Tower Group Estimates Cat Loss - Analyst Blog

Tower Group Inc. (TWGP) expects its catastrophic (cat) loss from Northeast U.S. winter storms will be between $6.5 million to $9.8 million or 16 cents to 23 cents per share. Also, the company reiterated its 2011 operating earnings guidance of $2.70 to $2.90 per share. The Zacks Consensus Estimate for 2011 is $2.69.

In 2010, Tower Group reported after-tax catastrophe storm losses of $12.0 million or $0.27 per diluted share. Combined ratio deteriorated 540 basis points year over year to 93.7%.

Tower Group reported fourth quarter 2010 operating income of $0.84 per share, a penny ahead of the Zacks Consensus Estimate. Earnings surpassed management’s guidance range of $0.75 to $0.80 and also exceeded the prior-year quarter’s earnings of $0.74.

Strong results were primarily driven by the significant increase in Tower’s Personal Lines business, resulting from the acquisition of the Personal Lines division of OneBeacon Insurance Group, Ltd. at the outset of the third quarter and its continued expansion into Specialty Commercial business.

We expect that a lower interest rate environment and higher expense ratio due to OneBeacon’s Personal Lines system integration as well as other systems-related initiatives will suppress earnings in the near term. Also, a soft insurance market and exposure to catastrophe prone areas are some of the headwinds.

Over the last 7 as well as 30 days, none of the analysts raised the estimates for first quarter 2011 and fiscal 2011. Over the last 7 days, 1 out of 5 analysts covering the stock lowered the estimate for the first quarter of 2011 as well as fiscal 2011. Over the last 7 days, 3 analysts nudged the estimate downward for first quarter 2011 while 2 lowered the same for fiscal 2011.

We maintain our Underperform rating on Tower Group. The quantitative Zacks #5 Rank (short-term Hold rating) for the company indicates downward pressure on the stock over the near term.

Based in New York City, Tower Group through its subsidiaries, provides a range of commercial, personal, and specialty property and casualty insurance products and services to businesses in various industries and individuals in the United States. It competes with The Chubb Corporation (CB), Hartford Financial Services Group Inc. (HIG) and The Travelers Companies Inc. (TRV).