DBRS Downgrades Power Financial Corporation’s Issuer Rating to A (high) from AA (low); Confirms Great West Life Assurance Co at AA

DBRS Limited (DBRS) has today downgraded Power Financial Corporation’s (PWF or the Company) Issuer Rating and Senior Debentures to A (high) from AA (low) and its Preferred Shares ratings to Pfd-2 (high) from Pfd-1 (low) due to the application of the new insurance methodology. All trends are Stable. All the 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 PWF’s ratings results from the application of the Global Insurance Methodology and the assignment of an Issuer Rating of A (high) to Great-West Lifeco Inc. (GWO), PWF’s major operating subsidiary. Since PWF’s greatest contributor to earnings and overall strength is GWO, a large insurance organization contributing approximately 75% of YTD 2015 earnings, the primary methodology used to rate GWO is the Global Insurance Methodology, and by extension it is the primary methodology for rating PWF. As a parent holding company, GWO’s Issuer Rating of A (high) is positioned two notches below the Financial Strength Rating (FSR) of Great-West Life Assurance Company, its operating insurance company. Among other factors, the two notch differential 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

The diversification and overall strength of PWF’s combined subsidiaries in addition to the assessment of financial strength of the PWF legal entity has resulted in DBRS concluding that the sum of the parts is sufficiently strong for the PWF rating to be at the same level as the GWO rating.

PWF is an investment holding company controlling two major Canadian financial services providers: GWO and IGM Financial Inc. Through a 50/50 partnership with Belgium’s Frère Group, PWF also shares a 55.5% equity interest in Pargesa Holding S.A., a Swiss holding company with indirect interests in a limited number of European-based industrial companies. PWF, in turn, is 65.6% owned by Power Corporation of Canada (POW). Similar to POW, PWF benefits from a strong capital position, high liquidity and prudent decision-making with an emphasis on conservativeness and integrated risk management. PWF’s credit ratings could come under pressure if the operating subsidiaries experience a deterioration in credit quality or an extended period of low profitability that results in declining financial metrics, or eroding market share. Negative ratings pressure may also arise from evidence of governance and control issues. Conversely, the Company may potentially benefit from any upgrades to the ratings of GWO.

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 Holding Companies and Their Subsidiaries, (January 2015), Global Methodology for Rating Life and P&C Insurance Companies and Insurance Organizations (December 2015) and Rating Companies in the Asset Management Industry (January 2015), which can be found on our website under Methodologies. In addition, the DBRS Criteria: Preferred Share and Hybrid Criteria for Corporate Issuers (January 2015) is utilized to assess the preferred shares.

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.