<PAGE> 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
<PAGE> 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
<PAGE> 3
TRENWICK GROUP INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---- ----
(dollars in thousands)
Assets
<S> <C> <C>
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
=========== ===========
</TABLE>
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
<PAGE> 4
TRENWICK GROUP INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
(in thousands except per share data)
Revenues:
<S> <C> <C> <C> <C>
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
======== ======== ======== ========
</TABLE>
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
<PAGE> 5
TRENWICK GROUP INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C>
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
========= ========= ========= =========
</TABLE>
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
<PAGE> 6
TRENWICK GROUP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------
1997 1996
---- ----
(in thousands)
<S> <C> <C>
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
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 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
<PAGE> 8
The weighted average shares of common stock outstanding and net income per
share amounts are as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic $ .74 $ .85 $ 2.26 $ 2.52
Diluted $ .72 $ .71 $ 2.19 $ 2.10
</TABLE>
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
<PAGE> 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):
<TABLE>
<CAPTION>
Premiums Written
------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
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
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Premiums Earned
------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
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
========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Claims and Claims Expenses Incurred
------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
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
========= ========= ========= =========
</TABLE>
9
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 13
The distribution of the Company's net premiums written by type was as follows
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------- ---------------------------------------------
1997 1996 % Change 1997 1996 % Change
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
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)%
========= ========= ========= ========= ========= =========
</TABLE>
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
<PAGE> 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:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
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%
------ ------ ------ ------
</TABLE>
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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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 -
<PAGE> 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
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 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 -
<PAGE> 1
TRENWICK GROUP INC.
Exhibit 11.0 -- COMPUTATION OF EARNINGS PER
SHARE (in thousands, except per share
amounts)
<TABLE>
<CAPTION>
Income Before Extraordinary Item Net Income
-------------------------------- ----------
Three Months Ended Three Months Ended
September 30, September 30,
--------------------- ---------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
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
======= ======= ======= =======
</TABLE>
<PAGE> 2
TRENWICK GROUP INC.
Exhibit 11.0 -- COMPUTATION OF EARNINGS PER SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Income Before Extraordinary Item Net Income
-------------------------------- ----------
Nine Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
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
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
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.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY>U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 802,756
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 38,675
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 841,431
<CASH> 13,863
<RECOVER-REINSURE> 87,048
<DEFERRED-ACQUISITION> 23,791
<TOTAL-ASSETS> 1,067,871
<POLICY-LOSSES> 507,349
<UNEARNED-PREMIUMS> 89,384
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
110,000
0
<COMMON> 1,195
<OTHER-SE> 347,636
<TOTAL-LIABILITY-AND-EQUITY> 1,067,871
144,742
<INVESTMENT-INCOME> 36,030
<INVESTMENT-GAINS> 1,916
<OTHER-INCOME> 10
<BENEFITS> 83,812
<UNDERWRITING-AMORTIZATION> 45,060
<UNDERWRITING-OTHER> 18,731
<INCOME-PRETAX> 35,095
<INCOME-TAX> 7,928
<INCOME-CONTINUING> 27,167
<DISCONTINUED> 0
<EXTRAORDINARY> 1,037
<CHANGES> 0
<NET-INCOME> 26,130
<EPS-PRIMARY> 2.21
<EPS-DILUTED> 2.17
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
