Tower Group International (TWGP) 8-K Tower Group Reports Second Quarter Results

Exhibit 99.1

Tower Group Reports Second Quarter Results

NEW YORK--(BUSINESS WIRE)--August 6, 2012--Tower Group, Inc. (NASDAQ: TWGP) today reported a net loss attributable to common shareholders in the second quarter of 2012 of $15.1 million, or ($0.39) per diluted share. Net income attributable to common shareholders in the second quarter of 2011 was $24.1 million, or $0.58 per diluted share.

Operating loss ⁽¹⁾ was $15.5 million in the second quarter of 2012, or ($0.39) per diluted share, compared to operating income of $26.0 million in the second quarter of 2011, or $0.63 per diluted share. The 2012 operating loss included an after-tax charge of $42.3 million, or $1.08 per share, associated with prior year reserve strengthening compared to $0.3 million or $0.01 per share of favorable reserve development in the second quarter of 2011. The reserve strengthening relates primarily to unfavorable development in the company’s Commercial Insurance segment arising from changes in estimated ultimate losses for accident years 2011 and prior. During the quarter Tower conducted detailed reserve studies for all lines using loss data through the first quarter of 2012 as well as reported claims during the second quarter, including analysis of the source of unusually high reported loss emergence for certain casualty lines, primarily workers’ compensation and commercial automobile, observed during the first and second quarters of 2012. In the second quarter 2012 we also experienced $3.3 million in after-tax severe weather losses or $0.08 per share, compared to after-tax severe weather losses of $4.6 million or $0.11 per share in the same time period last year. Excluding the business managed by reciprocals, the storm losses added 1.2 points to the second quarter 2012 loss ratio compared to 2.1 points in the same time period last year.

Highlights (all figures compare second quarter 2012 results to the results for the same period in 2011 except as noted):

• Gross premiums written and managed increased by 14.9% to $537.6 million.
• For the combined insurance segments, the net combined ratio rose to 110.8% from 94.9%. (Excluding the business that Tower manages on behalf of the reciprocal exchanges, the net combined ratio was 110.9% for the second quarter of 2012.)
  • The net loss ratio increased to 76.0% from 61.2%. The net loss ratio excluding the reciprocal exchanges increased to 77.3% from 62.4%, with the reserve adjustment adding 15.6 points to the second quarter 2012 net loss ratio.
  • The net expense ratio was 34.8 % compared to 33.7%.
• Net investment income was flat at $31.8 million.
• Book value per share was $26.53 at June 30, 2012 compared to $26.37 at December 31, 2011. During the quarter, Tower paid cash dividends of 18.75 cents per share, and year to date Tower has paid cash dividends of 37.50 cents per share.
• Tower Group, Inc. stockholders’ equity was $1.0 billion at June 30, 2012.

Michael H. Lee, President and Chief Executive Officer of Tower Group, Inc., said, “During the quarter, we took an important step to establishing a diversified global specialty insurance company by entering into an agreement with Canopius to merge Tower with Canopius’ Bermuda operations. We believe this transaction will allow us to access U.S., Bermuda and Lloyd’s markets to enhance our profitability and create new business opportunities. As part of our strategic review during the second quarter, we conducted a comprehensive review of our prior accident year and strengthened our prior accident year reserves. We believe we have taken decisive actions to address our reserve position from prior accident years, so that our future results should better reflect the underwriting profitability of our ongoing business. Excluding this reserve development, our operating results continue to be strong, and in the second quarter we experienced 15% top line growth and a 95.3% combined ratio. During the quarter, we continued to successfully implement our organic growth initiative to expand into new products, and improve existing and create new business units. We also continue to see signs of improving market conditions which are allowing us to continue to drive rate increases to further improve our underwriting profitability. In summary, due to our transaction with Canopius, actions that we have taken this quarter with respect to our reserve position, the success of the organic growth initiative and improving market conditions, we have a positive outlook for the remainder of 2012 and 2013.”

