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================================================================================

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                ----------------

                                    FORM 10-K

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

                                ----------------

For the fiscal year ended December 31, 1998       Commission File Number 0-15428

                                PXRE CORPORATION

             (Exact name of registrant as specified in its charter)

                Delaware                                  06-1183996
      (State or other jurisdiction of                   (IRS Employer
      incorporation or organization)               Identification Number)

                         399 Thornall Street, 14th Floor
                                Edison, NJ 08837
                            Telephone: (732) 906-8100

     (Address including zip code, and telephone number, including area code
                  of registrant's principal executive offices)

Securities registered pursuant to Section 12(b) of the Act: COMMON STOCK, par
value $0.01 per share

Securities registered pursuant to Section 12(g) of the Act: NONE

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, and (2) has been subject to such filing requirements
for the past 90 days.

            Yes |X|                         No |_|

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|

The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of March 19, 1999 computed by reference to
the closing price of such common equity as of the close of business on March 19,
1999 was $232,676,257. As of March 19, 1999, 11,856,115 shares of the
registrant's common stock were issued and outstanding.

================================================================================


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                       DOCUMENTS INCORPORATED BY REFERENCE

Part III          Portions of PXRE Corporation's definitive Proxy Statement for
                  the Annual Meeting of Shareholders to be held on June 3, 1999.

Part IV           Portions of PXRE Corporation's Proxy Statement dated April 30,
                  1997.

Part IV           Portions of PXRE Corporation's Proxy Statement dated May 3,
                  1995.

Part IV           Portions of PXRE Corporation's Proxy Statement dated April 23,
                  1993.

Part IV           Portions of PXRE Corporation's Proxy Statement dated April 12,
                  1991.

Part IV           Portions of PXRE Corporation's Proxy Statement dated April 13,
                  1990.


<PAGE>

<PAGE>


                                     PART I

Item 1. Business

Overview

      PXRE Corporation ("PXRE") is a Delaware holding company, with national and
international underwriting and service operations, which conducts its business
primarily through its principal operating subsidiaries, PXRE Reinsurance Company
("PXRE Reinsurance"), PXRE Managing Agency Limited ("PXRE Managing Agency"),
PXRE Limited and Transnational Insurance Company ("Transnational Insurance").

      PXRE Reinsurance is both a brokerage market reinsurer and a direct writing
reinsurer with approximately $447 million of policyholders' surplus which
principally underwrites treaty and facultative reinsurance for property
(including marine and aerospace) and short tail casualty risks. PXRE Reinsurance
is licensed or authorized to transact business in 41 states and the District of
Columbia, Puerto Rico and Mexico and operates a branch in Belgium ("PXRE's
Brussels Branch").

      PXRE Managing Agency manages PG Butler Syndicate 1224 ("PXRE Lloyd's
Syndicate") at Lloyd's of London ("Lloyd's") which has initial underwriting
capacity of approximately ('L')35 million ($58 million at December 31, 1998
exchange rates). PXRE Limited, which carries on business as a corporate member
of Lloyd's, is the sole member of PXRE Lloyd's Syndicate. PXRE Lloyd's Syndicate
underwrites specialty types of insurance and reinsurance (including short tail
excess of loss medical coverages and personal accident business as well as
catastrophe related coverages, marine and aerospace reinsurance and facultative
reinsurance) on a worldwide basis. Underwriting premium volume and loss
experience related to the business of PXRE Lloyd's Syndicate is included in
PXRE's consolidated results on a one quarter lag basis, commencing in the
quarter ended June 30, 1997.

      Transnational Insurance is an excess and surplus lines carrier
specializing in non-standard and excess property insurance risks. Currently,
Transnational Insurance, which is a wholly-owned subsidiary of PXRE Reinsurance,
has over $100 million of capital and is eligible to write business on a surplus
lines basis in 36 states and the District of Columbia, Guam and the U.S. Virgin
Islands.

      PXRE also employs its property and casualty underwriting expertise to
generate management fee income by managing business for other insurers and
reinsurers. See "Business--Retrocessional Agreements." The term "PXRE," as used
herein, refers to one or more of PXRE Reinsurance, PXRE Managing Agency, PXRE
Lloyd's Syndicate and Transnational Insurance in discussions of these entities'
business and refers to PXRE Corporation in all other circumstances.


                                      -2-


<PAGE>

<PAGE>


History

      PXRE was organized in July 1986 by Phoenix Home Life Mutual Insurance
Company ("Phoenix Home Life") to succeed, through PXRE Reinsurance, to the
property and casualty reinsurance business carried on since 1982 by Phoenix
General Insurance Company, formerly a wholly-owned subsidiary of Phoenix Home
Life. As of March 19, 1999, Phoenix Home Life owned 5.17% of the outstanding
common stock of PXRE.

      In November 1993, PXRE sponsored the initial public offering of
Transnational Re Corporation ("TREX") to raise capital and take advantage of
favorable conditions in the worldwide retrocessional reinsurance market. PXRE,
through PXRE Reinsurance, retained a 21% ownership position in TREX and had
responsibility for the day-to-day operations of TREX, including all the
reinsurance operations of its subsidiary, Transnational Reinsurance Company
("Transnational Reinsurance").

      On December 11, 1996, PXRE completed the merger of TREX with and into PXRE
(the "Merger"), pursuant to which each share of common stock of TREX was
converted into the right to receive 1.0575 shares of PXRE common stock.
Following the Merger, Transnational Reinsurance became a wholly-owned subsidiary
of PXRE Reinsurance and was re-named Transnational Insurance Company. The Merger
has been accounted for using the purchase method of accounting; therefore net
income of TREX (including Transnational Reinsurance/Transnational Insurance) has
been included in PXRE's consolidated results of operations from the date of the
Merger.

      In December 1996, PXRE completed the organization of PXRE Managing Agency
and PXRE Lloyd's Syndicate, thereby establishing a direct presence in the
Lloyd's market.

      In September 1997, PXRE and Phoenix Home Life completed the formation of a
joint venture, Cat Bond Investors L.L.C. ("Cat Bond Investors"), with an initial
committed capital of $20 million. The joint venture specializes in investing in
instruments the returns on which are determined, in whole or in part, by the
nature, magnitude and/or effect of certain catastrophic events or meteorological
conditions.

      In the first quarter of 1998, PXRE's newly established excess and surplus
lines carrier, Transnational Insurance, commenced underwriting operations,
specializing in non-standard and excess property insurance risks.

      In June 1998, PXRE announced the addition of direct writing and
international teams, composed of eight direct writing reinsurance professionals
and three international reinsurance executives, respectively. The direct writing
team operates as the Direct Treaty Division of PXRE Reinsurance which provides
reinsurance on a direct basis (directly with the primary company) primarily on
short tail casualty and, to a lesser extent, non-catastrophe related property
business.


                                      -3-


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<PAGE>


The international team's focus is property and short tail casualty reinsurance
in the brokerage market. Subsequently in 1998, PXRE further strengthened its
Direct Treaty Division, and has also strengthened PXRE Managing Agency and
PXRE's Brussels Branch, with the successful recruitment of additional
reinsurance professionals.

Ratings

      PXRE Reinsurance is rated "A" (Excellent) by A.M. Best Company ("A.M.
Best"), an independent insurance industry rating organization which rates
insurance companies based upon factors of concern to policyholders. PXRE Lloyd's
Syndicate enjoys the benefit of ratings of Lloyd's, which has been rated "A"
(Excellent) by A.M. Best and has been assigned an A+ claims paying ability
rating by Standard & Poor's Corporation ("S&P"). Transnational Insurance is
rated "A" (Excellent) by A.M. Best. These ratings are based upon factors that
may be of concern to policyholders, agents and intermediaries, but may not
reflect the considerations applicable to an investment in a reinsurance or
insurance company. A change in any such rating is in the discretion of the
respective rating agencies.


                                      -4-


<PAGE>

<PAGE>


General

      PXRE, through its subsidiaries, is principally engaged in providing treaty
and facultative reinsurance to primary insurers and other reinsurers (also known
as ceding companies) of commercial and personal property risks and short tail
casualty risks. Since its formation more than a decade ago, PXRE has specialized
in property reinsurance, including a strong focus on catastrophe- related
products. In mid-1998 PXRE added new reinsurance lines and expanded its
capabilities in existing areas, including establishing a direct writing
reinsurance unit to complement its existing brokerage-based reinsurance
operations and offering excess of loss short tail casualty products (including
general liability, commercial auto and personal auto) for casualty markets in
which PXRE had not previously had a significant presence. These steps are
expected over time to reduce the volatility associated with PXRE's catastrophe
coverages which are expected to fall below 50% of gross premiums written in
1999. In consideration for providing reinsurance, PXRE receives a share of the
premiums written by the ceding company. In certain instances, PXRE in turn
purchases reinsurance protection from other reinsurers pursuant to
retrocessional agreements and surrenders to such reinsurers a portion of the
premiums it receives from ceding companies.

      Reinsurance provides ceding companies with three principal benefits:
reducing net exposure on individual risks, protecting against catastrophic
losses and maintaining acceptable regulatory ratios. Retrocessions provide
reinsurers with similar benefits. Reinsurance, including retrocessions, does not
legally discharge the reinsured from its liability with respect to its
obligations to the policyholder.

      PXRE writes property and casualty treaty and property facultative business
both through reinsurance brokers and on a direct basis.

      In treaty reinsurance, the reinsurer and the ceding company negotiate a
contractual arrangement which reinsures a specified portion of a type or
category of risk. In the underwriting of treaty reinsurance, the reinsurer does
not separately evaluate each individual risk assumed, and in general depends on
the original underwriting decisions made by the ceding company. Such dependence
subjects the reinsurer to the risk that the primary insurer has not adequately
determined the risk to be reinsured and, accordingly, the premium ceded to the
reinsurer in connection therewith may not adequately compensate the reinsurer
for the risk assumed. Treaty reinsurance contributed approximately 94.4% of
PXRE's gross premiums written in 1998.


                                      -5-


<PAGE>

<PAGE>


      Treaty reinsurance can be written on either a pro rata or an excess of
loss basis. In pro rata reinsurance, the reinsurer agrees, in return for a
percentage of the premiums, to share in a proportional amount of the losses up
to the limit, if any, of the reinsurance agreement. Premiums that the ceding
company pays to the reinsurer are proportional to the premiums that the ceding
company receives, and the reinsurer generally pays the ceding company a ceding
commission to reimburse the ceding company for the expenses incurred in
obtaining the business. In excess of loss treaty reinsurance, the reinsurer
indemnifies the ceding company for a portion of the losses on underlying
policies which exceed a specified loss retention amount up to an amount
specified in the reinsurance agreement. Premiums paid by the ceding company for
excess of loss coverage may not be directly proportional to the premiums on the
underlying policies because the reinsurer does not assume a proportional share
of the underlying risk.

      Excess of loss treaty reinsurance can, in turn, be written on a per risk
or catastrophe basis. Per risk excess of loss reinsurance protects the ceding
company against a loss resulting from a single risk or location. Catastrophe
excess of loss reinsurance protects a ceding company from an accumulation of a
large number of related losses resulting from a variety of risks which may occur
in a given catastrophe, and hence is a highly volatile business.
Catastrophe-related coverages include catastrophe coverage provided to ceding
insurance companies and retrocessional catastrophe coverage provided to other
reinsurers. Catastrophe-related coverages have represented the majority of
PXRE's gross premiums written during the past three fiscal years.

      Facultative reinsurance is the reinsurance of individual risks; rather
than an agreement to reinsure a specified portion of a type or category of risk,
the reinsurer separately rates and underwrites each risk. In some cases, risks
covered by facultative reinsurance are those excluded from coverage by treaty
reinsurance. Facultative reinsurance contributed only approximately 3.3% of
PXRE's gross premiums written in 1998.

      PXRE also writes primary insurance business primarily through
Transnational Insurance, specializing in non-standard and excess property risks.

      PXRE also manages business for other insurers and reinsurers thereby
generating management fee income. During 1998, PXRE earned $2,172,000 in
management fees. See "Business--Retrocessional Agreements."


                                      -6-


<PAGE>

<PAGE>


Mix of Business

      PXRE's mix of business on a gross premiums written basis is set forth in
the following table for the periods indicated:

                     Distribution of Gross Premiums Written

<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                         =======================================================================================
                                                    As Reported                                  Pro Forma (1)
                         -----------------------------------------------------------------    ------------------
                                1998                   1997                    1996                  1996
                         -------------------    ------------------     -------------------    ------------------

Type of Business         Amount      Percent    Amount     Percent     Amount      Percent    Amount     Percent
----------------         ------      -------    ------     -------     ------      -------    ------     -------
                                                       (in thousands, except percentages)
<S>                     <C>            <C>     <C>            <C>     <C>            <C>     <C>            <C>  
Property Treaty
Reinsurance:
  Catastrophe-Related   $ 83,166       61.1%   $ 85,285       67.6%   $ 78,013       68.2%   $100,589       69.8%
  Marine & Aerospace      14,440       10.6      11,408        9.0      15,619       13.7      19,644       13.6
  Risk Excess              7,762        5.7      11,592        9.2       9,278        8.1      12,316        8.6
  Medical and Other        9,396        6.9       4,328        3.4          --         --          --         --
  Pro Rata                 8,266        6.1       7,636        6.1       3,126        2.7       3,126        2.2
Property Facultative
Reinsurance                4,569        3.3       5,983        4.7       8,312        7.3       8,312        5.8
Property Insurance         3,072        2.3          --         --          --         --          --         --
                        --------   --------    --------   --------    --------   --------    --------   --------
       Total Property   $130,671       96.0%   $126,232      100.0%   $114,348      100.0%   $143,987      100.0%
                        --------   --------    --------   --------    --------   --------    --------   --------
Casualty Treaty
Reinsurance:
   Risk Excess               864        0.6          --         --          --         --          --         --
   Pro Rata                4,680        3.4          --         --          --         --          --         --
                        --------   --------    --------   --------    --------   --------    --------   --------
       Total Casualty      5,544        4.0          --         --          --         --          --         --
                        --------   --------    --------   --------    --------   --------    --------   --------
       Total            $136,215      100.0%   $126,232      100.0%   $114,348      100.0%   $143,987      100.0%
                        ========   ========    ========   ========    ========   ========    ========   ========
</TABLE>

----------
(1)   PXRE and TREX merged on December 11, 1996. Results for 1998 and 1997
      therefore reflect the consolidated operations and business of PXRE and
      TREX combined, whereas the 1996 results under purchase accounting reflect
      the historical results of PXRE as reported, excluding TREX prior to
      December 11, 1996. For comparative purposes the distribution of gross
      premiums written is also presented for 1996 as if PXRE and TREX had merged
      at January 1, 1996.


                                      -7-


<PAGE>

<PAGE>


      Although catastrophe-related coverages experienced substantial
improvements in pricing from 1993 to 1994 and other terms following high levels
of catastrophic loss activity experienced by the worldwide reinsurance industry,
coverage terms have been deteriorating since the beginning of 1995. In response,
PXRE has been moving to layers of risk that are less affected by competitive
pressures, or reducing commitments when necessary, which has resulted in the
contraction in premium volume for catastrophe-related coverages over the periods
indicated.

      Marine and aerospace premium volume increased in 1998 due to an increase
in satellite coverage premium volume, while premium volume for marine coverages
continued to decline.

      PXRE wrote a small number of property risk excess contracts in 1996 and
1997. The decline in risk excess business in 1998 reflects primarily the
cancellation of one of those contracts in 1998.

      Medical and Other constitutes a new line of business derived from PXRE
Lloyd's Syndicate. Medical consists predominantly of short tail medical expense
business providing protection to U.S. based self-funded single employer benefit
trusts. Coverage protects the trust against large individual claims or an
abnormally high frequency of claims. "Other" is primarily personal accident
business which covers individuals and groups against death or disablement
resulting from accident or sickness. The portfolio includes white collar
accident, travel package and protection to U.S. workers' compensation writers
against large individual or catastrophic claims arising from accident or injury
while at work.

      Treaty pro rata business in 1998 and 1997 primarily represents insurance
business within binding authorities written through PXRE Lloyd's Syndicate and
new business written by the new international team. Management had deemphasized
property pro rata business because competition among reinsurers for such
business and the levels of premium rates charged by primary insurers for
property insurance had adversely impacted the profitability of such business. In
addition, pro rata business incurred substantial losses from Hurricane Andrew in
1992, reflecting the vulnerability of these lines of business to a major
catastrophic event.

      Property facultative reinsurance premium volume represented approximately
3% of PXRE's gross premiums written for 1998, compared to 5% in 1997 and 7% (6%
on a pro forma basis) in 1996, reflecting decreased premium volume in the United
States. The property facultative operation in the United States was closed in
1998.

      Property insurance is comprised principally of non-standard and excess of
loss property insurance risks written by Transnational Insurance which commenced
underwriting operations in 1998.

      While PXRE only entered the casualty market with short tail excess of loss
casualty products in the latter half of 1998, such product offerings are
expected to constitute an increased percentage of PXRE's gross premiums written
in 1999.


                                      -8-


<PAGE>

<PAGE>


Retrocessional Agreements

      The following table sets forth certain information regarding the volume of
premiums PXRE has ceded to other reinsurers pursuant to retrocessional
agreements for the periods indicated:

                                                 Year Ended December 31,
                                  ----------------------------------------------
                                             As Reported            Pro Forma(1)
                                  ------------------------------    ------------
                                    1998       1997       1996          1996
                                  --------   --------   --------      --------
                                                 (in thousands)

Gross premiums written            $136,215   $126,232   $114,348      $143,987
                                                                     
Reinsurance premiums ceded:                                          
                                                                     
  Managed business participants     21,542     16,534     21,238        21,238
                                                                     
  Catastrophe coverage              25,979      9,643      5,427         6,145
                                                                     
  TREX Management Agreement(2)           0          0     19,965             0
                                  --------   --------   --------      --------
    Total reinsurance premiums                                       
    ceded                           47,521     26,177     46,630        27,383
                                  --------   --------   --------      --------
Net premiums written              $ 88,694   $100,055   $ 67,718      $116,604
                                  ========   ========   ========      ========

----------
(1)   PXRE and TREX merged on December 11, 1996. Results for 1998 and 1997
      therefore reflect the consolidated operations and business of PXRE and
      TREX combined, whereas the 1996 results under purchase accounting reflect
      the historical results of PXRE as reported, excluding TREX prior to
      December 11, 1996. For comparative purposes the volume of premiums PXRE
      ceded to other reinsurers is also presented for 1996 as if PXRE and TREX
      had merged at January 1, 1996.

(2)   Consists of premiums written by PXRE and retroceded to Transnational
      Reinsurance as required by the management agreement to which such
      companies were parties prior to the Merger. See "Business--TREX Management
      Agreement."

      PXRE has been able to increase its underwriting commitments and to
generate management fee income by retroceding some of its underwritten risks to
other reinsurers through various retrocessional arrangements whereby it manages
business for such participants. In 1998, PXRE was a party to three such
arrangements. The first such arrangement, which is subject to renewal each
January 1 and which has been renewed effective January 1, 1999, is referred to
as the AMA. The AMA is a pool consisting of a number of insurance companies (the
"Pool"), for which PXRE acts as reinsurance manager. In 1998, the Pool was
comprised of Merrimack Mutual Fire Insurance Company, Pennsylvania Lumbermens
Mutual Insurance Company, NRMA Insurance Limited and Auto-Owners Insurance
Company. It is PXRE's policy that in order to join the Pool, companies must have
a rating by A.M. Best of "A-" or better, other than foreign companies, most of
which (including the foreign participant in the AMA) are not rated by A.M. Best.
Under the terms of the agreements governing the Pool, if a participating
company's rating falls below "A-", it generally will be required to withdraw
from the Pool in the following year. PXRE receives, as reinsurance manager, a
commission based on premiums ceded, as well as a contingent profit commission
equal to a percentage of any ultimate underwriting profits in connection with
the


                                      -9-


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<PAGE>


reinsurance ceded. The contingent profit commission is paid over a three-year
period and is subject to adjustment based on cumulative experience.

      The second such retrocessional arrangement, which was renewed effective
January 1, 1999, is with Trenwick America Reinsurance Corporation ("Trenwick
Group"). PXRE receives, as reinsurance manager, a management fee based on
premiums ceded, as well as a contingent profit commission equal to a percentage
of any ultimate underwriting profits in connection with the reinsurance ceded.
The contingent profit commission is paid over a three-year period and is subject
to adjustment based on cumulative experience. Trenwick Group is currently rated
"A+" (Superior) by A.M. Best.

      The third such retrocessional arrangement is with Select Reinsurance Ltd.,
a Bermuda reinsurer, formerly Investors Reinsurance Ltd., a Barbados reinsurer
("Select Re"). This arrangement, which was renegotiated in 1998, involves a
five-year fee based undertaking by PXRE to produce and underwrite business with
Select Re. The undertaking, which is subject to adjustment based on Select Re's
shareholders' equity, was approximately $10.6 million in aggregate premium for
1998 and is expected to be at least $20 million for 1999. PXRE receives an
override commission on premiums ceded to Select Re. Because Select Re is not
licensed in any jurisdiction in the United States, the retrocessional
arrangement provides that a trust fund, letters of credit and other security
arrangements satisfactory to PXRE be established by Select Re for the benefit of
PXRE to secure Select Re's obligations. The Board of Directors of Select Re
includes PXRE's Chief Executive Officer.


                                      -10-


<PAGE>

<PAGE>


      The following table sets forth PXRE's earned commissions from
retrocessionaires pursuant to its three managed business arrangements (not
including Transnational Reinsurance) for the periods indicated:

                                                     Year Ended December 31,
                                              ----------------------------------
                                                1998          1997         1996
                                              -------       -------      -------
                                                        (in thousands)

Commission                                    $ 2,247       $   879      $ 1,043
Contingent profit commission(1)                   (75)        2,127        2,477
                                              -------       -------      -------
  Total                                       $ 2,172       $ 3,006      $ 3,520
                                              =======       =======      =======

----------
(1)   Contingent profit commission is paid over a three-year period and is
      subject to adjustment based on cumulative experience under the AMA and
      Trenwick Group arrangements and prior to 1998 under the arrangement with
      Select Re.

      PXRE also purchases catastrophe retrocessional coverage for its own
protection, depending on market conditions. PXRE significantly increased its
purchases of such coverage in 1998 in light of the continued general
deterioration in catastrophe reinsurance pricing and the opportunity to buy
protection at more favorable terms than in prior years. In 1998, opportunistic
purchases of catastrophe retrocessional protection increased catastrophe written
premiums ceded partially due to a change in the payment mode, in part due to
reinstatement premiums associated with Hurricane Georges and in part due to
additional coverage associated with new operations. PXRE's property business is
protected by a series of retrocessional agreements which currently provide
protection principally against unusual severity of loss and are not designed to
protect PXRE's exposure to smaller, more frequent loss occurrences.

      PXRE has a committee consisting of its chief executive officer and senior
underwriting executives responsible for the selection of reinsurers as managed
business participants or as participating reinsurers in the catastrophe coverage
protecting PXRE. Proposed reinsurers are evaluated at least annually based on
consideration of a number of factors including the management, financial
statements and the historical experience of the reinsurer. This procedure is
followed whether or not a rating has been assigned to a proposed reinsurer by
any rating organization. All reinsurers, whether obtained through direct contact
or the use of reinsurance intermediaries, are subject to approval by PXRE.

      At December 31, 1998, estimated losses recoverable (including incurred but
not reported losses) from retrocessionaires were $41,261,000 including
$7,911,000 of paid loss recoverables. Since its inception, PXRE has had minimal
amounts of uncollectible reinsurance. It may not be appropriate to extrapolate
future experience from such historical experience. In the event that
retrocessionaires are unable to meet their contractual obligations, PXRE would
be liable for such defaulted amounts.


                                      -11-


<PAGE>

<PAGE>


TREX Management Agreement

      From November 8, 1993 until the Merger, PXRE Reinsurance was party to a
management agreement (the "TREX Management Agreement") with TREX and
Transnational Reinsurance. Under the TREX Management Agreement, PXRE Reinsurance
had responsibility for the day-to-day operations of TREX and Transnational
Reinsurance, including all the reinsurance operations of Transnational
Reinsurance, and Transnational Reinsurance shared in certain specified business
of PXRE and Transnational Reinsurance paid PXRE Reinsurance an annual basic
management fee under the TREX Management Agreement equal to 5% of gross premiums
written as reflected in Transnational Reinsurance's statutory quarterly and
annual statements filed with state insurance authorities. TREX and Transnational
Reinsurance also paid all expenses directly attributable to them. PXRE's earned
management fees from Transnational Reinsurance pursuant to the TREX Management
Agreement were $2,512,000 for 1996.

      The TREX Management Agreement was terminated in December, 1996. Effective
December 11, 1996, PXRE Reinsurance entered into a new management agreement (the
"Transnational Management Agreement") with Transnational Insurance under which
PXRE Reinsurance provides various organizational, operational and management
services. Under the Transnational Management Agreement, expenses attributable to
Transnational Insurance are allocated to Transnational Insurance at cost.

Loss Liabilities and Claims

      PXRE establishes losses and loss expense liabilities (to cover expenses
related to settling claims, including legal and other fees) to provide for the
ultimate cost of settlement and administration of claims for losses, including
claims that have been reported to it by its reinsureds and claims for losses
that have occurred but have not yet been reported to PXRE. Under United States
generally accepted accounting principles ("GAAP"), PXRE is not permitted to
establish loss reserves until an event which may give rise to a claim occurs.

      For reported losses, PXRE establishes liabilities when it receives notice
of the claim. It is PXRE's general policy to establish liabilities for reported
losses in an amount equal to the


                                      -12-


<PAGE>

<PAGE>


liability set by the reinsured. In certain instances, PXRE will conduct an
investigation to determine if the amount established by the reinsured is
appropriate or if it should be adjusted.

      For incurred but not reported losses, a variety of methods have been
developed in the insurance industry for use in determining such liabilities. In
general, these methods involve the extrapolation of reported loss data to
estimate ultimate losses. PXRE's loss calculation methods generally rely upon a
projection of ultimate losses based upon the historical patterns of reported
loss development. Additionally, PXRE makes provision through its liabilities for
incurred but not reported losses for any identified deficiencies in the
liabilities for reported losses set by its reinsureds.

      PXRE's management believes that its overall liability for losses and loss
expenses maintained as of December 31, 1998 is adequate. Because of the inherent
uncertainty in the reserving process, however, there is a risk that PXRE's
liability for losses and loss expenses could prove to be greater than expected
in any year, with a consequent adverse impact on future earnings and
stockholders' equity. Estimating the ultimate liability for losses and loss
expenses is an imprecise science subject to variables that are influenced by
both internal and external factors. Historically, PXRE has focused on property
related coverages. In contrast to casualty losses, which frequently are slow to
be reported and may be determined only through the lengthy, unpredictable
process of litigation, property losses tend to be reported more promptly and
usually are settled within a shorter time period. However, the estimation of
losses for catastrophe reinsurers is inherently less reliable than for
reinsurers of risks which have an established historical pattern of losses. In
addition, insured events which occur near the end of a reporting period, as well
as, with respect to PXRE's retrocessional book of business, the significant
delay in losses being reported to insurance carriers, reinsurers and finally
retrocessionaires, require PXRE to make estimates of losses based on limited
information from ceding companies and based on its own underwriting data.

      Although historically PXRE has written a small amount of casualty
reinsurance, in 1998 PXRE began underwriting new casualty lines of business and
PXRE expects to expand its casualty business even further in 1999 and future
years. With respect to casualty business, significant delay, ranging up to
several years or more, can be expected between the reporting of a loss to PXRE
and the settlement of PXRE's liability for that loss. As a result, such future
claim settlements could be influenced by changing rates of inflation and other
economic conditions, changing legislative, judicial and social environments and
changes in PXRE's claims handling procedures. While the reserving process is
difficult and subjective for ceding companies, the inherent uncertainties of
estimating such reserves are even greater for a reinsurer, due primarily to the
longer time between the date of the occurrence and the reporting of any
attendant claims to the reinsurer, the diversity of development patterns among
different types of reinsurance treaties or facultative contracts, the necessary
reliance on the ceding companies for information regarding reported claims and
differing reserving practices among ceding companies.


                                      -13-


<PAGE>

<PAGE>


      PXRE's difficulty in accurately predicting casualty losses may also be
exacerbated by the limited amount of statistically significant historical data
regarding losses on PXRE's new casualty lines of business. PXRE must therefore
rely on the inherently less reliable historical loss patterns reported by ceding
companies and industry loss standards in calculating its casualty reserves.
Thus, the actual casualty losses and loss expenses may deviate, perhaps
substantially, from estimates of liabilities reflected in PXRE's consolidated
financial statements.

      PXRE engages an independent actuarial firm to review the methods and
assumptions used by PXRE in estimating losses and loss expenses. As stated in
its actuarial review, such firm believes that the methods and assumptions used
by PXRE are reasonable and appropriate for use in setting loss reserves as of
December 31, 1998.

      The following table provides a reconciliation of beginning and ending loss
and loss expense liabilities under GAAP for the fiscal years ended December 31,
1998, 1997 and 1996. PXRE does not discount such liabilities; that is, it does
not calculate them on a present value basis.

