On Mar 11, 2014, Zacks Investment Research downgraded Tower Group International, Ltd. ( TWGP) to a Zacks Rank #4 (Sell).
Why the Downgrade?
Since the beginning of 2014,Tower Group’s share price tanked 14.2%. In addition, On Mar 7, the company received a notice from Nasdaq for not filing its annual report on Form 10-K for the period ended Dec 31, 2013. The company has, of late, been plagued with problems like mounting losses, reserve shortfall, job cuts, sell off of stake in Canopius and annulment of the previously announced acquisition of American Safety Reinsurance, Ltd. (ASRe).
In Jan 2014, Tower Group opted to merge itself with ACP Re Ltd., a Bermuda-based reinsurance company, as a strategic end game to save itself after suffering from serious reserve shortfall in workers’ compensation, commercial liability and commercial auto business lines.
Tower Group experienced significant losses and reductions of statutory surplus in its insurance subsidiaries in the first half of 2013, and there are currently no commitments or assurances to raise additional capital, execute strategic alternatives or liquidate certain investments at prices sufficient to repay the outstanding balance under its credit facility. Until the completion of a definitive executable plan to correct statutory capital deficiencies and repay the credit facility, there is substantial doubt about the company's ability to continue as a going concern.
In 2013, Tower Group delayed reporting its financial results as it was caught up in calculating its reserve shortfall and settling other issues. Moreover, the company sold its stake in Canopius Group Ltd. and used the proceeds to fully repay a $70 million outstanding credit facility from Bank of America Corp. ( BAC).
Further, in Dec 2013, the rating agency A.M. Best Co. lowered Tower Group’s issuer credit rating to ‘B’ from ‘B++’ and maintained its negative outlook.
The Zacks Consensus Estimate also witnessed downward revisions. For 2014, the consensus stands at a loss of 13 cents per share as both the estimates were revised downward from earnings per share of 51 cents over the last 30 days. For 2015 as well the consensus moved down to a loss of 5 cents from earnings of $1.35 per share as 1 of the 2 estimates moved south over the same time frame.
Other Stocks to Consider
While we prefer to avoid Tower Group at present, better-ranked stocks in the insurance sector include Alleghany Corp. ( Y) and AmTrust Financial Services, Inc. ( AFSI). Both these stocks sport a Zacks Rank #1 (Strong Buy).