Bermuda-based reinsurer PXRe's future was up in the air last night after it said its losses from last year's hurricane season could be $311 million or 65 percent higher than its previous estimate and a ratings agency moved quickly to cut the company's financial strength rating.

PXRe, which sells a broad range of reinsurance including policies to other reinsurers, said before A.M. Best cut its rating from A- to BBB that it was looking at "strategic alternatives" in the expectation that a ratings chop could deal a blow to its business prospects.

The reinsurer's shares, which closed down one cent at $11.89 on the New York Stock Exchange, plunged in after hours trading, losing almost 70 percent of their value in less than two hours to drop $8.08 or 67.96 percent to 3.81 by 6.22 p.m. last night.

PXRe said claims from last year's Hurricane Katrina and other major storms are likely to rise by up to $311 million more than it previously estimated.

PXRe had previously estimated that it would, on a pre-tax basis, pay out between $462 million to $477 million for claims from Hurricanes Katrina, Rita and Wilma. Katrina claims alone accounted for $383 million of the total. The company also said it was working to recover any tax benefits materialising out of the losses.

The company said it had been notified that the adverse development to its loss estimate "will likely have a negative impact" on its A- financial strength rating.

Less than half an hour after making the announcement, ratings agency A.M. Best said it was downgrading PXRe from A- to BBB and was cutting its issuer credit rating from "a-" to "bbb".

Best also cut the ratings for PXRe's operating subsidiaries and assinged a negative outlook to all ratings, meaning they could be cut further.

The agency said: "As a result of the magnitude and composition of this most recent loss revision and with consideration of the company's longer-term track record, A.M. Best now has greater concern regarding PXRE's risk management capability. The most recent range of loss increase accounts for over 60 percent of reported actual shareholder's equity on September 30, 2005, which resulted in a deterioration of PXRE's risk-adjusted capital position."

A company that sees its financial strength rating fall below A- can lose customers. Reinsurance buyers are heavily dependant on a company's rating when deciding who to buy from. Generally an A- or better rating from firms, such as A.M. Best and Standard & Poor's that track the financial strength of companies, is looked for.

"We believe this and the strength of our franchise will allow us to continue trading with many of our clients and brokers without ratings in the 'A' range," chief executive Jeffrey Radke said, but he admitted the company's business could suffer and PXRe had decided to explore strategic alternatives. It has retained Lazard as a financial advisor, he said.

"PXRe has taken steps that substantially improve our risk profile, including increased reinsurance coverage, reducing our peak zone exposure and reducing our exposure to certain large events and second events through catastrophe bond transactions," he added. "In light of these steps and our strong track record, we are disappointed by the expected rating agency action."

He said the ratings agencies recognised PXRe was taking steps to reduce its risk profile, but were of the view that its book of business may be too volatile, or too exposed to risk of loss, for a rating in the 'A' range.

Mr. Radke said PXRe was pleased that rates paid for reinsurance coverage during January renewals, a pivotal business period for the reinsurance sector, were higher.