RBC Financial Group reported net income of $3.2 billion for fourth quarter 2020, which covered August 1 to November 30. Income thus grew by 1.2 per cent or $40 million ($M) from Q4 2019.
For the year 2020 overall, however, the financial institution's net income is down 11.1% or $1.4 billion. It totals $11.4 billion, versus $12.9 billion in 2019.
The total provision for credit losses increased by 133.4% or $2.5 billion, from $1.9 billion in 2019 to $4.4 billion in 2020, due to the impact of the COVID-19 pandemic.
“Our results reflected lower earnings in Personal & Commercial Banking and Wealth Management, partially offset by strong earnings in Capital Markets as well as higher results in Corporate Support, Investor & Treasury Services, and Insurance,” RBC stated.
Two RBC sectors declined in 2020, but four have seen gains, including the insurance sector. The Insurance segment ended the year with net income of $831 million, compared with net income of $806 million in 2019.
The increase of 3.1% or $25 million is “largely due to higher favourable investment-related experience, partially offset by unfavourable annual actuarial assumption updates.” Net income in this segment climbed for the third consecutive year.
Although the insurance sector’s net income had grown in the first three quarters of 2020, it declined by 9.9% or $28 million in Q4, to $254 million.
Insurance revenue declines in Canada
RBC's insurance revenue was $5.4 billion in 2020, down from $5.7 billion in 2019. This represents a decrease of 6.1% or $349 million.
Looking at the results in detail, insurance revenue decreased in Canada, but increased internationally:
Internationally, insurance revenue totals $2.4 billion in 2020, compared with $2.1 billion in 2019. It gained 15.5% or $320 million “mainly due to business expansion, especially in the reinsurance of longevity risk,” says RBC.
For Canada, insurance revenues will be $3 billion in 2020, versus $3.6 billion in 2019. Insurance revenues thus slumped by 18.4% or $669 million “mainly due to the change in fair value of investments backing policyholder liabilities,” RBC says, adding that this change was “partially offset by higher group annuity sales, both of which are which are largely offset in policyholder benefits, claims and acquisition costs.”
Downturn in benefits, claims and acquisition expense
Insurance policyholder benefits, claims and acquisition expense slid by 9.8% or $402 million. They were $3.9 billion in 2020, compared with $4.1 billion in 2019.
This decrease mainly reflects “the change in fair value of investments backing policyholder liabilities, which was largely offset in revenue,” RBC explains. It also stems from “higher favourable investment related experience.”
“These factors were partially offset by business growth, which was largely offset in revenue, and unfavourable annual actuarial assumption updates in the current year, largely related to mortality experience.”
Premiums and deposits driven by international activities
Total premiums and deposits were $4.9 billion in 2020, compared with $4.6 billion in 2019. The corresponding increase is 7.5% or $346 million.
The detailed results show that premiums and deposits have been driven by insurance internationally; they have also risen in Canada:
For Canada, premiums and deposits are $2.5 billion in 2020, compared with $2.4 billion in 2019. The increase of 3.2% or $78 million is “mainly due to individual life product and group annuity sales, partially offset by a reduction in travel products.”
Internationally, premiums and deposits total $2.5 billion in 2020, up from $2.2 billion in 2019. The increase of 12.2% or $268 million is to “growth in longevity reinsurance.”