For information regarding certain real property owned or leased by TGI or any of its subsidiaries, see “Item 2. Properties” included in the separate Annual Report on Form 10-K for the year ended December 31, 2012 that TGI filed with the SEC (Commission File No. 000-50990) on March 4, 2013, as amended by Amendment No. 1 filed on March 13, 2013.
The following selected consolidated financial data reflects the consolidated results of operations and financial position of Canopius Bermuda as of and for the years presented herein. TGI is treated as the acquiring company in the merger for accounting purposes and the merger transaction is being accounted for as a reverse acquisition under the acquisition method of accounting for business combinations. As a result, the historical financial statements of TGI prior to the effective time of the merger on March 13, 2013 became our historical financial statements. Notwithstanding that accounting treatment, the consolidated financial statements included in this Annual Report on Form 10-K are those of Canopius Bermuda, not TGI, because this Annual Report on Form 10-K covers the last fiscal year of Canopius Bermuda and the merger was consummated after the end of the period covered by this Annual Report on Form 10-K. Accordingly, the results of operations and financial position of Canopius Bermuda as reported herein are not indicative of the future results of operations and financial position of the combined company. For information regarding the historical results of operations and financial condition of TGI, please see the separate Annual Report on Form 10-K for the year ended December 31, 2012 that TGI filed with the SEC (Commission File No. 000-50990) on March 4, 2013, as amended by Amendment No. 1 filed on March 13, 2013, which is incorporated herein by reference.
The following table sets forth Canopius Bermuda’s selected historical consolidated financial data as of the dates and for each of the periods indicated. The consolidated income statement data for the years ended December 31, 2012, 2011 and 2010 and consolidated balance sheet data as of December 31, 2012 and 2011 are derived from Canopius Bermuda’s audited consolidated financial statements, which are included elsewhere in this Annual Report on Form 10-K. The consolidated income statement data for the year ended December 31, 2009 and consolidated balance sheet data as of December 31, 2010 are derived from Canopius Bermuda’s audited consolidated financial statements, but such financial statements are not included or incorporated by reference into this Annual Report on Form 10-K. The consolidated income statement data for the years ended December 31, 2008 and the consolidated balance sheet data as of December 31, 2009 and 2008 are derived from Canopius Bermuda’s unaudited consolidated financial statements which are not included or incorporated by reference into this Annual Report on Form 10-K.
(1) The consolidated balance sheet data as of December 31, 2009 and 2008 are derived from unaudited consolidated financial statements.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF TOWER GROUP INTERNATIONAL, LTD. (formerly Canopius Holdings Bermuda Limited) (“CHBL” or the “Company”)
The Company also reinsures Syndicate 839 (closed into Syndicate 4444’s 2011 YOA as at January 1, 2011) through a Syndicate Limited Liability Whole Account Excess Reinsurance Treaty. Under the terms of the contract the Company has agreed to indemnify Syndicate 839 in respect of its ultimate net loss actually paid on or after July 1, 2010 up to a limit of £110 million with effect from July 1, 2010. The contract operates on a funds withheld basis with annual profit distributions determined in accordance with a formula embodied in the contract.
assumptions. Such estimates and judgments affect the reported amounts in the financial statements. Those estimates and judgments that were most critical to the preparation of the financial statements involved the determination of loss and loss expense reserves, the recoverability of reinsurance balance receivables and the valuation of investments. These estimates require the use of assumptions about matters that are highly uncertain and therefore are subject to change as facts and circumstances develop. If different estimates and judgments had been applied, materially different amounts might have been reported in the financial statements.
TRL is required by applicable laws and regulations and GAAP to establish loss and loss expense reserves for the estimated unpaid portion of the ultimate liability for losses and loss expenses under the terms of TRL’s policies and agreements with its reinsureds.
Reserves for outstanding losses and IBNR are established and maintained by TRL based on information received from the cedants. The estimated cost of claims includes expenses to be incurred in settling claims and a deduction for the expected value of salvage and other recoveries. Given the uncertainty in establishing loss and loss expense provisions, it is likely that the final outcome will prove to be different from the original liability established. Adjustments to the amounts of loss and loss expense provisions are reflected in income in the period in which they are known. The methods used, and the estimates made, are reviewed regularly. Claims and expenses reported are generally reserved at the reported amounts, although these amounts are subject to review and potential adjustment.
