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Property and casualty insurer, Tower Group Inc. (TWGP - Analyst Report) reported third quarter 2012 operating income of 62 cents per share, a penny ahead of the Zacks Consensus Estimate. However, the company’s results substantially exceeded the prior-year quarter’s operating loss of 38 cents per share.

The New York-based insurer posted total revenue of $474.9 million, up 4.3% year over year. The growth was primarily attributable to increased net premiums earned.

Gross premiums written were reported at $484.8 million, down 6.6% year over year. Net investment income for the reported quarter remained unchanged against the year-ago level of $31.4 million.

Total expenses at Tower were $440.0 million, down 7.0% year over year. The net loss ratio came down to 59.5% from 75.0% recorded in the comparable quarter last year.
Net combined ratio, a measure of underwriting profitability, improved to 96.0% from 109.9% in the prior-year quarter.

Segment Performance

The company’s Commercial segment witnessed an 18% decline in net premium written to $286.4 million. Total revenues for the segment edged up 2.6% year over year to $300.4 million.

The Personal segment’s net written premiums escalated 16.5% year over year to $138.1 million.

Revenues at the Insurance Services segment improved 7.7% year over year to $8.7 million, attributable to mounted management fee as well as higher other revenue.

Tower’s book value per share came in at $27.49 on September 30, 2012, compared with $26.37 on December 31, 2011.

2012 Guidance

Tower reiterated its full year 2013 operating earnings per share in the range of $2.85–$3.05.

Tower’s current estimate of loss after-tax ranges from $55.3 million to $68.3 million, based on its estimate of an industry loss between $10 billion and $15 billion.

In the first nine months of 2012, the company benefited from business growth, higher underwriting profitability as well as improving market conditions. It has taken various organic initiatives such as expanding products, improving existing business units, creating new business units and improving various operating processes associated in order to generate growth. The company is also progressing well with its proposed merger with Bermuda reinsurance business of Canopius. We believe the company is comfortably positioned for long-term growth. However temporary phenomenon, such as cat losses, will continue to be a major headwind.

Tower currently retains a Zacks # 3 Rank, which translates into a short-term Hold rating.

We also have long-term ‘Neutral’ recommendation on the company shares.

The company’s peers, Assurant Inc. (AIZ - Analyst Report), The Travelers Companies Inc. (TRV - Analyst Report), and Chubb Corp. (CB - Analyst Report) also carry our long term ‘Neutral’ recommendation.

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