On March 25, 2003, the common shares of Trenwick and the Series A Preferred Shares of LaSalle Re Holdings were suspended from trading, pending application to the Securities and Exchange Commission for delisting, by the New York Stock Exchange ("NYSE") as a result of failure to meet the NYSE's minimum continued listing criteria. On the same day, Trenwick was notified that its common shares and the Series A Preferred Shares of LaSalle Re Holdings will be quoted on the Over The Counter Bulletin Board ("OTC").
Inscorp's reported RBC was at the "Mandatory Control Level Event" at December 31, 2002. New York Insurance Law requires that New York domiciled insurers report their risk-based capital based on a formula calculated by applying factors to various asset, premium and reserve items. Recently, Inscorp has been informed by the New York Insurance Department ("NYID") that it will be required to submit a plan to cure the existing statutory capital impairment. If the NYID is not satisfied that Inscorp has proposed a suitable plan to eliminate the impairment by April 10, 2003, the Superintendent of the NYID may proceed against Inscorp pursuant to the provisions of Article 74 of the New York Insurance Law, the statute authorizing supervision, conservation, rehabilitation, liquidation and dissolution of insurers, including domestic insurers.
On October 30, 2002, Trenwick announced that it had ceased underwriting substantially all new insurance policies in its United States specialty program business, which operated under the name Canterbury and through Trenwick America Re's subsidiaries Inscorp, Dakota and Chartwell Insurance Company. Trenwick subsidiaries will continue to administer and pay claims in connection with the insurance policies previously underwritten through Canterbury. See Item 1 - "Business--Runoff Operations-United States Specialty Program Insurance."
Trenwick's Reinsurance segment includes treaty reinsurance on United States property and casualty risks as well as worldwide property catastrophe reinsurance. U.S. treaty reinsurance is written principally through Trenwick America Re which is located in Stamford, Connecticut and includes the runoff of reinsurance business formerly written by Chartwell Insurance Company (merged with and into Trenwick
Gross premiums written for 2001 were $1.5 billion compared to $428.6 million for 2000 an increase of $1.0 billion or 239%. Details of gross premiums written are provided below:
The increase in worldwide property catastrophe reinsurance gross premium writings for 2001 compared to 2000 resulted primarily from an increase in new property catastrophe business and reinstatement premiums of $25.2 million following the catastrophe losses from the September 11, 2001 terrorist attacks.
The increase in Lloyd's syndicates continuing gross written premiums for 2001 compared to 2000 was due to the addition of Trenwick Group Inc.'s Lloyd's operations managed by Trenwick Managing Agents from the Trenwick/LaSalle business combination. A majority of the Lloyd's syndicate gross written premiums in 2000 represent the fourth quarter bookings of business managed by Trenwick Managing Agents. The majority of Lloyd's business underwritten by LaSalle Re Holdings 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.
Net realized gains on investments, net of minority interest and income taxes, were $8.5 million during 2001, compared to net realized losses of $1.0 million for 2000. Both the losses and gains were made as a result of security sales executed pursuant to an investment policy designed to protect the total returns on the portfolio. The 2001 amount is net of $3.4 million of realized losses on investments to recognize declines in value that were other than temporary.
Reorganization costs incurred in 2001 and 2000 were $4.8 million and $0.5 million, respectively. The 2001 costs primarily relate to non-recurring severance costs, and the 2000 costs represent non-recurring expenses related to the Trenwick/LaSalle business combination.
On September 27, 2000, Trenwick assumed the benefits and obligations of LaSalle Re Limited under a $100 million catastrophe equity put option. The catastrophe equity put option was amended and restated as of January 1, 2001 and amended as of January 25, 2002. As amended, the catastrophe equity put option enabled Trenwick to raise up to $55 million of equity, through the issue of convertible preferred shares to European Reinsurance Company of Zurich ("European Re"), a subsidiary of Swiss Reinsurance Company, in the event there was a qualifying catastrophic event or events occurring prior to January 1, 2002.
The finite reinsurance balances of $173.2 million as of December 31, 2002, net are due from five reinsurers and are collateralized, both with funds held and letters of credit. The operational reinsurance balances of $1.6 billion are for paid losses ($255.6 million, or 16%) and unpaid losses, including both incurred reported losses and incurred but not reported losses ($1,374.2 million, or 84%). Allowances for uncollectible balances of $80.4 million have been recorded, including $37.2 million on paid losses (13% of the paid losses) and $43.2 million on unpaid losses (3% of the unpaid losses). In the ordinary course of business, losses are paid to insureds prior to any recovery on reinsurance.
The New York Stock Exchange has suspended for trading, pending application to the Securities and Exchange Commission, our common shares and the Series A Preferred Shares of our subsidiary LaSalle Re Holdings for failure to meet the New York Stock Exchange's minimum listing requirements. Our common shares and the Series A Preferred Shares of LaSalle Re Holdings were quoted on the Over-The-Counter (OTC) Bulletin Board beginning on Tuesday, March 25, 2003.
The Chubb underwriting facility, under which Trenwick America Re is acting as agent for Chubb, represents virtually all of our ongoing United States business. The facility is terminable at will by either party, and there can be no assurance that upon its expiration it will be renewed, or that we would be able to enter into similar arrangements with another highly rated carrier were the Chubb facility to terminate. In addition, the facility is structured in such a way that we will not derive any profit commissions from it until 2006, if at all.
Certain Transactions with Significant Shareholders. As a Bermuda company, we may enter into certain business transactions with our significant shareholders, including asset sales, in which a significant shareholder receives, or could receive, a financial benefit that is greater than that received, or to be received, by other shareholders with prior approval from our board of directors but without obtaining prior approval from our shareholders.
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. Management's plans and other circumstances in regard to these matters are also described in Note 9 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
calendar quarter of 2003. Trenwick America Re is entitled to receive a monthly expense reimbursement equal to 2.0% of the gross written premiums underwritten on behalf of Chubb collected during the applicable month. The total expense reimbursement payable to Trenwick America Re is subject to a cap of $6,500. The minimum total expense reimbursement is $5,500 unless the underwriting facility is terminated prior to the expiration of its term, in which case it will be prorated based on the amount of time the underwriting agreement was in effect.
Revenues from transactions between operating segments have been eliminated in consolidation. Other unallocated consists mainly of general and administrative expenses and income taxes of Trenwick and its non-insurance subsidiaries.
payments within the period when approved for payment by Trenwick. Reinsurance recoverables on unpaid claims and claims expenses at year end 2002 and 2001 of $1,803,011 and $1,411,469, respectively, include amounts recoverable on losses that have been paid by Trenwick but for which reimbursements have not been received from ceding companies at year end 2002 and 2001 ($255,611 and $156,373, respectively). These amounts are reflected in the above table as receipts within the period when approved. In addition, the 2002 and 2001 provisions for claims and claims expenses incurred of $881,535 and $827,405, respectively, include benefits related to reductions in the liability under the contingent interest notes ($18,320 and $9,893, respectively). These amounts are not reflected in the above table. The amount in the above table reflected as net unpaid claims and claims expenses of Lloyd's syndicates ownership required represents the reinsurance liabilities incurred to close out prior years of account of syndicates for which Trenwick provided a greater percentage of the capital in 2002 than in 2001. Workers' compensation claims subject to discounting were $4,678 and $3,998, respectively, at year end 2002 and 2001, and the related discount was $1,464 and $1,145, respectively.
Reinsurance and retrocessional agreements are entered into to reduce our exposure on individual risks, catastrophic losses and other large losses in all lines of business. Trenwick remains primarily liable in the event that reinsurers fail to meet their obligations, however, Trenwick holds collateral under some of these agreements which would serve to offset a substantial portion of the liability should the reinsurer fail to pay. Reinsurance contracts which do not meet insurance accounting risk transfer requirements are classified as deposits. These deposits are treated as financing transactions and interest income or interest expense are credited or charged to them according to contract terms.
Trenwick America Re's reinsurance treaties consist principally of property catastrophe reinsurance treaties. Trenwick International and Trenwick Managing Agents, as is customary with companies operating in the London Market and Lloyd's, have purchased larger amounts of reinsurance to protect themselves. Canterbury Financial Group Inc. has purchased specific reinsurance programs for each of the programs underwritten by its insurance companies.
Fair value and amortized cost or cost of debt and equity securities at December 31, 2002 and 2001 follow:
Under the terms of Trenwick's agreements with the Banks, and particularly under the December Amendments, Trenwick and its subsidiaries are subject to financial and operational restrictions which limit Trenwick's flexibility to pursue business and strategic alternatives. These restrictions will apply so long as Trenwick and its subsidiaries have unpaid reimbursement obligations to the Banks with respect to the letters of credit.
The result of the foregoing is that the future operations of Trenwick, at least in the next several years, 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 or impose other restrictions with respect to the runoff including the provision of an acceptable runoff plan.
The contingent interest notes contain covenants which relate to the maintenance of certain records and limitations on certain indebtedness. At December 31, 2002, Trenwick was in compliance with these covenants.
Other assets: 2002 2001 -------- -------- Investments in managing general agencies $ 1,719 $ 9,010 Premises and equipment, net of accumulated depreciation of $24,461 and $7,462 20,095 24,793 Funds held by insurers and other insurance deposits 60,717 44,424 Prepaid expenses and other deposits 17,971 10,848 Current income taxes recoverable 7,462 5,229 Contingent commissions receivable 10,952 8,666 Other receivables 35,507 13,262 Other 25,332 16,563 -------- -------- Total $179,755 $132,795 -------- --------
Year Ended December 31, 2001 Allowances for uncollectible reinsurance recoverable and premiums receivable $ 25,557 $ 51,114