In an effort to penetrate further into the surety insurance line
of business, property and casualty insurer,
Tower Group Inc.
) has made an investment of $7 million through 8.5% convertible
debentures in Cinium Financial Services Corp.
Cinium is a closely held company specializing in the surety
insurance business. The convertible debentures will provide the
company with ownership of specified percentage, upon their
conversion due in 2026.
Earlier during the year, Tower Group entered into an agreement
with Cinium. Per the agreement, Cinium would underwrite Surety
business on behalf of Tower Insurance Company of New York and its
affiliate CastlePoint National Insurance Company, both subsidiaries
of Tower Group.
In a separate development, A.M. Best affirmed the company's
issuer credit ratings ("ICR") of "bbb-" and debt ratings of "bbb-"
on $142.5 million 5.00% senior convertible notes due 2014. The
ratings carry a stable outlook.
The rating agency favorably views the acquisitions made by Tower
Group over the last few years, enabling the company to diversify
its business mix. In 2011, the company acquired the renewal rights
to the middle market commercial package and commercial automobile
business underwritten through the NAV PAC division of Navigators
Group, Inc. Tower's acquisition of OneBeacon Insurance Group,
Ltd.'s personal line of business, completed in July 2010, has also
been viewed favorably by the rating agency. The acquisition
has expanded the company's Personal lines business. In 2009, it
acquired CastlePoint, Hermitage and Specialty Underwriters
Alliance, which helped the company to expand outside Northeast and
accounted for a major chunk of its business.
Adequate loss reserves, solid capitalization, moderate leverage,
strong operating performance and disciplined underwriting are some
of the other positives for the company.
The offsetting factors to the ratings include the execution risk
associated with the company's recent investment in Canopius. Other
concerning factors include the still soft property and casualty
market, intense competition and business concentration in northeast
U.S. Though the company has successfully integrated past
acquisitions, uncertainties prevail in terms of seamless
integration of future acquisitions, given the challenging economic
scenario at present.
The rating action also included the affirmation of financial
strength ratings ("FSR") of A- and ICR of "a-"of
CastlePoint Reinsurance Company, Ltd.
backed by a stable outlook. The rating agency acknowledges CPRe's
vital role within Tower Group as a provider of captive reinsurance.
CastlePoint's solid capitalization and profitable operating
performance also aids the ratings.
A.M. Best has assigned each of Tower Group's subsidiaries
-CastlePoint Insurance Company, CastlePoint National Insurance
Company, Tower Insurance Company of New York, Tower National
Insurance Company, Preserver Insurance Company, North East
Insurance Company, Hermitage Insurance Company, CastlePoint Florida
Insurance Company, Kodiak Insurance Company, York Insurance Company
of Maine and Massachusetts Homeland Insurance Company -a financial
strength rating of A- (Excellent), which is the fourth highest of
fifteen rating levels. The ICRs of "a-" of these subsidiaries have
also been affirmed. The outlook on all the ratings is stable.
Factors, which are likely to thwart Tower's ratings, include
weakening of capital position and a decline in operating
performance. However, an upward revision to the rating may come on
the back of consistent solid operating performance and maintenance
of strong capital performance.
Tower currently retains a Zacks # 4 Rank, which translates into
a short-term Sell rating. However, considering the fundamentals, we
are maintaining our long-term Neutral recommendation on the shares.
It competes with
The Travelers Companies Inc.
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