Commission revenues-Commission revenue decreased to $3.0 million for the year ended December 31, 2012 compared to $4.1 million for the year ended December 31, 2011. This decrease is attributed to less business sourced by CUBL. Also, CUBL was transferred in November 2012 to Canopius Group.
Net investment income-Net investment income was $50.6 million for the year ended December 31, 2012 compared to $1.1 million for the year ended December 31, 2011, for an increase of $49.5 million. The investments in 2011 suffered losses on a mark to market basis. The bulk of the corporate bond funds were invested in short dated investment grade (rated BBB or better) corporate bonds. The yields on these bonds can be considered to be the government bond yield for an equivalent duration plus a ‘spread over government bonds’ that can vary depending on investors’ assessment of the risk of the bonds. During 2011 the ‘spread’ on corporate bonds widened, reflecting investors’ increased assessment of risk and therefore the yield to redemption increased causing prices to fall. Therefore, the bonds suffered a mark to market loss in that period.
Net gains (losses) on foreign exchange transactions-Net losses on foreign exchange increased to $3.5 million for the year ended December 31, 2012 compared to a gain of $0.5 million for the year ended December 31, 2011. This change was driven by fluctuations in foreign exchange rates.
Losses and loss expenses incurred (“losses”)-Losses decreased $174.9 million to $285.1 million in the twelve month period ended December 31, 2012 from $460.0 million in the same period in the prior year. The decrease in losses was attributable to a decline in the number catastrophes in the twelve months ended December 31, 2012 compared to numerous catastrophic losses in 2011. In addition, there was favorable development of $22.7 million in 2012 that arose due to better actual versus expected experience on reserves from years 2009 and prior. The loss ratio, calculated as losses and loss expenses divided by assumed premiums earned, was 74.3% for the year ended December 31, 2012 compared to 101.2% for the same period in the prior year.
Policy acquisition costs-Policy acquisition costs for the year ended December 31, 2012 of $61.5 million decreased $9.9 million, or 13.9%, from policy acquisition costs for the year ended December 31, 2011 of $71.4 million. This decline is directly associated with the decline in assumed earned premiums from 2011 to 2012.
Net income-Net income was $82.8 million for the year ended December 31, 2012 compared to a net loss of $76.9 million for the year ended December 31, 2011. This improvement in net income is attributable to improvement in losses and the increase in net investment income from 2011 to 2012.
Commission revenues-Commission revenue decreased by $1.0 million from 2010 to 2011, from $5.1 million in 2010 to $4.1 million in 2011. This amount fluctuates based upon the volume of business that CUBL underwrites on behalf of Canopius Group.
The investments in funds were corporate bonds funds which suffered heavy losses in the second half of 2011 on a mark to market basis. The bulk of the corporate bond funds were invested in short dated investment grade (rated BBB or better) corporate bonds. The yields on these bonds can be considered to be the government bond yield for an equivalent duration plus a ‘spread over government bonds’ that can vary depending on investors’ assessment of the risk of the bonds. During 2011 the ‘spread’ on corporate bonds widened, reflecting investors’ increased assessment of risk and therefore caused bond prices to fall. Therefore the bonds suffered a mark to market loss in 2011.
Losses and loss expenses incurred-Losses increased $10.0 million, or 2.2%, to $460.0 million in 2011 from $450.0 million in 2010. The increase in losses was attributable primarily to the numerous catastrophic losses that occurred in 2011 that negatively impacted the 2011 QSRTs written with Syndicate 4444 as well as certain structured business produced by CIL. The loss ratio, which is the ratio of losses to premiums earned, was 101.2% in 2011 compared to 83.9% in 2010.
General and administrative expenses-G&A expenses decreased slightly to $5.5 million in 2011 compared to $6.7 million in 2010.
As a Class 3A insurer, TRL is required by the terms of its license granted under the Insurance Act, 1978 of Bermuda and related regulations (the “Act”) to maintain a minimum solvency margin in accordance with the provisions of the Act. The solvency margin is the amount by which assets exceed liabilities.
At December 31, 2012, the required statutory capital and surplus is calculated as $119.7 million. Actual statutory capital and surplus at December 31, 2012 was $431.4 million and, accordingly, TRL met the minimum solvency margin.
TRL is also required to maintain a minimum liquidity ratio whereby the value of its relevant assets is not less than 75% of the amount of its relevant liabilities. Relevant assets comprise cash and investments, accrued investment income, and reinsurance balances receivable.
The Act also prohibits TRL from reducing by 15% or more its statutory capital as set out in its previous statutory financial statements without the prior approval of the Bermuda Monetary Authority (the “BMA”). The company received approval from the BMA to reduce its statutory capital in an amount not to exceed 70 million British Pound Sterling in March 2013 in connection with its merger with Tower Group, Inc. (“TGI”). The Company’s former non-insurance subsidiary, CUBL, provided certain underwriting and administrative services to CBL and other affiliates of Canopius. Revenues earned on these services have been adequate to cover the administrative expenses incurred, which are primarily compensation and facility-related costs.
The primary sources of cash of the operating subsidiaries are net premiums received, investment income and commission income, for those reinsurance contracts not executed on a funds withheld basis.
The principal uses of cash are for payment of losses, commissions paid to cedant insurers and operating expenses, for those reinsurance contracts not executed on a funds withheld basis.
Net cash provided by operating activities during the year ended December 31, 2012 was $28.4 million compared to $25.7 million during the Year ended December 31, 2011. This increase is due to changes in payable and receivable balances that fluctuate in the ordinary course of business. The change in net (loss) income between 2012 and 2011 is primarily attributed to contracts that were written on a funds withheld basis, and have insignificant impact on cash flows from operating activities.
Cash flows provided by investing activities during the Year ended December 31, 2012 were $23.8 million. Cash used in investing activities was $3.1 million for the Year ended December 31, 2011. The increase relates to the sale of securities to support the payment of claims and generation of cash for the loan to Canopius Group.
Net cash used in financing activities during the Year ended December 31, 2012 was $93.3 million. The Company had no cash used in or provided by financing during the Year ended December 31, 2011. The 2012 cash outflow is related to a loan TRL made to Canopius Group in the second quarter 2012. This loan was treated as a reduction to the Company’s equity balances and is accordingly treated as a financing activity.
In April 2012, the Company loaned approximately $108 million to Canopius. The loan was settled on March 13, 2013, the date of completion of the merger. The loan was to provide liquidity to Canopius to partially fund the acquisition of Omega. The loan proceeds and other funds were placed in a trust account to enable Canopius’s financial advisors to give a statement of assurance to the board of directors of Omega that Canopius had the financial resources available to pay the purchase price to Omega’s shareholders. The loan was not negotiated or entered into as part of the merger transaction.
Net cash provided by operating activities for the year ended December 31, 2011 was $25.7 million compared to $78.0 million for the year ended December 31, 2010. The decline in operating cash flows is attributable to the catastrophe losses in 2011 combined with the reduction in assumed premiums written and earned for the year ended December 31, 2011 compared to the same period in 2010.
Cash flows used in investing activities for the year ended December 31, 2011 was $3.1 million compared to $31.2 million for the year ended December 31, 2010. The decrease is related to the increase in restricted cash from December 31, 2010 to December 2011. In 2011, the Company increased its cash held in Lloyd’s trust accounts.
At December 31, 2012, the Company held three forward contracts-obligations to sell $33 million, $7 million, and 10 million to Canopius. At December 31, 2012 the Company had a net asset for the forward exchange contract of $2.7 million.
The following table shows the fair values of fixed maturities by contractual maturities at December 31, 2012 and December 31, 2011:
The credit securities fund is a fund that invests mainly in credit and credit related securities, cash and financial derivative instruments. The fund aims to manage currency exposure against GBP sterling. The credit securities fund may be redeemed on a daily basis.
The structured deposit is a US dollar denominated structured deposit with a final value linked to a US dollar denominated multi strategy index fund, hedged for currency exposure against the US dollar. A set minimum US dollar redemption value is guaranteed if held to contracted maturity. The planned redemption date is October 2013, and there is an early redemption penalty of 10% of any redemption based on the initial deposit value of the redeemed amount.
Market risk is the risk that the Company will incur losses in its investment portfolio due to adverse changes in market rates and prices. Market risk is directly influenced by the volatility and liquidity in the market in which the related underlying assets are invested. Management believes the Company is principally exposed to market risk associated with changes in interest rates and credit risk. Specifically, rising rates or adverse movements in credit risk result in a decline in market value of the fixed income securities portfolios. Conversely, a decline in interest rates will result in a rise in the market value of the fixed income securities portfolios. The risk of changing prices is mitigated by the relatively short duration of the fixed income securities portfolios.
Credit risk is the potential loss in the corporate securities portfolio market value resulting from adverse change in the issuer’s ability to repay its obligations. The Company’s investment objectives are to preserve capital, generate investment income and maintain adequate liquidity for the payment of claims that are not covered by the funds withheld arrangements. The Company manages credit risk through regular review and analysis of the credit worthiness of all investments and potential investments.
Equity risk is the risk that the Company may incur economic losses due to adverse changes in equity prices. Equity exposure to changes in equity prices will primarily result from the holdings in Other Investments. The Company has limited exposure to equity risk.
For corporate securities, short-term liquidity needs and the potential liquidity needs for the business are key factors in managing the portfolio. The average portfolio duration is maintained at less than 3 years, and accordingly, management believes it has mitigated significant impacts from interest rates changes.
TGI is treated as the acquiring company in the merger for accounting purposes and the transaction is being accounted for as a reverse acquisition under the acquisition method of accounting for business combinations. As a result, the consolidated financial statements of TGI for the periods through March 13, 2013 became our consolidated financial statements for the same respective periods. Notwithstanding that accounting treatment, the consolidated financial statements included in this Annual Report on Form 10-K are those of Canopius Bermuda, not TGI, because this Annual Report on Form 10-K covers the last fiscal year of Canopius Bermuda and the merger was consummated after the end of the period covered by this Annual Report on Form 10-K. Accordingly, the results of operations and financial position of Canopius Bermuda as reported herein are not indicative of the future results of operations and financial position of the combined company. Investors should review the Annual Report on Form 10-K for the year ended December 31, 2012 that TGI filed with the SEC (Commission File No. 000-50990) for information regarding the historical results of operations and financial condition of TGI.
The consolidated financial statements of Tower Group International, Ltd. (formerly Canopius Holdings Bermuda Limited) as listed below are included in this Annual Report on Form 10-K as pages through.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of comprehensive income, changes in shareholder’s equity and cash flows present fairly, in all material respects, the financial position of Tower Group International, Ltd. (formerly Canopius Holdings Bermuda Limited) and its subsidiaries at December 31, 2012 and December 31, 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
The Company’s business operates as a single segment and considers the reinsurance it writes as originating from Bermuda. If and when the Company expands its operations, management will evaluate additional segment disclosures as required by accounting principles generally accepted in the United States of America (“GAAP”).
The Company also reinsured the run-off reserves of Syndicate 839 at Lloyd’s. Syndicate 839 was closed into Syndicate 4444’s 2011 YOA as at 1 January 2011, with the treaty remaining in force through a Syndicate Limited Liability Whole Account Excess Reinsurance Treaty. Under the terms of the contract the Company has agreed to indemnify Syndicate 839 in respect of its ultimate net loss actually paid on or after 1 July 2010 up to a limit of £110m with effect from 1 July 2010.
Premiums are earned over the terms of the underlying insurance policies. The portion of the premium related to the unexpired portion of the policy at the end of the period is reflected in unearned premium.
Under the QSRTs, gross premiums written are ceded to the Company net of the Company’s share of original commissions, brokerage, policy taxes and similar deductions. The value of unearned premium recorded for the QSRTs is reported to the Company by the cedants and is the net of unearned assumed premium, unearned ceded premium and deferred element of the Company’s share of original commissions, brokerage, policy taxed and similar deductions.
Reserves for outstanding losses and IBNR are established and maintained by the Company based on information received from the cedants. The estimated cost of claims includes expenses to be incurred in settling claims and a deduction for the expected value of salvage and other recoveries. Given the uncertainty in establishing loss and loss expense provisions, it is likely that the final outcome will prove to be different from the original liability established. Adjustments to the amounts of loss and loss expense provisions are reflected in income in the period in which they are known. The methods used, and the estimates made, are reviewed regularly. Claims and expenses reported are generally reserved at the reported amounts, although these amounts are subject to review and potential adjustment.
The estimation of IBNR is generally subject to a greater degree of uncertainty than the estimation of the cost of settling claims already notified to the Company, where more information about the claim event is generally available. Claims IBNR may often not be apparent to the insured until many years after the event giving rise to the claims has happened. Classes of business where the IBNR proportion of the total reserve is high will typically display greater variations between initial estimates and final outcomes because of the greater degree of difficulty of estimating these reserves.
