PrefBlog

DBRS has announced that it:

has today restored the Stable trend to the debt and preferred share ratings of Industrial Alliance Insurance and Financial Services Inc. (IAG or the Company), following the recently announced issue of $237 million in common equity, the proceeds of which are to be used to retire outstanding debt issues, including the Industrial Alliance Trust Securities (IATS) issue on December 31, 2013. The return to a Stable rating trend reflects DBRS’s comfort with the Company’s return to a reasonable level of leverage that no longer impairs financial flexibility, as well as its longer term earnings stability, despite a higher level of risk exposure to low interest rates than its industry peers.
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On February 27, 2013, IAG closed a previously announced issue of common shares with total net proceeds of $237.4 million. The proceeds of the common equity issue are expected to be used to redeem certain debt issues, including the $150 million 8.25% subordinated debenture due March 27, 2019, which will be called as of April 1, 2013, and the $100 million IATS, which will be callable at par on December 31, 2013. The net impact of these transactions will be to restore financial leverage to a level which is more consistent with A-rated companies, as outlined in the DBRS methodology Rating Companies in the Canadian Life Insurance Industry. This common stock issue also addresses funding concerns about the Company’s $500 million in debt and preferred share refinancing, scheduled to occur before the end of June 2014. At December 31, 2012, financial leverage calculated as debt plus preferred shares as a proportion of total capitalization was 35.6%, making the Company one of the most aggressively capitalized insurance companies in the Canadian peer group. Pro forma the common equity issue and the proposed debt redemption, this ratio will drop sharply to 29.6%. Correspondingly, fixed charge coverage ratios are expected to strengthen. Following the recent common equity issue, DBRS feels that the financial flexibility of the Company has been satisfactorily restored.
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While DBRS is aware that the Company has mitigated much of its interest rate risk exposures through active reduction of its asset liability mismatch, interest rate exposure is greater than that of its peers. However, the Company remains among the most conservative of its peer group in its underlying interest rate assumptions, having sourced $120 million in offsetting earnings through management actions to afford a reduction in its assumed ultimate reinvestment rate (URR) to 3.2% from 3.4% during 2012. In order to better position the Company for profitable growth, including a large reduction in its reported new business strain, the Company successfully raised prices on its popular Universal Life products on two occasions in 2012 and continued to refine its product offerings to reduce market risk exposures. New business strain has correspondingly been reduced.

This follows a similar move by S&P.

IAG has several preferred share issues outstanding: IAG.PR.A, IAG.PR.E & IAG.PR.F, DeemedRetractibles, and IAG.PR.C & IAG.PR.G, FixedResets. All are tracked by HIMIPref™ all are assigned to their respective indices.

This entry was posted on Monday, March 4th, 2013 at 11:46 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.