-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P7gUga8sn1YUogfjbHITBLtIS/hle3m9EyI5J5gfFkoxS13QxZ4zAtCwRHav3aC0 jVp/pLOe4jeQP6qqXMS3sw== 0000891554-02-003352.txt : 20020515 0000891554-02-003352.hdr.sgml : 20020515 20020515164327 ACCESSION NUMBER: 0000891554-02-003352 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRENWICK AMERICA CORP CENTRAL INDEX KEY: 0001127783 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 061087672 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-31967 FILM NUMBER: 02653172 BUSINESS ADDRESS: STREET 1: ONE CANTERBURY GREEN CITY: STAMFORD STATE: CT ZIP: 06901 BUSINESS PHONE: 2033535500 10-Q 1 d50693_10q.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- FORM 10-Q ---------- |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 2002. |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ________________ . Commission file number 0-31967 TRENWICK AMERICA CORPORATION (Exact name of registrant as specified in its charter) ---------- Delaware 06-1087672 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One Canterbury Green Stamford, Connecticut 06901 (Address of principal executive offices) (zip code) ---------- Registrant's telephone number, including area code: 203-353-5500 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. Shares Outstanding Description of Class as of May 13, 2002 - -------------------- ------------------- Common Stock - $1.00 par value 100 The registrant meets the conditions set forth in General Instruction H (1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q in the reduced disclosure format. TRENWICK AMERICA CORPORATION INDEX TO FORM 10-Q
Page ---- PART I - FINANCIAL INFORMATION ITEM 1. Unaudited Consolidated Financial Statements Consolidated Balance Sheet March 31, 2002 and December 31, 2001 ............................................... 1 Consolidated Statement of Operations, Comprehensive Income and Changes in Common Stockholder's Equity Three Months ended March 31, 2002 and 2001 ......................................... 2 Consolidated Statement of Cash Flows Three Months ended March 31, 2002 and 2001 ......................................... 3 Notes to Unaudited Consolidated Financial Statements ............................... 4 Management's Discussion and Analysis of Financial Condition and Results of ITEM 2. Operations ......................................................................... 7 PART II - OTHER INFORMATION ITEM 1. Legal proceedings .................................................................. 14 ITEM 2. Changes in Securities and Use of Proceeds .......................................... 14 ITEM 3. Defaults Upon Senior Securities .................................................... 14 ITEM 4. Submission of Matters to a Vote of Security Holders ................................ 14 ITEM 5. Other Information .................................................................. 14 ITEM 6. Exhibits and Reports on Form 8-K ................................................... 14 Signatures .......................................................................................... 15
-i- Trenwick America Corporation Consolidated Balance Sheet (Amounts expressed in thousands of United States dollars) March 31, 2002 and December 31, 2001
(Unaudited) 2002 2001 ---------- ---------- ASSETS Debt securities available for sale, at fair value $1,059,128 $1,054,518 Equity securities, at fair value 28,576 24,164 Cash and cash equivalents 98,016 128,522 Accrued investment income 12,733 12,685 Premiums receivable 206,669 159,721 Reinsurance recoverable balances, net 578,737 544,202 Prepaid reinsurance premiums 104,045 83,980 Deferred policy acquisition costs 51,220 45,403 Due from parent and affiliates 72,750 68,260 Net deferred income taxes 69,595 65,757 Goodwill 52,119 52,119 Other assets 98,419 89,774 ---------- ---------- Total assets $2,432,007 $2,329,105 ========== ========== LIABILITIES Unpaid claims and claims expenses $1,447,053 $1,412,104 Unearned premium income 291,572 239,004 Reinsurance balances payable 59,181 42,424 Indebtedness 288,490 288,878 Due to affiliates 50,132 50,434 Other liabilities 40,460 33,939 ---------- ---------- Total liabilities 2,176,888 2,066,783 ---------- ---------- MINORITY INTEREST Mandatorily redeemable preferred capital securities of subsidiary trust holding solely junior subordinated debentures of Trenwick America Corporation 86,988 86,973 ---------- ---------- COMMON STOCKHOLDER'S EQUITY Common stock and additional paid in capital 99,353 99,353 Retained earnings 54,269 57,104 Accumulated other comprehensive income 14,509 18,892 ---------- ---------- Total common stockholder's equity 168,131 175,349 ---------- ---------- Total liabilities, minority interest and common stockholder's equity $2,432,007 $2,329,105 ========== ==========
The accompanying notes are an integral part of these statements. Trenwick America Corporation Consolidated Statement of Operations, Comprehensive Income and Changes in Common Stockholder's Equity (Unaudited) (Amounts expressed in thousands of United States dollars) Three Months Ended March 31, 2002 and 2001
2002 2001 --------- --------- REVENUES Net premiums earned $ 99,495 $ 73,922 Net investment income 14,856 17,449 Net realized investment gains (losses) (180) 2,104 Other income 2,207 829 --------- --------- Total revenues 116,378 94,304 --------- --------- EXPENSES Claims and claims expenses incurred 77,202 51,228 Policy acquisition costs 31,374 25,599 Underwriting expenses 5,121 4,101 General and administrative expenses 690 796 Interest expense and subsidiary preferred share dividends 7,126 8,504 Foreign currency (gains) losses (980) 351 --------- --------- Total expenses 120,533 90,579 --------- --------- Income (loss) before income taxes (4,155) 3,725 Applicable income taxes (benefit) (1,320) (3,022) --------- --------- Net income (loss) $ (2,835) $ 6,747 ========= ========= COMPREHENSIVE INCOME (LOSS): Net income (loss) $ (2,835) $ 6,747 --------- --------- Other comprehensive income (loss): Net unrealized investment gains (loss) (4,369) 6,714 Foreign currency translation adjustments (14) (1,919) --------- --------- Total other comprehensive income (loss) (4,383) 4,795 --------- --------- Comprehensive income (loss) $ (7,218) $ 11,542 ========= ========= CHANGES IN COMMON STOCKHOLDER'S EQUITY: Common stockholder's equity, beginning of year $ 175,349 $ 200,907 Net capital transactions with affiliates -- (468) Adjustment to paid in capital related to Trenwick/LaSalle business combination -- (2,008) Comprehensive income (loss) (7,218) 11,542 --------- --------- Common stockholder's equity, end of period $ 168,131 $ 209,973 ========= =========
The accompanying notes are an integral part of these statements. -2- Trenwick America Corporation Consolidated Statement of Cash Flows (Unaudited) (Amounts expressed in thousands of United States dollars) Three Months Ended March 31, 2002 and 2001 2002 2001 --------- --------- CASH FOR OPERATING ACTIVITIES $ (14,948) $ (33,587) --------- --------- INVESTING ACTIVITIES: Purchases of debt securities (95,523) (280,578) Sales of debt securities 46,076 261,684 Maturities of debt securities 39,125 15,064 Purchases of equity securities -- (1,350) Sales of equity securities -- 71,948 Effect of exchange rate on cash 212 (209) Additions to premises and equipment (2,060) (188) --------- --------- Cash (for) from investing activities (12,170) 66,371 --------- --------- FINANCING ACTIVITIES: Indebtedness issuance costs paid (88) -- Loans from (to) affiliates (3,300) (1,162) --------- --------- Cash for financing activities (3,388) (1,162) --------- --------- Change in cash and cash equivalents (30,506) 31,622 Cash and cash equivalents, beginning of year 128,522 133,395 --------- --------- Cash and cash equivalents, end of period $ 98,016 $ 165,017 ========= ========= The accompanying notes are an integral part of these statements. -3- TRENWICK AMERICA CORPORATION Notes to Unaudited Consolidated Financial Statements (Amounts expressed in thousands of United States dollars except share data) Three Months Ended March 31, 2002 and 2001 Note 1 Organization and Basis of Presentation Organization Trenwick America Corporation is a United States holding company whose principal subsidiaries underwrite specialty insurance and reinsurance. Trenwick America Corporation's ultimate parent is Trenwick Group