Insurance rating agency A.M. Best Co. has downgraded the financial strength rating of Tower Group following the insurer’s reserve-strengthening announcement.
Tower Group International says it needs to strengthen loss reserves by about $365 million for accident years 2009-2011, resulting in an impairment charge of $215 million for the second quarter.
Tower has yet to announce second-quarter results. A.M. Best says its decision to lower Tower’s financial strength rating to "B++" from "A-" considers, in part, the “reduced flexibility given the delay in earnings, the decline in shareholder confidence and the corresponding decline in share price.”
As of the morning of Oct. 9, Tower shares were selling at about $3.83, down about 12.75 percent from the previous close. On July 25 shares of Tower were at about $22.
A.M. Best says Tower will be challenged to restore shareholder confidence.
“Once well-regarded for its mergers and acquisitions strategy, equally important is the consequential impact this reserve charge has on Tower’s business model, business profile and earnings prospects going forward,” A.M. Best adds in a statement.
Reporter Leslie Scism of The Wall Street Journal, writes that Tower is now looking to be the acquired, not the acquirer.
According to unnamed sources, several private-equity firms were approached by Tower, but they aren’t interested in a deal.
Read the rest of the story HERE.
A.M. Best says Tower will remain under review with negative implications pending more talks with management at the Bermuda-based company.
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