Royal Bank of Canada (RBC) reported net income of $1.48 billion in Q2 2020, a period covering February 1 to April 30, 2020, compared with net income of $3.32 billion in the same quarter of 2019. This represents a drop of 54.1% or $1.75 billion.

The “unprecedented challenges brought on by the COVID-19 pandemic led to increased provision for credit losses,” which totalled $2.83 billion, for an increase of $2.40 billion versus the second quarter of 2019, RBC explains.

Personal and Commercial Banking Services, the core of RBC’s operations, reported net income of $532 million, for a 65.7% plunge. Two of RBC’s six sectors saw a rise in net income: Investor and Treasury Services, and Insurance.

Net insurance income rises

A life and P&C insurance provider, RBC reported net income of $180 million for its insurance business alone in Q2 2020. Its net income in Q2 2019 was $154 million. This result is 16.9% or $26 million higher.

“Insurance earnings increased mainly due to new longevity reinsurance contracts and higher favourable investment-related experience, RBC points out.

What’s more, insurance policyholder benefits, claims and acquisition expenses took a $1.34 billion nosedive. They represented a gain of $257 million in Q2 2020, compared with an expense of $1.08 billion in Q2 2019. RBC explains this trend by “the change in fair value of investments backing policyholder liabilities” and by “lower group annuity sales.”

“Claims costs were relatively flat as the increase in travel claims associated with the COVID-19 pandemic were offset by improved life retrocession claims,” the bank says.

Insurance revenue negative in Canada

For its overall operations, RBC reported total revenue of $10.33 billion, down 10% or $1.17 billion compared with Q2 2019. The bank pins this decline on lower insurance income, made up of insurance premiums, and investment and fee income.

RBC reported insurance revenue of $197 million in Q2 2020 versus $1.51 billion in the same quarter of 2019. This equals a drop of 87% or $1.32 billion.

The slump stems from a $344 million loss in insurance revenue in Canada. This result amounts to a decrease of 134.3% or $1.35 billion compared with the insurance revenue of $1 billion reported in Canada in Q2 2019.

“Insurance revenue decreased mainly due to the change in fair value of investments backing our policyholder liabilities, lower group annuity sales, offset by business growth in International Insurance,” stated RBC.

Internationally, insurance revenue gained 5.9% or $30 million. It climbed from $511 million in Q2 2019 to $541 million in Q2 2020, propelled by new longevity reinsurance contracts.

Written premiums slump

Net written premiums were $957 million in Q2 2020. They dropped by 0.7% or $7 million compared with the total of $964 million reported in Q2 2019.

By comparison, Bank of Montreal (BMO) reported a net loss in insurance versus the second quarter of 2019. Both banks are among the many life insurance providers that put in place measures to mitigate the effects of the COVID-19 pandemic.