AM Best Affirms Credit Ratings of TOWER Insurance Limited and TOWER Limited

AM Best has affirmed the Financial Strength Rating of A-
(Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of
“a-” of TOWER Insurance Limited (TIL) (New Zealand). Concurrently, AM
Best has affirmed the Long-Term ICR of “bbb-” of TIL’s ultimate parent,
TOWER Limited (TL) (New Zealand). The outlook of these Credit Ratings
(ratings) remains stable.

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

TIL’s balance sheet strength is underpinned by its risk-adjusted
capitalization, which AM Best expects to remain at the very strong level
over the medium term, as measured by Best’s Capital Adequacy Ratio
(BCAR). AM Best also views TIL as having strong financial flexibility as
a result of its ownership by TL, a listed company with the ability to
access capital markets and raise external debt. TL injected NZD 35
million of capital into TIL in fiscal-year 2017, in order to bolster its
regulatory solvency position. Other positive balance sheet
considerations include the company’s conservative investment strategy
and prudent reinsurance arrangements. A partially offsetting balance
sheet factor remains the company’s exposure to the Canterbury
Earthquakes that occurred in 2010 and 2011, which have since led to a
series of reserve strengthening actions. As of September 2018, TIL held
total net provisions of NZD 62 million for these events. Prospective
capital adequacy could, however, be impacted negatively by further
unfavorable development of these provisions, new claim notifications or
lower-than-expected Earthquake Commission recoverables.

TIL has reported operating losses in each of the past four years
(fiscal-years 2015-2018), driven by adverse development on its
Canterbury earthquake claims. In addition, an NZD 22 million write-off
of reinsurance recoverables and several weather-related events in New
Zealand and the Pacific Islands have hampered technical results over the
past two years. However, TIL’s combined ratio has exhibited a gradual
improvement over recent years, and AM Best expects the company to report
positive technical and overall earnings from fiscal-year 2019 onward.
This expected improvement is taken into account in the assessment of
TIL’s operating performance as adequate.

AM Best views TIL’s business profile as neutral. The company is a
medium-sized insurer that operates predominantly in New Zealand, with
some operations based in the Pacific Islands. TIL has a market share of
4% in New Zealand’s general insurance market. TIL’s core product
offerings are home and motor insurance, with a significant portion of
the company’s business sourced from direct marketing and partnerships.

TL is a non-operating holding company, and the level and the Long-Term
ICR outlook reflect standard notching from the ratings of TIL, which is
its lead insurance subsidiary.

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 Understanding
Best’s Credit Ratings. For information on the proper media
use of Best’s Credit Ratings and AM Best press releases, please view Guide
for Media - Proper Use of Best’s Credit Ratings and AM Best Rating
Action Press Releases.

AM Best is a global rating agency and information provider with a
unique focus on the insurance industry. Visit www.ambest.com
for more information.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its
affiliates. ALL RIGHTS RESERVED.

View source version on businesswire.com: https://www.businesswire.com/news/home/20190308005338/en/