Exhibit 99.1
Tower Group, Inc. Reports a 138% Increase
in Second Quarter of 2005 Net Income
NEW YORK--(BUSINESS WIRE)--Aug. 9, 2005--Tower Group, Inc.
(NASDAQ: TWGP) today reported a 138% increase in second quarter of
2005 net income to $4.8 million as compared to net income of $2.0
million in the second quarter of 2004. For the first six months of
2005, net income increased 155% to $8.5 million as compared to $3.3
million for the first six months of 2004.
Diluted earnings per share of $0.24 for the second quarter of 2005
were based on 20,108,917 weighted average diluted shares as compared
with $0.35 per share for the second quarter of 2004, based on
5,819,870 weighted average diluted shares. For the first six months of
2005, Tower reported diluted earnings per share of $0.42, based on
20,093,198 weighted average diluted shares, as compared with $0.58 per
diluted share for the first six months of 2004 based on 5,772,977
weighted average diluted shares. Net income, excluding realized gains,
net of taxes, was $4.8 million for the second quarter of 2005 and $8.3
million for the first six months of 2005.
Michael H. Lee, President and Chief Executive Officer of Tower
Group, Inc. commented, "We are pleased with our record second quarter
net income which was driven primarily by strong growth in gross
premiums written as well as significantly higher net premiums earned
and investment income resulting from the higher net premium retention
after the IPO. In addition, despite our significant gross and net
premium growth, we were able to continue to achieve a favorable loss
ratio by maintaining our underwriting and pricing discipline."
Second Quarter 2005 Financial Highlights:
Total revenues increased 92% to $50.3 million in the second
quarter of 2005 as compared to $26.2 million in the same period in
2004. This increase was driven primarily by increases in net premiums
earned and net investment income partially offset by lower total
commission and fee income. Net premiums earned represented 75% of
total revenues for the second quarter of 2005 as compared to 36% for
the same period of 2004. Ceding commission and fee income represented
18% of total revenue for the second quarter of 2005 as compared to 60%
in the second quarter of 2004. This reflected the reduced ceding
percentage under the quota share reinsurance agreements to 25% in the
second quarter of 2005 versus 60% in the second quarter of 2004 in
consideration of the increased capitalization of our insurance
company. In addition, due to an increase in the loss ratio on a prior
year's quota share reinsurance treaty, we recorded a $0.9 million
adjustment to ceding commission revenue in the second quarter of 2005
that reduced commission and fee income as compared to no adjustment in
the same period of 2004. Net investment income, excluding realized
gains, was 7% of total revenues in the second quarter of 2005 and 4%
in the same period of 2004.
Return on average equity was 14.3% in the second quarter of 2005
as compared with 54.4% in the second quarter of 2004. Although net
income was significantly higher in the second quarter of 2005 as
compared to the same period in the prior year, the lower return on
average equity resulted from the significant increase in average
stockholders' equity resulting primarily from capital raised from the
initial public offering (IPO) and concurrent private placement in
October 2004. The return on average equity for the second quarter of
2005 was calculated by dividing annualized net income of $19.1 million
by average stockholders' equity of $133.6 million. For the second
quarter of 2004, the return was calculated by dividing annualized net
income of $8.0 million by average stockholders' equity of $14.7
million.
Gross premiums written in the insurance and reinsurance segments
increased to $84.0 million in the second quarter of 2005, which were
92% higher than in the second quarter of 2004. This growth was driven
by a 24% increase in policies in force as of June 30, 2005 as compared
to June 30, 2004. In addition, premium increases on renewed business
averaged 10% for personal lines and 5% for commercial lines. The
retention rate was 89% for personal lines and 85% for commercial
lines. Contributing to the increase in policies in force was $9.6
million in premiums written on business subject to our renewal rights
agreement with OneBeacon Insurance Company. In addition, $3.7 million
of new premiums were written in the second quarter of 2005 through
former OneBeacon producers appointed in conjunction with the renewal
rights transaction. Some of the policies in the more rating sensitive
large lines and middle market programs formerly written through Tower
Risk Management (TRM), were written by Tower Insurance Company of New
York (TICNY) due to the rating upgrade to "A-" (Excellent) by A.M.
Best. As a result, premiums produced by TRM on behalf of issuing
companies declined to $8.4 million in the second quarter of 2005, 54%
lower than in the second quarter of 2004.
Net premiums written increased 259% to $59.2 million in the second
quarter of 2005 as compared to $16.5 million in the same period of
2004. The increase was driven by the growth in gross premiums written
and a reduction in the quota share ceding percentage to 25% in the
second quarter of 2005 compared with 60% during the second quarter of
2004.
Net premiums earned rose 295% to $37.6 million for the second
quarter of 2005 as compared to $9.5 million in the same quarter of
2004 due to overall growth in gross premiums written and the reduction
in the ceding percentage as mentioned above. In addition, the second
quarter's net premiums earned included $3.7 million from the $13.1
million of retained unearned premiums as of December 31, 2004 that
would have been ceded to Converium Reinsurance (North America) Inc.
absent the 2004 novation of our quota share reinsurance agreement with
that company at the end of 2004.
Ceding commission revenue declined 50% to $5.3 million in the
second quarter of 2005 as compared to $10.8 million in the second
quarter of 2004 reflecting the significant reduction in the quota
share ceding percentage.
The net loss ratio improved to 58.6% for the second quarter of
2005 as compared to 61.9% in the second quarter of 2004. The
improvement resulted from the increase in net premiums earned which
reduced the proportional effect of catastrophe reinsurance premiums on
the net loss ratio.
The gross expense ratio decreased by 2.3 percentage points to
30.3% in the second quarter of 2005 as compared to 32.6% in the second
quarter of 2004. This decline was primarily due to an increase in
earned premiums at a higher rate than the increase in underwriting
expenses and, to a lesser extent, the renewal of larger premium
policies in TICNY that were previously produced through TRM on behalf
of issuing companies. This was partially offset by a slight increase
in the gross commission ratio.
The net expense ratio increased 20.0 percentage points to 30.2% in
the second quarter of 2005 as compared to 10.2% in the same period in
2004 primarily due to the lower ceding commission revenue discussed
above.
The net combined ratio increased to 88.8% in the second quarter of
2005 from 72.1% in the same period in the prior year primarily due to
the increase in the net expense ratio driven by the lower ceding
commission revenue. Nevertheless, despite the increase in the combined
ratio, underwriting profits increased due to the significantly higher
base of net premiums earned in the second quarter of 2005 as compared
to the second quarter of 2004.
Pre-tax income in the insurance services segment increased to $0.6
million in the second quarter of 2005 from $0.3 million in the same
quarter of 2004 primarily as a result of an increase in the direct
commission revenue rate.
Net investment income was a strong contributor to revenue growth
in the second quarter of 2005, increasing 240% to $3.7 million versus
$1.1 million in the second quarter of 2004. This increase was
primarily due to the growth in invested assets from operating cash
flow, net proceeds from subordinated debentures underlying trust
preferred securities in December 2004 for $26.8 million and net
proceeds of $107.8 million from our initial public offering (IPO) and
concurrent private placement in October 2004. On a tax equivalent
basis, the yield was 5.1% for invested assets held at June 30, 2005
and 4.8% as of June 30, 2004.
Interest expense increased to $1.1 million in the second quarter
of 2005 from $0.7 million in the second quarter of 2004 primarily a
result of $0.5 million interest on the subordinated debentures issued
in December, 2004 partially offset by a $0.1 million reduction of
interest expense on other borrowings and preferred stock that were
repaid in the fourth quarter of 2004.
The effective income tax rate was 33.7% and 39.0% for the second
quarter of 2005 and second quarter of 2004, respectively. The
effective tax rate in the second quarter of 2005 was lower due to the
benefit of tax-exempt interest income of $0.9 million as compared to
$0.1 million in the same period of 2004.
