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Banks in insurance: RBC keeps rising

By Aurélia Morvan | August 27 2020 03:04PM

Photo: Freepik

Royal Bank of Canada (RBC) reported net income of $3.2 billion (B) in Q3 2020, which covered May 1 to July 31. This result is 1.9% or $62 million (M) lower than the net income of $3.3 G reported in the third quarter of 2019.

Half up, half down

Three RBC sectors experienced a decline mainly due to “the impact of lower interest rates,” the company says. Personal & Commercial Banking, the heart of RBC operations, reported net income of $1.4 B, down 17.8% or $297 M. Net income of the Investor & Treasury Services sector plunged 35.6% or $42 M, to reach $76 M. In Wealth Management, net income lost 12% or $77 M, to reach $562 M.

The three other RBC sectors reported higher net income. Net income of Capital Markets climbed 45.3% or $296 M, to reach $949 M. The net income of the Corporate Support Services grew by $46 M to reach $31 M, compared with a net loss of $15 M reported in Q3 2019. Lastly, the Insurance sector also prospered.

Net insurance income rises once again

As in the first and second quarters, RBC’s insurance operations grew in Q3 2020 versus the same period last year.

The financial institution reported net insurance income of $216 M, compared with $204 M in Q3 2019.

This result represents an upturn of 5.9% or $12 M “mainly due to higher favourable investment-related experience and improved claims experience, RBC points out, adding that “these factors were partially offset by the impact of longevity reinsurance contracts in the prior year.”

Insurance-related costs increase

Insurance policyholder benefits, claims and acquisition expenses (PBCAE) soared by 70.6% or $739 M, from $1 B in Q3 2019 to $1.8 B in the corresponding quarter of 2020.

RBC explains that this rise primarily reflects “the change in fair value of investments backing policyholder liabilities and business growth in International and Canadian Insurance, both of which were largely offset in revenue.”

Insurance income soars in Canada

RBC reported total insurance income of $2.2 B in Q3 2020, versus $1.5 B in the same quarter of 2019. This consolidated income soared by 51.2% or $749 M “primarily due to the change in fair value of investments backing policyholder liabilities,” RBC notes, adding that this was largely offset by the growth in PBCAE.

Closer examination shows that the increase in insurance revenue was driven by Canada. Insurance revenue for the whole country reached $1.6 B versus $991 M in Q3 2019. RBC explains this growth of 65.1% or $640 M in the same way as it did the increase in consolidated insurance revenue, pointing out that it was also fuelled by business growth.

Revenue from international operations totalled $576 M, versus $472 M in Q3 2019. This increase of 22% or $104 M results from the same factors as the gains in consolidated revenue, together with business growth in longevity reinsurance.

Net earned premiums

Net earned premiums totalled $974 M in Q3 2020. They gained 6.6% or $60 M versus the total of $914 M reported in Q3 2019.

Bank of Montréal (BMO) and Toronto-Dominion Bank (TD) has also reported its financial results, including for its insurance operations, for the third quarter of 2020.

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