PXRE Estimates Katrina Impact at $235 to $300 Million; Sees 2005 Loss
The Bermuda-based PXRE Group Ltd. has updated its estimates of potential losses from Hurricane Katrina to between $235 to $300 million, “after tax, reinsurance recoveries on its outwards reinsurance program and the impact of inwards and outwards reinstatement and additional premiums.” The estimate is based on total industry loss estimates of $30 to $40 billion.
In light of these estimates, PXRE said it now “expects to report a net loss of $85 to $165 million for 2005, assuming no additional material catastrophes occur during the rest of 2005.”
The Company said the “updated preliminary estimate of its net loss from Hurricane Katrina is based on extensive modeling, a ground-up review of all exposed reinsurance contracts and numerous discussions with PXRE’s clients.” It warned, however that it is difficult “to accurately estimate losses in the immediate aftermath of any major catastrophe. Moreover, the unique circumstances of Hurricane Katrina, including the unprecedented level of flooding and limited access by claims adjusters, make our estimates subject to a higher level of uncertainty than normal. In addition, further uncertainty is created by potential legal and regulatory issues, including potential extra contractual liability for flooding and extremely complex and unique causation and coverage issues associated with the attribution of losses to wind or flood damage or other perils such as fire, business interruption or civil commotion. To date, the Company has only received a limited number of written loss notices. PXRE will continue to monitor the situation and provide additional updates as necessary.”
President and CEO Jeffrey L. Radke commented: “Since we announced our initial loss estimates, our retrocessional underwriters were able to meet with a number of our retrocessional cedents during the Monte Carlo Rendezvous industry conference and our North American underwriters have continued to have discussions and meet with our North American property catastrophe and risk excess cedents. We have also continued our internal modeling work and have analyzed the further output by third party modeling firms. As result of these continuing efforts and the significant uncertainties surrounding the impact of Hurricane Katrina, PXRE now believes that it is prudent to expand our range of reasonably likely insured industry losses to a range of $30 to $40 billion, which represents an increase in the upper end of our prior $30 to $35 billion industry loss range.”
Radke also noted the “Monte Carlo Rendezvous also provided us with significant feedback on Katrina’s likely impact on reinsurance markets. Based on our market discussions, we now expect to see substantial increases in rates and limitations in coverage for each of the lines of business we write. We expect the scope of these changes to be at least as pronounced in our lines of business as those experienced after other market-changing events such as the World Trade Center disaster in 2001 and Hurricane Andrew in 1992.”
All three rating agencies have placed PXRE’s ratings under review, following the loss estimates from Katrina. The company has also announced a $300 million debt issue shelf registration (see IJ Website Sept.19).
Commenting on the debt issue, Fitch Ratings said it “views the potential capital as a positive credit event.” It also noted that “in the past, major insurance losses have spurred significant increases in insurance prices, which PXRE could be in a position to capitalize on, depending on the capital raised and ultimate net loss from Katrina. The speed with which PXRE will be able to successfully raise capital will be an indication of the capital market’s confidence in both PXRE’s organization and future reinsurance pricing.” Fitch nonetheless kept the ratings under review