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Great-West Lifeco reports first quarter 2018 net earnings of $731 million, up 24% from the first quarter of 2017

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Great-West Lifeco reports first quarter 2018 net earnings of $731 million, up 24% from the first quarter of 2017

Canada NewsWire

TSX: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, May 3, 2018 /CNW/ - Great-West Lifeco Inc. (Lifeco or the Company) today announced net earnings attributable to common shareholders of $731 million or $0.740 per common share for the first quarter of 2018 compared to $591 million or $0.598 per common share for the same quarter last year. Excluding 2017 restructuring costs, Lifeco's net earnings in the first quarter of 2017 were $619 million. Net earnings in the first quarter of $731 million increased $112 million or 18% compared to adjusted net earnings of $619 million in the prior year driven by strong underlying business performance in all geographic segments.

"Great-West Lifeco delivered strong first quarter results reflecting healthy sales growth and disciplined expense management", said Paul Mahon, President and CEO, Great-West Lifeco. "The Company maintained its strong capital position after transitioning to the new regulatory capital regime in Canada and continued to advance its growth agenda with tuck-in acquisitions and investments in technology and innovation across the organization."

Highlights – In Quarter
Sales of $34.6 billion up 7%

  • Sales for the first quarter of 2018 were $34.6 billion, up 7% from the first quarter of 2017, with strong sales in each of the segments.

Fee and other income of $1.4 billion up 6%

  • Fee and other income was $1.4 billion, up 6% from the first quarter of 2017, driven by market performance, particularly in the U.S., and business growth in all the segments.

Capital strength and financial flexibility maintained

  • During the first quarter of 2018, the Company's major Canadian operating subsidiaries adopted the Office of the Superintendent of Financial Institutions' (OSFI) new capital adequacy measurement called the Life Insurance Capital Adequacy Test (LICAT). The Great-West Life Assurance Company reported a LICAT ratio of 130% at March 31, 2018 which is above the Company's target range of 110% to 120% for its major Canadian operating subsidiaries.
  • Lifeco declared a quarterly common dividend of $0.3890 per common share payable June 29, 2018.
  • Adjusted Return on Equity (ROE) for the first quarter of 2018 was 13.8% compared to adjusted ROE of 13.9% a year ago. The adjusted ROE excludes the impact of U.S. tax reform, a net charge on the sale of an equity investment and restructuring costs included in the prior year results.
  • Consolidated assets under administration at March 31, 2018 were approximately $1.4 trillion, a 3% increase from December 31, 2017.

Completed offering of $500 million of debentures and redeemed $200 million debentures

  • On February 28, 2018, the Company issued $500 million of debentures maturing February 28, 2028. The debentures were issued at par with an annual interest rate of 3.337% payable semi-annually.
  • The Company redeemed its 6.14% $200 million debenture notes at their principal amount together with accrued interest upon their maturity on March 21, 2018.

$500 million subordinated debt redemption announced

  • On April 26, 2018, Great-West Lifeco Finance (Delaware) LP II, a subsidiary of the Company, announced its intention to redeem all $500 million principal amount of its 7.127% subordinated debentures due June 26, 2068 on June 26, 2018 at a redemption price equal to 100% of the principal amount of the debentures, plus any accrued interest up to but excluding the redemption date.

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 2018 first quarter Management's Discussion and Analysis (MD&A).

CANADA

  • Q1 Canada segment net earnings up 24% – Net earnings attributable to common shareholders for the first quarter of 2018 were $316 million compared to $255 million in the first quarter of 2017, an increase of 24%, reflecting expense reductions driven by the transformation program and strong Group Customer results.

  • Canada advances business transformation – The Canadian operations made progress on the previously announced targeted annual expense reductions of $200 million pre-tax. As of March 31, 2018, the Company has achieved approximately $137 million pre-tax in annualized expense reductions; approximately $103 million related to the common shareholders' account and $34 million related to the participating accounts.

  • Acquisition of EverWest Real Estate Partners (EverWest) completed – On February 2, 2018, the Company, through its wholly-owned subsidiary GWL Realty Advisors, acquired the business of EverWest, a U.S. based real estate advisor. While the revenue and net earnings from EverWest are not material, $2.1 billion of real estate assets have been added to the Canada segment assets under administration portfolio. The acquisition provides both scale and organic growth opportunities to the Company.

UNITED STATES

  • Q1 U.S. segment net earnings up 18% – Net earnings attributable to common shareholders for the first quarter of 2018 were US$59 million, up 18%, compared to adjusted net earnings of US$50 million in the first quarter of 2017, primarily due to continued growth at Empower Retirement and the benefit of a lower U.S. corporate tax rate.

