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

DBRS Limited (DBRS) has today confirmed Great-West Lifeco Inc.’s (GWO or the Company) Debentures at A (high), its Non-Cumulative First Preferred Shares at Pfd-2 (high) and its Issuer Rating at A (high). DBRS also confirmed the Financial Strength Rating 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). All trends are Stable. All rating actions are detailed in the table at the end of this report.

In confirming the ratings of the Company and its subsidiaries, DBRS took into consideration GWO’s excellent franchise strength. GWO is the largest insurance company in Canada, with a dominant market position for both individual insurance and group benefits and savings. The Company has extensive operations in Europe, including its market position as the largest life insurer in Ireland. In the United States, GWO, through its brand Empower Retirement, operates the second-largest (by participants) pension plan record-keeping service. The Company has strong financial metrics, including a decreasing financial leverage (debt, hybrids and preferreds to capital) ratio of 26.4% at Q3 2016, a Minimum Continuing Capital and Surplus Requirements (MCCSR) ratio of 227% and at 13.5% (9M 2016), an above-peer return on equity (ROE) that has been in the mid-teens for the past several years. GWO’s conservative risk management style, including its decision to operate mainly in developed countries with stable economies, its measured approach to launching new products and conservative reserving methods have enabled it have lower volatility in earnings than its peers.

The Stable trends consider the Company’s resilient fundamentals and its ability to adapt to the current challenging operating environment, including uncertainties surrounding Brexit, Solvency II and the market demand for payout annuities in Europe, the sustained global low interest rate environment and the slow-growth economic outlook in Canada and Europe. The Company faces some challenges in its U.S. asset management unit, Putnam Investments (Putnam), as net mutual fund outflows continue.

RATING DRIVERS

Negative ratings pressure could arise from an extended decline in equity or credit markets that leads to a significant deterioration in the Company’s financial position, from large debt-financed acquisitions that reduce GWO’s financial flexibility or from a reduction in earnings, affecting the Company’s ROE and coverage ratios. Positive ratings pressure could arise if there is a material reduction in financial leverage or if profitability at Putnam improves from current levels.

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 on the issuer page at www.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 Security Criteria for Corporate Issuers (January 2016) and DBRS Criteria: Guarantees and Other Forms of Support (February 2016), which can be found on our website under Methodologies.

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

Lead Analyst: Stewart McIlwraith
Rating Committee Chair: Roger Lister

The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities.