September 28, 2017 / 4:39 PM / 21 days ago

Fitch Upgrades OneBeacon Following Acquisition by Intact

(The following statement was released by the rating agency) CHICAGO, September 28 (Fitch) Fitch Ratings has upgraded the ratings of OneBeacon Insurance Group, Ltd. (OneBeacon), including the Long-Term Issuer Default Rating (IDR) to 'A' from 'BBB+', and the Insurer Financial Strength (IFS) rating of OneBeacon's operating subsidiaries to 'AA-' from 'A'. The ratings have been removed from Rating Watch Positive. The Rating Outlook is Stable. The rating action follows the closing of OneBeacon's acquisition by Intact Financial Corporation (Toronto: IFC) (Intact) for USD1.7 billion or approximately CAD2.3 billion. The ratings are equivalent to the IDR and IFS ratings of Intact and its operating subsidiaries. A full list of rating actions follows at the end of this release. KEY RATING DRIVERS Today's rating action follows the completion of OneBeacon's acquisition by Intact, the largest private non-life insurer in Canada. Intact has profitably expanded in the Canadian market over time through organic growth and a number of acquisitions. OneBeacon represents Intact's initial meaningful entry into the U.S. non-life market. OneBeacon transformed itself into a diversified specialty insurance company after previously shedding run-off operations, standard commercial and personal lines of business. Fitch believes this transformation provides Intact a U.S. platform with potential to compete with specialty peers and generate consistently strong operating profits. Intact's ratings are reflective of the company's very strong market position, capitalization, and financial performance. The OneBeacon transaction is viewed as neutral to the rating overall, though the acquisition does present the company with unique challenges and opportunities in the near term. The rating action considers that OneBeacon will be viewed going forward as no lower than an "Important" subsidiary of Intact per Fitch's criteria for group rating methodology. The strategic significance of OneBeacon will be finalized in a subsequent rating review. RATING SENSITIVITIES Following the purchase closing, rating sensitivities for OneBeacon's ratings will track with those for its parent, Intact. Intact's ratings were affirmed with a Stable Outlook on Aug. 22, 2017. Factors that could lead to a downgrade include: --Failure to report an IFRS fixed-charge coverage ratio above 7.0x and financial leverage below 25% within 18-24 months of transaction closing; --Failure to successfully integrate OneBeacon post-close or meet profit objectives, necessitating a material write-down in goodwill; --A minimum capital test ratio falling below 170%; --A material additional acquisition in the next 12-24 months; --Sustained adverse reserve development of more than 3% of prior-year shareholder's equity. Fitch views a near-term rating upgrade of Intact or OneBeacon as unlikely. However, factors that could lead to an upgrade include: --Improvement in capital adequacy and leverage measures consistent with 'AA' sector credit factors; --Consistent and sustained financial performance with return on equity in the low- to mid-teens; --Sustained favorable reserve trends; --Sustained financial leverage below 20%. FULL LIST OF RATING ACTIONS Fitch has upgraded the following ratings with a Stable Outlook: OneBeacon U.S. Holdings, Inc. --Long-Term IDR to 'A' from 'BBB+'; --$275 million 4.6% due Nov. 9, 2022 to 'A-' from 'BBB'. OneBeacon U.S. insurance subsidiaries: Atlantic Specialty Insurance Company; Homeland Insurance Company of New York; Homeland Insurance Company of Delaware; OBI America Insurance Company; OBI National Insurance Company. --IFS to 'AA-' from 'A'. Contact: Primary Analyst Gerald B. Glombicki, CPA Director +1-312-606-2354 Fitch Ratings, Inc. 70 W. Madison Street Chicago, IL 60602 Secondary Analyst Brian C. Schneider, CPA, CPCU, ARe Senior Director +1-312-606-2321 Committee Chairperson Donald F. Thorpe, CFA, CPA Senior Director +1-312-606-2353 Media Relations: Benjamin Rippey, New York, Tel: +1 646 582 4588, Email: benjamin.rippey@fitchratings.com. 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