NU Online News Service, June 1, 2:54 p.m. EDT

Paris, France-based AXA says it will sell its Canadian property and casualty and life and savings insurance operations to Toronto-based Intact Financial Corp. for CAD 2.6 billion ($2.7 billion at the current exchange rate).

Henri de Castries, chairman and CEO of AXA, says in a statement, “The sale of our Canadian operations comes after several similar transactions and represents a further step in our strategy of redeploying capital toward geographies with higher long-term growth prospects.”

Moody’s Investors Service says it is placing Intact’s Aa3 insurance financial strength rating under review for possible downgrade due to the acquisition’s funding structure.

Alan Murray, senior credit officer at Moody's, says the transaction will “enhance Intact’s business profile by expanding and diversifying its Canadian [P&C] operations. As a result of the acquisition, Intact will increase its market share significantly in Quebec and Atlantic Canada and reduce its relative exposure to Ontario auto insurance.”

But Murray adds these advantages “will be more than offset by the decrease in financial flexibility given the proposed funding structure.”

Will Burn, a Toronto-based financial institutions analyst for Moody's, says: “Intact will fund the acquisition through an underwritten equity issue with net proceeds of $800 million (which may increase if underwriters exercise the overallotment option), the sale of approximately $500 million of investments and $1.3 billion of senior unsecured bank loans. The new bank loans are expected to be partly repaid through the issuance of medium-term notes and preferred shares.”

Moody’s says pro-forma adjusted leverage at the time of closing is expected to be in the low-to-mid 30 percent range, compared to approximately 23 percent currently, “reflecting the significant use of internal resources and new debt to finance the acquisition.”

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AXA To Sell Canadian P&C Business To Intact; Moody&rsquo;s Comments

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