##### Table of Contents





UNITED STATES
    SECURITIES AND EXCHANGE COMMISSIONWashington, 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, 2007Oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
    THE
    SECURITIES ACT OF 1934   For 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

(I.R.S. Employer Identification No.)incorporation or organization)   120 Broadway,
    31st
    FloorNew York, New York

10271(Address of principal executive
    offices)

(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
  Rule 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




---



##### 





TABLE OF
    CONTENTS
   
 PART IItem 1.


Business


2Item 1A.


Risk Factors


36Item 1B.


Unresolved Staff Comments


48Item 2.


Properties


48Item 3.


Legal Proceedings


48Item 4.


Submission Of Matters To A Vote Of Security
    Holders


49PART II


49Item 5.


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


49Item 6.


Selected Consolidated Financial Information


51Item 7.


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


52Item 7A.


Quantitative And Qualitative Disclosures About
    Market Risk


85Item 8.


Financial Statements And Supplementary Data


88Item 9.


Changes In And Disagreements With Accountants Or
    Accounting And Financial Disclosure


89Item 9A.


Control And Procedures


89Item 9B.


Other Information


90PART III


90Item 10.


Directors And Executive Officers Of The
    Registrant


90Item 11.


Executive Compensation


90Item 12.


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


90Item 13.


Certain Relationships And Related Transactions,
    And Director Independence


90Item 14.


Principal Accountant Fees And Services


90PART IV.


91Item 15. Exhibits, Financial
    Statement Schedules


91EX-10.49: FOURTH AMENDMENT TO LEASEEX-10.50: FIFTH AMENDMENT TO LEASEEX-10.54: AMENDMENT NO. 2 TO AMENDED AND RESTATED BROKERAGE BUSINESS QUOTAEX-10.55: AMENDMENT NO. 3 TO AMENDED AND RESTATED BROKERAGE BUSINESS QUOTAEX-10.56: AMENDMENT NO. 4 TO AMENDED AND RESTATED BROKERAGE BUSINESS QUOTAEX-10.57: AGGREGATE EXCESS OF LOSS REINSURANCE AGREEMENTEX-10.58: AGGREGATE EXCESS OF LOSS REINSURANCE AGREEMENTEX-10.59: SERVICE AGREEMENTEX-10.60: PROPERTY CATASTROPHE REINSURANCE AGREEMENTEX-10.63: FORM OF 2004 LONG TERM EQUITY COMPENSATION PLANEX-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
    
    Hybrid Business Model.  We use 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 2003 to 2007, the average annual return on average equity
    was 19.6%. Through our strategic relationship with CastlePoint,
    we have reduced the risk of relying on other reinsurance and
    issuing companies and will be able to maintain and strengthen
    our hybrid business model as well as pursue our growth plans.
    Through reinsurance and risk sharing, we target transferring
    approximately 49% of our total premiums written and produced to
    CastlePoints reinsurance and insurance company
    subsidiaries in order to generate commission and fee income. We
    will continue to maintain the operational infrastructure that
    will market, originate, underwrite and service gross premiums
    written through our Insurance Subsidiaries and produced as
    managing general agent on behalf of other insurance companies
    (gross premiums written and produced).
    High Growth Platform and Territorial
    Expansion.  We have established a track record
    of growth by expanding our product line offering, entering into
    new territories and acquiring books of business. Our gross
    premiums written and produced increased 37.0% on a compounded
    annual basis from 2003 to 2007. Our acquisition of Preserver
    accelerated our geographic expansion in the Northeast and
    expanded our broad product line platform to include personal
    auto and web-based businessowners policies. We are also
    expanding into other parts of the United States by appointing
    wholesale agents throughout the country and participating in
    programs managed by CastlePoint. We continue to seek
    acquisitions of renewal rights, insurance companies and managing
    general agencies that will provide us with access to local
    markets throughout the United States.
    Underwriting and Market Segmentation
    Expertise.  We have a strong track record of
    generating favorable underwriting results as demonstrated by our
    weighted average gross loss ratio of 54.2% during the period
    from 2003 to 2007. We have been able to achieve these
    underwriting results by focusing on customers that present low
    to moderate hazard risks and utilizing our in-house claims and
    legal defense capabilities to adjust and defend claims
    cost-effectively. We also have utilized our broad product line
    platform to allocate our capital to the most profitable lines of
    business in response to changing market conditions. In addition,
    we have been able to maintain pricing and coverage discipline in
    writing these policies by positioning our products in various
    market segments that tend to exhibit a reduced level of
    competition, including nonstandard risks that may be avoided by
    standard or preferred market carriers due to underwriting
    factors such as type of business, location and premium per
    policy.
    Entrance into Excess and Surplus Lines
    Market.  We generally write our insurance
    policies in the preferred and standard market through our retail
    agents and insurance policies in the non-standard market
    segments through our wholesale agents, all on an admitted
    basis. This means that we are licensed by the states in
    which we sell our policies, and we write our policies using
    premium rates and forms that are filed with state insurance
    regulators. However, in 2007 we began to write excess and
    surplus business lines (E&S) by offering our
    products through TICNY, which is qualified as a non-admitted
    company to write E&S business in Florida and Texas, and we
    are planning to form a separate company to write E&S lines
    in other states. Non-admitted carriers writing in the E&S
    market are not bound by most of the rate and form regulations
    imposed on standard market companies, allowing them the
    flexibility to change the coverage offered and the rate charged
    without the time constraints and financial costs associated with
    the filing process. Because we focus on providing products in
    underserved market segments through our wholesale 3




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##### Table of Contents



distribution system, we believe we can distribute these products
    utilizing both the non-standard market segment on an admitted
    basis as well as the E&S market segment on a non-admitted
    basis. Having a surplus lines company will provide us with the
    ability to quickly expand and distribute our products nationally
    through the wholesale distribution system.  
    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 28.2% and 28.1% in
    2007 and 2006, respectively. The slight increase in the ratio in
    2007 was due to the integration of the Preserver acquisition. We
    also expect that acquisitions we may make will generate
    long-term incremental reductions in our expense ratio (although
    they may cause short-term increases) as we apply our technology
    and business processes to the operations of the acquired
    business in order to realize economies of scale.
    Proven Leadership and Experienced
    Management.  Our senior management team
    members average over 20 years of insurance industry
    experience. Michael H. Lee, our Chairman of the Board, President
    and Chief Executive Officer, was a founder of the Company in
    1990 and has an extensive knowledge and understanding of our
    business, having played a key role in building several aspects
    of our operations, including underwriting, finance, claims and
    systems.  Strategic
    Relationship and Agreements with CastlePoint
          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;
    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; 4




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##### Table of Contents




    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, and 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 subsidiaries, TICNY and
    TNIC, covering program business historically written by us;
    specialty program business and insurance risk-sharing business
    quota share reinsurance agreement between CastlePoint
    Reinsurance and our subsidiaries, TICNY and TNIC, covering
    business not historically written by us;
    aggregate excess of loss reinsurance agreements between our
    Insurance Subsidiaries and CPIC; 5




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##### Table of Contents




    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.              Acquisition of
    Preserver
   6




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##### Table of Contents



Business
    Segments
    
    Insurance.  In our insurance segment, our
    Insurance Subsidiaries provide commercial lines policies to
    businesses and personal lines policies to individuals primarily
    in New York, New Jersey and other Northeast states. Towers
    commercial lines products include commercial multiple-peril,
    monoline general liability, commercial umbrella, monoline
    property, workers compensation and commercial automobile
    policies. The personal lines products consist of homeowners,
    dwelling, other liability and auto policies. See
    Business  Insurance Segment Products.
    Reinsurance.  In our reinsurance segment, TICNY
    accepts or assumes reinsurance directly from TRMs issuing
    companies on a 100% quota share basis with the exception of
    business produced on behalf of CPIC. See
    Business Reinsurance Segment Products.
    Insurance Services.  In our insurance services
    segment, TRM produces and manages business for other insurance
    companies, including CPIC. TRM markets, originates, underwrites
    and services premiums produced and generates fee and commission
    income. In connection with the production of this business,
    TICNY may reinsure the business written by TRMs issuing
    companies. See Business  Insurance Services
    Segment Products and Services.  Insurance
    Segment Products
     7




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##### Table of Contents



For the year ended December 31,2007


2006


2005Gross





Gross





GrossPremium


Gross


Premium


Gross


Premium


Gross($ in thousands)

Earned


Loss Ratio


Earned


Loss Ratio


Earned


Loss RatioCommercial multiple-peril

$
218,848



51.5%


$
150,292



57.1%


$
117,814



59.4%Other liability


69,298



66.3%



48,742



71.3%



22,427



77.9%Workers compensation


54,064



34.1%



33,609



39.4%



21,059



40.8%Commercial auto


54,257



54.8%



28,491



51.6%



16,722



32.6%Homeowners


92,686



39.9%



70,419



42.3%



49,150



59.0%Fire and allied lines


19,042



53.7%



12,462



36.7%



9,002



48.1%Personal Auto


7,882



101.9%















All Lines

$
516,077



50.8%


$
344,015



53.2%


$
236,174



57.1%   Commercial
    Multiple-Peril
  three-and-four-family
  Other
    Liability
    Workers
    Compensation
   8




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##### Table of Contents



Commercial
    Automobile
    Personal
    Automobile
    Homeowners
    Fire
    and Allied Lines
    Reinsurance
    Segment Product
      Insurance
    Services Segment Products and Services
   9




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##### Table of Contents



Managing
    General Agency
          TRM
    Claims Service
    TRM
    Reinsurance Intermediary Services
    Other
    Administration Revenue
   10




---



##### Table of Contents



Product
    Development and Marketing Strategy
           11




---



##### Table of Contents



Distribution
         12




---



##### Table of Contents



1 2
      Underwriting
  and/or
    WebPlus Preserver Online WebPlus Preserver Online
   13




---



##### Table of Contents



Pricing
       14




---



##### Table of Contents



Reinsurance
         15




---



##### Table of Contents



Accounting for
    Reinsurance Contracts
     16




---



##### Table of Contents



Funds Held ,


Amounts inPrepaid





Ceded Payable


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 ReinsuranceAmerica Inc.(1)


A+


$
3,254


$
19,979


$
8


$



$
1,519


$



$
21,720Employers Reinsurance Corp.


A−



(113
)


18,082



135







(933
)






19,037CastlePoint InsuranceCompany


A−



495



1,866



11,861







8,088







6,134Platinum UnderwritersReinsurance Co.


A



3



5,612



2,521







1,825







6,311HannoverRuckversicherungs A.G


A



3



4,553



2,555







1,417







5,694Hannover Reinsurance(Ireland) Limited


A



820



16,744







3,852



16,328



4,964



5,088New Jersey UnsatisfiedClaim & Judgment Fund


NR



1,869



1,571











(18
)






3,458Endurance ReinsuranceCorp of America


A



15



2,622



764







456







2,945AXIS Reinsurance Company


A



15



1,460



1,682







704







2,454General Reinsurance Corp


A++



0



1,829



809







265







2,373Hartford Steam BoilerInsp & Ins Co.


A++



114



486



1,271







1,406







464NGM Insurance Co.


A



1



572



248







100







722Trinity UniversalInsurance Company


A







436











(222
)






658QBE ReinsuranceCorporation


A







237



292







80







438Lloyds Syndicates


A











745







407







431ACE Prop & Cas Ins Co.


A+



















(244
)






244SCOR Reinsurance Company


A−



31



204











36







199Aspen Insurance UK Limited


A











102







(50
)






153Converium AG, Zurich


A−











107







61







152Company (Bermuda)


A−











112







77







147Tokio Millennium Re Ltd.


A+



2,330



26,111



(46
)






22,619



5,907



CastlePoint Reinsurance Company, Ltd.


