OLDWICK, New Jersey (BUSINESS WIRE) — A.M. Best Co. has placed the financial strength ratings of B++ (Very Good) of Preserver Insurance Group (Preserver Insurance) (Paramus, NJ) and its members, Preserver Insurance Company (New Jersey) and Mountain Valley Indemnity Company (New Hampshire) as well as the separately rated affiliate, North East Insurance Company (North East) (Scarborough, ME) under review with positive rating implications. Additionally, A.M. Best has assigned issuer credit ratings (ICR) of “bbb” to all the above entities, placing the ICRs also under review with positive implications.

These rating actions follow the planned acquisition of Preserver Group, Inc. (Preserver) by Tower Group, Inc. (Tower) (New York, NY, which is expected to close in first quarter 2007.

According to the definitive purchased agreement, Tower will acquire the outstanding stock of Preserver for a cash consideration of approximately $68 million, with a portion to be allocated to repay all shareholder-owned debt.

In addition, Tower will assume $12 million of trust preferred securities previously issued by Preserver.

Preserver is a privately held company that writes primarily small commercial and personal lines insurance in the Northeast. Tower, through its subsidiaries, offers both commercial and personal lines insurance coverages to small to mid-size businesses and individuals, primarily in New York City.

Preserver consists of Preserver Insurance and North East.

Following the proposed merger, all three Preserver companies are expected to be pooled with existing Tower operating companies, and 75 percent of Preserver’s net outstanding loss reserves will be reinsured through a loss portfolio transfer (LPT) with CastlePoint Reinsurance Company Limited (CastlePoint Re), a Bermuda reinsurance company previously sponsored by Tower in 2006.

The positive rating implications consider the synergistic benefits afforded by being part of Tower, the advantages gained from having greater scale and geographic diversification, the planned LPT to be provided by CastlePoint (contemporaneous with the closing) and the alleviated concerns with regard to Preserver’s high financial leverage.

Tower’s ratings remain unchanged as the acquisition of Preserver provides Tower with immediate access to approximately $100 million of premium revenue, access to more than 300 additional retail agents, while enhancing its footprint in the Northeast.

This acquisition also fits in with Tower’s opportunistic growth strategy and its proven track record of growing its business through renewal rights and/or acquisitions.

Tower is funding this acquisition through CastlePoint Re’s $40 million investment in Tower via convertible perpetual preferred securities issued by Tower, as well as Tower’s recent shelf filing to issue $55 million of equity securities.

While there is execution risk with regard to financing this acquisition, should these events not materialise, A.M. Best will need to reassess the capitalisation of Tower.

In conjunction with this transaction, the ratings of CastlePoint Re remain unchanged.

Although CastlePoint Re will be providing LPT coverage to Tower, the assumption of these reserves will be accompanied by an equivalent amount of assets. CastlePoint Re’s pro forma risk-adjusted capitalisation remains strong after considering the financial implications from the planned LPT.