  • Fee and other income up 6% – Fee and other income for the three months ended March 31, 2018 was US$500 million compared to US$470 million for the same quarter last year, an increase of 6%, due to growth in Empower Retirement participants and assets as well as higher investment management fees driven by higher average assets under management.

  • Putnam average assets up 10% Putnam average assets under management for the three months ended March 31, 2018 were US$173.6 billion compared to US$157.4 billion for the same quarter last year, an increase of 10%, primarily due to the cumulative impact of positive markets over the twelve month period. Putnam ending assets under management at March 31, 2018 were US$169.5 billion.

  • Putnam in top ten of Barron's Annual Best Fund Families ranking – In Barron's Annual Best Fund Families rankings of 2017, Putnam ranked in the top ten for the one-year, five-year and ten-year time periods as follows:
    • Seventh (out of 58) for one-year
    • Seventh (out of 53) for five-years
    • Ninth (out of 49) for ten-years

EUROPE

  • Q1 Europe segment net earnings up 12% – Net earnings attributable to common shareholders for the first quarter of 2018 were $344 million, up 12%, compared to adjusted net earnings of $306 million in the first quarter of 2017, primarily driven by strong results in the U.K. payout annuity business.

  • 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 32,000 pension and equity release customers and more than £2.1 billion of assets under management including a block of in-force annuities, with liabilities and supporting assets of approximately £1.5 billion (as of March 31, 2018).

  • Acquisition of strategic holding in financial consultancy Invesco Limited (Ireland) announced – On April 20, 2018, the Company announced that its wholly-owned subsidiary, Irish Life Group Limited, has reached an agreement to acquire a strategic holding in Invesco Ltd (Ireland), Ireland's largest Irish-owned independent financial consultancy firm. Invesco specializes in employee benefit consultancy and private wealth management and has €4.8 billion in assets under administration. The acquisition is subject to regulatory approval and customary closing conditions, and is expected to be completed in the third quarter of 2018.

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 June 29, 2018 to shareholders of record at the close of business June 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

June 1, 2018

June 29, 2018

$0.36875

Series G

June 1, 2018

June 29, 2018

$0.3250

Series H

June 1, 2018

June 29, 2018

$0.30313

Series I

June 1, 2018

June 29, 2018

$0.28125

Series L

June 1, 2018

June 29, 2018

$0.353125

Series M

June 1, 2018

June 29, 2018

$0.3625

Series N

June 1, 2018

June 29, 2018

$0.1360

Series O

June 1, 2018

June 29, 2018

$0.154015

Series P

June 1, 2018

June 29, 2018

$0.3375

Series Q

June 1, 2018

June 29, 2018

$0.321875

Series R

June 1, 2018

June 29, 2018

$0.3000

Series S

June 1, 2018

June 29, 2018

$0.328125

Series T

June 1, 2018

June 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 approximately $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 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, 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 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.

First Quarter Conference Call  

Lifeco's first quarter conference call and audio webcast will be held May 3, 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 May 3, 2018 to May 10, 2018, and can be accessed by calling 1-800-408-3053 or 905-694-9451 in Toronto (passcode: 2153504#).  The archived webcast will be available on www.greatwestlifeco.com from May 3, 2018 to May 2, 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.

FINANCIAL HIGHLIGHTS (unaudited)

(in Canadian $ millions except per share amounts)



As at or for the three months ended


March 31
2018


December 31
2017


March 31
2017

Premiums and deposits:










Net premium income (Life insurance,











guaranteed annuities and insured health products)

$

8,174


$

8,494


$

9,354


Policyholder deposits (segregated funds):











Individual products


3,988



5,357



3,897



Group products


2,422



2,009



2,185


Self-funded premium equivalents











(Administrative services only contracts)(1)


748



720



716


Proprietary mutual funds and institutional











deposits(1)


17,794



16,065



17,386

Total premiums and deposits(1)(6)


33,126



32,645



33,538










Fee and other income(6)


1,433



1,439



1,348

Net policyholder benefits, dividends and










experience refunds


7,829



7,618



8,543










Earnings









Net earnings - common shareholders

$

731


$

392


$

591

Adjustments(7)




342



28

Adjusted net earnings - common shareholders(7)


731



734



619


Per common share











Basic earnings


0.740



0.397



0.598



Adjusted basic earnings(7) 


0.740



0.742



0.627



Dividends paid


0.389



0.367



0.367



Book value


21.01



20.11



19.99










Return on common shareholders' equity(2)










Net earnings


11.4%



10.9%



13.6%


Adjusted net earnings(7)


13.8%



13.4%



13.9%

Total assets(5)

$

432,651


$

419,838


$

405,406


Proprietary mutual funds and institutional











net assets(3) 


285,843



278,954



270,121

Total assets under management(3)


718,494



698,792



675,527


Other assets under administration(4) 


673,597



651,121



620,064

Total assets under administration

$

1,392,091


$

1,349,913


$

1,295,591

Total equity

$

26,435


$

25,536


$

25,372



















(1)    

In addition to premiums and deposits reported in the financial statements, the Company includes premium equivalents on self-funded group insurance administrative services only (ASO) contracts and deposits on proprietary mutual funds and institutional accounts to calculate total premiums and deposits (a non-IFRS financial measure).  This measure provides useful information as it is an indicator of top line growth.

