Attached files
| file | filename |
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| 8-K - TOWER GROUP, INC. 8K - Tower Group International, Ltd. | a50183674.htm |
Exhibit 99.1
Tower Group, Inc. Reports Fourth Quarter and Annual 2011 Results
NEW YORK--(BUSINESS WIRE)--February 27, 2012--Tower Group, Inc. (NASDAQ: TWGP) today reported net income available to common shareholders of $26.8 million and diluted earnings per share of $0.67 for the fourth quarter 2011, as compared to $36.6 million, or $0.88 per share in the fourth quarter of 2010. For the full year, net income available to common shareholders was $60.2 million or $1.47 per diluted share compared to $103.9 million or $2.38 per diluted share in 2010.
Operating income(1) and operating earnings per share(1) were $25.0 million and $0.63 for the fourth quarter of 2011, respectively, as compared to $33.3 million and $0.80 per share in the fourth quarter of 2010. For the full year, operating income and operating earnings per share were $56.0 million and $1.37, respectively, as compared to $97.2 million or $2.23 per share in 2010. Operating income in the full year 2011 included after-tax catastrophe storm losses of $48.3 million or $1.18 per diluted share compared to $12.0 million or $0.27 per diluted share for the full year 2010.
Key Highlights (all percentage increases compare the fourth quarter and the full year 2011 results to the corresponding periods in 2010 except as noted otherwise):
- Gross premiums written and produced(2) were $434.3 million in the fourth quarter and $1.8 billion for the full year. This represents an increase of 21.0% for full year 2011 compared to full year 2010.
-
For the combined insurance segments, the net combined ratio was 98.2%
in the fourth quarter of 2011 compared to 95.1% for the same period
last year. (Excluding the business that we manage on behalf of the
reciprocal exchanges, the net combined ratio was 97.3% for the fourth
quarter of 2011.) For the full year the net combined ratio was 100.3%
compared to 96.4% in 2010. (Excluding the business that we manage on
behalf of the reciprocal exchanges, the net combined ratio was 100.8%
for the full year 2011.)
- In the fourth quarter 2011, the net loss ratio was 64.9% compared to 59.9% for the same period last year. For the full year, the net loss ratio was 66.2% compared to 60.7% in 2010. In the fourth quarter 2011, the Company experienced $15 million of favorable development from Hurricane Irene claims and elected to strengthen the 2011 accident year loss reserves by $15 million. We also experienced $7 million in losses associated with the October 2011 snow storm.
- In the fourth quarter 2011, the net expense ratio(3) was 33.3% compared to 35.2% for the same period last year. For the full year, the net expense ratio was 34.1% compared to 35.7% in 2010.
- Net investment income increased by 8.0% to $32.1 million for the fourth quarter and by 20.3% to $127.6 million for the full year.
- The effective tax rate was 15.9% in the fourth quarter (20.4% excluding the reciprocal exchanges) and 25.9% for the year (27.1% excluding the reciprocal exchanges), a decrease of 19.3 points and 7.8 points (14.9 points and 6.7 points excluding the reciprocals), respectively. The reduced tax rate is due to a modestly higher amount of tax preferenced investment income applied against a lower earnings base.
- Book value per share(4) of $26.37 at December 31, 2011 represents an increase of 4.7% since year end 2010. The company paid dividends of $0.69 per share in 2011.
- Tower Group, Inc. stockholders’ equity was $1,034.1 million as of December 31, 2011, as compared to $1,045.0 million as of December 31, 2010. During the year ended December 31, 2011, Tower Group, Inc. repurchased 2.9 million shares of its Common Stock for an aggregate purchase price of $64.6 million pursuant to its share repurchase program and paid $27.9 million in dividends on its common stock.
Michael H. Lee, President and Chief Executive Officer of Tower Group, Inc., stated “During the fourth quarter, we continued to see positive trends in our business, especially from the organic growth we generated from our newly created Assumed Reinsurance and Customized Solutions business units. We also began to see favorable pricing trends in certain lines of business, including homeowners, commercial property and workers compensation. We expect these favorable pricing trends to continue into 2012. For the full year, while we are disappointed with the negative impact on our earnings due to the losses from Hurricane Irene and other severe weather related events, we are otherwise pleased with our overall operating results and encouraged by the progress that we made with regard to some of our long term business objectives. In particular, we expanded our product offerings, improved existing business units and created new business units to generate organic growth. In addition, we are pleased with the progress that we made with some significant technology projects, including our personal lines platform redesign, which we plan to introduce during the early part of this year. As we enter 2012, we are cautiously optimistic due to the improved pricing environment and the continued benefits from our organic growth initiatives.”
| Financial Summary ($ in thousands, except per share data): | |||||||||||||||||
| Three Months Ended | Year Ended | ||||||||||||||||
| December 31, | December 31, | ||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||||||||
| Gross premiums written | $ | 434,261 | $ | 433,860 | $ | 1,810,923 | $ | 1,496,371 | |||||||||
| Net premiums written | 380,873 | 384,667 | 1,638,590 | 1,314,064 | |||||||||||||
| Total commission and fee income | 11,660 | 11,336 | 46,072 | 46,492 | |||||||||||||
| Net investment income | 32,062 | 29,690 | 127,649 | 106,090 | |||||||||||||
| Net realized investment gains (losses) | 4,121 | 5,860 | 9,394 | 13,483 | |||||||||||||
| Total revenues | 454,921 | 419,763 | 1,776,965 | 1,458,734 | |||||||||||||
| Net income attributable to Tower Group, Inc. | 26,831 | 36,633 | 60,198 | 103,890 | |||||||||||||
| Earnings per share—Basic | $ | 0.68 | $ | 0.88 | $ | 1.47 | $ | 2.39 | |||||||||
| Earnings per share—Diluted | $ | 0.67 | $ | 0.88 | $ | 1.47 | $ | 2.38 | |||||||||
| Return on average equity | 10.3 | % | 14.1 | % | 5.8 | % | 10.0 | % | |||||||||
| Combined Commercial and Personal Segments | |||||||||||||||||
| Net premiums earned | 407,078 | 372,877 | 1,593,850 | 1,292,669 | |||||||||||||
| Net loss ratio | 64.9 | % | 59.9 | % | 66.2 | % | 60.7 | % | |||||||||
| Net expense ratio | 33.3 | % | 35.2 | % | 34.1 | % | 35.7 | % | |||||||||
| Commercial Insurance Segment | |||||||||||||||||
| Net premiums earned | 282,295 | 239,856 | 1,087,911 | 941,015 | |||||||||||||
| Net loss ratio | 65.1 | % | 66.5 | % | 67.7 | % | 62.6 | % | |||||||||
| Net expense ratio | 30.2 | % | 27.4 | % | 31.5 | % | 33.1 | % | |||||||||
| Personal Insurance Segment | |||||||||||||||||
| Net premiums earned | 124,783 | 133,021 | 505,939 | 351,654 | |||||||||||||
| Net loss ratio | 64.4 | % | 48.1 | % | 63.0 | % | 55.4 | % | |||||||||
| Net expense ratio | 40.3 | % | 49.2 | % | 39.7 | % | 42.5 | % | |||||||||
| Reconciliation of non-GAAP financial measures: | |||||||||||||||||
| Net income attributable to Tower Group, Inc. | 26,831 | $ | 36,633 | $ | 60,198 | $ | 103,890 | ||||||||||
| Net realized gains (losses) on investments | 4,121 | 5,860 | 9,394 | 13,483 | |||||||||||||
| Acquisition-related transaction costs | 77 | (971 | ) | (360 | ) | (2,369 | ) | ||||||||||
| Less: net realized gains (losses) on investments related to Reciprocal Exchanges | (1,386 | ) | 682 | (2,414 | ) | 257 | |||||||||||
| Income tax | (1,016 | ) | (2,219 | ) | (2,470 | ) | (4,636 | ) | |||||||||
| Operating income attributable to Tower Group, Inc. | $ | 25,035 | $ | 33,281 | $ | 56,048 | $ | 97,155 | |||||||||
| Operating earnings per share—Basic | $ | 0.63 | $ | 0.80 | $ | 1.37 | $ | 2.24 | |||||||||
| Operating earnings per share—Diluted | $ | 0.63 | $ | 0.80 | $ | 1.37 | $ | 2.23 | |||||||||
| Operating return on average equity | 9.6 | % | 12.8 | % | 5.4 | % | 9.4 | % | |||||||||
Fourth Quarter 2011 Highlights
Gross premiums written were $434.3 million in the fourth quarter of 2011, which was slightly higher than $433.9 million in the fourth quarter of 2010. Organic growth of 6% in the quarter was offset by the commutation of an assumed reinsurance agreement. For the three months ended December 31, 2011, premiums on renewed Commercial Insurance business excluding programs increased 2.2% and premiums on renewed Personal Insurance business increased 2.5%, resulting in an overall premium increase on renewal business of 2.3%. 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 91%, resulting in an overall retention rate of 88%.
Total revenues increased 8.4% to $454.9 million in the fourth quarter of 2011 as compared to $419.8 million in the prior year's fourth quarter. The growth was primarily due to increased net premiums earned and higher net investment income. Net premiums earned represented 89.5% of total revenues for the three months ended December 31, 2011 compared to 88.8% for 2010.
Net investment income increased 8.0% to $32.1 million for the three months ended December 31, 2011 compared to $29.7 million for the same period in 2010. The tax equivalent book yield on our investment portfolio was 4.8% at December 31, 2011 compared to 4.7% at December 31, 2010. Net realized investment gains were $4.1 million for the quarter ended December 31, 2011 compared to gains of $5.9 million in the same period last year. Total commission and fee income increased 2.9% to $11.7 million in the fourth quarter of 2011 compared to $11.3 million in the fourth quarter of 2010. The net loss ratio was 64.9% for the three months ended December 31, 2011 compared to 59.9% for the same period in 2010. (Excluding the business that we manage on behalf of the reciprocal exchanges, the net loss ratio was 65.0% for the fourth quarter of 2011.) In the fourth quarter 2011, we had a $15 million reduction in our estimate of Hurricane Irene claims and elected to strengthen the 2011 accident year loss reserves by $15 million. We also experienced $7 million in losses associated with the October 2011 snow storm.
Our net expense ratio was 33.3% for the three months ended December 31, 2011 compared to 35.2% for the same period in 2010. (Excluding the business that we manage on behalf of the reciprocal exchanges, the net expense ratio was 32.3% for the fourth quarter of 2011.)
Interest expense increased by $1.2 million for the three months ended December 31, 2011, compared to the same period in 2010. Interest expense increased mainly due to increased borrowings under the credit facility in 2011.
Our effective tax rate was 15.9% for the fourth quarter 2011 (20.4% excluding the reciprocal exchanges) and 25.9% for the full year 2011 (27.1% excluding the reciprocal exchanges). Our full year tax rate was lower by 7.8 points compared to 2010, as we had a modestly higher amount of tax preferenced investment income applied against a lower earnings base, and the fourth quarter tax rate, excluding the reciprocal exchanges, was 14.9 points lower than it was for the corresponding period in 2010, due largely to a true up of the effective tax rate in the fourth quarter 2011.
Additional Highlights and Disclosures:
Dividend Declaration
Tower’s Board of Directors approved a quarterly dividend on February 1, 2012 of $0.1875 per share payable on March 23, 2012 to stockholders of record as of March 12, 2012.
2012 Guidance
Tower expects to report operating earnings of between $2.60 and $2.70 per share in 2012.
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, including the reciprocal exchanges.
(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 0.6% and 1.0%, respectively, for the years ended December 31, 2011 and 2010.
(4) Book value per share is Tower Group, Inc. Stockholders’ Equity divided by outstanding shares as of the period of measurement.
