Wunderlich Securities Gives Earnings Preview On Tower Group

Tower Group, Inc. TWGP is expected to report 4Q and year-end 2010 operating results on Monday, February 28, after the market close. Results for 4Q10 from the property/casualty industry reinforce our expectation that TWGP will report a 4Q10 operating EPS increase of 13% to $0.84 from $0.74 a year ago; the consensus EPS forecast for 4Q10 is $0.83. Wunderlich's estimate is slightly above consensus of $0.83 and compares to $0.74 in 4Q09. The company is expected to have benefited in 4Q10 from premium growth and an increase in invested assets from acquisitions. Wunderlich expects investment income increased 42% in 4Q10 to $30.0 million as acquisitions contributed to an 83% increase in invested assets to $2.7 billion. Return on equity is estimated at 10.3% for 4Q10. Wunderlich is expecting a 67% increase in net earned premiums to $388.4 million in 4Q10 compared to $234.0 million a year ago. The growth was primarily due to acquisitions. Wunderlich believes personal lines benefited in 4Q10 from positive pricing. Personal lines pricing has been one of the bright spots in 4Q10 earnings announcements. Wunderlich has a $32 PT and Buy rating on TWGP TWGP closed Wednesday at $26.85