DBRS Morningstar Assigns Financial Strength Rating of “A” to The Independent Order of Foresters, Stable Trends

DBRS Limited (DBRS Morningstar) assigned a Financial Strength Rating and Issuer Rating of “A” to The Independent Order of Foresters (Foresters Financial or the Company). Concurrently, DBRS Morningstar assigned a Subordinated Debt rating of A (low) to the Company. All trends are Stable.

KEY RATING CONSIDERATIONS
The ratings reflect Foresters Financial’s established presence in the U.S., Canadian, and UK life insurance markets, where it offers a diversified product set. The Company has a comprehensive risk management framework that encompasses its diverse businesses and sound capital management. Foresters Financial has implemented measures to streamline its risk identification process to manage, monitor, and report material risks. The Own Risk and Solvency Assessment process in place evaluates key risks identified, considers overall capital assessment, and also facilitates the setting of internal capital targets under various stress scenarios. The Company is expected to maintain moderate operating earnings and favourable returns on equity that support its ratings. DBRS Morningstar anticipates that return on equity ratios will continue to be tempered by the Company's high level of capital and volatility of earnings, given the overall contribution of profitability from foreign operations and fluctuations in exchange rates.

Foresters Financial’s liquidity is strong, and the Company maintains a highly marketable invested assets portfolio. There are minimal demands to post collateral, and liquid assets are more than adequate to cover any cashable liabilities. The Company has consistently maintained a very high capital cushion that is in the top tier for the industry. The Life Insurance Capital Adequacy Test (LICAT) ratio was 172.1% as at YE2019, which is significantly above the required level of the regulatory capital minimums that supports its stressed capital targets.

RATING DRIVERS
The ratings would be upgraded if the Company strengthens its market positions and improves earnings, while maintaining its current capitalization buffers.

Conversely, the ratings would be downgraded if there is a sustained deterioration in capitalization, profitability, or market share.

RATING RATIONALE
The rating assessment of Foresters Financial reflects its diversified business operations and product offerings sold through a multichannel distribution strategy. The Company maintains appropriate national rankings in life insurance new business sales in the U.S. and Canada. However, its scale does not afford market-leading positions on a total premium written basis, which operates as a constraint on the ratings. Nonetheless, DBRS Morningstar sees Foresters Financial as well positioned to continue to win new business and generate good revenue growth as the Company shifts its focus to its core life protection market. Positively, DBRS Morningstar sees the diversification of Foresters Financial’s business operations as providing a very good level of stability to its overall earnings ability to fund its capital need to support new business growth. Regulatory capital ratio are maintained well above the LICAT requirements set by the Office of the Superintendent of Financial Institutions and supports the current rating level assessment.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

The Grid Summary Grades for Foresters Financial are as follows: Franchise Strength—Good/Moderate; Risk Profile—Strong/Good; Earnings Ability—Moderate; Liquidity—Strong; Capitalization—Strong/Good.

Notes:
The principal methodology is the Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations (July 21, 2020: https://www.dbrsmorningstar.com/research/364260/global-methodology-for-rating-life-and-pc-insurance-companies-and-insurance-organizations).

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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.dbrsmorningstar.com.

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

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

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

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