DBRS Confirms Intact Financial Corporation’s Ratings with Stable Trends

DBRS Limited (DBRS) has today confirmed the Issuer Rating and Senior Unsecured Debt rating of Intact Financial Corporation (Intact or the Company) at “A” and its Non-Cumulative Preferred Shares rating at Pfd-2. DBRS has also confirmed both the Issuer Rating and the Financial Strength Rating (FSR) of Intact Insurance Company, Intact’s major operating subsidiary, at AA (low). In addition, DBRS has confirmed the FSRs of various other operating insurance company subsidiaries of Intact at AA (low). All trends are Stable. All rating actions are detailed in the table below.

In confirming the FSR of the operating insurance subsidiaries at AA (low), DBRS takes into account Intact’s excellent franchise strength and risk profile, its consistently strong earnings and liquidity, as well as its very good capitalization. Indicative of the Company’s franchise strength, Intact is the largest property and casualty (P&C) insurer in Canada in terms of market share based on 2015 direct written premiums. The Company’s expertise and discipline in underwriting and claims management and its good internal investment management have enabled it to generate consistently strong earnings and expand through organic growth and strategic acquisitions. Under the application of DBRS’s “Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations,” Intact exhibits strength in all categories, with excellent scores in all building blocks.

Overall, the Company has exhibited strong and stable key financial metrics, with positive trends that DBRS believes are likely to be sustained. Intact’s earnings resilience and strong risk management is evident in the aftermath of the May 2016 Fort McMurray wildfires, Canada’s largest insured natural disaster. In spite of the catastrophe, the Company generated an above-peer return on equity of 8.9% for H1 2016 and a combined ratio below 100.0%. Intact’s operating subsidiaries also rank highly in the Canadian P&C market based on their underwriting capabilities and overall profitability.

The Company is subject to regulatory risk pertaining to the Ontario auto insurance market, a sector that comprises approximately 25% of Intact’s direct written premiums. Over the past few years, the Ontario auto insurance industry has been the target of government initiatives aiming to make insurance more affordable. Although the government’s affordability objective has largely been achieved through price reductions and modifications to benefits and auto repair charging practices, there is the residual risk that continued political interference in the personal auto insurance market by future provincial governments may result in reduced profitability for the sector.

The Stable trend considers Intact’s well-executed strategy focused on claims and underwriting efficiency, technological innovation and its resilient earnings profile.

RATING DRIVERS
Positive ratings pressure could occur if the Company significantly increases its market shares across all lines of business or if there is an improvement in financial metrics or underwriting abilities. Negative ratings pressure could arise as a result of an inability to expand or manage current multi-channel distribution networks, sustained unfavourable reserve development or a material deterioration in capital adequacy.

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 applicable methodologies are Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations (December 2015) and DBRS Criteria: Preferred Share and Hybrid Criteria for Corporate Issuers (January 2016), which can be found on our website under Methodologies.

Lead Analyst: Stewart McIlwraith
Rating Committee Chair: William Schwartz

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.