The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Globe Investor

News Sources

Take control of your investments with the latest investing news and analysis

Press release from CNW Group

Great-West Lifeco reports second quarter 2011 results

Wednesday, August 03, 2011

Great-West Lifeco reports second quarter 2011 results17:40 EDT Wednesday, August 03, 2011Readers 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.TSX:GWOWINNIPEG, Aug. 3, 2011 /CNW/ - Great-West Lifeco Inc. (Lifeco) has reported net earnings attributable to common shareholders of $526 million for the three months ended June 30, 2011, compared to $455 million in the second quarter of 2010.  On a per common share basis, this represents $0.553 per common share for the three months ended June 30, 2011, compared to $0.480 per common share for the same period in 2010.For the six months ended June 30, 2011, net earnings attributable to common shareholders were $941 million, compared to $883 million a year ago.  This represents $0.991 per common share for the six months ended June 30, 2011, compared to $0.932 per common share for the same period in 2010.Consolidated assets under administration at June 30, 2011 were $497 billion, up $10 billion from December 31, 2010.HighlightsSales in Canada of individual insurance products were up 13% overall in quarter compared to 2010, driven by strong Participating Life insurance sales which were up 18%.  Group insurance sales in Canada were up 26% overall in quarter compared to 2010, driven by strong non-refund sales which were up 23%.U.S. Financial Services formally launched an Individual Retirement Account rollover initiative in the second quarter which resulted in year to date sales of US$104 million, an increase of 160% from the prior year.  Also introduced in quarter was a new collective trust investment product aimed at providing large corporate and government plan markets with retirement target date asset allocation investment solutions.Putnam net sales for the six months ended June 30, 2011 were US$3.4 billion positive, a US$4.7 billion improvement over the same period a year ago.Putnam operating results continue to improve with higher revenues from higher assets under management, resulting in positive core net operating income for the second quarter.  Putnam total contribution to Lifeco includes a $55 million release of a legal provision resulting from a settlement of a lawsuit.Europe earnings remained strong for the quarter despite the challenging business environment where consumer confidence remains weak and credit markets are unsettled.Credit market experience remains positive for the Company with net recoveries of $3 million after-tax on previously impaired assets for the quarter.  The Company notes that it has no direct exposure to Greece and that its aggregate exposure to Portugal, Ireland, Italy and Spain at $926 million, including government debt and debt issued by financial institutions domiciled in those countries, represents less than four-tenths of one per cent of total general fund assets at June 30, 2011.  During second quarter the Company reduced these exposures by $131 million.  The downgrade of Irish Government securities subsequent to June 30, 2011 will have a minimal impact on the third quarter financial results.In June and July 2011, the Company's credit ratings were affirmed with stable outlook by A.M. Best, DBRS, Fitch and Moody's.  Credit ratings have been stable since the acquisition of Canada Life in 2003, with the exception of the Fitch downgrade from AA+ to AA in December 2010.  The Company's ratings remain among the highest for a stock company in the insurance industry which is particularly noteworthy in the recent credit environment.Return on common shareholders' equity was 17% based on operating earnings.The Company declared a quarterly common dividend of $0.3075 per common share payable September 30, 2011, unchanged from the previous quarter.The Company's capital position remains very strong.  Lifeco's Canadian operating subsidiary, The Great-West Life Assurance Company, reported a Minimum Continuing Capital and Surplus Requirements (MCCSR) ratio of 200% at June 30, 2011.OPERATING RESULTSConsolidated net earnings for Lifeco comprise the net earnings of The Great-West Life Assurance Company (Great-West Life), Canada Life Financial Corporation (CLFC), London Life Insurance Company (London Life), Great-West Life & Annuity Insurance Company (GWL&A), and Putnam Investments, LLC (Putnam), together with Lifeco's corporate results.CANADANet earnings attributable to common shareholders for the second quarter of 2011 were up 4% to $262 million compared to $252 million in the second quarter of 2010. These results reflect strong earnings growth in Wealth Management, due to growth in fee income on higher average investment fund assets, and higher investment gains on surplus assets in Corporate. For the six months ended June 30, 2011, net earnings attributable to common shareholders were $507 million compared to $489 million in 2010.Total sales for the quarter were $2.2 billion, consistent with the second quarter of 2010. Total sales of individual insurance products increased 13% and group insurance products increased 26% compared to the second quarter of 2010. Wealth Management sales decreased 2% overall in the quarter compared to 2010.Total assets under administration at June 30, 2011 were $128.4 billion, compared to $126.9 billion at December 31, 2010.UNITED STATESNet earnings attributable to common shareholders for the second quarter of 2011 were $128 million compared to $61 million in the second quarter of 2010.  