Cash and cash equivalents-restricted, include investments in highly liquid money market funds, including amounts held in Lloyd’s premium and members’ trust funds and collateral bank accounts.
Interest income on cash and cash equivalents is accrued at the balance sheet date.
Investments are classified as trading securities and carried at fair value with movements in fair value included as a component of net investment income.
Under the QSRTs, premiums due to TRL are retained by the cedents and utilized in accordance with the terms of the applicable trust deeds for the settlement of claims and other underwriting liabilities. Pursuant to the terms of the QSRTs, the right of offset exists between the reinsurance balances receivable and loss and loss expense reserves. Settlement between the parties takes place following the closure of the underwriting year, which is generally after three years or as agreed otherwise in the QSRTs. Any profit will be released from the relevant trust fund and remitted to TRL. Any losses will be payable by TRL to Canopius subsidiaries participating in Syndicate 4444.
The Company has entered into one assumed reinsurance contract that does not contain sufficient insurance risk to be accounted for as reinsurance. The premium on this contract is recorded in Deposit Liability in Consolidated Balance Sheet. As amounts are paid, the deposit liability is reduced.
Certain policy acquisition costs, comprising primarily brokerage fees, that vary with and are primarily related to the successful production of premiums, are deferred and amortized over the period in which related premiums are earned. Under the QSRTs, premiums are ceded to the Company net of original commissions, brokerage, policy taxes and similar deductions. All other policy acquisition costs in relation to the production of premiums under the QSRTs are ceded to the Company on an earned basis and no policy acquisition costs are deferred.
Policy acquisition costs under the QSRTs consist of the Company’s share of various expenses charged to Syndicate 4444, including operating expenses, Lloyd’s central fund contribution, managing agent fees, profit commissions, overriding commissions and letters of credit fees. Policy acquisition costs on other contracts relate to brokerage fees and ceding commissions.
In July 2012, the FASB issued amended guidance on testing indefinite lived intangible assets for impairment. This guidance is intended to reduce the cost and complexity of the annual impairment test by allowing an entity to utilize more qualitative factors. This guidance is effective for fiscal years beginning after September 15, 2012. This guidance will not affect the Company’s financial position, result of operations or cash flows.
The cost, gross unrealized gains and losses and estimated fair value of investments in fixed maturity trading securities at fair value at December 31, 2012 and December 31, 2011 were as follows:
The multi asset mutual funds are GBP sterling denominated funds invested in a variety of equity and bond securities as well as cash and cash equivalents. The multi asset mutual fund may be redeemed on a daily basis at their net asset value.
The components of net investment income for the year ended December 31, 2012 and 2011 were as follows:
Net unrealized gains (losses) for the year ended 2012 on fixed maturities and other investments still held at December 31, 2012 were $2,205 thousand and $3,515 thousand, respectively.
Level 1-Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities traded in active markets.
The Company valued all of its financial instruments at December 31, 2012 and 2011 utilizing Level 2 inputs. The Company bases fair value of its fixed maturity securities on market convention where investments are primarily traded, which is the last traded, closing or middle market price.
As at December 31, 2012 and December 31, 2011, the company’s financial instruments carried at fair value utilizing Level 2 inputs are as follows (there were no transfers between Level 1, Level 2 or Level 3 for any of the periods presented):
The fair value of forward currency exchange contracts is based on the Company’s contractual GBP sterling denominated asset/ (obligation) netted against the Company’s foreign currency obligation/ (asset) at the prevailing exchange rate at December 31. All of the Company’s forward exchange contracts require the purchase or sale of foreign currency for a contractual GBP sterling amount, and are entered into to manage currency risk. As at December 31 2012, the Company held three forward contracts-an obligation to sell $33,000 thousand and $7,000 thousand to Canopius Group for value January 23, 2013 and obligation to sell 10,000 thousand to Canopius Group for value January 23, 2013. At December 31, 2012, the Company’s net asset for forward exchange contracts was $2,717 thousand and is included as a component of Amounts due from related parties on the balance sheet. Gains on forward exchange contracts were $1,686 thousand in 2012 and are included in Net investment income. At December 31, 2011, the Company’s net asset for the forward exchange contract was $1,214 thousand and is included as a component of Amounts due/to from related parties on the balance sheet.
