Tower Group International Ltd.'s shares fell again on Wednesday on concerns about the insurance company's plans to take hundreds of millions of dollars in charges.
THE SPARK: Tower said Tuesday that it will add $365 million to its reserves to cover additional losses in its commercial insurance lines. Most of the additional losses occurred between 2009 and 2011. The company will also take a $215 million goodwill impairment charge.
A.M. Best Co., Fitch Ratings and multiple analysts subsequently downgraded their ratings for the insurer.
THE BIG PICTURE: Tower postponed its second-quarter results in August, saying it needed to review its loss reserves.
The $365 million charge covers several different commercial lines of business including workers' compensation, multiperil insurance and auto insurance. The goodwill impairment charge stems from Tower's commercial and specialty reinsurance businesses.
The company said it is evaluating other intangible assets connected to the commercial and specialty and reinsurance segments and its personal insurance segment. It will take that charge in its second-quarter results.
THE ANALYSIS: Fitch responded by cutting Tower's credit rating to "B'' from "BBB," meaning it no longer considers the company's credit investment-grade.
A.M. Best downgraded the company's financial strength rating late Tuesday to "B++," considered its "good" rating, from "A-," its "excellent" rating. A.M. Best said that the once well-regarded company may struggle to restore shareholder confidence after its reserve charges came in so much higher than anticipated.
Keefe, Bruyette & Woods analysts Robert Farnam and Neil Cybart on Wednesday lowered their target price on Tower Group's stock to $7.50 from $21 and urged investors to stay on the sidelines. The analysts said they were expecting the company's $365 million charge to come in closer to $200 million.
SHARE ACTION: Shares fell 55 cents, a nearly 13 percent decline, to $3.84 by afternoon Wednesday. It hit $3.81 earlier in the day, a 52-week trading low. The company's stock has fallen 48 percent since Tuesday.