Standard & Poor’s Ratings Services has affirmed its ratings on Toronto-based insurer Transamerica Life Canada, with a stable outlook.

The insurer financial strength rating on TLC reflects the strength of the company’s existing franchise in its two core businesses (individual life insurance and segregated funds), strong asset quality and capital position, and extremely strong liquidity, S&P says. TLC’s competitive advantages include its low unit cost infrastructure and strong underwriting discipline, which has resulted in favorable mortality experience, S&P said Wednesday.

The overall ratings on TLC continue to reflect the strategic importance of the insurer to the AEGON group of companies, it adds. On a stand-alone basis, the ratings on TLC would be lower, it says.

“The ratings also reflect the very high amount of segregated funds with in-the-money guarantees that the company has relative to its peer group,” S&P said. “The recent improvement in the global equity markets has reduced this exposure; however the bulk of the company’s equity and foreign exchange exposure remains unhedged.”

Also, S&P notes the company has decreased its Canadian regulatory capital to 187% in December 2004, from 204% in December 2003; increased use of preferred shares within its regulatory capital base; and has a relatively high single-name concentration within its investment portfolio. “The mature and competitive environment of the Canadian individual life insurance and retirement savings markets continues to place pressure on the industry’s asset growth and margins,” it noted.

The rating agency reports that during 2004, TLC maintained a No. 2 market share position in UL with 13.2% of new sales, and held a No. 3 market share position in term insurance with 10.3% of new sales. “Its life products appear to be appropriately priced against those of its competitors,” it says. “On the investment side, sales of the company’s proprietary segregated fund rose substantially in 2004 from the previous year. Nevertheless, these new sales are significantly lower than the market peak in 2000, reflecting overall market conditions for these products as well as a lower risk inherent in TLC’s current product design relative to market peers.”

“TLC’s investment portfolio is strong when measured by quality and long-term returns, but the investment portfolio has an element of single-name concentrations, reflecting the Canadian marketplace. The bulk of the invested assets are in high-grade corporate and government bonds,” it says.

Asset and liability management is strong in terms of management information and control systems, it said.

“The stable outlook reflects Standard & Poor’s view that management continues to make progress in addressing the company’s segregated fund risk issues and the associated concentration and volatility of this business line,” it says. “The current rating takes into consideration a moderate level of volatility in the global equity market, and the company’s target regulatory capital ratios. It remains our expectation that TLC will maintain a Standard & Poor’s Canadian capital adequacy ratio of 135% or higher, and strong operating performance, and will continue to take steps to manage its segregated fund risk.”