On April 8, 2014, we issued an updated research report on
Tower Group International, Ltd.
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This Bermuda-based property and casualty insurer is facing a
number of negative issues. These include mounting losses, reserve
shortfall, job cuts, selling of stake in Canopius and the
cancellation of the previously announced acquisition of American
Safety Reinsurance, Ltd. (ASRe).
Recently, Tower Group incurred much wider-than-expected loss
reserve charges. These reserve charges relate to losses from
workers' compensation, commercial liability and commercial
multi-peril liability, and auto policies written in 2008-2011.
Such high reserves charges at the company make us skeptical about
the fate of the company going forward.
Tower Group experienced significant losses and reductions of
statutory surplus in its insurance subsidiaries during 2013.
There are currently no commitments or assurances from the company
to raise additional capital, execute strategic alternatives or
liquidate certain investments to repay the outstanding balance
under its credit facility. In addition, there is no guarantee
that Tower Group will be able to remedy the current statutory
capital deficiencies in certain insurance subsidiaries or
maintain adequate levels of statutory capital in the future.
Additionally, Tower Group also called off the scheduled
acquisition of ASRe from Fairfax Financial Holdings Ltd., in Aug
2013. This move limited the business opportunity for Tower
Group's newly formed Tower Re specialty reinsurance business.
In order to repay its credit facility of $70 million from
Bank of America Corp.
), Tower Group sold its stake in Canopius, which could have
otherwise established an efficient global specialty insurance
platform for the company by enabling it to access three of the
world's major insurance markets, viz. the U.S., Bermuda and
London. This sell-out closed the new business opportunity and
dismissed the potential synergies expected from the deal.
As a strategic endgame, to pull itself out of the mounting
trouble, in early January this year, the company sought an
alliance with ACP Re Ltd., a Bermuda-based reinsurance company,
in a deal value at $172.1 million. The transaction is expected to
close in the summer of 2014 and is contingent on customary
approvals from the insurance regulator.
Tower Group presently carries a Zacks Rank #4 (Sell). Investors
interested in the property and casualty insurance industry may
consider stocks like
Platinum Underwriters Holdings
). All these stocks sport a Zacks Rank #1 (Strong Buy).