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February 28, 2011

Tower Group, Inc. Reports Fourth Quarter and Annual 2010 Results

 

 

NEW YORK--(BUSINESS WIRE)-- Tower Group, Inc. (NASDAQ: TWGP) today reported net income available to common shareholders of $38.5 million and diluted earnings per share of $0.92 for the fourth quarter 2010, as compared to $30.7 million, or $0.72 per share in the fourth quarter of 2009. For the full year, net income available to common shareholders was $118.0 million or $2.70 per diluted share compared to $109.3 million or $2.76 per diluted share in 2009.

Operating income(1) and operating earnings per share(1) were $35.2 million and $0.84 for the fourth quarter of 2010, respectively, as compared to $31.9 million and $0.74 per share in the fourth quarter of 2009. For the full year, operating income and operating earnings per share were $111.2 million and $2.55, respectively, as compared to $119.8 million or $3.03 per share in 2009. Operating income in the fourth quarter and full year 2009 included a $13.2 million or $0.31 per diluted share bargain purchase gain from the Specialty Underwriters' Alliance, Inc. (SUA) transaction and the year 2010 included after-tax catastrophe storm losses of $12.0 million or $0.27 per diluted share.

Key Highlights (all percentage increases compare the fourth quarter and the full year 2010 results to the corresponding periods in 2009 except as noted otherwise):

-- Gross premiums written and produced(2) increased by 32.6% to $433.9 million in the fourth quarter and by 38.2% to $1.5 billion for the full year.
-- For the combined insurance segments, the net combined ratio was 91.7% in the fourth quarter of 2010 compared to 94.7% for the same period last year. (Excluding the business that we manage on behalf of the reciprocal exchanges, the net combined ratio was 91.9% for the fourth quarter of 2010.) For the full year the net combined ratio was 93.7% compared to 88.3% in 2009. (Excluding the business that we manage on behalf of the reciprocal exchanges, the net combined ratio was 93.5% for the full year 2010.)
  -- In the fourth quarter 2010, the net loss ratio was 59.9% compared to 62.0% for the same period last year. For the full year, the net loss ratio was 60.7% compared to 55.6% in 2009.
  -- In the fourth quarter 2010, the net expense ratio(3) was 31.8% compared to 32.7% for the same period last year. For the full year, the net expense ratio was 33.0% compared to 32.7% in 2009.
-- Net investment income increased by 40.2% to $29.7 million for the fourth quarter and by 41.7% to $106.1 million for the full year.
-- Book value per share of $26.22 at December 31, 2010 represents an increase of 12.3% since year end 2009.

Michael H. Lee, President and Chief Executive Officer of Tower Group, Inc., stated, "During the fourth quarter, we achieved strong operating results driven primarily by a significant increase in premium volume resulting from the acquisition of the Personal Lines Division of OneBeacon Insurance Group (OBPL) and our continued expansion into specialty commercial business. Despite challenging market conditions, we continued to maintain underwriting and cost discipline as demonstrated by the 91.7% combined ratio for the quarter. For the full year, we were pleased with our ability to achieve strong operating results, especially in the second half of the year after experiencing catastrophe losses in the first quarter. As we move into 2011, we believe we will continue to be challenged by the competitive market conditions and lower returns on our investment portfolio. Despite the various external factors that affect our business, we believe we are well positioned to continue to profitably grow due to the strength of our business model and the strategies that we have developed to effectively navigate these market challenges."

