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

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.

The existing ratings for the Company and its operating subsidiaries reflect the continuing strong financial performance and the notable absence of earnings volatility. Stable earnings are associated with the Company’s diversification by product and geography, as well as its conservatism with respect to embedded product risks, actuarial assumptions and asset quality.

Like its major peers, the Company is anchored by its prominent Canadian operations. As the largest seller of participating life insurance products in Canada and a major player in group insurance, the Company enjoys strong market positions, supporting its strong return on equity. Continued success in growing the largely fee-based U.S. retirement saving administration business segment and focused niches in Europe, primarily in the United Kingdom and Ireland, represent additional stable sources of earnings contributions. While Putnam Investments, LLC has continued to be a relative drag on earnings due to its sub-optimal scale, there is evidence that the situation is improving through net positive sales due to ongoing enhancement of investment fund performance.

The Company has completed an acquisition to expand its Irish operation, giving it a larger presence in that market with an immediate contribution to earnings.

The Minimum Continuing Capital and Surplus Requirement ratio of the Company’s major regulated operating subsidiary, The Great-West Life Assurance Company, is strong at 221%. GWO has traditionally operated with higher financial leverage than most of its Canadian peers, a reflection of its debt-financed mergers and acquisitions activity. The debt and preferred share-to-total capital leverage ratio was 32.7% as at September 30, 2013, which is higher than its Canadian peers, and higher than the 25% level for a AA rating category. Fixed-charge coverage ratios at GWO nevertheless remain healthier, with less volatile earnings than those of its peers. DBRS considers the Company’s financial leverage and fixed-charge ratios acceptable for the current rating category with expectations of reduced leverage over time and views the Company as conservatively managed with a track record of consistent profitability.

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.

The applicable methodology is Rating Companies in the Canadian Life Insurance Industry (January 2013), which can be found on our website under Methodologies.

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