Category: Issue Comments

Enbridge Inc. has announced (on September 15):

Westcoast Energy Inc. (“Westcoast”) announced today that it intends to exercise its right to redeem all of its outstanding Cumulative 5-Year Minimum Rate Reset Redeemable First Preferred Shares, Series 12 (“Series 12 Shares”) on October 15, 2021 at a price of $25.00 per Series 12 Share, together with all accrued and unpaid dividends, if any.

Beneficial holders who are not directly the registered holders of the Series 12 Shares should contact the financial institution, broker or other intermediary through which they hold these shares to confirm how they will receive their redemption proceeds. Inquiries from registered shareholders should be directed to Westcoast’s Registrar and Transfer Agent, Computershare Investor Services Inc., at 1-800-564-6253 (Canada and United States) or 1-514-982-7555 (Outside North America).

Westcoast Energy Inc. is an indirect subsidiary of Enbridge Inc.

W.PR.M is a FixedReset 5.20%+452M520 that commenced trading 2016-8-30 after being announced 2016-8-22. It has been tracked by HIMIPref™; it was been assigned to the FixedResets (Premium) subindex.

Canaccord Genuity Group Inc. has announced (on 2021-9-1):

the applicable dividend rates for its Cumulative 5-Year Rate Reset First Preferred Shares, Series A (the “Series A Preferred Shares”) and its Cumulative Floating Rate First Preferred Shares, Series B (the “Series B Preferred Shares”), further to its press release dated August 3, 2021 announcing that it does not intend to exercise its right to redeem all or any part of the currently outstanding Series A Preferred Shares and, as a result of which, subject to certain conditions, the holders of the Series A Preferred Shares have the right to convert all or any part of their Series A Preferred Shares into Series B Preferred Shares on a one-for-one basis.

With respect to any Series A Preferred Shares that remain outstanding after September 30, 2021, holders thereof will be entitled to receive quarterly fixed, cumulative, preferential cash dividends, if, as and when declared by the Board of Directors of the Company, subject to the provisions of the Business Corporations Act (British Columbia). The dividend rate for the five-year period commencing on October 1, 2021 and ending on and including September 30, 2026 will be 4.028% per annum, being equal to the sum of the five-year Government of Canada bond yield determined as of today, plus 3.21%, in accordance with the terms of the Series A Preferred Shares.

With respect to any Series B Preferred Shares that may be issued on September 30, 2021, holders thereof will be entitled to receive quarterly floating rate, cumulative, preferential cash dividends, if, as and when declared by the Board of Directors of the Company, subject to the provisions of the Business Corporations Act (British Columbia). The dividend rate for the three-month period commencing on October 1, 2021 and ending on and including December 31, 2021 will be 3.388%per annum, being equal to the sum of the three-month Government of Canada Treasury Bill yield determined as of today, plus 3.21% (calculated on the basis of the actual number of days elapsed during such quarterly period divided by 365), in accordance with the terms of the Series B Preferred Shares. The quarterly floating dividend rate will be reset every quarter.

Beneficial owners of Series A Preferred Shares who wish to exercise their conversion right should communicate as soon as possible with their broker or other nominee to ensure their instructions are followed for exercising such right on or prior to the deadline for exercise, which is 5:00 p.m. (Toronto time) on September 15, 2021.

CF.PR.A was issued as a 5.50%+321 FixedReset that commenced trading 2011-6-23 after being announced 2011-6-6. After notice of extension the rate reset to 3.885% in 2016, but there was no conversion to FloatingReset.

Brookfield Office Properties Inc., a subsidiary of Brookfield Property Partners L.P., has announced (on 2021-9-1):

the reset dividend rate and conversion privileges on its Class AAA Preference Shares, Series R (“Series R Shares”) (TSX: BPO.PR.R) and Class AAA Preference Shares, Series S (“Series S Shares”) (TSX: BPO.PR.S).

Series R Shares

If declared, the fixed quarterly dividends on the Series R Shares for the five years commencing October 1, 2021 and ending September 30, 2026 will be paid at an annual rate of 4.30% ($0.26875 per share per quarter).

Holders of Series R Shares have the right, at their option, exercisable no later than 5:00 p.m. (Toronto time) on September 15, 2021, to convert all or part of their Series R Shares, on a one-for-one basis, into Class AAA Preference Shares, Series S (the “Series S Shares”), effective September 30, 2021.

