DBRS Morningstar Changes Trends on Equitable Life to Positive, Confirms Ratings at “A”

DBRS Limited (DBRS Morningstar) changed the trends on both the Financial Strength Rating and the Issuer Rating of The Equitable Life Insurance Company of Canada (Equitable Life or the Company) to Positive from Stable. The ratings were confirmed at “A.”

KEY RATING CONSIDERATIONS
The confirmed ratings are the result of the application of DBRS Morningstar’s “Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations.” In DBRS Morningstar’s view, Equitable Life has excellent/good earnings ability, excellent liquidity and excellent capitalization. The Company continues to make significant investments in technological enhancement to create efficiencies and manage its costs. Equitable Life has maintained a strong market presence in the majority of its chosen niche market segments.

RATING DRIVERS
The Positive trend considers Equitable Life’s resilient fundamentals and the Company’s ability to adapt to the current business environment. Positive ratings pressure may emerge as a result of continued improvement in sales of individual, group and savings and retirement businesses, resulting in a further increase in its niche, and aggregate market share and positioning while maintaining a prudent risk profile.

Negative ratings pressure could arise if: (1) there was a loss of a major distributor, resulting in significantly reduced market share or (2) a sustained deterioration in earnings in its individual life and health business line, especially in the Participating Whole Life insurance product.

RATING RATIONALE
The change of the trends to Positive reflects the Company’s consistent and stable earnings generation capacity, which has shown resiliency with good return on equity results (11.9% for FY2018), and its excellent capitalization. Equitable Life eliminated all its subordinated debt in 2018, resulting in no leverage. The Company has been historically profitable, which has helped maintain strong capitalization levels. Equitable Life reported an excellent LICAT ratio of 147.3% as at YE2018. This is the top tier for companies in the Canadian life insurance industry and provides a strong capital buffer that mitigates risks that may arise from adverse movements in interest rates and equity markets.

The Company has a clearly defined business strategy, conservative management and a significant participating life insurance block that supports capital levels. Equitable Life’s long-term strategy involves achieving organic growth by selling both traditional and new insurance products, as well as wealth products targeting the middle and high-income Canadian market. Equitable Life has demonstrated expertise in developing and enhancing its digital capabilities to serve both clients and advisors. The Company is focused on expanding its range of products and services, increasing process efficiencies throughout the organization and reducing operating expenses. Equitable Life has set an earnings target consistent with a 12% return on equity.

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

The applicable methodology is Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations, which can be found on our website under Methodologies & Criteria.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found on the issuer page at www.dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

For more information on this credit or on this industry, visit www.dbrs.com.

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