##### Table of Contents





UNITED STATES
 SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C. 20549
  FORM 10-K
  (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2008Oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE
    SECURITIES ACT OF 1934For the transition period
    from          to   Commission File Number:
    000-50990
 Tower Group, Inc.
 (Exact name of registrant as
    specified in its charter)
  Delaware

13-3894120(State or other jurisdiction of
    incorporation or organization)

(I.R.S. Employer Identification No.)120 Broadway, 31st Floor
    New York, New York(Address of principal executive
    offices)

10271(Zip Code)   (212) 655-2000
 (Registrants telephone
    number, including area code)
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of each class

Name of each exchange on which
    registeredCommon Stock, $0.0l par value per share

NASDAQ Global Select Market   Securities registered pursuant to Section 12(g) of the
    Act:
 None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. þ
  12b-2
  Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o

Smaller reporting
    company o(Do not check if a smaller reporting company)   Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE:
  Form 10-K




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##### 





TABLE OF
    CONTENTS
   
 PART I


2Item 1.


Business


2Item 1A.


Risk Factors


35Item 1B.


Unresolved Staff Comments


52Item 2.


Properties


52Item 3.


Legal Proceedings


53Item 4.


Submission Of Matters To A Vote Of Security
    Holders


53PART II


54Item 5.


Market For Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


54Item 6.


Selected Consolidated Financial Information


56Item 7.


Managements Discussion And Analysis Of
    Financial Condition And Results Of Operations


57Item 7A.


Quantitative And Qualitative Disclosures About
    Market Risk


95Item 8.


Financial Statements And Supplementary Data


99Item 9.


Changes In And Disagreements With Accountants Or
    Accounting And Financial Disclosure


100Item 9A.


Control And Procedures


100Item 9B.


Other Information


101PART III


101Item 10.


Directors And Executive Officers Of The
    Registrant


101Item 11.


Executive Compensation


101Item 12.


Security Ownership Of Certain Beneficial Owners
    And Management And Related Stockholder Matters


101Item 13.


Certain Relationships And Related Transactions,
    And Director Independence


101Item 14.


Principal Accountant Fees And Services


101PART IV.


102Item 15.


Exhibits, Financial Statement Schedules


102EX-10.34: COMBINED AMENDMENT NO. 1 TO AMENDED AND RESTATED BROKERAGE BUSINESS QUOTAEX-10.50: FORM OF 2004 LONG TERM EQUITY COMPENSATION PLANEX-10.71: SUPPLEMENTAL GUARANTEEEX-10.72: SUPPLEMENTAL GUARANTEEEX-10.73: SUPPLEMENTAL GUARANTEEEX-10.74: AMENDMENT NO. 2 TO AMENDED AND RESTATED BROKERAGE BUSINESS QUOTAEX-10.75: SEPARATION AGREEMENTEX-10.76: CONSULTING AGREEMENTEX-10.77: LETTER OF AMENDMENT TO STOCK PURCHASE AGREEMENTEX-21.1: SUBSIDIARIESEX-23.1: CONSENT OF JOHNSON LAMBERT & CO.EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32: CERTIFICATION   i




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##### Table of Contents



PART I  Item 1.
    Business  Overview
  Form 10-K,
         2




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##### Table of Contents



Competitive
    Strengths and Strategies
    
    Diversified Business Platform.  We have
    established a diversified business platform comprised of a broad
    range of products, in various industry segments and different
    regions throughout the country utilizing multiple distribution
    channels. We offer personal lines products to individuals and
    commercial lines products to businesses in various industries.
    We have historically underwritten personal lines products such
    as homeowners policies and commercial lines products offering
    property, general liability, workers compensation and commercial
    auto coverages to businesses in the retail, wholesale and real
    estate industries. During the last several years, we have
    gradually expanded outside New York State to neighboring states
    throughout the Northeast and then to Florida, Texas and
    California. The CastlePoint acquisition expands our offering
    into specialty classes of business written by program
    underwriting agents throughout the country that Tower has not
    historically written. The CastlePoint acquisition will also
    allow us to offer reinsurance products to small insurance
    companies. Finally, CastlePoint provides us with access to
    capital which allows us to acquire small insurance companies and
    program underwriting agencies. The Hermitage acquisition will
    enable us to expand our wholesale distribution system throughout
    the country as well as establishing our retail distribution
    system in the Southeast.  Market Segmentation
    Expertise.
  Underwriting
    Expertise.
 3




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##### Table of Contents




    Hybrid Business Model.  We utilize a
    business model under which we (i) retain premiums to
    generate investment and underwriting income through the use of
    our own capital and (ii) transfer premiums to reinsurers
    and produce business for other insurance companies to generate
    commission and fee income. Our business model allows us to
    create and support a much larger premium base and a more highly
    developed infrastructure than otherwise would have been possible
    with our capital base. In doing so, we have been able to achieve
    a return on average equity that we believe is higher than many
    other insurance companies with a traditional business model.
    From 2004 to 2008, our average annual return on average equity
    was 19.6%. The acquisition of CastlePoint will eliminate on a
    consolidated basis the commission and fee income that we
    previously earned from CastlePoint by transferring premiums to
    CastlePoint. As we increase our premium volume and place
    additional business with reinsurers and insurance companies
    other than CastlePoint, we will generate commission and fee
    income from those companies.
    Low Cost Infrastructure.  We have been
    able to gradually lower our expense ratio by realizing economies
    of scale resulting from our growth in total premiums produced
    and managed, and by improving our business processes and
    integrating technology to become more efficient. The commission
    and fee income that we generate from transferring premiums to
    reinsurers and other insurance companies also reduces our net
    expense ratio. Our net expense ratio, which is calculated after
    offsetting our reinsurance commission, was 30.7% and 28.5% in
    2008 and 2007, respectively. The increase in the net expense
    ratio resulted from an increase in the gross expense ratio from
    29.2% to 30.4% due to our participation in business underwritten
    by CastlePoint that has a higher commission rate than the other
    business that we underwrite through retail and wholesale agents.  Strategic
    Relationship and Agreements with CastlePoint: February 2006 -
    February 2009
          Form 10-K
  
    brokerage business refers to broad classes of
    business that are underwritten on an individual policy basis by
    an insurance companys underwriting staff through wholesale
    and retail agents, and for which most or all of the services are
    provided by the insurance company as part of the overall product
    offering; 4




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##### Table of Contents




    program business refers to narrowly defined classes
    of business that are underwritten on an individual policy basis
    by program underwriting agents on behalf of insurance companies;
    traditional program business refers to blocks of
    program business in excess of $5 million in annual gross
    written premium that we historically have underwritten,
    consisting of non-auto related personal lines and the following
    types of commercial business: retail stores and wholesale
    trades, commercial and residential real estate, restaurants,
    grocery stores, office and service industries and artisan
    contractors;
    specialty program business refers to
    (i) program business other than traditional program
    business and (ii) traditional program business that we and
    CastlePoint agree will be deemed to be specialty program
    business;
    insurance risk-sharing business refers to various
    risk sharing arrangements, such as (i) pooling or sharing
    of premiums and losses between our insurance companies and other
    insurance companies based upon their respective percentage
    allocations or (ii) appointing other insurance companies as
    our program underwriting agents and then having those insurance
    companies assume through reinsurance a portion of the business
    they produce as program underwriting agents;
    traditional quota share reinsurance refers to a type
    of reinsurance whereby a reinsurer provides reinsurance coverage
    to an insurance company on a pro-rata basis based on a ceding
    percentage without any provisions to limit meaningful losses
    within the contractual limits; and
    program underwriting agent refers to an insurance
    intermediary that aggregates business from retail and wholesale
    agents and manages business on behalf of insurance companies,
    including functions such as risk selection and underwriting,
    premium collection, policy form design and client service.        
    brokerage business quota share reinsurance agreement between our
    Insurance Subsidiaries and CastlePoints subsidiaries,
    CastlePoint Reinsurance and CPIC, covering brokerage business
    historically written by us;
    traditional program business quota share reinsurance agreement
    between CastlePoint Reinsurance and our Insurance Subsidiaries,
    TICNY and TNIC, covering program business historically written
    by us; 5




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##### Table of Contents




    specialty program business and insurance risk-sharing business
    quota share reinsurance agreement between CastlePoint
    Reinsurance and our Insurance Subsidiaries, TICNY and TNIC,
    covering business not historically written by us;
    aggregate excess of loss reinsurance agreements between our
    Insurance Subsidiaries and CPIC;
    service and expense sharing agreements between TICNY and CPM;
    a program management agreement between CPM and TICNY;
    a service agreement between TRM and CPM; and
    a management agreement between TRM and CPIC.            Acquisitions
  CastlePoint
     6




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Hermitage
    Preserver
    Business
    Segments
          Insurance
    Segment Products
    7




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##### Table of Contents



Year ended December 31,2008


2007


2006Commercial lines

$
5,060


$
5,020


$
5,130Personal lines


1,030



1,100



1,160       For the year ended December 31,2008


2007(1)


2006(1)Gross


Gross


Gross


Gross


GrossPremium


Loss


Premium


Loss


Premium


Gross($ in thousands)

Earned


Ratio


Earned


Ratio


Earned


Loss RatioCommercial multiple-peril

$
242,196



51.5%


$
221,115



51.8%


$
159,397



58.4%Other liability


63,222



42.6%



72,851



64.2%



58,927



75.2%Workers Compensation


88,379



47.6%



54,069



34.1%



33,622



39.4%Commercial auto


77,839



61.1%



54,257



54.6%



28,540



51.9%Homeowners


83,162



35.5%



92,686



39.9%



70,419



42.6%Fire and allied lines


16,913



57.7%



19,073



53.5%



12,520



36.7%Personal
    Auto(2)


6,634



116.0%



7,882



101.9%







All Lines

$
578,345



49.9%


$
521,934



50.7%


$
363,425



55.0%   (1)
    
    2007 and 2006 have been restated as
    a result of combining our Insurance and Reinsurance Segments,
    beginning on January 1, 2008.(2)
    
    The 2008 private passenger
    automobile loss ratio was affected by 32 loss ratio points due
    to the run-off of the Motor Club of America (MCA) business. MCA
    was placed into run-off by Preserver in 2004.    December 31,2008


2007


2006Commercial package policies


31,100



29,500



23,600Landlord policies


10,200



11,700



11,800Business owners policies


12,400



11,200



4,700Total commercial multiple-peril


53,700



52,400



40,100Monoline commercial general liability policies


11,600



7,300



3,300Monoline personal liability policies


1,000



1,100



1,300Total other liability


12,600



8,400



4,600Workers compensation


13,100



10,800



12,100Commercial automobile


7,700



7,600



3,300Personal automobile


16,100



13,500



Homeowners


74,700



70,600



65,000Fire and allied Lines


16,300



17,000



19,300All lines


194,200



180,300



144,400  8




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##### Table of Contents



Commercial
    Multiple-Peril
  three-and-four-family
  Other
    Liability
    Workers
    Compensation
    Commercial
    Automobile
    Personal
    Automobile
    Homeowners
  two-family
 9




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##### Table of Contents



Fire
    and Allied Lines
    Insurance
    Services Segment Products and Services
      December 31,2008


2007


2006Policies in force for TRM premium produced


68,400



30,900



940Policies in force for TRM premium produced on behalf of
    CastlePoint


66,600



30,600



   Managing
    General Agency
       10




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##### Table of Contents



TRM
    Claims Service
    TRM
    Reinsurance Intermediary Services
    Other
    Administration Revenue
    Product
    Development and Marketing Strategy
     11




---



##### Table of Contents



12




---



##### Table of Contents



Distribution
        1 2
     13




---



##### Table of Contents



Underwriting
  and/or
       14




---



##### Table of Contents



15




---



##### Table of Contents



Pricing
        Reinsurance
       16




---



##### Table of Contents



17




---



##### Table of Contents



Funds Held,


Amounts inPrepaid





Ceded Payables


Trust Accounts


NetRecoverable on


and Return





and Deferred


or Secured by


Exposure($ in thousands)

A.M. Best


Paid





Reinsurance


Commissions


Ceding


Letters of


toReinsurer

Rating


Losses


Reserves


Premiums


Receivable


Commission


Credit


ReinsurerMunich Re America


A+


$
2,528


$
12,964


$



$



$
2,147


$



$
13,345Westport Insurance Corp.


A+



3,644



7,459



















11,102CastlePoint Insurance Company


A−



575



7,600











(52
)






8,227Endurance Reins Corp of America


A



(3
)


6,839



938







620







7,154Platinum Underwriters Reinsurance Inc.


A



1



6,741



1,010







762







6,989Hannover Ruckversicherungs AG


A



7



6,052



2,131







1,593







6,597Swiss Reinsurance America Corp.


A+



617



5,102



41,644







41,257







6,106AXIS Reinsurance Company


A



25



4,792



1,558







1,101







5,274NGM Insurance Co.


A



0



1,446



234







161







1,519General Reinsurance Co.


A++



148



1,283



411







334







1,508New Jersey Unsatisfied Clm & Judgmt Fund


NR



510



876



















1,386SCOR Reinsurance Company


A−



286



590











36







840QBE Reinsurance Corporation


A







620



289







112







797Employers Reinsurance Corp.


A+



















(696
)






696Hartford Steam Boiler Inspection & Ins Co.


A



71



581



972







984







641Tokio Millennium Re Ltd.


A+



1,259



12,814



130



192



13,319



6,183



CastlePoint Reinsurance Company Ltd.


A−



39,022



135,437



95,701







125,346



225,839



Hannover Re Ireland Ltd.


A



935



7,576











7,905



4,964



Midwest Insurance Co


NR



424



2,760



5,360







6,447



5,322



Others






328



697



3,272







2,926



796



2,976Total





$
50,377


$
222,229


$
153,650


$
192


$
204,302


$
243,103


$
75,156Total without CastlePoint





$
10,780


$
79,192


$
57,949


$
192


$
79,008


$
17,264


$
66,930   CastlePoint
    Reinsurance
    
    Brokerage business quota share reinsurance agreement covering
    brokerage business historically written by Tower. Under this
    agreement we cede between 17.5% and 50% (with the percentage
    determined by us) of our brokerage business to CastlePoint
    Reinsurance and receive an initial ceding commission of 34%.
    Effective April 1, 2007, a sliding scale commission
    adjustment predicated on the ultimate net loss ratio was placed
    into effect for all new and renewal business ceded to
    CastlePoint Reinsurance. During the second quarter of 2007, CPIC
    also participated as a reinsurer under this treaty and was ceded
    9% of the brokerage business. In the fourth quarter of 2008 we
    amended the CastlePoint Reinsurance agreement and reduced the
    cession to 17.5%.
    Traditional program business quota share reinsurance agreement
    covering program business historically written by us. Under this
    agreement we cede 50% of our traditional program business to
    CastlePoint Reinsurance and share premium revenue and losses in
    proportion to the parties respective quota share
    participation. Expenses will be shared based upon the quota
    share participation, Specialty program business and insurance
    risk-sharing business quota share reinsurance agreement covering
    business not historically written by us. Under this agreement we
    cede 85% of our net retention on specialty program business to
    CastlePoint Reinsurance and receive a ceding commission of 30%,
    subject to a minimum of 30% and a 18




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##### Table of Contents



maximum of 36%. For business written in 2008, expenses are
    shared based upon the quota share participation.      CededDates

Quota Share Reinsurance Agreement With

AmountApril 6, 2006  June 30, 2006(1)

CastlePoint Reinsurance


30
%July 1, 2006  December 31, 2006

CastlePoint Reinsurance


40
%January 1, 2007  March 31, 2007

CastlePoint Reinsurance


49
%April 1 2007  June 30, 2007

CastlePoint Reinsurance


40
%April 1 2007  June 30, 2007

CastlePoint Insurance Company


9
%July 1, 2007  December 31, 2007(2)

CastlePoint Reinsurance


40
%January 1, 2008  March 31, 2008(2)

CastlePoint Reinsurance


40
%April 1, 2008  June 30, 2008(2)

CastlePoint Reinsurance


35
%July 1, 2008  September 30, 2008(2)

CastlePoint Reinsurance


25
%April 1, 2008  September 30, 2008

Swiss Re America Corporation


5
%October 1, 2008  December 31, 2008

CastlePoint Reinsurance


17.5
%October 1, 2008  December 31, 2008

Swiss Re America Corporation


28
%     (1)
    
    Multi year quota share reinsurance
    agreements with CastlePoint Reinsurance began April 6, 2006.(2)
    
    On July 1, 2008, we reduced
    the ceding percentage under our brokerage business quota share
    reinsurance agreement with CastlePoint Reinsurance to 25%
    applicable to both the ceded unearned premium reserve as of
    July 1, 2008 and new and new and renewal premiums written
    in the third quarter of 2008.         19




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##### Table of Contents



2009
    Reinsurance Program
            2008
    Reinsurance Program
   20




---



##### Table of Contents



2007
    Reinsurance Programs
       21




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##### Table of Contents



Terrorism
    Reinsurance
        Investments
       22




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##### Table of Contents



Year ended December 31,($ in thousands)

2008


2007


2006


2005


2004Average invested
    assets(1)

$
580,020


$
541,544


$
410,597


$
292,091


$
141,869Net investment
    income(2)(3)


34,568



36,699



23,026



14,983



5,070Net realized
    gains/(losses)(3)


(14,354
)


(17,511
)


12



122



13Unrealized appreciation/
    (depreciation)(3)(4)


(53,223
)


(12,118
)


(593
)


(4,442
)


961Annualized return on average invested assets


(5.7
%)


1.3
%


5.5
%


3.7
%


4.3
%     (1)
    
    Average of amounts at beginning and
    end of each year.(2)
    
    Investment income, net of
    investment expenses.(3)
    
    Before income taxes.(4)
    
    Relates to available-for-sale fixed
    income and equity securities.  Loss and Loss
    Adjustment Expense Reserves
  claim-by-claim
 23




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##### Table of Contents



Reconciliation
    of Loss and Loss Adjustment Expense Reserves
    Year ended December 31,($ in thousands)


2008


2007


2006Balance at January 1


$
501,183


$
302,541


$
198,724Less reinsurance recoverables



(189,525
)


(110,042
)


(96,978
)311,658



192,499



101,746Preserver net reserves at date of acquisition







85,055



Incurred related to:Current year



171,616



159,512



135,863Prior years



(8,877
)


(1,606
)


(2,340
)PXRE communtation











1,602Total incurred



162,739



157,906



135,125Paid related to:Current year



59,205



55,308



30,605Prior years



102,430



68,494



13,767Total paid



161,635



123,802



44,372Net balance at end of year



312,762



311,658



192,499Add reinsurance recoverables



222,229



189,525



110,042Balance at December 31


$
534,991


$
501,183


$
302,541     Loss
    Reserve Development
       24




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##### Table of Contents



Year ended December 31,1998


1999


2000


2001


2002


2003


2004


2005


2006


2007


2008Original Net Liability


$
6,184


$
6,810


$
7,901


$
8,620


$
15,476


$
24,361


$
36,949


$
101,746


$
192,499


$
311,658


$
312,762Cumulative payments as of:One year later



2,377



2,560



3,376



2,879



4,103



7,467



10,926



13,748



49,482



102,430Two years later



3,890



4,767



5,439



4,906



6,707



11,856



4,455



36,723



90,870Three years later



5,439



6,153



6,953



6,376



9,090



2,872



16,811



60,551Four years later



6,340



6,896



7,896



7,219



4,480



11,686



25,910Five years later



6,714



7,249



8,285



6,691



8,875



17,843Six years later



6,935



7,465



8,736



7,842



11,696Seven years later



6,978



7,715



8,983



8,340Eight years later



7,116



7,876



9,084Nine years later



7,234



7,957Ten years later



7,265Net liability re-estimated as of:One year later



6,842



7,493



9,702



11,521



15,551



24,163



36,557



101,008



191,086



302,781Two years later



7,123



8,652



11,684



11,276



14,665



24,815



40,654



101,545



178,290Three years later



7,871



9,516



11,458



10,494



16,461



29,034



48,276



99,534Four years later



8,244



9,210



10,819



11,875



19,603



36,182



45,260Five years later



7,963



8,955



11,944



13,293



25,057



33,597Six years later



7,875



9,951



12,666



15,701



23,026Seven years later



8,659



10,584



12,670



13,759Eight years later



9,158



10,601



11,690Nine years later



9,145



9,612Ten years later



8,184Cumulative Net



(2,000
)


(2,802
)


(3,789
)


(5,139
)


(7,550
)


(9,236
)


(8,311
)


2,212



14,209



8,877redundancy/ (deficiency) PXRE Commutation















1,216



3,222



7,169



9,154



9,154







Cumulative Net redundancy/ (deficiency) excluding PXRE



(2,000
)


(2,802
)


(3,789
)


(3,923
)


(4,328
)


(2,067
)


843



11,366



14,209



8,877Net reserves



6,184



6,810



7,901



8,620



15,476



24,361



36,949



101,746



192,499



311,658



312,762Ceded reserves



15,696



17,410



20,601



29,017



50,211



75,114



91,773



96,978



110,042



189,525



222,229Gross reserves



21,880



24,220



28,502



37,637



65,687



99,475



128,722



198,724



302,541



501,183



534,991Net re-estimated



8,184



9,612



11,690



13,759



23,026



33,597



45,260



99,534



178,290



302,781Ceded re-estimated



22,573



29,197



34,523



41,930



55,781



77,697



92,783



92,149



103,558



176,768Gross re-estimated



30,757



38,809



46,212



55,689



78,807



111,294



138,044



191,683



281,848



479,550Cumulative Gross redundancy/ (deficiency)


$
(8,877
)

$
(14,589
)

$
(17,710
)

$
(18,052
)

$
(13,120
)

$
(11,819
)

$
(9,322
)

$
7,041


$
20,693


$
21,633     (1)
    
    The cumulative payments and the net
    liabilities are affected by the PXRE commutation. Normally the
    cumulative payments are expected to increase over time. The PXRE
    commutation had the effect of lowering the cumulative payments
    by $604 in 2001, $6,834 in 2002, and $10,104 in 2003, 2004, 2005
    and 2006. When the PXRE contract was commuted, the Company
    received an amount that was approximately equal to the present
    value of the estimated future payments subject to the contact.(2)
    
    The net redundancies reflected in
    the above table for 2007 and 2008 resulted primarily from the
    following: 
    Reserve reductions in 2008 from commercial multi-peril
    liability, workers compensation, other liability, and
    property lines of business in accident year 2006.
    Reserve reductions in 2007 from workers compensation,
    commercial auto liability and property lines of business in
    accident years 2004, 2005 and 2006.  (3)
    
    The net deficiencies reflected in
    the above table for years 2004 and prior resulted primarily from
    the following:  
    PXRE commutation impact of $1.2 million, $3.2 million,
    $7.2 million, and $9.2 million for 2001, 2002, 2003,
    and 2004, respectively. 25




---



##### Table of Contents




    Adverse development in liability lines for accident year 2002
    during year 2006.  (4)
    
    The ALAE reserving methodology
    change as discussed in Critical Accounting Policies section of
    Managements Discussion and Analysis of Financial
    Condition and Results of Operations reduced the net
    liability re-estimated by $0.3 million, $1.1 million,
    $2.4 million, and $4.0 million for 2004, 2005, 2006
    and 2007, respectively.  Analysis
    of Reserves
    OutstandingCase Loss($ in thousands)

Reserves


IBNRCommercial Multiple Peril

$
92,806


$
62,211Other Liability


33,377



27,083Workers Compensation


19,001



10,961Commercial Automobile


19,446



14,491Homeowners


17,924



5,821Fire and Allied Lines


3,616



490Personal Automobile


4,050



1,485All Lines

$
190,220


$
122,542            26




---



##### Table of Contents



Range of Reserve Estimates($ in thousands)

High


Low


CarriedCommercial Multiple Peril

$
161,849


$
146,946


$
155,016Other Liability


67,889



55,743



60,460Workers Compensation


31,573



29,228



29,963Commercial Auto


35,272



33,141



33,937Homeowners


23,845



23,222



23,745Fire and Allied Lines


4,138



4,076



4,106Personal Auto


5,672



5,454



5,535All Lines

$
330,238


$
297,810


$
312,762             Claims
       27




---



##### Table of Contents



and/or
  Technology
    ®
  ®
      24-hour
    Competition
  non-U.S. insurers
   28




---



##### Table of Contents



29




---



##### Table of Contents



Ratings
    Employees
    Regulation
  U.S.
    Insurance Holding Company Regulation of Tower
    Changes
    of Control
     30




---



##### Table of Contents



Legislative
    Changes
      State
    Insurance Regulation
        Insurance
    Regulatory Information System Ratios
     31




---



##### Table of Contents



State
    Dividend Limitations
    Risk-Based
    Capital Regulations
    Statutory
    Accounting Principles
     32




---



##### Table of Contents



Guaranty
    Associations
      Residual
    Market Plans
    TRM
    Available
    Information
  Form 10-K, Form 10-Q Form 8-K
  Note on
    Forward-Looking Statements
  Form 10-K
 33




---



##### Table of Contents




    ineffectiveness or obsolescence of our business strategy due to
    changes in current or future market conditions;
    developments that may delay or limit our ability to enter new
    markets as quickly as we anticipate;
    increased competition on the basis of pricing, capacity,
    coverage terms or other factors;
    greater frequency or severity of claims and loss activity,
    including as a result of natural or man-made catastrophic
    events, than our underwriting, reserving or investment practices
    anticipate based on historical experience or industry data;
    the effects of acts of terrorism or war;
    developments in the worlds financial and capital markets
    that adversely affect the performance of our investments;
    changes in regulations or laws applicable to us, our
    subsidiaries, brokers or customers;
    changes in acceptance of our products and services, including
    new products and services;
    changes in the availability, cost or quality of reinsurance and
    failure of our reinsurers to pay claims timely or at all;
    changes in the percentage of our premiums written that we cede
    to reinsurers;
    decreased demand for our insurance or reinsurance products;
    loss of the services of any of our executive officers or other
    key personnel;
    the effects of mergers, acquisitions and divestitures;
    changes in rating agency policies or practices;
    changes in legal theories of liability under our insurance
    policies;
    changes in accounting policies or practices;
    changes in general economic conditions, including inflation,
    interest rates and other factors;
    unanticipated difficulties in combining Tower, CastlePoint and,
    following the completion of its acquisition by Tower, Hermitage;
    disruptions in Towers, CastlePoints and
    Hermitages respective businesses arising from the
    anticipation of the transactions and the integration of Tower,
    CastlePoint and, following the completion of its acquisition by
    Tower, Hermitage;
    increases in Towers exposure to risk of loss arising from
    the merger;
    the possibility that Tower will incur significant charges to
    write down the goodwill and intangibles to be established in the
    CastlePoint merger or the Hermitage acquisition if
    CastlePoints or Hermitages businesses do not perform
    well or Tower does not integrate CastlePoints and
    Hermitages business successfully;
    potential payments made to dissenting CastlePoint shareholders
    in respect of their shares, which could exceed the amount of
    consideration otherwise due to them under the terms of the
    merger agreement or permit Tower to terminate the merger
    agreement in certain circumstances; and
    the absence at Hermitage, following the completion of its
    acquisition by Tower, of the internal control over financial
    reporting meeting the standard that is required of a publicly
    traded company. 34




---



##### Table of Contents



Form 10-K.
  Form 10-K Form 10-K Form 10-K
 Item 1A.
    Risk Factors  Form 10-K,
  Form 10-K Form 10-K.
  Risks Related to
    Our Business
  If our actual loss and loss adjustment expenses exceed our
    loss reserves, our financial condition and results of operations
    could be significantly adversely affected.
     35




---



##### Table of Contents



A substantial amount of our business currently comes from a
    limited geographical area. Any single catastrophe or other
    condition affecting losses in this area could adversely affect
    our results of operations.
      If we cannot obtain adequate reinsurance protection for the
    risks we have underwritten, we may be exposed to greater losses
    from these risks or we may reduce the amount of business we
    underwrite, which will reduce our revenues.
     36




---



##### Table of Contents



Even if we are able to obtain reinsurance, our reinsurers may
    not pay losses in a timely fashion, or at all, which may cause a
    substantial loss and increase our costs.
    A decline in the ratings assigned by A. M. Best or other
    rating agencies to our insurance subsidiaries could affect our
    standing among brokers, agents and insureds and cause our sales
    and earnings to decrease.
      The failure of any of the loss limitation methods we employ
    could have a material adverse effect on our financial condition
    or our results of operations.
   37




---



##### Table of Contents



We may face substantial exposure to losses from terrorism and
    we are currently required by law to provide coverage against
    such losses.
      The effects of emerging claim and coverage issues on our
    business are uncertain.
    Since we depend on a core of selected producers for a large
    portion of our revenues, loss of business provided by any one of
    them could adversely affect us.
       38




---



##### Table of Contents



Our reliance on producers subjects us to their credit
    risk.
    We operate in a highly competitive environment.  If
    we are unsuccessful in competing against larger or more
    well-established rivals, our results of operations and financial
    condition could be adversely affected.
    2003-2007.
     39




---



##### Table of Contents



We may experience difficulty in expanding our business, which
    could adversely affect our results of operations and financial
    condition.
    
    We have achieved our prior success by applying a disciplined
    approach to underwriting and pricing in select markets that are
    not well served by our competitors. We may not be able to
    successfully implement our underwriting, pricing and product
    strategies in companies or books of business we acquire or over
    a larger operating region;
    We may not be successful in obtaining the required regulatory
    approvals to offer additional insurance products or expand into
    additional states;
    We have limited acquisition experience and may not be able to
    efficiently combine an acquired company or block of business
    with our present financial, operational and management
    information systems; and
    An acquisition could dilute the book value and earnings per
    share of our common stock.    We could be adversely affected by the loss of one or more
    principal employees or by an inability to attract and retain
    staff.
   40




---



##### Table of Contents



Our investment performance may suffer as a result of adverse
    capital market developments or other factors, which may affect
    our financial results and ability to conduct business.
    We may be adversely affected by interest rate changes.
         41




---



##### Table of Contents



We may require additional capital in the future, which may
    not be available or may only be available on unfavorable
    terms.
  and/or
  The regulatory system under which we operate, and potential
    changes thereto, could have a material adverse effect on our
    business.
    
    standards of solvency, including risk based capital measurements;
    restrictions on the nature, quality and concentration of
    investments;
    required methods of accounting;
    rate and form regulation pertaining to certain of our insurance
    businesses;
    mandating certain insurance benefits
    potential assessments for the provision of funds necessary for
    the settlement of covered claims under certain policies provided
    by impaired, insolvent or failed insurance companies; and
    transactions with affiliates.    and/or
 42




---



##### Table of Contents



If the assessments we are required to pay are increased
    drastically, our results of operations and financial condition
    will suffer.
   43




---



##### Table of Contents



Our ability to meet ongoing cash requirements and pay
    dividends may be limited by our holding company structure and
    regulatory constraints.
    Although we have paid cash dividends in the past, we may not
    pay cash dividends in the future.
    We rely on our information technology and telecommunications
    systems to conduct our business.
      Combining Tower and CastlePoint may be costly and difficult
    and may cause disruption to the existing business operations.
   44




---



##### Table of Contents



Integrating Hermitage may be costly and difficult and may
    cause disruption to its business or the businesses of Tower and
    CastlePoint.
      The market price of Tower common stock and Towers
    earnings per share may decline as a result of the merger with
    CastlePoint or the acquisition of Hermitage.
    If CastlePoints or Hermitages businesses do not
    perform well or Tower does not integrate the business
    successfully, Tower may incur significant charges to write down
    the goodwill and other intangible assets established in the
    merger.
   45




---



##### Table of Contents



As a result of the merger with CastlePoint, Tower will be
    exposed to greater risk of loss and thus may wish to utilize
    more third party reinsurers, but such reinsurers may not offer
    reinsurance on terms acceptable to Tower.
  and/or
  It may be difficult for a third party to acquire Tower, even
    if doing so may be beneficial to Tower stockholders.
    
    classifying its board of directors with staggered three-year
    terms, which may lengthen the time required to gain control of
    Towers board of directors;
    prohibiting stockholder action by written consent, thereby
    requiring all stockholder actions to be taken at a meeting of
    the stockholders;
    limiting who may call special meetings of stockholders;
    establishing advance notice requirements for nominations of
    candidates for election to its board of directors or for
    proposing matters that can be acted upon by stockholders at
    stockholder meetings; and
    the existence of authorized and unissued Tower common stock
    which would allow Towers board of directors to issue
    shares to persons friendly to current management.    Risks Related to
    Our Industry
  The threat of terrorism and military and other actions may
    adversely affect our investment portfolio and may result in
    decreases in our net income, revenue and assets under
    management.
   46




---



##### Table of Contents



Our results of operations and revenues may fluctuate as a
    result of many factors, including cyclical changes in the
    insurance industry, which may cause the price of Tower
    securities issued to investors to be volatile.
    
    competition;
    rising levels of loss costs that we cannot anticipate at the
    time we price our products;
    volatile and unpredictable developments, including man-made,
    weather-related and other natural catastrophes or terrorist
    attacks;
    changes in the level of reinsurance capacity and insurance
    capacity;
    changes in the amount of loss and loss adjustment expense
    reserves resulting from new types of claims and new or changing
    judicial interpretations relating to the scope of insurers
    liabilities; and
    fluctuations in equity markets and interest rates, inflationary
    pressures, conditions affecting the credit markets, segments
    thereof or particular asset classes and other changes in the
    investment environment, which affect returns on invested assets
    and may impact the ultimate payout of losses.      Risk Factors
    Relating to Disruptions in the Financial Markets and the
    Recession
  Adverse capital and credit market conditions may
    significantly affect our ability to meet liquidity needs, access
    to capital and cost of capital.
   47




---



##### Table of Contents



Difficult conditions in the global capital markets and the
    economy generally may materially adversely affect our business
    and results of operations and we do not expect these conditions
    to improve in the near future.
     48




---



##### Table of Contents



There can be no assurance that actions of the
    U.S. government, Federal Reserve and other governmental and
    regulatory bodies for the purpose of stabilizing the financial
    markets will achieve the intended effect.
    The impairment of other financial institutions could
    adversely affect us.
    We are exposed to significant financial and capital markets
    risk which may adversely affect our results of operations,
    financial condition and liquidity, and our net investment income
    can vary from period to period.
     49




---



##### Table of Contents



Our valuation of fixed maturity and equity securities may
    include methodologies, estimations and assumptions which are
    subject to differing interpretations and could result in changes
    to investment valuations that may materially adversely affect
    our results of operations or financial condition.
    Level 1
  Level 2
  Level 3
    and/or
 50




---



##### Table of Contents



Some of our investments are relatively illiquid and are in
    asset classes that have been experiencing significant market
    valuation fluctuations.
      The determination of the amount of allowances and impairments
    taken on our investments is highly subjective and could
    materially impact our results of operations or financial
    position.
    case-by-case
    Gross unrealized losses may be realized or result in future
    impairments.
   51




---



##### Table of Contents



The current recession could adversely affect our business.
    If our business does not perform well, we may be required to
    recognize an impairment of our goodwill, intangible or other
    long-lived assets or to establish a valuation allowance against
    the deferred income tax asset, which could adversely affect our
    results of operations or financial condition.
        Risk Factors
    Relating to Taxation
  Most or all of CastlePoints earnings following the
    merger will be taxed by the United States.
  non-U.S. operations
 Item 1B. Unresolved
    Staff Comments   52




---



##### Table of Contents



Item 2.  Properties     Item 3.  Legal
    Proceedings  and/or
   Item 4.  Submission
    Of Matters To A Vote Of Security Holders      BrokerProposal

For


Against


Abstain


Non-VotesCharter Amendment


19,478,124



196,737



40,809



Share Issuance


19,640,104



64,901



10,625



Adjournment of the Tower special meeting


19,101,722



604,420



9,528



  53




---



##### Table of Contents



PART II  Item 5.
    Market
    For Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities.  Shareholders
        Price Range of
    Common Stock and Dividends Declared
    CommonStockDividendsHigh


Low


Declared2008First quarter

$
33.73


$
23.17


$
0.050Second quarter


28.26



21.03



0.050Third quarter


27.53



17.83



0.050Fourth quarter


28.69



15.76



0.0502007First quarter

$
35.93


$
28.10


$
0.025Second quarter


33.32



29.44



0.025Third quarter


32.57



24.11



0.050Fourth quarter


35.50



27.02



0.050   Dividend
    Policy
       54




---



##### Table of Contents



($ in thousands)

2008


2007Common stock dividends declared

$
4,560


$
3,444Preferred stock dividends declared






298Total dividends declared

$
4,560


$
3,742         Total Number of Shares


Maximum Number (orTotal Number





Purchased as Part of


Approximate Dollarof Shares


Average Price


Publicly Announced Plans


Value) of Shares that MayPeriod

Purchased


Paid per Share


or Programs


Yet Be Purchased UnderOctober 1 - 31, 2008


407


$
19.01






$
November 1 - 30, 2008














December 1 - 31, 2008


173



24.04







Total


580


$
20.51






$
  55




---



##### Table of Contents



Item 6.
    Selected Consolidated Financial Information  Form 10-K.
  For the year ended December 31,2008


2007


2006


2005


2004($ in thousands, except share and per share amounts)Income Statement DataGross premiums written

$
634,820


$
524,015


$
432,663


$
300,107


$
177,766Ceded premiums written


290,777



264,832



187,593



88,325



79,691Net premiums written


344,043



259,183



245,070



211,782



98,075Net premiums earned


314,551



286,106



223,988



164,436



45,564Ceding commission revenue


79,162



71,010



43,130



25,218



39,983Insurance services revenue


68,156



33,300



7,973



14,103



16,381Policy billing fees


2,347



2,038



1,134



892



679Net investment income


34,568



36,699



23,026



14,983



5,070Net realized gains (losses) on investments


(14,354
)


(17,511
)


12



122



13Total revenues


484,430



411,642



299,263



219,754



107,690Losses and loss adjustment expenses


162,739



157,906



135,125



96,614



27,060Operating expenses:Direct and ceding commission expenses


132,445



101,030



60,558



43,839



32,825Other operating
    expenses(1)


91,491



77,319



53,675



42,632



29,954Interest expense


8,449



9,290



6,870



4,853



3,128Total expenses


395,124



345,545



256,228



187,938



92,967Other Income Equity in unconsolidated affiliate


269



2,438



914







Gain from issuance of common stock by unconsolidated affiliate






2,705



7,883







Warrant received from unconsolidated affiliate










4,605







Income before income taxes


89,575



71,240



56,437



31,816



14,723Income tax expense


32,102



26,158



19,673



11,062



5,694Net income

$
57,473


$
45,082


$
36,764


$
20,754


$
9,029Net income available to common stockholders

$
57,473


$
44,384


$
36,552


$
20,754


$
9,029Per Share DataBasic earnings per share

$
2.49


$
1.95


$
1.85


$
1.06


$
1.23Diluted earnings per share

$
2.47


$
1.93


$
1.82


$
1.03


$
1.06Weighted average outstanding :Basic


23,040,496



22,714,663



19,750,309



19,571,081



7,335,286Diluted


23,250,642



22,968,097



20,147,318



20,147,073



8,565,815Selected Insurance RatiosGross loss
    ratio(2)


49.9
%


50.7
%


55.0
%


56.8
%


55.2
%Gross underwriting expense
    ratio(3)


30.4
%


29.2
%


28.7
%


30.8
%


31.1
%Gross combined
    ratio(4)


80.3
%


80.0
%


83.7
%


87.6
%


86.3
%Net loss
    ratio(5)


51.7
%


55.2
%


60.3
%


58.8
%


59.4
%Net underwriting expense
    ratio(6)


30.7
%


28.5
%


27.3
%


29.3
%


16.2
%Net combined
    ratio(7)


82.4
%


83.7
%


87.6
%


88.1
%


75.6
%   56




---



##### Table of Contents



As of December 31,2008


2007


2006


2005


2004($ in thousands, except share and per share amounts)Summary Balance Sheet DataCash and cash equivalents

$
136,253


$
77,679


$
100,598


$
38,760


$
55,201Investments at fair value


540,973



619,068



464,020



357,173



227,008Reinsurance recoverable


272,606



207,828



118,003



104,811



101,173Deferred acquisition costs, net


53,080



39,271



35,811



29,192



18,740Total assets


1,533,013



1,355,649



954,082



657,457



494,147Reserve for losses and loss adjustment expenses


534,991



501,183



302,541



198,724



128,722Unearned premium


328,847



272,774



227,017



157,779



95,505Long-term debt and redeemable preferred stock


101,036



101,036



68,045



47,426



47,426Total stockholders equity


335,204



309,387



223,920



144,822



129,447Per Share Data:Book value per
    share(8)

$
14.36


$
13.34


$
9.23


$
7.29


$
6.56Diluted book value per
    share(9)

$
14.20


$
13.22


$
9.07


$
7.16


$
6.45Dividends declared per share Common Stock

$
0.20


$
0.15


$
0.10


$
0.10


$
0.03Class A Stock

$



$



$



$



$
0.11Class B Stock

$



$



$



$



$
0.11     (1)
    
    Includes acquisition expenses and
    other underwriting expenses (which are general administrative
    expenses related to underwriting operations in our Insurance
    Subsidiaries) as well as other insurance services expenses
    (which are general administrative expenses related to insurance
    services operations).(2)
    
    The gross loss ratio is calculated
    by dividing gross losses (consisting of losses and loss
    adjustment expenses) by gross premiums earned.(3)
    
    The gross underwriting expense
    ratio is calculated by dividing gross underwriting expenses
    (consisting of direct commission expenses and other underwriting
    expenses net of policy billing fees) by gross premiums earned.(4)
    
    The gross combined ratio is the sum
    of the gross loss ratio and the gross underwriting expense ratio.(5)
    
    The net loss ratio is calculated by
    dividing net losses by net premiums earned.(6)
    
    The net underwriting expense ratio
    is calculated by dividing net underwriting expenses (consisting
    of direct commission expenses and other underwriting expenses
    net of policy billing fees and ceding commission revenue) by net
    premiums earned. Historically, the ceding commission revenue we
    earn on our ceded premiums has been higher than our expenses
    incurred to produce those premiums; our extensive use of quota
    share reinsurance has caused our net underwriting expense ratio
    to be lower than our gross underwriting expense ratio under GAAP.(7)
    
    The net combined ratio is the sum
    of the net loss ratio and the net underwriting expense ratio.(8)
    
    Book value per share is based on
    total common stockholders equity divided by common shares
    outstanding at year end.(9)
    
    Diluted book value per share is
    calculated based on total common stockholders equity
    divided by the sum of the number of shares of common stock
    outstanding plus the appropriate common stock equivalents for
    stock options, warrants and restricted stock using the treasury
    stock method.  Item 7.
    Managements
    Discussion And Analysis Of Financial Condition And Results Of
    Operations  Form 10-K.
 57




---



##### Table of Contents



Form 10-K,
  Overview
          Transactions With
    CastlePoint
      Acquisitions
  CastlePoint
   58




