Tower Group Pummeled Again By Series of Downgrades

Jacob Harper  |

Tower Group International Ltd. (TWGP) experienced a key analyst downgrade on Sept 20, rounding up a horrendous week for the insurance company that saw them delay an earnings report for the second time pending an ongoing assessment of the claims stemming from Hurricane Sandy that rocked the Cuba and the US’ eastern seaboard.

Investors in the Bermuda-based property and casualty insurance firm first became nervous following the company delaying the release of their second quarter 2013 earnings report. The report, which was first delayed a month prior, and is now slated for the “week of October 7,” is expected to contain horrendous news.

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The company first hinted that things would be bad when they admitted they had not fully accounted for the severity of claims they would have to pay out as a result of Hurricane Sandy. While natural disasters can sometimes actually be a net positive for insurance companies in the long-term due to resulting rising premiums, the sudden onrush of simultaneous claims (adverse reserve losses) filed by victims of Sandy were especially severe, and the company is obviously struggling to deal with it.

While the $571 million market cap insurer has not revealed what the exact size of the adverse reserve losses are, estimates are as high as $110 million. With the second delay of the earnings report, industry insiders began to suspect the number could actually be even higher.

Analysts have readjusted their positions on Tower Group following the company’s hesitance to release their earnings. On Sept. 20 Sidoti cut their rating from buy to neutral. Two days prior, FBR & Co. downgraded Tower Group as well, cutting their expectations from outperform to market perform.      

The stock plunged on the analyst downgrades, dropping 8.54 percent to hit $9.10, while briefly hitting an all-time low below $9 a share amid five times normal volume.

Tower Group has been brutalized this week, losing a third of its price. Over the last six weeks, the stock has seen its value halved.

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