A−



9,285



87,068



100,535







45,992



186,992



Others






183



93



1,132







1,601



796



1,258Total





$
18,303


$
189,524


$
124,834


$
3,852


$
101,512


$
198,659


$
80,079     (1)
    
    Formerly American Re-Insurance
    Company.  CastlePoint
    Reinsurance
    
    Brokerage business quota share reinsurance agreement covering
    brokerage business historically written by Tower. Under this
    agreement we cede between 25% 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. During the second quarter of 2007, CPIC also
    participated as a reinsurer under this treaty and was ceded 9%
    of the brokerage business; 17




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##### Table of Contents




    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 deemed to be approximately 30%
    of business ceded; and
    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 maximum of 36%.      Quota Share

Quota Share


Range of


Provisional CedingReinsurance Agreement

Cession (%)


Cession(%)


CommissionBrokerage business


40 - 49
(1)


25 to 50


34% until April 1, 2007, subject to a 
    minimum of 31% and a maximum of 36% 
    thereafterTraditional program business


50



50 to 75


Shared, based upon quota share participation
    and is estimated to be approximately 30%Specialty program business and
    insurance risk-sharing business


85



75 to 85


30%, subject to a minimum of 30% and a
    maximum of 36%     (1)
    
    We ceded 49% of our brokerage
    business during the first half of 2007 and 40% in the second
    half of 2007. CPIC reinsured 9% of the brokerage business in the
    second quarter of 2007 with CastlePoint Reinsurance reinsuring
    49% in the first quarter of 2007 and 40% of the brokerage
    business for the rest of the year.         18




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##### Table of Contents



2008
    Reinsurance Program
      2006
    and 2007 Reinsurance Programs
  Umbrella Quota Share Reinsurance.
  Excess of Loss Reinsurance
  W.H. Greene Umbrella Quota Share and Excess
    Reinsurance.
 19




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Terrorism
    Reinsurance
        Investments
       20




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##### Table of Contents



As of and for the year ended December 31,2007


2006Market


Percent of





Market


Percent of($ in thousands)

Value


Total


Yield


Value


Total


YieldCategoryU.S. Treasury securities

$
26,663



4.3
%


4.27
%

$
14,459



3.1
%


4.49
%U.S. Agency securities


19,871



3.2
%


5.11
%


30,674



6.6
%


4.96
%Municipal bonds


156,361



25.3
%


3.68
%


100,575



21.7
%


3.68
%Corporate and other bonds


198,739



32.1
%


5.72
%


122,685



26.4
%


5.35
%Commercial mortgage-backed securities


44,560



7.2
%


5.88
%


19,283



4.2
%


5.68
%Residential mortgage-backed securities


139,867



22.6
%


6.19
%


109,974



23.7
%


6.25
%Asset-backed securities


20,427



3.3
%


5.80
%


16,917



3.6
%


5.46
%Preferred stocks


3,702



0.6
%


6.85
%


5,672



1.2
%


6.34
%Common stocks


8,878



1.4
%






43,781



9.4
%     *
    
    Residential mortgage-backed
    securities include agency and non-agency backed securities with
    fair values of $99.9 million and $40.0 million
    respectively, as of December 31, 2007.       21




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##### Table of Contents



December 31,2007


2006Percentage





Percentageof Fair





of FairFair Market


Market


Fair Market


Market($ in thousands)

Value


Value


Value


ValueRemaining Time to MaturityLess than one year

$
12,690



2.1
%

$
12,525



1.8
%One to five years


117,812



19.4
%


119,778



32.8
%Five to ten years


187,891



31.0
%


122,853



30.3
%More than 10 years


83,242



13.7
%


13,237



4.0
%Mortgage-backed securities


204,853



33.8
%


146,174



31.2
%Total

$
606,488



100.0
%

$
414,567



100.0
%     December 31,2007


2006Percentage





Percentageof Fair





of FairFair Market


Market


Fair Market


Market($ in thousands)

Value


Value


Value


ValueRatingU.S. Treasury securities

$
26,663



4.4
%

$
14,459



3.5
%AAA


286,528



47.2
%


214,934



51.8
%AA


72,276



11.9
%


46,843



11.3
%A


80,426



13.3
%


68,135



16.4
%BBB


77,768



12.8
%


44,675



10.8
%Below BBB


62,827



10.4
%


25,521



6.2
%Total

$
606,488



100.0
%

$
414,567



100.0
%   Accounting
    for Certain Investments in Debt and Equity Securities
    FAS 115-1 FAS 124-1, Other-Than-Temporary Impairment and Its Application to
    Certain Investments.
 22




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##### Table of Contents



December 31,2007


2006Cost or





Unrealized


Cost or





UnrealizedAmortized


Aggregate


Gains/


Amortized


Aggregate


Gains/($ in thousands)

Cost


Fair Value


(Losses)


Cost


Fair Value


(Losses)CategoryU.S. Treasury securities

$
25,837


$
26,663


$
826


$
14,594


$
14,459


$
(135
)U.S. Agency securities


19,709



19,871



162



30,699



30,674



(25
)Municipal bonds


155,296



156,361



1,065



100,943



100,575



(368
)Corporate and other bonds


201,501



198,739



(2,762
)


122,868



122,685



(183
)Commercial mortgage-backed securities


49,475



44,560



(4,915
)


19,186



19,283



97Residential mortgage-backed securities


144,028



139,867



(4,161
)


111,187



109,974



(1,213
)Asset-backed securities


20,911



20,427



(484
)


17,165



16,917



(248
)Preferred stocks


5,551



3,702



(1,849
)


5,627



5,672



45Common stocks


8,878



8,878







42,344



43,781



1,437$
631,186


$
619,068


$
(12,118
)

$
464,613


$
464,020


$
(593
)  23




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##### Table of Contents



Less than 12 Months


12 Months or Longer


TotalUnrealized





Unrealized


Aggregate


Unrealized($ in thousands)

Fair Value


Losses


Fair Value


Losses


Fair Value


LossesDecember 31, 2007Municipal bonds

$
11,614


$
(78
)

$
7,272


$
(24
)

$
18,886


$
(102
)Corporate and other bonds


77,262



(3,164
)


24,631



(817
)


101,893



(3,981
)Commercial mortgage-backed securities


24,146



(5,015
)


8,325



(162
)


32,471



(5,177
)Residential mortgage-backed securities


17,263



(2,511
)


46,196



(2,733
)


63,459



(5,244
)Asset-backed securities


2,898



(573
)










2,898



(573
)Preferred stocks


3,702



(1,849
)










3,702



(1,849
)$
136,885


$
(13,190
)

$
86,424


$
(3,736
)

$
223,309


$
(16,926
)December 31, 2006U.S. Government bonds

$
10,620


$
(31
)

$
17,952


$
(269
)

$
28,572


$
(300
)Municipal bonds


20,213



(94
)


45,390



(613
)


65,603



(707
)Corporate and other bonds


25,550



(237
)


42,748



(1,052
)


68,298



(1,289
)Commercial mortgage-backed securities


4,673



(34
)


5,440



(100
)


10,113



(134
)Residential mortgage-backed securities


23,996



(179
)


56,395



(1,514
)


80,391



(1,693
)Asset-backed securities


995



(3
)


12,213



(234
)


13,208



(237
)Common stocks


25,960



(275
)


2,816



(463
)


28,776



(738
)$
112,007


$
(853
)

$
182,954


$
(4,245
)

$
294,961


$
(5,098
)     Year ended December 31,($ in thousands)

2007


2006


2005


2004


2003Average invested assets(1)

$
541,544


$
410,597


$
292,091


$
141,869


$
48,174Net investment income(2)(3)


36,699



23,026



14,983



5,070



2,268Net realized gains/(losses)(3)


(17,511
)


12



122



13



493Unrealized appreciation/ (depreciation)(3)(4)


(12,118
)


(593
)


(4,442
)


961



1,280Annualized return on average invested assets


1.3%



5.5%



3.7%



4.3%



8.4
%     (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
 24




---



##### Table of Contents



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

2007


2006


2005Balance at January 1

$
302,541


$
198,724


$
128,722Less reinsurance recoverables


(110,042
)


(96,978
)


(91,773
)192,499



101,746



36,949Preserver net reserves at date of acquisition


85,055







Incurred related to:Current year


159,512



135,863



97,006Prior years


(1,606
)


(2,340
)


(392
)PXRE commutation






1,602



Total incurred


157,906



135,125



96,614Paid related to:Current year


55,308



30,605



20,891Prior years


68,496



13,767



10,926Total paid


123,804



44,372



31,817Net balance at end of year


311,656



192,499



101,746Add reinsurance recoverables


189,527



110,042



96,978Balance at December 31

$
501,183


$
302,541


$
198,724     Loss
    Reserve Development
       25




---



##### Table of Contents



Year ended December 31,1997


1998


1999


2000


2001(1)


2002(1)


2003(1)


2004(1)


2005(1)


2006


2007Original Net Liability

$
5,005


$
6,184


$
6,810


$
7,901


$
8,620


$
15,476


$
24,361


$
36,949


$
101,746


$
192,499


$
311,656Cumulative payments as of:One year later


1,428



2,377



2,560



3,376



2,879



4,103



7,467



10,926



13,748



49,482Two years later


2,827



3,890



4,767



5,439



4,906



6,707



11,856



4,455



36,723Three years later


4,045



5,439



6,153



6,953



6,376



9,090



2,872



16,811Four years later


5,191



6,340



6,896



7,896



7,219



4,480



11,686Five years later


5,895



6,714



7,249



8,285



6,691



8,875Six years later


6,220



6,935



7,465



8,736



7,842Seven years later


6,413



6,978



7,715



8,983Eight years later


6,423



7,116



7,876Nine years later


6,523



7,234Ten years later


6,587Net liability re-estimated as of:One year later


5,954



6,842



7,493



9,702



11,521



15,551



24,163



36,557



101,008



191,086Two years later


6,262



7,123



8,652



11,684



11,276



14,665



24,815



40,654



101,545Three years later


6,428



7,871



9,516



11,458



10,494



16,461



29,034



48,276Four years later


6,945



8,244



9,210



10,819



11,875



19,603



36,182Five years later


7,169



7,963



8,955



11,944



13,293



25,057Six years later


7,057



7,875



9,951



12,666



15,701Seven years later


7,037



8,659



10,584



12,670Eight years later


7,663



9,158



10,601Nine years later


8,085



9,145Ten years later


8,006Cumulative net redundancy/ (deficiency)(2)(3)


(3,001
)


(2,961
)


(3,791
)


(4,769
)


(7,081
)


(9,581
)


(11,821
)


(11,327
)


201



1,413PXRE Commutation


0



0



0



0



2,407



2,051



4,363



4,336



4,336



6,436Cumulative net redundancy/


(3,001
)


(2,961
)


(3,791
)


(4,769
)


(4,674
)


(7,530
)


(7,458
)


(6,991
)


4,537



7,849(deficiency) excluding PXRENet reserves


5,005



6,184



6,810



7,901



8,620



15,476



24,361



36,949



101,746



192,499



311,656Ceded reserves


14,800



15,696



17,410



20,601



29,017



50,211



75,114



91,773



96,978



110,042



189,587Gross reserves


19,805



21,880



24,220



28,502



37,637



65,687



99,475



128,722



198,724



302,541



501,243Net re-estimated


8,006



9,145



10,601



12,670



15,701



25,057



36,182



48,276



101,545



191,086Ceded re-estimated


20,121



25,668



32,275



37,588



44,852



58,793



80,138



95,320



94,150



108,257Gross re-estimated


28,127



34,813



42,876



50,258



60,553



83,850



116,320



143,596



195,695



299,343Cumulative gross redundancy/(deficiency)

$
(8,322
)

$
(12,933
)

$
(18,656
)

$
(21,756
)

$
(22,916
)

$
(18,163
)

$
(16,845
)

$
(14,874
)

$
3,029


$
3,198     (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 2006 and 2007 resulted primarily from the
    following: 
    Reserve reductions in 2007 from workers compensation,
    commercial auto liability and property lines of business in
    accident years 2004, 2005 and 2006.
    Reserve reductions in 2006 from workers compensation and
    property lines of business in accident years 2005 and 2006. 26




---



##### Table of Contents



(3)
    
    The net deficiencies reflected in
    the above table for years 2004 and prior resulted primarily from
    the following:  
    PXRE commutation impact of $2.4 million, $2.1 million,
    $4.4 million, and $4.4 million for 2001, 2002, 2003,
    and 2004, respectively.
    Adverse development in liability lines for accident year 2002
    during year 2006.  Analysis
    of Reserves
    OutstandingCase Loss($ in thousands)

Reserves


IBNRCommercial Multiple Peril

$
85,440


$
73,218Other Liability


27,615



28,584Workers Compensation


16,815



12,495Commercial Automobile


17,852



12,135Homeowners


18,877



6,228Fire and Allied Lines


3,558



831Personal Automobile


5,871



2,137All Lines

$
176,028


$
135,628            27




---



##### Table of Contents



Range of Reserve Estimates($ in thousands)

High


Low


CarriedCommercial Multiple Peril

$
167,772


$
152,592


$
158,657Other Liability


60,569



50,494



56,199Workers Compensation


31,755



28,231



29,310Commercial Auto


34,095



26,526



29,988Homeowners


25,296



23,566



25,105Fire and Allied Lines


4,410



4,326



4,389Personal Auto


9,359



6,870



8,008All Lines

$
333,256


$
292,605


$
311,656             Claims
       28




---



##### Table of Contents



and/or
  Technology
    WebPlus ®
  PreserverOnline ®
  WebPlus PreserverOnline WebPlus
    WebPlus
      24-hour
  WebPlus
  Competition
  non-U.S. insurers
 29




