Tower Group, Inc. Reports a 138% Increase in Second 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 a 138% increase in second quarter of 2005 net income to $4.8 million as compared to net income of $2.0 million in the second quarter of 2004. For the first six months of 2005, net income increased 155% to $8.5 million as compared to $3.3 million for the first six months of 2004. 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 $0.24 for the second quarter of 2005 were based on 20,108,917 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 $0.35 per share for the second quarter of 2004, based on 5,819,870 weighted average diluted shares. For the first six months of 2005, Tower reported diluted earnings per share of $0.42, based on 20,093,198 weighted average diluted shares, as compared with $0.58 per diluted share for the first six months of 2004 based on 5,772,977 weighted average diluted shares. Net 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. , net of taxes, was $4.8 million for the second quarter of 2005 and $8.3 million for the first six months of 2005. 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, "We are pleased with our record second quarter net income which was driven primarily by 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 the higher net premium retention after the 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. . 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." Second Quarter 2005 Financial Highlights: Total revenues increased 92% to $50.3 million in the second quarter of 2005 as compared to $26.2 million in the same period in 2004. This increase was driven primarily by increases in net premiums earned and net investment income partially offset by lower total commission and fee income. Net premiums earned represented 75% of total revenues for the second quarter of 2005 as compared to 36% 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 18% of total revenue for the second quarter of 2005 as compared to 60% in the second quarter of 2004. This reflected the reduced ceding percentage under 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). 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. agreements to 25% in the second quarter of 2005 versus 60% in the second quarter of 2004 in consideration of the increased 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 our insurance company. In addition, due to an increase in the loss ratio on a prior year's quota share reinsurance treaty Reinsurance Treaty (June 18, 1887) Secret agreement between Germany and Russia. Arranged by Otto von Bismarck after the collapse of the Three Emperors' League, it provided that each party would remain neutral if either became involved in a war with a third nation, and that , we recorded a $0.9 million adjustment to ceding commission revenue in the second quarter of 2005 that reduced commission and fee income as compared to no adjustment in the same period of 2004. Net investment income, excluding realized gains, was 7% of total revenues in the second quarter of 2005 and 4% in the same period of 2004. Return on average equity was 14.3% in the second quarter of 2005 as compared with 54.4% in the second quarter of 2004. Although net income was significantly higher in the second 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 (IPO) 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 second quarter of 2005 was calculated by dividing 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. net income of $19.1 million by average stockholders' equity of $133.6 million. For the second quarter of 2004, the return was calculated by dividing annualized net income of $8.0 million by average stockholders' equity of $14.7 million. Gross premiums written in the insurance and reinsurance segments increased to $84.0 million in the second quarter of 2005, which were 92% higher than in the second quarter of 2004. This growth was driven by a 24% increase in policies in force as of June June: see month. 