DBRS Confirms Ratings of Great-West Lifeco Inc. and Affiliates

DBRS Limited (DBRS) has today confirmed the ratings of Great-West Lifeco Inc. (GWO or the Company) and its affiliated operating subsidiaries, including the Claims Paying Ability ratings of IC-1 at The Great-West Life Assurance Company, The Canada Life Assurance Company and London Life Insurance Company. All trends are Stable.

GWL is the largest insurance company in Canada with a substantial lead in direct premiums in 2013. The Company has a dominant position for both individual and group benefits and savings. The Canadian protection and wealth management product suite is extensive. The U.S. operation focuses on retirement savings plan administration and has grown to be the second-largest (by total participants) in its target market. The U.S. operation also sells bank-owned life insurance and distributes life insurance through bank channels. The large investment house, Putnam Investments (Putnam), provides product options for the retirement business and is being positioned to re-emerge as a leading investment manager after suffering a variety of setbacks. In Ireland, the Company has the largest market share for life company products, and in Europe, the Company occupies niche businesses oriented toward the savings market. The Company has long-standing life reinsurance operations and provides life reinsurance solutions to insurers in the United States, Europe and Asia.

With the employed leverage combined with stable profits, the Company has been able to produce an above-peer return on equity in the mid-teens for several years running. As the Company is the largest insurer in Canada, top-line growth will be limited largely to total market growth. Growth by acquisition within Canada is limited, given the dominance of the big three insurers. Achieving a full turnaround with the Putnam investment subsidiary has proven elusive, but recently the funds have achieved high-ranking performance statistics, which should allow a shift toward better results.

Financial leverage at September 30, 2014, is 30.1%, which is better than its prior highs near 34%. As compared with recent leverage reduction achievements of its peers, the Company has been slow in reducing leverage toward its long-term target of 25%. The current leverage ratio is higher than desirable for the rating level.

The Canadian operations have a Minimum Continuing Capital and Surplus Requirements ratio of 233%, which is satisfactory. The Company’s U.S. subsidiaries follow and meet U.S. regulatory requirements.

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

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link to the right under Related Research or by contacting us at info@dbrs.com.

This rating is endorsed by DBRS Ratings Limited for use in the European Union.

The applicable methodologies are Rating Companies in the Canadian Life and Health Insurance Industry (January 2014), Rating Holding Companies and Their Subsidiaries (January 2014) and DBRS Criteria: Rating Preferred Share and Hybrid Criteria for Corporate Issuers (December 2014), which can be found on our website under Methodologies.