Great-West Lifeco reports fourth quarter 2018 net earnings of $710 million; 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.

Winnipeg, February 7, 2019 ... Great-West Lifeco Inc. (Lifeco or the Company) today announced net earnings attributable to common shareholders (net earnings) of $710 million or $0.72 per common share for the fourth quarter of 2018 compared to $392 million or $0.40 per common share for the same quarter last year.  Lifeco adjusted net earnings for the fourth quarter of 2017 were $734 million or $0.74 per common share, excluding a net charge of $342 million related to the impact of U.S. tax reform, a net charge on the disposal of an equity investment and restructuring costs. Net earnings in the fourth quarter of 2018 of $710 million decreased from adjusted net earnings of $734 million in 2017, primarily due to the impact of equity market declines in the fourth quarter of 2018 partially offset by strong underlying business results.

For the twelve months ended December 31, 2018, Lifeco’s net earnings were $2,961 million or $3.00 per common share compared to $2,149 million or $2.17 per common share for the same period last year. Included in Lifeco’s net earnings for the twelve months ended December 31, 2018 were restructuring costs of $56 million related to the Company’s U.K. operations while net earnings in 2017 included net adjustments of $498 million related to the impact of U.S. tax reform, the net charge on the sale of an equity investment and restructuring costs. Excluding the impact of these items, Lifeco’s adjusted net earnings were $3,017 million or $3.05 per common share compared to $2,647 million or $2.68 per common share for the same period last year.  The 2017 adjusted net earnings included a provision of $175 million related to the impact of 2017 Atlantic hurricane activity reflected in the third quarter 2017 results.

“I am pleased with Great-West Lifeco’s earnings performance in 2018 which saw growth across our Canadian, U.S. and European segments,” said Paul Mahon, President and Chief Executive Officer, Great-West Lifeco. “We enter 2019 with significant excess capital, which will be further bolstered by $1.6 billion from the sale of our U.S. life and annuity business. This positions us to actively consider acquisition opportunities to drive growth and long-term value. In addition, we are considering other capital management activities to mitigate the earnings impact from the sale of our U.S. business.”

Highlights

Dividend increase of 6%

• Lifeco declared a quarterly common dividend of $0.413 per common share payable March 29, 2019, a 6% increase from the previous quarter.

Sales of $41.5 billion up 37%

• Sales for the fourth quarter of 2018 were $41.5 billion, up 37% from the fourth quarter of 2017, driven by a 67% increase in the U.S. segment, reflecting higher Empower Retirement sales and Putnam mutual fund sales.

Capital strength and financial flexibility maintained

• The Great-West Life Assurance Company reported a Life Insurance Capital Adequacy Test (LICAT) ratio of 140% at December 31, 2018.
• Adjusted return on equity (ROE) for the fourth quarter of 2018 was 14.3%. Adjusted ROE excludes restructuring costs.

 Sale of U.S. individual life insurance and annuity business

• On January 24, 2019, the Company announced that its subsidiary, Great-West Life & Annuity Insurance Company, was selling substantially all of its U.S. individual life insurance and annuity business, via a reinsurance agreement, to Protective Life Insurance Company. The Company will continue to focus on the retirement and asset management markets in the U.S.

Recognized as a leader in carbon and climate risk management by CDP

• The Company earned an A- (leadership) rating on CDP’s 2018 Climate Change Questionnaire, which identifies the global leaders in the management of carbon, climate change risks, and low carbon opportunities. The Company once again achieved the highest rating among Canadian insurance companies and was among the top seven Canadian companies.

SEGMENTED OPERATING RESULTS

For reporting purposes, Lifeco’s consolidated operating results are grouped into four reportable segments - Canada, United States, Europe and Lifeco Corporate - reflecting geographic lines as well as the management and corporate structure of the Company.  For more information, please refer to the Company's 2018 Annual Management’s Discussion and Analysis (MD&A).

