A.M. Best affirms Great-West, subsidiaries ratings
A.M. Best Co. has affirmed the financial strength rating (FSR) of A+ (Superior) and issuer credit ratings (ICR) of "aa" of Great-West Life Assurance Company (GWL) (Winnipeg, Manitoba) and its wholly owned core subsidiaries, London Life Insurance Company (London Life) (London, Ontario), The Canada Life Assurance Company (Canada Life) (Toronto, Ontario), Great-West Life & Annuity Insurance Company (GWL&A) (Greenwood Village, CO) and its N.Y. marketing arm, First Great-West Life & Annuity Insurance Company (FGWL&A) (White Plains, NY).
Concurrently, A.M. Best has downgraded the ICR to "a" from "a+" of Great-West Lifeco, Inc. (Great-West) (Winnipeg, Manitoba) as well as the existing debt ratings of Great-West. In the ratings release, A.M. Best said the rating downgrade is not reflective of a weakening financial condition, but rather reflects a revision to standard notching for holding companies in accordance with its published debt rating methodology.
A.M. Best has assigned a number of debt ratings, all with a stable outlook, to existing Great-West issues.
A.M. Best also has assigned a rating of "a" to the CAD 200 million 5.998% fixed rate senior unsecured debentures due 2039 and a rating of "bbb+" to the CAD 150 million 5.65% fixed rate Non-Cumulative First Preferred Shares, Series L. The net proceeds from these offerings are to be used for general corporate purposes and to bolster Great-West’s liquidity position.
Finally, A.M. Best assigned a debt rating of "bbb+" to the CAD 150 million 5.80% fixed rate Non-Cumulative First Preferred Shares, Series M. The net proceeds from this offering were applied to fund the redemption of its Series D First Preferred Shares. (See link below for a detailed listing of the companies and ratings.)
The rating affirmations are based on Great-West’s operating companies’ very strong market positions in core business lines, historically strong operating fundamentals and favorable financial performance. Additionally, through strategic acquisitions and over time, the group has achieved significant and sustainable scale advantages in core business lines in Canada and the United States. Additionally, Great-West’s diversified insurance, reinsurance and financial services operations along with its strong enterprise risk management capabilities have enabled it to manage through recent adverse economic conditions with only a modest impact to its overall performance and financial strength.
The ratings also consider Great-West’s financial leverage position. While its overall financial leverage is at the higher end of A.M. Best’s expectations for the current ratings, the company has generated significant cash flows from operations and has historically demonstrated its ability to manage its leverage position within A.M. Best’s expectations for the current ratings.
Moreover, A.M. Best recognizes Great-West’s consolidated position as a market leader in the Canadian individual and group areas, with superior market positions in both the protection and wealth accumulation segments, stable earnings contribution from its U.S. operations and further opportunities for geographic diversification arising from continued expansion in its international business segments. These factors contribute to Great-West’s ability to service its debt. Additionally, Great-West maintains an excellent liquidity posture supported by high quality investments and stable sources of earnings resulting in solid coverage ratios. In recent years, global economic conditions have pressured Great-West’s operating results. Despite those pressures, Great-West’s leading market position in Canada, conservative pricing discipline and low expense structure enabled it to generate favorable operating results on a quarterly basis. Moreover, the Canadian distribution systems of Great-West and its operating companies represent Canada’s largest and serve as a major strength and competitive advantage.
In the United States, GWL&A is a well established player with considerable strength in the public and non-profit financial services sector and a leading marketer of business-owned life insurance products, providing a stable source of earnings for Great-West.
Offsetting factors include earnings pressures associated with the strengthening of the Canadian dollar against the U.S. dollar, the British pound and the Euro, which had a negative impact on Lifeco’s net income when compared to prior period earnings. In Canada, results were also pressured by higher mortality rates and reduced product sales due to decreased market demand for equity-based types of products.
A.M. Best expects that Great-West will continue to face challenges associated with growth in its core U.S. business segment as well as expansion opportunities in Canada’s highly competitive and saturated marketplace. The company had increased its exposure to longevity risk through recent acquisitions of large annuity payout blocks in the United Kingdom; however, the company has been managing this exposure through the use of risk mitigation strategies.
With the downturn in the global economic landscape, A.M. Best expects any potential growth strategies will require a more stringent focus and a longer time horizon to realize meaningful new business growth.
