PXRE has reported a $7.2 million loss for the opening three months of 2007.

The Bermuda company is in the process of merging with the giant Texas-based Argonaut Group in a move that will create a group with a combined market capitalisation of just over $1.6 billion.

The merger is expected to be finalised in the third quarter of this year.

PXRE suffered heavy losses as a result of hurricanes Katrina, Rita and Wilma in 2005 and made a profit of just $28.5m last year. For the final quarter of 2006 it turned in a $19.7m loss as PXRE went into a state of underwriting limbo and became involved in merger negotiations.

The company did not underwrite any new reinsurance contracts during the first quarter of the year, however its underwriters have started gathering business for a new vehicle Peleus Re, which accounts for the negative premiums recorded against PXRE as $3.2m of ceded premiums and $2m of adjustments on prior-year reinstatement premiums being utilised by Peleus Re.

During the first three months of 2007, PXRE's gross premiums written fell to a negative $2m figure from $121m over the same period in 2006. Jeffrey Radke, PXRE president and chief executive officer, said: "The most significant events to occur this quarter were the conclusion of our strategic process with the agreement to merge with Argonaut Group and the formation of Peleus Reinsurance, our newly established "A-" rated Bermuda platform.

"The merger process is proceeding and we have now made the required regulatory filings with the various state insurance departments and have filed a preliminary registration statement and joint proxy with the Securities & Exchange Commission.

"We currently expect the merger to close in the third quarter of 2007. Peleus Re has commenced operations and we expect to begin to underwrite a small and controlled book of property reinsurance business during the upcoming June and July renewals."