PXRE to pay $17.6M in reinsurance default

HAMILTON, Bermuda--PXRE Reinsurance Ltd. is expected to pay about $17.6 million as the result of failing to pay on a reinsurance agreement with Atlantic & Western Re Ltd., according to a Friday filing by PXRE with the Securities & Exchange Commission.

The filing says that PXRE did not pay the premium due Thursday under a reinsurance agreement dated Nov. 8, 2005, between the financially troubled company and Cayman Islands-based Atlantic & Western Re. "The nonpayment is expected to result in an event of default under the reinsurance agreement, which will trigger the early commutation of the reinsurance agreement," according to the filing. "PXRE will be assessed termination charges of approximately $17.6 million as a result of the early commutation of the reinsurance agreement."

The agreement provided two layers of reinsurance protection through 2010 to PXRE. The first layer provided $200 million of coverage for losses arising from hurricanes in the eastern and Gulf coasts of the United States, windstorms in northern Europe and earthquakes in California. The second layer provided $100 million of coverage for losses arising from U.S. coastal hurricanes and northern European windstorm.

"As of Jan. 1, 2007, virtually all of PXRE's in-force assumed reinsurance contracts had expired and PXRE has no remaining material exposure to future catastrophe events," PXRE said in the filing. PXRE's board "concluded that it was unlikely that PXRE Group Ltd. would ultimately pursue a strategic alternative that would allow PXRE to utilize the coverage available under the reinsurance agreement in light of the extremely high attachment point under the reinsurance agreement."