Tower Group International Ltd. (TWGP) panicked investors on Aug. 8 when in lieu of a second quarter 2013 earnings report they instead delivered a pessimistic guidance memo. The postponement of the earnings call, coupled with troublesome numbers in the guidance spooked investors, and sent the stock reeling.
The Bermuda-based insurer had already announced via press release that they would be postponing the earnings report, which had originally been scheduled to take place after the bell on Aug. 7. In the guidance they issued in its stead, the company promised to give the requisite information to investors “within the next 30 days.”
Tower Group had been hit hard by Superstorm Sandy, and projected losses of $70 million in November 2012. Following those projections, the stock tanked, but investors remained optimistic that the resulting rise in premiums the company would institute following Sandy would make up for the losses.
But with the guidance memo, that optimism has evaporated. In the memo, the company claims that they have retained an independent actuarial firm to fully assess the scope of its “adverse reserve developments,” which are a series of claims against insurers that occur unexpectedly and simultaneously. If serious enough, adverse reserve developments can threaten the very solvency of a casualty carrier. Tower Group estimates their adverse reserve developments could total, pre-tax, between $60 and $110 million.
In short, things look bad, and with the adverse reserve developments, the company is definitely sure to not even come close to hitting the $0.56 per share earnings that analysts had expected. A loss of $110 million would translate to a loss of $0.80 to $0.85 cents a share, which is way below expectations.
Investors, in turn, are fleeing the stock in droves. The stock is trading at almost ten times normal volume as stockholders sell off their shares in Tower Group in mass quantities.
Though Tower Group is up 40.74 percent on the year, the stock plunged on Aug 9, falling 23.69 percent to hit $16.49 a share.