Fitch Affirms Great-West Lifeco and Rates Preferred Stock; Upgrades Irish Life
Fitch has also assigned a 'BBB+' rating to previously issued GWO
KEY RATING DRIVERS
The ratings rationale is based upon the company's consistently strong and stable core insurance earnings; strong competitive position in the Canadian market; conservative investment profile; and overall actuarial liability profile that is not heavily exposed to the equity markets. Offsetting these positives are the company's relatively high use of financial leverage and the ongoing underperformance of Putnam Investments (Putnam), which has strained overall earnings levels and has caused fixed-charge coverage to remain at depressed levels for some time.
Fitch views positively GWO's solid core insurance earnings performance as it drives and supports the company's financial flexibility and consolidated risk-based capital position. Fitch believes this performance is reflective of the company's conservative risk appetite which has resulted in lower-risk product design, pricing discipline, strict asset-liability matching, and management of key earnings drivers such as expenses and persistency. Additionally, Fitch views the Canadian life insurance market as inherently less risky than the U.S. life market due to greater pricing rationality and less aggressive product guarantees. Operating earnings totaled
Despite strong operating results from GWO's insurance operations, fixed charge coverage of 7.9x during the first nine months of 2014 remains below historic levels as well as expectations for the current rating category. This is due to the ongoing underperformance of Putnam. Fitch does not expect Putnam to meaningfully contribute to GWO's earnings in the near to intermediate term. Fitch believes GWO will have to continue to rely on holding company cash and earnings from the insurance subsidiaries to service Putnam's approximately
Fitch believes GWO's investment performance is a reflection of its conservative investment policies and underwriting standards as well as it's the company's asset/liability, liquidity and investment skills. By policy, the company does not invest in below-investment-grade (BIG) credits, and therefore reported exposure in this category consists of 'fallen angels,' including privately placed issues with strong covenant protection. BIGs totaled
Fitch views GWO's actuarial liabilities as relatively insensitive to equity markets, due to the avoidance of riskier enhancements to individual segregated funds. The company's primary exposure to equity markets is through Putnam.
The upgrade of
Fitch believes that GWO's acquisition of
RATING SENSITIVITIES
Key rating triggers for GWO's ratings that could lead to a upgrade include:
--Significant improvement in Putnam's earnings to a level on par with GWO's other operating subsidiaries;
--Decline in financial leverage to below 15% and a decline in total leverage to below 25%.
Key rating triggers for GWO's ratings that could lead to a downgrade include:
--A sustained drop in the company's risk-adjusted capital position with no plans or ability to rectify. This would include the U.S. risk-based capital ratio falling below 400% and MCCSR ratios falling below 200%.
--Increase in financial leverage to over 25% or an increase in total leverage to over 35%.
--Decline in fixed charge coverage to less than 6x.
--Sizable goodwill impairment on Canada Life or London Life acquisitions.
--Acquisitions outside GWO's historical risk preferences or expertise, or any other material changes in risk appetite for the company.
--Reduction in Power Financial Corporation's ownership stake in GWO.
Key rating triggers for
--A change in Fitch's view of
Key rating triggers for
--The macro-economic environment having a greater than expected adverse impact on policyholder surrender rates, new business or profitability. These threats could include the impact of the Irish government's austerity package, high unemployment, reduced consumer confidence and lower than expected GDP triggering higher policyholder surrender rates and lower sales volumes.
Fitch has upgraded the following ratings:
--IFS to 'AA-' from 'A+';
--Long-term IDR to 'A+' from 'A';
--5.25% subordinated debt to 'A-' from 'BBB+'.
Fitch has assigned the following rating:
Great-West Lifeco, Inc.
--Series S, 5.25% non-cumulative first preferred shares at 'BBB+'.
Fitch has affirmed the following ratings with a Stable Outlook:
Great-West Lifeco, Inc.
--Long-term IDR at 'A+';
--6.14% senior debentures due
--4.65% senior debentures due
--6.74% senior debentures due
--6.67% senior debentures due
--5.998% senior debentures due
--2.5% Euro bond debt due
--Series F, 5.9% non-cumulative first preferred shares at 'BBB+';
--Series G, 5.2% non-cumulative first preferred shares at 'BBB+';
--Series H, 4.85% non-cumulative first preferred shares at 'BBB+';
--Series I, 4.5% non-cumulative first preferred shares at 'BBB+';
--Series L, 5.65% non-cumulative first preferred shares at 'BBB+';
--Series M, 5.80% non-cumulative first preferred shares at 'BBB+';
--Series N, 3.65% non-cumulative first preferred shares at 'BBB+';
--Series P, 5.4% non-cumulative first preferred shares at 'BBB+';
--Series Q, 5.15% non-cumulative first preferred shares at 'BBB+';
--Series R, 4.8% non-cumulative first preferred shares at 'BBB+'.
GWL&A Financial Corp.
--Long-term IDR at 'A+'.
--Long-term IDR at 'A+'.
--IFS at 'AA';
--Long-term IDR at 'AA-'.
--IFS at 'AA';
--Long-term IDR at 'AA-';
--6.4% subordinated debentures due
--IFS at 'AA';
--Short-term IDR at 'F1+';
--Commercial paper at 'F1+'.
--IFS at 'AA'.
Great-West Lifeco Finance (
--5.691% subordinated debentures due 2067 at 'BBB+';
--7.127% subordinated debentures due 2068 at 'BBB+'.
--6.625% deferrable debentures due
Great-West Life & Annuity Insurance Capital, LP II
--7.153% subordinated debentures due 2046 at 'BBB+'.
--Series B, 7.529% senior debentures due
Additional information is available at 'www.fitchratings.com'.
--'Insurance Rating Methodology', dated
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=756650
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=978701
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