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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, 2001.
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
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Commission file number 1-16089
TRENWICK GROUP LTD.
(Exact name of registrant as specified in its charter)
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Bermuda 98-0232340
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Continental Building, 25 Church Street
Hamilton HM12, Bermuda
(Address of principal executive offices) (zip code)
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Registrant's telephone number, including area code: 441-292-4985
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Shares Outstanding
Description of Class as of August 13, 2001
Common Shares - $.10 par value 36,855,916
TRENWICK GROUP LTD.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
Page
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ITEM 1. Unaudited Consolidated Financial Statements
Consolidated Balance Sheet
June 30, 2001 and December 31, 2000 .......................... 1
Consolidated Statement of Operations and Comprehensive Income
Three and Six Months Ended June 30, 2001 and 2000 ............ 2
Consolidated Statement of Cash Flows
Three and Six Months ended June 30, 2001 and 2000 ............ 3
Consolidated Statement of Changes in Common Shareholders'
Equity Six Months Ended June 30, 2001 and 2000 ............... 4
Notes to Unaudited Consolidated Financial Statements ......... 5
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................... 9
PART II - OTHER INFORMATION
ITEM 1. Legal proceedings ............................................ 21
ITEM 2. Changes in Securities and Use of Proceeds .................... 21
ITEM 3. Defaults Upon Senior Securities .............................. 21
ITEM 4. Submission of Matters to a Vote of Security Holders .......... 21
ITEM 5. Other Information ............................................ 22
ITEM 6. Exhibits and Reports on Form 8-K ............................. 22
Signatures ................................................................ 23
Trenwick Group Ltd.
Consolidated Balance Sheet
(Amounts expressed in thousands of United States dollars,
except share and per share data)
June 30, 2001 (Unaudited) and December 31, 2000
2001 2000
----------- -----------
ASSETS
Debt securities available for sale, at fair value $ 1,906,498 $ 1,813,678
Equity securities at fair value 29,839 115,901
Cash and cash equivalents 280,825 311,001
Accrued investment income 35,661 38,171
Premiums receivable 523,653 473,245
Reinsurance recoverable balances, net 1,047,801 932,051
Prepaid reinsurance premiums 161,716 147,399
Deferred policy acquisition costs 114,981 100,423
Net deferred income taxes 131,017 104,889
Other assets 172,219 183,294
----------- -----------
Total assets $ 4,404,210 $ 4,220,052
=========== ===========
LIABILITIES
Unpaid claims and claims expenses $ 2,550,102 $ 2,408,926
Unearned premium income 568,342 496,338
Reinsurance balances payable 134,843 133,160
Indebtedness 298,197 286,805
Other liabilities 95,265 90,866
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Total liabilities 3,646,749 3,416,095
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MINORITY INTEREST
Mandatorily redeemable preferred capital securities
of subsidiary trust holding solely junior subordinated
debentures of U.S. subsidiary 68,591 76,770
Preferred shares of Bermuda subsidiary 75,000 75,000
----------- -----------
Total minority interest 143,591 151,770
----------- -----------
COMMON SHAREHOLDERS' EQUITY
Common shares, $0.10 par value, 36,855,913 and
36,665,103 shares issued and outstanding 3,686 3,667
Additional paid in capital 578,546 575,401
Deferred compensation under share award plans (5,911) (2,660)
Retained earnings 23,645 58,485
Accumulated other comprehensive income 13,904 17,294
----------- -----------
Total common shareholders' equity 613,870 652,187
----------- -----------
Total liabilities, minority interest and common
shareholders' equity $ 4,404,210 $ 4,220,052
=========== ===========
The accompanying notes are an integral part of these statements.
-1-
Trenwick Group Ltd.
Consolidated Statement of Operations and Comprehensive Income (Unaudited)
(Amounts expressed in thousands of United States dollars, except per share data)
Three and Six Months Ended June 30, 2001 and 2000
Three Months Six Months
---------------------- ----------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Revenues:
Net premiums earned $ 224,571 $ 28,776 $ 427,346 $ 55,988
Net investment income 33,186 9,251 65,371 18,187
Net realized investment gains (losses) 2,272 38 11,130 (2,186)
Other income 1,211 -- 2,052 --
--------- --------- --------- ---------
Total revenues 261,240 38,065 505,899 71,989
--------- --------- --------- ---------
Expenses:
Claims and claims expenses incurred 235,551 9,720 373,832 53,266
Policy acquisition costs 63,100 6,132 122,456 10,642
Underwriting expenses 19,654 3,363 35,540 7,130
General and administrative expenses 7,389 2,417 11,277 2,869
Interest expense and dividends on
preferred shares of subsidiaries 9,627 306 20,453 611
Foreign currency losses (gains) 469 (203) 1,535 (373)
--------- --------- --------- ---------
Total expenses 335,790 21,735 565,093 74,145
--------- --------- --------- ---------
Income (loss) before other minority interest
interest and income taxes (74,550) 16,330 (59,194) (2,156)
Other minority interest in net income
(loss) of subsidiary -- 3,418 -- (1,258)
--------- --------- --------- ---------
Income (loss) before income taxes (benefit) (74,550) 12,912 (59,194) (898)
Applicable income taxes (benefit) (23,744) -- (27,301) --
--------- --------- --------- ---------
Net income (loss) (50,806) 12,912 (31,893) (898)
Dividends on preferred shares -- 1,641 -- 3,281
--------- --------- --------- ---------
Net income (loss) available to
common shareholders $ (50,806) $ 11,271 $ (31,893) $ (4,179)
========= ========= ========= =========
EARNINGS PER SHARE
Basic earnings (loss) per common share $ (1.38) $ 0.72 $ (0.87) $ (0.27)
========= ========= ========= =========
Diluted earnings (loss) per common share $ (1.38) $ 0.71 $ (0.87) $ (0.27)
========= ========= ========= =========
COMPREHENSIVE INCOME (LOSS):
Net income (loss) $ (50,806) $ 12,912 $ (31,893) $ (898)
--------- --------- --------- ---------
Other comprehensive income (loss):
Net unrealized investment gains (losses) (5,934) 98 1,293 1,033
Foreign currency translation adjustments 595 (31) (4,683) (31)
--------- --------- --------- ---------
Total other comprehensive income (loss) (5,339) 67 (3,390) 1,002
--------- --------- --------- ---------
Comprehensive income (loss) $ (56,145) $ 12,979 $ (35,283) $ 104
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
-2-
Trenwick Group Ltd.
