- Removes pension exposure on Intact's balance sheet by fully
insuring its UK defined benefit pension liabilities with
PIC
- Maintains the security of benefits to RSA UK pension scheme members
- Eliminates annual £75 million funding contribution and
releases approximately £150 million of capital
- Intact to make contribution of approximately £500 million,
using excess capital, debt, hybrid capital and/or preferred shares
to complete the buy-in
- Expected to improve Operating Return on Equity
(OROE)1 by approximately 100 bps, with single-digit
dilution to Book Value Per Share (BVPS)
TORONTO, Feb. 27,
2023 /CNW/ - Intact Financial Corporation (TSX:
IFC) (Intact, IFC or the Company) today announced that the RSA UK
Pension Trustees have entered into an agreement with Pension
Insurance Corporation plc (PIC) for Bulk Purchase Annuities (or
"buy-ins") with respect to £6.5 billion of RSA UK pension plan liabilities. The buy-ins
fully insure the defined benefit liabilities of the Royal Insurance
Group Pension Scheme and the Sal Pension Scheme (the "Pension
Schemes") to PIC, a specialist insurer of defined benefit pension
schemes.
"The current market environment provides an excellent
opportunity to remove UK pension exposure on IFC's balance sheet,"
said Louis Marcotte, Executive Vice
President and Chief Financial Officer, Intact Financial
Corporation. "This transaction represents a cost-effective
de-risking, with the upfront payment approximately equal to the
remaining annual funding contributions and the capital released.
Meanwhile, the key metrics related to our RSA acquisition continue
to be very strong, and the buy-ins strengthen our ability to pursue
growth opportunities."
Strategic rationale
The transaction fulfills several strategic objectives:
- Transfers substantially all remaining economic and demographic
risks associated with the Pension Schemes to a strong and
specialized insurance counterparty, removing balance sheet exposure
to pension risks that are non-core to Intact's business.
- Supports Intact's ROE1 outperformance
objective by improving capital efficiency.
- Eliminates Intact's obligation to contribute £75 million per
year to the schemes and releases approximately £150 million of
capital, which in aggregate are approximately equal to the upfront
contribution.
- Enhances the Company's ability to capture future strategic
opportunities as Intact would not be constrained by the
responsibility of managing £6.5 billion of pension liabilities. In
part, this entails the removal of substantially all future funding
needs and capital requirements related to the Pension Schemes.
Transaction financing
IFC will facilitate this transaction through an upfront
contribution to the Pension Schemes of approximately £500
million.
- The transaction is expected to be funded using approximately
$300 million of excess capital,
$300 million of hybrid capital and/or
preferred share issuance, as well as short term debt.
Financial impact
- Intact expects that net operating income per share ("NOIPS")
1 will decrease by approximately 1.5% in the
first full year after closing due to the financing costs associated
with the transaction.
- The transaction will temporarily increase the tax on
non-operating income as the deductibility of the upfront
contribution will be spread out over three years. This results in
deferred tax assets being reclassified to Other Comprehensive
Income from non-operating income, with a neutral net impact on
shareholders' equity.
- BVPS is expected to decrease by approximately 5% from
December 31, 2022. This reflects the
payment of the upfront contribution, as well as the derecognition
of the approximately £200 million accounting surplus related to the
Pension Schemes, partially offset by the favourable adjustment
resulting from the adoption of the IFRS 17 accounting standard on
January 1, 2023.
- The transaction is expected to increase IFC's
OROE1 by approximately 100 bps in the first full
year after closing. This reflects the release of capital held
against pension risk and the elimination of the pension surplus,
which were dilutive to OROE1.
- Capital ratios in all jurisdictions will remain in line with
our target operating levels, and well above regulatory
requirements.
- The adjusted debt-to-total capital ratio is expected to
increase by less than 2 points to under 23% at the end of Q1 2023,
and return to pre-transaction levels by year-end 2023. Intact does
not expect that its external credit ratings will be impacted.
- All key performance metrics related to the RSA acquisition are
expected to remain consistent with guidance, including internal
rate of return (IRR) above 20%, NOIPS1 accretion of
approximately 20%, and at least $350
million of pre-tax annual run-rate synergies by 2024.
- Due to certain regulatory restrictions, approximately £0.6
billion of the Pension Schemes' assets will be liquidated over the
next 12-18 months and the proceeds transferred to PIC. Intact does
not expect to have any additional financing requirements in
relation to this transfer. As such, the earnings impact of this
deferred payment is expected to be immaterial.
