Attached files
| file | filename |
|---|---|
| 8-K - TOWER GROUP, INC. 8-K - Tower Group International, Ltd. | a6823111.htm |
Exhibit 99.1
Tower Group Reports Second Quarter Operating Earnings per Diluted Share of $0.63
Operating
Earnings per Share Increased 23.5% Over 2010
Book
Value per Share Up 3.1% in the Quarter, 8.5% since Second Quarter 2010
Annualized
Operating ROE of 9.9% in the Quarter and 8.8% Year to Date
NEW YORK--(BUSINESS WIRE)--August 8, 2011--Tower Group, Inc. (NASDAQ: TWGP) today reported net income available to common shareholders of $24.1 million, or $0.58 per diluted share. Net income in the second quarter of 2010 was $25.6 million, or $0.58 per diluted share.
Operating income (1) increased by 14.7% to $26.0 million in the second quarter of 2011 from $22.6 million in the same quarter last year, while diluted operating earnings per share (1) increased by 23.5% to $0.63 per share from $0.51 per share. Operating income was impacted by severe weather-related claims in the second quarter: after-tax losses from these events amounted to $4.6 million or $0.11 per share. The storm losses added 1.8 points to the second quarter 2011 loss ratio for the combined segments. Tower reported no severe weather losses in the second quarter of 2010.
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 second quarter 2010 by $0.05 per share.
Highlights (all figures compare second quarter 2011 results to the results for the same period in 2010 except as noted):
- Gross premiums written increased by 41.1% to $468.0 million.
-
For the combined insurance segments, the net combined ratio rose
slightly to 94.9% from 94.5% (Excluding the business that Tower
manages on behalf of the Reciprocal Exchanges, the net combined ratio
was 95.4% for the second quarter of 2011).
- The net loss ratio rose to 61.2% from 58.6%.
- The net expense ratio improved to 33.7% from 35.9%.
- Net investment income increased by 32.9% to $31.8 million.
- Book value per share was $26.01; during the quarter, Tower also paid cash dividends of $0.19 per share.
- Tower Group, Inc. stockholders’ equity was $1.1 billion as of June 30, 2011.
Michael H. Lee, President and Chief Executive Officer of Tower Group, Inc., said, “During the second quarter, we continued to show positive trends in our business by successfully executing our business strategies. Despite significant industry catastrophe losses and challenging market conditions, we were able to generate strong operating results during the quarter by maintaining underwriting and cost discipline and by profitably growing our business through acquisitions and new organic growth initiatives. We expect our operating results for the second half of the year to continue to improve as we leverage our expenses with higher premium volume resulting from the new growth initiatives and realize a lower loss ratio than we have in the first half of the year. Overall, we are pleased with our progress in executing our revamped business strategy to generate organic growth in profitable specialty markets while improving profitability in our existing commercial and personal lines units.”
| Financial Summary ($ in thousands, except per share data): | |||||||||||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||||||||||
| June 30, | June 30, | ||||||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||
| Gross premiums written | $ | 467,984 | $ | 331,662 | $ | 857,532 | $ | 614,911 | |||||||||||||
| Net premiums written | 428,995 | 292,442 | 789,013 | 539,735 | |||||||||||||||||
| Total commission and fee income | 13,241 | 9,713 | 24,202 | 21,228 | |||||||||||||||||
| Net investment income | 31,798 | 23,931 | 64,176 | 47,106 | |||||||||||||||||
