Exhibit 99.1
Tower Group, Inc. Announces Commutation and Novation Agreements with
PXRE Reinsurance Company, Second Quarter Income from Investment in
CastlePoint and Closing of the Acquisition of MIIX Insurance Company
of New York (''MIIX'')
NEW YORK--(BUSINESS WIRE)--July 6, 2006--Tower Group, Inc.
(NASDAQ:TWGP) today announced that it has concluded, through
commutation agreements, PXRE Reinsurance Company's ("PXRE")
participation under various reinsurance agreements with Tower
Insurance Company of New York covering the 2001, 2002 and a portion of
the 2003 policy periods. Ceded loss and loss adjustment expense
reserve liabilities of $20.5 million, ceded paid losses of $2.4
million and ceding commission revenue of $8.6 million, totaling $31.5
million of unsecured recoverables were settled with a payment from
PXRE of $26.7 million which represents an estimate of the present
value of these recoverables. This resulted in a non-recurring $4.8
million pre-tax charge to be recognized in the second quarter of 2006.
In addition, on the same date, novation agreements were executed with
PXRE relating to other reinsurance agreements covering business
written in 2001, 2002 and 2003 by other insurance companies managed on
their behalf by Tower Risk Management Corporation, Tower's risk
management subsidiary. As a result of the novations, Tower assumed
liabilities of $12.0 million for which it received as consideration
$11.4 million in cash and other assets. Tower incurred a non-recurring
$0.6 million pre-tax charge for the difference between the assumed
liabilities and the consideration received to be recognized in the
second quarter of 2006. As a result of the commutation and novation
agreements, which are effective as of June 29, 2006, PXRE is
discharged from future obligations under the reinsurance agreements.
There are no other agreements outstanding with PXRE.
Michael Lee, Tower's President and CEO, noted that "while PXRE has
been meeting its financial obligations to Tower, credit exposure from
an unrated reinsurer was inconsistent with our financial management
practices. Accordingly, we negotiated what we believe to be a fair
settlement to eliminate the risk of greater loss."
Tower also announced other significant non-recurring transactions
that will affect pre-tax income. On April 5, 2006, Tower announced its
$15 million investment in CastlePoint Holdings, Ltd. ("CPHL") and the
capitalization of CPHL through a private equity offering, following
which Tower's percentage ownership interest in CPHL stood at 8.6% of
CPHL's common shares plus a warrant to acquire an additional 3.7% of
CPHL's common shares. Relating to these transactions Tower will record
a gain of $7.9 million in its second quarter pre tax-income arising
from an increase in the value of its investment in CPHL's common
shares. After CPHL completed its capitalization, CPHL's GAAP book
value increased to approximately $265 million and the value of CPHL
common shares held by Tower increased to $22.9 million representing a
pre-tax gain of $7.9 million. Tower will also include in its second
quarter pre-tax income between $3.8 and $4.6 million representing the
estimated value of the warrant received.
The following is a summary of the pre-tax effects of the
transactions with PXRE and CPHL that will be reflected in Tower's
second quarter operating results (in millions):
Pre-tax (loss) on commutation of reinsurance contracts with
PXRE $(4.8)
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Pre-tax (loss) on novated reinsurance contracts with PXRE (0.6)
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Pre-tax gain on investment in CPHL 7.9
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Pre-tax gain on warrant received from CPHL 3.8
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Net effect on pre-tax income $ 6.3
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On June 29, 2006 Tower completed its previously announced
acquisition of MIIX Insurance Company of New York ("MIIX"), an
insurance company with licenses in New York and New Jersey, after
receiving approval from the New York State Department of Insurance.
Tower paid $8.5 million at closing, which was equal to MIIX's
statutory surplus plus $225,000. MIIX's assets consist of U.S.
Treasury bonds and cash.
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 Web site at
http://www.twrgrp.com/.
CONTACT: Tower Group, Inc.
Thomas Song, 212-655-4789
tsong@twrgrp.com