Exhibit 99.1
Contact Information:
Thomas Song
Managing Vice President
Tower Group, Inc.
212-655-4789
tsong@twrgrp.com
Tower Group, Inc. Reports Record Results in Third Quarter of 2007;
Net Income Up 70.1%
NEW YORK -- November 7, 2007 -- Tower Group, Inc. (NASDAQ: TWGP) today reported net income of $14.4 million and diluted earnings per share of $0.62 for the third quarter of 2007. For the first nine months of 2007, Tower reported net income of $38.4 million ($1.65 per diluted share).
Key Highlights (all percentage increases compare the third quarter of 2007 to the same period in 2006):
· | Record quarterly net income of $14.4 million; up 70.1%. |
· | Diluted earnings per share up 47.6%. |
· | Strong top line growth resulted in revenues of $112.0 million; up 53.4%. |
· | Commission and fee based revenue increased 99.6%; Net investment income up 62.3%. |
· | Retention rate remains solid; 88% for personal lines and 77% for commercial lines. |
· | Continued underwriting profitability; combined ratio of 83.4%. |
GAAP Financial Summary ($ in thousands, except per share data):
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Gross premiums written | $ | 127,671 | $ | 99,810 | $ | 387,387 | $ | 311,597 | ||||||||
Premiums produced by TRM | 23,433 | 1,408 | 24,094 | 10,270 | ||||||||||||
Net premiums written | 66,759 | 51,660 | 184,475 | 180,011 | ||||||||||||
Net premiums earned | 73,124 | 52,366 | 207,542 | 168,908 | ||||||||||||
Total commission and fee income | 29,337 | 14,700 | 64,547 | 36,654 | ||||||||||||
Net investment income | 9,615 | 5,923 | 27,016 | 15,875 | ||||||||||||
Net realized (losses) gains on investments | (62 | ) | 32 | 10 | (84 | ) | ||||||||||
Total revenues | 112,014 | 73,021 | 299,115 | 221,353 | ||||||||||||
Other income | 746 | 418 | 4,874 | 12,852 | ||||||||||||
Net Income | 14,384 | 8,456 | 38,391 | 27,251 | ||||||||||||
Earnings per share – Basic | $ | 0.63 | $ | 0.43 | $ | 1.67 | $ | 1.38 | ||||||||
Earnings per share – Diluted | $ | 0.62 | $ | 0.42 | $ | 1.65 | $ | 1.36 | ||||||||
Return on Average Equity | 19.6 | % | 20.2 | % | 20.4 | % | 22.8 | % |
Michael H. Lee, President and Chief Executive Officer of Tower Group, Inc. stated, “During the quarter, we were able to utilize our unique hybrid business model to support our growth as well as generate greater commission income. The result was an increase in our return on equity to nearly our target level of 20%. Despite soft market conditions in our industry, we continue to be successful in identifying profitable market segments for our products which is yielding very strong top line growth while maintaining our underwriting discipline. For these reasons, we believe we are well positioned to continue to profitably grow our business for the remainder of the year and into 2008.”
Gross premiums written in the insurance and reinsurance segments increased to $127.7 million in the third quarter, which was 27.9% higher than in the third quarter of 2006. This growth was primarily driven by the addition of Preserver Group, Inc. business, a 15.7% increase in policies in force over the past year (excluding the effect of the Preserver acquisition) and premium increases on renewed business in the insurance segment which averaged 9.3% for personal lines and 2.4% for commercial lines.
Total revenues increased 53.4% to $112.0 million in the third quarter of 2007 as compared to $73.0 million for the same period in 2006. Net premiums earned represented 65.3% of total revenues for the three months ended September 30, 2007 compared to 71.7% for the same period in 2006. During the third quarter of 2007, we produced $23.4 million in premiums on behalf of CastlePoint Insurance Company through our insurance services segment resulting in $7.5 million of fee income. The ceding commission revenue from ceded quota share premiums earned and increase in insurance services revenue were the principal sources of the increase in total commission and fee income, which grew by 99.6% to $29.3 million in the third quarter of 2007 compared to $14.7 million in the third quarter of 2006.