First Six Months 2005 Financial Highlights:
Total revenues increased 94% to $92.9 million in the first six
months of 2005 as compared to $47.9 million in the same period of the
prior year. This increase was driven primarily by increases in net
premiums earned and investment income partially offset by lower total
commission and fee income. Net premiums earned represented 73% of
total revenues for the first six months of 2005 as compared to 36% for
the same period of 2004. Ceding commission and fee income represented
20% of total revenue for the first half of 2005 as compared to 60% in
the same period of 2004. This decline reflects the reduced ceding
percentage under the quota share reinsurance agreement to 25% in the
first half of 2005 versus 60% in the first half of 2004. Net
investment income, excluding realized gains, comprised 7% of total
revenues in the first sixth months of 2005 and 4% in the same period
of 2004.
Return on average equity was 12.7% in the first six months of 2005
as compared with 48.1% in the same period of 2004. Although net income
was significantly higher in the first half of 2005 as compared to the
similar period in the prior year, the lower return on average equity
resulted from the significant increase in average stockholders' equity
resulting primarily from capital raised from the initial public
offering in October 2004. The return on average equity for the first
six months of 2005 was calculated by dividing annualized net income of
$16.9 million by average stockholders' equity of $133.4 million. For
the first six months of 2004, the return was calculated by dividing
annualized net income of $6.6 million by average stockholders' equity
of $13.8 million.
Gross premiums written in the insurance and reinsurance segments
increased to $148.7 million in the first six months of 2005, which was
77% higher than in the similar period of 2004. This growth was driven
by a 24% increase in policies in force as of June 30, 2005 compared to
June 30, 2004. Premium increases on renewed business averaged 10% for
personal lines and 5% for commercial lines. Premiums written on
business subject to our renewal rights agreement with OneBeacon
Insurance Company amounted to $18.4 million during the first six
months of 2005. In addition, $8.6 million of new premiums were written
in the first six months of 2005 through former OneBeacon producers
appointed in conjunction with the renewal rights transaction. In
addition, policies in the more rating sensitive large lines and middle
market programs formerly written through TRM, were written by TICNY
due to the rating upgrade to "A-" (Excellent) by A.M. Best Company. As
a result, premiums produced by TRM on behalf of issuing companies
declined to $16.9 million in the first six months of 2005, 33% lower
than in the first six months of 2004.
Net premiums written increased 234% to $104.5 million in the first
half of 2005 as compared to $31.3 million in the same period of 2004.
The increase was driven by the growth in gross premiums written and a
reduction in the quota share ceding percentage to 25% in 2005 compared
with 60% in the first six months of 2004.
Net premiums earned increased 288% to $67.6 million for the first
half of 2005 as compared to $17.4 million in the same period of 2004
due to overall growth in gross premiums written and the reduced ceding
percentage. In addition, net premiums earned in the first half of 2005
included $9.2 million from the $13.1 million of retained unearned
premiums as of December 31, 2004 that would have been ceded to
Converium Reinsurance (North America) Inc. absent the 2004 novation.
Ceding commission revenue declined 47% to $11.2 million in the
first half of 2005 as compared to $21.1 million in the same period of
2004 reflecting the significant reduction in the quota share ceding
percentage.
The net loss ratio improved to 59.3% for the first six months of
2005 as compared to 62.5% for the first six months of 2004. The
improvement resulted primarily from the increase in net premiums
earned which reduced the proportional effect of catastrophe
reinsurance premiums on the net loss ratio.
The gross expense ratio increased decreased by 1.1 percentage
points to 30.7% for the first half of 2005 as compared to 31.8% in the
same period of 2004. This decline was primarily due to an increase in
earned premiums at a higher rate than the increase of other
underwriting expenses and, to a lesser extent, the writing of larger
premium policies in TICNY that were previously produced through TRM on
behalf of issuing companies. This was partially offset by a slight
increase in the gross commission ratio.
The net expense ratio increased 16.4 percentage points to 29.4%
for the first six months of 2005 as compared to 13.0% in the same
period in 2004 primarily due to the lower ceding commission revenue
discussed above.
The net combined ratio increased to 88.7% in the first half of
2005 from 75.5% in the same period in the prior year primarily due to
the increase in the net expense ratio driven by the lower ceding
commission revenue. As in the second quarter, although the combined
ratio increased, underwriting profits increased due to the
significantly higher base of net premiums earned in 2005 as compared
to the first six months of 2004.