Conference Call
Tower will host a conference call and webcast to discuss these results on Tuesday, February 28, 2012 at 9:00 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 administration, operational and technology services for 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/
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 administration, operational and technology services for other insurance companies.
| Commercial Insurance & Personal Insurance Combined | ||||||||||||||||||||||||||||||
| ($ in thousands) | ||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||
| Three Months Ended December 31, | Year Ended December 31 | |||||||||||||||||||||||||||||
| 2011 | 2010 | Change(%) | 2011 | 2010 | Change(%) | |||||||||||||||||||||||||
| Net premiums written | $ | 380,873 | $ | 384,667 | -1.0 | % | $ | 1,638,590 | $ | 1,314,064 | 24.7 | % | ||||||||||||||||||
| Revenues | ||||||||||||||||||||||||||||||
| Net premiums earned | 407,078 | 372,877 | 9.2 | % | 1,593,850 | 1,292,669 | 23.3 | % | ||||||||||||||||||||||
| Ceding commission revenue | 8,165 | 8,511 | -4.1 | % | 33,968 | 38,068 | -10.8 | % | ||||||||||||||||||||||
| Policy billing fees | 2,867 | 2,579 | 11.2 | % | 10,534 | 6,255 | 68.4 | % | ||||||||||||||||||||||
| Total revenues | 418,110 | 383,967 | 8.9 | % | 1,638,352 | 1,336,992 | 22.5 | % | ||||||||||||||||||||||
| Expenses | ||||||||||||||||||||||||||||||
| Net loss and loss adjustment expenses | 264,190 | 223,355 | 18.3 | % | 1,055,249 | 784,023 | 34.6 | % | ||||||||||||||||||||||
| Underwriting expenses | ||||||||||||||||||||||||||||||
| Direct commission expense | 78,262 | 68,572 | 14.1 | % | 311,328 | 266,096 | 17.0 | % | ||||||||||||||||||||||
| Other underwriting expenses | 68,211 | 73,797 | -20.3 | % | 276,729 | 239,420 | 11.9 | % | ||||||||||||||||||||||
| Total underwriting expenses | 146,473 | 142,369 | 2.9 | % | 588,057 | 505,516 | 16.3 | % | ||||||||||||||||||||||
| Underwriting profit | $ | 7,447 | $ | 18,243 | -59.2 | % | $ | (4,954 | ) | $ | 47,453 | -110.4 | % | |||||||||||||||||
| Underwriting Ratios | ||||||||||||||||||||||||||||||
| Net loss ratio | 64.9 | % | 59.9 | % | 66.2 | % | 60.7 | % | ||||||||||||||||||||||
| Net expense ratio | 33.3 | % | 35.2 | % | 34.1 | % | 35.7 | % | ||||||||||||||||||||||
| Net combined ratio | 98.2 | % | 95.1 | % | 100.3 | % | 96.4 | % | ||||||||||||||||||||||
| Commercial Insurance Segment Information | |||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||
| Three Months Ended | Year Ended | ||||||||||||||||||||
| December 31, | December 31, | ||||||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||
| Net premiums written | $ | 255,449 | $ | 269,745 | $ | 1,152,299 | $ | 987,260 | |||||||||||||
| Revenues | |||||||||||||||||||||
| Net premiums earned | 282,295 | 239,856 | 1,087,911 | 941,015 | |||||||||||||||||
| Ceding commission revenue | 4,603 | 4,189 | 14,786 | 31,998 | |||||||||||||||||
| Policy billing fees | 1,272 | 732 | 4,345 | 2,742 | |||||||||||||||||
| Total revenues | 288,170 | 244,777 | 1,107,042 | 975,755 | |||||||||||||||||
| Expenses | |||||||||||||||||||||
| Net loss and loss adjustment expenses | 183,847 | 159,427 | 736,474 | 589,322 | |||||||||||||||||
| Underwriting expenses | |||||||||||||||||||||
