Exhibit 99.1 Tower Group Inc. Reports 22% Increase in Third Quarter 2004 Net Income NEW YORK--(BUSINESS WIRE)--Nov. 15, 2004--Tower Group, Inc. (NASDAQ: TWGP) today reported third quarter net income of $2.5 million, or $0.43 per diluted share, a 22% increase from the $2 million, or $0.36 per diluted share, in the same quarter last year. For the nine months ending September 30, 2004, Tower Group Inc. net income was $5.8 million, or $1.01 per diluted share, a 26% increase over net income of $4.6 million, or $0.79 per diluted share, reported for the same period in 2003. On October 20, 2004, Tower Group completed its public offering of 13,000,000 shares of common stock and a concurrent private placement of 500,000 shares of common stock to an affiliate of Friedman, Billings, Ramsey & Co., the lead underwriter for the Tower's public offering. On November 10, 2004, the underwriters exercised the over-allotment option. Pursuant to the exercise, the underwriters purchased 629,007 shares of common stock from Tower and 1,320,993 shares of common stock from the selling shareholders at the public offering price of $8.50 per share, less the underwriting discount. Michael Lee, President and Chief Executive Officer of Tower Group Inc, said, "The strength of our earnings reflects the continuing trends of growth and profitability. Compared to 2003, the combined total of gross premiums written in our insurance operations and premiums produced in our insurance services operations grew 19% during the third quarter and 27% for the nine month period. This level of growth combined with our approach to segmenting the market and delivering profitable products in response to changing market conditions resulted in an increase in GAAP net underwriting profits of 48% during the third quarter and 51% for the nine month period. Our business model, which combines traditional property and casualty insurance, generates underwriting profits and ceding commission revenue with our fee based brokerage operations. This continued to produce significant returns on equity of 60% in the third quarter and 49% for the nine month period." Third quarter highlights: Total revenues increased to $26.5 million or 28.9% for the three months ended September 30, 2004 compared to $20.5 million in the same period in 2003. The increases are primarily due to the increase in net earned premiums, ceding commission and fee income as well as investment income. Net earned premiums represented 45.7% of total revenues for the three months ended September 30, 2004 compared to 36.5% in the same period in 2003. Ceding commission and fee income represented 49.6% of total revenue in the three months ended September 30, 2004 compared to 60.6% in the same period in 2003. Net investment income, excluding realized capital gains, represented 4.6% and 2.7% of total revenue for the three months ended September 30, 2004 and 2003, respectively. Net premiums earned increased by 61.3% to $12.1 million for the three months ended September 30, 2004 compared with $7.5 million in the same period in 2003. The increase in net premiums earned was due the overall increase in gross premiums written through September 30, 2004 and to our decision to cede less business in 2004 than 2003. For the third quarter, operating results were affected by a reduction in the ceding percentage to 60% from 70% in 2003 to better leverage capital. Gross premiums written of $42.4 million increased 23.4%. Policy count in the insurance segment increased 10% and rate increases and other pricing actions increased the average premium 12%. Ceded premium written of $26.7 increased 7.8% from prior year quarter due to lower ceding percentage in 2004. Accordingly net premium written increased 63% from prior year quarter and net premiums earned increased 61%. Ceding commission revenue increased 5.6% despite lower ceding percentage due to growth in gross and ceded premiums earned. Third quarter includes a reduction of $400,000 from an increase in ceded loss ratio on a prior year treaty. The effect on the expense ratio was to lower the gross expense ratio from 29.0% to 14.3% or 14.7 points. Gross loss ratio of 55.7% improved from prior year quarter of 56.3%. Net loss ratio of 61.4% improved from prior year quarter of 65.6% due to higher net earned premium over which to spread costs of catastrophe and excess reinsurance premiums. There was minimal favorable development on prior years' loss reserves. This quarter marks the seventh straight quarter without any adverse development of prior years' reserves. The gross expense ratio declined from prior year quarter. The net expense ratio, which equals the gross expense ratio less ceding commission revenue and policy billing fees increased due to reduced effects of ceding commission revenue that resulted from the lower ceding percentage. Although ceding commission revenue increased over the prior year quarter, the increase was less than it would have been had the ceding percentage remained the same in 2004 as in 2003. The net expense ratio of 75.7% increased from 73.7% in the prior year quarter due