A.M. Best Assigns Ratings to Tower Health & Life Limited; Affirms Ratings of Tower Limited, Tower Insurance Limited and Tower Life (N.Z.) Limited.

OLDWICK, N.J. -- A.M. Best Co. has assigned a financial strength rating (FSR) of A- (Excellent) and an issuer credit rating (ICR) of "a-" to Tower Health & Life Limited (THL). Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and the ICR of "a-" of Tower Insurance Limited (TIL) and Tower Life (N.Z.) Limited (TLNZ) and the ICR of "bbb-" of Tower Limited (TL). The outlook for all ratings is stable. All companies are domiciled in New Zealand.

The ratings reflect the group's improving operating performance and stable risk-adjusted capitalization.

THL's risk adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), strengthened in fiscal year 2007 primarily due to accumulation of retained earnings. The company's capitalization strengthened further in fiscal year 2008 due to profitable operations and a stable risk profile.

In-force premiums written by THL grew moderately in 2007 to NZD 39.6 million (USD 30 million) from NZD 38 million (USD 24.8 million) at year-end 2006. THL captured approximately 4.1% of the individual risk market (as measured by in-force premiums) at September 2007. In-force premiums written by THL's fully owned subsidiary, Tower Medical Insurance Limited (TMI), grew strongly in 2007 to NZD 117.8 million (USD 89.2 million) from NZD 104.1 million (USD 68 million) at year-end 2006, with the company capturing approximately 15.4% of the health market (as measured by in-force premiums) at September 2007.

TLNZ's BCAR strengthened in fiscal year 2007 due to a reduction in equities and interest rate risk. The company's group risk portfolio grew strongly during 2007, with in-force premiums increasing to NZD 16.5 million (USD 12.5 million) at fiscal year-end 2007. TLNZ consistently reported positive and increasing net operating earnings over the past five years due to its strong investment income and improving expense management initiatives. Further, the profits flowing out of the closed book of participating business have been relatively stable. Asset and liability management, which has remained an integral strategy of TLNZ's investment philosophy, has aided in reducing the volatility of operating results.

Lapse experience in individual health, individual life and group health has improved over the past few years. Lapse rates for all product groups are forecast to improve in 2008. Growth in policy expenses have continued, driven by increases in commission rates. Management expenses were lower than expected, primarily as a result of remediation activity associated with servicing issues.

TIL's underwriting performance improved to NZD 9.4 million (USD 7.1 million) in fiscal year 2007 compared to NZD 7.1 million (USD 4.6 million) in fiscal year 2006. Loss ratios were 63.8% and 65.6%, respectively. A.M. Best expects that the high retention of operating earnings from a business with stable profitability will further strengthen TIL's overall capitalization. Operating profitability for fiscal year 2008 improved with a net profit after tax of NZD 14.8 million (USD 10.1 million) compared to NZD 12.3 million (USD 9.3 million) in fiscal year 2007.

TIL's risk-adjusted capitalization was stable in fiscal year 2007. An improvement driven by decreased asset risk derived from a decline in equity investments, and high retention of operating earnings during the year was offset by higher retentions/reinstatement on the company's catastrophe program. The company's risk-adjusted capitalization is anticipated to remain at similar levels for fiscal year 2008.

The above positive rating factors are partially offset by TMI's weak risk-adjusted capitalization, TLNZ's low absolute capitalization of TLNZ and TIL's exposure to catastrophic perils and distribution risk.

In fiscal year 2007, TMI met the New Zealand Health Fund solvency standard that was introduced in 2007 with the benefit of transition provisions. The five-year transition period gives TMI sufficient time to build up reserves.

TLNZ is small on an absolute basis, especially when compared with similarly rated life companies in New Zealand. This may raise issues such as scale and operating capabilities. Being part of the TOWER group mitigates most of these concerns, as TLNZ has contracted its underwriting and claims management of group risk business to THL.

The announced termination of the distribution partnership with The ANZ/National Bank (scheduled for 1 March 2009) effectively reduces TIL's new business premium. This reduction strengthens the company's risk-adjusted capitalization; however, over the longer term, expense measures may deteriorate if not adequately managed.

For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.