Financial Summary ($ in thousands, except per share data):
		Three Months Ended June 30,
		2012												2011
					Reciprocal			Elimina-									Reciprocal			Elimina-
		Tower			Exchanges			tions			Total			Tower			Exchanges			tions			Total
Net premiums written		$	441,613		$	44,620		$	-		$	486,233		$	383,865		$	45,130		$	-		$	428,995
Revenues
Net premiums earned		$	417,612		$	42,541		$	-		$	460,153		$	342,789		$	50,741		$	-		$	393,530
Ceding commission revenue			6,855			3,225			-			10,080			9,107			1,548			-			10,655
Insurance services revenue			9,324			-			(7,965	)		1,359			7,631			-			(7,704	)		(73	)
Policy billing fees			2,871			129			-			3,000			2,512			147			-			2,659
Net investment income			30,268			3,177			(1,664	)		31,781			30,419			3,051			(1,672	)		31,798
Total net realized investment gains
	(losses)		1,421			(1,657	)		-			(236	)		(2,857	)		543			-			(2,314	)
	Total revenues		468,351			47,415			(9,629	)		506,137			389,601			56,030			(9,376	)		436,255
Expenses
Loss and loss adjustment expenses			322,842			26,933			-			349,775			213,970			26,876			-			240,846
Direct and ceding
	commission expense		87,024			8,162			-			95,186			69,726			6,484			-			76,210
Other operating expenses			71,459			14,606			(7,965	)		78,100			62,812			14,641			(7,704	)		69,749
Acquisition-related transaction costs			720			-			-			720			-			-			-			-
Interest expense			7,902			1,664			(1,664	)		7,902			8,257			1,672			(1,672	)		8,257
	Total expenses		489,947			51,365			(9,629	)		531,683			354,765			49,673			(9,376	)		395,062
Income (loss) before income taxes			(21,596	)		(3,950	)		-			(25,546	)		34,836			6,357			-			41,193
Income tax expense (benefit)			(6,483	)		(756	)		-			(7,239	)		10,715			2,162			-			12,877
Net income (loss)		$	(15,113	)	$	(3,194	)	$	-		$	(18,307	)	$	24,121		$	4,195		$	-		$	28,316
Ratios
Net calendar year loss and LAE			77.3	%		63.3	%					76.0	%		62.4	%		53.0	%					61.2	%
Net underwriting expenses			33.6	%		45.6	%					34.8	%		33.0	%		38.3	%					33.7	%
Net Combined			110.9	%		108.9	%					110.8	%		95.4	%		91.3	%					94.9	%
Return on Average Equity			-5.8	%											9.2	%

Financial Summary ($ in thousands, except per share data):
		Six Months Ended June 30,
		2012												2011
					Reciprocal			Elimina-									Reciprocal			Elimina-
		Tower			Exchanges			tions			Total			Tower			Exchanges			tions			Total
Net premiums written		$	829,204		$	82,713		$	-		$	911,917		$	703,255		$	85,758		$	-		$	789,013
Revenues
Net premiums earned		$	796,281		$	84,030		$	-		$	880,311		$	677,326		$	95,999		$	-		$	773,325
Ceding commission revenue			8,933			6,310			-			15,243			15,924			2,912			-			18,836
Insurance services revenue			16,683			-			(14,827	)		1,856			14,928			-			(14,399	)		529
Policy billing fees			5,873			261			-			6,134			4,546			291			-			4,837
Net investment income			62,525			6,526			(3,327	)		65,724			61,107			6,395			(3,326	)		64,176
Total net realized investment gains (losses)			1,028			2,319			-			3,347			5,380			(334	)		-			5,046
	Total revenues		891,323			99,446			(18,154	)		972,615			779,211			105,263			(17,725	)		866,749
Expenses
Loss and loss adjustment expenses			566,091			51,177			-			617,268			430,418			50,604			-			481,022
Direct and ceding commission expense			158,936			15,935			-			174,871			135,755			17,058			-			152,813
Other operating expenses			144,355			27,543			(14,827	)		157,071			123,814			26,673			(14,399	)		136,088
Acquisition-related transaction costs			1,982			-			-			1,982			12			-			-			12
Interest expense			15,478			3,327			(3,327	)		15,478			16,357			3,326			(3,326	)		16,357
	Total expenses		886,842			97,982			(18,154	)		966,670			706,356			97,661			(17,725	)		786,292
Income before income taxes			4,481			1,464			-			5,945			72,855			7,602			-			80,457
Income tax expense (benefit)			(1,040	)		(4,349	)		-			(5,389	)		23,049			2,586			-			25,635
Net income		$	5,521		$	5,813		$	-		$	11,334		$	49,806		$	5,016		$	-		$	54,822
Ratios
Net calendar year loss and LAE			71.1	%		60.9	%					70.1	%		63.5	%		52.7	%					62.2	%
Net underwriting expenses			34.3	%		43.9	%					35.2	%		33.0	%		42.2	%					34.1	%
Net Combined			105.4	%		104.8	%					105.3	%		96.5	%		94.9	%					96.3	%
Return on Average Equity			1.1	%											9.5	%