<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                                      -----------------------------------
                                                         1998         1997         1996
                                                      ---------    ---------    ---------
                                                                (in thousands)
<S>                                                   <C>          <C>          <C>      
Gross GAAP liability for losses and
  loss expenses at beginning of year ..............   $  57,189    $  70,978    $  72,719
Add: Gross provision for losses and loss expenses--
  Occurring in current year .......................      94,003       19,344       27,327
  Occurring in prior years ........................          90       (4,721)      10,510
                                                      ---------    ---------    ---------
    Total gross provision(1) ......................      94,093       14,623       37,837
                                                      ---------    ---------    ---------
Less: Gross payments for losses and loss expenses--
  Occurring in current year .......................      19,582        4,705        6,469
  Occurring in prior years ........................      29,108       23,707       42,698
                                                      ---------    ---------    ---------
    Total gross payments ..........................      48,690       28,412       49,167
                                                      ---------    ---------    ---------
Gross GAAP liability for losses
  and loss expenses at end of year ................   $ 102,592    $  57,189    $  61,389
Add: Gross reserves of TREX
   at date of Merger(2) ...........................          --           --        9,589
                                                      ---------    ---------    ---------
    Total gross liability .........................   $ 102,592    $  57,189    $  70,978
                                                      =========    =========    =========
Ceded GAAP liability for losses
  and loss expenses at end of year ................     (33,350)     (12,734)     (27,154)
                                                      ---------    ---------    ---------
Net GAAP liability for losses
  and loss expenses at end of year ................   $  69,242    $  44,455    $  43,824
                                                      =========    =========    =========
Foreign currency adjustment .......................        (193)         482         (145)
                                                      =========    =========    =========
Gross SAP liability for losses and
  loss expenses at end of year ....................   $ 102,399    $  57,671    $  70,833
                                                      =========    =========    =========
</TABLE>

---------
(1)   The GAAP provision for losses and loss expenses includes net foreign
      currency exchange (losses) gains of ($675,000), $627,000 and ($41,000) for
      1998, 1997 and 1996, respectively.

(2)   Liabilities assumed from TREX at December 11, 1996.


                                      -14-


<PAGE>

<PAGE>


      The following table presents the development of PXRE's GAAP balance sheet
liability for losses and loss expenses for the period 1988 through 1998 for PXRE
and its predecessor. The top line of the table shows the liabilities at the
balance sheet date for each of the indicated years. This reflects the estimated
amounts of losses and loss expenses for claims arising in that year and all
prior years that are unpaid at the balance sheet date, including losses incurred
but not yet reported to PXRE. The upper portion of the table shows the
cumulative amounts subsequently paid as of successive years with respect to the
liability. The lower portion of the table shows the reestimated amount of
previously recorded liability based on experience as of the end of each
succeeding year. The estimates change as more information becomes known about
the frequency and severity of claims for individual years. A redundancy
(deficiency) exists when the reestimated liability at each December 31 is less
(greater) than the prior liability estimate. The "cumulative redundancy
(deficiency)" depicted in the table, for any particular calendar year,
represents the aggregate change in the initial estimates over all subsequent
calendar years.

      Each amount in the table below includes the effects of all changes in
amounts for prior periods. For example, if a loss determined in 1991 to be
$150,000 was first reserved in 1988 at $100,000, the $50,000 deficiency (actual
loss minus original estimate) would be included in the cumulative redundancy
(deficiency) in each of the years 1988-1990 shown below. This table does not
present accident or policy year development data.

      Loss and loss expense liabilities for fiscal years 1991 through 1998 are
presented on a gross basis (excluding the effects of losses recoverable from
retrocessionaires). Loss and loss expense liabilities for December 31, 1990 and
prior periods are stated on a net basis (after deduction for losses recoverable
from retrocessionaires) because gross incurred but not reported liability data
were not developed by PXRE at any date prior to December 31, 1991 as it was not
required for reporting purposes. Furthermore, it is not practicable for PXRE
currently to reconstruct this information.


                                      -15-


<PAGE>

<PAGE>


<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                     ------------------------------------------------------------------------------------------
                                       1998        1997          1996          1995          1994          1993          1992    
                                     --------   ---------     ---------     ---------     ---------     ---------     ---------  
                                                                 (in thousands, except percentages)
<S>                                  <C>        <C>           <C>           <C>           <C>           <C>           <C>        
Liabilities for losses and
  loss expenses ..................   $102,592   $  57,189     $  61,389     $  72,719     $  81,836     $  71,442     $  88,668  

Cumulative amount of
  liability paid through:
  One year later .................                 29,108        23,708        42,698        41,601        37,820        59,773  
  Two years later ................                               40,673        55,620        58,968        54,400        79,926  
  Three years later ..............                                             67,296        67,630        60,850        89,519  
  Four years later ...............                                                           76,762        64,566        94,261  
  Five years later ...............                                                                         69,414        96,895  
  Six years later ................                                                                                       99,864  
  Seven years later ..............                                                                                               
  Eight years later ..............                                                                                               
  Nine years later ...............                                                                                               
  Ten years later ................                                                                                               

Liabilities reestimated as of:
  One year later .................                 57,280        66,257        83,228        87,818        78,188       101,423  
  Two years later ................                               63,292        85,162        87,750        76,902       103,632  
  Three years later ..............                                             83,178        90,409        74,683       105,165  
  Four years later ...............                                                           89,284        75,392       103,801  
  Five years later ...............                                                                         74,880       104,330  
  Six years later ................                                                                                      104,222  
  Seven years later ..............                                                                                               
  Eight years later ..............                                                                                               
  Nine years later ...............                                                                                               
  Ten years later ................                                                                                               

Gross reserves of TREX at date of
  merger .........................                                9,589         5,242         2,067            26

Gross cumulative redundancy
  (deficiency) through
  December 31, 1998:
  Amount .........................                    (91)        7,686        (5,217)       (5,381)       (3,412)      (15,554) 
  Percentage .....................                      0%           11%          (7%)          (6%)          (5%)         (18%)
Retrocessional recoveries ........                    623          (365)        7,555         3,246         1,309         3,069  

Net cumulative redundancy
  (deficiency) through
  December 31, 1998:
                                     --------   ---------     ---------     ---------     ---------     ---------     ---------  
  Amount .........................                    532         7,321         2,338        (2,135)       (2,103)      (12,485) 
  Percentage .....................                      1%           13%            4%          (4%)          (5%)         (35%)

<CAPTION>
                                                    Year Ended December 31,
                                     ---------------------------------------------------
                                        1991          1990          1989          1988
                                     ---------     ---------     ---------     ---------
                                              (in thousands, except percentages)
<S>                                  <C>           <C>           <C>           <C>      
Liabilities for losses and
  loss expenses ..................   $  62,664     $  31,632     $  37,963     $  34,627

Cumulative amount of
  liability paid through:
  One year later .................      35,575        15,688        18,421        16,183
  Two years later ................      48,393        25,466        28,178        21,597
  Three years later ..............      52,301        29,066        31,852        23,779
  Four years later ...............      55,022        30,117        33,980        24,689
  Five years later ...............      56,976        31,528        34,434        25,980
  Six years later ................      58,822        32,137        35,408        26,085
  Seven years later ..............      61,235        33,202        36,003        26,531
  Eight years later ..............                    33,624        36,980        27,167
  Nine years later ...............                                  37,301        27,378
  Ten years later ................                                                27,444

Liabilities reestimated as of:
  One year later .................      67,165        33,874        37,211        31,863
  Two years later ................      62,262        33,726        37,800        29,506
  Three years later ..............      62,827        33,488        36,588        27,944
  Four years later ...............      63,032        33,682        36,881        27,480
  Five years later ...............      62,593        34,310        37,023        27,751
  Six years later ................      63,632        33,777        37,667        27,878
  Seven years later ..............      63,792        34,714        37,166        28,063
  Eight years later ..............                    34,815        37,998        27,959
  Nine years later ...............                                  38,124        28,065
  Ten years later ................                                                28,080

Gross reserves of TREX at date of
  merger .........................   

Gross cumulative redundancy
  (deficiency) through
  December 31, 1998:
  Amount .........................      (1,128)           NA            NA            NA
  Percentage .....................          (2%)          NA            NA            NA
Retrocessional recoveries ........      (1,640)           NA            NA            NA

Net cumulative redundancy
  (deficiency) through
  December 31, 1998:
                                     ---------     ---------     ---------     ---------
  Amount .........................      (2,768)       (3,183)         (161)        6,547
  Percentage .....................         (7%)         (10%)            0%          19%
</TABLE>


                                      -16-


<PAGE>

<PAGE>


      During 1998, PXRE experienced savings of $532,000 net, for prior year
losses and loss expenses primarily related to the triggering of the
retrocessional recovery on a 1994 aviation loss offset in part by adverse
development due to the 1997 German, Polish and Czech floods.

      During 1997, PXRE experienced savings of $3,917,000 net, for prior-year
losses and loss expenses primarily related to the Eurotunnel fire and Hurricane
Fran where redundant reserves were recognized in 1997 of approximately
$1,644,000 and $1,440,000, respectively. In addition, included in the savings of
$3,917,000 were prior-year losses originally thought to have triggered market
loss coverage thresholds which have proven to be redundant by approximately
$1,800,000 offset, in part, by development on prior-year facultative losses.

      During 1996, PXRE incurred development from prior year losses amounting to
$3,249,000 primarily due to Hurricanes Marilyn and Luis. During 1995, PXRE
incurred development from prior year losses amounting to $4,311,000 primarily as
a result of losses from the Northridge earthquake. During 1994, PXRE incurred
development from prior year losses amounting to $3,261,000 primarily as a result
of marine pro rata losses and 1993 Midwest flood activity. During 1993, PXRE's
management strengthened the liability for incurred but not reported losses
occurring in prior years by $10,499,000, of which approximately $5,394,000 was
the result of additional information received with respect to Hurricanes Andrew
and Iniki and approximately $3,330,000 was the result of losses under a number
of pro rata reinsurance treaties. During 1992, PXRE's management strengthened
the liability for incurred but not reported losses occurring in prior years by
$2,355,000 of which $2,036,000 was the result of additional information received
with respect to losses under a number of pro rata reinsurance treaties. In 1991,
PXRE's management strengthened the liability for losses and loss expenses
occurring in prior years by $2,242,000, of which $1,196,000 was due to
unfavorable development experienced on PXRE's marine and aerospace reinsurance
business. PXRE commenced writing marine and aerospace reinsurance in 1988 and
estimated the amounts of losses and loss expenses for claims on such business
during 1988 and subsequent periods based on cumulative experience as of such
time. As more information became available, prior estimates were revised.
Approximately $740,000 of the balance of the liability strengthening in 1991 was
attributable to changes in 1991 in the loss amounts applicable to catastrophes
which occurred in 1989 and 1990, years impacted by high levels of catastrophe
loss activity.

      Management of PXRE believes that the cumulative reserve redundancies in
1995-1997 demonstrated by the above table, and that the strengthening of
reserves in 1990-1994, is attributable to the factors described above and not to
any material changes in reserving methods or assumptions. Management of PXRE
further believes that the cumulative reserve redundancy in 1988 demonstrated by
the above table was attributable principally to significant changes in primary
insurance rates commencing in 1986 and a favorable change in loss activity
during the period.


                                      -17-


<PAGE>

<PAGE>


      Conditions and trends that have affected reserve development in the past
may not necessarily occur in the future. Accordingly, it would not be
appropriate to extrapolate future redundancies or deficiencies based on the
foregoing.

Investments

      PXRE's management has established general procedures and guidelines for
its investment portfolio and oversees investment management carried out by
Phoenix Investment Partners, Limited (formerly Phoenix Duff & Phelps
Corporation), a public majority-owned subsidiary of Phoenix Home Life, and by
selected other investment managers. PXRE's invested assets include equities and
investments in limited partnerships, real estate investment trusts ("REITS"),
emerging market debt and other high yield bonds, and PXRE's investments are
subject to market-wide risks and fluctuations, as well as to risk inherent in
particular securities. As at December 31, 1998, PXRE's investment portfolio
consisted primarily of fixed maturities and short-term investments. As at
December 31, 1998, PXRE had invested $41,146,000 in equity securities. PXRE also
held $65,164,000 of other invested assets at December 31, 1998 comprised
principally of investments in various limited partnerships accounted for under
the equity method, whereby both the investment income and any change in the
market value are recorded through the investment income line of the income
statement. The investment policies of PXRE stress conservation of principal,
diversification of risk, and liquidity, and all investments of PXRE are approved
by its Board of Directors.


                                      -18-


<PAGE>

<PAGE>


         The following table summarizes the investments of PXRE at December 31,
1998 and 1997:

                             Analysis of Investments

<TABLE>
<CAPTION>
                                            December 31, 1998   December 31, 1997
                                            ------------------  ------------------

                                             Amount    Percent   Amount    Percent
                                             ------    -------   ------    -------

                                             (in thousands, except percentages)
<S>                                         <C>         <C>     <C>         <C>  
Fixed maturities (at amortized cost):

   United States government securities      $113,030    23.9%   $165,576    32.2%

   Foreign government securities              43,815     9.3      28,112     5.5

   United States government agency
     mortgage and asset-backed securities      1,087     0.2      24,095     4.7

   Other mortgage and asset-backed
     securities                               43,175     9.1      72,200    14.1

   Obligations of states and political
     subdivisions                             97,470    20.6     104,001    20.2

   Public utilities, industrial and
     miscellaneous securities                 10,081     2.1       5,161     1.0
                                            --------   -----    --------   -----
       Total fixed maturities                308,658    65.2     399,145    77.7

Equity securities (at cost)                   41,146     8.7      21,049     4.1

Short-term investments (at cost)              57,244    12.1      51,049     9.9

Other invested assets (at cost)               66,588    14.0      42,375     8.3
                                            --------   -----    --------   -----

       Total investments                    $473,636   100.0%   $513,618   100.0%
                                            ========   =====    ========   =====
</TABLE>

      At December 31, 1998, the fair value of PXRE's investment portfolio
exceeded its amortized cost by $841,000. At December 31, 1997, the fair value of
PXRE's investment portfolio exceeded its amortized cost by $7,842,000.


                                      -19-


<PAGE>

<PAGE>


      The following table indicates the composition of PXRE's fixed maturity
investments (at amortized cost), including short-term investments (at cost), by
time to maturity at December 31, 1998 and 1997:

                     Composition of Investments By Maturity

<TABLE>
<CAPTION>
                                            December 31, 1998     December 31, 1997
                                           -------------------   -------------------

                                            Amount     Percent    Amount     Percent
                                            ------     -------    ------     -------

                                             (in thousands, except percentages)
<S>                                        <C>           <C>     <C>           <C>  
Maturity(1)                                                      
                                                                 
One year or less                           $ 73,955      20.2%   $100,892      22.4%
                                                                 
Over 1 year through 5 years                 121,627      33.2     149,944      33.3
                                                                 
Over 5 years through 10 years                65,077      17.8      57,660      12.8
                                                                 
Over 10 years through 20 years               27,777       7.6      20,223       4.5
                                                                 
Over 20 years                                33,204       9.1      25,180       5.6
                                           --------     -----    --------     -----
                                            321,640      87.9     353,899      78.6
United States government agency                                  
   and other mortgage-backed                                     
   securities                                44,262      12.1      96,295      21.4
                                           --------     -----    --------     -----
       Total                               $365,902     100.0%   $450,194     100.0%
                                           ========     =====    ========     =====
</TABLE>

----------                                                     
(1)   Based on stated maturity dates with no prepayment assumptions.

      The average market yield to maturity of PXRE's fixed maturities portfolio
at December 31, 1998 and December 31, 1997 was 5.9% and 6.1%, respectively. At
December 31, 1998, the fair value of PXRE's fixed maturities portfolio exceeded
its amortized cost by $819,000. At December 31, 1997, the fair value of PXRE's
fixed maturities portfolio exceeded its amortized cost by $6,805,000.


                                      -20-


<PAGE>

<PAGE>


          The following table indicates the composition of PXRE's fixed
maturities portfolio (at amortized cost), excluding short-term investments, by
rating at December 31, 1998 and 1997:

               Composition of Fixed Maturities Portfolio By Rating

<TABLE>
<CAPTION>
                                             December 31, 1998   December 31, 1997
                                             -----------------   -----------------

                                              Amount   Percent    Amount   Percent
                                              ------   -------    ------   -------

                                               (in thousands, except percentages)
<S>                                          <C>         <C>     <C>         <C>  
Ratings(1)
----------

United States government securities          $113,030    36.6%   $165,576    41.5%

United States government agency
  mortgage and asset-backed securities          1,087     0.4      24,095     6.0

Other mortgage and asset-backed securities

  Aaa and/or AAA                               34,558    11.2      57,245    14.4
  Aa and/or AA                                     --      --      12,955     3.2
  A2 and/or A                                   8,000     2.6          --      --
  Baa2 and/or BBB                                 616     0.2          --      --
  Ba2 and/or BB                                    --      --       2,000     0.5

Obligations of states and political
   subdivisions

  Aaa and/or AAA                               64,883    21.0      61,521    15.4
  Aa2 and/or AA                                32,587    10.6      40,470    10.2
  A2 and/or A                                      --      --       2,010     0.5

Public utilities and industrial and
  miscellaneous securities

  A2 and/or A                                     749     0.2          --      --
  Baa2 and/or BBB                               4,226     1.4          --      --
  Ba2 and/or BB                                 3,117     1.0       5,161     1.3
  B2 and/or B                                   1,989     0.6          --      --

Foreign government securities

  Baa2 and/or BBB                               3,820     1.2       3,787     0.9
  Ba2 and/or BB                                30,196     9.8      16,458     4.1
  B2 and/or B                                   8,618     2.8       7,867     2.0
  CA and/or CC                                  1,182     0.4          --      --
                                             --------   -----    --------   ----- 
    Total                                    $308,658   100.0%   $399,145   100.0%
                                             ========   =====    ========   =====
</TABLE>

----------

(1)   Ratings as assigned by Moody's Investors Service, Inc. ("Moody's") and
      S&P, respectively. Such ratings are generally assigned upon the issuance
      of the securities, subject to revision on the basis of ongoing
      evaluations.

      PXRE's management continually evaluates the composition of the investment
portfolio and repositions the portfolio in response to market conditions in
order to improve total returns while maintaining liquidity and superior credit
quality. Consistent with the foregoing, during 1997 PXRE repositioned a portion
of its portfolio out of U.S. Treasury, GNMA and short-term investments into new
sectors including asset and corporate mortgage-backed securities, emerging


                                      -21-


<PAGE>

<PAGE>


markets securities, tax-free municipals, investment grade Yankee bonds, a number
of limited partnership investments and, to a lesser extent, equity investments.
During 1998, PXRE continued this repositioning of its portfolio adding to
various of the new sectors and adding a broad cross section of REITS. PXRE
expects to continue this repositioning in 1999. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations --Liquidity and
Capital Resources -- Market Risk."

Marketing

      In the United States, PXRE currently reinsures both national and regional
insurance and reinsurance companies and specialty insurance companies. PXRE also
provides reinsurance for international insurance and reinsurance companies
principally headquartered in the United Kingdom, Continental Europe, Australia,
and Asia.

      Historically, PXRE has obtained most of its facultative and substantially
all of its treaty reinsurance business through reinsurance intermediaries which
represent reinsureds in negotiations for the purchase of reinsurance. None of
the reinsurance intermediaries through which PXRE obtains this business are
authorized to arrange any business in the name of PXRE without PXRE's approval.
PXRE pays such intermediaries or brokers commissions based on the amount of
premiums and type of business ceded. These payments constitute part of PXRE's
total acquisition costs and are included in its underwriting expenses. PXRE
generally pays reinsurance brokerage fees believed to be comparable to industry
norms.

      Approximately 22.6%, 14.0% and 10.5% of gross premiums written in fiscal
year 1998 were arranged through the worldwide branch offices of Aon Group Ltd.,
Guy Carpenter & Company, Inc. (subsidiary of Marsh & McLennan Companies, Inc.)
and Benfield Greig Ltd., respectively. The commissions paid by PXRE to these
intermediaries are generally at the same rates as those paid to other
intermediaries.

      In mid-1998 PXRE established a direct writing reinsurance unit to
complement its existing brokerage-based reinsurance operations.

Competition

      Competitive forces in the property and casualty reinsurance and insurance
business are substantial. PXRE Reinsurance operates in a reinsurance industry
which is highly competitive and is undergoing a variety of challenging
developments. The industry has in recent years moved toward greater
consolidation as ceding companies have placed increased importance on size and
financial strength in the selection of reinsurers. Additionally, reinsurers are
tapping new markets and complementing their range of traditional reinsurance
products with innovative new products which bring together capital markets and
reinsurance experience. PXRE Reinsurance competes with numerous major national
and international reinsurance and insurance companies. These competitors, many
of which have substantially greater financial, marketing and management


                                      -22-


<PAGE>

<PAGE>


resources than PXRE Reinsurance, include independent reinsurance companies,
subsidiaries or affiliates of established worldwide insurance companies,
reinsurance departments of certain commercial insurance companies, and
underwriting syndicates. PXRE Reinsurance also may face competition from new
market entrants or from market participants that determine to devote greater
amounts of capital to the types of business written by PXRE Reinsurance.

      Although PXRE Reinsurance historically has obtained most of its
facultative and substantially all of its treaty reinsurance business through
reinsurance intermediaries or brokers, it competes indirectly with reinsurers
who obtain business directly from primary insurers because PXRE Reinsurance's
brokers must compete with direct reinsurers for business to be forwarded to PXRE
Reinsurance, and newly established direct writing reinsurance unit competes
directly with other direct reinsurers. PXRE Reinsurance therefore competes both
with reinsurers that obtain business directly from reinsureds and with
reinsurers that obtain their business through intermediaries and brokers.

      Competition in the types of reinsurance business which PXRE Reinsurance
underwrites is based on many factors, including the perceived overall financial
strength of the reinsurers, premiums charged, other terms and conditions, A.M.
Best rating, service offered, speed of service (including claims payment), and
perceived technical ability and experience of staff. The number of jurisdictions
in which a reinsurer is licensed or authorized to do business is also a factor.
PXRE Reinsurance is licensed, accredited, or otherwise authorized or permitted
to conduct reinsurance business in all states (except Arkansas, Hawaii, Kansas,
Minnesota, Missouri, Nebraska, Oklahoma, Vermont and Washington) and the
District of Columbia, Puerto Rico and Mexico, and PXRE Reinsurance's Brussels
Branch operates from Belgium.

      Transnational Insurance operates in the highly competitive excess and
surplus lines insurance market and, as a new entrant to the market,
Transnational Insurance faces substantial competition from established domestic
and foreign insurers, many of which are larger and have greater financial,
marketing and management resources. Competition in the domestic property and
casualty surplus lines insurance market is based on many factors, including
financial strength of the insurer, A.M. Best rating, surplus lines eligibility,
premiums charged, policy terms and conditions, reputation, services offered and
broker commissions. Moreover, the market is subject to significant cycles of
fluctuating capacity and wide disparities in pricing adequacy. Transnational
Insurance is eligible to write business on a surplus lines basis in 36 states
and the District of Columbia, Guam and the U.S. Virgin Islands. Transnational
Insurance is currently seeking approval as an "eligible" surplus lines insurer
in an additional 13 states and in Puerto Rico.

Other Operations

      In March 1995, PXRE and TREX entered into a joint venture arrangement to
trade in catastrophe futures and option contracts on the Chicago Board of Trade
(the "CBOT"). As a result of the Merger, this venture is now wholly-owned by
PXRE. Although the venture has developed


                                      -23-


<PAGE>

<PAGE>


a number of trading strategies, the low level of activity in the CBOT market for
catastrophe futures has kept trade volume to a minimum through December 31,
1998.

Regulation

      PXRE, PXRE Reinsurance and Transnational Insurance are subject to
regulation under the insurance statutes of various states, including
Connecticut, the domiciliary state of PXRE Reinsurance and Transnational
Insurance. The regulation and supervision to which PXRE Reinsurance and
Transnational Insurance are subject relate primarily to the standards of
solvency that must be met and maintained, licensing requirements for reinsurers
and insurers, the nature of and limitations on investments, restrictions on the
size of risks which may be insured, deposits of securities for the benefit of a
reinsured or insured, methods of accounting, periodic examinations of the
financial condition and affairs of reinsurers and insurers, the form and content
of reports of financial condition required to be filed, and reserves for losses,
and other purposes. In general, such regulation is for the protection of the
reinsureds and policyholders, rather than investors.

      In addition, PXRE, PXRE Reinsurance and Transnational Insurance are
subject to regulation by state insurance authorities under the insurance holding
company statutes of various states, including Connecticut. These laws and
regulations vary from state to state, but generally require an insurance holding
company and insurers and reinsurers that are subsidiaries of an insurance
holding company to register with the state regulatory authorities and to file
with those authorities certain reports including information concerning their
capital structure, ownership, financial condition, and general business
operations. Moreover, PXRE Reinsurance and Transnational Insurance may not enter
into certain transactions, including certain reinsurance agreements, management
agreements, and service contracts, with members of their insurance holding
company system, unless they have first notified the Connecticut Insurance
Commissioner of their intention to enter into any such transaction and the
Connecticut Insurance Commissioner has not disapproved of such transaction
within the period specified by the Connecticut insurance statute. Among other
things, such transactions are subject to the requirements that their terms be
fair and reasonable, charges or fees for services performed be reasonable and
the interests of policyholders not be adversely affected.

      State laws also require prior notice or regulatory agency approval of
direct or indirect changes in control of an insurer, reinsurer, or its holding
company, and of certain significant intercorporate transfers of assets within
the holding company structure. An investor who acquires shares representing or
convertible into more than 10% of the voting power of the securities of PXRE
would become subject to at least some of such regulations, would be subject to
approval by the Connecticut Insurance Commissioner prior to acquiring such
shares, and would be required to file certain notices and reports with the
Commissioner prior to such acquisition.

      The principal sources of cash for the payment of operating expenses and
income taxes, debt service obligations, and dividends by PXRE are the receipt of
dividends and net tax allocation


                                      -24-


<PAGE>

<PAGE>


payments from PXRE Reinsurance and Transnational Insurance. Under the
Connecticut insurance laws, the maximum amount of dividends or other
distributions that PXRE Reinsurance may declare or pay to PXRE, and that
Transnational Insurance may declare or pay to PXRE Reinsurance, within any
twelve-month period, without regulatory approval, is limited to the lesser of
(a) earned surplus or (b) the greater of 10% of policyholder surplus at December
31 of the preceding year, or 100% of net income for the twelve-month period
ended December 31 of the preceding year, all determined in accordance with
statutory accounting principles ("SAP"). Accordingly, the Connecticut insurance
laws could limit the amount of dividends available for distribution by PXRE
Reinsurance or Transnational Insurance without prior regulatory approval,
depending upon a variety of factors outside the control of PXRE, including the
frequency and severity of catastrophe and other loss events and changes in the
reinsurance market, in the insurance regulatory environment and in general
economic conditions. The maximum amount of dividends or distributions that PXRE
Reinsurance may declare and pay during 1999, without regulatory approval, is
$44,722,900. During 1998, $57,388,000 in dividends were paid by PXRE Reinsurance
to PXRE. During 1998, no dividends were paid by Transnational Insurance to PXRE
Reinsurance. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."

      Additionally, Connecticut has adopted regulations respecting certain
minimum capital requirements for property and casualty companies, based upon a
model adopted by the National Association of Insurance Commissioners (the
"NAIC"). The risk-based capital regulations provide for the use of a formula to
measure statutory capital and surplus needs based on the risk characteristics of
a company's products and investment portfolio to identify weakly capitalized
companies. As at December 31, 1998, PXRE Reinsurance's surplus and Transnational
Insurance's surplus substantially exceeded their respective calculated
risk-based capital.

      In addition, from time to time various regulatory and legislative changes
have been proposed in the U.S. insurance industry, some of which could have an
effect on reinsurers and insurers. Among the proposals that have in the past
been or are at present being considered are the possible introduction of federal
regulation in addition to, or in lieu of, the current system of state regulation
of insurers, the initiative to create a federally guaranteed disaster
reinsurance pool prefunded by insurers, and proposals in various state
legislatures (some of which proposals have been enacted) to conform portions of
their insurance laws and regulations to various model acts adopted by the NAIC.
Furthermore, the NAIC has commenced a project to codify statutory accounting
practices, the result of which is expected to constitute the only source of
"prescribed" statutory accounting practices. Accordingly, that project, which is
expected to take affect in 2001, will likely change the definitions of what
constitutes prescribed versus permitted statutory accounting practices and will
likely result in changes to the accounting policies that insurance enterprises
use to prepare their statutory financial statements. The NAIC is an organization
which assists state insurance supervisory officials in achieving insurance
regulatory objectives, including the maintenance and improvement of state
regulation. PXRE is unable to predict what effect, if any, the foregoing
developments may have on its operations and financial condition in the future.


                                      -25-


<PAGE>

<PAGE>


      The NAIC's Insurance Regulatory Information System ("IRIS") was developed
by a committee of state insurance regulators and is primarily intended to assist
state insurance departments in executing their statutory mandates to oversee the
financial condition of insurance companies operating in their respective states.
IRIS identifies eleven industry ratios and specifies "usual values" for each
ratio. Departure from the usual values on four or more of the ratios can lead to
inquiries from individual state insurance commissioners as to certain aspects of
an insurer's business. For the years ended December 31, 1998, 1997 and 1996,
PXRE Reinsurance's results were within the usual values for each of the eleven
ratios, except for one ratio in 1996 and one in 1998. PXRE's management believes
that the ratio fell outside the usual range in 1996 due to the increase in
surplus after Transnational Insurance became a wholly-owned subsidiary of PXRE
Reinsurance and that the ratio fell outside the usual range in 1998 due to the
substantial turmoil in global securities markets and the resulting decline in
the value of certain limited partnership investments. During the 1996-8 period,
Transnational Insurance's results were within the usual values for each of the
eleven ratios except for two ratios in 1997, when Transnational Insurance did
not write any business and paid a dividend, including an extraordinary dividend,
of $58,877,000 to PXRE Reinsurance, affecting the change in net writings ratio
and change in surplus ratio, and except for one ratio in 1998 which fell outside
the usual range due primarily to the change in net writings associated with
business written in 1994 to 1996.

