<PAGE> 1
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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 June 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.
<TABLE>
<CAPTION>
Class Outstanding at July 31, 1997
----- ----------------------------
<S> <C>
Common Stock, $.10 par value 11,937,182
</TABLE>
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<PAGE> 2
TRENWICK GROUP INC.
INDEX
<TABLE>
<CAPTION>
Page
PART I. Financial Information Number
<S> <C>
Consolidated Balance Sheet
June 30, 1997 and December 31, 1996 3
Consolidated Statement of Income
Three and Six Months Ended June 30, 1997 and 1996 4
Consolidated Statement of Changes in Stockholders' Equity
Three and Six Months Ended June 30, 1997 and 1996 5
Consolidated Statement of Cash Flows
Six Months Ended June 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 4. Submission of Matters to a Vote of Security Holders 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
</TABLE>
<PAGE> 3
TRENWICK GROUP INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
(dollars in thousands)
<S> <C> <C>
Assets
Securities available for sale at fair value:
Debt securities (amortized cost: $777,146 and $700,476) $ 790,075 $ 713,998
Equity securities (cost: $31,027 and $21,346) 36,463 25,959
Cash and cash equivalents 10,012 14,253
----------- ---------
Total investments and cash 836,550 754,210
Accrued investment income 10,970 10,386
Receivables from ceding insurers 79,981 62,689
Reinsurance recoverable balances, net 55,750 47,772
Deferred policy acquisition costs 23,836 21,805
Net deferred income taxes 19,530 20,231
Other assets 11,399 3,711
----------- ---------
Total assets $ 1,038,016 $ 920,804
=========== =========
Liabilities and Stockholders' Equity
Liabilities:
Unpaid claims and claims expenses $ 496,062 $ 467,177
Unearned premium income 83,374 71,448
Convertible debentures -- 103,500
Other liabilities 11,914 12,926
----------- ---------
Total liabilities 591,350 655,051
----------- ---------
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; 11,937,182 and 10,087,826 shares outstanding 1,194 1,009
Additional paid-in capital 153,434 94,423
Retained earnings 171,139 159,512
Net unrealized appreciation of securities available for
sale, net of income taxes 11,936 11,789
Deferred compensation under stock award plan (1,037) (980)
----------- ---------
Total common stockholders' equity 336,666 265,753
----------- ---------
Total liabilities and stockholders' equity $ 1,038,016 $ 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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
(in thousands except per share data)
<S> <C> <C> <C> <C>
Revenues:
Net premiums earned $47,105 $ 53,376 $101,019 $101,067
Net investment income 12,123 10,185 23,852 20,054
Net realized investment gains (losses) 1 (11) 1,916 39
Other income 10 -- 10 --
------- -------- -------- --------
Total revenues 59,239 63,550 126,797 121,160
------- -------- -------- --------
Expenses:
Claims and claims expenses incurred 27,486 32,775 58,290 61,974
Policy acquisition costs 14,580 14,716 31,957 26,958
Underwriting expenses 3,779 3,343 7,768 7,371
Interest expense -- 1,625 890 3,249
Minority interest in Trenwick
Capital Trust 2,426 -- 4,043 --
------- -------- -------- --------
Total expenses 48,271 52,459 102,948 99,552
------- -------- -------- --------
Income before income taxes and
extraordinary item 10,968 11,091 23,849 21,608
Income taxes 2,375 2,764 5,455 5,099
------- -------- -------- --------
Income before extraordinary item 8,593 8,327 18,394 16,509
Extraordinary loss on debt redemption,
net of $558 income tax benefit -- -- 1,037 --
------- -------- -------- --------
Net income $ 8,593 $ 8,327 $ 17,357 $ 16,509
======= ======== ======== ========
PRIMARY EARNINGS PER SHARE
Income before extraordinary item $ .71 $ .81 $ 1.59 $ 1.61
Extraordinary loss -- -- .09 --
------- -------- -------- --------
Net income $ .71 $ .81 $ 1.50 $ 1.61
======= ======== ======== ========
FULLY DILUTED EARNINGS PER SHARE
(assuming conversion of dilutive
convertible debentures)
Income before extraordinary item $ .71 $ .70 $ 1.51 $ 1.39
Extraordinary loss -- -- .06 --
------- -------- -------- --------
Net income $ .71 $ .70 $ 1.45 $ 1.39
======= ======== ======== ========
DIVIDENDS PER COMMON SHARE $ .24 $ .21 $ .48 $ .41
======= ======== ======== ========
</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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Common stockholders' equity, beginning of period $ 322,474 $ 239,338 $ 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
(750, 179,778, 60,750 and 191,778 shares) 20 3,438 776 3,596
Income tax benefits from additional
compensation deductions allowable
for income tax purposes 7 959 483 1,053
Restricted common stock awarded
(362, 9,782 and 9,654 shares) -- 13 328 333
Restricted common stock awards cancelled
(2,100 shares) -- (91) -- (91)
Common stock purchased and retired
(25,205, 5,091 and 30,431 shares) -- (843) (171) (1,023)
Retained earnings:
Net income 8,593 8,327 17,357 16,509
Cash dividends (2,865) (2,078) (5,730) (4,124)
Net unrealized appreciation of securities available for sale:
Change in unrealized appreciation 12,767 (5,861) 226 (17,828)
Change in applicable deferred income taxes (4,466) 2,052 (79) 6,240
Deferred compensation under stock award plan:
Restricted common stock awarded -- (13) (328) (333)
Restricted common stock awards cancelled -- 91 -- 91
Compensation expense recognized 136 136 271 269
--------- --------- --------- ---------
