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Analysis of Tower Group ,Inc. (easy work, only two questions) - Research Paper Example

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On average, the company’s annual earnings have recorded a 31.4% growth rate. Revenues generated by the company are significantly a good measure of its financial operation…
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Analysis of Tower Group ,Inc. (easy work, only two questions)
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How successfully has this company operated financially in the last two years? The last five years have been remarkable for the company in terms of financial operation and success. On average, the company’s annual earnings have recorded a 31.4% growth rate. Revenues generated by the company are significantly a good measure of its financial operation. Between the years 2009 and 2010, total revenues went up by 48.4%. There were a number of contributing factors behind the increased total revenues. First, net premiums had significantly improved between 2009 and 210. Within the same period, the company’s net investment income increased as a result of acquisition operations. OBPL was acquired by the company in the third quarter of the 2010 financial year.
In the financial year that followed, 2010-2011, a progressive trend was realized in total revenues. Up to 21.8% increase in total revenues was recorded as at 31st December, 2011. This trend was as well associated with OBPL acquisition in the previous year. Net premiums and investment income also contributed to this positive trend. Reflection period of the acquisition was now longer than that of the previous financial year. On more specific grounds, $1789.8 million of premiums earnings were recorded in the year 2011. 2010’s figure stood at $1519.6 million.
Another measure of financial operation success is operating costs. In order to realize maximum benefits, operational expenses should be minimized up to the point where profits are maximized. In the year 2010, operational costs stood at $497.7 million. In comparison to the previous year, operational expenses had gone up by 40.7%. However, this was expected due to the aforementioned acquisition of OBPL. Commercial Insurance segments were also restructured and improved technologically, thereby increasing the cost of operation. The scenario was not different in the year 2011. However, although there was an increase in operating expenses, the percentage increase in operational costs declined. In the year 2011, operational costs increased by 18.5%. This was as a result of an improved underwriting expense ratio that stood at 35.7% and 34.1% in 2010 and 2011 respectively.
Taxation is an inevitable principle in the business environment that the company operates in. It is therefore a critical determinant of any given company’s financial welfare. Tax expense in the company’s context increased between 2009 and 2010. The increase was directly proportional to the total taxable earnings. Taxes applicable to the company are local and state taxes. From the tax perspective, it is evident that the company was doing well financially. Over the next financial year, 2010/2011, the scenario reversed. Pre-tax income had declined, and so did the tax expense. On a lighter note, towards the end of the year 2011, net income and average equity returns had declined. This resulted from severe weather related claims that saw losses after tax increase to hit $48.3 million.
What suggestions do you have for the company’s strategy?
The company has successfully set its business aspect and has further exploited all means by which it is bound to make profits. The overall rating of its financial performance is promising. The coordination of activities between income and expenditure are effectively managed. The OBPL acquisition has proved to work out quite well for the company. The company should engage in similar or related activities that are bound to increase its market share. That is to say, Tower Group should consider undertaking even more acquisitions. It can also merge with smaller companies in a bid to consolidate its market share and consequently its business aspect, operation and performance.
The company should also adopt strategies that are in line with globalization. This is to say that it should consider cross border business operations. In other words, it should adopt diversity and dynamism strategies that fully strengthen its business interests. The company should therefore target a larger customer pool within and without borders, and also areas that are less catastrophic yet significantly potential for business. Read More
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