The quarterly floating rate dividends on the Series S Shares have an annual rate, calculated for each quarter, of 3.48% over the annual yield on three-month Government of Canada treasury bills. The actual quarterly dividend rate for the October 1, 2021 to December 31, 2021 dividend period for the Series S Shares will be 0.92252% (3.66% on an annualized basis) and the dividend, if declared, for such dividend period will be $0.23063 per share, payable on December 31, 2021.

Holders of Series R Shares are not required to elect to convert all or any part of their Series R Shares into Series S Shares.

As provided in the share conditions of the Series R Shares, (i) if Brookfield determines that there would be fewer than 1,000,000 Series S Shares outstanding after September 30, 2021, all remaining Series R Shares will be automatically converted into Series S Shares on a one-for-one basis effective September 30, 2021; and (ii) if Brookfield determines that there would be fewer than 1,000,000 Series S Shares outstanding after September 30, 2021, no Series R Shares will be permitted to be converted into Series S Shares. There are currently 8,883,425 Series R Shares outstanding.

Series S Shares

Holders of Series S Shares have the right, at their option, exercisable no later than 5:00 p.m. (Toronto time) on September 15, 2021, to convert all or part of their Series S Shares, on a one-for-one basis, into the Series R Shares, effective September 30, 2021.

Holders of Series S Shares are not required to elect to convert all or any part of their Series S Shares into Series R Shares.

As provided in the share conditions of the Series S Shares, (i) if Brookfield determines that there would be fewer than 1,000,000 Series R Shares outstanding after September 30, 2021, all remaining Series S Shares will be automatically converted into Series R Shares on a one-for-one basis effective September 30, 2021; and (ii) if Brookfield determines that there would be fewer than 1,000,000 Series R Shares outstanding after September 30, 2021, no Series S Shares will be permitted to be converted into Series R Shares. There are currently 1,116,575 Series S Shares outstanding.

BPO.PR.R was issued as a 5.10%+348 FixedReset that commenced trading 2011-9-2 after being announced 2011-8-25. The issue reset to 4.155% in 2016 and there was an 11% conversion to the FloatingReset BPO.PR.S.

BPO.PR.S is a FloatingReset, Bills+348, that arose via a partial conversion from BPO.PR.R in 2016.

Sun Life Financial Inc. has announced (on 2021-8-31):

the applicable dividend rates for its Class A Non-Cumulative Rate Reset Preferred Shares Series 10R (the “Series 10R Shares”) and Class A Non-Cumulative Floating Rate Preferred Shares Series 11QR (the “Series 11QR Shares”).

With respect to any Series 10R Shares that remain outstanding after September 30, 2021, commencing as of such date, holders thereof will be entitled to receive non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of Sun Life and subject to the Insurance Companies Act (Canada). The dividend rate for the five-year period commencing on September 30, 2021 and ending on September 29, 2026 will be 2.967% per annum or $0.185438 per share per quarter, being equal to the sum of the Government of Canada Yield, as defined in the terms of the Series 10R Shares, on Tuesday, August 31, 2021 plus 2.17%, as determined in accordance with the terms of the Series 10R Shares.

With respect to any Series 11QR Shares that remain outstanding after September 30, 2021, holders thereof will be entitled to receive floating rate non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of Sun Life and subject to the Insurance Companies Act (Canada), based on a dividend rate equal to the sum of the T-Bill Rate, as defined in the terms of the Series 11QR Shares, plus 2.17% (calculated on the basis of the actual number of days elapsed in such Quarterly Floating Rate Period divided by 365 days), subject to certain adjustments in accordance with the terms of the Series 11QR Shares. The dividend rate for the period commencing on September 30, 2021 and ending on December 30, 2021 will be equal to 2.357% per annum or $0.148523 per share, as determined in accordance with the terms of the Series 11QR Shares.

Beneficial owners of Series 10R Shares and Series 11QR Shares who wish to exercise their right of conversion should communicate as soon as possible with their broker or other nominee and ensure that they follow their instructions in order to meet the deadline to exercise such right, which is 5:00 p.m. (ET) on Wednesday, September 15, 2021.

SLF.PR.H is a FixedReset, 3.90%+217, that commenced trading 2011-8-12 after being announced 2011-8-4. After notice of extension the issue reset to 2.842% in 2016 and there was a 14% conversion to the FloatingReset SLF.PR.K.

SLF.PR.K is a FloatingReset, Bills+217, that arose via a partial conversion from SLF.PR.H in 2016.

