Tower Group to merge with ACP Re

Troubled Tower Group International, which was downgraded last year following the revelation of a substantial shortfall in its reserves, has agreed to merge with ACP Re, a privately-owned Bermuda reinsurer.

The deal is valued at $172.1 million and will be designed to strengthen the group’s depleted reserves. It said last year it needed to strengthen loss reserves by approximately $365 million and write down $214 million in goodwill. It has since also concluded a number of reinsurance agreements to strengthen its position.

ACP Re has offered Tower Group holders $3 a share. The controlling shareholder of ACP Re is a trust established by the founder of AmTrust Financial Services, National General Holdings Corporation and Maiden Holdings.

AmTrust Financial Services also said it would buy renewal rights and assets of the commercial lines insurance operations of Tower for around $125 million.

Michael Lee, chairman, president and chief executive officer who owns approximately 4.2 percent of the stock of Tower, has agreed to vote his shares in favour of the merger.

The transaction, which is expected to close in summer 2014, was led by financial advisors JP Morgan Securities.

Tower Group had grown rapidly mainly through acquisitions but has hit problems recently and was forced to postpone its second-quarter results twice after it miscalculated the size of loss reserves.