DBRS Confirms Ratings of Industrial Alliance Insurance and Financial Services Inc. A (high), Stable Trend

DBRS Limited (DBRS) has today confirmed the Issuer Rating, Claims Paying Ability, Subordinated Debentures rating and Preferred Shares rating of Industrial Alliance Insurance and Financial Services Inc. (IAG or the Company) at A (high), IC-2, “A” and Pfd-2 (high), respectively; the trend remains Stable.

The Company is the fourth largest in Canada by 2013 direct premium. IAG enjoys good market positions in several product segments, including individual life with its universal life product. It has a small home and auto insurance operation targeting the provincial Québec market. The Company continues to increase its diversification by product and distribution channel; IAG is correspondingly well positioned to enjoy stable growth as it expands its financial service offerings.

Despite the largely unfavourable market environment, the Company’s return on equity has generally been in the 12% to 13% range for most of the last five years. The Company has a more aggressive risk appetite compared with other industry players, as demonstrated by its higher tolerance for interest rate and equity market sensitivity and willingness to pursue niche opportunities in the property and casualty space.

The Company has rapidly reduced its financial leverage ratio to 25.9% as at September 30, 2014, from a ratio near 36% in 2012 by raising equity and paying down debt. EBIT fixed- charge coverage ratios have been improving and are now in the 5 times coverage range. Both leverage and coverage ratios now sit within or are near the range for an A-rated company.

The minimum continuing capital and surplus requirement at September 30, 2014, is 215%, which is satisfactory for the rating, but considering the sensitivity to interest rates and equities, the Company needs to maintain the ratio in the higher levels.

Notes:
The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The applicable methodology is Rating Companies in the Canadian Life and Health Insurance Industry and DBRS Criteria: Rating Preferred Share and Hybrid Criteria for Corporate Issuers, which can be found on our website under Methodologies

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.