November 8, 2005

Tower Group, Inc. Reports a 130% Increase in Third Quarter of 2005 Net Income

Tower Group, Inc. Reports a 130ncrease in Third Quarter of 2005 Net Income

NEW YORK--(BUSINESS WIRE)--Nov. 8, 2005--Tower Group, Inc. (NASDAQ: TWGP) today reported its financial results for the third quarter of 2005 including a 130% increase in net income to $5.7 million as compared to net income of $2.5 million in the third quarter of 2004. For the first nine months of 2005, net income increased 145% to $14.2 million as compared to $5.8 million for the first nine months of 2004.

Diluted earnings per share of $0.28 for the third quarter of 2005 were based on 20,161,873 weighted average diluted shares as compared with $0.43 per share for the third quarter of 2004, based on 5,858,366 weighted average diluted shares. For the first nine months of 2005, Tower reported diluted earnings per share of $0.71, based on 20,119,280 weighted average diluted shares, as compared with $1.01 per diluted share for the first nine months of 2004 based on 5,794,807 weighted average diluted shares. Net income, excluding realized gains, net of taxes, was $5.7 million for the third quarter of 2005 and $14.1 million for the first nine months of 2005.

Michael H. Lee, President and Chief Executive Officer of Tower Group, Inc. commented, "We were able to significantly increase our net income during the third quarter by achieving record levels of gross and net premiums written and earned as well as investment income while maintaining our disciplined underwriting approach as reflected in our combined ratio of 87.8%. We are especially pleased that we continue to successfully deploy our capital that we raised from the IPO in October of last year. Our return on average equity has improved to 16.5% for the third quarter from 14.3% during the second quarter and is approaching our goal of 18%."

Third Quarter 2005 Financial Highlights:

Total revenues increased 127% to $59.9 million in the third quarter of 2005 as compared to $26.5 million in the same period in 2004. This increase was driven primarily by increases in net premiums earned and net investment income while partially offset by lower total commission and fee income. Net premiums earned represented 76% of total revenues for the third quarter of 2005 as compared to 46% for the same period of 2004. Ceding commission and fee income represented 18% of total revenue for the third quarter of 2005 as compared to 50% in the third quarter of 2004. This reflected the reduced ceding percentage under the quota share reinsurance agreements to 25% beginning October 1, 2004 from 60% for the first nine months of 2004 due to the increased capitalization of our insurance company in the fourth quarter of 2004. In addition, due to a decrease in the loss ratio, we recorded a $0.1 million adjustment to commission revenue in the third quarter of 2005 that increased commission and fee income as compared to no adjustment in the same period of 2004. Net investment income, excluding realized gains, was 7% of total revenues in the third quarter of 2005 and 5% in the same period of 2004.

Return on average equity was 16.5% in the third quarter of 2005 as compared with 60.1% in the third quarter of 2004. Although net income was significantly higher in the third quarter of 2005 as compared to the same period in the prior year, the lower return on average equity resulted from the significant increase in average stockholders' equity resulting primarily from capital raised from the initial public offering ("IPO") and concurrent private placement in October 2004. The return on average equity for the third quarter of 2005 was calculated by dividing annualized net income of $22.8 million by average stockholders' equity of $138.7 million. For the third quarter of 2004, the return was calculated by dividing annualized net income of $9.9 million by average stockholders' equity of $16.5 million.

Gross premiums written in the insurance and reinsurance segments increased by 71.8% to $72.8 million for the three months ended September 30, 2005 compared to $42.4 million for the same period in 2004. Gross premiums earned increased by 69.2% to $64.9 million for the three months ended September 30, 2005 compared to $38.3 million for the same period in 2004. Factors contributing to these increases from the insurance segment include a 28.9% increase in the number of policies in force as of September 30, 2005 compared to September 30, 2004 and premium increases on renewed business which averaged 5.1% in personal lines and 4.5% in commercial lines for the third quarter of 2005. The retention rate was 92% for personal lines and 84% for commercial lines. Additionally, business subject to the OneBeacon renewal rights agreement, entered into in September 2004, amounted to $9.5 million during the third quarter of 2005. New business during the third quarter of 2005 through former OneBeacon producers that we appointed in connection with the renewal rights transaction was $4.3 million. Also, due to the upgrade in TICNY's A.M. Best rating to "A-" (Excellent) from "B++" (Very Good), certain policies in the more rating sensitive large lines and middle market programs in our Insurance Services Segment were renewed in the Insurance Segment.

