Fitch affirms Great-West Lifeco A+ rating with stable outlook

Fitch Ratings has affirmed Great-West Lifeco Inc.’s (GWO) Long-Term Issuer Default Rating (IDR) at A+ and the Insurer Financial Strength (IFS) ratings of its operating subsidiaries at AA. The outlook remains Stable, supported by the insurer’s diversified business, strong capital position and consistent earnings performance.

The ratings agency pointed to Great-West Lifeco’s established position in Canada’s insurance market, its expanding U.S. operations and its conservative approach to financial risk.

A substantial investment-grade bond portfolio and disciplined liquidity management provide additional financial support.

Fitch expects earnings growth across the group’s U.S. businesses to continue contributing to profitability. Financial leverage remains manageable following several years of reductions, although acquisitions could increase debt levels over the medium term.

Great-West Lifeco’s insurance and financial services portfolio

Fitch assesses Great-West Lifeco’s business profile as strong, with its operating subsidiaries’ AA financial strength ratings matching the group’s implied rating.

The company operates across Canada, the U.S. and Europe, offering life and health insurance, retirement services, investment products, asset management and reinsurance.

Its Canadian operations hold leading positions across several insurance segments. Established brands and an extensive distribution network support customer retention and recurring earnings. A conservative approach to product development and risk selection further limits exposure to volatile business lines.

Geographic diversification also reduces dependence on individual markets. Retirement and wealth management activities generate substantial earnings alongside the group’s traditional insurance operations.

Capital adequacy and financial leverage

Great-West Lifeco’s operating subsidiaries maintain regulatory capital ratios above minimum requirements and internal targets.

The Canada Life Assurance Company, its principal Canadian insurance subsidiary, reported a Life Insurance Capital Adequacy Test (LICAT) ratio of 128% in 2Q26.

In the U.S., Empower’s estimated Risk-Based Capital (RBC) ratio exceeded 450% during the same quarter. Both figures indicate substantial regulatory capital buffers.

At the holding company level, Great-West Lifeco reported CAD 2.5bn in cash at the end of 2Q26, providing resources for corporate obligations and potential investment opportunities.

The group’s Fitch-calculated financial leverage ratio declined to 16.9% in 2Q26, compared with 17.1% at year-end 2025 and 18.4% at the end of 2024.

This reduction followed several years of balance sheet management. Fitch anticipates some increase in leverage if the company pursues acquisitions, although its base expectation remains within the agency’s acceptable range.

Earnings growth supported by retirement and wealth businesses

Great-West Lifeco continues to generate earnings across several operating divisions, contributing to financial flexibility and consolidated capital strength.

Fitch calculated a base-earnings return on equity (ROE) of 16.4% for 1H26, up from 15.7% for the full year 2025.

Retirement and wealth management remain important contributors, led by Empower’s U.S. operations. Insurance businesses in Canada and Europe provide additional earnings, alongside the Capital and Risk Solutions segment.

Higher fee income from asset growth and positive net inflows has supported profitability. Increased business volumes and controlled operating expenses have also contributed to the company’s financial performance.

Fitch expects the U.S. retirement and wealth businesses to remain significant sources of earnings growth. Their contribution supports the group’s capacity to meet financing costs and maintain capital across its insurance subsidiaries.

Investment portfolio and asset risk

Fitch lowered its assessment of Great-West Lifeco’s asset and investment risk from aa to aa-, following an increase in exposure to equities and non-investment-grade bonds. The group’s risk-asset ratio rose to 77% in 2025, compared with 70.1% a year earlier.

Despite the increase, Great-West Lifeco recorded the lowest risk-asset ratio among its Fitch-rated peers. The agency continues to regard its investment portfolio as the most conservative within the comparison group.

Approximately 70% of the insurer’s investments are allocated to fixed-income instruments, a larger share than at most comparable companies.

The credit quality of its bond holdings remains high. Around 98% of the bond portfolio carries investment-grade ratings, with approximately 70% rated A or higher.

These allocations reduce exposure to lower-rated credit securities, although the recent increase in risk assets contributed to Fitch’s revised assessment.

Asset-liability management and liquidity

Fitch considers Great-West Lifeco’s liquidity management appropriate for its current ratings. The insurer manages cash flows by matching assets with expected insurance liabilities, while monitoring investment yields against projected obligations to policyholders.

This approach supports the group’s ability to meet contractual payments without relying excessively on asset sales during unfavorable market conditions.

The CAD 2.5bn holding company cash balance in 2Q26 provides an additional source of liquidity.

Fitch identifies potential rating downgrade risks

A deterioration in Great-West Lifeco’s competitive position represents one possible source of downward rating pressure.

Fitch identified the loss of market share in Canada, weakening operations in the U.S. or Europe, and reduced diversification across retirement, wealth, group benefits, and insurance and risk solutions as potential negative rating factors.

Large acquisitions falling outside the company’s established conservative risk appetite would also attract scrutiny. Capital adequacy remains another consideration. Sustained deterioration in risk-adjusted capitalization or declining LICAT ratios would weaken Fitch’s assessment of the group’s financial strength.

The agency identified several quantitative thresholds associated with potential negative rating action.

A sustained decline in base-earnings ROE below 10% would signal weaker profitability. Fixed-charge coverage falling below 9.5x would indicate reduced capacity to meet financing obligations.

Financial leverage reaching or exceeding 22% represents another potential downgrade trigger.

Fitch also identified a reduction in Power Financial Corporation’s ownership stake in Great-West Lifeco as a factor with possible negative rating consequences.

Conditions supporting a potential rating upgrade

An upgrade would require stronger competitive positioning and financial metrics without a corresponding increase in risk.

Fitch would consider substantial improvements in Great-West Lifeco’s size and market position, especially across its U.S. and European businesses. Such expansion would need to preserve capital strength and conservative risk management.

A sustained improvement in risk-adjusted capitalization, including LICAT ratios materially above peer levels, would provide further support. The agency also identified specific profitability and leverage targets for positive rating action.

A sustainable base-earnings ROE of at least 14%, accompanied by fixed-charge coverage consistently above 15x, would support a stronger financial assessment.

Financial leverage sustained at or below 11% would represent another favorable development.

The existing A+ issuer rating and AA subsidiary financial strength ratings therefore rest on Great-West Lifeco maintaining its competitive position, capital resources and earnings performance.

Fitch’s Stable Outlook indicates an expectation of continued financial strength under its current assumptions, despite potential pressure from acquisitions and increased investment risk.