RBCI gets ‘A’ rating (May 11, 2006)

Royal Bank of Canada Insurance Company Ltd. (RBCI) has received a financial strength rating of A (Excellent) and the issuer credit rating of “a+” from A.M. Best Co.
The rating’s agency reports that these ratings, which have stable outlooks, reflect RBCI’s capitalization, as well as its underwriting and operating performance. A.M. Best also notes that RBCI presents a sound investment portfolio and a favorable liquidity position.
In rating RBCI, A.M. Best also considered the stability, expertise and synergies received from RBCI’s parent company Royal Bank of Canada (RBC).
“RBCI benefits from a very secure equity capital base and broad geographical spread of risk, which complements its diverse product mix, as its book of business includes reinsurance and retrocession for life, property and credit and financial business,” A.M. Best reports. “RBC has been the source of a stable volume of credit reinsurance business, and liquidity is enhanced by the high quality of a prudently managed invested asset portfolio.”
Partially offsetting these rating strengths, however, is the decline in earnings experienced in 2005. Additional factors include low returns generated on the investment portfolio and challenges related to catastrophic risk management in the credit and financial and property reinsurance portfolios.
A.M. Best reports that while RBCI’s earnings for 2005 where positive, they did experience a severe drop caused by property claims on losses caused by three significant hurricanes that year.
In addition, A.M. Best says the low interest rate environment has limited RBCI’s investment yield, thus pressuring overall returns. However, the agency says that in light of the negative earnings impact of the 2005 events, the company has increased the amount of retroceded property risk going forward.