Financial Summary ($ in thousands, except per share data):
                           
        Three Months Ended     Year Ended
        December 31,     December 31,
        2010     2009     2010     2009
Gross premiums written   $ 433,860     $ 327,232     $ 1,496,371     $ 1,070,716  
Premiums produced by managing general agency     -       196       -       11,722  
Net premiums written     384,667       205,459       1,314,064       886,189  
Total commission and fee income     11,336       17,908       46,492       52,025  
Net investment income     29,690       21,183       106,090       74,866  
Net realized investment gains (losses)     5,860       (824 )     13,483       1,501  
                           
Total revenues     419,763       271,459       1,458,734       983,103  
Gain on investment in acquired unconsolidated affiliate     -       -       -       7,388  
Gain on bargain purchase     -       13,186       -       13,186  
Other income (expense)     -       -       (466 )     (777 )
Net income attributable to Tower Group, Inc.     38,515       30,748       117,951       109,330  
Earnings per share—Basic   $ 0.93     $ 0.72     $ 2.71     $ 2.78  
Earnings per share—Diluted   $ 0.92     $ 0.72     $ 2.70     $ 2.76  
Return on average equity     14.3 %     12.5 %     11.0 %     13.9 %
                           
Combined Commercial and Personal Segments                        
Net premiums earned     372,877       233,191       1,292,669       854,711  
Net loss ratio     59.9 %     62.0 %     60.7 %     55.6 %
Net expense ratio     31.8 %     32.7 %     33.0 %     32.7 %
                           
Commercial Insurance Segment                        
Net premiums earned     239,856       196,629       941,015       738,217  
Net loss ratio     66.5 %     61.3 %     62.6 %     55.1 %
Net expense ratio     28.2 %     31.0 %     31.9 %     31.5 %
                           
Personal Insurance Segment                        
Net premiums earned     133,021       36,562       351,654       116,494  
Net loss ratio     48.1 %     65.6 %     55.4 %     59.0 %
Net expense ratio     38.3 %     41.8 %     35.9 %     40.6 %
                           
Reconciliation of non-GAAP financial measures:                        
  Net income attributable to Tower Group, Inc.   38,515     $ 30,748     $ 117,951     $ 109,330  
  Net realized gains (losses) on investments     5,860       (824 )     13,483       1,501  
  Acquisition-related transaction costs (4)     (971 )     (703 )     (2,369 )     (14,038 )
  Less: net realized gains (losses) on investments related to Reciprocals     (683 )     -       (257 )     -  
  Income tax     (854 )     417       (4,121 )     2,047  
  Operating income attributable to Tower Group, Inc.   $ 35,163     $ 31,858     $ 111,215     $ 119,820  
                           
  Operating earnings per share—Basic   $ 0.85     $ 0.75     $ 2.56     $ 3.04  
  Operating earnings per share—Diluted   $ 0.84     $ 0.74     $ 2.55     $ 3.03  
  Operating return on average equity     13.1 %     12.9 %     10.3 %     15.2 %

Fourth Quarter 2010 Highlights

Gross premiums written increased to $433.9 million in the fourth quarter of 2010, which was 32.6% higher than in the fourth quarter of 2009. For the three months ended December 31, 2010, premium rates on renewed Commercial Insurance business excluding programs increased 1.0% and premium rates on renewed Personal Insurance business increased 5.2%, resulting in an overall premium rate increase on renewal business of 3.0%. During the same time period, our Commercial Insurance business renewal retention rate excluding programs was 78% and our Personal Insurance business renewal retention rate was 83%, resulting in an overall retention rate of 82%.

Total revenues increased 54.6% to $419.8 million in the fourth quarter of 2010 as compared to $271.5 million in the prior year's fourth quarter. The growth was primarily due to increased net premiums earned and net investment income resulting from the acquisitions of OBPL business in the third quarter of 2010 and of SUA in the fourth quarter of 2009. Net premiums earned represented 88.8% of total revenues for the three months ended December 31, 2010 compared to 85.9% for the same period in 2009.

Net investment income increased 40.2% to $29.7 million for the three months ended December 31, 2010 compared to $21.2 million for the same period in 2009. The tax equivalent book yield on our investment portfolio was 4.7% at December 31, 2010 compared to 5.5% at December 30, 2009. Net realized investment gains were $5.9 million for the quarter ended December 31, 2010 compared to a loss of $0.8 million in the same period last year. Credit-related other-than-temporary impairment losses for the three months ended December 31, 2010 were $0.4 million compared to $4.4 million for the same time period in 2009.

Total commission and fee income decreased 36.7% to $11.3 million in the fourth quarter of 2010 compared to $17.9 million in the fourth quarter of 2009. The decrease in the total commission and fee income was due to the run-off of a quota share treaty in 2009. Policy billing fees increased to $2.6 million in the fourth quarter of 2010 compared to $0.8 million for the same time period in 2009. The increase in policy billing fees was due to the acquisition of OBPL.

The net loss ratio was 59.9% for the three months ended December 31, 2010 compared to 62.0% for the same period in 2009. (Excluding the business that we manage on behalf of the reciprocal exchanges, the net loss ratio was 60.2% for the fourth quarter of 2010.)

Our net expense ratio was 31.8% for the three months ended December 31, 2010 compared to 32.7 % for the same period in 2009. (Excluding the business that we manage on behalf of the reciprocal exchanges, the net expense ratio was 31.7% for the fourth quarter of 2010.)

Interest expense increased by $3.7 million for the three months ended December 31, 2010, compared to the same period in 2009. Interest expense increased mainly due to the September 2010 convertible senior notes issuance, interest on withheld funds as well as interest on the bank credit facility, which was completed in May 2010.

Additional Highlights and Disclosures:

Dividend Declaration

Tower's Board of Directors approved a quarterly dividend on February 25, 2011 of $0.125 per share payable on March 28, 2011 to stockholders of record as of March 15, 2011.

2011 Guidance

Tower expects 2011 operating earnings per share to be in a range of $2.70 to $2.90.

Notes on Non-GAAP Financial Measures

(1) Operating income excludes realized gains and losses, acquisition-related transaction costs and the results of the reciprocal business, net of tax. Operating income is a common measurement for property and casualty insurance companies. We believe this presentation enhances the understanding of our results of operations by highlighting the underlying profitability of our insurance business. Additionally, these measures are a key internal management performance standard. Operating earnings per share is operating income divided by diluted weighted average shares outstanding. Operating return on equity is annualized operating income divided by average common stockholders' equity.

(2) Gross premiums written through our insurance subsidiaries and produced as managing general agent on behalf of other insurance companies.

(3) The gross and net underwriting expense ratios include fees paid by the Reciprocal Exchanges to Tower in excess of Tower's direct costs to service the management services agreements. These fees increased the gross and net expense ratios by 0.9% and 1.0%, respectively, for the year ended December 31, 2010.

(4) For the twelve month period ended December 31, 2010, $1.4 million of acquisition-related transaction costs were not deemed deductible for tax purposes. A tax rate of 35% was used for those acquisition-related transaction costs that were tax deductible.

Conference Call

Tower will host a conference call and webcast to discuss these results on Tuesday, March 1, 2011 at 8:30 a.m. ET. This conference call will be broadcast live over the Internet. To access a listen-only webcast over the Internet, please visit the Investor Information section of Tower Group, Inc.'s website, www.twrgrp.com, or use this link: http://investor.twrgrp.com/events.cfm

Please access the website at least 15 minutes prior to the call to register and to download any necessary audio software. If you are unable to participate during the live conference call, a webcast will be archived in the Investor Information section of Tower Group, Inc.'s website at www.twrgrp.com.

About Tower Group, Inc.

Tower Group, Inc. offers diversified property and casualty insurance products and services through its operating subsidiaries. Its insurance company subsidiaries offer insurance products to individuals and small to medium-sized businesses through its network of retail and wholesale agents and specialty business through program underwriting agents. Tower's insurance services subsidiaries provide underwriting, claims and reinsurance brokerage services to other insurance companies.

