A.M. Best Co. has affirmed the financial strength rating of A (Excellent) and issuer credit rating of “a” of RBC Life Insurance Company (RBC Life) (Mississauga, Ontario). The outlook for both ratings is stable.
RBC Life’s ratings reflect its adequate risk-adjusted capitalization, increase in net gains from operations, as well as the strong brand recognition of the Royal Bank of Canada (RBC) [TSX and NYSE: RY] name in the Canadian market. RBC Life operates as the Canadian life insurance operation of its parent, RBC under RBC Insurance, a division of RBC.
RBC Life maintains a significant market position in Canada in the individual living benefits and group long-term disability insurance markets. RBC Life also has maintained a focus on organically growing its individual life segment through enhanced product features on its term life insurance products. Earnings for RBC Life improved in 2012 as morbidity in the individual and group accident and sickness lines of business were more favorable than previous years. A.M. Best expects RBC to continue to support RBC Life’s growth initiatives, if needed, as it has demonstrated in the past.
Partially offsetting these positive rating factors are the challenges RBC Life faces while positioning itself to increase market share in the Canadian individual life insurance marketplace, as well as the continuing intense competition in the group and individual accident and sickness markets. RBC Life also has generated inconsistent results in its individual life line over the last several years, which has been impacted by the new business costs related to new sales growth and the continued low interest rate environment. A.M. Best also notes that RBC Life maintains a modest position in the wealth management market through its general account annuities and segregated funds.A.M. Best believes RBC Life’s ratings are well positioned at the current level for the near to medium term. Key factors that could result in negative rating actions include a significant and sustained decline in RBC Life’s risk-adjusted capitalization, large investment losses or operating performance on the individual and group accident and sickness lines that does not meet A.M. Best’s expectations over a sustained period.