Despite the reduction in premiums produced by TRM in the insurance
services segment, pre tax income increased to $1.7 million in the
first half of 2005 from $0.8 million in the same period of 2004
primarily as a result of additional direct commission income due to
lower loss ratios on premiums produced in prior years and an increase
in the direct commission revenue rate on premiums produced in the
current year as the mix of premiums produced by TRM, primarily in the
small market segment, carried a higher commission rate.
Net investment income contributed significantly to revenue growth
in the first half of 2005, increasing 241% to $6.3 million versus $1.9
million in the first six months of 2004. The increase in net
investment income was primarily due to the growth in invested assets
provided by operating cash flow, net proceeds from subordinated
debentures and net proceeds of $107.8 million from our IPO and
concurrent private placement in October 2004. On a tax equivalent
basis, the investment yield was 5.1% as of June 30, 2005 and 4.8% as
of June 30, 2004.
Net realized capital gains were $0.2 million for the first half of
2005 as compared to a modest capital loss in the same period of the
prior year. The increase resulted from the sale of common stock the
proceeds of which the proceeds were reinvested into higher yielding
securities.
Interest expense increased to $2.3 million for the first six
months of 2005 from $1.4 million in the first six months of 2004. This
increase was primarily a result of interest of $0.9 million on
subordinated debentures and a $0.2 million increase in interest
expense as a result of crediting reinsurers on funds withheld in
segregated trusts as collateral for reinsurance recoverables. These
increases were offset by reductions of $0.2 million of interest
expense on other borrowings and preferred stock that were repaid in
the fourth quarter of 2004.
The effective income tax rate was 34.3% and 39.1% for the first
six months of 2005 and 2004, respectively. The effective tax rate in
the second quarter of 2005 was lower due to the benefit of tax-exempt
interest income in the first six months of 2005 of $1.6 million as
compared to $0.2 million in the same period of 2004.
Second Quarter and First Six Months Highlights
Second Second First Six First Six
Quarter Quarter Months Months
2005 2004 2005 2004
--------- -------- --------- ---------
Total Underwriting Profit
(Loss) $ 4,233 $ 2,655 $ 7,690 $ 4,260
Insurance Services Segment Pre-
Tax Income 628 293 1,668 765
Net Investment Income 3,733 1,099 6,348 1,863
Net Realized Investment Gains 20 (13) 229 (2)
Corporate Expenses (324) (31) (746) (59)
Interest Expense (1,106) (724) (2,271) (1,375)
Income Before Income Taxes 7,184 3,279 12,918 5,452
Income Tax Expense 2,419 1,280 4,436 2,131
Net Income $ 4,765 $ 1,999 $ 8,482 $ 3,321
EPS - Basic $ 0.24 $ 0.45 $ 0.43 $ 0.75
EPS - Diluted $ 0.24 $ 0.35 $ 0.42 $ 0.58
Book Value Per Share $ 6.96 $ 3.31 $ 6.96 $ 3.31
Additional Items:
Agreement to Acquire MIIX Insurance Company of New York:
Following our shell acquisition strategy, we announced on August
8, 2005 the execution of an agreement to acquire MIIX Insurance
Company of New York (MIIX), an insurance company with licenses in New
York and New Jersey. Upon closing, we plan to expand MIIX's licensing
to other states and we expect the acquisition to enable us to improve
our capability to deliver products in different market segments with
varying pricing and coverage terms. The closing of the transaction is
expected before year end 2005.
Reinsurance Transactions:
Like many other insurance companies, Tower Group, Inc. received an
inquiry from the New York Insurance Department in the first quarter of
2005 relating to risk transfer under its 2004 quota share reinsurance
agreement effective January 1, 2004. The Company has continued to
provide information in response to these inquiries and continues to
believe that its reinsurance agreements demonstrate an appropriate
transfer of risk and proper accounting.
Dividend Declaration:
Tower Group, Inc. announced today that the Company's Board of
Directors approved a quarterly dividend on August 5, 2005 of $0.025
per share payable September 27, 2005 to stockholders of record as of
September 15, 2005.
