TSX: GWO Readers are referred to the cautionary note regarding Forward-Looking Information and Non-GAAP Financial Measures at the end of this Release.
WINNIPEG, Aug. 6, 2009 /CNW/ - Great-West Lifeco Inc. (Lifeco) has reported net income attributable to common shareholders of $413 million for the three months ended June 30, 2009, compared to $564 million in 2008. On a per common share basis, this represents $0.437 per common share for the three months ended June 30, 2009, compared to $0.630 per common share for 2008.
For the six months ended June 30, 2009, net income attributable to common shareholders was $739 million, compared to $1,057 million a year ago. On a per common share basis, this represents $0.783 per common share for the six months ended June 30, 2009, compared to $1.230 per common share for 2008.
Net income of $564 million for the three months ended June 30, 2008 and $1,057 million for the six months ended June 30, 2008 represents adjusted net income from continuing operations and, as such, excludes certain items as described in the United States section of this Release. Net income attributable to common shareholders, as reported, was $1,213 million, or $1.356 per common share for the three months ended June 30, 2008, and $1,867 million, or $2.088 per common share for the six months ended June 30, 2008.
Although conditions have generally improved in 2009, the 2009 results compared to 2008 reflect the weaker global equity and credit market environment that has existed since 2007. A decline in the value of publicly traded and other investment securities through June 30, 2009, compared to 2008, 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. In the quarter, compared to 2008, this negatively impacted net income attributable to common shareholders by $64 million, or $0.07 per common share, and additionally, by $12 million, or $0.01 per common share as a result of increased actuarial liabilities. However, as was also the case at March 31, 2009, Great-West Life did not need to establish actuarial reserves with respect to segregated fund guarantees at June 30, 2009.
At June 30, 2009, the Company increased provisions for future credit losses in actuarial liabilities by $506 million, both as a result of credit rating downgrade activity in the quarter as well as for basis changes pertaining to the methodology used by the Company to calculate the provisions. These basis changes were generally conforming in nature in order to harmonize practices across the Company's three operating segments. The total increase in provisions of $506 million negatively impacted net income attributable to common shareholders by $250 million, or $0.27 per common share after adjusting for pass-through features and minority interests. The Company also recorded investment impairment charges in connection with certain holdings. These impairment charges totaled $6 million, which negatively impacted net income attributable to common shareholders by $4 million.
In the quarter, a reduction in excess interest rate mismatch reserves contributed $203 million to net income attributable to common shareholders, or $0.22 per common share, and a mark-to-market adjustment on two series of preferred shares negatively impacted net income attributable to common shareholders by $30 million, or $0.03 per common share.
At June 30, 2009, consolidated invested assets were $105.0 billion. The gross book value of impaired investments at that date was $354 million, against which the Company had recorded cumulative impairment provisions of $256 million. In addition, at June 30, 2009, the total provision for future credit losses in actuarial liabilities was in excess of $2.5 billion.
Consolidated assets under administration at June 30, 2009 were $441.9 billion, unchanged from December 31, 2008.
Highlights
- The Company has maintained its quarterly common dividend at $0.3075
per common share payable September 30, 2009. Dividends paid on
common shares for the six months ended June 30, 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 June 30,
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.
- While the Company has increased its provisions for future credit
losses, actual investment impairment charges for the quarter, at $4
million after-tax, were nominal.
- Adjusted return on common shareholders' equity was 14.2% for the
twelve months ended June 30, 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 second quarter of 2009 was $217 million compared to $275 million in 2008. For the six months ended June 30, 2009, net income attributable to common shareholders was $425 million compared to $524 million in 2008.
Investment impairment charges and provisions for future credit losses negatively impacted net income attributable to common shareholders by $3 million in the quarter, while a reduction in excess interest rate mismatch reserves contributed $6 million. Results in the Canada Corporate account were also negatively impacted by a $30 million mark-to-market adjustment on two series of preferred shares.
Total sales for the six months ended June 30, 2009 were $4,217 million compared to $4,424 million in 2008, with the results reflecting lower sales of segregated fund and mutual fund products. Sales of protection products increased over the six months ended June 30, 2008, however, with Individual Life sales up 8%. Sales of Group insurance products decreased 12% over 2008.
Total assets under administration at June 30, 2009 were $108.2 billion, compared to $103.9 billion at December 31, 2008.
