Tower Group Reports Third Quarter Results

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.

Michael H. Lee, President and Chief Executive Officer of Tower Group, Inc., said, “Irene delivered the single largest loss event in our twenty-year history, and led to our first quarterly loss since going public in 2004. In addition, we conducted a comprehensive review of our loss and loss expense reserves, including the reserves of the companies that we have acquired during the last few years. Based on this review, we made an adjustment to our reserves to reflect adverse development in commercial lines, including certain discontinued program business, which was partially offset by a release in reserves from the personal lines business. Despite these losses, we continue to see great strength in our core business, as reflected by the favorable combined ratio excluding these losses, strong organic growth from the newly created businesses, positive pricing trends and our declining expense ratio. During the quarter, we also implemented a product innovation initiative to identify and develop new products in profitable market segments. As part of this initiative, we strengthened our business development, product development and marketing capabilities by making several key senior-level hires. As a result of this initiative and the success of the newly created business units, we expect to generate strong organic growth for the remainder of this year and throughout next year.”
 

Financial Summary ($ in thousands, except per share data):
    Three Months Ended   Nine Months Ended
September 30, September 30,
2011   2010 2011   2010
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
Total revenues 455,295 423,718 1,322,044 1,038,971
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 %
 

Third Quarter 2011 Highlights

Consolidated

Gross premiums written increased to $519.1 million in the third quarter, 16.0% higher than in the third quarter of 2010. Excluding programs, policies in-force decreased by 8.2% as of September 30, 2011, compared to September 30, 2010. The decline resulted from Tower’s decision to not renew certain business obtained in the OneBeacon Personal Lines (OBPL) acquisition.

On a consolidated basis, Tower achieved overall premium increases of 1.4% excluding programs across its renewed Commercial and Personal policies. The overall retention rate was 87.6% in the third quarter of 2011, up from 84.8% in the second quarter this year.

The net loss ratio was 75.0% for the three months ended September 30, 2011, compared to 61.1% for the same period in 2010. 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 2011 third quarter net loss ratio excluding the Reciprocal Exchanges.

Tower’s net expense ratio, at 34.9% for the three months ended September 30, 2011, was an improvement from the 35.7% during the same period in 2010. (Excluding the business that Tower manages on behalf of the Reciprocal Exchanges, the net expense ratio was 34.4% for the third quarter of 2011.)

Net investment income increased 7.2% to $31.4 million for the three months ended September 30, 2011, up from $29.3 million for the same period in 2010. The tax equivalent investment yield of the company’s fixed maturity portfolio at amortized cost was 4.6% at September 30, 2011, compared to 5.1 % at September 30, 2010. Net realized investment gains were $0.2 million for the three months ended September 30, 2011, compared to $1.7 million in the same period last year. The third quarter investment gain included other-than-temporary impairment losses of $3.0 million, primarily from equity securities, an improvement from the $5.0 million of such losses in the third quarter of 2010, primarily from structured fixed income securities.

Total commission and fee income decreased to $10.2 million in the third quarter of 2011 compared to $13.9 million in the third quarter of 2010.

Interest expense increased by $2.4 million for the three months ended September 30, 2011, compared to the same period in 2010. Increase in the interest expense was due to issuance of convertible senior notes in 2010.

Commercial Lines

Gross written premiums increased 31.4% in the third quarter 2011 compared to the same period in 2010. The growth was primarily due to the new initiatives in Tower’s customized solutions and assumed reinsurance businesses as well as the renewal rights transactions entered into in November 2010 and January 2011 for commercial automobile and workers' compensation.

For the three months ended September 30, 2011, premiums on renewed Commercial Insurance business excluding programs increased 1.3% compared to the same period in 2010. The Commercial Insurance business renewal retention rate, excluding programs, was 76.8%, slightly down from 77.4% in the second quarter of 2011.

Personal Lines

On a combined basis (including Tower Personal Insurance and business that is managed on behalf of the Reciprocal Exchanges), gross written premiums were $152.4 million in the third quarter, down 9.5% from $168.5 million in the same period last year, mostly due to Tower’s decision to not renew certain business obtained in the OBPL acquisition offset by modest organic growth in the homeowners business. Gross written premium of the Reciprocal Exchanges was $54.6 million, or 35.8% of the total premium in the segment.

Premiums on renewed personal lines policies increased 1.6%, on average, during the third quarter of 2011, while the retention rate rose to 89.8%, up from 86.5% in the second quarter of 2011.

Insurance Services

Insurance Services provides underwriting, claims and policy administration services to insurance companies, primarily the Reciprocal Exchanges which Tower consolidates in its financial statements, but does not own. Tower receives management fee income for the services provided to the Exchanges, which totaled $7.6 million in the third quarter of 2011. Tower does not bear underwriting risk on this business.

Additional Highlights and Disclosures

Dividend Declaration

Tower’s Board of Directors approved a quarterly dividend on November 3, 2011, of 18.75 cents per share payable on December 27, 2011, to stockholders of record as of December 16, 2011.

Notes on Non-GAAP Financial Measures

   

1)
 

Operating income (loss) excludes realized gains and losses, acquisition-related transaction costs and the results of the reciprocal business, net of tax. Operating income (loss) is a common measurement for property and casualty insurance companies. We believe this presentation enhances the understanding of our results of operations by highlighting the underlying profitability of our insurance business. Additionally, these measures are a key internal management performance standard. Operating earnings (loss) per share is operating income (loss) divided by diluted weighted average shares outstanding. Operating return on equity is annualized operating income (loss) divided by average common stockholders' equity.

2)

The gross and net underwriting expense ratios include fees paid by the Reciprocal Exchanges to Tower in excess of Tower's direct costs to service the management service agreements. These fees increased the gross and net expense ratios by 0.6% for the three months ended September 30, 2011, and increased the gross and net expense ratios by 0.5% and 0.6%, respectively, for the nine months ended September 30, 2011. These fees increased the gross and net expense ratios by 0.9% and 1.0%, respectively, for the three months ended September 30, 2010.

Conference Call

Tower will host a conference call to discuss these results on Tuesday, November 8, 2011 at 9:00 a.m. ET. A PowerPoint slide presentation will accompany the prepared remarks, which Tower will post, along with a recording of the conference call, in the investor relations section of Tower Group, Inc.’s website at www.twrgrp.com. To listen, please visit the Investor Information section of www.twrgrp.com, or use this link: http://investor.twrgrp.com/events.cfm

Please access the website at least 15 minutes prior to the call to register and download any necessary audio software.

Cautionary Note Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. This press release and any other written or oral statements made by or on behalf of Tower may include forward-looking statements that reflect Tower's current views with respect to future events and financial performance. All statements other than statements of historical fact included in this press release are forward-looking statements. Forward-looking statements can generally be identified by the use of forward-looking terminology such as "may," "will," "plan," "expect," "project," "intend," "estimate," "anticipate," "believe" and "continue" or their negative or variations or similar terminology. All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause the actual results of Tower to differ materially from those indicated in these statements. Please refer to Tower’s filings with the SEC, including among others Tower’s Annual Report on Form 10-K for the year ended December 31, 2010 and subsequent filings on Form 10-Q, for a description of the important factors that could cause the actual results of Tower to differ materially from those indicated in these statements. Forward-looking statements speak only as of the date on which they are made, and Tower undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

About Tower Group, Inc.

Tower Group Companies is one of the 50 largest providers of property and casualty insurance products and services in the U.S. Through its insurance company subsidiaries, Tower (NASDAQ: TWGP) provides personal and commercial insurance for small to medium-sized businesses through its network of retail and wholesale agents across the country. Tower also offers specialty insurance products through a national network of program underwriting agents.

Tower has changed the presentation of its business results, beginning July 1, 2010, by allocating the personal insurance business previously reported in either the Brokerage Insurance or Specialty Business segments along with the newly acquired OBPL business to a new Personal Insurance segment and merged the commercial business previously reported in either the Brokerage Insurance or Specialty Business segments in a new Commercial Insurance segment.

Tower has retained its Insurance Services segment, which will include fees earned by management companies acquired as a part of the OBPL transaction. This change in presentation reflects the way management organizes the segments for making operating decisions and assessing profitability subsequent to the OBPL acquisition. This has resulted in the reporting of three operating segments. The prior period segment disclosures have been restated to conform to the current presentation. Following the change in presentation described above, Tower now operates three business segments:

Commercial Insurance Segment offers a broad range of commercial lines property and casualty insurance products to small to mid-sized businesses distributed through a network of retail and wholesale agents on both an admitted and non-admitted basis. This segment also includes reinsurance solutions provided primarily to small insurance companies;

Personal Insurance Segment offers a broad range of personal lines property and casualty insurance products to individuals distributed through a network of retail and wholesale agents; and

Insurance Services Segment provides underwriting and claims services to insurance companies.

For more information, visit Tower's website at http://www.twrgrp.com/
 
Commercial Insurance & Personal Insurance Combined
($ in thousands)
(Unaudited)
   
Three Months Ended Nine Months Ended
September 30, September 30,
2011     2010   2011     2010  
Revenues
Premiums earned
Gross premiums earned $ 459,236 $ 441,919 $ 1,328,996 $ 1,084,675
Less: ceded premiums earned (45,789 ) (63,140 ) (142,224 ) (164,883 )
Net premiums earned 413,447 378,779 1,186,772 919,792
Ceding commission revenue 6,967 10,916 25,803 29,557
Policy billing fees 2,830   1,896   7,667   3,677  
Total revenues 423,244 391,591 1,220,242 953,026
Expenses
Loss and loss adjustment expenses
Gross loss and loss adjustment expenses 413,583 265,766 924,774 652,996
Less: ceded loss and loss adjustment expenses (103,546 ) (34,303 ) (133,715 ) (92,328 )
Net loss and loss adjustment expenses 310,037   231,463   791,059   560,668  
Underwriting expenses
Direct commission expense 80,150 81,050 233,066 197,524
Other underwriting expenses 74,050   66,832   208,518   165,623  
Total underwriting expenses 154,200   147,882   441,584   363,147  
Underwriting profit (loss) $ (40,993 ) $ 12,246   $ (12,401 ) $ 29,211  
 
Key Measures
Premiums written
Gross premiums written $ 519,130 $ 447,599 $ 1,376,662 $ 1,062,511
Less: ceded premiums written (50,426 ) (57,938 ) (118,945 ) (133,114 )
Net premiums written $ 468,704   $ 389,661   $ 1,257,717   $ 929,397  
 
Calendar Year Loss Ratios
Gross 90.1 % 60.1 % 69.6 % 60.2 %
Net 75.0 % 61.1 % 66.7 % 61.0 %
Underwriting Expense Ratios
Gross(2) 33.0 % 33.0 % 32.6 % 33.1 %
Net(2) 34.9 % 35.7 % 34.4 % 35.9 %
Combined Ratios
Gross 123.1 % 93.1 % 102.2 % 93.3 %
Net 109.9 % 96.8 % 101.1 % 96.9 %

 
Commercial Insurance Segment Information
($ in thousands)
(Unaudited)
  Three Months Ended   Nine Months Ended
September 30, September 30,
2011   2010 2011   2010
Revenues
Premiums earned
Gross premiums earned $ 310,029 $ 272,375 $ 872,558 $ 825,105
Less: ceded premiums earned (19,916 ) (34,791 ) (66,942 ) (123,946 )
Net premiums earned 290,113 237,584 805,616 701,159
Ceding commission revenue 1,455 9,239 10,183 27,809
Policy billing fees 1,195   721   3,073   2,011  
Total revenues 292,763 247,544 818,872 730,979
Expenses
Loss and loss adjustment expenses
Gross loss and loss adjustment expenses 291,472 172,908 634,907 510,418
Less: ceded loss and loss adjustment expenses (69,932 ) (24,542 ) (82,280 ) (80,523 )
Net loss and loss adjustment expenses 221,540 148,366 552,627 429,895
Underwriting expenses
Direct commission expense 57,146 52,585 157,394 153,301
Other underwriting expenses 39,854   40,124   113,467   122,489  
Total underwriting expenses 97,000   92,709   270,861   275,790  
Underwriting profit (loss) $ (25,777 ) $ 6,469   $ (4,616 ) $ 25,294  
 
Key Measures
Premiums written
Gross premiums written $ 366,740 $ 279,146 $ 945,619 $ 806,425
Less: ceded premiums written (16,533 ) (25,951 ) (48,769 ) (88,908 )
Net premiums written $ 350,207   $ 253,195   $ 896,850   $ 717,517  
 
