Trenwick's United States reinsurance company subsidiary, 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, treaty reinsurance to insurers of property and casualty risks. Trenwick announced on April 15, 2003 that it would cease underwriting reinsurance business under the Chubb facility. Since inception in November 2002, Trenwick underwrote approximately $128 million of reinsurance under the facility. Trenwick will continue to be entitled to the economic benefits of existing business under the facility, subject to the terms and conditions of the facility. Trenwick'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 ceased underwriting activities under the facility in order to reduce Trenwick's costs. The effect of this cessation is that Trenwick America Re is now primarily in runoff. Trenwick 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 claim arising under the business written under the Chubb facility, subject to Chubb's final authority.
As the Company had agreed to cease future competitive activities in connection with the Endurance transaction and did not have any plans to underwrite new insurance or reinsurance through LaSalle Re, in November 2002, Trenwick applied to the BMA for permission to recharacterize the $258 million loan as a special dividend since it would more appropriately reflect the status of the distribution. The Company has
Subsequently, an amendment and waiver of default under the credit agreement and amendment 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, including those of the Oak Entities owned by LaSalle. To those Banks extending their letters of credit, Trenwick 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's Lloyd's operations, including those of the Oak Entities, for the 2002 and 2003 Lloyd's years of account. In connection with recent negotiations with the Banks, Trenwick, Trenwick America and Trenwick Holdings agreed to provide the Banks a security interest in, its and all of the respective equity interests, assets and property of its direct and indirect subsidiaries, including the Company, as additional collateral for the Banks, and to cause its subsidiaries, including the Company, to provide a guaranty to the Banks, subject to applicable laws and regulations and existing contractual rights.
By letter dated March 24, 2003, the BMA issued permission for the free transferability on an interim basis of the shares of Trenwick and the Company while they are traded on the OTC Bulletin Board, on the condition that the BMA is notified promptly of all instances in which Trenwick or the Company becomes aware that a new shareholder has obtained 5% or more of either company's shares, including background information on any such new 5% shareholder.
The increase in Lloyd's syndicates gross written premiums from continuing business for 2001 compared to 2000 is a result of rate increases on business written by the Oak Entities, while the decrease in premiums written through runoff syndicates is as anticipated.
2001 2000 Change --------- --------- --------- (in thousands) Average invested assets $ 707,189 $ 651,625 $ 55,564 Average annualized yields 6.2% 6.9% 0.7%
The Company paid a quarterly dividend of $0.5469 per share to the holders of record of its Series A Preferred Shares in March, June and September of 2002. On November 29, 2002, the Company suspended the payment of dividends on its Series A Preferred Shares. The Company intends to accrue the dividends until payment is reinstated, if ever. The date of dividend payment reinstatement has not been determined by the Company. The Company does not expect to be able to pay dividends to holders of the Series A Preferred Shares for the foreseeable future, if ever. In addition, the Company paid common dividends to Trenwick in 2002 totaling $264 million.
In connection with the Trenwick/LaSalle business combination, effective September 27, 2000 the Company cancelled its stand alone committed $100 million line of credit.
Subsequently, an amendment and waiver of default under the credit agreement and amendment 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 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's Lloyd's operations, including those of the Oak Entities owned by LaSalle Re, 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, and the assets and property of, their direct and indirect subsidiaries (including the Company) 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.
Trenwick'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's financial condition, its senior debt ratings have been downgraded by Standard & Poor's Corporation to "D" and by Moody's Investor Services to "C." Trenwick'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.