DBRS Morningstar Comments on Great-West's Announcement to Acquire MassMutual's Retirement Services Business.

DBRS Limited (DBRS Morningstar) notes that its ratings for Great-West Lifeco Inc. (Great-West or the Company; rated A (high) with a Stable trend by DBRS Morningstar) are unchanged following the announcement that Great-West's subsidiary, Empower Retirement (Empower), entered into an agreement to acquire MassMutual's U.S. retirement business services for a total transaction value of USD 3.35 billion, including a reinsurance ceding commission of USD 2.35 billion and USD 1.0 billion of required capital to support the business. Subject to customary regulatory approvals, the transaction is expected to close in Q4 2020.

DBRS Morningstar views the announced transaction as being aligned with Great-West's strategic plan to expand its wealth management and retirement service capabilities in the United States, by providing a key growth platform for Empower. The acquisition of MassMutual's retirement business services will enhance Empower's already strong market position as the second-largest record keeper in the U.S. retirement industry. On a proforma basis, Empower will now have more than USD 834 billion in assets under administration, 12.2 million participants, and 67,000 plans. DBRS Morningstar notes that following relatively modest integration expenses, Empower's lower administration costs will provide a significant source of postintegration expense-saving opportunities.

Great-West has announced that the transaction is expected to be funded through a combination of cash on hand, short-term debt, and approximately USD 1.5 billion in long-term financing. As a result, Great-West's consolidated financial leverage (measured as consolidated total debt and preferred shares over total capitalization) will increase substantially by almost 500 basis points to approximately 35% by the end of 2020, which is materially higher than the Canadian peer average, and negatively impacts the Company's financial flexibility amid the Coronavirus Disease (COVID-19) pandemic.

In DBRS Morningstar's view, further material deterioration in the macroeconomic conditions of those countries where Great-West's subsidiaries operate, combined with reduced financial flexibility and initial execution risk due to the MassMutual's transaction, would put negative pressure on the Company's ratings. While DBRS Morningstar expects Great-West's coverage ratios to remain strong, financial leverage will take several years to return to current levels. Supportive of the ratings, Great-West continues to benefit from strong capital ratios and liquidity, as well as from its excellent franchise strength that generates good and consistent results across various geographies. DBRS Morningstar also notes Great-West's long trajectory of successfully integrating large prior acquisitions, including previous acquisitions in the U.S. retirement business, which helps to mitigate execution risk concerns regarding the announced acquisition.

Notes:

All figures are in U.S. dollars unless otherwise noted.

For more information on this issuer or this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

DBRS Limited

DBRS Tower, 181 University Avenue, Suite 700

Toronto, ON M5H 3M7 Canada

Tel. +1 416 593-5577

(C) 2020 Electronic News Publishing, source ENP Newswire