Best Places AXA Canada, Intact Financial Ratings under Review

June 7, 2011

A.M. Best announced a number of rating actions as a result of the announcement on May 31 that that Intact Financial Corporation (IFC) has signed a definitive agreement to purchase 100 percent of the stock of AXA Canada Inc.

Best placed under review with developing implications the financial strength rating (FSR) of ‘A’ (Excellent) and issuer credit ratings (ICR) of “a+” of AXA Assurances Inc. (Quebec) and its wholly owned subsidiaries, AXA Insurance (Canada) (Ontario), AXA Pacific Insurance Company (British Columbia), AXA General Insurance (Ontario) and AXA Assurances agricoles inc. (Quebec).

It also placed under review with developing implications the FSR of ‘A-‘ (Excellent) and ICR of “a-” of InnovAssur, assurances generales inc. (Quebec), as well as the ICR of “bbb+” of the parent holding company, Quebec-based AXA Canada Inc.

Best also placed under review with negative implications the financial strength rating of ‘A+’ (Superior) and issuer credit ratings of “aa-” of Intact Insurance Group and its members, Belair Insurance Company Inc. (Quebec), Intact Insurance Company, Novex Insurance Company, The Nordic Insurance Company of Canada and Trafalgar Insurance Company of Canada. All the companies are domiciled in Ontario, unless otherwise specified. In addition Best placed IFC’s ICR of “a-” as well as all of the group’s debt ratings under review with negative implications.

Best said AXA Canada’s under review status with developing implications is “the result of uncertainty with respect to the potential impact on the ratings, particularly as it pertains to the integration of the entities and business into IFC and the related execution risk associated with the transaction.”

As a partial offset to the risk, Best noted that “AXA Canada Inc. and its subsidiaries will become part of a large Canadian organization, with a significant business profile in the Canadian market.”

Best said the ratings would remain under review until completion of the transaction, which is expected in fall 2011, subject to regulatory approval, and until it conducts further analysis and discussion with management.

Concerning IFC, Best noted that the company “expects to finance the $2.6 billion acquisition of AXA Canada through $500 million of excess capital from its operating subsidiaries, approximately $800 million of common equity, as well as accessing $1.3 billion of unsecured credit facilities that are anticipated to be mostly replaced by the issuance of medium-term notes and preferred shares.”

The under review status with negative implications “reflects IFC’s increased financial leverage position under the proposed financing structure, relative to the current rating level and outlook, exacerbated by the significant amount of goodwill and intangibles generated as a result of the transaction,” Best explained.

The rating agency also pointed out that there is “potentially a considerable amount of execution risk associated with the integration of approximately $2.0 billion of AXA’s direct premiums written into the IFC organization, which has approximately $4.5 billion of direct premiums written within the Intact Group.”

As with AXA Canada the ratings will remain under review until completion of the transaction.

Source: A.M. Best

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