The Company does not use hedge accounting for these derivatives. Losses on forward exchange contracts were $662 thousand in 2011 and are included in Net investment income on the income statement.
As of December 31, 2012 and 2011, related party balances in respect of the QSRTs were as follows:
The Company also wrote the Acorn contract in respect of another subsidiary of Canopius Group, Acorn Corporate Capital Limited on a funds withheld basis. Until termination, the funds were held on trust funds maintained by the managing agent of S839 and by Lloyd’s. Related party transactions in respect of the Acorn contract were as follows:
Beginning in 2010, the Company also provides Whole Account Excess Treaty cover directly to S839 on a funds withheld basis. Following closure of S839 for the 2008 year of account into the 2011 year of account of S4444 as at 1 January 2011, the funds are held on trust funds maintained by the managing agent of S4444 (previously S839) and by Lloyd’s. Related party transactions in respect of the S839 contract were as follows:
Funds withheld including interest credited thereon, $67,629 thousand and $90,278 thousand in 2012 and 2011, respectively;
During the year, Canopius Ireland Limited charged fees of $646 thousand, $2,098 thousand and $2,005 thousand to the Company in 2012, 2011 and 2010, respectively. The Company owed Canopius Ireland Limited $646 thousand and $1,016 thousand at 2012 and 2011 year end, respectively.
The favorable development in 2012 in respect of prior years’ losses arose due to better actual versus expected experience on reserves from years 2009 and prior offset by adverse development on prior year catastrophes related to the Thai flood and New Zealand earthquake.
As at December 31, 2012 and 2011, the Company had placed cash and cash equivalents in the amount of $48,987 thousand and $18,717 thousand, respectively, fixed maturity securities with a fair value of $57,588 thousand and $88,119 thousand, respectively, and other investments with a fair value of $66,342 thousand and $109,350 thousand, respectively, directly with Lloyd’s for the benefit of Lloyd’s in relation to the QSRTs.
Under current Bermuda Law the Company is not required to pay any taxes in Bermuda on either income or capital gains. The Company has received an undertaking from the Minister of Finance in Bermuda that in the event of such taxes being imposed, the Company will be exempted from taxation until the year 2035. The Company does not engage in a trade or business within any other country which would subject the Company to income tax in a foreign jurisdiction.
In 2011 the Bermuda Solvency Capital Requirement (“BSCR”) was introduced for Class 3A insurers. The BSCR is a risk-based capital model to measure risk and to determine an enhanced capital requirement (“ECR”) and target capital level (“TCL”) (defined as 120% of the ECR) for Class 3A insurers. During a transitional period following the introduction of BSCR, TRL is not required to meet the full amount of calculated ECR or TCL.
TRL is also required to maintain a minimum liquidity ratio whereby the value of its relevant assets is not less than 75% of the amount of its relevant liabilities. Relevant assets comprise cash and investments, accrued investment income, and reinsurance balances receivable. At December 31, 2012, TRL was required to maintain relevant assets of $738,723 thousand. At that date relevant assets were $1,401,832 thousand and the minimum liquidity ratio was therefore met.
The Act also prohibits TRL from reducing its statutory capital by 15% or more as set out in its previous years statutory financial statements without the prior approval of the Bermuda Monetary Authority (the “BMA”). The Company received approval from the BMA to reduce its statutory capital in an amount not to exceed 70 million British Pound Sterling in March 2013 in connection with its merger with Tower Group, Inc. (“Tower”). See “Note 11-Subsequent Events” for details on the merger and dividend.
On March 13, 2013 following the completion of the sale of common shares described above, the Company completed its merger transaction with TGI, pursuant to which, among other things, TGI became an indirect wholly owned subsidiary of the Company and each issued and outstanding share of TGI common stock was exchanged for 1.1330 of the Company’s common shares. As a consequence of the merger, the Company issued to former TGI stockholders 44,421,502 common shares and reserved 969,315 common shares to replace options previously issued by TGI that were outstanding at the effective time of the merger. The Company changed its name to Tower Group International, Ltd. concurrent with the effective time of the merger on March 13, 2013, and the common shares of the Company began trading on The NASDAQ Global Select Market as the successor to TGI on March 14, 2013.