Cautionary Note Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. This press release and any other written or oral statements made by or on behalf of Tower may include forward-looking statements that reflect Tower's current views with respect to future events and financial performance. All statements other than statements of historical fact included in this press release are forward-looking statements. Forward-looking statements can generally be identified by the use of forward-looking terminology such as "may," "will," "plan," "expect," "project," "intend," "estimate," "anticipate," "believe" and "continue" or their negative or variations or similar terminology. All forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause the actual results of Tower to differ materially from those indicated in these statements. Please refer to Tower's filings with the SEC, including among others Tower's Annual Report on Form 10-K for the year ended December 31, 2009 and subsequent filings on Form 10-Q, for a description of the important factors that could cause the actual results of Tower to differ materially from those indicated in these statements. Forward-looking statements speak only as of the date on which they are made, and Tower undertakes no obligation to update publicly or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

For more information, visit Tower's website at http://www.twrgrp.com/

Tower has changed the presentation of its business results, beginning July 1, 2010, by allocating the personal insurance business previously reported in either the Brokerage Insurance or Specialty Business segments along with the newly acquired OneBeacon Personal Lines business to a new Personal Insurance segment and merged the commercial business previously reported in either the Brokerage Insurance or Specialty Business segments in a new Commercial Insurance segment.

Tower has retained its Insurance Services segment, which will include fees earned by management companies acquired as a part of the OBPL transaction. This change in presentation reflects the way management organizes the segments for making operating decisions and assessing profitability subsequent to the OBPL acquisition. This will result in the reporting of three operating segments. The prior period segment disclosures have been restated to conform to the current presentation. Following the change in presentation described above, Tower now operates three business segments:

Our Commercial Insurance Segment offers a broad range of commercial lines property and casualty insurance products to small to mid-sized businesses distributed through a network of retail and wholesale agents on both an admitted and non-admitted basis. This segment also includes reinsurance solutions provided primarily to small insurance companies;

Our Personal Insurance Segment offers a broad range of personal lines property and casualty insurance products to individuals distributed through a network of retail and wholesale agents; and

Our Insurance Services Segment provides underwriting, claims and reinsurance brokerage services to insurance companies.

Commercial Insurance & Personal Insurance Combined
($ in thousands)
(Unaudited)
               
        Three Months Ended December 31,     Year Ended December 31
        2010     2009   Change(%)     2010     2009   Change(%)
Revenues                                
Premiums earned                                
  Gross premiums earned   $ 434,963     $ 298,819     45.6 %   $ 1,519,638     $ 1,046,260     45.2 %
  Less: ceded premiums earned     (62,086 )     (65,628 )   -5.4 %     (226,969 )     (191,549 )   18.5 %
  Net premiums earned     372,877       233,191     59.9 %     1,292,669       854,711     51.2 %
Ceding commission revenue     8,511       16,263     -47.7 %     38,068       43,937     -13.4 %
Policy billing fees     2,579       774     233.2 %     6,255       2,944     112.5 %
Total revenues     383,967       250,228     53.4 %     1,336,992       901,592     48.3 %
Expenses                                
Loss and loss adjustment expenses                                
  Gross loss and loss adjustment expenses     231,424       175,812     31.6 %     884,420       566,762     56.0 %
 

Less: ceded loss and loss adjustment expenses

    (8,069 )     (31,235 )   -74.2 %     (100,397 )     (91,265 )   10.0 %
  Net loss and loss adjustment expenses     223,355       144,577     54.5 %     784,023       475,497     64.9 %
Underwriting expenses                                
  Direct commission expense     68,572       54,282     26.3 %     266,096       202,858     31.2 %
  Other underwriting expenses     61,157       38,906     57.2 %     204,682       123,468     65.8 %
  Total underwriting expenses     129,729       93,188     39.2 %     470,778       326,326     44.3 %
Underwriting profit   $ 30,883     $ 12,463     147.8 %   $ 82,191     $ 99,769     -17.6 %
                                   
Key Measures                                
Premiums written                                
  Gross premiums written   $ 433,860     $ 327,232     32.6 %   $ 1,496,371     $ 1,070,716     39.8 %
  Less: ceded premiums written     (49,193 )     (121,773 )   -59.6 %     (182,307 )     (184,527 )   -1.2 %
  Net premiums written   $ 384,667     $ 205,459     87.2 %   $ 1,314,064     $ 886,189     48.3 %
                                   
