AM Best has assigned a financial strength rating of A (Excellent) and a long-term issuer credit rating of "a+" (Excellent) to Desjardins Financial Security Life Assurance Company (DFS), with a stable outlook.
The rating action reflects what AM Best described as a very strong balance sheet, strong operating performance, a neutral business profile and appropriate enterprise risk management (ERM).
According to AM Best, the rating is anchored in DFS' very strong balance sheet strength and capital adequacy.
The agency expects the insurer to maintain at least its current level of risk-adjusted capitalization, as measured by Best's Capital Adequacy Ratio (BCAR), over the long term, and noted that the parent company is expected to provide support to preserve that position if required.
BCAR is used to assess the relationship between an insurer’s balance sheet strength and its operating risks by comparing available capital to net required capital under a range of adverse economic and market scenarios. A positive BCAR result at a given confidence level indicates a surplus of available capital over modeled requirements and is a key input into the balance sheet strength assessment under Best’s Credit Rating Methodology.
DFS’s investment portfolio is described as well balanced across asset classes, with a growing allocation to corporate bonds to enhance expected yield while maintaining a close match between asset and liability interest rate sensitivities. That positioning is relevant in the current environment, where Canadian regulators continue to emphasize capital resilience and interest rate risk management for life insurers under evolving solvency and capital frameworks overseen by the Office of the Superintendent of Financial Institutions (OSFI).
An A (Excellent) Financial Strength Rating and “a+” Issuer Credit Rating place DFS within the upper tier of AM Best-rated life and health carriers, signaling to distributors and institutional counterparties that the company is viewed as having a strong ability to meet its ongoing policyholder and debt obligations.
DFS' operating profitability reflects continued strong policyholder experience and a focus on capital-light products, including individual insurance, group benefits, segregated funds, mutual funds and guaranteed investment fund solutions. Total revenues have grown in recent years, supported by investment income and diversified sales across multiple product lines.
The life and health unit benefits from Desjardin's national distribution footprint and brand recognition, the rating agency said. The segment's net surplus earnings have increased over the past few years, underscoring the contribution of life and health insurance to the wider Desjardins franchise.
AM Best expects DFS to continue expanding outside Quebec, adding geographic diversification and gaining market share in other provinces. That strategy is playing out against a backdrop of robust but competitive market conditions.
Industry data showed Canadian life and health insurers have recorded rising premium volumes and record benefit payouts in recent years, reflecting both higher demand for insurance and increased utilization of health and retirement products. This environment presents opportunities to build scale nationally while intensifying competition on product design, pricing and distribution, the rating agency said.
Meanwhile, the neutral business profile and appropriate enterprise risk management assessment indicate that, in AM Best's view, DFS' risk profile is in line with similarly rated life and health insurers. The group's scale in Quebec, diversified product suite and access to Desjardins' financial and risk management resources underpin this assessment.
With the A (Excellent) Financial Strength Rating and “a+” Long-Term Issuer Credit Rating now in place, and a stable outlook assigned to both, AM Best is indicating that it does not anticipate material changes in DFS’ credit fundamentals over the near to medium term, assuming the company maintains its current capitalization, earnings profile and risk governance standards.