Common stockholders' equity, end of period $ 336,666 $ 245,468 $ 336,666 $ 245,468
========= ========= ========= =========
</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>
Six Months Ended
June 30,
1997 1996
---- ----
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Premiums collected $ 73,612 $ 79,066
Ceded premiums paid (4,328) (3,109)
Claims and claims expenses paid (55,859) (43,994)
Claims and claims expenses recovered 2,121 3,175
Underwriting expenses paid (8,230) (7,713)
--------- --------
Cash provided by underwriting activities 7,316 27,425
Net investment income received 24,509 20,573
Interest expense paid (496) (3,085)
Income taxes paid (recovered) (6,226) (4,881)
Other income received 10 --
--------- --------
Cash provided by operating activities 25,113 40,032
--------- --------
Cash flows for investing activities:
Purchases of debt securities (137,869) (72,910)
Sales of debt securities 33,980 7,936
Maturities of debt securities 26,002 26,207
Purchases of equity securities (12,390) (115)
Sales of equity securities 4,621 2,375
Additions to premises and equipment (78) (407)
--------- --------
Cash used for investing activities (85,734) (36,914)
--------- --------
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 (1,498) --
Issuance of common stock 776 3,596
Repurchase of common stock (171) (1,023)
Dividends paid (5,730) (4,124)
--------- --------
Cash provided (used) by financing activities 56,380 (1,551)
--------- --------
Change in cash and cash equivalents (4,241) 1,567
Cash and cash equivalents, beginning of period 14,253 6,760
--------- --------
Cash and cash equivalents, end of period $ 10,012 $ 8,327
========= ========
</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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
WEIGHTED AVERAGE SHARES OF
COMMON STOCK OUTSTANDING:
Primary 12,114 10,226 11,593 10,227
Supplemental 12,114 12,010 12,096 12,011
Fully diluted 12,114 13,443 12,186 13,430
PER SHARE AMOUNTS:
Primary $.71 $.81 $1.50 $1.61
==== ==== ===== =====
Supplemental $.71 $.74 $1.46 $1.47
==== ==== ===== =====
Fully diluted $.71 $.70 $1.45 $1.39
==== ==== ===== =====
</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 expected effect of the statement on net
income per share amounts is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic $.72 $.84 $1.53 $1.67
==== ==== ===== =====
Diluted $.71 $.70 $1.47 $1.39
==== ==== ===== =====
</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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Assumed $59,681 $65,503 $132,418 $129,534
Ceded (10,835) (5,232) (24,014) (10,380)
-------- --------- --------- ---------
Net $48,846 $60,271 $108,404 $119,154
======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Premiums Earned
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Assumed $56,266 $58,592 $120,491 $111,427
Ceded (9,161) (5,216) (19,472) (10,360)
------- ------- -------- --------
Net $47,105 $53,376 $101,019 $101,067
======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Claims and Claims Expenses Incurred
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Assumed $39,359 $39,579 $85,876 $ 75,927
Ceded (11,873) (6,804) (27,586) (13,953)
------- ------- ------- --------
Net $27,486 $32,775 $58,290 $ 61,974
======= ======= ======= ========
</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 six months ended June 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
six 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
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 stock split.
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 $8.6 million or $.71 per
share for the second quarter of 1997 compared to $8.3 million or $.70 per fully
diluted share for the second quarter of 1996. Per share earnings in the second
quarter of 1997 reflect weighted average shares of 12.1 million, which should be
compared to fully diluted weighted average shares of 13.4 million in the second
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 first half of 1997, Trenwick's income before extraordinary item was
$18.4 million or $1.59 per share compared to $16.5 million or $1.61 per share in
the first half of 1996. Net income per fully diluted share was $1.45 for the
first half of 1997 compared to $1.39 for the first half of 1996.
PREMIUMS
Trenwick's decision not to participate in the continuing downward spiral in
property/casualty reinsurance rates contributed to the 9% decline in gross
written premium and a 19% decline in net premiums written for the second quarter
of 1997 compared to the second 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 Six Months Ended
June 30, June 30,
1997 1996 % Change 1997 1996 % Change
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
CASUALTY
Treaty $36,784 $ 40,785 (10)% $ 71,034 $ 78,136 (9)%
Specialty 7,259 11,569 (37) 22,879 21,349 7
Facultative 730 1,592 (54) 2,037 2,946 (31)
------- -------- --- -------- --------- ---
44,773 53,946 (17) 95,950 102,431 (6)
PROPERTY 4,073 6,325 (36) 12,454 16,723 (26)
------- -------- --- -------- --------- ---
Total $48,846 $ 60,271 (19)% $108,404 $ 119,154 (9)%
======= ======== === ======== ========= ===
</TABLE>
Trenwick's premium writings declined in the second quarter of 1997 as a result
of a reduction in existing casualty treaty and specialty 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. Property business continued to decline primarily as a result of the
Company's conservative response to continued erosion in catastrophe reinsurance
pricing.
New casualty business increased 31% and 30% in the quarter and first half of
1997 over the same periods in 1996 and represented approximately 47% and 37% of
total premium writings during the periods. Continuing casualty business
decreased 28% and 5% in the quarter and for the first half of 1997 over the same
periods in 1996. Continuing casualty business represented 45% and 52% of the
total premium writings during the periods. The Company's property business
represented approximately 8% and 11% of total premium writings for the quarter
and first half of 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 Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Claims and claims expense ratio 58.4% 61.4% 57.7% 61.3%
------ ---- ---- ----
Expense ratio:
Policy acquisition expense ratio 30.9 27.6 31.6 26.7
Underwriting expense ratio 8.0 6.3 7.7 7.3
------ ---- ---- ----
Total expense ratio 38.9% 33.9% 39.3% 34.0%
------ ---- ---- ----
Combined ratio (GAAP basis) 97.3% 95.3% 97.0% 95.3%
------ ---- ---- ----
Trenwick America Re
statutory combined ratio 96.1% 95.3% 96.0% 94.6%
------ ---- ---- ----
</TABLE>
As indicated, Trenwick's claims and claims expense ratio improved in the second
quarter and first half of 1997 compared to the same periods in 1996. The claims
and claims expense ratio in the second quarter and first half of 1997 includes
prior period favorable development of approximately $900,000 and $2.9 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 $12.1 million in the second quarter of 1997 increased
19% compared to $10.2 million for the same period in 1996. Net investment income
of $23.9 million in the first half of 1997 increased 19% compared to $20.1
million in the first half of 1996. Pre-tax yields on invested assets, excluding
equity securities, averaged 6.4% and 6.5% in 1997 and 1996, respectively. 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 second quarter and first half of 1997 was
$9.3 million and $18.4 million compared to $7.9 million and $15.7 million for
the comparative periods in 1996. The effective tax rate on net investment income
for the first half of 1997 was approximately 22.9%, versus 22.0% for the same
period in 1996.
14
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, Trenwick's consolidated investments and cash totaled $836.6
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 $777.1
million and $700.5 million by $12.9 million and $13.5 million at June 30, 1997
and December 31, 1996, respectively. At June 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 $5.4 million and $4.6 million, respectively.
As of June 30, 1997, Trenwick's consolidated stockholders' equity totaled $336.7
million or $28.20 per share, as compared to $265.8 million or $26.34 per share
at December 31, 1996. This $70.9 million increase resulted primarily from the
conversion of $57.7 million in debentures into approximately 1.8 million shares.
Since December 31, 1996, the unrealized appreciation of debt and equity
investments nominally increased by $147,000, net of tax, or $.01 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 $304.5 million as of June 30, 1997,
compared to $286.3 million as of December 31, 1996. Cash flow from operations of
$25.1 million in the first half of 1997 decreased approximately 37% compared to
cash flow from operations of $40.0 million in the first half of 1996. In the
first half last year, the Company benefited from non-recurring premium
collections of approximately $7 million and below average paid loss activity.
Cash provided by financing activities in the first half of 1997 increased to
$56.4 million compared to cash used for financing activities of $1.6 million in
the first half of 1996. This increase primarily resulted from funds received
from the aforementioned private offering partially offset by the debt
redemption.
Trenwick declared a second quarter dividend of $.24 per share in 1997, a 14%
increase compared to $.21 in the second quarter of 1996.
15
<PAGE> 16
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
A total of 6,760,293 shares, or 85% of the 7,957,628 shares of common stock
outstanding on the March 27, 1997 record date, were represented at the Company's
Annual Meeting of Stockholders held on May 22, 1997. Voting results were as
follows:
On the proposal to elect three directors to serve in Class I until 2000, each of
Messrs. W. Marston Becker and James F. Billett, Jr. was elected by an
affirmative vote of 6,754,593 shares, with 5,700 shares withheld, and Mr. Joseph
D. Sargent was elected by an affirmative vote of 6,754,497 shares, with 5,796
shares withheld. The Proxy Committee voted its proxies for Mr. Becker in lieu of
nominee Alan R. Gruber, who died subsequent to his nomination. Messrs. Herbert
Palmberger, Frederick D. Watkins and Stephen R. Wilcox continue to serve in
Class II until 1998, and Messrs. Anthony S. Brown, Neil Dunn and P. Anthony
Jacobs continue to serve in Class III until 1999.
On the proposal to amend the Company's Restated Certificate of Incorporation to
increase the authorized shares of common stock from 15,000,000 to 30,000,000 and
to increase the authorized shares of preferred stock from 1,000,000 to
2,000,000, there were 6,460,764 shares voted in favor, 200,455 shares opposed
and 18,451 shares abstaining.
On the proposal to increase the aggregate number of shares authorized for
issuance under the 1993 Stock Option Plan by 500,000 shares, there were
6,002,834 shares voted in favor, 86,683 shares opposed and 570,626 shares
abstaining.
On the proposal to ratify the appointment of Price Waterhouse LLP as independent
accountants for the year ending December 31, 1997, there were 6,754,083 shares
voted in favor, 610 shares opposed and 5,600 shares abstaining.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
3(i) Certificate of Amendment of Restated Certificate of
Incorporation of Trenwick Group Inc. dated as of
May 13, 1986, June 2, 1987 and May 27, 1997.
11.0 Computation of Earnings Per Share
27.0 Financial Data Schedule
b) Reports on Form 8-K
None
16
<PAGE> 17
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: August 14, 1997 JAMES F. BILLETT, JR.
---------------- -----------------------------------
James F. Billett, Jr.
Chairman, President and
Chief Executive Officer
Date: August 14, 1997 ALAN L. HUNTE
--------------- -----------------------------------
Alan L. Hunte
Vice President, Chief Financial
Officer and Treasurer
17
<PAGE> 1
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
TRENWICK GROUP INC.
Trenwick Group Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
(a) The name of the corporation is Trenwick Group Inc. The date of its
original Certificate of Incorporation with the Secretary of State was October
29, 1985.
(b) This Certificate of Amendment of Restated Certificate of
Incorporation amends the Restated Certificate of Incorporation by amending the
first sentence of paragraph 4 thereof to increase the number of authorized
common shares and preferred shares.
(c) The text of the first sentence of paragraph 4 as amended is herein
set forth in full:
4. The aggregate number of shares which the corporation is
authorized to issue is 32,000,000 shares, to consist of 30,000,000
Common shares ("Common Stock") at a par value of $.10 each and
2,000,000 Preferred shares ("Preferred Stock") at a par value of $.10
each.
