Tower Group, Inc. Reports a 181% Increase in the First Quarter 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 181% increase in first quarter of 2005 net income of $3.7 million as compared to first quarter of 2004 net income of $1.3 million. 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 $0.19 for the first quarter of 2005 were based on 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 of 20,076,884 as compared with $0.23 per share for the first quarter of 2004, based on weighted average diluted shares of 5,726,083. Net income for the first quarter of 2005, 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 tax was $3.6 million. 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, "Our record first quarter net income was driven by continued strong growth in our core lines of business and geographic geographic /geo·graph·ic/ (je?o-graf´ik) in pathology, of or referring to a pattern that is well demarcated, resembling outlines on a map. geographic pertaining to geography. expansion outside of downstate New York Downstate New York is a term for the southeasternmost portion of New York State, United States, in contrast to Upstate New York. It should be noted that the term "Downstate New York" has significantly less currency than its counterpart term "Upstate New York", and the Downstate while maintaining favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. margins through our disciplined 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. . We continue to operate efficiently and differentiate differentiate /dif·fer·en·ti·ate/ (dif?er-en´she-at) 1. to distinguish, on the basis of differences. 2. to develop specialized form, character, or function differing from that surrounding it or from the original. Tower in the marketplace with our demand driven approach in which we focus on the needs of our producers." First Quarter 2005 Financial Highlights: Total revenues increased 97% to $42.7 million in the first quarter of 2005 as compared to $21.7 million in the prior year's first quarter. This increase was driven primarily by increases in net premiums earned, investment income and net realized investment gains partially offset by lower total commission and fee income. Net premiums earned represented 70% of total revenues for the first quarter of 2005 as compared to 37% 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 23% of total revenue for the first quarter of 2005 as compared to 60% in the first quarter of 2004. This was reflective Refers to light hitting an opaque surface such as a printed page or mirror and bouncing back. See reflective media and reflective LCD. of 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. agreement to 25% in the first quarter of 2005 versus 60% in the first 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. Net investment income, excluding realized gains, comprised 6% of total revenues in the first quarter of 2005 and 4% in the same period of 2004. Return on average equity was 11.5% in the first quarter of 2005 as compared with 37.9% in the first quarter of 2004. Although net income was significantly higher in the first quarter 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 shareholders' equity Shareholders' Equity A firms' total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity is the amount by which a company is financed through common and preferred shares. 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 returns on average equity for each of the first quarter of 2005 and first quarter of 2004 were 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 by average shareholders' equity of $129.6 million and $13.9 million, respectively. 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. in the insurance operations increased to $64.7 million in the first quarter, which were 62% higher than in the first quarter of 2004. This growth was driven by a 17.5% increase in policies in force and 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 which averaged 11% for personal lines and 6% for commercial lines. Premiums written on business subject to our commercial 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 LLC (Logical Link Control) See "LANs" under data link protocol. LLC - Logical Link Control amounted to $8.8 million during the first quarter of 2005. Premiums produced by the managing general agency reached $8.4 million in the first quarter of 2005 which were 30% higher than in the first quarter of 2004. Growth was primarily due to increases in premiums produced in the middle market, small business overflow programs and business written through former OneBeacon producers that we 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 consequence of the renewal rights transaction. Net premiums written increased 207% to $45.4 million in the first quarter of 2005 as compared to $14.8 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 % beginning in 2005 compared with 60% during the first nine months of 2004. Net premiums earned rose 279% to $30.0 million for the first quarter of 2005 as compared to $7.9 million in the same quarter of 2004 due to overall growth in gross premiums written and the decision to cede a lower percentage of premiums as mentioned above. In addition, the first quarter's net earned premium 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. was increased by $5.5 million from the $13.1 million of retained unearned premiums and related risks by the Company 