Market Overview

A.M. Best Affirms Ratings of Industrial Alliance Insurance and Financial Services, Inc. and Its Subsidiaries


A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a+” of Industrial Alliance Insurance and Financial Services Inc. (IA) (Quebec) [TSX: IAG]. Additionally, A.M. Best has affirmed the existing debt ratings of IA and Industrial Alliance Capital Trust. Concurrently, A.M. Best has affirmed the FSR of A- (Excellent) and ICRs of “a-” of IA's U.S. life insurance subsidiaries, IA American Life Insurance Company, (Atlanta, GA) American-Amicable Life Insurance Company of Texas, Pioneer Security Life Insurance Company, Pioneer American Insurance Company and Occidental Life Insurance Company of North Carolina (these companies are collectively known as the IA American Life Group). (See below for a detailed listing of the debt ratings.) All U.S. companies are domiciled in Waco, TX, unless otherwise specified. The outlook for all ratings is stable.

The ratings of IA reflect its improved absolute and risk-adjusted capitalizations, consistent profitability, reduced exposure to interest-sensitive fixed annuity business and the growing geographic diversity in its business. A.M. Best notes that IA has continued to report favorable capital levels and recently has recorded more manageable financial leverage. Net income trends have been favorable, although results in recent years have been volatile due to the Canadian accounting/regulatory regime being highly sensitive to the sustained low interest rate environment and volatile equity markets. The ratings also recognize IA's continued efforts to diversify its business profile and earnings stream in Canada and through the IA American Life Group in the United States.

Offsetting these positive rating factors is A.M. Best's ongoing concern with IA's continued exposure to equity market 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 fluctuations in equity market performance, 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 new segregated fund products has performed well. A.M. Best views positively IA's recent announcement to raise common equity and redeem outstanding debt, which will improve the group's financial leverage. Both financial leverage and coverage ratios are within the guidelines for the organization's current rating level.

The ratings for the IA American Life Group recognize the support it has received from IA through capital contributions via surplus notes, several capital infusions and synergies from home office management of actuarial reserves and its investment portfolio. The ratings also acknowledge the footprint IA has gained in the U.S. market through the acquisition of the American Amicable operation in 2010. A.M. Best also views positively IA's strategic divestiture of its U.S. annuity business via reinsurance transactions, which provided capital relief and positions the company to better develop its life insurance business.

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, A.M. Best expects that premium growth and the continued reallocation of the investment portfolio will improve future operating results.

A.M. Best believes IA is well positioned at its current rating level for the near to medium term. Key factors that could result in negative rating actions include a significant and sustained decline in IA's risk-adjusted capitalization; investment losses or operating performance that does not meet A.M. Best's expectations over a sustained period or financial leverage and/or interest coverage that falls short of A.M. Best's guidelines for the organization's current rating level.

The following debt ratings have been affirmed:

Industrial Alliance Insurance and Financial Services Inc.—

  • “a-” on CAD 250 million 4.75% subordinated debentures, due 2016
  • “a-” on CAD 150 million 5.13% subordinated debentures, due 2019
  • “a-” on CAD 100 million 8.25% subordinated debentures, due 2019
  • “bbb+” on CAD 125 million 4.60% non-cumulative perpetual preferred shares, Series B
  • “bbb+” on CAD 100 million 6.20% non-cumulative perpetual preferred shares, Series C
  • “bbb+” on CAD 100 million 6.00% non-cumulative Class A preferred shares, Series E
  • “bbb+” on CAD 100 million 5.90% non-cumulative perpetual preferred shares, Series F
  • “bbb+” on CAD 250 million 4.30% non-cumulative perpetual preferred shares, Series G

Industrial Alliance Capital Trust—

  • “bbb+” on CAD 150 million 5.714% trust securities Series A, due 2053

The following indicative ratings 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
  • “bbb+” on preferred shares

The methodology used in determining these ratings is Best's Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best's rating process and contains the different rating criteria employed in the rating process. Best's Credit Rating Methodology can be found at

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit

Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

A.M. Best Co.
Robert Adams, 908-439-2200, ext. 5225
Senior Financial Analyst
Raj Shah, 908-439-2200, ext. 5409
Assistant Vice President
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations

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