AM Best Reaffirms Credit Ratings for Tower Limited, Highlights Strong Capital Position and Positive Outlook
AM Best has reaffirmed the Financial Strength Rating (FSR) of A- (Excellent) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “a-” (Excellent) for Tower Limited (Tower), a prominent New Zealand-based insurer. The outlook assigned to both ratings remains stable, signaling confidence in the company’s future performance and risk management strategies.
The affirmation of Tower’s ratings reflects a comprehensive evaluation across multiple factors, including its balance sheet strength, operational performance, business profile, and enterprise risk management (ERM) framework. According to AM Best, Tower’s balance sheet strength is assessed as very strong, while its operating performance is categorized as adequate, its business profile as neutral, and its ERM practices as appropriate.
Solid Balance Sheet Strength Supports Positive Outlook
Tower’s balance sheet strength continues to be a pillar of its creditworthiness. This strength is underpinned by the company’s risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio (BCAR), which was at the strongest level as of the fiscal year-end on 30 September 2024. AM Best highlighted that Tower’s robust capital position provides a significant buffer against potential operational and market risks.
Although Tower announced a dividend payment and engaged in a share buyback during the first half of the 2025 fiscal year, AM Best anticipates that the company’s risk-adjusted capitalisation will remain at least at the very strong level over the medium term. The agency believes Tower’s prudent management of earnings retention will continue to reinforce its capital base, ensuring a healthy financial position despite capital distributions to shareholders.
Moreover, Tower’s standing under New Zealand’s latest Interim Solvency Standard is expected to remain strong. Regulatory solvency capital is projected to maintain a healthy buffer above the minimum requirements, further showcasing Tower’s disciplined financial management. Other critical factors contributing to its balance sheet resilience include strong financial flexibility, a comprehensive and conservative reinsurance programme, and a prudent investment strategy that prioritizes safety and stability.
Adequate Operating Performance Amid Volatility
AM Best evaluates Tower’s operating performance as adequate, noting a historical record of stable earnings despite periods of volatility driven by catastrophic events. In the insurance sector, exposure to natural disasters, particularly in regions like New Zealand and the Pacific Islands, often introduces earnings variability. Nonetheless, Tower has demonstrated its ability to navigate these challenges effectively.
Operating earnings for Tower are largely driven by technical performance—the core underwriting operations of the business—supplemented by modest investment income. In the fiscal year 2024, Tower reported impressive financial metrics, including a return-on-equity (ROE) of 22.6% and a net/net combined ratio of 83.1%, indicating strong underwriting profitability.
Looking ahead, AM Best expects Tower to continue delivering positive underwriting and operational results over the medium term. This forecast is based on Tower’s disciplined approach to risk selection, pricing accuracy, and its ability to generate positive investment returns even amid market fluctuations. Continued focus on maintaining underwriting discipline is expected to bolster Tower’s financial performance while mitigating downside risks associated with large loss events.
Business Profile: Focused Yet Resilient
Tower Limited operates primarily as a medium-sized non-life insurer, with the bulk of its business concentrated in New Zealand and a smaller footprint in select Pacific Island markets. Its product portfolio is centered around domestic home and motor insurance, products that are generally distributed through direct channels and strategic partnerships.
While Tower’s overall market share within the broader New Zealand non-life insurance industry is considered modest at approximately 5%, the company holds a solid and competitive position within its core market segments. This established presence provides Tower with a steady flow of business and customer loyalty, essential factors for sustaining growth and profitability in an increasingly competitive landscape.
AM Best characterizes Tower’s business profile as neutral, acknowledging that although it does not command a dominant market share, the insurer benefits from a focused strategy and specialized expertise in its chosen markets. Tower’s direct-to-consumer model, supported by digital capabilities, positions it well to adapt to changing customer preferences and technological advancements within the insurance industry.
Sound Enterprise Risk Management
Tower’s enterprise risk management (ERM) practices are assessed as appropriate by AM Best. The company has demonstrated an effective risk governance framework that supports its strategic objectives while proactively managing underwriting, operational, investment, and catastrophe risks.
Given the dynamic and sometimes volatile risk landscape in which Tower operates—particularly exposure to natural disasters in New Zealand—the insurer’s commitment to maintaining robust ERM practices is critical. AM Best recognizes that Tower’s risk culture, oversight mechanisms, and mitigation strategies are aligned with industry best practices and regulatory expectations.
Tower’s proactive stance on risk management also plays a significant role in its ability to deliver consistent results and maintain its financial strength, even amid external pressures.
Transparency and Disclosure Practices
As part of its standard process, AM Best communicates rating decisions to the rated entity prior to public disclosure. In Tower’s case, the company was informed of the ratings affirmation ahead of this announcement, and no changes were made to the ratings following that communication.
The ratings discussed in this press release are available on AM Best’s website. Readers can access additional information related to this release, including disclosures regarding the office responsible for issuing each rating, through AM Best’s Recent Rating Activity web page. Furthermore, guidance on the use and limitations of AM Best’s Credit Ratings is available in the firm’s published Guide to Best’s Credit Ratings and Guide to Proper Use of Best’s Ratings & Assessments.
