Exhibit 99.1
Tower Group, Inc. Announces Plans for Multi-Year Reinsurance
NEW YORK--(BUSINESS WIRE)--Feb. 28, 2006--Tower Group, Inc.
(NASDAQ: TWGP) today announced that it is in discussions with a
Bermuda reinsurance company in formation to enter into a multi-year
quota share reinsurance agreement under which Tower's insurance
subsidiaries will cede to the reinsurer between 25% and 45%, subject
to periodic adjustment by Tower, of the premiums and losses on their
brokerage insurance business that it has historically written through
its retail and wholesale agents and traditional program business
written through program underwriting agencies comprised of classes of
business that Tower has historically written. The ceding commission
for the brokerage business is expected to be initially 34% of ceded
written premiums and may in later years be subject to upward and
downward adjustments depending on the loss ratio and other conditions.
The ceding commission for the traditional program business is expected
to be 30% and may be adjusted upward based upon the loss ratio. The
proposed reinsurance agreement is expected to have a term of three
years but may allow for cancellation by the reinsurer after two years
if certain loss ratios are exceeded.
Tower is also in discussions with the Bermuda reinsurer's parent
holding company with respect to proposed pooling arrangements to be
entered into between Tower's insurance subsidiaries and U.S. domiciled
specialty insurance company subsidiaries that the Bermuda holding
company may acquire in the future. Under these proposed pooling
arrangements, Tower would manage and participate in a range between
55% and 75% of pools consisting of brokerage and traditional program
business. It is expected that the percentage of the premiums and
losses ceded by Tower's insurance subsidiaries under the traditional
quota share reinsurance agreements would be reduced once the pooling
is in place. Tower also proposes to participate in a range between 15%
and 25% of a another pool to be managed by the insurance company
subsidiaries of the Bermuda holding company consisting of specialty
program business written through program underwriting agencies for
classes of business that Tower has not historically written. These
pooling percentages are subject to adjustment by the pool manager. It
is also expected that the quota share reinsurance agreement for the
specialty program business will terminate once the specialty pool is
established. Tower will receive a fee to manage the brokerage business
expected to be initially 34% and may in later years be subject to
upward and downward adjustment based upon the loss ratio and other
conditions. It will also receive a 30% fee to manage the traditional
program business subject to upward adjustment depending upon the loss
ratio. The insurance company subsidiaries of the Bermuda holding
company will receive a fee expected to be approximately 30% for
managing the specialty program business that can be adjusted upward
based upon the loss ratio. The insurance company that issues policies
for the pool would receive a payment for taxes and other fees expected
to be approximately 3%.
Until the Bermuda holding company acquires U.S. domiciled
specialty insurance company subsidiaries, the management company owned
by the Bermuda holding company intends to manage the specialty program
business and risk sharing business such as pooling with other
insurance companies utilizing Tower's insurance companies. Tower will
cede between 75% and 85%, subject to periodic adjustment by Tower, of
its specialty program business and insurance risk sharing business to
the Bermuda reinsurer. The management company expects to receive a
ceding commission of 30% for managing the specialty program business
and risk sharing business, which commission can be adjusted upward
based upon the loss ratio less a payment for taxes and other fees
expected to be approximately 3% to Tower. It is expected that the
quota share reinsurance agreement for the specialty program business
and insurance risk sharing business will terminate once the Bermuda
holding company acquires its own insurance companies and the specialty
pool is established.
Tower's insurance companies are also expected to enter into a
service and expense sharing agreement with a management company owned
by the Bermuda holding company pursuant to which Tower will provide
insurance company services now offered by Tower, such as claims
adjustment, policy administration, technology solutions, underwriting,
and risk management services, to the U.S. domiciled insurance
subsidiaries of the Bermuda holding company, as well as to companies
appointed as managing general underwriters by those companies.
In addition, Tower has recently invested $15 million in the
Bermuda holding company, and Michael H. Lee, Chairman, President and
Chief Executive Officer of Tower, is expected to serve as Chairman,
Chief Executive Officer and President of the Bermuda holding company.
Mr. Lee will devote his full business time between Tower and the
Bermuda holding company. Several other members of Tower's management
team are expected to resign their positions with Tower and take up
positions with the Bermuda company, including Joel S. Weiner, Senior
Vice President Strategic Planning, Robert Hedges, Vice President Home
Office Underwriting and Joseph P. Beitz, Managing Vice President
Programs. In addition, Greg T. Doyle is expected to resign as a
director on Tower's Board and become a director of the new Bermuda
holding company.
Mr. Lee stated, "These proposed arrangements should enable Tower
to strengthen its business model which relies on reinsurance, the
surplus capacity of other insurance companies along with its own
surplus to provide the underwriting capacity for growth while
generating commission and fee income to augment its return on equity.
We expect that the traditional quota share reinsurance will not be
subject to the regulatory scrutiny that "finite" quota share
reinsurance has recently attracted, and that the proposed pooling
arrangement will provide a more efficient method for accessing other
insurance companies. In addition, we expect these arrangements will
provide us with a long-term business partner to support the growth
that we have been experiencing. It also reinforces our commitment and
focus on the traditional brokerage business and continued expansion
into traditional program business while enabling us to participate in
specialty program business that we began writing in 2005." In
commenting on his dual CEO role at Tower and the new company, Mr. Lee
stated, "I believe the strategic relationship between these two
companies as well as the strength of Tower's management team will
enable me to fulfill my new role in both companies."
The proposed arrangements are subject to board approvals, the
negotiation and execution of definitive agreements, the completion of
the Bermuda company's capitalization and any requisite regulatory
approvals.
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/.
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