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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-12823
LaSalle Re Holdings Limited
(Exact name of registrant as specified in its charter)
Bermuda Not applicable
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
The LOM Building, 27 Reid Street, Hamilton HM11, Bermuda
(Address of principal executive offices)
441-292-3339
(Registrant's telephone number, including area code)
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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes |_| No |X|
The number of the Registrant's Common Shares (par value $1.00 per share)
outstanding as of August 8, 2003, was 20,432,043.
LaSalle Re Holdings Limited
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
Page
----
ITEM 1. Unaudited Consolidated Financial Statements
Consolidated Balance Sheet
June 30, 2003 and December 31, 2002 .......................... 1
Consolidated Statement of Operations
and Comprehensive Income
Three and Six Months Ended June 30, 2003 and 2002 ............ 2
Consolidated Statement of Cash Flows
Six Months Ended June 30, 2003 and 2002 ...................... 3
Consolidated Statement of Changes in Shareholders' Equity
Six Months Ended June 30, 2003 and 2002 ...................... 4
Notes to Unaudited Consolidated Financial Statements ......... 5
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................ 10
ITEM 3. Qualitative and Quantitative Disclosures About Market Risk ... 35
ITEM 4. Controls and Procedures ...................................... 35
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings ............................................ 36
ITEM 2. Changes in Securities and Use of Proceeds .................... 36
ITEM 3. Defaults upon Senior Securities .............................. 36
ITEM 4. Submission of Matters to a Vote of Security Holders .......... 36
ITEM 5. Other information ............................................ 36
ITEM 6. Exhibits and Reports on Form 8-K ............................. 36
Signatures ................................................................ 41
i
LaSalle Re Holdings Limited
Consolidated Balance Sheet
(Amounts expressed in thousands of United States dollars,
except share and per share data)
June 30, 2003 and December 31, 2002
(Unaudited)
2003 2002
----------- -----------
Assets
Debt securities available for sale, at fair value $ 511,716 $ 555,837
Cash and cash equivalents 184,114 175,449
Accrued investment income 5,539 7,879
Premiums receivable 225,439 251,699
Reinsurance recoverable balances 900,293 912,974
Prepaid reinsurance premiums 108,420 114,645
Deferred policy acquisition costs 45,977 37,091
Trenwick Group Ltd. advances -- 9,898
Trenwick Group Ltd. loan -- 75,000
Reinsurance deposits and other assets 23,440 14,455
----------- -----------
Total assets $ 2,004,938 $ 2,154,927
=========== ===========
Liabilities
Unpaid claims and claims expenses $ 1,459,485 $ 1,475,821
Unearned premium income 272,502 243,675
Reinsurance balances payable 186,189 246,311
Due to affiliates 31,181 24,488
Other liabilities 10,888 29,695
----------- -----------
Total liabilities 1,960,245 2,019,990
----------- -----------
shareholders' equity
Series A preferred shares, $1.00 par value, 3,000,000
shares issued and outstanding, at liquidation value 75,000 75,000
Common shares, $1.00 par value, 20,432,043
shares issued and outstanding 20,432 20,432
Additional paid in capital 307,914 307,914
Retained earnings (358,342) (267,829)
Accumulated other comprehensive income (loss) (311) (580)
----------- -----------
Total shareholders' equity 44,693 134,937
----------- -----------
Total liabilities and shareholders' equity $ 2,004,938 $ 2,154,927
=========== ===========
The accompanying notes are an integral part of these statements.
1
LaSalle Re Holdings Limited
Consolidated Statement of Operations and Comprehensive Income
(Unaudited)
(Amounts expressed in thousands of United States dollars)
Three and Six Months Ended June 30, 2003 and 2002
Three Months Six Months
2003 2002 2003 2002
--------- --------- --------- ---------
REVENUES
Net premiums earned $ 73,528 $ 94,819 $ 143,348 $ 201,643
Net investment income 4,265 10,675 11,145 22,508
Net realized investment gains (losses) (2,128) 5,478 (1,803) 6,994
Other income 82 2,008 179 2,339
--------- --------- --------- ---------
Total revenues 75,747 112,980 152,869 233,484
--------- --------- --------- ---------
EXPENSES
Claims and claims expenses incurred 44,522 54,035 78,077 133,270
Policy acquisition costs 21,990 22,983 42,185 50,422
Underwriting expenses 13,730 10,380 29,660 22,066
Other expense 84,947 -- 84,947 --
Loss on sale of LaSalle Re's in-force
reinsurance business -- 2,888 -- 2,888
Interest expense 1,003 1,804 6,267 3,177
Foreign currency losses (gains) (1,105) (264) (996) (96)
--------- --------- --------- ---------
Total expenses 165,087 91,826 240,140 211,727
--------- --------- --------- ---------
Income (loss) before income taxes
and cumulative effect of change
in accounting principles (89,340) 21,154 (87,271) 21,757
Applicable income taxes (benefit) (40) (626) (40) (407)
--------- --------- --------- ---------
Income (loss) before cumulative effect
of change in accounting principles (89,300) 21,780 (87,231) 22,164
Cumulative effect of change
in accounting for goodwill -- -- -- 11,586
--------- --------- --------- ---------
Net income (loss) (89,300) 21,780 (87,231) 33,750
Preferred share dividends 1,641 1,641 3,282 3,282
--------- --------- --------- ---------
Net income (loss) available to
common shareholders $ (90,941) 20,139 $ (90,513) $ 30,468
========= ========= ========= =========
COMPREHENSIVE INCOME (LOSS)
Net income (loss) $ (89,300) 21,780 $ (87,231) $ 33,750
Other comprehensive income (loss):
Net unrealized investment gains (losses) (394) 486 1,997 (6,794)
Foreign currency translation adjustment (541) -- (1,728) --
--------- --------- --------- ---------
Total other comprehensive income (935) 486 269 (6,794)
--------- --------- --------- ---------
Comprehensive income (loss) $ (90,235) $ 22,266 $ (86,962) $ 26,956
========= ========= ========= =========
The accompanying notes are an integral part of these statements.
2
LaSalle Re Holdings Limited
Consolidated Statement of Cash Flows
(Unaudited)
(Amounts expressed in thousands of United States dollars)
Six Months Ended June 30, 2003 and 2002
2003 2002
--------- ---------
OPERATING ACTIVITIES
Premiums collected, net of acquisition costs $ 226,671 $ 382,315
Ceded premiums paid, net of acquisition costs (122,369) (164,096)
Claims and claims expenses paid (129,730) (224,957)
Claims and claims expenses recovered 49,739 61,003
Underwriting expenses paid (63,348) (29,695)
--------- ---------
Cash for underwriting activities (39,037) 24,570
Net investment income received 10,141 34,006
Other income received, net of expenses 2 2,598
Income taxes recovered 155 306
Interest expense paid (6,373) --
--------- ---------
Cash from (for) operating activities (35,112) 61,480
--------- ---------
INVESTING ACTIVITIES
Debt securities sales 37,294 406,732
Debt securities maturities 8,579 235,140
Debt securities purchases -- (439,106)
Additions to premises and equipment (917) (210)
--------- ---------
Cash from investing activities 44,956 202,556
--------- ---------
FINANCING ACTIVITIES
Loan from Trenwick Group Ltd. -- 49,612
Indebtedness repayment -- (1,234)
Preferred share dividends paid -- (3,282)
Common share dividends paid -- (262,000)
--------- ---------
Cash for financing activities -- (216,904)
--------- ---------
Effect of exchange rate on cash (1,179) 7,444
Change in cash and cash equivalents 8,665 54,576
Cash and cash equivalents,
beginning of period 175,449 113,168
--------- ---------
Cash and cash equivalents, end of period $ 184,114 $ 167,744
========= =========
The accompanying notes are an integral part of these statements.
3
LaSalle Re Holdings Limited
Consolidated Statement of Changes in Shareholders' Equity
(Unaudited)
(Amounts expressed in thousands of United States dollars)
Six Months Ended June 30, 2003 and 2002
2003 2002
--------- ---------
Shareholders' equity, beginning of period $ 134,937 $ 309,500
RETAINED EARNINGS
Net income (loss) (87,231) 33,750
Preferred share dividends (3,282) (3,282)
Common share dividends -- (262,000)
ACCUMULATED OTHER
COMPREHENSIVE INCOME
Other comprehensive income (loss) 269 (6,794)
--------- ---------
Shareholders' equity, end of period $ 44,693 $ 71,174
========= =========
The accompanying notes are an integral part of these statements.
4
LaSalle Re Holdings Limited
Notes to Unaudited Consolidated Financial Statements
(Amounts expressed in thousands of United States dollars)
Three and Six Months Ended June 30, 2003 and 2002
Note 1
Organization Organization
and Basis of
Presentation LaSalle Re Holdings Limited (the "Company") was incorporated
on September 20, 1995 under the laws of Bermuda to act as an
investment holding company. LaSalle Re Limited ( "LaSalle Re
") was incorporated on October 26, 1993 under the laws of
Bermuda and commenced operations on November 22, 1993. LaSalle
Re is licensed under the Insurance Act, 1978 as amended by the
Insurance Amendment Act, 1995 of Bermuda to write insurance
business, and operated as a multi-line reinsurance company,
with emphasis on property catastrophe business. Effective
April 1, 2002, the Company sold LaSalle Re's in-force business
to Endurance Specialty Insurance Ltd. ("Endurance") and placed
LaSalle Re into runoff. As indicated below, on August 20,
2003, the Company and its affiliates, Trenwick Group Ltd.
("Trenwick") and Trenwick America Corporation ("Trenwick
America") filed for protection from their creditors under
chapter 11 of the United States Bankruptcy Code.
On August 26, 1994, LaSalle Re incorporated a subsidiary
company in the United Kingdom to act as a representative
office for the Company. In addition, on June 11, 1996, LaSalle
Re incorporated a subsidiary company in Bermuda to provide
capital support to selected syndicates at Lloyd's of London
("Lloyd's"). Following the Trenwick/LaSalle business
combination referred to below, the Company closed its UK
representative office and ceased to actively participate as a
corporate member in Lloyd's.
On September 27, 2000, the Company completed a business
combination with Trenwick and Trenwick Group Inc. Under the
terms of the business combination, the common shareholders of
the Company, Trenwick, Trenwick Group Inc., and the minority
shareholders of LaSalle Re exchanged their shares on a
one-for-one basis for shares in Trenwick. Following this
transaction, the Company became a wholly owned subsidiary of
Trenwick.
On December 10, 2002, Trenwick contributed the capital stock
of Oak Dedicated Limited, Oak Dedicated Two Limited and Oak
Dedicated Three Limited, three corporate members at Lloyd's
(collectively called the "Oak Entities"), to the Company. In
connection with its contribution of the capital stock of the
Oak Entities to the Company in December 2002, Trenwick agreed
to forgive $127,698 of indebtedness due from the Oak Entities,
which was recorded as other income. Concurrent with the
transaction, LaSalle Re contributed $81,638 to the Oak
Entities. The Oak Entities participate in Lloyd's syndicates
which are managed by Trenwick Managing Agents ("TMA"), a
wholly owned subsidiary of Trenwick. As the Company and the
Oak Entities were under common control, the contribution of
the ownership from Trenwick was accounted for at historical
cost, in a manner similar to a pooling of interests business
combination. Accordingly, the results of operations for the
three and six months ended June 30, 2002 have been restated to
reflect the combined operating results of the Company and the
Oak Entities.
5
Trenwick announced on August 7, 2003 that that it has entered
into a letter of intent with respect to an agreement in
principle on a long-term restructuring of its debt
obligations, the sale of its business operations at Lloyd's,
and the runoff of its remaining businesses with (i) the
majority of the beneficial holders (the "Senior Noteholders")
of its 6.70% Senior Notes (the "Senior Notes"), (ii) the
steering committee (the "Steering Committee") of the lending
institutions (the "Banks") that have issued letters of credit
under a senior secured credit facility (the "LoC Facility") on
behalf of certain subsidiaries of Trenwick in support of
Trenwick's Lloyd's operations, and (iii) a group composed of
current members of management of Trenwick's Lloyd's operations
(the "Management Team") and third party investors. Trenwick
did not pay principal and interest on the Senior Notes due on
August 1, 2003, which also created an event of default with
respect to the LoC Facility and under certain other
indebtedness of Trenwick.