CANADA

• Q4 Canada segment net earnings of $310 million – Net earnings for the fourth quarter of 2018 were $310 million compared to $338 million in the fourth quarter of 2017, a decrease of 8%. The decrease was primarily due to higher business and strategic expenses and the impact of equity market declines in the fourth quarter of 2018, which were partly offset by strong underlying business results. For the twelve months ended December 31, 2018, net earnings were $1,275 million, an increase from net earnings of $1,074 million and adjusted net earnings of $1,219 million for the same period last year, up 19% and 5% respectively.  Adjusted net earnings in 2017 exclude restructuring costs of $126 million and the impact of U.S. tax reform of $19 million. Net earnings for the full year increased due to strong results in the Group business and higher contributions from insurance contract liability basis changes.
• Canada advances business transformation – Through its business transformation program, the Company achieved $209 million of pre-tax annualized expense reductions, exceeding the target of $200 million. The Company will continue to invest in innovative technologies, focus on strategies to enhance growth and its competitive position and identify ways to further simplify its products, marketing, operations and structure.
• Acquisition of Guggenheim Real Estate LLC (GRE) – On January 31, 2019, the Company, through its wholly-owned subsidiary GWL Realty Advisors U.S., acquired the business of GRE, the real estate private equity platform of Guggenheim Investments. The acquisition of GRE complements the Company’s global real estate growth strategy and further enhances its platform in the U.S. market.

UNITED STATES

• Q4 U.S. segment net earnings of US$41 million – Net earnings for the fourth quarter of 2018 were US$41 million, down from adjusted net earnings of US$60 million in the fourth quarter of 2017, primarily due to the impact of equity market declines in the fourth quarter partially offset by the impact of U.S. corporate tax changes and growth in the Empower Retirement business.  Adjusted net earnings exclude the impact of U.S. tax reform and the net charge on the sale of an equity investment in the fourth quarter of 2017. For the twelve months ended December 31, 2018, net earnings were US$292 million, or US$253 million excluding the net positive impact of US$39 million related to U.S. debt refinancing activity in the second quarter of 2018, compared to adjusted net earnings of US$260 million for the same period last year. Net earnings for the full year increased due to impact of U.S. corporate tax changes and net business growth partially offset by the impact of equity market declines in the fourth quarter.
• Empower Retirement participants up 6% year-to-date – Empower Retirement participant accounts at December 31, 2018 were 8.8 million compared to 8.3 million at December 31, 2017, an increase of 6%, primarily driven by an increase in plan sales.
• Putnam sales up 53% – Putnam sales were US$13.2 billion, an increase of US$4.6 billion compared to the same period last year, reflecting a 63% increase in mutual fund sales and a 36% increase in institutional asset sales. Mutual fund net inflows of US$0.5 billion for the fourth quarter of 2018 were an increase of US$0.7 billion compared to the same period last year, and the third consecutive quarter with net inflows. Mutual fund net inflows for the year were US$2.4 billion compared to net outflows of US$1.6 billion in 2017.

EUROPE

• Q4 Europe segment net earnings of $349 million up 13% on an adjusted basis – Net earnings for the fourth quarter of 2018 were $349 million, up 13%, compared to adjusted net earnings of $308 million in the fourth quarter of 2017. The increase from the prior year was primarily driven by higher new business gains, more favourable mortality experience and the impact of changes to certain tax estimates partially offset by lower contributions from insurance contract liability basis changes. For the twelve months ended December 31, 2018, adjusted net earnings were $1,367 million compared to $1,121 million for the same period last year. Excluding the impact of a $175 million provision for 2017 Atlantic hurricane activity in the third quarter of 2017, 2018 net earnings were up $71 million compared to 2017. The increase was primarily due to higher contributions from insurance contract liability basis changes, mainly reflecting longevity assumption updates, favourable mortality experience and currency movement. These items were partially offset by lower contributions from investment experience.
• U.K. operations advance transformation activities – The U.K. operations made progress on the previously announced targeted annual expense reductions of £20 million pre-tax by the end of the fourth quarter of 2020. Annualized savings achieved to December 31, 2018 on the U.K. restructuring program were £3 million pre-tax.
• Q4 Europe segment sales were down 18% - Europe sales in the fourth quarter of 2018 of $6.0 billion were down 18% from the fourth quarter of 2017 and 17% from the third quarter of 2018 due to lower bulk annuity sales. The fourth quarter of 2017 included a large bulk payout annuity sale in Ireland and the third quarter of 2018 included four significant U.K. bulk annuity sales.

QUARTERLY DIVIDENDS

The Board of Directors approved a quarterly dividend of $0.413 per share on the common shares of Lifeco payable March 29, 2019 to shareholders of record at the close of business March 1, 2019.