2005 Guidance:
We continue to believe that strong growth opportunities remain in
our targeted markets despite price softening in the broad P&C market.
Although we have experienced some price softening in select market
segments, we expect overall market conditions to remain favorable for
most of our products for the remainder of 2005 and remain on target
with our guidance for the full year of 2005 that was previously
provided. For the third quarter of 2005, we project net income,
excluding realized capital gains, to increase to a range between $5.2
million and $5.6 million. We project the diluted earnings per share,
excluding realized capital gains in the third quarter to be in the
range between $0.26 and $0.28 per diluted share. For the full year, we
anticipate net income, excluding realized capital gains to increase to
a range between $19.7 million and $20.5 million and diluted earnings
per share, excluding realized capital gains to be between $0.98 and
$1.02 per diluted share.
About Tower Group, Inc.
Tower Group, Inc., headquartered in New York City, offers property
and casualty insurance products and services through its insurance
company and insurance service subsidiaries. Its insurance company
subsidiary, Tower Insurance Company of New York, is rated A-
(Excellent) by A.M. Best Company and offers commercial insurance
products to small to medium-size businesses and personal insurance
products to individuals. Its insurance services subsidiary, Tower Risk
Management, acts as a managing general agency, adjusts claims and
negotiates reinsurance terms on behalf of other insurance companies.
In March 2005, Tower Group, Inc. acquired its other insurance company
subsidiary, Tower National Insurance Company (f/k/a North American
Lumber Insurance Company).
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," "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
Second Quarter
Second Second
Quarter Quarter %
2005 2004 Change
Revenues:
Earned Premiums:
Gross Premiums Earned $ 55,060 $ 35,922 53.3%
Less: Ceded Premiums Earned (17,469) (26,407) -33.8%
-------- --------
Net Premiums Earned 37,591 9,515 295.1%
Ceded Commission Revenue 5,330 10,750 -50.4%
Policy Billing Fees 230 158 45.6%
-------- --------
Total 43,151 20,423 111.3%
Expenses:
Loss & Loss Adjustment Expenses
Gross Loss & Loss Adjustment Expenses 31,418 20,904 50.3%
Less: Ceded Loss & Loss Adjustment Expenses (9,405) (15,012) -37.4%
-------- --------
Net Loss & Loss Adjustment Expenses 22,013 5,892 273.6%
Underwriting Expenses
Commissions Paid to Producers 9,495 6,081 56.1%
Other Underwriting Expenses 7,410 5,795 27.9%
-------- --------
Total Underwriting Expenses 16,905 11,876 42.3%
-------- --------
Total Expenses 38,918 17,768 119.0%
-------- --------
Underwriting Profit $ 4,233 $ 2,655 59.4%
======== ========
Key Measures:
Written Premiums
Gross $ 84,006 $ 43,847 91.6%
Ceded (24,821) (27,355) -9.3%
-------- --------
Net $ 59,185 $ 16,492 258.9%
======== ========
Loss Ratios
Gross 57.1% 58.2%
Net 58.6% 61.9%
Accident Year Loss Ratios
Gross 57.3% 58.6%
Net 58.9% 62.3%
Expense Ratios
Gross 30.3% 32.6%
Net 30.2% 10.2%
Combined Ratios (GAAP)
Gross 87.4% 90.8%
Net 88.8% 72.1%
Insurance Overall Results of Operations
Insurance and Reinsurance Segments
First Six Months
First Six First Six
Months Months %
2005 2004 Change
Revenues:
Earned Premiums:
Gross Premiums Earned $ 100,928 $ 73,264 37.8%
Less: Ceded Premiums Earned (33,319) (55,819) -40.3%
--------- --------
Net Premiums Earned 67,609 17,445 287.6%
Ceded Commission Revenue 11,176 21,051 -46.9%
Policy Billing Fees 426 332 28.3%
