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Great-West Lifeco reports second quarter 2017 adjusted net earnings of $712 million, up 6% from the second quarter of 2016

Readers are referred to the cautionary notes regarding Forward-Looking Information and Non-IFRS Financial Measures at the end of this release.  All figures are expressed in Canadian dollars, except as noted.

Toronto, August 2, 2017 ... Great-West Lifeco Inc. (Lifeco or the Company) today announced net earnings attributable to common shareholders of $585 million or $0.591 per common share.  Included in Lifeco's net earnings for the second quarter of 2017 were restructuring costs of $127 million, primarily related to the realignment of the Canada segment operations.  Excluding these costs, adjusted net earnings for the second quarter of 2017 were $712 million or $0.719 per common share, up 6% compared to $671 million or $0.675 per common share for the same quarter last year.  The increase in adjusted net earnings reflects strong business results and the impact of ongoing expense management initiatives.

For the six months ended June 30, 2017, excluding the impact of restructuring costs, Lifeco’s adjusted net earnings were $1,331 million or $1.345 per common share compared to $1,291 million or $1.300 per common share for the same period last year.

“We were very pleased with the second quarter results, which reflected strong operating performances across businesses and geographies,” said Paul Mahon, President and Chief Executive Officer. “Restructuring initiatives undertaken earlier in the year are delivering expected cost savings. We are managing expenses carefully while continuing to invest in core markets and new capabilities to improve customer experiences and drive future growth.”

Consolidated assets under administration at June 30, 2017 were over $1.3 trillion, an increase of $60.7 billion from December 31, 2016.

Highlights – In Quarter

Fee income of $1.4 billion up 12%

  • Fee and other income was $1.4 billion, up 12% from the second quarter of 2016, primarily as a result of increases in all segments driven by market performance and business growth.

Capital strength and financial flexibility maintained

  • The Great-West Life Assurance Company reported a Minimum Continuing Capital Surplus Requirements (MCCSR) ratio of 239% at June 30, 2017.
  • Lifeco declared a quarterly common dividend of $0.3670 per common share payable September 29, 2017.
  • Adjusted Return on Equity (ROE), excluding the impact of restructuring costs, was 13.9%.

Completed offering of US$700 million of senior notes and redeemed $1.0 billion hybrid subordinated debenture

  • On May 26, 2017, a subsidiary of the Company issued US$700 million principal amount 4.150% senior unsecured notes that are fully and unconditionally guaranteed by Lifeco, maturing on June 3, 2047.
  • On June 21, 2017, a subsidiary of the Company redeemed all $1.0 billion principal amount of its 5.691% subordinated debentures due June 21, 2067 at a redemption price equal to 100% of the principal amount of the debentures, plus any accrued interest up to but excluding the redemption date.

        Completed offering of $200 million of Preferred Shares

  • On May 18, 2017 Lifeco issued 8,000,000 Series T, 5.15% Non-Cumulative First Preferred Shares at $25.00 per share for gross proceeds of $200 million.

SEGMENTED OPERATING RESULTS

For reporting purposes, Lifeco’s consolidated operating results are grouped into four reportable segments - Canada, United States, Europe and Lifeco Corporate - reflecting geographic lines as well as the management and corporate structure of the companies.  For more information, please refer to the Company's 2017 second quarter MD&A.

CANADA

  • Canada progresses business transformation Following the realignment into two new business units: one focused on individual customers and the other on group customers, the Canadian operations made progress on the previously announced targeted annual expense reductions of $200 million pre-tax.  As of June 30, 2017, the Company has achieved approximately $46 million pre-tax in annualized reductions, which resulted in expense reductions of $18 million pre-tax for the first half of 2017, approximately $14 million relating to the common shareholders’ account and $4 million relating to the participating accounts.  As part of this effort, the Company incurred a $215 million pre-tax restructuring charge, which impacted net earnings attributable to the common shareholders by $126 million.
  • Q2 Canada sales up 21% Sales in the second quarter of 2017 were $3.2 billion, up 21% from the second quarter of 2016.  The increase reflects strong sales in individual and group investment funds and single premium group annuities as well as higher group insurance sales.
  • Q2 Canada segment adjusted net earnings of $311 million – Adjusted net earnings attributable to common shareholders for the second quarter of 2017 were $311 million compared to $327 million in the second quarter of 2016, primarily due to lower contributions from investment experience which were partially offset by strong core business results including higher fee income and more favourable morbidity and mortality experience.  For the six months ended June 30, 2017, adjusted net earnings attributable to common shareholders were $566 million compared to $603 million for the same period last year.
  • Great-West Life completes acquisition of Financial Horizons Group, the leading MGA in the Canadian market – Subsequent to the second quarter of 2017, the Company, through its subsidiary Great-West Life, completed the acquisition of Financial Horizons Group, a Canadian Managing General Agency (MGA), that offers access to life and health insurance, employee benefits, pensions, investments, structured settlements, and risk management products and services to advisors throughout Canada.

UNITED STATES

  • Q2 U.S. segment net earnings up 55% Net earnings attributable to common shareholders for the second quarter of 2017 were US$62 million, up 55%, compared to net earnings of US$40 million in the second quarter of 2016 driven by growth in fee income and lower expenses for both Empower Retirement and Putnam.  For the six months ended June 30, 2017, net earnings attributable to common shareholders were US$104 million compared to US$87 million for the same period last year.
  • Q2 sales for Great-West Financial up 9% Sales in the second quarter of 2017 were US$5.1 billion, up 9% from the second quarter of 2016 primarily due to higher Empower Retirement sales.
  • Putnam average assets up 10% Putnam average assets under management for the three months ended June 30, 2017 were US$161.8 billion compared to US$146.7 billion for the same quarter last year, an increase of 10%, primarily due to the cumulative impact of market performance and net asset inflows from the institutional business over the twelve month period.  Putnam ending assets under management at June 30, 2017 were US$162.9 billion.
  • Improved Putnam mutual fund net cash flows – Putnam’s net cash outflows from mutual funds of US$406 million for the three months ended June 30, 2017 were a US$2.0 billion improvement from the same period last year.

EUROPE

  • Q2 Europe segment net earnings up 10% Net earnings attributable to common shareholders for the second quarter of 2017 were $321 million compared to $293 million in the second quarter of 2016 driven by strong investment performance and earnings growth across all regions in local currency. For the six months ended June 30, 2017, net earnings attributable to common shareholders were $610 million compared to $580 million for the same period last year.
  • Irish Life Health remains on track to deliver target expense reductions As of June 30, 2017, the Company has achieved €8 million pre-tax of annualized synergies to date, relating to the integration of the Irish Life Health operations and remains on track to achieve targeted annual cost savings of €16 million pre-tax within the next six months.  Irish Life has also achieved €5 million pre-tax annualized expense reductions in its retail division with a target of €8 million pre-tax by the end of 2017.
  • Europe assets under management up 8% Assets under management as of June 30, 2017 were $203.8 million, up 8% from the second quarter of 2016 and contributed to Europe fee and other income increasing 13% over the same period.

QUARTERLY DIVIDENDS

At its meeting today, the Board of Directors approved a quarterly dividend of $0.3670 per share on the common shares of Lifeco payable September 29, 2017 to shareholders of record at the close of business September 1, 2017.

In addition, the Directors approved quarterly dividends on Lifeco's preferred shares, as follows:

First Preferred Shares

Record Date

Payment Date

Amount, per share

Series F

September 1, 2017

September 29, 2017

$0.36875

Series G

September 1, 2017

September 29, 2017

$0.3250

Series H

September 1, 2017

September 29, 2017

$0.30313

Series I

September 1, 2017

September 29, 2017

$0.28125

Series L

September 1, 2017

September 29, 2017

$0.353125

Series M

September 1, 2017

September 29, 2017

$0.3625

Series N

September 1, 2017

September 29, 2017

$0.1360

Series O

September 1, 2017

September 29, 2017

$0.115253

Series P

September 1, 2017

September 29, 2017

$0.3375

Series Q

September 1, 2017

September 29, 2017

$0.321875

Series R

September 1, 2017

September 29, 2017

$0.3000

Series S

September 1, 2017

September 29, 2017

$0.328125

Series T

September 1, 2017

September 29, 2017

$0.476200

For purposes of the Income Tax Act (Canada), and any similar provincial legislation, the dividends referred to above are eligible dividends.

Selected financial information is attached.

GREAT-WEST LIFECO

Great-West Lifeco Inc. (TSX:GWO) is an international financial services holding company with interests in life insurance, health insurance, retirement and investment services, asset management and reinsurance businesses.  Lifeco has operations in Canada, the United States, Europe and Asia through The Great-West Life Assurance Company (Great-West Life) and its operating subsidiaries, London Life Insurance Company (London Life) and The Canada Life Assurance Company (Canada Life); Great-West Life & Annuity Insurance Company (Great-West Financial) and Putnam Investments, LLC (Putnam).  Lifeco and its companies have over $1.3 trillion in consolidated assets under administration and are members of the Power Financial Corporation group of companies.  To learn more, visit www.greatwestlifeco.com.