The restructuring is intended to be implemented through
various means, including but not limited to the following: (i)
the filing by Trenwick and/or one or more of its subsidiaries
of Chapter 11 bankruptcy proceedings in the United States and
the filing of similar proceedings in Bermuda, including the
Company, Barbados or the United Kingdom, as the case may be;
(ii) the sale by Trenwick of substantially all of its Lloyd's
operations to a company controlled by the Management Team and
with capital provided by the Management Team, third-party
investors and the Banks, (iii) the establishment of a new
holding company by LaSalle Re to ultimately own 100% of the
economic interest in the Oak Entities and Oak Four Dedicated
and 20% of the economic interest in a new corporate capital
member to be formed by the Management Team to support
underwriting at Lloyd's for the 2004 and subsequent years of
account and (iv) the retention of third party run-off advisors
and the continued runoff or disposition of all of Trenwick's
other insurance and reinsurance operations. In light of the
foregoing, Trenwick believes that it is unlikely that any of
the holders of the shares of Trenwick or of the Company will
receive any return on their investment in the near term if at
all.
The terms of the restructuring are subject to the satisfaction
of numerous conditions precedent including, but not limited
to, the following: (i) approval of the restructuring by the
Banks; (ii) negotiation of definitive documentation (iii)
receipt of all requisite regulatory and other approvals in the
United States, Bermuda and the United Kingdom; (iv) due
diligence by Englefield Capital LLP, the proposed equity
sponsor of the Management Team, which has entered into an
exclusive negotiation agreement with Trenwick, and (v)
approval of any court having jurisdiction over the
above-referenced insolvency proceedings.
On August 20, 2003, the Company and its affiliates, Trenwick
and Trenwick America (collectively with the Company and
Trenwick, the "Debtors"), filed for protection from their
creditors under chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") with the United States Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court").
On that same date, the Company and Trenwick filed proceedings
in the Supreme Court of Bermuda known under Bermudian law as
"winding up." The Company and Trenwick petitioned the Supreme
Court of Bermuda to issue an order appointing Joint
Provisional Liquidators for the Company and Trenwick and have
requested that deference be paid in the "winding up" to the
jurisdiction of the Bankruptcy Court and the Debtors'
restructuring efforts in accordance with the Bankruptcy Code.
On August 22, 2003, the Supreme Court of Bermuda appointed
John M. Wardrop of KPMG LLP in the U.K. and Michael W.
Morrison of KPMG in Bermuda as Joint Provisional Liquidators.
It is the intention of the Debtors to implement the
restructuring agreed to among the Debtors and their creditor
constituencies, as discussed above, through the bankruptcy
process. (See Note 6)
6
During the three months ended June 30, 2003, the Company
recorded a 100% valuation allowance against a $75,000 loan and
advances of $9,947, both receivable from Trenwick, as well as
the investment in Trenwick Capital Trust I preferred stock of
$1,892. As a result, as of June 30, 2003, the estimated
capital and surplus of LaSalle Re was $43,333 and therefore,
LaSalle Re did not meet the minimum statutory capital and
surplus level of $100,000 required for a Class 4 reinsurer in
Bermuda. The Company is in the process of filing a request
with the Bermuda Monetary Authority ("BMA") to change to a
Class 3 reinsurer in Bermuda. If the request is approved, the
Company would be in compliance with the minimum level of
capital and surplus for a Class 3 reinsurer, which is equal to
15% of net reserves, or $22,166 for LaSalle Re at June 30,
2003. There can be no assurance that the request will be
approved by the BMA.
Basis of Presentation
These interim financial statements include the accounts of
LaSalle Re Holdings Limited 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 financial statements, as well
as the reported amounts of revenues and expenses during the
reporting periods. Actual amounts may differ from these
estimates.
The accompanying financial statements have been prepared
assuming the Company will continue as a going concern. As
discussed above, Trenwick is in default with respect to its
senior notes and certain other indebtedness and Trenwick and
the Company have filed for protection from their creditors
under chapter 11 of the United States Bankruptcy Code, the
Company has filed proceedings in the Supreme Court of Bermuda
known under Bermudian law as "winding up", and LaSalle Re did
not meet the minimum requirements for its level of statutory
capital and surplus at June 30, 2003. These matters raise
substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any
adjustments that might result from the outcome of these
uncertainties.
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 the
Company for the year ended December 31, 2002.
Note 2 The payment of dividends on the Company's Series A preferred
Series A shares was suspended effective November 29, 2002. Accrued
Preferred dividends of $1,641 and $4,923 are included in other
Shares liabilities in the accompanying Consolidated Balance Sheet at
December 31, 2002 and June 30, 2003, respectively. Trenwick
believes that it is unlikely that any of the holders of the
Company's preferred shares will receive any return on their
investment in the near term if at all.
7
Note 3 Prior to December 31, 2002, the Company conducted its business
Segment in two segments: worldwide property catastrophe reinsurance
Information through LaSalle Re, and Lloyd's syndicates through LaSalle Re
Corporate Capital, both of which are now in runoff. Effective
December 31, 2002, the Company conducts business through the
Oak Entities which participate in Lloyd's Syndicate 839 (Refer
to Note 1). The worldwide property catastrophe reinsurance
segment, which was formerly written by LaSalle Re, provided
reinsurance for property catastrophe and for other lines of
business, which have similar characteristics, namely high
severity and low frequency. Effective April 1, 2002 the
Company sold the in-force reinsurance business of LaSalle Re
to Endurance and placed LaSalle Re into runoff.
The following tables present business segment financial
information for the Company as of June 30, 2003 and December
31, 2002 and for the three and six months ended June 30, 2003
and 2002.
Total assets: 2003 2002
---------- ----------
Worldwide property catastrophe reinsurance $ 222,296 $ 364,798
Lloyd's syndicates 1,782,642 1,790,129
---------- ----------
Total assets $2,004,938 $2,154,927
========== ==========
Three Months Six Months
------------------------ -------------------------
Total revenues: 2003 2002 2003 2002
-------- --------- --------- ---------
Worldwide property catastrophe
reinsurance $ (186) $ 12,921 $ 5,924 $ 50,763
Lloyd's syndicates 75,933 100,059 146,945 182,721
-------- --------- --------- ---------
Total revenues $ 75,747 $ 112,980 $ 152,869 $ 233,484
======== ========= ========= =========
Three Months Six Months
------------------------ -------------------------
Net income: 2003 2002 2003 2002
-------- --------- --------- ---------
Worldwide property catastrophe
reinsurance $(89,415) $ 24,587 $ (84,818) $ 40,671
Lloyd's syndicates 115 (2,807) (2,413) (6,921)
-------- --------- --------- ---------
Total net income $(89,300) $ 21,780 $ (87,231) $ 33,750
======== ========= ========= =========
Note 4
Underwriting The components of premiums written and earned for the three
Activities and six months ended June 30, 2003 and 2002 are as follows:
Three Months Six Months
2003 2002 2003 2002
-------- --------- --------- ---------
Gross premiums written $ 94,347 $ 173,336 $ 233,074 $ 363,217
Ceded premiums written (9,350) (107,695) (45,438) (168,691)
-------- --------- --------- ---------
Net premiums written $ 84,997 $ 65,641 $ 187,636 $(194,526)
======== ========= ========= =========
Gross premiums earned $ 81,616 $ 142,955 $ 196,028 $ 299,555
Ceded premiums earned (8,088) (48,136) (52,680) (97,912)
-------- --------- --------- ---------
Net premiums earned $ 73,528 $ 94,819 $ 143,348 $ 201,643
======== ========= ========= =========
8
Note 5 Effective January 1, 2002, the Company adopted Statement of
Accounting Financial Accounting Standard No. 142 which amended the
Standards accounting for goodwill and other intangible assets. This new
statement required the Company to credit the negative goodwill
balance of $11,586 to operations as of January 1, 2002 as a
cumulative effect of change in accounting principle.
Note 6 On August 20, 2003, the Company and its affiliates, Trenwick
Subsequent and Trenwick America (collectively with the Company and
Events Trenwick, the "Debtors"), filed for protection from their
creditors under chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") with the United States Bankruptcy
Court for the District of Delaware (the "Bankruptcy Court").
On that same date, the Company and Trenwick filed proceedings
in the Supreme Court of Bermuda known under Bermudian law as
"winding up." The Company and Trenwick petitioned the Supreme
Court of Bermuda to issue an order appointing Joint
Provisional Liquidators for the Company and Trenwick and
requested that deference be paid in the "winding up" to the
jurisdiction of the Bankruptcy Court and the Debotors'
restructuring efforts in accordance with the Bankruptcy Code.
On August 22, 2003, the Supreme Court of Bermuda appointed
John M. Wardrop of KPMG LLP in the U.K. and Michael W.
Morrison of KPMG in Bermuda as Joint Provisional Liquidators.
It is the intention of the Debtors to implement the
restructuring agreed to among the Debtors and their creditor
constituencies, as discussed above, through the bankruptcy
process.
The majority of the assets and liabilities included in the
consolidated balance sheet of the Company are assets and
liabilities of LaSalle Re, a regulated insurance company,
which is not subject to the proceedings in the Bankruptcy
Court or the Supreme Court of Bermuda.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion highlights material factors affecting LaSalle Re
Holdings Limited's results of operations for the three and six months ended June
30, 2003 and 2002. This discussion and analysis should be read in conjunction
with the unaudited interim financial statements and notes thereto of LaSalle Re
Holdings Limited contained in this Quarterly Report on Form 10-Q as well as in
conjunction with the audited financial statements and related notes included in
the Annual Report on Form 10-K of LaSalle Re Holdings Limited for the year ended
December 31, 2002.
Overview
LaSalle Re Holdings Limited (the "Company"), which is a wholly owned subsidiary
of Trenwick Group Ltd. ("Trenwick"), until April 1, 2002 primarily wrote
property catastrophe reinsurance on a worldwide basis through its subsidiary,
LaSalle Re Limited ("LaSalle Re"). Property catastrophe reinsurance contracts
cover unpredictable events such as hurricanes, windstorms, hailstorms,
earthquakes, fires, industrial explosions, freezes, riots, floods and other
man-made or natural disasters. Effective April 1, 2002, the Company sold its
in-force property catastrophe reinsurance business of its subsidiary LaSalle Re
to Endurance Specialty Insurance Ltd. ("Endurance"). The sale was effected
through a 100% quota share reinsurance agreement, with Endurance paying the
Company a ceding commission of 25% of premiums ceded under the quota share
agreement and additional profit sharing of 50% if the losses do not exceed a
loss ratio of 45%. In addition, Endurance has the right to renew LaSalle Re's
in-force business as it expires in exchange for a 12.5% commission on the
business renewed. Included in the 2002 second quarter results are $6.7 million
in ceding commissions earned on the quota share with Endurance, as well as $3.9
million in amortization of acquisition costs on the related assumed business.
The Company's other business consisted primarily of participations in certain
Lloyd's of London ("Lloyd's") syndicates through LaSalle Re Capital, which
provided capital support to those syndicates. Effective for the 2001
underwriting year at Lloyd's, LaSalle Re Capital withdrew its capital support
from all Lloyd's syndicates. LaSalle Re Capital, which was incorporated in
Bermuda in November 1996, is currently inactive. On December 10, 2002, LaSalle
Re, with the permission of the Bermuda Monetary Authority ("BMA"), again became
a corporate capital provider at Lloyd's pursuant to an agreement between
Trenwick, LaSalle Re and the Company whereby the Oak Entities were contributed
by Trenwick to LaSalle Re. The Oak Entities (three separate subsidiaries), which
are incorporated in the United Kingdom, participate in Lloyd's syndicates as
corporate members of Lloyd's managed by Trenwick Managing Agents ("TMA"), a
wholly owned subsidiary of Trenwick. The contribution of the Oak Entities by
Trenwick to LaSalle Re, together with an additional investment in the Oak
Entities by LaSalle Re of $81.6 million, was completed as part of Trenwick's
underwriting capital at Lloyd's for the 2003 year of account. In return for its
investment, LaSalle Re will receive 43% of the economic interest (prior to the
deduction of the banks' letter of credit fees and profit participation referred
to below) in the 2003 year of account of syndicates managed by TMA at Lloyd's
and will also participate in the economic interest in the results of such
syndicates for the 2002 and prior years of account. Trenwick announced on May 9,
2003 that its Board of Directors had authorized the senior management of TMA to
seek alternative sources of capital to replace Trenwick's ownership of TMA and
the current
10
capacity provided by Trenwick and its subsidiaries on composite Syndicate 839
and life Syndicate 44 from industry partners, private equity and other financial
sources.
On November 29, 2002, the Company suspended the payment of dividends on its
Series A Preferred Shares as a result of restrictions on the Company under
Trenwick's credit agreement with various lending institutions, under which the
Company is a guarantor. The Company intends to accrue the dividends until
payment is reinstated, if ever. The Company does not expect to be able to pay
dividends to the holders of the Series A Preferred Shares for the foreseeable
future, if ever.
Trenwick announced on August 7, 2003 that that it has entered into a letter of
intent with respect to an agreement in principle on a long-term restructuring of
its debt obligations, the sale of its business operations at Lloyd's, and the
runoff of its remaining businesses with (i) the majority of the beneficial
holders (the "Senior Noteholders") of its 6.70% Senior Notes (the "Senior
Notes"), (ii) the steering committee (the "Steering Committee") of the lending
institutions (the "Banks") that have issued letters of credit under a senior
secured credit facility (the "LoC Facility") on behalf of certain subsidiaries
of Trenwick in support of Trenwick's Lloyd's operations, and (iii) a group
composed of current members of management of Trenwick's Lloyd's operations (the
"Management Team") and third party investors. Trenwick did not pay principal and
interest on the Senior Notes due on August 1, 2003, which also created an event
of default with respect to the LoC Facility and under certain other indebtedness
of Trenwick.
The restructuring is intended to be implemented through various means, including
but not limited to the following: (i) the filing by Trenwick and/or one or more
of its subsidiaries of Chapter 11 bankruptcy proceedings in the United States
and the filing of similar proceedings in Bermuda, Barbados or the United
Kingdom, as the case may be; (ii) the sale by Trenwick of substantially all of
its Lloyd's operations to a company controlled by the Management Team and with
capital provided by the Management Team, third-party investors and the Banks,
(iii) the establishment of a new holding company by LaSalle Re to ultimately own
100% of the economic interest in the Oak Entities and Oak Four Dedicated and 20%
of the economic interest in a new corporate capital member to be formed by the
Management Team to support underwriting at Lloyd's for the 2004 and subsequent
years of account and (iv) the retention of third party run-off advisors and the
continued runoff or disposition of all of Trenwick's other insurance and
reinsurance operations. In light of the foregoing, Trenwick believes that it is
unlikely that any of the holders of the shares of Trenwick or of the Company
will receive any return on their investment in the near term if at all.
The terms of the restructuring are subject to the satisfaction of numerous
conditions precedent including, but not limited to, the following: (i) approval
of the restructuring by the Banks; (ii) negotiation of definitive documentation,
(iii) receipt of all requisite regulatory and other approvals in the United
States, Bermuda and the United Kingdom; (iv) due diligence by Englefield Capital
LLP, the proposed equity sponsor of the Management Team, which has entered into
an exclusive negotiation agreement with Trenwick, and (v) approval of any court
having jurisdiction over the above-referenced insolvency proceedings.
On August 20, 2003, the Company and its affiliates, Trenwick and Trenwick
America Corporation ("Trenwick America") (collectively with the Company and
Trenwick, the "Debtors"), filed for protection from their creditors under
chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") with the
United States
11
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). On that
same date, the Company and Trenwick filed proceedings in the Supreme Court of
Bermuda known under Bermudian law as "winding up." The Company and Trenwick
petitioned the Supreme Court of Bermuda to issue an order appointing Joint
Provisional Liquidators for the Company and Trenwick and requested that
deference be paid in the "winding up" to the jurisdiction of the Bankruptcy
Court and the Debotors' restructuring efforts in accordance with the Bankruptcy
Code. On August 22, 2003, the Supreme Court of Bermuda appointed John M. Wardrop
of KPMG LLP in the U.K. and Michael W. Morrison of KPMG in Bermuda as Joint
Provisional Liquidators. It is the intention of the Debtors to implement the
restructuring agreed to among the Debtors and their creditor constituencies as
discussed above through the bankruptcy process.
The majority of the assets and liabilities included in the consolidated balance
sheet of the Company are assets and liabilities of LaSalle Re, a regulated
insurance company, which is not subject to the proceedings in the Bankruptcy
Court or the Supreme Court of Bermuda.
Critical Accounting Policies
The accounting policies described below are those the Company considers critical
in preparing its consolidated financial statements. These policies include
significant estimates made by management using information available at the time
the estimates are made. However, as described below, these estimates could
change materially if different information or assumptions were used.
Unpaid Claims and Claims Expenses
Claims and claims expenses are recorded as incurred, at management's best
estimate, in order to match claims and claims expense costs with premiums over
the contract periods. The amount provided for unpaid claims and claims expenses
consists of any unpaid reported claims and claims expenses and estimates for
incurred but not reported claims and claims expenses, net of estimated salvage
and subrogation. The estimates for claims and claims expenses incurred but not
reported were developed based on historical claims and claims expense experience
and an actuarial evaluation of expected claims and claims expense experience.
Reserves for unpaid claims and claims expenses, by their very nature, do not
represent an exact calculation of the liability and, while the Company has
established reserves equal to the current best estimate of ultimate losses,
there remains a likelihood that further changes in such claim estimates, either
upward or downward, will occur in the future. Adjustments to previously reported
reserves for unpaid claims and claims expenses are considered changes in
estimates for accounting purposes and are reflected in the income statement in
the period in which the adjustment becomes known.
Unpaid claims and claims expenses are recorded based on actuarial estimates of
losses inherent in that period's claims, including losses for which claims have
not yet been reported. Estimates of unpaid claims and claims expenses rely on
actuarial observations of ultimate loss experience for similar historical
events. Historical insurance industry experience indicates that a high degree of
inherent variability exists in assessing the ultimate amount of losses under
short-duration property and casualty contracts. This inherent variability is
particularly significant for liability-related exposures, including latent
claims issues (such as asbestos and environmental related coverage disputes),
because of the extended period of time, often many years, that transpires
between when a given
12
claim event occurs and the ultimate full settlement of such claim. This
situation is then further exacerbated for reinsurance entities (as opposed to
primary insurers) due to coverage often being provided on an "excess-of-loss"
basis and the resulting time lags in receiving current claims data.
Additionally, the uncertainty is increased as a result of the diversity of
development patterns among different types of reinsurance and the necessary
reliance on ceding companies for information regarding reported claims and
differing reserving practices among ceding companies. Other items that have been
considered in determining reserves but may develop differently than currently
estimated include:
o September 11, 2001 related claims, particularly with respect to
catastrophe coverage underwritten in LaSalle Re;
o United Kingdom liability claims;
o Claims against insured financial services companies for certain
types of practices including alleged misallocations of shares in
initial public offerings;
o Ultimate losses on business underwritten in the last four years, as
reserve estimates are inherently more uncertain on recent business,
where reported loss activity is still low relative to ultimate
losses;
o Reinsurance collectibility - Trenwick reviews and monitors its
reinsurance recoverables from its reinsurers and makes provision for
uncollectible reinsurance as appropriate. However, given the
magnitude of reinsurance recoverables, $900 million at June 30,
2003, the Company has a significant exposure to collectibility
issues.
The Company's management continually evaluates the potential for changes in
unpaid claims and claims expenses to adjust recorded reserves and to proactively
modify underwriting criteria and product offerings. In recent periods and
continuing throughout 2002 and the first six months of 2003, the level of
reported claims activity related to prior year loss events, particularly for
liability-related exposures underwritten in 1997 through 2001, has been
significantly higher than anticipated. Full consideration of these trends was
incorporated into a comprehensive reserve study completed in the fourth quarter
of 2002. Insurance reserves, by their very nature, do not represent an exact
calculation of liability and, while the Company has established reserves equal
to the current best estimate of ultimate losses, there remains a likelihood that
further changes in such loss estimates, either upward or downward, will occur in
the future.
Reinsurance Recoverable Balances
The Company purchases reinsurance to reduce its exposure on individual risks,
catastrophic losses and other large losses. The Company estimates the amount of
uncollectible receivables from its reinsurers each period and establishes an
allowance for uncollectible amounts. The amount of the allowance is based on the
age of unpaid amounts, information about the creditworthiness of the Company's
reinsurers, and other relevant information. Estimates of uncollectible
reinsurance amounts are reviewed quarterly, and changes are recorded in the
period they become known. A significant change in the level of uncollectible
reinsurance amounts would have a significant effect on the Company's results of
operations and financial position.
13
Investments
Investments are classified as available for sale and recorded at fair value, and
unrealized investment gains and losses are reflected in shareholders' equity.
Investment income is recorded when earned, and capital gains and losses are
recognized when investments are sold. Investments are reviewed periodically to
determine if they have suffered an impairment of value that is considered other
than temporary. If investments are determined to be impaired, a capital loss is
recognized at the date of determination.
Testing for impairment of investments also requires significant management
judgment. The identification of potentially impaired investments, the
determination of their fair value and the assessment of whether any decline in
value is other than temporary are the key judgment elements. The discovery of
new information and the passage of time can significantly change these
judgments. Revisions of impairment judgments are made when new information
becomes known, and any resulting impairment adjustments are made at that time.
The current economic environment and recent volatility of securities markets
increase the difficulty of determining fair value and assessing investment
impairment. The same influences tend to increase the risk of potentially
impaired assets.
The Company seeks to match the maturities of invested assets with the payment of
expected liabilities. By doing this, the Company attempts to make cash available
as payments become due. If a significant mismatch of the maturities of assets
and liabilities were to occur and the Company had to liquidate investments prior
to their maturity, it may incur realized losses and the effect on the Company's
results of operations could be significant.
Deferred Income Taxes
Deferred income tax assets and liabilities are computed based on temporary
differences between financial statement and income tax bases of assets and
liabilities using enacted income tax rates in effect for the year in which the
differences are expected to reverse. FASB Statement No. 109 requires a valuation
allowance to be recorded when it is more likely than not that some or all of the
deferred tax assets will not be realized. Due to the Company's cumulative losses
generated in recent years by the Oak Entities and uncertainties as to the amount
of taxable income to be generated in future years, as of December 31, 2002, the
Company could not support the future realizability of its net deferred tax
asset. The effects of this determination on the Company's results from
operations were significant. As of December 31, 2002, the Company established a
valuation allowance of $44.8 million, so as to record a valuation allowance for
the full amount of its net deferred tax asset applicable to the Oak Entities. As
of June 30, 2003, the Company maintained a valuation allowance for the full
amount of its net deferred tax asset. The Company's Bermuda operations are not
subject to income tax.
Results of Operations - Three Months Ended June 30, 2003 and 2002
The Company recorded an operating loss of $87.2 million during the three months
ended June 30, 2003 as compared to operating income of $19.2 million recorded in
the three months ended June 30, 2002. The operating loss in 2003 was primarily
the result of the recording of a 100% valuation allowance against a loan of
$75.0 million and advances of $9.9 million, both receivable from Trenwick.
Additionally, the 2003 results included an underwriting loss and decreased
investment income as compared to the same period in 2002.
14
2003 2002 Change
-------- ------- --------
(in thousands)
Net premiums earned $ 73,528 $94,819 $(21,291)
-------- ------- --------
Claims and claims expenses incurred 44,522 54,035 (9,513)
Acquisition costs & underwriting expenses 35,720 33,363 2,357
-------- ------- --------
Total expenses 80,242 87,398 (7,156)
-------- ------- --------
Net underwriting income (loss) $ (6,714) $ 7,421 $(14,135)
======== ======= ========
Loss ratio 60.5% 57.0% 3.5%
Underwriting expense ratio 48.6% 35.2% 13.4%
Combined ratio 109.1% 92.2% 16.9%
The underwriting loss of $6.7 million in the second quarter of 2003
represented a $14.1 million decrease compared to the underwriting income
of $7.4 million in the second quarter of 2002. The decrease in
underwriting income as well as the increase in the combined ratio can be
attributed to the sale of LaSalle Re's in-force reinsurance business
effective April 1, 2002, and the decrease in premiums earned through the
Oak Entities in 2003. In addition, the 2003 results include increased
acquisition costs and underwriting expenses, while the 2002 results
included favorable development on reserves for unpaid claims and claims
expenses.
Premiums written
Gross premiums written for the three months ended June 30, 2003 were $94.3
million compared to $173.3 million for the three months ended June 30,
2002, a decrease of $79.0 million or 45.6%. Details of gross premiums
written are provided below:
2003 2002 Change
------- -------- --------
(in thousands)
Lloyd's syndicates $92,987 $153,453 $(60,466)
Worldwide property catastrophe 1,360 19,883 (18,523)
------- -------- --------
Gross premiums written $94,347 $173,336 $(78,989)
======= ======== ========
The decrease of $60.5 million in Lloyd's gross premiums written for the
second quarter of 2003 compared to $153.3 million in the second quarter of
2002 was primarily due to the decrease in premiums written on aviation
business in 2003, a result of the decrease in the number of airline
passengers due to recent security concerns together with the impact of
SARS and the Iraq war. The Company ceased underwriting aviation business
through the Oak Entities in the second quarter of 2003.
The Company's property catastrophe business was sold effective April 1,
2002 to Endurance Specialty Insurance Ltd. ("Endurance") which was
primarily responsible for the gross written property catastrophe premium
decrease of $18.5 million in the second quarter of 2003. Gross premiums
written of $1.4 million for the three months ended June 30, 2003 represent
adjustment premiums received related to business written prior to April 1,
2002.
Premiums earned
2003 2002 Change
-------- --------- --------
(in thousands)
Gross premiums written $ 94,347 $ 173,336 $(78,989)
Change in gross unearned premiums (12,731) (30,381) 17,650
-------- --------- --------
Gross premiums earned 81,616 142,955 (61,339)
-------- --------- --------
Gross premiums ceded (9,350) (107,695) 98,345
Change in ceded unearned premiums 1,262 59,559 (58,297)
-------- --------- --------
Ceded premiums earned (8,088) (48,136) 40,048
-------- --------- --------
Net premiums earned $ 73,528 $ 94,819 $(21,291)
======== ========= ========
15
Gross premiums ceded for the three months ended June 30, 2003 were $9.4
million compared to $107.7 million for the three months ended June 30,
2002. The decrease of $98.3 million was primarily due to the Company's
sale of LaSalle Re's in-force business to Endurance effective April 1,
2002, combined with the decrease in gross premiums written by the Oak
Entities.
Claims and claims expenses
Claims and claims expenses for the three months ended June 30, 2003 were
$44.5 million compared to $54.0 million for the same period in 2002, a
decrease of $9.5 million. The decrease in claims and claims expenses in
2003 is primarily due to the sale of LaSalle Re's in-force business and
the decrease in premiums earned through the Oak Entities in 2003, combined
with the inclusion of favorable development on reserves for unpaid claims
and claims expenses of $12.9 million during the 2002 quarter.
Underwriting expenses
2003 2002 Change
------- ------- -------
(in thousands)
Policy acquisition costs $21,990 $22,983 $ (993)
Underwriting costs 13,730 10,380 3,350
------- ------- -------
Total underwriting expenses $35,720 $33,363 2,357
======= ======= =======
Underwriting expense ratio 48.6% 35.2% 13.4%
======= ======= =======
Total underwriting expenses, comprising policy acquisition costs and
underwriting expenses, for the second quarter of 2003 increased by $2.4
million compared to the second quarter of 2002. The increase in 2003 is
attributable in part to increased legal fees incurred related to the
ongoing efforts of senior management of Trenwick's Lloyd's operations to
seek alternate sources of capital to replace Trenwick's ownership of the
Lloyd's operations and the current underwriting capacity provided by
Trenwick. The increase in the underwriting expense ratio can be attributed
to the decrease in aviation premiums, which generally carry significantly
lower commission rates than that of other lines of business written
through the Oak Entities.
Net investment income
2003 2002 Change
--------- --------- --------
(in thousands)
Average invested assets $ 757,586 $ 808,524 $(50,938)
Average annualized yields 2.1% 5.3% (3.2)%
--------- --------- --------
Investment income - portfolio $ 4,011 $ 10,814 $ (6,803)
Investment income - non-portfolio 325 57 268
Investment expenses (71) (196) 125
--------- --------- --------
Net investment income $ 4,265 $ 10,675 $ (6,410)
========= ========= ========
16
Net investment income for the three months ended June 30, 2003 was $4.3 million
compared to $10.7 million for the same period in 2002. The decrease of $6.4
million was due to lower market yields and lower invested assets primarily due
to a dividend paid by the Company to Trenwick of $258 million in June 2002.
Foreign currency gains
The Company recorded foreign currency gains of $1.1 million for the three months
ended June 30, 2003, compared to gains of $0.3 million for the three months
ended June 30, 2002. The gains are a result of the strengthening British Pound
against the U.S. Dollar.
Other income (expense)
The Company recorded other expenses of $84.9 million during the three months
ended June 30, 2003 as compared to other income of $2.0 million for the same
period in 2002. The expenses in 2003 are primarily the result of the recording
of a 100% valuation allowance on a $75.0 million loan and advances of $9.9
million, both receivable from Trenwick, which were determined to be
uncollectible.
Net realized gains (losses)
Net realized losses on investments were $2.1 million during the three months
ended June 30, 2003, compared to gains of $5.5 million for the three months
ended June 30, 2002. The loss in 2003 primarily relates to a 100% valuation
allowance provided on the Company's investment in Trenwick Capital Trust I
preferred stock of $1.9 million. The gains in 2002 were a result of securities
sales executed to fund claims payments.
Results of Operations - Six Months Ended June 30, 2003 and 2002
The Company recorded an operating loss of $85.4 million for the six months ended
June 30, 2003 as compared to operating income of $18.1 million recorded in the
six months ended June 30, 2002. The 2003 operating loss was primarily the result
of the recording of a 100% valuation allowance against a $75.0 million loan and
$9.9 million of advances, both receivable from Trenwick. Additionally, the 2003
results included a greater underwriting loss and decreased investment income
when compared to the first six months of 2002.
------------------------------------------
2003 2002 Change
--------- --------- --------
(in thousands)
Net premiums earned $ 143,348 $ 201,643 $(58,295)
--------- --------- --------
Claims and claims expenses incurred 78,077 133,270 (55,193)
Acquisition costs & underwriting expenses 71,845 72,488 (643)
--------- --------- --------
Total expenses 149,922 205,758 (55,836)
--------- --------- --------
Net underwriting income (loss) $ (6,574) (4,115) (2,459)
========= ========= ========
Loss ratio 54.5% 66.1% (11.6)%
Underwriting expense ratio 50.1% 35.9% 14.2%
Combined ratio 104.6% 102.0% 2.6%
17
The underwriting loss of $6.6 million in the first six months of 2003
represented a $2.5 million greater loss compared to the underwriting loss
of $4.1 million in the first six months of 2002. The increase in
underwriting loss as well as the increase in the combined ratio can be
attributed to the sale of LaSalle Re's in-force reinsurance business in
2002 and the decrease in premiums earned through the Oak Entities. In
addition, the increase in the combined ratio can be attributed to the
increase in underwriting expenses in 2003.
Premiums written
Gross premiums written for the first six months of 2003 were $233.1
million compared to $363.2 million for the first six months of 2002, a
decrease of $130.1 million or 35.8%. Details of gross premiums written are
provided below:
2003 2002 Change
-------- -------- ---------
(in thousands)
Lloyd's syndicates $229,313 $261,996 $ (32,683)
Worldwide property catastrophe 3,761 101,221 (97,460)
-------- -------- ---------
Gross premiums written $233,074 $363,217 $(130,143)
======== ======== =========
The decrease of $32.7 million in Lloyd's gross premiums written for the
first six months of 2003 compared to $262.0 million in the first six
months of 2002 was primarily due to a decrease in premiums from aviation
business in 2003 as previously mentioned. The Company ceased underwriting
aviation business through the Oaks Entities in the second quarter of 2003.
The Company's property catastrophe business was sold effective April 1,
2002 to Endurance which was primarily responsible for the gross written
property catastrophe premium decrease of $97.5 million in the first six
months of 2003. Gross premiums written of $3.8 million for the six months
ended June 30, 2003 represent adjustment premiums received related to
business written prior to April 1, 2002.
Premiums earned
2003 2002 Change
--------- --------- ---------
(in thousands)
Gross premiums written $ 233,074 $ 363,217 $(130,143)
Change in gross unearned premiums (37,046) (63,662) 26,616
--------- --------- ---------
Gross premiums earned 196,028 299,555 (103,527)
--------- --------- ---------
Gross premiums ceded (45,438) (168,691) 123,253
Change in ceded unearned premiums (7,242) 70,779 (78,021)
--------- --------- ---------
Ceded premiums earned (52,680) (97,912) 45,232
--------- --------- ---------
Net premiums earned $ 143,348 $ 201,643 $ (58,295)
========= ========= =========
Gross premiums ceded for the six months ended June 30, 2003 were $45.4
million compared to $168.7 million for the six months ended June 30, 2002.
The decrease of $123.3 million was primarily due to the decrease in
premiums written through the Oak
18
Entities combined with the Company's sale of LaSalle Re's in-force
business to Endurance effective April 1, 2002.
Claims and claims expenses
Claims and claims expenses for the six months ended June 30, 2003 were
$78.1 million compared to $133.3 million for the same period in 2002, a
decrease of $55.2 million. The decrease in claims and claims expenses in
2003 is primarily attributable to the inclusion, in 2002, of loss
development related to the September 11th terrorist attacks of $25.7
million combined with the sale of LaSalle Re's in-force reinsurance
business in 2002 and the decrease in premium earned through the Oak
Entities.
Underwriting expenses
2003 2002 Change
------- ------- -------
(in thousands)
Policy acquisition costs $42,185 $50,422 $(8,237)
Underwriting costs 29,660 22,066 7,594
------- ------- -------
Total underwriting expenses $71,845 $72,488 (643)
======= ======= =======
Underwriting expense ratio 50.1% 35.9% 14.2%
======= ======= =======
Total underwriting expenses, comprising policy acquisition costs and
underwriting expenses, for the first six months of 2003 decreased by $0.6
million compared to underwriting expenses for the first six months of
2002. The decrease in 2003 is attributable to the sale of LaSalle Re's
in-force reinsurance business in 2002, and the decrease in premiums
earned through the Oak Entities in 2003 offset in part by increased legal
fees incurred in 2003 related to attempts to seek alternate sources of
capital for Trenwick's and the Company's Lloyd's operations.
Net investment income
2003 2002 Change
--------- --------- --------
(in thousands)
Average invested assets $ 767,680 $ 819,001 $(51,321)
Average annualized yields 2.9% 5.6% (2.7)%
--------- --------- --------
Investment income - portfolio $ 11,099 $ 23,137 $(12,038)
Investment income - non-portfolio 393 (114) 507
Investment expenses (347) (515) 168
--------- --------- --------
Net investment income $ 11,145 $ 22,508 $(11,363)
========= ========= ========
Net investment income for the six months ended June 30, 2003 was $11.1
million compared to $22.5 million for the same period in 2002. The
decrease of $11.4 million was due to lower market yields and lower
invested assets primarily due to a dividend paid by the Company to
Trenwick of $258 million in June 2002.
19
Foreign currency gains
The Company recorded foreign currency gains of $1.0 million for the six months
ended June 30, 2003, compared to gains of $0.1 million for the six months ended
June 30, 2002, due to the strengthening of the British Pound against the U.S.
dollar.
Other income (expense)
During the six months ended June 30, 2003, the Company recorded other expenses
of $84.7 million as compared to other income of $2.3 million recorded during the
same period in 2002. The 2003 expenses relate primarily to the establishment of
a 100% valuation allowance against a $75.0 million loan and advances of $9.9
million, both receivable from Trenwick, that were determined to be
uncollectible.
