A.M. Best Co. has affirmed the financial strength rating and issuer credit ratings of Winnipeg-based Great-West Life Assurance Company and Great-West Life & Annuity Insurance Company (GWL&A), of Greenwood Village, Colo.

The ratings agency has also affirmed the issuer credit ratings of parent company Great-West Lifeco, Inc., and all debt ratings issued by Great-West and its subsidiaries.

All ratings have been removed from under review with negative implications and assigned a stable outlook.

In addition, A.M. Best has assigned a debt rating of to Great West Lifeco Finance (Delaware) LP’s $1 billion fixed/floating rate subordinated debentures due 2067. These securities will be fully and unconditionally guaranteed on a subordinated basis by Great-West. Proceeds from this offering will be used by Great-West to provide funding to indirect and direct subsidiaries for general corporate purposes, including to finance the $US3.9 billion acquisition of asset manager Putnam Investment Trust from Marsh & McLennan Cos.

The rating affirmations are based on Great-West’s operating companies’ very strong market positions in their core business lines, superior financial performance and operating fundamentals, significant and sustainable scale advantages in core business lines in Canada and strong investment management capabilities. Following the $1 billion debt issuance, A.M. Best is comfortable that Great-West will be able to manage its leverage position within expectations for the current ratings. A.M. Best notes that Great-West has historically elevated its leverage during acquisitions, but its strong track record of successfully integrating these transactions has allowed it to reduce leverage in a relatively short period of time.

The ratings also consider 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, solid earnings contribution from its U.S. operations and further geographic diversification arising from continued expansion in its international business segments in Europe.

Organic growth, along with significant acquisitions in Canada, has led to strong and sustainable earnings growth. Given Great-West’s Canadian market position, pricing discipline and low expense structure, A.M. Best expects to see continued earnings growth and superior shareholder returns. Moreover, the Canadian distribution systems of Great-West and its subsidiaries represent Canada’s largest and serve as a major strength and competitive advantage for the company.

In the U.S., GWL&A is a significant player in the small to medium-sized employee benefits market, with considerable strength in the public and non-profit financial services sector. Its low cost administrative services platform and service capabilities enable expansion in its client base of self-funded plans, providing a stable source of earnings for Great-West. In addition, its sizable book of closed annuity and individual life insurance generate a significant proportion of GWL&A’s earnings.

A.M. Best believes that Great-West’s debt service capabilities will remain favorable. Great-West maintains an excellent liquidity posture supported by high quality investments, stable sources of earnings and solid coverage ratios. In the near term, Great-West’s overall financial flexibility is somewhat reduced by the Putnam acquisition due to increased overall leverage and lower, but still strong, coverage ratios.

Offsetting rating factors include heightened leverage and significant goodwill resulting from acquisition activity, which will increase considerably with the acquisition of Putnam. Great-West also faces challenges associated with growth in its core U.S. business segment and expansion in Canada’s highly competitive and saturated marketplace. Great-West has also increased its exposure to longevity risk through recent acquisitions of large annuity payout blocks in the United Kingdom. Upon the close of the transaction, A.M. Best will monitor Putnam and evaluate its ability to continue to retain key management, realize expected margin improvements and improve net flows.