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 . Due to the significant reduction in quota share reinsurance beginning in the fourth quarter 2004, the ratio of net premiums earned to net premiums written declined to 46% in the fourth quarter 2004 and began its gradual The Gradual (Latin: graduale, sometimes called the Grail) is a chant in the extraordinary form of the Roman Catholic Mass, sung after the reading or singing of the Epistle and before the Alleluia, or, during penitential seasons, before the Tract. increase to 66% in the first quarter 2005. We anticipate that this ratio will continue to gradually grad·u·al adj. Advancing or progressing by regular or continuous degrees: gradual erosion; a gradual slope. n. Roman Catholic Church 1. increase each quarter throughout 2005 and will average approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 75 % to 80 % for the full year. Ceding commission revenue declined 43% to $5.8 million in the first quarter of 2005 as compared to $10.3 million in the first quarter of 2004 reflecting the significant reduction in the quota share ceding percentage. The net loss ratio improved to 60.2% for the first quarter of 2005 as compared to 63.3% in the first 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. In addition, while 2005 was a harsh winter in our operating territory, claims reported during the first quarter for our property lines were favorable as compared to the same quarter in the prior year. The gross expense ratio increased modestly by 0.2 points to 31.3% in the first quarter of 2005 as compared to 31.1% in the first quarter of 2004. The increase was related to establishing two new branch offices and additional expenses incurred as a public company. The net expense ratio increased 11.8 percentage points in the first quarter of 2005 as compared to the same period in 2004 primarily due to the lower ceding commission revenue discussed above. Ceding commission revenue caused the net expense ratio of 28.3% to be 3.0 percentage points lower than the gross expense ratio for the first quarter of 2005. In the first quarter of 2004, ceding commission revenue caused the net expense ratio of 16.5% to be 14.6 percentage points lower than the gross expense ratio. The net combined ratio increased to 88.5% in the first quarter of 2005 from 79.8% 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, the combined ratio remains extremely favorable. Pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta income in our insurance services segment increased to $1.0 million in the first quarter of 2005 from $0.5 million in the same quarter of 2004 primarily as a result of a 73% increase in direct commission revenue due to an increase in premiums placed with issuing carriers and additional commission revenue of $491,000 resulting from favorable loss development on the premiums produced. This increase was partially offset by a 34% increase in expenses for the first quarter of 2005 compared to the same period in 2004. Net investment income was a strong contributor to revenue growth in the first quarter of 2005, increasing 242% to $2.6 million versus $0.8 million in the first quarter of 2004. The acceleration acceleration, change in the velocity of a body with respect to time. Since velocity is a vector quantity, involving both magnitude and direction, acceleration is also a vector. In order to produce an acceleration, a force must be applied to the body. of net investment income was primarily due to the growth in invested assets provided by operations, 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 (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. ) and concurrent private placement in October 2004. The positive effects were offset by a slight decline in the yield on fixed maturity investments held at March 31, 2005 as compared to the same period in 2004. The pre-tax yield for our fixed income investments held at March 31, 2005 and March 31, 2004 was 4.6% and 4.8%, respectively. On a tax equivalent basis, the yield was 5.1% for invested assets held both at March 31, 2005 and March 31, 2004. Net realized capital gains were $0.2 million for the first quarter of 2005 as compared to $11,000 in the same quarter of the prior year. The increase resulted from the sale of common stocks for which the proceeds were reinvested into higher dividend yielding securities. Due to rising interest rates, the change in gross unrealized investment losses was approximately $3.0 million net of a tax benefit during the first quarter of 2005. Interest expense increased to $1.2 million in the first quarter of 2005 from $0.7 million in the first quarter of 2004. This increase was primarily a result of $0.5 million on subordinated debentures underlying trust preferred securities issued in December 2004 and a $0.2 million interest expense increase 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 effective January January: see month. 1, 2004 with an annual effective yield of 2.5%. These increases were offset by reductions of $0.2 million of interest expenses 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. repaid in the fourth quarter of 2004. The effective income tax rate was 35.2% and 39.2% for the first quarter of 2005 and first quarter of 2004, respectively. The effective tax rate in the first 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 in the first quarter of 2005 of $0.7 million as compared to $0.1 million in the same period of 2004.
First Quarter Highlights
First First
Quarter Quarter
2005 2004
------------ -----------
Total Underwriting Profit (Loss) $ 3,457 $ 1,605
Insurance Services Segment Pre-Tax Income 1,040 472
Net Investment Income 2,615 764
Net Realized Investment Gains 209 11
Corporate Expenses (422) (28)
Interest Expense (1,165) (651)
Income Before Income Taxes 5,734 2,173
Income Tax Expense 2,017 851
Net Income $ 3,717 $ 1,322
EPS - Basic $ 0.19 $ 0.30
EPS - Diluted $ 0.19 $ 0.23
Book Value Per Share $ 6.57 $ 3.37
Additional Highlights and Disclosures: Acquisition of Tower National Insurance Company : On March 28, 2005, Tower Group, Inc. announced the completion of the acquisition of 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), an insurance company with nine active licenses mostly on the east coast, including New Jersey, Connecticut Connecticut, state, United States Connecticut (kənĕt`ĭkət), southernmost of the New England states of the NE United States. It is bordered by Massachusetts (N), Rhode Island (E), Long Island Sound (S), and New York (W). and various New England New England, name applied to the region comprising six states of the NE United States—Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, and Connecticut. The region is thought to have been so named by Capt. states. The acquisition is consistent with our plans to expand insurance operations territorially ter·ri·to·ri·al adj. 1. Of or relating to the geographic area under a given jurisdiction: the territorial limits of a country. 2. through becoming licensed in states other than New York. Reinsurance Transactions: Like many other insurance companies, we have received an inquiry from the New York Insurance Department relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc risk transfer under our reinsurance arrangements. We have been providing information to the New York Insurance Department in response to these inquiries. We believe that our reinsurance agreements demonstrate an appropriate transfer of risk and proper accounting. Our auditors AUDITORS, practice. Persons lawfully appointed to examine and digest accounts referred to them, take down the evidence in writing, which may be lawfully offered in relation to such accounts, and prepare materials on which a decree or judgment may be made; and to report the whole, together have confirmed their agreement with our view as part of their audit of our 2004 financial statements. Dividend Declaration: Tower Group, Inc. announced today that the Company's Board of Directors has approved a quarterly dividend of $0.025 per share payable June June: see month. 27, 2005 to stockholders of record as of June 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. We expect overall market conditions to remain favorable for our products for the remainder of 2005 and remain on target with our guidance for the full year of 2005 that was provided in our first quarter earnings release. For the second quarter of 2005, we project net income to increase to a range between $4.5 million and $4.9 million. We project the diluted earnings per share in the second quarter to be in the range between $0.23 and $0.25 per diluted share. For the full year, we anticipate net income to increase to a range between $19.7 million and $ 20.5 million and diluted earnings per share 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 Lumber 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 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; acceptance of our 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; decreased demand for our insurance or reinsurance products; 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
First Quarter
First First
Quarter Quarter %
2005 2004 Change
--------- -------- --------
Revenues:
Earned Premiums:
Gross Premiums Earned $ 45,868 $ 37,342 22.8%
Less: Ceded Premiums Earned (15,850) (29,412) -46.1%
-------- --------
Net Premiums Earned 30,018 7,930 278.5%
Ceded Commission Revenue 5,846 10,301 -43.2%
Policy Billing Fees 196 174 12.6%
-------- --------
Total 36,060 18,405 95.9%
Expenses:
Loss & Loss Adjustment Expenses
Gross Loss & Loss Adjustment Expenses 26,078 21,505 21.3%
Less: Ceded Loss & Loss Adjustment
Expenses (8,016) (16,488) -51.4%
-------- --------
Net Loss & Loss Adjustment Expenses 18,062 5,017 260.0%
Underwriting Expenses
Commissions Paid to Producers 7,581 6,136 23.5%
Other Underwriting Expenses 6,960 5,647 23.3%
-------- --------
Total Underwriting Expenses 14,541 11,783 23.4%
-------- --------
Total Expenses 32,603 16,800 94.1%
-------- --------
Underwriting Profit $ 3,457 $ 1,605 115.4%
======== ========
Key Measures:
Written Premiums
Gross $ 64,668 $ 40,013 61.6%
Ceded (19,307) (25,223) -23.5%
-------- --------
Net $ 45,361 $ 14,790 206.7%
======== ========
Loss Ratios
Gross 56.9% 57.6%
Net 60.2% 63.3%
Accident Year Loss Ratios
Gross 57.9% 56.3%
Net 60.1% 62.7%
Expense Ratios
Gross 31.3% 31.1%
Net 28.3% 16.5%
Combined Ratios (GAAP)
Gross 88.2% 88.7%
Net 88.5% 79.8%
Insurance Services Segment Results of Operations
First Quarter
First First
Quarter Quarter %
2005 2004 Change
--------- ------- --------
Revenues:
Direct Commission Revenue from MGA $ 2,525 $ 1,457 73.3%
Claims Administration Revenue 1,053 869 21.2%
Reinsurance Intermediary Fees 203 198 2.5%
Policy Billing Fees 5 - -
-------- -------
Total 3,786 2,524 50.0%
Expenses:
Direct Commission Expense Paid to Producers 1,211 950 27.5%
Other Insurance Services Expenses 485 300 61.7%
Claims Expense Reimbursement to TICNY 1,050 802 30.9%
-------- -------
Total Expenses 2,746 2,052 33.8%
-------- -------
Insurance Services Pre-tax Income (Loss) $ 1,040 $ 472 120.3%
======== =======
Tower Group, Inc.
