NEW YORK (Reuters) — Bermuda-based PXRE Group Ltd.
NEW YORK (Reuters) — Bermuda-based PXRE Group Ltd. yesterday said it would take a $17.6-million charge after defaulting on a catastrophe bond payment.The reinsurer, in a regulatory filing, said its failure to make a payment on February 8 was likely to trigger an early termination of the contract.
PXRE’s contract, one of two catastrophe bond transactions it negotiated in late 2005, provided it protection from extreme catastrophe losses arising from hurricanes in the US, windstorms in northern Europe and earthquakes in California over a five-year period.
Catastrophe bonds, commonly referred to as “cat” bonds, are raised in the fixed-income market and pay bondholders rates higher than most other similarly-rated bonds, unless a major disaster occurs. In that case, investors give up their interest and principal to pay the insurers’ claims.
PXRE said it could face an additional $35.8 million charge related to the second catastrophe bond transaction if its pursuit of strategic alternatives were not successful.
PXRE shares fell more than 3 percent to $4.34 a share before recovering to $4.55 late in Friday’s session. They have lost nearly two-thirds of their value over the past year — most of it last February, when surging hurricane losses led to several credit agency downgrades that raised questions about its ability to manage risk.
In a quarterly filing with the US Securities and Exchange Commission last November, PXRE said in addition to a charge for early termination of its catastrophe bond transactions, it would have to make all payments up to the date of termination.
The company did not respond to telephone calls seeking information on how much more it might owe under the first agreement, or what bearing the early termination would have on bondholders, if any.
PXRE, which is in the high-risk business of providing reinsurance protection to other reinsurers, has floundered since being hit by large hurricane losses in 2004 and 2005.
In 2006 PXRE lost most of its clients after its losses led to severe credit rating cuts, and it effectively stopped selling policies.
Reinsurers sell policies that allow other insurers to spread the risk of losses in contracts sold to individuals and corporations.