UNITED STATES
Net income attributable to common shareholders for the second quarter of 2009 was $49 million compared to $108 million in 2008. For the six months ended June 30, 2009, net income attributable to common shareholders was $124 million compared to $184 million in 2008.
Investment impairment charges and provisions for future credit losses negatively impacted net income attributable to common shareholders by $48 million in the quarter, while a reduction in excess interest rate mismatch reserves contributed $29 million.
Net income of $108 million for the second quarter of 2008 excludes the gain on sale of GWL&A's health care business of $649 million. Net income of $184 million for the six months ended June 30, 2008 also excludes income from discontinued operations of $43 million as well as two non-recurring items that contributed $118 million to earnings during the first quarter of 2008.
Total sales for the six months ended June 30, 2009 were $14.4 billion compared to $24.0 billion in 2008.
Total assets under administration at June 30, 2009 were $264.0 billion compared to $271.1 billion at December 31, 2008. Included in assets under administration at June 30, 2009 were $119.2 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 second quarter of 2009 was $149 million compared to $187 million for the second quarter of 2008. For the six months ended June 30, 2009, net income attributable to common shareholders was $197 million compared to $362 million in 2008.
Investment impairment charges and provisions for future credit losses negatively impacted net income attributable to common shareholders by $203 million in the quarter, while a reduction in excess interest rate mismatch reserves contributed $168 million.
Total sales for the six months ended June 30, 2009 were $2,171 million compared to $2,269 million in 2008.
Total assets under administration at June 30, 2009 were $69.6 billion, compared to $67.0 billion at December 31, 2008.
CORPORATE
Corporate net income for Lifeco attributable to common shareholders was a charge of $2 million for the second quarter of 2009 and a charge of $7 million for the six months ended June 30, 2009, compared to a charge of $6 million for the second quarter of 2008 and a charge of $13 million for the six months ended June 30, 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 September 30, 2009 to shareholders of record at the close of business September 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 September 30, 2009 to shareholders of record at the close of business September 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 $442 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 second quarter conference call will be held Thursday,
August 6 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 August 6 to August 13, 2009, and can be accessed by calling 1-800-408-3053 or 416-695-5800 in Toronto (passcode: 4003483 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)
As at or for the For the
three months ended six months ended
------------------------------------------------------
June 30, March 31, June 30, June 30, June 30,
2009 2009 2008 2009 2008
-------------------------------------------------------------------------
Premiums and deposits:
Life insurance,
guaranteed
annuities
and insured
health products $ 4,664 $ 4,709 $ 4,523 $ 9,373 $ 21,313
Self-funded
premium
equivalents
(ASO contracts) 639 618 627 1,257 1,212
Segregated
funds deposits:
Individual
products 1,699 1,258 1,771 2,957 3,789
Group products 1,823 2,696 1,444 4,519 2,985
Proprietary mutual
funds and
institutional
deposits(1) 5,140 5,280 7,896 10,420 16,415
------------------------------------------------------
Total premiums
and deposits 13,965 14,561 16,261 28,526 45,714
------------------------------------------------------
Fee and other
income 666 680 806 1,346 1,603
Paid or credited
to policyholders 7,473 3,366 3,490 10,839 19,786
Net income-common
shareholders
Continuing
operations
- adjusted(3) 413 326 564 739 1,057
Discontinued
operations
- adjusted(2) - - - - 43
------------------------------------------------------
Net income
- adjusted(3) 413 326 564 739 1,100
Adjustments
after tax(3) - - 649 - 767
------------------------------------------------------
Net income 413 326 1,213 739 1,867
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Per common share
Basic earnings
- adjusted(3) $ 0.437 $ 0.345 $ 0.630 $ 0.783 $ 1.230
Adjustments
after tax(3) - - 0.726 - 0.858
Basic earnings 0.437 0.345 1.356 0.783 2.088
Dividends paid 0.3075 0.3075 0.2925 0.6150 0.5850
Book value 12.65 12.68 12.68
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Return on common
shareholders'
equity (12 months):
Net income
- adjusted(3) 14.2% 16.2% 21.4%
Net income 2.3% 9.3% 27.1%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total assets $ 131,644 $ 129,596 $ 131,113
Segregated funds
net assets 83,192 76,903 89,144
Proprietary mutual
funds and
institutional
net assets(4) 121,729 126,377 162,181
-------------------------------
Total assets
under management 336,565 332,876 382,438
Other assets
under
administration(5) 105,341 103,816 111,890
-------------------------------
Total assets
under
administration $ 441,906 $ 436,692 $ 494,328
-------------------------------
-------------------------------
Share capital
and surplus $ 13,270 $ 13,299 $ 12,438
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(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. Does not include the gain on
sale of the health care business.
