TSX:GWO Readers are referred to the cautionary note regarding Forward-Looking Information and Non-GAAP Financial Measures at the end of this Release.
TORONTO, May 7 /CNW/ - Great-West Lifeco Inc. (Lifeco) has reported net income attributable to common shareholders of $326 million for the three months ended March 31, 2009, compared to $493 million in 2008. On a per common share basis, this represents $0.345 per common share for the three months ended March 31, 2009, compared to $0.552 per common share for 2008.
Earnings of $493 million in 2008 represents adjusted net income from continuing operations and, as such, excludes income from discontinued operations of $43 million, or $0.048 per common share as well as two non-recurring items that totaled $118 million, after-tax, or $0.132 per common share, as described in the United States section of this Release. Including these amounts, net income attributable to common shareholders for the three months ended March 31, 2008, as reported, was $654 million, or $0.732 per common share.
The 2009 results reflect the weaker global equity and credit market conditions that were present in the quarter. A decline in the value of publicly traded and other investment securities through March 31, 2009 has lowered the market value of assets invested in the Company's segregated and mutual funds. Accordingly, the Company realized lower investment management fee income. This negatively impacted net income attributable to common shareholders by $89 million, or $0.09 per common share, and additionally, by $25 million, or $0.03 per common share as a result of increased actuarial liabilities. However, Great-West Life did not need to establish actuarial reserves with respect to segregated fund guarantees at March 31, 2009.
In the quarter, the Company increased provisions for future credit losses in actuarial liabilities by $202 million, mainly as a result of credit rating downgrades of investments held by the Company. This negatively impacted earnings by $138 million, or $0.15 per common share. The Company also recorded asset impairment charges in connection with certain financial, auto and commercial mortgage holdings. These impairment charges totaled $27 million, which negatively impacted earnings by $19 million, or $0.02 per common share.
At March 31, 2009, consolidated invested assets were $103.6 billion. The gross book value of impaired investments at that date was $351 million, against which the Company had recorded cumulative impairment provisions of $255 million. In addition, at March 31, 2009, the total provision for future credit losses in actuarial liabilities was in excess of $2.0 billion.
Highlights
- The Company has maintained its quarterly common dividend at $0.3075
per common share payable June 30, 2009. Dividends paid on common
shares for the three months ended March 31, 2009 were 5% higher than
a year ago.
- The Company's capital position remains very strong. Lifeco's Canadian
operating subsidiary, Great-West Life, reported a Minimum Continuing
Capital and Surplus (MCCSR) ratio of 205% at March 31, 2009, which
did not include any benefit from the $1,230 million of common and
preferred share capital that was raised by Lifeco in the fourth
quarter of 2008.
- The Company and its major operating subsidiaries continue to hold
strong credit ratings. The Company's ratings were affirmed with a
stable outlook by A.M. Best on January 22nd, Moody's Investors
Service and Standard and Poor's Ratings Services on February 12th and
Fitch Ratings on April 20th. The ratings affirmations are significant
in light of the current economic environment.
- In the quarter, PanAgora, a subsidiary of Putnam Investments, sold
its equity investment in Union PanAgora Asset Management GmbH. The
transaction resulted in an after-tax gain to Putnam of $41 million
(US$33 million), or $0.04 per common share.
- Adjusted return on common shareholders' equity was 16.2% for the
twelve months ended March 31, 2009.
OPERATING RESULTS
Consolidated net income for Lifeco is comprised of the net income 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.
CANADA
Net income attributable to common shareholders for the first quarter of 2009 was $208 million compared to $249 million in 2008. Individual Insurance & Investment Products net income was $127 million compared to $175 million in 2008, Group Insurance net income was $93 million compared to $100 million in 2008, and Corporate net income was a charge of $12 million compared to a charge of $26 million in 2008.
Asset impairment charges and provisions for future credit losses negatively impacted net income attributable to common shareholders by $2 million in the quarter.
Total sales for the three months ended March 31, 2009 were $1,785 million compared to $2,297 million in 2008, with the results reflecting lower sales of segregated fund and mutual fund products. Sales of protection products increased over the first quarter of 2008, however, with Individual Life sales up 9%. Sales of Group insurance products decreased 15% over 2008.
Total assets under administration at March 31, 2009 were $92.5 billion, compared to $93.4 billion at December 31, 2008.
UNITED STATES
Net income attributable to common shareholders for the first quarter of 2009 was $75 million compared to $76 million in 2008.
Asset impairment charges and provisions for future credit losses negatively impacted net income attributable to common shareholders by $21 million in the quarter. The results also include an after-tax gain of $41 million (US$33 million) realized by Putnam Investments LLC in connection with the sale of its equity investment in Union PanAgora Asset Management GmbH.
The $76 million in 2008 represents adjusted net income from continuing operations and, as such excludes income from discontinued operations of $43 million as well as two non-recurring items that contributed $118 million to earnings. The Company realized a gain of $176 million after-tax in connection with the termination of a long-standing assumption reinsurance agreement under which GWL&A had reinsured a block of U.S. participating policies. The Company also increased policy reserves by $58 million after-tax to provide for an increase in overhead costs expected to be absorbed as a result of the sale of Great-West Healthcare.
Total sales for the three months ended March 31, 2009 were $8.2 billion compared to $15.2 billion in 2008.
Total assets under administration at March 31, 2009 were $176.1 billion compared to $178.7 billion at December 31, 2008. Included in assets under administration at March 31, 2009 were $124.2 billion of mutual fund and institutional account assets managed by Putnam, compared to $129.0 billion at December 31, 2008.
EUROPE
Net income attributable to common shareholders for the first quarter of 2009 was $48 million compared to $175 million for the first quarter of 2008.
Asset impairment charges and provisions for future credit losses negatively impacted net income attributable to common shareholders by $134 million in the quarter.
Total sales for the three months ended March 31, 2009 were $795 million compared to $1,204 million in 2008.
Total assets under administration at March 31, 2009 were $64.2 billion, compared to $66.8 billion at December 31, 2008.
CORPORATE
Corporate net income for Lifeco attributable to common shareholders was a charge of $5 million for the first quarter of 2009 compared to a charge of $7 million for the first quarter of 2008.
QUARTERLY DIVIDENDS
At its meeting today, the Board of Directors approved a quarterly dividend of $0.3075 per share on the common shares of the Company payable June 30, 2009 to shareholders of record at the close of business June 2, 2009.
In addition, the Directors approved quarterly dividends on: - Series D First Preferred Shares of $0.293750 per share; - Series E First Preferred Shares of $0.30 per share; - Series F First Preferred Shares of $0.36875 per share; - Series G First Preferred Shares of $0.325 per share; - Series H First Preferred Shares of $0.30313 per share; - Series I First Preferred Shares of $0.28125 per share; and - Series J First Preferred Shares of $0.3750 per share all payable June 30, 2009 to shareholders of record at the close of business June 2, 2009.
For purposes of the Income Tax Act (Canada), and any similar provincial legislation, the dividends referred to above are eligible dividends.
GREAT-WEST LIFECO
Great-West Lifeco Inc. (TSX:GWO) is a financial services holding company with interests in the life insurance, health insurance, retirement savings, investment management and reinsurance businesses. The Company 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. Lifeco and its companies have nearly $333 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 Company action 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 2008 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-GAAP Financial Measures
This release contains some non-GAAP financial measures. Terms by which non-GAAP financial measures are identified include but are not limited to "earnings before restructuring charges", "adjusted net income", "adjusted net income from continuing operations", "net income - adjusted", "earnings before adjustments", "constant currency basis", "premiums and deposits", "sales", and other similar expressions. Non-GAAP financial measures are used to provide management and investors with additional measures of performance. However, non-GAAP financial measures do not have standard meanings prescribed by GAAP and are not directly comparable to similar measures used by other companies. Please refer to the appropriate reconciliations of these non-GAAP financial measures to measures prescribed by GAAP.
