Tower Group Reports Second Quarter Results

Tower Group, Inc. (NASDAQ: TWGP) today reported a net loss attributable to common shareholders in the second quarter of 2012 of $15.1 million, or ($0.39) per diluted share. Net income attributable to common shareholders in the second quarter of 2011 was $24.1 million, or $0.58 per diluted share.

Operating loss (1) was $15.5 million in the second quarter of 2012, or ($0.39) per diluted share, compared to operating income of $26.0 million in the second quarter of 2011, or $0.63 per diluted share. The 2012 operating loss included an after-tax charge of $42.3 million, or $1.08 per share, associated with prior year reserve strengthening compared to $0.3 million or $0.01 per share of favorable reserve development in the second quarter of 2011. The reserve strengthening relates primarily to unfavorable development in the company’s Commercial Insurance segment arising from changes in estimated ultimate losses for accident years 2011 and prior. During the quarter Tower conducted detailed reserve studies for all lines using loss data through the first quarter of 2012 as well as reported claims during the second quarter, including analysis of the source of unusually high reported loss emergence for certain casualty lines, primarily workers’ compensation and commercial automobile, observed during the first and second quarters of 2012. In the second quarter 2012 we also experienced $3.3 million in after-tax severe weather losses or $0.08 per share, compared to after-tax severe weather losses of $4.6 million or $0.11 per share in the same time period last year. Excluding the business managed by reciprocals, the storm losses added 1.2 points to the second quarter 2012 loss ratio compared to 2.1 points in the same time period last year.

Highlights (all figures compare second quarter 2012 results to the results for the same period in 2011 except as noted):
  • Gross premiums written and managed increased by 14.9% to $537.6 million.
  • For the combined insurance segments, the net combined ratio rose to 110.8% from 94.9%. (Excluding the business that Tower manages on behalf of the reciprocal exchanges, the net combined ratio was 110.9% for the second quarter of 2012.)
    • The net loss ratio increased to 76.0% from 61.2%. The net loss ratio excluding the reciprocal exchanges increased to 77.3% from 62.4%, with the reserve adjustment adding 15.6 points to the second quarter 2012 net loss ratio.
    • The net expense ratio was 34.8 % compared to 33.7%.
  • Net investment income was flat at $31.8 million.
  • Book value per share was $26.53 at June 30, 2012 compared to $26.37 at December 31, 2011. During the quarter, Tower paid cash dividends of 18.75 cents per share, and year to date Tower has paid cash dividends of 37.50 cents per share.
  • Tower Group, Inc. stockholders’ equity was $1.0 billion at June 30, 2012.

Michael H. Lee, President and Chief Executive Officer of Tower Group, Inc., said, “During the quarter, we took an important step to establishing a diversified global specialty insurance company by entering into an agreement with Canopius to merge Tower with Canopius’ Bermuda operations. We believe this transaction will allow us to access U.S., Bermuda and Lloyd’s markets to enhance our profitability and create new business opportunities. As part of our strategic review during the second quarter, we conducted a comprehensive review of our prior accident year and strengthened our prior accident year reserves. We believe we have taken decisive actions to address our reserve position from prior accident years, so that our future results should better reflect the underwriting profitability of our ongoing business. Excluding this reserve development, our operating results continue to be strong, and in the second quarter we experienced 15% top line growth and a 95.3% combined ratio. During the quarter, we continued to successfully implement our organic growth initiative to expand into new products, and improve existing and create new business units. We also continue to see signs of improving market conditions which are allowing us to continue to drive rate increases to further improve our underwriting profitability. In summary, due to our transaction with Canopius, actions that we have taken this quarter with respect to our reserve position, the success of the organic growth initiative and improving market conditions, we have a positive outlook for the remainder of 2012 and 2013.”
Financial Summary ($ in thousands, except per share data):
                 
