Fitch Ratings said on Friday it was keeping embattled Bermuda reinsurer PXRE on ratings watch, citing continued uncertainty about the company?s future viability.

Fitch made the announcement after PXRE posted net income before convertible preferred share dividends of $2.1 million in the second quarter of 2006 compared to $43.5 million in the second quarter of 2005.

PXRE has taken steps to facilitate a runoff after more than 80 percent of its 2006 business cancelled or did not renew as a result of ratings downgrades related to PXRE?s losses from last year?s hurricanes.

As of August 1, 2006, approximately 82 percent of PXRE?s in force business that was in effect on January 1, 2006 either been cancelled or non-renewed, Jeffrey Radke, president & chief executive officer of PXRE Group said in the company?s earnings statement.

He said he expected this percentage to increase as additional contracts are non-renewed, while PXRE?s board continues to look for a strategic alternative that would maximise value for shareholders.

Mr. Radke said if no alternative is in shareholder?s best interests, the board may place PXRE?s reinsurance business into runoff and eventually commence an orderly winding up of PXRE?s operations.

Fitch said it believes such actions often signal a distressed situation and potential run off. Additionally, the company is in the process of replacing its current advisor, Lazard Ltd., with a new firm due to Lazard?s expiring engagement and staffing changes.

Fitch also cited concerns regarding the company?s ability to continue to operate profitably given its increased expenses, reduced premium base, and the potential for inadequately set reserves, saying the level of non-renewals means PXRE has limited financial flexibility going forward.

The rating agency noted that it had originally placed the ratings on Rating Watch Negative on February 17, following PXRE?s announcement that the company had increased its pre-tax net loss estimates for hurricanes Katrina, Rita, and Wilma by $281 million-$311 million and decided to explore strategic alternatives.

Fitch concurrently downgraded the Insurer Financial Strength (IFS) rating on PXRE?s lead operating subsidiaries, PXRE Reinsurance Ltd. and PXRE Reinsurance Company, to ?BB+? from ?BBB+?.?

The rating organisaton did find some positive elements in the second quarter.

?PXRE did not experience material adverse loss reserve development related to its 2005 hurricane losses, and its catastrophe risk continues to be reduced since a large amount of its premium base has non-renewed or cancelled.?

Fitch said it expects this will continue to be the trend. Fitch also noted that capital has increased slightly since year end December 31, 2005.