 1
Goldman Sachs Insurance Symposium
May 16, 2013
Michael Lee
Bill Hitselberger
President and CEO
Executive VP and CFO
Exhibit 99.1 |
 2
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for
forward-looking statements. This presentation and any other written or oral statements made
by or on behalf of Tower may include forward-looking statements that reflect Tower's
current views with respect to future events and financial performance. All statements other than
statements of historical fact included in this presentation are forward-looking statements.
Forward-looking statements can generally be identified by the use of forward- looking
terminology such as "may," "will," "plan," "expect," "project," "intend," "estimate," "anticipate," "believe" and "continue" or their
negative or variations or similar terminology. All forward-looking statements address matters that
involve risks and uncertainties. Accordingly, there are or will be important factors that could
cause the actual results of Tower to differ materially from those indicated in these
statements. Please refer to Tower’s filings with the SEC, including among others Tower’s Form 10-K for the year ended
December 31, 2012 and Form 10-Q for the quarter ended March 31, 2013, for a description of the
important factors that could cause the actual results of Tower to differ materially from those
indicated in these statements. Forward-looking statements speak only as of the date on
which they are made, and Tower undertakes no obligation to update publicly or revise any forward-looking statement,
whether as a result of new information, future developments or otherwise.
Notes on Non-GAAP Financial Measures
Operating income (loss) excludes realized gains and losses, acquisition-related transaction costs
and the results of the reciprocal business, net of tax. Operating income is a common
measurement for property and casualty insurance companies. We believe this presentation
enhances the understanding of our results of operations by highlighting the underlying profitability of our insurance
business. Additionally, these measures are a key internal management performance standard. Operating
earnings (loss) per share is operating income (loss) divided by diluted weighted average shares
outstanding. Net income (loss) attributable to Tower Group International, Ltd. is the most
directly comparable GAAP measure. Operating return on equity is annualized operating income (loss)
divided by average common equity, and operating return on equity excluding the impact of catastrophes
and reserve development is calculated by eliminating the impact of catastrophes and reserve
development on operating income (loss). See footnote 2 for additional discussion of the
exclusion of catastrophes and reserve development. A reconciliation of net income (loss) attributable to
Tower Group International, Ltd. to operating income (loss) and return on average equity to operating
return on average equity is provided in an accompanying table.
Combined ratio excluding the impact of catastrophes and reserve development is the sum of the loss and
loss adjustment expense ratio and the expense ratio excluding the impact of catastrophes and
reserve development. We believe this presentation enhances the understanding of our results by
eliminating what we believe are volatile and unusual events and presenting the ratios with what
we believe are the underlying run rates of the business. A reconciliation of combined ratio to
combined ratio excluding the impact of catastrophes and reserve development is provided in an
accompanying table. Book value per share is calculated as Tower Group International, Ltd. stockholders’ equity
divided by the number of shares outstanding. We believe that book value per share is an
important measure of our ability to grow shareholder value. The computation of book value per
share is provided in an accompanying table. Total premiums include gross premiums written through our insurance subsidiaries and produced as
managing general agent on behalf of
other insurance companies, including the reciprocal exchanges. |
 3
Overview of Tower
•
Global diversified P&C insurance company
–
Bermuda-based holding company formed through merger on March 13, 2013
–
Tower’s U.S. companies founded in 1990
–
Top 50 P&C insurer in U.S. with $2.0 billion GPW and managed in 2012
–
Rated “A-”
by A.M. Best
–
20+ offices across U.S., in Bermuda and London, with over 1,400 employees
•
Diversified product offering in U.S.
–
Commercial General: 36%* -
Comprehensive product offering to small business
owners
–
Commercial Specialty: 32%* -
Narrowly focused specialty products
–
Personal Lines: 32%* -
Home and auto
•
Expanding international business through Bermuda platform
–
Affiliated reinsurance to support Tower U.S. operations
–
Specialty reinsurance to third party clients -
Lloyd’s syndicates and small insurance
companies in U.S
–
Lloyd’s operation in development –
special purpose syndicate owned and managed
by Canopius Group
* Percentage of total premium for the year ended 12/31/12 |
 4
Source: SNL Financial. Industry data based upon SNL U.S. Insurance P&C Index. Peers
include AFG, AFSI, HCC, MKL, NAVG, RLI, SIGI, THG, UFCS, WRB. Tower numbers for BVPS and
TBVPS adjusted to reflect merger conversion ratio.
