Attached files
file | filename |
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8-K/A - FORM 8-K/A - Tower Group International, Ltd. | y86539e8vkza.htm |
EX-99.3 - EX-99.3 - Tower Group International, Ltd. | y86539exv99w3.htm |
EX-23.1 - EX-23.1 - Tower Group International, Ltd. | y86539exv23w1.htm |
EX-99.2 - EX-99.2 - Tower Group International, Ltd. | y86539exv99w2.htm |
Exhibit 99.4
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial statements are based on the
historical financial statements of Tower Group, Inc.(Tower), and OneBeacon Personal Lines
Division (OBPL), after giving effect to the acquisition of OBPL, which was consummated on July 1,
2010.
The unaudited pro forma condensed consolidated financial information gives effect to the
acquisition as if it had occurred (i) on June 30, 2010 for the purposes of the unaudited pro forma
condensed consolidated balance sheet as of June 30, 2010 and (ii) on January 1, 2009 for the
purposes of the unaudited pro forma condensed consolidated statements of income for the year ended
December 31, 2009 and for the six months ended June 30, 2010. The unaudited pro forma condensed
consolidated financial information has been prepared by and is the responsibility of Towers
management. Certain amounts from OBPLs historical carve-out financial statements have been
reclassified to conform to Towers presentation.
The unaudited pro forma condensed consolidated financial statements have been prepared for
illustrative purposes only and are not necessarily indicative of the financial condition or results
of operations of future periods or the financial condition or results of operations that actually
would have been realized had the entities been a single entity as of or for the periods presented.
The unaudited pro forma condensed consolidated financial information should be read together with
the historical financial statements and related notes of Tower, which has been filed with the SEC
and OBPL which are included as an exhibit herewith.
1
Tower Group, Inc.
Unaudited Condensed Consolidated Pro Forma Balance Sheet
June 30, 2010
Unaudited Condensed Consolidated Pro Forma Balance Sheet
June 30, 2010
Pro | ||||||||||||||||||||
Historical | Forma | Pro Forma | ||||||||||||||||||
($ in millions) | Tower | OBPL | Adjs. | Notes | Combined | |||||||||||||||
Assets |
||||||||||||||||||||
Investments |
||||||||||||||||||||
Fixed maturities & equity securities |
$ | 1,722.6 | $ | 314.3 | $ | | $ | 2,036.9 | ||||||||||||
Short-term investments |
322.5 | (109.5 | ) | 3 | 213.0 | |||||||||||||||
Total investments |
1,722.6 | 636.8 | (109.5 | ) | 2,249.9 | |||||||||||||||
Cash |
348.5 | 9.1 | (166.6 | ) | 2 | 191.0 | ||||||||||||||
Investment income receivable |
19.4 | | | 19.4 | ||||||||||||||||
Premiums receivable |
308.8 | 105.1 | | 413.9 | ||||||||||||||||
Reinsurance recoverable |
252.7 | 41.2 | 14.6 | 12 | 308.5 | |||||||||||||||
Prepaid reinsurance premiums |
67.9 | 27.4 | 0.4 | 12 | 95.7 | |||||||||||||||
Deferred acquisition costs, net |
183.7 | 41.7 | (41.7 | ) | 5 | |||||||||||||||
41.8 | 5 | 225.5 | ||||||||||||||||||
Deferred income taxes |
25.0 | 1.9 | (16.5 | ) | 3,9 | 10.4 | ||||||||||||||
Intangible assets |
50.7 | | 65.8 | 4 | 116.5 | |||||||||||||||
Goodwill |
243.7 | | 5.5 | 4,11 | 249.2 | |||||||||||||||
Fixed assets, net |
79.4 | | | 79.4 | ||||||||||||||||
Investment in subsidiaries |
| | 166.6 | 2 | ||||||||||||||||
(166.6 | ) | 7 | | |||||||||||||||||
Other assets |
77.7 | 0.1 | | 77.8 | ||||||||||||||||
Total assets |
$ | 3,380.1 | $ | 863.3 | $ | (206.2 | ) | $ | 4,037.2 | |||||||||||
Liabilities |
||||||||||||||||||||
Loss and loss adjustment expenses |
$ | 1,188.4 | $ | 346.2 | $ | 41.4 | 6 | |||||||||||||
14.6 | 12 | $ | 1,590.6 | |||||||||||||||||
Unearned premium |
631.1 | 235.9 | 0.4 | 12 | 867.4 | |||||||||||||||
Reinsurance balances payable |
48.7 | 6.0 | | 54.7 | ||||||||||||||||
Funds held under reinsurance agreements |
69.3 | | | 69.3 | ||||||||||||||||
Other liabilities |
81.6 | 28.8 | (16.2 | ) | 3 | 94.2 | ||||||||||||||
Debt |
291.1 | | | 291.1 | ||||||||||||||||
Total liabilities |
2,310.2 | 616.9 | 40.2 | 2,967.3 | ||||||||||||||||
Stockholders equity |
1,069.9 | 246.4 | (101.3 | ) | 3 | |||||||||||||||
(145.1 | ) | 7 | 1,069.9 | |||||||||||||||||
Total stockholders equity attributable to Tower Group, Inc. |
1,069.9 | 246.4 | (246.4 | ) | 1,069.9 | |||||||||||||||
Total liabilities and stockholders equity |
$ | 3,380.1 | $ | 863.3 | $ | (206.2 | ) | $ | 4,037.2 | |||||||||||
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements below.