Three Months Ended June 30,
2012 2011
Reciprocal Elimina- Reciprocal Elimina-
    Tower   Exchanges   tions   Total   Tower   Exchanges   tions   Total
Net premiums written   $ 441,613     $ 44,620     $ -     $ 486,233     $ 383,865     $ 45,130     $ -     $ 428,995  
Revenues
Net premiums earned $ 417,612 $ 42,541 $ - $ 460,153 $ 342,789 $ 50,741 $ - $ 393,530
Ceding commission revenue 6,855 3,225 - 10,080 9,107 1,548 - 10,655
Insurance services revenue 9,324 - (7,965 ) 1,359 7,631 - (7,704 ) (73 )
Policy billing fees 2,871 129 - 3,000 2,512 147 - 2,659
Net investment income 30,268 3,177 (1,664 ) 31,781 30,419 3,051 (1,672 ) 31,798
Total net realized investment gains
  (losses)     1,421       (1,657 )     -       (236 )     (2,857 )     543       -       (2,314 )
  Total revenues     468,351       47,415       (9,629 )     506,137       389,601       56,030       (9,376 )     436,255  
Expenses
Loss and loss adjustment expenses 322,842 26,933 - 349,775 213,970 26,876 - 240,846
Direct and ceding
commission expense 87,024 8,162 - 95,186 69,726 6,484 - 76,210
Other operating expenses 71,459 14,606 (7,965 ) 78,100 62,812 14,641 (7,704 ) 69,749
Acquisition-related transaction costs 720 - - 720 - - - -
Interest expense     7,902       1,664       (1,664 )     7,902       8,257       1,672       (1,672 )     8,257  
  Total expenses     489,947       51,365       (9,629 )     531,683       354,765       49,673       (9,376 )     395,062  
Income (loss) before income taxes (21,596 ) (3,950 ) - (25,546 ) 34,836 6,357 - 41,193
Income tax expense (benefit)     (6,483 )     (756 )     -       (7,239 )     10,715       2,162       -       12,877  
Net income (loss)   $ (15,113 )   $ (3,194 )   $ -     $ (18,307 )   $ 24,121     $ 4,195     $ -     $ 28,316  
 
Ratios                                
Net calendar year loss and LAE 77.3 % 63.3 % 76.0 % 62.4 % 53.0 % 61.2 %
Net underwriting expenses 33.6 % 45.6 % 34.8 % 33.0 % 38.3 % 33.7 %
Net Combined 110.9 % 108.9 % 110.8 % 95.4 % 91.3 % 94.9 %
 
Return on Average Equity     -5.8 %                 9.2 %            

Financial Summary ($ in thousands, except per share data):
                 
Six Months Ended June 30,
2012 2011
Reciprocal Elimina- Reciprocal Elimina-
    Tower   Exchanges   tions   Total   Tower   Exchanges   tions   Total
Net premiums written   $ 829,204     $ 82,713     $ -     $ 911,917     $ 703,255     $ 85,758     $ -     $ 789,013  
Revenues
Net premiums earned $ 796,281 $ 84,030 $ - $ 880,311 $ 677,326 $ 95,999 $ - $ 773,325
Ceding commission revenue 8,933 6,310 - 15,243 15,924 2,912 - 18,836
Insurance services revenue 16,683 - (14,827 ) 1,856 14,928 - (14,399 ) 529
Policy billing fees 5,873 261 - 6,134 4,546 291 - 4,837
Net investment income 62,525 6,526 (3,327 ) 65,724 61,107 6,395 (3,326 ) 64,176

Total net realized investment gains (losses)
    1,028       2,319       -       3,347       5,380       (334 )     -       5,046  
  Total revenues     891,323       99,446       (18,154 )     972,615       779,211       105,263       (17,725 )     866,749  
Expenses
Loss and loss adjustment expenses 566,091 51,177 - 617,268 430,418 50,604 - 481,022

Direct and ceding commission expense
158,936 15,935 - 174,871 135,755 17,058 - 152,813
Other operating expenses 144,355 27,543 (14,827 ) 157,071 123,814 26,673 (14,399 ) 136,088
Acquisition-related transaction costs 1,982 - - 1,982 12 - - 12
Interest expense     15,478       3,327       (3,327 )     15,478       16,357       3,326       (3,326 )     16,357  
  Total expenses     886,842       97,982       (18,154 )     966,670       706,356       97,661       (17,725 )     786,292  
Income before income taxes 4,481 1,464 - 5,945 72,855 7,602 - 80,457
Income tax expense (benefit)     (1,040 )     (4,349 )     -       (5,389 )     23,049       2,586       -       25,635  
Net income   $ 5,521     $ 5,813     $ -     $ 11,334     $ 49,806     $ 5,016     $ -     $ 54,822  
 
Ratios                                
Net calendar year loss and LAE 71.1 % 60.9 % 70.1 % 63.5 % 52.7 % 62.2 %
Net underwriting expenses 34.3 % 43.9 % 35.2 % 33.0 % 42.2 % 34.1 %
Net Combined 105.4 % 104.8 % 105.3 % 96.5 % 94.9 % 96.3 %
 
Return on Average Equity     1.1 %                 9.5 %            

 

Reconciliation of non-GAAP financial measures ($ in thousands, except per share data):
           
Three Months Ended Six Months Ended
June 30, June 30,
    2012   2011   2012   2011
Net income (loss) attributable to Tower Group, Inc. $ (15,113 ) $ 24,121 $ 5,521 $ 49,806
Net realized (gains) losses on investments (1,421 ) 2,857 (1,028 ) (5,380 )
Acquisition-related transaction costs 720 - 1,982 12
  Income tax     363       (1,000 )     (5 )     1,882  
  Operating income (loss) attributable to Tower Group, Inc.   $ (15,451 )   $ 25,978     $ 6,470     $ 46,320  
 
Ratios                
Operating earnings (loss) per share - Basic $ (0.39 ) $ 0.63 $ 0.17 $ 1.12
Operating earnings (loss) per share - Diluted $ (0.39 ) $ 0.63 $ 0.16 $ 1.12
  Operating return on average equity     -5.9 %     9.9 %     1.2 %     8.8 %
 

Second Quarter 2012 Highlights

Consolidated

Gross premiums written and managed increased to $537.6 million in the second quarter, 14.9% higher than in the second quarter of 2011. Excluding programs, policies in-force increased by 5.0% as of June 30, 2012, compared to June 30, 2011. For the three months ended June 30, 2012, premiums on renewed Commercial Insurance business excluding programs increased 4.2% and premiums on renewed Personal Insurance business increased 2.6%, resulting in an overall premium increase on renewal business of 3.4%. During the same time period, our Commercial Insurance business renewal retention rate excluding programs was 78.4% and our Personal Insurance business renewal retention rate was 92%, resulting in an overall retention rate of 89%.

Total revenues increased 16.0% to $506.1 million in the second quarter of 2012 as compared to $436.3 million in the prior year's second quarter. The growth was primarily due to increased net premiums earned. Net premiums earned represented 90.9% of total revenues for the three months ended June 30, 2012 compared to 90.2% for 2011.

Net investment income was flat at $31.8 million. The tax equivalent book yield on our investment portfolio, excluding the reciprocal exchanges, was 4.8% at June 30, 2012 compared to 4.7% at June 30, 2011. Net realized investment losses were $0.2 million for the quarter ended June 30, 2012 compared to losses of $2.3 million in the same period last year. Total commission and fee income increased 9% to $14.4 million in the second quarter of 2012 compared to $13.2 million in the second quarter of 2011.

The net loss ratio was 76.0% for the three months ended June 30, 2012 compared to 61.2% for the same period in 2011. (Excluding the business that we manage on behalf of the reciprocal exchanges, the net loss ratio was 77.3% for the second quarter of 2012.) The second quarter 2012 results include an after-tax charge of $42.3 million associated with prior year reserve strengthening which added 15.6 points to the net loss ratio, excluding the business that Tower manages on behalf of the reciprocal exchanges. Excluding the business managed by reciprocals, the storm losses added 1.2 points to the second quarter 2012 loss ratio compared to 2.1 points in the same time period last year.

Our net expense ratio was 34.8% for the three months ended June 30, 2012 compared to 33.7% for the same period in 2011. (Excluding the business that we manage on behalf of the reciprocal exchanges, the net expense ratio was 33.6% for the second quarter of 2012 compared to 33.0% for the second quarter of 2011.)

The effective tax rate was 28.3% in the second quarter of 2012 compared to 31.3% for the same time period in 2011. Interest expense decreased by $0.4 million for the three months ended June 30, 2012, compared to the same period in 2011.

Additional Highlights and Disclosures

Dividend Declaration

Tower’s Board of Directors approved a quarterly dividend on August 1, 2012, of 18.75 cents per share payable on September 21, 2012, to stockholders of record as of September 10, 2012.

Guidance

Tower expects full year 2012 operating earnings per share to be in a range of $1.45 to $1.55 and 2013 operating earnings per share to be in a range of $2.85 to $3.05.

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 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.

Conference Call

Tower will host a conference call and webcast to discuss these results on August 7, 2012 at 9:00 a.m. ET. This conference call will be broadcast live over the Internet. To access a listen-only webcast over the Internet, please visit the Investor Information section of Tower Group, Inc.’s website, 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 to download any necessary audio software. If you are unable to participate during the live conference call, a webcast will be archived in the Investor Information section of Tower Group, Inc.'s website at www.twrgrp.com.

About Tower Group, Inc.

Tower Group, Inc. offers diversified property and casualty insurance products and services through its operating subsidiaries. Its insurance company subsidiaries offer insurance products to individuals and small to medium-sized businesses through its network of retail and wholesale agents and specialty business through program underwriting agents. Tower's insurance services subsidiaries provide underwriting, claims and reinsurance brokerage services to other insurance companies.

Our 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;

Our 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 Our Insurance Services Segment provides underwriting, claims and reinsurance brokerage services to insurance companies.

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, 2011 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.

For more information, visit Tower's website at http://www.twrgrp.com/

Commercial Insurance & Personal Insurance Combined
($ in thousands)
(Unaudited)
     
Three Months Ended June 30, Six Months Ended June 30,
2012   2011   Change(%) 2012   2011   Change(%)
Key Measures
Premiums written
Gross premiums written $ 537,624 $ 467,984 14.9 % $ 1,004,986 $ 857,532 17.2 %
Less: ceded premiums written (51,391 ) (38,989 ) 31.8 % (93,069 ) (68,519 ) 35.8 %
Net premiums written $ 486,233   $ 428,995   13.3 % $ 911,917   $ 789,013   15.6 %
 
Revenues
Net premiums earned 460,153 393,530 16.9 % $ 880,311 $ 773,325 13.8 %
Ceding commission revenue 10,080 10,655 -5.4 % 15,243 18,836 -19.1 %
Policy billing fees 3,000   2,659   12.8 % 6,134   4,837   26.8 %
Total revenues 473,233 406,844 16.3 % 901,688 796,998 13.1 %
Expenses
Net loss and loss adjustment expenses 349,775   240,846   45.2 % 617,268   481,022   28.3 %
Underwriting expenses
Direct commission expense 95,187 76,568 24.3 % 174,871 152,916 14.4 %
Other underwriting expenses 77,826   69,315   12.3 % 156,336   134,468   16.3 %
Total underwriting expenses 173,013   145,883   18.6 % 331,207   287,384   15.2 %
Underwriting profit (loss) $ (49,555 ) $ 20,115   -346.4 % $ (46,787 ) $ 28,592   -263.6 %
 
Underwriting Ratios
Net loss ratio 76.0 % 61.2 % 70.1 % 62.2 %
Net expense ratio 34.8 % 33.7 % 35.2 % 34.1 %
Net combined ratio 110.8 % 94.9 % 105.3 % 96.3 %
 

Commercial Insurance Segment Information
($ in thousands)
(Unaudited)
 
      Three Months Ended Six Months Ended
June 30, June 30,
2012   2011 2012   2011
Key Measures
Premiums written
Gross premiums written $ 369,758 $ 315,866 $ 706,788 $ 578,878
Less: ceded premiums written (26,010 ) (20,345 ) (42,835 ) (32,236 )
Net premiums written $ 343,748   $ 295,521   $ 663,953   $ 546,642  
 
Revenues
Net premiums earned 337,650 263,735 $ 635,485 $ 515,503
Ceding commission revenue 3,894 4,710 3,904 8,728
Policy billing fees 1,390   1,114   2,903   1,878  
Total revenues 342,934 269,559 642,292 526,109
Expenses
Net loss and loss adjustment expenses 281,209 166,597 482,647 331,087
Underwriting expenses
Direct commission expenses 66,539 49,770 122,088 100,248
Other underwriting expenses 47,415   36,863   95,662   73,613  
Total underwriting expenses 113,954   86,633   217,750   173,861  
Underwriting profit (loss) $ (52,229 ) $ 16,329   $ (58,105 ) $ 21,161  
 
Underwriting Ratios
Net loss ratio 83.3 % 63.2 % 75.9 % 64.2 %
Net expense ratio 32.2 % 30.6 % 33.2 % 31.7 %
Net combined ratio 115.5 % 93.8 % 109.1 % 95.9 %
 

Personal Insurance Segment Information
($ in thousands)
(Unaudited)
                   
Three Months Ended June 30,
2012   2011  
Reciprocal Reciprocal
          Tower     Exchanges     Total     Tower     Exchanges     Total
Key Measures
Premiums written
Gross premiums written $ 115,066 $ 52,800 $ 167,866 $ 97,085 55,033 152,118
Less: ceded premiums written (17,201 ) (8,180 ) (25,381 ) (8,741 ) (9,903 ) (18,644 )
Net premiums written $ 97,865   $ 44,620   $ 142,485   $ 88,344   45,130   133,474  
 
Revenues
Net premiums earned 79,962 42,541 122,503 79,055 50,740 129,795
Ceding commission revenue 2,961 3,225 6,186 4,414 1,531 5,945
Policy billing fees 1,481   129   1,610   1,398   147   1,545  
Total revenues 84,404 45,895 130,299 84,867 52,418 137,285
Expenses
Net loss and loss adjustment expenses 41,633 26,933 68,566 47,373 26,876 74,249
Underwriting expenses
Direct commission expense 20,486 8,162 28,648 20,333 6,465 26,798
Other underwriting expenses 15,804   14,607   30,411   17,811   14,641   32,452  
Total underwriting expenses 36,290   22,769   59,059   38,144   21,106   59,250  
Underwriting profit (loss) $ 6,481   $ (3,807 ) $ 2,674   $ (650 ) 4,436   3,786  
 
Underwriting Ratios
Net loss ratio 52.1 % 63.3 % 56.0 % 59.9 % 53.0 % 57.2 %
Net expense ratio 39.8 % 45.6 % 41.8 % 40.9 % 38.3 % 39.9 %
Net combined ratio 91.9 % 108.9 % 97.8 % 100.8 % 91.3 % 97.1 %
 

Personal Insurance Segment Information
($ in thousands)
(Unaudited)
               
Six Months Ended June 30,
2012 2011
Reciprocal Reciprocal
          Tower     Exchanges     Total     Tower     Exchanges     Total
Key Measures
Premiums written
Gross premiums written $ 196,384 $ 101,814 $ 298,198 $ 175,804 102,850 278,654
Less: ceded premiums written (31,133) (19,101) (50,234) (19,191) (17,092) (36,283)
Net premiums written $ 165,251 $ 82,713 $ 247,964 $ 156,613 85,758 242,371
 
