-----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, A13b4FcXSlqzHIPpUZXZBPB8tRYXF/ULYoZNlIx4Bt837ftV5YTLmYSv8rHwm0FK 1g+FwkJPdFhwbV53duLdRQ== 0000912047-00-000020.txt : 20000922 0000912047-00-000020.hdr.sgml : 20000922 ACCESSION NUMBER: 0000912047-00-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 DATE AS OF CHANGE: 20000906 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRENWICK GROUP INC CENTRAL INDEX KEY: 0000787952 STANDARD INDUSTRIAL CLASSIFICATION: 6331 IRS NUMBER: 061152790 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-15389 FILM NUMBER: 701530 BUSINESS ADDRESS: STREET 1: ONE CANTERBURY GREEN CITY: STAMFORD STATE: CT ZIP: 06901 BUSINESS PHONE: 2033535500 10-Q 1 0001.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 June 30, 2000. ( ) 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 1-15389 TRENWICK GROUP INC. (Exact name of registrant as specified in its charter) ------------- Delaware 06-1152790 (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. Description of Class Shares Outstanding as of August 14, 2000 Common Stock - $.10 par value 16,288,082 Trenwick Group Inc. Index To Form 10-Q PART I FINANCIAL INFORMATION Item 1- Page ---- Consolidated Balance Sheets June 30, 2000 and December 31, 1999.............................. 3 Consolidated Statements of Operations and Comprehensive Income Three Months and Six Months Ended June 30, 2000 and 1999......... 4 Consolidated Statements of Changes in Common Stockholders' Equity Six Months Ended June 30, 2000 and 1999.......................... 5 Consolidated Statements of Cash Flows Six Months Ended June 30, 2000 and 1999.......................... 6 Notes to Consolidated Financial Statements............................ 7 Management's Discussion and Analysis of Financial Condition and Results of Operations.............................. 11 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders........... 22 Item 6. Exhibits and Reports on Form 8-K.............................. 22 Signatures............................................................ 23 2 PART I. FINANCIAL INFORMATION Item 1 - Financial Statements TRENWICK GROUP INC. CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, December 31, 2000 1999 -------- ------------ Assets (dollars in thousands) - - ------ Securities available for sale at fair value: Debt securities (amortized cost: $1,161,081 and $1,325,438) $1,147,805 $1,311,361 Equity securities (cost: $108,028 and $107,946) 107,222 110,666 Other investments 24,736 19,446 Investments held by managed syndicates 147,608 137,745 ----------- ----------- Total investments 1,427,371 1,579,218 ----------- ----------- Cash and cash equivalents 147,044 125,954 Cash and cash equivalents held by managed syndicates 102,985 44,687 Accrued investment income 23,701 26,122 Premiums in process of collection 452,617 270,455 Reinsurance recoverable balances, net 743,124 644,578 Prepaid reinsurance premiums 114,823 100,000 Goodwill 150,655 153,824 Deferred policy acquisition costs 93,132 78,896 Net deferred income taxes 101,354 97,442 Current income taxes receivable 24,604 27,292 Deposits 20,771 20,227 Other assets 89,000 71,904 ----------- ----------- Total assets $3,491,181 $3,240,599 =========== =========== Liabilities and Common Stockholders' Equity - - ------------------------------------------- Liabilities: Unpaid claims and claims expenses $2,050,332 $1,964,139 Unearned premium income 434,421 379,684 Senior credit facilities 157,569 94,501 6.7% senior notes due 2003 75,000 75,000 10.25% senior notes due 2004 - 39,831 Contingent interest notes 36,091 34,699 Other long term debt 3,171 4,874 Other liabilities 185,004 75,541 ----------- ---------- Total liabilities 2,941,588 2,668,269 ----------- ---------- Company-obligated mandatorily redeemable preferred capital securities of subsidiary trust holding solely junior subordinated debentures of Trenwick Group Inc. 110,000 110,000 ----------- ---------- Minority interest 121 81 Common stockholders' equity: Common stock, $.10 par value, 30,000,000 shares 1,629 1,689 Additional paid-in-capital 280,527 291,361 Deferred compensation under stock award plan (5,913) (3,553) Retained earnings 176,870 182,477 Accumulated other comprehensive income (13,641) (9,725) ----------- ---------- Total common stockholders' equity 439,472 462,249 ------------ ---------- Total liabilities, minority interest and common stockholders' equity $3,491,181 $3,240,599 ============ =========== The accompanying notes are an integral part of these statements 3 TRENWICK GROUP INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ----------------------------- ---------------------------- 2000 1999 2000 1999 ------------- ------------ ------------ ------------ (in thousands except per share data) Revenues: Net premiums earned $ 153,332 $ 66,071 $ 288,264 $125,039 Net investment income 27,907 13,317 54,018 27,140 Equity in net earnings of investees 884 - 5,472 - Net realized investment gains (losses) 294 523 (375) 3,029 Other income (loss) 3,460 (141) 3,473 113 ------------- ------------ ------------ ------------ Total revenues 185,877 79,770 350,852 155,321 ------------- ------------ ------------ ------------ Expenses: Claims and claims expenses incurred 111,581 43,348 206,494 81,324 Policy acquisition costs 42,604 18,046 81,047 34,453 Underwriting expenses 18,284 7,269 34,780 13,036 General and administrative expenses 3,233 961 5,404 2,162 Interest expense 6,915 1,344 13,050 2,696 Amortization expense 2,053 5 4,097 43 Minority interest in subsidiary trust 2,425 2,426 4,851 4,851 ------------- ------------ ------------ ------------ Total expenses 187,095 73,399 349,723 138,565 ------------- ------------ ------------ ------------ Income (loss) before income taxes and extraordinary item (1,218) 6,371 1,129 16,756 Income tax expense (benefit) (3,341) 706 (2,560) 2,986 ------------- ------------ ------------ ------------ Income before extraordinary item 2,123 5,665 3,689 13,770 Extraordinary loss on debt redemption, net of $445 income tax benefit - - 825 - ------------- ------------ ------------ ------------ Net income $ 2,123 $ 5,665 $ 2,864 $ 13,770 ============= ============ ============ ============ Basic earnings per share: Income before extraordinary item $.13 $.54 $.23 $1.30 Extraordinary loss - - (.05) - ------------- ------------ ------------ ------------ Net income $.13 $.54 $.18 $1.30 ============= ============ ============ ============ Diluted earnings per share Income before extraordinary item $.13 $.53 $.23 $1.28 Extraordinary loss - - (.05) - ------------- ------------ ------------ ------------ Net income $.13 $.53 $.18 $1.28 ============= ============ ============ ============ Dividends per common share $.26 $.26 $.52 $.52 ============= ============ ============ ============ Comprehensive income (loss): Net income $ 2,123 $ 5,665 $ 2,864 $ 13,770 Other comprehensive income (loss): Unrealized investment gains (losses) (2,530) (9,215) (2,011) (13,051) Realized investment gains (losses) included in net income (193) (340) (244) (1,969) Foreign currency translation adjustment (1,950) (2,119) (2,149) (4,774) ------------- ------------ ------------ ------------ Total other comprehensive income (loss) (4,673) (11,674) (3,916) (19,794) ------------- ------------ ------------ ------------ Comprehensive income (loss) $ (2,550) $ (6,009) $(1,052) $ (6,024) ============= ============ ============ ============ The accompanying notes are an integral part of these statements.
4 TRENWICK GROUP INC. CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (Unaudited) Six Months Ended June 30, ------------------------- 2000 1999 ------------ --------- (dollars in thousands) Common stockholders' equity, beginning of period $462,249 $348,029 Common stock, $.10 par value, and additional paid-in-capital: Income tax expense from compensation deductions (108) (18) Restricted common stock awarded (245,348 and 65,985 shares) 3,201 1,914 Restricted common stock awards cancelled (8,698 shares) (134) - Common stock purchased and retired (837,549) and 486,869) (13,853) (14,371) Deferred compensation under stock award plan: Restricted common stock awarded (3,201) (1,914) Restricted common stock awards cancelled 134 - Compensation expense recognized 707 522 Retained earnings: Net income 2,864 13,770 Cash dividends ($.26 per share) (8,471) (5,550) Accumulated other comprehensive income: Other comprehensive income (loss) (3,916) (19,794) ------------ --------- Common stockholders' equity, end of period $439,472 $322,588 ============ ========== 5 TRENWICK GROUP INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, -------------------------- 2000 1999 ----------- ----------- (dollars in thousands) Cash flows for operating activities: Premiums collected $330,254 $ 135,275 Ceded premiums paid (130,089) (18,395) Claims and claims expenses paid (325,662) (128,738) Claims and claims expenses recovered 95,767 12,978 Underwriting expenses paid (31,022) (15,727) ------------ ---------- Cash used for underwriting activities (60,752) (14,607) Net investment income received 52,629 29,509 Service and other income received, net of expenses 802 116 General and administrative expenses paid (5,404) (2,162) Interest expense and subsidiary trust dividends paid (22,822) (7,428) Income taxes recovered (paid) 7,420 1,744 ------------- ---------- Cash provided by (used for) operating activities (28,127) 7,172 ------------- ---------- Cash flows for investing activities: Purchases of debt securities (356,504) (337,785) Sales of debt securities 406,397 72,028 Maturities of debt securities 83,076 246,368 Purchases of equity securities (6,501) (20,345) Sales of equity securities 5,910 12,023 Investment in subsidiary, net of cash acquired (13,305) (171) Additions to premises and equipment (1,461) (1,279) ------------- ---------- Cash provided by (used for) investing activities 117,612 (29,161) ------------- ---------- Cash flows for financing activities: Issuance of long term debt 64,000 - Repurchase of common stock (16,668) (14,924) Dividends paid (8,470) (5,550) Redemption of senior notes and other debt (41,101) - Other, net (2,478) (2) -------------- ---------- Cash provided by (used for) financing activities (4,717) (20,476) -------------- ---------- Effect of exchange rate on cash (5,380) (1,075) -------------- ---------- Change in cash and cash equivalents 79,388 (43,540) -------------- ---------- Cash and cash equivalents, beginning of period 170,641 63,003 -------------- ---------- Cash and cash equivalents, end of period $250,029 $19,463 ============== ========== 6 TRENWICK GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Summary of Significant Accounting Policies Basis of Presentation The interim consolidated financial statements include those of Trenwick Group Inc. and its subsidiaries ("Trenwick" or the "Company") and have been prepared in conformity with generally accepted accounting principles in the U.S. applied on a basis consistent with prior periods. Certain items in the financial statements have been reclassified to conform with the 2000 presentation. 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 and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. During the first half of 2000 the Company changed its estimates of Chartwell Re Corporation's ("Chartwell's") unallocated loss adjustment expenses. The impact of this change was an increase to pre-tax income of $4.5 million ($2.9 million after-tax). The interim consolidated financial statements are unaudited; however, in the opinion of management, the interim consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. These interim statements should be read in conjunction with the 1999 audited financial statements and related notes. Accounting for Derivative Instruments and Hedging Activities Effective January 1, 2001, Trenwick expects to adopt the new accounting standard, "Accounting for Derivative Instruments and Hedging Activities," which requires all derivatives to be recognized on the balance sheet at fair value. The Company is currently reviewing the impact of the implementation of the standard on its financial statements. 