Exhibit 99.1
Tower Group, Inc. Reports 103% Increase in Fourth Quarter of 2005 Net Income
NEW YORK--(BUSINESS WIRE)--Feb. 28, 2006--Tower Group, Inc.
(NASDAQ: TWGP) today reported its financial results for the fourth
quarter of 2005, including a 103% increase in net income to $6.6
million as compared to net income of $3.2 million in the fourth
quarter of 2004. For the year ended December 31, 2005, net income
increased 130% to $20.8 million as compared to $9.0 million for the
prior year.
Diluted earnings per share of $0.32 for the fourth quarter of 2005
were based on 20,200,584 weighted average diluted shares as compared
with $0.19 per share for the fourth quarter of 2004, based on
16,851,503 weighted average diluted shares. For the year, Tower
reported diluted earnings per share of $1.03, based on 20,147,073
weighted average diluted shares, as compared with $1.06 per diluted
share for the year ended December 31, 2004 based on 8,565,815 weighted
average diluted shares.
Michael H. Lee, President and Chief Executive Officer of Tower
Group, Inc. commented, "Improvement in net income for the fourth
quarter and the year was primarily the result of continued strong
growth in gross premiums written, as well as significantly higher net
premiums earned and investment income resulting from higher net
premium retention. 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. Finally,
our return on average equity has improved to 18.4% for the fourth
quarter from 16.5% during the third quarter, 14.3% in the second
quarter and 11.5% in the first quarter of 2005, continuing to
demonstrate our ability to effectively deploy the capital that we
raised in our IPO."
Fourth Quarter 2005 Financial Highlights
Total revenues increased 100.7% to $66.9 million in the fourth
quarter of 2005 as compared to $33.3 million in the same period in
2004. This was due to the substantial increase in gross and net
premiums earned along with the increase in net investment income.
Net premiums earned represented 77.0% of total revenues for the
fourth quarter of 2005 as compared to 48.1% for the same period of
2004.
Ceding commission and fee income represented 16.4% of total
revenue for the fourth quarter of 2005 as compared to 46.0% in the
fourth quarter of 2004. This decrease was consistent with our strategy
to retain a greater percentage of our premium writings.
Net investment income, excluding realized gains, was 6.7% of total
revenues in the fourth quarter of 2005 and 5.9% in the same period of
2004.
Annualized return on average equity was 18.4% in the fourth
quarter of 2005 as compared with 17.5% in the fourth quarter of 2004.
Although net income was significantly higher in the fourth 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 and concurrent private placement in
October 2004. The return on average equity for the fourth quarter of
2005 was calculated by dividing annualized net income of $26.3 million
by average stockholders' equity of $142.3 million. For the fourth
quarter of 2004, the return was calculated by dividing annualized net
income of $12.9 million by average stockholders' equity of $73.9
million.
Gross premiums written in the insurance and reinsurance segments
increased by 52.6% to $78.6 million for the three months ended
December 31, 2005 compared to $51.5 million for the same period in
2004. Gross premiums earned increased by 76.1% to $72.0 million for
the three months ended December 31, 2005 compared to $40.9 million for
the same period in 2004.
Net premiums written increased 9.3% to $55.8 million in the fourth
quarter of 2005 as compared to $51.1 million in the same period of
2004. Net premiums written in the fourth quarter of 2004 included
$13.9 million of premiums retained as a result of a novation of a
reinsurance agreement. Excluding the retained premiums, net written
premiums written increased 50.0% in the fourth quarter 2005 as
compared to 2004. The increase was driven by the growth in gross
premiums written and a reduction in the quota share ceding percentage
to 25% beginning October 1, 2004 from 60% for the first nine months of
2004.
Net premiums earned rose 221.2% to $51.5 million for the fourth
quarter of 2005 as compared to $16.0 million in the same quarter of
2004. The increase in net premiums earned was due to the overall
increase in gross premiums written through December 31, 2005 and a
reduced ceding percentage under our quota share reinsurance agreement
from 60% to 25% beginning October 1, 2004, which was maintained
throughout 2005.