Further information
Selected financial information is attached.
Great-West Lifeco's first quarter conference call will be held Thursday,
May 7 at 3:00 p.m. (Eastern). The call can be accessed through
www.greatwestlifeco.com or by phone at:
- Participants in the Toronto area: 416-340-2220
- Participants from North America: 1-866-226-1798
- Participants from Overseas: Dial international access code first,
then 800-2787-2090
A replay of the call will be available from May 7 to May 14, 2009, and can be accessed by calling 1-800-408-3053 or 416-695-5800 in Toronto (passcode: 4003482 followed by the number sign).
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 $ millions except per share amounts)
For the three months
ended March 31,
-----------------------------------
2009 2008 % Change
-------------------------------------------------------------------------
Premiums and deposits:
Life insurance, guaranteed annuities
and insured health products $ 4,709 $ 16,790 -72%
Self funded premium equivalents
(ASO contracts) 618 585 6%
Segregated funds deposits:
Individual products 1,258 2,018 -38%
Group products 2,696 1,541 75%
Proprietary mutual funds deposits(1) 5,280 8,519 -38%
-----------------------------------
Total premiums and deposits 14,561 29,453 -51%
-----------------------------------
Fee and other income 680 797 -15%
Paid or credited to policyholders 3,366 16,296 -79%
Net income - common shareholders
Continuing operations - adjusted(3) 326 493 -34%
Discontinued operations - adjusted(2) - 43 -
-----------------------------------
Net income - adjusted(3) 326 536 -39%
Adjustments after tax(3) - 118 -
-----------------------------------
Net income 326 654 -50%
-------------------------------------------------------------------------
Per common share
Basic earnings - adjusted(3) $ 0.345 $ 0.600 -43%
Adjustments after tax(3) - 0.132 -
Basic earnings 0.345 0.732 -53%
Dividends paid 0.3075 0.2925 5%
Book value 12.68 11.80 7%
-------------------------------------------------------------------------
Return on common shareholders'
equity (12 months):
Net income adjusted(3) 16.2% 21.1%
Net income 9.3% 21.3%
-------------------------------------------------------------------------
At March 31
Total assets $ 129,596 $ 133,557 -3%
Segregated funds net assets 76,903 89,092 -14%
Proprietary mutual funds net assets 126,377 167,812 -25%
-----------------------------------
Total assets under administration $ 332,876 $ 390,461 -15%
-----------------------------------
-----------------------------------
Share capital and surplus(4) $ 13,299 $ 11,651 14%
-------------------------------------------------------------------------
(1) Includes Putnam Investments, LLC mutual funds and institutional
deposits, excluding Prime Money Market Fund net deposits.
(2) Represents the operating results of GWL&A's health care business,
which was sold effective April 1, 2008.
(3) During the first quarter of 2008, net income attributable to common
shareholders was increased by $118 or $0.132 per common share as a
result of the following items in the Company's United States segment:
(a) A gain realized in connection with the termination of a long-
standing assumption reinsurance agreement ($176 after-tax or
$0.197 per common share) as described in Note 14 to the 2008
Annual Consolidated Financial Statements.
(b) Reserve strengthening in GWL&A's continuing operations ($(58)
after-tax or ($0.065) per common share) as described in Note 2 to
the 2008 Annual Consolidated Financial Statements.
Net income, basic earnings per common share and return on common
shareholders' equity are presented on an adjusted basis, as a non-
GAAP financial measure of earnings performance. Return on common
shareholders' equity is restated excluding non recurring-items from
prior periods.
(4) Excludes Putnam Prime Money Market Fund.
SUMMARIES OF CONSOLIDATED OPERATIONS (unaudited)
(in $ millions except per share amounts)
For the three months
ended March 31,
-----------------------
2009 2008
-----------------------
Income
Premium income $ 4,709 $ 16,790
Net investment income (note 4)
Regular net investment income 1,511 1,352
Changes in fair value on held for
trading assets (1,967) (940)
-----------------------
Total net investment income (456) 412
Fee and other income 680 797
-----------------------
4,933 17,999
-----------------------
Benefits and expenses
Policyholder benefits 4,609 3,689
Policyholder dividends and experience refunds 398 347
Change in actuarial liabilities (1,641) 12,260
-----------------------
Total paid or credited to policyholders 3,366 16,296
Commissions 307 322
Operating expenses 663 637
Premium taxes 55 52
Financing charges (note 6) 75 106
Amortization of finite life intangible assets 22 21
-----------------------
Net income from continuing operations
before income taxes 445 565
Income taxes - current 82 120
- future (4) (23)
-----------------------
Net income from continuing operations before
non-controlling interests 367 468
Non-controlling interests 24 (157)
-----------------------
Net income from continuing operations 343 625
Net income from discontinued operations (note 2) - 43
-----------------------
Net income 343 668
Perpetual preferred share dividends 17 14
-----------------------
Net income - common shareholders $ 326 $ 654
-----------------------
-----------------------
Earnings per common share (note 12)
Basic $ 0.345 $ 0.732
-----------------------
-----------------------
Diluted $ 0.345 $ 0.728
-----------------------
-----------------------
CONSOLIDATED BALANCE SHEETS (unaudited)
(in $ millions)
March 31, December 31, March 31,
2009 2008 2008
-----------------------------------
Assets
Bonds (note 4) $ 66,715 $ 66,554 $ 66,935
Mortgage loans (note 4) 17,312 17,444 16,358
Stocks (note 4) 5,459 5,394 6,415
Real estate (note 4) 3,257 3,188 2,691
Loans to policyholders 7,842 7,622 6,521
Cash and cash equivalents 2,979 2,850 3,416
Funds held by ceding insurers 10,820 11,447 14,393
Assets of operation held for
sale (note 2) - - 670
Goodwill 5,431 5,425 6,325
Intangible assets 3,582 3,523 4,160
Other assets 6,199 6,627 5,673
-----------------------------------
Total assets $ 129,596 $ 130,074 $ 133,557
-----------------------------------
-----------------------------------
Liabilities
Policy liabilities
Actuarial liabilities $ 97,245 $ 97,895 $ 102,012
Provision for claims 1,432 1,466 1,340
Provision for policyholder
dividends 651 630 622
Provision for experience rating
refunds 233 310 218
Policyholder funds 2,449 2,326 2,292
-----------------------------------
102,010 102,627 106,484
Debentures and other debt instruments 3,960 3,821 5,155
Funds held under reinsurance contracts 191 192 169
Other liabilities 5,594 5,969 5,129
Liabilities of operations held for
sale (note 2) - - 396
Repurchase agreements 521 334 689
Deferred net realized gains 153 161 180
-----------------------------------
112,429 113,104 118,202
Preferred shares (note 8) 748 752 797
Capital trust securities and
debentures (note 7) 755 658 636
Non-controlling interests
Participating account surplus
in subsidiaries 2,022 2,012 1,952
Preferred shares issued by
subsidiaries 157 157 157
Perpetual preferred shares issued
by subsidiaries 148 150 151
Non-controlling interests in
capital stock and surplus 38 13 11
Share capital and surplus
Share capital (note 8)
Perpetual preferred shares 1,328 1,329 1,099
Common shares 5,737 5,736 4,714
Accumulated surplus 6,941 6,906 6,992
Accumulated other comprehensive loss (754) (787) (1,190)
Contributed surplus 47 44 36
-----------------------------------
13,299 13,228 11,651
-----------------------------------
Total liabilities, share capital
and surplus $ 129,596 $ 130,074 $ 133,557
-----------------------------------
-----------------------------------
CONSOLIDATED STATEMENTS OF SURPLUS (unaudited)
(in $ millions)
For the three months
ended March 31,
-----------------------
2009 2008
-----------------------
Accumulated surplus
Balance, beginning of year $ 6,906 $ 6,599
Net income 343 668
Dividends to shareholders
Perpetual preferred shareholders (17) (14)
Common shareholders (291) (261)
-----------------------
Balance, end of period $ 6,941 $ 6,992
-----------------------
-----------------------
Accumulated other comprehensive loss,
net of income taxes (note 13)
Balance, beginning of year $ (787) $ (1,533)
Other comprehensive income 33 343
-----------------------
Balance, end of period $ (754) $ (1,190)
-----------------------
-----------------------
Contributed surplus
Balance, beginning of year $ 44 $ 34
Stock option expense
Current year expense (note 10) 3 2
-----------------------
Balance, end of period $ 47 $ 36
-----------------------
-----------------------
SUMMARIES OF CONSOLIDATED COMPREHENSIVE INCOME (unaudited)
(in $ millions)
For the three months
ended March 31,
-----------------------
2009 2008
-----------------------
Net income $ 343 $ 668
Other comprehensive income (loss),
net of income taxes
Unrealized foreign exchange gains (losses)
on translation of foreign operations 182 456
Unrealized gains (losses) on available
for sale assets (100) (49)
Realized (gains) losses on available for
sale assets (12) (10)
Unrealized gains (losses) on cash flow hedges (53) (46)
Realized (gains) losses on cash flow hedges 12 -
Non-controlling interests 4 (8)
-----------------------
33 343
-----------------------
Comprehensive income $ 376 $ 1,011
-----------------------
-----------------------
Income tax (expense) benefit included in other comprehensive income
For the three months
ended March 31,
-----------------------
2009 2008
-----------------------
Unrealized gains (losses) on available
for sale assets $ 27 $ 22
Realized (gains) losses on available
for sale assets 3 3
Unrealized gains (losses) on cash flow hedges 29 25
Realized (gains) losses on cash flow hedges (7) -
Non controlling interests - 2
-----------------------
$ 52 $ 52
-----------------------
-----------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in $ millions)
For the three months
ended March 31,
-----------------------
2009 2008
-----------------------
Operations
Net income $ 343 $ 668
Adjustments:
Change in policy liabilities (1,589) (238)
Change in funds held by ceding insurers 144 (18)
Change in funds held under reinsurance
contracts (8) (1)
Change in current income taxes payable (107) (171)
Future income tax expense (4) (23)
Changes in fair value of financial
instruments 1,968 951
Other 8 (385)
-----------------------
Cash flows from operations 755 783
Financing Activities
Issue of common shares 1 5
Repayments on credit facility - (235)
Increase in line of credit in subsidiary 100 80
Repayment of debentures and other debt
instruments (2) (2)
Dividends paid (308) (275)
-----------------------
(209) (427)
Investment Activities
Bond sales and maturities 4,997 4,644
Mortgage loan repayments 419 376
Stock sales 622 389
Real estate sales 7 100
Change in loans to policyholders (46) (37)
Change in repurchase agreements 184 369
Investment in bonds (5,579) (5,342)
Investment in mortgage loans (190) (712)
Investment in stocks (793) (448)
Investment in real estate (65) (100)
-----------------------
(444) (761)
Effect of changes in exchange rates on cash
and cash equivalents 27 168
Increase (decrease) in cash and cash equivalents 129 (237)
Cash and cash equivalents from continuing and
discontinued operations, beginning of year 2,850 3,676
-----------------------
Cash and cash equivalents from continuing and
discontinued operations, end of period 2,979 3,439
Cash and cash equivalents from discontinued
operations, end of period - (23)
-----------------------
Cash and cash equivalents from continuing
operations, end of period $ 2,979 $ 3,416
-----------------------
-----------------------
Notes to Consolidated Financial Statements (unaudited)
(in $ millions except per share amounts)
1. Basis of Presentation and Summary of Accounting Policies
The interim unaudited consolidated financial statements of Great-West
Lifeco Inc. (Lifeco or the Company) at March 31, 2009 have been
prepared in accordance with Canadian generally accepted accounting
principles, using the same accounting policies and methods of
computation followed in the consolidated financial statements for the
year ended December 31, 2008 except as noted below. These interim
consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto in the
Company's annual report dated December 31, 2008.
The preparation of financial statements in conformity with Canadian
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the balance sheet date and the reported amounts of revenues and
expenses during the reporting period. The valuation of actuarial
liabilities, certain financial assets and liabilities, goodwill and
indefinite life intangible assets, income taxes and pension plans and
other post retirement benefits are the most significant components of
the Company's financial statements subject to management estimates.
The year to date results of the Company reflect management's
judgments regarding the impact of prevailing global credit, equity
and foreign exchange market conditions. Financial instrument carrying
values currently reflect the illiquidity of the markets and the
liquidity premiums embedded in the market pricing methods the Company
relies upon.
The estimation of actuarial liabilities relies upon investment credit
ratings. The Company's practice is to use third party independent
credit ratings where available. Credit rating changes may lag
developments in the current environment. Subsequent credit rating
adjustments will impact actuarial liabilities.
In addition to the Company's direct investments in certain financial
institutions, the Company has contractual business relationships with
these financial institutions. Given the current uncertainty
associated with these entities, normal business conditions do not
prevail and the Company's contractual business relationships may be
impacted.
Given the uncertainty surrounding the continued volatility in these
markets, and the general lack of liquidity in financial markets, the
actual financial results could differ from those estimates.
(a) Changes in Accounting Policy
Goodwill and Intangible Assets
------------------------------
Effective January 1, 2009, the Company adopted the Canadian
Institute of Chartered Accountants (CICA) Handbook Section 3064,
Goodwill and Intangible Assets. This section replaces existing
Section 3062, Goodwill and Other Intangible Assets, and Section
3450, Research and Development Costs. This section establishes
new standards for the recognition and measurement of intangible
assets, but does not affect the accounting for goodwill. As a
result of the adoption of the new requirements software costs
previously included in other assets have been reclassified to
intangible assets and amortization on software costs previously
included in operating expenses has been reclassified to
amortization of finite life intangible assets.
(b) Comparative Figures
Certain of the 2008 amounts presented for comparative purposes
have been reclassified to conform to the presentation adopted in
the current year as a result of the reclassifications in
note 1(a) and certain other reclassifications. On the
Consolidated Balance Sheets these reclassifications resulted in a
decrease to other assets of $320, an increase to intangible
assets of $137 and a decrease to policyholder liabilities of $183
at March 31, 2008 and a decrease to other assets of $151 at
December 31, 2008 with a corresponding increase to intangible
assets. On the Summaries of Consolidated Operations these
reclassifications resulted in a decrease to operating expenses of
$11 with a corresponding increase to the amortization of finite
life intangible assets and an increase in total paid or credited
to policyholders of $12 with a corresponding decrease in income
tax expense for the three months ended March 31, 2008.
2. Acquisitions and Disposals
(a) On April 1, 2008, Great-West Life & Annuity Insurance Company
completed the sale of its health care business. For the three
months ended March 31, 2008, after tax net income of the health
care business presented as discontinued operations on the
Summaries of Consolidated Operations is comprised of the
following:
Income
Premium income $ 224
Net investment income 11
Fee and other income 164
-----------
399
-----------
Benefits and expenses
Paid or credited to policyholders and
beneficiaries including policyholder
dividends and experience refunds 191
Other 145
-----------
Net income from discontinued operations
before income taxes 63
Income taxes 20
-----------
Net income from discontinued operations $ 43
-----------
-----------
At March 31, 2008, on the Consolidated Balance Sheets assets and
liabilities of operations held for sale are comprised of the
following:
Assets
Bonds $ 184
Cash and cash equivalents 23
Goodwill 49
Intangible assets 11
Other assets 403
-----------
Assets of operations held for sale $ 670
-----------
-----------
Liabilities
Policy liabilities $ 231
Other liabilities 165
-----------
Liabilities of operations held for sale $ 396
-----------
-----------
(b) On January 19, 2009, PanAgora, a subsidiary of Putnam LLC, sold
its equity investment in Union PanAgora Asset Management GmbH to
Union Asset Management, gross proceeds received of approximately
U.S. $77 resulted in a gain to Putnam LLC of approximately U.S.
$33 after taxes and minority interests.
3. Restructuring Costs
The following details the amount and status of the Putnam LLC
restructuring program costs:
Expected Amounts Amounts
total utilized- utilized-
costs 2007 2008
-----------------------------------
Compensation costs $ 133 $ (27) $ (76)
Exiting and consolidating
operations 22 (6) (5)
Eliminating duplicate systems 29 (1) -
-----------------------------------
$ 184 $ (34) $ (81)
-----------------------------------
-----------------------------------
Accrued on acquisition $ 154 $ (34) $ (81)
Expense as incurred 30 - -
-----------------------------------
$ 184 $ (34) $ (81)
-----------------------------------
-----------------------------------
Changes in
Amounts foreign Balance
utilized- exchange March 31,
2009 rates 2009
-----------------------------------
Compensation costs $ (4) $ 4 $ 30
Exiting and consolidating
operations - 3 14
Eliminating duplicate systems - 6 34
-----------------------------------
$ (4) $ 13 $ 78
-----------------------------------
-----------------------------------
Accrued on acquisition $ (4) $ 7 $ 42
Expense as incurred - 6 36
-----------------------------------
$ (4) $ 13 $ 78
-----------------------------------
-----------------------------------
4. Portfolio Investments
(a) Carrying values and estimated market values of portfolio
investments are as follows:
March 31, 2009
-----------------------------------
Carrying Value & Market Value
-----------------------------------
Held for trading(1)
Available -----------------------
for sale Designated Classified
-----------------------------------
Bonds
- government $ 3,134 $ 16,010 $ 1,112
- corporate 2,290 33,561 869
-----------------------------------
5,424 49,571 1,981
-----------------------------------
Mortgage loans
- residential - - -
- non-
residential - - -
-----------------------------------
- - -
-----------------------------------
Stocks 1,418 3,712 -
Real estate - - -
-----------------------------------
$ 6,842 $ 53,283 $ 1,981
-----------------------------------
-----------------------------------
March 31, 2009
-----------------------------------------------------------
Amortized Cost Total
-----------------------------------------------------------
Carrying Market Carrying Market
Value Value Value Non- Value Non-
Loans and Loans and financial financial Carrying
receivables receivables instruments instruments value
-----------------------------------------------------------
Bonds
- government $ 1,820 $ 1,827 $ - $ - $ 22,076
- corporate 7,919 7,601 - - 44,639
-----------------------------------------------------------
9,739 9,428 - - 66,715
-----------------------------------------------------------
Mortgage loans
- residential 6,838 7,008 - - 6,838
- non-
residential 10,474 10,301 - - 10,474
-----------------------------------------------------------
17,312 17,309 - - 17,312
-----------------------------------------------------------
Stocks - - 329 276 5,459
Real estate - - 3,257 2,993 3,257
-----------------------------------------------------------
$ 27,051 $ 26,737 $ 3,586 $ 3,269 $ 92,743
-----------------------------------------------------------
-----------------------------------------------------------
December 31, 2008
-----------------------------------
Carrying Value & Market Value
-----------------------------------
Held for trading(1)
Available -----------------------
for sale Designated Classified
-----------------------------------
Bonds
- government $ 3,594 $ 16,197 $ 836
- corporate 2,051 33,319 849
-----------------------------------
5,645 49,516 1,685
-----------------------------------
Mortgage loans
- residential - - -
- non-
residential - - -
-----------------------------------
- - -
-----------------------------------
Stocks 1,411 3,653 -
Real estate - - -
-----------------------------------
$ 7,056 $ 53,169 $ 1,685
-----------------------------------
-----------------------------------
December 31, 2008
-----------------------------------------------------------
Amortized Cost Total
-----------------------------------------------------------
Carrying Market Carrying Market
Value Value Value Non- Value Non-
Loans and Loans and financial financial Carrying
receivables receivables instruments instruments value
-----------------------------------------------------------
Bonds
- government $ 1,877 $ 1,879 $ - $ - $ 22,504
- corporate 7,831 7,371 - - 44,050
-----------------------------------------------------------
9,708 9,250 - - 66,554
-----------------------------------------------------------
Mortgage loans
- residential 6,986 7,157 - - 6,986
- non-
residential 10,458 10,414 - - 10,458
-----------------------------------------------------------
17,444 17,571 - - 17,444
-----------------------------------------------------------
Stocks - - 330 326 5,394
Real estate - - 3,188 3,053 3,188
-----------------------------------------------------------
$ 27,152 $ 26,821 $ 3,518 $ 3,379 $ 92,580
-----------------------------------------------------------
-----------------------------------------------------------
March 31, 2008
-----------------------------------
Carrying Value & Market Value
-----------------------------------
Held for trading(1)
Available -----------------------
for sale Designated Classified
-----------------------------------
Bonds
- government $ 1,779 $ 15,655 $ 645
- corporate 3,033 36,018 1,053
-----------------------------------
4,812 51,673 1,698
-----------------------------------
Mortgage loans
- residential - - -
- non-
residential - - -
-----------------------------------
- - -
-----------------------------------
Stocks 1,426 4,666 -
Real estate - - -
-----------------------------------
$ 6,238 $ 56,339 $ 1,698
-----------------------------------
-----------------------------------
March 31, 2008
-----------------------------------------------------------
Amortized Cost Total
-----------------------------------------------------------
Carrying Market Carrying Market
Value Value Value Non- Value Non-
Loans and Loans and financial financial Carrying
receivables receivables instruments instruments value
-----------------------------------------------------------
Bonds
- government $ 1,711 $ 1,866 $ - $ - $ 19,790
- corporate 7,041 7,226 - - 47,145
-----------------------------------------------------------
8,752 9,092 - - 66,935
-----------------------------------------------------------
Mortgage loans
- residential 7,061 7,271 - - 7,061
- non-
residential 9,297 9,405 - - 9,297
-----------------------------------------------------------
16,358 16,676 - - 16,358
-----------------------------------------------------------
Stocks - - 323 416 6,415
Real estate - - 2,691 2,940 2,691
-----------------------------------------------------------
$ 25,110 $ 25,768 $ 3,014 $ 3,356 $ 92,399
-----------------------------------------------------------
-----------------------------------------------------------
(1) Investments can be held for trading in two ways: designated as held
for trading at the option of management; or, classified as held for
trading if they are actively traded for the purpose of earning
investment income.
