-----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, Eq+AuICAWJC4OFtH0FMpEl4laVXE6sudFP+LAzzUKYafgQuNlXq9H+mU15jXLKGY 6PiFHuMNgw4qUkowfkr76g== 0000914039-96-000144.txt : 19960514 0000914039-96-000144.hdr.sgml : 19960514 ACCESSION NUMBER: 0000914039-96-000144 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960513 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRENWICK GROUP INC CENTRAL INDEX KEY: 0000787952 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 061152790 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14737 FILM NUMBER: 96561746 BUSINESS ADDRESS: STREET 1: ONE STATION PL STREET 2: METRO CENTER CITY: STAMFORD STATE: CT ZIP: 06902 BUSINESS PHONE: 2033535500 10-Q 1 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996. / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period to . --------------------- ------------------- Commission file number 0-14737 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.) Metro Center One Station Place Stamford, Connecticut 06902 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (203) 353-5500 None (Former name, former address and former fiscal year, if changed since last report) 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.
Class Outstanding at April 30, 1996 ----- ----------------------------- Common Stock, $.10 par value 6,702,312
2 TRENWICK GROUP INC. INDEX
Page PART I. Financial Information Number ------ Consolidated Balance Sheet March 31, 1996 and December 31, 1995 3 Consolidated Statement of Income Three Months Ended March 31, 1996 and 1995 4 Consolidated Statement of Changes in Stockholders' Equity Three Months Ended March 31, 1996 and 1995 5 Consolidated Statement of Cash Flows Three Months Ended March 31, 1996 and 1995 6 Notes to Consolidated Financial Statements 7-8 Management's Discussion and Analysis 9-12 of Financial Condition and Results of Operations PART II. Other Information Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14
3 TRENWICK GROUP INC CONSOLIDATED BALANCE SHEET (UNAUDITED)
March 31, December 31, 1996 1995 --------- --------- (dollars in thousands) Assets Fixed maturity investments available for sale at fair value (amortized cost: $615,983 and $609,751) $ 627,813 $ 633,525 Equity securities available for sale at fair value (cost: $16,879 and $16,807) 19,768 19,719 Cash and cash equivalents 28,293 6,760 --------- --------- Total investments and cash 675,874 660,004 Accrued investment income 9,720 10,198 Receivables from ceding insurers 52,482 48,979 Reinsurance recoverable balances, net 71,481 68,449 Deferred policy acquisition costs 19,868 16,725 Net deferred income taxes 17,956 13,585 Other assets 2,942 2,990 --------- --------- Total assets $ 850,323 $ 820,930 ========= ========= Liabilities and Stockholders' Equity Liabilities: Unpaid claims and claims expenses $ 427,158 $ 411,874 Unearned premium income 67,245 56,050 Convertible debentures 103,500 103,500 Other liabilities 13,082 8,730 --------- --------- Total liabilities 610,985 580,154 --------- --------- Stockholders' equity: Preferred stock, $.10 par value, 1,000,000 shares authorized; none outstanding Common stock, $.10 par value, 15,000,000 shares authorized; 6,601,122 and 6,590,411 shares outstanding 660 659 Additional paid-in capital 90,311 89,920 Retained earnings 140,085 133,949 Net unrealized appreciation of investments, net of income taxes 9,567 17,346 Deferred compensation under stock award plan (1,285) (1,098) --------- --------- Total stockholders' equity 239,338 240,776 --------- --------- Total liabilities and stockholders' equity $ 850,323 $ 820,930 ========= =========
The accompanying notes are an integral part of these statements. 3 4 TRENWICK GROUP INC CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended March 31, ----------------- 1996 1995 ------- ------- (in thousands except per share data) Revenues: Net premiums earned $47,691 $44,464 Net investment income 9,869 8,544 Net realized investment gains 50 98 ------- ------- Total revenues 57,610 53,106 ------- ------- Expenses: Claims and claims expenses incurred 29,199 31,007 Policy acquisition costs 12,242 9,370 Underwriting expenses 4,028 2,866 Interest expense 1,624 1,624 ------- ------- Total expenses 47,093 44,867 ------- ------- Income before income taxes 10,517 8,239 Income taxes 2,335 1,735 ------- ------- Net income $ 8,182 $ 6,504 ======= ======= PRIMARY EARNINGS PER SHARE $ 1.20 $ .97 ======= ======= Weighted average shares outstanding 6,833 6,691 ======= ======= FULLY DILUTED EARNINGS PER SHARE (assuming conversion of convertible debentures as of the date of issuance) $ 1.03 $ .86 ======= ======= Weighted average shares outstanding 8,967 8,825 ======= ======= Dividends per common share $ .31 $ .28 ======= =======
The accompanying notes are an integral part of these statements. 4 5 TRENWICK GROUP INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
