PrefBlog

DBRS has announced that it:

has today upgraded the Non-Cumulative Preference Shares rating of Co-operators General Insurance Company (CGIC or the Company) to Pfd-2 (low) from Pfd-3 (high). DBRS has also assigned an Issuer Rating of A (low) and a Financial Strength Rating (FSR) of A (low) to the Company. All trends are Stable. All the 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).

DBRS’s upgrade of CGIC reflects the evaluation of the Company’s fundamentals using the Global Insurance Methodology, which places greater value on the Co-operators’ sizable controlled distribution model as well as property and casualty (P&C) product diversification. CGIC is the main subsidiary of Co-operators Financial Services Company (CFSL). They both form part of The Co-operators Group Limited (the Group), a co-operative financial services organization with complementary interests in life insurance and investment management. As part of a larger financial services group, CGIC enjoys a strong franchise in the co-operative space and ranks fifth in property & casualty insurance products in Canada with a 5.1% market share based on 2014 direct written premiums. The Company is beginning to benefit from recent management initiatives to reduce costs, support better underwriting results and cultivate deeper customer relationships. CGIC has been improving its customer segmentation and, consequently, its ability to differentiate pricing, which creates a more favourable platform for enhancing its earnings ability. The earnings ability evaluation considers the return on equity performance of the Group at the CFSL level where the earnings from CGIC are partially offset by lower earnings from the associated life subsidiary.

Besides its good franchise strength, the Company has a risk profile that reflects its business mix of home, auto and small business insurance and a conservative bond portfolio invested mainly in government debt. CGIC’s capitalization benefits from its low financial leverage. It has no long-term debt and has low levels of short-term borrowing and preferred shares, yielding a low financial leverage ratio and high fixed-charge coverage ratios. The low leverage is viewed positively as CGIC is owned by a co-operative and is therefore largely dependent on internal capital generation. High combined ratios that are near 100% or higher in recent periods, partly driven by the expense of technology development projects, have affected the overall profitability of the Company. Successful implementation of these projects could strengthen CGIC’s earnings ability.

The Stable trend reflects an excellent capital solvency position and an expectation that earnings will improve modestly. A sustained erosion of CGIC’s market share or a prolonged period of higher combined ratios could place negative pressure on the ratings. Conversely, the identification and effective penetration of new market segments could result in positive ratings pressure.

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

Co-Operators has only one series of preferred share currently outstanding, CCS.PR.C.

It will be noted that, unusually, this is the operating company issuing preferred shares despite the presence of a holding company, Co-operators Financial Services Limited, which was confirmed at BBB.

DBRS has announced that it:

has today downgraded the long-term ratings of Manulife Financial Corporation (MFC or the Company), including downgrading its Medium-Term Notes rating to “A” from A (high). At the same time, DBRS assigned a Financial Strength Rating (FSR) of AA (low) to The Manufacturers Life Insurance Company (Manufacturers Life Insurance) and confirmed its Issuer Rating at AA (low) and its Unsecured Subordinated Debentures rating at A (high). DBRS withdrew the Claims Paying Ability rating of Manufacturers Life Insurance, as it is being replaced by the newly assigned FSR. All trends are Stable. All the rating actions are noted 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 downgrade of the holding company ratings results from the application of the Global Insurance Methodology, under which there is typically a wider notching differential between holding company and operating company ratings than in prior methodologies. Specifically, MFC’s Issuer Rating is rated two notches below the FSR of its major operating subsidiary, The Manufacturers Life Insurance Company. 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 confirming the ratings of The Manufacturers Life Insurance Company, DBRS evaluated MFC’s fundamentals utilizing the Global Insurance Methodology. In DBRS’s view, the Company has an excellent franchise. Indeed, MFC is one of the top three insurance organizations in Canada, with extensive wealth management and insurance operations in Canada, the United States and various parts of Asia. Helped by its strong distribution, product mix, global brand recognition and an increased emphasis on risk management and innovation, MFC has experienced high growth and profitability in recent years. These characteristics demonstrate the Company’s good risk profile, good liquidity and excellent earnings capacity. As indicated by its leverage ratio of 22.7% and a Minimum Continuing Capital and Surplus Requirement (MCCSR) of 226%, MFC maintains good capitalization and asset quality.

The Stable trend considers the Company’s resilient fundamentals and its ability to adapt to the current challenging operating environment. Negative ratings pressure could arise from earnings volatility, or a deterioration in financial metrics that indicates a weakening in the Company’s franchise strength. Conversely, positive rating pressure could arise from a sustained improvement in the Company’s fixed-charge coverage ratio.

