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
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