Calendar Year Loss Ratios
Gross 94.0 % 63.5 % 72.8 % 61.9 %
Net 76.4 % 62.4 % 68.6 % 61.3 %
Underwriting Expense Ratios
Gross 30.9 % 33.8 % 30.7 % 33.2 %
Net 32.5 % 34.8 % 32.0 % 35.1 %
Combined Ratios
Gross 124.9 % 97.3 % 103.5 % 95.1 %
Net 108.9 % 97.2 % 100.6 % 96.4 %

 
Personal Insurance Segment Information
($ in thousands)
(Unaudited)
               
Three Months Ended September 30,
  2011   2010  
Reciprocal Reciprocal
      Tower     Exchanges     Total     Tower     Exchanges     Total
Revenues
Premiums earned
Gross premiums earned $ 93,973 $ 55,234 $ 149,207 $ 113,590 55,954 169,544
Less: ceded premiums earned (17,212 ) (8,661 ) (25,873 ) (18,408 ) (9,941 ) (28,349 )
Net premiums earned 76,761 46,573 123,334 95,182 46,013 141,195
Ceding commission revenue 3,501 2,011 5,512 651 1,026 1,677
Policy billing fees 1,493   142   1,635   1,024   151   1,175  
Total revenues 81,755 48,726 130,481 96,857 47,190 144,047
Expenses
Loss and loss adjustment expenses
Gross loss and loss adjustment expenses 92,277 29,834 122,111 51,899 40,959 92,858
Less: ceded loss and loss adjustment expenses (29,155 ) (4,459 ) (33,614 ) (3,452 ) (6,309 ) (9,761 )
Net loss and loss adjustment expenses 63,122 25,375 88,497 48,447 34,650 83,097
Underwriting expenses
Direct commission expense 15,816 7,188 23,004 20,162 8,303 28,465
Other underwriting expenses 21,166   13,030   34,196   18,985   7,723   26,708  
Total underwriting expenses 36,982   20,218   57,200   39,147   16,026   55,173  
Underwriting profit (loss) $ (18,349 ) $ 3,133   $ (15,216 ) $ 9,263   (3,486 ) 5,777  
 
Key Measures
Premiums written
Gross premiums written $ 97,793 $ 54,596 $ 152,389 $ 112,237 56,216 168,453
Less: ceded premiums written (24,188 ) (9,705 ) (33,893 ) (19,265 ) (12,722 ) (31,987 )
Net premiums written $ 73,605   $ 44,891   $ 118,496   $ 92,972   43,494   136,466  
 
Calendar Year Loss Ratios
Gross 98.2 % 54.0 % 81.8 % 45.7 % 73.2 % 54.8 %
Net 82.2 % 54.5 % 71.8 % 50.9 % 75.3 % 58.9 %
Underwriting Expense Ratios
Gross 37.8 % 36.3 % 37.2 % 33.6 % 28.4 % 31.8 %
Net 41.7 % 38.8 % 40.6 % 39.4 % 32.3 % 37.1 %
Combined Ratios
Gross 136.0 % 90.3 % 119.0 % 79.3 % 101.6 % 86.6 %
Net 123.9 % 93.3 % 112.4 % 90.3 % 107.6 % 96.0 %

 
Personal Insurance Segment Information
($ in thousands)
(Unaudited)
               
Nine Months Ended September 30,
  2011 2010
Reciprocal Reciprocal
      Tower     Exchanges     Total     Tower     Exchanges     Total
Revenues
Premiums earned
Gross premiums earned $ 285,472 $ 170,966 $ 456,438 $ 203,616 55,954 259,570
Less: ceded premiums earned (46,887) (28,395) (75,282) (30,996) (9,941) (40,937)
Net premiums earned 238,585 142,571 381,156 172,620 46,013 218,633
Ceding commission revenue 10,715 4,905 15,620 722 1,026 1,748
Policy billing fees 4,161 433 4,594 1,515 151 1,666
Total revenues 253,461 147,909 401,370 174,857 47,190 222,047
Expenses
Loss and loss adjustment expenses
Gross loss and loss adjustment expenses 203,555 86,312 289,867 101,619 40,959 142,578
Less: ceded loss and loss adjustment expenses (41,102) (10,333) (51,435) (5,496) (6,309) (11,805)
Net loss and loss adjustment expenses 162,453 75,979 238,432 96,123 34,650 130,773
Underwriting expenses
Direct commission expense 51,445 24,227 75,672 35,920 8,303 44,223
Other underwriting expenses 55,348 39,703 95,051 35,411 7,723 43,134
Total underwriting expenses 106,793 63,930 170,723 71,331 16,026 87,357
Underwriting profit (loss) $ (15,785) $ 8,000 $ (7,785) $ 7,403 (3,486) 3,917
 
Key Measures
Premiums written
Gross premiums written $ 273,597 $ 157,446 $ 431,043 $ 199,869 56,217 256,086
Less: ceded premiums written (43,379) (26,797) (70,176) (31,484) (12,722) (44,206)
Net premiums written $ 230,218 $ 130,649 $ 360,867 $ 168,385 43,495 211,880
 
Calendar Year Loss Ratios
Gross 71.3% 50.5% 63.5% 49.9% 73.2% 54.9%
Net 68.1% 53.3% 62.6% 55.7% 75.3% 59.8%
Underwriting Expense Ratios
Gross 36.0% 37.1% 36.4% 34.3% 28.4% 33.0%
Net 38.5% 41.1% 39.5% 40.0% 32.3% 38.4%
Combined Ratios
Gross 107.3% 87.6% 99.9% 84.2% 101.6% 87.9%
Net 106.6% 94.4% 102.1% 95.7% 107.6% 98.2%

 
Insurance Services Segment Results of Operations
($ in thousands)
(Unaudited)
       
Three Months Ended Nine Months Ended
September 30, September 30,
2011 2010 2011 2010
Revenue
Management fee income $ 7,644 $ 7,871 $ 22,043 $ 7,871
Other revenue 413 1,115 942 1,922
Total revenue 8,057 8,986 22,985 9,793
Expenses
Other expenses 4,986 3,845 15,004 4,637
Total expenses 4,986 3,845 15,004 4,637
Insurance services pre-tax income $ 3,071 $ 5,141 $ 7,981 $ 5,156

 
Tower Group, Inc.
Consolidated Balance Sheets
(Unaudited)
 

 

September 30,

 

December 31,
($ in thousands, except par value and share amounts)

 

2011
 

 

2010
Assets
Investments - Tower
Available-for-sale investments, at fair value:
Fixed-maturity securities (amortized cost of $2,065,935 and $1,968,670) $ 2,154,731 $ 2,041,557
Equity securities (cost of $96,997 and $91,218) 90,423 90,317
Short-term investments (cost of $3,000 and $1,560) 3,000 1,560
Other invested assets 16,069 -
Investments - Reciprocal Exchanges
Available-for-sale investments, at fair value:
Fixed-maturity securities (amortized cost of $307,449 and $338,494) 315,187 341,054
Equity securities (cost of $1,965 and $0)   1,897       -  
Total investments 2,581,307 2,474,488
Cash and cash equivalents (includes $2,350 and $2,796 relating to Reciprocal Exchanges) 96,846 102,877
Investment income receivable (includes $2,845 and $3,021 relating to Reciprocal Exchanges) 25,880 23,562
Premiums receivable (includes $40,577 and $53,953 relating to Reciprocal Exchanges) 414,889 387,584
Reinsurance recoverable on paid losses (includes $1,504 and $2,167 relating to Reciprocal Exchanges) 19,148 18,214
Reinsurance recoverable on unpaid losses (includes $17,747 and $15,092 relating to Reciprocal Exchanges) 345,003 282,682
Prepaid reinsurance premiums (includes $17,999 and $17,919 relating to Reciprocal Exchanges) 54,345 77,627
Deferred acquisition costs, net (includes $13,518 and $18,206 relating to Reciprocal Exchanges) 178,036 164,123
Deferred income taxes (includes $0 and $788 relating to Reciprocal Exchanges) - 2,245
Intangible assets (includes $5,005 and $5,504 relating to Reciprocal Exchanges) 117,145 123,820
Goodwill 250,103 250,103
Other assets (includes $8,029 and $5,808 relating to Reciprocal Exchanges)   264,692       230,405  
Total assets $ 4,347,394     $ 4,137,730  
Liabilities
Loss and loss adjustment expenses (includes $147,128 and $175,023 relating to Reciprocal Exchanges) $ 1,697,997 $ 1,610,421
Unearned premium (includes $106,054 and $123,949 relating to Reciprocal Exchanges) 919,690 872,026
Reinsurance balances payable (includes $0 and $3,402 relating to Reciprocal Exchanges) 22,678 35,037
Funds held under reinsurance agreements 101,562 93,153
Other liabilities (includes $12,868 and $9,384 relating to Reciprocal Exchanges) 153,033 84,989
Deferred income taxes (includes $4,819 and $0 relating to Reciprocal Exchanges) 4,783 -
Debt   396,226       374,266  
Total liabilities 3,295,969 3,069,892
Stockholders' equity
Common stock ($0.01 par value; 100,000,000 shares authorized, 46,401,951 and
45,742,342 shares issued, and 39,877,604 and 41,485,678 shares outstanding) 464 457
Treasury stock (6,524,347 and 4,256,664 shares) (143,821 ) (91,779 )
Paid-in-capital 770,784 763,064
Accumulated other comprehensive income 48,974 48,883
Retained earnings   337,290       324,376  
Tower Group, Inc. stockholders' equity   1,013,691       1,045,001  
Noncontrolling interests   37,734       22,837  
Total stockholders' equity   1,051,425       1,067,838  
Total liabilities and stockholders' equity $ 4,347,394     $ 4,137,730  

