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Tower Group Beats Earnings Estimate

Zacks Equity Research

Tower Group International, Ltd. (TWGP) reported net operating income of 56 cents per share in first quarter 2013, comfortably exceeding the Zacks Consensus Estimate of 51 cents. Earnings improved 21.7% year over year.

Including net realized gains on investments and acquisition-related transaction costs, net income declined 23% year over year to 33 cents in the reported quarter.

Total revenue was $475.3 million, up 1.9% year over year. The upside was driven by higher ceding commissions from quota share reinsurance treaty for Tower’s homeowners business and higher net realized investment gains. However, lower net investment income was a partial offset. Results surpassed the Zacks Consensus estimate of $446 million.

Gross premiums written and managed improved 17.8% to $550.4 million. The increase was primarily driven by growth in assumed reinsurance.

Net investment income was $30.3 million, declining 10.7% year over year.

Total expenses were $474.3 million, up 9.1% year over year. The net combined ratio was 102.2% in the first quarter, down 310 basis points year over year.
Segment Performance

The company’s Commercial segment witnessed an 18% hike in net premium written to $377.5 million. Total revenue for the segment increased 4% year over year to $311 million.

The Personal segment’s net written premiums dipped 29% year over year to $67.4 million. Total revenue for the segment decreased 1.8% year over year to $126.8 million.

Revenues at the Insurance Services segment inched down 0.9% year over year to $7.29 million, attributable to lower other revenues.

Balance Sheet

Tower’s book value per share came in at $20.85 on Mar 31, 2013, down 7.5% from $22.54 on Mar 31, 20112.

Operating return on average equity (:ROE) was 9.8% in the reported quarter compared with 7.9% in the year-ago quarter.

Dividend and Share Repurchase Update

On May 7, the board of directors of Tower approved a $50 million share buyback program.

The board also approved a quarterly dividend of 16.5 cents per share payable on Jun 21, 2013 to stockholders of record as of Jun 10, 2013.

Merger Update

Mid March Tower closed its merger with Canopius Holdings Bermuda Limited. Tower is now an indirect wholly owned subsidiary of Canopius Bermuda. The latter has changed its name to Tower Group International, Ltd. (Tower Ltd.), right after the merger closed.

The shareowners of Tower had been given 1.1330 shares of Tower Ltd. for each share owned.

Through the merger, Tower will gain access to the Bermuda platform, which would provide competitive advantage to support growth opportunities in the U.S. and international markets. Tower expects a combined gross premium written of $2.3 billion in 2013, taking into account business accretion from Canopius.

2013 Guidance

Tower Group expects to report 2013 operating earnings per share in a range of $2.40 to $2.60.

Results of few other Property and Casualty Insurers

AXIS Capital Holdings Limited (AXS) reported first-quarter 2013 net operating income of $1.92 per share, which breezed past the Zacks Consensus Estimate of $1.19. Earnings surged 79% year over year.

Hilltop Holdings Inc. (HTH) reported first-quarter 2013 operating earnings per share of 39 cents, outpacing the Zacks Consensus Estimate of 31 cents and the year-ago quarter figure of 1 cent.

HCC Insurance Holdings Inc.’s (HCC) first-quarter net earnings came in at $1.08 per share, surpassing the Zacks Consensus Estimate of 82 cents and year-ago earnings of 84 cents.

Zacks Rank

Tower Group carries a Zacks Rank #5 (Strong Sell).

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