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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD TO .
Commission file number 0-14737
TRENWICK GROUP INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
Delaware 06-1152790
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
One Canterbury Green, Stamford, Connecticut 06901
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 353-5500
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.10 PAR VALUE
PREFERRED STOCK PURCHASE RIGHTS
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10K or any amendment to this
Form 10-K. [X]
The aggregate market value on February 28, 1999 of the voting stock held by
non-affiliates of the registrant was $294,018,385.
The number of shares outstanding of each of the issuer's classes of common
stock as of the close of the period covered by this report:
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Class Outstanding at February 28, 1999
----- --------------------------------
Common Stock, $.10 par value 10,714,945
</TABLE>
The information required by Items 10 through 13 of Form 10-K is incorporated by
reference into Part III hereof from the registrant's proxy statement which will
be filed with the Securities and Exchange Commission within 120 days of the
close of the registrant's fiscal year ended December 31, 1998.
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TRENWICK GROUP INC.
Table of Contents
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<CAPTION>
Page
Item Number
- ---- ------
PART I
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1. Business ......................................................................................... 1
2. Properties ....................................................................................... 16
3. Legal Proceedings ................................................................................ 16
4. Submission of Matters to a Vote of Security Holders .............................................. 16
PART II
5. Market for the Corporation's Common Stock and Related Stockholder Matters ........................ 17
6. Selected Financial Data .......................................................................... 18
7. Management's Discussion and Analysis of Financial Condition and
Results of Operation ............................................................................. 19
7a. Quantitative and Qualitative Disclosures About Market Risk......................................... 19
8. Financial Statements and Supplementary Data ...................................................... 19
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ............................................................................. 19
PART III
10. Directors and Executive Officers ................................................................. 19
11. Executive Compensation ........................................................................... 19
12. Security Ownership of Certain Beneficial Owners and Management ................................... 20
13. Certain Relationships and Related Transactions ................................................... 20
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .................................. 20
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL BACKGROUND AND HISTORY
Trenwick Group Inc. (Trenwick), incorporated in the State of Delaware in 1985,
is a holding company which owns and operates two principal subsidiaries,
Trenwick America Reinsurance Corporation (Trenwick America Re) and Trenwick
International Limited (Trenwick International). Trenwick America Re, a
Connecticut corporation was acquired in 1983 by Trenwick America Corporation,
became a wholly owned subsidiary of Trenwick in 1985 as a result of a corporate
restructuring. Trenwick America Re reinsures property and casualty risks
primarily written by U.S. insurance companies. Trenwick International, a London
based company acquired by Trenwick in February 1998, underwrites reinsurance and
specialty insurance risks primarily located outside the U.S. In addition,
Trenwick owns two inactive Bermuda subsidiaries.
Trenwick America Re, which comprised 68% of Trenwick's total net premiums
written in 1998, underwrites treaty reinsurance, which accounts for the majority
of its business, as well as facultative reinsurance. Trenwick International's
business, which accounted for 32% of Trenwick's total net premiums written,
consists principally of insurance and facultative reinsurance of specialty
classes. Trenwick International also underwrites property and casualty treaty
reinsurance. In the latter part of 1998, Trenwick International opened a branch
office in Paris which specializes in facultative reinsurance of large,
technically complex property risks. Premiums written by the Paris branch in 1998
were not material.
DOMESTIC OPERATIONS
Trenwick America Re generally obtains all of its business through brokers and
reinsurance intermediaries which seek its participation on reinsurance being
placed for their customers. In underwriting reinsurance, Trenwick does not
target types of clients, classes of business or types of reinsurance. Rather, it
selects transactions based upon the quality of the reinsured, the attractiveness
of the reinsured's insurance rates and policy conditions and the adequacy of the
proposed reinsurance terms.
The table set forth below shows the distribution of domestic net premiums
written by type which classifies the business by type of underwriting
methodology used.
DOMESTIC NET PREMIUMS WRITTEN BY TYPE OF BUSINESS
(IN THOUSANDS)
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<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
CASUALTY
Treaty $150,678 89% $169,692 87% $190,122 84%
Facultative 3,690 2 3,254 2 6,404 3
-------- ---- -------- --- -------- ---
154,368 91 172,946 89 196,526 87
PROPERTY 14,744 9 22,284 11 29,838 13
-------- ---- -------- --- -------- --
Total $169,112 100% $195,230 100% $226,364 100%
======== === ======== === ======== ===
</TABLE>
1
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Treaty Reinsurance
Treaty reinsurance involves evaluating groupings of multiple risks or segments
of a ceding company's overall business. Approximately 98% of Trenwick America
Re's net premiums written is currently represented by treaty reinsurance
including standard treaty, specialty and property business. Specialty business
underwritten by Trenwick America Re generally includes specialty coverages and
classes such as professional liability, directors' and officers' liability and
other excess and surplus lines exposures. Specialty business also encompasses
reinsurance of business written by managing general agents or alternative risk
mechanisms other than insurance companies. Net treaty premiums written decreased
14% and 13% in 1998 and 1997, respectively, and increased 15% in 1996. In 1998,
Trenwick wrote an aggregate of 233 treaties on both a quota share and excess of
loss basis, as compared to 230 treaties in 1997 and 229 treaties in 1996.
Trenwick America Re's commitment is currently limited to $2,500,000 per contract
on casualty treaty business and $1,500,000 on property business. Larger
commitments are subject to Trenwick America Re's Underwriting Committee referral
process.
Facultative Reinsurance
Facultative reinsurance is reinsurance written on a risk-by-risk basis and
consists entirely of casualty business. This business, predominantly automobile
liability, currently accounts for only 2% of net premiums written in 1998. All
facultative business is written on an excess of loss basis. The average gross
limit provided by Trenwick is $601,000. Maximum facultative gross capacity per
risk is $2,000,000. Trenwick America Re retains the first $500,000 per
transaction. In 1998 and 1997, casualty facultative net premiums written
represented by 295 and 297 contracts increased 13% and decreased 49%,
respectively. In 1996, casualty facultative net premiums written represented by
384 contracts increased 6% over the prior year.
Domestic net premiums written by line of business are set forth in the following
table for the periods indicated.
DOMESTIC NET PREMIUMS WRITTEN BY LINES OF BUSINESS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Casualty
Automobile Liability $ 51,299 $ 50,187 $ 64,539
Errors and Omissions 36,655 40,063 48,888
General Liability 17,743 20,795 22,519
Accident and Health 11,014 6,326 205
Medical Malpractice 7,700 10,293 9,846
Workers' Compensation 3,025 18,328 20,502
Products Liability 2,312 1,743 2,595
Other Casualty 2,697 9,133 10,247
---------- ----------- ---------
Total Casualty 132,445 156,868 179,341
Property 36,667 38,362 47,023
---------- ----------- ---------
Total $169,112 $195,230 $226,364
======== ======== ========
</TABLE>
2
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The major lines of reinsurance currently written by Trenwick America Re are
automobile liability, errors and omissions, general liability and accident and
health. Together these lines account for an aggregate of at least 60% of its net
premiums written in all years indicated. Except for accident and health, these
lines as well as medical malpractice, workers compensation, products liability
and other casualty, have declined since 1996 as a result of three principal
causes. Competition among primary companies has caused cedants to reduce their
own premium writings or restructure their reinsurance programs, reducing the
amount of reinsurance they purchase. As a result of consolidation within the
industry, many ceding companies are now larger and financially stronger,
enabling them to retain more risk. In addition, increasingly intense competition
in the reinsurance markets has driven reinsurance prices on a number of accounts
below pricing levels which Trenwick America Re will accept. The decline in
workers compensation is primarily due to the non-renewal of a single significant
account. Accident and health net premiums written increased by approximately 74%
as compared to 1997 resulting primarily from Trenwick America Re's strategic
alliance with Duncanson and Holt. In 1998, the amount of property business,
including automobile physical damage, underwritten by Trenwick America Re
remained constant as a percentage of total net written premiums.
In 1998, 1997 and 1996, twelve programs underwritten by Trenwick America Re
accounted for approximately 51%, 45% and 49%, respectively, of Trenwick America
Re's gross premiums written. Three ceding companies accounted for approximately
38%, 32% and 37% of Trenwick America Re's gross premiums written in 1998, 1997
and 1996, respectively. During 1998, Duncanson and Holt, American International
Group and Fort Washington Holdings accounted for 16%, 12% and 10%, respectively,
of Trenwick America Re's gross premiums written. Trenwick America Re expects to
renew these accounts for 1999. While Trenwick America Re believes that the loss
of any one of these accounts would have a material adverse effect on premiums
written, Trenwick America Re does not believe that such a loss would result in a
concurrent material decrease in its earnings. Further, Trenwick America Re
believes that it would continue to underwrite new business to replace these
accounts, in the event that they were non-renewed.
INTERNATIONAL OPERATIONS
Trenwick International also obtains all of its business through brokers.
Trenwick International's business consists of Specialist Risk Underwriting (SRU)
which includes direct insurance, facultative reinsurance and treaty reinsurance.
The following table reflects Trenwick International's net premiums written by
type of business for 1998.
INTERNATIONAL NET PREMIUMS WRITTEN BY TYPE OF BUSINESS
(IN THOUSANDS)
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<CAPTION>
1998
----
<S> <C> <C>
SRU 72,015 89%
TREATY 9,092 11%
------- ---
Total $81,107 100%
======= ===
</TABLE>
3
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SRU
SRU underwrites business in both London and Paris. The Company's branch office
in Paris was opened in September of 1998 and accordingly the contribution to
premium writings in 1998 from this office was not material. In both SRU
locations, the company employs specialty underwriters with extensive experience
in niche sectors. The principal lines of business underwritten in 1998 include
property, engineering, accident and health professional indemnity, financial
institutions, liability, extended warranty and yacht hull. Approximately 56% of
Trenwick International's net premiums were written directly as insurance.
The Company's Paris branch specializes in large, complex property risks that
require a high degree of underwriting expertise. Trenwick International
generally underwrites this business, which includes large manufacturing
facilities, construction projects as well as both onshore and offshore energy
risks, as facultative reinsurance, but can also function directly as an insurer.
Paris benefits from a pool of underwriters trained as engineers and has emerged
as a center for this type of technical underwriting.
Treaty
Trenwick International's treaty business includes liability business, which
accounted for approximately 70% of treaty business in 1998, as well as property
and credit business. Treaty is written both on a proportional and
non-proportional basis.
MARKETING
Trenwick generally obtains all its business through insurance and reinsurance
brokers which represent the ceding company and clients in negotiations for the
purchase of insurance or reinsurance. The process of effecting a brokered
placement typically begins when a client or ceding company enlists the aid of a
broker in structuring an insurance or reinsurance program. Often the various
parties will consult with one or more lead underwriters as to the pricing and
contract terms of the protection being sought. Once the terms quoted by the lead
underwriter have been approved, the broker will offer participations to
qualified insurers or reinsurers until the program is fully subscribed at terms
agreed to by all parties.
Trenwick pays such intermediaries or brokers commissions representing negotiated
percentages of the premium it writes. These commissions constitute part of
Trenwick's total acquisition costs and are included in its underwriting
expenses. Brokers do not have the authority to bind Trenwick with respect to
agreements, nor does Trenwick commit in advance to accept any portion of the
business that brokers submit to it. Business from any company, whether new or
renewal, is subject to acceptance by Trenwick.
Substantially all of Trenwick America Re's business is produced by reinsurance
brokers. During 1998, three reinsurance brokers, AON Reinsurance, Peglar and
Associates, Inc. and Willis Faber, N.A. generated 37%, 10% and 10%,
respectively, of Trenwick America Re's gross written premiums. These brokers are
among the ten largest brokers in the reinsurance industry. Trenwick America Re's
concentration of business through a small number of sources is consistent with
the concentration of the property and casualty broker reinsurance market, in
which a majority of the business is written through the ten largest brokers.
Contrary to the U.S. broker market concentration, Trenwick International's
business is produced from a variety of sources, including 125 insurance and
reinsurance brokerage firms. Trenwick International obtained approximately 15%
and 12% of its gross written premiums from two brokers in 1998, which were
Nelson Hurst and AON Reinsurance, respectively. Loss of all or
4
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a substantial portion of the business provided by Trenwick's brokers could have
a material adverse effect on the business and operations of Trenwick. Trenwick
does not believe, however, that the loss of such business would have a long-term
adverse effect because of Trenwick's competitive position within the broker
insurance and reinsurance market and the availability of business from other
brokers.
UNDERWRITING
Trenwick's underwriting philosophy emphasizes a transactional approach to
underwriting in which any insurance or reinsurance transaction for any line of
property or casualty business is considered on its own merits. The underwriter's
primary objective is to assess the potential for an underwriting profit. The
risk assessment process undertaken by Trenwick's underwriters involves a
comprehensive analysis of historical data, when available, and estimates of
future value of loss costs which may not be evident in the historical data. The
factors which Trenwick considers include the type of risk, details of the
underlying insurance coverage provided, adequacy of pricing using actuarial
analysis and the terms and conditions. With respect to its domestic operations
which comprises fewer but significantly larger accounts, Trenwick frequently
conducts underwriting and claims audits of ceding companies to assist it in
evaluating the information submitted by the ceding companies, before agreeing to
participate in a reinsurance transaction.
Trenwick has established formal underwriting policy standards for both domestic
and international operations. This process involves pre-binding reviews of
individual material transactions by its senior underwriting staff. Underwriting
policies for insurance and reinsurance transactions are supplemented by
conducting periodic internal audits of each underwriting department to ensure
compliance with underwriting policies and procedures.
COMPETITION
Trenwick competes with numerous major international and domestic insurance and
reinsurance companies. These competitors, many of which have substantially
greater financial and staff resources than Trenwick, include independent
insurance and reinsurance companies, subsidiaries or affiliates of established
insurance companies, reinsurance departments of certain commercial insurance
companies and underwriting syndicates.
Trenwick America Re's market has two basic segments: reinsurers that primarily
obtain their business directly from insurers and those that primarily obtain
business through reinsurance intermediaries or brokers. Although Trenwick
generally obtains all of its business through reinsurance intermediaries or
brokers, and therefore, competes directly with other reinsurers that obtain
their business in this way, it also competes indirectly with reinsurers who
obtain business directly from primary insurers. Trenwick America Re's brokers
must compete with direct reinsurers for business to be offered to Trenwick
America Re. Trenwick International competes with international insurance and
reinsurance companies that generally obtain their business through brokers.
Competition in the types of business which Trenwick underwrites is based on many
factors. These factors include the perceived overall financial strength of the
insurer or reinsurer, rates charged, other terms and conditions, agency ratings
(including A.M. Best and Standard and Poor's), service offered, speed of service
(including claims payment) and perceived technical ability and experience of
staff. The number of jurisdictions in which an insurer or reinsurer is licensed
or authorized to do business is also a factor.
5
<PAGE> 8
The financial security of insurers and reinsurers has emerged as a key issue
throughout the 1990's. To be accepted by clients, and by ceding companies and
their brokers, insurers and reinsurers must demonstrate higher levels of
financial security and solvency than were previously required. Transactions tend
to have fewer and larger participants, which may negatively affect the
availability of underwriting opportunities. However, Trenwick's management
believes that the increased specialization of ceding companies will favor
reinsurers such as Trenwick which possess technical underwriting and risk
assessment skills. The alternative risk segment of the market has grown, thereby
removing some premiums from the traditional property and casualty primary
insurance market. Alternative risk mechanisms, which depend more heavily on
reinsurance than the traditional companies they have replaced, have created new
opportunities for specialized reinsurers.
Trenwick's management believes that the insurance and reinsurance industry,
including the broker market, will continue to undergo further consolidation and
that size and financial strength will continue to be significant factors in
effective competition. Trenwick America Re's statutory surplus was $330,496,000
at December 31, 1998. Based on the most recent information prepared by the
Reinsurance Association of America (RAA), this surplus placed Trenwick among the
top sixteen ranked reinsurance companies and the top thirteen reinsurers in the
U.S. broker market, as measured by policyholder surplus, of those companies
reporting to the RAA. The RAA is an industry organization of professional
property and casualty reinsurers which, among other things, compiles data on
reinsurers and their reinsurance operations. Trenwick International has
approximately $132,000,000 in statutory surplus.
Trenwick America Re is domiciled in Connecticut and is licensed, authorized or
approved to write reinsurance in all 50 states and the District of Columbia. It
is rated A+ (Superior) by A.M. Best Company and also holds an A+ (Good)
Claims-Paying Ability Rating from Standard & Poor's Insurance Rating Services.
Trenwick International, domiciled in England, is authorized to write insurance
in over 30 countries and participates in the London market for worldwide
reinsurance. It is rated A (Excellent) by A.M. Best and also holds an A+ (Good)
Standard & Poor's Claims-Paying Ability Rating.
CLAIMS ADMINISTRATION
Claims are managed by Trenwick's professional claims staff whose
responsibilities include the review of initial loss reports, creation of claim
files, determination of whether further investigation is required, establishment
and adjustment of case reserves and payment of claims. In addition, the claims
staff conducts comprehensive claims audits of both specific claims and overall
claims procedures at the offices of selected brokers and ceding companies. In
certain instances, a claims audit may be performed prior to assuming reinsurance
business as part of a comprehensive risk evaluation process. For insurance
business, Trenwick's claim staff uses their own judgement as well as advice from
lawyers and loss adjusters where appropriate.
UNPAID CLAIMS AND CLAIMS EXPENSES
Insurers and reinsurers establish claims and claims expense reserves
representing estimates of future amounts needed to pay claims and related
expenses with respect to insured events which have occurred. Claims and claims
expense reserves have two components: case reserves, which are reserves for
reported claims, and incurred but not reported ("IBNR") reserves, which are
reserves for claims not yet reported. Significant periods of time may elapse
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between the occurrence of an insured claim, the reporting of the claims to the
insurer and the subsequent reporting of the claims to the reinsurer, the
insurer's payment of that claim, and later payments by the reinsurer.
Trenwick first establishes its case reserves for reported claims when it
receives notice of the claim. It is Trenwick's policy to establish reserves for
reported claims in an amount equal to the greater of the reserve recommended by
the ceding company or the claim as estimated by Trenwick's claims personnel.
Trenwick periodically conducts investigations to determine if the amount
reserved by the ceding company is appropriate or should be adjusted. During the
claim settlement period, which may be many years, additional facts regarding
individual claims may become known. As Trenwick learns additional facts, it may
become necessary to refine and adjust upward or downward the estimated reserves
on a claim, and even then the ultimate net reserve may be less than or greater
than the revised estimates. Trenwick does not discount any of its reserves for
reported or unreported claims in any line of its business for anticipated
investment income.
Trenwick uses a combination of actuarial methods to determine its IBNR reserves.
These methods fall into two general categories: (1) methods by which ultimate
claims are estimated based upon historical patterns of reported claim
development experienced by Trenwick, as supplemented by reported industry data,
and (2) methods in which the level of Trenwick's IBNR claim reserves are
established based upon the IBNR claim reserves relative to earned premium of
other reinsurers, applied by accident year, line of business and type of
reinsurance (excess of loss versus quota share) written by Trenwick. Reserve
methods implicitly recognize the effect of inflation and other factors affecting
claims payments by taking into account changes in historical payment patterns,
the volume of business written, and trends in claim frequency and severity as
reflected in Trenwick's reported claim activity. Due to the inherent
uncertainties of estimating insurance company claim reserves, actual claims and
claims expenses may deviate, perhaps substantially, from estimates of Trenwick's
reserves reflected in the consolidated financial statements. Management believes
that its claim reserve methods are reasonable and prudent and that Trenwick's
reserves for claims and claims expenses at December 31, 1998 are adequate.
Trenwick America Re's known exposure to environmental claims, including asbestos
and pollution liability, is primarily associated with its participation in
business written by its predecessor company between 1978 and 1983. Exposure to
environmental claims on Trenwick America Re's business written since 1983 is
generally limited by exclusions on its own reinsurance contracts and also by
exclusions on policies issued by ceding companies. Casualty business written in
1983 and prior is not material to Trenwick's overall book of business. As of
December 31, 1998 outstanding claims including incurred but not reported claims
for environmental liability were approximately $8,400,000, approximately 1% of
Trenwick America Re's total net outstanding reserves. Trenwick International has
no known exposure to environmental claims. Under Trenwick's current
interpretation of policy language, management does not believe that it has a
material exposure to environmental claims that requires additional reserves
beyond its current estimates.
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The following table presents the development of Trenwick's net unpaid claims and
claims expenses for 1988 through 1998. The top line of the table shows the net
unpaid claims and claims expenses at the balance sheet date for each of the
indicated years. This reflects the net estimated amounts of claims and claims
expenses for claims arising in that year and in all prior years that are unpaid
at the balance sheet date, including claims that had been incurred but not yet
reported to Trenwick. The upper portion of the table shows the net cumulative
subsequently paid amounts as of successive years with respect to that liability.
The middle portion of the table shows the net re-estimated amount of the
previously recorded net unpaid claims and claims expenses based on experience as
of the end of each succeeding year. The estimates change as more information
becomes known about the frequency and severity of claims for individual years. A
redundancy (deficiency) exists when the net re-estimated liability at each
December 31 is less (greater) than the prior net liability estimate. The net
"Cumulative Redundancy (Deficiency)" depicted in the table for any particular
calendar year represents the aggregate change in the initial net estimates over
all subsequent calendar years.
The lower portion of the table presents a reconciliation of the net unpaid
claims and claims expenses as of the end of the year with the related gross
unpaid claims and claims expenses as of December 31, 1991 through 1998.
Additionally, the table presents a reconciliation of the gross re-estimated
unpaid claims and claims expenses as of the end of the latest re-estimation
year, with separate disclosure of the related re-estimated reinsurance
recoverable on unpaid claims and claims expenses. The "gross cumulative
redundancy" depicted in the table for the calendar years 1991 through 1998
represents the aggregate change in the initial gross estimates over all
subsequent calendar years.
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DEVELOPMENT OF UNPAID CLAIMS AND CLAIMS EXPENSES
(in thousands)
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<CAPTION>
1998 1997 1996 1995 1994
---- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Net unpaid claims and claims
expenses, end of year $449,264 $379,351 $386,887 $327,001 $294,008
Cumulative amount of net
liability paid as of:
One year later 104,718 94,197 46,860 61,804
Two years later -- 162,565 110,289 81,417
Three years later -- -- 149,810 121,133
Four years later -- -- -- 142,485
Five years later -- -- -- --
Six years later -- -- -- --
Seven years later -- -- -- --
Eight years later -- -- -- --
Nine years later -- -- -- --
Ten years later -- -- -- --
Net liability re-estimated as of:
One year later 372,176 381,521 322,562 291,943
Two years later -- 374,336 317,199 279,561
Three years later -- -- 308,700 274,283
Four years later -- -- -- 265,041
Five years later -- -- -- --
Six years later -- -- -- --
Seven years later -- -- -- --
Eight years later -- -- -- --
Nine years later -- -- -- --
Ten years later -- -- -- --
Net cumulative redundancy
Amount of original liability* 7,175 12,551 18,301 28,967
Percentage -- 3% 6% 10%
Gross liability, end of year 518,387 467,177 411,874 389,298
Reinsurance recoverable 139,036 80,290 84,873 95,290
Net liability, end of year 379,351 386,887 327,001 294,008
Gross re-estimated liability-latest 510,703 456,134 393,467 338,577
Re-estimated recoverable-latest 138,527 81,798 84,767 73,536
Net re-estimated liability-latest 372,176 374,336 308,700 265,041
Gross cumulative redundancy 7,685 11,043 18,407 50,721
<CAPTION>
1993 1992 1991 1990 1989 1988
-------- -------- -------- -------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net unpaid claims and claims
expenses, end of year $268,091 $266,685 $258,774 $245,105 $214,391 $169,785
Cumulative amount of net
liability paid as of:
One year later 52,300 52,260 44,930 42,234 29,407 19,983
Two years later 90,382 93,312 80,725 77,183 60,888 34,855
Three years later 89,445 118,345 111,225 102,590 84,283 53,243
Four years later 112,119 111,174 127,431 124,129 101,597 67,132
Five years later 124,096 125,847 116,224 134,657 116,047 77,922
Six years later -- 133,502 127,130 122,089 124,465 87,397
Seven years later -- -- 132,194 129,100 110,656 93,109
Eight years later -- -- -- 132,888 115,017 78,032
Nine years later -- -- -- -- 117,364 81,381
Ten years later -- -- -- -- -- 83,229
Net liability re-estimated as of:
One year later 267,644 255,379 253,781 238,324 206,724 163,848
Two years later 263,473 255,379 243,488 233,565 199,864 154,646
Three years later 246,367 252,458 243,586 223,417 196,232 150,470
Four years later 241,478 236,009 241,600 224,171 188,052 145,457
Five years later 229,742 230,488 225,592 223,172 189,148 137,426
Six years later -- 222,094 217,852 213,327 188,884 137,818
Seven years later -- -- 208,701 205,179 180,619 138,255
Eight years later -- -- -- 199,948 176,778 133,192
Nine years later -- -- -- -- 172,846 130,422
Ten years later -- -- -- -- -- 128,595
Net cumulative redundancy
Amount of original liability* 38,349 44,591 50,073 45,157 41,545 41,190
Percentage 14% 17% 19% 18% 19% 24%
Gross liability, end of year 354,582 351,897 332,503
Reinsurance recoverable 86,491 85,212 73,729
Net liability, end of year 268,091 266,685 258,774
Gross re-estimated liability-latest 293,805 288,040 266,406
Re-estimated recoverable-latest 64,063 65,946 57,705
Net re-estimated liability-latest 229,742 222,094 208,701
Gross cumulative redundancy 60,777 63,857 66,097
</TABLE>
*Excludes Trenwick International's prior year claims in the amount of $5,381,000
acquired on date of purchase, February 27, 1998.
9
<PAGE> 12
In evaluating the information in the table on the preceding page, it should be
noted that each amount includes the effects of all changes in amounts for prior
periods. For example, if a claim determined in 1991 to be $150,000 was first
reserved in 1986 at $100,000, the $50,000 deficiency (actual claim minus
original estimate) would be included in the gross cumulative redundancy
(deficiency) in each of the years 1986-1991 shown on the preceding page. This
table does not present accident or policy year development data. Conditions and
trends that have affected the development of liability in the past may not
necessarily occur in the future. Accordingly, it may not be appropriate to
extrapolate future redundancies or deficiencies based on this table.
The trend depicted in the table indicates that net unpaid claims and claims
expense liability at December 31, 1997 have developed redundantly due to
Trenwick America Re's favorable development for claims occurring in accident
years 1993 and prior, partially offset by adverse development in accident years
1994 through 1997. For further discussion of unpaid claims and claims expenses
see Note 4 of Notes to the Consolidated Financial Statements of Trenwick.
REINSURANCE AND RETROCESSIONAL AGREEMENTS
Insurance and reinsurance companies enter into reinsurance and retrocessional
agreements to reduce their net liability on individual risks, protection against
catastrophic losses and maintenance of acceptable ratios. Trenwick America Re
has various retrocessional facilities, all of which are on a treaty basis. These
retrocessional facilities include one treaty for Trenwick America Re's
facultative casualty reinsurance business, which applies on a risk or account
basis, and two for its treaty property business, which protect it against
multiple claims arising out of a single occurrence or event. As a result of
these facilities, Trenwick America Re's maximum retention generally does not
exceed $500,000 per occurrence on facultative business and $2,300,000 per
occurrence on property catastrophe business. Since 1989, Trenwick America Re has
purchased aggregated excess of loss ratio treaties from several reinsurers.
These facilities provided Trenwick with a layer of protection against adverse
results from its domestic casualty business in excess of specified loss ratios.
Trenwick International, as customary with companies operating in the London
market, buys large amounts of reinsurance. Reinsurance and retrocessional
coverage is customized for each class of business. During 1998, following an
increase in its share capital, Trenwick International increased its retention of
business by reducing the amount of reinsurance it buys, principally proportional
reinsurance treaties with its former parent.
Trenwick remains liable with respect to insurance and reinsurance ceded in the
event that the insurer or retrocessionaire is unable to meet its obligations.
All reinsurers and retrocessionaires must be formally approved by Trenwick
America Re's and Trenwick International's Security Committee. The Security
Committees re-evaluate the financial condition of Trenwick reinsurers and
retrocessionaires at least annually. The evaluation process involves financial
analysis of current audited financial data and comparative analysis of such data
in accordance with guidelines established by Trenwick. Business may not be
conducted with retrocessionaires who are not currently approved by the Security
Committees.
Trenwick America Re's principal retrocessionaires domiciled in the United States
are Zurich Reinsurance, Continental Casualty Company and Unum Life Insurance
Company of America, which are rated A or better by A.M. Best Company. Trenwick
America Re's principal retrocessionaires domiciled outside the United States are
syndicates at Lloyds of London and Unionamerica Insurance Company, Limited.
10
<PAGE> 13
Trenwick International has two principal retrocessionaires, Societe de
Reassurance des Mutuelles Agricoles S.A., which is domiciled in France and
SOREMA North America Reinsurance Company which is domiciled in the U.S. Both
companies are rated A (Excellent) by A.M. Best Company. At December 31, 1998,
Trenwick America Re and Trenwick International had no material uncollectible
amounts due from its retrocessionaires.
INVESTMENTS
Trenwick America Re's investments comply with the insurance laws of the state of
Connecticut, its domicile state, and of the other states in which it is licensed
or authorized. These laws prescribe the kind, quality and concentration of
investments which may be made by insurance companies. In general, these laws
permit investments, within specified limits and subject to certain
qualifications, in federal, state and municipal obligations, corporate bonds,
preferred and common stock, real estate mortgages and real estate. Similarly,
Trenwick International's investments comply with the insurance laws of the
Financial Services Authority (FSA). These laws penalize high concentrations of
riskier types of assets and high exposures to certain types of issuers. The
Investment Committees of Trenwick's Boards of Directors oversee investments and
set procedures and guidelines for investment strategy. Trenwick's internal staff
manage these investments and utilize the services of investment advisers.
Trenwick's investment strategy focuses on capital preservation and income
predictability. This strategy also requires that the risks associated with these
objectives are properly managed. Accordingly, Trenwick emphasizes investment
grade debt investments. At December 31, 1998, 89% of Trenwick's domestic
companies (Trenwick America) debt investments were rated Aa or better and none
had a Moody's Investors Service quality rating less than A. In October 1998,
securities with an estimated fair value of $4,390,000 had their ratings
withdrawn by various Nationally Recognized Statistical Rating Organizations. The
servicer of these securities, Commercial Financial Services, Inc., filed for
protection under Chapter 11 of the Federal Bankruptcy Code in December 1998. At
December 31, 1998, 100% of Trenwick International's debt investments were rated
Aaa/P1 by Moody's Investors Service.
Trenwick's investment strategy permits an allocation for equity securities. At
December 31, 1998, 5% of Trenwick's total investments and cash were invested in
common and preferred equities of U.S. and United Kingdom corporations
respectively. The primary risk associated with these securities is the exposure
to daily market fluctuations.
Trenwick America invests in three types of structured securities, collateralized
mortgage obligations (CMO), mortgage-backed securities not backed by U.S.
government agencies (non-agency MBS) and asset-backed securities (ABS), each
accounting for 10%, 11% and 4%, respectively, of Trenwick America's portfolio at
December 31, 1998.
CMOs consist of planned amortization classes (PACs) which have been constructed
with a certain amount of call protection and CMOs that have lost their PAC
protection (sometimes called "broken" or "busted" PACs), due to actual
prepayments being significantly higher or lower than originally forecast. These
agency backed CMOs are not subject to credit risk, as all holdings are backed
indirectly or directly by the Federal government or one of its agencies. The
material risk inherent to holding these CMOs is prepayment risk, which relates
to the timing of cash flows that result from amortization, whether it
accelerated, because of lower interest rates and therefore higher than expected
prepayments, or decelerated, because of higher interest rates and therefore
lower than expected prepayments. Changes in principal repayments could
negatively affect investment income due to the timing of the reinvested funds.
11
<PAGE> 14
Non-agency MBSs are constructed primarily from the securitization of mortgages
on commercial or residential real estate and, lacking any agency backing, are
inherently subject to credit risk. They also have an element of prepayment risk
which is contingent on the structure of each security and its underlying
collateral. The non-agency MBS issues Trenwick has purchased have a rating of A
or better from various Nationally Recognized Statistical Rating Organizations.
The asset-backed securities owned by Trenwick have primarily credit card and
home equity receivables as collateral and are subject also to credit risk. These
securities have less cash flow uncertainty than non-agency MBS and CMO issues,
because the issuer has the ability to add in new collateral should the
asset-backed security experience faster prepayments, or in the event of default
on the underlying collateral. The asset-backed securities owned by Trenwick are
rated A or better by various Nationally Recognized Statistical Rating
Organizations, with the exception of the asset-backed securities serviced by
Commercial Financial Services, Inc. for which ratings have been withdrawn.
Trenwick also invests in agency pass-through securities which account for 3% of
Trenwick America's portfolio at December 31, 1998. As with CMOs, these
securities are subject to prepayment risk.
Trenwick International holds debt securities and cash in a number of currencies.
At December 31, 1998, approximately 81% of Trenwick International's debt
securities and cash were held in U.K. sterling, 9% in U.S. dollars, 4% in German
marks, and the remainder in eight other currencies.
12
<PAGE> 15
The table below sets forth the distribution of Trenwick's investments at
December 31, 1998 by type, maturity and quality rating.
INVESTMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AVERAGE ESTIMATED
MATURITY FAIR AMORTIZED
IN YEARS VALUE COST
--------- ---------- ---------
<S> <C> <C> <C>
TYPE
U.S. government bonds 4.4 $ 68,668 $ 64,831
Tax-exempt bonds(1) 5.2 394,017 380,593
Mortgage-backed and asset-backed securities 10.5 212,116 206,790
Debt securities issued by British government 1.4 46,536 45,949
Debt securities issued by other foreign governments .5 8,241 8,163
Public utilities 3.6 3,086 2,864
Corporate securities 6.0 57,310 55,364
Redeemable preferred stocks 3.6 2,048 2,000
Certificates of deposit .5 100,998 100,998
---------- ---------
Total debt securities 5.7 893,020 867,552
Equity securities 49,188 44,342
Cash and cash equivalents .1 63,003 63,003
---------- ----------
Total investments and cash $1,005,211 $974,897
========== ========
MATURITY (DEBT SECURITIES)
Due in one year or less .4 $ 146,008 $145,390
Due in one year through five years 2.8 417,662 406,249
Due after five years through ten years 7.6 207,440 197,655
Due after ten years 19.1 121,910 118,258
---------- ---------
Total debt securities 5.7 $ 893,020 $867,552
========== ========
QUALITY (DEBT SECURITIES)
Aaa(2)-U.S. government bonds $ 68,668 $ 64,831
Tax-exempt bonds 351,232 339,628
Mortgage-backed and asset-backed securities 122,282 117,117
Debt securities issued by British government 46,536 45,949
Debt securities issued by other foreign governments 5,118 5,101
Corporate securities 7,118 6,785
---------- ---------
600,954 579,411
---------- ---------
Aa(2)-Tax-exempt bonds 40,620 38,898
Mortgage-backed and asset-backed securities 50,377 48,559
Corporate securities 18,005 17,285
Redeemable preferred stocks 2,048 2,000
---------- ---------
111,050 106,742
---------- ---------
A(2)-Tax-exempt bonds 2,165 2,067
Mortgage-backed securities 35,067 34,360
Debt securities issued by foreign governments 3,123 3,062
Public utilities 3,086 2,864
Corporate securities 32,187 31,294
---------- ---------
75,628 73,647
---------- ---------
P1(2)-Certificates of deposits 100,998 100,998
---------- ---------
Withdrawn - Asset-backed securities 4,390 6,754
---------- ---------
Total debt securities $893,020 $867,552
========== =========
</TABLE>
(1) Tax-exempt bonds include $64,540,000 escrowed in U.S. Government
Securities, $197,870,000 insured by Municipal Bond Investors Assurance
Corporation, Financial Guaranty Insurance Company, AMBAC Indemnity
Corporation, or Financial Security Assurance Corporation and $42,020,000
both escrowed and insured.
(2) Quality rating as assigned by Moody's Investors Service, Inc. for all
except certain mortgage-backed securities not backed by U.S. government
agencies and certain asset-backed securities. Quality ratings for these
other securities are as assigned by Fitch Investors Service, Standard and
Poor's or Duff and Phelps. Ratings are generally assigned upon the
issuance of the securities, subject to revision on the basis of ongoing
evaluations.
13
<PAGE> 16
REGULATION
Trenwick and its domestic subsidiaries are subject to regulatory oversight under
the insurance statutes and regulations of the jurisdictions in which they
conduct business, including all states of the United States. These regulations
vary from jurisdiction to jurisdiction and are generally designed to protect
ceding insurance companies and policyholders by regulating Trenwick's financial
integrity and solvency in its business transactions and operations. Trenwick
International is subject to the regulatory authority of the United Kingdom
Financial Services Authority (FSA). Many of the insurance statutes and
regulations applicable to Trenwick's subsidiaries relate to reporting and enable
regulators to closely monitor Trenwick's performance. Typical required reports
include information concerning Trenwick's capital structure, ownership,
financial condition, and general business operations.
NAIC
The National Association of Insurance Commissioners ("NAIC") is an organization
which assists state insurance supervisory officials in achieving insurance
regulatory objectives, including the maintenance and improvement of state
regulation. From time to time various regulatory and legislative changes have
been proposed in the insurance industry, some of which could have an effect on
reinsurers. Among the proposals that have in the past been or are at present
being considered are the possible introduction of federal regulation in addition
to, or in lieu of, the current system of state regulation of insurers, and
proposals in various state legislatures (some of which proposals have been
enacted) to conform portions of their insurance laws and regulations to various
model acts adopted by the NAIC. Trenwick is unable to predict what effect, if
any, these developments may have on its operations and financial condition. See
Item 7, Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RBC
The NAIC's initiative to establish minimum capital requirements, referred to as
Risk Based Capital ("RBC"), for property and casualty companies was completed
and adopted in 1993. This formula is used by state insurance regulators as an
early warning tool to identify, for the purpose of initiating regulatory action,
insurance companies that potentially are inadequately capitalized. The ratios
calculated for Trenwick America Re exceeded all of the RBC trigger points at
December 31, 1998. Trenwick believes its capital will continue to exceed these
RBC capital and surplus requirements for the foreseeable future. See Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
State Insurance Regulation
The premium rates and policy terms of reinsurance agreements generally are not
subject to regulation by any government authority. This contrasts with property
and casualty insurance where the premium rates and policy terms are generally
closely regulated by state insurance departments. As a practical matter,
however, the premium rates charged by insurers may place a limit on the rates
which can be charged by reinsurers.
The regulation and supervision to which Trenwick America Re is subject relate
primarily to the standards of solvency that must be met and maintained,
licensing requirements for reinsurers, the nature of and limitations on
investments, restrictions on the size of risks which may be insured, deposits of
securities for the benefit of a reinsured, methods of accounting, periodic
examinations of the financial condition and affairs of reinsurers, the form and
content of reports of financial condition required to be filed, and reserves for
unearned premiums, losses and other purposes. In general, such regulation is for
14
<PAGE> 17
the protection of the reinsureds, and ultimately, their policyholders rather
than their security holders. Trenwick believes that it is in compliance with all
such regulations.
Trenwick America Re is subject to regulation under the insurance statutes and
insurance holding company statutes of various states, including Connecticut, its
domicile. These laws and regulations vary from state to state, but generally
require an insurance holding company, and insurers and reinsurers that are
subsidiaries of an insurance holding company, to register with the state
regulatory authorities and to file with those authorities certain reports
including information concerning their capital structure, ownership, financial
condition and general business operations.
State laws also require prior notice or regulatory agency approval of direct or
indirect changes in control of an insurer, reinsurer or its holding company and
of certain significant intercorporate transfers of assets within the holding
company structure. An investor who acquires securities representing or
convertible into more than 10% of the voting power of the securities of Trenwick
would become subject to at least some of such regulations and would be subject
to approval by the Connecticut Insurance Commissioner prior to acquiring such
shares. Such investor would also be required to file certain notices and reports
with the Commissioner prior to such acquisition.
Effective January 1, 2001, the Connecticut Insurance Department will adopt the
codification of Statutory Accounting Principles. The codification provides
guidance for areas where statutory accounting has been silent and changes
current statutory accounting in some areas. Assuming Trenwick America Re adopted
codification as of January 1, 1998, the effect of adoption would have been an
increase in statutory net income of approximately $25,600,000 and a net increase
to statutory surplus of approximately $27,600,000 as a result of recording a
deferred tax benefit and a net deferred tax asset.
Dividends
Under the holding company structure, Trenwick is dependent upon the ability of
its operating subsidiaries, Trenwick America Re and Trenwick International to
transfer funds, principally in the form of cash dividends and tax
reimbursements. The statutory limitation on dividends which can be paid, within
any preceding twelve months, without prior approval of the Connecticut Insurance
Commissioner, applicable to Trenwick America Re, is the greater of 10% of
policyholder surplus at December 31 of the preceding year or 100% of net income
for the twelve month period ending December 31 of the preceding year, but shall
not include pro rata distributions of any class of Trenwick America Re's own
securities, both determined in accordance with statutory accounting practices.
The amount of dividends or other distributions that could be paid by Trenwick
America Re without prior approval as of December 31, 1998 was $40,930,000.
During 1998, 1997 and 1996, Trenwick America Re paid dividends of $30,100,000,
$8,250,000 and $4,100,000, respectively.
Under the applicable laws of the United Kingdom, Trenwick International may make
shareholder distributions only from accumulated realized profits, net of
accumulated realized losses. In addition, under the U.K. Insurance Companies
Act, Trenwick International is not permitted to make any distribution that would
reduce its net assets below the minimum margin of solvency required by law. The
FSA promulgates rules for determining the required margin of solvency which is
approximately $11,451,000 as of December 31, 1998. The Company must also notify
the FSA of any proposal to declare or pay a dividend on any of its share
capital.
15
<PAGE> 18
Investment Limitations
Connecticut laws and regulations govern the types and amounts of investments
which are permissible for a Connecticut insurer or reinsurer, including Trenwick
America Re. These rules are designated to ensure the safety and liquidity of the
insurer's investment portfolio. In general, these rules permit a Connecticut
insurer to purchase only investments which are interest bearing, interest
accruing, entitled to dividends or otherwise income earning and not then in
default in any respect, and the insurer must be entitled to receive for its
exclusive account and benefit the interest or income accruing thereon. No
security or investment is eligible for purchase at a price above its fair value
or market value. In addition, these rules require investments by Trenwick to be
diversified. The Financial Services Authority governs the types and amounts of
investments which are permissible for insurers in the United Kingdom, including
Trenwick International. These laws penalize high concentrations of riskier types
of assets and high exposures to certain types of issuers. Trenwick believes that
it is in compliance with all applicable investment laws.
EMPLOYEES
At December 31, 1998, Trenwick employed a total of 68 and 79 persons in its
domestic and international operations, respectively. Trenwick has no employees
represented by a labor union and believes that its employee relations are good.
ITEM 2. PROPERTIES
Trenwick's corporate headquarters and Trenwick America Re's offices are located
in approximately 46,000 total square feet of leased office space at One
Canterbury Green, Stamford, Connecticut. Trenwick International leases office
space in London, England and Paris, France. See Note 7 of Notes to the
Consolidated Financial Statements of Trenwick.
ITEM 3. LEGAL PROCEEDINGS
Trenwick is party to various legal proceedings generally arising in the normal
course of its business. Trenwick does not believe that the eventual outcome of
any such proceeding will have a material effect on its financial condition or
business. Trenwick's subsidiaries are regularly engaged in the investigation and
the defense of claims arising out of the conduct of their business. Pursuant to
Trenwick's insurance and reinsurance arrangements, disputes are generally
required to be finally settled by arbitration.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
16
<PAGE> 19
PART II
ITEM 5. MARKET FOR CORPORATION'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Trenwick Common Stock is listed on the NASDAQ National Market System under the
ticker symbol TREN. For the periods presented below, the high and low sales
price and closing prices of the common stock as reported by the NASDAQ were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
High December 31 34.50 38.75 35.83
September 30 39.50 39.50 36.17
June 30 41.75 39.63 35.67
March 31 38.00 34.00 37.83
Low December 31 27.31 34.00 30.67
September 30 28.00 34.75 32.50
June 30 35.50 31.83 30.67
March 31 33.75 30.67 33.50
Close December 31 32.63 37.63 30.83
September 30 29.13 37.75 34.50
June 30 38.84 37.50 33.33
March 31 37.50 33.00 34.00
</TABLE>
There were 112 holders of record and in excess of 1000 beneficial owners of
Common Stock as of February 28, 1999.
For a description of restrictions on Trenwick's ability to pay dividends,
reference is made to Item 1, Business Regulation, Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Item 8, Note 11 of Notes to the Consolidated Financial Statements of Trenwick.
17
<PAGE> 20
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net premiums written $ 250,219 $ 195,230 $ 226,364 $ 197,162 $ 139,635
========== ========== ========== ========== ==========
Net premiums earned $ 245,561 $ 190,156 $ 211,069 $ 177,394 $ 132,683
Net investment income 56,316 48,402 41,226 36,828 33,932
Net realized investment gains (losses) 9,016 2,304 299 368 (196)
Other income 421 10 -- -- --
---------- ---------- ---------- ---------- ----------
Total revenues $ 311,314 $ 240,872 $ 252,594 $ 214,590 $ 166,419
========== ========== ========== ========== ==========
Net income $ 34,792 $ 35,252 $ 33,848 $ 29,841 $ 20,282
========== ========== ========== ========== ==========
PER SHARE DATA
Basic earnings
Income before extraordinary item $ 2.99 $ 3.12 $ 3.40 $ 3.09 $ 2.10
========== ========== ========== ========== ==========
Net income $ 2.99 $ 3.03 $ 3.40 $ 3.09 $ 2.10
========== ========== ========== ========== ==========
Weighted average shares outstanding 11,657 11,645 9,959 9,674 9,638
========== ========== ========== ========== ==========
Diluted earnings
Income before extraordinary item $ 2.95 $ 3.01 $ 2.85 $ 2.59 $ 1.88
========== ========== ========== ========== ==========
Net income $ 2.95 $ 3.01 $ 2.85 $ 2.59 $ 1.88
========== ========== ========== ========== ==========
Weighted average shares outstanding 11,779 12,265 13,352 13,149 13,056
========== ========== ========== ========== ==========
Dividends $ 1.00 $ .97 $ .83 $ .75 $ .67
========== ========== ========== ========== ==========
BALANCE SHEET DATA
Investments and cash $1,005,211 $ 864,324 $ 754,210 $ 653,704 $ 551,784
Total assets 1,392,261 1,085,956 920,804 820,930 727,245
Unpaid claims and claims expenses 682,428 518,387 467,177 411,874 389,298
6.7% senior notes due 2003 75,000 -- -- -- --
Convertible debentures -- -- 103,500 103,500 103,500
Company obligated mandatorily
redeemable preferred capital
securities of subsidiary trust holding
solely junior subordinated debentures
of Trenwick 110,000 110,000 -- -- --
Common stockholders' equity 348,029 357,649 265,753 240,776 188,213
Shares of common stock outstanding 11,051 11,951 10,088 9,886 9,660
Book value per share $ 31.49 $ 29.93 $ 26.34 $ 24.36 $ 19.48
</TABLE>
Amounts for 1998 reflect the results of Trenwick International, accounted for as
a purchase, from February 27, 1998, date of acquisition.
All share and per share information reflects a 3 for 2 stock split, paid on
April 15, 1997.
The earnings per share amounts have been restated to comply with the accounting
standard, "Earnings per Share".
18
<PAGE> 21
CERTAIN GAAP FINANCIAL RATIOS
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Combined ratio 102.3% 96.5% 95.8% 95.6% 103.2%
Net premiums written to surplus ratio 0.77:1 0.55:1 0.85:1 0.82:1 0.74:1
Unpaid claims and claims expenses
to surplus ratio 1.96:1 1.45:1 1.76:1 1.71:1 2.07:1
</TABLE>
The other information called for by this item can be found in Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and Item 8, Financial Statements and Supplementary Data.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information called for by this item can be found in Trenwick's 1998 Annual
Report to Stockholders under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and is incorporated herein by
reference.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This information called for by this item can be found in Trenwick's 1998 Annual
Report to Stockholders under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item can be found in Trenwick's 1998 Annual
Report to Stockholders immediately following the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and to
the items included in Item 14(a) of this report, and is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Incorporated by reference to the captions "Board of Directors", "Management",
and "Executive Compensation" in the Proxy Statement for the Annual Meeting in
1999 ("Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the caption "Executive Compensation" in the Proxy
Statement.
19
<PAGE> 22
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the caption "Principal Stockholders" in the Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the caption "Election of Directors" in the Proxy
Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents
(1) & (2) The Financial Statements, Schedules and the Report of Independent
Accountants on the Financial Statement Schedules, listed in the
accompanying index on Page 26, are filed as part of this Report.
(3) Exhibits
3.1 Restated Certificate of Incorporation of Trenwick Group Inc.
with Certificates of Amendment thereto. Incorporated by
reference to Exhibit 3.1 to Trenwick's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, File No.
0-14737.
3.2 (a) Certificate of Elimination amending Trenwick's
Restated Certificate of Incorporation to eliminate
all reference to Series A Junior Participating
Preferred Stock. Incorporated by reference to Exhibit
3.1(a) to Trenwick's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, File No.
0-14737.
(b) Certificate of Designation amending the Restated
Certificate of Incorporation of Trenwick Group Inc.
to create Series B Junior Participating Preferred
Stock. Incorporated by reference to Exhibit 3.2(b) to
Trenwick's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, File No. 0-14737.
3.3 Trenwick's By-laws. Incorporated by reference to Exhibit 3.2
to Trenwick's Registration Statement on Form S-1, File No.
33-5085.
4.1 Rights Agreement dated as of September 24, 1997 between
Trenwick and First Chicago Trust Company of New York
including, as Exhibit A thereto, a form of Rights Certificate.
Incorporated by reference to Exhibit 1 to Trenwick's Form 8-A
filed September 24, 1997, File No. 0-14737.
4.2 (a) Indenture dated as of January 31, 1997, between The
Chase Manhattan Bank and Trenwick. Incorporated by
reference to Exhibit 4.2(a) to Trenwick's Annual
Report on Form 10-K for the year ended December 31,
1996, File No. 0-14737.
(b) Amended and Restated Declaration of Trust of Trenwick
Capital Trust I dated as of January 31, 1997.
Incorporated by reference to Exhibit 4.2(b) to
Trenwick's Annual Report on Form 10-K for the year
ended December 31, 1996, File No. 0-14737.
20
<PAGE> 23
(c) Exchange Capital Securities Guarantee Agreement dated as
of July 25, 1997, between Trenwick and The Chase
Manhattan Bank, as Trustee. Incorporated by reference to
Exhibit 4.7 to Trenwick's Registration Statement on Form
S-4, File No. 333-28707.
4.3 Indenture dated as of March 27, 1998 between Trenwick and The
First National Bank of Chicago, as Trustee, with respect to
Trenwick's $75 million principal amount of 6.7% Senior Notes due
April 1, 2003, incorporated by reference to Exhibit 4.2 to
Trenwick's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998, File No. 0-14737.
+10.1 Trenwick 1989 Stock Plan, as amended through August 3, 1993.
Incorporated by reference to Exhibit 10.8 to Trenwick's Annual
Report on Form 10-K for the year ended December 31, 1994, File
No. 0-14737.
10.2 Trenwick 1993 Stock Option Plan, as amended through May 21,
1998. Incorporated by reference to Appendix A to Trenwick's
Proxy Statement for the 1998 Annual Meeting of Stockholders,
File No. 0-14737.
10.3 Trenwick 1993 Stock Option Plan for Non-Employee Directors.
Incorporated by reference to Exhibit 10.2 to Trenwick's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1994, File No. 0-14737.
10.4 Trenwick Unfunded Supplemental Executive Retirement Plan, as
amended through December 14, 1993. Incorporated by reference to
Exhibit 10.14 to Trenwick's Annual Report on Form 10-K for the
year ended December 31, 1994, File No. 0-14737.
10.5 Leased Automobile Policy for executive officers.
10.6 Description of life insurance and long-term disability insurance
coverage for executive officers. Incorporated by reference to
Exhibit 10.16 to Trenwick's Annual Report on Form 10-K for the
year ended December 31, 1994, File No. 0-14737.
10.7 Trenwick Directors Deferred Compensation Plan. Incorporated by
reference to Exhibit 10.17 to Trenwick's Annual Report on Form
10-K for the year ended December 31, 1994, File No. 0-14737.
10.8 Description of Trenwick Directors Retirement Plan. Incorporated
by reference to Exhibit 10.18 to Trenwick's Annual Report on
Form 10-K for the year ended December 31, 1994, File No.
0-14737.
10.9 Declaration of Trust dated December 10, 1996, as amended through
September 9, 1997, establishing a retirement plan for certain
employees of Trenwick Management Services Limited.
10.10 Office lease between Trenwick and EOP-Canterbury Green, L.L.C.
dated as of January 29, 1998, with respect to office space in
Stamford, Connecticut. Incorporated by reference to Exhibit
10.16 to Trenwick's Annual Report on Form 10-K for the year
ended December 31, 1997, File No. 0-14737.
+ As required by Item 14, each of Exhibits 10.1 through 10.9 is hereby
identified as a management contract or compensatory plan or arrangement.
21
<PAGE> 24
10.11 First amendment dated as of March 31, 1998, to office lease
between Trenwick and EOP-Canterbury Green L.L.C. dated January
29, 1998.
