Tower Group, Inc. (NASDAQ: TWGP) today reported net loss attributable to common shareholders in the third quarter of 2011 of $16.4 million, or ($0.40) per diluted share. Net income attributable to common shareholders in the third quarter of 2010 was $28.6 million, or $0.66 per diluted share.
Operating loss (1) was $15.3 million in the third quarter of 2011, or ($0.38) per diluted share compared to operating income of $27.9 million in the third quarter of 2010, or $0.65 per diluted share. The 2011 operating loss included catastrophe losses from Hurricane Irene of $60.1 million ($39.1 million after-tax, or $0.96 per diluted share). In addition, as a result of the Company's regular review of reserves in the third quarter of 2011, including the reserves of the companies acquired during the last few years, the Company recorded a pretax net increase to loss reserves of $9.7 million ($6.3 million after-tax or $0.15 per diluted share) as a result of increases in the Commercial segment of $23.5 million partially offset by favorable development in the Personal segment of $13.8 million. The pre-tax net increase to loss reserves included $10.7 million in increases from certain programs that the Company discontinued in 2010 and early 2011.
In October 2010, the Financial Accounting Standards Board issued new guidance concerning the accounting for costs associated with acquiring or renewing insurance contracts. Under the new guidance, only direct incremental costs associated with successful insurance contract acquisitions or renewals are deferrable. Tower adopted this guidance early, effective January 1, 2011, and has retrospectively adjusted its previously issued financial information, reducing previously reported diluted earnings per share for the third quarter 2010 by $0.12 per share.
Highlights (all figures compare third quarter 2011 results to the results for the same period in 2010 except as noted):
- Gross premiums written increased by 16.0% to $519.1 million.
- For the combined insurance segments, the net combined ratio rose to 109.9% from 96.8%. (Excluding the business that Tower manages on behalf of the Reciprocal Exchanges, the net combined ratio was 112.0% for the third quarter of 2011.)
- The net loss ratio increased to 75.0% from 61.1%. The net loss ratio excluding the Reciprocal Exchanges increased to 77.6% from 59.1%. The catastrophe losses added 16.1 points to the third quarter 2011 net loss ratio, and 16.4 points to the third quarter 2011 net loss ratio excluding the Reciprocal Exchanges
- The net expense ratio improved to 34.9% from 35.7%.
- Net investment income increased 7.2% to $31.4 million.
- Book value per share was $25.42 at September 30, 2011 compared to $25.19 at December 31, 2010. During the quarter, Tower paid cash dividends of 18.75 cents per share, and year to date Tower has paid cash dividends of 50 cents per share.
- Tower Group, Inc. stockholders’ equity was $1.0 billion at September 30, 2011.
Financial Summary ($ in thousands, except per share data):
|Three Months Ended||Nine Months Ended|
|September 30,||September 30,|
|Gross premiums written||$||519,130||$||447,599||$||1,376,662||$||1,062,511|
|Net premiums written||468,704||389,661||1,257,717||929,397|
|Total commission and fee income||10,210||13,928||34,412||35,156|
|Net investment income||31,411||29,294||95,587||76,400|
|Net realized investment gains||227||1,717||5,273||7,623|
|Net income (loss) attributable to Tower Group, Inc.||(16,439||)||28,563||33,367||67,257|
|Earnings (loss) per share—Basic||$||(0.40||)||$||0.67||$||0.82||$||1.52|
|Earnings (loss) per share—Diluted||$||(0.40||)||$||0.66||$||0.81||$||1.52|
|Return on average equity||(-6.3||%)||11.3||%||4.3||%||8.9||%|
|Combined Commercial and Personal Segments|
|Net premiums earned||$||413,447||$||378,779||$||1,186,772||$||919,792|
|Net loss ratio||75.0||%||61.1||%||66.7||%||61.0||%|
|Net expense ratio(2)||34.9||%||35.7||%||34.4||%||35.9||%|
|Commercial Insurance Segment|
|Net premiums earned||$||290,113||$||237,584||$||805,616||$||701,159|
|Net loss ratio||76.4||%||62.4||%||68.6||%||61.3||%|
|Net expense ratio||32.5||%||34.8||%||32.0||%||35.1||%|
|Personal Insurance Segment|
|Net premiums earned||$||123,334||$||141,195||$||381,156||$||218,633|
|Net loss ratio||71.8||%||58.9||%||62.6||%||59.8||%|
|Net expense ratio||40.6||%||37.1||%||39.5||%||38.4||%|
|Reconciliation of non-GAAP financial measures:|
|Net income (loss) attributable to Tower Group, Inc.||$||(16,439||)||$||28,563||$||33,367||$||67,257|
|Less: net realized gains (losses) on investments attributable to Tower Group, Inc.||(1,135||)||1,292||4,245||7,198|
|Add: acquisition-related transaction costs||(425||)||(148||)||(437||)||(1,398||)|
|Add: income tax effects on above items||428||(441||)||(1,454||)||(2,417||)|
|Operating income (loss) attributable to Tower Group, Inc.||$||(15,307||)||$||27,860||$||31,013||$||63,874|
|Operating earnings (loss) per share—Basic||$||(0.38||)||$||0.65||$||0.75||$||1.45|
|Operating earnings (loss) per share—Diluted||$||(0.38||)||$||0.65||$||0.75||$||1.44|
|Operating return on average equity||(-5.9||%)||11.0||%||4.0||%||8.4||%|
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