DBRS has announced that it:
has today confirmed the ratings on Industrial Alliance Insurance and Financial Services Inc. (IAG or the Company) and its affiliate, Industrial Alliance Capital Trust, but has assigned a Negative trend. … The debt and preferred shares ratings have been removed from Under Review with Negative Implications, where they were placed on June 15, 2012. The Negative trend reflects the Company’s reduced financial flexibility as it has continued to shore up its regulatory capital ratios through the issuance of additional preferred shares, taking its total debt-to-capitalization ratio to 37.8% which is above the ratio expected by DBRS for an “A”-rated company in the Canadian life insurance industry. While this ratio is somewhat overstated, given the Company’s generally conservative actuarial reserve assumptions and the absence of any meaningful goodwill and intangibles, the Company’s fixed-charge coverage ratio has nevertheless also fallen below the 5.0 times lower limit, which delineates a lower rating category in the DBRS rating methodology.
The resolution of the Company’s Negative rating trend hinges to some degree on a return to a more sustainable interest rate environment which would take away some of the overhanging downward pressure on earnings. … Should earnings start to be negatively affected over the next 12 months by low interest rates or by deterioration in top-line growth following recent strategic decisions, DBRS would likely convert its Negative trend into a downgrade. The trend will revert to Stable if a planned reduction in new business strain, among other initiatives, is reflected in a sustained improvement in profitability, which would be signaled by a return to a fixed-charge coverage ratio in excess of 5.0 times and a reduction in the total debt ratio.
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Given the longer-than-expected period of low interest rates, however, the Company’s management team is now being forced to take more dramatic offsetting actions through repricing, redesign and withdrawal of products and business lines that would otherwise aggravate the Company’s earnings exposure to low interest rates through continued high new business strain and increased required regulatory capital. To limit market risk, the Company is also enhancing asset liability management through term extensions, rebalanced asset portfolios and intersegment notes.
S&P has called “Outlook Negative” since June and this remains effective.
IAG has the following preferred shares outstanding: IAG.PR.A, IAG.PR.E and IAG.PR.F (DeemedRetractible) and IAG.PR.C & IAG.PR.G (FixedReset). All are tracked by HIMIPref™ and all are assigned to the indicated indices.
This entry was posted on Friday, September 7th, 2012 at 8:29 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed.
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IAG: DBRS Says Trend Negative
DBRS has announced that it:
S&P has called “Outlook Negative” since June and this remains effective.
IAG has the following preferred shares outstanding: IAG.PR.A, IAG.PR.E and IAG.PR.F (DeemedRetractible) and IAG.PR.C & IAG.PR.G (FixedReset). All are tracked by HIMIPref™ and all are assigned to the indicated indices.
This entry was posted on Friday, September 7th, 2012 at 8:29 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.