(d) This Certificate of Amendment of Restated Certificate of
Incorporation was duly adopted by vote of the directors and of the stockholders
in accordance with Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE> 2
IN WITNESS WHEREOF, said Trenwick Group Inc. has caused this certificate to be
signed by James F. Billett, Jr., its Chairman of the Board of Directors, and
attested by Jane T. Wiznitzer, its Secretary, this 27th day of May, 1997.
TRENWICK GROUP INC.
By /s/ James F. Billett, Jr.
-------------------------------
James F. Billett, Jr.
Chairman of the Board
ATTEST:
/s/ Jane T. Wiznitzer
- -----------------------------
Jane T. Wiznitzer
Secretary
<PAGE> 3
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
TRENWICK GROUP INC.
Trenwick Group Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
(a) The name of the corporation is Trenwick Group Inc. The date of its
original Certificate of Incorporation with the Secretary of State was October
29, 1985.
(b) This Certificate of Amendment of Restated Certificate of
Incorporation amends the Restated Certificate of Incorporation by adding a new
paragraph 12 regarding the elimination of director liability for monetary
damages for breaches of directors' fiduciary duty of care.
(c) The text of the new paragraph 12 is herein set forth in full:
12. A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, as the same exists or hereafter may be amended, or (iv) for any transaction
from which the director derived an improper personal benefit. If the Delaware
General Corporation Law hereafter is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the corporation, in addition to the limitation on
<PAGE> 4
personal liability provided herein, shall be limited to the fullest extent
permitted by the amended Delaware General Corporation Law. Any repeal or
modification of this paragraph by the stockholders of the corporation shall be
prospective only, and shall not adversely affect any limitation on the personal
liability of a director of the corporation existing at the time of such repeal
or modification.
(d) This Certificate of Amendment of Restated Certificate of
Incorporation was duly adopted by vote of the directors and of the stockholders
in accordance with Sections 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said Trenwick Group Inc. has caused this
certificate to be signed by James F. Billett, Jr., its Chairman of the Board of
Directors, and attested by Barbara R. Freed, its Secretary this 2nd day of June,
1987.
TRENWICK GROUP INC.
James F. Billett, Jr.
By /s/ James F. Billett, Jr.
-------------------------
ATTEST:
By /s/ Barbara R. Freed
- ----------------------------
Secretary
2
<PAGE> 5
RESTATED CERTIFICATE OF INCORPORATION
OF
TRENWICK GROUP INC.
Trenwick Group Inc., a corporation organized and existing
under the laws of the State of Delaware, hereby certifies as follows:
(a) The name of the corporation is Trenwick Group Inc. The date of
filing of its original Certificate of Incorporation with the Secretary of State
was October 29, 1985.
(b) This Restated Certificate of Incorporation restates and integrates
and further amends the Certificate of Incorporation of this corporation by
deleting the previous paragraphs 4, 5, 6, 7, 8 and 10, adding a new paragraph 4
amending the authorized capital of the corporation, renumbering previous
paragraph 9 as paragraph 5, adding a new paragraph 6 regarding the
classification and removal of directors, adding a new paragraph 7 regarding the
procedure for nomination and election of directors, adding a new paragraph 8
regarding stockholder and director actions in the event of certain business
transactions, adding a new paragraph 9 regarding amendments of new paragraphs 6
and 7, and renumbering previous paragraphs 11 and 12 as paragraphs 10 and 11,
respectively, with amendments for consistency.
<PAGE> 6
(c) The text of the Certificate of Incorporation as amended or
supplemented heretofore is further amended hereby to read as herein set forth in
full:
"1. The name of the corporation is Trenwick Group Inc.
2. The address of its registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of its registered agent
at such address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of
Delaware.
4. The aggregate number of shares which the corporation is
authorized to issue is 16,000,000 shares, to consist of 15,000,000
Common shares ("Common Stock") at a par value of $.10 each and
1,000,000 Preferred shares ("Preferred Stock") at a par value of $.10
each.
The designations, relative rights, preferences and
limitations of the shares of each class are as follows:
(a) Common Stock
(1) Each holder of Common Stock is entitled to one vote for
each share of Common Stock on all matters to be voted on and is not
entitled to cumulative voting for the election of directors.
(2) Subject to provisions of law and the rights of the
Preferred Stock and any one or more series thereof having a preference
as to dividends over the Common Stock then outstanding, dividends may
be paid on the Common Stock at such times and in such amounts as the
board of directors shall determine.
(3) Upon the liquidation, dissolution or winding up of the
corporation, after any preferential amounts to be distributed to the
holders of the Preferred Stock and any one or more series thereof
having a preference over the Common Stock then outstanding have been
paid or declared and set apart for payment, the holders of the Common
Stock shall be entitled to receive all the remaining assets of
- 2 -
<PAGE> 7
the corporation available for distribution to its stockholders ratably
in proportion to the number of shares of Common Stock held by them
respectively.
(4) The holders of the Common Stock do not have any
preemptive or preferential right to purchase or subscribe for any part
of the unissued capital stock of the corporation of any class or for
any new issue of stock of any class, whether now or hereafter
authorized or issued.
(b) Preferred Stock
The board of directors is expressly authorized to adopt,
from time to time, a resolution or resolutions providing for the issue
of Preferred Stock in one or more series, with such voting powers, full
or limited, or without voting powers, and with such designations,
preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof as
shall be expressed in such resolution or resolutions, including,
without limiting the generality of the foregoing, the following:
(1) the designation and number of shares or series;
(2) the dividend rate of such series, the
conditions and dates upon which such dividends
shall be payable, the preference or relation of
such dividends to dividends payable on any
other class or classes of capital stock of the
corporation, and whether such dividends shall
be cumulative or noncumulative;
(3) whether the shares of such series shall be
subject to redemption by the corporation, and,
if made subject to such redemption, the times,
prices, rates, adjustments and other terms and
conditions of such redemption;
(4) the terms and amount of any sinking or similar
fund provided for the purchase or redemption of
the shares of such series;
(5) whether the shares of such series shall be
convertible into or exchangeable for shares of
capital stock or other securities of the
corporation or of any other corporation, and,
if provision be made for conversion or
exchange, the times, prices, rates,
- 3 -
<PAGE> 8
adjustments and other terms and conditions of
such conversion or exchange;
(6) the extent, if any, to which the holders of the
shares of such series shall be entitled to vote
as a class or otherwise with respect to the
election of directors or otherwise;
(7) the restrictions and conditions, if any, upon
the issue or reissue of any additional
Preferred Stock ranking on a parity with or
prior to such shares as to dividends or upon
dissolution;
(8) the rights of the holders of the shares of such
series upon the dissolution of, or upon the
distribution of assets of, the corporation,
which rights may be different in the case of
voluntary dissolution than the case of
involuntary dissolution; and
(9) any other relative rights, preferences or
limitations of shares of such series consistent
with this Section 4(b) and applicable law.
5. In furtherance and not in limitation of the powers
conferred by statute, the board of directors is expressly authorized to
make, alter or repeal the By-Laws of the corporation.
6. (a) At the 1987 annual meeting of stockholders, the
directors elected to serve on the corporation's board of directors
shall be divided into three classes, designated Class I, Class II and
Class III. Each class shall consist, as nearly as may be possible, of
one-third of the total number of directors constituting the whole board
of directors. Class I directors shall be elected for a one-year term,
Class II directors for a two-year term and Class III directors for a
three-year term. At each succeeding annual meeting of stockholders
beginning in 1988, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term.
(b) Notwithstanding the foregoing, whenever the holders of
any one or more classes or series of Preferred Stock issued by the
corporation shall have the right, pursuant to Section 4(b) hereof,
voting separately by class or series, to elect directors at an annual
or special meeting of stockholders, the election, term of office,
- 4 -
<PAGE> 9
filling of vacancies and other features of such directorships shall be
governed by the terms applicable thereto, and such directors so elected
shall not be divided into classes pursuant to Section 6(a) unless
expressly provided by the terms of such Preferred Stock.
(c) Subject to the rights of the holders of any one or
more classes or series of Preferred Stock issued by the corporation,
any director may be removed from office, with or without cause, only by
the affirmative vote of the holders of eighty percent (80%) of the
combined voting power of the then outstanding shares of stock entitled
to vote generally in the election of directors, voting together as a
single class.
7. Subject to the rights of holders of any one or more
classes or series of Preferred Stock issued by the corporation,
nominations for the election of directors may be made by the board of
directors (or a proxy committee appointed by the board of directors) or
by any stockholder entitled to vote in the election of directors
generally. However, any stockholder entitled to vote generally in the
election of directors may nominate one or more persons for election as
directors at a meeting only if written notice of such stockholder's
intent to make such nomination or nominations has been given, either by
personal delivery or by United States mail, postage prepaid, to the
Secretary of the corporation not later than (i) with respect to an
election to be held at an annual meeting of stockholders, ninety (90)
days in advance of such meeting, and (ii) with respect to an election
to be held at a special meeting of stockholders for the election of
directors, the close of business on the seventh day following the date
on which notice of such meeting is first given to stockholders. Each
such notice shall set forth: (a) the name and address of the
stockholder who intends to make the nomination and of the person or
persons to be nominated; (b) a representation that the stockholder is a
holder of record of stock of the corporation entitled to vote at such
meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a
description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to which the nomination or nominations
are to be made by the stockholder; (d) such other information regarding
each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission, had the nominee been nominated, or
intended to be nominated, by the board of directors; and (e) the
- 5 -
<PAGE> 10
consent of each nominee to serve as a director of the corporation if so
elected. The chairman of the meeting may refuse to acknowledge the
nomination of any person not made in compliance with the foregoing
procedure.
8. (a) In addition to any affirmative vote required by law or
this Restated Certificate of Incorporation or the By-Laws of the
corporation, and except as otherwise expressly provided in Section
8(b), a Business Transaction (as hereinafter defined) with, or proposed
by or on behalf of, any Interested Stockholder (as hereinafter defined)
or any Affiliate or Associate (as hereinafter defined) of any
Interested Stockholder or any person who thereafter would be an
Affiliate or Associate of such Interested Stockholder shall require the
affirmative vote of not less than a majority of the votes entitled to
be cast by the holders of all the then outstanding shares of Voting
Stock (as hereinafter defined), voting together as a single class,
excluding Voting Stock beneficially owned by such Interested
Stockholder. Such affirmative vote shall be required notwithstanding
the fact that no vote may be required, or that a lesser percentage or
separate class vote may be specified by law or otherwise.
(b) The provisions of Section 8(a) shall not be applicable
to any particular Business Transaction, and such Business Transaction
shall require only such affirmative vote, if any, as is required by law
or by any other provision of this Restated Certificate of Incorporation
or the By-Laws of the corporation, or otherwise, if the Business
Transaction shall have been approved (whether such approval is made
prior to or subsequent to the acquisition of, or announcement or public
disclosure of the intention to acquire, beneficial ownership of the
Voting Stock that caused the Interested Stockholder to become an
Interested Stockholder), either specifically or as a transaction which
is within an approved category of transactions, by a majority of the
Disinterested Directors (as hereinafter defined).
