Fitch Affirms Intact's Ratings on Acquisition Announcement

(The following statement was released by the rating agency) Fitch Ratings-Chicago-18 November 2020: Fitch Ratings has affirmed the Insurer Financial Strength (IFS) ratings of Intact Financial Corporation's (Toronto: IFC; Intact) insurance subsidiaries at 'AA-' (very strong). Fitch has also affirmed Intact's senior unsecured debt at 'A-', preferred shares at 'BBB' and Issuer Default Rating (IDR) at 'A'. The Rating Outlook is Stable for all ratings. Key Rating Drivers The rating actions follow announcement of the proposed acquisition of RSA Insurance Group Plc (LON:RSA, 'A+' IFS) for approximately CAD 12.3 billion. RSA has significant property/casualty insurance operations in the UK, Canada, and several Scandinavian countries. The acquisition will be executed in partnership with Tryg A/S (Tryg, unrated by Fitch) structured as a back-to-back arrangement where Tryg will acquire the RSA's Norway and Sweden business. Denmark will be co-owned by Intact and Tryg. The transaction is expected to close in 1H 21 and is subject to customary regulatory and shareholder approvals, including competition and/or insurance related approval in Canada, UK, and Scandinavia. Funding of the RSA acquisition will increase Intact's financial leverage to approximately 26% upon close. Leverage is anticipated to gradually decline towards the low 20% range over the next several years. The rating affirmation considers Intact's very strong business profile, capitalization and financial performance. This transaction will move Intact's leading Canadian p/c market share to approximately 22% from 17% currently. The company is the largest private P/C insurer in Canada and the number one writer in British Columbia, Quebec, Alberta, Ontario, Nova Scotia, and Newfoundland and Labrador. This size and scale advantage has helped the company generate above industry average profitability. Intact's financial performance is consistently very strong. As of 1H20, Intact had a GAAP calendar year combined ratio of 92%. Proforma combined ratios post-acquisition are anticipated to remain in the low-to-mid 90% range. The transaction brings opportunity and uncertainty over the near term for the business acquired outside of the core Canadian market. RSA writes approximately CAD 5 billion in premiums in the U.K. & International space, representing approximately 24% of the consolidated proforma premiums. UK underwriting profits have improved in recent years. RATING SENSITIVITIES The ratings remain sensitive to any material change in Fitch's rating case assumptions with respect the coronavirus pandemic. Periodic updates to our assumptions are possible given the rapid pace of changes in government actions in response to the pandemic, and the pace with which new information is available on the medical aspects of the outbreak. Factors that could, individually or collectively, lead to negative rating action/downgrade: - A material adverse change in Fitch's Ratings Assumptions with respect to the coronavirus impact. - Failure to successfully integrate acquired business into IFC could lead to a downgrade. - Sustained increase in financial leverage of 28% or higher. - Sustained reduction in fixed-charge coverage below 5x. Factors that could, individually or collectively, lead to positive rating action/upgrade: - A positive rating action is prefaced by Fitch's ability to reliably forecast the impact of the coronavirus pandemic on the financial profile of both the non-life insurance industry, as well as Intact. - Successful integration of acquired business into IFC with minimal deviations from assumptions could lead to an upgrade. Integration efforts would be measured 36 months after close of the transaction. - Sustained fixed-charge coverage ratio of approximately 11.5x or higher. Best/Worst Case Rating Scenario International scale credit ratings of Financial Institutions and Covered Bond issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit [https://www.fitchratings.com/site/re/10111579] REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING The principal sources of information used in the analysis are described in the Applicable Criteria. ESG Considerations Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg OBI America Insurance Company; Insurer Financial Strength; Affirmed; AA-; Rating Outlook Stable Atlantic Specialty Insurance Company; Insurer Financial Strength; Affirmed; AA-; Rating Outlook Stable Trafalgar Insurance Company of Canada; Insurer Financial Strength; Affirmed; AA-; Rating Outlook Stable OBI National Insurance Company; Insurer Financial Strength; Affirmed; AA-; Rating Outlook Stable Homeland Insurance Company of New York; Insurer Financial Strength; Affirmed; AA-; Rating Outlook Stable Homeland Insurance Company of Delaware; Insurer Financial Strength; Affirmed; AA-; Rating Outlook Stable Jevco Insurance Company; Insurer Financial Strength; Affirmed; AA-; Rating Outlook Stable OneBeacon U.S. Holdings, Inc.; Long Term Issuer Default Rating; Affirmed; A; Rating Outlook Stable ----senior unsecured; Long Term Rating; Affirmed; A- The Nordic Insurance Company of Canada; Insurer Financial Strength; Affirmed; AA-; Rating Outlook Stable Intact Assurances Agricoles Inc.; Insurer Financial Strength; Affirmed; AA-; Rating Outlook Stable La Compagnie d'Assurances Belair Inc.; Insurer Financial Strength; Affirmed; AA-; Rating Outlook Stable Novex Insurance Company; Insurer Financial Strength; Affirmed; AA-; Rating Outlook Stable Intact Financial Corporation; Long Term Issuer Default Rating; Affirmed; A; Rating Outlook Stable ----senior unsecured; Long Term Rating; Affirmed; A- ----preferred; Long Term Rating; Affirmed; BBB Intact Insurance Company; Insurer Financial Strength; Affirmed; AA-; Rating Outlook Stable Contacts: Primary Rating Analyst Gerald Glombicki, CPA, ARM Director +1 312 606 2354 Fitch Ratings, Inc. One North Wacker Drive Chicago, IL 60606 Secondary Rating Analyst Jim Auden, CFA Managing Director +1 312 368 3146 Committee Chairperson Donald Thorpe, CFA, CPA Senior Director +1 312 606 2353 Media Relations: Sandro Scenga, New York, Tel: +1 212 908 0278, Email: sandro.scenga@thefitchgroup.com Jessica Torchia, New York, Tel: +1 212 908 0653, Email: jessica.torchia@thefitchgroup.com Additional information is available on www.fitchratings.com Additional Disclosures Dodd-Frank Rating Information Disclosure Form (https://www.fitchratings.com/site/dodd-frank-disclosure/10141878) Solicitation Status (https://www.fitchratings.com/site/pr/10141878#solicitation) Endorsement Status (https://www.fitchratings.com/site/pr/10141878#endorsement_status) Endorsement Policy (https://www.fitchratings.com/site/pr/10141878#endorsement-policy) ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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