(b) Included in portfolio investments are the following:
(i) Impaired investments
March 31, 2009
-----------------------------------
Gross Carrying
amount Impairment amount
-----------------------------------
Impaired amounts by type
Held for trading(1) $ 162 $ (145) $ 17
Available for sale 16 (16) -
Loans and receivables 158 (80) 78
-----------------------------------
Total $ 336 $ (241) $ 95
-----------------------------------
-----------------------------------
December 31, 2008
-----------------------------------
Gross Carrying
amount Impairment amount
-----------------------------------
Impaired amounts by type
Held for trading(1) $ 160 $ (138) $ 22
Available for sale 18 (17) 1
Loans and receivables 93 (60) 33
-----------------------------------
Total $ 271 $ (215) $ 56
-----------------------------------
-----------------------------------
March 31, 2008
-----------------------------------
Gross Carrying
amount Impairment amount
-----------------------------------
Impaired amounts by type
Held for trading(1) $ - $ - $ -
Available for sale - - -
Loans and receivables 28 (49) (21)
-----------------------------------
Total $ 28 $ (49) $ (21)
-----------------------------------
-----------------------------------
(1) Excludes amounts in funds held by ceding insurers of $15 and
impairment of ($14) at March 31, 2009 and $15 and ($11),
respectively at December 31, 2008.
(ii) The allowance for credit losses and changes in the allowance
for credit losses related to investments classified as loans
and receivables are as follows:
For the three months For the three months
ended March 31, 2009 ended March 31, 2008
-----------------------------------------------------
Mortgage Mortgage
Bonds loans Total Bonds loans Total
-----------------------------------------------------
Balance, beginning
of year $ 31 $ 29 $ 60 $ 34 $ 19 $ 53
Net provision
(recovery) for
credit losses-
in year 12 7 19 - - -
Write-offs, net
of recoveries - (1) (1) (6) - (6)
Other (including
foreign exchange
rate changes) 1 1 2 1 1 2
-----------------------------------------------------
Balance, end of
period $ 44 $ 36 $ 80 $ 29 $ 20 $ 49
-----------------------------------------------------
-----------------------------------------------------
(c) Net investment income is comprised of the following:
For the three
months ended Mortgage Real
March 31, 2009 Bonds loans Stocks estate Other Total
-------------------------------------------------------------------------
Regular net
investment income:
Investment income
earned $ 1,064 $ 235 $ 44 $ 45 $ 70 $ 1,458
Net realized
gains (losses)
(available for
sale) 16 - (1) - - 15
Net realized
gains (losses)
(other
classifications) (3) 4 76 - - 77
Amortization of
net realized/
unrealized gains
(non-financial
instruments) - - - (4) - (4)
Net (provision)
recovery for
credit losses
(loans and
receivables) (12) (7) - - - (19)
Other income
and expenses - - - - (16) (16)
-----------------------------------------------------
1,065 232 119 41 54 1,511
Changes in fair
value on held
for trading assets:
Net realized/
unrealized gains
(losses)
(classified held
for trading) 9 - - - - 9
Net realized/
unrealized gains
(losses)
(designated held
for trading) (1,794) - (175) - (7) (1,976)
-----------------------------------------------------
(1,785) - (175) - (7) (1,967)
-----------------------------------------------------
Net investment
income $ (720) $ 232 $ (56) $ 41 $ 47 $ (456)
-----------------------------------------------------
-----------------------------------------------------
For the three
months ended Mortgage Real
March 31, 2008 Bonds loans Stocks estate Other Total
-------------------------------------------------------------------------
Regular net
investment income:
Investment income
earned $ 890 $ 228 $ 45 $ 35 $ 128 $ 1,326
Net realized
gains (losses)
(available for
sale) 13 - - - - 13
Net realized
gains (losses)
(other
classifications) 6 6 5 - - 17
Amortization of
net realized/
unrealized gains
(non-financial
instruments) - - - 11 - 11
Other income and
expenses - - - - (15) (15)
-----------------------------------------------------
909 234 50 46 113 1,352
Changes in fair
value on held for
trading assets:
Net realized/
unrealized gains
(losses)
(classified held
for trading) 21 - - - - 21
Net realized/
unrealized gains
(losses)
(designated held
for trading) (683) - (242) - (36) (961)
-----------------------------------------------------
(662) - (242) - (36) (940)
-----------------------------------------------------
Net investment
income $ 247 $ 234 $ (192) $ 46 $ 77 $ 412
-----------------------------------------------------
-----------------------------------------------------
Investment income earned is comprised of income from investments
that are classified or designated as held for trading, classified
as available for sale and classified as loans and receivables.
5. Financial Instrument Risk Management
The Company has policies relating to the identification, measurement,
monitoring, mitigating, and controlling of risks associated with
financial instruments. The key risks related to financial instruments
are credit risk, liquidity risk and market risk (currency, interest
rate and equity). The following sections describe how the Company
manages each of these risks.
(a) Credit Risk
Credit risk is the risk of financial loss resulting from the
failure of debtors making payments when due. The following
policies and procedures are in place to manage this risk:
- Investment guidelines are in place that require only the
purchase of investment-grade assets and minimize undue
concentration of assets in any single geographic area,
industry and company.
- Investment guidelines specify minimum and maximum limits for
each asset class. Credit ratings are determined by recognized
external credit rating agencies and/or internal credit review.
- Investment guidelines also specify collateral requirements.
- Portfolios are monitored continuously, and reviewed regularly
with the Boards of Directors or the Investment Committees of
the Boards of Directors.
- Credit risk associated with derivative instruments is
evaluated quarterly based on conditions that existed at the
balance sheet date, using practices that are at least as
conservative as those recommended by regulators.
- The Company is exposed to credit risk relating to premiums due
from policyholders during the grace period specified by the
insurance policy or until the policy is paid up or terminated.
Commissions paid to agents and brokers are netted against
amounts receivable, if any.
- Reinsurance is placed with counterparties that have a good
credit rating and concentration of credit risk is managed by
following policy guidelines set each year by the Board of
Directors. Management continuously monitors and performs an
assessment of creditworthiness of reinsurers.
(i) Maximum Exposure to Credit Risk
The following table summarizes the Company's maximum exposure
to credit risk related to financial instruments. The maximum
credit exposure is the carrying value of the asset net of any
allowances for losses.
March 31, December 31, March 31,
2009 2008 2008
-----------------------------------
Cash and cash equivalents $ 2,979 $ 2,850 $ 3,416
Bonds
Held for trading 51,552 51,201 53,371
Available for sale 5,424 5,645 4,812
Amortized cost 9,739 9,708 8,752
Mortgage loans 17,312 17,444 16,358
Loans to policyholders 7,842 7,622 6,521
Other financial assets 13,969 15,004 17,783
Derivative assets 484 677 710
-----------------------------------
Total balance sheet
maximum credit exposure $ 109,301 $ 110,151 $ 111,723
-----------------------------------
-----------------------------------
Credit risk is also mitigated by entering into collateral
agreements. The amount and type of collateral required depends
on an assessment of the credit risk of the counterparty.
Guidelines are implemented regarding the acceptability of
types of collateral and the valuation parameters. Management
monitors the value of the collateral, requests additional
collateral when needed and performs an impairment valuation
when applicable.
