Attached files
| file | filename |
|---|---|
| 8-K - TOWER GROUP, INC. 8-K - Tower Group International, Ltd. | a6628579.htm |
Exhibit 99.1
Tower Group, Inc. Reports Fourth Quarter and Annual 2010 Results
NEW YORK--(BUSINESS WIRE)--February 28, 2011--Tower Group, Inc. (NASDAQ: TWGP) today reported net income available to common shareholders of $38.5 million and diluted earnings per share of $0.92 for the fourth quarter 2010, as compared to $30.7 million, or $0.72 per share in the fourth quarter of 2009. For the full year, net income available to common shareholders was $118.0 million or $2.70 per diluted share compared to $109.3 million or $2.76 per diluted share in 2009.
Operating income(1) and operating earnings per share(1) were $35.2 million and $0.84 for the fourth quarter of 2010, respectively, as compared to $31.9 million and $0.74 per share in the fourth quarter of 2009. For the full year, operating income and operating earnings per share were $111.2 million and $2.55, respectively, as compared to $119.8 million or $3.03 per share in 2009. Operating income in the fourth quarter and full year 2009 included a $13.2 million or $0.31 per diluted share bargain purchase gain from the Specialty Underwriters’ Alliance, Inc. (SUA) transaction and the year 2010 included after-tax catastrophe storm losses of $12.0 million or $0.27 per diluted share.
Key Highlights (all percentage increases compare the fourth quarter and the full year 2010 results to the corresponding periods in 2009 except as noted otherwise):
| -- | Gross premiums written and produced(2) increased by 32.6% to $433.9 million in the fourth quarter and by 38.2% to $1.5 billion for the full year. |
| -- | For the combined insurance segments, the net combined ratio was 91.7% in the fourth quarter of 2010 compared to 94.7% for the same period last year. (Excluding the business that we manage on behalf of the reciprocal exchanges, the net combined ratio was 91.9% for the fourth quarter of 2010.) For the full year the net combined ratio was 93.7% compared to 88.3% in 2009. (Excluding the business that we manage on behalf of the reciprocal exchanges, the net combined ratio was 93.5% for the full year 2010.) |
| -- In the fourth quarter 2010, the net loss ratio was 59.9% compared to 62.0% for the same period last year. For the full year, the net loss ratio was 60.7% compared to 55.6% in 2009. | |
| -- In the fourth quarter 2010, the net expense ratio(3) was 31.8% compared to 32.7% for the same period last year. For the full year, the net expense ratio was 33.0% compared to 32.7% in 2009. | |
| -- | Net investment income increased by 40.2% to $29.7 million for the fourth quarter and by 41.7% to $106.1 million for the full year. |
| -- | Book value per share of $26.22 at December 31, 2010 represents an increase of 12.3% since year end 2009. |
Michael H. Lee, President and Chief Executive Officer of Tower Group, Inc., stated, “During the fourth quarter, we achieved strong operating results driven primarily by a significant increase in premium volume resulting from the acquisition of the Personal Lines Division of OneBeacon Insurance Group (OBPL) and our continued expansion into specialty commercial business. Despite challenging market conditions, we continued to maintain underwriting and cost discipline as demonstrated by the 91.7% combined ratio for the quarter. For the full year, we were pleased with our ability to achieve strong operating results, especially in the second half of the year after experiencing catastrophe losses in the first quarter. As we move into 2011, we believe we will continue to be challenged by the competitive market conditions and lower returns on our investment portfolio. Despite the various external factors that affect our business, we believe we are well positioned to continue to profitably grow due to the strength of our business model and the strategies that we have developed to effectively navigate these market challenges.”
