Tower asks S&P to withdraw rating

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Tower has asked Standard and Poor’s to withdraw its BBB+ rating and counterparty credit ratings on its Tower Insurance business in New Zealand.

Friday, March 26th 2004, 6:46AM

The company has adopted AM Best’s financial strength rating of A- (excellent) for the fire and general business.

But AM Best has also assigned a BBB- rating to Tower group and says the outlook for both the group and its insurance arm is negative.

“The BBB- issuer credit rating for Tower Limited reflects its successful recapitalisation and profitable New Zealand operations,” AM Best says. “The negative outlook reflects continued operational risk in Tower Australia Limited, as its lapse ratio continues to cause concern.”

S&P had reaffirmed Tower operating subsidiaries’ ratings on March 22 and also said despite an improving operating performance by Tower’s Australian subsidiary, the outlook remained negative.

At the time it said the ratings on Tower’s subsidiaries reflected its marginal, though improving operating performance and moderate business profile in Tower Australia.

S&P credit analyst Carolyn Rajaratnam said that was partially offset by the group's adequate capitalisation and strong market position in the New Zealand non-life, life, and health insurance markets where operations continued to perform well.

Tower Australia is the group's largest entity contributing to nearly half of the group's carrying value.

Rajaratnam said Tower Australia had successfully executed a large part of its rebuilding phase with significant reduction in expenses, but it might take some time before this entity achieves a satisfactory rate of return.

"Tower's recent focus on providing risk products and establishing a platform for non-bank aligned intermediaries and independent financial advisors has led to the insurer having some success in business growth," Rajaratnam said.

"Difficult prevailing market conditions, coupled with a somewhat tarnished brand, however, are challenging Tower Australia's ability to write the required new business and retain the in-force business, and to achieve the required rate of return, in Australia.”

"The rating outlook could be revised to stable, if Tower Australia demonstrates success in its business model, by reducing its lapse rates and writing target level of new business, such that target returns are achievable," Rajaratnam said.

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