DBRS Confirms Intact Financial Corporation’s Ratings with Stable Trends after Announced Purchase of OneBeacon Insurance Group

DBRS Limited (DBRS) has today confirmed Intact Financial Corporation’s (Intact or the Company) Issuer Rating and Senior Unsecured Debt rating at “A” as well as its Non-Cumulative Preferred Shares rating at Pfd-2. In addition, DBRS has confirmed the Issuer Rating and the Financial Strength Ratings (FSR) of Intact’s operating subsidiaries at AA (low). All trends remain stable. This rating action follows Intact’s announcement that it has agreed to purchase OneBeacon Insurance Group (OneBeacon), a Bermuda-domiciled U.S. specialty insurer, for $2.3 billion (USD 1.7 billion). OneBeacon is a multi-line specialty insurer, providing insurance coverage for perils including marine, health care, technology, accident, and tuition reimbursement, among others. The purchase will be financed using a combination of debt, issuance of common equity, preferred shares and the Company’s existing capital. The transaction is expected to close in Q4 2017, subject to shareholder and regulatory approvals.

The confirmation reflects DBRS’s view that the acquisition is not expected to adversely affect Intact’s business model in the near term and will likely improve the franchise in the medium term. Expanding its franchise scope, the acquisition of OneBeacon is the Company’s first significant acquisition outside Canada. DBRS notes that Intact has demonstrated good integration expertise in past acquisitions. The Company’s prior success in managing acquisitions as well as its excellent operational capabilities increase the likelihood of its success with the integration; however, the OneBeacon acquisition presents new challenges, such as dealing with U.S. and Bermudan regulations as well as the U.S. legal environment (the culture of which differs substantially from Canada), different industry practices for client service and cultural integration between Canadian and American personnel.

Intact has excellent reserving and underwriting practices and DBRS notes that the Company is a leader in Canada in terms of using data analytics to competitively price its products. In confirming the ratings, DBRS considers its expectation that Intact will use its expertise to enhance OneBeacon’s underwriting practices. The Stable trend reflects the Company’s strong fundamentals, which are not expected to change significantly as a result of the acquisition. The leverage ratio is expected to return to current levels of near 25% by 2019 after an initial increase in leverage to finance the acquisition.

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

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 principal methodologies are Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations (December 2016) and DBRS Criteria: Preferred Share and Hybrid Criteria for Corporate Issuers (December 2016), which can be found on dbrs.com under Methodologies.

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.

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