| Financial Summary ($ in thousands, except per share data): | |||||||||||||||||
| Three Months Ended | Year Ended | ||||||||||||||||
| December 31, | December 31, | ||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | ||||||||||||||
| Gross premiums written | $ | 433,860 | $ | 327,232 | $ | 1,496,371 | $ | 1,070,716 | |||||||||
| Premiums produced by managing general agency | - | 196 | - | 11,722 | |||||||||||||
| Net premiums written | 384,667 | 205,459 | 1,314,064 | 886,189 | |||||||||||||
| Total commission and fee income | 11,336 | 17,908 | 46,492 | 52,025 | |||||||||||||
| Net investment income | 29,690 | 21,183 | 106,090 | 74,866 | |||||||||||||
| Net realized investment gains (losses) | 5,860 | (824 | ) | 13,483 | 1,501 | ||||||||||||
| Total revenues | 419,763 | 271,459 | 1,458,734 | 983,103 | |||||||||||||
| Gain on investment in acquired unconsolidated affiliate | - | - | - | 7,388 | |||||||||||||
| Gain on bargain purchase | - | 13,186 | - | 13,186 | |||||||||||||
| Other income (expense) | - | - | (466 | ) | (777 | ) | |||||||||||
| Net income attributable to Tower Group, Inc. | 38,515 | 30,748 | 117,951 | 109,330 | |||||||||||||
| Earnings per share—Basic | $ | 0.93 | $ | 0.72 | $ | 2.71 | $ | 2.78 | |||||||||
| Earnings per share—Diluted | $ | 0.92 | $ | 0.72 | $ | 2.70 | $ | 2.76 | |||||||||
| Return on average equity | 14.3 | % | 12.5 | % | 11.0 | % | 13.9 | % | |||||||||
| Combined Commercial and Personal Segments | |||||||||||||||||
| Net premiums earned | 372,877 | 233,191 | 1,292,669 | 854,711 | |||||||||||||
| Net loss ratio | 59.9 | % | 62.0 | % | 60.7 | % | 55.6 | % | |||||||||
| Net expense ratio | 31.8 | % | 32.7 | % | 33.0 | % | 32.7 | % | |||||||||
| Commercial Insurance Segment | |||||||||||||||||
| Net premiums earned | 239,856 | 196,629 | 941,015 | 738,217 | |||||||||||||
| Net loss ratio | 66.5 | % | 61.3 | % | 62.6 | % | 55.1 | % | |||||||||
| Net expense ratio | 28.2 | % | 31.0 | % | 31.9 | % | 31.5 | % | |||||||||
| Personal Insurance Segment | |||||||||||||||||
| Net premiums earned | 133,021 | 36,562 | 351,654 | 116,494 | |||||||||||||
| Net loss ratio | 48.1 | % | 65.6 | % | 55.4 | % | 59.0 | % | |||||||||
| Net expense ratio | 38.3 | % | 41.8 | % | 35.9 | % | 40.6 | % | |||||||||
| Reconciliation of non-GAAP financial measures: | |||||||||||||||||
| Net income attributable to Tower Group, Inc. | 38,515 | $ | 30,748 | $ | 117,951 | $ | 109,330 | ||||||||||
| Net realized gains (losses) on investments | 5,860 | (824 | ) | 13,483 | 1,501 | ||||||||||||
| Acquisition-related transaction costs (4) | (971 | ) | (703 | ) | (2,369 | ) | (14,038 | ) | |||||||||
| Less: net realized gains (losses) on investments related to Reciprocals | (683 | ) | - | (257 | ) | - | |||||||||||
| Income tax | (854 | ) | 417 | (4,121 | ) | 2,047 | |||||||||||
| Operating income attributable to Tower Group, Inc. | $ | 35,163 | $ | 31,858 | $ | 111,215 | $ | 119,820 | |||||||||
| Operating earnings per share—Basic | $ | 0.85 | $ | 0.75 | $ | 2.56 | $ | 3.04 | |||||||||
| Operating earnings per share—Diluted | $ | 0.84 | $ | 0.74 | $ | 2.55 | $ | 3.03 | |||||||||
| Operating return on average equity | 13.1 | % | 12.9 | % | 10.3 | % | 15.2 | % | |||||||||
Fourth Quarter 2010 Highlights
Gross premiums written increased to $433.9 million in the fourth quarter of 2010, which was 32.6% higher than in the fourth quarter of 2009. For the three months ended December 31, 2010, premium rates on renewed Commercial Insurance business excluding programs increased 1.0% and premium rates on renewed Personal Insurance business increased 5.2%, resulting in an overall premium rate increase on renewal business of 3.0%. During the same time period, our Commercial Insurance business renewal retention rate excluding programs was 78% and our Personal Insurance business renewal retention rate was 83%, resulting in an overall retention rate of 82%.
Total revenues increased 54.6% to $419.8 million in the fourth quarter of 2010 as compared to $271.5 million in the prior year's fourth quarter. The growth was primarily due to increased net premiums earned and net investment income resulting from the acquisitions of OBPL business in the third quarter of 2010 and of SUA in the fourth quarter of 2009. Net premiums earned represented 88.8% of total revenues for the three months ended December 31, 2010 compared to 85.9% for the same period in 2009.
Net investment income increased 40.2% to $29.7 million for the three months ended December 31, 2010 compared to $21.2 million for the same period in 2009. The tax equivalent book yield on our investment portfolio was 4.7% at December 31, 2010 compared to 5.5% at December 30, 2009. Net realized investment gains were $5.9 million for the quarter ended December 31, 2010 compared to a loss of $0.8 million in the same period last year. Credit-related other-than-temporary impairment losses for the three months ended December 31, 2010 were $0.4 million compared to $4.4 million for the same time period in 2009.
