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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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): July 22, 1998
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 July 22, 1998, the registrant issued a press release setting forth its
financial results for the second quarter of 1998. 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: July 30, 1998
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
Trenwick Group Inc. Reports
Record Growth from International Expansion
Stamford, Connecticut, July 22, 1998 . . .
Trenwick Group Inc. reported consolidated net income of $9.0 million, or $.75
per share, for the second quarter of 1998 compared to $8.6 million, or $.72 per
share, for the second quarter of 1997. Per share earnings on a diluted basis
were $.74 for 1998 compared to $.71 for 1997.
For the first half of 1998, Trenwick's net income was $18.2 million or $1.53 per
share, compared to income before extraordinary item of $18.4 million or $1.62
per share in the first half of 1997. Included in net income for the first half
of 1997 was an extraordinary loss on debt redemption, net of tax, of
approximately $1 million or $.09 per share. Net income per diluted share was
$1.51 for the first half of 1998 compared to $1.53 for the first half of 1997.
Operating income for the second quarter of 1998 includes after-tax costs of
approximately $800,000 or $.07 per share relating to expansion activities of the
Group and profit commission adjustments on certain prior years' accounts.
Expansion activities include business development and mergers and acquisitions.
Net income for the second quarter of 1998 and 1997 includes after-tax realized
investment gains of $351,000 or $.03 per share and $1,000, respectively. Net
income for the first half of 1998 and 1997 includes after-tax realized
investment gains of $819,000 or $.07 per share and $1.2 million or $.10 per
share, respectively.
As previously announced, Trenwick completed the acquisition of Trenwick
International Limited ("Trenwick International"), formerly SOREMA (UK) Limited,
from SOREMA S.A. on February 27, 1998. Trenwick International is based in London
and underwrites treaty and facultative reinsurance and specialty insurance on a
worldwide basis. The acquisition was accounted for as a purchase, and
accordingly the fair value of the assets and liabilities of
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Trenwick International has been included in the consolidated balance sheet. The
aggregate purchase price of $63.2 million, including acquisition costs,
approximated the book value of Trenwick International at the date of
acquisition. On March 31, 1998, the share capital of Trenwick International was
increased by $67 million to approximately $127 million. Trenwick International's
operations are included in the Company's quarterly and year to date results from
the date of acquisition.
Trenwick's consolidated net premium writings in the quarter and first half of
1998 totaled $75.0 million and $119.5 million compared to $48.9 million and
$108.4 million in 1997, respectively. This increase of 53% and 10% for the
quarter and first half of 1998 primarily reflects the inclusion of Trenwick
International's business during these periods.
Net premium writings from the Group's U.S. operations declined 18% and 22% in
the quarter and the first half of 1998 compared to last year. Casualty business,
which represents 92% of the Company's U.S. business, declined 16% and 19%, while
property business declined 34% and 48%, respectively. Premium writings declined
as a result of three principal causes. Price competition among primary companies
put pressure on ceding companies' own premium writings. Insurers continued to
restructure their reinsurance programs, reducing the amount of reinsurance they
purchase. In addition, increasingly intense competition in the reinsurance
markets drove reinsurance prices on a number of casualty and property accounts
below pricing levels that the Company would accept.
Trenwick International reported net premium writings of $34.8 million in the
second quarter of 1998. While the international business is also highly
competitive, growth in this business is expected to result primarily from an
increase in Trenwick International's retention of business owing to a change in
its reinsurance programs, and an increase in its capital. The Company is also
expanding into new geographic markets previously prohibited by contracts with
its former parent.
The Group's GAAP combined ratio for the second quarter and first half of 1998
was 100% and 99.4% compared to 97.3% and 97% for the same period in 1997.
Trenwick America's GAAP combined loss and expense ratio in the second quarter
and first half of 1998 was
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98.7% and 98.6%, compared to 97.3% and 97% for the same periods in 1997. The
increase in the combined loss and expense ratio for this business resulted
primarily from higher commission expenses and an increase in the overhead
expense ratio caused by lower premium writings. The combined loss and expense
ratio in the first half of 1998 includes favorable reserve development of
approximately $3.0 million compared to approximately $2.9 million for the same
period in 1997. Trenwick International's GAAP combined loss and expense ratio
for the second quarter and first half of 1998 was 102.2 %.
Group net investment income of $15 million and $27.4 million increased 24% and
15%, respectively, in the second quarter and first half of 1998 compared to
$12.1 million and $23.9 million for the same periods in 1997. Pre-tax yields on
invested assets, excluding equity securities, averaged 6.3% in 1998 and 6.4% in
1997. The increase in investment income is due to the continued growth in
Trenwick's invested asset base resulting primarily from the acquisition of
Trenwick International.
After-tax net investment income in the second quarter and first half of 1998 was
$9.8 million and $19.1 million compared to $9.2 million and $18.1 million for
the comparative periods in 1997. The effective income tax rate on net investment
income for the first half of 1998 was approximately 30.2% versus 23.9% for the
same period in 1997. The increase in the effective income tax rate is due to the
fully taxable nature of Trenwick International's investments.
As of June 30, 1998, Trenwick's consolidated stockholders' equity totaled $372.8
million or $30.92 per share, as compared to $357.6 million or $29.93 per share
at December 31, 1997. Since December 31, 1997, the unrealized appreciation of
debt and equity investments increased $2.1 million, net of tax, or $.18 per
share. Trenwick America Re's statutory surplus was $344.1 million as of June 30,
1998, compared to $322.9 million at December 31, 1997. Trenwick International's
statutory surplus was $129.0 million as of June 30, 1998.