Included in net earnings for the second quarter of 2011 was a release of a legal provision in Putnam, resulting from a settlement of a lawsuit, which impacted net earnings by $55 million.  For the six months ended June 30, 2011, net earnings attributable to common shareholders were $216 million compared to $126 million in 2010.In quarter earnings from Putnam core operations were a positive US$3 million compared to a net loss of US$11 million over the same period a year ago primarily due to higher fee revenue on higher assets under management.Total sales for the quarter were $9.5 billion compared to $6.8 billion in 2010.  Sales in Putnam were $8.1 billion for the second quarter compared to $5.2 billion a year ago primarily reflecting strong institutional sales.  Sales in the Financial Services segment were $1.4 billion for the second quarter compared to $1.6 billion a year ago.Total assets under administration at June 30, 2011 were $301.5 billion compared to $294.1 billion at December 31, 2010.  Included in assets under administration at June 30, 2011 were $177.8 billion of assets under management, consisting of $124.0 billion of mutual fund and institutional account assets managed by Putnam and $53.8 billion of general account, separate account and proprietary mutual funds managed by Financial Services.EUROPENet earnings attributable to common shareholders for the second quarter of 2011 were $147 million compared to $145 million in the second quarter of 2010.  For the six months ended June 30, 2011, net earnings attributable to common shareholders were $233 million, which included the impact of $75 million of earthquake provisions in first quarter, compared to $275 million in 2010.Total sales for the quarter were $0.9 billion compared to $1.1 billion in 2010. These results reflect weaker consumer confidence in most of Europe, due to current economic uncertainty in 2011, opposite strong sales performance in 2010.Total assets under administration at June 30, 2011 were $67.2 billion, compared to $66.0 billion at December 31, 2010.CORPORATECorporate net earnings for Lifeco attributable to common shareholders was a net loss of $11 million in the second quarter compared to a net loss of $3 million for the second quarter of 2010.  For the six months ended June 30, 2011 net earnings for Lifeco attributable to common shareholders was a net loss of $15 million compared to a net loss of $7 million for the second quarter of 2010.QUARTERLY DIVIDENDSAt its meeting today, the Board of Directors approved a quarterly dividend of $0.3075 per share on the common shares of the Company payable September 30, 2011 to shareholders of record at the close of business September 2, 2011.For purposes of the Income Tax Act (Canada), and any similar provincial legislation, the dividends referred to above are eligible dividends.In addition, the Directors approved quarterly dividends on:Series F First Preferred Shares of $0.36875 per share;Series G First Preferred Shares of $0.3250 per share;Series H First Preferred Shares of $0.30313 per share;Series I First Preferred Shares of $0.28125 per share;Series J First Preferred Shares of $0.3750 per share;Series L First Preferred Shares of $0.353125 per share;Series M First Preferred Shares of $0.36250 per share; andSeries N First Preferred Shares of $0.228125 per shareall payable September 30, 2011 to shareholders of record at the close of business September 2, 2011.Great-West LifecoGreat-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.  Great-West Lifeco has operations in Canada, the United States, Europe and Asia through The Great-West Life Assurance Company, London Life Insurance Company, The Canada Life Assurance Company, Great-West Life & Annuity Insurance Company and Putnam Investments, LLC.  Great-West Lifeco and its companies have over $497 billion in assets under administration and are members of the Power Financial Corporation group of companies.Cautionary note regarding Forward-Looking Information This release contains some forward-looking statements about the Company, including its business operations, strategy and expected financial performance and condition.  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" or negative versions thereof and similar expressions.  In addition, any statement that may be made concerning future financial performance (including revenues, earnings or growth rates), ongoing business strategies or prospects, possible future action by the Company including statements made by the Company with respect to the expected benefits of acquisitions or divestitures are also forward-looking statements.  Forward-looking statements are based on current expectations and projections about future events 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 actual events and results could differ materially from those expressed or implied by forward-looking statements made by the Company due to, but not limited to, important factors such as sales levels, premium income, fee income, expense levels, mortality experience, morbidity experience, policy lapse rates and taxes, as well as general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, catastrophic events, and the Company's ability to complete strategic transactions and integrate acquisitions.  