PXRE Plans to Diversify, Grow, Go Global
Edison, NJ-based PXRE Corporation says it's working on plans to diversify its business and position itself for renewed growth. And it's doing so in a market that's full of intense competitive conditions.
Since it was formed more than a decade ago, PXRE has specialized in short-tailed property reinsurance, with a strong focus on catastrophe-related products. Now the company says it will add new reinsurance lines and expand what it offers in its existing markets. In short, PXRE is looking to grow, which it believes will help reduce the volatility associated with its existing cat coverages.
To achieve these growth objectives, PXRE has employed two teams of specialists—involving a total of 11 executives—to expand the distribution systems used by the Company, strengthen its international business, and provide the expertise needed to underwrite certain casualty business. This will mark the company's first significant move into casualty markets.
The first team will establish a direct-writing reinsurance unit to complement the company's existing brokerage-based reinsurance operations. The group, led by Michael J. Toman, a 25-year veteran, will include three production executives, two underwriters and a claims and actuarial executive. Virtually all of this group's business is expected to be excess-of-loss, with approximately 70 percent of the premiums to come from short-tailed casualty business the company doesn't now write. The group will focus its efforts on smaller and mid-sized clients the company believes are currently underserved in today's market. This new division will be headquartered in Norwalk, CT.
A second team is being set up to enhance the company's international capabilities. Charles B. Penruddocke, with 30 years of experience, will lead a group of three executives that plans to write all lines of business, as in the past, approximately 25 percent of which will be casualty business. The team will work on adding international business through existing brokerage contacts and new relationships. This team will become part of the company's existing international operations and will be located at PXRE's offices in Edison.
Commenting on the new units, Gerald L. Radke, chairman, president and CEO, says, "We are excited about the capabilities these executives bring to PXRE. Most important, each individual comes from a culture which stressed underwriting profitability, and their records prove that they can produce desired results. Their expertise will allow us to broaden our existing product lines confidently without sacrificing the underwriting discipline for which PXRE has traditionally been known.
"Importantly, this diversification positions PXRE as a full-line reinsurer, giving the company better access to potential accounts that want one source for their property and casualty reinsurance coverages," he continues. "Moreover, we believe the expansion of our distribution system to include direct writing will eventually permit greater market penetration than we could achieve with our traditional broker-based system. Together, these two steps have the potential to generate new premium volume of approximately $20 million in 1999."
In a related move, PXRE says it has reached an agreement in principle for a five-year, fee-based arrangement to produce and underwrite business with Select Re of Bermuda. PXRE assisted in the development of Select Re and underwrote about $2.9 million in business for Select Re in 1997. Radke comments, "This new commission arrangement should gradually replace some of the volatility of our catastrophe business with the stability of fee income. In effect, we will divide the underwriting process with PXRE being compensated for its production and underwriting capabilities while it shifts the risk-bearing component to a capital base operating in a tax-advantaged environment.''
Radke notes that Select Re is expected to be capitalized in excess of $100 million by year's end. PXRE anticipates that this new arrangement will boost its underwriting for Select Re to $13 million in premiums in 1998 and $20 million in 1999. This level of cessions should generate approximately $2.5 million in fee income for the company next year, he says.
"As we have previously stated, we believe opportunities will result from the consolidation of our industry," states Radke. "We have chosen to diversify our operations with proven underwriting talent and committed partners. While this strategy may involve more time to implement compared to other alternatives, we believe it provides greater control and allows us to diversify our business, substitute fees for volatility, and increase shareholder value without assuming undue risks."
Radke comments that these steps are the first of several under consideration to broaden PXRE's business. While the company's investments in these new initiatives are expected to have an immediate impact on expenses going forward, he notes that the company will not see any significant premium volume from these actions until next year, as these units become established.