Exhibit 99.1
Tower Group, Inc. Enters into Strategic Relationship with
CastlePoint Holdings, Ltd.
NEW YORK--(BUSINESS WIRE)--April 5, 2006--Tower Group, Inc. (NASDAQ: TWGP)
today announced that it has entered into a strategic relationship with
CastlePoint Holdings, Ltd., ("CastlePoint") a Bermuda-based holding company that
it has sponsored. CastlePoint has been capitalized with $265 million and is now
able to provide reinsurance, insurance products and insurance company services
to the property and casualty insurance industry. In connection with its
strategic relationship with CastlePoint, Tower Group, Inc. ("Tower") also
announced that it intends to enter into a multi-year quota share reinsurance
agreement with CastlePoint Reinsurance Company, Ltd. ("CastlePoint Re"), a
wholly owned subsidiary of the holding company, and multi-year insurance risk
sharing or pooling agreements with one or more insurance companies that
CastlePoint or one of its subsidiaries plans to acquire in the future. Until one
or more such companies are acquired, CastlePoint Management Corp., a wholly
owned subsidiary of CastlePoint, plans to produce certain business utilizing
Tower's insurance company subsidiaries.
Michael Lee said, "Our strategic relationship with CastlePoint represents
an important milestone in our history that significantly strengthens our
business model. It allows us to utilize reinsurance and other insurance
companies to provide additional underwriting capacity in addition to our own
capital to support our premium growth as well as generate commission and fee
income to augment our return on equity. This relationship will allow us to take
advantage of growth opportunities from various sources, including from
territorial expansion and potential acquisitions, while giving us the
flexibility to effectively manage our capital to maximize shareholder value.
This strategic initiative is especially important given the uncertainty in the
reinsurance market created by the regulatory scrutiny concerning the use of
finite reinsurance and the reduced availability of traditional quota share
reinsurance and insurance risk sharing capacity."
Mr. Lee further added that "our relationship with CastlePoint also allows
us to maintain focus on the brokerage business that we have historically
underwritten utilizing our underwriting staff through our retail and wholesale
agents as well as program business for limited classes of business that we began
writing in 2005. We will also be able to participate in specialty program
business for classes of business that we have not historically written through
our relationship with CastlePoint. In addition, through our expense sharing and
servicing agreement with CastlePoint, we will be able to realize greater
economies of scale. Finally, our investment will enable us to continue to
participate in the performance of the business we cede to or pool with
CastlePoint."
As previously announced, Michael H. Lee will serve as Chairman, Chief
Executive Officer and President of CastlePoint Holdings, Ltd. and Tower Group,
Inc. In addition, Joel S. Weiner, Senior Vice President Strategic Planning,
Robert Hedges, Vice President Home Office Underwriting and Joseph P. Beitz,
Managing Vice President Programs have resigned from Tower to assume positions at
CastlePoint. In addition, Greg T. Doyle has joined CastlePoint's board and has
resigned from Tower's board.
Tower has agreed to enter into the following arrangements with the
reinsurance and insurance subsidiaries of CastlePoint to strengthen Tower's
business model:
-- Reinsurance agreements with CastlePoint Re. Tower is currently
experiencing significant growth opportunities from the brokerage
business that it has historically written and program business that it
has began writing in 2005. To effectively manage this growth
opportunity efficiently, Tower and CastlePoint have agreed to
establish three business pools as previously announced: (i) the
brokerage business pool comprised of the business historically written
utilizing Tower's own underwriting staff through retail and wholesale
agents; (ii) the traditional program business pool comprised of
limited classes of business that Tower has historically written; and
(iii) the specialty program business pool which represents all
industry classes of business other than traditional program business
that Tower elects to manage. Tower will initially cede 30% of the
premiums and losses on both brokerage business and traditional program
business to CastlePoint Re pursuant to three-year quota share
reinsurance agreements. Additionally, CastlePoint Re will reinsure up
to 85% of the business written by Tower's insurance companies for
CastlePoint Management Corp., including specialty program business.
Finally, CastlePoint Re will reinsure up to 50% of Tower's first
multi-line layer, first property excess layer and first workers'
compensation excess layer under Tower's 2006 reinsurance program.
-- Pooling Agreements with CastlePoint Holdings, Ltd.'s insurance company
subsidiaries. Tower will act as a pool manager for the brokerage and
traditional program business pools while CastlePoint will act as a
pool manager for the specialty program business pool. Tower and
CastlePoint will participate in these pools in different percentages,
providing additional capacity for Tower to focus on its brokerage
business and traditional program business while still participating in
a portion of the specialty program business. Until such time as
CastlePoint or CastlePoint Re acquires one or more insurance company
subsidiaries, CastlePoint Management Corp. plans to produce specialty
program business or enter into pooling agreements with other insurance
companies utilizing Tower's insurance company subsidiaries. A
substantial percentage of this business will then be reinsured by
CastlePoint Re.