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

Affected issues are: MFC.PR.B, MFC.PR.C, MFC.PR.F, MFC.PR.G, MFC.PR.H, MFC.PR.I, MFC.PR.J, MFC.PR.K, MFC.PR.L, MFC.PR.M and MFC.PR.N.

DBRS has announced that it:

has today confirmed Fairfax Financial Holdings Limited’s (Fairfax or the Company) ratings, including its Issuer Rating at BBB, its Senior Unsecured Debt rating at BBB and its Preferred Shares rating at Pfd-3. The trend has been changed to Positive from Stable. The rating of Fairfax (US) Inc.’s Senior Unsecured Notes, guaranteed by Fairfax, has also been confirmed at BBB. The trend has also changed to Positive, in line with Fairfax. At the same time, DBRS assigned a Financial Strength Rating (FSR) of A (low), with a Positive trend, to both Northbridge General Insurance Company (Northbridge) and Federated Insurance Company of Canada (Federated), the Canadian operating subsidiaries of Fairfax. All ratings 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).

Under the Global Insurance Methodology, Fairfax’s Issuer Rating has been notched down two notches from the FSR of its operating companies. Among other factors, the notching 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 holding company on the upstreaming of earnings from its operating companies.

The change in the trend to Positive reflects the progress that Fairfax is making with its franchise and operations. The Company continues to develop its worldwide organization of insurance and reinsurance entities using a multi-brand strategy. The Canadian operations, through the Northbridge and Federated brands, hold a 5% market share of the Canadian commercial property and casualty (P&C) market, while through the Odyssey Re brand, Fairfax is ranked in the top 20 global P&C reinsurance writers. The Company has other brands from its successful acquisition activity that cater to particular risks, for example, workman’s compensation, pet insurance or marine. Fairfax has a strong focus on underwriting and pricing, and a willingness to avoid writing new business when it views market pricing as inadequate. The Company is noted for its expertise in active investment management, often taking controlling shares in portfolio investments, but also has a guiding principle to protect the Company from downside risks through both asset selection and hedging. Reflecting its strong liquidity position, the holding company maintains a liquid investment pool that helps to ensure that it can meet its capital servicing charges and has the mobility to move capital to recapitalize a subsidiary if required.

While Fairfax has good earnings ability, its earnings tend to be more volatile through its underwriting results and its investment portfolio because of market value changes in its bond and equity holdings. To manage its dispersed global operation, the Company maintains a lean head office based on its approach of providing a high degree of autonomy to its business units. However, Fairfax’s good risk profile reflects its centralized risk management function, which uses the risk management functions of each of the business operations to collect and monitor information regarding aggregate and emerging risks. The decentralized structure with specialized and diverse insurance risks is an operational challenge that is managed through an accounting system that provides performance information for numerous risk segments on both a local and aggregate basis.

The Positive trend considers the Company’s improving fundamentals, its recent acquisition of Brit PLC, a global Lloyd’s of London specialty insurer and reinsurer, and its ability to adapt to the current environment. Further positive ratings pressure could emerge if the Company reduces its leverage and improves its fixed charge coverage ratios, enhances its income stability and increases its market shares on a prudent basis. Negative ratings pressure could arise if the Company’s fundamentals weaken because of reduced liquidity levels and inadequate monitoring/oversight of risks.

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

Affected issues are: FFH.PR.C, FFH.PR.D, FFH.PR.E, FFH.PR.F, FFH.PR.G, FFH.PR.H, FFH.PR.I, FFH.PR.K and FFH.PR.M.

DBRS has announced that it:

has today downgraded Power Corporation of Canada’s (POW or the Company) Senior Debt rating to “A” from A (high) and its Preferred Shares ratings to Pfd-2 from Pfd-2 (high) due to the application of the new insurance methodology. All trends are Stable. All the 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 downgrade of POW’s ratings results from the application of the Global Insurance Methodology. POW’s main subsidiary is Power Financial Corporation (PWF), which in turn owns Great-West Lifeco Inc. (GWO), the greatest contributor to earnings and overall strength of PWF. Hence, the Global Insurance Methodology used to rate GWO is by extension the primary methodology for rating POW.

