Tower Group, Inc. Reports 103% Increase in Fourth Quarter of 2005 Net Income.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 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 December: see month. 31, 2005, net income increased 130% to $20.8 million as compared to $9.0 million for the prior year. 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 of $0.32 for the fourth quarter of 2005 were based on 20,200,584 weighted average 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. 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 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, 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 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. , 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 fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. loss ratio by maintaining our underwriting Underwriting 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. 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 (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. ." 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 cede tr.v. ced·ed, ced·ing, cedes 1. To surrender possession of, especially by treaty. See Synonyms at relinquish. 2. 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 Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. , was 6.7% of total revenues in the fourth quarter of 2005 and 5.9% in the same period of 2004. Annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. 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 Stockholders' Equity The portion of the balance sheet that includes capital received from investors in exchange for stock (paid-in capital), donated capital, and retained earnings. This is equal to total assets minus liabilities, preferred stock and intangible assets. resulting primarily from capital raised from the initial public offering and concurrent At the same time. It implies that multiple processes are taking place simultaneously. See concurrent operation. private placement in October October: see month. 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 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. 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 The substitution of a new contract for an old one. The new agreement extinguishes the rights and obligations that were in effect under the old agreement. A novation ordinarily arises when a new individual assumes an obligation to pay that was incurred by the original party 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 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). 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 Underwriting profit is a term used in the insurance industry. It consists of the earned premium remaining after losses have been paid and administrative expenses have been deducted. It does not include any investment income earned on held premiums. 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 pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta 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 re·new v. re·newed, re·new·ing, re·news v.tr. 1. To make new or as if new again; restore: renewed the antique chair. 2. 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 Operating cash flow Earnings before depreciation minus taxes. Measures the cash generated from operations, not counting capital spending or working capital requirements. , net proceeds Net Proceeds The amount received after all costs are deducted from the sale of a piece of property or security. Notes: In the case of an investor selling a security, net proceeds represent the proceeds from the sale minus any trading costs (i.e. commissions). of $26.8 million from subordinated debentures subordinated debenture An unsecured bond with a claim to assets that is subordinate to all existing and future debt. Thus, in the event that the issuer encounters financial difficulties and must be liquidated, all other claims must be satisfied before 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 Stock shares that have preferential rights to dividends or to amounts distributable on liquidation, or to both, ahead of common shareholders. Preferred stock is given preference over common stock. Holders of preferred stock receive dividends at a fixed annual rate. 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 pro·por·tion·al adj. 1. Forming a relationship with other parts or quantities; being in proportion. 2. Properly related in size, degree, or other measurable characteristics; corresponding: larger benefit of tax-exempt interest Tax-Exempt Interest Interest income that is exempt from federal income tax. Although it is not directly taxed, this income may still be required to determine other tax calculations such as social security benefits. 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 North America, third largest continent (1990 est. pop. 365,000,000), c.9,400,000 sq mi (24,346,000 sq km), the northern of the two continents of the Western Hemisphere. ) 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 OneBeacon Insurance Group is a property, casualty insurance company offering a range of specialty and segmented commercial and personal insurance products sold primarily through select independent agents. renewal rights agreement, entered into in September September: see month. 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 ap·point tr.v. ap·point·ed, ap·point·ing, ap·points 1. To select or designate to fill an office or a position: appointed her the chief operating officer of the company. 2. 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 Catastrophe, from the Greek Καταστροφή (katastrephein), literally means "to turn" (strephein) "downwards" (kata-). 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 ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $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 collateral (kəlăt`ərəl), something of value given or pledged as security for payment of a loan. Collateral consists usually of financial instruments, such as stocks, bonds, and negotiable paper, rather than physical goods, although 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 February: see month. 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 Unsecured A loan or equity interest that is given without any guarantee of payment, performance, satisfaction or opportunity for return from the recipient. No property, interest or security is used as collateral in either a guarantee or a pledge. 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 collectible An asset of limited supply that is sought for a variety of reasons including, it is hoped, an increase in value. Stamps, antiques, coins, and works of art are among the many things usually classified as collectibles. . 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 softening /sof·ten·ing/ (sof´en-ing) malacia. softening a change of consistency, with loss of firmness or hardness. 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 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 Adj. 1. medium-size - intermediate in size medium-sized, moderate-size, moderate-sized sized - having a specified 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 for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. terminology The terminology used in the computer and telecommunications field adds tremendous confusion not only for the lay person, but for the technicians themselves. What many do not realize is that terms are made up by anybody and everybody in a nonchalant, casual manner without any regard or 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 man-made or man·made adj. Made by humans rather than occurring in nature; synthetic: man-made fibers; a manmade lake. See Usage Note at man. catastrophic events, than our underwriting, reserving or investment practices anticipate based on historical experience or industry data; the effects of acts of terrorism terrorism, the threat or use of violence, often against the civilian population, to achieve political or social ends, to intimidate opponents, or to publicize grievances. 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
======== ========
|
|
||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion