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Tower Group, Inc. Reports Fourth Quarter and Annual 2011 Results

Tower Group, Inc. (NASDAQ: TWGP) today reported net income available to common shareholders of $26.8 million and diluted earnings per share of $0.67 for the fourth quarter 2011, as compared to $36.6 million, or $0.88 per share in the fourth quarter of 2010. For the full year, net income available to common shareholders was $60.2 million or $1.47 per diluted share compared to $103.9 million or $2.38 per diluted share in 2010.

Operating income(1) and operating earnings per share(1) were $25.0 million and $0.63 for the fourth quarter of 2011, respectively, as compared to $33.3 million and $0.80 per share in the fourth quarter of 2010. For the full year, operating income and operating earnings per share were $56.0 million and $1.37, respectively, as compared to $97.2 million or $2.23 per share in 2010. Operating income in the full year 2011 included after-tax catastrophe storm losses of $48.3 million or $1.18 per diluted share compared to $12.0 million or $0.27 per diluted share for the full year 2010.

Key Highlights (all percentage increases compare the fourth quarter and the full year 2011 results to the corresponding periods in 2010 except as noted otherwise):

  • Gross premiums written and produced(2) were $434.3 million in the fourth quarter and $1.8 billion for the full year. This represents an increase of 21.0% for full year 2011 compared to full year 2010.
  • For the combined insurance segments, the net combined ratio was 98.2% in the fourth quarter of 2011 compared to 95.1% for the same period last year. (Excluding the business that we manage on behalf of the reciprocal exchanges, the net combined ratio was 97.3% for the fourth quarter of 2011.) For the full year the net combined ratio was 100.3% compared to 96.4% in 2010. (Excluding the business that we manage on behalf of the reciprocal exchanges, the net combined ratio was 100.8% for the full year 2011.)
    • In the fourth quarter 2011, the net loss ratio was 64.9% compared to 59.9% for the same period last year. For the full year, the net loss ratio was 66.2% compared to 60.7% in 2010. In the fourth quarter 2011, the Company experienced $15 million of favorable development from Hurricane Irene claims and elected to strengthen the 2011 accident year loss reserves by $15 million. We also experienced $7 million in losses associated with the October 2011 snow storm.
    • In the fourth quarter 2011, the net expense ratio(3) was 33.3% compared to 35.2% for the same period last year. For the full year, the net expense ratio was 34.1% compared to 35.7% in 2010.
  • Net investment income increased by 8.0% to $32.1 million for the fourth quarter and by 20.3% to $127.6 million for the full year.
  • The effective tax rate was 15.9% in the fourth quarter (20.4% excluding the reciprocal exchanges) and 25.9% for the year (27.1% excluding the reciprocal exchanges), a decrease of 19.3 points and 7.8 points (14.9 points and 6.7 points excluding the reciprocals), respectively. The reduced tax rate is due to a modestly higher amount of tax preferenced investment income applied against a lower earnings base.
  • Book value per share(4) of $26.37 at December 31, 2011 represents an increase of 4.7% since year end 2010. The company paid dividends of $0.69 per share in 2011.
  • Tower Group, Inc. stockholders’ equity was $1,034.1 million as of December 31, 2011, as compared to $1,045.0 million as of December 31, 2010. During the year ended December 31, 2011, Tower Group, Inc. repurchased 2.9 million shares of its Common Stock for an aggregate purchase price of $64.6 million pursuant to its share repurchase program and paid $27.9 million in dividends on its common stock.

Michael H. Lee, President and Chief Executive Officer of Tower Group, Inc., stated “During the fourth quarter, we continued to see positive trends in our business, especially from the organic growth we generated from our newly created Assumed Reinsurance and Customized Solutions business units. We also began to see favorable pricing trends in certain lines of business, including homeowners, commercial property and workers compensation. We expect these favorable pricing trends to continue into 2012. For the full year, while we are disappointed with the negative impact on our earnings due to the losses from Hurricane Irene and other severe weather related events, we are otherwise pleased with our overall operating results and encouraged by the progress that we made with regard to some of our long term business objectives. In particular, we expanded our product offerings, improved existing business units and created new business units to generate organic growth. In addition, we are pleased with the progress that we made with some significant technology projects, including our personal lines platform redesign, which we plan to introduce during the early part of this year. As we enter 2012, we are cautiously optimistic due to the improved pricing environment and the continued benefits from our organic growth initiatives.”

