A.M. Best Affirms Ratings of RBC Insurance's Life Companies

Business Wire, July 9, 2008

OLDWICK, N.J. -- A.M. Best Co. has affirmed the financial strength rating of A (Excellent) and issuer credit ratings of "a" for RBC Life Insurance Company (RBC Life) (Mississauga, Ontario) and RBC Insurance Group's (RBC Insurance) U.S. life insurance entity, Liberty Life Insurance Company (Liberty Life) (Greenville, SC). The outlook for all ratings is stable.

RBC Life's ratings reflect its strong risk-adjusted capitalization, increasing premium trends, as well as the overall strength and stability of RBC Insurance. RBC Life is the Canadian life insurance operation of RBC Insurance, a division of Royal Bank of Canada (RBC) [NYSE, TSX: RY]. RBC Life maintains a significant position in the individual living benefits and group long-term disability insurance markets, where it is among the industry leaders. In addition, RBC Life has focused on growing its individual life segments, primarily through the sale of universal life. This growth has been accomplished while the company has maintained a favorable risk-adjusted capital position.

Partially offsetting these positive rating factors are the challenges associated with RBC Life achieving greater market share in the Canadian individual life arena, weaker earnings reported in 2007 due to worse than expected morbidity in the group and individual accident and sickness markets and increased strain due to its universal life business. Furthermore, RBC Life maintains a modest position in the wealth management market through its general account annuities and segregated funds. RBC Life also has generated regular losses in its individual life line. A.M. Best expects RBC to support RBC Life's growth initiatives, if needed, as they have demonstrated in the past.

The ratings of Liberty Life recognize its very good capitalization, profitable operating results and ultimate ownership by RBC Insurance. Liberty Life continues to benefit from its affiliation with RBC through the distribution opportunities afforded by other RBC companies in the United States that provide investment, mortgage and banking services. Liberty Life has received capital support when needed to fund growth.

Partially offsetting these positive rating factors is Liberty Life's modest business profile, as evidenced by declining net premiums from the in-force block of life business and continuing challenges in increasing its market position in the fixed and indexed annuity segments. The limited growth trend puts Liberty Life at a disadvantage with larger competitors, which have the cost benefits of scale. Liberty Life also maintains a large exposure to mortgage-backed securities, which account for approximately half of its fixed income portfolio, as well as a large allocation to commercial mortgage loans. Liberty Life will need to manage interest rate and disintermediation risk prudently given the significant level of interest sensitive liabilities within its business.

For Best's Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.