-- Expense Sharing and Servicing Agreement. CastlePoint Management Corp.
will enter into a service and expense sharing agreement with Tower's
insurance companies which will provide various insurance company
services offered by Tower, such as claims, policy administration,
technology, underwriting and risk management services. This agreement
will enable Tower to leverage its infrastructure and will generate
additional fee income for Tower from third party clients.
-- Investment for Tower. On February 6, 2006, Tower invested $15 million
in CastlePoint to become its sole shareholder. Tower's ownership is
8.6% in light of the capitalization of CastlePoint. In addition, Tower
has been issued a warrant to purchase an additional 3.7% of
CastlePoint's common shares.
The following table is a summary of the percentage to be ceded in the quota
share reinsurance agreements and percentage participation in pooling agreements
with CastlePoint, and the provisional ceding commissions and management fee
percentages applicable under such agreements:
Quota Share Initial Quota Range Ceded by Provisional Ceding
Reinsurance Share Ceded by Tower (%)(1) Commission(2)
Agreement Tower (%)
- ----------------------------------------------------------------------
Brokerage business 30 25 to 45 34% until April 1,
2007, subject to
a minimum of 31%
and a maximum of
36% thereafter
- ----------------------------------------------------------------------
Traditional program 30 25 to 45 30%, subject to a
business minimum of 30%
and a maximum of
36%
- ----------------------------------------------------------------------
Specialty program 85 75 to 85 30%, subject to a
business and minimum of 30%
insurance risk- and a maximum of
sharing business 36%
- ----------------------------------------------------------------------
Pooling Agreement Initial Pooling Range of Provisional
Participation Participation Management Fee
(%) (%)(1) Percentage(2)
- ----------------------------------------------------------------------
Brokerage business 75 55 to 75 34% until April 1,
2007, subject to
a minimum of 31%
and a maximum of
36% thereafter
- ----------------------------------------------------------------------
Traditional program 75 55 to 75 30%, subject to a
business minimum of 30%
and a maximum of
36%
- ----------------------------------------------------------------------
Specialty program 15 15 to 25 30%, subject to a
business minimum of 30%
and a maximum of
36%
- ----------------------------------------------------------------------
(1) Subject to certain limitations and mutual agreement, new pooling or
reinsurance agreements may be entered into between Tower and CastlePoint
relating to business arising from renewal rights transactions, acquisitions
or other opportunities.
(2) Subject to adjustment based on the net loss ratio of the business covered
by the applicable agreement.
Guidance for 2006:
We believe Tower Group, Inc.'s arrangements with CastlePoint described
above will have a significantly positive impact on Tower's future ability to
generate commission and fee income and thereby increase Tower's potential to
augment its return on equity. We are maintaining our previously announced
earnings guidance for 2006 in which we stated that we anticipate net income to
be in 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. The following additional
details reflect the various agreements with CastlePoint.
For the full year, we expect our total gross premiums written to be in a
range between $375 million to $385 million. Additionally for the full year,
premiums produced by Tower on behalf of one or more insurance companies that may
be acquired by CastlePoint and Tower Risk Management on behalf of other
insurance companies will be $60 million to $65 million. Therefore, the total
premiums managed will be in a range between $435 million to $450 million. We
expect our net premiums written for the full year to be in a range between $230
million and $240 million. We expect our net premiums earned for the full year to
be in a range between $210 million and $220 million. Return on average equity is
expected to be in a range between 18% to 20% for the year.
Conference Call:
Tower Group, Inc. will conduct a conference call to discuss its
relationship with CastlePoint Holdings, Ltd., on Tuesday, April 11, 2006, at
10:00 a.m. EDT. Michael Lee, President and Chief Executive Officer, and Frank
Colalucci, Senior Vice President and Chief Financial Officer of Tower Group,
Inc. will lead the call.
This conference call will be broadcast live over the Internet. To access a
listen-only webcast over the Internet, please visit the Investor Information
section of Tower Group, Inc.'s website, www.twrgrp.com, or use this link:
http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=179906
&eventID=1290116 (Due to its length, this URL may need to be copied/pasted into
your Internet browser's address field. Remove the extra space if one exists.)
Please access the website at least 15 minutes prior to the call to register
and to download any necessary audio software. If you are unable to participate
in the conference call, a replay of the call will be available shortly after the
call and will run through Tuesday, April 18. The number for the replay is (877)
519-4471; international participants should dial +1-973-341-3080. All callers
should enter the passcode 7246463. The webcast will be archived in the Investor
Information section of Tower Group, Inc.'s website.
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