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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 2003.
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________.
Commission file number 0-31967
TRENWICK AMERICA CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware 06-1087672
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Canterbury Green
Stamford, Connecticut 06901
(Address of principal executive offices) (zip code)
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Registrant's telephone number, including area code: 203-353-5500
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934) Yes |_| No |X|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Shares Outstanding
Description of Class as of August 20, 2003
- -------------------- ---------------------
Common Stock - $1.00 par value 100
-i-
TRENWICK AMERICA CORPORATION
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
Page
----
ITEM 1. Unaudited Consolidated Financial Statements
Consolidated Balance Sheet
June 30, 2003 and December 31, 2002 ........................... 1
Consolidated Statement of Operations, Comprehensive Income and
Changes in Common Stockholder's Equity
Three and Six Months Ended June 30, 2003 and 2002 ............. 2
Consolidated Statement of Cash Flows
Three and Six Months Ended June 30, 2003 and 2002 ............. 3
Notes to Unaudited Consolidated Financial Statements .......... 4
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ......................................... 10
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk .... 32
ITEM 4. Controls and Procedures ....................................... 32
PART II - OTHER INFORMATION
ITEM 1. Legal proceedings ............................................. 33
ITEM 2. Changes in Securities and Use of Proceeds ..................... 33
ITEM 3. Defaults Upon Senior Securities ............................... 33
ITEM 4. Submission of Matters to a Vote of Security Holders ........... 33
ITEM 5. Other Information ............................................. 33
ITEM 6. Exhibits and Reports on Form 8-K .............................. 33
Signatures ............................................................ 37
-ii-
Trenwick America Corporation
Consolidated Balance Sheet
(Amounts expressed in thousands of United States dollars)
June 30, 2003 and December 31, 2002
(Unaudited)
2003 2002
----------- -----------
ASSETS
Debt securities available for sale, at fair value $ 986,938 $ 636,660
Equity securities, at fair value 8,707 8,849
Cash and cash equivalents 92,689 450,340
Accrued investment income 9,562 8,436
Premiums receivable 145,231 190,617
Reinsurance recoverable balances, net 682,578 641,176
Prepaid reinsurance premiums 40,293 97,647
Deferred policy acquisition costs 32,772 63,167
Due from parent and affiliates 53,515 62,828
Security deposit held by Chubb 50,724 50,207
Other assets 87,290 130,575
----------- -----------
Total assets $ 2,190,299 $ 2,340,502
=========== ===========
LIABILITIES
Unpaid claims and claims expenses $ 1,661,364 $ 1,640,063
Unearned premium income 157,856 324,718
Reinsurance balances payable 30,023 48,213
Indebtedness 76,784 76,498
Due to affiliates 24,213 21,435
Other liabilities 98,756 46,790
----------- -----------
Total liabilities 2,048,996 2,157,717
----------- -----------
MINORITY INTEREST
Mandatorily redeemable preferred capital securities of
subsidiary trust holding solely junior subordinated
debentures of Trenwick America Corporation 87,064 87,032
----------- -----------
COMMON STOCKHOLDER'S EQUITY
Common stock and additional paid in capital 298,877 298,877
Retained earnings (accumulated deficit) (278,799) (218,892)
Accumulated other comprehensive income 34,161 15,768
----------- -----------
Total common stockholder's equity 54,239 95,753
----------- -----------
Total liabilities, minority interest and common stockholder's equity $ 2,190,299 $ 2,340,502
=========== ===========
The accompanying notes are an integral part of these statements.
-1-
Trenwick America Corporation
Consolidated Statement of Operations, Comprehensive Income and
Changes in Common Stockholder's Equity (Unaudited)
(Amounts expressed in thousands of United States dollars)
Three and Six Months Ended June 30, 2003 and 2002
Three Months Six Months
------------------------ ------------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
REVENUES
Net premiums earned $ 109,945 $ 118,354 $ 227,929 $ 217,849
Net investment income 10,089 14,476 18,400 29,332
Net realized investment losses (425) (1,342) (659) (1,522)
Other income (expenses) (20,873) 1,255 (22,948) 3,462
---------- ---------- ---------- ----------
Total revenues 98,736 132,743 222,722 249,121
---------- ---------- ---------- ----------
EXPENSES
Claims and claims expenses incurred 104,990 103,088 189,506 180,290
Policy acquisition costs 34,564 34,959 67,822 66,333
Underwriting expenses 4,659 4,638 9,147 9,759
General and administrative expenses 1,996 731 3,543 1,421
Interest expense and subsidiary preferred
share dividends 4,350 7,664 12,463 14,790
Foreign currency losses 54 2,312 221 1,332
---------- ---------- ---------- ----------
Total expenses 150,613 153,392 282,702 273,925
---------- ---------- ---------- ----------
Loss before income taxes and cumulative effect of
change in accounting principle (51,877) (20,649) (59,980) (24,804)
Applicable income taxes (benefit) 1,235 (7,360) (73) (8,680)
---------- ---------- ---------- ----------
Loss before cumulative effect of change in
accounting principle (53,112) (13,289) (59,907) (16,124)
Cumulative effect of change in accounting principle -- -- -- (52,119)
---------- ---------- ---------- ----------
Net loss $ (53,112) $ (13,289) $ (59,907) $ (68,243)
========== ========== ========== ==========
COMPREHENSIVE INCOME (LOSS):
Net loss $ (53,112) $ (13,289) $ (59,907) $ (68,243)
---------- ---------- ---------- ----------
Other comprehensive income (loss):
Net unrealized investment gains 14,443 13,846 15,830 9,477
Foreign currency translation adjustments 1,574 604 2,563 590
---------- ---------- ---------- ----------
Total other comprehensive income 16,017 14,450 18,393 10,067
---------- ---------- ---------- ----------
Comprehensive income (loss) $ (37,095) $ 1,161 $ (41,514) $ (58,176)
========== ========== ========== ==========
CHANGES IN COMMON
STOCKHOLDER'S EQUITY:
Common stockholder's equity, beginning of period $ 91,334 $ 116,012 $ 95,753 $ 175,349
Net capital transactions with affiliates -- 199,523 -- 199,523
Comprehensive income (loss) (37,095) 1,161 (41,514) (58,176)
---------- ---------- ---------- ----------
Common stockholder's equity, end of period $ 54,239 $ 316,696 $ 54,239 $ 316,696
========== ========== ========== ==========
The accompanying notes are an integral part of these statements.
-2-
Trenwick America Corporation
Consolidated Statement of Cash Flows (Unaudited)
(Amounts expressed in thousands of United States dollars)
Three and Six Months Ended June 30, 2003 and 2002
Three Months Six Months
---------------------- ----------------------
2003 2002 2003 2002
--------- --------- --------- ---------
CASH FROM (FOR) OPERATING ACTIVITIES $ (51,522) $ 618 $ (87,454) $ (14,330)
--------- --------- --------- ---------
INVESTING ACTIVITIES:
Purchases of debt securities (180,565) (33,590) (381,107) (129,113)
Sales of debt securities 22,899 44,135 51,535 90,211
Maturities of debt securities 31,933 23,260 55,969 62,385
Sales of equity securities 113 -- 113 --
Effect of exchange rate translation on cash 324 (404) 31 (192)
Additions to premises and equipment (60) (1,112) (190) (3,172)
--------- --------- --------- ---------
Cash from (for) investing activities (125,356) 32,289 (273,649) 20,119
--------- --------- --------- ---------
FINANCING ACTIVITIES:
Issuance (repayment) of indebtedness -- (197,841) -- (197,841)
Indebtedness issuance costs paid -- -- -- (88)
Loans to affiliates -- (6,884) 3,452 (10,184)
Capital contributions received -- 199,523 -- 199,523
--------- --------- --------- ---------
Cash from (for) financing activities -- (5,202) 3,452 (8,590)
--------- --------- --------- ---------
Change in cash and cash equivalents (176,878) 27,705 (357,651) (2,801)
Cash and cash equivalents, beginning of period 269,567 98,016 450,340 128,522
--------- --------- --------- ---------
Cash and cash equivalents, end of period $ 92,689 $ 125,721 $ 92,689 $ 125,721
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
-3-
TRENWICK AMERICA CORPORATION
Notes to Unaudited Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars except share data)
Three and Six Months Ended June 30, 2003 and 2002
Note 1
Organization
and Basis
of Presentation
Organization
Trenwick America Corporation ("Trenwick America") is a United States
holding company whose principal subsidiaries underwrote specialty
insurance and reinsurance. Trenwick America's ultimate parent is Trenwick
Group Ltd., ("Trenwick") which is a publicly traded Bermuda holding
company. As indicated below, on August 20, 2003 Trenwick America, Trenwick
and their affiliate, LaSalle Re Holdings Limited, filed for protection
from their creditors under chapter 11 of the United States Bankruptcy
Code.
In 2002, Trenwick conducted several strategic reviews of its operations in
light of its capital constraints and determined that it was necessary for
Trenwick to reduce its operating leverage by reducing premium volumes to a
level more commensurate with its capital base and to concentrate its
limited financial resources on its core franchise and business, treaty
reinsurance, where it would be able to write reinsurance based on direct
or indirect financial support. As a result, Trenwick voluntarily placed
into runoff its specialty program business formerly operated through its
subsidiary, Canterbury Financial Group, Inc., effective October 30, 2002.
Trenwick America's treaty reinsurance business, formerly written through
its subsidiary, Trenwick America Reinsurance Corporation ("Trenwick
America Re"), has been limited since November 2002 to providing, through
an underwriting facility with Chubb Re, Inc. and its affiliate Federal
Insurance Company (together, "Chubb"), treaty reinsurance to insurers of
property and casualty risks. Since inception in November 2002, Trenwick
America underwrote approximately $128 million of reinsurance under the
facility. Trenwick announced on April 15, 2003 that it would cease
underwriting reinsurance business under the Chubb facility. Trenwick will
continue to be entitled to the economic benefits of, and will bear losses
on, existing business under the facility, subject to the terms and
conditions of the facility. Trenwick America's ability to write
reinsurance business under the facility was severely constrained by its
financial condition and concerns arising with respect to its ongoing
stability. As a result, Trenwick America ceased underwriting activities
under the facility in order to reduce Trenwick America's costs and on June
18, 2003 the underwriting agreement was cancelled by Chubb. The effect of
this cessation is that Trenwick America Re is now in runoff. Trenwick
America will continue to service and pay claims for all business
previously written through Trenwick America Re outside of the Chubb
facility and will jointly adjust and settle with Chubb any claims arising
under the business written under the Chubb facility, subject to Chubb's
final authority.
Trenwick announced on August 7, 2003 that that it has entered into a
letter of intent with respect to an agreement in principle on a long-term
restructuring of its debt obligations, the sale of its business operations
at Lloyd's, and the runoff of its remaining businesses with (i) the
majority of the beneficial holders (the "Senior Noteholders") of Trenwick
America's 6.70% Senior Notes (the "Senior Notes"), (ii) the steering
committee (the "Steering Committee") of the lending institutions (the
"Banks") that have issued letters of credit under a senior secured credit
facility (the "LoC Facility") on behalf of certain subsidiaries of
Trenwick in support of Trenwick's
-4-
Lloyd's operations, and (iii) a group composed of current members of
management of Trenwick's Lloyd's operations (the "Management Team").
Trenwick America did not pay principal and interest on its Senior Notes
due on August 1, 2003, which also created an event of default with respect
to the LoC Facility and under certain other indebtedness of Trenwick.
The restructuring is intended to be implemented through various means,
including but not limited to the following: (i) the filing by Trenwick and
one or more of its subsidiaries, including Trenwick America, of Chapter 11
bankruptcy proceedings in the United States and the filing of similar
proceedings in Bermuda, Barbados or the United Kingdom, as the case may
be; (ii) the sale by Trenwick of substantially all of its Lloyd's
operations to a company controlled by the Management Team and with capital
provided by the Management Team, third-party investors and the Banks and
(iii) the retention of third party run-off advisors and the continued
runoff or disposition of all of Trenwick's other insurance and reinsurance
operations.
The terms of the restructuring are subject to the satisfaction of numerous
conditions precedent including, but not limited to, the following: (i)
approval of the restructuring by the Banks; (ii) negotiation of definitive
documentation (iii) receipt of all requisite regulatory and other
approvals in the United States, Bermuda and the United Kingdom; (iv) due
diligence by Englefield Capital LLP, the proposed equity sponsor of the
Management Team, which has entered into an exclusive negotiation agreement
with Trenwick, and (v) approval of any court having jurisdiction over the
above-referenced insolvency proceedings.
On August 20, 2003, Trenwick America and its affiliates, Trenwick and
LaSalle Re Holdings Limited ("LaSalle Re Holdings") (collectively with
Trenwick America and LaSalle Re Holdings, the "Debtors"), filed for
protection from their creditors under chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") with the United States Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court"). On that same
date, Trenwick and LaSalle Re Holdings filed proceedings in the Supreme
Court of Bermuda known under Bermudian law as "winding up". Trenwick and
LaSalle Re Holdings have petitioned the Supreme Court of Bermuda to issue
an order appointing Joint Provisional Liquidators for Trenwick and LaSalle
Re Holdings and has requested that deference be paid in the "winding up"
to the jurisdiction of the Bankruptcy Court and the Debtors' restructuring
efforts in accordance with the Bankruptcy Code. It is the intention of the
Debtors to implement the restructuring agreed to among the Debtors and
their creditor constituencies as discussed above through the bankruptcy
process. (See Note 7)
Basis of Presentation
The interim financial statements include the accounts of Trenwick America
and its subsidiaries after elimination of significant intercompany
accounts and transactions. Certain items in prior financial statements
have been reclassified to conform to current presentation.
These interim financial statements have been prepared in conformity with
accounting principles that are generally accepted in the United States of
America, sometimes referred to as U.S. GAAP. To prepare these interim
financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
-5-
financial statements, as well as the reported amounts of revenues and
expenses during the reporting periods. Actual amounts may differ from
these estimates.
The accompanying financial statements have been prepared assuming Trenwick
America will continue as a going concern. As discussed above, Trenwick
America is in default with respect to the Senior Notes and certain other
indebtedness and has filed for protection from its creditors under chapter
11 of the United States Bankruptcy Code. Additionally, certain insurance
subsidiaries of Trenwick America do not meet risk based capital levels or
levels of surplus required by various insurance regulations to which they
are subject. These matters raise substantial doubt about Trenwick's
ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
The interim financial statements are unaudited; however, in the opinion of
management, the interim financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
statement of the results for interim periods. These interim statements
should be read in conjunction with the audited financial statements and
related notes included in the Annual Report on Form 10-K of Trenwick
America for the year ended December 31, 2002.
Note 2
Segment
Information
During the first quarter of 2003, Trenwick America amended the basis in
which operating segments are determined. This change followed strategic
reviews of Trenwick America's operations which resulted in the decision to
place two of its operations into voluntary runoff. As a result, the
operations of Trenwick America and its subsidiaries will now be managed on
a legal entity basis, rather than an operating platform basis, in order to
ensure the runoff of these operations is conducted in a manner which will
maximize the economic value of these entities.
The results of Trenwick America's specialty insurance and reinsurance
business are reported in the following two business segments:
- - Trenwick America Re, now in runoff, which consists of treaty reinsurance
formerly written on United States property and casualty risks as well as
the results of the Chubb underwriting facility. Additionally, this segment
includes the runoff of specialty program insurance formerly written by
Chartwell Insurance Company, which merged with and into Trenwick America
Re on December 31, 2002; and
- - The Insurance Corporation of New York ("INSCORP"), which consists of
United States specialty program insurance, including that formerly written
through INSCORP's subsidiary, Dakota Specialty Insurance Company
("Dakota"). These entities ceased underwriting substantially all new
business effective October 30, 2002.
The following tables present business segment financial information for
Trenwick America at June 30, 2003 and December 31, 2002 and for the three
months ended June 30, 2003 and 2002:
-6-
Total assets: 2003 2002
---------- ----------
Trenwick America Re $1,355,044 $1,395,190
INSCORP 831,102 931,726
Unallocated 4,153 13,586
---------- ----------
Total assets $2,190,299 $2,340,502
========== ==========
Three Months Six Months
--------------------- ----------------------
2003 2002 2003 2002
-------- --------- --------- ---------
Total revenues:
Trenwick America Re $ 77,698 $ 97,864 $ 159,360 $ 182,774
INSCORP 32,056 34,501 74,169 65,836
Unallocated (11,018) 378 (10,807) 511
-------- --------- --------- ---------
Total revenues $ 98,736 $ 132,743 $ 222,722 $ 249,121
======== ========= ========= =========
Three Months Six Months
--------------------- ----------------------
2003 2002 2003 2002
-------- --------- --------- ---------
Net income (loss):
Trenwick America Re $(27,247) $ (10,261) $ (28,261) $ (10,384)
INSCORP (8,959) 3,433 (7,225) 5,924
Unallocated interest expense
preferred share dividends (4,249) (7,518) (12,296) (14,637)
Other unallocated (12,657) 1,057 (12,125) 2,973
Change in accounting principle -- -- -- (52,119)
-------- --------- --------- ---------
Net income (loss) $(53,112) $ (13,289) $ (59,907) $ (68,243)
======== ========= ========= =========
Note 3
Underwriting
Activities
The components of premiums written and earned for the three and six months ended
June 30, 2003 and 2002 are as follows:
Three Months Six Months
---------------------- ----------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Assumed premiums written $ 52,570 $ 100,061 $ 95,343 $ 203,049
Direct premiums written 6,412 97,989 49,864 200,123
--------- --------- --------- ---------
Gross premiums written 58,982 198,050 145,207 403,172
Ceded premiums written (7,825) (65,674) (26,786) (138,800)
--------- --------- --------- ---------
Net premiums written $ 51,157 $ 132,376 $ 118,421 $ 264,372
========= ========= ========= =========
Assumed premiums earned $ 77,709 $ 94,247 $ 164,902 $ 174,362
Direct premiums earned 63,889 81,724 152,179 157,130
--------- --------- --------- ---------
Gross premiums earned 141,598 175,971 317,081 331,492
Ceded premiums earned (31,653) (57,617) (89,152) (113,643)
--------- --------- --------- ---------
Net premiums earned $ 109,945 $ 118,354 $ 227,929 $ 217,849
========= ========= ========= =========
-7-
Note 4
Accounting
Standards
Effective January 1, 2002, Trenwick America adopted a new Financial
Accounting Standards Board statement which amended the accounting for
goodwill and other intangible assets. This new statement suspended
systematic goodwill amortization and its implementation required that the
remaining goodwill balance of $52,119 at December 31, 2001 be tested for
impairment under either market value or cash flow tests. The market value
test was performed using the Income Forecast Model, which uses discounted
cash flows. Cash flow tests were also performed, and as a result of the
tests performed, it was determined that the goodwill was impaired and the
entire remaining goodwill balance was charged to operations as of January
1, 2002 as a cumulative effect of an accounting change.
Note 5
Insurance
Regulation
On May 5, 2003, INSCORP entered into a "letter of understanding" with the
New York Insurance Department pursuant to which INSCORP agreed that it
would not take any of the following actions without the prior written
approval of the Department:
o Withdraw funds from its bank accounts, or make disbursements or
payments outside of the ordinary course of business in amounts
exceeding 3% of its aggregate cash and investments.
o Incur any debt obligation or liability for borrowed money not
related directly to the ordinary course of business.
o Settle any inter-company balances or pay any dividends.
o Enter into any new material reinsurance agreement or modify in any
material respect any existing material reinsurance agreement other
than customary renewals.
o Add new members to its board of directors other than current senior
executive officers of INSCORP or its affiliates without notification
to the department.
o Change the compensation terms for directors, officers or employees.
o Pledge or assign any of its assets to secure indebtedness for
borrowed money.
Senior management of Trenwick America has also agreed to meet with the New
York Insurance Department, in person or by conference call, with such
frequency as may be deemed necessary by the Department to provide updates
on the status of Trenwick America and any changes in the status of
INSCORP. INSCORP is also required to provide to the New York Insurance
Department a monthly financial statement consisting of a balance sheet and
income statement within 45 days following the end of such month. The above
described terms will remain in effect until such time as the New York
Insurance Department provides INSCORP written notice of its release or the
agreement is superceded by administrative or court order.
-8-
Note 6
Related Party
Transactions
During the three months ended June 30, 2003, Trenwick America determined
that a total of $11,222 of recoverable expenses included in due from
parent and affiliates were uncollectible. This amount included $11,187
receivable from Trenwick Managing Agents and $35 receivable from Trenwick
International, both United Kingdom affiliates of Trenwick America, and
represented amounts charged to the United Kingdom affiliates by Trenwick
America related to miscellaneous expenses incurred on their behalf.
Note 7
Subsequent
Events
On August 20, 2003, Trenwick America and its affiliates, Trenwick and
LaSalle Re Holdings Limited ("LaSalle Re Holdings") (collectively with
LaSalle Re Holdings and Trenwick, the "Debtors"), filed for protection
from their creditors under chapter 11 of the United States Bankruptcy Code
(the "Bankruptcy Code") with the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"). On that same date, Trenwick
and LaSalle Re Holdings filed proceedings in the Supreme Court of Bermuda
known under Bermudian law as "winding up". Trenwick and LaSalle Re
Holdings have petitioned the Supreme Court of Bermuda to issue an order
appointing Joint Provisional Liquidators for Trenwick and LaSalle Re
Holdings and have requested that deference be paid in the "winding up" to
the jurisdiction of the Bankruptcy Court and the Debtors' restructuring
efforts in accordance with the Bankruptcy Code. It is the intention of the
Debtors to implement the restructuring agreed to among the Debtors and
their creditor constituencies, as discussed in Note 1 above, through the
bankruptcy process.
Included in the accompanying consolidated balance sheet are indebtedness
of $76,784, and mandatorily redeemable preferred capital securities of
$87,064, both of which are expected to be subject to the bankruptcy
filing.
The majority of the assets and liabilities (other than those previously
mentioned) included in the consolidated balance sheet of Trenwick America
are assets and liabilities of its regulated insurance company
subsidiaries, which are not subject to the proceedings in the Bankruptcy
Court or the Supreme Court of Bermuda.
-9-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion highlights material factors affecting Trenwick America
Corporation's results of operations for the three and six months ended June 30,
2003 and 2002. This discussion and analysis should be read in conjunction with
the unaudited interim financial statements and notes thereto of Trenwick America
Corporation contained in this filing as well as in conjunction with the audited
financial statements and related notes included in the Annual Report on Form
10-K of Trenwick America Corporation for the year ended December 31, 2002.
Overview
Trenwick America Corporation ("Trenwick America") is a Delaware holding company
headquartered in Stamford, Connecticut whose principal subsidiaries underwrote
specialty insurance and reinsurance. Trenwick America's ultimate parent is
Trenwick Group Ltd. ("Trenwick"), which is a publicly traded Bermuda holding
company. As discussed below, on August 20, 2003, Trenwick America, Trenwick and
their affiliate LaSalle Re Holdings Limited filed for protection from creditors
under chapter 11 of the United States Bankruptcy Code.
In 2002, Trenwick conducted several strategic reviews of its operations in light
of its capital constraints and determined that it was necessary for Trenwick to
reduce its operating leverage by reducing premium volumes to a level more
commensurate with its capital base and to concentrate its limited financial
resources on its core franchise and business, treaty reinsurance, where it would
be able to write reinsurance based on direct or indirect financial support. As a
result, Trenwick voluntarily placed into runoff its specialty program business
formerly operated through its subsidiary, Canterbury Financial Group, Inc.,
effective October 30, 2002.
Trenwick America's treaty reinsurance business, formerly written through its
subsidiary, Trenwick America Reinsurance Corporation ("Trenwick America Re"),
has been limited since November 2002 to providing, through an underwriting
facility with Chubb Re, Inc. and its affiliate Federal Insurance Company
(together, "Chubb"), treaty reinsurance to insurers of property and casualty
risks. Since inception in November 2002, Trenwick America underwrote
approximately $128 million of reinsurance under the facility. Trenwick announced
on April 15, 2003 that it would cease underwriting reinsurance business under
the Chubb facility. Trenwick will continue to be entitled to the economic
benefits of, and will bear losses on, existing business under the facility,
subject to the terms and conditions of the facility. Trenwick America's ability
to write reinsurance business under the facility was severely constrained by its
financial condition and concerns arising with respect to its ongoing stability.