Basis of presentation

The consolidated financial statements of Lifeco have been prepared in accordance with International Financial Reporting Standards (IFRS) and are the basis for the figures presented in this release, unless otherwise noted.

Cautionary note regarding Forward-Looking Information

This release may contain forward-looking statements.  Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as "expects", "anticipates", "intends", "plans", "believes", "estimates" and other similar expressions or negative versions thereof.  These statements may include, without limitation, statements about the Company's operations, business, financial condition, expected financial performance (including revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future actions by the Company, including statements made with respect to the expected benefits of acquisitions and divestitures.  Forward-looking statements are based on expectations, forecasts, predictions, projections and conclusions about future events that were current at the time of the statements and are inherently subject to, among other things, risks, uncertainties and assumptions about the Company, economic factors and the financial services industry generally, including the insurance and mutual fund industries.  They are not guarantees of future performance, and the reader is cautioned that actual events and results could differ materially from those expressed or implied by forward-looking statements.  Material factors and assumptions that were applied in formulating the forward-looking information contained herein include the assumption that the business and economic conditions affecting the Company’s operations will continue substantially in their current state, including, without limitation, with respect to customer behaviour, the Company's reputation, market prices for products provided, sales levels, premium income, fee income, expense levels, mortality experience, morbidity experience, policy lapse rates, reinsurance arrangements, liquidity requirements, capital requirements, credit ratings, taxes, inflation, interest and foreign exchange rates, investment values, hedging activities, global equity and capital markets, business competition and other general economic, political and market factors in North America and internationally.  Many of these assumptions are based on factors and events that are not within the control of the Company and there is no assurance that they will prove to be correct.  Other important factors and assumptions that could cause actual results to differ materially from those contained in forward-looking statements include, customer responses to new products, impairments of goodwill and other intangible assets, the Company's ability to execute strategic plans and changes to strategic plans, technological changes, breaches or failure of information systems and security (including cyber attacks), payments required under investment products, changes in local and international laws and regulations, changes in accounting policies and the effect of applying future accounting policy changes, unexpected judicial or regulatory proceedings, catastrophic events, continuity and availability of personnel and third party service providers, the Company's ability to complete strategic transactions and integrate acquisitions and unplanned material changes to the Company's facilities, customer and employee relations or credit arrangements.  The reader is cautioned that the foregoing list of assumptions and factors is not exhaustive, and there may be other factors listed in other filings with securities regulators, including factors set out in the Company's 2016 Annual MD&A under "Risk Management and Control Practices" and "Summary of Critical Accounting Estimates", which, along with other filings, is available for review at www.sedar.com.  The reader is also cautioned to consider these and other factors, uncertainties and potential events carefully and not to place undue reliance on forward-looking statements.  Other than as specifically required by applicable law, the Company does not intend to update any forward-looking statements whether as a result of new information, future events or otherwise.

Cautionary note regarding Non-IFRS Financial Measures

This release contains some non-IFRS financial measures.  Terms by which non-IFRS financial measures are identified include, but are not limited to, "operating earnings", "constant currency basis", "premiums and deposits", "sales", "assets under management", "assets under administration" and other similar expressions.  Non-IFRS financial measures are used to provide management and investors with additional measures of performance to help assess results where no comparable IFRS measure exists.  However, non-IFRS financial measures do not have standard meanings prescribed by IFRS and are not directly comparable to similar measures used by other companies.  Refer to the appropriate reconciliations of these non-IFRS financial measures to measures prescribed by IFRS.

Second Quarter Conference Call

Lifeco's second quarter conference call and audio webcast will be held August 3, 2017 at 10:00 a.m. (ET).  The call and webcast can be accessed through www.greatwestlifeco.com or by phone at:

A replay of the call will be available from August 3, 2017 to August 10, 2017, and can be accessed by calling 1-800-408-3053 or 905-694-9451 in Toronto (passcode: 7905788#).  The archived webcast will be available on www.greatwestlifeco.com from August 3, 2017 to August 2, 2018.

Additional information relating to Lifeco, including the most recent interim unaudited consolidated financial statements, interim Management's Discussion and Analysis (MD&A) and CEO/CFO certification will be filed on SEDAR at www.sedar.com.

For more information contact:

Media Contact:
Marlene Klassen
204-946-7705
Email: marlene.klassen@gwl.ca             

Investor Relations Contact:
Wendi Thiessen
204-946-7452
Email: wendi.thiessen@gwl.ca

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