Fitch Affirms Great-West Lifeco; Outlook Stable

(The following statement was released by the rating agency)CHICAGO, July 18 (Fitch) Fitch Ratings has affirmed the ratings of Great-West Lifeco, Inc. (TSE: GWO) including the holding company's Issuer Default Rating (IDR) at 'A+' as well as the Insurer Financial Strength (IFS) ratings of all operating subsidiaries at 'AA'. The Rating Outlook is Stable. A full list of rating actions follows at the end of this release. The affirmations are 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 is the ongoing underperformance of Putnam Investments (Putnam), which has strained overall earnings levels and led to fixed-charge coverage to remain at depressed levels for some time. KEY RATING DRIVERSFitch 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 reflects the company's conservative risk appetite, and 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 CAD620 million in the first quarter of 2016, down 11% from the same period in 2015 due to a decline in overall investment market performance which pressured fee income, unfavorable mortality and morbidity, and lower contribution from yield enhancement. Despite strong operating results from GWO's insurance operations, fixed charge coverage of 7.8x during the first three months of 2016 remains below expectations for the current rating category. This is due to the ongoing underperformance of Putnam, which is not expected 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 CAD1.6 billion at March 31, 2016, or 1.3% of bond investments. Direct and indirect energy exposure of CAD8 billion, or 5% of total invested assets, is lower than its peers. At CAD3.5 billion in total investment provisions, Fitch believes GWO is well-provisioned for future credit loss and that future impairments in excess of actuarial reserve provisions are likely to remain within manageable levels and ratings expectations. Fitch views GWO's actuarial liabilities as relatively unaffected by equity markets, due to the avoidance of riskier enhancements to individual segregated funds. The company's primary exposure to equity markets is through Putnam.Since 2013, GWO's financial leverage has been trending down and was 18.1% at March 31, 2016. However the company's debt-to-total capital of 26.5%, which includes CAD2.5 billion of perpetual preferred securities, continues to be slightly higher than comparably rated North American peers. The company's risk-adjusted capitalization remains supportive of the rating. Great-West Life Assurance Company's MCCSR was 236% at March 31, 2016.RATING SENSITIVITIESKey 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 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, London Life or Irish 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.FULL LIST OF RATING ACTIONSFitch has affirmed the following ratings with a Stable Outlook: Great-West Lifeco, Inc. --Long-Term IDR at 'A+'; --6.14% senior debentures due March 21, 2018 at 'A';--4.65% senior debentures due Aug. 13, 2020 at 'A';--6.74% senior debentures due Nov. 24, 2031 at 'A'; --6.67% senior debentures due March 21, 2033 at 'A';--5.998% senior debentures due Nov. 16, 2039 at 'A';--2.5% Euro-bond debt due April 18, 2023 at 'A';--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, 2.176% non-cumulative first preferred shares at 'BBB+';--Series O, floating rate 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+'.GWL&A Financial Inc. --Long-term IDR at 'A+'. Canada Life Financial Corporation--Long-term IDR at 'A+'. Great-West Life Assurance Company--IFS at 'AA';--Long-Term IDR at 'AA-'. Canada Life Assurance Company--IFS at 'AA';--Long-Term IDR at 'AA-';--6.4% subordinated debentures due Dec. 11, 2028 at 'A+'. Great-West Life and Annuity Insurance Company--IFS at 'AA';--Short-Term IDR at 'F1+';--Commercial paper at 'F1+'. London Life Insurance Company;Great-West Life and Annuity Insurance Company of New York--IFS at 'AA'. Irish Life Assurance plc--IFS at 'AA';--Long-Term IDR at 'AA-';--5.25% subordinated debt at 'A'.Great-West Life & Annuity Insurance Capital, LP II--7.153% subordinated debentures due 2046 at 'BBB+'. Canada Life Capital Trust --Series B, 7.529% capital securities due June 30, 2052 at 'A'. Great-West Life & Annuity Insurance Capital, LP --6.625% deferrable debentures due Nov. 15, 2034 at 'BBB+'. Great-West Lifeco Finance (Delaware) LP--5.691% subordinated debentures due 2067 at 'BBB+'; --7.127% subordinated debentures due 2068 at 'BBB+'.Contact: Primary AnalystTana M. Higman Director+1-312-368-3122Fitch Ratings, Inc.70 W. Madison StreetChicago, IL 60602 Secondary AnalystJamie R. Tucker, CPA Director+1-312-612-7856Committee ChairpersonJames B. 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