30, 2005 as compared to June 30, 2004. In addition, premium increases on 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. business averaged 10% for personal lines and 5% for commercial lines. The retention rate was 89% for personal lines and 85% for commercial lines. Contributing to the increase in policies in force was $9.6 million in premiums written on business subject to our renewal rights agreement with 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. Insurance Company. In addition, $3.7 million of new premiums were written in the second quarter of 2005 through former OneBeacon producers 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 conjunction conjunction, in astronomy conjunction, in astronomy, alignment of two celestial bodies as seen from the earth. Conjunction of the moon and the planets is often determined by reference to the sun. with the renewal rights transaction. Some of the policies in the more rating sensitive large lines and middle market programs formerly written through Tower Risk Management (TRM), were written by Tower Insurance Company of New York (TICNY TICNY Tower Insurance Company of New York ) due to the rating upgrade to "A-" (Excellent) by A.M. Best. As a result, premiums produced by TRM on behalf of issuing companies declined to $8.4 million in the second quarter of 2005, 54% lower than in the second quarter of 2004. Net premiums written increased 259% to $59.2 million in the second quarter of 2005 as compared to $16.5 million in the same period of 2004. The increase was driven by the growth in gross premiums written and a reduction in the quota share ceding percentage to 25% in the second quarter of 2005 compared with 60% during the second quarter of 2004. Net premiums earned rose 295% to $37.6 million for the second quarter of 2005 as compared to $9.5 million in the same quarter of 2004 due to overall growth in gross premiums written and the reduction in the ceding percentage as mentioned above. In addition, the second quarter's net premiums earned included $3.7 million from the $13.1 million of retained unearned premiums as of December December: see month. 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 the 2004 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 our quota share reinsurance agreement with that company at the end of 2004. Ceding commission revenue declined 50% to $5.3 million in the second quarter of 2005 as compared to $10.8 million in the second quarter of 2004 reflecting the significant reduction in the quota share ceding percentage. The net loss ratio improved to 58.6% for the second quarter of 2005 as compared to 61.9% in the second quarter of 2004. The improvement resulted from the increase in net premiums earned which reduced the proportional proportional values expressed as a proportion of the total number of values in a series. proportional dwarf the patient is a miniature without disproportionate reductions or enlargements of body parts. effect of catastrophe Catastrophe, from the Greek Καταστροφή (katastrephein), literally means "to turn" (strephein) "downwards" (kata-). reinsurance premiums on the net loss ratio. The gross expense ratio decreased by 2.3 percentage points to 30.3% in the second quarter of 2005 as compared to 32.6% in the second quarter of 2004. This decline was primarily due to an increase in earned premiums Earned premium is the portion of an insurance written premium which is considered "earned" by the insurer, based on the part of the policy period that the insurance has been in effect, and during which the insurer has been exposed to loss. at a higher rate than the increase in underwriting expenses and, to a lesser extent, the renewal of larger premium policies in TICNY that were previously produced through TRM on behalf of issuing companies. This was partially offset by a slight increase in the gross commission ratio. The net expense ratio increased 20.0 percentage points to 30.2% in the second quarter of 2005 as compared to 10.2% in the same period in 2004 primarily due to the lower ceding commission revenue discussed above. The net combined ratio increased to 88.8% in the second quarter of 2005 from 72.1% in the same period in the prior year primarily due to the increase in the net expense ratio driven by the lower ceding commission revenue. 