DBRS Confirms The Great-West Life Assurance Company Ratings at AA; Downgrades Great-West Lifeco’s Debentures to A (high) from AA (low)

DBRS Limited (DBRS) has today downgraded Great-West Lifeco Inc.’s (GWO or the Company) Debentures to A (high) from AA (low), its Non-Cumulative First Preferred Shares to Pfd-2 (high) from Pfd-1 (low), and has also assigned an Issuer Rating of A (high) to the Company. At the same time, DBRS assigned a Financial Strength Rating (FSR) of AA to GWO’s major operating subsidiaries: The Great-West Life Assurance Company, The Canada Life Assurance Company and London Life Insurance Company. The Great-West Life Assurance Company’s Issuer Rating was confirmed at AA, and its Preferred Shares were confirmed at Pfd-1. The Canada Life Assurance Company’s Subordinated Debentures were confirmed at AA (low). Lastly, DBRS has withdrawn the Claims Paying Ability ratings of the three operating subsidiaries, replacing them with the newly assigned FSRs. All trends are Stable. All rating actions are detailed in the table below. The rating actions taken today follow the publication of DBRS’s new methodology, “Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations” (December 2015) (Global Insurance Methodology).

The downgrade of the holding company ratings results from the application of DBRS’s newly implemented Global Insurance Methodology, which favours a wider notch differential between holding and operating company ratings than in prior methodologies. Specifically, the senior debt of the holding company, GWO, is positioned two notches below the FSR of its major operating subsidiary, The Great-West Life Assurance Company. Among other factors, the notching reflects the structural subordination of the holding company’s creditors to the operating company’s creditors in an insolvency situation, and recognizes the reliance of the Company on the upstreaming of earnings from its operating companies.

In confirming the ratings of the operating subsidiaries, DBRS evaluated GWO’s fundamentals using the Global Insurance Methodology. GWO is the largest insurance company in Canada, with a dominant market position for both individual insurance and group benefits and savings. The Company also has extensive operations in the United States and Europe. The Company has strong financial metrics, including a decreasing financial leverage (debt, hybrids and preferreds to capital) ratio of 26.5% at Q3 2015, a minimum continuing capital and surplus requirement (MCCSR) ratio of 234% and an above-peer return on equity that has been in the mid-teens for the past several years.

The Stable trend considers the Company’s resilient fundamentals and its ability to adapt to the current challenging operating environment. Negative ratings pressure could arise if the Company’s fundamentals weaken because of a reduction in earnings, with a deterioration in fixed-charge coverage ratios. Positive rating pressure could arise if there is a material reduction in financial leverage or improved profitability at Putnam.

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 Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations (December 2015), DBRS Criteria: 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.

DBRS will publish a report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, or for more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.