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Press release from CNW Group

Great-West Lifeco reports third quarter 2011 results

Thursday, November 10, 2011

Great-West Lifeco reports third quarter 2011 results12:38 EST Thursday, November 10, 2011TSX:GWO 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, Nov. 10, 2011 /CNW/ - Great-West Lifeco Inc. (Lifeco) has reported net earnings attributable to common shareholders of $457 million for the three months ended September 30, 2011, compared to $267 million in the third quarter of 2010.  On a per common share basis, this represents $0.481 per common share for the three months ended September 30, 2011, compared to $0.281 per common share for the same period in 2010. Third quarter 2010 net earnings include the impact of an incremental litigation provision of $204 million attributable to common shareholders.For the nine months ended September 30, 2011, net earnings attributable to common shareholders were $1,398 million, compared to $1,150 million a year ago.  This represents $1.473 per common share for the nine months ended September 30, 2011, compared to $1.213 per common share for the same period in 2010.The Company's sensitivity to the euro remains low as less than 2% of the Company's net earnings year-to-date are in euros. The Canadian dollar continued to strengthen against both the U.S. dollar and the British pound resulting in a negative impact of $8 million in the third quarter and $20 million year-to-date, compared to the same periods in 2010.Consolidated assets under administration at September 30, 2011 were $493.3 billion up $6.3 billion from December 31, 2010.HighlightsSince June 24, 2011, the credit ratings for Lifeco and its major operating subsidiaries were affirmed with a stable outlook by Fitch Ratings, A.M. Best Company, DBRS Limited, Moody's Investors Service and Standard & Poor's Ratings Services.  The Company continues to enjoy strong ratings relative to its North American peer group due to its conservative risk profile and stable earnings track record.The Company maintained a relatively stable return on common shareholders' equity of 16.6%.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 September 30, 2011.Only 3% of the Company's invested assets are in bonds of government and financial institutions of Eurozone countries as at September 30, 2011. The Company's credit market experience remains stable with credit related charges and provisions totaling $16 million after-tax in third quarter 2011.Sales in Canada of Group insurance were up 13% overall in quarter compared to 2010, driven by strong large case and creditor group sales. Sales of Wealth Management proprietary retail investments increased 8% and Individual Insurance disability and critical illness sales increased 9% overall compared to the third quarter of 2010.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$141 million, an increase of 120% from the prior year.Putnam net sales for the nine months ended September 30, 2011 were US$2.0 billion positive, a US$2.5 billion improvement over the same period a year ago.Putnam launched a Dynamic Risk Allocation Fund, designed to actively balance the sources of portfolio risk across multiple asset classes, with flexibility to respond dynamically to changing economic conditions and market valuations, in pursuit of consistent levels of total return.Sales in Europe increased by 29% in the quarter compared to 2010 due to continued strong growth of single premium savings products in the Isle of Man.In the United Kingdom, Canada Life was named "Most Competitive Annuity Provider" for the sixth consecutive year and won "Best Tax and Estate Planning Solutions Provider" for the first time in the 2011 Investments Life and Pensions Moneyfacts awards. The U.K. group operation was named "Best Group Protection Provider" for the third consecutive year.The Company declared a quarterly common dividend of $0.3075 per common share payable December 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 third quarter of 2011 were $235 million compared to $249 million in the third quarter of 2010.  The Company adopted revised Actuarial Standards of Practice in the third quarter of 2011, resulting in the Canadian operation incorporating future mortality improvement in actuarial liabilities. The resulting net gain was offset by the impact of strengthening interest mismatch provisions in light of declining interest rates and additional provisions reflecting updated experience studies. Results also reflect mark-to-market gains on investment properties in corporate surplus.  For the nine months ended September 30, 2011, net earnings attributable to common shareholders were $742 million compared to $738 million for the same period in 2010.Total sales for the quarter were $1.9 billion, compared to $2.0 billion in the third quarter of 2010.  Sales in Canada of Group insurance were up 13% overall in quarter compared to 2010, driven by strong large case and creditor group sales. Sales of Wealth Management proprietary retail investments increased 8% and Individual Insurance disability and critical illness sales increased 9% overall compared to the third quarter of 2010. Sales of group retirement products decreased by 27% compared to the same quarter last year due to lower investment only sales.Total assets under administration at September 30, 2011 were $126.5 billion, compared to $126.9 billion at December 31, 2010.UNITED STATESNet earnings attributable to common shareholders for the third quarter of 2011 were $75 million compared to $87 million in the third quarter of 2010.  These results include a net loss of US$11 million from Putnam operations in the third quarter of 2011 compared to a gain of US$3 million over the same period a year ago primarily due to mark-to-market losses in investment income and slightly lower fee income. For the nine months ended September 30, 2011, net earnings attributable to common shareholders were $291 million compared to $213 million for the same period in 2010.Total sales for the quarter were $7.3 billion compared to $11.0 billion in 2010.  