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Great-West Lifeco reports third quarter 2018 net earnings of $689 million, up 19%, adjusted net earnings of $745 million, up 28%, from the third quarter of 2017

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.

Winnipeg, October 31, 2018 ... Great-West Lifeco Inc. (Lifeco or the Company) today announced net earnings attributable to common shareholders (net earnings) of $689 million or $0.697 per common share for the third quarter of 2018 compared to $581 million or $0.587 per common share for the same quarter last year.  Included in Lifeco’s net earnings for the third quarter of 2018 were restructuring costs of $56 million related to the Company’s U.K. operations compared to $1 million related to the Company’s retail business in Ireland for the same period last year.  Excluding these costs, adjusted net earnings for the third quarter of 2018 were $745 million or $0.754 per common share, up 28% compared to $582 million or $0.589 per common share for the same quarter last year driven by strong underlying business performance in all geographic segments.  Lifeco’s net earnings for the third quarter of 2017 included a provision of $175 million related to the impact of 2017 Atlantic hurricane activity, which reduced earnings per common share by $0.177.

For the nine months ended September 30, 2018, Lifeco’s net earnings were $2,251 million or $2.277 per common share compared to $1,757 million or $1.776 per common share for the same period last year.  Lifeco’s adjusted net earnings were $2,307 million or $2.333 per common share compared to $1,913 million or $1.934 per common share for the same period last year.

“The Company’s operating performance was solid in the third quarter with strong sales growth, particularly in Europe,” said Paul Mahon, President and Chief Executive Officer, Great-West Lifeco. “Our investments in customer experience and operational efficiency are yielding meaningful results and our strong capital position allows us to act on opportunities that support our strategic objectives.”

Highlights – In Quarter

Sales of $34.4 billion up 17%

  • Sales for the third quarter of 2018 were $34.4 billion, up 17% from the third quarter of 2017, driven by a 15% increase in the U.S. segment, reflecting strong mutual fund sales at Putnam, and a 35% increase in the Europe segment, reflecting higher bulk annuity sales.

Fee and other income of $1.5 billion up 6%

  • Fee and other income was $1.5 billion, up 6% from the third quarter of 2017, driven by business growth in all segments and market performance.

Capital strength and financial flexibility maintained

  • The Great-West Life Assurance Company reported a Life Insurance Capital Adequacy Test (LICAT) ratio of 134% at September 30, 2018.
  • Lifeco declared a quarterly common dividend of $0.389 per common share payable December 31, 2018.
  • Adjusted return on equity (ROE) for the third quarter of 2018 was 14.7%. Adjusted ROE excludes restructuring costs, the impact of U.S. tax reform and a net charge on the sale of an equity investment.

Consolidated assets under administration of over $1.4 trillion

  • Consolidated assets under administration at September 30, 2018 were over $1.4 trillion, a 7% increase from December 31, 2017.

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 Company.  For more information, please refer to the Company's 2018 third quarter Management’s Discussion and Analysis (MD&A).

CANADA

  • Q3 Canada segment net earnings up 6% – Net earnings for the third quarter of 2018 were $315 million compared to $296 million in the third quarter of 2017, an increase of 6%, primarily due to continued strong Group Customer morbidity results and higher contributions from insurance contract liability basis changes.  For the nine months ended September 30, 2018, net earnings were $965 million compared to net earnings of $736 million and adjusted net earnings of $862 million for the same period last year.  Adjusted net earnings in 2017 exclude restructuring costs of $126 million.
  • Canada advances business transformation – The Canadian operations made progress on the previously announced targeted annual expense reductions of $200 million pre-tax.  As of September 30, 2018, the Company has achieved approximately $180 million pre-tax in annualized expense reductions; approximately $140 million related to the common shareholders' account and $40 million related to the participating accounts.
  • GWL Realty Advisors recognized as a leader in sustainability GWL Realty Advisors, the Company’s real estate management subsidiary, has been recognized as a leader in sustainability by the Global Real Estate Sustainability Benchmark (GRESB) with a Green Star ranking for the fourth consecutive year and received its second consecutive GRESB '5 star' rating.
  • Acquisition of Guggenheim Real Estate LLC announced – On October 17, 2018, the Company announced that its subsidiary, GWL Realty Advisors U.S. (GWLRA U.S.), has entered into an agreement to acquire Guggenheim Real Estate LLC (GRE), the real estate private equity platform of Guggenheim Investments.  GRE will be combined with EverWest Real Estate Partners, a real estate investment management and operating company acquired by GWLRA U.S. in the first quarter of 2018.  The transaction is expected to close in the fourth quarter of 2018 and is subject to customary regulatory approvals and certain closing conditions.  The acquisition of GRE complements the Company’s global real estate growth strategy and further enhances the Company’s platform in the U.S. market.

