Good Morning fellow longs!
. No actual pre-announcement earnings warning. In fact, the CEO indicated that TWK would be providing an "outlook" for 03' which means they are willing to provide future guidance. Obviously, no BK!
. TWK has been for some time now restructuring both internal and underwriting operations. In other words, the appropriate revenue/expense operational controls should now be in place and currently showing better results.
. Positive tone to press releases since early December. The following is an example of good tidings coming in 03'.
. Expecting a write down of losses last quarter which obviously will affect the book value. If the company writes down $2.50/$3.00 or so per share, then I would think an ongoing book value into 03' would be approximately $5-$6. Of course, any new cash infusions by outside sources would enhance this company's balance sheet immediately for 03'. :-)
. Strong improvement indications going forward continue to be heard from insurance industry executives. Higher pricing and better underwriting controls. AIG is a recent example.
I personally expect good things this coming week. The worst is behind us IMO. I previously worked in the insurance specialty brokerage business in world-wide operations including dealing with Lloyds for over 20 years. We should continue the stock price recovery at a faster dramatic pace from here.
BTW: I normally don't use the ignore feature, however, I have put our latest basher on ignore due to lack of relevant information coming from that source.
That's a nice bit of detective work on the Chartwell side and I'm in no position to agree or oppose.
But it doesn't necessarily fit with the language of the 2nd statement:
"corresponding reduction of approximately $12 million in outstanding contingent indebtedness in computing the $107 million charge"
If I follow your reasoning, the $12M is NOT included in COMPUTING the reserve charge (it should be used in computing outstanding liabilities...). Which contradicts the above quote.
I'll stay happily on the fence. A spectator. Neither Columbus nor the Queen nor Rome.
As w/ most things, there's an apropos line from a country tune about small town life: "you know the world must be flat, 'cause people leave town and they never come back'...
Everything you ever wanted to know about them...now explain them to us...yawn..jad
Mandatorily Redeemable Preferred Capital Securities
The mandatorily redeemable preferred capital securities, with a par value of $110,000, are obligations of a business trust subsidiary of Trenwick Group Ltd.'s U.S. holding company, Trenwick America Corporation. The capital securities mature in 2037, require preferential cumulative semi-annual cash distributions at an annual rate of 8.82% and are guaranteed by the u.s. holding company,
within certain limits, as to distribution payments and liquidation or redemption payments. Interest charged to operations on the capital securities is at the imputed interest rate of 11.2%.
The business trust issuing the capital securities holds an investment in subordinated debentures of the u.s. holding company that have an aggregate principal amount of $113,403, and interest from that investment is the source of cash distributions on the capital securities. The capital securities are subject to mandatory redemption in certain circumstances pertaining to the u.s. holding company's prepayment or repayment of its subordinated debentures held by the trust. In the event of a default by the u.s. holding company with respect either to making required payments on the subordinated debentures or to its guarantee, holders of the capital securities may institute a direct action against the u.s. holding company. In the first quarter of 2001 and the fourth quarter of 2000, a Trenwick Group Ltd. subsidiary purchased $10,650 and $13,000, respectively, par value of the capital securities in the open market for $8,462 and $9,902, respectively; The carrying value of these securities and the related dividends have been eliminated in consolidation.
All Europe believed the world was flat until Columbus proved otherwise. And now Jad stands alone against ciggy, sure and albrt in maintaining that the $107 addition to reserves does not include the $12 reduction in contingent liabilities.
This will make a tenetative believer out of you. Read the opening para of the PR below. It says $107 went to reserves; no waffling there.
>>HAMILTON, Bermuda--(BUSINESS WIRE)--Jan. 30, 2003--Trenwick Group Ltd. (NYSE: TWK - News) announced today that it will increase its reserves for losses in the fourth quarter of 2002 by $107 million, or $2.90 per share.<<
Now once again read the ambiguous last para (below). I ask you: How can the $107mil million labeled as reserves in the first para include the $12 mil which went to reduce a
liability? Apples and oranges.
>>The financial results of Trenwick for the fourth quarter of 2002, including its net reserve increase and a corresponding reduction of approximately $12 million in outstanding contingent indebtedness in computing the $107 million charge, will be presented in Trenwick's year-end earnings release.<<
Why is the $12 mil a "corresponding reduction"?
Because the contingent liability was issued "to protect Chartwell Re Corporation against the possibility of adverse developments of that insurer's (Insurance Co of New York)liability for claims and claims expenses and long-tail casualty exposures..." TWK inherited this when they took over Chartwell...
What I think has happened is that the addition of the $107mil to reserves reduced the need to maintain the contingent liability at its previous level. Therefore, I posit that liabilities have indeed been reduced by $12 mil...oh happy day...if I am right...which won't be known until we see a new CTNW number. What's $12 mil among friends?...jad
Subordinated debentures are the key words? That's helpful. But it sounds like in this case they added another layer by putting the debentures in a trust and selling preferred stock in the trust. I'm having trouble seeing what that would accomplish, other than allowing them to break it up and sell it to suckers. Hey, wait a minute . . . (Remember the scene with Mel Brooks and Gene Wilder at the beginning of The Producers?)
>>>"Mandatorily redeemable preferred capital securities of subsidiary trust holding solely junior subordinated debentures of Trenwick America Corp." <<
Is that a runon sentence?
We usually refer to them as Subordinated Debentures. It smells exactly like "Capital & Surplus, that's locked up in the Subsidiaries. That's what we usually use it for.
We take cash, put it in a CD or Bond and pledge it on a note, subordinating it to "policyholders" position in Insurance company books (ins Companies don't actually hold the cash, but get it in a melt down).
Hehee, I like that.
I know it sounded like a contradiction, but, when the amount was explained (outside the headline), it seemed to make sense.
My headline would've read "UNDER RESERVED BY NEARLY $120 MILLION"!!
I prefer longer odds, but I'm going to have side with the majority on this one. I think the $107 million is net. Steves had a good point about the language being contradictory. But if the contingent debts arose from a contingency that's closely related to the reserves, I guess it's possible to say the reserve increase is a net $107 million after the contingent debts are taken into account.
By the way, the full name of the Capital Trust preferred is "Mandatorily redeemable preferred capital securities of subsidiary trust holding solely junior subordinated debentures of Trenwick America Corp." That's all the information I've been able to find about them so far. They show up on the Trenwick America balance sheet as $87 million in preferred equity. I believe the difference between $87 million and $68 million is that some of the Capital Trust shares are held by LaSalle, which nets out of the consolidated balance sheet.
I haven't really followed the thread on this issue, but here's my 2 cents. It works out well b/c even though I don't understand a number of the subtleties I also don't take a stand one way or the other. I can't lose.
I think the press report is poorly written - the two quanitative statements are contradictory.
Statement #1: "TWK announced today that it will increase its reserves for losses in the fourth quarter of 2002 by $107 million".
So, reserves were increased by $107M, period.
Statement #2: "including its net reserve increase and a corresponding reduction of approximately $12 million in outstanding contingent indebtedness in computing the $107 million charge"
This says to me that the $12M amount is part of the computation of the $107M charge. Therefore, the $107M charge cannot be solely for reserve strengthening. This is in direct conflict w/ statement #1.
It doesn't work. I indict BUSINESS WIRE for sloppy, even stevesque, reporting. Go ahead- call up the Bermuda correspondent, if he claims the article makes sense then ask him to hold up his right leg. While he's doing that, ask him to lift his left one...