Reconciliation of non-GAAP financial measures ($ in thousands, except per share data):
		Three Months Ended						Six Months Ended
		June 30,						June 30,
		2012			2011			2012			2011
	Net income (loss) attributable to Tower Group, Inc.	$	(15,113	)	$	24,121		$	5,521		$	49,806
	Net realized (gains) losses on investments		(1,421	)		2,857			(1,028	)		(5,380	)
	Acquisition-related transaction costs		720			-			1,982			12
	Income tax		363			(1,000	)		(5	)		1,882
	Operating income (loss) attributable to Tower Group, Inc.	$	(15,451	)	$	25,978		$	6,470		$	46,320
Ratios
	Operating earnings (loss) per share - Basic	$	(0.39	)	$	0.63		$	0.17		$	1.12
	Operating earnings (loss) per share - Diluted	$	(0.39	)	$	0.63		$	0.16		$	1.12
	Operating return on average equity		-5.9	%		9.9	%		1.2	%		8.8	%

Second Quarter 2012 Highlights

Consolidated

Gross premiums written and managed increased to $537.6 million in the second quarter, 14.9% higher than in the second quarter of 2011. Excluding programs, policies in-force increased by 5.0% as of June 30, 2012, compared to June 30, 2011. For the three months ended June 30, 2012, premiums on renewed Commercial Insurance business excluding programs increased 4.2% and premiums on renewed Personal Insurance business increased 2.6%, resulting in an overall premium increase on renewal business of 3.4%. During the same time period, our Commercial Insurance business renewal retention rate excluding programs was 78.4% and our Personal Insurance business renewal retention rate was 92%, resulting in an overall retention rate of 89%.

Total revenues increased 16.0% to $506.1 million in the second quarter of 2012 as compared to $436.3 million in the prior year's second quarter. The growth was primarily due to increased net premiums earned. Net premiums earned represented 90.9% of total revenues for the three months ended June 30, 2012 compared to 90.2% for 2011.

Net investment income was flat at $31.8 million. The tax equivalent book yield on our investment portfolio, excluding the reciprocal exchanges, was 4.8% at June 30, 2012 compared to 4.7% at June 30, 2011. Net realized investment losses were $0.2 million for the quarter ended June 30, 2012 compared to losses of $2.3 million in the same period last year. Total commission and fee income increased 9% to $14.4 million in the second quarter of 2012 compared to $13.2 million in the second quarter of 2011.

The net loss ratio was 76.0% for the three months ended June 30, 2012 compared to 61.2% for the same period in 2011. (Excluding the business that we manage on behalf of the reciprocal exchanges, the net loss ratio was 77.3% for the second quarter of 2012.) The second quarter 2012 results include an after-tax charge of $42.3 million associated with prior year reserve strengthening which added 15.6 points to the net loss ratio, excluding the business that Tower manages on behalf of the reciprocal exchanges. Excluding the business managed by reciprocals, the storm losses added 1.2 points to the second quarter 2012 loss ratio compared to 2.1 points in the same time period last year.

Our net expense ratio was 34.8% for the three months ended June 30, 2012 compared to 33.7% for the same period in 2011. (Excluding the business that we manage on behalf of the reciprocal exchanges, the net expense ratio was 33.6% for the second quarter of 2012 compared to 33.0% for the second quarter of 2011.)

The effective tax rate was 28.3% in the second quarter of 2012 compared to 31.3% for the same time period in 2011. Interest expense decreased by $0.4 million for the three months ended June 30, 2012, compared to the same period in 2011.

Additional Highlights and Disclosures

Dividend Declaration

Tower’s Board of Directors approved a quarterly dividend on August 1, 2012, of 18.75 cents per share payable on September 21, 2012, to stockholders of record as of September 10, 2012.

Guidance

Tower expects full year 2012 operating earnings per share to be in a range of $1.45 to $1.55 and 2013 operating earnings per share to be in a range of $2.85 to $3.05.

Notes on Non-GAAP Financial Measures

(1) Operating income (loss) 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 (loss) per share is operating income (loss) divided by diluted weighted average shares outstanding. Operating return on equity is annualized operating income (loss) divided by average common stockholders' equity.

Conference Call

Tower will host a conference call and webcast to discuss these results on August 7, 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 and reinsurance brokerage services to other insurance companies.

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.

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, 2011 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/

Commercial Insurance & Personal Insurance Combined
($ in thousands)
(Unaudited)
			Three Months Ended June 30,								Six Months Ended June 30,
			2012			2011		Change(%)			2012			2011		Change(%)
Key Measures
Premiums written
	Gross premiums written	$	537,624		$	467,984		14.9	%	$	1,004,986		$	857,532		17.2	%
	Less: ceded premiums written		(51,391	)		(38,989	)	31.8	%		(93,069	)		(68,519	)	35.8	%
	Net premiums written	$	486,233		$	428,995		13.3	%	$	911,917		$	789,013		15.6	%
Revenues
Net premiums earned			460,153			393,530		16.9	%	$	880,311		$	773,325		13.8	%
Ceding commission revenue			10,080			10,655		-5.4	%		15,243			18,836		-19.1	%
Policy billing fees			3,000			2,659		12.8	%		6,134			4,837		26.8	%
Total revenues			473,233			406,844		16.3	%		901,688			796,998		13.1	%
Expenses
Net loss and loss adjustment expenses			349,775			240,846		45.2	%		617,268			481,022		28.3	%
Underwriting expenses
	Direct commission expense		95,187			76,568		24.3	%		174,871			152,916		14.4	%
	Other underwriting expenses		77,826			69,315		12.3	%		156,336			134,468		16.3	%
	Total underwriting expenses		173,013			145,883		18.6	%		331,207			287,384		15.2	%
Underwriting profit (loss)		$	(49,555	)	$	20,115		-346.4	%	$	(46,787	)	$	28,592		-263.6	%
Underwriting Ratios
	Net loss ratio		76.0	%		61.2	%				70.1	%		62.2	%
	Net expense ratio		34.8	%		33.7	%				35.2	%		34.1	%
	Net combined ratio		110.8	%		94.9	%				105.3	%		96.3	%

Commercial Insurance Segment Information
($ in thousands)
(Unaudited)
			Three Months Ended						Six Months Ended
			June 30,						June 30,
			2012			2011			2012			2011
Key Measures
Premiums written
	Gross premiums written	$	369,758		$	315,866		$	706,788		$	578,878
	Less: ceded premiums written		(26,010	)		(20,345	)		(42,835	)		(32,236	)
	Net premiums written	$	343,748		$	295,521		$	663,953		$	546,642
Revenues
Net premiums earned			337,650			263,735		$	635,485		$	515,503
Ceding commission revenue			3,894			4,710			3,904			8,728
Policy billing fees			1,390			1,114			2,903			1,878
Total revenues			342,934			269,559			642,292			526,109
Expenses
Net loss and loss adjustment expenses			281,209			166,597			482,647			331,087
Underwriting expenses
	Direct commission expenses		66,539			49,770			122,088			100,248
	Other underwriting expenses		47,415			36,863			95,662			73,613
	Total underwriting expenses		113,954			86,633			217,750			173,861
Underwriting profit (loss)		$	(52,229	)	$	16,329		$	(58,105	)	$	21,161
Underwriting Ratios
	Net loss ratio		83.3	%		63.2	%		75.9	%		64.2	%
	Net expense ratio		32.2	%		30.6	%		33.2	%		31.7	%
	Net combined ratio		115.5	%		93.8	%		109.1	%		95.9	%

Personal Insurance Segment Information
($ in thousands)
(Unaudited)
			Three Months Ended June 30,
			2012									2011
						Reciprocal								Reciprocal
			Tower			Exchanges			Total			Tower		Exchanges		Total
Key Measures
Premiums written
	Gross premiums written	$	115,066		$	52,800		$	167,866		$	97,085		55,033		152,118
	Less: ceded premiums written		(17,201	)		(8,180	)		(25,381	)		(8,741	)	(9,903	)	(18,644	)
	Net premiums written	$	97,865		$	44,620		$	142,485		$	88,344		45,130		133,474
Revenues
Net premiums earned			79,962			42,541			122,503			79,055		50,740		129,795
Ceding commission revenue			2,961			3,225			6,186			4,414		1,531		5,945
Policy billing fees			1,481			129			1,610			1,398		147		1,545
Total revenues			84,404			45,895			130,299			84,867		52,418		137,285
Expenses
Net loss and loss adjustment expenses			41,633			26,933			68,566			47,373		26,876		74,249
Underwriting expenses
	Direct commission expense		20,486			8,162			28,648			20,333		6,465		26,798
	Other underwriting expenses		15,804			14,607			30,411			17,811		14,641		32,452
	Total underwriting expenses		36,290			22,769			59,059			38,144		21,106		59,250
Underwriting profit (loss)		$	6,481		$	(3,807	)	$	2,674		$	(650	)	4,436		3,786
Underwriting Ratios
	Net loss ratio		52.1	%		63.3	%		56.0	%		59.9	%	53.0	%	57.2	%
	Net expense ratio		39.8	%		45.6	%		41.8	%		40.9	%	38.3	%	39.9	%
	Net combined ratio		91.9	%		108.9	%		97.8	%		100.8	%	91.3	%	97.1	%

