Oldwick, N.J.-based Best, which also cut various issuer credit and debt ratings with a negative outlook, said that in light of the increase in loss estimates which PXRE announced–a pre-tax amount between $281 million-to-$311 million–it now has greater concern regarding PXRE's risk management capability.

Previously, PXRE had said net pre-tax impact of the 2005 Hurricanes would fall around $462 million to $477 million. The revised range–$743 million to 788 million–raised the low end more than 60 percent. The high end of the range was boosted around 65 percent.

A.M. Best noted that the most recent range of loss increase accounts for more than 60 percent of reported actual shareholder's equity on Sept. 30, 2005.

This morning, Standard & Poor's followed with another downgrade, announcing it had dropped PXRE's ratings to “triple-B-plus” from a prior level of “A-minus.”

Anticipating the downgrades, PXRE said that “in light of the potential negative impact that adverse rating actions would have on the company's future business, PXRE has decided to explore strategic alternatives for the company,” retaining investment banking firm, Lazard as a financial advisor to assist in the process.

PXRE said it will also assess its ability to fully utilize tax benefits relating to its net operating losses as of Dec. 31, 2005. As of Sept. 30, 2005, the Company had income tax recoverables of $47.8 million.

Jeffrey Radke, president and chief executive officer of PXRE, explained the boost in loss estimates, saying: “The scope of [the] storms, our clients' difficulty in estimating and adjusting their claims, particularly those in our retrocessional and direct and facultative business lines, together with the combination of wind and flood damage from Hurricane Katrina, dramatically increased the challenge of accurately estimating losses immediately following the events.”

He also noted that PXRE has taken steps that substantially improve its risk profile, including increased reinsurance coverage, reducing peak zone exposure and reducing exposure to certain large events and second events through catastrophe bond transactions.

“Although the agencies have acknowledged that we have dramatically reduced the risk in our portfolio, they are of the view that our book of business may be too volatile for a rating in the 'A' range,” Mr. Radke said in a statement.

A.M. Best said it had considered the actions to mitigate future exposures, but nonetheless decided to assign a negative outlook until these new strategies and risk mitigation procedures have been fully tested.

At S&P, Credit Analyst Steven Ader said “the material nature” of the loss development reported yesterday relative to the previous range of estimates, and the overall impact of the 2005 hurricane season relative to PXRE's capital base, “support our conclusion that PXRE's enterprise risk management capabilities, in terms of adequately measuring and managing the high volatility of PXRE's core retrocessional business comprising approximately 36 percent of 2005 net premium volume, is not consistent with the prior rating.”

Separately, during a conference call for Aspen Holdings this morning, that company's CEO, Chris O'Kane was asked for his take on the market impact of PXRE's downgrade.

“It's another powerful reminder of the power of the rating agencies,” he said. Most people assume that an 'A' in the rating reassures that you can trade successfully. With at rating with a 'B' in it, it's very, very tough to keep a portfolio of clients together.”

But Mr. O'Kane said he didn't expect a flood of market opportunities for other reinsurers as a result of the PXRE downgrades, noting that the PXRE is not a huge company. He noted that PXRE's strong point, traditionally, has been in the retrocession area, where capacity is already scarce.

The Best downgrade yesterday is actually the second cut that PXRE has suffered since the Hurricane Katrina hit last year. Both A.M. Best and S&P lowered pre-Katrina ratings of “A” to “A-minus” in September. Fitch already cuts its rating to the B-range last year, dropping the ratings to “triple-B-plus.”

Following the hurricanes and the initial downgrades, PXRE embarked on a series of capital-raising initiatives, issuing preferred and common stock. By late October, when the company announced third-quarter earnings, Mr. Radke said that $474 million in equity capital had been raised.

PXRE also secured $550 million of extreme event protection from two collateralized catastrophe bond deals. (PXRE announced a $300 million bond deal in November and a $250 million second-event bond in December.)

With these actions completed, A.M. Best affirmed the A-minus in December.

Immediately following Hurricane Katrina last year, in early September, during a presentation at the Keefe, Bruyette & Woods Insurance Conference in New York, Mr. Radke was optimistic about the improving property cat market and his company's ability to fully participate in it.