DBRS Confirms Co-operators General at Pfd-3, Trend Stable

DBRS has today confirmed its rating on the Non-Cumulative Redeemable Class E Preferred Shares of the Co-operators General Insurance Company (Co-op General or the Company) at Pfd-3, with a Stable trend.

Operationally, the Company continues to perform satisfactorily and consistent with its status as one of the three largest P&C insurance companies operating in Canada. Sources of earnings are increasingly well diversified by geography, with increased exposures to the more rapidly growing Western Canada market, and by product, as property and commercial risks increase relative to the more troublesome auto insurance segment. Distribution channels are uniquely geared to the products of its separate operating subsidiaries. An exclusive career sales force is well suited to the Company’s goal of deepening its relationship with its customers through the analysis of long-term customer profitability and multi-product penetration, including sales of the life insurance and wealth management products of its sister company, Co-operators Life Insurance Company (CLIC).

Like all general insurance companies operating in Canada, Co-op General continues to be exposed to the inherent cyclicality of the insurance industry, especially in commercial lines, which are entering the third year of a soft market. Similarly, the industry is exposed to the idiosyncratic risk of regulatory and judicial decisions, which adds to the volatility of earnings in the private auto insurance industry, having recently resulted in increasingly severe claim provisions in Alberta and Ontario on account of bodily injury. However, the Company continues to actively address its profitability in the context of a target return on equity of 12% and a combined ratio target of 95% to 99%, which, while less profitable than the targets set by some of its competitors, is in line with its overriding goals within the co-operative movement, while not impairing Co-op General’s financial strength and flexibility. The Company intends to exploit expense synergies as much as possible in order to maintain its cost-competitiveness.

Capitalization is conservative, with debt plus preferred at just 14.3% of capitalization, down from 23.2% in 2003. The Company also has considerable excess capital relative to its regulatory and target minimums, even following the acquisition of Addenda Capital Inc. by its parent, which was funded in part by the redemption of capital notes and a substantial dividend paid by the Company.

Notes:
The applicable methodology is Rating Canadian Property and Casualty Insurance Companies.

This is a Corporate rating.