2
Tower Group, Inc.
Unaudited Condensed Consolidated Pro Forma Statement of Income
Six Months Ended June 30, 2010
(in millions, except per share amounts)
Unaudited Condensed Consolidated Pro Forma Statement of Income
Six Months Ended June 30, 2010
(in millions, except per share amounts)
Tower/ | ||||||||||||||||||||
Pro | OBPL | |||||||||||||||||||
Historical | Forma | Pro Forma | ||||||||||||||||||
Tower | OBPL | Adjs. | Notes | Combined | ||||||||||||||||
Revenues |
||||||||||||||||||||
Net premiums earned |
$ | 541.0 | $ | 200.9 | $ | | $ | 741.9 | ||||||||||||
Ceding commission revenue |
18.6 | | | 18.6 | ||||||||||||||||
Insurance services revenue |
0.8 | | | 0.8 | ||||||||||||||||
Policy billing fees |
1.8 | | | 1.8 | ||||||||||||||||
Net investment income |
47.2 | 2.3 | | 49.5 | ||||||||||||||||
Allocated investment income |
| 7.0 | (7.0 | ) | 3 | | ||||||||||||||
Net realized gain (losses) |
||||||||||||||||||||
Other-than-temporary impairments |
(9.0 | ) | | | (9.0 | ) | ||||||||||||||
Portion of loss recognized in other comprehensive income (loss) |
5.7 | | | 5.7 | ||||||||||||||||
Other net realized investment gains (losses) |
9.2 | 12.4 | | 21.6 | ||||||||||||||||
Change in unrealized investment gains |
| (9.9 | ) | 9.9 | 3 | | ||||||||||||||
Total net realized investment gains (losses) |
5.9 | 2.5 | 9.9 | 18.3 | ||||||||||||||||
Total revenues |
615.3 | 212.7 | 2.9 | 830.9 | ||||||||||||||||
Expenses |
||||||||||||||||||||
Loss and loss adjustment expenses |
329.2 | 151.9 | (2.7 | ) | 6 | 478.4 | ||||||||||||||
Underwriting expenses |
206.6 | 67.2 | 0.5 | 4 | 274.3 | |||||||||||||||
Acquisition-related transaction costs |
1.3 | | (1.3 | ) | 8 | | ||||||||||||||
Interest expense |
10.1 | | | 10.1 | ||||||||||||||||
Total expenses |
547.2 | 219.1 | (3.5 | ) | 762.8 | |||||||||||||||
Other Income (expense) |
||||||||||||||||||||
Other |
(0.5 | ) | (0.6 | ) | | (1.1 | ) | |||||||||||||
Income before income taxes |
67.6 | (7.0 | ) | 6.4 | 67.0 | |||||||||||||||
Income tax expense (benefit) |
21.9 | 3.8 | | 25.7 | ||||||||||||||||
Net income (loss) |
45.7 | (10.8 | ) | 6.4 | 41.3 | |||||||||||||||
Less: Net income (loss) attributable to noncontrolling interests |
| | (9.2 | ) | 10 | (9.2 | ) | |||||||||||||
Net income (loss) available to Tower Group, Inc.s common stockholders |
$ | 45.7 | $ | (10.8 | ) | $ | 15.6 | $ | 50.5 | |||||||||||
Basic and diluted earnings per share |
||||||||||||||||||||
Basic |
$ | 1.02 | $ | 1.13 | ||||||||||||||||
Diluted |
$ | 1.02 | $ | 1.12 | ||||||||||||||||
Weighted average common shares outstanding |
||||||||||||||||||||
Basic |
44.7 | 44.7 | ||||||||||||||||||
Diluted |
44.9 | 44.9 | ||||||||||||||||||
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements below.
