DBRS Comments on Bancassurance Strategic Alliance between BNS and BNP Paribas Cardif

DBRS Limited (DBRS) notes that its ratings for The Bank of Nova Scotia (BNS or Scotiabank; rated AA with a Stable trend by DBRS) and BNP Paribas SA (BNP Paribas or the Group; rated AA (low) with a Stable trend by DBRS) are unaffected following the announcement that BNS and BNP Paribas Cardif (Cardif), the insurance unit of BNP Paribas, have entered into a 15-year strategic alliance that involves the development of protection and insurance solutions to be distributed to Scotiabank’s retail customers in Mexico, Peru, Chile and Colombia (the Pacific Alliance Region). Additionally, an investment of $30 million will be made by Cardif to further develop Scotiabank’s digital capabilities in the region. The agreement will be subject to regulatory approvals, as applicable.

DBRS views the transaction as consistent with BNS’s strategy of expanding its scale in the Pacific Alliance Region. In addition, this strategic alliance bolsters Scotiabank’s wealth management business by bringing more solutions to customers in this region.

DBRS sees this as an opportunity for Cardif to further reinforce its footprint in Latin America, where it has been present for the past 20 years. This strategic alliance is consistent with Cardif’s business model that mainly relies on partnerships and with BNP Paribas’s broader strategy to develop its international financial services business line. The latter has been a driver in recent years, supporting the Group’s performance and offsetting more subdued performance in domestic retail banking and volatility in corporate and investment banking. Latin America already accounts for almost a quarter of Cardif’s protection gross premiums written as of 2018, and it is the number-one creditor insurance provider in Chile. While the operation is not material for BNP Paribas, it further diversifies BNP Paribas’s insurance activities in the region, backed by BNS’s growing customer base of 9 million.

The bancassurance channel has become an important conduit for the distribution of insurance products in Europe, particularly in life insurance where bancassurance accounts for well over 60% of total sales in France, Italy, Spain and Portugal. This distribution model has also made important gains in Latin America and Asia. Although bancassurance has not been very successful in North America due to regulatory constraints and customer preferences, Scotiabank has long-dated experience in distributing insurance products through its international network, which will benefit from expanded cross-selling opportunities and the expertise of Cardif in certain niche products, such as creditor insurance and extended warranty that intensively use data-analytics tools in order to operate profitably over the long term.

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

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