Net investment income increased by 62.3% to $9.6 million for the three months ended September 30, 2007 compared to $5.9 million for the same period in 2006. On a tax equivalent basis, the yield was 5.9% as of September 30, 2007 compared to 5.6% as of September 30, 2006.
At September 30, 2007, an unrealized loss position for various mortgage and real estate related equity securities was $10.4 million. As part of its impairment testing, the Company considered all relevant factors including the short length of time the investments have had an unrealized loss. This leads us to the conclusion that any impairment in the value of these securities should be considered to be of a temporary nature at the current time.
Gross loss and loss adjustment expenses and the gross loss ratio for the insurance and reinsurance segments combined for the three months ended September 30, 2007 were $69.9 million and 50.4%, respectively, compared to $49.1 million and 53.1%, respectively, in the same period in 2006. The net loss ratio for the combined segments was 54.7% in the three months ended September 30, 2007 and 58.0% in the same period in 2006.
Operating expenses increased by 67.9% to $47.7 million for the three months ended September 30, 2007 from $28.4 million for the same period in 2006. Our gross expense ratio was 29.2% for the three months ended September 30, 2007 as compared with 28.8% for the same period in 2006.
Additional Highlights and Disclosures:
Dividend Declaration
Tower Group, Inc. announced today that the Company's Board of Directors approved a quarterly dividend of $0.05 per share payable December 27, 2007 to stockholders of record as of December 14, 2007.
2007 Guidance
We believe we are well positioned to support our premium growth and to generate commission and fee income to augment our return on equity. We continue to anticipate increasing earnings for the last quarter of the year. For the fourth quarter, we project net income to be in a range between $17 million and $19 million. We project Tower's diluted earnings per share in the fourth quarter to be in the range between $0.75 and $0.85 per diluted share. For the full year, we anticipate net income to be in a range between $55 million and $57 million and diluted earnings per share to be between $2.40 and $2.50 for the year. These projections do not include any amounts for realized capital gains or losses.
About Tower Group, Inc.
Tower Group, Inc. offers 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. Tower Group'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 release or any other written or oral statements made by or on behalf of the Company may include forward-looking statements that reflect the Company's current views with respect to future events and financial performance. All statements other than statements of historical fact included in this 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" or "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 our actual results to differ materially from those indicated in these statements. We believe that these factors include but are not limited to ineffectiveness or obsolescence of our business strategy due to changes in current or future market conditions; increased competition on the basis of pricing, capacity, coverage terms or other factors; greater frequency or severity of claims and loss activity, including as a result of natural or man-made catastrophic events, than our underwriting, reserving or investment practices anticipate based on historical experience or industry data; the effects of acts of terrorism or war; developments in the world's financial and capital markets that adversely affect the performance of our investments; changes in regulations or laws applicable to us, our subsidiaries, brokers or customers; changes in the level of demand for our insurance and reinsurance products and services, including new products and services; changes in the availability, cost or quality of reinsurance and failure of our reinsurers to pay claims timely or at all; loss of the services of any of our executive officers or other key personnel; the effects of mergers, acquisitions and divestitures; changes in rating agency policies or practices; changes in legal theories of liability under our insurance policies; changes in accounting policies or practices; and changes in general economic conditions, including inflation and other factors. Forward-looking statements speak only as of the date on which they are made, and the Company 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/.