| Direct commission expenses | 52,517 | 38,050 | 209,911 | 191,351 | |||||||||||||||||
| Other underwriting expenses | 38,484 | 32,659 | 151,951 | 155,148 | |||||||||||||||||
| Total underwriting expenses | 91,001 | 70,709 | 361,862 | 346,499 | |||||||||||||||||
| Underwriting profit | $ | 13,322 | $ | 14,641 | $ | 8,706 | $ | 39,934 | |||||||||||||
| Underwriting Ratios | |||||||||||||||||||||
| Net loss ratio | 65.1 | % | 66.5 | % | 67.7 | % | 62.6 | % | |||||||||||||
| Net expense ratio | 30.2 | % | 27.4 | % | 31.5 | % | 33.1 | % | |||||||||||||
| Net combined ratio | 95.3 | % | 93.9 | % | 99.2 | % | 95.7 | % | |||||||||||||
| Personal Insurance Segment Information | |||||||||||||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||||||||
| Three Months Ended December 31, | |||||||||||||||||||||||||||||||
| 2011 | 2010 | ||||||||||||||||||||||||||||||
| Reciprocal | Reciprocal | ||||||||||||||||||||||||||||||
| Tower | Exchanges | Total | Tower | Exchanges | Total | ||||||||||||||||||||||||||
| Net premiums written | $ | 86,636 | $ | 38,788 | $ | 125,424 | $ | 55,243 | 59,679 | 114,922 | |||||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||||
| Net premiums earned | 80,192 | 44,591 | 124,783 | 85,243 | 47,778 | 133,021 | |||||||||||||||||||||||||
| Ceding commission revenue | 1,693 | 1,869 | 3,562 | 3,297 | 1,025 | 4,322 | |||||||||||||||||||||||||
| Policy billing fees | 1,455 | 140 | 1,595 | 1,698 | 149 | 1,847 | |||||||||||||||||||||||||
| Total revenues | 83,340 | 46,600 | 129,940 | 90,238 | 48,952 | 139,190 | |||||||||||||||||||||||||
| Expenses | |||||||||||||||||||||||||||||||
| Net loss and loss adjustment expenses | 51,902 | 28,441 | 80,343 | 36,376 | 27,552 | 63,928 | |||||||||||||||||||||||||
| Underwriting expenses | |||||||||||||||||||||||||||||||
| Direct commission expense | 17,431 | 8,314 | 25,745 | 20,472 | 10,050 | 30,522 | |||||||||||||||||||||||||
| Other underwriting expenses | 17,813 | 11,914 | 29,727 | 24,569 | 16,569 | 41,138 | |||||||||||||||||||||||||
| Total underwriting expenses | 35,244 | 20,228 | 55,472 | 45,041 | 26,619 | 71,660 | |||||||||||||||||||||||||
| Underwriting profit | $ | (3,806 | ) | $ | (2,069 | ) | $ | (5,875 | ) | $ | 8,821 | (5,219 | ) | 3,602 | |||||||||||||||||
| Underwriting Ratios | |||||||||||||||||||||||||||||||
| Net loss ratio | 64.7 | % | 63.8 | % | 64.4 | % | 42.7 | % | 57.7 | % | 48.1 | % | |||||||||||||||||||
| Net expense ratio | 40.0 | % | 40.9 | % | 40.3 | % | 47.0 | % | 53.3 | % | 49.2 | % | |||||||||||||||||||
| Net combined ratio | 104.7 | % | 104.7 | % | 104.7 | % | 89.7 | % | 111.0 | % | 97.3 | % | |||||||||||||||||||
| Personal Insurance Segment Information | |||||||||||||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||||||||
| Year Ended December 31, | |||||||||||||||||||||||||||||||
| 2011 | 2010 | ||||||||||||||||||||||||||||||
| Reciprocal | Reciprocal | ||||||||||||||||||||||||||||||
| Tower | Exchanges | Total | Tower | Exchanges | Total | ||||||||||||||||||||||||||
| Net premiums written | $ | 316,854 | $ | 169,437 | $ | 486,291 | $ | 223,630 | 103,174 | 326,804 | |||||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||||
| Net premiums earned | 318,777 | 187,162 | 505,939 | 257,863 | 93,791 | 351,654 | |||||||||||||||||||||||||