to the increase in the net expense ratio. Investment income was $1.2 million which increased 117% over the prior year quarter. Invested assets at the end of the quarter were $129.2 million as compared to $51.9 million at the end of the prior year quarter. Invested assets increased due to strong operating cash flows of $15 million including an increase of $2 million in funds held as collateral for reinsurance recoverables. The yield for fixed income and short term assets held at the end of the quarter was 4.5% as compared to 5.1% in the prior year quarter. Interest expense increased to $0.8 million from $0.4 million in the prior year quarter due to the $10 million subordinated debt underlying trust preferred securities issued in September 2003, $3 million additional debt issued in December 2003 which was repaid from the proceeds of the public offering in October 2004 and $.03 million of interest on funds held as collateral credited to ceding reinsurers. Year-To-Date Consolidated Results Highlights Net written and earned premiums increased 62% and 66%, respectively, from growth in gross premiums written premium of 21.1% and a lowered ceding percentage to 60% from 70% in 2003. Ceding commission revenue increased 14% despite lower ceding percentage due to growth in gross premiums. Commissions increased $200,000 due to a decrease in prior years' loss ratio. Gross loss ratio remained at 57.1%. Net loss ratio improved 3.6 points from higher net earned premiums on which to spread excess and cat premiums. The gross expense ratio of 30.9% was up slightly from 30.3% in 2003 from increased staffing. Headcount is at 249 at September 30, up from 212 in 2003. Net combined ratio 75.7% up slightly from 74% in 2003 due to reduced effects of ceding commissions which increased the net expense ratio. Investment income increased 87.5% from increase in invested assets from strong operating cash flows of $61 million including a $22.5 million an increase in funds withheld as collateral. Interest expense increased to $2.1 million from $0.8 million in 2003 due to the $20 million subordinated debt underlying trust preferred securities issued in May and September 2003, $6 million additional debt issued in February and December 2003, which was repaid from the proceeds of the public offering in October, 2004, dividends on redeemable preferred stock which was redeemed from the proceeds of the public offering in October, 2004, and $.07 million of interest on funds held as collateral credited to ceding reinsurers. Consolidated Third Quarter Highlights Third Third Quarter Quarter - ---------------------------------------------------------------------- 2004 2003 % - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- Gross Premiums Written $42,399 $34,372 23.4% - ---------------------------------------------------------------------- Insurance Services Premiums Produced 10,285 9,948 3.4% - ---------------------------------------------------------------------- Total Premiums 52,684 44,320 18.9% - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- Net Written Premium 15,703 9,610 63.4% - ---------------------------------------------------------------------- Net Earned Premium 12,082 7,489 61.3% - ---------------------------------------------------------------------- Ceding Commission Revenue 9,375 8,883 5.5% - ---------------------------------------------------------------------- Insurance Services Pre-Tax Income 217 723 (70.0%) - ---------------------------------------------------------------------- Net Investment Income 1,224 564 117.0% - ---------------------------------------------------------------------- Net Income 2,478 2,029 22.1% - ---------------------------------------------------------------------- Net Combined Ratio 75.7% 73.7% 2.7% - ---------------------------------------------------------------------- EPS - Basic $0.55 $0.46 19.6% - ---------------------------------------------------------------------- EPS - Diluted $0.43 $0.36 19.4% - ---------------------------------------------------------------------- Consolidated Nine Months Highlights Nine Month Nine Months Ended 9/30 Ended 9/30 - ---------------------------------------------------------------------- 2004 2003 % - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- Gross Premiums Written $126,259 $104,253 21.1% - ---------------------------------------------------------------------- Insurance Services Premiums Produced 35,289 23,474 50.3% - ---------------------------------------------------------------------- Total Premiums 161,548 127,727 26.5% - ---------------------------------------------------------------------- - ---------------------------------------------------------------------- Net Written Premium 46,985 29,049 61.7% - ---------------------------------------------------------------------- Net Earned Premium 29,527 17,794 65.9% - ---------------------------------------------------------------------- Ceding Commission Revenue 30,426 26,738 13.8% - ---------------------------------------------------------------------- Insurance Services Pre-Tax Income 982 1,064 (7.7%) - ---------------------------------------------------------------------- Net Investment Income 3,087 1,646 87.5% - ---------------------------------------------------------------------- Net Income 5,799 4,593 26.3% - ---------------------------------------------------------------------- Net Combined Ratio 75.7% 73.3% 3.3% - ---------------------------------------------------------------------- EPS - Basic $1.31 $0.99 32.3% - ---------------------------------------------------------------------- EPS - Diluted $1.01 $0.79 27.8% - ---------------------------------------------------------------------- Additional Highlights -- Tower Group Inc. Completes Initial Public Offering and Concurrent Private Placement On October 20, 2004 the Company announced the completion of its initial public offering of 13,000,000 shares at $8.50 per share. The Company received net cash proceeds of $102,115,773 from this offering after the underwriting discounts, commissions and certain offering expenses. Also, on October 20, 2004 Tower Group Inc. offered a concurrent private placement of 500,000 shares of its common stock to an affiliate of Friedman, Billings, Ramsey & Co., Inc., the lead underwriter for the Company's public offering, at the public offering price of $8.50 per share. The Company received net cash proceeds of $3,952,500 after deducting underwriting fees. -- AmRe Redemption Immediately before the closing of the public offering on October 26, 2004, the Company redeemed 30,000 of its Series A cumulative Redeemable Preferred Shares for $1.5 million plus any accrued interest. -- Company Enters Into a Commercial Renewal Rights Agreement On September 13, the Company entered into a Commercial Renewal Rights Agreement with OneBeacon Insurance Group LLC under which it has acquired OneBeacon's rights to seek to renew a block of commercial lines insurance policies in New York State that generated more than $100 million in gross written premiums in 2003. Under the terms of the agreement, the Company would not acquire any in-force business or historical liabilities associated with the policies. Based upon the initial review of the subject policies and the Company's current underwriting guidelines, the Company currently intends to seek to renew policies generating at least $40 million in annual gross written premiums, but there is no guarantee that the Company will be able to write any particular level of renewals. -- A.M. Best Company Issues ''A-'' -Excellent- Rating to Tower Insurance Company of New York On October 26th, Tower Group, Inc. announced that its wholly owned insurance company subsidiary, Tower Insurance Company of New York, received a rating upgrade from A.M. Best to "A-" (Excellent) from "B++" (Very Good). Outlook for 2004 "As a result of the completion of the IPO, the upgrade by A.M. Best to A- and the completion of the One Beacon transaction, our outlook for the fourth quarter is very positive," said Mr. Lee. "We project our gross premiums written in the insurance company and produced in the managing general agency to fall within the range from $210 million to $220 million with 80% of such amount being written through our own insurance company. The quota share ceding percentage will decrease in the fourth quarter to 25% from 60% reported during the first nine months in 2004. Barring any unexpected events, we expect the net loss ratio to remain in the same range as we have experienced thus far this year. Our gross expense ratio will increase slightly as we will incur certain expenses related to the acquisition of the One Beacon renewal rights including the hiring of a number of former One Beacon employees and the opening of two new branches to service the 280 new One Beacon agents. Since our ceding percentage will decline to 25%, the benefit of ceding commission revenue to the expense ratio will decrease from the third quarter level. Our investment income is expected to increase primarily due to the IPO proceeds and continuing strong operating cash flow. Net fee income from the insurance services segment is projected to improve slightly overt the third quarter. Conference Call The management of Tower Group Inc. will discuss the contents of this release via webcast at 10:30 a.m. EDT on Monday, November 15, 2004. Following the live event, an audio playback of the webcast will be archived at the Company's web site. To listen to the webcast or the playback, visit the "Webcasts & Presentations" section of the Tower Group Inc investor relations web site at: http://phx.corporate-ir.net/phoenix.zhtml?c=179906&p=irol- presentations . (Due to the length of this URL, it may be necessary to copy and paste it into your Internet browser's URL address field. You may also need to remove an extra space in the URL if one exists.) 