On Oct. 7 Bermuda-based insurer Tower Group International (TWGP) released a statement that revealed they will need $365 million in reserves to pay off its claims, sending the company’s shares into a freefall.
The property and casualty insurance company has been expected to deliver catastrophic news for two months, ever since the company first delayed their second quarter earnings report to fully assess the extent of their losses. A second delay of that report in September harried investors even more, and sent the stock reeling.
Tower Group was first hit hard by claims stemming from Hurricane Sandy in early 2013, as the company insured roughly 4 percent of affected properties in New York. The company's problems this quarter were reportedly compounded by a sudden rush of worker compensation claims that have crippled the company. Worker compensation is considered an especially risky segment for insurance companies.
In their first earnings report delay, Tower Group said they expected “adverse reserve loss” to total between $65 and $110 million. The loss will now likely be much more than that. According to Imperial Capital analyst David Havens "the $365 million reserve charge is very surprising and may have actually shocked some folks." In the Oct. 7 statement the company also said they will experience a “non-cash goodwill impairment charge of approximately $215 million for the second quarter of 2013.”
The long-awaited second quarter earnings report, promised for “this week,” has still not been released. In the Oct. 7 statement the company said only that they will release the report “promptly.”
To add insult to injury, Fitch downgraded Tower Group following the announcement.
Tower Group plunged 41.16 percent to hit $4.36. The company has lost almost 80 percent of its value in two months.
Incidentally, Tower Group also happens to be part of Equities.com's ongoing project, the Turnaround Stock Portfolio.