The ratings for POW are one notch below PWF’s ratings under the holding company criteria due to structural subordination. Additionally, PWF’s rating has been set at the same level as GWO’s Issuer Rating. See the press releases for Power Financial Corporation, “DBRS Downgrades Power Financial Corporation’s Issuer Rating to A (high) from AA (low); Confirms Great West Life Assurance Co at AA”, “DBRS Confirms The Great West Life Assurance Company Ratings at AA; Downgrades Great-West Lifeco’s Debentures to A (high) from AA (low)”, for more information.

POW is an investment holding company controlled by the Desmarais family with PWF as its major holding. Other interests include Square Victoria Communications Group, Power Energy, the Sagard investment funds and other investments. POW benefits from a strong capital position, high liquidity and prudent decision-making with an emphasis on conservativeness and integrated risk management. Negative ratings pressure may arise if the subsidiaries suffer extended declines in profitability or more unlikely, if the Company deviates significantly from its value-based approach to leadership and away from its successful operational track record. POW’s ratings could also be negatively impacted by evidence of governance issues. Conversely, an upgrade of PWF could potentially benefit POW’s rating.

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

Affected issues are: POW.PR.A, POW.PR.B, POW.PR.C, POW.PR.D, POW.PR.F and POW.PR.G.

DBRS has announced that it:

has today downgraded Great-West Lifeco Inc.’s (GWO or the Company) Debentures to A (high) from AA (low), its Non-Cumulative First Preferred Shares to Pfd-2 (high) from Pfd-1 (low), and has also assigned an Issuer Rating of A (high) to the Company. At the same time, DBRS assigned a Financial Strength Rating (FSR) of AA to GWO’s major operating subsidiaries: The Great-West Life Assurance Company, The Canada Life Assurance Company and London Life Insurance Company. The Great-West Life Assurance Company’s Issuer Rating was confirmed at AA, and its Preferred Shares were confirmed at Pfd-1. The Canada Life Assurance Company’s Subordinated Debentures were confirmed at AA (low). Lastly, DBRS has withdrawn the Claims Paying Ability ratings of the three operating subsidiaries, replacing them with the newly assigned FSRs. 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 downgrade of the holding company ratings results from the application of DBRS’s newly implemented Global Insurance Methodology, which favours a wider notch differential between holding and operating company ratings than in prior methodologies. Specifically, the senior debt of the holding company, GWO, is positioned two notches below the FSR of its major operating subsidiary, The Great-West Life Assurance Company. Among other factors, the notching 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 confirming the ratings of the operating subsidiaries, DBRS evaluated GWO’s fundamentals using the Global Insurance Methodology. GWO is the largest insurance company in Canada, with a dominant market position for both individual insurance and group benefits and savings. The Company also has extensive operations in the United States and Europe. The Company has strong financial metrics, including a decreasing financial leverage (debt, hybrids and preferreds to capital) ratio of 26.5% at Q3 2015, a minimum continuing capital and surplus requirement (MCCSR) ratio of 234% and an above-peer return on equity that has been in the mid-teens for the past several years.

The Stable trend considers the Company’s resilient fundamentals and its ability to adapt to the current challenging operating environment. Negative ratings pressure could arise if the Company’s fundamentals weaken because of a reduction in earnings, with a deterioration in fixed-charge coverage ratios. Positive rating pressure could arise if there is a material reduction in financial leverage or improved profitability at Putnam.

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

Affected issues are: GWO.PR.F, GWO.PR.G, GWO.PR.H, GWO.PR.I, GWO.PR.L, GWO.PR.M, GWO.PR.N, GWO.PR.P, GWO.PR.Q, GWO.PR.R, and GWO.PR.S.

DBRS has announced that it:

DBRS Limited (DBRS) has today downgraded Power Financial Corporation’s (PWF or the Company) Issuer Rating and Senior Debentures to A (high) from AA (low) and its Preferred Shares ratings to Pfd-2 (high) from Pfd-1 (low) due to the application of the new insurance methodology. All trends are Stable. All the 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 downgrade of PWF’s ratings results from the application of the Global Insurance Methodology and the assignment of an Issuer Rating of A (high) to Great-West Lifeco Inc. (GWO), PWF’s major operating subsidiary. Since PWF’s greatest contributor to earnings and overall strength is GWO, a large insurance organization contributing approximately 75% of YTD 2015 earnings, the primary methodology used to rate GWO is the Global Insurance Methodology, and by extension it is the primary methodology for rating PWF. As a parent holding company, GWO’s Issuer Rating of A (high) is positioned two notches below the Financial Strength Rating (FSR) of Great-West Life Assurance Company, its operating insurance company. 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

The diversification and overall strength of PWF’s combined subsidiaries in addition to the assessment of financial strength of the PWF legal entity has resulted in DBRS concluding that the sum of the parts is sufficiently strong for the PWF rating to be at the same level as the GWO rating.

