ITEM 1. BUSINESS
GENERAL BACKGROUND AND HISTORY
Trenwick Group Inc. is a holding company incorporated in the state of Delaware in 1985. Through its wholly owned subsidiary, Trenwick America Corporation, a Delaware corporation, Trenwick owns and operates Trenwick America Reinsurance Corporation, (Trenwick America Re), a Connecticut corporation. The term "Trenwick", as used herein, refers to Trenwick America Re in discussions of that company's reinsurance business and refers to Trenwick Group Inc. in all other circumstances. Trenwick America Corporation, which acquired Trenwick America Re in 1983, became a wholly owned subsidiary of Trenwick in 1985 as a result of a corporate restructuring. Trenwick also owns two inactive Bermuda subsidiaries.
Trenwick primarily provides reinsurance to insurers of property and casualty risks in the United States. Trenwick writes both treaty and facultative reinsurance. Treaty is divided into conventional treaty and specialty business. Specialty underwriting combines the actuarial analytical methods of treaty underwriting and the individual risk assessment skills of facultative underwriting. Like treaty reinsurance, specialty reinsurance is written for a class of risk in which statistical methods are used to estimate future profitability. Like facultative underwriting, however, specialty underwriting also relies on the analysis of the reinsured's risks themselves as well as insurance policy forms and rates.
Trenwick generally obtains all of its business through brokers and reinsurance intermediaries which seek its participation on reinsurance being placed for their customers. Reinsurance is provided both on an excess of loss and quota share basis, which in 1996 amounted to 57% and 43% of its business, respectively. In underwriting reinsurance, Trenwick does not target types of clients, classes of business or types of reinsurance. Rather, it selects transactions based upon the quality of the reinsured, the attractiveness of the reinsured's insurance rates and policy conditions and the adequacy of the proposed reinsurance terms.
LINES AND TYPES OF BUSINESS
Trenwick's net premiums written for its principal lines of business are set forth in the following table for the periods indicated.
NET PREMIUMS WRITTEN BY LINES OF BUSINESS (IN THOUSANDS)
The major lines of reinsurance currently written by Trenwick are automobile liability, errors and omissions, general liability and workers' compensation which account for an aggregate of at least 64% of net premiums written in all years indicated. Casualty business increased by 15% as a result of an increase in new casualty business developed through existing and new relationships with various reinsurance brokers. The growth in new casualty business is primarily attributable to an increase in workers compensation as a result of two new contracts. In 1996, the amount of property business underwritten by Trenwick remained constant as a percentage of total net written premiums.
In 1996, insurance companies continued to increase their retentions, thereby reducing the amount of reinsurance placed with reinsurers. As a result, errors and omissions, products liability and other casualty lines of business decreased in 1996. In addition, Trenwick declined to renew certain accounts which did not meet it's pricing standards.
In 1996, 1995 and 1994, twelve programs underwritten by Trenwick accounted for approximately 49%, 52% and 51%, respectively, of gross premiums written. One ceding company accounted for 15%, 19%, and 14% of gross premiums written for years 1996, 1995 and 1994, respectively. The majority of this business has been in force since 1988 and involves working layer excess of loss automobile liability for trucking risks written by Canal Insurance Company, an established specialist in this line of business. Canal has an A.M. Best Company rating of A+ and statutory capital and surplus at December 31, 1996 in excess of $277 million. During 1996, Trenwick continued its strategic reinsurance agreement with PXRE Reinsurance Company (PXRE Re), assuming approximately 15% of PXRE Re's property business. This program with PXRE Re accounted for approximately 6%, 9% and 12%, respectively, of gross premiums written in years 1996, 1995 and 1994. Trenwick also obtained approximately 10% and 12% of gross premiums written in 1996 from Continental Casualty Company and American International Group, respectively. Trenwick expects to renew these accounts for 1997. While Trenwick believes that the loss of any one of these accounts would have a material adverse effect on premiums written, Trenwick does not believe that such a loss would result in a concurrent material decrease in its earnings. Further,
Trenwick believes that it would continue to underwrite new business to replace these accounts, in the event that they were non-renewed.
The table set forth below shows the distribution of net premiums written by type which classifies the business by type of underwriting methodology used.
NET PREMIUMS WRITTEN BY TYPE OF BUSINESS (IN THOUSANDS)
Treaty Reinsurance
Approximately 97% of Trenwick's net premiums written is currently represented by treaty reinsurance including standard treaty, specialty and property business. Specialty business underwritten by Trenwick generally includes specialty coverages and classes such as professional liability, directors' and officers' liability and other excess and surplus lines exposures. Specialty also encompasses reinsurance of business written by managing general agents or alternative risk mechanisms other than insurance companies. Net treaty premiums written increased 15%, 41% and 39% in 1996, 1995 and 1994, respectively. In 1996, Trenwick wrote on a quota share and excess of loss basis an aggregate of 229 treaties, as compared to 222 treaties in 1995 and 250 treaties in 1994. Trenwick's commitment is currently limited to $2,000,000 per account on casualty treaty business and $1,500,000 on property business. Larger commitments are subject to Trenwick's Underwriting Committee referral process.
Facultative Reinsurance
Facultative writings, consisting entirely of casualty business, currently account for 3% of net premiums written. All facultative business is written on an excess of loss basis. The average gross limit provided by Trenwick is $592,000. Maximum facultative gross capacity per risk is $2,000,000. Trenwick retains the first $500,000 per transaction. In 1996, casualty facultative net premiums written represented by 384 contracts increased 6% when compared to 1995. In 1995 and 1994, casualty facultative net premiums written represented by 318 and 215 contracts increased 45% and 5%, respectively, when compared to 1994 and 1993.
MARKETING
Trenwick generally obtains all its reinsurance business through reinsurance brokers which represent the ceding company in negotiations for the purchase of reinsurance. The process of effecting a brokered
reinsurance placement typically begins when a ceding company enlists the aid of a reinsurance broker in structuring a reinsurance program. Often the ceding company and the broker will consult with one or more lead reinsurers as to the pricing and contract terms of the reinsurance protection being sought. Once the ceding company has approved the terms quoted by the lead reinsurer, the broker will offer participations to qualified reinsurers until the program is fully subscribed by reinsurers at terms agreed to by all parties.
Trenwick pays such intermediaries or brokers commissions representing negotiated percentages of the premium it writes. These commissions, which currently average 3%, constitute part of Trenwick's total acquisition costs and are included in its underwriting expenses. Brokers do not have the authority to bind Trenwick with respect to reinsurance agreements, nor does Trenwick commit in advance to accept any portion of the business that brokers submit to it. Reinsurance business from any ceding company, whether new or renewal, is subject to acceptance by Trenwick.
