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Fitch Rates Intact's Planned CAD125MM Preferred Shares Issuance 'BBB'
May 12, 2017 / 8:54 PM / 7 months ago

Fitch Rates Intact's Planned CAD125MM Preferred Shares Issuance 'BBB'

(The following statement was released by the rating agency) CHICAGO, May 12 (Fitch) Fitch Ratings has assigned Intact Financial Corporation's (Toronto: IFC) (Intact) CAD125MM Series 5, 5.2% non-cumulative preferred shares a 'BBB' rating. No rating actions took place for Intact's other ratings. A full list of ratings follows at the end of this release. KEY RATING DRIVERS The rating for the preferred shares is equivalent to the rating on IFC's existing preferred shares. Under Fitch's hybrid methodology, IFC's non-cumulative preferred shares receive 100% equity credit. Gross proceeds will be CAD150 million if the underwriters option is fully exercised. The proceeds will be used to fund the purchase of OneBeacon Insurance Group Ltd. which is anticipated to close in the fourth quarter of 2017. If the acquisition does not close, the proceeds will be used for general corporate purposes. The Series 5 Share offering is expected to close on May 24, 2017. Funding of the transaction will also include a significant amount of new debt financing. Intact's financial leverage as of March 31, 2017 was approximately 19%, and pro forma for the acquisition the ratio increases to approximately 25%. However, Fitch believes management will actively target financial leverage to return to pre-transaction levels within 24 months. Fitch affirmed the ratings of IFC and its insurance operating subsidiaries with a Stable Outlook on May 2, 2017. For more details see Fitch's press release at www.fitchratings.com. RATING SENSITIVITIES Key rating triggers that could lead to a downgrade include: --Failure to report a GAAP fixed-charge coverage ratio above 7.0x and financial leverage below 25% within 18-24 months of transaction closing; --Failure to successfully integrate OneBeacon post-close or meet profit objectives, necessitating a material write-down in goodwill; --A minimum capital test ratio falling below 170%; --A material additional acquisition in the next 12-24 months; --Sustained adverse -reserve development of more than 3% of prior-year shareholder's equity. Fitch views a near-term rating upgrade of Intact as unlikely. However, key rating triggers that could lead to an upgrade include: --Improvement in 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%. FULL LIST OF RATING ACTIONS Fitch has assigned the following rating: Intact Financial Corporation --Series 5, 5.2% non-cumulative preferred shares 'BBB'. Fitch currently rates the IFC entities as follows, all with a Stable Outlook: Intact Financial Corporation --IDR at 'A'; --CAD250 million unsecured senior debt 5.41% due Sept. 3, 2019 at 'A-'; --CAD300 million unsecured senior debt 4.70% due Aug. 18, 2021 at 'A-'; --CAD250 million unsecured senior debt 3.77% due Mar. 2, 2026 at 'A-'; --CAD250 million unsecured senior debt 6.40% due Nov. 23, 2039 at 'A-'; --CAD250 million unsecured senior debt 5.16% due June 16, 2042 at 'A-'; --CAD100 million unsecured senior debt 6.20% due July 8, 2061 at 'A-'; --CAD250 million 4.2% non-cumulative class A series 1 preferred stock at 'BBB'; --CAD210 million 3.332% non-cumulative class A series 3 preferred stock at 'BBB'; --CAD40 million 3.169% non-cumulative class A series 4 preferred stock at 'BBB'. 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 --IFS at 'AA-'; Outlook Stable. Contact: Primary Analyst Gerald B. Glombicki, CPA Director +1-312-606-2354 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst James B. Auden, CFA Managing Director +1-312-368-3146 Committee Chairperson Donald F. Thorpe, CFA, CPA Senior Director +1-312-606-2353 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: hannah.james@fitchratings.com. Date of Relevant Rating Committee: May 2, 2017 Additional information is available on www.fitchratings.com Applicable Criteria Insurance Rating Methodology (pub. 26 Apr 2017) here Additional Disclosures Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. 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