Ltd., which is a publicly traded Bermuda holding company. Basis of Presentation The interim financial statements include the accounts of Trenwick America Corporation and its subsidiaries after elimination of significant intercompany accounts and transactions. Certain items in prior financial statements have been reclassified to conform to current presentation. These interim financial statements have been prepared in conformity with accounting principles that are generally accepted in the United States of America, sometimes referred to as U.S. GAAP. To prepare these interim financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Actual amounts may differ from these estimates. The interim financial statements are unaudited; however, in the opinion of management, the interim financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for interim periods. These interim statements should be read in conjunction with the audited financial statements and related notes included in the Annual Report on Form 10-K of Trenwick America Corporation for the year ended December 31, 2001. Note 2 Segment Information Trenwick America Corporation conducts its specialty insurance and reinsurance business in the following two business segments: - Reinsurance, which includes U.S. treaty reinsurance written principally through its U.S. subsidiary, Trenwick America Reinsurance Corporation; and - United States specialty program insurance, written principally through The Insurance Corporation of New York. The following tables present business segment financial information for Trenwick America Corporation at March 31, 2002 and December 31, 2001 and for the three months ended March 31, 2002 and 2001: Total assets: 2002 2001 ---------- ---------- Reinsurance $1,647,551 $1,634,470 U.S. specialty program insurance 649,588 572,138 Unallocated 134,868 122,497 ---------- ---------- Total assets $2,432,007 $2,329,105 ========== ========== -4- 2002 2001 --------- -------- Total revenues: Reinsurance $ 86,725 $ 72,206 U.S. specialty program insurance 29,520 19,571 Unallocated 133 2,527 --------- -------- Total revenues $ 116,378 $ 94,304 ========= ======== Net income (loss): Reinsurance $ 1,196 $ 9,729 U.S. specialty program insurance 1,172 1,792 Unallocated interest expense and subsidiary preferred share dividends (7,119) (8,458) Other unallocated 1,916 3,684 --------- -------- Net income (loss) $ (2,835) $ 6,747 ========= ======== Transactions between operating segments have been eliminated in consolidation. Note 3 Underwriting Activities The components of premiums written and earned for the three months ended March 31, 2002 and 2001 are as follows: 2002 2001 --------- --------- Assumed premiums written $ 102,988 $ 82,597 Direct premiums written 102,134 68,591 --------- --------- Gross premiums written 205,122 151,188 Ceded premiums written (73,126) (52,722) --------- --------- Net premiums written $ 131,996 $ 98,466 ========= ========= Assumed premiums earned $ 80,115 $ 63,307 Direct premiums earned 75,406 53,209 --------- --------- Gross premiums earned 155,521 116,516 Ceded premiums earned (56,026) (42,594) --------- --------- Net premiums earned $ 99,495 $ 73,922 ========= ========= Note 4 Accounting Standards Effective January 1, 2002, Trenwick America Corporation adopted a new Financial Accounting Standards Board statement which amended the accounting for goodwill and other intangible assets. This new statement suspended systematic goodwill amortization and requires that Trenwick America Corporation' goodwill balance be tested for impairment under either market value or cash flow tests prior to the reporting of quarterly results of operations as of June 30, 2002. Any impairment noted as a result of these tests must be recorded as a cumulative effect of an accounting change as of January 1, 2002. Trenwick America Corporation will conduct impairment tests on the remaining goodwill balance during the second quarter of 2002 and record impairments as deemed necessary. -5- Note 5 Amendment to Credit Facility On April 12, 2002, Trenwick Group Ltd., its subsidiaries and financial institutions holding a majority of the outstanding indebtedness under the credit facility executed an amendment to its revolving credit facility. The amendment required Trenwick Group Ltd. to pledge its shares of LaSalle Re Holdings Limited and LaSalle Re Limited in favor of the lenders under the credit facility. In addition, the amendment revised the financial covenants relating to interest coverage and tangible net worth (each as defined by the financial covenants in the credit agreement). The amendment also increased the applicable margin on the interest paid by Trenwick Group Ltd.by 1% and added an additional .5% fee payable by Trenwick Group Ltd. in the event the loans and letters of credit outstanding are not repaid or secured in accordance with the following schedule; September 30, 2002, 40%; June 30, 2003, 60%; and June 30, 2004, 80%. -6- MANANGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion highlights material factors affecting Trenwick America Corporation's results of operations for the three months ended March 31, 2002 and 2001. This discussion and analysis should be read in conjunction with the unaudited interim financial statements and notes thereto of Trenwick America Corporation contained in this filing as well as in conjunction with the audited financial statements and related notes included in the Annual Report on Form 10-K of Trenwick America Corporation for the year ended December 31, 2001. Trenwick America Corporation meets the conditions set forth in the General Instructions (H) (I) (a) and (b) of Form 10-Q and is therefore omitting certain information otherwise required by Item 2. Overview Trenwick America Corporation is a Delaware holding company headquartered in Stamford, Connecticut whose principal subsidiaries underwrite specialty insurance and reinsurance. Trenwick America Corporation operates through the following two businesses: o Reinsurance, which includes U.S. treaty reinsurance written principally through its U.S. subsidiary, Trenwick America Reinsurance Corporation; and o United States specialty program insurance, written principally through The Insurance Corporation of New York. All of Trenwick America Corporation's principal operating subsidiaries are rated "A-" (Excellent) by A.M. Best Company and have been assigned a financial strength rating of A- by Standard and Poor's. These ratings are based upon factors that may be of concern to policy or contract holders, agents and intermediaries, but may not reflect the considerations applicable to an equity investment in a reinsurance or insurance company. A change in any such rating is at the discretion of the respective rating agencies. Results of Operations - Three Months Ended March 31, 2002 and 2001 2002 2001 Change -------- -------- ------- (in thousands) Underwriting loss $(14,202) $ (7,006) $(7,196) Net investment income 14,856 17,449 (2,593) Interest expense and subsidiary preferred share dividends (7,126) (8,504) 1,378 General and administrative expenses (690) (796) 106 Foreign currency gains (losses) 980 (351) 1,331 Other income, net 2,207 829 1,378 -------- -------- ------- Pre-tax operating income (loss) (3,975) 1,621 (5,596) Applicable income taxes (benefit) (1,257) (3,758) 2,501 -------- -------- ------- Operating income (loss) (2,718) 5,379 (8,097) Net realized investment gains (losses), net of income taxes (117) 1,368 (1,485) -------- -------- ------- Net income (loss) $ (2,835) $ 6,747 $(9,582) ======== ======== ======= The operating loss of $2.7 million in the three months ended March 31, 2002 represented a $8.1 million decrease from operating income of $5.4 million recorded in the three months ended March 31, 2001. The decrease is principally the result of deterioration on loss ratios for prior -7- accident years offset in part by a decrease in interest expense and subsidiary preferred share dividends and increases in both other income and foreign currency gains in 2002 over 2001. Underwriting income (loss) 2002 2001 Change --------- -------- -------- (in thousands) Net premiums earned $ 99,495 $ 73,922 $ 25,573 --------- -------- -------- Claims and claims expenses incurred 77,202 51,228 25,974 Acquisition costs and underwriting expenses 36,495 29,700 6,795 --------- -------- -------- Total expenses 113,697 80,928 