It looks like Tower Limited is doing something right, having retained its “excellent” credit ratings from AM Best, and chief financial officer Paul Johnston (pictured) calls it a “testament” to what the Kiwi insurer is putting in.
As recently announced, AM Best considers Tower’s balance sheet “very strong”; operating performance, adequate; and enterprise risk management, appropriate. These qualities are reflected in the company’s reaffirmed credit ratings as a long-term issuer (a-) and for its financial strength (A-).
“Tower’s balance sheet strength assessment is underpinned by its risk-adjusted capitalisation, as measured by Best’s Capital Adequacy Ratio, which was at the strongest level at fiscal year-end 2022 (30 September 2022),” the credit rating agency noted following its annual review.
“Despite a one-off share buyback and elevated dividend payout in fiscal year 2022, Tower has maintained robust regulatory solvency coverage and strongest risk-adjusted capitalisation as a result of prudent capital management.
“AM Best expects Tower’s risk-adjusted capitalisation to remain at least at the very strong level over the medium term. Other supporting factors include strong financial flexibility, a prudent reinsurance programme, and a conservative investment strategy.”
Earlier this year, Tower successfully placed its reinsurance reinstatement cover for the remainder of the financial year ending Sept. 30, 2023 (FY23). The reinstatement was aimed at ensuring sufficient protection for two more catastrophe events after the Auckland Anniversary floods and Cyclone Gabrielle.
“Tower had previously taken the prudent step of purchasing a proportion of cover for a third event in FY23 of up to $57.5 million,” the insurer said at the time. “This cover remains in place and has materially reduced the cost of the reinstatement purchase.
“A third catastrophe event in the financial year will incur an excess of $12.5 million, and a 13.25% share of losses between $12.5 million and $57.5 million. Losses between $57.5 million and $889 million are fully reinsured. The excess for a fourth event would be $13.1 million, also with total coverage up to $889 million.”
When the reinstatement cover was announced, Johnston conceded that the reinsurance market was challenging, but it was highlighted that Tower was able to access what were described as “reasonable” rates due to the firm’s focus on risk-based pricing and “continued strong relationships” with global reinsurers.
“Reinsurers want to work with insurers that have robust risk management capabilities and strong underwriting,” Johnston said. “They are attracted to Tower’s strong underlying business, our approach to risk-based pricing, and our dynamic rating capability.”
According to the assessment by AM Best, Tower is poised to report positive underwriting and operating results over the medium term. The credit rating agency also expects the majority of the gross cost arising from large weather events to be absorbed by Tower’s catastrophe excess-of-loss reinsurance treaty.
For Johnston, it all speaks to what Tower is doing as a business.
“Tower’s re-confirmed A- (Excellent) rating is a testament to the investments we’ve made into innovation and large-scale digital transformation, to streamline and simplify our operations across New Zealand and the Pacific, and bolster business continuity,” the CFO told Insurance Business.
Tower will be releasing its financial results for the six months ended March 31 on May 25.
