DBRS Morningstar Places Ratings of iA Financial Corporation Inc. and Industrial Alliance Insurance and Financial Services Inc. Under Review with Positive Implications

DBRS Limited (DBRS Morningstar) placed iA Financial Corporation Inc.’s (iA or the Company) Issuer Rating of A (low) and Subordinated Debentures rating of BBB (high) Under Review with Positive Implications. DBRS Morningstar also placed the Issuer Rating of A (high), the Financial Strength Rating of A (high), the Subordinated Debentures rating of “A,” and the Non-Cumulative Preferred Shares rating of Pfd-2 (high) for Industrial Alliance Insurance and Financial Services Inc., iA’s major insurance operating subsidiary, Under Review with Positive Implications.

KEY RATING CONSIDERATIONS
The Under Review with Positive Implications status reflects DBRS Morningstar’s view that iA has made significant efforts over the past few years to improve its risk profile, in particular its sensitivities to market-related risks. The Company has materially reduced its sensitivities to interest rate and equity market movements, an important consideration given the relatively large proportion of individual insurance and segregated fund products in the Company’s product portfolio, and the sustained low interest rate environment that continues to put pressure on life insurers. The Company has also experienced some success in shifting its product portfolio toward less capital-intensive products, reducing the level of guarantees offered and increasing its proportion of fee-based business. During the review period, which is expected to be concluded within 90 days, DBRS Morningstar will focus on the Company’s improving capabilities in limiting the impact of adverse market movements on its net income and regulatory solvency ratios. In addition, DBRS Morningstar will assess the impact of the Coronavirus Disease (COVID-19), which has been more limited than expected so far, on iA’s credit fundamentals.

RATING DRIVERS
Continued progress in reducing the Company’s exposure to the market risks arising from its large individual insurance and segregated funds portfolio, that contributes to more stable earnings that are commensurate with higher rated peers, while maintaining good capital levels, would result in a ratings upgrade.

As the ratings have the Under Review with Positive Implications status, a negative ratings action is unlikely. However, the trends on the ratings could remain at Stable if the Company experiences a material weakness in its key lines of businesses, including in Individual Insurance and Individual Wealth Management, indicating a weakening of the franchise or experiences an unexpected steep decline in regulatory capital levels.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

The Grid Summary Grades for iA are as follows: Franchise Strength – Strong/Good; Risk Profile – Strong/Good; Earnings Ability – Strong/Good; Liquidity – Strong; Capitalization and Asset Quality – Strong/Good.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodology is the Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations (July 21, 2020; https://www.dbrsmorningstar.com/research/364260/global-methodology-for-rating-life-and-pc-insurance-companies-and-insurance-organizations).

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrsmorningstar.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar’s outlooks and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com.

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