The Empire Life Insurance Company has announced that it has completed its first issue of preferred shares listed on the Toronto Stock Exchange to raise gross proceeds of $130 million. The 5.2 million Series 1 Preferred Shares priced at $25 per share began trading today under the ticker symbol EML.PR.A.

The offering was underwritten on a bought deal basis by a syndicate of underwriters co-led by Scotia Capital Inc., CIBC World Markets Inc. and TD Securities Inc. The Series 1 Preferred Shares were issued under a short form prospectus dated Feb. 5, 2016.

Broader access to capital

Mark Sylvia, president and CEO of Empire Life, told The Insurance and Investment Journal that the company became a public issuer to gain broader access to capital markets than it previously had when it only used corporate debt.

Building on its solid capital base is important to Empire Life, said Sylvia. He says that the company monitors its regulatory capital requirements (MCCSR) ratio closely. Empire Life’s most recently reported MCCSR ratio at Sept. 30, 2015 was 202%.

Debt and equity

“Like most insurers we have a range we like to operate within. If you achieve consistent growth as we have at Empire it puts downward pressure on the MCCSR ratio. Financial institutions in Canada normally use a combination of debt and equity to manage within their desired capital range. Corporate debt and Preferred Shares are the instruments most frequently used to help fund growth. In our case we have previously used corporate debt but had not used Preferred Shares.”

“We also wanted to take advantage of the regulators classification of Preferred Shares as tier 1 capital,” says Sylvia. “This is important as the ratio of tier 1 to tier 2 capital is also something we like to keep within a targeted range.”   

No additional offerings planned

He added, “Our new capital levels are now in line with the other large insurers in terms of our combination of equity, debt and preferred shares, which was one of our objectives.”

At this time, Empire Life does not have any additional public offerings planned, Sylvia says.

Empire Life is a subsidiary of E-L Financial Corporation Limited. As of Sept. 30, 2015, Empire Life had total assets under management of $14.2 billion. 

BBB rating

A.M. Best has assigned an issue rating of “bbb” to Empire Life’s Series 1 preferred shares. The outlook assigned to the rating is stable. “The Series 1 preferred shares’ initial dividend rate is set at 5.75%, payable quarterly until April 17, 2021. Subsequent to this initial period, and every five years after, Empire Life will determine on the 30th day prior to the first day of the subsequent fixed rate period the annual fixed dividend based upon the five-year Canadian bond yield,” notes A.M. Best.

The ratings agency adds, “Empire Life’s overall financial leverage is expected to remain below 30%, while interest coverage is expected to remain above five times. Both measures are within A.M. Best’s guidelines for Empire Life’s current rating level.”

The ratings agency recognizes “Empire Life’s continued earnings growth and sustainable market presence in Canada with multiple lines of business.” However, it underlines that it will continue to monitor the company, “which has been challenged due to sustained low interest rates and recent equity market volatility given its large segregated fund  block of business.”