Book Value per Share
Tangible Book Value per Share
Gross Written Premiums ($MM)
Dividends Per Share
Consistent Track Record of Profitable Growth
5.54
6.07
7.65
11.24
12.01
19.99
22.19
23.26
22.54
-
5
10
15
20
25
30
2004
2005
2006
2007
2008
2009
2010
2011
2012
178
300
433
524
635
1,071
1,496
1,811
1,971
-
400
800
1,200
1,600
2,000
2,400
2004
2005
2006
2007
2008
2009
2010
2011
2012
5.32
5.81
7.40
9.91
10.52
14.20
14.54
15.35
14.70
-
5
10
15
20
2004
2005
2006
2007
2008
2009
2010
2011
2012
0.02
0.09
0.09
0.13
0.18
0.23
0.34
0.61
0.66
-
0.20
0.40
0.60
0.80
2004
2005
2006
2007
2008
2009
2010
2011
2012 |
 5
Canopius Bermuda Merger Highlights
•
Transformational merger completed on March 13, 2013
–
Tower Group, Inc. (TGI) merged with Canopius Holdings Bermuda Limited, creating a
new holding company called Tower Group International, Ltd. listed under the
same TWGP symbol –
TGI shareholders own 76% of new company, former owners of Canopius Bermuda own
24% –
Tower Group considered as accounting acquirer, and therefore prior year results
are only those of TGI
•
Merger impact on shares
(in 000's)
Shares Outstanding at 12-31-2012 (pre-merger)
38,406
Shares Outstanding at 12-31-2012 (post-merger) *
43,514
Restricted stock grants and shares withheld for taxes
-107
New Shares Issued in Merger
14,026
Shares Outstanding at 3-31-2013
57,432
*Adjusted for merger conversion ratio of 1.133 to 1 |
 6
High Level Corporate Structure
Tower Group, Inc.
Delaware Holding Company
*CP Re used solely to reinsure US Pool
Tower
Stockholders
100%
US Pool*
Castle Point Re*
(“CP Re”)
PRE MERGER
Post Merger New
Stockholders
Pre Merger Tower
Stockholders
Tower Group International, Ltd.
Bermuda Holding Company
Bermuda Operations
Tower Reinsurance, Ltd to
assume CP Re’s
operations
U.S. Operations
Tower and its
Subsidiaries
POST MERGER |
 7
Pre-Merger Tower*
2013 Pro Forma
Global Diversified Insurance Company
U.S.
Bermuda
Lloyd’s
•
Continue expansion of commercial,
personal and specialty businesses
•
Establish Tower Reinsurance Ltd. as
efficient reinsurance platform to
support U.S. and international
business
•
Expand existing relationships with
Lloyd’s syndicates to access $38B
market
•
Expect to acquire or develop Tower’s
own Lloyd’s syndicate
* Percentage of total premium for the year ended 12/31/12
Commercial
General
34%
Personal
Lines
38%
Commercial
Specialty
21%
Assumed
Re
7%
Commercial
General
31%
Commercial
Specialty
23%
Quota share
of Lloyd's
business
15%
Personal
Lines
31% |
 8
Impact of Post Merger Restructuring
•
Bermuda:
–
Established Tower Reinsurance, Ltd. (Tower Re) to replace CastlePoint Re
–
GPW projected to be $850 million to $950 million in 2013 from affiliated and
third party specialty reinsurance
–
Strong balance sheet with approximately $500 million in surplus and strong
reserve position
•
U.S.:
–
Reduced short term profitability due to technology projects and transfer of
assumed reinsurance from U.S to Bermuda
–
GPW projected to be $1.4 billion to $1.6 billion ($450 million to $550 million
ceded to Tower Re) with $600 to $700 million in surplus
•
Impact on operating results:
–
Higher than expected earnings in Bermuda offset by weaker operating results
in U.S. due to restructuring
–
Profitability of U.S operations should gradually improve throughout 2013 and
2014 with completion of technology projects and increased scale
|
 9
•
Products
–
Goal: Develop and customize products for different industries and customer
groups as well as key clients
•
Expected expansion into affluent personal lines market and various commercial
niche markets expected in 2013
•
People
–
Goal: Improve existing and create new business franchises
•
Recently hired highly experienced underwriting managers with national markets and
product experience
•
Assumed reinsurance and customized solutions generated $195 million of new written
premiums in 2012, up from $158 MM in 2011
•
