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Intact ratings under review following AXA agreement | Canadian Insurance
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Intact ratings under review following AXA agreement

Moody's review highlights financial flexibility.

Intact Financial Corp. still faces regulatory approval for its plan to absorb AXA Canada, and ratings agencies are also watching the deal closely.

Moody’s put Intact Financial Corp.’s A3 senior debt ratings–along with Intact Insurance Company’s financial strength rating–under review following the company’s acquisition announcement.

The agency’s review of the company’s debt ratings will focus on how closely the acquisition process follows the plan outlined in the May 31 agreement, according to a Moody’s statement released later that week. Analysts expect to lower Intact’s IFS and debt ratings by one notch if the company completes the deal without major changes, or barring any other shifts in the market or in Intact or AXA Canada’s financial performances.

Although the $2.6 billion acquisition will give Intact a larger market share, curb its exposure to the Ontario auto market and give the newly combined company more diversification, “this will be more than offset by the decrease in financial flexibility given the proposed funding structure,” Alan Murray, senior credit officer at Moody’s said in the statement.

Moody’s also put the insurance financial strength ratings of the Intact Insurance Company, Belair Insurance Company, Nordic Insurance Company of Canada, Novex Insurance Company and Trafalgar Insurance Company of Canada under review.

Strong track records

Another agency, DBRS, confirmed Intact’s issue and senior unsecured debt rating after this week’s announcement, citing both Intact and AXA Canada’s strong operating track records and Intact’s history of successful acquisitions.

However, the agency noted that “failing to reduce leverage to acceptable levels, as planned, could result in negative rating action.”

“If successfully integrated, DBRS believes the transaction will have a slightly positive impact on Intact’s business risk profile,” its analysts state in a May 31 statement. “On a combined basis, the company will have better geographic and product diversification across Canada and will have approximately double the market share of its nearest competitor.”