A.M. Best Co. has downgraded the financial strength ratings to C (Weak) of Trenwick Group Ltd.’s (Bermuda) ongoing operating subsidiaries and has withdrawn the financial strength ratings of Trenwick’s operating companies – which are now in runoff – and assigned each a NR-3 rating (Rating Procedure Inapplicable).
Prior to the withdrawal of these ratings, A.M. Best had downgraded the financial strength ratings of the runoff companies to C (Weak). Concurrent with these actions, all debt ratings relating to securities issued by Trenwick’s various holding companies have also been downgraded and assigned debt ratings of “c”. All ratings remain under review with negative implications.
These rating actions follow the company’s announcement that it has strengthened loss reserves by $107 million in fourth quarter 2002. That action follows Trenwick’s $90.7 million strengthening in third quarter 2002 and further depletes the low levels of surplus still remaining within the operating companies and elevates operating leverages to unacceptable levels.
Additionally, Trenwick has no capacity to settle and is in renegotiation discussions with its creditors related to its $75 million senior note obligations, which are due April 1, 2003. Failure to renegotiate this note by March 1 will put Trenwick in default of its Letter of Credit (LOC) facility, which is necessary to support its Lloyd’s operations. If the LOC facility goes into default, A.M. Best believes that this may impede the group’s ability to sustain its remaining underwriting operations over the long term, which includes its Lloyd’s facility and a fronting arrangement between Trenwick America Corporation and Chubb Re. These ongoing businesses are Trenwick’s only operations potentially capable of generating revenue and improving the group’s weak financial position.
A.M. Best will continue to monitor Trenwick’s ability to meet near-term debt obligations, adequacy of the company’s loss reserves as well as any further operating issues, which may arise. Due to the considerable uncertainties all ongoing ratings remain under review with negative implications.
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