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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________

FORM 10-Q

[ √ ]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005

OR

[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________to _______________

Commission File Number 1-15259

PXRE GROUP LTD.
 (Exact name of registrant as specified in its charter)

Bermuda   98-0214719
(State or other jurisdiction of
incorporation or organization)		   (IRS Employer
Identification Number)
     
PXRE House
110 Pitts Bay Road
Pembroke HM08
Bermuda		   P.O. Box HM 1282
Hamilton HM FX
Bermuda 
(Address, including zip code,
of principal executive offices)		   (Mailing address) 
   
(441) 296-5858  
(Registrant’s telephone number, including area code)  

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   √   No      

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes   √   No      

     As of April 27, 2005, 28,667,279 common shares, $1.00 par value per share, of the Registrant were outstanding.

 

 

PXRE GROUP LTD.

INDEX

PART I.    FINANCIAL INFORMATION

Item 1.
Financial Statements
    
       
 
Consolidated Balance Sheets as of March 31, 2005 and December 31, 2004
 3  
       
 
Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2005 and 2004
 4  
       
 
Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2005 and 2004
 5  
       
 
Consolidated Statements of Cash Flows for the three months ended March 31, 2005 and 2004
 6  
       
 
Notes to Consolidated Financial Statements
 7  
       
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 17  
       
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
 34  
       
Item 4.
Controls and Procedures
 34  
       
PART II.
OTHER INFORMATION
    
       
Item 1.
Legal Proceedings
 34  
       
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.
 34  
       
Item 3.
Defaults Upon Senior Securities
 34  
       
Item 4.
Submission of Matters to a Vote of Security Holders
 34  
       
Item 5.
Other Information
 35  
       
Item 6.
Exhibits
 35  

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PXRE Consolidated Balance Sheets
Group Ltd. (Dollars in thousands, except par value per share)


      March 31,
2005		   December 31,
2004		  
      (Unaudited)        
                 
Assets Investments:              
 
Fixed maturities:
              
 
Available-for-sale (amortized cost $835,389 and $705,204, respectively)
   $ 822,853   $ 701,798  
 
Trading (cost $28,134 and $13,725, respectively)
     29,653     15,483  
 
Short-term investments
     185,837     296,318  
 
Hedge funds (cost $126,314 and $86,549, respectively)
     140,064     129,118  
 
Other invested assets (cost $4,755 and $5,663, respectively)
     5,460     6,823  
 
Total investments
     1,183,867     1,149,540  
  Cash     26,011     15,668  
  Accrued investment income     7,985     8,054  
  Premiums receivable, net     100,796     93,116  
  Other receivables     52,130     35,315  
  Reinsurance recoverable on paid losses     11,803     8,003  
  Reinsurance recoverable on unpaid losses     59,794     61,215  
  Ceded unearned premiums     6,874     3,500  
  Deferred acquisition costs     6,797     1,745  
  Income tax recoverable     25,168     31,594  
  Other assets     47,234     46,666  
 
Total assets
   $ 1,528,459   $ 1,454,416  
                 
Liabilities Losses and loss expenses   $ 460,565   $ 460,084  
  Unearned premiums     53,498     15,952  
  Subordinated debt     167,076     167,075  
  Reinsurance balances payable     14,902     10,937  
  Deposit liabilities     69,091     72,143  
  Payable for securities     21,916     —  
  Other liabilities     26,812     31,670  
 
Total liabilities
     813,860     757,861  
                 
Shareholders’
Equity
Serial convertible preferred shares, $1.00 par value, $10,000 stated value – 10 million shares authorized, 0.01 million and 0.02 million shares issued and outstanding, respectively
     63,371     163,871  
 
Common shares, $1.00 par value – 50 million shares authorized, 28.6 million and 20.5 million shares issued and outstanding, respectively
     28,646     20,469  
  Additional paid-in capital     433,811     329,730  
 
Accumulated other comprehensive income net of deferred income tax benefit of $(2,216) and $(1,616), respectively
     (12,146 )   (4,855 )
  Retained earnings     212,221     194,081  
  Restricted shares at cost (0.5 million and 0.4 million shares, respectively)     (11,304 )   (6,741 )
  Total shareholders’ equity     714,599     696,555  
  Total liabilities and shareholders’ equity   $ 1,528,459   $ 1,454,416  

The accompanying notes are an integral part of these statements.

