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Rating Action:

Moody's places ratings of Great-West Life & Annuity on review-down

25 Jan 2019

New York, January 25, 2019 -- Moody's Investors Service has placed the Aa3 insurance financial strength (IFS) ratings of Great-West Life & Annuity Insurance Company (GWLA), and the Aa3 IFS rating of its subsidiary Great-West Life & Annuity Insurance Company of New York, on review for downgrade. The A3 issuer rating of GWLA 's US holding company, GWL&A Financial, Inc., and the Baa1 (hyb) senior debt rating of debentures issued by an affiliate, Great-West Life & Annuity Insurance Capital, LP, were also placed on review for downgrade. The Prime-1 commercial paper rating was affirmed, reflecting Moody's expectation that any downgrade to the long term senior unsecured ratings is unlikely to exceed one notch. The action follows the announcement by GWLA's ultimate Canadian parent company, Great-West Lifeco, Inc. (Great-West Life, not rated; Great West Life Assurance Company, IFS at Aa3, stable outlook), of its agreement to sell substantially all of GWLA's individual life insurance and annuity business, including its corporate-owned and bank-owned life insurance business (COLI/BOLI), via reinsurance, to a subsidiary of Protective Life Corporation (senior debt at Baa1, stable outlook) for approximately $1.2 billion of after-tax value, excluding one-time expenses and subject to contingent post-closing adjustments. Protective is a wholly owned subsidiary of Dai-ichi Life Holdings, Inc. (Dai-ichi Life Insurance Company, Limited, IFS rating at A1, stable outlook).

RATINGS RATIONALE

Moody's said the review for downgrade reflects the magnitude of the transaction, and the types of business to be sold, which together will diminish GWLA's business diversity and financial profile in the US. Specifically, the transaction consists of most of GWLA's Individual Markets businesses, including its profitable COLI/BOLI business, a market in which the company is top player, as well as a number of smaller retail life and annuity businesses. The sale of these businesses will weaken the company's stand-alone credit profile (i.e., before parental support is considered), leaving the company a leading 401(k) recordkeeper and specialized 457 pension administrator, but with a much smaller US insurance footprint and reduce profitability.

The review will focus on Great-West's long-term strategic plans for GWLA in the US market, its target capital adequacy for GWLA, in terms of its NAIC Risk-Based Capital Ratio, and any parental financial support it might provide, if need be (GWLA's ratings currently benefit from one notch of support). The review will also focus on the use of proceeds from the sale, and consolidated leverage and coverage, including debt at Great-West Life & Annuity Insurance Capital, LP. Following the review, GWLA's ratings could be confirmed or downgraded by a notch.

Moody's said the following factors could result in a downgrade of GWLA's ratings: reduction in business diversity and footprint, with focus predominantly on fee-based recordkeeping and administrative services; increased earnings volatility and worsening profitability post transaction (ROC < 4%); reduction in perceived support and/or downgrade of Great-West Life, or Great-West Life Assurance and its affiliates; NAIC RBC ratio below 350% (company action level).

Given the review for downgrade, an upgrade would be unlikely. However, the following factors could result in a confirmation of GWLA's ratings: replacement of lost business diversity and market share with profitable insurance businesses complementary to GWLA's fee-based recordkeeping and administrative services; stability or growth of profitability, post transaction; strong implicit support from Great-West Life or Great-West Life Assurance and its affiliates.

The following ratings were placed on review for downgrade:

Great-West Life & Annuity Insurance Company: insurance financial strength of Aa3;

Great-West Life & Annuity Insurance Company of New York: insurance financial strength of Aa3;

GWL&A Financial, Inc.: issuer rating of A3;

Great-West Life & Annuity Insurance Capital, LP: senior debt rating of Baa1 (hyb).

The following rating was affirmed:

Great-West Life & Annuity Insurance Company: commercial paper rating of Prime-1.

Outlook Actions:

Issuer: Great-West Life & Annuity Insurance Company:

...Outlook Under Review from stable

Issuer: Great-West Life & Annuity Insurance Company of New York:

...Outlook Under Review from stable

Issuer: GWL&A Financial, Inc.

...Outlook Under Review from stable

Issuer: Great-West Life & Annuity Insurance Capital, LP

...Outlook Under Review from stable

Great-West Life & Annuity Insurance Company is wholly owned subsidiary of Great West Lifeco Inc. of Winnipeg, Canada, which is domiciled and located in the state of Colorado. For the first nine months of 2018, the company had statutory net income of $236 million, with total statutory assets of close to $58 billion and total surplus of approximately $1.3 billion as of September 30, 2018.

The principal methodology used in these ratings was Life Insurers published in May 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Laura Bazer
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Scott Robinson
Associate Managing Director
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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