Net realized gains (losses)
Net realized losses on investments were $1.8 million during the six months ended
June 30, 2003, compared to a gain of $7.0 million for the six months ended June
30, 2002. The loss in 2003 is due to a 100% valuation allowance recorded on the
Company's investment in Trenwick Capital Trust I preferred stock of $1.9
million. The gains in 2002 were a result of securities sales executed to fund
claims payments.
Cumulative effect of change in accounting principle
The Company has adopted Statement of Financial Accounting Standard No. 142. As a
result, the Company wrote-off its negative goodwill in the three month period
ended March 31, 2002. This had the effect of increasing net income by $11.6
million as a cumulative change in accounting principle.
Liquidity and Capital Resources
As a holding company, the Company's assets consist primarily of all of the
outstanding voting stock of LaSalle Re. The Company's operating capital is
derived from dividends and other permitted payments from LaSalle Re and its
subsidiaries, including fees for services provided to LaSalle Re and its
subsidiaries which are subject to review by the Bermuda Monetary Authority. The
Company's ability to generate operating capital is limited and its ability to
meet its obligations is dependent upon funding from LaSalle Re. There is
substantial uncertainty as to what amount of future funds it will receive from
LaSalle Re.
As of June 30, 2003, the Company's consolidated investments and cash totaled
$695.8 million as compared to $806.3 million at December 31, 2002 (includes a
loan to Trenwick of $75.0 million). The decrease is primarily due to the 100%
valuation allowance recorded on the Company's loan to Trenwick of $75 million as
of June 30, 2003.
As of June 30, 2003, the Company's consolidated shareholder equity totaled $44.7
million compared to $134.9 million at December 31, 2002. The reduction is
primarily a result of 100% valuation allowance recorded by the Company against a
loan of $75.0 million, advances of $9.9 million (both receivable from Trenwick)
and the Company's investment in Trenwick Capital Trust I preferred stock of $1.9
million. During the six months ended June 30, 2003, the unrealized appreciation
of debt securities increased by $4.4 million.
20
Cash used by the Company's operating activities for the six months ended June
30, 2003 was $35.1 million compared to cash provided of $61.5 million in the
comparable period of 2002. The reduction of cash flow from operations was due
primarily to an overall decrease in premiums collected and a reduction in net
investment income received offset by a decrease in claim payments.
Net cash provided by investing activities during the six months ended June 30,
2003 was $44.9 million compared to $202.6 million provided from investing
activities for the same period in 2002. The decrease of $157.7 million results
primarily from the sales of securities needed to fund the Company's dividend
payment to Trenwick of $258 million in June 2002.
Financings, Financing Capacity and Capitalization
Concurrently with the Trenwick/LaSalle business combination in September of
2000, Trenwick America and Trenwick Holdings Limited ("Trenwick Holdings"),
Trenwick's U.S. and U.K. holding companies, entered into an amended and restated
$490 million credit agreement with various lending institutions (the "Banks"),
which was guaranteed by the Company. The credit agreement consisted of both a
$260 million revolving credit facility and a $230 million letter of credit
facility. The revolving credit facility was subsequently converted into a
four-year term loan and repaid in full on June 17, 2002. Additionally, on
December 24, 2002, the credit agreement was amended to reduce the letter of
credit facility, which is utilized by Trenwick to support its underwriting
operations at Lloyd's, to the currently outstanding $182.5 million. The letter
of credit facility is scheduled to terminate on December 31, 2003, although the
letters of credit issued pursuant to the facility will not expire until December
31, 2006.
Pursuant to a guaranty agreement entered into concurrently with the credit
agreement, Trenwick has guaranteed the obligations of Trenwick America and
Trenwick Holdings under the credit agreement. In April of 2002, Trenwick pledged
the capital stock of the Company, which was a guarantor of the obligations under
the credit agreement, and LaSalle Re as collateral to the Banks. In December of
2002, Trenwick agreed to provide the Banks additional security interests as
described below.
On October 18, 2002, A.M. Best Company lowered the financial strength ratings of
Trenwick's operating subsidiaries below "A-". The lowered A.M. Best Company
ratings constituted an event of default under the credit agreement. In addition,
increases in Trenwick's reserves for unpaid claims and claims expenses and the
establishment of a deferred tax asset reserve related to Trenwick's United
States subsidiaries in the third quarter of 2002 resulted in Trenwick violating
the financial covenants in the credit agreement requiring Trenwick to maintain a
minimum tangible net worth and minimum risk-based capital. On November 13, 2002,
Trenwick, its subsidiaries and the Banks executed a forbearance agreement with
respect to the events of default arising from Trenwick's lowered A.M. Best
Company ratings and financial covenant violations.
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
21
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. On April 25, 2003, Trenwick issued to the Banks
an aggregate of 3,678,686 warrants to purchase common stock, representing 10% of
the fully diluted equity capital of Trenwick as of such date. The warrants have
a term of eight years from the date of issuance and have an exercise price of
$0.19 per share.
The December Amendments also prohibit Trenwick and its subsidiaries from
declaring or paying any dividends (including on Trenwick's common shares, the
Series A Preferred Shares of the Company and the capital securities issued by
Trenwick Capital Trust I). The December Amendments and the other amendments and
waivers entered into in the first and second quarters of 2003 waive certain
other defaults, add covenants further restricting the operation of Trenwick's
business (including that of the Company), prohibit Trenwick from making certain
payments without the Banks' approval, prohibit Trenwick and its subsidiaries
from selling or otherwise disposing of any assets or property (including the
Company), require Trenwick to regularly report certain financial information to
the Banks, and adjust downward certain of the financial covenants.
Pursuant to the December Amendments, Trenwick was required to collateralize with
cash, cash equivalents and marketable securities 60% of the outstanding letters
of credit by August 1, 2003. As it was unable to do so, Trenwick's insurance
company subsidiaries are now prohibited from underwriting any insurance or
reinsurance business without the Banks' prior approval. In addition, Trenwick is
required to use its best efforts to terminate the letters of credit by December
31, 2003. In order to do so, the letters of credit would need to be replaced
with other letters of credit or collateral acceptable to Lloyd's. In the event
Trenwick has not terminated the letters of credit by December 31, 2003, it is
required on such date to collateralize with cash, cash equivalents and
marketable securities the full amount of the outstanding letters of credit. At
this time, Trenwick does not have sufficient available liquidity to
collateralize the letters of credit as required by the December Amendments.
Since December 2002, Trenwick has entered into additional amendments and
numerous waivers with the Banks providing for, among other things, waivers of
potential covenant defaults, further reductions in certain financial covenants,
additional financial reporting, approval of certain employee and other payments,
approval of the extension of the maturity of Trenwick America's senior notes
from April 1, 2003 to August 1, 2003, the payment of interest accrued through
April 1, 2003 to the holders of the senior notes and extension of numerous
deadlines imposed under the December Amendments.
Trenwick America did not pay principal and interest on its Senior Notes due on
August 1, 2003, which also created an event of default with respect to the
letter of credit facility and other certain other indebtedness of Trenwick.
Therefore, Trenwick may be required
22
to fully and immediately collateralize the outstanding letters of credit under
the terms of the guaranty agreement. No liability for any such amounts has been
reflected in Trenwick's or the Company's financial statements.
As announced on August 7, 2003, Trenwick has entered into an agreement in
principle on a long-term restructuring of its debt obligations, the sale of its
business operations at Lloyd's, and the runoff of its remaining businesses with
(i) the majority of the beneficial holders of its Senior Notes, (ii) the
steering committee of the Banks, and (iii) the Management Team of Trenwick's
Lloyd's operations and third party investors.
The restructuring is intended to be implemented through various means, including
but not limited to the following: (i) the filing by Trenwick and/or one or more
of its subsidiaries of Chapter 11 bankruptcy proceedings in the United States
and the filing of similar proceedings in Bermuda, Barbados or the United
Kingdom, as the case may be; (ii) the sale by Trenwick of substantially all of
its Lloyd's operations to a company controlled by the Management Team and with
capital provided by the Management Team, third-party investors and the Banks,
(iii) the establishment of a new holding company by LaSalle Re to ultimately own
100% of the economic interest in the Oak Entities and Oak Four Dedicated and 20%
of the economic interest in a new corporate capital member to be formed by the
Management Team to support underwriting at Lloyd's for the 2004 and subsequent
years of account and (iv) the retention of third party run-off advisors and the
continued runoff or disposition of all of Trenwick's other insurance and
reinsurance operations. In light of the foregoing, Trenwick believes that it is
unlikely that any of the holders of the shares of Trenwick or the Company will
receive any return on their investment in the near term if at all.
The terms of the restructuring are subject to the satisfaction of numerous
conditions precedent including, but not limited to, the following: (i) approval
of the restructuring by the Banks; (ii) negotiation of definitive documentation
(iii) receipt of all requisite regulatory and other approvals in the United
States, Bermuda and the United Kingdom; (iv) due diligence by Englefield Capital
LLP, the proposed equity sponsor of the Management Team, which has entered into
an exclusive negotiation agreement with Trenwick, and (v) approval of any court
having jurisdiction over the above-referenced insolvency proceedings.
On August 20, 2003, the Company and its affiliates, Trenwick and Trenwick
America (collectively with the Company and Trenwick, the "Debtors"), filed for
protection from their creditors under chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the
District of Delaware (the "Bankruptcy Court"). On that same date, the Company
and Trenwick filed proceedings in the Supreme Court of Bermuda known under
Bermudian law as "winding up." The Company and Trenwick petitioned the Supreme
Court of Bermuda to issue an order appointing Joint Provisional Liquidators for
the Company and Trenwick and requested that deference be paid in the "winding
up" to the jurisdiction of the Bankruptcy Court and the Debotors' restructuring
efforts in accordance with the Bankruptcy Code. On August 22, 2003, the Supreme
Court of Bermuda appointed John M. Wardrop of KPMG LLP in the U.K. and Michael
W. Morrison of KPMG in Bermuda as Joint Provisional Liquidators. It is the
intention of the Debtors to implement the restructuring agreed to among the
Debtors and their creditor constituencies, as discussed above, through the
bankruptcy process.
23
The majority of the assets and liabilities included in the consolidated balance
sheet of the Company are assets and liabilities of LaSalle Re Limited, a
regulated insurance company, which is not subject to the proceedings in the
Bankruptcy Court or the Supreme Court of Bermuda.
During the three months ended June 30, 2003, the Company recorded a 100%
valuation allowance against the $75.0 million loan and $9.9 million of advances
receivable from Trenwick as well as against the Company's investment in Trenwick
Capital Trust I preferred stock of $1,892. As a result, as of June 30, 2003, the
estimated capital and surplus of LaSalle Re was $43,333 and therefore, LaSalle
Re did not meet the minimum statutory capital and surplus level of $100,000
required for a Class 4 reinsurer in Bermuda. The Company is in the process of
filing a request with the Bermuda Monetary Authority ("BMA") to change to a
Class 3 reinsurer in Bermuda. If the request is approved, the Company would be
in compliance with the minimum level of capital and surplus for a Class 3
reinsurer, which is equal to 15% of net reserves, or $22,166 for LaSalle Re at
June 30, 2003. There can be no assurance that the request will be approved by
the BMA.
In addition to the foregoing, at any time, one or more of the insurance
regulatory authorities having jurisdiction over Trenwick's insurance company
subsidiaries may commence voluntary or involuntary proceedings for the formal
supervision, rehabilitation or liquidation of such subsidiaries, or one or more
of the creditors of Trenwick or its subsidiaries may commence proceedings
against Trenwick or its unregulated subsidiaries seeking their liquidation.
Catastrophe Equity Put
On September 27, 2000, Trenwick assumed the benefits and obligations of LaSalle
Re 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.
As a result of the terrorist attacks of September 11, 2001, LaSalle Re incurred
in excess of $140 million in catastrophe losses as defined under the catastrophe
equity put option agreement and Trenwick delivered notice of exercise of the
catastrophe equity put on March 28, 2002. On July 1, 2002, Trenwick commenced an
arbitration proceeding seeking $55 million in damages and other relief against
European Re. The claims arose out of European Re's failure to meet its
obligations under the catastrophe equity put. On September 6, 2002, the
catastrophe equity put option was amended and restated and
24
the pending arbitration proceedings were terminated. Under the terms of the
second restated agreement, European Re purchased 550,000 of Trenwick's Series B
Cumulative Perpetual Preferred Shares (the "Series B Shares") with a liquidation
preference of $100 per share for an aggregate purchase price of $40 million. The
Series B Shares bear cumulative dividends, payable quarterly in arrears, based
upon the Series B Shares' Standard & Poor's rating at LIBOR plus a margin. At
March 31, 2003, the Series B Shares were rated "D" by Standard & Poor's,
therefore the current dividend rate is 6%. If the Standard & Poor's rating
remains below "BBB-" on the fifth anniversary, the factors adjust upward by an
additional 0.50%.
The Series B Shares are convertible into common shares of Trenwick after five
years or upon the occurrence of certain "special conversion events" or the
failure of Trenwick to maintain certain levels of capital. On February 20, 2003,
Trenwick delivered a notice to European Re that Trenwick's GAAP Net Worth (as
defined in the Certificate of Designation, Preferences and Rights (the
"Certificate of Designation") of the Series B Shares) had fallen below $225
million. Trenwick's GAAP Net Worth did not equal or exceed $225 million during
the period from February 20, 2003 through April 21, 2003 (which is 60 days after
the date of notice). As a result, a Net Worth Conversion Event (as defined in
the Certificate of Designation) occurred on April 21, 2003, and the Series B
Shares are now convertible at the option of European Re into Trenwick common
shares upon no less than 60 trading days advance notice to Trenwick. European Re
has not delivered to Trenwick such a notice of conversion. As of December 31,
2002, the Series B Shares would be settled upon conversion with approximately
12.2 million common shares, or 33% of Trenwick's common shares, based on the
year end figures for 2002. Trenwick has been notified by European Re that
European Re believes Trenwick's calculation of the number of common shares to be
received upon conversion of the Series B Preferred Shares is erroneous and that
under European Re's interpretation of the documentation the Series B Preferred
Shares would have been entitled to convert into approximately 48.1 million
shares, or 56.6% of the common shares, based on the year end figures for 2002.
Trenwick believes its calculation is correct but intends to discuss this issue
with European Re. If European Re converts its Series B Preferred Shares, there
would be substantial dilution to the holders of the common shares, and this
conversion could result in European Re obtaining control of Trenwick, and
therefore the Company, subject to compliance with applicable insurance law and
regulation.
Accounting Standards
In January 2003, the FASB issued Interpretation No. ("FIN") 46, Consolidation of
Variable Interest Entities, which the Company intends to adopt on July 1, 2003.
FIN 46's consolidation criteria are based on analysis of risks and rewards, not
control, and represent a significant and complex modification of previous
accounting principles. FIN 46 represents an accounting change, not a change in
the underlying economics of asset sales. Under its provisions, certain assets
previously sold to special purpose entities (SPEs) could be consolidated and, if
consolidated, any assets and liabilities now on the books related to those SPEs
would be removed. Because the Company has not traditionally engaged in the types
of securitization transactions within the scope of FIN 46, management does not
believe adoption of the interpretation will impact future results.
25
FUTURE BUSINESS OPERATIONS
The future operations of the Company and its financial results will differ
materially from those of 2002 and prior years as the Company has sold the
in-force business of its primary operating subsidiary, LaSalle Re, and has
placed LaSalle Re into runoff. As described above in "Management's Discussion
and Analysis of Financial Condition and Results of Operations," the Company,
Trenwick, and Trenwick America on August 20, 2003 filed for protection from
their creditors under chapter 11 of the United States Bankruptcy Code with the
United States Bankruptcy Court for the District of Delaware and the Company and
Trenwick filed proceedings in the Supreme Court of Bermuda known under Bermudian
law as "winding up." The Company, Trenwick, and Trenwick America will be
operating under the supervision of the Bankruptcy Court (and, in the case of the
Company and Trenwick, also under the Supreme Court of Bermuda), and as a result,
their expenditures will be subject to the approval of such court or courts, as
the case may be.
The result of the foregoing is that the future operations of the Company are
likely to consist substantially of the management in runoff of LaSalle Re,
including administration of claims, regulatory reporting, settlement of
reinsurance agreements (including commutations thereof where appropriate), cash
and investment management and related matters, and the participation in Lloyd's
syndicates through the Oak Entities as corporate capital providers. As announced
on August 7, 2003, Trenwick has entered into an agreement in principle on a
long-term restructuring of its debt obligations, the sale of its business
operations at Lloyd's, and the runoff of its remaining businesses with (i) the
majority of the beneficial holders of its Senior Notes, (ii) the steering
committee of the Banks, and (iii) the Management Team of Trenwick's Lloyd's
operations and third party investors.
The restructuring is intended to be implemented through various means, including
but not limited to the following: (i) the filing by Trenwick and/or one or more
of its subsidiaries of chapter 11 bankruptcy proceedings in the United States
and the filing of similar proceedings in Bermuda, Barbados or the United
Kingdom, as the case may be; (ii) the sale by Trenwick of substantially all of
its Lloyd's operations to a company controlled by the Management Team and with
capital provided by the Management Team, third-party investors and the Banks
(iii) the establishment of a new holding company by LaSalle Re to ultimately own
100% of the economic interest in the Oak Entities and Oak Four Dedicated and 20%
of the economic interest in a new corporate capital member to be formed by the
Management Team to support underwriting at Lloyd's for the 2004 and subsequent
years of account and (iv) the retention of third party run-off advisors and the
continued runoff or disposition of all of Trenwick's other insurance and
reinsurance operations. In light of the foregoing, Trenwick believes that it is
unlikely that any of the holders of the shares of Trenwick or of its
wholly-owned Bermuda subsidiary, LaSalle Re Holdings Ltd, will receive any
return on their investment in the near term if at all.
The terms of the restructuring are subject to the satisfaction of numerous
conditions precedent including, but not limited to, the following: (i) approval
of the restructuring by the Banks; (ii) negotiation of definitive documentation
(iii) receipt of all requisite regulatory and other approvals in the United
States, Bermuda and the United Kingdom; (iv) due diligence by Englefield Capital
LLP, the proposed equity sponsor of the Management Team, which has entered into
an exclusive negotiation agreement with Trenwick, and (v) approval of any court
having jurisdiction over the above-referenced insolvency proceedings.
The Company currently does not have sufficient capital to continue to support
its Lloyd's operations and if the proposed restructuring is not implemented or
if substitute capital or
26
new ownership is not otherwise arranged in the near future it is likely that the
Company's Lloyd's operations will be placed into runoff.
The costs involved in the runoff operations of LaSalle Re 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 LaSalle Re's
runoff will be subject to review by the Bermuda Monetary Authority (the "BMA")
which may challenge these costs or impose other restrictions with respect to the
runoff including the provision of an acceptable runoff plan. Adverse loss
development, weakness in reinsurance recoveries or the failure to realize the
value of investments including the intercompany receivables, among other
factors, could significantly and negatively impact the success of any runoff. It
is unlikely that any amounts will be available to the equity holders of the
Company until and unless the BMA has been assured of the solvency of LaSalle Re,
which may require several years, if achievable at all. In the event that the
runoff is not successful, it is also possible that LaSalle Re may be placed
under the control of the BMA, voluntarily or involuntarily, through
rehabilitation, liquidation or other similar proceedings.
RISK FACTORS
You should carefully consider the risks described below regarding us and our
Series A Preferred Shares. The risks and uncertainties described below are not
the only ones we face. There may be additional risks and uncertainties. If any
of the following risks actually occur or continue to occur, our business,
financial condition or results of operations could be materially and adversely
affected and the trading price of our Series A Preferred Shares could decline
further.
Our auditors have expressed doubt as to our ability to continue as a going
concern.
Our independent accountants, PricewaterhouseCoopers LLP, have stated, in their
audit report with respect to our financial statements as at and for the twelve
months ended December 31, 2002, that substantial doubt exists as to our ability
to continue as a going concern.
Trenwick is in default under its senior credit facility, which we have
guaranteed with a security interest in LaSalle Re. We have filed for protection
under chapter 11 of the United States Bankruptcy Code and are in the process of
filing "winding up" proceedings in the Supreme Court of Bermuda.
Trenwick currently has outstanding $182.5 million of letters of credit issued by
the banks under its credit facility. Trenwick is obligated to reimburse the
banks for any amounts drawn on these letters of credit, and for related fees and
expenses. No amounts have been drawn on the letters of credit to date. However,
Trenwick America was unable to make payment of principal and interest due on its
Senior Notes on august 1, 2003 and is therefore currently in default under the
terms of the Senior Notes. This default constituted an event of default under
the letter of credit facility and Trenwick is required under that facility to
collateralize, with cash or cash equivalents, 60% of the letters of credit.
Trenwick is unable to provide such security.
On August 20, 2003, we and our affiliates Trenwick and Trenwick America
Corporation filed for protection under chapter 11 of the United States
Bankruptcy Code with the
27
United States Bankruptcy Court for the District of Delaware. On that same date,
we and Trenwick filed proceedings in the Supreme Court of Bermuda known under
Bermudian law as "winding up." We and Trenwick petitioned the Supreme Court of
Bermuda to issue an order appointing Joint Provisional Liquidators for us and
Trenwick and have requested that deference be paid in the "winding up" to the
jurisdiction of the Bankruptcy Court and our restructuring efforts in accordance
with the Bankruptcy Code. On August 22, 2003, the Supreme Court of Bermuda
appointed John M. Wardrop of KPMG LLP in the U.K. and Michael W. Morrison of
KPMG in Bermuda as Joint Provisional Liquidators. It is our intention to
implement the restructuring agreed to among us, Trenwick America, Trenwick and
our and their creditor constituencies, as discussed above, through the
bankruptcy process.
Our Series A Preferred Shares have been delisted and deregistered by the New
York Stock Exchange.
The New York Stock Exchange's application for removal from listing of our Series
A Preferred Shares was granted by the Securities and Exchange Commission by
order dated April 29, 2003, and the removal from listing and registration became
effective prior to the opening of the New York Stock Exchange on April 30, 2003.
Our Series A Preferred Shares were quoted on the Over-The-Counter (OTC) Bulletin
Board beginning on Tuesday, March 25, 2003.
In light of the significant developments and other factors referred to in this
Report, which have materially and adversely impacted the Company, its operations
and its future prospects, it is unlikely that our Series A Preferred Shares will
realize significant value in the near term, if at all. As a result, it is
possible that a market will not continue in our Series A Preferred Shares, in
which case the liquidity of the securities may be severely limited.
By letter dated March 24, 2003, the BMA issued permission for the free
transferability on an interim basis of Trenwick's and the Company's shares while
they are quoted on the OTC Bulletin Board. This permission is contingent on the
condition that the BMA is notified promptly of any instances in which Trenwick
or the Company become aware that a new shareholder has obtained 5% or more of
either company's shares, including background information on any such new 5%
shareholder.
In the absence of the permission granted by the BMA discussed in the previous
paragraph, as a consequence of the suspension of trading, all transfers of
shares involving holders of Trenwick's or the Company's securities would be
required to be approved by the BMA before they could be entered into Trenwick's
or the Company's share register. This procedure would only apply to share
transfers involving shareholders who hold shares in their own name on Trenwick's
or the Company's share register (a "record holder"). Shareholders who hold
through nominees, brokers, or banks, which in turn have accounts through other
nominees, would not be affected by this approval procedure unless one of the
parties to the transfer becomes a record holder on Trenwick's or the Company's
share register or the number of share held by an existing record holder is
increased or decreased by the transfer. If the BMA's free transferability
permission is rescinded, this pre-approval process will cause a delay in share
transfers.
We are unable to pay dividends and will continue to be unable to do so for the
foreseeable future.
In connection with other actions being taken in the fourth quarter of 2002, on
November 29, 2002, the Company elected to suspend the payment of dividends to
holders of our
28
Series A Preferred Shares effective immediately, as a result of restrictions on
the Company under Trenwick's credit agreement with various lending institutions.
