Winnipeg-based Great-West Lifeco Inc.’s (GWL) pledge to reduce its Canadian workforce by approximately 1,500 positions over the next two years will bolster the firm’s bottom line and be credit positive as it will reduce the firm’s costs and shore up its earnings strength, according to a new report Moody’s Investors Service Inc.
Although GWL will record a $172 million (pre-tax) restructuring charge as a result of the planned cuts, “the action is credit positive because it enhances the key pillar supporting GWL’s strong insurance financial strength rating: the recurring earnings power of its Canadian franchise,” the credit-rating agency’s report states.
The Moody’s report notes that GWL has invested heavily in online distribution, underwriting and internal processing “in order to keep up with the general trends in financial services and to create earnings growth.” This increased investment in technology creates the opportunity to cut jobs, particularly in internal processing and underwriting.
Read: GWL to reduce workforce as firm focuses on technology
“Digital enhancements will continue to take place across both group and individual businesses,” the report says. “On the group side, investment in capabilities such as web- and mobile-based claims submission and mobile apps for group plan members to manage prescriptions help drive efficiencies and client engagement. Individual insurance examples include direct-to-consumer and online cross-sell initiatives through group relationships.”
In the wake of the job cuts, Moody’s expects expense growth, “which has been approximately 6%-7% over the past several years, to moderate to 3%-4%.”
Furthermore, Moody’s expects that operating earnings, “which have been growing at approximately a compound annual growth rate of 4% over the past five years, to accelerate as a result of these initiatives.”