Three Months Ended March 31, ---------------------- 1996 1995 --------- --------- (dollars in thousands) Stockholders' equity, beginning of year $ 240,776 $ 188,213 Common stock, $.10 par value, and additional paid-in capital: Exercise of employer stock options (8,000 and 19,500 shares) 158 188 Income tax benefit resulting from excess compensation expenses allowable for income tax purposes 94 82 Restricted common stock awarded (6,195 and 4,654 shares) 320 205 Common stock purchased and retired (3,484 and 3,057 shares) (180) (134) Retained earnings: Net income 8,182 6,504 Cash dividends (2,046) (1,809) Net unrealized (depreciation) appreciation of investments available for sale: Change in unrealized (depreciation) appreciation (11,967) 16,779 Change in applicable deferred income taxes 4,188 (5,872) Deferred compensation under stock award plan: Restricted common stock awarded (320) (205) Compensation expense recognized 133 78 --------- --------- Stockholders' equity, end of period $ 239,338 $ 204,029 ========= =========
The accompanying notes are an integral part of these statements. 5 6 TRENWICK GROUP INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31, -------------------- 1996 1995 -------- -------- (in thousands) Cash flows from operating activities: Premiums collected $ 45,465 $ 32,967 Ceded premiums paid (1,663) (3,502) Claims and claims expenses paid (19,951) (20,316) Claims and claims expenses recovered 636 2,491 Underwriting expenses paid (5,130) (3,461) -------- -------- Cash provided by underwriting activities 19,357 8,179 Net investment income received 10,647 10,281 Income taxes received (paid) 89 (1,987) -------- -------- Cash provided by operating activities 30,093 16,473 -------- -------- Cash flows for investing activities: Purchases of fixed maturity investments (22,216) (38,877) Sales of fixed maturity investments 5,025 10,138 Maturities of fixed maturity investments 10,707 15,261 Purchases of equity securities (72) (50) Sales of equity securities 21 -- Additions to premises and equipment (137) (177) -------- -------- Cash used for investing activities (6,672) (13,705) -------- -------- Cash flows for financing activities: Issuance of common stock 158 188 Dividends paid (2,046) (1,809) -------- -------- Cash used for financing activities (1,888) (1,621) -------- -------- Increase in cash and cash equivalents 21,533 1,147 Cash and cash equivalents, beginning of year 6,760 9,784 -------- -------- Cash and cash equivalents, end of period $ 28,293 $ 10,931 ======== ========
The accompanying notes are an integral part of these statements. 6 7 TRENWICK GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation: The interim consolidated financial statements included those of Trenwick Group Inc. and its subsidiaries and have been prepared in conformity with generally accepted accounting principles applied on a basis consistent with prior periods. Certain items in the financial statements have been reclassified to conform with the 1996 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. 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 1995 audited financial statements and related notes. 2. Reinsurance: Trenwick purchases reinsurance to reduce its exposure to catastrophe losses and the frequency of 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, premiums earned and claims and claims expenses incurred is as follows (in thousands):
Premiums Written Three Months Ended March 31, -------------------- 1996 1995 ---- ---- Assumed $64,031 $53,297 Ceded (5,148) (3,920) -------- ------- Net $58,883 $49,377 ======= =======
7 8
Premiums Earned Three Months Ended March 31, ------------------ 1996 1995 ---- ---- Assumed $52,835 $48,385 Ceded (5,144) (3,921) ------- ------- Net $47,691 $44,464 ======= =======
Claims and Claims Expenses Incurred Three Months Ended March 31, ------------------------ 1996 1995 ---- ---- Assumed $36,348 $36,588 Ceded (7,149) (5,581) ------- ------- Net $29,199 $31,007 ======= =======
3. Stock Options and Benefit Plans: For the three months ended March 31, 1996, Trenwick awarded key employees an aggregate of 6,195 shares of common stock under the terms of the 1989 Stock Plan, valued at $51.75 per share (approximately $320,000). Trenwick is recognizing compensation expense determined by the value of the shares, amortized over a five year vesting period. During the three month period, 3,484 shares were repurchased at $51.75 per share (approximately $180,000) in connection with the satisfaction of withholding taxes payable upon the vesting of shares previously awarded under the plan. 8 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Trenwick Group Inc. ("Trenwick") is a holding company whose principal subsidiary, Trenwick America Reinsurance Corporation ("Trenwick America Re") reinsures property and casualty risks written by