UPDATE: Compass Point Downgrades Tower Group International on One Step Forward, Two Steps Back

In a report published Wednesday, Compass Point analyst Ken Billingsley downgraded the rating on Tower Group International TWGP from Buy to Neutral, and lowered the price target from $5.25 to $5.00. In the report, Compass Point noted, “We are lower our rating to Neutral from Buy and our price target to $5 from $5.25. The step forward: The company removed a capital issue by selling its investment in Canopius Group Limited (a private company) for $69.7M (approximately what they paid for the position in 2012). They used the proceeds to pay off and cancel the $70M credit facility that was due in May of 2014. The step backward: TWGP announced another reserve charge in 3Q13 of between $75M and $105 for the same lines that precipitated the 2Q13 reserve charge of $326.7M (workers' comp, commercial multi-peril, other liability, and commercial auto liability). The company estimates that its U.S. surplus, net of cessions to Bermuda affiliate, will drop to between $315M and $335M from the $374M reported at the end of 2Q13. We estimate the combined statutory surplus of TWGP to be $340M, down from our previous estimate of $445M.” Tower Group International closed on Tuesday at $3.93.