Calendar Year Loss Ratios                                
  Gross     53.2 %     58.8 %         58.2 %     54.2 %    
  Net     59.9 %     62.0 %         60.7 %     55.6 %    
Underwriting Expense Ratios                                
  Gross     29.2 %     30.9 %         30.6 %     30.9 %    
  Net     31.8 %     32.7 %         33.0 %     32.7 %    
Combined Ratios                                
  Gross     82.4 %     89.7 %         88.8 %     85.1 %    
  Net     91.7 %     94.7 %         93.7 %     88.3 %    

 

Commercial Insurance Segment Information
($ in thousands)
(Unaudited)
      Three Months Ended     Year Ended
      December 31,     December 31,
      2010     2009     2010     2009
Revenues                      
Premiums earned                      
  Gross premiums earned $ 271,610     $ 249,963     $ 1,096,715     $ 887,420  
  Less: ceded premiums earned   (31,754 )     (53,334 )     (155,700 )     (149,203 )
  Net premiums earned   239,856       196,629       941,015       738,217  
Ceding commission revenue   4,189       15,535       31,998       39,355  
Policy billing fees   732       580       2,742       2,215  
Total revenues   244,777       212,744       975,755       779,787  
Expenses                      
Loss and loss adjustment expenses                      
  Gross loss and loss adjustment expenses   164,633       148,617       675,051       486,894  
 

Less: ceded loss and loss adjustment expenses

  (5,206 )     (28,024 )     (85,729 )     (80,166 )
  Net loss and loss adjustment expenses   159,427       120,593       589,322       406,728  
Underwriting expenses                      
  Direct commission expenses   38,050       45,827       191,351       174,105  
  Other underwriting expenses   34,532       31,147       143,504       99,641  
  Total underwriting expenses   72,582       76,974       334,855       273,746  
Underwriting profit $ 12,768     $ 15,177     $ 51,578     $ 99,313  
                         
Key Measures                      
Premiums written                      
  Gross premiums written $ 277,407     $ 269,722     $ 1,083,832     $ 884,676  
  Less: ceded premiums written   (7,662 )     (110,840 )     (96,572 )     (153,814 )
  Net premiums written $ 269,745     $ 158,882     $ 987,260     $ 730,862  
                         
Calendar Year Loss Ratios                      
  Gross   60.6 %     59.5 %     61.6 %     54.9 %
  Net   66.5 %     61.3 %     62.6 %     55.1 %
Underwriting Expense Ratios                      
  Gross   26.5 %     30.6 %     30.3 %     30.6 %
  Net   28.2 %     31.0 %     31.9 %     31.5 %
Combined Ratios                      
  Gross   87.1 %     90.0 %     91.9 %     85.5 %
  Net   94.7 %     92.3 %     94.5 %     86.6 %

 

Personal Insurance Segment Information
($ in thousands)
(Unaudited)
                         
      Three Months Ended December 31,
    2010      
            Reciprocal            
      Tower     Exchanges     Total     2009
Revenues                      
Premiums earned                      
  Gross premiums earned $ 105,309     $ 58,044     $ 163,353     $ 48,856  
  Less: ceded premiums earned   (20,066 )     (10,266 )     (30,332 )     (12,294 )
  Net premiums earned   85,243       47,778       133,021       36,562  
Ceding commission revenue   3,297       1,025       4,322       728  
Policy billing fees   1,698       149       1,847       194  
Total revenues   90,238       48,952       139,190       37,484  
Expenses                      
Loss and loss adjustment expenses                      
  Gross loss and loss adjustment expenses   38,918       27,873       66,791       27,194  
 