| Net realized investment gains (losses) | (2,314 | ) | 5,166 | 5,046 | 5,906 | ||||||||||||||||
| Total revenues | 436,255 | 311,777 | 866,749 | 615,253 | |||||||||||||||||
| Other expense | - | - | - | (466 | ) | ||||||||||||||||
| Net income attributable to Tower Group, Inc. | 24,121 | 25,642 | 49,806 | 38,694 | |||||||||||||||||
| Earnings per share—Basic | $ | 0.58 | $ | 0.58 | $ | 1.20 | $ | 0.87 | |||||||||||||
| Earnings per share—Diluted | $ | 0.58 | $ | 0.58 | $ | 1.20 | $ | 0.86 | |||||||||||||
| Return on average equity | 9.2 | % | 10.6 | % | 9.5 | % | 8.0 | % | |||||||||||||
| Combined Commercial and Personal Segments | |||||||||||||||||||||
| Net premiums earned | $ | 393,530 | $ | 272,967 | $ | 773,325 | $ | 541,013 | |||||||||||||
| Net loss ratio | 61.2 | % | 58.6 | % | 62.2 | % | 60.8 | % | |||||||||||||
| Net expense ratio | 33.7 | % | 35.9 | % | 34.1 | % | 36.0 | % | |||||||||||||
| Commercial Insurance Segment | |||||||||||||||||||||
| Net premiums earned | $ | 263,735 | $ | 230,144 | $ | 515,503 | $ | 463,575 | |||||||||||||
| Net loss ratio | 63.2 | % | 63.3 | % | 64.2 | % | 60.7 | % | |||||||||||||
| Net expense ratio | 30.6 | % | 35.7 | % | 31.7 | % | 35.2 | % | |||||||||||||
| Personal Insurance Segment | |||||||||||||||||||||
| Net premiums earned | $ | 129,795 | $ | 42,823 | $ | 257,822 | $ | 77,438 | |||||||||||||
| Net loss ratio | 57.2 | % | 32.9 | % | 58.2 | % | 61.6 | % | |||||||||||||
| Net expense ratio | 39.9 | % | 36.9 | % | 39.0 | % | 40.8 | % | |||||||||||||
| Reconciliation of non-GAAP financial measures: | |||||||||||||||||||||
| Net income attributable to Tower Group, Inc. | $ | 24,121 | $ | 25,642 | $ | 49,806 | $ | 38,694 | |||||||||||||
| Less: net realized gains (losses) on investments attributable to Tower Group, Inc. | (2,857 | ) | 5,166 | 5,380 | 5,906 | ||||||||||||||||
| Add: acquisition-related transaction costs (2) | - | (393 | ) | (12 | ) | (1,250 | ) | ||||||||||||||
| Add: income tax effects on above items | 1,000 | (1,779 | ) | (1,882 | ) | (1,975 | ) | ||||||||||||||
| Operating income attributable to Tower Group, Inc. | $ | 25,978 | $ | 22,648 | $ | 46,320 | $ | 36,013 | |||||||||||||
| Operating earnings per share—Basic | $ | 0.63 | $ | 0.51 | $ | 1.12 | $ | 0.81 | |||||||||||||
| Operating earnings per share—Diluted | $ | 0.63 | $ | 0.51 | $ | 1.12 | $ | 0.80 | |||||||||||||
| Operating return on average equity | 9.9 | % | 9.4 | % | 8.8 | % | 7.5 | % | |||||||||||||
Second Quarter 2011 Highlights
Consolidated
Gross premiums written increased to $468.0 million in the second quarter, 41.1% higher than in the second quarter of 2010. Excluding programs, policies in-force increased by 78.1% as of June 30, 2011, compared to June 30, 2010. Most of the growth resulted from the acquisition of OneBeacon Personal Lines (OBPL) business at the beginning of the third quarter of 2010.
On a consolidated basis, Tower achieved overall premium increases of 1.7% across its renewed Commercial and Personal policies. The overall retention rate was 84.8% in the second quarter of 2011, up from 82.0% in the first quarter this year.
The net loss ratio was 61.2% for the three months ended June 30, 2011, compared to 58.6% for the same period in 2010. (Excluding the business Tower manages on behalf of the reciprocal exchanges, the net loss ratio was 62.4% for the second quarter of 2011.) Excluding the impact of severe weather related claims recorded in the second quarter 2011, the net loss ratio was 59.4% compared to 58.6% in 2010. In addition, the net loss ratio was unfavorably impacted by $3.3 million resulting from the partial settlement of a dispute regarding ceded reinsurance.
Tower’s net expense ratio, at 33.7% for the three months ended June 30, 2011, was an improvement from the 35.9% during the same period in 2010. (Excluding the business that Tower manages on behalf of the Reciprocal Exchanges, the net expense ratio was 33.0% for the second quarter of 2011.)
Net investment income increased 32.9% to $31.8 million for the three months ended June 30, 2011, up from $23.9 million for the same period in 2010. The tax equivalent investment yield of the company’s fixed maturity portfolio at amortized cost was 4.7% at June 30, 2011, compared to 5.2% at June 30, 2010. Net realized investment losses were $2.3 million for the three months ended June 30, 2011, compared to a gain of $5.2 million in the same period last year. The second quarter investment loss included other-than-temporarily impaired credit losses of $0.2 million, improving from $0.4 million of such losses in the second quarter of 2010.
Total commission and fee income increased 36.3% to $13.2 million in the second quarter of 2011 compared to $9.7 million in the second quarter of 2010.
Interest expense increased by $3.0 million for the three months ended June 30, 2011, compared to the same period in 2010.
Commercial Lines
Gross written premiums increased 12.9% in the second quarter 2011 compared to the same period in 2010. The growth was primarily due to the renewal rights transactions entered into in November 2010 and January 2011 for commercial automobile and workers compensation as well as new initiatives in Tower’s customized solutions and assumed reinsurance businesses.
For the three months ended June 30, 2011, premium 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 77.4%, up from 74.8% in the first quarter of 2011.
Personal Lines
On a combined basis (including Tower Personal Insurance and business that is managed on behalf of the Exchanges), gross written premiums were $152.1 million in the second quarter, up from $51.9 million in the same period last year, mostly due to the acquisition of OBPL business at the beginning of the third quarter of 2010. Gross written premium of the Reciprocal Exchanges was $55 million, or roughly 36% of the total premium in the segment.
Premium on renewed personal lines policies increased 2.1%, on average, during the second quarter of 2011, while the retention rate rose to 86.5%, up from 83.8% in the first quarter of 2011.
Insurance Services
Insurance Services provides underwriting, claims, policy administration and reinsurance brokerage 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 $7.7 million in the second 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 August 4, 2011, of $0.1875 per share payable on September 23, 2011, to stockholders of record as of September 12, 2011.
2011 Guidance
Due to the recently announced severe weather-related activity, Tower expects 2011 operating earnings per share to be at the lower end of its previously announced 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) For the three month period ended June 30, 2011, Tower recorded no acquisition-related transaction costs that were not deemed deductible for tax purposes compared to $0.4 million of acquisition-related transaction costs that were not deemed deductible for tax purposes for the three month period ended June 30, 2010. 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 to discuss these results on Tuesday, August 9, 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.
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 a 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, 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.
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 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, claims and reinsurance brokerage services to insurance companies.
| Commercial Insurance & Personal Insurance Combined | |||||||||||||
| ($ in thousands) | |||||||||||||
| (Unaudited) | |||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||||
| Revenues | |||||||||||||
| Premiums earned | |||||||||||||
| Gross premiums earned | $ | 445,837 | $ | 320,937 | $ | 869,760 | $ | 642,756 | |||||
| Less: ceded premiums earned | (52,307) | (47,970) | (96,435) | (101,743) | |||||||||
| Net premiums earned | 393,530 | 272,967 | 773,325 | 541,013 | |||||||||
| Ceding commission revenue | 10,655 | 8,453 | 18,836 | 18,641 | |||||||||
| Policy billing fees | 2,659 | 1,010 | 4,837 | 1,781 | |||||||||
| Total revenues | 406,844 | 282,430 | 796,998 | 561,435 | |||||||||
| Expenses | |||||||||||||
| Loss and loss adjustment expenses | |||||||||||||
| Gross loss and loss adjustment expenses | 253,065 | 190,280 | 511,191 | 387,230 | |||||||||
| Less: ceded loss and loss adjustment expenses | (12,219) | (30,412) | (30,169) | (58,025) | |||||||||
| Net loss and loss adjustment expenses | 240,846 | 159,868 | 481,022 | 329,205 | |||||||||
| Underwriting expenses | |||||||||||||
| Direct commission expense | 76,568 | 58,551 | 152,916 | 116,474 | |||||||||
| Other underwriting expenses | 69,315 | 48,788 | 134,468 | 98,791 | |||||||||
| Total underwriting expenses | 145,883 | 107,339 | 287,384 | 215,265 | |||||||||
| Underwriting profit | $ | 20,115 | $ | 15,223 | $ | 28,592 | $ | 16,965 | |||||
| Key Measures | |||||||||||||
| Premiums written | |||||||||||||
| Gross premiums written | $ | 467,984 | $ | 331,662 | $ | 857,532 | $ | 614,911 | |||||
| Less: ceded premiums written | (38,989) | (39,220) | (68,519) | (75,176) | |||||||||
| Net premiums written | $ | 428,995 | $ | 292,442 | $ | 789,013 | $ | 539,735 | |||||
| Calendar Year Loss Ratios | |||||||||||||
| Gross | 56.8% | 59.3% | 58.8% | 60.2% | |||||||||
| Net | 61.2% | 58.6% | 62.2% | 60.8% | |||||||||
| Underwriting Expense Ratios | |||||||||||||
| Gross | 32.1% | 33.1% | 32.5% | 33.2% | |||||||||
| Net | 33.7% | 35.9% | 34.1% | 36.0% | |||||||||
| Combined Ratios | |||||||||||||
| Gross | 88.9% | 92.4% | 91.3% | 93.4% | |||||||||
| Net | 94.9% | 94.5% | 96.3% | 96.8% | |||||||||
| Commercial Insurance Segment Information | |||||||||||||
| ($ in thousands) | |||||||||||||
| (Unaudited) | |||||||||||||
| Three Months Ended | Six Months Ended | ||||||||||||
| June 30, | June 30, | ||||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||||
| Revenues | |||||||||||||
| Premiums earned | |||||||||||||
| Gross premiums earned | $ | 285,978 | $ | 274,102 | $ | 562,529 | $ | 552,730 | |||||
| Less: ceded premiums earned | (22,243) | (43,958) | (47,026) | (89,155) | |||||||||
| Net premiums earned | 263,735 | 230,144 | 515,503 | 463,575 | |||||||||
| Ceding commission revenue | 4,710 | 9,428 | 8,728 | 18,570 | |||||||||
| Policy billing fees | 1,114 | 710 | 1,878 | 1,290 | |||||||||
| Total revenues | 269,559 | 240,282 | 526,109 | 483,435 | |||||||||
| Expenses | |||||||||||||
