Tower delays results due to Canopius merger

Fitch has placed Bermuda-based Tower Group International on rating watch negative after the reinsurer postponed its financial results.

On Wednesday Tower Group International said it was delaying its scheduled release of its financial results for the second quarter of 2013 and its previously announced conference call to discuss the results, originally scheduled for Thursday, August 8, 2013.

A company spokesperson said in a press release that “management concluded that additional time is needed to review matters relating to the estimate of its loss reserves and, primarily due to the integration of the Canopius Bermuda merger, its allocation of goodwill and certain tax accounts. The Company is working to resolve these matters with the assistance of outside professionals. The Company cannot currently predict the length of time of its review.”

As a result of that Fitch Ratings has placed the ‘BBB’ Issuer Default Rating (IDR) of Tower and the ‘A-’Insurer Financial Strength (IFS) ratings of Tower’s operating subsidiaries (collectively referred to as Tower), on rating watch negative. 

Fitch’s said the allocation issues are primarily due to the integration of the Canopius Bermuda merger. The company stated it cannot predict the length of time of its review.

Fitch said it expects to resolve the rating watch status upon the completion of Tower’s review and release of financial statements. A material adverse announcement from the current accounting review could lead to a rating downgrade.

The following is a list of previously published key rating triggers that could lead to a downgrade. These triggers will be considered in the context of any forthcoming announcement:

n Sustained financial leverage above 30% or a sustained decline in operating earnings-based coverage below 6-7 times range.

n Adverse reserve development in excess of 5 per cent of prior year surplus.

n Material deterioration in capital adequacy levels as measured by traditional operating leverage ratios, risk-based capital, and Fitch’s Prism capital model.

n Any large acquisition, defined as approximately 25%-30% of Tower’s net written premium, in the near term or an acquisition that does not complement Tower’s current underwriting platform.

If the delay and review has an immaterial impact on Tower’s financial statements, then Fitch expects to affirm the current ratings. n