Tower Thrown Lifeline by Insurer AmTrust After Stock Drop

Tower Group International Ltd. (TWGP), the insurer that plunged last year amid reserve shortfalls, arranged to get a lifeline from AmTrust Financial Services Inc. (AFSI)

Tower will be bought for about $172.1 million, or $3 a share, by a reinsurer controlled by AmTrust’s founder, according to a statement today from Bermuda-based Tower. That compares with the closing price last week of $2.94. AmTrust will acquire assets tied to Tower’s commercial insurance operations, the New York-based buyer said in a separate statement today.

Tower declined 78 percent last year as the company said it needed to add to reserves for claims on policies including workers’ compensation and commercial auto coverage. The insurer hired JPMorgan Chase & Co. (JPM) to evaluate strategic options and said in November it would cut about 140 jobs.

“This deal should be interpreted as a positive” for AmTrust, Randy Binner, an analyst at FBR Capital Markets, said today in a research note. “We are viewing this as a relatively low risk renewal-rights deal.”

AmTrust advanced 2.8 percent to $34.64 at 4 p.m. in New York. Tower rose 2 cents to $2.96. The shares sold for more than $22 in July.

The deal is “designed to stabilize and secure Tower’s business,” AmTrust Chief Executive Officer Barry Zyskind said in a statement. “The Tower book of business will further establish AmTrust as a market leader in the small commercial insurance business.”

National General

ACP Re Ltd., the company purchasing Tower, is owned by a trust established by AmTrust’s founder, according to today’s statement. Zyskind, along with AmTrust directors George Karfunkel and Michael Karfunkel, are founding shareholders of the insurer, according to a May regulatory filing. Beth Malone, a spokeswoman for AmTrust, declined to comment on the trust.

National General Holdings Corp., the insurer run by Michael Karfunkel, will acquire assets tied to Tower’s consumer coverage business, National General said in a statement.

The acquisition is expected to be completed by the summer of this year, Tower said. JPMorgan and Bank of America Corp. (BAC) provided financial advice to Tower. Guggenheim Securities LLC was AmTrust’s financial adviser.

Zyskind is seeking to restore investor confidence after AmTrust fell 22 percent last month as GeoInvesting, a website that provides research to subscribers, challenged the company’s accounting. He announced last week that the insurer authorized the repurchase of as much as $150 million of shares. AmTrust has a market value of about $2.6 billion, according to data compiled by Bloomberg.

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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