Net premiums written increased 227% to $51.4 million in the third quarter of 2005 as compared to $15.7 million in the same period of 2004. The increase was driven by the growth in gross premiums written and a reduction in the quota share ceding percentage of 25% beginning October 1, 2004 from 60% for the first nine months of 2004.

Net premiums earned rose 275% to $45.3 million for the third quarter of 2005 as compared to $12.1 million in the same quarter of 2004 due to overall growth in gross premiums written and the reduction in the ceding percentage as mentioned above. In addition, the third quarter's net premiums earned included approximately $1.8 million from the $13.1 million of retained unearned premiums as of December 31, 2004 that would have been ceded to Converium Reinsurance (North America) Inc. absent a novation of the reinsurance agreement in 2004.

Ceding commission revenue declined 27% to $6.8 million in the third quarter of 2005 as compared to $9.4 million in the third quarter of 2004 reflecting the significant reduction in the quota share ceding percentage.

The net loss ratio improved to 58.5% for the third quarter of 2005 as compared to 61.4% in the third quarter of 2004. The improvement resulted from the increase in net premiums earned which reduced the proportional effect of catastrophe reinsurance premiums on the net loss ratio.

The gross expense ratio increased to 31.0% in the third quarter of 2005 as compared to 29.0% in the third quarter of 2004. This increase resulted primarily from insurance regulatory assessments that were higher than expected and compliance costs related to being a public company.

The net expense ratio increased to 29.3% in the third quarter of 2005 as compared to 14.3% in the same period in 2004 primarily due to the lower ceding commission revenue discussed above.

The net combined ratio increased to 87.8% in the third quarter of 2005 from 75.7% in the same period in the prior year primarily due to the increase in the net expense ratio driven by the lower ceding commission revenue. Nevertheless, despite the increase in the combined ratio, underwriting profits increased due to the significantly higher base of net premiums earned in the third quarter of 2005 as compared to the third quarter of 2004.

Pre-tax income in the insurance services segment increased to $0.7 million in the third quarter of 2005 from $0.2 million in the same quarter of 2004 primarily as a result of an increase in the direct commission revenue rate.

Net investment income was a strong contributor to revenue growth in the third quarter of 2005, increasing 238% to $4.1 million versus $1.2 million in the third quarter of 2004. This increase was primarily due to the growth in invested assets from operating cash flow, net proceeds of $26.8 million from subordinated debentures underlying trust preferred securities in December 2004 and net proceeds of $107.8 million from our IPO and concurrent private placement in October 2004. On a tax equivalent basis, the yield was 5.1% for invested assets held at September 30, 2005 and 4.7% as of September 30, 2004.

Interest expense increased to $1.3 million in the third quarter of 2005 from $0.8 million in the third quarter of 2004 primarily a result of $0.5 million interest on the subordinated debentures issued in December, 2004 partially offset by a $0.1 million reduction of interest expense on other borrowings and preferred stock that were repaid in the fourth quarter of 2004.

The effective income tax rate was 35.0% and 31.7% for the third quarter of 2005 and third quarter of 2004, respectively. A lower applicable Federal statutory tax rate of 34% in 2004 versus 35% in 2005 contributed to the lower effective income tax rate in 2004. Additionally, the effective tax rates are impacted by a recovery of prior period taxes in 2004 and higher state income taxes in 2005.

