DBRS today changed the trend of its issuer rating for ING Canada Inc. to Positive from Stable.

“The action is based on the strong market position of ING in the fragmented but consolidating Canadian property and casualty insurance industry, its consistently superior financial performance and a reassessment of the ING Groep NV ownership and brand name in fixing the rating,” the rating agency explains.

“Through both organic growth and acquisitions, the company has achieved critical scale, which only enhances its strengths in underwriting and pricing, claims and expense management, and investment management. These strengths are complemented by the company’s multi-channel distribution strategy and customer-centric focus, which puts the company at the forefront of new product innovation,” it adds.

DBRS notes that the company has a target of earning a ROE 500 bps greater than the industry average (ten-year average from 1997 to 2006 of 18.4% versus 10.2%) and an organic written premium growth rate target that is 300 bps greater than the industry. “Given its strong market position (an 11.0% market share), its past performance and its scale advantages, DBRS believes that the company’s objectives are achievable,” it says.

“While it remains exposed to the traditional insurance pricing cycle, the company’s underwriting capabilities, product diversification and superior investment performance should permit the company to outperform through the worst of the insurance cycle,” DBRS notes.

DBRS also acknowledges that the support implied by the Groep’s 70% interest as well as the ING brand are significant strengths of the company. It says that the Groep continues to set the standards for the company’s activities in areas such as financial control, economic capital allocation, accounting and reporting standards, risk management and audit.

“Because property and casualty insurance is not a core focus for the Groep, it could possibly reduce its interest in the company to finance more strategic acquisitions,” it notes. “In the meantime, it is happy to be a major shareholder in a very profitable subsidiary.” That said, the company is expected to remain a strong competitor, regardless of ownership, DBRS says.

“The company has no debt at present, as it wishes to preserve its debt capacity for a major acquisition as part of the continuing consolidation of the Canadian industry, where the company has played a major role in the past. Long term, ING has targeted a 20% debt-to-capital ratio which, with excess insurance company capital and cash at the holding company, would permit the company to make a $1.4 billion acquisition. However, given the profitability of the industry over the last few years, sellers of insurance assets remain scarce,” it concludes.