| Loss and loss adjustment expenses | |||||||||||||
| Gross loss and loss adjustment expenses | 161,741 | 174,920 | 343,435 | 337,510 | |||||||||
| Less: ceded loss and loss adjustment expenses | 4,856 | (29,151) | (12,348) | (55,981) | |||||||||
| Net loss and loss adjustment expenses | 166,597 | 145,769 | 331,087 | 281,529 | |||||||||
| Underwriting expenses | |||||||||||||
| Direct commission expense | 49,770 | 50,711 | 100,248 | 100,716 | |||||||||
| Other underwriting expenses | 36,863 | 41,501 | 73,613 | 82,365 | |||||||||
| Total underwriting expenses | 86,633 | 92,212 | 173,861 | 183,081 | |||||||||
| Underwriting profit | $ | 16,329 | $ | 2,301 | $ | 21,161 | $ | 18,825 | |||||
| Key Measures | |||||||||||||
| Premiums written | |||||||||||||
| Gross premiums written | $ | 315,866 | $ | 279,767 | $ | 578,878 | $ | 527,279 | |||||
| Less: ceded premiums written | (20,345) | (34,882) | (32,236) | (62,957) | |||||||||
| Net premiums written | $ | 295,521 | $ | 244,885 | $ | 546,642 | $ | 464,322 | |||||
| Calendar Year Loss Ratios | |||||||||||||
| Gross | 56.6% | 63.8% | 61.1% | 61.1% | |||||||||
| Net | 63.2% | 63.3% | 64.2% | 60.7% | |||||||||
| Underwriting Expense Ratios | |||||||||||||
| Gross | 29.9% | 33.4% | 30.6% | 32.9% | |||||||||
| Net | 30.6% | 35.7% | 31.7% | 35.2% | |||||||||
| Combined Ratios | |||||||||||||
| Gross | 86.5% | 97.2% | 91.7% | 94.0% | |||||||||
| Net | 93.8% | 99.0% | 95.9% | 95.9% | |||||||||
| Personal Insurance Segment Information | ||||||||||||
| ($ in thousands) | ||||||||||||
| (Unaudited) | ||||||||||||
| Three Months Ended June 30, | ||||||||||||
| 2011 | ||||||||||||
| Reciprocal | ||||||||||||
| Tower | Exchanges | Total | 2010 | |||||||||
| Revenues | ||||||||||||
| Premiums earned | ||||||||||||
| Gross premiums earned | $ | 96,156 | $ | 63,703 | $ | 159,859 | $ | 46,835 | ||||
| Less: ceded premiums earned | (17,101) | (12,963) | (30,064) | (4,012) | ||||||||
| Net premiums earned | 79,055 | 50,740 | 129,795 | 42,823 | ||||||||
| Ceding commission revenue | 4,414 | 1,531 | 5,945 | (975) | ||||||||
| Policy billing fees | 1,398 | 147 | 1,545 | 300 | ||||||||
| Total revenues | 84,867 | 52,418 | 137,285 | 42,148 | ||||||||
| Expenses | ||||||||||||
| Loss and loss adjustment expenses | ||||||||||||
| Gross loss and loss adjustment expenses | 58,363 | 32,961 | 91,324 | 15,360 | ||||||||
| Less: ceded loss and loss adjustment expenses | (10,990) | (6,085) | (17,075) | (1,261) | ||||||||
| Net loss and loss adjustment expenses | 47,373 | 26,876 | 74,249 | 14,099 | ||||||||
| Underwriting expenses | ||||||||||||
| Direct commission expense | 20,333 | 6,465 | 26,798 | 7,840 | ||||||||
| Other underwriting expenses | 17,811 | 14,641 | 32,452 | 7,287 | ||||||||
| Total underwriting expenses | 38,144 | 21,106 | 59,250 | 15,127 | ||||||||
| Underwriting profit | $ | (650) | $ | 4,436 | $ | 3,786 | $ | 12,922 | ||||
| Key Measures | ||||||||||||
| Premiums written | ||||||||||||
| Gross premiums written | $ | 97,085 | $ | 55,033 | $ | 152,118 | $ | 51,895 | ||||
| Less: ceded premiums written | (8,741) | (9,903) | (18,644) | (4,338) | ||||||||
| Net premiums written | $ | 88,344 | $ | 45,130 | $ | 133,474 | $ | 47,557 | ||||
| Calendar Year Loss Ratios | ||||||||||||
| Gross | 60.7% | 51.7% | 57.1% | 32.8% | ||||||||
| Net | 59.9% | 53.0% | 57.2% | 32.9% | ||||||||
| Underwriting Expense Ratios | ||||||||||||
| Gross | 38.2% | 32.9% | 36.1% | 31.7% | ||||||||
| Net | 40.9% | 38.3% | 39.9% | 36.9% | ||||||||
| Combined Ratios | ||||||||||||
| Gross | 98.9% | 84.6% | 93.2% | 64.5% | ||||||||
| Net | 100.8% | 91.3% | 97.1% | 69.8% | ||||||||
| Personal Insurance Segment Information | |||||||||||||
| ($ in thousands) | |||||||||||||
| (Unaudited) | |||||||||||||
| Six Months Ended June 30, | |||||||||||||
| 2011 | |||||||||||||
| Reciprocal | |||||||||||||
| Tower | Exchanges | Total | 2010 | ||||||||||
| Revenues | |||||||||||||
| Premiums earned | |||||||||||||
| Gross premiums earned | $ | 191,499 | $ | 115,732 | $ | 307,231 | $ | 90,026 | |||||
| Less: ceded premiums earned | (29,675) | (19,734) | (49,409) | (12,588) | |||||||||
| Net premiums earned | 161,824 | 95,998 | 257,822 | 77,438 | |||||||||
| Ceding commission revenue | 7,214 | 2,894 | 10,108 | 71 | |||||||||
| Policy billing fees | 2,668 | 291 | 2,959 | 491 | |||||||||
| Total revenues | 171,706 | 99,183 | 270,889 | 78,000 | |||||||||
| Expenses | |||||||||||||
| Loss and loss adjustment expenses | |||||||||||||
| Gross loss and loss adjustment expenses | 111,278 | 56,478 | 167,756 | 49,720 | |||||||||
| Less: ceded loss and loss adjustment expenses | (11,947) | (5,874) | (17,821) | (2,044) | |||||||||
| Net loss and loss adjustment expenses | 99,331 | 50,604 | 149,935 | 47,676 | |||||||||
| Underwriting expenses | |||||||||||||
| Direct commission expense | 35,629 | 17,039 | 52,668 | 15,758 | |||||||||
| Other underwriting expenses | 34,182 | 26,673 | 60,855 | 16,426 | |||||||||
| Total underwriting expenses | 69,811 | 43,712 | 113,523 | 32,184 | |||||||||
| Underwriting profit | $ | 2,564 | $ | 4,867 | $ | 7,431 | $ | (1,860) | |||||
| Key Measures | |||||||||||||
| Premiums written | |||||||||||||
| Gross premiums written | $ | 175,804 | $ | 102,850 | $ | 278,654 | $ | 87,632 | |||||
| Less: ceded premiums written | (19,191) | (17,092) | (36,283) | (12,219) | |||||||||
| Net premiums written | $ | 156,613 | $ | 85,758 | $ | 242,371 | $ | 75,413 | |||||
| Calendar Year Loss Ratios | |||||||||||||
| Gross | 58.1% | 48.8% | 54.6% | 55.2% | |||||||||
| Net | 61.4% | 52.7% | 58.2% | 61.6% | |||||||||
| Underwriting Expense Ratios | |||||||||||||
| Gross | 35.1% | 37.5% | 36.0% | 35.2% | |||||||||
| Net | 37.0% | 42.2% | 39.0% | 40.8% | |||||||||
| Combined Ratios | |||||||||||||
| Gross | 93.2% | 86.3% | 90.6% | 90.4% | |||||||||
| Net | 98.4% | 94.9% | 97.2% | 102.4% | |||||||||
| Insurance Services Segment Results of Operations | ||||||||||||||
| ($ in thousands) | ||||||||||||||
| (Unaudited) | ||||||||||||||
| Three Months Ended | Six Months Ended | |||||||||||||
| June 30, | June 30, | |||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||
| Revenue | ||||||||||||||
| Management fee income | $ | 7,704 | $ | - | $ | 14,399 | $ | - | ||||||
| Other revenue | (73) | 250 | 529 | 806 | ||||||||||
| Total revenue | 7,631 | 250 | 14,928 | 806 | ||||||||||
| Expenses | ||||||||||||||
| Other expenses | 4,977 | 419 | 10,018 | 791 | ||||||||||
| Total expenses | 4,977 | 419 | 10,018 | 791 | ||||||||||
| Insurance services pre-tax income | $ | 2,654 | $ | (169) | $ | 4,910 | $ | 15 | ||||||
| Tower Group, Inc. | |||||||
| Consolidated Balance Sheets | |||||||
| (Unaudited) | |||||||
| June 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 $2,059,101 and $1,968,670) | $ | 2,145,114 | $ | 2,041,557 | |||
| Equity securities (cost of $93,449 and $91,218) | 93,677 | 90,317 | |||||
| Short-term investments (cost of $4,998 and $1,560) | 4,998 | 1,560 | |||||
| Investments - Reciprocal Exchanges | |||||||
| Available-for-sale investments, at fair value: | |||||||
| Fixed-maturity securities (amortized cost of $292,287 and $338,494) | 299,554 | 341,054 | |||||
| Equity securities (cost of $1,965 and $0) | 2,364 | - | |||||
| Total investments | 2,545,707 | 2,474,488 | |||||
| Cash and cash equivalents (includes $23,159 and $2,796 relating to Reciprocal Exchanges) | 60,412 | 102,877 | |||||
| Investment income receivable (includes $2,645 and $3,021 relating to Reciprocal Exchanges) | 25,858 | 23,562 | |||||
| Premiums receivable (includes $38,757 and $53,953 relating to Reciprocal Exchanges) | 385,820 | 387,584 | |||||
| Reinsurance recoverable on paid losses (includes $3,380 and $2,167 relating to Reciprocal Exchanges) | 26,439 | 18,214 | |||||
| Reinsurance recoverable on unpaid losses (includes $15,259 and $15,092 relating to Reciprocal Exchanges) | 278,878 | 282,682 | |||||
| Prepaid reinsurance premiums (includes $14,040 and $17,919 relating to Reciprocal Exchanges) | 49,711 | 77,627 | |||||
| Deferred acquisition costs, net (includes $15,473 and $18,206 relating to Reciprocal Exchanges) | 167,496 | 164,123 | |||||
| Deferred income taxes (includes $0 and $788 relating to Reciprocal Exchanges) | - | 2,245 | |||||
| Intangible assets (includes $5,171 and $5,504 relating to Reciprocal Exchanges) | 119,370 | 123,820 | |||||
| Goodwill | 250,103 | 250,103 | |||||
| Other assets (includes $6,361 and $5,808 relating to Reciprocal Exchanges) | 304,298 | 230,405 | |||||
| Total assets | $ | 4,214,092 | $ | 4,137,730 | |||
| Liabilities | |||||||
| Loss and loss adjustment expenses (includes $167,163 and $175,023 relating to Reciprocal Exchanges) | $ | 1,584,699 | $ | 1,610,421 | |||
| Unearned premium (includes $102,942 and $123,949 relating to Reciprocal Exchanges) | 859,798 | 872,026 | |||||
| Reinsurance balances payable (includes $2,634 and $3,402 relating to Reciprocal Exchanges) | 19,787 | 35,037 | |||||
| Funds held under reinsurance agreements | 101,548 | 93,153 | |||||
|
Other liabilities (includes $13,824 and $9,384 relating to Reciprocal Exchanges) |
153,014 | 84,989 | |||||
| Deferred income taxes (includes $3,979 and $0 relating to Reciprocal Exchanges) | 15,871 | - | |||||
| Debt | 375,560 | 374,266 | |||||
| Total liabilities | 3,110,277 | 3,069,892 | |||||
| Stockholders' equity | |||||||
|
Common stock ($0.01 par value; 100,000,000 shares authorized, 46,398,451 and 45,742,342 shares issued, and 41,231,039 and 41,485,678 shares outstanding) |
464 | 457 | |||||
| Treasury stock (5,167,412 and 4,256,664 shares) | (113,409) | (91,779) | |||||
| Paid-in-capital | 768,441 | 763,064 | |||||
| Accumulated other comprehensive income | 55,744 | 48,883 | |||||
| Retained earnings | 361,327 | 324,376 | |||||
| Tower Group, Inc. stockholders' equity | 1,072,567 | 1,045,001 | |||||
| Noncontrolling interests - Reciprocal Exchanges | 31,248 | 22,837 | |||||
| Total stockholders' equity | 1,103,815 | 1,067,838 | |||||
| Total liabilities and stockholders' equity | $ | 4,214,092 | $ | 4,137,730 | |||
| Tower Group, Inc. | |||||||||||
| Consolidated Statements of Income and Comprehensive Income | |||||||||||
| (Unaudited) | |||||||||||