(3) 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, and reflect the
following items in 2008:
Refer to Annual
Per common share Financial
Net ------------------------ Statement
income In quarter Year-to-date Notes
----------------------------------------------------
Q1: Gain on
termination
of
reinsurance
agreement $ 176 $ - $ 0.197 Note 14
Reserve
strengthening
in GWL&A (58) $ 118 - (0.065) Note 2
Q2: Gain on
sale of
GWL&A's health
care business 649 649 0.726 0.726 Note 2
-----------------------------
$ 767 $ 0.726 $ 0.858
-----------------------------
-----------------------------
Return on common shareholders' equity is restated excluding non-
recurring items from prior periods.
(4) Excludes Putnam Prime Money Market Fund.
(5) Other assets under administration includes both retail and
institutional assets in which the Company only performs
administrative or recordkeeping type services for the end client. In
general, fee income is based on the type of services performed per
client and does not fluctuate with asset levels.
SUMMARIES OF CONSOLIDATED OPERATIONS (unaudited)
(in $ millions except per share amounts)
For the three months For the six months
ended June 30, ended June 30,
-------------------------------------------
2009 2008 2009 2008
-------------------------------------------
Income
Premium income $ 4,664 $ 4,523 $ 9,373 $ 21,313
Net investment
income (note 4)
Regular net
investment income 1,616 1,648 3,127 3,000
Changes in fair value on
held for trading assets 2,272 (1,595) 305 (2,535)
-------------------------------------------
Total net investment income 3,888 53 3,432 465
Fee and other income 666 806 1,346 1,603
-------------------------------------------
9,218 5,382 14,151 23,381
-------------------------------------------
Benefits and expenses
Policyholder benefits 4,126 4,434 8,735 8,123
Policyholder dividends and
experience refunds 371 331 769 678
Change in actuarial
liabilities 2,976 (1,275) 1,335 10,985
-------------------------------------------
Total paid or credited
to policyholders 7,473 3,490 10,839 19,786
Commissions 353 330 660 652
Operating expenses 628 634 1,291 1,271
Premium taxes 68 42 123 94
Financing charges (note 6) 106 77 181 183
Amortization of finite life
intangible assets 25 22 47 43
-------------------------------------------
Net income from continuing
operations before
income taxes 565 787 1,010 1,352
Income taxes - current 21 220 103 340
- future 101 (38) 97 (61)
-------------------------------------------
Net income from continuing
operations before
non-controlling interests 443 605 810 1,073
Non-controlling interests 12 27 36 (130)
-------------------------------------------
Net income from continuing
operations 431 578 774 1,203
Net income from discontinued
operations (note 2) - 649 - 692
-------------------------------------------
Net income 431 1,227 774 1,895
Perpetual preferred
share dividends 18 14 35 28
-------------------------------------------
Net income - common
shareholders $ 413 $ 1,213 $ 739 $ 1,867
-------------------------------------------
-------------------------------------------
Earnings per common
share (note 13)
Basic $ 0.437 $ 1.356 $ 0.783 $ 2.088
-------------------------------------------
-------------------------------------------
Diluted $ 0.437 $ 1.350 $ 0.782 $ 2.078
-------------------------------------------
-------------------------------------------
CONSOLIDATED BALANCE SHEETS (unaudited)
(in $ millions)
June 30, December 31, June 30,
2009 2008 2008
--------------------------------
Assets
Bonds (note 4) $ 67,376 $ 66,554 $ 64,611
Mortgage loans (note 4) 17,349 17,444 16,903
Stocks (note 4) 6,093 5,394 6,860
Real estate (note 4) 3,378 3,188 2,914
Loans to policyholders 7,416 7,622 6,618
Cash and cash equivalents 3,357 2,850 3,267
Funds held by ceding insurers 11,761 11,447 13,676
Goodwill 5,418 5,425 6,315
Intangible assets 3,426 3,523 4,114
Other assets 6,070 6,627 5,835
--------------------------------
Total assets $ 131,644 $ 130,074 $ 131,113
--------------------------------
--------------------------------
Liabilities
Policy liabilities
Actuarial liabilities $ 100,127 $ 97,895 $ 100,286
