Tower given unforgiving S&P appraisal

Tower Australiahas received a harsh assessment for the outlook of its business operations within a broader group review conducted by international rating and investment data groupStandard & Poor’s(S&P).

S&P says the outlook for the overall group remains negative with the move to a ‘stable’ rating only to occur once it can “demonstrate Tower Australia can deliver on its strategic objectives of its business model”.

“The rating outlook could be revised to ‘stable’ if Tower Australia demonstrates success in its business model, by reducing its lapse rates and writing target level of new business, such that target returns are achievable,” S&P financial services ratings analyst, Carolyn Rajaratnam says.

While the group’s Australian arm was given a BBB+ rating in terms of being able to meet its strategic objectives and the fact the ratings group acknowledges there have been improvements for Tower Australia, S&P remains cautious.

“Difficult prevailing market conditions, coupled with a somewhat tarnished brand, are challenging Tower Australia's ability to write the required new business and retain the in-force business and achieve the required rate of return in Australia,” Rajaratnam says.

S&P also affirmed its rating on the whole group by maintaining its BB+ rating on Tower Ltd, Tower Financial Services and Tower Holdings, saying the ratings reflect its marginal, although improving, operating performance and moderate business profile in the Australian life insurance operation.

“Tower's recent focus on providing risk products and establishing a platform for non-bank aligned intermediaries and independent financial advisors has led to the insurer having some success in business growth,” Rajaratnam says.