Tower Group International (TWGP) 8-K Regulation FD Disclosure

1.

Supplementary

Materials

with

Respect

to

Shareholder

Advisory

Vote

to

Approve

the

Company’s

Executive

Compensation  

April

20,

2012

Exhibit 99.1

1

Overview

At

the

Annual

Meeting

of

Stockholders

of

Tower

Group,

Inc.

(“Tower”

or

the

“Company”)

on

May

3,

2012,

Tower’s

stockholders

will

vote

on

an

advisory

basis

on

the

Company’s

executive

compensation

as

described

in

the

Proxy

Statement.

At

last

year’s

Annual

Meeting

of

Stockholders,

more

than

95%

of

the

shares

were

cast

in

support

of

the

Company’s

executive

compensation

programs

and

policies.

This

year,

ISS

Proxy

Advisory

Services

(“ISS”)

has

recommended

an

advisory

vote

against

the

Company’s

executive

compensation.

Within

the

following

pages:

•

The

key

elements

and

approach

of

Tower’s

executive

compensation

program

are

quantified,

and

•

We

will

detail

our

performance

against

our

peers

and

the

criteria

we

believe

should

be

used

to

determine

management

performance

and

compensation.

2

Key Elements of Tower’s Executive Compensation Program

Tower’s approach to employee compensation is based on its pay-for-performance

philosophy.

As described in the Company’s Proxy Statement, the key elements of

compensation for each Named Executive Officer are base salary, annual bonus,

stock-based incentives and retirement and other benefits.

The annual bonus and stock-based incentive are determined based primarily on

the extent to which the Company achieves targets in four performance metrics:

•

Adjusted operating return on equity

•

Gross premiums written and produced

•

Combined ratio, and

•

Growth in diluted book value per share

For 2011, the target metrics and actual results were as follows:

LOW

MID

HIGH

MAX

ACTUAL

Operating ROE

6.8%

8.6%

10.7%

12.8%

5.4%

GPW and Produced

1.377

1.53

1.8

2.16

1.811

Combined Ratio

99.1%

97.1%

94.1%

91.7%

100.1%

Growth DBVPS

4.5%

5.7%

7.2%

8.7%

5.1%

2011 Bonus Targets and Actual Results Achieved

3

Key Elements of Tower’s Executive Compensation Program

The process for determining executive compensation includes an assessment of

the performance of the Company and each Named Executive Officer and a

comparison of compensation for executives at peer companies.

•

For

determining

2011

compensation,

the

Committee

defined

this

peer

group

as

the

set

of

14

publicly

traded

comparable

property

and

casualty

insurance

companies

listed

below.

•

This

list

was

selected

after

discussion

with

an

executive

compensation

consulting

firm

and

management.

4

2011 Results Under Tower’s Executive Compensation Program

As can be seen by the chart below, Tower’s executive compensation program

worked as it should in 2011. 

Tower’s CEO compensation was substantially reduced to reflect the Company’s 

performance on the four performance metrics. 

*The compensation data used above include long term incentive pay in performance year.  In contrast, the Summary Compensation

Table in the Proxy Statement includes long term compensation based on grant year.

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

2007

2008

2009

2010

2011

Total Compensation

*

5

Comparison of Tower 2011 Results to Peers

Despite

the

fact

that

the

compensation

of

Tower’s

Chief

Executive

Officer

and

other

Named

Executive

Officers

was

reduced

because

the

Company

underperformed

on

its

metrics,

the

Company

actually

outperformed

the

peer

group

selected

by

the

Compensation

Committee

in

adjusted

operating

return

on

equity

and

growth

in

book

value

per

share.

