A.M. Best has affirmed the financial strength rating (FSR) of A+
(Superior) and the issuer credit ratings (ICR) of “aa-” of Industrial
Alliance Insurance and Financial Services Inc. (IA) (Quebec) [TSX:
IAG]. Additionally, A.M. Best has affirmed the existing debt ratings of
IA. Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and
the ICRs of “a” of IA’s U.S. life insurance subsidiaries: IA American
Life Insurance Company (Atlanta, GA), American-Amicable Life
Insurance Company of Texas, Pioneer Security Life Insurance
Company, Pioneer American Insurance Company and Occidental
Life Insurance Company of North Carolina. (These companies are
collectively known as the IA American Life Group.) All U.S.
companies are domiciled in Waco, TX, unless otherwise specified.
Additionally, A.M. Best has affirmed the FSR of A (Excellent) and the
ICR of “a+” of Industrial Alliance Pacific General Insurance
Corporation (IAPG) (Vancouver, Canada). The outlook for all ratings
is stable. (See below for a detailed listing of the debt ratings.)
The ratings of IA reflect its solid absolute and risk-adjusted
capitalizations, consistent profitability, growth in assets under
management and strong segregated funds inflows. A.M. Best notes that IA
has continued to report favorable capital levels despite the current
historically low interest rate environment, and financial leverage that
has decreased to target levels. Net income trends have been favorable,
although results in previous years have been volatile due to the
Canadian accounting/regulatory regime being highly sensitive to the
sustained low interest rate environment and volatile equity markets. The
ratings also recognize IA’s continued efforts to diversify its business
profile and earnings stream in Canada and through the IA American Life
Group in the United States.
Partially offsetting these positive rating factors is IA's exposure,
albeit somewhat reduced, to equity market and interest rate volatility.
The equity market exposure is largely through the organization's mutual
fund and segregated fund lines of business in Canada. This exposure
makes IA susceptible to fluctuations in equity market performance, lower
fee income from assets under management and administration, lower sales
from its savings and investment products and the possibility of higher
reserve charges. However, IA's dynamic hedging program for its
segregated fund products has performed well. Additionally, top line
growth has been impacted by slower mutual fund growth in 2014 due to the
very competitive market and weaker industry sales compared with 2013.
The ratings for the IA American Life Group recognize the support it has
received from IA through capital contributions via surplus notes,
several capital infusions and synergies from home office management of
its actuarial reserves and investment portfolio. A.M. Best also views
positively IA American Life Group’s core focus on individual life
insurance in the United States and positive, albeit modest, earnings for
the group in 2014.
The IA American Life Group will continue to face challenges to gain
market share in a highly competitive life insurance market in the United
States, where it faces larger, more established players. While
significant overall earnings have not yet materialized, A.M. Best
expects further premium growth and improved returns following progress
made in new business expense strain reduction and underwriting.
A.M. Best believes the potential for positive rating actions on IA is
unlikely in the near to medium term. Key factors that could result in
negative rating actions include a significant and sustained decline in
IA's risk-adjusted capitalization, investment losses or operating
performance that does not meet A.M. Best's expectations over a sustained
period or financial leverage and/or interest coverage that falls short
of A.M. Best's guidelines for the organization's current rating level.
The ratings and outlook reflect IAPG’s adequate capitalization, strong
operating performance, prominent market profile within its market niche
and the implicit and explicit support it receives from its parent
company, IA. Partially offsetting these positive rating factors are
IAPG’s recent non-operationally based capital fluctuations, changing
product mix, the competitive market conditions in Canada and upward
pressure on operating expenses.
A.M. Best does not expect to downgrade IAPG’s ratings or revise the
outlook to negative in the near to midterm. However, such actions would
ensue if the company were to incur material losses in its
capitalization; have a severe reduction in the profitability of its core
book of business; have its relationship to its parent change in a manner
that affects the operations of the company; or be unable to contain the
company's exposure to adverse development within its reserves with the
current set of preventative pricing measures that have been recently put
in place.
The following debt ratings have been affirmed:
Industrial Alliance Insurance and Financial Services Inc.--
-- "a" on CAD 250 million 4.75% subordinated debentures, due 2021
-- "a" on CAD 250 million 2.80% subordinated debentures, due 2024
-- "a-" on CAD 125 million 4.60% non-cumulative perpetual preferred
shares, Series B
-- "a-" on CAD 100 million 5.90% non-cumulative perpetual preferred
shares, Series F
-- "a-" on CAD 250 million 4.30% non-cumulative perpetual preferred
shares, Series G
The following indicative ratings on securities available under the shelf
registration have been affirmed:
Industrial Alliance Insurance and Financial Services Inc.--
-- "a+" on senior unsecured debt
-- "a" on subordinated debt
-- "a-" on preferred shares
The methodology used in determining these ratings is Best’s Credit
Rating Methodology, which provides a comprehensive explanation of A.M.
Best’s rating process and contains the different rating criteria
employed in the rating process. Best’s Credit Rating Methodology can be
found at www.ambest.com/ratings/methodology.
Key insurance criteria reports utilized:
-
A.M. Best's Perspective on Operating Leverage
-
Equity Credit for Hybrid Securities
-
Evaluating U.S. Surplus Notes
-
Insurance Holding Company and Debt Ratings
-
Rating Members of Insurance Groups
-
Risk Management and the Rating Process for Insurance Companies
-
Understanding BCAR for Canadian Property/Casualty Insurers
-
Understanding BCAR for U.S. and Canadian Life/Health Insurers
This press release relates to rating(s) that have been published on
A.M. Best's website. For all rating information relating to the
release and pertinent disclosures, including details of the office
responsible for issuing each of the individual ratings referenced in
this release, please visit A.M. Best’s Ratings
& Criteria Center.
A.M. Best Company is the world's oldest and most authoritative
insurance rating and information source. For more information, visit www.ambest.com.
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