As a result, Trenwick America ceased underwriting activities under the facility
in order to reduce Trenwick America's costs and on June 18, 2003 the
underwriting agreement was cancelled by Chubb. The effect of this cessation is
that Trenwick America Re is now in runoff. Trenwick America will continue to
service and pay claims for all business previously written through Trenwick
America Re outside of the Chubb facility and will jointly adjust and settle with
Chubb any claims arising under the business written under the Chubb facility,
subject to Chubb's final authority.
Trenwick announced on August 7, 2003 that that it has entered into a letter of
intent with respect to an agreement in principle on a long-term restructuring of
its debt obligations, the sale of its business operations at Lloyd's, and the
runoff of its remaining businesses with (i) the majority of the beneficial
holders (the "Senior Noteholders") of Trenwick America's 6.70% Senior Notes (the
"Senior Notes"), (ii) the steering committee (the "Steering Committee") of the
lending institutions (the "Banks") that have issued letters of credit under a
senior secured credit facility (the "LoC Facility") on behalf of certain
subsidiaries of Trenwick in support of Trenwick's
-10-
Lloyd's operations, and (iii) a group composed of current members of management
of Trenwick's Lloyd's operations (the "Management Team"). Trenwick America did
not pay principal and interest on its Senior Notes due on August 1, 2003, which
also created an event of default with respect to the LoC Facility and under
certain other indebtedness of Trenwick and Trenwick America.
The restructuring is intended to be implemented through various means, including
but not limited to the following: (i) the filing by Trenwick and one or more of
its subsidiaries, including Trenwick America, of Chapter 11 bankruptcy
proceedings in the United States and the filing of similar proceedings in
Bermuda, Barbados or the United Kingdom, as the case may be; (ii) the sale by
Trenwick of substantially all of its Lloyd's operations to a company controlled
by the Management Team and with capital provided by the Management Team,
third-party investors and the Banks and (iii) the retention of third party
run-off advisors and the continued runoff or disposition of all of Trenwick's
other insurance and reinsurance operations.
The terms of the restructuring are subject to the satisfaction of numerous
conditions precedent including, but not limited to, the following: (i) approval
of the restructuring by the Banks; (ii) negotiation of definitive documentation
(iii) receipt of all requisite regulatory and other approvals in the United
States, Bermuda and the United Kingdom; (iv) due diligence by Englefield Capital
LLP, the proposed equity sponsor of the Management Team, which has entered into
an exclusive negotiation agreement with Trenwick, and (v) approval of any court
having jurisdiction over the above-referenced insolvency proceedings.
On August 20, 2003, Trenwick America and its affiliates, Trenwick and LaSalle Re
Holdings Limited ("LaSalle Re Holdings") (collectively, the "Debtors"), filed
for protection from their creditors under chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") with the United States Bankruptcy Court
for the District of Delaware (the "Bankruptcy Court"). On that same date,
Trenwick and LaSalle Re Holdings filed proceedings in the Supreme Court of
Bermuda known under Bermudian law as "winding up". Trenwick and LaSalle Re
Holdings have petitioned the Supreme Court of Bermuda to issue an order
appointing Joint Provisional Liquidators for Trenwick and LaSalle Re Holdings
and have requested that deference be paid in the "winding up" to the
jurisdiction of the Bankruptcy Court and the Debtors' restructuring efforts in
accordance with the Bankruptcy Code. It is the intention of the Debtors to
implement the restructuring agreed to among the Debtors and their creditor
constituencies as discussed above through the bankruptcy process.
The majority of the assets and liabilities included in the consolidated balance
sheet of Trenwick America are assets and liabilities of the regulated insurance
company subsidiaries, which are not subject to the proceedings in the Bankruptcy
Court or the Supreme Court of Bermuda.
During the first quarter of 2003, Trenwick America amended the basis in which
operating segments are determined. This change followed strategic reviews of
Trenwick America's operations which resulted in the decision to place two of its
operations into voluntary runoff. As a result, the operations of Trenwick
America and its subsidiaries will now be managed on a legal entity basis, rather
than an operating platform basis, in order to ensure the runoff of these
operations is conducted in a manner which will maximize the economic value of
these entities.
The results of Trenwick America's specialty insurance and reinsurance business
is reported in the following two business segments:
-11-
- Trenwick America Re, now in runoff, which consists of treaty
reinsurance formerly written on United States property and casualty
risks as well as the results of the Chubb underwriting facility.
Additionally, this segment includes the runoff of specialty program
insurance formerly written by Chartwell Insurance Company, which
merged with and into Trenwick America Re on December 31, 2002; and
- The Insurance Corporation of New York ("INSCORP"), which consists of
United States specialty program insurance, including that formerly
written through INSCORP's subsidiary, Dakota Specialty Insurance
Company ("Dakota"). These entities ceased underwriting substantially
all new business effective October 30, 2002.
Critical Accounting Policies
The accounting policies described below are those Trenwick America considers
critical in preparing its consolidated financial statements. These policies
include significant estimates made by management using information available at
the time the estimates are made. However, as described below, these estimates
could change materially if different information or assumptions were used.
Unpaid Claims and Claims Expenses
Claims and claims expenses are recorded as incurred, at management's best
estimate, in order to match claims and claims expense costs with premiums over
the contract periods. The amount provided for unpaid claims and claims expenses
consists of any unpaid reported claims and claims expenses and estimates for
incurred but not reported claims and claims expenses, net of estimated salvage
and subrogation. The estimates for claims and claims expenses incurred but not
reported were developed based on historical claims and claims expense experience
and an actuarial evaluation of expected claims and claims expense experience.
Workers' compensation indemnity liabilities that are considered fixed and
determinable are discounted using an interest rate of 3.5%. Reserves for unpaid
claims and claims expenses, by their very nature, do not represent an exact
calculation of the liability and, while Trenwick America has established
reserves equal to the current best estimate of ultimate losses, there remains a
likelihood that further changes in such claim estimates, either upward or
downward, will occur in the future. Adjustments to previously reported reserves
for unpaid claims and claims expenses are considered changes in estimates for
accounting purposes and are reflected in the income statement in the period in
which the adjustment becomes known.
Unpaid claims and claims expenses are recorded based on actuarial estimates of
losses inherent in that period's claims, including losses for which claims have
not yet been reported. Estimates of unpaid claims and claims expenses rely on
actuarial observations of ultimate loss experience for similar historical
events. Historical insurance industry experience indicates that a high degree of
inherent variability exists in assessing the ultimate amount of losses under
short-duration property and casualty contracts. This inherent variability is
particularly significant for liability-related exposures, including latent
claims issues (such as asbestos and environmental related coverage disputes),
because of the extended period of time, often many years, that transpires
between when a given claim event occurs and the ultimate full settlement of such
claim. This situation is then further exacerbated for reinsurance entities (as
opposed to primary insurers) due to coverage often being provided on an
"excess-of-loss" basis and the resulting time lags in receiving current claims
data. Additionally, the uncertainty is increased as a result of the diversity of
development patterns among different types of reinsurance and the necessary
reliance
-12-
on ceding companies for information regarding reported claims and differing
reserving practices among ceding companies. Other items that have been
considered in determining reserves but may develop differently than currently
estimated include:
o Claims against insured financial services companies for certain
types of practices including alleged misallocations of shares in
initial public offerings;
o Directors and Officers liability insurance;
o Ultimate losses on business underwritten in the last four years, as
reserve estimates are inherently more uncertain on recent business,
where reported loss activity is still low relative to ultimate
losses;
o Claims liabilities also include provisions for latent injury or
toxic tort claims that cannot be estimated with traditional
reserving techniques. Due to inconsistent court decisions in federal
and state jurisdictions and the wide variation among insureds with
respect to underlying facts and coverage, uncertainty exists with
respect to these claims as to liabilities of ceding companies and,
consequently, reinsurance coverage;
o Reinsurance collectibility - Trenwick America reviews and monitors
its reinsurance recoverables from its reinsurers and makes provision
for uncollectible reinsurance as appropriate. However, given the
magnitude of reinsurance recoverables, $683 million at June 30,
2003, Trenwick America has a significant exposure to collectibility
issues.
Trenwick America's management continually evaluates the potential for changes in
unpaid claims and claims expenses to adjust recorded reserves and to proactively
modify underwriting criteria and product offerings. In recent periods and
continuing throughout 2002, the level of reported claims activity related to
prior year loss events, particularly for liability-related exposures
underwritten in 1997 through 2001, has been significantly higher than
anticipated. Full consideration of these trends was incorporated into a
comprehensive reserve study completed in the fourth quarter of 2002. Insurance
reserves, by their very nature, do not represent an exact calculation of
liability and, while Trenwick America has established reserves equal to the
current best estimate of ultimate losses, there remains a likelihood that
further changes in such loss estimates, either upward or downward, will occur in
the future.
Reinsurance Recoverable Balances
Trenwick America has purchased reinsurance to reduce its exposure on individual
risks, catastrophic losses and other large losses. Trenwick America estimates
the amount of uncollectible receivables from its reinsurers each period and
establishes an allowance for uncollectible amounts. The amount of the allowance
is based on the age of unpaid amounts, information about the creditworthiness of
Trenwick America's reinsurers, and other relevant information. Estimates of
uncollectible reinsurance amounts are reviewed quarterly, and changes are
recorded in the period they become known. A significant change in the level of
uncollectible reinsurance amounts would have a significant effect on Trenwick
America's results of operations and financial position.
-13-
Investments
Investments are classified as available for sale and recorded at fair value, and
unrealized investment gains and losses are reflected in shareholders' equity.
Investment income is recorded when earned, and capital gains and losses are
recognized when investments are sold. Investments are reviewed periodically to
determine if they have suffered an impairment of value that is considered other
than temporary. If investments are determined to be impaired, a capital loss is
recognized at the date of determination.
Testing for impairment of investments also requires significant management
judgment. The identification of potentially impaired investments, the
determination of their fair value and the assessment of whether any decline in
value is other than temporary are the key judgment elements. The discovery of
new information and the passage of time can significantly change these
judgments. Revisions of impairment judgments are made when new information
becomes known, and any resulting impairment adjustments are made at that time.
The current economic environment and recent volatility of securities markets
increase the difficulty of determining fair value and assessing investment
impairment. The same influences tend to increase the risk of potentially
impaired assets. Trenwick America seeks to match the maturities of invested
assets with the payment of expected liabilities. By doing this, Trenwick America
attempts to make cash available as payments become due. If a significant
mismatch of the maturities of assets and liabilities were to occur and Trenwick
America had to liquidate investments prior to their maturity, it may incur
realized losses and the effect on Trenwick America's results of operations could
be significant.
Deferred Income Taxes
Deferred income tax assets and liabilities are computed based on temporary
differences between financial statement and income tax bases of assets and
liabilities using enacted income tax rates in effect for the year in which the
differences are expected to reverse. FASB Statement No. 109 requires a valuation
allowance to be recorded when it is more likely than not that some or all of the
deferred tax assets will not be realized. Due to Trenwick America's cumulative
losses generated in recent years and uncertainties as to the amount of taxable
income to be generated in future years, as of December 31, 2002, Trenwick
America could not support the future realizability of its net deferred tax
asset. The effects of this determination on Trenwick America's results from
operations were significant. As of June 30, 2003, Trenwick America maintained a
valuation allowance equal to the full amount of its net deferred tax asset.
Results of Operations - Three Months Ended June 30, 2003 and 2002
Trenwick America's net loss of $53.1 million in the three months ended June 30,
2003 represented a $39.8 million greater loss compared to the net loss of $13.3
million recorded in the three months ended June 30, 2002. The 2003 results
included adverse development on prior years reserves for unpaid claims and
claims expenses combined with non-recurring charges incurred related to the
cancellation of the Chubb underwriting facility, continued costs for legal and
advisory fees, and other expenses related to the writeoff of uncollectible
balances due from Trenwick America's United Kingdom affiliates. The 2002 quarter
included losses incurred under a stop loss agreement between Trenwick America
and its affiliate.