      PXRE Limited, PXRE Managing Agency and PXRE Lloyd's Syndicate are subject
to regulation by Lloyd's. The form of that regulation is prescribed by the
Lloyd's Act of 1982 and Lloyd's internal regulatory by-laws and directions. The
regulation and supervision to which PXRE Limited is subject relates primarily to
the maintenance of a risk based capital requirement (by way of a deposit of
securities and a letter of credit with Lloyd's to support its underwriting) and
methods of accounting. PXRE Managing Agency must satisfy a solvency requirement,
methods of accounting and periodic examinations of compliance with Lloyd's
by-laws and other purposes. PXRE Lloyd's Syndicate has to comply with accounting
regulation, internal reporting and periodic examinations of compliance. The
Lloyd's market is regulated externally by the Financial Services Authority,
although the day to day regulation of the market remains the responsibility of
the Council of Lloyd's.

      Transnational Insurance is only licensed to underwrite insurance business
in the State of Connecticut. In the various other states, Transnational
Insurance is underwriting its insurance business on an excess and surplus lines
basis. Surplus lines laws permit unlicensed insurers to underwrite risks when
the desired coverage is not available from licensed companies. Surplus lines
placements are regulated generally by permitting specially licensed surplus
lines brokers to place business with "eligible" or "approved" surplus lines
insurers. Qualification as an eligible surplus lines insurer requires
Transnational Insurance to satisfy certain capital and surplus requirements and
reporting requirements and to establish trust funds for the benefit of
policyholders in such states, and also requires brokers placing business with
Transnational Insurance to submit evidence to state insurance authorities that
the same coverage is not available from a licensed insurer. Transnational
Insurance currently maintains a trust fund in the amount of $2,500,000.


                                      -26-


<PAGE>

<PAGE>


      In a number of states, the determination of whether an insurer qualifies
as an "eligible" surplus lines insurer is made by the state insurance
authorities, who maintain a list of such "eligible" or "approved" insurers. In
the remaining states, the determination of whether an insurer is "eligible" is
made by the surplus lines broker.

Employees

      PXRE employed 77 full-time employees as at December 31, 1998. None of
PXRE's employees is represented by a labor union, and management considers its
relationship with its employees to be excellent.

Item 2. Properties

      PXRE leases a total of approximately 43,244 square feet of office space in
Edison, New Jersey (PXRE's corporate headquarters), Norwalk, Connecticut,
Richmond, Virginia, San Francisco, California, London, England and Brussels,
Belgium. The Edison, New Jersey lease, which covers approximately 24,000 square
feet of office space, was signed in 1994 and is for a term of 15 years at a
fixed annual rent of approximately $370,000 (inclusive of basic electricity) and
additional rents on account of PXRE's proportionate share of increases in
building operating expenses and property taxes over calendar year 1994. PXRE is
negotiating for an additional 24,000 square feet of office space at its
corporate headquarters.

Item 3. Pending Legal Proceedings

      PXRE is not a party to any material pending legal proceedings.

Item 4. Submission of Matters to a Vote of Security Holders

      No matters were submitted to a vote of stockholders holders during the
fourth quarter of PXRE's 1998 fiscal year.


                                      -27-


<PAGE>

<PAGE>


                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

      Since December 31, 1996, PXRE's common stock has been listed on the New
York Stock Exchange under the symbol "PXT". The following table sets forth for
the periods indicated the high and low bid quotations for PXRE's common stock as
reported by the New York Stock Exchange and cash dividends per share of common
stock declared and subsequently paid:

                                    Bid Price
                                  -------------
                               High            Low            Dividends
                               ----            ---            ---------
1997:
First Quarter               $ 26.875        $  24.500          $ 0.21
Second Quarter                31.438           24.750            0.21
Third Quarter                 31.688           29.500            0.21
Fourth Quarter                34.000           29.563            0.25

1998:
First Quarter               $ 35.250         $ 29.375          $ 0.25
Second Quarter                32.875           29.000            0.25
Third Quarter                 30.500           25.625            0.25
Fourth Quarter                26.688           20.625            0.26

      These prices represent quotations by dealers and do not include markups,
markdowns, or commissions, and do not necessarily represent actual transactions.
As of March 19, 1999, there were 11,856,115 shares of the common stock issued
and outstanding, which shares were held by approximately 180 shareholders of
record and, based on PXRE's best information, by approximately 1500
beneficial owners of the common stock. See Notes 10 and 11 of Notes to
Consolidated Financial Statements for information with respect to shares
reserved for issuance under employee benefit and stock option plans.

      The payment of dividends on the common stock is subject to the discretion
of the Board of Directors which will consider, among other factors, PXRE's
operating results, overall financial


                                      -28-


<PAGE>

<PAGE>


condition, capital requirements and general business conditions. There can be no
assurance that dividends will be paid in the future.

      As a holding company, PXRE is largely dependent upon dividends and net tax
allocation payments from PXRE Reinsurance and Transnational Insurance to pay
dividends to PXRE's shareholders. PXRE Reinsurance and Transnational Insurance
are subject to state laws that may restrict their ability to distribute
dividends. In addition, certain covenants in PXRE's bank credit agreement may
restrict PXRE's ability to pay dividends. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" and "Business--Regulation" for further information concerning
restrictions contained in PXRE's bank credit agreement and under state insurance
law.


                                      -29-


<PAGE>

<PAGE>


Item 6. Selected Financial Data.

<TABLE>
<CAPTION>
                                                                         Year Ended December 31,
                                                   -------------------------------------------------------------
                                                      1998         1997         1996         1995         1994
                                                     (1)(2)       (1)(2)        (2)
                                                   ---------    ---------    ---------    ---------    ---------
                                                           (in thousands, except per share data and ratios)
<S>                                                <C>          <C>          <C>          <C>          <C>      
Income Statement Data:
Gross premiums written                             $ 136,215    $ 126,232    $ 114,348    $ 155,380    $ 179,684
Premiums ceded                                       (47,521)     (26,177)     (46,630)     (57,744)     (71,166)
                                                   ---------    ---------    ---------    ---------    ---------
Net premiums written                                  88,694      100,055       67,718       97,636      108,518
Change in unearned premiums                            3,692       (8,640)       5,078         (494)       2,083
                                                   ---------    ---------    ---------    ---------    ---------
Net premiums earned                                   92,386       91,415       72,796       97,142      110,601
Net investment income                                 19,612       31,191       16,782       14,730       13,786
Net realized investment (losses) gains                (3,862)       2,467           94           85       (1,164)
Management fee(2)                                      2,172        3,006        6,032        6,417        6,992
                                                   ---------    ---------    ---------    ---------    ---------
     Total revenues                                  110,308      128,079       95,704      118,374      130,215
                                                   ---------    ---------    ---------    ---------    ---------
Losses and loss expenses incurred                     57,793       12,491       18,564       34,716       52,647
Commissions and brokerage                             20,563       19,138       12,874       13,251       15,026
Other operating expenses                              19,313       15,716       12,262       11,237        8,365
Interest expense                                       1,395        3,325        6,957        7,143        7,789
Minority interest in consolidated subsidiary           8,928        8,184           --           --           --
                                                   ---------    ---------    ---------    ---------    ---------
     Total losses and expenses                       107,992       58,854       50,657       66,347       83,827
                                                   ---------    ---------    ---------    ---------    ---------
Income before income taxes, extraordinary
   item and equity in net earnings of TREX             2,316       69,225       45,047       52,027       46,388
Equity in net earnings of TREX(2)                          0            0        3,898        5,948        4,141
Income tax (benefit) provision                        (1,206)      22,198       15,644       18,189       15,700
                                                   ---------    ---------    ---------    ---------    ---------
Net income (before extraordinary loss)                 3,522       47,027       33,301       39,786       34,829
Extraordinary loss on debt redemption,
  net of tax                                             843        2,774           --           --           --
                                                   ---------    ---------    ---------    ---------    ---------
Net income                                         $   2,679    $  44,253    $  33,301    $  39,786    $  34,829
                                                   =========    =========    =========    =========    =========
Preferred stock dividend(3)                                0            0            0          599        2,005
                                                   =========    =========    =========    =========    =========
Net income available to common
   stockholders                                    $   2,679    $  44,253    $  33,301    $  39,187    $  32,824
                                                   =========    =========    =========    =========    =========
</TABLE>


                                      -30-


<PAGE>

<PAGE>


<TABLE>
<CAPTION>
                                                     1998            1997          1996         1995         1994
                                                    (1)(2)          (1)(2)          (2)       
                                                   ---------       ---------     ---------    ---------    ---------
                                                             (in thousands, except per share data and ratios)
<S>                                                <C>             <C>           <C>          <C>          <C> 
Ratio of earnings to fixed charges(4)                   1.09            6.59          7.15         7.90         6.73
Ratio of earnings to combined fixed charges
  and preferred dividends(4)                            1.09            6.59          7.15         7.04         4.90
Basic earnings per common share:
  Net income
  (before extraordinary item)                      $    0.26       $    3.41     $    3.73    $    4.81    $    4.99
  Extraordinary loss                                    0.06            0.20            --           --           --
                                                   ---------       ---------     ---------    ---------    ---------
  Net income                                       $    0.20       $    3.21     $    3.73    $    4.81    $    4.99
                                                   =========       =========     =========    =========    =========
  Average common shares outstanding(2)(3)             13,339          13,776         8,922        8,150        6,580
                                                   =========       =========     =========    =========    =========
Diluted earnings per common share:
  Net income
  (before extraordinary item)                      $    0.26       $    3.39     $    3.69    $    4.52    $    3.99
  Extraordinary loss                                    0.06            0.20            --           --           --
                                                   ---------       ---------     ---------    ---------    ---------
   Net income                                      $    0.20       $    3.19     $    3.69    $    4.52    $    3.99
                                                   =========       =========     =========    =========    =========
   Average common shares outstanding(2)               13,452          13,893         9,020        8,812        8,719
                                                   =========       =========     =========    =========    =========
Cash dividends per common share                    $    1.01       $    0.88     $    0.75    $    0.63    $   0.375

Other Operating Data:
GAAP loss ratio(5)                                     62.6%           13.7%         25.5%        35.7%        47.6%
GAAP underwriting expense ratio(5)                     40.9%           34.8%         26.2%        18.6%        14.8%
                                                   ---------       ---------     ---------    ---------    ---------
GAAP combined ratio(5)                                103.5%           48.5%         51.7%        54.3%        62.4%
                                                   =========       =========     =========    =========    =========

<CAPTION>
                                                                            As of December 31,
                                                   -----------------------------------------------------------------
                                                      1998            1997          1996         1995         1994
                                                   ---------       ---------     ---------    ---------    ---------
                                                            (in thousands, except per share data and ratios)
<S>                                                <C>             <C>           <C>          <C>          <C>      
Balance Sheet Data:
Cash and investments                               $ 490,594       $ 527,738     $ 467,078    $ 269,089    $ 231,789
Total assets                                         632,691         608,172       543,324      396,084      353,794
Losses and loss expenses                             102,592          57,189        70,977       72,719       81,836
Minority interest in consolidated subsidiary          99,517          99,513            --           --           --
Debt/notes payable                                    50,000          21,414        64,725       67,775       69,700
Total stockholders' equity                           334,376         386,688       357,678      211,162      166,771
Book value per common share                        $   27.13       $   28.10     $   25.63    $   24.15    $   21.27
Statutory capital and surplus of
   PXRE Reinsurance                                $ 447,229       $ 451,321     $ 400,133    $ 250,231    $ 211,988
</TABLE>

----------
(1)   The U.K. operations of PXRE Limited and PXRE Managing Agency are included
      in the consolidated results on a one quarter lag basis beginning in 1997.

(2)   On December 11, 1996, PXRE merged with TREX. The Merger has been accounted
      for as a purchase. Accordingly, TREX has been included in PXRE's
      consolidated results of operations from the date of acquisition, which
      resulted in incremental earnings of $1,253,000 in 1996. For 1994 and 1995
      and for the period from January 1, 1996 until December


                                      -31-


<PAGE>

<PAGE>


      11, 1996, PXRE recorded equity in net earnings of TREX. Diluted average
      shares outstanding reflects the 5,680,256 weighted shares issued to
      holders of TREX common shares in connection with the Merger. Included in
      management fee was $2,512,000, $3,526,000 and $3,364,000 in 1996, 1995 and
      1994, respectively, earned from TREX prior to the Merger. If the Merger
      had taken place at the beginning of 1996 and 1995, consolidated revenues
      would have been $153,410,000 and $193,972,000 for 1996 and 1995,
      respectively. Consolidated pro forma net income and diluted net income per
      share would have been $49,161,000 and $3.42 in 1996 and $60,755,000 and
      $4.19 in 1995. Such pro forma amounts are not necessarily indicative of
      what the actual consolidated results might have been if the Merger had
      been effected prior to December 11, 1996.

(3)   During 1995, all of PXRE's outstanding shares of Series A Cumulative
      Convertible Preferred Stock were converted into shares of PXRE's common
      stock. To 1995, these convertible preferred shares were the principal
      reason for the difference between basic and diluted earnings per share.

(4)   The historical ratios of earnings to fixed charges were determined by
      dividing consolidated earnings by total fixed charges. For purposes of
      these computations (i) earnings consist of consolidated income before
      considering income taxes, fixed charges and minority interest and (ii)
      fixed charges consist of interest on indebtedness and that portion of
      rentals which is deemed by PXRE's management to be an appropriate interest
      factor. The historical ratios of earnings to combined fixed charges and
      preferred dividends were determined by dividing consolidated earnings by
      total fixed charges and preferred dividends.

(5)   The loss, underwriting expense and combined ratios included under "Other
      Operating Data" have been derived from the audited consolidated statements
      of income of PXRE prepared in accordance with GAAP.


                                      -32-


<PAGE>

<PAGE>


Item 7.             Management's Discussion and Analysis of
                    Financial Condition and Results of Operations

General

            The property and casualty reinsurance industry has been experiencing
an extended period of soft market conditions. Competition has increased in
recent years as a result of the ability of companies to raise additional capital
and the use of both traditional and non-traditional reinsurance products. The
level of excess capital has also been aided by favorable financial markets and
the lower than normal number of major catastrophe losses in recent years.
Consolidation has been, and continues to be, another dominant trend in the
reinsurance industry. Companies are now larger, offer significantly more
capacity to ceding companies and have greater access to capital through capital
markets or their parent organizations. Further, Lloyd's has rebounded from a
period of uncertainty and is now aggressively competitive. The result is an
oversupply of capacity in the industry.

      Despite soft market conditions, PXRE has taken advantage of both the
availability of capital in the financial markets and new opportunities in the
business. PXRE has raised additional capital for its reinsurance operations to
increase its capacity to underwrite risks and to position PXRE to take advantage
of market opportunities. Since its formation more than a decade ago, PXRE has
specialized in property reinsurance, including a strong focus on
catastrophe-related products. Although catastrophe-related coverages experienced
substantial improvements in pricing in 1993 to 1994 and other terms following
high levels of catastrophic loss activity experienced by the worldwide insurance
industry, coverage terms have been deteriorating since the beginning of 1995. In
response, PXRE has moved to layers of risk that are less affected by competitive
pressures and has reduced commitments on marginally priced business. Meanwhile,
PXRE has taken a number of initiatives to enable it to write new business, and
position itself for renewed growth during the current soft market. In late 1996,
PXRE completed the organization of PXRE Managing Agency and PXRE Lloyd's
Syndicate, thereby establishing a direct presence in the Lloyd's market and
accessing specialty types of insurance and reinsurance on a worldwide basis.
Underwriting premium volume and loss experience related to the business of PXRE
Lloyd's Syndicate is included in PXRE's consolidated results on a quarter lag
basis, commencing in the quarter ended June 30, 1997. In addition, in the first
quarter of 1998 Transnational Insurance (formerly Transnational Reinsurance),
PXRE's newly established excess and surplus lines carrier, commenced operations,
specializing in non-standard and excess property insurance risks. In mid-1998,
PXRE added teams of direct writing reinsurance professionals to establish a
direct writing reinsurance unit and international reinsurance executives both to
complement PXRE's existing brokerage-based reinsurance operations and to provide
excess of loss short tail casualty products for casualty markets, primarily
commencing with January 1999 renewals. PXRE has not previously had a significant
presence in any casualty markets. These steps are expected over time to reduce
the volatility associated with PXRE's catastrophe coverages which are expected
to fall below 50% of gross premiums written in 1999. Also in 1998, PXRE further
strengthened its Lloyd's unit with additional professionals and that unit is now
expanding into the provision of services to start-up syndicates and captives at
Lloyd's.


                                      -33-


<PAGE>

<PAGE>


      At December 31, 1998, PXRE was a party to retrocessional arrangements with
a number of insurers and reinsurers. Under these arrangements, PXRE cedes some
of its underwritten risks to the participants, subject to maximum aggregate
liabilities per reinsurance program. PXRE receives a management fee or
commission, initially based on premium volume, adjusted in some cases through
contingent profit commissions related to underwriting results measured over a
period of years. Future management fee income is dependent upon the amount of
business ceded to the participants and the profitability of that business.
Another arrangement with Select Re, a Bermuda reinsurer, formerly Investors
Reinsurance Ltd, was renegotiated in 1998, and involves a five-year fee based
undertaking to produce and underwrite business with Select Re. The Board of
Directors of Select Re includes PXRE's Chief Executive Officer.

      PXRE also purchases catastrophe retrocessional coverage for its own
protection, depending on market conditions. PXRE has significantly increased its
purchases of such coverage in 1998 in light of the continued general
deterioration in catastrophe reinsurance pricing and the opportunity to buy
protection at more favorable terms than in recent years.

Certain Risks and Uncertainties

      As a reinsurer principally of property catastrophe-related coverages in
both the national and international markets, PXRE's operating results in any
given period depend to a large extent on the number and magnitude of natural and
man-made catastrophes such as hurricanes, windstorms, floods, earthquakes,
spells of severely cold weather, fires and explosions. While PXRE may, depending
on market conditions, purchase catastrophe retrocessional coverage for its own
protection, the occurrence of one or more major catastrophes in any given period
could nevertheless have a material adverse impact on PXRE's results of
operations and financial condition and result in substantial liquidation of
investments and outflows of cash as losses are paid.

      The estimation of losses for catastrophe reinsurers is inherently less
reliable than for reinsurers of risks which have an established historical
pattern of losses. In addition, insured events which occur near the end of a
reporting period, as well as with respect to PXRE's retrocessional book of
business, the significant delay in losses being reported to insurance carriers,
reinsurers and finally retrocessionaires require PXRE to make estimates of
losses based on limited information from ceding companies and based on its own
underwriting data. Because of the uncertainty in the process of estimating its
losses from insured events, there is a risk that PXRE's liabilities for losses
and loss expenses could prove to be inadequate, with a consequent adverse impact
on future earnings and stockholders' equity. Additionally, as a consequence of
its emphasis on property reinsurance, PXRE may forgo potential investment income
because property losses are typically settled within a shorter period of time
than casualty losses.

      In addition, the potential for uncertainty for the 1998 underwriting year
is greater than in the past years because of the increased casualty exposures
assumed by PXRE. Unlike property losses that tend to be reported more promptly
and usually are settled within a shorter time period, casualty losses are
frequently slower to be reported and may 


                                      -34-


<PAGE>

<PAGE>


be determined only through the lengthy, unpredictable process of litigation.
Moreover, given its recent expansion of casualty business, PXRE's does not have
an established historical loss pattern that can be used to establish casualty
loss liabilities. PXRE must therefore rely on the inherently less reliable
historical losses patterns reported by ceding companies and industry loss
standards in calculating its liabilities.

      As PXRE underwrites risks from a large number of insurers based on
information generally supplied by reinsurance brokers, there is a risk of
developing a concentration of exposure to loss in certain geographic areas prone
to specific types of catastrophes. PXRE has developed systems and software tools
to monitor and manage the accumulation of its exposure to such losses.
Management has established guidelines for maximum tolerable losses from a single
or multiple catastrophic events based on historical data; however, no assurance
can be given that these maximums will not be exceeded in some future
catastrophe.

      Premiums on reinsurance business assumed are recorded as earned on a pro
rata basis over the contract period based upon estimated subject premiums.
Management must estimate the subject premiums associated with the treaties in
order to determine the level of earned premiums for a reporting period. Such
estimates are based on information from brokers which can be subject to change
as new information becomes available. Because of the inherent uncertainty in
this process, there is the risk that premiums and related receivable balances
may turn out to be higher or lower than reported.

      PXRE's invested assets include equities and investments in limited
partnerships, real estate investment trusts, emerging market debt and other high
yield bonds and are subject to market-wide risks and fluctuations, as well as to
risk inherent in particular securities. Accordingly, the estimated fair value of
PXRE's investments does not necessarily represent the amount which could be
realized upon future sale particularly if PXRE were required to liquidate a
substantial portion of its portfolio to fund catastrophic losses. PXRE's
investment guidelines stress conservation of principal, diversification of risk
and liquidity.

      Premium receivables and loss reserves include business denominated in
currencies other than U.S. dollars. PXRE is exposed to the possibility of
significant claims in currencies other than U.S. dollars. While PXRE holds
positions denominated in foreign currencies to mitigate, in part, the effects of
currency fluctuations on its results of operations, it currently does not hedge
its currency exposures before a catastrophic event which may produce a claim.

      PXRE relies primarily on cash dividends and net tax allocation payments
from its subsidiaries PXRE Reinsurance and Transnational Insurance to pay its
operating expenses, to meet its debt service obligations and to pay dividends to
PXRE's stockholders. The payment of dividends by PXRE Reinsurance to PXRE, and
by Transnational Insurance to PXRE Reinsurance, is subject to limits imposed
under the insurance laws and regulations of Connecticut, the state of
incorporation and domicile of PXRE Reinsurance and Transnational Insurance, as
well as certain restrictions arising in connection with PXRE's outstanding
indebtedness.

      In the event the amount of dividends available, together with other
sources of funds, are 


                                      -35-


<PAGE>

<PAGE>


not sufficient to permit PXRE to meet its debt service, its other obligations
and to pay cash dividends, it would be necessary to obtain the approval of the
Connecticut Insurance Commissioner prior to the payment of additional dividends
by PXRE Reinsurance (or Transnational Insurance). If such approval were not
obtained, PXRE would have to adopt one or more alternatives, such as refinancing
or restructuring its indebtedness or seeking additional equity. There can be no
assurance that any of these strategies could be effected on satisfactory terms,
if at all.

      The reinsurance business is increasingly competitive and is undergoing a
variety of challenging developments. The industry has in recent years moved
toward greater consolidation as ceding companies have placed increased
importance on size and financial strength in the selection of reinsurers.
Additionally, reinsurers are tapping new markets and complementing their range
of traditional reinsurance products with innovative new products which bring
together capital markets and reinsurance experience. PXRE competes with numerous
major national and international reinsurance and insurance companies, many of
which have substantially greater financial, marketing and management resources
than PXRE.

Comparison of 1998 with 1997

                                                Year Ended December 31,
                                                                      Increase
                                             1998         1997       (Decrease)
                                             ----         ----       ----------
                                                  (000's)                %

Gross premiums written                     $136,215     $126,232         7.9

Ceded premiums:
---------------
  Managed business participants              21,542       16,534        30.3
  Catastrophe coverage                       25,979        9,643       169.4
                                           --------     --------
    Total reinsurance premiums ceded         47,521       26,177        81.5
                                           --------     --------

Net premiums written                       $ 88,694     $100,055       (11.4)
                                           ========     ========

      Gross premiums written for 1998 increased 7.9% to $136,215,000 from
$126,232,000 for 1997. Net premiums written for the year ended December 31, 1998
decreased 11.4% to $88,694,000 from $100,055,000 as PXRE increased the purchase
of reinsurance and retrocessional coverage in 1998. Net premiums earned for the
year ended December 31, 1998, increased 1.1% to $92,386,000 from $91,415,000 in
1997. The contribution of PXRE Lloyd's Syndicate operation, which commenced in
the first quarter of 1997, together with PXRE's new business initiatives
commenced in 1998, more than offset the continued impact of an intensely
competitive market on PXRE's other business lines and helped PXRE increase its
premium volume during the fourth quarter of 1998. New business expansion in 1998
included an international treaty underwriting team, excess and surplus lines
written by Transnational Insurance, new international facultative business, and
PXRE's new direct writing team.


                                      -36-


<PAGE>

<PAGE>


      Premiums ceded by PXRE to its managed business participants increased
30.3% to $21,542,000 for 1998 compared with $16,534,000 for 1997. The increase
in premiums ceded to these programs was due primarily to an increased cession
rate to Select Re and cessions from new operations offset in part by the effect
of declines in gross premiums written in PXRE's traditional operations.

      In 1998, opportunistic purchases of catastrophe retrocessional protection
increased catastrophe written premiums ceded partially due to a change in the
payment mode, in part due to reinstatement premiums associated with Hurricane
Georges and in part due to additional coverage associated with new operations.
PXRE's property business is protected by a series of retrocessional agreements
which currently provide protection principally against unusual severity of loss
and are not designed to protect PXRE's exposure to smaller, more frequent loss
occurrences.

      Management fee income from all sources for the year ended December 31,
1998 decreased 27.7% to $2,172,000 from $3,006,000 for 1997, reflecting a
reduced profit commission primarily associated with Hurricane Georges and the
two aerospace catastrophes discussed below and a higher combined ratio on the
change in business mix reflected in the higher ceded premiums written, offset,
in part, by an increase in management fee income earned from Select Re.

      The underwriting results of a property and casualty insurer are discussed
frequently by reference to its loss ratio, underwriting expense ratio and
combined ratio. The loss ratio is the result of dividing losses and loss
expenses incurred by net premiums earned. The underwriting expense ratio is the
result of dividing underwriting expenses (reduced by management fees, if any) by
net premiums written for purposes of SAP and net premiums earned for purposes of
GAAP. The combined ratio is the sum of the loss ratio and the underwriting
expense ratio. A combined ratio under 100% indicates underwriting profits and a
combined ratio exceeding 100% indicates underwriting losses. The combined ratio
does not reflect the effect of investment income on operating results. The
ratios discussed below have been calculated on a GAAP basis.

      The loss ratio was 62.6% for 1998 compared with 13.7% for 1997 largely due
to Hurricane Georges, two aerospace catastrophes and the higher average loss
ratio from the PXRE Lloyd's Syndicate operation, the new excess and surplus
lines business and new international operations. The loss ratio for 1998
reflected incurred catastrophe losses of $55,564,000 gross and $29,437,000 net
for 1998 and prior accident years. In comparison, the loss ratio for 1997
reflected a re-estimation, which reduced catastrophe losses by $1,457,000 gross
and $964,000 net for 1997 and prior accident years, after taking into account,
among other things, the German, Poland and Czech flood losses referred to below.

      Significant catastrophe and satellite losses affecting the year ended
December 31, 1998 loss ratio are as follows:


                                      -37-


<PAGE>

<PAGE>


                                               Amount of Losses
                                               ----------------
Loss Event                                   Gross           Net
----------                                   -----           ---
                                                (in thousands)
Hurricane Georges                           $49,106        $25,753
Hailstorms                                    4,521          3,597
Swissair and Delta 3 Satellites               4,087          3,399

Significant catastrophe and risk losses affecting the year ended December 31,
1997 loss ratio are as follows:

                                               Amount of Losses
                                               ----------------
Loss Event                                   Gross           Net
----------                                   -----           ---
                                                (in thousands)
German, Poland and Czech Floods              $1,739         $1,457

      The provision for losses and loss expenses and the loss ratio includes the
effect of foreign exchange movements on PXRE's liability for losses and loss
expenses, resulting in a foreign currency exchange loss of $675,000 for 1998
compared to a gain of $627,000 for 1997.

      During 1998, PXRE experienced savings of $532,000 net for prior-year loss
and loss expenses primarily related to the triggering of a retrocessional
recovery on a 1994 aviation loss offset in part by adverse development due to
the 1997 German, Poland and Czech floods. The loss ratio for 1997 was favorably
affected by decreases to reserves of $3,917,000 net for prior-year loss and loss
expenses primarily related to the Eurotunnel fire and Hurricane Fran where
redundant reserves were recognized in 1997 of approximately $1,644,000 and
$1,440,000 respectively. In addition, included in the savings of $3,917,000 were
prior-year losses originally thought to have triggered market loss coverage
thresholds which have proven to be redundant by approximately $1,800,000, offset
in part by development on prior year facultative losses.

      The underwriting expense ratio was 40.9% for 1998 compared with 34.8% for
1997. The increase in underwriting expense ratio was substantially due to higher
acquisition expenses and contingent commissions on certain business. In
addition, PXRE's diversification strategy announced in the second quarter of
1998, involving the addition of direct writing and international teams, and
PXRE's strengthening of its Lloyd's and Brussel's units contributed a
significant portion of the $3,597,000 of additional overhead expenses in 1998 in
addition to expenses associated with the first year of underwriting operations
for Transnational Insurance.

      As a result of the above, the combined ratio was 103.5% for 1998 compared
with 48.5% for 1997.

