A.M. Best Affirms Ratings of RBC Insurance Groups Members

OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has affirmed the financial strength ratings of A (Excellent) and issuer credit ratings of “a” of the life/health members of RBC Insurance Group (RBC Insurance): RBC Life Insurance Company (RBC Life) (Mississauga, Ontario) and the U.S. life insurance entity, Liberty Life Insurance Company (Liberty Life) (Greenville, SC). The outlook for all ratings is stable.

RBC Life’s ratings reflect its strong risk-adjusted capitalization, generally increasing premium trends, as well as the overall strength and stability of RBC Insurance. RBC Life is the Canadian life insurance operation of RBC Insurance, a division of Royal Bank of Canada (RBC) (TSX and NYSE: RY). RBC Life maintains a significant position in the individual living benefits and group long-term disability insurance markets, where it is among the industry leaders. In addition, RBC Life has focused on growing its individual life segments, primarily through the sale of universal and term life. This growth has been accomplished while the company has maintained a favorable risk-adjusted capital position.

Partially offsetting these positive rating factors are the challenges associated with RBC Life achieving greater market share in the Canadian individual life arena, fluctuating earnings in the group and individual accident and sickness markets. This is due to the strengthening of morbidity assumptions and cyclical claims experience. Furthermore, RBC Life maintains a modest position in the wealth management market through its general account annuities and segregated funds. RBC Life also has generated regular losses in its individual life line, with the exception of its 2008 results. Earnings have been impacted by the front ended costs related to new sales growth (strain) and the continued low interest rate environment with improvements attributed to new product enhancements. In addition, new premium and earnings growth may be challenged by the downturn in the Canadian economy. However, A.M. Best expects RBC to continue to support RBC Life’s growth initiatives, if needed, as it has demonstrated in the past.

The ratings of Liberty Life recognize its good capitalization, profitable operating results and ultimate ownership by RBC Insurance. Liberty Life continues to benefit from its affiliation with RBC including distribution opportunities afforded by other RBC companies in the United States that provide investment, mortgage and banking services. Liberty Life has received capital support when needed to fund growth, and this was demonstrated in May 2009 when the company received $20 million from RBC.

Partially offsetting these positive rating factors is Liberty Life’s modest business profile, as evidenced by declining net premiums from the in-force block of life business and continuing challenges in increasing its market position in the fixed and indexed annuity segments. The limited growth trend puts Liberty Life at a disadvantage relative to larger competitors, which have the cost benefits of scale. However, the company recorded new premium growth through first quarter 2009, driven by strong sales of fixed annuity products. Liberty Life also maintains a large exposure to mortgage-backed securities, which accounts for approximately half of its fixed income portfolio, as well as a large allocation to commercial mortgage loans. As a result, Liberty Life will need to manage interest rate and disintermediation risk prudently given the significant level of interest-sensitive liabilities within its business. Liberty Life also has recorded a downward trend in capitalization, including the impact of realized losses and impairments in recent periods.

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.

A.M. Best Co.
Analysts
Kenneth Monahan, 908-439-2200, ext. 5342
kenneth.monahan@ambest.com
or
Richard McMillan, 908-439-2200, ext. 5615
richard.mcmillan@ambest.com
or
Public Relations
Jim Peavy, 908-439-2200, ext. 5644
james.peavy@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
rachelle.morrow@ambest.com