================================================================================
                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

 [X]  QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934 For the quarterly period
      ended March 31, 2007


 [_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
      For the transition period from _________________ to _________________


Commission file no. 000-50990

                                TOWER GROUP, INC.

             (Exact name of registrant as specified in its charter)

                   DELAWARE                               13-3894120
 ---------------------------------------------        -------------------
 (State or other jurisdiction of incorporation         (I.R.S. Employer
                or organization)                       Identification No.)


        120 BROADWAY, 31ST FLOOR
              NEW YORK, NY                                  10271
-----------------------------------------               ------------
 (Address of principal executive offices)                (Zip Code)

                                 (212) 655-2000
              (Registrant's telephone number, including area code)


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the  Securities  and  Exchange Act of 1934
during the preceding 12 months (or for such shorter  period that the  registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days. Yes [X] No [_]

         Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act. (Check one):

 Large accelerated filer [_] Accelerated filer [X] Non-accelerated filer [_]

         Indicate by check mark whether the registrant is a shell company (as
defined in rule 12b-2 of the Exchange Act).
                                                                  Yes [_] No [X]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 23,103,709 shares of common
stock, par value $0.01 per share, as of May 1, 2007.


<PAGE>
<TABLE>
<CAPTION>
                                      INDEX

                                                                                                                 PAGE

PART I      FINANCIAL INFORMATION

Item 1.          Financial statements

<S>                                                                                                           <C>
                 Consolidated Balance Sheets - March 31, 2007 (unaudited) and December 31, 2006               1

                 Consolidated Statements of Income and Comprehensive Net Income
                           -    Three months ended March 31, 2007 and 2006 (unaudited)                        2

                 Consolidated Statements of Cash Flows
                           -    Three months ended March 31, 2007 and 2006 (unaudited)                        3

                 Notes to Consolidated Financial Statements (unaudited)                                       4

Item 2.          Management's Discussion and Analysis of Financial Condition and Results of Operations       11

Item 3.          Quantitative and Qualitative Disclosures About Market Risk                                  20

Item 4.          Controls and Procedures                                                                     21

PART II          OTHER INFORMATION

Item 6.          Exhibits                                                                                    21

SIGNATURES                                                                                                   22

</TABLE>

<PAGE>



PART I - FINANCIAL INFORMATION


ITEM 1.  FINANCIAL STATEMENTS

                                TOWER GROUP, INC.
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                              (Unaudited)
                                                                              MARCH 31, 2007   DECEMBER 31, 2006
                                                                              --------------   -----------------
                                                                             ($ in thousands, except par value
                                                                                     and share amounts)
<S>                                                                              <C>            <C>
ASSETS
Fixed-maturity securities, available-for-sale,
      at fair value (amortized cost
$455,806 at March 31, 2007 and $416,642 at
    December 31, 2006)                                                            $   454,393    $   414,567
Equity securities, available-for-sale, at fair value
      (cost $47,368 at March 31, 2007 and $47,971 at December 31, 2006)                48,752         49,453
                                                                                  -----------    -----------
         TOTAL INVESTMENTS                                                            503,145        464,020
Cash and cash equivalents                                                             147,314        100,598
Investment income receivable                                                            4,787          4,767
Agents' balances receivable                                                            58,198         65,578
Assumed premiums receivable                                                             3,241             77
Ceding commission receivable                                                            3,435          3,237
Reinsurance recoverable                                                               133,120        118,003
Receivable - claims paid by agency                                                      7,782          5,186
Prepaid reinsurance premiums                                                          110,261         94,063
Deferred acquisition costs net of deferred ceding commission revenue                   31,026         35,811
State income tax recoverable                                                              338           --
Intangible assets                                                                       5,332          5,423
Fixed assets, net of accumulated depreciation                                          22,444         20,563
Investment in unconsolidated affiliate                                                 31,266         27,944
Investment in statutory business trusts, equity method                                  2,664          2,045
Other assets                                                                            7,735          6,767
                                                                                  -----------    -----------
        TOTAL ASSETS                                                              $ 1,072,088    $   954,082
                                                                                  ===========    ===========
LIABILITIES
Loss and loss adjustment expenses                                                 $   333,769    $   302,541
Unearned premium                                                                      229,270        227,017
Reinsurance balances payable                                                           50,046         38,560
Payable to issuing carriers                                                              --              662
Funds held as agent                                                                     8,178          8,181
Funds held under reinsurance agreements                                                47,871         51,527
Accounts payable and accrued expenses                                                   8,595         18,267
Deferred rent liability                                                                 7,459          6,295
Payable for securities                                                                  2,705          2,922
Other liabilities                                                                       3,515          3,515
Federal and state income taxes payable                                                  6,291          1,163
Deferred income taxes                                                                     876          1,255
Dividends payable                                                                        --              212
Subordinated debentures                                                                88,664         68,045
                                                                                  -----------    -----------
      TOTAL LIABILITIES                                                               787,239        730,162
                                                                                  -----------    -----------
STOCKHOLDERS' EQUITY
Series A perpetual preferred stock ($0.01 par value per share; 2,000,000 shares
    authorized; no shares issued and outstanding at March 31, 2007; 40,000
    shares issued and outstanding at December 31, 2006; liquidation preference
    of $1,000 per share, net
    of $0.4 million of issuance costs)                                                   --           39,600
Common stock ($0.01 par value per share; 40,000,000 shares authorized,
    23,129,232 and 20,005,758 shares issued at March 31,
    2007 and December 31, 2006, respectively, and 23,101,309 and 19,980,306
    shares outstanding at March 31, 2007 and December 31, 2006, respectively)             231            200
Paid-in-capital                                                                       202,557        113,168
Accumulated other comprehensive net loss                                                  (35)          (437)
Retained earnings                                                                      82,354         71,596
Treasury stock (27,923 shares at March 31, 2007 and 25,452 at December 31, 2006)         (258)          (207)
                                                                                  -----------    -----------
      TOTAL STOCKHOLDERS' EQUITY                                                      284,849        223,920
                                                                                  -----------    -----------
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                  $ 1,072,088    $   954,082
                                                                                  ===========    ===========
</TABLE>

        See accompanying notes to the consolidated financial statements.

                                       1
<PAGE>
                                TOWER GROUP, INC.
                      CONSOLIDATED STATEMENTS OF INCOME AND
                            COMPREHENSIVE NET INCOME
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                 THREE MONTHS ENDED
                                                                                      MARCH 31,
                                                                                  2007           2006
                                                                           -------------   --------------
                                                                            ($ in thousands, except share
                                                                                and per share amounts)
REVENUES
<S>                                                                        <C>             <C>
      Net premiums earned                                                  $     60,383    $     57,256
      Ceding commission revenue                                                  14,234           7,302
      Insurance services revenue                                                  1,460           1,829
      Net investment income                                                       7,955           4,660
      Net realized losses on investments                                            (17)           (145)
      Policy billing fees                                                           302             270
                                                                           ------------    ------------
          Total revenues                                                         84,317          71,172
                                                                           ------------    ------------
EXPENSES
     Loss and loss adjustment expenses                                           33,910          33,210
     Direct commission expense                                                   18,635          13,080
     Other operating expenses                                                    15,089          13,384
     Interest expense                                                             2,084           1,350
                                                                           ------------    ------------
           Total expenses                                                        69,718          61,024
                                                                           ------------    ------------
OTHER INCOME
     Equity income in unconsolidated affiliate                                      689            --
     Gain from IPO of common stock of unconsolidated affiliate                    2,705            --
                                                                           ------------    ------------
     Income before income taxes                                                  17,993          10,148
     Income tax expense                                                           6,365           3,638
                                                                           ------------    ------------
          NET INCOME                                                       $     11,628    $      6,510
                                                                           ============    ============
COMPREHENSIVE NET INCOME
     Net income                                                            $     11,628    $      6,510
     Other comprehensive income:
          Gross unrealized investment holding gains (losses)
              arising during period                                                 546          (3,399)
          Equity in net unrealized gains in investment in unconsolidated
                 affiliate's investment portfolio                                    55            --
          Less: reclassification adjustment for net realized losses
                included in net income                                               17             145
                                                                           ------------    -------------
                                                                                    618          (3,254)
          Income tax (expense) benefit related to items
              of other comprehensive income                                        (216)          1,081
                                                                           ------------    -------------
          Total other comprehensive net income (loss)                               402          (2,173)
                                                                           ------------    -------------
               COMPREHENSIVE NET
                   INCOME                                                  $     12,030    $      4,337
                                                                           ============    ============
EARNINGS PER SHARE
     Basic earnings per common share                                       $       0.52    $       0.33
                                                                           ============    ============
     Diluted earnings per common share                                     $       0.51    $       0.32
                                                                           ============    ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
     Basic                                                                   21,988,907      19,684,902
     Diluted                                                                 22,621,230      20,212,344
 DIVIDENDS DECLARED AND PAID PER COMMON SHARE:
          Common stock                                                     $      0.025    $      0.025
</TABLE>


        See accompanying notes to the consolidated financial statements.