      Other operating expenses increased to $19,313,000 for the year ended
December 31, 1998 from $15,716,000 in 1997. The increase was mainly due to
salary and benefits expenses associated with new operations. Included in other
operating expenses were foreign currency exchange gains of $204,000 for 1998
compared to losses of $1,221,000 for the corresponding period of 1997.


                                      -38-


<PAGE>

<PAGE>


      During 1998, interest expense decreased to $1,395,000 as compared to
$3,325,000 in 1997 due to the effect of repurchases of PXRE's 9.75% Senior Notes
in open market purchases and the redemption of the remaining Senior Notes on
August 15, 1998 (see "Liquidity and Capital Resources"). In addition, during
1998 PXRE incurred minority interest expense amounting to $8,928,000 related to
PXRE's $100 million of 8.85% Capital Trust Pass-through Securities `sm' (TRUPS
`sm') (as described below under "Liquidity and Capital Resources") compared to
$8,184,000 in 1997. The increase in 1998 reflects the fact that the obligation
was only outstanding during a portion of 1997.

      In 1998, PXRE recorded an extraordinary loss of $843,000, net of tax, in
connection with the redemption of $20.4 million of PXRE's 9.75% Senior Notes and
the associated write-off of the pro rata share of the unamortized debt issuance
costs.

      Net investment income for the year ended December 31, 1998 decreased 37.1%
to $19,612,000 from $31,191,000 for 1997. The decrease in net investment income
was largely due to the substantial turmoil witnessed in global securities
markets during the third and fourth quarters of 1998 and the resulting decline
in value of certain of PXRE's limited partnership investments. PXRE's pre-tax
investment yield was 4.3% for 1998 compared with 6.3% for 1997, both calculated
using amortized cost and investment income before investment expenses. The
decline in yield was primarily due to returns on the limited partnership
investments. Net realized investment losses for 1998 were $3,862,000 compared to
gains of $2,467,000 for 1997, which includes trading in investment products
having characteristics similar to the types of reinsurance PXRE traditionally
assumes. In 1998, PXRE recorded the markdown of a Russian bond that is in
technical default. This loss was recorded as realized which resulted in a
pre-tax loss of $6,600,000.

      The net effects of foreign currency exchange fluctuations were losses of
$471,000 in 1998, as compared to losses of $594,000 for 1997.

      For the reasons discussed above, net income was $2,679,000 for 1998
compared to net income of $44,253,000 for 1997. Diluted income per common share
before extraordinary loss was $0.26 for 1998 compared to $3.39 for the prior
year. Diluted net income per common share was $0.20 for 1998 compared to $3.19
for 1997 based on diluted average shares outstanding of approximately 13,452,000
in 1998 and 13,893,000 in 1997.


                                      -39-


<PAGE>

<PAGE>


Comparison of 1997 and 1996

As reported previously, PXRE and TREX merged on December 11, 1996. Results for
1997 therefore reflect the consolidated operations and business of PXRE and TREX
combined, whereas the 1996 results under purchase accounting reflect the
historical results of PXRE as reported, excluding TREX. For comparative
purposes, certain selected pro forma results are also presented for 1996 as if
PXRE and TREX had merged at January 1, 1996.

<TABLE>
<CAPTION>
                                                       Year Ended December 31,
                                        ------------------------------------------------------
                                                 As Reported                  Pro Forma
                                        ------------------------------------------------------
                                                               Increase              Increase
                                          1997       1996     (Decrease)    1996    (Decrease)
                                          ----       ----     ----------    ----    ----------
                                               (000's)            %        (000's)       %
<S>                                     <C>        <C>           <C>      <C>          <C>   
Gross premiums written                  $126,232   $114,348      10.4     $143,987     (12.3)
                                                                          
Ceded premiums:                                                           
---------------
  Managed business participants           16,534     21,238     (22.1)      21,238     (22.1)
  TREX Management Agreement                    0     19,965       N/A            0       N/A
  Catastrophe coverage                     9,643      5,427      77.7        6,145      56.9
                                        --------   --------               --------
     Total reinsurance premiums ceded     26,177     46,630     (43.9)      27,383      (4.4)
                                        --------   --------               --------
                                                                          
Net premiums written                    $100,055   $ 67,718      47.8     $116,604     (14.2)
                                        ========   ========               ========
                                                                          
Earned premiums                         $ 91,415   $ 72,796      25.6     $123,042     (25.7)
Revenues                                 128,079     95,704      33.8      153,410     (16.5)
Income before extraordinary loss          47,027     33,301      41.2       49,161      (4.3)
Net income                                44,253     33,301      32.9       49,161     (10.0)
                                                                          
Per share diluted:                                                        
------------------
  Before extraordinary loss             $   3.39   $   3.69      (8.1)    $   3.42      (0.9)
  Net income                            $   3.19   $   3.69     (13.6)    $   3.42      (6.7)
                                                                          
Diluted average shares outstanding        13,893      9,020                 14,389
</TABLE>

      Gross premiums written for 1997 increased 10.4% to $126,232,000 from
$114,348,000 for 1996 as reported and decreased 12.3% from $143,987,000 on a pro
forma basis in 1996. Net premiums earned for the year ended December 31, 1997,
increased 25.6% to $91,415,000 from $72,796,000 for 1996 as reported, and
decreased 25.7% from $123,042,000 on a pro forma basis in 1996. Net premiums
written for the year ended December 31, 1997, increased 47.8% to $100,055,000
from $67,718,000 for 1996 as reported, and decreased 14.2% from $116,604,000 in
1996 on a pro forma basis. Gross written, net written and net earned premium for
1997 declined from prior-year levels on a pro forma basis reflecting a
continuation of the increasingly competitive business environment which has
marked recent renewal seasons. Lower reinstatement premiums as a result of
reduced losses and additional reinsurance purchased at favorable rates
contributed to these declines. PXRE continued its planned response to this
increasingly competitive environment by withdrawing capacity from areas of
coverage not offering appropriate compensation for the exposure.


                                      -40-


<PAGE>

<PAGE>


      Premiums ceded by PXRE to its managed business participants decreased
22.1% to $16,534,000 for 1997 compared with $21,238,000 for 1996. The decrease
in premiums ceded to these programs was due to reduced amounts of premiums
written by PXRE and a change in the percentage ceded as agreed with the
participants. During 1996, before the Merger, PXRE ceded $19,965,000 of premiums
to Transnational Reinsurance in lieu of direct reinsurance writings by
Transnational Reinsurance. During 1997 PXRE increased its purchases of
catastrophe retrocessional coverage for it's own protection in light of the
continued general deterioration in catastrophe reinsurance pricing and the
opportunity to buy protection at more favorable terms than in recent years.

      Management fee income from all sources for 1997 decreased to $3,006,000
from $6,032,000 for 1996 as reported, reflecting a decline of premiums ceded to
managed business participants, as well as management fee income of $2,512,000
earned by PXRE from TREX, before the Merger, in 1996. Management fee income
decreased to $3,006,000 for 1997 from $3,520,000 for 1996 on a pro forma basis,
reflecting the decreased amount of ceded premium, offset in part by more
profitable business.

      The loss ratio was 13.7% for 1997 compared with 25.5% for 1996 as
reported, and 28.8% for 1996 on a pro forma basis. The loss ratio for 1997
reflected a reversal of catastrophe losses of $1,457,000 gross and $964,000 net
for 1997 and prior accident years, after taking into account, among other
things, the German, Poland and Czech flood losses referred to below. In
comparison, the loss ratio for 1996 reflected incurred catastrophe losses of
$18,487,000 gross and $9,166,000 net for 1996 and prior accident years as
reported, and $27,522,000 gross and $17,689,000 net for 1996 and prior accident
years on a pro forma basis.

      Significant catastrophe and risk losses affecting the year ended December
31, 1997 loss ratio are as follows:

                                                      Amount of Losses
                                                      ----------------
Loss Event                                       Gross                Net
----------                                       -----                ---
                                                        (in thousands)

German, Poland and Czech floods                  $1,739               $1,457


                                      -41-


<PAGE>

<PAGE>


      Significant catastrophe and risk losses affecting the year ended December
31, 1996 loss ratio are as follows:

                                       As Reported              Pro Forma
                                       -----------              ---------
                                                Amount of Losses
                                                ----------------
Loss Event                           Gross        Net        Gross       Net
----------                           -----        ---        -----       ---
                                                  (in thousands)

Hurricanes Marilyn and Luis          $8,064      $2,995     $11,978    $6,876
Hurricane Fran                        4,218       2,827       5,621     3,980
Northridge earthquake                 1,646       1,438       1,198     1,083
Eurotunnel fire                       1,260       1,022       2,238     2,000
Credit Lyonnais fire                  2,669         723       4,606     2,647

      The provision for losses and loss expenses and the loss ratio includes the
effect of foreign exchange movements on PXRE's liability for losses and loss
expenses, resulting in a foreign currency exchange gain of $627,000 for 1997
compared to a loss of $41,000 for 1996 as reported, and a loss of $56,000 for
1996 on a pro forma basis.

      During 1997, PXRE experienced savings of $3,917,000 net for prior-year
loss and loss expenses primarily related to the Eurotunnel fire and Hurricane
Fran where redundant reserves were recognized in 1997 of approximately
$1,644,000 and $1,440,000, respectively. In addition, included in the savings of
$3,917,000 were prior-year losses originally thought to have triggered market
loss coverage thresholds which have proven to be redundant by approximately
$1,800,000, offset in part by development on prior year facultative losses. The
loss ratio for 1996 was unfavorably affected by increases to reserves of
$3,249,000 net for prior-year losses and loss expenses, as reported, and
$8,986,000 net for prior-year losses and loss expenses on a pro forma basis,
related principally to Hurricanes Marilyn and Luis.

      The underwriting expense ratio was 34.8% for 1997 compared with 26.2% for
the comparable period of 1996 as reported, and 27.6% for the corresponding
period of 1996 on a pro forma basis. As a result of the above, the combined
ratio was 48.5% for 1997 compared with 51.7% for the corresponding period of
1996 as reported, and 56.4% for the corresponding period of 1996 on a pro forma
basis. The increase in underwriting expense ratio was substantially due to the
PXRE Lloyd's Syndicate operations, the decline in premiums earned on a pro forma
basis, the decline in management fee income and the foreign exchange losses
discussed below.

      Other operating expenses increased to $15,716,000 for 1997 from
$12,262,000 in 1996 as reported, and $15,195,000 for 1996 on a pro forma basis.
Included in other operating expenses were foreign currency exchange losses of
$1,221,000 for 1997 compared to gains of $143,000 for 1996 as reported, and
gains of $210,000 for 1996 on a pro forma basis. Operating expenses were
$17,191,000 excluding foreign exchange losses and amortization of negative
goodwill of $2,696,000 in 1997 compared with $18,101,000 in 1996 pro forma
results excluding the same items. This decrease was primarily due to the non
recurring costs related to the TREX merger in 1996.


                                      -42-


<PAGE>

<PAGE>


      During 1997, interest expense decreased to $3,325,000 as compared to
$6,957,000 in the prior-year as reported due to the effect of the repurchase of
$43.3 million of PXRE's 9.75% Senior Notes in open market purchases through the
end of the third quarter of 1997. In addition, in 1997 PXRE incurred minority
interest expense amounting to $8,184,000 related to PXRE's $100 million of
newly-issued 8.85% Capital Trust Pass-through Securities `sm' (TRUPS `sm') (as
described below under "Liquidity and Capital Resources").

      In 1997, PXRE recorded an extraordinary loss of $2,774,000, net of tax, in
connection with the purchase of $43.3 million of PXRE's 9.75% Senior Notes and
the associated write-off of the pro rata share of the unamortized debt issuance
costs.

      Net investment income for 1997 increased 85.9% to $31,191,000 from
$16,782,000 for 1996 as reported. The increase in net investment income was
caused primarily by $9,201,000 of investment income from Transnational
Reinsurance, $2,213,000 from incremental total return income (including
unrealized gains and losses) from higher yielding limited partnership
investments from the planned repositioning of the investment portfolio and the
remainder from increased average assets, which in part was due to proceeds of
the 8.85% TRUPS `sm' in excess of Senior Notes repurchased in 1997. PXRE's
pre-tax investment yield was 6.3% for 1997 compared with 6.4% for 1996 as
reported, both calculated using amortized cost and investment income before
investment expenses. Net realized investment gains for 1997 were $2,467,000
compared to gains of $94,000 for 1996 reflecting the active management of the
portfolio. During 1997, PXRE recorded directly to equity an after-tax unrealized
gain of $2,605,000 in the value of its investment portfolio ($0.19 book value
per share), reflecting the effect of decreasing interest rates during the
period.

      The net effects of foreign currency exchange fluctuations were losses of
$594,000 in 1997 and gains of $102,000 for 1996. See "Liquidity and Capital
Resources."

      Net income for the year ended December 31, 1996 included $3,898,000 which
represented PXRE's approximately 22.1% equity share of TREX's net earnings
before the Merger.

      For the reasons discussed above, net income was $44,253,000 for 1997
compared to $33,301,000 for 1996 as reported, and $49,161,000 for 1996 on a pro
forma basis. Diluted income per common share before extraordinary loss was $3.39
for 1997 compared to $3.69 for the prior comparable period as reported, and
$3.42 on a pro forma basis. Diluted net income per common share was $3.19 for
1997 compared to $3.69 for 1996 as reported, and $3.42 for 1996 on a pro forma
basis based on average shares outstanding of approximately 13,893,000 in 1997,
9,020,000 in 1996 as reported, and 14,389,000 in 1996 on a pro forma basis.


                                      -43-


<PAGE>

<PAGE>


Liquidity and Capital Resources

      PXRE relies primarily on cash dividends and net tax allocation payments
from its subsidiaries PXRE Reinsurance and Transnational Insurance to pay its
operating expenses and income taxes, to meet its debt service obligations and to
pay dividends to PXRE stockholders. The payment of dividends by PXRE Reinsurance
to PXRE and by Transnational Insurance to PXRE Reinsurance is subject to limits
imposed under the insurance laws and regulations of Connecticut, the state of
incorporation and domicile of PXRE Reinsurance and Transnational Insurance, as
well as certain restrictions arising in connection with PXRE indebtedness
discussed below. Under the Connecticut insurance law, the maximum amount of
dividends or other distributions that PXRE Reinsurance may declare or pay to
PXRE, and that Transnational Insurance may declare or pay to PXRE Reinsurance,
within any twelve-month period, without regulatory approval, is limited to the
lesser of (a) earned surplus or (b) the greater of 10% of policyholders' surplus
at December 31 of the preceding year or 100% of net income for the twelve-month
period ending December 31 of the preceding year, all determined in accordance
with SAP. Accordingly, the Connecticut insurance laws could limit the amount of
dividends available for distribution by PXRE Reinsurance or Transnational
Insurance without prior regulatory approval, depending upon a variety of factors
outside the control of PXRE, including the frequency and severity of catastrophe
and other loss events and changes in the reinsurance market, in the insurance
regulatory environment and in general economic conditions. The maximum amount of
dividends or distributions that PXRE Reinsurance may declare and pay during
1999, without regulatory approval, is $44,722,900. During 1998, no dividends
were paid by Transnational Insurance to PXRE Reinsurance. During 1998,
$57,388,000 in dividends were paid by PXRE Reinsurance to PXRE.

      In the event the amount of dividends available, together with other
sources of funds, are not sufficient to permit PXRE to meet its debt service and
other obligations and to pay cash dividends, it would be necessary to obtain the
approval of the Connecticut Insurance Commissioner prior to the payment of
additional dividends by PXRE Reinsurance (or Transnational Insurance). If such
approval were not obtained, PXRE would have to adopt one or more alternatives,
such as refinancing or restructuring its indebtedness or seeking additional
equity. There can be no assurance that any of these strategies could be effected
on satisfactory terms, if at all. In the event that PXRE were unable to generate
sufficient cash flow and were otherwise unable to obtain funds necessary to meet
required payments of principal and interest on its indebtedness, PXRE could be
in default under the terms of the agreements governing such indebtedness. In the
event of such default, the holders of such indebtedness could elect to declare
all of the funds borrowed thereunder to be due and payable together with accrued
and unpaid interest.

      In December 1998 PXRE entered into a Credit Agreement dated as of December
30, 1998 (the "Credit Agreement") with First Union National Bank ("First Union")
as Agent and as a Lender, pursuant to which First Union and additional Lenders
which may become parties thereto agree to make available to PXRE a revolving
credit facility. As at December 31, 1998, PXRE had outstanding borrowings under
the Credit Agreement of $50,000,000, the net proceeds of which were contributed
to the capital of PXRE Reinsurance. Loans under the Credit Agreement bear
interest at an annual rate equal to First Union's base rate, as in effect from
time to time, for


                                      -44-


<PAGE>

<PAGE>


base rate loans or at a margin (.875% as of December 31, 1998) over First
Union's Eurodollar rate for periods of 30, 60, 90 or 180 days for LIBOR loans.
In connection with the Credit Agreement, PXRE and First Union entered into an
interest rate swap which, effective December 31, 1998, has the intended effect
of converting such $50 million borrowings by PXRE into a fixed rate borrowing at
an annual interest of 6.215%. Commitments under the Credit Agreement terminate
on March 31, 2005 and are subject to annual reductions of 13 1/3% commencing
March 31, 2000 and 33 1/3% on March 31, 2005, and, unless due or paid sooner,
the aggregate principal of the loans are due and payable in full on March 31,
2005.

      The Credit Agreement contains covenants which, among other things, limit
the ability of PXRE and its subsidiaries (including PXRE Reinsurance,
Transnational Insurance and PXRE Limited): (a) to incur additional Indebtedness
(other than certain permitted Indebtedness); (b) to create Liens upon their
properties or assets (other than Permitted Liens); (c) to sell, transfer or
otherwise dispose of their assets, business or properties (other than certain
permitted dispositions); (d) to make additional Investments (other than certain
permitted Investments, including Permitted Acquisitions and other Investments in
compliance with, among other things, applicable law and the limitations set
forth in the investment policy of PXRE Reinsurance in effect on December 30,
1998 and not exceeding specified limits); (e) to pay dividends or repurchase
stock if after giving effect thereto a Default or Event of Default exists or the
Fixed Charge Coverage Ratio would be less than 1.5 to 1.0 as defined in the
Credit Agreement; (f) to enter into certain transactions with Affiliates; (g) to
engage in any business other than (1) the businesses engaged in on December 30,
1998 and businesses and activities reasonably related thereto or (2) in the case
of any Insurance Subsidiary, the sale of any property and casualty insurance or
reinsurance products; (h) to enter into or remain a party to certain ceded
reinsurance agreements (1) with certain reinsurers that are neither rated "A-"
or better by A.M. Best nor have financial strength ratings of "A-" or better by
S&P or Moody's unless such reinsurers are Lloyd's syndicates and Lloyd's
maintains a rating of "A-" or better by A.M. Best or S&P or such reinsurers have
provided appropriate collateral in respect of their obligations, or (2) which
constitute Surplus Relief Agreements and which increase Combined Statutory
Capital and Surplus by more than 5% as of the most recent fiscal year end; or
(i) to consolidate, merge or otherwise combine (or agree to do any of the
foregoing) unless, among other things, (1) PXRE is the surviving entity in such
merger or consolidation, (2) such merger or consolidation constitutes a
Permitted Acquisition and the conditions and requirements of the Credit
Agreement are complied with and (3) immediately thereafter no Default or Event
of Default exists. The Credit Agreement also requires PXRE and PXRE Reinsurance
where applicable to meet Leverage Ratio, Fixed Charge Coverage Ratio, Risk-Based
Capital Ratio and Combined Statutory Surplus requirements. As at December 31,
1998 PXRE was in compliance with the covenants contained in the Credit
Agreement.

      The Credit Agreement enumerates various Events of Default, including but
not limited to, if: (1) any Person or group becomes the "beneficial owner" of
securities of PXRE representing 20% or more of the combined voting power of the
then outstanding securities of PXRE ordinarily having the right to vote in the
election of directors; or (2) the Board of Directors of PXRE ceases to consist
of a majority of the individuals who constituted the Board as of December 30,
1998 or who subsequently become members after having been nominated, or
otherwise approved in writing, by at least a majority of individuals who
constituted the 


                                      -45-


<PAGE>

<PAGE>


Board as of December 30, 1998 (or their approved replacements). A copy of the
Credit Agreement is filed as Exhibit 4.8 and is incorporated herein by
reference.

      On January 29, 1997, PXRE Capital Trust I, a Delaware statutory business
trust and a wholly-owned subsidiary of PXRE ("PXRE Capital Trust") issued
$100,000,000 principal amount of its 8.85% TRUPS `sm' due February 1, 2027 in an
institutional private placement. Proceeds from the sale of these securities were
used to purchase PXRE's 8.85% Junior Subordinated Deferrable Interest Debentures
due February 1, 2027 (the "Subordinated Debt Securities"). On April 23, 1997,
PXRE and PXRE Capital Trust completed the registration with the Securities and
Exchange Commission of an exchange offer for these securities and the securities
were exchanged for substantially similar securities (the "Capital Securities").
Distributions on the Capital Securities (and interest on the related
Subordinated Debt Securities) are payable semi-annually, in arrears, on February
1 and August 1 of each year, commencing August 1, 1997. Minority interest
expense, including amortization of debt offering costs, for 1998 in respect of
the Capital Securities (and related Subordinated Debt Securities) amounted to
approximately $8,928,000. On or after February 1, 2007, PXRE has the right to
redeem the Subordinated Debt Securities, in whole at any time or in part from
time to time, subject to certain conditions, at call prices of 104.180% at
February 1, 2007, declining to 100.418% at February 1, 2016, and 100%
thereafter. PXRE has the right, at any time, subject to certain conditions, to
defer payments of interest on the Subordinated Debt Securities for Extension
Periods (as defined in the applicable indenture), each not exceeding 10
consecutive semi-annual periods; provided that no Extension Period may extend
beyond the maturity date of the Subordinated Debt Securities. As a consequence
of PXRE's extension of the interest payment period on the Subordinated Debt
Securities, distributions on the Capital Securities would be deferred (though
such distributions would continue to accrue interest at a rate of 8.85% per
annum compounded semi-annually). In the event that PXRE exercises its right to
extend an interest payment period, then during any Extension Period, subject to
certain exceptions, (i) PXRE shall not declare or pay any dividend on, make any
distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock or rights to
acquire such capital stock or make any guarantee payments (subject to specified
exceptions) with respect to the foregoing, and (ii) PXRE shall not make any
payment of interest on, or principal of (or premium, if any, on), or repay,
repurchase or redeem, any debt securities issued by PXRE which rank pari passu
with or junior to the Subordinated Debt Securities. Upon the termination of any
Extension Period and the payment of all amounts then due, PXRE may commence a
new Extension Period, subject to certain requirements.

      PXRE has used the net proceeds from the sale of the Capital Securities for
general corporate purposes, including the redemption and the purchase of
outstanding indebtedness and common stock of PXRE.

      In August 1993, PXRE completed a public offering of $75,000,000 principal
amount of 9.75% Senior Notes due August 15, 2003. Interest expense, including
amortization of debt offering costs, for 1998 in respect of the Senior Notes
amounted to approximately $1,395,000. As previously announced, PXRE elected to
redeem on August 15, 1998, all of the outstanding 9.75% Senior Notes due August
15, 2003, issued under the Indenture dated August 31, 1993. 


                                      -46-


<PAGE>

<PAGE>


      The Notes were redeemed at a price of 103.656% of the principal amount,
plus accrued interest thereon to August 15, 1998, and, as a result, PXRE
recorded an extraordinary loss of $843,000, net of tax, in the third quarter of
1998, including the remaining unamortized offering costs.

      PXRE files federal income tax returns for itself and all of its direct or
indirect subsidiaries that satisfy the stock ownership requirements for
consolidation for federal income tax purposes (collectively, the
"Subsidiaries"). PXRE is party to an Agreement Concerning Filing of Consolidated
Federal Income Tax Returns (the "Tax Allocation Agreement") pursuant to which
each domestic Subsidiary makes tax payments to PXRE in an amount equal to the
federal income tax payment that would have been payable by such Subsidiary for
such year if it had filed a separate income tax return for such year. PXRE is
required to provide for payment of the consolidated federal income tax liability
for the entire group. If the aggregate amount of tax payments made in any tax
year by a domestic Subsidiary is less than (or greater than) the annual tax
liability for such Subsidiary on a stand-alone basis for such year, such
Subsidiary will be required to make up such deficiency to PXRE (or will be
entitled to receive a credit if payments exceed the separate return tax
liability of the subsidiary).

      The primary sources of liquidity for PXRE Reinsurance are net cash flow
from operating activities (including interest income from investments), the
maturity or sale of investments, borrowings, capital contributions and advances
from PXRE and dividends from Transnational Insurance. Funds are applied
primarily to the payment of claims, operating expenses and, income taxes and to
the purchase of investments. Premiums are typically received in advance of
related claim payments.

      Net cash flow provided by operations was $4,955,000 in 1998 compared with
net cash flow provided by operations of $19,626,000 during 1997, due to a
decrease in net income and the effects of timing of collection of receivables
and reinsurance recoverables and payments of losses.

      PXRE's management has established general procedures and guidelines for
its investment portfolio and oversees investment management carried out by
Phoenix Investment Partners, Limited (formerly Phoenix Duff & Phelps
Corporation), a public majority-owned subsidiary of Phoenix Home Life, and by
selected other investment managers. PXRE's invested assets include equities and
investments in limited partnerships, REITS, emerging market debt and other high
yield bonds, and PXRE's investments are subject to market-wide risks and
fluctuations, as well as to risk inherent in particular securities. At December
31, 1998, PXRE's investment portfolio consisted primarily of fixed maturities
and short-term investments. As at December 31, 1998, 77.6% of PXRE's investment
portfolio, at fair value, consisted of fixed maturities and short-term
investments, while the balance was in equity securities including various mutual
funds and other invested assets primarily in the form of limited partnerships.
The investment policies stress conservation of principal, diversification of
risk and liquidity and are approved by its Board of Directors.

      Of PXRE's fixed maturities portfolio at December 31, 1998, 84.4% of the
fair value


                                      -47-


<PAGE>

<PAGE>


was in obligations rated "A2" or "A" or better by Moody's or S&P, respectively.
Mortgage backed securities accounted for 14.7% of fixed maturities based on fair
value at December 31, 1998. At December 31, 1998 PXRE had no investments in real
estate or commercial mortgage loans; however, PXRE has invested in common and
preferred shares of publicly traded REITS. The average market yield to maturity
of PXRE's fixed maturities portfolio at December 31, 1998 and 1997, was 5.9% and
6.1%, respectively. Starting in the first quarter of 1997, PXRE has repositioned
a portion of its portfolio out of U.S. Treasury, GNMA and short-term investments
into new sectors including asset and corporate mortgage backed securities,
emerging markets securities, tax-free municipals, investment grade Yankee bonds,
a number of limited partnership investments and, to a lesser extent, equity
investments and a diversified REIT portfolio.

      Fixed maturity and equity investments are reported at fair value, with the
net unrealized gain or loss, net of tax, reported as a separate component of
stockholders' equity. PXRE recorded directly to stockholders' equity a
$3,167,000 after-tax unrealized loss in the value of its investment portfolio
($0.26 book value per share) at December 31, 1998, primarily from its emerging
market securities and from its overall bond and common stock portfolio
reflecting volatile market conditions during 1998.

      Short-term investments are carried at amortized cost, which approximates
fair value. PXRE's short-term investments, principally high-grade commercial
paper, U.S. Treasury bills and investment in a limited partnership which invests
primarily in U.S. Treasury bills, were $58,862,000 at December 31, 1998 compared
to $52,905,000 at December 31, 1997. The increase at December 31, 1998 was
principally due to liquidity requirements associated with the PXRE Lloyd's
Syndicate operation. Other invested assets amounting to $65,164,000 at December
31, 1998, which were comprised principally of limited partnerships, were
accounted for under the equity method. The amount of equity loss included in
short-term investments and other invested assets at December 31, 1998 amounted
to $5,029,000 primarily from limited partnership investments in commodities.
During December 1998 and January 1999, PXRE divested itself of 80% of this
investment.

      Dividends declared in 1998 were $13,585,333 compared to $12,209,000 in
1997, as a result of the increase in the per share quarterly dividend from $0.21
to $0.25 in the fourth quarter of 1997. The expected annual dividend based on
shares outstanding at December 31, 1998 will be approximately $12,817,000
reflecting a per share dividend increase to $0.26 per quarter commencing in the
fourth quarter of 1998.

      Book value per common share was $27.13 at December 31, 1998.

      During the fourth quarter of 1998, PXRE acquired 992,700 shares of common
stock under its current authorized stock repurchase program and, subsequent to
December 31, 1998 and through to March 19, 1999, PXRE has purchased an
additional 651,800 shares of common stock. PXRE continues to have authorization
under that plan to repurchase up to 648,200 shares. PXRE had 12,323,764 common
shares outstanding as of December 31, 1998.

      PXRE may be subject to gains and losses resulting from currency
fluctuations because 


                                      -48-


<PAGE>

<PAGE>


substantially all of its investments are denominated in U.S. dollars, while some
of its net liability exposure is in currencies other than U.S. dollars. PXRE
holds, and expects to continue to hold, currency positions and has made, and
expects to continue to make, investments denominated in foreign currencies to
mitigate, in part, the effects of currency fluctuations on its results of
operations. Currency holdings and investments denominated in foreign currencies
do not constitute a material portion of PXRE's investment portfolio and, in the
opinion of PXRE's management, are sufficiently liquid for its needs.

      In connection with the capitalization of PXRE Lloyd's Syndicate, PXRE has
placed on deposit $46,287,000 par value of U.S. government securities and
municipal bonds as collateral for Lloyd's. In addition, PXRE issued a letter of
credit for the benefit of Lloyd's in the amount of $15,355,000, which is
collateralized by municipal bonds for approximately $17,835,000. In addition,
PXRE has provided a ('L')5,000,000 ($8.3 million at December 31, 1998 exchange
rates) line of credit to PXRE Managing Agency for liquidity purposes. There has
been no drawdown of these amounts through December 31, 1998.

      In September 1997, PXRE and Phoenix Home Life completed the formation of a
joint venture, Cat Bond Investors L.L.C., with initial committed capital of $20
million. The joint venture specializes in investing in instruments, the returns
on which are determined, in whole or in part, by the nature, magnitude and/or
effects of certain catastrophic events or meteorological conditions.

      All amounts classified as reinsurance recoverable at December 31, 1998 are
considered by management of PXRE to be collectible in all material respects.

Market Risk

      PXRE is exposed to market risks that are principally interest rate and
equity price risks. PXRE is exposed to potential losses from changes in interest
rates with respect to its investments, borrowings, and a related interest rate
swap. PXRE is exposed to potential losses from changes in equity prices with
respect to its investments. PXRE believes its exposure to foreign exchange risk
and exposures to other market risks represented by weather contracts, are not
currently material.

      PXRE risk management strategy is to accept certain levels of market risks,
principally through its investment activities, in order to offset its insurance
exposures that may be considered actuarial rather than financial. The objectives
of PXRE's investment activities are to generate the required return from
selected market sectors and limit its exposures to market risks that may prevent
PXRE from servicing its insurance obligations. PXRE's Board of Directors
approves investment guidelines and the selection of external investment advisers
who manage PXRE's portfolios. The investment managers make tactical investment
decisions within the established guidelines. Management monitors the external
advisers through written reports that are reviewed and approved by the Board of
Directors. Management also manages diversification strategies across the
portfolios in order to limit PXRE's potential loss from any single market risk.
The performance and risk profiles of the portfolio are reported in various forms
throughout the fiscal year to management, the Board of Directors, rating
agencies, 


                                      -49-


<PAGE>

<PAGE>


regulators, and to shareholders.

      The investment portfolio of PXRE is summarized in the Notes to the
Financial Statements, Item 7, Management's Discussion and Analysis and Item 1,
Business.

Interest Rate Risk

      PXRE's principal market risk exposure is to changes in domestic interest
rates. Changes in interest rates may affect the fair value of PXRE's
fixed-income portfolio, borrowings (Bank Debt and Trust Preferred) and a related
interest rate swap. PXRE's holdings subject it to exposures in the treasury,
municipal, and various asset-backed sectors. These sectors consist primarily of
investment grade securities whose fair value is subject to interest rate and
prepayment risk. All investment positions are long with no 'short' or derivative
positions.

      PXRE's investment in foreign sovereign debt securities are subject to
interest rate risk which is included in the sensitivity analysis below. However,
the major risk factor with these sectors is credit risk. The fair values of
these securities reflect their below investment grade credit ratings. During the
third and fourth quarter of 1998, these sectors were subjected to substantial
declines in fair value during the instabilities from the emerging market crisis.
However, the value recovered substantially in the fourth quarter of 1998. The
potential loss estimated in this sensitivity analysis does not include a
separate estimate of losses from changes in credit spreads which, the Company
has experienced in the last two fiscal quarters. The Company does not expect
similar losses due to changes in credit spreads.

      PXRE believes that reinsurance receivables and payables do not expose it
to significant interest rate risk and are excluded from the analysis below.

      In order to measure PXRE's exposure to changes in interest rates a
sensitivity analysis was performed. Potential loss is measured as a change in
fair value. The fair value of the fixed income portfolio, borrowings and related
interest rate swap at year-end was re-measured from the fair values reported in
the financial statements assuming a 10% parallel increase in rates across the
U.S. dollar yield curve. The potential loss in fair value due to interest rate
exposure was estimated at $1 million.

      The estimated potential loss reflects the prepayment risk of the
mortgage-related securities. The mortgage sector is a minor portion of the
portfolio at year-end and was largely liquidated soon thereafter. The estimate
assumes a similar change in fair value across security sectors with no
adjustment for change in value due to credit risk. The interest rate risk
related to the investments of the Lloyd's Syndicate is diminimus. The average
maturity of these investments is under one year.

Credit Risk

      PXRE's exposure to potential loss due to changes in credit spreads was
simulated through a sensitivity analysis assuming an increase in credit spreads
of 200 basis points with 


                                      -50-


<PAGE>

<PAGE>


respect to the foreign sovereign securities holdings. The estimated potential
loss in fair value due to changes in credit spreads was estimated at $5 million.
This analysis excludes the impact of changes in credit spreads on other
portfolio sectors and borrowings that may be offsetting.

Foreign Exchange Risk

      PXRE's exposure to foreign exchange risk from its foreign denominated
securities is not material. Only a small portion of PXRE's investment portfolio
is denominated in currencies other than U.S. dollars. Additionally the carrying
value of certain receivables and payables denominated in foreign currencies are
carried at fair value. For these reasons, these items have been excluded from
the market risk disclosure.

Equity Price Risk

      PXRE is exposed to equity price risk in the form of a limited number of
equity investments, including holdings in the common stock of domestic REIT's.
Based on a 10% decrease in equity prices the potential loss in fair value is
estimated to be $4 million.

Diversification Benefit

      PXRE's risk management strategy includes investments that are expected to
reflect offsetting changes in fair value in response to various changes in
market risks. PXRE's exposure to interest risk in its fixed income portfolio is
expected to be offset in part by the change in value of its REIT's. PXRE also
invests in REIT's to limit the potential loss due to exposures to changes in
interest rates; this loss limit is based on the expected minimum value of the
real estate holdings of the trusts.

      PXRE also holds other investments that are excluded from this disclosure
that are expected to provide positive returns under most market conditions
representing adverse changes in interest rates and other market factors (See
Note 5 to the Financial Statements).

      To compare the magnitude of changes in fair value due to interest rate
changes with those of other risk factors in the investment portfolio, reference
should be made to Footnote 5 to the Financial Statements related to realized and
unrealized gains and losses on investments.

Income Taxes

      PXRE recognized a tax benefit of $1,661,000 in 1998 compared to tax
expense in 1997 and 1996 of $20,705,000 and $15,644,000, respectively. The tax
benefit reported by PXRE for 1998 is attributable primarily to tax-exempt income
and amortization of negative goodwill. Tax expense in 1997 and 1996 differed
from the statutory rate principally due to the relative proportion of
underwriting and taxable investments versus tax exempt investments, negative
goodwill amortization and state and local taxes.


                                      -51-


<PAGE>

<PAGE>


Year 2000 Update

      PXRE's Year 2000 Project is proceeding on schedule. The Project is
addressing the issue of computer programs and embedded computer chips being
unable to distinguish between the year 1900 and the year 2000. PXRE believes
that the impact of Year 2000 issues on its internal computer systems will not be
material. PXRE wrote and upgraded most of its software over the last four years
in an Oracle based software environment that has been certified as Year 2000
compliant. It has been PXRE's internal standard to develop or, where necessary,
redevelop internally based systems using 4 digit date fields for all
calculations.

      Two older legacy systems have been identified as not being year 2000
compliant. One is a vendor provided general ledger system, which was replaced
with a new, Year 2000 certified general ledger system in December 1998. This
system has been implemented, tested and converted and is working properly
effective with year-end 1998. Another system, which was internally developed,
was upgraded and rewritten by December 31, 1998.

      PXRE has replaced or upgraded, as part of its normal upgrade of hardware
and software, most of its mission critical servers, personal computers and
related desktop or network software to Year 2000 compliant versions. The cost of
replacing or upgrading any remaining non-compliant equipment is not expected to
be material. PXRE budgeted and expended $300,000 in 1998 for the upgrade and
replacement of software systems and hardware for this purpose. Management of
PXRE does not anticipate any material expenditures to replace or upgrade
hardware or software in 1999 related to Year 2000 compliance.

      PXRE has been in contact with its other material business partners to
determine their state of readiness with regard to the Year 2000 issue and the
potential impact on PXRE. PXRE has identified the following categories of
business partners as material to PXRE's ability to conduct its operations: banks
and investment advisors, reinsurance intermediaries, major reinsurance clients,
telecommunications providers and utilities.

      In connection with reinsurance intermediaries and reinsurance clients,
PXRE has the ability to verify their calculations of reinsurance transactions so
that material errors brought on by a failure of their systems are capable of
being detected.

      Where PXRE has determined that the relationship with a business partner is
material to its ability to conduct normal operations, PXRE has sent letters to
that partner requesting an update on the status of its Year 2000 initiative.
Where deemed necessary, PXRE is following up with the business partner to obtain
additional information. Based on these assurances and PXRE's internal reviews of
the information provided, PXRE has not currently identified a material business
partner that will not be compliant. However, there can be no assurance that all
business partners will supply accurate or up-to-date information regarding their
preparedness for the Year 2000, and there can be no assurance that all material
business partners will be compliant. Such non-compliance could have a material
effect on PXRE's financial position and results of operations. PXRE expects to
complete its review of material business partners by June 30, 1999.


                                      -52-


<PAGE>

<PAGE>


      PXRE has made the decision to evaluate the potential Year 2000 exposures
emanating from its reinsurance business by conducting an analysis of each
individual customer's risk exposures. Where appropriate, PXRE intends to require
that an exclusion be added to the reinsurance contract or letter of intent be
received. PXRE began adding exclusions to reinsurance contracts in early 1998.
Additionally, it is PXRE's position, in common with others in the industry that
Year 2000 exposures are not fortuitous losses and thus are not covered under
reinsurance contracts even without specific exclusions. For these reasons, PXRE
believes that its exposures to Year 2000 claims will not be material. However,
as was the case with environmental exposures, changing social and legal trends
may create unintended coverage for exposures by reinterpreting reinsurance
contracts and related exclusions. It is impossible to predict what, if any,
exposure reinsurance companies may ultimately have for Year 2000 claims whether
coverage for the issue is specifically excluded or included.

      PXRE is reviewing its disaster recovery procedures and testing its ability
to redeploy its computer and staff operations to a remote hot site location in
the event of failure on the part of public utilities to provide electrical power
or communication links following a Year 2000 problem. Additional formal
contingency plans will not be formulated until PXRE has identified specific
areas where there is a substantial risk of Year 2000 problems occurring, and no
such areas have been identified as of this date.

      Readers are cautioned that forward-looking statements contained in this
Year 2000 Update should be read in conjunction with the Company's disclosures
under the heading: "CAUTIONARY STATEMENT REGARDING FORWARD LOOKING
STATEMENTS."

Cautionary Statement Regarding Forward-Looking Statements

      This report contains various forward-looking statements and includes
assumptions concerning PXRE's operations, future results and prospects.
Statements included herein, as well as statements made by or on behalf of PXRE
in press releases, written statements or other documents filed with the
Securities and Exchange Commission, or in its communications and discussions
with investors and analysts in the normal course of business through meetings,
phone calls and conference calls, which are not historical in nature are
intended to be, and are hereby identified as, "forward-looking statements" for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934 as amended. These forward-looking statements are based on current
expectations and are subject to risk and uncertainties. PXRE cautions investors
and analysts that actual results or events could differ materially from those
set forth or implied by the forward-looking statements and related assumptions,
depending on the outcome of certain important factors including, but not limited
to, the following: (i) the frequency and severity of catastrophic events; (ii)
changes in the level of competition in the reinsurance or primary insurance
markets that impact the volume or profitability of the property-casualty
reinsurance business (these changes include, but are not limited to, the
intensity of price competition, the entry of new competitors, existing
competitors exiting the market and the development of new products by new and
existing competitors); (iii) changes in the demand for reinsurance, including
changes in the amount of ceding companies' retentions and changes in the demand
for excess and surplus lines insurance coverages; (iv) the ability of PXRE to
execute its diversification initiatives in markets in which PXRE has not had a


                                      -53-


<PAGE>

<PAGE>


significant presence; (v) adverse development on loss reserves related to
business written in prior years; (vi) lower than estimated retrocessional
recoveries on unpaid losses, including the effects of losses due to a decline in
the creditworthiness of PXRE's retrocessionaires; (vii) increases in interest
rates, which cause a reduction in the market value of PXRE's interest rate
sensitive investments, including its fixed income investment portfolio; (viii)
decreases in interest rates causing a reduction of income earned on new cash
flow from operations and the reinvestment of the proceeds from sales, calls or
maturities of existing investments; (ix) market fluctuations in equity
securities and securities underlying limited partnership investments, (x)
changes in the composition of PXRE's investment portfolio; and (xi) changes in
management's evaluation of the impact of the Year 2000 problem on its
operations.

      In addition to the factors outlined above that are directly related to
PXRE's business, PXRE is also subject to general business risks, including, but
not limited to, adverse state, federal or foreign legislation and regulation,
adverse publicity or news coverage, changes in general economic factors and the
loss of key employees.


                                      -54-


<PAGE>

<PAGE>


Item 8. Financial Statements and Supplementary Data

      The following financial statements are filed as part of this Form 10-K:

                                                                            Page
                                                                            ----

PXRE Corporation:

            Report of Independent Accountants                                F-1

            Consolidated Balance Sheets
              at December 31, 1998 and 1997                                  F-2

            Consolidated Statements of Income and
              Comprehensive Income for the years
              ended December 31,  1998, 1997 and 1996                        F-3

            Consolidated Statements of
              Stockholders' Equity for the years
              ended December 31, 1998, 1997 and 1996                         F-4

            Consolidated Statements of Cash Flow
              for the years ended December 31,
              1998, 1997 and 1996                                            F-5

            Notes to Consolidated Financial
              Statements                                                     F-6

Item 9. Disagreements on Accounting and Financial Disclosure

      No disclosure hereunder is required as PXRE has not changed its
accountants during the 24 months preceding December 31, 1998.


                                      -55-


<PAGE>

<PAGE>


                                    PART III

Item 10. Directors and Executive Officers of the Registrant

      The information required by this Item 10 is contained in PXRE's Proxy
Statement, which information is incorporated herein by reference and which Proxy
Statement will be filed within 120 days of the end of PXRE's 1998 fiscal year.

Item 11. Executive Compensation

      The information required by this Item 11 is contained in PXRE's Proxy
Statement, which information is incorporated herein by reference and which Proxy
Statement will be filed within 120 days of the end of PXRE's 1998 fiscal year.

Item 12. Security Ownership of Certain Beneficial Owners and Management

      The information required by this Item 12 is contained in PXRE's Proxy
Statement, which information is incorporated herein by reference and which Proxy
Statement will be filed within 120 days of the end of PXRE's 1998 fiscal year.

Item 13. Certain Relationships and Related Transactions

      The information required by this Item 13 is contained in PXRE's Proxy
Statement, which information is incorporated herein by reference and which Proxy
Statement will be filed within 120 days of the end of PXRE's 1998 fiscal year.


                                      -56-


<PAGE>

<PAGE>


                                     PART IV

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K

      (a)   The following documents are filed as part of this Form 10-K:

            (1)   Financial Statements

                                                                            Page
                                                                            ----

PXRE Corporation:

      Report of Independent Accountants                                      F-1

      Consolidated Balance Sheets at
        December 31, 1998 and 1997                                           F-2

      Consolidated Statements of Income and
        Comprehensive Income for the years
        ended December 31, 1998, 1997 and 1996                               F-3

      Consolidated Statements of  Stockholders' Equity
        for the years ended December 31, 1998, 1997 and 1996                 F-4

      Consolidated Statements of Cash Flow for the years
        ended December 31, 1998, 1997 and 1996                               F-5

      Notes to Consolidated Financial Statements                             F-6

            (2)   Financial Statements Schedules

      Schedule I - Summary of Investments 
      (The information required by this Schedule is presented 
      in the financial statements and the notes thereto included 
      in this Form 10-K.)                                                    ---

      Schedule II - Condensed Financial Information of Registrant           F-27

      Schedule III - Supplementary Insurance Information                    F-28


                                      -57-


<PAGE>

<PAGE>


      Schedule IV - Reinsurance
      (The information required by this Schedule is presented
      in the financial statements and the notes thereto included
      in this form 10-K.)                                                    ---

      Schedule VI -- Supplemental Information Concerning
      Property/Casualty Insurance Operations                                F-28

      Report of Independent Accountants on the Financial Statement
      Schedules and Consent of Independent Accountants                      F-29

      All other financial statement schedules have been omitted as
      inapplicable.

            (3)   Exhibits

      (3) Certificate of Incorporation and By-laws of PXRE Corporation. The
Restated Certificate of Incorporation and By-laws of PXRE Corporation were
previously filed with PXRE's Registration Statement on Form S-1 dated August 29,
1986, as amended by Amendment No. 1 thereto dated February 19, 1987 and by
Amendment No. 2 thereto dated March 25, 1987 (File No. 33-8406), as Exhibits 3.1
and 3.2 thereto, and are incorporated herein by reference. The Certificate of
Designations designating the Series A Cumulative Convertible Preferred Stock of
PXRE Corporation was previously filed with PXRE's Registration Statement on Form
S-2 dated February 21, 1992, as amended by Amendment No. 1 thereto dated April
1, 1992 and by Amendment No. 2 thereto dated April 13, 1992 and by Amendment No.
3 thereto dated April 23, 1992 (File No. 33-45893) as Exhibit 4.5 thereto, and
is incorporated herein by reference. The Certificate of Amendment dated May 20,
1993 to PXRE's Restated Certificate of Incorporation was previously filed with
PXRE's Registration Statement on Forms S-8 and S-3 dated June 3, 1993 (File No.
33- 63768) as Exhibit 4.3 thereto, and is incorporated herein by reference. The
Certificate of Amendment dated May 19, 1994 to PXRE's Restated Certificate of
Incorporation was previously filed as Exhibit 3 to the Annual Report on Form
10-K of PXRE for the fiscal year ended December 31, 1994 (File No. 0-15428), and
is incorporated herein by reference. The Certificate of Amendment dated December
9, 1996 to PXRE's Restated Certificate of Incorporation was previously filed
with PXRE's Registration Statement on Form S-3 dated January 3, 1997 (File No.
333-19207), and is incorporated herein by reference. The Certificate of Merger
of Transnational Re Corporation into PXRE Corporation, dated December 11, 1996,
was previously filed as Exhibit 3 to the Annual Report on Form 10-K of PXRE for
the fiscal year ended December 31, 1996 (File No. 0-15428), and is incorporated
herein by reference. A copy of the By-laws of PXRE Corporation as amended to
date is attached hereto as Exhibit 3.

      (4) Instruments Defining the Rights of Security Holders.


                                      -58-


<PAGE>

<PAGE>


      4.1 Trust Indenture, dated as of August 31, 1993, between PXRE, as issuer,
and The First National Bank of Boston, as trustee, relating to $75,000,000
principal amount of 9.75% Senior Notes of PXRE due 2003 (Exhibit 4.1 to PXRE's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1993 (File No.
0-15428), and incorporated herein by reference).

      4.2 Supplemental Indenture, dated as of January 24, 1997, between PXRE and
State Street Bank and Trust Company, as Successor Trustee, relating to
$75,000,000 original principal amount of 9.75% Senior Notes of PXRE due 2003
(Exhibit 4.2 to PXRE's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 0-15428), and incorporated herein by reference).

      4.3 Indenture, dated as of January 29, 1997, between PXRE and First Union
National Bank, as Trustee (Exhibit 4.3 to PXRE's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 (File No. 0-15428), and incorporated
herein by reference).

      4.4 First Supplemental Indenture, dated as of January 29, 1997, between
PXRE and First Union National Bank, as Trustee, in respect of PXRE's 8.85%
Junior Subordinated Deferrable Interest Debentures due 2027 (Exhibit 4.4 to
PXRE's Annual Report on Form 10-K for the fiscal year ended December 31, 1996
(File No. 0-15428), and incorporated herein by reference).

      4.5 Amended and Restated Declaration of Trust of PXRE Capital Trust I,
dated as of January 29, 1997, among PXRE, as sponsor, the Administrators
thereof, First Union Bank of Delaware, as Delaware Trustee, First Union National
Bank, as Institutional Trustee, and the holders from time to time of undivided
interests in the assets of PXRE Capital Trust I (Exhibit 4.5 to PXRE's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 (File No.
0-15428), and incorporated herein by reference).

      4.6 Capital Securities Guarantee Agreement, dated as of January 29, 1997,
between PXRE and First Union National Bank, as Guarantee Trustee (Exhibit 4.6 to
PXRE's Annual Report on Form 10-K for the fiscal year ended December 31, 1996
(File No. 0-15428), and incorporated herein by reference).

      4.7 Common Securities Guarantee Agreement, dated as of January 29, 1997,
executed by PXRE (Exhibit 4.7 to PXRE's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996 (File No. 0-15428), and incorporated herein
by reference).

      4.8 Credit Agreement dated as of December 30, 1998 among PXRE Corporation,
the banks and financial institutions listed on the signature pages thereto or
that subsequently become parties thereto (collectively, the "Lenders") and First
Union National Bank ("First Union") as agent for the Lenders (Exhibit 4.8 to
PXRE's Form 8-K dated January 8, 1999 (File No. 0-15428), and incorporated
herein by reference).


                                      -59-


<PAGE>

<PAGE>


      (10)  Material Contracts. The material contracts of PXRE are as follows:

      10.1 Registration Rights Agreement, dated January 29, 1997, among PXRE,
PXRE Capital Trust I and Salomon Brothers Inc, as Representative of the Initial
Purchasers (Exhibit 10.1 to PXRE's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 (File No. 0-15428), and incorporated herein by
reference).

      10.2 Purchase Agreement among PXRE, PXRE Capital Trust I and Salomon
Brothers Inc, as Representative of the Initial Purchasers, dated January 24,
1997 (Exhibit 10.2 to PXRE's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (File No. 0-15428), and incorporated herein by
reference).

      10.3 PXRE Reinsurance Company Management Agreement among PXRE Reinsurance
and, among others, Merrimack Mutual Fire Insurance Company ("Merrimack"),
Pennsylvania Lumbermens Mutual Insurance Company ("Pennsylvania Lumbermens"),
and NRMA Insurance Limited ("NRMA") (Exhibit 10.1 to PXRE's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991 (File No. 0-15428), and
incorporated herein by reference); letter dated November 28, 1990 from
Pennsylvania Lumbermens confirming reduced participation (Exhibit 10.7 to PXRE's
Form S-2 Registration Statement dated February 21, 1992, as amended by Amendment
No. 1 thereto dated April 1, 1992 and by Amendment No. 2 thereto dated April 13,
1992 and by Amendment No. 3 thereto dated April 23, 1992 (File No. 33-45893),
and incorporated herein by reference); cover notes respecting January 1997
renewals by Merrimack, Pennsylvania Lumbermens and NRMA and cover note
respecting participation commencing January 1, 1997 by Auto-Owners Insurance
Company ("Auto-Owners") (Exhibit 10.3 to PXRE's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 (File No. 0-15428), and incorporated
herein by reference); cover notes respecting January 1999 renewals by N.R.M.A.,
Pennsylvania Lumbermens, Auto-Owners and The Andover Companies (a Merrimack
company) (attached hereto as Exhibit 10.3).

      10.4 Tax Settlement Agreement dated June 21, 1991 between PXRE
Corporation, PXRE Reinsurance Company and PM Holdings, Inc. (Exhibit 10.2 to the
Annual Report on Form 10-K of PXRE for the fiscal year ended December 31, 1991
(File No. 0-15428), and incorporated herein by reference).

      10.5 Investment Advisory Agreement between PXRE Reinsurance Company and
Phoenix Investment Counsel, Inc., dated February 25, 1987 and effective as of
January 1, 1987 (Exhibit 10.10 to Amendment No. 1 dated February 19, 1987 to
PXRE's Form S-1 Registration Statement dated August 29, 1986, as subsequently
amended by Amendment No. 2 thereto dated March 25, 1987 (File No. 33-8406), and
incorporated herein by reference).

      10.6 Amendment to Investment Advisory Agreement between PXRE Reinsurance
Company and Phoenix Investment Counsel, Inc., effective retroactively as of
January 1, 1987 


                                      -60-


<PAGE>

<PAGE>


(Exhibit 10.3 to the Annual Report on Form 10-K of PXRE for the fiscal year
ended December 31, 1991 (File No. 0-15428), and incorporated herein by
reference).

      10.7 Amendment No. 2 to Investment Advisory Agreement between PXRE
Reinsurance Company and Phoenix Investment Counsel, Inc., effective as of
November 1, 1989. (Exhibit 10.4 to the Annual Report on Form 10-K of PXRE for
the fiscal year ended December 31, 1991 (File No. 0-15428), and incorporated
herein by reference).

      10.8 Amended and Restated Agreement Concerning Filing of Consolidated
Federal Income Tax Returns dated as of August 23, 1993 between PXRE and PXRE
Reinsurance (Exhibit 10.8 to the Annual Report on Form 10-K of PXRE for the
fiscal year ended December 31, 1993 (File No. 0-15428), and incorporated herein
by reference).

      10.9 Employee Stock Purchase Plan, as amended (Appendix A to PXRE's Proxy
Statement dated April 23, 1993, and incorporated herein by reference).(M)

      10.10 Executive Long-Term Bonus Plan (Exhibit 10.6 to PXRE's Annual Report
on Form 10-K for the fiscal year ended December 31, 1991 (File No. 0-15428), and
incorporated herein by reference) and Amendment thereto made as of August 22,
1991 (Exhibit 10.14 to PXRE's Form S-2 Registration Statement dated February 21,
1992, as amended by Amendment No. 1 thereto dated April 1, 1992 and by Amendment
No. 2 thereto dated April 13, 1992 and by Amendment No. 3 thereto dated April
23, 1992 (File No. 33-45893), and incorporated herein by reference).(M)

      10.11 Executive Severance Plan (Exhibit 10.1 to the Annual Report on Form
10-K of PXRE for the fiscal year ended December 31, 1989 (File No. 0-15428), and
incorporated herein by reference). (M)

      10.12 1988 Stock Option Plan, as amended (Exhibit A to the first
Prospectus forming part of PXRE's Form S-8 and S-3 Registration Statement dated
June 21, 1990 (File No. 33-35521), and incorporated herein by reference).(M)

      10.13 1987 Stock Option Plan, as amended (Appendix B to PXRE's Proxy
Statement dated April 13, 1990, and incorporated herein by reference).(M)

      10.14 Non-Employee Director Deferred Stock Plan (Appendix A to PXRE's
Proxy Statement dated April 12, 1991, and incorporated herein by reference).(M)

----------
(M)   Indicates a management contract or compensatory plan or arrangement in
      which the directors and/or executive officers of PXRE participate.


                                      -61-


<PAGE>

<PAGE>


      10.15 Restated Employee Annual Incentive Bonus Plan, as amended (Appendix
A to PXRE's Proxy Statement dated April 30, 1997, and incorporated herein by
reference).(M)

      10.16 1992 Officer Incentive Plan, as amended (Appendix B to PXRE's Proxy
Statement dated April 30, 1997 and incorporated herein by reference).(M)

      10.17 Quota Share Retrocessional Agreement between PXRE Reinsurance and
Trenwick America Reinsurance Corporation ("Trenwick Group") (Exhibit 10.21 to
the Annual Report on Form 10-K of PXRE for the fiscal year ended December 31,
1993 (File No. 0-15428), and incorporated herein by reference); cover note
respecting January 1999 renewal by Trenwick Group (attached hereto as Exhibit
10.17).

      10.18 Management Agreement dated as of November 8, 1993 among PXRE
Reinsurance, Transnational Re Corporation and Transnational Reinsurance Company
(Exhibit 10.22 to the Annual Report on Form 10-K of PXRE for the fiscal year
ended December 31, 1993 (File No. 0-15428), and incorporated herein by
reference), as amended by Amendment No. 1 thereto, dated December 1, 1994
(Exhibit 10.21 to the Annual Report on Form 10-K of PXRE for the fiscal year
ended December 31, 1994 (File No. 0-15428), and incorporated herein by
reference).

      10.19 Aggregate Excess of Loss Reinsurance Agreement dated as of November
8, 1993 between PXRE Reinsurance, as reinsurer, and Transnational Reinsurance
Company, as reinsured (Exhibit 10.23 to the Annual Report on Form 10-K of PXRE
for the fiscal year ended December 31, 1993 (File No. 0-15428), and incorporated
herein by reference).

      10.20 Services Agreement dated as of December 11, 1996 between PXRE
Reinsurance Company and Transnational Reinsurance Company (Exhibit 10.20 to
PXRE's Annual Report on Form 10-K for the fiscal year ended December 31, 1996
(File No. 0-15428), and incorporated herein by reference).

      10.21 Addendum No. 2 dated November 10, 1994 to the PXRE Group Amended and
Restated Agreement Concerning Filing of Consolidated Federal Income Tax Returns
(Exhibit 10.22 to the Annual Report on Form 10-K of PXRE for the fiscal year
ended December 31, 1994 (File No. 0-15428), and incorporated herein by
reference).

      10.22 Addendum No. 3 dated as of December 11, 1996 to the PXRE Group
Amended and Restated Agreement Concerning Filing of Consolidated Federal Income
Tax Returns (Exhibit 10.22 to PXRE's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 (File No. 0-15428), and incorporated herein by
reference).

