AM Best has downgraded the financial strength rating of Bermuda-based insurer Tower Group’s subsidiaries to C++ from B.

Tower Group’s share price has plunged nearly 90 percent after hitting a $22 high last summer since the company had to raise reserves. Yesterday it closed at $2.25 in New York trading.

Best stated: “These rating actions also consider the material adverse impact these charges had on all of TWGP’s entities in terms of their ability to operate as going concerns.

“In addition, these rating downgrades reflect the group’s significantly elevated financial leverage, constrained liquidity and heightened uncertainty around TWGP’s ability to repay its senior debt holders in the event its pending merger with ACP Re Ltd. (ACP Re) (Bermuda) does not occur. Continued delays in TWGP reporting its quarterly filings are another concern.”

The issuer credit ratings were also cut to “b” from “bb” of the pooled and reinsured members of the Tower US Pool (Tower) and CastlePoint Reinsurance Company, Ltd. (Bermuda), it announced.

Concurrently, AM Best has downgraded the ICR to “cc” from “b-” and the debt rating on the $150 million par five percent senior unsecured convertible notes due September of 2014, for the intermediate holding company Tower Group, Inc. Additionally, AM Best has downgraded the ICR to “cc” from “b-” of the ultimate parent, Tower Group International, Ltd. (TWGP) (Bermuda).

Best stated: “All ratings are under review with developing implications.”

Their report continued: “The rating actions take into consideration TWGP’s most recent Securities and Exchange Commission 10K filing, which included an additional $63 million of prior year reserve development, further reductions in GAAP shareholders’ equity as well as ongoing declines in statutory policyholders’ surplus and risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR).

“These rating factors are in addition to the diminished shareholders’ equity and reserve actions already taken by TWGP during the year.”

Best said the ratings will remain under review pending the planned merger with ACP Re, which is expected to close in the summer of 2014.

The FSR of B (Fair) has been downgraded to C++ (Marginal) and the ICRs have been downgraded to “b” from “bb” for the following pooled and reinsured members of Tower US Pool.