Intact Financial Corporation has announced (on 2021-8-31):

that it does not intend to exercise its right to redeem all or any part of the currently outstanding Non-cumulative Rate Reset Class A Shares Series 3 of IFC (the “Series 3 Preferred Shares”) (TSX: IFC.PR.C) or the Non-cumulative Floating Rate Class A Shares Series 4 of IFC (the “Series 4 Preferred Shares”) (TSX: IFC.PR.D) on September 30, 2021.

As a result, subject to certain conditions set out in the prospectus supplement dated August 11, 2011 relating to the issuance of the Series 3 Preferred Shares (the “Prospectus”), the holders of the Series 3 Preferred Shares will have the right, at their option, to elect to convert all or any of their Series 3 Preferred Shares into Series 4 Preferred Shares on a one-for-one basis on September 30, 2021. Holders who do not exercise their right to convert their Series 3 Preferred Shares into Series 4 Preferred Shares on such date will retain their Series 3 Preferred Shares, unless automatically converted in accordance with the conditions below.

Also, subject to certain conditions set out in the Prospectus, the holders of the Series 4 Preferred Shares will have the right, at their option, to elect to convert all or any of their Series 4 Preferred Shares into Series 3 Preferred Shares on a one-for-one basis on September 30, 2021. Holders who do not exercise their right to convert their Series 4 Preferred Shares into Series 3 Preferred Shares on such date will retain their Series 4 Preferred Shares, unless automatically converted in accordance with the conditions below.

With respect to any Series 3 Preferred Shares that may remain outstanding after September 30, 2021, commencing as of such date, holders thereof will be entitled to receive fixed non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of IFC. The annual dividend rate for the Series 3 Preferred Shares for the five-year period from and including September 30, 2021 to but excluding September 30, 2026 will be 3.457%, as determined in accordance with the terms of the Series 3 Preferred Shares.

With respect to any Series 4 Preferred Shares that may remain outstanding after September 30, 2021, holders thereof will be entitled to receive floating rate non-cumulative preferential cash dividends on a quarterly basis, as and when declared by the Board of Directors of IFC. The dividend rate for the Series 4 Preferred Shares for the 3-month floating rate period from and including September 30, 2021 to but excluding December 31, 2021 will be 0.7176% (2.847% on an annualized basis), as determined in accordance with the terms of the Series 4 Preferred Shares (the “Floating Quarterly Dividend Rate”). The Floating Quarterly Dividend Rate will be reset every quarter.

The foregoing conversion right for the Series 3 Preferred Shares is subject to the conditions that: (i) if IFC determines that there would be less than 1,000,000 Series 3 Preferred Shares outstanding on September 30, 2021, then all remaining Series 3 Preferred Shares will automatically be converted into an equal number of Series 4 Preferred Shares on September 30, 2021, and (ii) alternatively, if IFC determines that there would be less than 1,000,000 Series 4 Preferred Shares outstanding on September 30, 2021, then no Series 3 Preferred Shares will be converted into Series 4 Preferred Shares. In either case, IFC will give written notice to that effect to any registered holders of Series 3 Preferred Shares on or before September 23, 2021.

The foregoing conversion right for the Series 4 Preferred Shares is subject to the conditions that: (i) if IFC determines that there would be less than 1,000,000 Series 4 Preferred Shares outstanding on September 30, 2021, then all remaining Series 4 Preferred Shares will automatically be converted into an equal number of Series 3 Preferred Shares on September 30, 2021, and (ii) alternatively, if IFC determines that there would be less than 1,000,000 Series 3 Preferred Shares outstanding on September 30, 2021, then no Series 4 Preferred Shares will be converted into Series 3 Preferred Shares. In either case, IFC will give written notice to that effect to any registered holders of Series 4 Preferred Shares on or before September 23, 2021.

The Series 3 Preferred Shares and the Series 4 Preferred Shares are issued in “book entry only” form and must be purchased or transferred through a participant in the CDS depository service (“CDS Participant”). All rights of holders of Series 3 Preferred Shares and all rights of holders of Series 4 Preferred Shares must be exercised through CDS or the CDS Participant through which the Series 3 Preferred Shares and the Series 4 Preferred Shares are held. The deadline for (1) the registered shareholder of any Series 3 Preferred Shares to provide notice of exercise of the right to convert Series 3 Preferred Shares into Series 4 Preferred Shares, and (2) the registered shareholders of any Series 4 Preferred Shares to provide notice of exercise of the right to convert Series 4 Preferred Shares into Series 3 Preferred Shares is 5:00 p.m. (ET) on September 15, 2021. Any notices received after this deadline will not be valid. As such, holders of Series 3 Preferred Shares and/or Series 4 Preferred Shares who wish to exercise their right to convert their shares should contact their broker or other intermediary for more information and it is recommended that this be done well in advance of the deadline in order to provide the broker or other intermediary with time to complete the necessary steps.

