Royal Bank of Canada’s annuities business is poised to fuel earnings growth for its insurance arm in fiscal 2019.
Typically used for retirement planning, annuities are a type of insurance product that provides a steady stream of fixed income where investors pay a lump sum up front and in return receive monthly payments for life. With interest rates rising, there’s expected to be increased customer demand for annuities as monthly payouts become more attractive.
Doug Guzman, group head of RBC Wealth Management and RBC Insurance, said an annuities upswing could help offset expected softness in the bank’s life retrocession business, which provides coverage to other insurance companies to offset the risk in the policies they underwrite. “Annuities can offer an opportunity for growth going forward,” Mr. Guzman told analysts on the company’s earnings call this week.
Analysts characterized the bank’s insurance revenues as “unusually good” during its fiscal fourth quarter, which ended Oct. 31. In fact, RBC’s overall earnings beat was “predominately driven by a surge in insurance revenue,” Robert Sedran, an analyst with CIBC World Markets, wrote in a research note to clients.
“Management highlighted its annuities business as a key driver of growth as the conservative positioning of the firm’s investment portfolio offers continuing opportunities to release reserves," added Mr. Sedran.
Serving more than four million clients, RBC’s insurance business reported a 20-per-cent year-over-year increase in net income of $318-million during the fourth quarter. On the conference call, CEO Dave McKay said the bank is mulling other opportunities for its insurance division, including fostering new partnerships within its group benefits business.
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