2. Acquisitions LaSalle Re Holdings Limited On December 19, 1999, Trenwick and LaSalle Re Holdings Limited ("LaSalle Re") signed a definitive agreement for Trenwick and LaSalle Re to combine, with shareholders of both companies receiving shares in a new Bermuda holding company to be named Trenwick Group Ltd. Under the terms of the business combination agreement, shareholders of Trenwick and LaSalle Re will each receive shares in the newly formed Trenwick on a one-for-one basis. The acquisition will be accounted for as a purchase. Trenwick expects to close the transaction in the third quarter of 2000, subject to shareholder and regulatory approvals and other customary conditions. 7 On March 20, 2000, Trenwick and LaSalle Re amended and restated the business combination agreement in order to revise the portion of the business combination agreement related to the restructuring of Trenwick immediately prior to the combination with LaSalle Re. On June 28, 2000, Trenwick and LaSalle further amended the business combination agreement to extend the date on which the business combination agreement may be terminated from June 30, 2000 to the first business day after September 30, 2000. 3. Long Term Debt On March 1, 2000, the Company elected to redeem its 10.25% Senior Notes due 2004 at a redemption price of 102.56% of par value. As a result, the Company recorded an after-tax loss of $825,000, which has been reflected in the Company's Consolidated Statement of Operations as an extraordinary item. 4. Reinsurance Trenwick purchases reinsurance to reduce its exposure to catastrophe losses and other large losses in all lines of business. Trenwick, however, remains liable in the event that its retrocessionaires do not meet their contractual obligations. The effects of reinsurance on premiums written and premiums earned are as follows (in thousands): Premiums Written Premiums Written ------------------------------ ------------------------------ Three Months Ended Six Months Ended June 30, June 30, ------------------------------ ------------------------------ 2000 1999 2000 1999 --------------- ----------- ------------- ------------- Direct 116,842 21,320 163,460 41,359 Assumed 182,114 75,785 391,467 161,299 Ceded (117,968) (19,769) (212,840) (44,528) --------------- ----------- ------------- ------------- Net $180,988 $77,336 $342,087 $158,130 =============== =========== ============= ============= Premiums Earned Premiums Earned ------------------------------ ------------------------------ Three Months Ended Six Months Ended June 30, June 30, ------------------------------ ------------------------------ 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Direct 103,897 17,024 132,050 33,940 Assumed 163,170 69,120 349,884 134,712 Ceded (113,735) (20,073) (193,670) (43,613) ------------- ------------- ------------- ------------- Net $153,332 $66,071 $288,264 $125,039 ============= ============= ============= ============= The Company recorded ceded claims and claims expenses incurred of $26,239,000 for the three months ended June 30, 2000 and $231,380,000 for the six months ended June 30, 2000. The cessions made in the first half of 2000 include $45,510,000 ceded to the Chartwell adverse development cover. 8 5. Stockholders' Equity Preferred Stock Trenwick has 2,000,000 shares of $.10 par value preferred stock authorized and none outstanding. Common Stock For the six months ended June 30, 2000, Trenwick awarded key employees an aggregate of 245,348 shares of common stock under the terms of its stock incentive plans, at an average price of $13.05 per share (approximately $3,201,000). Trenwick is recognizing compensation expense determined by the value of the shares, amortized over a five year vesting period. During the period, 8,249 shares were repurchased at an average price of $14.02 per share (approximately $116,000) in connection with the satisfaction of withholding taxes payable upon the vesting of shares previously awarded under the plan. During the six months ended June 30, 2000, Trenwick purchased 829,300 shares under its stock repurchase program at an average price of $16.56 per share totaling approximately $13,737,000. As of June 30, 2000, Trenwick has an authorization of 494,000 shares remaining under its current plan. Dividends declared and paid by Trenwick during the six months ended June 30, 2000 were $8,471,000. 6. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share (in thousands except per share data):
Three Months Ended Six Months Ended June 30, June 30, ------------------------------ ------------------------------ 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Income available to common stockholders: $ 2,123 $ 5,665 $2,864 $ 13,770 Weighted average shares of common stock outstanding: Weighted average shares outstanding (basic) 15,931 10,476 15,961 10,626 Weighted average shares issuable on exercise of employee stock options, net of assumed repurchases 32 145 20 128 ------------- ------------- ------------- ------------- Weighted average shares outstanding (diluted) 15,963 10,621 15,981 10,754 ============= ============= ============= ============= Per share amounts: Basic earnings per share: Income before extraordinary item $.13 $.54 $.23 $1.30 ============= ============= ============= ============= Net income $.13 $.54 $.18 $1.30 ============= ============= ============= ============= Diluted earnings per share: Income before extraordinary item $.13 $.53 $.23 $1.28 ============= ============= ============= ============= Net income $.13 $.53 $.18 $1.28 ============= ============= ============= =============
9 7. Segment Information Trenwick has determined that its reportable segments are those that are based on the Company's method of internal reporting, which segregates its business by geographic location. Trenwick has four reportable business segments: (1) Trenwick America Reinsurance Corporation ("Trenwick America Re"), (2) Canterbury Financial Group Inc. ("Canterbury Financial"), (3) Trenwick International Limited ("Trenwick International") and (4) Chartwell Managing Agents Limited ("Chartwell Managing Agents"). Trenwick America Re underwrites treaty reinsurance of property and casualty risks primarily written by U.S. insurance companies. Trenwick America Re includes reinsurance business of Chartwell Reinsurance Company and its subsidiaries since its acquisition on October 27, 1999. Canterbury Financial underwrites specialty insurance in the United States. Trenwick International provides specialty insurance and treaty and facultative reinsurance on a world-wide basis. Chartwell Managing Agents manages Trenwick's participation in the Lloyd's market. The summary financial results for Trenwick's operating segments for the three and six months ended June 30 are as follows:
