Tower Group, Inc. Enters into Strategic Relationship with CastlePoint Holdings, Ltd.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Tower Group, Inc. (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on : 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 Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. with $265 million and is now able to provide reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. , 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 For This article is about quota shares (shares of the quota). For other usages of quota, see, see . A quota share is a specified number or percentage of the allotment as a whole (quota), that is prescribed to each individual entity (see Non-tariff barriers to trade). reinsurance agreement with CastlePoint Reinsurance Company, Ltd. ("CastlePoint Re"), a wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. 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 Michael Lee may refer to:
1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. capacity in addition to our own capital to support our premium growth as well as generate commission and fee income to augment aug·ment v. aug·ment·ed, aug·ment·ing, aug·ments v.tr. 1. To make (something already developed or well under way) greater, as in size, extent, or quantity: 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 Finite Reinsurance A type of reinsurance that transfers over only a finite or limited amount of risk. Risk is reduced through accounting or financial methods, along with the actual transfer of economic risk. 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 Michael, archangel Michael (mī`kəl) [Heb.,=who is like God?], archangel prominent in Christian, Jewish, and Muslim traditions. In the Bible and early Jewish literature, Michael is one of the angels of God's presence. H. Lee will serve as Chairman, Chief Executive Officer and President of CastlePoint Holdings, Ltd. and Tower Group, Inc. In addition, Joel S Joel, book of the Bible Joel, prophetic book of the Bible. It is a collection of the oracles of an otherwise unknown prophet, dated variously from the 9th to the 3d cent. B.C., though a date in c.400 B.C. is likely. . Weiner Weiner can mean a metaphore for penis, or:
American army engineer and parliamentary authority. He designed the defenses for Washington, D.C., during the Civil War and later wrote Robert's Rules of Order (1876). Noun 1. 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 GREG Great Egg Harbor National Scenic and Recreational River (US National Park Service) T. Doyle Doyle , Sir Arthur Conan 1859-1930. British writer known chiefly for a series of stories featuring the brilliant detective Sherlock Holmes, including The Hound of the Baskervilles (1902). 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 re·in·sure tr.v. re·in·sured, re·in·sur·ing, re·in·sures To insure again, especially by transferring all or part of the risk in a contract to a new contract with another insurance company. 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 workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. 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 capitalization n. 1) the act of counting anticipated earnings and expenses as capital assets (property, equipment, fixtures) for accounting purposes. 2) the amount of anticipated net earnings which hypothetically can be used for conversion into capital assets. 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 Temporary; not permanent. Tentative, contingent, preliminary. A provisional civil service appointment is a temporary position that fills a vacancy until a test can be properly administered and statutory requirements can be fulfilled to make a permanent appointment. ceding cede tr.v. ced·ed, ced·ing, cedes 1. To surrender possession of, especially by treaty. See Synonyms at relinquish. 2. 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 diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of to be between $1.58 and $1.68 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share. The following additional details reflect the various agreements with CastlePoint. For the full year, we expect our total gross premiums written When a non-life insurance company closes a contract to provide insurance against loss, the revenues (premiums) expected to be received over the life of the contract are called 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 EDT abbr. Eastern Daylight Time EDT Eastern Daylight Time EDT n abbr (US) (= Eastern Daylight Time) → hora de verano de Nueva York 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 Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the . 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 URL in full Uniform Resource Locator Address of a resource on the Internet. The resource can be any type of file stored on a server, such as a Web page, a text file, a graphics file, or an application program. 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 To receive a file transmitted over a network. In any communications session, "download" means receive, and "upload" means send. The download/upload often implies a big/little scenario, in which data is being downloaded from the "big" server into the "little" user's computer. 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 New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. , 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 forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. The Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995 provides a "safe harbor Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. " 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 in·ef·fec·tive adj. 1. Not producing an intended effect; ineffectual: an ineffective plea. 2. Inadequate; incompetent: an ineffective teacher. or obsolescence ob·so·les·cent adj. 1. Being in the process of passing out of use or usefulness; becoming obsolete. 2. Biology Gradually disappearing; imperfectly or only slightly developed. 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/. |
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