Process
–
Goal: Improve technical expertise in functions related to generating
organic growth (e.g. product and business development)
•
Currently developing a pipeline of customized products for select agents
•
Recently formed strategic alliances with Lloyd’s syndicates and key business
partners to significantly improve product and analytical expertise in
specialty markets Organic Growth Initiative
|
 10
U.S Business Strategy
•
Overall U.S Strategy
–
Achieve profitability (92%-
96% CR) through increased scale and automation
–
Establish
strong
separate
and
distinct
management
teams
for
each
of
these
businesses
–
Mitigate Northeast exposure through geographical diversification
•
Personal
–
Expand
personal
lines
product
offerings
through
personal
package
policies
–
Utilize reciprocal insurance exchanges to provide additional capacity and generate
fees •
Commercial
–
Focus on underwriting small policies using automated web platform
–
Leverage existing products throughout the country
–
Offer products in multiple pricing and coverage tiers
•
Specialty
–
Focus on narrowly defined homogeneous classes of business
–
Acquire or develop specialized underwriting expertise requiring industry insight,
regional knowledge or understanding of specific risks
|
 11
International Business Strategy
•
Bermuda
–
Efficient source of capital to support growth in U.S. and Lloyd’s
–
Third party reinsurance
•
Currently comprised of participation in established business from Lloyd’s
syndicates; opportunity to re-establish partnerships with small
insurance companies (reinsurance business previously underwritten by
CastlePoint) •
Lloyd’s
–
Development of third party reinsurance business (qualifying quota share
arrangements)
•
Delayed plans to acquire own syndicate and gained entry through strategic
relationship
with
Canopius
and
other
well
established
syndicates
led
by
underwriting
managers with a strong underwriting track record
–
Established a special purpose syndicate for Tower owned and operated by
Canopius with the goal of becoming independent within 2 years
–
Continue to evaluate opportunities to either acquire or assume significant
ownership interest in established Lloyd’s syndicates
|
 12
(in 000's except per share data)
Three months ended
3/31/2013
3/31/2012
GPW and managed
$550,423
$467,362
18%
Operating income
$25,900
$20,618
26%
Operating EPS
$0.56
$0.46
22%
WASO
45,984
44,535
3%
Operating ROE
9.8%
7.9%
Insurance Ratios
Loss ratio
63.1%
64.2%
Expense ratio
36.0%
34.6%
Combined ratio
99.1%
98.8%
1Q 2013 Financial Highlights
(Tower only –
excludes reciprocals) |
 13
1Q 2013 Balance Sheet Highlights
(in millions except per share data)
3/31/2013
12/31/2012
Total assets
$6,395
$4,749
35%
Debt
451
450
0%
Tower Stockholders' equity
1,197
981
22%
Tower Capital
$1,648
$1,431
15%
Tower debt to capital ratio
27%
31%
Book value per share
$20.85
$22.54
-7%
Shares outstanding
57,432
43,515
32% |
 14
1Q 2013 Consolidated Loss Ratio
•
No adverse development in first quarter 2013
•
Currently accident year 2012 is developing better than original expectations
•
Acquisitions reserved at high end of the actuarial range; Canopius Bermuda
risk premium of $20 million included in loss reserves
•
Major events have consistently been reserved conservatively (Irene, Sandy)
with no adverse development noted
(Tower only –
excludes reciprocals)
63.1
64.2
1Q 2013
1Q 2012
Loss Ratio (%) |
 15
1Q 2013 Expense Ratio
•
As
systems
initiatives
relating
to
personal
lines
are
completed,
we
expect scale advantage to drive expense ratio down
18.2%
18.6%
14.0%
12.3%
3.8%
3.7%
36.0%
34.6%
1Q13
1Q12
Commissions, net of ceding commissions
OUE, net of fees
BB&T expenses
(Tower only –
excludes reciprocals) |
 16
1Q 2013 Investment Performance
•
Portfolio yield impacted at 1Q 2013 by large cash balances obtained
through merger and by portfolio sales to fund Sandy losses
•