Three Months Ended Six Months Ended June 30, June 30, ----------------------------- ----------------------------- 2000 1999 2000 1999 ------------ ------------- ------------- ------------ (in thousands) Net premiums earned: Trenwick America Re $ 37,751 $ 39,504 $ 76,630 $ 76,324 Canterbury Financial 10,581 - 20,773 - Trenwick International 42,724 26,567 80,143 48,715 Chartwell Managing Agents 62,276 - 110,718 - ------------ ------------- ------------- ------------ 153,332 66,071 288,264 125,039 Total revenues: Trenwick America Re 56,505 50,314 113,494 100,321 Canterbury Financial 12,308 - 24,604 - Trenwick International 46,720 29,454 86,886 54,982 Chartwell Managing Agents 68,487 - 121,900 - Unallocated 1,857 2 3,968 18 ------------ ------------- ------------- ------------ 185,877 79,770 350,852 155,321 Underwriting profit (loss): Trenwick America Re (11,775) (1,754) (18,509) (2,314) Canterbury Financial 220 - (932) - Trenwick International (2,884) (838) (4,954) (1,460) Chartwell Managing Agents (4,698) - (9,662) - ------------ ------------- ------------- ------------ (19,137) (2,592) (34,057) (3,774) Income (loss) before income taxes and extraordinary item: Trenwick America Re 8,204 8,087 18,645 19,464 Canterbury Financial 1,946 - 2,899 - Trenwick International (63) 853 (561) 2,444 Chartwell Managing Agents 1,515 - 1,520 - Unallocated (12,820) (2,569) (21,374) (5,152) ============ ============= ============= ============ $ (1,218) $ 6,371 $ 1,129 $ 16,756
10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Trenwick Group Inc. ("Trenwick") is a publicly traded holding company currently headquartered in Stamford, Connecticut whose principal operating subsidiaries underwrite specialty insurance and reinsurance through multi-national business units. Trenwick conducts its business through four principal operating platforms. Trenwick America Reinsurance Corporation ("Trenwick America Re") underwrites U.S. property and casualty treaty reinsurance, including U.S. reinsurance business previously written by Chartwell Re Corporation ("Chartwell"). Trenwick International Limited ("Trenwick International"), domiciled in London, underwrites non-U.S. specialty insurance and treaty and facultative reinsurance. As a result of the acquisition of Chartwell, Trenwick gained two additional operating platforms, Canterbury Financial Group Inc. ("Canterbury Financial"), which underwrites U.S. specialty insurance, and Chartwell Managing Agents Limited ("Chartwell Managing Agents") which manages syndicates underwriting at Lloyd's. All four of Trenwick's principal operating units are rated A (Excellent) by A.M. Best Company and have been assigned a financial strength rating of A+ by Standard and Poor's. Acquisitions Chartwell Re Corporation On October 27, 1999, Trenwick completed the merger of Chartwell with and into Trenwick. Under the terms of the merger, stockholders of Chartwell received 0.825 Trenwick shares for each Chartwell share in a tax-free transaction. All assets and liabilities of Chartwell were consolidated in Trenwick's balance sheet at October 28, 1999 and its operating results were reflected in Trenwick's results commencing with the period from October 28, 1999 through December 31, 1999. LaSalle Re Holdings Limited On December 19, 1999, Trenwick and LaSalle Re Holdings Limited ("LaSalle Re") signed a definitive agreement for Trenwick and LaSalle Re to combine, with shareholders of both companies receiving shares in a new Bermuda holding company to be named Trenwick Group Ltd. Under the terms of the business combination agreement, shareholders of Trenwick and LaSalle Re will each receive shares in the newly formed Trenwick on a one-for-one basis. The acquisition will be accounted for as a purchase. Trenwick expects to close the transaction early in the third quarter of 2000, subject to shareholder and regulatory approvals and other customary conditions. On March 20, 2000, Trenwick and LaSalle Re amended and restated the business combination agreement in order to revise the portion of the business combination agreement related to the restructuring of Trenwick immediately prior to the combination with LaSalle Re. On June 28, 2000, Trenwick and LaSalle further amended the business combination agreement to extend the date on which the business combination agreement may be terminated from June 30, 2000 to the first business day after September 30, 2000. 11 Premium Trenwick's gross and net premium writings for its domestic and international operations were as follows:
Three Months Ended Six Months Ended June 30, June 30, ------------------------------ ------------------------------ 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Gross written premium: Trenwick America Re (1) $107,542 $55,446 $163,072 $115,420 Canterbury Financial 47,542 - 91,982 - Trenwick International 58,751 41,659 132,037 87,238 Chartwell Managing Agents 85,121 - 167,836 - ------------- ------------- ------------- ------------- Total $298,956 $97,105 $554,927 $202,658 ============= ============= ============= ============= Net written premium: Trenwick America Re $47,031 $43,417 $85,386 $87,586 Canterbury Financial 13,232 - 24,673 - Trenwick International 48,665 33,919 108,233 70,544 Chartwell Managing Agents 72,060 - 123,795 - ------------- ------------- ------------- ------------- Total $180,988 $77,336 $342,087 $158,130 ============= ============= ============= =============
(1) Includes Chartwell Insurance Company reinsurance renewal premiums for the three and six months ending June 30, 2000. In the second quarter of 2000, Trenwick reported net premiums written of $181.0 million, a 134% increase compared to $77.3 million in the second quarter of 1999. Trenwick America Re's net reinsurance premiums written increased 8% in the quarter ended June 30, 2000 compared to the same period in 1999. The increase in Trenwick's domestic reinsurance premium volume in the second quarter of 2000 is attributable to the inclusion of Chartwell's business. Trenwick International reported net premiums written of $48.7 million for the three months ended June 30, 2000 compared to net premiums written of $33.9 million for the same period in 1999. While the international business is also highly competitive, growth in this business has occurred as a result of Trenwick International's expansion into new products and geographic markets previously limited by its former parent. During the quarter ended June 30, 2000, Chartwell Managing Agents' syndicates reported net premiums written of $72.1 million. Prior to its acquisition by Trenwick, Chartwell had significantly increased the amount of capacity it supplied to the syndicates managed by Chartwell Managing Agents, resulting in a 28% increase in premium writings compared to the second quarter of 1999. For the 2000 year of account, Trenwick is providing 93% of the overall syndicate capacity for Chartwell Managing Agents. 12 For the quarter ended June 30, 2000, Canterbury Financial reported net premiums written of $13.2 million. Net premiums increased slightly as compared to the same period in 1999, principally from changes in certain reinsurance programs, increasing the amount of reinsurance purchased in the first quarter of 2000. Operating Ratios The following tables set forth Trenwick's combined ratios and its components calculated on the basis of generally accepted accounting principles for the periods indicated: Claims and Claims Total Three months ended Expense Expense Combined June 30, Ratio Ratio Ratio - - ------------------------------------------- ---------- -------- -------- 2000 Trenwick America Re(1) 91.3% 39.9% 131.2% Trenwick International 66.1% 40.7% 106.8% Canterbury Financial 65.5% 32.4% 97.9% Chartwell Managing Agents 67.4% 40.2% 107.6% Trenwick Group 72.8% 39.7% 112.5% 1999 Trenwick America Re 65.0% 39.5% 104.5% Trenwick International 66.6% 36.6% 103.2% Trenwick Group 65.6% 38.3% 103.9% (1) Includes Chartwell Insurance Company reinsurance renewal premiums in second quarter of 2000. The combined ratio is one means of measuring the profitability of a property and casualty insurance or reinsurance company. The combined ratio reflects underwriting experience, but does not reflect income from investments or provisions for income taxes. A combined ratio below 100% indicates profitable underwriting and a combined ratio exceeding 100% indicates unprofitable underwriting. Although an insurer or reinsurer may have unprofitable underwriting results, the insurer or reinsurer may still be profitable because of investment income earned on its accumulated invested assets. Trenwick's claims and claims expense ratio, which is the ratio of incurred claims and claims adjustment expenses to net earned premiums, increased from 65.6% in the second quarter of 1999 to 72.8% in the second quarter of 2000. Trenwick's claims and claims expense ratio deteriorated in the second quarter of 2000 due to the effect of Trenwick America Re's aggregate excess of loss reinsurance cessions in 1999 and earlier years and the absence of such ceded reinsurance for 2000. Trenwick recorded ceded claims and claims expenses incurred of $26,239,000 for the three months ended June 30, 2000, which includes $16,962,000 ceded to the Chartwell adverse development cover. 13 Trenwick America Re's claims and claims expense ratio was 91.3% in the second quarter of 2000 compared to 65.0% in the same period in 1999. The increase in Trenwick America Re's claims and claims expense ratio in 2000 is primarily due to the reasons described in the paragraph above. Trenwick International's claims and claims expense ratio was 66.1% in the second quarter of 2000 compared to 66.6% in the second quarter of 1999. Canterbury Financial's claims and claims expense ratio was 65.5% in the second quarter of 2000. Chartwell Managing Agents' claims and claims expense ratio was 67.4% in the second quarter of 2000. Trenwick's expense ratio, which is the ratio of policy acquisition costs and underwriting expenses to net earned premiums as determined in accordance with generally accepted accounting principles, increased in the three months ending June 30, 2000 to 39.7% compared to 38.3% in the same period in 1999. The overall increase in the expense ratio primarily reflected the change in business mix following the acquisition of Chartwell in 1999. The inclusion of Canterbury Financial and Chartwell Managing Agents in the second quarter of 2000 whose underwriting results, in aggregate, carry a higher expense ratio resulted in the increased expense ratio. Trenwick America Re's expense ratio in the second quarter of 2000 was 39.9% compared to 39.5% in the same period in 1999. Trenwick International's expense ratio was 40.7% in the second quarter of 2000 compared to 36.6% in the same period in 1999. The expense ratio of Canterbury Financial Group and Chartwell Managing Agents in the second quarter of 2000 was 33.6% and 40.2%, respectively. Consolidated Results of Operations Quarter Ended June 30, 2000 Compared with Quarter Ended June 30, 1999 Revenues Total revenues for the quarter ended June 30, 2000 increased 133% to $185.9 million, compared to $79.8 million for the comparable period in 1999. Included in Trenwick's consolidated results of operations for 2000 are Chartwell's operating results. Net Premiums Earned Net premiums earned for the three months ended June 30, 2000 were $153.3 million, compared to $66.1 million in 1999, a 132% increase. This increase reflects the inclusion of Chartwell's business in 2000 and an increase in business underwritten by Trenwick International, offset in part by a decline in business underwritten by Trenwick America Re. Net Investment Income Trenwick's net investment income was $27.9 million in the second quarter of 2000 compared to $13.3 million in 1999. The overall increase in investment income in the second quarter of 2000 is due to the continued growth in Trenwick's invested asset base resulting primarily from the acquisition of Chartwell's business, offset by decreases resulting from funding requirements for the repurchase of Trenwick's common stock and reduced business written by Trenwick America. Pre-tax yields on Trenwick's invested assets, excluding equity securities, were 6.5% in the second quarter of 2000 compared to 6.0% in the second quarter of 1999. 