OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has affirmed the issuer credit rating (ICR) of “bbb-” of TOWER Limited (the group). At the same time, A.M. Best has affirmed the financial strength rating of A- (Excellent) and ICR of “a-” of TOWER Limited’s subsidiaries: TOWER Insurance Limited (TIL), TOWER Health & Life Limited (THL) and TOWER Life (N.Z.) Limited. The outlook for all ratings is stable. All companies are domiciled in New Zealand.

The ratings reflect the group’s continued operating profitability and stable risk-adjusted capitalization.

TOWER Limited’s after-tax earnings from continued operations increased to NZD 40.5 million in fiscal year 2008 from NZD 35.2 million in fiscal year 2007. The improvement in the operating result was supported primarily by consistent operating profitability from general insurance business and growth in health and life business. In the first half of fiscal year 2009, the group’s net profit after tax from continued operations was NZD 26.6 million, compared to NZD 20.2 million for the same period in fiscal year 2008. The group’s risk-adjusted capitalization improved slightly in 2008 due to a reduction in investment asset risk and consistent capital accumulation. Prospectively, A.M. Best expects the group will continue to practice consistent earnings retention to support its growth in insurance business.

Although TIL’s operating earnings decreased to NZD 14.8 million (USD 10.1 million) in 2008 from NZD 16.1 million (USD 12.2 million) in 2007 predominantly due to lower net investment income, operating performance remained profitable over the past five years as supported by stable earnings from fixed income securities and an improving underwriting margin. The improvement in the company’s underwriting profits coincides with the continued improvement on policy lapse rates, stable loss experience and the ongoing control of underwriting expenses.

THL’s risk-adjusted capitalization, as measured by Best’s Capital Adequacy Ratio (BCAR), strengthened in fiscal year 2008 as the growth of capital and surplus from the accumulation of retained earnings exceeded the growth of risk from writing more business. The company’s capitalization strengthened further in the first half of fiscal year 2009 due to profitable operations and a stable risk profile.

In-force life insurance premiums written by THL grew moderately in 2008 to NZD 42.2 million (USD 28.7 million) from NZD 39.6 million (USD 30 million) at year-end 2007. THL captured approximately 4.4% of the individual risk market (as measured by in-force premiums) at September 2008. Health insurance premiums written grew significantly in 2008 to NZD 126.2 million (USD 89.2 million) from NZD 117.8 million (USD 89.2 million) at year-end 2007. THL accounted for 15.5% of the health market (as measured by in-force premiums) at December 2008.

TLNZ’s BCAR strengthened in fiscal year 2008 due to continued reduction in equities risk. The company’s group risk portfolio grew steadily during 2008, with in-force premiums increasing to NZD 18.1 million (USD 12.3 million) at fiscal year-end 2008. Net operating earnings have exhibited consistency over the past five years due to TLNZ’s strong investment income and improving expense management initiatives. Further, the profits flowing out of the closed book of participating business have resulted in relatively stable earnings.

The above positive rating factors are partially offset by the loss of key distribution channel risk for TIL, the weak risk-adjusted capitalization of THL’s subsidiary, Tower Medical Insurance Limited (TMI) and TLNZ’s low absolute capitalization.

The termination of the distribution partnership with ANZ National Bank in March 2009 effectively reduced TIL’s new business premium in the near term. Although the reduction in premiums is not expected to negatively impact the company's capitalization, underwriting profitability may suffer due to higher expense measures from the reduction in scale. A.M. Best believes that the continued development of TIL’s distribution strategy and the expansion into new products are important for the company to partially offset the reduction in new business and maintain its underwriting profitability.

Although TMI’s risk-adjusted capitalization improved over fiscal year 2008, it remains weakly capitalized. TMI met the New Zealand Health Fund solvency standard that was introduced in 2007 with the benefit of transition provisions. The five-year transition period gives TMI sufficient time to build up reserves.

TLNZ is small on an absolute basis, especially when compared with similarly rated life companies in New Zealand. As the company repatriates capital that is being released from its closed book of business, risk-adjusted capitalization is expected to exhibit higher volatility as the buffer to absorb shocks is being reduced.

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.