A.M. Best Affirms Financial Strength Rating of Tower Insurance Limited and Assigns Issuer Credit Rating; Affirms ICR of Tower Limited.

OLDWICK, NEW JERSEY, U.S.A -- A.M. Best Co. has affirmed the financial strength rating (FSR) of A- (Excellent) and assigned an issuer credit rating (ICR) of "a-" to Tower Insurance Limited (Tower Insurance) (New Zealand). At the same time, A.M. Best has affirmed the ICR of "bbb-" of Tower Limited (New Zealand). The outlook for all ratings is stable. E[acute accent]The ICR for Tower Limited reflects the group's enhanced profitability, improved operating performance and strengthened business profile in the Australian life insurance industry. The rating also recognizes the group's capability to maintain satisfactory risk-adjusted capitalization. E[acute accent]Tower Australia Limited, a wholly owned subsidiary of Tower Limited, continued to show strong operating performance in fiscal year 2005. The acquisition of PrefSure Life Limited increases Tower Limited's market presence, with a broader distribution capability in the Australian risk market. However, the post acquisition debt-to-capital ratio increased, reducing the financial flexibility for the group as a whole. Going forward, stable operating earnings, along with a strong level of risk-adjusted capitalization, is essential for the group's continued business growth. E[acute accent]Tower Insurance's ratings reflect its favorable operating performance, improved risk-adjusted capitalization and continued extensive distribution network. E[acute accent]The company strengthened its capitalization at fiscal year-end 2005 based on Best Capital Adequacy Ratio (BCAR) analysis. Its net premiums to adjusted capital and surplus improved to 1.81 times in fiscal year 2005 from 1.93 times in the previous year. A.M. Best expects the company to continue to generate surplus internally with improved underwriting results. E[acute accent]Tower Insurance recorded a net income of NZD 12.9 million (approximately USD 9 million) in fiscal year 2005, an increase of 63%. As a result of a lower expense ratio and consistently strong investment earnings, Tower Insurance's operating ratio decreased to below 90%. Its combined ratio improved as of March 2006, compared to the same period in 2005. Given its stable premium growth, the company's combined ratio is expected to further improve by September 2006. E[acute accent]Tower Insurance has a strong market presence in New Zealand, representing about 6% of market share within the total general market. Tower Insurance is also one of the key insurers in Fiji and Papua New Guinea. Recently, the company has entered into a new alliance with Kiwibank, strengthening its direct market position and product brand sales capacity. E[acute accent]Offsetting factors include Tower Insurance's relatively high equities exposure, reliance upon a single alliance partner and strong market competition. E[acute accent]Tower's exposure to equities remains relatively high, accounting for about 36% of its total invested assets as of September 2005. This asset mix has generated satisfactory investment returns due to the favorable investment environment; however, it exposes the company's earnings to potential volatility. E[acute accent]Approximately 30% of Tower Insurance's business is derived from one key alliance partner. Given its heavy concentration in this single alliance partner, the potential loss of the distributor could challenge the sustainability of the company's business profile within the strong competitive New Zealand non-life insurance industry. E[acute accent]A.M. Best Co., established in 1899, is the world's oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best's Web site at www.ambest.com.