Deal gives GWL one million new clients

The deal will give GWL more bulk, more profits and a dominant market position.

Loney says GWL was attracted to Irish Life because it is the No. 1 life insurance brand in Ireland, with significant operations in life insurance, pensions and investment management, as well as being the largest broker channel in Ireland.

“This is transformational for our group in Ireland,” Loney says. “It’s significant for our group in Europe, and it’s material for our overall Great-West Lifeco global operations.”

The deal, which is subject to regulatory approval and expected to close in the third quarter of this year, is forecast to add $215 million to GWL’s consensus earnings in 2014. (Last year, GWL had operating earnings of $1.95 billion.)

Irish Life has more than one million clients and $50 billion in assets under management.

The deal is being financed with $1.25 million of new equity, which included help from two companies related to GWL: $550 million from Power Financial Corp. and $50 million from IGM Financial Inc.

Loney believes GWL was the frontrunner among 50 offers when it submitted its initial bid in late 2011. But GWL pulled back in November 2012, when the economic situation in Europe took a turn for the worse.

“It became very difficult in Ireland, with the debt problems and the collapse of some banks,” Loney says. “We withdrew at that point because we were concerned about the grave instability. We have a duty to our policyholders to not do things that are inherently risky.”

But after seeing marked improvements over the next year or so, GWL re-entered negotiations with Ireland’s government in late 2012.

“It’s the first major deal to be done in the Canadian life [insurance] industry since the bad times started five or six year ago,” Loney says, “with the economic downturn and when the instability started to happen.”

@page_break@Ireland is a market that is well known to GWL. Canada Life has significant operations there, including an investment-management company and its European information-systems headquarters.

Even though GWL has experience in operating more than one company in a single market – it operates Great-West Life Assurance Co., Canada Life Assurance Co. and London Life Insurance Co. in Canada – the size of the Irish market doesn’t merit running more than one name.

Thus, the Canada Life name, which has operated in Ireland for 110 years, is being retired in favour of Irish Life.

“We’re proud of the Canada Life brand, Loney says. “From a technical standpoint, the Irish Life brand is clearly the strongest brand in the country, but we’re not stepping away from the Canada Life brand easily.

“This is a country of four million people,” he adds, “and there are seven or eight insurance companies there. There was no question we had to go to one brand for the domestic operations in Ireland.”

Loney doesn’t anticipate looking at other acquisition possibilities in Ireland: “We might start running into competition problems. We’re going to be busy properly integrating Irish Life for the next 18 months or so.”

Following the acquisition announcement in late February, Fitch Ratings Inc., a New York-based global ratings agency, affirmed the ratings of GWL and its holding company’s issuer default ratings at A+ and all of GWL’s outstanding senior debt, hybrid issues and insurer financial strength (IFS) of all operating subsidiaries at AA. Fitch’s rating outlook for GWL is “stable.”

According to the Fitch report: “Fitch’s affirmation reflects its belief that GWL’s capitalization and leverage will not be materially affected by the acquisition, the integration risk derived from the acquisition will be reasonably well managed and that Irish Life provides strategic benefits for GWL.

“Fitch believes,” the report adds, “that GWL’s acquisition of Irish Life will provide [GWL] with critical scale in the Irish market, as well as operational synergies and expense savings.”

Paul Bates, special advisor to the president of McMaster University and the former dean of its DeGroote School of Business, expects acquisition activity across the financial services sector to pick up because the market has improved significantly in the past couple of years.

Bates applauds GWL’s continued diversification through the Irish Life deal: “Insurance companies are in the business of buying risk. And you need to diversify that risk as best you can. Clearly, [GWL] sees an opportunity to get a portfolio of risk that it can acquire that adds to its diversity without having to buy it one policy at a time.”

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