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PXRE Consolidated Statements of Income and Comprehensive Income
Group Ltd. (Dollars in thousands, except per share amounts)


      Three Months Ended
March 31,		  
      2005     2004  
        (Unaudited)    
                 
Revenues
Net premiums earned
   $ 79,434   $ 68,952  
 
Net investment income
     10,442     6,869  
 
Net realized investment (losses) gains
     (107 )   89  
 
Fee income
     211     599  
        89,980     76,509  
                 
Losses and
Losses and loss expenses incurred
     44,438     18,139  
Expenses
Commissions and brokerage
     9,278     9,172  
 
Operating expenses
     9,377     12,620  
 
Foreign exchange losses
     598     266  
 
Interest expense
     3,610     3,675  
        67,301     43,872  
                 
 
Income before income taxes, cumulative effect of accounting change and convertible preferred share dividends
     22,679     32,637  
 
Income tax (benefit) provision
     (64 )   653  
 
Income before cumulative effect of accounting change and convertible preferred share dividends
     22,743     31,984  
 
Cumulative effect of accounting change, net of $0.2 million tax benefit
     —     (1,053 )
                 
 
Net income before convertible preferred share dividends
   $ 22,743   $ 30,931  
 
Convertible preferred share dividends
     3,369     3,444  
 
Net income available to common shareholders
   $ 19,374   $ 27,487  
                 
                 
Comprehensive
Net income before convertible preferred share dividends
   $ 22,743   $ 30,931  
Income, Net
Net unrealized (depreciation) appreciation on investments
     (7,291 )   5,523  
of Tax
Comprehensive income
   $ 15,452   $ 36,454  
                 
Per Share
Basic:
              
 
Income before cumulative effect of accounting change and convertible preferred share dividends
   $ 1.13   $ 2.38  
 
Cumulative effect of accounting change
     —     (0.08 )
 
Convertible preferred share dividends
     (0.17 )   (0.26 )
 
Net income available to common shareholders
   $ 0.96   $ 2.04  
 
Average shares outstanding (000’s)
     20,200     13,417  
                 
                 
 
Diluted:
              
 
Net income before cumulative effect of accounting change
   $ 0.69   $ 1.22  
 
Cumulative effect of accounting change
     —     (0.04 )
 
Net income
   $ 0.69   $ 1.18  
 
Average shares outstanding (000’s)
     32,980     26,282  

The accompanying notes are an integral part of these statements.

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PXRE Consolidated Statements of Shareholders’ Equity
Group Ltd. (Dollars in thousands)


      Three Months Ended March 31,  
        2005     2004  
        (Unaudited)    
                 
Convertible Balance at beginning of period   $ 163,871   $ 172,190  
Preferred Shares Conversion of convertible preferred shares     (103,869 )   —  
  Dividends to convertible preferred shareholders     3,369     3,444  
 
Balance at end of period
   $ 63,371   $ 175,634  
                 
Common Shares Balance at beginning of period   $ 20,469   $ 13,277  
  Issuance of common shares, net     8,177     824  
 
Balance at end of period
   $ 28,646   $ 14,101  
                 
Additional Balance at beginning of period   $ 329,730   $ 192,078  
Paid-in Capital Issuance of common shares, net     103,713     16,883  
  Tax effect of stock options exercised     368     756  
 
