Why Tower Group Shares Collapsed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of insurance-provider Tower Group (NASDAQ: TWGP  ) were looking faulty today, down as much as 17% after a report from Insurance Insider said the company had retained three banks to help it with its "reserving crisis."  

So what: The property-and-casualty insurer's shares are down 70% since early August, when it delayed its second-quarter results, and said it had hired an independent actuarial firm to review its loss reserves. The company estimated it could have a loss in that segment of $60 million to $110 million, or close to as much as $1.00 per share. In the aftermath, several lawsuits were filed against Tower on behalf of shareholders, and the company has been downgraded by several research firms. The stock continued to plummet on September 17 after Tower again postponed its earnings release for October 7.

Now what: Tower has not presented new figures regarding the size of the reserve-related loss, but the repeated postponement, along with the announcement that it's seeking the help of major banks including JPMorgan Chase, indicates that the problem is probably worse than originally conceived. Insurance Insider said yesterday that the company had hired JPMorgan to help it sell itself, which still seems like one possibility. At this point, the stock looks like the textbook definition of the proverbial falling knife, as the news just seems to be getting worse. Investors will want to keep an eye out Oct. 7, when the stock is likely to see another huge movement one way or another.

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  • Report this Comment On September 27, 2013, at 11:15 PM, raulia wrote:

    I believe shorts are at it otherwise there is no reason behind fall.TWGP CEO own 2,297,926 shares of Common Stock.1.2 million share that he has sold was forced sales to cover the loan by banks from his personal finance,it has nothing to do with company.The balance sheet is strong with over $6 billion in assets,$5.1billion in liabilities.This company hired 3 banks to access the reserves because it may be possible that Chief Underwriting Officer wasn't doing his job properly,Thus far he has resigned or forced to resigned under common practice of business.Since the economy has been recovering and most of financial institution have reported positive earning and profits.So never know if the reserves are rising to the height where it was hard to keep them on track.All these free fall and intention to create weakness is just an attempt to easy coverage of shorts that fall on poor investors.Why 97% institutional investors or 3% insiders include CEO will hold on to their share till the value comes to zero?So they did not sell any piece because there is nothing to panic.I think there are only 4 million share that been throwing and covering again.More than 50 million shares are unmoved.Thus far short are not just in trouble but they are on the death row on tight sequeeze.

  • Report this Comment On September 29, 2013, at 3:01 AM, raulia wrote:

    There are few more points to add that TWGP has stock re purchase program in place for $50 Million.They may capture all the lose share at this level since they have three banks working for them right now.

  • Report this Comment On September 29, 2013, at 11:40 AM, hanover67 wrote:

    I've had TWGP on my watchlist and I'm waiting to see what their October 7 announcement will be. One thought I have had is that insurance regulators must have examined the company's reserves, and unless something is really off the rails, TWGP is still a viable business. Time will tell.

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