AM Best Affirms Credit Ratings of Industrial Alliance Insurance and Financial Services, Inc. and Its Subsidiaries

AM Best has affirmed the Financial Strength Rating (FSR) of A+ (Superior) and the Long-Term Issuer Credit Rating (Long-Term ICR) of “aa-” of Industrial Alliance Insurance and Financial Services Inc. (IA) (Quebec) [TSX: IAG]. Additionally, AM Best has affirmed the Long-Term Issue Credit Ratings (Long-Term IR) of IA. Concurrently, AM Best has affirmed the FSR of A (Excellent) and the Long-Term ICRs of “a” of IA’s U.S. life insurance entities within the IA American Life Group. (See below for a detailed listing of companies.) AM Best also has affirmed the FSR of A (Excellent) and the Long-Term ICR of “a+” of Industrial Alliance Pacific General Insurance Corporation (IAPG) (headquartered in Vancouver, Canada). The outlook of these Credit Ratings (ratings) is stable. In addition, AM Best has affirmed the FSR of A- (Excellent) and the Long-Term ICR of “a-” of Dealers Assurance Company (DAC) (Columbus, OH). The outlook of these ratings remains positive. (See below for a detailed listing of the Long-Term IRs.)

The ratings of IA reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its strong operating performance, favorable business profile and appropriate enterprise risk management (ERM). These ratings also reflect its solid absolute and risk-adjusted capitalization levels, consistent profitability and continued growth in the retail services and segregated fund businesses. AM Best notes that IA has reported favorable capital levels and financial leverage that remain at targeted levels and within AM Best’s tolerance for the company’s current rating level. Net income trends have been favorable, and the company had a solid return on equity in 2018 at 12.5%. The ratings also recognize IA’s diversified business profile and earnings stream, which has grown throughout Canada.

Partially offsetting these positive rating factors is IA’s exposure, albeit somewhat reduced, to equity and interest rate volatility. The equity market exposure is largely through the organization’s mutual fund and segregated fund lines of business in Canada. This exposure makes IA susceptible to lower fee income from assets under management and administration, lower sales from its savings and investment products and the possibility of higher reserve charges. However, IA’s dynamic hedging program for its segregated fund products has performed well. Also noted is weak mutual fund sales in 2018 due to the current difficult business environment for that line of business.

The ratings of the IA American Life Group reflect its balance sheet strength, which AM Best categorizes as strong, as well as its marginal operating performance, neutral business profile and appropriate ERM. The ratings also recognize the support it has received from IA through capital contribution and synergies from home office management of its actuarial reserves and investment portfolio. AM Best also views positively IA American Life Group’s core focus on individual life insurance in the United States and positive, albeit modest earnings in 2018.

The IA American Life Group will continue to face challenges to gain market share in a highly competitive life insurance market in the United States, where it faces larger, more-established players. While significant overall earnings have not yet materialized, AM Best expects further premium growth and improved returns following progress made in reducing new business expense strain and improvements in underwriting.

The ratings of IAPG reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile, appropriate ERM, and the implicit and explicit support it receives from its parent company. Strong risk-adjusted capitalization, prominent market presence, and favorable operating performance are offset partially by non-operationally based capital fluctuations, as well as elevated expenses experienced over the prior five years.

Similarly, the ratings of DAC reflect its balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate ERM. The potential benefits or burdens from the new ultimate parent continue to be assessed following IA’s acquisition of DAC in 2018. Solid surplus strengthening over the prior 10-year period, tight risk management practices, and a competent management team help to offset a concentrated product profile.

The FSR of A (Excellent) and the Long-Term ICRs of “a” have been affirmed with stable outlooks for the following entities of IA American Life Group:

IA American Life Insurance Company
American-Amicable Life Insurance Company of Texas
Pioneer Security Life Insurance Company
Pioneer American Insurance Company
Occidental Life Insurance Company of North Carolina

The following Long-Term IRs have been affirmed:

Industrial Alliance Insurance and Financial Services Inc.—-- “a” on CAD 250 million 2.80% subordinated debentures, due 2024-- “a” on CAD 250 million 2.64% subordinated debentures, due 2027-- “a” on CAD 400 million 3.30% subordinated debentures, due 2028-- “a-” on CAD 125 million 4.60% non-cumulative perpetual preferred shares, Series B-- “a-” on CAD 250 million 4.30% non-cumulative perpetual preferred shares, Series G

The following indicative Long-Term IRs on securities available under the shelf registration have been affirmed:

Industrial Alliance Insurance and Financial Services Inc.—-- “a+” on senior unsecured debt-- “a” on subordinated debt-- “a-” on preferred shares

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.

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Edward KohlbergDirector – L/H+1 908 439 2200, ext. 5664edward.kohlberg@ambest.comChristopher SharkeyManager, Public Relations+1 908 439 2200, ext. 5159christopher.sharkey@ambest.comDaniel HeitlingerFinancial Analyst – P/C+1 908 439 2200, ext. 5019daniel.heitlinger@ambest.comJim PeavyDirector, Public Relations+1 908 439 2200, ext. 5644james.peavy@ambest.com