-----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, F5u5eeQ2flsdfy1s89Om6jnJQDr+EJ13mO8qDE5mUUuzYkOoMviyfrH9U3E6Iwj4 7I8eOjTJlXEQoKuYCWcr5g== 0000914039-97-000373.txt : 19971117 0000914039-97-000373.hdr.sgml : 19971117 ACCESSION NUMBER: 0000914039-97-000373 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: SEC FILE NUMBER: 000-14737 FILM NUMBER: 97719725 BUSINESS ADDRESS: STREET 1: ONE STATION PL STREET 2: METRO CENTER CITY: STAMFORD STATE: CT ZIP: 06902 BUSINESS PHONE: 2033535500 10-Q 1 FORM 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 September 30, 1997. [ ] 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 October 31, 1997 Common Stock, $.10 par value 11,951,060 2 TRENWICK GROUP INC. INDEX Page PART I. Financial Information Number Consolidated Balance Sheet September 30, 1997 and December 31, 1996 3 Consolidated Statement of Income Three and Nine Months Ended September 30, 1997 and 1996 4 Consolidated Statement of Changes in Stockholders' Equity Three and Nine Months Ended September 30, 1997 and 1996 5 Consolidated Statement of Cash Flows Nine Months Ended September 30, 1997 and 1996 6 Notes to Consolidated Financial Statements 7-11 Management's Discussion and Analysis of Financial Condition and Results of Operations 12-15 PART II. Other Information Item 2. Changes in Securities and Use of Proceeds 16 Item 6. Exhibits and Reports on Form 8-K 16-17 Signatures 18 3 TRENWICK GROUP INC. CONSOLIDATED BALANCE SHEET (UNAUDITED)
September 30, December 31, 1997 1996 ---- ---- (dollars in thousands) Assets Securities available for sale at fair value: Debt securities (amortized cost: $782,735 and $700,476) $ 802,756 $ 713,998 Equity securities (cost: $31,065 and $21,346) 38,675 25,959 Cash and cash equivalents 13,863 14,253 ----------- ----------- Total investments and cash 855,294 754,210 Accrued investment income 11,063 10,386 Receivables from ceding insurers 87,048 62,689 Reinsurance recoverable balances, net 57,280 47,772 Deferred policy acquisition costs 23,791 21,805 Net deferred income taxes 15,975 20,231 Other assets 17,420 3,711 ----------- ----------- Total assets $ 1,067,871 $ 920,804 =========== =========== Liabilities and Stockholders' Equity Liabilities: Unpaid claims and claims expenses $ 507,349 $ 467,177 Unearned premium income 89,384 71,448 Convertible debentures -- 103,500 Other liabilities 12,307 12,926 ----------- ----------- Total liabilities 609,040 655,051 ----------- ----------- Company-obligated mandatorily redeemable preferred capital securities of subsidiary trust holding solely junior subordinated debentures of Trenwick 110,000 -- ----------- ----------- Common stockholders' equity: Common stock, $.10 par value, 22,500,000 shares authorized; 11,951,060 and 10,087,826 shares outstanding 1,195 1,009 Additional paid-in capital 153,571 94,423 Retained earnings 176,964 159,512 Net unrealized appreciation of securities available for sale, net of income taxes 17,960 11,789 Deferred compensation under stock award plan (859) (980) ----------- ----------- Total common stockholders' equity 348,831 265,753 ----------- ----------- Total liabilities and stockholders' equity $ 1,067,871 $ 920,804 =========== ===========
All share and per share information reflects a 3 for 2 stock split, paid on April 15, 1997 The accompanying notes are an integral part of these statements. 3 4 TRENWICK GROUP INC. CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ----------------------- 1997 1996 1997 1996 -------- -------- -------- -------- (in thousands except per share data) Revenues: Net premiums earned $ 43,723 $ 55,008 $144,742 $156,075 Net investment income 12,178 10,332 36,030 30,386 Net realized investment gains (losses) -- (21) 1,916 18 Other income -- -- 10 -- -------- -------- -------- -------- Total revenues 55,901 65,319 182,698 186,479 -------- -------- -------- -------- Expenses: Claims and claims expenses incurred 25,522 33,428 83,812 95,402 Policy acquisition costs 13,103 15,711 45,060 42,669 Underwriting expenses 3,576 3,426 11,344 10,797 Interest expense 2 1,626 892 4,875 Minority interest in Trenwick Capital Trust 2,452 -- 6,495 -- -------- -------- -------- -------- Total expenses 44,655 54,191 147,603 153,743 -------- -------- -------- -------- Income before income taxes and extraordinary item 11,246 11,128 35,095 32,736 Income taxes 2,473 2,608 7,928 7,707 -------- -------- -------- -------- Income before extraordinary item 8,773 8,520 27,167 25,029 Extraordinary loss on debt redemption, net of $558 income tax benefit -- -- 1,037 -- -------- -------- -------- -------- Net income $ 8,773 $ 8,520 $ 26,130 $ 25,029 ======== ======== ======== ======== PRIMARY EARNINGS PER SHARE Income before extraordinary item $ .72 $ .83 $ 2.30 $ 2.44 Extraordinary loss -- -- .09 -- -------- -------- -------- -------- Net income $ .72 $ .83 $ 2.21 $ 2.44 ======== ======== ======== ======== FULLY DILUTED EARNINGS PER SHARE (assuming conversion of dilutive convertible debentures): Income before extraordinary item $ .72 $ .71 $ 2.23 $ 2.10 Extraordinary loss -- -- .06 -- -------- -------- -------- -------- Net income $ .72 $ .71 $ 2.17 $ 2.10 ======== ======== ======== ======== DIVIDENDS PER COMMON SHARE $ .25 $ .21 $ .73 $ .62 ======== ======== ======== ========
All share and per share information reflects a 3-for-2 stock split, paid on April 15, 1997. 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 Nine Months Ended September 30, September 30, -------------------------- -------------------------- 1997 1996 1997 1996 --------- --------- --------- --------- (dollars in thousands) Common stockholders' equity, beginning of period $ 336,666 $ 245,468 $ 265,753 $ 240,776 Common stock, $.10 par value, and additional paid-in-capital: Conversion of debentures (1,783,926) -- -- 57,780 -- Exercise of employer stock options (16,000, 1,500, 76,750 and 193,278 shares) 180 40 956 3,636 Income tax benefits from additional compensation deductions allowable for income tax purposes -- -- 483 1,053 Restricted common stock awarded (5,376, 9,782 and 15,030 shares) -- 174 328 507 Restricted common stock awards cancelled (2,122, 2,122 and 3,150 shares) (42) -- (42) (91) Common stock purchased and retired (269, 5,091 and 30,699 shares) -- (8) (171) (1,031) Retained earnings: Net income 8,773 8,520 26,130 25,029 Cash dividends (2,948) (2,079) (8,678) (6,203) Net unrealized appreciation of securities available for sale: Change in unrealized appreciation 9,268 3,838 9,494 (13,990) Change in applicable deferred income taxes (3,244) (1,344) (3,323) 4,896 Deferred compensation under stock award plan: Restricted common stock awarded -- (174) (328) (507) Restricted common stock awards cancelled 42 -- 42 91 Compensation expense recognized 136 127 407 396 --------- --------- --------- --------- Common stockholders' equity, end of period $ 348,831 $ 254,562 $ 348,831 $ 254,562 ========= ========= ========= =========
All share and per share information reflects a 3-for-2 stock split, paid on April 15, 1997. The accompanying notes are an integral part of these statements. 5 6 TRENWICK GROUP INC. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
Nine Months Ended September 30, -------------------------- 1997 1996 ---- ---- (in thousands) Cash flows from operating activities: Premiums collected $ 112,384 $ 130,374 Ceded premiums paid (6,360) (5,102) Claims and claims expenses paid (85,383) (73,219) Claims and claims expenses recovered 2,394 3,683 Underwriting expenses paid (10,578) (10,027) --------- --------- Cash provided by underwriting activities 12,457 45,709 Net investment income received 37,242 31,527 Interest expense paid (5,364) (3,085) Income taxes paid (6,270) (5,585) --------- --------- Cash provided by operating activities 38,065 68,566 --------- --------- Cash flows for investing activities: Purchases of debt securities (171,147) (120,522) Sales of debt securities 33,980 12,934 Maturities of debt securities 53,042 43,682 Purchases of equity securities (12,428) (158) Sales of equity securities 4,621 2,375 Additions to premises and equipment (158) (553) --------- --------- Cash used for investing activities (92,090) (62,242) --------- --------- Cash flows for financing activities: Issuance of mandatorily redeemable preferred capital securities 110,000 -- Redemption of convertible debentures (46,997) -- Issuance costs of capital securities (1,555) -- Issuance of common stock 956 3,636 Repurchase of common stock (171) (1,031) Dividends paid (8,598) (6,203) --------- --------- Cash provided (used) by financing activities 53,635 (3,598) --------- --------- Change in cash and cash equivalents (390) 2,726 Cash and cash equivalents, beginning of period 14,253 6,760 --------- --------- Cash and cash equivalents, end of period $ 13,863 $ 9,486 ========= =========
The accompanying notes are an integral part of these statements. 6 7 TRENWICK GROUP INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 1997 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 1996 audited financial statements and related notes. Earnings Per Share Primary earnings per share are computed based on the weighted average number of shares of common stock and common stock equivalents outstanding during each year. Primary weighted average shares outstanding are adjusted to reflect as outstanding, throughout each year presented, common stock equivalents pursuant to the assumed exercise of stock options. Fully diluted earnings per share are computed based on the assumption that the convertible debentures are converted into common shares. Supplemental earnings per share reflect primary earnings per share adjusted as if the conversion was consummated as of the beginning of the period. 7 8 The weighted average shares of common stock outstanding and net income per share amounts are as follows:
Three Months Ended Nine Months Ended September 30, September 30, --------------------------- --------------------------- 1997 1996 1997 1996 ---------- ---------- ---------- ---------- WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Primary 12,196 10,291 11,801 10,248 Supplemental 12,196 12,075 12,134 12,032 Fully diluted 12,196 13,492 12,195 13,457 PER SHARE AMOUNTS: Primary $ .72 $ .83 $ 2.21 $ 2.44 Supplemental $ .72 $ .75 $ 2.18 $ 2.23 Fully diluted $ .72 $ .71 $ 2.17 $ 2.10
In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" which establishes new guidelines for the computation and disclosure of earnings per share. This statement is required to be adopted on December 31, 1997 and earlier adoption is not permitted. Current earnings per share ("EPS") disclosures will be replaced by basic EPS and diluted EPS as defined in the statement. The following reflects the basic EPS and diluted EPS calculated under this new statement:
Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ----------------------- 1997 1996 1997 1996 -------- -------- -------- -------- Basic $ .74 $ .85 $ 2.26 $ 2.52 Diluted $ .72 $ .71 $ 2.19 $ 2.10
Issuance costs of capital securities The issuance costs associated with the issuance of the capital securities are being amortized over the term of the junior subordinated debentures. 8 9 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 Nine Months Ended September 30, September 30, -------------------------- -------------------------- 1997 1996 1997 1996 --------- --------- --------- --------- Assumed $ 59,892 $ 60,574 $ 192,310 $ 190,108 Ceded (15,510) (5,462) (39,524) (15,842) --------- --------- --------- --------- Net $ 44,382 $ 55,112 $ 152,786 $ 174,266 ========= ========= ========= =========
Premiums Earned ------------------------------------------------------------ Three Months Ended Nine Months Ended September 30, September 30, -------------------------- -------------------------- 1997 1996 1997 1996 --------- --------- --------- --------- Assumed $ 53,883 $ 60,427 $ 174,374 $ 171,854 Ceded (10,160) (5,419) (29,632) (15,779) --------- --------- --------- --------- Net $ 43,723 $ 55,008 $ 144,742 $ 156,075 ========= ========= ========= =========
Claims and Claims Expenses Incurred ------------------------------------------------------------ Three Months Ended Nine Months Ended September 30, September 30, -------------------------- -------------------------- 1997 1996 1997 1996 --------- --------- --------- --------- Assumed $ 40,183 $ 41,381 $ 126,059 $ 117,308 Ceded (14,661) (7,953) (42,247) (21,906) --------- --------- --------- --------- Net $ 25,522 $ 33,428 $ 83,812 $ 95,402 ========= ========= ========= =========
9 10 3. MANDATORILY REDEEMABLE PREFERRED CAPITAL SECURITIES On January 28, 1997, Trenwick completed a private offering of $110 million in 8.82% Subordinated Capital Income Securities ("Capital Securities") through Trenwick Capital Trust I ("Trust"), a Delaware statutory business trust. Trenwick owns all the common securities of the Trust ("Common Securities"). Concurrently with the issuance of the Capital Securities, the Trust invested the proceeds their sale, together with the consideration paid to the Trust by Trenwick for the Common Securities, in Trenwick's Junior Subordinated Debentures, whose terms are similar to those of the Capital Securities. The Trust was formed for the sole purpose of issuing the Capital Securities and the Common Securities, investing the proceeds thereof in the Junior Subordinated Debentures and making distributions to the holders of the Capital Securities. The Capital Securities mature on February 1, 2037; require preferential cumulative cash distributions at an annual rate of 8.82%, payable semi-annually on February 1 and August 1 (beginning August 1, 1997) from the payment of interest on the Junior Subordinated Debentures; and are guaranteed by Trenwick, within certain limits, as to the payment of distributions and liquidation or redemption payments. They are subject to mandatory redemption, (i) in whole but not in part at maturity, upon repayment of the Junior Subordinated Debentures, at a redemption price equal to the principal amount plus accrued and unpaid interest; (ii) in whole but not in part at any time, contemporaneously with the optional prepayment of the Junior Subordinated Debentures upon the occurrence and continuation of certain events, at a redemption price equal to the greater of the principal amount or the present value of principal and interest payable to February 1, 2007, plus accrued and unpaid interest and possible additional sums; and (iii) in whole or in part, after February 1, 2007, contemporaneously with the optional prepayment of the Junior Subordinated Debentures, at a redemption price equal to the principal amount plus accrued and unpaid interest and possible additional sums. Upon the occurrence and continuation of an event of default with respect to the Junior Subordinated Debentures, the Capital Securities shall have a preference over the Common Securities. Upon the occurrence of an event of default (A) with respect to the Junior Subordinated Debentures which is attributable to Trenwick's failure to make required payments or (B) with respect to Trenwick's guarantee, the holders of the Capital Securities may institute a direct action against Trenwick. In accordance with their terms, the Capital Securities were exchanged for fully registered Capital Securities, which are not subject to restrictions on transfer. 4. STOCKHOLDERS' EQUITY Preferred Stock Trenwick has 1,000,000 shares of $.10 par value preferred stock authorized and none outstanding. Stock Options and Benefit Plans For the nine months ended September 30, 1997, Trenwick awarded key employees an aggregate of 9,782 shares of common stock under the terms of the 1989 Stock Plan, valued at an average of $33.50 per share (approximately $328,000). Trenwick is recognizing compensation expense determined by the value of the shares, amortized over a five year vesting period. During the nine month period, 5,091 shares were repurchased at an average of $33.50 per share (approximately $171,000) in connection with the satisfaction of withholding taxes payable upon the vesting of shares previously awarded under the plan. 10 11 Common Stock On May 21, 1997, Trenwick's Board of Directors approved a stock repurchase program covering up to one million shares of the Company's common stock; no shares have been repurchased to date. On March 6, 1997, Trenwick's Board of Directors approved a three-for-two common stock split which was paid on April 15, 1997 to stockholders of record at the close of business on March 18, 1997. An amount equal to the par value of the additional shares issued has been transferred from additional paid-in capital to common stock. In this report, all share and per share data have been retroactively restated to reflect the common stock split. 5. STOCKHOLDER RIGHTS PLAN In the third quarter, Trenwick adopted a new Stockholder Rights Plan, replacing the plan adopted in 1989, and redeemed the rights issued under the 1989 plan. Stockholders of record at the close of business on September 24, 1997, received $0.01 for each redeemed right (equivalent to $0.00667 per share) and received one new Right for each share of common stock held. The Rights are exercisable only if a person or group acquires beneficial ownership of 15% or more of the Company's common stock or commences a tender or exchange offer upon consummation of which such person or group would beneficially own 15% or more of the Company's common stock. Each Right entitles a stockholder to buy 1/200 of a share of the Company's Series B Junior Participating Preferred Stock at an exercise price of $125, subject to adjustment. Trenwick has reserved 200,000 shares of such preferred stock for possible issuance under the Plan. In the event that an acquiror accumulates 15% or more of Trenwick's common stock, all Rights holders except the acquiror may purchase, for the exercise price, in lieu of the Series B Junior Participating Preferred Stock, shares of common stock of Trenwick having a market value of twice the exercise price of each Right. If Trenwick is acquired in a merger or other business combination after the acquisition of 15% of Trenwick's common stock, all Rights holders except the acquiror may purchase the acquiror's shares at a similar discount. Trenwick is entitled to redeem the Rights at $0.01 per Right, subject to certain restrictions. The Rights will expire on September 23, 2007. 11 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Trenwick ("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. OPERATING RESULTS Trenwick Group Inc. reported consolidated net income of $8.8 million or $.72 per share for the third quarter of 1997 compared to $8.5 million or $.71 per fully diluted share for the third quarter of 1996. Per share earnings in the third quarter of 1997 reflect weighted average shares of 12.2 million, which should be compared to fully diluted weighted average shares of 13.5 million in the third quarter of 1996. The decrease in the average number of shares resulted from the redemption of $45.8 million principal amount of Trenwick's 6% convertible debentures called February 20, 1997. For the nine months ended September 30, 1997, Trenwick's income before extraordinary item was $27.2 million compared to $25.0 million for the nine months ended September 30, 1996. Net income per fully diluted share was $2.17 for the nine months ended September 30, 1997 compared to $2.10 last year. PREMIUMS Trenwick's decision not to participate in the continuing downward spiral in property/casualty reinsurance rates contributed to a nominal decline in gross written premium and a 19% decline in net premiums written for the third quarter of 1997 compared to the third quarter of 1996. This decline in net premiums written is magnified by Trenwick's previously announced decision to buy more reinsurance protection in 1997 in light of the continued general deterioration in reinsurance pricing and the opportunity to buy additional protection at more favorable terms than in prior years. 12 13 The distribution of the Company's net premiums written by type was as follows (in thousands):
Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------------- --------------------------------------------- 1997 1996 % Change 1997 1996 % Change ---- ---- -------- ---- ---- -------- CASUALTY Treaty $ 26,086 $ 31,523 (17)% $ 97,120 $ 109,659 (11)% Specialty 11,250 13,369 (16) 34,129 34,718 (2) Facultative 655 2,074 (68) 2,692 5,020 (46) --------- --------- --------- --------- --------- --------- 37,991 46,966 (19) 133,941 149,397 (10) PROPERTY 6,391 8,146 (22) 18,845 24,869 (24) --------- --------- --------- --------- --------- --------- Total $ 44,382 $ 55,112 (19)% $ 152,786 $ 174,266 (12)% ========= ========= ========= ========= ========= =========
Trenwick's gross premium writings declined nominally in the third quarter of 1997 as a result of a reduction in existing casualty business. While, to date, new casualty business has offset the decline in premiums due to the non-renewal of certain accounts, premium writings from existing business have declined as a result of increased competition among primary companies. This increase in competition has caused cedants to reduce their premium writings or restructure their reinsurance programs, reducing the amount of reinsurance they purchase. In addition, continuing competition in the reinsurance markets has driven reinsurance prices on certain accounts below the pricing levels at which the Company will accept business. Property business continued to decline primarily as a result of PXRE's (the Company's strategic partner in the writing of catastrophe reinsurance) conservative response to continued erosion in pricing in that segment of the reinsurance business. New casualty business decreased 3% in the quarter and increased 18% for the nine months ended September 30, 1997 over the same periods in 1996 and represented approximately 34% and 36% of total premium writings during those periods. Continuing casualty business increased 6% in the quarter and decreased 2% for the nine months ended September 30, 1997 over the same periods in 1996. Continuing casualty business represented 54% and 53% of the total premium writings during those periods. The Company's property business represented approximately 12% and 11% of total premium writings for the quarter and for the nine months ended September 30, 1997. 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. 13 14 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 Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ------ ------ ------ ------ Claims and claims expense ratio 58.3% 60.8% 57.9% 61.1% ------ ------ ------ ------ Expense ratio: Policy acquisition expense ratio 30.0 28.6 31.1 27.3 Underwriting expense ratio 8.2 6.2 7.9 6.9 ------ ------ ------ ------ Total expense ratio 38.2% 34.8% 39.0% 34.2% ------ ------ ------ ------ Combined ratio (GAAP basis) 96.5% 95.6% 96.9% 95.3% ------ ------ ------ ------ Trenwick America Re statutory combined ratio 95.8% 95.4% 96.0% 94.8% ------ ------ ------ ------
As indicated, Trenwick's claims and claims expense ratio improved in the third quarter and for the nine months ended September 30, 1997 compared to the same periods in 1996. The claims and claims expense ratio in the third quarter and for the nine months ended September 30, 1997 includes prior period favorable development of approximately $1.0 million and $3.9 million, respectively. This improvement in the claims and claims expense ratio is partially offset by a continued shift in the mix of business from excess to quota share along with profit commission incurred on business written in prior years. INVESTMENT INCOME Net investment income of $12.2 million in the third quarter of 1997 increased 18% compared to $10.3 million for the same period in 1996. Net investment income of $36.0 million for the nine months ended September 30, 1997 increased 19% compared to $30.4 million for the nine months ended September 30, 1996. Pre-tax yields on invested assets, excluding equity securities, averaged 6.4% in 1997 and 1996. The increase in investment income is due to the continued growth in Trenwick's invested asset base. This growth resulted primarily from funds received of $29.7 million from the aggregate excess of loss commutation recorded in December 1996, coupled with approximately $61 million of funds received in January 1997 from Trenwick's previously reported private offering of $110 million 8.82% Subordinated Capital Income Securities. The remaining proceeds were used to redeem $46 million principal amount of the Company's convertible debentures, plus accrued interest. After-tax net investment income in the third quarter and for the nine months ended September 30, 1997 was $9.3 million and $27.7 million compared to $8.0 million and $23.7 million for the comparative periods in 1996. The effective tax rate on net investment income for the nine months ended September 30, 1997 was approximately 23%, versus 22.1% for the same period in 1996. 