Tower Group, Inc. Reports 45% Increase in Net Income; Company Delivers Record Results for 2006

Business Wire, Feb 27, 2007

Gross loss and loss adjustment expenses and the gross loss ratio for the Insurance and Reinsurance Segments combined for the year ended December 31, 2006 were $199.9 million and 55.0%, respectively, compared to $135.2 million and 56.8%, respectively, for 2005. The net loss ratio for the combined segments was 60.3% for the year as compared to 58.8% in 2005.

Operating expenses were $114.2 million for the year ended December 31, 2006 as compared to $86.5 million for 2005.

Our 2006 net income was $36.8 million compared to $20.8 million in 2005. Return on average equity was 22.2% for 2006 compared to 15.1% in 2005. For 2006, the return was calculated by dividing net income available to common stockholders of $36.6 million by an average common stockholders' equity of $164.6 million. For 2005, the return was calculated by dividing net income of $20.8 million by an average common stockholders' equity of $137.1 million.

The effective income tax rate was 34.9% in 2006 compared to 34.8% in 2005.

Dividend Declaration

Tower Group, Inc. announced today that the Company's Board of Directors approved a quarterly dividend on February 22, 2007 of $0.025 per share payable March 30, 2007 to stockholders of record as of March 15, 2007.

Additional Highlights

On January 25, 2007, the Company participated in a private placement of $20.0 million of fixed/floating rate capital securities issued by Tower Group Statutory Trust VI. Interest distributions are initially at a fixed rate of 8.155% for the first five years and will then reset quarterly for changes in the three-month London Interbank Offered Rate ("LIBOR") plus 300 basis points. The net proceeds were used to redeem $20.0 million of the Preferred Stock on January 26, 2007.

On January 26, 2007, the Company closed on its public offering of 2,704,000 shares of common stock at a public offering price of $31.25 per share. The Company's net proceeds were approximately $79.3 million. The Company used $20.0 million of these net proceeds to redeem its remaining $20.0 million of Preferred Stock.

On February 5, 2007 the underwriters in the Company's common stock offering, partially exercised their overallotment option to acquire 340,600 shares of common stock. The exercise of the over-allotment option brings the Company's aggregate net proceeds from the offering to approximately $89.4 million.

2007 Guidance

For the first quarter of 2007, we project net income to increase from the first quarter of 2006 to a range between $9.9 million and $10.8 million. We project the diluted earnings per share in the first quarter to be in the range between $0.44 and $0.48 per diluted share. We have historically experienced seasonality between the fourth and first quarters with either lower or flat growth despite overall growth for the year. For the full year, we anticipate net income to increase to a range between $55 million and $57 million and diluted earnings per share to be between $2.40 and $2.50 per diluted share.

About Tower Group, Inc.

Tower Group, Inc., headquartered in New York City, offers property and casualty insurance products and services through its insurance company and insurance service subsidiaries. Its two insurance company subsidiaries are Tower Insurance Company of New York, which is rated A- (Excellent) by A.M. Best Company and offers commercial insurance products to small to medium-size businesses and personal insurance products to individuals, and Tower National Insurance Company, which is also rated A- (Excellent) by A.M. Best Company. Tower Group's insurance services subsidiary, Tower Risk Management, acts as a managing general agency, adjusts claims and negotiates reinsurance terms on behalf of other insurance companies.