PWF is an investment holding company controlling two major Canadian financial services providers: GWO and IGM Financial Inc. Through a 50/50 partnership with Belgium’s Frère Group, PWF also shares a 55.5% equity interest in Pargesa Holding S.A., a Swiss holding company with indirect interests in a limited number of European-based industrial companies. PWF, in turn, is 65.6% owned by Power Corporation of Canada (POW). Similar to POW, PWF benefits from a strong capital position, high liquidity and prudent decision-making with an emphasis on conservativeness and integrated risk management. PWF’s credit ratings could come under pressure if the operating subsidiaries experience a deterioration in credit quality or an extended period of low profitability that results in declining financial metrics, or eroding market share. Negative ratings pressure may also arise from evidence of governance and control issues. Conversely, the Company may potentially benefit from any upgrades to the ratings of GWO.

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

Affected issues are: PWF.PR.A, PWF.PR.E, PWF.PR.F, PWF.PR.G, PWF.PR.H, PWF.PR.I, PWF.PR.K, PWF.PR.L, PWF.PR.O, PWF.PR.P, PWF.PR.R, PWF.PR.S and PWF.PR.T.

DBRS has announced that it:

has today downgraded Sun Life Financial Inc.’s (SLF or the Company) Senior Unsecured Debentures to “A” from A (high), its Subordinated Unsecured Debentures to A (low) from “A” and its Preferred Shares to Pfd-2 from Pfd-2 (high). DBRS has also assigned an Issuer Rating of “A” to the Company. At the same time, DBRS assigned a Financial Strength Rating (FSR) of AA (low) to Sun Life Assurance Company of Canada (Sun Life Assurance) and confirmed its Issuer Rating at AA (low) and its Subordinated Debt rating at A (high). DBRS withdrew the Claims Paying Ability rating of Sun Life Assurance, replacing it with the newly assigned FSR. All trends are Stable. All the 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 downgrade of the holding company ratings results from the application of the Global Insurance Methodology under which there is typically a wider notch differential between holding company and operating company ratings than in prior methodologies.
…
The Stable trend considers the Company’s resilient fundamentals and its ability to adapt to the current challenging operating environment. Negative ratings pressure could arise if the Company’s fundamentals weaken, which may include a sustained decline in equity markets or significant deviations of experience from actuarial assumptions. A deterioration in regulatory capital ratios and loss of market share may also negatively affect ratings. Positive rating pressure could arise if the Company experiences solid earnings and growth resulting in increased market share, or displays consistently improved financial metrics and asset quality coupled with income stability.

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

Affected issues are: SLF.PR.A, SLF.PR.B, SLF.PR.C, SLF.PR.D, SLF.PR.E, SLF.PR.G, SLF.PR.H, SLF.PR.I and SLF.PR.J.

Royal Bank of Canada has announced:

it has closed its domestic public offering of Non-Cumulative, 5-Year Rate Reset Preferred Shares Series BK. Royal Bank of Canada issued 27 million Preferred Shares Series BK at a price of $25 per share to raise gross proceeds of $675 million.

The offering was underwritten by a syndicate led by RBC Capital Markets. The Preferred Shares Series BK will commence trading on the Toronto Stock Exchange today under the ticker symbol RY.PR.Q.

The bank has granted the underwriters’ an option, exercisable in whole or in part, to purchase up to an additional 2 million Preferred Shares Series BK at the same offering price. The underwriters have 30 days from the closing of the preferred share offering to exercise the option.

The Preferred Shares Series BK were issued under a prospectus supplement dated December 10, 2015 to the bank’s short form base shelf prospectus dated December 20, 2013.

RY.PR.Q is a FixedReset 5.50%+453, announced December 8. It will be tracked by HIMIPref™ and has been assigned to the FixedReset subindex.

The issue traded 1,558,368 shares today (consolidated exchanges) in a range of 24.95-30 before closing at 25.10-20, 4×15. Vital statistics are:

Implied Volatility analysis must be interpreted with caution, as the fact that RY.PR.Q has such a greatly different Issue Reset Spread from the other NVCC issues (RY.PR.Z, RY.PR.H, RY.PR.J and RY.PR.M) gives it a disproportionate influence over the calculated overall slope of the relationship curve. Be that as it may, the calculation results in Implied Volatility consistent with that of other series of issues:

Click for Big