AM Best has awarded Tower Group a financial strength rating of A- for its general, life and health insurance businesses.

It has also given the New Zealand insurer a BBB- issuer credit rating.

The agency says its ratings reflect Tower’s adequate risk-adjusted capitalisation, strong new business profitability and improved conditions for direct insurers in New Zealand.

This month Tower completed the $NZ36 million ($32.74 million) sale of its life business to Australian investor Foundation Life, which specialises in buying and managing life portfolios that are no longer marketed.

AM Best says the sale is awaiting regulatory approval and ratings may be revised later.

Tower CEO David Hancock says the ratings support customers’ confidence in Tower’s stability and security, and maintain its respected financial position with reinsurers.

AM Best says risk-adjusted capitalisation has improved since the Reserve Bank of New Zealand imposed minimum solvency standards last year.

While Tower’s premium leverage outlook is expected to increase considerably over the next three years, the parent company’s ability to strengthen capitalisation if needed has been reduced due to low earnings retention and the disposal of capital-generating affiliates.

“Offsetting rating factors include the likely continued capital drag from its parent and an expected deterioration… in the expense ratio [because] fixed expenses will be spread out over a slowly diminishing book of business,” AM Best says.