ratings

After receiving ratings downgrades from Standard & Poor’s Rating Services, management at PXRE Group Ltd. (NYSE:PXT) has requested S&P’s withdraw its ratings on the Company and its affiliates.
PXRE Group and PXRE Corp.’s counterparty credit ratings were recently lowered by S&P’s to ‘BB-‘ from ‘B+.’ In addition, S&P’s removed the ratings on PXRE Group and PXRE Corp. from the CreditWatch negative rating that was placed on Feb. 16, 2006.
PXRE’s Capital Trust I preferred stock, supported by deferrable subordinated debt from PXRE Corp., was also recently lowered by S&P’s to ‘CCC+’ from ‘B-.’ In addition, S&P’s lowered its counterparty credit and financial strength ratings on Bermuda-based PXRE Reinsurance Ltd. and U.S.-based PXRE Reinsurance Co. (PXRE U.S.; collectively referred to as PXRE) to ‘BB+’ from ‘BBB-.’
S&P’s report included a stable outlook on all these ratings.
Upon management’s request, S&P’s withdrew the ratings on PXRE Reinsurance Ltd., PXRE U.S., and PXRE Group Ltd. However, S&P’s says its ratings on PXRE Capital Trust I’s preferred stock and its guarantor, PXRE Corp., were not withdrawn because the preferred shares remain in the public domain, and thus are subject to continued monitoring.
“The downgrades reflect our concern of the potential that the selective cancellation of reinsurance contracts by PXRE’s clients could result in PXRE’s exposures being concentrated in certain zones, thus resulting in a mismatch between current and prospective exposures and reinsurance protection relative to the capital base,” S&P’s credit analyst Steven Ader says. “Specifically, a significant catastrophic event in an exposed zone could result in material losses without an appropriate premium base in terms of both total amount and diversification by exposure location to offset these losses, resulting in a greater financial impact than if none of the clients cancelled their coverage.”
This risk, Ader says, is further exacerbated by weak financial flexibility that is borne from a materially diminished competitive position. Ader is concerned this compromised position may result in a questionable ability for PXRE to raise capital in response to any adverse industry or company events.
In the opinion of S&P’s the ratings on PXRE reflect adequate capital adequacy and liquidity that was recently bolstered by the successful liquidation of the fixed-income investment portfolio at PXRE Reinsurance Ltd. in March 2006.
However, S&P’s indicates offsetting factors that include a materially diminished competitive position, weak financial flexibility, and the potential for adverse selection and exposure concentration triggered by PXRE’s clients exercising their right to cancel their reinsurance contracts.
The stable outlook incorporates S&P’s expectation that PXRE’s capital and liquidity are supportive of their current obligations.