Tower Group Adds $365M to Commercial Lines' Reserves

Tower Group International says it needs to strengthen loss reserves by about $365 million for accident years 2009-2011, resulting in an impairment charge of $215 million for the second quarter.

The Hamilton, Bermuda-based says about $185 million is attributable to U.S. subsidiaries.

The deposit bolster reserves in commercial lines, including workers' compensation, commercial property, commercial auto and other liability lines,  due to “adverse loss emergence, coupled with changes in judgment, including actuarial factors,” says Tower in a statement.

The company says it has been shifting is business mix to get away from the lines that have contributed to reserve shortfalls.

Other than the second-quarter goodwill charge of $215 million, Tower says it is evaluating other tangible assets associated with its commercial and specialty and reinsurance segments, as well as goodwill in its personal segment.

Tower looks to announce second quarter results upon management's evaluation. Public companies are now announcing schedule third-quarter earnings releases.

Fitch Ratings promptly downgraded Tower Group's financial strength rating to “BB” from “A-.”

“The company's inability to effectively place adequate controls on the loss reserving process where potential charges were first announced on Aug. 7 followed by additional events, including a drop in the company's share price and the lack of new capital raising, have led to a material weakening in the insurer's financial profile,” says Fitch.

Earlier this year Tower Group said it was in line to buy American Safety Reinsurance from Fairfax Financial Holdings once Fairfax completed a deal to purchase American Safety Holdings.

However, in August, Tower said it would receive $5 million to terminate the deal in order for Fairfax to sell American Safety Reinsurance to Catalina Holdings.