-----------
(M)  Indicates a management contract or compensatory plan or arrangement in
     which the directors and/or executive officers of PXRE participate.

                                      -62-


<PAGE>

<PAGE>


      10.23 Amendment dated August 1994 to the Severance Plan for Certain
Executives of PXRE Corporation (Exhibit 10.23 to the Annual Report on Form 10-K
of PXRE for the fiscal year ended December 31, 1994 (File No. 0-15428), and
incorporated herein by reference).(M)

      10.24 Lease dated May 9, 1994 between Thornall Associates and PXRE
Corporation (Exhibit 10.24 to the Annual Report on Form 10-K of PXRE for the
fiscal year ended December 31, 1994 (File No. 0-15428), and incorporated herein
by reference).

      10.25 Director Stock Option Plan (Appendix A to PXRE's Proxy Statement
dated May 3, 1995, and incorporated herein by reference) and Amendment thereto
made as of April 17, 1997 (attached hereto as Exhibit 10.25 to the Annual
Report on Form 10-K of PXRE for the fiscal year ended December 31, 1997 (File
No. O-15428), and incorporated herein by reference.).(M)

      10.26 Amendment No. 3 to Investment Advisory Agreement between PXRE
Reinsurance Company and Phoenix Investment Counsel, Inc. effective June 1, 1995
(Exhibit 10.26 to the Annual Report on Form 10-K of PXRE for the fiscal year
ended December 31, 1995 (File No. 0-15428), and incorporated herein by
reference).

      10.27 Agreement and Plan of Merger dated as of August 22, 1996 between
PXRE and Transnational Re Corporation, as amended by Amendment No. 1 dated as of
September 27, 1996 and Amendment No. 2 dated as of October 24, 1996 (Annex A to
PXRE's Form S-4 Registration Statement dated October 30, 1996 (File No.
333-15087), and incorporated herein by reference).

      10.28 Amended and Restated Investment Advisory Agreement between
Transnational Reinsurance Company and Phoenix Investment Counsel, Inc., dated
November 8, 1993 (Exhibit 10.4 to Transnational Re Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993 (File No. 0-22376) and
incorporated herein by reference), as amended by the Amendment thereto,
effective June 1, 1995 (Exhibit 10.11 to Transnational Re Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995 (File No.
0-22376) and incorporated herein by reference).

      10.29 Investment Management Agreement, effective January 29, 1997 between
PXRE Corporation and Phoenix Investment Counsel, Inc. (Exhibit 10.29 to PXRE's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (File No.
0-15428), and incorporated herein by reference).

      10.30 Director Equity and Deferred Compensation Plan (Appendix C to PXRE's
Proxy Statement dated April 30, 1997, and incorporated herein by reference).(M)

----------
(M)   Indicates a management contract or compensatory plan or arrangement in
      which the directors and/or executive officers of PXRE participate.


                                      -63-


<PAGE>

<PAGE>


      10.31 Management Agreement dated September 16, 1997 between PXRE Managing
Agency and Whittington Insurance Services Limited (attached hereto as Exhibit
10.31 to the Annual Report on Form 10-K of PXRE for the fiscal year ended
December 31, 1997 (File No. O-15428), and incorporated herein by reference).

      10.32 Lloyd's Deposit Trust Deed (Third Party Deposit) dated November 29,
1996 between PXRE Limited and PXRE Reinsurance (attached hereto as Exhibit
10.32 to the Annual Report on Form 10-K of PXRE for the fiscal year ended
December 31, 1997 (File No. O-15428), and incorporated herein by reference).

      10.33 Letter of Credit dated November 22, 1996 issued by The Chase
Manhattan Bank by order of PXRE Reinsurance for the benefit of Lloyds' (attached
hereto as Exhibit 10.33 to the Annual Report on Form 10-K of PXRE for the fiscal
year ended December 31, 1997 (File No. O-15428), and incorporated herein by
reference).

      10.34 Lloyd's Security Trust Deed (Letter of Credit and Bank Guarantee)
dated November 29, 1997 between PXRE Limited and Lloyds' (attached hereto as
Exhibit 10.34 to the Annual Report on Form 10-K of PXRE for the fiscal year
ended December 31, 1997 (File No. O-15428), and incorporated herein by
reference).

      10.35 Operating Agreement of Cat Bond Investors, effective as of June 9, 
1997 among Cat Bond Investors, Phoenix Home Life and PXRE (attached hereto as
Exhibit 10.35 to the Annual Report on Form 10-K of PXRE for the fiscal year
ended December 31, 1997 (File No. O-15428), and incorporated herein by
reference).

      10.36 Undertaking dated September 1, 1998 between PXRE Reinsurance Company
and Select Reinsurance Ltd., Amended and Restated Facultative Obligatory Quota 
Share Retrocessional Agreement between PXRE Reinsurance Company and Select 
Reinsurance Ltd. and Variable Quota Share Retrocessional Agreement between PXRE
Reinsurance Company and Select Reinsurance Ltd. (attached hereto as Exhibit
10.36).

      10.37 Employment Agreement dated July 16, 1998 between PXRE Managing
Agency Limited and Peter G. Butler (attached hereto as Exhibit 10.37).(M)

      10.38 Employment Agreement dated June 8, 1998 between PXRE Corporation
and Michael J. Toman (attached hereto as Exhibit 10.38).(M)

      (11) Statement re computation of earnings per share (The information
required by this Exhibit is presented in the financial statements and the notes
thereto included in this Form 10-K.)

      (12) Statement re computation of ratios (attached hereto as Exhibit 12).

----------
(M)   Indicates a management contract or compensatory plan or arrangement in
      which the directors and/or executive officers of PXRE participate.


                                      -64-


<PAGE>

<PAGE>


         (21) List of Subsidiaries. At December 31, 1998, PXRE had the following
subsidiaries: PXRE Reinsurance Company, a Connecticut insurance company;
Transnational Insurance Company, a Connecticut insurance company; PXRE Capital
Trust I, a Delaware statutory business trust; PXRE Limited., an English company
(the sole member of PG Butler Syndicate 1224 at Lloyd's); PXRE Managing Agency
Limited (the managing agency for PG Butler Syndicate 1224 at Lloyd's); PXRE
Trading Corporation, a Delaware corporation; TREX Trading Corporation, a
Delaware corporation; PX/TX Associates, a Delaware general partnership (of which
PXRE Trading and TREX Trading are the only partners); CAT Fund, L.P., a Delaware
limited partnership (of which PX/TX Associates is the sole general partner and
PXRE Trading and TREX Trading are the only limited partners); Cat Bond Investors
L.L.C. (of which PXRE and Phoenix Home Life are the only members); PXRE Direct
Underwriting Managers, Inc., a Connecticut corporation; and T-REX Underwriting
Managers, Inc., a Virginia corporation. (See the discussion in this Form 10-K
under the captions "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations.")

      (23) Consents of Experts and Counsel. The consent of
PricewaterhouseCoopers LLP, independent accountants to PXRE, is included as part
of Item 14(a)(2) of this Form 10-K.

      (24) Power of Attorney. Copies of the powers of attorney executed by each
of Robert W. Fiondella, Franklin D. Haftl, Bernard Kelly, Wendy Luscombe, Edward
P. Lyons, Philip R.


                                      -65-


<PAGE>

<PAGE>


McLoughlin, David W. Searfoss, Donald H. Trautlein and Wilson Wilde are attached
hereto as Exhibit 24.

      (27) Financial Data Schedule. Exhibit 27 included in electronic filing
only.

      (28) Information from reports furnished to state insurance regulatory
authorities. Filed in paper under cover of Form SE.

      (b) Current Reports.

          None.

      (c) See Item 14(a)(3) above.

      (d) See Item 14(a)(2) above.


                                      -66-


<PAGE>

<PAGE>


                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, PXRE Corporation has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                       PXRE CORPORATION


                                       By: /s/ Gerald L. Radke
                                           -------------------------------------
                                           Gerald L. Radke
                                           Its Chairman of the Board,
                                           President and Chief
                                           Executive Officer

                                       Date: March 25, 1999

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of PXRE
Corporation and in the capacity and on the dates indicated:

By: /s/ Gerald L. Radke                           By: /s/ Sanford M. Kimmel
    ----------------------                            ---------------------
        Gerald L. Radke                               Sanford M. Kimmel
        Its Chairman of the Board,                    Its Senior Vice President,
        President and Chief                           Treasurer and Chief
        Executive Officer                             Financial Officer
        (Principal Executive                          (Principal Financial
        Officer) and Director                         Officer and Principal
                                                      Accounting Officer)

Date: March 25, 1999                              Date: March 25, 1999


By*                                               By*
    ----------------------                            ---------------------
    Robert W. Fiondella                               Franklin D. Haftl
    Director                                          Director

Date: March 25, 1999                              Date: March 25, 1999


                                      -67-


<PAGE>

<PAGE>


By*                                               By*
    ----------------------                            ---------------------
    Bernard Kelly                                     Wendy Luscombe
    Director                                          Director

Date: March 25, 1999                              Date: March 25, 1999


By*                                               By*
    ----------------------                            ---------------------
    Edward Lyons                                      Philip R. McLoughlin
    Director                                          Director

Date: March 25, 1999                              Date: March 25, 1999


By*                                               By*
    ----------------------                            ---------------------
    David W. Searfoss                                 Donald H. Trautlein
    Director                                          Director

Date: March 25, 1999                              Date: March 25, 1999


By*
    ----------------------
    Wilson Wilde
    Director

Date:  March 25, 1999

                             *By: /s/ Gerald L. Radke
                                  ---------------------
                                      Gerald L. Radke
                                      Attorney-in-Fact


                                      -68-


<PAGE>

<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
PXRE Corporation

      In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income and comprehensive income,
stockholders' equity and cash flow present fairly, in all material respects, the
financial position of PXRE Corporation and its subsidiaries at December 31, 1998
and 1997, and the results of their operations and their cash flow for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

PricewaterhouseCoopers LLP
New York, New York
February 11, 1999


                                      F-1


<PAGE>

<PAGE>


PXRE                  Consolidated Balance Sheets
Corporation
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                              December 31,       December 31,
                                                                                                  1998               1997
                                                                                                  ----               ----
<S>            <C>                                                                            <C>                <C>          
Assets         Investments:
                 Fixed maturities, available-for-sale, at fair value (amortized
                   cost $308,658,000 and $399,145,000, respectively)                          $ 309,477,075      $ 405,949,411
                 Equity securities, at fair value (cost $41,146,000 and $21,049,000)             40,974,283         19,748,877
                 Short-term investments                                                          58,861,983         52,904,819
                 Other invested assets, at equity (cost $66,588,000 and $42,375,000)             65,163,581         42,857,341
                                                                                              -------------      -------------
                     Total investments                                                         474,476,922        521,460,448
               Cash                                                                              16,117,473          6,277,876
               Accrued investment income                                                          5,330,419          6,257,162
               Receivables:
                 Unreported premiums                                                             18,440,954         14,131,034
                 Balances due from intermediaries and brokers                                    14,631,140          5,978,439
                 Other receivables                                                               21,293,256         20,575,692
               Reinsurance recoverable                                                           41,260,657         14,242,278
               Ceded unearned premiums                                                            8,231,130          2,531,453
               Deferred acquisition costs                                                         4,122,603          2,965,741
               Income tax recoverable                                                            19,569,364          5,677,667
               Other assets                                                                       9,217,218          8,074,260
                                                                                              -------------      -------------
                     Total assets                                                             $ 632,691,136      $ 608,172,050
                                                                                              =============      =============

Liabilities    Losses and loss expenses                                                       $ 102,592,394       $ 57,189,454
               Unearned premiums                                                                 20,541,326         18,485,042
               Debt payable                                                                      50,000,000                  0
               Notes payable                                                                              0         21,414,000
               Other liabilities                                                                 25,664,972         24,881,964
                                                                                              -------------      -------------
                     Total liabilities                                                          198,798,692        121,970,460
                                                                                              -------------      -------------

               Minority interest in consolidated subsidiary:
                   Company-obligated mandatorily redeemable capital trust
                   pass-through securities of subsidiary trust holding solely a
                   company-guaranteed related subordinated debt                                  99,516,938         99,513,194

Stockholders'  Serial preferred stock, $.01 par value -- 500,000 shares authorized;
Equity           0 shares issued and outstanding                                                          0                  0
               Common stock, $.01 par value -- 40,000,000 shares authorized;
                 14,938,262 and 14,806,347 shares issued, respectively                              149,382            148,063
               Additional paid-in capital                                                       259,147,554        255,060,792
               Accumulated other comprehensive income:
                 Net unrealized appreciation on investments, net of
                   deferred income tax expense of $3,400 and $1,940,000                               6,253          3,173,006
               Retained earnings                                                                139,842,939        150,749,451
               Treasury stock at cost (2,614,498 and 1,042,752 shares)                          (61,420,025)       (21,660,108)
               Restricted stock at cost (167,832 and 64,403 shares)                              (3,350,597)          (782,808)
                                                                                              -------------      -------------
                     Total stockholders' equity                                                 334,375,506        386,688,396
                                                                                              -------------      -------------
                     Total liabilities and stockholders' equity                               $ 632,691,136      $ 608,172,050
                                                                                              =============      =============
</TABLE>

        The accompanying notes are an integral part of these statements.


                                      F-2


<PAGE>

<PAGE>


PXRE        Consolidated Statements of Income and Comprehensive Income

Corporation
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                              Years Ended December 31,
                    
                                                                                        1998              1997              1996
                                                                                        ----              ----              ----
<S>                 <C>                                                            <C>               <C>               <C>         
Revenues            Net premiums earned                                            $ 92,386,326      $ 91,415,240      $ 72,795,454
                    Net investment income                                            19,611,889        31,190,625        16,782,371
                    Net realized investment (losses) gains                           (3,862,189)        2,467,338            94,158
                    Management fees                                                   2,172,131         3,005,657         6,032,006
                                                                                   ------------      ------------      ------------
                                                                                    110,308,157       128,078,860        95,703,989
                                                                                   ------------      ------------      ------------
                    
Losses and          Losses and loss expenses incurred                                57,793,626        12,491,324        18,563,608
Expenses            Commissions and brokerage                                        20,562,688        19,137,822        12,873,668
                    Other operating expenses                                         19,313,425        15,716,150        12,261,949
                    Interest expense                                                  1,394,811         3,324,900         6,957,057
                    Minority interest in consolidated subsidiary                      8,927,863         8,183,514                 0
                                                                                   ------------      ------------      ------------
                                                                                    107,992,413        58,853,710        50,656,282
                                                                                   ------------      ------------      ------------
                    
                    Income before income taxes, extraordinary item and
                      equity in net earnings of TREX                                  2,315,744        69,225,150        45,047,707
                    Equity in net earnings of TREX                                            0                 0         3,897,568
                    Income tax (benefit) provision                                   (1,206,077)       22,198,000        15,644,000
                                                                                   ------------      ------------      ------------
                    Income before extraordinary loss                                  3,521,821        47,027,150        33,301,275
                    Extraordinary loss on debt redemption, net of $454,000 
                      and $1,493,000 income tax benefit                                 843,000         2,773,690                 0
                                                                                   ------------      ------------      ------------
                    Net income                                                        2,678,821        44,253,460        33,301,275
                                                                                   ------------      ------------      ------------
                    
Comprehensive       Other comprehensive (loss) income, net of tax:
Income               Net unrealized appreciation (depreciation) on investments       (3,166,753)        2,604,601        (3,214,095)
                                                                                   ------------      ------------      ------------
                      Comprehensive (loss) income                                  $   (487,932)     $ 46,858,061      $ 30,087,180
                                                                                   ============      ============      ============
                    
Per Share           Basic:
                      Income before extraordinary item                             $       0.26      $       3.41      $       3.73
                      Extraordinary loss                                                   0.06              0.20              0.00
                                                                                   ------------      ------------      ------------
                      Net income                                                   $       0.20      $       3.21      $       3.73
                                                                                   ============      ============      ============
                      Average shares outstanding                                     13,339,479        13,775,844         8,921,886
                                                                                   ============      ============      ============
                    
                    Diluted:
                      Income before extraordinary item                             $       0.26      $       3.39      $       3.69
                      Extraordinary loss                                                   0.06              0.20              0.00
                                                                                   ------------      ------------      ------------
                      Net income                                                   $       0.20      $       3.19      $       3.69
                                                                                   ============      ============      ============
                      Average shares outstanding                                     13,451,731        13,892,760         9,019,655
                                                                                   ============      ============      ============
</TABLE>

        The accompanying notes are an integral part of these statements.


                                      F-3


<PAGE>

<PAGE>


PXRE              Consolidated Statements of Stockholders' Equity
Corporation       Years Ended December 31, 1998, 1997 and 1996
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                         Accumulated
                                                                         Additional          Other                                 
                                              Preferred      Common       Paid-in        Comprehensive    Retained       Treasury   
                                                Stock         Stock       Capital            Income       Earnings         Stock
                                                -----         -----       -------            ------       --------         -----
<S>                                           <C>           <C>         <C>               <C>           <C>            <C>          
Balance at December 31, 1995                  $      0      $ 89,839    $117,668,048      $ 3,782,500   $ 91,882,834   $ (1,719,459)

Net income                                                                                                33,301,275                
Unrealized depreciation on investments, net                                                (2,799,292)                              
Issuance of common stock                                         417         823,192                                                
Issuance of common stock in
   TREX merger                                                56,802     134,304,932                                                
Issuance of treasury stock                                                                                                  166,745 
Repurchase of treasury stock                                                                                            (12,537,575)
Issuance of restricted stock                                                                                                        
Amortization of restricted stock                                                                                                    
Dividends paid to common stockholders                                                                     (6,478,852)               
Equity in net change in TREX
   depreciation                                                                              (414,803)                              
Other                                                                        182,010                                                
                                              --------------------------------------------------------------------------------------
 Balance at December 31, 1996                        0       147,058     252,978,182          568,405    118,705,257    (14,090,289)

Net income                                                                                                44,253,460                
Unrealized appreciation on investments, net                                                 2,604,601                               
Issuance of common stock                                       1,005       1,748,520                                                
Repurchase of treasury stock                                                                                             (7,464,583)
Issuance of restricted stock                                                                                                        
Amortization of restricted stock                                                                                                    
Dividends paid to common stockholders                                                                    (12,209,266)               
Other                                                                        334,090                                       (105,236)
                                              --------------------------------------------------------------------------------------
Balance at December 31, 1997                         0       148,063     255,060,792        3,173,006    150,749,451    (21,660,108)

Net income                                                                                                 2,678,821                
Unrealized depreciation on investments, net                                                (3,166,753)                              
Issuance of common stock                                       1,319       4,069,940                                                
Repurchase of treasury stock                                                                                            (39,728,564)
Issuance of restricted stock                                                                                                        
Amortization of restricted stock                                                                                                    
Dividends paid to common stockholders                                                                    (13,585,333)               
Other                                                                         16,822                                        (31,353)
                                              --------------------------------------------------------------------------------------
Balance at December 31, 1998                  $      0      $149,382    $259,147,554      $     6,253   $139,842,939   $(61,420,025)
                                              ======================================================================================
</TABLE>

                                                                  Total
                                                Restricted    Stockholders'
                                                   Stock         Equity
                                                   -----         ------
Balance at December 31, 1995                  $   (541,586)   $ 211,162,176

Net income                                                       33,301,275
Unrealized depreciation on investments, net                      (2,799,292)
Issuance of common stock                                            823,609
Issuance of common stock in
   TREX merger                                                  134,361,734
Issuance of treasury stock                                          166,745
Repurchase of treasury stock                                    (12,537,575)
Issuance of restricted stock                      (501,027)        (501,027)
Amortization of restricted stock                   411,778          411,778
Dividends paid to common stockholders                            (6,478,852)
Equity in net change in TREX
   depreciation                                                    (414,803)
Other                                                               182,010
                                              ------------------------------
 Balance at December 31, 1996                     (630,835)     357,677,778

Net income                                                       44,253,460
Unrealized appreciation on investments, net                       2,604,601
Issuance of common stock                                          1,749,525
Repurchase of treasury stock                                     (7,464,583)
Issuance of restricted stock                      (741,988)        (741,988)
Amortization of restricted stock                   585,263          585,263
Dividends paid to common stockholders                           (12,209,266)
Other                                                4,752          233,606
                                              ------------------------------
Balance at December 31, 1997                      (782,808)     386,688,396

Net income                                                        2,678,821
Unrealized depreciation on investments, net                      (3,166,753)
Issuance of common stock                                          4,071,259
Repurchase of treasury stock                                    (39,728,564)
Issuance of restricted stock                    (3,838,227)      (3,838,227)
Amortization of restricted stock                 1,239,085        1,239,085
Dividends paid to common stockholders                           (13,585,333)
Other                                               31,353           16,822
                                              ------------------------------
Balance at December 31, 1998                  $ (3,350,597)   $ 334,375,506
                                              ==============================

The accompanying notes are an integral part of these statements.


                                      F-4


<PAGE>

<PAGE>


PXRE                  Consolidated Statements of Cash Flow
Corporation
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                               Years Ended December 31,

                                                                                     1998                1997              1996
                                                                                     ----                ----              ----
<S>              <C>                                                            <C>                 <C>               <C>          
Cash Flow        Net income                                                     $   2,678,821       $  44,253,460     $  33,301,275
from Operating   Adjustments to reconcile net income to net cash
Activities         provided by operating activities:
                      Losses and loss expenses                                     45,402,940         (13,787,994)      (12,964,561)
                      Unearned premiums                                            (3,643,393)          8,639,753        (5,077,857)
                      Deferred acquisition costs                                   (1,156,862)         (1,516,691)        1,284,615
                      Receivables                                                 (16,603,791)        (12,764,637)       14,313,128
                      Reinsurance balances payable                                 10,021,725          (5,082,885)       (3,431,682)
                      Reinsurance recoverable                                     (27,018,379)          3,822,847         4,511,644
                 Income tax recoverable                                            (7,591,759)         (3,139,559)        1,126,162
                 Equity in net earnings of TREX                                             0                   0        (3,574,171)
                 Other                                                              2,865,764            (797,805)       (1,455,299)
                                                                                -------------       -------------     -------------
                     Net cash provided by operating activities                      4,955,067          19,626,489        28,033,254
                                                                                -------------       -------------     -------------

Cash Flow        Cost of fixed maturity investments                              (178,648,802)       (294,637,213)      (83,760,831)
from Investing   Fixed maturity investments matured/disposed                      262,534,237         290,013,188        62,189,176
Activities       Payable for securities                                                     0                   0        (2,496,232)
                 Cost of equity securities                                        (22,871,893)        (17,372,574)       (1,849,539)
                 Equity securities disposed                                         2,817,183           3,172,678                 0
                 Cash acquired from merger with TREX                                        0                   0         1,260,611
                 Net change in short-term investments                              (6,053,033)          8,742,789        22,485,844
                 Other invested assets disposed                                     7,040,660
                 Other invested assets purchased                                  (34,325,097)        (42,375,000)                0
                                                                                -------------       -------------     -------------
                     Net cash provided (used) by investing activities              30,493,255         (52,456,132)       (2,170,971)
                                                                                -------------       -------------     -------------

Cash Flow        Proceeds from issuance of common stock                               233,032             855,570           489,327
from Financing   Cash dividends paid to common stockholders                       (13,585,333)        (12,209,266)       (6,478,852)
Activities       Issuance of minority interest in consolidated subsidiary                   0          99,509,000                 0
                 Purchase of debt                                                 (22,527,860)        (46,521,683)       (3,235,250)
                 Proceeds of debt                                                  50,000,000                   0                 0
                 Cost of treasury stock                                           (39,728,564)         (7,464,583)      (12,537,575)
                                                                                -------------       -------------     -------------
                     Net cash (used) provided by financing activities             (25,608,725)         34,169,038       (21,762,350)
                                                                                -------------       -------------     -------------

                 Net change in cash                                                 9,839,597           1,339,395         4,099,933
                 Cash, beginning of period                                          6,277,876           4,938,481           838,548
                                                                                -------------       -------------     -------------
                 Cash, end of period                                            $  16,117,473       $   6,277,876     $   4,938,481
                                                                                =============       =============     =============

                 Supplemental disclosure of cash flow information
                   Non cash investing and financing activities:
                     Fair value of assets acquired                              $           0       $           0     $ 161,130,734
                     Liabilities assumed                                                    0                   0        28,496,767
                                                                                =============       =============     =============
                     Stock issued in merger with TREX                           $           0       $           0     $ 132,633,967
                                                                                =============       =============     =============
</TABLE>

        The accompanying notes are an integral part of these statements.


                                      F-5


<PAGE>

<PAGE>


PXRE                                Notes to Consolidated Financial Statements
Corporation                         Years Ended December 31, 1998, 1997 and 1996
--------------------------------------------------------------------------------

1. Significant Accounting Policies

      Basis of Presentation and Consolidation

            The accompanying consolidated financial statements have been
prepared in conformity with generally accepted accounting principles ("GAAP") in
the United States. These statements reflect the consolidated operations of PXRE
Corporation and its subsidiaries (collectively referred to as "PXRE"), PXRE
Reinsurance Company ("PXRE Reinsurance"), PXRE Trading Corporation, Cat Fund
L.P., PXRE Capital Trust I, PXRE Ltd., PXRE Managing Agency Limited and PXRE
Direct Underwriting Managers, Inc. The U.K. operations of PXRE Ltd. and PXRE
Managing Agency Limited are included in the consolidated results on a one
quarter lag period beginning in June 1997. In addition, following the merger of
PXRE and Transnational Re Corporation ("TREX") as described further in Note 2,
the consolidated operations include Transnational Insurance Company
("Transnational Insurance"), formerly Transnational Reinsurance Company, and
TREX Trading Corporation since December 11, 1996. During the period from January
1, 1996 to December 11, 1996, PXRE owned approximately 21% of TREX, which in
turn owned 100% of Transnational Insurance, and accounted for this investment
under the equity method. Following the merger, Transnational Insurance became a
wholly-owned subsidiary of PXRE Reinsurance. All material transactions between
the consolidated companies have been eliminated in preparing these consolidated
financial statements.

            Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amount of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

            Certain reclassifications have been made for 1997 and 1996 to
conform to the 1998 presentation.

      Premiums Assumed and Ceded

            Premiums on reinsurance business assumed are recorded as earned on a
pro rata basis over the contract period based on estimated subject premiums.
Adjustments based on actual subject premium are recorded once ascertained. The
portion of premiums written relating to unexpired coverages at the end of the
period is recorded as unearned premiums. Reinsurance premiums ceded are recorded
as incurred on a pro rata basis over the contract period.


                                      F-6


<PAGE>

<PAGE>


      Deferred Acquisition Costs

            Acquisition costs consist of commission and brokerage expenses
incurred in connection with contract issuance, net of acquisition costs ceded.
These costs are deferred and amortized over the period in which the related
premiums are earned. Deferred acquisition costs are reviewed to determine that
they do not exceed recoverable amounts, after considering investment income.

      Management Fees

            Management fees are recorded as earned under various arrangements
whereby PXRE Reinsurance acts as underwriting manager for other insurers and
reinsurers, including TREX up to the date of the merger, as discussed in Note 2.
These fees are initially based on premium volume, but are adjusted in some cases
through contingent profit commissions related to underwriting results measured
over a period of years.

      Losses and Loss Expense Liabilities

            Liabilities for losses and loss expenses are established in amounts
estimated to settle incurred losses. Losses and loss expense liabilities are
based on individual case estimates provided for reported losses for known events
and estimates of incurred but not reported losses. Losses and loss expense
liabilities are necessarily based on estimates and the ultimate liabilities may
vary from such estimates. Any adjustments to these estimates are reflected in
income when known. Reinsurance recoverable on paid losses and reinsurance
recoverable on unpaid losses are reported as assets. Reinsurance recoverable on
paid losses represent amounts recoverable from retrocessionaires at the end of
the period for gross losses previously paid. Provisions are established for all
reinsurance recoveries which are considered doubtful.

      Investments

            Fixed maturity investments and unaffiliated equity securities are
considered available-for-sale and are reported at fair value. Unrealized gains
and losses, as a result of temporary changes in fair value during the period
such investments are held, are reflected net of income taxes in stockholders'
equity. Unrealized losses which are deemed other than temporary are charged to
operations. Short-term investments, which have an original maturity of one year
or less, are carried at amortized cost which approximates fair value. Short-term
investments also includes a limited partnership that invests primarily in
Treasury securities and provides for fund withdrawals upon 30 days notice; this
partnership is reported under the equity method. Other invested assets include
investments in limited partnerships reported under the equity method, which
includes the cost of the investment and subsequent proportional share of the
partnership earnings. Realized gains or losses on disposition of investments are
determined on the basis of specific identification. The amortization of premiums
and accretion of discount for fixed maturity investments is computed utilizing
the interest method. The effective yield under the interest method is adjusted
for anticipated prepayments. PXRE invests in certain weather indexed contracts.
Such investments are carried at estimated fair value and such adjustments to
estimated fair value are included in realized gains and losses.


                                      F-7


<PAGE>

<PAGE>


      Fair Value of Financial Instruments

            Fair values of certain assets and liabilities are based on published
market values, if available, or estimates based upon fair values of similar
issues. Fair values are reported in Notes 5 and 6.

      Accounting for Derivative Instruments and Hedging Activities

            In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement establishes
accounting and reporting standards for derivative instruments, including certain
instruments embedded in other contracts. It requires that all derivatives be
recognized as either assets or liabilities in the balance sheet and measured at
fair value. Gains or losses from changes in the derivative values are to be
accounted for based on how the derivative was used and whether it qualifies for
hedge accounting.