-14-
Underwriting loss
Trenwick America recorded an underwriting loss of $34.3 million in the second
quarter of 2003 compared to an underwriting loss of $24.3 million in the second
quarter of 2002. Details of underwriting income and loss are produced below:
2003 2002 Change
---------- ---------- ----------
(in thousands)
Net premiums earned $ 109,945 $ 118,354 $ (8,409)
---------- ---------- ----------
Claims and claims expenses incurred 104,990 103,088 1,902
Acquisition costs and underwriting expenses 39,223 39,597 (374)
---------- ---------- ----------
Total expenses 144,213 142,685 1,528
---------- ---------- ----------
Net underwriting loss $ (34,268) $ (24,331) $ (9,937)
========== ========== ==========
Loss ratio 95.5% 87.1% 8.4%
Underwriting expense ratio 35.7% 33.5% 2.2%
Combined ratio 131.2% 120.6% 10.6%
The underwriting loss of $34.3 million in the second quarter of 2003 represented
a $9.9 million greater loss compared to the same period in 2002. The 2003
underwriting loss is a result of a decrease in earned premiums as a result of
the runoff status of Trenwick America's insurance and reinsurance operations
combined with $36.0 million of adverse development recorded on prior year
reserves for unpaid claims and claims expenses. The 2002 underwriting loss
includes $20.0 million of losses incurred under a stop loss agreement between
Trenwick America Re and its affiliate, Trenwick International Limited.
The increase in the combined ratio in the second quarter of 2003 compared to the
second quarter of 2002 resulted mainly from the decrease in earned premiums and
adverse development noted above.
Premiums written
Gross premiums written for 2003 were $59.0 million compared to $198.0 million
for the three months ended June 30, 2002, a decrease of $139 million or 70.2%.
Details of gross premiums written are provided below:
2003 2002 Change
---------- ---------- ----------
(in thousands)
Trenwick America Re $ 53,761 $ 99,148 $ (45,387)
INSCORP 5,221 98,902 (93,681)
---------- ---------- ----------
Gross premiums written $ 58,982 $ 198,050 $ (139,068)
========== ========== ==========
The decrease in Trenwick America Re's gross written premium of $45.4 million
from the second quarter of 2003 was attributable to the Company's financial
condition which prevented Trenwick America Re from writing any new business
outside of that written through the Chubb underwriting facility, which was
terminated during the second quarter of 2003. Effective April 15, 2003, Trenwick
America Re was placed into runoff, therefore premiums written will continue to
decrease. The decrease in INSCORP's gross premiums was due to Trenwick America's
decision to cease underwriting specialty program insurance effective October 30,
2002.
-15-
Premiums earned
2003 2002 Change
---------- ---------- ----------
(in thousands)
Gross premiums written $ 58,982 $ 198,050 $ (139,068)
Change in gross unearned premiums 82,616 (22,079) 104,695
---------- ---------- ----------
Gross premiums earned 141,598 175,971 (34,373)
---------- ---------- ----------
Gross premiums ceded (7,825) (65,674) 57,849
Change in ceded unearned premiums (23,828) 8,057 (31,885)
---------- ---------- ----------
Ceded premiums earned (31,653) (57,617) 25,964
---------- ---------- ----------
Net premiums earned $ 109,945 $ 118,354 $ (8,409)
========== ========== ==========
Gross premiums ceded for the three months ended June 30, 2003 were $7.8 million
compared to $65.7 million for the same period in 2002. The decrease in gross
premiums ceded of $57.8 million was a result of the placement of Trenwick
America's insurance and reinsurance business into voluntary runoff as previously
discussed.
Claims and claims expenses
Claims and claims expenses for the three months ended June 30, 2003 were $105.0
million, an increase of $1.9 million compared to claims and claims expenses of
$103.1 million for 2002. Claims and claims expenses incurred during the second
quarter of 2003 include adverse development of prior year reserves on unpaid
claims and claims expenses on the Trenwick America Re and INSCORP segments of
approximately $28.5 million and $7.5 million, respectively. The adverse
development recorded in Trenwick America Re relates primarily to Directors and
Officers and General Liability lines of business in the 1999 and 2000 accident
years, while the adverse development reported by INSCORP during the quarter was
primarily the result of an unexpected arbitration settlement regarding a claim
on a 1995 accident year pool contract.
Underwriting expenses
2003 2002 Change
---------- ---------- ----------
(in thousands)
Policy acquisition costs $ 34,564 $ 34,959 $ (395)
Underwriting expenses 4,659 4,638 21
---------- ---------- ----------
Total underwriting expenses $ 39,223 $ 39,597 $ (374)
========== ========== ==========
Underwriting expense ratio 35.7% 33.5% 2.2%
========== ========== ==========
Total underwriting expenses, comprising policy acquisition costs and
underwriting expenses, for 2003 decreased by $0.4 million compared to
underwriting expenses for the three months ended June 30, 2002. The decrease was
attributable to the decrease in premium volume, previously discussed, offset in
part by severance costs of approximately $1.5 million in connection with
Trenwick's decision to cease underwriting through Trenwick America Re. Total
underwriting expenses as a percentage of net premiums earned, or the
underwriting expense ratio, were 35.7% for the three months ended June 30, 2003
compared to 33.5% for the same period in 2002. The increase in the underwriting
expense ratio can be attributed to the absence of premiums earned on excess of
loss contracts in 2003 as a result of the runoff status of Trenwick America Re,
as such contracts carry lower acquisition costs than their other assumed
business written.
-16-
Net Investment Income
2003 2002 Change
---------- ---------- ----------
(in thousands)
Average invested assets $1,060,760 $1,165,425 $ (104,665)
Average annualized yields 4.57% 5.98% (1.41)%
Investment income $ 12,224 $ 17,514 $ (5,290)
Investment income - non-portfolio 242 -- 242
Investment expenses (2,377) (3,038) (661)
---------- ---------- ----------
Net investment income $ 10,089 $ 14,476 $ (4,387)
========== ========== ==========
Net investment income for the three months ended June 30, 2003 was $10.1 million
compared to $14.5 million for the same period in 2002. The decrease in net
investment income in 2003 is due to an overall decline in market yields combined
with a decrease in average invested assets. Included in interest expense in the
second quarter of 2003 and 2002 is interest expense on funds withheld of $1.8
million and $2.4 million, respectively, under the terms of stop loss agreements
purchased by Trenwick America Re prior to 2001.
Net Realized Gains (Losses)
Net realized losses on investments were $0.4 million during the three months
ended June 30, 2003, compared to net realized losses of $1.3 million for the
three months ended June 30, 2002. The 2003 losses were primarily the result of
the write-down of an investment that was determined to be permanently impaired.
Other Income (Expenses)
Trenwick America recorded other expenses of $20.9 million for the quarter ended
June 30, 2003 as compared to other income of $1.3 million for the same period in
2002. Included in other expenses were $10.0 million of fronting fees incurred in
the second quarter of 2003 related to the Chubb underwriting facility. As a
result of the cancellation of the agreement, the remainder of the unpaid
fronting fees of $3.8 million was accrued as of June 30, 2003. Additionally, the
remaining deferred fronting fee ($6.2 million as of March 31, 2003) was fully
amortized, as Trenwick will no longer benefit from future underwriting under the
contract. Trenwick will continue to be entitled to the economic benefits of, and
will bear losses on, business underwritten through the facility prior to the
cancellation date, subject to the terms and conditions of the facility. Also
included in other expenses incurred during the second quarter of 2003 were $11.2
million related to the writeoff of receivables from Trenwick America's United
Kingdom affiliates which were determined to be uncollectible.
General and administrative expenses
General and administrative expenses for the three months ended June 30, 2003
were $2.0 million, an increase of $1.3 million as compared to $0.7 million
incurred during the same period in 2002. The increase in 2003 is primarily the
result of the inclusion of $1.3 million of legal and advisory fees incurred as a
result of Trenwick America's financial condition.
Interest Expense and Subsidiary Preferred Share Dividends
Interest expense and subsidiary preferred share dividends were $4.4 million for
the second quarter of 2003, a decrease of $3.3 million from the same period in
2002. The decrease in 2003 resulted from the absence of interest on Trenwick
America's term loan facility, for which $2.4 million was incurred in the 2002
quarter, as the term loan facility was repaid in full during June 2002.
-17-
Foreign Currency Gains (Losses)
Trenwick America recorded foreign currency losses of $0.1 million for the three
months ended June 30, 2003, compared to foreign currency losses of $2.3 million
for the three months ended June 30, 2002.
Results of Operations - Six Months Ended June 30, 2003 and 2002
Trenwick America's net loss of $59.9 million in the six months ended June 30,
2003 represented a $8.4 million improvement from the net loss of $68.2 million
recorded in the six months ended June 30, 2002. The loss for the six months
ended June 30, 2003 results included non-recurring charges related to the
cancellation of the Chubb underwriting agreement, legal and advisory fees
related to ongoing efforts to restructure Trenwick America's outstanding
indebtedness, adverse development on prior year reserves for unpaid claims and
claims expenses and expenses related to the writeoff of receivables from
affiliates which were determined to be uncollectible. The 2002 results also
included underwriting losses incurred related to adverse development on unpaid
claims and claims expenses related to prior accident years in addition to the
writedown of goodwill resulting from the Trenwick/LaSalle business combination,
recorded as a cumulative effect of a change in accounting principles.
Underwriting income (loss)
Trenwick America recorded an underwriting loss of $38.5 million in the first
half of 2003, consistent with the underwriting loss recorded in the first half
of 2002. Details of underwriting income and loss follow:
2003 2002 Change
---------- ---------- ----------
(in thousands)
Net premiums earned $ 227,929 $ 217,849 $ 10,080
---------- ---------- ----------
Claims and claims expenses incurred 189,506 180,290 9,216
Acquisition costs and underwriting expenses 76,969 76,092 877
---------- ---------- ----------
Total expenses 266,475 256,382 10,093
---------- ---------- ----------
Net underwriting loss $ (38,546) $ (38,533) $ (13)
========== ========== ==========
Loss ratio 83.1% 82.8% 0.3%
Underwriting expense ratio 33.8% 34.9% (1.1)%
Combined ratio 116.9% 117.7% (0.8)%
The 2003 underwriting loss is primarily due to adverse development recorded on
prior year reserves for unpaid claims and claims expenses both on Trenwick
America Re and INSCORP, while the 2002 results include the effects of losses
incurred under a stop loss agreement between Trenwick America Re and its
affiliate Trenwick International Limited.
Premiums written
Gross premiums written for the six months ended June 30, 2003 were $145.2
million compared to $403.2 million for the six months ended June 30, 2002, a
decrease of $258.0 million or 64.0%. Details of gross premiums written are
provided below:
2003 2002 Change
---------- ---------- ----------
(in thousands)
Trenwick America Re $ 96,505 $ 201,955 $ (105,450)
INSCORP 48,702 201,217 (152,515)
---------- ---------- ----------
Gross premiums written $ 145,207 $ 403,172 $ (257,965)
========== ========== ==========
-18-
The decrease in Trenwick America Re's gross written premium of $105.5 million
for the first half of 2003 compared to the first half of 2002 was attributable
to the financial condition of Trenwick America which did not permit Trenwick
America Re to write any reinsurance business outside of that written under the
Chubb facility. On April 15, 2003, Trenwick announced that it would cease
underwriting through the Chubb facility and place Trenwick America Re into
voluntary runoff. The decrease in INSCORP's gross premiums is a result of
Trenwick America's decision to cease underwriting specialty program insurance
effective October 30, 2002.
Premiums earned
Net premiums earned for the six months ended June 30, 2003 were $227.9 million
compared to $217.8 million for 2002. Details of premiums earned are provided
below:
2003 2002 Change
---------- ---------- ----------
(in thousands)
Gross premiums written $ 145,207 $ 403,172 $ (257,965)
Change in gross unearned premiums 171,874 (71,680) 243,554
---------- ---------- ----------
Gross premiums earned 317,081 331,492 (14,411)
---------- ---------- ----------
Gross premiums ceded (26,786) (138,800) 112,014
Change in ceded unearned premiums (62,366) 25,157 (87,523)
---------- ---------- ----------
Ceded premiums earned (89,152) (113,643) 24,491
---------- ---------- ----------
Net premiums earned $ 227,929 $ 217,849 $ 10,080
========== ========== ==========
Gross premiums ceded for the six months ended June 30, 2003 were $26.7 million
compared to $138.8 million for the same period in 2002. The decrease in gross
premiums ceded of $112.0 million was primarily due to the placement of Trenwick
America's insurance and reinsurance business into voluntary runoff as previously
discussed.
