Why Tower Group Shares Got Totaled

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 Tower Group International (NASDAQ: TWGP  ) sank a staggering 40% today after the insurer said it needed to add $365 million to its loss reserves and take a $215 million goodwill impairment charge.

So what: The charge is obviously much higher than investors had expected and substantially reduces statutory capital, suggesting that Tower will have a tough time maintaining prior levels of profitability and operating leverage. In fact, the news prompted Fitch Ratings to slash Tower's credit rating from "BBB" to "B'' on "a material weakening in the insurer's financial profile," implying that the company is a particularly risky investment right now.

Now what: Management says it's now reviewing a range of "strategic options," which could include an injection of capital, the divestiture of assets, or even an outright sale of the company. "Since 2010, Tower has been shifting its business mix, significantly de-emphasizing the lines that contributed to the reserve strengthening and modifying its book of commercial lines business," wrote the company in a statement. "Tower is completing its evaluation of other intangible assets associated with its commercial and specialty and reinsurance segments, as well as the goodwill associated with its personal lines segment." Of course, given all the uncertainty surrounding Tower right now, conservative Fools would likely be better off watching things unfold from the sidelines. 

More reliable ways to build wealth
Dividend stocks can make you rich. It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2674132, ~/Articles/ArticleHandler.aspx, 11/26/2014 4:25:45 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement