AM Best has commented that the Financial Strength Rating of A+ (Superior) and the Long-Term Issuer Credit Ratings of “aa-” (Superior) of Intact Insurance Company (Ontario, Canada), the lead company of Intact Financial Corporation (IFC) [TSX: IFC], as well as the Credit Ratings (ratings) for all subsidiaries of IFC, remain unchanged following the recent announcement of a GBP 6.5 billion U.K. pension buy-in agreement between IFC, RSA UK Pension Trustees (RSA UK) and Pension Insurance Corporation plc (PIC).

The transaction is being structured as a pension risk transfer buy-in and will result in significantly lower pension risk to IFC’s balance sheet by substantially insuring its RSA UK defined benefit pension liabilities with PIC, which were acquired in its purchase of RSA Insurance Group Limited (RSA) in June 2021. IFC will facilitate this transaction through an upfront contribution to the Pension Schemes of approximately GBP 500 million. The transaction is expected to be funded using approximately CAD 300 million of excess capital, CAD 300 million of hybrid capital and/or preferred share issuance, as well as short-term debt. As a result, short-term financial metrics are expected to decrease due to the finance costs associated with the transaction. On a prospective basis, the transaction is expected to reduce funding contributions of RSA UK pension liabilities by GBP 75 million annually and release approximately GBP 150 million of required capital. AM Best notes that capital ratios in all jurisdictions are expected to remain in line with target operating levels, and well above regulatory requirements. Additionally, AM Best expects that financial leverage and interest coverage ratios will remain within acceptable guidelines.

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