AM Best has maintained its A- financial strength rating on New Zealand insurer Tower Group’s general, life and health insurance businesses.

It has also affirmed its a- issuer credit rating for the three business units.

The ratings reflect favourable risk-adjusted capitalisation, strong solvency and good operating performance, according to the agency.

“Over a five-year period, [Tower’s] underlying net profits – excluding reserve strengthening and disposal of subsidiaries – remained consistently positive, benefitting from stable net investment yields, as well as a generally profitable book in New Zealand and Pacific Islands.”

AM Best has also affirmed its BBB issuer credit rating on parent group Tower Limited.

The outlook for all ratings remains negative, reflecting the potential consequences of Tower’s 90-100% dividend payout policy, such as a thinner capital buffer.

And AM Best has maintained its B++ financial strength rating and bbb issuer credit rating on personal lines challenger Youi New Zealand.

The ratings are based on the group’s favourable risk-adjusted capitalisation and sound operating controls.

Youi New Zealand is owned by Youi Holdings Australia, which is controlled by South Africa’s OUTsurance Holdings.

“Despite its start-up nature as an extension of an existing Australian operation, adequate risk management processes, infrastructure and operating controls are in place to support the company’s strategic initiatives in New Zealand,” AM Best says.

Youi New Zealand is expected to maintain favourable risk-adjusted capitalisation for its first five years.

However, there may be challenges in executing its business plan. Despite a prudent reinsurance program that helps reduce capital requirement and claim-related volatility, its financial condition is relatively sensitive to the cost of reinsurance.