Ceding commission revenue declined 24.7% to $7.2 million in the
fourth quarter of 2005 as compared to $9.6 million in the fourth
quarter of 2004 reflecting the significant reduction in the quota
share ceding percentage.
The net loss ratio increased to 58.3% for the fourth quarter of
2005 as compared to 54.4% in the fourth quarter of 2004. The lower net
loss ratio in the fourth quarter of 2004 resulted in part from the
favorable development on prior years's loss reserves.
The gross expense ratio decreased to 30.8% in the fourth quarter
of 2005 as compared to 31.6% in the fourth quarter of 2004. The net
expense ratio increased to 29.1% in the fourth quarter of 2005 as
compared to 21.2% in the same period in 2004 primarily due to the
lower ceding commission revenue referred to above.
The net combined ratio increased to 87.4% in the fourth quarter of
2005 from 75.6% in the same period in the prior year primarily due to
the increase in the net expense ratio. Nevertheless, despite the
increase in the combined ratio, underwriting profits increased due to
the significantly higher base of net premiums earned in the fourth
quarter of 2005 as compared to the fourth quarter of 2004.
Pre-tax income in the insurance services segment decreased to $0.5
million in the fourth quarter of 2005 from $1.0 million in the same
quarter of 2004 primarily as direct commission revenue declined due to
certain policies renewed in the insurance segment.
Net investment income was a strong contributor to revenue growth
in the fourth quarter of 2005, increasing 127.1% to $4.5 million
versus $2.0 million in the fourth quarter of 2004. This increase was
primarily due to the growth in invested assets from operating cash
flow, net proceeds of $26.8 million from subordinated debentures
underlying trust preferred securities in December 2004 and net
proceeds of $107.8 million form our IPO and concurrent private
placement in October 2004. On a tax equivalent basis, the yield was
5.2% for invested assets held as of December 31, 2005 and 4.4% as of
December 31, 2004.
Interest expense increased to $1.3 million in the fourth quarter
of 2005 from $1.0 million in the fourth quarter of 2004 primarily a
result of $0.4 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 35.1% and 42.8% for the fourth
quarter of 2005 and 2004, respectively. The effective tax rate in 2005
was lower due to a proportionally larger benefit of tax-exempt
interest income in 2005 as compared to 2004.
Full Year 2005 Financial Highlights
Total revenues increased by 104.1% to $219.8 million for 2005
compared to $107.7 million for the same period in 2004. The increase
is primarily due to the increase in net premiums earned and net
investment income. Net premiums earned represented 74.8% of total
revenues for 2005 compared to 42.3% for the same period in 2004. Net
investment income, excluding realized capital gains, represented 6.8%
and 4.7% of total revenues for 2005 and December 31, 2004,
respectively. These increases were partially offset by lower total
commission and fee income for 2005 of $40.2 million, or 18.3% of total
revenue, compared to $57.0 million, or 53.0% of total revenue, for the
same period in 2004.
Net premiums earned increased by 260.9% to $164.4 million in 2005
compared to $45.6 million in 2004. The increase in net premiums earned
was due to the overall increase in gross premiums written through
December 31, 2005 and a reduced ceding percentage under our quota
share reinsurance agreement from 60% to 25% beginning October 1, 2004
which was maintained throughout 2005. In addition, the net premiums
earned in 2005 included all of the $13.1 million of unearned premiums
as of December 31, 2004 that would have been ceded to Converium
Reinsurance (North America) Inc. absent a novation of our reinsurance
agreement in 2004.
Return on average equity was 15.1% for 2005 compared to 23.7% in
2004. Although net income increased 129.9% in 2005 compared to 2004,
the lower return on average equity resulted from the significant
increase in average stockholders' equity resulted from capital raised
from the initial public offering in October 2004. For 2005, the return
was calculated by dividing net income of $20.8 million by an average
stockholders' equity of $137.1 million. For 2004, the return was
calculated by dividing net income of $9.0 million by an average
stockholders' equity of $38.1 million.
