Tower Limited’s Credit Ratings Affirmed by AM Best
Tower Limited’s credit ratings have been affirmed by AM Best, maintaining the financial strength rating of “A-” (Excellent) and the long-term issuer credit rating of “a-” (Excellent) for the New Zealand-based insurer. The outlook for both ratings remains stable.
AM Best’s affirmation reflects Tower’s strong balance sheet, evaluated operating performance, business risk profile, and enterprise risk management. The agency highlighted Tower’s very strong risk-adjusted capitalisation, based on its Best’s Capital Adequacy Ratio (BCAR) as at fiscal year-end 2023. Despite a decline in the regulatory solvency margin in 2023, Tower is expected to rebuild this margin under New Zealand’s Interim Solvency Standard, supported by retained earnings.
Additional factors underpinning the ratings include Tower’s access to financial flexibility, its reinsurance arrangements, and its conservative investment approach. The insurer’s operational performance over the past five years resulted in an average return on equity (ROE) of 4.2%. However, for the 2023 financial year, Tower reported an ROE of -0.4% and a net combined ratio of 103.2%, impacted by severe weather events including the Auckland Anniversary Weekend floods and Cyclone Gabrielle.
Tower operates primarily in New Zealand, with some business in the Pacific Islands, and holds an estimated 4% to 5% share of New Zealand’s general insurance market. Gross written premiums (GWP) reached $511.5 million for the year ended Sept. 30, 2023. The company recently revised its profit expectations for the 2025 financial year, projecting an underlying net profit after tax (NPAT) between $70 million and $80 million, an upward adjustment from its earlier guidance range of $60 million to $70 million.
The revised outlook assumes the full use of Tower’s $50 million allowance for large-scale weather events. To date, the insurer has recorded one qualifying event – the Dunedin flooding in October 2024, with estimated claims costs of $3 million. Tower is also handling about 250 claims from storm-related losses during the Easter period; if claims exceed $2 million, this event may also meet the threshold for large event classification.
While profitability expectations have been raised, Tower revised its GWP growth forecast downward to mid-single digits, compared to the previous 7% to 12% range. Growth in home insurance policies remains positive, but a shift toward lower-risk properties and vehicles, combined with competitive market conditions, has exerted downward pressure on average premium values. Tower plans to release its interim financial results and provide further details on May 20.
