Why Tower Group International Tanked Again

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  ) plummeted 28% today after the embattled insurer reported a reserve shortfall.

So what: The stock has been pummeled since early August on mounting losses, and yesterday's third-quarter guidance -- management will need to add $75 million-$105 million to its reserves -- suggests the pain isn't stopping anytime soon. While Tower Group managed to pay off a $70 million credit facility by selling its stake in Canopius Group, the big shortfall -- tied once again to workers' comp, commercial liability, and commercial auto policies -- is a clear signal to Mr. Market that the company isn't healing fast enough. 

Now what: Management expects its U.S. combined statutory surplus to decrease from $374 million in the second quarter to between $315 million and $335 million in the current quarter. "While we are disappointed in the additional reserve strengthening, we believe our statutory capital remains sufficient to meet all of our financial obligations," President and CEO Michael Lee said. "Furthermore, we continue to work diligently and believe we are making progress in addressing the issues that have recently affected the company." Given Tower Group's increasingly distressed situation, however, I wouldn't be so quick to bet on it.

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