In 1996, Trenwick's three largest broker sources accounted for 31%, 18% and 12%, respectively, of Trenwick's gross premiums written. In 1995, the three largest broker sources accounted for 34%, 19% and 9%, respectively. These three brokers are among the ten largest brokers in the reinsurance industry. Trenwick's concentration of business through a small number of sources is consistent with the concentration of the property and casualty broker reinsurance market, in which a majority of the business is written through the ten largest brokers. Loss of all or a substantial portion of the business provided by these brokers could have a material adverse effect on the business and operations of Trenwick. Trenwick does not believe, however, that the loss of such business would have a long-term adverse effect because of Trenwick's competitive position within the broker reinsurance market and the availability of business from other brokers.
UNDERWRITING
Trenwick's underwriting philosophy emphasizes a transactional approach to underwriting in which any reinsurance transaction for any line of property or casualty business is considered on its own merits. The underwriter's primary objective is to assess the potential for an underwriting profit. The risk assessment process undertaken by Trenwick's underwriters involves a comprehensive analysis of historical data and estimates of future value of loss costs which may not be evident in the historical data. The factors which Trenwick considers include the type of risk, details of the underlying insurance coverage provided, adequacy of pricing using actuarial analysis and the reinsurance terms and conditions. Before it agrees to participate in a transaction, Trenwick frequently conducts underwriting and claims audits of ceding companies to assist it in evaluating the information submitted by the ceding companies.
Trenwick's Underwriting Committee, composed of its most senior underwriters and Chief Actuary, is responsible for its underwriting policy and quality standards. The quality control process involves both pre-binding referral of individual transactions and post-binding internal audits of each underwriting department. The referral process provides a three-tiered system of checks and balances to reduce the potential for significant loss. Accounts displaying characteristics specified in Trenwick's Underwriting Policy Manual are subject to successive referral to the Department Manager, Underwriting Committee representatives, and in some cases, the Chief Executive Officer. The quality control process is
supplemented by conducting periodic internal audits of each underwriting department to ensure compliance with underwriting policies and procedures.
COMPETITION
Trenwick competes with numerous major international and domestic reinsurance and insurance companies. These competitors, many of which have substantially greater financial and staff resources than Trenwick, include independent reinsurance companies, subsidiaries or affiliates of established insurance companies, reinsurance departments of certain commercial insurance companies and underwriting syndicates.
The reinsurance market has two basic segments: reinsurers that primarily obtain their business directly from insurers and those that primarily obtain business through reinsurance intermediaries or brokers. Although Trenwick generally obtains all of its business through reinsurance intermediaries or brokers, and therefore, competes directly with other reinsurers that obtain their business in this way, it also competes indirectly with reinsurers who obtain business directly from primary insurers because Trenwick's brokers must compete with direct reinsurers for business to be offered to Trenwick.
Competition in the types of reinsurance business which Trenwick underwrites is based on many factors, including the perceived overall financial strength of the reinsurer, rates charged, other terms and conditions, A.M. Best rating, service offered, speed of service (including claims payment) and perceived technical ability and experience of staff. The number of jurisdictions in which a reinsurer is licensed or authorized to do business is also a factor. Trenwick is licensed or otherwise authorized to conduct reinsurance business in every state and the District of Columbia.
The financial security of insurers and reinsurers has emerged as a key issue of the 1990's. To be accepted as a reinsurer by ceding companies and their brokers, a reinsurer must demonstrate higher levels of financial security and solvency than were previously required. Transactions tend to have fewer and larger participants, which may negatively affect the availability of underwriting opportunities. However, ceding companies have become more specialized, which management believes will favor reinsurers such as Trenwick which possess technical underwriting and risk assessment skills. The alternative risk segment of the market has grown, thereby removing some premiums from the traditional property and casualty primary insurance market. Alternative risk mechanisms, which depend more heavily on reinsurance than the traditional companies they have replaced, have created new opportunities for specialized reinsurers.
Trenwick's management believes that the reinsurance industry, including the intermediary market, will continue to undergo further consolidation and that size and financial strength will continue to be significant factors in effective competition. Trenwick's statutory surplus was $286 million at December 31, 1996. Based on the most recent information prepared by the Reinsurance Association of America (RAA), this surplus placed Trenwick among the top nineteenth ranked reinsurance companies and the top fourteen reinsurers in the U.S. broker market, as measured by policyholder surplus, of those companies reporting to the RAA. The RAA is an industry organization of professional property and casualty reinsurers which, among other things, compiles data on reinsurers and their reinsurance operations.
Trenwick is rated "A+ (Superior)," the second-highest classification accorded by A.M. Best Company. A.M. Best Company is an independent insurance industry rating organization. The "A+ (Superior)" rating is assigned to those companies which in A.M. Best Company's opinion have achieved excellent overall performance when compared to the norms of the property and casualty insurance industry and which generally have demonstrated a strong ability to meet their respective policyholder and other contractual obligations. A.M. Best Company reviews its ratings at least annually and there is no assurance that Trenwick will be able to maintain its current rating. Trenwick's Standard & Poor's Insurance Rating Services Claims-Paying Ability Rating is "A+ (Good)".
CLAIMS ADMINISTRATION
Claims are managed by Trenwick's professional claims staff whose responsibilities include the review of initial loss reports, creation of claim files, determination of whether further investigation is required, establishment and adjustment of case reserves and payment of claims. In addition, the claims staff conducts comprehensive claims audits of both specific claims and overall claims procedures at the offices of selected ceding companies. In certain instances, a claims audit may be performed prior to assuming reinsurance business as part of a comprehensive risk evaluation process.
UNPAID CLAIMS AND CLAIMS EXPENSES
Insurers and reinsurers establish claims and claims expense reserves representing estimates of future amounts needed to pay claims and related expenses with respect to insured events which have occurred. Claims and claims expense reserves have two components: case reserves, which are reserves for reported claims, and incurred but not reported ("IBNR") reserves, which are reserves for claims not yet reported. Significant periods of time may elapse between the occurrence of an insured claim, the reporting of the claims to the insurer and the subsequent reporting of the claims to the reinsurer, the insurer's payment of that claim, and later payments by the reinsurer.
Trenwick first establishes its case reserves for reported claims when it receives notice of the claim. It is Trenwick's policy to establish reserves for reported claims in an amount equal to the greater of the reserve recommended by the ceding company or the claim as estimated by Trenwick's claims personnel. Trenwick periodically conducts investigations to determine if the amount reserved by the ceding company is appropriate or should be adjusted. During the claim settlement period, which may be many years, additional facts regarding individual claims may become known. As Trenwick learns additional facts, it may become necessary to refine and adjust upward or downward the estimated reserves on a claim, and even then the ultimate net reserve may be less than or greater than the revised estimates. Trenwick does not discount any of its reserves for reported or unreported claims in any line of its business for anticipated investment income.