10.12 Underlease between Wereldhave Property Corporation PLC and
predecessors of Trenwick Management Services Limited dated May
22, 1991, with respect to office space in London, England.
10.13 Aggregate Excess of Loss Reinsurance Agreement between Trenwick
and National Indemnity Company dated December 31, 1984 and
amendment thereto. Incorporated by reference to Exhibit 10.29 to
Trenwick's registration statement on Form S-1, File No. 33-5085.
10.14 Automobile Liability First Excess of Loss/Quota Share
Reinsurance Agreement between Trenwick and the Canal Insurance
Company/Canal Indemnity Company. Incorporated by reference to
Exhibits 10.40 to Amendment No. 1 to Trenwick's Annual Report on
Form 10-K for the year ended December 31, 1991, filed with the
Commission on December 8, 1992, File No. 0-14737.
10.15 Interests and Liabilities Agreement between Trenwick and Kemper
Reinsurance Group and participants thereon. Incorporated by
reference to Exhibits 10.41 to Amendment No. 1 to Trenwick's
Annual Report on Form 10-K for the year ended December 31, 1991,
filed with the Commission on December 8, 1992, File No. 0-14737.
10.16 Property Pro Rata Retrocessional Agreement between PXRE
Reinsurance Company and Trenwick. Incorporated by reference to
Exhibit 10.24 to Trenwick's Annual Report on Form 10-K for the
year ended December 31, 1993, File No. 0-14737.
10.17 Coinsured Aggregate Excess of Loss Reinsurance Agreement between
Trenwick and Centre Reinsurance Company of New York.
Incorporated by reference to Exhibit 10.28 to Trenwick's Annual
Report on Form 10-K for the year ended December 31, 1994, File
No. 0-14737.
10.18 1995 First Facultative Casualty Excess of Loss Reinsurance
Agreement between Trenwick and numerous reinsurers. Incorporated
by reference to Exhibit 10.3 to Trenwick's Annual Report on Form
10-K for the year ended December 31, 1995, File No. 0-14737.
10.19 1996 First Facultative Casualty Excess of Loss Reinsurance
Agreement between Trenwick and numerous reinsurers. Incorporated
by reference to Exhibit 10.31 to Trenwick's Annual Report on
Form 10-K for the year ended December 31, 1996, File No.
0-14737.
10.20 1996 Coinsured Aggregate Excess of Loss Reinsurance Agreement
between Trenwick and Centre Reinsurance Company of New York and
CNA Re. Incorporated by reference to Exhibit 10.32 to Trenwick's
Annual Report on Form 10-K for the year ended December 31, 1996,
File No. 0-14737.
10.21 First Layer Property Catastrophe Excess of Loss Agreement with
Trenwick and several reinsurers. Incorporated by reference to
Exhibit 10.28 to Trenwick's Annual Report on Form 10-K for the
year ended December 31, 1997, File No. 0-14737.
22
<PAGE> 25
10.22 Special Catastrophe Excess of Loss Retrocessional Agreement
between Trenwick and several reinsurers. Incorporated by
reference to Exhibit 10.29 to Trenwick's Annual Report on Form
10-K for the year ended December 31, 1997, File No. 0-14737.
10.23 First and Second Coinsured Aggregate Excess of Loss Reinsurance
Agreement between Trenwick and Centre Reinsurance Company of New
York and CNA Re. Incorporated by reference to Exhibit 10.31 to
Trenwick's Annual Report on Form 10-K for the year ended
December 31, 1997, File No. 0-14737.
10.24 First Casualty Retrocessional Excess of Loss Reinsurance
Agreement between Trenwick and several reinsurers. Incorporated
by reference to Exhibit 10.32 to Trenwick's Annual Report on
Form 10-K for the year ended December 31, 1997, File No.
0-14737.
10.25 Reverse Franchise Catastrophe Excess of Loss Reinsurance
Agreement between Trenwick and several reinsurers. Incorporated
by reference to Exhibit 10.33 to Trenwick's Annual Report on
Form 10-K for the year ended December 31, 1997, File No.
0-14737.
10.26 Catastrophe Excess of Loss Reinsurance Agreement between
Trenwick and several reinsurers.
10.27 Coinsured Aggregate Excess of Loss Reinsurance Agreement between
Trenwick and Centre Reinsurance Company of New York and National
Union.
10.28 Quota Share Reinsurance Agreement between Trenwick and Unistar
Insurance Company.
10.29 Fronting Quota Share Reinsurance Agreement between Trenwick and
Unum Life Insurance Company.
10.30 Fronting Quota Share Reinsurance Agreement between Trenwick and
American Accident Reinsurance Group.
12.0 Computation of Ratios.
13.0 Excerpts from Trenwick's 1998 Annual Report to Stockholders
expressly incorporated by reference in this Form 10-K.
21.0 List of Subsidiaries.
23.0 Consent of PricewaterhouseCoopers LLP.
27.0 Financial Data Schedule.
(b) Reports on Form 8-K
None
23
<PAGE> 26
SIGNATURES
Pursuant to the Requirements of Section 13 or 15(d) of 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)
By /s/ JAMES F. BILLETT, JR.
--------------------------
James F. Billett, Jr.
Chairman, President and
Chief Executive Officer
Dated: March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ JAMES F. BILLETT, JR. Chairman of the Board, March 31, 1999
- ------------------------------ President and Chief
James F. Billett, Jr. Executive Officer and
Director (Principal
Executive Officer)
/s/ ALAN L. HUNTE Vice President and March 31, 1999
- ------------------------------- Treasurer (Principal
Alan L. Hunte Financial Officer and
Accounting Officer)
/s/ ANTHONY S. BROWN Director March 31, 1999
- -------------------------------
Anthony S. Brown
</TABLE>
24
<PAGE> 27
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ NEIL DUNN Director March 31, 1999
- -------------------------------
Neil Dunn
/s/ W. MARSTON BECKER Director March 31, 1999
- -------------------------------
W. Marston Becker
/s/ P. ANTHONY JACOBS Director March 31, 1999
- -------------------------------
P. Anthony Jacobs
/s/ JOSEPH D. SARGENT Director March 31, 1999
- -------------------------------
Joseph D. Sargent
/s/ FREDERICK D. WATKINS Director March 31, 1999
- -------------------------------
Frederick D. Watkins
/s/ STEPHEN R. WILCOX Director March 31, 1999
- -------------------------------
Stephen R. Wilcox
</TABLE>
25
<PAGE> 28
TRENWICK GROUP INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Financial Statements:
Report of Independent Accountants
on Consolidated Financial Statements........................................................... *
Consolidated Balance Sheet at December 31, 1998 and 1997 ........................................ *
Consolidated Statement of Income and Comprehensive Income
for the years ended December 31, 1998, 1997 and 1996...................................... *
Consolidated Statement of Changes in Stockholders' Equity
for the years ended December 31, 1998, 1997 and 1996...................................... *
Consolidated Statement of Cash Flows
for the years ended December 31, 1998, 1997 and 1996...................................... *
Notes to Consolidated Financial Statements..................................................... *
Financial Statement Schedules:
II - Condensed Financial Information of Registrant .....................................S-1-S-3
III - Supplementary Insurance Information ............................................... S-4
Report of Independent Accountants on Financial Statement
Schedules .................................................................................. S-5
</TABLE>
* Incorporated by reference to Trenwick's 1998 Annual Report to Stockholders.
Schedules other than those listed above are omitted since they are either not
required or are not applicable or the information required is presented in the
consolidated financial statements, including the notes thereto.
26
<PAGE> 29
TRENWICK GROUP INC. AND SUBSIDIARIES
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
TRENWICK GROUP INC.
BALANCE SHEET
(Parent company only)
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
---- ----
(in thousands)
<S> <C> <C>
Assets:
Investments in consolidated subsidiaries $532,069 $389,604
Debt securities available for sale
at fair value (amortized cost: $71,652) - 72,032
Cash and cash equivalents 523 5,108
Due from consolidated subsidiaries 4,287 6,211
Deferred debt issuance costs 2,463 1,681
Accrued investment income 125 607
Net deferred income taxes 4,198 -
Goodwill 1,605 -
Other assets 9 8
-------- --------
Total assets $545,279 $475,251
======== ========
Liabilities:
6.70% Senior notes due 2003 $ 75,000 -
Junior subordinated debentures 113,403 $113,403
Due to consolidated subsidiaries 2,700 -
Accrued interest expense 5,424 4,168
Net deferred income taxes - 14
Other liabilities 723 17
-------- --------
Total liabilities 197,250 117,602
Stockholders' equity 348,029 357,649
-------- --------
Total liabilities and stockholders' equity $545,279 $475,251
======== ========
</TABLE>
S-1
<PAGE> 30
TRENWICK GROUP INC. AND SUBSIDIARIES
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT-(continued)
TRENWICK GROUP INC.
STATEMENT OF INCOME
(Parent Company only)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------------
1998 1997 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Revenues:
Consolidated subsidiary dividends $ 26,600 $ 8,250 $ 9,100
Net investment income 1,500 4,974 1,000
Realized gains 778 -- --
Other income 12 -- --
-------- -------- --------
Total revenues 28,890 13,224 10,100
Interest and operating expenses 13,983 10,090 6,504
-------- -------- --------
Income before income taxes, equity in undistributed
income of unconsolidated subsidiaries and extraordinary
item 14,907 3,134 3,596
Income tax benefit (3,942) (1,239) (1,997)
-------- -------- --------
Income before equity in undistributed income of
consolidated subsidiaries and extraordinary item 18,849 4,373 5,593
Equity in undistributed income of
consolidated subsidiaries 15,943 31,916 28,255
-------- -------- --------
Income before extraordinary loss on debt
redemption 34,792 36,289 33,848
Extraordinary loss on debt redemption,
net of $558 income tax benefit -- 1,037 --
-------- -------- --------
Net income $ 34,792 $ 35,252 $ 33,848
======== ======== ========
</TABLE>
S-2
<PAGE> 31
TRENWICK GROUP INC. AND SUBSIDIARIES
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT-(continued)
TRENWICK GROUP INC.
STATEMENT OF CASH FLOWS
(Parent Company only)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------
1998 1997 1996
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Dividends and net investment income received $ 28,548 $ 12,642 $ 10,537
Interest and operating expenses paid (11,786) (4,983) (5,642)
Income taxes received 5,035 794 2,061
--------- --------- ---------
Cash provided by operating activities 21,797 8,453 6,956
--------- --------- ---------
Cash flows for investing activities:
Purchases of debt securities (16,637) (72,932) --
Sales of debt securities 88,190 -- --
Maturities of debt securities 911 16,050 --
Investment in subsidiaries (130,582) (3,403) --
--------- --------- ---------
Cash used for investing activities (58,118) (60,285) --
--------- --------- ---------
Cash flows for financing activities:
Issuance of senior notes 75,000 -- --
Issuance of junior subordinated debentures -- 113,403 --
Issuance costs of senior notes and securities capital (922) (1,669) --
Redemption of convertible debentures -- (46,997) --
Issuance of common stock 1,536 956 4,001
Repurchase of common stock (34,880) (171) (1,031)
Dividends paid (11,698) (11,546) (8,285)
Intercompany loans 2,700 -- --
--------- --------- ---------
Cash provided by (used for) financing activities 31,736 53,976 (5,315)
--------- --------- ---------
Change in cash and cash equivalents (4,585) 2,144 1,641
Cash and cash equivalents, beginning of year 5,108 2,964 1,323
--------- --------- ---------
Cash and cash equivalents, end of year $ 523 $ 5,108 $ 2,964
========= ========= =========
</TABLE>
S-3
<PAGE> 32
TRENWICK GROUP, INC. AND SUBSIDIARIES
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
(in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Deferred policy acquisition costs Domestic $ 21,023 $ 22,524 $ 21,805
International 14,238 - -
-------- -------- --------
35,261 22,524 21,805
-------- -------- --------
Unpaid claims and claim Domestic 546,292 518,387 467,177
expenses International 136,136 - -
------- -------- -------
682,428 518,387 467,177
------- -------- -------
Unearned premium income Domestic 75,206 87,020 71,448
International 76,845 - -
-------- -------- --------
152,051 87,020 71,448
-------- --------- --------
Net premiums earned Domestic 174,443 190,156 211,069
International 71,118 - -
-------- -------- --------
245,561 190,156 211,069
-------- -------- --------
Net investment income Domestic 44,490 43,692 40,215
International 10,614 - -
Unallocated 1,212 4,710 1,011
-------- -------- --------
56,316 48,402 41,226
-------- ---------- --------
Claims and claims expenses Domestic 105,478 109,554 129,316
incurred International 47,657 - -
-------- -------- --------
153,135 109,554 129,316
-------- -------- --------
Policy acquisition costs Domestic 58,310 58,549 58,757
International 15,887 - -
-------- -------- --------
74,197 58,549 58,757
-------- -------- --------
Underwriting expenses Domestic 13,822 15,425 14,190
International 10,006 - -
-------- -------- --------
23,828 15,425 14,190
-------- -------- --------
Net premiums written Domestic 169,112 195,230 226,364
International 81,107 - -
-------- -------- --------
250,219 195,230 226,364
-------- -------- --------
</TABLE>
S-4
<PAGE> 33
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of
Trenwick Group Inc.
Our audits of the consolidated financial statements referred to in our report
dated February 3, 1999, appearing on Page 53 of this 1998 Annual Report to
Stockholders of Trenwick Group Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedules listed in Item 14(a)
of this Form 10-K. In our opinion, these financial statement schedules present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
New York, New York
February 3, 1999
S-5
<PAGE> 1
Exhibit 10.5
CORPORATE ADMINISTRATION
COMPANY VEHICLE LEASING POLICY
The Company provides leased vehicles, equipped with cellular phones if desired,
to employees of Executive Vice President status (or equivalent) and above. Other
individuals may be entitled to leased vehicles upon approval of the Chief
Executive Officer. Corporate Administration's responsibilities and related
procedures regarding the policy are as follows:
LEASE ADMINISTRATION
1. Once the individual has selected their vehicle and negotiated the
leasing terms, a Credit Application is prepared by the Corporate
Manager, and a lease is drawn up. The lease is then given to the
Chairman/Chief Executive Officer or the Corporate Manager for
execution.
2. A check request for the down payment is prepared and forwarded with the
lease and related documentation to Corporate Accounting for processing.
License, taxes and up front costs shall not exceed $6,500, exclusive of
refundable amounts. Monthly lease payments shall not exceed $600.
3. The Corporate Manager provides Human Resources with a copy of the lease
with the odometer reading for their Benefits file.
INSURANCE
1. The leased vehicles are incorporated into Trenwick Group Inc.'s inforce
Business Automobile insurance policy that is issued through Willis
Corroon.
2. The Corporate Manager contacts Don Herington at Willis Corroon (212)
837-0819 and provides him with vehicle information; i.e., VIN number,
make, model, engine size, garage location. Willis Corroon will prepare
and forward Insurance I.D. cards.
<PAGE> 2
Company Vehicle Leasing Policy
Page Two
VEHICLE REGISTRATION
1. Corporate Administration is also responsible for the registration of
the vehicle at the DMV Department, if the dealership does not provide
this service. Insurance I.D. Cards are required for registration. Place
the Registration documentation in the vehicles upon receipt.
2. The annual emissions testing is also handled through Corporate
Administration. The insurance I.D. Card, Registration and $20 cash are
required at the time of testing. The money is obtained from Petty Cash.
MAINTENANCE
At the request of the individual driver, appointment pick-ups and
drop-offs of vehicles for scheduled vehicle maintenance, (i.e., oil
changes, tune ups, tire rotations, etc.) are coordinated by Corporate
Administration at the respective dealerships.
EQUIPMENT
The removal/replacement/installation of cellular telephones into leased
vehicles is coordinated by Corporate Administration. The Corporate
Manager contacts Connecticut Telephone, 810 Post Road, Fairfield (203)
256-8100 to schedule on-site appointments for any of these services.
LeasingV/g/rmd
25 FEBRUARY 1999
<PAGE> 1
Exhibit 10.9
Scheme No: FU00068-088
THIS DECLARATION OF TRUST is made on 10/12/1996 by SOREMA (UK) Underwriting
Limited having its registered office at 16 Eastcheap, London EC3M 1BD ("the
Principal Employer").
WHEREAS:
(A) The Principal Employer has decided to establish a retirement benefit scheme
to be known as THE SOREMA (UK) Underwriting Ltd FUNDED UNAPPROVED RETIREMENT
BENEFITS SCHEME ("the Plan") to provide benefits for such employees or directors
of the Principal Employer and, where appropriate, of such other companies as
enter into a supplementary deed as provided for below, as are admitted to
membership of the Plan (the "Members").
(B) The Principal Employer has determined to appoint itself as Trustee of the
Plan.
(C) The Principal Employer has submitted or is submitting details of each
Member's benefits to him.
IT IS HEREBY DECLARED AND AGREED THAT:
1. The Plan is hereby established and constituted under irrevocable trusts and
commences on the date hereof and this declaration of trust adopts the Rules
attached hereto ("the Rules") which, subject to any modifications made
hereafter, shall govern the Plan.
2. The Principal Employer appoints itself as the Trustee of the Plan.
3. The Principal Employer hereby bests the sum of pound sterling1.00 in the
Trustee to constitute the Plan and the Trustee acknowledges receipt
thereof.
4. The Principal Employer hereby agrees to enable the Trustee to pay the
contributions due under the Plan (by passing his own share of the cost to
the Trustee) notwithstanding that it will have no beneficial interest
hereunder save to the extent as expressly provided for in the Rules.
5. The Trustee shall have power to invest in:
(a) any of the unit trusts managed by Allied Dunbar Unit Trusts plc or
Threadneedle Investment Services Limited and any open-ended investment
company of which Threadneedle Investment Services Limited is the
authorised corporate director; and
(b) in any Policy or Policies issued by Allied Dunbar Assurance plc having
its registered office at Allied Dunbar Centre, Swindon SN1 1EL
(whether such Policy or Policies is/are new, existing or future
policies) ("the Policy").
6. The Trustee hereby agrees to manage and administer the Plan, hold the
assets of the Plan (including any Policies) and receive, hold and apply the
contributions under the Plan in the trust subject to the attached Rules of
the Plan, which (subject to any subsequent amendments) will govern the Plan
from the date hereof.
7. (a) Subject to (b) and (c) below the power of appointing new or additional
Trustees of the Plan and the trusts hereby established, and the power of
removing trustees, is hereby vested in the Principal Employer, and is
exercisable by deed.
(b) If any one of the following events occurs, Allied Dunbar Pension
Services Limited ("ADPS"), will have power, exercisable by deed, to appoint
as trustee of the Plan and the trusts hereby established any other person
or persons (being either a body corporate, including itself, or at least
two but not more than four individuals) in place of the Trustee who will
thereby be discharged from the trusteeship, without any requirement for it
to be joined as a party to the deed or to take any other action. The events
referred to above are:
<PAGE> 2
(i) The making of any order or the passing of an effective resolution
for the liquidation, winding-up or dissolution of the Trustee;
(ii) The appointment of a receiver in respect of all or a material
part of the assets or undertaking of the Trustee;
(iii)The Trustee making a general assignment or entering into a
composition or arrangement, for the benefit of creditors;
(iv) The Trustee ceasing to trade;
(v) The Trustee being struck off or removed from the Register of
Companies.
(c) Once the powers under sub-clause (b) have arisen, they will remain
exercisable until and unless released by ADPS and the decision to exercise
them or not and the way in which they are exercised will be within the
absolute discretion of ADPS.
(d) Subject to any prior exercise thereof, ADPS may by deed release the
powers under sub-clause (b) or either or them at any time or times whether
before or after they shall have arisen.
8. (a) Any Trustee or officer or director of a corporate Trustee may benefit
under the Rules.
(b) The Principal Employer may agree to remunerate the Trustee.
(c) The trustee of the Plan or any subsidiary, associated or holding
company thereof shall not be required by reason only of the general rules
disabling a trustee from deriving a profit from this trusteeship to account
to the Plan for any profit made in the ordinary course of business by such
trustee, or the subsidiary, associated or holding company thereof.
(d) The trustee of the Plan, in the absence of any fraud or crime, shall be
entitled to all the indemnities conferred on trustees by law and no trustee
or director, employee or member of a body corporate being a trustee for the
time being of the Plan shall be liable for any acts or omissions not due to
their or his own wilful neglect or default. Where the trustee of the Plan
is entitled to such an indemnity the Principal Employer shall indemnify the
trustee against all actions, proceedings, costs, claims and demands in
respect of any matters relating to the Plan. Furthermore the Principal
Employer shall indemnify the trustee of the Plan against all expenses
properly incurred in the execution or purported execution of the trusts of
the Plan.
9. The Principal Employer as Trustee hereby adopts and agrees to abide by the
Rules which are intended to be in such form as to meet the preservation
requirements of Chapter 11 of Part IV of the Pensions Schemes Act 1993.
10. Any company (being a subsidiary of the Principal Employer or a company
otherwise associated in business with the Principal Employer) which wishes
to participate in the Plan may be admitted as a party to the Plan on
entering into a supplemental deed with the Principal Employer and the
Trustee whereby such company agrees to serve and perform such of the
provisions of the Rules as apply to it.
11. THIS Deed and the Rules will be read and construed in accordance with the
law of England and Wales.
SIGNED AS A DEED BY THE PRINCIPAL EMPLOYER in accordance with the provisions of
Section 36A of the Companies Act 1985 acting by a Director and its Company
Secretary or by two Directors.
Director's Signature: Director's/Company Secretary's Signature:
- --------------------- -----------------------------------------
2
<PAGE> 1
Exhibit 10.11
FIRST AMENDMENT
This First Amendment (the "Amendment") is made and entered into as of
the 31st day of March, 1998, by and between EOP-CANTERBURY GREEN, L.L.C., A
DELAWARE LIMITED LIABILITY COMPANY ("Landlord") and TRENWICK AMERICA
CORPORATION, A DELAWARE CORPORATION ("Tenant").
WITNESSETH
A. WHEREAS, Landlord and Tenant are parties to that certain lease dated
the 29th day of January, 1998, (the "Lease") for space currently
containing approximately 22,797 rentable square feet on the second
(2nd) floor (the "Second Floor Space") and 11,699 rentable square feet
on the fourth (4th) floor (the "Fourth Floor Space") (collectively, the
"Premises") of the building commonly known as One Canterbury Green and
the address of which is One Canterbury Green, Stamford, Connecticut
(the "Building"); and
B. WHEREAS, Coopers & Lybrand ("Coopers") currently leases space
containing approximately 22,832 rentable square feet on the third (3rd
floor of the Building and Coopers has not exercised its option to
extend the term of its lease (the "Coopers Lease") for such space and
therefore, upon the expiration of Coopers Lease, such space shall be
available for leasing to Tenant; and
C. WHEREAS, Tenant is hereby exercising its option (the "Substitution
Option" as defined in Section I.A.5 of the Lease) to substitute the
Third Floor Space for the Fourth Floor Space pursuant to Section I.A.5
of the Lease and, in addition, is leasing the remainder of the space on
the third floor of the Building. Accordingly, for purposes hereto the
term "Third Floor Space" shall mean 22,832 square feet on the third
floor of the Building; and
D. WHEREAS, Tenant and Landlord mutually desire that the Lease be amended
on and subject to the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Landlord
and Tenant agree as follows:
1. PREMISES. Effective as of the date hereof (the "Effective
Date") Section l.A.5 of the Lease shall be deleted in its
entirety and the following inserted in lieu thereof:
"5 "Premises" shall be deemed to mean the area outlined
on Exhibits A and A1 attached hereto. Landlord and
Tenant hereby stipulate and agree that the Rentable
Area of the Premises shall be deemed to mean 45,629
square feet, consisting of 22,797 square feet on the
second (2nd ) floor as shown on Exhibit A attached
hereto (the "Second Floor Space") and 22,832 square
feet on the third (3rd) floor as shown on Exhibit A-1
attached hereto. Tenant acknowledge that the space on
the third floor is currently demised into two
separate parcels of space, the first of which
contains 13,936 square feet ("Space A") and the
second of which contains 8,896 square feet ("Space
B"). Tenant further acknowledges that Space B may be
delivered to Tenant subsequent to the delivery of the
Second Floor
<PAGE> 2
Space and Space A (together, the "Initial Space");
accordingly, the Commencement Date with respect to such spaces
may occur at separate times. In the event the Commencement
Date for Space B occurs subsequent to the Commencement Date
for the Initial Space, the Lease Term shall be determined
based upon the initial Commencement Date, it being agreed that
the Lease Term for the Initial Space and Space B shall expire
coterminously. The "Rentable Area of the Building" shall mean
217,500 square feet. If the Premises being leased to Tenant
hereunder include one or more floors within the Building in
their entirety, the definition of Premises with respect to
such full floor(s) shall include all corridors and restroom
facilities located on such floor(s). Unless specifically
provided herein to the contrary, the Premises shall not
include any telephone closets, electrical closets, janitorial
closets, equipment rooms or similar areas on any full or
partial floor that are used by Landlord for the operation of
the Building."
1. BASE RENTAL. Effective as of the Effective Date, Section I.A.2
of the Lease shall be deleted in its entirety and the
following inserted in lieu thereof:
"2. "Base Rental" shall mean the sums that Tenant is required to
pay to Landlord in accordance with the following schedule.
a. sixty (60) equal installments of one hundred eighteen
thousand two hundred fifty five and 15/100 dollars
($118,255.15), each payable on or before the first
day of each month during the period beginning on the
Commencement Date (hereinafter defined) and ending on
the last day of the sixtieth (60) full calendar month
of the Lease Term, provided that the installment of
Base Rental for the third (3rd) full calendar month
of the Lease Term shall be payable upon the execution
of this Lease by Tenant. Notwithstanding the
foregoing, the amount of such monthly installments of
Base Rental is subject to modification as follows:
(i)In the event that the Commencement Date for Space
B occurs after the Commencement Date for the Initial
Space, Tenant shall only be required to pay Base
Rental with respect the Initial Space. In such case,
the monthly installment of Base Rental as of the
Commencement Date would be $95,199.70 and, upon the
occurrence of the Commencement Date with respect to
Space B, the monthly installment of Base Rental
would increase by $23,055.45 to be $118,255.15;
(ii) In the event the Commencement Date does not
occur on the first day of a calendar month (or in
the event the Commencement Date with respect to a
particular space does not occur on the first day of
a calendar month), Base Rental with respect to such
initial calendar month shall be appropriately
prorated based upon a percentage the numerator of
which is the number of days of Lease Term that fall
within such calendar month and the denominator of
which in the total number of days in such calendar
month;
2
<PAGE> 3
(iii) provided Tenant is not in default after the
expiration of applicable cure periods, Tenant shall
be entitled to receive a full abatement of Base
Rental with respect to the first sixty (60) days of
the Lease Term (the "Abatement Period"). If the
Lease Term with respect to the entire Premises does
not occur on the same day, such Abatement Period
shall be determined separately with respect to each
space comprising the Premises. In addition to
performing Initial Alterations (hereinafter defined)
during the Abatement Period, Tenant shall be
entitled to use the Premises for the Permitted Use
during the Abatement Period without any obligation
to pay Base Rental.
b. sixty (60) equal installments of one hundred
twenty-nine thousand six hundred sixty-two and 41/100
Dollars ($129,662.41), each payable on or before the
first day of each month during the period beginning
on the first day of the sixty-first (61st) full
calendar month of the Lease Term and ending on the
Termination Date (hereinafter defined)."
3. COMMENCEMENT DATE. Effective as of the Effective Date, Section 1.A.4 of
the Lease shall be deleted in its entirety and the following inserted
in lieu thereof:
"4. The "Commencement Date," "Lease Term" and "Termination Date"
shall have the meanings set forth in subsection l.A.4.a. below
or subsection l.A.4.b. below (delete one):
a. The "Lease Term" shall mean a period of one hundred
twenty (120) months commencing on the Commencement
Date, provided if the Commencement Date does not
occur on the first day of a calendar month, the Lease
Term shall automatically be extended by the number of
days in the period beginning on the Commencement Date
and ending on the last day of the month in which the
Commencement Date occurs. For purposes hereof, the
Commencement Date shall mean (i) with respect to the
Initial Space, the date on which Landlord delivers
the Initial Space to Tenant free from occupancy by
(x) NationsCredit Commercial Corporation ("Nations"),
the existing tenant in the Second Floor Space; (y)
Coopers, the existing tenant in Space A or (z) other
party; and (ii) with respect to Space B, the date on
which Landlord delivers Space B to Tenant free from
occupancy by Coopers, the existing tenant in Space B,
or any other party. The "Termination Date" shall,
unless sooner terminated as provided herein, mean the
last day of the Lease Term.
Tenant acknowledges that Nations is currently leasing
the Second Floor Space pursuant to the terms of a
lease (the "Nations Lease") that is currently
scheduled to expire on September 16, 1998. Landlord
agrees to use good faith efforts to negotiate an
agreement with Nations pursuant to which the Nations
Lease would terminate prior to its scheduled
expiration date. Tenant also acknowledges that
Coopers is currently leasing the Third Floor Space
pursuant to the terms of the Coopers Lease, which
lease is currently scheduled to expire on November
17, 1998.
3
<PAGE> 4
Furthermore, Tenant acknowledges that Space A is
currently sublet by Coopers to Nations. Landlord
agrees to use good faith efforts to negotiate an
agreement with Coopers pursuant to which the Landlord
would be able to terminate the Coopers Lease with
respect to Space A before the stated expiration date
thereof. In the event Landlord enters into such
agreements accelerating the expiration dates of the
Nations Lease and the Coopers Lease, Landlord shall
provide Tenant with written notice (the "Early
Commencement Notice") setting forth the date on which
Landlord intends to provide Tenant with possession of
the Initial Space (i.e. the targeted Commencement
Date). Such Early Commencement Notice shall be
delivered to Tenant not less than fifteen (15) days
prior to the date on which Landlord intends to
provide Tenant with possession of the Initial Space.
Notwithstanding the foregoing, in no event shall the
Commencement Date occur prior to May 1, 1998 without
the written consent of Tenant.
In addition, Tenant acknowledges that Space B is
currently sublet by Coopers to Howard Systems and
that Landlord shall have the right to permit Howard
Systems to remain in Space B beyond the expiration of
the Coopers Lease. As of the date hereto it is
anticipated that Howard Systems may need to remain in
Space B until December 31,1998 (i.e. the targeted
Commencement Date of Space B is January 1, 1999).
Landlord shall provide Tenant with written notice
(the "Space B Notice") setting forth the date on
which Landlord intends to provide Tenant with
possession of Space B. Such Space B Notice shall be
delivered to Tenant not less than ten (10) days prior
to the date on which Landlord intends to provide
Tenant with possession of Space B. Notwithstanding
the foregoing, in no event shall the Commencement
Date for Space B occur prior to May 1, 1998 without
Tenant's consent.
b. Intentionally Omitted."
4. PRO RATA SHARE. Effective as of the Effective Date, Section 1 .A.8 of
the Lease shall be deleted in its entirety and the following inserted
in lieu thereof
"8. "Tenant's Pro Rata Share" shall mean TWENTY AND NINETY-EIGHT
ONE HUNDREDTHS PERCENT (20.98%), which is the quotient
(expressed as a percentage), derived by dividing the Rentable
Area of the Premises by the Rentable Area of the Building.
Notwithstanding the foregoing, if the Commencement Date with
respect to the entire Premises does not occur on the same day,
Tenant's Pro Rata Share shall be calculated only with respect
to the portion of the Premises for which the Commencement Date
has occurred. Based upon the assumption that Space B will not
be delivered until after the delivery of the Initial Space,
Tenant's Pro Rata Share as of the Commencement Date for the
Initial Space would be 16.89%. Upon the occurrence of the
Commencement Date with respect to Space B, Tenant's Pro Rata
Share would increase by 4.09% to be 20.98%.
4
<PAGE> 5
5. ALLOWANCE. Effective as of the Effective Date, the first and second
sentences of Section l.B of Exhibit D of the Lease shall be deleted in
its entirety and the following inserted in lieu thereof:
"Provided Tenant is not in default, Landlord agrees to contribute the
sum of four hundred fifty-six thousand two hundred ninety and 00/100
dollars ($456,290.00) (the "Allowance") toward the cost of performing
the Initial Alterations in preparation of Tenant's occupancy of the
Premises."
6. RIGHT OF FIRST OFFER. Effective as of the Effective Date, Section 2 of
Exhibit E of the Lease shall be deleted in its entirety.
7. EXHIBITS A AND A-1. Effective as of the Effective Date, the Exhibit A
attached to this Amendment shall be substituted for the Exhibit A
attached to the Lease and all references to Exhibit A in the Lease
shall be deemed to be a reference to the Exhibit A attached hereto.
Effective as of the Effective Date, the Exhibit A-1 attached to this
Amendment shall be substituted for the Exhibit A-1 attached to the
Lease and all references to Exhibit A-1 in the Lease shall be deemed to
be a reference to the Exhibit A-1 attached hereto.
8. SUBSTITUTION OPTION: PARKING. Effective as of the Effective Date and in
accordance with the provisions contained in the Lease and this
Amendment, Landlord and Tenant hereby acknowledge and agree that Tenant
has effectively exercised ifs Substitution Option and any references in
the Lease to Tenant's exercise of its Substitution Option shall be
deemed to have occurred. Tenant hereby exercises its right to lease all
of the additional non-reserved parking spaces to which Tenant is
entitled pursuant to Section 1.A. of Exhibit E of the Lease as a result
of Tenant's exercise of the Substitution Option and its lease of
additional space on the third floor of the Building.
9. MISCELLANEOUS.
A. This Amendment sets forth the entire agreement between the
parties with respect to the matters set forth herein. There
have been no additional oral or written representations or
agreements. Under no circumstances shall Tenant be entitled to
any Rent abatement, improvement allowance, leasehold
improvements, or other work to the Premises, or any similar
economic incentives that may have been provided Tenant in
connection with entering into the Lease, unless specifically
set forth in this Amendment.
B. Except as herein modified or amended, the provisions,
conditions and terms of the Lease shall remain unchanged and
in full force and effect.
C. In the case of any inconsistency between the provisions of the
Lease and this Amendment, the provisions of this Amendment
shall govern and control.
D. Submission of this Amendment by Landlord is not an offer to
enter into this Amendment but rather is a solicitation for
such an offer by Tenant. Landlord shall not be bound by this
Amendment until Landlord has executed and delivered the same
to Tenant.
5
<PAGE> 6
E. The capitalized terms used in this Amendment shall have the
same definitions as set forth in the Lease to the extent that
such capitalized terms are defined therein and not redefined
in this Amendment.
F. Tenant hereby represents to Landlord that Tenant has dealt
with no broker other than the Broker (as defined in the Lease)
in connection with this Amendment. Tenant agrees to indemnify
and hold Landlord, its members, principals, beneficiaries,
partners, officers, directors, employees, mortgagee(s) and
agents, and the respective principals and members of any such
agents (collectively, the "Landlord Related Parties") harmless
from all claims of any brokers other than the Broker claiming
to have represented Tenant in connection with this Amendment.
Landlord hereby represents to Tenant that Landlord has dealt
with no broker in connection with this Amendment. Landlord
agrees to indemnify and hold Tenant, its members, principals,
beneficiaries, partners, officers, directors, employees, and
agents, and the respective principals and members of any such
agents (collectively, the "Tenant Related Parties") harmless
from all claims of any brokers claiming to have represented
Landlord in connection with this Amendment.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this
Amendment as of the day and year first above written.
WITNESS/ATTEST: LANDLORD: EOP-CANTERBURY GREEN,
L.L.C., a Delaware limited liability company
By: EOP Operating Limited Partnership,
a Delaware limited partnership, its
managing member
By: Equity Office Properties Trust,
a Maryland real estate investment
trust, its managing general partner
s/Sarah L. Willis
- ----------------- By: s/Thomas Q. Bakke
Name: Sarah Willis ---------------------
Name: Thomas Q. Bakke
Title: Vice President
6
<PAGE> 7
WITNESS/ATTEST: TENANT: TRENWICK AMERICA
CORPORATION, a Delaware
corporation
s/Michelle R. Diener By: s/James F. Billett, Jr.
- -------------------- ---------------------------
Name: Michelle R. Diener Name: James F. Billett, Jr.
- ------------------------ ---------------------------
s/Deborah L. Nichols Title: Chairman, President &
- ----------------------- Chief Executive Officer
Name: Deborah L. Nichols
- ------------------------
7
<PAGE> 1
Exhibit 10.12
UNDERLEASE OF PART WITH SERVICE CHARGE
DATED 22ND MAY 1991
WERELDHAVE PROPERTY CORPORATION PLC(1)
AND
SOREMA (UK) UNDERWRITING MANAGEMENT LIMITED
AND
SOREMA (UK) GROUP LIMITED
AND SOREMA (UK) REINSURANCE LIMITED
----------------------------
UNDERLEASE
of
Premises known as the
third floor of
Sixteen Eastcheap
London EC3
----------------------------
STEPHENSON HARWOOD
One, St. Paul's Churchyard
London EC4M 8SH
(Ref: 262/65/AB36988)
1/YY426
<PAGE> 2
CONTENTS
<TABLE>
<CAPTION>
CLAUSE PROVISION
<S> <C>
1. Definitions
2. Demise and Rent
3. Tenant's Covenants
3.1 Rent
3.2 Insurance
3.3 Outgoings
3.4 Maintenance and Repair
3.5 Internal Decoration
3.6 Cleaning
3.7 Party Structures
3.8 Entry
3.9 Yielding Up
3.10 Alterations and Additions
3.11 Disrepair and Breach of Covenant
3.12 Signs and Name of Building
3.13 Statutory and Planning Requirements
3.14 Notices
3.15 Overloading
3.16 Encroachment
3.17 Nuisance and General Prohibitions
3.18 User
3.19 Rights of Light
3.20 Refuse
3.21 Dangerous Substances
3.22 Pipes
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
CLAUSE PROVISION
<S> <C>
3.23 Control of Common Parts
3.24 Disputes
3.25 Indemnity
3.26 Support
3.27 Sale and Letting Boards
3.28 Dilapidations and Section 146 Law of Property Act 1925
3.29 Alienation
3.30 Registration of Dealings
3.31 Landlord's Costs
3.32 Value Added Tax
3.33 Regulations
3.34 Windows
3.35 Fire Control
3.36 Interest on Late Payments
3.37 Superior Title
3.38 Rates
4. Landlord's Covenants
4.1 Quiet Enjoyment
4.2 Insurance
4.3 Provision of Services
4.4 Headlease
5. Provisos
5.1 Re-entry
5.2 Rent Suspension
5.3 Base Rate
5.4 Arrears
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
CLAUSE PROVISION
<S> <C>
5.5 Settlement of Disputes
5.6 Exclusion of Implied Rights
5.7 Unrestricted Use of Adjoining Property
5.8 Exclusion of Liability
5.9 Party Walls
5.10 Compensation
5.11 Perpetuity Period
5.12 No Planning Warranty
5.13 Notices
5.14 No Waiver
5.15 Variation in Insurance and Service Charge Percentage
5.16 Option to Determine
6. Surety
7. Interpretation
First Schedule The Demised Premises
Second Schedule Easements and Rights Granted
Third Schedule Exceptions and Reservations
Fourth Schedule Provisions for Rent Review
Fifth Schedule The Service Charge
Sixth Schedule Regulations
</TABLE>
<PAGE> 5
THIS UNDERLEASE made the 22nd day of May 1991
BETWEEN
(1) WERELDHAVE PROPERTY CORPORATION PLC whose registered office is at 19 Sloane
Street London SWIX 9NE ("the Landlord" which expression where the context admits
includes the estate owner for the time being of the reversion of the premises
hereby demised expectant on the term hereby granted)
(2) SOREMA (UK) UNDERWRITING MANAGEMENT LIMITED whose registered office is at 51
Eastcheap London EC3M IJP ("the Tenant" which expression where the context
admits includes its successors in title) and
(3) SOREMA (UK) GROUP LIMITED and SOREMA (UK) REINSURANCE LIMITED both of whose
registered offices are at 51 Eastcheap London EC3M IJP ("the Surety")
WITNESSETH as follows:
DEFINITIONS
1. In this Lease the following expressions shall have the following meanings: -
<TABLE>
<S> <C>
"Building" the building known as Sixteen Eastcheap London
EC3 and shown edged blue on Plan A annexed hereto
"common parts" all the Building except the demised premises and
other areas let or lettable or occupied or
intended to be let or occupied
"demised premises" the premises described in the First Schedule
"Enactment" any and every Act of Parliament already or hereafter
to be passed and any and every order regulation and
bye-law already or hereafter to be made under or in
pursuance of any such Act
"Headlease" the superior lease or leases under which the
Landlord holds the Building from time to time
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
"Insured Risks" fire (including subterranean fire) explosion
impact riot strike civil commotion and malicious
damage storm flood tempest including lightning
earthquake aircraft (except hostile aircraft)
and other aerial devices and articles dropped
therefrom missiles and projectiles bursting or
overflowing of water pipes tanks and apparatus
and such other risks as the Landlord shall from
time to time require to have insured
"Pipes" supply pipes soilpipes waste pipes sewers drains
ducts conduits downpipes gutters watercourses wires
cables channels flues service corridors trunking and
all other conducting media and includes any fixing
louvres cowls and any other ancillary apparatus
"Planning Acts" the Town and Country Planning Act 1990 the
Planning (Listed Buildings and Conservation
Areas) Act 1990 the Planning (Hazardous
Substances) Act 1990 and the Planning
(Consequential Provisions) Act 1990 and any
modification or re-enactment thereof and any and
every order regulation and byelaw already or
hereafter to be made under or in pursuance of any
such Act
"these presents" this Underlease and any document which is
supplemental hereto or which is expressed to be
collateral herewith or which is entered into
pursuant to or in accordance with the terms hereof
"Superior Lessor" the person(s) for the time being entitled to the
reversion expectant on the term created by the
Headlease
"Term" the term of years hereby granted together with any
continuation thereof (whether under an Act of
Parliament or by the Tenant holding over or for any
other reason)
"Working Hours" the hours of 8:30 a.m. to 6:00 p.m. on Mondays to
Fridays (except public holidays) and such other
times or days as the Landlord shall decide
</TABLE>
2
<PAGE> 7
DEMISE AND RENT
2. In consideration of the rents hereinafter reserved and of the tenant's
covenants hereinafter contained the landlord hereby demises unto the tenant all
those the demised premises together with the rights set out in the second
schedule but excepting and reserving as mentioned in the third schedule to hold
the same unto the tenant subject to all rights of light and air and all other
easements rights quasi-easements matters and covenants (if any) affecting the
demised premises including those appearing in the headlease and the registers of
title number ngl 334633 for the term of twenty-five years commencing on the 29th
day of september 1990 (subject to determination as hereinafter provided)
yielding and paying therefor unto the landlord yearly during the term and so in
proportion for any less time than a year the following sums: -
2.1 Firstly a yearly rent of two hundred and six thousand eight hundred and
five pounds (pound sterling206,805.00) until 23rd June 1992 and thereafter
two hundred and seventy-eight thousand eight hundred and five pounds (pound
sterling278,805.00) or such other yearly rent as shall be determined in
accordance with the provisions of the Fourth Schedule such rent to be paid
clear of all deductions counterclaims or set-offs whatsoever by equal
quarterly payments in advance on the usual quarter days in every year the
first of such payments for the period from 25th December 1991 to 24th March
1992 to be made on 25th December 1991
2.2 Secondly by way of further rent on demand
2.2.1 15.07 per cent of the sum or sums of money (including the costs of any
professional valuation required for insurance purposes) expended or to
be expended by the Landlord in complying with its obligations as to
insurance (other than in respect of loss of rent) hereinafter
contained or in effecting and maintaining such other insurance as the
Landlord shall from time to time require and
2.2.2 the amount (if any) expended or to be expended by the Landlord in
respect of increased premiums occasioned by the nature of the
occupation or business of the Tenant or use of the demised premises
and
2.2.3 an amount equal to all sums expended or to be expended by the Landlord
in complying with its obligations as to loss of rent insurance
hereinafter contained
2.3 Thirdly by way of further rent on demand 15.07 per cent of all sums
expended or to be expended by the Landlord in doing the things and
providing the services set out in the Fifth Schedule Provided that if so
required by the Landlord the Tenant shall pay to the Landlord on account
quarterly in advance on the usual quarter days in every year such sum as
the Landlord's Surveyor shall reasonably estimate to be the correct figure
for that quarter (all necessary adjustments between estimated and actual
figures to be made as soon as practicable after the end of each year
(ending on such date) or such other period as the Landlord requires)
TENANT'S COVENANTS
3. The Tenant hereby covenants with the Landlord as follows: -
3
<PAGE> 8
RENT
3.1 To pay the rents hereinbefore reserved and made payable without any
deduction counterclaim or set-off whatsoever at the times and in the manner
aforesaid and if so requested by banker's order or credit transfer and for
value on the date of receipt of payment
INSURANCE
3.2.1 Not to effect any further or other insurance in respect of the demised
premises or any other part of the Building in duplication of the cover
effected by the Landlord but if in breach of this covenant the Tenant
does so to hold the same on trust for the Landlord and pay to the
Landlord all moneys received under such policy immediately upon
receipt
3.2.2 To comply with all recommendations and requirements made in or under
any policy of insurance relating to the demised premises or otherwise
by any insurer
3.2.3 To comply with all recommendations and requirements made by any
appropriate authority with regard to fire health safety or otherwise
3.2.4 As often as the demised premises or any other part of the Building
shall be destroyed or damaged forthwith upon the Tenant becoming aware
thereof to notify the Landlord in writing stating whether and to what
extent such destruction or damage was brought about directly or
indirectly by any of the Insured Risks so far as the Tenant is able to
ascertain the same
3.2.5 Not to carry on or do on the demised premises any trade or act in
consequence of which the Landlord would or might be prevented from
insuring the demised premises or any other part of the Building or any
other adjoining property for the time being owned by the Landlord at
the ordinary rate of premium or whereby any insurance effected in
respect of the demised premises or the Building or any such other
property would or might be vitiated or prejudiced and not to do
anything whereby any additional premium may become payable for such
insurance
3.2.6 That in the event of the demised premises or any other part of the
Building or any adjoining or neighbouring property for the time being
owned by the Landlord or any part thereof being destroyed or damaged
by any Insured Risk and the insurance money under any insurance
against the same effected thereon by the Landlord being wholly or
partly irrecoverable by reason solely or in part of any act or default
of the Tenant or any undertenant or their respective officers agents
employees invitees licensees or visitors then and in every such case
the Tenant will forthwith pay to the Landlord the whole or (as the
case may require) the irrecoverable proportion of the costs and
expenses incurred by the Landlord (including legal costs and
surveyors' fees and other professional costs and fees and
disbursements) of completely rebuilding and reinstating the same
PROVIDED THAT in the event of such insurance money being wholly or
partly irrecoverable as a result in part only of any act or default of
the Tenant or any undertenant or their respective officers agents
employees invitees licensees or visitors the Tenant shall be required
to pay a fair proportion only of the whole or (as the case may
require) the irrecoverable portion of the costs and expenses aforesaid
4
<PAGE> 9
OUTGOINGS
3.3 To pay and discharge all existing and future rates taxes duties charges
assessments impositions and outgoings whatsoever (including water and
environmental services rates and charges and charges for the supply of
electricity to the demised premises) whether Parliamentary parochial local
or otherwise and whether or not of an annual or recurring nature (other
than any such arising in respect of any ownership of or dealing with the
reversion mediately or immediately expectant on the Term or the right to
receive the rent payable hereunder except Value Added Tax properly payable
in accordance with the terms of these presents or any such arising by
reason of any default on the part of the Landlord) which are now or which
may at any time during the Term be charged assessed or imposed upon or
payable in respect of the demised premises or any part thereof or on the
owner or occupier thereof whether the same shall be in the nature of those
now in being or not and/or to refund to the Landlord on demand (in case any
of the same are payable charged assessed or imposed in respect of the
Building as a whole or any part thereof which includes the demised
premises) a proper proportion thereof attributable to the demised premises
to be determined by the Landlord's Surveyor
MAINTENANCE AND REPAIR
3.4.1 From time to time and at all times during the Term well and
substantially to repair renew cleanse maintain uphold and keep in good
and substantial repair and condition the demised premises (including
landlord's fixtures and tenant's and trade fixtures and fittings) (but
excluding from this covenant any structural parts of the Building and
landlord's fixtures and fittings mentioned in the Fifth Schedule) and
the appurtenances thereof and including any internal plastering and
other finishes of walls and ceilings and the screed and finish of
floors and the finish of all structural parts of the Building
including (but without limitation) all carpets and suspended ceilings
therein (damage by any of the Insured Risks (in excess of any policy
excesses) excepted unless the policy or policies of insurance effected
by the Landlord shall be vitiated or payment of the policy moneys
refused by reason of the act or default of the Tenant or any
undertenant or their respective officers agents employees invitees
licensees or visitors) and to renew or replace the demised premises or
any part or parts thereof if the same shall so require or become
beyond repair or if the same shall require renewal or replacement by
reason of any defect therein whether latent inherent or otherwise AND
to inform the Landlord in writing at once if the Tenant becomes aware
of any defect in the demised premises or the Building
3.4.2 Not to remove or dispose of any landlord's machinery or plant located
within or accessible from the demised premises whether or not in the
course of renewing or replacing the same (except to the extent that
the same are comprised in a permitted dealing with the demised
premises)
3.4.3 From time to time and at all times during the Term to maintain and
repair in good working order and if and when necessary (but subject to
Clause 3.4.2) to renew or replace the electrical water and sanitary
installations and all other plant machinery and equipment within the
demised premises and forming part thereof (landlord's fixtures and
fittings mentioned in the Fifth Schedule and damage as aforesaid
excepted) and to procure that the same are properly and regularly
serviced by qualified persons approved by the manufacturers of such
plant machinery and equipment
5
<PAGE> 10
3.4.4 Not to overload the electrical wiring installations and apparatus in
or serving the demised premises and at all times during the Term to
ensure that the same comply with the standards terms and conditions
laid down by the Institution of Electrical Engineers and the
regulations
3.4.5 To carry out all work required to be carried out under these presents
in accordance with good modern practice from time to time
INTERNAL DECORATION
3.5 In every fifth year of the Term and also in the last six months of the Term
(howsoever determined) having first carried out thoroughly all usual or
necessary preparatory work to ensure a high quality finish to paint polish
paper or otherwise treat as appropriate all the internal parts (usually or
requiring to be painted polished papered or otherwise treated) of the
demised premises and all additions thereto with two coats at least of good
quality paint good quality polish or other suitable material of good
quality in a good and workmanlike manner and to the satisfaction of the
Landlord PROVIDED ALWAYS that in the last six months of the Term such work
of painting and decoration shall be in tints colours and designs previously
approved in writing by the Landlord such approval not to be unreasonably
withheld
CLEANING
3.6 At all times during the Term to keep the demised premises in a clean and
tidy condition and at least once in every month to clean the inside of the
windows and window frames of the demised premises and as often as occasion
may require to wash down all tiles and other washable surfaces within the
demised premises
PARTY STRUCTURES
3.7 To pay on demand a proper contribution towards the costs and expenses
(whether incurred by the Landlord or any other person) (including legal
costs surveyors' fees and other professional costs fees and disbursements)
in making constructing repairing rebuilding renewing lighting cleaning and
maintaining any party walls and all Pipes and other structures conveniences
and appurtenances (whether or not similar to those specifically
hereinbefore mentioned) and all things the use of which is common to or
capable of being used or enjoyed in common with the demised premises and
other premises such contribution to be assessed by the Landlord's Surveyor
or by whom he may appoint whose decision shall be final and binding on all
parties hereto (save on any question of law)
ENTRY
3.8.1 To permit the Landlord and all others authorised by it at all
reasonable times on reasonable prior notice (and at all times without
notice in case of emergency) to enter upon the demised premises to
view the state of repair and condition thereof and to take a Schedule
of the Landlord's fixtures and of any defects or dilapidations and to
investigate whether anything has been done therein which constitutes
or may in the reasonable opinion of the Landlord tend to constitute a
breach of any of the covenants contained in these presents
3.8.2 To permit the Landlord and (if authorised in writing by the Landlord)
the owners lessees or occupiers of adjoining or neighbouring premises
and their respective agents servants contractors licensees and workmen
with all necessary appliances at all reasonable times on
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reasonable prior notice (and at all times without notice in case of
emergency) to enter upon the demised premises for all or any of the
purposes mentioned in the Third or Fifth Schedules
3.8.3 To permit the Landlord and all others authorised by it at all
reasonable times on reasonable prior notice (and at all times without
notice in case of emergency) to enter upon the demised premises with
materials and equipment to inspect maintain repair renew replace relay
or remove any attachments to the Building or to inspect repair
maintain or renew the Building or any adjoining or neighbouring
property and to clean maintain repair or renew any Pipes or other
structures conveniences or appurtenances belonging thereto
3.8.4 To permit the Landlord and all others authorised by it at all
reasonable times on reasonable prior notice (and at all times without
notice in case of emergency) to enter upon the demised premises for
the purpose of valuing or measuring the demised premises and also to
do anything which the Landlord shall deem necessary or prudent to
prevent a forfeiture of the Headlease or to obtain relief against any
such forfeiture
PROVIDED ALWAYS that the Landlord or other person or persons
exercising such rights shall cause as little damage to the demised
premises as possible and shall as soon as reasonably practicable make
good any damage nevertheless caused
YIELDING UP
3.9 At the expiration or sooner determination of the Term quietly to yield up
unto the Landlord the demised premises with actual vacant possession and
together with all additions and improvements thereto and all fixtures which
during the Term may be affixed or fastened to or upon the demised premises
(tenant's fixtures and fittings only excepted) in such state and condition
as shall in all respects be consistent with the full performance by the
Tenant of the covenants contained in these presents and in case any of the
Landlord's fixtures and fittings shall be missing worn out broken damaged
or destroyed forthwith to replace them with others of a similar character
and of at least equal value and to remove the Tenant's fixtures and
fittings including every moulding sign writing or painting of the name or
business of the Tenant or other occupiers from the demised premises and to
make good all damage caused by such removal to the Landlord's satisfaction
ALTERATIONS AND ADDITIONS
3.10.1 Not at any time during the Term to make any alterations or additions
to the electrical installation of the demised premises save in
accordance with the standards terms and conditions laid down by the
Institution of Electrical Engineers and the regulations of the
electricity supply authority and not to make any such alteration or
addition without the prior written consent of the Landlord
3.10.2.1 Not at any time during the Term to make any alteration or
addition whatsoever structural or otherwise (save as hereinafter
provided) in or to the demised premises or any part thereof or
change the existing design elevation or the external decorative
scheme thereof or cut maim or remove any of the walls horizontal
or vertical partitions beams columns or other structural parts
thereof
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3.10.2.2 Not to make any alterations or additions to any air conditioning
or alarm systems in the demised premises or the Pipes within or
serving the demised premises
3.10.3 Subject to prior compliance with the following conditions the Tenant
may carry out non-structural internal alterations to the demised
premises:-
3.10.3.1 the Tenant shall not interfere with any Pipes or mechanical and
electrical services which may at any time be or run under in or
through the demised premises other than electrical services
solely serving the demised premises or cause access to the same
to be or become more difficult than it now is
3.10.3.2 the Tenant shall supply to the Landlord at the cost of the Tenant
five copies of all plans and specifications and any further
information which the Landlord may reasonably require
3.10.3.3 the external appearance of the demised premises shall not be
affected and the walls dividing the demised premises from the
adjoining premises shall not be altered or affected in any way
and
3.10.3.4 the prior written consent of the Landlord shall have been
obtained such consent not to be unreasonably withheld or delayed
3.10.4 That if the Tenant shall have made or shall make any addition or
alteration to the demised premises or the electrical installation
thereof either before or after the commencement of the Term then
at the expiration or sooner determination thereof the Tenant will
(if so required by the Landlord but not otherwise) at the
Tenant's own cost and expense reinstate and make good to the
satisfaction of the Landlord the demised premises and the
electrical installation thereof and restore the same to the plan
and design as if such addition or alteration (or such of them as
may be specified by the Landlord) had not been made and will pay
the costs and expenses incurred by the Landlord (including legal
costs and surveyors' fees and other professional costs and fees
and disbursements) of and incidental to the superintendence of
such reinstatement and making good
DISREPAIR AND BREACH OF COVENANT
3.11.1 Well and substantially to commence and then proceed diligently and
expeditiously to repair remedy reinstate and make good all defects
dilapidations unauthorised works and other breaches of covenant of
which notice in writing shall be given to or left on the demised
premises for the Tenant by the Landlord within two calendar months (or
sooner if requisite) after the giving or leaving of such notice
3.11.2. If the Tenant shall fail to comply with Clause 3.11.1 to allow the
Landlord with all necessary workmen tools materials equipment and
appliances (without prejudice to any other right or remedy of the
Landlord) to enter the demised premises to repair reinstate and make
good the same and to pay to the Landlord on demand the costs and
expenses incurred (including all legal costs and surveyors' fees and
other professional costs and fees and disbursements)
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SIGNS AND NAME OF BUILDING
