Please ensure Javascript is enabled for purposes of website accessibility

Why Tower Group Shares Collapsed

By Jeremy Bowman - Updated Nov 17, 2016 at 4:19PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The insurance company's "reserve crisis" has gone from bad to worse. Here's what you need to know:

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.

Fool contributor Jeremy Bowman owns shares of JPMorgan Chase & Co. The Motley Fool owns shares of JPMorgan Chase & Co. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/15/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.