Provision for claims 1,352 1,466 1,325
Provision for policyholder dividends 636 630 616
Provision for experience rating refunds 286 310 228
Policyholder funds 2,409 2,326 2,294
--------------------------------
104,810 102,627 104,749
Debentures and other debt
instruments (note 7) 3,903 3,821 3,774
Funds held under reinsurance contracts 169 192 162
Other liabilities 5,202 5,969 5,505
Repurchase agreements 203 334 577
Deferred net realized gains 150 161 175
--------------------------------
114,437 113,104 114,942
Preferred shares (note 9) 779 752 794
Capital trust securities and
debentures (note 8) 786 658 640
Non-controlling interests
Participating account surplus
in subsidiaries 2,018 2,012 1,961
Preferred shares issued by subsidiaries 157 157 157
Perpetual preferred shares issued
by subsidiaries 149 150 151
Non-controlling interests in capital
stock and surplus 48 13 30
Share capital and surplus
Share capital (note 9)
Perpetual preferred shares 1,327 1,329 1,099
Common shares 5,741 5,736 4,718
Accumulated surplus 7,064 6,906 7,948
Accumulated other comprehensive
loss (note 14) (911) (787) (1,367)
Contributed surplus 49 44 40
--------------------------------
13,270 13,228 12,438
--------------------------------
Total liabilities, share capital
and surplus $ 131,644 $ 130,074 $ 131,113
--------------------------------
--------------------------------
CONSOLIDATED STATEMENTS OF SURPLUS (unaudited)
(in $ millions)
For the six months
ended June 30,
---------------------
2009 2008
---------------------
Accumulated surplus
Balance, beginning of year $ 6,906 $ 6,599
Net income 774 1,895
Repatriation of Canada Life seed capital from
participating policyholder account - 5
Dividends to shareholders
Perpetual preferred shareholders (35) (28)
Common shareholders (581) (523)
---------------------
Balance, end of period $ 7,064 $ 7,948
---------------------
---------------------
Accumulated other comprehensive loss,
net of income taxes (note 14)
Balance, beginning of year $ (787) $ (1,533)
Other comprehensive income (loss) (124) 166
---------------------
Balance, end of period $ (911) $ (1,367)
---------------------
---------------------
Contributed surplus
Balance, beginning of year $ 44 $ 34
Stock option expense
Current period expense (note 11) 5 6
---------------------
Balance, end of period $ 49 $ 40
---------------------
---------------------
SUMMARIES OF CONSOLIDATED COMPREHENSIVE INCOME (unaudited)
(in $ millions)
For the three months For the six months
ended June 30, ended June 30,
-------------------------------------------
2009 2008 2009 2008
-------------------------------------------
Net income $ 431 $ 1,227 $ 774 $ 1,895
Other comprehensive income
(loss), net of income taxes
Unrealized foreign exchange
gains (losses) on
translation of foreign
operations (312) (94) (130) 362
Unrealized gains (losses)
on available for
sale assets 71 (108) (29) (157)
Realized (gains) losses on
available for sale assets (17) (18) (29) (28)
Unrealized gains (losses)
on cash flow hedges 111 36 58 (10)
Realized (gains) losses
on cash flow hedges (22) - (10) -
Non-controlling interests 12 7 16 (1)
-------------------------------------------
(157) (177) (124) 166
-------------------------------------------
Comprehensive income $ 274 $ 1,050 $ 650 $ 2,061
-------------------------------------------
-------------------------------------------
Income tax (expense) benefit included in other comprehensive income
For the three months For the six months
ended June 30, ended June 30,
-------------------------------------------
2009 2008 2009 2008
-------------------------------------------
Unrealized foreign exchange
gains (losses) on
translation of foreign
operations $ (1) $ - $ (1) $ -
Unrealized gains (losses)
on available for
sale assets (33) 34 (6) 56
Realized (gains) losses on
available for sale assets 3 6 6 9
Unrealized gains (losses)
on cash flow hedges (60) (19) (31) 6
Realized (gains) losses
on cash flow hedges 12 - 5 -
Non-controlling interests - (2) - -
-------------------------------------------
$ (79) $ 19 $ (27) $ 71
-------------------------------------------
