Morningstar DBRS Confirms iA Financial Corporation Inc.’s Issuer Rating at “A” and Industrial Alliance Insurance and Financial Services Inc.’s Financial Strength Rating at AA (low), Stable Trends

DBRS Limited (Morningstar DBRS) confirmed all its credit ratings on iA Financial Corporation Inc. (iA or the Company) and its related entities, including iA’s Issuer Rating at “A” and Industrial Alliance Insurance and Financial Services Inc.’s Financial Strength Rating at AA (low). The trends on all credit ratings are Stable.

KEY CREDIT RATING CONSIDERATIONS
The credit ratings and trends reflect iA’s extensive franchise in the Canadian life insurance market, its diversified risk profile, and its strong financial performance. In Canada, iA has built a comprehensive distribution network through investment in technology, relationships, and acquisitions. The Company has been successful at managing the risks and the profitability of its core individual insurance and wealth management businesses while at the same time growing auto services and distribution capabilities. The Company maintains a conservative, high-quality investment portfolio and a large excess capital buffer. The credit ratings also consider iA’s growing investments in private assets.

CREDIT RATING DRIVERS
Morningstar DBRS would upgrade iA’s credit ratings if the Company significantly improves its market position and profitability while maintaining a prudent risk profile and capital buffer. Conversely, a substantial decline in capital levels or sustained weaker profitability would result in a credit ratings downgrade.

CREDIT RATING RATIONALE
Franchise Building Block Assessment: Strong/Good
iA has demonstrated the strength of its franchise in recent years, selling the largest number of individual life insurance policies of any Canadian life insurance companies and delivering consistent earnings and capital generation. iA’s strong relationships with distributors and its investment in acquisitions and technology position the Company well to continue to be a leader in individual insurance and segregated funds in Canada. iA continues to target the U.S. market for growth, as seen with the recent USD 170 million acquisition of Vericity.

Risk Building Block Assessment: Strong/Good
In recent years, iA’s risk profile has benefitted from the Company’s efforts to diversify its business into lower-risk and lower-capital-intensity products and from the adjustments to its investment portfolio for IFRS 17. Correspondingly, operational and strategic risks, including those related to large investments in technology, have become more prominent. iA’s investment portfolio is conservative and concentrated in high-quality fixed income securities with a manageable exposure to real estate, and private assets. The Company has also made significant investments in its risk management infrastructure in recent years.

Earnings Building Block Assessment: Strong/Good
iA delivered steady earnings in 2023 at $769 million compared with $817 million in 2022 (reported under IFRS 4), reporting for the first time under IFRS 17, which delays the recognition of some of the profits on long-term insurance contracts. New business growth remains adequate, although the Company faces a challenging environment for auto-related products as consumers are deterred by higher financing costs. The Company’s return on equity remains strong but is pressured by the accumulation of excess capital.

Liquidity Building Block Assessment: Strong
With its conservative investment portfolio, iA maintains a large quantity of liquid assets available to fund any liquidity shortfall. While its long-term insurance portfolio is exposed to policyholder behaviour, the Company’s diversified product portfolio limits the liquidity risk exposure from claims or surrenders. iA maintains a robust liquidity monitoring program as well as good access to external financing.

Capitalization Building Block Assessment: Strong/Good
iA is well capitalized because of a large excess capital position with a solvency capital ratio of 145% at YE2023 and proven access to capital. The Company’s capital profile is also enhanced by its relatively low leverage as well as significant organic capital generation.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024) at https://dbrs.morningstar.com/research/427030.

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

The principal methodology is the Global Methodology for Rating Insurance Companies and Insurance Organizations (July 14, 2023), https://dbrs.morningstar.com/research/417109. In addition, Morningstar DBRS uses the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (January 23, 2024), https://dbrs.morningstar.com/research/427030 in its consideration of ESG factors.

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

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 dbrs.morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

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

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

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