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,'' "expect,'' "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; acceptance of our 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; decreased demand for our insurance or reinsurance products; 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. TOWER GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE NET INCOME (Unaudited) Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ----------------------- 2004 2003 2004 2003 ---------- ---------- ---------- ---------- Revenues Net premiums earned $ 12,082 $ 7,489 $ 29,527 $ 17,794 Ceding commission revenue 9,375 8,883 30,426 26,738 Insurance services revenue 3,572 3,413 10,777 8,180 Net investment income 1,224 564 3,087 1,646 Net realized gains on Investments 35 39 33 488 Policy billing fees 176 148 508 417 ---------- ---------- ---------- ---------- Total revenues 26,464 20,536 74,358 55,263 ---------- ---------- ---------- ---------- Expenses Loss and loss adjustment Expenses 7,420 4,915 18,329 11,697 Direct commission expense 7,751 6,556 23,405 18,986 Other operating expenses 6,912 5,770 21,416 16,661 Interest expense 752 401 2,127 847 ---------- ---------- ---------- ---------- Total expenses 22,835 17,642 65,277 48,191 ---------- ---------- ---------- ---------- Income before income taxes 3,629 2,894 9,081 7,072 Income tax expense 1,151 865 3,282 2,479 ---------- ---------- ---------- ---------- Net Income $ 2,478 $ 2,029 $ 5,799 $ 4,593 ========== ========== ========== ========== Comprehensive Net Income Net income $ 2,478 $ 2,029 $ 5,799 $ 4,593 Other comprehensive income: Gross unrealized gains / (losses) in investment holding gains arising during period 2,145 (494) (99) 536 Less: reclassification adjustment for gains included in net income (35) (39) (33) (488) ---------- ---------- ---------- ---------- 2,110 (533) (132) 48 Income tax (expense) / benefit related to items of other comprehensive income (717) 181 45 (16) ---------- ---------- ---------- ---------- Total other comprehensive net income/(loss) income 1,393 (352) (87) 32 Comprehensive Net Income $ 3,871 $ 1,677 $ 5,712 $ 4,625 ========== ========== ========== ========== Earnings Per Share Basic earnings per common share $ 0.55 $ 0.46 $ 1.31 $ 0.99 ========== ========== ========== ========== Diluted earnings per common share $ 0.43 $ 0.36 $ 1.01 $ 0.79 ========== ========== ========== ========== Weighted-Average Common Shares Outstanding Basic 4,502,831 4,407,433 4,439,233 4,469,144 Diluted 5,858,366 5,652,883 5,794,807 5,720,194 TOWER GROUP, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) September December 30, 2004 31, 2003 --------- --------- ($ In thousands, except par value and share amounts) Assets Fixed-maturity securities, available-for-sale, at fair value (amortized cost: $116,464 in 2004; $53,265 in 2003) $117,737 $ 54,545 Equity securities, at fair value (cost: $1,877 in 2004 and 2003) 2,059 2,184 Short-term Investments 9,426 9,407 -------- -------- Total Investments 129,222 66,136 Cash and cash equivalents 16,129 20,932 Investment income receivable 1,030 552 Agents' balances receivable 21,125 21,952 Assumed premiums receivable 635 997 Receivable for cancelled reinsurance - 15,748 Contingent commission receivable 8,769 7,983 Notes and accrued interest receivable from related parties 1,459 1,421 Reinsurance recoverable 99,776 84,760 Receivable- claims paid by agency 2,707 1,812 Prepaid reinsurance premiums 52,857 55,645 Deferred acquisition costs net of deferred ceding commission revenue 5,006 573 Deferred income taxes 1,722 2,033 Intangible assets 5,000 - Fixed assets, net of accumulated depreciation 4,882 4,040 Other assets 3,371 1,388 -------- -------- Total Assets $353,690 $285,972 ======== ======== Liabilities and Stockholders' Equity Liabilities Loss and loss adjustment expenses $121,893 $ 99,475 Unearned premium 84,918 70,248 Reinsurance balances payable 19,687 20,788 Payable to issuing carriers 11,584 12,726 Funds held as agent 801 796 Funds held under reinsurance agreement 47,475 24,943 Accounts payable and accrued expenses 8,088 4,934 Bank overdrafts and checks outstanding 8,006 4,936 Payable for securities 5,565 3,004 Dividends payable to stockholders 175 160 Federal and state income taxes payable 277 1,019 Deferred compensation liability 330 1,294 Subordinated debentures 20,000 20,000 Long-term debt - CIT 4,950 5,588 Series A cumulative redeemable preferred stock 1,500 3,000 -------- -------- Total Liabilities $335,249 $272,911 -------- -------- Stockholders' Equity Class A common stock ($0.01 par value per share; 4,000,000 shares authorized; 2,147,561 shares issued in 2004 and 2,069,936 in 2003; 2,058,594 outstanding in 2004 and 1,977,369 in 2003) 21 21 Class B common stock ($0.01 par value per share; 4,000,000 shares authorized; 2,561,953 shares issued in 2004 and 2,430,065 in 2003; 2,561,953 outstanding in 2004 and 2,430,065 in 2003) 26 24 Paid-in-capital 4,432 2,285 Accumulated other comprehensive net income 961 1,048 Retained earnings 15,486 10,197 Unearned compensation - restricted stock (1,991) - Treasury stock- Class A common stock (88,967 shares in 2004 and 92,567 in 2003, at cost) (494) (514) -------- -------- Total Stockholders' Equity 18,441 13,061 -------- -------- Total Liabilities, Redeemable Preferred Stock and Stockholders' Equity $353,690 $285,972 ======== ======== CONTACT: Tower Group, Inc. Steven G. Fauth 212-655-2006