Tower Group International must deal with more ratings downgrades from A.M. Best, spurred by its soaring net losses and uncertainty over whether it can carry its debts through an intended merger with ACP Re.

A.M. Best said its revised ratings takes into consideration the Bermuda insurer and reinsurer’s recent regulatory filing that disclosed nearly $106 million in net losses over the first six months of 2014, plus shareholder’s equity of negative $11 million. As well, the rating downgrades “reflect the heightened uncertainty around [Tower Group’s| ability to repay its senior debt holders in the event that its pending merger with ACP RE … does not occur on or before Sept. 15, 2014,” A.M. Best said.

Specifically, the insurance rating agency downgraded the financial strength ratings to C (Weak) from C++ (Marginal), and issuer credit ratings to ccc, from b, of the pooled and reinsured members of the Tower US Pool and Tower’s CastlePoint Reinsurance Company, Ltd.

At the same time, A.M. Best has also downgraded the issuer credit ratings to c from cc, and the debt rating on $150 million of senior unsecured convertible notes due Sept. 14 for holding company Tower Group, Inc. The issuer credit rating for parent Tower Group International faced a similar downgrade.

Additionally, A.M. Best said it remains concerned that Tower Group continues to delay reporting its quarterly SEC filings, and questioned “its ability to operate as a going concern.”

As of May, A.M. Best had already downgraded Tower’s financial strength ratings for the third time in recent months, driven by concerns over its financial liquidity and the worry that it is financially overextended.

There’s also Tower’s merger agreement with ACP Re, first announced in January and amended during the year. A.M. Best noted that the merger is anticipated to close in September 2014, but could be delayed as late as Nov. 15, 2014, which is when the merger agreement would be terminated if it does not happen by then.

A.M. Best said the ratings as they now stand for Tower will remain under review, pending the merger, if it happens.

Source: A.M. Best

Topics AM Best