Less: ceded loss and loss adjustment expenses

  (2,542 )     (321 )     (2,863 )     (3,212 )
  Net loss and loss adjustment expenses   36,376       27,552       63,928       23,982  
Underwriting expenses                      
  Direct commission expense   20,472       10,050       30,522       8,455  
  Other underwriting expenses   19,797       6,828       26,625       7,759  
  Total underwriting expenses   40,269       16,878       57,147       16,214  
Underwriting profit $ 13,593     $ 4,522     $ 18,115     $ (2,712 )
                         
Key Measures                      
Premiums written                      
  Gross premiums written $ 85,873     $ 70,580     $ 156,453     $ 57,510  
  Less: ceded premiums written   (30,630 )     (10,901 )     (41,531 )     (10,933 )
  Net premiums written $ 55,243     $ 59,679     $ 114,922     $ 46,577  
                         
Calendar Year Loss Ratios                      
  Gross   37.0 %     48.0 %     40.9 %     55.7 %
  Net   42.7 %     57.7 %     48.1 %     65.6 %
Underwriting Expense Ratios                      
  Gross   36.6 %     28.8 %     33.9 %     32.8 %
  Net   41.4 %     32.9 %     38.3 %     41.8 %
Combined Ratios                      
  Gross   73.6 %     76.8 %     74.8 %     88.5 %
  Net   84.1 %     90.6 %     86.4 %     107.4 %

 

Personal Insurance Segment Information
($ in thousands)
(Unaudited)
                         
      Year Ended December 31,
    2010      
            Reciprocal            
      Tower     Exchanges     Total     2009
Revenues                      
Premiums earned                      
  Gross premiums earned $ 308,925     $ 113,998     $ 422,923     $ 158,840  
  Less: ceded premiums earned   (51,062 )     (20,207 )     (71,269 )     (42,346 )
  Net premiums earned   257,863       93,791       351,654       116,494  
Ceding commission revenue   4,019       2,051       6,070       4,582  
Policy billing fees   3,213       300       3,513       729  
Total revenues   265,095       96,142       361,237       121,805  
Expenses                      
Loss and loss adjustment expenses                      
  Gross loss and loss adjustment expenses   140,537       68,832       209,369       79,868  
 

Less: ceded loss and loss adjustment expenses

  (8,038 )     (6,630 )     (14,668 )     (11,099 )
  Net loss and loss adjustment expenses   132,499       62,202       194,701       68,769  
Underwriting expenses                      
  Direct commission expense   56,392       18,353       74,745       28,753  
  Other underwriting expenses   49,814       11,364       61,178       23,827  
  Total underwriting expenses   106,206       29,717       135,923       52,580  
Underwriting profit $ 26,390     $ 4,223     $ 30,613     $ 456  
                         
Key Measures                      
Premiums written                      
  Gross premiums written $ 285,742     $ 126,797     $ 412,539     $ 186,040  
  Less: ceded premiums written   (62,112 )     (23,623 )     (85,735 )     (30,713 )
  Net premiums written $ 223,630     $ 103,174     $ 326,804     $ 155,327  
                         
Calendar Year Loss Ratios                      
  Gross   45.5 %     60.4 %     49.5 %     50.3 %
  Net   51.4 %     66.3 %     55.4 %     59.0 %
Underwriting Expense Ratios                      
  Gross   33.3 %     25.8 %     31.3 %     32.6 %
  Net   38.4 %     29.2 %     35.9 %     40.6 %
Combined Ratios                      
  Gross   78.8 %     86.2 %     80.8 %     82.9 %
  Net   89.8 %     95.5 %     91.3 %     99.6 %

 

Insurance Services Segment Results of Operations
($ in thousands)
(Unaudited)
                             
        Three Months Ended     Year Ended
        December 31,     December 31,
          2010     2009     2010     2009
Revenue                        
Direct commission revenue from managing general agency   $ (328 )   $ (430 )   $ (881 )   $ 1,583
Management fee income     10,314       -       18,185       -
Reinsurance intermediary fees     888       770       2,269       1,488
Other revenue     (744 )     532       350       2,073
Total revenue     10,130       872       19,923       5,144
Expenses                        
Direct commission expenses paid to producers     16       35       327       1,707
Other insurance services expenses     1,107       498       5,433       2,576
Total expenses     1,123       533       5,760       4,283
Insurance services pre-tax income   $ 9,007     $ 339     $ 14,163     $ 861
                             
