AM Best Affirms Credit Ratings of Tower Limited

AM Best has affirmed the Financial Strength Rating of A- (Excellent) and the Long-Term Issuer Credit Rating of “a-” (Excellent) of Tower Limited (Tower) (New Zealand). The outlook of these Credit Ratings (ratings) is stable.

The ratings reflect Tower’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

Tower’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which was at the strongest level at fiscal year-end 2022 (30 September 2022). Despite a one-off share buyback and elevated dividend payout in fiscal year 2022, Tower has maintained robust regulatory solvency coverage and strongest risk-adjusted capitalisation as a result of prudent capital management. AM Best expects Tower’s risk-adjusted capitalisation to remain at least at the very strong level over the medium term. Other supporting factors include strong financial flexibility, a prudent reinsurance programme and a conservative investment strategy.

Tower’s adequate operating performance assessment is supported by a weighted average return-on-equity ratio of 4.2% over the past five fiscal years (2018-2022). Over this period, operating earnings were driven predominantly by technical performance with typically low and stable investment income. In the first six months of fiscal year 2023, Tower’s underwriting results were impacted by several large weather events, including the Auckland Anniversary Weekend floods and Cyclone Gabrielle. However, the majority of the gross cost arising from these events are expected to be absorbed by Tower’s catastrophe excess-of-loss reinsurance treaty with no spill-over. AM Best expects Tower to report positive underwriting and operating results over the medium term, supported by appropriate risk selection and pricing, as well as positive investment return.

Tower is a medium-sized non-life insurer that operates predominantly in New Zealand, with some operations in the Pacific Islands. Tower has a market share of 4% to 5% in New Zealand’s general insurance market and gross written premium of NZD 445.6 million (USD 253.8 million) in fiscal year 2022. The company’s core product offerings are domestic home and motor insurance, typically distributed through direct channels and partnerships.

Ratings are communicated to rated entities prior to publication. Unless stated otherwise, the ratings were not amended subsequent to that communication.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best’s Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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