The Company intends to accrue the dividends until payment is reinstated. We do
not expect to be able to pay dividends to holders of our Series A Preferred
Shares for the foreseeable future.
Trenwick has issued convertible preferred shares that may result in substantial
dilution to existing Trenwick common shareholders and/or a change in control of
Trenwick, and therefore the Company. Neither we nor Trenwick have the ability to
control settlement of Trenwick's convertible preferred shares.
As a result of the September 11, 2001 terrorist attacks, LaSalle Re incurred
large catastrophe losses that enabled Trenwick to exercise its rights under a
catastrophe equity put option with European Reinsurance Company of Zurich, a
subsidiary of Swiss Reinsurance Company ("European Re"). In this transaction,
Trenwick issued Series B convertible preferred shares to European Re for a
purchase price of $40 million. These Series B shares are convertible into
Trenwick's common shares upon the occurrence of certain events, including
Trenwick's failure to maintain a net worth (as defined) under generally accepted
accounting principles of $225 million. Trenwick's net worth is below $225
million, and European Re is able to convert the Series B preferred shares into
Trenwick common shares upon not less than 60 trading days' notice to Trenwick.
As of December 31, 2002, the Series B Shares would be settled upon conversion
with approximately 12.2 million common shares, or 33% of Trenwick's common
shares, based on the year end figures for 2002. Trenwick has been notified by
European Re that European Re believes Trenwick's calculation of the number of
common shares to be received upon conversion of the Series B Preferred Shares is
erroneous and that under European Re's interpretation of the documentation the
Series B Preferred Shares would have been entitled to convert into approximately
48.1 million shares, or 56.6% of the common shares, based on the year end
figures for 2002. Trenwick believes its calculation is correct but intends to
discuss this issue with European Re. If European Re converts its Series B
Preferred Shares, there would be substantial dilution to the holders of the
common shares, and this conversion could result in European Re obtaining control
of Trenwick, and therefore the Company, subject to compliance with applicable
insurance law and regulation.
We are a holding company and substantially all of our assets are held in LaSalle
Re and LaSalle Re's participation in Lloyd's. LaSalle Re's assets are generally
unavailable to pay the debts of the holding company and there is substantial
uncertainty as to whether we will ultimately receive any value from them.
We are a holding company with no material assets other than the stock of our
operating subsidiaries, our intercompany receivables due from Trenwick (the
collectability of which are in doubt), and LaSalle Re's participation in
Lloyd's. Our ability to pay dividends to our shareholders will be dependent on
the earnings and cash flows of LaSalle Re in runoff and our Lloyd's operations
and their ability to pay dividends or to advance or repay funds to us. Payment
of dividends and advances and repayments from LaSalle Re is regulated by the BMA
and regulatory restrictions, including minimum solvency and liquidity
thresholds. We do not expect LaSalle Re will be able to pay dividends or advance
or repay any funds to us in the foreseeable future.
29
We are in discussions with the BMA concerning capital adequacy and other issues
relating to LaSalle Re, and the BMA may institute supervision, rehabilitation,
conservation or liquidation proceedings with respect to LaSalle Re.
We have been engaged in discussions with the BMA and with LaSalle Re's consent,
the BMA has restricted the license of LaSalle Re to prohibit it from writing any
new business without its prior written approval. The BMA, as well as regulators
in the United Kingdom and the United States, which regulate Trenwick's other
insurance company subsidiaries, may act independently of one another with
respect to the insurance company domiciled in its jurisdiction. Any action by an
insurance regulator, such as the commencement of voluntary or involuntary
supervision, rehabilitation, conservation or liquidation proceedings with
respect to one of these companies, could precipitate additional actions by the
other insurance regulators. In the event of any such proceedings, it is unlikely
that the assets of the insurance companies will be available to satisfy each
other's liabilities, or the liabilities of Trenwick or the Company.
Our financial strength ratings have been significantly downgraded or withdrawn
by Rating Agencies.
Our financial strength ratings have been downgraded significantly by Standard &
Poor's and Fitch, and have been withdrawn by Moody's Investor Services. These
downgrades and withdrawal generally reflect the ratings services' views that our
business prospects and financial flexibility are very limited.
LaSalle Re's catastrophe liability and other insurance business, from which we
historically derived a majority of our revenue, has ceased to write new business
and is in runoff.
We have placed LaSalle Re's catastrophe liability and other insurance business
into runoff and no new business is being written in LaSalle Re. Our objective is
to maximize the economic value of the runoff through effective claims
settlement, commutation of assumed obligations where appropriate, collection of
reinsurance recoverables and effective cash management. While it is possible
that some positive economic value may result over time from the runoff of
LaSalle Re's business, we do not expect it to contribute significantly to our
revenue or results of operations in the near term, if at all, and there are
significant uncertainties that could if realized adversely affect our ability to
continue a solvent runoff of LaSalle Re.
We do not have adequate capital to continue to support our Lloyd's operations
and if substitute capital or new ownership is not arranged in the near future it
is likely that our Lloyd's operations will be placed into runoff.
We do not currently have sufficient capital to provide continued financial
support to permit us to continue to operate Syndicates 839 and 44 at Lloyd's.
Trenwick has entered into a letter of intent with respect to an agreement in
principle which includes the sale of substantially all of its Lloyd's operations
to a company controlled by the current members of management of Trenwick's
Lloyd's operations and with capital provided by the Management Team, third-party
investors and the Banks. In the event that we are unable to complete the
proposed restructuring or raise substitute capital or to transfer our ownership
to an entity with adequate financial strength to support the continued
operations, it is likely that Lloyd's will withdraw the authority of these
syndicates to continue to write business and we will place these syndicates in
runoff. There can be no
30
assurance that there will be any proceeds derived from Trenwick's Lloyd's
operations in the event that they are placed in runoff.
Our ability to attract and retain key management personnel has been negatively
affected.
We have experienced the loss of most of our personnel in the last year,
including a majority of our senior executives. A number of executive positions
at the Company, including the position of Acting Chief Executive Officer, are
now being filled by consultants under short term arrangements or by employees or
consultants of Trenwick. Our ability to operate our business has been, and will
continue to be, dependent on our ability and the ability of Trenwick to retain
the services of key senior executive officers and to attract and retain
additional qualified personnel in the future as employees and consultants. The
loss of the services of any of our key executive officers or the inability to
hire and retain other highly qualified personnel in the future could adversely
affect our ability to conduct our business. Our financial situation and that of
our subsidiaries has made it, and likely will continue to make it, difficult to
retain key employees and consultants.
Our reinsurers may not satisfy their obligations to us.
Our business model relied to a large extent on reinsurance to reduce our
underwriting risk. As of June 30, 2003, our reinsurance recoverable balance was
approximately $900 million. LaSalle Re is subject to credit risk with respect to
its reinsurers because the transfer of risk to a reinsurer does not relieve
LaSalle Re of its liability to the insureds. In addition, reinsurers may be
unwilling to pay us even though they have the financial resources and are
contractually obligated to do so. Unfavorable arbitration decisions or the
failure of one or more of the reinsurers to honor their obligations or make
timely payments would impact our cash flow and could cause us to incur
significant losses. In the event of the rehabilitation, supervision,
conservation or liquidation of LaSalle Re, we may not be able to influence the
outcome of the collectibility of reinsurance recoverables, in that it will be
the responsibility of the regulators supervising such proceedings.
If actual claims exceed our loss reserves, our financial results could be
significantly adversely affected.
We establish loss reserves to cover our estimated liability for the payment of
all losses and loss expenses incurred with respect to premiums earned on the
policies that we write. We utilize actuarial models as well as historical
insurance industry loss development patterns to establish appropriate loss
reserves, as well as estimates of future trends in claims severity, frequency
and other factors. Establishing an appropriate level of loss reserves is an
inherently uncertain process. Accordingly, actual claims and claim expenses paid
will likely deviate, perhaps substantially, from the reserve estimates reflected
in our consolidated financial statements.
Our results of operations and financial condition depend upon our ability to
assess accurately the potential losses associated with the risks that we insure
and reinsure. To the extent actual claims continue to exceed our expectations,
we will be required to immediately recognize the less favorable experience. This
could cause a material increase in our liabilities and a reduction in our
profitability, including an operating loss and reduction of capital in the
period in which such action occurs.
31
The effects of emerging claim and coverage issues on our business are uncertain.
As industry practices and legal, judicial, social and other environmental
conditions change, unexpected and unintended issues related to claims and
coverage may emerge. These issues may adversely affect our business by either
extending coverage beyond our underwriting intent or by increasing the number or
size of claims. In some instances, these changes may not become apparent until
some time after we have issued insurance or reinsurance contracts that are
affected by the changes. As a result, the full extent of liability under our
insurance or reinsurance contracts may not be known for many years after a
contract is issued.
Recent events may result in political, regulatory and industry initiatives which
could adversely affect our business.
The supply of insurance and reinsurance coverage has decreased due to withdrawal
of capacity and substantial reductions in capital resulting from, among other
things, the terrorist attacks of September 11, 2001. This tightening of supply
may result in governmental intervention in the worldwide insurance and
reinsurance markets. We are currently unable to predict the extent to which new
political, regulatory and industry initiatives may affect the demand for our
products or the risks which may be available for us to consider underwriting. At
the same time, threats of further terrorist attacks and the military initiatives
and political unrest in the Middle East and Asia have adversely affected general
economic, market and political conditions, increasing many of the risks
associated with the insurance markets worldwide.
The insurance and reinsurance business is historically cyclical, and we expect
to experience periods with excess underwriting capacity and unfavorable premium
rates.
Historically, insurers and reinsurers have experienced significant fluctuations
in operating results due to competition, frequency of occurrence or severity of
catastrophic events, levels of capacity, general economic conditions and other
factors. The supply of insurance and reinsurance is related to prevailing
prices, the level of insured losses and the level of industry surplus which, in
turn, may fluctuate in response to changes in rates of return on investments
being earned in the insurance and reinsurance industry. As a result, the
property and casualty insurance and reinsurance industry historically has been a
cyclical industry characterized by periods of intense price competition due to
excessive underwriting capacity as well as periods when shortages of capacity
permitted favorable premium levels. Although premium levels for many products
have increased recently, the supply of insurance and reinsurance may increase,
either by capital provided by new entrants or by the commitment of additional
capital by existing insurers or reinsurers, which may cause prices to decrease.
Any of these factors could lead to a significant reduction in premium rates,
less favorable policy terms and fewer submissions for our underwriting services.
In addition to these considerations, changes in the frequency and severity of
losses suffered by insureds and insurers may affect the cycles of the insurance
and reinsurance business significantly, and we expect to experience the effects
of such cyclicality.
U.S. persons who own our shares may have more difficulty in protecting their
interests than U.S. persons who are shareholders of a U.S. corporation.
The Bermuda Companies Act, which applies to us, differs in certain material
respects from laws generally applicable to U.S. corporations and their
shareholders. Set forth
32
below is a summary of certain significant provisions of the Companies Act which
includes, where relevant, information on modifications thereto adopted pursuant
to our bye-laws, applicable to us, which differ in certain respects from
provisions of Delaware corporate law. Because the following statements are
summaries, they do not discuss all aspects of Bermuda law that may be relevant
to us and our shareholders.
Interested Directors. Under Bermuda law and our bye-laws, a transaction entered
into by us, in which a director has an interest, will not be voidable by us, and
such director will not be liable to us for any profit realized pursuant to such
transaction, provided the nature of the interest is disclosed at the first
opportunity at a meeting of directors, or in writing to the directors. In
addition, our bye-laws allow a director to be taken into account in determining
whether a quorum is present and to vote on a transaction in which that director
has an interest following a declaration of the interest pursuant to the
Companies Act provided that the director is not disqualified from doing so by
the chairman of the meeting.
Under Delaware law, such transaction would not be voidable if:
o The material facts as to such interested director's relationship or
interests were disclosed or were known to the board of directors and the
board of directors in good faith authorized the transaction by the
affirmative vote of a majority of the disinterested directors;
o Such material facts were disclosed or were known to the shareholders
entitled to vote on such transaction and the transaction was specifically
approved in good faith by vote of the majority of shares entitled to vote
thereon; or
o The transaction was fair as to the corporation as of the time it was
authorized, approved or ratified.
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.
Shareholders' Suits. The rights of shareholders under Bermuda law are not as
extensive as the rights of shareholders in many U.S. jurisdictions. Class
actions and derivative actions are generally not available to shareholders under
the laws of Bermuda. However, the Bermuda courts ordinarily would be expected to
follow English case law precedent, which would permit a shareholder to commence
an action in the name of the company to remedy a wrong done to the company where
an act is alleged to be beyond the corporate power of the company, is illegal or
would result in the violation of our memorandum of association or bye-laws.
Furthermore, courts would review acts that are alleged to constitute a fraud
against the minority shareholders or where an act requires the approval of a
greater percentage of our shareholders than actually approved it. The winning
party in such an action generally would be able to recover a portion of
attorneys' fees incurred in connection with such action. Our bye-laws provide
that shareholders waive all claims or rights of action that they might have,
individually or in the right of the company, against any director or officer for
any act or failure to act in the performance of such director's or officer's
duties, except with respect to any fraud or dishonesty of such director or
officer.
33
Indemnification of Directors and Officers. Under Bermuda law and our bye-laws,
we may indemnify our directors, officers or any other person appointed to a
committee of the board of directors (and their respective heirs, executors or
administrators) to the full extent permitted by law against all actions, costs,
charges, liabilities, loss, damage or expense incurred or sustained by such
person by reason of any act done, concurred in or omitted in the conduct of our
business or in the discharge of his/her duties; provided that such
indemnification shall not extend to any matter in which any of such persons is
found, in a final judgment or decree not subject to appeal, to have committed
fraud or dishonesty.
We are a Bermuda company and it may be difficult for you to enforce judgments
against us or our directors and executive officers.
We are incorporated pursuant to the laws of Bermuda and our business is based in
Bermuda. In addition, certain of our current and former directors and officers
may reside outside the United States, and all or a substantial portion of our
assets and the assets of such persons are located in jurisdictions outside the
United States. As such, it may be difficult or impossible to effect service of
process within the United States upon us or those persons or to recover against
us or them on judgments of U.S. courts, including judgments predicated upon
civil liability provisions of the U.S. federal securities laws. Further, no
claim may be brought in Bermuda against us or our directors and officers in the
first instance for violation of U.S. federal securities laws because these laws
have no extraterritorial jurisdiction under Bermuda law and do not have force of
law in Bermuda. A Bermuda court may, however, impose civil liability on us or
our directors and officers if the facts alleged in a complaint constitute or
give rise to a cause of action under Bermuda law.
Further, there is no treaty in effect between the United States and Bermuda
providing for the enforcement of judgments of U.S. courts, and there are grounds
upon which Bermuda courts may not enforce judgments of U.S. courts. Because
judgments of U.S. courts are not automatically enforceable in Bermuda, it may be
difficult for you to recover against us based upon such judgments.
34
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the information concerning market risk as
stated in the Company's 2002 Annual Report on Form 10-K.
ITEM 4. CONTROLS AND PROCEDURES
(a) The Chief Executive Officer and Chief Financial Officer of the
Company have evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15(d)-15(e) under
the Securities Exchange Act of 1934, as amended) as of the end of
the period covered by this Quarterly Report. Based on that
evaluation, such officers have concluded that the Company's
disclosure controls and procedures are effective as of the end of
such period.
(b) There have been no changes during the period covered by this
Quarterly Report in our internal control over financial reporting
that have materially affected, or are reasonably likely to
materially affect, the Company's internal control over financial
reporting.
35
LaSalle Re Holdings Limited
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
LaSalle Re Holdings Limited is party to various legal proceedings arising
in the normal course of its business. LaSalle Re Holdings Limited does not
believe that the eventual outcome of any such proceeding will have a
material effect on its financial condition or business. LaSalle Re
Holdings Limited's subsidiaries are regularly engaged in the investigation
and defense of claims arising out of the conduct of their business.
Pursuant to LaSalle Re Holdings Limited's insurance and reinsurance
arrangements, disputes are generally required to be finally settled by
arbitration.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
As discussed above in Part I, Item 2 -- "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Financings,
Financing Capacity and Capitalization," the December 2002 amendments to
Trenwick's credit agreement prohibit the Company from declaring or paying
any dividends on its Series A Preferred Shares.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
10.1 Fifth Waiver to the Credit Agreement, dated as of March 21, 2003,
among Trenwick America Corporation, Trenwick Holdings Limited,
Trenwick UK Holdings Limited, the lending institutions from time to
time party to the Credit Agreement, Wachovia Bank, National
Association, Fleet National Bank and JPMorgan Chase Bank.
Incorporated by reference to Exhibit 99.1 to LaSalle Re Holdings
Limited's Current Report on Form 8-K, filed on April 10, 2003. (File
No. 1-12823).
10.2 Eighth Amendment to the Holdings Guaranty, dated as of March 24,
2003, among Trenwick Group Ltd. and the lending institutions party
to the Credit Agreement. Incorporated by reference to Exhibit 99.2
to LaSalle
36
Re Holdings Limited's Current Report on Form 8-K, filed on April 10,
2003. (File No. 1-12823).
10.3 Eighth Amendment and Waiver to the Credit Agreement, dated as of
March 28, 2003, among Trenwick America Corporation, Trenwick
Holdings Limited, Trenwick UK Holdings Limited, the lending
institutions from time to time party to the Credit Agreement,
Wachovia Bank, National Association, Fleet National Bank and
JPMorgan Chase Bank. Incorporated by reference to Exhibit 99.3 to
LaSalle Re Holdings Limited's Current Report on Form 8-K, filed on
April 10, 2003. (File No. 1-12823).
10.4 Ninth Amendment to the Holdings Guaranty, dated as of March 28,
2003, among Trenwick Group Ltd. and the lending institutions party
to the Credit Agreement. Incorporated by reference to Exhibit 99.4
to LaSalle Re Holdings Limited's Current Report on Form 8-K, filed
on April 10, 2003. (File No. 1-12823).
10.5 Ninth Amendment and Waiver to the Credit Agreement, dated as of
April 8, 2003, among Trenwick America Corporation, Trenwick Holdings
Limited, Trenwick UK Holdings Limited, the lending institutions from
time to time party to the Credit Agreement, Wachovia Bank, National
Association, Fleet National Bank and JPMorgan Chase Bank.
Incorporated by reference to Exhibit 99.5 to LaSalle Re Holdings
Limited's Current Report on Form 8-K, filed on April 10, 2003. (File
No. 1-12823).
10.6 Tenth Amendment and Consent to the Holdings Guaranty, dated as of
April 8, 2003, among Trenwick Group Ltd. and the lending
institutions party to the Credit Agreement. Incorporated by
reference to Exhibit 99.6 to LaSalle Re Holdings Limited's Current
Report on Form 8-K, filed on April 10, 2003. (File No. 1-12823).
10.7 Eleventh Amendment and Consent to the Holdings Guaranty, dated as of
April 16, 2003, among Trenwick Group Ltd. and the lending
institutions party to the Credit Agreement. (File No. 1-12823)
10.8 Amendment No. 1 to the Rights Agreement, dated as of April 18, 2003,
by and between Trenwick Group Ltd. and EquiServe Trust Company, N.A.
(successor to First Chicago Trust Company of New York). Incorporated
by Reference to Exhibit 99.1 to the Company's Current Report on Form
8-K, filed on April 22, 2003. (File No. 1-12823)
10.9 Sixth Waiver to the Credit Agreement, dated as of July 16, 2003, by
and among Trenwick America Corporation, Trenwick Holdings Limited,
Trenwick UK Holdings Limited, the lending institutions from time to
time party to the Credit Agreement, Wachovia Bank, National
Association, as Syndication Agent, Fleet National Bank, as
Documentation Agent, and JPMorgan Chase Bank, as Administrative
Agent. Incorporated by
37
Reference to Exhibit 99.1 to the Company's Current Report on Form
8-K, filed on July 18, 2003. (File No. 1-12823)
10.10 Third Consent to the Holdings Guaranty, dated as of July 16, 2003,
by and among Trenwick Group Ltd. and the lending institutions from
time to time party to the Credit Agreement. Incorporated by
Reference to Exhibit 99.2 to the Company's Current Report on Form
8-K, filed on July 18, 2003. (File No. 1-12823)
10.11 Letter of Intent, dated as of August 6, 2003, by and among Trenwick
and its subsidiaries, LaSalle Re Limited, Trenwick America and
Trenwick Managing Agents Limited, the majority of the beneficial
holders of the 6.70% Senior Notes of Trenwick America, the steering
committee of the lending institutions that have issued letters of
credit under a senior secured credit facility on behalf of certain
subsidiaries of Trenwick in support of Trenwick's Lloyd's operations
and a group composed of current members of management of Trenwicks
Lloyd's operations. Incorporated by reference to Exhibit 99.2 to the
Company's Current Report on Form 8-K, filed on August 18, 2003,
2003. (File No. 1-12823)
31.1 Certification of Acting CEO Per Section 302 of the Sarbanes - Oxley
Act
31.2 Certification of CFO Per Section 302 of the Sarbanes- Oxley Act
32.1 Certification of Acting CEO Per Section 906 of the Sarbanes- Oxley
Act
(This exhibit is intended to be furnished in accordance with
regulation S-K item 601(b)(32)(ii) and shall not be deemed to be
filed for purposes of section 18 of the Securities Exchange Act of
1934, as amended, or incorporated by reference into any filing under
the Securities Act of 1933, except as shall be expressly set forth
by specific reference.)
32.2 Certification of Acting CFO Per Section 906 of the Sarbanes-Oxley
Act
(This exhibit is intended to be furnished in accordance with
regulation S-K item 601(b)(32)(ii) and shall not be deemed to be
filed for purposes of section 18 of the Securities Exchange Act of
1934, as amended, or incorporated by reference into any filing under
the Securities Act of 1933, except as shall be expressly set forth
by specific reference.)
(b) Reports on Form 8-K
LaSalle Re Holdings Limited filed Current Reports on Form 8-K on the
following dates during the second quarter of 2003:
April 10, 2003, reporting (a) certain amendments to Trenwick's credit
agreement and related guaranty, and a waiver agreement under Trenwick's
credit agreement to provide for, among other things, waivers of potential
covenant defaults and extension of a number of deadlines imposed under the
credit
38
agreement and related guaranty. (b) Trenwick's delivery of notice to the
holder of Trenwick's Series B Cumulative Perpetual Preferred Shares that
Trenwick's GAAP net worth had fallen below $225 million and that a Net
Worth Conversion Event would occur on April 21, 2003 if Trenwick's GAAP
net worth did not equal or exceed $225 million on or before such date, (c)
certain risk-based capital (RBC) and statutory capital impairment issues
relating to Trenwick's subsidiaries Trenwick America Reinsurance
Corporation and The Insurance Corporation of New York, and discussions
with the insurance departments of Connecticut and New York relating
thereto, (d) the receipt by Trenwick of notice from the New York Stock
Exchange of the potential suspension from trading and delisting of
Trenwick's common shares and the Series A Preferred Shares of LaSalle Re
Holdings Limited and (e) the contribution of the Oak Entities to LaSalle
Re Limited.
April 22, 2003, reporting an amendment to Trenwick's Rights Agreement with
Equiserve Trust Company.
July 18, 2003, reporting a Sixth Waiver and Third Consent to Trenwick's
credit agreement.
August 18, 2003, reporting that Trenwick, Trenwick America, LaSalle Re
Holdings Limited and Trenwick Managing Agents Limited had entered into a
letter of intent, dated August 6, 2003, with respect to an agreement in
principle on a long-term restructuring of Trenwick's debt obligations.
39
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.
LaSalle Re Holdings Limited
Date: August 27, 2003 By: /s/ W. Marston Becker
--------------------------------------
Name: W. Marston Becker
Title: Acting Chief Executive Officer
Date: August 27, 2003 By: /s/ Alan L. Hunte
--------------------------------------
Name: Alan L. Hunte
Title: President and Chief Financial Officer
40