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 second quarter of 2005 as compared to the second 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 increased to $0.6 million in the second quarter of 2005 from $0.3 million in the same quarter of 2004 primarily as a result of an increase in the direct commission revenue rate. Net investment income was a strong contributor to revenue growth in the second quarter of 2005, increasing 240% to $3.7 million versus $1.1 million in the second 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). 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 for $26.8 million and net proceeds of $107.8 million from our initial public offering (IPO) and concurrent private placement in October 2004. On a tax equivalent basis, the yield was 5.1% for invested assets held at June 30, 2005 and 4.8% as of June 30, 2004. Interest expense increased to $1.1 million in the second quarter of 2005 from $0.7 million in the second quarter of 2004 primarily a result of $0.5 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 33.7% and 39.0% for the second quarter of 2005 and second quarter of 2004, respectively. The effective tax rate in the second quarter of 2005 was lower due to the 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 of $0.9 million as compared to $0.1 million in the same period of 2004. First Six Months 2005 Financial Highlights: Total revenues increased 94% to $92.9 million in the first six months of 2005 as compared to $47.9 million in the same period of the prior year. This increase was driven primarily by increases in net premiums earned and investment income partially offset by lower total commission and fee income. Net premiums earned represented 73% of total revenues for the first six months of 2005 as compared to 36% for the same period of 2004. Ceding commission and fee income represented 20% of total revenue for the first half of 2005 as compared to 60% in the same period of 2004. This decline reflects the reduced ceding percentage under the quota share reinsurance agreement to 25% in the first half of 2005 versus 60% in the first half of 2004. Net investment income, excluding realized gains, comprised 7% of total revenues in the first sixth months of 2005 and 4% in the same period of 2004. Return on average equity was 12.7% in the first six months of 2005 as compared with 48.1% in the same period of 2004. Although net income was significantly higher in the first half of 2005 as compared to the similar period in the prior year, the lower return on average equity resulted from the significant increase in average stockholders' equity resulting primarily from capital raised from the initial public offering in October 2004. The return on average equity for the first six months of 2005 was calculated by dividing annualized net income of $16.9 million by average stockholders' equity of $133.4 million. For the first six months of 2004, the return was calculated by dividing annualized net income of $6.6 million by average stockholders' equity of $13.8 million. Gross premiums written in the insurance and reinsurance segments increased to $148.7 million in the first six months of 2005, which was 77% higher than in the similar period of 2004. This growth was driven by a 24% increase in policies in force as of June 30, 2005 compared to June 30, 2004. Premium increases on renewed business averaged 10% for personal lines and 5% for commercial lines. Premiums written on business subject to our renewal rights agreement with OneBeacon Insurance Company amounted to $18.4 million during the first six months of 2005. In addition, $8.6 million of new premiums were written in the first six months of 2005 through former OneBeacon producers appointed in conjunction with the renewal rights transaction. In addition, policies in the more rating sensitive large lines and middle market programs formerly written through TRM, were written by TICNY due to the rating upgrade to "A-" (Excellent) by A.M. Best Company. As a result, premiums produced by TRM on behalf of issuing companies declined to $16.9 million in the first six months of 2005, 33% lower than in the first six months of 2004. Net premiums written increased 234% to $104.5 million in the first half of 2005 as compared to $31.3 million in the same period of 2004. The increase was driven by the growth in gross premiums written and a reduction in the quota share ceding percentage to 25% in 2005 compared with 60% in the first six months of 2004. Net premiums earned