DBRS Morningstar Finalizes Provisional Rating of BBB (high), Stable, on Empire Life Insurance Company’s Limited Recourse Capital Notes

DBRS Limited (DBRS Morningstar) finalized its provisional rating of BBB (high) with a Stable trend to The Empire Life Insurance Company’s (Empire or the Company) Additional Tier 1 Limited Recourse Capital Notes (the Capital Notes). The rating is equal to the Company’s Financial Strength Rating of “A” less two rating notches, which is consistent with DBRS Morningstar’s notching approach for capital instruments issued by insurance companies. This is one notch below the rating of Empire’s Subordinated Debt. DBRS Morningstar currently rates the Company’s Preferred Shares at Pfd-2; this rating will be extended to the new Preferred Shares issued by Empire as part of the Capital Notes issuance. The instrument has been renamed to Limited Recourse Capital Notes to align with the final term sheet provided by the Company.

Empire expects to issue $200 million of Capital Notes on February 17, 2021 with a maturity date of April 17, 2081. The Capital Notes will have an initial five-year fixed rate of 3.625%.

RATING DRIVERS
A material strengthening of the Company’s market position in its individual and group insurance segments, with balanced growth for product offerings with guarantees while maintaining appropriate capitalization relative to the risks undertaken, would result in a ratings upgrade.

A sustained deterioration in profitability and capitalization or loss of access to distribution channels, resulting in eroding earnings and market share, would result in a ratings downgrade.

ESG CONSIDERATIONS
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 at: https://www.dbrsmorningstar.com/research/373262.

The Grid Summary Grades for Empire are as follows: Franchise Strength—Good/Moderate; Risk Profile—Good/Moderate; Earnings Ability—Good/Moderate; Liquidity—Strong/Good; Capitalization—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). https://www.dbrsmorningstar.com/research/364260/global-methodology-for-rating-life-and-pc-insurance-companies-and-insurance-organizations. Other applicable methodologies include DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021). https://www.dbrsmorningstar.com/research/373262/dbrs-morningstar-criteria-approach-to-environmental-social-and-governance-risk-factors-in-credit-ratings

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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