--------- --------
Total 79,211 38,828 104.0%
Expenses:
Loss & Loss Adjustment Expenses
Gross Loss & Loss Adjustment Expenses 57,495 42,409 35.6%
Less: Ceded Loss & Loss Adjustment
Expenses (17,420) (31,500) -44.7%
--------- --------
Net Loss & Loss Adjustment Expenses 40,075 10,909 267.4%
Underwriting Expenses
Commissions Paid to Producers 17,076 12,217 39.8%
Other Underwriting Expenses 14,370 11,442 25.6%
--------- --------
Total Underwriting Expenses 31,446 23,659 32.9%
--------- --------
Total Expenses 71,521 34,568 106.9%
--------- --------
Underwriting Profit $ 7,690 $ 4,260 80.5%
========= ========
Key Measures:
Written Premiums
Gross $ 148,674 $ 83,860 77.3%
Ceded (44,128) (52,578) -16.1%
--------- --------
Net $ 104,546 $ 31,282 234.2%
========= ========
Loss Ratios
Gross 57.0% 57.9%
Net 59.3% 62.5%
Accident Year Loss Ratios
Gross 57.6% 57.4%
Net 59.4% 62.5%
Expense Ratios
Gross 30.7% 31.8%
Net 29.4% 13.0%
Combined Ratios (GAAP)
Gross 87.7% 89.7%
Net 88.7% 75.5%
Insurance Services Segment Results of Operations
Second Quarter
Second Second
Quarter Quarter %
2005 2004 Change
Revenues:
Direct Commission Revenue from MGA $ 2,166 $ 3,595 -39.7%
Claims Administration Revenue 1,097 846 29.7%
Reinsurance Intermediary Fees 79 240 -67.1%
Policy Billing Fees 6 - -
-------- --------
Total 3,348 4,681 -28.5%
Expenses:
Direct Commission Expense Paid to Producers 1,174 2,487 -52.8%
Other Insurance Services Expenses 455 1,061 -57.1%
Claims Expense Reimbursement to TICNY 1,091 840 29.9%
-------- --------
Total Expenses 2,720 4,388 -38.0%
-------- --------
Insurance Services Pre-tax Income (Loss) $ 628 $ 293 114.3%
======== ========
Insurance Services Segment Results of Operations
First Six Months
First Six First Six
Months Months %
2005 2004 Change
Revenues:
Direct Commission Revenue from MGA $ 4,691 $ 5,052 -7.1%
Claims Administration Revenue 2,150 1,715 25.4%
Reinsurance Intermediary Fees 282 438 -35.6%
Policy Billing Fees 11 - -
--------- --------
Total 7,134 7,205 -1.0%
Expenses:
Direct Commission Expense Paid to Producers 2,385 3,437 -30.6%
Other Insurance Services Expenses 940 1,361 -30.9%
Claims Expense Reimbursement to TICNY 2,141 1,642 30.4%
--------- --------
Total Expenses 5,466 6,440 -15.1%
--------- --------
Insurance Services Pre-tax Income (Loss) $ 1,668 $ 765 118.0%
========= ========
Tower Group, Inc.
Consolidated Statements of Income and
Comprehensive Net Income
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
2005 2004 2005 2004
----------- ---------- ----------- ----------
($ in thousands, except share and per share
amounts)
Revenues
Net premiums earned $ 37,591 $ 9,515 $ 67,609 $ 17,445
Ceding commission
revenue 5,330 10,750 11,176 21,051
Insurance services
revenue 3,342 4,681 7,123 7,205
Net investment income 3,733 1,099 6,348 1,863
Net realized gains on
investments 20 (13) 229 (2)
Policy billing fees 236 158 437 332
----------- ---------- ----------- ----------
Total revenues 50,252 26,190 92,922 47,894
----------- ---------- ----------- ----------
Expenses
Loss and loss
adjustment expenses 22,013 5,892 40,075 10,909
Direct commission
expense 10,669 8,568 19,461 15,654
Other operating
expenses 9,280 7,727 18,197 14,504
Interest expense 1,106 724 2,271 1,375
----------- ---------- ----------- ----------
Total expenses 43,068 22,911 80,004 42,442
----------- ---------- ----------- ----------
Income before income
taxes 7,184 3,279 12,918 5,452
Income tax expense 2,419 1,280 4,436 2,131
----------- ---------- ----------- ----------
Net income $ 4,765 $ 1,999 $ 8,482 $ 3,321
=========== ========== =========== ==========