 
Financial Summary ($ in thousands, except per share data):
       
Three Months Ended Year Ended
December 31, December 31,
2011   2010   2011   2010  
Gross premiums written $ 434,261 $ 433,860 $ 1,810,923 $ 1,496,371
Net premiums written 380,873 384,667 1,638,590 1,314,064
Total commission and fee income 11,660 11,336 46,072 46,492
Net investment income 32,062 29,690 127,649 106,090
Net realized investment gains (losses) 4,121 5,860 9,394 13,483
 
Total revenues 454,921 419,763 1,776,965 1,458,734
Net income attributable to Tower Group, Inc. 26,831 36,633 60,198 103,890
Earnings per share—Basic $ 0.68 $ 0.88 $ 1.47 $ 2.39
Earnings per share—Diluted $ 0.67 $ 0.88 $ 1.47 $ 2.38
Return on average equity 10.3 % 14.1 % 5.8 % 10.0 %
 
Combined Commercial and Personal Segments
Net premiums earned 407,078 372,877 1,593,850 1,292,669
Net loss ratio 64.9 % 59.9 % 66.2 % 60.7 %
Net expense ratio 33.3 % 35.2 % 34.1 % 35.7 %
 
Commercial Insurance Segment
Net premiums earned 282,295 239,856 1,087,911 941,015
Net loss ratio 65.1 % 66.5 % 67.7 % 62.6 %
Net expense ratio 30.2 % 27.4 % 31.5 % 33.1 %
 
Personal Insurance Segment
Net premiums earned 124,783 133,021 505,939 351,654
Net loss ratio 64.4 % 48.1 % 63.0 % 55.4 %
Net expense ratio 40.3 % 49.2 % 39.7 % 42.5 %
 
Reconciliation of non-GAAP financial measures:
Net income attributable to Tower Group, Inc. 26,831 $ 36,633 $ 60,198 $ 103,890
Net realized gains (losses) on investments 4,121 5,860 9,394 13,483
Acquisition-related transaction costs 77 (971 ) (360 ) (2,369 )
Less: net realized gains (losses) on investments related to Reciprocal Exchanges (1,386 ) 682 (2,414 ) 257
Income tax (1,016 ) (2,219 ) (2,470 ) (4,636 )
Operating income attributable to Tower Group, Inc. $ 25,035   $ 33,281   $ 56,048   $ 97,155  
 
Operating earnings per share—Basic $ 0.63 $ 0.80 $ 1.37 $ 2.24
Operating earnings per share—Diluted $ 0.63 $ 0.80 $ 1.37 $ 2.23
Operating return on average equity 9.6 % 12.8 % 5.4 % 9.4 %
 

Fourth Quarter 2011 Highlights

Gross premiums written were $434.3 million in the fourth quarter of 2011, which was slightly higher than $433.9 million in the fourth quarter of 2010. Organic growth of 6% in the quarter was offset by the commutation of an assumed reinsurance agreement. For the three months ended December 31, 2011, premiums on renewed Commercial Insurance business excluding programs increased 2.2% and premiums on renewed Personal Insurance business increased 2.5%, resulting in an overall premium increase on renewal business of 2.3%. During the same time period, our Commercial Insurance business renewal retention rate excluding programs was 78% and our Personal Insurance business renewal retention rate was 91%, resulting in an overall retention rate of 88%.

Total revenues increased 8.4% to $454.9 million in the fourth quarter of 2011 as compared to $419.8 million in the prior year's fourth quarter. The growth was primarily due to increased net premiums earned and higher net investment income. Net premiums earned represented 89.5% of total revenues for the three months ended December 31, 2011 compared to 88.8% for 2010.

Net investment income increased 8.0% to $32.1 million for the three months ended December 31, 2011 compared to $29.7 million for the same period in 2010. The tax equivalent book yield on our investment portfolio was 4.8% at December 31, 2011 compared to 4.7% at December 31, 2010. Net realized investment gains were $4.1 million for the quarter ended December 31, 2011 compared to gains of $5.9 million in the same period last year. Total commission and fee income increased 2.9% to $11.7 million in the fourth quarter of 2011 compared to $11.3 million in the fourth quarter of 2010. The net loss ratio was 64.9% for the three months ended December 31, 2011 compared to 59.9% for the same period in 2010. (Excluding the business that we manage on behalf of the reciprocal exchanges, the net loss ratio was 65.0% for the fourth quarter of 2011.) In the fourth quarter 2011, we had a $15 million reduction in our estimate of Hurricane Irene claims and elected to strengthen the 2011 accident year loss reserves by $15 million. We also experienced $7 million in losses associated with the October 2011 snow storm.

