Fitch Affirms Intact's Ratings; Outlook Stable

(The following statement was released by the rating agency)CHICAGO, August 31 (Fitch) Fitch Ratings has affirmed Intact Financial Corporation's (Intact; Toronto: IFC) Issuer Default Rating (IDR) at 'A' and senior unsecured debt at 'A-'. Fitch has also affirmed the Insurer Financial Strength (IFS) ratings of Intact's property/casualty insurance subsidiaries at 'AA-'. The Rating Outlook for all ratings is Stable. A full list of ratings follows at the end of this release.KEY RATING DRIVERSIntact's ratings reflect its large market share and scale, very strong reserve position, and solid capitalization. Balanced against these strengths is a company that will likely continue to grow through acquisitions, both from insurance operations and insurance distribution, and these acquisitions will add goodwill to the balance sheet. Intact is the largest private property/casualty insurer in Canada and the number one writer in British Columbia, Quebec, Alberta, Ontario, Nova Scotia, and Newfoundland & Labrador. This size and scale is consistent with the 'AA' rating category and has helped Intact generate strong profitability. For first half 2016 (1H16), Intact had a GAAP calendar year combined ratio of 95.8%, up from prior half-year result of 92.5%. Embedded in 1H16 results are net pre-tax losses of $173 million from the Fort McMurray wildfire which cost the Canadian insurance industry approximately $4.6 billion, according to Property Claim Service, making the Fort McMurray fire the costliest natural disaster in Canadian history. The calendar year combined ratio for 1H16 was 91.4% excluding the impact of Fort McMurray losses.The company's pretax operating income for 1H16 was CAD298 million, down approximately CAD109 million from 1H15 due to the aforementioned Fort McMurray losses. Fitch notes that the Fort McMurray wildfire losses are a tangible demonstration of Intact's risk mitigation, as the largest catastrophe event in Canadian history happened and the company still produced an underwriting profit for the quarter.Fitch believes the company has been prudent in setting reserve levels and is aided by the use of a Provision for Adverse Development (PfAD) margin that is used in setting reserve levels.Intact's traditional capital metrics are strong and have been stable for several years. Operating leverage was 1.5x at 1H16. From a risk-based perspective, Intact's regulatory Minimum Capital Test (MCT) score was 212% for 1H16, above management's stated target of 170%, implying an excess capital level of CAD813 million at the operating companies. Fitch believes management will maintain capital metrics in line with historical results.Intact's financial leverage ratio was 20% 1H16, in line with management's stated target of 20%. Fixed-charge coverage was 7x, which, similar to pretax operating income, was lower than the prior year period. Due to its history of acquisitions Intact has almost CAD1.2 billion in goodwill on its balance sheet with CAD573 million being generated from the 2011 purchase of AXA Canada. Favorably the acquisition has had time to mature; however, the large goodwill balance is a credit negative and makes tangible financial leverage, excluding goodwill, 24% at 1H16. We do note that the company currently trades at 2.3x book value and had debt/EBITDA of 1.8x as of 1H16. RATING SENSITIVITIESKey rating triggers that could lead to an upgrade include:--Capital adequacy and leverage measures consistent with 'AA' sector credit factors;--Consistent and sustained financial performance with return on equity in the low- to mid-teens.--Sustained favorable reserve trends;--Sustained financial leverage below 20%. Key rating triggers that could lead to a downgrade include:--An MCT below 170%;--Sustained adverse reserve development of more than 3% of prior-year shareholder's equity;--A material acquisition outside of the Canadian insurance market;--Sustained GAAP fixed-charge coverage ratio below 7.0x or financial leverage above 25%.FULL LIST OF RATING ACTIONSFitch has affirmed the following ratings with a Stable Outlook: Intact Financial Corporation --IDR at 'A';--CAD250 million unsecured senior debt 5.41% due Sept. 3, 2019 'A-';--CAD300 million unsecured senior debt 4.70% due Aug. 18, 2021 'A-';--CAD250 million unsecured senior debt 3.77% due March 2, 2026 'A-';--CAD250 million unsecured senior debt 6.40% due Nov. 23, 2039 'A-';--CAD250 million unsecured senior debt 5.16% due June 16, 2042 'A-';--CAD100 million unsecured senior debt 6.20% due July 8, 2061 'A-';--CAD250 million 4.2% non-cumulative class A series 1 preferred stock 'BBB';--CAD250 million 4.2% non-cumulative class A series 3 preferred stock 'BBB'.Fitch has affirmed the following ratings with a 'AA-' IFS Rating and a Stable Outlook:--Intact Assurances Agricoles Inc.; --Intact Insurance Company;--Jevco Insurance Company; --La Compagnie d'Assurances Belair Inc.; --Nordic Insurance Company of Canada; --Novex Insurance Company; --Trafalgar Insurance Company of Canada. Contact: Primary AnalystGerald B. Glombicki, CPADirector+1-312-606-2354Fitch Ratings, Inc.70 W. Madison Street Chicago, IL 60602 Secondary AnalystJames B. Auden, CFA Managing Director+1-312-368-3146Committee ChairpersonDonald F. Thorpe, CFA, CPASenior Director+1-312-606-2353Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: hannah.james@fitchratings.com.Additional information is available on www.fitchratings.comApplicable Criteria Insurance Rating Methodology (pub. 17 May 2016)https://www.fitchratings.com/site/re/881564Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr _id=1011046Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1011046Endorsement Policy https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&det ail=31ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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