First Nine Months 2005 Financial Highlights:

Total revenues increased 106% to $152.9 million in the first nine months of 2005 as compared to $74.4 million in the same period of the prior year. This increase was driven primarily by increases in net premiums earned and investment income partially offset by lower total commission and fee income. Net premiums earned represented 74% of total revenues for the first nine months of 2005 as compared to 40% for the same period of 2004. Ceding commission and fee income represented 19% of total revenue for the first nine months of 2005 as compared to 56% in the same period of 2004. This decline reflects the reduced ceding percentage under the quota share reinsurance agreement to 25% beginning October 1, 2004 from 60% for the first nine months of 2004. Net investment income, excluding realized gains, comprised 7% of total revenues in the first nine months of 2005 and 4% in the same period of 2004.

Return on average equity was 14.1% in the first nine months of 2005 as compared with 49.1% in the same period of 2004. Although net income was significantly higher in the nine months of 2005 as compared to the similar period in the prior year, the lower return on average equity resulted from the significant increase in average stockholders' equity resulting primarily from capital raised from the initial public offering in October 2004. The return on average equity for the first nine months of 2005 was calculated by dividing annualized net income of $18.9 million by average stockholders' equity of $134.7 million. For the first nine months of 2004, the return was calculated by dividing annualized net income of $7.7 million by average stockholders' equity of $15.8 million.

Gross premiums written in the insurance and reinsurance segments increased by 75.4% to $221.5 million for the nine months ended September 30, 2005 compared to $126.3 million for the same period in 2004. Gross premiums earned increased by 48.6% to $165.8 million for the nine months ended September 30, 2005 compared to $111.6 million for the same period in 2004. Factors contributing to these increases from the insurance segment include a 28.9% increase in the number of policies in force as of September 30, 2005 compared to September 30, 2004 and premium increases on renewed business which averaged 8.3% in personal lines and 5.0% in commercial lines for the first nine months of 2005. The retention rate was 90% for personal lines and 84% for commercial lines. Additionally, business subject to the OneBeacon renewal rights agreement, entered into in September 2004, amounted to $31.0 million during the first nine months of 2005. New business during the first nine months of 2005 through former OneBeacon producers that we appointed in connection with the renewal rights transaction amounted to $13.6 million. Also, due to the rating upgrade in TICNY's rating from A.M. Best to "A-" (Excellent) from "B++" (Very Good), certain policies in the more rating sensitive large lines and middle market programs in our Insurance Services Segment were renewed in our Insurance Segment.

Net premiums written increased 232% to $155.9 million in the first nine months of 2005 as compared to $47.0 million in the same period of 2004. The increase was driven by the growth in gross premiums written and a reduction in the quota share ceding percentage of 25% beginning October 1, 2004 from 60% in the first nine months of 2004.

Net premiums earned increased 283% to $112.9 million for the first nine months of 2005 as compared to $29.5 million in the same period of 2004 due to overall growth in gross premiums written and the reduced ceding percentage. In addition, net premiums earned in the first nine months of 2005 included approximately $11.0 million from the $13.1 million of retained unearned premiums as of December 31, 2004 that would have been ceded to Converium Reinsurance (North America) Inc. absent a novation of the reinsurance agreement in 2004.

Ceding commission revenue declined 41% to $18.0 million in the first nine months of 2005 as compared to $30.4 million in the same period of 2004 reflecting the significant reduction in the quota share ceding percentage.

The net loss ratio improved to 59.0% for the first nine months of 2005 as compared to 62.1% for the first nine months of 2004. The improvement resulted primarily from the increase in net premiums earned which reduced the proportional effect of catastrophe reinsurance premiums on the net loss ratio.

The gross expense ratio was 30.9% for the first nine months of 2005 and for the same period of 2004.

The net expense ratio increased to 29.3% for the first nine months of 2005 as compared to 13.6% in the same period in 2004 primarily due to the lower ceding commission revenue discussed above.

The net combined ratio increased to 88.3% in the first nine months of 2005 from 75.7% in the same period in the prior year primarily due to the increase in the net expense ratio driven by the lower ceding commission revenue. As in the third quarter, although the combined ratio increased, underwriting profits increased due to the significantly higher base of net premiums earned in 2005 as compared to the first nine months of 2004.

Pre-tax income in the insurance services segment increased to $2.3 million in the first nine months of 2005 from $1.0 million in the same period of 2004 primarily as a result of an increase in the direct commission revenue rate.

Net investment income contributed significantly to revenue growth in the first nine months of 2005, increasing 240% to $10.5 million versus $3.1 million in the first nine months of 2004. The increase in net investment income was primarily due to the growth in invested assets provided by operating cash flow, net proceeds from subordinated debentures and net proceeds of $107.8 million from our IPO and concurrent private placement in October 2004. On a tax equivalent basis, the investment yield was 5.1% on investments held as of September 30, 2005 and 4.7% as of September 30, 2004.

Net realized capital gains were $0.2 million for the first nine months of 2005 as compared to a modest capital gain in the same period of the prior year. The increase in net realized capital gains was the result of the sale of common stocks and corporate bonds from which the proceeds were reinvested into higher yielding securities.

Interest expense increased to $3.6 million for the first nine months of 2005 from $2.1 million in the first nine months of 2004. This increase was primarily a result of interest of $1.4 million on subordinated debentures and a $0.3 million increase in interest expense as a result of crediting reinsurers on funds withheld in segregated trusts as collateral for reinsurance recoverables. These increases were offset by reductions of $0.4 million of interest expense on other borrowings and preferred stock that were repaid in the fourth quarter of 2004.

The effective income tax rate was 34.6% and 36.1% for the first nine months of 2005 and 2004, respectively. The effective tax rate in 2005 was lower due to a proportionally larger benefit of $2.4 million of tax-exempt interest income in the first nine months of 2005 compared to $0.3 million in the same period of 2004. This was partially offset by a higher Federal statutory rate of 35% in 2005 as compared to 34% in 2004.

            Third Quarter and First Nine Months Highlights


Third Third First Nine First Nine Quarter Quarter Months Months 2005 2004 2005 2004 ------- ------- ---------- ----------

Total Underwriting Profit $5,523 $2,932 $13,213 $7,192 Insurance Services Segment Pre- Tax Income 675 217 2,343 982 Net Investment Income 4,131 1,224 10,479 3,087 Net Realized Investment (Loss) Gains (15) 35 214 33 Corporate Expenses (234) (27) (980) (86) Interest Expense (1,296) (752) (3,567) (2,127) Income Before Income Taxes 8,784 3,629 21,702 9,081 Income Tax Expense 3,076 1,151 7,512 3,282

Net Income $5,708 $2,478 $14,190 $5,799

EPS - Basic $0.29 $0.55 $0.73 $1.31 EPS - Diluted $0.28 $0.43 $0.71 $1.01

Book Value Per Share $7.07 $3.99 $7.07 $3.99

Dividend Declaration:

Tower Group, Inc. announced today that the Company's Board of Directors approved a quarterly dividend on November 4, 2005 of $0.025 per share payable December 27, 2005 to stockholders of record as of December 15, 2005.