Claims and claims expenses
Claims and claims expenses for the six months ended June 30, 2003 were $189.5
million, an increase of $9.2 million compared to claims and claims expenses of
$180.3 million for the six months ended June 30, 2002. Claims and claims
expenses for the six months ended June 30, 2003 include adverse development on
prior year reserves for unpaid claims and claims expenses recorded in the
Trenwick America Re and INSCORP segments of approximately $35.7 million and
$12.6 million, respectively. The adverse development recorded by Trenwick
America Re relates primarily to Directors and Officers and General Liability
lines of business in the 1999 and 2000 accident years, while the adverse
development recorded by INSCORP during the six months ended June 30, 2003 was
primarily the result of an unexpected arbitration settlement regarding a claim
on a 1995 accident year pool contract. The 2002 results included losses incurred
of $20.0 million under a stop loss agreement between Trenwick America
Reinsurance Corporation and Trenwick International Limited.
Underwriting expenses
2003 2002 Change
---------- ---------- ----------
(in thousands)
Policy acquisition costs $ 67,822 $ 66,333 $ 1,489
Underwriting expenses 9,147 9,759 (612)
---------- ---------- ----------
Total underwriting expenses $ 76,969 $ 76,092 $ 877
========== ========== ==========
Underwriting expense ratio 33.8% 34.9% (1.1)%
========== ========== ==========
-19-
Total underwriting expenses, comprising policy acquisition costs and
underwriting expenses, for the six months ended June 30, 2003 increased by $0.9
million compared to underwriting expenses for the six months ended June 30,
2002. The 2003 underwriting expenses include $1.5 million in severance costs in
connection with Trenwick's decision to cease underwriting through Trenwick
America Re during the second quarter of 2003.
Total underwriting expenses as a percentage of net premiums earned, or the
underwriting expense ratio, decreased slightly to 33.8% for the six months ended
June 30, 2003 compared to 34.9% for the same period in 2002.
Net Investment Income
2003 2002 Change
---------- ---------- ----------
(in thousands)
Average invested assets $1,057,538 $1,170,772 $ (113,234)
Average annualized yields 4.41% 6.14% (1.73)%
Investment income $ 23,304 $ 35,924 $ (12,620)
Investment income non-portfolio 517 -- 517
Investment expenses (5,421) (6,592) 1,171
---------- ---------- ----------
Net investment income $ 18,400 $ 29,332 $ (10,932)
========== ========== ==========
Net investment income for the six months ended June 30, 2003 was $18.4 million
compared to $29.3 million for the same period in 2002. The decrease in net
investment income resulted from a decline in market yields combined with a
decrease in average invested assets. Investment expenses for the first six
months of 2003 and 2002 included interest expense on funds withheld of $4.2
million and $5.3 million, respectively, under the terms of stop loss reinsurance
agreements purchased by Trenwick America Re prior to 2001.
Net Realized Gains (Losses)
Net realized losses on investments were $0.7 million during the six months ended
June 30, 2003, compared to net realized losses of $1.5 million for the six
months ended June 30, 2002. The 2003 losses were primarily the result of the
recognition of a permanent impairment on an investment.
Other income (expenses)
Trenwick America recorded other expenses of $22.9 million for the six months
ended June 30, 2003 as compared to other income of $3.5 million for the same
period in 2002. The 2003 amount included $13.0 million of fronting fees incurred
related to the Chubb underwriting facility. As a result of the cancellation of
the agreement, the remainder of the unpaid minimum fronting fee of $3.8 million
was accrued as of June 30, 2003. Additionally, the remaining deferred fronting
fee ($8.0 million at December 31, 2002) was fully amortized, as Trenwick America
will no longer benefit from future underwriting under the contract. Trenwick
America will continue to be entitled to the economic benefits of, and will bear
losses on, business underwritten through the facility prior to the cancellation
date. In addition, other expenses recorded in 2003 include $11.2 million related
to the writeoff of the receivables from Trenwick America's United Kingdom
affiliates that were determined to be uncollectible.
General and administrative expenses
General and administrative expenses for the six months ended June 30, 2003 were
$3.5 million, an increase of $2.1 million as compared to $1.4 million incurred
during the same period in 2002.
-20-
The increase in 2003 is primarily the result of the inclusion of $1.9 million of
legal and advisory fees related to Trenwick America's ongoing efforts to
restructure its outstanding indebtedness.
Interest Expense and Subsidiary Preferred Share Dividends
Interest expense and subsidiary preferred share dividends were $12.4 million for
the first half of 2003, a decrease of $2.3 million from the same period in 2002,
due primarily to the absence of interest expense on Trenwick's term loan
facility, which was repaid during the second quarter of 2002.
Foreign Currency Gains (Losses)
Trenwick America recorded foreign currency losses of $0.2 million for the six
months ended June 30, 2003 compared to foreign currency losses of $1.3 million
for the six months ended June 30, 2002.
Liquidity and Capital Resources
Trenwick America is a holding company whose principal assets are its investments
in the common stock of its operating subsidiaries. As a holding company,
Trenwick America's principal source of ongoing funding consists of permissible
dividends, tax allocation payments and other statutorily permissible payments
from its operating subsidiaries. Trenwick America's ability to generate
operating capital is limited and its ability to meet its obligations is
dependent upon funding from its operating subsidiaries. There is substantial
uncertainty as to what amount of future funds it will receive from its operating
subsidiaries. Trenwick America's principal use of cash has been operating
expenses, repayment of loans to affiliates as well as to service its debt
obligations. Trenwick America's operating subsidiaries 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 investment
securities.
Trenwick America and its insurance and reinsurance company 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 America's financial integrity and solvency in its business
transactions and operations. Many of the insurance statutes and regulations
applicable to Trenwick America's subsidiaries relate to reporting and enable
regulators to closely monitor Trenwick America's performance. Typical required
reports include information concerning Trenwick America's capital structure,
ownership, financial condition, and general business operations.
On May 5, 2003 INSCORP entered into a "letter of understanding" with the New
York Insurance Department pursuant to which, among other things, INSCORP is
prohibited from paying any dividends, ordinary or extraordinary, without the
prior written approval of the New York Insurance Department.
On December 3, 2002 Trenwick America Re entered into a "letter of understanding"
with the Connecticut Department of Insurance pursuant to which, among other
things, Trenwick America Re is prohibited from paying any dividends, ordinary or
extraordinary, without the prior written approval of the Connecticut Department
of Insurance.
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On November 29, 2002, Trenwick announced that it had elected to suspend, with
immediate effect and for an indefinite period of time, dividends or
distributions payable, including those on the outstanding capital securities of
Trenwick's Capital Trust I and on Trenwick America's senior notes. In addition,
the December amendments to the letter of credit facility prohibit Trenwick
America from paying dividends on the capital securities.
Cash used in Trenwick America's operating activities for the six months ended
June 30, 2003 was $87.5 million compared to cash used by Trenwick America's
operating activities of $14.3 million in the comparable period of 2002. The
increase in cash used in operations was due primarily to a significant increase
in claims and claims expenses paid in 2003 over 2002. Net cash provided by
financing activities during the three months ended June 30, 2003 was $3.5
million compared to cash used for financings of $8.6 million in the six months
ended June 30, 2002.
Financings, Financing Capacity and Capitalization
Concurrently with the business combination involving LaSalle Re Holdings and
Trenwick Group Inc. in September of 2000, Trenwick America and Trenwick Holdings
Limited ("Trenwick Holdings"), Trenwick's United States and United Kingdom
holding companies, entered into an amended and restated $490 million credit
agreement with various lending institutions ("the Banks"), which was guaranteed
by LaSalle Re Holdings. The credit agreement consisted of both a $260 million
revolving credit facility and a $230 million letter of credit facility. The
revolving credit facility was subsequently converted into a four-year term loan
and repaid in full on June 17, 2002. Additionally, on December 24, 2002, the
credit agreement was amended to reduce the letter of credit facility, which is
utilized by Trenwick to support its underwriting operations at Lloyd's, to the
currently outstanding $182.5 million. The letter of credit facility is scheduled
to terminate on December 31, 2003, although the letters of credit issued
pursuant to the facility will not expire until December 31, 2006.
Pursuant to a guaranty agreement entered into concurrently with the credit
agreement, Trenwick has guaranteed the obligations of Trenwick America and
Trenwick Holdings under the credit agreement. In April of 2002, Trenwick pledged
the capital stock of LaSalle Re Holdings, which was a guarantor of the
obligations under the credit agreement, and LaSalle Re as collateral to the
Banks. In December of 2002, Trenwick, Trenwick America and Trenwick Holdings
agreed to provide the Banks additional security interests as described below.
On October 18, 2002, A.M. Best Company lowered the financial strength ratings of
Trenwick, Trenwick America and Trenwick Holdings' operating subsidiaries below
"A-". The lowered A.M. Best Company ratings constituted an event of default
under the credit agreement. In addition, increases in Trenwick's reserves for
unpaid claims and claims expenses and the establishment of a Trenwick America
deferred tax asset valuation allowance in the third quarter of 2002 resulted in
violations of the financial covenants in the credit agreement requiring
Trenwick, Trenwick America and Trenwick Holdings to maintain a minimum tangible
net worth and minimum risk-based capital. On November 13, 2002, Trenwick,
Trenwick America, Trenwick Holdings and the Banks executed a forbearance
agreement with respect to the events of default arising from the lowered A.M.
Best Company ratings and financial covenant violations.
Subsequently, an amendment and waiver of default under the credit agreement and
amendments to the guaranty agreement were entered into on December 24, 2002 (the
"December Amendments"). The December Amendments extended the letter of credit
facility through December 31, 2003 to support Trenwick's underwriting operation
at Lloyd's for the 2003 year of account. To those Banks extending their letters
of credit, Trenwick, Trenwick America and
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Trenwick Holdings agreed to pay a 5% per annum cash letter of credit fee, issue
pay-in-kind notes bearing interest at LIBOR plus 2.5% per annum to evidence an
additional 3.16% per annum letter of credit fee, issue warrants equal to 10% of
Trenwick's fully diluted equity capital, and pay 15% of the profits earned by
Trenwick and its subsidiaries for the 2002 and 2003 Lloyd's years of account. In
addition, Trenwick, Trenwick America and Trenwick Holdings agreed to provide the
Banks a security interest in all of their respective equity interests in, and
the assets and property of, their direct and indirect subsidiaries as additional
collateral for the Banks, and to cause the subsidiaries to provide a guaranty to
the Banks subject to applicable laws and regulations and certain existing
contractual rights of holders of other indebtedness. On April 25, 2003, Trenwick
issued to the Banks an aggregate of 3,678,686 warrants to purchase common stock,
representing 10% of the fully diluted equity capital of Trenwick as of such
date. The warrants have a term of eight years from the date of issuance or have
an exercise price of $0.19 per share.
The December Amendments also prohibit Trenwick, Trenwick America and Trenwick
Holdings and their respective subsidiaries from declaring or paying any
dividends (including on Trenwick's common shares, the Series A preferred shares
of LaSalle Re Holdings and the capital securities of Trenwick Capital Trust I).
The December Amendments and the other amendments and waivers entered into in the
first and second quarters of 2003 waive certain other defaults, add covenants
further restricting the operation of Trenwick's, Trenwick America's and Trenwick
Holdings' business, prohibit Trenwick, Trenwick America and Trenwick Holdings
and their respective subsidiaries from making certain payments without the
Banks' approval, prohibit Trenwick, Trenwick America and Trenwick Holdings and
their respective subsidiaries from selling or otherwise disposing of any assets
or property, require Trenwick to regularly report certain financial information
to the Banks, and adjust downward certain of the financial covenants.
Pursuant to the December Amendments, Trenwick was required to collateralize with
cash, cash equivalents and marketable securities 60% of the outstanding letters
of credit by August 1, 2003. As it was unable to do so, Trenwick's insurance
company subsidiaries, including those of Trenwick America, are now prohibited
from underwriting any insurance or reinsurance without the Banks' prior
approval. In addition, Trenwick is required to use its best efforts to terminate
the letters of credit by December 31, 2003. In order to do so, the letters of
credit would need to be replaced with other letters of credit or collateral
acceptable to Lloyd's. In the event Trenwick has not terminated the letters of
credit by December 31, 2003, it is required on such date to collateralize with
cash, cash equivalents and marketable securities the full amount of the
outstanding letters of credit. At this time, Trenwick does not have sufficient
available liquidity to collateralize the letters of credit as required by the
December Amendments.
Since December 2002, Trenwick, Trenwick America and Trenwick Holdings have
entered into additional amendments and numerous waivers with the Banks providing
for, among other things, waivers of potential covenant defaults, further
reductions in certain financial covenants, additional financial reporting,
approval of certain employee and other payments, approval of the extension of
Trenwick America's senior notes from April 1, 2003 to August 1, 2003, the
related payment of interest accrued through April 1, 2003 to the holders of the
Senior Notes and extension of numerous deadlines imposed under the December
Amendments.
Trenwick America did not pay principal and interest on its Senior Notes due on
August 1, 2003, which also created an event of default with respect to the
letter of credit facility and other certain other indebtedness of Trenwick and
Trenwick America. Therefore, Trenwick, Trenwick America and Trenwick Holdings
may be required to fully and immediately collateralize the outstanding letters
of credit under the terms of the credit agreement and the guaranty agreement. No
liability for any such amounts has been reflected in Trenwick's, Trenwick
America's or Trenwick
-23-
Holdings' financial statements. As announced on August 7, 2003, Trenwick has
entered into an agreement in principle on a long-term restructuring of its debt
obligations, the sale of its business operations at Lloyd's, and the runoff of
its remaining businesses with (i) the majority of the beneficial holders of its
Senior Notes, (ii) the steering committee of the Banks, and (iii) a group
composed of current members of management of Trenwick's Lloyd's operations (the
"Management Team").The restructuring is intended to be implemented through
various means, including but not limited to the following: (i) the filing by
Trenwick and/or one or more of its subsidiaries, including Trenwick America of
Chapter 11 bankruptcy proceedings in the United States and the filing of similar
proceedings in Bermuda, Barbados or the United Kingdom, as the case may be; (ii)
the sale by Trenwick of substantially all of its Lloyd's operations to a company
controlled by the Management Team and with capital provided by the Management
Team, third-party investors and the Banks and (iii) the retention of third party
run-off advisors and the continued runoff or disposition of all of Trenwick's
other insurance and reinsurance operations.
The terms of the restructuring are subject to the satisfaction of numerous
conditions precedent including, but not limited to, the following: (i) approval
of the restructuring by the Banks; (ii) negotiation of definitive documentation
(iii) receipt of all requisite regulatory and other approvals in the United
States, Bermuda and the United Kingdom; (iv) due diligence by Englefield Capital
LLP, the proposed equity sponsor of the Management Team, which has entered into
an exclusive negotiation agreement with Trenwick, and (v) approval of any court
having jurisdiction over the above-referenced insolvency proceedings.
On August 20, 2003, Trenwick America and its affiliates, Trenwick and LaSalle Re
Holdings Limited ("LaSalle Re Holdings") (collectively, the "Debtors"), filed
for protection from their creditors under chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") with the United States Bankruptcy Court
for the District of Delaware (the "Bankruptcy Court"). On that same date,
Trenwick and LaSalle Re Holdings filed proceedings in the Supreme Court of
Bermuda known under Bermudian law as "winding up". Trenwick and LaSalle Re
Holdings have petitioned the Supreme Court of Bermuda to issue an order
appointing Joint Provisional Liquidators for Trenwick and LaSalle Re Holdings
and have requested that deference be paid in the "winding up" to the
jurisdiction of the Bankruptcy Court and the Debtors' restructuring efforts in
accordance with the Bankruptcy Code. It is the intention of the Debtors to
implement the restructuring agreed to among the Debtors and their creditor
constituencies, as discussed above, through the bankruptcy process.
The majority of the assets and liabilities included in the consolidated balance
sheet of Trenwick America are assets and liabilities of its regulated insurance
company subsidiaries, which are not subject to the proceedings in the Bankruptcy
Court or the Supreme Court of Bermuda.
In addition to the foregoing, at any time, one or more of the insurance
regulatory authorities having jurisdiction over Trenwick or Trenwick America's
insurance company subsidiaries may commence voluntary or involuntary proceedings
for the formal supervision, rehabilitation or liquidation of such subsidiaries,
or one or more of the creditors of Trenwick, Trenwick America or their
subsidiaries may commence proceedings against Trenwick, Trenwick America or
their unregulated subsidiaries seeking their liquidation.
The accompanying financial statements have been prepared assuming Trenwick
America will continue as a going concern. As discussed above, Trenwick America
was unable to repay certain senior notes by April 1, 2003 and collateralize,
with cash or cash equivalents, 60% of the outstanding letters of credit under
its senior credit facility by August 1, 2003 and is therefore in default with
respect to the senior notes and certain other indebtedness. Additionally,
certain
-24-
insurance subsidiaries of Trenwick America do not meet risk based capital levels
or levels of surplus required by various insurance regulations to which they are
subject. These matters raise substantial doubt about Trenwick's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
In connection with the Trenwick/LaSalle business combination, Trenwick America
assumed, effective September 27, 2000, Trenwick Group Inc.'s obligations with
respect to $75 million aggregate principal amount of 6.70% senior notes (the
"Senior Notes"), which were initially due on April 1, 2003 and pursuant to an
amendment have been extended to August 1, 2003. They are unsecured obligations
and rank senior in right of payment to all existing and future subordinated
indebtedness of Trenwick America. Interest on the Senior Notes is payable
semi-annually at a rate of 6.7%. In connection with the amendment that extended
the maturity date of the Senior Notes from April 1, 2003 to August 1, 2003,
interest payable through April 1, 2003, in the aggregate amount of $2.5 million,
was paid. Trenwick America was unable to make payment of principal and interest
on the Senior Notes on August 1, 2003 and is therefore currently in default
under the terms of the Senior Notes. As discussed, Trenwick America has entered
into an agreement in principle to restructure the Senior Notes in addition to
its other outstanding indebtedness.
Trenwick America also assumed, effective September 27, 2000, Trenwick Group
Inc.'s $113.4 million 8.82% Junior Subordinated Deferrable Interest Debentures
held by Trenwick Capital Trust I in respect of the $110 million in 8.82%
Subordinated Capital Income Securities issued by the Trust. Under the terms of
the debentures, Trenwick America is not restricted from incurring indebtedness,
but is subject to limits on its ability to incur secured indebtedness for
borrowed money.
Upon consummation of the acquisition of Chartwell Re Corporation ("Chartwell")
in 1999, Trenwick Group Inc. became the successor obligor under Chartwell's
Contingent Interest Notes due June 30, 2006. Effective September 27, 2000,
Trenwick America assumed Trenwick Group Inc.'s obligations under the contingent
interest notes in connection with the Trenwick/LaSalle business combination. The
contingent interest notes were issued in an aggregate principal amount of $1
million, which accrues interest at a rate of 8% per annum, compounded annually.
The interest is not payable until the maturity or earlier redemption of the
contingent interest notes. In addition, the contingent interest notes entitle
their holders to receive at maturity, in proportion to the principal amount of
the contingent interest notes held by them, an aggregate of from $0 up to $55
million in contingent interest. The amount of contingent interest payable under
the contingent interest notes is dependent upon the level of unpaid claims and
claims expenses related to business written by Trenwick America's subsidiary,
INSCORP, prior to 1996. The contingent interest notes mature on June 30, 2006.
Trenwick America's failure to pay principal and interest on the Senior Notes
constituted an event of default with respect to the contingent interest notes
which would enable the trustee or the required amount of contingent interest
noteholders to accelerate the maturity of the contingent interest notes.
During the year ended December 31, 2002 and prior, Trenwick America recorded
significant adverse development related to the subject business, and as a
result, the carrying value of the contingent interest notes at June 30, 2003 is
equal to the minimum principal amount of $1 million plus accrued interest, which
is the present value of the amount expected to be paid at maturity. The
contingent interest notes will continue to accrue interest at a rate of 8% per
year. The contingent interest notes contain covenants which relate to the
maintenance of certain records and
-25-
limitations on certain indebtedness. At June 30, 2003, Trenwick America was in
compliance with these covenants.
Trenwick America's ability to refinance its existing debt obligations or raise
additional capital is dependent upon several factors, including financial
conditions with respect to both the equity and debt markets and the ratings of
its securities as established by the rating agencies. As a result of the
continued deterioration of Trenwick America's financial condition, its senior
debt ratings have been downgraded by Standard & Poor's Corporation to "D" and
withdrawn by Moody's Investors Service. Trenwick America's ability to refinance
its outstanding debt obligations, as well as the cost of such borrowings, has
been materially adversely affected by these ratings downgrades and withdrawals.
Because Trenwick's operations are conducted through its operating subsidiaries,
Trenwick is dependent upon the ability of its operating subsidiaries to transfer
funds, principally in the form of cash dividends, tax reimbursements and other
statutorily permissible payments. In addition to general legal restrictions on
payments of dividends and other distributions to shareholders applicable to all
corporation, Trenwick's insurance subsidiaries are subject to insurance laws and
regulations in the jurisdictions in which they operate that, among other things,
restrict the amount of dividends and other distributions that may be paid to
their parent corporations without prior approval by the insurance regulatory
authorities. Moreover, Trenwick has entered into letter agreements with the
insurance departments of the state of Connecticut and New York which restrict
Trenwick America Re and INSCORP from taking certain actions such as paying
dividends or disposing of assets. As previously discussed, the December
Amendments to Trenwick's letter of credit facility prohibit Trenwick and its
subsidiaries from declaring or paying any dividends (including on Trenwick's
common and preferred shares, the preferred shares of LaSalle Re Holdings and the
capital securities issued by Trenwick Capital Trust I). The amendments also
prohibit Trenwick from making certain payments without the Banks' approval.
Accounting Standards
In January 2003, the FASB issued Interpretation No. ("FIN") 46, Consolidation of
Variable Interest Entities, which Trenwick America intends to adopt on July 1,
2003. FIN 46's consolidation criteria are based on analysis of risks and
rewards, not control, and represent a significant and complex modification of
previous accounting principles. FIN 46 represents an accounting change, not a
change in the underlying economics of asset sales. Under its provisions, certain
assets previously sold to special purpose entities (SPE's) could be consolidated
and, if consolidated, any assets and liabilities now on the books related to
those SPE's would be removed. Because Trenwick America has not traditionally
engaged in the types of securitization vehicles within the scope of FIN 46,
management does not believe adoption of the interpretation will impact future
results.
FUTURE BUSINESS OPERATIONS
The future operations of Trenwick America and its financial results are likely
to differ materially from those of 2002 and prior years as Trenwick has placed
into runoff all its insurance and reinsurance operations. As described above in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", Trenwick America, Trenwick and LaSalle Re Holdings on August 20,
2003 filed for protection from their creditors with the United States Bankruptcy
Court for the District of Delaware and Trenwick and LaSalle Re Holdings filed
proceedings in the Supreme Court of Bermuda known under Bermudian law as
"winding up." Trenwick America, Trenwick and LaSalle Re Holdings will be
operating under the supervision of the Bankruptcy Court (and, in the case of
Trenwick and LaSalle Re Holdings, also under the
-26-
Supreme Court of Bermuda), and, as a result, certain of their expenditures will
be subject to the approval of such court or courts, as the case may be.
The result of the foregoing is that the future operations of Trenwick are likely
to consist substantially of the sale, or management in runoff, of some or all of
its existing insurance and reinsurance businesses including administration of
claims, regulatory reporting, settlement of reinsurance agreements (including
commutations thereof where appropriate), cash and investment management and
related matters. The costs involved in such operations are likely to differ
significantly from those of prior years, where a significant portion of the
operating costs related to underwriting, marketing and securing reinsurance for
new business. The reimbursement of costs as they relate directly to the
insurance entities themselves will be subject to review by regulatory
authorities which may challenge these costs, impose other restrictions with
respect to the runoff including the provision of an acceptable runoff plan and
retention of advisors who specialize in various aspects of runoff operation.
Adverse loss developments or weakness in reinsurance recoveries, among other
factors, could significantly and negatively impact the success of any runoff. It
is unlikely that any amounts will be available to the creditors or equity
holders of the direct and indirect parent companies of any regulated insurance
subsidiary of Trenwick until such time as the regulator having jurisdiction over
such subsidiary has been assured of the solvency of such entity, which may
require several years if achievable at all. It is possible that one or more of
Trenwick's insurance company subsidiaries may be placed under the control of the
regulatory body with jurisdiction over such entity, voluntarily or
involuntarily, through rehabilitation, liquidation or other proceedings.
RISK FACTORS
You should carefully consider the risks described below regarding us and our
securities. The risks and uncertainties described below are not the only ones we
face. There may be additional risks and uncertainties. If any of the following
risks actually occur or continue to occur, our business, financial condition or
results of operations could be materially and adversely affected and the trading
price of our securities could decline further.
Our auditors have expressed doubt as to our ability to continue as a going
concern.
Our independent accountants, PricewaterhouseCoopers LLP, have stated, in their
audit report with respect to our financial statements as at and for the twelve
months ended December 31, 2002, that substantial doubt exists as to our ability
to continue as a going concern.
We have defaulted on our Senior Notes and have filed for protection under
chapter 11 of the United States Bankruptcy Code.
We were unable to make payment of principal and interest due on our Senior Notes
on August 1, 2003 and are therefore currently in default under the terms of the
Senior Notes. This default constituted an event of default under Trenwick's
letter of credit facility and Trenwick is required under that facility to
collateralize, with cash or cash equivalents, 60% of the letters of credit.
Trenwick is unable to provide such security.
On August 20, 2003, we and our affiliates, Trenwick and LaSalle Re Holdings
filed for protection from their creditors under chapter 11 of the United States
Bankruptcy Code with the United States Bankruptcy Court for the District of
Delaware. On that same date, Trenwick and LaSalle Re Holdings filed proceedings
in the Supreme Court of Bermuda known under Bermudian law as "winding up."
Trenwick and LaSalle Re Holdings have petitioned the Supreme Court of
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Bermuda to issue an order appointing Joint Provisional Liquidators for Trenwick
and LaSalle Re Holdings and have requested that deference be paid in the
"winding up" to the jurisdiction of the Bankruptcy Court and our restructuring
efforts in accordance with the Bankruptcy Code. It is our intention to implement
the restructuring agreed to among us, Trenwick, LaSalle Re Holdings and our and
their creditor constituencies, as discussed above, through the bankruptcy
process.
Our indirect parent, Trenwick Group Ltd., has issued convertible preferred
shares that may result in substantial dilution to existing common shareholders
and/or a change in control of Trenwick Group Ltd. Trenwick Group Ltd. does not
have the ability to control settlement of these convertible preferred shares.
As a result of the September 11, 2001 terrorist attacks, LaSalle Re incurred
large catastrophe losses that enabled Trenwick Group Ltd. to exercise its rights
under a catastrophe equity put option with European Reinsurance Company of
Zurich, a subsidiary of Swiss Reinsurance Company ("European Re"). In this
transaction, Trenwick Group Ltd. issued Series B convertible preferred shares to
European Re for a purchase price of $40 million. These Series B shares are
convertible into Trenwick Group Ltd. common shares upon the occurrence of
certain events, including Trenwick Group Ltd.'s failure to maintain a net worth
(as defined) under generally accepted accounting principles of $225 million.
Trenwick Group Ltd.'s net worth is below $225 million, and a net worth
conversion event has occurred. European Re is able to convert the Series B
Shares into common shares upon not less than 60 trading days notice to Trenwick
Group Ltd., and in the event of such conversion, substantial dilution to
existing common shareholders of Trenwick Group Ltd. will occur. As of December
31, 2002, the Series B Shares would be settled upon conversion with
approximately 12.2 million common shares, or 33% of Trenwick's common shares,
based on the year end figures for 2002. Trenwick has been notified by European
Re that European Re believes Trenwick's calculation of the number of common
shares to be received upon conversion of the Series B Preferred Shares is
erroneous and that under European Re's interpretation of the documentation the
Series B Preferred Shares would have been entitled to convert into approximately
48.1 million shares, or 56.6% of the common shares, based on the year end
figures for 2002. Trenwick believes its calculation is correct but intends to
discuss this issue with European Re. If European Re converts its Series B
Preferred Shares, there would be substantial dilution to the holders of the
common shares, and this conversion could result in European Re obtaining control
of Trenwick, and therefore Trenwick America, subject to compliance with
applicable insurance law and regulation.
We are a holding company and substantially all of our assets are held in our
insurance company subsidiaries. These assets are generally unavailable to pay
the debts of the holding company and there is substantial uncertainty as to
whether we will ultimately receive any value from our insurance company
subsidiaries.
We are a holding company with no material assets other than the stock of our
operating subsidiaries. Our ability to meet our debt and securities obligations
and our ability to pay dividends to our shareholders will be dependent on the
earnings and cash flows of our subsidiaries and the ability of the subsidiaries
to pay dividends or to advance or repay funds to us. Payment of dividends and
advances and repayments from our operating insurance company subsidiaries are
regulated by state and foreign insurance laws and regulatory restrictions,
including minimum solvency and liquidity thresholds. We are required to maintain
specified minimum levels of capital and surplus and risk-based capital at our
insurance subsidiaries, which could restrict their ability to pay us dividends,
even if the dividends were permitted by relevant insurance laws and regulations.
We do not expect the majority of our operating subsidiaries will be able to pay
dividends or advance or repay any funds to us in the foreseeable future, which
would prevent us from making payments on our debt or securities obligations.
-28-
We are in discussions with insurance regulators concerning capital impairment
and other issues relating to our insurance company subsidiaries, and these
regulators may institute supervision, rehabilitation, conservation or
liquidation proceedings with respect to these subsidiaries.
We have been engaged in discussions with the insurance regulators of the
jurisdictions in which our insurance company subsidiaries are domiciled. We have
been required to restrict our Connecticut and New York insurance company
subsidiaries from taking certain actions such as paying dividends or disposing
of assets, and we have been required to submit a plan of action to eliminate the
statutory capital impairment at our New York insurance company subsidiary.
Trenwick America has also been notified by the New York Insurance Department
("NYID") that, in the NYID's view, approximately $26 million in loans made to
Trenwick America by INSCORP in 2002 were in contravention of New York regulatory
requirements. As a result, INSCORP and Trenwick America may be the subject of
regulatory action brought by the NYID. Each of these regulators, as well as the
State of North Dakota, may act independently of one another with respect to the
insurance company domiciled in its jurisdiction. The insolvency of any of the
insurance company subsidiaries or any action by an insurance regulator, such as
the commencement of voluntary or involuntary supervision, rehabilitation,
conservation or liquidation proceedings with respect to one of these companies,
could precipitate additional actions by the other insurance regulators. In the
event of any such proceedings, it is unlikely that the assets of the insurance
companies will be available to satisfy each others' liabilities, or the
liabilities of Trenwick.
Our financial strength ratings have been significantly downgraded or withdrawn
by Standard & Poor's, Moody's Investor Services and Fitch.
Our financial strength and other ratings have been downgraded significantly by
Standard & Poor's and Fitch and have been withdrawn by Moody's Investor
Services. These downgrades and withdrawal generally reflect the ratings
services' views that our business prospects and financial flexibility are very
limited and their substantial doubt as to our ability to restructure our senior
debt. In addition, these downgrades significantly and negatively affect our
ability to raise capital and to negotiate favorable terms in restructuring our
debt.
Our insurance company subsidiaries have ceased to write substantially all new
business and are in runoff.
We have placed our specialty program insurance and treaty reinsurance businesses
into runoff, therefore little or no new business is being written. Our objective
is to maximize the economic value of the runoff through effective claims
settlement, commutation of assumed obligations where appropriate, collection of
reinsurance recoverables and effective cash management. While it is possible
that some positive economic value may result over time from the runoff of this
operation, we do not expect them to contribute significantly to our revenue or
results of operations and there are significant uncertainties that could if
realized adversely affect our ability to continue a solvent runoff of this
operation. Trenwick has historically not operated in runoff and may not have
internal expertise, or may not be able to retain external support such as
experienced consultants, to do so effectively.
Our ability to attract and retain key management personnel has been negatively
affected.
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We have experienced the loss of several senior executive officers in the last
nine months. A number of executive positions at Trenwick and its subsidiaries,
including Trenwick's Acting Chief Executive Officer and its Chief Actuary, are
now being filled by consultants under short term arrangements. Our ability to
operate our business has been, and will continue to be, dependent on our ability
to retain the services of our existing key senior executive officers and to
attract and retain additional qualified personnel in the future as employees and
consultants. The loss of the services of any of our key executive officers or
the inability to hire and retain other highly qualified personnel in the future
could adversely affect our ability to conduct our business. Our financial
situation and that of our subsidiaries has made it and likely will continue to
make it difficult to retain key employees.
Our reinsurers may not satisfy their obligations to us.
Our business model relied to a large extent on reinsurance to reduce our
underwriting risk. As of June 30, 2003, our reinsurance recoverable balance was
approximately $682.6 million. Our subsidiaries are subject to credit risk with
respect to their reinsurers because the transfer of risk to a reinsurer does not
relieve the insurers of their liability to the insureds. In addition, reinsurers
may be unwilling to pay our insurance company subsidiaries even though they have
the financial resources and are contractually obligated to do so. Unfavorable
arbitration decisions or the failure of one or more of the reinsurers to honor
their obligations or make timely payments would impact our subsidiaries' cash
flow and could cause us to incur significant losses. In the event of the
rehabilitation, supervision, conservation or liquidation of any of our insurance
company subsidiaries, we may not be able to influence the outcome of the
collectibility of reinsurance recoverables, in that it will be the
responsibility of the regulators supervising such proceedings.
If actual claims exceed our loss reserves, our financial results could be
significantly adversely affected.
We establish loss reserves to cover our estimated liability for the payment of
all losses and loss expenses incurred with respect to premiums earned on the
policies that we write. We utilize actuarial models as well as historical
insurance industry loss development patterns to establish appropriate loss
reserves, as well as estimates of future trends in claims severity, frequency
and other factors. Establishing an appropriate level of loss reserves is an
inherently uncertain process. Accordingly, actual claims and claim expenses paid
will likely deviate, perhaps substantially, from the reserve estimates reflected
in our consolidated financial statements.
In 2002 we increased our loss reserves for unpaid claims and claims expenses by
$229.4 million. The reserve increases reflect a reassessment of our reserves in
light of recent reported loss activity trends across our major business groups.
Our results of operations and financial condition depend upon our ability to
assess accurately the potential losses associated with the risks that we insure
and reinsure. To the extent actual claims continue to exceed our expectations,
we will be required to immediately recognize the less favorable experience. This
could cause a material increase in our liabilities and a reduction in our
profitability, including an operating loss and reduction of capital in the
period in which such action occurs.
The effects of emerging claim and coverage issues on our business are uncertain.
As industry practices and legal, judicial, social and other environmental
conditions change, unexpected and unintended issues related to claims and
coverage may emerge. These issues may
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adversely affect our business by either extending coverage beyond our
underwriting intent or by increasing the number or size of claims. In some
instances, these changes may not become apparent until some time after we have
issued insurance or reinsurance contracts that are affected by the changes. As a
result, the full extent of liability under our insurance or reinsurance
contracts may not be known for many years after a contract is issued.
The regulatory system under which we operate, and potential changes thereto,
could have a material adverse effect on our business.