Trenwick uses a combination of actuarial methods to determine its IBNR reserves. These methods fall into two general categories: (1) methods by which ultimate claims are estimated based upon historical patterns of reported claim development experienced by Trenwick, as supplemented by reported industry data, and (2) methods in which the level of Trenwick's IBNR claim reserves are established based upon the IBNR claim reserves relative to earned premium of other reinsurers, applied by accident year, line of
business and type of reinsurance (excess of loss versus quota share) written by Trenwick. Reserve methods implicitly recognize the impact of inflation and other factors affecting claims payments by taking into account changes in historical payment patterns, the volume of business written, and trends in claim frequency and severity as reflected in Trenwick's reported claim activity. Due to the inherent uncertainties of estimating insurance company claim reserves, actual claims and claims expenses may deviate, perhaps substantially, from estimates of Trenwick's reserves reflected in the consolidated financial statements. Management believes that its claim reserve methods are reasonable and prudent and that Trenwick's reserves for claims and claims expenses at December 31, 1996 are adequate.
Trenwick's known exposure to environmental claims, including asbestos and pollution liability, is primarily associated with its participation in business written by its predecessor company between 1978 and 1983. Exposure to environmental claims on Trenwick's business written since 1983 is generally limited by exclusions on its own reinsurance contracts and also by exclusions on policies issued by ceding companies. Casualty business written in 1983 and prior is not material to Trenwick's overall book of business. As of December 31, 1996 outstanding claims including incurred but not reported claims for environmental liability were approximately $9.2 million, approximately 2% of Trenwick's total net outstanding reserves. Under Trenwick's current interpretation of policy language, management does not believe that it has a material exposure to environmental claims that requires additional reserves beyond its current estimates.
The following table presents an analysis of gross and net unpaid claims and claims expenses and a reconciliation of beginning and ending gross and net unpaid claims and claims expense balances for 1996, 1995 and 1994. The gross unpaid claims and claims expense balances for December 31, 1996 and 1995 are reflected in Trenwick's consolidated balance sheet. The net unpaid claims and claims expense balances are stated on a net basis after deductions for reinsurance recoverable on unpaid claims and claims expenses from retrocessionaires.
ANALYSIS OF ACTIVITY IN UNPAID CLAIMS AND CLAIMS EXPENSES (IN THOUSANDS)
In 1996, Trenwick agreed to commute an aggregate excess of loss reinsurance agreement covering the years 1989 through 1993. As a result of the commutation, Trenwick received a total consideration of $29.7 million representing outstanding reserves of approximately the same amount. The commutation was recorded in 1996 as a paid loss recovery.
In 1996, 1995 and 1994, Trenwick recorded a decrease of $4,439,000, $2,065,000, and $447,000, respectively, in estimated net claims for claims occurring in prior accident years. The decrease over the last three years primarily reflects the favorable development of Trenwick's casualty business written primarily between accident years 1987 and 1992, partially offset by unfavorable development in accident years 1993 through 1995. In 1996, Trenwick recorded a decrease of $3,669,000 in estimated gross claims for claims occurring in prior accident years.
The following table presents the development of Trenwick's net unpaid claims and claims expenses for 1986 through 1996. The top line of the table shows the net unpaid claims and claims expenses at the balance sheet date for each of the indicated years. This reflects the net estimated amounts of claims and claims expenses for claims arising in that year and in all prior years that are unpaid at the balance sheet date, including claims that had been incurred but not yet reported to Trenwick. The upper portion of the table shows the net cumulative subsequently paid amounts as of successive years with respect to that liability. The middle portion of the table shows the net re-estimated amount of the previously recorded net unpaid claims and claims expenses based on experience as of the end of each succeeding year. The estimates change as more information becomes known about the frequency and severity of claims for individual years. A redundancy (deficiency) exists when the net re-estimated liability at each December 31 is less (greater) than the prior net liability estimate. The net "Cumulative Redundancy (Deficiency)" depicted in the table for any particular calendar year represents the aggregate change in the initial net estimates over all subsequent calendar years.
The lower portion of the table presents a reconciliation of the net unpaid claims and claims expenses as of the end of year with the related gross unpaid claims and claims expenses as of December 31, 1992 through 1996. Additionally, the table presents a reconciliation of the gross re-estimated unpaid claims and claims expenses as of the end of the latest re-estimation year, with separate disclosure of the related re-estimated reinsurance recoverable on unpaid claims and claims expenses. The "gross cumulative redundancy" depicted in the table for the calendar years 1991 through 1996 represents the aggregate change in the initial gross estimates over all subsequent calendar years.
DEVELOPMENT OF UNPAID CLAIMS AND CLAIMS EXPENSES (in thousands)
(1) Amounts for 1986 and 1987 include claims activity associated with a Bermuda subsidiary, prior to its sale by Trenwick in 1987.
In evaluating the information in the table above, it should be noted that each amount includes the effects of all changes in amounts for prior periods. For example, if a claim determined in 1991 to be $150,000 was first reserved in 1986 at $100,000, the $50,000 deficiency (actual claim minus original estimate) would be included in the gross cumulative redundancy (deficiency) in each of the years 1986-1991 shown on the preceding page. This table does not present accident or policy year development data. Conditions and trends that have affected the development of liability in the past may not necessarily occur in the future. Accordingly, it may not be appropriate to extrapolate future redundancies or deficiencies based on this table.
The trend depicted in the table indicates that net unpaid claims and claims expense liability at December 31, 1995 have developed redundantly due to favorable developments for claims occurring between accident years 1987 and 1992, partially offset by unfavorable development in accident years 1993 through 1995. The deficiency shown in the table for the year 1986 reflects adverse development for claims occurring during that period and are widespread throughout the industry. The industry factors which contributed to adverse claim developments during this period included inadequate premium levels and inadequate terms attributable to overly competitive market conditions. Trenwick's exposure to these unfavorable market conditions is limited by the insubstantial amount of premiums it wrote during this period.
RETROCESSION AGREEMENTS
Reinsurance companies enter into retrocessional agreements for the same reasons insurers seek reinsurance, including reduction of net liability on individual risks, protection against catastrophic losses and maintenance of acceptable ratios. Trenwick has various retrocessional facilities, all of which are on a treaty basis. These retrocessional facilities include one treaty for Trenwick's facultative casualty reinsurance business which applies on a risk or account basis and two for its treaty property business which protect it against multiple claims arising out of a single occurrence or event. As a result of these facilities, Trenwick's maximum retention generally does not exceed $500,000 per occurrence on facultative business and $2,000,000 per occurrence on property catastrophe business. Since 1989, Trenwick has purchased aggregated excess of loss ratio treaties from several reinsurers. These facilities provided Trenwick with a layer of protection against adverse results from primarily casualty business in excess of specified loss ratios.
Trenwick remains liable with respect to reinsurance ceded in the event that the retrocessionaire is unable to meet its obligations assumed under the reinsurance agreement. All retrocessionaires must be formally approved by Trenwick's Security Committee comprising of the Chief Executive Officer, as Committee Chairman, and the Chief Financial Officer. The Security Committee re-evaluates the financial condition of Trenwick's retrocessionaires at least annually. The evaluation process involves financial analysis of current audited financial data and comparative analysis of such data in accordance with guidelines established by Trenwick. Business may not be conducted with retrocessionaires who are not currently approved by the Security Committee.
Trenwick's principal retrocessionaires domiciled in the United States are Centre Reinsurance Company of New York, Continental Casualty Company, Kemper Reinsurance Company and National Indemnity Company, which are rated A or better by A.M. Best Company. The principal retrocessionaires domiciled outside the United States are syndicates at Lloyds of London and Unionamerica Insurance Company,
Limited. At December 31, 1996, Trenwick had no material uncollectible amounts due from its retrocessionaires.
INVESTMENTS
Trenwick's investments comply with the insurance laws of the state of Connecticut, its domiciliary state, and of the other states in which Trenwick is licensed or authorized. These laws prescribe the kind, quality and concentration of investments which may be made by insurance companies. In general, these laws permit investments, within specified limits and subject to certain qualifications, in federal, state and municipal obligations, corporate bonds, preferred and common stock, real estate mortgages and real estate. The Investment Committee of Trenwick's Board of Directors oversees investments and sets procedures and guidelines for investment strategy. Trenwick's internal staff manages Trenwick's investments and utilizes the services of an investment adviser. Trenwick's investment strategy focuses on capital preservation and income predictability. This strategy also requires that the risks associated with these objectives are properly managed. Accordingly, the Company emphasizes investment grade fixed maturity investments. At December 31, 1996, 92% of Trenwick's fixed income investments were rated Aa or better and none had a Moody's Investors Service quality rating less than A.
The Company's investment strategy permits an allocation for equity securities. At December 31, 1996, 3% of the Company's total investments and cash were invested in common and preferred equities of U.S. corporations. The primary risk associated with these securities is the exposure to daily market fluctuations.
Trenwick invests in three types of structured securities, collateralized mortgage obligations (CMO), mortgage-backed securities not backed by U.S. government agencies (non-agency MBS) and asset-backed securities (ABS), each accounting for 12%, 7% and 6%, respectively, of Trenwick's portfolio at December 31, 1996.
CMOs consist of planned amortization classes (PACs) which have been constructed with a certain amount of call protection and CMOs that have lost their PAC protection (sometimes called "broken" or "busted" PACs), due to actual prepayments being significantly higher or lower than originally forecast. These agency backed CMOs are not subject to credit risk, as all holdings are backed indirectly or directly by the Federal government or one of its agencies. The material risk inherent to holding these CMOs is prepayment risk, which relates to the timing of cash flows that result from amortization, whether it accelerated, because of lower interest rates and therefore higher than expected prepayments, or decelerated, because of higher interest rates and therefore lower than expected prepayments. Changes in principal repayments could negatively affect investment income due to the timing of the reinvested funds.
Non-agency MBSs are constructed primarily from the securitization of mortgages on commercial or residential real estate and, lacking any agency backing, are inherently subject to credit risk. They also have an element of prepayment risk which is contingent on the structure of each security and its underlying collateral. The non-agency MBS issues Trenwick has purchased have a rating of A or better from various Nationally Recognized Statistical Rating Organizations.
The asset-backed securities owned by Trenwick have primarily credit card, auto and equipment receivables as collateral and are subject also to credit risk. These securities have less cash flow uncertainty than non-agency MBS and CMO issues, because the issuer has the ability to add in new collateral should the asset-backed security experience faster prepayments, or in the event of default on the underlying collateral. The asset-backed securities owned by Trenwick are rated Aaa by Moody's Investors Service as of December 31, 1996.
Trenwick also invests in agency pass-through securities which account for 3% of Trenwick's portfolio at December 31, 1996. As with CMOs, these securities are subject to prepayment risk.
The table below sets forth the distribution of Trenwick's investments at December 31, 1996 by type, maturity and quality rating.
INVESTMENTS (DOLLARS IN THOUSANDS)
(1) Tax-exempt bonds include $83,515,000 escrowed in U.S. Government Securities, $166,140,000 insured by Municipal Bond Investors Assurance Corporation, Financial Guaranty Insurance Company, AMBAC Indemnity Corporation, or Financial Security Assurance Corporation and $41,895,000 both escrowed and insured.
(2) Quality rating as assigned by Moody's Investors Service, Inc. for all except certain mortgage-backed securities not backed by U.S. government agencies which are as assigned by Fitch Investors Service, Standard and Poor's or Duff and Phelps. Ratings are generally assigned upon the issuance of the securities, subject to revision on the basis of ongoing evaluations.
REGULATION
NAIC
The National Association of Insurance Commissioners ("NAIC") is an organization which assists state insurance supervisory officials in achieving insurance regulatory objectives, including the maintenance and improvement of state regulation. From time to time various regulatory and legislative changes have been proposed in the insurance industry, some of which could have an effect on reinsurers. Among the proposals that have in the past been or are at present being considered are the possible introduction of federal regulation in addition to, or in lieu of, the current system of state regulation of insurers, and proposals in various state legislatures (some of which proposals have been enacted) to conform portions of their insurance laws and regulations to various model acts adopted by the NAIC. Trenwick is unable to predict what effect, if any, these developments may have on its operations and financial condition. See Management's Discussion and Analysis of Financial Condition and Results of Operations.
RBC
The NAIC's initiative to establish minimum capital requirements, referred to as Risk Based Capital ("RBC"), for property and casualty companies was completed and adopted in 1993. This formula is used by state insurance regulators as an early warning tool to identify, for the purpose of initiating regulatory action, insurance companies that potentially are inadequately capitalized. The ratios calculated for Trenwick America Re exceeded all of the RBC trigger points at December 31, 1996. Trenwick believes its capital will continue to exceed these RBC capital and surplus requirements for the foreseeable future. See Management's Discussion and Analysis of Financial Condition and Results of Operations.
State Insurance Regulation
The premium rates and policy terms of reinsurance agreements generally are not subject to regulation by any government authority. This contrasts with property and casualty insurance where the premium rates and policy terms are generally closely regulated by state insurance departments. As a practical matter, however, the premium rates charged by insurers may place a limit on the rates which can be charged by reinsurers.
