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PXRE requests ratings withdrawal

Troubled Bermudian PXRE announced 11 April that it has requested the withdrawal of its financial strength and issuer credit ratings by the major agencies.

The move is part of the reinsurer’s strategic evaluation process that has followed its downgrade to below the crucial A financial strength rating earlier this year.

President and CEO of PXRE Group Jeffrey Radke said: “After much consideration, we have asked the major rating agencies to withdraw their financial strength and claims paying ratings for PXRE. In the period since the downgrades, we have found that operational ratings below the critical A category provide little value for a reinsurer.”

Rating agency AM Best responded to the request by downgrading PXRE’s financial strength rating to B (Fair) from B+ (Very Good) and its issuer credit ratings to bb from bbb- before withdrawing the ratings altogether on 12 April.

And its rival Standard & Poor’s followed suit, lowering ratings from B+ to BB- and removed them. It said the original 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”.

Last month PXRE revealed that a third of its clients had cancelled contracts on 1/1 in-force business as of 13 March 2006.

In a 16 March SEC filing the Bermudian company said it expects the percentage – 33 percent of clients by premium – will continue to rise.

Radke had already announced that, as of 1 January 2006, over three-quarters of clients had cancellation clauses in contracts, triggered by the fall in ratings or its capital position.

PXRE admitted in February it had under-estimated hurricane exposures by some $330mn – raising them to a new net total of $807mn – in an announcement which triggered downgrades from AM Best and Standard & Poor’s to B+ and BBB- respectively.

In its regulatory filing, the reinsurer added the AM Best downgrade to below A- means that premiums retained by PXRE on a funds withheld basis on some of its ceded excess of loss reinsurance contracts must now be transferred into a trust for the benefit of reinsurers.

As revealed by The Insurance Insider, PXRE has been in talks with Lloyd’s over a possible re-entry to the market, as part of its strategic evaluation. The company is looking at the option of transferring its ongoing business into a new or existing syndicate, where it could take advantage of the market’s A rating.

The reinsurer is also understood to have negotiated a deal with Lloyd’s for “early settlement” of claims outstanding to the market.

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