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 IC-1 Claims Paying Ability rating of The Great-West Life Assurance Company, The Canada Life Assurance Company and London Life Insurance Company. All trends are Stable.

GWO is the largest insurance company in Canada, with a substantial lead in direct premiums in 2014. 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. Its large fund management company, Putnam Investments (Putnam), provides product options for the retirement business and is being positioned to re-emerge as a leading investment manager in the United States after suffering a variety of setbacks. In Ireland, the Company has the largest market share for life company products. 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.

In 2014, the Company’s U.S. operations began amalgamating its three retirement plan record keeping businesses of Great-West Life Financial, the recently acquired J.P Morgan Retirement Plan Services, and Putnam Investments to create a combined business unit called Empower Retirement. In Europe, the Company completed the integration of Irish Life into its operations and made a number of bolt-on acquisitions.

Combining somewhat higher leverage with stable profits, GWO 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, its top-line growth will be limited largely to total market growth. Growth by acquisition within Canada is also constrained, given the dominance of the big three insurers. Achieving a full turnaround with the Putnam investment subsidiary has proven elusive, but recently its funds have achieved high-ranking performance statistics, which should allow a shift toward better results.

Financial leverage at June 30, 2015, is 27.5%, which has shown considerable improvement over recent quarters.

The Canadian operations have a Minimum Continuing Capital and Surplus Requirements ratio of 229%, which is satisfactory. The Company’s U.S. subsidiaries follow and meet U.S. regulatory requirements.

The Company’s credit rating may be negatively affected by an extended decline in interest rates or equity market returns (though it is less sensitive to these declines than its peers), which would affect long-term product profitability; a sustained reduction in earnings; or by large debt-financed acquisitions. Conversely, GWO’s rating may benefit from further improvements in its leverage and coverage ratios.

Notes:
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.

The applicable methodologies are Rating Companies in the Canadian Life and Health Insurance Industry (January 2015), Rating Holding Companies and Their Subsidiaries (January 2015), Preferred Share and Hybrid Criteria for Corporate Issuers (January 2015) and DBRS Criteria: Guarantees and Other Forms of Explicit Support (February 2015), which can be found on our website under Methodologies.

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