“Tower is also progressing well with our proposed merger transaction with the Bermuda reinsurance business of Canopius. We received all the necessary regulatory approvals and anticipate that we will be able to complete this transaction by the end of the first quarter of 2013 subject to shareholder approval. This merger will create a new global holding company that will provide us with access to the world’s three key insurance markets – the U.S., Bermuda and London. The new holding company in Bermuda will give us an efficient business platform to continue expanding our assumed reinsurance and specialty business in the future. Finally, we saw positive pricing trends across all of our product lines last year, and we expect these conditions to continue during 2013. As a result of our progress in advancing our long-term strategy, including the Canopius transaction, as well as the positive signs we are observing in the marketplace, we believe we are on track to return to profitability in 2013.”
Superstorm Sandy Impact
On October 29, 2012, Superstorm Sandy made landfall in New Jersey and caused significant property damages, with total property-casualty insurance industry losses estimated at $25 billion. Tower’s pre-tax net loss from Superstorm Sandy was $123.2 million, including $101.0 million in net losses incurred in Tower’s direct and reinsurance businesses, $18.0 million in reinstatement premiums and $4.2 million in losses from Tower’s investment in Canopius, but excluding $11.2 million in pre-tax losses and reinstatement premiums from the reciprocal exchanges. Tower’s after-tax net losses were $80.1 million, including $77.4 million in net losses incurred and reinstatement premiums in Tower’s direct and reinsurance businesses and $2.7 million in losses from Tower’s investment in Canopius, but excluding $7.2 million in after-tax losses and reinstatement premiums from the reciprocal exchanges.
On February 21, 2013, the NY Department of Financial Services (DFS) announced that it was investigating certain insurers, including one of Tower’s insurance company subsidiaries, for unacceptable claims practices in New York related to Superstorm Sandy. In connection with such investigation, the DFS issued an Insurance Law Section 308 letter to Tower, which is a request for information to which insurers are legally required to respond. Tower is cooperating with the DFS and believes that any allegations in this matter do not constitute a pattern or practice of Tower and will not have a material adverse effect on Tower’s financial condition or results of operations.