Fitch Ratings has downgraded Tower Group International's issuerdefault rating to CC from B, and downgraded Tower's operatingsubsidiaries' insurer financial strength ratings to B from BB.

According to Fitch, the CC rating means it feels a company has“very high levels of credit risk.

The decision was triggered by the Bermuda-based company's thirdquarter 2013 statutory financial statement filings and recent GAAPdisclosures, in which it disclosed that it has added an additional $75 million to $105 million in reservecharges. This is on top of the $364 million previously taken in the first half of2013.

In its downgrade statement, Fitch analysts said that since theirlast review in October, the agency believes Tower's “competitiveposition has been substantially reduced and has material concernsabout Tower's ability to maintain current business.”

The statement notes that Tower Group has “engaged an investmentbank to explore strategic alternatives but no alternatives havebeen publicly announced to date.”

Fitch analysts say that, with the most recent adverse reservecharges, the ratings agency has concerns that some of the U.S.operating subsidiaries have Risk Based Capital (RBC) ratios belowthe company action Level.

In Bermuda, Tower Reinsurance Limited's (TRL) solvency ratio isbelow that of the minimums established by the Bermuda MonetaryAuthority (BMA), Fitch says. Fitch, however, did note that Tower isworking with the Bermuda regulator to transfer certain assets ofanother Bermuda subsidiary to cure the deficiencies at TRL.

Fitch says its concerns with Tower Group's long-term viabilitystem from its high risk of litigation, rapid deterioration inreserves, ineffective corporate governance, and “untimely publicupdates of financial information.”

It said it is also concerned that Tower Group might havedifficulty refinancing for $150 million in a senior convertiblenote due in September 2014.

The $150 million represents the second of three classes of debtTower had. The first was a $70 million bank-loan facility, whichTower paid off through the sale of its stake in Canopius Group lastmonth.

The remaining debt is longer term subordinated debt that is duebeginning in 2033.

Fitch says Tower Group has been forced to add to reservesbecause it tried to grow via acquisitions during a period when highcapacity in insurance markets caused rates to drop.

That has resulted in the need to add substantively to reservesin “long-tail” products for accident years 2008–2011. The lossesTower Group is reserving for are centered in workers' compensation,commercial multi-peril liability, other liability, andcommercial-auto liability.

Fitch also voiced concern about inadequate internal controlsrelating to the loss reserving process at Tower Group.

In justifying its decision to downgrade the company, FitchRatings also cited Tower Group's inability to timely produceaccurate financial statements. That has led Fitch to “consider itslevel of corporate governance to be ineffective,” Fitch Ratingsanalysts say in their statement.

Tower filed its second-quarter results late inNovember.

In October, A.M. Best downgraded Tower Group to “B++” from “A-” after thesecond-quarter reserve shortfall came to light. Fitch had alsodowngraded Tower Group in October.

In November, the company reported that there is “substantialdoubt about [its] ability to continue as a going concern.” Itdid so after reporting a $507.3 million 2013 second-quarter netloss that stemmed from the over $300 million in reserve charges inOctober.

Still, Tower President and CEO Michael H. Lee, in a Nov. 15letter issued to business partners, stated his belief that thecompany would be able to meet all of its obligations, “including toour policyholders as well as our lenders.”

In November, Tower Group also said it would cut its workforce by10 percent as part of an initiative to “streamline its operationsand focus resources on its most profitable lines of business.”