(Source: Business Wire)
Tower Group, Inc. (NASDAQ: TWGP) today reported net income of $30
million and diluted earnings per share of $0.74 for the third quarter
2009. Operating income(1) and operating earnings per share(1)
were $30.2 million and $0.74, respectively, for the third quarter of
2009.
Key Highlights (all percentage increases compare the third
quarter 2009 results to the results for the same period in 2008 except
as noted otherwise):
Gross premiums written and produced(2) increased by 39.4%
to $283 million.
Net investment income increased by 165.9% to $21.7 million.
Brokerage Insurance (formerly Tower managed business):
Gross premiums written and produced increased by 25.8% to $205.6
million.
Net combined ratio was 87.6% versus 80.5% in the prior year third
quarter.
Specialty Business (formerly CastlePoint managed business):
Gross premiums written increased by 95.4% to $77.3 million.
Net combined ratio was 83.6% versus 87.4% in the prior year third
quarter.
Book value per share increased 8.6% during the quarter to $22.72 at
September 30, 2009 versus $20.93 at June 30, 2009. Year to date, book
value per share increased by 58.2% from $14.36 at December 31, 2008.
During the quarter, the investment portfolio had net unrealized gains
of $67.1 million before taxes.
Michael H. Lee, President and Chief Executive Officer of Tower Group,
Inc., stated, "We are pleased to report another strong quarter of record
premium volume, operating income and book value. Primarily due to the
CastlePoint and Hermitage acquisitions completed this year, we were able
to significantly increase our premium volume over the same period last
year while maintaining our underwriting profitability. We were also able
to achieve meaningful organic growth through continued expansion of our
specialty business and brokerage business outside the Northeast. We were
also pleased with the growth in our book value as a result of the
significant recovery in our investment portfolio that resulted in
pre-tax net unrealized gains of $67 million during the quarter. Finally,
we announced a renewal rights transaction involving small workers
compensation business in Florida shortly after the quarter, which we
believe will allow us to continue to profitably expand our business in
the Southeast region."
Exception caught in main.
Gross premiums written increased to $282.8 million in the third quarter
of 2009, a 79.9% increase compared to the third quarter of 2008.
Total revenues increased 96.1% to $256.3 million in the third quarter of
2009 compared to $130.7 million in the prior year's third quarter. Net
premiums earned represented 87.3% of total revenues for the three months
ended September 30, 2009 compared to 67.5% for the same period in 2008.
Total commission and fee income decreased 78.2% to $8.1 million in the
third quarter of 2009 compared to $37 million in the third quarter of
2008. Commission and fee income decreased primarily due to our decision
to not cede quota share brokerage premiums in 2009. Ceding commission
revenue in 2009 represents commissions on ceded premiums earned from
quota share reinsurance contracts written in 2008 and continuing to earn
in 2009. Insurance services revenue decreased in the quarter because
Tower ceased to produce business on behalf of CastlePoint Insurance
Company subsequent to the acquisition of CastlePoint.
Net investment income increased by 165.9% to $21.7 million for the three
months ended September 30, 2009 compared to $8.2 million for the same
period in 2008. On a tax equivalent basis, the investment yield
including cash was 5.6% as of September 30, 2009 compared to 5.5% as of
September 30, 2008. New cash invested over the last six months has
experienced lower yields as a result of tightening spreads combined with
a low interest rate environment.
Net realized investment gains were $2.6 million for the three month
period ending September 30, 2009 compared to losses of $2.7 million for
the same period last year. Realized capital gains in 2009 were primarily
from opportunistic sales of commercial mortgage-backed securities (CMBS)
and corporate bonds, which were positively affected by spread
tightening. Included in the 2009 net realized investment gains are
approximately $11.7 million of credit related other-than-temporary
impairments (OTTI) losses for the three months ended September 30, 2009.
These OTTI losses related principally to CMBS and non agency residential
mortgage-backed securities as a result of declining estimates for cash
flows for specific investments.
Operating expenses were $81.9 million for the three months ended
September 30, 2009 compared to $58.5 million for the same period in 2008.