Our net expense ratio was 33.3% for the three months ended December 31, 2011 compared to 35.2% for the same period in 2010. (Excluding the business that we manage on behalf of the reciprocal exchanges, the net expense ratio was 32.3% for the fourth quarter of 2011.)

Interest expense increased by $1.2 million for the three months ended December 31, 2011, compared to the same period in 2010. Interest expense increased mainly due to increased borrowings under the credit facility in 2011.

Our effective tax rate was 15.9% for the fourth quarter 2011 (20.4% excluding the reciprocal exchanges) and 25.9% for the full year 2011 (27.1% excluding the reciprocal exchanges). Our full year tax rate was lower by 7.8 points compared to 2010, as we had a modestly higher amount of tax preferenced investment income applied against a lower earnings base, and the fourth quarter tax rate, excluding the reciprocal exchanges, was 14.9 points lower than it was for the corresponding period in 2010, due largely to a true up of the effective tax rate in the fourth quarter 2011.

Additional Highlights and Disclosures:

Dividend Declaration

Tower’s Board of Directors approved a quarterly dividend on February 1, 2012 of $0.1875 per share payable on March 23, 2012 to stockholders of record as of March 12, 2012.

2012 Guidance

Tower expects to report operating earnings of between $2.60 and $2.70 per share in 2012.

Notes on Non-GAAP Financial Measures

(1) Operating income 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 per share is operating income divided by diluted weighted average shares outstanding. Operating return on equity is annualized operating income divided by average common stockholders' equity.

(2) Gross premiums written through our insurance subsidiaries, including the reciprocal exchanges.

(3) The gross and net underwriting expense ratios include fees paid by the Reciprocal Exchanges to Tower in excess of Tower's direct costs to service the management services agreements. These fees increased the gross and net expense ratios by 0.6% and 1.0%, respectively, for the years ended December 31, 2011 and 2010.

(4) Book value per share is Tower Group, Inc. Stockholders’ Equity divided by outstanding shares as of the period of measurement.

Conference Call

Tower will host a conference call and webcast to discuss these results on Tuesday, February 28, 2012 at 9:00 a.m. ET. This conference call will be broadcast live over the Internet. To access a listen-only webcast over the Internet, please visit the Investor Information section of Tower Group, Inc.’s website, www.twrgrp.com, or use this link: http://investor.twrgrp.com/events.cfm

Please access the website at least 15 minutes prior to the call to register and to download any necessary audio software. If you are unable to participate during the live conference call, a webcast will be archived in the Investor Information section of Tower Group, Inc.'s website at www.twrgrp.com.

About Tower Group, Inc.

Tower Group, Inc. offers diversified property and casualty insurance products and services through its operating subsidiaries. Its insurance company subsidiaries offer insurance products to individuals and small to medium-sized businesses through its network of retail and wholesale agents and specialty business through program underwriting agents. Tower's insurance services subsidiaries provide underwriting, claims administration, operational and technology services for other insurance companies.

Cautionary Note Regarding Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. This press release 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 press release 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 Annual Report on Form 10-K for the year ended December 31, 2010 and subsequent filings on Form 10-Q, 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.

For more information, visit Tower's website at http://www.twrgrp.com/

Our Commercial Insurance Segment offers a broad range of commercial lines property and casualty insurance products to small to mid-sized businesses distributed through a network of retail and wholesale agents on both an admitted and non-admitted basis. This segment also includes reinsurance solutions provided primarily to small insurance companies;

Our Personal Insurance Segment offers a broad range of personal lines property and casualty insurance products to individuals distributed through a network of retail and wholesale agents; and

Our Insurance Services Segment provides underwriting, claims administration, operational and technology services for other insurance companies.