| Ceding commission revenue | 12,408 | 6,774 | 19,182 | 4,019 | 2,051 | 6,070 | |||||||||||||||||||||||||
| Policy billing fees | 5,616 | 573 | 6,189 | 3,213 | 300 | 3,513 | |||||||||||||||||||||||||
| Total revenues | 336,801 | 194,509 | 531,310 | 265,095 | 96,142 | 361,237 | |||||||||||||||||||||||||
| Expenses | |||||||||||||||||||||||||||||||
| Net loss and loss adjustment expenses | 214,355 | 104,420 | 318,775 | 132,499 | 62,202 | 194,701 | |||||||||||||||||||||||||
| Underwriting expenses | |||||||||||||||||||||||||||||||
| Direct commission expense | 68,876 | 32,541 | 101,417 | 56,392 | 18,353 | 74,745 | |||||||||||||||||||||||||
| Other underwriting expenses | 73,161 | 51,617 | 124,778 | 59,980 | 24,292 | 84,272 | |||||||||||||||||||||||||
| Total underwriting expenses | 142,037 | 84,158 | 226,195 | 116,372 | 42,645 | 159,017 | |||||||||||||||||||||||||
| Underwriting profit | $ | (19,591 | ) | $ | 5,931 | $ | (13,660 | ) | $ | 16,224 | (8,705 | ) | 7,519 | ||||||||||||||||||
| Underwriting Ratios | |||||||||||||||||||||||||||||||
| Net loss ratio | 67.2 | % | 55.8 | % | 63.0 | % | 51.4 | % | 66.3 | % | 55.4 | % | |||||||||||||||||||
| Net expense ratio | 38.9 | % | 41.0 | % | 39.7 | % | 42.3 | % | 43.0 | % | 42.5 | % | |||||||||||||||||||
| Net combined ratio | 106.1 | % | 96.8 | % | 102.7 | % | 93.7 | % | 109.3 | % | 97.9 | % | |||||||||||||||||||
| Insurance Services Segment Results of Operations | |||||||||||||||||
| ($ in thousands) | |||||||||||||||||
| (Unaudited) | |||||||||||||||||
| Three Months Ended | Year Ended | ||||||||||||||||
| December 31, | December 31, | ||||||||||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||||||||||
| Revenue | |||||||||||||||||
| Management fee income | $ | 7,260 | $ | 9,881 | $ | 29,303 | $ | 17,752 | |||||||||
| Other revenue | 628 | 249 | 1,570 | 2,171 | |||||||||||||
| Total revenue | 7,888 | 10,130 | 30,873 | 19,923 | |||||||||||||
| Expenses | |||||||||||||||||
| Other expenses | 4,327 | 1,123 | 19,331 | 5,760 | |||||||||||||
| Total expenses | 4,327 | 1,123 | 19,331 | 5,760 | |||||||||||||
| Insurance services pre-tax income | $ | 3,561 | $ | 9,007 | $ | 11,542 | $ | 14,163 | |||||||||
| Tower Group, Inc. | ||||||||||||
| Consolidated Balance Sheets | ||||||||||||
| 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 $2,046,932 and $1,968,670) | $ | 2,153,620 | $ | 2,041,557 | ||||||||
| Equity securities (cost of $91,069 and $91,218) | 87,479 | 90,317 | ||||||||||
| Short-term investments (cost of $0 and $1,560) | - | 1,560 | ||||||||||
| Other invested assets | 44,347 | - | ||||||||||
| Investments - Reciprocal Exchanges | ||||||||||||
| Available-for-sale investments, at fair value: | ||||||||||||
| Fixed-maturity securities (amortized cost of $288,180 and $338,494) | 300,054 | 341,054 | ||||||||||
| Equity securities (cost of $1,965 and $0) | 1,866 | - | ||||||||||
| Total investments | 2,587,366 | 2,474,488 | ||||||||||
| Cash and cash equivalents (includes $666 and $2,796 relating to Reciprocal Exchanges) | 114,098 | 140,221 | ||||||||||
| Investment income receivable (includes $2,978 and $3,021 relating to Reciprocal Exchanges) | 26,782 | 23,562 | ||||||||||
| Premiums receivable (includes $41,290 and $53,953 relating to Reciprocal Exchanges) | 408,626 | 387,584 | ||||||||||