Personal Insurance Segment Information
($ in thousands)
(Unaudited)
		Six Months Ended June 30,
		2012						2011
					Reciprocal						Reciprocal
			Tower		Exchanges		Total		Tower		Exchanges		Total
Key Measures
Premiums written
	Gross premiums written	$	196,384	$	101,814	$	298,198	$	175,804		102,850		278,654
	Less: ceded premiums written		(31,133)		(19,101)		(50,234)		(19,191)		(17,092)		(36,283)
	Net premiums written	$	165,251	$	82,713	$	247,964	$	156,613		85,758		242,371
Revenues
Net premiums earned		$	160,796	$	84,030	$	244,826	$	161,824	$	95,998	$	257,822
Ceding commission revenue			5,029		6,310		11,339		7,214		2,894		10,108
Policy billing fees			2,970		261		3,231		2,668		291		2,959
Total revenues			168,795		90,601		259,396		171,706		99,183		270,889
Expenses
Net loss and loss adjustment expenses			83,444		51,177		134,621		99,331		50,604		149,935
Underwriting expenses
	Direct commission expense		36,848		15,935		52,783		35,629		17,039		52,668
	Other underwriting expenses		33,130		27,544		60,674		34,182		26,673		60,855
	Total underwriting expenses		69,978		43,479		113,457		69,811		43,712		113,523
Underwriting profit (loss)		$	15,373	$	(4,055)	$	11,318	$	2,564		4,867		7,431
Underwriting Ratios
	Net loss ratio		51.9%		60.9%		55.0%		61.4%		52.7%		58.2%
	Net expense ratio		38.5%		43.9%		40.4%		37.0%		42.2%		39.0%
	Net combined ratio		90.4%		104.8%		95.4%		98.4%		94.9%		97.2%

Insurance Services Segment Results of Operations
($ in thousands)
(Unaudited)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
		2012		2011			2012		2011
Revenue
Management fee income	$	7,965	$	7,704		$	14,827	$	14,399
Other revenue		1,359		(73	)		1,856		529
Total revenue		9,324		7,631			16,683		14,928
Expenses
Other expenses		5,079		4,977			9,542		10,018
Total expenses		5,079		4,977			9,542		10,018
Insurance services pre-tax income	$	4,245	$	2,654		$	7,141	$	4,910

Tower Group, Inc.
Consolidated Balance Sheets
		June 30,			December 31,
($ in thousands, except par value and share amounts)		2012			2011
Assets
Investments - Tower
Available-for-sale investments, at fair value:
	Fixed-maturity securities (amortized cost of $1,937,174 and $2,046,932)	$	2,060,802		$	2,153,620
	Equity securities (cost of $126,685 and $91,069)		128,490			87,479
Other invested assets			52,333			44,347
Investments - Reciprocal Exchanges
Available-for-sale investments, at fair value:
	Fixed-maturity securities (amortized cost of $280,843 and $288,180)		299,172			300,054
	Equity securities (cost of $6,840 and $1,965)		7,903			1,866
Total investments			2,548,700			2,587,366
Cash and cash equivalents (includes $6,906 and $666 relating to Reciprocal Exchanges)			199,005			114,098
Investment income receivable (includes $3,078 and $2,978 relating to Reciprocal Exchanges)			27,233			26,782
Premiums receivable (includes $38,662 and $41,290 relating to Reciprocal Exchanges)			381,983			408,626
Reinsurance recoverable on paid losses (includes $1,799 and $5,670 relating to Reciprocal Exchanges)			19,076			23,903
Reinsurance recoverable on unpaid losses (includes $19,661 and $11,253 relating to Reciprocal Exchanges)			301,620			319,664
Prepaid reinsurance premiums (includes $16,419 and $14,685 relating to Reciprocal Exchanges)			55,691			54,037
Deferred acquisition costs, net (includes $12,758 and $11,866 relating to Reciprocal Exchanges)			185,507			168,858
Intangible assets (includes $7,146 and $4,839 relating to Reciprocal Exchanges)			110,918			114,920
Goodwill			250,103			250,103
Funds held by reinsured companies			133,968			69,755
Other assets (includes $4,021 and $2,685 relating to Reciprocal Exchanges)			269,838			304,083
Total assets		$	4,483,642		$	4,442,195
Liabilities
Loss and loss adjustment expenses (includes $133,547 and $136,274 relating to Reciprocal Exchanges)		$	1,701,833		$	1,632,113
Unearned premium (includes $103,408 and $102,991 relating to Reciprocal Exchanges)			926,456			893,176
Reinsurance balances payable (includes $4,875 and $3,466 relating to Reciprocal Exchanges)			14,418			20,794
Funds held under reinsurance agreements			91,142			96,726
Other liabilities (includes $7,700 and $7,154 relating to Reciprocal Exchanges)			194,901			266,155
Deferred income taxes (includes $3,392 and $4,511 relating to Reciprocal Exchanges)			33,058			29,337
Debt			448,291			426,901
Total liabilities			3,410,099			3,365,202
Stockholders' equity
Common stock ($0.01 par value; 100,000,000 shares authorized, 46,769,519 and 46,448,341 shares issued, and 38,377,091 and 39,221,102 shares outstanding)			468			465
Treasury stock (8,392,428 and 7,227,239 shares)			(181,324	)		(158,185	)
Paid-in-capital			775,542			772,938
Accumulated other comprehensive income			75,866			62,244
Retained earnings			347,521			356,680
Tower Group, Inc. stockholders' equity			1,018,073			1,034,142
Noncontrolling interests			55,470			42,851
Total stockholders' equity			1,073,543			1,076,993
Total liabilities and stockholders' equity		$	4,483,642		$	4,442,195

Tower Group, Inc.
Consolidated Statements of Operations
			Three Months Ended						Six Months Ended
			June 30,						June 30,
(in thousands, except per share amounts)			2012			2011			2012			2011
Revenues
Net premiums earned			$	460,153		$	393,530		$	880,311		$	773,325
Ceding commission revenue				10,080			10,655			15,243			18,836
Insurance services revenue				1,359			(73	)		1,856			529
Policy billing fees				3,000			2,659			6,134			4,837
Net investment income				31,781			31,798			65,724			64,176
Net realized investment gains (losses):
	Other-than-temporary impairments			(2,525	)		(210	)		(5,246	)		(378	)
	Portion of loss recognized in other comprehensive income			286			-			286			24
	Other net realized investment gains			2,003			(2,104	)		8,307			5,400
		Total net realized investment gains (losses)		(236	)		(2,314	)		3,347			5,046
	Total revenues			506,137			436,255			972,615			866,749
Expenses
Loss and loss adjustment expenses				349,775			240,846			617,268			481,022
Direct and ceding commission expense				95,186			76,210			174,871			152,813
Other operating expenses				78,100			69,749			157,071			136,088
Acquisition-related transaction costs				720			-			1,982			12
Interest expense				7,902			8,257			15,478			16,357
	Total expenses			531,683			395,062			966,670			786,292
Income before income taxes				(25,546	)		41,193			5,945			80,457
Income tax expense				(7,239	)		12,877			(5,389	)		25,635
Net income			$	(18,307	)	$	28,316		$	11,334		$	54,822
Less: Net income attributable to Noncontrolling interests				(3,194	)		4,195			5,813			5,016
Net income attributable to Tower Group, Inc.			$	(15,113	)	$	24,121		$	5,521		$	49,806
Earnings per share attributable to Tower Group, Inc. stockholders:
	Basic		$	(0.39	)	$	0.58		$	0.14		$	1.20
	Diluted		$	(0.39	)	$	0.58		$	0.14		$	1.20
Weighted average common shares outstanding:
	Basic			39,117			41,303			39,206			41,404
	Diluted			39,117			41,395			39,268			41,518
Dividends declared and paid per common share			$	0.19		$	0.19		$	0.38		$	0.32

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