 
Commercial Insurance & Personal Insurance Combined
($ in thousands)
(Unaudited)
         
Three Months Ended December 31, Year Ended December 31
2011     2010     Change(%) 2011     2010     Change(%)
Net premiums written $ 380,873   $ 384,667   -1.0 % $ 1,638,590   $ 1,314,064   24.7 %
 
Revenues
Net premiums earned 407,078 372,877 9.2 % 1,593,850 1,292,669 23.3 %
Ceding commission revenue 8,165 8,511 -4.1 % 33,968 38,068 -10.8 %
Policy billing fees 2,867   2,579   11.2 % 10,534   6,255   68.4 %
Total revenues 418,110 383,967 8.9 % 1,638,352 1,336,992 22.5 %
Expenses
Net loss and loss adjustment expenses 264,190   223,355   18.3 % 1,055,249   784,023   34.6 %
Underwriting expenses
Direct commission expense 78,262 68,572 14.1 % 311,328 266,096 17.0 %
Other underwriting expenses 68,211   73,797   -20.3 % 276,729   239,420   11.9 %
Total underwriting expenses 146,473   142,369   2.9 % 588,057   505,516   16.3 %
Underwriting profit $ 7,447   $ 18,243   -59.2 % $ (4,954 ) $ 47,453   -110.4 %
 
Underwriting Ratios
Net loss ratio 64.9 % 59.9 % 66.2 % 60.7 %
Net expense ratio 33.3 % 35.2 % 34.1 % 35.7 %
Net combined ratio 98.2 % 95.1 % 100.3 % 96.4 %
 

 
Commercial Insurance Segment Information
($ in thousands)
(Unaudited)
         
Three Months Ended Year Ended
December 31, December 31,
2011     2010 2011     2010
Net premiums written $ 255,449   $ 269,745   $ 1,152,299   $ 987,260  
 
Revenues
Net premiums earned 282,295 239,856 1,087,911 941,015
Ceding commission revenue 4,603 4,189 14,786 31,998
Policy billing fees 1,272   732   4,345   2,742  
Total revenues 288,170 244,777 1,107,042 975,755
Expenses
Net loss and loss adjustment expenses 183,847 159,427 736,474 589,322
Underwriting expenses
Direct commission expenses 52,517 38,050 209,911 191,351
Other underwriting expenses 38,484   32,659   151,951   155,148  
Total underwriting expenses 91,001   70,709   361,862   346,499  
Underwriting profit $ 13,322   $ 14,641   $ 8,706   $ 39,934  
 
Underwriting Ratios
Net loss ratio 65.1 % 66.5 % 67.7 % 62.6 %
Net expense ratio 30.2 % 27.4 % 31.5 % 33.1 %
Net combined ratio 95.3 % 93.9 % 99.2 % 95.7 %
 

 
Personal Insurance Segment Information
($ in thousands)
(Unaudited)
                             
Three Months Ended December 31,
2011 2010
Reciprocal Reciprocal
          Tower       Exchanges       Total       Tower       Exchanges       Total
Net premiums written $ 86,636   $ 38,788   $ 125,424   $ 55,243   59,679   114,922  
 
Revenues
Net premiums earned 80,192 44,591 124,783 85,243 47,778 133,021
Ceding commission revenue 1,693 1,869 3,562 3,297 1,025 4,322
Policy billing fees 1,455   140   1,595   1,698   149   1,847  
Total revenues 83,340 46,600 129,940 90,238 48,952 139,190
Expenses
Net loss and loss adjustment expenses 51,902 28,441 80,343 36,376 27,552 63,928
Underwriting expenses
Direct commission expense 17,431 8,314 25,745 20,472 10,050 30,522
Other underwriting expenses 17,813   11,914   29,727   24,569   16,569   41,138  
Total underwriting expenses 35,244   20,228   55,472   45,041   26,619   71,660  
Underwriting profit $ (3,806 ) $ (2,069 ) $ (5,875 ) $ 8,821   (5,219 ) 3,602  
 
Underwriting Ratios
Net loss ratio 64.7 % 63.8 % 64.4 % 42.7 % 57.7 % 48.1 %
Net expense ratio 40.0 % 40.9 % 40.3 % 47.0 % 53.3 % 49.2 %
Net combined ratio 104.7 % 104.7 % 104.7 % 89.7 % 111.0 % 97.3 %
 

 
Personal Insurance Segment Information
($ in thousands)
(Unaudited)
                             
Year Ended December 31,
2011 2010
Reciprocal Reciprocal
          Tower       Exchanges       Total       Tower       Exchanges       Total
Net premiums written $ 316,854   $ 169,437   $ 486,291   $ 223,630   103,174   326,804  
 
Revenues
Net premiums earned 318,777 187,162 505,939 257,863 93,791 351,654
Ceding commission revenue 12,408 6,774 19,182 4,019 2,051 6,070
Policy billing fees 5,616   573   6,189   3,213   300   3,513  
Total revenues 336,801 194,509 531,310 265,095 96,142 361,237
Expenses
Net loss and loss adjustment expenses 214,355 104,420 318,775 132,499 62,202 194,701
Underwriting expenses
Direct commission expense 68,876 32,541 101,417 56,392 18,353 74,745
Other underwriting expenses 73,161   51,617   124,778   59,980   24,292   84,272  
Total underwriting expenses 142,037   84,158   226,195   116,372   42,645   159,017  
Underwriting profit $ (19,591 ) $ 5,931   $ (13,660 ) $ 16,224   (8,705 ) 7,519  
 
Underwriting Ratios
Net loss ratio 67.2 % 55.8 % 63.0 % 51.4 % 66.3 % 55.4 %
Net expense ratio 38.9 % 41.0 % 39.7 % 42.3 % 43.0 % 42.5 %
Net combined ratio 106.1 % 96.8 % 102.7 % 93.7 % 109.3 % 97.9 %
 

 
Insurance Services Segment Results of Operations
($ in thousands)
(Unaudited)
                 
Three Months Ended Year Ended
December 31, December 31,
2011 2010 2011 2010
Revenue
Management fee income $ 7,260 $ 9,881 $ 29,303 $ 17,752
Other revenue 628 249 1,570 2,171
Total revenue 7,888 10,130 30,873 19,923
Expenses
Other expenses 4,327 1,123 19,331 5,760
Total expenses 4,327 1,123 19,331 5,760
Insurance services pre-tax income $ 3,561 $ 9,007 $ 11,542 $ 14,163
 

       
Tower Group, Inc.
Consolidated Balance Sheets
   
December 31,
($ in thousands, except par value and share amounts)   2011       2010
Assets
Investments - Tower
Available-for-sale investments, at fair value:
Fixed-maturity securities (amortized cost of $2,046,932 and $1,968,670) $ 2,153,620 $ 2,041,557
Equity securities (cost of $91,069 and $91,218) 87,479 90,317
Short-term investments (cost of $0 and $1,560) - 1,560
Other invested assets 44,347 -
Investments - Reciprocal Exchanges
Available-for-sale investments, at fair value:
Fixed-maturity securities (amortized cost of $288,180 and $338,494) 300,054 341,054
Equity securities (cost of $1,965 and $0)     1,866           -  
Total investments 2,587,366 2,474,488
Cash and cash equivalents (includes $666 and $2,796 relating to Reciprocal Exchanges) 114,098 140,221
Investment income receivable (includes $2,978 and $3,021 relating to Reciprocal Exchanges) 26,782 23,562
Premiums receivable (includes $41,290 and $53,953 relating to Reciprocal Exchanges) 408,626 387,584
Reinsurance recoverable on paid losses (includes $5,014 and $2,167 relating to Reciprocal Exchanges) 23,903 18,214
Reinsurance recoverable on unpaid losses (includes $11,253 and $11,384 relating to Reciprocal Exchanges) 319,664 282,682
Prepaid reinsurance premiums (includes $14,685 and $17,919 relating to Reciprocal Exchanges) 54,037 77,627
Deferred acquisition costs, net (includes $11,866 and $18,206 relating to Reciprocal Exchanges) 168,858 164,123
Deferred income taxes (includes $0 and $788 relating to Reciprocal Exchanges) - 2,245
Intangible assets (includes $4,839 and $5,504 relating to Reciprocal Exchanges) 114,920 123,820
Goodwill 250,103 250,103
Other assets (includes $2,685 and $5,808 relating to Reciprocal Exchanges)     373,838           230,405  
Total assets   $ 4,442,195         $ 4,175,074  
Liabilities
Loss and loss adjustment expenses (includes $136,275 and $171,315 relating to Reciprocal Exchanges) $ 1,632,113 $ 1,610,421
Unearned premium (includes $102,991 and $123,949 relating to Reciprocal Exchanges) 893,176 872,026
Reinsurance balances payable (includes $3,466 and $3,402 relating to Reciprocal Exchanges) 20,794 35,037
Funds held under reinsurance agreements 96,726 93,153
Other liabilities (includes $7,154 and $9,384 relating to Reciprocal Exchanges) 266,155 122,333
Deferred income taxes (includes $4,511 and $0 relating to Reciprocal Exchanges) 29,337 -
Debt     426,901           374,266  
Total liabilities 3,365,202 3,107,236
Stockholders' equity
Common stock ($0.01 par value; 100,000,000 shares authorized, 46,448,341 and
45,742,342 shares issued, and 39,221,102 and 41,485,678 shares outstanding) 465 457
Treasury stock (7,227,239 and 4,256,664 shares) (158,185 ) (91,779 )
Paid-in-capital 772,938 763,064
Accumulated other comprehensive income 62,244 48,883
Retained earnings     356,680           324,376  
Tower Group, Inc. stockholders' equity     1,034,142           1,045,001  
Noncontrolling interests     42,851           22,837  
Total stockholders' equity     1,076,993           1,067,838  
Total liabilities and stockholders' equity   $ 4,442,195         $ 4,175,074  