14 Net Realized Investment Gains (Losses) Trenwick realized net investment gains of $0.2 million or $.01 per basic and diluted share for the quarter ended June 30, 2000 compared to realized net investment gains of $0.3 million or $.03 per basic and diluted share for the same period in 1999. Other Income (Loss) and Equity Earnings of Investees For the quarter ended June 30, 2000 other income and equity earnings of investees was $4.3 million compared to a loss of $(0.1) million in the second quarter of 1999. Other income (loss) consists primarily of foreign transaction gains or losses. Claims and Claims Expenses Incurred Trenwick's principal expense, claims and claims expenses incurred, was $111.6 million for the quarter ended June 30, 2000, a 157% increase compared to $43.3 million for the comparable period in 1999. The increase is principally attributable to an increase in premium volume following the inclusion of Chartwell's business in the second quarter of 2000. Policy Acquisition Costs Policy acquisition costs, which vary directly with premium volume and consist primarily of commissions paid to ceding companies and agents and brokerage fees paid to intermediaries, less commissions received on business ceded to other reinsurers, were $42.6 million for the quarter ended June 30, 2000, compared to $18.0 million for the same period in 1999. Policy acquisition costs expressed as a percentage of net earned premiums (the acquisition ratio) increased to 27.8% in the second quarter of 2000 from 27.3% in the same period in 1999. Underwriting Expenses In the second quarter of 2000, Trenwick recorded underwriting expenses of $18.3 million compared to $7.3 million in the same period in 1999. Underwriting expenses increased due to the inclusion of Chartwell's business in the second quarter of 2000. As a result, Trenwick recorded an underwriting loss, which is net earned premiums less claims and claims expenses incurred, policy acquisition costs and underwriting expenses, of $19.1 million in the three months ended June 30, 2000 compared to an underwriting loss of $2.6 million in the same period in 1999. Other Expenses Other expenses, which include amortization of goodwill and other intangibles, general and administrative expenses, interest expense and minority interest in subsidiary trust, were $14.6 million for the quarter ended June 30, 2000 compared to $4.7 million for the same period in 1999. The increase reflects the addition of goodwill and increases in general and administrative expenses and interest expense in conjunction with the acquisition of Chartwell. Income (Loss) Before Income Taxes and Extraordinary Item Trenwick generated a net loss before income taxes and extraordinary item of $1.2 million for the three months ended June 30, 2000 compared to net income of $6.4 million for the same period in 1999. The decline in net income occurred for the reasons described above. 15 Income Tax Expense The income tax benefit for the quarter ended June 30, 2000 was $3.3 million compared with a provision for income taxes of $0.7 million for the same period in 1999. Additionally, Trenwick recorded an income tax benefit of $445,000 applicable to the extraordinary loss on debt redemption. Net Income Trenwick generated net income of $2.1 million for the quarter ended June 30, 2000 compared with net income of $5.7 million for the comparable 1999 period. The basic net income per share was $.13 for the quarter ended June 30, 2000 as compared to basic net income of $.54 per share for the same period in 1999. The diluted net income per share was $.13 per share compared to diluted net income of $.53 per share for the quarter ended June 30, 1999. Consolidated Results of Operations Six Months Ended June 30, 2000 Compared with Six Months Ended June 30, 1999 Revenues Total revenues for the six months ended June 30, 2000 increased 126% to $350.9 million, compared to $155.3 million for the comparable period in 1999. Included in Trenwick's consolidated results of operations for 2000 are Chartwell's operating results. Net Premiums Earned Net premiums earned for the six months ended June 30, 2000 were $288.3 million, compared to $125.0 million in 1999, a 131% increase. This increase reflects the inclusion of Chartwell's business in 2000 and an increase in business underwritten by Trenwick International, offset in part by a decline in business underwritten by Trenwick America Re. Net Investment Income Trenwick's net investment income was $54.0 million in the first half of 2000 compared to $27.1 million in 1999. The overall increase in investment income in the first half of 2000 is due to the continued growth in Trenwick's invested asset base resulting primarily from the acquisition of Chartwell's business, offset by decreases resulting from funding requirements for the repurchase of Trenwick's common stock and reduced business written by Trenwick America Re. Pre-tax yields on Trenwick's invested assets, excluding equity securities, were 6.3% in the first half of 2000 compared to 6.0% in the first half of 1999. Net Realized Investment Gains (Losses) Trenwick realized after-tax net investment losses of $0.2 million or $.02 per basic and diluted share for the six months ended June 30, 2000 compared to after-tax realized net investment gains of $2.0 million or $.19 per basic and $.18 per diluted share for the same period in 1999. After-tax realized investment losses resulted primarily from the sale of tax-exempt securities in the first quarter. Due to the significant amount of available net operating loss carryforwards, the tax benefits associated with holding tax-exempt securities have been reduced considerably. As a result, the Company initiated a program to restructure its investment portfolio in the first quarter. 16 Other Income (Loss) and Equity Earnings of Investees For the six months ended June 30, 2000 and 1999 other income (loss) and equity earnings of investees was $8.9 million and $0.1 million, respectively. In each period, other income (loss) consisted of foreign transaction gains and losses. Claims and Claims Expenses Incurred Trenwick's principal expense, claims and claims expenses incurred, was $206.5 million for the six months ended June 30, 2000, a 154% increase compared to $81.3 million for the comparable period in 1999. The increase is principally attributable to an increase in premium volume following the inclusion of Chartwell's business in the first half of 2000. Policy Acquisition Costs Policy acquisition costs, which vary directly with premium volume and consist primarily of commissions paid to ceding companies and agents and brokerage fees paid to intermediaries, less commissions received on business ceded to other reinsurers, were $81.1 million for the six months ended June 30, 2000, compared to $34.5 million for the same period in 1999. Policy acquisition costs expressed as a percentage of net earned premiums (the acquisition ratio) increased to 28.1% in the first half of 2000 from 27.6% in the same period in 1999. Underwriting Expenses In the first half of 2000, Trenwick recorded underwriting expenses of $34.8 million compared to $13.0 million in the same period in 1999. Underwriting expenses increased due to the inclusion of Chartwell's business in the first half of 2000. As a result, Trenwick recorded an underwriting loss, which is net earned premiums less claims and claims expenses incurred, policy acquisition costs and underwriting expenses, of $34.1 million in the six months ended June 30, 2000 compared to an underwriting loss of $3.8 million in the same period in 1999. Other Expenses Other expenses, which include amortization of goodwill and other intangibles, general and administrative expenses, interest expense and minority interest in subsidiary trust, were $27.4 million for the six months ended June 30, 2000 compared to $9.8 million for the same period in 1999. The increase reflects the addition of goodwill and increases in general and administrative expenses and interest expense in conjunction with the acquisition of Chartwell. Income (Loss) Before Income Taxes and Extraordinary Item Trenwick generated net income before income taxes and extraordinary item of $1.1 million for the six months ended June 30, 2000 compared to net income of $16.8 million for the same period in 1999. The decline in net income occurred for the reasons described above. 17 Income Tax Expense The income tax benefit for the six months ended June 30, 2000 was $2.6 million compared with a provision for income taxes of $3.0 million for the same period in 1999. Additionally, Trenwick recorded an income tax benefit of $445,000 applicable to the extraordinary loss on debt redemption in the first quarter of 2000. Extraordinary Loss on Debt Redemption Trenwick incurred an after-tax extraordinary loss of approximately $825,000 in connection with the redemption on March 1, 2000 of the remaining outstanding 10.25% Senior Notes due 2004 at a redemption price of 102.56% of par value. Net Income Trenwick generated net income of $2.9 million for the six months ended June 30, 2000 compared with net income of $13.8 million for the comparable 1999 period. The basic net income per share was $.18 for the six months ended June 30, 2000 as compared to basic net income of $1.30 per share for the same period in 1999. The diluted net income per share was $.18 per share compared to diluted net income of $1.28 per share for the six months ended June 30, 1999. Liquidity and Capital Resources As of June 30, 2000, Trenwick's consolidated investments and cash totaled $1.7 billion, as compared to $1.7 billion at December 31, 1999. The cost of the company's equity securities exceeded fair value of $107.2 by $.8 million at June 30, 2000 and at December 31, 1999 the fair value of $110.7 million exceeded cost by $2.7 million. The amortized value of the Company's debt securities exceeded fair value by $13.3 million and $14.1 million at June 30, 2000 and December 31, 1999, respectively. As of June 30, 2000, Trenwick's consolidated stockholders' equity totaled $439.5 million or $26.98 per share, compared to $462.2 million or $27.37 per share at December 31, 1999. Since December 31, 1999, the unrealized appreciation of debt and equity investments decreased $1.8 million, net of tax, or $.11 per share. Cash flow used for operations was $28.1 million for the six months ended June 30, 2000 compared to cash flow from operations of $7.2 million for the same period in 1999. The reduction in cash flow from operations was due to an overall increase in claims and claims expenses paid. For the six months ended June 30, 2000 cash flow used for financing activities was $4.8 million compared to $20.5 million for the same period in 1999. Cash used for financing activities in the first half of 2000 includes proceeds from borrowings under the senior credit facilities partially offset by the redemption of the 10.25% Senior Notes. 18 Trenwick's total debt to capital ratio (total debt divided by total debt and shareholders' equity, adjusted for unrealized gains or losses on available-for-sale investment securities) was 46% at June 30, 2000 and 43% at the end of 1999. Trenwick's total debt to capital ratio excluding the preferred capital securities was 38% at June 30, 2000 and 35% at December 31, 1999. The increase in the first half of 2000 primarily reflects an increase of $63.1 million of senior credit facilities offset by the redemption of the 10.25% senior notes in the first quarter of 2000. In May 1997, Trenwick's Board of Directors authorized the repurchase of one million shares of common stock. In September 1998, August 1999, November 1999 and December 1999, the Board of Directors authorized the repurchase of additional shares, increasing the total number of shares of common stock which Trenwick could purchase under the stock repurchase program to 4.6 million at purchase prices not to exceed Trenwick's book value. Under the stock repurchase plan, Trenwick repurchased 829,300 shares of common stock at a cost of approximately $13.7 million in the first half of 2000. Since May 1997, Trenwick has purchased an aggregate of 4,106,000 shares of common stock at a cost of approximately $95.6 million under its stock repurchase program. Trenwick issued 245,348 shares of common stock in the first half of 2000 pursuant to employee benefit plans. Trenwick declared a second quarter dividend of $.26 per share in 2000, equal to the $.26 per share dividend paid in the second quarter of 1999. Quantitative and Qualitative Disclosure About Market Risk Trenwick reviewed the change in its exposure to market risks since December 31, 1999. The components of Trenwick's investment holdings and its risk management strategy and objectives have not materially changed. Therefore, Trenwick believes that the potential for loss in each market risk sector described at year-end has not materially changed. Safe Harbor Disclosure In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, Trenwick 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 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 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. Trenwick, as a matter of policy, does not make any specific projections as to future earnings nor does it endorse any projections regarding future performance that may be made by others. 19 Forward-looking statements involve known and unknown risks and uncertainties, which may cause Trenwick'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'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 to execute its strategies in its property/casualty operations; - - - Catastrophe losses in Trenwick'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 inflation that affect the profitability of Trenwick's current property/casualty business or the adequacy of its property/casualty claims and claims expense liabilities and policy benefit liabilities related to prior years' business; - - - Changes in Trenwick's property/casualty retrocessional arrangements; - - - 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's retrocessionaires or reinsurers; - - - Increases in interest rates, which may cause a reduction in the market value of Trenwick'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's equity investments; - - - Changes in the composition of Trenwick's investment portfolio; - - - Credit losses on Trenwick's investment portfolio; - - - Adverse results in litigation matters, including, but not limited to, litigation related to environmental, asbestos and other potential mass tort claims; 20 - - - The impact of mergers and acquisitions; - - - Gains or losses related to changes in foreign currency exchange rates; and - - - Changes in Trenwick's capital needs. In addition to the factors outlined above that are directly related to Trenwick's businesses, Trenwick 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. The important factors that could affect such forward-looking statements are subject to change, and Trenwick does not intend to update any forward-looking statement or the foregoing list of important factors. By this cautionary note Trenwick 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. 21 Part II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. The annual meeting of stockholders was held in Old Greenwich, Connecticut on May 18, 2000. Represented in person or by proxy at the annual meeting were 14,222,708 shares of Common Stock, which was 87.3% of outstanding shares. The following three directors were elected to a three year term expiring in 2003 by the following votes of Trenwick's stockholders. NUMBER OF SHARES ---------------- For Withheld ---------- -------- James F. Billett, Jr. 13,998,142 224,566 W. Marson Becker 13,998,102 224,606 Robert M. DeMichele 13,997,742 224,966 Joseph D. Sargent 13,997,470 225,238 The appointment of PricewaterhouseCoopers LLP as Trenwick's independent auditors was ratified by the following vote of Trenwick's stockholders: NUMBER OF SHARES ---------------- For Against Abstain ---------- ---------- --------- 14,180,851 15,506 26,351 Item 6. Exhibits and Reports on Form 8-K a) Exhibits -------- 27.0 Financial Data Schedule b) Reports on Form 8-K ------------------- The following report on Form 8-K was filed during the quarter ended June 30, 2000: Date of Report Item Reported -------------- ------------- June 29, 2000 Amendment No. 1, dated June 28, 2000, to the Amended and Restated Agreement, Schemes of Arrangement and Plan of Reorganization, dated as of March 20, 2000, by and among LaSalle Re Holdings Limited, LaSalle Re Limited, Trenwick Group Inc. and Trenwick Group Ltd. (formerly known as Gowin Holdings International Limited). 22 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: August 14, 2000 TRENWICK GROUP INC. --------------- ------------------------------- (Registrant) /s/ JAMES F. BILLETT, JR. -------------------------------- James F. Billett, Jr. Chairman, President and Chief Executive Officer /s/ COLEMAN D. ROSS -------------------------------- Coleman D. Ross Executive Vice President and Chief Financial Officer 23 EX-27 2 0002.txt 6/30/00 FINANCIALS
7 6-MOS Dec-31-2000 Jan-01-2000 Jun-30-2000 1,147,361 0 0 107,222 0 0 1,427,371 250,029 743,521 93,132 3,491,181 2,050,332 434,421 0 0 75,000 110,000 0 1,689 437,783 3,491,181 288,264 54,018 (375) 3,473 206,494 81,047 34,780 1,129 (2,560) 0 0 825 0 2,864 .18 .18 0 0 0 0 0 0 0 1 Represents net reinsurance recoverable balances after offset of funds held and reinsurance balances payable. 2 Represents basis earnings per share. 3 Total investments include investments held by managed syndicates of $147,608 and other investments of $24,736.
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