Now that Tower Group International is a part of Bermuda-based reinsurer ACP Re Ltd., its financial ratings have stopped dropping and are improving.

A.M. Best said it upgraded the financial strength ratings of Tower (and its subsidiaries), which became a subsidiary of ACP Re as of Sept. 15.

The reason. A.M. Best attributed the change to the fact that ACP Re’s merger with Tower and its divisions (including CastlePoint Reinsurance and others), finally went through after it was initially announced back in January. That action helped ease Tower’s debt issues, A.M. Best explained.

“The rating actions on Tower and Castlepoint reflect in part the reduced financial strain due to the retiring of Tower Group Inc.’s senior convertible notes as part of the merger agreement and the implicit and explicit support provided by ACP Re to these entities at close,” A.M. Best said.

In short, Tower Group subsidiaries now have a financial strength rating of B- (Fair), up from C (Weak). Its issuer credit ratings are now bb-, up from ccc. As well, A.M. Best said it withdrew mid-level issuer credit and debt ratings on $150 million 5 percent senior unsecured convertible notes due in 2014 for holding company Tower Group, now that those notes are retired.

ACP Re, on the other hand, risks a ratings downgrade in the future. A.M. Best said that the company’s financial strength rating of A- (Excellent) and issuer credit rating of a- are now under review with negative implications. That’s because A.M. Best said it is continuing to assess the financial impact of the merger on ACP Re, “including an evaluation of Tower’s legacy loss reserve position acquired as part of the transaction.”

With the acquisition, Tower is now a wholly owned subsidiary of ACP Re. National General Holdings Corp. (part owner of ACP Re along with the founder of AMTrust Financial Services Inc. and Maiden Holdings Ltd., via a trust) now owns Tower’s personal lines business.

Source: A.M. Best

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