See below for the latest report from A.M. Best regarding further review action of Tower Group’s rating. Risk Transfer thanks its clients, partners, and associates for the continued support and looks forward to making 2014 our best year ever. We wish everyone the Happiest of Holidays.
A.M. Best Co. has downgraded the financial strength rating (FSR) to B (Fair) from B++ (Good) and issuer credit ratings (ICR) to “bb” from “bbb” of the pooled and reinsured members of the Tower US Pool. Concurrently, A.M. Best has downgraded the ICR and the debt rating on $150 million 5.00% senior convertible notes, due 2014, to “b-” from “bb” of the intermediate holding company, Tower Group, Inc. A.M. Best also has downgraded the FSR to B (Fair) from B++ (Good) and ICR to “bb” from “bbb” of CastlePoint Reinsurance Company, Ltd. (Bermuda). Additionally, A.M. Best has downgraded the ICR to “b-” from “bb” of the ultimate parent, Tower Group International, Ltd. (Bermuda) (Tower) [NASDAQ: TWGP]. All companies are headquartered in New York, NY, unless otherwise specified. All ratings remain under review with negative implications. (See below for detailed listing of the companies and ratings.)
These rating actions take into consideration Tower’s most recent announcement on December 17th which noted management’s plans to sell its minority share of Canopius Group Limited for $69.7 million, its intention to use these proceeds to pay in full $70 million of outstanding credit on its existing credit facility and its need to further strengthen prior year loss reserves in the third quarter in a range between $75 million and $105 million, primarily in workers’ compensation, commercial multi-peril liability, other liability and commercial auto liability lines of business. In addition, these rating actions contemplate combined U.S. statutory surplus, net of cessions to its Bermuda affiliate, to decrease from $374 million at June 30, 2013 to approximately $315 million to $335 million at September 30, 2013.
This announcement comes on the heels of delayed filings, Tower’s second quarter 2013 earnings, a prior year reserve charge of $364 million (net of reinsurance) and a goodwill impairment of $214 million. These rating actions consider the aggregate magnitude of the charges taken during second and third quarters, as well as the material adverse impact on Tower’s risk-adjusted capitalization, financial leverage, liquidity and coverage ratios. The downgrade to vulnerable rating status and the continuation of negative implications is necessitated by the group’s dimmed business and earnings prospects going forward and A.M. Best’s ongoing concerns around further adverse loss reserve development as its impact on future cash flows, liquidity and risk-adjusted capitalization. Cash and liquidity is likely to be further constrained by Tower’s $150 million senior note which is due to mature in September of 2014.
The FSR has been downgraded to B (Fair) from B++ (Good) and the ICRs to “bb” from “bbb” for the following pooled and reinsured members of Tower US Pool:
- 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
- Massachusetts Homeland Insurance Company