               
Tower Group, Inc.
Consolidated Statements of Income and Comprehensive Income
    Three Months Ended Year Ended
December 31, December 31,
(in thousands, except per share amounts)       2011       2010       2011       2010
Revenues
Net premiums earned $ 407,078 $ 372,877 $ 1,593,850 $ 1,292,669
Ceding commission revenue 8,165 8,511 33,968 38,068
Insurance services revenue 628 247 1,570 2,169
Policy billing fees 2,867 2,578 10,534 6,255
Net investment income 32,062 29,690 127,649 106,090
Net realized investment gains (losses):
Other-than-temporary impairments (176 ) (2,165 ) (3,509 ) (16,100 )
Portion of loss recognized in other comprehensive income 84 1,789 264 11,909
Other net realized investment gains       4,213         6,236         12,639         17,674  
Total net realized investment gains (losses)       4,121         5,860         9,394         13,483  
Total revenues 454,921 419,763 1,776,965 1,458,734
Expenses
Loss and loss adjustment expenses 264,190 223,355 1,055,249 784,023
Direct and ceding commission expense 78,261 69,372 311,328 267,209
Other operating expenses 68,304 66,264 278,275 230,489
Acquisition-related transaction costs (77 ) 971 360 2,369
Interest expense       9,472         8,307         34,462         24,594  
Total expenses 420,150 368,269 1,679,674 1,308,684
Other income (expense)
Other       -         -         -         (466 )
Income before income taxes 34,771 51,494 97,291 149,584
Income tax expense       5,532         18,135         25,186         50,373  
Net income $ 29,239 $ 33,359 $ 72,105 $ 99,211
Less: Net income attributable to Reciprocal Exchanges       2,408         (3,274 )       11,907         (4,679 )
Net income attributable to Tower Group, Inc.     $ 26,831       $ 36,633     $   60,198       $ 103,890  
Net income $ 29,239 $ 33,359 $ 72,105 $ 99,211
Gross unrealized investment holding gains (losses) arising during periods 29,103 (64,072 ) 49,720 34,869
Gross unrealized gain on interest rate swaps (422 ) 3,223 (10,541 ) 3,223
Less: Reclassification adjustment for (gains) losses included in net income (4,121 ) (5,860 ) (9,394 ) (13,483 )

Income tax benefit (expense) related to items of other comprehensive income

      (8,581 )       23,348         (10,318 )       (8,613 )
Comprehensive income $ 45,218 $ (10,002 ) $ 91,572 $ 115,207
Less: Comprehensive income (loss) attributable to Reciprocal Exchanges       5,117         (7,960 )       18,013         (3,014 )
Comprehensive income attributable to Tower Group, Inc.     $ 40,101       $ (2,042 )   $   73,559       $ 118,221  
Earnings per share attributable to Tower Group, Inc. stockholders:
Basic $ 0.68 $ 0.88 $ 1.47 $ 2.39
Diluted     $ 0.67       $ 0.88     $   1.47       $ 2.38  
Weighted average common shares outstanding:
Basic 39,733 41,538 40,833 43,462
Diluted       39,806         41,715         40,931         43,648  
Dividends declared and paid per common share     $ 0.188       $ 0.125     $   0.690       $ 0.390  
 

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