Trenwick Group Notes 4thQ Results
Bermuda-based Trenwick Group Ltd. reported a net loss available to common shareholders of $198.1 million or $5.39 per share for the fourth quarter of 2002, compared to a net loss of $26.4 million or $0.72 per share for the fourth quarter of 2001.
The largest contributors to the net loss in the fourth quarter of 2002 were the $106.6 million or $2.90 per share increase in loss reserves related to adverse development of 2001 and prior accident years at Trenwick’s United States subsidiaries and Trenwick International Limited, and a non-cash charge of $95.7 million or $2.60 per share related to the establishment of a 100 percent valuation allowance against Trenwick’s U.K. deferred tax asset due to a determination that Trenwick in its present circumstance may be unable to realize the tax benefits of past losses in the future.
The results for the fourth quarter of 2002 also include a charge of $13.1 million resulting from the commutation of a reinsurance cover relating to the previously announced sale of the in-force property catastrophe reinsurance business of Trenwick’s Bermuda subsidiary, LaSalle Re Limited, to Endurance Specialty Insurance Ltd. The 2001 fourth quarter net loss resulted primarily from the $30.7 million, or $0.83 per share of losses related to the November 12, 2001 American Airlines crash in Queens, New York and reinstatement premiums payable by Trenwick to its reinsurers in connection with the September 11, 2001 terrorist attacks.
For the year ended Dec. 31, 2002, Trenwick reported a net loss available to common shareholders of $386.1 million or $10.49 per share, compared to a net loss of $154.4 million or $4.19 per share for the 2001 year. The results for the 2002 year include $223.5 million or $6.07 per share of loss reserve strengthening, a non-cash charge of $150.2 million or $4.08 per share resulting from the establishment of 100 percent valuation allowances against Trenwick’s U.S. and U.K. deferred tax assets and a charge of $41.7 million, or $1.13 per share, for the cumulative effect of the change in accounting for goodwill as a result of Trenwick’s adoption of a new accounting standard referred to below effective January 1, 2002. In addition, Trenwick’s results for the 2002 year include a charge of $17.3 million (net of commission income of $2.8 million), or $0.47 per share related to the sale of the in-force business of LaSalle Re Limited.
W. Marston Becker, acting chairman and acting CEO, noted, “Trenwick has moved aggressively these last two quarters to ensure our balance sheet appropriately reflects ongoing actuarial developments within the Company and the industry, provide a going forward operating opportunity for our North American reinsurance business and our Lloyd’s business, and move into an orderly runoff of our remaining insurance businesses at Canterbury and Trenwick International as well as reflect the accompanying costs of the runoff. Trenwick has also adjusted its deferred tax assets associated with both its U.S. and London business to reflect its changed status. Trenwick’s outlook going forward remains fluid as we work to restructure our outstanding senior indebtedness prior to its April 1, 2003 maturity.”
On Oct. 30, 2002, Trenwick announced that it had ceased underwriting its U.S. specialty program business which operated as Canterbury Financial Group, Inc. Additionally, on Dec. 8, 2002, Trenwick announced that Trenwick International Limited, its specialty London market insurance company, had ceased to underwrite new business. A formal plan of runoff for Trenwick International Limited has been presented to the Financial Services Authority in the U.K. for their approval. During the fourth quarter of 2002, Trenwick recorded $16.2 million of reorganization expenses related to severance and other run-off costs.
Trenwick’s gross and net premium writings totaled $277.1 million and $234.3 million, respectively, for the quarter ended Dec. 31, 2002 compared to $391.5 million and $221.9 million, respectively, for the quarter ended Dec. 31, 2001. For the year ended Dec. 31, 2002, gross and net premium writings totaled $1.6 billion and $991.5 million, respectively, compared to gross and net premium writings for the year ended Dec. 31, 2001 of $1.5 billion and $970.3 million, respectively.
The combined loss and expense ratio for Trenwick for the fourth quarter of 2002 was 158.3 percent compared to a combined loss and expense ratio of 129.1 percent for the fourth quarter of 2001. The 2002 fourth quarter results include 44.3 percentage points related to adverse loss reserve development for 2001 and prior accident years. The loss reserve increases, as previously announced, are based upon the results of a study of the reserving levels and methodology of Trenwick’s insurance subsidiaries performed by independent actuarial consultants combined with additional work performed by Trenwick’s internal actuaries.
The 2001 fourth quarter results include 18.9 percentage points attributable to large catastrophe losses, principally the Nov. 12, 2001 American Airlines crash in Queens, New York and reinstatement premiums payable to Trenwick’s reinsurers in connection with the Sept. 11th terrorist attacks.
Trenwick’s combined loss and expense ratio for the year ended Dec. 31, 2002 was 128.4 percent compared to a combined loss and expense ratio of 132.6 percent for the same period in 2001. The 2002 year results include 22.8 percentage points related to adverse loss reserve development of 2001 and prior accident years. The results for 2001 include 14.4 percentage points for large catastrophe losses and 8.4 percentage points relating to loss reserve strengthening.