DBRS Confirms A (low) and Pfd-2 (low) Ratings of Co-operators General Insurance Company with a Stable Trend

DBRS Limited (DBRS) confirmed the Issuer Rating and Financial Strength Rating of Co-operators General Insurance Company (CGIC or the Company) at A (low) and its Non-Cumulative Preference Shares rating at Pfd-2 (low). All trends are Stable.

The confirmation of CGIC’s ratings result from the application of DBRS’s “Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations” (December 2016) to assess the Company’s fundamentals. CGIC is the main subsidiary of Co-operators Financial Services Limited, forming part of The Co-operators Group Limited, a co-operative financial services organization with interests in property and casualty (P&C), life insurance and investment management. As part of a larger financial services group, CGIC enjoys a strong franchise and significant brand awareness in the co-operative sector. CGIC ranks fifth among P&C insurance providers in Canada with a 5.7% market share based on 2016 direct written premiums. The Company has been strengthening its distribution network, digital capacity, technological infrastructure, as well as cultivating and deepening customer relationships, to allow it to continue competing effectively in the Canadian P&C insurance industry.

CGIC has a clearly defined business strategy. The ratings benefit from its conservative risk profile, good capitalization and excellent liquidity. The Company has low levels of short-term borrowings and preferred shares, resulting in a financial leverage of 12.7% as at Q3 2017 with no long-term debt. The quality of assets held by the Company is good, with more than half of the Company’s bond portfolio invested in Canadian provincial or federal government bonds. CGIC also enjoys high solvency ratios as evidenced by the 9M 2017 Minimum Capital Test (MCT) ratio of 213% (YE2016 ratio of 227%). This is an important factor for the rating, considering the Company’s somewhat limited financial flexibility on account of its co-operative ownership structure. CGIC’s risk profile is also positively affected by the Company’s established enterprise risk management function, which is embedded into its operational and business planning process.

The Stable trend reflects an excellent liquidity, good capital solvency position and an expectation of a modest improvement in earnings, resulting from the Company’s enhanced efforts to improve digitalization, channel distribution, cost reduction, marketing and customer service. It also considers the Company’s conservative risk management, strong capital position and good strategic initiatives.

RATING DRIVERS
Positive ratings pressure could occur from the Company’s continued execution of a well-articulated business strategy, along with innovative product development and effective deployment of technology to enhance competitiveness. In addition, identification and effective penetration of new market segments, resulting in increased market share while pricing prudently with sustained improvement in overall underwriting results (including stronger expense controls), could also put positive pressure on the ratings. Negative ratings pressure could occur from a significant unexpected decline in revenue, resulting in a material loss of market share, as well as an extended period of high combined ratios, resulting in a sustained deterioration in net earnings.

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 primary methodologies are 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 2017), 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.