Aug 3, 2012, 1:45pm

A.M. Best Co. has affirmed the financial strength rating of A (Excellent) and issuer credit rating of “a+” of Royal Bank of Canada Insurance Company Ltd. (RBCICL) (Barbados). The outlook for both ratings is stable.

RBCICL is a reinsurer that is ultimately owned by Royal Bank of Canada (Toronto, Ontario), one of the largest full service banks in Canada measured by assets. RBCICL primarily reinsures life/health insurance risks from unaffiliated international reinsurers, as well as credit reinsurance risks from European reinsurers. In recent years, RBCICL has added other lines of business with the purpose of diversifying its risk profile, and the company participates as a treaty partner in life retrocession pools, trade credit pools and annuity longevity reinsurance.

The rating affirmations reflect RBCICL’s diversified operating profile, solid capitalization and strong liquidity, which continues to support its business model and high quality investment portfolio. RBCICL’s investment portfolio is composed of high quality sovereign, corporate and supranational bonds of short duration, further enhancing the company’s already strong liquidity profile.

While recognizing the solid market position of Royal Bank of Canada as well as RBCICL’s consistency of net written premiums, A.M. Best notes that premium growth depends upon the rate of new loan originations. Any potential decrease in consumer loan activity in Canada could adversely impact the credit insurance market.

Additionally, a further decline in economic conditions in Europe could negatively impact RBCICL’s overall operating profile. The ratings also consider the challenges RBCICL faces in balancing a high level of capitalization required to support its business with alternative uses of capital at the parent company level and the potential for longevity risk in excess of pricing parameters within its annuity reinsurance business.

RBCICL is considered well positioned at its current rating level. Positive rating actions are unlikely in the near or intermediate term. Factors that may cause negative rating actions include significant adverse changes in RBCICL’s business model, operating performance or capitalization.

The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at http://www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

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