                                       2
<PAGE>




                                TOWER GROUP, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>


                                                                               THREE MONTHS ENDED
                                                                                   MARCH 31,
                                                                               2007           2006
                                                                             ---------   ----------
                                                                                ($ in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                          <C>          <C>
   Net income                                                                $  11,628    $   6,510
   Adjustments to reconcile net income to net cash provided by operations:
      Gain from IPO of common shares of unconsolidated affiliate                (2,705)          --
      Loss on sale of investments                                                   17          145
      Depreciation                                                               1,461          925
      Amortization of intangible assets                                             91          103
      Amortization of bond premium or discount                                     203          281
      Amortization of debt issuance costs                                           16           10
      Amortization of restricted stock                                             289          152
      Deferred income taxes                                                       (595)       1,805
(Increase) decrease in assets:
      Investment income receivable                                                 (20)        (227)
      Agents' balances receivable                                                7,380        4,345
      Assumed premiums receivable                                               (3,164)      (2,410)
      Ceding commissions receivable                                               (198)          --
      Reinsurance recoverable                                                  (17,713)      (1,456)
      Prepaid reinsurance premiums                                             (16,198)      14,944
      Deferred acquisition costs, net                                            4,785       (9,598)
      Equity income in unconsolidated affiliate                                   (689)          --
      Excess tax benefits from share-based payment arrangements                    (65)          --
       Other assets                                                               (984)      (2,204)
Increase (decrease) in liabilities:
      Loss and loss adjustment expenses                                         31,228       21,202
      Unearned premium                                                           2,253       10,676
      Reinsurance balances payable                                              11,486       (9,748)
      Payable to issuing carriers                                                 (662)         778
      Funds held under reinsurance agreements                                   (3,659)       3,118
      Accounts payable and accrued expenses                                     (9,889)      (1,451)
      Deferred rent                                                              1,164           --
      Federal and state income taxes payable                                     4,790          851
                                                                             ---------    ---------
 Net cash flows provided by operations:                                         20,250       38,751
                                                                             ---------    ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets                                                        (3,342)      (1,404)
 Investment in unconsolidated affiliate                                            126           --
 Purchases of investments:
      Fixed-maturity securities                                                (75,203)     (46,879)
      Equity securities                                                         (2,570)        (244)
 Sale of investments:
      Fixed-maturity securities                                                 35,991       23,121
       Equity securities                                                         3,001           --
                                                                             ---------    ---------
Net cash flows used in investing activities:                                   (41,997)     (25,406)
                                                                             ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
      Redemption of  preferred stock                                           (40,000)          --
      Proceeds from issuance of subordinated debentures                         20,619       20,619
      Purchase of common trust securities - statutory business trusts             (619)        (619)
      Exercise of stock options                                                     93          107
      Excess tax benefits from share-based payment arrangements                     65           --
      Equity offering and over-allotment, net proceeds                          89,387           --
      Dividends paid                                                            (1,082)        (492)
                                                                             ---------    ---------
      Net cash flows provided by financing activities:                          68,463       19,615
                                                                             ---------    ---------
      Increase in cash and cash equivalents                                     46,716       32,960
      Cash and cash equivalents, beginning of period                           100,598       38,760
                                                                             ---------    ---------
      CASH AND CASH EQUIVALENTS, END OF PERIOD                               $ 147,314    $  71,720
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                           =========    =========
      Cash paid for income taxes
                                                                             $   1,077    $     986
      Cash paid for interest
                                                                             $   1,426    $     938

</TABLE>

        See accompanying notes to the consolidated financial statements.

                                       3
<PAGE>

                                TOWER GROUP, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)


BASIS OF PRESENTATION

      The accompanying unaudited consolidated financial statements have been
prepared in accordance with instructions for Form 10-Q and, accordingly, do not
include the information and disclosures required by generally accepted
accounting principles ("GAAP") in the Unites States of America. These statements
should be read in conjunction with the consolidated financial statements as of
and for the year ended December 31, 2006 and notes thereto included in the
Company's Annual Report on Form 10-K filed on March 15, 2007. The accompanying
consolidated financial statements have not been audited by an independent
registered public accounting firm in accordance with standards of the Public
Company Accounting Oversight Board (United States), but in the opinion of
management such financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the Company's
financial position and results of operations. The results of operations for the
three months ended March 31, 2007 may not be indicative of the results that may
be expected for the year ending December 31, 2007. The consolidated financial
statements include the accounts of Tower Group, Inc. (the "Company"), its wholly
owned subsidiaries Tower Insurance Company of New York ("TICNY"), Tower National
Insurance Company ("TNIC"), Tower Risk Management ("TRM") and other entities
required by GAAP. All significant inter-company balances have been eliminated.
Business segment results are presented net of all material inter-segment
transactions.

EQUITY OFFERING

      On January 22, 2007, the Securities and Exchange Commission declared Tower
Group, Inc.'s registration statement on Form S-3 effective relating to the
Company's common stock, par value $.01 per share. On January 22, 2007, the
Company signed an underwriting agreement providing for the issuance and sale of
2,704,000 shares of common stock at a price of $31.25 per share, less
underwriting discounts, and granted to the underwriters an option purchase of up
to 405,600 additional shares of common stock at the same price to cover
over-allotments.

      On January 26, 2007, the Company closed on its sale of 2,704,000 shares of
common stock. The Company's net proceeds were approximately $79.3 million.

      On February 5, 2007 the underwriters exercised their over-allotment option
with respect to 340,600 shares of common stock at the offering price of $31.25
per shares, less underwriting discounts. The Company received $10.1 million net
proceeds from this exercise after the underwriting discount. The exercise of the
over-allotment option brings the Company's aggregate net proceeds from the
offering and over-allotment option, after underwriting discounts and expenses,
to approximately $89.4 million.


SUBORDINATED DEBENTURES

      On January 25, 2007, the Company participated in a private placement of
$20.0 million of fixed/floating rate capital securities (the "Trust Preferred
Securities") issued by Tower Group Statutory Trust VI (the "Trust"), an
affiliated Delaware trust formed on January 11, 2007. The Trust Preferred
Securities mature in April 2036, are redeemable at the Company's option at par
beginning April 7, 2011, and require quarterly distributions of interest by the
Trust to the holder of the Trust Preferred Securities. Interest distributions
are initially at a fixed rate of 8.155% for the first five years and will then
reset quarterly for changes in the three-month London Interbank Offered Rate
("LIBOR") plus 300 basis points. The Trust simultaneously issued 619 of the
Trust's common securities to the Company for a purchase price of $0.6 million,
which constitutes all of the issued and outstanding common securities of the
Trust. The Trust used the proceeds from the sale of the Trust Preferred
Securities and common securities to purchase for $20.6 million a junior
subordinated debt security due 2037 issued by the Company. The Company does not
consolidate interest in its statutory business trusts for which the Company
holds 100% of the common trust securities because the Company is not the primary
beneficiary of the trusts. The Company reports the outstanding subordinated
debentures owed to the statutory business trusts as a liability. The net
proceeds to the Company from the sale of the debenture to the Trust were used by
the Company to redeem a portion of the Company's perpetual preferred stock as
described below. The Company incurred $0.4 million of fees related to the
issuance of these subordinated debentures.

                                       4
<PAGE>

REDEMPTION OF PERPETUAL PREFERRED STOCK

       On January 10, 2007, the Company exchanged its outstanding Series A
perpetual preferred stock for 40,000 shares of perpetual preferred Series A-1
stock. On January 26, 2007, the Company fully redeemed all 40,000 shares of
perpetual preferred Series A-1 stock for $40.0 million using $20.0 million of
the net proceeds from its trust preferred securities issued on January 25, 2007
and $20.0 million of the net proceeds from its common stock offering.

INVESTMENT IN UNCONSOLIDATED AFFILIATE--CASTLEPOINT

      At March 31, 2007, the Company's maximum exposure to a loss from its
investment in CastlePoint Holdings Ltd. ("CastlePoint") was approximately $31.3
million, which consists of its equity ownership interest of approximately $26.7
million and the warrant the Company received from CastlePoint of $4.6 million in
2006.

      The carrying value of the Company's equity investment in CastlePoint as of
March 31, 2007 is as follows in millions:
<TABLE>
<CAPTION>

<S>                                                                                                <C>
              Initial investment in CastlePoint..................................................  $15.0
              Consolidated net loss for the three months ended March 31, 2006....................   (0.5)
              Equity in net income of CastlePoint for the nine months ended December 31, 2006....    0.9
              Equity in net income of CastlePoint for the three months ended March 31, 2007          0.7
              Gain from issuance of common stock by CastlePoint in 2006..........................    7.9
              Gain from IPO of common stock of CastlePoint in 2007...............................    2.7
              Equity in net unrealized gains of the CastlePoint investment portfolio.............    0.2
              Dividends received from CastlePoint................................................   (0.2)
              Value of warrant received..........................................................    4.6
                                                                                                 --------
             Carrying value of equity investment in CastlePoint.................................  $ 31.3
                                                                                                 ========
</TABLE>


                                       5
<PAGE>



      The Company has determined that CastlePoint qualifies as a variable
interest entity ("VIE") under the provisions of Financial Accounting Standard
Board Interpretation ("FIN") 46-(R). The Company has determined that its
investment in CastlePoint does not meet the requirements for consolidation
because the Company is not the primary beneficiary of the VIE as defined in FIN
46-(R). However, the Company has recorded its investment in CastlePoint using
the equity method of accounting as the Company exercises significant influence
over CastlePoint. The Company and CastlePoint have the same Chief Executive
Officer, Michael H. Lee.

      On March 23, 2007, CastlePoint raised $114.8 million net of expenses in an
initial public offering which reduced the Company's investment ownership from
8.6% to 6.7%. As a result of the initial public offering, the book value of
CastlePoint increased from $279.7 million as of December 31, 2006 to $401.3
million as of March 31, 2007. Accordingly, the carrying value of the Company's
investment in CastlePoint increased from $27.9 million as of December 31, 2006
to $31.3 million as of March 31, 2007, including a warrant we received from
CastlePoint in 2006. In the three months ending March 31, 2007, the Company
recorded a gain of $2.7 million in income before taxes on its common stock
investment in CastlePoint in accordance with the Securities and Exchange
Commission's staff accounting bulletin ("SAB") No.51-"ACCOUNTING FOR SALES OF
STOCK BY A SUBSIDIARY."

