PXRE Estimates Rita Impact at $30-$40 Million; Sees Q3, Full Year Loss

The Bermuda-based PXRE Group Ltd. has announced that its preliminary estimate of the net impact from Hurricane Rita is between $30 and $40 million, “after tax, reinsurance recoveries on its outwards reinsurance program and the impact of reinstatement premiums.”

PXRE said that based on its preliminary estimate of losses from Hurricane Rita and its previously announced preliminary range of losses from Hurricane Katrina (See IJ Website Sept. 20), it “now expects to report a net loss of $125 to $220 million for 2005, assuming no additional material catastrophes occur during the rest of 2005.

“For the quarter ending September 30, 2005, PXRE expects to report a net loss of between $230 to $320 million, which is expected to result in a diluted book value range of approximately $13.10 to $15.75 per share as of September 30, 2005.”

PXRE cautioned that those estimates “are primarily based on modeling and a review of all exposed reinsurance contracts.” The bulletin noted that it has “received a very limited number of loss notices from clients with respect to Hurricane Rita,” although it has begun to receive loss notices relating to Katrina. The Company said, however, that “most of these notices are precautionary in nature with no supporting loss information.”

Expanding on the loss notification problem, PXRE stressed 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 adjustors, make our estimates subject to a higher level of uncertainty than normal.”

The bulletin also alluded to the growing concerns that the complex claims from Katrina and Rita will provoke extensive litigation. PXRE said: “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.

“The ultimate impact of losses from Hurricane Katrina and Hurricane Rita on the Company’s results of operations might therefore differ substantially from the Company’s current estimates.”