increased 288% to $67.6 million for the first half of 2005 as compared to $17.4 million in the same period of 2004 due to overall growth in gross premiums written and the reduced ceding percentage. In addition, net premiums earned in the first half of 2005 included $9.2 million from the $13.1 million of retained unearned premiums as of December 31, 2004 that would have been ceded to Converium Reinsurance (North America) Inc. absent the 2004 novation. Ceding commission revenue declined 47% to $11.2 million in the first half of 2005 as compared to $21.1 million in the same period of 2004 reflecting the significant reduction in the quota share ceding percentage. The net loss ratio improved to 59.3% for the first six months of 2005 as compared to 62.5% for the first six months of 2004. The improvement resulted primarily from the increase in net premiums earned which reduced the proportional effect of catastrophe reinsurance premiums on the net loss ratio. The gross expense ratio increased decreased by 1.1 percentage points to 30.7% for the first half of 2005 as compared to 31.8% in the same period of 2004. This decline was primarily due to an increase in earned premiums at a higher rate than the increase of other underwriting expenses and, to a lesser extent, the writing of larger premium policies in TICNY that were previously produced through TRM on behalf of issuing companies. This was partially offset by a slight increase in the gross commission ratio. The net expense ratio increased 16.4 percentage points to 29.4% for the first six months of 2005 as compared to 13.0% in the same period in 2004 primarily due to the lower ceding commission revenue discussed above. The net combined ratio increased to 88.7% in the first half of 2005 from 75.5% in the same period in the prior year primarily due to the increase in the net expense ratio driven by the lower ceding commission revenue. As in the second quarter, although the combined ratio increased, underwriting profits increased due to the significantly higher base of net premiums earned in 2005 as compared to the first six months of 2004. Despite the reduction in premiums produced by TRM in the insurance services segment, pre tax income increased to $1.7 million in the first half of 2005 from $0.8 million in the same period of 2004 primarily as a result of additional direct commission income due to lower loss ratios on premiums produced in prior years and an increase in the direct commission revenue rate on premiums produced in the current year as the mix of premiums produced by TRM, primarily in the small market segment, carried a higher commission rate. Net investment income contributed significantly to revenue growth in the first half of 2005, increasing 241% to $6.3 million versus $1.9 million in the first six months of 2004. The increase in net investment income was primarily due to the growth in invested assets provided by operating cash flow, net proceeds from subordinated debentures and net proceeds of $107.8 million from our IPO and concurrent private placement in October 2004. On a tax equivalent basis, the investment yield was 5.1% as of June 30, 2005 and 4.8% as of June 30, 2004. Net realized capital gains were $0.2 million for the first half of 2005 as compared to a modest capital loss in the same period of the prior year. The increase resulted from the sale of common stock the proceeds of which the proceeds were reinvested into higher yielding securities. Interest expense increased to $2.3 million for the first six months of 2005 from $1.4 million in the first six months of 2004. This increase was primarily a result of interest of $0.9 million on subordinated debentures and a $0.2 million increase in interest expense 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. These increases were offset by reductions of $0.2 million of interest expense on other borrowings and preferred stock that were repaid in the fourth quarter of 2004. The effective income tax rate was 34.3% and 39.1% for the first six months of 2005 and 2004, respectively. The effective tax rate in the second quarter of 2005 was lower due to the benefit of tax-exempt interest income in the first six months of 2005 of $1.6 million as compared to $0.2 million in the same period of 2004.