---



##### Table of Contents



WebPlus
    Ratings
   30




---



##### Table of Contents



Employees
    Regulation
  U.S.
    Insurance Holding Company Regulation of Tower
    Changes
    of Control
      Legislative
    Changes
   31




---



##### Table of Contents



State
    Insurance Regulation
        Insurance
    Regulatory Information System Ratios
   32




---



##### Table of Contents



State
    Dividend Limitations
    Risk-Based
    Capital Regulations
    Statutory
    Accounting Principles
       33




---



##### Table of Contents



Guaranty
    Associations
      Residual
    Market Plans
    TRM
    Industry
    Investigations
  1 2
   34




---



##### Table of Contents



Available
    Information
  www.twrgrp.com Form 10-K, Form 10-Q Form 8-K
  Note on
    Forward-Looking Statements
  Form 10-K
    
    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;
    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; 35




---



##### Table of Contents




    changes in accounting policies or practices; and
    changes in general economic conditions, including inflation,
    interest rates and other factors.  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.
     36




---



##### Table of Contents



We conduct business in a concentrated geographical area. Any
    single catastrophe or other condition affecting losses in this
    area could adversely affect our results of operations.
      We are heavily dependent on CastlePoint for underwriting
    capacity and commission and fee income.
   37




---



##### Table of Contents



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.
          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.
   38




---



##### Table of Contents



We may not be able to recover amounts due from our third
    party reinsurers, which would adversely affect our financial
    condition.
    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.
  th
   39




---



##### Table of Contents



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.
      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.
   40




---



##### 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.
   41




---



##### 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.
    Our business relationship with CastlePoint and its affiliates
    may present, and make us vulnerable to, difficult conflicts of
    interest, related party transactions, business opportunity
    issues and legal challenges.
   42




---



##### Table of Contents



and/or
  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.
   43




---



##### 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;
    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.   44




---



##### Table of Contents



and/or
          If the assessments we are required to pay are increased
    drastically, our results of operations and financial condition
    will suffer.
   45




---



##### 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.
     46




---



##### Table of Contents



We may experience difficulties in completing the integration
    of Preservers business and operations into our own, which
    could cause us to fail to realize many of the anticipated
    potential benefits of the acquisition.
    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.
        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 our securities
    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 47




---



##### Table of Contents




    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.     Item 1B. Unresolved
    Staff Comments   Item 2.  Properties  th st th
   Item 3.  Legal
    Proceedings  and/or
   48




---



##### Table of Contents



Item 4.  Submission
    Of Matters To A Vote Of Security Holders   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


Declared2007First 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



0.0502006First quarter


24.46



16.80



0.025Second quarter


32.00



22.50



0.025Third quarter


34.47



25.87



0.025Fourth quarter


36.49



29.18



0.025   Dividend
    Policy
     49




---



##### Table of Contents



($ in thousands)

2007


2006Common stock dividends declared

$
3,444


$
1,976Preferred stock dividends declared


298



212Total dividends declared

$
3,742


$
2,188         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, 2007





$







$
November 1 - 30, 2007


13,166



31.69







December 1 - 31, 2007














Total


13,166


$
31.69






$
  50




---



##### Table of Contents



Item 6.
    Selected
    Consolidated Financial Information  Form 10-K.
  For the year ended December 31,2007


2006


2005


2004


2003($ in thousands, except share and per share amounts)Income Statement DataGross premiums written

$
524,015


$
432,663


$
300,107


$
177,766


$
134,482Ceded premiums written


264,832



187,593



88,325



79,691



105,532Net premiums written


259,183



245,070



211,782



98,075



28,950Net premiums earned


286,106



223,988



164,436



45,564



22,941Ceding commission revenue


71,010



43,130



25,218



39,983



35,605Insurance services revenue


33,300



7,973



14,103



16,381



12,830Policy billing fees


2,038



1,134



892



679



545Net investment income


36,699



23,026



14,983



5,070



2,268Net realized gains (loss) on investments


(17,511
)


12



122



13



493Total revenues


411,642



299,263



219,754



107,690



74,682Losses and loss adjustment expenses


157,906



135,125



96,614



27,060



15,071Operating expenses:Direct and ceding commission expenses


101,030



60,558



43,839



32,825



26,158Other operating
    expenses(1)


77,319



53,675



42,632



29,954



22,337Interest expense


9,290



6,870



4,853



3,128



1,462Total expenses


345,545



256,228



187,938



92,967



65,028Other Income Equity in unconsolidated affiliate


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


71,240



56,437



31,816



14,723



9,654Income tax expense


26,158



19,673



11,062



5,694



3,374Net income

$
45,082


$
36,764


$
20,754


$
9,029


$
6,280Net income available to common stockholders

$
44,384


$
36,552


$
20,754


$
9,029


$
6,122Per Share DataBasic earnings (loss) per share

$
1.95


$
1.85


$
1.06


$
1.23


$
1.37Diluted earnings (loss) per share

$
1.93


$
1.82


$
1.03


$
1.06


$
1.09Weighted average outstanding:Basic


22,714,663



19,750,309



19,571,081



7,335,286



4,453,717Diluted


22,968,097



20,147,318



20,147,073



8,565,815



5,708,016Selected Insurance RatiosGross loss
    ratio(2)


50.7
%


55.0
%


56.8
%


55.2
%


60.8
%Gross underwriting expense
    ratio(3)


29.2
%


28.7
%


30.8
%


31.1
%


30.0
%Gross combined
    ratio(4)


80.0
%


83.7
%


87.6
%


86.3
%


90.8
%Net loss
    ratio(5)


55.2
%


60.3
%


58.8
%


59.4
%


65.7
%Net underwriting expense
    ratio(6)


28.5
%


27.3
%


29.3
%


16.2
%


4.4
%Net combined
    ratio(7)


83.7
%


87.6
%


88.1
%


75.6
%


70.1
%   51




---



##### Table of Contents



As of December 31,2007


2006


2005


2004


2003($ in thousands, except share and per share amounts)Summary Balance Sheet DataCash and cash equivalents

$
77,679


$
100,598


$
38,760


$
55,201


$
30,339Investments at fair market value


619,068



464,020



357,173



228,434



57,349Reinsurance recoverable


207,828



118,003



104,811



101,173



84,760Deferred acquisition costs, net


39,271



35,811



29,192



18,740



573Total assets


1,354,611



954,082



657,457



494,147



286,592Reserve for losses and loss adjustment expenses


501,183



302,541



198,724



128,722



99,475Unearned premium


272,774



227,017



157,779



95,505



70,248Long-term debt and redeemable preferred stock


101,036



68,045



47,426



47,426



29,208Total stockholders equity


309,387



223,920



144,822



129,447



13,061Per Share Data:Book value per
    share(8)

$
13.34


$
9.23


$
7.29


$
6.56


$
2.96Diluted book value per
    share(9)

$
13.22


$
9.07


$
7.16


$
6.45


$
2.38Dividends declared per shareCommon Stock

$
0.15


$
0.10


$
0.10


$
0.03


$
Class A Stock

$



$



$



$
0.11


$
0.15Class B Stock

$



$



$



$
0.11


$
0.58     (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. Because the ceding commission revenue we earn
    on our ceded premiums has historically 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.
 52




---



##### Table of Contents



Form 10-K,
  Overview
      Transactions With
    CastlePoint
  start-up
    FIN 46-(R).
 53




---



##### Table of Contents



FIN 46-(R).
    Acquisition of
    Preserver
    Marketplace
    Conditions and Trends
           54




---



##### 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.
  Direct commission revenues and fees.
 55




---



##### Table of Contents



Losses and loss adjustment expenses.
  Operating expenses.
  
    Direct and ceding commission expenses.  We pay
    direct commission expense to our producers in our insurance
    segment for the premiums that they generate for us. Our managing
    general agency also pays direct commission expense to our
    producers in our insurance services segment. In addition, TICNY
    also pays ceding commission expense to TRMs issuing
    companies for the reinsurance premiums that we assume in our
    reinsurance segment. Ceding commission is typically paid on
    quota share reinsurance agreements, but not on excess of loss
    reinsurance agreements.
    Other operating expenses.  Other operating
    expenses consist of other underwriting expenses related to our
    Insurance Subsidiaries underwriting operations in our
    insurance and reinsurance segments and other insurance services
    expenses related to our managing general agency and reinsurance
    intermediary operations conducted through TRM in our insurance
    services segment. Other underwriting expenses consist of general
    administrative expenses such as salaries, rent, office supplies,
    depreciation and all other operating expenses not otherwise
    classified separately and boards, bureaus and taxes, which are
    the assessments of statistical agencies for items such as rating
    manuals, rating plans and experience data, as well as state and
    local taxes based on premiums, licenses and fees, assessments
    for fire patrol and contributions to workers compensation
    and state and local security funds. Other insurance services
    expenses include general administrative expenses, principally
    reimbursements to TICNY for underwriting services, and exclude
    expenses that are incurred by TRMs issuing companies such
    as boards, bureau and taxes. General administrative expenses
    related to claims administration services, which are billed on
    an hourly basis to TRMs issuing companies are also
    excluded.
    Interest expense.  We pay interest on our
    loans, on subordinated debentures and on segregated assets
    placed in trust accounts on a funds withheld basis
    in order to collateralize reinsurance recoverables. In addition,
    interest expense includes amortization of any debt issuance
    costs over the remaining term of our subordinated debentures.
    Income taxes.  We pay Federal, state and local
    income taxes and other taxes.  Measurement of
    Results
   56




---



##### Table of Contents



Premiums written.
  Loss ratio.
  Underwriting expense ratio.
  Combined ratio.
  Premiums produced by TRM.
  Net income and return on average equity.
  Critical
    Accounting Policies
   57




---



##### Table of Contents



Loss and LAE reserves. case-by-case
      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  58




---



##### 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.
    Insurance Services Revenue.
 59




---



##### Table of Contents



Reinsurance recoverables.
  Deferred acquisition costs/commission
    revenues.
  Investments.
  Impairment of invested assets. FAS 115-1 FAS 124-1, Other-Than-Temporary Impairment and Its Application to
    Certain Investments, EITF 99-20 Recognition of Interest Income and Impairment on
    Purchased and Retained Beneficial Interests in Securitized
    Financial Assets
    (EITF 99-20).
 60




---



##### Table of Contents



Intangible assets and potential
    impairment.
  Results of
    Operations
     61




---



##### Table of Contents



Consolidated
    Results of Operations
  For the year ended December 31,% Total




% Total





% Total($ in thousands)

2007


Revenue

2006


Revenue


2005


RevenueRevenuesPremiums earnedGross premiums earned

$
521,934




$
363,425






$
237,833Less: Ceded premiums earned


(235,828
)




(139,437
)






(73,397
)Net premiums earned


286,106


70%


223,988



75
%


164,436


75%Total commission and fee income


106,348


26%


52,237



17
%


40,213


18%Net investment income


36,699


9%


23,026



8
%


14,983


7%Net realized investment (losses) gains


(17,511
)

(4%)


12



0
%


122


0%Total


411,642


100%


299,263



100
%


219,754


100%ExpensesNet loss and loss adjustment expenses


157,906





135,125







96,614Operating expenses


178,349





114,233







86,471Interest expense


9,290





6,870







4,853Total Expenses


345,545





256,228







187,938Equity in income of unconsolidated affiliate


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 taxes


71,240





56,437







31,816Federal and state income taxes


26,158





19,673







11,062Net Income

$
45,082




$
36,764






$
20,754Key MeasureReturn on average equity


18.0
%

(1)


22.2
%






15.1
%    (1)
    
    Excluding net realized losses on
    investments, return on average equity would have increased 4.6%.    For the year ended December 31,($ in thousands)

2007


2006


2005Insurance segment underwriting profit

$
45,869


$
29,255


$
19,262Reinsurance segment underwriting profit (loss)


740



(1,504
)


422Total underwriting profit


46,609



27,751



19,684Insurance services segment pretax income


11,183



1,299



2,840Net investment income


36,699



23,026



14,983Net realized gains (losses) on investments


(17,511
)


12



122Corporate expenses


(1,592
)


(2,183
)


(960
)Interest expense


(9,290
)


(6,870
)


(4,853
)Other Income


5,143



13,402



Income before taxes

$
71,241


$
56,437


$
31,816   Consolidated
    Results of Operations 2007 Compared to 2006
  Total revenues.
 62




---



##### Table of Contents



Premiums earned.
  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).
 63




---



##### Table of Contents



Loss and loss adjustment expenses.
    Operating expenses.
  Interest expense.
  Other income.
  Income tax expense.
 64




---



##### Table of Contents



Net income and return on average equity.
  Consolidated
    Results of Operations 2006 Compared to 2005
    Total revenues.
  Premiums earned.
 65




---



##### Table of Contents



Commission and fee income.
  Net investment income and realized gains.
    Loss and loss adjustment expenses.
    Operating expenses.
 66




---



##### Table of Contents



Interest expense.
  Other Income.
  Income tax expense.
  Net income and return on average common
    equity. start-up
 67




---



##### Table of Contents



Insurance
    Segment Results of Operations
  For the year ended December 31,($ in thousands)

2007


2006


2005RevenuesPremiums earnedGross premiums earned

$
516,077


$
344,015


$
236,174Less: ceded premiums earned


(235,783
)


(139,336
)


(73,263
)Net premiums earned


280,294



204,679



162,911Ceding commission revenue


71,011



43,130



25,218Policy billing fees


2,005



1,129



868Total


353,310



248,938



188,997ExpensesLoss and loss adjustment expensesGross loss and loss adjustment expenses


262,195



182,911



134,788Less: ceded loss and loss adjustment expenses


(106,769
)


(64,929
)


(39,088
)Net loss and loss adjustment expenses


155,426



117,982



95,700Underwriting expensesDirect commission expense


85,096



56,021



38,772Other underwriting expenses


66,919



45,680



35,263Total underwriting expenses


152,015



101,701



74,035Underwriting profit

$
45,869


$
29,255


$
19,262Key MeasuresPremiums writtenGross premiums written

$
523,287


$
408,334


$
298,643Less: ceded premiums written


(264,827
)


(187,509
)


(88,200
)Net premiums written

$
258,460


$
220,825


$
210,443Loss RatiosGross


50.8
%


53.2
%


57.1
%Net


55.5
%


57.6
%


58.7
%Accident Year Loss RatiosGross


51.4
%


54.1
%


57.3
%Net


55.6
%


58.2
%


59.0
%Underwriting Expense RatiosGross


29.1
%


29.2
%


31.0
%Net


28.2
%


28.1
%


29.4
%Combined RatiosGross


79.9
%


82.4
%


88.1
%Net


83.6
%


85.7
%


88.1
%   Insurance
    Segment Results of Operations 2007 Compared to
    2006
  Gross premiums.
 68




---



##### Table of Contents



Ceded premiums.
    Net premiums.
  Ceding commission revenue.
  Loss and loss adjustment expenses and loss
    ratio.
 69




---



##### Table of Contents



Underwriting expenses.
        Underwriting profit and combined ratio.
    Insurance
    Segment Results of Operations 2006 Compared to
    2005
  Gross premiums.
 70




---



##### Table of Contents



Ceded premiums.
    Net premiums.
    Ceding commission revenue.
  Loss and loss adjustment expenses and loss ratio..
 71




---



##### Table of Contents



Underwriting expenses.
        Underwriting profit and combined ratio.
 72




---



##### Table of Contents



Reinsurance
    Segment Results of Operations
  For the year ended December 31,($ in thousands)

2007


2006


2005RevenuesPremiums earnedGross premiums earned

$
5,857


$
19,410


$
1,659Less: ceded premiums earned


(45
)


(101
)


(134
)Net premiums earned


5,812



19,309



1,525Ceding commission revenue


(1
)






(1
)Total


5,811



19,309



1,524ExpensesLoss and loss adjustment expensesGross loss and loss adjustment expenses


2,553



16,952



410Less: ceded loss and loss adjustment expenses


(73
)


191



504Net loss and loss adjustment expenses


2,480



17,143



914Underwriting expensesDirect commission expense


1,880



2,612



16Other underwriting expenses


711



1,058



173Total underwriting expenses


2,591



3,670



189Underwriting profit (loss)

$
740


$
(1,504
)

$
421Key MeasuresPremiums writtenGross premiums written

$
728


$
24,329


$
1,464Less: ceded premiums written


(5
)


(84
)


(125
)Net premiums written

$
723


$
24,245


$
1,339Loss RatiosGross


43.6
%


87.3
%


24.7
%Net


42.7
%


88.8
%


59.9
%Accident Year Loss RatiosGross


63.5
%


86.8
%


55.2
%Net


64.0
%


87.3
%


60.0
%Underwriting Expense RatiosGross


44.2
%


18.9
%


11.4
%Net


44.6
%


19.0
%


12.5
%Combined RatiosGross


87.8
%


106.2
%


36.1
%Net


87.3
%


107.8
%


72.4
%   Reinsurance
    Segment Results of Operations 2007 Compared to
    2006
  Gross premiums.
  Loss and loss adjustment expenses and loss
    ratio.
 73




---



##### Table of Contents



Underwriting expenses and underwriting expense
    ratio.
  Underwriting profit and combined ratio.
    Reinsurance
    Segment Results of Operations 2006 Compared to
    2005
  Gross premiums.
  Net premiums.
  Loss and LAE expenses and loss ratio.
  Underwriting expenses and underwriting expense
    ratio.
 74




---



##### Table of Contents



Underwriting (loss) profit and combined
    ratio.
    Insurance
    Services Segment Results of Operations
  For the year ended December 31,($ in thousands)

2007


2006


2005RevenueDirect commission revenue from managing general agency

$
28,795


$
3,466


$
9,148Claims administration revenue


2,314



3,193



4,268Other administration revenue
    (1)


1,421



737



Reinsurance intermediary fees
    (2)


770



577



688Policy billing fees


33



5



23Total


33,333



7,978



14,127ExpensesDirect commissions expense paid to producers


14,055



1,925



5,051Other insurance services expenses


5,793



1,578



1,981Claims expense reimbursement to
    TICNY(3)


2,302



3,176



4,255Total


22,150



6,679



11,287Insurance services pre-tax income (loss)

$
11,183


$
1,299


$
2,840Premiums produced by TRM on behalf of issuing companies

$
85,098


$
12,926


$
35,177   (1)
    
    Other administration revenue
    includes amounts reimbursed by CastlePoint Reinsurance for
    services rendered pursuant to a service and expense sharing
    agreement.(2)
    
    Reinsurance intermediary fees
    include commissions earned for placement of reinsurance on
    behalf of TICNY and TNIC.(3)
    
    Consists of underwriting expenses
    reimbursed to TICNY pursuant to an expense sharing agreement and
    to CastlePoint Reinsurance pursuant to a service and expense
    sharing agreement.  Insurance
    Services Segment Results of Operations 2007 Compared to
    2006
  Total revenues.
 75




---



##### Table of Contents



Direct commission expense.
  Other insurance services expenses.
  Claims expense reimbursement.
  Pre-tax income.
  Insurance
    Services Segment Results of Operations 2006 Compared to
    2005
  Total revenues.
    Direct commission expense.
  Other insurance services expenses.
 76




---



##### Table of Contents



Claims expense reimbursement.
  Pre-tax income.
  Investments
      FAS 115-1 FAS 124-1,
  EITF 99-20.
  December 31,2007


2006Cost or





Unrealized


Cost or





UnrealizedAmortized


Aggregate


Gains/


Amortized


Aggregate


Gains/($ in thousands)

Cost


Fair Value


(Losses)


Cost


Fair Value


(Losses)CategoryU.S. Treasury securities

$
25,837


$
26,663


$
826


$
14,594


$
14,459


$
(135
)U.S. Agency securities


19,709



19,871



162



30,699



30,674



(25
)Municipal bonds


155,296



156,361



1,065



100,943



100,575



(368
)Corporate and other bonds


201,501



198,739



(2,762
)


122,868



122,685



(183
)Commercial mortgage-backed securities


49,475



44,560



(4,915
)


19,186



19,283



97Residential mortgage-backed securities


144,028



139,867



(4,161
)


111,187



109,974



(1,213
)Asset-backed securities


20,911



20,427



(484
)


17,165



16,917



(248
)Preferred stocks


5,551



3,702



(1,849
)


5,627



5,672



45Common stocks


8,878



8,878







42,344



43,781



1,437$
631,186


$
619,068


$
(12,118
)

$
464,613


$
464,020


$
(593
)  77




---



##### Table of Contents



*
    
    Residential mortgage-backed
    securities include agency and non-agency backed securities with
    fair values of $99.9 million and $40.0 million,
    respectively as of December 31, 2007.    Less than 12 Months


12 Months or Longer


TotalUnrealized





Unrealized


Aggregate


Unrealized($ in thousands)

Fair Value


Losses


Fair Value


Losses


Fair Value


LossesDecember 31, 2007Municipal bonds

$
11,614


$
(78
)

$
7,272


$
(24
)

$
18,886


$
(102
)Corporate and other bonds


77,262



(3,164
)


24,631



(817
)


101,893



(3,981
)Commercial mortgage-backed securities


24,146



(5,015
)


8,325



(162
)


32,471



(5,177
)Residential mortgage-backed securities


17,263



(2,511
)


46,196



(2,733
)


63,459



(5,244
)Asset-backed securities


2,898



(573
)










2,898



(573
)Preferred stocks


3,702



(1,849
)










3,702



(1,849
)$
136,885


$
(13,190
)

$
86,424


$
(3,736
)

$
223,309


$
(16,926
)December 31, 2006U.S. Government bonds

$
10,620


$
(31
)

$
17,952


$
(269
)

$
28,572


$
(300
)Municipal bonds


20,213



(94
)


45,390



(613
)


65,603



(707
)Corporate and other bonds


25,550



(237
)


42,748



(1,052
)


68,298



(1,289
)Commercial mortgage-backed securities


4,673



(34
)


5,440



(100
)


10,113



(134
)Residential mortgage-backed securities


23,996



(179
)


56,395



(1,514
)


80,391



(1,693
)Asset-backed securities


995



(3
)


12,213



(234
)


13,208



(237
)Common stocks


25,960



(275
)


2,816



(463
)


28,776



(738
)$
112,007


$
(853
)

$
182,954


$
(4,245
)

$
294,961


$
(5,098
)   Liquidity and
    Capital Resources
  Sources
    and Uses of Funds
           78




---



##### Table of Contents



Cash
    Flows from Follow-on Offering
      Cash
    Flows from Issuance of Subordinated Debentures and Perpetual
    Preferred Stock
      Surplus
    Levels
     79




---



##### Table of Contents



Cash
    Flows
      Comparison
    of Years Ended December 31, 2007 and 2006
  Cash flows.
  99-20,
     80




---



##### Table of Contents



Comparison
    of Years Ended December 31, 2006 and 2005
       81




---



##### Table of Contents



Liquidity
    Commitments
    Payments due by periodLess than


1-3


4-5


After($ in thousands)

Total


1 year


years


years


5 yearsSubordinated debentures

$
101,036


$



$



$



$
101,036Interest on subordinated debentures


228,633



8,409



16,819



16,819



186,586Operating lease obligations


63,393



6,785



14,401



10,360



31,847Gross loss reserves


501,243



137,393



195,176



105,974



62,700Total contractual obligations

$
894,305


$
152,587


$
226,396


$
133,153


$
382,169      82




---



##### Table of Contents



Capital
    Resources
    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 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 million 83




---



##### Table of Contents



PrincipalAmount ofAmount of

JuniorInvestment in

SubordinatedCommon

DebentureMaturity

Early



Securities of

Issued toIssue Date

Amount

Issuer

Date

Redemption

Interest Rate

Trust

TrustMay 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       
    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
   84




---



##### Table of Contents



Item 7A.
    Quantitative And Qualitative Disclosures About Market
    Risk    Credit
    Risk
        Equity
    Risk
    Interest
    Rate Risk
   85




---



##### Table of Contents



Sensitivity
    Analysis
          Estimated Increase


Estimated Percentage(Decrease) in Fair Value


Increase (Decrease)Change in interest rate

($ in thousands)


in Fair Value300 basis point rise


(77,579
)


(12.8
%)200 basis point rise


(53,142
)


(8.8
%)100 basis point rise


(27,319
)


(4.5
%)As of December 31, 2007


0



0.0
%50 basis point decline


13,297



2.2
%100 basis point decline


26,819



4.4
%       Accounting
    for Nonrefundable Fees and Costs Associated with Originating or
    Acquiring Loans and Initial Direct Costs of Leases
 86




---



##### Table of Contents



87




---



##### 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 at December 31, 2007 and 2006


F-3Consolidated Statements of Income and Comprehensive Net Income
    for the years ended December 31, 2007, 2006 and 2005


F-4Consolidated Statements of Stockholders Equity for the
    years ended December 31, 2007, 2006 and 2005


F-5Consolidated Statements of Cash Flows for the years ended
    December 31, 2007, 2006 and 2005


F-6Notes to Consolidated Financial Statements


F-8  88




---



##### 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)

2007


2006AssetsFixed-maturity securities, available-for-sale, at fair value
    (amortized cost of $616,757 and $416,642)

$
606,488


$
414,567Equity securities, available-for-sale, at fair value (cost of
    $14,429 and $47,971)


12,580



49,453Total investments


619,068



464,020Cash and cash equivalents


77,679



100,598Investment income receivable


6,546



4,767Agents balances receivable


122,763



65,578Reinsurance recoverable


207,828



118,003Prepaid reinsurance premiums


124,834



94,063Deferred acquisition costs, net of deferred ceding commission
    revenue


39,271



35,811Federal and state taxes recoverable


125



Deferred income taxes


22,802



Intangible assets


21,670



5,423Goodwill


13,281



Fixed assets, net of accumulated depreciation


32,337



20,563Investment in unconsolidated affiliate


32,615



27,944Other assets


33,792



17,312Total assets

$
1,354,611


$
954,082LiabilitiesLoss and loss adjustment expenses

$
501,183


$
302,541Unearned premium


272,774



227,017Reinsurance balances payable


58,740



38,560Payable to issuing carriers


42,855



662Funds held under reinsurance agreements


36,841



51,527Accounts payable and accrued expenses


14,205



18,267Other liabilities


17,590



21,125Federal and state income taxes payable






1,163Deferred income taxes






1,255Subordinated debentures


101,036



68,045Total liabilities


1,045,224



730,162Stockholders EquitySeries A perpetual preferred stock ($0.01 par value;
    2,000,000 shares authorized; 0 and 40,000 shares
    issued and outstanding, liquidation preference of $1,000 per
    share, net of $0.4 million of issuance costs)






39,600Common stock ($0.01 par value; 40,000,000 shares
    authorized, 23,225,039 and 20,005,758 shares issued, and
    23,185,173 and 19,980,306 shares outstanding)


232



200Treasury stock (39,866 and 25,452 shares)


(493
)


(207
)Paid-in-capital


205,435



113,168Accumulated other comprehensive net loss


(8,322
)


(437
)Retained earnings


112,535



71,596Total stockholders equity


309,387



223,920Total liabilities and stockholders equity

$
1,354,611


$
954,082    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)

2007


2006


2005RevenuesNet premiums earned

$
286,106


$
223,988


$
164,436Ceding commission revenue


71,010



43,130



25,218Insurance services revenue


33,300



7,973



14,103Policy billing fees


2,038



1,134



892Net investment income


36,699



23,026



14,983Net realized gains (losses) on investments


(17,511
)


12



122Total revenues


411,642



299,263



219,754ExpensesLoss and loss adjustment expenses


157,906



135,125



96,614Direct and ceding commission expense


101,030



60,558



43,839Other operating expenses


77,319



53,675



42,632Interest expense


9,290



6,870



4,853Total expenses


345,545



256,228



187,938Other IncomeEquity income in unconsolidated affiliate


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


71,240



56,437



31,816Income tax expense


26,158



19,673



11,062Net income


45,082



36,764



20,754Gross unrealized investment holding gains (losses) arising
    during period


(29,424
)


4,443



(6,664
)Equity in net unrealized gains in investment in unconsolidated
    affiliates investment portfolio


(218
)


143



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


17,511



(12
)


(122
)Income tax (expense) benefit related to items of other
    comprehensive income


4,246



(1,659
)


2,382Comprehensive net income

$
37,197


$
39,679


$
16,350Basic and diluted earnings per shareBasic

$
1.95


$
1.85


$
1.06Diluted

$
1.93


$
1.82


$
1.03Weighted average common shares outstanding:Basic


22,714,663



19,750,309



19,571,081Diluted


22,968,097



20,147,318



20,147,073Dividends declared and paid per common share:Common stock

$
0.15


$
0.10


$
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, 2004










19,826


$
198


$
(494
)

$
110,467


$
1,052


$
18,224


$
129,447Dividends declared






























(1,959
)


(1,959
)Stock based compensation










47



1



(32
)


925











894Warrant exercise


















416



(326
)










90Net income






























20,754



20,754Net unrealized depreciation on securities available for sale,
    net of income tax


























(4,404
)






(4,404
)Balance 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


$
309,387    F-5




---



##### Table of Contents



Tower
    Group, Inc.Consolidated Statements Of Cash Flows
  Year Ended December 31,($ in thousands)

2007


2006


2005Cash flows provided by (used in) operating activities:Net income

$
45,082


$
36,764


$
20,754Adjustments 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


17,511



(12
)


(122
)Depreciation and amortization


8,725



5,212



3,316Amortization of bond premium or discount


591



564



948Amortization of restricted stock


1,919



860



618Deferred income taxes


(4,774
)


2,801



(2,409
)Excess tax benefits from share-based payment arrangements


(1,105
)


(891
)


(Increase) decrease in assets:Investment income receivable


(534
)


(1,430
)


(1,362
)Agents balances receivable


(27,237
)


(19,574
)


(12,531
)Reinsurance recoverable


(49,915
)


(13,192
)


(4,325
)Prepaid reinsurance premiums


(26,808
)


(50,744
)


(14,928
)Deferred acquisition costs, net


10,494



(6,619
)


(10,452
)Federal and state income taxes recoverable


(125
)


1,068



2,070Intangible assets










(1,302
)Equity in unconsolidated affiliate


(2,438
)


(914
)


Other assets


(7,602
)


734



(877
)Increase (decrease) in liabilities:Loss and loss adjustment expenses


81,383



103,817



70,002Unearned premium


3,033



69,238



62,274Reinsurance balances payable


15,378



19,360



16,465Accounts payable and accrued expenses


32,835



6,926



(11,975
)Funds held under reinsurance agreement


(18,094
)


(7,525
)


12,296Other-net


314



180



39Net cash flows provided by operations


75,928



134,135



128,499Cash flows provided by (used in) investing activities:Acquisition of Preserver Group Inc.


(66,008
)






Preserver transaction costs


(4,729
)






Purchase of fixed assets


(15,815
)


(22,818
)


(5,370
)Investment in unconsolidated affiliate






(14,528
)


Disposal of fixed assets


1,822



5,433



Purchase  fixed-maturity securities


(306,638
)


(154,917
)


(147,149
)Purchase  equity securities


(15,885
)


(17,804
)


(31,126
)Sale  fixed-maturity securities


199,628



71,672



38,325Sale  equity securities


24,759



1,003



1,972Net cash flows used in investing activities


182,866



(131,959
)


(143,348
)   (Continued)
   F-6




---



##### Table of Contents



Tower
    Group, Inc. 
    Consolidated Statements Of Cash Flows(Continued)
  Year Ended December 31,($ in thousands)

2007


2006


2005Cash 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






39,600



Redemption of preferred stock


(40,000
)






Proceeds from issuance of subordinated debentures


20,619



20,619



Purchase of common trust securities  statutory
    business trusts


(619
)


(619
)


Exercise of stock options & warrants


1,167



1,243



90Excess tax benefits from share-based payment arrangements


1,105



891



277Stock repurchase


(439
)


(97
)


Dividends paid


(3,743
)


(1,975
)


(1,959
)Net cash flows provided by (used in) financing activities


67,456



59,662



(1,592
)Increase (decrease) in cash and cash equivalents


(39,482
)


61,838



(16,441
)Cash and cash equivalents, beginning of period(1)


117,161



38,760



55,201Cash and cash equivalents, end of period

$
77,679


$
100,598


$
38,760   (1)
    
    2007 amount includes $16,563 of
    cash acquired with the acquisition of Preserver Group, Inc.  Supplemental disclosures of cash flow information:Cash paid for income taxes

$
27,555


$
15,344


$
11,479Cash paid for interest

$
8,145


$
6,432


$
3,445    F-7




---



##### 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-8




---



##### Table of Contents



Policy
    Billing Fees
    Liability
    for Loss and Loss Adjustment Expenses
    (LAE)
    Reinsurance
  Accounting and Reporting for Reinsurance of
    Short-Duration and Long-Duration Contracts
      Cash and
    Cash Equivalents
   F-9




---



##### Table of Contents



Investments
  Accounting for Certain Investments in Debt and Equity
    Securities
    FAS 115-1 FAS 124-1, EITF 99-20 Recognition of Interest Income and Impairment on
    Purchased and Retained Beneficial Interests in Securitized
    Financial Assets
    (EITF 99-20).
  Agents
    Balances
     F-10




---



##### Table of Contents



ReceivableClaims
    Paid by Agency
    Deferred
    Acquisition Costs and Deferred Ceding Commission
    Revenue
    Goodwill
    and Intangible Assets
  Goodwill and Other Intangible Assets
    Fixed
    Assets
    Statutory
    Business Trusts
  Consolidation of Variable Interest Entities
  Income
    Taxes
     F-11




---



##### Table of Contents



Treasury
    Stock
    Stock-based
    Compensation
  Share-Based
    Payment
    Segment
    Reporting
    Assessments
  and/or
  Earnings
    Per Share
  Earnings Per Share, and/or
  Use of
    Estimates
   F-12




---



##### Table of Contents



Reclassifications
    Concentration
    and Credit Risk
      New
    Accounting Developments
  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
 F-13




---



##### Table of Contents



No. 06-11, Accounting for Income Tax Benefits of Dividends on
    Share-Based Payment Awards No. 06-11). No. 06-11 No. 06-11 No. 06-11 No. 06-11
  Business Combinations
  Noncontrolling Interests in Consolidated Financial
    Statements-an amendment of ARB No. 51
  Note 3
    Acquisition of
    Preserver Group, Inc.    Business Combinations
   F-14




---



##### Table of Contents



Year Ended December 31,($ in thousands)

2007


2006Total revenue

$
435,853


$
386,179Net income


43,710



39,249Net income per common share-basic

$
1.90


$
1.71Net income per common share-diluted

$
1.87


$
1.68       ($ in thousands)AssetsInvestments

$
98,079Cash & cash equivalents


16,563Accounts receivable


28,885Reinsurance recoverable


39,910Deferred acquisition costs, net


13,954Fixed assets


5,462Goodwill


13,281Intangibles


17,290Deferred income taxes


17,823Other assets


6,953Total assets

$
258,200LiabilitiesLoss and loss adjustment expenses

$
118,925Unearned premiums


43,581Accounts payable and accrued expenses


16,990Subordinated debentures


12,696Total liabilities


192,192Total stockholders equity


66,008Total liabilities & stockholders equity

$
258,200Goodwill

$
13,281Indentifiable intangible assets


17,290Net assets acquired


35,437Total purchase consideration

$
66,008      F-15




---



##### Table of Contents



No. 95-3 Recognition of Liabilities in Connection with a
    Purchase Business Combination
  Note 4
    Investments    Cost or


Gross


GrossAmotized


Unrealized


Unrealized($ in thousands)

Cost


Gains


Losses


Fair ValueDecember 31, 2007U.S. Treasury securities

$
25,837


$
827


$



$
26,664U.S. Agency securities


19,709



162







19,871Municipal bonds


155,296



1,167



(102
)


156,361Corporate and other bonds


201,501



1,219



(3,981
)


198,739Commercial mortgage-backed securities


49,475



262



(5,177
)


44,560Residential mortgage-backed securities


144,028



1,083



(5,244
)


139,867Asset-backed securities


20,911



88



(573
)


20,426Total fixed-maturity securities


616,757



4,808



(15,077
)


606,488Preferred stocks


5,551







(1,849
)


3,702Common stocks


8,878











8,878$
631,186


$
4,808


$
(16,926
)

$
619,068December 31, 2006U.S. Treasury securities

$
14,594


$
25


$
(161
)

$
14,458U.S. Agency securities


30,699



114



(139
)


30,674Municipal bonds


100,943



339



(707
)


100,575Corporate and other bonds


122,868



1,106



(1,289
)


122,685Collateralized mortgage obligations


19,186



232



(134
)


19,284Residential mortgage-backed securities


111,187



432



(1,645
)


109,974Asset-backed securities


17,165



37



(285
)


16,917Total fixed-maturity securities


416,642



2,285



(4,360
)


414,567Preferred stocks


5,627



45







5,672Common stocks


42,344



2,175



(738
)


43,781$
464,613


$
4,505


$
(5,098
)

$
464,020  F-16




---



##### Table of Contents



*
    
    Residential mortgage-backed
    securities include agency and non-agency backed securities with
    fair values of $99.9 million and $40.0 million,
    respectively as of December 31, 2007.    Amortized($ in thousands)

Cost


Fair ValueRemaining Time to MaturityLess than one year

$
12,682


$
12,690One to five years


117,917



117,812Five to ten years


188,130



187,891More than 10 years


83,614



83,242Mortgage-backed securities


214,414



204,853Total

$
616,757


$
606,488         ($ in thousands)

2007


2006


2005Income:Fixed-maturity securities

$
28,279


$
18,568


$
12,406Equity securities


4,332



3,104



2,290Cash and cash equivalents


4,974



1,892



718Dividends on common trust securities


215



157



104Total


37,800



23,721



15,518Expenses:Investment expenses


1,101



695



535Net investment income

$
36,699


$
23,026


$
14,983     ($ in thousands)

2007


2006


2005Fixed-maturity securitiesGross realized gains

$
3,189


$
368


$
67Gross realized losses


(5,478
)


(452
)


(203
)(2,289
)


(84
)


(136
)Equity securities:Gross realized gains


1,324



96



258Gross realized losses


(16,546
)






(15,222
)


96



258Net realized gains

$
(17,511
)

$
12


$
122    F-17




---



##### Table of Contents



Less than 12 Months


12 Months or Longer


TotalUnrealized





Unrealized


Aggregate


Unrealized($ in thousands)

Fair Value


Losses


Fair Value


Losses


Fair Value


LossesDecember 31, 2007Municipal bonds

$
11,614


$
(78
)

$
7,272


$
(24
)

$
18,886


$
(102
)Corporate and other bonds


77,262



(3,164
)


24,631



(817
)


101,893



(3,981
)Commercial mortgage-backed securities


24,146



(5,015
)


8,325



(162
)


32,471



(5,177
)Residential mortgage-backed securities


17,263



(2,511
)


46,196



(2,733
)


63,459



(5,244
)Asset-backed securities


2,898



(573
)










2,898



(573
)Preferred stocks


3,702



(1,849
)










3,702



(1,849
)$
136,885


$
(13,190
)

$
86,424


$
(3,736
)

$
223,309


$
(16,926
)December 31, 2006U.S. Government bonds

$
10,620


$
(31
)

$
17,952


$
(269
)

$
28,572


$
(300
)Municipal bonds


20,213



(94
)


45,390



(613
)


65,603



(707
)Corporate and other bonds


25,550



(237
)


42,748



(1,052
)


68,298



(1,289
)Commercial mortgage-backed securities


4,673



(34
)


5,440



(100
)


10,113



(134
)Residential mortgage-backed securities


23,996



(179
)


56,395



(1,514
)


80,391



(1,693
)Asset-backed securities


995



(3
)


12,213



(234
)


13,208



(237
)Common stocks


25,960



(275
)


2,816



(463
)


28,776



(738
)$
112,007


$
(853
)

$
182,954


$
(4,245
)

$
294,961


$
(5,098
)        F-18




---



##### Table of Contents



Note 5
    Other
    Assets    December 31,($ in thousands)

2007


2006Assumed premiums receivable

$
1,299


$
77Ceding commission receivable


3,852



3,237Receivableclaims paid by agency


2,726



5,186Investment in statutory business trusts, equity method


3,036



2,045Receivable for securities


8,755



Other


14,124



6,767Other assets

$
33,792


$
17,312   Note 6
    Investment in
    Unconsolidated AffiliateCastlePoint      ($ in millions)

2007


2006Carrying value of equity investment, January 1

$
27.9


$
Initial investment in CastlePoint






15.0Consolidated net loss for the three months ended March 31,
    2006






(0.5
)Equity in net income of CastlePoint


2.4



0.9Gain from issuance of common stock by CastlePoint






7.9Value of warrant received






4.6Gain from initial public offering of common stock of CastlePoint


2.7



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


(0.1
)


0.1Dividends received from CastlePoint


(0.3
)


(0.1
)Carrying value of equity investment, December 31

$
32.6


$
27.9   FIN 46-(R).
   F-19




---



##### Table of Contents



Affiliated
    Agreements with CastlePoint
  and/or
  Master
    Agreement
     Reinsurance
    Agreements with CastlePoint
  F-20




---



##### Table of Contents



Ceded


Ceded


CedingPremiums


Premiums


Commissions


Ceding($ in thousands)

Written


Earned


Received


Commission %December 31, 2007Brokerage business

$
209,576


$
184,851


$
72,611



34.6
%Traditional program business


1,669



950



501



30.0
%Specialty program business and insurance risk- sharing business


9,824



4,030



2,947



30.0
%Total

$
221,069


$
189,831


$
76,059



34.4
%December 31, 2006Brokerage business

$
153,181


$
74,563


$
52,071



34.0
%Traditional program business


622



179



187



30.0
%Specialty program business and insurance risk- sharing business


1,356



716



407



30.0
%Total

$
155,159


$
75,457


$
52,665



33.9
%            F-21




---



##### Table of Contents



CastlePoint($ in thousands)

CastlePoint


InsuranceReceivable/(payable) due to/from

Reinsurance


Company


TotalShown in balance sheet:Assumed premium receivable

$
5


$



$
5Reinsurance recoverable


(8,998
)


(470
)


(9,468
)Reinsurance balances payable


(43,158
)


(5,531
)


(48,689
)Payable to issuing carriers






(41,664
)


(41,664
)Total

$
(52,151
)

$
(47,665
)

$
(99,816
)   Program Management Agreement with CastlePoint
  Management
    Agreement
   Service
    and Expense Sharing Agreements
   Service
    and Expense Sharing Agreements with CastlePoint
  F-22




---



##### Table of Contents



Note 7
    Property and
    Casualty Insurance Activity    ($ in thousands)

Direct


Assumed


Ceded


Net2007Premiums 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
)

$
223,9882005Premiums written

$
298,595


$
1,512


$
(88,325
)

$
211,782Change in unearned premiums


(62,426
)


152



14,928



(47,346
)Premiums earned

$
236,169


$
1,664


$
(73,397
)

$
164,436     Gross


Reinsurance($ in thousands)

Liability


RecoverablesDecember 31, 2007Case-basis reserves

$
272,653


$
96,625IBNR reserves


228,530



92,900Recoverable on paid losses






18,303Total

$
501,183


$
207,828December 31, 2006Case-basis reserves

$
151,169


$
52,563IBNR reserves


151,372



57,479Recoverable on paid losses






7,961Total

$
302,541


$
118,003  F-23




---



##### Table of Contents



Year Ended December 31,($ in thousands)

2007


2006


2005Balance at January 1

$
302,541


$
198,724


$
128,722Less reinsurance recoverables


(110,042
)


(96,978
)


(91,773
)192,499



101,746



36,949Preserver net reserves at date of acquisition


85,055







Incurred related to:Current year


159,512



135,863



97,006Prior years


(1,606
)


(2,340
)


(392
)PXRE communtation






1,602



Total incurred


157,906



135,125



96,614Paid related to:Current year


55,308



30,605



20,891Prior years


68,494



13,767



10,926Total paid


123,802



44,372



31,817Net balance at end of year


311,658



192,499



101,746Add reinsurance recoverables


189,525



110,042



96,978Balance at December 31

$
501,183


$
302,541


$
198,724       Loss and loss adjustment expense reserves. case-by-case
 F-24




---



##### 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 yearsProduct line

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-25




---



##### Table of Contents



Note 8
    Deferred
    Acquisition Costs and Deferred Ceding Commission
    Revenue    ($ in thousands)

2007

2006

2005Net deferred acquisition costs net of ceding commission revenue,
    January 1

$
35,811


$
29,192


$
18,740Preserver, net at date of acquisition


13,955







Cost incurred and deferred during years:Commissions and brokerage


88,284



71,364



49,458Other underwriting and acquisition costs


65,821



50,188



36,978Ceding commission revenue


(81,864
)


(56,586
)


(30,337
)Net deferred acquisition costs net of ceding commission revene
    deferred during year


72,241



64,966



56,099Amortization


(82,736
)


(58,347
)


(45,647
)Net deferred acquisition costs net of ceding commission revenue,
    December 31,

$
39,271


$
35,811


$
29,192   Note 9
    Reinsurance   F-26




---



##### Table of Contents



Maximum LossFrom/To

ExposureJuly 1, 2007December 31, 2007

$
600,000January 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-27




---



##### Table of Contents



Unpaid

Paid($ in thousands)

Losses

Losses

TotalDecember 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) Limited


16,744



820



17,564Platinum Underwriters Reinsurance Co.


5,612



3



5,615Hannover Ruckversicherungs A.G


4,553



3



4,556New Jersey Unsatisfied Claim & Judgement Fund


1,571



1,869



3,440Endurance Reinsurance 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 Steam Boiler Insp & Ins Co.


486



114



600NGM Insurance Co.


572



1



573Trinity Universal Insurance Company


436







436QBE Reinsurance Corporation


237







237SCOR Reinsurance Company


204



31



235Others


93



181



274Total

$
189,525


$
18,303


$
207,828December 31, 2006CastlePoint Reinsurance Company, Ltd

$
31,660


$
2,493


$
34,153Munich Reinsurance America Inc.


15,318



2,706



18,024Tokio Millennium Re Ltd


31,796



1,634



33,430Hannover Reinsurance (Ireland) Ltd


14,429



836



15,265E+S Reinsurance (Ireland) Ltd


3,603



209



3,812Hannover Rueckversicherung AG


3,220



(5
)


3,215Platinum Underwriters Reinsurance Company


6,121



(5
)


6,116Endurance Reinsurrance Corp of America


2,138







2,138QBE Reinsurance Corp


350







350Axis Reinsurance Company


854







854NGM Insurance Company


427







427Others


126



93



219Total

$
110,042


$
7,961


$
118,003  F-28




---



##### Table of Contents



December 31,($ in thousands)

2007

2006CastlePoint Reinsurance Company, Ltd.

$
100,535


$
81,000CastlePoint Insurance Company


11,861



Hannover Ruckversicherungs A.G


2,555



2,242Platinum Underwriters Reinsurance Co.


2,521



2,609AXIS Reinsurance Company


1,682



1,245Hartford Steam Boiler Insp & Ins Co.


1,271



408General Reinsurance Corp


809



830Endurance Reinsurance Corp of America


764



2,325Lloyds Syndicates


745



1,276Midwest Insurance Company


508



QBE Reinsurance Corporation


292



270NGM Insurance Co.


248



446New Jersey Fair Plan


153



Employers Reinsurance Corp.


135



Hiscox Insurance Company (Bermuda) Ltd.


112



Converium AG, Zurich


107



Aspen Insurance UK Limited


102



Others


434



1,412$
124,834


$
94,063     Regulation

Letters of

Funds($ in thousands)

114 Trust

Trust

Held

TotalDecember 31, 2007CastlePoint Reinsurance Company, Ltd.

$
186,882


$



$



$
186,882Tokio Millennium Re Ltd.


5,907







20,589



26,496Hannover Reinsurance (Ireland) Limited






4,964



16,252



21,216CastlePoint Insurance Company


110











110Other






796







796Total

$
192,899


$
5,760


$
36,841


$
235,500December 31, 2006CastlePoint Reinsurance Company, Ltd.

$
95,308


$



$



$
95,308Tokio Millennium Re Ltd.


5,644







30,540



36,184Hannover Reinsurance (Ireland) Limited






3,050



16,789



19,839E+S Reinsurance (Ireland) Ltd.






763



4,198



4,961Other






796







796Total

$
100,952


$
4,609


$
51,527


$
157,088    F-29




---



##### Table of Contents



Commutation
    and Novation with PXRE Reinsurance Company
    Reinsurance
    Agreement with CastlePoint
  Reinsurance Agreement with
    CastlePoint.
  Ceding
    Commissions
      MaximumContractual Loss







PotentialRatio at Which







Reduction ofMinimum Ceding



Ceding



CedingCommission Rate

Estimated Ultimate

Commissions

Minimum

CommissionsTreaty Year

Applies

Loss Ratio

Earned

Commission

Earned2003


65.6
%


64.0
%

$
21.6


$
20.6


$
1.02004


68.0
%


50.6
%


31.6



20.6



11.02005


68.0
%


49.4
%


32.8



20.8



12.02007


64.3
%


47.8
%


24.4



21.0



3.4    F-30




---



##### Table of Contents



Note 10
    Intangible
    Assets          Accumulated($ in thousands)

Balance

Amortization

NetDecember 31, 2007Insurance licenses

$
6,503


$



$
6,503Renewal rights


3,164



(992
)


2,172Agency force


13,926



(931
)


12,995Total

$
23,593


$
(1,923
)

$
21,670December 31, 2006Insurance licenses

$
1,303


$



$
1,303Renewal rights


1,250



(505
)


745Agency force


3,750



(375
)


3,375Total

$
6,303


$
(880
)

$
5,423  F-31




---



##### Table of Contents



($ in thousands)2008

$
1,0192009


9172010


8362011


7702012


718     Note 11
    Fixed
    Assets    Accumulated($ in thousands)

Cost

Depreciation

NetDecember 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
)

$
32,337December 31, 2006Furniture

$
1,511


$
(191
)

$
1,320Leasehold improvements


10,781



(272
)


10,509Computer equipment


7,954



(5,700
)


2,254Software


13,367



(6,947
)


6,420Artwork


60







60Total

$
33,673


$
(13,110
)

