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A. The Chartwell Transaction

In chronological order, the complaint first challenges the Chartwell transaction.

The allegations involving the Chartwell transaction are cursory. Essentially they involve

the notion that it was a dumb business decision for Trenwick to merge with Chartwell.

Specifically, the complaint alleges that:

In this connection, the complaint alleges that Trenwick conducted “due diligence” on Chartwell, including receiving an actuarial analysis by defendant Milliman, Inc., a well-known actuarial firm. That due diligence stimulated the requirement that Chartwell buy the $100 million coverage; :

: In connection with that, Trenwick caused its Trenwick America subsidiary (which conducted its American reinsurance operations) to pledge its assets as security for the credit facility. The key Chartwell subsidiary’s assets were already pledged, but the Litigation Trust complains that its assets were also pledged to cover its own debt and that Trenwick America

was therefore the parent Trenwick

most likely entity to have under the credit facility.

to make good on a According to the

default by Litigation

Trust, Trenwick America derived no benefit from the pledge or Chartwell transaction. This allegation, of course, ignores the fact that stock of Trenwick America was wholly-owned by Trenwick, which decided that the Chartwell acquisition was good for Trenwick.

the the had

  • : Despite the fact that the losses at Chartwell exceeded the $100 million policy, Trenwick claimed in an amended 10-K in August 2000 that the “acquisition of Chartwell provided Trenwick with additional cost-effective means of augmenting capital, accelerating premium growth and added structural platforms for expansion.”24 Trenwick also estimated that it would achieve operating synergies as a result of the Chartwell merger of between $15-25 million in 2000 and 2001, respectively. Because of the problems that Chartwell was already experiencing as of that time, the Litigation Trust


¶ 72.


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