      Dividends of $0.025 per share were declared and paid by CastlePoint in
December 2006 and March 2007. The Company recorded its $128,000 of CastlePoint
dividends received or accrued as a reduction to its investment in CastlePoint in
the first quarter of 2007.

      As of March 30, 2007, the aggregate fair value of the Company's investment
in its 2,555,000 shares of CastlePoint common stock listed on the Nasdaq Global
Market under the symbol "CPHL" was $41,774,000.

REINSURANCE AGREEMENT WITH CASTLEPOINT

      The Company's insurance subsidiaries are parties to three multi-year quota
share reinsurance agreements with CastlePoint Reinsurance Company, Ltd.
("CastlePoint Reinsurance"). Under one of these agreements, the Company's
insurance subsidiaries cede to CastlePoint Reinsurance between 25% and 50%, as
amended subject to a periodic adjustment by the Company, of premiums and losses
on their brokerage insurance business that the Company has historically written
through its retail and wholesale agents. The insurance subsidiaries ceded $51.1
million of premiums written during the three months ended March 31, 2007 for
these three quota share agreements. In addition, CastlePoint Reinsurance
participates as a reinsurer on the Company's catastrophe reinsurance program,
effective July 1, 2006, and excess of loss reinsurance program effective, May 1,
2006. The insurance subsidiaries ceded excess of loss reinsurance and
catastrophe premiums to CastlePoint Reinsurance of $1.2 million for the three
months ended March 31, 2007.


INVESTMENTS

      Impairment of investment securities results in a charge to operations when
a market decline below cost is deemed to be other-than-temporary. As of March
31, 2007, the Company reviewed its fixed-maturity and equity securities
portfolios to evaluate the necessity of recording impairment losses for
other-than-temporary declines in the fair value of investments. The Company
determined that it did not hold any investments that would have been considered
other than temporarily impaired.


DIVIDENDS DECLARED

      Dividends declared by the Company on common stock for the three months
ended March 31, 2007 were $571,000 or $0.025 per share. Dividends declared by
the Company on common stock for the three months ended March 31, 2006 were
$492,000 or $0.025 per share.

      Dividends paid by the Company on its perpetual preferred Series A-1 stock
in the first quarter of 2007 were $298,000 and none in the first quarter of
2006.

EQUITY COMPENSATION PLANS

RESTRICTED STOCK AWARDS

      During the three months ended March 31, 2007, 76,474 restricted stock
shares were granted to senior officers and key employees. The fair value of the
awards was $2.5 million on the date of grant. For the three months ended March
31, 2007, 10,306 restricted stock shares vested and 2,471 were forfeited.
Compensation expense recognized for the three months ended March 31, 2007 and
2006 was $188,000 and $99,000 net of tax, respectively. Total unrecognized
compensation expense before tax for grants of restricted stock was $4.7 million
and $2.6 million at March 31, 2007 and December 31, 2006, respectively. The
intrinsic value of the unvested restricted stock outstanding as of March 31,
2007 is $7.9 million.


Changes in restricted stock for the three months ended March 31, 2007 were as
follows:
<TABLE>
<CAPTION>

                                                                               Weighted Average
                                                          Number               Grant Date Fair
                                                         of Shares                   Value
                                                        -----------            -----------------
<S>                                                         <C>                    <C>
         Outstanding at December 31, 2006                   180,766                $     17.35
         Granted                                             76,474                      32.56
         Vested                                             (10,306)                     21.16
         Forfeited                                           (2,471)                     20.84
                                                        ----------
         Outstanding at March 31, 2007                      244,463                      21.91
</TABLE>


STOCK OPTIONS
Changes in stock options for the three months ended March 31, 2007 were as
follows:
<TABLE>
<CAPTION>

                                                                        Average
                                                    Number of           Exercise
                                                     Shares              Price
                                                   -----------         ----------
<S>                                                  <C>                <C>
         Outstanding at December 31, 2006            362,996            $ 4.94
         Exercised                                   (2,400)              2.78
                                                   -----------
         Outstanding at March 31, 2007               360,596              4.96
                                                   ===========
         Exercisable at March 31, 2007               278,207              3.91
                                                   ===========
</TABLE>



                                       6
<PAGE>



Options outstanding and exercisable as of March 31, 2007 were as follows:

<TABLE>
<CAPTION>
<S>                                <C>                 <C>     <C>           <C>             <C>
                                              Options outstanding                 Options exercisable
                                    ---------------------------------------- -------------------------------
                                                   Average         Average                       Average
                                    Number of     remaining        exercise    Number of        exercise
Range of Exercise Prices             shares     contractual life    Price       shares           Price
-------------------------           ----------  ----------------- ---------- -------------    --------------
Under $4.00                          223,280          3.8         $     2.78       223,280    $         2.78
$5.00 - $10.00                       137,316          7.5               8.50        54,927              8.50
                                    ----------                               -------------
Total Options                        360,596          5.6               4.96       278,207              3.91
                                    ==========                               =============
</TABLE>

      Compensation expense net of tax related to stock options was $14,000 for
the three months ended March 31, 2007 compared to $21,000 in the same period
last year. Total unrecognized expense, before tax, for grants of stock options
was $217,000 and $238,000 as of March 31, 2007 and December 31, 2006,
respectively. The intrinsic value of stock options outstanding as of March 31,
2007 is $9.8 million, of which $7.9 million is related to vested options.


INCOME TAXES

      The Company adopted the provisions of Financial Accounting Standards Board
("FASB") Interpretation No. 48, "ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES, AN
INTERPRETATION OF FASB STATEMENT NO. 109" ("FIN 48"), on January 1, 2007. At the
adoption date and as of March 31, 2007, the Company had no material unrecognized
tax benefits and no adjustments to liabilities or operations were required.

      The Company recognizes interest and penalties related to uncertain tax
positions in income tax expense which were zero for the three months ended March
31, 2007.

      Tax years 2004 through 2006 are subject to examination by the federal
authorities. There is currently a New York State Department of Taxation and
Finance audit under way for the tax years of 2003 through 2004.

ACCOUNTING PRONOUNCEMENTS

      In February 2006, the FASB issued SFAS No. 155, "ACCOUNTING FOR CERTAIN
HYBRID FINANCIAL INSTRUMENTS" ("SFAS No. 155"). Under current generally accepted
accounting principles, an entity that holds a financial instrument with an
embedded derivative must bifurcate the financial instrument, resulting in the
host and the embedded derivative being accounted for separately. SFAS No. 155
permits, but does not require, entities to account for financial instruments
with an embedded derivative at fair value, thus negating the need to bifurcate
the instrument between its host and the embedded derivative. The Company adopted
SFAS No. 155 on January 1, 2007. SFAS No. 155 did not have any effect on our
consolidated financial condition or results of operations.

      In February 2007, the FASB issued SFAS No. 159, "THE FAIR VALUE OPTION FOR
FINANCIAL ASSETS AND FINANCIAL LIABILITIES - INCLUDING AN AMENDMENT OF SFAS NO.
115". This standard permits an entity to choose to measure many financial
instruments and certain other items at fair value. Most of the provisions in
SFAS No. 159 are elective; however, the amendment to SFAS No. 115, applies to
all entities with available-for-sale and trading securities. The FASB's stated
objective in issuing this standard is as follows: "to improve financial
reporting by providing entities with the opportunity to mitigate volatility in
reported earnings caused by measuring related assets and liabilities differently
without having to apply complex hedge accounting provisions." The fair value
option established by SFAS No. 159 permits all entities to choose to measure
eligible items at fair value at specified election dates. A business entity will
report unrealized gains and losses on items for which the fair value option has
been elected in earnings at each subsequent reporting date. The fair value
option: (a) may be applied instrument by instrument, with a few exceptions, such
as investments otherwise accounted for by the equity method; (b) is irrevocable
(unless a new election date occurs); and (c) is applied only to entire
instruments and not to portions of instruments. SFAS No. 159 is effective as of
the beginning of the entity's first fiscal year that begins after November 15,
2007. We are currently evaluating the impact that the adoption of SFAS No. 159
will have on our consolidated financial position and results of operations.


                                       7
<PAGE>





EARNINGS PER SHARE

The following table shows the computation of the Company's earnings per share:


<TABLE>
<CAPTION>
                                        Income              Shares        Per Share
                                      (Numerator)        (Denominator)      Amount
                                     --------------    ----------------  ----------------
                                    ($ in thousands, except shares and per share amounts)
THREE MONTHS ENDED
MARCH 31, 2007
<S>                                     <C>                 <C>               <C>
Net Income                              $   11,628
Less: preferred stock dividends               (298)
                                        -----------     --------------
Basic earnings per share                    11,330          21,988,907         $0.52
                                        -----------     --------------     ===========
Effect of dilutive securities:
     Stock options                            --               197,218
     Unvested restricted stock                --                59,924
     Warrants                                 --                34,138
     Preferred shares                         --               341,043
     Preferred stock dividends                 298                --
                                        -----------     --------------
Diluted earnings per share              $   11,628          22,621,230         $0.51
                                        -----------     --------------     ===========
THREE MONTHS ENDED
MARCH 31, 2006
Net Income                              $    6,510
                                        -----------     --------------
Basic earnings per share                     6,510          19,684,902         $0.33
                                        -----------     --------------     ===========
Effect of dilutive securities:
     Stock options                            --               328,911
     Unvested restricted stock                --               171,573
     Warrants                                 --                26,958
                                        -----------     --------------
Diluted earnings per share              $    6,510          20,212,344         $0.32
                                        -----------     --------------     ===========
</TABLE>

CHANGES IN ESTIMATES

      In the first quarter of 2007, the Company recorded favorable development
in its net losses from prior accident years of $4,000 resulting from favorable
development in the property and workers compensation lines from accident years
2005 and 2006, which was partially offset by unfavorable development in
commercial multiple-peril liability from accident years 2002 and 2003. In the
first quarter of 2006, the Company recorded $525,000 due to favorable
development in its net losses from prior accident years resulting from favorable
development in the property, workers compensation, auto liability and monoline
liability lines from the 2004 accident year, which was partially offset by
unfavorable development in commercial multiple-peril liability. TICNY's changes
in estimated sliding scale commission revenue resulted in $61,000 of commission
revenue in the first quarter of 2007 compared to $393,000 of commission revenue
in the first quarter of 2006. TRM's changes in estimated sliding scale
commission were an increase in ceding commission revenue for prior years of
$501,000 in the first quarter of 2007 compared to a reduction of $348,000 in
commission revenue in the first quarter of 2006.