For the Brokerage Insurance Segment, premiums on renewal business
increased 3.2% in personal lines and decreased 0.6% in commercial lines,
resulting in an overall increase of 0.8% during the third quarter of
2009. The retention rate on brokerage business was 91% for personal
lines and 80% for commercial lines, resulting in a retention rate of 87%
for all lines during the third quarter of 2009. Brokerage insurance
premiums earned continued to increase, primarily due to the acquisitions
of CastlePoint and Hermitage, which together added $53.2 million and
$15.5 million in net premiums earned, respectively, for the three months
ended September 30, 2009.
The Specialty Business Segment consists of program business written in
Tower insurance subsidiaries and reinsurance business written in
CastlePoint Re. The increase in specialty business premiums earned
resulted primarily from the acquisition of CastlePoint, which added
$32.3 million of net premiums earned for the three months ended
September 30, 2009.
Additional Highlights and Disclosures:
2009 and 2010 Guidance
Tower expects fourth quarter 2009 operating earnings per share to be in
a range of $0.86 to $0.96 per diluted share. For the full year 2009,
Tower projects operating earnings per share to be in a range between
$3.15 and $3.25 per diluted share. For 2010, Tower projects its
operating earnings per share to be in a range between $3.50 and $3.70
per diluted share. Both 2009 and 2010 ranges include the effects of the
pending SUA transaction.
Notes on Non-GAAP Financial Measures
(1) Operating income is a common performance measurement for
insurance companies and excludes realized investment gains or losses and
expenses related to the adoption of new accounting guidance related to
business combinations. We believe this presentation enhances the
understanding of our results of operations by highlighting the
underlying profitability of our insurance business. The Federal
statutory tax rate of 35% was used to calculate the tax applicable to
net realized gains or losses on investments and tax deductible
acquisition-related transaction costs. Operating earnings per share is
operating income divided by diluted weighted average shares outstanding.
Operating return on equity is annualized operating income divided by
average common stockholders' equity.
(2) Gross premiums written through our insurance subsidiaries and
produced as managing general agent on behalf of other insurance
companies.
(3) For the three and nine month periods ending September 30, 2009, $1.6
million and $6.4 million, respectively, of acquisition-related
transaction costs were not deemed deductible for tax purposes. The tax
rate used to calculate the acquisition related transaction costs that
were tax deductible was 35%.
Conference Call
Tower will host a conference call and webcast to discuss these results
today at 10:00 a.m. ET. This conference call will be broadcast live over
the Internet. To access a listen-only webcast over the Internet, please
visit the Investor Information section of Tower Group, Inc.'s website, www.twrgrp.com,
or use this link: http://investor.twrgrp.com/events.cfm
Please access the website at least 15 minutes prior to the call to
register and to download any necessary audio software. If you are unable
to participate during the live conference call, a webcast will be
archived in the Investor Information section of Tower Group, Inc.'s
website at www.twrgrp.com.
About Tower Group, Inc.
Tower Group, Inc. offers diversified property and casualty insurance
products and services through its operating subsidiaries. Its insurance
company subsidiaries offer insurance products to individuals and small
to medium-sized businesses through its network of retail and wholesale
agents and specialty business through program underwriting agents.
Tower's insurance services subsidiaries provide underwriting, claims and
reinsurance brokerage services to other insurance companies.
Cautionary Note Regarding Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This press release and any other
written or oral statements made by or on behalf of Tower may include
forward-looking statements that reflect Tower's current views with
respect to future events and financial performance. All statements other
than statements of historical fact included in this press release are
forward-looking statements. Forward-looking statements can generally be
identified by the use of forward-looking terminology such as "may,"
"will," "plan," "expect," "project," "intend," "estimate," "anticipate,"
"believe" and "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 the actual results of Tower to differ
materially from those indicated in these statements. Please refer to
Tower's filings with the SEC, including among others Tower's Annual
Report on Form 10-K for the year ended December 31, 2008 and subsequent
filings on Form 10-Q, for a description of the important factors that
could cause the actual results of Tower to differ materially from those
indicated in these statements. Forward-looking statements speak only as
of the date on which they are made, and Tower 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/
Tower has changed the presentation of its business results, beginning
January 1, 2009, by allocating its previously reported insurance segment
into brokerage insurance and specialty business, based on the way
management organizes the segments for making operating decisions and
assessing profitability. This will result in the reporting of three
operating segments. The prior period segment disclosures have been
restated to conform to the current presentation.
The Brokerage Insurance Segment offers a broad range of commercial lines
and personal lines property and casualty insurance products to small to
mid-sized businesses and individuals distributed through a network of
retail and wholesale agents on both an admitted and non-admitted basis;
The Specialty Business Segment provides specialty classes of business
through program underwriting agents. This segment also includes
reinsurance solutions provided primarily to small insurance companies;
and
The Insurance Services Segment provides underwriting, claims and
reinsurance brokerage services to insurance companies.
Brokerage Insurance & Specialty Business Combined
($ in thousands)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 Change(%) 2009 2008 Change(%)
Revenues
Premiums earned
Gross premiums earned $ 263,742 $ 150,510 75.2 % $ 747,440 $ 424,280 76.2 %
Less: ceded premiums earned (39,764 ) (62,260 ) -36.1 % (125,921 ) (197,487 ) -36.2 %
Net premiums earned 223,978 88,250 153.8 % 621,519 226,793 174.0 %
Ceding commission revenue 6,932 18,432 -62.4 % 27,674 60,577 -54.3 %
Policy billing fees 930 485 91.8 % 2,171 1,446 50.1 %
Total 231,840 107,167 116.3 % 651,364 288,816 125.5 %
Expenses
Loss and loss adjustment expenses
Gross loss and loss adjustment expenses 126,470 70,120 80.4 % 390,950 207,201 88.7 %
Less: ceded loss and loss adjustment expenses (5,632 ) (26,213 ) -78.5 % (60,029 ) (89,074 ) -32.6 %
Net loss and loss adjustment expenses 120,838 43,907 175.2 % 330,921 118,127 180.1 %
Underwriting expenses
Direct commission expense 50,241 28,556 75.9 % 148,575 76,658 93.8 %
Other underwriting expenses 30,956 17,920 72.7 % 84,562 54,060 56.4 %
Total underwriting expenses 81,197 46,476 74.7 % 233,138 130,718 78.4 %
Underwriting profit $ 29,806 $ 16,784 77.6 % $ 87,305 $ 39,971 118.4 %
Key Measures
Premiums written
Gross premiums written $ 282,800 $ 157,207 79.9 % $ 743,485 $ 458,282 62.2 %
Less: ceded premiums written (24,151 ) (42,592 ) -43.3 % (62,754 ) (192,687 ) -67.4 %
Net premiums written $ 258,648 $ 114,615 125.7 % $ 680,730 $ 265,595 156.3 %
Loss Ratios
Gross 48.0 % 46.6 % 52.3 % 48.8 %
Net 54.0 % 49.8 % 53.2 % 52.1 %
Accident Year Loss Ratios
Gross 54.1 % 52.4 % 54.3 % 51.6 %
Net 54.1 % 53.3 % 54.3 % 54.1 %
Underwriting Expense Ratios
Gross 30.4 % 30.6 % 30.9 % 30.5 %
Net 32.7 % 31.2 % 32.7 % 30.3 %
Combined Ratios
Gross 78.4 % 77.1 % 83.2 % 79.3 %
Net 86.7 % 81.0 % 86.0 % 82.4 %
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Brokerage Insurance Segment Information
($ in thousands)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 Change(%) 2009 2008 Change(%)
Revenues
Premiums earned
Gross premiums earned $ 205,094 $ 124,191 65.1 % $ 569,200 $ 375,124 51.7 %
Less: ceded premiums earned (31,242 ) (41,595 ) -24.9 % (94,485 ) (159,526 ) -40.8 %
Net premiums earned 173,852 82,596 110.5 % 474,715 215,598 120.2 %
Ceding commission revenue 3,908 11,259 -65.3 % 20,461 48,150 -57.5 %
Policy billing fees 930 485 91.8 % 2,171 1,446 50.1 %
Total 178,690 94,340 89.4 % 497,346 265,194 87.5 %
Expenses
Loss and loss adjustment expenses
Gross loss and loss adjustment expenses 95,221 54,962 73.2 % 290,410 178,768 62.5 %
Less: ceded loss and loss adjustment expenses (1,369 ) (14,268 ) -90.4 % (40,900 ) (67,073 ) -39.0 %
Net loss and loss adjustment expenses 93,852 40,694 130.6 % 249,510 111,695 123.4 %
Underwriting expenses
Direct commission expenses 35,767 20,860 71.5 % 108,236 62,857 72.2 %
Other underwriting expenses 27,504 16,713 64.6 % 73,603 52,033 41.5 %
Total underwriting expenses 63,271 37,573 68.4 % 181,840 114,890 58.3 %
Underwriting profit $ 21,567 $ 16,073 34.2 % $ 65,997 $ 38,609 70.9 %
Key Measures
Premiums written
Gross premiums written $ 205,451 $ 117,625 74.7 % $ 571,111 $ 370,876 54.0 %
Less: ceded premiums written (13,418 ) (11,872 ) 13.0 % (37,654 ) (125,600 ) -70.0 %
Net premiums written $ 192,033 $ 105,753 81.6 % $ 533,457 $ 245,276 117.5 %
Loss Ratios
Gross 46.4 % 44.3 % 51.0 % 47.7 %
Net 54.0 % 49.3 % 52.6 % 51.8 %
Accident Year Loss Ratios
Gross 54.6 % 51.3 % 53.5 % 50.7 %
Net 54.0 % 53.1 % 53.7 % 53.9 %
Underwriting Expense Ratios
Gross 30.4 % 29.9 % 31.6 % 30.2 %
Net 33.6 % 31.3 % 33.5 % 30.3 %
Combined Ratios
Gross 76.8 % 74.1 % 82.6 % 77.9 %
Net 87.6 % 80.5 % 86.1 % 82.1 %
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Specialty Business Segment Information
($ in thousands)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 Change(%) 2009 2008 Change(%)
Revenues
Premiums earned
Gross premiums earned $ 58,648 $ 26,319 122.8 % $ 178,241 $ 49,156 262.6 %
Less: ceded premiums earned (8,521 ) (20,665 ) -58.8 % (31,437 ) (37,961 ) -17.2 %
Net premiums earned 50,127 5,654 786.6 % 146,804 11,195 1211.3 %
Ceding commission revenue 3,024 7,173 -57.8 % 7,213 12,427 -42.0 %
Total 53,150 12,827 314.4 % 154,018 23,622 552.0 %
Expenses
Loss and loss adjustment expenses
Gross loss and loss adjustment expenses 31,248 15,158 106.1 % 100,541 28,433 253.6 %
Less: ceded loss and loss adjustment expenses (4,263 ) (11,945 ) -64.3 % (19,129 ) (22,001 ) -13.1 %
Net loss and loss adjustment expenses 26,985 3,213 739.9 % 81,411 6,432 1165.7 %
Underwriting expenses
Direct commission expense 14,474 7,696 88.1 % 40,339 13,801 192.3 %
Other underwriting expenses 3,452 1,207 186.0 % 10,959 2,027 440.6 %
Total underwriting expenses 17,926 8,903 101.3 % 51,298 15,828 224.1 %
Underwriting profit $ 8,239 $ 711 1058.8 % $ 21,309 $ 1,362 1464.5 %
Key Measures
Premiums written
Gross premiums written $ 77,349 $ 39,582 95.4 % $ 172,373 $ 87,406 97.2 %
Less: ceded premiums written (10,733 ) (30,720 ) -65.1 % (25,100 ) (67,087 ) -62.6 %
Net premiums written $ 66,616 $ 8,862 651.7 % $ 147,274 $ 20,319 624.8 %
Loss Ratios
Gross 53.3 % 57.6 % 56.4 % 57.8 %
Net 53.8 % 56.8 % 55.5 % 57.5 %
Accident Year Loss Ratios
Gross 52.5 % 57.6 % 56.7 % 57.8 %
Net 54.3 % 56.8 % 56.4 % 57.5 %
Underwriting Expense Ratios
Gross 30.6 % 33.8 % 28.8 % 32.2 %
Net 29.7 % 30.6 % 30.0 % 30.4 %
Combined Ratios
Gross 83.8 % 91.4 % 85.2 % 90.0 %
Net 83.6 % 87.4 % 85.5 % 87.8 %
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Insurance Services Segment Results of Operations
($ in thousands)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2009 2008 Change(%) 2009 2008 Change(%)