Intact were advised on the transaction by Lane Clark and Peacock (LCP) and Slaughter and
May.
For more details on this transaction, please visit the Events
and Presentations section of the Intact Financial Corporation
website.
__________________________
|
1 This
measure is a non-GAAP ratio, which does not have a standardized
meaning prescribed by IFRS and may not be comparable to similar
measures used by other companies in our industry. For historical
information about these measures, please see Section 36 – Non-GAAP
and other financial measures in our Management's Discussion and
Analysis for the year ended December 31, 2022 which is available on
our web site at www.intactfc.com or on SEDAR at
www.sedar.com.
|
|
About Intact Financial
Corporation
Intact Financial Corporation (TSX: IFC) is the largest provider
of property and casualty (P&C) insurance in Canada, a leading provider of global specialty
insurance, and, with RSA, a leader in the U.K. and Ireland. Our business has grown organically
and through acquisitions to over $21
billion of total annual premiums.
In Canada, Intact distributes
insurance under the Intact Insurance brand through a wide network
of brokers, including its wholly-owned subsidiary BrokerLink, and
directly to consumers through belairdirect. Intact also provides
affinity insurance solutions through the Johnson Affinity
Groups.
In the US, Intact Insurance Specialty Solutions provides a range
of specialty insurance products and services through independent
agencies, regional and national brokers, and wholesalers and
managing general agencies.
Outside of North America, the
Company provides personal, commercial and specialty insurance
solutions across the U.K., Ireland, and Europe through the RSA brands.
About PIC
The purpose of PIC is to pay the pensions of its current and
future policyholders. PIC provides secure retirement incomes
through comprehensive risk management and excellence in asset and
liability management, as well as exceptional customer service. At
30 June 2022, PIC had insured 293,400
pension scheme members and had £44.1 billion in financial
investments, accumulated through the provision of tailored pension
insurance buyouts and buy-ins to the trustees and sponsors of UK
defined benefit pension schemes. To date, PIC has made total
pension payments of almost £9 billion to its policyholders. Clients
include FTSE 100 companies, multinationals and the public sector.
PIC is authorised by the Prudential Regulation Authority and
regulated by the Financial Conduct Authority and Prudential
Regulation Authority (FRN 454345). For further information please
visit www.pensioncorporation.com.
Forward-Looking
Statements
Certain statements made in this press release are
forward-looking statements. These statements include, without
limitation: statements relating to the anticipated benefits and
other impacts of the transaction, the sources of funding for the
upfront contribution, and the anticipated effect on OROE, BVPS,
NOIPS, debt-to-total capital ratio, IRR and pre-tax annual run-rate
synergies. All such forward-looking statements are made pursuant to
the 'safe harbour' provisions of applicable Canadian securities
laws.
Forward-looking statements are based on estimates and
assumptions made by management based on management's experience and
perception of historical trends, current conditions and expected
future developments, as well as other factors that management
believes are appropriate in the circumstances. Many factors could
cause the Company's actual results, performance or achievements or
future events or developments to differ materially from those
expressed or implied by the forward-looking statements. In the case
of estimated claims and losses, due to the preliminary nature of
the information available to prepare estimates, future estimates
and the actual amount and categorization of claims and losses
associated with events described above may be materially different
from current estimates.
All of the forward-looking statements included in this press
release are qualified by these cautionary statements and those made
in the "Risk Management" sections of our 2022 Management's
Discussion and Analysis (Sections 30-34), in Notes 10 and 13 of our
Consolidated Financial Statements for the year ended December 31, 2022 and in our Annual Information
Form dated February 7, 2023, all of
which are available on our web site at www.intactfc.com or on SEDAR
at www.sedar.com. The buy-in transaction is also subject to certain
risks including that the benefits of the transaction may fail to
materialize as anticipated. This may adversely impact the financial
performance of Intact. These factors are not intended to represent
a complete list of the factors that could affect the Company. These
factors should, however, be considered carefully. Although the
forward-looking statements are based upon what management believes
to be reasonable assumptions, the Company cannot assure investors
that actual results will be consistent with these forward-looking
statements. When relying on forward-looking statements to make
decisions, investors should ensure the preceding information is
carefully considered. Undue reliance should not be placed on
forward-looking statements made in this press release. The Company
has no intention and undertakes no obligation to update or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise, except as required by
law.
SOURCE Intact Financial Corporation