32,769 --------- -------- -------- Net underwriting loss $ (14,202) $ (7,006) $ (7,196) ========= ======== ======== Loss ratio 77.6% 69.3% 8.3% Underwriting expense ratio 36.7% 40.2% (3.5)% Combined ratio 114.3% 109.5% 4.8% The underwriting loss of $14.2 million in 2002 represented a $7.2 million greater loss compared to the underwriting loss of $7.0 million in 2001. The increase in the underwriting loss was primarily due to the deterioration in loss ratios for prior accident years as previously noted. The increase in the combined ratio in 2002 compared to 2001 is also attributable to the adverse development previously noted combined with commission adjustments on treaties in runoff which were acquired in a previous business combination. Premiums written Gross premiums written for 2002 were $205.1 million compared to $151.1 million for the three months ended March 31, 2001, an increase of $54.0 million or 35.7%. Details of gross premiums written are provided below: 2002 2001 Change -------- -------- ------- (in thousands) Reinsurance $102,968 $ 82,630 $20,338 U.S. specialty program insurance 102,156 68,558 33,598 -------- -------- ------- Gross premiums written $205,124 $151,188 $53,936 ======== ======== ======= Reinsurance increased $20.3 million from the first quarter of 2001 primarily due to increasing rates on renewal treaties. U.S. specialty program insurance gross premiums written increased from $68.6 million for the first quarter of 2001 to $102.1 million for the first quarter of 2002 due to rate increases on new and renewal policies attributed to the improving insurance market conditions. Premiums earned Net premiums earned for the three months ended March 31, 2002 were $99.5 million compared to $73.9 million for 2001. -8- Details of premiums earned are provided below: 2002 2001 Change --------- --------- -------- (in thousands) Gross premiums written $ 205,122 $ 151,188 $ 53,934 Change in gross unearned premiums (49,601) (34,672) (14,929) --------- --------- -------- Gross premiums earned 155,521 116,516 39,005 --------- --------- -------- Gross premiums ceded (73,126) (52,722) (20,404) Change in ceded unearned premiums 17,100 10,128 6,972 --------- --------- -------- Ceded premiums earned (56,026) (42,594) (13,432) --------- --------- -------- Net premiums earned $ 99,495 $ 73,922 $ 25,573 ========= ========= ======== Gross premiums ceded for the three months ended March 31, 2002 were $73.1 million compared to $52.7 million for the same period in 2001. The increase in gross premiums ceded of $20.4 million was commensurate with the increase in gross premiums written. The increase in net premiums earned is attributable to the increase in premiums written, slightly offset by the delay in earnings on the new and renewal contract which bear higher rates. Claims and claims expenses Claims and claims expenses for the three months ended March 31, 2002 were $77.2 million, an increase of $25.9 million compared to claims and claims expenses of $51.2 million for 2001. The increase in claims and claims expenses in 2002 includes deterioration in indicated loss ratios in the 1999-2001 accident years on the Reinsurance and U.S. specialty program insurance segments of approximately $7.2 million and $1.8 million, respectively. Underwriting expenses 2002 2001 Change ------- ------- ------- (in thousands) Policy acquisition costs $31,374 $25,599 $ 5,775 Underwriting expenses 5,121 4,101 1,020 ------- ------- ------- Total underwriting expenses $36,495 $29,700 $ 6,795 ======= ======= ======= Underwriting expense ratio 36.7% 40.2% (3.5)% ======= ======= ======= Total underwriting expenses, comprising policy acquisition costs and underwriting expenses, for 2002 increased by $6.8 million compared to underwriting expenses for the three months ended March 31, 2001. Similar to claims and claims expenses, a portion of the increase was attributable to the increase in premiums written. Total underwriting expenses as a percentage of net premiums earned, or the underwriting expense ratio, were 36.7% for the three months ended March 31, 2002 compared to 40.2% for the same period in 2001. The decrease in the underwriting expense ratio occurred principally because of decreasing acquisition costs related to improved terms and conditions due to the hardening of the market. Underwriting expenses for the three months ended March 31, 2002 as a percentage of earned premium was 5.1%, relatively unchanged from 5.5% for the same period in 2001. Net Investment Income 2002 2001 Change ----------- ----------- -------- (in thousands) Average invested assets $ 1,177,188 $ 1,212,293 $(35,105) -9- Average annualized yields 6.26% 6.96% (0.7)% ----------- ----------- -------- Investment income - portfolio 18,413 21,086 (2,673) Investment expenses (3,557) (3,637) 80 ----------- ----------- -------- Net investment income $ 14,856 $ 17,449 $ (2,593) =========== =========== ======== Net investment income for the three months ended March 31, 2002 was $14.8 million compared to $17.4 million for the same period in 2001. The decrease in net investment income in 2002 was due to both an overall decline in market yields during the quarter as well as to a decrease in the average invested assets as compared to the 2001 quarter as a result of cash used in operations. Interest Expense and Subsidiary Preferred Share Dividends Interest expense and subsidiary preferred share dividends was $7.1 million for 2002, a decrease of $1.4 million from the same period in 2001. The decrease is primarily a result of the decrease in interest rates since the first quarter of 2001. Non-operating Income and Expenses Net realized losses on investments, net of income taxes, were $0.1 million during the three months ended March 31, 2002, compared to net realized gains of $1.4 million for the three months ended March 31, 2001. The 2001 gains reflect actions taken to reposition Trenwick America Corporation's debt security portfolio, offset in part by losses recognized on the sale of equity securities. Financings, Financing Capacity and Capitalization Concurrent with the Trenwick/LaSalle business combination, Trenwick America Corporation and Trenwick Holdings Limited, Trenwick Group Ltd.'s U.S. and U.K. holding companies, entered into an amended and restated $490 million credit agreement with various lending institutions. The credit agreement consisted of both a $260 million revolving credit facility and a $230 million letter of credit facility. The revolving credit facility has subsequently been converted into a four-year term loan. Trenwick America Corporation is the primary obligor with respect to the revolving credit facility, and Trenwick Holdings Limited is the primary obligor with respect to the letter of credit facility. Guarantees are provided by LaSalle Re Holdings Limited and Trenwick Group Ltd. with respect to both Trenwick America Corporation's and Trenwick Holdings Limited's obligations and additionally by Trenwick America Corporation with respect to Trenwick Holdings Limited's obligations. The credit agreement provides for a letter of credit facility which may only be used to support the Lloyd's syndicate participations of Trenwick Group Ltd.'s subsidiaries. The letter of credit facility is scheduled to expire in November 2002. In the event that Trenwick Group Ltd. is unable to obtain a replacement letter of credit facility or post sufficient collateral to support its Lloyd's underwriting activities, it will be required to reduce or cease its underwriting activities at Lloyd's for the 2003 year of account. The applicable interest rate on borrowings under the credit facility is generally 2.5% above the London Interbank Offered Rate and was 4.6% at March 31, 2002. The term loan facility is subject to scheduled principal amortization over the four-year period in accordance with the following schedule: 2002, 22.5%; 2003, 27.5%; 2004, 32.5%; 2005, 17.5%. Trenwick America Corporation is obligated to repay a portion or all of the term loan in the event of equity issuances, asset sales or debt issuances by Trenwick Group Ltd. or its subsidiaries. At March 31, 2002, $195.0 million of term loans were outstanding, and $230.0 million of letters of credit were outstanding under the credit facility. The credit agreement contains general covenants and restrictions as well as financial covenants relating to, among other things, Trenwick Group Ltd.'s