(ii) Concentration of Credit Risk
Concentrations of credit risk arise from exposures to a single
debtor, a group of related debtors or groups of debtors that
have similar credit risk characteristics in that they operate
in the same geographic region or in similar industries. The
characteristics are similar in that changes in economic or
political environments may impact their ability to meet
obligations as they come due.
The following table provides details of the carrying value of
bonds by industry sector and geographic distribution:
March 31, December 31, March 31,
2009 2008 2008
-----------------------------------
Bonds issued or
guaranteed by:
Canadian federal
government $ 2,228 $ 1,867 $ 1,654
Canadian provincial
and municipal
governments 6,151 6,029 6,009
U.S. Treasury and
other U.S. agencies 5,017 4,968 4,075
Other foreign governments 6,691 6,854 7,376
Government related 2,000 1,563 2,287
Sovereign 1,671 1,739 2,081
Asset-backed securities 7,077 7,243 8,304
Residential mortgage
backed securities 1,201 1,156 215
Banks 4,489 5,070 6,192
Other financial
institutions 3,431 3,602 4,491
Basic materials 937 870 673
Communications 1,327 1,220 1,244
Consumer products 4,362 4,104 4,131
Industrial products/
services 1,623 1,985 1,527
Natural resources 2,062 1,813 1,889
Real estate 1,687 1,645 1,805
Transportation 2,624 2,497 2,564
Utilities 7,416 7,068 6,540
Miscellaneous 1,977 1,866 1,389
-----------------------------------
Total long term bonds 63,971 63,159 64,446
Short term bonds 2,744 3,395 2,489
-----------------------------------
$ 66,715 $ 66,554 $ 66,935
-----------------------------------
-----------------------------------
Canada $ 26,040 $ 26,231 $ 25,241
United States 18,751 17,703 16,771
Europe/Reinsurance 21,924 22,620 24,923
-----------------------------------
$ 66,715 $ 66,554 $ 66,935
-----------------------------------
-----------------------------------
The following table provides details of the carrying value of
mortgage loans by geographic location:
March 31, 2009
-----------------------------------------------
Single Multi-
family family
residential residential Commercial Total
-----------------------------------------------
Canada $ 1,813 $ 4,409 $ 6,134 $ 12,356
United States - 580 1,610 2,190
Europe/
Reinsurance - 36 2,730 2,766
-----------------------------------------------
Total mortgage
loans $ 1,813 $ 5,025 $ 10,474 $ 17,312
-----------------------------------------------
-----------------------------------------------
December 31, 2008
-----------------------------------------------
Single Multi-
family family
residential residential Commercial Total
-----------------------------------------------
Canada $ 1,850 $ 4,524 $ 6,144 $ 12,518
United States - 576 1,581 2,157
Europe/
Reinsurance - 36 2,733 2,769
-----------------------------------------------
Total mortgage
loans $ 1,850 $ 5,136 $ 10,458 $ 17,444
-----------------------------------------------
-----------------------------------------------
March 31, 2008
-----------------------------------------------
Single Multi-
family family
residential residential Commercial Total
-----------------------------------------------
Canada $ 1,791 $ 4,712 $ 5,441 $ 11,944
United States - 527 1,211 1,738
Europe/
Reinsurance - 31 2,645 2,676
-----------------------------------------------
Total mortgage
loans $ 1,791 $ 5,270 $ 9,297 $ 16,358
-----------------------------------------------
-----------------------------------------------
(iii) Asset Quality
Bond Portfolio Quality
March 31, December 31, March 31,
2009 2008 2008
-----------------------------------
AAA $ 24,668 $ 25,138 $ 28,518
AA 10,555 10,765 10,716
A 18,284 18,030 16,965
BBB 9,889 8,809 7,799
BB and lower 575 417 448
-----------------------------------
63,971 63,159 64,446
Short term bonds 2,744 3,395 2,489
-----------------------------------
Total bonds $ 66,715 $ 66,554 $ 66,935
-----------------------------------
-----------------------------------
Derivative Portfolio Quality
March 31, December 31, March 31,
2009 2008 2008
-----------------------------------
Over-the-counter contracts
(counterparty ratings):
AAA $ 6 $ 19 $ 2
AA 135 165 460
A 343 468 249
-----------------------------------
Total $ 484 $ 652 $ 711
-----------------------------------
-----------------------------------
(iv) Loans Past Due, But Not Impaired
Loans that are past due but not considered impaired are loans
for which scheduled payments have not been received, but
management has reasonable assurance of timely collection of
the full amount of principal and interest due. The following
table provides carrying values of the loans past due, but not
impaired:
March 31, December 31, March 31,
2009 2008 2008
-----------------------------------
Less than 30 days $ 61 $ 50 $ 91
30 - 90 days 34 4 1
90 days and greater 3 1 1
-----------------------------------
Total $ 98 $ 55 $ 93
-----------------------------------
-----------------------------------
(b) Liquidity Risk
Liquidity risk is the risk that the Company will not be able to
meet all cash outflow obligations as they come due. The following
policies and procedures are in place to manage this risk:
- The Company closely manages operating liquidity through cash
flow matching of assets and liabilities.
- Management monitors the use of lines of credit on a regular
basis, and assesses the ongoing availability of these and
alternative forms of operating credit.
- Management closely monitors the solvency and capital positions
of its principal subsidiaries opposite liquidity requirements
at the holding company. Additional liquidity is available
through established lines of credit and the Company's
demonstrated ability to access capital markets for funds. The
Company maintains a $200 million committed line of credit with
a Canadian chartered bank.
(c) Market Risk
Market risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate as a result of changes
in market factors. Market factors include three types of risks:
currency risk, interest rate risk and equity risk.
(i) Currency Risk
Currency risk relates to the Company operating in different
currencies and converting non-Canadian earnings at
different points in time at different foreign exchange
levels when adverse changes in foreign currency exchange
rates occur. The following policies and procedures are in
place to mitigate the Company's exposure to currency risk.
- The Company uses financial measures such as constant
currency calculations to monitor the effect of currency
translation fluctuations.
- Investments are normally made in the same currency as
the liabilities supported by those investments.
- Foreign currency assets acquired to back liabilities are
normally converted back to the currency of the liability
using foreign exchange contracts.
- A 10% weakening of the Canadian dollar against foreign
currencies would be expected to increase non-
participating actuarial liabilities by the same amount
as the supporting assets. A 10% strengthening of the
Canadian dollar against foreign currencies would be
expected to decrease non-participating actuarial
liabilities by the same amount as the supporting assets.
(ii) Interest Rate Risk
Interest rate risk exists if asset and liability cash flows
are not closely matched and interest rates change causing a
difference in value between the asset and liability. The
following policies and procedures are in place to mitigate
the Company's exposure to interest rate risk.
- The Company utilizes a formal process for managing the
matching of assets and liabilities. This involves
grouping general fund assets and liabilities into
segments. Assets in each segment are managed in relation
to the liabilities in the segment.
- Interest rate risk is managed by investing in assets
that are suitable for the products sold.
- For products with fixed and highly predictable benefit
payments, investments are made in fixed income assets
that closely match the liability product cash flows.
Protection against interest rate change is achieved as
any change in the fair market value of the assets will
be offset by a similar change in the fair market value
of the liabilities.
- For products with less predictable timing of benefit
payments, investments are made in fixed income assets
with cash flows of a shorter duration than the
anticipated timing of benefit payments, or equities as
described below.
