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Property and casualty insurer Tower Group Inc. (TWGP - Analyst Report) reported first quarter 2012 operating earnings of 56 cents per share, 2 cents below the Zacks Consensus Estimate. Earnings, however, increased 14% year over year, led by higher revenue and lower share count, partly offset by an increase in operating expenses.
The New York-based insurer posted total revenue of $466.5 million, up 8.4% year over year. The growth was primarily attributable to increased net premiums earned and higher net investment income, partly offset by declines in ceding commission revenues and net realized investment gains.
Gross premiums written were $467.4 million, up 20% year over year,
Net investment income for the reported quarter improved 5.1% year over year to $32.3 million owing to a higher invested asset base, partially offset by low investment yield.
Total expenses were $435.0 million, up 11.2% year over year. The net loss ratio was 64.2% compared with 64.7% in the prior-year quarter.
Net combined ratio, a measure of underwriting profitability, declined 170 basis points year over year to 99.4%.
Tower’s Commercial segment witnessed a 27.5% increase in net premium written to $297.8 million. Total revenues for the segment increased 17% year over year to $299.4 million.
Personal segment’s net written premiums decreased 3.1% year over year to $122.3 million, owing to Tower’s decision to discontinue certain businesses obtained after the One Beacon Personal Lines (“OBPL”) acquisition, partly offset by modest organic growth in the homeowners business.
Insurance Services segment revenues increased 0.9% year over year to $7.4 million, attributable to higher management fee; partly offset by lower other revenue.
Book value per share of $26.83 as of March 31, 2012 was up 1.7% sequentially and 6.3% year over year.
Tower reiterated its fiscal 2012 operating earnings guidance range of $2.60–$2.70 per share.
Recently, Tower announced that it would invest $75 million in Canopius Group, Ltd. The deal is, however, dependent on the acquisition of Omega Insurance Holdings Limited by Canopius. Tower results reveal that the company is benefiting from strong organic growth from newly-created businesses and slightly positive trends in insurance pricing in certain lines of business. A major tailwind for the company is the favorable pricing trend, which is expected to continue in 2012. However, a low interest rate environment, exposure to catastrophe-prone areas and an overall soft insurance market are some of the near-term headwinds.
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