News Column

A.M. Best Downgrades Ratings of Tower Group International, Ltd. and Its Subsidiaries; Maintains Under Review Status

August 28, 2014



OLDWICK, N.J.--(BUSINESS WIRE)-- A.M. Best has downgraded the financial strength ratings to C (Weak) from C++ (Marginal) and the issuer credit ratings (ICR) to “ccc” from “b” of the pooled and reinsured members of the Tower US Pool (Tower) and CastlePoint Reinsurance Company, Limited (Bermuda). Concurrently, A.M. Best has downgraded the ICR to “c” from “cc” and the debt rating on the $150 million par 5.00% senior unsecured convertible notes due Sept. 14, 2014, for the intermediate holding company, Tower Group, Inc. Additionally, A.M. Best has downgraded the ICR to “c” from “cc” of the ultimate parent, Tower Group International, Ltd. (TWGP) (Bermuda) [NASDAQ:TWGP]. All ratings are under review with developing implications. All companies are headquartered in New York, NY, unless otherwise specified. (See below for detailed listing of the companies and ratings.)

The rating actions take into consideration TWGP’s most recent Securities and Exchange Commission 10Q filing, which included a net loss of $106 million and GAAP shareholders’ equity (excluding noncontrolling interests) of negative $11 million. In addition, these rating downgrades reflect the heightened uncertainty around TWGP’s ability to repay its senior debt holders in the event its pending merger with ACP Re Ltd. (ACP Re) (Bermuda) does not occur on or before Sept. 15, 2014. These actions also consider the additional ratings drag placed on all of TWGP’s operating entities in terms of their ability to pay claims. In addition, A.M. Best remains concerned with the continued delays in TWGP reporting its quarterly SEC filings, as well as its ability to operate as a going concern.

The ratings will remain under review pending the planned merger with ACP Re, which is anticipated to close in September 2014, but may be delayed to as late as Nov. 15, 2014, which is the merger termination date. The under review with developing implications status on all the ratings acknowledges the potential benefits to be garnered from the transaction, but also the potential downside from any additional adverse reserve development or any unforeseen event that might occur up until the close of the transaction. The ratings could be downgraded further if certain events or unforeseen circumstances cause the merger to fall through. Any default on the payment of principal and/or interest to existing debt holders would result in an immediate downgrade.

The FSR of C++ (Marginal) has been downgraded to C (Weak) and the ICRs have been downgraded to “ccc” from “b” 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

    The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.

    A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

    Copyright © 2014 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.



    A.M. Best Company

    Kenneth Monahan, 908-439-2200, ext. 5342

    Financial Analyst

    kenneth.monahan@ambest.com

    or

    Daniel Ryan, 908-439-2200, ext. 5325

    Vice President

    daniel.ryan@ambest.com

    or

    Christopher Sharkey, 908-439-2200, ext. 5159

    Manager, Public Relations

    christopher.sharkey@ambest.com

    or

    Jim Peavy, 908-439-2200, ext. 5644

    Assistant Vice President, Public Relations

    james.peavy@ambest.com

    Source: A.M. Best Company


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