UNITED STATES

  • Q3 U.S. segment net earnings of US$87 million – Net earnings for the third quarter of 2018 were US$87 million compared to US$88 million in the third quarter of 2017.  Net growth in the business and the benefit of a lower U.S. corporate tax rate were more than offset by higher expenses, due to a 2017 pension expense recovery, as well as a gain on sale of a previously impaired investment product in 2017 that did not recur.  For the nine months ended September 30, 2018, net earnings were US$251 million, or US$212 million excluding the net positive impact of US$39 million related to U.S. debt refinancing activity in the second quarter of 2018, compared to US$192 million for the same period last year.
  • Empower Retirement participants up 5% year-to-date – Empower Retirement participant accounts at September 30, 2018 were 8.7 million compared to 8.3 million at December 31, 2017, an increase of 5%, primarily due to strong sales.  Empower Retirement assets under administration at September 30, 2018 were US$566 billion compared to US$530 billion at December 31, 2017, an increase of 7%, primarily due to higher equity market levels and growth in participants.
  • Putnam sales up 30% and average assets up 6% Putnam sales were US$10.8 billion, an increase of US$2.5 billion compared to the same period last year, reflecting a 64% increase in mutual fund sales partially offset by a 10% decrease in institutional asset sales. Mutual fund net inflows of US$1.7 billion for the third quarter of 2018 were the highest since the second quarter of 2014. Putnam average assets under management for the three months ended September 30, 2018 were US$175.2 billion compared to US$165.2 billion for the same quarter last year, an increase of 6%, primarily due to the cumulative impact of positive markets and net inflows from mutual funds over the twelve-month period. Putnam ending assets under management at September 30, 2018 were US$177.2 billion.
  • Q3 U.S. segment fee and other income up 3% Fee and other income for the three months ended September 30, 2018 was US$514 million compared to US$499 million for the same quarter last year, an increase of 3%, due to higher average equity market levels and growth in Empower Retirement participants and assets.

EUROPE

  • U.K. operations advance transformation activities – In the third quarter of 2018, the Company advanced its U.K. transformation with activities related to the integration of Retirement Advantage, acquired in the first quarter of 2018, and the pending sale of a block of heritage policies to Scottish Friendly, announced during the second quarter of 2018. Related to this activity, the Company recorded a provision for restructuring costs, which reduced net earnings by $56 million. In addition to the restructuring costs recorded in the period, as part of the transformation program, the Company intends to invest in additional capabilities and expand the range of products offered in the U.K. Along with the strategic benefits, the Company expects to realize total annualized expense savings of approximately £20 million pre-tax by the end of the fourth quarter of 2020 from various sources including system exit costs and a reduction in headcount.
  • Q3 Europe segment net earnings of $263 million up 43% – Net earnings for the third quarter of 2018 were $263 million, up 43%, compared to $184 million in the third quarter of 2017. Adjusted net earnings for the third quarter of 2018, excluding restructuring charges of $56 million, were $319 million. The increase from the prior year was primarily driven by the third quarter of 2017 including a provision of $175 million related to the impact of 2017 Atlantic hurricane activity partially offset by lower contributions from investment experience. For the nine months ended September 30, 2018, adjusted net earnings were $1,018 million compared to $813 million for the same period last year.
  • Q3 Europe segment sales up 35% – Sales for the third quarter of 2018 were $7.2 billion, an increase of 35% compared to the same quarter last year reflecting the completion of four significant U.K. bulk annuity sales with total premiums exceeding £1.3 billion, signifying the Company’s strong presence in the bulk annuity market.

QUARTERLY DIVIDENDS

At its meeting today, the Board of Directors approved a quarterly dividend of $0.389 per share on the common shares of Lifeco payable December 31, 2018 to shareholders of record at the close of business December 3, 2018.

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

December 3, 2018

December 31, 2018

$0.36875

Series G

December 3, 2018

December 31, 2018

$0.3250

Series H

December 3, 2018

December 31, 2018

$0.30313

Series I

December 3, 2018

December 31, 2018

$0.28125

Series L

December 3, 2018

December 31, 2018

$0.353125

Series M

December 3, 2018

December 31, 2018

$0.3625

Series N

December 3, 2018

December 31, 2018

$0.1360

Series O

December 3, 2018

December 31, 2018

$0.177005

Series P

December 3, 2018

December 31, 2018

$0.3375

Series Q

December 3, 2018

December 31, 2018

$0.321875

Series R

December 3, 2018

December 31, 2018

$0.3000

Series S

December 3, 2018

December 31, 2018

$0.328125

Series T

December 3, 2018

December 31, 2018

$0.321875

 

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 and Europe 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 $1.4 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 condensed consolidated interim unaudited 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 information.  Forward-looking information includes 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 and expected cost reductions and savings.  Forward-looking statements are based on expectations, forecasts, estimates, 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 2017 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 information.  Other than as specifically required by applicable law, the Company does not intend to update any forward-looking information 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", "adjusted net earnings", "adjusted return on equity", "core net 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 where applicable.

Third Quarter Conference Call

Lifeco's third quarter conference call and audio webcast will be held November 1, 2018 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 November 1, 2018 to December 1, 2018, and can be accessed by calling 1-800-408-3053 or 905-694-9451 in Toronto (passcode: 7019569#).  The archived webcast will be available on www.greatwestlifeco.com from November 1, 2018 to October 31, 2019.

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 Opens a new website in a new window.

For more information contact:

Media Relations:
Liz Kulyk
204-926-5012
media.relations@gwl.ca

Investor Relations:
Deirdre Neary
416-552-3208
deirdre.neary@gwl.ca