| Three Months Ended | Six Months Ended | ||||||||||
| June 30, | June 30, | ||||||||||
| (in thousands, except per share amounts) | 2011 | 2010 | 2011 | 2010 | |||||||
| Revenues | |||||||||||
| Net premiums earned | $ | 393,530 | $ | 272,967 | $ | 773,325 | $ | 541,013 | |||
| Ceding commission revenue | 10,655 | 8,453 | 18,836 | 18,641 | |||||||
| Insurance services revenue | (73) | 250 | 529 | 806 | |||||||
| Policy billing fees | 2,659 | 1,010 | 4,837 | 1,781 | |||||||
| Net investment income | 31,798 | 23,931 | 64,176 | 47,106 | |||||||
| Net realized investment gains (losses) | |||||||||||
| Other-than-temporary impairments | (210) | (2,836) | (378) | (8,982) | |||||||
| Portion of loss recognized in other comprehensive income | - | 2,505 | 24 | 5,720 | |||||||
| Other net realized investment gains (losses) | (2,104) | 5,497 | 5,400 | 9,168 | |||||||
| Total net realized investment gains (losses) | (2,314) | 5,166 | 5,046 | 5,906 | |||||||
| Total revenues | 436,255 | 311,777 | 866,749 | 615,253 | |||||||
| Expenses | |||||||||||
| Loss and loss adjustment expenses | 240,846 | 159,868 | 481,022 | 329,205 | |||||||
| Direct and ceding commission expense | 76,210 | 58,619 | 152,813 | 116,664 | |||||||
| Other operating expenses | 69,749 | 49,741 | 136,088 | 100,749 | |||||||
| Acquisition-related transaction costs | - | 393 | 12 | 1,250 | |||||||
| Interest expense | 8,257 | 5,214 | 16,357 | 10,095 | |||||||
| Total expenses | 395,062 | 273,835 | 786,292 | 557,963 | |||||||
| Other income (expense) | |||||||||||
| Other expense | - | - | - | (466) | |||||||
| Income before income taxes | 41,193 | 37,942 | 80,457 | 56,824 | |||||||
| Income tax expense | 12,877 | 12,300 | 25,635 | 18,130 | |||||||
| Net income | $ | 28,316 | $ | 25,642 | $ | 54,822 | $ | 38,694 | |||
| Less: Net income attributable to Reciprocal Exchanges | 4,195 | - | 5,016 | - | |||||||
| Net income attributable to Tower Group, Inc. | $ | 24,121 | $ | 25,642 | $ | 49,806 | $ | 38,694 | |||
| Net income | $ | 28,316 | $ | 25,642 | $ | 54,822 | $ | 38,694 | |||
| Gross unrealized investment holding gains arising during periods | 25,731 | 19,463 | 24,406 | 43,274 | |||||||
| Gross unrealized gains (losses) on interest rate swaps | (4,583) | - | (3,645) | - | |||||||
| Less: Reclassification adjustment for gains (losses) included in net income | 2,314 | (5,166) | (5,046) | (5,906) | |||||||
| Income tax (expense) related to items of other comprehensive income | (8,218) | (5,485) | (5,459) | (13,079) | |||||||
| Comprehensive income | $ | 43,560 | $ | 34,454 | $ | 65,078 | $ | 62,983 | |||
| Less: Comprehensive income attributable to Reciprocal Exchanges | 2,580 | - | 3,395 | - | |||||||
| Comprehensive income attributable to Tower Group, Inc. | 40,980 | 34,454 | 61,683 | 62,983 | |||||||
| Earnings per share attributable to Tower stockholders: | |||||||||||
| Basic | $ | 0.58 | $ | 0.58 | $ | 1.20 | $ | 0.87 | |||
| Diluted | $ | 0.58 | $ | 0.58 | $ | 1.20 | $ | 0.86 | |||
| Weighted average common shares outstanding: | |||||||||||
| Basic | 41,303 | 44,330 | 41,404 | 44,706 | |||||||
| Diluted | 41,395 | 44,515 | 41,518 | 44,900 | |||||||
| Dividends declared and paid per common share | $ | 0.19 | $ | 0.07 | $ | 0.32 | $ | 0.14 | |||
CONTACT:
Tower Group, Inc.
Bill Hitselberger, 212-655-2110
Executive
Vice President and Chief Financial Officer
bhitselberger@twrgrp.com