Cash flow from operations of $9.6 million in the first half of 1998 decreased
approximately 62% compared to cash flow from operations of $25.1 million in the
first half of 1997. The
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reduction in cash flow from operations was due primarily to timing differences
on recoveries relating to Trenwick International's contracts with its former
parent and a decline in premium volume associated with the Group's U.S.
business.
Cash provided by financing activities in the first half of 1998 increased to
$68.5 million compared to cash provided by financing activities of $56.4 million
in the first half of 1997, primarily due to the proceeds of the issuance of $75
million principal amount of 6.7% Senior Notes.
Trenwick declared a second quarter dividend of $.25 per share in 1998, a 4%
increase compared to $.24 per share in the second quarter of 1997. During 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.
Trenwick Group Inc. is a holding company with two principal operating
subsidiaries, Trenwick America Re, which provides treaty and facultative
reinsurance to insurers of property and casualty risks in the United States, and
Trenwick International, which underwrites treaty and facultative reinsurance as
well as specialty insurance on a worldwide basis. 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. Trenwick International is rated A (Excellent)
by A.M. Best Company and has also been assigned a claims-paying ability rating
of A+ by Standard & Poor's.
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TRENWICK GROUP INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ---------------------
1998 1997 1998 1997
---- ---- ---- ----
(in thousands except per share data)
<S> <C> <C> <C> <C>
Net premiums written $74,956 $48,846 $119,449 $108,404
------- ------- -------- --------
Net premiums earned 70,964 47,105 116,788 101,019
Net investment income 14,976 12,123 27,360 23,852
Net realized investment gains 540 1 1,260 1,916
Other income 320 10 332 10
------- ------- -------- --------
Total revenues 86,800 59,239 145,740 126,797
------- ------- -------- --------
Claims and claims expenses incurred 43,071 27,486 69,576 58,290
Policy acquisition costs 20,773 14,580 35,931 31,957
Underwriting expenses 7,112 3,779 10,568 7,768
General and administrative expenses 1,025 -- 1,849 --
Interest expense 1,291 -- 1,349 890
Minority interest in subsidiary trust 2,425 2,426 4,851 4,043
------- ------- -------- --------
Total expenses 75,697 48,271 124,124 102,948
------- ------- -------- --------
Income before income taxes and
extraordinary item 11,103 10,968 21,616 23,849
Income taxes 2,128 2,375 3,396 5,455
------- ------- -------- --------
Income before extraordinary item 8,975 8,593 18,220 18,394
Extraordinary loss on debt redemption
net of $558 income tax benefit -- -- -- 1,037
------- ------- -------- --------
Net income $ 8,975 $ 8,593 $ 18,220 $ 17,357
======= ======= ======== ========
BASIC EARNINGS PER SHARE
Income before extraordinary item $ .75 $ .72 $ 1.53 $ 1.62
Extraordinary loss -- -- -- .09
------- ------- -------- --------
Net income $ .75 $ .72 $ 1.53 $ 1.53
======= ======= ======== ========
DILUTED EARNINGS PER SHARE
Income before extraordinary item $ .74 $ .71 $ 1.51 $ 1.53
======= ======= ======== ========
Net income $ .74 $ .71 $ 1.51 $ 1.53
======= ======= ======== ========
DIVIDENDS PER COMMON SHARE $ .25 $ .24 $ .50 $ .48
======= ======= ======== ========
</TABLE>
The earnings per share amounts prior to 1997 have been restated to comply with
the newly adopted accounting standard, "Earnings Per Share".
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>
June 30, December 31,
1998 1997
---------- ------------
(in thousands except per share data)
<S> <C> <C>
Securities available for sale at fair value:
Debt securities (amortized cost: $876,668
and $788,727) $ 903,385 $ 812,314
Equity securities
(cost: $46,401 and $31,603) 57,133 39,163
Cash and cash equivalents 60,881 12,847
Receivables from ceding insurers 147,680 91,867
Reinsurance recoverable balances, net 123,647 66,361
Other assets 97,612 65,371
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Total assets $1,390,338 $1,087,923
========== ==========
Unpaid claims and claims expenses $ 660,009 $ 518,387
Unearned premium income 150,918 87,020
6.7% Senior notes due 2003 75,000 --
Other liabilities 21,637 14,867
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Total liabilities 907,564 620,274
Company obligated mandatorily
redeemable preferred capital securities
of subsidiary trust holding solely Junior
Subordinated Debentures of Trenwick 110,000 110,000
Common stockholders' equity 372,774 357,649
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Total liabilities and stockholders' equity $1,390,338 $1,087,923
========== ==========
Total number of shares of
common stock outstanding 12,057 11,951
========== ==========
Book value per share $ 30.92 $ 29.93
========== ==========
</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>
Six Months Ended
June 30,
-----------------------
1998 1997
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(in thousands)
<S> <C> <C>
Cash provided by (used for):
Operating activities $ 9,555 $ 25,113
Investing activities (29,322) (85,734)
Financing activities 68,493 56,380
Effect of Exchange Rate on Cash (692) --
-------- --------
Change in cash and cash equivalents 48,034 (4,241)
Cash and cash equivalents, beginning of period 12,847 14,253
-------- --------
Cash and cash equivalents, end of period $ 60,881 $ 10,012
======== ========
</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.
