On Mar 11, 2014, Zacks Investment Research downgraded
Tower Group International, Ltd.
) to a Zacks Rank #4 (Sell).
Why the Downgrade?
Since the beginning of 2014,Tower Group's share price tanked
14.2%. In addition, On Mar 7, the company received a notice
from Nasdaq for not filing its annual report on Form 10-K for the
period ended Dec 31, 2013. The company has, of late, been
plagued with problems like mounting losses, reserve shortfall,
job cuts, sell off of stake in Canopius and annulment of the
previously announced acquisition of American Safety Reinsurance,
In Jan 2014, Tower Group opted to merge itself with ACP Re
Ltd., a Bermuda-based reinsurance company, as a strategic end
game to save itself after suffering from serious reserve
shortfall in workers' compensation, commercial liability and
commercial auto business lines.
Tower Group experienced significant losses and reductions of
statutory surplus in its insurance subsidiaries in the first half
of 2013, and there are currently no commitments or assurances to
raise additional capital, execute strategic alternatives or
liquidate certain investments at prices sufficient to repay the
outstanding balance under its credit facility. Until the
completion of a definitive executable plan to correct statutory
capital deficiencies and repay the credit facility, there is
substantial doubt about the company's ability to continue as a
In 2013, Tower Group delayed reporting its financial results
as it was caught up in calculating its reserve shortfall and
settling other issues. Moreover, the company sold its stake in
Canopius Group Ltd. and used the proceeds to fully repay a $70
million outstanding credit facility from
Bank of America Corp.
Further, in Dec 2013, the rating agency A.M. Best Co. lowered
Tower Group's issuer credit rating to 'B' from 'B++' and
maintained its negative outlook.
The Zacks Consensus Estimate also witnessed downward
revisions. For 2014, the consensus stands at a loss of 13 cents
per share as both the estimates were revised downward from
earnings per share of 51 cents over the last 30 days. For 2015 as
well the consensus moved down to a loss of 5 cents from earnings
of $1.35 per share as 1 of the 2 estimates moved south over the
same time frame.
Other Stocks to Consider
While we prefer to avoid Tower Group at present, better-ranked
stocks in the insurance sector include
AmTrust Financial Services, Inc.
). Both these stocks sport a Zacks Rank #1 (Strong Buy).
AMTRUST FIN SVC (AFSI): Free Stock Analysis
BANK OF AMER CP (BAC): Free Stock Analysis
TOWER GRP INTL (TWGP): Free Stock Analysis
ALLEGHANY CORP (Y): Free Stock Analysis
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