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FOR IMMEDIATE RELEASE
OLDWICK - FEBRUARY 24, 2016 02:07 PM (EST)
A.M. Best has affirmed the financial strength rating (FSR) of A+ (Superior) and the issuer credit rating (ICR) of “aa-” of Industrial Alliance Insurance and Financial Services Inc. (IA) (Quebec) [TSX: IAG]. Additionally, A.M. Best has affirmed the existing issue 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 (headquartered in 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) (headquartered in Vancouver, Canada). The outlook for all ratings is stable. (See below for a detailed listing of the issue ratings.)
The ratings of IA reflect its solid absolute and risk-adjusted capitalizations, consistent profitability and continued growth in the retail services and segregated fund businesses. A.M. Best notes that IA has reported favorable capital levels despite the low interest rate environment, and financial leverage that remains at targeted levels and within A.M. Best’s tolerances for the company’s current rating level. Net income trends have been favorable, although results were negatively impacted in 2015 due to management actions to strengthen reserves in the fourth quarter. The ratings also recognize IA’s diversified business profile and earnings stream which has grown throughout Canada. The company’s distribution network has also grown through recent strategic acquisitions in the insurance, wealth management and group dealer services business.
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 2015 due to the very competitive market, weaker industry sales and recent equity market volatility.
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 in 2015.
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.
The ratings and outlook reflect IAPG’s excellent 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.
The following issue 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 250 million 2.64% subordinated debentures, due 2027
— “a-” on CAD 125 million 4.60% non-cumulative perpetual preferred shares, Series B
— “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
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 see A.M. Best’s Recent Rating Activity web page.
A.M. Best is the world’s oldest and most authoritative insurance rating and information source.