Gross premiums written increased by 68.8% to $300.1 million for
2005 compared to $177.8 million in 2004. Gross premiums earned
increased by 55.9% to $237.8 million for 2005 compared to $152.5
million in 2004. Factors contributing to these increases include a
29.2% increase in the number of policies in force as of December 31,
2005, compared to December 31, 2004, and premium increases on renewed
business which averaged 7.6% in personal lines and 5.5% in commercial
lines in 2005. The retention rate was 90% for personal lines and 84%
for commercial lines. Additionally, premiums written on business
subject to the OneBeacon renewal rights agreement, entered into in
September 2004, amounted to $31.4 million during 2005 compared to $2.4
million in 2004. New business written during 2005 through former
OneBeacon producers that were appointed in connection with the renewal
rights transaction amounted to $17.3 million compared to $2.6 million
in 2004. Also, due to the rating upgrade in TICNY's rating from A.M.
Best to "A-" (Excellent) from "B++" (Very Good), certain policies in
the more rating sensitive large lines and middle market programs in
our Insurance Services Segment were renewed in our Insurance Segment.
Net premiums written increased by 115.9% to $211.8 million in 2005
compared to $98.1 million in 2004. Net premiums earned in 2005
increased by 260.9% to $164.4 million, as compared to $45.6 million in
the year ago period. Net premiums earned in 2005 included the entire
$13.1 million of retained unearned premiums as of December 31, 2004
that would have been ceded to Converium Reinsurance (North America)
Inc. absent a novation of the reinsurance agreement in 2004. These
percentage increases were greater than the percentage increase in
gross premiums written and earned due to the decrease in the ceding
percentage from 60% in the first nine months of 2004 to 25% beginning
October 1, 2004 and continuing throughout 2005.
Ceding commission revenue decreased by 36.9% to $25.2 million in
2005 compared to $40.0 million in 2004 due to the reduction in the
quota share ceding percentage. An increase in the ceded loss ratio on
prior years' quota share agreements resulted in a further decrease in
ceding commission revenue of $1.2 million in 2005 compared to an
increase in ceding commission revenue of $1.7 million in 2004.
The gross and net loss ratios were 56.8% and 58.8%, respectively
for 2005 as compared with 55.2% and 59.4%, respectively, in 2004. The
decrease in the net loss ratio in 2005 compared to 2004 resulted from
the increase in net premiums earned which reduced the effect of
catastrophe reinsurance premiums on the net loss ratio. The company
ceded catastrophe reinsurance premiums equal to 2.5% of net premiums
earned during 2005 compared to 8.6% during the same period in 2004.
There was favorable development from prior years' loss reserves on a
gross and net basis of approximately $966,000 and $392,000,
respectively, in 2005 compared to favorable development on a gross and
net basis of $1,544,000 and $199,000 in 2004.
The net expense ratio was 29.3% in 2005 as compared to 16.2% in
2004. This increase was due primarily to the reduced effects of ceding
commission revenue on lowering the gross expense ratio as a result of
the reduction in the quota share ceding percentage from 60% in the
first nine months of 2004 to 25% beginning October 1, 2004 and
continuing throughout 2005.
The net combined ratio was 88.1% in 2005 as compared to 75.6% in
2004. The increase in the net combined ratio resulted from an increase
in the net expense ratio primarily due to the effects of reduced
ceding commission revenue. Notwithstanding the increase in net
combined ratio in 2005, underwriting profit increased due to the
overall increase in net premiums earned.
Pre-tax income in the insurance services segment increased to $2.8
million in 2005 compared to $2.0 million in 2004 primarily due to an
increase in the direct commission revenue rate and lower expenses in
2005 compared to 2004.
Net investment income increased by 195.5% to $15.0 million in 2005
compared to $5.1 million in 2004. This resulted from an increase in
invested assets to $357.2 million as of December 31, 2005 compared to
$227.0 million as of December 31, 2004, excluding investments in
statutory business trusts underlying trust preferred securities. Net
cash flow provided by operations of $128.5 million contributed to the
increase in invested assets. On a tax equivalent basis, the yield was
5.2% as of December 31, 2005 and 4.4% as of December 31, 2004.
Net realized capital gains were $122,000 in 2005 compared to
$13,000 in 2004. The increase in net realized capital gains was the
result of the sale of common stocks and corporate bonds from which the
proceeds were reinvested into higher yielding securities.
Interest expense was $4.9 million in 2005 compared to $3.1 million
in 2004. The increase resulted from an increase in interest expense of
$2.0 million on subordinated debentures underlying our trust preferred
securities of $47.4 million of which $26.8 million were issued in
December 2004 and $0.3 million as a result of crediting reinsurers on
funds withheld in segregated trusts as collateral for reinsurance
recoverables. This increase was offset by reductions of $0.6 million
of interest expense on other borrowings and preferred stock repaid in
the fourth quarter of 2004.
The effective income tax rate was 34.8% in 2005 compared to 38.7%
in 2004. The effective tax rate in 2005 was lower due to a
proportionally larger benefit of tax-exempt interest income in 2005 as
compared to 2004.
Fourth Quarter and Twelve Month Highlights
Fourth Fourth Twelve Twelve
Quarter Quarter Months Months
2005 2004 2005 2004
-------- -------- -------- --------
Total Underwriting Profit $ 6,471 $ 3,914 $19,684 $11,106
Insurance Services Segment Pre-Tax
Income 497 969 2,840 1,951
Net Investment Income 4,504 1,983 14,983 5,070
Net Realized Investment Gains (92) (20) 122 13
Corporate Expenses 20 (202) (960) (289)
Interest Expense (1,286) (1,001) (4,853) (3,128)
Income Before Income Taxes 10,114 5,642 31,816 14,723
Income Tax Expense 3,550 2,412 11,062 5,694
Net Income $ 6,564 $ 3,230 $20,754 $ 9,029
EPS - Basic $ 0.33 $ 0.20 $ 1.06 $ 1.23
EPS - Diluted $ 0.32 $ 0.19 $ 1.03 $ 1.06
Book Value Per Share $ 7.29 $ 6.56 $ 7.29 $ 6.56
Return on Average Equity 18.4% 17.5% 15.1% 23.7%
Dividend Declaration
Tower Group, Inc. announced today that the Company's Board of
Directors approved a quarterly dividend on February 22, 2006 of $0.025
per share payable March 27, 2006 to stockholders of record as of March
15, 2006.
Additional Highlights
As of December 31, 2005, unsecured reinsurance recoverables from
PXRE Reinsurance Company. amounted to $33.2 million. On February 16,
2006, A.M. Best downgraded to "B++" (Very Good) its former
"A-"(Excellent) financial strength rating on PXRE, and issued a
negative outlook. On February 24, 2006 A.M. Best downgraded PXRE to
"B+" (Very Good) with a negative outlook. We believe that the
unsecured reinsurance recoverables from PXRE, none of which are past
due or in dispute, are fully collectible. Our judgment is based
primarily on PXRE's capital position as a result of its recent capital
raising initiatives.
