PXRE Group Ltd. Unaudited Financial Highlights (Dollars in thousands except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 Gross premiums written $236,146 $125,529 $427,708 $285,847 Net premiums written $99,281 $112,591 $276,340 $253,527 Revenues $82,662 $95,611 $262,724 $246,824 Losses and expenses (432,536) (176,942) (547,420) (262,522) Loss before income taxes, cumulative effect of accounting change and convertible preferred share dividends (349,874) (81,331) (284,696) (15,698) Income tax benefit (32,531) (8,157) (33,603) (6,844) Loss before cumulative effect of accounting change and convertible preferred share dividends (317,343) (73,174) (251,093) (8,854) Cumulative effect of accounting change, net of $0.2 million tax benefit - - - (1,053) Net loss before convertible preferred share dividends $(317,343) $(73,174) $(251,093) $(9,907) Net loss per diluted common share $(11.17) $(5.48) $(10.02) $(1.49) Average diluted shares outstanding (000's) 33,550 27,539 33,307 26,965 Average diluted shares outstanding when antidilutive (000's) 28,529 13,995 25,649 13,753 Net loss before convertible preferred share dividends $(317,343) $(73,174) $(251,093) $(9,907) Adjustments, net of tax: Realized investment losses 20 12 255 295 Cumulative effect of accounting change - - - 1,053 Severance, net of pension gain - - - 1,020 Foreign exchange (gains) losses (98) (215) (936) 123 Net operating loss (1) $(317,421) $(73,377) $(251,774) $(7,416) Net loss per diluted common share $(11.17) $(5.48) $(10.02) $(1.49) Adjustments, net of tax: Average diluted shares outstanding including antidilutive shares 1.71 2.82 2.48 1.12 Realized investment losses - - 0.01 0.01 Cumulative effect of accounting change - - - 0.04 Severance, net of pension gain - - - 0.04 Foreign exchange gains - (0.01) (0.03) - Net operating loss per adjusted diluted share (1)(2) $(9.46) $(2.67) $(7.56) $(0.28) Financial Position: Sept. 30, Dec. 31, 2005 2004 Cash and investments $1,279,974 $1,165,208 Total assets 1,871,594 1,454,416 Reserve for losses and loss expenses 985,441 460,084 Shareholders' equity 439,959 696,555 Book value per common share (3) 13.01 21.30 Statutory surplus: PXRE Reinsurance Ltd. 452,000(4) 749,084(5) PXRE Reinsurance Company 138,000(6) 224,926 Financial Strength Ratings (A.M. Best/ S&P): (7) PXRE Reinsurance Ltd. A-/A- A/A PXRE Reinsurance Company A-/A- A/A Pro- forma capitalization table - as if the common and perpetual preferred share offerings closed on September 30, 2005:(8) September 30, Actual Pro-Forma Long term subordinated debt $167,080 $167,080 Shareholders' equity: Serial convertible preferred shares, $1.00 par value, $10,000 stated value 58,132 58,132 Perpetual preferred shares, $1.00 par value, $1,000 liquidation value - 375,000 Common shares, $1.00 par value 29,395 38,239 Additional paid-in-capital 445,425 535,585 Accumulated other comprehensive loss net of deferred income tax benefit of ($1,932) (12,269) (12,269) Accumulated deficit (71,041) (71,041) Restricted shares at cost (0.5 million shares) (9,683) (9,683) Total shareholders' equity 439,959 913,963 Total capitalization $607,039 $1,081,043 Book value, diluted $13.01 $11.81 Common shares outstanding, diluted 33,806 77,416 Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 GAAP Ratios: Loss ratio 594.3% 174.1% 206.5% 84.3% Expense ratio 28.8% 18.3% 25.2% 25.2% Combined ratio 623.1% 192.4% 231.7% 109.5% Losses Incurred by Segment: Cat & Risk Excess $403,541 $136,097 $471,956 $167,220 Exited 5,507 20,238 6,565 25,331 $408,958 $156,335 $478,521 $192,551 Commission and Brokerage, Net of Fee Income by Segment: Cat & Risk Excess $12,625 $8,901 $31,425 $24,894 Exited (33) (696) (183) 1,836 $12,592 $8,205 $31,242 $26,730 Underwriting (Loss) Income by Segment: (9) Cat & Risk Excess ($347,198) ($55,083) ($270,992) $30,182 Exited (5,535) (19,658) (7,100) (21,147) ($352,733) ($74,741) ($278,092) $9,035 Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 Underwriting (Loss) Income Reconciled to Loss Before Income Taxes, Cumulative Effect of Accounting Change and Convertible Preferred Share Dividends: Net underwriting (loss) income (9) ($352,733) ($74,741) ($278,092) $9,035 Net investment income 13,526 5,157 30,649 16,941 Net realized investment (losses) gains (34) (40) (366) 11 Operating expenses (7,255) (8,272) (27,103) (30,760) Foreign exchange gains 237 382 1,053 22 Interest expense (3,615) (3,817) (10,837) (10,947) Loss before income taxes, cumulative effect of accounting change and convertible preferred share dividends ($349,874) ($81,331) ($284,696) ($15,698) (1) Net operating loss (a non-GAAP financial measure) is net loss excluding after-tax realized investment gains and losses, cumulative effect of accounting change, severance expenses, net of a pension gain and foreign exchange gains and losses. These items are excluded because management does not consider these items to be an integral part of the Company's performance or indicative of trends in the business operations in a particular period. The excluded items may be material in a period. Management believes that disclosing non-GAAP financial measures such as net operating loss provides useful information regarding PXRE's results of operations consistent with industry practices, which enable investors, security analysts and rating agencies to make performance comparisons with PXRE's competitors. (2) Net operating loss per adjusted diluted share (a non-GAAP financial measure) is net operating loss divided by diluted common shares without considering the anti-dilutive effect of convertible voting preferred shares, options and unvested restricted stock in a period of loss from continuing operations. Management believes it is important to disclose this measure, as the convertible preferred shares mandatorily convert to common shares by April 8, 2008. (3) After considering convertible preferred shares. (4) Estimated and before inter-company eliminations. (5) Before inter-company eliminations. (6) Estimated. (7) The rating from Standard & Poor's (S&P) remains on credit watch negative; S&P has disclosed that it will most likely affirm our A- financial strength rating and assign a stable outlook upon the exchange of the Series D Preferred Shares to common and after evaluating management's progress in reducing prospective earnings and capital volatility. The rating from A.M. Best remains under review with negative implications; A.M. Best has stated that it will likely affirm our A- financial strength rating upon the exchange of the Series D Preferred Shares to common shares. (8) On October 7, 2005, PXRE completed the public offering of 8.8 million of its common shares, including 1.2 million shares sold upon exercise of the underwriter's over-allotment in full, at a public offering price of $13.25 for net proceeds of $114.7 million. On October 7, 2005 PXRE also completed the sale of 375,000 of its series D perpetual preferred shares in a private placement for net proceeds of $359.3 million. Pro-forma amounts show the effect on our shareholders' equity and total capitalization if the common and perpetual preferred share offerings occurred as of September 30, 2005 as well as the number of common shares outstanding, diluted if, as of September 30, 2005 a) the series D perpetual preferred shares were converted to common shares at their exchange price of $11.00 per share, resulting in the issuance of 34,090,909 common shares, and b) as a result of the offerings, the anti-dilution provisions of convertible preferred shares were in effect, which results in an issuance of approximately 676,000 common shares upon their conversion to common shares by April 8, 2008. (9) Underwriting Income (Loss) by Segment (a GAAP financial measure): The Company's reported underwriting results are its best measure of profitability for its individual underwriting segments and accordingly are disclosed in the footnotes to the Company's financial statements required by SFAS 131, Disclosures about Segments of an Enterprise and Related Information. Underwriting Income by Segment is calculated by subtracting losses and loss expenses incurred and commission and brokerage, net of fee income from net earned premiums. PXRE does not allocate net investment income, net realized investment gains (losses), operating expenses, foreign exchange gains or losses or interest expense to its respective underwriting segments. These preliminary financial statements are unaudited and do not include footnotes that customarily accompany a complete set of financial statements; these footnotes will be furnished when the Company makes its filing on Form 10-Q for the quarter ended September 30, 2005. PXRE Consolidated Balance Sheets Group Ltd. (Dollars in thousands, except par value per share) September 30, December 31, 2005 2004 (Unaudited) Assets Investments: Fixed maturities: Available-for-sale (amortized cost $923,560 and $705,204, respectively) $910,967 $701,798 Trading (cost $28,225 and $13,725, respectively) 27,667 15,483 Short-term investments 174,226 296,318 Hedge funds (cost $129,027 and $86,549, respectively) 144,671 129,118 Other invested assets (cost $4,177 and $5,663, respectively) 4,433 6,823 Total investments 1,261,964 1,149,540 Cash 18,010 15,668 Accrued investment income 9,621 8,054 Premiums receivable, net 188,170 93,116 Other receivables 11,161 35,315 Reinsurance recoverable on paid losses 6,281 8,003 Reinsurance recoverable on unpaid losses 271,956 61,215 Ceded unearned premiums 2,061 3,500 Deferred acquisition costs 7,736 1,745 Income tax recoverable 47,833 31,594 Other assets 46,801 46,666 Total assets $1,871,594 $1,454,416 Liabilities Losses and loss expenses $985,441 $460,084 Unearned premiums 59,182 15,952 Subordinated debt 167,080 167,075 Reinsurance balances payable 121,486 10,937 Deposit liabilities 70,330 72,143 Other liabilities 28,116 31,670 Total liabilities 1,431,635 757,861 Shareholders' Equity Serial convertible preferred shares, $1.00 par value, $10,000 stated value -- 10 million shares authorized, 0.01 million and 0.02 million shares issued and outstanding, respectively 58,132 163,871 Common shares, $1.00 par value -- 50 million shares authorized, 29.4 million and 20.5 million shares issued and outstanding, respectively 29,395 20,469 Additional paid-in capital 445,425 329,730 Accumulated other comprehensive loss net of deferred income tax benefit of $1,932 and $1,616, respectively (12,269) (4,855) (Accumulated deficit)/retained earnings (71,041) 194,081 Restricted shares at cost (0.5 million and 0.4 million shares, respectively) (9,683) (6,741) Total shareholders' equity 439,959 696,555 Total liabilities and shareholders' equity $1,871,594 $1,454,416 PXRE Consolidated Statements of Operations and Comprehensive Group Ltd. Operations (Dollars in thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 (Unaudited) Revenues Net premiums earned $68,817 $89,799 $231,671 $228,316 Net investment income 13,526 5,157 30,649 16,941 Net realized investment (losses) gains (34) (40) (366) 11 Fee income 353 695 770 1,556 82,662 95,611 262,724 246,824 Losses and Expenses Losses and loss expenses incurred 408,958 156,335 478,521 192,551 Commission and brokerage 12,945 8,900 32,012 28,286 Operating expenses 7,255 8,272 27,103 30,760 Foreign exchange gains (237) (382) (1,053) (22) Interest expense 3,615 3,817 10,837 10,947 432,536 176,942 547,420 262,522 Loss before income taxes, cumulative effect of accounting change and convertible preferred share dividends (349,874) (81,331) (284,696) (15,698) Income tax benefit (32,531) (8,157) (33,603) (6,844) Loss before cumulative effect of accounting change and convertible preferred share dividends (317,343) (73,174) (251,093) (8,854) Cumulative effect of accounting change, net of $0.2 million tax benefit - - - (1,053) Net loss before convertible preferred share dividends $(317,343) $(73,174) $(251,093) $(9,907) Convertible preferred share dividends 1,241 3,583 5,878 10,540 Net loss to common shareholders $(318,584) $(76,757) $(256,971) $(20,447) Comprehensive Operations, Net of Tax Net loss before convertible preferred share dividends $(317,343) $(73,174) $(251,093) $(9,907) Net change in unrealized (depreciation) appreciation on investments (6,062) 6,597 (7,626) (2,952) Reclassification adjustments for (gains) losses included in net loss (5) (41) 212 143 Comprehensive loss $(323,410) $(66,618) $(258,507) $(12,716) Per Share Basic: Loss before cumulative effect of accounting change and convertible preferred share dividends $(11.13) $(5.22) $(9.79) $(0.64) Cumulative effect of accounting change - - - (0.08) Convertible preferred share dividends (0.04) (0.26) (0.23) (0.77) Net loss to common shareholders $(11.17) $(5.48) $(10.02) $(1.49) Average shares outstanding (000's) 28,529 13,995 25,649 13,753 Diluted: Net loss before cumulative effect of accounting change $(11.17) $(5.48) $(10.02) $(1.41) Cumulative effect of accounting change - - - (0.08) Net loss $(11.17) $(5.48) $(10.02) $(1.49) Average shares outstanding (000's) 28,529 13,995 25,649 13,753 PXRE Consolidated Statements of Shareholders' Equity Group Ltd. (Dollars in thousands) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 Convertible (Unaudited) Preferred Shares Balance at beginning of period $63,371 $179,147 $163,871 $172,190 Conversion of convertible preferred shares (5,239) - (109,108) - Dividends to convertible preferred shareholders - 3,583 3,369 10,540 Balance at end of period $58,132 $182,730 $58,132 $182,730 Common Balance at beginning Shares of period $28,813 $14,384 $20,469 $13,277 Issuance of common shares, net 582 42 8,926 1,149 Balance at end of period $29,395 $14,426 $29,395 $14,426 Additional Paid-in Capital Balance at beginning of period $437,198 $214,703 $329,730 $192,078 Issuance of common shares, net 7,781 615 114,631 21,832 Tax effect of stock options exercised 446 16 1,064 1,424 Balance at end of period $445,425 $215,334 $445,425 $215,334 Accumulated Other Comprehensive Income Balance at beginning of period $(6,202) $(7,673) $(4,855) $1,692 Change in unrealized (losses) gains (6,067) 6,556 (7,414) (2,809) Balance at end of period $(12,269) $(1,117) $(12,269) $(1,117) (Accumulated Deficit)/ Retained Earnings Balance at beginning of period $251,014 $243,297 $194,081 $188,670 Net loss before convertible preferred share dividends (317,343) (73,174) (251,093) (9,907) Dividends to convertible preferred shareholders (1,241) (3,583) (5,878) (10,540) Dividends to common shareholders (3,471) (867) (8,151) (2,550) Balance at end of period $(71,041) $165,673 $(71,041) $165,673 Restricted Shares Balance at beginning of period $(10,727) $(8,654) $(6,741) $(3,391) Issuance of restricted shares - - (6,069) (7,336) Amortization of restricted shares 1,044 854 3,127 2,927 Balance at end of period $(9,683) $(7,800) $(9,683) $(7,800) Total Shareholders' Equity Balance at beginning of period $763,467 $635,204 $696,555 $564,516 Conversion of convertible preferred shares (5,239) - (109,108) - Issuance of common shares, net 8,363 657 123,557 22,981 Restricted shares, net 1,044 854 (2,942) (4,409) Unrealized (depreciation) appreciation on investments, net of deferred income tax (6,067) 6,556 (7,414) (2,809) Net loss before convertible preferred share dividends (317,343) (73,174) (251,093) (9,907) Dividends to preferred shareholders (1,241) - (2,509) - Dividends to common shareholders (3,471) (867) (8,151) (2,550) Tax effect of stock options exercised 446 16 1,064 1,424 Balance at end of period $439,959 $569,246 $439,959 $569,246 PXRE Consolidated Statements of Cash Flows Group Ltd. (Dollars in thousands) Three Months Ended Nine Months Ended September 30, September 30, 2005 2004 2005 2004 (Unaudited) Cash Flow from Operating Activities Premiums collected, net of reinsurance $110,376 $73,662 $291,835 $216,037 Loss and loss adjustment expenses paid, net of reinsurance (57,683) (27,310) (162,183) (65,103) Commission and brokerage received (paid), net of fee income 353 (25,686) (14,110) (51,388) Operating expenses paid (7,157) (8,951) (24,695) (30,644) Net investment income received 6,731 3,516 23,963 12,798 Interest paid (5,799) (5,978) (12,964) (13,346) Income taxes recovered (paid) 3 (132) 18,472 (6,093) Trading portfolio purchased (3,276) - (17,685) - Trading portfolio disposed 3,369 6,965 3,369 6,965 Deposit (paid) received (2,744) 2,373 (1,813) (5,445) Other 3,840 18,640 2,856 17,346 Net cash provided by operating activities 48,013 37,099 107,045 81,127 Cash Flow from Investing Activities Fixed maturities available for sale purchased (77,912) (133,889) (372,936) (350,946) Fixed maturities available for sale disposed or matured 35,362 58,133 151,016 296,853 Hedge funds purchased (5,000) (8,123) (119,888) (13,123) Hedge funds disposed 6,546 4,127 115,049 10,160 Other invested assets disposed 852 1,425 2,244 4,083 Net change in short- term investments (3,450) 44,199 122,092 (77,122) Receivable for securities 344 (3,497) - (8,770) Payable for securities (1,527) 48 - 30 Net cash used by investing activities (44,785) (37,577) (102,423) (138,835) Cash Flow from Financing Activities Proceeds from issuance of common shares 3,125 690 8,947 16,432 Cash dividends paid to common shareholders (3,471) (866) (8,151) (2,550) Cash dividends paid to preferred shareholders (1,241) - (2,509) - Cost of shares repurchased - (32) (567) (938) Net cash (used) provided by financing activities (1,587) (208) (2,280) 12,944 Net change in cash 1,641 (686) 2,342 (44,764) Cash, beginning of period 16,369 21,730 15,668 65,808 Cash, end of period $18,010 $21,044 $18,010 $21,044 Reconciliation of net loss to net cash provided by operating activities: Net loss before convertible preferred share dividends $(317,343) $(73,174) $(251,093) $(9,907) Adjustments to reconcile net loss to net cash provided by operating activities: Losses and loss expenses 566,685 89,032 525,357 66,866 Unearned premiums 30,465 22,836 44,670 24,880 Deferred acquisition costs (2,506) (2,170) (5,991) (1,867) Receivables (79,186) (19,373) (70,900) (17,057) Reinsurance balances payable 108,339 (15,884) 110,549 (26,573) Reinsurance recoverable (215,411) 63,050 (209,020) 83,638 Income taxes (32,528) (8,286) (14,858) (12,933) Equity in earnings of limited partnerships (6,030) (1,328) (10,568) (6,013) Trading portfolio purchased (3,276) - (17,685) - Trading portfolio disposed 3,369 6,965 3,369 6,965 Deposit liability (2,744) 2,373 (1,813) (5,445) Receivable on commutation - (23,054) - (23,054) Other (1,821) (3,888) 5,028 1,627 Net cash provided by operating activities $48,013 $37,099 $107,045 $81,127