DBRS Changes Trend on Intact Financial Corporation’s A (low) Issuer Rating to Stable from Positive

DBRS has today changed the trend on the A (low) Issuer Rating for Intact Financial Corporation (Intact or the Company) to Stable from Positive. The trend change reflects the recent deterioration in underwriting profitability in line with the industry’s continuing cyclicality, the Company’s relatively low investment returns and the loss of any implied support from ING Groep N.V., which sold its 70% stake in the Company in February 2009. The Company continues to generate better underwriting results than its peers, even under adverse market conditions. With respect to the relative underperformance of its investments in recent quarters, the Company has now repositioned its portfolios to reduce its common equity exposures and to increase its weighting in government treasury securities, which lowers the effective risk exposure on the asset side of the balance sheet.

The Company’s consistent underwriting strength and industry outperformance reflect its relative scale and strong market position in the Canadian property and casualty insurance market, where it is the largest competitor, with more than an 11% share of net written premium, one-third larger than the number two competitor (Aviva Canada Inc.) and twice the size of the number three competitor (Co-operators General Insurance Company). Intact leverages its scale advantages through the application of superior underwriting capabilities, market segment pricing, technology, investment, claims and general expense management. While the Company has not managed to avoid the adverse impact of the current soft cycle, the deteriorating Ontario auto insurance segment and the recent extreme weather-related losses, it nevertheless continues to outperform the industry in terms of underwriting results. Intact is actively addressing its pricing and product deficiencies in order to restore long-term underwriting profitability, especially in Ontario auto insurance and personal property segments.

Overall earnings were affected by lower investment results as a consequence of the Company’s investment strategies, which left it exposed to the unprecedented decline in global capital markets in 2008 and in early 2009 as reflected in increased impairment charges on the common equity portfolio and higher realized losses as a result of the Company’s recent decision to actively reduce its exposure to financial services common equities. However, the Company has steadily reduced the market and credit risk in its investment portfolio since Q3 2009 by substantially cutting back on its exposure to the common equity market and to corporate bonds while increasing its holdings in Canadian government treasuries. These actions have helped shore up its regulatory capital through the current uncertain market conditions.

The Company’s financial position remains very strong, with a regulatory minimum capital test (MCT) of 208% at the end of March 2009, which represents about $390 million of excess capital above the 170% target MCT. The Company currently has no debt, but leverage up to a 20% debt-to-equity ratio would be consistent with the current ratings, given other favourable rating considerations.

Note:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Canadian Property and Casualty Insurance Companies which can be found on our website under Methodologies

This is a Corporate (Financial Institutions) rating.