2005 Guidance:

We continue to believe that strong growth opportunities remain in our targeted markets despite price softening in the broad P&C market. Although we have experienced some price softening in select market segments, we expect overall market conditions to remain favorable for some of our products for the remainder of 2005 and remain on target with our guidance for the full year of 2005 at the upper half of our previously provided range. For the full year, we anticipate net income, excluding realized capital gains, to increase to a range between $20.1 million and $20.5 million and diluted earnings per share, excluding realized capital gains, to be between $1.00 and $1.02 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. Its insurance services subsidiary, Tower Risk Management, acts as a managing general agency, adjusts claims and negotiates reinsurance terms on behalf of 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 release or any other written or oral statements made by or on behalf of the Company may include forward-looking statements that reflect the Company's current views with respect to future events and financial performance. All statements other than statements of historical fact included in this 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," "intend," "estimate," "anticipate," "believe" or "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 our actual results to differ materially from those indicated in these statements. We believe that these factors include but are not limited to ineffectiveness or obsolescence of our business strategy due to changes in current or future market conditions; increased competition on the basis of pricing, capacity, coverage terms or other factors; greater frequency or severity of claims and loss activity, including as a result of natural or man-made catastrophic events, than our underwriting, reserving or investment practices anticipate based on historical experience or industry data; the effects of acts of terrorism or war; developments in the world's financial and capital markets that adversely affect the performance of our investments; changes in regulations or laws applicable to us, our subsidiaries, brokers or customers; changes in the level of demand for our insurance and reinsurance products and services, including new products and services; changes in the availability, cost or quality of reinsurance and failure of our reinsurers to pay claims timely or at all; loss of the services of any of our executive officers or other key personnel; the effects of mergers, acquisitions and divestitures; changes in rating agency policies or practices; changes in legal theories of liability under our insurance policies; changes in accounting policies or practices; and changes in general economic conditions, including inflation and other factors. Forward-looking statements speak only as of the date on which they are made, and the Company 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/.

Insurance Overall Results of Operations Insurance and Reinsurance Segments Third Quarter

Third Third Quarter Quarter % 2005 2004 Change

Revenues: Earned Premiums: Gross Premiums Earned $64,859 $38,325 69.2% Less: Ceded Premiums Earned (19,535)(26,243) -25.6% ---------------- Net Premiums Earned 45,324 12,082 275.1% Ceded Commission Revenue 6,845 9,375 -27.0% Policy Billing Fees 227 172 32.0% ---------------- Total 52,396 21,629 142.2%

Expenses: Loss & Loss Adjustment Expenses Gross Loss & Loss Adjustment Expenses 36,333 21,340 70.3% Less: Ceded Loss & Loss Adjustment Expenses (9,821)(13,920) -29.44% ---------------- Net Loss & Loss Adjustment Expenses 26,512 7,420 257.3%

Underwriting Expenses Commissions Paid to Producers 10,135 6,313 60.5% Other Underwriting Expenses 10,226 4,964 106.0% ----------------

Total Underwriting Expenses 20,361 11,277 80.6% ----------------

Total Expenses 46,873 18,697 150.7% ----------------

Underwriting Profit $5,523 $2,932 88.3% ================

Key Measures: Written Premiums Gross $72,821 $42,399 71.8% Ceded (21,430)(26,696) -19.7% ---------------- Net $51,391 $15,703 227.3% ================ Loss Ratios Gross 56.0% 55.7% Net 58.5% 61.4% Accident Year Loss Ratios Gross 56.5% 57.4% Net 59.0% 61.4% Expense Ratios Gross 31.0% 29.0% Net 29.3% 14.3% Combined Ratios (GAAP) Gross 87.0% 84.7% Net 87.8% 75.7%

Insurance Overall Results of Operations Insurance and Reinsurance Segments First Nine Months

First Nine First Nine % Months 2005 Months 2004 Change

Revenues: Earned Premiums: Gross Premiums Earned $165,787 $111,589 48.6% Less: Ceded Premiums Earned (52,854) (82,062) -35.6% ------------------------ Net Premiums Earned 112,933 29,527 282.5% Ceded Commission Revenue 18,021 30,426 -40.8% Policy Billing Fees 653 504 29.6% ------------------------ Total 131,607 60,457 117.7%

Expenses: Loss & Loss Adjustment Expenses Gross Loss & Loss Adjustment Expenses 93,828 63,749 47.2% Less: Ceded Loss & Loss Adjustment Expenses (27,241) (45,420) -40.0% ------------------------ Net Loss & Loss Adjustment Expenses 66,587 18,329 263.3%

Underwriting Expenses Commissions Paid to Producers 27,211 18,530 46.8% Other Underwriting Expenses 24,596 16,406 49.9% ------------------------