Balance at end of period
   $ 433,811   $ 209,717  
                 
Accumulated Balance at beginning of period   $ (4,855 ) $ 1,692  
Other Comprehensive Change in unrealized (losses) gains     (7,291 )   5,523  
Income
Balance at end of period
   $ (12,146 ) $ 7,215  
                 
Retained Balance at beginning of period   $ 194,081   $ 188,670  
Earnings Net income before convertible preferred share dividends     22,743     30,931  
  Dividends to convertible preferred shareholders     (3,369 )   (3,444 )
  Dividends to common shareholders     (1,234 )   (835 )
 
Balance at end of period
   $ 212,221   $ 215,322  
                 
Restricted Shares Balance at beginning of period   $ (6,741 ) $ (3,391 )
  Issuance of restricted shares     (5,452 )   (6,966 )
  Amortization of restricted shares     889     1,350  
 
Balance at end of period
   $ (11,304 ) $ (9,007 )
                 
Total Balance at beginning of period   $ 696,555   $ 564,516  
Shareholders’ Conversion of convertible preferred shares     (103,869 )   —  
Equity Issuance of common shares, net     111,890     17,707  
  Restricted shares, net     (4,563 )   (5,616 )
  Unrealized (depreciation) appreciation on investments, net of deferred              
  income tax     (7,291 )   5,523  
  Net income before convertible preferred share dividends     22,743     30,931  
  Dividends to common shareholders     (1,234 )   (835 )
  Tax effect of stock options exercised     368     756  
 
Balance at end of period
   $ 714,599   $ 612,982  

The accompanying notes are an integral part of these statements.

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PXRE Consolidated Statements of Cash Flows
Group Ltd. (Dollars in thousands)
   
      Three Months Ended
March 31,		  
        2005     2004  
        (Unaudited)   
                 
Cash Flow Premiums collected, net of reinsurance   $ 109,891   $ 91,716  
from Operating Loss and loss adjustment expenses paid, net of reinsurance     (46,336 )   (20,505 )
Activities Commission and brokerage paid, net of fee income     (13,819 )   (8,613 )
  Operating expenses paid     (10,945 )   (13,096 )
  Net investment income received     7,303     2,908  
  Interest paid     (5,794 )   (5,796 )
  Income taxes recovered (paid)     7,186     (1,252 )
  Trading portfolio purchased     (14,396 )   —  
  Deposit paid     (3,052 )   (4,775 )
  Other     (16,802 )   (11,317 )
 
Net cash provided by operating activities
     13,236     29,270  
                 
                 
Cash Flow Fixed maturities available for sale purchased     (187,990 )   (174,949 )
from Investing Fixed maturities available for sale disposed or matured     56,546     102,470  
Activities Hedge funds purchased     (105,352 )   —  
  Hedge funds disposed     98,805     5,028  
  Other invested assets disposed     1,367     891  
  Net change in short-term investments     110,481     (20,592 )
  Payable for securities     21,916     (18 )
 
Net cash used by investing activities
     (4,227 )   (87,170 )
                 
                 
Cash Flow Proceeds from issuance of common shares     3,129     11,382  
from Financing Cash dividends paid to common shareholders     (1,234 )   (835 )
Activities Cost of shares repurchased     (561 )   (643 )
 
Net cash provided by financing activities
     1,334     9,904  
                 
  Net change in cash     10,343     (47,996 )
  Cash, beginning of period     15,668     65,808  
  Cash, end of period   $ 26,011   $ 17,812  
                 
  Reconciliation of net income to net cash provided by operating activities:        
  Net income before convertible preferred share dividends   $ 22,743   $ 30,931  
 
Adjustments to reconcile net income to net cash provided by operating activities:
              
 
Losses and loss expenses
     481     (13,955 )
 
Unearned premiums
     34,172     20,572  
 
Deferred acquisition costs
     (5,052 )   (34 )
 
Receivables
     (24,496 )   7,685  
 
Reinsurance balances payable
     3,965     (4,900 )