A $6.3 billion merger between Bermuda-based PXRE Group and Texas-based Argonaut Group will result in a new holding company called Argo Group domiciled in Bermuda.

The new company will control all PXRE’s insurance subsidiaries including the newly formed Peleus Reinsurance as well as Argonaut’s US operations.

The merger deal was made public late yesterday as PXRE also revealed net losses of $19.7 million for the fourth quarter of 2006. The company made a net income for the year of $28.5m.

Details of the multi-billion dollar merger between the giant San Antonio-based property and casualty underwriter and PXRE will be discussed by Argonaut president and chief executive officer Mark Watson III during a joint investor conference call between the two groups scheduled for this morning.

Providing he is given approval by the Island authorities, Mr. Watson will become the president and CEO of the new group. Nine of Argonaut’s present directors will serve as the board of directors of the new entity alongside four from PXRE.

Mr. Watson referred to the merger as “a natural progression in our long-term strategy as a growing specialty underwriter”.

He said: “With combined assets exceeding $5 billion and shareholder’s equity of $1.3bn, plus operations in Bermuda, the US and Europe, we believe Argo Group will be well positioned to develop and grow a sustainable and profitable global business platform.”

According to PXRE boss Jeffrey Radke, the company’s directors for the past year had been conducting a strategic review of the group’s future and concluded the best opportunity to maximise its value was through combining with an established and diversified property and casualty company such as Argonaut.

PXRE’s fourth quarter losses have been attributed mostly to a $17.6 million early commutation of a contract with Atlantic & Western Re and a decrease in net premiums earned due to the cancellation and non-renewal of most of its reinsurance portfolio after the group was given a financial rating downgrade last February in the aftermath of the 2005 hurricane season. During the final quarter of 2005 PXRE had recorded net losses of $446.5 million.

Peleus Re, the new reinsurer created by the merger and named after one of Jason’s Argonauts, will deal in reinsurance for common property and property/catastrophe. It is expected to be given a AM Best rating shortly.

Barbara Bufkin is to leave her post as senior vice president of corporate business development with Argonaut Group to become president of Peleus Re, subject to Bermuda regulatory approval.

Under terms of deal, the merged Argonaut Group shareholders will receive 6.46 shares in the new Argo Group for each of their Argonaut shares.

Once the deal has been completed former Argonaut Group shareholders will control 73 percent for the new group’s common stock, with PXRE’s shareholders controlling 27 percent.

Argonaut Group shareholders can also look forward to a share in an expected $60 million dividend pay out before the merger transaction is completed.

Reporting its fourth quarter results PXRE revealed its net premiums earned for the quarter decreased by 109 percent ($170.2 million) compared with the same period in 2005. The net income for the year of $28.5 million compared with a net loss of $697.6 million in 2005.

The company’s net investment income for the fourth quarter went up two percent ($0.3 million) to $14.9 million compared with the same quarter in 2005, primarily as a result of a $5.5 million increase in income from its short-term portfolio and a $1.5 million decrease in investment expenses, which were offset by losses elsewhere.

After its financial strength downgrade last February PXRE sold $490 million of fixed maturity securities in order to reinvest in short-term investments.