DBRS Confirms Ratings of The Equitable Life Insurance Company of Canada; Trends Remain Stable
Insurance OrganizationsDBRS Limited (DBRS) confirmed the Financial Strength Rating and the Issuer Rating of The Equitable Life Insurance Company of Canada (Equitable Life or the Company) at “A.” All trends remain Stable.
KEY RATING CONSIDERATIONS
The confirmed 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 good risk profile. Equitable Life has continued to make significant investments in process improvement and technological enhancement to create efficiencies and reduce costs. The Company has maintained a strong market presence in the majority of its chosen niche demographic market segments.
RATING DRIVERS
The Stable trend considers Equitable Life’s resilient fundamentals and the Company’s ability to adapt to the current business environment. DBRS views Equitable Life as well-placed in its current rating category. Positive ratings pressure could emerge if there is a significant improvement in market position while maintaining a sound financial profile.
Negative ratings pressure could arise due to a loss of a major distributor resulting in a significant decline in market share, or a sustained deterioration of earnings in the main business lines, especially the individual life insurance business.
RATING RATIONALE
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’s mutual status allows it to focus more on serving its policyholders and generating strong returns. Equitable Life has a large traditional participating life insurance block, which provides support for long-term financial stability. The Company’s strengths lie in its effective risk management, strong regulatory capital ratios supported by stable earnings and excellent liquidity. Equitable Life ranks tenth in Canada for total premiums written within the life insurance industry (2017), with a 1.5% market share. The Company has significant market share in the small- to middle-market segment of its major lines of business: Individual Life and Health insurance, Group Benefits and Savings and Retirement. Equitable Life is now expanding its business to serve clients with high net worth. The Company does not maintain a permanent sales force; hence, product distribution is done through the independent broker and managing general agent (MGA) channels. 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.
The confirmation of Equitable Life’s ratings, with a Stable trend reflects the Company’s consistent and stable earnings generation capacity, which has shown resiliency with good return on participating policyholder equity results (16.8% for FY2017). Equitable Life has eliminated all its debt as at Q1 2018 so leverage is now nil. 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 significant 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 products, as well as wealth products targeting the middle, and high-income Canadian market. Equitable Life has demonstrated expertise in developing and enhancing its digital capabilities to serve both clients and advisors. The Company is focused on expanding its range of products and services, increasing process efficiencies throughout the organization and reducing operating expenses. Equitable Life has set an earnings target consistent with a 12% return on policyholder’s equity.
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 on the issuer page at www.dbrs.com.
The principal methodology is the Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations (January 2018), which can be found on our website under Methodologies.
Lead Analyst: Victor Adesanya, Vice President, Insurance
Rating Committee Chair: Roger Lister, Managing Director, Chief Credit Officer
The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
For more information on this credit or on this industry, visit www.dbrs.com.