2006 Guidance
We have successfully countered the price softening experienced by
the broad P&C market in 2005 with our demand driven approach to
identifying growth opportunities in our targeted markets. With our
shell acquisitions and expanded licensing capabilities, we continue to
look to new and existing markets for growth. For the first quarter of
2006, we project net income to increase from the first quarter of 2005
to a range between $6.5 million and $6.8 million. We project the
diluted earnings per share in the first quarter to be in the range
between $0.32 and $0.34 per diluted share. We have historically
experienced seasonality between the fourth and first quarters with
either lower or flat growth despite overall growth in the year. For
the full year, we anticipate net income to increase to a range between
$32.0 million and $34.0 million and diluted earnings per share to be
between $1.58 and $1.68 per diluted share which represents an increase
of 54% to 64% compared to 2005. We expect our net combined ratio to be
in the range of between 88 to 92 percent with a net loss ratio in the
range of 60 to 62 percent. We project our net expense ratio to be
between 28 and 30 percent after applying reinsurance commission.
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 two insurance company
subsidiaries are Tower Insurance Company of New York which 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 and Tower National Insurance Company which is
also rated A- (Excellent) by A.M. Best Company. 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.
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
Fourth Quarter
2005 2004 %Change
Revenues:
Earned Premiums:
Gross Premiums Earned $ 72,046 $ 40,920 76.1%
Less: Ceded Premiums Earned (20,543) (24,883) -17.4%
------------------
Net Premiums Earned 51,503 16,037 221.2%
Ceded Commission Revenue 7,197 9,557 -24.7%
Policy Billing Fees 215 167 28.7%
------------------
Total 58,915 25,761 128.7%
Expenses:
Loss & Loss Adjustment Expenses
Gross Loss & Loss Adjustment Expenses 41,370 20,415 102.6%
Less: Ceded Loss & Loss Adjustment
Expenses (11,343) (11,684) -2.9%
------------------
Net Loss & Loss Adjustment Expenses 30,027 8,731 243.9%
Underwriting Expenses
Commissions Paid to Producers 11,577 6,863 68.7%
Other Underwriting Expenses 10,840 6,253 73.4%
------------------
Total Underwriting Expenses 22,417 13,116 70.9%
------------------
Total Expenses 52,444 21,847 140.1%
------------------
Underwriting Profit $ 6,471 $ 3,914 65.3%
==================
Key Measures:
Written Premiums
Gross $ 78,612 $ 51,507 52.6%
Ceded (22,767) (417) 5,359.7%
------------------
Net $ 55,845 $ 51,090 9.3%
==================
Loss Ratios
Gross 57.4% 49.9%
Net 58.3% 54.4%
Accident Year Loss Ratios
Gross 57.5% 52.9%
Net 58.5% 55.7%
Expense Ratios
Gross 30.8% 31.6%
Net 29.1% 21.2%
Combined Ratios (GAAP)
Gross 88.2% 81.5%
Net 87.4% 75.6%
Insurance Overall Results of Operations
Insurance and Reinsurance Segments
Full Year
%
2005 2004 Change
Revenues:
Earned Premiums:
Gross Premiums Earned $237,833 $ 152,509 55.9%
Less: Ceded Premiums Earned (73,397) (106,945) -31.4%
-------- ---------
Net Premiums Earned 164,436 45,564 260.9%
Ceded Commission Revenue 25,218 39,983 -36.9%
Policy Billing Fees 868 671 29.4%
-------- ---------
Total 190,522 86,218 121.0%
Expenses:
Loss & Loss Adjustment Expenses
Gross Loss & Loss Adjustment Expenses 135,198 84,164 60.6%
Less: Ceded Loss & Loss Adjustment
Expenses (38,584) (57,104) -32.4%
-------- ---------
Net Loss & Loss Adjustment Expenses 96,614 27,060 257.0%
Underwriting Expenses
Commissions Paid to Producers 38,788 25,393 52.8%
Other Underwriting Expenses 35,436 22,659 56.4%
-------- ---------
Total Underwriting Expenses 74,224 48,052 54.5%
-------- ---------
Total Expenses 170,838 75,112 127.4%
-------- ---------
Underwriting Profit $ 19,684 $ 11,106 77.2 %
======== =========
Key Measures:
Written Premiums
Gross $300,107 $ 177,766 68.8%
Ceded (88,325) (79,691) 10.8%