minimum interest coverage, debt to -10- capital leverage, minimum earned surplus, maintenance of a minimum A.M. Best Company rating of A- and tangible net worth. As of March 31, 2002, Trenwick Group Ltd. was in compliance with the credit agreement covenants. On April 12, 2002, Trenwick Group Ltd., its subsidiaries and financial institutions holding a majority of the outstanding indebtedness under the credit facility executed an amendment to the credit facility. The amendment required Trenwick Group Ltd. to pledge its shares of LaSalle Re Holdings Limited and LaSalle Re Limited in favor of the lenders under the credit facility. In addition, the amendment revised the financial covenants relating to interest coverage and tangible net worth (each as defined by the financial covenants in the credit agreement). The amendment set Trenwick Group Ltd.'s minimum interest coverage ratio at 1.25 to 1 for the first quarter of 2002, 1.5 to 1 for the second quarter of 2002, 1.75 to 1 for the third quarter of 2002 and 2.5 to 1 thereafter. Trenwick Group Ltd.'s interest coverage ratio for the three months ended March 31, 2002 was 2.1 to 1. The amendment adjusted the minimum tangible net worth Trenwick Group Ltd. must maintain to the following base amounts plus 50% of net income earned during the period: Time Period Minimum Tangible Net Worth ----------- -------------------------- Through May 15, 2002 $450,000,000 From May 16, 2002 to August 14, 2002 $475,000,000 From August 15, 2002 to November 14, 2002 $525,000,000 From November 15, 2002 to March 30, 2003 $550,000,000 Thereafter $560,000,000 Trenwick Group Ltd.'s tangible net worth as of March 31, 2002 was $489.4 million. A previous amendment adjusted downward the minimum risk-based capital requirement for Trenwick Group Ltd.'s subsidiary, Chartwell Insurance Company, from 300% to 225% through December 31, 2002. Thereafter, the minimum risk-based capital for Chartwell Insurance Company returns to 300%. The risk-based capital for Chartwell Insurance Company as of December 31, 2001 was 257%. If Trenwick Group Ltd. is unable to meet the credit agreement's financial covenants, it may be required to repay the outstanding indebtedness and collateralize the outstanding letters of credit issued under the credit agreement through additional financing, asset sales, subsidiary dividends or similar transactions. The amendment increased the applicable margin on the interest paid by Trenwick Group Ltd. by 1% and added an additional .5% fee payable by Trenwick Group Ltd. in the event the loans and letters of credit outstanding are not repaid or secured in accordance with the following schedule: Date Percentage of Outstanding Indebtedness ---- -------------------------------------- September 30, 2002 40% June 30, 2003 60% June 30, 2004 80% Trenwick Group Ltd.'s ability to refinance its existing debt obligations or raise additional capital is dependent upon several factors, including financial conditions with respect to both the equity and debt markets and the ratings of its securities as established by the rating agencies. Following Trenwick Group Ltd.'s claims and claims expense liability reserve increase in the second quarter of 2001 and the losses it sustained in the September 11th terrorist attacks, its senior debt ratings were downgraded by Standard & Poor's Corporation to BBB- and by Moody's Investors Service -11- to Ba2. Trenwick Group Ltd.'s ability to refinance its outstanding debt obligations, as well as the cost of such borrowings, could be adversely affected by these ratings downgrades or if its ratings were downgraded further. Accounting Standards Effective January 1, 2002, Trenwick America Corporation adopted a new Financial Accounting Standards Board statement which amended the accounting for goodwill and other intangible assets. This new statement suspended systematic goodwill amortization and requires that goodwill be tested for impairment under either market value or cash flow tests prior to the reporting of quarterly results of operations as of June 30, 2002. Any impairment noted as a result of these tests will be recorded as a cumulative effect of an accounting change as of January 1, 2002. Safe Harbor Disclosure In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, Trenwick America Corporation sets forth below cautionary statements identifying important risks and uncertainties that could cause its actual results to differ materially from those that might be projected, forecasted or estimated in its "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, made by or on behalf of Trenwick America Corporation in this Quarterly Report on Form 10-Q and in press releases, written statements or documents filed with the Securities and Exchange Commission, or in its communications and discussions with investors and analysts in the normal course of business through meetings, phone calls and conference calls. Such statements may include, but are not limited to, projections of premium revenue, investment income, other revenue, losses, expenses, earnings (including earnings per share), cash flows, plans for future operations, common shareholders' equity (including book value per share), investments, financing needs, capital plans, dividends, plans relating to products or services of Trenwick America Corporation and estimates concerning the effects of litigation or other disputes, as well as assumptions for any of the foregoing and generally expressed with words such as "believes," "estimates," "expects," "anticipates," "plans," "projects," "forecasts," "goals," "could have," "may have," and similar expressions. Forward-looking statements involve known and unknown risks and uncertainties, which may cause Trenwick America Corporation's results to differ materially from such forward-looking statements. These risks and uncertainties include, but are not limited to, the following: - - Changes in the level of competition in the domestic and international reinsurance or primary insurance markets that affect the volume or profitability of Trenwick America Corporation's property/casualty business. These changes include, but are not limited to, changes in the intensity of price competition, the entry of new competitors, existing competitors exiting the market and the development of new products by new and existing competitors; - - Changes in the demand for reinsurance, including changes in ceding companies' risk retentions and changes in the demand for excess and surplus lines insurance coverages; - - The ability of Trenwick America Corporation to execute its strategies in its property/casualty operations; - - Catastrophe losses in Trenwick America Corporation's domestic and international property/casualty businesses; - - Adverse development on property/casualty claims and claims expense liabilities related to business written in prior years, including, but not limited to, evolving case law and its effect on environmental and other latent injury claims, changing government regulations, newly identified toxins, newly reported claims, new theories of liability, or new insurance and reinsurance contract interpretations; - - Changes in Trenwick America Corporation's property/casualty retrocessional arrangements; -12- - - Lower than estimated retrocessional or reinsurance recoveries on unpaid losses, including, but not limited to, losses due to a decline in the creditworthiness of Trenwick America Corporation's retrocessionaires or reinsurers; - - Increases in interest rates, which may cause a reduction in the market value of Trenwick America Corporation's fixed income portfolio, and its common shareholders' equity; - - Decreases in interest rates which may cause a reduction of income earned on new cash flow from operations and the reinvestment of the proceeds from sales or maturities of existing investments; - - A decline in the value of Trenwick America Corporation's equity investments; - - Changes in the composition of Trenwick America Corporation's investment portfolio; - - Credit losses on Trenwick America Corporation's investment portfolio; - - Adverse results in litigation matters, including, but not limited to, litigation related to environmental, asbestos and other potential mass tort claims; - - The impact of mergers and acquisitions; - - Gains or losses related to changes in foreign currency exchange rates; - - Changes in Trenwick America Corporation's capital needs; - - The ability of Trenwick America Corporation to refinance or repay its outstanding indebtedness; and - - Changes in the financial strength ratings assigned to Trenwick America Corporation and its operating subsidiaries. In addition to the factors outlined above that are directly related to Trenwick America Corporation's businesses, Trenwick America Corporation is also subject to general business risks, including, but not limited to, adverse state, federal or foreign legislation and regulation, adverse publicity or news coverage, changes in general economic factors and the loss of key employees. The facts set forth above should be considered in connection with any forward-looking statement contained in this Quarterly Report on Form 10-Q. The important factors that could affect such forward-looking statements are subject to change, and Trenwick America Corporation does not intend to update any forward-looking statement or the foregoing list of important factors. By this cautionary note Trenwick America Corporation intends to avail itself of the safe harbor from liability with respect of forward-looking statements provided by Section 27A and Section 21E referred to above. -13- PART II - OTHER INFORMATION Item 1 Legal Proceedings Trenwick America Corporation is party to various legal proceedings generally arising in the normal course of its business. Trenwick America Corporation does not believe that the eventual outcome of any such proceeding will have a material effect on its financial condition or business. Trenwick America Corporation's subsidiaries are regularly engaged in the investigation and the defense of claims arising out of the conduct of their business. Pursuant to Trenwick America Corporation's insurance and reinsurance arrangements, disputes are generally required to be finally settled by arbitration. Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders None Item 5. Other Information None Item 6. Exhibits and reports on Form 8-K (a) Exhibits 10.1 Third Amendment to the Credit Agreement, dated as of April 12, 2002, among Trenwick America Corporation, Trenwick Holdings Limited, the lending institutions from time to time party thereto, Wachovia Bank, National Association, as Syndication Agent, Fleet National Bank, as Documentation Agent, and JP Morgan Chase Bank, as Administrative Agent. 10.2 Third Amendment to the Holdings Guaranty, dated as of April 12, 2002, among Trenwick Group Ltd., and the lending institutions from time to time party to the Credit Agreement. (b) Reports on Form 8-K None -14- Trenwick America Corporation SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: May 15, 2002 /s/ James F. Billett, Jr. -------------------------------------- Name: James F. Billett, Jr. Title: Chairman, President and Chief Executive Officer Date: May 15, 2002 /s/ Alan L. Hunte -------------------------------------- Name: Alan L. Hunte Title: Executive Vice President and Chief Financial Officer -15- EX-10.1 3 d50693_ex10-1.txt EXHIBIT 10.1 Exhibit 10.1 THIRD AMENDMENT TO THE CREDIT AGREEMENT THIRD AMENDMENT TO THE CREDIT AGREEMENT (the "Third Amendment"), dated as of April 12, 2002, among TRENWICK AMERICA CORPORATION, a Delaware corporation (the "Borrower"), Trenwick Holdings LIMITED., a company organized under the laws of the United Kingdom (the "Account Party"), the lending institutions from time to time party to the Credit Agreement referred to below (each a "Bank" and, collectively, the "Banks"), WACHOVIA BANK, NATIONAL ASSOCIATION (f/k/a First Union National Bank), as Syndication Agent (the "Syndication Agent"), Fleet National Bank, as Documentation Agent (the "Documentation Agent"), and JPMORGAN CHASE BANK (f/k/a The Chase Manhattan Bank), as Administrative Agent (the "Administrative Agent"). Unless otherwise defined herein, capitalized terms used herein and defined in the Credit Agreement referred to below are used herein as so defined. W I T N E S S E T H : WHEREAS, the Borrower, the Account Party, the Banks, the Syndication Agent, the Documentation Agent and the Administrative Agent are party to a Credit Agreement, dated as of November 24, 1999 and amended and restated as of September 27, 2000 (as the same has been amended, modified or supplemented to, but not including, the date hereof, the "Credit Agreement"); WHEREAS, the Trenwick Group Ltd., a company organized under the laws of Bermuda ("Holdings") and the Administrative Agent entered into a Holdings Guaranty, dated as of September 27, 2000 (as the same has been amended, modified or supplemented to, but not including, the date hereof, the "Holdings Guaranty") in order to induce the Banks to make Loans to the Borrower and issue Letters of Credit for the account of the Account Party and Guaranteed Creditors (and Lending Affiliates thereof) to enter into Interest Rate Protection Agreements and Other Hedging Agreements with the Borrower and/or the Account Party; and WHEREAS, subject to the terms and conditions set forth below, the parties hereto wish to amend the Credit Agreement as provided herein; NOW, THEREFORE, it is agreed; A. Amendments 1. Section 3.01 of the Credit Agreement is hereby amended by inserting the following new clauses (g) and (h) immediately following clause (f) thereof: "(g) On each Additional Fee Date, if the Borrower has not (i) reduced and/or (ii) collateralized with cash, cash equivalents and/or marketable securities (subject to the terms set forth on Schedule II hereto) in a manner reasonably satisfactory to the Administrative Agent, the aggregate Stated Amount of all outstanding Letters of Credit by the L/C Exposure Reduction Amount required for such Additional Fee Date, the Borrower shall pay a fee to each L/C Bank in an amount equal to 0.50% of the L/C Exposure of such L/C Bank as of such Additional Fee Date. (h) On each Additional Fee Date, if the Borrower has not reduced the aggregate Principal Amount of Term Loans outstanding by the Term Loan Reduction Amount required for such Additional Fee Date, the Borrower shall pay a fee in amount equal to 0.50% of the aggregate Principal Amount of Term Loans outstanding as of such Additional Fee Date to each Bank on a pro rata basis." 2. Section 4.02(i)(b) of the Credit Agreement is hereby amended by (i) inserting the text "(including, without limitation, issuances of preferred stock of Holdings pursuant to the terms of the Cat E Put Securities)" immediately following the text "the sale or issuance of equity" appearing in said Section, (ii) deleting the comma appearing at the end of clause (ii) of the second parenthetical of said Section and inserting the word "and" in lieu thereof and (iii) deleting the text "issuances of preferred stock of Holdings pursuant to the terms of the Cat E Put Securities and (iv)" appearing in the second parenthetical of said Section. 3. Section 4.02(i)(c) of the Credit Agreement is hereby amended by (i) deleting the reference "(A)" appearing in the proviso in said Section, (ii) deleting the text ", and" appearing at the end of subclause (A) of the proviso thereof and (iii) deleting subclause (B) of the proviso thereof in its entirety. 4. Section 9.03 of the Credit Agreement is hereby amended by (i) deleting the word "or" immediately following the first parenthetical clause therein and (ii) inserting the following new clause (c) immediately following clause (b) thereof: "or (c) the Pledge Agreement shall cease to be in full force and effect, or shall cease to give the Collateral Agent for the benefit of the Secured Creditors the Liens, rights, powers and privileges purported to be created thereby (including, without limitation, a perfected security interest in, and Lien on, any of the Collateral in favor of the Collateral Agent, superior to and prior to the rights of all third Persons (except as permitted by Section 4.03 of the Holdings Guaranty) and subject to no other Liens (except as permitted by Section 4.03 of the Holdings Guaranty), or the default in the due performance or observance of any term, covenant or agreement contained in the Pledge Agreement and such default shall continue beyond the period of grace, if any, specifically applicable thereto pursuant to the terms of such Pledge Agreement, or if no period of grace is specifically applicable thereto, such default shall continue unremedied for a period of 30 days" 5. The definition of the term "Applicable Margin" contained in Schedule I to the Credit Agreement is hereby amended to read in its entirety as follows: -2- "Applicable Margin" shall mean, for any day, the rate per annum set forth below opposite the Applicable Period then in effect: Applicable Margin ----------------- Applicable Period Eurodollar Loans Base Rate Loans ----------------- ---------------- --------------- Category A Period 1.10% 0.00% Category B Period 1.30% 0.05% Category C Period 1.50% 0.25% Category D Period 2.00% 0.75% Category E Period 3.50% 2.25% Category F Period 4.25% 3.00% ; provided that, solely for the purpose of the Term Loans, each Applicable Margin shall be increased by the rate per annum set forth below during the period set forth opposite such rate per annum: Period Percentage ------ ---------- July 1, 2002 through September 30, 2002 0.50% October 1, 2002 through December 31, 2002 1.00% January 1, 2003 through March 31, 2003 1.50% April 1, 2003 and thereafter 2.00%." 6. The definition of the term "Consolidated Net Worth" contained in Schedule I the Credit Agreement is hereby amended to read in its entirety as follows: "Consolidated Net Worth" shall mean, with respect to any Person, the Net Worth of such Person and its Subsidiaries determined on a consolidated basis in accordance with GAAP after appropriate deduction for any minority interests in Subsidiaries (but, for purposes of determining compliance with Sections 4.12 and 4.16 of the Holdings Guaranty, without any deduction for any minority interest in LaSalle Re Holdings represented by the LaSalle Preferred Stock). 7. The definition of the term "Credit Documents" contained in Schedule I to the Credit Agreement is hereby amended to read in its entirety as follows: "Credit Documents" shall mean the Credit Agreement, the Holdings Guaranty, the Notes, the Subsidiary Guaranty and the Pledge Agreement. 8. The definition of the term "Holdings Cash Flow" contained in Schedule I to the Credit Agreement is hereby amended to read in its entirety as follows: "Holdings Cash Flow" shall mean, for any period, the sum of (i) for each Specified Regulated Insurance Company, the aggregate amount of ordinary dividends which such Specified Regulated Insurance Company could pay to its parent corporation under Legal Requirements as of the last day of such period (determined as if (x) such Specified Regulated Insurance Company had not paid any ordinary dividends during such -3- period and (y) each Subsidiary of such Specified Regulated Insurance Company which is a Regulated Insurance Company had paid dividends to its parent corporation during such period in an amount equal to the maximum amount of dividends payable by such Subsidiary during such period under applicable Legal Requirements) plus the aggregate amount of any extraordinary dividends actually paid by such Specified Regulated Insurance Company to its parent corporation during such period, (ii) for each Specified Foreign or Non-Regulated Company, (x) the greater of (A) zero and (B) the EBITDA of such Specified Foreign or Non-Regulated Company for such period, minus (y) the amount of capital contributions and intercompany loans made by Holdings, the Borrower or any Specified Regulated Insurance Company to such Specified Foreign or Non-Regulated Company on or after October 1, 2001 (excluding up to $75 million in cash paid to Lloyd's pursuant to a cash call related to the close of the 1999 year of accounts with Lloyd's), (iii) tax sharing payments made by Regulated Insurance Companies which are Domestic Subsidiaries directly to Holdings or any Specified Non-Regulated Company during such period (less cash taxes paid by Holdings during such period), and (iv) payments during such period of principal and interest on surplus notes issued by Regulated Insurance Companies which are Domestic Subsidiaries to Holdings or any Specified Non-Regulated Company." 9. The definition of "Quarterly Compliance Date" contained in Schedule I to the Credit Agreement is hereby amended to read in its entirety as follows: "Quarterly Compliance Date" shall mean, for any fiscal quarter, the earlier of (i) 45 days after the end of such fiscal quarter and (ii) the date on which Holdings delivers to each Bank the compliance certificate for such fiscal quarter in accordance with Section 3.01(d) of the Holdings Guaranty. 10. Schedule I to the Credit Agreement is hereby amended by inserting the following new defined terms in the appropriate alphabetical order: "Additional Fee Date" shall mean, each of, September 30, 2002, June 30, 2003 and June 30, 2004." "Collateral" shall have the meaning assigned that term in the Pledge Agreement. "Collateral Agent" shall mean JPMorgan Chase Bank, as successor to The Chase Manhattan Bank, in its capacity as Collateral Agent for the Banks under the Credit Documents, and shall include any successor to the Collateral Agent. "L/C Exposure Reduction Amount" shall mean, for each Additional Fee Date, a reduction in the aggregate Stated Amount of all outstanding Letters of Credit as of the Third Amendment Effective Date by an amount equal to the product of the percentage set forth opposite such Additional Fee Date and the aggregate Stated Amount of all outstanding Letters of Credit as of the Third Amendment Effective Date: Additional Fee Date Percentage ------------------- ---------- September 30, 2002 40% June 30, 2003 60% June 30, 2004 80% -4- "Pledge Agreement" means the Pledge Agreement to be executed and delivered by Holdings and LaSalle Re Holdings, as the same may be amended, supplemented or otherwise modified from time to time. "Second Amendment Effective Date" shall mean the date the Second Amendment to the Credit Agreement and the Second Amendment to the Holdings Guaranty became effective in accordance with their terms. "Second Amendment to the Credit Agreement" shall mean the Second Amendment to the Credit Agreement, dated as of November 5, 2001. "Second Amendment to the Holdings Guaranty" shall mean the Second Amendment to the Holdings Guaranty, dated as of November 5, 2001. "Secured Creditors" shall have the meaning assigned that term in the Pledge Agreement. "Term Loan Reduction Amount" shall mean, for each Additional Fee Date, a reduction in the aggregate Principal Amount of Term Loans outstanding on the Third Amendment Effective Date by an amount equal to the product of the percentage set forth opposite such Additional Fee Date and the aggregate Principal Amount of Term Loans outstanding as of Third Amendment Effective Date: Additional Fee Date Percentage ------------------- ---------- September 30, 2002 40% June 30, 2003 60% June 30, 2004 80% "Third Amendment Effective Date" shall mean the date the Third Amendment to the Credit Agreement and the Third Amendment to the Holdings Guaranty became effective in accordance with their terms. "Third Amendment to the Credit Agreement" shall mean the Third Amendment to this Agreement, dated as of April 12, 2002. "Third Amendment to the Holdings Guaranty" shall mean the Third Amendment to the Holdings Guaranty, dated as of April 12, 2002. C. Miscellaneous Provisions 1. In order to induce the Banks to enter into this Third Amendment, each of the Borrower and the Account Party hereby represent and warrant on behalf of themselves and their respective Subsidiaries that (i) the representations and warranties of contained in Section 2 of the Holdings Guaranty are true and correct in all material respects on and as of the Third Amendment Effective Date (as defined below) (except with respect to any representations and warranties limited by their terms to a specific date, which shall be true and correct in all material -5- respects as of such date), and (ii) there exists no Default or Event of Default under the Credit Agreement on the Third Amendment Effective Date, in each case after giving effect to this Third Amendment. 2. This Third Amendment is limited as specified and shall not constitute an amendment, modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. 3. THIS THIRD AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 4. This Third Amendment shall become effective on the date (the "Third Amendment Effective Date") when each of the following conditions have been satisfied: (i) the Borrower, the Account Party and the Required Banks shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of telecopier) the same to the Administrative Agent; and (ii) Holdings and the Required Banks have consented to the Third Amendment to the Holdings Guaranty dated as of April 12, 2002 (the "Holdings Guaranty Amendment"). 5. The Borrower hereby agrees to pay each Bank which delivers an executed copy of this Third Amendment and the Holdings Guaranty Amendment (by hard copy or facsimile) to the Administrative Agent a fee (the "Amendment Fee") in an amount equal to 0.50% of the outstanding principal amount of Term Loans and L/C Commitment of such Bank, which Amendment Fee shall be due and payable on the fifth Business Day following the date on which the Required Banks shall have executed and delivered this Third Amendment and the Holdings Guaranty Amendment. 6. From and after the Third Amendment Effective Date, all references in the Credit Agreement and in the other Credit Documents shall be deemed to be referenced to the Credit Agreement as modified hereby. * * * -6- IN WITNESS WHEREOF, the undersigned have caused this Third Amendment to be duly executed and delivered as of the date first above written. TRENWICK AMERICA CORPORATION By:____________________________________ Name: Title: TRENWICK HOLDINGS LIMITED By:____________________________________ Name: Title: [NAME OF LENDER] By:____________________________________ Name: Title: [Signature Page to the Third Amendment to the Credit Agreement] SCHEDULE II TERMS FOR COLLATERALIZATION OF LETTERS OF CREDIT Cash, MMA's, CD's and TD's - 100% US T-Bills (<1year) - 95% US T-Notes (<2 years) - 90% T Notes, Bonds (>2 years) 80% of market value US Agencies: < 2 years maturity - 95% 2 yrs to 10 yrs maturity - 90% > 10 years - 85% US Muni bonds: Aaa/AAA - 90% Baa/BBB or better - 80% EX-10.2 4 d50693_ex10-2.txt EXHIBIT 10.2 Exhibit 10.2 THIRD AMENDMENT TO THE HOLDINGS GUARANTY THIRD AMENDMENT TO THE HOLDINGS GUARANTY (the "Amendment"), dated as of April 12, 2002, among TRENWICK GROUP LTD., a company organized under the laws of Bermuda ("Holdings") and the Banks party to the Credit Agreement referred to below. Unless otherwise defined herein, capitalized terms used herein and defined in the Holdings Guaranty referred to below are used herein as so defined. W I T N E S S E T H : WHEREAS, Trenwick America Corporation, a Delaware corporation (the "Borrower"), Trenwick Holdings Ltd., a company organized under the laws of the United Kingdom (the "Account Party"), the lending institutions from time to time party thereto (each a "Bank" and, collectively, the "Banks"), Wachovia Bank, National Association (f/k/a First Union National Bank), as Syndication Agent (the "Syndication Agent"), Fleet National Bank, as Documentation Agent (the "Documentation Agent"), and JPMorgan Chase Bank (f/k/a The Chase Manhattan Bank), as Administrative Agent (the "Administrative Agent"), are party to a Credit Agreement, dated as of November 24, 1999 and amended and restated as of September 27, 2000 (as the same has been amended, modified or supplemented to, but not including, the date hereof, the "Credit Agreement"); WHEREAS, Holdings and the Administrative Agent entered into a Holdings Guaranty, dated as of September 27, 2000 (as the same has been amended, modified or supplemented to, but not including, the date hereof, the "Holdings Guaranty") in order to induce the Banks to make Loans to the Borrower and issue Letters of Credit for the account of the Account Party and Guaranteed Creditors (and Lending Affiliates thereof) to enter into Interest Rate Protection Agreements and Other Hedging Agreements with the Borrower and/or the Account Party; and WHEREAS, subject to the terms and conditions set forth below, the parties hereto wish to amend the Holdings Guaranty as provided herein; NOW, THEREFORE, it is agreed; A. Amendments 1. Article 3 of the Holdings Guaranty is hereby amended by inserting the following new Section 3.13 immediately following Section 3.12 thereof: "3.13 Pledge Agreement. No later than 30 days following the Third Amendment Effective Date, (a) Holdings and LaSalle Re Holdings shall have delivered a Pledge Agreement, in form and substance reasonably satisfactory to the Administrative Agent, pursuant to which the capital stock of LaSalle Re Holdings and LaSalle Re shall be duly pledged to the Collateral Agent and (b) the Collateral Agent shall have received the certificates representing the shares of certificated capital stock of LaSalle Re Holdings and LaSalle Re pledged pursuant to the Pledge Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof, along with evidence that all other actions necessary or, in the reasonable opinion of the Collateral Agent, desirable, to perfect the security interests purported to be created by the Pledge Agreement have been taken." 2. Section 4.03 of the Holdings Guaranty is hereby amended by (i) deleting the word "and" appearing at the end of clause (l) thereof, (ii) deleting the period at the end of clause (m) thereof and inserting the text "; and" in lieu thereof and (iii) inserting the following new clause (n) immediately following the end of clause (m): "(n) Liens created by the Pledge Agreement." 3. Section 4.08(b) of the Holdings Guaranty is hereby amended by (i) deleting the word "and" appearing at the end of clause (i) thereof and (ii) inserting the text "and (iii) as otherwise permitted pursuant to this Agreement" immediately preceding the period at the end of said Section. 4. Section 4.13 of the Holdings Guaranty is hereby amended to read in its entirety as follows: "4.13 Interest Coverage Ratio. Holdings will not permit the Interest Coverage Ratio for any Test Period ending during a period set forth below to be less than the ratio set forth opposite such period below: Period Ratio ------ ----- Fiscal Year ending 12/31/00 2.50:1.00 Fiscal Quarter ending 9/30/01 2.75:1.00 Fiscal Quarter ending 12/31/01 1.50:1.00 Fiscal Quarter ending 3/31/02 1.25:1.00 Fiscal Quarter ending 6/30/02 1.50:1.00 Fiscal Quarter ending 9/30/02 1.75:1.00 Thereafter 2.50:1.00" 5. Section 4.16 of the Holdings Guaranty is hereby amended to read in its entirety as follows: -2- "4.16 Minimum Consolidated Tangible Net Worth. Holdings will not permit its Consolidated Tangible Net Worth at any time to be less than the sum of (i) $560,000,000, plus (ii) 50% of Consolidated Net Income (if positive) from and after October 1, 2000 to the last day of the then most recently ended fiscal quarter; provided that (A) during the period from the Second Amendment Effective Date to the Third Amendment Effective Date, Holdings will not permit its Consolidated Tangible Net Worth at any time to be less than the sum of (i) $425,000,000, plus (ii) 50% of Consolidated Net Income (if positive) from an after October 1, 2001 to the last day of the most recently ended fiscal quarter and (B) during the period from the Third Amendment Effective Date to December 31, 2002, Holdings will not permit its Consolidated Tangible Net Worth at any time to be less than the sum of (i) during a period set forth below, the amount set forth opposite such period, plus (ii) 50% of Consolidated Net Income (if positive) from and after October 1, 2001 to the last day of the most recently ended fiscal quarter: Period Amount ------ ------ Third Amendment Effective Date to Quarterly Compliance Date for Fiscal Quarter ending 3/31/02 $450,000,000 Quarterly Compliance Date for Fiscal Quarter ending 3/31/02 to Quarterly Compliance Date for Fiscal Quarter ending 6/30/02 $475,000,000 Quarterly Compliance Date for Fiscal Quarter ending 6/30/02 to Quarterly Compliance Date for Fiscal Quarter ending 9/30/02 $525,000,000 Quarterly Compliance Date for Fiscal Quarter ending 9/30/02 to 12/31/02 $550,000,000 6. The definition of the term "Applicable Margin" contained in Schedule I to the Holdings Guaranty is hereby amended to read in its entirety as follows: "Applicable Margin" shall mean, for any day, the rate per annum set forth below opposite the Applicable Period then in effect: Applicable Margin ----------------- Applicable Period Eurodollar Loans Base Rate Loans ----------------- ---------------- --------------- Category A Period 1.10% 0.00% Category B Period 1.30% 0.05% Category C Period 1.50% 0.25% Category D Period 2.00% 0.75% -3- Applicable Margin ----------------- Applicable Period Eurodollar Loans Base Rate Loans ----------------- ---------------- --------------- Category E Period 3.50% 2.25% Category F Period 4.25% 3.00% ; provided that, solely for the purpose of the Term Loans, each Applicable Margin shall be increased by the rate per annum set forth below during the period set forth opposite such rate per annum: Period Percentage ------ ---------- July 1, 2002 through September 30, 2002 0.50% October 1, 2002 through December 31, 2002 1.00% January 1, 2003 through March 31, 2003 1.50% April 1, 2003 and thereafter 2.00%." 7. The definition of the term "Consolidated Net Worth" contained in Schedule I the Holdings Guaranty is hereby amended to read in its entirety as follows: "Consolidated Net Worth" shall mean, with respect to any Person, the Net Worth of such Person and its Subsidiaries determined on a consolidated basis in accordance with GAAP after appropriate deduction for any minority interests in Subsidiaries (but, for purposes of determining compliance with Sections 4.12 and 4.16 of the Holdings Guaranty, without any deduction for any minority interest in LaSalle Re Holdings represented by the LaSalle Preferred Stock). 8. The definition of the term "Credit Documents" contained in Schedule I to the Holdings Guaranty is hereby amended to read in its entirety as follows: "Credit Documents" shall mean the Credit Agreement, the Holdings Guaranty, the Notes, the Subsidiary Guaranty and the Pledge Agreement. 9. The definition of the term "Holdings Cash Flow" contained in Schedule I to the Holdings Guaranty is hereby amended to read in its entirety as follows: "Holdings Cash Flow" shall mean, for any period, the sum of (i) for each Specified Regulated Insurance Company, the aggregate amount of ordinary dividends which such Specified Regulated Insurance Company could pay to its parent corporation under Legal Requirements as of the last day of such period (determined as if (x) such Specified Regulated Insurance Company had not paid any ordinary dividends during such period and (y) each Subsidiary of such Specified Regulated Insurance Company which is a Regulated Insurance Company had paid dividends to its parent corporation during such period in an amount equal to the maximum amount of dividends payable by such Subsidiary during such period under applicable Legal Requirements) plus the aggregate amount of any extraordinary dividends actually paid by such Specified Regulated Insurance Company to its parent corporation during such period, (ii) for each Specified Foreign or Non-Regulated Company, (x) the greater of (A) zero and (B) the EBITDA of -4- such Specified Foreign or Non-Regulated Company for such period, minus (y) the amount of capital contributions and intercompany loans made by Holdings, the Borrower or any Specified Regulated Insurance Company to such Specified Foreign or Non-Regulated Company on or after October 1, 2001 (excluding up to $75 million in cash paid to Lloyd's pursuant to a cash call related to the close of the 1999 year of accounts with Lloyd's), (iii) tax sharing payments made by Regulated Insurance Companies which are Domestic Subsidiaries directly to Holdings or any Specified Non-Regulated Company during such period (less cash taxes paid by Holdings during such period), and (iv) payments during such period of principal and interest on surplus notes issued by Regulated Insurance Companies which are Domestic Subsidiaries to Holdings or any Specified Non-Regulated Company." 10. The definition of "Quarterly Compliance Date" contained in Schedule I to the Holdings Guaranty is hereby amended to read in its entirety as follows: "Quarterly Compliance Date" shall mean, for any fiscal quarter, the earlier of (i) 45 days after the end of such fiscal quarter and (ii) the date on which Holdings delivers to each Bank the compliance certificate for such fiscal quarter in accordance with Section 3.01(d) of the Holdings Guaranty. 11. Schedule I to the Holdings Guaranty is hereby amended by inserting the following defined terms in the appropriate alphabetical order: "Additional Fee Date" shall mean, each of, September 30, 2002, June 30, 2003 and June 30, 2004." "Collateral" shall have the meaning assigned that term in the Pledge Agreement. "Collateral Agent" shall mean JPMorgan Chase Bank, as successor to The Chase Manhattan Bank, in its capacity as Collateral Agent for the Banks under the Credit Documents, and shall include any successor to the Collateral Agent. "L/C Exposure Reduction Amount" shall mean, for each Additional Fee Date, a reduction in the aggregate Stated Amount of all outstanding Letters of Credit as of Third Amendment Effective Date by an amount equal to the product of the percentage set forth opposite such Additional Fee Date and the aggregate Stated Amount of all outstanding Letters of Credit as of the Third Amendment Effective Date: Additional Fee Date Percentage ------------------- ---------- September 30, 2002 40% June 30, 2003 60% June 30, 2004 80% "Pledge Agreement" means the Pledge Agreement to be executed and delivered by Holdings and LaSalle Re Holdings, as the same may be amended, supplemented or otherwise modified from time to time. -5- "Second Amendment Effective Date" shall mean the date the Second Amendment to the Credit Agreement and the Second Amendment to the Holdings Guaranty became effective in accordance with their terms. "Second Amendment to the Credit Agreement" shall mean the Second Amendment to the Credit Agreement, dated as of November 5, 2001. "Second Amendment to the Holdings Guaranty" shall mean the Second Amendment to the Holdings Guaranty, dated as of November 5, 2001. "Secured Creditors" shall have the meaning assigned that term in the Pledge Agreement. "Term Loan Reduction Amount" shall mean, for each Additional Fee Date, a reduction in the aggregate Principal Amount of Term Loans outstanding on the Third Amendment Effective Date by an amount equal to the product of the percentage set forth opposite such Additional Fee Date and the aggregate Principal Amount of Term Loans outstanding as of Third Amendment Effective Date: Additional Fee Date Percentage ------------------- ---------- September 30, 2002 40% June 30, 2003 60% June 30, 2004 80% "Third Amendment Effective Date" shall mean the date the Third Amendment to the Credit Agreement and the Third Amendment to the Holdings Guaranty became effective in accordance with their terms. "Third Amendment to the Credit Agreement" shall mean the Third Amendment to this Agreement, dated as of April 12, 2002. "Third Amendment to the Holdings Guaranty" shall mean the Third Amendment to the Holdings Guaranty, dated as of April 12, 2002. B. Miscellaneous Provisions 1. In order to induce the Banks to enter into this Amendment, Holdings hereby represents and warrants that (i) the representations and warranties of Holdings contained in the Holdings Guaranty are true and correct in all material respects on and as of the Amendment Effective Date (as defined below) (except with respect to any representations and warranties limited by their terms to a specific date, which shall be true and correct in all material respects as of such date), and (ii) there exists no Default or Event of Default under the Credit Agreement on the Amendment Effective Date, in each case after giving effect to this Amendment. 2. This Amendment is limited as specified and shall not constitute an amendment, modification, acceptance or waiver of any other provision of the Holdings Guaranty or any other Credit Document. -6- 3. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 4. This Amendment shall become effective on the date (the "Amendment Effective Date") when (i) Holdings and the Required Banks shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including by way of telecopier) the same to the Administrative Agent and (ii) the Borrower, the Account Party and the Required Banks have consented to the Third Amendment to the Credit Agreement, dated as of April 12, 2001. 5. From and after the Amendment Effective Date, all references in the Holdings Guaranty and in the other Credit Documents shall be deemed to be referenced to the Holdings Guaranty as modified hereby. * * * -7- IN WITNESS WHEREOF, the undersigned have caused this Amendment to be duly executed and delivered as of the date first above written. TRENWICK GROUP LTD. By:______________________________ Name: Title: [NAME OF LENDER] By:_____________________________ Name: Title: [Signature Page to the Third Amendment to the Holdings Guaranty] -----END PRIVACY-ENHANCED MESSAGE-----