In July, ratings agency Standard & Poor’s raised its counterparty credit and financial strength ratings on Transamerica Life Canada (TLC) to ‘BBB+’ from ‘BBB’. The outlook is stable.
Also in July, another ratings agency, A.M. Best, revised TLC’s outlook to positive from stable and affirmed the financial strength rating of B++ (Good). A.M. Best also has revised the outlook to positive from negative and affirmed the issuer credit rating of “bbb+” of TLC.
Matthew Carroll, Credit Analyst with Standard & Poor’s says, “The upgrade reflects TLC’s reduced risk profile resulting from significant derisking actions, improvements in enterprise risk management, and the successful management of a large block of segregated fund maturity guarantees that peaked in the first half of 2010.”
A.M. Best says its revised outlook “recognizes the recent improvement in TLC’s financial results. For 2009, TLC reported net income of $87.2 million after experiencing significant losses in 2008 and 2007, due primarily to reserve strengthening charges related to segregated fund guarantee payments and changes in actuarial assumptions.” In addition, A.M. Best notes TLC’s enhanced risk management practices, specifically the application of more comprehensive hedging strategies.
Despite the increased hedging, A.M. Best notes that TLC’s profitability remains sensitive to equity market performance as a result of the remaining equity basis risk on hedged business. TLC recorded a net loss of $35 million for the first quarter of 2010 due mostly to losses associated with segregated fund maturities. “As a result, A.M. Best believes that TLC’s earnings will continue to be pressured for the remainder of 2010 as global stock markets experience higher relative volatility.”