DBRS Morningstar Confirms Ratings of Co-operators General Insurance Company at A (low) and Pfd-2 (low), Stable Trends

DBRS Limited (DBRS Morningstar) confirmed the Financial Strength Rating and Issuer Rating of Co-operators General Insurance Company (CGIC or the Company) at A (low). DBRS also confirmed the Non-Cumulative Preference Shares rating of the Company at Pfd-2 (low). All trends are Stable.

KEY RATING CONSIDERATIONS
In maintaining CGIC’s ratings at A (low), DBRS Morningstar takes into consideration the Company’s strong franchise, conservative risk profile, strong capitalization and ability to adapt to challenges in the operating environment. The Stable trends reflect CGIC’s good/adequate liquidity and excellent/good capital solvency position with an expectation of a modest improvement in future net earnings resulting from the Company’s enhanced efforts to improve digitalization, channel distribution, cost reduction, marketing and client relations. It also considers the Company’s innovative strategic initiatives and conservative risk profile.

RATING DRIVERS
Positive ratings pressure could emerge if there is a sustained material improvement in underwriting profitability and material improvement in market positioning while maintaining strong regulatory capital ratios.

Negative ratings pressure could arise if there is (1) a significant and sustained decline in revenue resulting in a material loss of market share and positioning, (2) an extended period of combined ratios being persistently above 102% or (3) the occurrence of adverse loss events causing a sustained material decline in regulatory capital.

RATING RATIONALE
CGIC has a clearly defined business strategy. As part of a larger financial services group, CGIC enjoys a strong franchise and significant brand awareness. The Company has continued to strengthen its technological infrastructure, distribution network and digital capacity, as well as develop and strengthen client relationships, to allow it to remain competitive in the Canadian property and casualty (P&C) insurance market. CGIC’s strengths lie in its strong brand, conservative and prudent risk management, good liquidity and high regulatory capital ratios. The Company is a larger player in the Canadian P&C insurance industry, ranking fourth among P&C insurance providers in Canada with a 6.1% market share based on 2018 direct written premiums.

The Company has no short-term borrowings or long-term debt, with low levels of preferred shares, resulting in a financial leverage ratio of 10.9% as at Q3 2019. This low leverage is viewed positively by DBRS Morningstar because CGIC has the capacity to raise additional debt, if needed, to support its capital levels because of its unused debt capacity. The quality of assets held by the Company is good, with more than half of the Company’s bond portfolio invested in Canadian provincial or federal government bonds. CGIC also enjoys high solvency ratios, as evidenced by the Minimum Capital Test ratio of 218% as at September 30, 2019, and 208% as at year-end 2018. CGIC’s risk profile is also positively affected by the Company’s established enterprise risk management function, which is embedded in its corporate governance, operational and business-planning processes.

The Grid Summary Scores for CGIC are as follows: Franchise Strength – Good; Risk Profile – Good/Adequate; Earnings Ability – Adequate; Liquidity – Good/Adequate; and Capitalization – Excellent/Good.

Notes:
The principal methodology is the Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations (September 2019), which can be found on our website under Methodologies & Criteria.

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 rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

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

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