Rating agency DBRS Morningstar has assigned Great-West Lifeco a financial solvency rating of AA and an issuer rating of A (high), both with a stable outlook. DBRS notes the positive effect of the financial market’s rebound on the insurer’s results. It also points out a decline in claims and good business growth.
Buoyed by the financial market recovery, Great-West Lifeco reported net income of $863 in the second quarter of 2020, an 88% rise compared with net income of $459 million in Q2 2019. In Canada, the company reported net income of $353 million, equal to a 26.1% increase by the end of the same comparison period.
Even when the agency excludes a $199 million charge related to the sale of US insurance and annuity business in 2019, Great-West Lifeco still achieved 31% growth in net income in Q2 2020 compared with the same quarter in the previous year.
DBRS Morningstar mentions that the credit quality of the insurer’s investment portfolio remains strong, with 79% rated A or higher, and with good industry and geography diversification.
Lockdown: impact mitigated
Although COVID-19 affected its Q1 2020 results, Great-West Lifeco successfully managed the impact of lockdown measures in its key markets, DBRS Morningstar states.
The rating agency anticipates that a prolonged lockdown and potential coronavirus second wave may negatively affect Great-West’s performance in the short to medium term, but it remains optimistic. “Q2 2020's results support DBRS Morningstar's view that the Company is well positioned to navigate the challenges posed by the current pandemic,” the agency comments.
The agency adds that Great-West Lifeco’s total assets under management grew by over 9% in the second quarter because of positive net cash flow and recoveries in market valuation, particularly at its investment fund subsidiary Putnam.
Strong access to capital
DBRS Morningstar’s analysis finds that Great-West Lifeco has strong liquidity at both the holding company and the consolidated subsidiaries. In the second quarter, the group held liquid assets of $8.7 billion, including $1.7 billion held at the holding company. The company also has strong access to capital markets, the analysis points out.
Great-West Lifeco recently announced an offering of senior notes valued at US$500 million to fund the acquisition of Personal Capital Corporation in the United States.
The ratings agency wrote that the insurer had successfully carried out this placement, which will mature in 2050. All the same, DBRS Morningstar says that the financial leverage (one of the units of measurements of debt ratio) of Great-West is above that of its peers.
Solvency similar to peers
The life insurance capital adequacy test (LICAT) indicates that the solvency level of Canada Life (The Canada Life Assurance Company) has remained stable, at 132% at the end of Q2 2020. The ratings agency says that the LICAT ratio of the main insurance subsidiary of Great-West Lifeco remains in line with that of its peers and is well above the company’s internal target. DBRS thinks this provides Canada Life with a significant buffer beyond minimum regulatory requirements to navigate the uncertain environment.
