Wednesday, October 2, 2013

Seeking Alpha: Tower Group Using Reinsurance For Assurance

When I wrote about the "almost unbelievable" situation at Tower Group (TWGP) on September 18, little did I know the story was about to get even more volatile. Not only did the stock plunge significantly on that day (down almost 30%), but the following days saw the stock fall another 30% before rebounding a bit.

On Tuesday night, the company announced a series of reinsurance agreements that should bring some stability to the situation. While two of the agreements will help the company manage and contain additional losses from its workers comp and multi-peril liability businesses, the others will help ease the company's capital needs for the remainder of the year and also give the company a little more time to work through its loss estimate and reserving issues.

I don't want to jump to the immediate conclusion that these transactions "save the company". There are still serious issues and questions regarding the quality of Tower Group's management and their ability to correctly estimate and price risk. If they do not correct those deficits, all they have done is buy some time. What's more, it's still very difficult to value this company appropriately until the expected earnings report next week, when the company will hopefully provide updated information about the changes to its reserves, its book value position, and its near-term earnings guidance.

Please continue here:
Tower Group Using Reinsurance For Assurance

No comments: