Mr. Ader disclosed that a substantial loss in premium volume could result from current reinsurance clients exercising their right to cancel their reinsurance contracts. He continued that although PXRE's capital and liquidity are sufficient to meet known obligations, the company's competitive position has materially diminished. The possibility of cancellations, he said, also materially hampers the carrier's financial flexibility.

Financial flexibility, S&P said, is further hampered by the group's disclosure that it is currently precluded under Bermuda law from declaring or paying dividends, subject to a shareholder vote in April 2006.

PXRE reported Wednesday a net loss before convertible preferred share dividends for the fourth quarter of $446.5 million, compared with net income of $33 million for the same period in 2004. Revenues in the quarter increased 76 percent, or $68 million, from $89 million to $157 million.

For the year, the net loss was $698 million, compared with net income of $23 million in 2004. Revenues on the year rose 25 percent, or $84 million, from $336 million to $420 million.

The total net loss for PXRE from the three hurricanes (Katrina, Rita and Wilma), after reinsurance recoveries, was $807 million.

In a statement, Jeffrey L. Radke, president and chief executive officer of PXRE, said the company remains financially sound despite its losses and will be able to meet its financial obligations to clients.

He said there is sufficient liquidity to meet the company's needs and it has taken a number of steps to meet future contingencies.

Last week, Fitch Ratings downgraded PXRE insurer financial strength from "triple-B-plus" to "double-B-plus" and placed the company on rating watch.