Ratings agency AM Best may upgrade Tower Group International — providing its planned merger with fellow Bermuda company ACP Re Ltd goes through.

Best has maintained troubled Tower’s ratings with an under review status, but has revised the implications to “developing” from “negative”.

In a statement, Best said the insurer’s issuer credit rating of b- could be upgraded if the $172 million deal with ACP is finalised, as hoped, later this year.

“The under review status with developing implications reflects the potential benefits to be garnered from the transaction as well as the potential downside from any additional adverse reserve development and/or any unforeseen events that might transpire up until the close of the transaction, which is not expected to close until the summer of 2014,” AM Best said.

“Based on the terms of the transaction, these ratings are likely to be upgraded if the merger closes; however, the ratings also could be downgraded if certain events or unforeseen circumstances occur, which would cause the merger to fall through.

“If the merger occurs, AM Best believes it gives Tower access to additional capital and liquidity that it otherwise would not have. This allows Tower some additional financial flexibility, which could lessen the strain on its risk-adjusted capital. The ratings will remain under review pending stockholder and various customary regulatory approvals and until the merger has been finalised.”

Tower Group’s share price has plummeted by more than 87 percent since last July, when it was priced at more than $22 compared to last Friday’s closing price of $2.73.

Repeated announcements of the need to strengthen loss reserves related to prior-year losses led to a massive sell-off in the stock.

Last month, Tower sold off its interest in Canopius Bermuda to Japanese firm Sompo for nearly $70 million to pay off debt.

In August last year, Tower Group’s efforts to acquire Bermuda-based American Safety Reinsurance Ltd, fell through.