Fitch Downgrades Tower Group's IFS Ratings; Withdraws All Ratings

Tue May 13, 2014 11:59am EDT

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(The following statement was released by the rating agency) CHICAGO, May 13 (Fitch) Fitch Ratings has downgraded and maintained on Rating Watch Evolving the Insurer Financial Strength (IFS) ratings of Tower Group International, Ltd.'s (TWGP; Tower) operating subsidiaries to 'CCC' from 'B'. Subsequent to this action, Fitch has withdrawn these ratings and all of Tower's ratings including the 'CC' Issuer Default Rating (IDR) of the parent, due to insufficient information. At the time of withdrawal all ratings were on Rating Watch Evolving due to the planned merger with ACP Re, Ltd. (ACP Re). A full list of rating actions follows at the end of this release. KEY RATING DRIVERS Fitch's downgrade of Tower's operating subsidiaries follows the recent filing of the company's 2013 GAAP financial statements. The filing disclosed further deterioration in the company's reserve position during the fourth quarter of 2013. This reserve charge of $63 million follows previously announced charges of $470 million. The additional reserve strengthening was outside of expectations for the previous rating. In addition, the filing reported that six U.S. based operating companies had NAIC risk based capital (RBC) below the Company Action Level established by regulators, and two Bermuda based operations capital solvency ratios below minimum thresholds set by Bermuda regulators as of year-end 2013. A cut-through reinsurance transaction effective Jan. 1, 2014 materially improved the capital position of many of these companies. Fitch notes that Tower has a $150 million debt maturity on Sept. 15, 2014. Fitch does not believe that Tower has the ability to meet this obligation using its own financial resources. The merger with ACP Re may provide Tower the resources to meet the maturity. However, Fitch does not rate ACP Re, a private entity with limited public financial data, and thus is unable to form an opinion on its creditworthiness and its abilities to provide funding to Tower to support the debt repayment. Fitch does not expect to receive financial information on ACP Re in the near to intermediate term. Accordingly, Fitch cannot assess the probably of default on this debt at this time, including if the default appears probable ('CC' definition) as per the most recent rating; or if default is imminent or inevitable ('C' definition), which would be the case would ACP Re be considered unable or unwilling to provide funding; or if some other scenario should be considered in setting the rating. Fitch also would not expect to have sufficient information to rate Tower's IDR, debt or policyholder obligations post close if Fitch still had no information on ACP Re, even if ACP Re ultimately provided funding to support the Sept. 15, 2014 debt repayment. Therefore, Fitch is withdrawing all ratings on Tower and its operating subsidiaries due to a lack of robust data to maintain the ratings. Fitch has maintained on Rating Watch Evolving and subsequently withdrawn the following ratings: Tower Group International, Ltd. --IDR 'CC'. Tower Group, Inc. --IDR 'CC'; --5% senior convertible debt rating 'C'. Fitch has downgraded to 'CCC' from 'B', maintained on Rating Watch Evolving, and subsequently withdrawn the IFS ratings for the following companies: Tower Insurance Company of New York Tower National Insurance Company Preserver Insurance Company CastlePoint National Insurance Company York Insurance Company of Maine Hermitage Insurance Company CastlePoint Florida Insurance Company North East Insurance Company Massachusetts Homeland Insurance Company CastlePoint Insurance Company Kodiak Insurance Company Contact: Primary Analyst Gerald B. Glombicki, CPA Director +1-312-606-2354 Fitch Ratings, Inc. 70 West Madison St. Chicago, IL 60602 Secondary Analyst James B. Auden, CFA Managing Director +1-312-368-3146 Committee Chairperson Andrew Davidson, CFA Senior Director +1-312-368-3144 Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549, Email: brian.bertsch@fitchratings.com. Additional information is available at 'www.fitchratings.com'. THIS ISSUER DOES NOT PARTICIPATE IN THE RATINGS PROCESS OTHER THAN THROUGH THE MEDIUM OF PUBLIC DISCLOSURE. Applicable Criteria and Related Research: --'Insurance Rating Methodology' (Nov. 13, 2013). Applicable Criteria and Related Research: Insurance Rating Methodology here Additional Disclosure Solicitation Status here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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