SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the quarterly period ended September 30,
2000.
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 for the transition
period from to
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Commission file number 0-31967
TRENWICK AMERICA CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware 06-1087672
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Canterbury Green
Stamford, Connecticut 06901
(Address of principal executive offices) (zip code)
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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 No X
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Shares Outstanding
Description of Class as of November 28, 2000
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Common Stock - $1.00 par value 100
The registrant meets the conditions set forth in General Instruction H(1)(a) and
(b) of Form 10-Q and is therefore filing this Form 10-Q in the reduced
disclosure format.
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Trenwick America Corporation
Index To Form 10-Q
PART I FINANCIAL INFORMATION
Page
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ITEM 1. Unaudited Consolidated Financial Statements
Consolidated Balance Sheet
September 30, 2000 and December 31, 1999................... 3
Consolidated Statement of Operations and
Comprehensive Income Three Months and Nine Months
Ended September 30, 2000 and 1999.......................... 4
Consolidated Statement of Changes in Common Stockholders'
Equity Nine Months Ended September 30, 2000 and 1999....... 5
Consolidated Statement of Cash Flows
Nine Months Ended September 30, 2000 and 1999.............. 6
Notes to Consolidated Financial Statements................. 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................18
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K...........................25
Signatures..................................................................27
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PART I FINANCIAL INFORMATION
Item 1 - Financial Statements
<TABLE>
<CAPTION>
Trenwick America Corporation
Consolidated Balance Sheet
(Expressed in thousands of United States dollars)
Unaudited
September 30, December 31,
2000 1999
---------------- ------------------
<S> <C> <C>
Assets:
Debt securities available for sale at fair value
(amortized cost: $1,010,864 and $1,131,124) $1,010,864 $1,119,914
Equity securities available for sale, at fair value
(cost: $105,646 and $110,372) 105,646 113,409
----------- -----------
Total investments 1,116,510 1,233,323
Cash and cash equivalents 83,771 97,856
Accrued investment income 15,205 17,853
Premiums in the course of collection 186,555 128,615
Reinsurance recoverable balances, net 468,479 391,554
Prepaid reinsurance premiums 68,633 50,396
Deferred policy acquisition costs 36,891 37,971
Net deferred income taxes 79,700 71,234
Current income taxes receivable 1,261 33,367
Deposits 21,222 20,227
Due from affiliates 61,568 60,095
Goodwill 31,774 -
Other assets 52,729 35,054
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Total assets $2,224,298 $2,177,545
=========== ===========
Liabilities:
Unpaid claims and claims expenses $1,364,653 $1,344,168
Unearned premium income 185,004 174,042
Indebtedness 263,593 244,031
Due to affiliates 28,681 57,336
Other liabilities 91,624 33,486
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Total liabilities 1,933,555 1,853,063
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Minority interest:
Company-obligated mandatorily redeemable preferred
capital securities of subsidiary trust holding solely junior
subordinated debentures of Trenwick America Corporation 86,900 110,000
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Common stockholder's equity:
Common stock, $1.00 par value; 1,000 shares authorized and 100
shares issued and outstanding - -
Additional paid in capital 116,441 98,129
Retained earnings 87,402 123,101
Accumulated other comprehensive income (loss) - (6,748)
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Total common stockholder's equity 203,843 214,482
----------- -----------
Total liabilities, minority interest and common
stockholder's equity $2,224,298 $ 2,177,545
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
3
<PAGE>
<TABLE>
<CAPTION>
Trenwick America Corporation
Consolidated Statement of Operations and
Comprehensive Income
(Expressed in thousands of United States dollars)
Unaudited
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- --------------------------
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Revenues:
Net premiums earned $109,201 $36,780 $212,304 $117,301
Net investment income 15,315 6,696 51,850 23,680
Equity in net earnings of investees 395 - 1,729 -
Net realized investment gains (losses) 6,930 (409) 6,575 2,178
Other income (loss) (111) 26 (340) 254
---------- ---------- ---------- ----------
Total revenues 131,730 43,093 272,118 143,413
---------- ---------- ---------- ----------
Expenses:
Claims and claims expenses incurred 115,292 50,553 193,363 98,721
Policy acquisition costs 39,265 14,396 67,574 38,801
Underwriting expenses 4,244 4,670 14,606 10,726
General and administrative expenses 8,789 1,667 14,193 3,829
Interest expense 5,800 1,256 16,758 3,833
Minority interest in subsidiary trust 2,426 2,426 7,277 7,277
---------- ---------- ---------- ----------
Total expenses 175,816 74,968 313,771 163,187
---------- ---------- ---------- ----------
Loss before income taxes
and extraordinary item (44,086) (31,875) (41,653) (19,774)
Income taxes (12,485) (13,365) (16,279) (11,138)
---------- ---------- ---------- ----------
Loss before extraordinary item (31,601) (18,510) (25,374) (8,636)
Extraordinary loss on debt redemption,
net of $445 income tax benefit - - 825 -
---------- ---------- ---------- ----------
Net loss $(31,601) $(18,510) $(26,199) $(8,636)
========== ========== ========== ==========
Comprehensive loss:
Net loss $(31,601) $(18,510) $(26,199) $(8,636)
---------- ---------- ---------- ----------
Other comprehensive income (loss):
Unrealized investment gains (losses) 13,508 (4,826) 11,439 (18,844)
Less: reclassification adjustments for losses
(gains) included in net income (loss) (4,504) 266 (4,274) (1,416)
Foreign currency translation adjustment (871) - (3,106) -
---------- ---------- ---------- ----------
Total other comprehensive income (loss) 8,133 (4,560) 4,059 (20,260)
---------- ---------- ---------- ----------
Comprehensive loss $(23,468) $(23,070) $(22,140) $(28,896)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
<TABLE>
<CAPTION>
Trenwick America Corporation
Consolidated Statement of Changes in
Common Stockholder's Equity
(Expressed in thousands of United States dollars)
Unaudited
Nine Months Ended
September 30,
-----------------------------
2000 1999
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<S> <C> <C>
Common stockholder's equity, beginning of period $214,482 $208,332
Common stock, $1.00 par value per share, and
additional paid in capital:
Net capital contributions (withdrawals) from parent (15,790) 4,952
Adjustments related to September 27, 2000 purchase
business combination 34,102 -
Retained earnings:
Net loss (26,199) (8,636)
Dividends on common stock (9,500) (39,000)
Accumulated other comprehensive income:
Unrealized gain (loss) on securities available for sale 7,165 (20,260)
Foreign currency translation adjustment (3,106) -
Fair value adjustments related to purchase business combination 2,689 -
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Common stockholder's equity, end of period $203,843 $145,388
========== =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
<TABLE>
<CAPTION>
Trenwick America Corporation
Consolidated Statement of Cash Flows
(Expressed in thousands of United States dollars)
Unaudited
Nine Months Ended
September 30,
--------------------------
2000 1999
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<S> <C> <C>
Cash flows for operating activities:
Premiums collected $202,844 $127,103
Ceded premiums paid (78,394) (19,574)
Claims and claims expenses paid (270,072) (126,710)
Claims and claims expenses recovered 55,876 7,971
Underwriting expenses paid (21,664) (12,245)
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Cash used for underwriting activities (111,410) (23,455)
Net investment income received 58,465 34,409
Service and other income received, net of expenses 305 141
General and administrative expenses paid (14,193) (3,829)
Interest expense (24,781) (12,279)
Income taxes recovered 20,366 7,012
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Cash provided by (used for) operating activities (71,256) 1,999
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Cash flows for investing activities:
Purchases of debt securities (242,009) (97,748)
Sales of debt securities 286,415 83,266
Maturities of debt securities 75,727 50,164
Purchases of equity securities (33,859) (15,451)
Sales of equity securities 47,183 7,536
Additions to premises and equipment (1,011) (812)
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Cash provided by investing activities 132,446 26,955
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Cash flows for financing activities:
Capital contributions (withdrawals) from parent (93,354) 7,500
Issuance of long term debt 62,713 -
Redemption of long term debt (41,101) -
Loans from affiliates 5,967 -
Dividends paid (9,500) (39,000)
Other, net - (3,950)
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Cash used for financing activities (75,275) (35,450)
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Change in cash and cash equivalents (14,085) (6,496)
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Cash and cash equivalents, beginning of period 97,856 30,762
----------- ----------
Cash and cash equivalents, end of period $83,771 $24,266
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
Trenwick America Corporation
Notes to Unaudited Consolidated Financial Statements
1. Organization and Summary of Significant Accounting Policies
Organization
Trenwick America Corporation ("Trenwick America" or the "Company") is a
holding company located in Stamford, Connecticut. Its principal operating
subsidiaries, which underwrite specialty insurance and reinsurance, include
Trenwick America Reinsurance Corporation ("Trenwick America Re"), Chartwell
Insurance Company ("Chartwell Insurance"), The Insurance Corporation of New
York ("INSCORP") and Dakota Specialty Insurance Company ("Dakota").
Trenwick America is a subsidiary of Trenwick (Barbados) Ltd., and its
ultimate parent is Trenwick Group Ltd., which is a Bermuda holding company.
Prior to September 27, 2000, Trenwick America's parent was Trenwick Group
Inc., and its only operating subsidiary was Trenwick America Re.
On October 27, 1999, Trenwick Group Inc. became the ultimate parent of
Chartwell Insurance, INSCORP and Dakota through its acquisition of
Chartwell Re Corporation ("Chartwell"). Effective December 19, 1999,
Trenwick Group Inc. entered into an Agreement, Schemes of Arrangement and
Plan of Reorganization with Trenwick Group Ltd., LaSalle Re Holdings
Limited, and LaSalle Re Limited, which was amended and restated as of March
20, 2000 and amended as of June 28, 2000 (the "Business Combination
Agreement"). Under the terms of the Business Combination Agreement,
Trenwick Group Ltd., a newly formed company, acquired all of the assets and
liabilities of Trenwick Group Inc. and all of the issued and outstanding
common shares of LaSalle Re Holdings Limited and LaSalle Re Limited in
exchange for Trenwick Group Ltd. common shares (the "Business
Combination"). Trenwick Group Inc. then distributed the shares received
from Trenwick Group Ltd. to its shareholders in a liquidating distribution.
Substantially all of Trenwick Group Inc.'s assets and liabilities, were
transferred from Trenwick Group Inc. to Chartwell Re Holdings Corporation
immediately prior to the Business Combination. Chartwell Re Holdings
Corporation then sold for fair value to Trenwick Group Inc. most of its
United Kingdom and Bermuda subsidiaries. Immediately after the Business
Combination, Chartwell Re Holdings Corporation merged with and into
Trenwick America, with Trenwick America as the surviving corporation. As a
result of such merger, Trenwick America acquired Chartwell Insurance,
INSCORP and Dakota. The Business Combination and its related transactions
were completed on September 27, 2000.
Trenwick America Re, located in Stamford, Connecticut, reinsures property
and casualty risks primarily written by U.S. insurance companies. Trenwick
America Re underwrites treaty reinsurance. Trenwick America Re is domiciled
in Connecticut and is licensed, authorized or approved to write reinsurance
in all 50 states and the District of Columbia.
Chartwell Insurance, located in Stamford, Connecticut, underwrote treaty
reinsurance for casualty, property, marine and aviation risks prior to its
acquisition by Trenwick Group Inc. Chartwell Insurance will be used by the
Company to underwrite primary insurance in the future. Chartwell Insurance
is domiciled in Connecticut and is licensed, authorized or approved to
write insurance in 29 states and the District of Columbia.
7
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INSCORP, located in Jericho, New York, is a primary insurance company that
develops property and casualty insurance programs through specialty
production sources focusing on a specific line of business and geographic
region. INSCORP is domiciled in New York and is licensed, authorized or
approved to transact business in all 50 states, the District of Columbia
and Canada.
Dakota, located in Stamford, Connecticut, is an approved surplus lines
insurer. It is licensed, authorized or approved to write insurance on a
surplus lines basis in 34 states and the District of Columbia.
Basis of Presentation
As discussed in Note 2, the Business Combination has been treated as a
purchase business combination with LaSalle Re Holdings Limited being
treated as the acquiror for accounting purposes. Therefore, the assets and
liabilities of Trenwick America have been adjusted to reflect their fair
value, after consideration of the purchase price as of September 27, 2000.
In addition, a portion of the goodwill resulting from the Business
Combination has been pushed down to Trenwick America and is reflected in
the consolidated balance sheet as of September 30, 2000.
As a result of the reorganization described above, the United Kingdom and
Bermuda subsidiaries of Trenwick Group Inc. were sold to Trenwick Group
Ltd. and the remaining net liabilities of Trenwick Group Inc. (principally
long term debt) were assumed by Trenwick America. The interim consolidated
financial statements account for the reorganization at historical cost in a
manner similar to a pooling of interests business combination. Accordingly,
the accompanying financial statements of Trenwick America as of September
30, 2000 and December 31, 1999 and for the three and nine months ended
September 30, 2000 and 1999 have been restated to reflect the combined
operating results, cash flows, and financial position of the United States
operations of Trenwick Group Inc. (comprised of Trenwick America, Chartwell
Insurance, INSCORP, Dakota and the long term debt of Trenwick Group Inc.
assumed by Trenwick America) for all periods in which the companies were
under the common control of Trenwick Group Inc.
The interim consolidated financial statements have been prepared in
conformity with accounting principles generally accepted 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.
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<PAGE>
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 included in the Annual
Report on Form 10-K of Trenwick Group Inc. for the year ended December 31,
1999.
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.
Investments and Cash Equivalents
Trenwick America has classified all of its debt and equity securities as
"available for sale" and reported them at fair value with net unrealized
gains and losses included in other comprehensive income, net of related
deferred income taxes. The fair value of debt and equity securities is
estimated using quoted market prices or broker dealer quotes. Due to the
Business Combination, the fair value of debt and equity securities at
September 30, 2000 is the same as cost. Cash equivalents represent
investments with maturities at date of purchase of three months or less and
are carried at cost which approximates fair value.
Investments in companies in which the Company has the ability to exercise
significant influence over the operating and financial policies of the
investees are accounted for under the equity method. In addition, limited
partnerships in which the Company holds greater than 3% interest are
accounted for under the equity method.
Realized gains or losses on disposition of investments are determined on
the basis of the specific identification method. Investment income
consisting of dividends and interest, net of investment expenses, is
recognized in income when earned. The amortization of premiums and
accretion of discount for debt securities is computed utilizing the
interest method. The effective yield utilized in the interest method is
adjusted when sufficient information exists to estimate the probability and
timing of prepayments on mortgage-backed and asset-backed securities. The
net investment in the security is adjusted to the amount that would have
existed had the new effective yield been applied since the acquisition of
the security and that adjustment is included in net investment income.
Revenues
Insurance and reinsurance premiums are earned (net of reinsurance ceded) on
a pro-rata basis over the related contract period. Unearned premium income
represents the portion of premiums applicable to the unexpired portion of
premium coverage with renewal dates later than year-end. Such reserves are
computed by pro-rata methods for direct business and are established based
on reports received from ceding companies for reinsurance. Premiums on
contracts are accrued on an estimated basis throughout the term of such
contracts. These estimates may change in the near term. Retrospectively
rated and other experience rated reinsurance contracts are estimated and
accrued for based on the difference between total costs before and after
the experience under the contract (the with-and-without method). These
estimates of experience to date are based on statistical data with
subsequent adjustments recorded in the period in which they become known.
9
<PAGE>
Trenwick America previously recorded the interest on its funds held
liabilities as ceded premiums. Following the consummation of the Business
Combination and related reorganization described above, the Company adopted
Trenwick Group Ltd.'s policy of classifying the imputed interest as an
investment expense. Therefore, the imputed interest in the historical
financial statements has been reclassified from ceded premiums to
investment expense to conform with the new policy. This expense was
approximately $9,090,000 and $8,047,000, for the nine months ended
September 30, 2000 and 1999, respectively, and $3,389,000 and $3,850,000
for the three months ended September 30, 2000 and 1999, respectively.
Deposits
Reinsurance contracts that do not meet insurance accounting risk transfer
requirements are classified as deposits. These deposits are treated as
financing transactions and are credited or charged with interest income or
expense according to contract terms.
Policy Acquisition Costs
Policy acquisition costs are stated net of policy acquisition costs ceded
and primarily consist of commissions and brokerage expenses incurred at
policy or contract issue date. These costs vary with, and are primarily
related to, the acquisition of business and are deferred and amortized over
the period in which the related premiums are earned. Deferred policy
acquisition costs are reviewed periodically to determine that they do not
exceed recoverable amounts after allowing for anticipated investment
income.
Reserve for Unpaid Claims and Claims Expenses
Claims are recorded as incurred so as to match such costs with premiums
over the contract periods. The amount provided for unpaid claims consists
of any unpaid reported claims and estimates for incurred but not reported
claims, net of salvage and subrogation. The estimates for claims incurred
but not reported were developed based on the Company's historical claims
experience and an actuarial evaluation of expected claims experience.
Insurance liabilities are based on estimates and the ultimate liability may
vary from such estimates. Any adjustments to these estimates are reflected
in income when known.
During the first nine months of 2000 the Company changed its estimates of
unallocated loss adjustment expenses for Chartwell Insurance and INSCORP.
The impact of this change was an increase to pre-tax income of $4.5 million
($2.9 million after-tax).
Income Taxes
Income taxes are provided based on income reported in the financial
statements. Deferred income taxes are provided based on an asset and
liability approach which requires the recognition of deferred income tax
assets and liabilities for the expected future tax consequences of
temporary differences between the financial statement carrying amounts and
the tax bases of assets and liabilities.
Premises and Equipment
Premises and equipment, including leasehold improvements are included in
other assets in the accompanying consolidated balance sheet and are
recorded at cost and are amortized or depreciated using the straight-line
method over their useful lives.
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Foreign Exchange
The assets and liabilities of foreign operations whose functional currency
is other than the U.S. dollar are translated at the rate of exchange in
effect at the balance sheet date. Revenues and expenses of foreign
operations are translated at the average exchange rates during the year.
The effect of the translation adjustments for foreign operations, net of
applicable deferred income taxes, is recorded as a cumulative translation
adjustment in accumulated other comprehensive income within stockholders'
equity. Investments denominated in foreign currencies are translated into
the U.S dollar using the rate of exchange at the balance sheet date and
unrealized gains and losses on translation, net of applicable deferred
income taxes, are recorded to other comprehensive income. Foreign currency
transaction gains and losses are included in other income.
2. Acquisitions
The Business Combination has been treated as a purchase business
combination. For accounting purposes, the Business Combination resulted in
LaSalle Re Holdings Limited being treated as the acquirer. Therefore, the
assets and liabilities of Trenwick America have been adjusted to reflect
their fair value, after consideration of the purchase price, as of
September 27, 2000. In addition, a portion of the goodwill resulting from
the Business Combination has been pushed down to Trenwick America and is
reflected in the consolidated balance sheet. The purchase accounting
adjustments include approximately $31,774,000 related to recording of
goodwill from the Business Combination; and $15,015,000 related to
decreasing the carrying value of Trenwick America's mandatorily redeemable
preferred capital securities to their fair value, and other miscellaneous
fair value adjustments.
The merger of Chartwell Re Holdings Corporation with and into Trenwick
America and the consequent acquisition of Chartwell Insurance, INSCORP and
Dakota (collectively "Chartwell U.S.") by Trenwick America constituted a
tax-free reorganization and has been accounted for at historical cost in a
manner similar to a pooling of interests business combination. Accordingly,
the historical financial statements of Trenwick America as of December 31,
1999 and for the three and nine months ended September 30, 2000 have been
restated to reflect the combined operating results, cash flows and
financial position of Trenwick America and Chartwell U.S. for all periods
in which the companies were under the common control of Trenwick Group Inc.
All intercompany balances that existed between Trenwick America and
Chartwell Re Holdings Corporation prior to the Business Combination have
been eliminated.
The historical net premiums earned and net loss for Trenwick America,
Chartwell U.S. and the combined companies for the nine months ended
September 30, 2000 (reflected in the consolidated financial statements) and
1999 (pro forma) are presented below. The 1999 Chartwell U.S. and combined
amounts are not reflected in the consolidated financial statements because
Trenwick America and Chartwell U.S. did not come under common control until
October 27, 1999.
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<PAGE>
Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999
--------------------- ---------------------
(in thousands) (in thousands)
Net premiums earned:
Trenwick America $118,236 $117,301
Chartwell U.S. 94,068 122,877
--------------------- ---------------------
Combined $212,304 $240,178
===================== =====================
Net income (loss):
Trenwick America $(24,534) $ (8,636)
Chartwell U.S. (1,665) 5,047
--------------------- ---------------------
Combined $(26,199) $ (3,589)
===================== =====================
The above unaudited pro-forma financial information is not necessarily
indicative either of the results of operations that would have occurred had
this transaction been consummated at the beginning of the periods presented
or of future results of operations.
3. Long-Term Debt
Senior Notes
On March 27, 1998 Trenwick Group Inc. completed an offering of $75,000,000
aggregate principal amount of 6.70% Senior Notes due April 1, 2003 (the
"Senior Notes"). In conjunction with the Business Combination and related
reorganization described in Note 1, Trenwick America assumed the
obligations of Trenwick Group Inc. under the Senior Notes effective
September 27, 2000. Interest is payable semi-annually on April 1 and
October 1 of each year, which commenced on October 1, 1998. The Senior
Notes are not subject to redemption prior to maturity. They are unsecured
obligations and rank senior in right of payment to all existing and future
subordinated indebtedness of Trenwick America. Under the terms of the
Senior Notes, Trenwick America is not restricted from incurring
indebtedness, but is subject to limits on its ability to incur secured
indebtedness for borrowed money.
Mandatorily Redeemable Preferred Capital Securities
On January 28, 1997, Trenwick Group Inc. purchased all of the outstanding
common securities ("Common Securities") of Trenwick Capital Trust I, a
Delaware statutory business trust (the "Trust"), at par value of
$3,403,000. The Trust then issued $110,000,000 of 8.82% Subordinated
Capital Income Securities ("Capital Securities") through a private
placement. The Trust invested the proceeds from the Common Securities and
Capital Securities in 8.82% Junior Subordinated Deferrable Interest
Debentures ("Junior Subordinated Debentures") that were issued by Trenwick
Group Inc. and have an aggregate principal amount of $113,403,000. In
connection with the Business Combination and related reorganization
described in Note 1, Trenwick America acquired the Common Securities of the
Trust from Trenwick Group Inc. and assumed the obligations of Trenwick
Group Inc. under the Junior Subordinated Debentures.
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<PAGE>
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 America, 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 greater of 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 with respect to the Junior Subordinated
Debentures which is attributable to Trenwick America's failure to make
required payments or with respect to Trenwick America's guarantee, the
holders of the Capital Securities may institute a direct action against
Trenwick America. In accordance with their terms, the Capital Securities
were subsequently exchanged for fully registered Capital Securities, which
are not subject to restrictions on transfer.
Senior Credit Facilities
On September 27, 2000, Trenwick America and Trenwick Holdings Limited
("Trenwick Holdings") another subsidiary of Trenwick Group Ltd., entered
into an amended and restated $490,000,000 credit agreement with various
lending institutions, The Chase Manhattan Bank, as Administrative Agent,
First Union National Bank, as Syndication Agent, and Fleet National Bank,
as Documentation Agent (the "Credit Facility"). In conjunction with the
Business Combination, the Credit Facility was amended and restated to
provide for Trenwick America to be the primary obligor with respect to the
revolving credit facility and for Trenwick Holdings to be the primary
obligor with respect to the letter of credit facility. Trenwick America is
a guarantor of Trenwick Holdings' obligations under the Credit Facility and
Trenwick Group Ltd. is a guarantor of both Trenwick America and Trenwick
Holdings' obligations under the Credit Facility. LaSalle Re Holdings
Limited is a guarantor of Trenwick Group Ltd.'s obligations under the
Credit Facility.
The Credit Facility provides for a $260,000,000, 364 day revolving credit
facility with an option to pay any outstanding borrowings over the four
years following the expiration of the 364 day period. In addition, the
Credit Facility provides for a $230,000,000 five year, Lloyd's letter of
credit facility. The applicable interest rate on borrowings under the
Credit Facility is currently 1.3% above the London Interbank Offered Rate
or The Chase Manhattan Bank prime commercial lending rate. At the end of
the revolving period, all outstanding revolving loans will, at the option
of Trenwick America, convert to a four-year term loan facility, subject to
scheduled principal amortization over the four-year period in accordance
with the following schedule:
Repayment Date Percentage to be Repaid
-------------- -----------------------
June 30, 2002 10.0%
December 31, 2002 12.5%
June 30, 2003 12.5%
December 31, 2003 15.0%
June 30, 2004 15.0%
December 31, 2004 17.5%
September 27, 2005 17.5%
13
<PAGE>
In addition, Trenwick America is obligated under the Credit Facility to
repay a portion or all of the revolving credit facility or term loan
facility in the event of equity issuances, asset sales and debt issuances
by Trenwick Group Ltd. or its subsidiaries. As of September 30, 2000,
Trenwick America had $157,214,000 of revolving loans outstanding, the
proceeds of which were previously used to retire a prior syndicated debt
facility.
The letter of credit portion of the Credit Facility of $230,000,000 is
available in U.S. Dollars or Pounds Sterling and may only be issued for the
account of Lloyd's to support the syndicate participations of Trenwick
Holdings' subsidiaries. The unsecured letters of credit are in force for
five years. An interest rate margin, which is currently 1.3%, is charged on
an annual basis on the utilized portion of the facility, which is currently
$215,231,000. A commitment fee, which is currently .25%, is charged on the
unused portion of the letter of credit portion of the Credit Facility.
The Credit Facility contains general covenants and restrictions as well as
financial covenants relating to, among other things, minimum interest
coverage, debt to capital leverage, minimum earned surplus and tangible net
worth. As of September 30, 2000, the Company is in compliance with the
Credit Facility covenants.
