U.S.-based insurance rating agency A.M. Best Co. has affirmed the financial strength rating of “A” (excellent) and assigned an issuer credit rating of “A” to RBC Life Insurance Co.

In addition, A.M. Best has affirmed the FSR of “A” and assigned ICRs of “a” to RBC Insurance’s U.S. life insurance entities, Liberty Life Insurance Co. and its subsidiary, Business Men’s Assurance Co. of America. All ratings have a stable outlook.

RBC Life’s ratings reflect its adequate capitalization, stable earnings and leading position in the Canadian disability market. RBC Life is the Canadian life insurance operation of RBC Insurance, a subsidiary of Royal Bank of Canada, which has demonstrated its commitment to the insurance business through a series of capital contributions, including the funding of RBC Life’s acquisition of the Canadian branch operations of Provident Life and Accident Insurance Company. This acquisition significantly increased RBC Life’s position in the individual living benefits and group long-term disability insurance markets, where they are among the industry leaders.

Partially offsetting these strengths are the challenges associated with achieving greater market share in the Canadian individual life arena and competition in the group and individual accident and sickness market. Although RBC Life maintains adequate capitalization for its current insurance and investment risks, A.M. Best does not expect current risk-adjusted capitalization levels to strengthen in the future.

The ratings of Liberty Life and its subsidiary, BMA, reflect their adequate capitalization and ultimate ownership by RBC Insurance. Liberty Life’s historical profitability has been generated from its in-force block of ordinary life business contributing to the company’s adequate capitalization.

Although capitalization is adequate, this capital includes a surplus note of $57 million, which is to be repaid to its parent. Liberty Life has also significantly increased the dividend payment to RBC Insurance, leading to modest increases in capital. While BMA has recorded higher fixed annuity sales, Liberty Life’s direct life premiums have been declining with lapse ratios higher than the industry, and a business concentration that exists in the southern United States. A.M. Best believes that Liberty Life will need to manage its consolidated capitalization prudently given its growth plans.