-------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in $ millions)
For the three months For the six months
ended June 30, ended June 30,
-------------------------------------------
2009 2008 2009 2008
-------------------------------------------
Operations
Net income $ 431 $ 1,227 $ 774 $ 1,895
Adjustments:
Change in policy
liabilities 2,817 (1,212) 1,228 (1,450)
Change in funds held
by ceding insurers 66 519 210 501
Change in funds held under
reinsurance contracts (3) (5) (11) (6)
Change in current
income taxes payable (100) 460 (207) 289
Future income tax expense 101 (38) 97 (61)
Gain on disposal of
business, after
tax (note 2) - (649) - (649)
Changes in fair value of
financial instruments (2,241) 1,592 (273) 2,543
Other (4) (970) 4 (1,355)
-------------------------------------------
Cash flows from operations 1,067 924 1,822 1,707
Financing Activities
Issue of common shares 4 4 5 9
Partial repayment of five
year term facility
in subsidiary - (198) - (198)
Issue of subordinated
debentures in subsidiary - 500 - 500
Repayments on credit facility - (1,651) - (1,886)
Increase in (repayment of)
line of credit in subsidiary 82 (10) 182 70
Increase in (repayment of)
debentures and other
debt instruments (30) 5 (32) 3
Dividends paid (308) (276) (616) (551)
-------------------------------------------
(252) (1,626) (461) (2,053)
Investment Activities
Bond sales and maturities 5,440 4,164 10,437 8,808
Mortgage loan repayments 374 541 793 917
Stock sales 655 609 1,277 998
Real estate sales 1 98 8 198
Change in loans to
policyholders (9) (137) (55) (174)
Change in repurchase
agreements (257) (94) (73) 275
Disposal of business (note 2) - 1,344 - 1,344
Investment in bonds (5,501) (3,628) (11,080) (8,970)
Investment in mortgage loans (491) (1,125) (681) (1,837)
Investment in stocks (643) (915) (1,436) (1,363)
Investment in real estate (20) (300) (85) (400)
-------------------------------------------
(451) 557 (895) (204)
Effect of changes in exchange
rates on cash and
cash equivalents 14 (27) 41 141
Increase (decrease) in cash
and cash equivalents 378 (172) 507 (409)
Cash and cash equivalents
from continuing operations,
beginning of period 2,979 3,439 2,850 3,676
-------------------------------------------
Cash and cash equivalents
from continuing operations,
end of period $ 3,357 $ 3,267 $ 3,357 $ 3,267
-------------------------------------------
-------------------------------------------
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 June 30, 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 $305, an increase to intangible assets of $129
and a decrease to policyholder liabilities of $176 at June 30,
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 $23 with a
corresponding increase to the amortization of finite life
intangible assets and an increase in total paid or credited to
policyholders of $18 with a corresponding decrease in income tax
expense for the six months ended June 30, 2008.
2. Acquisitions and Disposals
(a) On April 1, 2008, Great-West Life & Annuity Insurance Company
(GWL&A) completed the sale of its health care business. After-tax
net income of the health care business presented as discontinued
operations on the Summaries of Consolidated Operations is
comprised of the following:
For the For the
three months six months
ended ended
June 30, June 30,
------------------------
2008 2008
------------------------
Income
Premium income $ (40) $ 184
Net investment income - 11
Fee and other income - 164
------------------------
(40) 359
------------------------
Gain on sale 1,025 1,025
------------------------
985 1,384
------------------------
Benefits and expenses
Paid or credited to policyholders and
beneficiaries including policyholder
dividends and experience refunds (40) 151
Other - 145
------------------------
Net income from discontinued operations
before income taxes 1,025 1,088
Income taxes 376 396
------------------------
Net income from discontinued operations $ 649 $ 692
------------------------
------------------------
As of April 1, 2008 all of the assets and liabilities of operations
held for sale have been sold.
