Fitch Affirms Intact’s Ratings After RSA Acquisition; RSA Subsidiary Upgraded to ‘AA-‘

Fitch Ratings has affirmed the Insurer Financial Strength (IFS) ratings of Intact Financial Corp.’s insurance subsidiaries at ‘AA-‘ (very strong), after its acquisition of RSA Insurance Group. Fitch also upgraded the IFS of RSA’s operating subsidiary, Royal & Sun Alliance Plc, to ‘AA-‘ from ‘A+’.

Fitch affirmed Intact’s senior unsecured debt at ‘A-‘; preferred shares at ‘BBB’ and Issuer Default Ratings (IDR) at ‘A’ and RSA Group’s senior unsecured debt at ‘A-‘, subordinates notes at ‘BBB+’ and restricted tier 1 notes at ‘BBB-‘.

All ratings have a Stable Rating Outlook.

The rating actions follow Intact’s acquisition of RSA Group for approximately C$12 billion (US$10 billion). The acquisition is executed in partnership with Tryg A/S (which is unrated by Fitch). Toronto-based Intact retains RSA’s Canadian, UK and International businesses, while Tryg, heaquartered in Ballerup, Denmark, retains RSA’s Swedish and Norwegian operations. Intact and Tryg co-own RSA’s Danish business.

Funding of the RSA deal will increase Intact’s financial leverage to approximately 26%, although leverage is expected to gradually decline toward the low 20% range over the next several years, said Fitch.

The transaction brings opportunity and uncertainty over the near term for the business acquired outside of the core Canadian market, said Fitch. RSA writes approximately C$5 billion (US$4.1 billion) in premiums in the UK and international space, representing approximately 24% of the consolidated proforma premiums. Fitch noted that RSA’s UK underwriting profits have improved in recent years.

The upgrade of RSA’s rating is based on Fitch’s assessment of RSA as “Very Important” under the group rating criteria. Following the transaction, Fitch has assessed RSA’s standalone credit profile at ‘A’, which is lower than the IFS of RSA pre-acquisition as a result of a reduction in operating scale and diversification as well as weaker financial performance, due to the loss of the highly profitable Scandinavian businesses.

However, Fitch said the two-notch ratings uplift from the standalone credit profile of RSA’s operating subsidiary is due to Intact’s willingness and ability to provide support, demonstrated the fact that Intact provided an equity capital injection of £850 million (US$1.2 billion) at closing, including the refinancing of upcoming debt maturities.

Intact has indicated its intention to support RSA and its willingness to inject further capital if needed, Fitch explained.