Second Quarter and First Six Months Highlights
Second Second First Six First Six
Quarter Quarter Months Months
2005 2004 2005 2004
--------- -------- --------- ---------
Total Underwriting Profit
(Loss) $ 4,233 $ 2,655 $ 7,690 $ 4,260
Insurance Services Segment Pre-
Tax Income 628 293 1,668 765
Net Investment Income 3,733 1,099 6,348 1,863
Net Realized Investment Gains 20 (13) 229 (2)
Corporate Expenses (324) (31) (746) (59)
Interest Expense (1,106) (724) (2,271) (1,375)
Income Before Income Taxes 7,184 3,279 12,918 5,452
Income Tax Expense 2,419 1,280 4,436 2,131
Net Income $ 4,765 $ 1,999 $ 8,482 $ 3,321
EPS - Basic $ 0.24 $ 0.45 $ 0.43 $ 0.75
EPS - Diluted $ 0.24 $ 0.35 $ 0.42 $ 0.58
Book Value Per Share $ 6.96 $ 3.31 $ 6.96 $ 3.31
Additional Items: Agreement to Acquire MIIX Insurance Company of New York: Following our shell acquisition strategy, we announced on August 8, 2005 the execution of an agreement to acquire MIIX Insurance Company of New York (MIIX), an insurance company with licenses in New York and New Jersey. Upon closing, we plan to expand MIIX's licensing to other states and we expect the acquisition to enable us to improve our capability to deliver products in different market segments with varying pricing and coverage terms. The closing of the transaction is expected before year end 2005. Reinsurance Transactions: Like many other insurance companies, Tower Group, Inc. received an inquiry from the New York Insurance Department in the first quarter of 2005 relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc risk transfer under its 2004 quota share reinsurance agreement effective January January: see month. 1, 2004. The Company has continued to provide information in response to these inquiries and continues to believe that its reinsurance agreements demonstrate an appropriate transfer of risk and proper accounting. Dividend Declaration: Tower Group, Inc. announced today that the Company's Board of Directors approved a quarterly dividend on August 5, 2005 of $0.025 per share payable September September: see month. 27, 2005 to stockholders of record as of September 15, 2005. 2005 Guidance: We continue to believe that strong growth opportunities remain in our targeted markets despite price softening softening /sof·ten·ing/ (sof´en-ing) malacia. softening a change of consistency, with loss of firmness or hardness. in the broad P&C market. Although we have experienced some price softening in select market segments, we expect overall market conditions to remain favorable for most of our products for the remainder of 2005 and remain on target with our guidance for the full year of 2005 that was previously provided. For the third quarter of 2005, we project net income, excluding realized capital gains, to increase to a range between $5.2 million and $5.6 million. We project the diluted earnings per share, excluding realized capital gains in the third quarter to be in the range between $0.26 and $0.28 per diluted share. For the full year, we anticipate net income, excluding realized capital gains to increase to a range between $19.7 million and $20.5 million and diluted earnings per share, excluding realized capital gains to be between $0.98 and $1.02 per diluted share. 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 insurance company subsidiary, Tower Insurance Company of New York, 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. 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. In March 2005, Tower Group, Inc. acquired its other insurance company subsidiary, Tower National Insurance Company (f/k/a North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. Lumber lumber, term for timber that has been cut into boards for use as a building material. The major steps in producing lumber involve logging (the felling and preparation of timber for shipment to sawmills), sawing the logs into boards, grading the boards according to Insurance Company). 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
Second Quarter
Second Second
Quarter Quarter %
2005 2004 Change
Revenues:
Earned Premiums:
Gross Premiums Earned $ 55,060 $ 35,922 53.3%
Less: Ceded Premiums Earned (17,469) (26,407) -33.8%
-------- --------
Net Premiums Earned 37,591 9,515 295.1%
Ceded Commission Revenue 5,330 10,750 -50.4%
Policy Billing Fees 230 158 45.6%
-------- --------
Total 43,151 20,423 111.3%
Expenses:
Loss & Loss Adjustment Expenses
Gross Loss & Loss Adjustment Expenses 31,418 20,904 50.3%
Less: Ceded Loss & Loss Adjustment Expenses (9,405) (15,012) -37.4%
-------- --------
Net Loss & Loss Adjustment Expenses 22,013 5,892 273.6%
Underwriting Expenses
Commissions Paid to Producers 9,495 6,081 56.1%
Other Underwriting Expenses 7,410 5,795 27.9%
-------- --------
Total Underwriting Expenses 16,905 11,876 42.3%
-------- --------
Total Expenses 38,918 17,768 119.0%
-------- --------
Underwriting Profit $ 4,233 $ 2,655 59.4%
======== ========
Key Measures:
Written Premiums
Gross $ 84,006 $ 43,847 91.6%
Ceded (24,821) (27,355) -9.3%
-------- --------
Net $ 59,185 $ 16,492 258.9%
======== ========
Loss Ratios
Gross 57.1% 58.2%
Net 58.6% 61.9%
Accident Year Loss Ratios
Gross 57.3% 58.6%
Net 58.9% 62.3%
Expense Ratios
Gross 30.3% 32.6%
Net 30.2% 10.2%
Combined Ratios (GAAP)
Gross 87.4% 90.8%
Net 88.8% 72.1%
Insurance Overall Results of Operations
Insurance and Reinsurance Segments
First Six Months
First Six First Six
Months Months %
2005 2004 Change
Revenues:
Earned Premiums:
Gross Premiums Earned $ 100,928 $ 73,264 37.8%
Less: Ceded Premiums Earned (33,319) (55,819) -40.3%
--------- --------
Net Premiums Earned 67,609 17,445 287.6%
Ceded Commission Revenue 11,176 21,051 -46.9%
Policy Billing Fees 426 332 28.3%
--------- --------
Total 79,211 38,828 104.0%
Expenses:
Loss & Loss Adjustment Expenses
Gross Loss & Loss Adjustment Expenses 57,495 42,409 35.6%
Less: Ceded Loss & Loss Adjustment
Expenses (17,420) (31,500) -44.7%
--------- --------
Net Loss & Loss Adjustment Expenses 40,075 10,909 267.4%
Underwriting Expenses
Commissions Paid to Producers 17,076 12,217 39.8%
Other Underwriting Expenses 14,370 11,442 25.6%
--------- --------
Total Underwriting Expenses 31,446 23,659 32.9%
--------- --------
Total Expenses 71,521 34,568 106.9%
--------- --------
Underwriting Profit $ 7,690 $ 4,260 80.5%
========= ========
Key Measures:
Written Premiums
Gross $ 148,674 $ 83,860 77.3%
Ceded (44,128) (52,578) -16.1%
--------- --------
Net $ 104,546 $ 31,282 234.2%
========= ========
Loss Ratios
Gross 57.0% 57.9%
Net 59.3% 62.5%
Accident Year Loss Ratios
Gross 57.6% 57.4%
Net 59.4% 62.5%
Expense Ratios
Gross 30.7% 31.8%
Net 29.4% 13.0%
Combined Ratios (GAAP)
Gross 87.7% 89.7%
Net 88.7% 75.5%
Insurance Services Segment Results of Operations
Second Quarter
Second Second
Quarter Quarter %
2005 2004 Change
Revenues:
Direct Commission Revenue from MGA $ 2,166 $ 3,595 -39.7%
Claims Administration Revenue 1,097 846 29.7%
Reinsurance Intermediary Fees 79 240 -67.1%
Policy Billing Fees 6 - -
-------- --------
Total 3,348 4,681 -28.5%
Expenses:
Direct Commission Expense Paid to Producers 1,174 2,487 -52.8%
Other Insurance Services Expenses 455 1,061 -57.1%
Claims Expense Reimbursement to TICNY 1,091 840 29.9%
-------- --------
Total Expenses 2,720 4,388 -38.0%
-------- --------
Insurance Services Pre-tax Income (Loss) $ 628 $ 293 114.3%
======== ========
Insurance Services Segment Results of Operations
First Six Months
First Six First Six
Months Months %
2005 2004 Change
Revenues:
Direct Commission Revenue from MGA $ 4,691 $ 5,052 -7.1%
Claims Administration Revenue 2,150 1,715 25.4%
Reinsurance Intermediary Fees 282 438 -35.6%
Policy Billing Fees 11 - -
--------- --------
Total 7,134 7,205 -1.0%
Expenses:
Direct Commission Expense Paid to Producers 2,385 3,437 -30.6%
Other Insurance Services Expenses 940 1,361 -30.9%
Claims Expense Reimbursement to TICNY 2,141 1,642 30.4%
--------- --------
Total Expenses 5,466 6,440 -15.1%
--------- --------
Insurance Services Pre-tax Income (Loss) $ 1,668 $ 765 118.0%
========= ========
Tower Group, Inc.
Consolidated Statements of Income and
Comprehensive Net Income
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
2005 2004 2005 2004
----------- ---------- ----------- ----------
($ in thousands, except share and per share
amounts)
Revenues
Net premiums earned $ 37,591 $ 9,515 $ 67,609 $ 17,445
Ceding commission
revenue 5,330 10,750 11,176 21,051
Insurance services
revenue 3,342 4,681 7,123 7,205
Net investment income 3,733 1,099 6,348 1,863
Net realized gains on
investments 20 (13) 229 (2)
Policy billing fees 236 158 437 332