Insurance Overall Results of Operations | ||||||||||||
Insurance and Reinsurance Segments | ||||||||||||
Third Quarter | ||||||||||||
($ in thousands) | ||||||||||||
Three Months Ended | ||||||||||||
September 30, | ||||||||||||
Revenues | 2007 | 2006 | (%) Change | |||||||||
Premiums earned | ||||||||||||
Gross premiums earned | $ | 138,752 | $ | 92,527 | 50.0 | % | ||||||
Less: Ceded premiums earned | (65,628 | ) | (40,162 | ) | 63.4 | % | ||||||
Net premiums earned | 73,124 | 52,365 | 39.6 | % | ||||||||
Ceded commission revenue | 19,601 | 13,171 | 48.8 | % | ||||||||
Policy billing fees | 599 | 286 | 109.4 | % | ||||||||
Total Revenues | 93,324 | 65,822 | 41.8 | % | ||||||||
Expenses | ||||||||||||
Loss and loss adjustment expenses | ||||||||||||
Gross loss and loss adjustment expenses | 69,888 | 49,100 | 42.3 | % | ||||||||
Less: Ceded loss and loss adjustment expenses | (29,881 | ) | (18,709 | ) | 59.7 | % | ||||||
Net loss and loss adjustment expense | 40,007 | 30,391 | 31.6 | % | ||||||||
Underwriting Expenses | ||||||||||||
Commissions paid to producers | 22,614 | 15,099 | 49.8 | % | ||||||||
Other underwriting expenses | 18,551 | 11,824 | 56.9 | % | ||||||||
Total Underwriting Expenses | 41,165 | 26,923 | 52.9 | % | ||||||||
Underwriting Profit | $ | 12,152 | $ | 8,508 | 42.8 | % | ||||||
Key Measures | ||||||||||||
Premiums written | ||||||||||||
Gross | $ | 127,671 | $ | 99,810 | 27.9 | % | ||||||
Ceded | (60,912 | ) | (48,150 | ) | 26.5 | % | ||||||
Net | $ | 66,759 | $ | 51,660 | 29.2 | % | ||||||
Loss Ratios | ||||||||||||
Gross | 50.4 | % | 53.1 | % | ||||||||
Net | 54.7 | % | 58.0 | % | ||||||||
Accident Year Loss Ratios | ||||||||||||
Gross | 50.5 | % | 53.6 | % | ||||||||
Net | 55.4 | % | 59.2 | % | ||||||||
Expense Ratios | ||||||||||||
Gross | 29.2 | % | 28.8 | % | ||||||||
Net | 28.7 | % | 25.7 | % | ||||||||
Combined Ratios | ||||||||||||
Gross | 79.6 | % | 81.9 | % | ||||||||
Net | 83.4 | % | 83.7 | % |
Insurance Overall Results of Operations | ||||||||||||
Insurance and Reinsurance Segments | ||||||||||||
First Nine Months | ||||||||||||
($ in thousands) | ||||||||||||
Nine Months Ended | ||||||||||||
September 30, | ||||||||||||
Revenues | 2007 | 2006 | (%) Change | |||||||||
Premiums earned | ||||||||||||
Gross premiums earned | $ | 378,000 | $ | 264,711 | 42.8 | % | ||||||
Less: Ceded premiums earned | (170,458 | ) | (95,803 | ) | 77.9 | % | ||||||
Net premiums earned | 207,542 | 168,908 | 22.9 | % | ||||||||
Ceded commission revenue | 50,867 | 30,550 | 66.5 | % | ||||||||
Policy billing fees | 1,444 | 825 | 75.0 | % | ||||||||
Total Revenues | 259,853 | 200,283 | 29.7 | % | ||||||||
Expenses | ||||||||||||
Loss and loss adjustment expenses | ||||||||||||
Gross loss and loss adjustment expenses | 194,056 | 150,974 | 28.5 | % | ||||||||
Less: Ceded loss and loss adjustment expenses | (79,528 | ) | (45,948 | ) | 73.1 | % | ||||||
Net loss and loss adjustment expense | 114,528 | 105,026 | 9.0 | % | ||||||||
Underwriting Expenses | ||||||||||||
Commissions paid to producers | 62,906 | 42,109 | 49.4 | % | ||||||||
Other underwriting expenses | 50,768 | 33,508 | 51.5 | % | ||||||||
Total Underwriting Expenses | 113,674 | 75,617 | 50.3 | % | ||||||||
Underwriting Profit | $ | 31,651 | $ | 19,640 | 61.2 | % | ||||||
Key Measures | ||||||||||||
Premiums written | ||||||||||||
Gross | $ | 387,387 | $ | 311,597 | 24.3 | % | ||||||
Ceded | (202,912 | ) | (131,586 | ) | 54.2 | % | ||||||
Net | $ | 184,475 | $ | 180,011 | 2.5 | % | ||||||
Loss Ratios | ||||||||||||
Gross | 51.3 | % | 57.0 | % | ||||||||
Net | 55.2 | % | 62.2 | % | ||||||||
Accident Year Loss Ratios | ||||||||||||
Gross | 51.7 | % | 57.5 | % | ||||||||
Net | 55.4 | % | 62.0 | % | ||||||||
Expense Ratios | ||||||||||||
Gross | 29.7 | % | 28.3 | % | ||||||||
Net | 29.6 | % | 26.2 | % | ||||||||
Combined Ratios | ||||||||||||
Gross | 81.0 | % | 85.3 | % | ||||||||
Net | 84.8 | % | 88.4 | % |
Insurance Services Segment Results of Operations
($ in thousands)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
Revenue | ||||||||||||||||
Direct commission revenue from managing general agency | $ | 8,028 | $ | 380 | $ | 9,088 | $ | 2,291 | ||||||||
Claims administration revenue | 524 | 688 | 1,624 | 2,572 | ||||||||||||
Other administration revenue (1) | 326 | - | 924 | - | ||||||||||||
Reinsurance intermediary fees (2) | 254 | 176 | 595 | 411 | ||||||||||||
Policy billing fees | 5 | - | 5 | 5 | ||||||||||||
Total Revenues | 9,137 | 1,244 | 12,236 | 5,279 | ||||||||||||
Expenses | ||||||||||||||||
Direct commissions expense paid to producers | 3,808 | 211 | 3,959 | 1,545 | ||||||||||||
Other insurance services expenses | 1,687 | 193 | 2,302 | 735 | ||||||||||||
Claims expense reimbursement to TICNY (3) | 520 | 687 | 1,618 | 2,556 | ||||||||||||
Total Expenses | 6,015 | 1,091 | 7,879 | 4,836 | ||||||||||||
Insurance services pre-tax income (loss) | $ | 3,122 | $ | 153 | $ | 4,357 | $ | 443 | ||||||||
Premiums produced by TRM on behalf of issuing companies | $ | 23,433 | $ | 1,408 | $ | 24,094 | $ | 10,270 |
(1)The other administration revenue includes amounts reimbursed by CPM for services rendered pursuant to a service and expense sharing agreement. |
(2)The reinsurance intermediary fees include commissions earned for placement of reinsurance on behalf of TICNY and TNIC. |
(3)Consists of underwriting expenses reimbursed to TICNY pursuant to an expense sharing agreement and to CPM pursuant to a service and expense sharing agreement. |
Tower Group, Inc.
Consolidated Balance Sheets
(Unaudited) | ||||||||
September 30, | December 31, | |||||||
2007 | 2006 | |||||||
($ in thousands, except par value and share amounts) | ||||||||
Assets | ||||||||
Fixed-maturity securities, available-for-sale, at fair value (amortized cost | ||||||||
$603,338 at September 30, 2007 and $416,642 at December 31, 2006) | $ | 592,401 | $ | 414,567 | ||||
Equity securities, available-for-sale, at fair value (cost $59,810 at | ||||||||
September 30, 2007 and $47,971 at December 31, 2006) | 50,148 | 49,453 | ||||||
Total investments | 642,549 | 464,020 | ||||||
Cash and cash equivalents | 52,526 | 100,598 | ||||||
Investment income receivable | 6,682 | 4,767 | ||||||
Agents' balances receivable | 98,638 | 65,578 | ||||||
Assumed premiums receivable | 472 | 77 | ||||||
Ceding commission receivable | 3,469 | 3,237 | ||||||
Reinsurance recoverable | 200,686 | 118,003 | ||||||
Receivable - claims paid by agency | 6,842 | 5,186 | ||||||
Prepaid reinsurance premiums | 132,736 | 94,063 | ||||||
Deferred acquisition costs net of deferred ceding commission revenue | 39,408 | 35,811 | ||||||
Federal and state taxes recoverable | 712 | - | ||||||
Deferred income taxes | 22,394 | - | ||||||
Intangible assets | 21,992 | 5,423 | ||||||
Goodwill | 9,608 | - | ||||||
Fixed assets, net of accumulated depreciation | 30,659 | 20,563 | ||||||
Investment in unconsolidated affiliate | 31,906 | 27,944 | ||||||
Investment in statutory business trusts, equity method | 3,036 | 2,045 | ||||||
Other assets | 9,166 | 6,767 | ||||||
Total Assets | $ | 1,313,481 | $ | 954,082 | ||||
Liabilities | ||||||||
Loss and loss adjustment expenses | $ | 487,627 | $ | 302,541 | ||||
Unearned premium | 282,069 | 227,017 | ||||||
Reinsurance balances payable | 54,213 | 38,560 | ||||||
Payable to issuing carriers | 13,320 | 662 | ||||||
Funds held as agent | 6,068 | 8,181 | ||||||
Funds held under reinsurance agreements | 40,724 | 51,527 | ||||||
Accounts payable and accrued expenses | 17,078 | 18,267 | ||||||
Deferred rent liability | 7,323 | 6,295 | ||||||
Payable for securities | 336 | 2,922 | ||||||
Other liabilities | 5,475 | 3,515 | ||||||
Federal and state income taxes payable | - | 1,163 | ||||||
Deferred income taxes | - | 1,255 | ||||||
Dividends payable | - | 212 | ||||||
Subordinated debentures | 101,036 | 68,045 | ||||||
Total Liabilities | 1,015,269 | 730,162 | ||||||
Stockholders' Equity | ||||||||
Series A perpetual preferred stock ($0.01 par value per share; 2,000,000 shares | ||||||||
authorized; no shares issued and outstanding at September 30, 2007; 40,000 | ||||||||
shares issued and outstanding at December 31, 2006; liquidation preference of | ||||||||
$1,000 per share, net of $0.4 million of issuance costs) | - | 39,600 | ||||||
Common stock ($0.01 par value per share; 40,000,000 shares authorized, 23,215,118 | ||||||||
and 20,005,758 shares issued at September 30, 2007 and December 31, 2006, | ||||||||
respectively, and 23,192,708 and 19,980,306 shares outstanding at | ||||||||
September 30, 2007 and December 31, 2006, respectively) | 232 | 200 | ||||||
Paid-in-capital | 205,182 | 113,168 | ||||||
Accumulated other comprehensive net loss | (13,869 | ) | (437 | ) | ||||
Retained earnings | 106,984 | 71,596 | ||||||
Treasury stock (22,410 shares at September 30, 2007 and 25,452 at December 31, 2006) | (317 | ) | (207 | ) | ||||
Total Stockholders' Equity | 298,212 | 223,920 | ||||||
Total Liabilities and Stockholders' Equity | $ | 1,313,481 | $ | 954,082 |
Tower Group, Inc.
Consolidated Statements of Income and
Comprehensive Net Income
(Unaudited)
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
($ in thousands, except share and per share amounts) | ||||||||||||||||
Revenues | ||||||||||||||||
Net premiums earned | $ | 73,124 | $ | 52,366 | $ | 207,542 | $ | 168,908 | ||||||||
Ceding commission revenue | 19,601 | 13,171 | 50,867 | 30,550 | ||||||||||||
Insurance services revenue | 9,137 | 1,243 | 12,236 | 5,274 | ||||||||||||
Policy billing fees | 599 | 286 | 1,444 | 830 | ||||||||||||
Net investment income | 9,615 | 5,923 | 27,016 | 15,875 | ||||||||||||
Net realized (losses) gains on investments | (62 | ) | 32 | 10 | (84 | ) | ||||||||||
Total revenues | 112,014 | 73,021 | 299,115 | 221,353 | ||||||||||||
Expenses | ||||||||||||||||
Loss and loss adjustment expenses | 40,007 | 30,392 | 114,528 | 105,026 | ||||||||||||
Direct commission expense | 26,422 | 15,309 | 66,865 | 43,654 | ||||||||||||
Other operating expenses | 21,311 | 13,127 | 55,832 | 38,718 | ||||||||||||
Interest expense | 2,313 | 1,863 | 6,843 | 5,066 | ||||||||||||
Total expenses | 90,053 | 60,691 | 244,068 | 192,464 | ||||||||||||
Other Income | ||||||||||||||||
Equity income in unconsolidated affiliate | 746 | 418 | 2,169 | 364 | ||||||||||||
Gain from issuance of common stock by unconsolidated affiliate | - | - | 2,705 | 7,883 | ||||||||||||
Warrant received from unconsolidated affiliate | - | - | - | 4,605 | ||||||||||||
Income before income taxes | 22,707 | 12,748 | 59,921 | 41,741 | ||||||||||||
Income tax expense | 8,323 | 4,292 | 21,530 | 14,490 | ||||||||||||
Net income | $ | 14,384 | $ | 8,456 | $ | 38,391 | $ | 27,251 | ||||||||
Comprehensive Income | ||||||||||||||||
Net income | $ | 14,384 | $ | 8,456 | $ | 38,391 | $ | 27,251 | ||||||||
Other comprehensive income: | ||||||||||||||||
Gross unrealized investment holding (losses) gains arising during period | (9,140 | ) | 9,150 | (20,169 | ) | 3,273 | ||||||||||
Equity in net unrealized (losses) gains in investment in | ||||||||||||||||
unconsolidated affiliate’s investment portfolio | (236 | ) | 296 | (658 | ) | 184 | ||||||||||
Less: reclassification adjustment for losses(gains) | ||||||||||||||||
included in net income | 62 | (32 | ) | (10 | ) | 84 | ||||||||||
(9,314 | ) | 9,414 | (20,837 | ) | 3,541 | |||||||||||
Income tax benefit (expense) related to items of other comprehensive income | 3,260 | (3,295 | ) | 7,293 | (1,297 | ) | ||||||||||
Total other comprehensive net (loss) income | (6,054 | ) | 6,119 | (13,544 | ) | 2,244 | ||||||||||
Comprehensive Income | $ | 8,330 | $ | 14,575 | $ | 24,847 | $ | 29,495 | ||||||||
Earnings Per Share | ||||||||||||||||
Basic earnings per common share | $ | 0.63 | $ | 0.43 | $ | 1.67 | $ | 1.38 | ||||||||
Diluted earnings per common share | $ | 0.62 | $ | 0.42 | $ | 1.65 | $ | 1.36 | ||||||||
Weighted Average Common Shares Outstanding: | ||||||||||||||||
Basic | 22,983,325 | 19,776,188 | 22,622,672 | 19,734,365 | ||||||||||||
Diluted | 23,189,031 | 20,074,058 | 22,885,001 | 20,032,256 | ||||||||||||
Dividends declared and paid per common share: | ||||||||||||||||
Common stock | $ | 0.05 | $ | 0.025 | $ | 0.10 | $ | 0.075 |