---



##### Table of Contents



Hermitage
    Preserver
    Marketplace
    Conditions and Trends
         59




---



##### Table of Contents



Principal Revenue
    and Expense Items
    Net premiums earned.
  Form 10-K,
  Net investment income and realized gains and losses on
    investments.
  Ceding commission revenues.
  Insurance services revenue.
 60




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##### Table of Contents



Losses and loss adjustment expenses.
  Operating expenses.
  Direct and ceding commission expenses.
  Other operating expenses.
  Interest expense.
  Income taxes.
  Measurement of
    Results
    Premiums written.
 61




---



##### Table of Contents



Loss ratio.
  Underwriting expense ratio.
  Combined ratio.
  Premiums produced by TRM.
  Net income and return on average equity.
  Critical
    Accounting Policies
     62




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##### Table of Contents



Loss and LAE reserves. case-by-case
    We segregate our data for estimating loss
    reserves.
  Accident YearProduct Line

Most Recent


1st Prior

All OtherFire


Loss Ratio


Loss Development


Loss DevelopmentHomeowners


Loss Ratio


Loss Development


Loss DevelopmentMulti-Family


Loss Ratio


Loss Development


Loss DevelopmentCommercial multiple-peril property


Loss Ratio


Loss Development


Loss DevelopmentCommercial multiple-peril liability


Loss Ratio


B-F


Loss DevelopmentWorkers Compensation


Loss Ratio


B-F


Loss DevelopmentOther Liability


Loss Ratio


B-F


Loss DevelopmentCommercial Auto Liability


Loss Ratio


B-F


Loss DevelopmentAuto Physical Damage


Loss Ratio


Loss Development


Loss DevelopmentPersonal Auto Liability


Loss Ratio


Loss Development


Loss Development    63




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##### Table of Contents



Number of yearsSegment

50%

90%

99%Fire

< 1 year

< 1 year

2 yearsHomeowners

< 1 year

< 2 years

3 yearsMulti-Family

< 2 years

< 2 years

5 yearsCommercial multiple-peril property

< 1 year

1 year

2 yearsCommercial multiple-peril liability

< 2 years

5 years

9 yearsWorkers Compensation

< 1 year

2 years

5 yearsOther Liability

3 years

4 years

9 yearsCommercial Auto Liability

< 1 year

3 years

4 yearsAuto Physical Damage

< 1 year

< 1 year

1 yearPersonal Auto Liability

< 1 year

< 2 years

4 years           Net Premiums Earned.
  Ceding commissions earned.
   64




---



##### Table of Contents



Insurance Services Revenue.
  Reinsurance recoverables.
  Deferred acquisition costs/commission
    revenues.
  Investments.
  Impairment of invested assets.
 65




---



##### Table of Contents



EITF 99-20-1, No. 99-20. EITF 99-20-1).
          Intangible assets and potential
    impairment.
  Results of
    Operations
   66




---



##### Table of Contents



Consolidated
    Results of Operations
  For the year ended December 31,Change





Change($ in millions)

2008


$

%


2007


$


%


2006RevenuesPremiums earnedGross premiums earned

$
578.3


$56.4


10.8
%

$
521.9


$
158.5



43.6
%

$363.4Less: Ceded premiums earned


(263.8
)

(28.0)


11.9
%


(235.8
)


(96.4
)


69.1
%

(139.4)Net premiums earned


314.6


28.4


9.9
%


286.1



62.1



27.7
%

224.0Total commission and fee income


149.7


43.3


40.7
%


106.3



54.1



103.6
%

52.2Net investment income


34.6


(2.1)


(5.8
)%


36.7



13.7



59.4
%

23.0Net realized investment (losses) gains


(14.4
)

3.2


(18.0
)%


(17.5
)


(17.5
)


NM


0.0Total


484.4


72.8


17.7
%


411.6



112.4



37.6
%

299.3ExpensesNet loss and loss adjustment expenses


162.7


4.8


3.1
%


157.9



22.8



16.9
%

135.1Operating expenses


223.9


45.6


25.6
%


178.3



64.1



56.1
%

114.2Interest expense


8.4


(0.8)


(9.1
)%


9.3



2.4



35.2
%

6.9Total expenses


395.1


49.6


14.3
%


345.5



89.3



34.9
%

256.2Equity in income (loss) of unconsolidated affiliate


0.3


(2.2)


(89.0
)%


2.4



1.5



166.7
%

0.9Gain from issuance of common stock by unconsolidated affiliate





(2.7)


(100.0
)%


2.7



(5.2
)


(65.7
)%

7.9Warrant received from unconsolidated affiliate
















(4.6
)


(100.0
)%

4.6Income before taxes


89.6


18.3


25.7
%


71.2



14.8



26.2
%

56.4Federal and state income taxes


32.1


5.9


22.7
%


26.2



6.5



33.0
%

19.7Net Income

$
57.5


$12.4


27.5
%

$
45.1


$
8.3



22.6
%

$36.8NM is shown where percentage change exceeds 500%Key MeasuresGross premiums written and produced:Written by Insurance Segment

$
634.8


110.8


21.1
%

$
524.0



91.4



21.1
%

$432.7Produced by Insurance Services Segment


175.4


90.3


106.1
%


85.1



72.2



NM


12.9Less: assumed premiums


(5.2
)

(4.5)


NM



(0.7
)


23.6



(97.1
)%

(24.3)Total

$
805.0


196.6


32.3
%

$
608.4



187.1



44.4
%

$421.3Percent of total revenues:Net premiums earned


64.9
%








69.5
%









74.8%Commission and fee income


30.9
%








25.8
%









17.5%Net investment income


7.1
%








8.9
%









7.7%Net realized investment gains (losses)


(3.0
)%








(4.3
)%









0.0%Return on average
    equity(1)


17.8
%








18.0
%









22.2%    (1)
    
    Net realized investment losses, net
    of tax, reduced return on average equity by 2.9% and 4.6% for
    the years ended December 31, 2008 and 2007, respectively.  Consolidated
    Results of Operations 2008 Compared to 2007
  Total revenues.
 67




---



##### Table of Contents



Premiums earned.
    CededDates

Quota Share Reinsurance Agreement With

AmountApril 6, 2006  June 30, 2006(1)

CastlePoint Reinsurance

30%July 1, 2006  December 31, 2006

CastlePoint Reinsurance

40%January 1, 2007  March 31, 2007

CastlePoint Reinsurance

49%April 1 2007  June 30, 2007

CastlePoint Reinsurance

40%April 1 2007  June 30, 2007

CastlePoint Insurance Company

9%July 1, 2007  December 31, 2007(2)

CastlePoint Reinsurance

40%January 1, 2008  March 31, 2008(2)

CastlePoint Reinsurance

40%April 1, 2008  June 30, 2008(2)

CastlePoint Reinsurance

35%July 1, 2008  September 30, 2008(2)

CastlePoint Reinsurance

25%April 1, 2008  September 30, 2008

Swiss Re America Corporation

5%October 1, 2008  December 31, 2008

CastlePoint Reinsurance

17.5%October 1, 2008  December 31, 2008

Swiss Re America Corporation

28%     (1)
    
    Multi year quota share reinsurance
    agreements with CastlePoint Reinsurance began April 6, 2006.(2)
    
    On July 1, 2008, we reduced
    the ceding percentage under our brokerage business quota share
    reinsurance agreement with CastlePoint Reinsurance to 25%
    applicable to both the ceded unearned premium reserve as of
    July 1, 2008 and new and new and renewal premiums written
    in the third quarter of 2008.    Commission and fee income.
  Net investment income and realized gains
    (losses).
   68




---



##### Table of Contents



Loss and loss adjustment expenses.
  Operating expenses.
  Interest expense.
  Other income.
  Income tax expense.
  Net income and return on average equity.
  Consolidated
    Results of Operations 2007 Compared to 2006
  Total revenues.
  Premiums earned.
 69




---



##### Table of Contents



Gross

Ceded

Net($ in millions)

Amount


% Change

Amount


% Change

Amount


% ChangePremiums earned at December 31, 2006

$
363.4




$
(139.4
)



$
224.0Add: Preserver Group


61.5


16.9%


(13.5
)

9.7%


48.0


21.4%Deduct: PX Re commutation


(11.4
)

(3.1)%





0.0%


(11.4
)

(5.1)%Add: organic growth during 2007


108.4


29.8%


(82.9
)

59.4%


25.5


11.4%Premiums earned at December 31, 2007

$
521.9


43.6%

$
(235.8
)

69.1%

$
286.1


27.7%     CededDates

Quota Share Reinsurance Agreement With

AmountApril 6, 2006  June 30, 2006

CastlePoint Reinsurance

30%July 1, 2006  December 31, 2006

CastlePoint Reinsurance

40%January 1, 2007  March 31, 2007

CastlePoint Reinsurance

49%April 1 2007  June 30, 2007

CastlePoint Reinsurance

40%April 1 2007  June 30, 2007

CastlePoint Insurance Company

9%July 1, 2007  December 31, 2007

CastlePoint Reinsurance

40%     Commission and fee income.
  Net investment income and realized gains
    (losses).
 70




---



##### Table of Contents



Loss and loss adjustment expenses.
    Operating expenses.
  Interest expense.
  Other income.
  Income tax expense.
 71




---



##### Table of Contents



Net income and return on average equity.
  Insurance
    Segment Results of Operations
  Year ended December 31,Change





Change($ in millions)

2008


$


%


2007


$


%


2006RevenuesPremiums earnedGross premiums earnedBrokerage

$
508.0


$
2.9



0.6
%

$
505.1


$
147.4



41.2
%

$
357.7Traditional programs


13.7



11.7



NM



2.0



1.7



438.2
%


0.4Specialty programs


56.7



41.9



282.5
%


14.8



9.5



179.2
%


5.3Total gross premiums earned


578.3



56.4



10.8
%


521.9



158.5



43.6
%


363.4Less: ceded premiums earnedBrokerage


(206.4
)


14.2



(6.4
)%


(220.6
)


(86.3
)


64.3
%


(134.3
)Traditional programs


(7.2
)


(6.1
)


NM



(1.1
)


(0.9
)


442.1
%


(0.2
)Specialty programs


(50.2
)


(36.1
)


255.3
%


(14.1
)


(9.2
)


185.2
%


(5.0
)Total ceded premiums earned


(263.8
)


(28.0
)


11.9
%


(235.8
)


(96.4
)


69.1
%


(139.5
)Net premiums earnedBrokerage


301.6



17.1



6.0
%


284.5



61.1



27.3
%


223.4Traditional programs


6.5



5.6



NM



1.0



0.8



433.7
%


0.2Specialty programs


6.5



5.8



NM



0.7



0.3



94.6
%


0.4Net premiums earned


314.6



28.4



9.9
%


286.1



62.2



27.8
%


223.9Ceding commission revenue


79.2



8.2



11.5
%


71.0



27.9



64.6
%


43.1Policy billing fees


2.0



0.0



0.0
%


2.0



0.9



77.5
%


1.1Total revenue


395.7



36.6



10.2
%


359.1



90.9



33.9
%


268.2ExpensesLoss and loss adjustment expensesGross loss and loss adjustment expenses


288.3



23.6



8.9
%


264.7



64.9



32.5
%


199.9Less: ceded loss and loss adjustment expenses


(125.6
)


(18.8
)


17.6
%


(106.8
)


(42.1
)


65.0
%


(64.7
)Net loss and loss adjustment expenses


162.7



4.8



3.0
%


157.9



22.8



16.9
%


135.1Underwriting expensesDirect commission expense


105.6



18.6



21.4
%


87.0



28.3



48.3
%


58.6Other underwriting expenses


72.1



4.5



6.6
%


67.6



20.9



44.7
%


46.7Total underwriting expenses


177.8



23.1



14.9
%


154.6



49.2



46.7
%


105.4Underwriting profit

$
55.2


$
8.7



18.7
%

$
46.6


$
18.9



68.1
%

$
27.8   72




---



##### Table of Contents



Year ended December 31,Change





Change($ in millions)

2008


$


%


2007


$


%


2006Key MeasuresPremiums writtenGross premiums writtenBrokerage

$
525.4


$
25.9



5.2
%

$
499.5


$
77.9



18.5
%


421.6Traditional programs


16.0



12.4



347.6
%


3.6



2.3



169.7
%


1.3Specialty programs


93.4



72.5



345.9
%


21.0



11.2



114.4
%


9.8Total gross premiums written


634.8



110.8



21.1
%


524.0



91.4



21.1
%


432.7Less: ceded premiums writtenBrokerage


(200.4
)


43.3



(17.8
)%


(243.7
)


(65.9
)


37.1
%


(177.7
)Traditional programs


(8.4
)


(6.5
)


338.5
%


(1.9
)


(1.2
)


171.1
%


(0.7
)Specialty programs


(82.0
)


(62.8
)


325.9
%


(19.3
)


(10.1
)


110.4
%


(9.2
)Total ceded premiums written


(290.8
)


(25.9
)


9.8
%


(264.8
)


(77.2
)


41.2
%


(187.6
)Net premiums writtenBrokerage


325.0



69.2



27.0
%


255.8



12.0



4.9
%


243.8Traditional programs


7.6



6.0



358.0
%


1.7



1.0



168.1
%


0.6Specialty programs


11.4



9.7



NM



1.7



1.1



173.3
%


0.6Total net premiums written

$
344.0


$
84.9



32.7
%

$
259.2


$
14.1



5.8
%

$
245.1  NM is shown where percentage change exceeds 500%
  Key Measures (Continued)

2008


2007


2006Ceded premiums as a percent of gross premiumsWritten


45.8
%


50.5
%


43.4
%Earned


45.6
%


45.2
%


38.4
%Loss RatiosGross


49.9
%


50.7
%


55.0
%Net


51.7
%


55.2
%


60.3
%Accident Year Loss RatiosGross


53.6
%


51.5
%


51.2
%Net


54.5
%


55.8
%


53.2
%Underwriting Expense RatiosGross


30.4
%


29.2
%


28.7
%Net


30.7
%


28.5
%


27.3
%Combined RatiosGross


80.3
%


80.0
%


83.7
%Net


82.4
%


83.8
%


87.6
%   Insurance
    Segment Results of Operations 2008 compared to
    2007
  Gross premiums.
   73




---



##### Table of Contents



Ceded premiums.
      Ceding commission revenue.
  Loss and loss adjustment expenses.
   74




---



##### Table of Contents



Underwriting expenses and underwriting expense
    ratio.
      Underwriting profit and combined ratio.
  Insurance
    Segment Results of Operations 2007 Compared to
    2006
  Gross premiums.
   75




---



##### Table of Contents



Ceded premiums.
    Net premiums.
  Ceding commission revenue.
  Loss and loss adjustment expenses.
   76




---



##### Table of Contents



Underwriting expenses.
        Underwriting profit and combined ratio.
  Insurance
    Services Segment Results of Operations
  For the year ended December 31,Change





Change($ in millions)

2008


$


%


2007


$


%


2006RevenueDirect commission revenue from managing general agency

$
58.2


$
29.4



102.2
%

$
28.8


$
25.3



NM


$
3.5Claims administration revenue


5.4



3.1



133.0
%


2.3



(0.9
)


(27.5
)%


3.2Other administration revenue


3.6



2.1



150.4
%


1.4



0.7



92.8
%


0.7Reinsurance intermediary fees


1.0



0.2



28.6
%


0.8



0.2



33.4
%


0.6Policy billing fees


0.3



0.3



NM



0.0



0.0



NM



0.0Total


68.5



35.2



105.5
%


33.3



25.4



317.8
%


8.0ExpensesDirect commission expense paid to producers


26.8



12.7



90.7
%


14.1



12.1



NM



1.9Other insurance services expenses


12.3



6.6



113.1
%


5.8



4.2



267.1
%


1.6Claims expense reimbursement to TICNY


5.4



3.1



134.2
%


2.3



(0.9
)


(27.5
)%


3.2Total


44.5



22.4



101.1
%


22.2



15.5



231.6
%


6.7Insurance services pre-tax income (loss)

$
24.0


$
12.8



114.3
%

$
11.2


$
9.9



NM


$
1.3Premiums produced by TRM on behalf of issuing companies

$
175.4


$
90.3



106.1
%

$
85.1


$
72.2



NM


$
12.9NM is shown where percentage
    change exceeds 500%  77




---



##### Table of Contents



Insurance
    Services Segment Results of Operations 2008 compared to
    2007
  Total revenues.
  Direct commission expense.
  Other insurance services expenses.
  Claims expense reimbursement.
  Pre-tax income.
  Insurance
    Services Segment Results of Operations 2007 Compared to
    2006
  Total revenues.
  Direct commission expense.
 78




---



##### Table of Contents



Other insurance services expenses.
  Claims expense reimbursement.
  Pre-tax income.
  Investments
  Portfolio
    Summary
       79




---



##### Table of Contents



Cost or


Gross


Gross Unrealized Losses


% ofAmortized


Unrealized


Less than 12


More than 12


Fair


Fair($ in thousands)

Cost


Gains


Months


Months


Value


ValueDecember 31, 2008U.S. Treasury securities

$
26,482


$
524


$



$



$
27,006



5.0%U.S. Agency securities


361



38











399



0.1%Municipal bonds


179,734



2,865



(2,485
)


(166
)


179,948



33.3%Corporate and other bonds


210,007



932



(13,948
)


(10,016
)


186,975



34.6%Commercial, residential and asset-backed securities


164,886



1,838



(10,603
)


(20,290
)


135,830



25.1%Total fixed maturity securities


581,470



6,197



(27,036
)


(30,472
)


530,159



98.0%Equity securities


12,726



5



(60
)


(1,857
)


10,814



2.0%Total

$
594,196


$
6,202


$
(27,096
)

$
(32,329
)

$
540,973



100.0%December 31, 2007U.S. Treasury securities

$
25,837


$
827


$



$



$
26,664



4.3%U.S. Agency securities


19,709



162











19,871



3.2%Municipal bonds


155,296



1,167



(78
)


(24
)


156,361



25.3%Corporate and other bonds


201,501



1,222



(3,165
)


(818
)


198,740



32.1%Commercial, residential and asset-backed securities


214,414



1,443



(8,109
)


(2,896
)


204,852



33.1%Total fixed maturity securities


616,757



4,821



(11,352
)


(3,738
)


606,488



98.0%Equity securities


14,429







(1,849
)






12,580



2.0%Total

$
631,186


$
4,821


$
(13,201
)

$
(3,738
)

$
619,068



100.0%   Credit
    Rating of Fixed Maturity Securities
    December 31, 2008


December 31, 2007Percentage of





Percentage ofFair Market


Fair Market


Fair Market


Fair Market($ in thousands)

Value


Value


Value


ValueRatingU.S. Treasury securities

$
27,006



5.1
%

$
26,663



4.4
%AAA


187,377



35.3
%


286,528



47.2
%AA


110,601



20.9
%


72,276



11.9
%A


113,651



21.4
%


80,426



13.3
%BBB


62,566



11.8
%


77,768



12.8
%Below BBB


28,958



5.5
%


62,827



10.4
%Total

$
530,159



100.0
%

$
606,488



100.0
%   Fixed
    Maturity InvestmentsTime to Maturity
   80




---



##### Table of Contents



December 31, 2008


December 31, 2007Percentage of





Percentage ofFair Market


Fair Market


Fair Market


Fair Market($ in thousands)

Value


Value


Value


ValueRemaining Time to MaturityLess than one year

$
8,789



1.7
%

$
12,690



2.1
%One to five years


112,514



21.2
%


117,812



19.4
%Five to ten years


176,218



33.2
%


187,891



31.0
%More than 10 years


96,807



18.3
%


83,242



13.7
%Mortgage and asset-backed securities


135,831



25.6
%


204,853



33.8
%Total

$
530,159



100.0
%

$
606,488



100.0
%   Fixed
    Maturity Investments with Third Party Guarantees
    With


Without($ in thousands)

Guarantee


GuaranteeAAA

$
4,059


$
2,022AA


67,071



51,426A


29,734



34,729BBB


1,022



1,226No underlying rating






12,483Total

$
101,886


$
101,886     Guaranteed


Percent($ in thousands)

Amount


of TotalFinancial Security Assurance

$
25,473



25
%MBIA Inc.


44,759



44
%Ambac Financial Corp.


18,167



18
%FGIC Corp.


5,143



5
%Others


8,344



8
%Total

$
101,886



100
%   Fair
    Value Consideration
   81




---



##### Table of Contents



Assets





Level 3 AssetsCarried at





As a PercentageFair Value at





of Total AssetsDecember 31,


Fair Value of


Carried at($ in thousands)

2008


Level 3 Assets


Fair ValueFixed-maturity investments

$
530,159


$
18,085



3.4
%Equity investments


10,814







0.0
%Total invesments available for sale


540,973



18,085



3.3
%Cash and cash equivalents


136,253







0.0
%Total

$
677,226


$
18,085



2.7
%   Unrealized
    Losses
   82




---



##### Table of Contents



Less than 12 Months


12 Months or Longer


TotalUnrealized








Unrealized





Aggregate


Unrealized($ in thousands)

No.


Fair Value


Losses


No.


Fair Value


Losses


No.


