Attached files
| file | filename |
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| 8-K - FORM 8-K - Tower Group International, Ltd. | y84591be8vk.htm |
Exhibit 99.1
| 1. May 2010 Investor Presentation |
| Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. This presentation 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 presentation 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. Notes on Non-GAAP Financial Measures(1) Operating income excludes realized gains and losses and acquisition-related transaction costs, net of tax. This 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) Total premiums include gross premiums written through our insurance subsidiaries and produced as managing general agent on behalf of other insurance companies. |
| Presentation Outline I. Overview of TowerII. Strategy and Corporate GoalsIII. Financial ReviewIV. Key Investment Considerations |
| I. Overview of Tower |
| Overview of Tower ("TWGP") Leading provider of diversified niche-oriented property and casualty products and services Rated A- by A.M. Best with stable outlook$1.1 Billion in stockholders' equityTen insurance company subsidiaries 17 offices nationally (headquartered in NYC) with over 1000 employeesTower DifferentiationDiversified business model with a niche market focusProfitable growth Effective use of capital Successful acquisition track record |
| Our 20 Year History [Pre-IPO] [Post-IPO] Tower Insurance Co. of NY (TICNY) founded by Michael Lee Tower Group, Inc, Tower Risk Management Corp. (TRM) are formed Acquired renewal rights fromOneBeacon Insurance Group IPO & A.M. Best A- Rating Sponsored CastlePoint Holdings, Ltd. Acquired Hermitage Insurance Group and CastlePointHoldings, Ltd. Holdings, Ltd.Holdings, Ltd.Holdings, Ltd.Holdings, Ltd. Acquired Specialty Underwriters' Alliance, Inc. Acquired Workers' Compensation Renewal Rights from AequiCap Acquired renewal rightsfrom Empire Insurance Group Acquired Preserver Group, Inc. Announced Acquisition of OneBeacon's Personal Lines Division |
| Diversified with Niche Focus Market expansion - provides greater access to premium volume opportunitiesDiversification - allows allocation of capital to profitable segments and in doing so, results in effective management of market cycles Lines of Business Commercial Package Policies Businessowners Policy Commercial Property Commercial Liability Workers Compensation Commercial Auto Homeowners Personal Auto Customer Groups Commercial Personal Specialty Specialty Specialty Specialty Specialty Premium Size Small Medium Large Pricing & Coverage Tier Preferred Standard Non-Standard E&S Distribution System Retail Agents Wholesale Agents Program Underwriting Agents |
| Broad Product Line Provides access to significant premium volume opportunityAllows optimal business mix in response to varying market conditions 1Q09 DPW by LOB 1Q10 DPW by LOB |
| Diverse Customer Groups Brokerage Insurance Segment Commercial and Personal Specialty Business Segment Customers and types of risks Distribution Sources CompetitiveAdvantage Underwriting Retail agents: Preferred and Standard Wholesale agents: Non-standard and E&S risks Narrowly defined classes of business Garage liability Long term healthcare workers Commercial construction Specialty transportation Professional Employers Organizations Specialized underwriting expertise Established books of business underwritten by program underwriting agents with proven track records Broad portfolio of Commercial and Personal Lines of BusinessCommercial: Apartment buildings, retail stores, restaurants and artisan contractors Personal: modestly valued homes; auto and package Streamlined underwriting process, automation and scale Individual policies underwritten by Tower staff Program underwriting agents |
| Significant Territorial Expansion Opportunity Rapidly building Tower into a diversified national insurance companyMidwest and Southwest are expected to contribute more meaningfully in the futureLoss ratio in the territories outside the Northeast continues to be favorable 1Q 2010 Direct Premiums Written by Territory 60.1% 22.5% 10.6% 4.0% 2.8% |
| Multiple Solutions Under One Company Premium size segments: Different underwriting, service and systems capability for all premiums size segmentsSmall (under $25K); Medium (over 25K to $100K); Large (over $100K) Pricing and coverage tiers: Competitively priced products positioned at preferred and standard tiersUnderserved products positioned at non-standard and E&S tiers Advantage created:Provide many solutions under one company Avoids the need for producers to place business with multiple companiesImproves producers' success in placing business with TowerCustomize pricing, coverage and underwriting for specific market segments |
