Royal Bank of Canada is reviewing its domestic property and casualty insurance business, Chief Executive Officer David McKay said, citing difficulties caused by rules that ban banks from selling coverage in branches.
“We’re trying to decide which direction we go,” McKay, 51, said Tuesday at an investor conference in New York sponsored by the bank’s capital markets unit. “It’s a very volatile business. We’re under scale in property and casualty in the Canadian marketplace.”
Royal Bank, Canada’s largest lender by assets, opened its first insurance office near a Toronto bank branch in June 2005 to work around Canadian regulations that prohibit lenders from selling property, casualty and life policies from bank outlets. At the time, the Toronto-based firm set a goal of opening 100 insurance offices adjacent to branches.
An expansion into insurance by Canadian banks in the past decade has led to a showdown with the country’s insurance brokers, who’ve accused lenders of violating rules set up by the federal government in 1991.
The inability to sell in branches has made distribution of insurance products difficult and costly, McKay said.
“We’re not sure we’re going to be in that business for the long term,” McKay said.
Royal Bank’s insurance unit had net income of C$185 million ($146 million) in the fiscal first quarter, accounting for about 7.5 percent of the company’s profit, according to financial statements.
McKay said two thirds of the bank’s Canadian insurance profit is tied to mortgages and credit cards. Royal Bank will remain “long term holders” of its life insurance business, he said.
Canadian Western Bank last month agreed to sell its property and casualty insurance unit, Canadian Direct Insurance, to Intact Financial Corp. for C$197 million. CEO Chris Fowler said “ongoing regulatory restrictions” that prohibited how the Edmonton-based lender could sell insurance products was one reason for the sale.