14 15 LIQUIDITY AND CAPITAL RESOURCES As of September 30, 1997, Trenwick's consolidated investments and cash totaled $855.3 million, as compared to $754.2 million at December 31, 1996. The fair value of the Company's debt securities portfolio exceeded amortized cost of $782.7 million and $700.5 million by $20.0 million and $13.5 million at September 30, 1997 and December 31, 1996, respectively. At September 30, 1997 and at December 31, 1996, the fair value of the Company's equity securities exceeded cost of $31.0 million and $21.3 million by $7.6 million and $4.6 million, respectively. As of September 30, 1997, Trenwick's consolidated common stockholders' equity totaled $348.8 million or $29.19 per share, as compared to $265.8 million or $26.34 per share at December 31, 1996. This $83.1 million increase resulted primarily from the conversion of $57.7 million in debentures into approximately 1.8 million common shares. Since December 31, 1996, the unrealized appreciation of debt and equity investments nominally increased by $6.2 million, net of tax, or $.52 per share. In January 1997, the Company made a private offering of $110,000,000 in 8.82% Subordinated Capital Income Securities due February 20, 2037 through Trenwick Capital Trust I, a Delaware statutory business trust. In connection with this offering, the Company called for redemption all $103,500,000 aggregate principal amount of the Company's 6% convertible debentures due December 15, 1999, on February 20, 1997, at a redemption price of 102.57% principal amount plus accrued interest to the redemption date. Of the $103,500,000 principal amount of debentures outstanding on that date, $45,819,000 principal amount were redeemed and $57,681,000 principal amount were converted into an aggregate of 1,783,926 shares of the Company's common stock, par value $.10 per share. The remaining net proceeds from the offering of the Capital Securities will be used for general corporate purposes, which may include investments in and advances to subsidiaries, the financing of growth and expansion, stock repurchases, the financing of possible future acquisitions and other corporate purposes. Statutory surplus of Trenwick America Re was $309.6 million as of September 30, 1997, compared to $286.3 million as of December 31, 1996. Cash flow from operations of $38.1 million for the nine months ended September 30, 1997 decreased approximately 44% compared to cash flow from operations of $68.6 million for the nine months ended September 30, 1996. Cash provided by financing activities in the nine months ended September 30, 1997 increased to $53.6 million compared to cash used for financing activities of $3.6 million for the nine months ended September 30, 1996. This increase primarily resulted from funds received from the aforementioned private offering partially offset by the debt redemption. Trenwick declared a third quarter dividend of $.24 per share in 1997 and also paid approximately $.01 per share in connection with the previously mentioned redemption of rights issued under the 1989 Stockholder Rights Plan, compared to $.21 in the third quarter of 1996. 15 16 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds In the third quarter, Trenwick adopted a new Stockholder Rights Plan replacing the plan adopted in 1989, and redeemed the rights issued under the prior plan. Holders of record of the Company's common stock, $0.10 par value, at the close of business on September 24, 1997, received $0.01 for each redeemed right (equivalent to $0.00667 per share) and received one new Right for each share of common stock held. The Rights are exercisable only if a person or group acquires beneficial ownership of 15% or more of the Company's common stock or commences a tender or exchange offer upon consummation of which such person or group would beneficially own 15% or more of the Company's common stock. Each Right entitles a stockholder to buy 1/200 of a share of the Company's Series B Junior Participating Preferred Stock at an exercise price of $125.00, subject to adjustment. Trenwick has reserved 200,000 shares of such preferred stock for possible issuance under the Plan. In the event that an acquiror accumulates 15% or more of Trenwick's common stock, all Rights holders except the acquiror may purchase, for the exercise price, in lieu of the Series B Junior Participating Preferred Stock, shares of common stock of Trenwick having a market value of twice the exercise price of each Right. If Trenwick is acquired in a merger or other business combination after the acquisition of 15% of Trenwick's common stock, all Rights holders except the acquiror may purchase the acquiror's shares at a similar discount. Trenwick is entitled to redeem the Rights at $0.01 per Right, subject to certain restrictions. The Rights will expire on September 23, 2007. Item 6. Exhibits and Reports on Form 8-K a) Exhibits 3.1 (a) Certificate of Elimination amending Trenwick's Restated Certificate of Incorporation to eliminate all reference to Series A Junior Participating Preferred Stock. (b) Certificate of Designation amending the Restated Certificate of Incorporation of Trenwick Group Inc. to create Series B Junior Participating Preferred Stock. 4.0 Rights Agreement dated as of September 24, 1997, between Trenwick Group Inc. and First Chicago Trust Company of New York, including, as Exhibit A thereto, a form of Rights Certificate. Incorporated by reference to Exhibit 1 to Trenwick's Form 8-A filed September 24, 1997, File No. 0-14737. 11.0 Computation of Earnings Per Share 27.0 Financial Data Schedule 16 17 b) Reports on Form 8-K The following report on Form 8-K was filed during the quarter ended September 30, 1997: Date of Report Item Reported September 24, 1997 Redemption of Rights under 1989 Rights Plan and issuance of Rights under new Rights Plan 17 18 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: November 14, 1997 JAMES F. BILLETT, JR. ----------------- ----------------------------- James F. Billett, Jr. Chairman, President and Chief Executive Officer Date: November 14, 1997 ALAN L. HUNTE ----------------- ----------------------------- Alan L. Hunte Vice President, Chief Financial Officer and Treasurer 18 EX-3.1 2 EXHIBIT 3.1 1 CERTIFICATE OF ELIMINATION OF TRENWICK GROUP INC. Trenwick Group Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: FIRST: That at a meeting of the Board of Directors of the Corporation, a resolution was duly adopted setting forth the proposed elimination of the Corporation's Series A Junior Participating Preferred Stock as set forth herein: RESOLVED, that the proper officers of the Corporation be, and each of them hereby is, authorized, empowered and directed, in the name and on behalf of the Corporation, to execute a Certificate of Elimination with respect to the Corporation's Series A Junior Participating Preferred Stock (the "Certificate of Elimination") on or after September 25, 1997, in such form as the officer executing the same shall determine to be necessary, advisable or appropriate, such determination to be conclusively established by the execution thereof, and to file the executed Certificate of Elimination with the Secretary of State of the State of Delaware. SECOND: None of the authorized shares of the Corporation's Series A Junior Participating Preferred Stock are outstanding and none will be issued. THIRD: In accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, the Certificate of Incorporation of the Corporation is hereby amended to eliminate all reference to the Corporation's Series A Junior Participating Preferred Stock. 2 IN WITNESS WHEREOF, Trenwick Group Inc. has caused this Certificate to be signed by James F. Billett, Jr., its Chairman, President & Chief Executive Officer, on this 24th day of September, 1997. TRENWICK GROUP INC. By: /s/ James F. Billett, Jr. ------------------------------ Name: James F. Billett, Jr. Title: Chairman, President & Chief Executive Officer - 2 - 3 CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES B JUNIOR PARTICIPATING PREFERRED STOCK OF TRENWICK GROUP, INC. $.10 PAR VALUE PER SHARE Pursuant to Section 151 of the General Corporation Law of the State of Delaware We, James F. Billett, Jr., Chairman of the Board, and Jane T. Wiznitzer, Corporate Secretary, of Trenwick Group Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware, in accordance with the provisions of Section 103 thereof, DO HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors by the Restated Certificate of Incorporation of the said Corporation, the said Board of Directors on July 30, 1997, adopted the following resolution creating a series of 200,000 shares of Preferred Stock designated as Series B Junior Participating Preferred Stock: RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of its Restated Certificate of Incorporation, a series of Preferred Stock of the Corporation be and it hereby is created, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof are as follows: Section 1. Designation and Amount. The shares of such series shall be designated as "Series B Junior Participating Preferred Stock" and the number of shares constituting such series shall be 200,000. Section 2. Dividends and Distributions. (A) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series B Junior Participating Preferred Stock with respect to dividends, the holders of shares of Series B Junior Participating Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors 4 out of funds legally available for the purpose, quarterly dividends payable in cash on the first business day of January, April, July and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series B Junior Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set forth, 200 times the aggregate per share amount of all cash dividends, and 200 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, $.10 par value per share, of the Corporation (the "Common Stock") since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series B Junior Participating Preferred Stock. In the event the Corporation shall at any time after July 30, 1997 (the "Rights Declaration Date") (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series B Junior Participating Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) The Corporation shall declare a dividend or distribution on the Series B Junior Participating Preferred Stock as provided in paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series B Junior Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series B Junior Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series B Junior Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series B Junior Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series B Junior Participating Preferred Stock in an - 2 - 5 amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series B Junior Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than 30 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series B Junior Participating Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series B Junior Participating Preferred Stock shall entitle the holder thereof to 200 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series B Junior Participating Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (B) Except as otherwise provided herein or by law, the holders of shares of Series B Junior Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) (i) If at any time dividends on any Series B Junior Participating Preferred Stock shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a "default period") which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series B Junior Participating Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred Stock (including holders of the Series B Junior Participating Preferred Stock) with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect two (2) Directors. (ii) During any default period, such voting right of the holders of Series B Junior Participating Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(C) or at any annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that such voting right shall not be exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the - 3 - 6 holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) Directors or, if such right is exercised at an annual meeting, to elect two (2) Directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series B Junior Participating Preferred Stock. (iii) Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the President, a Vice-President or the Secretary of the Corporation. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this Paragraph (C)(iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to him at his last address as the same appears on the books of the Corporation. Such meeting shall be called for a time not earlier than 20 days and later than 60 days after such order or request or in default of the calling of such meeting within 60 days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than ten percent (10)% of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this Paragraph (C)(iii), no such special meeting shall be called during the period within 60 days immediately preceding the date fixed for the next annual meeting of the stockholders. (iv) In any default period, the holders of Common Stock, and other classes of stock of the Corporation if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of Preferred Stock shall have exercised their right to elect two (2) Directors voting as a class, after the exercise of which right (x) the Directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in Paragraph (C)(ii) of this Section 3) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class of stock which elected the Director whose office shall have become vacant. References in this Paragraph (C) to Directors elected by the holders of a particular class of stock shall include Directors elected by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence. - 4 - 7 (v) Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock as a class to elect Directors shall cease, (y) the term of any Directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of Directors shall be such number as may be provided for in the certificate of incorporation or by-laws irrespective of any increase made pursuant to the provisions of Paragraph (C)(ii) of this Section 3 (such number being subject, however, to change thereafter in any manner provided by law or in the certificate of incorporation or by-laws). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors. (D) Except as set forth herein, holders of Series B Junior Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. (A) Whenever quarterly dividends or other dividends or distributions payable on the Series B Junior Participating Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series B Junior Participating Preferred Stock outstanding shall have been paid in full, the Corporation shall not (i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Junior Participating Preferred Stock; (ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Junior Participating Preferred Stock, except dividends paid ratably on the Series B Junior Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series B Junior Participating Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series B Junior Participating Preferred Stock; - 5 - 8 (iv) purchase or otherwise acquire for consideration any shares of Series B Junior Participating Preferred Stock, or any shares of stock ranking on a parity with the Series B Junior Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series B Junior Participating Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein. Section 6. Liquidation, Dissolution or Winding Up. (A) Subject to the prior and superior rights of holders of any shares of any series of Preferred Stock ranking prior and superior to the shares of Series B Junior Participating Preferred Stock with respect to liquidation, dissolution or winding up rights, upon any liquidation (voluntary or otherwise), dissolution or winding up of the Corporation, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series B Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Series B Junior Participating Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the "Series B Liquidation Preference"). Following the payment of the full amount of the Series B Liquidation Preference, no additional distributions shall be made to the holders of shares of Series B Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the "Common Adjustment") equal to the quotient obtained by dividing (i) the Series B Liquidation Preference by (ii) 200 (as appropriately adjusted as set forth in sub paragraph (C) below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the "Adjustment Number"). Following the payment of the full amount of the Series B Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series B Junior Participating Preferred Stock and Common Stock, respectively, holders of Series B Junior Participating Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the ratio of the Adjustment Number to 1 with respect to such Preferred Stock and Common Stock, on a per share - 6 - 9 basis, respectively. (B) In the event, however, that there are not sufficient assets available to permit payment in full of the Series B Liquidation Preference and the liquidation preferences of all other series of preferred stock, if any, which rank on a parity with the Series B Junior Participating Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Common Adjustment, then such remaining assets shall be distributed ratably to the holders of Common Stock. (C) In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 7. Consolidation, Merger, etc. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series B Junior Participating Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 200 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series B Junior Participating Preferred Stock shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series B Junior Participating Preferred Stock shall not be redeemable. Section 9. Ranking. The Series B Junior Participating Preferred Stock shall rank junior to all other series of the Corporation's Preferred Stock as to the payment of dividends and the distribution of assets, unless the terms of any such series shall provide otherwise. - 7 - 10 Section 10. Amendment. The Restated Certificate of Incorporation of the Corporation shall not be further amended in any manner which would materially alter or change the powers, preferences or special rights of the Series B Junior Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding shares of Series B Junior Participating Preferred Stock, voting separately as a class. Section 11. Fractional Shares. Series B Junior Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holders fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series B Junior Participating Preferred Stock. IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this 24th day of September, 1997. /s/ James F. Billett, Jr. ---------------------------------------- James F. Billett, Jr. Chairman of the Board, President and Chief Executive Officer Attest: /s/ Jane T. Wiznitzer - ------------------------------ Jane T. Wiznitzer Corporate Secretary - 8 - EX-11 3 EXHIBIT 11 1 TRENWICK GROUP INC. Exhibit 11.0 -- COMPUTATION OF EARNINGS PER SHARE (in thousands, except per share amounts)
Income Before Extraordinary Item Net Income -------------------------------- ---------- Three Months Ended Three Months Ended September 30, September 30, --------------------- --------------------- 1997 1996 1997 1996 ------- ------- ------- ------- INCOME AVAILABLE TO COMMON STOCKHOLDERS: Income before extraordinary item/net income (primary) $ 8,773 $ 8,520 $ 8,773 $ 8,520 Add interest on convertible debentures converted February 20, 1997 into common stock, net of applicable taxes -- 590 -- 590 ------- ------- ------- ------- Income available (supplemental) 8,773 9,110 8,773 9,110 Add interest on convertible debentures redeemed when dilutive -- 468 -- 468 ------- ------- ------- ------- Income available (fully diluted) $ 8,773 $ 9,578 $ 8,773 $ 9,578 ======= ======= ======= ======= WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Average common shares outstanding 11,945 10,058 11,945 10,058 Equivalent shares associated with employee stock options 251 233 251 233 ------- ------- ------- ------- Weighted average common and common equivalent shares (primary) 12,196 10,291 12,196 10,291 Additional shares associated with convertible debentures converted February 20, 1997 -- 1,784 -- 1,784 ------- ------- ------- ------- Weighted average common and common equivalent shares (supplemental) 12,196 12,075 12,196 12,075 Additional shares associated with convertible debentures redeemed when dilutive -- 1,417 -- 1,417 Weighted average common and common equivalent shares (fully diluted) 12,196 13,492 12,196 13,492 ======= ======= ======= ======= PER SHARE AMOUNTS: Primary $ .72 $ .83 $ .72 $ .83 ======= ======= ======= ======= Supplemental $ .72 $ .75 $ .72 $ .75 ======= ======= ======= ======= Fully diluted $ .72 $ .71 $ .72 $ .71 ======= ======= ======= =======
2 TRENWICK GROUP INC. Exhibit 11.0 -- COMPUTATION OF EARNINGS PER SHARE (in thousands, except per share amounts)
Income Before Extraordinary Item Net Income -------------------------------- ---------- Nine Months Ended Nine Months Ended September 30, September 30, --------------------- --------------------- 1997 1996 1997 1996 ------- ------- ------- ------- INCOME AVAILABLE TO COMMON STOCKHOLDERS: Income before extraordinary item/net income (primary) $27,167 $25,029 $26,130 $25,029 Add interest on convertible debentures converted February 20, 1997 into common stock, net of applicable taxes 322 1,767 322 1,767 ------- ------- ------- ------- Income available (supplemental) 27,489 26,796 26,452 26,796 Add interest on convertible debentures redeemed when dilutive 256 1,403 -- 1,403 ------- ------- ------- ------- Income available (fully diluted) $27,745 $28,199 $26,452 $28,199 ======= ======= ======= ======= WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Average common shares outstanding 11,594 9,987 11,594 9,987 Equivalent shares associated with employee stock options 207 261 207 261 ------- ------- ------- ------- Weighted average common and common equivalent shares (primary) 11,801 10,248 11,801 10,248 Additional shares associated with convertible debentures converted February 20, 1997 333 1,784 333 1,784 ------- ------- ------- ------- Weighted average common and common equivalent shares (supplemental) 12,134 12,032 12,134 12,032 Additional shares associated with convertible debentures redeemed when dilutive 265 1,417 -- 1,417 Additional equivalent shares associated with employee stock options 61 8 61 8 Weighted average common and common ------- ------- ------- ------- equivalent shares (fully diluted) 12,460 13,457 12,195 13,457 ======= ======= ======= ======= PER SHARE AMOUNTS: Primary $2,30 $ 2.44 $ 2.21 $ 2.44 ======= ======= ======= ======= Supplemental $ 2.27 $ 2.23 $ 2.18 $ 2.23 ======= ======= ======= ======= Fully diluted $ 2.23 $ 2.10 $ 2.17 $ 2.10 ======= ======= ======= =======
EX-27 4 EXHIBIT 27
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS CONTAINED IN FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 FOR TRENWICK GROUP INC. 1,000 U.S. DOLLARS 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 1 802,756 0 0 38,675 0 0 841,431 13,863 87,048 23,791 1,067,871 507,349 89,384 0 0 0 110,000 0 1,195 347,636 1,067,871 144,742 36,030 1,916 10 83,812 45,060 18,731 35,095 7,928 27,167 0 1,037 0 26,130 2.21 2.17 0 0 0 0 0 0 0
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