In what the Insurance Journal called a “success” Bermuda-based CastlePoint Holdings, Ltd. held its initial public offering of 7,682,238 common shares on March 23, 2007. The Company sold 7,562,738 shares and existing shareholders sold 119,500 shares at $14.50 per share. The IPO raised approximately $111 million. The New York-based Tower Group Inc. entered into a “strategic relationship” with CastlePoint in 2006. It became the sole shareholder of its subsidiary CastlePoint Re in February after it invested $15 million in the Company. Tower also has an 8.6 percent stake in CastlePoint.
Tower was made up of 10 insurance companies domiciled in six states that operated on a largely consolidated financial basis through an intercompany reinsurance pooling arrangement. Tower wrote workers’ compensation business in California through Tower Insurance Company of New York, CastlePoint National Insurance Company, and Preserver Insurance Company.
Well things change.
The Tower Group’s troubles started emerging during 2013 when it announced that it had deficiencies of nearly $400 million in its aggregate policyholder loss reserves. That situation was compounded by accounting errors that resulted in the parent company, Tower Group withdrawing its previously filed consolidated financial statements for 2011 and 2012.
In September 2014, the Tower Group was acquired by ACP Re, a Bermuda reinsurer with ownership aligned with AmTrust Financial Services Inc. and National General Holdings Corp. While that acquisition substantially improved Tower’s situation by migrating policy and claims administration to more reliable data systems at AmTrust and National General, the volatility and deterioration of the pre-acquisition claims continued unabated through 2015.
By the end of 2015, the Tower Group reported additional loss reserve deficiencies well above $400 million.
During the past several weeks, the California Department of Insurance in close coordination with fellow regulators in Maine, Massachusetts, New Jersey, Florida, and New York, formed a plan with the owners of ACP Re and other related parties to consolidate the entire Tower Group into a single company, CastlePoint National Insurance Co., a California domiciled insurer, so policyholders of the entire Tower Group of insurance companies could be protected in single legal proceedings here in California.
Insurance Commissioner Dave Jones announced at the end of July that CastlePoint National Insurance Company, the sole remaining insurance company member of the Tower Group, was placed into conservation by order of the San Francisco Superior Court to protect policyholders and injured workers covered under policies issued by CastlePoint and the other member companies of the Tower Group.
Immediately after being appointed Conservator of CastlePoint, the Commissioner filed a motion seeking approval of a Conservation & Liquidation Plan for CastlePoint to further protect policyholders by deconsolidating CastlePoint from the Tower Group and providing for transactions that will bring in more than $200 million in new value for the benefit of policyholders and claimants.
The hearing on the motion to approve the Plan is set for 9:30 a.m., on Tuesday, September 13, 2016, at the San Francisco Superior Court.