Total commission and fee income decreased 36.7% to $11.3 million in the fourth quarter of 2010 compared to $17.9 million in the fourth quarter of 2009. The decrease in the total commission and fee income was due to the run-off of a quota share treaty in 2009. Policy billing fees increased to $2.6 million in the fourth quarter of 2010 compared to $0.8 million for the same time period in 2009. The increase in policy billing fees was due to the acquisition of OBPL.
The net loss ratio was 59.9% for the three months ended December 31, 2010 compared to 62.0% for the same period in 2009. (Excluding the business that we manage on behalf of the reciprocal exchanges, the net loss ratio was 60.2% for the fourth quarter of 2010.)
Our net expense ratio was 31.8% for the three months ended December 31, 2010 compared to 32.7 % for the same period in 2009. (Excluding the business that we manage on behalf of the reciprocal exchanges, the net expense ratio was 31.7% for the fourth quarter of 2010.)
Interest expense increased by $3.7 million for the three months ended December 31, 2010, compared to the same period in 2009. Interest expense increased mainly due to the September 2010 convertible senior notes issuance, interest on withheld funds as well as interest on the bank credit facility, which was completed in May 2010.
Additional Highlights and Disclosures:
Dividend Declaration
Tower’s Board of Directors approved a quarterly dividend on February 25, 2011 of $0.125 per share payable on March 28, 2011 to stockholders of record as of March 15, 2011.
2011 Guidance
Tower expects 2011 operating earnings per share to be in a range of $2.70 to $2.90.
Notes on Non-GAAP Financial Measures
(1) Operating income 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 per share is operating income divided by diluted weighted average shares outstanding. Operating return on equity is annualized operating income divided by average common stockholders' equity.
(2) Gross premiums written through our insurance subsidiaries and produced as managing general agent on behalf of other insurance companies.
(3) 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 services agreements. These fees increased the gross and net expense ratios by 0.9% and 1.0%, respectively, for the year ended December 31, 2010.
(4) For the twelve month period ended December 31, 2010, $1.4 million of acquisition-related transaction costs were not deemed deductible for tax purposes. A tax rate of 35% was used for those acquisition-related transaction costs that were tax deductible.
Conference Call
Tower will host a conference call and webcast to discuss these results on Tuesday, March 1, 2011 at 8:30 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.
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, 2009 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/
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 OneBeacon Personal Lines 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 will result 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:
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.
| Commercial Insurance & Personal Insurance Combined | |||||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| Three Months Ended December 31, | Year Ended December 31 | ||||||||||||||||||||||
| 2010 | 2009 | Change(%) | 2010 | 2009 | Change(%) | ||||||||||||||||||
| Revenues | |||||||||||||||||||||||
| Premiums earned | |||||||||||||||||||||||
| Gross premiums earned | $ | 434,963 | $ | 298,819 | 45.6 | % | $ | 1,519,638 | $ | 1,046,260 | 45.2 | % | |||||||||||
| Less: ceded premiums earned | (62,086 | ) | (65,628 | ) | -5.4 | % | (226,969 | ) | (191,549 | ) | 18.5 | % | |||||||||||
| Net premiums earned | 372,877 | 233,191 | 59.9 | % | 1,292,669 | 854,711 | 51.2 | % | |||||||||||||||
| Ceding commission revenue | 8,511 | 16,263 | -47.7 | % | 38,068 | 43,937 | -13.4 | % | |||||||||||||||
| Policy billing fees | 2,579 | 774 | 233.2 | % | 6,255 | 2,944 | 112.5 | % | |||||||||||||||
| Total revenues | 383,967 | 250,228 | 53.4 | % | 1,336,992 | 901,592 | 48.3 | % | |||||||||||||||
| Expenses | |||||||||||||||||||||||
| Loss and loss adjustment expenses | |||||||||||||||||||||||
| Gross loss and loss adjustment expenses | 231,424 | 175,812 | 31.6 | % | 884,420 | 566,762 | 56.0 | % | |||||||||||||||
|
Less: ceded loss and loss adjustment expenses |
(8,069 | ) | (31,235 | ) | -74.2 | % | (100,397 | ) | (91,265 | ) | 10.0 | % | |||||||||||
| Net loss and loss adjustment expenses | 223,355 | 144,577 | 54.5 | % | 784,023 | 475,497 | 64.9 | % | |||||||||||||||
| Underwriting expenses | |||||||||||||||||||||||
| Direct commission expense | 68,572 | 54,282 | 26.3 | % | 266,096 | 202,858 | 31.2 | % | |||||||||||||||
| Other underwriting expenses | 61,157 | 38,906 | 57.2 | % | 204,682 | 123,468 | 65.8 | % | |||||||||||||||
| Total underwriting expenses | 129,729 | 93,188 | 39.2 | % | 470,778 | 326,326 | 44.3 | % | |||||||||||||||
| Underwriting profit | $ | 30,883 | $ | 12,463 | 147.8 | % | $ | 82,191 | $ | 99,769 | -17.6 | % | |||||||||||
| Key Measures | |||||||||||||||||||||||
| Premiums written | |||||||||||||||||||||||
| Gross premiums written | $ | 433,860 | $ | 327,232 | 32.6 | % | $ | 1,496,371 | $ | 1,070,716 | 39.8 | % | |||||||||||
| Less: ceded premiums written | (49,193 | ) | (121,773 | ) | -59.6 | % | (182,307 | ) | (184,527 | ) | -1.2 | % | |||||||||||
| Net premiums written | $ | 384,667 | $ | 205,459 | 87.2 | % | $ | 1,314,064 | $ | 886,189 | 48.3 | % | |||||||||||
| Calendar Year Loss Ratios | |||||||||||||||||||||||
| Gross | 53.2 | % | 58.8 | % | 58.2 | % | 54.2 | % | |||||||||||||||
| Net | 59.9 | % | 62.0 | % | 60.7 | % | 55.6 | % | |||||||||||||||
| Underwriting Expense Ratios | |||||||||||||||||||||||
| Gross | 29.2 | % | 30.9 | % | 30.6 | % | 30.9 | % | |||||||||||||||
| Net | 31.8 | % | 32.7 | % | 33.0 | % | 32.7 | % | |||||||||||||||
| Combined Ratios | |||||||||||||||||||||||
| Gross | 82.4 | % | 89.7 | % | 88.8 | % | 85.1 | % | |||||||||||||||
| Net | 91.7 | % | 94.7 | % | 93.7 | % | 88.3 | % | |||||||||||||||
| Commercial Insurance Segment Information | ||||||||||||||||
| ($ in thousands) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Three Months Ended | Year Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| Revenues | ||||||||||||||||
| Premiums earned | ||||||||||||||||
| Gross premiums earned | $ | 271,610 | $ | 249,963 | $ | 1,096,715 | $ | 887,420 | ||||||||
| Less: ceded premiums earned | (31,754 | ) | (53,334 | ) | (155,700 | ) | (149,203 | ) | ||||||||
| Net premiums earned | 239,856 | 196,629 | 941,015 | 738,217 | ||||||||||||
| Ceding commission revenue | 4,189 | 15,535 | 31,998 | 39,355 | ||||||||||||
| Policy billing fees | 732 | 580 | 2,742 | 2,215 | ||||||||||||
| Total revenues | 244,777 | 212,744 | 975,755 | 779,787 | ||||||||||||
| Expenses | ||||||||||||||||
| Loss and loss adjustment expenses | ||||||||||||||||
| Gross loss and loss adjustment expenses | 164,633 | 148,617 | 675,051 | 486,894 | ||||||||||||
|
Less: ceded loss and loss adjustment expenses |
(5,206 | ) | (28,024 | ) | (85,729 | ) | (80,166 | ) | ||||||||
| Net loss and loss adjustment expenses | 159,427 | 120,593 | 589,322 | 406,728 | ||||||||||||
| Underwriting expenses | ||||||||||||||||
| Direct commission expenses | 38,050 | 45,827 | 191,351 | 174,105 | ||||||||||||
| Other underwriting expenses | 34,532 | 31,147 | 143,504 | 99,641 | ||||||||||||
| Total underwriting expenses | 72,582 | 76,974 | 334,855 | 273,746 | ||||||||||||