Holders of the Series 3 Preferred Shares and the Series 4 Preferred Shares will have the opportunity to convert their shares again on September 30, 2026, and every five years thereafter as long as the shares remain outstanding. Subject to certain conditions described in the Prospectus, IFC may redeem the Series 3 Preferred Shares, in whole or in part, on September 30, 2026 and on September 30 every five years thereafter and may redeem the Series 4 Preferred Shares, in whole or in part, on any date after September 30, 2016.

For more information on the terms of, and risks associated with an investment in, the Series 3 Preferred Shares and the Series 4 Preferred Shares, please see IFC’s prospectus supplement dated August 11, 2011 which is available on www.sedar.com.

IFC.PR.C was issued as a FixedReset, 4.20%+266, that commenced trading 2011-8-18 after being announced 2011-8-9. It reset to 3.332% in 2016 and there was a 16% conversion to the FloatingReset IFC.PR.D.

IFC.PR.D is a FloatingReset, Bills+266, that arose via a partial conversion from IFC.PR.C in 2016.

Brookfield Infrastructure Partners L.P. has announced (on 2021-9-1):

that it intends to redeem all of its outstanding Cumulative Class A Preferred Limited Partnership Units, Series 5 (the “Series 5 Preferred Units”) (TSX: BIP.PR.C) for cash on September 30, 2021. The redemption price for each Series 5 Preferred Unit will be C$25.00. Holders of Series 5 Preferred Units of record as of August 31, 2021 will receive the previously declared final quarterly distribution of C$0.334375 per Series 5 Preferred Unit.

BIP.PR.C is a FixedReset 5.35%+464M535 issue that commenced trading 2016-8-2 after being announced 2016-7-25.

National Bank of Canada has announced (on 2021-6-15):

its intention, subject to the approval of the Office of the Superintendent of Financial Institutions, to redeem all of its 16,000,000 issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares Series 36 (Non-Viability Contingent Capital (NVCC)) (the “Preferred Shares Series 36”) on August 15, 2021, for cash at a redemption price of $25.00 per share, together with all declared and unpaid dividends.

On May 28, 2021, National Bank announced that the quarterly dividend of $0.3375 per Preferred Shares Series 36 had been declared. This will be the final dividend on the Preferred Shares Series 36, and will be payable in the usual manner on August 15, 2021 to shareholders of record on July 6, 2021, as previously announced.

Since August 15, 2021 is not a business day, amounts due to holders of Preferred Shares 36 on that date will be paid on the first business day following that date, being Monday, August 16, 2021.

Formal notice will be given to holders of Preferred Shares Series 36 in accordance with the terms thereof.

The redemption of the Preferred Shares Series 36 is part of National Bank’s ongoing management of its regulatory capital.

NA.PR.A was a FixedReset, 5.40%+466, NVCC issue that commenced trading 2016-6-13 after announced 2016-6-2.

DBRS has announced that it:

has placed the ratings of ECN Capital Corp. (ECN or the Company), including the Company’s Long-Term Issuer Rating of BBB (low) and Preferred Shares Rating of Pfd-3, Under Review with Negative Implications. The ratings action follows the Company’s August 10, 2021 announcement that it has entered into a definitive agreement to sell its Service Finance Company, LLC (Service Finance) business to Truist Bank, the wholly owned bank subsidiary of Truist Financial Corporation. The sale is subject to standard licensing and regulatory approvals and the satisfaction of customary closing conditions. The transaction is expected to close in 4Q21.

KEY RATING CONSIDERATIONS
The Under Review with Negative Implications considers the impact of the sale of ECN’s Service Finance business on its credit fundamentals, including a reduction in earnings generation capacity and growth potential. Partially offsetting, is the continuing solid contributions to ECN’s bottom line from its Triad Financial Services, Inc. (Triad) and Kessler Financial Services LLC (Kessler) businesses, despite ongoing headwinds related to the Coronavirus Disease (COVID -19) pandemic.

Upon the close of the transaction, ECN’s franchise will reflect a more moderate scale of operations, including a narrower product offering. Moreover, growth will be impacted, given that Service Finance represents the majority of the Company’s originations. That said, Triad’s growth rate is strong and will continue to contribute to scaling the business going forward. Importantly, Triad and Kessler maintain solid market positions within their respective niches.

