DBRS Assigns Ratings to The Equitable Life Insurance Company of Canada

DBRS Limited (DBRS) assigned a Financial Strength Rating of “A” and an Issuer Rating of “A” to The Equitable Life Insurance Company of Canada (Equitable Life or the Company). All trends are Stable.

The assigned ratings result from the application of DBRS’s “Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations.” In DBRS’s view, the Company has a good franchise and an excellent risk profile. It has made significant investments in technology to create efficiencies and reduce costs, and it has a strong market presence in the majority of its chosen niche demographic market segments.

Equitable Life is a mid-sized life insurance organization with significant protection and wealth management operations in Canada, as well as a small branch in Bermuda. The Company has a large traditional participating insurance block, which provides support for long-term financial stability. Equitable Life ranks 11th in Canada for total premiums written within the life insurance industry, with a 1.4% market share (2016), but it also has significant market share in the middle-market segment of its major lines of business: Individual Life and Health insurance, Group Benefits and Savings and Retirement. The Company does not maintain a permanent sales force; hence, product distribution is done through the independent broker and managing general agent (MGA) channel. Brand visibility is challenging, partly because of Equitable Life’s distribution model, as it has to rely on the MGAs for shelf space, product marketing and the creation of customer awareness.

Factored into the ratings is Equitable Life’s good earnings ability, which has shown resiliency with good return on policyholder equity results (14.9% for FY2016), a financial leverage ratio of 2.8% as at YE2016 (a ratio that has been on a steady decline over the past five years) and a high fixed-charge coverage ratio. The Company has been historically profitable, which has helped maintain strong capitalization levels.

Equitable Life has a clearly defined business strategy, conservative management and a large participating life insurance block that supports capital levels. The Company’s long-term strategy involves achieving organic growth by selling both traditional and new insurance, as well as wealth products targeting the middle-income Canadian market. Equitable Life has demonstrated expertise in developing digital capabilities to serve both advisors and clients. The Company is focused on increasing process efficiencies throughout the organization and reducing operating expenses.

RATING DRIVERS
The Stable trends consider Equitable Life’s resilient fundamentals and the Company’s ability to adapt to the current business environment. If the Company’s fundamentals weaken because of a sustained erosion of earnings, or if it is unable to maintain sufficient regulatory capital to endure a severe equity market decline, the ratings could be negatively pressured. Ratings may also be negatively pressured if the Company loses significant market position or experiences distribution losses. Positive rating pressure could arise if Equitable Life achieves a significant improvement in market position accompanied by reduced exposure to interest rate and equity market movements, as well as a sustained improvement in profitability. The Company is exposed to distribution risk because of its reliance on the independent broker channel for marketing and sales; as a result, a loss of a major distributor may apply downward pressure on the Company’s ratings.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

The principal methodology is the Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations (December 2016), which can be found on our website under Methodologies.

Lead Analyst: Stewart McIlwraith, Senior Vice President, Head of Insurance
Rating Committee Chair: Roger Lister, Managing Director, Chief Credit Officer

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.