The regulation and supervision to which Trenwick is subject relates primarily to the standards of solvency that must be met and maintained, licensing requirements for reinsurers, the nature of and limitations on investments, restrictions on the size of risks which may be insured, deposits of securities for the benefit of a reinsured, methods of accounting, periodic examinations of the financial condition and affairs of reinsurers, the form and content of reports of financial condition required to be filed, and reserves for unearned premiums, losses and other purposes. In general, such regulation is for the protection of the reinsureds, and ultimately, their policyholders rather than their security holders. Trenwick believes that it is in compliance with all such regulations.
Trenwick America Re is subject to regulation under the insurance statutes and insurance holding company statutes of various states, including Connecticut, the domiciliary state of Trenwick America Re. These laws and regulations vary from state to state, but generally require an insurance holding company, and insurers and reinsurers that are subsidiaries of an insurance holding company, to register with the state regulatory authorities and to file with those authorities certain reports including information concerning their capital structure, ownership, financial condition and general business operations.
State laws also require prior notice or regulatory agency approval of direct or indirect changes in control of an insurer, reinsurer or its holding company and of certain significant intercorporate transfers of assets within the holding company structure. An investor who acquires securities representing or convertible into more than 10% of the voting power of the securities of Trenwick would become subject to at least some of such regulations and would be subject to approval by the Connecticut Insurance Commissioner prior to acquiring such shares. Such investor would also be required to file certain notices and reports with the Commissioner prior to such acquisition.
Dividends
The principal source of cash for the payment of dividends by Trenwick is the receipt of dividends from Trenwick America Re. Under the Connecticut insurance laws and regulations, the maximum amount of shareholder dividends or other distributions that Trenwick America Re may declare or pay to the Company within any twelve month period, without the permission of the Connecticut Insurance Commissioner, is limited to the greater of 10% of policyholder surplus at December 31 of the preceding year, or 100% of net income excluding realized capital gains, for the twelve month period ending December 31 of the preceding year, both determined in accordance with statutory accounting practices. For the purpose of computing the limitation, carryforward provisions apply with respect to net income realized in the two previous calendar years which has not already been paid out as dividends. The maximum amount of dividends which could be paid by Trenwick America Re in 1997 without regulatory approval would be $62,901,000.
Investment Limitations
Connecticut Law contains rules governing the types and amounts of investments which are permissible for a Connecticut insurer or reinsurer, including Trenwick America Re. These rules are designated to ensure the safety and liquidity of the insurer's investment portfolio. In general, these rules only permit a Connecticut insurer to purchase investments which are interest bearing, interest accruing, entitled to dividends or otherwise income earning and not then in default in any respect, and the insurer must be entitled to receive for its exclusive account and benefit the interest or income accruing thereon. No security or investment is eligible for purchase at a price above its fair value or market value. In addition, these rules require investments by Trenwick to be diversified. Trenwick believes that it is in compliance with all applicable Connecticut insurance laws.
EMPLOYEES
At December 31, 1996, Trenwick employed a total of 71 persons. Trenwick has no employees represented by a labor union and believes that its employee relations are good.
ITEM 2.

ITEM 2. PROPERTIES
Trenwick's offices in Stamford, Connecticut are occupied pursuant to a lease covering approximately 27,000 square feet of office space located at Metro Center, One Station Place. Although the lease expires on July 15, 1998, Trenwick has the option to extend and renew the terms of the lease.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
Trenwick is party to various legal proceedings generally arising in the normal course of its reinsurance business. Trenwick does not believe that the eventual outcome of any such proceeding will have a material effect on its financial condition or business. Trenwick's subsidiaries are regularly engaged in the investigation and the defense of claims arising out of the conduct of their reinsurance business. Pursuant to Trenwick's reinsurance arrangements, disputes between Trenwick America Re and its ceding companies are generally required to be finally settled by arbitration.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.

ITEM 5. MARKET FOR CORPORATION'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Trenwick Common Stock is listed on the NASDAQ Stock Market under the ticker symbol TREN. There were 134 holders of record and in excess of 1,200 beneficial owners of Common Stock as of February 28, 1997. The other information called for by this item can be found in Note 12 of Notes to the Consolidated Financial Statements of Trenwick on Page 72 of the Annual Report to Stockholders and is incorporated herein by reference.
For a description of restrictions on Trenwick's ability to pay dividends, reference is made to Item 1. Business - Regulation, Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 6 of Notes to the Consolidated Financial Statements of Trenwick.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The other information called for by this item can be found on Pages 31 through 73 of Trenwick's 1996 Annual Report to Stockholders under the captions "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Financial Statements" and is incorporated herein by reference.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The information called for by this item can be found on Pages 31 through 42 of Trenwick's 1996 Annual Report to Stockholders under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by this item can be found on Pages 44 through 73 of Trenwick's Annual Report to Stockholders and to the items included in Item 14(a) of this report, and are incorporated herein by reference.
ITEM 9.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Incorporated by reference to the captions "Board of Directors", "Management", and "Executive Compensation" in the Proxy Statement for the Annual Meeting in 1997 ("Proxy Statement").
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the caption "Executive Compensation" in the Proxy Statement.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the caption "Principal Stockholders" in the Proxy Statement.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the caption "Certain Relationships and Related Transactions" in the Proxy Statement.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) Documents
(1) & (2) The Financial Statements, Schedules and the Report of Independent Accountants on the Financial Statement Schedules, listed in the accompanying index on Page 28, are filed as part of this Report.
(3) Exhibits
3.1 Trenwick's Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.1 to Trenwick's Registration Statement on Form S-1, File No. 33-5085.
3.2 Certificate of Amendment of Trenwick's Restated Certificate of Incorporation. Incorporated by reference to Exhibit 3.3 to Trenwick's Annual Report on Form 10-K for the year ended December 31, 1993, File No. 0-14737.
3.3 Trenwick's By-laws. Incorporated by reference to Exhibit 3.2 to Trenwick's Registration Statement on Form S-1, File No. 33-5085.
4.1 Rights Agreement dated as of November 2, 1989 between Trenwick and First Chicago Trust Company of New York. Incorporated by reference to Exhibit 4 to Trenwick's Form 8-A dated June 11, 1989, File No. 0-14737.
4.2 (a) Indenture dated as of January 31, 1997, between The Chase Manhattan Bank and Trenwick.
(b) Amended and Restated Declaration of Trust of Trenwick Capital Trust I dated as of January 31, 1997.
+10.1 Trenwick Incentive Stock Option Plan, as amended through August 3, 1993. Incorporated by reference to Exhibit 10.1 to Trenwick's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0-14737.
10.2 Incentive Stock Option Agreement between Trenwick and James F. Billett, Jr. Incorporated by reference to Exhibit 10.11 to Trenwick's Registration Statement on Form S-1, File No. 33-5085.
10.3 Trenwick 1987 Stock Incentive Plan, as amended through August 3, 1993. Incorporated by reference to Exhibit 10.5 to Trenwick's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0-14737.