| Underwriting profit | $ | 12,768 | $ | 15,177 | $ | 51,578 | $ | 99,313 | ||||||||
| Key Measures | ||||||||||||||||
| Premiums written | ||||||||||||||||
| Gross premiums written | $ | 277,407 | $ | 269,722 | $ | 1,083,832 | $ | 884,676 | ||||||||
| Less: ceded premiums written | (7,662 | ) | (110,840 | ) | (96,572 | ) | (153,814 | ) | ||||||||
| Net premiums written | $ | 269,745 | $ | 158,882 | $ | 987,260 | $ | 730,862 | ||||||||
| Calendar Year Loss Ratios | ||||||||||||||||
| Gross | 60.6 | % | 59.5 | % | 61.6 | % | 54.9 | % | ||||||||
| Net | 66.5 | % | 61.3 | % | 62.6 | % | 55.1 | % | ||||||||
| Underwriting Expense Ratios | ||||||||||||||||
| Gross | 26.5 | % | 30.6 | % | 30.3 | % | 30.6 | % | ||||||||
| Net | 28.2 | % | 31.0 | % | 31.9 | % | 31.5 | % | ||||||||
| Combined Ratios | ||||||||||||||||
| Gross | 87.1 | % | 90.0 | % | 91.9 | % | 85.5 | % | ||||||||
| Net | 94.7 | % | 92.3 | % | 94.5 | % | 86.6 | % | ||||||||
| Personal Insurance Segment Information | ||||||||||||||||
| ($ in thousands) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Three Months Ended December 31, | ||||||||||||||||
| 2010 | ||||||||||||||||
| Reciprocal | ||||||||||||||||
| Tower | Exchanges | Total | 2009 | |||||||||||||
| Revenues | ||||||||||||||||
| Premiums earned | ||||||||||||||||
| Gross premiums earned | $ | 105,309 | $ | 58,044 | $ | 163,353 | $ | 48,856 | ||||||||
| Less: ceded premiums earned | (20,066 | ) | (10,266 | ) | (30,332 | ) | (12,294 | ) | ||||||||
| Net premiums earned | 85,243 | 47,778 | 133,021 | 36,562 | ||||||||||||
| Ceding commission revenue | 3,297 | 1,025 | 4,322 | 728 | ||||||||||||
| Policy billing fees | 1,698 | 149 | 1,847 | 194 | ||||||||||||
| Total revenues | 90,238 | 48,952 | 139,190 | 37,484 | ||||||||||||
| Expenses | ||||||||||||||||
| Loss and loss adjustment expenses | ||||||||||||||||
| Gross loss and loss adjustment expenses | 38,918 | 27,873 | 66,791 | 27,194 | ||||||||||||
|
Less: ceded loss and loss adjustment expenses |
(2,542 | ) | (321 | ) | (2,863 | ) | (3,212 | ) | ||||||||
| Net loss and loss adjustment expenses | 36,376 | 27,552 | 63,928 | 23,982 | ||||||||||||
| Underwriting expenses | ||||||||||||||||
| Direct commission expense | 20,472 | 10,050 | 30,522 | 8,455 | ||||||||||||
| Other underwriting expenses | 19,797 | 6,828 | 26,625 | 7,759 | ||||||||||||
| Total underwriting expenses | 40,269 | 16,878 | 57,147 | 16,214 | ||||||||||||
| Underwriting profit | $ | 13,593 | $ | 4,522 | $ | 18,115 | $ | (2,712 | ) | |||||||
| Key Measures | ||||||||||||||||
| Premiums written | ||||||||||||||||
| Gross premiums written | $ | 85,873 | $ | 70,580 | $ | 156,453 | $ | 57,510 | ||||||||
| Less: ceded premiums written | (30,630 | ) | (10,901 | ) | (41,531 | ) | (10,933 | ) | ||||||||
| Net premiums written | $ | 55,243 | $ | 59,679 | $ | 114,922 | $ | 46,577 | ||||||||
| Calendar Year Loss Ratios | ||||||||||||||||
| Gross | 37.0 | % | 48.0 | % | 40.9 | % | 55.7 | % | ||||||||
| Net | 42.7 | % | 57.7 | % | 48.1 | % | 65.6 | % | ||||||||
| Underwriting Expense Ratios | ||||||||||||||||
| Gross | 36.6 | % | 28.8 | % | 33.9 | % | 32.8 | % | ||||||||
| Net | 41.4 | % | 32.9 | % | 38.3 | % | 41.8 | % | ||||||||
| Combined Ratios | ||||||||||||||||
| Gross | 73.6 | % | 76.8 | % | 74.8 | % | 88.5 | % | ||||||||
| Net | 84.1 | % | 90.6 | % | 86.4 | % | 107.4 | % | ||||||||
| Personal Insurance Segment Information | ||||||||||||||||
| ($ in thousands) | ||||||||||||||||
| (Unaudited) | ||||||||||||||||
| Year Ended December 31, | ||||||||||||||||
| 2010 | ||||||||||||||||
| Reciprocal | ||||||||||||||||
| Tower | Exchanges | Total | 2009 | |||||||||||||
| Revenues | ||||||||||||||||
| Premiums earned | ||||||||||||||||
| Gross premiums earned | $ | 308,925 | $ | 113,998 | $ | 422,923 | $ | 158,840 | ||||||||
