Tower Group, Inc. (NASDAQ: TWGP) today reported net income available to common shareholders of $26.8 million and diluted earnings per share of $0.67 for the fourth quarter 2011, as compared to $36.6 million, or $0.88 per share in the fourth quarter of 2010. For the full year, net income available to common shareholders was $60.2 million or $1.47 per diluted share compared to $103.9 million or $2.38 per diluted share in 2010.
Operating income (1) and operating earnings per share (1) were $25.0 million and $0.63 for the fourth quarter of 2011, respectively, as compared to $33.3 million and $0.80 per share in the fourth quarter of 2010. For the full year, operating income and operating earnings per share were $56.0 million and $1.37, respectively, as compared to $97.2 million or $2.23 per share in 2010. Operating income in the full year 2011 included after-tax catastrophe storm losses of $48.3 million or $1.18 per diluted share compared to $12.0 million or $0.27 per diluted share for the full year 2010.
Key Highlights (all percentage increases compare the fourth quarter and the full year 2011 results to the corresponding periods in 2010 except as noted otherwise):
- Gross premiums written and produced (2) were $434.3 million in the fourth quarter and $1.8 billion for the full year. This represents an increase of 21.0% for full year 2011 compared to full year 2010.
- For the combined insurance segments, the net combined ratio was 98.2% in the fourth quarter of 2011 compared to 95.1% for the same period last year. (Excluding the business that we manage on behalf of the reciprocal exchanges, the net combined ratio was 97.3% for the fourth quarter of 2011.) For the full year the net combined ratio was 100.3% compared to 96.4% in 2010. (Excluding the business that we manage on behalf of the reciprocal exchanges, the net combined ratio was 100.8% for the full year 2011.)
- In the fourth quarter 2011, the net loss ratio was 64.9% compared to 59.9% for the same period last year. For the full year, the net loss ratio was 66.2% compared to 60.7% in 2010. In the fourth quarter 2011, the Company experienced $15 million of favorable development from Hurricane Irene claims and elected to strengthen the 2011 accident year loss reserves by $15 million. We also experienced $7 million in losses associated with the October 2011 snow storm.
- In the fourth quarter 2011, the net expense ratio (3) was 33.3% compared to 35.2% for the same period last year. For the full year, the net expense ratio was 34.1% compared to 35.7% in 2010.
- Net investment income increased by 8.0% to $32.1 million for the fourth quarter and by 20.3% to $127.6 million for the full year.
- The effective tax rate was 15.9% in the fourth quarter (20.4% excluding the reciprocal exchanges) and 25.9% for the year (27.1% excluding the reciprocal exchanges), a decrease of 19.3 points and 7.8 points (14.9 points and 6.7 points excluding the reciprocals), respectively. The reduced tax rate is due to a modestly higher amount of tax preferenced investment income applied against a lower earnings base.
- Book value per share (4) of $26.37 at December 31, 2011 represents an increase of 4.7% since year end 2010. The company paid dividends of $0.69 per share in 2011.
- Tower Group, Inc. stockholders’ equity was $1,034.1 million as of December 31, 2011, as compared to $1,045.0 million as of December 31, 2010. During the year ended December 31, 2011, Tower Group, Inc. repurchased 2.9 million shares of its Common Stock for an aggregate purchase price of $64.6 million pursuant to its share repurchase program and paid $27.9 million in dividends on its common stock.
Michael H. Lee, President and Chief Executive Officer of Tower Group, Inc., stated “During the fourth quarter, we continued to see positive trends in our business, especially from the organic growth we generated from our newly created Assumed Reinsurance and Customized Solutions business units. We also began to see favorable pricing trends in certain lines of business, including homeowners, commercial property and workers compensation. We expect these favorable pricing trends to continue into 2012. For the full year, while we are disappointed with the negative impact on our earnings due to the losses from Hurricane Irene and other severe weather related events, we are otherwise pleased with our overall operating results and encouraged by the progress that we made with regard to some of our long term business objectives. In particular, we expanded our product offerings, improved existing business units and created new business units to generate organic growth. In addition, we are pleased with the progress that we made with some significant technology projects, including our personal lines platform redesign, which we plan to introduce during the early part of this year. As we enter 2012, we are cautiously optimistic due to the improved pricing environment and the continued benefits from our organic growth initiatives.”
|Financial Summary ($ in thousands, except per share data):|
|Three Months Ended||Year Ended|
|December 31,||December 31,|
|Gross premiums written||$||434,261||$||433,860||$||1,810,923||$||1,496,371|
|Net premiums written||380,873||384,667||1,638,590||1,314,064|
|Total commission and fee income||11,660||11,336||46,072||46,492|
|Net investment income||32,062||29,690||127,649||106,090|
|Net realized investment gains (losses)||4,121||5,860||9,394||13,483|
|Net income attributable to Tower Group, Inc.||26,831||36,633||60,198||103,890|
|Earnings per share—Basic||$||0.68||$||0.88||$||1.47||$||2.39|
|Earnings per share—Diluted||$||0.67||$||0.88||$||1.47||$||2.38|
|Return on average equity||10.3||%||14.1||%||5.8||%||10.0||%|
|Combined Commercial and Personal Segments|
|Net premiums earned||407,078||372,877||1,593,850||1,292,669|
|Net loss ratio||64.9||%||59.9||%||66.2||%||60.7||%|
|Net expense ratio||33.3||%||35.2||%||34.1||%||35.7||%|
|Commercial Insurance Segment|
|Net premiums earned||282,295||239,856||1,087,911||941,015|
|Net loss ratio||65.1||%||66.5||%||67.7||%||62.6||%|
|Net expense ratio||30.2||%||27.4||%||31.5||%||33.1||%|
|Personal Insurance Segment|
|Net premiums earned||124,783||133,021||505,939||351,654|
|Net loss ratio||64.4||%||48.1||%||63.0||%||55.4||%|
|Net expense ratio||40.3||%||49.2||%||39.7||%||42.5||%|
|Reconciliation of non-GAAP financial measures:|
|Net income attributable to Tower Group, Inc.||26,831||$||36,633||$||60,198||$||103,890|
|Net realized gains (losses) on investments||4,121||5,860||9,394||13,483|
|Acquisition-related transaction costs||77||(971||)||(360||)||(2,369||)|
|Less: net realized gains (losses) on investments related to Reciprocal Exchanges||(1,386||)||682||(2,414||)||257|
|Operating income attributable to Tower Group, Inc.||$||25,035||$||33,281||$||56,048||$||97,155|
|Operating earnings per share—Basic||$||0.63||$||0.80||$||1.37||$||2.24|
|Operating earnings per share—Diluted||$||0.63||$||0.80||$||1.37||$||2.23|
|Operating return on average equity||9.6||%||12.8||%||5.4||%||9.4||%|