+ As required by Item 14, each of Exhibits 10.1 through 10.17 is hereby identified as a management contract or compensatory plan or arrangement.
10.4 Form of Stock Option Agreement for executive officers (performance options). Incorporated by reference to Exhibit 10.32 to Trenwick's Annual Report on Form 10-K for the year ended December 31, 1988, File No. 0-14737.
10.5 Form of Restricted Stock Agreement for executive officers. Incorporated by reference to Exhibit 10.31 to Trenwick's Annual Report on Form 10-K for the year ended December 31, 1988, File No. 0-14737.
10.6 Trenwick 1989 Stock Plan, as amended through August 3, 1993. Incorporated by reference to Exhibit 10.8 to Trenwick's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0-14737.
10.7 Form of Non-qualified Stock Option Agreement for executive officers. Incorporated by reference to Exhibit 10.36 to Trenwick's Annual Report on Form 10-K for the year ended December 31, 1989, File No. 0-14737.
10.8 Trenwick 1993 Stock Option Plan. Incorporated by reference to Exhibit 10.1 to Trenwick's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, File No. 0-14737.
10.9 Form of 1993 Stock Option Plan Non-qualified Stock Option Agreement for executive officers. Incorporated by reference to Exhibit 10.11 to Trenwick's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0-14737.
10.10 Trenwick 1993 Stock Option Plan for Non-Employee Directors. Incorporated by reference to Exhibit 10.2 to Trenwick's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, File No. 0-14737.
10.11 Trenwick Near Term Cash Bonus Plan. Incorporated by reference to Exhibit 10.10 to Trenwick's Registration Statement on Form S-1, File No. 33-5085.
10.12 Trenwick Unfunded Supplemental Executive Retirement Plan, as amended through December 14, 1993. Incorporated by reference to Exhibit 10.14 to Trenwick's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0-14737.
10.13 Leased Automobile Policy for executive officers.
10.14 Description of life insurance and long-term disability insurance coverage for executive officers. Incorporated by reference to Exhibit 10.16 to Trenwick's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0-14737.
10.15 Trenwick Directors Deferred Compensation Plan. Incorporated by reference to Exhibit 10.17 to Trenwick's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0-14737.
10.16 Description of Trenwick Directors Retirement Plan. Incorporated by reference to Exhibit 10.18 to Trenwick's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0-14737.
10.17 Commercial Real Estate Lease Agreement between Trenwick and One Station Place, Limited Partnership dated July 15, 1988. Incorporated by reference to Exhibit 10.33 to Trenwick's Annual Report on Form 10-K for year ended December 31, 1988, File No. 0-14737.
10.18 Aggregate Excess of Loss Reinsurance Agreement between Trenwick and National Indemnity Company dated December 31, 1984 and amendment thereto. Incorporated by reference to Exhibit 10.29 to Trenwick's registration statement on Form S-1, File No. 33-5085.
10.19 Automobile Liability First Excess of Loss/Quota Share Reinsurance Agreement between Trenwick and the Canal Insurance Company/Canal Indemnity Company.*
10.20 Interests and Liabilities Agreement between Trenwick and Kemper Reinsurance Group and participants thereon.*
10.21 Aggregate Excess of Loss Ratio Cover between Trenwick and Continental Casualty Company.*
10.22 Property Catastrophe Treaty between Trenwick and numerous reinsurers.*
10.23 Special Catastrophe Excess of Loss Reinsurance Agreement Placement Slip between Trenwick and each of Continental Casualty Company, Zurich Reinsurance Company of New York, Folksamerica Reinsurance Company, and Kemper Reinsurance Company.*
10.24 Property Quota Share Retrocession Placement Slip between Trenwick and each of Toa-Re Insurance Co. (U.K.) Ltd. and Underwriters at Lloyd's.*
10.25 Property Pro Rata Retrocessional Agreement between PXRE Reinsurance Company and Trenwick. Incorporated by reference to Exhibit 10.24 to Trenwick's Annual Report on Form 10-K for the year ended December 31, 1993, File No. 0-14737.
* Incorporated by reference to Exhibits 10.40 through and including 10.45 to Amendment No. 1 to Trenwick's Annual Report on Form 10-K for the year ended December 31, 1991, filed with the Commission on December 8, 1992, File No. 0-14737.
10.26 Coinsured Aggregate Excess of Loss Reinsurance Agreement between Trenwick and Centre Reinsurance Company of New York. Incorporated by reference to Exhibit 10.28 to Trenwick's Annual Report on Form 10-K for the year ended December 31, 1994, File No. 0-14737.
10.27 1995 Property Catastrophe Treaty between Trenwick and numerous reinsurers.
10.28 1995 Special Catastrophe Excess of Loss Reinsurance Agreement between Trenwick and Zurich Reinsurance Company of New York and Kemper Reinsurance Company.
10.29 1995 First Facultative Casualty Excess of Loss Reinsurance Agreement between Trenwick and numerous reinsurers.
10.30 1995 First Facultative Excess of Loss Reinsurance Agreement between Trenwick and numerous reinsurers.
10.31 1996 First Facultative Casualty Excess of Loss Reinsurance Agreement between Trenwick and numerous reinsurers.
10.32 1996 Property Catastrophe Excess of Loss Agreement between Trenwick and numerous reinsurers.
10.33 1996 Coinsured Aggregate Excess of Loss Reinsurance Agreement between Trenwick and Centre Reinsurance Company of New York and CNA Re.
10.34 1996 Special Catastrophe Excess of Loss Retrocession Agreement between Tarco and several reinsurers.
11.0 Computation of Earnings Per Share. Reference is made to page 27 of this report.
12.0 Computation of Ratios.
13.0 Trenwick's 1996 Annual Report to Stockholders. Such report, except for those portions thereof which are expressly incorporated by reference in this Form 10-K, is furnished for the information of the Commission and is not to be deemed "filed" as part of this Form 10-K.
21.0 List of Subsidiaries.
23.0 Consent of Price Waterhouse LLP.
27.0 Financial Data Schedule.
28.0 Information from reports furnished to state insurance regulatory authorities.
(B) Reports on Form 8-K
None
SIGNATURES
Pursuant to the Requirements of Section 13 or 15(d) of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TRENWICK GROUP INC. (Registrant)
By JAMES F. BILLETT, JR. --------------------------- James F. Billett, Jr. Chairman, President and Chief Executive Officer
Dated: March 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
TRENWICK GROUP INC. ITEM 14.(A)(3) - Exhibit 11.0 -- COMPUTATION OF EARNINGS PER SHARE (in thousands, except per share amounts)
1996 pro forma amounts for net income and weighted average common shares reflect, as of January 1, 1996, the February 20, 1997 debenture conversion by adding back to net income the applicable interest expense, net of income taxes, and increasing the average shares for the shares issued on conversion.
