AM Best has given New Zealand insurer Tower Group an A- rating on the financial strength of its general, life and health insurance businesses.

Tower was also given an A- issuer credit rating for the three business units within the group.

AM Best says the rating of Tower’s general insurance business reflects its good operating performance and efforts to reduce reinsurance recoverable risk.

The ratings agency notes Tower’s risk-adjusted capitalisation has weakened; but is still acceptable for the current rating.

“This is due to a recently completed capital injection and an anticipated full retention of earnings in 2012,” AM Best said.

“Should further negative development in the claims cost estimates for the February 2011 [Christchurch] earthquake exhaust the remaining buffer to the catastrophic reinsurance limit, the additional cost would have to be borne by Tower Insurance, with negative consequences to its capital.”

AM Best has warned these developments could lead to a re-rating of Tower’s general insurance business.

The life and health business has reported continuous expansion in its core products, with inforce premiums achieving compounded growth of more than 10% a year.

But this has been offset by New Zealand’s economic conditions and more competition in the market leading to higher upfront commissions.

“A significant deterioration in Tower’s life and health capitalisation could lead to a downgrade in its rating,” AM Best said.