Consolidated Statement of Cash Flows (Unaudited)
(Amounts expressed in thousands of United States dollars)
Three and Six Months Ended June 30, 2001 and 2000
Three Months Six Months
---------------------- ----------------------
2001 2000 2001 2000
--------- --------- --------- ---------
OPERATING ACTIVITIES
Premiums collected, net of acquisition costs $ 240,272 $ 36,786 $ 463,022 $ 63,482
Ceded premiums paid net of acquisition costs (88,504) (20,366) (162,089) (16,166)
Claims and claims expenses paid (188,938) (44,837) (400,890) (65,194)
Claims and claims expenses recovered 28,496 6,433 80,553 9,413
Underwriting expenses paid (23,461) (9,379) (53,541) (11,542)
--------- --------- --------- ---------
Cash for underwriting activities (32,135) (31,363) (72,945) (20,007)
Net investment income received 45,012 8,739 80,116 18,118
Other income received, net of expenses
(1,124) -- (220) --
General and administrative expenses paid (4,777) -- (8,999) (452)
Interest expense and dividends on preferred
shares of subsidiaries (5,458) (306) (12,678) (611)
Income taxes paid (1,022) -- (697) --
--------- --------- --------- ---------
Cash from (for) operating activities 496 (22,930) (15,423) (2,952)
--------- --------- --------- ---------
INVESTING ACTIVITIES
Purchases of debt securities (274,960) (39,135) (881,958) (137,909)
Sales of debt securities 176,289 64,850 732,770 141,748
Maturities of debt securities 11,871 -- 52,784 --
Purchases of equity securities 88 -- (2,431) --
Sales of equity securities 20,160 -- 93,208 --
Effect on cash of exchange rate translation 781 -- (8,398) --
Other (1,197) -- (1,988) --
--------- --------- --------- ---------
Cash from (for) investing activities (66,968) 25,715 (16,013) 3,839
--------- --------- --------- ---------
FINANCING ACTIVITIES
Issuance of indebtedness 14,000 -- 14,000 --
Repayment of indebtedness -- -- (29) --
Purchase of capital securities -- -- (8,462) --
Issuance of common shares 53 317 328 441
Trenwick Group Ltd. common share
dividends paid (1,475) -- (2,947) --
LaSalle Re Holdings preferred share dividends
paid prior to business combination -- (1,641) -- (3,281)
Share and option repurchases -- (3,131) (311) (3,131)
Equity put option premium payments (411) -- (1,319) (387)
--------- --------- --------- ---------
Cash from (for) financing activities 12,167 (4,455) 1,260 (6,358)
--------- --------- --------- ---------
Change in cash and cash equivalents (54,305) (1,670) (30,176) (5,471)
Cash and cash equivalents, beginning of period 335,130 16,063 311,001 19,864
--------- --------- --------- ---------
Cash and cash equivalents, end of period $ 280,825 $ 14,393 $ 280,825 $ 14,393
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
-3-
Trenwick Group Ltd.
Consolidated Statement of Changes in Common Shareholders' Equity (Unaudited)
(Amounts expressed in thousands of United States dollars except share data)
Six Months Ended June 30, 2001 and 2000
2001 2000
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Common shareholders' equity, beginning of period $ 652,187 $ 286,960
COMMON SHARES AND ADDITIONAL PAID IN CAPITAL
Issuance of 194,116 restricted common shares of Trenwick Group Ltd. 4,119 --
Issuance of 15,737 shares of Trenwick Group Ltd. and 20,412 common
shares of LaSalle Re Holdings for cash under employee
share purchase plans 328 234
Issuance of 635 common shares of LaSalle Re Holdings under
employee compensation plan -- 8
Purchase and retirement of 14,609 common shares of Trenwick
Group Ltd. (311) --
Cancellation of 4,429 restricted common shares (58) --
Equity put option premiums, net of applicable minority interest (1,319) (317)
Compensation recognized under employee program 405 42
Change in minority interest -- 71
DEFERRED COMPENSATION UNDER SHARE AWARD PLAN
Restricted common shares awarded (4,119) --
Compensation expense recognized under employee share purchase
plans, net of minority interest 810 140
Cancellation of restricted common shares 58 --
RETAINED EARNINGS
Net loss (31,893) (898)
LaSalle Re Holdings preferred share dividends
prior to business combination -- (3,281)
Trenwick Group Ltd. common share dividends, $0.08 per share (2,947) --
Options/share repurchase -- (2,404)
Change in minority interest -- 22
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Other comprehensive income (loss) (3,390) 1,002
--------- ---------
Common shareholders' equity, end of period $ 613,870 $ 281,579
========= =========
The accompanying notes are an integral part of these statements.
-4-
TRENWICK GROUP LTD.
Notes to Unaudited Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars except per share data)
Three and Six Months Ended June 30, 2001 and 2000
Note 1 Organization
Organization Trenwick Group Ltd. was formed as a holding company in
and Basis Bermuda to acquire two publicly held companies and the
of Presentation minority interest in a subsidiary of one of those companies.
That transaction, in which Trenwick Group Ltd. issued common
shares to acquire LaSalle Re Holdings Limited, Trenwick
Group Inc. and the minority interest in LaSalle Re Limited,
was completed on September 27, 2000.
Trenwick Group Ltd.'s principal subsidiaries underwrite
specialty insurance and reinsurance through five business
platforms: LaSalle Re Limited, Trenwick America Reinsurance
Corporation, Trenwick International Limited, Chartwell
Managing Agents Limited and Canterbury Financial Group Inc.
Basis of Presentation
The business combination between LaSalle Re Holdings Limited
and Trenwick Group Inc. was accounted for as a purchase by
LaSalle Re Holdings Limited of Trenwick Group Inc. and of
the minority interest in LaSalle Re Limited, effective
September 27, 2000. Accordingly, in these financial
statements:
- the assets and liabilities presented include those of
LaSalle Re Holdings Limited, the minority interest in
LaSalle Re Limited and the former Trenwick Group Inc.;
- the revenues and expenses of LaSalle Re Holdings
Limited have been included for all periods presented;
- the minority interest in common shares and minority
interest in net income of LaSalle Re Limited have been
eliminated in the three and six months ended June 30,
2001; and
- the revenues and expenses of the former Trenwick Group
Inc. were excluded from the three and six months ended
June 30, 2000 and included for the three and six months
ended June 30, 2001.
Under the purchase basis of accounting, the purchase price
was allocated to the identifiable assets acquired and
liabilities assumed, based on their estimated fair values at
the date of acquisition. The excess of the purchase price
over the estimated fair value of those net assets acquired
was recorded as goodwill, and is being amortized over
twenty-five years. Refer to Note 5 for discussion regarding
pending changes in accounting for amortization of goodwill.
The interim financial statements include the accounts of
Trenwick Group Ltd. 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 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 Group Ltd. for the year ended December 31, 2000.
Note 2 The following tables present business segment financial
Segment information for Trenwick Group Ltd. at June 30, 2001 and
Information December 31, 2000 and for the three and six months ended
June 30, 2001 and 2000:
2001 2000
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Total assets:
Worldwide property catastrophe reinsurance $ 591,111 $ 557,401
U.S. treaty reinsurance 1,536,855 1,759,678
International specialty insurance and reinsurance 477,641 473,612
Lloyd's syndicates:
Continuing 940,507 808,483
Runoff 110,725 157,627
U.S. specialty program insurance 522,492 372,933
Unallocated 224,879 90,318
---------- ----------
Total assets $4,404,210 $4,220,052
========== ==========
Three Months Six Months
------------------- -------------------
2001 2000 2001 2000
-------- -------- -------- --------
Total revenues:
Worldwide property catastrophe reinsurance $ 31,162 $ 31,280 $ 62,173 $ 61,122
U.S. treaty reinsurance 81,007 -- 153,213 --
International specialty insurance and
reinsurance 48,993 -- 93,349 --
Lloyd's syndicates:
Continuing 68,978 1,510 142,471 2,682
Runoff 5,830 5,275 7,502 8,185
U.S. specialty program insurance 23,152 -- 42,722 --
Unallocated 2,118 -- 4,469 --
-------- -------- -------- --------
Total revenues $261,240 $ 38,065 $505,899 $ 71,989
======== ======== ======== ========
-6-
Three Months Six Months
-------------------- --------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net income (loss):
Worldwide property catastrophe reinsurance $ 8,900 $ 12,744 $ 27,107 $ 1,173
U.S. treaty reinsurance (1,764) -- 7,496 --
International specialty insurance and
reinsurance (18,450) -- (18,877) --
Lloyd's syndicates:
Continuing (21,727) 123 (21,306) (242)
Runoff (1,223) 45 (2,215) (1,829)
U.S. specialty program insurance (8,302) -- (6,510) --
Unallocated (8,240) -- (17,588) --
-------- -------- -------- --------
Total net income (loss) $(50,806) $ 12,912 $(31,893) $ (898)
======== ======== ======== ========
Revenues from transactions between operating segments, which
are immaterial, have been eliminated in consolidation.
Unallocated net income (loss) consists mainly of interest
expense and dividends on preferred stock of subsidiaries,
net of income taxes.
Note 3 The following table sets forth the computation of basic and
Earnings diluted earnings per share for the three and six months
Per Share ended June 30, 2001 and 2000:
Three Months Six Months
---------------------------- ----------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
INCOME (LOSS) AVAILABLE TO COMMON
SHAREHOLDERS
Net income (loss) available to common
shareholders - basic $ (50,806) $ 11,271 $ (31,893) $ (4,179)
============ ============ ============ ============
Net income (loss) available to common
shareholders - diluted $ (50,806) $ 14,689 $ (31,893) $ (4,179)
============ ============ ============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING
Weighted average shares outstanding - basic 36,850,753 15,623,910 36,786,880 15,621,653
Net weighted average shares issuable (when
dilutive) on exercise of stock options and warrants -- 5,038,657 -- --
------------ ------------ ------------ ------------
Weighted average shares outstanding - diluted 36,850,753 20,662,567 36,786,880 15,621,653
============ ============ ============ ============
Basic earnings (loss) per common share $ (1.38) $ 0.72 $ (0.87) $ (0.27)
============ ============ ============ ============
Diluted earnings (loss) per common share $ (1.38) $ 0.71 $ (0.87) $ (0.27)
============ ============ ============ ============
Note 4 The components of premiums written and earned for the three
Underwriting and six months ended June 30, 2001 and 2000 are as follows:
Activities
Three Months Six Months
---------------------- ----------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Assumed premiums written $ 140,148 $ 32,080 $ 314,836 $ 97,246
Direct premiums written 199,408 -- 378,343 --
--------- --------- --------- ---------
Gross premiums written 339,556 32,080 693,179 97,246
Ceded premiums written (94,679) (4,704) (187,564) (21,387)
--------- --------- --------- ---------
Net premiums written $ 244,877 $ 27,376 $ 505,615 $ 75,859
========= ========= ========= =========
-7-
Three Months Six Months
---------------------- ----------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Assumed premiums earned $ 90,752 $ 36,887 $ 168,524 $ 71,348
Direct premiums earned 216,363 -- 413,633 --
--------- --------- --------- ---------
Gross premiums earned 307,115 36,887 582,157 71,348
Ceded premiums earned (82,544) (8,111) (154,811) (15,360)
--------- --------- --------- ---------
Net premiums earned $ 224,571 $ 28,776 $ 427,346 $ 55,988
========= ========= ========= =========
Note 5 In July 2001, the Financial Accounting Standards Board
Accounting issued statements covering business combinations and
Standards goodwill and other intangible assets, which are required to
be adopted at the beginning of 2002. The business
combination statement requires that the purchase method of
accounting be used for all business combinations initiated
after June 30, 2001. The goodwill and other intangible
assets statement changes the expensing of goodwill from an
amortization method to an impairment-only approach.
Amortization of goodwill, including goodwill recorded in
past business combinations, will cease upon adoption of this
statement.
As of the date of adoption, Trenwick Group Ltd. expects to
have unamortized goodwill in the amount of $20,209 which
will be subject to the transition provisions of this
statement. Amortization expense related to goodwill was $213
and $425 for the three and six months ended June 30, 2001,
respectively.
Trenwick Group Ltd. has not determined the effect that this
statement will have on its consolidated financial position
or results of operations.
-8-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion highlights material factors affecting Trenwick Group
Ltd.'s results of operations for the three and six months ended June 30, 2001
and 2000. This discussion and analysis should be read in conjunction with the
unaudited interim financial statements and notes thereto of Trenwick Group Ltd.
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 Group Ltd. for the year ended December 31, 2000.
Overview
Trenwick Group Ltd. is a Bermuda holding company headquartered in Hamilton,
Bermuda whose principal subsidiaries underwrite specialty insurance and
reinsurance. Trenwick Group Ltd. was formed in 1999 to acquire Trenwick Group
Inc., LaSalle Re Holdings Limited and LaSalle Re Limited. The transaction was
completed on September 27, 2000. Shareholders of Trenwick Group Inc., LaSalle Re
Holdings Limited and LaSalle Re Limited exchanged their shares on a one-for-one
basis for newly-issued shares of Trenwick Group Ltd. LaSalle Re Holdings Limited
was the accounting acquiror in the Trenwick/LaSalle business combination, and as
such the financial statements reflect the results of operations of LaSalle Re
Holdings Limited prior to September 27, 2000 and the combined results of
operations of LaSalle Re Holdings Limited and Trenwick Group Inc. on and after
September 27, 2000.
Trenwick Group Ltd. operates through the following five principal operating
platforms:
o LaSalle Re Limited, which is located in Hamilton, Bermuda, underwrites
property catastrophe reinsurance on a worldwide basis;
o Trenwick America Reinsurance Corporation, which is located in Stamford
Connecticut, underwrites treaty reinsurance on United States property and
casualty risks, including United States reinsurance business previously written
by Chartwell Re Corporation subsidiaries;
o Trenwick International Limited, which is located in London, England,
underwrites specialty insurance and treaty and facultative reinsurance on a
worldwide basis;
o Chartwell Managing Agents Limited, which is located in London, England,
manages underwriting syndicates in the Lloyd's market, principally for Trenwick
Group Ltd.'s own account; and
o Canterbury Financial Group Inc., which is located in Stamford, Connecticut,
underwrites specialty insurance through its operating subsidiaries, Chartwell
Insurance Company, The Insurance Corporation of New York and Dakota Specialty
Insurance Company.