Fair Value


LossesDecember 31, 2008Municipal bonds


53


$
49,879


$
(2,485
)


1


$
371


$
(166
)


54


$
50,250


$
(2,651
)Corporate and other bondsFinance


55



42,007



(6,003
)


38



20,575



(4,173
)


93



62,582



(10,176
)Industrial


110



72,787



(7,740
)


32



17,701



(5,639
)


142



90,488



(13,379
)Utilities


5



1,974



(205
)


2



446



(204
)


7



2,420



(409
)Commercial mortgage-backed securites


15



13,997



(4,399
)


22



16,431



(16,626
)


37



30,427



(21,026
)Residential mortgage-backed securites Agency backed


6



3,408



(16
)


1



582



(20
)


7



3,990



(36
)Non-agency backed


32



12,676



(3,536
)


16



9,953



(3,594
)


48



22,629



(7,130
)Asset-backed securities


20



6,481



(2,652
)


2



552



(49
)


22



7,032



(2,701
)Total fixed maturity securities


296



203,208



(27,036
)


114



66,610



(30,472
)


410



269,818



(57,508
)Preferred stocks














6



3,694



(1,857
)


6



3,694



(1,857
)Common stocks


1



1,440



(60
)














1



1,440



(60
)Total


297


$
204,648


$
(27,096
)


120


$
70,304


$
(32,329
)


417


$
274,952


$
(59,425
)December 31, 2007Municipal bonds


14


$
11,614


$
(78
)


6


$
7,272


$
(24
)


20


$
18,886


$
(102
)Corporate and other bondsFinance


37



36,117



(1,361
)


16



12,844



(502
)


53



48,961



(1,863
)Industrial


56



41,536



(1,770
)


15



11,785



(317
)


71



53,321



(2,087
)Utilities


4



616



(34
)














4



616



(34
)Commercial mortgage-backed securites


21



24,146



(5,015
)


4



8,325



(162
)


25



32,471



(5,177
)Residential mortgage-backed securites Agency backed


6



4,580



(43
)


13



28,529



(363
)


19



33,109



(406
)Non-agency backed


17



13,850



(2,478
)


17



17,667



(2,370
)


34



31,517



(4,848
)Asset-backed securities


3



2,898



(573
)














3



2,898



(573
)Total fixed maturity securities


158



135,357



(11,352
)


71



86,422



(3,738
)


229



221,779



(15,090
)Preferred stocks


5



3,702



(1,849
)














5



3,702



(1,849
)Total


163


$
139,059


$
(13,201
)


71


$
86,422


$
(3,738
)


234


$
225,481


$
(16,939
)       Unrealized LossPercent of


Fair Value by Security RatingFair





Amortized














BB or($ in thousands)

Count


Value


Amount


Cost


AAA


AA


A


BBB


LowerCategoryMunicipal bonds


45


$
50,250


$
(2,651
)


(5
)%


22
%


55
%


16
%


4
%


4
%Corporate and other bonds


143



155,489



(23,964
)


(13
)%


2
%


3
%


47
%


35
%


12
%Commercial mortgage-backed securities


37



30,427



(21,026
)


(41
)%


81
%


1
%


0
%


12
%


6
%Residential mortgage-backed securities


48



22,629



(7,130
)


(24
)%


66
%


2
%


5
%


7
%


20
%Asset-backed securities


22



7,032



(2,701
)


(28
)%


15
%


35
%


45
%


4
%


1
%Equities


7



5,135



(1,916
)


0
%


0
%


0
%


26
%


22
%


52
%  83




---



##### Table of Contents



Corporate
    and other bonds
    Fair
    Value
 Corporate
    and Other Bonds
  Rating





% ofBB or


Fair


Total($ in thousands)

AAA


AA


A


BBB


Lower


Value


ExposureSectorFinancial

$



$
4,149


$
46,302


$
11,181


$
949


$
62,582



40
%Industrial


3,589



563



26,402



42,945



16,988



90,488



58
%Utilities










981



993



446



2,420



2
%Total fair value

$
3,589


$
4,713


$
73,686


$
55,119


$
18,383


$
155,489



100
%% of fair value


2
%


3
%


47
%


35
%


12
%


100
%   Unrealized
    Loss
 Corporate
    and Other Bonds
  Rating





% ofBB or


Fair


Book($ in thousands)

AAA


AA


A


BBB


Lower


Value


ValueSectorFinancial

$



$
(125
)

$
(5,534
)

$
(3,940
)

$
(577
)

$
(10,176
)


(14%
)Industrial


(11
)


(23
)


(2,165
)


(5,321
)


(5,859
)


(13,379
)


(13%
)Utilities










(18
)


(187
)


(204
)


(409
)


(14%
)Total unrealized loss

$
(11
)

$
(148
)

$
(7,717
)

$
(9,447
)

$
(6,641
)

$
(23,964
)


(13%
)% of book value


0
%


(3
%)


(9
%)


(15
%)


(27
%)


(13
%)    84




---



##### Table of Contents



Securitized
    assets
    Fair
    Value
 Commercial
    Mortgage-backed Securities
  Rating





% ofBB or


Fair


Total($ in thousands)

AAA


AA


A


BBB


Lower


Value


ExposureDeal Origination Year2001

$
915


$



$



$



$



$
915



3
%2002


















245



245



1
%2003


912



















912



3
%2004


1,876



















1,876



6
%2005


4,359



















4,359



14
%2006


3,615











776



390



4,781



16
%2007


13,080



179







2,801



1,278



17,338



57
%Total fair value

$
24,758


$
179


$



$
3,577


$
1,913


$
30,427



100
%% of fair value


81
%


1
%


0
%


12
%


6
%


100
%   Unrealized
    losses
 Commercial
    Mortgage-backed Securities
  Rating





% ofBB or


Unrealized


Book($ in thousands)

AAA


AA


A


BBB


Lower


Loss


ValueDeal Origination Year2001

$
(27
)

$



$



$



$




(27
)


(3%
)2002


















(216
)


(216
)


(47%
)2003


(45
)


















(45
)


(5%
)2004


(93
)


















(93
)


(5%
)2005


(393
)


















(393
)


(8%
)2006


(882
)










(1,167
)


(1,015
)


(3,063
)


(39%
)2007


(8,752
)


(806
)






(4,537
)


(3,094
)


(17,189
)


(50%
)Total unrealized loss

$
(10,191
)

$
(806
)

$



$
(5,704
)

$
(4,325
)

$
(21,026
)


(41%
)% of book value


(20
%)


(2
%)


0
%)


(11
%)


(8
)%


(41
%)  85




---



##### Table of Contents



Fair
    Value
 Non-agency
    Residential Mortgage-backed Securities
  Rating





% ofBB or


Fair


Total($ in thousands)

AAA


AA


A


BBB


Lower


Value


ExposureDeal Origination Year2002


342



















342



2%2003


792















951



1,744



8%2004


6,212







1,187



424



1,593



9,415



42%2005


1,885



409







719



1,088



4,101



18%2006


738











520



841



2,099



9%2007


4,869















59



4,928



22%Total fair value

$
14,838


$
409


$
1,187


$
1,663


$
4,533


$
22,629



100%% of fair value


66
%


2
%


5
%


7
%


20
%


100
%   Unrealized
    Losses
 Non-agency
    Residential Mortgage-backed Securities
  Rating





% ofBB or


Unrealized


Book($ in thousands)

AAA


AA


A


BBB


Lower


Loss


ValueDeal Origination Year2002


(86
)


















(86
)


(20%
)2003


(173
)














(179
)


(352
)


(17%
)2004


(839
)






(373
)


(393
)


(343
)


(1,948
)


(17%
)2005


(573
)


(664
)






(257
)


(270
)


(1,763
)


(30%
)2006


(281
)










(262
)


(0
)


(544
)


(21%
)2007


(2,422
)














(14
)


(2,437
)


(33%
)Total unrealized loss

$
(4,375
)

$
(664
)

$
(373
)

$
(913
)

$
(806
)

$
(7,130
)


(24%
)% of book value


(15
%)


(2
%)


(1
%)


(3
%)


(3
%)


(24
%)   Fair
    Value
 Asset-backed
    Securities
  SubprimeRating





% ofBB or


Fair


Total($ in thousands)

AAA


AA


A


BBB


Lower


Value


ExposureDeal Origination Year2002


487



















487



7
%2003


454



485















939



13
%2004






1,351



2,658











4,009



57
%2005






610



505



270







1,386



20
%2007


















98



98



1
%PPN


114



















114



2
%Total fair value

$
1,055


$
2,447


$
3,163


$
270


$
98


$
7,032



100
%% of fair value


15
%


35
%


45
%


4
%


1
%


100
%  86




---



##### Table of Contents



Unrealized
    Losses
 Asset-backed
    Securities
  Rating





% ofBB or


Unrealized


Book($ in thousands)

AAA


AA


A


BBB


Lower


Loss


ValueDeal Origination Year2002


(9
)


















(9
)


(2%
)2003


(49
)


(191
)














(240
)


(20%
)2004






(1,080
)


(236
)










(1,316
)


(25%
)2005






(1,009
)


(67
)


(0
)






(1,076
)


(44%
)2007


















(0
)


(0
)


0%PPN


(60
)


















(60
)


(35%
)Total unrealized loss

$
(118
)

$
(2,280
)

$
(303
)

$
(0
)

$
(0
)

$
(2,701
)


(28%
)% of book value


(1%
)


(23%
)


(3%
)


0%



0%



(28%
)           Liquidity and
    Capital Resources
  Sources
    and Uses of Funds
     87




---



##### Table of Contents



Cash
    Flows from Follow-on Offering
    Cash
    Flows from Issuance of Subordinated Debentures and Perpetual
    Preferred Stock
      Surplus
    Levels
   88




---



##### Table of Contents



Cash
    Flows
        Cash
    Flow Summary
  Year ended December 31,($ in thousands)

2008


2007


2006Cash provided by (used in):Operating activities

$
61,732


$
75,928


$
134,135Investing activities


1,627



(182,866
)


(131,959
)Financing activities


(4,785
)


67,456



59,662Net increase (decrease) in cash and cash equivalents


58,574



(39,482
)


61,838Cash and cash equivalents, beginning of year


77,679



117,161



38,760Cash and cash equivalents, end of year

$
136,253


$
77,679


$
100,598   Comparison
    of Years Ended December 31, 2008 and 2007
     89




---



##### Table of Contents



99-20-1,
            Comparison
    of Years Ended December 31, 2007 and 2006
    99-20,
   90




---



##### Table of Contents



Comparison
    of Years Ended December 31, 2007 and 2006
    99-20,
 91




---



##### Table of Contents



Liquidity
   92




---



##### Table of Contents



Commitments
    Payments due by periodLess than


1-3


4-5


After 5Total


1 year


years


years


yearsSubordinated Debentures

$
101,036


$



$



$



$
101,036Interest on subordinated debentures


194,906



7,399



14,798



14,798



157,911Operating lease obligations


56,148



6,801



12,929



8,843



27,575Gross loss reserves


534,991



174,826



211,236



101,170



47,759Total contractual obligations

$
887,081


$
189,026


$
238,963


$
124,811


$
334,281      93




---



##### Table of Contents



Capital
    Resources
    Principal Amount ofAmount of

Junior SubordinatedInvestment in

DebentureMaturity





Common Securities of

Issued toIssue Date

Amount

Issuer

Date

Early Redemption

Interest Rate

Trust

TrustJanuary 2007

$20.0 million

Tower Group Statutory Trust VI

March 2037

At our option at par on or after March 15, 2012

8.155% until January 25, 2012; three-month LIBOR plus
    300 basis points thereafter

$0.6 million

$20.6 millionMarch 2006

$20.0 million

Tower Group Statutory Trust V

April 2036

At our option at par on or after April 7, 2011

8.5625% until March 31, 2011; three-month LIBOR plus
    330 basis points thereafter

$0.6 million

$20.6 millionDecember 2004

$13.0 million

Tower Group Statutory Trust IV

March 2035

At our option at par on or after December 21, 2009

Three-month LIBOR plus 340 basis points

$0.4 million

$13.4 millionDecember 2004

$13.0 million

Tower Group Statutory Trust III

December 2034

At our option at par on or after December 15, 2009

7.4% until December 7, 2009; three-month LIBOR plus
    340 basis points thereafter

$0.4 million

$13.4 millionSeptember 2003

$10.0 million

Tower Group Statutory Trust II

September 2033

At our option at par on or after September 30, 2008

7.5% until September 30, 2008; three-month LIBOR plus
    400 basis points thereafter

$0.3 million

$10.3 millionMay 2003

$10.0 million

Tower Group Statutory Trust I

May 2033

At our option at par on or after May 15, 2008

Three-month LIBOR plus 410 basis points (capped at 12.5%
    until May 15, 2008)

$0.3 million

$10.3 million 94




---



##### Table of Contents



Principal Amount ofAmount of

Junior SubordinatedInvestment in

DebentureMaturity





Common Securities of

Issued toIssue Date

Amount

Issuer

Date

Early Redemption

Interest Rate

Trust

TrustMay 2004

$12.0 million

Preserver Capital Trust I

April 2034

At our option at par on or after May 24, 2009

Three-month LIBOR plus 425 basis points (capped at 12.5%
    until May 24, 2009)

$0.4 million

$12.3 million       
    non-payment of interest on the trust preferred securities,
    unless such non-payment is due to a valid extension of an
    interest payment period;
    non-payment of all or any part of the principal of the trust
    preferred securities;
    our failure to comply with the covenants or other provisions of
    the indentures or the trust preferred securities; or
    bankruptcy or liquidation of us or the trusts.      Off
    Balance Sheet Arrangements
    Inflation
      Adoption
    of New Accounting Pronouncements
   Item 7A.
    Quantitative And Qualitative Disclosures About Market
    Risk   95




---



##### Table of Contents



Interest
    Rate Risk
        Sensitivity
    Analysis
          Estimated Increase


Estimated Percentage(Decrease) in Fair Value


Increase (Decrease)Change in interest rate

($ in thousands)


in Fair Value300 basis point rise

$
(70,342
)


(13.3
)%200 basis point rise


(48,539
)


(9.2
)%100 basis point rise


(25,102
)


(4.7
)%As of December 31, 2008


0



0.0
%50 basis point decline


13,274



2.5
%100 basis point decline


26,934



5.1
%  96




---



##### Table of Contents



Credit
    Risk
     97




---



##### Table of Contents



Equity
    Risk
   98




---



##### Table of Contents



Item 8.  Financial
    Statements And Supplementary Data  Index to
    Consolidated Financial Statements
  PageReport of Independent Registered Public
    Accounting Firm


F-1Consolidated Balance Sheets as of
    December 31, 2008 and 2007


F-3Consolidated Statements of Income and
    Comprehensive Net Income for the years ended December 31,
    2008, 2007 and 2006


F-4Consolidated Statements of Changes in
    Stockholders Equity for the years ended December 31,
    2008, 2007 and 2006


F-5Consolidated Statements of Cash Flows for the
    years ended December 31, 2008, 2007 and 2006


F-6Notes to Consolidated Financial Statements


F-7  99




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm            F-1




---



##### Table of Contents



F-2




---



##### Table of Contents



Tower
    Group, Inc.

Consolidated Balance Sheets   December 31,($ in thousands, except par value and share amounts)

2008


2007AssetsFixed-maturity securities, available-for-sale, at fair value
    (amortized cost of $581,470 and $616,757)

$
530,159


$
606,488Equity securities, available-for-sale, at fair value (cost of
    $12,726 and $14,429)


10,814



12,580Total investments


540,973



619,068Cash and cash equivalents


136,253



77,679Investment income receivable


6,972



6,546Premiums receivable


186,806



122,763Reinsurance recoverable


272,606



207,828Prepaid reinsurance premiums


153,650



124,834Deferred acquisition costs, net of deferred ceding commission
    revenue


53,080



39,271Deferred income taxes


36,207



22,802Intangible assets


20,464



21,670Goodwill


18,962



13,281Fixed assets, net of accumulated depreciation


39,038



32,337Investment in unconsolidated affiliate


29,293



32,615Other assets


38,709



34,955Total assets

$
1,533,013


$
1,355,649LiabilitiesLoss and loss adjustment expenses

$
534,991


$
501,183Unearned premium


328,847



272,774Reinsurance balances payable


134,598



58,740Payable to issuing carriers


47,301



42,855Funds held under reinsurance agreements


20,474



36,841Accounts payable, accrued liabilities and other liabilities


30,562



32,833Subordinated debentures


101,036



101,036Total liabilities


1,197,809



1,046,262Stockholders EquityCommon stock ($0.01 par value; 40,000,000 shares
    authorized, 23,408,145 and 23,225,039 shares issued, and
    23,339,470 and 23,185,173 shares outstanding)


234



232Treasury stock (68,675 and 39,866 shares)


(1,026
)


(493
)Paid-in-capital


208,094



205,435Accumulated other comprehensive net loss


(37,498
)


(8,322
)Retained earnings


165,400



112,535Total stockholders equity


335,204



309,387Total liabilities and stockholders equity

$
1,533,013


$
1,355,649    F-3




---



##### Table of Contents



Tower
    Group, Inc.

Consolidated Statements of Income and Comprehensive Net
    Income  Year Ended December 31,($ in thousands, except per share and share amounts)

2008


2007


2006RevenuesNet premiums earned

$
314,551


$
286,106


$
223,988Ceding commission revenue


79,162



71,010



43,130Insurance services revenue


68,156



33,300



7,973Policy billing fees


2,347



2,038



1,134Net investment income


34,568



36,699



23,026Net realized (losses) gains on investments


(14,354
)


(17,511
)


12Total revenues


484,430



411,642



299,263ExpensesLoss and loss adjustment expenses


162,739



157,906



135,125Direct and ceding commission expense


132,445



101,030



60,558Other operating expenses


91,491



77,319



53,675Interest expense


8,449



9,290



6,870Total expenses


395,124



345,545



256,228Other IncomeEquity income in unconsolidated affiliate


269



2,438



914Gain from issuance of common stock by unconsolidated affiliate






2,705



7,883Warrant received from unconsolidated affiliate










4,605Income before income taxes


89,575



71,240



56,437Income tax expense


32,102



26,158



19,673Net income

$
57,473


$
45,082


$
36,764Gross unrealized investment holding (losses) gains arising
    during period


(56,098
)


(29,424
)


4,443Equity in net unrealized (losses) gains in investment in
    unconsolidated affiliates investment portfolio


(3,142
)


(218
)


143Less: reclassification adjustment for losses (gains) included in
    net income


14,354



17,511



(12
)Income tax benefit (expense) related to items of other
    comprehensive income


15,710



4,246



(1,659
)Comprehensive net income

$
28,297


$
37,197


$
39,679Basic and diluted earnings per shareBasic

$
2.49


$
1.95


$
1.85Diluted

$
2.47


$
1.93


$
1.82Weighted average common shares outstandingBasic


23,040,496



22,714,663



19,750,309Diluted


23,250,642



22,968,097



20,147,318Dividends declared and paid per common shareCommon stock

$
0.20


$
0.15


$
0.10    F-4




---



##### Table of Contents



Tower
    Group, Inc.

Consolidated Statements of Changes in Stockholders
    Equity  AccumulatedOther





TotalPreferred Stock


Common Stock


Treasury


Paid-in


Comprehensive


Retained


Stockholders($ in thousands)

Shares


Amount


Shares


Amount


Stock


Capital


Income


Earnings


EquityBalance at December 31, 2005










19,873


$
199


$
(110
)

$
111,066


$
(3,352
)

$
37,019


$
144,822Dividends declared






























(1,975
)


(1,975
)Dividends declared on preferred stock






























(212
)


(212
)Stock based compensation










133



1



(97
)


2,102











2,006Issuance of preferred stock, net of issuance costs of
    $0.4 million


40



39,600



























39,600Net income






























36,764



36,764Net unrealized appreciation on securities available for sale,
    net of income tax


























2,915







2,915Balance at December 31, 2006


40



39,600



20,006


$
200


$
(207
)

$
113,168


$
(437
)

$
71,596


$
223,920Dividends declared






























(3,444
)


(3,444
)Dividends declared on preferred stock






























(298
)


(298
)Stock based compensation










175



2



(341
)


2,904











2,565Redemption of preferred stock


(40
)


(39,600
)






















(400
)


(40,000
)Equity offering and over-allotment, net of issuance costs










3,045



30







89,334











89,365Warrant exercise


















55



29











84Net income






























45,082



45,082Net unrealized depreciation on securities available for sale,
    net of income tax


























(7,885
)






(7,885
)Balance at December 31, 2007










23,225


$
232


$
(493
)


205,435


$
(8,322
)

$
112,535


$
309,387Dividends declared






























(4,608
)


(4,608
)Stock based compensation










183



2



(592
)


2,634











2,044Warrant exercise


















59



25











84Net income






























57,473



57,473Net unrealized depreciation on securities available for sale,
    net of income tax


























(29,176
)






(29,176
)Balance at December 31, 2008










23,408


$
234



(1,026
)


208,094


$
(37,498
)


165,400


$
335,204    F-5




---



##### Table of Contents



Tower
    Group, Inc.

Consolidated Statements of Cash Flows  Year Ended December 31,($ in thousands)


2008


2007


2006Cash flows provided by (used in) operating activities:Net income


$
57,473


$
45,082


$
36,764Adjustments to reconcile net income to net cash provided by
    (used in) operations:Gain from IPO of common shares of unconsolidated affiliate







(2,705
)


(7,883
)Warrant received from unconsolidated affiliate











(4,605
)(Gain) loss on sale of investments



(8,297
)


7,417



(12
)Other-than-temporary-impairment loss on investments



22,651



10,094



Depreciation and amortization



11,718



8,725



5,212Amortization of bond premium or discount



1,067



591



564Amortization of restricted stock



2,480



1,919



860Deferred income taxes



(4,201
)


(4,774
)


2,801Excess tax benefits from share-based payment arrangements



(175
)


(1,105
)


(891
)(Increase) decrease in assets:Investment income receivable



(426
)


(534
)


(1,430
)Premiums receivable



(64,043
)


(27,237
)


(19,574
)Reinsurance recoverable



(64,778
)


(49,915
)


(13,192
)Prepaid reinsurance premiums



(28,816
)


(26,808
)


(50,744
)Deferred acquisition costs, net



(13,809
)


10,494



(6,619
)Investment in unconsolidated affiliate



269



(2,438
)


(914
)Other assets



(1,933
)


(7,727
)


1,802Increase (decrease) in liabilities:Loss and loss adjustment expenses



33,808



81,383



103,817Unearned premium



56,073



3,033



69,238Reinsurance balances payable



75,859



15,378



19,360Payable to issuing carriers



4,446



42,193



Accounts payable and accrued expenses



(454
)


(9,358
)


6,926Funds held under reinsurance agreement



(17,624
)


(18,094
)


(7,525
)Other



446



314



180Net cash flows provided by operations



61,734



75,928



134,135Cash flows provided by (used in) investing activities:Acquisition of Preserver Group Inc.







