Bermuda’s Trenwick Group Ltd. announced that it will increase its reserves for losses in the fourth quarter of 2002 by $107 million, or $2.90 per share.
The company indicated that the decision “follows a previously announced study of the reserving levels and methodology of Trenwick’s insurance subsidiaries by independent actuarial consultants and additional work performed during the quarter by the Company’s internal actuaries.” It affects Trenwick’s U.S. operating subsidiaries and Trenwick International Limited, in the UK, but the company said that it’s “reserves at its Lloyd’s operation, while also analyzed, were not significantly affected by this reserve increase.”
Trenwick entered into a number of agreements late last year to improve its diminished capital position, notably an agreement with Chubb Re to front the renewals of Trenwick America Reinsurance Co., and with Berkshire Hathaway’s National Indemnity to provide it with £100 million ($162.5 million) and a quota share treaty arrangement relative to its Lloyd’s Syndicate 839. The reserve study, and the eventual agreement Trenwick was able to conclude with its letter of credit providers to continue $230 million in Lloyd’s financing, have helped put the group on the road to financial recovery.
It noted that the increase in loss reserves “principally impacts the 1999 to 2001 accident years,” and that “included in the reserve increase was $20 million relating to Trenwick’s exposure to asbestos and environmental liabilities.”
The bulletin indicated that “Following this increase to Trenwick’s asbestos and environmental reserves, Trenwick’s three year survival ratio (i.e., number of years that existing reserves will last if the current level of average annual payments for the last three years repeats itself indefinitely) for this type of exposure will be approximately 13 years.”
W. Marston Becker, Acting Chairman and Acting CEO, stated, “Trenwick’s operations, other than its North American reinsurance business and its Lloyd’s businesses, are currently in runoff. The completion of Trenwick’s reserve study and its significant increase in loss reserves for the fourth quarter of 2002 demonstrates Trenwick’s continued commitment to ensuring that its balance sheet appropriately reflects ongoing actuarial developments within the Company and the industry.”
The company said it would present further information on its earnings results and financing in its year-end earnings release, which will also include the financial results for the fourth quarter of 2002.
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