PXRE leases a total of approximately 69,500 square feet of office space in Hamilton, Bermuda (PXRE's corporate headquarters), Edison, New Jersey, Norwalk, Connecticut, New York, New York, Richmond, Virginia, San Francisco, California, London, England and Brussels, Belgium. The Hamilton, Bermuda lease, which covers approximately 2,618 square feet of office space, was signed in 1999 and is for a term of two (2) years at a fixed annual rent of approximately $102,000 and additional rents on account of PXRE's proportionate share of services. The Edison, New Jersey space is comprised of (i) a 1994 lease of approximately 24,000 square feet of office space, 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 Corporation's proportionate share of increases in building operating expenses and property taxes over calendar year 1994, and (ii) a November 1999 lease of approximately 24,000 square feet of additional office space for a term of 10 years expiring on October 31, 2009 at fixed rentals of approximately $582,000 for years 1-5 of the term and $676,000 for years 6-10 of the term, in each case plus additional rents on account of PXRE Corporation's proportionate share of taxes and operating expenses attributable to the building. Relatedly, in February 2000 PXRE Corporation subleased approximately 11,000 square feet of the additional space for a three year term ending on the
36th month next following the date that the premises are delivered to the subtenant. The sublease provides for the subtenant to pay fixed rent to PXRE Corporation at the rate of approximately $274,000 per annum, together with electricity at the rate of approximately $16,500 per annum. The subtenant is additionally required to pay its proportionate share of taxes and operating expenses payable by PXRE Corporation under the lease.
(3) 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 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.
(5) The 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. Earnings were inadequate to cover fixed charges by $55,288,000 for the year ended December 31, 1999. The ratios of earnings to combined fixed charges and preferred dividends were determined by dividing consolidated earnings by total fixed charges and preferred dividends. Earnings were inadequate to cover fixed charges and preferred dividends by $55,288,000 for the year ended December 31, 1999.
The property and casualty reinsurance industry has been experiencing an extended period of soft market conditions characterized by inadequate pricing. The industry is also consolidating through mergers and other acquisitions. PXRE competes with numerous companies, many of which have substantially greater financial, marketing and management resources.
- the addition of a reinsurance platform offering primarily casualty products directly to customers;
- the enhancement of its international broker market reinsurance platform to include additional lines of business including casualty risks;
- the establishment of a direct presence in the Bermuda market.
PXRE's invested assets consist primarily of fixed maturities and limited partnerships, but also include equities, real estate investment trusts ("REITS") and short-term investments. PXRE's investments are subject to market- wide risks and fluctuations, as well as to risk inherent in particular securities. Additionally, 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.
PXRE and its non-U.S. subsidiaries intend to operate their business in a manner that will not cause them to be treated as engaged in a trade or business in the United States and, thus, will not require them to pay U.S. federal corporate income taxes (other than withholding taxes on certain U.S. source investment income and excise taxes on reinsurance premiums). However, because there is uncertainty as to the activities which constitute being engaged in a trade or business within the United States, there can be no assurances that the U.S. Internal Revenue Service will not contend successfully that PXRE Group or a non-U.S. subsidiary is engaged in a trade or business in the United States. The company understands that certain U.S.-based insurance companies are advocating an amendment to the U.S. Internal Revenue Code which would impose federal income tax on a domestic insurer which is controlled by a foreign reinsurer on the deemed investment income on its reserves on U.S. risks ceded to one or more foreign reinsurers. At this point, the Company is unable to predict whether this legislative effort will be successful, what form any such legislation may ultimately take and what impact any such legislation would have on the Company. If PXRE Group or any of its non-U.S. subsidiaries were subject to U.S. income tax, PXRE Group's shareholders' equity and earnings could be materially adversely affected.
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 U.S. SAP and net premiums earned for purposes of U.S. 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 U.S. GAAP basis.
During 1999, PXRE experienced adverse development of $19,781,000 net for prior-year loss and loss expenses primarily related to $8,400,000 of Hurricane Georges, $1,400,000 of Hurricane Mitch and other 1998 events, including $3,381,000 in PXRE Lloyd's Syndicate, primarily due to accident and health and facultative reserve strengthening. 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, Polish and Czech floods.
The underwriting expense ratio was 43.0% for 1999 compared with 40.9% for 1998. The increase in underwriting expense ratio was substantially due to an increase in salary and benefits incurred in building the diversified business.