In addition, the Directors approved quarterly dividends on Lifeco's preferred shares, as follows:

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. 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), Putnam Investments, LLC (Putnam) and Irish Life Group Limited (Irish Life).  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.  Great-West Lifeco trades on the Toronto Stock Exchange (TSX) under the ticker symbol GWO.  To learn more, visit 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 information.  Forward-looking information includes statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as "expects", "anticipates", "intends", "plans", "believes", "estimates" and other similar expressions or negative versions thereof.  These statements 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, expected capital management activities and use of capital and expected cost reductions and savings.  Forward-looking statements are based on expectations, forecasts, estimates, predictions, projections and conclusions about future events that were current at the time of the statements and are inherently subject to, among other things, risks, uncertainties and assumptions about the Company, economic factors and the financial services industry generally, including the insurance and mutual fund industries.  They are not guarantees of future performance, and the reader is cautioned that actual events and results could differ materially from those expressed or implied by forward-looking statements.  Material factors and assumptions that were applied in formulating the forward-looking information contained herein include the assumption that the business and economic conditions affecting the Company’s operations will continue substantially in their current state, including, without limitation, with respect to customer behaviour, the Company's reputation, market prices for products provided, sales levels, premium income, fee income, expense levels, mortality experience, morbidity experience, policy lapse rates, reinsurance arrangements, liquidity requirements, capital requirements, credit ratings, taxes, inflation, interest and foreign exchange rates, investment values, hedging activities, global equity and capital markets, business competition and other general economic, political and market factors in North America and internationally.  Many of these assumptions are based on factors and events that are not within the control of the Company and there is no assurance that they will prove to be correct.  Other important factors and assumptions that could cause actual results to differ materially from those contained in forward-looking statements include customer responses to new products, impairments of goodwill and other intangible assets, the Company's ability to execute strategic plans and changes to strategic plans, technological changes, breaches or failure of information systems and security (including cyber attacks), payments required under investment products, changes in local and international laws and regulations, changes in accounting policies and the effect of applying future accounting policy changes, unexpected judicial or regulatory proceedings, catastrophic events, continuity and availability of personnel and third party service providers, the Company's ability to complete strategic transactions and integrate acquisitions and unplanned material changes to the Company's facilities, customer and employee relations or credit arrangements.  The reader is cautioned that the foregoing list of assumptions and factors is not exhaustive, and there may be other factors listed in other filings with securities regulators, including factors set out in this release under "Risk Management and Control Practices" and "Summary of Critical Accounting Estimates", which, along with other filings, is available for review at www.sedar.com.  The reader is also cautioned to consider these and other factors, uncertainties and potential events carefully and not to place undue reliance on forward-looking information.  Other than as specifically required by applicable law, the Company does not intend to update any forward-looking information whether as a result of new information, future events or otherwise.

Cautionary note regarding Non-IFRS Financial Measures

This release contains some non-IFRS financial measures.  Terms by which non-IFRS financial measures are identified include, but are not limited to, "operating earnings", "adjusted net earnings", "adjusted return on equity", "core net earnings", "constant currency basis", “impact of currency movement”, "premiums and deposits", "sales", "assets under management", and "assets under administration".  Non-IFRS financial measures are used to provide management and investors with additional measures of performance to help assess results where no comparable IFRS measure exists.  However, non-IFRS financial measures do not have standard meanings prescribed by IFRS and are not directly comparable to similar measures used by other companies.  Refer to the appropriate reconciliations of these non-IFRS financial measures to measures prescribed by IFRS where applicable.

Fourth Quarter Conference Call

Lifeco's fourth quarter conference call and audio webcast will be held February 7, 2019 at 3:30 p.m. (ET).  The call and webcast can be accessed through greatwestlifeco.com or by phone at:

• Participants in the Toronto area:  416-340-2218      
• Participants from North America: 1-800-273-9672

A replay of the call will be available from February 8, 2019 to March 9, 2019 and can be accessed by calling 1-800-408-3053 or 905-694-9451 in Toronto (passcode: 8378775#).  The archived webcast will be available on greatwestlifeco.com from February 8, 2019 to February 7, 2020.

Additional information relating to Lifeco, including the 2018 annual 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.comOpens a new website in a new window.

For more information contact:

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

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

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