Tower holds strong: ratings affirmed with steady outlook
Tower holds strong: ratings affirmed with steady outlook | Insurance Business New Zealand
Insurance News
Tower holds strong: ratings affirmed with steady outlook
Agency delved into insurer’s balance sheet and operational efficiency
Insurance News
By
Roxanne Libatique
Tower Limited has had its financial strength rating of “A-” (Excellent) and the long-term issuer credit rating at “a-” (Excellent) affirmed by global credit rating agency AM Best.
The rating agency has also maintained a stable outlook for these ratings.
Reasons behind Tower Limited’s latest credit ratings
According to AM Best, the rating endorsement is grounded in Tower’s solid balance sheet, alongside its consistent operational performance, straightforward business approach, and robust enterprise risk management.
The agency highlighted the strength of Tower’s risk-adjusted capitalisation, as measured by the AM Best’s Capital Adequacy Ratio (BCAR), which remains very strong as of fiscal year-end 2023 (September 30, 2023).
Despite a decline observed in fiscal year 2023, Tower’s regulatory solvency margin is anticipated to increase in the medium term, fuelled by retained earnings.
This balance sheet strength is further supported by the company’s financial flexibility, effective reinsurance arrangements, and a conservative investment strategy.
Tower’s operational efficiency
AM Best considers Tower’s operational efficacy as adequate, demonstrated by a five-year weighted average return-on-equity (ROE) of 4.2% for the period from 2019 to 2023.
However, the company faced challenges in fiscal year 2023, recording a ROE of -0.4% and a net combined ratio of 103.2%, largely due to the financial impact of two major weather events: the Auckland Anniversary Weekend floods and Cyclone Gabrielle.
Nevertheless, with an expense ratio of around 29% in FY2023, improvements are expected as Tower continues to grow its premium base and enhance efficiencies through IT upgrades. Positive underwriting and operating outcomes are forecasted by AM Best in the near future, supported by prudent risk selection and pricing, along with favourable investment returns.
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