Sales in Putnam were $5.7 billion for the third quarter compared to $6.2 billion a year ago primarily reflecting volatility in the markets. Sales in the Financial Services segment were $1.6 billion for the third quarter compared to $4.8 billion a year ago.  The Financial Services segment prior year sales included large plan sales not repeated this quarter.Total assets under administration at September 30, 2011 were $296.9 billion compared to $294.1 billion at December 31, 2010.  Included in assets under administration at September 30, 2011 were $176.4 billion of assets under management consisting of $118.4 billion of mutual fund and institutional account assets managed by Putnam and $58.0 billion of general account, separate account and proprietary mutual funds managed by Financial Services.EUROPENet earnings attributable to common shareholders for the third quarter of 2011 were $148 million compared to $138 million in the third quarter of 2010. These results include a release of interest mismatch provisions due to the positive impact of lower interest rates on the U.K. payout annuity portfolios, partially offset by the impact of less favourable mortality experience in the U.K. group and payout annuity businesses. Results also reflect the benefit of reduced tax liability provisions in the U.K and Reinsurance operations and a lower UK corporate income tax rate. For the nine months ended September 30, 2011, net earnings attributable to common shareholders were $381 million compared to $413 million for the same period in 2010.Total sales for the quarter were $1.3 billion compared to $1.0 billion in 2010.  Sales of single premium savings products increased 139% in the Isle of Man, reflecting fluctuations in the number of large cases which vary from quarter to quarter.  This increase was partially offset by a decline in sales of single premium savings products and payout annuities in the U.K.Total assets under administration at September 30, 2011 were $69.9 billion, compared to $66.0 billion at December 31, 2010.CORPORATENet earnings in the Lifeco corporate segment attributable to common shareholders was a net loss of $1 million in the third quarter of 2011 compared to a net loss of $207 million for the third quarter of 2010.  For the nine months ended September 30, 2011 net earnings in the Lifeco corporate segment attributable to common shareholders was a net loss of $16 million compared to a net loss of $214 million for the same period in 2010. Both third quarter and nine months 2010 results include the impact of an incremental litigation provision of $204 million attributable to common shareholders.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 December 30, 2011 to shareholders of record at the close of business December 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 December 30, 2011 to shareholders of record at the close of business December 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 $493 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 informationGreat-West Lifeco's third quarter conference call and audio webcast will be held Thursday, November 10, 2011 at 3:30 p.m. (ET).  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 November 10 to 17, 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 7:00 p.m. (ET) on November 10, 2011 until November 9, 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 ended For the nine months ended September 30June 30September 30 September 30September 30 201120112010 20112010Premiums and deposits:      Life insurance, guaranteed annuities and insured health products$ 4,392 $ 4,272 $ 4,313  $ 12,959 $ 13,138 Self-funded premium equivalents (ASO contracts)      660       664       619       1,994       1,921 Segregated funds deposits:       Individual products      1,975       1,636       1,703       5,516       5,126  Group products      1,420       1,427       1,340       4,340       5,405 Proprietary mutual funds and institutional deposits      5,892       8,289       6,407       23,264       17,987 Total premiums and deposits      14,339       16,288       14,382       48,073       43,577        Fee and other income      704       739       681       2,163       2,108 Paid or credited to policyholders      6,826       5,298       7,357       16,703       19,647        Operating earnings - common shareholders      457       526       471        1,398       1,354 Net earnings - common shareholders      457       526       267        1,398       1,150 Per common share       Operating earnings$ 0.481 $ 0.553 $ 0.497  $ 1.473 $ 1.429  Basic earnings      0.481       0.553       0.281       1.473       1.213  Dividends paid      0.3075       0.3075       0.3075       0.9225       0.9225  Book value      12.49       11.75       11.73    Return on common shareholders' equity (trailing four quarters*):      Operating earnings      16.6%       17.0% n/a    Net earnings      16.6%       15.2% n/a   Total assets$ 237,072 $ 232,159 $ 231,057     Proprietary mutual funds and institutional net assets      124,343       130,066       128,777     Total assets under management      361,415       362,225       359,834     Other assets under administration      131,853       134,822       129,142     Total assets under administration$ 493,268 $ 497,047 $ 488,976    Total equity $ 15,875 $ 15,115 $ 15,159    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.*Return on common shareholders' equity is the trailing four quarter calculation of net earnings divided by common shareholders' equity.  