The following discussion highlights material factors affecting Trenwick America Corporation's results of operations for the years ended December 31, 2000 and 1999. This discussion and analysis should be read in conjunction with the consolidated financial statements and notes thereto of Trenwick America Corporation for the years ended December 31, 2000, 1999 and 1998, contained in this Annual Report on Form 10-K. Trenwick America Corporation meets the conditions set forth in General Instruction I (1)(a) and (b) of Form 10-K and is therefore omitting certain information otherwise required by Item 7.
All of Trenwick America Corporation'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. 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.
Results of Operations - Year Ended December 31, 2000 and Year Ended December 31,
The increase in gross premiums ceded of $143.4 million was due primarily to the inclusion of specialty program insurance for the 2000 year. Specialty program insurance cedes a greater proportion of its business written than the treaty reinsurance business. The balance of the increase in gross premiums ceded results from an increase in fronted business previously underwritten by Chartwell Insurance Company.
Net premiums earned for 2000 were $311.4 million compared to $187.9 million for 1999. The increase in net premiums earned is commensurate with the increase in net premiums written.
As of December 31, 2000, Trenwick America Corporation's exposure to high yield investments was minimal. While these investments are more susceptible to credit risk, their total market value represents less than 4% of total investments, and therefore management believes that the exposure to credit risk is not material. Trenwick America Corporation has no derivatives and its investments do not contain terms that may result in potential losses due to leverage.
Management estimates that a 10% immediate unfavorable change in each of the foreign currency exchange rates to which Trenwick America Corporation is exposed at year end 2000 would have decreased the fair value of Trenwick America Corporation's foreign denominated net assets by approximately $2.8 million. At
Trenwick America Corporation has not experienced unrealized gains or losses to the extent indicated above.
Of Trenwick America Corporation's $103.6 million equity portfolio at year end 2000, $82.9 million were subject to equity risk. Trenwick America Corporation's potential exposure on equity securities is estimated in terms of an immediate 10% drop in equity prices across all equity securities holdings from those prevailing at year end 2000 which would have resulted in a $8.3 million loss. At year end 1999, the same drop in equity prices would have resulted in a $9.4 million loss.
The above analyses do not take into account any correlation among foreign currency exchange rates, or any correlation among various markets (i.e., the fixed income markets and foreign exchange and equity
markets). Trenwick America Corporation's actual experience may differ from the results noted above due to the correlation assumptions utilized, or if events occur that were not included in the methodology, such as significant liquidity or market events. The selection of the amount of increases or decreases in currency exchange rates, interest rates and equity values in the above analyses should not be construed as a prediction of future market events, but rather, to illustrate the potential impact of such an event.
In connection with the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, Trenwick America Corporation 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 America Corporation in this Annual Report 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 America Corporation 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.
- The ability of Trenwick America Corporation to execute its strategies in its property/casualty operations;
- Gains or losses related to changes in foreign currency exchange rates; and
In addition to the factors outlined above that are directly related to Trenwick America Corporation's business, it 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.