3.12.1 Not to erect or install any hanging sign projecting sign or other sign
aerial or other thing whatsoever on the exterior of the demised
premises or in or on the Building
3.12.2 Not to change or object to a change of the name of the Building
STATUTORY AND PLANNING REQUIREMENTS
3.13.1 At all times during the Term to observe and comply in all respects
with the provisions and requirements of any and every Enactment so far
as it may relate to or affect the demised premises or any works
additions or improvements therein or thereto or the user thereof or
the employment therein of any person and to execute all works and
provide and maintain all arrangements and make all payments which by
or pursuant to any Enactment are or may be directed or required to be
executed provided maintained or made at any time during the Term and
to indemnify the Landlord at all times against all actions proceedings
claims costs charges and expenses of or incidental to the execution of
any works or the provision or maintenance of any arrangements or
payments so directed or required as aforesaid or otherwise arising
from any contravention of any Enactment
3.13.2 Not at any time during the Term to do or fail to do on or about the
demised premises any act or thing by reason of which the Landlord may
under any Enactment incur or have imposed upon it or become liable to
pay any penalty damages compensation costs charges or expenses
3.13.3 Not without the Landlord's prior written consent which shall not be
unreasonably withheld or delayed to make any application for planning
permission relating to the demised premises or any part thereof or the
user thereof
3.13.4 Unless the Landlord shall otherwise direct in writing to carry out
before the expiration or sooner determination of the Term any works
stipulated to be carried out to the demised premises as a condition of
any planning permission obtained by or on behalf of the Tenant or any
permitted undertenant of the Tenant by a date subsequent to such
expiration or sooner determination
3.13.5 Not to make any objection to any planning application in respect of
any other premises in the Building by the Landlord or to which the
Landlord may consent
3.13.6 Not to make any objection to any planning application by the Landlord
in respect of any other adjoining or neighbouring property or any
development in the locality by the Landlord or to which the Landlord
may consent without the Landlord's prior written consent which shall
not be unreasonably withheld
NOTICES
3.14 Within five working days of the receipt of notice of the same (whether by
advertisement or not) to give full particulars to the Landlord of any
permission notice or order or any proposal for a notice or order relating
to the demised premises made given or issued to the Tenant or the owner or
occupier of the demised premises pursuant to any Enactment and if so
required by the Landlord to
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produce such permission notice or order or proposal for a notice or order
to the Landlord and also without delay to take all steps to comply with any
such notice or order and also at the request of the Landlord but at the
cost and expense of the Tenant to make or join with the Landlord in making
such objections or representations against or in respect of any such notice
order or proposal as the Landlord shall reasonably think fit
OVERLOADING
3.15.1 Not to overload any floor or roof of the demised premises or the
Building or suspend any excessive weight from the roofs ceilings walls
stanchions or structure of the demised premises or the Building
3.15.2 Not to do anything which may subject the demised premises or the
Building to any strain beyond that which it is designed to bear with
due margin for safety and unless the opinion of a qualified structural
engineer commissioned by or on behalf of the Tenant or any permitted
undertenant of the Tenant is available to pay to the Landlord on
demand all costs reasonably incurred by the Landlord in obtaining the
opinion of a qualified structural engineer as to whether the structure
of the demised premises or the Building is being or is about to be
overloaded
3.15.3 To observe the weight limits prescribed for all lifts in the Building
3.15.4 Not to do anything which adversely affects the heating cooling or
ventilation of the demised premises or the Building or which imposes
an additional load on the heating cooling or ventilation plant and
equipment or any such system beyond that which it is designed to bear
ENCROACHMENT
3.16 Not to permit or suffer any encroachment upon or against the demised
premises or the acquisition of any new right of light way drainage or other
easement on over under or against the demised premises for the benefit of
other property not being the property of the Landlord and if any such
encroachment or easement shall be made or acquired or threatened to be made
or acquired forthwith to give notice in writing thereof to the Landlord and
at the cost of the Tenant to do all such things AS may be necessary to
prevent the making of such encroachment or the acquisition of such easement
or right provided always that if the Tenant shall omit or neglect to do all
such things it shall be lawful for the Landlord or any persons authorised
by it to enter the demised premises and to do the same and any expenses so
incurred by the Landlord shall be repaid to the Landlord by the Tenant on
demand
NUISANCE AND GENERAL PROHIBITIONS
3.17.1 Not to do or permit to be done anything in the demised premises which
may in the opinion of the Landlord be waste spoil or destruction or be
prejudicial or detrimental to the Landlord or the Building or be or
become a nuisance annoyance disturbance or cause damage or
inconvenience to the Superior Lessor or the Landlord or their
respective tenants or the owners tenants or occupiers of adjoining or
nearby premises or which in the reasonable opinion of the Landlord or
the Superior Lessor may prejudicially affect or depreciate the demised
premises or any adjoining or neighbouring property or which may damage
any Pipes which now are or may hereafter be placed on or near the
demised premises
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3.17.2 Not to use the demised premises or any part thereof for any sale by
auction or for residential purposes or for any illegal or immoral
purpose or for any dangerous noxious noisy or offensive nature trade
or business and not to put outside the demised premises any clothing
or other articles
3.17.3 Not to misuse or damage in any way the lifts installed in the Building
3.17.4 Not to use any radio or other sound producing apparatus so as to be
audible from outside the demised premises
3.17.5 Not to erect or set up on the demised premises or any part thereof any
machinery of any kind or any external posts wires aerials or other
works Provided that the Tenant may install or use usual office
machinery and computers in connection with the normal use of the
demised premises for the purposes hereby envisaged so long as such
installation and use does not affect the structure or the external
appearance of the demised premises
3.17.6 Not to install in or upon the demised premises any paraffin burning
apparatus whether for heating purposes or otherwise nor cause the
emission of any smoke effluvia vapour grit smell or odour from any
apparatus on the demised premises
3.17.7 On a written notice being served by the Landlord requiring the
abatement of any emission of smoke effluvia vapour grit smell or odour
to abate such emission accordingly as soon as possible thereafter
3.17.8 To pay on demand all costs charges and expenses incurred by the
Landlord in abating a nuisance caused by the Tenant or any undertenant
or their respective officers agents employees invitees licensees or
visitors and in executing all such works as may be necessary for
abating such a nuisance whether or not in obedience to a notice served
by the local authority
3.17.9 Not without the prior written consent of the Landlord to prepare or
cook any food in the demised premises and to take all necessary steps
to ensure that all smells and fumes caused by permitted cooking refuse
or food shall be removed from the demised premises in a manner and by
mechanical means approved by the Landlord and in any event so as to
ensure that in the reasonable opinion of the Landlord no nuisance or
annoyance shall be caused to the Landlord or any of the tenants or
occupiers of the demised premises or or any adjoining or neighbouring
property
USER
3.18 Not to use the demised premises or any part thereof otherwise than as high
class professional or commercial offices
RIGHTS OF LIGHT
3.19 Not to stop up darken or obstruct any windows or lights belonging to the
demised premises or any other buildings belonging to the Landlord nor to
give to any third party any acknowledgment that the Tenant enjoys the
access of light to any of the windows or openings in the demised premises
by
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the consent of such third party nor to pay to such third party any sum of
money nor to enter into any agreement with such third party for the purpose
of inducing or binding such third party to abstain from obstructing the
access of light to any of such windows or openings And that in case the
owners of adjacent land or buildings do or threaten to do anything which
obstructs the access of light to any of the windows or openings in the
demised premises the Tenant will give immediate notice thereof to the
Landlord and will adopt such means as may be required or deemed proper for
preventing the same And in the event of a breach by the Tenant of this
covenant it shall be lawful for the Landlord or its agents and others to
enter upon the demised premises and take such action and bring such
proceedings as the Landlord may think fit in the name of the Tenant and at
the expense of the Tenant for the purpose of remedying the same
REFUSE
3.20.1 Not to form a rubbish dump on the demised premises or in the common
parts of the Building and to keep all rubbish and refuse within the
demised premises and in properly covered receptacles to the reasonable
satisfaction of the Landlord
3.20.2 To comply with all reasonable directions and regulations made by the
Landlord from time to time relating to the removal storage and
disposal of rubbish and refuse
DANGEROUS SUBSTANCES
3.21 Not to bring into the demised premises or to place keep handle or store in
or about the demised premises any petrol or substance or material of a
radio-active explosive dangerous offensive combustible or inflammable
nature
PIPES
3.22 Not to stop up or obstruct in any way whatsoever or permit oil grease or
other noxious or deleterious matter or substance to enter the Pipes serving
the demised premises or the Building and to employ such plant for treating
any noxious or deleterious effluent before permitting the same to enter
such Pipes as may be required by the Landlord from time to time in
accordance with the best modern practice and in the event of any such
obstruction or injury being caused to the Pipes forthwith to make good all
such damage to the satisfaction of the Landlord
CONTROL OF COMMON PARTS
3.23.1 Not to obstruct the common parts in any manner whatsoever
3.23.2 Not to use the common parts for the parking of vehicles
3.23.3 To co-operate with the Landlord so as to prevent the common parts from
being obstructed or being used for the parking of vehicles
DISPUTES
3.24 To permit all questions and disputes relating to easements rights
privileges or boundaries arising with the owner or occupier of any property
adjoining adjacent to or opposite the demised premises or the Building to
be settled by the Landlord on behalf of the Tenant at the expense of the
Tenant
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INDEMNITY
3.25.1 To indemnify the Landlord in respect of all actions proceedings
liability costs claims and demands which might be instituted incurred
or made by any person (including officers and employees of the
Landlord) or any competent authority by reason of:
3.25.1.1 any injury to or the death of any person or damage to any
property moveable or immoveable caused by or in any way arising
out of the user of the demised premises or the state of repair
and condition of the demised premises or anything therein or
caused by or in any way arising out of the execution of any works
at or alterations or additions to the demised premises during the
Term or through any failure by the Tenant to observe and perform
the covenants on the Tenant's part contained in these presents
3.25.1.2 any interference or alleged interference with or obstruction of
any right or alleged right of light air drainage or other right
or alleged right now or hereafter existing for the benefit of any
adjoining or neighbouring property arising from any act or
neglect of the Tenant any undertenant or their respective
officers agents employees invitees licensees or visitors
3.25.1.3 any stoppage of or damage to the Pipes or other conveniences and
services used in common with the owner tenant or occupier of any
adjoining neighbouring or nearby property arising from any act or
neglect of the Tenant any undertenant or their respective
officers agents employees invitees licensees or visitors
3.25.2 Without prejudice to any covenant or liability of the Tenant under
this Underlease to indemnify the Landlord against all liability to tax
including corporation tax capital gains tax development charges and
any other present or future tax duty charge assessment or imposition
(whether Parliamentary Parochial local or otherwise and whether in the
nature of those now in being or not) and all costs and expenses in
relation thereto which may be payable by the Landlord or in respect of
the reversion to this Lease by virtue of any works development or
change of use carried out by the Tenant (or any undertenant) in or to
the demised premises or any part thereof and also against any further
liability to such taxation flowing from the indemnities contained in
this Clause or any payment pursuant to them
3.25.3 To pay and make good to the Landlord all and every loss and damage
whatsoever incurred or sustained by the Landlord as a consequence of
every breach or non observance of the Tenant's covenants herein
contained and to indemnify the Landlord from and against all actions
proceedings costs claims and demands thereby arising
SUPPORT
3.26 Not to do anything on the demised premises which would remove support from
any adjoining premises or endanger such premises in any way
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SALE AND LETTING BOARDS
3.27 To permit the Landlord and its agents to enter upon the demised premises
and affix and retain without interference upon any part thereof at any time
during the last six months of the Term a notice for letting the demised
premises and at any time during the Term for selling or disposing of the
Landlord's interest therein and during such periods to permit all persons
with authority from the Landlord at all reasonable times during the daytime
upon notice to enter and view the demised premises or any part thereof
DILAPIDATIONS AND SECTION 146 LAW OF PROPERTY ACT 1925
3.28 To pay all costs charges and expenses (including legal costs surveyors'
fees and other professional fees and disbursements and commission payable
to a bailiff) properly incurred by the Landlord: -
3.28.1 in or in contemplation of the preparation and service of any notice
pursuant to or any proceedings under Sections 146 and/or 147 of the
Law of Property Act 1925 or otherwise (whether or not any right of
re-entry or forfeiture has been waived by the Landlord or a notice
served under the said Section 146 is complied with by the Tenant or
the Tenant has been relieved under the provisions of the said Act and
notwithstanding that forfeiture may be avoided otherwise than by
relief granted by the Court)
3.28.2 in relation to the preparation and service of any notice demand and/or
Schedule of Dilapidations whether during or after the expiration or
prior determination of the Term
3.28.3 in the supervision or superintendence of any works to be carried out
in pursuance of any notice demand and/or Schedule of Dilapidations
whether or not such works shall be carried out during or after the
expiration or prior determination of the Term
3.28.4 in connection with or procuring the remedying of any breach of
covenant on the part of the Tenant contained in these presents
ALIENATION
3.29.1.1 Not to assign nor (save as hereinafter provided) underlet part
only of the demised premises and not to mortgage or charge the
whole or any part of the demised premises
3.29.1.2 Save by way of a duly authorised assignment or underletting not
to part with or share the possession or occupation of the whole
or any part of the demised premises Provided that the Tenant may
share occupation of the demised premises with any company or
companies which is or are a member or members of the same group
as the Tenant (within the meaning of Section 42 of the Landlord &
Tenant Act 1954) for so long as the Tenant and the other company
or companies shall remain members of that group and otherwise
than in a manner that creates any tenancy or other interest in
the demised premises or any rights under Part 11 of the Landlord
& Tenant Act 1954
3.29.1.3 Not to hold the whole or any part of the demised premises on
trust for another
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3.29.2.1 In this sub-clause the expression "Permitted Assignee" shall mean
a respectable and responsible person of good financial standing
who has entered into a direct covenant with the Landlord to pay
the rents reserved and other moneys made payable by these
presents and to be bound by and perform and observe the covenants
and conditions contained in these presents for the balance of the
Term then unexpired and who (if the Landlord reasonably so
requires) has obtained a guarantor or guarantors approved by the
Landlord (such approval not to be unreasonably withheld or
delayed) to enter into covenants with the Landlord (being where
there is more than one guarantor joint and several covenants) in
the terms (mutatis mutandis) of Clauses 6.1 to 6.6
3.29.2.2 Not to assign the demised premises as a whole to any person who
is not a Permitted Assignee
3.29.2.3 Not without the prior written consent of the Landlord such
consent not to be unreasonably withheld to assign the demised
premises as a whole to a Permitted Assignee
3.29.3.1 In this sub-clause the expression "Permitted Undertenant" shall
mean a respectable and responsible person of good financial
standing and the expression "Permitted Part" shall mean one of
two parts of the demised premises such that the two parts
together comprise the whole of the demised premises (excluding
only those areas required for the common use of a Permitted
Undertenant and any other occupier of the demised premises)
3.29.3.2 Not to create any underlease of the whole or any part of the
demised premises upon payment of a fine or premium nor at a rent
of less than the full yearly market rent obtainable without
taking a fine or premium to be approved in writing by the
Landlord prior to the underlease and in any event at a rent not
less than the rent for the time being reserved under these
presents or that reasonably attributable to the Permitted Part
3.29.3.3 Not to create any underlease save by instrument in writing
containing the following covenants agreements and stipulations
(an instrument containing the same being hereinafter called a
"Permitted Underlease") namely: -
3.29.3.3.1 unqualified covenants on the part of the undertenant that
the undertenant will not assign part only of the premises
underlet and will not mortgage charge underlet or part with
or share the possession or occupation of or hold on trust
for another the whole or any part thereof (in each case by
way of absolute prohibition) and
3.29.3.3.2 a covenant on the part of the undertenant that the
undertenant will not assign the whole of the premises
underlet without the prior written consent of the Landlord
under these presents (such consent not to be unreasonably
withheld) and
3.29.3.3.3 similar agreements covenants and stipulations (mutatis
mutandis) which are no less onerous than those contained in
these presents including in particular but without
limitation provisions for payment of all payments due to be
made by the Tenant hereunder or a part thereof reasonably
attributable to the Permitted Part and to give to the Tenant
full reimbursement for the cost of all services provided
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by the Tenant to the undertenant and provisions for rent
reviews at least as often as those herein contained to the
full yearly market rent obtainable without taking a fine or
premium calculated as at the dates on which the rent hereby
reserved is to be reviewed
3.29.3.3.4 a condition of re-entry on breach of any covenant by the
undertenant
3.29.3.3.5 an agreement excluding the Permitted Underlease from the
provisions of Sections 24-28 (inclusive) of the Landlord and
Tenant Act 1954
3.29.3.4 Not to underlet the whole or any part of the demised premises to
any person who is not a Permitted Undertenant nor so as to result
in more than two parts being in separate exclusive possession
(whether by the Tenant or a Permitted Undertenant)
3.29.3.5 Not without the prior written consent of the Landlord such
consent not to be unreasonably withheld to underlet the demised
premises as a whole or a Permitted Part to a Permitted
Undertenant
3.29.3.6 Not to vary the terms of any Permitted Underlease without the
Landlord's prior written consent which shall not be unreasonably
withheld provided such terms as varied continue to comply with
the requirements hereinbefore contained and in the event of any
breach non-performance or non-observance of any of the covenants
conditions agreements or provisions contained in these presents
by any undertenant to inform the Landlord in writing and at the
Landlord's request but at the Tenant's cost take all steps to
enforce such breach non-performance or non-observance
3.29.3.7 To procure that in any Permitted Underlease the rent is reviewed
in accordance with the provisions of the Permitted Underlease but
not to agree any such reviewed rent without the prior written
consent of the Landlord (such consent not to be unreasonably
withheld or delayed) and if the rent is to be determined by an
independent person not to determine whether such person is to act
as an expert or as an arbitrator without the prior written
consent of the Landlord and to procure that the Landlord's
representations as to the rent payable thereunder are made to
such independent person
3.29.3.8 To procure that the rents reserved by any Permitted Underlease
shall not be commuted or payable more than one quarter in advance
and not to permit the reduction of any rents reserved by any such
underlease
REGISTRATION OF DEALINGS
3.30.1 At the cost of the Tenant within fourteen days next after the
execution of every assurance assignment underletting surrender
mortgage or charge affecting the demised premises or devolution of the
estate of the Tenant whether by act of parties or by operation of law
or of any estate created directly or indirectly (however remotely) out
of the Tenant's estate or of the termination by any means of any such
estate or of the commencement or termination of any such sharing as is
mentioned in Clause 3.29.1.2 to give separate notices thereof in
writing with particulars thereof to the Landlord and the Superior
Lessor and deliver to the Landlord and the Superior Lessor certified
copies of any instrument effecting the same including the
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Probate of the Will or Letters of Administration or other document or
evidence of such devolution or termination and produce the same to the
Landlord and the Superior Lessor paying at the same time to the
Landlord a reasonable registration fee of not less than twenty pounds
for each such instrument or transaction and paying to the Superior
Lessor the registration fee payable under the Headlease
3.30.2 It is hereby agreed that such registration shall be evidence of
notification to the Landlord of such matter but shall not require the
Landlord to consider the terms of such matter and shall not be
evidence that it has done so
3.30.3 Whenever requested by the Landlord to give the Landlord full details
of all underleases (direct and indirect) (however remote) in respect
of the demised premises and of the persons in actual occupation or
possession of the demised premises and of the right in which they are
in such occupation or possession and of the terms thereof and of the
rents payable from time to time and of the stage reached in any rent
review negotiations or determination thereunder
LANDLORD'S COSTS
3.31 To pay the legal costs surveyors' or architects' fees and any other costs
and expenses properly incurred by the Landlord (including stamp duty on
licences and counterparts) resulting from all applications for any consent
under these presents including those incurred in cases where consent is
refused or the application is withdrawn
VALUE ADDED TAX
3.32.1 Where by virtue of any of the provisions of these presents the Tenant
is required to pay repay or reimburse to the Landlord or any person or
persons any rents costs charges fees expenses or any other sums or
amounts whatsoever in respect of the supply of any goods and/or
services by the Landlord or any other person or persons the Tenant
shall also be required in addition to pay or (as the case may be) keep
the Landlord indemnified against:-
3.32.1.1 the amount of any Value Added Tax which may be chargeable on such
rents costs charges fees expenses or other sums or amounts
whatsoever in respect of the supply of any goods and/or services
as aforesaid to the Tenant
3.32.1.2 the amount of Value Added Tax chargeable on any other person (or
chargeable on the Landlord in the case of supplies which the
Landlord is deemed to make to itself) in respect of supplies the
cost of which is included in the calculation of the sums which
the Tenant is required to pay repay or reimburse to the Landlord
save to the extent that such Value Added Tax is recoverable by
the Landlord by virtue of the supply by the Landlord of any goods
and/or services in respect of this Lease being subject to Value
Added Tax
3.32.2 For the avoidance of doubt the Landlord shall not be under a duty to
exercise or not exercise any option or right conferred on the Landlord
by the legislation relating to Value Added Tax (including any
regulations made thereunder) so as to reduce or avoid any liability to
Value Added Tax
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REGULATIONS
3.33 To observe and perform and to ensure that the servants agents workmen and
visitors of the Tenant shall observe and perform the regulations set out in
the Sixth Schedule and any and all other reasonable regulations and
instructions from time to time made or given by the Landlord in respect of
the conduct and use of the Building provided that the same shall not impair
the Tenant's use and enjoyment of the demised premises
WINDOWS
3.34 Not except in emergency to attempt to repair or replace any windows or
glass in the exterior walls of the demised premises but to inform the
Landlord forthwith upon the Tenant becoming aware of any such repair or
replacement being required and to allow the Landlord and its agents and
workmen to enter to repair or replace the same and to pay to the Landlord
on demand the reasonable costs and expenses thereof
FIRE CONTROL
3.35 To keep any fire alarm and fire prevention and control apparatus installed
in the demised premises open to the inspection and maintained to the
satisfaction of the Landlord and not to obstruct the access to or means of
working such apparatus
INTEREST ON LATE PAYMENTS
3.36 If and so often as any rent or other moneys due from the Tenant under these
presents shall be unpaid after the due date or shall be declined by the
Landlord so as not to waive a breach of covenant the Tenant shall (without
prejudice to the Landlord's right of re-entry hereinafter contained or any
other right or remedy of the Landlord) pay (in the case of rent by way of
additional rent) interest thereon (as well after as before any judgment)
from the due date until payment or (as the case may be) acceptance
following the remedying of the breach compounded with quarterly rests on
the usual quarter days at the rate of 4% per annum above the Base Rate for
the time being declared by Lloyds Bank PLC (or other bank for the time
being specified by the Landlord) PROVIDED THAT in the case of rent paid by
banker's order such rent shall be deemed to have been paid on the date on
which the same is received by the Landlord's bank
SUPERIOR TITLE
3.37 To observe and perform the agreements covenants and stipulations (other
than payment of rent) contained or referred to in the Registers of Title
Number NGL 334633 and in the Headlease so far as they relate to the demised
premises and to keep the Landlord indemnified against all actions
proceedings costs claims and demands relating thereto
RATES
3.38.1 Not whether by proposal agreement or default to allow to be altered or
settled the rating assessment of the demised premises or any part
thereof or allow the same to be divided without the prior written
consent of the Landlord (such consent not to be unreasonably withheld
or delayed) provided that it shall be deemed to be reasonable for the
Landlord to withhold consent if the Landlord shall receive
professional advice that any proposal which the Tenant may intend to
make or any settlement which
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the Tenant may propose to accept could reasonably be expected not to
result in a reduction in the assessment
3.38.2 Fully to co-operate with the Landlord in any negotiations with the
Valuation Officer and/or the rating authority or proceedings regarding
the rating assessment of the demised premises or any part thereof
3.38.3 To indemnify the Landlord against any loss of relief from rates if a
period during which such relief may be available in respect of the
demised premises or any part thereof shall occur during the Term
LANDLORD'S COVENANTS
4. the Landlord hereby covenants with the Tenant:-
QUIET ENJOYMENT
4.1 That the Tenant paying the rents and other moneys and performing and
observing the covenants agreements conditions and stipulations as herein
provided may peaceably and quietly hold and enjoy the demised premises for
the Term without any interruption from or by the Landlord or any person
lawfully claiming under or in trust for it
INSURANCE
4.2.1 To insure the Building (except tenants' fixtures and fittings) at all
times during the Term against loss or damage by the Insured Risks
(unless such insurance shall be prevented by the act or default of the
Tenant or any undertenant or their respective officers agents
employees invitees licensees or visitors) with some insurance office
or underwriters of repute upon the usual terms and conditions of such
insurance office or underwriters (all commissions and discounts
payable in respect of such insurance belonging to the Landlord for its
own use and benefit) in the full reinstatement cost thereof (together
with an allowance for inflation and Architects' Surveyors' and other
professional fees and demolition and clearance expenses in such
amounts and including Value Added Tax as the Landlord shall from time
to time determine) and also four years' (or such longer period as the
Landlord may from time to time require) full rent and service charge
payable under these presents (including any increased rent and service
charge)
4.2.2 In case of damage to or destruction of the demised premises by any of
the Insured Risks to use all reasonable endeavours to employ the
insurance moneys (other than for loss of rent and service charge third
party risks property owners' liability professional fees and Value
Added Tax) received by it (subject to all consents having been
obtained and which the Landlord shall use all reasonable endeavours to
obtain) in reinstating and making good the demised premises with such
variations as may be necessary or desirable having regard to statutory
provisions bye-laws and regulations then in force and any planning
approval necessary and also to building standards then prevailing and
the requirements of the Superior Lessor and to make up any deficiency
out of its own moneys provided that if the rebuilding and
reinstatement of the demised premises or any part thereof shall be
frustrated or become impossible all moneys payable pursuant to any
policy of insurance effected hereunder shall belong to the Landlord
absolutely for its own use and benefit and the Tenant
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shall upon expiry of the Landlord's loss of rent insurance or at any
time thereafter be entitled to terminate this underlease by serving
notice to that effect upon the Landlord and the Term shall thereupon
absolutely cease and determine but without prejudice to any rights or
remedies that may have accrued to either party against the other
including (but without limitation) any right that the Tenant may have
against the Landlord in respect of any breach of the Landlord's
obligations set out in Clause 4.2.1 and 4.2.2
4.2.3 At the Tenant's cost to supply the Tenant with a copy or full details
of the Landlord's insurance policy or policies upon reasonable request
from time to time (but not more frequently than once every year) and
in any event forthwith to notify the Tenant in writing of any material
changes from time to time in the terms of the Landlord's insurance
PROVISION OF SERVICES
4.3 To use all reasonable endeavours to do such of the things and provide such
of the services mentioned in the Fifth Schedule as the Landlord shall from
time to time be deem appropriate in accordance with the principles of good
estate management save that where such services are expressed to be
provided at the Landlord's discretion the Landlord may but shall not be
obliged to provide them provided nevertheless that:
4.3.1 The Landlord shall be entitled to employ and pay such agents servants
contractors or such other persons as the Landlord may from time to
time think fit
4.3.2 The Landlord shall not be liable to the Tenant or any of its officers
agents employees invitees licensees or visitors for or in respect of
any loss damage or inconvenience occasioned or caused by delay
suspension breakdown inclement weather shortage of fuel or water or
stoppage due to any cause or circumstance not within the Landlord's
control or any act neglect default misfeasance or omission of any
attendant porter or other servant or employee of the Landlord or the
stoppage of any service which the Landlord reasonably considers is no
longer appropriate
4.3.3 The Landlord shall not be liable to the Tenant for any defect or want
of repair unless the Landlord has had written notice thereof or ought
to have been aware thereof in accordance with the principles of good
estate management or (except in case of emergency) during such period
thereafter as the Landlord shall reasonably take to obtain
professional advice as to the work required and competitive tenders
from contractors competent to carry out such work nor be liable in
respect of any matter mentioned in the Fifth Schedule that falls
within the ambit of any of the covenants on the part of the Tenant
contained in these presents
HEADLEASE
4.4.1 During the continuance of the Term to pay the rent reserved by the
Headlease and to indemnify the Tenant in respect of any failure to
perform the lessee's covenants contained therein in so far as the
Tenant is not liable for such performance under the covenants on its
part contained in these presents
4.4.2 To use all reasonable endeavours at the Tenant's expense to obtain the
consent of the Superior Lessor whenever the Tenant makes application
for any consent required under this
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Underlease and the consent of both the Landlord and the Superior
Lessor is required by virtue of this Underlease and the Headlease
PROVISOS
5. PROVIDED ALWAYS AND IT IS HEREBY AGREED AND DECLARED THAT:-
RE-ENTRY
5.1 Notwithstanding and without prejudice to any other remedy and power herein
contained or otherwise available to the Landlord if
5.1.1 the rents or other moneys hereby reserved and made payable or any part
thereof respectively shall be unpaid for twenty-one days after
becoming payable (whether formally or legally demanded or not) or
5.1.2 any covenant agreement or obligation on the Tenant's part contained in
these presents shall not be performed or observed or
5.1.3 the Tenant shall permit any execution or distress to be levied on any
goods for the time being in the demised premises or
5.1.4 the Tenant (being a company) shall enter into liquidation whether
compulsory or voluntary (not being merely a voluntary liquidation
while solvent for the purposes of amalgamation or reconstruction) or a
provisional liquidator shall be appointed under the Insolvency Act
1986 or a receiver or manager or administrative receiver or
administrator shall be appointed or a proposal shall be made for a
voluntary arrangement or a proposal shall be made for a scheme of
arrangement or
5.1.5 the Tenant (being an individual) shall apply for an interim order or
shall propose a voluntary arrangement under the Insolvency Act 1986 or
shall suffer a bankruptcy order to be made under the said Act or shall
petition the Court for his own bankruptcy or shall enter into a deed
of arrangement or
5.1.6 the Tenant (being a company) shall be struck off the Register of
Companies or dissolved or (being a company incorporated outside Great
Britain) dissolved or cease to exist under the laws of the country or
the state of its incorporation
then in every such case it shall be lawful for the Landlord at any time
thereafter to re-enter upon the demised premises or any part thereof in the
name of the whole and thereupon this demise shall absolutely determine but
without prejudice to any right of action of the Landlord in respect of any
breach non-observance or non-performance of the Tenant's covenants
agreements or obligations herein contained
RENT SUSPENSION
5.2 If during the Term the demised premises or any part thereof shall be
destroyed or damaged by any of the Insured Risks so as to render the
demised premises or any part thereof unfit for occupation or use then (if
the Tenant shall have duly carried out the Tenant's obligations under
Clauses 3.1
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and 3.2 and if no insurance of the demised premises or rent and service
charge shall have been vitiated or payment of the policy moneys refused in
whole or in part in consequence of some act or default of the Tenant or any
undertenant or their respective officers agents employees invitees
licensees or visitors) the rent first hereby reserved or a fair and just
proportion thereof according to the nature and extent of the damage
sustained shall be suspended to the extent (but not otherwise) that the
insurers meet the Landlord's claim under the policy for loss of rent at the
rate which would from time to time be payable hereunder if the demised
premises were undamaged until the demised premises shall again be rendered
fit for occupation and use or the earlier expiration of four years or such
longer period as may be covered by the Landlord's loss of rent insurance
from the date of the damage or destruction and any dispute as to the extent
proportion or period of such suspension shall be determined by a single
arbitrator to be appointed by the Landlord and the Tenant and in case of
difference by the President for the time being of the Royal Institution of
Chartered Surveyors and such arbitration shall act in accordance with the
provisions of the Arbitration Acts 1950 to 1979
BASE RATE
5.3 In the event of the Base Rate of Lloyds Bank PLC (or other bank for the
time being specified by the Landlord) being abolished or ceasing to be
published and no alternative rate being presented by law to replace the
said Base Rate for the purpose (inter alia) of construing existing leases
then any reference to the said Base Rate shall have effect as if there had
been substituted from time to time for the Base Rate such rate of interest
as shall be most closely comparable with the said Base Rate such rate of
interest to be reasonably determined by the Landlord's Surveyor
ARREARS
5.4 Any moneys due to the Landlord from the Tenant under any covenant condition
or provision contained in these presents shall be due as a debt from the
Tenant to the Landlord payable on demand and in the event of non-payment
such moneys shall be recoverable by distress or otherwise in the same way
as rent in arrear
SETTLEMENT OF DISPUTES
5.5 Any dispute arising as between the Tenant and the tenant or occupier of any
other property of the Landlord as to any easement right or privilege in
connection with the use of the demised premises and such other property or
as to the walls separating the demised premises from such other property or
as to the amount of any contribution towards the expenses of works to
services used in common with such other property shall be decided by the
Landlord's Surveyor for the time being whose decision shall be binding on
all parties (save on any question of law) and whose costs shall be paid by
such of the parties to the dispute in such proportions as he shall decide
EXCLUSION OF IMPLIED RIGHTS
5.6 Nothing herein contained (save as may be expressly granted by this
Underlease) shall by implication of law or otherwise operate to confer on
the Tenant any easement right or privilege whatsoever over or against any
adjoining or other property of the Landlord (whether in the Building or
not) either for an estate in fee simple or for a term of years
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UNRESTRICTED USE OF ADJOINING PROPERTY
5.7 The Tenant shall not be entitled to the benefit of any restrictions which
the Landlord or the Superior Lessor may have imposed or may hereafter
impose on any owner or lessee of any property not comprised in the demised
premises (whether in the Building or not) and nothing herein contained or
implied shall impose or be deemed to impose any restrictions on the use of
any such property or give the Tenant the right to enforce or to have
enforced or to prevent the release or modification of any covenant
agreement or condition entered into by any purchaser from or any lessee
tenant or occupier of the Landlord or the Superior Lessor in respect of
such property
EXCLUSION OF LIABILITY
5.8 Save to the extent that the Landlord may be insured in respect thereof the
Landlord shall not be liable to the Tenant or any of its officers agents
employees invitees licensees or visitors for any injury death damage
destruction inconvenience or financial or consequential loss which may be
caused by reason of the failure stoppage leakage bursting or defect of any
water sanitary gas electricity or other apparatus or by reason of a
breakdown or defect of any plant or machinery in the demised premises or
serving the demised premises or due directly or indirectly to the act
neglect or default of any other tenant or occupier for the time being of
the Building or of any officer agent employee or other person authorised by
the Landlord to enter the demised premises or to the condition of the
demised premises
PARTY WALLS
5.9 All internal walls separating the demised premises from any adjoining
premises shall be deemed to be party walls and repairable as such
COMPENSATION
5.10 Subject to the provisions of Section 38(2) of the Landlord and Tenant Act
1954 neither the Tenant nor any assignee or underlessee shall be entitled
on quitting the demised premises or any part thereof to any compensation
under Section 37 of the said Act
PERPETUITY PERIOD
5.11 All rights granted and all reservations made in respect of Pipes not in
existence at the date hereof shall be limited to those which shall come
into existence during the Term within eighty years from the date hereof
(which shall be deemed to be the perpetuity period for the purposes of this
Underlease)
NO PLANNING WARRANTY
5.12.1 Nothing in this Lease shall be deemed to constitute any representation
or warranty by the Landlord that the demised premises or any part
thereof are or will remain authorised for use under the Planning Acts
or otherwise for any specific purpose nor shall any consent which the
Landlord may in its absolute discretion give to any change of use be
taken as including any such representation or warranty
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5.12.2 Notwithstanding that any such use might not be a permitted use under
the Planning Acts the Tenant shall remain fully bound and liable to
the Landlord in respect of the obligations undertaken by the Tenant
under these presents without being entitled to any compensation
recompense or relief or any kind whatsoever
NOTICES
5.13 Section 196 of the Law of Property Act 1925 as amended by the Recorded
Delivery Service Act 1962 shall apply to any notices required or authorised
to be given hereunder
NO WAIVER
5.14 No demand for or acceptance of rent by the Landlord or its agents with
knowledge of a breach of any of the covenants on the part of the Tenant
contained in these presents shall be or be deemed to be a waiver wholly or
partially of any such breach but any such breach shall be deemed to be a
continuing breach of covenant and the Tenant and any person taking any
estate or interest under or through the Tenant shall not be entitled to set
up any such demand for or acceptance of rent by the Landlord or its agent
as a defence in any action for forfeiture or otherwise
VARIATION IN INSURANCE AND SERVICE CHARGE PERCENTAGE
5.15 If at any time the Landlord considers it fair and reasonable that the
Tenant should pay a different proportion of the expenditure by reference to
which rent secondly and thirdly reserved is calculated the Landlord will
from time to time by serving written notice on the Tenant make such
variation therein as may be fair and reasonable in all the circumstances
OPTION TO DETERMINE
5.16 If the Tenant shall desire to determine the Term at the expiration of the
fifteenth year of the Term and shall give to the Landlord not less than six
calendar months' previous notice in writing thereof then this demise shall
upon the expiration of the fifteenth year of the Term absolutely determine
but without prejudice to any right of action of either party in respect of
any antecedent breach non-observance or non-performance of the other's
covenants agreements or obligations herein contained
SURETY
6.1 In consideration of the Landlord's granting these presents to the Tenant at
the Surety's request the Surety covenants with and guarantees to the
Landlord as a primary obligation and with joint and several liability as if
the Surety were the Tenant or a co-tenant that:
6.1.1 The Tenant or the Surety will at all times during the Term (including
any continuation or renewal thereof whether under Act of Parliament or
by the Tenant holding over or for any other reason) and also
thereafter during such period as the Tenant remains in occupation of
the demised premises duly pay the rents and all other sums payable
under these presents at the times and in the manner prescribed in
these presents including all increases in the rents (whether such
increases are effected in accordance with the provisions of these
presents or are otherwise agreed or settled between the Landlord and
the Tenant - here meaning SOREMA (UK) Underwriting Management Limited
or any company which is a member of the same group as SOREMA (UK)
Underwriting Management Limited within the meaning of Section 42 of
the Landlord and Tenant
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Act 1954) and will duly perform and observe all the covenants and
obligations on the part of the Tenant and conditions contained in
these presents
6.1.2 The Surety will make good to the Landlord on demand and indemnify the
Landlord against all claims demands losses damages liability costs
fees and expenses whatsoever sustained by the Landlord by reason of or
arising in any way directly or indirectly out of any default in the
payment of any such rent or other sum or the performance or observance
of any of the Tenant's covenants and obligations or of the conditions
contained in these presents
6.1.3 In the event that -
(i) the Tenant or a liquidator or trustee-in-bankruptcy or other
person shall disclaim or surrender these presents under any
statutory or other power or
(ii) these presents shall be forfeited or determined or
(iii) the Tenant shall cease to exist (whether by being wound up or
struck off the Register of Companies or otherwise howsoever)
6.1.3.1 then if the Landlord by notice in writing given to the Surety within
six months after such event so requires the Surety will forthwith
accept from and execute and deliver to the Landlord a counterpart of a
new underlease of the demised premises for a term commencing on the
date of the disclaimer or other event and continuing for the residue
then remaining unexpired of the Term at the same rents or increased
rents (including rent reviews) and subject to the same covenants
conditions and provisions as are contained in these presents and
indemnify the Landlord on a solicitor and own client basis against all
costs and expenses stamp duty and Value Added Tax incurred by the
Landlord in connection with the giving of notice and the granting of
the new underlease and counterpart thereof
6.1.4 The Surety will not claim in any liquidation bankruptcy composition or
arrangement of the Tenant in competition with the Landlord and will
remit to the Landlord the proceeds of all judgments and all
distributions it may receive from any liquidator trustee-in-bankruptcy
or supervisor of the Tenant and shall hold for the behalf of the
Landlord all security and rights the Surety may have over assets of
the Tenant whilst any liabilities of the Tenant or the Surety to the
Landlord remain outstanding
6.2 None of the following or any combination thereof shall release exonerate or
discharge or in any way determine lessen or affect the liability of the
Surety as principal debtor under these presents or otherwise prejudice or
affect the right of the Landlord to recover from the Surety to the full
extent of this guarantee: -
6.2.1 any neglect delay or forbearance of the Landlord or its agents in
endeavouring to obtain payment of the rents or the amounts required to
be paid by the Tenant when the same become payable or in enforcing the
performance or observance of any of the obligations of the Tenant
under these presents
6.2.2 any refusal by the Landlord to accept rent tendered by or on behalf of
the Tenant at a time when the Landlord was entitled (or would after
the service of a notice under Section 146 of the Law of Property Act
1925 have been entitled) to re-enter the demised premises
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6.2.3 any extension of time or other indulgence given by the Landlord to the
Tenant
6.2.4 any licences consents approvals agreements or arrangements which may
be given by the Landlord to the Tenant or agreed between them or any
variation of the terms of these presents (including any reviews of the
rent payable under these presents) or the transfer of the Landlord's
reversion or any part thereof or the assignment of these presents or
any part thereof
6.2.5 any change in the constitution structure or powers of the Tenant the
Surety or the Landlord or the liquidation administration bankruptcy or
insolvency (as the case may be) of either the Tenant or the Surety
6.2.6 any legal limitation or any immunity disability or incapacity of the
Tenant (whether or not known to the Landlord) or the fact that any
dealings with the Landlord by the Tenant may be outside or in excess
of the powers of the Tenant
6.2.7 the avoidance under any enactment relating to bankruptcy of any
assurance security or payment or any release settlement or discharge
which may have been given or made on the face of any such assurance
security or payment
6.2.8 any other act omission matter or thing whatsoever whereby but for this
provision the Surety would be exonerated either wholly or in part from
its obligations hereunder (other than a release under seal given by
the Landlord)
6.3 In the event of the Tenant surrendering part of the demised premises the
liability of the Surety shall continue in respect of the remainder after
making any necessary apportionments under Section 140 of the Law of
Property Act 1925
6.4 The Surety hereby waives any right the Surety may have of first requiring
the Landlord to proceed against or claim payment from the Tenant before the
Surety and the Surety hereby agrees to subordinate and does hereby
subordinate any and all claims that the Surety may have against the Tenant
existing now or arising hereafter (whether in respect of payment made under
this guarantee or otherwise) to- any or all claims by the Landlord under
these presents
6.5 The Surety shall not be entitled to participate in security held by the
Landlord in respect of the Tenant's obligations to the Landlord under these
presents or to stand in the place of the Landlord in respect of any such
security until all the obligations on the part of the Tenant or the Surety
to the Landlord under these presents shall have been performed or
discharged
6.6 This guarantee shall enure for the benefit of the successors in title and
assigns of the Landlord under these presents without the necessity for any
express assignment thereof
INTERPRETATION
7.1 In this Lease where the context so admits:-
7.1.1 words importing one gender shall be deemed to include all other
genders
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7.1.2 where there are two or more persons included in the expression "the
Tenant" or "the Surety" covenants expressed to be made by the Tenant
or the Surety shall be deemed to be made by such persons jointly and
severally
7.1.3 covenants and obligations made or assumed by any party shall be
binding on and enforceable against his personal representatives
7.2 Reference in this Underlease to any right exercisable by the Landlord or
any right exercisable by the Tenant shall be construed as including (where
appropriate) the exercise of such right: -
7.2.1 in the first case by the Superior Lessor and all persons authorised by
the Superior Lessor and
7.2.2 in both cases in common with the Landlord the Superior Lessor and all
other persons having a like right or to whom such right may be granted
7.3 Reference in this Underlease to any consent or approval required from the
Landlord shall be construed as also including the consent or approval from
the Superior Lessor where the Superior Lessor's consent would be required
except that nothing herein shall be construed as either imposing on the
Superior Lessor any obligation (or indicating that such an obligation is
imposed on the Superior Lessor) or relieving the Superior Lessor from any
obligation expressly or impliedly imposed by the Headlease not unreasonably
to refuse any such consent or approval
7.4 Any negative covenant by the Tenant in this Underlease shall be construed
as if it were also a covenant not to permit or suffer the act or thing in
question to be done by any licensees invitees agents employees or visitors
of the Tenant or of any sub-tenant or other occupier of the demised
premises and any positive covenant by the Tenant in this Underlease shall
where applicable be construed as if it were also a covenant to procure that
the act or thing in question be done by licensees invitees agents employees
and visitors of the Tenant and of any sub-tenant or other occupier of the
demised premises
7.5 A consent or approval to be given by the Landlord shall not be effective
for the purposes of this Underlease unless it is in writing and signed by
or on behalf of the Landlord
7.6 Reference in this Underlease to a statute shall include any modification or
re-enactment thereof and any instrument order regulation or bye-law made
thereunder for the time being in force
7.7 Headings in this Underlease shall not be deemed to form part of this
Lease and accordingly shall not be taken into account in the construction
or interpretation thereof
7.8 For the avoidance of doubt and notwithstanding the domicile or place of
business of any party from time to time having an interest in these
presents these presents shall be governed by and construed in all respects
in accordance with the Laws of England and proceedings in connection
herewith shall be subject (and the parties hereby submit) to the
non-exclusive jurisdiction of the English Courts
IN WITNESS whereof this deed has been duly executed the day and year first
before written
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THE FIRST SCHEDULE
THE DEMISED PREMISES
1. All those premises forming part of the Building at basement and third floor
levels for the purpose of identification only shown edged red on Plans B and C
annexed hereto excluding the part of the Building shown edged green on Plan B
2. There shall be included in this demise:-
2.1 The entirety of all boundary walls (other than structural or exterior
walls) or those parts thereof which serve exclusively to enclose the
demised premises
2.2 One half (severed vertically) of those non-structural walls or partitions
(or parts thereof) which serve to divide the demised premises from other
premises
2.3 The internal plastering or other surface or finish attached or applied to
the ceilings floors and walls of the demised premises and to the frames and
entrance doors to all lifts serving the demised premises
2.4 The internal plastering or other surface or finish attached or applied to
any structural columns and beams which are situate within (or partly within
to the extent of such part) the demised premises
2.5 The suspended ceilings light fittings raised floors and carpets fitted or
laid in the demised premises
2.6 All doors and door frames and internal window sills in or serving the
demised premises
2.7 All fixtures and fittings in and about the demised premises
2.8 All additions (except tenant's and trade fixtures) at any time hereafter
made to the demised premises
3. There shall be excluded from this demise:-
3.1 The floor slabs and the air space between the fourth floor slab and the
suspended ceilings and between the third floor slab and the raised floors
3.2 The foundations of the Building
3.3 Any structural columns beams and joists and all other structural
load-bearing or exterior parts of the Building
3.4 All lift doors and door frames windows and window frames
3.5 All air-conditioning heating and ventilating plant and equipment
28
<PAGE> 33
THE SECOND SCHEDULE
EASEMENTS AND RIGHTS GRANTED
1. The right at all times for all reasonable purposes connected with the demised
premises but not for any other purposes to pass and repass by foot only to and
from the demised premises and the toilet for disabled persons in the basement of
the Building over and along the entrance halls staircases passageways entrances
lift lobbies and all other parts of the Building giving access to and from the
demised premises and the said toilet for disabled persons Provided that outside
Working Hours such right shall be exercised in such manner as the Landlord's
security arrangements may reasonably require
2. The free and uninterrupted passage and running of water soil electricity
telephone and other services from and to the demised premises in and through the
Pipes now or at any time hereafter during the Term in or under other parts of
the Building
3. The right of support shelter and protection from the remainder of the
Building
4. The right to use the toilet for disabled persons in the basement of the
Building and all necessary rights of access thereto and egress therefrom
including the use of the lift between the third floor and the basement
5. Subject to the Landlord's prior written approval (which shall not be
unreasonably withheld or delayed) the right to run Pipes through the airspace
between the fourth floor slab and the suspended ceiling of the third floor and
between the third floor slab and the raised floor
THE THIRD SCHEDULE
EXCEPTIONS AND RESERVATIONS
There are excepted and reserved to the Landlord and its lessees and assigns
and all persons to whom the Landlord shall hereafter grant any such right or
rights:
1. The free and uninterrupted passage of and running of water soil gas oil
electricity telephone heating and other services to and from other parts of the
Building in and through the Pipes now or at any time in the future in or under
the demised premises
2. The right at all reasonable times upon reasonable prior notice (and at all
times with or without notice in case of emergency) to enter upon the demised
premises for the purpose of connecting laying inspecting repairing cleansing
maintaining altering replacing relaying or renewing any Pipes and to erect
construct or lay in under over or across the demised premises any Pipes or works
for the drainage of or for the supply of water gas electricity telephone heating
and other services to the Building the person exercising such right doing as
little damage to the demised premises as possible and making good any damage to
the demised premises thereby occasioned but without payment of compensation for
any annoyance nuisance noise vibration or inconvenience caused to the Tenant or
any other person in connection with the use of the demised premises or otherwise
29
<PAGE> 34
3. The right at all reasonable times upon reasonable prior notice (and at all
times with or without notice in case of emergency) to enter upon the demised
premises to view the state and condition of the Building and to carry out the
works and provide the services set out in the Fifth Schedule the person
exercising such right doing as little damage to the demised premises as possible
and making good any damage to the demised premises thereby occasioned but
without payment of compensation for any annoyance nuisance noise vibration or
inconvenience caused to the Tenant or any other person in connection with the
use of the demised premises or otherwise
4. The right to the passage of light and air and any other easement to which the
Landlord may be or become entitled in respect of any adjoining or neighbouring
property of the Landlord (whether in the Building or not)
5. The right to erect scaffolding erect build rebuild and/or alter as it may
think fit at any time and from time to time any buildings or bays or projections
to buildings on any property adjoining or neighbouring the demised premises
including the right to build into any existing boundary wall of the demised
premises or make use of any column of the demised premises and the right to use
and/or develop any adjoining or neighbouring property of the Landlord (whether
in the Building or not) in such manner as the Landlord may think fit in each
case notwithstanding that the access of light or air to the demised premises may
thereby be obstructed or affected and without payment of compensation for any
annoyance nuisance noise vibration or inconvenience caused to the Tenant or any
other person in connection with the use of the demised premises or otherwise
6. The right of support shelter and protection for the Building from the demised
premises
7. The right to enter upon the demised premises in the circumstances in which in
the covenants by the Tenant herein contained the Tenant covenants to permit such
entry
THE FOURTH SCHEDULE
PROVISIONS FOR RENT REVIEW
1. In this Schedule the following expressions shall have the following
meanings: -
1.1 "review date" means the fifth anniversary of the date provided herein for
the commencement of the Term and every subsequent fifth anniversary thereof
and (unless the Tenant gives notice pursuant to Section 27(l) of the
Landlord and Tenant Act 1954) three calendar months prior to the date on
which the Term would expire by effluxion of time but for any continuation
thereof (whether under an Act of Parliament or by the Tenant holding over
or for any other reason) or in the event of notice being given by the
Landlord pursuant to Clause 5.16 three calendar months prior to the
fifteenth anniversary of the date provided. herein for the commencement of
the Term
1.2 "rent" shall not include the rent secondly and thirdly reserved and made
payable under Clause 2 of this Underlease
1.3 "the relevant review date" means that review date at which the rent is to
be agreed or determined pursuant to the provisions of this Schedule
1.4 "the open market rent" means the full yearly market rent for which the
demised premises might reasonably be expected to be let as a whole at the
relevant review date:-
30
<PAGE> 35
1.4.1 on the open market
1.4.2 by a willing landlord to a willing tenant
1.4.3 with vacant possession
1.4.4 without taking a fine or premium
1.4.5 for any use authorised under these presents
1.4.6 for a term of Fifteen (15) years and otherwise upon the terms and
conditions of this Underlease (save as to the amount of rent but
including the provisions for rent reviews herein contained)
1.4.7 on the assumption (whether or not it is a fact) that at the relevant
review date
1.4.7.1 the demised premises are fully fitted out and equipped and ready
for immediate occupation and use in a manner that is suitable for
and acceptable to the said willing tenant for the user for the
time being authorised by these presents and no capital is
required to be expended to enable them to be so used
1.4.7.2 no work has been carried out thereon by the Tenant or its
predecessors in title or any undertenant or any other person
which has diminished the rental value of the demised premises
1.4.7.3 in case the demised premises or the services or the accesses
thereto have been destroyed or damaged they have been fully
restored
1.4.7.4 all the Tenant's covenants and obligations in this Underlease
have been complied with
1.4.7.5 the demised premises and the said willing tenant enjoy planning
permission and all other necessary consents for the user of the
demised premises for the time being authorised under these
presents for the Term
1.4.7.6 the said willing tenant does not seek a rent free period nor any
reduction in rent to allow it the equivalent of a rent free
period nor any other form of inducement to occupy the demised
premises and in considering any comparable rents the existence of
any rent free period or any reduction in rent calculated to allow
for any rent free period or any other form of inducement as
aforesaid shall be ignored
1.4.7.7 if Value Added Tax or other similar tax is charged on the rents
and/or any other moneys payable from time to time under these
presents the said willing tenant would be able to recover such
Value Added Tax or other similar tax in full
1.4.8 but disregarding:
1.4.8.1 any goodwill attached to the demised premises by reason of the
carrying on thereon of the authorised trade or business of the
Tenant
31
<PAGE> 36
1.4.8.2 any improvements carried out after the date hereof by the Tenant
during the Term and completed within a period of twenty-one years
preceding the relevant review date with the prior written consent
of the Landlord otherwise than in pursuance of an obligation to
the Landlord or at the expense or partly at the expense of the
Landlord
1.4.8.3 any diminution in the net lettable area of the demised premises
resulting from the installation by the Tenant of any additional
plant machinery or equipment or structures for housing the same
or any partitioning works
1.4.8.4 any statutory limitation or control of rents for the time being
in force
1.4.8.5 the adverse effect upon rent of the taxable status of the said
willing tenant for the purpose of Value Added Tax or any other
tax
1.4.8.6 any adverse effect upon rent of any temporary works operations or
other activities on any adjoining or neighbouring property
1.4.8.7 any adverse effect upon rent of the option to determine contained
in Clause 5.16
1.5 "revised rent" means the new or increased yearly rent payable in
substitution for the previous rent
1.6 "the current rent" means the yearly rent payable (but for any suspension)
in the year ending on the relevant review date
1.7 "the Surveyor" means the independent surveyor required to be appointed
pursuant to Paragraph 3 of this Schedule
2. From and after each review date the rent shall be the rent agreed in
writing between the Landlord and the Tenant or in the absence of such agreement
shall be whichever is the higher of:-
2.1 the current rent and
2.2 the open market rent
3. If the Landlord and the Tenant shall not have agreed in writing the open
market rent by the relevant review date the Landlord or the Tenant may at any
time thereafter require in writing to the other of them an independent surveyor
to be appointed to determine the open market rent
4. The Surveyor (who shall be a Fellow of the Royal Institution of Chartered
Surveyors and be experienced in the valuation of premises of a like nature to
and in the location of the demised premises) may be agreed upon by the Landlord
and the Tenant and in default of such agreement within two months of a
requirement being made pursuant to Paragraph 3 of this Schedule shall be
appointed by the President for the time being of the Royal Institution of
Chartered Surveyors (or any body for the time being performing the functions of
the said Institution) on the application of the Landlord or the Tenant made at
any time after the said period of two months and if the said President shall for
any reason not be available or be unable to make such appointment then the
appointment may be made by the Vice President or next available senior officer
of the said Institution (or any other body as aforesaid) then available Provided
that at any time before the earlier of the Landlord suggesting in writing who
the Surveyor should be or the Landlord
32
<PAGE> 37
responding to the Tenant's suggestion in writing who the Surveyor should be the
Landlord may elect by notice in writing to the Tenant that the Surveyor shall
act as an arbitrator in the manner hereinafter described and not as an expert
and in that case this Paragraph shall be deemed to be a submission to
arbitration within the Arbitration Acts 1950 to 1979
5. In the absence of an election by the Landlord under Paragraph 4 of this
Schedule:-
5.1 Notice in writing of his appointment shall be given by the Surveyor to the
Landlord and the Tenant and he shall invite each to submit within a
specified period (which shall not exceed four weeks) a valuation
accompanied if the Landlord or the Tenant so desire by a statement of
reasons
5.2 The Surveyor shall act as an expert and not as an arbitrator. He shall
consider any valuation and reasons submitted to him within the said period
but shall not be in any way limited or fettered thereby and shall determine
the open market rent in accordance with his own judgment
5.3 The Surveyor shall give notice in writing of his decision to the Landlord
and the Tenant within two months of his appointment or within such extended
period as the Landlord may at any time allow
5.4 The decision of the Surveyor shall be final on all matters referred to him
6. If the Surveyor shall fail to determine the open market rent and to give
notice thereof within the time and in manner hereinbefore provided or if he
shall relinquish his appointment or die or otherwise fail or be unable to
determine the same the Landlord may apply to the President or such other officer
of the Royal Institution of Chartered Surveyors (or other body as aforesaid) as
aforesaid for a substitute to be appointed in his place which procedure may be
repeated as many times as necessary
7. The fees of the Surveyor and of the Royal Institution of Chartered
Surveyors (or other body as aforesaid) shall be shared equally between the
Landlord and the Tenant save where the rent proposed by either (but not both) of
them (whether or not during without prejudice negotiations) prior to the
reference to the Royal Institution of Chartered Surveyors (or other body as
aforesaid) is within 10% of that determined by the Surveyor in which case such
fees shall be borne by the other and if the Tenant shall fail to pay its share
thereof the Landlord shall be entitled to make such payment and the amount
thereof shall be immediately due and payable by the Tenant to the Landlord
8. In the event that by the relevant review date the Landlord and the Tenant
shall not have agreed in writing the rate of the rent to be payable from and
after such date or the Surveyor (if appointed) shall not have determined the
same or given the notice provided for in Paragraph 5.3 of this Schedule then the
Tenant shall continue to pay (but on account of any revised rent) rent at the
rate of the current rent until the quarter day immediately following the
reaching of such agreement or determination or the giving of the said notice
whichever shall first occur If such agreement or determination or the giving of
the said notice shall result in a revised rent there shall be added to and be
payable with the instalment of the revised rent due on such quarter day
(notwithstanding that the provisions of Paragraph 9 of this Schedule remain to
be complied with) the amount representing the difference between the current
rent and the revised rent from the relevant review date until such quarter day
together with interest on such amount (compounded with monthly rests) at a rate
equivalent to 4% per annum above the Base Rate of Lloyds Bank PLC (or other bank
for the time being specified by the Landlord) from time to time from the
relevant review date until payment. If such agreement or determination or the
giving of the said notice shall not have resulted in a revised rent then rent at
the rate of the current rent shall continue to be payable
33
<PAGE> 38
9. Immediately after the open market rent shall have been agreed or determined
as aforesaid a memorandum of the revised rent (if any) in such form as the
Landlord may reasonably require shall be signed recording the amount of the
revised rent on behalf of the Landlord and the Tenant and each party shall pay
its own costs and expenses in respect thereof
10. If at any time or times there shall be in force any Enactment which shall
restrict or in any way affect the Landlord's right to have the rent reviewed as
hereinbefore provided or which shall restrict or in any way affect the
Landlord's right to payment of a revised rent the Landlord shall be entitled
following the repeal termination or modification of such Enactment (but in the
event of a modification of such Enactment only to the extent permitted by such
modification) to serve notice upon the Tenant requiring the Tenant to pay to the
Landlord as from the first quarter day ("the interim review date") occurring not
less than twenty-eight days after the date of service of the Landlord's notice
until such rent shall next be varied in accordance with the provisions of this
Schedule the rent stated in the Landlord's notice and such rent shall become
payable accordingly unless the Tenant shall have served upon the Landlord within
twenty-eight days of the date of service of the Landlord's notice a counter
notice requiring in substitution for the rent stated in the Landlord's notice
whichever is the higher of the yearly rent payable hereunder immediately before
the interim review date and the open market rent of the demised premises on the
interim review date whereupon in the absence of agreement a Surveyor shall be
appointed to determine the open market rent in accordance with the foregoing
provisions of this Schedule so far as the same shall be applicable with the
substitution of the interim review date for the relevant review date
11. For the avoidance of doubt it is hereby agreed and declared that time
shall not be of the essence of any of the provisions of this Schedule
THE FIFTH SCHEDULE
THE SERVICES
1. The repair (including rebuilding where necessary or desirable) of the
structure and exterior of the Building so far as that is not the Tenant's
responsibility and the decoration to such standard as the Landlord's Surveyor
shall consider appropriate of the exterior and the common parts and the cleaning
of the outside stonework of the Building and the maintenance of the
appurtenances of the Building including any boundary walls fences and gates and
any trees shrubs flowers and other vegetation and landscaping in the Building or
its curtilage and the repair maintenance rebuilding renewing making lighting
connecting into and cleansing (or contribution to the cost of any such) of all
ways roads pavements sewers drains channels watercourses wires cables fences
party walls and structures and other conveniences which shall belong to or be
used for the Building in common with other premises near or adjoining the
Building
2. The repair (including replacement where necessary or desirable) and
maintenance of the lifts boilers or other central heating apparatus hot water
supply systems air-conditioning and ventilating systems and appliances fire
fighting systems and equipment which are are not expressly stated to be the
Tenant's responsibility under these presents pumps building management systems
and all other plant equipment apparatus and machinery serving the Building
3. At the Landlord's discretion the establishment and maintenance in the
Landlord's absolute discretion of a sinking and/or reserve fund based on normal
commercial principles for the replacement (but not upgrading) from time to time
of the lifts boilers or other central heating apparatus hot water supply systems
air-conditioning and ventilating systems and appliances fire-fighting systems
and equipment pumps building management systems and all other plant equipment
machinery and apparatus serving the Building
34
<PAGE> 39
4. The employment of housekeepers cleaners porters receptionists security
personnel managers and other staff for the Building including salaries wages
insurances pensions National Insurance contributions the provision of uniforms
and/or protective clothing compensation for unfair dismissal or redundancy
5. The cleaning lighting furnishing and maintenance of the entrance halls
stairways passages common washrooms lavatories and lifts such windows and plate
glass as do not form part of premises which are let or occupied or intended to
be let or occupied and any other common parts
6. Refuse disposal (excluding specialist refuse or waste arising from the
Tenant's particular trade or business at the demised premises)
7. The payment of all charges for water gas oil electricity and other like
services and also all existing and future rates taxes duties charges assessments
impositions and outgoings whatsoever to the extent that the same do not relate
to lettable areas within the Building
8. The provision of hot water and heating and cooling during such periods as
the Landlord may reasonably determine from time to time having regard to weather
conditions
9. If so requested by the Tenant at any time during the Term but subject to
obtaining any necessary consents therefor the provision of a satellite dish or
such further satellite dishes as can in the Landlord's opinion be accommodated
on the roof of the Building for receiving and/or transmitting signals to such
satellites as the Landlord may in its absolute discretion decide having regard
to the wishes of the Tenant and such other tenants (if any) in the Building as
may from time to time wish to share the use of any such dish together with
appropriate connections to the demised premises all installation and maintenance
costs in connection therewith to be apportioned between the Tenant and such
other tenants in the same proportions as their respective service charge
percentages bear to each other
10. The carrying out of all works to the Building which shall be necessary to
comply with and the doing of anything which is reasonably necessary or prudent
to contest the incidence of any requirements of any Enactment
11. The insurance of the common parts of the Building against the Insured Risks
and any insurance against employers' liability public liability and third party
risks boiler escalator and lift insurances and other insurances which in the
opinion of the Landlord shall be appropriate
12. The execution of any works that the Landlord shall reasonably consider
necessary for the protection and safety of the Building or members of the public
visiting or passing the Building
13. The payment of reasonable management and other professional costs
(including surveyors' builders' architects' engineers' accountants' and
solicitors' costs) and expenses including Value Added Tax or other similar tax
incurred by the Landlord from time to time by virtue of or in relation to any
matter provided for in these presents including this Schedule (and if the
Landlord shall not employ managing agents to manage some or all of the matters
set out in this Schedule the payment of a reasonable sum to the Landlord as a
management fee)
14. At the Landlord's discretion the payment of commitment fees interest and
any other cost of borrowing money to finance some or all of the matters set out
in this Schedule
35
<PAGE> 40
15(a) At the Landlord's discretion the provision and maintenance of furniture,
furnishings and plants in the entrance foyer of the Building and the
installation and maintenance of security and entry systems serving the entrances
to the Building (b) The payment of any charges in connection with the rental
thereof and the provision in the entrance foyer of the Building of a tenants'
directory board showing the names (inter alia) of up to three persons or
companies carrying on business in the demised premises
16. The performance and observance of the covenants in the Headlease on the part
of the tenant thereunder so far as the Tenant and other tenants in the Building
are not made specifically responsible therefor
17. The prevention by any means of a forfeiture of the Headlease or the
obtaining of relief therefrom (except where the Tenant is hereby made wholly
responsible for the Landlord's expenses thereof and except where such forfeiture
or the possibility thereof is caused solely by any act or default on the part of
the Landlord)
18. At the Landlord's discretion the provision maintenance and renewal of such
other services facilities or amenities and the carrying out of such works to the
Building and its appurtenances as the Landlord's Surveyor shall from time to
time reasonably consider necessary or desirable provided the same shall be in
accordance with the principles of good estate management
THE SIXTH SCHEDULE
REGULATIONS
1. Loading unloading delivery and despatch of goods shall be carried out only by
means of the entrances designated for such purposes and at reasonable times
stipulated by the Landlord
2. No sound amplification equipment shall be used in a manner which is audible
outside the demised premises
3. Precautions shall be taken to avoid water freezing in the Pipes within the
demised premises
4. Fire escape doors and corridors shall not to be obstructed or used except in
emergency
5. The demised premises shall be secured against intrusion when not in use
6. If the Tenant is permitted to use the common parts for transporting goods or
materials such transport shall only be by means of soft-wheeled trolleys or
trucks which leave no blemish on carpets and floor surfaces and which are used
in a manner which does not result in damage to the walls or doors of the common
parts
36
<PAGE> 41
THE COMMON SEAL of )
WERELDHAVE PROPERTY )
CORPORATION PLC was )
hereunto affixed in )
the presence of-.- )
Director
Secretary
37
<PAGE> 1
Exhibit 10.26
INTERESTS AND LIABILITIES CONTRACT
attaching to and forming a part of the
CATASTROPHE FIRST, SECOND, THIRD AND FOURTH
EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
between
TRENWICK AMERICA REINSURANCE CORPORATION
Stamford, Connecticut
(hereinafter referred to as the "Company")
and
COLOGNE LIFE REINSURANCE COMPANY
(hereinafter called the "Subscribing Reinsurer")
It is hereby mutually understood and agreed by and between the Company
and the Subscribing Reinsurer that effective 12:01 a.m. January 1, 1998, through
December 31, 1998, both days inclusive, Local Standard Time, the Subscribing
Reinsurer's share in the interests and liabilities of the Reinsurer on the
attached Agreement will be:
<TABLE>
<S> <C>
10.00% as respects the liability and premium set forth in
EXHIBIT A, FIRST LAYER.
5.00% as respects the liability and premium set forth in
EXHIBIT B, SECOND LAYER.
1.00% as respects the liability and premium set forth in
EXHIBIT C, THIRD LAYER.
1.00% as respects the liability and premium set forth in
EXHIBIT D, FOURTH LAYER.
</TABLE>
The share of the Subscribing Reinsurer will be separate and apart from
the shares of the other Reinsurers and will not be joint with those of the other
Reinsurers, and the Subscribing Reinsurer will in no event participate in the
interests and liabilities of the other Reinsurers.
- 1 -
<PAGE> 2
If the Subscribing Reinsurer wishes to designate an alternate party to
that named in the Service of Suit Article contained in the attached Agreement,
then service of process will be made upon the party hereinafter named:
________________________________________________________________________________
________________________________________________________________________________
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Agreement to be executed in duplicate by their duly authorized
representatives.
TRENWICK AMERICA REINSURANCE CORPORATION
Signature: ______________________________ Title: ____________________________
Attest: ______________________________ Date: ____________________________
and Signed by:
COLOGNE LIFE REINSURANCE COMPANY
Signature: ______________________________ Title: ____________________________
Attest: ______________________________ Date: ____________________________
- 2 -
<PAGE> 3
INTERESTS AND LIABILITIES CONTRACT
attaching to and forming a part of the
CATASTROPHE FIRST, SECOND, THIRD AND FOURTH
EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
between
TRENWICK AMERICA REINSURANCE CORPORATION
Stamford, Connecticut
(hereinafter referred to as the "Company")
and
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
(hereinafter called the "Subscribing Reinsurer")
It is hereby mutually understood and agreed by and between the Company
and the Subscribing Reinsurer that effective 12:01 a.m. January 1, 1998, through
December 31, 1998, both days inclusive, Local Standard Time, the Subscribing
Reinsurer's share in the interests and liabilities of the Reinsurer on the
attached Agreement will be:
<TABLE>
<S> <C>
0.00% as respects the liability and premium set forth in
EXHIBIT A, FIRST LAYER.
20.00% as respects the liability and premium set forth in
EXHIBIT B, SECOND LAYER.
20.00% as respects the liability and premium set forth in
EXHIBIT C, THIRD LAYER.
25.00% as respects the liability and premium set forth in
EXHIBIT D, FOURTH LAYER.
</TABLE>
The share of the Subscribing Reinsurer will be separate and apart from
the shares of the other Reinsurers and will not be joint with those of the other
Reinsurers, and the Subscribing Reinsurer will in no event participate in the
interests and liabilities of the other Reinsurers.
- 1 -
<PAGE> 4
If the Subscribing Reinsurer wishes to designate an alternate party to
that named in the Service of Suit Article contained in the attached Agreement,
then service of process will be made upon the party hereinafter named:
________________________________________________________________________________
________________________________________________________________________________
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Agreement to be executed in duplicate by their duly authorized
representatives.
TRENWICK AMERICA REINSURANCE CORPORATION
Signature: ______________________________ Title: ____________________________
Attest: ______________________________ Date: ____________________________
and Signed by:
CONNECTICUT GENERAL LIFE INSURANCE COMPANY
Signature: ______________________________ Title: ____________________________
Attest: ______________________________ Date: ____________________________
- 2 -
<PAGE> 5
INTERESTS AND LIABILITIES CONTRACT
attaching to and forming a part of the
CATASTROPHE FIRST, SECOND, THIRD AND FOURTH
EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
between
TRENWICK AMERICA REINSURANCE CORPORATION
Stamford, Connecticut
(hereinafter referred to as the "Company")
and
DONNELLY SKRTICH UNDERWRITERS, LLC
for and on behalf of
CONTINENTAL ASSURANCE COMPANY
(hereinafter called the "Subscribing Reinsurer")
It is hereby mutually understood and agreed by and between the Company
and the Subscribing Reinsurer that effective 12:01 a.m. January 1, 1998, through
December 31, 1998, both days inclusive, Local Standard Time, the Subscribing
Reinsurer's share in the interests and liabilities of the Reinsurer on the
attached Agreement will be:
<TABLE>
<S> <C>
0.00% as respects the liability and premium set forth in
EXHIBIT A, FIRST LAYER.
0.00% as respects the liability and premium set forth in
EXHIBIT B, SECOND LAYER.
21.50% as respects the liability and premium set forth in
EXHIBIT C, THIRD LAYER.
30.00% as respects the liability and premium set forth in
EXHIBIT D, FOURTH LAYER.
</TABLE>
The share of the Subscribing Reinsurer will be separate and apart from
the shares of the other Reinsurers and will not be joint with those of the other
Reinsurers, and the
- 1 -
<PAGE> 6
Subscribing Reinsurer will in no event participate in the interests and
liabilities of the other Reinsurers.
- 2 -
<PAGE> 7
If the Subscribing Reinsurer wishes to designate an alternate party to
that named in the Service of Suit Article contained in the attached Agreement,
then service of process will be made upon the party hereinafter named:
_______________________________________________________________________________
_______________________________________________________________________________
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Agreement to be executed in duplicate by their duly authorized
representatives.
TRENWICK AMERICA REINSURANCE CORPORATION
Signature: ______________________________ Title: _____________________________
Attest: ______________________________ Date: _____________________________
and Signed by:
DONNELLY SKRTICH UNDERWRITERS, LLC
for and on behalf of
CONTINENTAL ASSURANCE COMPANY
Signature: ______________________________ Title: _____________________________
Attest: ______________________________ Date: _____________________________
- 2 -
<PAGE> 8
INTERESTS AND LIABILITIES CONTRACT
attaching to and forming a part of the
CATASTROPHE FIRST, SECOND, THIRD AND FOURTH
EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
between
TRENWICK AMERICA REINSURANCE CORPORATION
Stamford, Connecticut
(hereinafter referred to as the "Company")
and
INSURANCE SERVICES ASSOCIATES, LTD.
for and on behalf of
MANULIFE REINSURANCE CORPORATION
(hereinafter called the "Subscribing Reinsurer")
It is hereby mutually understood and agreed by and between the Company
and the Subscribing Reinsurer that effective 12:01 a.m. January 1, 1998, through
December 31, 1998, both days inclusive, Local Standard Time, the Subscribing
Reinsurer's share in the interests and liabilities of the Reinsurer on the
attached Agreement will be:
<TABLE>
<S> <C>
25.00% as respects the liability and premium set forth in
EXHIBIT A, FIRST LAYER.
35.00% as respects the liability and premium set forth in
EXHIBIT B, SECOND LAYER.
25.00% as respects the liability and premium set forth in
EXHIBIT C, THIRD LAYER.
25.00% as respects the liability and premium set forth in
EXHIBIT D, FOURTH LAYER.
</TABLE>
The share of the Subscribing Reinsurer will be separate and apart from
the shares of the other Reinsurers and will not be joint with those of the other
Reinsurers, and the
- 1 -
<PAGE> 9
Subscribing Reinsurer will in no event participate in the interests and
liabilities of the other Reinsurers.
- 2 -
<PAGE> 10
If the Subscribing Reinsurer wishes to designate an alternate party to
that named in the Service of Suit Article contained in the attached Agreement,
then service of process will be made upon the party hereinafter named:
________________________________________________________________________________
________________________________________________________________________________
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Agreement to be executed in duplicate by their duly authorized
representatives.
TRENWICK AMERICA REINSURANCE CORPORATION
Signature: ______________________________ Title: _____________________________
Attest: ______________________________ Date: _____________________________
and Signed by:
INSURANCE SERVICES ASSOCIATES, LTD.
for and on behalf of
MANULIFE REINSURANCE CORPORATION
Signature: ______________________________ Title: _____________________________
Attest: ______________________________ Date: _____________________________
- 2 -
<PAGE> 11
INTERESTS AND LIABILITIES CONTRACT
attaching to and forming a part of the
CATASTROPHE FIRST, SECOND, THIRD AND FOURTH
EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
between
TRENWICK AMERICA REINSURANCE CORPORATION
Stamford, Connecticut
(hereinafter referred to as the "Company")
and
LLOYD'S UNDERWRITERS
per Schedule(s) attached hereto
(hereinafter called the "Subscribing Reinsurer")
It is hereby mutually understood and agreed by and between the Company
and the Subscribing Reinsurer that effective 12:01 a.m. January 1, 1998, through
December 31, 1998, both days inclusive, Local Standard Time, the Subscribing
Reinsurer's share in the interests and liabilities of the Reinsurer on the
attached Agreement will be:
<TABLE>
<S> <C>
30.00% as respects the liability and premium set forth in
EXHIBIT A, FIRST LAYER.
15.00% as respects the liability and premium set forth in
EXHIBIT B, SECOND LAYER.
17.50% as respects the liability and premium set forth in
EXHIBIT C, THIRD LAYER.
10.00% as respects the liability and premium set forth in
EXHIBIT D, FOURTH LAYER.
</TABLE>
The share of the Subscribing Reinsurer will be separate and apart from
the shares of the other Reinsurers and will not be joint with those of the other
Reinsurers, and the
- 1 -
<PAGE> 12
Subscribing Reinsurer will in no event participate in the interests and
liabilities of the other Reinsurers.
- 2 -
<PAGE> 13
If the Subscribing Reinsurer wishes to designate an alternate party to
that named in the Service of Suit Article contained in the attached Agreement,
then service of process will be made upon the party hereinafter named:
________________________________________________________________________________
________________________________________________________________________________
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Agreement to be executed in duplicate by their duly authorized
representatives.
TRENWICK AMERICA REINSURANCE CORPORATION
Signature: ______________________________ Title: _____________________________
Attest: ______________________________ Date: _____________________________
and Signed by:
LLOYD'S POLICY SIGNING OFFICE
for and on behalf of
UNDERWRITERS AT LLOYD'S
per Schedule(s) attached hereto
Signature: ______________________________ Title: _____________________________
Attest: ______________________________ Date: _____________________________
- 2 -
<PAGE> 14
INTERESTS AND LIABILITIES CONTRACT
attaching to and forming a part of the
CATASTROPHE FIRST, SECOND, THIRD AND FOURTH
EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
between
TRENWICK AMERICA REINSURANCE CORPORATION
Stamford, Connecticut
(hereinafter referred to as the "Company")
and
LONDON LIFE REINSURANCE COMPANY
(hereinafter called the "Subscribing Reinsurer")
It is hereby mutually understood and agreed by and between the Company
and the Subscribing Reinsurer that effective 12:01 a.m. January 1, 1998, through
December 31, 1998, both days inclusive, Local Standard Time, the Subscribing
Reinsurer's share in the interests and liabilities of the Reinsurer on the
attached Agreement will be:
<TABLE>
<S> <C>
5.00% as respects the liability and premium set forth in
EXHIBIT A, FIRST LAYER.
10.00% as respects the liability and premium set forth in
EXHIBIT B, SECOND LAYER.
10.00% as respects the liability and premium set forth in
EXHIBIT C, THIRD LAYER.
5.00% as respects the liability and premium set forth in
EXHIBIT D, FOURTH LAYER.
</TABLE>
The share of the Subscribing Reinsurer will be separate and apart from
the shares of the other Reinsurers and will not be joint with those of the other
Reinsurers, and the Subscribing Reinsurer will in no event participate in the
interests and liabilities of the other Reinsurers.
- 1 -
<PAGE> 15
If the Subscribing Reinsurer wishes to designate an alternate party to
that named in the Service of Suit Article contained in the attached Agreement,
then service of process will be made upon the party hereinafter named:
________________________________________________________________________________
________________________________________________________________________________
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Agreement to be executed in duplicate by their duly authorized
representatives.
TRENWICK AMERICA REINSURANCE CORPORATION
Signature: ______________________________ Title: _____________________________
Attest: ______________________________ Date: _____________________________
and Signed by:
LONDON LIFE REINSURANCE COMPANY
Signature: ______________________________ Title: _____________________________
Attest: ______________________________ Date: _____________________________
- 2 -
<PAGE> 16
INTERESTS AND LIABILITIES CONTRACT
attaching to and forming a part of the
CATASTROPHE FIRST, SECOND, THIRD AND FOURTH
EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
between
TRENWICK AMERICA REINSURANCE CORPORATION
Stamford, Connecticut
(hereinafter referred to as the "Company")
and
NEW HAMPSHIRE INSURANCE COMPANY
(hereinafter called the "Subscribing Reinsurer")
It is hereby mutually understood and agreed by and between the Company
and the Subscribing Reinsurer that effective 12:01 a.m. January 1, 1998, through
December 31, 1998, both days inclusive, Local Standard Time, the Subscribing
Reinsurer's share in the interests and liabilities of the Reinsurer on the
attached Agreement will be:
<TABLE>
<S> <C>
10.00% as respects the liability and premium set forth in
EXHIBIT A, FIRST LAYER.
10.00% as respects the liability and premium set forth in
EXHIBIT B, SECOND LAYER.
5.00% as respects the liability and premium set forth in
EXHIBIT C, THIRD LAYER.
4.00% as respects the liability and premium set forth in
EXHIBIT D, FOURTH LAYER.
</TABLE>
The share of the Subscribing Reinsurer will be separate and apart from
the shares of the other Reinsurers and will not be joint with those of the other
Reinsurers, and the Subscribing Reinsurer will in no event participate in the
interests and liabilities of the other Reinsurers.
- 1 -
<PAGE> 17
If the Subscribing Reinsurer wishes to designate an alternate party to
that named in the Service of Suit Article contained in the attached Agreement,
then service of process will be made upon the party hereinafter named:
________________________________________________________________________________
________________________________________________________________________________
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Agreement to be executed in duplicate by their duly authorized
representatives.
TRENWICK AMERICA REINSURANCE CORPORATION
Signature: ______________________________ Title: _____________________________
Attest: ______________________________ Date: _____________________________
and Signed by:
NEW HAMPSHIRE INSURANCE COMPANY
per AIG EUROPE (UK) LTD
Signature: ______________________________ Title: _____________________________
Attest: ______________________________ Date: _____________________________
- 2 -
<PAGE> 18
INTERESTS AND LIABILITIES CONTRACT
attaching to and forming a part of the
CATASTROPHE FIRST, SECOND, THIRD AND FOURTH
EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
between
TRENWICK AMERICA REINSURANCE CORPORATION
Stamford, Connecticut
(hereinafter referred to as the "Company")
and
RELIANCE NATIONAL INSURANCE COMPANY
(hereinafter called the "Subscribing Reinsurer")
It is hereby mutually understood and agreed by and between the Company
and the Subscribing Reinsurer that effective 12:01 a.m. January 1, 1998, through
December 31, 1998, both days inclusive, Local Standard Time, the Subscribing
Reinsurer's share in the interests and liabilities of the Reinsurer on the
attached Agreement will be:
<TABLE>
<S> <C>
20.00% as respects the liability and premium set forth in
EXHIBIT A, FIRST LAYER.
5.00% as respects the liability and premium set forth in
EXHIBIT B, SECOND LAYER.
0.00% as respects the liability and premium set forth in
EXHIBIT C, THIRD LAYER.
0.00% as respects the liability and premium set forth in
EXHIBIT D, FOURTH LAYER.
</TABLE>
The share of the Subscribing Reinsurer will be separate and apart from
the shares of the other Reinsurers and will not be joint with those of the other
Reinsurers, and the Subscribing Reinsurer will in no event participate in the
interests and liabilities of the other Reinsurers.
- 1 -
<PAGE> 19
If the Subscribing Reinsurer wishes to designate an alternate party to
that named in the Service of Suit Article contained in the attached Agreement,
then service of process will be made upon the party hereinafter named:
________________________________________________________________________________
________________________________________________________________________________
IN WITNESS WHEREOF, the parties hereto have caused this Interests and
Liabilities Agreement to be executed in duplicate by their duly authorized
representatives.
TRENWICK AMERICA REINSURANCE CORPORATION
Signature: ______________________________ Title: _____________________________
Attest: ______________________________ Date: _____________________________
and Signed by:
RELIANCE NATIONAL INSURANCE COMPANY
Signature: ______________________________ Title: _____________________________
Attest: ______________________________ Date: _____________________________
<PAGE> 20
CATASTROPHE FIRST, SECOND, THIRD AND FOURTH
EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
between
TRENWICK AMERICA REINSURANCE CORPORATION
Stamford, Connecticut
(hereinafter referred to as the "Company")
and
THE SUBSCRIBING REINSURER(S) SPECIFIED IN THE
INTERESTS AND LIABILITIES CONTRACT(S)
ATTACHED TO THIS AGREEMENT
(hereinafter referred to collectively as the "Reinsurers")
Term: January 1, 1998 through December 31, 1998, Local Standard Time, both
days inclusive.
<PAGE> 21
CONTENTS
ARTICLE PAGE
- ------- ----
WITNESSETH:........................................................1
I COVERAGE...........................................................1
II TERM...............................................................2
III EXTENDED EXPIRATION................................................2
IV EXCLUSIONS.........................................................3
V TERRITORY..........................................................3
VI NET RETAINED LINES.................................................3
VII ULTIMATE NET LOSS..................................................4
VIII REPORTS AND REMITTANCES............................................5
IX NOTICE OF LOSS AND LOSS SETTLEMENTS................................5
X OFFSET.............................................................6
XI SALVAGE AND SUBROGATION............................................6
XII ERRORS AND OMISSIONS...............................................7
XIII CURRENCY...........................................................8
XIV ACCESS TO RECORDS..................................................8
XV TAXES..............................................................8
XVI FEDERAL EXCISE TAX.................................................9
XVII ARBITRATION........................................................9
XVIII SERVICE OF SUIT...................................................11
XIX INSOLVENCY........................................................13
XX FUNDING OF LOSS RESERVES..........................................14
XXI COMMUTATION AND SUNSET............................................18
XXII INTERMEDIARY......................................................18
EXECUTION.........................................................19
<PAGE> 22
EXHIBITS
EXHIBIT A - FIRST LAYER.....................................................20
RETENTION AND LIMIT.............................................20
RATE AND PREMIUM................................................20
REINSTATEMENT...................................................21
EXHIBIT B - SECOND LAYER....................................................22
RETENTION AND LIMIT.............................................22
RATE AND PREMIUM................................................22
REINSTATEMENT...................................................23
EXHIBIT C - THIRD LAYER.....................................................24
RETENTION AND LIMIT.............................................24
RATE AND PREMIUM................................................24
REINSTATEMENT...................................................25
EXHIBIT D - FOURTH LAYER....................................................26
RETENTION AND LIMIT.............................................26
RATE AND PREMIUM................................................26
REINSTATEMENT...................................................27
<PAGE> 23
CATASTROPHE FIRST, SECOND, THIRD AND FOURTH
EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
between
TRENWICK AMERICA REINSURANCE CORPORATION
Stamford, Connecticut
(hereinafter referred to as the "Company")
and
THE SUBSCRIBING REINSURER(S) SPECIFIED IN THE
INTERESTS AND LIABILITIES CONTRACT(S)
ATTACHED TO THIS AGREEMENT
(hereinafter referred to collectively as the "Reinsurers")
WITNESSETH:
That in consideration of the mutual covenants hereinafter contained and
upon the terms and conditions hereinbelow set forth, the parties hereto agree as
follows:
ARTICLE I
COVERAGE
The Reinsurer will indemnify the Company, subject to the limits set
forth in the Retention and Limit Sections of Exhibits A, B, C and D attaching to
and forming part of this Agreement for the Company's participation on any loss
or losses occurring during the term of this Agreement under all policies,
binders, contracts, or
- 1 -
<PAGE> 24
agreements of insurance or reinsurance, whether written or oral, (hereinafter
called "policies") underwritten by Duncanson and Holt Group.
All reinsurance for which the Reinsurers will be obligated by virtue of
this Agreement will be subject to the same terms, conditions, interpretations,
waivers, modifications, and alterations as the respective policies of the
Company to which this Agreement applies. Nothing herein will in any manner
create any obligations or establish any rights against the Reinsurers in favor
of any third parties or any persons not parties to this Agreement except as
provided in the Insolvency Article.
ARTICLE II
TERM
The term of this Agreement shall be the twelve month period commencing
January 1, 1998, through, December 31, 1998, Local Standard Time, both days
inclusive and this Agreement shall apply to losses occurring during the
aforementioned term. "Local Standard Time" is defined as where the loss occurs.
ARTICLE III
EXTENDED EXPIRATION
Should this Agreement expire while a loss occurrence covered hereunder
is in progress, the Reinsurers will be responsible for their portion of the
entire loss or damage caused by such loss occurrence, subject to the other
conditions of this
- 2 -
<PAGE> 25
Agreement, and provided that no part of said loss occurrence is claimed against
any renewal or replacement of this Agreement.
ARTICLE IV
EXCLUSIONS
No reinsurance indemnity will be afforded under this Agreement for:
A. Employers Liability.
B. Loss or liability excluded under the subject policies.
ARTICLE V
TERRITORY
This Agreement shall provide coverage wherever the subject policies
apply.
ARTICLE VI
NET RETAINED LINES
This Agreement applies to only that portion of any reinsurance which
the Company retains net for its own account, and in calculating the amount of
loss hereunder and also in computing the amount or amounts in excess of which
this Agreement attaches, only loss in respect of that portion of any reinsurance
which the Company retains net for its own account shall be included. The amount
of the Reinsurer's liability hereunder shall not be increased by reason of the
inability of the Company to collect from any other Reinsurers, whether specific
or general, any
- 3 -
<PAGE> 26
amounts which may have become due from them, whether such inability arises from
the insolvency of such other Reinsurers or otherwise.
ARTICLE VII
ULTIMATE NET LOSS
The term "Ultimate Net Loss" as used in this Agreement shall mean the
amount paid or payable by the Company in settlement of claims or losses after
deduction for all recoveries, all salvages and all claims upon other
reinsurances, whether collectible or not, and shall include expenses of
litigation, if any, and all other loss adjustment expenses of the Company
including a pro rata share of the salaries and expenses of the Company's outside
employees according to time occupied in adjusting such claims and losses and
expenses of the Company's officials incurred in connection therewith, but
excluding salaries of the Company's officials and any normal overhead charges.
All salvages, recoveries, or payments recovered or received by the
Company after a loss settlement hereunder shall be applied as if recovered or
received before such settlement, and all necessary adjustments shall be made by
the parties hereto. However, nothing herein shall be construed to mean that
losses under this Agreement shall not be recoverable until the Company's
Ultimate Net Loss has been ascertained.
The Company shall be permitted to carry underlying excess reinsurance,
recoveries under which shall inure solely to the benefit of the Company and be
- 4 -
<PAGE> 27
entirely disregarded in applying all of the provisions of this Agreement.
Nothing in this clause, however, shall be construed to mean that losses under
this Agreement are not recoverable until the Company's Ultimate Net Loss has
been ascertained.
ARTICLE VIII
REPORTS AND REMITTANCES
As soon as possible following the close of the annual period, the
Company will furnish the Reinsurers with a report of reinsurance premium due
them for that period. Such report will show and properly segregate the Company's
premium to which the reinsurance rate applies as well as contain such other
information as may be required by the Reinsurer for completion of their NAIC
interim and/or annual statements. The premium due the Reinsurers will be
balanced against the minimum and deposit premium set forth in the Rate and
Premium Sections of Exhibits A, B, C and D attaching to and forming part of this
Agreement, and any balance shown to be due the Reinsurers will be paid within 75
days following the close of the annual period.
ARTICLE IX
NOTICE OF LOSS AND LOSS SETTLEMENTS
In the event of a loss occurrence taking place which either results in
or appears to be of a serious enough nature as to result in a loss involving
this Agreement, the Company shall give notice as soon as reasonably practicable
to the
- 5 -
<PAGE> 28
Reinsurers, and the Company shall keep the Reinsurer advised of all subsequent
developments in connection therewith.
The Reinsurers agree to abide by all loss settlements of the Company
under this Agreement, such settlements to be construed as satisfactory proof of
loss, and amounts falling to the share of the Reinsurers shall be immediately
payable upon reasonable evidence of the amount paid or to be paid by the
Company.
ARTICLE X
OFFSET
Each party hereto shall have, and may exercise at any time and from
time to time, the right to offset any balance or balances, whether on account of
premiums or on account of losses or otherwise, due from each party to the other
(or, if more than one, any other) party hereto under this Agreement; provided,
however, that in the event of the insolvency of a party hereto, offsets shall
only be allowed in accordance with the provisions of the Applicable Insurance
Regulation.
ARTICLE XI
SALVAGE AND SUBROGATION
The Reinsurers will be credited with their share of salvage and/or
subrogation in respect of claims and settlements under this Agreement, less
their share of recovery expense. Unless the Company and Reinsurers agree to the
contrary, the Company will enforce its right to salvage and/or subrogation and
will prosecute all
- 6 -
<PAGE> 29
claims arising out of such right. Should the Company refuse or neglect to
enforce this right, the Reinsurers are hereby empowered and authorized to
institute appropriate action in the name of the Company.
Amounts recovered from salvage and/or subrogation will always be used
to reimburse the excess reinsurers (and the Company, should it carry a portion
of excess coverage net) in the reverse order of their participation in the loss
before being used in any way to reimburse the Company for its primary loss. If
the amount recovered exceeds the recovery expense, the recovery expense will be
borne by each party in proportion to its benefit from the recovery. If the
recovery expense exceeds the amount recovered, the amount recovered (if any)
will be applied to the reimbursement of recovery expense and the remaining
expense as well as any originally incurred loss expense will be added to the
ultimate net loss.
ARTICLE XII
ERRORS AND OMISSIONS
Inadvertent delay, error or omission made in connection with this
Agreement shall not relieve either party from any liability which should have
attached to either party had such delay, error or omission not occurred. Such
delay, error or omission shall be rectified upon discovery.
- 7 -
<PAGE> 30
ARTICLE XIII
CURRENCY
Wherever the word "Dollars" and the sign "$" appear in this Agreement,
they shall be construed to mean United States Dollars, and all premiums and
losses hereunder shall be payable in United States Currency.
ARTICLE XIV
ACCESS TO RECORDS
The Company shall place at the disposal of the Reinsurers and the
Reinsurers shall have the right to inspect, through its authorized
representatives, at all reasonable times, the books, records and papers of the
Company pertaining to the reinsurance provided hereunder and all claims made in
connection therewith.
ARTICLE XV
TAXES
The Company shall not claim a deduction in respect of the premium
hereon when making tax returns, other than income or profits tax returns, to any
state or territory of the United States of America or the District of Columbia.
- 8 -
<PAGE> 31
ARTICLE XVI
FEDERAL EXCISE TAX
(This Article is applicable only to a Reinsurer who is domiciled
outside the United States of America, excepting an Underwriter at Lloyd's London
and other Reinsurer exempt from Federal Excise Tax.)
The Reinsurer has agreed to allow for the purpose of paying the Federal
Excise Tax the applicable percentage of the premium payable hereon as imposed
under Section 4371 of the Internal Revenue Service Code to the extent such
premium is subject to the Federal Excise Tax. In the event of any return of
premium becoming due hereunder, the Reinsurer will deduct the applicable
percentage of the return premium payable hereon as imposed under Section 4371 of
the Internal Revenue Service Code from the amount of the return, and the Company
or its agent should take steps to recover the tax from the United States
government.
ARTICLE XVII
ARBITRATION
As a condition precedent to any right of action hereunder, any dispute
arising out of this Agreement, whether arising before or after termination,
shall be submitted to the decision of a board of arbitration composed of two
arbitrators and an umpire, meeting in Stamford, Connecticut unless otherwise
agreed.
- 9 -
<PAGE> 32
The members of the board of arbitration shall be active or retired,
disinterested officials of insurance or reinsurance companies or Lloyd's of
London Underwriters, or underwriting members of any Exchange formed for the
purpose of writing insurance or reinsurance. Each party shall appoint its
arbitrator, and the two arbitrators shall choose an umpire before instituting
the hearing. If the respondent fails to appoint its arbitrator within four weeks
after being requested to do so by the claimant, the claimant shall also appoint
the second arbitrator. If the two arbitrators fail to agree upon the appointment
of an umpire within four weeks after their nominations, each of them shall name
three, of whom the other shall decline two, and the decision shall be made by
drawing lots.
The claimant shall submit its initial brief within 20 days from the
appointment of the umpire. The respondent shall submit its brief within 20 days
thereafter, and the claimant may submit a reply brief within 10 days after
filing of the respondent's brief.
The board shall make its decision with due regard to the custom and
usage of the insurance and reinsurance business. The board shall issue its
decision in writing based upon a hearing in which evidence may be introduced
without following strict rules of evidence but in which cross-examination and
rebuttal shall be allowed. The board shall make its decision within 60 days
following the termination of the hearings unless the parties consent to an
extension. The majority decision of the
- 10 -
<PAGE> 33
board shall be final and binding upon all parties to the proceeding. Judgment
may be entered upon the award of the board in any court having jurisdiction
thereof.
If more than one reinsurer is involved in the same dispute, all such
reinsurers shall constitute and act as one party for purposes of this Article,
and communications shall be made by the Company to each of the reinsurers
constituting the one party, provided that nothing therein shall impair the
rights of such reinsurers to assert several, rather than joint, defenses or
claims, nor be construed as changing the liability of the reinsurers under the
terms of this Agreement from several to joint.
Each party shall bear the expense of its own arbitrator and shall
jointly and equally bear with the other party the expense of the umpire. The
remaining costs of the arbitration proceedings shall be allocated by the board.
ARTICLE XVIII
SERVICE OF SUIT
(This Article is applicable only to an unauthorized Reinsurer in the
Company's State of Domicile or to the Reinsurer who is domiciled outside the
United States of America.)
It is agreed that in the event of the failure of the Reinsurer hereon
to pay any amount claimed to be due hereunder, the Reinsurer hereon, at the
request of the Company, will submit to the jurisdiction of a court of competent
jurisdiction within the United States of America.
- 11 -
<PAGE> 34
Nothing in this clause constitutes or should be understood to
constitute a waiver of the Reinsurer's rights to commence an action in any Court
of competent jurisdiction in the United States, to remove an action to a United
States District Court, or to seek a transfer of a case to another Court as
permitted by the laws of the United States or of any State in the United States.
It is further agreed that service of process in such suit may be made
upon Messrs. Mendes and Mount, 750 Seventh Avenue, New York, New York
10019-6829, and that in any suit instituted against any one of them upon this
contract, the Reinsurer will abide by the final decision of the Court or of any
Appellate Court in the event of an appeal.
The above-named are authorized and directed to accept service of
process on behalf of Reinsurer's in any such suit and/or upon the request of the
Company to give written undertaking to the Company that they will enter a
general appearance upon the Reinsurer's behalf in the event such a suit shall be
instituted.
Further, pursuant to any statute of any state, territory or district of
the United States which makes provision therefor, the Reinsurer hereon hereby
designates the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as their true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder
- 12 -
<PAGE> 35
arising out of this contract or reinsurance, and hereby designate the
above-named as the person to whom the said officer is authorized to mail such
process or true copy thereof.
ARTICLE XIX
INSOLVENCY
In the event of insolvency of the Company, this reinsurance shall be
payable directly to the Company, or to its liquidator, receiver, conservator or
statutory successor, on the basis of the liability of the Company without
diminution because of the insolvency of the Company or because the liquidator,
receiver, conservator or statutory successor of the Company has failed to pay
all or a portion of any claim. It is agreed, however, that the liquidator,
receiver, conservator or statutory successor of the Company shall give written
notice to the Reinsurers of the pendency of a claim against the Company,
indicating the policy or bond reinsured, which claim would involve a possible
liability on the part of the Reinsurers within a reasonable time after such
claim is filed in the conservation or liquidation proceeding or in the
receivership, and that during the pendency of such claim the Reinsurers may
investigate such claim and interpose, at their own expense, in the proceeding
where such claim is to be adjudicated, any defense or defenses that it may deem
available to the Company or its liquidator, receiver, conservator or statutory
successor. The expense thus incurred by the Reinsurers shall be chargeable,
subject to the approval of the Court, against the Company as part of the expense
of conservation or
- 13 -
<PAGE> 36
liquidation to the extent of a pro rata share of the benefit which may accrue to
the Company solely as a result of the defense undertaken by the Reinsurers.
Where two or more reinsurers are involved in the same claim and a
majority in interest elect to interpose defense to such claim, the expense shall
be apportioned in accordance with the terms of this Agreement as though such
expense had been incurred by the Company.
It is further understood and agreed that, in the event of the
insolvency of the Company, the reinsurance under this Agreement shall be payable
directly by the Reinsurers to the Company or to its liquidator, receiver,
conservator or statutory successor, except (1) where the Agreement specifically
provides another payee of such reinsurance in the event of the insolvency of the
Company and (2) where the Reinsurers with the consent of the direct insured or
insureds has assumed such policy obligations of the Company as direct
obligations of the Reinsurers to the payees under such policies and in
substitution for the obligations of the Company to such payees.
ARTICLE XX
FUNDING OF LOSS RESERVES
(Applies only to the Reinsurer who is unlicensed or unaccredited by the
insurance regulatory authority having jurisdiction over the Company's
outstanding loss reserves.)
- 14 -
<PAGE> 37
As regards all business coming within the scope of this Agreement, the
Company agrees to forward to the Reinsurer a statement showing their proportion
of outstanding loss reserves, if any, when the Company files reserves with the
insurance department or sets up on its book reserves which are required by law.
Under no circumstance shall any amount relating to reserves in respect of losses
or loss expenses Incurred But Not Reported be included in the calculation of the
reserves hereunder.
The Reinsurer hereby agrees that within 30 days of receiving the
reserve statement they will, at their option, either:
1. apply for and secure delivery to the Company a clean, irrevocable and
unconditional Letter of Credit; or
2. provide a Cash Advance to the Company (which shall be deposited by the
Company in a bank acceptable to the insurance regulatory authorities,
in a separate account for the benefit of the Company apart from its
general assets and in trust for such uses and purposes as specified
herein). The Company agrees that the Reinsurer shall be credited with
the interest thereon at the prevailing rates, not to exceed the prime
rate); or
3. provide assets for the benefit of the Company and enter into a Trust
Agreement with the Company (which shall comply with the requirements of
the insurance regulatory authorities, for a New York licensed Company
the applicable regulation is No. 114)
in an amount equal to the Reinsurer's proportion of said reserves.
The Letter of Credit shall be issued or confirmed by a bank acceptable
to the governmental authorities having jurisdiction over said reserves. The
terms and
- 15 -
<PAGE> 38
conditions of the Letter of Credit shall comply with all requirements of said
authorities, including but no limited to the following:
The Letter of Credit shall be issued for an initial period of
not less than one year and shall automatically extend for an additional
period of at least one year at each and every expiry date, unless and
until, the Company has received at least 30 days prior notice from the
issuing bank (at least 60 days prior notice from a confirming bank) by
certified mail, registered mail, or receipted hand delivery), of its
intention not to extend said Letter of Credit.
If the insurance regulatory authority requires the Reinsurer to fund
their proportion of outstanding loss reserves, if any, by Cash Advances or a
combination of Cash Advance and Letter of Credit, the Reinsurer agrees to
provide their proportion of said reserves in an amount and of such nature as to
be acceptable to the insurance regulatory authority.
The Company and any of its successors in interest, undertakes to use
and apply any amounts which it may draw upon such Letter of Credit, Trust
Agreement or Cash Advance, without diminution because of insolvency on the part
of the Company or the Reinsurer, for the following purposes only:
1. to pay or reimburse the Company for the Reinsurer's share of any losses
and allocated loss expenses paid by the Company, but not recovered from
the Reinsurer;
- 16 -
<PAGE> 39
2. to make refund of any sum which is in excess of the actual amount
required by the insurance regulatory authority to fund the Reinsurer's
share of any liability reinsured by this Agreement;
3. to create a Cash Advance account, in the event the issuing bank gives
notice of its intention not to extend the Letter of Credit or cancel
the Trust Agreement and provided that the obligations secured by the
Letter of Credit or Trust Agreement remain unliquidated and
undischarged at the time of receipt by the Company of such notice. That
cash advance account shall be established and utilized in accordance
with the provisions herein.
The bank shall have no responsibility whatsoever in connection with the
propriety of withdrawals made by the Company or the disposition of funds
withdrawn, except to see that withdrawals are made only upon the order of
properly authorized representatives of the Company and it is understood that the
Company shall incur no obligation to said bank in acting upon said credit, other
than as appears in the express terms thereof.
All Letters of Credit, Cash Advances or Trust Agreements for the
benefit of the Company under this Agreement shall be adjusted at annual
intervals, or more frequently as agreed (but never more frequently than
quarterly), to reflect the current balance of the Reinsurer's proportion of the
Company's outstanding loss reserves. The Company shall forward to the Reinsurer
a statement showing their proportion of said reserves. If the statement shows
the Reinsurer's share of said reserves to be either in excess of or less than
the current amount of the Letter of Credit, Cash Advance or Trust Agreement, an
adjustment shall be made within 30 days of receipt of the statement by the
Reinsurer in order to have the amount of the Letter of Credit,
- 17 -
<PAGE> 40
Cash Advance or Trust Agreement equal to the obligations of the Reinsurer
hereunder.
ARTICLE XXI
COMMUTATION AND SUNSET
This Agreement shall follow the Commutation and Sunset provisions of
the Company's policies. Commutation under such policies shall not exceed one
hundred and twenty months (120) months from the date of loss or the end of the
Company's policy and shall include losses first notified to the Reinsurers no
later than one hundred and twenty months (120) months from the date of loss or
the end of the Company's policy
ARTICLE XXII
INTERMEDIARY
Aon Re Inc., an Illinois corporation, or one of its affiliated
corporations duly licensed as a reinsurance intermediary, is hereby recognized
as the Intermediary negotiating this Agreement for all business hereunder. All
communications (including but not limited to notices, statements, premiums,
return premiums, commissions, taxes, losses, loss expenses, salvages, and loss
settlements) relating to this Agreement will be transmitted to the Company or
the Reinsurers through the Intermediary. Payments by the Company to the
Intermediary will be deemed payment to the Reinsurers. Payments by the
Reinsurers to the Intermediary will be
- 18 -
<PAGE> 41
deemed payment to the Company only to the extent that such payments are actually
received by the Company.
EXECUTION
This Agreement is executed by the Company and each Subscribing Reinsurer by the
signing, in duplicate, of the Interests and Liabilities Contract(s) attached to
this Agreement. This Agreement to be agreed by Lead Subscribing Reinsurer on
behalf of all Subscribing Reinsurers. Amendments and or alterations to this
Agreement are to be agreed by two lead Subscribing Reinsurers on behalf of all
Subscribing Reinsurers.
- 19 -
<PAGE> 42
EXHIBIT A -FIRST LAYER
RETENTION AND LIMIT
No claim will be made hereunder unless the Company has first sustained,
by reason of any one loss, an ultimate net loss in excess of $1,000,000. The
Reinsurer will then be liable for the amount of ultimate net loss in excess of
$1,000,000 any one loss, but the limit of liability of the Reinsurer will not
exceed $4,000,000 with respect to any one loss.
RATE AND PREMIUM
For the term of this Agreement, there will be a minimum and deposit
premium hereon of $128,000, payable in equal quarterly installments of $32,000
on January 1, 1998, April 1, 1998, July 1, 1998 and October 1, 1998. At
Agreement expiration, the Company will adjust the minimum and deposit premium
against a rate of 1.25% of its applicable net earned premium.
"Net earned premium" as used herein is the gross earned premium of the
Company for the classes of business reinsured hereunder as specified in the
Coverage Article, less the earned portion of premium paid for per risk
reinsurance that inures to the benefit of this Agreement.
- 20 -
<PAGE> 43
REINSTATEMENT
In the event of the whole or any portion of the indemnity given
hereunder being exhausted the amount so exhausted shall be automatically
reinstated from the time of commencement of any loss occurrence subject to the
payment of any additional premium calculated Pro Rata as to amount and as to
time, such additional premium to be paid at the time the loss settlement is made
by Reinsurer.
If the loss settlement is made prior to the adjustment of premium the
reinstatement premium shall be calculated provisionally on the deposit premium.
Nevertheless, the liability under this Exhibit A shall never be more
than $4,000,000 in respect of any loss nor more than $12,000,000 in all during
the period of this Agreement representing two fully reinstatements only of the
above limit of indemnity.
- 21 -
<PAGE> 44
EXHIBIT B - SECOND LAYER
RETENTION AND LIMIT
No claim will be made hereunder unless the Company has first sustained,
by reason of any one loss, an ultimate net loss in excess of $5,000,000. The
Reinsurer will then be liable for the amount of ultimate net loss in excess of
$5,000,000 any one loss, but the limit of liability of the Reinsurer will not
exceed $20,000,000 with respect to any one loss.
RATE AND PREMIUM
For the term of this Agreement, there will be a minimum and deposit
premium hereon of $50,000, payable in equal quarterly installments of $12,500 on
January 1, 1998, April 1, 1998, July 1, 1998 and October 1, 1998. At Agreement
expiration, the Company will adjust the minimum and deposit premium against a
rate of 0.50% of its applicable net earned premium.
"Net earned premium" as used herein is the gross earned premium of the
Company for the classes of business reinsured hereunder as specified in the
Coverage Article, less the earned portion of premium paid for per risk
reinsurance that inures to the benefit of this Agreement.
- 22 -
<PAGE> 45
REINSTATEMENT
In the event of the whole or any portion of the indemnity given
hereunder being exhausted the amount so exhausted shall be automatically
reinstated from the time of commencement of any loss occurrence subject to the
payment of any additional premium calculated Pro Rata as to amount and as to
time, such additional premium to be paid at the time the loss settlement is made
by Reinsurers.
If the loss settlement is made prior to the adjustment of premium the
reinstatement premium shall be calculated provisionally on the deposit premium.
Nevertheless, the liability shall never be more than $20,000,000 in
respect of any loss nor more than $60,000,000 in all during the period of this
Agreement representing two full reinstatements only of the above limit of
indemnity.
- 23 -
<PAGE> 46
EXHIBIT C - THIRD LAYER
RETENTION AND LIMIT
No claim will be made hereunder unless the Company has first sustained,
by reason of any one loss, an ultimate net loss in excess of $25,000,000. The
Reinsurer will then be liable for the amount of ultimate net loss in excess of
$25,000,000 any one loss, but the limit of liability of the Reinsurer will not
exceed $25,000,000 with respect to any one loss.
RATE AND PREMIUM
For the term of this Agreement, there will be a minimum and deposit
premium hereon of $34,000, payable in equal quarterly installments of $8,500 on
January 1, 1998, April 1, 1998, July 1, 1998 and October 1, 1998. At Agreement
expiration, the Company will adjust the minimum and deposit premium against a
rate of 0.33% of its applicable net earned premium.
"Net earned premium" as used herein is the gross earned premium of the
Company for the classes of business reinsured hereunder as specified in the
Coverage Article, less the earned portion of premium paid for per risk
reinsurance that inures to the benefit of this Agreement.
- 24 -
<PAGE> 47
REINSTATEMENT
In the event of the whole or any portion of the indemnity given
hereunder being exhausted the amount so exhausted shall be automatically
reinstated from the time of commencement of any loss occurrence subject to the
payment of any additional premium calculated Pro Rata as to amount and as to
time, such additional premium to be paid at the time the loss settlement is made
by Reinsurers.
If the loss settlement is made prior to the adjustment of premium the
reinstatement premium shall be calculated provisionally on the deposit premium.
Nevertheless, the liability shall never be more than $25,000,000 in
respect of any loss nor more than $75,000,000 in all during the period of this
Agreement representing two full reinstatements only of the above limit of
indemnity.
- 25 -
<PAGE> 48
EXHIBIT D - FOURTH LAYER
RETENTION AND LIMIT
No claim will be made hereunder unless the Company has first sustained,
by reason of any one loss, an ultimate net loss in excess of $50,000,000. The
Reinsurer will then be liable for the amount of ultimate net loss in excess of
$50,000,000 any one loss, but the limit of liability of the Reinsurer will not
exceed $50,000,000 with respect to any one loss.
RATE AND PREMIUM
For the term of this Agreement, there will be a minimum and deposit
premium hereon of $34,000, payable in equal quarterly installments of $8,500 on
January 1, 1998, April 1, 1998, July 1, 1998 and October 1, 1998. At Agreement
expiration, the Company will adjust the minimum and deposit premium against a
rate of 0.33% of its applicable net earned premium.
"Net earned premium" as used herein is the gross earned premium of the
Company for the classes of business reinsured hereunder as specified in the
Coverage Article, less the earned portion of premium paid for per risk
reinsurance that inures to the benefit of this Agreement.
- 26 -
<PAGE> 49
REINSTATEMENT
In the event of the whole or any portion of the indemnity given
hereunder being exhausted the amount so exhausted shall be automatically
reinstated from the time of commencement of any loss occurrence subject to the
payment of any additional premium calculated Pro Rata as to amount and as to
time, such additional premium to be paid at the time the loss settlement is made
by Reinsurers.
If the loss settlement is made prior to the adjustment of premium the
reinstatement premium shall be calculated provisionally on the deposit premium.
Nevertheless, the liability shall never be more than $50,000,000 in
respect of any loss nor more than $150,000,000 in all during the period of this
Agreement representing two full reinstatements only of the above limit of
indemnity.
- 27 -
<PAGE> 1
Exhibit 10.27
INTERESTS AND LIABILITIES CONTRACT
(hereinafter referred to as "Contract")
to the
COINSURED
AGGREGATE EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as "Agreement")
between
TRENWICK AMERICA REINSURANCE CORPORATION
(hereinafter referred to as the "Reinsured")
and
CENTRE INSURANCE COMPANY
(hereinafter referred to as "Subscribing Reinsurer")
It is mutually agreed by and between the Reinsured on the one part, and the
Subscribing Reinsurer on the other part that the Subscribing Reinsurer's share
in the Interests and Liabilities of the Reinsurer as set forth in the COINSURED
AGGREGATE EXCESS OF LOSS REINSURANCE AGREEMENT, effective 12:01 a.m., Eastern
Standard Time, January 1, 1999 attached hereto and forming a part of this
Contract shall be for 80%.
The share of the Subscribing Reinsurer signed hereon in the Interests and
Liabilities of all reinsurers in respect of the said Agreement shall be separate
and apart from the shares of the other reinsurers to the said Agreement, and the
Interests and Liabilities of the Subscribing Reinsurer signed hereon shall be
several and not joint with those of the other reinsurers and in no event shall
the Subscribing Reinsurer signed hereon participate in the Interests and
Liabilities of the other reinsurers.
This Contract shall be effective for the period commencing 12:01 a.m., Eastern
Standard Time, January 1, 1999 and ending 11:59 p.m., Eastern Standard Time,
December 31, 1999.
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be executed,
in triplicate,
Executed this _______________ day of ____________, 1999
TRENWICK AMERICA REINSURANCE CORPORATION
By: ___________________ By: ___________________
Name: Name:
Title: Title:
Executed this _______________ day of ____________, 1999
CENTRE INSURANCE COMPANY
By: ___________________ By: ___________________
Name: Name:
Title: Title:
<PAGE> 3
COINSURED
AGGREGATE EXCESS OF LOSS REINSURANCE AGREEMENT
(hereinafter referred to as the "AGREEMENT")
In consideration of the mutual covenants hereinafter contained and upon the
terms and conditions hereinafter set forth
THE SUBSCRIBING REINSURERS EXECUTING THE INTERESTS &
LIABILITIES CONTRACTS ATTACHED TO AND FORMING A PART
OF THIS AGREEMENT
(hereinafter referred to as the "REINSURER")
does hereby indemnify, as herein provided and specified,
TRENWICK AMERICA REINSURANCE CORPORATION
Stamford, Connecticut
(hereinafter referred to as the "REINSURED")
<PAGE> 4
ARTICLE AND PAGE NUMBER
1. BUSINESS COVERED 3
2. TERM 4
3. TERRITORY 4
4. RETENTION, REINSURER'S SHARE, AND LIMIT 5
5. LOSS SETTLEMENTS 6
6. REINSURANCE PREMIUM 5
7. ADDITIONAL PREMIUM 7
8. EXPERIENCE ACCOUNT 8
9. REINSURER'S MARGIN 9
10. FUNDS WITHHELD 10
11. COMMUTATION 12
12. REPORTS AND REMITTANCES 13
13. TAXES 14
14. COVENANTS OF THE REINSURED 15
15. DEFINITIONS 15
16. ULTIMATE NET LOSS 16
17. NET RETAINED LINES 17
18. RIGHT OF OFFSET 17
19. ERRORS AND OMISSIONS 18
20. CURRENCY 18
21. EXTRA CONTRACTUAL OBLIGATIONS 18
22. EXCESS OF ORIGINAL POLICY LIMITS LOSS 19
23. ARBITRATION 19
24. ACCESS TO RECORDS 20
25. INSOLVENCY 20
26. GOVERNING LAW 21
27. SERVICE OF SUIT 22
28. AMENDMENTS AND ALTERATIONS 23
29. ASSIGNMENT 23
30. NO THIRD PARTY RIGHTS 23
31. NO IMPLIED WAIVER 23
32. MERGERS AND ACQUISITIONS 23
33. INTERMEDIARY 24
34. SECURITY 24
<PAGE> 5
ARTICLE 1 - BUSINESS COVERED
In consideration of the premium to be paid by the Reinsured and subject to the
terms, conditions, exclusions and limits hereafter set forth, the Reinsurer
agrees to indemnify the Reinsured on an aggregate excess of loss basis for the
Reinsurer's share of Ultimate Net Loss that the Reinsured has incurred in excess
of the retention as a result of losses occurring during the Term of this
Agreement as respects the Reinsured's contracts, agreements and other evidence
of reinsurance in respect of all casualty reinsurance assumed business entered
into by the Reinsured (the "POLICIES"), but specifically excluding the following
business:
- finite risk reinsurance
- pollution liability when written by the Reinsured as a named
peril, but excluding first party cleanup
- policyholder dividends
- nuclear incidents: in accordance with the attached Nuclear
Incident Exclusion Clauses:
a. Nuclear Incident Exclusion Clause - Liability -
Reinsurance - U.S.A. and Canada;
b. Nuclear Incident Exclusion Clause - Physical Damage-
Reinsurance - U.S.A. and Canada;
c. Nuclear Incident Exclusion Clause - Physical Damage
and Liability (Boiler and Machinery Policies) -
Reinsurance - U.S.A. and Canada;
d. Nuclear Energy Risks Exclusion Clause - Reinsurance -
Worldwide excluding U.S.A. and Canada.
- war risks (in accordance with the attached War Risk Exclusion
Clause)
- insolvency and guarantee funds (in accordance with the
attached Insolvency and Guarantee Funds Exclusion Clause)
- residual market assessments, second injury fund assessments,
rehabilitation assessments, and any other similar type
assessments
- financial guarantee business
- loss portfolio transfers.
<PAGE> 6
ARTICLE 2 - TERM
The term (the "TERM") of this Agreement shall be the period commencing at 12:01
a.m., Eastern Standard Time, January 1, 1999 (the "EFFECTIVE DATE") through to
and including the earlier of 11:59 p.m., Eastern Standard Time, December 31,
1999 or the date on which this Agreement is otherwise canceled as provided for
below (the "EXPIRATION DATE").
This Agreement may not be canceled by the Reinsured. The Reinsurer shall have
the right to cancel this Agreement as provided for in the articles entitled
"COVENANTS OF THE REINSURED", "MERGERS AND ACQUISITIONS", or "RIGHT OF OFFSET"
and as provided for below.
In the event that the Reinsured fails to pay the Reinsurance Premium and/or the
Additional Premium, if any, within 15 days of the date such premium is due, the
Reinsurer shall notify the Reinsured in writing via registered mail of the
overdue amounts. In the event that the Reinsured does not remit the overdue
amounts to the Reinsurer within 15 days of receiving such notification from the
Reinsurer, the Reinsurer shall have the right to immediately cancel this
Agreement by mailing the Reinsured a written notice of cancellation and the
Total Aggregate Limit, notwithstanding any provision to the contrary contained
herein, shall be immediately reduced to an amount equal to the positive balance
in the Experience Account (or zero if the Experience Account Balance is
negative) as of the date of cancellation. The mailing of such notice shall be
sufficient notice and the effective date of cancellation shall be the date the
notice of cancellation was posted.
In the event that the Reinsured fails to pay a Reinsurance Premium and/or an
Additional Premium, if any, that is due after the Expiration Date of this
Agreement within 15 days of the date such premium is due, the Reinsurer shall
notify the Reinsured in writing via registered mail of the overdue amounts. In
the event that the Reinsured does not remit the overdue amounts to the Reinsurer
within 15 days of receiving such notification from the Reinsurer, the Total
Aggregate Limit, notwithstanding any provision to the contrary contained herein,
shall immediately and without further notice be reduced to an amount equal to
the positive balance in the Experience Account (or zero if the Experience
Account Balance is negative).
ARTICLE 3 - TERRITORY
This Agreement shall apply only to losses occurring in the United States of
America, Canada and Europe.
<PAGE> 7
ARTICLE 4 - RETENTION, REINSURER'S SHARE, AND LIMIT
1) LIMIT A:
The Reinsurer agrees to indemnify the Reinsured for the Reinsurer's Share of the
amount of the Reinsured's aggregate Ultimate Net Loss that is in excess of a
Retention equal to 53% of Subject Earned Premium.
The "REINSURER'S SHARE" under Limit A shall be determined as follows:
If the Ultimate Net Loss is less than 53% of Subject Earned Premium,
the Reinsurer's Share under Limit A shall equal zero, otherwise, the
Reinsurer's Share under Limit A shall equal the lesser of (1) "A"
divided by "B" or (2) 100%,
Where:
"A" is equal to 32.0% of Subject Earned Premium;
and
"B" is equal to the amount of Ultimate Net Loss
in excess of 53% of Subject Earned Premium.
UNDER NO CIRCUMSTANCES SHALL THE REINSURER'S AGGREGATE LIMIT OF LIABILITY FOR
ULTIMATE NET LOSS UNDER THIS LIMIT A EXCEED 32.0% OF SUBJECT EARNED PREMIUM.
2) LIMIT B:
The Reinsurer agrees to indemnify the Reinsured for the Reinsurer's Share of the
amount of the Reinsured's aggregate Ultimate Net Loss that is in excess of a
Retention equal to 90% of Subject Earned Premium.
The "REINSURER'S SHARE" under Limit B shall be determined as follows:
If the Ultimate Net Loss is less than 90% of Subject Earned
Premium, the Reinsurer's Share under Limit B shall equal zero,
otherwise, the Reinsurer's Share under Limit B shall be equal
to the lesser of (1) "C" divided by "D" or (2) "E",
Where:
"C" is equal to 3.5% of Subject Earned Premium;
and
"D" is equal to the amount of Ultimate Net Loss
in excess of 90% of Subject Earned Premium;
and
"E" is equal to 100% less the Reinsurer's Share
under Limit A calculated above.
UNDER NO CIRCUMSTANCES SHALL THE REINSURER'S AGGREGATE LIMIT OF LIABILITY FOR
ULTIMATE NET
<PAGE> 8
LOSS UNDER THIS LIMIT B EXCEED 3.5% OF SUBJECT EARNED PREMIUM. FOR THE PURPOSE
OF CALCULATING THE REINSURER'S SHARE UNDER LIMIT A AND LIMIT B ABOVE, ULTIMATE
NET LOSS SHALL NOT BE SUBJECT TO THE SUB-LIMITS SET FORTH IN ARTICLE 16
"ULTIMATE NET LOSS" .
3) TOTAL AGGREGATE LIMIT:
Notwithstanding the Reinsurer's obligations under Limit A and Limit B above, the
Reinsurer's maximum aggregate limit of liability for Ultimate Net Loss under
this Agreement (the "TOTAL AGGREGATE LIMIT") shall be equal to the lesser of:
(1) 35.5% of Subject Earned Premium; or
(2) $55 million; or
(3) The greater of: (a) the aggregate amount of ceded Ultimate Net
Loss as reported in the Reinsured's 1999 Statutory Financial
Statement, or (b) 32% of Subject Earned Premium.
Notwithstanding the foregoing, the Total Aggregate Limit of liability hereunder
is further subject to adjustment as provided for in the articles entitled
"TERM", "COVENANTS OF THE REINSURED", and "RIGHT OF OFFSET".
UNDER NO CIRCUMSTANCES SHALL THE TOTAL LIABILITY OF THE REINSURER UNDER OR
RELATED TO THIS AGREEMENT EXCEED THE TOTAL AGGREGATE LIMIT.
ARTICLE 5 - LOSS SETTLEMENTS
The Reinsurer agrees to pay the Reinsured the amounts of Ultimate Net Loss due
hereunder and paid by the Reinsured (or payable by the Reinsured in case of
insolvency in accordance with the article entitled "INSOLVENCY") quarterly in
arrears and payment will be due within sixty (60) days following receipt and
verification of an account statement submitted by the Reinsured to the Reinsurer
as set forth in the article entitled "REPORTS AND REMITTANCES".
Ultimate Net Loss payments due by the Reinsurer in accordance with the
provisions herein shall first be paid by way of offset against the Funds
Withheld Balance until such balance is exhausted.
Appropriate adjustments shall be made to the Reinsurer's Share and the Ultimate
Net Loss paid by the Reinsurer to the Reinsured based on ceded paid Ultimate Net
Loss reported to the Reinsurer (and agreed to by the Reinsurer) pursuant to
Article 12 - "REPORTS AND REMITTANCES" and Article 16 - "ULTIMATE NET LOSS".
Notwithstanding any provision to the contrary contained herein, and except for
the articles entitled "EXTRA CONTRACTUAL OBLIGATIONS" and "EXCESS OF ORIGINAL
POLICY LIMITS LOSS", coverage under this Agreement is expressly limited to
claims or losses arising under the Reinsured's Policies; provided, however, that
such claims or losses are within the terms, conditions and limitations of the
original policies and within the terms, conditions and
<PAGE> 9
limitations of this Agreement.
ARTICLE 6 - REINSURANCE PREMIUM
Subject to the article entitled "FUNDS WITHHELD", the Reinsured shall pay to the
Reinsurer a premium (the "REINSURANCE PREMIUM") equal to 10.0% of the projected
Subject Earned Premium, payable in equal quarterly installments in advance on
the first day of each calendar quarter, subject to a maximum Reinsurance Premium
equal to $20,000,000.
Within thirty (30) days following the end of each calendar quarter the Reinsured
shall make appropriate adjustments for the amount by which 10.0% of the Subject
Earned Premium for that calendar quarter exceeds or is less than the amounts
previously paid by the Reinsured for that calendar quarter
ARTICLE 7 - ADDITIONAL PREMIUM
Subject to the article entitled "FUNDS WITHHELD", the Reinsured shall pay to the
Reinsurer an additional premium (the "ADDITIONAL PREMIUM") in an amount equal
to:
1) 50% of the excess of Ultimate Net Loss over 73% of Subject Earned Premium,
but such Additional Premium not to exceed the lesser of 2% of Subject Earned
Premium, or $3,250,000, plus
2) 55% of the excess of Ultimate Net Loss over 77% of Subject Earned Premium,
but such Additional Premium not to exceed 2.2% of Subject Earned Premium or
$3,550,000.
3) 67.5% of the excess of Ultimate Net Loss over 81% of Subject Earned Premium,
but such Additional Premium not to exceed 2.7% of Subject Earned Premium or
$4,350,000.
Such Additional Premium shall be paid to the Reinsurer with the applicable
quarterly Ultimate Net Loss report as put forth in the article entitled "REPORTS
AND REMITTANCES".
Within thirty (30) days following the end of each calendar quarter the Reinsured
shall make appropriate adjustments for the amount by which 50% of the Ultimate
Net Loss covered under Limit A between 73% and 77% of Subject Earned Premium and
55% of the Ultimate Net Loss covered under Limit A between 77% and 81% of
Subject Earned Premium and 67.5% of the Ultimate Net Loss covered under Limit A
between 81% and 85% of Subject Earned Premium, exceeds or is less than the
amounts of Additional Premiums previously paid by the Reinsured.
<PAGE> 10
ARTICLE 8 - EXPERIENCE ACCOUNT
A notional account (the "EXPERIENCE ACCOUNT") shall be calculated by the
Reinsurer from the Effective Date of this Agreement and maintained until there
is a complete and final release of all of the Reinsurer's obligations to the
Reinsured under this Agreement.
The balance of the Experience Account (the "EXPERIENCE ACCOUNT BALANCE") as of
any December 31 shall be defined as:
(1) Cumulative Reinsurance Premium plus Additional Premium, if
any, received by the Reinsurer (or Funds Withheld in
accordance with the article entitled "FUNDS WITHHELD"), less
(2) the Cumulative Reinsurer's Margin paid to the Reinsurer, less
(3) Cumulative Ultimate Net Loss paid (or offset) by the
Reinsurer, plus
(4) the Cumulative Experience Account Investment Credit.
The Reinsurance Premium, and Additional Premium, if any, shall be credited to
the Experience Account on the day said monies are received by the Reinsurer's
designated bank, or credited to the Funds Withheld Balance in accordance with
the article entitled "FUNDS WITHHELD", as the case may be.
The Ultimate Net Loss due from the Reinsurer shall be charged against the
Experience Account on the day said monies are received by the Reinsured's
designated bank, or offset against the Funds Withheld Balance in accordance with
the article entitled "FUNDS WITHHELD", as the case may be, and further subject
to the article entitled "REPORTS AND REMITTANCES".
For the purpose of calculating the balance of the Experience Account, the
Reinsurer's Margin shall be deemed to be deducted in proportion to and at the
same time as the crediting to the Experience Account of the Reinsurance Premium.
The Experience Account investment credit (the "EXPERIENCE ACCOUNT INVESTMENT
CREDIT") for each calendar year shall equal the average daily balance of the
Experience Account for that calendar year (or portion thereof), determined as if
the Reinsurance Premium and Additional Premium, if any, as finally computed were
paid on January 1, 1999, multiplied by 8.75% (or the pro-rata portion thereof).
The cumulative Experience Account Investment Credit (the "CUMULATIVE EXPERIENCE
ACCOUNT INVESTMENT CREDIT") shall be equal to the sum of the Experience Account
Investment Credits for each calendar year, or portion thereof, since the
Effective Date of this Agreement.
<PAGE> 11
ARTICLE 9 - REINSURER'S MARGIN
The Reinsurer's margin (the "REINSURER'S MARGIN") shall be equal to 12.0% of the
Reinsurance Premium payable under this Agreement, payable in equal quarterly
installments in advance on the first day of each calendar quarter.
Within thirty (30) days following the end of each calendar quarter the Reinsured
or the Reinsurer shall make appropriate adjustments for the amount by which
12.0% of the Reinsurance Premium for that calendar quarter exceeds or is less
than the amounts previously paid by the Reinsured as Reinsurer's Margin for that
calendar quarter. Any such balance due either party shall be due and payable
within thirty (30) days.
ARTICLE 10 - FUNDS WITHHELD
Subject to the terms herein, the Reinsured shall retain the Reinsurance Premium
and Additional Premium, if any, due hereunder on a funds withheld basis,
provided however, that the Reinsurer's Margin shall be paid in cash to the
Reinsurer and shall not be affected by the terms of this "Funds Withheld"
article. The amount of such withheld Reinsurance Premium, net of Reinsurer's
Margin, and Additional Premium, if any, shall be called "FUNDS WITHHELD". In
consideration of the Reinsurer agreeing to the Funds Withheld, the Reinsured
agrees (i) to calculate a notional Funds Withheld account from the Effective
Date of this Agreement until there is a complete and final release of all of the
Reinsurer's obligations to the Reinsured under this Agreement and (ii) that the
Funds Withheld Balance may be set off by the Reinsurer against liability of any
nature whatsoever (whether then contingent, due and payable, or in the future
becoming due) that the Reinsurer may then have, or in the future may have under
this Agreement and (iii) that such setoff shall occur as a condition precedent
to any payments by the Reinsurer hereunder.
The balance of the Funds Withheld account (the "FUNDS WITHHELD BALANCE") as of
any December 31 shall be defined as:
(1) Cumulative Reinsurance Premium plus Additional Premium, if
any, due hereunder, less
(2) the Cumulative Reinsurer's Margin paid to the Reinsurer, less
(3) Cumulative Ultimate Net Loss paid (or offset) by the
Reinsurer, plus
(4) the Cumulative Funds Withheld Investment Credit.
The Reinsurance Premium, and Additional Premium, if any, shall be credited to
the Funds Withheld Balance on the date such monies are payable.
The Ultimate Net Loss due from the Reinsurer shall be charged against the Funds
Withheld Balance on the date such monies are due and further subject to article
entitled "REPORTS AND REMITTANCES".
<PAGE> 12
For the purpose of calculating the balance of the Funds Withheld account, the
Reinsurer's Margin shall be deemed to be deducted in proportion to and at the
same time as the crediting to the Funds Withheld account of the Reinsurance
Premium.
The Funds Withheld investment credit (the "FUNDS WITHHELD INVESTMENT CREDIT")
for each calendar year shall equal the average daily balance of the Funds
Withheld account for that calendar year (or portion thereof), determined as if
the Reinsurance Premium and Additional Premium, if any, as finally computed was
paid on January 1, 1999, multiplied by 9% (or the pro-rata portion thereof). The
cumulative Funds Withheld Investment Credit (the "CUMULATIVE FUNDS WITHHELD
INVESTMENT CREDIT") shall be equal to sum of the Funds Withheld Investment
Credits for each calendar year, or portion thereof, since the Effective Date of
this Agreement.
At the Reinsurer's option, the Reinsured shall pay to the Reinsurer the Funds
Withheld Balance immediately upon request or upon the happening of any of the
following events : 1) commutation of this Agreement, 2) an Event of Default, 3)
a downgrade of the Reinsured by AM Best to A- or lower, or 4) December 31, 2014.
If the Reinsured pays the Reinsurer the Funds Withheld Balance the Reinsured
will no longer be required to credit the Funds Withheld Balance with investment
income and the Experience Account Investment Credit, as defined in Article 8 -
Experience Account, shall, from the time of payment of the Funds Withheld
Balance, equal the One-Year Treasury Note rate as posted in the Wall Street
Journal on the first business day following such payment. Such rate shall be
reset each 12 months to equal the One-Year Treasury Note prevailing at that
time. The Reinsured shall not have the right to prepay all or a part of the
Funds Withheld Balance without the Reinsurer's express written consent.
The following shall be defined as "EVENTS OF DEFAULT" and shall cause the whole
of the Funds Withheld Balance to, upon demand of the Reinsurer, become
immediately due and payable, together with all accrued interest and other unpaid
sums owing in relation thereto.
(1) Payment Defaults
The Reinsured fails to make any payment under this Agreement when due
and in the manner therein provided, except where the Reinsurer
receives the overdue payment within fifteen business days of the
non-payment;
(2) Executions
Creditors attach or take possession of or distress, execution,
sequestration, seizure, attachment or other equivalent or analogous
process is levied or enforced upon or sued out against any material
amount of the Reinsured's assets; or
(3) Insolvency
The Reinsured commences a proceeding or proceedings are commenced
against it seeking dissolution, winding-up, liquidation,
administration, reorganization, suspension or compromise of payments
or other relief under any applicable bankruptcy, insolvency
<PAGE> 13
or other similar law or seeking the appointment of an administrator
or a trustee, receiver, manager, receiver-manager, liquidator,
custodian, curator or other similar official of it or any substantial
part of the Reinsured's assets, or the Reinsured consents to any such
relief (including any bankruptcy petition) or appointment in
involuntary proceedings taken against it, or makes a bulk sale of its
assets or a general assignment or proposal for the benefit of
creditors, or fails or admits its inability to pay its debts as they
become due, or suspends or ceases or threatens to suspend or cease
carrying on business; or it takes any action in furtherance of any of
the foregoing.
ARTICLE 11 - COMMUTATION
Subject to the terms of this article, and provided the Experience Account
balance is positive, the Reinsured may, at its sole option, commute this
Agreement at any December 31, beginning on December 31, 2003 and on or before
December 31, 2014, subject to ninety (90) days prior written notice by the
Reinsured to the Reinsurer by registered or certified mail, provided that as a
condition precedent to this right of commutation the Reinsured commutes all
prior reinsurance agreements in existence between the Reinsurer and the
Reinsured at such date. Such prior reinsurance agreements consist of Coinsured
Aggregate Excess of Loss Agreements incepting on January 1, 1994, January 1,
1995, January 1, 1996, January 1, 1997, and January 1, 1998.
If the Reinsured elects to commute this Agreement, the Reinsured shall pay to
the Reinsurer as a condition precedent to the commutation the Funds Withheld
Balance as of the date of commutation of this Agreement and the Reinsurer shall
pay to the Reinsured the positive balance, if any, in the Experience Account as
of the date of commutation within sixty (60) business days of the date of
commutation:
Payment of the Experience Account balance by the Reinsurer as described above
shall constitute a complete and final release of the Reinsurer in respect of any
and all of the Reinsurer's obligations of any nature whatsoever to the Reinsured
under or related to this Agreement.
Non-Commute Charge
If the Reinsured does not commute this Agreement on or before December 31, 2004,
the Reinsured shall pay to the Reinsurer in cash each January 1, beginning
January 1, 2005, an annual fee (the "Non-Commute Fee") of $200,000 until such
time as this Agreement is commuted or until such time as all losses due under
this Agreement are paid, whichever comes first.
The Non-Commute Fee shall not be included in the calculation of the Experience
Account balance or the Funds Withheld Account balance and shall be retained 100%
by the Reinsurer.
ARTICLE 12 - REPORTS AND REMITTANCES
1. The Reinsured shall furnish to the Reinsurer within fifteen (15) days prior
to the close of the calendar quarter an estimate of the amount of Ultimate
Net Loss ceded under this Agreement as of the close of that calendar quarter
broken out between loss and Allocated Loss Adjustment Expense.
<PAGE> 14
2. The Reinsured shall furnish to the Reinsurer within thirty (30) days after
the close of each calendar quarter:
(a) quarterly account of Subject Earned Premium segregated by line of
business (and for the total of all lines).
(b) quarterly accounts of paid and unpaid Ultimate Net Loss segregated by
line of business (and for the total of all lines of business) and
broken out between Y2K Loss and non-Y2K loss (loss, Allocated Loss
Adjustment Expense, ECO and XPL).
(c) a reconciliation of the Funds Withheld Balance from inception to the
close of the most recent preceding calendar quarter.
3. The Reinsured shall furnish to the Reinsurer within thirty (30) days after
the end of each calendar quarter, quarterly accounts of paid Ultimate Net
Loss ceded under this Agreement broken out between Y2K Loss and non-Y2K loss
(loss, Allocated Loss Adjustment Expense, ECO and XPL) which are due to be
paid by the Reinsurer to the Reinsured. As respects the Funds Withheld
Balance, Ultimate Net Loss amounts shall be deemed to be paid as of the date
the Reinsurer agrees to the amount to be paid and such agreement shall be
made within sixty (60) days after receipt of this account.
4. The Reinsured shall furnish to the Reinsurer within one hundred twenty (120)
days after the close of each calendar year annual paid projections of
Ultimate Net Loss, broken out between Y2K Loss and non-Y2K loss (loss,
Allocated Loss Adjustment Expense, ECO and XPL), and segregated by line of
business.
5. The Reinsurer shall furnish to the Reinsured within thirty (30) days after
the close of each quarter a reconciliation of the Experience Account from
inception to the close of the most recent preceding calendar quarter.
6. All amounts due and payable under this Agreement shall be remitted directly
by wire transfer between the Reinsured and the Reinsurer with notice to the
Intermediary, unless such amounts are withheld by the Reinsured in
accordance with the Funds Withheld provision of this Agreement.
7. Any late payments by either party shall accrue interest at a rate equal to
the greater of 1% per month, compounded semi-annually, or the yield on the
one year United States Treasury Bill existent on the first business day
after the previous January 1, as published in the Wall Street Journal, plus
250 basis points.
ARTICLE 13 - TAXES
The Reinsured shall pay all taxes of any nature associated with this Agreement
and undertakes not to claim any deduction of the premium hereon when making
Canadian tax returns or when making tax returns, other than Income or Profits
tax returns, to any State or Territory of the United States of America or the
District of Columbia. Provided, however, that this Article shall not impose any
liability on the Reinsured for any income, capital gains, profits or other
similar
<PAGE> 15
taxes payable by the Reinsurer in respect of its operations or this Agreement.
ARTICLE 14 - COVENANTS OF THE REINSURED
The Reinsured agrees not to change claims handling procedures, loss reserving
process, levels of ceding commissions in its underlying contracts, or the levels
of reinsurance protection in any manner from that in effect at the inception of
this Agreement which materially affects this Agreement or the obligations of the
parties hereunder, unless the Reinsured has received the prior written approval
of the Reinsurer to such changes, such approval not to be unreasonably withheld.
In the event that the Reinsured does not adhere to these Covenants, the
Reinsurer shall have the right to immediately cancel this Agreement by mailing
the Reinsured a written notice of cancellation and the remaining unpaid Total
Aggregate Limit, notwithstanding any provision to the contrary contained herein,
shall be immediately reduced to an amount equal to the positive balance in the
Experience Account (or zero if the Experience Account Balance is negative) as of
the date of cancellation. The mailing of such notice shall be sufficient notice
and the effective date of cancellation shall be the date the notice of
cancellation was posted.
In the event that the Reinsurer learns about a violation of these Covenants
after the Expiration Date of this Agreement, the remaining unpaid Total
Aggregate Limit, notwithstanding any provision to the contrary contained herein,
shall be reduced to an amount equal to the positive balance in the Experience
Account (or zero if the Experience Account Balance is negative) upon written
notice by the Reinsurer to the Reinsured by registered or certified mail.
Notwithstanding the foregoing, the remedy to the Reinsurer in the event of a
breach by the Reinsured of any of the foregoing covenants may not be invoked
until the Reinsurer is called upon to pay Ultimate Net Loss under this Agreement
which is in excess of the Funds Withheld Balance.
ARTICLE 15 - DEFINITIONS
All words and phrases that have a capitalized initial letter in this Agreement
have a special meaning which is either introduced in certain Articles or which
is defined below and which shall include the plural as well as the singular.
"AGREEMENT" means this agreement as the same may be amended from time to time in
accordance with the terms hereof and all instruments supplemental hereto or in
amendment or confirmation hereof; additionally, the expressions "hereunder",
"herein", "hereof", "hereto", "above", "below" and similar expressions used in
any paragraph, subparagraph, section or article of this Agreement shall refer to
this Agreement and not to that paragraph, subparagraph, section or article only,
unless otherwise expressly provided.
"CEDED UNPAID ULTIMATE NET LOSS" shall mean the cumulative Ultimate Net Loss
ceded under this Agreement by the Reinsured from the Effective Date less
cumulative Ultimate Net Loss paid (or offset) under this Agreement by the
Reinsurer to the Reinsured from the Effective Date.
<PAGE> 16
"SUBJECT EARNED PREMIUM" shall mean gross premiums earned on all casualty
business in-force, written or renewed by the Reinsured during the Term of this
Agreement less return premiums less premiums ceded for all reinsurance which
would inure to the benefit of the Reinsurer under this Agreement. For purposes
of this Agreement, the projected Subject Earned Premium is equal to $140 million
for the Term of this Agreement.
"Y2K LOSS" shall mean all Ultimate Net Loss (including ALAE, ECO and XPL) on
Business Covered howsoever arising and regardless of any other cause or
occurrence contributing concurrently or in any sequence with: 1) the rendering
of date or time sensitive data, including but not limited to the recording,
storing, processing, calculating, comparing, sequencing or presenting by
electronic means of calendar dates or spans of time from, into and between the
twentieth and twenty-first centuries (including 1999 to 2000 and leap year
calculations); and 2) the generation, transmission, delivery, receipt of and any
use or reliance on information or calculations dependent on or relating to
calendar dates or spans of time from, into and between the twentieth and
twenty-first centuries (including 1999 to 2000 and leap year calculations).
ARTICLE 16 - ULTIMATE NET LOSS
"ULTIMATE NET LOSS" shall mean the actual loss incurred by the Reinsured and
Allocated Loss Adjustment Expense ("ALAE") on Business Covered on the
Reinsured's Net Retained Lines, and shall include 80% of the amounts of any
Extra Contractual Obligations ("ECO") and 80% of the amounts of any Excess of
Original Policy Limits Loss ("XPL") after making deductions for all recoveries,
salvages, subrogations and all claims on inuring reinsurance, whether
collectible or not.
ALAE shall mean all legal expenses and other expenses (including interest
accruing before and/or after entry of judgment, excluding Declaratory Judgement
Expense) incurred by the Reinsured in connection with the investigation,
adjustment, settlement or litigation of claims or losses, including salaries and
expenses of the Reinsured's field employees while adjusting such claims or
losses and expenses of the Reinsured's officials incurred in connection with
claims or losses. However, salaries of the Reinsured's officials or normal
overhead charges such as rent, postal, lighting, cleaning, heating, etc.
shall not be included.
The foregoing definition of ALAE shall apply notwithstanding how such expenses
may be classified by the Reinsured for statutory accounting purposes.
All salvages, recoveries or payments recovered or received subsequent to a loss
settlement under this Agreement shall be applied as if recovered or received
prior to the aforesaid settlement and all necessary adjustments shall be made by
the parties hereto, provided always that nothing in this clause shall be
construed to mean that Ultimate Net Loss under this Agreement is not recoverable
until the Reinsured's Ultimate Net Loss has been ascertained.
The Ultimate Net Loss and its components (loss (including Y2K Losses) and
Allocated Loss Adjustment Expense, and ECO and XPL) as determined by the
Reinsured, is subject to agreement by the Reinsurer. If the Reinsurer disagrees
with the Ultimate Net Loss determined by the Reinsured and the Reinsurer is
called upon to pay Ultimate Net Loss under this Agreement, a mutually agreed
upon independent national actuarial firm shall be engaged to
<PAGE> 17
evaluate the Ultimate Net Loss covered under this Agreement and such evaluation
shall be subject to the confines of the Ultimate Net Loss determined by the
Reinsured and the Ultimate Net Loss determined by the Reinsurer and shall be
binding. Such cost to be shared equally by the Reinsured and the Reinsurer. If
the parties fail to agree on the selection of an independent national actuarial
firm each of them shall name two, of whom the other shall decline one, and the
decision shall be made by drawing lots.
For the purposes of this Agreement, the maximum amount that any one-loss
occurrence from business underwritten by the Reinsured on behalf of Duncanson &
Holt (a subsidiary of UNUM Corp., Portland, Maine) may contribute to the
Ultimate Net Loss shall be equal to $10 million.
For the purposes of this Agreement, the maximum amount that Y2K losses (loss,
ALAE, ECO and XPL combined) may contribute to the Ultimate Net Loss shall be
equal to the lessor of: (i) 5% of Subject Earned Premium, or (ii) $7.5 million,
provided however, that no such sub-limit shall apply to Y2K Losses if the ratio
of: [Ultimate Net Loss prior to the application of the sub-limits set forth in
this Article 16 divided by Subject Earned Premium] is less than or equal to 81%.
ARTICLE 17 - NET RETAINED LINES
This Agreement applies only to that portion of any policy which the Reinsured
retains net for its own account, and in calculating the amount of any loss
hereunder and also in computing the amount or amounts in excess of the
Retentions, only loss or losses in respect of that portion of any policy which
the Reinsured retains net for its own account shall be included.
The amount of the Reinsurer's liability hereunder in respect of any loss or
losses shall not be increased by reason of the inability of the Reinsured to
collect from any other reinsurer(s), whether specific or general, any amounts
which may have become due from such reinsurer(s), whether such inability arises
from the insolvency of such other reinsurer(s) or otherwise.
ARTICLE 18 - RIGHT OF OFFSET
The Reinsured and the Reinsurer may offset any balance or amount due from one
party to the other under this Agreement or any other contract heretofore or
hereafter entered into between the Reinsured and the Reinsurer, whether acting
as assuming reinsurer or ceding company or in any other capacity.
In extension and not in limitation to the above, the Reinsurer shall have an
absolute right to offset any amounts due to the Reinsured against the Funds
Withheld Balance. In the event that this right of offset between the Reinsured
and the Reinsurer is specifically disallowed or judged to be unenforceable by
any court of competent jurisdiction, arbitration panel or regulatory body then
all amounts in the Funds Withheld Balance shall immediately become due and
payable in full to the Reinsurer by the Reinsured. If the Funds Withheld Balance
is not remitted to the Reinsurer within fifteen (15) days, the Reinsurer shall
have the option to immediately cancel this Agreement by mailing the Reinsured a
written notice of cancellation and the remaining unpaid Total Aggregate Limit,
notwithstanding any provision to the contrary contained herein, shall be
immediately reduced to an amount equal to the positive balance in the Experience
Account (or zero if the Experience Account Balance is negative) as of the date
of cancellation. The mailing of
<PAGE> 18
such notice shall be sufficient notice and the effective date of cancellation
shall be the date the notice of cancellation was posted.
In the event that the Reinsured fails to remit to the Reinsurer the Funds
Withheld Balance that is due and payable in accordance with the provisions in
this article after the Expiration Date of this Agreement within 15 days of the
date such payment is due, the Reinsurer shall notify the Reinsured in writing
via registered mail of the overdue amounts. In the event that the Reinsured does
not remit the overdue amounts to the Reinsurer within 15 days of receiving such
notification from the Reinsurer, the remaining unpaid Total Aggregate Limit,
notwithstanding any provision to the contrary contained herein, shall be
immediately reduced to an amount equal to the positive balance in the Experience
Account (or zero if the Experience Account Balance is negative) without further
notice.
ARTICLE 19 - ERRORS AND OMISSIONS
Any omission or error by either party to this Agreement will not relieve either
party of liability hereunder, provided such act, omission, or error is not
prejudicial to the other party and is rectified promptly upon discovery by the
responsible party.
ARTICLE 20 - CURRENCY
The provisions of this Agreement involving dollar-designated amounts are
expressed in United States currency and all payments shall be made in this
currency.
ARTICLE 21 - EXTRA CONTRACTUAL OBLIGATIONS
This Agreement shall indemnify the Reinsured within the limits hereof, where the
Ultimate Net Loss includes 80% of any Extra Contractual Obligations.
"EXTRA CONTRACTUAL OBLIGATIONS" (ECO), are defined as those liabilities not
covered under any other provision of this Agreement and which arise from the
handling of any claim on Business Covered hereunder, such liabilities arising
because of, but not limited to the failure by the Reinsured to settle within the
policy limit, or by reason of alleged or actual negligence, fraud or bad faith
in rejecting an offer of settlement or in the preparation of the defense or in
the trial of any action against its insured or in the preparation or prosecution
of an appeal consequent upon such action.
The date on which any Extra Contractual Obligation is incurred by the Reinsured
shall be deemed, in all circumstances, to be the date of the original accident,
casualty, disaster or loss occurrence.
<PAGE> 19
However, this Article shall not apply and there shall be no recovery hereunder
where the loss has been incurred due to the fraud by a member of the Board of
Directors, a corporate officer, or a supervisory employee of the Reinsured
acting individually or collectively or in collusion with a member of the Board
of Directors, a corporate officer, supervisory employee or partner of any other
corporation, partnership, or organization involved in the defense or settlement
of a claim on behalf of the Reinsured.
ARTICLE 22 - EXCESS OF ORIGINAL POLICY LIMITS LOSS
This Agreement shall indemnify the Reinsured, within the limits hereof, where
the Ultimate Net Loss includes 80% of any Excess of Original Policy Limits Loss.
"EXCESS OF ORIGINAL POLICY LIMITS LOSS" (XPL), shall mean any loss of the
Reinsured in excess of the limit of its original policy, such loss in excess of
the limit having been incurred because of failure by it to settle within the
policy limit or by reason of alleged or actual negligence, fraud or bad faith in
rejecting an offer of settlement or in the preparation of the defense or in the
trial of any action against its insured or in the preparation or prosecution of
an appeal consequent upon such action.
However, this Article shall not apply and there shall be no recovery hereunder
where the loss has been incurred due to the fraud by a member of the Board of
Directors, a corporate officer, or a supervisory employee of the Reinsured
acting individually or collectively or in collusion with a member of the Board
of Directors, a corporate officer, supervisory employee or partner of any other
corporation, partnership, or organization involved in the defense or settlement
of a claim on behalf of the Reinsured.
For the purposes of this Article, the word "loss" shall mean any amounts for
which the Reinsured would have been contractually liable to pay had it not been
for the limit of the original policy.
ARTICLE 23 - ARBITRATION
Any dispute arising out of the interpretation, performance or breach of this
Agreement, including the formation or validity thereof, shall be submitted for
decision to a panel of three arbitrators. Notice requesting arbitration must be
in writing and sent certified or registered mail, return receipt requested.
One arbitrator shall be chosen by each party and the two arbitrators shall,
before instituting the hearing, choose an impartial third arbitrator (the
"Umpire") who shall preside at the hearing. If either party fails to appoint its
arbitrator within thirty (30) days after being requested to do so by the other
party, the latter, after ten (10) days notice by certified or registered mail of
its intention to do so, may appoint the second arbitrator.
If the two arbitrators are unable to agree upon the Umpire within thirty (30)
days of their appointment, the two arbitrators shall request the American
Arbitration Association ("AAA") to provide a list of possible Umpires with the
qualifications set forth in this Article and the parties shall then mutually
agree upon an Umpire from this list. If the parties are unable to agree upon
<PAGE> 20
the Umpire within thirty (30) days of the receipt of the AAA list or if the AAA
fails to provide such a list within thirty (30) days of the request, either
party may apply to the United States Federal Court for the Southern District of
New York to appoint an Umpire with those qualifications. The Umpire shall
promptly notify in writing all parties to the arbitration of his selection.
All arbitrators shall be disinterested active or former executive officers of
insurance or reinsurance companies or Underwriters at Lloyd's of London.
Within thirty (30) days after notice of appointment of all arbitrators, the
panel shall meet and determine timely periods for briefs, discovery procedures
and schedules for hearings.
The panel shall be relieved of all judicial formality and shall not be bound by
the strict rules of procedure and evidence. Unless the panel agrees otherwise,
arbitration shall take place in New York, New York, but the venue may be changed
when deemed by the panel to be in the best interest of the arbitration
proceeding. Insofar as the arbitration panel looks to substantive law, it shall
consider the law of the State of New York. The decision of any two arbitrators
when rendered in writing shall be final and binding. The panel is empowered to
grant interim relief as it may deem appropriate.
To the extent, and only to the extent, that the provisions of this Agreement are
ambiguous or unclear, the panel shall make its decision considering the custom
and practice of the applicable insurance and reinsurance business. The panel
shall render its decision within sixty (60) days following the termination of
hearings, which decision shall be in writing, stating the reasons thereof.
Judgment upon the award may be entered in any court having jurisdiction thereof.
Each party shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the cost of the third arbitrator. The
remaining costs of the arbitration shall be allocated by the panel. The panel
may, at its discretion, award such further costs and expenses as it considers
appropriate, including but not limited to attorneys fees, to the extent
permitted by law.
ARTICLE 24 - ACCESS TO RECORDS
The Reinsurer or its duly appointed representatives shall have free access to
the books, records and papers of the Reinsured or its agents at all reasonable
times during the continuance of this Agreement or any liability hereunder, for
the purpose of obtaining information concerning this Agreement or the subject
matter thereof.
ARTICLE 25 - INSOLVENCY
In the event of the insolvency of the Reinsured, reinsurance under this
Agreement shall be payable by the Reinsurer on the basis of the liability of the
Reinsured under Policy or Policies reinsured without diminution because of the
insolvency of the Reinsured, to the Reinsured or to its liquidator, receiver, or
statutory successor except as provided by Section 4118(a) of the New York
Insurance Law or except when the Agreement specifically provides another payee
of such reinsurance in the event of the insolvency of the Reinsured and when the
Reinsurer with the consent of the direct insured or insureds has assumed such
Policy obligations of the Reinsured as
<PAGE> 21
direct obligations of the Reinsurer to the payees under such Policies and in
substitution for the obligations of the Reinsured so such payees.
It is agreed, however, that the liquidator or receiver or statutory successor of
the insolvent Reinsured shall give written notice to the Reinsurer of the
pendency of a claim against the insolvent Reinsured on the Policy or Policies
reinsured within a reasonable time after such claim is filed in the insolvency
proceeding and that during the pendency of such claim, the Reinsurer may
investigate such claim and interpose, at its own expense, in the proceeding when
such claim is to be adjudicated, any defense or defenses which it may deem
available to the Reinsured or its liquidator or receiver or statutory successor.
The expense thus incurred by the Reinsurer shall be chargeable, subject to court
approval, against the insolvent Reinsured as part of the expense of liquidation
to the extent of a proportionate share of the benefit which may accrue to the
Reinsured solely as a result of the defense undertaken by the Reinsurer.
When two or more Reinsurers are involved in the same claim and a majority in
interest elect to interpose defense to such claim, the expense shall be
apportioned in accordance with the terms of this Agreement as though such
expense had been incurred by the insolvent Reinsured.
Should any party hereto be placed in rehabilitation or liquidation or should a
rehabilitator, liquidator, receiver, conservator or other person or entity of
similar capacity be appointed as respects such party, all amounts due any of the
parties hereto whether by reason of premiums, losses or otherwise under this
Agreement or any other contract(s) of reinsurance heretofore or hereafter
entered into between the parties (whether or not any such contract(s) be assumed
or ceded) shall at all times be subject to the right of offset at any time and
from time to time, and upon the exercise of same, only the net balance shall be
due and payable in accordance with Section 7427 of the Insurance Law of the
State of New York to the extent such statute or any other applicable law,
statute or regulation governing such offset shall apply.
ARTICLE 26 -GOVERNING LAW
This Agreement shall be interpreted and governed by the laws of the State of New
York without regard to its principles of choice of law.
ARTICLE 27 - SERVICE OF SUIT
(This Article only applies to reinsurers domiciled outside of the United States
and/or unauthorized in any state, territory, or district of the United States
having jurisdiction over the Reinsured).
It is agreed that in the event of the failure of the Reinsurer to pay any amount
claimed to be due hereunder or to perform any other obligation under the
Agreement, the Reinsurer, at the request of the Reinsured, will submit to the
jurisdiction of a court of competent jurisdiction within the United States.
Nothing in this Article constitutes or should be understood to constitute a
waiver of the Reinsurer's rights to commence an action in any court of competent
jurisdiction in the United States, to remove an action to a United States
District Court, or to seek a transfer of a case to another court as permitted by
the laws of the United States or of any state in the United States. It is
further agreed that service of process in such suit may be made upon Willkie
Farr and Gallagher, 787 Seventh Avenue, New York, New York, 10019, and that in
any suit
<PAGE> 22
instituted, the Reinsurer will abide by the final decision of such court or of
any appellate court in the event of an appeal.
The above-named are authorized and directed to accept service of process on
behalf of the Reinsurer in any such suit and/or upon the request of the
Reinsured to give a written undertaking to the Reinsured that they will enter a
general appearance upon the Reinsurer's behalf in the event such a suit shall be
instituted.