| Reinsurance recoverable on paid losses (includes $5,014 and $2,167 relating to Reciprocal Exchanges) | 23,903 | 18,214 | ||||||||||
| Reinsurance recoverable on unpaid losses (includes $11,253 and $11,384 relating to Reciprocal Exchanges) | 319,664 | 282,682 | ||||||||||
| Prepaid reinsurance premiums (includes $14,685 and $17,919 relating to Reciprocal Exchanges) | 54,037 | 77,627 | ||||||||||
| Deferred acquisition costs, net (includes $11,866 and $18,206 relating to Reciprocal Exchanges) | 168,858 | 164,123 | ||||||||||
| Deferred income taxes (includes $0 and $788 relating to Reciprocal Exchanges) | - | 2,245 | ||||||||||
| Intangible assets (includes $4,839 and $5,504 relating to Reciprocal Exchanges) | 114,920 | 123,820 | ||||||||||
| Goodwill | 250,103 | 250,103 | ||||||||||
| Other assets (includes $2,685 and $5,808 relating to Reciprocal Exchanges) | 373,838 | 230,405 | ||||||||||
| Total assets | $ | 4,442,195 | $ | 4,175,074 | ||||||||
| Liabilities | ||||||||||||
| Loss and loss adjustment expenses (includes $136,275 and $171,315 relating to Reciprocal Exchanges) | $ | 1,632,113 | $ | 1,610,421 | ||||||||
| Unearned premium (includes $102,991 and $123,949 relating to Reciprocal Exchanges) | 893,176 | 872,026 | ||||||||||
| Reinsurance balances payable (includes $3,466 and $3,402 relating to Reciprocal Exchanges) | 20,794 | 35,037 | ||||||||||
| Funds held under reinsurance agreements | 96,726 | 93,153 | ||||||||||
| Other liabilities (includes $7,154 and $9,384 relating to Reciprocal Exchanges) | 266,155 | 122,333 | ||||||||||
| Deferred income taxes (includes $4,511 and $0 relating to Reciprocal Exchanges) | 29,337 | - | ||||||||||
| Debt | 426,901 | 374,266 | ||||||||||
| Total liabilities | 3,365,202 | 3,107,236 | ||||||||||
| Stockholders' equity | ||||||||||||
| Common stock ($0.01 par value; 100,000,000 shares authorized, 46,448,341 and | ||||||||||||
| 45,742,342 shares issued, and 39,221,102 and 41,485,678 shares outstanding) | 465 | 457 | ||||||||||
| Treasury stock (7,227,239 and 4,256,664 shares) | (158,185 | ) | (91,779 | ) | ||||||||
| Paid-in-capital | 772,938 | 763,064 | ||||||||||
| Accumulated other comprehensive income | 62,244 | 48,883 | ||||||||||
| Retained earnings | 356,680 | 324,376 | ||||||||||
| Tower Group, Inc. stockholders' equity | 1,034,142 | 1,045,001 | ||||||||||
| Noncontrolling interests | 42,851 | 22,837 | ||||||||||
| Total stockholders' equity | 1,076,993 | 1,067,838 | ||||||||||
| Total liabilities and stockholders' equity | $ | 4,442,195 | $ | 4,175,074 | ||||||||
| 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) | 2011 | 2010 | 2011 | 2010 | ||||||||||||||||||
| Revenues | ||||||||||||||||||||||
| Net premiums earned | $ | 407,078 | $ | 372,877 | $ | 1,593,850 | $ | 1,292,669 | ||||||||||||||
| Ceding commission revenue | 8,165 | 8,511 | 33,968 | 38,068 | ||||||||||||||||||
| Insurance services revenue | 628 | 247 | 1,570 | 2,169 | ||||||||||||||||||
| Policy billing fees | 2,867 | 2,578 | 10,534 | 6,255 | ||||||||||||||||||
| Net investment income | 32,062 | 29,690 | 127,649 | 106,090 | ||||||||||||||||||
| Net realized investment gains (losses): | ||||||||||||||||||||||
