On Friday, A.M. Best Co. announced that the rating agency has downgraded the financial strength rating (FSR) to B (Fair) from B++ (Good) of the pooled and reinsured members of the Tower US Pool.
The downgrade and other related actions take into consideration Tower’s Dec. 17 announcement that Tower’s management plans to sell its minority share of Canopius Group Limited for $69.7 million, using the proceeds to pay in full $70 million of outstanding credit on an existing credit facility.
The rating actions also factor in Tower’s announcement that it needs to further strengthen prior-year loss reserves in the third quarter in a range between $75-$105 million, Best said, referring to a reserve announcement that came on the same day as the Canopius announcement.
In August, A.M. Best downgraded the Tower ratings to B++ from A-, reacting to Tower’s first indication that reserve charges were likely.
As part of the rating action, Best also slashed the issuer credit ratings (ICR) to “bb” from “bbb” 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)
All ratings remain under review with negative implications.
Best said that in addition to the Canopius stake sale and the reserving actions, the rating actions contemplate the anticipated decline in combined U.S. statutory surplus, net of cessions to its Bermuda affiliate, from $374 million at June 30, 2013 to something in the range of $315 million to $335 million at Sept. 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,” the Best announcement said. “These rating actions consider the aggregate magnitude of the charges taken during second and third quarters,” Best said in its rating statement, also noting “the material adverse impact on Tower’s risk-adjusted capitalization.”
“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,” the announcement said.
Summarizing the individual carriers impacted by the actions, Best said 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
Source: A.M. Best
- Tower Selling Stake in Canopius Group Limited, Boosting Reserves Again in Q3 (December 2013)
- Tower Group Reports $500M Loss for Second-Quarter 2013, Job Cuts (November 2013)
- Tower Expects to File Second-Quarter 10-Q; Avoid NASDAQ Delisting (November 2013)
- Tower Update: We Will Meet Obligations, CEO Says (November 2013)
- Tower Restating Prior Financials; ‘Going Concern’ Status in Doubt (November 2013)
- Downgrade of Tower Group to B++ Likely to Have Further Negative Effects: A.M. Best (October 2013)
- Tower Reserve Charge Prompts Fitch Downgrade, Carrier Review of Options (October 2013)
- Reinsurance Deals Inked to Help Troubled Tower Group (October 2013)
- Tower Group to Release 2Q in Early October; Reserve Adjustment Under Wraps (September 2013)
- A.M. Best Puts Tower Ratings Under Review (August 2013)
- Tower Group, Meadowbrook Filing Delays Prompt Shareholder Investigations (August 2013)