DBRS Assigns Issuer Rating of A (low) to iA Financial Corporation Inc.

DBRS Limited (DBRS) assigned an Issuer Rating of A (low) to iA Financial Corporation Inc. (iA Financial Corp. or the Company). The trend is Stable.

iA Financial Corp. is a publicly traded holding company encompassing all of the activities of Industrial Alliance Insurance and Financial Services Inc. (iA Insurance), which does business under the iA Financial Group trademark. iA Insurance is rated A (high) by DBRS. Effective January 1, 2019, iA Insurance became a wholly owned subsidiary of iA Financial Corp. All the shares of iA Insurance outstanding at January 1, 2019, were exchanged for shares of iA Financial Corp., which began trading on the Toronto Stock Exchange (TSX:IAG) on January 4, 2019.

The assignment of the rating results from the application of DBRS’s methodology, “Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations” (January 2019). iA Financial Corp.’s Issuer Rating is positioned two notches below the Financial Strength Rating (FSR) of its major operating subsidiary, iA Insurance. Among other factors, the two-notch differential reflects the structural subordination of the holding company’s creditors to the operating company’s creditors in an insolvency situation and recognizes the reliance of the Company on the upstreaming of earnings from its operating companies. iA Insurance’s ratings were confirmed on December 14, 2018.

RATING DRIVERS
Ratings of iA Financial Corp. would be positively affected as a result of an upgrade of iA Insurance’s ratings. Conversely, ratings of iA Financial Corp. would be negatively affected as a result of a downgrade of iA Insurance’s ratings.

iA Insurance is well placed in its rating category, occupying leading market positions in several business lines, such as in segregated funds; however, upward rating pressure may arise from a material increase in market position in its other businesses, such as Employee Plans or Group Savings and Retirement. A material reduction in iA Insurance’s exposure to the interest rate and equity market risks arising from its large individual insurance and segregated funds portfolio, combined with higher capital levels relative to peers, could also add upward rating pressure. Conversely, negative rating pressure could arise from (1) an inability to mitigate the adverse impact of low interest rates, equity market declines or adverse policyholder behaviour, negatively affecting earnings and eroding capital levels to be closer to regulatory minimums; (2) a sustained erosion in market share in key lines of business, including in Individual Life and Wealth, resulting in declining overall profitability and indicating a significant weakening of the franchise; and (3) a pattern of unprofitable acquisitions of risky businesses outside of iA Insurance’s expertise, weakening its financial and risk profiles.

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

The applicable methodology is Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations (January 2019), which can be found on our website under Methodologies & Criteria.

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 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.

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