(c) The following definitions shall apply with respect to
this Section 8:
(1) The term "Business Transaction" shall mean:
(A) any merger or consolidation of the corporation or any
Subsidiary (as hereinafter defined) with (i) any Interested
Stockholder or (ii) any other company (whether or not itself an
Interested Stockholder) which is or after such merger or
consolidation would be an Affiliate or Associate of an
Interested Stockholder; or
- 6 -
<PAGE> 11
(B) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition or security arrangement, investment, loan,
advance, guarantee, agreement to purchase, agreement to pay,
extension of credit, joint venture participation or other
arrangement (in one transaction or a series of transactions)
with or for the benefit of any Interested Stockholder or any
Affiliate or Associate of any Interested Stockholder involving
any assets, securities or commitments of the corporation, any
Subsidiary or any Interested Stockholder or any Affiliate or
Associate of any Interested Stockholder which (except for any
arrangement, whether as employee, consultant or otherwise,
other than as a director, pursuant to which any Interested
Stockholder or any Affiliate or Associate thereof shall,
directly or indirectly, have any control over or responsibility
for the management of any aspect of the business or affairs of
the corporation, with respect to which arrangements the value
tests set forth below shall not apply), together with all other
such arrangements (including all contemplated future events),
has an aggregate Fair Market Value (as hereinafter defined)
and/or involves aggregate commitments of $4,000,000 or more or
constitutes more than five percent of the book value of the
total assets (in the case of transactions involving assets or
commitments other than capital stock) or five percent of the
stockholders' equity (in the case of transactions in capital
stock) of the entity in question (the "Substantial Part"), as
reflected in the most recent fiscal year-end consolidated
balance sheet of such entity existing at the time the
stockholders of the corporation would be required to approve or
authorize the Business Transaction involving the assets,
securities and/or commitments constituting any Substantial
Part; or
(C) the adoption of any plan or proposal for the
liquidation or dissolution of the corporation or for any
amendment to the corporation's By-Laws; or
(D) any reclassification of securities (including any
reverse stock split), or recapitalization of the corporation,
or any merger or consolidation of the corporation with any of
its Subsidiaries or any other transaction (whether or not with
or otherwise involving an Interested Stockholder) that has the
effect, directly or indirectly, of increasing the proportionate
share of any class or series of Capital Stock, or any
securities convertible into Capital Stock or into equity
securities of any
- 7 -
<PAGE> 12
Subsidiary, that is beneficially owned by any Interested
Stockholder or any Affiliate or Associate of any Interested
Stockholder; or
(E) any agreement, contract or other arrangement providing
for any one or more of the actions specified in the foregoing
clauses (A) to (D).
(2) The term "Capital Stock" shall mean all capital stock of
the corporation authorized to be issued from time to time under this
Restated Certificate of Incorporation, and the term "Voting Stock"
shall mean all Capital Stock which by its terms may be voted on all
matters submitted to stockholders of the corporation generally.
(3) The term "person" shall mean any individual, firm, company
or other entity and shall include any group comprised of any person and
any other person with whom such person or any Affiliate or Associate of
such person has any agreement, arrangement or understanding, directly
or indirectly, for the purpose of acquiring, holding, voting or
disposing of Capital Stock.
(4) The term "Interested Stockholder" shall mean any person
(other than the corporation or any Subsidiary and other than any
profit-sharing, employee stock ownership or other employee benefit plan
of the corporation or any Subsidiary or any trustee of or fiduciary
with respect to any such plan when acting in such capacity) who (a) is
or has announced or publicly disclosed a plan or intention to become
the beneficial owner of Voting Stock representing ten percent (10%) or
more of the votes entitled to be cast by the holders of all then
outstanding shares of Voting Stock; or (b) is an Affiliate or Associate
of the corporation and at any time within the two-year period
immediately prior to the date in question was the beneficial owner of
Voting Stock representing ten percent (10%) or more of the votes
entitled to be cast by the holders of all then outstanding shares of
Voting Stock.
(5) A person shall be a "beneficial owner" of any Capital
Stock or shall "beneficially own" any Capital Stock (a) which such
person or any of its Affiliates or Associates beneficially owns,
directly or indirectly; (b) which such person or any of its Affiliates
or Associates has or shares, directly or indirectly, (i) the right to
acquire (whether such right is exercisable immediately or subject to
the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange
rights, warrants or options, or otherwise, or (ii) the right to vote
pursuant to any
- 8 -
<PAGE> 13
agreement, arrangement or understanding; or (c) which is beneficially
owned, directly or indirectly, by any other person with which such
person or any of its Affiliates or Associates has or shares any
agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of Capital Stock. For the
purposes of determining whether a person is an Interested Stockholder
pursuant to this Section 8, the number of shares of Capital Stock
deemed to be outstanding shall include shares deemed beneficially owned
by such person through application of this Section 8, but shall not
include any other shares of Capital Stock that may be issuable pursuant
to any agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
(6) An "Affiliate" of, or a person "Affiliated" with a
specified person, is a person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under
common control with, the person specified. The term "Associate" used to
indicate a relationship with any person, means (1) any corporation or
organization (other than the corporation or a majority-owned subsidiary
of the corporation) of which such person is an officer or partner or
is, directly or indirectly, the beneficial owner of ten percent (10%)
or more of any class of equity securities, (2) any trust or other
estate in which such person has a substantial beneficial interest or as
to which such person serves as trustee or in a similar fiduciary
capacity, or (3) any relative or spouse of such person, or any relative
of such spouse who has the same home as such person or who is a
director or officer of the corporation or any of its parents or
subsidiaries.