            The statement is effective for all fiscal periods beginning after
June 15, 1999. PXRE is currently assessing the effect of adopting this
statement. It is not expected, however, that the adoption of this statement will
have a material effect on PXRE's financial position or results of operations.

      Debt Issuance Costs

            Debt issuance costs associated with the issuance of $100 million
8.85% Capital Trust Pass-through Securities `sm' (TRUPS `sm') and the issuance
of a note under a $50 million Credit Agreement are being amortized over the term
of the related outstanding debt on a constant yield basis.

      Excess of Fair Market Value of Net Assets of Business Acquired Over Cost

            The excess of fair market value of net assets of TREX business
acquired over cost is included in other liabilities and is amortized on a
straight-line basis over three years.

      Foreign Exchange

            Foreign currency assets and liabilities are translated at the
exchange rate in effect at the balance sheet date. Resulting gains and losses
are reflected in income for the period.

      The effect of the translation adjustments for the U.K. operations will be
recorded as a cumulative translation adjustment in a separate component of
stockholders' equity, net of applicable deferred income taxes; the translation
adjustment at December 31, 1998 and 1997 was not material.

            Federal Income Taxes

      Deferred tax assets and liabilities reflect the expected future tax
consequences of temporary differences between carrying amounts and the tax bases
of PXRE's assets and liabilities.


                                      F-8


<PAGE>

<PAGE>


      Comprehensive Income

            During 1998, PXRE adopted SFAS No. 130, Reporting Comprehensive
Income, which establishes standards for reporting and presentation of
comprehensive income and its components. Comprehensive income is comprised of
net income and other comprehensive income. Other comprehensive income consists
of the change in the net unrealized appreciation or depreciation of investments,
net of tax, and the change in foreign currency translation adjustments, net of
tax.

      Earnings Per Share

            Effective December 31, 1997, PXRE adopted SFAS No. 128, Earnings Per
Share which requires replacing primary earnings per share with basic earnings
per share disclosure and fully diluted earnings per share with diluted earnings
per share disclosure. Basic earnings per share are determined by dividing net
earnings (after deducting cumulative preferred stock dividends) by the weighted
average number of common shares outstanding. On a diluted basis both net
earnings and shares outstanding are adjusted to reflect the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity, unless the effect of the
assumed conversion is anti-dilutive. SFAS No. 128 requires restatement of all
prior period earnings per share data presented.

      Stock-Based Compensation

            PXRE accounts for its stock options in accordance with the
provisions of Accounting Principles Board Opinion No. 25 ("APB").

      Segments of an Enterprise and Related Information

            Effective December 31, 1998, PXRE adopted SFAS No. 131, Disclosure
about Segments of an Enterprise and Related Information. This statement requires
that companies report certain information about their operating segments,
including information about the products and services from which the revenues
are derived, the geographic areas of operation, and information about major
customers. The statement defines operating segments based on internal management
reporting and management's method of allocating resources and assessing
performance.

2. Acquisition

            On December 11, 1996, PXRE acquired TREX. The acquisition was
accounted for using the purchase method of accounting, and, accordingly, the
purchase price has been allocated to the assets purchased and the liabilities
assumed based upon the fair values at the date of merger. The excess of the fair
value of the net assets acquired over the purchase price, amounting to
approximately $8,087,000, has been recorded as negative goodwill in other
liabilities and is being amortized on a straight-line basis over 3 years.


                                      F-9


<PAGE>

<PAGE>


            The net income of TREX included in PXRE's consolidated results of
operations from the date of acquisition amounted to $1,253,000 in 1996. On the
basis of unaudited pro forma consolidation of the results of operations as if
the acquisition had taken place at the beginning of 1996, consolidated net
revenues would have been $153,410,000 for 1996. Consolidated unaudited pro forma
net income and diluted net income per share would have been $49,161,000 and
$3.42 in 1996. Such unaudited pro forma amounts are not necessarily indicative
of what the actual consolidated results of net income might have been if the
merger had been effective at the beginning of 1996.

            Under the Management Agreement between TREX, Transnational Insurance
and PXRE Reinsurance, Transnational Insurance paid PXRE Reinsurance an annual
basic management fee equal to 5% of Transnational Insurance's gross written
premiums. TREX was also required to reimburse PXRE for all expenses directly
attributable to it. This agreement terminated upon the acquisition. Included in
management fee income in 1996 was $2,512,000 earned from Transnational
Insurance.

3. Business, Risks and Other Matters

            PXRE, through its wholly-owned subsidiaries PXRE Reinsurance and
Transnational Insurance provides treaty and facultative reinsurance to primary
insurers and reinsurers on commercial and personal property and short tail
casualty risks, as well as marine and aerospace risks. Its London-based managing
agency oversees the operations of PXRE's underwriting syndicate at Lloyd's-PG
Butler Syndicate 1224, which commenced operations in 1997, extending PXRE's
underwriting opportunities in these property and other similar short-tail lines
of business. PXRE's excess and surplus lines operation specializes in short-tail
non-standard and excess property insurance risks in Transnational Insurance
commencing in 1998.

            PXRE solicits its treaty and facultative reinsurance business
primarily from the worldwide reinsurance brokerage market and to a lesser extent
directly from primary companies, committing and withholding its underwriting
capacity and altering its mix of business to focus on business where management
believes that above average underwriting results can be achieved. To supplement
its underwriting capacity and generate management fee income, PXRE manages
business for other insurers and reinsurers through retrocessional agreements and
management agreements.


                                      F-10


<PAGE>

<PAGE>


4. Underwriting Programs

            Premiums written and earned for the years ended December 31, 1998,
1997 and 1996 are as follows:

<TABLE>
<CAPTION>
                                             1998             1997             1996
                                             ----             ----             ----
<S>                                     <C>              <C>              <C>          
Premiums written
----------------
Assumed                                 $ 133,143,629    $ 126,231,727    $ 114,347,965
Direct                                      3,071,559                0                0
                                        -------------    -------------    -------------
Gross premiums written                    136,215,188      126,231,727      114,347,965
                                        -------------    -------------    -------------
Ceded:  Managed business participants     (21,542,915)     (16,533,918)     (21,237,657)
        Catastrophe coverage              (25,978,462)      (9,642,815)      (5,427,393)
        TREX management agreement                   0                0      (19,965,317)
                                        -------------    -------------    -------------
Total reinsurance premiums ceded          (47,521,377)     (26,176,733)     (46,630,367)
                                        -------------    -------------    -------------
Net premiums written                    $  88,693,811    $ 100,054,994    $  67,717,598
                                        =============    =============    =============

<CAPTION>
                                             1998             1997             1996
                                             ----             ----             ----
<S>                                     <C>              <C>              <C>          
Premiums earned
---------------
Assumed                                 $ 133,010,858    $ 119,609,970    $ 120,727,383
Direct                                        424,822                0                0
Ceded                                     (41,049,354)     (28,194,730)     (47,931,929)
                                        -------------    -------------    -------------
Net premiums earned                     $  92,386,326    $  91,415,240    $  72,795,454
                                        =============    =============    =============
</TABLE>

            Substantially all premiums written were assumed through reinsurance
brokers or intermediaries. In 1998, 1997 and 1996, three, three and two
reinsurance intermediaries, respectively, individually accounted for more than
10% of gross premiums written, and collectively accounted for approximately 47%,
55% and 36% of gross premiums written, respectively.

            Under the terms of the management agreement described in Note 2,
PXRE retroceded $19,965,000 of premiums written to Transnational Insurance in
1996. As discussed earlier in Note 2, the agreement was terminated upon
acquisition of TREX by PXRE.

            Included in ceded premiums written to managed business participants
is $10,565,000, $3,023,000 and $2,641,000 of premiums ceded to a reinsurer whose
Board of Directors includes PXRE's Chief Executive Officer. Net assets due from
the reinsurer at December 31, 1998 is $6,259,000 which is secured by a trust
agreement.

            PXRE also purchases catastrophe retrocessional coverage for its own
protection, depending on market conditions. In the event that retrocessionaires
are unable to meet their contractual obligations, PXRE would be liable for such
defaulted amounts.


                                      F-11


<PAGE>

<PAGE>


            The components of reinsurance recoverable as stated in the December
31, 1998 and 1997 consolidated balance sheets are as follows:

                                                          1998           1997
                                                          ----           ----
Losses and loss expense liabilities                   $33,350,054    $12,733,457
Loss payments                                           7,910,603      1,508,821
                                                      -----------    -----------
                                                      $41,260,657    $14,242,278
                                                      ===========    ===========

            The components of losses and loss expenses incurred as shown in the
December 31, 1998, 1997 and 1996 consolidated statements of income are as
follows:

                                1998                1997                1996
                                ----                ----                ----
Assumed                    $ 94,093,389        $ 14,622,683        $ 37,837,120
Ceded                       (36,299,763)         (2,131,359)        (19,273,512)
                           ------------        ------------        ------------
Net                        $ 57,793,626        $ 12,491,324        $ 18,563,608
                           ============        ============        ============

            Activity in the losses and loss expense liability for the years
ended December 31, 1998, 1997 and 1996 is summarized as follows:

                                          1998           1997            1996
                                          ----           ----            ----
Net balance January 1                $ 44,455,998   $ 55,309,304    $ 44,424,388
   Plus reinsurance recoverables       12,733,456     15,668,145      28,294,526
                                     ------------   ------------    ------------
Gross balance at January 1             57,189,454     70,977,449      72,718,914
                                     ------------   ------------    ------------

Gross reserves of TREX at date of
  Acquisition                                   0              0       9,588,507

Incurred related to:
   Current year                        94,002,959     19,343,536      27,327,387
   Prior years                             90,430     (4,720,853)     10,509,733
                                     ------------   ------------    ------------
   Total incurred                      94,093,389     14,622,683      37,837,120
                                     ------------   ------------    ------------
Paid related to:
   Current year                        19,582,174      4,703,497       6,468,736
   Prior years                         29,108,275     23,707,181      42,698,356
                                     ------------   ------------    ------------
   Total paid                          48,690,449     28,410,678      49,167,092
                                     ------------   ------------    ------------

Gross balance at December 31         $102,592,394   $ 57,189,454    $ 70,977,449
                                     ============   ============    ============

            As a result of changes in estimates of insured events in prior
years, the provision for losses and loss expenses experienced savings of
$532,000 on a net basis in 1998. The loss ratio was favorably affected by a
decrease to reserves of $3,917,000 in 1997. The loss ratio for 1996 was
unfavorably affected by an increase to reserves of $3,249,000 net for prior-year
losses and loss expenses.


                                      F-12


<PAGE>

<PAGE>


5.  Investments

            The amortized cost, gross unrealized gains, gross unrealized losses
and estimated fair value of investments in fixed maturities and equity
securities as of December 31, 1998 and 1997 are shown below:

<TABLE>
<CAPTION>
                                                                      Gross              Gross             Estimated 
                                               Amortized            Unrealized        Unrealized             Fair    
                                                  Cost                Gains             Losses               Value   
                                                  ----                -----             ------               -----   
1998                                                                                                                 
----
<S>                                           <C>                 <C>                 <C>                 <C>         
United States government securities           $113,029,756        $  1,771,592        $    159,367        $114,641,981
Foreign government securities                   43,815,569             242,591           5,286,056          38,772,104
United States government agency
  Mortgage-backed securities                     1,087,492              17,031                   0           1,104,523
Other mortgage-backed securities                43,174,814           1,271,787             181,569          44,265,032
Obligations of states and political
  subdivisions                                  97,469,857           4,467,662              27,311         101,910,208
Public utilities and industrial and
  miscellaneous securities                      10,080,619                   0           1,297,392           8,783,227
                                              ------------        ------------        ------------        ------------
     Total fixed maturities                   $308,658,107        $  7,770,663        $  6,951,695        $309,477,075
                                              ============        ============        ============        ============

Equity securities                             $ 41,146,001        $  3,661,597        $  3,833,315        $ 40,974,283
                                              ============        ============        ============        ============

<CAPTION>
                                                                      Gross              Gross             Estimated 
                                               Amortized            Unrealized        Unrealized             Fair    
                                                  Cost                Gains             Losses               Value   
                                                  ----                -----             ------               -----   
1997
----
<S>                                           <C>                 <C>                 <C>                 <C>         
United States government securities           $165,575,920        $  1,921,776        $     49,670        $167,448,026
Foreign government securities                   28,112,102           1,238,962             258,908          29,092,156
United States government agency
  mortgage and asset-backed
   securities                                   24,095,423             716,453           1,205,225          23,606,651
Other mortgage and asset-backed
  securities                                    72,199,621           1,203,520              43,839          73,359,302
Obligations of states and political
  subdivisions                                 104,000,786           3,487,315              32,925         107,455,176
Public utilities and industrial and
  miscellaneous securities                       5,160,680              83,662             256,242           4,988,100
                                              ------------        ------------        ------------        ------------
     Total fixed maturities                   $399,144,532        $  8,651,688        $  1,846,809        $405,949,411
                                              ============        ============        ============        ============

Equity securities                             $ 21,049,420        $  1,162,275        $  2,462,818        $ 19,748,877
                                              ============        ============        ============        ============
</TABLE>

Included in other comprehensive income in 1998 is $3,166,753 of net unrealized
depreciation on investments which includes $7,028,942 of unrealized net losses
arising during the year less $3,862,189 of reclassification adjustments for net
losses, included in net income.


                                      F-13


<PAGE>

<PAGE>


      Proceeds, gross realized gains, and gross realized losses from sales of
fixed maturity investments before maturity date or securities that prepay and
from sales of equity securities were as follows:

                                     1998             1997            1996
                                     ----             ----            ----
Proceeds from Sale
------------------
   Fixed maturities             $ 234,195,041    $ 281,200,500    $  54,359,191
                                =============    =============    =============
   Equity securities            $   3,871,056    $   3,883,703    $   1,532,961
                                =============    =============    =============
Gross Gains
-----------
   Fixed maturities             $   4,298,138    $   3,443,425    $     540,687
   Equity securities                1,046,699          807,238           85,711
   Other                            2,346,612                0                0
                                -------------    -------------    -------------
                                    7,691,449        4,250,663          626,398
Gross Losses
------------
   Fixed maturities               (10,615,978)      (1,621,134)        (532,240)
   Equity Securities                  (23,056)               0                0
   Other                             (914,604)        (162,191)               0
                                -------------    -------------    -------------
                                  (11,553,638)      (1,783,325)        (532,240)

Net realized (losses) gains     $  (3,862,189)   $   2,467,338    $      94,158
                                =============    =============    =============

            Included in gross losses on fixed maturities for 1998 is a realized
loss on the permanent writedown of a bond in technical default in the amount of
$6,600,000.

            The components of net investment income were as follows:

                                        1998             1997            1996
                                        ----             ----            ----
Fixed maturity investments         $ 22,654,993     $ 25,835,051    $ 15,642,139
Equity securities                       579,718          180,956          42,062
Short-term investments                2,044,876        5,646,704       1,744,703
Other invested assets                (4,933,361)         442,504               0
                                   ------------     ------------    ------------
                                     20,346,226       32,105,215      17,428,904
Less investment expenses                734,337          914,590         646,533
                                   ------------     ------------    ------------
Net investment income              $ 19,611,889     $ 31,190,625    $ 16,782,371
                                   ============     ============    ============

      Investment expenses primarily represent fees paid to Phoenix Investment
Partners, Limited (formerly Phoenix Duff & Phelps Corporation), a public
majority-owned subsidiary of Phoenix Home Life Mutual Insurance Company which
owned 5.17%, 4.6% and 4.6% of the outstanding common stock of PXRE at December
31, 1998, 1997 and 1996 respectively.


                                      F-14


<PAGE>

<PAGE>


     Investment Maturity Distributions
     ---------------------------------

         The amortized cost and estimated fair value of fixed maturity
investments at December 31, 1998 by contractual maturity date is shown below.
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties.

                                                               Estimated
                                        Amortized      %         Fair        %
                                          Cost         -         Value       -
                                          ----                   -----
Maturity
--------

One year or less                      $ 16,710,895     5.4   $ 16,777,875    5.4
Over 1 through 5 years                 121,627,390    39.4    122,885,427   39.7
Over 5 through 10 years                 65,076,435    21.1     66,121,508   21.4
Over 10 through 20 years                27,777,056     9.0     25,453,984    8.2
Over 20 years                           33,204,025    10.8     32,868,726   10.6
                                      ------------   -----   ------------  -----
                                       264,395,801    85.7    264,107,520   85.3
United States government agency and
  other mortgage-backed securities      44,262,306    14.3     45,369,555   14.7
                                      ------------   -----   ------------  -----
     Total                            $308,658,107   100.0   $309,477,075  100.0
                                      ============   =====   ============  =====

            In addition to fixed maturities, PXRE held $58,862,983 and
$52,905,819 of short-term investments at December 31, 1998 and 1997,
respectively, comprised principally of high-grade commercial paper, U.S.
Treasury bills and other investments with original maturities of one year or
less. PXRE also held $65,164,000 and $42,857,000 of other invested assets at
December 31, 1998 and 1997, respectively, comprised of investments in various
limited partnerships accounted for under the equity method, as follows:

<TABLE>
<CAPTION>
                                                        1998                              1997
                                                        ----                              ----
                                                 $            Ownership %           $         Ownership %
                                                 -            ------------          -         -----------
<S>                                          <C>                 <C>            <C>              <C>   
Mariner Select LP                            26,652,967          51.62%         8,156,105        23.04%
MS Commodity Investment Portfolio II, LP     10,421,528          21.69%        24,019,966        15.40%
Other                                        28,089,086                        10,681,270
                                             ----------                        ----------
    Total                                    65,163,581                        42,857,341
                                             ==========                        ==========
</TABLE>

            Total assets of Mariner Select L.P. amounted to $51,809,576 and
$35,579,876 at December 31, 1998 and 1997.

      Restricted Assets
      -----------------

            Under the terms of certain reinsurance agreements, irrevocable
letters of credit in the amount of $480,000 were issued at December 31, 1998, in
respect of reported loss reserves and unearned premiums. Investments with a par
value of $4,000,000 have been pledged as collateral with issuing banks. In
addition, securities with a par value of $11,926,000 at December 31, 1998 were
on deposit with various state insurance departments in order to comply with
insurance laws.


                                      F-15


<PAGE>

<PAGE>


            PXRE, in connection with the startup of PXRE Ltd.'s Syndicate No.
1224, has placed on deposit $46,287,000 par value of United States government
securities and municipal securities as collateral for Lloyd's of London. In
addition, PXRE issued a letter of credit for the benefit of Lloyd's of London in
the amount of $15,355,000. The letter of credit is collateralized by municipal
bonds of approximately $17,835,000. All invested assets of Syndicate 1224
amounting to $21,698,000 at December 31, 1998 are restricted from being paid as
a dividend for two to three years.

            PXRE has $24.0 million in commitments for funding certain
investments in certain limited partnerships of which $6.3 million has been
funded at December 31, 1998.

6. Notes Payable and Credit Arrangements

            In January 1997, PXRE issued $100,000,000 of 8.85% TRUPS. The fair
value of the TRUPS is $99,086,425 and $105,194,000 at December 31, 1998 and
1997, respectively. Interest is payable on the TRUPS semi-annually. The notes
are redeemable on or after February 1, 2007 at the option of PXRE, initially at
104.180% declining to 100.418% at February 1, 2016, and 100% thereafter.

            On August 15, 1998, PXRE redeemed the remaining balance of
$20,414,000 of its 9.75% Senior Notes due August 15, 2003 at a premium of
103.656%. In connection with the redemption of the Senior Notes, PXRE recorded
an extraordinary charge of $843,000, net of tax reflecting the write-off of the
remaining unamortized debt issuance costs and related redemption premium.

            Interest paid, including the minority interest in consolidated
subsidiary, was $11,687,000, $8,707,000, and $6,469,000 for 1998, 1997 and 1996,
respectively.

            On December 30, 1998 PXRE entered into a Credit Agreement with First
Union National Bank ("First Union") to arrange and syndicate for PXRE a
revolving credit facility of up to $75 million. At December 31, 1998, $50
million of the total $75 million was underwritten and committed to by First
Union. Under the Credit Agreement, the additional $25 million of the revolving
credit facility was to be made available through First Union's best efforts
syndication of the loan to other financial institutions. Borrowings under this
Credit Agreement bear interest at the First Union's base rate or at a margin
over the financial institutions' LIBOR rate for periods of 30, 60, 90, or 180
days for LIBOR loans. The interest rate as of December 31, 1998 was 7.75%. In
addition, the Credit Agreement requires PXRE and certain subsidiaries, where
applicable, to maintain certain financial ratios including minimum fixed charge
coverage, maximum consolidated debt to total capitalization, minimum Statutory
Capital and Surplus, and minimum risk based capital ratios. Commitments under
this Credit Agreement terminate on March 31, 2005 and are subject to annual
reductions of 13 1/3% commencing March 31, 2000 and 33 1/3% on March 31, 2005.
At December 31, 1998, $50 million was outstanding under this agreement. The
Credit Agreement requires that PXRE pay a commitment fee of 25 basis points on
the unused portion of the loan.

            PXRE entered into an interest rate swap agreement with First Union
that locks in the interest rate on the $50 million portion of the loan to 5.34%
plus a 0.875% credit margin (subject to adjustment in syndication) or 6.215%.
The swap agreement coincides with the maturity of the Credit Agreement. The fair
value of the loan and the interest rate swap agreement at December 31, 1998 is
approximately $50,084,000.


                                      F-16


<PAGE>

<PAGE>


7. Income Taxes

            The components of the (benefit) provision for income taxes for the
years ended December 31, 1998, 1997 and 1996 are as follows:

                                         1998            1997           1996
                                         ----            ----           ----
Current
  Federal                            $  3,321,000    $ 18,014,000   $ 14,310,000
  State and local                          21,000         515,000        319,000
  Foreign                                       0         706,000        539,000
                                     ------------    ------------   ------------
                                        3,342,000      19,235,000     15,168,000
Deferred federal                       (2,396,000)      2,963,000        476,000
Deferred foreign                       (2,152,000)              0              0
                                     ------------    ------------   ------------
Income tax (benefit) provision
  before extraordinary loss            (1,206,000)     22,198,000     15,644,000

Income tax benefit from
  extraordinary loss                      454,000       1,493,000              0
                                     ------------    ------------   ------------
Income tax (benefit) provision       $ (1,660,000)   $ 20,705,000   $ 15,644,000
                                     ============    ============   ============

Income taxes paid                    $ 10,900,000    $ 23,460,000   $ 15,730,000
                                     ============    ============   ============

            The income tax (benefit) provision for each of the years presented
differs from the amounts determined by applying the applicable U.S. statutory
federal income tax rate to pre-tax income as a result of the following:

<TABLE>
<CAPTION>
                                           1998            1997            1996
                                           ----            ----            ----
<S>                                    <C>             <C>             <C>         
Income taxes at statutory rates        $    357,000    $ 22,735,000    $ 15,767,000
Tax-exempt interest income               (1,231,000)     (1,284,000)        (48,000)
Foreign tax provision                    (2,152,000)        706,000       1,022,000
Foreign tax credit                        2,152,000        (706,000)     (1,105,000)
Amortization of negative goodwill          (753,000)       (753,000)              0
Other, net                                  (33,000)          7,000           8,000
                                       ------------    ------------    ------------
Total income tax (benefit) provision   $ (1,660,000)   $ 20,705,000    $ 15,644,000
                                       ============    ============    ============
</TABLE>

            The significant components of the net deferred tax (benefit)
provision for the years ended December 31, 1998, 1997 and 1996 are as follows:

                                          1998           1997           1996
                                          ----           ----           ----
Discounted reserves and unearned
  premiums                            $  (540,000)   $   127,000    $   607,000
Deferred acquisition costs               (360,000)       537,000       (213,000)
Deferred compensation and benefits        194,000        740,000        (75,000)
Credit carryforwards                   (2,412,000)       384,000       (110,000)
Investment and unrealized foreign
  exchange                             (1,652,000)     1,180,000        246,000
Other, net                                222,000         (5,000)        21,000
                                      -----------    -----------    -----------
 Total deferred tax (benefit)
  provision                           $(4,548,000)   $ 2,963,000    $   476,000
                                      ===========    ===========    ===========


                                      F-17


<PAGE>

<PAGE>


            The significant components of the net deferred income tax asset
(liability) are as follows:

Deferred tax asset:                                    1998             1997
                                                       ----             ----
  Discounted reserves and unearned
     premiums                                      $ 3,116,000      $ 2,576,000
  Deferred compensation and benefits                   500,000          694,000
  Credit carryforwards                               3,434,000        1,022,000
  Other, net                                           154,000          293,000
                                                   -----------      -----------
  Total deferred income tax asset                    7,204,000        4,585,000
                                                   -----------      -----------

Deferred income tax liability:
   Deferred acquisition costs                         (678,000)      (1,038,000)
   Tax effect of net unrealized
     appreciation on investments                      (236,000)      (1,940,000)
   Investments and unrealized foreign
     exchange                                         (621,000)      (2,273,000)
   Other, net                                         (195,000)        (113,000)
                                                   -----------      -----------
   Total deferred income tax liability              (1,730,000)      (5,364,000)
                                                   -----------      -----------
Net deferred income tax asset (liability)          $ 5,474,000      $  (779,000)
                                                   ===========      ===========

8. Stockholders' Equity and Dividend Restrictions

      Stockholders' Equity
      --------------------

            Authorized and issued common stock (1 cent par value) of PXRE
consisted of 40,000,000 and 14,938,262 shares as of December 31, 1998 and
40,000,000 and 14,806,347 as of December 31, 1997, respectively.

            In addition, at December 31, 1998, there were 500,000 shares of
serial preferred stock (1 cent par value) authorized and none outstanding. The
Board of Directors is authorized to determine the terms of each series of
preferred stock, which may be issued.

      Dividend Restrictions
      ---------------------

            The Insurance Department of the State of Connecticut, in which PXRE
Reinsurance is domiciled, recognizes as net income and surplus (stockholders'
equity) those amounts determined in conformity with statutory accounting
practices ("SAP") prescribed or permitted by the department, which differ in
certain respects from GAAP. The amount of statutory capital and surplus at
December 31 and statutory net income of PXRE Reinsurance for the years then
ended, as filed with insurance regulatory authorities are as follows:

                                          1998           1997           1996
                                          ----           ----           ----
PXRE Reinsurance

  Statutory capital and surplus       $447,229,000   $451,321,000   $400,133,000
                                      ------------   ------------   ------------
  Statutory net income                $  4,835,000   $ 57,388,000   $ 51,177,000
                                      ------------   ------------   ------------

            PXRE Reinsurance is subject to state regulatory restrictions, which
limit the maximum amount of annual dividends or other distributions, including
loans or cash advances, available to stockholders without prior approval of the
Insurance Commissioner of the State of Connecticut.


                                      F-18


<PAGE>

<PAGE>


            As of December 31, 1998, the maximum amount of dividends and other
distributions which may be made by PXRE Reinsurance during 1999 without prior
approval is limited to approximately $44,722,900. Accordingly, the remaining
amount of its capital and surplus is considered restricted. Under the terms of
the Credit Agreement, dividends to PXRE stockholders in any year are limited as
described in Note 6.

9. Earnings Per Share

            A reconciliation of income before extraordinary item and shares,
which affect basic and diluted earnings per share, is as follows:

<TABLE>
<CAPTION>
                                                           1998          1997          1996
                                                           ----          ----          ----
<S>                                                    <C>           <C>           <C>        
Income available to common stockholders:

Income before extraordinary loss                       $ 3,521,821   $47,027,150   $33,301,275
Extraordinary loss                                         843,000     2,773,690             0
                                                       -----------   -----------   -----------
Net income available to stockholders                   $ 2,678,821   $44,253,460   $33,301,275
                                                       ===========   ===========   ===========

Weighted average shares of common stock 
   outstanding:
Weighted average common shares
   outstanding (basic)                                  13,339,479    13,775,844     8,921,886
Equivalent shares of stock options                          62,218        70,770        63,677
Equivalent shares of restricted stock                       50,034        46,146        34,092
                                                       -----------   -----------   -----------
Weighted average common equivalent shares
   (diluted)                                            13,451,731    13,892,760     9,019,655
                                                       ===========   ===========   ===========
Per share amounts:
Basic
-----
Income before extraordinary loss                       $       .26   $      3.41   $      3.73
Net income                                             $       .20   $      3.21   $      3.73

Diluted
-------
Income before extraordinary loss                       $       .26   $      3.39   $      3.69
Net income                                             $       .20   $      3.19   $      3.69
</TABLE>

10. Employee Benefits

      Benefit Plans
      -------------

            Effective January 1, 1993, PXRE adopted a non-contributory defined
benefit pension plan covering all U.S. employees with one year or more of
service and who had attained age 21. Benefits are generally based on years of
service and compensation. PXRE funds the plan in amounts not less than the
minimum statutory funding requirement nor more than the maximum amount that can
be deducted for Federal income tax purposes.

            PXRE also sponsors a supplemental executive retirement plan. This
plan is non-qualified and provides certain key employees benefits in excess of
normal pension benefits.