Bermuda platform will provide a better after tax return environment
on reinsurance portfolio assets
•
Continuing to look at real estate and alternative investments as
classes to enhance investment returns
Note: Cash & Invested Assets, Tax–Equivalent Fixed Income Yield and Net Investment
Income exclude reciprocals $2,589
$2,359
03-31-2013
03-31-2012
Cash and Invested Assets ($millions)
4.1
4.5
1Q 2013
1Q 2012
Tax-
Equivalent Fixed Income
Yield (%)
$30
$32
03-31-2013
03-31-2012
Net Investment Income
($millions) |
 Asset
Allocation Asset Quality
Note: All numbers exclude the reciprocal exchanges. Data as of December 31, 2012
Our high-quality investment portfolio had net unrealized pre-tax
gains of $135 million at December 31, 2012 attributable to Tower
shareholders •
Fixed income average quality of A+
•
Duration of 4.6 years
•
Tax equivalent book yield of 4.5%
Highly Rated Investments
Cash and cash
equivalents
4%
U.S. Treasury
securities
7%
U.S. Agency
securities
4%
Municipal bonds
26%
Corporate and
other bonds
29%
Commercial,
residential and
securities
24%
Equity securities
5%
U.S. Treasury
securities
7%
AAA
8%
AA
42%
A
18%
BBB
10%
Below BBB
11%
Cash and cash
equivalents
4%
17
asset-backed |
 18
Capital Management Strategy
•
Capital increase due to $206 million from the merger and should
also increase from anticipated 2013 earnings growth
•
Capital management strategy will be utilized to balance support
of business production and to achieve targeted return on equity
•
Dividends
–
Maintained 1Q 2013 dividend at pre-merger level of 16.5 cents (adjusted for
merger conversion ratio)
•
Share repurchase plan
–
$50 million authorization approved |
 19
Positive Outlook for Remainder of 2013
Original Forecast
1Q13
2013 Target*
1
quarter analysis and outlook for the rest of 2013
GWP & Managed
Growth Rate
5%
-
10%
18.0%
5%
-
10%
Higher
than
expected
growth
rate
in
1Q
due
to
continued
growth
from
specialty reinsurance business in Bermuda.
Loss Ratio
62.3%
63.1%
62%
-
63%
Overall
loss
ratio
slightly
higher
due
restructuring
of
business
segments
that increased loss ratio in U.S offset partially by lower loss ratio in
Bermuda.
Expense Ratio
35.5%
36.0%
34.5%
-
35.5%
Higher expense ratio in U.S due to technology costs. Expense should
gradually trend lower as technology projected are completed.
Combined Ratio
97.8%
99.1%
96.5%
-
98.5%
Higher gross premiums written offset by higher combined ratio from higher
expense and loss ratios
Investment Yield
4.6%
4.1%
4.3%
-
4.6%
Investment returns lower due to payout for Sandy claims and higher
capital from merger.
Tax Rate
Operating ROE
Operating EPS
11.5%
12%
$2.40
-
$2.60
(12.5%)
9.8%
$0.56
2%
-
4%
10%
-
12%
$2.40
-
$2.60
Lower tax rate due to restructuring of business in U.S and Bermuda. ROE
should improve close to target as full impact of merger is realized
throughout 2013.
*Excludes reciprocals
st |
 20
Summary
•
New
and
improved
business
model
created
through
Canopius
Bermuda
merger
–
Gained
access
to
Bermuda
platform
to
provide
efficient
source
of
capital
–
Anticipated further growth of profitable international and specialty
business –
Goal to achieve 13% -
15% ROE in 2014
•
Improving profitability of personal, commercial and specialty businesses in U.S.
–
Reduced profitability in the short-term as a result of significant investment
in technology and transfer of assumed reinsurance business from U.S. to
Bermuda –
Gradual improvement in profitability in 2013 and 2014 with increased scale and
completion of technology projects
•
Attractive entry point for new investors
–
0.9x Price/Book Value*
–
3.4%
dividend
yield
vs.
1.2%
yield
of
the
SNL
U.S.
Insurance
P&C
Index*
•
Significant insider ownership
–
8.3%
ownership by executive officers and directors**
* Source:
SNL
Financial.
Market
data
as
of
May
13,
2013;
Tower
financial
data
as
of
3/31/2013
**From Tower Group International, Ltd. 2013 proxy, data as of March 19, 2013
|