-------- ---------
Net $211,782 $ 98,075 115.9%
======== =========
Loss Ratios
Gross 56.8% 55.2%
Net 58.8% 59.4%
Accident Year Loss Ratios
Gross 57.3% 56.2%
Net 59.0% 59.8%
Expense Ratios
Gross 30.8% 31.1%
Net 29.3% 16.2%
Combined Ratios (GAAP)
Gross 87.6% 86.3%
Net 88.1% 75.6%
Insurance Services Segment Results of Operations
Fourth Quarter
%
2005 2004 Change
Revenues:
Direct Commission Revenue from MGA $2,435 $4,451 -45.3%
Claims Administration Revenue 981 1,038 -5.5%
Reinsurance Intermediary Fees 147 115 27.8%
Policy Billing Fees 5 4 0.0%
------ ------ ---------
Total 3,568 5,608 -36.4%
Expenses:
Direct Commission Expense Paid to Producers 1,523 2,557 -40.4%
Other Insurance Services Expenses 569 1,050 -45.8%
Claims Expense Reimbursement to TICNY 979 1,032 -5.1%
------ ------
Total Expenses 3,071 4,639 -33.8%
------ ------ ---------
Insurance Services Pre-tax Income $ 497 $ 969 -48.7%
====== ====== =========
Insurance Services Segment Results of Operations
Full Year
%
2005 2004 Change
Revenues:
Direct Commission Revenue from MGA $ 9,148 $11,546 -20.8%
Claims Administration Revenue 4,268 4,105 4.0%
Reinsurance Intermediary Fees 688 730 -5.8%
Policy Billing Fees 23 8
------- ------- --------
Total 14,127 16,389 -13.8%
Expenses:
Direct Commission Expense Paid to Producers 5,051 7,432 -32.0%
Other Insurance Services Expenses 1,981 2,987 -33.7%
Claims Expense Reimbursement to TICNY 4,255 4,019 5.9%
------- -------
Total Expenses 11,287 14,438 -21.8%
------- ------- --------
Insurance Services Pre-tax Income $ 2,840 $ 1,951 45.6%
======= ======= ========
Tower Group, Inc.
Consolidated Statements of Income and
Comprehensive Net Income
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
2005 2004 2005 2004
----------- ----------- ----------- ----------
REVENUES ($ in thousands, except share and per share
amounts)
Net premiums earned $ 51,503 $ 16,037 $ 164,436 $ 45,564
Ceding commission
revenue 7,197 9,557 25,218 39,983
Insurance services
revenue 3,562 5,604 14,103 16,381
Net investment income 4,504 1,983 14,983 5,070
Net realized (losses)
gains on investments (92) (20) 122 13
Policy billing fees 221 171 892 679
----------- ----------- ----------- ----------
Total revenues 66,895 33,332 219,754 107,690
----------- ----------- ----------- ----------
EXPENSES
Loss and loss
adjustment expenses 30,027 8,731 96,614 27,060
Direct commission
expense 13,101 9,420 43,839 32,825
Other operating
expenses 12,367 8,538 42,632 29,954
Interest expense 1,286 1,001 4,,853 3,128
----------- ----------- ----------- ----------
Total expenses 56,781 27,690 187,938 92,967
----------- ----------- ----------- ----------
Income before income
taxes 10,114 5,642 31,816 14,723
Income tax expense 3,550 2,412 11,062 5,694
----------- ----------- ----------- ----------
Net income $ 6,564 $ 3,230 20,754 $ 9,029
=========== =========== =========== ==========
COMPREHENSIVE NET
INCOME
Net income $ 6,564 $ 3,230 $ 20,754 $ 9,029
Other comprehensive
income:
Gross unrealized
investment holding
(losses) gains
arising during
period (2,240) 143 (6,664) 44
Less:
reclassification
adjustment for
losses (gains) s
included in net
income 92 20 (122) (13)
----------- ----------- ----------- ----------
(2,148) 163 (6,786) 31
Income tax benefit
(expense) related to
items of other
comprehensive income 752 (72) 2,382 (27)
----------- ----------- ----------- ----------
Total other
comprehensive net
(loss) income (1,396) 91 (4,404) 4
----------- ----------- ----------- ----------
COMPREHENSIVE NET
INCOME $ 5,168 $ 3,321 16,350 $ 9,033
=========== =========== =========== ==========
EARNINGS PER SHARE
Basic earnings per
common share $ 0.33 $ 0.20 $ 1.06 $ 1.23
=========== =========== =========== ==========
Diluted earnings per
common share $ 0.32 $ 0.19 $ 1.03 $ 1.06
=========== =========== =========== ==========
WEIGHTED-AVERAGE COMMON
SHARES OUTSTANDING
Basic 19,632,158 16,118,761 19,571,081 7,335,286
Diluted 20,200,584 16,851,503 20,147,073 8,565,815
Tower Group, Inc.
