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Press release from Business Wire

A.M. Best Affirms Ratings of Industrial Alliance Insurance and Financial Services, Inc. and Its Subsidiaries

Wednesday, December 15, 2010

A.M. Best Affirms Ratings of Industrial Alliance Insurance and Financial Services, Inc. and Its Subsidiaries09:55 EST Wednesday, December 15, 2010 OLDWICK, N.J. (Business Wire) -- A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a+” of Industrial Alliance Insurance and Financial Services Inc. (IA) (Quebec) [TSX: IAG] and its subsidiary, Industrial Alliance Pacific Insurance and Financial Services Inc. (IAP) (Vancouver, British Columbia). Additionally, A.M. Best has affirmed the existing debt ratings of IA and Industrial Alliance Capital Trust. Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and ICRs of “a-” of IA's U.S. life insurance subsidiaries, IA American Life Insurance Company (IA American) (Atlanta, GA) and IA's recently acquired American-Amicable companies: American-Amicable Life Insurance Company of Texas, Pioneer Security Life Insurance Company, Pioneer American Insurance Company and Occidental Life Insurance Company of North Carolina (collectively known as American-Amicable) (all domiciled in Waco, TX). The outlook for all ratings is stable. (See below for a detailed listing of the debt ratings.) The ratings of IA and IAP reflect their stable absolute and risk-adjusted capitalization, improvement in profitability and added geographic diversity in the organization's business. A.M. Best notes that IA has continued to report favorable capital levels, although its capital structure has included the addition of debt and preferred shares, which has increased its leverage. Risk-adjusted capitalization, as measured by IA's Canadian regulatory filing and Best's Capital Adequacy Ratio (BCAR), remains adequate. Net income levels in 2010 have returned to pre-financial crisis levels due to overall improvement of economic conditions in Canada and the appreciation in equity markets during 2010. The ratings also recognize IA's acquisition of the American-Amicable companies in July 2010, which gives IA an expanded geographic footprint in the United States. Offsetting these positive factors is A.M. Best's ongoing concern with the group's exposure to the equity market in Canada, largely through its mutual fund and segregated fund lines of business. Due to this exposure, the group is vulnerable to fluctuations in equity market performance, depressed fee income from assets under management and administration, lower sales from its savings and investment products and the possibility for higher reserve charges. However, A.M. Best notes that IA's equity market and interest rate sensitivity is moderate relative to its Canadian peers. A.M. Best remains concerned about the group's financial leverage in its capital structure and reduced coverage ratios, which remain lower than historical levels. The ratings of IA American recognize the historical support it has received from IA through capital contributions, the purchase of additional life subsidiaries and through a reinsurance agreement. The ratings also acknowledge the experience IA has in the U.S. market through the branch operations of IAP, which were merged into IA American during 2010. Partially offsetting these positive factors are the expected weak operating results due to the statutory strain from new business production, limited brand recognition and limited scale. In addition, IA American will continue to face challenges to gain market share in a highly competitive life and annuity insurance market in the United States, where it faces larger, more established players. The ratings of American-Amicable reflect the support of IA, its well capitalized parent, and the expected role that American-Amicable will play in expanding the scale of IA's U.S. life insurance operations. Furthermore, the rating affirmations reflect each company's adequate stand-alone risk-adjusted capitalization and historically profitable operating performance. Offsetting these positive rating factors is A.M. Best's belief that American-Amicable may be challenged over the long term to grow business in its core markets of final expense, government personnel, individual and worksite. American-Amicable has historically competed with larger life insurance companies having greater financial resources and marketing depth, which resulted in an expense strain associated with anticipated new business. However, A.M. Best believes that with the financial backing of IA, American-Amicable should be able to improve on its favorable historical operating performance. The following debt ratings have been affirmed: Industrial Alliance Insurance and Financial Services Inc.—-- “a-” on CAD 150 million 5.13% subordinated debentures, due 2019-- “a-” on CAD 100 million 8.25% subordinated debentures, due 2019-- “bbb+” on CAD 125 million 4.60% non-cumulative perpetual preferred shares, Series B-- “bbb+” on CAD 100 million 6.20% non-cumulative perpetual preferred shares, Series C-- “bbb+” on CAD 100 million 6.00% non-cumulative Class A preferred shares, Series E-- “bbb+” on CAD 100 million 5.90% non-cumulative perpetual preferred shares, Series F Industrial Alliance Capital Trust----- “bbb+” on CAD 150 million 5.714% trust securities Series A, due 2053 The following indicative ratings on securities available under shelf registration have been affirmed: Industrial Alliance Insurance and Financial Services Inc.—-- “a” on senior unsecured debt-- “a-” on subordinated debt-- “bbb+” on preferred shares The principal methodology used in determining these ratings is Best's Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best's rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Rating Members of Insurance Groups”; “Equity Credit for Hybrid Securities”; and “A.M. Best's Ratings & the Treatment of Debt.” Methodologies can be found at Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit Copyright © 2010 by A.M. Best Company, Inc.ALL RIGHTS RESERVED.A.M. Best Co.Analysts:Kenneth Monahan, 908-439-2200, ext. 5342Financial Analystkenneth.monahan@ambest.comorRichard McMillan, 908-439-2200, ext. 5615Managing Senior Financial Analystrichard.mcmillan@ambest.comorPublic Relations:Rachelle Morrow, 908-439-2200, ext. 5378Senior Manager, Public Relationsrachelle.morrow@ambest.comorJim Peavy, 908-439-2200, ext. 5644Assistant Vice President, Public