Total Underwriting Expenses 51,807 34,936 48.3% ------------------------

Total Expenses 118,394 53,265 122.3% ------------------------

Underwriting Profit $13,213 $7,192 83.7% ========================

Key Measures: Written Premiums Gross $221,495 $126,259 75.4% Ceded (65,558) (79,274) -17.3% ------------------------ Net $155,937 $46,985 231.9% ======================== Loss Ratios Gross 56.6% 57.1% Net 59.0% 62.1% Accident Year Loss Ratios Gross 57.2% 57.4% Net 59.2% 62.1% Expense Ratios Gross 30.9% 30.9% Net 29.3% 13.6% Combined Ratios (GAAP) Gross 87.5% 88.0% Net 88.3% 75.7%

Insurance Services Segment Results of Operations Third Quarter

Third Third Quarter Quarter % 2005 2004 Change

Revenues: Direct Commission Revenue from MGA $2,022 $2,043 -1.0% Claims Administration Revenue 1,137 1,352 -15.9% Reinsurance Intermediary Fees 259 178 45.5% Policy Billing Fees 7 3 133.3% ---------------- Total 3,425 3,576 -4.2%

Expenses: Direct Commission Expense Paid to Producers 1,143 1,438 -20.5% Other Insurance Services Expenses 472 576 -18.1% Claims Expense Reimbursement to TICNY 1,135 1,345 -15.6% ---------------- Total Expenses 2,750 3,359 -18.1% ----------------

Insurance Services Pre-tax Income (Loss) $675 $217 211.1% ================

Insurance Services Segment Results of Operations First Nine Months

First Nine First Nine % Months 2005 Months 2004 Change

Revenues: Direct Commission Revenue from MGA $6,713 $7,095 -5.4% Claims Administration Revenue 3,287 3,067 7.2% Reinsurance Intermediary Fees 541 615 -12.0% Policy Billing Fees 18 4 350.0% ------------------------ Total 10,559 10,781 -2.1%

Expenses: Direct Commission Expense Paid to Producers 3,528 4,875 -27.6% Other Insurance Services Expenses 1,412 1,937 -27.1% Claims Expense Reimbursement to TICNY 3,276 2,987 9.7% ------------------------ Total Expenses 8,216 9,799 -16.2% ------------------------

Insurance Services Pre-tax Income (Loss) $2,343 $982 138.6% ========================

Tower Group, Inc. Consolidated Statements of Income and Comprehensive Net Income (Unaudited)

Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ---------------------- 2005 2004 2005 2004 ----------- ---------- ----------- ---------- ($ in thousands, except share and per share amounts) Revenues Net premiums earned $45,324 $12,082 $112,933 $29,527 Ceding commission revenue 6,845 9,375 18,021 30,426 Insurance services revenue 3,418 3,572 10,541 10,777 Net investment income 4,131 1,224 10,479 3,087 Net realized (losses) gains on investments (15) 35 214 33 Policy billing fees 234 176 671 508 ----------- ---------- ----------- ---------- Total revenues 59,937 26,464 152,859 74,358 ----------- ---------- ----------- ----------

Expenses Loss and loss adjustment expenses 26,512 7,420 66,587 18,329 Direct commission expense 11,277 7,751 30,738 23,405 Other operating expenses 12,068 6,912 30,265 21,416 Interest expense 1,296 752 3,567 2,127 ----------- ---------- ----------- ---------- Total expenses 51,153 22,835 131,157 65,277 ----------- ---------- ----------- ---------- Income before income taxes 8,784 3,629 21,702 9,081 Income tax expense 3,076 1,151 7,512 3,282 ----------- ---------- ----------- ---------- Net Income $5,708 $2,478 $14,190 $5,799 =========== ========== =========== ==========

Comprehensive Net Income Net income $5,708 $2,478 $14,190 $5,799 Other comprehensive income: Gross unrealized investment holding (losses) gains arising during period (4,765) 2,145 (4,424) (99) Less: reclassification adjustment for gains (losses) included in net income 15 (35) (214) (33) ----------- ---------- ----------- ---------- (4,750) 2,110 (4,638) (132)