All of Trenwick Group Ltd.'s principal operating subsidiaries are rated A
(Excellent) by A.M. Best Company and have been assigned a financial strength
rating of A+ by Standard and Poor's. All of Chartwell Managing Agents Limited's
syndicates enjoy the benefit of the ratings of Lloyd's which is rated "A"
(Excellent) by A.M. Best Company and has an A+ financial strength rating from
Standard & Poor's. These ratings are based upon factors that may be of concern
to policy or contract holders, agents and intermediaries, but may not reflect
the considerations applicable to an equity investment in a reinsurance or
insurance company. A change in any such rating is at the discretion of the
respective rating agencies.
-9-
Results of Operations - Three Months Ended June 30, 2001 and Three Months Ended
June 30, 2000
2001 2000 Change
--------- --------- ---------
(in thousands)
Underwriting income (loss) $ (93,734) $ 9,561 $(103,295)
Net investment income 33,186 9,251 23,935
Interest expense and dividends on
preferred shares of subsidiaries (9,627) (306) (9,321)
General and administrative expenses (3,718) (2,417) (1,301)
Other income 1,211 -- 1,211
--------- --------- ---------
Pre-tax operating income (loss) (72,682) 16,089 (88,771)
Applicable income taxes (benefit) (22,870) -- (22,870)
--------- --------- ---------
Operating income (loss) (49,812) 16,089 (65,901)
Minority interest in operating (income) loss of
subsidiary -- (3,418) 3,418
Net realized investment gains (losses), net of
minority interest and income taxes 1,813 38 1,775
Foreign currency gains (losses), net of minority
interest and income taxes (73) 203 (276)
Restructuring costs, net of income taxes (2,734) -- (2,734)
--------- --------- ---------
Net income (loss) $ (50,806) $ 12,912 $ (63,718)
========= ========= =========
The operating loss of $49.8 million in the three months ended June 30, 2001
represented a $65.9 million decrease from operating income of $16.1 million
recorded in the three months ended June 30, 2000. This decrease was principally
the result of unusual loss activity and reserve strengthening, offset by
increased investment income. The increase in investment income in 2001 was the
result of the increase in the size of the investment portfolio from the
Trenwick/LaSalle business combination. The decrease of $63.7 million in net
income in 2001 when compared to 2000 was the result of the decrease in operating
income, combined with $2.7 million of after-tax restructuring costs recorded in
conjunction with management changes effected at Trenwick Group Ltd's London
operations in April, offset in part by the absence of a minority interest in
2001 and the increase in realized investment gains.
Underwriting income (loss)
The underwriting result for the three months ended June 30, 2000 included only
the results of LaSalle Re Holdings Limited; the underwriting result for the
three months ended June 30, 2001 included the combined results of LaSalle Re
Holdings Limited and Trenwick Group Inc.
2001 2000 Change
--------- --------- ---------
(in thousands)
Net premiums earned $ 224,571 $ 28,776 $ 195,795
--------- --------- ---------
Claims and claims expenses incurred 235,551 9,720 225,831
Acquisition costs and underwriting expenses 82,754 9,495 73,259
--------- --------- ---------
Total expenses 318,305 19,215 299,090
--------- --------- ---------
Net underwriting income (loss) $ (93,734) $ 9,561 $(103,295)
========= ========= =========
Loss ratio 104.9% 33.8% 71.1%
Underwriting expense ratio 36.8% 33.0% 3.8%
Combined ratio 141.7% 66.8% 74.9%
-10-
The underwriting loss of $93.7 million in 2001 represented a $103.3 million
decrease compared to underwriting income of $9.6 million in 2000. The increase
in underwriting loss was primarily due to unusual loss activity and loss reserve
strengthening recorded in 2001, which are discussed on page 12 under the caption
"Claims and claims expenses."
The increase in the combined ratio in 2001 compared to 2000 resulted from the
unusual loss activity and reserve strengthening which are discussed on page 12
under the caption "Claims and claims expenses," together with a significant
change in Trenwick Group Ltd.'s mix of business following the Trenwick/LaSalle
business combination. The increase in the underwriting expense ratio in the
three months ended June 30, 2001 as compared to the three months ended June 30,
2000 can be principally attributed to the inclusion of Trenwick Group Inc.'s
casualty business in the underwriting results in 2001.
Premiums written
Gross premiums written for 2001 were $339.6 million compared to $32.1 million
for the three months ended June 30, 2000, an increase of $307.5 million or 959%.
Details of gross premiums written are provided below:
2001 2000 Change
-------- ------- ---------
(in thousands)
Worldwide property catastrophe reinsurance $ 35,687 $23,642 $ 12,045
U.S. treaty reinsurance 79,467 -- 79,467
International specialty insurance and reinsurance 57,695 -- 57,695
Lloyd's syndicates:
Continuing 88,226 1,224 87,002
Runoff 3,536 7,214 (3,678)
U.S. specialty program insurance 74,945 -- 74,945
-------- ------- ---------
Gross premiums written $339,556 $32,080 $ 307,476
======== ======= =========
Worldwide property catastrophe reinsurance gross premium writings for the three
months ended June 30, 2001 increased by $12.0 million, or 50.9% from the three
months ended June 30, 2000 as a result of increased writings on U.S. catastrophe
business.
The increase in Lloyd's gross written premiums for 2001 compared to 2000 was due
to the addition of Trenwick Group Inc.'s Lloyd's operations managed by Chartwell
Managing Agents Limited from the Trenwick/LaSalle business combination. A
majority of the Lloyd's syndicate gross written premiums in 2001 represent the
bookings of business managed by Chartwell Managing Agents Limited. The majority
of Lloyd's business underwritten by LaSalle Re Holdings Limited prior to the
combination with Trenwick Group Inc. was not renewed as of December 31, 2000 and
have been classified as runoff. Additionally, results of operations from Lloyd's
syndicates which were sold by Trenwick Group Inc. in 1999 have also been
classified as runoff.
U.S. treaty reinsurance, international specialty insurance and reinsurance and
U.S. specialty program insurance gross premiums written increased from $0 for
the second quarter of 2000 to $79.5 million, $57.7 million and $74.9 million,
respectively, for the second quarter of 2001. Trenwick Group Ltd. did not
underwrite these businesses prior to the Trenwick/LaSalle business combination.
-11-
Premiums earned
2001 2000 Change
--------- -------- ---------
(in thousands)
Gross premiums written $ 339,556 $ 32,080 $ 307,476
Change in gross unearned premiums (32,441) 4,807 (37,248)
--------- -------- ---------
Gross premiums earned 307,115 36,887 270,228
--------- -------- ---------
Gross premiums ceded (94,679) (4,704) (89,975)
Change in ceded unearned premiums 12,135 (3,407) 15,542
--------- -------- ---------
Ceded premiums earned (82,544) (8,111) (74,433)
--------- -------- ---------
Net premiums earned $ 224,571 $ 28,776 $(195,795)
========= ======== =========
Gross premiums ceded for the three months ended June 30, 2001 were $94.7 million
compared to $4.7 million for the same period in 2000. The increase in gross
premiums ceded of $90.0 million was due primarily to cessions relating to
business acquired in the Trenwick/LaSalle business combination. Businesses
acquired in the Trenwick/LaSalle business combination included Lloyd's
syndicates, international specialty insurance and reinsurance and U.S. specialty
program insurance, all of which have significantly larger reinsurance and
retrocessional programs than LaSalle Re Limited.
Net premiums earned for the three months ended June 30, 2001 were $224.6 million
compared to $28.8 million for 2000. The increase in net premiums earned is
commensurate with the increase in net premiums written.
Claims and claims expenses
Claims and claims expenses for the three months ended June 30, 2001 were $235.6
million, an increase of $225.8 million compared to claims and claims expenses of
$9.7 million for 2000. The increase in claims and claims expenses in 2001
resulted from the addition of business acquired in the Trenwick/LaSalle business
combination as well as unusual loss activity and loss reserve strengthening.
Second quarter 2001 results include unusual loss activity of $10.5 million
related to an accumulation of catastrophic losses including Tropical Storm
Allison and storms affecting the Midwest United States. In addition, Trenwick
strengthened its loss reserves by $76.7 million. The reserve strengthening
included $17.4 million related to the treaty reinsurance segment's directors and
officer's liability business, which was underwritten prior to 2001. In addition,
$14.8 of the loss reserve strengthening related to one of the specialty program
insurance segment's programs. Also included in the reserve strengthening was
$27.4 million relating principally to the Lloyd's segment directors and officers
liability business. Lastly, the reserve strengthening included $17.1 million
stemming from deterioration in discontinued businesses and reviews of the
property insurance and small premium liability business lines at the
international specialty insurance and reinsurance segment.
Underwriting expenses
2001 2000 Change
------- ------ -------
(in thousands)
Policy acquisition costs $63,100 $6,132 $56,968
Underwriting expenses 19,654 3,363 16,291
------- ------ -------
Total underwriting expenses $82,754 $9,495 $73,259
======= ====== =======
Underwriting expense ratio 36.8% 33.0% 3.8%
======= ====== =======
-12-
Total underwriting expenses, comprising policy acquisition costs and
underwriting expenses, for 2001 increased by $73.3 million compared to
underwriting expenses for the three months ended June 30, 2000. Total
underwriting expenses as a percentage of net premiums earned, or the
underwriting expense ratio, were 36.8% for the three months ended June 30, 2001
compared to 33.0% for the same period in 2000. This increase resulted mainly
from the addition of casualty business acquired in the Trenwick/LaSalle business
combination. This business, which consisted of both treaty insurance and
reinsurance, generally has a higher policy acquisition cost ratio than property
catastrophe business.
Net Investment Income
2001 2000 Change
----------- --------- -----------
(in thousands)
Average invested assets $ 2,190,057 $ 571,594 $ 1,618,463
Average annualized yields 6.62% 6.25% 0.37%
----------- --------- -----------
Investment income - portfolio 36,240 8,927 27,313
Investment income - non-portfolio 692 630 62
Investment expenses (3,746) (306) (3,440)
----------- --------- -----------
Net investment income $ 33,186 $ 9,251 $ 23,935
=========== ========= ===========
Net investment income for the three months ended June 30, 2001 was $33.2 million
compared to $9.3 million for the same period in 2000. The increase in net
investment income in 2001 was due to the increase in invested assets resulting
from the Trenwick/LaSalle business combination. Investment expense for 2001
includes interest expense on funds withheld of $2.7 million under the terms of
stop loss reinsurance agreements purchased by Trenwick America Reinsurance
Corporation prior to 2000. The balance of the increase in investment expense in
2001 results from the increase in Trenwick Group Ltd.'s invested assets under
management following the Trenwick/LaSalle business combination.
Interest Expense and Dividends on Preferred Stock of Subsidiaries
Interest expense and dividends on preferred stock of subsidiaries was $9.6
million for 2001, an increase of $9.3 million from the same period in 2000. The
increase resulted from the increase in debt outstanding as a result of the
Trenwick Group Inc. debt assumed by Trenwick Group Ltd.'s subsidiaries as well
as the inclusion of dividends on preferred stock of LaSalle Re Holdings Limited
in 2001, both as a result of the Trenwick/LaSalle business combination.
Non-Operating Income and Expenses
Minority interest represents the minority interest in common shares of LaSalle
Re Limited held by third party investors prior to the Trenwick/LaSalle business
combination on September 27, 2000. Net income attributed to the minority
interest was calculated as 23.2% of net income in the second quarter of 2000.
Net realized gains on investments, net of applicable minority interest and
income taxes, were $1.8 million during the three months ended June 30, 2001,
compared to net realized losses of $1.7 million for the three months ended March
31, 2000. Both the gains and losses were made as a result of security sales
executed pursuant to an investment policy designed to protect the total returns
on the portfolio.
Trenwick Group Ltd. recorded foreign currency losses, net of applicable minority
interest and income taxes, of $0.1 million for the three months ended June 30,
2001, relatively unchanged from foreign currency gains of $0.4 million for the
three months ended June 30, 2000.
-13-
Results of Operations - Six Months Ended June 30, 2001 and Six Months Ended June
30, 2000
2001 2000 Change
--------- --------- ---------
(in thousands)
Underwriting income (loss) $(104,482) $ (15,050) $ (89,432)
Net investment income 65,371 18,187 47,184
Interest expense and dividends on
preferred stock of subsidiaries (20,453) (611) (19,842)
General and administrative expenses (7,604) (2,417) (5,187)
Other income 2,052 -- 2,052
--------- --------- ---------
Pre-tax operating income (loss) (65,116) 109 (65,225)
Applicable income taxes (benefit) (27,402) -- (27,402)
--------- --------- ---------
Operating income (loss) (37,714) 109 (37,823)
Minority interest in operating (income) loss of
subsidiary -- 1,258 (1,258)
Net realized investment gains (losses), net of
minority interest and income taxes 9,583 (2,186) 11,769
Foreign currency gains (losses), net of minority
interest and income taxes (1,029) 373 (1,402)
Restructuring costs, net of income taxes (2,734) (452) (2,282)
--------- --------- ---------
Net loss $ (31,893) $ (898) $ (30,995)
========= ========= =========
The operating loss of $37.7 million in the six months ended June 30, 2001
represented a $37.6 million decrease from the operating income of $0.1 million
recorded in the six months ended June 30, 2000. This decrease was principally
the result of unusual loss activity and loss reserve strengthening recorded
during the first half of 2001, partially offset by increased investment income.
The increase in investment income in 2001 was the result of the increase in the
size of the investment portfolio from the Trenwick/LaSalle business combination.
The decrease of $31.0 million in net income in 2001 when compared to 2000 was
the result of the decrease in operating income and an increase in foreign
exchange losses, which are discussed on page 18 under the caption "Non-Operating
Income and Expenses," offset in part by the absence of a minority interest in
2001, and the increase in realized investment gains. Net income for the six
months ended June 30, 2001 was also reduced by after tax restructuring costs of
$2.7 million.
Underwriting income (loss)
The underwriting result for the six months ended June 30, 2000 included only the
results of LaSalle Re Holdings Limited; the underwriting result for the six
months ended June 30, 2001 included the combined results of LaSalle Re Holdings
Limited and Trenwick Group Inc.
-14-
2001 2000 Change
--------- --------- ---------
(in thousands)
Net premiums earned $ 427,346 $ 55,988 $ 371,358
--------- --------- ---------
Claims and claims expenses incurred 373,832 53,266 320,566
Acquisition costs and underwriting expenses 157,996 17,772 140,224
--------- --------- ---------
Total expenses 531,828 71,038 460,790
--------- --------- ---------
Net underwriting (loss) $(104,482) $ (15,050) $ (89,432)
========= ========= =========
Loss ratio 87.5% 95.1% (7.6)%
Underwriting expense ratio 37.0% 31.7% 5.3%
Combined ratio 124.5% 126.8% (2.3)%
The underwriting loss of $104.5 million in 2001 represented a $89.4 million
increase compared to the underwriting loss of $15.1 million in 2000. The
increase in underwriting loss was primarily due to 14.4 million in catastrophe
losses recorded in the first half of 2001 as well as $76.7 of reserve
strengthening. During the first half of 2000, underwriting results included
additions to loss reserves of $23.0 million relating to the December 1999 winter
storms which hit France and Denmark.
The decrease in the combined ratio in 2001 compared to 2000 also resulted from a
significant change in Trenwick Group Ltd.'s mix of business following the
Trenwick/LaSalle business combination. Both the decrease in the loss ratio and
the increase in the underwriting expense ratio in the six months ended June 30,
2001 as compared to the six months ended June 30, 2000 resulted from the
inclusion of Trenwick Group Inc.'s casualty business in the underwriting results
in 2001.
Premiums written
Gross premiums written for 2001 were $693.2 million compared to $97.2 million
for the six months ended June 30, 2000, an increase of $595.9 million or 613%.
Details of gross premiums written are provided below:
2001 2000 Change
--------- --------- ---------
(in thousands)
Worldwide property catastrophe reinsurance $ 94,634 $ 82,036 $ 12,598
U.S. treaty reinsurance 162,098 -- 162,098
International specialty insurance and reinsurance 119,911 -- 119,911
Lloyd's syndicates:
Continuing 172,383 3,183 169,200
Runoff 651 12,027 (11,376)
U.S. specialty program insurance 143,502 -- 143,502
--------- --------- ---------
Gross premiums written $ 693,179 $ 97,246 $ 595,933
========= ========= =========
Worldwide property catastrophe reinsurance gross premium writings for the six
months ended June 30, 2001 increased by $12.6 million over the six months ended
June 30, 2000 due to an increase in rates on renewal business combined with an
increase in new writings, principally in the United States.
The increase in Lloyd's gross written premiums for 2001 compared to 2000 was due
to the addition of Trenwick Group Inc.'s Lloyd's operations managed by Chartwell
Managing Agents Limited from the Trenwick/LaSalle business combination. A
majority of the Lloyd's syndicate gross written premiums in 2001 represent the
bookings of business managed by Chartwell Managing Agents Limited. The majority
of Lloyd's business underwritten by LaSalle Re Holdings Limited prior to the
combination with Trenwick Group Inc. was not renewed as of December 31, 2000 and
have been classified as runoff. Additionally, results of operations from Lloyd's
syndicates which were sold by Trenwick Group Inc. in 1999 have also been
classified as runoff.
-15-
U.S. treaty reinsurance, international specialty insurance and reinsurance and
U.S. specialty program insurance gross premiums written increased from $0 for
the first half of 2000 to $162.1 million, $119.9 million and $143.5 million,
respectively, for the first half of 2001. Trenwick Group Ltd. did not underwrite
these businesses prior to the Trenwick/LaSalle business combination.
Premiums earned
2001 2000 Change
--------- --------- ---------
(in thousands)
Gross premiums written $ 693,179 $ 97,246 $ 595,933
Change in gross unearned premiums (111,022) (25,898) (85,124)
--------- --------- ---------
Gross premiums earned 582,157 71,348 510,809
--------- --------- ---------
Gross premiums ceded (187,564) (21,387) (166,177)
Change in ceded unearned premiums 32,753 6,027 26,726
--------- --------- ---------
Ceded premiums earned (154,811) (15,360) (139,451)
--------- --------- ---------
Net premiums earned $ 427,346 $ 55,988 $ 371,358
========= ========= =========
Gross premiums ceded for the six months ended June 30, 2001 were $187.6 million
compared to $21.4 million for the same period in 2000. The increase in gross
premiums ceded of $166.2 million was due primarily to cessions relating to
business acquired in the Trenwick/LaSalle business combination. Businesses
acquired in the Trenwick/LaSalle business combination included Lloyd's
syndicates, international specialty insurance and reinsurance and U.S. specialty
program insurance, all of which have significantly larger reinsurance and
retrocessional programs than LaSalle Re Limited.
Net premiums earned for the six months ended June 30, 2001 were $427.3 million
compared to $56.0 million for 2000. The increase in net premiums earned is
commensurate with the increase in net premiums written.
Claims and claims expenses
Claims and claims expenses for the six months ended June 30, 2001 were $373.8
million, an increase of $320.6 million compared to claims and claims expenses of
$53.3 million for 2000. The increase in claims and claims expenses in 2001
resulted from the addition of business acquired in the Trenwick/LaSalle business
combination as well as to unusual loss activity and loss reserve strengthening.
During the first half of 2001, claims and claims expenses included $14.4 million
of unusual loss activity, including $10.5 million related to an accumulation of
catastrophic losses including Tropical Storm Allison and storms affecting the
Midwest United States and $3.9 million relating to the sinking of the Petrobras
oil rig. Trenwick also recorded $76.7 million of reserve strengthening, which
included $17.4 million related to the treaty reinsurance segment's directors and
officer's liability business, which was underwritten prior to 2001. In addition,
$14.8 of the loss reserve strengthening related to one of the specialty program
insurance segment's programs. Also included in the reserve strengthening was
$27.4 million relating principally to the Lloyd's segment directors and officers
liability business. Lastly, the reserve strengthening included $17.1 million
stemming from deterioration in discontinued businesses and reviews of the
property insurance and small premium liability business lines at the
international specialty insurance and reinsurance segment.
