DBRS Confirms Ratings on Intact Financial Corporation and Affiliates

DBRS Limited (DBRS) confirmed the Issuer Rating and Senior Unsecured Debt rating of Intact Financial Corporation (Intact or the Company) at “A” as well as its Non-Cumulative Preferred Shares rating at Pfd-2. DBRS also confirmed the Issuer Rating and Financial Strength Rating (FSR) of Intact Insurance Company, Intact’s major operating subsidiary, both at AA (low). In addition, DBRS confirmed the FSRs of various other operating insurance subsidiaries of Intact at AA (low). All trends are Stable.

In confirming the ratings for the Company and its subsidiaries, DBRS took into consideration Intact’s excellent franchise strength and risk profile as well as its strong liquidity, earnings and capitalization. Intact is the largest property and casualty insurer in Canada with significant aggregate market share based on direct premiums written in 2016. Intact has a disciplined approach to claims management and insurance underwriting. The Company generates strong earnings and has successfully expanded through strategic acquisitions and organic growth. Intact scores well for all building blocks.

Overall, Intact has exhibited a history of strong and largely stable key financial metrics. The Company has excellent brand recognition, strong risk management capacity and earnings resilience and has consistently performed better than the industry average in terms of premiums growth, underwriting profitability and return on equity (ROE).

Intact generated an ROE of 12% and a combined ratio of 95% in the first nine months of 2017. The largest business unit, Personal Auto, has often had elevated combined ratios above 100% for the last five quarters. Personal Auto has regulated premium rates and benefits, but the competitive market does reduce the Company’s ability to quickly adjust premium rates to restore profitability. Intact is performing well on other business lines that compensate for the stress on Personal Auto, yielding good consolidated earnings results.

The Company has closed its One Beacon acquisition and is in the process of integrating this business. As this is the first sizable cross-border acquisition, it presents additional challenges for the Company. Given Intact’s previous track record on integrations, DBRS expects the Company to improve One Beacon’s profitability and expand its specialty lines’ offerings in the Canadian domestic market. For further detail, please see the DBRS press release entitled “DBRS Confirms Intact Financial Corporation’s Ratings with Stable Trends after Announced Purchase of OneBeacon Insurance Group.”

The Stable trends consider Intact’s well-executed strategy focused on claims and underwriting results, strong distribution, high brand awareness and investment in technological innovation as well as its resilient industry-leading earnings profile.

RATING DRIVERS
Positive rating pressure could occur if the Company significantly increases its market share across all lines of business, combined with a material improvement in its financial metrics and underwriting abilities. Negative rating pressure could arise as a result of the Company experiencing significant difficulty in expanding or managing current multi-channel distribution networks, and sustained unfavourable reserve development, which is an indication of some weaknesses in underwriting.

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 on the issuer page at www.dbrs.com.

The applicable methodologies are the Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations (December 2016), and DBRS Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (December 2016), which can be found on our website under Methodologies.

Lead Analyst: Stewart McIlwraith, Senior Vice President, Head of Insurance – Global FIG
Rating Committee Chair: Roger Lister, Managing Director, Chief Credit Officer – Global FIG and Sovereign Ratings

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.

For more information on this credit or on this industry, visit www.dbrs.com.