Although the sale of Service Finance will pressure ECN’s earnings generation, we expect earnings performance metrics to be solid. Additionally, we view Triad’s strong originations and expanding product offering as enhancing its top line contributions, benefiting future portfolio origination services and portfolio management services revenues. Finally, as its client base activity gains momentum as coronavirus pressures recede, we anticipate Kessler’s marketing services income to improve and positively impact ECN’s bottom line.

After the closing of the transaction, we anticipate the Company’s risk profile to remain sound and well managed.
Credit risk will remain limited, primarily to Triad’s moderately sized floorplan business, as well as Kessler’s support of customer marketing campaigns. Additionally, asset risk related to its legacy asset portfolio, should be moderate, especially after the significant valuation reserves taken over the last few years. Finally, we view the Company’s operational risk to remain a key risk for the Company, given that its consumer businesses have considerable compliance and regulatory oversight, and many of its Funding Partners are FDIC-insured institutions.

We expect that the Company’s funding position to remain acceptable, especially as Triad’s originations are funded on a flow basis with Funding Partners. Overall, Triad’s Funding Partners total 61 including 11 new bank and credit union partners added since the beginning of the year, demonstrating the desirability of the high quality assets originated by Triad. Overall, Triad is entirely funded for 2021and 2022. Additionally, ECN’s liquidity profile is expected to remain solid, including its recently renegotiated $700 million credit line by its bank group. Meanwhile, capital will contract with the sale of Service Finance, and the Company expects to continue paying dividends and buying back shares. We would expect ECN to maintain appropriate capital levels to match their risk profile.
The Under Review with Negative Implications status is generally resolved with a rating action within three months. DBRS Morningstar expects to conclude the review once the sale of Service Finance closes in 4Q21. During its review, DBRS Morningstar will assess the ultimate impact of the divesture on ECN’s franchise, the expected earnings generation of the Company, and capitalization.

RATING DRIVERS
Assuming no material changes upon the closing of the transaction, the ratings would be downgraded by one notch from the current ratings. If the transaction does not close as expected, its funding partners remain committed to the Service Finance business, and other credit fundamentals remain sound, ECN’s ratings would revert back to a Stable trend.

Affected issues are ECN.PR.A and ECN.PR.C.

DBRS has announced (on 2021-4-14):

DBRS Limited (DBRS Morningstar) confirmed the Financial Strength Rating of Genworth Financial Mortgage Insurance Company Canada (Genworth or the Company) at AA. DBRS Morningstar also confirmed the Issuer Rating and Senior Unsubordinated Debt rating of Sagen MI Canada Inc. (Sagen; previously Genworth MI Canada Inc.), Genworth’s holding company, at A (high), the Preferred Shares rating at Pfd-2 (high), and the Fixed-to-Fixed Rate Subordinated Notes rating at A (low). DBRS Morningstar changed all trends to Stable from Negative.

KEY RATING CONSIDERATIONS
The trend change to Stable from Negative reflects the reduction in risk regarding the Canadian economic outlook from the prior year, when DBRS Morningstar changed the trends to Negative due to increased risk of mortgage defaults arising from the steep increase in unemployment levels resulting from the Coronavirus Disease (COVID-19) pandemic. DBRS Morningstar’s expectation of higher defaults resulting from elevated unemployment levels has not materialized primarily as a result of government actions intended to prevent homeowner defaults, including the Canada Emergency Response Benefit and the Canada Emergency Wage Subsidy. The improvement in Canada’s economic conditions in recent months includes a reduction in unemployment levels and a more positive GDP outlook compared with a year ago, combined with strong housing market conditions, all of which are factors that contribute positively to Sagen’s risk and earnings profile. Nonetheless, while risks are significantly reduced compared with the prior year, uncertainty remains regarding future economic conditions particularly as stimulus measures intended to protect the economy from the negative impacts resulting from the ongoing coronavirus pandemic slowly wind down, likely resulting in higher loss rates. It is important to note, however, that current delinquency levels are still very low relative to the historical norm, and the Company maintains an adequate amount of capital to protect itself against any unexpected losses. Despite an uncertain operating environment, Sagen has performed well in 2020, with the Company maintaining strong financials, as evidenced by low loss ratios, and increasing its market share and new business volumes. In our view, Sagen’s strong fundamentals provide strength to its rating assessment and positions it well to handle any unexpected developments regarding the length and nature of the eventual economic recovery. DBRS Morningstar recognizes the Company’s ability to navigate through the ongoing uncertain economic environment, given its proactive management, a conservatively underwritten insurance portfolio, and high levels of regulatory capital.

