February 24, 2016 by Canadian Underwriter
The Royal Bank of Canada reported Wednesday its net earned premiums in insurance dropped 2.8%, from $902 million during the three months ending Jan. 31, 2015 to $876 million in the most recent quarter.
In its financial results for investors, Toronto-based RBC – whose coverages include home, auto, health, travel, wealth, group and reinsurance – did not report its premiums earned from property & casualty insurance. RBC writes P&C insurance through RBC General Insurance, which it has agreed to sell to Aviva Canada Inc.
Total insurance revenue for the bank dropped 39%, from $1.892 billion during the three months ending Jan. 31, 2015, to $1.159 billion during the same period a year later. That revenue includes premiums, investment and fee income. RBC – whose fiscal year runs from Nov. 1 through Oct. 31 – reported net income of $2.447 billion on revenue of $9.359 billion in the latest quarter.
Canada’s largest bank by revenue, RBC announced Jan. 21 the sale of its general insurance unit to Aviva. The deal, valued at $582 million, is subject to regulatory approval and other closing conditions. Once the sale is complete, it will leave Toronto Dominion Bank as the only Big 5 Canadian bank that writes home and auto insurance. The Bank of Nova Scotia and the Canadian Imperial Bank of Commerce sell home and auto coverage underwritten by insurers owned by Desjardins Group. The Bank of Montreal does not sell either home or auto.
In its financial release Feb. 24, RBC attributed its drop in Q1 insurance revenue “mainly due to the change in fair value of investments backing our policyholder liabilities and a reduction in revenue related to our retrocession contracts, both of which were largely offset in” policyholder benefits, claims and acquisition expenses. Those factors, RCBC stated, “were partially offset by business growth in Canadian Insurance.”
RBC reported insurance revenues of $747 million from Canadian insurance and $412 million from international insurance during the latest quarter. Outside Canada, RBC writes life, accident and annuity reinsurance.
Net income in insurance dropped 42%, from $225 million during the quarter ending Jan. 31, 2015 to $131 million in the same period this year.
“Insurance results decreased mainly reflecting higher claims costs, primarily in our life retrocession business, and lower earnings this quarter from a new U.K. annuity contract as compared to two new contracts last year,” RBC noted.
In Canada, RBC sells insurance through its retail insurance branches, field sales representatives, advice centres and online, as well as through independent advisors and affinity relationships.
With its acquisition of RBC General Insurance Company, Aviva will gain “certain home and auto insurance manufacturing capabilities including claims, underwriting and product development,” the companies stated Jan. 21. A 15-year partnership with Aviva “will allow us to maintain our deep client relationships, while offering a full suite of property and casualty insurance products,” Neil Skelding, President and CEO of RBC Insurance, stated in a release at the time.
About 575 RBC employees will become Aviva employees.
Canada’s Bank Act stipulates there are eight “authorized” types of insurance that banks are allowed to sell are: credit or charge card-related; creditors’ disability; creditors’ life; creditors’ loss of employment; creditors’ vehicle inventory; export credit; mortgage; and travel. Other insurance – such as property and auto – cannot be sold through bank branches.
Banks have also been prohibited from providing access, from their web pages, to other web pages through which insurance other than the eight “authorized” types are sold.