NEW YORK--(BUSINESS WIRE)--
Tower Group, Inc. (NASDAQ: TWGP) today reported net income available to
common shareholders of $20.6 million and diluted earnings per share of
$0.52 for the first quarter 2012, compared to $25.7 million, or $0.61
per share, in the first quarter of 2011.
Operating income(1) increased 7.8% to $21.9 million in the
first quarter compared to $20.3 million in the first quarter of 2011.
Operating earnings per share(1) increased by 14.3% to $0.56
in the first quarter from $0.49 per share in the first quarter of 2011.
The 2012 results include an after-tax charge of $8.4 million associated
with prior year reserve strengthening and also reflect lower than
expected property losses, as unseasonably warm weather on the East Coast
of the United States resulted in lower property claims. Operating income
in the first quarter of 2011 was impacted by unusually severe
weather-related claims. After-tax losses from these events amounted to
$9.8 million or $0.23 per share.
The effective tax rate, excluding the reciprocal exchanges, was 20.9%, a
decrease of 11.5 points compared to 2011. The reduced tax rate is
primarily due to a revaluation of certain tax liabilities which reduced
the tax rate by 10 points and resulted in a $2.6 million benefit which
is not expected to be recurring.
Highlights (all percentage increases compare first quarter 2012
results for Tower Group, Inc., excluding the reciprocal exchanges, to
the results for the same period in 2011 except as noted otherwise):
Michael H. Lee, President and Chief Executive Officer of Tower Group,
Inc., said, “During the first quarter, we were able to achieve strong
top line growth and meaningful rate increases due to improved market
conditions across several areas of our business. We also continued to
execute our organic growth strategy by enhancing our product offerings
to drive our strong top line growth. In addition, we successfully
initiated implementation of our personal lines technology platform and
expect all new personal lines business to be written through this new
system by the middle of this year. We expect to retire the existing
system by next year. Finally, we are very pleased with our recently
announced commitment to invest in Canopius Group Ltd. as well the
options we will receive with this investment to access, subject to the
approval of Lloyd’s and the FSA, the Lloyd's market to underwrite
profitable specialty and international business and to combine Tower
with a Bermuda reinsurance business currently operated by Canopius. With
the improvement in our core business in the United States and the
opportunities from our transaction with Canopius, we expect our
operating results and return on equity to continue to improve throughout
the remainder of 2012 and beyond.”
Direct and ceding commission expense
First Quarter 2012 Highlights (unless otherwise noted, amounts
Gross premiums written and managed increased to $467.4 million in the
first quarter, 20.0% higher than in the first quarter of 2011. The
increase is primarily attributable to growth in our programs and assumed
reinsurance. Excluding programs, policies in-force decreased by 3.9% as
of March 31, 2012, compared to March 31, 2011. For the three months
ended March 31, 2012, premium rates on renewed Commercial Insurance
business excluding programs increased 2.7% and premium rates increased
3.0% on renewed Personal Insurance business compared to the same period
in 2011, resulting in an overall premium rate increase on renewal
business of 2.8%. During the same period, our Commercial Insurance
business renewal retention rate excluding programs was 77.3% compared to
our Personal Insurance business renewal retention rate of 91.3%,
resulting in an overall retention rate of 88.4%.
Total revenues increased 8.6% to $423.0 million from $389.6 million in
the prior year's first quarter. This increase is attributed to an
increase in earned premiums and net investment income partly offset by
declines in ceding commission revenues and net realized investment
gains. Net premiums earned represented 89.5% and 85.9% of total revenues
for the three months ended March 31, 2012 and 2011, respectively.
Net investment income increased 5.1% to $32.3 million for the three
months ended March 31, 2012, up from $30.7 million for the same period
in 2011. The tax equivalent investment yield at amortized cost was 4.7%
at March 31, 2012, compared to 4.8% at March 31, 2011. The net realized
investment loss was $0.4 million for the three months ended March 31,
2012, compared to a gain of $8.2 million in the same period last year.
The first quarter gains include other-than-temporarily impaired credit
losses of $2.7 million, compared to $0.1 million of such losses in the
first quarter of 2011.
Total commission and fee income decreased 23.0% to $12.4 million in the
first quarter of 2012 compared to $16.1 million in the first quarter of
2011. This decrease is mainly due to a reduction in ceding commission
revenues. We recognized a change in loss ratio on a prior year’s quota
share treaty which had an unfavorable impact on our ceding commission
revenue of $3.0 million during the first quarter.
The net loss ratio was 64.2% the three months ended March 31, 2012
compared to 64.7% for the same time period last year. During the quarter
the Company’s actuaries completed their annual review of loss
development factors to reflect loss data observed through December 31,
2011. The prior year reserve strengthening in Commercial Insurance
arises from changes in estimated ultimate losses for accident years 2010
and prior based on reserve studies completed during the quarter. The
majority of these changes arise from the updated loss development
factors. The unfavorable development in Personal Insurance was mostly
from Automobile Physical Damage and attributable to accident year 2011.
Our net expense ratio was 35.0% for the three months ended March 31,
2012 compared to the 32.9% we recorded during the same period in 2011.
The effective tax rate was 20.9% in the first quarter , a decrease of
11.5 points compared to 2011. The reduced tax rate excluding the
reciprocal exchanges is primarily due to a revaluation of certain tax
liabilities which reduced the tax rate by 10 points and resulted in a
$2.6 million benefit that is not expected to be recurring.
Interest expense decreased by $0.5 million for the three months ended
March 31, 2012, compared to the same period in 2011.
Additional Highlights and Disclosures:
Tower’s Board of Directors approved a quarterly dividend on May 3, 2012
of $0.1875 per share payable on June 22, 2012 to stockholders of record
as of June 11, 2012.
Tower expects full year 2012 operating earnings per share to be in a
range of $2.60 to $2.70
Notes on Non-GAAP Financial Measures
(1) Operating income (loss) excludes realized gains and losses,
acquisition-related transaction costs and the results of the reciprocal
business, net of tax. Operating income is a common measurement for
property and casualty insurance companies. We believe this presentation
enhances the understanding of our results of operations by highlighting
the underlying profitability of our insurance business. Additionally,
these measures are a key internal management performance standard.
Operating earnings (loss) per share is operating income (loss) divided
by diluted weighted average shares outstanding. Operating return on
equity is annualized operating income (loss) divided by average common
Tower will host a conference call and webcast to discuss these results
on May 8, 2012 at 9:00 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, 2011, 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/.
Our Commercial Insurance Segment offers a broad range of commercial
lines property and casualty insurance products to small to mid-sized
businesses distributed through a network of retail and wholesale agents
on both an admitted and non-admitted basis. This segment also includes
reinsurance solutions provided primarily to small insurance companies;
Our Personal Insurance Segment offers a broad range of personal lines
property and casualty insurance products to individuals distributed
through a network of retail and wholesale agents; and
Our Insurance Services Segment provides underwriting, claims and
reinsurance brokerage services to insurance companies.
Common stock ($0.01 par value; 100,000,000 shares authorized,
46,769,519 and 46,448,341 shares issued, and 39,441,136 and
39,221,102 shares outstanding)
Tower Group, Inc.Bill Hitselberger, 212-655-2110Executive
Vice President and Chief Financial Officerbhitselberger@twrgrp.com
Source: Tower Group, Inc.