Consolidated Balance Sheet
(Unaudited)
March December
31, 31,
2005 2004
------------ -----------
($ in thousands, except
par value
and share amounts)
ASSETS
Fixed-maturity securities, available-for-sale,
at fair value (amortized cost $255,034 in
2005 and $223,562 in 2004) $ 251,929 $ 224,523
Equity securities, at fair value (cost
$29,681 in 2005 and $1,827 in 2004) 29,710 2,485
Common trust securities - statutory business
trusts, equity method 1,426 1,426
----------- -----------
Total investments 283,065 228,434
Cash and cash equivalents 24,130 55,201
Investment income receivable 2,449 1,975
Agents' balances receivable 34,126 33,473
Assumed premiums receivable 1,144 1,197
Ceding commission receivable 8,727 8,329
Reinsurance recoverable 100,454 101,173
Receivable -- claims paid by agency 2,251 1,622
Prepaid reinsurance premiums 31,847 28,391
Deferred acquisition costs net of deferred
ceding commission revenue 22,223 18,740
Federal income taxes and state taxes
recoverable - 1,975
Deferred income taxes 480 -
Intangible assets 6,039 4,978
Fixed assets, net of accumulated depreciation 5,620 5,420
Other assets 3,860 3,239
----------- -----------
Total Assets $ 526,415 $ 494,147
=========== ===========
LIABILITIES
Loss and loss adjustment expenses $ 140,518 $ 128,722
Unearned premium 114,306 95,505
Reinsurance balances payable 8,867 2,735
Payable to issuing carriers 15,473 18,652
Funds held as agent 782 785
Funds held under reinsurance agreements 53,559 54,152
Accounts payable and accrued expenses 11,240 12,410
Checks outstanding 2,694 2,726
Payable for securities 1,272 -
Federal and state income taxes payable 459 -
Deferred income taxes - 1,587
Subordinated debentures 47,426 47,426
----------- -----------
Total Liabilities 396,596 364,700
----------- -----------
STOCKHOLDERS' EQUITY
Common stock ($0.01 par value per share;
40,000,000 shares authorized; 19,835,635 and
19,826,135 shares issued in 2005 and 2004) 198 198
Paid-in-capital 112,478 112,375
Accumulated other comprehensive net income (1,999) 1,052
Retained earnings 21,453 18,224
Unearned compensation - restricted stock (1,817) (1,908)
Treasury stock (88,967 shares in 2005 and
2004) (494) (494)
----------- -----------
Total Stockholders' Equity 129,819 129,447
----------- -----------
Total Liabilities and Stockholders'
Equity $ 526,415 $ 494,147
=========== ===========
Tower Group, Inc.
Consolidated Statements of Income and
Comprehensive Net Income
(Unaudited)
Three Months Ended
March 31,
2005 2004
----------- ----------
($ in thousands, except
share
and per share amounts)
Revenues
Net premiums earned $ 30,018 $ 7,930
Ceding commission revenue 5,846 10,301
Insurance services revenue 3,781 2,524
Net investment income 2,615 764
Net realized gains on investments 209 11
Policy billing fees 201 174
----------- ----------
Total revenues 42,670 21,704
----------- ----------
Expenses
Loss and loss adjustment expenses 18,062 5,017
Direct commission expense 8,792 7,086
Other operating expenses 8,917 6,777
Interest expense 1,165 651
----------- ----------
Total expenses 36,936 19,531
----------- ----------
Income before income taxes 5,734 2,173
Income tax expense 2,017 851
----------- ----------
Net income $ 3,717 $ 1,322
=========== ==========
Comprehensive Net Income
Net income $ 3,717 $ 1,322
Other comprehensive income:
Gross unrealized investment holding
(losses) gains arising during period (4,486) 947
Less: reclassification adjustment for
gains included in net income (209) (11)
----------- ----------
(4,695) 936
Income tax benefit (expense) related to
items of other comprehensive income 1,644 (318)
----------- ----------
Total other comprehensive net (loss)
income (3,051) 618
----------- ----------
Comprehensive Net Income $ 666 $ 1,940
=========== ==========
Earnings Per Share
Basic earnings per common share $ 0.19 $ 0.30
=========== ==========
Diluted earnings per common share $ 0.19 $ 0.23
=========== ==========
Weighted Average Common Shares Outstanding:
Basic 19,521,111 4,407,434
Diluted 20,076,884 5,726,083
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