National Aug 29, 2014

Tower Group and its subsidiaries downgraded to ‘C'

A.M. Best has downgraded the financial strength rating to "C" (Weak), which remains under review, from "C++" (Marginal) and the issuer credit ratings to "ccc" from "b" of the pooled and reinsured members of the Tower U.S. Pool and Castle Point Reinsurance Co. Ltd. Concurrently, the issuer credit rating was downgraded to "c" from "cc" of the companies 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 2014. The merger termination date is Nov. 15, 2014.

According to A.M. Bests Aug. 29 press release, "The rating actions take into consideration TWGPs 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 TWGPs ability to repay its senior debt holders in the event its pending merger with ACP Re Ltd. (Bermuda) does not occur on or before Sept. 15, 2014. These actions also consider the additional ratings drag placed on all of TWGPs 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 A.M. Best release further reported, "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."

Adirondack and New Jersey Skylands

Adirondack Insurance Exchange and New Jersey Skylands Insurance Association are member-owned reciprocal companies, managed by an attorney-in-fact. In the case of Adirondack, its Adirondack AIF LLC, and for New Jersey Skylands, its New Jersey Skylands Management LLC, both of which are indirectly wholly owned subsidiaries of Tower Group. 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 NR from A.M. Best and an A (Exceptional) rating from Demotech, which were affirmed on June 20, 2014. Neither reciprocal shares the financial stability rating assigned to Tower Group.

What this means to agents

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 regarding the insolvency coverage provided by your E&O carrier in the event of a claim involving Tower Group International Ltd.

Other member inquiries may be sent to PIAs Industry Resource Center at resourcecenter@pia.org or by calling (800) 424-4244.

Rest assured, PIA will continue to watch this issue closely and alert you to any new developments.

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