Tag - Erie

You say synergy, I say mutually beneficial strategic relationship but let’s not call the whole thing off. Either way, when it comes to taking on insurance risk in an increasingly competitive rate market, it pays to have a friend to lean on — even if you’re a tower.

And it’s not hard to make friends when you have the charm of two years of approximately 20% return-on-equity and a 70% year-over-year rise in net income like New York-based property and casualty insurer Tower Group, Inc. (Nasdaq: TWGP) had in the third quarter of 2007.

The secret behind Tower’s market-defying profitability amid the softening North American insurance landscape is its expert specialization in serving small segments of the market that are less competitive, yet still lucrative and offer a unique strategic reinsurance relationship (more on that later).

“The company has been very successful in identifying underserved markets where pricing competition is less severe, allowing them to write new business at a faster rate than the industry average,” KeyBanc Capital Markets analyst Elizabeth Malone told SmallCapInvestor.com. Tower’s bread and butter has always been writing low- to moderate-risk small-sized “main street” policies (think restaurants, small businesses, retail stores, modestly priced homes), but it is now beginning to offer an even wider range of products.

The $633 million insurer is still a fairly small fish in the property and casualty pond, competing directly with the likes of Erie Indemnity Co. (Nasdaq: ERIE) and The Allstate Corp. (NYSE: ALL). With the purchase of a book of renewal premiums here and a debt offering there, however, Tower has moved slowly but surely from its modest beginnings in 1989 along a profitably expansionary path. The 2007 acquisition of New Jersey-based Preserver Group Inc. and its 300 retail agents in particular has enabled meaningful growth into New England markets and has opened up a new opportunity to move into the auto insurance segment.