$
20,563          F-32




---



##### Table of Contents



98-1, Accounting for the Costs of Computer Software Developed
    or Obtained for Internal Use. SOP 98-1,
      Note 12
    Other
    Liabilities    December 31,($ in thousands)

2007

2006Funds held as agent

$
4,772


$
8,181Deferred rent liability


7,386



6,295Payable for securities


561



2,922Dividends payable






212Other


4,872



3,515Other liabilities

$
17,590


$
21,125   Note 13
    Debt  Subordinated
    Debentures
   F-33




---



##### Table of Contents



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 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 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-34




---



##### Table of Contents



($ in thousands)2033

$
20,6202034


25,7752035


13,4032036


20,6192037


20,619$
101,036   Note 14
    Stockholders
    Equity    Form S-1 Form S-3
  Series A-1 Series A-1
     F-35




---



##### Table of Contents



($ in thousands)

2007

2006

2005Common stock dividends declared

$
3,444


$
1,976


$
1,959Preferred stock dividends declared


298



212



Total dividends declared

$
3,742


$
2,188


$
1,959   Note 15
    Stock Based
    Compensation  2004
    Long-Term Equity Compensation Plan
      OptionsandSARs

Other(1)

TotalMaximum award grants


290,681



872,042



1,162,723Awards granted under plan


(133,069
)


(238,060
)


(371,129
)Available for future grant


157,612



633,982



791,594   (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-36




---



##### Table of Contents



WeightedAverageNumber of

Grant DateShares

Fair ValueOutstanding at December 31, 2004


216,585


$
10.24Granted


13,832



14.89Vested


(55,504
)


10.33Forfeited


(3,725
)


8.50Outstanding at December 31, 2005


171,188


$
10.63Granted


75,019



27.08Vested


(59,182
)


10.94Forfeited


(6,259
)


10.52Outstanding at December 31, 2006


180,766


$
17.35Granted


93,581



32.20Vested


(68,587
)


15.11Forfeited


(10,292
)


22.59Outstanding at December 31, 2007


195,468


$
24.97   Stock
    Options
    2007

2006

2005Average



Average



AverageNumber of

Exercise

Number of

Exercise

Number of

ExerciseShares

Price

Shares

Price

Shares

PriceOutstanding, beginning of year


362,996


$
4.94



431,000


$
4.80



472,777


$
4.73Granted at fair value






















Forfeitures and expirations










(9,937
)


8.50



(9,072
)


8.50Exercised


(81,100
)


2.78



(58,067
)


3.25



(32,705
)


2.78Outstanding, end of year


281,896


$
5.57



362,996


$
4.94



431,000


$
4.80Exercisable, end of year


233,296


$
4.95



280,607


$
3.90



305,450


$
3.38  F-37




---



##### Table of Contents



Options Outstanding

Options ExercisableAverageRemainingNumber of

Contractual

Average

Number of

AverageRange of Exercise
    Prices

Shares

Life (Years)

Exercise Price

Shares

Exercise PriceUnder $4.00


144,580



3.0


$
2.78



144,580


$
2.78$5.00-$10.00


137,316



6.8


$
8.50



88,716


$
8.50Total Options


281,896



4.8


$
5.57



233,296


$
4.95               ($ in thousands, except per
    share amounts)

2005Net income as reported

$
20,754Deduct total stock-based employee compensation expense
    determined under
    fair value based method for all awards, net of related tax
    effects


(61
)Net income, pro forma

$
20,693   Earnings per share

As reported

Pro formaBasic

$
1.06


$
1.06Fully diluted

$
1.03


$
1.03   Total
    Equity Compensation Not Yet Recognized
   F-38




---



##### Table of Contents



Note 16
    Income
    Taxes    ($ in thousands)

2007

2006

2005Current Federal income tax expense

$
27,417


$
15,294


$
11,864Current state income tax expense


3,545



1,578



1,607Deferred Federal and State income tax (benefit) expense


(4,804
)


2,801



(2,409
)Provision for income taxes

$
26,158


$
19,673


$
11,062     ($ in thousands)

2007

2006Deferred tax asset:Claims reserve discount

$
12,042


$
6,839Unearned premium


11,504



9,488Allowance for doubtful accounts


48



87Equity compensation plans


333



232Net unrealized depreciation of securities


4,436



157Investment impairments


3,419



Net operating loss carryforwards


12,162



Capital loss carryforwards


2,295



Other


820



384Total deferred tax assets


47,059



17,187Deferred tax liability:Deferred acquisition costs net of deferred ceding commission
    revenue


15,716



12,482Depreciation and amortization


1,295



597Warrant received from unconsolidated affiliate


1,612



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


3,706



2,759Equity income in unconsolidated affiliate


1,084



320Accrual of bond discount


844



672Total deferred tax liabilities


24,257



18,442Net deferred income tax (liability)/asset

$
22,802


$
(1,255
)      F-39




---



##### Table of Contents



Accounting for Uncertainty in Income
    Taxes, an interpretation of FASB Statement
    No. 109
        ($ in thousands)

2007

2006

2005Theoretical Federal income tax expense atU.S. statutory rate (35)%

$
24,934


$
19,753


$
11,136Tax exempt interest


(1,466
)


(1,073
)


(928
)State income taxes net of Federal benefit


2,303



1,025



1,044Other


387



(32
)


(190
)Provision for income taxes

$
26,158


$
19,673


$
11,062   Note 17
    Employee
    Benefit Plans    Note 18
    Commitments
    and Contingencies   F-40




---



##### Table of Contents



($ in thousands)

Amount2008

$
6,7852009


6,5092010


7,8922011


5,8702012


4,490Thereafter


31,847Total

$
63,393       Contingencies
    Surrounding the 2006 New York Board of Fire Underwriters
    Assessment
   F-41




---



##### Table of Contents



Note 19
    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 ceded reinsurance are reported on a
    net basis within the statutory basis financial statements. GAAP
    requires these amounts to be shown gross.
    For SAP purposes, changes in deferred income taxes relating to
    temporary differences between net income for financial reporting
    purposes and taxable income are recognized as a separate
    component of gains and losses in surplus rather than included in
    income tax expense or benefit as required under GAAP.        Note 20
    Fair Value of
    Financial Instruments   F-42




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##### Table of Contents



Equity and fixed income
    investments:
  Investment in unconsolidated
    affiliate
  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:
 F-43




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##### Table of Contents



Note 21
    Earnings Per
    Share    Income


Shares


Per Share($ in thousands, except share and per share amounts)

(Numerator)


(Denominator)


Amount2007Net Income

$
45,082Less: Preferred stock dividends


(298
)Preferred stock excess consideration


(400
)Basic earnings per share


44,384



22,714,663


$
1.95Effect of dilutive securities:Stock options






172,116Unvested restricted stock






52,469Warrants






28,849Diluted earnings per share

$
44,384



22,968,097


$
1.932006Net Income

$
36,764Less: Preferred stock dividends


(212
)Basic earnings per share


36,552



19,750,309


$
1.85Effect of dilutive securities:Stock options






203,222Unvested restricted stock






64,888Warrants






31,997Preferred shares






96,902Preferred stock dividends


212



Diluted earnings per share

$
36,764



20,147,318


$
1.822005Net Income

$
20,754Less: Preferred stock dividends


Basic earnings per share


20,754



19,571,081


$
1.06Effect of dilutive securities:Stock options






309,508Unvested restricted stock






192,237Warrants






74,247Diluted earnings per share

$
20,754



20,147,073


$
1.03  F-44




---



##### Table of Contents



Note 22
    Segment
    Information             F-45




---



##### Table of Contents



For the year ended December 31,($ in thousands)

2007


2006


2005Insurance SegmentRevenuesNet premiums earned

$
280,294


$
204,679


$
162,911Ceding commission revenue


71,011



43,130



25,218Policy billing fees


2,005



1,129



868Total revenues


353,310



248,938



188,997ExpensesNet loss and loss adjustment expenses


155,426



117,982



95,700Underwriting expenses


152,015



101,701



74,035Total expenses


307,441



219,683



169,735Underwriting profit

$
45,869


$
29,255


$
19,262Reinsurance SegmentRevenuesNet premiums earned

$
5,812


$
19,309


$
1,525Ceding commission revenue


(1
)






Total revenues


5,811



19,309



1,525ExpensesNet loss and loss adjustment expenses


2,480



17,143



914Underwriting expenses


2,591



3,670



189Total expenses


5,071



20,813



1,103Underwriting profit (loss)

$
740


$
(1,504
)

$
422Insurance Services SegmentRevenueDirect commission revenue from managing general agency

$
28,795


$
3,466


$
9,148Claims administration revenue


2,314



3,193



4,268Other administration revenue


1,421



737



Reinsurance intermediary fees


770



577



688Policy billing fees


33



5



23Total revenues


33,333



7,978



14,127ExpensesDirect commissions expense paid to producers


14,055



1,925



5,051Other insurance services expenses:Underwriting expenses reimbursed to TICNY


5,793



1,578



1,981Claims expense reimbursement to TICNY


2,302



3,176



4,255Total expenses


22,150



6,679



11,287Insurance services pretax income

$
11,183


$
1,299


$
2,840    F-46




---



##### Table of Contents



For the year ended December 31,($ in thousands)

2007


2006


2005Revenue Insurance segment

$
353,310


$
248,938


$
188,997Reinsurance segment


5,811



19,309



1,525Insurance services segment


33,333



7,978



14,127Total segment revenues


392,454



276,225



204,649Net investment income


36,699



23,026



14,983Net realized gains (losses) on investments


(17,511
)


12



122Consolidated revenues

$
411,642


$
299,263


$
219,754     For the year ended December 31,($ in thousands)

2007


2006


2005Insurance segment underwriting profit

$
45,869


$
29,255


$
19,262Reinsurance segment underwriting profit (loss)


740



(1,504
)


422Total underwriting profit (loss)


46,609



27,751



19,684Insurance services segment pretax income


11,183



1,299



2,840Net investment income


36,699



23,026



14,983Net realized gains (losses) on investments


(17,511
)


12



122Corporate expenses


(1,593
)


(2,183
)


(960
)Interest expense


(9,290
)


(6,870
)


(4,853
)Other Income


5,143



13,402



Income before taxes

$
71,240


$
56,437


$
31,816   Note 23
    Subsequent
    Events  Dividends
    Investments
   F-47




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##### Table of Contents



Note 24
    Unaudited
    Quarterly Financial Information  ($ in thousands,

2007except per share amounts)

First


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   2005First


Second


Third


Fourth


TotalRevenues

$
42,670


$
50,252


$
59,937


$
66,895


$
219,754Net Income


3,717



4,765



5,708



6,564



20,754Net income per share:Basic

$
0.19


$
0.24


$
0.29


$
0.33


$
1.06Diluted

$
0.19


$
0.24


$
0.28


$
0.32


$
1.03     (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 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-48




---



##### 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)
        Internal Control  Integrated
    Framework Issued by the Committee of Sponsoring Organizations of
    the Treadway Commission
  c)
    Attestation
    report of the Companys registered public accounting
    firm  Form 10-K, page F-1
 89




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##### Table of Contents



d)
    Changes
    in internal control over financial reporting    Item 9B.
    Other
    Information   PART III  Item 10.
    Directors
    And Executive Officers Of The Registrant    http://www.twrgrp.com/
  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   90




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##### 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 & CFO to Section 906  91




---



##### Table of Contents



SIGNATURES
    TOWER GROUP, INC.
  Registrant
     
    Signature

Title

Date/s/  MICHAEL
    H. LEEMichael
    H. Lee

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

March 14, 2008/s/  FRANCIS
    M. COLALUCCIFrancis
    M. Colalucci

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

March 14, 2008/s/  STEVEN
    W. SCHUSTERSteven
    W. Schuster

Director

March 14, 2008/s/  CHARLES
    A. BRYANCharles
    A. Bryan

Director

March 14, 2008/s/  WILLIAM
    W. FOX JR.William
    W. Fox Jr.

Director

March 14, 2008/s/  AUSTIN
    P. YOUNG IIIAustin
    P. Young III

Director

March 14, 2008  92




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##### 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  93




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##### Table of Contents



Tower
    Group, Inc.
    Schedule ISummary of InvestmentsOther Than
    Investments in Related Parties
    ($ in thousands)
  December 31, 2007AmountFair


Reflected on($ in thousands)

Cost


Value


Balance SheetFixed 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




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##### Table of Contents



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

2007


2006AssetsCash and cash equivalents


24,020



5,089Investment in subsidiaries


336,911



253,141Federal and state taxes recoverable


3,851



2,295Intangible assets






1,000Fixed assets, net of accumulated depreciation


12,019



10,294Investment in unconsolidated affiliate


32,615



27,944Investment in statutory business trusts, equity method


2,664



2,045Due from affiliate


510



382Other assets


1,286



4,056Total assets

$
413,876


$
306,246LiabilitiesAccounts payable and accrued expenses

$
2,169


$
3,530Deferred rent liability


6,791



5,959Deferred income taxes


6,865



4,792Subordinated debentures


88,664



68,045Total liabilities


104,489



82,326Stockholders equity


309,387



223,920Total liabilities and stockholders equity

$
413,876


$
306,246  S-2




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##### 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)

2007


2006


2005RevenuesInvestment income

$
1,893


$
233


$
1,084Equity in net earnings of subsidiaries


46,557



32,942



22,963Total revenues


48,450



33,175



24,047ExpensesOther operating expenses


1,594



2,182



959Interest expense


7,359



5,271



3,513Total expenses


8,954



7,453



4,472Other IncomeEquity income in unconsolidated affiliate


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


44,640



39,124



19,575Provision/(benefit) for income taxes


(442
)


2,360



(1,179
)Net income

$
45,082


$
36,764


$
20,754Comprehensive IncomeNet income


45,082



36,764



20,754Other comprehensive income:Gross unrealized investment holding gains (losses) arising
    during period


(29,424
)


4,443



(6,664
)Equity in net unrealized gains in investment in unconsolidated
    affiliates investment portfolio


(218
)


143



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


17,511



(12
)


(122
)Comprehensive income

$
37,197


$
39,679


$
16,350  S-3




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##### 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)

2007


2006


2005Cash flows provided by (used in) operating activities:Net income

$
45,082


$
36,764


$
20,754Adjustments 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


8,500



5,300



3,800Equity in undistributed net income of subsidiaries


(46,557
)


(32,942
)


(22,963
)Warrant received from unconsolidated affiliate






(4,605
)


Depreciation and amortization


1,815



2,160



1,948Amortization of restricted stock


1,919



860



618Deferred income tax


1,517



4,830



(Increase) decrease in assets:Federal and state income tax recoverable


(1,556
)


(2,190
)


(270
)Equity
    pick-up in
    unconsolidated affiliate


(2,438
)


(914
)


Excess tax benefits from share-based payment arrangements


(1,105
)


(891
)


Other assets


2,582



(1,350
)


(409
)(Increase) decrease in liabilities:Accounts payable and accrued expenses


3,583



(251
)


(1,805
)Deferred rent


832



5,959



Other-net


321



292



(533
)Net cash flows provided by operations


11,789



5,139



1,140Cash flows provided by (used in) investing activities:Acquisition of Preserver Group, Inc.


(48,286
)






Preserver transaction costs


(4,729
)






Purchase of fixed assets


(2,540
)


(10,514
)


Investments in unconsolidated affiliate






(14,400
)


Purchasefixed-maturity securities










(20,921
)Purchaseequity securities










(7,064
)Salefixed-maturity securities






6,513



15,658Saleequity securities






8,513



Investment in subsidiary


(4,759
)


(52,263
)


(11,480
)Net cash flows used in investing activities


(60,314
)


(62,151
)


(23,807
)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



20,619



Purchase of common trust securitiesstatutory business
    trusts


(619
)


(619
)


Exercise of stock options and warrants


1,166



1,243



367Excess tax benefits form share-based payment arrangements


1,105



891



Stock repurchase


(439
)


(97
)


Dividends paid


(3,743
)


(2,187
)


(1,959
)Net cash flows provided by (used in) financing activities


67,455



59,450



(1,592
)Increase (decrease) in cash and cash equivalents


18,931



2,438



(24,259
)Cash and cash equivalents, beginning of year


5,089



2,651



26,910Cash and cash equivalents, end of year

$
24,020


$
5,089


$
2,651  S-4




---



##### Table of Contents



Tower
    Group, Inc.
    Schedule IIISupplementary Insurance Information
    ($ in thousands)
  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


Written2007Segments:Insurance

$
38,887


$
490,425


$
272,224


$
280,294


$
155,426


$
(79,943
)

$
66,919


$
258,460Reinsurance


384



10,758



550



5,812



2,480



(2,793
)


711



723Total

$
39,271


$
501,183


$
272,774


$
286,106


$
157,906


$
(82,736
)

$
67,630


$
259,1832006Segments:Insurance

$
33,633


$
284,389


$
221,337


$
204,679


$
117,982


$
(54,893
)

$
45,680


$
220,825Reinsurance


2,178



18,152



5,680



19,309



17,143



(3,454
)


1,058



24,245Total

$
35,811


$
302,541


$
227,017


$
223,988


$
135,125


$
(58,347
)

$
46,738


$
245,0702005Segments:Insurance

$
29,184


$
196,737


$
156,201


$
162,911


$
95,700


$
(45,224
)

$
35,263


$
210,395Reinsurance


8



1,987



1,578



1,525



914



(423
)


173



1,387Total

$
29,192


$
198,724


$
157,779


$
164,436


$
96,614


$
(45,647
)

$
35,436


$
211,782  S-5




---



##### Table of Contents



Tower
    Group, Inc.
    Schedule IVReinsurance
    ($ in thousands)
  PercentageCeded to








of AmountDirect


Other


Assumed from





Assumed to($ in thousands)

Amount


Companies


Other Companies


Net Amount


NetYear ended December 31, 2007PremiumsProperty and casualty insurance

$
520,421


$
264,832


$
3,593


$
259,182


1.39%Accident and health insurance

















0.0%Total premiums

$
520,421


$
264,832


$
3,593


$
259,182


1.39%Year ended December 31, 2006PremiumsProperty and casualty insurance

$
408,352


$
187,593


$
24,311


$
245,070


9.92%Accident and health insurance

















0.0%Total premiums

$
408,352


$
187,593


$
24,311


$
245,070


9.92%  S-6




---



##### Table of Contents



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

2007


2006


2005Balance, January 1

$
248


$
170


$
123Additions


157



115



73Deletions


(201
)


(37
)


(26
)Balance, December 31

$
204


$
248


$
170  S-7




---



##### Table of Contents



Tower
    Group, Inc.
    Schedule VISupplemental Information Concerning
    Insurance Operations
    ($ in thousands)
  Claims and ClaimsAdjustment ExpensesReserves














Incurred and Related toFor UnpaidClaims and

















Prior Year*





Paid ClaimsDeferred


Claim











Net





Includes





and Claim


NetAcquisition


Adjustment


Discount


Unearned


Earned


Investment


Current


PXRE


Amortization


Adjustment


Premiums($ in thousands)

Cost


Expenses


Reserves


Premium


Premium


Income


Year


Commutation


of DAC


Expenses


Written2007

$
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


$
245,0702005

$
29,192


$
198,724


$



$
157,779


$
164,436


$
14,983


$
97,006


$
(392
)

$
(45,647
)

$
31,817


$
211,782     (1)
    
    This schedule excludes information
    related to CastlePoint Holdings, Ltd., which is filed separately
    in their Annual Report on
    Form 10-K. S-8




---



##### Table of Contents



ExhibitNumber

Description of Exhibits3
.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 Designations of Preferred Stock, incorporated by
    reference to the Companys Current Report on
    Form 8-K
    filed on December 8, 20063
.3

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
.4

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, 200410
.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, incorporated by
    reference to Exhibit 10.7 to the Companys
    Registration Statement on
    Form S-1
    (Amendment No. 6)
    (No. 333-115310)
    filed on September 30, 200410
.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, 200410
.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, 2004




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##### Table of Contents



ExhibitNumber

Description of Exhibits10
.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

Managing General Agency Agreement, dated January 1, 2002,
    by and between Virginia Surety Company and Tower Risk Management
    Corp., incorporated by reference to Exhibit 10.20 to the
    Companys Registration Statement on
    Form S-1
    (Amendment No. 1)
    (No. 333-115310)
    filed on June 24, 200410
.19

General Agency Agreement by and among State National Insurance
    Company, Inc., Tower Insurance Company of New York and Tower
    Risk Management Corp., incorporated by reference to
    Exhibit 10.21 to the Companys Registration Statement
    on
    Form S-1
    (Amendment No. 1)
    (No. 333-115310)
    filed on June 24, 200410
.20

Commercial Renewal Rights Agreement, dated as of
    September 13, 2004, by and among OneBeacon Insurance Group
    LLC, each of the insurance Company subsidiaries of OneBeacon
    Insurance Group LLC listed therein and Tower Group, Inc.,
    incorporated by reference to Exhibit 10.30 to the
    Companys Registration Statement on
    Form S-1
    (Amendment No. 5)
    (No. 333-115310)
    filed on September 15, 200410
.21

Addendum No. 1 to the Quota Share Reinsurance Agreement,
    effective January 1, 2004, by and between Tower Insurance
    Company of New York, Tokio Millenium Re Ltd. and Hannover
    Reinsurance (Ireland) Ltd. and E+S Reinsurance (Ireland) Ltd.,
    incorporated by reference to Exhibit 10.32 to the
    Companys Registration Statement on
    Form S-1
    (Amendment No. 6)
    (No. 333-115310)
    filed on September 30, 200410
.22

Quota Share Reinsurance Agreement, effective January 1,
    2005, by and among Tower Insurance Company of New York, Hannover
    Reinsurance (Ireland) Ltd., E+S Reinsurance (Ireland) Ltd. and
    Tokio Millennium Re Ltd.), incorporated by reference to
    Exhibit 10.38 to the Companys Annual Report on
    Form 10-K
    filed on March 22, 200510
.23

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
.24

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
.25

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
.26

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, 2004




---



##### Table of Contents



ExhibitNumber

Description of Exhibits10
.27

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, 200410
.28

Guarantee Agreement dated December 21, 2004, by and between
    Tower Group, Inc. and JPMorgan Change 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
.29

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
.30

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
.31

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
.32

Employment Agreement with Stephen L. Kibblehouse effective
    June 1, 2006, incorporated by reference to
    Exhibit 10.2 of the Companys Quarterly Report on
    Form 10-Q
    filed on August 7, 200610
.33

PXRE Commutation and Novation Agreement executed June 29,
    2006 incorporated by reference to the Companys Current
    Report on
    Form 8-K
    filed on July 7, 200610
.34

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
.35

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
.36

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
.37

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
.38

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
.39

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
.40

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
.41

Amendment No. 1 to Amended and Restated Brokerage 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 10.6 to the Companys Current
    Report on
    Form 8-K
    filed on January 22, 2007




---



##### Table of Contents



ExhibitNumber

Description of Exhibits10
.42

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, 200710
.43

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
.44

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
.45

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
.46

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
.47

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
.48

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
.49

Fourth Amendment to Lease between Tower Insurance Company of New
    York and 120 Broadway Holdings, LLC dated July 25, 200610
.50

Fifth Amendment to Lease between Tower Insurance Company of New
    York and 120 Broadway Holdings, LLC dated December 20, 200610
.51

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
.52

Separation Agreement, dated as of June 30, 2007, by and
    between Tower Group, Inc. and Steven G. Fauth, incorporated by
    reference to Exhibit 10.1 to the Companys Current
    Report on
    Form 8-K
    filed on June 7, 200710
.53

Consulting Agreement, dated as of July 1, 2007, by and
    between Tower Group, Inc. and Steven G. Fauth, incorporated by
    reference to Exhibit 10.2 to the Companys Current
    Report on
    Form 8-K
    filed on June 7, 200710
.54

Amendment No. 2 to Amended and Restated Brokerage Business
    Quota Share Reinsurance Agreement, dated July 1, 2006 by
    and among Tower Group, Inc., Tower Insurance Company of New York
    and CastlePoint Reinsurance Company, Ltd.10
.55

Amendment No. 3 to Amended and Restated Brokerage Business
    Quota Share Reinsurance Agreement, dated April 1, 2007 by
    and among Tower Group, Inc., Tower Insurance Company of New
    York, and CastlePoint Insurance Company and CastlePoint
    Reinsurance Company, Ltd.10
.56

Amendment No. 4 to Amended and Restated Brokerage Business
    Quota Share Reinsurance Agreement, dated July 1, 2007 by
    and among Tower Group, Inc., Tower Insurance Company of New York
    and CastlePoint Reinsurance Company, Ltd.10
.57

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 Company10
.58

Aggregate Excess of Loss Reinsurance Agreement dated
    October 1, 2007 by and among Tower Insurance Company of New
    York and CastlePoint Insurance Company




---



##### Table of Contents



ExhibitNumber

Description of Exhibits10
.59

Service Agreement dated May 1, 2007 by and among Tower Risk
    Management Corp. and CastlePoint Management Corp.10
.60

Property Catastrophe Reinsurance Agreement dated July 1,
    2007 by and among Tower Group, Inc. and various reinsurers10
.63

Form of Tower Group, Inc. 2004 Long Term Equity Compensation
    Plan, as amended and restated effective May 15, 2008,
    Restricted Stock Units Award Agreement21
.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