Tower remains at A-

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Tower's financial strength rating has come out at A- according to ratings firm AM Best.

Monday, July 30th 2012, 10:51AM

AM Best has renewed the financial strength rating of A- (Excellent) and issuer credit ratings (ICR) of "a-" of Tower's three subsidiary companies: general insurer Tower Insurance; Tower Health & Life, and Tower Life.

It also has affirmed the ICR of "bbb-" of the parent company Tower. The outlook for all ratings is stable.

Tower Health and Life's (THL) rating reflects its adequate risk-adjusted capitalisation and favorable in-force business portfolio, the agency says.

Although THL holds a large percentage of its assets in illiquid form, its risk-adjusted capitalisation remains adequate for its current ratings.

"It is expected that THL's capitalization will continue to strengthen as a result of its profitable operations and stable risk profile."

"Over the past five years, THL has achieved strong and continuous growth in its core products. On average, the value in force has compounded by over 10% annually. The consistent growth in embedded value reflects that the performance of THL's in force business has been favorable."

Offsetting these positive rating factors are the challenging economic conditions, the increasingly competitive environment and the high upfront commissions that THL faces within the New Zealand life insurance industry.

A significant deterioration in THL's capitalisation could lead to a downgrading of its ratings.

Tower Life's (TLNZ) ratings acknowledge its moderate capitalisation, established position in the group risk market and continuous favourable operating performance.

Its risk-based capitalisation remained adequate and strengthened with the retention of earnings in fiscal year 2011. The capital position of TLNZ is expected to be maintained at a similar level for 2012 stemming from a planned dividend payout and a continuous decline of its in-force business volume. TLNZ is running off all its books of business, except group risk, which is the only portfolio open to new business.

TLNZ has maintained a profitable operation over the past five years. The net income in 2011 was positive; although, adversely impacted by group risk losses from the Christchurch earthquake. Profits flowing out of the closed books of business have contributed to earnings, together with a continued reduction of management expenses. Asset and liability management has remained an integral strategy of TLNZ's investment philosophy, which has also aided in reducing the volatility of operating results.

Offsetting rating factors are TLNZ's low absolute capitalisation, underperformance of the group risk portfolio and exposure to regulatory risk.

The absolute capitalisation of TLNZ is small. This may raise issues such as scale and operating capabilities; however, being part of Tower Limited somewhat mitigates these concerns, as TLNZ outsources capabilities it does not have.

The performance of TLNZ's group risk business has been adversely impacted by claims from the Christchurch earthquake, operating market environment and higher reinsurance premiums paid.

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