Question-and-Answer Session
Operator
Thank you. (Operator instructions) And our first question comes from Beth Malone with KeyBanc.
Beth Malone – KeyBanc Capital Markets
Thank you. Good morning. Could you just explain a little bit more about your guidance here because when we do the math on the third quarter guidance of $0.73, coming up with that pretty significant fourth quarter to get to that $2.90 to $3.00 range. So, could you kind of explain how the fourth quarter is going to be significantly higher than the other three quarters, is that because of the consolidation of – assuming the consolidation of CastlePoint?
Michael Lee
No Beth. It doesn’t really take into account of the CastlePoint transaction. We anticipate closing to take place sometime in December, but I think if you look at the pattern that we had last year, you know, this year's pattern in the third quarter and fourth quarter pretty much mirrors the pattern that we saw last year. This fourth quarter is a significant quarter for us. Most of the writing is skewed towards the fourth quarter and we're just pretty much applying similar percentage rate increases, I mean similar percentage increases in the net income to the fourth quarter of this year compared to last year's fourth quarter. So I don't see much difference than what we've shown in the past.
Beth Malone – KeyBanc Capital Markets
Okay. And then just on the environment for CastlePoint you know is, I guess one of the decision was you Tower Group could access cheaper reinsurance than what CastlePoint was offering even though they had the Bermuda – they benefited of the Bermuda tax treatment. So going forward if CastlePoint no longer has the benefits of the Bermuda, could you just explain how CastlePoint is going to continue to compete in the reinsurance market as a part of Tower Group or is that going to be – be more opportunistic and not have the same model?
Michael Lee
Well, let me just explain that – the Bermuda platform really benefits CastlePoint, not necessarily Tower. It only is relevant to Tower in a sense that that advantage allows CastlePoint to price their products in a way that is attractive to Tower. So if Tower is able to get better terms from other reinsurers whether it is Bermuda platform that CastlePoint enjoys is really not relevant. However, from CastlePoint's standpoint it is relevant obviously because it allows CastlePoint to price its products competitively because of its Bermuda platform. However, their return on equity is calculated based on taking into account of that pricing as well as the Bermuda platform that they enjoy and the finals score card on all this is how much CastlePoint is able to generate in terms of ROE on that capital regardless of whether they use of Bermuda platform or whether they use a platform in the U.S., their ability to achieve a certain return on equity depends on the market environment and right now the market environment is such that they are not able to achieve their target return on equity whether they are in the U.S. or in Bermuda. So going forward after this transaction we're going to pretty much keep the business that we have in the reinsurance business platform, however, we have to price their products based on the fact that we don't have that advantage. But when we price the reinsurance from CastlePoint's standpoint, we price the product in such a way we don't think it makes a difference whether we are in Bermuda or in United States. We look at the business and try to write to a combined ratio of about 92% and that will continue and that is profitable we believe whether it is in Bermuda or whether it is United States. In addition to that, we're going to try to make the program business more profitable by placing reinsurance on that business and what that would do is it would allow us to achieve the better return on equity on the capital that we use to support that business. So in summary I don't think CastlePoint is going to be adversely impacted at all because of the changes of the business strategy that we're making after the transaction is completed.
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