A.M. Best places Tower's credit rating under review pending its sale to Fairfax Financial Holdings; Says it will consider the extent of Fairfax’s 'financial support' to determine a rating

A.M. Best has placed Tower’s credit rating “under review”, following the insurance company last week announcing it has agreed to sell all its shares to Fairfax Financial Holdings.

The Canadian giant is poised to buy all the embattled insurer’s shares for $1.17 each - 47% more than its three-month volume weighted average share price - pending shareholder and regulatory approval.

Tower Insurance has a Financial Strength Rating of A- and a Long-Term Issuer Credit Rating of a-.

Its parent company, Tower Limited, has a Long-Term Issuer Credit rating of bbb-.

A.M. Best says: “The ratings will remain under review until the close of the transaction, and until A.M. Best completes its discussions with the Fairfax management team.

“Any potential rating impact from actual or anticipated changes to TL’s and TIL’s credit profiles also will be assessed.

“Additionally, A.M. Best will factor its view of the extent of Fairfax’s financial support into the final rating determination.”

Tower Chairman Michael Stiassny has told shareholders: “An out-of-cycle rating review is standard business practice in the event a company is in play.”

A.M. Best in July red-flagged the fact Tower had run out of reinsurance to cover claims related to the February 2011 quakes, so was digging into its own coffers to cover outstanding claims.

It expressed its concerns around the company’s “financial profile deteriorating”, and said the quake hangover could have a “material impact on its prospective financial strength”.

In separate, but related news, a Melville Jessup Weaver report says the $197 million Fairfax has agreed to pay for Tower is below the company’s net asset value, worth $224 million (including $37 million in tax assets).

“It is unclear whether a new owner would be able to utilise these assets,” it says.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

4 Comments

I wonder how Tower's position is affected by the Chch fires. Surely Fairfax will want total exposure examined before the sale goes ahead.

At worst they would have 2 or three of the total loss houses, based on market share. Shouldn't be more than a minor blip.

But Fairfax must have some seriously clever people if they really have got their heads properly around the likely development of EQ costs in CHCH. Those who have been fully immersed in it for years, are still unsure. Sharp dudes , these Canadians.

Very smart dudes no doubt. They obviously can see what no other can. Unless Tower succeeds in getting the full Peak -re reinsurance & the claw back from EQC it is hard to imagine how they could remain solvent. Even then would that be enough to cover the outstanding EQ claims for a start. So why do you buy into all that uncertainty at such a premium on the share market value? Some ability must be being imported with Tower, to off set and set off tax impositions perhaps somewhere, in the grand scheme of things, ie the big big international conglomerate that these smart Canadian dudes undoubtedly are!

Towers credit rating - Junk Bond status which is considerably better than their reputation - ZZZ- - hope the Canadians have insurance for a total loss.