| Less: ceded premiums earned | (51,062 | ) | (20,207 | ) | (71,269 | ) | (42,346 | ) | ||||||||
| Net premiums earned | 257,863 | 93,791 | 351,654 | 116,494 | ||||||||||||
| Ceding commission revenue | 4,019 | 2,051 | 6,070 | 4,582 | ||||||||||||
| Policy billing fees | 3,213 | 300 | 3,513 | 729 | ||||||||||||
| Total revenues | 265,095 | 96,142 | 361,237 | 121,805 | ||||||||||||
| Expenses | ||||||||||||||||
| Loss and loss adjustment expenses | ||||||||||||||||
| Gross loss and loss adjustment expenses | 140,537 | 68,832 | 209,369 | 79,868 | ||||||||||||
|
Less: ceded loss and loss adjustment expenses |
(8,038 | ) | (6,630 | ) | (14,668 | ) | (11,099 | ) | ||||||||
| Net loss and loss adjustment expenses | 132,499 | 62,202 | 194,701 | 68,769 | ||||||||||||
| Underwriting expenses | ||||||||||||||||
| Direct commission expense | 56,392 | 18,353 | 74,745 | 28,753 | ||||||||||||
| Other underwriting expenses | 49,814 | 11,364 | 61,178 | 23,827 | ||||||||||||
| Total underwriting expenses | 106,206 | 29,717 | 135,923 | 52,580 | ||||||||||||
| Underwriting profit | $ | 26,390 | $ | 4,223 | $ | 30,613 | $ | 456 | ||||||||
| Key Measures | ||||||||||||||||
| Premiums written | ||||||||||||||||
| Gross premiums written | $ | 285,742 | $ | 126,797 | $ | 412,539 | $ | 186,040 | ||||||||
| Less: ceded premiums written | (62,112 | ) | (23,623 | ) | (85,735 | ) | (30,713 | ) | ||||||||
| Net premiums written | $ | 223,630 | $ | 103,174 | $ | 326,804 | $ | 155,327 | ||||||||
| Calendar Year Loss Ratios | ||||||||||||||||
| Gross | 45.5 | % | 60.4 | % | 49.5 | % | 50.3 | % | ||||||||
| Net | 51.4 | % | 66.3 | % | 55.4 | % | 59.0 | % | ||||||||
| Underwriting Expense Ratios | ||||||||||||||||
| Gross | 33.3 | % | 25.8 | % | 31.3 | % | 32.6 | % | ||||||||
| Net | 38.4 | % | 29.2 | % | 35.9 | % | 40.6 | % | ||||||||
| Combined Ratios | ||||||||||||||||
| Gross | 78.8 | % | 86.2 | % | 80.8 | % | 82.9 | % | ||||||||
| Net | 89.8 | % | 95.5 | % | 91.3 | % | 99.6 | % | ||||||||
| Insurance Services Segment Results of Operations | |||||||||||||||||
| ($ in thousands) | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| Three Months Ended | Year Ended | ||||||||||||||||
| December 31, | December 31, | ||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | ||||||||||||||
| Revenue | |||||||||||||||||
| Direct commission revenue from managing general agency | $ | (328 | ) | $ | (430 | ) | $ | (881 | ) | $ | 1,583 | ||||||
| Management fee income | 10,314 | - | 18,185 | - | |||||||||||||
| Reinsurance intermediary fees | 888 | 770 | 2,269 | 1,488 | |||||||||||||
| Other revenue | (744 | ) | 532 | 350 | 2,073 | ||||||||||||
| Total revenue | 10,130 | 872 | 19,923 | 5,144 | |||||||||||||
| Expenses | |||||||||||||||||
| Direct commission expenses paid to producers | 16 | 35 | 327 | 1,707 | |||||||||||||
| Other insurance services expenses | 1,107 | 498 | 5,433 | 2,576 | |||||||||||||
| Total expenses | 1,123 | 533 | 5,760 | 4,283 | |||||||||||||
| Insurance services pre-tax income | $ | 9,007 | $ | 339 | $ | 14,163 | $ | 861 | |||||||||
| Premiums produced by TRM on behalf of issuing companies | $ | - | $ | 196 | $ | - | $ | 11,722 | |||||||||
| Tower Group, Inc. | |||||||||
| Consolidated Balance Sheets | |||||||||
| December 31, | |||||||||
| ($ in thousands, except par value and share amounts) | 2010 | 2009 | |||||||
| Assets | |||||||||
| Investments - Tower | |||||||||
| Available-for-sale investments, at fair value: | |||||||||
|
Fixed-maturity securities (amortized cost of $1,968,670 and $1,729,117) |
$ | 2,041,557 | $ | 1,783,596 | |||||
| Equity securities (cost of $91,218 and $78,051) | 90,317 | 76,733 | |||||||
| Short-term investments (cost of $1,560 and $36,500) | 1,560 | 36,500 | |||||||