(7) The term "Subsidiary" means any company of which a
majority of any class of equity security is beneficially owned by the
corporation; provided, however, that for the purposes of the definition
of Interested Stockholder set forth in this Section 8, the term
"Subsidiary" shall mean only a company of which a majority of each
class of equity security is beneficially owned by the corporation.
(8) The term "Disinterested Director" means any member of the
board of directors of the corporation (the "Board of Directors"), while
such person is a member of the Board of Directors, who is not an
Affiliate or Associate or representative or agent or employee of the
Interested Stockholder and was a member of the Board of Directors prior
to the time that the Interested Stockholder became an Interested
Stockholder, and any successor of a
- 9 -
<PAGE> 14
Disinterested Director while such successor is a member of the Board of
Directors, who is not an Affiliate or Associate or representative or
agent or employee of the Interested Stockholder and is recommended or
elected to succeed the Disinterested Director by a majority of
Disinterested Directors.
(9) The term "Fair Market Value" means (a) in the case of
cash, the amount of such cash; (b) in the case of stock, the highest
closing sale price during the 30-day period immediately preceding the
date in question of a share of such stock quoted on the National
Association of Securities Dealers Automated Quotation System (NASDAQ),
the New York Stock Exchange or such other market on which the
corporation's shares are publicly traded, or if no such quotations are
available, the fair market value on the date in question of a share of
such stock as determined by a majority of the Disinterested Directors
in good faith; and (c) in the case of property other than cash or
stock, the fair market value of such property on the date in question
as determined in good faith by a majority of the Disinterested
Directors.
(d) A majority of the Disinterested Directors shall have
the power and duty to determine for the purposes of this Section 8 on
the basis of information known to them after reasonable inquiry, all
questions arising under this Section 8, including, without limitation,
(1) whether a person is an Interested Stockholder, (2) the number of
shares of Capital Stock or other securities beneficially owned by any
person, (3) whether a person is an Affiliate or Associate of another,
(4) whether a Proposed Action is with, or proposed by, or on behalf of
an Interested Stockholder or an Affiliate or Associate of an Interested
Stockholder, (5) whether the assets that are the subject of any
Business Transaction have, or the consideration to be received for the
issuance or transfer of securities by the corporation or any Subsidiary
in any Business Transaction has, an aggregate Fair Market Value of
$4,000,000 or more, and (6) whether the assets or securities that are
the subject of any Business Transaction constitute a Substantial Part.
Any such determination made in good faith shall be binding and
conclusive on all parties.
(e) Nothing contained in this Section 8 shall be construed
to relieve any Interested Stockholder from any fiduciary obligation
imposed by law.
(f) For the purposes of this Section 8, a Business
Transaction or any proposal to amend, repeal or adopt any provision of
this Restated Certificate of
- 10 -
<PAGE> 15
Incorporation inconsistent with this Section 8 (collectively, "Proposed
Action") is presumed to have been proposed by, or on behalf of, an
Interested Stockholder or an Affiliate or Associate of an Interested
Stockholder or a person who thereafter would become such if (1) after
the Interested Stockholder became such, the Proposed Action is proposed
following the election of any director of the corporation who, with
respect to such Interested Stockholder, would not qualify to serve as a
Disinterested Director or (2) such Interested Stockholder, Affiliate,
Associate or person votes for or consents to the adoption of any such
Proposed Action, unless as to such Interested Stockholder, Affiliate,
Associate or person a majority of the Disinterested Directors makes a
good faith determination that such Proposed Action is not proposed by
or on behalf of such Interested Stockholder, Affiliate, Associate or
person, based on information known to them after reasonable inquiry.
(g) Notwithstanding any other provision of this Restated
Certificate of Incorporation or the By-Laws of the corporation (and
notwithstanding the fact that a lesser percentage or separate class
vote may be specified by law, this Restated Certificate of
Incorporation or the By-Laws of the corporation), any proposal to amend
or repeal this Section 8 of this Restated Certificate of Incorporation
or to amend, repeal or adopt any provision of this Restated Certificate
of Incorporation inconsistent with this Section 8 which is proposed by
or on behalf of an Interested Stockholder or an Affiliate or Associate
of an Interested Stockholder shall require the affirmative vote of the
holders of not less than a majority of the votes entitled to be cast by
the holders of all the then outstanding shares of Voting Stock, voting
together as a single class, excluding Voting Stock beneficially owned
by such Interested Stockholder; provided, however, that this Section
8(g) shall not apply to, and such majority vote shall not be required
for, any amendment, repeal or adoption recommended by a majority of the
Disinterested Directors.
9. Notwithstanding anything contained in this Restated
Certificate of Incorporation to the contrary, the affirmative vote of
the holders of at least eighty percent (80%) of the voting power of all
shares of the corporation entitled to vote generally in the election of
directors, voting together in a single class, shall be required to
alter, amend or adopt any provision inconsistent with Sections 6 and 7
hereof.
10. Whenever a compromise or arrangement is proposed between
this corporation and its creditors or any class of them and/or between
this corporation and its stockholders
- 11 -
<PAGE> 16
or any class of them, any court of equitable jurisdiction within the
State of Delaware may, on the application in a summary way of this
corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation
under the provisions of Section 291 of Title 8 of the Delaware Code or
on the application of trustees in dissolution or of any receiver or
receivers appointed for this corporation under the provisions of
Section 279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement
and to any reorganization of this corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the
said reorganization shall, if sanctioned by the court to which the said
application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of
this corporation, as the case may be, and also on this corporation.