(2)      

Return on common shareholders' equity is detailed within the "Capital Allocation Methodology" section of the Company's March 31, 2018 Management's Discussion and Analysis.

(3)    

Total assets under management (a non-IFRS financial measure) provides an indicator of the size and volume of the overall business of the Company.  Services provided in respect of assets under management include the selection of investments, the provision of investment advice and discretionary portfolio management on behalf of clients.  This includes internally and externally managed funds where the Company has oversight of the investment policies.

(4)   

Other assets under administration (a non-IFRS financial measure) includes assets where the Company only provides administration services for which the Company earns fee and other income.  These assets are beneficially owned by clients and the Company does not direct the investing activities.  Services provided relating to assets under administration includes recordkeeping, safekeeping, collecting investment income, settling of transactions or other administrative services.  Administrative services are an important aspect of the overall business of the Company and should be considered when comparing volume, size and trends.

(5)  

Comparative figures have been reclassified as described in note 2 and note 34 to the Company's December 31, 2017 annual consolidated financial statements.

(6)    

Comparative figures have been reclassified to reflect presentation adjustments relating to the adoption of IFRS 15, Revenue from Contracts with Customers, as described in the "International Financial Reporting Standards" section of the Company's March 31, 2018 Management's Discussion and Analysis and in note 2 to the Company's condensed consolidated interim unaudited financial statements for the period ended March 31, 2018.

(7)   

Adjusted net earnings attributable to common shareholders and adjusted net earnings per common share are non-IFRS measures of earnings performance.  For the first quarter of 2018, adjustments were nil (the first quarter of 2017 included restructuring expenses of $17 in the Europe segment and $11 in the U.S. segment).  The following adjustments were made in the fourth quarter of 2017:

 




Segment







Fourth Quarter 2017 Adjustments:

Canada


United
States


Europe


Total


EPS Impact




Restructuring expenses

$


$


$

4


$

4


$

0.004




Net charge on sale of equity investment




122





122



0.124




U.S. tax reform impact


19



251



(54)



216



0.218



Total Adjustments

$

19


$

373


$

(50)


$

342


$

0.345

 

CONSOLIDATED STATEMENTS OF EARNINGS (unaudited)

(in Canadian $ millions except per share amounts)



For the three months ended


March 31
2018


December 31
2017(1)


March 31
2017(1)










Income










Premium income











Gross premiums written

$

9,293


$

9,672


$

10,473



Ceded premiums


(1,119)



(1,178)



(1,119)


Total net premiums


8,174



8,494



9,354


Net investment income











Regular net investment income


1,573



1,564



1,469



Changes in fair value through profit or loss


(1,487)



1,415



735


Total net investment income


86



2,979



2,204


Fee and other income


1,433



1,439



1,348



9,693



12,912



12,906

Benefits and expenses










Policyholder benefits











Gross


7,996



7,740



8,595



Ceded


(625)



(556)



(610)


Total net policyholder benefits


7,371



7,184



7,985


Policyholder dividends and experience refunds


458



434



558


Changes in insurance and investment contract liabilities


(1,049)



2,369



1,319


Total paid or credited to policyholders


6,780



9,987



9,862











Commissions


594



646



813


Operating and administrative expenses


1,237



1,237



1,205


Premium taxes


121



115



123


Financing charges


71



74



76


Amortization of finite life intangible assets and impairment reversal


49



29



45


Restructuring expenses




5



37


Loss on assets held for sale




202



Earnings before income taxes


841



617



745

Income taxes


77



182



96

Net earnings before non-controlling interests


764



435



649

Attributable to non-controlling interests




10



27

Net earnings


764



425



622

Preferred share dividends


33



33



31

Net earnings - common shareholders

$

731


$

392


$

591










Earnings per common share










Basic

$

0.740


$

0.397


$

0.598


Diluted

$

0.739


$

0.396


$

0.597



(1)  

Certain comparative figures have been reclassified as described in note 2 to the Company's March 31, 2018 condensed consolidated interim unaudited financial statements.