(70,737
)


Purchase of fixed assets



(17,210
)


(13,993
)


(17,385
)Investment in unconsolidated affiliate











(14,528
)Purchasefixed-maturity securities



(336,465
)


(306,638
)


(154,917
)Purchaseequity securities



(7,175
)


(15,885
)


(17,804
)Sale or maturityfixed-maturity securities



355,966



199,628



71,672Saleequity securities



6,511



24,759



1,003Net cash flows provided by (used in) investing activities



1,627



(182,866
)


(131,959
)Cash flows provided by (used in) financing activities:Equity offering and over allotment, net of issuance costs







89,366



Issuance of perpetual preferred stock, net of issuance costs











39,600Redemption of preferred stock







(40,000
)


Proceeds from issuance of subordinated debentures







20,619



20,619Purchase of common trust securitiesstatutory business
    trusts







(619
)


(619
)Exercise of stock options & warrants



179



1,167



1,243Excess tax benefits from share-based payment arrangements



175



1,105



891Treasury stock
    acquired-net
    employee share-based compensation



(533
)


(439
)


(97
)Dividends paid



(4,608
)


(3,743
)


(1,975
)Net cash flows (used in) provided by financing activities



(4,787
)


67,456



59,662Increase in cash and cash equivalents



58,574



(39,482
)


61,838Cash and cash equivalents, beginning of year



77,679



117,161



38,760Cash and cash equivalents, end of year


$
136,253


$
77,679


$
100,598Supplemental disclosures of cash flow information:Cash paid for income taxes


$
27,110


$
27,555


$
15,344Cash paid for interest



7,882



8,145



6,432    F-6




---



##### Table of Contents



Tower
    Group, Inc.
 Notes to Consolidated Financial Statements
  Note 1
    Nature of
    Business          Note 2
    Summary of
    Significant Accounting Policies  Basis of
    Presentation
    Revenue
    Recognition
  Net
    Premiums Earned
    Ceding
    Commission Revenue
    Insurance
    Services Revenue
   F-7




---



##### Table of Contents



Policy
    Billing Fees
    Liability
    for Loss and Loss Adjustment Expenses
    (LAE)
        Reinsurance
     F-8




---



##### Table of Contents



Cash and
    Cash Equivalents
      Investments
      EITF 99-20-1.
  Fair
    Value
   F-9




---



##### Table of Contents



Premiums
    Receivable
      ReceivableClaims
    Paid by Agency
    Deferred
    Acquisition Costs and Deferred Ceding Commission
    Revenue
    Goodwill
    and Intangible Assets
   F-10




---



##### Table of Contents



Fixed
    Assets
    Investment
    in Unconsolidated Affiliate
  Note 11-Investment
  Statutory
    Business Trusts
    Income
    Taxes
      Treasury
    Stock
    Stock-based
    Compensation
  Share-Based
 F-11




---



##### Table of Contents



Segment
    Reporting
    Assessments
  and/or
  Earnings
    Per Share
  and/or
  Concentration
    and Credit Risk
       F-12




---



##### Table of Contents



Use of
    Estimates
    Reclassifications
    Adoption
    of New Accounting Pronouncements
  05-1, (SOP 05-1). SOP 05-1 SOP 05-1 SOP 05-1 SOP 05-1
  Fair Value
    Measurements
  The Fair Value Option for Financial Assets and
    Financial LiabilitiesIncluding an Amendment of
    SFAS No. 115
  No. 06-11, Accounting for Income Tax Benefits of Dividends on
    Share-Based Payment Awards No. 06-11). No. 06-11
 F-13




---



##### Table of Contents



No. 06-11 No. 06-11 No. 06-11
  No. FAS 157-1, Application of FASB Statement No. 157 to FASB
    Statement No. 13 and Other Accounting Pronouncements That
    Address Fair Value Measurements for Purposes of Lease
    Classification or Measurement under Statement 13 FAS 157-1). FAS 157-1 FAS 157-1
  No. FAS 157-2, Effective Date of FASB Statement No. 157 FAS 157-2) FAS 157-2
  
    Nonfinancial assets and nonfinancial liabilities initially
    measured at fair value in a business combination that are not
    subsequently remeasured at fair value;
    Reporting units measured at fair value in the goodwill
    impairment test as described in SFAS No. 142,
    Goodwill and Other Intangible Assets
    (SFAS 142), and nonfinancial assets and
    nonfinancial liabilities measured at fair value in the
    SFAS 142 goodwill impairment test, if applicable; and
    Nonfinancial long-lived assets measured at fair value for
    impairment assessment under SFAS No. 144,
    Accounting for the Impairment or Disposal of Long-Lived
    Assets.  FAS 157-2, FAS 157-2.
  No. FAS 157-3, Determining the Fair Value of a Financial Asset When
    the Market for That Asset Is Not Active FAS 157-3). FAS 157-3 FAS 157-3 FAS 157-3
  EITF 99-20-1, Amendments to the Impairment Guidance of EITF Issue
    No. 99-20. No. 99-20,
 F-14




---



##### Table of Contents



Future
    Adoption of New Accounting Standards
  Noncontrolling Interests in Consolidated Financial
    Statements-an amendment of ARB No. 51
  Business Combinations
  No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based
    Payment Transactions Are Participating Securities EITF 03-6-1). EITF 03-6-1 EITF 03-6-1
  No. FAS 142-3, Determination of the Useful Life of Intangible
    Assets FAS 142-3). FAS 142-3 FAS 142-3 FAS 142-3 FAS 142-3 FAS 142-3
  Note 3
    Acquisition of
    Preserver Group, Inc.     F-15




---



##### Table of Contents



Note 4
    Investments    December 31, 2008


December 31, 2007Cost or





Unrealized


Cost or





UnrealizedAmortized


Aggregate


Gains/


Amortized


Aggregate


Gains/($ in thousands)

Cost


Fair Value


(Losses)


Cost


Fair Value


(Losses)CategoryU.S. Treasury securities

$
26,482


$
27,006


$
524


$
25,837


$
26,663


$
826U.S. Agency securities


361



399



38



19,709



19,871



162Municipal bonds


179,734



179,948



214



155,296



156,361



1,065Corporate and other bondsFinance


84,579



74,860



(9,719
)


86,180



84,759



(1,421
)Industrial


122,599



109,695



(12,904
)


111,588



110,312



(1,276
)Utilities


2,829



2,420



(409
)


3,733



3,668



(65
)Commercial mortgage-backed securities


52,558



31,535



(21,023
)


49,475



44,560



(4,915
)Residential mortgage-backed securities Agency backed


70,416



72,179



1,763



99,297



99,948



651Non-agency backed


31,441



24,315



(7,126
)


44,731



39,919



(4,812
)Asset-backed securities


10,471



7,802



(2,669
)


20,911



20,427



(484
)Total fixed-maturity securities


581,470



530,159



(51,311
)


616,757



606,488



(10,269
)Preferred stocks


5,551



3,694



(1,857
)


5,551



3,702



(1,849
)Common stocks


7,175



7,120



(55
)


8,878



8,878



Total

$
594,196


$
540,973


$
(53,223
)

$
631,186


$
619,068


$
(12,118
)     Amortized($ in thousands)

Cost


Fair ValueRemaining Time to MaturityLess than one year

$
8,813


$
8,789One to five years


115,645



112,514Five to ten years


189,267



176,218More than 10 years


102,859



96,807Mortgage and asset-backed securities


164,886



135,831Total

$
581,470


$
530,159      F-16




---



##### Table of Contents



($ in thousands)

2008


2007


2006IncomeFixed-maturity securities

$
31,791


$
28,279


$
18,568Equity securities


730



4,332



3,104Cash and cash equivalents


2,897



4,974



1,892Dividends on common trust securities


244



215



157Total


35,662



37,800



23,721ExpensesInvestment expenses


1,094



1,101



695Net investment income

$
34,568


$
36,699


$
23,026     ($ in thousands)

2008


2007


2006Fixed-maturity securitiesGross realized gains

$
13,518


$
3,189


$
368Gross realized losses


(7,114
)


(599
)


(452
)6,404



2,590



(84
)Equity securities Gross realized gains(1)


1,968



1,324



96Gross realized losses


(75
)


(11,331
)


1,893



(10,007
)


96Other-than-temporary impairment lossesFixed-maturity securities


(20,215
)


(4,879
)


Equity securities


(2,436
)


(5,215
)


(22,651
)


(10,094
)


Net realized gains (losses)

$
(14,354
)

$
(17,511
)

$
12   (1)
    
    Includes a gain of
    $1.8 million for the year ended December 31, 2008, on
    the sale of the Companys investment in AgencyPort
    Insurance Services, Inc., a privately held company that provides
    web-based solutions for the Company and other property and
    casualty insurers. At December 31, 2008, the Company had a
    receivable of $1.4 million related to this transaction,
    payable over eight semi-annual periods beginning March, 2009.  Impairment
    Review
    EITF 99-20-1.
 F-17




---



##### Table of Contents



2008


2007


2006($ in thousands)

No.


Amount


No.


Amount


No.


AmountCorporate and other bonds


3


$
(3,276
)


2


$
(457
)





$
Commercial mortgage-backed securities


1



(338
)














Residential mortgage-backed securities


17



(14,107
)


22



(4,422
)






Asset-backed securities


3



(2,494
)














Equity securities


7



(2,436
)


7



(5,215
)






Total


31


$
(22,651
)


31


$
(10,094
)





$
  F-18




---



##### Table of Contents



Less than 12 Months


12 Months or Longer


TotalUnrealized








Unrealized





Aggregate


Unrealized($ in thousands)

No.


Fair Value


Losses


No.


Fair Value


Losses


No.


Fair Value


LossesDecember 31, 2008Municipal bonds


53


$
49,879


$
(2,485
)


1


$
371


$
(166
)


54


$
50,250


$
(2,651
)Corporate and other bondsFinance


55



42,007



(6,003
)


38



20,575



(4,173
)


93



62,582



(10,176
)Industrial


110



72,787



(7,740
)


32



17,701



(5,639
)


142



90,488



(13,379
)Utilities


5



1,974



(205
)


2



446



(204
)


7



2,420



(409
)Commercial mortgage-backed securites


15



13,997



(4,399
)


22



16,431



(16,626
)


37



30,427



(21,026
)Residential mortgage- backed securitesAgency backed


6



3,408



(16
)


1



582



(20
)


7



3,990



(36
)Non-agency backed


32



12,676



(3,536
)


16



9,953



(3,594
)


48



22,629



(7,130
)Asset-backed securities


20



6,481



(2,652
)


2



552



(49
)


22



7,032



(2,701
)Total fixed maturity securities


296



203,208



(27,036
)


114



66,610



(30,472
)


410



269,818



(57,508
)Preferred stocks














6



3,694



(1,857
)


6



3,694



(1,857
)Common stocks


1



1,440



(60
)














1



1,440



(60
)Total


297


$
204,648


$
(27,096
)


120


$
70,304


$
(32,329
)


417


$
274,952


$
(59,425
)December 31, 2007Municipal bonds


14


$
11,614


$
(78
)


6


$
7,272


$
(24
)


20


$
18,886


$
(102
)Corporate and other bondsFinance


37



36,117



(1,361
)


16



12,844



(502
)


53



48,961



(1,863
)Industrial


56



41,536



(1,770
)


15



11,785



(317
)


71



53,321



(2,087
)Utilities


4



616



(34
)














4



616



(34
)Commercial mortgage-backed securites


21



24,146



(5,015
)


4



8,325



(162
)


25



32,471



(5,177
)Residential mortgage-backed securitesAgency backed


6



4,580



(43
)


13



28,529



(363
)


19



33,109



(406
)Non-agency backed


17



13,850



(2,478
)


17



17,667



(2,370
)


34



31,517



(4,848
)Asset-backed securities


3



2,898



(573
)














3



2,898



(573
)Total fixed maturity securities


158



135,357



(11,352
)


71



86,422



(3,738
)


229



221,779



(15,090
)Preferred stocks


5



3,702



(1,849
)














5



3,702



(1,849
)Total


163


$
139,059


$
(13,201
)


71


$
86,422


$
(3,738
)


234


$
225,481


$
(16,939
)      F-19




---



##### Table of Contents



Securitized AssetsTotal Gross


Decline of Investment ValueFair


Unrealized


>15%


>25%


>50%($ in thousands)

Value


Losses


No.


Amount


No.


Amount


No.


AmountUnrealized loss for less than 6 months

$
6,265


$
(697
)


3


$
(487
)


1


$
(60
)


1


$
(14
)Unrealized loss for over 6 months


23,041



(6,193
)


6



(1,096
)


11



(2,952
)


2



(1,412
)Unrealized loss for over 12 months


11,454



(6,928
)


2



(704
)


7



(1,839
)


6



(4,162
)Unrealized loss for over 18 months


13,939



(14,003
)


1



(337
)


2



(2,625
)


13



(10,949
)Unrealized loss for over 2 years


9,380



(3,072
)


5



(926
)


3



(912
)


2



(859
)Total

$
64,079


$
(30,893
)


17


$
(3,550
)


24


$
(8,387
)


24


$
(17,397
)   All Other AssetsTotal Gross


Decline of Investment ValueFair


Unrealized


>15%


>25%


>50%($ in thousands)

Value


Losses


No.


Amount


No.


Amount


No.


AmountUnrealized loss for less than 6 months

$
39,943


$
(1,969
)


5


$
(312
)


1


$
(18
)





$
Unrealized loss for over 6 months


115,093



(11,967
)


21



(2,889
)


17



(3,662
)


1



(254
)Unrealized loss for over 12 months


18,176



(5,646
)


5



(681
)


9



(2,924
)


2



(1,420
)Unrealized loss for over 18 months


28,357



(8,249
)


11



(1,542
)


21



(5,607
)


1



(307
)Unrealized loss for over 2 years


9,304



(701
)


2



(242
)














Total

$
210,874


$
(28,532
)


44


$
(5,666
)


48


$
(12,211
)


4


$
(1,980
)     Note 5
    Fair Value
    Measurements     F-20




---



##### Table of Contents



Level 1
  Level 2
  Level 3
        ($ in thousands)

Level 1


Level 2


Level 3


TotalFixed-maturity investmentsU.S. Treasury securities

$



$
27,006


$



$
27,006U.S. Agency securities






399







399Municipal bonds






179,948







179,948Corporate and other bonds






186,975







186,975Commercial mortgage-backed securities






25,940



5,595



31,535Residential mortgage-backed securities






72,179







72,179AgencyNon-agency






15,720



8,595



24,315Asset-backed securities






3,907



3,895



7,802Total fixed maturities






512,074



18,085



530,159Equity investments


5,134



5,680







10,814Total

$
5,134


$
517,754


$
18,085


$
540,973  F-21




---



##### Table of Contents



($ in thousands)Beginning balance

$
Total gains (losses)-realized / unrealized Included in net income


(12,290
)Included in other comprehensive income (loss)


2,945Purchases, issuances and settlements


(3,627
)Net transfers into (out of) Level 3


31,057Ending balance

$
18,085   Note 6
    Reinsurance    Maximum LossFrom / To

ExposureOctober 1, 2008December 31, 2008

$
1,045,000July 1, 2008September 30, 2008


1,200,000April 1, 2008June 30, 2008


1,200,000January 1, 2008March 31, 2008


1,250,000July 1, 2007December 31, 2007


750,000January 1, 2007June 30, 2007


510,000July 1, 2006December 31, 2006


600,000April 1, 2006June 30, 2006


700,000January 1, 2006March 31, 2006


1,000,000January 1, 2005December 31, 2005


750,000October 1, 2004December 31, 2004


750,000January 1, 2004September 30, 2004


400,000October 1, 2003December 31, 2003


312,500January 1, 2003September 30, 2003


450,000(1
)  (1)
    
    after commutation-see discussion
    below     F-22




---



##### Table of Contents



Unpaid($ in thousands)

Losses


Paid Losses


TotalDecember 31, 2008CastlePoint Reinsurance Company Ltd.

$
135,437


$
39,022


$
174,459Munich Re America


12,964



2,528



15,492Tokio Millennium Re Ltd.


12,814



1,259



14,073Westport Insurance Corp.


7,459



3,644



11,102Hannover Re Ireland Ltd.


7,576



935



8,512CastlePoint Insurance Company


7,600



575



8,175Endurance Reins Corp of America


6,839



(3
)


6,835Platinum Underwriters Reinsurance Inc.


6,741



1



6,742Hannover Ruckversicherungs AG


6,052



7



6,059Swiss Reinsurance America Corp.


5,102



617



5,719AXIS Reinsurance Company


4,792



25



4,817Midwest Insurance Co


2,760



424



3,184NGM Insurance Co.


1,446



0



1,446General Reinsurance Co.


1,283



148



1,430New Jersey Unsatisfied Clm & Judgmt Fund


876



510



1,386SCOR Reinsurance Company


590



286



876Hartford Steam Boiler Inspection & Ins Co.


581



71



652QBE Reinsurance Corporation


620







620Others


698



328



1,026Total

$
222,229


$
50,377


$
272,606December 31, 2007CastlePoint Reinsurance Company, Ltd

$
87,068


$
9,285


$
96,353Tokio Millennium Re Ltd


26,111



2,330



28,441Munich Reinsurance America Inc.


19,979



3,254



23,233Employers Reinsurance Corp.


18,082



(113
)


17,969Hannover Reinsurance (Ireland) Ltd


16,744



820



17,564Platinum Underwriters Reinsurance Company


5,612



3



5,615Hannover Rueckversicherung AG


4,553



3



4,556New Jersey Unsatisfied Claim & Judgement Fund


1,571



1,869



3,440Endurance Reinsurrance Corp of America


2,622



15



2,637CastlePoint Insurance Company


1,866



495



2,361General Reinsurance Corp


1,829







1,829AXIS Reinsurance Company


1,460



15



1,475Hartford Sream Boiler Insp & Ins Co


486



114



600NGM Insurance Co.


572



1



573Trinity Universal Insurance Company


436







436QBE Reinsurance Corp


237







237SCOR Reinsurance Company


204



31



235Others


93



181



274Total

$
189,525


$
18,303


$
207,828  F-23




---



##### Table of Contents



December 31,($ in thousands)


2008


2007CastlePoint Reinsurance Company, Ltd.


$
95,701


$
100,535CastlePoint Insurance Company







11,861Swiss Reinsurance America Corp.



41,644



45Midwest Insurance Co.



5,360



508Hannover Reinsurance (Ireland) Ltd.



2,131



2,555Axis Reinsurance Company



1,558



1,682Platinum Underwriters Reinsurance Company



1,010



2,521Hartford Steamboiler Group



972



1,271Endurance Reinsurance Corp



938



764Lloyds of London



756



745General Reinsurance Corp



411



809Others



3,169



1,538Total


$
153,650


$
124,834     Regulation


Letters of


Funds($ in thousands)

114 Trust


Credit


Held


TotalDecember 31, 2008CastlePoint Reinsurance Company, Ltd.

$
225,839


$



$



$
225,839Tokio Millennium Re Ltd.


6,183







12,905



19,088Hannover Reinsurance (Ireland) Ltd.






4,964



7,556



12,520Midwest Insurance Co.


5,322











5,322Others






796



13



809Total

$
237,344


$
5,760


$
20,474


$
263,578December 31, 2007CastlePoint Reinsurance Company, Ltd.

$
186,882


$



$



$
186,882Tokio Millennium Re Ltd.


5,907







20,589



26,496Hannover Reinsurance (Ireland) Ltd.






