Tower Group’s (TWGP) shares plummeted over 20% last Thursday.
Tower is Bermuda-based and through its subsidiaries underwrites insurance and reinsurance products including commercial, personal, and specialty insurance, in Bermuda, the United States and London markets. On August 7, 2013 the Company issued a press release announcing that Tower is postponing the release of its financial results for the second quarter of 2013 and its previously announced conference call to discuss the results, originally scheduled for August 8, 2013. In the press release, the Company stated that “additional time is needed to review matters relating to the estimate of its loss reserves and, primarily due to the integration of the Canopius Bermuda merger, its allocation of goodwill and certain tax accounts.” The Company further disclosed that it is working with the assistance of outside professionals to resolve these matters and does not expect to file its report on Form 10-Q for the quarter ended June 30, 2013 by the required filing date of August 9, 2013.
It was last fall that the record storms tore through the northeast where Tower Group is concentrated. Their stock price dropped from about $18/share to below $16 within a month after losses were calculated. Since then their stock was on a tear reaching a high of $22.30/share before the latest drop. I believe this giant drop in price back to around the $16/share level presents a good opportunity for someone willing to take on a little risk and also provides a 4% yield. As long as Tower continues to pay their dividend then I’m willing to see how things shake out and see the effects of the merger on their earnings.
Back in March, Tower Group announced its plans to merge with Canopius Bermuda. Shareholders received 1.133 shares of the new Tower for every share of the old Tower they owned. This is why it looks like their dividend decreased when it actually stayed the same. Their press releases can be found on their website. http://www.twrgrp.com/
Last week, I wasn’t compelled to buy more shares right away. I wanted to see what happened to the stock price over the next few days. So I sold a put first.
Last week I sold 1 Oct 19 ’13 $20 Put @ $3.00
Monday I added 123 shares of TWGP @ $16.24/share reducing my cost basis to $17.24/share.
This is one of my few speculative plays. I now have a full position in TWGP and also have the chance to pick up another 100 shares in Oct. for a cost of $17/share.
This purchase adds $81.18/year to my dividend income and has increased my forward 12-month dividends to $7017.04.