Our insurance and reinsurance subsidiaries may not be able to obtain or maintain
necessary licenses, permits, authorizations or accreditations in locales where
we currently engage in business, or may be able to do so only at significant
cost. In addition, we may not be able to comply fully with, or obtain
appropriate exemptions from, the wide variety of laws and regulations applicable
to insurance or reinsurance companies or holding companies. As a result of the
events of the past several months, we are presently in discussions with, or
subject to orders issued by, insurance regulators in all of the jurisdictions in
which we and our insurance company subsidiaries are domiciled. Our inability to
comply with or to obtain appropriate authorizations and/or exemptions under any
applicable laws, regulations or orders could result in further restrictions on
our ability to do business and could subject us to fines and other sanctions
including the ceasing of our ongoing operations.
Recent events may result in political, regulatory and industry initiatives which
could adversely affect our business.
The supply of insurance and reinsurance coverage has decreased due to withdrawal
of capacity and substantial reductions in capital resulting from, among other
things, the terrorist attacks of September 11, 2001. This tightening of supply
may result in governmental intervention in the insurance and reinsurance
markets, both in the United States and worldwide. For example, on November 26,
2002, the Terrorism Risk Insurance Act was enacted to ensure the availability of
insurance coverage for terrorist acts in the United States. This law requires
insurers writing certain lines of property and casualty insurance to offer
coverage against certain acts of terrorism causing damage within the United
States or to U.S. flagged vessels or aircraft. In return, the law requires the
federal government to indemnify such insurers for 90% of insured losses
resulting from covered acts of terrorism, subject to a premium-based deductible.
The law expires automatically at the end of 2005. Currently there is a great
deal of uncertainty as to what effect the law will have on the insurance
industry. We are currently unable to predict the extent to which the foregoing
and other new initiatives may affect the demand for our products or the risks
which may be available for us to consider underwriting. At the same time,
threats of further terrorist attacks and the military initiatives and political
unrest in the Middle East and Asia have adversely affected general economic,
market and political conditions, increasing many of the risks associated with
the insurance markets worldwide.
Applicable insurance laws may make it difficult to effect a change of control of
our company.
Before a person can acquire control of a U.S. insurance company, prior written
approval must be obtained from the insurance commissioner of the state where the
domestic insurer is domiciled. Prior to granting approval of an application to
acquire control of a domestic insurer, the state insurance commissioner will
consider such factors as the financial strength of the applicant, the integrity
and management of the applicant's board of directors and executive officers, the
acquiror's plans for the management of the applicant's board of directors and
executive officers,
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the acquiror's plans for the future operations of the domestic insurer and any
anti-competitive results that may arise from the consummation of the acquisition
of control. Generally, state statutes provide that control over a domestic
insurer is presumed to exist if any person, directly or indirectly, owns,
controls, holds with the power to vote, or holds proxies representing, 10% or
more of the voting securities of the domestic insurer. Because a person
acquiring 10% or more of our common shares would indirectly control the same
percentage of the stock of our U.S. insurance company, the insurance change of
control laws of Connecticut, New York and North Dakota would likely apply to
such a transaction.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the information concerning market risk as
stated in Trenwick America's 2002 Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
(a) The Chief Executive Officer and Chief Financial Officer of Trenwick America
have evaluated the effectiveness of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15(d)-15(e) under the Securities Exchange Act of
1934, as amended) as of the end of the period covered by this Quarterly Report.
Based on that evaluation, such officers have concluded that Trenwick America's
disclosure controls and procedures are effective as of the end of such period.
(b) There have been no changes during the period covered by this Quarterly
Report in our internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, Trenwick America's
internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Trenwick America is party to various legal proceedings generally arising in the
normal course of its business. Trenwick America does not believe that the
eventual outcome of any such proceeding will have a material effect on its
financial condition or business. Trenwick America's subsidiaries are regularly
engaged in the investigation and the defense of claims arising out of the
conduct of their business. Pursuant to Trenwick America's insurance and
reinsurance arrangements, disputes are generally required to be finally settled
by arbitration.
In addition, from time to time, Trenwick America's insurance and reinsurance
company subsidiaries become involved in disputes with ceding companies arising
under reinsurance agreements. These disputes are generally required to be
finally settled by arbitration. Trenwick America Reinsurance Corporation
recently received a demand for arbitration from one of its ceding companies with
respect to the appropriate amount of reserves to be established under its
reinsurance agreements with such ceding company.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
Trenwick America did not pay principal and interest on its 6.70% senior
notes, due on August 1, 2003, which also created an event of default with
respect to Trenwick's letter of credit facility and under certain other
indebtedness of Trenwick and Trenwick America.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
10.1 Fifth Waiver to the Credit Agreement, dated as of March 21, 2003,
among Trenwick America Corporation, Trenwick Holdings Limited,
Trenwick UK Holdings Limited, the lending institutions from time to
time party to the Credit Agreement, Wachovia Bank, National
Association, Fleet National Bank and JPMorgan Chase Bank.
Incorporated by reference to Exhibit 99.1 to Trenwick America
Corporation's Current Report on Form 8-K, filed on April 10, 2003.
(File No. 0-31967)
10.2 Eighth Amendment to the Holdings Guaranty, dated as of March 24,
2003, among Trenwick Group Ltd. and the lending institutions party
to the Credit Agreement. Incorporated by reference to Exhibit 99.2
to Trenwick America Corporation's Current Report on Form 8-K, filed
on April 10, 2003. (File No. 0-31967)
10.3 Eighth Amendment and Waiver to the Credit Agreement, dated as of
March 28, 2003, among Trenwick America Corporation, Trenwick
Holdings Limited,
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Trenwick UK Holdings Limited, the lending institutions from time to
time party to the Credit Agreement, Wachovia Bank, National
Association, Fleet National Bank and JPMorgan Chase Bank.
Incorporated by reference to Exhibit 99.3 to Trenwick America
Corporation's Current Report on Form 8-K, filed on April 10, 2003.
(File No. 0-31967)
10.4 Ninth Amendment to the Holdings Guaranty, dated as of March 28,
2003, among Trenwick Group Ltd. and the lending institutions party
to the Credit Agreement. Incorporated by reference to Exhibit 99.4
to Trenwick America Corporation's Current Report on Form 8-K, filed
on April 10, 2003. (File No. 0-31967)
10.5 Ninth Amendment and Waiver to the Credit Agreement, dated as of
April 8, 2003, among Trenwick America Corporation, Trenwick Holdings
Limited, Trenwick UK Holdings Limited, the lending institutions from
time to time party to the Credit Agreement, Wachovia Bank, National
Association, Fleet National Bank and JPMorgan Chase Bank.
Incorporated by reference to Exhibit 99.5 to Trenwick America
Corporation's Current Report on Form 8-K, filed on April 10, 2003.
(File No. 0-31967)
10.6 Tenth Amendment and Consent to the Holdings Guaranty, dated as of
April 8, 2003, among Trenwick Group Ltd. and the lending
institutions party to the Credit Agreement. Incorporated by
reference to Exhibit 99.6 to Trenwick America Corporation's Current
Report on Form 8-K, filed on April 10, 2003. (File No. 0-31967)
10.7 Eleventh Amendment and Consent to the Holdings Guaranty, dated as of
April 16, 2003, among Trenwick Group Ltd. and the lending
institutions party to the Credit Agreement. Incorporated by
reference to Exhibit 10.15 to the Company's Quarterly Report on Form
10-Q filed on May 14, 2003. (File no. 0-31967)
10.8 Amendment No. 1 to the Rights Agreement, dated as of April 18, 2003,
by and between Trenwick Group Ltd. and EquiServe Trust Company, N.A.
(successor to First Chicago Trust Company of New York). Incorporated
by Reference to Exhibit 99.1 to the Company's Current Report on Form
8-K, filed on April 22, 2003. (File no. 0-31967)
10.9 Agreement between the New York Insurance Department and The
Insurance Corporation of New York dated May 5, 2003. Incorporated by
reference to Exhibit 10.16 of the Company's Quarterly Report on Form
10-Q, filed on May 14, 2003. (File no. 0-31967)
10.10 Sixth Waiver to the Credit Agreement, dated as of July 16, 2003, by
and among Trenwick America Corporation, Trenwick Holdings Limited,
Trenwick UK Holdings Limited, the lending institutions from time to
time party to the Credit Agreement, Wachovia Bank, National
Association, as Syndication Agent, Fleet National Bank, as
Documentation Agent, and JPMorgan Chase Bank, as Administrative
Agent. Incorporated by Reference to Exhibit 99.1 to the Company's
Current Report on Form 8-K, filed on July 18, 2003. (File no.
0-31967)
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10.11 Third Consent to the Holdings Guaranty, dated as of July 16, 2003,
by and among Trenwick Group Ltd. and the lending institutions from
time to time party to the Credit Agreement. Incorporated by
Reference to Exhibit 99.2 to the Company's Current Report on Form
8-K, filed on July 18, 2003. (File no. 0-31967)
10.12 Letter of Intent, dated as of August 6, 2003, by and among Trenwick
and its subsidiaries, LaSalle Re Limited, Trenwick America and
Trenwick Managing Agents Limited, the majority of the beneficial
holders of the 6.70% Senior Notes of Trenwick America, the steering
committee of the lending institutions that have issued letters of
credit under a senior secured credit facility on behalf of certain
subsidiaries of Trenwick in support of Trenwick's Lloyd's operations
and a group composed of current members of management of Trenwicks
Lloyd's operations. Incorporated by reference to Exhibit 99.2 to the
Company's Current Report on Form 8-K, filed on August 18, 2003,
2003. (File no. 0-31967)
31.1 Certification of Acting CEO Per Section 302 of the Sarbanes - Oxley
Act.
31.2 Certification of CFO Per Section 302 of the Sarbanes- Oxley Act.
32.1 Certification of Acting CEO Per Section 906 of the Sarbanes- Oxley
Act.
(This exhibit is intended to be furnished in accordance with
regulation S-K item 601(b)(32)(ii) and shall not be deemed to be
filed for purposes of section 18 of the Securities Exchange Act of
1934, as amended, or incorporated by reference into any filing under
the Securities Act of 1933, except as shall be expressly set forth
by specific reference.)
32.2 Certification of Acting CFO Per Section 906 of the Sarbanes-Oxley
Act.
(This exhibit is intended to be furnished in accordance with
regulation S-K item 601(b)(32)(ii) and shall not be deemed to be
filed for purposes of section 18 of the Securities Exchange Act of
1934, as amended, or incorporated by reference into any filing under
the Securities Act of 1933, except as shall be expressly set forth
by specific reference.)
(b) Reports on Form 8-K
Trenwick America filed Current Reports on Form 8-K on the following dates
during the second quarter of 2003:
April 10, 2003, reporting (a) certain amendments to Trenwick's credit
agreement and related guaranty, and a waiver agreement under Trenwick's
credit agreement to provide for, among other things, waivers of potential
covenant defaults and extension of a number of deadlines imposed under the
credit agreement and related guaranty. (b) Trenwick's delivery of notice
to the holder of Trenwick's Series B Cumulative Perpetual Preferred Shares
that Trenwick's GAAP net worth had fallen below $225 million and that a
Net Worth Conversion Event would occur on April 21, 2003 if Trenwick's
GAAP net worth did not equal or exceed $225 million on or before such
date, (c) certain risk-based capital (RBC) and statutory capital
impairment issues relating to Trenwick's subsidiaries Trenwick America
Reinsurance Corporation and The Insurance Corporation of New York, and
discussions with the insurance departments of Connecticut and New York
relating thereto, (d) the receipt by Trenwick of notice from the New York
Stock
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Exchange of the potential suspension from trading and delisting of
Trenwick's common shares and the Series A Preferred Shares of LaSalle Re
Holdings Limited and (e) the contribution of the Oak Entities to LaSalle
Re Limited.
July 18, 2003, reporting a Sixth Waiver and Third Consent to the credit
agreement.
August 18, 2003, reporting that Trenwick, Trenwick America, LaSalle Re
Holdings Limited and Trenwick Managing Agents Limited had entered into a
letter of intent, dated August 6, 2003, with respect to an agreement in
principle on a long-term restructuring of Trenwick's debt obligations.
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Trenwick America Corporation
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 22, 2003 By: /s/ W. Marston Becker
------------------------------------------
Name:W. Marston Becker
Title: Acting Chairman and
Acting Chief Executive Officer
Date: August 22, 2003 By: /s/ Alan L. Hunte
------------------------------------------
Name: Alan L. Hunte
Title: President
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