A.M. Best Affirms Ratings Of Tower Group, Inc. And Its Subsidiaries

A.M. Best Co. has affirmed the financial strength ratings (FSR) of A- (Excellent) and issuer credit ratings (ICR) of “a-” of the pooled and reinsured members of the Tower US Pool (Tower). Concurrently, A.M. Best has affirmed the ICR of “bbb-” and debt rating of “bbb-” on $142.5 million 5.00% senior convertible notes due 2014 of the parent company, Tower Group, Inc. (TWGP) [NASDAQ: TWGP]. The outlook for all ratings is positive.

A.M. Best also has affirmed the FSR of A- (Excellent) and ICR of “a-” of CastlePoint Reinsurance Company, Ltd. (CPRe) (Bermuda). The outlook for both ratings is stable. Additionally, A.M. Best has withdrawn the FSR of A- (Excellent) and ICR of “a-” of Mountain Valley Indemnity Company (MVIC). All companies are headquartered in New York, NY, unless otherwise specified. (See below for detailed listing of the companies and ratings.)

The rating affirmations for Tower’s members reflects their historically strong underwriting results, consistently favorable operating performance, supportive capitalization and diversified business platform. Tower has been able to expand the scope and breadth of its product offerings, distribution channels and geographic footprint through the successful execution of its mergers and acquisitions strategy, which has included both company acquisitions and renewal rights transactions. While Tower will continue to seek out insurance company acquisitions that fulfill specific corporate objectives, a key part of Tower’s future growth strategy includes the recent launch of an organic growth initiative.

Partially offsetting these positive rating factors is Tower’s execution risk associated with any future endeavors, including the recently announced investment in Canopius. This investment, which is subject to the completion of Canopius’ acquisition of Omega, would accelerate Tower’s involvement with the Lloyd’s market and also provide TWGP the option of combining with the Bermuda reinsurance business currently operated by Canopius. Additional offsetting rating factors include operating in a highly competitive environment characterized by significant price competition, the effects from adverse economic conditions and the substantial amount of business derived from the northeastern United States.

As of March 31, 2012, TWGP maintains moderate financial leverage with debt-to-capital of 29.1% and debt-to-tangible capital of 38.7%, including capital in the reciprocal exchanges. While future acquisitions may increase financial leverage at TWGP, it is expected that TWGP will maintain financial leverage and coverage ratios that remain within A.M. Best’s guidelines for its ratings.

The ratings of CPRe recognize its strategic role within the group as a captive reinsurer, its supportive risk-adjusted capitalization and profitable operating results through its reinsurance agreement with Tower.

The withdrawal of MVIC’s ratings acknowledges its withdrawal from the Tower US Pool and its recent sale to an unrated affiliate, Adirondack Insurance Exchange.

Key drivers that could lead to positive rating movement include Tower’s ability to meet its financial projections, post strong operating results and maintain solid risk-adjusted capital. Key drivers that could lead to downward rating movement include a deterioration in the organization’s underwriting and/or operating performance, inadequacy of reserves and a decline in risk-adjusted capital.

The FSR of A- (Excellent) and ICRs of “a-” have been affirmed for the following pooled and reinsured members of Tower US Pool:
  • CastlePoint Insurance Company
  • CastlePoint National Insurance Company
  • Tower Insurance Company of New York
  • Tower National Insurance Company
  • Preserver Insurance Company
  • North East Insurance Company
  • Hermitage Insurance Company
  • CastlePoint Florida Insurance Company
  • Kodiak Insurance Company
  • York Insurance Company of Maine
  • Massachusetts Homeland Insurance Company

The methodology used in determining these ratings is Best’s Credit Rating Methodology , which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Catastrophe Analysis in A.M. Best’s Ratings”; “Understanding BCAR for Property/Casualty Insurers”; “Understanding Universal BCAR”; and “Rating Members of Insurance Groups.” Best’s Credit Rating Methodology can be found at. www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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