4,964



16,252



21,216CastlePoint Insurance Company


110











110Others






796







796Total

$
192,899


$
5,760


$
36,841


$
235,500    F-24




---



##### Table of Contents



Reinsurance
    Agreement with CastlePoint
    Ceding
    Commissions
      ContractualLoss Ratio at











MaximumWhich











PotentialMiniumum











Reduction ofCeding


Estimated


Ceding





CedingCommission


Ultimate


Commissions


Minimum


CommissionTreaty With

Year


Rate Applies


Loss Ratio


Earned


Commission


EarnedTokio Millenium


2003



65.6
%


64.2
%

$
21.4


$
20.6


$
0.8Tokio Millennium / Hannover Re Ireland


2004



68.0
%


51.6
%


30.9



20.6



10.3Tokio Millennium / Hannover Re Ireland


2005



68.0
%


51.0
%


31.7



20.8



10.9CastlePoint


2007



64.3
%


49.2
%


54.6



47.0



7.6CastlePoint


2008



64.3
%


51.1
%


24.6



21.2



3.4Swiss Re


2008



61.5
%


50.4
%


3.6



3.1



0.5      F-25




---



##### Table of Contents



Note 7
    Deferred
    Acquisition Costs and Deferred Ceding Commission
    Revenue    ($ in thousands)

2008


2007


2006Net deferred acquisition costs net of ceding commission revenue,
    January 1

$
39,271


$
35,811


$
29,192Preserver, net at date of acquisition






13,955



Cost incurred and deferred during years:Commissions and brokerage


124,670



88,284



71,364Other underwriting and acquisition costs


74,363



65,821



50,188Ceding commission revenue


(77,677
)


(81,864
)


(56,586
)Net deferred acquisition costs net of ceding commission revene
    deferred during year


121,356



72,241



64,966Amortization


(107,547
)


(82,736
)


(58,347
)Net deferred acquisition costs net of ceding commission
    revenue, December 31,

$
53,080


$
39,271


$
35,811   Note 8
    Intangible
    Assets          Accumulated($ in thousands)

Balance


Amortization


NetDecember 31, 2008Insurance Licenses

$
6,503


$



$
6,503Renewal rights


3,164



(1,503
)


1,661Agency force


13,926



(1,626
)


12,300Total

$
23,593


$
(3,129
)

$
20,464December 31, 2007Insurance Licenses

$
6,503


$



$
6,503Renewal rights


3,164



(992
)


2,172Agency force


13,926



(931
)


12,995Total

$
23,593


$
(1,923
)

$
21,670  F-26




---



##### Table of Contents



($ in thousands)2009

$
1,1052010


1,0232011


9582012


9052013


864     Note 9
    Goodwill      ($ in thousands)Purchase PriceBase purchase price paid

$
68,250Preserver direct transaction costs, net of tax benefit


(3,547
)Total purchase price paid to Preserver


64,703Direct transaction costs


1,305Total purchase consideration


66,008Allocation of Purchase PriceBook value of Preserver at date of acquisition


7,106Preserver shareholder debt repayment


30,754Estimated fair value adjustments


9,186Estimated fair value of assets acquired


47,046Goodwill as of December 31, 2008

$
18,962      F-27




---



##### Table of Contents



Note 10
    Fixed
    Assets    Accumulated($ in thousands)

Cost


Depreciation


NetDecember 31, 2008Furniture

$
1,871


$
(747
)

$
1,124Leasehold improvements


13,863



(2,313
)


11,550Computer equipment


11,383



(8,374
)


3,009Software


43,029



(19,867
)


23,162Artwork


193







193Total

$
70,339


$
(31,301
)

$
39,038December 31, 2007Furniture

$
1,759


$
(479
)

$
1,280Leasehold improvements


13,633



(1,214
)


12,419Computer equipment


9,801



(7,235
)


2,566Software


27,743



(11,864
)


15,879Artwork


193







193Total

$
53,129


$
(20,792
)

$
32,337           98-1, SOP 98-1,
 F-28




---



##### Table of Contents



Note 11
    Investment in
    Unconsolidated AffiliateCastlePoint    December 31,($ in millions)


2008


2007Carrying value of equity investment, beginning of year


$
32.6


$
27.9Equity in net income of CastlePoint



0.3



2.4Gain from initial public offering of common stock of CastlePoint



0.0



2.7Equity in net unrealized gain/(loss) of the CastlePoint
    investment portfolio



(3.2
)


(0.1
)Dividends received from CastlePoint



(0.4
)


(0.3
)Carrying value of equity investment, end of year


$
29.3


$
32.6            F-29




---



##### Table of Contents



Affiliated
    Agreements with CastlePoint
  and/or
  Master
    Agreement
      Reinsurance
    Agreements with CastlePoint
      Ceded


Ceded


Ceding


CedingPremiums


Premiums


Commissions


Commission($ in thousands)

Written


Earned


Revenue


Percentage2008Brokerage business

$
112,710


$
158,694


$
56,896



35.9
%Traditional program business


7,648



6,522



1,988



30.5
%Specialty program business and insurance risk-sharing business


64,355



36,696



12,307



33.5
%Total

$
184,713


$
201,913


$
71,191



35.3
%2007Brokerage business

$
209,576


$
184,851


$
64,199



34.7
%Traditional program business


1,669



950



285



30.0
%Specialty program business and insurance risk-sharing business


9,824



4,030



1,209



30.0
%Total

$
221,069


$
189,831


$
65,693



34.6
%2006Brokerage business

$
152,924


$
74,435


$
25,308



34.0
%Traditional program business


622



179



54



30.0
%Specialty program business and insurance risk-sharing business


1,613



844



253



30.0
%Total

$
155,159


$
75,457


$
25,615



33.9
%    F-30




---



##### Table of Contents



CededDates


Quota Share Reinsurance
    Agreement With

AmountApril 6, 2006June 30, 2006(1)


CastlePoint Reinsurance


30
%July 1, 2006December 31, 2006


CastlePoint Reinsurance


40
%January 1, 2007March 31, 2007


CastlePoint Reinsurance


49
%April 1 2007June 30, 2007


CastlePoint Reinsurance


40
%April 1 2007June 30, 2007


CastlePoint Insurance Company


9
%July 1, 2007December 31, 2007(2)


CastlePoint Reinsurance


40
%January 1, 2008March 31, 2008(2)


CastlePoint Reinsurance


40
%April 1, 2008June 30, 2008(2)


CastlePoint Reinsurance


35
%July 1, 2008September 30, 2008(2)


CastlePoint Reinsurance


25
%April 1, 2008September 30, 2008


Swiss Re America Corporation


5
%October 1, 2008December 31, 2008


CastlePoint Reinsurance


17.5
%October 1, 2008December 31, 2008


Swiss Re America Corporation


28
%     (1)
    
    Multi year quota share reinsurance
    agreements with CastlePoint Reinsurance began April 6, 2006.(2)
    
    On July 1, 2008, we reduced
    the ceding percentage under our brokerage business quota share
    reinsurance agreement with CastlePoint Reinsurance to 25%
    applicable to both the ceded unearned premium reserve as of
    July 1, 2008 and new and new and renewal premiums written
    in the third quarter of 2008.       F-31




---



##### Table of Contents



($ in thousands)December 31, 2008Prepaid reinsurance premiums

$
95,701Reinsurance recoverable


182,634Reinsurance balances payable


(93,381
)Payable to issuing carriers


(46,780
)Total

$
138,174December 31, 2007Prepaid reinsurance premiums

$
112,396Reinsurance recoverable


98,714Reinsurance balances payable


(48,689
)Payable to issuing carriers


(41,664
)Total

$
120,757   Program
    Management Agreement with CastlePoint
    Management
    Agreement
    TICNY
    Service and Expense Sharing Agreements
   F-32




---



##### Table of Contents



TRM
    Service and Expense Sharing Agreements
    Note 12
    Other
    Assets    ($ in thousands)


2008


2007Assumed premiums receivable


$
1,837


$
1,299Ceding commission receivable



189



3,852Receivableclaims paid by agency



4,639



2,726Investment in statutory business trusts, equity method



3,036



3,036Receivable for securities



3,542



8,755Deferred merger and acquisition expenses



9,412



1,488Prepaids, deposits and advances



4,006



3,694Receivable from residual market plans



2,818



2,723Commission receivable from issuing carriers



7,887



3,739Other



1,343



3,643Other assets


$
38,709


$
34,955   Note 13
    Property and
    Casualty Insurance Activity    ($ in thousands)

Direct


Assumed


Ceded


Net2008Premiums written

$
627,319


$
7,501


$
290,777


$
344,043Change in unearned premiums


(56,105
)


(370
)


(26,983
)


(29,492
)Premiums earned

$
571,214


$
7,131


$
263,794


$
314,5512007Premiums written

$
520,421


$
3,593


$
264,832


$
259,182Change in unearned premiums


(7,189
)


5,109



(29,004
)


26,924Premiums earned

$
513,232


$
8,702


$
235,828


$
286,1062006Premiums written

$
408,352


$
24,311


$
(187,593
)

$
245,070Change in unearned premiums


(64,362
)


(4,876
)


48,156



(21,082
)Premiums earned

$
343,990


$
19,435


$
(139,437
)

$
223,988  F-33




---



##### Table of Contents



Reinsurance($ in thousands)


Gross Liability


RecoverableDecember 31, 2008Case-basis reserves


$
316,284


$
126,064IBNR reserves



218,707



96,165Recoverable on paid losses







50,377Total


$
534,991


$
272,606December 31, 2007Case-basis reserves


$
272,653


$
96,625IBNR reserves



228,530



92,900Recoverable on paid losses







18,303Total


$
501,183


$
207,828     Year Ended December 31,($ in thousands)

2008


2007


2006Balance at January 1

$
501,183


$
302,541


$
198,724Less reinsurance recoverables


(189,525
)


(110,042
)


(96,978
)311,658



192,499



101,746Preserver net reserves at date of acquisition






85,055



Incurred related to:Current year


171,616



159,512



135,863Prior years


(8,877
)


(1,606
)


(2,340
)PXRE commutation










1,602Total incurred


162,739



157,906



135,125Paid related to:Current year


59,205



55,308



30,605Prior years


102,430



68,494



13,767Total paid


161,635



123,802



44,372Net balance at end of year


312,762



311,658



192,499Add reinsurance recoverables


222,229



189,525



110,042Balance at December 31

$
534,991


$
501,183


$
302,541      F-34




---



##### Table of Contents



Loss and loss adjustment expense
    reserves. case-by-case
    in-house in-house in-house
       F-35




---



##### Table of Contents



Accident YearProduct Line

Most Recent

1st Prior

All OtherFire

Loss Ratio

Loss Development

Loss DevelopmentHomeowners

Loss Ratio

Loss Development

Loss DevelopmentMulti-Family

Loss Ratio

Loss Development

Loss DevelopmentCommercial multiple-peril property

Loss Ratio

Loss Development

Loss DevelopmentCommercial multiple-peril liability

Loss Ratio

B-F

Loss DevelopmentWorkers Compensation

Loss Ratio

B-F

Loss DevelopmentOther Liability

Loss Ratio

B-F

Loss DevelopmentCommercial Auto Liability

Loss Ratio

B-F

Loss DevelopmentAuto Physical Damage

Loss Ratio

Loss Development

Loss DevelopmentPersonal Auto Liability

Loss Ratio

Loss Development

Loss Development       Number of yearsSegment

50%

90%

99%Fire

< 1 year

< 1 year

2 yearsHomeowners

< 1 year

< 2 years

3 yearsMulti-Family

< 2 years

< 2 years

5 yearsCommercial multiple-peril property

< 1 year

1 year

2 yearsCommercial multiple-peril liability

< 2 years

5 years

9 yearsWorkers compensation

< 1 year

2 years

5 yearsOther liability

3 years

4 years

9 yearsCommercial auto liability

< 1 year

3 years

4 yearsAuto physical damage

< 1 year

< 1 year

1 yearPersonal auto liability

< 1 year

< 2 years

4 years      F-36




---



##### Table of Contents



Note 14
    Accounts
    Payable, Accrued Liabilities and Other Liabilities    December 31,($ in thousands)


2008


2007Accounts payable and accrued expenses


$
12,470


$
14,205Funds held as agent



3,516



4,772Deferred rent liability



7,014



7,386Other



7,562



6,470Accounts payable, accrued expenses and other liabilities


$
30,562


$
32,833   Note 15
    Debt  Subordinated
    Debentures
    PrincipalAmount ofAmount of

JuniorInvestment in

SubordinatedCommon

DebentureMaturity

Early



Securities of

Issued toIssue Date

Amount

Issuer

Date

Redemption

Interest Rate

Trust

TrustJanuary 2007

$20.0 million

Tower Group Statutory Trust VI

March 2037

At our option at par on or after March 15, 2012

8.155% until January 25, 2012; three-month LIBOR plus
    300 basis points thereafter

$0.6 million

$20.6 million F-37




---



##### Table of Contents



PrincipalAmount ofAmount of

JuniorInvestment in

SubordinatedCommon

DebentureMaturity

Early



Securities of

Issued toIssue Date

Amount

Issuer

Date

Redemption

Interest Rate

Trust

TrustMarch 2006

$20.0 million

Tower Group Statutory Trust V

April 2036

At our option at par on or after April 7, 2011

8.5625% until March 31, 2011; three-month LIBOR plus
    330 basis points thereafter

$0.6 million

$20.6 millionDecember 2004

$13.0 million

Tower Group Statutory Trust IV

March 2035

At our option at par on or after December 21, 2009

Three-month LIBOR plus 340 basis points

$0.4 million

$13.4 millionDecember 2004

$13.0 million

Tower Group Statutory Trust III

December 2034

At our option at par on or after December 15, 2009

7.4% until December 7, 2009; three-month LIBOR plus
    340 basis points thereafter

$0.4 million

$13.4 millionSeptember 2003

$10.0 million

Tower Group Statutory Trust II

September 2033

At our option at par on or after September 30, 2008

7.5% until September 30, 2008; three-month LIBOR plus
    400 basis points thereafter

$0.3 million

$10.3 millionMay 2003

$10.0 million

Tower Group Statutory Trust I

May 2033

At our option at par on or after May 15, 2008

Three-month LIBOR plus 410 basis points (capped at 12.5%
    until May 15, 2008)

$0.3 million

$10.3 millionMay 2004

$12.0 million

Preserver Capital Trust I

April 2034

At our option at par on or after May 24, 2009

Three-month LIBOR plus 425 basis points (capped at 12.5%
    until May 24, 2009)

$0.4 million

$12.3 million    F-38




---



##### Table of Contents



($ in thousands)2033

$
20,6202034


25,7752035


13,4032036


20,6192037


20,619Total

$
101,036   Note 16
    Stockholders
    Equity           F-39




---



##### Table of Contents



($ in thousands)

2008

2007Common stock dividends declared

$
4,608


$
3,444Preferred stock dividends declared






298Total dividends declared

$
4,608


$
3,742     Note 17
    Stock Based
    Compensation  2004
    Long-Term Equity Compensation Plan
      OptionsandSARs

Other(1)

TotalMaximum award grants


581,362



1,744,084



2,325,446Awards granted under plan


(133,069
)


(415,724
)


(548,793
)Available for future grant


448,293



1,328,360



1,776,653   (1)
    
    Includes restricted stock and
    restricted stock unit awards, performance shares and other cash
    or share-based awards.  2001
    Stock Award Plan
      Restricted
    Stock
     F-40




---



##### Table of Contents



2008

2007

2006Weighted



Weighted



WeightedAverage



Average



AverageNumber of

Grant Date

Number of

Grant Date

Number of

Grant DateShares

Fair Value

Shares

Fair Value

Shares

Fair ValueOutstanding, beginning of year


195,468


$
24.97



180,766


$
17.35



171,188


$
10.63Granted


159,740



24.75



93,581



32.20



75,019



27.08Vested


(81,674
)


19.28



(68,587
)


15.11



(59,182
)


10.94Forfeitures


(14,889
)


26.88



(10,292
)


22.59



(6,259
)


10.52Outstanding, end of year


258,645


$
26.40



195,468


$
24.97



180,766


$
17.35   Stock
    Options
    2008

2007

2006Average



Average



AverageNumber of

Exercise

Number of

Exercise

Number of

ExerciseShares

Price

Shares

Price

Shares

PriceOutstanding, beginning of year


281,896


$
5.57



362,996


$
4.94



431,000


$
4.80Exercised


(23,366
)


6.65



(81,100
)


2.78



(58,067
)


3.25Forfeitures and expirations


















(9,937
)

$
8.50Outstanding, end of period


258,530


$
5.47



281,896


$
5.57



362,996


$
4.94Exercisable, end of period


234,230


$
5.15



233,296


$
4.95



280,607


$
3.90     Options Outstanding

Options ExercisableAverageRemaining

Average



AverageNumber of

Contractual

Exercise

Number of

ExerciseRange of Exercise
    Prices

Shares

Life (Years)

Price

Shares

PriceUnder $4.00


137,030



2.0


$
2.78



137,030


$
2.78$5.00-$10.00


121,500



5.7



8.50



97,200



8.50Total options


258,530



3.8


$
5.47



234,230


$
5.15        F-41




---



##### Table of Contents



Total
    Equity Compensation Not Yet Recognized
    Note 18
    Income
    Taxes    ($ in thousands)

2008

2007

2006Current Federal income tax expense

$
28,346


$
27,417


$
15,294Current state income tax expense


5,433



3,545



1,578Deferred Federal and State income tax (benefit) expense


(1,676
)


(4,804
)


2,801Provision for income taxes

$
32,102


$
26,158


$
19,673    F-42




---



##### Table of Contents



December 31,($ in thousands)

2008

2007Deferred tax asset:Claims reserve discount

$
11,863


$
12,042Unearned premium


12,837



11,504Allowance for doubtful accounts


136



48Equity compensation plans


273



333Net unrealized depreciation of securities


18,919



4,436Investment impairments


8,680



3,419Net operating loss carryforwards


13,632



12,162Capital loss carryforwards


2,848



2,295Other


514



820Total deferred tax assets


69,702



47,059Deferred tax liability:Deferred acquisition costs net of deferred ceding commission
    revenue


18,578



15,716Depreciation and amortization


7,096



1,295Warrant received from unconsolidated affiliate


1,612



1,612Gain from issuance of common stock by unconsolidated affiliate


3,706



3,706Equity income in unconsolidated affiliate


1,111



1,084Salvage and subrogation


764



Accrual of bond discount


628



844Total deferred tax liabilities


33,495



24,257Net deferred income tax (liability)/asset

$
36,207


$
22,802         2009-2027 2012-2013.
 F-43




---



##### Table of Contents



($ in thousands)

2008

2007

2006Theoretical Federal income tax expense atU.S. statutory rate (35)%

$
31,353


$
24,934


$
19,753Tax exempt interest


(1,953
)


(1,466
)


(1,073
)State income taxes net


3,531



2,303



1,025of Federal benefitOther


(829
)


387



(32
)Provision for income taxes

$
32,102


$
26,158


$
19,673   Note 19
    Employee
    Benefit Plans    Note 20
    Commitments
    and Contingencies     F-44




---



##### Table of Contents



($ in thousands)

Amount2009


6,8012010


6,7802011


6,1492012


4,5262013


4,317Thereafter


27,575Total

$
56,148       Contingencies
    Surrounding the 2006 New York Board of Fire Underwriters
    Assessment
   F-45




---



##### Table of Contents



Note 21
    Statutory
    Financial Information and Accounting Policies    
    Policy acquisition costs are charged to operations in the year
    such costs are incurred, rather than being deferred and
    amortized as premiums are earned over the terms of the policies.
    Ceding commission revenues are earned when ceded premiums are
    written except for ceding commission revenues in excess of
    anticipated acquisition costs, which are deferred and amortized
    as ceded premiums are earned. GAAP requires that all ceding
    commission revenues be earned as the underlying ceded premiums
    are earned over the term of the reinsurance agreements.
    Certain assets including certain receivables, a portion of the
    net deferred tax asset, prepaid expenses and furniture and
    equipment are not admitted.
    Investments in fixed-maturity securities are valued at NAIC
    value for statutory financial purposes, which is primarily
    amortized cost. GAAP requires certain investments in
    fixed-maturity securities classified as available for sale, to
    be reported at fair value.
    Certain amounts related to cede reinsurance are reported on a
    net basis within the statutory basis financial statements. GAAP
    requires these amounts to be shown gross.          Note 22
    Fair Value of
    Financial Instruments    Equity and fixed income
    investments:
 F-46




---



##### Table of Contents



Common trust securitiesstatutory business
    trusts:
  Agents balances receivable, assumed premiums
    receivable, receivable-claims paid by
    agency:
  Reinsurance balances payable, payable to issuing carrier
    and funds held:
  Subordinated debentures:
  Note 23
    Earnings Per
    Share    Year Ended December 31,($ in thousands, except per share amounts)

2008


2007


2006NumeratorNet Income

$
57,473


$
45,082


$
36,764Less: Preferred stock dividends






(298
)


(212
)Less: Preferred stock excess consideration






(400
)


Net income available to common stockholders

$
57,473


$
44,384


$
36,552DenominatorWeighted average common shares outstanding


23,040,496



22,714,663



19,750,309Effect of dilutive securities:Stock options


135,547



172,116



203,222Unvested restricted stock and restricted stock units


51,772



52,469



64,888Warrants


22,827



28,849



31,997Preferred shares










96,902Weighted average common and potential dilutive shares outstanding


23,250,642



22,968,097



20,147,318Earnings per sharebasic

$
2.49


$
1.95


$
1.85Earnings per sharediluted

$
2.47


$
1.93


$
1.82   Note 24
    Segment
    Information     F-47




---



##### Table of Contents



F-48




---



##### Table of Contents



For The Year Ended December 31,($ in thousands)

2008


2007


2006Insurance SegmentRevenuesNet premiums earned

$
314,551


$
286,106


$
223,988Ceding commission revenue


79,162



71,011



43,130Policy billing fees


2,004



2,004



1,129Total revenues


395,717



359,121



268,247ExpensesNet loss and loss adjustment expenses


162,739



157,906



135,125Underwriting expenses


177,774



154,606



105,371Total expenses


340,513



312,512



240,496Underwriting profit

$
55,204


$
46,609


$
27,751Insurance Services SegmentRevenuesDirect commission revenue from managing general agency

$
58,215


$
28,795


$
3,466Claims administration revenue


5,392



2,314



3,193Other administration revenue


3,559



1,421



737Reinsurance intermediary fees


990



770



577Policy billing fees


343



33



5Total revenues


68,499



33,333



7,978ExpensesDirect commission expense paid to producers


26,798



14,055



1,925Other insurance services expenses:Underwriting expenses reimbursed to TICNY


12,346



5,793



1,578Claims expense reimbursement to TICNY


5,392



2,302



3,176Total expenses


44,536



22,150



6,679Insurance services pretax income

$
23,963


$
11,183


$
1,299    F-49




---



##### Table of Contents



For The Year Ended December 31,($ in thousands)