SEGMENT INFORMATION

      The Company manages its operations through three business segments:
insurance (commercial and personal lines underwriting), reinsurance and
insurance services (managing general agency, claims administration and
reinsurance intermediary operations). The Company considers many factors in
determining reportable segments including economic characteristics, production
sources, products or services offered and regulatory environment.

      The accounting policies of the segments are the same as those described in
the summary of significant accounting policies as described in the Company's
Form 10-K for the year ended December 31, 2006. The Company evaluates segment
performance based on segment profit, which excludes investment income, realized
gains and losses, interest expense, income taxes and incidental corporate
expenses. The Company does not allocate assets to segments because assets, which
consist primarily of investments and fixed assets, are considered in total by
management for decision-making purposes.


                                       8
<PAGE>

      Business segments results are as follows:

<TABLE>
<CAPTION>

                                                                  THREE MONTHS ENDED
                                                                       MARCH 31,
                                                                 2007              2006
                                                             -----------         -----------
                                                                  ($ in thousands)
INSURANCE SEGMENT
REVENUES
<S>                                                            <C>               <C>
Net premiums earned                                          $   57,750          $    56,589
Ceding commission revenue                                        14,234                7,302
Policy billing fees                                                 302                  267
                                                             -----------         -----------
     Total revenues                                              72,286               64,158
                                                             -----------         -----------
EXPENSES
Net loss and loss adjustment expenses                            32,470               32,833
Underwriting expenses                                            31,251               23,399
                                                             -----------         -----------
     Total expenses                                              63,721               56,232
                                                             -----------         -----------
Underwriting profit                                          $    8,565          $     7,926
                                                             ===========         ===========

REINSURANCE SEGMENT
REVENUES
Net premiums earned                                          $    2,633          $       667
                                                             -----------         -----------
     Total revenues                                               2,633                  667
                                                             -----------         -----------
EXPENSES
Net loss and loss adjustment expenses                             1,440                  377
Underwriting expenses                                             1,286                  253
                                                             -----------         -----------
     Total expenses                                               2,726                  630
                                                             -----------         -----------
Underwriting (loss) profit                                   $      (93)         $        37
                                                             ===========         ===========
INSURANCE SERVICES SEGMENT
REVENUES
Direct commission revenue from managing general agency       $      488          $       806
Claims administration revenue                                       565                  962
Other administration revenue                                        251                   --
Reinsurance intermediary fees                                       156                   61
Policy billing fees                                                  --                    3
                                                             -----------         -----------
     Total revenues                                               1,460                1,832
                                                             -----------         -----------
EXPENSES
Direct commission expense paid to producers                           7                  603
Other insurance services expenses                                   257                  237
Claims expense reimbursement to TICNY                               565                  958
                                                             -----------         -----------
     Total expenses                                                 829                1,798
                                                             -----------         -----------
Insurance Services Pre-tax Income                            $    631            $        34
                                                             ===========         ===========
</TABLE>

      Underwriting expenses in the insurance segment are net of expense
reimbursements that are made by the insurance services segment pursuant to an
expense sharing agreement between TRM, TNIC and TICNY. In accordance with terms
of this agreement, TRM reimburses TICNY for a portion of TICNY's underwriting
and other expenses resulting from TRM's use of TICNY's personnel, facilities and
equipment in underwriting insurance on behalf of TRM's issuing companies. The
reimbursement for underwriting and other expenses is calculated as a minimum
reimbursement of 5% of the premiums produced by TRM and is adjustable according
to the terms of the agreement based on the number of policies in force and
additional expenses that may be incurred by TRM. The amount of this
reimbursement was $257,000 and $237,000 for the three months ended March 31,
2007 and March 31, 2006, respectively. TRM also reimburses TICNY, at cost, for
claims administration expenses pursuant to the terms of this expense sharing
agreement. Claims expenses reimbursed by TRM were $565,000 and $958,000 for the
three months ended March 31, 2007 and March 31, 2006, respectively. TICNY is
also reimbursed, at cost, for other administrative services provided to
CastlePoint pursuant to the terms of the service and expense sharing agreement
which were $251,000 during the three months ended March 31, 2007 and none for
the same period last year as CastlePoint was still in formation.


                                       9
<PAGE>



The following table reconciles revenue by segment to consolidated revenue:

<TABLE>
<CAPTION>

                                                                                     THREE MONTHS ENDED
                                                                                          MARCH 31,
                                                                           2007                                2006
                                                                    -------------------                 ------------------
                                                                                      ($ in thousands)
               RECONCILIATION
               REVENUES
<S>                                                                 <C>                                 <C>
               Insurance segment                                    $           72,286                  $           64,158
               Reinsurance segment                                               2,633                                 667
               Insurance services segment                                        1,460                               1,832
                                                                    -------------------                 ------------------
               Total segment revenue                                            76,379                              66,657
               Investment income                                                 7,955                               4,660
               Realized capital losses                                             (17)                               (145)
                                                                    -------------------                 ------------------
               Consolidated revenues                                $           84,317                  $           71,172
                                                                    ===================                 ==================
</TABLE>

The following table reconciles the results of the Company's individual segments
to consolidated income before taxes:

<TABLE>
<CAPTION>
                                                                                     THREE MONTHS ENDED
                                                                                          MARCH 31,
                                                                           2007                                2006
                                                                    -------------------                 ------------------
                                                                                      ($ in thousands)

<S>                                                                  <C>                                 <C>
               Insurance segment underwriting profit                 $            8,565                  $            7,926
               Reinsurance segment underwriting (loss) profit                       (93)                                 37
                                                                    -------------------                 -------------------
               Total underwriting profit                                          8,472                               7,963
               Insurance services segment pre-tax income                            631                                  34
               Net investment income                                              7,955                               4,660
               Net realized investment losses                                       (17)                               (145)
               Corporate expenses                                                  (358)                             (1,014)
               Interest expense                                                  (2,084)                             (1,350)
               Other income*                                                      3,394                                   -
                                                                    -------------------                 -------------------
               Income before income taxes                            $           17,993                  $           10,148
                                                                    ===================                 ===================

               *SEE NOTE ON INVESTMENT IN UNCONSOLIDATED AFFILIATE-CASTLEPOINT
</TABLE>


SUBSEQUENT EVENTS

      On April 10, 2007, the Company completed the acquisition of 100% of the
issued and outstanding common stock of Preserver Group, Inc. ("Preserver"), a
New Jersey corporation, pursuant to the Stock Purchase Agreement, dated as of
November 13, 2006, by and among the Company, Preserver and the Sellers named
therein. The Company paid a total of $65.0 million comprised of $34.2 million in
cash considerations to the Sellers and a contribution of $30.8 million to the
capital of Preserver to enable Preserver to repay the principal and accrued
interest of indebtedness held by certain of the Sellers. As of March 31, 2007,
the Company incurred $0.7 million of acquisition costs for legal, accounting and
other costs that have been capitalized and recorded as other assets.

      On April 26, 2007, the Company's Board of Directors approved a quarterly
dividend of $0.025 per share payable June 27, 2007 to stockholders of record as
of June 15, 2007.


                                       10
<PAGE>



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


NOTE ON FORWARD-LOOKING STATEMENTS

      Some of the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this Form 10-Q
may include forward-looking statements that reflect our current views with
respect to future events and financial performance. These statements include
forward-looking statements both with respect to us specifically and the
insurance sector in general. Statements that include the words "expect,"
"intend," "plan," "believe," "project," "estimate," "may," "should,"
"anticipate," "will" and similar statements of a future or forward-looking
nature identify forward-looking statements for purposes of the Federal
securities laws or otherwise.

      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, the
following:

     o    ineffectiveness  or  obsolescence  of  our  business  strategy  due to
          changes in current or future market conditions;
     o    developments  that may delay or limit our ability to enter new markets
          as quickly as we anticipate;
     o    increased  competition  on the basis of  pricing,  capacity,  coverage
          terms or other factors;
     o    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;
     o    the effects of acts of terrorism or war;
     o    developments  in  the  world's  financial  and  capital  markets  that
          adversely affect the performance of our investments;
     o    changes in  regulations  or laws  applicable to us, our  subsidiaries,
          brokers or customers;
     o    acceptance  of our products and  services,  including new products and
          services;
     o    changes  in the  availability,  cost or  quality  of  reinsurance  and
          failure of our reinsurers to pay claims timely or at all;
     o    changes in the  percentage  of our  premiums  written  that we cede to
          reinsurers;
     o    decreased demand for our insurance or reinsurance products;
     o    loss of the  services  of any of our  executive  officers or other key
          personnel;
     o    the effects of mergers, acquisitions and divestitures;
     o    changes in rating agency policies or practices;
     o    changes in legal theories of liability under our insurance policies;
     o    changes in accounting policies or practices; and
     o    changes in general economic conditions,  including inflation, interest
          rates and other factors.

The foregoing review of important factors should not be construed as exhaustive
and should be read in conjunction with the other cautionary statements that are
included in this Form 10-Q. We undertake no obligation to publicly update or
review any forward-looking statement, whether as a result of new information,
future developments or otherwise.




                                       11
<PAGE>







CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>

                                                                            THREE MONTHS ENDED
                                                                                  MARCH 31,
                                                                 2007                               2006
                                                          ------------------                  ------------------

                                                                              ($ in thousands)
               REVENUES
               EARNED PREMIUMS
<S>                                                       <C>                                 <C>
               Gross premiums earned                      $         108,627                   $          76,616
               Less: ceded premiums earned                          (48,244)                            (19,360)
                                                          ------------------                  ------------------
               Net premiums earned                                   60,383                              57,256
                                                          ------------------                  ------------------
               Total commission and fee income                       15,996                               9,401
               Net investment income                                  7,955                               4,660
               Net realized investment losses                           (17)                               (145)
                                                          ------------------                  ------------------
               Total revenues                                        84,317                              71,172
                                                          ------------------                  ------------------
               EXPENSES
               Net loss and loss adjustment expenses                 33,910                              33,210
               Operating expenses                                    33,724                              26,464
               Interest expenses                                      2,084                               1,350
                                                          ------------------                  ------------------
               Total expenses                                        69,718                              61,024
                                                          ------------------                  ------------------
               Other income                                           3,394                                   -
               Income before taxes                                   17,993                              10,148
               Federal and state income taxes                         6,365                               3,638
                                                          ------------------                  ------------------
               NET INCOME                                 $          11,628                   $           6,510
                                                          ==================                  ==================
               KEY MEASURES
               Return on average equity                               23.8%                               17.7%
</TABLE>

SIGNIFICANT EVENTS


      During the three months ended March 31, 2007, we completed a public
offering of 2,704,000 shares of common stock, and the underwriters exercised the
over-allotment option with respect to 340,600 shares of common stock that in
total raised approximately $89.4 million in net proceeds for us. In addition, we
issued $20.6 million of subordinated debentures. We also redeemed all 40,000
shares of our perpetual preferred stock for $40.0 million and used the remaining
proceeds in connection with our April 10, 2007 acquisition of Preserver.

      We own 2,555,000 shares of CastlePoint that we sponsored and formed on
February 6, 2006. On April 4, 2006 CastlePoint raised $249.9 million, net of
expenses, in a private placement offering which reduced our ownership from
100.0% to 8.6%. On March 23, 2007, CastlePoint raised $114.8 million net of
expenses in an initial public offering which reduced our investment ownership
from 8.6% to 6.7%.

      As a result of the initial public offering, the book value of CastlePoint
increased from $279.7 million as of December 31, 2006 to $401.3 million as of
March 31, 2007. Accordingly, the carrying value of our investment in CastlePoint
increased from $27.9 million as of December 31, 2006 to $31.3 million as of
March 31, 2007, including a warrant we received from CastlePoint in 2006. In the
three months ending March 31, 2007, we recorded a gain of $2.7 million in income
before taxes on our common stock investment in CastlePoint in accordance with
the Securities and Exchange Commission's staff bulletin ("SAB") No.
51-"ACCOUNTING FOR SALES OF STOCK BY A SUBSIDIARY".



                                       12
<PAGE>


  CONSOLIDATED RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 2007 AND 2006

      TOTAL REVENUES. Total revenues increased by 18.5% to $84.3 million for the
three months ended March 31, 2007 compared to $71.2 million for the same period
in 2006. The increase is primarily due to the increases in net premiums earned,
commission and fee income and net investment income. Net premiums earned
represented 71.6% of total revenues for the three months ended March 31, 2007
compared to 80.4% for the same period in 2006. Net investment income, excluding
realized capital losses or gains, represented 9.4% and 6.5% of total revenues
for the three months ended March 31, 2007 and March 31, 2006, respectively.
Total commission and fee income for the three months ended March 31, 2007
increased 70.2% to $16.0 million compared to $9.4 million for the three months
ended March 31, 2006. We did not place quota share reinsurance for policies
written during the first quarter in 2006 in expectation that CastlePoint
Reinsurance, post formation, would agree to enter into a multi-year quota share
reinsurance agreement. Therefore, the consolidated results of operations and the
insurance segment underwriting results for the first quarter of 2006 reflect net
underwriting results without quota share reinsurance with respect to policies
that began in 2006. We entered into three multi-year quota share reinsurance
agreements with CastlePoint Reinsurance on April 6, 2006. During the first
quarter of 2007, in order to achieve our targeted net retention that is
consistent with our hybrid business model, we increased the quota share ceding
percentage to CastlePoint Reinsurance from 40% to 49%. The increase in the quota
share ceding percentage contributed to the increase in commission and fee
income.

      PREMIUMS EARNED. Net premiums earned increased by 5.5% to $60.4 million
for the three months ended March 31, 2007 compared to $57.3 million for the same
period in 2006. The 5.5% increase in net premiums earned was due to the 41.8%
increase in gross premiums written for the three months ended March 31, 2007
compared to the same period last year that was offset by a 149.2% increase in
ceded premiums earned in the three months ended March 31, 2007 compared to the
same period last year. The increase in ceded premiums was due to our decision
not to enter into a quota share reinsurance agreement for the three months ended
March 31, 2006 compared to a 49% quota share agreement for the three months
ended March 31, 2007. During the first quarter of 2006, we were in discussion
with CastlePoint Reinsurance while it was in formation to enter into three
multi-year quota share reinsurance agreements. CastlePoint Reinsurance was
capitalized and formed on April 4, 2006 and the quota share reinsurance
agreements were executed post formation on April 6, 2006.

      COMMISSION AND FEE INCOME. Total commission and fee income increased by
70.2% to $16.0 million in the first quarter of 2007 compared to $9.4 million in
the first quarter of 2006. This was due to the increase in the ceding commission
revenue earned as a result of the overall increase in ceded premiums earned as
discussed above. In addition, commission and fee income includes other
administration revenue of $0.3 million from services provided to and reimbursed
by CastlePoint. For the three months ended March 31, 2007 the change in
estimated sliding scale commission rate for commissions earned in prior periods
in both the Insurance Segment and the Insurance Services Segment resulted in a
net increase of $600,000 compared to $45,000 in the same period last year.

      NET INVESTMENT INCOME AND NET REALIZED LOSSES. Net investment income
increased by 70.7% to $8.0 million for the three months ended March 31, 2007
compared to $4.7 million for the same period in 2006. This resulted from an
increase in invested assets to $503.1 million as of March 31, 2007 compared to
$379.6 million as of March 31, 2006. Net cash flows provided by operations of
$20.3 million contributed to the increase in invested assets during the three
months ended March 31, 2007 as well as cash flow provided by financing
activities of $68.5 million as a result of our net proceeds from the issuance of
subordinated debentures on January 25, 2007, an equity offering on January 26,
2007 and the exercise of the underwriters' over-allotment option on February 5,
2007 partially offset by the redemption of preferred stock. On a tax equivalent
basis, the yield was 5.7% as of March 31, 2007 compared to 5.4% as of March 31,
2006.


      Net realized capital losses were $17,000 in the three months ended March
31, 2007 compared to $145,000 in the same period last year. The net realized
capital losses in the same period last year were from the sale of automotive
credit bonds and other securities.


      There was no impact on net realized losses or gains attributable to
adjustments for other than temporary impairment of securities held during the
three months ending March 31, 2007 and during the same period in 2006.


                                       13
<PAGE>

      LOSSES AND LOSS ADJUSTMENT EXPENSES. Gross loss and loss adjustment
expenses and the gross loss ratio for both the Insurance and Reinsurance
Segments combined for the three months ended March 31, 2007 were $57.3 million
and 52.8%, respectively, compared to $43.3 million and 56.5%, respectively, in
the same period in 2006. The net loss ratio for the combined segments was 56.2%
in the three months ended March 31, 2007 and 58.0% in the same period in 2006.
The decrease in the gross and net loss ratios in the first quarter of 2007
compared to the same period in 2006 was primarily due to lower than expected
loss emergence for the property lines for the current accident year that
resulted in lower loss ratios for property lines for the first quarter of 2007
compared to the same period in 2006 and 2006 price increases affecting earned
premiums in 2007. However, the decrease in the net loss ratio was offset, in
part, by the increase in the catastrophe reinsurance premiums ceded.

      OPERATING EXPENSES. Operating expenses increased by 27.4% to $33.7 million
for the three months ended March 31, 2007 from $26.5 million for the same period
in 2006. The increase was due primarily to an increase in underwriting expenses
resulting from the growth in premiums earned and additional staffing expenses.

      INTEREST EXPENSE. Interest expense increased for the three months ended
March 31, 2007 to $2.1 million compared to $1.4 million for the same period in
2006. The increase resulted from $0.3 million of interest expense from the $20.6
million of subordinated debentures issued on January 25, 2007, $0.5 million
resulting from an increase in interest rates on the floating rate portions of
our subordinated debentures partially offset by a decrease of $0.1 million as a
result of crediting reinsurers on funds withheld in segregated trusts as
collateral for reinsurance recoverables.

      INCOME TAX EXPENSE. Income tax expense was $6.4 million for the three
months ended March 31, 2007 compared to $3.6 million for the same period in
2006. The increase was due primarily to the increase in income before income
taxes. The effective income tax rate was 35.4% for the three months ending March
31, 2007 compared to 35.8% for the same period in 2006.