Comprehensive Net Income
Net income $ 4,765 $ 1,999 $ 8,482 $ 3,321
Other comprehensive
income:
Gross unrealized
investment holding
gains (losses)
arising during
period 4,827 (3,191) 341 (2,244)
Less:
reclassification
adjustment for
gains included in
net income (20) 13 (229) 2
----------- ---------- ----------- ----------
4,807 (3,178) 112 (2,242)
Income tax benefit
(expense) related
to items of other
comprehensive
income (1,683) 1,080 (39) 762
----------- ---------- ----------- ----------
Total other
comprehensive net
income (loss) 3,124 (2,098) 73 (1,480)
----------- ---------- ----------- ----------
Comprehensive
Net Income $ 7,889 $ (99)$ 8,555 $ 1,841
=========== ========== =========== ==========
Earnings Per Share
Basic earnings per
common share $ 0.24 $ 0.45 $ 0.43 $ 0.75
=========== ========== =========== ==========
Diluted earnings per
common share $ 0.24 $ 0.35 $ 0.42 $ 0.58
=========== ========== =========== ==========
Weighted Average Common
Shares Outstanding:
Basic 19,555,327 4,407,434 19,538,219 4,407,434
Diluted 20,108,917 5,819,870 20,093,198 5,772,977
Tower Group, Inc.
Consolidated Balance Sheets
(Unaudited)
June 30, 2005 December 31, 2004
--------------- -----------------
($ in thousands, except par value
and share amounts)
Assets
Fixed-maturity securities, available-
for-sale, at fair value (amortized
cost $266,543 in 2005 and $223,562
in 2004) $ 267,961 $ 224,523
Equity securities, at fair value
(cost $30,083 in 2005 and $1,827 in
2004) 30,396 2,485
Common trust securities - statutory
business trusts, equity method 1,426 1,426
-------------- ---------------
Total investments 299,783 228,434
Cash and cash equivalents 44,692 55,201
Investment income receivable 2,743 1,975
Agents' balances receivable 41,022 33,473
Assumed premiums receivable 1,054 1,197
Ceding commission receivable 8,727 8,329
Reinsurance recoverable 100,391 101,173
Receivable - claims paid by agency 2,976 1,622
Prepaid reinsurance premiums 39,200 28,391
Deferred acquisition costs net of
deferred ceding commission revenue 25,414 18,740
Federal income taxes and state taxes
recoverable - 1,975
Intangible assets 5,902 4,978
Fixed assets, net of accumulated
depreciation 6,667 5,420
Other assets 3,449 3,239
-------------- ---------------
Total Assets $ 582,020 $ 494,147
============== ===============
Liabilities
Loss and loss adjustment expenses $ 155,858 $ 128,722
Unearned premium 143,251 95,505
Reinsurance balances payable 17,769 2,735
Payable to issuing carriers 12,265 18,652
Funds held as agent 776 785
Funds held under reinsurance
agreements 52,019 54,152
Accounts payable and accrued expenses 8,283 12,410
Checks outstanding 2,901 2,726
Payable for securities 2,784 -
Federal income taxes and state taxes
payable 1,180
Deferred income taxes 81 1,587
Subordinated debentures 47,426 47,426
-------------- ---------------
Total Liabilities 444,593 364,700
-------------- ---------------
Stockholders' Equity
Common stock ($0.01 par value per
share; 40,000,000 shares authorized;
19,847,303 and 19,826,135 shares
issued in 2005 and 2004) 198 198
Paid-in-capital 112,604 112,375
Accumulated other comprehensive
net income 1,125 1,052
Retained earnings 25,729 18,224
Unearned compensation - restricted
stock (1,731) (1,908)
Treasury stock (89,439 shares in 2005
and 88,967 in 2004) (498) (494)
-------------- ---------------
Total Stockholders' Equity 137,427 129,447
-------------- ---------------
Total Liabilities and
Stockholders' Equity $ 582,020 $ 494,147
============== ===============
CONTACT: Tower Group, Inc.
Investor Relations:
Andrew Colannino, 212-655-2107
acolannino@twrgrp.com