Two Supporters of the PEO Industry Cut a Deal for the Assets and Renewal Rights of Tower Group International

After Tower announced a nine digit reserve shortfall on August 8’th, 2013, it’s stock price and AM Best rating have been in a free fall.  A once proud AM Best A- rated company with over a billion dollars of surplus as of August 7’th, 2013, was only able to get salvage $171m in proceeds from the deal consummate January 3’rd, 2014, or $3 a share.

Key facts:

• Tower and all of its subsidiaries have entered into a planned agreement and plan of merger with Bermuda-based reinsurer ACP Re (AM Best “A-) for $172.1m on January 3’rd, 2014.  ACP Re is a private company that is owned by a trust that is owned and controlled by the original investors of Amtrust (“AFSI”), Maiden Holdings (“MHLD”) and National General Holdings Corp.  (“NGHC”).  It is expected that Tower will be the successor corporation of the merger and a wholly owned subsidiary of ACP Re.  Additionally:
  

• Concurrent with the execution of the Merger Agreement, the transaction includes both reinsuring cut-through and quota share arrangements with Technology Insurance Group, an Amtrust AM Best “A rated” carrier.  Effectively and upon regulatory approval, this will effectively provide member carriers of the Tower Group (i.e. Tower Insurance Company and Castlepoint National) with “A rated” support for its policyholders effective January 1’st 2014 and entered into on January 3’rd, 2014.  It is hoped and expected this approval will come in the next few weeks as it is in their better interests to support the transaction. 

  The agreement is available at http://biz.yahoo.com/e/140106/twgp8-k.html and is summarized below:

We thank the Amtrust family for their continued support of the PEO industry, the Risk Transfer family and all of our client PEO’s and their client companies.  It is exciting to start the year with such positive news where our clients can stay in place with Tower and still enjoy the financial stability that Amtrust enjoys.  We see this as a very positive event and look forward to going back to doing what we do best – allowing our clients to grow profitably with the financial security of “A” rated insurance paper.As more information comes out on this eventful topic to many PEO constituents, we will pass it along.

COMMERCIAL LINES CUT-THROUGH QUOTA SHARE REINSURANCE AGREEMENT

THIS COMMERCIAL LINES CUT-THROUGH QUOTA SHARE REINSURANCE AGREEMENT (this “Agreement”) is entered into as of January 3, 2014 by and among TOWER INSURANCE COMPANY OF NEW YORK, an insurance company organized under the laws of New York, CASTLE POINT NATIONAL INSURANCE COMPANY, an insurance company organized under the laws of Illinois, TOWER NATIONAL INSURANCE COMPANY, an insurance company organized under the laws of Massachusetts, HERMITAGE INSURANCE COMPANY, an insurance company organized under the laws of New York, CASTLE POINT FLORIDA INSURANCE COMPANY, an insurance company organized under the laws of Florida, KODIAK INSURANCE COMPANY, an insurance company organized under the laws of New Jersey, NORTH EAST INSURANCE COMPANY, an insurance company organized under the laws of Maine, YORK INSURANCE COMPANY OF MAINE, an insurance company organized under the laws of Maine, MASSACHUSETTS HOMELAND INSURANCE COMPANY, an insurance company organized under the laws of Massachusetts, PRESERVER INSURANCE COMPANY, an insurance company organized under the laws of New Jersey, and CASTLE POINT INSURANCE COMPANY, an insurance company organized under the laws of New York (the “ Ceding Companies ” and, each a “ Ceding Company ”), and TECHNOLOGY INSURANCE COMPANY, INC., an insurance company organized under the laws of New Hampshire (the “ Reinsurer ”) (collectively, the “ Parties ”).

• The transaction is conditioned upon a number of factors not the least of with is no more then 15% of Tower stockholders dissenting to the merger.

• It should be noted that the Tower board and Chairman have officially signed off on the plan to merge and it would be anticipated that discussions have been had with regulatory and rating bureaus to explain the applicable deal points in advance of an agreement between these companies being made.

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