Other operating expenses increased to $30,052,000 for the year ended December 31, 1999 from $19,313,000 in 1998, as a result of the costs incurred to implement PXRE's planned diversification including an increase in salary and related benefit costs of $6,329,000 and data processing costs of $1,462,000. Included in other operating expenses were foreign currency exchange losses of $836,000 for 1999 compared to gains of $204,000 for the corresponding period of 1998. In addition, PXRE incurred charges of approximately $1,087,000 after-tax in connection with the redomestication as well as tax charges discussed below. Also in 1999, PXRE incurred $695,000 in after-tax expenses associated with a change in accounting in accordance with the American Institute of Certified Public Accountants Statement of Position 98-5, for organizational and start-up costs capitalized in prior years.
(as described below under "Liquidity and Capital Resources") compared to $8,928,000 in 1998.
The tax benefit includes a one-time income tax charge in connection with the Bermuda redomestication of approximately $1.8 million related to the cancellation of shares of PXRE Delaware held by its subsidiary. In addition, PXRE incurred a tax charge of $2,314,000 upon payment of a dividend by PXRE Delaware in connection with the redomestication.
For the reasons discussed above, the net loss was $42,139,000 for 1999 compared to net income of $2,679,000 for 1998. The diluted loss per common share before cumulative effect of accounting change and extraordinary loss was $3.58 for 1999 compared to net income of $0.26 for the prior year. The diluted net loss per common share was $3.64 for 1999 compared to net income of $0.20 for 1998 based on diluted average shares outstanding of approximately 11,568,000 in 1999 and 13,452,000 in 1998.
In 1998, opportunistic purchases of catastrophe retrocessional protection and additional coverage associated with new operations increased catastrophe written premiums ceded.
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, Polish and Czech flood losses referred to below.
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 Brussels' 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.
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 included 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 was in technical default. This loss was recorded as realized which resulted in a pre-tax loss of $6,600,000.
PXRE relies primarily on cash dividends and net tax allocation payments from its subsidiaries, including PXRE Reinsurance, Transnational Insurance and PXRE Bermuda to pay its operating expenses and income taxes, to meet its debt service obligations and to pay dividends. The payment of dividends by PXRE Reinsurance 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, 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 U.S. 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 2000, without regulatory approval, is $39,901,000. Transnational Insurance may not declare or pay any dividend to PXRE Reinsurance in 2000 without regulatory approval. During 1999, $35,525,695 in dividends was paid by PXRE Reinsurance, including extraordinary dividends and $10,000,000 was paid by Transnational Insurance to PXRE Reinsurance, including extraordinary dividends. In both cases authorization was obtained from the Insurance Department of the State of Connecticut. Under Bermuda law, PXRE Bermuda may not pay a dividend unless after payment of the dividend it is able to pay its liabilities as they become due, and the realizable value of its assets are greater than the aggregate value of its liabilities, issued share capital and share premium accounts. PXRE Bermuda is also required to maintain statutory assets in an amount that permits it to meet the prescribed minimum solvency margin for the net premium income level of its business from time to time. In addition, any dividend paid cannot be in an amount that will reduce the reserves of PXRE Bermuda to a level that is not sufficient to meet the reserve requirements of its business.
Dividends and other permitted payments from PXRE Delaware to PXRE Barbados are expected to be subject to U.S. withholding taxes at the rate of 5% (reduced from 30% under the tax convention between the United States and Barbados) and a 2 1/2 % Barbados corporate income tax.
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) or the approval of the Bermuda Minister of Finance prior to the payment of additional dividends by PXRE Bermuda. 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.
PXRE Delaware 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 agreed to make available to PXRE Delaware a $75,000,000 revolving credit facility. On May 18, 1999, pursuant to various Joinder Agreements and Assignment and Acceptance Agreements, First Union syndicated the revolving credit facility, joining Fleet National Bank, Credit Lyonnais New York Branch and Bank One (formerly, The First National Bank of Chicago) as additional lenders (collectively with First Union, the "Lenders"). As at December 31, 1998, PXRE Delaware had outstanding borrowings under the Credit Agreement of $50,000,000, and in October 1999, the remaining $25,000,000 was borrowed.
The terms of the Credit Agreement have been amended three times pursuant to a First Amendment and Waiver to Credit Agreement, dated May 18, 1999, and a second Amendment and Waiver to Credit Agreement, dated June 25, 1999 and the First Amended and Restated Credit Agreement dated August 31, 1999. The First Amendment increased the applicable margin percentage for LIBOR loans under the Credit Agreement by 1/8% and changed the governing law from North Carolina to New York law. The Second Amendment modified various covenants related to the investments that PXRE and its subsidiaries are permitted to make under the Credit Agreement. The First Amended and Restated Credit Agreement was undertaken to address the Bermuda redomestication and to provide for PXRE Group Ltd. and PXRE (Barbados) Ltd. as guarantors of the loan obligation.
(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 companies' investment policies 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 unrelated business (h) to enter into or remain a party to certain ceded reinsurance agreements or (i) to consolidate, merge or otherwise combine (or agree to do any of the foregoing) unless, among other things, (1) PXRE Group Ltd. 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 compliance with Leverage Ratio, Fixed Charge Coverage Ratio, Risk-Based Capital Ratio and Combined Statutory Surplus requirements. As at December 31, 1999, there was no default under 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 Group Ltd. representing 20% or more of the combined voting power of the then outstanding securities of PXRE Group Ltd. ordinarily having the right to vote in the election of directors; or (2) the Board of Directors of PXRE Group Ltd. ceases to consist of a majority of the individuals who constituted the Board as of the date of the Credit Agreement or who subsequently become members after having been nominated, or otherwise approved in writing, by at least a majority of individuals who constituted the Board as of the date of the Credit Agreement (or their approved replacements). A copy of the First Amended and Restated Credit Agreement dated August 31, 1999 is filed as Exhibit 4.5 and is incorporated herein by reference.
On January 29, 1997, PXRE Capital Trust I, ("PXRE Capital Trust") a Delaware statutory business trust and a wholly-owned subsidiary of PXRE Delaware 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 Delaware's 8.85% Junior Subordinated Deferrable Interest Debentures due February 1, 2027 (the "Subordinated Debt Securities"). On April 23, 1997, PXRE Delaware 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 the twelve months ended December 31, 1999 in respect of the Capital Securities (and related Subordinated Debt Securities) amounted to $8,790,000. On or after February 1, 2007, PXRE Delaware 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 Delaware 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 Delaware's extension of any 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 Delaware exercises its right to extend an interest payment period, then during any Extension Period, subject to certain exceptions, (i) PXRE Delaware may 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 Delaware may 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 Delaware 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 Delaware may commence a new Extension Period, subject to certain requirements.
The primary sources of liquidity for PXRE's principal operating subsidiaries are net cash flow from operating activities (including interest income from investments), the maturity or sale of investments, borrowings, capital contributions and advances and in the case of PXRE Reinsurance, dividends from Transnational Insurance. Funds are applied primarily to the payment of claims, operating expenses, income taxes and to the purchase of investments. Premiums are typically received in advance of related claim payments.
Of PXRE's fixed maturities portfolio at December 31, 1999, 89.0% of the fair value was in obligations rated "A2" or "A" or better by Moody's or S&P, respectively. Mortgage and asset-backed securities accounted for 28.9% of fixed maturities based on fair value at December 31, 1999. At December 31, 1999, 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, 1999 and 1998, was 6.6% and 5.9%, respectively.
Short-term investments are carried at amortized cost, which approximates fair value. PXRE's short-term investments, principally high-grade commercial paper, marketable fixed income securities and investments in limited partnerships which invest primarily in marketable fixed income securities, were $50,004,000 at December 31, 1999 compared to $58,862,000 at December 31, 1998. Limited partnership assets amounting to $113,476,000 at December 31, 1999, were accounted for under the equity method. The amount of equity income included in short-term investments and limited partnership assets as of December 31, 1999 amounted to $25,740,000.
Book value per common share was $22.54 at December 31, 1999.
PXRE may be subject to gains and losses resulting from currency fluctuations because 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.
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, regulators, and to shareholders.
PXRE's principal fixed maturity market risk exposure is to changes in U.S. 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, credit and prepayment risk. All investment positions are long with no 'short' or derivative positions.
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% increase in interest rates. The potential loss in fair value due to interest rate exposure was estimated at $3 million at December 31, 1999 and $1 million at December 31, 1998.
The estimated potential loss in fair value due to changes in credit spreads was estimated at $5 million at December 31, 1998. This analysis excluded the impact of changes in credit spreads on other portfolio sectors and borrowings that may be offsetting. PXRE has significantly reduced its investments in emerging market securities in 1999. Therefore the credit risk related to the investment is diminimus at December 31, 1999.
PXRE is exposed to equity price risk in the form of a limited number of equity investments, including holdings in the common stock of U.S. REIT's. Based on a 10% decrease in equity prices the potential loss in fair value is estimated to be $2.4 million and $4 million at December 31, 1999 and 1998, respectively. The decrease reflects the reduction in the size of the equity portfolio at December 31, 1999.
PXRE recognized a tax benefit in 1999 and 1998 of $13,149,000, and $1,660,000, respectively, compared to tax expense in 1997 of $20,705,000. The tax benefit reported by PXRE for 1999 and 1998 is primarily attributable to underwriting losses, tax-exempt income and amortization of negative goodwill.