3
Tower Group, Inc.
Unaudited Condensed Consolidated Pro Forma Statement of Income
Year Ended December 31, 2009
(in millions, except per share amounts)
Unaudited Condensed Consolidated Pro Forma Statement of Income
Year Ended December 31, 2009
(in millions, except per share amounts)
Pro Forma | ||||||||||||||||||||||||||||
Adjustments- | Tower/ | |||||||||||||||||||||||||||
CastlePoint, | Pro | OBPL | ||||||||||||||||||||||||||
Historical | Hermitage | Pro Forma | Forma | Pro Forma | ||||||||||||||||||||||||
Tower | and SUA (a) | Combined | OBPL | Adjs. | Notes | Combined | ||||||||||||||||||||||
Revenues |
||||||||||||||||||||||||||||
Net premiums earned |
$ | 854.7 | $ | 182.2 | $ | 1,036.9 | $ | 467.2 | $ | | $ | 1,504.1 | ||||||||||||||||
Ceding commission revenue |
43.9 | (6.2 | ) | 37.7 | | | 37.7 | |||||||||||||||||||||
Insurance services revenue |
5.1 | (5.1 | ) | | | | | |||||||||||||||||||||
Policy billing fees |
3.0 | 3.0 | | | 3.0 | |||||||||||||||||||||||
Net investment income |
74.9 | 12.2 | 87.1 | 11.5 | | 98.6 | ||||||||||||||||||||||
Allocated investment income |
| | | 38.2 | (38.2 | ) | 3 | | ||||||||||||||||||||
Net realized gain (losses) |
||||||||||||||||||||||||||||
Other-than-temporary impairments |
(44.2 | ) | | (44.2 | ) | | | (44.2 | ) | |||||||||||||||||||
Portion of loss recognized in other
comprehensive income (loss) |
20.7 | | 20.7 | | | 20.7 | ||||||||||||||||||||||
Other net realized investment gains (losses) |
25.0 | (1.4 | ) | 23.6 | 1.3 | | 24.9 | |||||||||||||||||||||
Change in unrealized investment gains |
| | | 13.4 | (13.4 | ) | 3 | | ||||||||||||||||||||
Total net realized
investment gains (losses) |
1.5 | (1.4 | ) | 0.1 | 14.7 | (13.4 | ) | 1.4 | ||||||||||||||||||||
Total revenues |
983.1 | 181.7 | 1,164.8 | 531.6 | (51.6 | ) | 1,644.8 | |||||||||||||||||||||
Expenses |
||||||||||||||||||||||||||||
Loss and loss adjustment expenses |
475.5 | 121.4 | 596.9 | 305.5 | (5.1 | ) | 6 | 897.3 | ||||||||||||||||||||
Underwriting expenses |
334.4 | 57.4 | 391.8 | 145.2 | 1.1 | 4 | ||||||||||||||||||||||
0.1 | 5 | 538.2 | ||||||||||||||||||||||||||
Acquisition-related transaction costs |
14.0 | | 14.0 | | (14.0 | ) | 8 | | ||||||||||||||||||||
Interest expense |
18.1 | | 18.1 | | | 18.1 | ||||||||||||||||||||||
Total expenses |
842.0 | 178.8 | 1,020.8 | 450.7 | (17.9 | ) | 1,453.6 | |||||||||||||||||||||
Other Income (expense) |
||||||||||||||||||||||||||||
Equity income in unconsolidated affiliate |
(0.8 | ) | 0.8 | | | | | |||||||||||||||||||||
Gain on investment in acquired unconsolidated
affiliate |
7.4 | (7.4 | ) | | | | | |||||||||||||||||||||
Gain on bargain purchase |
13.2 | (13.2 | ) | | | | | |||||||||||||||||||||
Other |
| | | (2.2 | ) | | (2.2 | ) | ||||||||||||||||||||
Income before income taxes |
160.9 | (16.9 | ) | 144.0 | 78.7 | (33.7 | ) | 189.0 | ||||||||||||||||||||
Income tax expense (benefit) |
51.6 | (1.2 | ) | 50.4 | 22.2 | (19.3 | ) | 9 | 53.3 | |||||||||||||||||||
Net income (loss) |
109.3 | (15.7 | ) | 93.6 | 56.5 | (14.4 | ) | 135.7 | ||||||||||||||||||||
Less: Net income (loss) attributable to
noncontrolling interests |
| | | | 9.3 | 10 | 9.3 | |||||||||||||||||||||
Net income (loss) available to Tower Group,
Inc.s common stockholders |
$ | 109.3 | $ | (15.7 | ) | $ | 93.6 | $ | 56.5 | $ | (23.7 | ) | $ | 126.4 | ||||||||||||||
Basic and diluted earnings per share |
||||||||||||||||||||||||||||
Basic |
$ | 2.78 | $ | 2.29 | $ | 3.21 | ||||||||||||||||||||||
Diluted |
$ | 2.76 | $ | 2.27 | $ | 3.19 | ||||||||||||||||||||||
Weighted average common shares outstanding |
||||||||||||||||||||||||||||
Basic |
39.4 | $ | 40.9 | 39.4 | ||||||||||||||||||||||||
Diluted |
39.6 | $ | 41.1 | 39.6 | ||||||||||||||||||||||||
(a) | The pro forma adjustments are made to reflect the results of operations of CastlePoint, Hermitage and SUA assuming their acquisition by Tower had occurred on January 1, 2009. Certain one-time charges were excluded from the pro forma results including, (i) transaction costs of $11.4 million, $3.6 million and $2.7 million, respectively, related to the acquisitions of CastlePoint, Hermitage and SUA, (ii) CastlePoints severance expenses of $2.0 million (iii) Towers gain of $7.4 million related to the acquisition of CastlePoint, and (iv) Towers gain on bargain purchase of $13.2 million related to the acquisition of SUA. |
See Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements below.
4
Tower Group, Inc.
Notes to Unaudited Pro forma Condensed Consolidated Financial Statements
1. Basis of Presentation
The unaudited pro forma condensed consolidated financial information gives effect to the
acquisition of OBPL as if it had occurred (i) on June 30, 2010 for the purposes of the unaudited
pro forma condensed consolidated balance sheet and (ii) on January 1, 2009 for the purposes of the
unaudited pro forma condensed consolidated statements of income for the year ended December 31,
2009 and for the six months ended June 30, 2010. The unaudited pro forma condensed consolidated
statements of income for the year ended December 31, 2009 give effect to the acquisitions of
CastlePoint Holdings, Ltd. (CastlePoint), Hermitage Insurance Company (Hermitage) and Specialty
Underwriters Alliance (SUA), which were completed on February 5, 2009, February 27, 2009 and
November 13, 2009, respectively, as if they had occurred on January 1, 2009. The unaudited pro
forma condensed consolidated financial information has been prepared by Towers management. Certain
amounts from OBPLs historical consolidated financial statements have been reclassified to conform
to Towers presentation.
General
This unaudited pro forma condensed consolidated financial information has been prepared in
conformity with generally accepted accounting principles in the United States (GAAP). The
unaudited pro forma condensed consolidated balance sheet as of June 30, 2010 and the unaudited pro
forma condensed consolidated statements of income for the year ended December 31, 2009 and the six
months ended June 30, 2010 have been prepared using the following information:
| Unaudited historical consolidated financial statements of Tower as of June 30, 2010 and for the six months ended June 30, 2010; | ||
| Unaudited historical carve-out financial statements of OBPL as of June 30, 2010 and for the six months ended June 30, 2010; | ||
| Unaudited historical financial statements for CastlePoint, Hermitage and SUA for the period from January 1, 2009 through their respective acquisition dates; | ||
| Audited historical consolidated financial statements of Tower for the year ended December 31, 2009; | ||
| Audited historical carve-out financial statements of OBPL for the year ended December 31, 2009; | ||
| Such other supplementary information as considered necessary to reflect the proposed acquisition in the unaudited pro forma condensed consolidated financial information. |
The pro forma adjustments reflecting the acquisition of OBPL by Tower are based on certain
estimates and assumptions. The unaudited pro forma adjustments may be revised as additional
information becomes available. The actual adjustments and the allocation of the final purchase
price of OBPL will depend on a number of factors, including additional financial information
available at such time. Therefore, the actual adjustments will differ from the pro forma
adjustments and it is possible that the differences may be material. Towers management believes
that its assumptions provide a reasonable basis for presenting all of the significant effects of
the transactions contemplated and that the pro forma adjustments give appropriate effect to those
assumptions and are properly applied in the unaudited pro forma condensed consolidated financial
information.