Comparative September 30, 2010 ROE calculations are not presented as IFRS figures are not available for the trailing period, which includes certain periods of 2009 reported solely on a CGAAP basis.CONSOLIDATED STATEMENTS OF EARNINGS (unaudited)(in Canadian $ millions except per share amounts)  For the three months ended For the nine months ended September 30June 30September 30 September 30September 30 201120112010 20112010Income       Premium income         Gross premiums written$ 5,059 $ 4,980 $ 4,956  $ 14,980 $ 15,091   Ceded premiums      (667)       (708)       (643)        (2,021)       (1,953)  Total net premiums      4,392       4,272       4,313       12,959       13,138  Net investment income        Regular net investment income      1,330       1,416       1,493        4,173       4,245   Changes in fair value through profit or loss      2,080       707       2,629       2,600       5,365  Total net investment income      3,410       2,123       4,122       6,773       9,610  Fee and other income      704       739       681       2,163       2,108        8,506       7,134       9,116       21,895       24,856 Benefits and expenses       Policyholder benefits      3,704       3,690       3,557       11,484       11,305  Policyholder dividends and experience refunds      385       377       382       1,115       1,116  Change in insurance and investment contract liabilities      2,737       1,231       3,418       4,104       7,226  Total paid or credited to policyholders      6,826       5,298       7,357       16,703       19,647         Commissions      372       390       346       1,139       1,064  Operating expenses      605       558       965        1,808       2,214  Premium taxes      64       68       71       188       198  Financing charges      72       72       71       216       215  Amortization of finite life intangible assets      24       25       22       72       69 Earnings before income taxes      543       723       284       1,769       1,449 Income taxes      54       161       (1)        284       214 Net earnings before non-controlling interests      489       562       285        1,485       1,235 Attributable to non-controlling interests      8       12       (4)       15       21 Net earnings      481       550       289        1,470       1,214 Perpetual preferred share dividends      24       24       22       72       64 Net earnings - common shareholders$ 457 $ 526 $ 267  $ 1,398 $ 1,150        Earnings per common share      Basic$ 0.481 $ 0.553 $ 0.281  $ 1.473 $ 1.213  Diluted$ 0.478 $ 0.550 $ 0.281  $ 1.461 $ 1.207        CONSOLIDATED BALANCE SHEETS(unaudited)(in Canadian $ millions)  September 30 December 31 January 1 2011 2010 2010Assets     Cash and cash equivalents$ 1,954  $ 1,840  $ 3,427 Bonds      79,050       72,203        66,147 Mortgage loans      17,017       16,115        16,684 Stocks      6,530       6,700        6,442 Investment properties      3,236        2,957        2,613 Loans to policyholders      7,144        6,827        6,957        114,931       106,642       102,270 Funds held by ceding insurers      10,118        9,856       10,984 Reinsurance assets      2,220        2,533        2,800 Goodwill      5,403        5,397        5,406 Intangible assets      3,194        3,108        3,238 Derivative financial instruments      804        984        717 Owner occupied properties      472        439        429 Other assets      4,704        4,482       4,599 Deferred tax assets      1,173       1,141       1,193 Segregated funds for the risk of unit holders      94,053       94,827       87,495       Total assets$ 237,072  $ 229,409  $ 219,131       Liabilities     Insurance contract liabilities$ 114,070  $ 107,367  $ 104,988 Investment contract liabilities      784        791        841 Debentures and other debt instruments      4,312        4,288        4,106 Funds held under reinsurance contracts      177        149        331 Derivative financial instruments      463       165        251 Other liabilities      4,862       4,637       4,479 Deferred tax liabilities      756       755        623 Repurchase agreements      1,189        1,042       532 Capital trust securities      531        535        540 Preferred shares      -        -       199 Investment and insurance contracts on account of unit holders      94,053       94,827       87,495       Total liabilities      221,197       214,556       204,385       Equity     Non-controlling interests      Participating account surplus in subsidiaries      2,115       2,050       2,050  Preferred shares issued by subsidiaries      -        -        157  Perpetual preferred shares issued by subsidiaries      -        -        147  Non-controlling interests in capital stock      3        2        2 Shareholders' equity      Share capital       Perpetual preferred shares      1,893       1,897       1,497   Common shares      5,825       5,802       5,751  Accumulated surplus      6,029       5,507       5,071  Accumulated other comprehensive income (loss)      (46)       (460)        19  Contributed surplus      56        55        52 Total equity      15,875       14,853       14,746       Total liabilities and equity$ 237,072  $ 229,409  $ 219,131 Segmented Information 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 Net EarningsFor the three months ended September 30, 2011      United Lifeco  CanadaStatesEuropeCorporateTotalIncome:      Premium income$ 2,229 $ 952 $ 1,211 $ - $ 4,392  Net investment income       Regular net investment income      535       324       465       6       1,330   Changes in fair value through profit or loss      824       304       952       -       2,080  Total net investment income      1,359       628       1,417       6       3,410  Fee and other income      269       296       139       -       704 Total income      3,857       1,876       2,767       6       8,506       Benefits and expenses:      Paid or credited to policyholders      2,950       1,433       2,443       -       6,826  Other      579       311       148       3       1,041  Financing charges      