DBRS Confirms Ratings of Co-operators General Insurance Company at A (low), Stable Trends

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

KEY RATING CONSIDERATIONS
In maintaining CGIC’s ratings at A (low), DBRS takes into consideration the Company’s strong franchise, ability to adapt to challenges in the operating environment, conservative risk profile and strong capitalization. The Stable trends reflect CGIC’s good liquidity, good capital solvency position and an expectation of a modest improvement in future earnings, resulting from the Company’s enhanced efforts to improve channel distribution, digitalization, cost reduction, marketing and client relations. It also considers the Company’s conservative risk management and innovative strategic initiatives.

RATING DRIVERS
DBRS views upward ratings movement as unlikely over the near term; however, positive ratings pressure could emerge if there is a material and sustained improvement in underwriting profitability and material improvement in market position while maintaining strong regulatory capital ratios.

Negative ratings pressure could arise if there is a significant and sustained decline in revenue, resulting in a material loss of market share, or if the Company experiences combined ratios persistently above 102%.

RATING RATIONALE
As part of a larger financial services group, CGIC enjoys a strong franchise and significant brand awareness. The Company has continued to strengthen its technological infrastructure, distribution network and digital capacity, as well as develop and strengthen client relationships, to allow it to continue to compete effectively in the Canadian property and casualty (P&C) insurance market. CGIC’s strengths lie in its strong brand, conservative and prudent risk management, good liquidity and high regulatory capital ratios. The Company is a larger player in the Canadian P&C insurance industry, ranking fourth among P&C insurance providers in Canada with a 6% market share based on 2017 direct written premiums.

CGIC has a clearly defined business strategy. The Company has no short-term borrowings or long-term debt, with low levels of preferred shares, resulting in a financial leverage ratio of 12.4% as at Q3 2018. 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 Minimum Capital Test ratio of 202% at September 30, 2018 and 216% at YE 2017. This is an important factor for the ratings, considering the Company’s limited financial flexibility to raise external capital 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 corporate governance, operational and business planning processes.

The Grid Summary Scores for CGIC are as follows: Franchise Strength – Good; Risk Profile – Good; Earnings Ability – Adequate; Liquidity – Good; Capitalization and Asset Quality – Good.

Notes:
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 (January 2018) and DBRS Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (November 2018), which can be found on our website under Methodologies.

Lead Analyst: Victor Adesanya, Vice President, Insurance
Rating Committee Chair: Roger Lister, Managing Director, Chief Credit Officer

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

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