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Property and casualty insurer, Tower Group Inc. (TWGP - Analyst Report) reported an operating loss of $1.43 per share in its fourth quarter, worse than the Zacks Consensus Estimate of $1.13. In the year-ago quarter the company reported operating income of 59 cents per share.

Results for the quarter suffered on account of pre-tax net loss of $123.2 million on account of Sandy.

For full year 2012, the operating loss was 72 cents per share, compared to full year 2011 operating income of $1.38 per diluted share.

The New York-based insurer posted total revenue of $475.0 million, up 4.4% year over year. The growth was primarily attributable to increased net premiums earned.

Gross premiums written were reported at $481.2 million, up 10.8% year over year. Net investment income was $30.1 million compared to $32.1 million in the year-ago quarter.

Total expenses at Tower were $440.0 million, down 7.0% year over year. The net combined ratio was 131.8% in the fourth quarter, compared with 98.4% in the year-ago quarter.

Segment Performance

The company’s Commercial segment witnessed an 8% increase in net premium written to $275.3 million. Total revenues for the segment edged up 2.3% year over year to $294.8 million.

The Personal segment’s net written premiums were up 1.9% year over year to $127.8 million.

Revenues at the Insurance Services segment improved 3.8% year over year to $8.2 million, attributable to higher management fee as well as higher other revenue.

Tower’s book value per share came in at $25.54 on Dec 31, 2012, compared with $26.36 on Dec 31, 2011.

Operating return on average equity (ROE) was 10.1% in 2012 compared to 11.0% in 2011.

2013 Guidance

Including the effect of the proposed merger with Bermuda reinsurance business of Canopius Tower Group expects to report 2013 operating earnings per share in a range of $2.75 to $2.95.

Our Take

Results for the full year 2012 show that the company suffered on account of cat loss as well as reserve charge undertaken in the second quarter. 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 Rank # 2 (Buy).

Other companies in the same field, Assurant Inc. (AIZ - Analyst Report), The Travelers Companies Inc. (TRV - Analyst Report), and Chubb Corp. (CB - Analyst Report) all reported fourth quarter earnings ahead of the Zacks Consensus Estimate.

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