Attached files
| file | filename |
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| 8-K - TOWER GROUP, INC. 8-K - Tower Group International, Ltd. | a50059966.htm |
Exhibit 99.1
Tower Group Reports Third Quarter Results
NEW YORK--(BUSINESS WIRE)--November 7, 2011--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): |
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| 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. |
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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 | ||||||||
CONTACT:
Tower Group, Inc.
Bill Hitselberger, 212-655-2110
Executive
Vice President and Chief Financial Officer
bhitselberger@twrgrp.com