The unaudited pro forma condensed consolidated financial information does not include financial
benefits or expenses from operating expense efficiencies or revenue enhancements arising from the
acquisition of OBPL and the acquisitions of CastlePoint, Hermitage and SUA by Tower nor does the
unaudited pro forma condensed consolidated financial information include the portion of
restructuring and integration costs to be incurred by Tower, CastlePoint, Hermitage, SUA and OBPL.
The unaudited pro forma condensed consolidated financial information is not intended to reflect the
results of operations or the financial position that would have resulted had the acquisitions of
OBPL, CastlePoint, Hermitage and SUA by Tower been effected on the dates indicated and if the
companies had been managed as one entity. The unaudited pro forma condensed consolidated financial
information should be read in conjunction with the historical consolidated financial statements of
Tower included in Towers Annual Report on Form 10-K for the year ended December 31, 2009 and
Quarterly Report on Form 10-Q for the quarter and six months ended June 30, 2010 and the historical
carve-out financial statements of OBPL included as an Exhibit to this Current Report on Form 8-K.
2. Purchase Price and Related Considerations
On July 1, 2010, Tower completed the acquisition of OBPL from OneBeacon Insurance Group, Ltd.
(OneBeacon), pursuant to the definitive agreement (the Purchase Agreement), dated as of
February 2, 2010, by and among Tower and OneBeacon.
Under the terms of the Agreement, the Company acquired Massachusetts Homeland Insurance Company
(Homeland), York Insurance Company of Maine (York) and two management companies (together the
Stock Companies). The management companies are the attorneys-in-fact for Adirondack Insurance
Exchange, a New York reciprocal insurer, and New Jersey
5
Tower Group, Inc.
Notes to Unaudited Pro forma Condensed Consolidated Financial Statements
Skylands Insurance Association, a New Jersey reciprocal insurer (collectively, the Reciprocals).
In addition, Tower purchased from OneBeacon $102 million principal of surplus notes issued by the
Reciprocals (the Surplus Notes). The total consideration for this acquisition was $167 million.
Tower will consolidate OBPL as of July 1, 2010 and the purchase consideration will be allocated to
the assets acquired and liabilities assumed, including separately identified intangible assets,
based on their fair values as of the close of the acquisition. Direct costs of the acquisition are
accounted for separately from the business combination and are expensed as incurred. As the values
of certain assets and liabilities are preliminary in nature, they are subject to adjustment as
additional information is obtained, including, but not limited to, valuation of separately
identifiable intangibles, fixed assets, deferred taxes and loss reserves. The valuations will be
finalized within 12 months of the close of the acquisition. When the valuations are finalized, any
changes to the preliminary valuation of assets acquired or liabilities assumed may result in
adjustments to separately identifiable intangible assets and goodwill.
The accompanying unaudited pro forma condensed consolidated financial statements include the
results of the Reciprocals because Tower has determined that the Reciprocals qualify as variable
interest entities and that Tower is the primary beneficiary due to its investment in the Surplus
Notes and Towers ability to direct the activities of the Reciprocals through the management
companies. Accordingly, the Reciprocals are consolidated in the accompanying pro forma financial
statements for the periods presented.
For a complete description of the acquisition, refer to the Purchase Agreement, which was attached
as Exhibit 2.1 to the Current Report on Form 8-K, filed on February 3, 2010, and is incorporated
herein by reference.
For purposes of presentation in the unaudited pro forma condensed consolidated financial
information, the allocation of the purchase consideration is assumed to be as follows:
($ in thousands) | ||||
Purchase Consideration |
||||
Purchase price paid in cash |
$ | 166,566 | ||
Total purchase consideration |
166,566 | |||
Allocation of Purchase Consideration |
||||
Total assets |
863,269 | |||
Total liabilities |
(616,827 | ) | ||
Effect of reversing carve-out adjustments |
(101,302 | ) | ||
Estimated
fair value adjustments, net of taxes of ($8,575) |
15,925 | |||
Estimated fair value of net assets acquired |
161,065 | |||
Goodwill |
$ | 5,501 | ||
The purchase price is allocated to balance sheet assets acquired (including identifiable intangible
assets arising from the merger) and liabilities assumed based on their estimated fair value. The
fair value adjustments to the OBPL historical consolidated balance sheet in connection with the
merger are described in the Notes below.
3. In connection with the preparation of the carve-out financial statements, OneBeacon management
allocated capital consistent with the way it planned, reported and evaluated capital for its
respective businesses. This allocation was based on their internally developed economic capital
model that allocated capital to each of its businesses. Allocated
capital and the investment
assets associated with the allocated capital, allocated investment income or loss, and associated current and deferred taxes were removed
from the pro forma balance sheets and statements of operations, since they are not part of the
assets acquired or liabilities assumed in the acquisition and cash and other short term investments to support
the liabilities were transferred to Tower. In
addition, certain adjustments were made to conform OBPL accounting
policies to those used by Tower.
4. Identifiable intangible assets and their amortization periods are, as follows:
Amount | Amortization | |||||||
Description | (in millions) | Period (in years) | ||||||
Management contract |
$ | 54.6 | Indefinite | |||||
Distribution network |
7.3 | 10 | ||||||
Trademark and name |
2.6 | 5 - 10 | ||||||
Insurance licenses |
1.3 | Indefinite | ||||||
Total |
$ | 65.8 | ||||||
6
Tower Group, Inc.
Notes to Unaudited Pro forma Condensed Consolidated Financial Statements
All intangible assets and goodwill will be tested for impairment whenever events or change in
circumstances indicate that a carrying amount may be impaired. In addition, indefinite lived
intangible assets and goodwill will be subject to an impairment test at least annually. The pro
forma statements of income reflect amortization expense for intangibles of $0.6 million for the six
months ended June 30, 2010 and $1.1 million for the year ended December 31, 2009.
5. Deferred acquisition costs (DAC), which includes the value of business acquired (VOBA)
increased by $0.1 million. The valuation for the policies that were in force on the acquisition
date has been determined by using a cash flow model rather than an observable market price, as a
liquid market for valuing the in force business could not be determined. The valuation model uses
an estimate of the expected underwriting profit and the net nominal future cash flows associated
with the in force policies that a market participant would expect as of the date of the
acquisition. The fair value of the VOBA recorded on June 30, 2010 was $41.8 million and replaced
OBPLs carried DAC of $41.7 million as part of the business combination adjustments. The fair value
adjustment will be amortized in proportion to the timing of the expected underwriting profit
associated with the in force policies acquired. The cash flow or interest component of the VOBA
asset will be amortized in proportion to the expected underwriting profit associated with the in
force policies acquired. The amortization will be reflected as a component of underwriting
expenses. As a result of this business combination adjustment, the Companys pro forma underwriting
expenses increased by $0.1 million for the year ended December 31, 2009.
6. The
fair value of the loss and LAE reserves increased by $41.4 million as a result of the
required fair value adjustment on loss and LAE reserves. This valuation has been determined by
using a cash flow model rather than an observable market price as a liquid market for such
underwriting liabilities could not be determined. The valuation model uses an estimate of net
nominal future cash flows related to liabilities for losses and LAE that a market participant would
expect as of the closing date. These future cash flows are adjusted for the time value of money at
a risk free rate and a risk margin to compensate an acquirer for bearing the risk associated with
the liabilities. The risk premium component of the fair value
adjustment for loss and LAE reserves of $11.7 million will be amortized over the
loss and LAE payout pattern and reflected as a component of loss and LAE incurred. The pro forma
statements of income reflect the amortization of the fair value adjustments of $2.7 million for the
six months ended June 30, 2010 and $5.1 million for the year ended December 31, 2009.
7. This amount reflects elimination of OBPLs historical equity balances.
8. For pro forma purposes, acquisition-related transaction costs incurred by Tower were reversed
since they are of a non-recurring nature.
9. Deferred taxes and income tax expense were adjusted to reflect the effects of the
purchase GAAP accounting entries.
10. Net income (loss) attributable to noncontrolling interests represents the net income (loss) for
the Reciprocals and is presented separately as required under GAAP to arrive at net income
available to Tower Group Inc.s common stockholders.
11.
Goodwill increased by $5.5 million and represents the excess of the purchase price over the
estimated fair value of net assets and liabilities acquired. Final purchase accounting adjustments
may differ from the unaudited pro forma adjustments presented herein.
12. These balances were adjusted to reflect the commercial insurance business written in the OBPL
entities which was simultaneously reinsured back to OneBeacon Insurance Group.
7