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Press release from Business Wire

A.M. Best Places Ratings of Intact Insurance Group and Its Members Under Review With Negative Implications

Monday, June 06, 2011

A.M. Best Places Ratings of Intact Insurance Group and Its Members Under Review With Negative Implications16:09 EDT Monday, June 06, 2011 OLDWICK, N.J. (Business Wire) -- A.M. Best Co. has placed under review with negative implications the financial strength rating of A+ (Superior) and issuer credit ratings of “aa-” of Intact Insurance Group (Intact Group) and its members, Belair Insurance Company Inc. (Quebec), Intact Insurance Company, Novex Insurance Company, The Nordic Insurance Company of Canada and Trafalgar Insurance Company of Canada. All companies are domiciled in Ontario, unless otherwise specified. Additionally, A.M. Best has placed under review with negative implications the ICR of “a-” as well as all debt ratings of Intact Financial Corporation (IFC) [TSX: IFC]. (Please see below for a detailed listing of the debt ratings.) The rating action follows the announcement on May 31, 2011 of the signing of a definitive agreement between IFC and AXA SA (AXA), in which IFC will purchase 100% of the stock of AXA's affiliate, AXA Canada Inc. (AXA Canada). AXA Canada owns AXA Assurances Inc. and its wholly owned subsidiaries, AXA Insurance (Canada), AXA Pacific Insurance Company, AXA General Insurance and AXA Assurances agricoles inc. AXA Canada also has a joint venture related to InnovAssur, assurances generales inc. IFC expects to finance the $2.6 billion acquisition of AXA Canada through $500 million of excess capital from its operating subsidiaries, approximately $800 million of common equity, as well as accessing $1.3 billion of unsecured credit facilities that are anticipated to be mostly replaced by the issuance of medium-term notes and preferred shares. The under review status with negative implications reflects IFC's increased financial leverage position under the proposed financing structure, relative to the current rating level and outlook, exacerbated by the significant amount of goodwill and intangibles generated as a result of the transaction. In addition, there is potentially a considerable amount of execution risk associated with the integration of approximately $2.0 billion of AXA's direct premiums written into the IFC organization, which has approximately $4.5 billion of direct premiums written within the Intact Group. The ratings will remain under review until completion of the transaction, which is expected in the fall of 2011, subject to regulatory approval and until A.M. Best conducts further analysis and discussions with management. The following debt ratings have been placed under review with negative implications: Intact Financial Corporation— -- “a-” on CAD 250 million, Series 1, 5.41% senior unsecured medium-term notes due September 3, 2019 -- “a-” on CAD 250 million, Series 2, 6.40% senior unsecured medium-term notes due November 23, 2039 The following debt ratings under the shelf registration have been placed under review with negative implications: Intact Financial Corporation— -- “a-” on senior unsecured debt securities -- “bbb+” on subordinated unsecured debt securities -- “bbb” on Class A preferred shares (included in the CAD 2 billion preliminary short form base shelf prospectus issued May 13, 2009) 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”; “Catastrophe Risk Management Incorporated Within the Rating Analysis”; “Understanding BCAR for Canadian Property/Casualty Insurers”; “Rating Members of Insurance Groups”; 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 © 2011 by A.M. Best Company, Inc.ALL RIGHTS RESERVED. A.M. Best Co.Jacqalene Catrino LentzFinancial Analyst908-439-2200, ext. 5762jacqalene.catrino@ambest.comorJeffrey Mango, CPAAssistant Vice President908-439-2200, ext. MorrowSenior Manager, Public Relations908-439-2200, ext. 5378rachelle.morrow@ambest.comorJim PeavyAssistant Vice President, Public Relations908-439-2200, ext.