Standard & Poor's Rating Service has lowered the financialstrength rating of Hamilton, Bermuda-based PXRE Group, Ltd., afterthe company reported a $446.5 million loss for the fourth quarterof 2005.

S&P lowered the financial strength and counterparty creditratings of PXRE Reinsurance Ltd. and U.S.-based PXRE Reinsurance to"triple-B-minus" from "triple-B-plus." The rating agency alsolowered the counterparty credit ratings on holding companies PXREGroup Ltd. and PXRE Corp. to "double-B-minus" from"double-B-plus."

S&P said all of these ratings remain on credit watch withnegative implications.

"The downgrades reflect PXRE's announcement of a writedown ofits deferred tax asset, the adverse impact of two counterpartiescanceling their reinsurance contracts, and an increase in thegroup's estimated 2005 hurricane losses," said Steven Ader, anS&P credit analyst.

Mr. Ader disclosed that a substantial loss in premium volumecould result from current reinsurance clients exercising theirright to cancel their reinsurance contracts. He continued thatalthough PXRE's capital and liquidity are sufficient to meet knownobligations, the company's competitive position has materiallydiminished. The possibility of cancellations, he said, alsomaterially hampers the carrier's financial flexibility.

Financial flexibility, S&P said, is further hampered by thegroup's disclosure that it is currently precluded under Bermuda lawfrom declaring or paying dividends, subject to a shareholder votein April 2006.

PXRE reported Wednesday a net loss before convertible preferredshare dividends for the fourth quarter of $446.5 million, comparedwith net income of $33 million for the same period in 2004.Revenues in the quarter increased 76 percent, or $68 million, from$89 million to $157 million.

For the year, the net loss was $698 million, compared with netincome of $23 million in 2004. Revenues on the year rose 25percent, or $84 million, from $336 million to $420 million.

The total net loss for PXRE from the three hurricanes (Katrina,Rita and Wilma), after reinsurance recoveries, was $807million.

In a statement, Jeffrey L. Radke, president and chief executiveofficer of PXRE, said the company remains financially sound despiteits losses and will be able to meet its financial obligations toclients.

He said there is sufficient liquidity to meet the company'sneeds and it has taken a number of steps to meet futurecontingencies.

Last week, Fitch Ratings downgraded PXRE insurer financialstrength from "triple-B-plus" to "double-B-plus" and placed thecompany on rating watch.