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June 3, 2011
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The rating agency A.M. Best has affirmed the ratings on Tower Group Inc. (TWGP) and its subsidiaries. The ratings action includes affirmation of issuer credit ratings (ICR) of “bbb-” and debt rating of “bbb-” on $139.8 million 5.00% senior convertible notes due 2014 of Tower Group Inc. It has upgraded the outlook on Tower Group to positive from stable.
The rating agency views favorably the acquisitions made by Tower Group over the last few years, which has enabled the company to diversify its business mix. In 2011, the company has acquired the renewal rights to the middle market commercial package and commercial automobile business underwritten through the NAV PAC division of Navigators Group, Inc.
The rating agency is also optimistic about the acquisition of OneBeacon Insurance Group, Ltd.’s personal lines business, which Tower completed in July 2010. The acquisition has broadened the company’s Personal lines business. In 2009, Tower Group had acquired CastlePoint, Hermitage and Specialty Underwriters Alliance, which not only helped the company expand outside the Northeast, but also accounted for a major chunk of the company’s business.
Adequate loss reserves, solid capitalization, moderate leverage, strong operating performance and disciplined underwriting are among the other positives of Tower Group.
The offsetting factors to the ratings include a soft property and casualty market, intense competition and business concentration in northeast U.S. Though the company has successfully integrated past acquisitions, there remains an uncertainty about the integration of potential acquisitions given the unstable economic environment.
The rating action also affirms the financial strength ratings (FSR) of “A-“ and ICR of “a-“ on CastlePoint Reinsurance Company, Ltd. and upgrades the outlook to positive from stable. The rating agency acknowledges CPRe’s role as captive reinsurance provider within Tower Group. Besides that, CastlePoint’s solid capitalization and a profitable operating performance also aided the ratings.
A.M. Best has assigned each of Tower Group’s insurance company subsidiaries a Financial Strength rating of “A-“ (Excellent), which is the fourth highest of the fifteen rating levels. The ICRs of “a-“ on these subsidiaries have also been affirmed. And all the ratings translate into a stable outlook.
Read the full analyst report on "TWGP"
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