34       33       5       -       72  Amortization of finite life intangible assets      10       11       3       -       24       Earnings before income taxes      284       88       168       3       543       Income taxes      47       11       (5)       1       54       Net earnings before non-controlling interests      237       77       173       2       489       Non-controlling interests      3       -       5       -       8       Net earnings      234       77       168       2       481       Perpetual preferred share dividends      18       -       6       -       24       Net earnings before capital allocation      216       77       162       2       457 Impact of capital allocation      19       (2)       (14)       (3)       - Net earnings - common shareholders$ 235 $ 75 $ 148 $ (1) $ 457                  For the three months ended September 30, 2010      United Lifeco  CanadaStatesEuropeCorporateTotalIncome:      Premium income$ 2,299 $ 815 $ 1,199 $ - $ 4,313  Net investment income       Regular net investment income      670       339       481       3       1,493   Changes in fair value through profit or loss      1,121       353       1,155       -       2,629  Total net investment income      1,791       692       1,636       3       4,122  Fee and other income      251       311       119       -       681 Total income      4,341       1,818       2,954       3       9,116       Benefits and expenses:      Paid or credited to policyholders      3,403       1,335       2,619       -       7,357  Other      662       326       120       274       1,382  Financing charges      34       34       3       -       71  Amortization of finite life intangible assets      10       10       2       -       22       Earnings before income taxes      232       113       210       (271)       284       Income taxes      (8)       25       49       (67)       (1)       Net earnings before non-controlling interests      240       88       161       (204)       285       Non-controlling interests      (6)       -       2       -       (4)       Net earnings      246       88       159       (204)       289       Perpetual preferred share dividends      19       -       3       -       22       Net earnings before capital allocation      227       88       156       (204)       267 Impact of capital allocation      22       (1)       (18)       (3)       - Net earnings - common shareholders$ 249 $ 87 $ 138 $ (207) $ 267                 For the nine months ended September 30, 2011      United Lifeco  CanadaStatesEuropeCorporateTotalIncome:      Premium income$ 6,861 $ 2,306 $ 3,792 $ - $ 12,959  Net investment income       Regular net investment income      1,769       980       1,412       12       4,173   Changes in fair value through profit or loss      1,075       461       1,064       -       2,600  Total net investment income      2,844       1,441       2,476       12       6,773  Fee and other income      822       928       413       -       2,163 Total income      10,527       4,675       6,681       12       21,895       Benefits and expenses:      Paid or credited to policyholders      7,716       3,273       5,714       -       16,703  Other      1,792       897       429       17       3,135  Financing charges      102       100       14       -       216  Amortization of finite life intangible assets      31       34       7       -       72       Earnings before income taxes      886       371       517       (5)       1,769       Income taxes      138       75       70       1       284       Net earnings before non-controlling interests      748       296       447       (6)       1,485       Non-controlling interests      9       -       6       -       15       Net earnings      739       296       441       (6)       1,470       Perpetual preferred share dividends      55       -       17       -       72       Net earnings before capital allocation      684       296       424       (6)       1,398 Impact of capital allocation      58       (5)       (43)       (10)       - Net earnings - common shareholders$ 742 $ 291 $ 381 $ (16) $ 1,398                 For the nine months ended September 30, 2010      United Lifeco  CanadaStatesEuropeCorporateTotalIncome:      Premium income$ 6,795 $ 2,316 $ 4,027 $ - $ 13,138  Net investment income       Regular net investment income      1,845       997       1,395       8       4,245   Changes in fair value through profit or loss      1,743       1,052       2,570       -       5,365  Total net investment income      3,588       2,049       3,965       8       9,610  Fee and other income      762       935       411       -       2,108 Total income      11,145       5,300       8,403       8       24,856       Benefits and expenses:      Paid or credited to policyholders      8,363       3,875       7,409       -       19,647  Other      1,787       1,007       406       276       3,476  Financing charges      101       104       10       -       215  Amortization of finite life intangible assets      29       35       5       -       69       Earnings before income taxes      865       279       573       (268)       1,449       Income taxes      124       62       92       (64)       214       Net earnings before non-controlling interests      741       217       481       (204)       1,235       Non-controlling interests      14       3       4       -       21       Net earnings      727       214       477       (204)       1,214       Perpetual preferred share dividends      54       -       10       -       64       Net earnings before capital allocation      673       214       467       (204)       1,150 Impact of capital allocation      65       (1)       (54)       (10)       - Net earnings - common shareholders$ 738 $ 213 $ 413 $ (214) $ 1,150           For further information: Marlene Klassen, APR Assistant Vice-President, Communication Services (204) 946-7705