Revenues
Net premiums earned $ 160,796 $ 84,030 $ 244,826 $ 161,824 $ 95,998 $ 257,822
Ceding commission revenue 5,029 6,310 11,339 7,214 2,894 10,108
Policy billing fees 2,970 261 3,231 2,668 291 2,959
Total revenues 168,795 90,601 259,396 171,706 99,183 270,889
Expenses
Net loss and loss adjustment expenses 83,444 51,177 134,621 99,331 50,604 149,935
Underwriting expenses
Direct commission expense 36,848 15,935 52,783 35,629 17,039 52,668
Other underwriting expenses 33,130 27,544 60,674 34,182 26,673 60,855
Total underwriting expenses 69,978 43,479 113,457 69,811 43,712 113,523
Underwriting profit (loss) $ 15,373 $ (4,055) $ 11,318 $ 2,564 4,867 7,431
 
Underwriting Ratios
Net loss ratio 51.9% 60.9% 55.0% 61.4% 52.7% 58.2%
Net expense ratio 38.5% 43.9% 40.4% 37.0% 42.2% 39.0%
Net combined ratio 90.4% 104.8% 95.4% 98.4% 94.9% 97.2%
 

Insurance Services Segment Results of Operations
($ in thousands)
(Unaudited)
         
Three Months Ended Six Months Ended
June 30, June 30,
2012 2011 2012 2011
Revenue
Management fee income $ 7,965 $ 7,704 $ 14,827 $ 14,399
Other revenue 1,359 (73 ) 1,856 529
Total revenue 9,324 7,631   16,683 14,928
Expenses
Other expenses 5,079 4,977   9,542 10,018
Total expenses 5,079 4,977   9,542 10,018
Insurance services pre-tax income $ 4,245 $ 2,654   $ 7,141 $ 4,910
 

Tower Group, Inc.    
Consolidated Balance Sheets
   
June 30, December 31,
($ in thousands, except par value and share amounts)   2012   2011
Assets
Investments - Tower
Available-for-sale investments, at fair value:
Fixed-maturity securities (amortized cost of $1,937,174 and $2,046,932) $ 2,060,802 $ 2,153,620
Equity securities (cost of $126,685 and $91,069) 128,490 87,479
Other invested assets 52,333 44,347
Investments - Reciprocal Exchanges
Available-for-sale investments, at fair value:
Fixed-maturity securities (amortized cost of $280,843 and $288,180) 299,172 300,054
  Equity securities (cost of $6,840 and $1,965)     7,903       1,866  
Total investments 2,548,700 2,587,366
Cash and cash equivalents (includes $6,906 and $666 relating to Reciprocal Exchanges) 199,005 114,098
Investment income receivable (includes $3,078 and $2,978 relating to Reciprocal Exchanges) 27,233 26,782
Premiums receivable (includes $38,662 and $41,290 relating to Reciprocal Exchanges) 381,983 408,626
Reinsurance recoverable on paid losses (includes $1,799 and $5,670 relating to Reciprocal Exchanges) 19,076 23,903
Reinsurance recoverable on unpaid losses (includes $19,661 and $11,253 relating to Reciprocal Exchanges) 301,620 319,664
Prepaid reinsurance premiums (includes $16,419 and $14,685 relating to Reciprocal Exchanges) 55,691 54,037
Deferred acquisition costs, net (includes $12,758 and $11,866 relating to Reciprocal Exchanges) 185,507 168,858
Intangible assets (includes $7,146 and $4,839 relating to Reciprocal Exchanges) 110,918 114,920
Goodwill 250,103 250,103
Funds held by reinsured companies 133,968 69,755
Other assets (includes $4,021 and $2,685 relating to Reciprocal Exchanges)     269,838       304,083  
Total assets   $ 4,483,642     $ 4,442,195  
Liabilities
Loss and loss adjustment expenses (includes $133,547 and $136,274 relating to Reciprocal Exchanges) $ 1,701,833 $ 1,632,113
Unearned premium (includes $103,408 and $102,991 relating to Reciprocal Exchanges) 926,456 893,176
Reinsurance balances payable (includes $4,875 and $3,466 relating to Reciprocal Exchanges) 14,418 20,794
Funds held under reinsurance agreements 91,142 96,726
Other liabilities (includes $7,700 and $7,154 relating to Reciprocal Exchanges) 194,901 266,155
Deferred income taxes (includes $3,392 and $4,511 relating to Reciprocal Exchanges) 33,058 29,337
Debt     448,291       426,901  
Total liabilities 3,410,099 3,365,202
Stockholders' equity

Common stock ($0.01 par value; 100,000,000 shares authorized, 46,769,519 and 46,448,341 shares issued, and 38,377,091 and 39,221,102 shares outstanding)
468 465
Treasury stock (8,392,428 and 7,227,239 shares) (181,324 ) (158,185 )
Paid-in-capital 775,542 772,938
Accumulated other comprehensive income 75,866 62,244
Retained earnings     347,521       356,680  
Tower Group, Inc. stockholders' equity     1,018,073       1,034,142  
Noncontrolling interests     55,470       42,851  
Total stockholders' equity     1,073,543       1,076,993  
Total liabilities and stockholders' equity   $ 4,483,642     $ 4,442,195  
 

Tower Group, Inc.        
Consolidated Statements of Operations
    Three Months Ended Six Months Ended
June 30, June 30,
(in thousands, except per share amounts)   2012   2011   2012   2011
Revenues
Net premiums earned $ 460,153 $ 393,530 $ 880,311 $ 773,325
Ceding commission revenue 10,080 10,655 15,243 18,836
Insurance services revenue 1,359 (73 ) 1,856 529
Policy billing fees 3,000 2,659 6,134 4,837
Net investment income 31,781 31,798 65,724 64,176
Net realized investment gains (losses):
Other-than-temporary impairments (2,525 ) (210 ) (5,246 ) (378 )
Portion of loss recognized in other comprehensive income 286 - 286 24
  Other net realized investment gains     2,003       (2,104 )     8,307       5,400  
    Total net realized investment gains (losses)     (236 )     (2,314 )     3,347       5,046  
Total revenues 506,137 436,255 972,615 866,749
Expenses
Loss and loss adjustment expenses 349,775 240,846 617,268 481,022
Direct and ceding commission expense 95,186 76,210 174,871 152,813
Other operating expenses 78,100 69,749 157,071 136,088
Acquisition-related transaction costs 720 - 1,982 12
Interest expense     7,902       8,257       15,478       16,357  
  Total expenses     531,683       395,062       966,670       786,292  
Income before income taxes (25,546 ) 41,193 5,945 80,457
Income tax expense     (7,239 )     12,877       (5,389 )     25,635  
Net income $ (18,307 ) $ 28,316 $ 11,334 $ 54,822
Less: Net income attributable to Noncontrolling interests     (3,194 )     4,195       5,813       5,016  
Net income attributable to Tower Group, Inc.   $ (15,113 )   $ 24,121     $ 5,521     $ 49,806  
Earnings per share attributable to Tower Group, Inc. stockholders:
Basic $ (0.39 ) $ 0.58 $ 0.14 $ 1.20
  Diluted   $ (0.39 )   $ 0.58     $ 0.14     $ 1.20  
Weighted average common shares outstanding:
Basic 39,117 41,303 39,206 41,404
  Diluted     39,117       41,395       39,268       41,518  
Dividends declared and paid per common share   $ 0.19     $ 0.19     $ 0.38     $ 0.32  

Copyright Business Wire 2010

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