Income tax benefit (expense) related to items of other comprehensive income 1,669 (717) 1,630 45 ----------- ---------- ----------- ---------- Total other comprehensive net (loss) income (3,081) 1,393 (3,008) (87) ----------- ---------- ----------- ---------- Comprehensive Net Income $2,627 $3,871 $11,182 $5,712 =========== ========== =========== ==========

Earnings Per Share

Basic earnings per common share $0.29 $0.55 $0.73 $1.31 =========== ========== =========== ========== Diluted earnings per common share $0.28 $0.43 $0.71 $1.01 =========== ========== =========== ==========

Weighted Average Common Shares Outstanding: Basic 19,575,728 4,502,831 19,550,722 4,439,233 Diluted 20,161,873 5,858,366 20,119,280 5,794,807

Tower Group, Inc. Consolidated Balance Sheets

(Unaudited) September 30, 2005 December 31, 2004 ------------------ ----------------- ($ in thousands, except par value and share amounts) Assets Fixed-maturity securities, available-for-sale, at fair value (amortized cost $313,435 in 2005 and $223,562 in 2004) $ 310,880 $ 224,523 Equity securities, available for sale, at fair value (cost $6,681 in 2005 and $1,827 in 2004) 6,196 2,485 Equity securities, at cost 24,020 - Common trust securities - statutory business trusts, equity method 1,426 1,426 ------------------ ----------------- Total investments 342,522 228,434 ------------------ ----------------- Cash and cash equivalents 30,608 55,201 Investment income receivable 3,234 1,975 Agents' balances receivable 37,204 33,473 Assumed premiums receivable 1,077 1,197 Ceding commission receivable 8,727 8,329 Reinsurance recoverable 100,578 101,173 Receivable - claims paid by agency 3,767 1,622 Prepaid reinsurance premiums 41,095 28,391 Deferred acquisition costs net of deferred ceding commission revenue 27,720 18,740 Federal income taxes and state taxes recoverable 1,819 1,975 Deferred income taxes 1,395 - Intangible assets 5,868 4,978 Fixed assets, net of accumulated depreciation 7,135 5,420 Other assets 3,186 3,239 ------------------ ----------------- Total Assets $615,935 $494,147 ================== =================

Liabilities Loss and loss adjustment expenses $175,517 $128,722 Unearned premium 151,213 95,505 Reinsurance balances payable 18,363 2,735 Payable to issuing carriers 12,489 18,652 Funds held as agent 773 785 Funds held under reinsurance agreements 54,783 54,152 Accounts payable and accrued expenses 10,958 12,410 Checks outstanding 2,568 2,726 Payable for securities 1,969 - Deferred income taxes - 1,587 Subordinated debentures 47,426 47,426 ------------------ ----------------- Total Liabilities 476,059 364,700 ------------------ -----------------

Stockholders' Equity Common stock ($0.01 par value per share; 40,000,000 shares authorized; 19,866,553 and 19,826,135 shares issued in 2005 and 2004) 199 198 Paid-in-capital 112,769 112,375 Accumulated other comprehensive net (loss) income (1,956) 1,052 Retained earnings 30,947 18,224 Unearned compensation - restricted stock (1,566) (1,908) Treasury stock (91,661 shares in 2005 and 88,967 in 2004) (517) (494) ------------------ ----------------- Total Stockholders' Equity 139,876 129,447 ------------------ ----------------- Total Liabilities and Stockholders' Equity $615,935 $494,147 ================== =================



CONTACT: Investor Relations:
Makovsky & Co. for Tower Group, Inc.
Gene Marbach, 212-508-9645
gmarbach@makovsky.com
OR
Tower Group, Inc.
Thomas Song, 212-655-4789
tsong@twrgrp.com

SOURCE: Tower Group, Inc.


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