Best Affirms ‘A’ Ratings of Royal Bank of Canada Insurance Co.

A.M. Best Co. announced that it has affirmed the financial strength rating of “A” (Excellent) and the issuer credit rating of “a+” of Royal Bank of Canada Insurance Company Ltd. (RBCI), which operates from St. Michael, Barbados. The outlook for both ratings is stable.

“These ratings reflect RBCI’s prudent capitalization, a trend of excellent underwriting and operating performance, a sound investment portfolio and a favorable liquidity position,” said Best. “These ratings also consider the stability, expertise and synergies the company receives from its ultimate parent, Royal Bank of Canada (RBC).”

Then bulletin noted: “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. As the largest bank in Canada, 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.”

Best indicated, however, that the “decline in earnings experienced in 2005, low returns generated on the investment portfolio and the challenges related to catastrophic risk management in the credit and financial and property reinsurance portfolios,” constitute partially offsetting factors. “Earnings for 2005, while positive, experienced a severe drop caused by property claims on losses caused by three significant hurricanes that year. In addition, the low interest rate environment has limited RBCI’s investment yield, thus pressuring overall returns. In view of the negative earnings impact of the 2005 events, the company has increased the amount of retroceded property risk going forward.”