Moody's Investors Service announced today that it has lowered the insurance financial strength rating of PXRE Reinsurance Company to Baa2 from Baa1
Like downgrades announced yesterday by A.M. Best (to "B-double-plus") and earlier this morning by Standard & Poor's (to "triple-B-plus"), the cut came in the wake of PXRE's announcement yesterday that its hurricane loss estimates had soared.
The range of losses is now $743 million to $788 million, pre-tax–hiking a prior range of estimates, which was $462 million to $477 million.
Moody's also lowered the debt rating of PXRE Capital Trust I to B1 from Ba2, and placed all ratings under review for possible further downgrade.
Moody's said the "magnitude of adverse development" in PXRE's new loss estimates is "outside Moody's rating expectations and raises concerns about the company's risk management practices."
Moody's noted that PXRE has recently put in place several initiatives to improve its risk profile, and that PXRE raised approximately $474 million of capital in October 2005. The New York-based rating agency, however, said that "the potential for further adverse reserve development (given the unusual characteristics of Hurricane Katrina), could place significant pressure on the company's franchise including its future business."
Moody's commented that the ratings would likely be confirmed if several conditions are met. They are:
o Losses remain in line with current estimates.
o The company recapitalizes its balance sheet to an appropriate level.
o The company is successful in implementing its risk management and strategic initiatives
o The business franchise is not impacted.
Moody's last rating action on PXRE was Nov. 14, 2005. Then the rating agency confirmed the ratings of PXRE Reinsurance Co. and PXRE Capital Trust I, following a review for possible downgrade due to the company's announcement of its initial loss estimate for Hurricane Katrina.
Anticipating the downgrades yesterday, PXRE said that "in light of the potential negative impact that adverse rating actions would have on the company's future business, PXRE has decided to explore strategic alternatives for the company." PXRE has retained investment banking firm, Lazard, as its financial advisor to assist in this process.
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