Why Tower Group Shares Collapsed

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of insurance-provider Tower Group were looking faulty today, down as much as 17% after a report from Insurance Insider said the company had retained three banks to help it with its "reserving crisis."

So what: The property-and-casualty insurer's shares are down 70% since early August, when it delayed its second-quarter results, and said it had hired an independent actuarial firm to review its loss reserves. The company estimated it could have a loss in that segment of $60 million to $110 million, or close to as much as $1.00 per share. In the aftermath, several lawsuits were filed against Tower on behalf of shareholders, and the company has been downgraded by several research firms. The stock continued to plummet on September 17 after Tower again postponed its earnings release for October 7.

Now what:Tower has not presented new figures regarding the size of the reserve-related loss, but the repeated postponement, along with the announcement that it's seeking the help of major banks including JPMorgan Chase, indicates that the problem is probably worse than originally conceived. Insurance Insider said yesterday that the company had hired JPMorgan to help it sell itself, which still seems like one possibility. At this point, the stock looks like the textbook definition of the proverbial falling knife, as the news just seems to be getting worse. Investors will want to keep an eye out Oct. 7, when the stock is likely to see another huge movement one way or another.

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The article Why Tower Group Shares Collapsed originally appeared on Fool.com.

Fool contributor Jeremy Bowman owns shares of JPMorgan Chase & Co. The Motley Fool owns shares of JPMorgan Chase & Co. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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