Shares of Bermuda-based insurer Tower Group International Ltd surged more than 30 percent yesterday after the company announced an amendment to its merger agreement with fellow Bermuda company ACP Re Ltd.

In Nasdaq trading in New York, Tower shares were up 61 cents, or 35.9 percent, at $2.31 by the close yesterday.

The trading action represented a dramatic rebound from Wednesday, when the stock plunged 23 percent, from $2.20 to $1.70, after the troubled company revealed in a regulatory filing that it was under investigation by US financial regulator the Securities and Exchange Commission (SEC).

The filing also revealed that Tower’s book value had plunged to $1.67 per share by the end of last year.

However, investors welcomed yesterday’s news as a reassurance that the merger with ACP Re, initially agreed on January 3 this year, would go ahead.

The amendment reduces the amount to be received by Tower shareholders in the merger from $3 per share to $2.50, extends the deadline by which Tower shareholders must vote on the combination to November 15, 2014, and reduces the termination fee that Tower would have to pay if the merger failed in certain circumstances.

Tower’s financial strength ratings were cut by AM Best from B++ to B in December last year after it had to beef up its loss reserves. The rating agency said in January that it could upgrade Tower if the merger went through — or downgrade it further if the deal failed.

The insurer’s shares have lost nearly 90 percent of their value since hitting a 52-week high above $22 last August.

Tower also revealed in this week’s regulatory filing that the Island’s financial regulator, the Bermuda Monetary Authority, had stepped up its oversight of some of the insurer’s subsidiaries.

“As of December 31, 2013, TRL and CastlePoint Re had capital and surplus that did not meet the minimum solvency requirements of the BMA,” the filing states. “Management has discussed the ACP Re Merger Agreement and provided 2014 solvency forecasts to the BMA.

“The BMA has issued directives for TRL and CastlePoint Re, subjecting them to heightened regulatory oversight and requiring BMA approval before certain transactions can be executed. Tower has been complying with the directives issued by the BMA.”

The filing also revealed that Michael Lee, who resigned as chairman and chief executive officer three months ago, received a severance payment of $3.3 million.

In December last year, 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.