Casualty-based insurer Tower Group International (TWGP) collapsed on Dec. 18 as the company added an additional $105 million in loss reserves after already adding $365 million earlier in the year. The loss reserves now double the market cap of the entire company, who responded by firing 10 percent of their workforce and shedding almost 30 percent of its valuation.
Tower Group’s woes first began as they struggled to pay off claims relating to property damages incurred from Superstorm Sandy. However, the Bermuda-based company’s woes cannot merely be blamed on an act of God, with additional losses for the company incurred via worker’s compensation claims, commercial liability, commercial auto policies, and massive internal structuring.
The restatement of loss reserves in the fiscal years 2009 through 2011 further damaged the company’s bottom line, and sent investors fleeing in droves. While it looked for a time that the insurer could absorb the misfortunes and eventually rebound, it now appears the obvious options for Tower Group are a fire sale of part or all of their assets.
Analysts responded in kind, with a flurry of downgrades hitting the stock. Compass Point lowered their price target to $5.00 a share and downgraded Tower Group to “neutral.” FBR Capital Markets likewise cut their price target to $5.00 and downgraded to market perform.
Tower Group can claim the dubious title of being the financial sector’s worst performing stock in 2013, shedding over 80 percent of its market cap in 2013. The massive valuation dropoff began in August when the company first announced the surprise addition of hundreds of millions of loss reserves.
By midday on Dec. 18 Tower Group had dropped 29.3 percent to hit $2.77 a share. Tower Group has been covered extensively in Equities.com’s Turnaround Stock Portfolio, which has been tracking 10 separate beleaguered stocks since September.
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