National May 9, 2014
Tower Group International, subsidiaries downgraded to 'C++'
A.M. Best has downgraded the financial strength rating to "C++" (Marginal), which remains under review, from "B" (Fair) and the issuer credit ratings to "b" from "bb" of the pooled and reinsured members of the Tower US Pool and Castle Point Reinsurance Company Ltd. Concurrently, the issuer credit rating was downgraded to "cc" from "b-" of the ultimate parent, Tower Group International Ltd.
These ratings will remain under review pending the planned merger with ACP Re, which is expected to close in summer 2014, but which has a merger termination date of Nov. 15, 2014.
According to a press release issued today by A.M. Best, "The rating actions take into consideration TWGP most recent Securities and Exchange Commission 10K filing, which included an additional $63 million of prior-year reserve development, further reductions in GAAP shareholders' equity as well as ongoing declines in statutory policyholders' surplus and risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio. These rating factors are in addition to the diminished shareholders' equity and reserve actions already taken by TWGP during the year."
A.M. Best release further reported that these ratings reflect the group's significantly elevated financial leverage, constrained liquidity and heightened uncertainty around Tower Group International Ltd.'s ability to repay its senior debt holders in the event its pending merger with ACP Re Ltd. (Bermuda) does not occur. According to the release, continued delays in reporting its quarterly filings was another concern noted.
Tower issued this letter to its agents today.
Adirondack and New Jersey Skylands
In July 2010, Tower had two notable management company acquisitions: Adirondack AIF LLC and New Jersey Skylands Management, which are indirectly wholly owned subsidiaries of Tower Group. Adirondack Insurance Exchange and New Jersey Skylands Insurance Association are member-owned reciprocal companies and are managed by an attorney-in-fact. While these subsidiaries manage the reciprocals operations, they do not provide the carriers surplus. Tower provides management services to the reciprocals. The solvency of Adirondack or New Jersey Skylands remains unaffected by Towers recent financial announcements. Both Adirondack and New Jersey Skylands carry an "A" Exceptional rating from Demotech, which were affirmed on March 26, 2014. Neither reciprocal shares the financial stability rating assigned to Tower Group.
What this means to you
It is prudent to notify your existing customers to make them aware of this new downgrade. A sample letter is available here. PIA also offers several other resources relating to company downgrades, which can be accessed at the following websites for: Connecticut; New Hampshire; New Jersey; and New York.
Most E&O carriers insolvency coverage responds according to the insurance carriers rating at the time of placement. We recommend you contact your carrier, if you have any concerns with regard to insolvency coverage provided by your E&O carrier in the event of a claim involving Tower Group International Ltd.
All other member inquiries may be sent to PIAs Industry Resource Center at resourcecenter@pia.org or by calling (800) 424-4244.
PIA will continue to watch this issue and keep you updated.
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