U.S. insurance companies. Substantially all of Trenwick America Re's business is produced by reinsurance brokers. Trenwick America Re divides its business into three categories: treaty, specialty and facultative. In addition, under a strategic reinsurance agreement with PXRE Reinsurance Company ("PXRE Re"), Trenwick America Re assumes approximately 15% of PXRE Re's property business. OPERATING RESULTS Trenwick Group Inc. reported an increase in its first quarter consolidated net income of 26% to $8.2 million or $1.20 per share compared to $6.5 million or $.97 per share in the first quarter of 1995. Fully diluted earnings per share increased 20% to $1.03 in the first quarter of 1996 compared to $.86 last year. Consolidated net income in the first quarter of 1995 included an after-tax charge of $650,000 or $.10 per share associated with a preliminary estimate of claims arising from the Kobe, Japan earthquake in January 1995. Operating income (net income excluding after-tax realized investment gains and losses) was as follows (in thousands, except per share data):
Three Months Ended March 31, ------------------ 1996 1995 ---- ---- Operating income $8,149 $6,440 Per Share: Primary $1.19 $ .96 Fully diluted $1.03 $ .85
Realized after-tax investment gains in the first quarter of 1996 were $33,000 or approximately $.01 per share, compared to $64,000 or $.01 per share for the same period in 1995. 9 10 PREMIUMS Trenwick's net premiums written of $58.9 million for the first quarter 1996 represented a 19% increase over the same period in 1995. The distribution of the Company's net premiums written by type was as follows (in thousands):
Three Months Ended March 31, --------------------------------- 1996 1995 % Change ---- ---- -------- CASUALTY Treaty $37,351 $25,756 45% Specialty 9,780 11,593 (16) Facultative 1,354 1,462 (8) ------- ------- -- 48,485 38,811 25 PROPERTY 10,398 10,566 (2) ------- ------- -- Total $58,883 $49,377 19% ======= ======= ==
Trenwick's premium growth in the first quarter resulted from an increase in casualty treaty business. This growth was primarily driven by business associated with the senior underwriting executives hired in 1995. This business was developed through existing and new relationships with various reinsurance brokers. Specialty business declined as a result of the non-renewal of certain accounts in 1994 and 1995 which did not meet the Company's pricing standards. New casualty business increased 73% in the quarter over the same period in 1995 and represented approximately 26% of total premium writings during the period. Increases in participations in renewal transactions and growth in the original business written by several ceding companies ("continuing casualty business") increased 12% in the quarter over the same period in 1995. Continuing casualty business represented 56% of the total premium writings during the period. The Company's property business, representing 18% of total premium writings for the quarter, declined marginally. Subsequent to the close of the quarter, Trenwick America Re entered into a strategic reinsurance agreement with Transatlantic Reinsurance Company (Transatlantic Re), a wholly owned subsidiary of Transatlantic Holdings Inc. Transatlantic Re is the broker market leader in providing reinsurance to the health care industry in the U.S., including managed care products, hospital professional liability for institutions and medical professional liability for doctors. Through this agreement, Trenwick America Re will provide Transatlantic Re with incremental risk capacity that will further strengthen its lead in the marketplace. Trenwick expects that this agreement will result in new writings in 1996 of approximately $8 million to $10 million. 10 11 UNDERWRITING EXPERIENCE The combined ratio is one means of measuring the profitability of a property and casualty 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 a reinsurer may have unprofitable underwriting results, the reinsurer may still be profitable because of investment income earned on the accumulated invested assets. The following table sets forth Trenwick's combined ratios and the components thereof calculated on a GAAP basis for the period indicated, together with Trenwick America Re's combined ratio calculated on a statutory basis:
Three Months Ended March 31, ------------------ 1996 1995 ---- ---- Claims and claims expense ratio 61.2% 69.7% ---- ---- Expense ratio: Policy acquisition expense ratio 25.7 21.1 Underwriting expense ratio 8.4 6.4 ---- ---- Total expense ratio 34.1% 27.5% ---- ---- Combined ratio (GAAP basis) 95.3% 97.2% ---- ---- Trenwick America Re statutory combined ratio 93.8% 95.8% ---- ----
As indicated, Trenwick's claims and claims expense ratio improved in the first quarter of 1996 compared to the same period in 1995. The claims and claims expense ratio in the first quarter of 1996 includes favorable development of approximately $1.7 million from casualty business written in prior years. Additionally, the Company's first quarter 1995 loss ratio includes 2 percentage points associated with a preliminary estimate of claims arising from the Kobe, Japan earthquake. INVESTMENT INCOME Net investment income of $9.9 million increased 16% in the first quarter of 1996 compared to $8.5 million for the same period in 1995. Pre-tax yields on invested assets averaged 6.3% in 1996 and 1995. The increase in investment income is due primarily to the continued growth in the Company's invested asset base along with an increase in operating cash flow. 11 12 The taxable and non-taxable components of the Company's net investment income were as follows (in thousands):
Three Months Ended March 31, ------------------ 1996 1995 ---- ---- Taxable $5,614 $4,722 Non-taxable 4,255 3,822 ----- ----- $9,869 $8,544 ====== ====== Net investment income, after-tax $7,721 $6,760 ====== ======
LIQUIDITY AND CAPITAL RESOURCES As of March 31, 1996, Trenwick's consolidated investments and cash totaled $675.9 million, as compared to $660.0 million at December 31, 1995. The fair value of the Company's fixed maturity portfolio exceeded amortized cost of $616.0 and $609.8 million by $11.8 and $23.8 million at March 31, 1996, and December 31, 1995, respectively. At March 31, 1996 and at December 31, 1995, the fair value of the Company's equity securities exceeded cost by $2.9 million. As of March 31, 1996, Trenwick's consolidated stockholders' equity totaled $239.3 million or $36.26 per share, as compared to $240.8 million or $36.54 per share at December 31, 1995. The nominal decrease in consolidated stockholders' equity is due to a decrease in the market value of the Company's fixed maturity and equity investments, offsetting the increase from earnings in the period. Since December 31, 1995, the unrealized appreciation of the Company's fixed maturity and equity investments declined $7.8 million, net of tax, or $1.18 per share, primarily as a result of the increase in interest rates since December 31, 1995. Statutory surplus of Trenwick America Re was $263.7 million as of March 31, 1996, compared to $257.6 million as of December 31, 1995. Cash flow from operations of $30.1 million in the first quarter of 1996 increased approximately 83% compared to cash flow from operations of $16.5 million in the first quarter of 1995. The increase in cash flow from operations reflected an overall increase in premium writings. Trenwick declared a first quarter dividend of $.31 per share in 1996, compared to $.28 in the first quarter of 1995. 12 13 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K a) Exhibits 11.0 Computation of Earnings Per Share 27.0 Financial Data Schedule b) Reports on Form 8-K None 13 14 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. TRENWICK GROUP INC. ----------------------------- (Registrant) Date: May 13, 1996 JAMES F. BILLETT, JR. ------------- ----------------------------- James F. Billett, Jr. Chairman, President and Chief Executive Officer Date: May 13, 1996 ALAN L. HUNTE ------------ ------------------------ Alan L. Hunte Vice President, Chief Financial Officer and Treasurer 14 EX-11 2 COMPUTATION OF EARNINGS PER SHARE 1 TRENWICK GROUP INC. Exhibit 11.0 -- COMPUTATION OF EARNINGS PER SHARE (in thousands, except per share amounts)
Three Months Ended March 31, --------------- 1996 1995 ------ ------ PRIMARY Average shares outstanding 6,596 6,451 Weighted average shares of common stock equivalents associated with stock options, net 237 240 ------ ------ Total 6,833 6,691 ====== ====== Net income $8,182 $6,504 ====== ====== PER SHARE AMOUNT $ 1.20 $ .97 ====== ====== FULLY DILUTED Average shares outstanding 6,596 6,451 Weighted average shares of common stock equivalents associated with stock options, net 237 240 Assumed conversion of 6% convertible debentures 2,134 2,134 ------ ------ Total 8,967 8,825 ====== ====== Net income $8,182 $6,504 Add 6% convertible conversion debenture interest net of federal income tax effect 1,056 1,053 ------ ------ Total $9,238 $7,557 ====== ====== PER SHARE AMOUNT $ 1.03 $ .86 ====== ======
EX-27 3 FINANCIAL DATA SCHEDULE
7 This schedule contains summary financial information extracted from the financial statements contained in the Form 10-Q for the three months ended March 31, 1996 for Trenwick Group Inc. 1,000 U.S. DOLLARS 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1 627,813 0 0 19,768 0 0 647,581 28,293 71,481 19,868 850,323 427,158 67,245 0 0 103,500 0 0 660 238,678 850,323 47,691 9,869 50 0 29,199 12,242 5,652 10,517 2,335 0 0 0 0 8,182 1.20 1.03 0 0 0 0 0 0 0 -Represents net reinsurance recoverable balances after offset of funds held and reinsurance balances payable.
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