Premiums produced by TRM on behalf of issuing companies   $ -     $ 196     $ -     $ 11,722

 

Tower Group, Inc.            
Consolidated Balance Sheets            
      December 31,
($ in thousands, except par value and share amounts)   2010   2009
Assets            
Investments - Tower            
Available-for-sale investments, at fair value:            

Fixed-maturity securities (amortized cost of $1,968,670 and $1,729,117)

  $ 2,041,557     $ 1,783,596  
Equity securities (cost of $91,218 and $78,051)     90,317       76,733  
Short-term investments (cost of $1,560 and $36,500)     1,560       36,500  
Investments - Reciprocal Exchanges            
Available-for-sale investments, at fair value:            
Fixed-maturity securities (amortized cost of $338,494)     341,054       -  
Total investments     2,474,488       1,896,829  
Cash and cash equivalents (includes $2,796 relating to Reciprocal Exchanges in 2010)     102,877       164,882  
Investment income receivable     23,562       20,240  
Premiums receivable (includes $53,953 relating to Reciprocal Exchanges in 2010)    

387,584

      308,075  
Reinsurance recoverable on paid losses (includes $2,167 relating to Reciprocal Exchanges in 2010)     18,214       14,819  
Reinsurance recoverable on unpaid losses (includes $15,092 relating to Reciprocal Exchanges in 2010)     282,682       199,687  
Prepaid reinsurance premiums (includes $17,919 relating to Reciprocal Exchanges in 2010)     77,627       94,818  
Deferred acquisition costs, net (includes $31,312 relating to Reciprocal Exchanges in 2010)     242,824       170,652  
Deferred income taxes     -       41,757  
Intangible assets (includes $5,504 relating to Reciprocal Exchanges in 2010)     123,820       53,350  
Goodwill     250,103       244,690  
Other assets (includes $5,808 relating to Reciprocal Exchanges in 2010)     230,405       103,153  
Total assets   $

4,214,186

    $ 3,312,952  
Liabilities            
Loss and loss adjustment expenses (includes $175,023 relating to Reciprocal Exchanges in 2010)   $ 1,610,421     $ 1,131,989  
Unearned premium (includes $123,949 relating to Reciprocal Exchanges in 2010)     872,026       658,940  
Reinsurance balances payable (includes $3,402 relating to Reciprocal Exchanges in 2010)    

35,037

      89,080  
Funds held under reinsurance agreements     93,153       13,737  
Other liabilities (includes $9,384 relating to Reciprocal Exchanges in 2010)     84,989       133,647  
Deferred income taxes (includes $3,668 relating to Reciprocal Exchanges in 2010)     25,169       -  
Debt     374,266       235,058  
Total liabilities    

3,095,061

      2,262,451  
Stockholders' equity            
Common stock ($0.01 par value; 100,000,000 shares authorized, 45,742,342 and            
45,092,321 shares issued, and 41,485,678 and 44,984,953 shares outstanding)     457       451  
Treasury stock (4,256,664 and 107,368 shares)     (91,779 )     (1,995 )
Paid-in-capital     763,064       751,878  
Accumulated other comprehensive income     48,883       34,554  
Retained earnings     367,013       265,613  
Tower Group, Inc. stockholders' equity     1,087,638       1,050,501  
Noncontrolling interests - Reciprocal Exchanges     31,487       -  
Total stockholders' equity     1,119,125       1,050,501  
Total liabilities and stockholders' equity   $

4,214,186

    $ 3,312,952  
Refer to notes accompanying consolidated financial statements, as filed with the SEC.