2008


2007


2006Insurance segment


$
395,717


$
359,121


$
268,247Insurance services segment



68,499



33,333



7,978Total segment revenues



464,216



392,454



276,225Net investment income



34,568



36,699



23,026Net realized gains (losses) on investments



(14,354
)


(17,511
)


12Consolidated revenues


$
484,430


$
411,642


$
299,263     For The Year Ended December 31,($ in thousands)


2008


2007


2006Insurance segment underwriting profit


$
55,204


$
46,609


$
27,751Insurance services segment pretax income



23,963



11,183



1,299Net investment income



34,568



36,699



23,026Net realized gains (losses) on investments



(14,354
)


(17,511
)


12Corporate expenses



(1,626
)


(1,593
)


(2,183
)Interest expense



(8,449
)


(9,290
)


(6,870
)Other Income*



269



5,143



13,402Income before taxes


$
89,575


$
71,240


$
56,437   *
    
    See note on investment in unconsolidated
    affiliateCastlePoint  Note 25
    Subsequent
    Events  Acquisition
    of CastlePoint Holdings Ltd.
    ($ in thousands)Purchase consideration

$
489,509Estimated fair value of outstanding CastlePoint stock options


4,001Total purchase consideration


493,510Fair value of investment in CastlePoint


34,673Fair value of CastlePoint at acquisition

$
528,183    F-50




---



##### Table of Contents



Acquisition
    of Hermitage Insurance Group
       F-51




---



##### Table of Contents



Quarterly
    Dividend
    Authorized
    Shares of Common Stock
    Note 26
    Unaudited
    Quarterly Financial Information  2008($ in thousands,except per share amounts)

First


Second


Third


Fourth


TotalRevenues

$
110,492


$
106,798


$
130,747


$
136,393


$
484,430Net Income


14,853



10,169



16,716



15,735



57,473Net income per share:Basic(1)

$
0.65


$
0.44


$
0.73


$
0.68


$
2.49Diluted(1)

$
0.64


$
0.44


$
0.72


$
0.68


$
2.47   2007First


Second


Third


Fourth


TotalRevenues

$
84,317


$
102,784


$
112,014


$
112,527


$
411,642Net Income


11,628



12,379



14,384



6,691



45,082Net income per share:Basic
    (1)(2)

$
0.50


$
0.54


$
0.63


$
0.29


$
1.95Diluted
    (1)(2)

$
0.49


$
0.53


$
0.62


$
0.29


$
1.93   2006First


Second


Third


Fourth


TotalRevenues

$
71,172


$
77,160


$
73,021


$
77,910


$
299,263Net Income


6,510



12,285



8,456



9,513



36,764Net income per share:Basic(1)

$
0.33


$
0.62


$
0.43


$
0.47


$
1.85Diluted(1)

$
0.32


$
0.61


$
0.42


$
0.46


$
1.82     (1)
    
    Since the weighted-average shares
    for the quarters are calculated independently of the
    weighted-average shares for the year, quarterly earnings per
    share may not total to annual earnings per share. In addition,
    preferred dividends are excluded from the quarterly calculations
    of earnings per share in 2007 and 2006 since they are
    anti-dilutive, but are included in the year end calculations.(2)
    
    In the first quarter calculations,
    earnings per share were calculated incorrectly. The correction
    resulted in a reduction in the basic and diluted earnings per
    share for the first quarter of 2007 by $0.02 and $0.02,
    respectively. F-52




---



##### Table of Contents



Item 9.
    Changes
    In And Disagreements With Accountants Or Accounting And
    Financial Disclosure    Item 9A.
    Control
    And Procedures  (a)
    Disclosure
    Controls and Procedures  Rule 13a-15(e)), Rule 13a-15(e)
  (b)
    Managements
    Report on Internal Control over Financial Reporting  Rule 13a-15(f)
        (c)
    Attestation
    report of the Companys registered public accounting
    firm  Form 10-K, page F-1
  (d)
    Changes
    in internal control over financial reporting   100




---



##### Table of Contents



Item 9B.
    Other
    Information   PART III  Item 10.
    Directors
    And Executive Officers Of The Registrant    http://www.twrgrp.com/under
  Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership Of Certain Beneficial Owners And Management And
    Related Stockholder Matters    Item 13.
    Certain
    Relationships And Related Transactions, And Director
    Independence    Item 14.
    Principal
    Accountant Fees And Services   101




---



##### Table of Contents



PART IV.  Item 15.
    Exhibits,
    Financial Statement Schedules  A.  (1)
    The financial statements and notes to financial statements are
    filed as part of this report in Item 8. Financial
    Statements and Supplementary Data.  (2)
    The financial statement schedules are listed in the Index to
    Consolidated Financial Statement Schedules.(3)
    The exhibits are listed in the Index to Exhibits    Exhibit 21.1

Subsidiaries of Tower Group, Inc.Exhibit 23.1

Consent of Johnson Lambert & Co. LLPExhibit 31.1

Certification of CEO to Section 302(a)Exhibit 31.2

Certification of CFO to Section 302(a)Exhibit 32

Certification of CEO and CFO to Section 906  102




---



##### Table of Contents



SIGNATURES
    TOWER GROUP, INC.
  March 13, 2009

/S/ MICHAEL H. LEEMichael
    H. Lee
    Chairman of The Board, President and
    Chief Executive Officer     Signature

Title

Date/s/  MICHAEL
    H. LEEMichael
    H. Lee

Chairman of the Board, President and Chief Executive Officer
    (Principal Executive Officer)

March 13, 2009/s/  FRANCIS
    M. COLALUCCIFrancis
    M. Colalucci

Senior Vice President, Chief Financial Officer and Treasurer,
    Director (Principal Financial Officer, Principal Accounting
    Officer)

March 13, 2009/s/  CHARLES
    A. BRYANCharles
    A. Bryan

Director

March 13, 2009/s/  WILLIAM
    W. FOX, JR.William
    W. Fox, Jr.

Director

March 13, 2009/s/  WILLIAM
    A. ROBBIEWilliam
    A. Robbie

Director

March 13, 2009/s/  STEVEN
    W. SCHUSTERSteven
    W. Schuster

Director

March 13, 2009/s/  ROBERT
    S. SMITHRobert
    S. Smith

Director

March 13, 2009/s/  JAN
    R. VAN GORDERJan
    R. Van Gorder

Director

March 13, 2009/s/  AUSTIN
    P. YOUNG, IIIAustin
    P. Young, III

Director

March 13, 2009  103




---



##### Table of Contents



Tower Group, Inc.
  Index to Financial Statement Schedules
  Schedules



PagesI

Summary of Investmentsother than investments in related
    parties

S-1II

Condensed Financial Information of the Registrant as of and for
    the years ended December 31, 2007, 2006 and 2005

S-2III

Supplementary Insurance Information for the years ended
    December 31, 2007, 2006 and 2005

S-5IV

Reinsurance for the years ended December 31, 2007, 2006 and
    2005

S-6V

Valuation and Qualifying Accounts for the years ended
    December 31, 2007, 2006 and 2005

S-7VI

Supplemental Information Concerning Insurance Operations for the
    years ended December 31, 2007, 2006 and 2005

S-8  104




---



##### Table of Contents



Tower
    Group, Inc.
    Schedule ISummary of InvestmentsOther Than
    Investments in Related Parties
  December 31, 2008AmountFair


Reflected on($ in thousands)

Cost


Value


Balance SheetFixed maturities:Available for sale:U.S. Treasury securities and obligations of U.S. Government
    agencies

$
26,843


$
27,405


$
27,405Corporate securities


210,007



186,975



186,975Mortgage-backed securities


164,886



135,831



135,831Municipal securities


179,734



179,948



179,948Total fixed maturities


581,470



530,159



530,159Preferred stocks


5,551



3,694



3,694Common stock


7,175



7,120



7,120Total equities


12,726



10,814



10,814Total investments

$
594,196


$
540,973


$
540,973December 31, 2007 Fixed maturities:Available for sale:U.S. Treasury securities and obligations of U.S. Government
    agencies

$
45,546


$
46,535


$
46,535Corporate securities


201,501



198,739



198,739Mortgage-backed securities


214,414



204,853



204,853Municipal securities


155,296



156,361



156,361Total fixed maturities


616,757



606,488



606,488Preferred stocks


5,551



3,702



3,702Common stock


8,878



8,878



8,878Total equities


14,429



12,580



12,580Total investments

$
631,186


$
619,068


$
619,068  S-1




---



##### Table of Contents



Tower
    Group, Inc.
    Schedule IICondensed Financial Information of the
    Registrant Condensed Balance Sheets
  December 31,($ in thousands)

2008


2007AssetsCash and cash equivalents

$
22,291


$
24,020Investment in subsidiaries


359,486



336,911Federal and state taxes recoverable


1,960



3,851Intangible assets






Fixed assets, net of accumulated depreciation


11,180



12,019Investment in unconsolidated affiliate


29,293



32,615Investment in statutory business trusts, equity method


2,664



2,664Due from affiliate


673



510Other assets


9,699



1,286Total assets

$
437,246


$
413,876LiabilitiesAccounts payable and accrued expenses


666


$
2,171Deferred rent liability


6,411



6,791Deferred income taxes


6,301



6,865Subordinated debentures


88,664



88,664Total liabilities


102,042



104,491Stockholders equity


335,204



309,385Total liabilities and stockholders equity

$
437,246


$
413,876  S-2




---



##### Table of Contents



Tower
    Group, Inc.
    Schedule IICondensed Financial Information of the
    Registrant
    Condensed Statements of Income and Comprehensive
    Income
  Year Ended December 31,($ in thousands)

2008


2007


2006RevenuesInvestment income

$
774


$
1,893


$
233Equity in net earnings of subsidiaries


62,135



46,557



32,942Total revenues


62,909



48,450



33,175ExpensesOther operating expenses


1,626



1,594



2,182Interest expense


6,950



7,359



5,271Total expenses


8,576



8,954



7,453Other IncomeEquity income in unconsolidated affiliate


269



2,438



914Gain from issuance of common stock by unconsolidated affiliate






2,705



7,883Warrant received from unconsolidated affiliate










4,605Income before income taxes


54,602



44,640



39,124Provision/(benefit) for income taxes


(2,871
)


(442
)


2,360Net income

$
57,473


$
45,082


$
36,764Comprehensive IncomeNet income


57,473



45,082



36,764Other comprehensive income:Gross unrealized investment holding gains (losses) arising
    during period


(56,098
)


(29,424
)


4,443Equity in net unrealized gains in investment in unconsolidated
    affiliates investment portfolio


(3,142
)


(218
)


143Income tax (expense) benefit related to items of other
    comprehensive income


15,710



4,246



(1,659
)Less: reclassification adjustment for (gains) losses included in
    net income


14,354



17,511



(12
)Comprehensive income

$
28,297


$
37,197


$
39,679  S-3




---



##### Table of Contents



Tower
    Group, Inc.
    Schedule IICondensed Financial Information of the
    Registrant
    Condensed Statements of Cash Flows
  Year Ended December 31,($ in thousands)

2008


2007


2006Cash flows provided by (used in) operating activities:Net income

$
57,473


$
45,082


$
36,764Adjustments to reconcile net income to net cash provided by
    (used) in operations:Gain on issuance of common shares of unconsolidated affiliate






(2,705
)


(7,883)Dividends received from consolidated subsidiaries


12,400



8,500



5,300Equity in undistributed net income of subsidiaries


(62,135
)


(46,557
)


(32,942)Warrant received from unconsolidated affiliate










(4,605)Depreciation and amortization


1,021



1,815



2,160Amortization of restricted stock


2,480



1,919



860Deferred income tax


564



1,517



4,830(Increase) decrease in assets:Federal and state income tax recoverable


1,891



(1,556
)


(2,190)Equity
    pick-up in
    unconsolidated affiliate


(269
)


(2,438
)


(914)Excess tax benefits from share-based payment arrangements


(175
)


(1,105
)


(891)Other assets


(8,571
)


2,582



(1,350)(Increase) decrease in liabilities:Accounts payable and accrued expenses


(1,507
)


3,583



(251)Deferred rent


(380
)


832



5,959Other-net


448



321



292Net cash flows provided by operations


3,240



11,789



5,139Cash flows provided by (used in) investing activities:Acquisition of Preserver Group, Inc.






(48,286
)


Preserver transaction costs






(4,729
)


Purchase of fixed assets


(182
)


(2,540
)


(10,514)Investments in unconsolidated affiliate










(14,400)Salefixed-maturity securities










6,513Saleequity securities










8,513Investment in subsidiary






(4,759
)


(52,263)Net cash flows used in investing activities


(182
)


(60,314
)


(62,151)Cash flows provided by (used in) financing activities:Equity offering and over allotment, net of issuance costs






89,366



Issuance of preferred stock










39,600Repayment of redeemable preferred stock






(40,000
)


Proceeds from issuance of subordinated debentures






20,619



20,619Purchase of common trust securitiesstatutory business
    trusts






(619
)


(619)Exercise of stock options and warrants


179



1,166



1,243Excess tax benefits from share-based payment arrangements


175



1,105



891Stock repurchase


(533
)


(439
)


(97)Dividends paid


(4,608
)


(3,743
)


(2,187)Net cash flows provided by (used in) financing activities


(4,787
)


67,455



59,450Increase (decrease) in cash and cash equivalents


(1,729
)


18,931



2,438Cash and cash equivalents, beginning of year


24,020



5,089



2,651Cash and cash equivalents, end of year

$
22,291


$
24,020


$
5,089  S-4




---



##### Table of Contents



Tower
    Group, Inc.
    Schedule IIISupplementary Insurance
    Information
  DeferredAcquisitionCost, Net of


GrossDeferred


Future PolicyCeding


Benefits,


Gross





Benefits,








NetCommission


Losses and


Unearned


Net Earned


Losses and


Amortization


Operating


Premiums($ in thousands)

Revenue


Loss Expenses


Premiums


Premiums


Loss Expenses


of DAC


Expenses


Written2008Insurance Segment

$
53,080


$
534,991


$
328,847


$
314,551


$
162,739


$
(107,547
)

$
72,127


$
344,043Total

$
53,080


$
534,991


$
328,847


$
314,551


$
162,739


$
(107,547
)

$
72,127


$
344,0432007Insurance Segment

$
39,271


$
501,183


$
272,774


$
286,106


$
157,906


$
(82,736
)

$
67,630


$
259,183Total

$
39,271


$
501,183


$
272,774


$
286,106


$
157,906


$
(82,736
)

$
67,630


$
259,1832006Insurance Segment

$
35,811


$
302,541


$
227,017


$
223,988


$
135,125


$
(58,347
)

$
46,738


$
245,070Total

$
35,811


$
302,541


$
227,017


$
223,988


$
135,125


$
(58,347
)

$
46,738


$
245,070  S-5




---



##### Table of Contents



Tower
    Group, Inc.
    Schedule IVReinsurance
  Percentage ofCeded to


Assumed from





AmountDirect


Other


Other





Assumed to($ in thousands)

Amount


Companies


Companies


Net Amount


NetYear ended December 31, 2008PremiumsProperty and casualty insurance

$
627,319


$
290,777


$
7,501


$
344,043


2.18%Accident and health insurance

















0.00%Total Premiums

$
627,319


$
290,777


$
7,501


$
344,043


2.18%Year ended December 31, 2007PremiumsProperty and casualty insurance

$
520,421


$
264,832


$
3,593


$
259,182


1.39%Accident and health insurance

















0.00%Total Premiums

$
520,421


$
264,832


$
3,593


$
259,182


1.39%  S-6




---



##### Table of Contents



Tower
    Group, Inc.
    Schedule VValuation and Qualifying Accounts
  December 31,($ in thousands)

2008


2007


2006Balance, January 1

$
204


$
248


$
170Additions


707



157



115Deletions


(361
)


(201
)


(37
)Balance, December 31

$
550


$
204


$
248  S-7




---



##### Table of Contents



Tower
    Group, Inc.
    Schedule VISupplemental Information Concerning
    Insurance Operations
  Claims and ClaimsAdjustment ExpensesReserves














Incurred and Related toFor UnpaidClaims and

















Prior Year*





Paid ClaimsDeferred


Claim











Net





Includes





and Claim


NetAcquisition


Adjustment


Discounted


Unearned


Earned


Investment


Current


PXRE


Amortization


Adjustment


Premiums($ in thousands)

Cost


Expenses


Reserves


Premium


Premium


Income


Year


Commutation


of DAC


Expenses


Written2008

$
53,080


$
534,991


$



$
328,847


$
314,551


$
34,568


$
171,616


$
(8,877
)

$
(107,547
)

$
161,635


$
344,0432007

$
39,271


$
501,183


$



$
272,774


$
286,106


$
36,699


$
159,512


$
(1,606
)

$
(82,736
)

$
123,804


$
259,1832006

$
35,811


$
302,541


$



$
227,017


$
223,988


$
23,026


$
135,863


$
(738
)

$
(58,347
)

$
44,372


$
245,070     (1)
    
    This schedule excludes information
    related to CastlePoint Holdings, Ltd., S-8




---



##### Table of Contents



ExhibitNumber

Description of Exhibits2
.1

Agreement and Plan of Merger, dated August 4, 2008, by and among
    Tower Group, Inc., Ocean I Corporation and CastlePoint Holdings,
    Ltd., incorporated by reference to Exhibit 2.1 to the
    Companys Current Report on Form 8-K/A filed on August 6,
    20083
.1

Amended and Restated Certificate of Incorporation of Tower
    Group, Inc., incorporated by reference to Exhibit 3.1 to the
    Companys Registration Statement on Form S-1 (Amendment No.
    2) (No. 333-115310) filed on July 23, 20043
.2

Certificate of Amendment to Amended and Restated Certificate of
    Incorporation of Tower Group, Inc., incorporated by reference to
    Exhibit 3.1 to the Companys Registration Statement on Form
    S-8 (No. 333-115310) filed on February 5, 20093
.3

Certificate of Designations of Preferred Stock, incorporated by
    reference to the Companys Current Report on Form 8-K filed
    on December 8, 20063
.4

Certificate of Designations of Series A-1 Preferred Stock of
    Tower Group, Inc. incorporated by reference to Exhibit 3.1 to
    the Companys Current Report on Form 8-K filed on January
    12, 20073
.5

Amended and Restated By-laws of Tower Group, Inc. as amended
    October 24, 2007, incorporated by reference to Exhibit 3.1 to
    the Companys Current Report on Form 8-K filed on October
    26, 20074
.1

Specimen Common Stock Certificate, incorporated by reference to
    Exhibit 4.1 to the Companys Registration Statement on Form
    S-1 (Amendment No. 6) (No. 333-115310) filed on September 30,
    20044
.2

Warrant issued to Friedman, Billings, Ramsey & Co., Inc.,
    incorporated by reference to Exhibit 4.3 to the Companys
    Registration Statement on Form S-1 (Amendment No. 3) (No.
    333-115310) filed on August 25, 20049
.1

Voting Agreement, dated August 4, 2008, between Tower Group,
    Inc. and Michael H. Lee, incorporated by reference to Exhibit
    10.1 to the Companys Current Report on Form 8-K filed on
    August 5, 200810
.1

Employment Agreement, dated as of August 1, 2004, by and between
    Tower Group, Inc. and Michael H. Lee, incorporated by reference
    to Exhibit 10.1 to the Companys Registration Statement on
    Form S-1 (Amendment No. 3) (No. 333-115310) filed on August 25,
    200410
.2

Employment Agreement, dated as of August 1, 2004, by and between
    Tower Group, Inc. and Francis M. Colalucci, incorporated by
    reference to Exhibit 10.3 to the Companys Registration
    Statement on Form S-1 (Amendment No. 3) (No. 333-115310) filed
    on August 25, 200410
.3

Employment Agreement, dated as of August 1, 2004, by and between
    Tower Group, Inc. and Christian K. Pechmann, incorporated by
    reference to Exhibit 10.5 to the Companys Registration
    Statement on Form S-1 (Amendment No. 3) (No. 333-115310) filed
    on August 25, 200410
.4

2004 Long-Term Equity Compensation Plan, as amended and restated
    effective May 15, 2008, incorporated by reference to Exhibit
    99.1 to the Companys Registration Statement on Form S-8
    (No. 333-115310) filed on June 20, 200810
.5

2001 Stock Award Plan, incorporated by reference to Exhibit 10.8
    to the Companys Registration Statement on Form S-1 (No.
    333-115310) filed on May 7, 200410
.6

2000 Deferred Compensation Plan, incorporated by reference to
    Exhibit 10.9 to the Companys Registration Statement on
    Form S-1 (Amendment No. 6) (No. 333-115310) filed on September
    30, 200410
.7

Amended & Restated Declaration of Trust, dated as of May
    15, 2003, by and between Tower Group, Inc., Tower Statutory
    Trust I and U.S. Bank National Association, incorporated by
    reference to Exhibit 10.10 to the Companys Registration
    Statement on Form S-1 (No. 333-115310) filed on May 7, 200410
.8

Indenture, dated as of May 15, 2003, by and between Tower Group,
    Inc. and U.S. Bank National Association, incorporated by
    reference to Exhibit 10.11 to the Companys Registration
    Statement on Form S-1 (No. 333-115310) filed on May 7, 2004




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##### Table of Contents



ExhibitNumber

Description of Exhibits10
.9

Guarantee Agreement, dated as of May 15, 2003, by and between
    Tower Group, Inc. and U.S. Bank National Association,
    incorporated by reference to Exhibit 10.12 to the Companys
    Registration Statement on Form S-1 (No. 333-115310) filed on May
    7, 200410
.10

Amended and Restated Trust Agreement, dated as of September 30,
    2003, by and between Tower Group, Inc., JPMorgan Chase Bank,
    Chase Manhattan Bank USA, National Association and Michael H.
    Lee, Steven G. Fauth and Francis M. Colalucci as Administrative
    Trustees of Tower Group Statutory Trust II, incorporated by
    reference to Exhibit 10.13 to the Companys Registration
    Statement on Form S-1 (No. 333-115310) filed on May 7, 200410
.11

Junior Subordinated Indenture, dated as of September 30, 2003,
    by and between Tower Group, Inc. and JPMorgan Chase Bank,
    incorporated by reference to Exhibit 10.14 to the Companys
    Registration Statement on Form S-1 (No. 333-115310) filed on May
    7, 200410
.12

Guarantee Agreement, dated as of September 30, 2003, by and
    between Tower Group, Inc. and JPMorgan Chase Bank, incorporated
    by reference to Exhibit 10.15 to the Companys Registration
    Statement on Form S-1 (No. 333-115310) filed on May 7, 200410
.13

Service and Expense Sharing Agreement, dated as of December 28,
    1995, by and between Tower Insurance Company of New York and
    Tower Risk Management Corp., incorporated by reference to
    Exhibit 10.16 to the Companys Registration Statement on
    Form S-1 (No. 333-115310) filed on May 7, 200410
.14

Real Estate Lease and amendments thereto, by and between
    Broadpine Realty Holding Company, Inc. and Tower Insurance
    Company of New York, incorporated by reference to Exhibit 10.17
    to the Companys Registration Statement on Form S-1
    (Amendment No. 1) (No. 333-115310) filed on June 24, 200410
.15

Third Amendment to Lease between Tower Insurance Company of New
    York and 120 Broadway Holdings, LLC executed September 1, 2005,
    incorporated by reference to Exhibit 10.01 to the Companys
    Current Report on Form 8-K filed on August 26, 200510
.16

License and Services Agreement, dated as of June 11, 2002, by
    and between AgencyPort Insurance Services, Inc. and Tower
    Insurance Company of New York, incorporated by reference to
    Exhibit 10.18 to the Companys Registration Statement on
    Form S-1 (Amendment No. 3) (No. 333-115310) filed on August 25,
    200410
.17

Agreement, dated as of April 17, 1996, between Morstan General
    Agency, Inc. and Tower Risk Management Corp., incorporated by
    reference to Exhibit 10.19 to the Companys Registration
    Statement on Form S-1 (No. 333-115310) filed on May 7, 200410
.18

Amended and Restated Declaration of Trust, dated December 15,
    2004, by and among Wilmington Trust Company, as Institutional
    Trustee; Wilmington Trust Company, as Delaware Trustee; Tower
    Group, Inc., as Sponsor; and the Trust Administrators Michael H.
    Lee, Francis M. Colalucci and Steve G. Fauth, incorporated by
    reference to Exhibit 10.04 to the Companys Current Report
    on Form 8-K filed on December 20, 200410
.19

Indenture between Tower Group, Inc. and Wilmington Trust
    Company, as Trustee, dated December 15, 2004, incorporated by
    reference to Exhibit 10.03 to the Companys Current Report
    on Form 8-K filed on December 20, 200410
.20

Guarantee Agreement dated December 15, 2004, by and between
    Tower Group, Inc. and Wilmington Trust Company, incorporated by
    reference to Exhibit 10.02 to the Companys Current Report
    on Form 8-K filed on December 20, 200410
.21

Amended and Restated Declaration of Trust, dated December 21,
    2004, by and among JPMorgan Chase Bank, National Association, as
    Institutional Trustee, Chase Manhattan Bank USA, National
    Association, as Delaware Trustee; Tower Group, Inc., as Sponsor;
    and the Trust Administrators Michael H. Lee, Francis M.
    Colalucci and Steve G. Fauth, incorporated by reference to
    Exhibit 10.04 to the Companys Current Report on Form 8-K
    filed on December 23, 200410
.22

Indenture between Tower Group, Inc. and JPMorgan Chase Bank,
    National Association, as Trustee, dated December 21, 2004,
    incorporated by reference to Exhibit 10.03 to the Companys
    Current Report on Form 8-K filed on December 23, 2004




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##### Table of Contents



ExhibitNumber

Description of Exhibits10
.23

Guarantee Agreement dated December 21, 2004, by and between
    Tower Group, Inc. and JPMorgan Chase Bank, National Association,
    incorporated by reference to Exhibit 10.02 to the Companys
    Current Report on Form 8-K filed on December 23, 200410
.24

Amended and Restated Declaration of Trust, dated March 31, 2006,
    by and among Wells Fargo Bank, National Association, as
    Institutional Trustee; Wells Fargo Delaware Trust Company, as
    Delaware Trustee; Tower Group, Inc., as Sponsor; and the Trust
    Administrators Francis M. Colalucci and Steve G. Fauth,
    incorporated by reference to Exhibit 10.04 to the Companys
    Current Report on Form 8-K filed on April 6, 200610
.25

Indenture between Tower Group, Inc. and Wells Fargo Bank,
    National Association, as Trustee, dated March 31, 2006,
    incorporated by reference to Exhibit 10.03 to the Companys
    Current Report on Form 8-K filed on April 6, 200610
.26

Guarantee Agreement dated March 31, 2006, by and between Tower
    Group, Inc. and Wells Fargo Delaware Trust Company, incorporated
    by reference to Exhibit 10.02 to the Companys Current
    Report on Form 8-K filed on April 6, 200610
.27

Stock Purchase Agreement by and among Tower Group, Inc. and
    Preserver Group, Inc. dated November 13, 2006, incorporated by
    reference to Exhibit 10.1 to the Companys Current Report
    on Form 8-K filed on November 17, 200610
.28

Exchange Agreement by and among Tower Group, Inc. and
    CastlePoint Management Corp. dated January 11, 2007 incorporated
    by reference to Exhibit 10.1 to the Companys Current
    Report on Form 8-K filed on January 12, 200710
.29

Master Agreement dated April 4, 2006 by and among Tower Group,
    Inc., Tower Insurance Company of New York, Tower National
    Insurance Company, CastlePoint Holdings, Ltd. and CastlePoint
    Management Corp. incorporated by reference to Exhibit 10.1to the
    Companys Current Report on Form 8-K filed on January 22,
    200710
.30

Addendum No. 1 to the Master Agreement by and among Tower Group,
    Inc. and CastlePoint Holdings, Ltd. incorporated by reference to
    Exhibit 10.2 to the Companys Current Report on Form 8-K
    filed on January 22, 200710
.31

Amended and Restated Brokerage Business Quota Share Reinsurance
    Agreement, dated August 31, 2006 and effective as of April 1,
    2006 by and among Tower Group, Inc., Tower Insurance Company of
    New York, Tower National Insurance Company and CastlePoint
    Reinsurance Company, Ltd. incorporated by reference to Exhibit
    10.3 to the Companys Current Report on Form 8-K filed on
    January 22, 200710
.32

Amended and Restated Traditional Business Quota Share
    Reinsurance Agreement, dated August 31, 2006 and effective as of
    April 1, 2006 by and among Tower Group, Inc., Tower Insurance
    Company of New York, Tower National Insurance Company and
    CastlePoint Reinsurance Company, Ltd. incorporated by reference
    to Exhibit 10.4 to the Companys Current Report on Form 8-K
    filed on January 22, 200710
.33

Amended and Restated Specialty Business Quota Share Reinsurance
    Agreement, dated August 31, 2006 and effective as of April 1,
    2006 by and among Tower Group, Inc., Tower Insurance Company of
    New York, Tower National Insurance Company and CastlePoint
    Reinsurance Company, Ltd. incorporated by reference to Exhibit
    10.5 to the Companys Current Report on Form 8-K filed on
    January 22, 200710
.34

Combined Amendment No. 1 to Amended and Restated Brokerage
    Business Quota Share Reinsurance Agreement, effective as of
    April 1, 2006 by and among Tower Insurance Company of New York,
    Tower National Insurance Company, Preserver Insurance Company,
    North East Insurance Company, Mountain Valley Indemnity Company,
    and CastlePoint Reinsurance Company, Ltd. and CastlePoint
    Insurance Company*10
.35

Amendment No. 1 to Amended and Restated Traditional Business
    Quota Share Reinsurance Agreement, dated January 11, 2007 by and
    among Tower Group, Inc., Tower Insurance Company of New York and
    CastlePoint Reinsurance Company, Ltd. incorporated by reference
    to Exhibit 10.7 to the Companys Current Report on Form 8-K
    filed on January 22, 2007




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##### Table of Contents



ExhibitNumber

Description of Exhibits10
.36

Amendment No. 1 to Amended and Restated Specialty Business Quota
    Share Reinsurance Agreement, dated January 11, 2007 by and among
    Tower Group, Inc., Tower Insurance Company of New York and
    CastlePoint Reinsurance Company, Ltd. incorporated by reference
    to Exhibit 10.8 to the Companys Current Report on Form 8-K
    filed on January 22, 200710
.37

Amended and Restated Declaration of Trust, dated January 25,
    2007, by and among Wilmington Trust, as Institutional Trustee
    and as Delaware Trustee; Tower Group, Inc., as Sponsor; and the
    Trust Administrators Michael H. Lee, Francis M. Colalucci and
    Stephen L. Kibblehouse, incorporated by reference to Exhibit
    10.02 to the Companys Current Report on Form 8-K filed on
    January 26, 200710
.38

Indenture between Tower Group, Inc. and Wilmington Trust
    Company, as Trustee, dated January 25, 2007, incorporated by
    reference to Exhibit 4.01 to the Companys Current Report
    on Form 8-K filed on January 26, 200710
.39

Guarantee Agreement dated January 25, 2007, by and between Tower
    Group, Inc. and Wilmington Trust Company, incorporated by
    reference to Exhibit 10.01 to the Companys Current Report
    on Form 8-K filed on January 26, 200710
.40

Management Agreement, dated July 1, 2007, by and between
    CastlePoint Insurance Company and Tower Risk Management Corp.,
    incorporated by reference to Exhibit 10.1 to the Companys
    Quarterly Report on Form 10-Q filed on November 9, 200710
.41

Employment Agreement, dated as of July 23, 2007, by and between
    Tower Group Inc. and Gary S. Maier, incorporated by reference to
    Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q
    filed on November 9, 200710
.42

Fourth Amendment to Lease between Tower Insurance Company of New
    York and 120 Broadway Holdings, LLC dated July 25, 2006,
    incorporated by reference to Exhibit 10.49 to the Companys
    Annual Report on Form 10-K filed on March 14, 200810
.43

Fifth Amendment to Lease between Tower Insurance Company of New
    York and 120 Broadway Holdings, LLC dated December 20, 2006,
    incorporated by reference to Exhibit 10.50 to the Companys
    Annual Report on Form 10-K filed on March 14, 200810
.44

Employment Agreement, dated as of November 12, 2006, by and
    between Tower Group Inc. and Patrick J. Haveron, incorporated by
    reference to Exhibit 10.1 to the Companys Current Report
    on Form 8-K filed on April 12, 200710
.45

Aggregate Excess of Loss Reinsurance Agreement dated October 1,
    2007 by and among Tower Insurance Company of New York, Tower
    National Insurance Company, Preserver Insurance Company,
    Mountain Valley Indemnity Company and North East Insurance
    Company, and CastlePoint Insurance Company, incorporated by
    reference to Exhibit 10.57 to the Companys Annual Report
    on Form 10-K filed on March 14, 200810
.46

Aggregate Excess of Loss Reinsurance Agreement dated October 1,
    2007 by and among Tower Insurance Company of New York and
    CastlePoint Insurance Company, incorporated by reference to
    Exhibit 10.58 to the Companys Annual Report on Form 10-K
    filed on March 14, 200810
.47

Service Agreement dated May 1, 2007 by and among Tower Risk
    Management Corp. and CastlePoint Management Corp. , incorporated
    by reference to Exhibit 10.59 to the Companys Annual
    Report on Form 10-K filed on March 14, 200810
.48

Property Catastrophe Reinsurance Agreement dated July 1, 2007 by
    and among Tower Group, Inc. and various reinsurers, incorporated
    by reference to Exhibit 10.60 to the Companys Annual
    Report on Form 10-K filed on March 14, 200810
.49

Form of Tower Group, Inc. 2004 Long Term Equity Compensation
    Plan Restricted Stock Award Agreement, incorporated by reference
    to Exhibit 10.1 to the Companys Current Report on Form 8-K
    filed on March 18, 200810
.50

Form of Tower Group, Inc. 2004 Long Term Equity Compensation
    Plan Performance Shares Award Agreement*




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##### Table of Contents



ExhibitNumber

Description of Exhibits10
.51

Form of Tower Group, Inc. 2004 Long Term Equity Compensation
    Plan, as amended and restated effective May 15, 2008, Restricted
    Stock Units Award Agreement, incorporated by reference to
    Exhibit 10.63 to the Companys Annual Report on Form 10-K
    filed on March 14, 200810
.52

Stock Purchase Agreement dated August 27, 2008 between
    CastlePoint Reinsurance Company, Ltd., HIG, Inc. and Brookfield
    US Corporation, incorporated by reference to Exhibit 2.1 to
    CastlePoint Holdings, Ltd.s Current Report on Form 8-K
    filed on September 2, 200810
.53

Asset Purchase Agreement, dated as of August 26, 2008, by and
    among CastlePoint Reinsurance Company, Ltd., Tower Insurance
    Company of New York, Tower National Insurance Company, Preserver
    Insurance Company, Mountain Valley Insurance Company, North East
    Insurance Company and Tower Risk Management Corp., incorporated
    by reference to Exhibit 2.1 to the Companys Current Report
    on Form 8-K filed August 27, 200810
.54

Limited Waiver Agreement, dated as of August 26, 2008, by and
    among Tower Group, Inc., Ocean I Corporation and CastlePoint
    Holdings, Ltd., incorporated by reference to Exhibit 2.2 to the
    Companys Current Report on Form 8-K filed August 27, 200810
.55

Parent Guarantee Agreement, dated as of December 1, 2006,
    between CastlePoint Holdings, Ltd. and Wilmington Trust Company,
    incorporated by reference to Exhibit 10.32 to CastlePoint
    Holdings Ltd.s Registration Statement on Form S-1 (No.
    333-139939) filed on January 11, 200710
.56

Guarantee Agreement, dated as of December 1, 2006, between
    CastlePoint Management Corp. and Wilmington Trust Company,
    incorporated by reference to Exhibit 10.33 to CastlePoint
    Holdings Ltd.s Registration Statement on Form S-1 (No.
    333-139939) filed on January 11, 200710
.57

Indenture, dated as of December 1, 2006, between CastlePoint
    Management Corp. and Wilmington Trust Company, incorporated by
    reference to Exhibit 10.34 to CastlePoint Holdings Ltd.s
    Registration Statement on Form S-1 (No. 333-139939) filed on
    January 11, 200710
.58

Amended and Restated Declaration of Trust, dated as of December
    1, 2006, among Wilmington Trust Company as Institutional
    Trustee, Wilmington Trust Company, as Delaware Trustee,
    CastlePoint Management Corp., as Sponsor, and Joel Weiner, James
    Dulligan and Roger Brown, as Administrators, incorporated by
    reference to Exhibit 10.35 to CastlePoint Holdings Ltd.s
    Registration Statement on Form S-1 (No. 333-139939) filed on
    January 11, 200710
.59

Parent Guarantee Agreement, dated as of December 14, 2006,
    between CastlePoint Holdings, Ltd. and Wilmington Trust Company,
    incorporated by reference to Exhibit 10.36 to CastlePoint
    Holdings Ltd.s Registration Statement on Form S-1 (No.
    333-139939) filed on January 11, 200710
.60

Guarantee Agreement of CastlePoint Management Corp., dated as of
    December 14, 2006, between CastlePoint Management Corp. and
    Wilmington Trust Company, incorporated by reference to Exhibit
    10.37 to CastlePoint Holdings Ltd.s Registration Statement
    on Form S-1 (No. 333-139939) filed on January 11, 200710
.61

Indenture, dated as of December 14, 2006, between CastlePoint
    Management Corp. and Wilmington Trust Company, incorporated by
    reference to Exhibit 10.38 to CastlePoint Holdings Ltd.s
    Registration Statement on Form S-1 (No. 333-139939) filed on
    January 11, 200710
.62

Amended and Restated Declaration of Trust, dated as of December
    14, 2006, among Wilmington Trust Company as Institutional
    Trustee, Wilmington Trust Company, as Delaware Trustee,
    CastlePoint Management Corp., as Sponsor, and Joel Weiner, James
    Dulligan and Roger Brown, as Administrators, incorporated by
    reference to Exhibit 10.39 to CastlePoint Holdings Ltd.s
    Registration Statement on Form S-1 (No. 333-139939) filed on
    January 11, 200710
.63

CastlePoint Holdings, Ltd. 2006 Long-Term Equity Compensation
    Plan, incorporated by reference to Exhibit 10.4 to CastlePoint
    Holdings Ltd.s Registration Statement on Form S-1 (File
    No. 333-134628) filed on June 1, 200610
.64

Amendment No. 1 to CastlePoint Holdings, Ltd. 2006 Long-Term
    Equity Compensation Plan, incorporated by reference to Exhibit
    4.5 to CastlePoint Holdings Ltd.s Registration Statement
    on Form S-8 (File No. 333-134628) filed on December 5, 2007




---



##### Table of Contents



ExhibitNumber

Description of Exhibits10
.65

Form of Stock Option Agreement for Executive Employee Recipients
    of Options under 2006 Long-Term Equity Compensation Plan,
    incorporated by reference to Exhibit 10.5 to CastlePoint
    Holdings Ltd.s Registration Statement on Form S-1 (File
    No. 333-134628) filed on June 1, 200610
.66

Form of Stock Option Agreement for Non-Employee Director
    Recipients of Options under 2006 Long-Term Equity Compensation
    Plan, incorporated by reference to Exhibit 10.6 to CastlePoint
    Holdings Ltd.s Registration Statement on Form S-1 (File
    No. 333-134628) filed on June 1, 200610
.67

Indenture between CastlePoint Bermuda Holdings, Ltd. and
    Wilmington Trust Company, as Trustee, dated September 27, 2007,
    incorporated by reference to Exhibit 4.1 to CastlePoint Holdings
    Ltd.s Current Report on Form 8-K filed on October 1, 200710
.68

Guarantee Agreement dated September 27, 2007 by and between
    CastlePoint Bermuda Holdings, Ltd. and Wilmington Trust Company,
    incorporated by reference to Exhibit 4.2 to CastlePoint Holdings
    Ltd.s Current Report on Form 8-K filed on October 1, 200710
.69

Amended and Restated Declaration of Trust, dated September 27,
    2007, by Wilmington Trust, as Institutional Trustee and as
    Delaware Trustee; CastlePoint Bermuda Holdings, Ltd. as Sponsor,
    and Trust Administrators Roger A. Brown, Joel S. Weiner and
    James Dulligan, incorporated by reference to Exhibit 4.3 to
    CastlePoint Holdings Ltd.s Current Report on Form 8-K
    filed on October 1, 200710
.70

Fixed/Floating Rate Junior Subordinated Deferrable Interest
    Debenture, dated September 27, 2007 by CastlePoint Bermuda
    Holdings, Ltd. in favor of Wilmington Trust Company as
    institutional trustee, incorporated by reference to Exhibit 4.4
    to CastlePoint Holdings Ltd.s Current Report on Form 8-K
    filed on October 1, 200710
.71

Supplemental Guarantee, dated as of February 5, 2009, by and
    among Ocean I Corporation, CastlePoint Holdings, Ltd. and
    Wilmington Trust Company (related to that certain Parent
    Guarantee Agreement, dated as of December 1, 2006, between
    CastlePoint Holdings, Ltd. and Wilmington Trust Company)*10
.72

Supplemental Guarantee, dated as of February 5, 2009, by and
    among Ocean I Corporation, CastlePoint Holdings, Ltd. and
    Wilmington Trust Company (related to that certain Parent
    Guarantee Agreement, dated as of December 14, 2006, between
    CastlePoint Holdings, Ltd. and Wilmington Trust Company)*10
.73

Supplemental Guarantee, dated as of February 5, 2009, by and
    among Ocean I Corporation, CastlePoint Holdings, Ltd. and
    Wilmington Trust Company (related to that certain Parent
    Guarantee Agreement, dated as of November 8, 2007, between
    CastlePoint Holdings, Ltd. and Wilmington Trust Company)*10
.74

Amendment No. 2 to Amended and Restated Brokerage Business Quota
    Share Reinsurance Agreement, effective as of October 1, 2008 by
    and among Tower Insurance Company of New York, Tower National
    Insurance Company, Preserver Insurance Company, North East
    Insurance Company, Mountain Valley Indemnity Company, and
    CastlePoint Reinsurance Company, Ltd. and CastlePoint Insurance
    Company*10
.75

Separation Agreement, dated as of February 27, 2009, by and
    between Tower Group, Inc. and Patrick J. Haveron*10
.76

Consulting Agreement, dated as of February 27, 2009, by and
    between Tower Group, Inc. and Patrick J. Haveron*10
.77

Letter of Amendment dated February 23, 2009 to Stock Purchase
    Agreement dated August 27, 2008 between CastlePoint Reinsurance
    Company, Ltd., HIG, Inc. and Brookfield US Corporation*21
.1

Subsidiaries of the registrant23
.1

Consent of Johnson Lambert & Co.31
.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002 by Michael H. Lee31
.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
    of 2002 by Francis M. Colalucci32


Certification of Chief Executive Officer and Chief Financial
    Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted
    Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002