Further, pursuant to any statute of any state, territory or district of the
United States which makes provision therefor, the Reinsurer hereon hereby
designates the Superintendent, Commissioner or Director of Insurance or other
officer specified for that purpose in the statute, or his successor or
successors in office, as its true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Reinsured or any beneficiary hereunder arising out of this Agreement of
reinsurance, and hereby designates the above-named as the person to whom the
said officer is authorized to mail such process or a true copy thereof.
The foregoing is not intended to conflict with or override the obligation of the
parties hereto to arbitrate their disputes as provided in the Arbitration
clause.
ARTICLE 28 - AMENDMENTS AND ALTERATIONS
This Agreement may be changed, altered or amended as the parties may agree,
provided such change, alteration or amendment is evidenced in writing or by
endorsement executed by the Reinsured and the Reinsurer.
ARTICLE 29 - ASSIGNMENT
Except as expressly provided otherwise in the article entitled "INSOLVENCY",
neither party may assign or transfer any rights, interests or obligations under
this Agreement to any person or entity without the written consent of the other
party and any effort to so assign such rights, interests or obligations without
the consent of the other party shall be null and void.
ARTICLE 30 - NO THIRD PARTY RIGHTS
This Agreement is solely between the Reinsured and the Reinsurer, and in no
instance shall any other party have any rights under this Agreement except as
expressly provided otherwise in the Insolvency Article.
ARTICLE 31 - NO IMPLIED WAIVER
The failure of any party to enforce any of the provisions herein shall not be
construed to be a waiver of the right of such party to enforce any such
provision.
ARTICLE 32 - MERGERS AND ACQUISITIONS
<PAGE> 23
It is understood and agreed that if Reinsured acquires (by acquisition,
reinsurance, or renewal of) any other insurance or reinsurance company or
individual or groups of individual book(s) of business of any other insurance or
reinsurance company that comprises not more than ten (10) percent (whether
individually or in the aggregate with respect to related transactions or
parties) of Subject Earned Premium, such company or book(s) of business will be
covered hereunder, provided that written notice is given to the Reinsurer of any
such newly affiliated company or book(s) of business as soon as practicable with
full particulars as to how such affiliation is likely to affect this Agreement.
If such acquisition, as defined above, comprises more than ten (10) percent
(whether individually or in the aggregate with respect to related transactions
or parties) of Subject Earned Premium, such company or book(s) of business will
be covered hereunder provided that prior written notice of such transaction is
given to the Reinsurer with full particulars as to how such transaction is
likely to affect this Agreement, and the Reinsurer agrees in its sole discretion
in writing that this Agreement applies to such acquired insurance or reinsurance
company or book(s) of business.
If Reinsured is acquired by or merges with another company, this Agreement shall
survive such acquisition or merger and the surviving entity shall be covered
hereunder provided that prior written notice of such transaction is given to the
Reinsurer with full particulars as to how such transaction is likely to affect
this Agreement, and the Reinsurer agrees in its sole discretion in writing that
this Agreement applies to such surviving entity.
Notwithstanding any other provisions of this Agreement, in the event that the
reinsured acquires another company or is acquired by or merges with another
company, this Agreement shall survive such acquisition and/or merger and the
book of business which was covered by this Agreement prior to such merger and/or
acquisition shall be covered hereunder.
ARTICLE 33 - INTERMEDIARY
Guy Carpenter & Company, Inc. and Balis & Co., Inc. are hereby recognized as the
Intermediary negotiating this Agreement for all business hereunder. All
communications (including but not limited to notices and statements) relating to
this Agreement shall be transmitted to the Reinsured through either Guy
Carpenter & Company, Inc. or Balis & Co., Inc., Two Logan Square, Philadelphia,
PA 19103-2772. All amounts due under this Agreement (including but not limited
to Reinsurance Premium and Ultimate Net Loss) shall be remitted directly by wire
transfer between the Reinsured and the Reinsurer with notice to the
Intermediary.
ARTICLE 34 - SECURITY
If the Reinsurer's surplus falls below $40 million, the Reinsured may require
the Reinsurer to post a "clean", unconditional, evergreen and irrevocable Letter
of Credit or to provide a reinsurance trust fund issued by a bank acceptable to
the Reinsured in favor of the Reinsured in an amount up to the excess of the
Ceded Unpaid Ultimate Net Loss over the Funds Withheld Balance.
<PAGE> 1
Exhibit 10.28
SPECIFIC RETROCESSION AGREEMENT
ARTICLE PAGE
------- ----
TERM AND CANCELLATION I 3
CONCURRENCY OF CONDITIONS II 4
PREMIUM AND CEDING COMMISSION III 4
RESERVES AND FUNDING IV 5
SETTLEMENTS AND SALVAGE V 7
OFFSET VI 7
DELAYS, ERRORS, OR OMISSIONS VII 8
ENTIRE AGREEMENT/AMENDMENTS VIII 8
ACCESS TO RECORDS IX 9
INSOLVENCY X 9
ARBITRATION XI 11
SERVICE OF SUIT XII 13
FOLLOW THE FORTUNES XIII 14
INTERMEDIARY XIV 14
1
<PAGE> 2
SPECIFIC RETROCESSION AGREEMENT
(hereinafter referred to as the "Agreement")
between
TRENWICK AMERICA REINSURANCE CORPORATION
a CONNECTICUT corporation
(hereinafter referred to as the "Retrocedent")
and
INTERNATIONAL SURETY AND CASUALTY COMPANY
a TEXAS corporation
(hereinafter referred to as the "Retrocessionaire")
as respects the
100% QUOTA SHARE REINSURANCE AGREEMENT AR 11148
(hereinafter referred to as the "Original Agreement")
Effective July 1, 1998
issued by the Retrocedent to
STATE AND COUNTY MUTUAL FIRE INSURANCE COMPANY
(hereinafter referred to as the "Original Reinsured")
By this Agreement the Retrocedent agrees to retrocede to the
Retrocessionaire, and the Retrocessionaire agrees to accept retrocession from
the Retrocedent a 37% share of the Retrocedent's 27% share in the Original
Agreement a copy of which is attached hereto and made a part of this Agreement.
This Agreement and any modification or endorsement hereto shall be
governed and interpreted in accordance with the laws of the State of New York,
U.S.A. Nothing hereinafter shall in any manner create any obligations or
establish any rights against Retrocessionaire in favor of any third parties or
any persons not parties to this Agreement except as provided in the Insolvency
Article.
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<PAGE> 3
ARTICLE I
TERM AND CANCELLATION
This Agreement will apply to all business subject to the Original
Agreement effective July 1, 1998.
This Agreement may be canceled (or the Retrocessionaire's participation
may be reduced) any June 30th by either party giving at least 120 days prior
notice by certified or registered mail to the other party. During any such
period of notice the Retrocessionaire will remain bound by the terms of this
Agreement.
In the event this Agreement is canceled (or the Retrocessionaire's
participation is reduced) in accordance with the aforementioned procedure, the
Retrocessionaire will remain liable for all losses under policies in force until
their expiration or renewal dates.
In the event the Original Reinsured's policies are written in a
jurisdiction where cancellation, renewal, or nonrenewal is regulated by the
insurance authorities, and the Original Reinsured and the Retrocedent are bound
to continue coverage by such regulations and statutes of said jurisdiction or by
a judicial decision, the Retrocessionaire will remain liable on any such
policies in force at cancellation date of this Agreement (and will receive the
premium therefor) until the date each expires or until the first renewal date
when the Original Reinsured can lawfully nonrenew said policies, whichever
occurs first.
Alternatively, the Retrocedent may elect to cancel (or reduce) the
Retrocessionaire's liability on a cut-off basis as of the date of cancellation,
and the Retrocessionaire will not be liable for any losses occurring (or the
percentage thereof
3
<PAGE> 4
equal to the amount of participation reduction) on or after the cancellation
date and will return immediately to the Retrocedent the unearned premium less
ceding commission as of that date, computed on a monthly pro rata basis.
Notwithstanding the foregoing, in the event the Original Agreement
attached hereto is cancelled for whatever reason, this Agreement will be
cancelled concurrently with the cancellation of said Original Agreement.
Notwithstanding the cancellation of this Agreement as hereinabove
provided, its provisions will continue to apply to all unfinished business
hereunder to the end that all obligations and liabilities incurred by each party
hereunder will be fully performed and discharged.
ARTICLE II
CONCURRENCY OF CONDITIONS
This Agreement will follow in all respects the terms and
conditions of the Original Agreement (including letters of understanding and/or
addenda attached thereto when accepted by the Retrocedent), provided the terms
and conditions of the Original Agreement are not inconsistent with the terms and
conditions of this Agreement. The Retrocedent agrees to transmit to the
Retrocessionaire all notices and information pertaining to the subject matter of
this Agreement as promptly as possible after receipt thereof by the Retrocedent.
ARTICLE III
PREMIUM AND CEDING COMMISSION
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<PAGE> 5
As premium for the reinsurance provided hereunder, the Retrocedent will
retrocede to the Retrocessionaire its proportional share of the net earned
premium ceded to the Retrocedent in respect of the Original Agreement, less the
ceding commission set forth below.
The Retrocessionaire will allow the Retrocedent a ceding commission in
accordance with Article IX of the Original Agreement plus brokerage paid to the
Intermediary of 1.5% of the gross ceded earned premium under the Original
Agreement.
ARTICLE IV
RESERVES AND FUNDING
As regards business coming within the scope of this Agreement, the
Retrocedent agrees that, when it files with the Insurance Department or sets up
on its books reserves for losses (including loss and loss expense paid by the
Retrocedent but not recovered from the Retrocessionaire, and loss and loss
expense reported and outstanding but not including any amount relating to
reserves in respect of incurred but not reported losses) and/or unearned
premium, which it is required by law to set up (hereinafter referred to as
"Retrocessionaire's Obligations"), it will forward to the Retrocessionaire a
statement showing the proportion of such reserves applicable to it. The unearned
premium held by the Retrocedent on behalf of the Retrocessionaire will be
deposited into a Trust Account at Texas State Bank, McAllen, Texas by the
Intermediary. This Trust Account will be established in accordance with the
terms of the Trust Agreement, a copy of which is attached hereto and made a part
of this Agreement. The interest earned on funds
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<PAGE> 6
deposited in the Trust Account will be shared equally between the Retrocedent
and the Retrocessionaire and will be remitted quarterly with the corresponding
monthly account under the Original Agreement.
Notwithstanding any other provisions of this Agreement, the Retrocedent
or its court-appointed successor in interest may draw upon the Trust Account at
any time without diminution because of the insolvency of the Retrocedent or of
the Retrocessionaire for one or more of the following purposes only:
A. To pay or reimburse the Retrocedent for the Retrocessionaire's
Obligations under this Agreement which have not otherwise been
paid by the Retrocessionaire;
B. To make payment to the Retrocessionaire of any amounts held in
the Trust Account that exceed one hundred two percent (102%)
of the actual amount required to fund the Retrocessionaire's
Obligations; or
C. Where the Retrocedent has received notification of termination
of the Trust Account and where any of the Retrocessionaire's
entire Obligations remain unliquidated and discharged ten (10)
days prior to such termination date, to withdraw amounts equal
to such Obligations and deposit such amounts in a separate
account, in the name of the Retrocedent, in any United States
bank or trust company, apart from its general assets, in trust
for such uses and purposes specified in (a) and (b) above as
may remain executory after such withdrawal and for any period
after such termination date.
At annual intervals, or more frequently as agreed but never more
frequently than semi-annually, the Retrocedent will prepare and forward to the
Retrocessionaire a statement to reflect the Retrocessionaire's share of reserves
for losses and/or unearned premium. If the statement shows that the
Retrocessionaire's share of such reserves exceeds the balance available in the
Trust Account as of the statement date, then the Retrocessionaire will, within
30 days after receipt of notice of such excess, deposit with
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<PAGE> 7
the Trustee under the Trust Agreement assets having a value on the date of
deposit equal to such excess. If, however, the statement shows that the
Retrocessionaire's share of such reserves is less than the balance available in
the Trust Account as of the statement date,
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<PAGE> 8
then the Retrocedent will, within 30 days after receipt of written request from
the Retrocessionaire, make a withdrawal from the Trust Account in the amount of
such excess and remit the same to the Retrocessionaire.
ARTICLE V
SETTLEMENTS AND SALVAGE
The Retrocedent will have the right to settle all claims under the
Original Agreement. The Retrocessionaire will be liable for its proportional
share of loss and loss expense that the Retrocedent pays or allows under the
Original Agreement, including loss expense directly incurred by the Retrocedent,
if any. The Retrocessionaire agrees that settlements hereunder will take place
at the same time as under the Original Agreement. All settlements, provided they
are within the terms of this Agreement, will be unconditionally binding on the
Retrocessionaire in proportion to its participation in this Agreement.
The Retrocessionaire will receive its proportional share of all salvage
recovered and/or recoveries made by the Retrocedent in respect of losses subject
to this Agreement.
ARTICLE VI
OFFSET
The Retrocedent and the Retrocessionaire will each be entitled to
deduct from amounts due the other party under this Agreement any amounts due
itself from the other party under this Agreement or under any other reinsurance
or retrocession agreement
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<PAGE> 9
heretofore or hereafter entered into by and between them through the reinsurance
intermediary designated in ARTICLE XIV of this Agreement. In the event of the
insolvency of a party hereto, however, offset shall only be allowed in
accordance with the provisions of Section 7427 of the Insurance Laws of the
State of New York.
ARTICLE VII
DELAYS, ERRORS, OR OMISSIONS
The Retrocedent will not be prejudiced in any way by any delay or by
any omission, through error, accident, or oversight, to cede to the
Retrocessionaire any reinsurance correctly falling to its share under the terms
of this Agreement. Neither will the Retrocedent be prejudiced by erroneous
cancellation (either partial or total) of any cession, by omission to report or
erroneously reporting any losses, or by any other error or omission. Further,
delays, errors, or omissions inadvertently made will not invalidate the
liability of the Retrocessionaire. Any such error or omission, however, will be
corrected immediately upon discovery.
ARTICLE VIII
ENTIRE AGREEMENT/AMENDMENTS
This Agreement constitutes the entire agreement between the parties.
This Agreement may be altered or amended in any of its terms and conditions by
mutual consent of the Retrocedent and the Retrocessionaires either by addenda
hereto or by an exchange of letters; such addenda or letters will then
constitute a part of this Agreement.
9
<PAGE> 10
ARTICLE IX
ACCESS TO RECORDS
Provided the Retrocedent has received prior notice, the
Retrocessionaire or its designated representatives will have the right to
inspect, at any reasonable time, all records of the Retrocedent that pertain in
any way to this Agreement.
ARTICLE X
INSOLVENCY
In the event of the Retrocedent's insolvency, the reinsurance afforded
by this Agreement will be payable by the Retrocessionaire on the basis of the
Retrocedent's liability under the Original Agreement without diminution because
of the Retrocedent's insolvency or because its liquidator, receiver,
conservator, or statutory successor has failed to pay all or a portion of any
claims, subject however to the right of the Retrocessionaire to offset against
such funds due hereunder, any sums that may be payable to them by said insolvent
Retrocedent in accordance with the Offset Article. The reinsurance will be
payable by the Retrocessionaire directly to the Retrocedent, or to its
liquidator, receiver, conservator, or statutory successor except (a) where this
Agreement specifically provides another payee of such reinsurance in the event
of the Retrocedent's insolvency or (b) where the Retrocessionaire, with the
consent of the direct insured or insureds, has assumed such policy obligations
of the Retrocedent as direct obligations of itself to the payees under such
policies in substitution for the Retrocedent's obligation to
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<PAGE> 11
such payees. Then, and in that event only, the Retrocedent, with the prior
approval of the liquidator, receiver, conservator, or statutory successor is
entirely released from its obligation and the Retrocessionaire will pay any loss
directly to payees under such policies.
The Retrocedent's liquidator, receiver, conservator, or statutory
successor will give written notice of the pendency of a claim against the
Retrocedent under the Original Agreement within a reasonable time after such
claim is filed in the insolvency proceeding. During the pendency of such claim,
the Retrocessionaire may investigate said claim and interpose in the proceeding
where the claim is to be adjudicated, at its own expense, any defense that it
may deem available to the Retrocedent, or to its liquidator, receiver,
conservator, or statutory successor. The expense thus incurred by the
Retrocessionaire will be chargeable against the Retrocedent, subject to court
approval, as part of the expense of conservation or liquidation to the extent
that such proportionate share of the benefit will accrue to the Retrocedent
solely as a result of the defense undertaken by the Retrocessionaire.
In the event of insolvency, bankruptcy, receivership, rehabilitation or
liquidation of the Retrocessionaire, the Retrocedent may immediately take
possession of all of the assets held in the Trust Account maintained in
connection herewith, and may retain all or any portion of any amount then due or
which may become due to the Retrocessionaire under this Agreement. Such amounts
shall be used for the purpose of paying any and all liability of the
Retrocessionaire hereunder until all such liabilities have been discharged, at
which time the Retrocedent shall pay to the Retrocessionaire, its conservator,
11
<PAGE> 12
liquidator, receiver or statutory successor the balance of such amounts withheld
as may remain, provided no
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<PAGE> 13
default of the Retrocessionaire has occurred hereunder, in which case the
Retrocessionaire, its conservator, liquidator, receiver or statutory successor
forfeits any amounts which may remain.
ARTICLE XI
ARBITRATION
In the event of any arbitration between the Retrocedent and the
Original Reinsured under the terms of the Original Agreement attached hereto,
the Retrocessionaire agrees to abide by the results of such arbitration or any
settlement arising therefrom.
As a condition precedent to any right of action hereunder, any dispute
arising out of the interpretation, performance or breach of this Agreement,
including the formation or validity thereof, will be submitted for decision to a
panel of three arbitrators. Notice requesting arbitration will be in writing and
sent certified or registered mail, return receipt requested.
One arbitrator will be chosen by each party and the two arbitrators
will, before instituting the hearing, choose an impartial third arbitrator who
will preside at the hearing. If either party fails to appoint its arbitrator
within 30 days after being requested to do so by the other party, the latter
after 10 days notice by certified or registered mail of its intention to do so,
may appoint the second arbitrator.
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<PAGE> 14
If the two arbitrators are unable to agree upon the third arbitrator
within 30 days of their appointment, they will request the American Arbitration
Association to appoint a third arbitrator with the qualifications set forth
below in this Article.
All arbitrators will be disinterested active or former executive
officers of insurance or reinsurance companies or Underwriters at Lloyd's,
London.
Within 30 days after notice of appointment of all arbitrators, the
panel will meet and determine timely periods for briefs, discovery procedures
and schedules for hearings.
The panel will be relieved of all judicial formality and will not be
bound by the strict rules of procedure and evidence. Unless the panel agrees
otherwise, arbitration will take place in Stamford, Connecticut, but the venue
may be changed when deemed by the panel to be in the best interest of the
arbitration proceeding. The decision of any two arbitrators when rendered in
writing will be final and binding. The panel is empowered to grant interim
relief as it may deem appropriate.
To the extent, and only to the extent, that the provisions of this
Agreement are ambiguous or unclear, the panel will make its decision considering
the custom and practice of the applicable insurance and reinsurance business as
promptly as possible, but within 60 days following the termination of the
hearings. Judgment upon the award may be entered in any court having
jurisdiction thereof.
Each party will bear the expense of its own arbitrator and will jointly
and equally bear with the other party the cost of the third arbitrator. The
remaining costs of the arbitration will be allocated by the panel. The panel
may, at its discretion, award such
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<PAGE> 15
further costs and expenses as it considers appropriate, including but not
limited to attorneys fees, to the extent permitted by law.
ARTICLE XII
SERVICE OF SUIT
In the event the Retrocessionaire hereon fails to pay any amount or
perform any obligation claimed due hereunder, such Retrocessionaire, at the
request of the Retrocedent, will submit to the jurisdiction of a court of
competent jurisdiction within the United States and will comply with all
requirements necessary to give that court jurisdiction. Nothing in this Article
constitutes or should be understood to constitute a waiver of the
Retrocessionaire's right to commence an action in any court of competent
jurisdiction in the United States, to remove an action to a United States
District Court, or to seek a transfer of a case to another court as permitted by
the laws of the United States or of any state in the United States. Service of
process in such suit may be made upon Mendes and Mount, 750 Seventh Avenue, New
York, New York 10019-6829. In any suit instituted against it upon this
Agreement, the Retrocessionaire will abide by the final decision of such court
or of any appellate court in the event of an appeal.
The above named are authorized and directed to accept service of
process on behalf of the Retrocessionaire in any such suit and/or upon the
request of the Retrocedent to give a written undertaking to the Retrocedent that
they will enter a general appearance upon the Retrocessionaire's behalf in the
event such a suit is instituted.
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<PAGE> 16
Further, pursuant to any statute of any state, territory, or district
of the United States that makes provision therefor, the Retrocessionaire hereby
designates the Superintendent, Commissioner, or Director of Insurance or other
officer specified for that purpose in the statute (or his successor or
successors in office) as its true and lawful attorney upon whom may be served
any lawful process in any action, suit, or proceeding instituted by or on behalf
of the Retrocedent or any beneficiary hereunder arising out of this Agreement,
and hereby designates the above named as the person to whom the said officer is
authorized to mail such process or a true copy thereof.
ARTICLE XIII
FOLLOW THE FORTUNES
The liability of the Retrocessionaire will commence as of the effective
date of this Agreement and, unless otherwise specifically provided herein, will
follow in all respects the terms and conditions of the Original Agreement and
any amendments thereto. The Retrocessionaire agrees that it is the true intent
of this Agreement that the Retrocessionaire will, in every case to which this
Agreement applies, follow the fortunes of the Retrocedent.
ARTICLE XIV
INTERMEDIARY
Aon Re Inc., an Illinois corporation, or one of its affiliated
corporations duly licensed as a reinsurance intermediary, is hereby recognized
as the Intermediary
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negotiating this Agreement for all business hereunder. All communications
(including but not limited to notices, statements, premiums, return premiums,
commissions, taxes, losses, loss expenses, salvages, and loss settlements)
relating to this Agreement will be transmitted to the Retrocedent or the
Retrocessionaire through the Intermediary. Payments by the Retrocedent to the
Intermediary will be deemed payment to the
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Retrocessionaire. Payments by the Retrocessionaire to the Intermediary will be
deemed payment to the Retrocedent only to the extent that such payments are
actually received by the Retrocedent.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their duly authorized representatives.
Signed at STAMFORD, CONNECTICUT
TRENWICK AMERICA REINSURANCE CORPORATION
Signature: ___________________________ Title: ________________________
Attest: ___________________________ Date: ________________________
Signed at DALLAS, TEXAS
INTERNATIONAL SURETY AND CASUALTY COMPANY
Signature: ___________________________ Title: ________________________
Attest: ___________________________ Date: ________________________
18
<PAGE> 1
Exhibit 10.29
SPECIAL ACCIDENT REINSURANCE FACILITY
QUOTA SHARE REINSURANCE RETROCESSION
(hereinafter referred to as "Agreement")
In consideration of the mutual covenants hereinafter
contained and upon the terms and conditions
hereinafter set forth
UNUM LIFE INSURANCE COMPANY
(hereinafter referred to as the "Retrocessionaire(s)")
does hereby indemnify, as herein provided and specified
business underwritten by
DUNCANSON & HOLT, INC.
(hereinafter referred to as "Underwriting Manager")
on behalf of
TRENWICK AMERICA REINSURANCE CORPORATION
(hereinafter referred to as the "Retrocedant")
Article I - INSURING CLAUSE
The Retrocessionaire shall indemnify the Retrocedant for Reinsurance paid
under benefits classified as Special Accident Programs reinsured by the
Retrocedant.
Article II - TERRITORY
This Agreement shall apply to losses occurring within the territorial
limits of the Retrocedant's contracts.
Article III - TERM AND CANCELLATION
<PAGE> 2
This Agreement shall take effect for a one year period commencing October
1, 1996 and is continuous in nature and shall apply to all policies coming
within the scope of the Agreement and to claims incurred, on and after October
1, 1996. The Retrocedant or the Retrocessionaire(s) may cancel this Agreement at
12:01 A.M. at September 30, 1997, or any September 30th thereafter, by giving
the other at least ninety (90) days prior notice in writing by Certified Mail.
The Retrocessionaire(s) shall continue to participate in all business coming
within the terms of the Agreement during the said period of ninety (90) days.
In the event of cancellation of this Agreement, the Retrocessionaire's(s')
liability on business in force shall continue in connection with any policy the
subject of cession hereunder and any endorsement thereto whether issued after
the date of cancellation or not and whether subject to additional premium or
not. Notwithstanding the foregoing, the Retrocessionaire(s) shall be liable for
their share of any loss reported during a discovery period granted to the
original Insured under a policy which expires or is cancelled during or at the
end of the period of the Retrocessionaire's(s') liability hereunder.
Article IV - UNDERWRITING MANAGER
The business subject to this Agreement shall be underwritten by Duncanson
& Holt, Inc. on behalf of the Trenwick America Reinsurance Corporation
(Retrocedant).
Article V - RETENTION
The Retrocedant agrees to cede and the Retrocessionaire(s) agrees to
accept under this Agreement the quota share percentage specified in the attached
Interest and Liabilities Agreement for liability as identified in the attached
Exhibit I assumed by the Retrocedant for Special Accident Programs.
Article VI - LIABILITY OF RETROCESSIONAIRE(S)
The liability of the Retrocessionaire(s) shall begin obligatorily and
simultaneously with that of the Retrocedant and all reinsurance ceded hereunder
shall be subject to the same clauses, rates, terms, conditions and endorsements
as the original policies, binders, or contracts insofar as they relate to the
business Reinsured hereunder, the true intent of this Agreement being that the
Retrocessionaire(s) shall, in every case to which this Agreement applies and in
the proportions specified herein, follow the fortunes of the Retrocedant.
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<PAGE> 3
Article VII - PREMIUM AND COMMISSIONS
The premium payable to the Retrocessionaire(s) will be calculated on the
original gross reinsurance rates less the following:
Retrocedant Expense: 2 % of Gross Written Premium
Underwriting
Manager's Fee: Up to 7 1/2% of Gross Written Premium.
Article VIII - PROFIT COMMISSION
Annually, the Retrocessionaire(s) will pay the Retrocedant Profit
Commission equal to twenty (20%) of the profits accruing on business ceded under
this Agreement. Computation of the Profit Commission shall be on an Underwriting
Year basis. Each Underwriting Year shall encompass all transactions relating to
reinsurance ceded under this Agreement during the period.
The first calculation of a Profit Commission shall be made following
September 30, 1997, for the Underwriting Year ending that date. Calculation of
the Profit Commission shall be made following September 30th of each
Underwriting Year that this Agreement remains in effect until each Underwriting
Year is fully developed.
The profits, for each Underwriting Year to which the 20% Profit Commission
will apply, shall be equal to the excess of A over B where:
(A) INCOME is equal to the sum of:
1. Gross Written Premium during the Underwriting Year; and
2. Unearned premium reserve at beginning of period; and
3. A reserve for incurred, but not reported, loss development at
beginning of period; and
4. A reserve for outstanding losses at beginning of period; and
5. Recoveries from any excess of loss protection contracts that
may be arranged by
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the Underwriting Manager to protect the Retrocedant; and
6. Investment Income on the average amount of reserve funds held
by the Retrocessionaire(s) during the current Underwriting
Year, valued as of the date of distribution, based on the
monthly prime interest rate during the subject period
published in The Wall Street Journal less one-half percent.
(B) OUTGO is equal to the sum of:
1. All losses and loss expenses paid less salvages applicable to
the Underwriting Years; and
2. Outstanding Loss Reserve at the close of the Underwriting Year;
and
3. Loss Development Reserve at the close of the Underwriting Year;
and
4. Acquisition Cost (Commission and Brokerage Earned); and
5. Unearned Premium Reserve for the current Underwriting Year; and
6. An allowance of 2% for all business for Retrocedant's Expense.
7. An allowance of up to seven and one half (7 1/2%) of the Gross
Written Premium for Underwriting Managers Fee.
8. An allowance of 3/4 of 1% of Gross Written Premium for
Retrocessionaires Expense.
In the event of an underwriting loss on the total results of any one
Underwriting Year, the amount of such loss shall be debited to the profit
commission statement for the ensuing Underwriting Year. Should a debit balance
still remain, such balance shall be reduced by 50% and debited against further
Underwriting Year(s), but not exceeding three years in all, and no profit
commission shall be considered as earned under this Agreement until a credit
balance is restored. The first calculation of profit commission under this
Agreement shall be made as of September 30, 1997 and shall apply to all business
transacted from the inception of this Agreement. Subsequent calculations and
recalculations of each year's profit commission shall be made as of the last day
of each Underwriting Year. In this Agreement, no further calculation of profit
commission shall be made until all liability has been terminated and all claims
settled.
Article IX - CURRENCY
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<PAGE> 5
Wherever the sign "$" appears in this Agreement it shall mean United
States Dollars. Premiums and losses are payable hereunder in United States
Dollars.
Article X - RETROCESSIONAL PREMIUM, CLAIMS, AND REPORTS
The Retrocedant shall report to the Retrocessionaires within seventy-five
(75) days following the close of each quarter the gross premiums collected for
the quarter less claims paid, acquisition expense, Retrocedant's and
Underwriting Manager's Fee, and at such time any balances due the
Retrocessionaires or Retrocedant shall be due and immediately payable.
In addition, the Retrocedant shall furnish such other information as may
be required by the Retrocessionaires for the completion of the Retrocessionaires
quarterly and annual statements.
Article XI - LOSSES
The Retrocedant alone and at its full discretion shall adjust, settle or
compromise all claims and losses. All such adjustments, settlements and
compromises shall be binding on the Retrocessionaire in proportion to its
participation. The Retrocedant shall likewise at its sole discretion commence,
continue, defend, compromise, settle or withdraw from actions, suits or
proceedings and generally make decisions involving all aspects and matters
relating to any claim or loss as in its judgement may be beneficial or
expedient; and all loss payments made shall be shared by the Retrocessionaire(s)
proportionately. The Retrocessionaire(s) shall, on the other hand, benefit
proportionately from all reductions of losses by salvage, compromise or
otherwise.
The Retrocessionaire(s) shall be liable for its proportionate share of all
expenses incurred by the Company in connection with the investigation and
settlement or contesting the validity of specific claims or losses or alleged
losses.
Losses due by the Retrocessionaire(s) to the Retrocedant shall be carried
to account.
Article XII - CLAIMS CO-OPERATION CLAUSE
The Retrocedant shall advise the Retrocessionaire(s) with reasonable
promptitude of any loss or losses in which the Retrocessionaire(s) is likely to
be involved and shall provide the Retrocessionaire(s) with full information
relative thereto. However, inadvertent failure to give such reasonably prompt
advice shall not affect the Retrocedant's rights under this Agreement.
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<PAGE> 6
The Retrocessionaire(s), through its appointed representatives, shall have
the right to cooperate at its own expense with the Retrocedant in the defense
and/or settlement of any claims in which they may be interested.
All settlements made by the Retrocedant shall be binding on the
Retrocessionaire(s) and the Retrocessionaire(s) agrees to pay any amounts that
may be recoverable under this Agreement as soon as reasonably practical after
the receipt of the necessary papers proving the loss.
Article XIII - OFFSET
The Retrocedant or the Retrocessionaire(s) may offset any balance, whether
on account of premium, commission, claims or losses, adjustment expense,
salvage, or otherwise, due from one party to the other under this Agreement or
under any other agreement heretofore or hereafter entered into between the
Retrocedant and the Retrocessionaire.
Article XIV - TAX PROVISIONS
In consideration of the terms under which the agreement is issued, the
Retrocessionaire(s) shall participate up to its proportionate share in State
Taxes which might be applicable for business ceded hereunder.
Article XV - ACCESS TO RETROCEDANT'S RECORDS
The Retrocessionaire or its designated representatives shall have free
access at any reasonable time to all records of the Retrocedant which pertain in
any way to this Agreement.
Article XVI - EXTRA CONTRACTUAL AND PUNITIVE DAMAGES
In no event shall the Retrocessionaire(s) participate in any extra or
non-contractual damages, nor legal fees and expenses attendant to the defense
thereof, including but not limited to compensatory, exemplary and punitive
damages, nor fines or Statutory Penalties which are awarded against the original
reinsured as a result of an act, omission or course of conduct committed by or
for which the original reinsured shall be held responsible in connection with
the reinsurance retroceded under this Agreement, unless the Retrocessionaire(s)
shall have concurred in writing with the proposed act, omission or course
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<PAGE> 7
of conduct to be taken by the original reinsured which lead to the awarding of
such damages.
If the Retrocessionaire(s) furnishes such written concurrence, payment of
such awarded damages will be shared by the Retrocedant and the
Retrocessionaire(s) in the same proportion as the parties are sharing the claim
out of which such extra contractual obligation arises.
Article XVII - ERRORS AND OMISSIONS
Any inadvertent error, omission or delay in complying with the terms and
conditions of this Agreement shall not be held to relieve either party hereto
from any liability which would attach to it hereunder if such error, omission or
delay had not been made, provided such error, omission or delay is rectified
immediately upon discovery.
Article XVIII - INSOLVENCY
In the event of the insolvency of the Retrocedant, this Reinsurance shall
be payable directly (except where the policy of insurance or this Agreement
specifically provides another payee of such reinsurance in the event of the
insolvency of the Retrocedant) to the Retrocedant or to its liquidator,
receiver, conservator or statutory successor on the basis of the liability of
the Retrocedant without diminution because of the insolvency of the Retrocedant
or because the liquidator, receiver, conservator or statutory successor of the
Retrocedant has failed to pay all or a portion of any claim.
It is agreed, however, that the liquidator, receiver, conservator or
statutory successor of the Retrocedant shall give written notice to the
Retrocessionaire(s) of the pendency of a claim against the Retrocedant
indicating the policy retroceded, which claim would involve a possible liability
on the part of the Retrocessionaire(s) within a reasonable time after such claim
is filed in the conservation or liquidation proceeding or in the receivership,
and that during the pendency of such claim, the Retrocessionaire(s) may
investigate such claim and interpose, at its own expense, in the proceeding
where such claim is to be adjudicated any defense or defenses that it may deem
available to the Retrocedant or its liquidator, receiver, conservator or
statutory successor. The expense thus incurred by the Retrocessionaire(s) shall
be chargeable, subject to the approval of the court, against the Retrocedant as
part of the expense of conservation or liquidation to the extent of a
proportionate share of the benefit which may accrue to the Retrocedant solely as
a result of the defense undertaken by the Retrocessionaire(s).
Article XIX - ARBITRATION
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<PAGE> 8
All differences between the Retrocedant and the Retrocessionaire(s) on
which agreement cannot be reached will be decided by arbitration. The
arbitrators will determine the interpretation of this Agreement in accordance
with usual business and reinsurance practices rather than strict technicalities.
Three arbitrators will decide any differences. They must be professionals of the
life or Property and Casualty insurance industry and other than the two parties
to this Agreement. One of the arbitrators is to be appointed by the Retrocedant
and one by the Retrocessionaire(s) and these two will select a third. If the two
are not able to agree on a third, the choice will be left to the President of
the American Council of Life Insurance or its successors. The arbitration
procedure shall follow the rules of the American Arbitration Association. The
arbitration shall be conducted in the State of New York and under mutually
agreed upon procedures. If the parties cannot reach agreement on procedures,
either party may petition the American Arbitration Association, or its'
successor, to conduct such arbitration. Any required filing fee will be the sole
responsibility of the petitioner. This Agreement shall be deemed binding upon
the arbitrators for terms expressly agreed to herein. The arbitrator's decision
will be by majority vote, and no appeal will be taken from it. The judgment
rendered by the arbitrators may be entered in any court having proper
jurisdiction. Expenses and fees for the arbitrators shall be borne equally by
the Retrocedant and Retrocessionaire(s) except as mentioned concerning
petitioning fee to the American Arbitration Association.
Article XX - PROPORTION
This Agreement of the undersigned Retrocessionaire(s) is for and covers
its share of the foregoing interests and liabilities.
The share of the Retrocessionaire(s) shall be separate and apart from the
shares of any other reinsurers, and Retrocessionaires(s) shall in no event
participate in the interests and liabilities of such other reinsurers.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed, in duplicate, by their duly authorized representatives this day of
19 .
UNUM LIFE INSURANCE COMPANY
BY: _______________________________________
TITLE: ____________________________________
Signed on this day of 19 .
By DUNCANSON & HOLT, INC.
On Behalf of:
TRENWICK AMERICA REINSURANCE CORPORATION
(Retrocedant)
BY: _______________________________________
TITLE: ____________________________________
9
<PAGE> 10
INTEREST AND LIABILITIES AGREEMENT
It is hereby mutually agreed by
UNUM LIFE INSURANCE COMPANY
(hereinafter referred to as the "Subscribing Retrocessionaire(s)")
and
TRENWICK AMERICA REINSURANCE CORPORATION
(hereinafter referred to as the "Retrocedant")
That the Subscribing Retrocessionaire(s) shall have a 100% participation in
the Interest and Liabilities underwritten on behalf of the Retrocedant as set
forth in the instrument attached hereto entitled, Special Accident Reinsurance
Facility Quota Share Reinsurance Retrocession.
Such participation shall be several and not joint with the participation of
other Subscribing Retrocessionaire(s) and the Subscribing Retrocessionaire(s)
shall under no circumstances participate in the Interest and Liabilities of the
other Retrocessionaire(s) in said instrument.
The Retrocedant shall pay to the Subscribing Retrocessionaire(s) 100% of
all premiums due or which may become due the Retrocessionaire(s) under the
provisions of the instrument attached. This Agreement shall attach October 1,
1996 and is subject to the Term provision contained in Article III of the
attached instrument which are hereby incorporated by reference into this
Agreement and which shall apply as though they had been specifically provided
for herein.
The instrument to which this Agreement is attached and, therefore, the
Interest and Liabilities of the Subscribing Retrocessionaire(s) therein, may be
changed, altered and amended as the parties may agree, provided such change,
alteration and amendment is evidenced by endorsement to this Agreement executed
by the Retrocedant and the Subscribing Retrocessionaire(s).
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed, in duplicate, by their duly authorized representatives.
THE SUBSCRIBING RETROCESSIONAIRE(S)
Signed in
this day of 19 .
UNUM LIFE INSURANCE COMPANY
BY: _______________________________________
TITLE: ____________________________________
AND
THE RETROCEDANT
Signed in
this day of 19 .
By DUNCANSON & HOLT, INC.
On Behalf of:
TRENWICK AMERICA REINSURANCE CORPORATION
(Retrocedant)
BY: _______________________________________
TITLE: ____________________________________
<PAGE> 12
EXHIBIT I
of the
SPECIAL ACCIDENT REINSURANCE FACILITY
QUOTA SHARE REINSURANCE RETROCESSION
between
TRENWICK AMERICA REINSURANCE CORPORATION
and
UNUM LIFE INSURANCE COMPANY
Business Covered: Occupational Accident Insurance and
Reinsurance
100% Authorized Limits $ 5,000,000 Per Life
$10,000,000 Per Occurrence
<PAGE> 13
Addendum No. 1 to the
SPECIAL ACCIDENT REINSURANCE FACILITY
QUOTA SHARE REINSURANCE RETROCESSION
(hereinafter referred to as "Agreement")
In consideration of the mutual covenants hereinafter
contained and upon the terms and conditions
hereinafter set forth
UNUM LIFE INSURANCE COMPANY
(hereinafter referred to as the "Retrocessionaire(s)")
does hereby indemnify, as herein provided and specified
business underwritten by
DUNCANSON & HOLT, INC.
(hereinafter referred to as "Underwriting Manager")
on behalf of
TRENWICK AMERICA REINSURANCE CORPORATION
(hereinafter referred to as the "Retrocedant")
It is hereby mutually understood and agreed that the following changes are made
to this Agreement effective October 1, 1998:
Article VIII - PROFIT COMMISSION
Annually, the Retrocessionaire(s) will pay the Retrocedant Profit
Commission equal to thirty (30%) of the profits accruing on business ceded under
this Agreement. Computation of the Profit Commission shall be on an Underwriting
Year basis. Each Underwriting Year shall encompass all transactions relating to
reinsurance ceded under this Agreement during the period.
The first calculation of a Profit Commission shall be made following
September 30, 1999, for the Underwriting Year ending that date. Calculation of
the Profit Commission shall be made following September 30th of each
Underwriting Year that this Agreement remains in effect until each Underwriting
Year is fully developed.
<PAGE> 14
The profits, for each Underwriting Year to which the 30% Profit Commission
will apply, shall be equal to the excess of A over B where:
(A) INCOME is equal to the sum of:
1. Gross Written Premium during the Underwriting Year; and
2. Unearned premium reserve at beginning of period; and
3. A reserve for incurred, but not reported, loss development at
beginning of period; and
4. A reserve for outstanding losses at beginning of period; and
5. Recoveries from any excess of loss protection contracts that may
be arranged by the Underwriting Manager to protect the
Retrocedant; and
6. Investment Income on the average amount of reserve funds held by
the Retrocessionaire(s) during the current Underwriting Year,
valued as of the date of distribution, based on the monthly
prime interest rate during the subject period published in The
Wall Street Journal less one-half percent.
(B) OUTGO is equal to the sum of:
1. All losses and loss expenses paid less salvages applicable to
the Underwriting Years; and
2. Outstanding Loss Reserve at the close of the Underwriting Year;
and
3. Loss Development Reserve at the close of the Underwriting Year;
and
4. Acquisition Cost (Commission and Brokerage Earned); and
5. Unearned Premium Reserve for the current Underwriting Year; and
6. An allowance of up to 2% for all business for Retrocedant's
Expense.
7. An allowance of seven and one half (7 1/2%) of the Gross Written
Premium for Underwriting Managers Fee.
8. An allowance of 3/4 of 1% of Gross Written Premium for
Retrocessionaires Expense.
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<PAGE> 15
In the event of an underwriting loss on the total results of any one
Underwriting Year, the amount of such loss shall be debited to the profit
commission statement for the ensuing Underwriting Year. Should a debit balance
still remain, such balance shall be reduced by 50% and debited against further
Underwriting Year(s), but not exceeding three years in all, and no profit
commission shall be considered as earned under this Agreement until a credit
balance is restored. The first calculation of profit commission under this
Agreement shall be made as of September 30, 1999 and shall apply to all business
transacted from the inception of this Agreement. Subsequent calculations and
recalculations of each year's profit commission shall be made as of the last day
of each Underwriting Year. In this Agreement, no further calculation of profit
commission shall be made until all liability has been terminated and all claims
settled.
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<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
signed, in duplicate, by their duly authorized representatives.
THE SUBSCRIBING RETROCESSIONAIRE(S)
Signed in
this day of 19 .
UNUM LIFE INSURANCE COMPANY
BY: _______________________________________
TITLE: ____________________________________
AND
THE RETROCEDANT
Signed in
this day of 19 .
By DUNCANSON & HOLT, INC.
On Behalf of:
TRENWICK AMERICA REINSURANCE CORPORATION
(Retrocedant)
BY: _______________________________________
TITLE: ____________________________________
4
<PAGE> 17
EXHIBIT I
of the
SPECIAL ACCIDENT REINSURANCE FACILITY
QUOTA SHARE REINSURANCE RETROCESSION
between
UNUM LIFE INSURANCE COMPANY
and
TRENWICK AMERICA REINSURANCE CORPORATION
Business Covered: Occupational Accident Insurance and
Reinsurance
100% Authorized Limits $10,000,000 Per Life
$10,000,000 Per Occurrence
<PAGE> 1
Exhibit 10.30
RETROCESSION AGREEMENT
PERSONAL ACCIDENT &
OCCUPATIONAL ACCIDENT
QUOTA SHARE REINSURANCE AGREEMENT
BETWEEN
TRENWICK AMERICA REINSURANCE CORPORATION
(hereinafter referred to as the "Company")
AND
THE MEMBERS OF THE
AMERICAN ACCIDENT REINSURANCE GROUP
(hereinafter referred to as the "Retrocessionaires")
<PAGE> 2
WHEREAS, TRENWICK AMERICA REINSURANCE CORPORATION ("Company") is the issuing
Company for the American Accident Reinsurance Group under a Participation and
Management Agreement between the Company and the manager of the American
Accident Reinsurance Group, DUNCANSON & HOLT (the "Contract Operator"); and
WHEREAS, the Company desires to retrocede a portion of their liability as the
issuing Company in such Personal Accident and Occupational Accident reinsurance
business produced, underwritten and administered by the Contract Operator; and
WHEREAS, the RETROCESSIONAIRES, as members of the American Accident Reinsurance
Group, desire to reinsure the Company in those amounts designated as their
participation percentage in Schedule "A" of the Participation and Management
Agreement; and
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the
Company, the Retrocessionaires, and the Contract Operator agree as follows:
ARTICLE I - INSURING CLAUSE
The Company agrees to cede and the Retrocessionaires agree to accept
automatically, on an obligatory basis, 100% of the Company's Personal Accident
and Occupational Accident Treaty reinsurance business which is produced,
underwritten, bound and administered by the Contract Operator. The terms,
conditions, and limitations of this Agreement and the Participation and
Management Agreement shall determine the rights and obligations of the parties.
The Participation and Management Agreement is incorporated herein by reference
and binding upon the Retrocessionaires as if they were the Company to the extent
of their participation percentage described in Schedule "A" of such Agreement.
The Contract Operator agrees to furnish the Retrocessionaires with any material
changes in the Participation and Management Agreement.
ARTICLE II - SCOPE OF AGREEMENT
This Agreement is solely between the Company and the Retrocessionaires.
Performance of the respective obligations of each party under this Agreement
shall be rendered solely to the other parties. However, in the instance of the
insolvency of the Company, the liability of the Retrocessionaires shall be
modified to the extent set forth in Article X entitled, "Insolvency." In no
instance shall any Reinsured of the Company or any claimant against a Reinsured
of the Company have any rights under this Agreement.
ARTICLE III - GENERAL CONDITIONS, DEFINITIONS, AND INTERPRETATIONS
a. Personal Accident and Occupational Accident reinsurance business - The
term "business" shall have the meaning
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<PAGE> 3
described in Article II of the Participation and Management Agreement.
The term "policy(ies)" shall mean the contracts, both treaty and
facultative, of the Company affording reinsurance with respect to such
business.
b. Reinsured - The term "Reinsured" shall mean original ceding client of
the Company.
c. Errors and Omissions - The Retrocessionaires shall not be relieved of
liability by reason of an error or omission by the Company or the
Contract Operator in reporting any claim or loss on any business
reinsured under this Agreement, provided the Company or Contract
Operator attempts to rectify such error or omission after discovery.
d. Special Acceptance - Business which is beyond the terms, conditions or
limitations of this Agreement may be submitted to the Retrocessionaires
for special acceptance hereunder and such business, if accepted by the
Retrocessionaires, shall be subject to all of the terms, conditions and
limitations of this Agreement except as modified by the special
acceptance.
e. Contract Operator - It is understood and agreed that the business
subject hereunder is produced, underwritten, administered, and
otherwise managed by Duncanson & Holt on behalf of the Company and the
American Accident Reinsurance Group. It is further understood and
agreed that this Agreement has been entered into in contemplation of
the continuation of the Contract Operator performing the aforementioned
duties.
f. Participation and Management Agreement - The contract and any exhibits,
schedules, amendments and supplements thereto, entered into between the
Company and the Contract Operator dated as of December 1, 1996 for
reinsurance management services relating to the business reinsured by
the Company and retroceded to the Retrocessionaires.
ARTICLE IV - RETROCESSIONAIRES' LIABILITY
All reinsurance provided hereunder shall be subject to the same clauses, terms
and conditions, and endorsements as the Company's original reinsurance binders,
certificates, policies or contracts, including any amendments, modifications,
alterations and interpretations thereof, insofar as they relate to the business
underwritten, produced, bound and administered by the Contract Operator pursuant
to Article II, Section 3(a) and (b) of the Participation and Management
Agreement covered hereunder. Each Subscribing Retrocessionaire shall follow the
fortunes of the Company and shall be liable unconditionally for its quota share
participation percentage (stated in Schedule "A" of the Participation and
Management Agreement) of all claims, settlements, awards and loss adjustment
expenses including declaratory judgment expenses under the terms and conditions
or by way of compromise, including "ex gratia" payments, of business reinsured
during the period this Agreement remains in force, including amounts assessed
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<PAGE> 4
as extra-contractual damages against the Reinsured or the Company. The intent of
this Agreement is that it shall apply to each Retrocessionaire to the extent of
their proportion of liability as specified herein, and that each
Retrocessionaires' liability to the Company under this Agreement is several and
not joint.
ARTICLE V - REINSURANCE PREMIUM AND COMMISSION
The premium for the reinsurance provided hereunder shall be remitted by the
Contract Operator and divided among the Retrocessionaires in the same proportion
as their quota share participation percentage of the Company's liability less
the following allowances due the company:
1. a 1.5% override commission on the total premium ceded hereunder; and
2. the Retrocessionaires' quota share participation percentage of the: (i)
original brokerage commission paid by the Company; (ii)
governmental/regulatory assessments and surcharges; (iii) premium and
other governmental taxes; and (iv) all fees, commissions and expenses
charged by the Contract Operator.
ARTICLE VI - REPORTS AND REMITTANCES
Within sixty calendar days following completion of each quarter, the Contract
Operator shall render accounts to the Retrocessionaires and the Company showing
the gross participation of the Company, the identity of the Retrocessionaires
for gross written premiums, the name of the Reinsured, the payment period
corresponding with the premium collected by account (cash collected basis),
losses paid and outstanding, date of loss, loss expenses paid and outstanding,
salvage and subrogation, brokerage and override commissions. The Contract
Operator will pay to the Retrocessionaires sixty days after the close of each
quarter the net balance of the premium collected due the Retrocessionaires less
applicable ceding allowances and Retrocessionaires' portion of paid losses at
the same time the reports are rendered. Should there be a negative balance, the
Retrocessionaires will pay such balance within sixty days from receipt of the
report.
In addition, the Contract Operator shall furnish such other information as may
be required by the Company and Retrocessionaires for the completion of their
quarterly and annual statements and internal records. All reports shall be
rendered on forms mutually acceptable to the Company and the Retrocessionaires.
ARTICLE VII - CLAIMS PAYMENTS AND LOSS ADJUSTMENT EXPENSE
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<PAGE> 5
All payments of claims or losses by the Contract Operator under the terms and
conditions of the reinsurance Agreements(s) of the Company, or by way of
compromise, including ex gratia payments, shall be unconditionally binding on
the Retrocessionaires. The Retrocessionaires shall reimburse the Company through
the Contract Operator for the Retrocessionaires' portion of each payment in
settlement of claims or losses made by the Contract Operator together with the
Retrocessionaires' portion of the Company's loss adjustment expense payments, if
any, all as apportioned between the parties in accordance with their
participation percentage set forth in Schedule "A" of the Participation and
Management Agreement. However, in the instance of the insolvency of the Company,
the liability of the Retrocessionaires shall be modified to the extent set forth
in Article X entitled, "Insolvency." The Contract Operator shall investigate and
settle or defend all claims and losses.
Loss adjustment expense shall mean all expenses allocated by the Company, or the
Contract Operator, to an individual claim or loss, in connection with the
disposition of claims, losses or legal proceedings including investigation,
negotiation and legal expenses (including expenses associated with policy
coverage and declaratory judgment actions), court costs, and accrued interest.
The Retrocessionaires' liability for payments of claims or losses shall include
any extra contractual, consequential, punitive, statutory, compensatory or
exemplary damages awarded against the reinsured or the Company and legal
expenses incurred by the reinsured or the Company in defense of action taken in
connection therewith.
ARTICLE VIII - INSPECTION OF RECORDS
The Contract Operator shall allow the Retrocessionaires to inspect at all
reasonable times during normal business hours those records of the Contract
Operator relating to the business reinsured under this Agreement with respect to
claims or losses which involve or are likely to involve the Retrocessionaires.
ARTICLE IX - INSOLVENCY
In the event of the insolvency of the Company, this reinsurance shall be payable
directly to the Company, or its liquidator, receiver, conservator or statutory
successor on the basis of the liability of the Company without diminution
because of the insolvency of the Company or because the liquidator, receiver,
conservator or statutory successor of the Company has failed to pay all or a
portion of any claims. It is agreed, however, that the liquidator, receiver,
conservator or statutory successor of the Company shall give written notice to
the Retrocessionaires of the pendency of a claim against the Company indicating
the policy reinsured which claim would involve a possible liability on the part
of the Retrocessionaires within a reasonable time after such
5
<PAGE> 6
claim is filed in the conservation or liquidation proceeding or in the
receivership, and that during the pendency of such claim, the Retrocessionaires
may investigate such claim and interpose, at their own expense, in the
proceedings where such claim is to be adjudicated any defense or defenses that
they may deem available to the Company or its liquidator, receiver, conservator,
or statutory successor. The expense thus incurred by the Retrocessionaires shall
be chargeable, subject to the approval of the court, against the Company as part
of the expense of conservation or liquidation to the extent of a pro rata share
of the benefit which may accrue to the Company solely as a result of the defense
undertaken by the Retrocessionaires.
The reinsurance shall be payable by the Retrocessionaires to the Company or to
its liquidator, receiver, conservator or statutory successor, except as provided
by Section 4118(a) of the New York Insurance Law or except (a) where the
Agreement specifically provided another payee of such reinsurance in the event
of the insolvency of the Company, and (b) where the Retrocessionaires with the
consent of the direct reinsured or reinsureds have assumed such policy
obligations of the Company as direct obligations of the Retrocessionaires to the
payees under such policies and in substitution for the obligations of the
Company to such payees.
ARTICLE X - TERM AND CANCELLATION
This Agreement shall take effect for the twelve month period commencing 12:01
A.M. Eastern Standard Time on December 1, 1996 and shall remain in full force
and effect until December 31, 1997 and, thereafter, it shall be automatically
renewed for annual periods unless canceled as provided in this Agreement. This
Agreement may be cancelled effective 12:01 AM Eastern Standard Time on January
1, 1998 or any subsequent January 1st by either party giving to the other at
least one hundred fifty (150) days prior written notice by registered mail.
Unless otherwise agreed to by the parties hereto, in the event of termination,
reinsurance coverage under this Agreement shall remain in force and the
Retrocessionaires shall remain liable to the Company for all losses, including
losses with a date of loss after the termination dates on all covered business
in force at termination date. It is also agreed that the reinsurance with
respect to all covered business in force on the date of termination of this
Agreement shall continue until their natural expiration and/or any run-off. The
Retrocessionaires shall remain liable for their share of losses on such covered
business which commenced prior to the termination date of this Agreement.
In the event of cancellation by either of the parties, after a
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<PAGE> 7
period of sixty (60) months from the cancellation date, the future disposition
of the business reinsured under this Agreement will be determined by the
Company. If the Company elects to portfolio transfer the business reinsured
hereunder, the amount payable shall be a dollar for dollar transfer from the
Retrocessionaires to the Company in an amount which is equal to the sum of: (I)
100% of the outstanding loss reserves, including incurred but not reported
reserves and loss expense reserves, and (ii) unearned premium reserves net of
acquisition costs. The amount payable upon a portfolio transfer shall be
determined as of the termination date of the Agreement and the valuation of all
liabilities surrendered shall be jointly determined by the Company and the
Retrocessionaire and shall be binding on all parties.
ARTICLE XI - SERVICE OF SUIT
In the event of the failure of a Retrocessionaire to pay any amount claimed to
be due hereunder, that Retrocessionaire, at the request of the Company, will
submit to the jurisdiction of any court of competent jurisdiction within the
United States of America and will comply with all requirements necessary to give
such court jurisdiction and all matter arising hereunder shall be determined in
accordance with the law and practice of such court.
It is further agreed that service of process in such suit may be made upon the
Contract Manager or the corporate secretary of any United States parent,
affiliate or subsidiary companies of the Retrocessionaires (hereinafter, "agent
for service of process"), and in suit instituted against a Retrocessionaire upon
this Agreement, that Retrocessionaire will abide by the final decision of such
court or of any appellate court in the event of an appeal. Service of suit upon
the Contract Manager shall be deemed service on all Retrocessionaires named as
parties in such suit.
The above-named are authorized and directed to accept service of process on
behalf of the Retrocessionaire in any such suit and upon the request of the
Company to give a written undertaking to the Company that the agent for service
of process will enter a general appearance on behalf of the Retrocessionaire in
the event such a suit shall be instituted.
Further, pursuant to any statute of any state, territory or district of the
United State of America which make provision therefore, Retrocessionaires hereby
designate the Superintendent, Commissioner or Director of Insurance or other
officers specified for that purpose in the statute or his successor or
successors in office, as their true and lawful attorney upon whom may be served
any lawful process in any action, suit or proceeding instituted by or on behalf
of the Company or any beneficiary hereunder arising out of this Agreement and
hereby designate the agent for service of
7
<PAGE> 8
process as the firm to whom the said officer is authorized to mail such process
or a true copy thereof.
ARTICLE XII - LOSS RESERVES
It is agreed that when the Company files with the Insurance Department or
establishes reserves for claims covered hereunder, as required by law, the
Contract Operator will forward to the Retrocessionaires a statement showing the
proportion of such loss reserves which is applicable to Retrocessionaires. The
Retrocessionaires hereby agree to comply with any and all terms or conditions
required by governmental or other regulatory authorities necessary for the
company to take annual statement reserve credit, including but not limited to
furnishing security in such form as required and as acceptable to applicable
governmental or other regulatory authorities including but not limited to cash
or a clean irrevocable Letter of Credit delivered to the Company issued by any
bank acceptable to the governmental or other regulatory authority having
jurisdiction over the Company's loss reserves in an amount equal to
Retrocessionaires' proportion of the loss reserves. The Company agrees to use
and apply any amounts which it may draw upon such security for the following
purposes only:
a. To pay the Retrocessionaires' share or to reimburse the Company for the
Retrocessionaires' share of any liability under this Agreement.
b. To make refund of any sum which is in excess of the actual amount
required to pay Retrocessionaires' share of any liability reinsured by
this Agreement.
The designated bank shall have no responsibility whatsoever in connection with
the propriety of withdrawals made by the Company or the disposition of funds
withdrawn, except to see that withdrawals are made only upon the order of
properly authorized representatives of the Company.
ARTICLE XIII - CURRENCY
All payments made hereunder or pursuant to the Participation and Management
Agreement shall be paid in U.S. Dollars.
ARTICLE XIV - ARBITRATION
If any dispute shall arise between the Reinsurer and the Retrocessionaire with
reference to the interpretation of this Agreement or their rights with respect
to any transaction involved, the dispute shall be referred to three arbitrators,
one to be chosen by each party and the third by the two so chosen. If either
party refuses or neglects to appoint an arbitrator within thirty days after the
receipt of written notice from the other party
8
<PAGE> 9
requesting it to do so, the requesting party may nominate two arbitrators, who
shall choose the third. In the event that the two arbitrators are unable to
agree upon the third arbitrator, each of them shall name three, of whom the
other declines two, and the decision shall be made by drawing lots. Each party
shall submit its case to the arbitrators within thirty days of the appointment
of the arbitrators. The arbitrators shall be active or retired disinterested
officers of insurance or reinsurance companies domiciled in the United States.
The arbitrators shall consider this Agreement an honorable engagement rather
than merely a legal obligation. They are relieved of all judicial formalities
and may abstain from following the strict rules of law. However, the arbitrators
shall have no authority to consider claims for or to award punitive or exemplary
damages. The decision of a majority of the arbitrators in writing shall be final
and binding on both the Reinsurer and the Retrocessionaire. The expense of the
arbitrators and of the arbitration shall be equally divided between the
Reinsurer and the Retrocessionaire. Any such arbitration shall take place in New
York, New York unless some other location is mutually agreed upon by the
Reinsurer, the Retrocessionaire, and the arbitrators.
ARTICLE XV - GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of
the State of New York.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed on the
date listed below.
DUNCANSON & HOLT, INC. TRENWICK AMERICA REINSURANCE
(American Accident CORPORATION
Reinsurance Group)
By:________________________ By:___________________________
Mary Buono Paul Feldsher
Title:_____________________ Title:________________________
Senior Vice President Executive Vice President
Date:______________________ Date:_________________________
Place:_____________________ Place:________________________
9
<PAGE> 1
\ EXHIBIT 12.0
TRENWICK GROUP INC.
COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Earnings:
Net income $34,792 $35,252 $33,848 $29,841 $20,282
Extraordinary loss on debt redemption,
net of $558 income tax benefit -- 1,037 -- -- --
Income taxes 8,245 11,241 9,980 8,572 2,753
------- ------- ------- ------- -------
Income before income taxes and
extraordinary item 43,037 47,530 43,828 38,413 23,035
Fixed charges (as below) 14,492 10,140 6,826 6,805 6,785
------- ------- ------- ------- -------
Earnings (for ratio calculation) $57,529 $57,670 $50,654 $45,218 $29,820
======= ======= ======= ======= =======
Fixed charges:
Interest expense $ 3,954 $ 894 $ 6,503 $ 6,496 $ 6,469
Minority interest 9,702 8,920 -- -- --
Portion of rental expense which
approximates the interest factor 836 326 323 309 316
------- ------- ------- ------- -------
Total fixed charges $14,492 $10,140 $ 6,826 $ 6,805 $ 6,785
======= ======= ======= ======= =======
Ratio of earnings to fixed charges 4.0 5.7 7.4 6.6 4.4
======= ======= ======= ======= =======
</TABLE>
For purposes of computing the consolidated ratio of earnings to fixed charges,
"earnings" represent income before income taxes and extraordinary item and fixed
charges. "Fixed charges" include gross interest expense (other than on
deposits), minority interest and the proportion deemed representative of the
interest factor of rent expense.
<PAGE> 1
EXHIBIT 13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Trenwick Group Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income and comprehensive income, of changes in
stockholders' equity and cash flows present fairly, in all material respects,
the financial position of Trenwick Group Inc. and its subsidiaries at December
31, 1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 3, 1999
- 1 -
<PAGE> 2
TRENWICK GROUP INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1997
----------- -----------
(dollars in thousands)
<S> <C> <C>
Assets
Securities available for sale at fair value:
Debt securities (amortized cost: $867,552 and $788,727) $ 893,020 $ 812,314
Equity securities (cost: $44,342 and $31,603) 49,188 39,163
Cash and cash equivalents 63,003 12,847
----------- -----------
Total investments and cash 1,005,211 864,324
Accrued investment income 15,974 10,969
Receivables from ceding insurers 138,550 88,668
Reinsurance recoverable balances, net 140,173 67,593
Prepaid reinsurance premiums 22,632 10,804
Deferred policy acquisition costs 35,261 22,524
Net deferred income taxes 14,101 12,451
Other assets 20,359 8,623
----------- -----------
Total assets $ 1,392,261 $ 1,085,956
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Unpaid claims and claims expenses $ 682,428 $ 518,387
Unearned premium income 152,051 87,020
6.70% senior notes due 2003 75,000 --
Other liabilities 24,753 12,900
----------- -----------
Total liabilities 934,232 618,307
----------- -----------
Company-obligated mandatorily redeemable preferred
capital securities of subsidiary trust holding solely junior
subordinated debentures of Trenwick Group Inc. 110,000 110,000
----------- -----------
Common stockholders' equity:
Common stock, $.10 par value, 30,000,000 shares
authorized; 11,051,394 and 11,951,060 shares outstanding 1,105 1,195
Additional paid-in capital 124,180 153,714
Deferred compensation under stock award plan (2,905) (723)
Retained earnings 206,312 183,218
Accumulated other comprehensive income 19,337 20,245
----------- -----------
Total common stockholders' equity 348,029 357,649
----------- -----------
Total liabilities and stockholders' equity $ 1,392,261 $ 1,085,956
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
- 2 -
<PAGE> 3
TRENWICK GROUP INC.
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1998 1997 1996
---- ---- ----
(in thousands except per share data)
<S> <C> <C> <C>
Revenues:
Net premiums earned $ 245,561 $ 190,156 $ 211,069
Net investment income 56,316 48,402 41,226
Net realized investment gains 9,016 2,304 299
Other income 421 10 --
--------- --------- ---------
Total revenues 311,314 240,872 252,594
--------- --------- ---------
Expenses:
Claims and claims expenses incurred 153,135 109,554 129,316
Policy acquisition costs 74,197 58,549 58,757
Underwriting expenses 23,828 15,425 14,190
General and administrative expenses 3,461 -- --
Interest expense 3,954 894 6,503
Minority interest in subsidiary trust 9,702 8,920 --
--------- --------- ---------
Total expenses 268,277 193,342 208,766
--------- --------- ---------
Income before income taxes and
extraordinary item 43,037 47,530 43,828
Income taxes 8,245 11,241 9,980
--------- --------- ---------
Income before extraordinary item 34,792 36,289 33,848
Extraordinary loss on debt redemption,
net of $558 income tax benefit -- (1,037) --
--------- --------- ---------
Net income $ 34,792 $ 35,252 $ 33,848
========= ========= =========
BASIC EARNINGS PER SHARE:
Income before extraordinary item $ 2.99 $ 3.12 $ 3.40
========= ========= =========
Net income $ 2.99 $ 3.03 $ 3.40
========= ========= =========
DILUTED EARNINGS PER SHARE:
Income before extraordinary item $ 2.95 $ 3.01 $ 2.85
========= ========= =========
Net income $ 2.95 $ 3.01 $ 2.85
========= ========= =========
COMPREHENSIVE INCOME:
Net income $ 34,792 $ 35,252 $ 33,848
Other comprehensive income (loss):
Unrealized investment gains (losses) 8,183 15,316 (8,252)
Realized investment gains included in (9,016) (2,304) (299)
net income
Foreign currency translation adjustment (553) -- --
Income taxes applicable to other
comprehensive income 478 (4,556) 2,994
--------- --------- ---------
Total other comprehensive income (loss) (908) 8,456 (5,557)
--------- --------- ---------
Comprehensive income $ 33,884 $ 43,708 $ 28,291
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
- 3 -
<PAGE> 4
TRENWICK GROUP INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1998 1997 1996
---- ---- ----
(dollars in thousands except per share data)
<S> <C> <C> <C>
Common stockholders' equity, beginning of year $ 357,649 $ 265,753 $ 240,776
Common stock, $.10 par value, and additional
paid-in capital:
Exercise of employer stock options
(122,195, 76,750 and 221,028 shares) 1,536 956 4,001
Restricted common stock awarded
(82,889, 9,782 and 15,030 shares) 2,952 327 507
Restricted common stock awards cancelled
(2,133 and 3,150 shares) -- (42) (91)
Income tax benefits from additional
compensation deductions allowable
for income tax purposes 1,321 626 1,467
Conversion of debentures (1,783,926 shares) -- 57,780 --
Common stock purchased and retired
(1,104,750, 5,091 and 30,699 shares) (35,433) (171) (1,031)
Deferred compensation under stock award plan:
Restricted common stock awarded (2,952) (327) (507)
Restricted common stock awards cancelled -- 42 91
Compensation expense recognized 770 543 534
Retained earnings:
Net income 34,792 35,252 33,848
Cash dividends ($1.00, $.97 and $.83 per share) (11,698) (11,546) (8,285)
Accumulated other comprehensive income:
Other comprehensive income (loss) (908) 8,456 (5,557)
--------- --------- ---------
Common stockholders' equity, end of year $ 348,029 $ 357,649 $ 265,753
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
- 4 -
<PAGE> 5
TRENWICK GROUP INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1998 1997 1996
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Premiums collected $ 242,620 $ 149,351 $ 171,017
Ceded premiums paid (53,643) (10,026) (6,254)
Claims and claims expenses paid (184,386) (117,916) (102,759)
Claims and claims expenses recovered 25,815 2,841 34,156
Underwriting expenses paid (27,378) (13,753) (12,765)
--------- --------- ---------
Cash provided by underwriting activities 3,028 10,497 83,395
Net investment income received 59,443 50,469 42,654
Other income received 91 -- --
General and administrative expense paid (3,461) -- --
Interest expense and subsidiary trust dividends paid (12,276) (5,364) (6,190)
Income taxes paid (8,956) (8,592) (9,381)
--------- --------- ---------
Cash provided by operating activities 37,869 47,010 110,478
--------- --------- ---------
Cash flows for investing activities:
Purchases of debt securities (537,787) (203,554) (177,611)
Sales of debt securities 116,895 33,980 22,460
Maturities of debt securities 445,800 78,770 62,983
Purchases of equity securities (11,538) (12,967) (12,529)
Sales of equity securities 15,088 5,009 7,638
Acquisition of subsidiary, net of cash acquired (39,799) -- --
Additions to premises and equipment (4,596) (227) (611)
--------- --------- ---------
Cash used for investing activities (15,937) (98,989) (97,670)
--------- --------- ---------
Cash flows for financing activities:
Issuance of senior notes 75,000 -- --
Issuance of mandatorily redeemable preferred
capital securities -- 110,000 --
Issuance costs of senior notes and capital securities (922) (1,669) --
Redemption of convertible debentures -- (46,997) --
Issuance of common stock 1,536 956 4,001
Repurchase of common stock (34,880) (171) (1,031)
Dividends paid (11,698) (11,546) (8,285)
--------- --------- ---------
Cash provided by (used for) financing activities 29,036 50,573 (5,315)
--------- --------- ---------
Effect of exchange rate on cash (812) -- --
--------- --------- ---------
Change in cash and cash equivalents 50,156 (1,406) 7,493
Cash and cash equivalents, beginning of year 12,847 14,253 6,760
--------- --------- ---------
Cash and cash equivalents, end of year $ 63,003 $ 12,847 $ 14,253
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
- 5 -
<PAGE> 6
TRENWICK GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION
ORGANIZATION
AND SUMMARY Trenwick Group Inc. (Trenwick or the Company) is a
OF SIGNIFICANT holding company whose principal subsidiaries,
ACCOUNTING Trenwick America Reinsurance Corporation (Trenwick
POLICIES America Re) and Trenwick International Limited
(Trenwick International), underwrite reinsurance and
specialty insurance.
Trenwick America Re located in Stamford, Connecticut,
reinsures property and casualty risks primarily
written by U.S. insurance companies. Trenwick America
Re underwrites treaty reinsurance, which accounts for
the bulk of its business, as well as facultative
reinsurance. Trenwick America Re is domiciled in
Connecticut and is licensed, authorized or approved
to write reinsurance in all 50 states and the
District of Columbia.
Trenwick International, headquartered in London,
England, underwrites specialty insurance and
reinsurance of risks primarily located outside the
U.S. Trenwick International's business principally
consists of insurance and facultative reinsurance of
specialty classes. Trenwick International also
underwrites property and casualty treaty reinsurance.
A branch office in Paris specializes in facultative
reinsurance of large, technically complex property
risks. Trenwick International is domiciled in England
and is authorized to write insurance in over 30
countries and participates in the London market for
worldwide reinsurance.
BASIS OF PRESENTATION
The accompanying consolidated financial statements
have been prepared in conformity with generally
accepted accounting principles (GAAP), which require
management 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 following is a summary of
significant accounting policies.
INVESTMENTS AND CASH EQUIVALENTS
Trenwick has classified all of its debt and equity
securities as "available for sale" and reported them
at fair value with net unrealized gains and losses
included in other comprehensive income, net of
related deferred income taxes. The fair value of debt
securities and equity securities is estimated using
quoted market prices or broker dealer quotes. Cash
equivalents represent investments with maturities at
date of purchase of three months or less and are
carried at cost which approximates fair value.
Realized gains or losses on disposition of
investments are determined on the basis of the
specific identification method. Investment income
consisting of dividends and interest, net of
investment expenses, is recognized in income when
earned. The amortization of premiums and accretion of
discount for debt securities is computed utilizing
the interest method. The effective yield utilized
- 6 -
<PAGE> 7
in the interest method is adjusted when sufficient
information exists to estimate the probability and
timing of prepayments on mortgage-backed and
asset-backed securities. The net investment in the
security is adjusted to the amount that would have
existed had the new effective yield been applied
since the acquisition of the security and that
adjustment is included in net investment income.
REVENUES
Insurance premiums are earned on a pro rata basis
over the related contract period. Unearned premium
income represents the portion of premiums applicable
to the unexpired portion of premium coverage with
renewal dates later than year end. Premiums on
contracts are accrued on an estimated basis
throughout the term of such contracts. These
estimates may change in the near term.
POLICY ACQUISITION COSTS
Policy acquisition costs are stated net of policy
acquisition costs ceded and primarily consist of
commissions and brokerage expenses incurred at policy
or contract issue date. These costs vary with, and
are primarily related to, the acquisition of business
and are deferred and amortized over the period in
which the related premiums are earned. Deferred
policy acquisition costs are reviewed periodically to
determine that they do not exceed recoverable amounts
after allowing for anticipated investment income.
RESERVE FOR UNPAID CLAIMS AND CLAIMS EXPENSES
Claims are recorded as incurred so as to match such
costs with premiums over the contract periods. The
amount provided for unpaid claims consists of any
unpaid reported claims and estimates for incurred but
not reported claims, net of salvage and subrogation.
The estimates for claims incurred but not reported
were developed based on Trenwick's historical claims
experience and an actuarial evaluation of expected
claims experience. Insurance liabilities are based on
estimates and the ultimate liability may vary from
such estimates. Any adjustments to these estimates
are reflected in income when known.
INCOME TAXES
Income taxes are provided based on income reported in
the financial statements. Deferred income taxes are
provided based on an asset and liability approach
which requires the recognition of deferred income tax
assets and liabilities for the expected future tax
consequences of temporary differences between the
financial statement carrying amounts and the tax
bases of assets and liabilities.
STOCK-BASED COMPENSATION
Trenwick grants stock options for a fixed number of
common shares to employees and non- employee
directors with an exercise price equal to the market
value of the shares at the date of grant. The
accounting standard, "Accounting for Stock-Based
Compensation", supersedes the previous opinion and
establishes a fair value based method of accounting
for stock-based
- 7 -
<PAGE> 8
compensation plans. However, it permits an entity to
continue to apply the accounting provisions of the
previous opinion and make pro forma disclosures of
net income and earnings per share, as if the fair
market value based method had been applied. Trenwick
continues to account for the stock option grants in
accordance with the previous opinion and has included
the pro forma disclosures required by the fair value
based method in Note 9.
EARNINGS PER SHARE
Effective December 31, 1997, Trenwick adopted the
accounting standard, "Earnings Per Share", which
specifies the computation, presentation and
disclosure requirements of earnings per share and
supersedes the previous standard. It requires a dual
presentation of basic and diluted earnings per share.
Basic earnings per share, which excludes the effect
of common stock equivalents, replaces primary
earnings per share. Diluted earnings per share, which
utilizes the average market price per share as
opposed to the greater of the average market price
per share or ending market price per share when
applying the treasury stock method in determining
common stock equivalents, replaces fully-diluted
earnings per share. All per share amounts prior to
1997 have been restated to comply with this standard.
PREMISES AND EQUIPMENT
Premises and equipment, including leasehold
improvements, are recorded at cost and are amortized
or depreciated using the straight-line method over
their useful lives. Accumulated amortization and
depreciation was $5,703,000 and $2,693,000 as of
December 31, 1998 and 1997, respectively.
ISSUANCE COSTS OF CAPITAL SECURITIES AND DEBT
The issuance costs of the capital securities and the
senior notes are being amortized over the term of the
related financial instrument using the interest
method. Accumulated amortization was $129,000 and
$5,000 as of December 31, 1998 and 1997,
respectively.
Debt issuance costs associated with the issuance of
convertible debentures were being amortized over the
term of the related debt using the interest method.
The unamortized costs applicable to debentures
converted to common stock were charged to
stockholders' equity at the time of conversion.
COMPREHENSIVE INCOME
As of January 1, 1998, Trenwick adopted the new
accounting standard, "Reporting Comprehensive
Income", which establishes standards for reporting
and presentation of comprehensive income and its
components. Comprehensive income comprises net income
and other comprehensive income. Other comprehensive
income consists of the change in the net unrealized
appreciation of investments and the change in foreign
currency translation adjustments, both net of income
taxes. Information for periods prior to 1998 is
presented on a basis consistent with the 1998
information.
- 8 -
<PAGE> 9
FOREIGN EXCHANGE
The assets and liabilities of foreign operations are
translated from the functional currency, the British
pound, at the rate of exchange in effect at the
balance sheet date. Revenues and expenses of foreign
operations are translated at the average exchange
rates during the year. The effect of the translation
adjustments for foreign operations, net of applicable
deferred income taxes, is recorded as a cumulative
translation adjustment in accumulated other
comprehensive income within stockholders' equity.
Investments denominated in foreign currencies are
translated into the British pound using the rate of
exchange at the balance sheet date and unrealized
gains and losses on translation, net of applicable
deferred income taxes, are recorded to other
comprehensive income. Foreign currency transaction
gains and losses are included in net income.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDING
ACTIVITIES
Trenwick expects to adopt the new accounting standard
"Accounting for Derivative Instruments and heding
Activities", which requires all derivatives to be
recognized on the balance sheet at fair value.
Trenwick does not anticipate that the adoption of
this standard will have a significant effect on its
results of operations or financial position.
RECLASSIFICATIONS
Certain items in the financial statements have been
reclassified to conform with the 1998 presentation.
NOTE 2 On February 27, 1998, Trenwick completed the
ACQUISITION acquisition of Trenwick International, formerly
OF TRENWICK Sorema (UK) Limited, from Sorema S.A. for an
INTERNATIONAL aggregate purchase price of $60,843,000 including
acquisition costs. On March 31, 1998, the investment
in Trenwick International was increased by
$67,408,000 to approximately $128,000,000. The
acquisition has been accounted for using the purchase
method of accounting, and accordingly, the purchase
price has been allocated to the assets purchased and
the liabilities assumed based on the estimated fair
values at the date of acquisition. The excess of the
purchase price over the estimated fair value of the
net assets of approximately $1,638,000 has been
recorded as goodwill, which is being amortized on a
straight line basis over 25 years. Amortization of
goodwill was $33,000 for the year ended December 31,
1998. All assets and liabilities of Trenwick
International are consolidated in the balance sheet
at December 31, 1998 and its operating results for
ten months ended December 31, 1998 are consolidated
in Trenwick's results for the year ended December 31,
1998.
- 9 -
<PAGE> 10
The following unaudited proforma consolidated results of operations for the
years ended December 31 assumes the acquisition had occurred on January 1 of
each year:
<TABLE>
<CAPTION>
(in thousands, except per share data) 1998 1997
----------- -----------
<S> <C> <C>
Net premiums earned $ 256,090 $ 249,270
Total revenues 323,730 307,362
Income before extraordinary item 34,678 40,898
Net income 34,678 39,861
Basic earnings per share
Income before extraordinary item $ 2.97 $ 3.51
Net income $ 2.97 $ 3.42
Diluted earnings per share
Income before extraordinary item $ 2.94 $ 3.38
Net income $ 2.94 $ 3.38
</TABLE>
The above unaudited proforma financial information is not necessarily indicative
either of the results of operations that would have occurred had this
transaction been consummated at the beginning of the periods presented or of
future operations.
- 10 -
<PAGE> 11
NOTE 3 The following tables reconcile amortized cost to the
INVESTMENTS estimated fair value of debt and equity securities:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(in thousands)
U.S. Treasury securities
and obligations of
U.S. government
corporations and agencies $ 64,831 $ 3,851 $ (14) $ 68,668
Obligations of states and
political subdivisions 380,593 13,544 (120) 394,017
Mortgage-backed and
asset-backed securities 206,790 8,648 (3,322) 212,116
Debt securities issued by
British government 45,949 587 -- 46,536
Debt securities issued by other
foreign governments 8,163 78 -- 8,241
Public utilities 2,864 222 -- 3,086
Corporate securities 55,364 2,011 (65) 57,310
Redeemable preferred stock 2,000 48 -- 2,048
Certificates of deposit 100,998 -- -- 100,998
-------- -------- -------- --------
Total debt securities $867,552 $ 28,989 $ (3,521) $893,020
======== ======== ======== ========
Equity securities $ 44,342 $ 6,514 $ (1,668) $ 49,188
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(in thousands)
U.S. Treasury securities
and obligations of
U.S. government
corporations and agencies $ 62,418 $ 2,396 $ -- $ 64,814
Obligations of states and
political subdivisions 373,867 11,022 (35) 384,854
Mortgage-backed and
asset-backed securities 278,271 7,994 (37) 286,228
Debt securities issued by
foreign governments 3,111 64 -- 3,175
Public utilities 2,832 138 -- 2,970
Corporate securities 66,108 2,030 -- 68,138
Redeemable preferred stock 2,000 15 -- 2,015
Certificates of deposit 120 -- -- 120
-------- -------- -------- --------
Total debt securities $788,727 $ 23,659 $ (72) $812,314
======== ======== ======== ========
Equity securities $ 31,603 $ 7,560 $ -- $ 39,163
======== ======== ======== ========
</TABLE>
- 11 -
<PAGE> 12
The fair value and amortized cost of debt securities at December 31, 1998 are
shown below by contractual or expected maturity periods. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without penalty. The maturities for
mortgage-backed and asset-backed securities are calculated using expected
maturity dates, adjusted for anticipated prepayments.
<TABLE>
<CAPTION>
FAIR AMORTIZED
(in thousands) VALUE COST
-------- --------
<S> <C> <C>
Due in one year or less $146,008 $145,390
Due after one year through five years 417,662 406,249
Due after five years through ten years 207,440 197,655
Due after ten years 121,910 118,258
-------- --------
Total debt securities $893,020 $867,552
======== ========
</TABLE>
NET INVESTMENT INCOME AND NET REALIZED INVESTMENT GAINS
During the twelve months ended December 31, 1998, all investments were income
producing.
The sources of net investment income for the years ended December 31 are as
follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Debt securities $ 53,752 $ 47,400 $ 41,332
Equity securities 1,744 1,257 393
Cash and cash equivalents 2,470 1,228 719
-------- -------- --------
Gross investment income 57,966 49,885 42,444
Investment expenses (1,650) (1,483) (1,218)
-------- -------- --------
Net investment income $ 56,316 $ 48,402 $ 41,226
======== ======== ========
</TABLE>
Net realized gains (losses) on sales of investments are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Debt securities:
Gross realized gains $ 2,250 $ 151 $ 137
Gross realized losses (201) (146) (1)
Equity securities:
Gross realized gains 7,012 2,299 862
Gross realized losses (45) -- (699)
------- ------- -------
Net realized investment gains $ 9,016 $ 2,304 $ 299
======= ======= =======
</TABLE>
- 12 -
<PAGE> 13
NET UNREALIZED APPRECIATION OF INVESTMENTS AVAILABLE FOR SALE
The components of the net unrealized appreciation of investments available for
sale at December 31 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
-------- --------
<S> <C> <C>
Net unrealized appreciation of debt securities $ 25,468 $ 23,587
Net unrealized appreciation of equity securities 4,846 7,560
-------- --------
Net unrealized appreciation of investments 30,314 31,147
Deferred income taxes (10,622) (10,902)
-------- --------
Net unrealized appreciation
of investments available for sale,
net of income taxes $ 19,692 $ 20,245
======== ========
</TABLE>
INVESTMENTS AND CASH HELD AS COLLATERAL OR ON DEPOSIT
Debt securities with a carrying value of $103,961,000 are being held in trust as
collateral for certain reinsurance obligations. In addition, investments with a
carrying value of $8,714,000 at December 31, 1998 were on deposit with various
state or governmental insurance departments in order to comply with insurance
laws. Cash in the amount of $1,967,000 is also being pledged as a letter of
credit for reinsurance obligations.
- 13 -
<PAGE> 14
NOTE 4 The following table presents an analysis of gross and
UNPAID net unpaid claims and claims expenses and a
CLAIMS AND reconciliation of beginning and ending net unpaid
CLAIMS claims and claims expense balances. The gross unpaid
EXPENSES claims and claims expense balances at December 31,
1998 and 1997 are reflected in Trenwick's
consolidated balance sheet. The net unpaid claims and
claims expense balances are stated on a net basis
after deductions for reinsurance recoverable on
unpaid claims and claims expenses from
retrocessionaires.
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Unpaid claims and claims expenses, beginning of year $ 518,387 $ 467,177 $ 411,874
--------- --------- ---------
Provision for claims and claims expenses:
For claims incurred in the current year 243,670 175,133 161,061
For claims incurred prior to the current year (8,588) (4,098) (3,669)
--------- --------- ---------
Subtotal 235,082 171,035 157,392
--------- --------- ---------
Unpaid claims and claims expenses of Trenwick
International at date of acquisition 116,646 -- --
--------- --------- ---------
Payment for claims and claims expenses:
For claims incurred in the current year (46,835) (22,914) (22,603)
For claims incurred prior to the current year (141,578) (96,911) (79,486)
--------- --------- ---------
Subtotal (188,413) (119,825) (102,089)
--------- --------- ---------
Effect of exchange rate changes on unpaid claims
and claims expenses 726 -- --
Unpaid claims and claims expenses, end of year $ 682,428 $ 518,387 $ 467,177
========= ========= =========
Unpaid claims and claims expenses, net of
reinsurance recoverable, beginning of year $ 379,351 $ 386,887 $ 327,001
--------- --------- ---------
Provision for claims and claims expenses,
net of reinsurance recoverable:
For claims incurred in the current year 165,691 114,920 133,755
For claims incurred prior to the current year (12,556) (5,366) (4,439)
--------- --------- ---------
Subtotal 153,135 109,554 129,316
--------- --------- ---------
Unpaid claims and claims expenses, net of
reinsurance recoverable, of Trenwick International
at date of acquisition 81,299 -- --
--------- --------- ---------
Payments for claims and claims expenses, net of
reinsurance:
For claims incurred in the current year (42,883) (22,893) (22,570)
For claims incurred prior to the current year (122,145) (94,197) (46,860)
--------- --------- ---------
Subtotal (165,028) (117,090) (69,430)
--------- --------- ---------
Effect of exchange rate changes on unpaid claims
and claims expenses 507 -- --
--------- --------- ---------
Unpaid claims and claims expenses, net of
reinsurance recoverable, end of year $ 449,264 $ 379,351 $ 386,887
========= ========= =========
Reinsurance recoverable on unpaid claims and claims
expenses, end of year $ 233,164 $ 139,036 $ 80,290
========= ========= =========
</TABLE>
- 14 -
<PAGE> 15
In 1998, 1997 and 1996, Trenwick recorded decreases of
$12,556,000, $5,366,000 and $4,439,000, respectively, in
estimates for claims occurring in prior accident years. The
reduction in 1998 is due to favorable development of prior
year reserves in both Trenwick America and Trenwick
International. In 1998, 1997 and 1996, Trenwick America
Re's estimates of prior accident year claims were reduced
by approximately $7,175,000, $5,366,00 and $4,439,000,
respectively. Trenwick America Re's reduction in 1998 is
primarily due to favorable development in accident years
1993 and prior, partially offset by adverse development in
accident years 1994 through 1997. In 1998, estimates of
Trenwick International's prior year claims were reduced by
$5,381,000 as a result of favorable development across all
prior years.
In 1996, Trenwick commuted an aggregate excess of loss
retrocessional agreement covering the years 1989 through
1993 for which Trenwick received a total consideration of
$29,700,000 representing outstanding reserves of
approximately the same amount. The commutation was recorded
in 1996 as a paid loss recovery.
Inflation raises the cost of economic losses and
non-economic damages covered by insurance contracts and
therefore is a factor in determining effective rates of
reinsurance. The methods used by Trenwick to estimate
individual case reserves and reserves for claims incurred
but not yet reported implicitly incorporate the effects of
inflation in the projection of ultimate losses.
Due to the inherent uncertainties of estimating insurance
company claim reserves, actual claims and claims expenses
may deviate, perhaps substantially, from estimates of
Trenwick's reserves reflected in Trenwick's consolidated
financial statements. Trenwick's management believes that
its claim reserve methods are reasonable and prudent and
that Trenwick's reserve for claims and claims expenses at
December 31, 1998 are adequate.
NOTE 5 Trenwick America Re's exposure to environmental claims,
REINSURANCE including asbestos and pollution liability, is primarily
associated with its participation in business written by
its predecessor company between 1978 and 1983. Exposure to
environmental claims on Trenwick America Re's business
written since 1983 is generally limited by exclusions on
its own reinsurance contracts and also by exclusions on
policies issued by ceding companies. Casualty business
written in 1983 and prior is not material to Trenwick's
overall book of business. As of December 31, 1998, claims
for environmental liability including IBNR were
approximately $8,400,000, less than 2% of Trenwick America
Re's total net outstanding reserves. Trenwick International
has no known exposure to environmental claims.
Under Trenwick's current interpretation of policy language,
management does not believe that it has a material exposure
to environmental claims that requires additional reserves
beyond its current estimates.
Trenwick purchases reinsurance to reduce its exposure to
catastrophe losses and the frequency of large losses in all
lines of business. Reinsurance agreements provide for
recovery of a portion of certain claims and claims expenses
from reinsurers. Trenwick remains liable in the event that
the reinsurer is unable to meet its obligation, however,
Trenwick holds partial collateral under these agreements.
- 15 -
<PAGE> 16
The effects of reinsurance on premiums written and premiums earned for the three
years ended December 31 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Direct premiums written $ 60,510 $ -- $ --
Assumed premiums written 262,854 248,662 247,358
Ceded premiums written (73,145) (53,432) (20,994)
--------- --------- ---------
Net premiums written $ 250,219 $ 195,230 $ 226,364
========= ========= =========
Direct premiums earned $ 54,605 $ -- $ --
Assumed premiums earned 269,093 233,090 231,960
Ceded premiums earned (78,137) (42,934) (20,891)
--------- --------- ---------
Net premiums earned $ 245,561 $ 190,156 $ 211,069
========= ========= =========
</TABLE>
The company recorded ceded claims and claims expenses incurred of $81,955,000,
$60,789,000 and $27,503,000 for the years ended December 31, 1998, 1997 and
1996, respectively.
The components of reinsurance recoverable balances, net on the balance sheet at
December 31 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
--------- ---------
<S> <C> <C>
Paid claims $ 17,098 $ 1,267
Unpaid claims and claims expenses 233,164 139,036
Funds held liability (86,614) (60,967)
Reinsurance balances payable (23,475) (11,743)
--------- ---------
Reinsurance recoverable balances, net $ 140,173 $ 67,593
========= =========
</TABLE>
Letters of credit, trust accounts and funds withheld in the aggregate of amount
of $91,154,000 (including interest) have been arranged in favor of Trenwick
collateralizing reinsurance recoverables with respect to certain
retrocessionaires.
At December 31, 1998, approximately 79% of Trenwick's reinsurance recoverables
on unpaid claims and claims expenses are recoverable from four principal
retrocessionaires. These retrocessionaires are Zurich Reinsurance, Continental
Casualty Company, Sorema S.A. and Unum Life Insurance Company of America which
had reinsurance recoverable balances of $108,939,000, $33,521,000, $20,859,000
and $21,680,000, respectively at December 31, 1998. Such companies are rated A
or better by A.M. Best Company.
For the years ended December 31, 1998, 1997 and 1996, Trenwick earned
commissions on cessions to retrocessionaires of $10,495,000, $4,503,000 and
$1,235,000, respectively.
- 16 -
<PAGE> 17
NOTE 6 Income taxes were established on a consolidated basis for
INCOME TAXES all domestic and international operations of Trenwick. In
1997, the income tax provision includes an income tax
benefit of $558,000 applicable to an extraordinary loss on
debt redemption. The components of the provision for income
taxes for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current expense:
Federal $ 4,392 $ 7,197 $ 13,572
Foreign 2,324 -- --
State 200 262 61
-------- -------- --------
Total current expense $ 6,916 $ 7,459 $ 13,633
-------- -------- --------
Deferred expense (benefit):
Federal $ 1,110 $ 3,224 $ (3,653)
Foreign 219 -- --
-------- -------- --------
Total deferred expense (benefit) 1,329 3,224 (3,653)
-------- -------- --------
Total income taxes $ 8,245 $ 10,683 $ 9,980
======== ======== ========
</TABLE>
Trenwick's effective income tax rates were 19% for the year ended December 31,
1998 and 23% for the years ended December 31, 1997 and 1996. The income tax
provision for each of the years presented differs from the amounts determined by
applying the applicable U.S. statutory federal income tax rate of 35% to income
before income taxes as a result of the following:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Income before income taxes $ 43,037 $ 45,935 $ 43,828
======== ======== ========
Income taxes at statutory rate $ 15,063 $ 16,077 $ 15,340
Effect of tax-exempt investment income (5,654) (5,757) (5,286)
Other, net (1,164) 363 (74)
-------- -------- --------
Income tax provision $ 8,245 $ 10,683 $ 9,980
======== ======== ========
</TABLE>
The components of the net deferred income tax provision for the years ended
December 31 are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Discounting of unpaid claims $ 1,883 $ 2,782 $(4,541)
Unearned premium income 373 (355) (1,071)
Employee stock option and compensation
plans 87 319 (230)
Policy acquisition costs deferred 526 251 1,778
Alternative minimum taxes (1,390) 10 (10)
Accretion of market discount on
debt securities 71 315 518
Other, net (221) (98) (97)
------- ------- -------
Total deferred income tax provision $ 1,329 $ 3,224 $(3,653)
======= ======= =======
</TABLE>
- 17 -
<PAGE> 18
Deferred income tax assets (liabilities) are attributable to the following
temporary differences as of December 31:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
-------- --------
<S> <C> <C>
DEFERRED INCOME TAX ASSET
Discounting of unpaid claims $ 27,152 $ 26,455
Unearned premium income 6,862 5,335
Employee stock option and
compensation plans 651 738
Alternative minimum taxes 1,390 --
Currency translation adjustments 197 --
Other 632 34
-------- --------
Gross deferred income tax assets 36,884 32,562
-------- --------
DEFERRED INCOME TAX LIABILITY
Policy acquisition costs deferred (10,716) (7,883)
Unrealized appreciation of
investments available for sale (10,622) (10,902)
Accretion of market discount on debt
securities (1,282) (1,211)
Other (163) (115)
-------- --------
Gross deferred income tax liabilities (22,783) (20,111)
-------- --------
Net deferred income tax assets $ 14,101 $ 12,451
======== ========
</TABLE>
Trenwick's management has concluded that the deferred income tax assets are more
likely than not to be realized. Therefore, no valuation allowance has been
provided. Estimates used in the development of the net deferred income tax
assets may change in the near term.
- 18 -
<PAGE> 19
NOTE 7 LINES OF CREDIT
LONG TERM DEBT AND
COMMITMENTS Trenwick's international subsidiary has established a
line of credit under which it can borrow up to $1,660,000
at a rate of 2-1/2% above the lending bank's base rate.
This line of credit is available in the event that funds
are required to supplement short-term working capital.
There were no material borrowings under this line of
credit during 1998.
SENIOR NOTES
On March 27, 1998 Trenwick completed a private offering
of $75,000,000 aggregate principal amount of its 6.70%
senior notes due April 1, 2003. Interest is payable
semi-annually on April 1 and October 1 of each year,
which commenced on October 1, 1998. The notes are not
subject to redemption prior to maturity. They are
unsecured obligations and will rank senior in right of
payment to all existing and future subordinated
indebtedness of Trenwick, including Trenwick's
obligations with respect to its 8.82% junior subordinated
debentures held by Trenwick Capital Trust I in respect of
the $110,000,000 8.82% subordinated capital income
securities issued by the Trust. Under the terms of the
notes, Trenwick is not restricted from incurring
indebtedness, but is subject to limits on its ability to
incur secured indebtedness for borrowed money.
A portion of the net proceeds of the offering were
contributed to Trenwick International to support its
insurance and reinsurance operations, including
increasing its statutory capital to support the
anticipated increase in its underwriting capacity.
Remaining net proceeds were used primarily for
repurchases of its own common stock.
MANDATORILY REDEEMABLE PREFERRED CAPITAL SECURITIES
On January 28, 1997, Trenwick completed a private
offering of $110,000,000 in 8.82% Subordinated Capital
Income Securities through Trenwick Capital Trust I, a
Delaware statutory business trust. Trenwick owns all of
the common securities of the trust. Concurrently with the
issuance of the capital securities, the trust invested
the proceeds of 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
semiannually 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,
- 19 -
<PAGE> 20
contemporaneously with the optional prepayment of the
junior subordinated debentures, at a redemption price
equal to the principal amount plus accrued and unpaid
interest and possible additional sums. Upon the
occurrence and continuation of an event of default with
respect to the junior subordinated debentures, the
capital securities shall have a preference over the
common securities. Upon the occurrence of an event of
default with respect to the junior subordinated
debentures which is attributable to Trenwick's failure to
make required payments or 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 subsequently exchanged for fully registered capital
securities, which are not subject to restrictions on
transfer.
CONVERTIBLE DEBENTURES
On February 20, 1997, Trenwick called for redemption all
$103,500,000 aggregate principal amount of Trenwick's 6%
convertible debentures due December 15, 1999, 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 Trenwick's common stock.
As a result of the redemption, Trenwick recorded an
extraordinary loss of $1,037,000, net of a tax benefit of
$558,000 in 1997.
OPERATING LEASE AGREEMENTS
Trenwick leases office space under non-cancelable
operating leases which expire at various dates through
2015. Trenwick's minimum lease commitments totaling
$24,637,000 are as follows: 1999 - $2,450,000; 2000 -
$2,381,000; 2001 - $2,360,000; 2002 - $2,297,000; 2003 -
$2,099,000; thereafter $13,050,000.
Total office rent expense for the years ended December
31, 1998, 1997 and 1996 was $2,042,000, $917,000 and
$918,000, respectively.
- 20 -
<PAGE> 21
NOTE 8 PREFERRED STOCK
STOCKHOLDERS'
EQUITY Trenwick has 2,000,000 shares of $.10 par value preferred
stock authorized and none outstanding.
COMMON STOCK
On September 28, 1998, Trenwick's Board of Directors
approved an additional 600,000 shares to its stock
repurchase program to a total of 1,600,000 shares. The
program was originally adopted on May 21, 1997. As of
December 31, 1998, 1,100,500 shares have been repurchased
at an average price of $32.06 per share.
STOCKHOLDER RIGHTS PLAN
During 1997, Trenwick adopted a new stockholder rights
plan, replacing the plan adopted in 1989, and redeemed
the rights issued under the 1989 plan. Stockholders of
record at the close of business on September 24, 1997
received $0.01 for each redeemed right (equivalent to
$0.00667 per share) and received one new right for each
share of common stock held. The rights are exercisable
only if a person or group acquires beneficial ownership
of 15% or more of Trenwick's common stock or commences a
tender or exchange offer upon consummation of which such
person or group would beneficially own 15% or more of
Trenwick's common stock. Each right entitles a
stockholder to buy 1/200 of a share of Trenwick's Series
B Junior Participating Preferred Stock at an exercise
price of $125, subject to adjustment. Trenwick has
reserved 200,000 shares of such preferred stock for
possible issuance under the plan.
In the event that an acquirer accumulates 15% or more of
Trenwick's common stock, all rights holders except the
acquirer may purchase, for the exercise price, in lieu of
the Series B Junior Participating Preferred Stock, shares
of common stock of Trenwick having a market value of
twice the exercise price of each right. If Trenwick is
acquired in a merger or other business combination after
the acquisition of 15% of Trenwick's common stock, all
rights holders except the acquirer may purchase the
acquirer's shares at a similar discount. Trenwick is
entitled to redeem the rights at $0.01 per right, subject
to certain restrictions. The rights will expire on
September 23, 2007.
- 21 -
<PAGE> 22
NOTE 9 RETIREMENT PLANS
EMPLOYEE
BENEFITS AND Trenwick has a pension plan and a 401(k) savings plan for
COMPENSATION substantially all U.S. full-time employees. Trenwick
ARRANGEMENTS contributes 8% of an eligible employee's total
compensation to the pension; no employee contributions are
made to the plan. Trenwick matches 100% of employees'
contributions to the savings plan up to 6% of each
eligible employee's total compensation. Assets of both
plans are administered by life insurance companies.
Trenwick's contributions to the pension plan were
$463,000, $503,000 and $432,000 for 1998, 1997 and 1996,
respectively; its contributions to the savings plan were
$351,000, $330,000 and $314,000 for 1998, 1997 and 1996,
respectively.
Trenwick also maintains a money purchase defined
contribution pension plan covering substantially all U.K.
employees. Contributions under this plan are determined on
the basis of salary and age. Trenwick's contribution to
this plan in 1998 was $997,000.
STOCK OPTIONS
Trenwick has several plans through which it makes options
in common stock available to Trenwick employees at the
discretion of the Board of Directors. Non-employee
directors receive automatic grants under a separate plan.
Exercise prices are generally fixed at the market value at
the date of grant. Options vest and are exercisable on
various terms, usually either over a five year period or
up to a ten year period. All options have an expiration
date not exceeding ten years. Total authorized common
stock reserved for issuance under all stock benefit plans
at December 31, 1998 is 1,772,262 shares. Transactions
under the stock option plans are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
NUMBER OF SHARES
Outstanding, beginning of year 911,195 981,195 1,137,528
Granted 124,210 8,250 81,750
Cancelled (6,000) (1,500) (17,055)
Exercised (122,195) (76,750) (221,028)
---------- ---------- ----------
Outstanding, end of year 907,210 911,195 981,195
========== ========== ==========
Exercisable, end of year 210,112 312,807 337,770
========== ========== ==========
AVERAGE EXERCISE PRICE
Granted $ 36.72 $ 32.88 $ 31.63
Cancelled 29.70 30.92 19.43
Exercised 12.57 12.46 18.10
Outstanding, end of year 29.07 25.82 24.73
Exercisable, end of year 27.87 21.81 18.79
</TABLE>
Included in the table above are options granted to certain
senior officers under the 1993 Stock Option Plan. The
exercise and vesting of these options are accelerated if
the price of Trenwick's common stock achieves certain
specified levels, subject to certain conditions.
- 22 -
<PAGE> 23
PRO FORMA INFORMATION
Trenwick applies the provisions of the previous opinion and related
interpretations in accounting for its stock-based compensation plans. Since
stock options under Trenwick's plans are issued at fair market value on the date
of grant, no compensation expense has been recognized for these stock options.
Had Trenwick applied the fair value based method, net income and net income per
share would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income
As reported $ 34,792 $ 35,252 $ 33,848
Pro forma $ 34,554 $ 35,056 $ 33,694
Basic earnings per share
As reported $ 2.99 $ 3.03 $ 3.40
Pro forma $ 2.96 $ 3.01 $ 3.38
</TABLE>
The pro forma adjustments relate to options granted from 1995 to 1998 for which
a fair value on the date of grant was determined using the Black-Scholes option
pricing model. No effect has been given to options granted prior to 1995.
Valuation and related assumption information are presented below:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Valuation Assumptions:
Expected volatility
Employees 23% -- 27%
Non-employee directors 28% 18% 16%
Risk-Free interest rate
Employees 5.6% -- 6.5%
Non-employee directors 5.2% 5.8% 5.7%
Dividend Yield 3.1% 2.6% 2.7%
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
Trenwick's stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its stock options.
RESTRICTED COMMON STOCK AWARDS
Trenwick awards restricted common stock to key employees, under the terms of the
1989 and 1993 Stock Plans. In 1998, 82,889 shares were awarded at an average
price of $35.61 per share (approximately $2,952,000), which vest over five
years. Shares awarded in 1997 vest over five years while shares awarded in 1996
vest over three to seven years. Shares were repurchased in 1998, 1997 and 1996
in
- 23 -
<PAGE> 24
connection with the satisfaction of employees'
withholding taxes payable upon the vesting of previously
awarded shares. During, 1998, 4,250 shares were
repurchased at an average price of $35.29 per share
(approximately $150,000). Trenwick has recognized
compensation expense of $770,000, $543,000 and $534,000
for 1998, 1997 and 1996, respectively, determined by the
award value of the shares amortized over the applicable
vesting period.
The components of accumulated other comprehensive income
at December 31 are as follows:
NOTE 10
COMPREHENSIVE
INCOME
<TABLE>
<CAPTION>
(in thousands) 1998 1997
-------- --------
<S> <C> <C>
Unrealized investment gains (losses) $ 39,330 $ 33,451
Realized Investment gains included
in net income (9,016) (2,304)
Foreign currency translation adjustment (552) --
Deferred income taxes (10,425) (10,902)
-------- --------
Accumulated other comprehensive income $ 19,337 $ 20,245
======== ========
</TABLE>
The income taxes applicable to each component of other
comprehensive income are as follows:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Unrealized investment gains (losses) $ 2,810 $(3,750) $ 3,099
Realized investment gains included
in net income (3,091) (806) (105)
Foreign currency translation adjustment (197) -- --
------- ------- -------
Income taxes applicable to other
comprehensive income $ 478 $(4,556) $ 2,994
======= ======= =======
</TABLE>
- 24 -
<PAGE> 25
NOTE 11 Statutory net income and surplus of Trenwick America Re as
INSURANCE filed with the insurance regulatory authorities, differs
REGULATION in certain respects from the amounts as determined in
accordance with GAAP. The following table identifies the
significant reconciling differences:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME
Statutory net income of
Trenwick America Re $ 40,930 $ 42,797 $ 29,555
Change in deferred policy acquisition costs (1,501) 719 5,080
Provision for deferred income taxes (2,463) (3,021) 3,307
Other -- -- (6)
--------- --------- ---------
GAAP net income of Trenwick America Re $ 36,966 $ 40,495 $ 37,936
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
RECONCILIATION OF SURPLUS
Statutory capital and surplus of
Trenwick America Re $ 330,496 $ 322,850 $ 286,284
Deferred policy acquisition costs 21,023 22,524 21,805
Unrealized appreciation
of investments 27,823 23,981 13,556
Net deferred income taxes 9,524 11,914 19,365
Unauthorized reinsurance 2,607 2,878 2,669
Non-admitted assets 182 210 208
--------- --------- ---------
GAAP stockholders' equity of
Trenwick America Re $ 391,655 $ 384,357 $ 343,887
========= ========= =========
</TABLE>
Trenwick America Re is domiciled in and subject to the
insurance laws and regulations of the state of
Connecticut. Effective January 1, 2001, the Connecticut
Insurance Department will adopt the Codification of
Statutory Accounting Principles. The Codification provides
guidance for areas where statutory accounting has been
silent and changes current statutory accounting in some
areas. Assuming Trenwick America Re had adopted the
Codification as of January 1, 1998, the effect of adoption
would have been an increase in statutory net income of
approximately $25,600,000 and a net increase to statutory
surplus of approximately $27,600,000 as a result of
recording a deferred tax benefit and a net deferred tax
asset.
Under the holding company structure, Trenwick is dependent
upon the ability of its operating subsidiaries, Trenwick
America Re and Trenwick International, for the transfer of
funds principally in the form of cash dividends and tax
reimbursements.