 

CONSOLIDATED BALANCE SHEETS (unaudited)

(in Canadian $ millions)






March 31
2018


December 31
2017

Assets




Cash and cash equivalents

$

3,595


$

3,551

Bonds


124,505



120,204

Mortgage loans


23,855



22,185

Stocks


8,725



8,864

Investment properties


5,217



4,851

Loans to policyholders


8,408



8,280



174,305



167,935

Assets held for sale




169

Funds held by ceding insurers


10,070



9,893

Goodwill


6,508



6,179

Intangible assets


3,794



3,732

Derivative financial instruments


351



384

Owner occupied properties


718



706

Fixed assets


317



303

Other assets   


2,622



2,424

Premiums in course of collection, accounts and interest receivable


5,436



4,647

Reinsurance assets


6,265



5,045

Current income taxes


226



134

Deferred tax assets


1,008



930

Investments on account of segregated fund policyholders


221,031



217,357

Total assets

$

432,651


$

419,838







Liabilities






Insurance contract liabilities

$

165,648


$

159,524

Investment contract liabilities


1,777



1,841

Debentures and other debt instruments


5,925



5,617

Capital trust securities


160



160

Funds held under reinsurance contracts


1,452



373

Derivative financial instruments


1,499



1,336

Accounts payable


3,208



2,684

Other liabilities


3,787



3,752

Current income taxes


520



464

Deferred tax liabilities


1,209



1,194

Investment and insurance contracts on account of segregated fund policyholders


221,031



217,357

Total liabilities


406,216



394,302







Equity






Non-controlling interests







Participating account surplus in subsidiaries


2,763



2,771


Non-controlling interests in subsidiaries


185



164

Shareholders' equity







Share capital








Preferred shares


2,714



2,714



Common shares                                                                


7,268



7,260


Accumulated surplus


12,311



12,098


Accumulated other comprehensive income


1,073



386


Contributed surplus


121



143

Total equity


26,435



25,536

Total liabilities and equity

$

432,651


$

419,838


 

Segmented Information (unaudited)


Consolidated Net Earnings


For the three months ended March 31, 2018


Canada


United
States


Europe


Lifeco
Corporate


Total

Income
















Total net premiums

$

3,151


$

1,074


$

3,949


$


$

8,174


Net investment income
















Regular net investment income


612



441



517



3



1,573



Changes in fair value through profit or loss


(334)



(580)



(573)





(1,487)


Total net investment income (loss)


278



(139)



(56)



3



86


Fee and other income


438



631



364





1,433



3,867



1,566



4,257



3



9,693
















Benefits and expenses
















Paid or credited to policyholders


2,639



752



3,389





6,780


Other (1)


816



674



457



5



1,952


Financing charges


32



29



10





71


Amortization of finite life intangible assets


20



21



8





49

Earnings (loss) before income taxes


360



90



393



(2)



841

Income taxes


46



13



18





77

Net earnings (loss) before non-controlling
















interests


314



77



375



(2)



764

Non-controlling interests










Net earnings (loss)


314



77



375



(2)



764

Preferred share dividends


28





5





33

Net earnings (loss) before capital allocation


286



77



370



(2)



731

Impact of capital allocation


30



(2)



(26)



(2)



Net earnings (loss) - common shareholders

$

316


$

75


$

344


$

(4)


$

731



(1)

Includes commissions, operating and administrative expenses and premium taxes.

 

For the three months ended March 31, 2017


Canada(2)


United
States(2)


Europe


Lifeco
Corporate


Total(2)

Income
















Total net premiums

$

3,284


$

1,229


$

4,841


$


$

9,354


Net investment income

















Regular net investment income (loss)


613



455



402



(1)



1,469



Changes in fair value through profit or loss


375



102



258





735


Total net investment income (loss)


988



557



660



(1)



2,204


Fee and other income


405



619



324





1,348



4,677



2,405



5,825



(1)



12,906
















Benefits and expenses
















Paid or credited to policyholders


3,245



1,552



5,065





9,862


Other (1)


1,035



711



386



9



2,141


Financing charges


30



34



12





76


Amortization of finite life intangible assets


17



21



7





45


Restructuring expenses




17



20





37

Earnings (loss) before income taxes


350



70



335



(10)



745

Income taxes (recovery)


65



11



23



(3)



96

Net earnings (loss) before non-controlling
















interests


285



59



312



(7)



649

Non-controlling interests


29



(1)



(1)





27

Net earnings (loss)


256



60



313



(7)



622

Preferred share dividends


26





5





31

Net earnings (loss) before capital allocation


230



60



308



(7)



591

Impact of capital allocation


25



(4)



(19)



(2)



Net earnings (loss) - common shareholders

$

255


$

56


$

289


$

(9)


$

591



(1)

Includes commissions, operating and administrative expenses and premium taxes.

(2)

Certain comparative figures have been reclassified as described in note 2 to the Company's March 31, 2018 condensed consolidated interim unaudited financial statements.

 


SOURCE Great-West Lifeco Inc.

View original content: http://www.newswire.ca/en/releases/archive/May2018/03/c2352.html

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