Contingent Interest Notes
In conjunction with the 1999 acquisition of Chartwell Re Corporation
("Chartwell"), Trenwick America assumed all of the obligations under the
Contingent Interest Notes due June 30, 2006 (the "CI Notes"), which were
originally issued by Piedmont Management Company Inc. ("Piedmont"),
INSCORP's former parent, to its stockholders just prior to its acquisition
by Chartwell in 1995. In conjunction with the Business Combination,
Trenwick America assumed the obligation of Trenwick Group Inc. under the CI
Notes effective September 27, 2000.
The CI Notes were issued immediately prior to Chartwell's acquisition of
Piedmont to protect Chartwell against the possibility of adverse
development of INSCORP's reserves for losses and loss adjustment expenses
and long-tail casualty exposures. The CI Notes were issued in an aggregate
principal amount of $1,000,000, with principal accruing interest at a rate
of 8% per annum, compounded annually. Such interest will not be payable
until maturity or earlier redemption of the CI Notes. In addition, the CI
Notes entitle the holders thereof to receive at maturity, in proportion to
the principal amount of the CI Notes held by them, an aggregate of from
$10,000,000 up to $55,000,000 in contingent interest. Settlement of the CI
Notes may be made by payment of cash or, under certain specified
conditions, by delivery of shares of the Company's common stock. The CI
Notes mature on June 30, 2006.
At September 30, 2000, the CI Notes are recorded at the present value of
the amount which is reasonably determined to be payable at maturity. The
Company believes that INSCORP's reserves for loss and loss adjustment
expenses as of September 30, 2000 are an appropriate estimate of projected
ultimate losses and loss adjustment expenses to be paid and therefore, at
this time, the amount of contingent interest on the CI Notes presently
expected to be paid at maturity is $51,771,000. The CI Notes contain
covenants, which relate to the maintenance of certain records and
limitations on certain indebtedness. As of September 30, 2000 the Company
is in compliance with those covenants.
14
<PAGE>
Future Minimum Payments
Future minimum payments on long-term debt as of September 30, 2000,
assuming repayment in full of the revolving credit portion of the Credit
Facility at the end of its one year term, are as follows (in thousands):
2001............................ $157,214
2003............................ 75,000
2006............................ 51,771
----------
Total........................... $283,985
==========
Restrictions on Certain Payments within Trenwick America
Because Trenwick America's operations are conducted through its operating
subsidiaries, Trenwick America is dependent upon the ability of its
operating subsidiaries to transfer funds, principally in the form of cash
dividends, tax reimbursements and other statutorily permissible payments.
In addition to general legal restrictions on payments of dividends and
other distributions to shareholders applicable to all corporations,
Trenwick America's insurance subsidiaries are subject to further
regulations that, among other things, restrict the amount of dividends and
other distributions that may be paid to their parent corporations.
Management believes that current levels of cash flow from operations and
assets held at the holding company level, together with receipt of
dividends from Trenwick America's operating subsidiaries, will provide
Trenwick America with sufficient liquidity to meet its operating needs in
the short term (over the next 12 months).
4. Commitments and Contingencies
INSCORP has a $2,802,000 letter of credit to support the participation in
Riverside Underwriters, plc. This standby letter of credit is in force for
five years, and provides capital to participate in certain Lloyd's
syndicates for the 1996 to 2000 underwriting years of account.
Limited Partnership Investment
Chartwell Insurance has committed to invest $15,000,000 in a private equity
fund, High Ridge Capital Limited Partnership, which makes investments in
the insurance industry. The Company contributed a total of $13,508,000 to
this fund as of September 30, 2000.
15
<PAGE>
Operating Lease Agreements
Trenwick America leases office space under non-cancelable operating leases
which expire at various dates through 2015. Trenwick America's future
minimum lease commitments as of September 30, 2000 are as follows:
2001................................. $1,480,510
2002................................. 1,482,150
2003................................. 1,549,091
2004................................. 1,597,200
2005................................. 1,562,154
2006 and thereafter.................. 3,950,232
Total office rent expense for the nine months ended September 30, 2000 and
1999 was $1,419,000 and $1,030,000, respectively.
Litigation
The Company is party to various legal proceedings arising in the normal
course of its business. The Company does not believe that the eventual
outcome of any such proceeding will have a material effect on its financial
condition or results of operations or cash flows. The Company's
subsidiaries are regularly engaged in the investigation and the defense of
claims arising out of the conduct of their business. Pursuant to the
Company's insurance and reinsurance arrangements, disputes are generally
required to be settled by arbitration.
5. Reinsurance
Trenwick America purchases reinsurance to reduce its exposure to
catastrophe losses and other large losses in all lines of business.
Trenwick America, 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):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 2000 September 30, 1999 September 30, 2000 September 30, 1999
------------------ ------------------ ------------------ ------------------
Written Earned Written Earned Written Earned Written Earned
------- ------ ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Direct 51,342 58,843 - - 143,324 165,899 - -
Assumed 83,586 78,779 54,745 56,918 246,659 125,256 170,165 161,602
Ceded (41,847) (28,421) (21,288) (20,138) (181,140) (78,851) (44,925) (44,301)
-------- -------- -------- -------- --------- -------- -------- --------
Net Premiums 93,081 109,201 33,457 36,780 208,843 212,304 125,240 117,301
======== ======== ======== ======== ========= ======== ======== ========
</TABLE>
The Company recorded ceded claims and claims expenses incurred of
$30,356,000 for the three months ended September 30, 2000 and $124,951,000
for the nine months ended September 30, 2000. The cessions made in the
first nine months of 2000 include $19,625,000 ceded to an adverse
development reinsurance cover purchased by Chartwell on behalf of its
shareholders as a precondition to and concurrent with its acquisition by
Trenwick Group Inc.
16
<PAGE>
6. Stockholder's Equity
Common Shares
Trenwick America has 1,000 shares of $1.00 par value common shares
authorized, 100 shares of which are outstanding. All of the outstanding
shares of Trenwick America are held by Trenwick (Barbados) Ltd.
Dividends declared and paid by Trenwick America during the nine months
ended September 30, 2000 were $9,500,000.