11. The corporation reserves the right to amend, alter, change
or repeal any provision contained in this Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute,
and all rights conferred upon the stockholders herein are granted
subject to this reservation."
(d) This Restated Certificate of Incorporation was duly adopted by vote
of the stockholders in accordance with Sections 242 and 245 of the General
Corporation Law of the State of Delaware.
(e) This Restated Certificate of Incorporation shall be effective on
June 9, 1986.
- 12 -
<PAGE> 17
IN WITNESS WHEREOF, said Trenwick Group Inc. has caused this certificate to be
signed by James F. Billett, Jr., its Chairman of the Board of Directors, and
attested by Barbara Freed, its Secretary this 13th day of May, 1986.
TRENWICK GROUP INC.
James F. Billett, Jr.
By /s/ James F. Billett, Jr.
----------------------------
ATTEST:
By /s/ Barbara R. Freed
- ---------------------------
Secretary
- 13 -
<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
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME AVAILABLE TO COMMON
STOCKHOLDERS:
Income before extraordinary item/net
income (primary) $ 8,593 $8,327 $8,593 $8,327
Add interest on convertible debentures
converted February 20, 1997 into
common stock, net of applicable taxes - 589 - 589
-------- ------ ------ ------
Income available (supplemental) 8,593 8,916 8,593 8,916
Add interest on convertible debentures
redeemed when dilutive - 467 - 467
-------- ------ ------ ------
Income available (fully diluted) $ 8,593 $9,383 $8,593 $9,383
======== ====== ====== ======
WEIGHTED AVERAGE SHARES OF
COMMON STOCK OUTSTANDING:
Average common shares outstanding 11,937 10,010 11,937 10,010
Equivalent shares associated with
employee stock options 177 216 177 216
-------- ------ ------ ------
Weighted average common and common
equivalent shares (primary) 12,114 10,226 12,114 10,226
Additional shares associated with
convertible debentures converted
February 20, 1997 - 1,784 - 1,784
-------- ------ ------ ------
Weighted average common and common
equivalent shares (supplemental) 12,114 12,010 12,114 12,010
Additional shares associated with
convertible debentures redeemed when
dilutive - 1,417 - 1,417
Additional equivalent shares associated
with employee stock options - 16 - 16
-------- ------ ------ ------
Weighted average common and common
equivalent shares
(fully diluted) 12,114 13,443 12,114 13,443
-------- ------ ------ ------
PER SHARE AMOUNTS:
Primary $.71 $.81 $.71 $.81
==== ==== ==== ====
Supplemental $.71 $.74 $.71 $.74
==== ==== ==== ====
Fully diluted $.71 $.70 $.71 $.70
==== ==== ==== ====
</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
Six Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
INCOME AVAILABLE TO COMMON
STOCKHOLDERS:
Income before extraordinary item/net
income (primary) $18,394 $16,509 $17,357 $16,509
Add interest on convertible debentures
converted February 20, 1997 into
common stock, net of applicable taxes 322 1,177 322 1,177
------- ------- ------- -------
Income available (supplemental) 18,716 17,686 17,679 17,686
Add interest on convertible debentures
redeemed when dilutive 256 935 -- 935
------- ------- ------- -------
Income available (fully diluted) $18,972 $18,621 $17,679 $18,621
======= ======= ======= =======
WEIGHTED AVERAGE SHARES OF
COMMON STOCK OUTSTANDING:
Average common shares outstanding 11,415 9,951 11,415 9,951
Equivalent shares associated with
employee stock options 178 276 178 276
------- ------- ------- -------
Weighted average common and common
equivalent shares (primary) 11,593 10,227 11,593 10,227
Additional shares associated with
convertible debentures converted
February 20, 1997 503 1,784 503 1,784
------- ------- ------- -------
Weighted average common and common
equivalent shares (supplemental)
Additional shares associated with 12,096 12,011 12,096 12,011
convertible debentures redeemed when
dilutive
Additional equivalent shares associated 399 1,417 -- 1,417
with employee stock options
Weighted average common and common 90 2 90 2
------- ------- ------- -------
equivalent shares
(fully diluted)
12,585 13,430 12,186 13,430
======= ======= ======= =======
PER SHARE AMOUNTS:
Primary
Supplemental $1.59 $1.61 $1.50 $1.61
===== ===== ===== =====
Fully diluted $1.55 $1.47 $1.46 $1.47
===== ===== ===== =====
$1.51 $1.39 $1.45 $1.39
===== ===== ===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
Financial Statements contained in the Form 10-Q for the six months ended June
30, 1997 for Trenwick Group Inc.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 790,075
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 36,463
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 826,538
<CASH> 10,012
<RECOVER-REINSURE> 79,981
<DEFERRED-ACQUISITION> 23,836
<TOTAL-ASSETS> 1,038,016
<POLICY-LOSSES> 496,062
<UNEARNED-PREMIUMS> 83,374
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
110,000
0
<COMMON> 1,194
<OTHER-SE> 335,472
<TOTAL-LIABILITY-AND-EQUITY> 1,038,016
101,019
<INVESTMENT-INCOME> 23,852
<INVESTMENT-GAINS> 1,916
<OTHER-INCOME> 10
<BENEFITS> 58,290
<UNDERWRITING-AMORTIZATION> 31,957
<UNDERWRITING-OTHER> 12,701
<INCOME-PRETAX> 23,849
<INCOME-TAX> 5,455
<INCOME-CONTINUING> 18,394
<DISCONTINUED> 0
<EXTRAORDINARY> 1,037
<CHANGES> 0
<NET-INCOME> 17,357
<EPS-PRIMARY> 1.50
<EPS-DILUTED> 1.45
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