| Other-than-temporary impairments | (176 | ) | (2,165 | ) | (3,509 | ) | (16,100 | ) | ||||||||||||||
| Portion of loss recognized in other comprehensive income | 84 | 1,789 | 264 | 11,909 | ||||||||||||||||||
| Other net realized investment gains | 4,213 | 6,236 | 12,639 | 17,674 | ||||||||||||||||||
| Total net realized investment gains (losses) | 4,121 | 5,860 | 9,394 | 13,483 | ||||||||||||||||||
| Total revenues | 454,921 | 419,763 | 1,776,965 | 1,458,734 | ||||||||||||||||||
| Expenses | ||||||||||||||||||||||
| Loss and loss adjustment expenses | 264,190 | 223,355 | 1,055,249 | 784,023 | ||||||||||||||||||
| Direct and ceding commission expense | 78,261 | 69,372 | 311,328 | 267,209 | ||||||||||||||||||
| Other operating expenses | 68,304 | 66,264 | 278,275 | 230,489 | ||||||||||||||||||
| Acquisition-related transaction costs | (77 | ) | 971 | 360 | 2,369 | |||||||||||||||||
| Interest expense | 9,472 | 8,307 | 34,462 | 24,594 | ||||||||||||||||||
| Total expenses | 420,150 | 368,269 | 1,679,674 | 1,308,684 | ||||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||
| Other | - | - | - | (466 | ) | |||||||||||||||||
| Income before income taxes | 34,771 | 51,494 | 97,291 | 149,584 | ||||||||||||||||||
| Income tax expense | 5,532 | 18,135 | 25,186 | 50,373 | ||||||||||||||||||
| Net income | $ | 29,239 | $ | 33,359 | $ | 72,105 | $ | 99,211 | ||||||||||||||
| Less: Net income attributable to Reciprocal Exchanges | 2,408 | (3,274 | ) | 11,907 | (4,679 | ) | ||||||||||||||||
| Net income attributable to Tower Group, Inc. | $ | 26,831 | $ | 36,633 | $ | 60,198 | $ | 103,890 | ||||||||||||||
| Net income | $ | 29,239 | $ | 33,359 | $ | 72,105 | $ | 99,211 | ||||||||||||||
| Gross unrealized investment holding gains (losses) arising during periods | 29,103 | (64,072 | ) | 49,720 | 34,869 | |||||||||||||||||
| Gross unrealized gain on interest rate swaps | (422 | ) | 3,223 | (10,541 | ) | 3,223 | ||||||||||||||||
| Less: Reclassification adjustment for (gains) losses included in net income | (4,121 | ) | (5,860 | ) | (9,394 | ) | (13,483 | ) | ||||||||||||||
|
Income tax benefit (expense) related to items of other comprehensive income |
(8,581 | ) | 23,348 | (10,318 | ) | (8,613 | ) | |||||||||||||||
| Comprehensive income | $ | 45,218 | $ | (10,002 | ) | $ | 91,572 | $ | 115,207 | |||||||||||||
| Less: Comprehensive income (loss) attributable to Reciprocal Exchanges | 5,117 | (7,960 | ) | 18,013 | (3,014 | ) | ||||||||||||||||
| Comprehensive income attributable to Tower Group, Inc. | $ | 40,101 | $ | (2,042 | ) | $ | 73,559 | $ | 118,221 | |||||||||||||
| Earnings per share attributable to Tower Group, Inc. stockholders: | ||||||||||||||||||||||
| Basic | $ | 0.68 | $ | 0.88 | $ | 1.47 | $ | 2.39 | ||||||||||||||
| Diluted | $ | 0.67 | $ | 0.88 | $ | 1.47 | $ | 2.38 | ||||||||||||||
| Weighted average common shares outstanding: | ||||||||||||||||||||||
| Basic | 39,733 | 41,538 | 40,833 | 43,462 | ||||||||||||||||||
| Diluted | 39,806 | 41,715 | 40,931 | 43,648 | ||||||||||||||||||
| Dividends declared and paid per common share | $ | 0.188 | $ | 0.125 | $ | 0.690 | $ | 0.390 | ||||||||||||||
CONTACT:
Tower Group, Inc.
Bill Hitselberger, 212-655-2110
Executive
Vice President and Chief Financial Officer
bhitselberger@twrgrp.com