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Rating Action:

Moody’s rates Intact’s CAD300 million limited recourse capital note at Baa3(hyb)

01 March 2023


Toronto , March 1, 2023 – Moody's Investors Service ("Moody's") has assigned a Baa3(hyb) rating to CAD300 million of Intact Financial Corporation's (Intact) limited recourse capital note (subordinated note). The assigned rating is aligned with the rating level at which Moody's would rate the securities to which the note holders have recourse in the event of non-payment by Intact of interest or principal on the notes. Intact expects to use the net proceeds from the offering for its UK pension de-risking strategy and general corporate purposes. The rating outlook for Intact is unchanged at stable.

RATINGS RATIONALE

According to Moody's, Intact's ratings reflect the group's excellent market position as the largest Canadian property and casualty insurer, particularly in personal and small- to mid-sized commercial lines. It also reflects a risk management discipline that has produced good underwriting results and solid reserve adequacy, as well as strong and predictable levels of internal capital generation. Intact's credit strengths are offset by its relatively high financial leverage, high gross exposure to natural catastrophes, regulatory risk in Ontario auto insurance, and execution risk with an active acquisition strategy.

The stable outlook is based on Moody's expectations that Intact will sustain profitability levels and manage its exposure to natural catastrophes prudently through reinsurance.

For 2022, Intact reported net income of CAD2,420 million compared with CAD2,088 million for the prior year period reflecting strong premium growth bolstered by the RSA acquisition, strong underwriting performance and improved net investment income. Intact reported a higher but a still strong combined ratio of 91.6% for 2022 compared to 88.8% in the prior year as underwriting results were affected by weather-related losses and inflationary pressures.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

Factors that could lead to an upgrade of Intact's ratings: 1) a reduction in both adjusted financial leverage to around 30%, as well as total debt to tangible capital to below 45%; 2) a reduction in high risk assets to invested assets to below 30%; 3) a sustained increase in Intact's consolidated MCT capital ratio to around 235%; and 4) average return on capital above 10% through a period of softer pricing.

Factors that could lead to a downgrade of the ratings: 1) a sustained increase in adjusted financial leverage in excess of 35%; 2) an earnings coverage ratio below 6x for a sustained period; 3) A reduction in the company's MCT regulatory solvency ratio to below 180%; 4) an increase in high risk assets to invested assets to more than 40%, or permanent material impairment of the preferred share investment portfolio; and/or 5) net catastrophe losses exceeding one year's worth of earnings.

The principal methodology used in this rating was Property and Casualty Insurers Methodology published in January 2023 and available at https://ratings.moodys.com/api/rmc-documents/397707 . Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Intact, a leading Canadian property and casualty insurer, headquartered in Toronto, Canada, reported net earned premiums of CAD19.9 billion and net income of CAD2,420 million for 2022. The company reported total assets of CAD64.9 billion and total equity attributable to shareholders of CAD15.6 billion as of 31 December 2022.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions .

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com .

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website https://ratings.moodys.com .

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://ratings.moodys.com/documents/PBC_1288235 .

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com .

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on https://ratings.moodys.com .

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the issuer/deal page on https://ratings.moodys.com for additional regulatory disclosures for each credit rating.

Rabia Yusufzai, CFA
Analyst
Ratings & Research Support
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Sarah Hibler
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

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