 

Tower Group, Inc.                      
Consolidated Statements of Income and Comprehensive Income                  
      Three Months Ended     Year Ended
    December 31,     December 31,
(in thousands, except per share amounts)   2010     2009     2010     2009
Revenues                      
Net premiums earned $ 372,877     $ 233,192     $ 1,292,669     $ 854,711  
Ceding commission revenue   8,511       16,263       38,068       43,937  
Insurance services revenue   247       870       2,169       5,123  
Policy billing fees   2,578       774       6,255       2,965  
Net investment income   29,690       21,183       106,090       74,866  
Net realized investment gains (losses):                      
  Other-than-temporary impairments   (2,165 )     (9,888 )     (16,100 )     (44,210 )
  Portion of loss recognized in other comprehensive income   1,789       5,444       11,909       20,722  
  Other net realized investment gains   6,236       3,620       17,674       24,989  
  Total net realized investment gains (losses)   5,860       (824 )     13,483       1,501  
  Total revenues   419,763       271,458       1,458,734       983,103  
Expenses                      
Loss and loss adjustment expenses   223,355       144,575       784,023       475,497  
Direct and ceding commission expense   69,372       54,327       267,209       204,565  
Other operating expenses   53,625       40,052       195,751       129,846  
Acquisition-related transaction costs   971       703       2,369       14,038  
Interest expense   8,307       4,625       24,594       18,122  
  Total expenses   355,630       244,282       1,273,946       842,068  
Other income (expense)                      
Equity in income (loss) of unconsolidated affiliate   -       -       -       (777 )
Gain on investment in acquired unconsolidated affiliate   -       -       -       7,388  
Gain on bargain purchase   -       13,186       -       13,186  
Other   -       -       (466 )     -  
Income before income taxes   64,133       40,362       184,322       160,832  
Income tax expense   22,461       9,614       62,400       51,502  
Net income $ 41,672     $ 30,748     $ 121,922     $ 109,330  
Less: Net income attributable to Reciprocal Exchanges   3,157       -       3,971       -  
Net income attributable to Tower Group, Inc. $ 38,515     $ 30,748     $ 117,951     $ 109,330  
Net income $ 41,672     $ 30,748     $ 121,922     $ 109,330  
Cumulative effect of adjustment resulting from adoption of                      
  new accounting guidance   -       -       -       (2,497 )
Gross unrealized investment holding gains (losses) arising during periods   (64,072 )     (6,791 )     34,869       108,879  
Gross unrealized gain on interest rate swaps   3,223       -       3,223       -  
Equity in net unrealized gains on investment in unconsolidated affiliate's                      
  investment portfolio   -       -       -       3,124  
Less: Reclassification adjustment for (gains) losses included in net income   (5,860 )     824       (13,483 )     (1,501 )
Income tax benefit (expense) related to items of other comprehensive                      
  income   23,348       (195 )     (8,613 )     (37,700 )
Comprehensive income $ (1,689 )   $ 24,586     $ 137,918     $ 179,635  
Less: Comprehensive income (loss) attributable to Reciprocal Exchanges   (4,686 )     -       1,665       -  
Comprehensive income attributable to Tower Group, Inc. $ 2,997     $ 24,586     $ 136,253     $ 179,635  
Earnings per share attributable to Tower Group, Inc. stockholders:                      
  Basic $ 0.93     $ 0.72     $ 2.71     $ 2.78  
  Diluted $ 0.92     $ 0.72     $ 2.70     $ 2.76  
Weighted average common shares outstanding:                      
  Basic   41,538       42,668       43,462       39,363  
  Diluted   41,715       42,901       43,648       39,581  
Dividends declared and paid per common share $ 0.125     $ 0.070     $ 0.390     $ 0.260  
Refer to notes accompanying consolidated financial statements, as filed with the SEC.            

 

http://cts.businesswire.com/ct/CT?id=bwnews&sty=20110228007366r1&sid=acqr4&distro=nx

Tower Group, Inc.
Bill Hitselberger
Senior Vice President and Chief Financial Officer
212-655-2110
bhitselberger@twrgrp.com

 

Source: Tower Group, Inc.

 

 

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