            The net pension expenses for the company-sponsored plans included
the following components at December 31, based on a January 1 valuation date
(the latest actuarial estimate):


                                      F-19


<PAGE>

<PAGE>


                                             1998          1997          1996
                                             ----          ----          ----
Components of net periodic cost
Service cost                              $ 308,916     $ 265,216     $ 254,748
Interest cost                               247,025       220,404       194,999
Expected return on
  assets                                    (29,802)       (9,680)       (1,099)
Amortization of prior
  service costs                              94,147        94,996        94,996
Recognized net
  actuarial costs                             8,734          (401)       17,694
                                          ---------     ---------     ---------
Net periodic benefit
  costs                                   $ 629,020     $ 570,535     $ 561,338
                                          =========     =========     =========

            The following table sets forth the funded status of the plans and
amounts recognized in the consolidated balance sheets:

                                                     1998              1997
                                                     ----              ----
Reconciliation of benefit obligation
------------------------------------
Benefit obligation
  January 1                                      $ 3,784,732       $ 2,918,028
Service cost                                         308,916           265,216
Interest cost                                        247,025           220,404
Amendments                                                 0               625
Actuarial gain/(loss)                                (43,342)          380,459
                                                 -----------       -----------
Benefit obligation
  December 31                                    $ 4,297,331       $ 3,784,732
                                                 ===========       ===========
Reconciliation of plan assets
-----------------------------
Fair value of plan
  assets as of January 1                         $   315,222       $    26,076
Return on plan assets                                 33,459             7,989
Employer contributions                               104,837           281,157
                                                 -----------       -----------
Fair value of plan
  assets December 31                             $   453,518       $   315,222
                                                 ===========       ===========

Reconciliation of funded status
-------------------------------
Funded status                                    $(3,843,813)      $(3,469,510)
Unrecognized prior
  service cost                                     1,167,346         1,261,493
Unrecognized net
  gain/(loss)                                        486,680           542,413
                                                 -----------       -----------
Prepaid benefit/(cost)                           $(2,189,787)      $(1,665,604)
                                                 ===========       ===========
Weighted average assumptions as
-------------------------------
of December 31,
---------------
Discount rate                                           6.75%             7.00%
Expected return on
  plan assets                                           8.00%             8.00%
Rate of compensation
  increase                                              4.50%             5.00%

            The overseas Brussels and London operations cover employees under a
defined contribution type plan. The provision for such plans is $246,000,
$131,000 and $0 for 1998, 1997 and 1996 respectively.


                                      F-20


<PAGE>

<PAGE>


      Employee Stock Purchase Plan
      ----------------------------

            PXRE maintains an Employee Stock Purchase Plan under which it has
reserved 26,405 shares of its common stock for issuance to PXRE personnel. The
price per share is the lesser of 85% of the fair market value at either the date
granted or the date exercised.

11. Stock Options and Grants

            PXRE adopted in 1988, a plan which provides for the grant of
incentive stock options and non-qualified stock options to officers and key
employees. Options granted under the 1988 Stock Option Plan have a term of 10
years and become exercisable in four equal annual installments. The exercise
price for options granted pursuant to the plan must be equal to or exceed the
fair market value of the common stock on the date the option is granted. At
December 31, 1998, 321,646 options had been exercised under the 1988 Stock
Option Plan. In 1992, the Board of Directors resolved to freeze the 1988 Stock
Option Plan as of December 31, 1992, so that no further options could be granted
thereafter under this plan.

            In 1992, a Restated Employee Annual Incentive Bonus Plan was
approved. Incentive compensation is based in part on return on equity compared
to a target return on equity and in part on the discretion of the Restated Bonus
Plan Committee. In 1998 and 1997, $1,240,000 and $1,553,000, respectively, was
incurred under this plan. In addition, 30% of any bonus granted to certain
levels of employees is paid in restricted shares of common stock which vests in
36 months. As of December 31, 1998, 78,495 restricted shares had been granted
under this plan.

            In 1992, PXRE adopted a 1992 Officer Incentive Plan that provides
for the grant of incentive stock options, non-qualified stock options and awards
of shares of common stock subject to certain restrictions. Options granted under
the plan have a term of 10 years and generally become exercisable in four equal
annual installments commencing one year from the date of grant. The exercise
price for the incentive stock options must be equal to or exceed the fair market
value of the common stock on the date the option is granted. The exercise price
for the non-qualified options may be less than, equal to, or greater than the
fair market value of the common stock on the date of grant, but not less than
50% of such fair market value. As of December 31, 1998, 342,848 options and
96,656 shares of restricted stock had been granted under this plan.

            Information regarding the option plans described above is as
follows:

                                                  Number          Option Price
                                                 of Shares      Per Share Range
                                                 ---------      ---------------
Outstanding at December 31, 1995                  342,900        $8.00 - $25.00
  Options granted                                  73,748            $24.75
  Options exercised                                36,659        $8.75 - $25.00
  Options canceled                                  6,966       $23.875 - $25.00
                                                  -------
Outstanding at December 31, 1996                  373,023        $8.00 - $25.00
  Options granted                                  82,169            $26.688
  Options exercised                                64,504        $8.00 - $25.00
                                                  -------
Outstanding at December 31, 1997                  390,688
  Options granted                                  91,589       $30.72 - $32.94
  Options exercised                                 4,626       $10.875 - $24.88
  Options canceled                                  4,624       $24.75 - $26.69
                                                  -------
Outstanding at December 31, 1998                  473,024        $8.75 - $32.94
                                                  =======


                                      F-21


<PAGE>

<PAGE>


            Total authorized common stock reserved for grants of stock options
and restricted stock under the above plans is 1,164,307 shares. Total shares of
307,417 relate to stock options which are vested and exercisable at December 31,
1998, at exercise prices between $8.75 and $34.46. All options become
exercisable upon a change of control of PXRE as defined by the plans.

            In 1995, PXRE adopted a non-employee Director Stock Option Plan,
which provides for an annual grant of 1,000 options per director from 1995 to
1996 and 3,000 options per director from 1997 to 2005 inclusive as amended.
Options granted under the plan have a term of 10 years from the date of grant
and are vested and exercisable in three equal annual installments commencing one
year from the date of grant. The exercise price of the options is the fair
market value on the date of grant. As of December 31, 1998, 70,000 options were
granted and 22,190 were exercisable.

            Beginning January 1, 1998 PXRE allowed its directors to elect to
convert their Board of Directors retainer fee to options. At December 31, 1998,
18,448 ten year options were granted at a price of $33.455 which are 100% vested
and immediately exercisable.

            As discussed in Note 1, PXRE adopted SFAS No. 123 as of January 1,
1996. As permitted by SFAS No. 123, PXRE has elected to continue to account for
its stock option plans under the accounting rules prescribed by APB 25, under
which no compensation costs are recognized as an expense. Had compensation costs
for the stock options been determined using the fair value method of accounting
as recommended by SFAS No. 123, net income and earnings per share for 1998, 1997
and 1996 would have been reduced to the following pro forma amounts:

                                        1998            1997             1996
                                        ----            ----             ----
Net income
  As reported                        $2,678,821     $44,253,460      $33,301,275
  Pro forma                           1,987,264      43,789,779       33,028,582
Basic income per share

  As reported                             $0.20           $3.21            $3.73
  Pro forma                                0.15            3.18             3.70
Diluted income per share

  As reported                             $0.20           $3.19            $3.69
  Pro forma                                0.15            3.15             3.66

            Because the SFAS No. 123 method of accounting has not been applied
to options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years. Such options vested in 1998.

            The fair value of each option granted in 1998, 1997 and 1996 was
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions: risk-free interest of 5.07% for
1998, 5.89% for 1997 and 5.94% for 1996; expected lives of 5 years for each of
1998, 1997 and 1996; expected volatility of 24.94% for 1998, 30.70% for 1997 and
36.25% for 1996; and expected dividend yield of 4.01% for 1998, 2.63% for 1997
and 3.03% for 1996.


                                      F-22


<PAGE>

<PAGE>


            A summary of the status of the employee and director stock option
plans at December 31, 1998 and 1997 and changes during the years then ended is
presented below:

<TABLE>
<CAPTION>
                                                  1998                         1997
                                                  ----                         ----
                                                         Weighted                     Weighted
                                                         --------                     --------
                                                          Average                     Average
                                                          -------                     -------
                                            Shares     Exercise Price   Shares     Exercise Price
                                            ------     --------------   ------     --------------
<S>                                         <C>            <C>          <C>            <C>  
Options outstanding at beginning of year    433,688        20.49        389,023        19.04
Options granted                             137,037        32.42        109,169        27.05
Options exercised                             4,626        20.25         64,504        12.17
Options canceled                              4,624        25.46              0            0
                                            -------                     -------      
Options outstanding at end of year          561,475        24.58        433,688        20.49
                                            -------                     -------      
Options exercisable at end of year          307,417        21.19        217,960        18.65
                                            -------                     -------
Weighted average fair value per
  share of options granted                                  7.50                        9.92
</TABLE>

            Options outstanding at December 31, 1998 included 86,674 options
with exercise prices ranging from $8.75 to $11.50 per share and a weighted
average remaining contractual life of 2.31 years and 474,801 options with
exercise prices ranging from $23.25 to $33.455 per share and a weighted average
remaining contractual life of 6.47 years. Options exercisable at December 31,
1998 included 86,674 options with a weighted average remaining contractual life
of 2.31 years and 220,743 options with a weighted average remaining contractual
life of 5.20 years.

            In 1990, PXRE adopted a non-employee Director Deferred Stock Plan
granting 2,000 shares of its common stock to each non-employee Board member at
the time specified in the plan. The 12,000 shares of stock granted to Board
members who are not employees of PXRE or Phoenix Home Life Mutual Insurance
Company will be issued to Board members at or after their retirement according
to the option selected from those defined in the Plan. The 6,000 shares granted
to Board members who are employees of Phoenix Home Life Mutual Insurance Company
were issued on August 24, 1993.

12. Segment Information

            PXRE operates in one significant industry segment: property and
casualty reinsurance. Domestic gross premiums written represent U.S. based risks
written by U.S. based reinsureds. All other gross premiums written are
considered international (principally the United Kingdom, Continental Europe,
Australia and Asia).

<TABLE>
<CAPTION>
                                    1998           %           1997            %            1996           %
                                    ----           -           ----            -            ----           -
Gross premiums written:
<S>                             <C>                <C>      <C>                 <C>     <C>               <C>
  Domestic                       $ 26,521,000      19       $ 33,982,000        27       $ 32,594,000      29
  International                   109,694,000      81         92,250,000        73         81,754,000      71
                                 ------------     ---       ------------       ---       ------------     ---
                                 $136,215,000     100       $126,232,000       100       $114,348,000     100
                                 ============     ===       ============       ===       ============     ===
</TABLE>


                                      F-23


<PAGE>

<PAGE>


            PXRE has offices in the United States, Belgium and beginning in 1997
the United Kingdom. The following table shows net premiums earned, operating
profit and the aggregate carrying amount of identifiable assets by operational
area:

<TABLE>
<CAPTION>
                                                   U.S.              Foreign
                                               Operations           Operations         Consolidated
                                               ----------           ----------         ------------
1998
----
<S>                                           <C>                 <C>                  <C>         
Net premiums earned                           $ 69,437,869        $ 22,948,457         $ 92,386,326
Consolidated income (loss) before
  income taxes and extraordinary items        $  9,054,992        $ (6,739,248)        $  2,315,744
Identifiable assets                           $548,325,223        $ 84,365,913         $632,691,136

1997
----
Net premiums earned                           $ 77,019,775        $ 14,395,465         $ 91,415,240
Consolidated income (loss) before
  income taxes and extraordinary items        $ 66,358,127        $  2,867,023         $ 69,225,150
Identifiable assets                           $549,350,687        $ 58,821,363         $608,172,050
</TABLE>

13. Quarterly Consolidated Results of Operations (Unaudited)

            The following are unaudited quarterly results of operations on a
consolidated basis for the years ended December 31, 1998 and 1997. Quarterly
results necessarily rely heavily on estimates. This and certain other factors,
such as catastrophic losses, call for caution in drawing specific conclusions
from quarterly results. Due to changes in the number of average shares
outstanding, quarterly earnings per share may not add to the total for the year.

            The common stock price ranges are bid quotations as reported by the
New York Stock Exchange.


                                      F-24


<PAGE>

<PAGE>


<TABLE>
<CAPTION>
                                                               Three Months Ended
                                                               ------------------
                                              March 31      June 30      September 30    December 31
                                              --------      -------      ------------    -----------
1998
----
<S>                                         <C>           <C>           <C>             <C>         
Net premiums written                        $28,357,000   $15,368,000   $ 24,001,000    $ 20,968,000
                                            ===========   ===========   ============    ============
Revenues:
  Net premiums earned                       $19,713,968   $21,378,386   $ 27,644,965    $ 23,649,007
  Net investment income                       7,561,058     4,436,722       (851,792)      8,465,901
  Realized investment gains (losses)          1,224,643       427,454      1,328,034      (6,842,320)
  Management fees                               825,681       678,947        (33,227)        700,730
                                            -----------   -----------   ------------    ------------
      Total revenues                         29,325,350    26,921,509     28,087,980      25,973,318
                                            -----------   -----------   ------------    ------------
Losses and expenses:
  Losses and loss expenses incurred           3,570,797     2,951,664     32,936,993      18,334,172
  Commissions and brokerage                   3,992,016     4,288,096      7,376,058       4,906,518
  Other operating expenses                    4,349,853     3,600,868      5,414,708       5,947,996
  Interest expense                              544,280       601,890        248,641               0
  Minority interest in consolidated
    subsidiary                                2,231,884     2,231,923      2,232,051       2,232,005
                                            -----------   -----------   ------------    ------------
      Total expenses                         14,688,830    13,674,441     48,208,451      31,420,691
                                            -----------   -----------   ------------    ------------
Income (loss) before income taxes and
  extraordinary item                         14,636,520    13,247,068    (20,120,471)     (5,447,374)
Income tax provision (benefit)                4,650,000     4,058,000     (7,484,000)     (2,430,077)
                                            -----------   -----------   ------------    ------------
Income (loss) before extraordinary loss       9,986,520     9,189,068    (12,636,471)     (3,017,297)
                                            -----------   -----------   ------------    ------------
Extraordinary loss on debt redemption
  net of income tax benefit                           0             0        843,000               0
                                            -----------   -----------   ------------    ------------
      Net income (loss)                     $ 9,986,520   $ 9,189,068   $(13,479,471)   $ (3,017,297)
                                            -----------   -----------   ------------    ------------
Basic earnings (loss) per common share:
  Income (loss) before extraordinary
     item                                   $      0.73   $      0.67   $      (0.93)   $      (0.24)
  Extraordinary loss                               0.00          0.00           0.06            0.00
                                            -----------   -----------   ------------    ------------
  Net income (loss)                         $      0.73   $      0.67   $      (0.99)   $      (0.24)
                                            ===========   ===========   ============    ============
  Average shares outstanding                 13,744,975    13,650,563     13,596,222      12,691,058
                                            ===========   ===========   ============    ============
Diluted earnings (loss) per common share:
  Income (loss)before extraordinary
     item                                   $      0.72   $      0.67   $      (0.93)   $      (0.24)
  Extraordinary loss                               0.00          0.00           0.06            0.00
                                            -----------   -----------   ------------    ------------
  Net income (loss)                         $      0.72   $      0.67   $      (0.99)   $      (0.24)
                                            ===========   ===========   ============    ============
  Average shares outstanding                 13,862,678    13,722,006     13,596,222      12,691,058
                                            ===========   ===========   ============    ============
Dividends paid per common share             $      0.25   $      0.25   $       0.25    $       0.26
Price Range of Common Stock:
  High                                      $     35.25   $    32.875   $     30.500    $    26.6875
  Low                                       $    29.375   $     29.00   $     25.625    $    20.6250
</TABLE>


                                      F-25


<PAGE>

<PAGE>


<TABLE>
<CAPTION>
                                                             Three Months Ended
                                                             ------------------
                                          March 31       June 30   September 30   December 31
                                          --------       -------   ------------   -----------
1997
----
<S>                                     <C>             <C>           <C>           <C>        
Net premiums written                    $ 36,003,000    $18,838,000   $27,758,000   $17,456,000
                                        ============    ===========   ===========   ===========
Revenues:
  Net premiums earned                   $ 22,299,903    $24,383,433   $20,099,586   $24,632,318
  Net investment income                    8,954,051      7,760,235     8,144,342     6,331,997
  Realized investment (losses) gains        (439,208)       299,607       955,190     1,651,749
  Management fees                            915,296        812,958       726,083       551,320
                                        ------------    -----------   -----------   -----------
      Total revenues                      31,730,042     33,256,233    29,925,201    33,167,384
                                        ------------    -----------   -----------   -----------
Losses and expenses:
  Losses and loss expenses incurred        2,115,805      3,169,267     1,156,652     6,049,600
  Commissions and brokerage                4,696,511      3,439,413     4,153,134     6,848,764
  Other operating expenses                 3,881,875      4,404,873     3,561,247     3,868,155
  Interest expense                         1,562,039        795,132       433,218       534,511
  Minority interest in consolidated
    subsidiary                             1,488,502      2,230,534     2,231,444     2,233,034
                                        ------------    -----------   -----------   -----------
      Total expenses                      13,744,732     14,039,219    11,535,695    19,534,064
                                        ------------    -----------   -----------   -----------
Income before income taxes and
  extraordinary item                      17,985,310     19,217,014    18,389,506    13,633,320
Income tax provision                       5,939,450      6,301,550     6,007,000     3,950,000
                                        ------------    -----------   -----------   -----------
Income before extraordinary loss          12,045,860     12,915,464    12,382,506     9,683,320
                                        ------------    -----------   -----------   -----------
Extraordinary loss on debt redemption
  net of income tax benefit                1,633,200        955,740       184,750             0
                                        ------------    -----------   -----------   -----------
      Net income                        $ 10,412,660    $11,959,724   $12,197,756   $ 9,683,320
                                        ------------    -----------   -----------   -----------
Basic earnings per common share:
  Income before extraordinary item      $       0.86    $      0.94   $      0.90   $      0.71
  Extraordinary loss                            0.12           0.07          0.01          0.00
                                        ------------    -----------   -----------   -----------
  Net income                            $       0.74    $      0.87   $      0.89   $      0.71
                                        ============    ===========   ===========   ===========
  Average shares outstanding              13,926,340     13,808,230    13,727,284    13,734,243
                                        ============    ===========   ===========   ===========
Diluted earnings per common share:
  Income before extraordinary item      $       0.86    $      0.93   $      0.89   $      0.70
  Extraordinary loss                            0.12           0.07          0.01          0.00
                                        ------------    -----------   -----------   -----------
  Net income                            $       0.74    $      0.86   $      0.88   $      0.70
                                        ============    ===========   ===========   ===========
  Average shares outstanding              14,008,651     13,908,221    13,855,874    13,866,724
                                        ============    ===========   ===========   ===========
Dividends paid per common share         $       0.21    $      0.21   $      0.21   $      0.25
Price Range of Common Stock:
  High                                  $     26.875    $    31.438   $    31.688   $     34.00
  Low                                   $      24.50    $     24.75   $     29.50   $    29.563
</TABLE>


                                      F-26


<PAGE>

<PAGE>

PARENT COMPANY INFORMATION

<TABLE>
<CAPTION>
PXRE Corporation's summarized financial information (parent company only) is as follows:
                                                                     December 31,
                                                                ---------------------
                                                                1998             1997
                                                                ----             ----
<S>                                                          <C>             <C>
BALANCE SHEET
Assets
  Fixed maturities, at amortized cost                     $          --      $ 16,996,151
  Short-term investments                                      1,012,031         5,126,828
  Equity securities                                           3,069,554         3,023,866
  Other invested assets                                       5,490,561        14,684,287
  Cash                                                          232,157           445,647
  Investment income receivable                                        0           377,245
  Receivable from subsidiaries                                3,384,100         2,020,325
  Income tax recoverable                                     10,402,439         8,494,980
  Deferred income tax benefits                                6,741,946         5,106,561
  Equity in subsidiaries                                    457,193,174       460,780,439
  Other assets                                                7,108,574         7,385,022
                                                          --------------    -------------
     Total assets                                         $ 494,634,536     $ 524,441,351
                                                          =============     =============
Liabilities
  Debt payable                                            $  50,000,000               $ 0
  Note payable                                                        0        27,689,000
  Loan to subsidiary                                          3,416,886                 0
  Excess of fair market value over cost                       2,550,671         5,246,522
  Other liabilities                                           4,774,535         5,304,239
                                                          -------------     -------------
     Total liabilities                                       60,742,092        38,239,761
                                                          -------------     -------------
Minority Interest in Consolidated Subsidiary                 99,516,938        99,513,194
Stockholders' equity                                        334,375,506       386,688,396
                                                          -------------     -------------
     Total liabilities and stockholders' equity           $ 494,634,536     $ 524,441,351
                                                          =============     =============
</TABLE>
<TABLE>
<CAPTION>
                                                                       Years ended December 31,
                                                          -----------------------------------------------
                                                             1998                1997             1996
                                                             ----                ----             ----
<S>                                                       <C>                <C>               <C>
INCOME STATEMENT  
  Investment (loss) income                                $  (1,839,856)    $   2,799,937    $    131,928
  Realized gain on investment                                 1,458,142           433,966               0
  Management fee                                                300,380                 0               0
  Interest expense                                          (11,046,269)      (12,005,863)     (7,063,730)
  Other operating expenses                                      (36,349)          154,757      (1,671,164)
                                                          -------------     -------------    ------------
  Loss before tax benefit                                   (11,163,952)       (8,617,203)     (8,602,966)
  Income tax benefit                                          5,505,896         4,713,952       3,146,456
                                                          -------------     -------------    ------------
                                                             (5,658,056)       (3,903,251)     (5,456,510)
  Equity in earnings of subsidiary                            9,179,877        50,930,401      38,757,785
                                                          -------------     -------------    -----------
  Net income before extraordinary loss                        3,521,821        47,027,150      33,301,275
  Extraordinary loss, net of tax                                843,000         2,773,690               0
                                                          =============     =============    ============
  Net income                                              $   2,678,821     $  44,253,460    $ 33,301,275
                                                          =============     =============    ============
CASH FLOW STATEMENT
Cash from operating activities:
  Net income                                              $   2,678,821     $  44,253,460    $ 33,301,275
  Adjustments to reconcile net income to cash 
  provided by operating acitvities:
  Equity in earnings of subsidiaries                         (9,179,877)      (50,930,401)    (38,757,785)
  Cash dividends from subsidiaries                           57,388,000                 0      21,000,000
  Contribution of capital to subsidiaries                   (49,745,731)                0               0
  Receivable from TREX                                                0                 0        (334,422)
  Investment income receivable                                  377,245          (377,245)              0
  Intercompany accounts                                       2,053,111        (2,314,302)      5,421,549
  Deferred income taxes                                      (1,580,912)       (4,165,649)       (741,980)
  Income tax recoverable                                     (1,907,459)       (5,074,049)     (3,218,458)
  Other                                                      (4,716,339)        4,025,593       2,030,968
                                                          -------------     -------------    ------------
  Net cash (used) provided by operating activities           (4,633,141)      (14,582,593)     18,701,147
                                                          -------------     -------------    ------------
Cash flow from investing activities:
  Investment in equity of PXRE Trading Corporation            3,444,305                 0               0
  Net change in short-term investments                        4,114,797        13,372,334         205,160
  Cost of fixed maturity investments                                  0       (32,981,953)              0
  Cost of equity securities                                     (45,688)       (3,023,866)              0
  Fixed maturity investments matured/disposed                18,482,376        16,428,816               0
  Net change in other invested assets                         9,193,726       (14,684,287)              0
                                                          -------------     -------------    ------------
  Net cash provided (used) by investing activities           35,189,516       (20,888,956)        205,160
                                                          -------------     -------------    ------------
Cash flow from financing activities:
  Proceeds from issuance of common stock                        233,032           855,570         489,327
  Cash dividends paid to common stockholders                (13,585,333)      (12,209,262)     (6,478,852)
  Repurchase of debt                                        (27,689,000)      (45,221,683)              0
  Proceeds from issuance of debt                             50,000,000                 0               0
  Cost of treasury stock                                    (39,728,564)       (7,464,583)    (12,537,575)
  Issuance of minority interest in consolidated subsidiary            0        99,509,000               0
                                                          -------------     -------------    ------------
  Net cash (used) provided by financing activities          (30,769,865)       35,469,042     (18,527,100)
                                                          -------------     -------------    ------------
Net change in cash                                             (213,490)           (2,507)        379,207
Cash, beginning of period                                       445,647           448,154          68,947
                                                          -------------     -------------    ------------
Cash, end of period                                       $     232,157     $     445,647    $    448,154
                                                          =============     =============    ============
</TABLE>
                                      F-27
<PAGE>

<PAGE>


<TABLE>
<CAPTION>
                                                                                                                   Schedule III

                        PXRE CORPORATION AND SUBSIDIARIES
                       SUPPLEMENTARY INSURANCE INFORMATION

        Column A     Column B        Column C        Column D      Column E          Column F        Column G        Column H  
        --------     --------        --------        --------      --------          --------        --------        --------  
                                      Future
                                      policy
                                     benefits,                       Other
                                      losses,                        policy                                          Benefits, 
        Segment-     Deferred        claims and                    claims and                                         claims,  
        property      policy            loss          Unearned      benefits                            Net          losses and
          and       acquisition       expenses        premiums      payable           Premium        investment      settlement
        casualty       cost           (caption        (caption      (caption          revenue         income         expenses  
       insurance    (caption 7)       13-a-1)          13-a-2)      13-a-3)         (caption 1)     (caption 2)     (caption 4)
       ---------    -----------       -------          -------      -------         -----------     -----------     -----------
<S>    <C>          <C>            <C>             <C>             <C>             <C>             <C>             <C>         
1998                $ 4,123,000    $ 102,592,000   $ 20,541,000    $        0      $ 92,386,000    $ 19,612,000    $ 57,794,000
1997                  2,966,000       57,189,000     18,485,000             0        91,415,000      31,191,000      12,491,000
1996                  1,449,000       70,977,000     11,042,000             0        72,796,000      16,782,000      18,564,000


<CAPTION>
         Column I        Column J      Column K
         --------        --------      --------
         Amortiza-
          tion of
          deferred
           policy          Other
        acquisition      operating      Premiums
           costs          expense       written
           -----          -------       -------
<S>    <C>             <C>            <C>
1998   $ 20,563,000    $ 19,313,000   $ 88,694,000
1997     19,138,000      15,716,000    100,055,000
1996     12,874,000      12,262,000     67,718,000
</TABLE>


<TABLE>
<CAPTION>
                                                                                                                    Schedule VI

                        PXRE CORPORATION AND SUBSIDIARIES
                      SUPPLEMENTARY INFORMATION CONCERNING
                     PROPERTY-CASUALTY INSURANCE OPERATIONS

        Column A     Column B         Column C       Column D         Column E        Column F         Column G  
        --------     --------         --------       --------         --------        --------         --------  
                                    Reserves for                                                                 
                                       unpaid                                                                    
                       Deferred        claims        Discount,                                                   
      Affiliation       policy       and claim        if any                                             Net     
          with        acquisition    adjustment     deducted in       Unearned         Earned         investment 
       registrant        costs        expenses       Column C         premiums        premiums          income   
       ----------        -----        --------       --------         --------        --------          ------   
<S>   <C>             <C>           <C>             <C>             <C>             <C>              <C>         
1998  Consolidated    $ 4,123,000   $ 102,592,000   $         0     $ 20,541,000    $ 92,386,000     $ 19,612,000
1997    Property        2,966,000      57,189,000             0       18,485,000      91,415,000       31,191,000
1996    Casualty        1,449,000      70,977,000             0       11,042,000      72,796,000       16,782,000


<CAPTION>
                 Column H                 Column I         Column J         Column K
                 --------                 --------         --------         --------
             Claims and Claim             Amortiza-
            adjustment expenses            tion of           Paid
            incurred related to            deferred         claims
            (1)             (2)             policy         and claim
          Current          Prior           acquisi-        adjustment        Premiums
            year           years          tion costs        expenses         written
            ----           -----          ----------        --------         -------
<S>    <C>               <C>            <C>              <C>              <C>         
1998   $ 58,326,000      $ (532,000)    $ 20,563,000     $ 33,007,000     $ 88,694,000
1997     16,408,000      (3,917,000)      19,138,000       23,379,000      100,055,000
1996     15,315,000       3,249,000       12,874,000       28,753,000       67,718,000
</TABLE>


                                      F-28


<PAGE>

<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS

                      ON THE FINANCIAL STATEMENT SCHEDULES

To the Board of Directors
  of PXRE Corporation

Our audits of the consolidated financial statements referred to in our report
dated February 11, 1999 appearing on page F-1 of PXRE Corporation's Annual
Report on Form 10-K for the year ended December 31, 1998, also included an audit
of the Financial Statement Schedules listed in Item 14(a) of this Form 10-K. In
our opinion, these Financial Statement Schedules present fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.

PRICEWATERHOUSECOOPERS LLP

New York, New York
February 11, 1999


                       CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectuses
constituting part of the Registration Statements on Form S-8/S-3 (Nos. 33-35521
and 33-63768) and Forms S-8 (Nos. 33-82908, 333-4897, 333-31817, 333-31819 and
333-31821) of PXRE Corporation of our report dated February 11, 1999 appearing
on page F-1 of this Form 10-K. We also consent to the incorporation by reference
of our report on the Financial Statement Schedules, which appears above.

PRICEWATERHOUSECOOPERS LLP

New York, New York
March 25, 1999


                                      F-29

                          STATEMENT OF DIFFERENCES
                          ------------------------

The British pound sterling sign shall be expressed as .....................  'L'
The service mark symbol shall be expressed as ............................. 'sm'


<PAGE>