-16-
Underwriting expenses
2001 2000 Change
-------- -------- --------
(in thousands)
Policy acquisition costs $122,456 $ 10,642 $111,814
Underwriting expenses 35,540 7,130 28,410
-------- -------- --------
Total underwriting expenses $157,996 $ 17,772 $140,224
======== ======== ========
Underwriting expense ratio 37.0% 31.7% 5.3%
======== ======== ========
Total underwriting expenses, comprising policy acquisition costs and
underwriting expenses, for 2001 increased by $140.2 million compared to
underwriting expenses for the six months ended June 30, 2000. Total underwriting
expenses as a percentage of net premiums earned, or the underwriting expense
ratio, were 37.0% for the six months ended June 30, 2001 compared to 31.7% for
the same period in 2000. The increase in the underwriting expense ratio occurred
principally because of an increase in policy acquisition costs relating to
casualty business acquired in the Trenwick/LaSalle business combination. This
business, which consisted of both treaty insurance and reinsurance, generally
has a higher policy acquisition cost ratio than property catastrophe business.
Net Investment Income
2001 2000 Change
----------- ----------- -----------
(in thousands)
Average invested assets $ 2,205,830 $ 563,670 $ 1,642,160
Average annualized yields 6.52% 6.19% 0.33%
----------- ----------- -----------
Investment income - portfolio 71,928 17,445 54,483
Investment income - non-portfolio 3,577 1,192 2,385
Investment expenses (7,771) (450) (7,321)
----------- ----------- -----------
Net investment income $ 65,371 $ 18,187 $ 47,184
=========== =========== ===========
Net investment income for the six months ended June 30, 2001 was $65.4 million
compared to $18.2 million for the same period in 2000. The increase in net
investment income in 2001 was due to the increase in invested assets resulting
from the Trenwick/LaSalle business combination. Investment expense for 2001
includes interest expense on funds withheld of $5.6 million under the terms of
stop loss reinsurance agreements purchased by Trenwick America Reinsurance
Corporation prior to 2000. The balance of the increase in investment expense in
2001 results from the increase in Trenwick Group Ltd.'s invested assets under
management following the Trenwick/LaSalle business combination.
Interest Expense and Dividends on Preferred Stock of Subsidiaries
Interest expense and dividends on preferred stock of subsidiaries was $20.5
million for 2001, an increase of $19.8 million from the same period in 2000. The
increase resulted from the increase in debt outstanding as a result of the
Trenwick Group Inc. debt assumed by Trenwick Group Ltd.'s subsidiaries as well
as the inclusion of dividends on preferred stock of LaSalle Re Holdings Limited
in 2001, both as a result of the Trenwick/LaSalle business combination.
Non-Operating Income and Expenses
Minority interest represents the minority interest in common shares of LaSalle
Re Limited held by third party investors prior to the Trenwick/LaSalle business
combination on September 27, 2000. Net income attributed to the minority
interest was calculated as 23.2% of net income in the first half of 2000.
-17-
Net realized gains on investments, net of applicable minority interest and
income taxes, were $9.6 million during the six months ended June 30, 2001,
compared to net realized losses of $2.2 million for the six months ended June
30, 2000. Both the gains and losses were made as a result of security sales
executed pursuant to an investment policy designed to protect the total returns
on the portfolio.
Trenwick Group Ltd. recorded foreign currency losses, net of applicable minority
interest and income taxes, of $1.0 million for the six months ended June 30,
2001, compared to foreign currency gains of $0.4 million for the six months
ended June 30, 2000 due to the decline in the value of European currencies in
the latter portion of 2000, principally the British pound sterling, against the
US dollar.
Liquidity and Capital Resources
As of June 30, 2001, Trenwick Group Ltd.'s consolidated investments and cash
totaled $2.2 billion, unchanged from the balance at December 31, 2000. The cost
of Trenwick Group Ltd.'s equity securities was $9.6 million less than fair value
at June 30, 2001 and exceeded fair value by $2.1 million at December 31, 2000.
The fair value of Trenwick Group Ltd.'s debt securities exceeded amortized cost
by $19.1 million at June 30, 2001 and by $27.0 million at December 31, 2000.
As of June 30, 2001, Trenwick Group Ltd. consolidated common shareholders'
equity totaled $613.9 million, or $16.65 per common share, compared to $652.2
million, or $17.79 per common share at December 31, 2000. During the six months
ended June 30, 2001, the unrealized appreciation of debt and equity securities
increased by $1.3 million, net of tax, or $0.04 per share.
Cash used in Trenwick Group Ltd.'s operating activities for the six months ended
June 30, 2001 was $15.4 million compared to cash used in Trenwick Group Ltd.'s
operating activities of $3.0 million in the comparable period of 2000. The
reduction in cash flow from operations was due primarily to an overall increase
in claims and claims expenses paid as a result of an increase in catastrophe
losses in the past few years.
Net cash used in financing activities during the six months ended March 31, 2001
included $2.9 million of dividends paid to common shareholders. During the six
months ended June 30, 2000, net cash used in financing activities included $3.3
million of dividends to preferred shareholders.
Trenwick Group Ltd. paid a dividend of $0.04 per common share in each of the
first two quarters of 2001 and LaSalle Re Holdings Limited paid a quarterly
dividend of $.55 per share on the Series A preferred shares of LaSalle Re
Holdings Limited in each of the first two quarters of 2001 and the first two
quarters of 2000. Trenwick Group Ltd.'s Board of Directors reviews Trenwick
Group Ltd.'s common share dividend each quarter. Among the factors considered by
the Board of Directors in determining the amount of each dividend are Trenwick
Group Ltd.'s results of operations and the capital requirements, growth and
other characteristics of its businesses.
Trenwick Group Ltd.'s total debt to capital ratio (total debt excluding the
preferred capital securities divided by total debt, preferred capital
securities, preferred shares and common shareholders' equity) increased to 28.3%
at June 30, 2001 from 26.3% on December 31, 2000.
-18-
Quantitative and Qualitative Disclosure About Market Risk
Trenwick Group Ltd. reviewed the change in its exposure to market risks since
December 31, 2000. In addition, the components of its investment holdings and
its risk management strategy and objectives have not materially changed.
Therefore, Trenwick Group Ltd. believes that the potential for loss in each
market risk sector described in the 2000 Annual Report on Form 10-K has not
materially changed.
Accounting Standards
In July 2001, the Financial Accounting Standards Board issued statements
covering business combinations and goodwill and other intangible assets, which
are required to be adopted at the beginning of 2002. The business combination
statement requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. The goodwill and other
intangible assets statement changes the accounting for goodwill from an
amortization method to an impairment-only approach. Amortization of goodwill,
including goodwill recorded in past business combinations, will cease upon
adoption of this statement. The Company has not determined the effect, if any,
that this statement will have on its consolidated financial position or results
of operations.