----------- ---------- ----------- ----------
Total revenues 50,252 26,190 92,922 47,894
----------- ---------- ----------- ----------
Expenses
Loss and loss
adjustment expenses 22,013 5,892 40,075 10,909
Direct commission
expense 10,669 8,568 19,461 15,654
Other operating
expenses 9,280 7,727 18,197 14,504
Interest expense 1,106 724 2,271 1,375
----------- ---------- ----------- ----------
Total expenses 43,068 22,911 80,004 42,442
----------- ---------- ----------- ----------
Income before income
taxes 7,184 3,279 12,918 5,452
Income tax expense 2,419 1,280 4,436 2,131
----------- ---------- ----------- ----------
Net income $ 4,765 $ 1,999 $ 8,482 $ 3,321
=========== ========== =========== ==========
Comprehensive Net Income
Net income $ 4,765 $ 1,999 $ 8,482 $ 3,321
Other comprehensive
income:
Gross unrealized
investment holding
gains (losses)
arising during
period 4,827 (3,191) 341 (2,244)
Less:
reclassification
adjustment for
gains included in
net income (20) 13 (229) 2
----------- ---------- ----------- ----------
4,807 (3,178) 112 (2,242)
Income tax benefit
(expense) related
to items of other
comprehensive
income (1,683) 1,080 (39) 762
----------- ---------- ----------- ----------
Total other
comprehensive net
income (loss) 3,124 (2,098) 73 (1,480)
----------- ---------- ----------- ----------
Comprehensive
Net Income $ 7,889 $ (99)$ 8,555 $ 1,841
=========== ========== =========== ==========
Earnings Per Share
Basic earnings per
common share $ 0.24 $ 0.45 $ 0.43 $ 0.75
=========== ========== =========== ==========
Diluted earnings per
common share $ 0.24 $ 0.35 $ 0.42 $ 0.58
=========== ========== =========== ==========
Weighted Average Common
Shares Outstanding:
Basic 19,555,327 4,407,434 19,538,219 4,407,434
Diluted 20,108,917 5,819,870 20,093,198 5,772,977
Tower Group, Inc.
Consolidated Balance Sheets
(Unaudited)
June 30, 2005 December 31, 2004
--------------- -----------------
($ in thousands, except par value
and share amounts)
Assets
Fixed-maturity securities, available-
for-sale, at fair value (amortized
cost $266,543 in 2005 and $223,562
in 2004) $ 267,961 $ 224,523
Equity securities, at fair value
(cost $30,083 in 2005 and $1,827 in
2004) 30,396 2,485
Common trust securities - statutory
business trusts, equity method 1,426 1,426
-------------- ---------------
Total investments 299,783 228,434
Cash and cash equivalents 44,692 55,201
Investment income receivable 2,743 1,975
Agents' balances receivable 41,022 33,473
Assumed premiums receivable 1,054 1,197
Ceding commission receivable 8,727 8,329
Reinsurance recoverable 100,391 101,173
Receivable - claims paid by agency 2,976 1,622
Prepaid reinsurance premiums 39,200 28,391
Deferred acquisition costs net of
deferred ceding commission revenue 25,414 18,740
Federal income taxes and state taxes
recoverable - 1,975
Intangible assets 5,902 4,978
Fixed assets, net of accumulated
depreciation 6,667 5,420
Other assets 3,449 3,239
-------------- ---------------
Total Assets $ 582,020 $ 494,147
============== ===============
Liabilities
Loss and loss adjustment expenses $ 155,858 $ 128,722
Unearned premium 143,251 95,505
Reinsurance balances payable 17,769 2,735
Payable to issuing carriers 12,265 18,652
Funds held as agent 776 785
Funds held under reinsurance
agreements 52,019 54,152
Accounts payable and accrued expenses 8,283 12,410
Checks outstanding 2,901 2,726
Payable for securities 2,784 -
Federal income taxes and state taxes
payable 1,180
Deferred income taxes 81 1,587
Subordinated debentures 47,426 47,426
-------------- ---------------
Total Liabilities 444,593 364,700
-------------- ---------------
Stockholders' Equity
Common stock ($0.01 par value per
share; 40,000,000 shares authorized;
19,847,303 and 19,826,135 shares
issued in 2005 and 2004) 198 198
Paid-in-capital 112,604 112,375
Accumulated other comprehensive
net income 1,125 1,052
Retained earnings 25,729 18,224
Unearned compensation - restricted
stock (1,731) (1,908)
Treasury stock (89,439 shares in 2005
and 88,967 in 2004) (498) (494)
-------------- ---------------
Total Stockholders' Equity 137,427 129,447
-------------- ---------------
Total Liabilities and
Stockholders' Equity $ 582,020 $ 494,147
============== ===============
|
|
||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion