INTACT FINANCIAL CORPORATION
The FSRs of Intact's
KEY CREDIT RATING CONSIDERATIONS
The rating upgrades reflect the Company's strong financial performance and growth in premiums, as well as recent acquisitions that have enhanced the franchise through increased product and revenue diversification while deepening market shares.
The ratings and Stable trends reflect Intact's well-designed and executed enterprise-wide risk management processes and focus on advanced data analytics and loss modeling that is evident in industry-leading combined ratios that support earnings generation. Additionally, regulatory capital levels are consistently above regulatory targets providing a considerable capital cushion to deal with market stress events or similar adverse developments. The ratings and trends also consider Intact retaining more risk given higher reinsurance costs and higher leverage following the acquisitions.
CREDIT RATING DRIVERS
Given the recent upgrade, a further ratings upgrade is unlikely. However, over the longer term, strong earnings growth supported by industry-leading underwriting profitability while maintaining adequate capital ratios would result in an upgrade. Conversely, the Company would be downgraded if it experiences a persistent material decline in underwriting results or weakening in regulatory capital buffers combined with a sustained deterioration in financial leverage.
CREDIT RATING RATIONALE
Intact is the largest provider of P&C insurance in
The Company's risk profile reflects its strong risk-management framework including its efficient and successful integration of RSA as well as prior acquisitions. De-risking actions taken in 2022 and 2023 including selling the
Intact's earnings ability reflects its strong underwriting and pricing discipline across its business segments and geographies, combined with solid revenue generation capabilities from related businesses (i.e., brokerage ownerships and property restoration services) and investments. Over the past several years, the Company has doubled its direct written premium volume, primarily as a result of the 2021 RSA acquisition but also through organic growth. The Company's net earnings are strong and resilient with a three-year weighted return on equity (ROE) of 16%.
The Company's high proportion of marketable bonds and equities and access to external sources of liquidity in various jurisdiction where Intact operates are viewed positively as they help mitigate liquidity risk. Intact's liquidity stress testing capabilities and its focus on loss modeling and data analytics further enhance its liquidity risk management.
Intact maintains regulatory capital ratios with appropriate buffers across its regulated entities allowing the Company to handle reasonably adverse events. At 32%, Intact's financial leverage is slightly above its target level of 30% but is expected to decline throughout 2024. On the other hand, the annual fixed charge coverage ratios have been high over the past three years, supported by Intact's consistently strong earnings. Higher interest rates since mid-2022 have contributed significantly and positively to its investment income but are also making it more expensive to service debt going forward.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Environmental (E) Factors
Environmental concerns regarding Climate & Weather Risks are relevant to the rating of Intact as a P&C insurer but did not affect the assigned rating or trend. As part of its P&C product offering, Intact is exposed to weather-related losses from natural catastrophic events such as wind, wildfire, hail, flooding, and other extreme weather events. These events can lead to earnings volatility and increased reinsurance cost. The Company manages these risks through product and risk selection, reinsurance, pricing and enhanced loss modeling. DBRS Morningstar considers this ESG factor as part of product risk when assessing the Company's risk profile.
There were no Social or Governance factors that had a significant or relevant effect on the credit analysis.
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (
The Grid Summary Grades for
Notes:
All figures are in Canadian dollars unless otherwise noted.
The principal methodology is the Global Methodology for Rating Insurance Companies and Insurance Organizations (
The following methodology has also been applied
DBRS Morningstar Global Criteria: Guarantees and Other Forms of Support (
The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.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 www.dbrsmorningstar.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.
DBRS Morningstar 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.
This credit rating is endorsed by
The last credit rating action on this issuer took place on
The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar's outlooks and credit ratings are monitored.
For further information on DBRS Morningstar historical default rates published by the
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