RATING DRIVERS
Given the current high rating level, an upgrade of the ratings is unlikely especially given continuing economic uncertainty. Conversely, a ratings downgrade would result if Sagen’s capital adequacy deteriorates substantially, leading to a reduced buffer over regulatory capital requirements, or if there is a material deterioration in its loss ratios over an extended period of time that negatively affects earnings. A ratings downgrade would also occur if there is a sustained increase in leverage from current levels, combined with a reduction in cash flow.

RATING RATIONALE
Despite the challenging operating environment, Sagen experienced a strong year in 2020, as evidenced by low loss ratios, high cure activity, and increases in new business volumes. As in prior years, Sagen’s financial metrics have benefitted from a strong housing market, resulting in stable and predictable earnings despite elevated unemployment levels. Government measures to support the economy through the pandemic also proved key to protecting the housing market and, consequently, the mortgage insurers from financial losses. Sagen also benefitted from market opportunities arising from the Canada Mortgage and Housing Corporation’s decision to tighten its underwriting criteria and consequently reduce its borrower base, allowing the private mortgage insurers to gain a significant amount of new business volumes in a short period of time. There remains some uncertainty regarding the nature of the eventual economic recovery and how long the stressed conditions will persist; however, Sagen’s continual efforts to strengthen its borrower profile, enhance its risk management, and maintain adequate amounts of regulatory capital should enable it to navigate a challenging environment successfully.

The Company’s capital structure has undergone a significant change in recent months, with the leverage ratio (calculated by DBRS Morningstar as debt plus preferred shares to total capital) increasing to 30% (on a proforma basis) from prior levels of approximately 10% to 15%. The Company has recently introduced preferred shares and hybrid bonds in its capital structure as well as increased the amount of senior debt. While Sagen’s net income and cash flow can comfortably support this higher level of debt, the increased leverage reduces some of its financial flexibility. While the ratings have not been negatively affected by the increase in debt, given the Company’s stable financials and high coverage ratios, a sustained increase in debt levels, particularly if combined with a reduction in cash flow, would put negative pressure on the ratings.

Brookfield Business Partners L.P. together with certain of its affiliates and institutional partners (collectively “Brookfield”) also recently wholly acquired the Company, increasing its ownership in Sagen to 100% effective April 2021 from 57% in 2020. The shift to a private one from a publicly traded company reduces Sagen’s ability to raise capital by issuing common shares, consequently reducing some of its financial flexibility. The ratings on Sagen have not been affected by the ownership change, given that there has been minimal change to the insurance operations while the Company’s risk profile has remained strong.

Canada’s strong housing market has bolstered the Company’s financials. The housing market has not been adversely affected so far in 2020 and 2021 because of several factors, including increased fiscal stimulus, lower interest rates, and a strengthened consumer balance sheet. By and large, homeowners that had initially opted to defer their mortgage payments have resumed making payments, eliminating the risk of delinquencies sharply rising as the deferral period from most lenders expires. While the recent runup in home prices increases the risk of a housing market bubble, it can also provide a greater equity cushion and result in lower average loan-to-value ratios, providing protection against an increase in claims losses.

Some regulatory risk remains on the horizon, as a heated housing market and rapid price increases in many parts of Canada may pressure governmental authorities to take certain actions, such as further tighten underwriting requirements to reduce the risk to the overall economy. Depending on future government actions, such measures may result in lower sales and consequently, lower new business volumes for mortgage insurers, including Sagen.

Canadian mortgage insurers are highly regulated, with insurers subject to stringent underwriting criteria and minimum regulatory capital levels. The credit profile of the Company’s average borrower is strong and is reflected in its loss ratios, which have been low for the past few years relative to the historical norm before the pandemic. As a monoline insurer, the Company has significantly increased risk during economic downturns, when economic growth prospects weaken and unemployment increases. Generally, mortgage default rates are closely linked to changes in unemployment. Given DBRS Morningstar’s current expectations, claims are likely to increase in 2021 and 2022, increasing the Company’s loss ratios from their current low levels, although the increase in losses is likely to remain manageable for the Company. Elevated levels of regulatory capital also provide an adequate buffer against unexpected increases in losses. To note, Sagen maintained minimum regulatory capital requirements through the 2008 economic downturn in Canada.