- The risk associated with the mismatch in portfolio
duration and cash flow, asset prepayment exposure and
the pace of asset acquisition are quantified and
reviewed regularly.
Projected cash flows from the current assets and
liabilities are used in the Canadian Asset Liability Method
(CALM) to determine actuarial liabilities. Cash flows from
assets are reduced to provide for potential asset default
losses. Testing under several interest rate scenarios
(including increasing and decreasing rates) is done to
assess reinvestment risk.
One way of measuring the interest rate risk associated with
this assumption is to determine the effect on the present
value of the projected net asset and liability cash flows
of the non-participating business of the Company of an
immediate and permanent 1% increase and 1% decrease in
interest rates at each future duration. These interest rate
changes will impact the projected cash flows.
- The effect of an immediate and permanent 1% increase in
interest rates at each future duration would be to
decrease the present value of these net projected cash
flows by approximately $11.
- The effect of an immediate and permanent 1% decrease in
interest rates at each future duration would be to
decrease the present value of these net projected cash
flows by approximately $169.
(iii) Equity Risk
Equity risk is the uncertainty associated with the
valuation of assets arising from changes in equity markets.
To mitigate price risk, the Company has investment policy
guidelines in place that provide for prudent investment in
equity markets within clearly defined limits.
Some policy liabilities are supported by equities
(including real estate), for example segregated fund
products and products with long-tail liabilities. Generally
these liabilities will fluctuate in line with equity market
values. There will be additional impacts on these
liabilities as equity market values fluctuate. A 10%
increase in equity markets would be expected to
additionally decrease non-participating actuarial
liabilities by approximately $38. A 10% decrease in equity
markets would be expected to additionally increase non-
participating actuarial liabilities by approximately $184.
6. Financing Charges
Financing charges consist of the following:
For the three months
ended March 31,
-----------------------
2009 2008
-----------------------
Interest on long-term debentures and
other debt instruments $ 53 $ 75
Dividends on preferred shares classified
as liabilities 9 9
Unrealized losses (gains) on preferred
shares classified as held for trading 1 11
Other 2 2
Interest on capital trust debentures 12 12
Distributions on capital trust securities
held by consolidated group as temporary
investments (2) (3)
-----------------------
Total $ 75 $ 106
-----------------------
-----------------------
7. Capital Trust Securities and Debentures
During the first quarter of 2009, the Company disposed of $95
principal amount of capital trust securities held by the consolidated
group as temporary investments.
8. Share Capital
(a) Preferred Shares
The Company recognized the surrender of Series E First Preferred
shares with a carrying value of $5 and Series F First Preferred
shares with a carrying value of $1.
The Company has designated outstanding Preferred Shares Series D
and Series E as held for trading on the Consolidated Balance
Sheets with changes in fair value reported in the Summaries of
Consolidated Operations. During the three months ended March 31,
2009 the Company recognized unrealized gains (losses) of $4 for
Series D and $(5) for Series E (for the three months ended
March 31, 2008, $1 for Series D and $(12) for Series E). The
redemption price at maturity is $25 per share plus accrued
dividends.
(b) Common Shares
Issued and outstanding
March 31, 2009 December 31, 2008
---------------------------------------------------
Carrying Carrying
Number value Number value
---------------------------------------------------
Common shares:
Balance, beginning
of year 943,882,505 $ 5,736 893,761,639 $ 4,709
Issued from treasury - - 48,200,000 1,000
Issued under stock
option plan 143,215 1 1,920,866 27
---------------------------------------------------
Balance, end of
period 944,025,720 $ 5,737 943,882,505 $ 5,736
---------------------------------------------------
---------------------------------------------------
March 31, 2008
-------------------------
Carrying
Number value
-------------------------
Common shares:
Balance, beginning
of year 893,761,639 $ 4,709
Issued from treasury - -
Issued under stock
option plan 358,243 5
-------------------------
Balance, end of
period 894,119,882 $ 4,714
-------------------------
-------------------------
9. Capital Management
At the holding company level, the Company monitors the amount of
consolidated capital available, and the amounts deployed in its
various operating subsidiaries. The amount of capital deployed in any
particular company or country is dependent upon local regulatory
requirements as well as the Company's internal assessment of capital
requirements in the context of its operational risks and
requirements, and strategic plans.
Since the timing of available funds cannot always be matched
precisely to commitments, imbalances may arise when demands for funds
exceed those on hand. Also, a demand for funds may arise as a result
of the Company taking advantage of current investment opportunities.
The sources of the funds that may be required in such situations
include bank financing and the issuance of debentures and equity
securities.
The Company's practice is to maintain the capitalization of its
regulated operating subsidiaries at a level that will exceed the
relevant minimum regulatory capital requirements in the jurisdictions
in which they operate.
In Canada, the Office of the Superintendent of the Financial
Institutions (OSFI) has established a capital adequacy measurement
for life insurance companies incorporated under the Insurance
Companies Act (Canada) and their subsidiaries, known as the Minimum
Continuing Capital and Surplus Requirements (MCCSR).
For Canadian regulatory reporting purposes, capital is defined by
OSFI in its MCCSR guideline. The following table provides the MCCSR
information and ratios for Great-West Life:
March 31, December 31, March 31,
2009 2008 2008
-----------------------------------
Capital Available:
Tier 1 Capital
Common shares(1) $ 6,116 $ 6,116 $ 6,116
Shareholder surplus 5,607 5,604 4,921
Qualifying non-controlling
interests 149 150 151
Innovative instruments 743 648 634
Other Tier 1 Capital Elements 1,434 1,513 1,621
-----------------------------------
Gross Tier 1 Capital 14,049 14,031 13,443
Deductions from Tier 1:
Goodwill & intangible assets
in excess of limit 5,670 5,673 5,708
Other deductions 1,907 1,697 1,347
-----------------------------------
Net Tier 1 Capital 6,472 6,661 6,388
Adjustment to Net Tier 1 Capital (46) - -
-----------------------------------
Net Tier 1 Capital 6,426 6,661 6,388
-----------------------------------
Tier 2 Capital
Tier 2A 329 345 447
Tier 2B allowed 300 300 501
Tier 2C 1,759 1,550 1,322
Tier 2 Deductions (46) - -
-----------------------------------
Tier 2 Capital Allowed 2,342 2,195 2,270
-----------------------------------
Total Tier 1 and Tier 2 Capital 8,768 8,856 8,658
Less: Deductions/Adjustments - 124 124
-----------------------------------
Total Available Capital $ 8,768 $ 8,732 $ 8,534
-----------------------------------
-----------------------------------
Capital Required:
Assets Default & market risk $ 1,650 $ 1,510 $ 1,487
Insurance Risks 1,822 1,800 1,735
Interest Rate Risks 790 803 1,026
Other 6 50 (57)
-----------------------------------
Total Capital Required $ 4,268 $ 4,163 $ 4,191
-----------------------------------
-----------------------------------
MCCSR ratios:
Tier 1 151% 160% 152%
-----------------------------------
-----------------------------------
Total 205% 210% 204%
-----------------------------------
-----------------------------------
(1) The $1,230 of common and preferred share capital that was raised
by the Company in the fourth quarter of 2008 remained at the
holding company as at March 31, 2009.
In the United States, GWL&A is subject to comprehensive state and
federal regulation and supervision throughout the United States. The
National Association of Insurance Commissioners (NAIC) has adopted
risk-based capital rules and other financial ratios for U.S. life
insurance companies. At the end of 2008 the risk-based capital (RBC)
ratio for GWL&A was 381%, in excess of that required by NAIC.
As at March 31, 2009 and 2008 the Company maintained capital levels
above the minimum local requirements in its other foreign operations.
The Company is both a user and a provider of reinsurance, including
both traditional reinsurance, which is undertaken primarily to
mitigate against assumed insurance risks, and financial or finite
reinsurance, under which the amount of insurance risk passed to the
reinsurer or its reinsureds may be more limited.
The capitalization of the Company and its operating subsidiaries will
also take into account the views expressed by the various credit
rating agencies that provide financial strength and other ratings to
the Company.
The Company has also established policies and procedures designed to
identify, measure and report all material risks. Management is
responsible for establishing capital management procedures for
implementing and monitoring the capital plan. The Board of Directors
reviews and approves all capital transactions undertaken by
management.
10. Stock Based Compensation
No options were granted under the Company's stock option plan for the
three months ended March 31, 2009, (110,000 options were granted
during the first quarter of 2008). The weighted fair value of options
granted during the three months ended March 31, 2008 were $3.13 per
option. Compensation expense of $3 after-tax has been recognized in
the Summaries of Consolidated Operations for the three months ended
March 31, 2009 ($2 after-tax for the three months ended March 31,
2008).
11. Pension Plans and Other Post-Retirement Benefits
The total benefit costs included in operating expenses are as
follows:
For the three months
ended March 31,
-------------------------
2009 2008
-------------------------
Pension benefits $ 16 $ 12
Other benefits 3 3
-------------------------
Total $ 19 $ 15
-------------------------
-------------------------
12. Earnings per Common Share
The following table provides the reconciliation between basic and
diluted earnings per common share:
For the three months
ended March 31,
-------------------------
2009 2008
-------------------------
Earnings
Net income from continuing operations $ 343 $ 625
Net income from discontinued operations - 43
-------------------------
Net income $ 343 $ 668
Perpetual preferred share dividends 17 14
-------------------------
Net income-common shareholders $ 326 $ 654
-------------------------
-------------------------
Number of common shares
Average number of common shares
outstanding 943,916,502 893,862,214
Add:
Potential exercise of outstanding
stock options 303,303 4,838,672
-------------------------
Average number of common shares
outstanding - diluted basis 944,219,805 898,700,886
-------------------------
-------------------------
Basic earnings per common share
From continuing operations $ 0.345 $ 0.684
From discontinued operations - 0.048
-------------------------
$ 0.345 $ 0.732
-------------------------
-------------------------
Diluted earnings per common share
From continuing operations $ 0.345 $ 0.680
From discontinuing operations - 0.048
-------------------------
$ 0.345 $ 0.728
-------------------------
-------------------------
13. Accumulated Other Comprehensive Loss
For the three months ended March 31, 2009
-------------------------------------------------------------
Unrealized Unreal-
foreign ized Unreal-
exchange gains ized
gains (losses) gains
(losses) on on (losses) Non-
translation available on control-
of foreign for sale cash flow ling Share-
operations assets hedges Total interest holder
-----------------------------------------------------------
Balance,
beginning
of year $ (605) $ (36) $ (197) $ (838) $ 51 $ (787)
Other
comprehensive
loss 182 (142) (63) (23) 4 (19)
Income tax - 30 22 52 - 52
-----------------------------------------------------------
182 (112) (41) 29 4 33
-----------------------------------------------------------
Balance, end
of period $ (423) $ (148) $ (238) $ (809) $ 55 $ (754)
-----------------------------------------------------------
-----------------------------------------------------------
For the three months ended March 31, 2008
-------------------------------------------------------------
Unrealized Unreal-
foreign ized Unreal-
exchange gains ized
gains (losses) gains
(losses) on on (losses) Non-
translation available on control-
of foreign for sale cash flow ling Share-
operations assets hedges Total interest holder
-----------------------------------------------------------
Balance,
beginning
of year $ (1,801) $ 174 $ 13 $ (1,614) $ 81 $ (1,533)
Other
comprehensive
loss 456 (84) (71) 301 (10) 291
Income tax - 25 25 50 2 52
-----------------------------------------------------------
456 (59) (46) 351 (8) 343
-----------------------------------------------------------
Balance, end
of period $ (1,345) $ 115 $ (33) $ (1,263) $ 73 $ (1,190)
-----------------------------------------------------------
-----------------------------------------------------------
14. Contingent Liability (changes since December 31, 2008 annual report)
A subsidiary of the Company has resolved a reinsurance treaty dispute
that was subject to retrocession coverage within the amount of the
established actuarial provision.
15. Segmented Information
Consolidated Operations
For the three months ended March 31, 2009
United Lifeco
Canada States Europe Corporate Total
------------------------------------------------------
Income:
Premium income $ 2,074 $ 955 $ 1,680 $ - $ 4,709
Net investment
income
Regular net
investment income 547 442 521 1 1,511
Changes in fair
value on held for
trading assets (322) (221) (1,424) - (1,967)
------------------------------------------------------
Total net
investment income 225 221 (903) 1 (456)
Fee and other
income 222 283 175 - 680
------------------------------------------------------
Total income 2,521 1,459 952 1 4,933
------------------------------------------------------
Benefits and
expenses:
Paid or credited
to policyholders 1,683 944 739 - 3,366
Other 531 389 177 3 1,100
Amortization of
finite life
intangible assets 7 14 1 - 22
------------------------------------------------------
Net income from
continuing
operations before
income taxes 300 112 35 (2) 445
Income taxes 62 32 (16) - 78
------------------------------------------------------
Net income before
non-controlling
interests 238 80 51 (2) 367
Non-controlling
interests 19 5 - - 24
------------------------------------------------------
Net Income 219 75 51 (2) 343
Perpetual preferred
share dividends 11 - 3 3 17
------------------------------------------------------
Net income-common -
shareholders $ 208 $ 75 $ 48 $ (5) $ 326
------------------------------------------------------
------------------------------------------------------
For the three months ended March 31, 2008
United Lifeco
Canada States Europe Corporate Total
------------------------------------------------------
Income:
Premium income $ 1,977 $ 853 $ 13,960 $ - $ 16,790
Net investment
income
Regular net
investment income 624 316 419 (7) 1,352
Changes in fair
value on held
for trading
assets (88) (220) (632) - (940)
------------------------------------------------------
Total net
investment income 536 96 (213) (7) 412
Fee and other
income 265 378 154 - 797
------------------------------------------------------
Total income 2,778 1,327 13,901 (7) 17,999
------------------------------------------------------
Benefits and
expenses:
Paid or credited
to policyholders 1,880 914 13,502 - 16,296
Other 543 388 185 1 1,117
Amortization of
finite life
intangible assets 7 13 1 - 21
------------------------------------------------------
Net income from
continuing
operations before
income taxes 348 12 213 (8) 565
Income taxes 69 (7) 36 (1) 97
------------------------------------------------------
Net income before
non-controlling
interests 279 19 177 (7) 468
Non-controlling
interests 19 (175) (1) - (157)
------------------------------------------------------
Net income from
continuing
operations 260 194 178 (7) 625
Net income from
discontinued
operations - 43 - - 43
------------------------------------------------------
Net Income 260 237 178 (7) 668
Perpetual preferred
share dividends 11 - 3 - 14
------------------------------------------------------
Net income-common -
shareholders $ 249 $ 237 $ 175 $ (7) $ 654
------------------------------------------------------
------------------------------------------------------