Revenue
Direct commission revenue from managing general $ (270 ) $ 15,286 -101.8 % $ 2,013 $ 35,353 -94.3 %
Claims administration revenue 71 1,606 -95.6 % 1,053 3,576 -70.6 %
Other administration revenue 53 846 -93.7 % 469 2,426 -80.7 %
Reinsurance intermediary fees 417 255 63.5 % 718 540 33.0 %
Policy billing fees (59 ) 99 -160.0 % 20 271 -92.6 %
Total revenue 212 18,092 -98.8 % 4,273 42,166 -89.9 %
Expenses
Direct commission expenses paid to producers 56 6,857 -99.2 % 1,672 15,382 -89.1 %
Other insurance services expenses (14 ) 3,225 -100.4 % 1,025 7,970 -87.1 %
Claims expense reimbursement to TICNY 71 1,606 -95.6 % 1,053 3,576 -70.6 %
Total 113 11,688 -99.0 % 3,750 26,928 -86.1 %
Insurance services pre-tax income $ 99 $ 6,404 -98.4 % $ 523 $ 15,238 -96.6 %
Premiums produced by TRM on behalf of issuing companies $ 318 $ 46,616 -99.3 % $ 11,526 $ 106,006 -89.1 %
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Tower Group, Inc.
Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
($ in thousands, except par value and share amounts) 2009 2008
Assets
Fixed-maturity securities, available-for-sale, at fair value (amortized cost of $1,324,067 and $581,470) $ 1,387,011 $ 530,159
Equity securities, available-for-sale, at fair value (cost of $79,089 and $12,726) 76,097 10,814
Short-term investments, available-for-sale, at fair value (cost of $17,188) 17,188 -
Total investments 1,480,296 540,973
Cash and cash equivalents 150,625 136,253
Receivable for securities 67,778 3,542
Investment income receivable 17,283 6,972
Premiums receivable 229,086 188,643
Reinsurance recoverable on unpaid losses 105,053 222,229
Reinsurance recoverable on paid losses 18,833 50,377
Prepaid reinsurance premiums 38,731 153,650
Deferred acquisition costs, net of deferred ceding commission revenue 151,696 53,080
Deferred income taxes 30,943 36,207
Intangible assets 38,028 20,464
Goodwill 236,407 18,962
Fixed assets, net of accumulated depreciation 49,994 39,038
Investment in unconsolidated affiliate - 29,293
Other assets 26,678 38,698
Total assets $ 2,641,431 $ 1,538,381
Liabilities
Loss and loss adjustment expenses $ 827,946 $ 534,991
Unearned premium 532,076 $ 328,847
Reinsurance balances payable 34,232 134,598
Payable to issuing carriers 66 47,301
Funds held under reinsurance agreements 14,865 20,474
Accounts payable, accrued liabilities and other liabilities 77,513 35,930
Subordinated debentures 235,058 101,036
Total liabilities 1,721,756 1,203,177
Stockholders' equity
Common stock ($0.01 par value; 100,000,000 shares authorized, 40,560,948 and 23,408,145 shares issued, and 40,479,611 and 23,339,470 shares outstanding) 405 234
Treasury stock (81,337 and 68,675 shares) (1,365 ) (1,026 )
Paid-in-capital 643,652 208,094
Accumulated other comprehensive income (loss) 38,969 (37,498 )
Retained earnings 238,014 165,400
Total stockholders' equity 919,675 335,204
Total liabilities and stockholders' equity $ 2,641,431 $ 1,538,381
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Exception caught in main.
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