852426--3/14/2007--PW_EAGLE

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We face risks related to our proposed merger with Argonaut. If the merger with Argonaut is not completed, unless the Board of Directors identifies and implements a different operating strategic solution, we will not write or earn any material premiums in the future and, as a result, we expect to incur material operating losses, since our remaining revenue is insufficient to cover our projected operating and other expenses. If the merger is not consummated, we may not be able to identify or implement a strategic alternative for PXRE. If the merger is not consummated and our Board of Directors concludes that no other feasible strategic alternative would be in the best interests of our shareholders, it may determine that the best course of action is to place the reinsurance operations of PXRE into runoff and eventually commence an orderly winding up and liquidation of PXRE operations over some period of time that is not currently determinable. If the merger is not consummated and the Board of Directors elects to pursue a strategic alternative that does not involve the continuation of meaningful property catastrophe reinsurance business, there is a risk that the Company could incur material charges or termination fees in connection with our collateralized catastrophe facility and certain multiyear ceded reinsurance agreements. Our ability to continue to operate our business, consummate the merger and to identify, evaluate and complete any other strategic alternative are dependent on our ability to retain our management and other key employees, and we may not be able to do so. Adverse events in 2006 have negatively affected the market price of our common shares, which may lead to further securities litigation, administrative proceedings or both being brought against us. Reserving for losses includes significant estimates, which are also subject to inherent uncertainties. Because of potential exposure to catastrophes in the future, our financial results may vary significantly from period to period. We operate in a highly competitive environment and no assurance can be given that we will be able to compete effectively in this environment. Reinsurance prices may decline, which could affect our profitability. We may require additional capital in the future. Our investment portfolio is subject to significant market and credit risks which could result in an adverse impact on our financial position or results. We have exited the finite reinsurance business, but claims in respect of finite reinsurance could have an adverse effect on our results of operations. Our reliance on reinsurance brokers exposes us to their credit risk. We may be adversely affected by foreign currency fluctuations. Retrocessional reinsurance subjects us to credit risk and may become unavailable on acceptable terms. We have exhausted our retrocessional coverage with respect to Hurricane Katrina, leaving us exposed to further losses. Recoveries under our collateralized catastrophe facility are triggered by modeled loss to a notional portfolio, rather than our actual losses arising from a catastrophe event, which creates a potential mismatch between the risks assumed through our inwards reinsurance business and the protection afforded by this facility. Our inability to provide the necessary collateral could affect our ability to offer reinsurance in certain markets. The insurance and reinsurance business is historically cyclical, and we may experience periods with excess underwriting capacity and unfavorable premium rates; conversely, we may have a shortage of underwriting capacity when premium rates are strong. Regulatory constraints may restrict our ability to operate our business. If PXRE Bermuda becomes subject to insurance statutes and regulations in jurisdictions other than Bermuda or there is a change to Bermuda law or regulations or application of Bermuda law or regulations, there could be a significant and negative impact on our business. We may be unable to obtain extensions of work permits for our employees, which may cause our business to be adversely affected. Recent adverse events impacting our business that have led us to consider strategic alternatives could lead to regulatory inquiries and adoption of any course of action, including that contemplated under the Merger Agreement, that resulted in a change of control will require regulatory approval. Our stock price and trading volume may be subject to significant fluctuations. Our stock price and trading volume may fluctuate in response to a number of events and factors, including: We are a holding company and if our subsidiaries do not make dividend payments to us, we may not be able to pay dividends or other obligations. Some aspects of our corporate structure and insurance regulations may discourage third-party takeovers and other transactions and may result in the entrenchment of incumbent management. U.S. persons who own our common shares may have more difficulty in protecting their interests than U.S. persons who are shareholders of a U.S. corporation. Our shareholders may have difficulty effecting service of process on us or enforcing judgments against us in the United States. The rights and protections afforded to the holders of our outstanding preferred shares could have a material negative impact on the holders of our common shares. We and our Bermuda subsidiaries may become subject to Bermuda taxes after 2016. We and our non-U.S. subsidiaries may be subject to U.S. tax, which may have a material adverse effect on our financial condition and results of operation. Dividends paid by PXRE Delaware to PXRE Ireland may not be eligible for benefits under the U.S.-Ireland income tax treaty. If you acquire 10% or more of our shares and we or our non-U.S. subsidiaries are classified as a controlled foreign corporation ( CFC ), your taxes could increase. If we or a non-U.S. subsidiary is determined to have related person insurance income ( RPII ), you may be subject to U.S. taxation on your pro rata share of such income. If we are classified as a passive foreign investment company ( PFIC ), your taxes would increase. The reinsurance agreements between us and our U.S. subsidiaries may be subject to recharacterization or other adjustment for U.S. federal income tax purposes, which may have a material adverse effect on our financial condition and results of operations. Changes in U.S. federal income tax law could be retroactive and may subject us or our non-U.S. subsidiaries to U.S. federal income taxation.

Full 10-K form ▸

852426--3/14/2007--PW_EAGLE_INC