| Diversified Distribution Distribution Channel Tier Approx # of Agents Retail Preferred and Standard 1100 Wholesale Non-standard and E&S 200 Program Underwriting Agents Specialty Business 20 1Q 2009 GPW Distribution 1Q 2010 GPW Distribution |
| II. Strategy and Corporate Goals |
| Underwriting Strategy CommercialFocus on underwriting small policies using automated web platformLeverage existing products throughout the countryOffer products in multiple pricing and coverage tiers SpecialtyFocus on narrowly defined homogeneous classes of business Acquire or develop specialized underwriting expertise requiring industry insight, regional knowledge or understanding of specific risksPersonalExpand personal lines product offering through personal package policiesUtilize reciprocal structures to provide additional capacity |
| An Opportunistic Acquisition Strategy Build diversified business platform through acquisitionsOpportunity to expand distribution and servicing capabilitiesProvides access to complementary product lines and classesValue created from improved profitability of acquired companies from increased financial strength, expense reduction, re-underwriting and cross-selling Consolidate renewal business to offset lack of organic growthCurrent market conditions: Lack of organic growth due to weak economic conditionsCompetitive P&C market conditions Motivated sellers with reasonable valuationTower's advantage: strong track record in acquiring and integrating businesses at a reasonable costProfile of targetsSmall insurance companies with limited capital and high expenses but also with access to local markets Managing general agencies with specialized product expertiseAcquisition of OneBeacon's personal lines division - on track to close in late second quarter |
| Hybrid Business Model Anticipated higher ROE beginning in the third quarter 2010Significant increase in capital after the CastlePoint acquisition lowered underwriting and investment income from retaining premiums using own capitalCommission and fee income from transferring premiums to reinsurers and other insurance companies Operating ROE (%) Total Premiums to Average Equity Leverage 14.4% 1.6x - 2.0x 12.9% 27.3% 13.7% 7.6% 14 - 15% 1.1x 1.2x 1.2x 1.2x 20.7% CastlePointAcquisition SUAAcquisition * * After OneBeacon transaction. |
| III. Financial Metrics |
| Gross Premiums Written and Produced Retention was 86% for all lines for 1Q 2010 (Brokerage Insurance Segment)90% retention in personal lines80% retention in commercial lines 5 Year CAGR 36.4% Book Value Per Share Profitable Growth 5 Year CAGR 28.9% |
| Pricing and Retention Premium Increases on Renewals Renewal Retention Rates Note: Brokerage Insurance Segment Data. Premium increases include price and exposure change. |
| Strong Operating Results 5 Year CAGR 67.7% Operating Income ($ millions) Operating EPS 5 Year CAGR 23.5% |
| Highly Rated Investments High quality investment portfolio with net unrealized gain of $77 million (pre- tax) at March 31, 2010Fixed income average quality of AA-Duration of 4.6 years Tax equivalent book yield of 5.7% Asset Allocation Asset Quality |
| IV. Key Investment Considerations |
| (CHART) Operating Return on Equity Superior Performance vs. Industry Combined Ratio CastlePoint transaction:16.9 million shares issued Follow-on offering: $95 MM raised AM Best and Company Data. 2004-08 industry premiums represent net premiums written. Strong track record of profitable growth:Tower 5 year compounded growth rate in Total Premiums: 36.4%Tower 5 year average combined ratio: 86%Consistently stronger return on equity than industry:Outperformed publicly traded property and casualty insurance companies over the last 5 yearsIncludes periods in which Tower has raised capital (IPO: 10/2004 and follow-on offering: 1/2007) SNL Financial and Company Data. SNL data provided for publicly traded P&C companies. (CHART) |
| Five-Year Record of Strong Results Five-Year Record of Strong Results Tower's success over the past five years is the result of entrepreneurial drive, careful planning and disciplined execution * Average for years 2005-2009 except CAGR |