Safe Harbor Disclosure
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, Trenwick Group Ltd. sets forth below cautionary
statements identifying important risks and uncertainties that could cause its
actual results to differ materially from those that might be projected,
forecasted or estimated in its "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, made by or on behalf of Trenwick Group Ltd. in this
Quarterly Report on Form 10-Q and in press releases, written statements or
documents filed with the Securities and Exchange Commission, or in its
communications and discussions with investors and analysts in the normal course
of business through meetings, phone calls and conference calls. Such statements
may include, but are not limited to, projections of premium revenue, investment
income, other revenue, losses, expenses, earnings (including earnings per
share), cash flows, plans for future operations, common shareholders' equity
(including book value per share), investments, financing needs, capital plans,
dividends, plans relating to products or services of Trenwick Group Ltd. and
estimates concerning the effects of litigation or other disputes, as well as
assumptions for any of the foregoing and generally expressed with words such as
"believes," "estimates," "expects," "anticipates," "plans," "projects,"
"forecasts," "goals," "could have," "may have," and similar expressions.
Forward-looking statements involve known and unknown risks and uncertainties,
which may cause Trenwick Group Ltd.'s results to differ materially from such
forward-looking statements. These risks and uncertainties include, but are not
limited to, the following:
- - Changes in the level of competition in the domestic and international
reinsurance or primary insurance markets that affect the volume or
profitability of Trenwick Group Ltd.'s property/casualty business. These
changes include, but are not limited to, changes in the intensity of price
competition, the entry of new competitors, existing competitors exiting the
market and the development of new products by new and existing competitors;
- - Changes in the demand for reinsurance, including changes in ceding
companies' risk retentions and changes in the demand for excess and surplus
lines insurance coverages;
- - The ability of Trenwick Group Ltd. to execute its strategies in its
property/casualty operations;
- - Catastrophe losses in Trenwick Group Ltd.'s domestic and international
property/casualty businesses;
-19-
- - Adverse development on property/casualty claims and claims expense
liabilities related to business written in prior years, including, but not
limited to, evolving case law and its effect on environmental and other
latent injury claims, changing government regulations, newly identified
toxins, newly reported claims, new theories of liability, or new insurance
and reinsurance contract interpretations;
- - Changes in Trenwick Group Ltd.'s property/casualty retrocessional
arrangements;
- - Lower than estimated retrocessional or reinsurance recoveries on unpaid
losses, including, but not limited to, losses due to a decline in the
creditworthiness of Trenwick Group Ltd.'s retrocessionaires or reinsurers;
- - Increases in interest rates, which may cause a reduction in the market
value of Trenwick Group Ltd.'s fixed income portfolio, and its common
shareholders' equity;
- - Decreases in interest rates which may cause a reduction of income earned on
new cash flow from operations and the reinvestment of the proceeds from
sales or maturities of existing investments;
- - A decline in the value of Trenwick Group Ltd.'s equity investments;
- - Changes in the composition of Trenwick Group Ltd.'s investment portfolio;
- - Credit losses on Trenwick Group Ltd.'s investment portfolio;
- - Adverse results in litigation matters, including, but not limited to,
litigation related to environmental, asbestos and other potential mass tort
claims;
- - The passage of federal or state legislation subjecting LaSalle Re Limited
to United States taxation or regulation;
- - A contention by the United States Internal Revenue Service that LaSalle Re
Limited is subject to United States taxation;
- - The impact of mergers and acquisitions;
- - Gains or losses related to changes in foreign currency exchange rates; and
- - Changes in Trenwick Group Ltd.'s capital needs.
In addition to the factors outlined above that are directly related to Trenwick
Group Ltd.'s businesses, Trenwick Group Ltd. is also subject to general business
risks, including, but not limited to, adverse state, federal or foreign
legislation and regulation, adverse publicity or news coverage, changes in
general economic factors and the loss of key employees.
The facts set forth above should be considered in connection with any
forward-looking statement contained in this Quarterly Report on Form 10-Q. The
important factors that could affect such forward-looking statements are subject
to change, and Trenwick Group Ltd. does not intend to update any forward-looking
statement or the foregoing list of important factors. By this cautionary note
Trenwick Group Ltd. intends to avail itself of the safe harbor from liability
with respect of forward-looking statements provided by Section 27A and Section
21E referred to above.
-20-
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
Trenwick Group Ltd. is party to various legal proceedings generally arising
in the normal course of its business. Trenwick Group Ltd. does not believe that
the eventual outcome of any such proceeding will have a material effect on its
financial condition or business. Trenwick Group Ltd.'s subsidiaries are
regularly engaged in the investigation and the defense of claims arising out of
the conduct of their business. Pursuant to Trenwick Group Ltd.'s insurance and
reinsurance arrangements, disputes are generally required to be finally settled
by arbitration.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
The annual general meeting of shareholders was held in Hamilton, Bermuda,
on May 11, 2001. Represented in person or by proxy at the annual general meeting
were 31,187,093 common shares, which was 84.7% of outstanding common shares.
The following four directors were elected to a three year term expiring in 2004
by the following votes of Trenwick Group Ltd.'s common shareholders.
Number of Shares
----------------
For Withheld
--- --------
Frank E. Grzelecki 29,079,986 2,107,107
Peter J. Rackley 29,079,986 2,107,107
Frederick D. Watkins 29,079,886 2,107,207
Stephen R. Wilcox 29,080,047 2,107,046
The appointment of PricewaterhouseCoopers LLP as Trenwick Group Ltd.'s
independent accountants was ratified by the following vote of Trenwick's common
shareholders:
Number of Shares
----------------
For Against Abstain
--- ------- -------
31,101,158 68,830 17,105
The Trenwick Group Ltd. Non-Employee Director Equity Incentive Plan was approved
by the following vote of Trenwick Group Ltd.'s common shareholders.
-21-
Number of Shares
----------------
For Against Abstain
--- ------- -------
27,254,124 3,008,686 924,283
The Trenwick Group Ltd. Employee Share Purchase Plan was approved by the
following vote of Trenwick Group Ltd.'s common shareholders.
Number of Shares
----------------
For Against Abstain
--- ------- -------
30,055,871 216,816 914,406
Item 5. Other Information
None
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
10.1 Employment Agreement, dated May 11, 2001, by and between Trenwick
Group Ltd. and James F. Billett, Jr. *
*Management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
The following report on Form 8-K was filed during the quarter ended June 30,
2001:
Date of Report Item Reported
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July 24, 2001 Press release, dated July 24, 2001, announcing
second quarter earnings charges.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRENWICK GROUP LTD.
Date: August 14, 2001 By: /s/ James F. Billett, Jr.
--------------------------
Name: James F. Billett, Jr.
Title: Chairman, President and
Chief Executive Officer
Date: August 14, 2001 By: /s/ Coleman D. Ross
-------------------
Name: Coleman D. Ross
Title: Executive Vice President and
Chief Financial Officer
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