Consolidated Balance Sheets
(Unaudited)
December 31,
2005 2004
-------- --------
($ in thousands)
Assets
Fixed-maturity securities, available-for-sale, at
fair value (amortized cost $331,123 in 2005 and
$223,562 in 2004) $326,681 $224,523
Equity securities, available-for-sale, at fair
value (cost $6,681 in 2005 and $1,827 in 2004) 5,934 2,485
Equity securities, at cost 24,558
Common trust securities - statutory business
trusts, equity method 1,426 1,426
--------- ---------
Total investments 358,599 228,434
========= =========
Cash and cash equivalents 38,760 55,201
Investment income receivable 3,337 1,975
Agents' balances receivable 46,004 33,473
Assumed premiums receivable 1,076 1,197
Ceding commission receivable 8,727 8,329
Reinsurance recoverable 104,811 101,173
Receivable -- claims paid by agency 2,309 1,622
Prepaid reinsurance premiums 43,319 28,391
Deferred acquisition costs net of deferred ceding
commission revenue 29,192 18,740
Federal income taxes and state taxes recoverable 365 1,975
Deferred income taxes 3,204 --
Intangible assets 5,835 4,978
Fixed assets, net of accumulated depreciation 7,920 5,420
Other assets 3,999 3,239
--------- ---------
Total Assets $657,457 $494,147
========= =========
TOWER GROUP, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
December 31,
2005 2004
-------- --------
($ in thousands,
except par value and
share amounts)
Liabilities
Loss and loss adjustment expenses $198,724 $128,722
Unearned premium 157,779 95,505
Reinsurance balances payable 19,200 2,735
Payable to issuing carriers 5,252 18,652
Funds held as agent 8,191 785
Funds held under reinsurance agreements 59,042 54,152
Accounts payable and accrued expenses 13,694 12,410
Other liabilities 2,867 2,726
Federal income taxes payable 460 --
Deferred income taxes -- 1,587
Subordinated debentures 47,426 47,426
-------- --------
Total Liabilities 512,635 364,700
-------- --------
Stockholders' Equity
Common stock ($0.01 par value per share;
40,000,000 shares authorized, 19,872,672 and
19,826,135 shares issued in 2005 and 2004) 199 198
Paid-in-capital 112,531 112,375
Accumulated other comprehensive net income (3,352) 1,052
Retained earnings 37,019 18,224
Unearned compensation - restricted stock (1,465) (1,908)
Treasury stock (17,881 shares in 2005 and 88,967
in 2004) (110) (494)
-------- --------
Total Stockholders' Equity 144,822 129,447
-------- --------
Total Liabilities and Stockholders' Equity $657,457 $494,147
======== ========
CONTACT: Tower Group, Inc.
Thomas Song, 212-655-4789
tsong@twrgrp.com
or
Investor Relations:
Makovsky + Company
Gene Marbach, 212-508-9600
gmarbach@makovsky.com