      NET INCOME AND RETURN ON AVERAGE COMMON EQUITY. Net income and annualized
return on average common equity was $11.6 million and 23.8%, respectively, for
the three months ended March 31, 2007 compared to $6.5 million and 17.7%,
respectively, for the same period in 2006. For the first quarter of 2007, the
return was calculated by dividing annualized net income of $45.3 million,
excluding preferred dividends, by an average common stockholders' equity of
$190.5 million. For the first quarter of 2006, the return was calculated by
dividing annualized net income of $26.0 million by an average common
stockholders' equity of $146.9 million. As a result of the significant increase
in stockholders' equity from our offering and over-allotment exercise in the
quarter, average common stockholders' equity as of March 31, 2007 was calculated
using a quarterly average for the twelve months ending March 31, 2007.




INSURANCE SEGMENT RESULTS OF OPERATIONS
<TABLE>
<CAPTION>


                                                                 THREE MONTHS ENDED
                                                                      MARCH 31,
                                                              2007                2006
                                                          -----------          ------------

                                                                  ($ in thousands)
REVENUES
PREMIUMS EARNED
<S>                                                         <C>                 <C>
      Gross premiums earned                                 $ 105,960           $  75,922
      Less: ceded premiums earned                             (48,210)            (19,333)
                                                          -----------          ------------
      Net premiums earned                                      57,750              56,589
Ceding commission revenue                                      14,234               7,302
Policy billing fees                                               302                 267
                                                          -----------          ------------
Total                                                          72,286              64,158


EXPENSES
LOSS AND LOSS ADJUSTMENT EXPENSES
      Gross loss and loss adjustment expenses                  55,877              42,916
      Less: ceded loss and loss adjustment expenses           (23,407)            (10,083)
                                                          -----------          ------------
      Net loss and loss adjustment expenses                    32,470              32,833
UNDERWRITING EXPENSES
      Direct commission expense                                17,684              12,325
      Other underwriting expenses                              13,567              11,074
                                                          -----------          ------------
Total underwriting expenses                                    31,251              23,399
                                                          -----------          ------------
UNDERWRITING PROFIT                                         $   8,565           $   7,926
                                                          ===========          ============
</TABLE>

                                       14
<PAGE>
<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED
                                                                      MARCH 31,
                                                              2007                2006
                                                          -----------          ------------
                                                                  ($ in thousands)
KEY MEASURES
PREMIUMS WRITTEN
<S>                                                         <C>                 <C>
       Gross premiums written                               $ 110,894           $  83,431
       Less: ceded premiums written                           (62,845)             (4,495)
                                                          ------------         ------------
       Net premiums written                                 $  48,049           $  78,936
                                                          ============         ============
LOSS RATIOS
Gross                                                            52.7%               56.5%
Net                                                              56.2%               58.0%
ACCIDENT YEAR LOSS RATIOS
Gross                                                            52.9%               57.6%
Net                                                              55.9%               58.9%
UNDERWRITING EXPENSE RATIOS
Gross                                                            29.2%               30.5%
Net                                                              28.9%               28.0%
COMBINED RATIOS
Gross                                                            81.9%               87.0%
Net                                                              85.1%               86.0%
</TABLE>


INSURANCE  SEGMENT  RESULTS OF OPERATIONS  THREE MONTHS ENDED
MARCH 31, 2007 AND 2006


      GROSS PREMIUMS. Gross premiums written increased by 32.9% to $110.9
million for the three months ended March 31, 2007 compared to $83.4 million for
the same period in 2006. Gross premiums earned increased by 39.6% to $106.0
million for the three months ended March 31, 2007 compared to $75.9 million for
the same period in 2006. Policies in force increased 18.5% for the three months
ended March 31, 2007 compared to the same period in 2006. Additionally, during
the first quarter of 2007, premium increases on renewed business averaged 11.3%
in personal lines and 2.1% in commercial lines. The retention rate was 90% for
personal lines and 80% for commercial lines. Gross premiums earned was affected
by the significant increase in gross premiums written in 2006 and the overall
increase in gross premiums written through March 31, 2007 especially in our
homeowners, commercial multi-peril and other liability lines.


      CEDED PREMIUMS. Ceded premiums written increased to $62.8 million for the
three months ended March 31, 2007 compared to $4.5 million for the same period
in 2006. The higher ceded premiums written in the three months ended March 31,
2007 was the result of a 49% quota share reinsurance agreement in place with
CastlePoint Reinsurance as compared to no quota share reinsurance during the
same period last year. As discussed previously under Consolidated Results of
Operations, the ceding percentage to CastlePoint Reinsurance under the brokerage
quota share agreement was increased from an expected 40% to 49% to transfer
premiums that would have been transferred through pooling during the first
quarter of 2007. During the first quarter of 2006, we were in discussions with
CastlePoint Reinsurance while it was in formation to enter into a multi-year
quota share reinsurance agreement that was executed post formation on April 1,
2006. During the three months ended March 31, 2007, we ceded quota share
reinsurance premiums to CastlePoint Reinsurance of $51.1 million and excess of
loss reinsurance and catastrophe premiums to CastlePoint Reinsurance of $1.2
million as compared to none in the same period last year.

      NET PREMIUMS. Net premiums written decreased by 39.1% to $48.0 million for
the three months ended March 31, 2007 compared to $78.9 million for the same
period in 2006. Although our gross premiums written increased by 32.9% in the
first three months of 2007, the increase in ceded premiums written significantly
lowered the net premiums written for the first three months of 2007 compared to
the same period in 2006. As discussed above, we did not cede any quota share
reinsurance in the first three months of 2006 pending the formation of
CastlePoint Reinsurance. During the three months ended March 31, 2007, we ceded
49% to CastlePoint Reinsurance per our brokerage quota share reinsurance
agreement. Net premiums earned increased by 2.1% to $57.8 million in the three
months ended March 31, 2007 compared to $56.6 million in the same period in
2006. The increase in net premiums earned was less than the 39.6% increase in
gross premiums earned as a result of the increase in ceded premiums earned. Our
brokerage quota share reinsurance contracts covering policies written during the
twelve months ending March 31, 2007 had a higher ceding percentage, generally
40%, than quota share reinsurance contracts covering policies written during the
twelve months ending March 31, 2006, generally 25%.

      CEDING COMMISSION REVENUE. Offsetting the effect of lower net earned
premiums was the increase in ceding commission revenue which increased by 94.9%
to $14.2 million for the three months ended March 31, 2007 compared to $7.3
million for the same period in 2006. The growth was primarily due to the
increase in the quota share ceding percentages referred to above. Ceded premiums
earned under quota share reinsurance agreements increased 150% to $41.5 million
in the first quarter of 2007 as compared to $16.6 million in the first quarter
of 2006.

                                       15
<PAGE>

      LOSS AND LOSS ADJUSTMENT EXPENSES AND LOSS RATIO. Gross and net losses and
loss adjustment expenses were $55.9 million and $32.5 million, respectively for
the three months ended March 31, 2007 compared with $42.9 million and $32.8
million, respectively, for the same period in 2006. Our gross and net loss
ratios were 52.7% and 56.2%, respectively, for the three months ended March 31,
2007 as compared with 56.5% and 58.0%, respectively, for the same period in
2006. The decrease in the net loss ratio in the first quarter of 2007 compared
to the same period in 2006 was due to a decrease in the gross loss ratio.
However, the effect of the decrease in the net loss ratio was offset in part by
higher ceded catastrophe premiums. We ceded catastrophe reinsurance premiums
equal to 5.6% of net premiums earned during the three months ended March 31,
2007 compared to 2.0% during the same period of 2006. Additionally, there was
adverse development of $182,000 from prior years' reserves in the first quarter
of 2007 compared to favorable development of $502,000 in the same period of
2006. Loss and loss adjustment expenses are net of reimbursements for loss and
loss adjustment expenses made by TRM pursuant to the expense sharing agreement
between TICNY, TNIC and TRM. See "-Insurance Services Segment Results of
Operations" for the amounts of claims reimbursements.

      UNDERWRITING EXPENSES AND UNDERWRITING EXPENSE RATIO. Underwriting
expenses, which include direct commission expenses and other underwriting
expenses, were $31.3 million for the three months ended March 31, 2007 as
compared with $23.4 million for the same period in 2006. Our gross expense ratio
was 29.2% for the three months ended March 31, 2007 as compared with 30.5% for
the same period in 2006.

      The commission portion of the gross expense ratio, which expresses direct
commission expense paid to our producers as a percentage of gross premiums
earned, was 16.7% for the three months ended March 31, 2007, as compared with
16.2% for the same period in 2006. The higher ratio was attributable to a change
in estimated profit commission adjustment of $0.5 million recognized in the
first three months in 2007.

      The underwriting expense portion of the gross expense ratio was 12.5% for
the three months ended March 31, 2007 as compared to 14.2% for the same period
in 2006. Although underwriting expenses increased due to the growth in premium
volume, the other underwriting expense portion increased at a lower rate that
the increase in gross premiums earned reflecting greater economies of scale.
Additionally, the board, bureaus and taxes portion of expenses decreased as a
result of a workers compensation fund assessment adjustment of $0.6 million due
to an overestimation of this accrual in a prior period.

      The net underwriting expense ratio which reflects the benefits of ceding
commission revenue that lowers the gross expense ratio was 28.9% for the three
months ended March 31, 2007 as compared to 28.0% for the same period in 2006.
Although ceding commission revenue in the first three months of 2007 increased
94.9% as compared to the same period last year the ceding commission rate was
lower this quarter than in the first quarter of 2006. The increase in net
premiums earned of 2.1% was affected by higher catastrophe ceded premiums.
Together these factors reduced the benefit of ceding commission revenue on the
net expense ratio.