7. Segment Reporting
Trenwick America's reportable segments are based on the Company's method of
internal reporting, which segregates its business by type of product
offered. Trenwick America has two reportable business segments: (1)
Trenwick America Re and (2) Canterbury Financial Group Inc. 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 Insurance and its subsidiaries since its
acquisition on October 27, 1999. Canterbury Financial Group Inc.
underwrites specialty insurance in the United States through its
subsidiaries, Chartwell Insurance, INSCORP and Dakota.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- -------------------------
2000 1999 2000 1999
------------ ---------- ---------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Net premiums earned:
Trenwick America Re 97,165 36,780 179,496 117,301
Canterbury Financial Group 12,036 - 32,808 -
---------- ---------- ---------- ----------
109,201 36,780 212,304 117,301
Total revenues:
Trenwick America Re 115,885 43,093 229,379 143,413
Canterbury Financial Group 15,067 - 39,671 -
Unallocated 778 - 3,068 -
---------- ---------- ---------- ----------
131,730 43,093 272,118 143,413
Underwriting loss:
Trenwick America Re (47,152) (32,839) (59,858) (30,947)
Canterbury Financial Group (2,448) - (3,381) -
---------- ---------- ---------- ----------
(49,600) (32,839) (63,239) (30,947)
Loss before income taxes
and extraordinary item:
Trenwick America Re (28,841) (28,193) (10,196) (8,728)
Canterbury Financial Group 584 - 3,483 -
Unallocated - interest expense (6,955) (3,682) (20,867) (11,046)
Unallocated - other (8,874) - (14,073) -
---------- ---------- ---------- ----------
(44,086) (31,875) (41,653) (19,774)
</TABLE>
17
<PAGE>
Item 2 -
Management's Discussion and Analysis
of Financial Condition and
Results Of Operations
The following discussion highlights material factors affecting our results of
operations. This discussion should be read in conjunction with the consolidated
financial statements and notes included herein. The registrant meets the
conditions set forth in the General Instructions (H) (1) (a) and (b) of Form
10-Q and is therefore omitting certain information otherwise required by Item 2.
Overview
Trenwick America Corporation ("Trenwick America" or the "Company") is a holding
company located in Stamford, Connecticut. Its principal operating subsidiaries,
which underwrite specialty insurance and reinsurance, include Trenwick America
Reinsurance Corporation ("Trenwick America Re"), Chartwell Insurance Company
("Chartwell Insurance"), The Insurance Corporation of New York ("INSCORP") and
Dakota Specialty Insurance Company ("Dakota"). Trenwick America is a subsidiary
of Trenwick (Barbados) Ltd., and its ultimate parent is Trenwick Group Ltd.,
which is a Bermuda holding company. Prior to September 27, 2000, Trenwick
America's parent was Trenwick Group Inc., and its only operating subsidiary was
Trenwick America Re.
On October 27, 1999, Trenwick Group Inc. became the ultimate parent of Chartwell
Insurance, INSCORP and Dakota through its acquisition of Chartwell Re
Corporation. Effective December 19, 1999, Trenwick Group Inc. entered into an
Agreement, Schemes of Arrangement and Plan of Reorganization with Trenwick Group
Ltd., LaSalle Re Holdings Limited, and LaSalle Re Limited, which was amended and
restated as of March 20, 2000 and amended as of June 28, 2000 (the "Business
Combination Agreement"). Under the terms of the Business Combination Agreement,
Trenwick Group Ltd., a newly formed company, acquired all of the assets and
liabilities of Trenwick Group Inc. and all of the issued and outstanding common
shares of LaSalle Re Holdings Limited and LaSalle Re Limited in exchange for
Trenwick Group Ltd. common shares (the "Business Combination"). Trenwick Group
Inc. then distributed the shares received from Trenwick Group Ltd. to its
shareholders in a liquidating distribution. Substantially all of Trenwick Group
Inc.'s assets and liabilities, were transferred from Trenwick Group Inc. to
Chartwell Re Holdings Corporation immediately prior to the Business Combination.
Chartwell Re Holdings Corporation then sold for fair value to Trenwick Group
Inc. its United Kingdom and Bermuda subsidiaries. Immediately after the Business
Combination, Chartwell Re Holdings Corporation merged with and into Trenwick
America, with Trenwick America as the surviving corporation. As a result of such
merger, Trenwick America acquired Chartwell Insurance, INSCORP and Dakota. The
Business Combination and its related transactions were completed on September
27, 2000.
Trenwick America Re, located in Stamford, Connecticut, reinsures property and
casualty risks primarily written by U.S. insurance companies. Trenwick America
Re underwrites treaty reinsurance. Trenwick America Re is domiciled in
Connecticut and is licensed, authorized or approved to write reinsurance in all
50 states and the District of Columbia.
18
<PAGE>
Chartwell Insurance, located in Stamford, Connecticut, underwrote treaty
reinsurance for casualty, property, marine and aviation risks prior to its
acquisition by the Company. Chartwell Insurance will be used by the Company to
underwrite primary insurance in the future. Chartwell Insurance is domiciled in
Connecticut and is licensed, authorized or approved to write insurance in 29
states and the District of Columbia.
INSCORP, located in Jericho, New York, is a primary insurance company that
develops property and casualty insurance programs through specialty production
sources focusing on a specific line of business and geographic region. INSCORP
is domiciled in New York and is licensed, authorized or approved to transact
business in all 50 states, the District of Columbia and Canada.
Dakota, located in Stamford, Connecticut, is an approved surplus lines insurer.
It is licensed, authorized or approved to write insurance on a surplus lines
basis in 34 states and the District of Columbia.
All of Trenwick America'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
LaSalle Re Holdings Limited
On September 27, 2000 Trenwick Group Inc., LaSalle Re Holdings Limited, LaSalle
Re Limited and Trenwick Group Ltd. completed the Business Combination with
shareholders of Trenwick Group Inc., LaSalle Re Holdings Limited and LaSalle Re
Limited receiving shares in Trenwick Group Ltd. on a one-for-one basis. The
Business Combination was accounted for as a purchase of Trenwick Group Inc. and
the outstanding minority interest of LaSalle Re Limited by LaSalle Re Holdings
Limited. Therefore, the assets and liabilities of Trenwick America have been
adjusted to reflect their fair value, after consideration of the purchase price,
as of September 27, 2000. In addition, a portion of the goodwill resulting from
the Business Combination has been pushed down to Trenwick America and is
reflected in the consolidated balance sheet. The purchase accounting adjustments
include approximately $31,774,000 related to the recording of goodwill from the
Business Combination, $15,015,000 related to decreasing the carrying value of
Trenwick America's mandatorily redeemable preferred capital securities, and
other miscellaneous fair value adjustments.
The merger of Chartwell Re Holdings Corporation with and into Trenwick America
and the consequent acquisition of Chartwell Insurance, INSCORP and Dakota
(collectively "Chartwell U.S.") by Trenwick America constituted a tax-free
reorganization and has been accounted for at historical cost in a manner similar
to a pooling of interests business combination. Accordingly, the historical
financial statements of Trenwick America as of December 31, 1999 and for the
three and nine months ended September 30, 2000 have been restated to reflect the
combined operating results, cash flows and financial position of Trenwick
America and Chartwell U.S. for all periods in which the companies were under the
common control of Trenwick Group Inc. All intercompany balances that existed
between Trenwick America and Chartwell Re Holdings Corporation prior to the
Business Combination have been eliminated.
19
<PAGE>
Chartwell Re Corporation
On October 27, 1999, Trenwick Group Inc. became the ultimate parent of Chartwell
Insurance, INSCORP and Dakota through the merger of Chartwell Re Corporation
with and into Trenwick Group Inc. This acquisition was recorded using the
purchase method of accounting and, accordingly, the consolidated financial
statements of Trenwick America include the results of Chartwell U.S. from
October 27, 1999, the date of the acquisition. Consequently, the financial
results presented for 1999 are not directly comparable to the financial results
presented for 2000.
Results of Operations Nine Months Ended September 30, 2000 and 1999
Net Premiums Earned
Net premiums earned for the nine months ended September 30, 2000 were $212.3
million, compared to $117.3 million in 1999, an 81.0% increase. The increase was
due to the inclusion of the premiums generated by Chartwell U.S. for the nine
months ended September 30, 2000.
Net Investment Income
Trenwick America's net investment income was $51.9 million in the first nine
months of 2000 compared to $23.7 million in 1999. Pre-tax yields on Trenwick
America's invested assets, excluding equity securities, were 6.5% in the first
nine months of 2000 compared to 5.9% in the first nine months of 1999. These
increases were due to the inclusion of the results of Chartwell U.S. for the
nine months ended September 30, 2000.
Equity in Net Earnings of Investees and Other Income (Loss)
For the nine months ended September 30, 2000 and 1999, equity in earnings of
investees combined with other income (loss) was $1.4 million and $0.3 million,
respectively. The increase was due to the inclusion of the results of Chartwell
U.S. for the nine months ended September 30, 2000.
Net Realized Investment Gains (Losses)
Trenwick America realized net investment gains of $6.6 million for the nine
months ended September 30, 2000 compared to realized net investment gains of
$2.2 million for the same period in 1999. The increase was due to gains
recognized on the sale of equity securities during the third quarter of 2000.
Claims and Claims Expenses Incurred
Trenwick America's principal expense, claims and claims expenses incurred, was
$193.4 million for the nine months ended September 30, 2000, a 95.9% increase
compared to $98.7 million for the comparable period in 1999. The increase was
primarily due to the inclusion of the results of Chartwell U.S. for the nine
months ended September 30, 2000 as well as to approximately $17.0 million of
adverse development recorded during the nine months ended September 30, 2000.
Claims and claims expenses incurred expressed as a percentage of net earned
premiums (the claims and claims expense ratio) increased to 91.1% for the nine
months ended September 30, 2000 from 84.2% for the same period in 1999. This
increase is attributed to the adverse development recorded during the nine
months ended September 30, 2000 as noted above as well as to the effect of
Trenwick America Re's aggregate excess of loss reinsurance cessions in 1999 and
the absence of such ceded reinsurance for 2000.
20
<PAGE>
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 $67.6 million for the nine months ended September 30, 2000,
compared to $38.8 million for the same period in 1999. Policy acquisition costs
expressed as a percentage of net earned premiums (the acquisition ratio)
decreased to 31.8% in the first nine months of 2000 from 33.1% in the same
period in 1999. The increase in policy acquisition costs and the decrease in the
acquisition ratio are attributed to the inclusion of the primary insurance
business of Chartwell U.S. for the nine months ended September 30, 2000.
Underwriting Expenses
In the first three quarters of 2000, Trenwick America recorded underwriting
expenses of $14.6 million compared to $10.7 million in the same period in 1999.
Underwriting expenses increased due to the inclusion of the results of Chartwell
U.S. in the first three quarters of 2000. Trenwick America recorded an
underwriting loss, which is net earned premiums less claims and claims expenses
incurred, policy acquisition costs and underwriting expenses, of $63.2 million
in the nine months ended September 30, 2000 compared to an underwriting loss of
$30.9 million in the same period in 1999.
General and Administrative Expenses
General and administrative expenses, were $14.2 million for the nine months
ended September 30, 2000 compared to $3.8 million for the same period in 1999.
The increase was due to the inclusion of the results of Chartwell U.S. for the
nine months ended September 30, 2000, as well as non-recurring expenses related
to the continued integration of Chartwell U.S. into the Company.
Interest Expense
Trenwick America's interest expense was $16.8 million for the first three
quarters of 2000 compared to $3.8 million for the first three quarters of 1999.
The increase was due to additional borrowings under the Company's bank credit
facility during the nine months ended September 30, 2000.
Loss Before Income Taxes and Extraordinary Item
Trenwick America generated a net loss before income taxes and extraordinary
items of $41.7 million for the nine months ended September 30, 2000 compared to
a net loss of $19.8 million for the same period in 1999. The increase is
attributed to the reasons noted above.
21
<PAGE>
Income Taxes
The income tax benefit for the nine months ended September 30, 2000 was $16.3
million compared with an income tax benefit of $11.1 million for the same period
in 1999.
Extraordinary Item, Net of Income Tax
Trenwick America recognized a net after-tax extraordinary loss of $0.8 million
for the nine months ended September 30, 2000 for the redemption of debt.
Net Loss
For the reasons set forth above, Trenwick America generated a net loss of $26.2
million for the nine months ended September 30, 2000 compared with a net loss of
$8.6 million for the comparable 1999 period.
Safe Harbor Disclosure
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, Trenwick America sets forth below cautionary
statements identifying important risks and uncertainties that could cause its
actual results to differ materially from those that might be projected,
forecasted or estimated in its "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, made by or on behalf of Trenwick America in this Quarterly
Report on Form 10-Q and in press releases, written statements or documents filed
with the Securities and Exchange Commission, or in its communications and
discussions with investors and analysts in the normal course of business through
meetings, phone calls and conference calls. Such statements may include, but are
not limited to, projections of premium revenue, investment income, other
revenue, losses, expenses, earnings (including earnings per share), cash flows,
plans for future operations, common shareholders' equity (including book value
per share), investments, financing needs, capital plans, dividends, plans
relating to products or services of Trenwick America and estimates concerning
the effects of litigation or other disputes, as well as assumptions for any of
the foregoing and generally expressed with words such as "believes,"
"estimates," "expects," "anticipates," "plans," "projects," "forecasts,"
"goals," "could have," "may have," and similar expressions.
Forward-looking statements involve known and unknown risks and uncertainties,
which may cause Trenwick America's results to differ materially from such
forward-looking statements. These risks and uncertainties include, but are not
limited to, the following:
- Changes in the level of competition in the domestic and international
reinsurance or primary insurance markets that affect the volume or
profitability of Trenwick America'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;
22
<PAGE>
- Changes in the demand for reinsurance, including changes in ceding
companies' risk retentions and changes in the demand for excess and surplus
lines insurance coverages;
- The ability of Trenwick America to execute its strategies in its property/
casualty operations;
- Catastrophe losses in Trenwick America'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 America'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 America'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 America's retrocessionaires or reinsurers;
- Increases in interest rates, which may cause a reduction in the market
value of Trenwick America's fixed income portfolio, And its common
shareholders' equity;
- Decreases in interest rates which may cause a reduction of income earned on
new cash flow from operations and the reinvestment of the proceeds from
sales or maturities of existing investments;
- A decline in the value of Trenwick America's equity investments;
- Changes in the composition of Trenwick America's investment portfolio;
- Credit losses on Trenwick America's investment portfolio;
- Adverse results in litigation matters, including, but not limited to,
litigation related to environmental, asbestos and other potential mass tort
claims;
- The impact of mergers and acquisitions;
- Gains or losses related to changes in foreign currency exchange rates; and
- Changes in Trenwick America's capital needs.
23
<PAGE>
In addition to the factors outlined above that are directly related to Trenwick
America's businesses, Trenwick America 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 America does not intend to update any forward-looking statement or
the foregoing list of important factors. By this cautionary note Trenwick
America 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.
24
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Certificate of Incorporation of Trenwick America Corporation.
Incorporated by reference to Exhibit 3.1 to Trenwick America
Corporation's Current Report on Form 8-K filed on November 16, 2000
(File No. 0-31967).
3.2 By-laws of Trenwick America Corporation. Incorporated by reference
to Exhibit 3.2 to Trenwick America Corporation's Current Report on
Form 8-K filed on November 16, 2000 (File No. 0-31967).
4.1 (a) Indenture, dated as of January 31, 1997, between Trenwick
Group Inc. and The Chase Manhattan Bank, as Trustee, with
respect to the 8.82% Junior Subordinated Deferrable Interest
Debentures. Incorporated by reference to Exhibit 4.2(a) to
Trenwick Group Inc.'s Annual Report on Form 10-K for the year
ended December 31, 1996 (File No. 0-14737).
4.1 (b) Amended and Restated Declaration of Trust of Trenwick
Capital Trust I, dated as of January 31, 1997. Incorporated by
reference to Exhibit 4.2(b) to Trenwick Group Inc.'s Annual
Report on Form 10-K for the year ended December 31, 1996 (File
No. 0-14737).
4.1 (c) Exchange Capital Securities Guarantee Agreement dated as of
July 25, 1997, between Trenwick and The Chase Manhattan Bank,
as Trustee. Incorporated by reference to Exhibit 4.7 to
Trenwick Group Inc.'s Registration Statement on Form S-4
(File No. 333-28707).
4.2 First Supplemental Indenture, dated as of September 27, 2000, among
Trenwick Group Inc., Trenwick America Corporation and The Chase
Manhattan Bank, as Trustee, with respect to the 8.82% Junior
Subordinated Deferrable Interest Debentures. Incorporated by
reference to Exhibit 4.2 to Trenwick America Corporation's Current
Report on Form 8-K filed on November 16, 2000 (File No. 0-31967).
4.3 Indenture, dated as of March 27, 1998, between Trenwick Group Inc.
and The First National Bank of Chicago, as Trustee, with respect to
the 6.7% Senior Notes due April 1, 2003. Incorporated by reference to
Exhibit 4.2 to Trenwick Group Inc.'s Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998 (File No. 1-15389).
4.4 First Supplemental Indenture, dated as of September 27, 2000, among
Trenwick Group Inc., Trenwick America Corporation, and Bank One Trust
Company, N.A., as successor to First National Bank of Chicago, as
Trustee, with respect to the 6.7% Senior Notes due April 1, 2003.
Incorporated by reference to Exhibit 4.4 to Trenwick America
Corporation's Current Report on Form 8-K filed on November 16, 2000
(File No. 0-31967).
25
<PAGE>
4.5 Indenture, dated as of December 1, 1995, between Piedmont Management
Company Inc. and Fleet Bank, as Trustee, for the Contingent Interest
Notes due June 30, 2006. Incorporated by reference to Exhibit 4.5
to Chartwell Re Corporation's Registration Statement on Form S-1
(File No. 333-678).
4.6 First Supplemental Indenture, dated as of December 13, 1995, among
Piedmont Management Company, Chartwell Re Corporation and Fleet Bank,
as Trustee under the Contingent Interest Notes due June 30, 2006.
Incorporated by reference to Exhibit 4.6 to Chartwell Re
Corporation's Registration Statement on Form S-1 (File No. 333-678).
4.7 Second Supplemental Indenture, dated as of October 27, 1999, among
Chartwell Re Corporation, Trenwick Group Inc. and State Street Bank
and Trust Company, as successor to Fleet Bank, as Trustee, with
respect to the Contingent Interest Notes due June 30, 2006.
Incorporated by reference to Exhibit 4.7 to Trenwick America
Corporation's Current Report on Form 8-K filed on November 16, 2000
(File No. 0-31967).
4.8 Third Supplemental Indenture, dated as of September 27, 2000, among
Trenwick Group Inc., Trenwick America Corporation and State Street
Bank and Trust Company, as successor to Fleet Bank, as Trustee under
the Contingent Interest Notes due June 30, 2006. Incorporated by
reference to Exhibit 4.8 to Trenwick America Corporation's Current
Report on Form 8-K filed on November 16, 2000 (File No. 0-31967).
10.1 Credit Agreement, dated as of November 24, 1999 and Amended and
Restated as of September 27, 2000, among Trenwick America
Corporation, Trenwick Holdings Limited, various lending institutions,
First Union National Bank, as Syndication Agent, Fleet National Bank,
as Documentation Agent, and Chase Manhattan Bank, as Administrative
Agent. Incorporated by reference to Exhibit 10.1 to Trenwick Group
Ltd.'s Quarterly Report on Form 10-Q for the quarter ended September
30, 2000 (File No. 1-16089).
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
Trenwick America Corporation did not file any Reports on Form 8-K during the
quarter ended September 30, 2000.
26
<PAGE>
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: November 29, 2000 TRENWICK AMERICA CORPORATION
----------------- -----------------------------
(Registrant)
/s/ Stephen H. Binet
------------------------------------
Stephen H. Binet
President & Chief Executive Officer
/s/ Alan L. Hunte
------------------------------------
Alan L. Hunte
Executive Vice President and
Chief Financial Officer
27