The statutory limitation on dividends which can be paid
within any preceding twelve months, without prior approval
of the Connecticut Insurance Commissioner, applicable to
Trenwick America Re, is the greater of 10% of policyholder
surplus at December 31 of the preceding year or 100% of
net income for the twelve month period ending December 31
of the preceding year, but shall not include pro rata
distributions of any class of Trenwick America Re's own
securities both determined in accordance with statutory
accounting practices. The amount of dividends or other
distributions that could be paid by Trenwick America Re
without prior approval as of December 31, 1998 was
$40,930,000. During 1998, 1997 and 1996, Trenwick America
Re paid dividends of $30,100,000, $8,250,000 and
$4,100,000 respectively.
- 25 -
<PAGE> 26
Under the applicable laws of the United Kingdom, Trenwick
International may make shareholder distributions only from
accumulated realized profits, net of accumulated realized
losses. In addition, under the U.K. Insurance Companies
Act, Trenwick International is not permitted to make any
distribution that would reduce its net assets below the
required minimum margin of solvency which, as determined
under the United Kingdom Financial Services Authority's
rules, is approximately $11,451,000 as of December 31,
1998. The Company shall also notify the authority of any
proposal to declare or pay a dividend on any of its share
capital.
NOTE 12 A reconciliation of cash provided by operations for the
SUPPLEMENTAL three years ended December 31 is as follows:
CASH FLOWS
INFORMATION
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net income $ 34,792 $ 35,252 $ 33,848
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of premiums on
investments, net 4,219 2,557 1,579
Deferred income taxes 1,329 3,224 (3,653)
Net realized investment gains (9,016) (2,304) (299)
Depreciation expense 998 371 358
Amortization of debt issuance costs 124 32 295
Extraordinary loss on debt redemption -- 1,595 --
Other 908 558 542
Change in assets and liabilities, net of effects
from purchase of subsidiary:
Receivables from ceding insurers 2,543 (29,178) (13,710)
Deferred policy acquisition costs (679) (719) (5,080)
Other assets (1,270) (5,268) (340)
Unpaid claims and claims expenses,
net of reinsurance recoverable balances (3,638) 32,621 75,980
Unearned premium income, net of
prepaid reinsurance premiums 3,552 5,073 15,295
Other liabilities 4,007 3,196 5,663
--------- --------- ---------
Net cash provided by operating activities $ 37,869 $ 47,010 $ 110,478
========= ========= =========
</TABLE>
- 26 -
<PAGE> 27
NOTE 13 The fair value of a financial instrument is defined as the
FAIR VALUE OF amount at which the instrument could be exchanged in a
FINANCIAL current transaction between willing parties and requires
INSTRUMENTS disclosure of fair value information about financial
instruments for which it is practicable to estimate that
value. In the event that quoted market prices were not
available, fair values were based on estimates using
discounted cash flow or other valuation techniques. Those
techniques are significantly affected by the assumptions
used, including the discount rates and estimates of the
amount and timing of future cash flows. Accrued premiums
have estimated payment dates ranging from 1998 to 2003.
Premium payment dates are estimated using the anticipated
payout pattern of claims which result in the additional
premium due from ceding companies. The fair value is
estimated using cash flows discounted at an interest rate
of 5%. These fair value estimates may vary in the near
term. The following table presents in summary form the
carrying amounts and estimated fair values of Trenwick's
financial instruments at December 31:
<TABLE>
<CAPTION>
(in thousands) 1998 1997
------------------------ ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
ASSETS:
<S> <C> <C> <C> <C>
Debt securities $893,020 $893,020 $812,314 $812,314
Equity securities 49,188 49,188 39,163 39,163
Cash and cash equivalents 63,003 63,003 12,847 12,847
Accrued premiums 126,758 124,832 77,115 74,739
LIABILITIES:
Senior notes $ 75,000 $ 78,750 -- --
COMPANY-OBLIGATED
MANDATORILY REDEEMABLE
PREFERRED CAPITAL SECURITIES
OF SUBSIDIARY TRUST HOLDING
SOLELY JUNIOR SUBORDINATED
DEBENTURES OF TRENWICK GROUP INC $110,000 $110,150 $110,000 $112,160
</TABLE>
- 27 -
<PAGE> 28
NOTE 14 The following table sets forth the computation of basic
EARNINGS and diluted earnings per share:
PER SHARE
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
INCOME AVAILABLE TO COMMON STOCKHOLDERS:
Income before extraordinary item (basic) $34,792 $36,289 $33,848
Add interest on convertible debentures,
net of income taxes -- 578 4,228
------- ------- -------
Income before extraordinary item (diluted) $34,792 $36,867 $38,076
======= ======= =======
Net income (basic) $34,792 $35,252 $33,848
Add interest on convertible debentures and
loss on debt redemption, net of income taxes -- 1,615 4,228
------- ------- -------
Net income (diluted) $34,792 $36,867 $38,076
======= ======= =======
WEIGHTED AVERAGE SHARES OF COMMON
STOCK OUTSTANDING: 11,657 11,645 9,959
Weighted average shares outstanding (basic)
Weighted average shares issuable on exercise of
employee stock options, net of assumed
repurchases 122 173 192
Weighted average shares issuable on
conversion of debt -- 447 3,201
------- ------- -------
Weighted average shares outstanding (diluted) 11,779 12,265 13,352
======= ======= =======
Basic earnings per share:
Income before extraordinary item $ 2.99 $ 3.12 $ 3.40
======= ======= =======
Net income $ 2.99 $ 3.03 $ 3.40
======= ======= =======
Diluted earnings per share:
$ 2.95 $ 3.01 $ 2.85
Income before extraordinary item ===== ===== =====
Net income $ 2.95 $ 3.01 $ 2.85
======= ======= =======
</TABLE>
- 28 -
<PAGE> 29
NOTE 15 In 1998, Trenwick adopted Statement of Financial
SEGMENT Accounting Standard 131, "Disclosures about Segments of an
INFORMATION Enterprise and Related Information." This statement
requires reporting of information utilizing a management
approach. This approach designates the internal
organization that is used by management for making
operating decisions and assessing performance as the
source of the company's reportable segments. This
statement also requires disclosures about products and
services, geographic areas and major customers. The
adoption of this statement did not affect the results of
operations or financial position.
Trenwick has determined that its reportable segments are
those that are based on the company's method of internal
reporting, which desegregates its business by geographic
location. Trenwick has two reportable segments: (1)
domestic operations and (2) international operations. The
domestic operations provide treaty and facultative
reinsurance to insurers of property and casualty risks in
the United States. The international segment acquired in
February 1998, provides treaty and facultative reinsurance
as well as specialty insurance on a world-wide basis.
The following information presents the reported operating
income for Trenwick for the year ended December 31:
<TABLE>
<CAPTION>
(in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Net premiums earned Domestic $174,443 $190,156 $211,069
International 71,118 - -
-------- -------- --------
245,561 190,156 211,069
-------- -------- --------
Net investment income Domestic 44,490 43,692 40,215
International 10,614 - -
Unallocated 1,212 4,710 1,011
-------- -------- --------
56,316 48,402 41,226
-------- -------- --------
Net realized investment Domestic 6,444 2,304 299
gains International 1,794 - -
Unallocated 778 - -
-------- -------- --------
9,016 2,304 299
-------- -------- --------
Total revenues Domestic 225,457 236,162 251,583
International 83,961 - -
Unallocated 2,002 4,710 1,011
-------- -------- --------
311,420 240,872 252,594
-------- -------- --------
Underwriting profit (loss) Domestic (3,167) 6,628 8,806
International (2,432) - -
-------- -------- --------
(5,599) 6,628 8,806
-------- -------- --------
Interest expense and Domestic 6 - -
minority interest International 3,434 - -
Unallocated 10,216 9,814 6,503
--------- --------- ---------
13,656 9,814 6,503
--------- --------- ---------
</TABLE>
- 29 -
<PAGE> 30
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C> <C>
Income before income taxes Domestic 44,320 52,644 49,332
and extraordinary item International 6,977 - -
Unallocated (8,260) (5,114) (5,504)
---------- ---------- ---------
43,037 47,530 43,828
Income taxes Domestic 9,644 12,514 11,977
International 1,341 - -
Unallocated (2,740) (1,273) (1,997)
---------- ---------- ---------
8,245 11,241 9,980
Income before Domestic 34,676 40,130 37,355
extraordinary item International 5,636 - -
Unallocated (5,520) (3,841) (3,507)
---------- ---------- ---------
34,792 36,289 33,848
--------- --------- --------
Total investments Domestic 792,868 786,962
and cash International 211,599 -
Unallocated 744 77,362
----------- -----------
1,005,211 864,324
--------- ----------
Total assets Domestic 1,028,569 1,006,436
International 353,079 -
Unallocated 10,613 79,520
----------- -----------
1,392,261 1,085,956
----------- -----------
Unpaid claims and claim Domestic 621,498 605,407
expenses and unearned International 212,981 -
premium income ----------- --------------
834,479 605,407
----------- ---------
Total liabilities and Domestic 634,085 620,459
manditorily redeemable International 286,529 -
capital securities Unallocated 123,618 107,848
----------- -----------
1,044,232 728,307
----------- -----------
</TABLE>
Substantially all of the domestic segment's business is
produced by reinsurance brokers, while the international
segment's business is produced from a wide variety of
sources, including insurance and reinsurance brokers.
Trenwick obtained approximately 41%, 65% and 62% of its
gross written premiums from three brokers in 1998, 1997
and 1996, respectively. Trenwick's concentration of
business in the domestic market through a small number of
sources is consistent with the concentration of the
property and casualty broker reinsurance market, in which
a majority of the business is written through the top ten
largest brokers in the reinsurance industry. Loss of all
or a substantial portion of the business provided by
these brokers could have a material adverse effect on the
business and operations of Trenwick. Trenwick does not
believe, however, that the loss of such business would
have a long-term adverse effect because of Trenwick's
competitive position within the broker reinsurance market
and the availability of business from other brokers. In
1998, 1997 and 1996, Trenwick obtained approximately 16%,
12% and 10%; 11%, 11% and 10%, 15%, 12% and 10%,
respectively, of its gross written premiums from three
ceding companies. The domestic operations obtained
approximately 57% of its gross written premiums from
three brokers and 38% from three ceding companies in
1998. The international operations obtained approximately
27% of its gross written premiums from two brokers in
1998 and no one ceding company accounted for more than 3%
of its gross written premiums.
- 30 -
<PAGE> 31
NOTE 16 Summarized unaudited quarterly financial data is as
UNAUDITED follows:
QUARTERLY
FINANCIAL
DATA
<TABLE>
<CAPTION>
(in thousands except per share data) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C>
Quarter ended
Earned premiums December 31 $63,612 $45,414 $54,994
September 30 65,161 43,723 55,008
June 30 70,964 47,105 53,376
March 31 45,824 53,914 47,691
Net investment income December 31 14,639 12,372 10,840
September 30 14,317 12,178 10,332
June 30 14,976 12,123 10,185
March 31 12,384 11,729 9,869
Net realized investment December 31 7,572 388 281
gains (losses) September 30 184 - (21)
June 30 540 1 (11)
March 31 720 1,915 50
Income before December 31 11,329 9,122 8,819
extraordinary item September 30 5,243 8,773 8,520
June 30 8,975 8,593 8,327
March 31 9,245 9,801 8,182
Basic income before December 31 1.03 .77 .88
extraordinary item September 30 .45 .74 .85
per share June 30 .75 .72 .84
March 31 .78 .90 .83
Diluted income before December 31 1.02 .75 .74
extraordinary item September 30 .44 .73 .72
per share June 30 .74 .71 .70
March 31 .77 .81 .69
</TABLE>
Amounts for 1998 reflect the results of Trenwick
International, accounted for as a purchase, from February
27, 1998, the date of acquisition. In the quarter ended
March 31, 1997, Trenwick had an extraordinary loss on debt
redemption, net of $558,000 income tax benefit of
$1,037,000, or $0.09 per share (basic).
- 31 -
<PAGE> 32
NOTE 17 Between January 1, 1999 and March 31, 1999 Trenwick has
SUBSEQUENT purchased 478,500 shares, under its buyback plan, at an
EVENT average price of $29.48 per share. Trenwick has an
(UNAUDITED) authorization of 21,000 shares remaining under the plan.
- 32 -
<PAGE> 33
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INDUSTRY OVERVIEW
The U.S. property and casualty reinsurance industry has remained highly
competitive throughout 1998, across virtually all lines of business. A continued
oversupply of capital maintained downward pressure on insurance as well as
reinsurance pricing, causing some companies to report a reduction in domestic
premium writings as they withdrew from unprofitable business. During 1998, the
number of reinsurance companies also continued to decline, primarily as a result
of consolidation. Acquisitions by large foreign reinsurers occurred as they
increased their position in the U.S. market. The remaining companies are now
larger, offer significantly more capacity to ceding companies and have greater
access to capital through capital markets or their parent organizations. These
factors have resulted in the reinsurance industry experiencing its tenth year of
soft market conditions. As a consequence of these conditions, the overall
industry reported an increase in the combined ratio, reflecting a reduction in
underwriting profitability. Since reinsurance companies derive a significant
amount of income from their investment portfolios, the continued low interest
rates during 1998 also contributed to a decline in the overall growth in
earnings of the industry.
Since 1995, Trenwick has established itself as a participant in the top tier of
U.S. broker market reinsurers. Trenwick has achieved this position by raising
additional capital to augment its underwriting operations to take advantage of
market opportunities. In addition, Trenwick has implemented several strategic
initiatives which have enabled it to write new business during the current soft
market. These initiatives included the hiring of a team of senior underwriters
in 1995. Trenwick also initiated several strategic alliances as an entry into
lines of business not then written by the Company. Partners in these alliances
include PXRE Re, a leader in property catastrophe reinsurance, Transatlantic Re
(a subsidiary of American International Group), a leading reinsurer in
healthcare professional liability, and Duncanson & Holt (a wholly-owned
subsidiary of UNUM Corporation), the largest provider of accident and health
reinsurance in the United States. On February 27, 1998, the Company completed
the acquisition of Trenwick International Limited (formerly Sorema (UK)
Limited), a London market company which
1
<PAGE> 34
underwrites treaty and facultative reinsurance and specialty insurance on a
worldwide basis. This acquisition concluded the Company's plan to diversify its
products and broaden its sources of business outside of the U.S. Subsequent to
the acquisition, the Company increased the capital of Trenwick International
Limited by $67.4 million through the issuance of $75 million in senior notes.
The additional capital will support the subsidiary's expansion into new lines of
business and geographic markets previously limited by its former parent and will
enable it to increase its retention of business.
RESULTS OF OPERATIONS
Operating Results
Trenwick's net income was $34.8 million in 1998 or $2.99 per share compared to
$35.3 million or $3.03 per share in 1997 and $33.8 million or $3.40 per share in
1996. Included in Trenwick's net income for 1998 are Trenwick International's
operating results since its acquisition on February 27, 1998. Net income for
1998 also includes after-tax charges of $5.7 million or $.49 per share
associated with catastrophe losses, including Hurricanes Mitch and Georges.
There were no material catastrophe losses reflected in Trenwick's operating
results in 1997 or 1996. Net income for 1997 includes an after-tax extraordinary
loss of $1.0 million or $.09 per share, associated with the redemption of $45.8
million principal amount of its 6% convertible debentures. Also included in
Trenwick's net income were after-tax realized investment gains of $5.9 million
or $.50 per share, $1.5 million or $.13 per share and $.2 million or $.02 per
share in 1998, 1997 and 1996, respectively.
2
<PAGE> 35
Trenwick's operating income, excluding realized investment gains, for 1998 was
$28.9 million or $2.48 per share compared to $34.8 million or $2.99 per share in
1997 and $33.7 million or $3.38 per share in 1996.
Premiums
Trenwick's gross and net premium writings for its domestic and international
operations are as follows:
<TABLE>
<CAPTION>
Percentage Percentage
Increase/ Increase/
1998 (Decrease) 1997 (Decrease) 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
GROSS PREMIUMS WRITTEN
DOMESTIC
Casualty $201,070 (10%) $223,585 4% $214,630
Property 17,179 (32%) 25,077 (23%) 32,728
-------- -------- -------- -------- --------
Subtotal 218,249 (12%) 248,662 1% 247,358
INTERNATIONAL 105,114 -- -- -- --
-------- -------- -------- -------- --------
TOTAL $323,363 30% $248,662 1% $247,358
======== -------- ======== -------- ========
</TABLE>
<TABLE>
<CAPTION>
Percentage Percentage
Increase/ Increase/
1998 (Decrease) 1997 (Decrease) 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET PREMIUMS WRITTEN
DOMESTIC
Casualty $154,368 (11%) $172,946 (12%) $196,526
Property 14,744 (34%) 22,284 (25%) 29,838
-------- -------- -------- -------- --------
Subtotal 169,112 (13%) 195,230 (14%) 226,364
INTERNATIONAL 81,107 -- -- -- --
-------- -------- -------- -------- --------
TOTAL $250,219 28% $195,230 (14%) $226,364
======== -------- ======== -------- ========
</TABLE>
In 1998, Trenwick reported net premiums written of $250.2 million, a 28%
increase compared to 1997. This reflects the inclusion of Trenwick
International's business since its acquisition on February 27, 1998. Trenwick's
domestic net premiums written decreased 13% in 1998 over 1997 compared to a 14%
decrease in 1997 over 1996.
The decline in Trenwick's domestic premium volume in 1998 and 1997 is primarily
attributable to a decline in net casualty premium writings of 11%. This decline
reflects Trenwick America's withdrawal from accounts when pricing fell below
what it believed to be acceptable rate levels.
3
<PAGE> 36
The decline in net premiums written was magnified by Trenwick's decision to buy
increased reinsurance protection in both 1998 and 1997 at more favorable terms
than in prior years. Competition among primary companies also caused cedants to
reduce their own premium writings or restructure their reinsurance programs,
reducing the amount of reinsurance they purchase. As a result of consolidation
within the industry, many ceding companies are now larger and financially
stronger, enabling them to retain more risk. Trenwick's domestic net and gross
property business declined primarily as a result of PXRE Re's continued
conservative response to erosion in pricing in that segment of the reinsurance
business. Total gross property writings represented approximately 8% of total
gross domestic premiums for 1998 compared to 10% for 1997 and 13% in 1996.
Trenwick International reported net premiums of $81.1 million for the
post-acquisition period ended December 31, 1998. Trenwick International's net
premium writings for the full year 1998 were $100.8 million. While the
international business is also highly competitive, growth in this business is
expected primarily as the result of an increase in Trenwick International's
retention of business owing to a change in its reinsurance programs. Trenwick
International is also expanding into new geographic markets previously limited
by its former parent.
Underwriting Expenses
The combined ratio is one means of measuring the profitability of a property and
casualty reinsurance 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 its accumulated invested
assets. In 1998, Trenwick recorded an underwriting loss of $5.6 million compared
to an underwriting profit of $6.6 million and $8.8 million in 1997 and 1996,
respectively.
4
<PAGE> 37
The following table sets forth Trenwick's combined ratios and the components
thereof calculated on a GAAP basis for the periods indicated:
<TABLE>
<CAPTION>
1998 1997* 1996*
------------------------------------------ ----- -----
Group International Domestic
<S> <C> <C> <C> <C> <C>
Claims and claims expense ratio 62.4% 67.0% 60.5% 57.6% 61.3%
---- ---- ---- ---- ----
Expense ratio:
Policy acquisition expense ratio 30.2 22.3 33.4 30.8 27.8
Underwriting expense ratio 9.7 14.1 7.9 8.1 6.7
------ ------ ------ ---- ----
Total expense ratio 39.9 36.4 41.3 38.9 34.5
------ ------ ------ ---- ----
Combined ratio 102.3% 103.4% 101.8% 96.5% 95.8%
===== ===== ===== ==== ====
</TABLE>
* Prior to acquisition of Trenwick International
The most significant underwriting cost affecting a reinsurance company's
underwriting result is represented by its claims and claims expense ratio, which
is the ratio of incurred claims and claims adjustment expenses to net earned
premiums. The claims and claims expense ratio is a function of estimates of
claims associated with business written in the current period and changes in
estimates of claims on business written in prior periods.
As indicated in the preceding table, Trenwick's claims and claims expense ratio
increased from 57.6% in 1997 to 62.4% in 1998, due in part to the inclusion of
Trenwick International's underwriting results for the first time in 1998. Due to
the different types of business underwritten by Trenwick International,
underwriting results in that subsidiary reflect a higher claims and claims
expense ratio than Trenwick's domestic business. Included in the Group's 1998
claims and claims expense ratio are 3.5 percentage points associated with claims
arising from catastrophe losses, including Hurricanes Mitch and Georges. These
losses have been offset by favorable development in prior year reserves in both
operating companies. The improvement in Trenwick's claims and claims expense
ratio in 1997 compared to 1996 reflects the lack of any material adverse impact
from property catastrophe claims and favorable development of prior year
reserves for claims and claims expense. In 1998, 1997 and 1996, estimates of
prior accident year claims were reduced by approximately $12.6 million, $5.4
million and $4.4 million, respectively.
Trenwick's domestic claims and claims expense ratio was 60.5% in 1998 compared
to 57.6% in
5
<PAGE> 38
1997 and 61.3% in 1996. Claims arising from catastrophe losses in 1998 amounted
to $5.2 million, while there were no material catastrophe losses reflected in
1997 and 1996. In 1998, 1997 and 1996 estimates of prior accident year claims
were reduced by approximately $7.2 million, $5.4 million and $4.4 million,
respectively. The reduction in 1998 is primarily due to favorable development in
accident years 1993 and prior, partially offset by adverse development in
accident years 1994 through 1997.
Trenwick International's claims and claims expense ratio of 67.0% in 1998
includes $3.4 million associated with claims arising from catastrophe losses. In
1998, estimates of prior year's claims were reduced by $5.4 million as a result
of favorable development across all prior years.
Trenwick's expense ratio, which is the ratio of policy acquisition costs and
underwriting expenses to net earned premiums as determined in accordance with
GAAP, increased in 1998 to 39.9% as compared to 38.9% in 1997 and 34.5% in 1996.
The overall increase in the expense ratio resulted from an increase in costs
associated with Trenwick's domestic business. During 1998, insurance companies
continued to increase commissions on business ceded to reinsurers. The increase
associated with domestic business was partially offset by the inclusion of
Trenwick International's underwriting results which carry a lower expense ratio.
Trenwick's domestic expense ratio in 1998 was 41.3% compared to 38.9% in 1997.
Trenwick International's expense ratio was 36.4% in 1998. Policy acquisition
costs, which include brokerage and ceding commissions, vary directly with
premium volume and are subject to changes in the mix of business. Underwriting
expenses, which generally do not vary with premium volume, were approximately
$23.8 million, $15.4 million and $14.2 million in 1998, 1997 and 1996,
respectively. The underwriting expense ratio increased 1.6 percentage points in
1998 compared to 1997 primarily as a result of the inclusion of $10.0 million of
Trenwick International's underwriting expenses and a decrease in premium
writings associated with Trenwick America Re. While Trenwick International's
overall expense ratio is comparable to Trenwick's domestic subsidiaries
(Trenwick America), ratios associated with policy acquisition costs and
underwriting expenses vary. Due to the mix of business underwritten by Trenwick
International, primarily insurance business, its policy acquisition ratio is
lower, while its underwriting expense ratio is higher.
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Trenwick America Re's statutory combined ratios for 1998, 1997 and 1996 were
102.3%, 95.9% and 95.7%, respectively. Trenwick America Re's statutory combined
ratios were 2.2, 6.8 and 8.1 percentage points better, respectively, than the
weighted average statutory combined ratios for all reinsurance companies which
reported their results to the Reinsurance Association of America (RAA) in those
periods. The statutory combined ratios for this group of reinsurance companies
in 1998, 1997 and 1996 were 104.5%, 102.7% and 103.8%, respectively. The
statutory combined ratios as reported to the RAA by those companies, including
Trenwick America Re, which primarily accept business from brokers, for 1998,
1997 and 1996 were 106.2%, 104.6% and 107.6%, respectively.
INVESTMENT INCOME
Trenwick's net investment income was $56.3 million in 1998 compared to $48.4
million in 1997 and $41.2 million in 1996. The overall increase in investment
income in 1998 is due to the continued growth in Trenwick's invested asset base
resulting primarily from the acquisition of Trenwick International. Investment
income is expected to increase in 1999 as the Company's invested asset base
continues to grow.
Trenwick America's net investment income in 1998 of $45.7 million decreased 5.6%
compared to net investment income of $48.4 million in 1997. Net investment
income in 1997 increased 17% compared to net investment income of $41.2 million
in 1996. Pre-tax yields on invested assets, excluding equity securities, was
6.1% in 1998 compared to 6.4% in 1997 and 6.3% in 1996. This decline in 1998
resulted primarily from the reinvestment of approximately $73 million of
maturities at lower interest rates. The increase in the yield from 1996 to 1997
was due to the composition of the maturing securities. Maturities in 1997 of
approximately $79 million had lower yields than approximately $63 million of
maturities in 1996. In 1998, maturities included $32 million principal
repayments associated with Trenwick America's portfolio of structured and agency
pass-through securities compared to $31 million in 1997. As a result of the
decrease in interest rates during 1998, principal repayments are expected to
remain similar or increase marginally in 1999. The decrease in investment income
in 1998 is due to the decrease in Trenwick America's invested asset base
resulting also from the sales of approximately $88.1
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million of securities to fund the acquisition of Trenwick International Limited
and the repurchase of Trenwick's common stock. Investment income is expected to
increase in 1999 as Trenwick America's invested asset base grows. During 1998,
Trenwick America sold approximately $20.3 million of tax-exempt securities and
reinvested the proceeds primarily in tax-exempt securities with longer expected
lives in order to preserve the overall yield of the portfolio.
Trenwick International's net investment income in 1998 was $10.6 million.
Pre-tax yield on investment assets, excluding equity securities, was 6.7% in
1998. This yield reflects the relatively high interest rates available at the
short end of the market in which Trenwick International invests. Investment
income is expected to increase in 1999 as Trenwick International's invested
asset base continues to grow, although this increase is expected to be tempered
by a climate of lower interest rates. During 1998, Trenwick International sold
approximately $200 million of debt securities and reinvested the proceeds in
securities with shorter average maturities in order to take advantage of higher
interest rates and to recognize available gains.
YEAR 2000 ISSUE
The Year 2000 issue concerns the inability of information systems to properly
recognize and process date-sensitive information beyond January 1, 2000.
Trenwick began work on the Year 2000 issue in 1995. The scope of the project
included: assessment of systems and equipment affected; definition of strategies
to address affected systems and equipment; remediation of affected systems and
equipment and certification that each is Year 2000 compliant.
Trenwick's U.S. operations completed the modification and testing of its
internally developed software to be Year 2000 compliant during 1996. Trenwick
International Limited completed its modifications in 1998. Trenwick has received
certification from the majority of its externally developed software vendors
also indicating that their products are Year 2000 compliant. Based
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on this information the Company believes that its internal financial systems are
substantially compliant.
Due to the interdependent nature of systems and facilities, the Company may be
adversely impacted depending upon whether its vendors and business partners
address this issue successfully. Therefore, Trenwick is surveying its key
business partners and vendors in an attempt to determine their respective level
of Year 2000 compliance. Currently, the Company is not aware of any material
business vendor or partner that will not be Year 2000 compliant. Where
practicable, Trenwick intends to assess and attempt to mitigate its risks in the
event that these third parties fail to be Year 2000 compliant and is considering
appropriate contingency arrangements for such potential noncompliance by such
entities.
Trenwick has not developed contingency plans specifically related to the Year
2000 issue. Contingency plans currently contained in Trenwick's existing
disaster recovery plan and the expertise of its staff are expected to enable the
Company to take appropriate action to mitigate such risks. Depending on the
systems affected, these plans include accelerated replacement of affected
equipment or software, interim use of backup equipment and software, and
increased work hours for company personnel or use of contract personnel to
correct, on an accelerated schedule, any Year 2000 problems that arise or to
provide manual workarounds for information systems or similar approaches.
Trenwick intends to continue to assess the Year 2000 issue as it relates to its
internal systems and third parties and will consider developing contingency
plans at that time. If the Company is required to implement any of these
contingency plans, it could have a material adverse effect on the company's
financial condition and results of operations.
In addition, property and casualty reinsurance companies may have underwriting
exposure to the Year 2000. The Year 2000 issue is a risk for some of the
Company's insureds and reinsureds and is therefore considered during the
underwriting process similar to any other risk to which Trenwick's clients may
be exposed. While the Company continues to review these potential exposures, the
Company is unable to determine at this time whether the adverse impact, if any,
in connection with these exposures would be material to the Company.
Costs specifically associated with modifying internal use software for Year 2000
compliance are
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expensed as incurred. To date, the Company has spent approximately $.8 million
on this project. Such costs do not include normal system upgrades and
replacements. The Company does not expect the costs relating to Year 2000
software remediation to have a material effect on the results of operations or
financial condition.
INVESTMENTS
At December 31, 1998, Trenwick had investments and cash of $1.0 billion, an
increase of 16% compared to investments and cash of $864.3 million at December
31, 1997. This increase resulted principally from the acquisition of Trenwick
International. Financing cash flow included $75 million of net funds received in
March 1998 from Trenwick's issuance of 6.7% senior notes reduced by dividends
paid to stockholders and approximately $34.9 million used to repurchase common
stock. All debt and equity investments are classified as available for sale and
reported at fair value with the unrealized gain or loss, net of income taxes,
reported in other comprehensive income. Since December 31, 1997, the market
value of the Company's debt and equity investments decreased by $.8 million. In
1997, Trenwick's investments and cash increased by $110.1 million or
approximately 15% when compared to 1996. This increase resulted from cash
provided by both financing and operations. Financing cash flow included $61
million of net funds received in January 1997 from Trenwick's private offering
of $110 million in 8.82% Subordinated Capital Income Securities reduced by
dividends paid to stockholders. Proceeds were also used to redeem the Company's
convertible debentures.
The average maturity of Trenwick's debt securities at December 31, 1998 was 5.7
years compared to 6.2 years at December 31, 1997. This shortening reflects the
addition of Trenwick International's portfolio which has a much shorter average
maturity.
Trenwick has not invested in derivative financial instruments such as futures,
forward contacts, swaps, or options or other financial instruments with similar
characteristics such as interest rate caps or floors and fixed-rate loan
commitments. Trenwick's portfolio includes market sensitive instruments, such as
mortgage-backed and asset-backed securities, which are subject to prepayment
risk and changes in market value in connection with changes in interest rates.
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Trenwick's investments in mortgage-backed and asset-backed securities, which
amounted to approximately $212.1 million at December 31, 1998 or 21% of cash and
invested assets, are classified as available for sale and are not held for
trading purposes.
At December 31, 1998, Trenwick America had investments and cash of $793.6
million, a decrease of 8% compared to investments and cash of $864.3 million at
December 31, 1997. This decrease resulted principally from the use of
approximately $63.2 million to acquire Trenwick International combined with the
use of $34.9 million to repurchase Trenwick's own common stock. During 1998, the
proceeds from sales and maturities of taxable and tax-exempt securities of
$197.2 million, together with cash provided by financing and operations were
invested primarily in tax-exempt securities in the amount of $74.4 million.
Taxable securities were also purchased consisting of mortgage-backed securities
of $8.7 million, asset-backed securities of $2.3 million, U.S. government and
agency securities of $10.6 million and corporate bonds of $6.0 million. In 1998,
$4.0 million of equities were also purchased. Since December 31, 1997, the
market value of Trenwick America's debt and equity investments decreased by $.6
million. The average maturity of Trenwick America's debt securities at December
31, 1998 was 6.9 years compared to 6.2 years at December 31, 1997. Debt
securities were invested with an average maturity ranging between two to fifteen
years. During 1997, the proceeds from sales and maturities of taxable and
tax-exempt securities of $117.8 million, together with cash provided by
financing and operations were invested primarily in taxable securities
consisting of mortgage-backed securities of $72 million, asset-backed securities
of $33 million, U.S. government and agency securities of $28 million, and
corporate bonds of $30 million. In addition, $39 million of tax-exempt
securities were purchased along with $9 million of preferred stock and $6
million of equity securities.
At December 31, 1998, Trenwick International had investments and cash of $211.6
million. During 1998, cash of approximately $67 million was received by Trenwick
International from Trenwick Group Inc., increasing Trenwick International's
share capital to over $125 million. During 1998, the proceeds from sales and
maturities of debt securities of $372.7 million, together with cash provided by
financing and operations were invested entirely in taxable securities consisting
of government securities in U.K. sterling, U.S. dollar and other European
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currencies of $242.9 million and certificates of deposit of $192.9 million.
Since acquisition, the market value of Trenwick International's debt and equity
investments decreased by $.2 million. The average maturity of Trenwick
International's debt securities at December 31, 1998 was ten months.
LIQUIDITY AND CAPITAL RESOURCES
Trenwick is a holding company whose principal assets are its investments in the
common stock of Trenwick America Re and Trenwick International. As a holding
company, Trenwick's principal source of funds consists of permissible dividends
and tax allocation payments from Trenwick America Re and Trenwick International
together with income on the holding company's fixed-income portfolio. Trenwick's
principal uses of cash are dividends to its stockholders, servicing its debt
obligations and repurchases of its own common stock when the pricing is
attractive. Trenwick America Re and Trenwick International receive cash from
premiums, investment income and proceeds from sales and maturities of portfolio
investments. They utilize cash to pay claims, purchase their own reinsurance
protections, meet operating and capital expenses and purchase fixed-income and
equity securities.
In 1998, Trenwick completed a private offering of $75 million aggregate
principal amount of 6.70% senior notes due April 1, 2003. Interest is payable
semi-annually on April 1 and October 1 of each year, which commenced on October
1, 1998. The notes are not subject to redemption prior to maturity. They are
unsecured obligations and will rank senior in right of payment to all existing
and future subordinated indebtedness of Trenwick, including Trenwick's
obligations with respect to its 8.82% junior subordinated debentures held by
Trenwick Capital Trust I in respect of the $110 million 8.82% subordinated
capital income securities issued by the Trust. Under the terms of the notes,
Trenwick is not restricted from incurring indebtedness, but is subject to limits
on its ability to incur secured indebtedness for borrowed money. A portion of
the net proceeds of the offering were contributed to Trenwick International to
support its insurance and reinsurance operations, including increasing its
statutory capital to support the anticipated increase in its underwriting
capacity. Remaining net proceeds were used to repurchase Trenwick's own common
stock.
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Cash provided by operating activities of $38 million in 1998 decreased
approximately 19% as compared to $47 million in 1997 and decreased 57% as
compared to $110.5 million in 1996. The reduction in cash flow from operations
in 1998 was due primarily to a decline in premium writing associated with
Trenwick America, combined with an expected increase in paid loss activity. In
1996, Trenwick America commuted an aggregate excess of loss retrocessional
agreement covering the years 1989 through 1993 for which it received a total
consideration of $29.7 million representing outstanding reserves of
approximately the same amount. The commutation was recorded in 1996 as a paid
loss recovery. Trenwick expects that its cash provided by operating activities
will be sufficient to meet its operating and financing requirements in 1999 and
its longer term operating needs.
In 1998, cash provided by financing activities decreased to $29.0 million
compared to $50.6 million in 1997. Cash provided by financing activities
included proceeds from the issuance of $75 million principal amount of 6.7%
senior notes partially offset by repurchases of common stock of approximately
$34.9 million. Included in the same period last year was $110 million from the
issuance of the Subordinated Capital Income Securities, partially offset by the
redemption of convertible debt of approximately $47 million.
At December 31, 1998, Trenwick's investments and cash of $1 billion exceeded
total liabilities, including gross reserves for claims and claims expenses of
$682.4 million, by $71.0 million, compared to $246.0 million and $99.2 million
at December 31, 1997 and 1996, respectively. At December 31, 1998, 1997 and
1996, Trenwick's net book value amounted to $348.0 million, $357.6 million and
$265.8 million, respectively. Trenwick maintains a portion of its investment
portfolio in cash equivalents which are available in the event of unanticipated
changes in cash requirements. At December 31, 1998, Trenwick's investments
consisted principally of fixed-income securities, 91% of which are rated Aa or
better. Trenwick's general policy is to hold these securities to maturity.
However, there may be business reasons which would cause all or a portion of
these securities to be made available for sale prior to maturity. Therefore,
Trenwick records these investments at fair value, with market value fluctuations
reflected in stockholders' equity, net of income taxes (see Note 1 to
Consolidated Financial Statements).
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The ratio of net premiums written to surplus, the "surplus ratio", relates to
the amount of risk to which an insurer's or reinsurer's statutory capital is
exposed, as measured by the amount of premiums written in relation to such
surplus. Trenwick America Re's surplus ratios were 0.5:1 for 1998, 0.6:1 for
1997 and 0.8:1 for 1996. Accordingly, Trenwick has sufficient surplus capacity
to write additional business without significantly exceeding the industry
average. Property and casualty reinsurance companies in the U.S. currently have
a surplus ratio of approximately 0.6:1. Trenwick International's surplus ratio
for 1998 was 0.8:1. Trenwick America Re's statutory surplus was $330.5 million
as of December 31, 1998, compared to $322.9 million at December 31, 1997.
Trenwick International's statutory surplus was $131.9 million as of December 31,
1998.
Trenwick purchases reinsurance to reduce its exposure to catastrophe claims and
the frequency and severity of claims in all lines of business. In 1998, Trenwick
America Re's reinsurance treaties consisted principally of an excess of loss
treaty for its facultative casualty business and property catastrophe
reinsurance treaties. In addition, Trenwick America Re purchased an annual
aggregate excess of loss ratio treaty for casualty business effective January 1,
1998. These coverages were renewed effective January 1, 1999. Trenwick
International, as is customary with companies operating in the London market,
buys larger amounts of reinsurance to protect itself. Reinsurance and
retrocessional coverage is customized for each class of business
REGULATORY MATTERS
Trenwick and its domestic subsidiaries are subject to regulatory oversight under
the insurance statutes and regulations of the jurisdictions in which they
conduct business, including all states of the United States. Trenwick
International is subject to the regulatory authority of the United Kingdom
Financial Services Authority (FSA). These regulations vary from jurisdiction to
jurisdiction and are generally designed to protect ceding insurance companies
and policyholders by regulating the Company's financial integrity and solvency
in its business transactions and operations. Many of the insurance statutes and
regulations applicable to Trenwick's subsidiaries
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relate to reporting and enable regulators to closely monitor their performance.
Typical required reports include information concerning the Company's capital
structure, ownership, financial condition and general business operations.
The National Association of Insurance Commissioners (NAIC) has adopted
Risk-Based Capital (RBC) requirements for property and casualty insurance
companies to evaluate the adequacy of statutory capital and surplus in relation
to investment and insurance risks such as asset quality, asset and liability
matching, loss reserve adequacy and other business factors. The RBC formula is
used by state insurance regulators as an early warning tool to identify, for the
purpose of initiating regulatory action, insurance companies that potentially
are inadequately capitalized. In addition, the formula defines minimum capital
standards that supplement the system of low fixed minimum capital and surplus
requirements on a state-by-state basis. Regulatory compliance is determined by a
ratio of the enterprise's regulatory total adjusted capital to its authorized
control level RBC, as defined by the NAIC. Enterprises below specific trigger
points or ratios are classified within certain levels, each of which requires
specific corrective action. The ratios of Total Adjusted Capital to Authorized
Control Level RBC for Trenwick America Re exceeded all the RBC trigger points at
December 31, 1998, 1997 and 1996. Trenwick believes its capital will continue to
exceed these RBC capital and surplus requirements for the foreseeable future.
Trenwick America Re is domiciled in and subject to the insurance laws and
regulations of the State of Connecticut. Effective January 1, 2001, the
Connecticut Insurance Department will adopt the Codification of Statutory
Accounting Principles. The Codification provides guidance for areas where
statutory accounting has been silent and changes current statutory accounting in
some areas. Assuming Trenwick had adopted the Codification as of January 1,
1998, the effect of adoption would have been an increase in statutory net income
of approximately $25.6 million and a net increase to statutory surplus of
approximately $27.6 million as a result of recording a deferred tax benefit and
a net deferred tax asset.
Under the holding company structure, Trenwick is dependent upon the ability of
its operating subsidiaries, Trenwick America Re and Trenwick International to
transfer funds, principally in the form of cash dividends and tax
reimbursements. The statutory limitation on dividends which
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can be paid within any preceding twelve months, without prior approval of the
Connecticut Insurance Commissioner, applicable to Trenwick America Re, is the
greater of 10% of policyholder surplus at December 31 of the preceding year or
100% of net income for the twelve month period ending December 31 of the
preceding year, but shall not include pro rata distributions of any class of
Trenwick America Re's own securities, both determined in accordance with
statutory accounting practices. The amount of dividends or other distributions
that could be paid by Trenwick America Re without prior approval as of December
31, 1998 was $40.9 million. During 1998, 1997 and 1996, Trenwick America Re paid
dividends of $30.1 million, $8.3 million and $4.1 million, respectively. In
1998, the increase in dividends was primarily due to the original investment in
Trenwick International and to fund repurchases of Trenwick's common stock.
Under the applicable laws of the United Kingdom, Trenwick International may make
shareholder distributions only from accumulated realized profits, net of
accumulated realized losses. In addition, under the U.K. Insurance Companies
Act, Trenwick International is not permitted to make any distribution that would
reduce its net assets below the required minimum margin of solvency which, as
determined under the FSA's rules, is approximately $11.5 million as of December
31, 1998. The Company must also notify the FSA of any proposal to declare or pay
a dividend on any of its share capital.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Trenwick is exposed to market risks that are principally interest rate, foreign
exchange and equity price. Trenwick is exposed to potential losses from changes
in interest rates with respect to its investments and borrowings. The
investments also expose Trenwick to potential losses due to changes in foreign
exchange rates. Trenwick is exposed to potential losses from changes in equity
prices with respect to its investments. The Company is not exposed to material
losses from credit risk. The Company has no derivatives and its investments do
not contain terms that may result in potential losses due to leverage.
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Trenwick's risk management strategy is to place its investments with high credit
quality issuers and to limit the amount of credit exposure with respect to
particular ratings categories and any one issuer. The Company selects
investments with characteristics such as duration, yield, currency and liquidity
to reflect the underlying characteristics of related estimated claim
liabilities. The Company views potential exposures to credit losses as
immaterial. The potential losses due to market risks quantified below are
expected to be offset through the servicing of insurance claims.
The investment portfolio and borrowings of Trenwick are summarized in the notes
to the financial statements, and Item 1, Business.
Interest Rate Risk
Trenwick's principal market risk exposure are to change in domestic interest
rates. Changes in interest rates may affect the fair value of Trenwick's debt
securities. Trenwick's holdings subject it to exposures in the treasury,
corporate, structured, municipal and foreign debt security sectors. These
sectors consist primarily of investment grade securities whose fair value may
fluctuate with changes in interest rates. The only sector that exposes Trenwick
to material prepayment risk is the structured sector which includes
mortgage-backed and asset-backed securities. These securities have been included
in the analysis below. All investment positions are long with no "short" or
derivative positions. Trenwick believes that the insurance receivables and
payables do not expose it to significant interest rate risk and are excluded
from the analysis below.
In order to estimate it's exposure to changes in interest rates, Trenwick
performed a sensitivity analysis. Potential loss is estimated as a change in
fair value. The fair values of the debt security portfolio at year end were
re-estimated from the fair values reported in the financial statements assuming
a 100 basis point parallel increase in rates across the relevant debt security
yield curve. The potential loss in fair value due to interest rate exposure was
estimated at $27.7 million. The Company's actual loss in fair value on a
quarterly basis never exceeded this amount during the year. The potential loss
in this sensitivity analysis does not include a separate estimate of
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potential losses from changes in credit spreads; the Company believes that such
potential losses are immaterial based on the portfolio held at year-end. For
purposes of this calculation, Trenwick's borrowings were excluded, although
changes in interest rates may result in a potential gain/loss from borrowings.
The Company expects that the potential loss estimated on this basis would be
lower if the borrowings were included in this calculation. The Company excluded
the borrowings from the estimate of potential loss because potential losses in
fair value of investments are easily realizable upon the sale of securities
while the Company expects that its borrowings will remain outstanding through
maturity. The fair value estimates shown are based on the debt security
portfolio at year-end and these exposures will change as a result of ongoing
portfolio activities in response to management's assessment of changing market
conditions and available investment opportunities.
Foreign Exchange Risk
Trenwick's exposure to foreign exchange risk arises primarily from its holdings
in foreign denominated securities. Debt securities are denominated in primarily
the British pound with durations ranging generally up to ten months. An
instantaneous change of 10% in foreign exchange rates from levels prevailing at
year-end from these holdings would result in a potential loss in fair value of
$18.2 million.
The carrying value of certain receivables and payables are also denominated in
foreign currencies. This exposure is somewhat mitigated by the fact that
Trenwick's reinsurance premiums and invested assets are partially offset by
claims incurred and claim liabilities, respectively, denominated in the same
currency. In addition, Trenwick has foreign exchange risk exposure in its net
investment in its foreign subsidiary, Trenwick International. These exposures
are not considered material as of December 31, 1998.
Equity Price Risk
Trenwick's common equity portfolio of $49.2 million at December 31, 1998, is
subject to changes in value based on changes in equity prices. Trenwick's
potential exposure from those
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equity securities, estimated in terms of fair value, to an immediate 10% drop in
equity prices across all equity securities holdings from those prevailing at
December 31, 1998 would be $4.9 million. The Company's actual loss in fair value
on a quarterly basis never exceeded this amount during the year. The fair value
estimates shown are based on the composition of the equity security portfolio at
year-end and these exposures will change as a result of ongoing portfolio
activities in response to management's assessment of changing market conditions
and available investment opportunities.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In September 1998 the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 1999. Trenwick does not
anticipate that the adoption of the statement will have a material effect on its
financial position.
THE EURO
On January 1, 1999, eleven of the fifteen member countries of the European Union
established a fixed conversion ratio between their local currencies and a newly
formed currency, the "Euro". The Euro began trading on foreign currency
exchanges on January 1, 1999. Beginning in January 2002, coins and paper
currency denominated in Euros will be issued and local currencies of the eleven
countries will be withdrawn from circulation. As the Company conducts a
considerable amount of business in countries participating in the Euro, work was
undertaken in 1998 to ensure that the introduction of the Euro would have no
adverse effect on the Company's business. Consequently, the Company modified its
computer systems to accommodate transactions denominated in the Euro. The total
costs for implementing these changes was not material. Trenwick believes the
Euro conversion will not have a material impact on its consolidated financial
position or results from operations.
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SAFE HARBOR DISCLOSURE
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995 (the Act), Trenwick sets forth below cautionary
statements identifying important risks and uncertainties that could cause its
actual results to differ materially from those that might be projected,
forecasted or estimated in its forward-looking statements, as defined in the
Act, made by or on behalf of Trenwick in press releases, written statements or
documents filed with the Securities and Exchange Commission, or in its
communications and discussions with investors and analysts in the normal course
of business through meetings, phone calls and conference calls. Such statements
may include, but are not limited to, projections of premium revenue, investment
income, other revenue, losses, expenses, earnings (including earnings per
share), cash flows, plans for future operations, common holders' equity
(including book value per share), investments, financing needs, capital plans,
dividends, plans relating to products or services of Trenwick and estimates
concerning the effects of litigation or other disputes, as well as assumptions
for any of the foregoing and generally expressed with words such as "believes,"
"estimates," "expects," "anticipates," "plans," "projects," "forecasts,"
"goals," "could have," "may have," and similar expressions. Trenwick, as a
matter of policy, does not make any specific projections as to future earnings
nor does it endorse any projections regarding future performance that may be
made by others.
Forward-looking statements involve known and unknown risks and uncertainties,
which may cause Trenwick's results to differ materially from such
forward-looking statements. These risks and uncertainties include, but are not
limited to, the following:
- - Changes in the level of competition in the domestic and international
reinsurance or primary insurance markets that affect the volume or
profitability of Trenwick's property/casualty business. These changes
include, but are not limited to, changes in the intensity of price
competition, the entry of new competitors, existing competitors exiting the
market, and the development of new products by new and existing
competitors;
- - Changes in the demand for reinsurance, including changes in ceding
companies' risk retentions and changes in the demand for excess and surplus
lines insurance coverages;
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- - The ability of Trenwick to execute its strategies in its property/casualty
operations;
- - Catastrophe losses in Trenwick's domestic and international
property/casualty businesses;
- - Adverse development on property/casualty claims and claims expense
liabilities related to business written in prior years, including, but not
limited to, evolving case law and its effect on environmental and other
latent injury claims, changing government regulations, newly identified
toxins, newly reported claims, new theories of liability, such as possible
Year 2000 computer-related losses, or new insurance and reinsurance
contract interpretations;
- - Changes in inflation that affect the profitability of Trenwick's current
property/casualty business or the adequacy of its property/casualty claims
and claims expense liabilities and policy benefit liabilities related to
prior years' business;
- - Changes in Trenwick's property/casualty retrocessional arrangements;
- - Lower than estimated retrocessional or reinsurance recoveries on unpaid
losses, including, but not limited to, losses due to a decline in the
creditworthiness of Trenwick's retrocessionaires or reinsurers;
- - Increases in interest rates, which cause a reduction in the market value of
Trenwick's fixed income portfolio, and its common shareholders' equity;
- - Decreases in interest rates causing a reduction of income earned on new
cash flow from operations and the reinvestment of the proceeds from sales
or maturities of existing investments;
- - Decline in the value of Trenwick's equity investments;
- - Changes in the composition of Trenwick's investment portfolio;
- - Credit losses on Trenwick's investment portfolio;
- - Adverse results in litigation matters, including, but not limited to,
litigation related to environmental, asbestos and other potential mass tort
claims;
- - Gains or losses related to changes in foreign currency exchange rates;
- - The potential interruption in, or a failure of, certain normal business
activities or operations due to Year 2000 problems; and
- - Changes in Trenwick's capital needs.
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In addition to the factors outlined above that are directly related to
Trenwick's businesses, Trenwick is also subject to general business risks,
including, but not limited to, adverse state, federal or foreign legislation and
regulation, adverse publicity or news coverage, changes in general economic
factors and the loss of key employees.
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<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF TRENWICK GROUP INC.
<TABLE>
<CAPTION>
Name of Subsidiary Jurisdiction of Incorporation
- ------------------ -----------------------------
<S> <C>
Trenwick America Corporation Delaware
Trenwick America Reinsurance Corporation Connecticut
(subsidiary of Trenwick America Corporation)
Trenwick Holdings Limited United Kingdom
Trenwick International Limited United Kingdom
(subsidiary of Trenwick Holdings Limited)
Trenwick Management Services Limited United Kingdom
(subsidiary of Trenwick Holdings Limited)
Specialist Risk Underwriters Limited United Kingdom
(subsidiary of Trenwick Holdings Limited)
Trenwick Services, Ltd. Bermuda
Trenwick Guaranty Insurance Company, Ltd. Bermuda
(subsidiary of Trenwick Services, Ltd.)
</TABLE>
<PAGE> 1
EXHIBIT 23.0
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-31115, No. 33-68112, No. 33-83092 and No.
33-83094) of Trenwick Group Inc. of our report dated February 3, 1999, except as
to the subsequent event described in Note 17 which is as of March 26, 1999,
appearing on page 53 of the 1998 Annual Report to Stockholders of Trenwick Group
Inc., which is incorporated by reference in this Annual Report on Form 10-K for
the year ended December 31, 1998. We also consent to the incorporation by
reference of our report dated February 3, 1999 on the financial statement
schedules, which appears on page S-5 of this Form 10-K.
PricewaterhouseCoopers LLP
New York, New York
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN FORM 10-K FOR THE YEAR ENDED DECEMBER
31, 1998 FOR TRENWICK GROUP, INC.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 893,020
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 49,188
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 942,208
<CASH> 63,003
<RECOVER-REINSURE> 140,173<F1>
<DEFERRED-ACQUISITION> 35,261
<TOTAL-ASSETS> 1,392,261
<POLICY-LOSSES> 682,428
<UNEARNED-PREMIUMS> 152,051
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 75,000
110,000
0
<COMMON> 1,105
<OTHER-SE> 346,924
<TOTAL-LIABILITY-AND-EQUITY> 1,392,261
245,561
<INVESTMENT-INCOME> 56,316
<INVESTMENT-GAINS> 9,016
<OTHER-INCOME> 421
<BENEFITS> 153,135
<UNDERWRITING-AMORTIZATION> 74,197
<UNDERWRITING-OTHER> 23,828
<INCOME-PRETAX> 43,037
<INCOME-TAX> 8,245
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,792
<EPS-PRIMARY> 2.99<F2>
<EPS-DILUTED> 2.95
<RESERVE-OPEN> 460,650<F3>
<PROVISION-CURRENT> 166,198<F4>
<PROVISION-PRIOR> (12,556)
<PAYMENTS-CURRENT> (42,883)
<PAYMENTS-PRIOR> (122,145)
<RESERVE-CLOSE> 449,264<F5>
<CUMULATIVE-DEFICIENCY> 7,685<F6>
<FN>
<F1>REPRESENTS NET REINSURANCE RECOVERABLE BALANCES AFTER OFFSET OF FUNDS HELD AND
REINSURANCE BALANCES PAYABLE.
<F2>REPRESENTS BASIC EARNINGS PER SHARE.
<F3>REFLECTS NET RESERVE AT BEGINNING OF YEAR FOR UNPAID CLAIMS. ALSO REFLECTS
TRENWICK INTERNATIONAL'S NET RESERVE IN THE AMOUNT OF $81,299 AT DATE OF
ACQUISITION.
<F4>INCLUDES EFFECT OF EXCHANGE RATE IN THE AMOUNT OF $507.
<F5>REFLECTS NET RESERVE AT END OF YEAR FOR UNPAID CLAIMS.
<F6>REFLECTS GROSS REDUNDANCY IN RESTATED RESERVES.
</FN>
</TABLE>