*

DEFINED PEER GROUP

2011 OPERATING

RETURN ON

EQUITY

2011 BOOK VALUE

PER SHARE

GROWTH

ALLIED WORLD ASSURANCE CO

6.0

7.8

AMERICAN FINANCIAL GROUP INC

8.1

9.9

AMTRUST FINANCIAL SERVICES

22.1

23.2

ARCH CAPITAL GROUP LTD

6.6

6.8

ARGO GROUP INTERNATIONAL

-6.1

-3.8

ASPEN INSURANCE HOLDINGS LTD

-2.1

-1.2

AXIS CAPITAL HOLDINGS LTD

-2.9

-3.3

ENDURANCE SPECIALTY HOLDINGS

-4.9

-4.1

HANOVER INSURANCE GROUP INC

0.6

2.7

HCC INSURANCE HOLDINGS INC

7.8

10.3

MARKEL CORP

3.7

7.9

NAVIGATORS GROUP INC

3.8

9.3

SELECTIVE INSURANCE GROUP

1.7

2.2

VALIDUS HOLDINGS LTD

1.5

-2.1

Mean

3.3

4.7

Median

2.7

4.8

High

22.1

23.2

Low

-6.1

-4.1

TWGP

5.4

5.1

Source: SNL financial for peers; BVPS used for peers;  Diluted BVPS used for Tower.

6

Comparison to ISS Methodology

ISS defines financial performance in terms of total shareholder return (“TSR”).  No

weight has been given to profitability, growth of the business or return on equity.

•

TSR can be skewed depending on the start date.  This happens in the case of Tower, as the

following chart shows.

•

Tower’s TSR results far outperform the indexes since its IPO.        

Tower’s President and Chief Executive Officer, Michael Lee, owns 10% of Tower stock,

so his interests are closely aligned with those of our shareholders.

Tower’s Compensation Committee does not support the TSR approach.

•

The Committee believes that the use of any one metric is problematic, including the exclusive

use of TSR.  Instead, the Committee relies primarily upon the four metrics previously

described.

7

Comparison to ISS Methodology

The

Committee

believes

that

the

four

metrics

outlined

on

page

2

of

these

materials

provide

a

much

more

accurate

picture

of

management’s

performance

than

any

one

metric.

As

stated

on

page

25

of

the

Proxy

Statement:

The

Committee

believes

that

these

four

metrics

collectively

provide

a

comprehensive,

accurate

and

appropriate

measurement

of

the

Company’s

performance

both

during

a

given

year

and

over

a

period

of

years.

The

Company

further

believes

that

these

four

metrics

provide

a

more

reliable

measurement

of

performance

than

would

any

single

metric,

including

a

single

metric

based

on

total

shareholder

return.

8

Comparison to ISS Peer Group

As seen in the following chart, the ISS peer group does not seem

to take into

account the nature, size or type of insurance written by Tower.

In comparison,

Tower’s peer group is limited to property and casualty companies with

characteristics that make each company reasonably comparable to Tower in

terms of size, complexity and business mix.

Sector

# of Companies

Tower's Peer Group

P&C

14

P&C

18

Life

2

Title Insurance

1

Brokers

2

Runoff Company

1

Peer Group Comparison

ISS' Peer Group

9

Summary of Differences in Methodology and Approach

Metric

ISS Position

The exclusive metric to measure management performance is total shareholder

return.

Tower's Position

Performance should consider return on equity, premium growth, growth in book

value and combined ratio.  The use of any one metric, including TSR, is less accurate

and appropriate in measuring management’s performance than using the four

metrics selected by the Compensation Committee.

Compensation

Measurement

ISS Position

Appropriate

to

use

Summary

Compensation

Table

in

Proxy

Statement

even

though

equity

compensation

included

therein

is

actually

related

to

the

prior

year.

Tower's Position

Performance

year

compensation

is

a

better

measurement

than

Summary

Compensation

Table

data.

Also,

2011

compensation

on

the

Table

is

higher

because

the

cash

bonus

for

2010

performance

was

paid

in

equity

and

so

is

reflected

in

2011

compensation.

Peer Group

ISS Position

Appropriate to use peer group which includes life insurers, runoff companies and

brokers, as well as P&C companies regardless of size or market capitalization.

Tower's Position

Appropriate to use peer group solely composed of P&C companies of relatively

similar size and business mix.