       
Tower Group, Inc.
Consolidated Statements of Income and Comprehensive Income
(Unaudited)
 
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands, except per share amounts)     2011     2010     2011     2010
Revenues
Net premiums earned $ 413,447 $ 378,779 $ 1,186,772 $ 919,792
Ceding commission revenue 6,967 10,916 25,803 29,557
Insurance services revenue 413 1,116 942 1,922
Policy billing fees 2,830 1,896 7,667 3,677
Net investment income 31,411 29,294 95,587 76,400
Net realized investment gains (losses)
Other-than-temporary impairments (2,955 ) (4,953 ) (3,333 ) (13,935 )
Portion of loss recognized in other comprehensive income 156 4,400 180 10,120
Other net realized investment gains (losses)     3,026       2,270       8,426       11,438  
Total net realized investment gains (losses)  

 

227
      1,717       5,273       7,623  
Total revenues 455,295 423,718 1,322,044 1,038,971
Expenses
Loss and loss adjustment expenses 310,037 231,463 791,059 560,668
Direct and ceding commission expense 80,254 81,173 233,067 197,837
Other operating expenses 73,883 63,476 209,971 164,225
Acquisition-related transaction costs 425 148 437 1,398
Interest expense     8,633       6,192       24,990       16,287  
Total expenses 473,232 382,452 1,259,524 940,415
Other income (expense)
Other expense     -       -       -       (466 )
Income (loss) before income taxes (17,937 ) 41,266 62,520 98,090
Income tax (benefit) expense     (5,981 )     14,108       19,654       32,238  
Net income (loss) $ (11,956 ) $ 27,158 $ 42,866 $ 65,852
Less: Net income (loss) attributable to Noncontrolling Interests     4,483       (1,405 )     9,499       (1,405 )
Net income (loss) attributable to Tower Group, Inc.   $ (16,439 )   $ 28,563     $ 33,367     $ 67,257  
Net income (loss) $ (11,956 ) $ 27,158 $ 42,866 $ 65,852
Gross unrealized investment holding gains (losses) arising during periods (3,789 ) 55,667 20,617 98,941
Gross unrealized gains (losses) on interest rate swaps (6,474 ) - (10,119 ) -
Less: Reclassification adjustment for gains (losses) included in net income (227 ) (1,717 ) (5,273 ) (7,623 )
Income tax benefit (expense) related to items of other comprehensive income     3,722       (18,882 )     (1,737 )     (31,961 )
Comprehensive income (loss) $ (18,724 ) $ 62,226 $ 46,354 $ 125,209
Less: Comprehensive income attributable to Noncontrolling Interests     4,486       4,946       12,896       4,946  
Comprehensive income (loss) attributable to Tower Group, Inc.     (23,210 )     57,280       33,458       120,263  
Earnings (loss) per share attributable to Tower stockholders:
Basic $ (0.40 ) $ 0.67 $ 0.82 $ 1.52
Diluted   $ (0.40 )   $ 0.66     $ 0.81     $ 1.52  
Weighted average common shares outstanding:
Basic 40,814 42,924 41,207 44,106
Diluted     40,814       43,098       41,312       44,294  
Dividends declared and paid per common share   $ 0.19     $ 0.13     $ 0.50     $ 0.27  

Copyright Business Wire 2010

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