| Investments - Reciprocal Exchanges | |||||||||
| Available-for-sale investments, at fair value: | |||||||||
| Fixed-maturity securities (amortized cost of $338,494) | 341,054 | - | |||||||
| Total investments | 2,474,488 | 1,896,829 | |||||||
| Cash and cash equivalents (includes $2,796 relating to Reciprocal Exchanges in 2010) | 102,877 | 164,882 | |||||||
| Investment income receivable | 23,562 | 20,240 | |||||||
| Premiums receivable (includes $53,953 relating to Reciprocal Exchanges in 2010) |
387,584 |
308,075 | |||||||
| Reinsurance recoverable on paid losses (includes $2,167 relating to Reciprocal Exchanges in 2010) | 18,214 | 14,819 | |||||||
| Reinsurance recoverable on unpaid losses (includes $15,092 relating to Reciprocal Exchanges in 2010) | 282,682 | 199,687 | |||||||
| Prepaid reinsurance premiums (includes $17,919 relating to Reciprocal Exchanges in 2010) | 77,627 | 94,818 | |||||||
| Deferred acquisition costs, net (includes $31,312 relating to Reciprocal Exchanges in 2010) | 242,824 | 170,652 | |||||||
| Deferred income taxes | - | 41,757 | |||||||
| Intangible assets (includes $5,504 relating to Reciprocal Exchanges in 2010) | 123,820 | 53,350 | |||||||
| Goodwill | 250,103 | 244,690 | |||||||
| Other assets (includes $5,808 relating to Reciprocal Exchanges in 2010) | 230,405 | 103,153 | |||||||
| Total assets | $ |
4,214,186 |
$ | 3,312,952 | |||||
| Liabilities | |||||||||
| Loss and loss adjustment expenses (includes $175,023 relating to Reciprocal Exchanges in 2010) | $ | 1,610,421 | $ | 1,131,989 | |||||
| Unearned premium (includes $123,949 relating to Reciprocal Exchanges in 2010) | 872,026 | 658,940 | |||||||
| Reinsurance balances payable (includes $3,402 relating to Reciprocal Exchanges in 2010) |
35,037 |
89,080 | |||||||
| Funds held under reinsurance agreements | 93,153 | 13,737 | |||||||
| Other liabilities (includes $9,384 relating to Reciprocal Exchanges in 2010) | 84,989 | 133,647 | |||||||
| Deferred income taxes (includes $3,668 relating to Reciprocal Exchanges in 2010) | 25,169 | - | |||||||
| Debt | 374,266 | 235,058 | |||||||
| Total liabilities |
3,095,061 |
2,262,451 | |||||||
| Stockholders' equity | |||||||||
| Common stock ($0.01 par value; 100,000,000 shares authorized, 45,742,342 and | |||||||||
| 45,092,321 shares issued, and 41,485,678 and 44,984,953 shares outstanding) | 457 | 451 | |||||||
| Treasury stock (4,256,664 and 107,368 shares) | (91,779 | ) | (1,995 | ) | |||||
| Paid-in-capital | 763,064 | 751,878 | |||||||
| Accumulated other comprehensive income | 48,883 | 34,554 | |||||||
| Retained earnings | 367,013 | 265,613 | |||||||
| Tower Group, Inc. stockholders' equity | 1,087,638 | 1,050,501 | |||||||
| Noncontrolling interests - Reciprocal Exchanges | 31,487 | - | |||||||
| Total stockholders' equity | 1,119,125 | 1,050,501 | |||||||
| Total liabilities and stockholders' equity | $ |
4,214,186 |
$ | 3,312,952 | |||||
| Refer to notes accompanying consolidated financial statements, as filed with the SEC. | |||||||||
| Tower Group, Inc. | ||||||||||||||||
| Consolidated Statements of Income and Comprehensive Income | ||||||||||||||||
| Three Months Ended | Year Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| (in thousands, except per share amounts) | 2010 | 2009 | 2010 | 2009 | ||||||||||||
| Revenues | ||||||||||||||||
| Net premiums earned | $ | 372,877 | $ | 233,192 | $ | 1,292,669 | $ | 854,711 | ||||||||
| Ceding commission revenue | 8,511 | 16,263 | 38,068 | 43,937 | ||||||||||||
| Insurance services revenue | 247 | 870 | 2,169 | 5,123 | ||||||||||||
| Policy billing fees | 2,578 | 774 | 6,255 | 2,965 | ||||||||||||
| Net investment income | 29,690 | 21,183 | 106,090 | 74,866 | ||||||||||||