The reader is cautioned that the foregoing list of important factors is not exhaustive, and there may be other factors, including factors set out under "Risk Management and Control Practices" in the Company's 2010 Annual Management's Discussion and Analysis and any listed in other filings with securities regulators, which are available for review at www.sedar.com.  The reader is also cautioned to consider these and other factors carefully and to not place undue reliance on forward-looking statements.  Other than as specifically required by applicable law, the Company has no intention to update any forward-looking statements whether as a result of new information, future events or otherwise.Cautionary note regarding Non-IFRS Financial MeasuresThis 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", and other similar expressions.  Non-IFRS financial measures are used to provide management and investors with additional measures of performance.  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.  Please refer to the appropriate reconciliations of these non-IFRS financial measures to measures prescribed by IFRS.Further informationSelected financial information is attached.Great-West Lifeco's second quarter conference call and audio webcast will be held Thursday, August 4, 2011 at 9:00 a.m. (EDT).  The call and webcast can be accessed through www.greatwestlifeco.com or by phone at:Participants in the Toronto area:  416-340-8018Participants from North America: 1-866-223-7781Participants from Overseas:  Dial international access code first, then 800-6578-9898A replay of the call will be available from August 4 to August 11, 2011, and can be accessed by calling 1-800-408-3053 or 416-695-5800 in Toronto (passcode: 1367585#). The archived webcast will be available on www.greatwestlifeco.com from approximately 1:00 p.m. (ET) on August 4, 2011 until August 3, 2012.Additional information relating to Lifeco, including the most recent interim unaudited financial statements, interim Management's Discussion and Analysis (MD&A), and CEO/CFO certificates will be filed on SEDAR at www.sedar.com.FINANCIAL HIGHLIGHTS(unaudited)(in Canadian $ millions except per share amounts) As at or for the three months endedFor the six months ended June 30March 31June 30June 30June 30 20112011201020112010Premiums and deposits:     Life insurance, guaranteed annuities      and insured health products$ 4,272 $ 4,295 $ 4,215 $ 8,567 $ 8,825 Self-funded premium equivalents       (ASO contracts)      664       670       657       1,334       1,302 Segregated funds deposits:           Individual products      1,636       1,905       1,633       3,541       3,423       Group products      1,427       1,493       2,335       2,920       4,065 Proprietary mutual funds and institutional deposits      8,289       9,083       5,389       17,372       11,580 Total premiums and deposits      16,288       17,446       14,229       33,734       29,195       Fee and other income      739       720       703       1,459       1,427 Paid or credited to policyholders      5,298       4,579       5,658       9,877       12,290       Net earnings - common shareholders      526       415       455       941       883 Per common share           Basic earnings$ 0.553 $ 0.438 $ 0.480 $ 0.991 $ 0.932       Dividends paid      0.3075       0.3075       0.3075       0.615       0.615       Book value      11.75       11.53       11.70   Return on common shareholders' equity (12 months):          Operating earnings      17.0%       16.4% n/a        Net earnings      15.2%       14.5% n/a        Total assets$ 232,159 $ 231,331 $ 221,814    Proprietary mutual funds and institutional net assets      130,066       129,470       121,147         Total assets under management      362,225       360,801       342,961         Other assets under administration      134,822       134,412       120,700         Total assets under administration$ 497,047 $ 495,213 $ 463,661   Total equity $ 15,115 $ 14,880 $ 15,120   The Company uses operating earnings, a non-IFRS financial measure, which excludes the impact of the provision described in note 25 to the Company's December 31, 2010 consolidated financial statements.CONSOLIDATED STATEMENTS OF EARNINGS (unaudited)(in Canadian $ millions except per share amounts) For the three months endedFor the six months ended June 30March 31June 30June 30June 30 20112011201020112010Income           Premium income                   Gross premiums written$ 4,980 $ 4,941 $ 4,887 $ 9,921 $ 10,135              Ceded premiums      (708)       (646)       (672)       (1,354)       (1,310)       Total net premiums      4,272       4,295       4,215  8,567  8,825       Net investment income                  Regular net investment income      1,416       1,427       1,335       2,843       2,752   Changes in fair value through profit or loss      707       (187)       1,160       520       2,736       Total net investment income      2,123       1,240       2,495       3,363       5,488       Fee and other income      739       720       703       1,459       1,427        7,134       6,255       7,413       13,389       15,740 Benefits and expenses           Policyholder benefits      3,690       4,090       3,860       7,780       7,748  Policyholder dividends and experience refunds      377       353       351       730       734    Change in insurance and investment contract liabilities      1,231      136       1,447       1,367       3,808  Total paid or credited to policyholders      5,298       4,579       5,658       9,877       12,290             Commissions      390       377       355       767       718       Operating expenses      558       645       619       1,203       1,249       Premium taxes      68       56       62       124       127       Financing charges      72       72       70       144       144  Amortization of finite life intangible assets      25       23       24       48       47 Earnings before income taxes      723       503       625       1,226       1,165 Income taxes      161       69       126       230       215 Net earnings before  non-controlling interests      562       434       499       996       950 Attributable to non-controlling   interests      12       (5)       22       7       25 Net earnings      550       439       477       989       925 Perpetual preferred share dividends      24       24       22       48       42 Net earnings - common   shareholders$ 526 $ 415 $ 455 $ 941 $ 883       Earnings per common share      Basic$ 0.553 $ 0.438 $ 0.480 $ 0.991 $ 0.932  Diluted$ 0.550 $ 0.436 $ 0.477 $ 0.986 $ 0.927 CONSOLIDATED BALANCE SHEETS(unaudited)(in Canadian $ millions)  June 30December 31January 1 201120102010Assets   Cash and cash equivalents$ 1,730 $ 1,840 $ 3,427 Bonds      72,376       72,203       66,147 Mortgage loans      16,658       16,115       16,684 Stocks      6,951       6,700       6,442 Investment properties      3,204       2,957       2,613 Loans to policyholders      6,765       6,827       6,957        107,684       106,642       102,270 Funds held by ceding insurers      9,659       9,856       10,984 Reinsurance assets      2,642       2,533       2,800 Goodwill      5,394       5,397       5,406 Intangible assets      3,064       3,108       3,238 Derivative financial instruments      1,055       984       717 Owner occupied properties      452       439       429 Other assets      4,368       4,482       4,599 Deferred tax assets      1,065       1,141       1,193 Segregated funds for the risk of unit holders      96,776       94,827       87,495 Total assets$ 232,159 $ 229,409 $ 219,131     Liabilities   Insurance contract liabilities$ 108,225 $ 107,367 $ 104,988 Investment contract liabilities      775       791       841 Debentures and other debt instruments      4,328       4,288       4,106 Funds held under reinsurance contracts      160       149       331 Derivative financial instruments      176       165       251 Other liabilities      4,452       4,637       4,479 Deferred tax liabilities      747       755       623 Repurchase agreements      871       1,042       532 Capital trust securities      534       535       540 Preferred shares      -       -       199 Investment and insurance contracts on account of unit      holders      96,776       94,827       87,495 Total liabilities      217,044       214,556       204,385     Equity   Non-controlling interests         Participating account surplus in subsidiaries      2,060       2,050       2,050       Preferred shares issued by subsidiaries      -       -       157       Perpetual preferred shares issued by subsidiaries      -       -       147       Non-controlling interests in capital stock      2       2       2 Shareholders' equity         Share capital               Perpetual preferred shares      1,897       1,897       1,497             Common shares      5,822       5,802       5,751       Accumulated surplus      5,865       5,507       5,071       Accumulated other comprehensive income (loss)      (587)       (460)       19       Contributed surplus      56       55       52 Total equity      15,115       14,853       14,746 Total liabilities and equity$ 232,159 $ 229,409 $ 219,131 Segmented Information  (unaudited)During the year, the Company established a capital allocation model to better measure the performance of the operating segments.  The segmented information below including the comparative figures reflects the impact of the capital allocation model implemented.Consolidated EarningsFor the three months ended June 30, 2011      United Lifeco  CanadaStatesEuropeCorporateTotalIncome:     Premium income$ 2,353 $ 602 $ 1,317 $ - $ 4,272 Net investment income         Regular net investment income      618       328       466       4       1,416     Changes in fair value through profit or loss      315       126       266       -       707 Total net investment income      933       454       732       4       2,123 Fee and other income      277       318       144       -       739 Total income      3,563       1,374       2,193       4       7,134       Benefits and expenses:     Paid or credited to policyholders      2,585       890       1,823       -       5,298 Other      598       251       156       11       1,016 Financing charges      34       34       4       -       72 Amortization of finite life intangible assets      11       12       2       -       25       Earnings before income taxes      335       187       208       (7)       723       Income taxes      69       55       37       -       161       Net earnings before non-controlling         interests      266       132       171       (7)       