Standard & Poor's has lowered its counterparty credit and financial strength ratings on PXRE Ltd and US-based PXRE Co a further two notches to 'BBB-' from 'BBB+'. The agency also said that it had lowered its counterparty credit ratings on holding companies PXRE Group and PXRE Corp to 'BB-' from 'BB+'. All ratings remain on CreditWatch with negative implications.
"The downgrades reflect PXRE's announcement of a writedown of its deferred tax asset, the adverse impact of two counterparties canceling their reinsurance contracts, and an increase in the group's estimated 2005 hurricane losses," explained analyst Steven Ader. Although PXRE's capital and liquidity are sufficient to meet known obligations, its competitive position has materially diminished, as demonstrated by its disclosure that a substantial loss in premium volume could result from current reinsurance clients exercising their right to cancel their reinsurance contracts. This possibility also materially hampers PXRE's financial flexibility, borne from its prospective business opportunities, previously incorporated into the rating. Financial flexibility is further hampered by the group's disclosure that it is currently precluded under Bermuda holding company law from declaring or paying dividends, subject to a shareholder vote in April 2006.
