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12 Feb 2009
Over C$950 million of securities affected
Toronto, February 12, 2009 -- Moody's Investors Service affirmed the credit ratings of Great-West
Life Assurance Company (GWL, Aa3 for insurance financial strength)
and Great-West Life & Annuity Insurance Company (GWLA,
Aa3 for insurance financial strength), the primary operating companies
of Great-West Lifeco (Great-West, not rated;
TSE: GWO), following the release of its results for the fourth
quarter of 2008 (4Q08). The rating agency also affirmed the credit
ratings of GWL's and GWLA's rated subsidiaries, as listed below.
The rating outlook for the companies remains stable.
Great-West announced today that it had taken a C$1.4
billion after-tax impairment charge on its investment in Putnam
Investments, LLC (Putnam). Great-West acquired Putnam
for a total of USD 3.9 billion, from Marsh & McLennan
Companies, Inc. in August 2007. Excluding this item
and other small charges, Great-West reported C$525
million in core net income, a decrease of 2% versus the same
period a year ago -- a solid performance in a challenging economic
environment. Earnings growth from Great-West's European
business nearly offset earnings strain in Canada and the United States.
In affirming the rating, Moody's Vice President and Senior Credit
Officer, Peter Routledge, stated that "in Moody's view,
actions taken in the fourth quarter of 2008 to raise C$1 billion
of common and C$230 million of preferred equity bolstered Great-West's
capitalization and allowed it to absorb a sizeable charge to earnings
without materially impacting the company's capital and financial
flexibility." Financial leverage improved marginally in 4Q08 and
earnings and cash coverage ratios remained stable and within expectations
for an Aa-rated life insurer.
The rating affirmation is also based on the strong business profile of
the company's Canadian operation and established niche strategy
of its US franchise. Great-West has exceptional market position
in Canada which drives strong profitability, good financial flexibility,
and supports solid capitalization. In addition, GWL has less
direct exposure to higher-risk segregated funds with more generous
guarantees. In the U.S., GWLA has an established
niche position in the markets for group pensions (including a top-five
position in the 457 tax qualified sector), which has produced good
profitability, strong investment quality, and excellent capital
Moody's also noted that events in the latter half of 2008 exacerbated
earlier identified weaknesses in the Putnam franchise. Putnam has
suffered a steady decline in assets under management (AUM) over the past
several years, reduced operating margins, the liquidation
of one of its money market funds, and persistent net asset outflows.
Mr. Routledge said that "Moody's had already incorporated
these weaknesses into Great-West's overall credit profile.
The impairment charge, in Moody's view, captured the
additional deterioration in Putnam's franchise in fourth quarter,
while the equity raised enabled the company to maintain its financial
flexibility. As a result, Moody's affirmed Great-West's
ratings and maintained its stable outlook."
Looking ahead, Moody's expects 2009 to be a difficult year
for Canadian and U.S. life insurers overall, but notes
that Great-West remains reasonably well-positioned.
In addition to its franchises in Canada and the U.S.,
the company has defensible niches in Europe, a high quality investment
portfolio, and strong financial flexibility, characterized
by low consolidated financial leverage and healthy coverage ratios.
That said, the company has a moderate exposure to U.S.
structured credit assets (e.g., subprime RMBS,
CMBS, ABS) . Moody's believes more losses on these
assets will emerge in 2009. Earnings are also likely to be lower
at the U.S. unit, given the sensitivity of its pension
business to the weak economy and equity market.
Regarding the future direction of Great-West's ratings, Moody's
said that upward rating pressure could emerge if: (1) Great-West
continues to improve its financial flexibility with sustained financial
leverage in the low 20s, earnings coverage consistently above 10x,
and cash coverage above 7x; and (2) GWL maintains capital adequacy
above 230% MCCSR.
Negative rating pressure could emerge if: (1) financial flexibility
weakened such that financial leverage was maintained above 30%
and earnings coverage dropped consistently below 8x, (2) return
on equity fell below 10% in its Canadian and U.S.
businesses, or (3) if regulatory capital ratios declined at the
operating companies such that Canadian MCCSR fell below 200% and
NAIC RBC fell below 325%.
The following ratings were affirmed with a stable outlook:
Great-West Life Assurance Company -- insurance financial strength
Canada Life Assurance Company -- insurance financial strength at
London Life Insurance Company -- insurance financial strength at
GWL&A Financial, Inc. -- long-term issuer
rating at A3;
Great-West Life & Annuity Insurance Company -- insurance
financial strength at Aa3;
Canada Life Insurance Company of America -- insurance financial strength
First Great-West Life & Annuity Ins. Co. --
insurance financial strength at Aa3;
Great-West Life & Annuity Ins Capital, LP -- backed
senior unsecured at Baa1;
Great-West Life & Annuity Ins Capital, LP II --
backed subordinate at Baa2.
Great-West Lifeco is headquartered in Winnipeg, Manitoba,
Canada. At December 31, 2008, the company reported
consolidated balance sheet and segregated fund assets of approximately
C$208 billion, consolidated share capital and surplus (including
perpetual preferred securities) of C$13 billion, and annual
net income available to common shareholders of C$1.4 billion.
The last Great-West related rating action was on November 27,
2007 when Moody's affirmed Great-West's subsidiary
ratings on the sale of its U.S. healthcare business.
The principal methodology used in rating the Great-West family
of companies was Moody's Global Rating Methodology for Life Insurers,
which can be found at www.moodys.com in the Credit Policy
& Methodologies directory, in the Ratings Methodologies subdirectory.
Other methodologies and factors that may have been considered in the process
of rating Great-West can also be found in the Credit Policy &
Moody's insurance financial strength ratings are opinions of the ability
of insurance companies to pay punctually senior policyholder claims and
obligations. For more information, visit our website at www.moodys.com/insurance.
VP - Senior Credit Officer
Financial Institutions Group
Moody's Canada Inc.
Moody's affirms Great-West's ratings on 4Q08 results
Financial Institutions Group
Moody's Investors Service
No Related Data.
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