      UNDERWRITING PROFIT AND COMBINED RATIO. The underwriting profit, which
reflects our underwriting results on a net basis after the effects of
reinsurance, was $8.6 million in the first quarter of 2007 and $7.9 million in
the same period in 2006. The gross combined ratio was 81.9% for the three months
ended March 31, 2007 as compared with 87.0% for the same period in 2006. The
decrease in the gross combined ratio in the first quarter of 2007 resulted from
a decrease in both the gross loss ratio and the gross underwriting expense ratio
as discussed below. The net combined ratio was 85.1% for the three months ended
March 31, 2007 as compared to 86.0% for the same period in 2006. The decrease in
the net combined ratio resulted from a decrease in the net loss ratio.


                                       16
<PAGE>

REINSURANCE SEGMENT RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
<S>                                                         <C>               <C>
                                                               THREE MONTHS ENDED
                                                                    MARCH 31,
                                                             2007               2006
                                                          ----------         ---------
                                                                  ($ in thousands)
REVENUES
PREMIUMS EARNED
      Gross premiums earned                               $   2,667          $     694
      Less: ceded premiums earned                               (34)               (27)
                                                          ----------         ---------
      Net premiums earned                                     2,633                667

EXPENSES
LOSS AND LOSS ADJUSTMENT EXPENSES
      Gross loss and loss adjustment expenses                 1,465                396
      Less: ceded loss and loss adjustment expenses             (25)               (19)
                                                          ----------         ---------
      Net loss and loss adjustment expenses                   1,440                377
UNDERWRITING EXPENSES
      Direct commission expense                                 945                152
      Other underwriting expenses                               341                101
                                                          ----------         ---------
Total underwriting expenses                                   1,286                253
                                                          ----------         ---------
UNDERWRITING (LOSS) PROFIT                                $     (93)         $      37
                                                          ==========         =========
KEY MEASURES
PREMIUMS WRITTEN
       Gross premiums written                             $     (14)         $   3,942
       Less: ceded premiums written                              (3)                --
                                                          ----------         ---------
       Net premiums written                               $     (17)         $   3,942
                                                          ==========         =========
LOSS RATIOS
Gross                                                          54.9%              57.1%
Net                                                            54.7%              56.5%
ACCIDENT YEAR LOSS RATIOS
Gross                                                          61.1%              59.9%
Net                                                            61.9%              60.0%
UNDERWRITING EXPENSE RATIOS
Gross                                                          48.2%              36.5%
Net                                                            48.8%              38.0%
COMBINED RATIOS
Gross                                                         103.1%              93.5%
Net                                                           103.5%              94.5%
</TABLE>


REINSURANCE  SEGMENT RESULTS OF OPERATIONS THREE MONTHS ENDED
MARCH 31, 2007 AND 2006


      GROSS PREMIUMS. Gross premiums written were negative $14,000 due to
returned premiums for the three months ended March 31, 2007 as compared to $3.9
million for the same period in 2006. The 2007 decrease was the result of our
decision in the first three months of 2007 not to produce any premiums in TRM.
In 2006, all of the premiums produced by TRM were substantially assumed by TICNY
or TNIC in the Insurance Segment. Gross premiums earned increased to $2.7
million from $0.7 million in the first quarter of 2006 due to the significant
increase in gross premiums written in 2006 and earned in the first three months
of 2007.


      NET PREMIUMS. For the reasons discussed above with respect to gross
premiums, net premiums written decreased to a negative $17,000, also reflecting
returned premiums as compared to the same period last year, during which TICNY
assumed substantially all of the $4.0 million of the premiums placed by TRM. Net
premiums earned increased to $2.6 million for the three months ended March 31,
2007 as compared to $0.7 million for the same period in 2006 for the same reason
as explained above with respect to gross premiums earned as there is little
reinsurance placed on this business.

      LOSS AND LOSS ADJUSTMENT EXPENSES AND LOSS RATIO. Gross losses and loss
adjustment expenses were $1.5 million for the three months ended March 31, 2007
compared to $0.4 million for the same period in 2006. Net losses and loss
adjustment expenses were $1.4 million for the three months ended March 31, 2007
compared to $0.4 million for the same period in 2006. Our gross and net loss
ratios were 54.9% and 54.7%, respectively for the three months ended March 31,
2007 as compared with 57.1% and 56.5%, respectively, for the same period in
2006. The Reinsurance Segment had $187,000 favorable development from prior
years' reserves in three months ended March 31, 2007 as compared to $23,000
favorable development in the same period last year.

      UNDERWRITING EXPENSES AND UNDERWRITING EXPENSE RATIO. Underwriting
expenses for the reinsurance segment are comprised of ceding commission expense
paid to TRM's issuing companies and other third party reinsurers to acquire
gross premiums and this segment's allocated share of our other underwriting
expenses. Gross underwriting expenses and the gross underwriting expense ratio
increased for the three months ended March 31, 2007 to $1.3 million and 48.2%,
respectively, as compared to $0.3 million and 36.5%, respectively, for the same
period in 2006. These increases resulted from an average commission incurred of
35% in the first three months of 2007 compared to an average commission incurred
of 22% in the same period last year. In the three months ending March 31, 2006
this segment assumed premiums on an excess of loss basis which did not incur a
commission payment.

                                       17
<PAGE>

      UNDERWRITING PROFIT AND COMBINED RATIO. The underwriting loss from assumed
reinsurance for the first quarter of 2007 was $93,000 compared to an
underwriting profit of $37,000 for the first quarter of 2006. The net combined
ratio was 103.5% for the first quarter of 2007 compared to 94.5% for the first
quarter of 2006. The higher net combined ratio for the first quarter of 2007 was
the result of the increased net underwriting expense ratio as explained above.
The gross combined ratio increased to 103.1% for the first quarter of 2007
compared to 93.5% for the first quarter of 2006. The gross loss ratio improved
as a result of favorable development in prior years' reserves whereas the gross
expense ratio increased as a result of higher commission expense.



INSURANCE SERVICES SEGMENT RESULTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED
                                                                       MARCH 31,
                                                                2007             2006
                                                              ---------        ----------
                                                                     ($ in thousands)

REVENUES
<S>                                                             <C>              <C>
Direct commission revenue from managing general agency          $   488          $   806
Claims administration revenue                                       565              962
Other administrative revenue(1)                                     251               --
Reinsurance intermediary fees(2)                                    156               61
Policy billing fees                                                  --                3
                                                              ---------        ----------
TOTAL REVENUES                                                    1,460            1,832
                                                              ---------        ----------
EXPENSES
Direct commissions expense paid to producers                          7              603
Other insurance services expenses(3)                                257              237
Claims expense reimbursement to TICNY                               565              958
                                                              ---------        ----------
TOTAL EXPENSES                                                      829            1,798
                                                              ---------        ----------
INSURANCE SERVICES PRE-TAX INCOME                               $   631          $    34
                                                              =========        ==========
Premiums produced by TRM on behalf of issuing companies         $   (55)         $ 4,028
                                                              =========        ==========
</TABLE>

(1)  THE OTHER ADMINISTRATION REVENUE INCLUDES AMOUNTS REIMBURSED BY CASTLEPOINT
     REINSURANCE FOR SERVICES RENDERED PURSUANT TO A SERVICE AND EXPENSE SHARING
     AGREEMENT.

(2)  THE REINSURANCE  INTERMEDIARY FEES INCLUDE COMMISSIONS EARNED FOR PLACEMENT
     OF REINSURANCE ON BEHALF OF TICNY AND TNIC.

(3)  CONSISTS  OF  UNDERWRITING  EXPENSES  REIMBURSED  TO TICNY  PURSUANT  TO AN
     EXPENSE  SHARING  AGREEMENT AND TO  CASTLEPOINT  REINSURANCE  PURSUANT TO A
     SERVICE AND EXPENSE SHARING AGREEMENT.

INSURANCE SERVICES SEGMENT RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31,
2007 AND 2006

     TOTAL REVENUES. Total revenues for the insurance services segment were $1.5
million for the three months ended March 31, 2007 as compared with $1.8 million
for the same period in 2006. The principal components of total revenues for our
insurance services segment are direct commission revenue, claims administration
revenue, other administration revenue and reinsurance intermediary fees. The
decrease in total revenues was primarily due to direct commission revenue that
decreased by 39.5% to $0.5 million for the first quarter of 2007 compared to
$0.8 million for the first quarter of 2006. Claims administration revenue
decreased by 41.3% to $0.6 million for the first quarter of 2007 as compared to
$1.0 million for the first quarter of 2006 as a result of fewer hours associated
with claims handled on behalf of issuing carriers. These amounts were partially
offset by a 155.7% increase in reinsurance intermediary fees of $0.2 million
compared to $61,000 in the same period last year and other administration
revenue of $0.3 million in the first quarter of 2007 compared to none in the
same period last year. Other administration includes reimbursements from
CastlePoint per our service and expense sharing agreement that we entered into
in 2006 to provide underwriting, claims, legal and other corporate services,
such as human resources and information technology.

                                       18
<PAGE>

      Direct commission revenue is dependent upon the premiums and losses on
business produced by TRM on behalf of its issuing companies. For the first
quarter of 2007 direct commission revenues decreased by 39.5% to $0.5 million
compared to $0.8 million for the first quarter of 2006 as a result of our
decision to renew policies in our Insurance Segment that were previously
produced in the Insurance Services Segment. Premiums produced by TRM decreased
by 101.4% to a negative $55,000 in the first quarter of 2007 which represents
returned premiums produced as compared to $4.0 million of premiums produced in
the same period last year. There was an increase in direct commission revenue of
$501,000 in the first quarter of 2007 as a result of favorable loss development
on the premiums produced in prior years compared to a decrease in direct
commission revenue of $348,000 in the same period of 2006 from unfavorable loss
development on premiums produced in prior years.

      DIRECT COMMISSION EXPENSE. TRM's direct commission expense ratio was
negative 12.7 % for the first quarter of 2007 due to returned premiums produced
as compared to 15.0% for the first quarter of 2006.

      OTHER INSURANCE SERVICES EXPENSES. The amount of reimbursement for
underwriting expenses by TRM to TICNY in the first quarter of 2007 was $0.3
million as compared to $0.2 million in the first quarter of 2006. The decrease
resulted from our decision to renew policies in the insurance segment in the
first quarter of 2007.

      CLAIMS EXPENSE REIMBURSEMENT. The amount of reimbursement by TRM for
claims administration pursuant to the terms of the expense sharing agreement
with TICNY in the first quarter of 2007 was $0.6 million as compared to $1.0
million in the first quarter of 2006 due to a decrease in the number of claims
handled.

      PRE-TAX INCOME. Pre-tax income in the first quarter of 2007 increased to
$631,000 as compared to $34,000 in the first quarter of 2006. The increase was
due to direct commission revenue arising from favorable loss development on
prior years' premium of $501,000 whereas there was a reduction in direct
commission revenue of $348,000 in the first quarter of 2006.

o LIQUIDITY AND CAPITAL RESOURCES

      CASH FLOWS. Cash flow needs at the holding company level are primarily for
dividends to our stockholders and interest payments on $88.7 million of
subordinated debentures.

      For the three months ended March 31, 2007 net cash provided by operating
activities in our insurance operations was $20.3 million compared to $38.8
million for the same period in 2006. Although the increase in gross premiums
written and collected increased operating cash flow for the three months ended
March 31, 2007 as compared to the same quarter in 2006, the increase in quota
share ceding percentage to 49% as compared to no quota share ceded premiums in
the first quarter of 2006 reduced the effect of higher collected premiums on
operating cash flow in this quarter as compared to the first quarter of 2006.

      During the three months ended March 31, 2007, we had $42.0 million of net
cash flows used in investing activities that were funded from operating and
financing cash flow activities. The most significant impact from this activity
was an increase in the mortgage-backed and corporate bond sectors.

       The net cash flows provided from financing activity was $68.5 million as
of March 31, 2007 and included the net proceeds from the issuance of $20.6
million in subordinated debentures on January 25, 2007, the $89.4 million of net
proceeds from the January 26, 2007 equity offering and the related exercise of
the underwriters' over-allotment option. These amounts were partially offset by
the January 26, 2007 redemption of our 40,000 shares of perpetual preferred
stock for $40.0 million. We used a portion of the net proceeds to acquire
Preserver Group, Inc. on April 10, 2007.

      Our operating subsidiaries' primary sources of cash are net premiums
received, commission and fee income, net investment income and proceeds from the
sale and redemption of both equity and fixed-maturity investments. Cash is used
to pay claims, commissions and operating expenses, to purchase investments and
to pay dividends to the holding company. TICNY and TNIC are subject to
significant regulatory restrictions limiting their ability to declare and pay
dividends. As of March 31, 2007, the maximum amount of distributions that TICNY
could pay to its parent without approval of the New York State Insurance
Department was $15.5 million. As of March 31, 2007, the maximum dividend TNIC
could pay to its parent was zero.

SUBORDINATED DEBENTURES

      On January 25, 2007, we participated in a private placement of $20.0
million of fixed/floating rate capital securities (the "Trust Preferred
Securities") issued by Tower Group Statutory Trust VI (the "Trust"), an
affiliated Delaware trust formed on January 11, 2007. The Trust Preferred
Securities mature in April 2036, are redeemable at our option at par beginning
April 7, 2011, and require quarterly distributions of interest by the Trust to
the holder of the Trust Preferred Securities. Interest distributions are
initially at a fixed rate of 8.155% for the first five years and will then reset
quarterly for changes in the three-month London Interbank Offered Rate ("LIBOR")
plus 300 basis points. The Trust simultaneously issued 619 of the Trust's common
securities to us for a purchase price of $0.6 million, which constitutes all of
the issued and outstanding common securities of the Trust. The Trust used the
proceeds from the sale of the Trust Preferred Securities and common securities
to purchase for $20.6 million a junior subordinated debt security due 2037
issued by us. We do not consolidate interest in its statutory business trusts
for which we hold 100% of the common trust securities because we are not the
primary beneficiary of the trusts. We report the outstanding subordinated
debentures owed to the statutory business trusts as a liability. The net
proceeds we received from the sale of the debenture to the Trust were used by us
to partially redeem a portion of our perpetual preferred stock. We incurred $0.4
million of fees related to the issuance of these subordinated debentures.

                                       19
<PAGE>

INVESTMENTS

      Impairment of investment securities results in a charge to operations when
a market decline below cost is deemed to be other-than-temporary. As of March
31, 2007, we reviewed our fixed-maturity and equity securities portfolios to
evaluate the necessity of recording impairment losses for other-than-temporary
declines in the fair value of investments. We determined that we did not hold
any investments that would have been considered other than temporarily impaired.



ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Market risk relates to changes in the value of financial instruments that
arise from adverse movements in factors such as interest rates and equity
prices. We are exposed mainly to changes in interest rates that affect the fair
value of our investments in securities.

o           SENSITIVITY ANALYSIS

      Sensitivity analysis is a measurement of potential loss in future
earnings, fair values or cash flows of market sensitive instruments resulting
from one or more selected hypothetical changes in interest rates and other
market rates or prices over a selected time. In our sensitivity analysis model,
we select a hypothetical change in market rates that reflects what we believe
are reasonably possible near-term changes in those rates. The term "near-term"
means a period of time going forward up to one year from the date of the
consolidated financial statements. Actual results may differ from the
hypothetical change in market rates assumed in this disclosure, especially since
this sensitivity analysis does not reflect the results of any action that we may
take to mitigate such hypothetical changes in fair value.

      In this sensitivity analysis model, we use fair values to measure our
potential loss. The sensitivity analysis model includes fixed maturities and
short-term investments.

      For invested assets, we use modified duration modeling to calculate
changes in fair values. Durations on invested assets are adjusted for call, put
and interest rate reset features. Durations on tax-exempt securities are
adjusted for the fact that the yield on such securities is less sensitive to
changes in interest rates compared to Treasury securities. Invested asset
portfolio durations are calculated on a market value weighted basis, including
accrued investment income, using holdings as of March 31, 2007.

      The following table summarizes the estimated change in fair value on our
fixed maturity portfolio including short-term investments based on specific
changes in interest rates as of March 31, 2007:

<TABLE>
<CAPTION>

                                          ESTIMATED INCREASE            ESTIMATED PERCENTAGE
                                       (DECREASE) IN FAIR VALUE         INCREASE (DECREASE)
CHANGE IN INTEREST RATE                    ($ IN THOUSANDS)               IN FAIR VALUE
--------------------------------   ----------------------------      --------------------------
<S>                                             <C>                           <C>
300 basis point rise                            (59,200)                     -13.0%
200 basis rise                                  (40,095)                      -8.8%
100 basis rise                                  (20,220)                      -4.4%
As of March 31, 2007                                  0                        0.0%
50 basis point decline                            9,894                        2.2%
100 basis point decline                          19,484                        4.3%
</TABLE>

                                       20
<PAGE>


      The sensitivity analysis model used by us produces a predicted pre-tax
loss in fair value of market-sensitive instruments of $20.2 million or 4.4%
based on a 100 basis point increase in interest rates as of March 31, 2007. This
loss amount only reflects the impact of an interest rate increase on the fair
value of our fixed maturities, which constituted approximately 89.3% of our
total invested assets as of March 31, 2007.


      As of March 31, 2007 we had a total of $44.3 million of outstanding
floating rate debt all of which are outstanding subordinated debentures
underlying trust securities issued by our wholly owned statutory business trusts
carrying an interest rate that is determined by reference to market interest
rates. If interest rates increase, the amount of interest payable by us would
also increase.



ITEM 4.  CONTROLS AND PROCEDURES

      Our management, with the participation of the Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of the design and
operation of our disclosure controls and procedures (as defined in Securities
Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report.
Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures are effective
to provide reasonable assurance that material information relating to us and our
consolidated subsidiaries required to be disclosed in our reports filed with or
submitted to the Securities and Exchange Commission under the Securities
Exchange Act is made known to such officers by others within these entities,
particularly during the period this quarterly report was prepared, in order to
allow timely decisions regarding required disclosure.

      There have not been any changes in our internal control over financial
reporting during the three months ended March 31, 2007 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.




PART II - OTHER INFORMATION



ITEM 6.  EXHIBITS

      31.1     Chief Executive Officer - Certification pursuant to
               Sarbanes-Oxley Act of 2002 Section 302

      31.2     Chief Financial Officer - Certification pursuant to
               Sarbanes-Oxley Act of 2002 Section 302

      32       Chief Executive Officer and Chief Financial
               Officer - Certification pursuant to Sarbanes-Oxley
               Act of 2002 Section 906


                                       21
<PAGE>


SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


<TABLE>
<CAPTION>
<S>                                                               <C>






                                                                              TOWER GROUP, INC.
                                                                ---------------------------------------------------
                                                                                      Registrant





      Date:          MAY 4, 2007                                  /S/              MICHAEL H. LEE
            ------------------------------------------------    ---------------------------------------------------
                                                                                       Michael H. Lee
                                                                                   Chairman of the Board,
                                                                President and Chief Executive Officer





      Date:          MAY 4, 2007                                  /S/          FRANCIS M. COLALUCCI
            ------------------------------------------------    ---------------------------------------------------
                                                                                    Francis M. Colalucci
                                                                                    Senior Vice President,
                                                                           Chief Financial Officer and Treasurer
</TABLE>



                                       22