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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 27, 1997
TRENWICK GROUP INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 0-14737 06-1152790
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) 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
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Item 5. Other Events
On January 27, 1997, the registrant issued a press release setting forth its
financial results for the fourth quarter of 1996 and the year ended December 31,
1996. The press release is attached hereto as Exhibit A.
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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 hereunto duly authorized.
Date: January 27, 1997
TRENWICK GROUP INC.
By /s/James F. Billett, Jr.
-------------------------------
James F. Billett, Jr.
Chairman of the Board,President
and Chief Executive Officer
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EXHIBIT A
Alan L. Hunte, Vice President, Chief Financial
Officer and Treasurer
Trenwick Group Inc. Reports Increase in
Fourth Quarter Earnings
Stamford, Connecticut, January 27, 1997 . . .
Trenwick Group Inc. reported an increase in its fourth quarter 1996 consolidated
net income of 10% to $8.8 million or $1.29 per share compared to $8.0 million or
$1.18 per share in the fourth quarter of 1995. Fully diluted earnings per share
increased 9% to $1.10 in the fourth quarter of 1996 compared to $1.01 last year.
For the year ended December 31, 1996, Trenwick's consolidated net income
increased 13% to $33.8 million or $4.95 per share compared to $29.8 million or
$4.44 per share for the year ended December 31, 1995. Fully diluted earnings per
share increased 12% to $4.25 for the year ended December 31, 1996 compared to
$3.80 last year.
Operating income (net income excluding after-tax realized investment gains and
losses) was as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31, December 31,
------------------------------------ --------------------------------
1996 1995 %Change 1996 1995 %Change
---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Operating income $8,636 $7,984 8% $33,654 $29,602 14%
Operating income
per share:
Primary $1.26 $1.17 8% $4.93 $4.40 12%
Fully diluted $1.08 $1.01 7% $4.23 $3.77 12%
</TABLE>
- more -
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Trenwick's net premiums written increased 11% to $52.1 million in the fourth
quarter of 1996 compared to $46.8 million in the same period in 1995. Net
premiums written for the year ended December 31, 1996 increased 15% to $226.4
million compared to the same period in 1995. The distribution of the Company's
net premiums written by type was as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31, December 31,
------------------------------------ ------------------------------------
1996 1995 %Change 1996 1995 %Change
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CASUALTY
Treaty $ 34,415 $ 28,562 20% $144,074 $108,330 33%
Specialty 11,330 10,841 5 46,048 50,593 (9)
Facultative 1,384 1,564 (12) 6,404 6,035 6
-------- -------- -------- -------- -------- --------
47,129 40,967 15 196,526 164,958 19
PROPERTY 4,969 5,817 (15) 29,838 32,204 (7)
-------- -------- -------- -------- -------- --------
Total $ 52,098 $ 46,784 11% $226,364 $197,162 15%
======== ======== ======== ======== ======== ========
</TABLE>
Trenwick's premium growth in the fourth quarter and for the year ended December
31, 1996 continued to result from an increase in new casualty treaty business.
This business was developed primarily by the senior underwriting executives
hired in 1995 through existing and new relationships with various reinsurance
brokers. The overall rate of growth in casualty business in the quarter was
reduced as a result of a decline in the rate of growth of specialty business. In
1996, insurance companies continued to increase their retentions, thereby
reducing the amount of reinsurance placed with reinsurers. This reduction has
primarily affected the Company's specialty business. In addition, the Company
declined to renew certain accounts which did not meet its pricing standards.
Property business decreased as a result of continued price deterioration
experienced throughout the year.
New casualty business increased 92% and 62% in the quarter and for the year
ended December 31, 1996 over the same periods in 1995 and represented
approximately 39% and 33% of total premium writings during the periods.
Continuing casualty business decreased 9% in the quarter but increased 3% for
the year ended December 31, 1996 over the same periods in 1995. Continuing
casualty business represented 51% and 54% of the total premium writings during
the periods. The Company's property business represented approximately 10% and
13% of total premium writings for the quarter and for the year ended December
31, 1996.
- more -
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Trenwick's GAAP combined loss and expense ratios for the fourth quarter and for
the year ended December 31, 1996 were 97.2% and 95.8%, respectively, compared to
94.1% and 95.6% for the same periods in 1995. The combined loss and expense
ratio for the year ended December 31, 1996 includes favorable development of
approximately $4.4 million from business written in prior years.
Trenwick America Re's statutory combined loss and expense ratios for the fourth
quarter and for the year ended December 31, 1996 were 98.2% and 95.7%,
respectively, compared to 95.5% for both periods last year. Trenwick America
Re's statutory surplus was approximately $286 million as of December 31, 1996,
compared to approximately $258 million at December 31, 1995.
Net investment income of $10.8 million in the fourth quarter of 1996 increased
11% compared to $9.7 million for the same period in 1995. Net investment income
of $41.2 million for the year ended December 31, 1996 increased 12% compared to
$36.8 million for the year ended December 31, 1995. Pre-tax yields on invested
assets, excluding equity securities, averaged 6.3% in 1996 compared to 6.5% in
1995. The increase in investment income is due primarily to the continued growth
in the Company's invested asset base along with an increase in operating cash
flow.
After-tax net investment income in the fourth quarter of 1996 and for the year
ended December 31, 1996 was $8.4 million and $32.1 million, respectively,
compared to $7.6 million and $28.9 million for the comparative periods in 1995.
The effective tax rate on net investment income for the year ended December 31
was approximately 22.2% in 1996 and 21.5% in 1995.
- more -
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As of December 31, 1996, Trenwick's consolidated stockholders' equity totaled
$265.8 million or $39.52 per share, as compared to $240.8 million or $36.54 per
share at December 31, 1995. This increase resulted from earnings reduced by
dividends and a decrease in the unrealized appreciation on the Company's debt
and equity investments. For the year 1996, the unrealized appreciation of the
Company's debt and equity investments declined $5.6 million, net of tax, or $.83
per share, primarily as a result of the increase in interest rates.
Cash flow from operations of $110.5 million for the year ended December 31, 1996
increased approximately 64% compared to cash flow from operations of $67.4
million for the year ended December 31, 1995. In December 1996, Trenwick agreed
to commute an aggregate excess of loss reinsurance agreement covering the years
1989 through 1993. As a result of the commutation, Trenwick received a total
consideration of $29.7 million representing outstanding reserves of
approximately the same amount. The commutation was recorded in the fourth
quarter cash flow activity as a paid loss recovery. In addition, cash flow from
operations increased as a result of an overall increase in premium writings.
Trenwick declared a fourth quarter dividend of $.31 per share in 1996, compared
to $.28 in the fourth quarter of 1995.
Trenwick Group Inc. is a holding company whose principal subsidiary, Trenwick
America Re, reinsures property and casualty risks written by U.S. insurance
companies. Trenwick America Re is rated A+ (Superior) by A.M. Best Company and
is assigned a claims-paying ability rating of A+ by Standard & Poor's.
# # # #
January 27, 1997
<PAGE> 8
TRENWICK GROUP INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31, December 31,
---------------------- ----------------------
1996 1995 1996 1995
-------- -------- -------- --------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Net premiums written $ 52,098 $ 46,784 $226,364 $197,162
-------- -------- -------- --------
Net premiums earned $ 54,994 $ 46,032 $211,069 $177,394
Net investment income 10,840 9,737 41,226 36,828
Net realized investment gains 281 87 299 368
-------- -------- -------- --------
Total revenues 66,115 55,856 252,594 214,590
-------- -------- -------- --------
Claims and claims expenses incurred 33,914 27,621 129,316 113,068
Policy acquisition costs 16,088 12,172 58,757 44,024
Underwriting expenses 3,393 3,566 14,190 12,589
Interest expense 1,628 1,623 6,503 6,496
-------- -------- -------- --------
Total expenses 55,023 44,982 208,766 176,177
-------- -------- -------- --------
Income before income taxes 11,092 10,874 43,828 38,413
Income taxes 2,273 2,833 9,980 8,572
-------- -------- -------- --------
Net income $ 8,819 $ 8,041 $ 33,848 $ 29,841
======== ======== ======== ========
PRIMARY EARNINGS PER SHARE $ 1.29 $ 1.18 $ 4.95 $ 4.44
======== ======== ======== ========
Weighted average shares outstanding 6,834 6,804 6,832 6,723
======== ======== ======== ========
FULLY DILUTED EARNINGS PER SHARE
(assuming conversion of dilutive
convertible debentures): $ 1.10 $ 1.01 $ 4.25 $ 3.80
======== ======== ======== ========
Weighted average shares outstanding 8,968 8,983 8,966 8,960
======== ======== ======== ========
Dividends per common share $ .31 $ .28 $ 1.24 $ 1.12
======== ======== ======== ========
</TABLE>
The condensed consolidated financial information above should be read in
conjunction with the consolidated financial statements and notes thereto as
filed with the Securities and Exchange Commission.
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TRENWICK GROUP INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
-------- --------
(in thousands except per share data)
<S> <C> <C>
Fixed maturity investments available for sale at
fair value (amortized cost: $700,476 and
$609,751) $713,998 $633,525
Equity securities available for sale at
fair value (cost: $21,346 and $10,507) 25,959 13,419
Cash and cash equivalents 14,253 6,760
Reinsurance recoverable balances, net 47,772 68,449
Other assets 118,822 98,777
-------- --------
Total assets $920,804 $820,930
======== ========
Unpaid claims and claims expenses $467,177 $411,874
Unearned premium income 71,448 56,050
Convertible debentures 103,500 103,500
Other liabilities 12,926 8,730
-------- --------
Total liabilities 655,051 580,154
Total stockholders' equity 265,753 240,776
-------- --------
Total liabilities and
stockholders' equity $920,804 $820,930
======== ========
Total number of shares of
common stock outstanding 6,725 6,590
======== ========
Book value per share $ 39.52 $ 36.54
======== ========
</TABLE>
The condensed consolidated financial information above should be read in
conjunction with the consolidated financial statements and notes thereto as
filed with the Securities and Exchange Commission.
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TRENWICK GROUP INC.
CONDENSED CONSOLIDATED
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------------------
1996 1995
--------- --------
(in thousands)
<S> <C> <C>
Funds provided by (used for):
Operations -
Reinsurance underwriting $ 83,395 $44,535
Investment income 42,654 38,829
Interest and other expenses paid (6,190) (6,239)
Income taxes paid (9,381) (9,681)
--------- --------
110,478 67,444
Investment activities (97,670) (64,704)
Financing activities (5,315) (5,764)
--------- --------
Increase(decrease) in cash and cash equivalents 7,493 (3,024)
Cash and cash equivalents, beginning of year 6,760 9,784
---------- --------
Cash and cash equivalents, end of year $ 14,253 $ 6,760
========= ========
</TABLE>
The condensed consolidated financial information above should be read in
conjunction with the consolidated financial statements and notes thereto as
filed with the Securities and Exchange Commission.
