IFC: DBRS Upgrades to Pfd-2

DBRS has announced that it:

has today upgraded the Issuer Rating and Senior Unsecured Debt rating of Intact Financial Corporation (Intact or the Company) to “A” from A (low) as well as its Non-Cumulative Preferred Shares rating to Pfd-2 from Pfd-2 (low). DBRS has also assigned an Issuer Rating of AA (low) and a Financial Strength Rating (FSR) of AA (low) to Intact Insurance Company, Intact’s major operating subsidiary. In addition, DBRS has assigned FSRs of AA (low) to various other operating insurance company subsidiaries of Intact. All trends are Stable. All rating actions are detailed in the table below. The rating actions taken today follow the publication of DBRS’s new methodology, “Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations” (December 2015) (Global Insurance Methodology).

The upgrade of Intact’s ratings primarily reflects the application of the Global Insurance Methodology and the assignment of an FSR of AA (low) to its operating insurance companies. As the parent holding company, Intact’s Issuer Rating of “A” is positioned two notches below this FSR. Among other factors, the two-notch differential reflects the structural subordination of the holding company’s creditors to the operating company’s creditors in an insolvency situation and recognizes the reliance of the Company on the upstreaming of earnings from its operating companies.

In assigning the FSR of AA (low), DBRS takes into account Intact’s excellent franchise strength and risk profile, its consistently strong earnings and liquidity as well as its very good capitalization. The new methodology gives greater recognition to Intact’s market franchise, distribution, risk management and asset quality. Indicative of Intact’s franchise strength, the Company is the largest property and casualty (P&C) insurer in Canada in terms of market share based on 2014 direct written premiums. Intact’s very strong market position and large scale have enabled it to generate consistently strong earnings and expand through premium growth and strategic acquisitions.

Intact has also benefited from prudent capital and risk management policies that are reflected in its strong risk profile and capitalization. Overall, the Company has exhibited strong and stable key financial metrics, with positive trends that DBRS believes are likely to be sustained. Indicative of this profile, at Q3 2015, Intact had an above-peer return on equity of 13.2%, a low combined ratio of 92.7%, a high fixed-charge coverage value of 9.8x and a financial leverage ratio of 24.7%. The Company’s operating subsidiaries also rank highly in the Canadian P&C market based on their underwriting capabilities and overall profitability.

The Stable trend considers Intact’s well-executed strategy focused on claims and underwriting efficiency; technological innovation; and its expansion through organic growth and successful acquisitions. Positive ratings pressure could occur if the Company improves its market shares across all lines of business and reduces financial leverage. Negative ratings pressure could arise as a result of risky or improperly integrated acquisitions or a sustained increase in the combined ratio caused by poor underwriting or high expenses.

The new methodology is discussed in the post DBRS Releases and Applies New Insurance Company Methodology.

Affected issues are: IFC.PR.A and IFC.PR.C.

Leave a Reply

You must be logged in to post a comment.