Fitch Affirms Great-West Lifeco; Outlook Stable
The ratings affirmation 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 which 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 published newly updated insurance notching criteria on
KEY RATING DRIVERS
Fitch views GWO's solid core insurance earnings performance positively as it drives and supports the company's financial flexibility and consolidated risk-based capital position. Fitch believes this performance reflects 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 totalled
Despite strong operating results from GWO's insurance operations, fixed charge coverage of 8.3x during 1H15 remains below expectations for the current rating category. This is due to the ongoing underperformance of Putnam. Fitch does not expect Putnam to contribute meaningfully to GWO's earnings in the near- to intermediate-term. Fitch believes GWO will continue to rely on holding company cash and earnings from the insurance subsidiaries to service interest expense on debt related to the acquisition of Putnam.
Fitch believes GWO's investment performance is a reflection of its conservative investment policies and underwriting standards as well as its 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 totalled
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.
Fitch believes that GWO's acquisition of
RATING SENSITIVITIES
Key rating triggers for GWO's ratings that could lead to an 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
--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.
FULL LIST OF RATING ACTIONS
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+';
--Series S, 5.25% non-cumulative first preferred shares at 'BBB+'.
--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 Life & Annuity Insurance Capital, LP II
--7.153% subordinated debentures due 2046 at 'BBB+'.
--Series B, 7.529% preferred stock due
--6.625% deferrable debentures due
Great-West Lifeco Finance (
--5.691% subordinated debentures due 2067 at 'BBB+';
--7.127% subordinated debentures due 2068 at 'BBB+'.
--IFS at 'AA-';
--Long-term IDR at 'A+';
--5.25% subordinated debt at 'A-'.
Additional information is available on www.fitchratings.com
Applicable Criteria
Insurance Rating Methodology (pub.
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=868367
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=989685
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=989685
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
View source version on businesswire.com: http://www.businesswire.com/news/home/20150819006214/en/
Fitch Ratings
Primary Analyst
Director
+1-312-368-3122
or
Associate Director
+44 203 503 1551
30
or
Secondary Analyst
+1-312-368-3136
or
Senior Director
+44 207 682 7256
or
Committee Chairperson
James B. Auden, CFA
Managing Director
+1-312-368-3146
or
Media Relations
[email protected]
Source: Fitch Ratings
Advisor News
- LTC: A critical component of retirement planning
- Middle-class households face worsening cost pressures
- Metlife study finds less than half of US workforce holistically healthy
- Invigorating client relationships with AI coaching
- SEC: Get-rich-quick influencer Tai Lopez was running a Ponzi scam
More Advisor NewsAnnuity News
- Trademark Application for “EMPOWER MY WEALTH” Filed by Great-West Life & Annuity Insurance Company: Great-West Life & Annuity Insurance Company
- Conning says insurers’ success in 2026 will depend on ‘strategic adaptation’
- The structural rise of structured products
- How next-gen pricing tech can help insurers offer better annuity products
- Continental General Acquires Block of Life Insurance, Annuity and Health Policies from State Guaranty Associations
More Annuity NewsHealth/Employee Benefits News
- New Managed Care Study Findings Have Been Reported by G. Martin Reinhart and Co-Researchers (Psychiatric Medication Prescribing by Nurse Practitioners and Physician Associates for Medicare Beneficiaries): Managed Care
- Data on Managed Care Reported by Researchers at American Dental Association (Early association of expanded Medicare dental benefits to dentist billing in Medicare): Managed Care
- Researchers to study universal health care, as Coloradans face $1 billion in medical debt
- Veteran speaks out on veterans mail-order drug bill
- National Life Group Selects FINEOS AdminSuite to Transform Living Benefit and Life Insurance Claims Operations
More Health/Employee Benefits NewsLife Insurance News