TRENWICK GROUP INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
* Incorporated by reference to Trenwick's 1996 Annual Report to Stockholders.
Schedules other than those listed above are omitted since they are either not required or are not applicable or the information required is presented in the consolidated financial statements, including the notes thereto.
TRENWICK GROUP INC. AND SUBSIDIARIES SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF INCOME -- PARENT COMPANY ONLY
S-1 TRENWICK GROUP INC. AND SUBSIDIARIES SCHEDULE III--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS -- PARENT COMPANY ONLY
S-2 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of Trenwick Group Inc.
Our audits of the consolidated financial statements referred to in our report dated January 27, 1997, appearing on Page 43 of the 1996 Annual Report to Stockholders of Trenwick Group Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in Item 14 (a) of this Form 10-K. In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
Price Waterhouse LLP
New York, New York January 27, 1997
S-3


ITEM 1. BUSINESS
(a) General Development of Business
Bowl America Incorporated (herein referred to as the Company) was incorporated in 1958. The Company commenced business with one bowling center in 1958, and at the end of the past fiscal year, the Company and its wholly- owned subsidiaries operated 25 bowling centers. It is in the process of enlarging its bowling center in Dranesville, Virginia from 32 lanes to 48 lanes. The Company's bowling center in Silver Hill, Maryland was closed in May 1995 as a result of its condemnation in conjunction with the expansion of the Metro Subway System. The Company is seeking other new bowling locations.
(b) Financial Information about Industry Segments
The Company has no segments in different industries. Its principal source of revenue consists of fees charged for the use of bowling lanes and other facilities and from the sale of food and beverages for consumption on the premises. Merchandise sales, including food and beverages, were approximately 31% of operating revenues. The balance of operating revenues (approximately 69%) represents fees for bowling and related services.
(c) Narrative Description of Business
As of September 1, 1996 the Registrant and its subsidiaries operated 14 bowling centers in the greater metropolitan area of Washington, D.C., three bowling centers in the greater metropolitan area of Baltimore, Maryland, two bowling centers in the greater metropolitan area of Orlando, Florida, three bowling centers in the greater metropolitan area of Jacksonville, Florida, and three bowling centers in the greater metropolitan area of Richmond, Virginia. These 25 bowling centers contain a total of 936 lanes. When the expansion of the Dranesville center is completed, the 25 bowling centers will contain 952 lanes. These establishments are fully air-conditioned with facilities for service of food and beverages, game rooms, rental lockers, and playroom facilities. All centers provide shoes for rental, and bowling balls are provided free. In addition, each center retails bowling acessories. The bowling equipment essential for the Company's operation is readily available. The major source of its equipment is Brunswick Corporation. The bowling business is a seasonal one, and most of the business takes place from October through May. It is highly competitive, but the Company has managed to maintain its position in the field. The principal method of competition is the quality of service furnished to the Company's customers. Its primary competitors are two large bowling equipment manufacturers, Brunswick Corporation and AMF, Inc. Compliance with federal, state and local environmental protection laws has not materially affected the Company. The number of persons employed by the Company and its subsidiaries is approximately 800.
(d) Foreign Operations
The Company has no foreign operations.
ITEM 2.

ITEM 2. PROPERTIES
The Company's general offices are located at 6446 Edsall Road, Alexandria, Virginia 22312. Nine of the Company's bowling centers are located in leased premises, and the remaining sixteen centers (including the new center in Gaithersburg, Maryland) are owned by the Company. The Company's leases, giving effect to option renewal periods, expire from 1997 through 2014 and the remainder there- after. In addition to the above, there is one ground lease which expires in 2058. The specific locations of the bowling centers are discussed under Item 1 (c).
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings other than ordinary routine litigation incidental to the business. There were no legal proceedings terminated during the fourth quarter ended June 30, 1996.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter ended June 30, 1996.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The information set forth in the section entitled "Market Information", "Holders", and "Dividends" on page 3 of the Company's June 30, 1996 Annual Report is incorporated by reference herein.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The information set forth in the section entitled "Selected Financial Data" on page 3 of the Company's June 30, 1996 Annual Report is incorporated by reference herein.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information set forth in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 2 of the Company's June 30, 1996 Annual Report is incorporated by reference herein.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and related notes thereto, the Independent Auditors' Report and the Selected Quarterly Financial Data (unaudited), as contained on pages 4 through 10 of the Company's June 30, 1996 Annual Report, are incorporated by reference herein.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item regarding directors is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) of Form 10-K, the information called for by this item is hereby incorporated by reference from the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a)1. Financial Statements
The following consolidated financial statements of Bowl America Incorporated and its subsidiaries are incorporated by reference in Part II, Item 8:
Independent auditors' report Consolidated balance sheets - June 30, 1996 and July 2, 1995 Consolidated statements of earnings - years ended June 30, 1996, July 2, 1995, and July 3, 1994 Consolidated statements of stockholders' equity - years ended June 30, 1996, July 2, 1995, and July 3, 1994 Consolidated statements of cash flows - years ended June 30, 1996, July 2, 1995, and July 3, 1994 Notes to the consolidated financial statements - years ended June 30, 1996, July 2, 1995, July 3, 1994
(a)2. Exhibits:
1. Subsidiaries of registrant
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K with respect to the extension of the employment contract with Leslie H. Goldberg, President, for the period from July 1, 1996 to June 30, 1997.
BOWL AMERICA INCORPORATED
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BOWL AMERICA INCORPORATED
Leslie H. Goldberg Leslie H. Goldberg President and Principal Executive & Operating Officer
Date: September 26, 1996
Ruth Macklin Ruth Macklin Senior Vice President-Treasurer
Date: September 26, 1996
Cheryl A. Dragoo Cheryl A. Dragoo Assistant Treasurer and Controller Principal Accounting Officer
Date: September 26, 1996
BOWL AMERICA INCORPORATED
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and the dates indicated.
Name, Title, Capacity
Leslie H. Goldberg Leslie H. Goldberg President, Principal Executive & Operating Officer & Director
Date: September 26, 1996
Ruth Macklin Howard Katzman Ruth Macklin Howard Katzman Senior Vice President-Treasurer Senior Vice President-Secretary and Director and Director
Date: September 26, 1996 Date: September 26, 1996
Joan Sobkov A. Joseph Levy Joan Sobkov A. Joseph Levy Director Director
Date: September 26, 1996 Date: September 26, 1996
Warren T. Braham Merle Fabian Warren T. Braham Merle Fabian Director Director
Date: September 26, 1996 Date: September 26, 1996
Milton Lyons Milton Lyons Director
Date: September 26, 1996


Item 1. Business.
This Annual Report on Form 10-K relates to the Beneficial Home Equity Loan Trust 1996-1 (the "Trust"), a fund formed pursuant to a Pooling and Servicing Agreement, dated as of April 1, 1996 (the "Pooling and Servicing Agreement"), by and among Beneficial Mortgage Corporation, as master servicer and depositor (the "Master Servicer" and "Depositor"), and The Chase Manhattan Bank (National Association), acting thereunder not in its individual capacity but solely as trustee. The Trust, which is the issuer of the Certificates, became subject to the reporting requirements under Section 13 of the Securities Exchange Act of 1934, as amended, when the Registration Statement on Form S-11 (No.333-1614) (the "Registration Statement"), filed by the Depositor on behalf of the Trust, became effective.
Capitalized terms used herein and not defined have the same meanings ascribed to such terms in the Pooling and Servicing Agreement.
This Annual Report on Form 10-K is being filed by the Master Servicer, in its capacity as such under the Pooling and Servicing Agreement, on behalf of the Trust. The information reported and contained herein has been prepared by the Master Servicer, pursuant to the Pooling and Servicing Agreement.
Item 2.

Item 2. Properties.
Not applicable.
Item 3.

Item 3. Legal Proceedings.
The Master Servicer is not aware of any material pending legal proceedings involving the Trust, the Home Equity Loans comprising the Trust or the Trustee or the Master Servicer with respect to or affecting their respective duties under the Pooling and Servicing Agreement.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders.
No matter has been submitted to a vote of the Certificateholders through the solicitation of proxies or otherwise.
PART II
Item 5.

Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
As of December 31, 1996, Cede & Co., the nominee of the Depository Trust Company ("DTC"), was the only holder of record of the Class A Certificates, the Class M Certificates and the Class B Certificates. DTC holds the Certificates for the accounts of others. To the Master Servicer's knowledge, as of that date, there was no principal market in which the Certificates representing an equity interest in the Trust were traded.
Item 6.

Item 6. Selected Financial Data.
Not applicable.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Not applicable.
Item 8.

Item 8. Financial Statements and Supplementary Data.
Not applicable.
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
PART III
The information required by Items 10, 11, 12 and 13 is not applicable as the Trust does not have directors or officers and Certificateholders have no right to vote (except with respect to required consents to certain amendments to the Pooling and Servicing Agreement and upon certain events of default) or control the Trust.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) (1) Financial Statements
Not applicable.
(2) Financial Statement Schedules
Not applicable.
(3) Exhibits
99.1 Servicer's Annual Statement of Compliance for the period ended 12/31/96.
99.2 Servicer's Independent Auditor's Report of Servicer's Servicing Activities.
(b) Current Reports on Form 8-K for the Trust were filed on November 29, 1996 and December 30, 1996 during the quarter ended December 31, 1996.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on behalf of Beneficial Home Equity Loan Trust 1996-1 by the undersigned, thereunto duly authorized.
BENEFICIAL HOME EQUITY LOAN TRUST 1996-1 Registrant
By:Beneficial Mortgage Corporation (Depositor and Master Servicer)
By: /s/ Richard J. Zak Richard J. Zak Vice President (Chief Accounting Officer)
March 26, 1997
EXHIBIT INDEX
Exhibit Exhibit Number
99.1 Servicer's Annual Statement of Compliance
99.2 Servicer's Independent Auditor's Report of Servicer's Servicing Activities.
Exhibit 99.1
Servicer's Annual Statement of Compliance
OFFICER'S CERTIFICATE
This certificate pertains to the obligations of Beneficial Mortgage Corporation (BMC), as Master Servicer, under the terms of the Pooling and Servicing Agreement (P&S Agreement) dated April 1, 1996, by and among BMC, as depositor and master servicer, and The Chase Manhattan Bank (National Association), as trustee pursuant to which the Beneficial Home Equity Loan Asset Backed Certificates, Series 1996-1, were issued on April 30, 1996.
I certify that a review of the activities of BMC as Master Servicer during the year ended December 31, 1996 and of it performance under the P&S Agreement have been made under my supervision and to the best of my knowledge, based on such review, BMC has fulfilled all of its material obligations under the P&S Agreement for the year.
/S/ Richard J. Zak Richard J. Zak Vice President - Principal Accounting Officer Beneficial Mortgage Corporation
March 26, 1997
Exhibit 99.2
Servicer's Independent Auditor's Report on Servicer's Servicing Activity
To the Board of Directors of Beneficial Mortgage Corporation
We have examined the accompanying management's assertion about Beneficial Mortgage Corporation's compliance with the minimum servicing standards identified in the Mortgage Bankers Association of America's Uniform Single Attestation Program for Mortgage Bankers (USAP) as of and for the period ended December 31, 1996, which is required by the Pooling and Servicing Agreement dated as of April 1, 1996 between Beneficial Mortgage Corporation, as depositor and master servicer, and The Chase Manhattan Bank (National Association), as trustee, pursuant to which the Beneficial Home Equity Loan Asset Backed Certificates, Series 1996-1 were issued. Management is responsible for Beneficial Mortgage Corporation's compliance with those minimum servicing standards. Our responsibility is to express an opinion on management's assertion about the entity's compliance based upon our examination.
Our examination was made in accordance with standards established by the American Institute of Certified Public Accountants and, accordingly, included examining, on a test basis, evidence about Beneficial Mortgage Corporation's compliance with the minimum servicing standards and performing such other procedures as we considered necessary in the circumstances. We believe that our examination provides a reasonable basis for our opinion. Our examination does not provide a legal determination on Beneficial Mortgage Corporation's compliance with the minimum servicing standards.
In our opinion, management's assertion that Beneficial Mortgage Corporation complied with the aforementioned minimum servicing standards as of and for the year ended December 31, 1996 is fairly stated, in all material respects.
This report is intended solely for the information and use of the Board of Directors and the management of Beneficial Mortgage Corporation and The Chase Manhattan Bank (National Association) and should not be used of any other purpose.
DELOITTE AND TOUCHE LLP
Parsippany, New Jersey March 20, 1997
MANAGEMENT'S ASSERTION
Beneficial Mortgage Corporation, an indirect wholly- owned subsidiary of Beneficial Corporation (the "Company"), has compiled in all material respects with the minimum servicing standards set forth in the Mortgage Bankers Association of America's Uniform Single Attestation Program for Mortgage Bankers as of and for the period ended December 31, 1996, which is required by the Pooling and Servicing Agreement dated as of April 1, 1996 between Beneficial Mortgage Corporation, as depositor and master servicer, and The Chase Manhattan Bank (National Association), as trustee, pursuant to which the Beneficial Home Equity Loan Asset Backed Certificates, Series 1996-1 were issued. As of and for this same period, the Company had in effect a fidelity bond and errors and omissions policy in the amount of $35,000,000.
/S/ Richard J. Zak Richard J. Zak Vice President and Chief Accounting Officer
March 20, 1997