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Great-West Lifeco reports fourth quarter 2017 results; announces 6% dividend increase

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.

Sales grow 13% and adjusted net earnings up 5% year-over-year

Winnipeg, February 8, 2018 ... Great-West Lifeco Inc. (Lifeco or the Company) today announced net earnings attributable to common shareholders of $392 million or $0.397 per common share for the fourth quarter of 2017 compared to $676 million or $0.686 per common share for the same quarter last year.  Lifeco's net earnings for the fourth quarter of 2017 included a net charge of $216 million from the impact of U.S. tax reform, a net charge on the disposal of an equity investment of $122 million and restructuring costs of $4 million, which reduced earnings per common share by $0.345. Excluding these items, adjusted net earnings were $734 million compared to adjusted net earnings of $698 million for the fourth quarter of 2016, up 5%, primarily driven by strong results in the Canada segment.

For the twelve months ended December 31, 2017, excluding the impact of U.S. tax reform, a net charge on the disposal of an equity investment and restructuring costs, which together totaled $498 million year-to-date, Lifeco’s adjusted net earnings were $2,647 million or $2.676 per common share compared to $2,685 million or $2.712 per common share for the same period last year. The 2017 year-to-date adjusted net earnings included a loss of $175 million related to estimated hurricane claims reflected in the third quarter 2017 results.

“The Company’s operating performance was solid in the fourth quarter reflecting strong top-line results and controlled expense growth,” said Paul Mahon, President and CEO, Great-West Lifeco. “Strategic actions taken in the quarter and throughout the year, including transformation initiatives in Canada and tuck-in acquisitions and investments across our geographies, set the stage for stronger future earnings growth.”

Consolidated assets under administration at December 31, 2017 were over $1.3 trillion, an 8% increase from December 31, 2016.

Highlights – In Quarter

U.S. tax reform reduced net earnings by $216 million

  • As a result of changes to U.S. corporate tax legislation, enacted in December 2017, the Company incurred a charge of $216 million which primarily reflects the net impact of the revaluation of deferred tax balances and insurance contract liabilities. The Company expects the lower U.S. corporate tax rate to benefit future net earnings.

Dividend increase of 6%

  • Lifeco declared a quarterly common dividend of $0.3890 per common share payable March 29, 2018, a 6% increase from the previous quarter.

Sales of $30.3 billion up 13%

  • Sales for the fourth quarter of 2017 were $30.3 billion, up 13% from the fourth quarter of 2016, primarily as a result of strong sales in all segments. Premiums and deposits of $32.7 billion in the fourth quarter of 2017 were also up from the same period in 2016, increasing by 9%.

Sale of equity investment in Nissay Asset Management Corporation

  • During the fourth quarter of 2017, the Company, through its subsidiary Putnam Investments (Putnam), agreed in principle to sell an equity investment in Nissay Asset Management Corporation (Nissay). The impact of the disposal is a net charge of $122 million including a gain on sale of the investment offset by a non-cash write-off of an associated indefinite life intangible asset.

Capital strength and financial flexibility maintained

  • The Great-West Life Assurance Company (Great-West Life) reported a Minimum Continuing Capital Surplus Requirements (MCCSR) ratio of 241% at December 31, 2017.
  • Adjusted Return on Equity (ROE), excluding the impact of U.S. tax reform, the net charge on the disposal of Nissay and restructuring costs, was 13.4%.

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 Annual Management’s Discussion & Analysis.

CANADA

  • Canada advances 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 December 31, 2017, the Company has achieved approximately $123 million pre-tax in annualized reductions; approximately $93 million related to the common shareholders' account and $30 million related to the participating accounts.
  • Q4 Canada segment adjusted net earnings up 10% – Excluding the impact of U.S. tax reform, adjusted net earnings attributable to common shareholders for the fourth quarter of 2017 were $357 million compared to $326 million in the fourth quarter of 2016, an increase of 10%, primarily due to higher fee income, strong group morbidity results, the favourable impact of individual new business and lower expenses.  For the twelve months ended December 31, 2017, adjusted net earnings attributable to common shareholders, excluding restructuring costs of $126 million and the impact of U.S. tax reform, were $1,219 million compared to $1,218 million for the same period last year.
  • Insurer of the Year– Great-West Life was named the “Life and Health Insurer of the Year” at the 2017 Insurance Business awards.  Also during the quarter, Great-West Life was the first in Canada to announce a new flexible savings pilot program to help post-secondary graduate plan members focus on saving for the future, while paying down their student loan debt.

UNITED STATES

  • Q4 U.S. segment adjusted net earnings up 5% Excluding the impact of U.S. tax reform, a net charge on the disposal of an equity investment and restructuring costs, adjusted net earnings attributable to common shareholders for the fourth quarter of 2017 were US$60 million, up 5%, compared to adjusted net earnings of US$57 million in the fourth quarter of 2016 primarily due to higher fee income for Empower Retirement. For the twelve months ended December 31, 2017, adjusted net earnings attributable to common shareholders were US$260 million compared to US$209 million for the same period last year, an increase of 24% primarily due to higher net fee income and lower expenses.
  • Fee and other income up 4% Fee and other income for the three months ended December 31, 2017 was US$485 million compared to US$466 million for the same quarter last year, an increase of 4%, due to higher fee income for both Empower Retirement and Putnam. The increase was driven by growth in participants at Empower Retirement and higher average equity market levels.
  • Putnam average assets up 12% Putnam average assets under management for the three months ended December 31, 2017 were US$169.8 billion compared to US$151.9 billion for the same quarter last year, an increase of 12%, 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 December 31, 2017 were US$171.5 billion.
  • Improved Putnam mutual fund net cash flows – Putnam’s net cash outflows from mutual funds of US$197 million for the three months ended December 31, 2017 were a US$727 million improvement from the same period last year and are in-line with improved industry flows for actively managed funds.

EUROPE

  • Q4 Europe segment net adjusted earnings of $308 million Excluding the impact of U.S. tax reform and restructuring costs, adjusted net earnings attributable to common shareholders for the fourth quarter of 2017 were $308 million and were comparable to $307 million in the fourth quarter of 2016. For the twelve months ended December 31, 2017, adjusted net earnings attributable to common shareholders, excluding the impact of U.S. tax reform and restructuring costs, were $1,121 million compared to $1,215 million for the same period last year. Strong underlying business results on a year-to-date basis for 2017 were partially offset by the impact of a loss of $175 million related to estimated hurricane claims reflected in the third quarter 2017 results.
  • Irish Life bulk payout annuity During the fourth quarter of 2017, Irish Life entered into its largest ever bulk payout annuity transaction which resulted in over €300 million in additional sales.
  • Acquisition of the U.K. financial services provider Retirement Advantage completed – On January 2, 2018, the Company, through its wholly-owned subsidiary The Canada Life Group (U.K.) Limited, completed the acquisition of U.K. financial services provider Retirement Advantage. Retirement Advantage has over 30,000 pension and equity release customers and over $3.3 billion of assets under management.
  • Irish Life Health integration complete, target expense reductions achieved As of December 31, 2017, the Company has completed the integration of the Irish Life Health operations, achieving €17 million pre-tax of annualized synergies.  Irish Life has also achieved €8 million pre-tax annualized expense reductions from the restructuring of its retail division.

QUARTERLY DIVIDENDS

At its meeting today, the Board of Directors approved a quarterly dividend of $0.3890 per share on the common shares of Lifeco payable March 29, 2018 to shareholders of record at the close of business March 1, 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

March 1, 2018

March 29, 2018

$0.36875

Series G

March 1, 2018

March 29, 2018

$0.3250

Series H

March 1, 2018

March 29, 2018

$0.30313

Series I

March 1, 2018

March 29, 2018

$0.28125

Series L

March 1, 2018

March 29, 2018

$0.353125

Series M

March 1, 2018

March 29, 2018

$0.3625

Series N

March 1, 2018

March 29, 2018

$0.1360

Series O

March 1, 2018

March 29, 2018

$0.133890

Series P

March 1, 2018

March 29, 2018

$0.3375

Series Q

March 1, 2018

March 29, 2018

$0.321875

Series R

March 1, 2018

March 29, 2018

$0.3000

Series S

March 1, 2018

March 29, 2018

$0.328125

Series T

March 1, 2018

March 29, 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 $1.3 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 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 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", "adjusted 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.

Fourth Quarter Conference Call

Lifeco's fourth quarter conference call and audio webcast will be held February 8, 2018 at 3:30p.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 February 8, 2018 to February 15, 2018, and can be accessed by calling 1-800-408-3053 or 905-694-9451 in Toronto (passcode: 9326392#).  The archived webcast will be available on www.greatwestlifeco.com from February 8, 2018 to February 7, 2019.

Additional information relating to Lifeco, including the 2017 audited consolidated financial statements, Management's Discussion and Analysis (MD&A), Annual Information Form (AIF) and CEO/CFO certification will be filed on SEDAR at www.sedar.com.

For more information:

Media Relations Contact:
Tim Oracheski
204-946-8961
Email: timothy.oracheski@gwl.ca

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

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