S&P Affirms Co-operators General ‘BBB-‘ Rating; Outlook Raised to Positive

Standard & Poor’s Ratings Services announced that it has revised its outlook on Guelph, Ontario-based Co-operators General Insurance Co. (CGIC) to positive from stable, and has affirmed its long-term “BBB-” counterparty credit and financial strength ratings.

“The financial strength rating on CGIC reflects the insurance company’s position as one of Canada’s larger property and casualty (P/C) insurers, and its strong capitalization, asset quality, and liquidity,” commented S&P credit analyst Donald Chu. “The company’s much improved operating performance is attributed to the general improvement within the sector, and the internal changes brought about by the CEO and executive team that took over the company’s management in 2001.”

S&P said it views CGIC “as a core subsidiary of The Co-operators Group Ltd. The challenges facing the company include the cyclical nature of this sector’s operating performance, a very competitive business environment, the commodity-like nature of CGIC’s products, and the consolidation occurring in the insurance and financial services industry.”

The rating agency noted that “CGIC is the third-largest P/C insurance company in Canada, with a market share position of about 6 percent based on gross written premiums of C$2.0 billion [U.S.$1.55 billion] during 2003. The company provides automobile, home, farm, and commercial insurance to individuals and small and midsize commercial clients.”

S&P said “the ratings reflect CGIC’s significantly improved operating performance for 2004 (as of June 30) and 2003 compared with previous years,” which S&P expects to continue. “CGIC’s investment portfolio, which is primarily fixed income, is strong when measured by quality and diversification,” the report continued.” S&P also noted that “CGIC’s liquidity profile as strong; liquid assets represent about 70 percent of the company’s investment portfolio and include C$1.7 billion [U.S.$1.31 billion] as of June 2004) in federal, provincial, and municipal bonds; publicly traded corporate bonds (rated ‘A’ or better); and cash and short-term investments.

“Standard & Poor’s believes CGIC’s total shareholder equity base of C$740 million [U.S.$572 million] (as of June 30, 2004) to be satisfactory and appropriate for its business mix and ratings level. About 20 percent of the company’s equity base is made up of preferred stock. CGIC is under no pressure to declare any dividends to its stakeholders, who are primarily from within the co-operative sector, therefore internally generated cash can be used to fund growth and strategic initiatives. The positive outlook on CGIC reflects the continued improvement in the company’s operating performance. Although the low-interest rate environment and volatile equity markets will continue to put downward pressure on investment returns, if CGIC’s operating performance continues to show positive results, a favorable change to the company’s ratings could result.”