| Net realized investment gains (losses): | ||||||||||||||||
| Other-than-temporary impairments | (2,165 | ) | (9,888 | ) | (16,100 | ) | (44,210 | ) | ||||||||
| Portion of loss recognized in other comprehensive income | 1,789 | 5,444 | 11,909 | 20,722 | ||||||||||||
| Other net realized investment gains | 6,236 | 3,620 | 17,674 | 24,989 | ||||||||||||
| Total net realized investment gains (losses) | 5,860 | (824 | ) | 13,483 | 1,501 | |||||||||||
| Total revenues | 419,763 | 271,458 | 1,458,734 | 983,103 | ||||||||||||
| Expenses | ||||||||||||||||
| Loss and loss adjustment expenses | 223,355 | 144,575 | 784,023 | 475,497 | ||||||||||||
| Direct and ceding commission expense | 69,372 | 54,327 | 267,209 | 204,565 | ||||||||||||
| Other operating expenses | 53,625 | 40,052 | 195,751 | 129,846 | ||||||||||||
| Acquisition-related transaction costs | 971 | 703 | 2,369 | 14,038 | ||||||||||||
| Interest expense | 8,307 | 4,625 | 24,594 | 18,122 | ||||||||||||
| Total expenses | 355,630 | 244,282 | 1,273,946 | 842,068 | ||||||||||||
| Other income (expense) | ||||||||||||||||
| Equity in income (loss) of unconsolidated affiliate | - | - | - | (777 | ) | |||||||||||
| Gain on investment in acquired unconsolidated affiliate | - | - | - | 7,388 | ||||||||||||
| Gain on bargain purchase | - | 13,186 | - | 13,186 | ||||||||||||
| Other | - | - | (466 | ) | - | |||||||||||
| Income before income taxes | 64,133 | 40,362 | 184,322 | 160,832 | ||||||||||||
| Income tax expense | 22,461 | 9,614 | 62,400 | 51,502 | ||||||||||||
| Net income | $ | 41,672 | $ | 30,748 | $ | 121,922 | $ | 109,330 | ||||||||
| Less: Net income attributable to Reciprocal Exchanges | 3,157 | - | 3,971 | - | ||||||||||||
| Net income attributable to Tower Group, Inc. | $ | 38,515 | $ | 30,748 | $ | 117,951 | $ | 109,330 | ||||||||
| Net income | $ | 41,672 | $ | 30,748 | $ | 121,922 | $ | 109,330 | ||||||||
| Cumulative effect of adjustment resulting from adoption of | ||||||||||||||||
| new accounting guidance | - | - | - | (2,497 | ) | |||||||||||
| Gross unrealized investment holding gains (losses) arising during periods | (64,072 | ) | (6,791 | ) | 34,869 | 108,879 | ||||||||||
| Gross unrealized gain on interest rate swaps | 3,223 | - | 3,223 | - | ||||||||||||
| Equity in net unrealized gains on investment in unconsolidated affiliate's | ||||||||||||||||
| investment portfolio | - | - | - | 3,124 | ||||||||||||
| Less: Reclassification adjustment for (gains) losses included in net income | (5,860 | ) | 824 | (13,483 | ) | (1,501 | ) | |||||||||
| Income tax benefit (expense) related to items of other comprehensive | ||||||||||||||||
| income | 23,348 | (195 | ) | (8,613 | ) | (37,700 | ) | |||||||||
| Comprehensive income | $ | (1,689 | ) | $ | 24,586 | $ | 137,918 | $ | 179,635 | |||||||
| Less: Comprehensive income (loss) attributable to Reciprocal Exchanges | (4,686 | ) | - | 1,665 | - | |||||||||||
| Comprehensive income attributable to Tower Group, Inc. | $ | 2,997 | $ | 24,586 | $ | 136,253 | $ | 179,635 | ||||||||
| Earnings per share attributable to Tower Group, Inc. stockholders: | ||||||||||||||||
| Basic | $ | 0.93 | $ | 0.72 | $ | 2.71 | $ | 2.78 | ||||||||
| Diluted | $ | 0.92 | $ | 0.72 | $ | 2.70 | $ | 2.76 | ||||||||
| Weighted average common shares outstanding: | ||||||||||||||||
| Basic | 41,538 | 42,668 | 43,462 | 39,363 | ||||||||||||
| Diluted | 41,715 | 42,901 | 43,648 | 39,581 | ||||||||||||
| Dividends declared and paid per common share | $ | 0.125 | $ | 0.070 | $ | 0.390 | $ | 0.260 | ||||||||
| Refer to notes accompanying consolidated financial statements, as filed with the SEC. | ||||||||||||||||
CONTACT:
Tower Group, Inc.
Bill Hitselberger
Senior Vice
President and Chief Financial Officer
212-655-2110
bhitselberger@twrgrp.com