562       Non-controlling interests      6       2       4       -       12       Net earnings      260       130       167       (7)       550       Perpetual preferred share dividends      18       -       6       -       24       Net earnings before capital allocation      242       130       161       (7)       526 Impact of capital allocation      20       (2)       (14)       (4)       - Net earnings - common shareholders$ 262 $ 128 $ 147 $ (11) $ 526 For the three months ended June 30, 2010      United Lifeco  CanadaStatesEuropeCorporateTotalIncome:     Premium income$ 2,228 $ 675 $ 1,312 $ - $ 4,215 Net investment income         Regular net investment income      570       327       434       4       1,335     Changes in fair value through profit or loss      199       398       563       -       1,160 Total net investment income      769       725       997       4       2,495 Fee and other income      255       307       141       -       703 Total income      3,252       1,707       2,450       4       7,413       Benefits and expenses:     Paid or credited to policyholders      2,279       1,241       2,138       -       5,658 Other      568       338       128       2       1,036 Financing charges      31       35       4       -       70 Amortization of finite life intangible assets      10       13       1       -       24       Earnings before income taxes      364       80       179       2       625       Income taxes      93       18       13       2       126       Net earnings before non-controlling         interests      271       62       166       -       499       Non-controlling interests      22       1       (1)       -       22       Net earnings      249       61       167       -       477       Perpetual preferred share dividends      18       -       4       -       22       Net earnings before capital allocation      231       61       163       -       455 Impact of capital allocation      21       -       (18)       (3)       - Net earnings - common shareholders$ 252 $ 61 $ 145 $ (3) $ 455  For the six months ended June 30, 2011      United Lifeco  CanadaStatesEuropeCorporateTotalIncome:     Premium income$ 4,632 $ 1,354 $ 2,581 $ - $ 8,567 Net investment income         Regular net investment income      1,234       656       947       6       2,843     Changes in fair value through profit or loss      251       157       112       -       520 Total net investment income      1,485       813       1,059       6       3,363 Fee and other income      553       632       274       -       1,459 Total income      6,670       2,799       3,914       6       13,389       Benefits and expenses:     Paid or credited to policyholders      4,766       1,840       3,271       -       9,877 Other      1,213       586       281       14       2,094 Financing charges      68       67       9       -       144 Amortization of finite life intangible assets      21       23       4       -       48       Earnings before income taxes      602       283       349       (8)       1,226       Income taxes      91       64       75       -       230       Net earnings before non-controlling         interests      511       219       274       (8)       996       Non-controlling interests      6       -       1       -       7       Net earnings      505       219       273       (8)       989       Perpetual preferred share dividends      37       -       11       -       48       Net earnings before capital allocation      468       219       262       (8)       941 Impact of capital allocation      39       (3)       (29)       (7)       - Net earnings - common shareholders$ 507 $ 216 $ 233 $ (15) $ 941 For the six months ended June 30, 2010      United Lifeco  CanadaStatesEuropeCorporateTotalIncome:     Premium income$ 4,496 $ 1,501 $ 2,828 $ - $ 8,825 Net investment income         Regular net investment income      1,175       658       914       5       2,752     Changes in fair value through profit or loss      622       699       1,415       -       2,736 Total net investment income      1,797       1,357       2,329       5       5,488 Fee and other income      511       624       292       -       1,427 Total income      6,804       3,482       5,449       5       15,740       Benefits and expenses:     Paid or credited to policyholders      4,960       2,540       4,790       -       12,290 Other      1,125       681       286       2       2,094 Financing charges      67       70       7       -       144 Amortization of finite life intangible assets      19       25       3       -       47       Earnings before income taxes      633       166       363       3       1,165       Income taxes      132       37       43       3       215       Net earnings before non-controlling         interests      501       129       320       -       950       Non-controlling interests      20       3       2       -       25       Net earnings      481       126       318       -       925       Perpetual preferred share dividends      35       -       7       -       42       Net earnings before capital allocation      446       126       311       -       883 Impact of capital allocation      43       -       (36)       (7)       - Net earnings - common shareholders$ 489 $ 126 $ 275 $ (7) $ 883      For further information: Marlene Klassen, APR Assistant Vice-President, Communication Services (204) 946-7705