DBRS Morningstar Assigns Issuer Rating of “A” to Intact U.S. Holdings Inc. and Financial Strength Ratings of AA (low) to Various Operating Insurance Companies in the U.S. and Canada

DBRS Limited (DBRS Morningstar) assigned an Issuer Rating and a Senior Unsecured Debt Rating of “A” to Intact U.S. Holdings Inc. (formerly known as OneBeacon U.S. Holdings, Inc.) and Financial Strength Ratings (FSRs) of AA (low) to Atlantic Specialty Insurance Company, Homeland Insurance Company of New York, Homeland Insurance Company of Delaware, OBI National Insurance Company, OBI America Insurance Company, and The Guarantee Company of North America. All trends are Stable. These entities are all part of Intact Financial Corporation (Intact or the Company), which DBRS Morningstar rates at “A” with a Stable trend.

KEY RATING CONSIDERATIONS
All of the major operating insurance operating subsidiaries that were assigned FSRs are 100% indirectly owned by Intact Financial Corporation and strategically important to the Company. As such, per our standard notching policy within our methodology, the Financial Strength Ratings are equalized with that of Intact’s primary operating insurance company, Intact Insurance Company (rated AA (low) with a Stable trend by DBRS Morningstar). Similarly, Intact U.S. Holdings Inc. is an intermediate holding company wholly owned by Intact and is also strategically important with sound stand-alone liquidity. The Issuer Rating and Senior Unsecured Debt Rating also follows typical notching, which is two notches from the FSR.

RATING DRIVERS
As wholly owned subsidiaries of Intact, the ratings would track those of the Company. The ratings would be upgraded if the RSA Insurance Group Plc. (RSA) acquisition is successfully executed by achieving the expected financial results, while maintaining a similar risk profile. This would include strengthened market positions that results in a sustained improvement in profitability. Lowering financial leverage to below 30%, while strengthening capital buffers, would also have positive rating implications.

Conversely, the Company would be downgraded if there are material integration issues, or if Intact experiences a persistent decline in underwriting results or significant unfavorable reserve developments. The ratings would also be downgraded if Intact experiences a material decline in capital buffers above regulatory target ratios together with a sustained deterioration in financial leverage over 35%.

ESG CONSIDERATIONS
Environmental concerns related to climate and weather risks are key drivers behind the rating action. As a P&C insurer, Intact is exposed to catastrophe loss from natural events, such as wind, wildfires, hail, flooding, and other extreme weather events. These events can lead to earnings volatility and increased insurance costs. This ESG factor is primarily considered as part of product risk when assessing the Company’s risk profile, but can also affect earnings ability, liquidity, and capitalization.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

The Grid Summary Grades for Intact are as follows: Franchise Strength – Strong; Risk Profile –Strong/Good; Earnings Ability – Strong/Good; Liquidity – Strong/Good; Capitalization – Strong/Good.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations (July 21, 2020) at https://www.dbrsmorningstar.com/research/364260/global-methodology-for-rating-life-and-pc-insurance-companies-and-insurance-organizations.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

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 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.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

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

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