(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:
Changes
in
Expected Amounts Amounts Amounts foreign Balance
total utilized utilized utilized exchange June 30,
costs - 2007 - 2008 - 2009 rates 2009
------------------------------------------------------
Compensation
costs $ 133 $ (27) $ (76) $ (15) $ 3 $ 18
Exiting and
consolidating
operations 22 (6) (5) - - 11
Eliminating
duplicate
systems 29 (1) - - 3 31
------------------------------------------------------
$ 184 $ (34) $ (81) $ (15) $ 6 $ 60
------------------------------------------------------
------------------------------------------------------
Accrued on
acquisition $ 154 $ (34) $ (81) $ (15) $ 3 $ 27
Expense as
incurred 30 - - - 3 33
------------------------------------------------------
$ 184 $ (34) $ (81) $ (15) $ 6 $ 60
------------------------------------------------------
------------------------------------------------------
4. Portfolio Investments
(a) Carrying values and estimated market values of portfolio
investments are as follows:
June 30, 2009
-----------------------------------
Carrying Value & Market Value
-----------------------------------
Held for trading(1)
Available ------------------------
for sale Designated Classified
-----------------------------------
Bonds
- government $ 3,375 $ 14,693 $ 1,305
- corporate 1,858 35,674 956
-----------------------------------
5,233 50,367 2,261
-----------------------------------
Mortgage loans
- residential - - -
- non-
residential - - -
-----------------------------------
- - -
-----------------------------------
Stocks 1,391 4,373 -
Real estate - - -
-----------------------------------
$ 6,624 $ 54,740 $ 2,261
-----------------------------------
-----------------------------------
June 30, 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 $ 1,668 $ 1,813 $ - $ - $ 21,041
- corporate 7,847 7,724 - - 46,335
---------------------------------------------------------
9,515 9,537 - - 67,376
---------------------------------------------------------
Mortgage loans
- residential 6,659 6,744 - - 6,659
- non-
residential 10,690 10,351 - - 10,690
---------------------------------------------------------
17,349 17,095 - - 17,349
---------------------------------------------------------
Stocks - - 329 378 6,093
Real estate - - 3,378 3,044 3,378
---------------------------------------------------------
$ 26,864 $ 26,632 $ 3,707 $ 3,422 $ 94,196
---------------------------------------------------------
---------------------------------------------------------
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
---------------------------------------------------------
---------------------------------------------------------
June 30, 2008
-----------------------------------
Carrying Value & Market Value
-----------------------------------
Held for trading(1)
Available ------------------------
for sale Designated Classified
-----------------------------------
Bonds
- government $ 1,722 $ 15,128 $ 376
- corporate 2,391 35,143 1,158
-----------------------------------
4,113 50,271 1,534
-----------------------------------
Mortgage loans
- residential - - -
- non-
residential - - -
-----------------------------------
- - -
-----------------------------------
Stocks 1,395 5,139 -
Real estate - - -
-----------------------------------
$ 5,508 $ 55,410 $ 1,534
-----------------------------------
-----------------------------------
June 30, 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 $ 1,640 $ 1,688 $ - $ - $ 18,866
- corporate 7,053 7,036 - - 45,745
---------------------------------------------------------
8,693 8,724 - - 64,611
---------------------------------------------------------
Mortgage loans
- residential 6,989 7,030 - - 6,989
- non-
residential 9,914 9,686 - - 9,914
---------------------------------------------------------
16,903 16,716 - - 16,903
---------------------------------------------------------
Stocks - - 326 389 6,860
Real estate - - 2,914 3,117 2,914
---------------------------------------------------------
$ 25,596 $ 25,440 $ 3,240 $ 3,506 $ 91,288
---------------------------------------------------------
---------------------------------------------------------
(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
June 30, 2009
--------------------------------
Gross Carrying
amount Impairment amount
--------------------------------
Impaired amounts by type
Held for trading(1) $ 164 $ (142) $ 22
Available for sale 16 (16) -
Loans and receivables 158 (85) 73
--------------------------------
Total $ 338 $ (243) $ 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
--------------------------------
--------------------------------
June 30, 2008
--------------------------------
Gross Carrying
amount Impairment amount
--------------------------------
Impaired amounts by type
Held for trading(1) $ 1 $ - $ 1
Available for sale - - -
Loans and receivables 53 (48) 5
--------------------------------
Total $ 54 $ (48) $ 6
--------------------------------
--------------------------------
(1) Excludes amounts in funds held by ceding insurers of
$16 and impairment of ($13) at June 30, 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 six months For the six months
ended June 30, 2009 ended June 30, 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 16 14 30 - (2) (2)
Write-offs, net of
recoveries (1) (2) (3) (6) 2 (4)
Other (including foreign
exchange rate changes) (2) - (2) 1 - 1
-----------------------------------------------
Balance, end of period $ 44 $ 41 $ 85 $ 29 $ 19 $ 48
-----------------------------------------------
-----------------------------------------------
(c) Net investment income is comprised of the following:
For the three months Mortgage Real
ended June 30, 2009 Bonds loans Stocks estate Other Total
-------------------------------------------------------------------------
Regular net
investment income:
Investment income
earned $1,043 $ 228 $ 44 $ 48 $ 254 $1,617
Net realized gains
(losses)
(available for sale) 19 - 1 - - 20
Net realized gains
(losses)
(other classifications) 4 2 7 - - 13
Amortization of net
realized/unrealized
gains (non-financial
instruments) - - - (6) - (6)
Net (provision) recovery
for credit losses
(loans and receivables) (4) (7) - - - (11)
Other income and
expenses - - - - (17) (17)
-----------------------------------------------
1,062 223 52 42 237 1,616
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) 1,749 - 627 - (95) 2,281
-----------------------------------------------
1,740 - 627 - (95) 2,272
-----------------------------------------------
Net investment income $2,802 $ 223 $ 679 $ 42 $ 142 $3,888
-----------------------------------------------
-----------------------------------------------
For the three months Mortgage Real
ended June 30, 2008 Bonds loans Stocks estate Other Total
-------------------------------------------------------------------------
Regular net
investment income:
Investment income
earned $1,097 $ 236 $ 73 $ 42 $ 159 $1,607
Net realized gains
(losses)
(available for sale) 32 - (1) - - 31
Net realized gains
(losses)
(other classifications) 9 5 1 - - 15
Amortization of net
realized/unrealized
gains (non-financial
instruments) - - - 9 - 9
Net (provision) recovery
for credit losses
(loans and receivables) - 2 - - - 2
Other income and
expenses - - - - (16) (16)
-----------------------------------------------
1,138 243 73 51 143 1,648
Changes in fair value
on held for trading
assets:
Net realized/unrealized
gains (losses)
(classified held for
trading) (20) - - - - (20)
Net realized/unrealized
gains (losses)
(designated held for
trading) (1,882) - 169 - 138 (1,575)
-----------------------------------------------
(1,902) - 169 - 138 (1,595)
-----------------------------------------------
Net investment income $ (764) $ 243 $ 242 $ 51 $ 281 $ 53
-----------------------------------------------
-----------------------------------------------
For the six months Mortgage Real
ended June 30, 2009 Bonds loans Stocks estate Other Total
-------------------------------------------------------------------------
Regular net
investment income:
Investment income
earned $2,107 $ 463 $ 88 $ 93 $ 324 $3,075
Net realized gains
(losses)
(available for sale) 35 - - - - 35
Net realized gains
(losses)
(other classifications) 1 6 83 - - 90
Amortization of net
realized/unrealized
gains (non-financial
instruments) - - - (10) - (10)
Net (provision) recovery
for credit losses
(loans and receivables) (16) (14) - - - (30)
Other income and
expenses - - - - (33) (33)
-----------------------------------------------
2,127 455 171 83 291 3,127
Changes in fair value
on held for trading
assets:
Net realized/unrealized
gains (losses)
(classified held for
trading) - - - - - -
Net realized/unrealized
gains (losses)
(designated held for
trading) (45) - 452 - (102) 305
-----------------------------------------------
(45) - 452 - (102) 305
-----------------------------------------------
Net investment income $2,082 $ 455 $ 623 $ 83 $ 189 $3,432
-----------------------------------------------
-----------------------------------------------
For the six months Mortgage Real
ended June 30, 2008 Bonds loans Stocks estate Other Total
-------------------------------------------------------------------------
Regular net
investment income:
Investment income
earned $1,987 $ 464 $ 118 $ 77 $ 287 $2,933
Net realized gains
(losses)
(available for sale) 45 - (1) - - 44
Net realized gains
(losses)
(other classifications) 15 11 6 - - 32
Amortization of net
realized/unrealized
gains (non-financial
instruments) - - - 20 - 20
Net (provision) recovery
for credit losses
(loans and receivables) - 2 - - - 2
Other income and
expenses - - - - (31) (31)
-----------------------------------------------
2,047 477 123 97 256 3,000
Changes in fair value
on held for trading
assets:
Net realized/unrealized
gains (losses)
(classified held for
trading) 1 - - - - 1
Net realized/unrealized
gains (losses)
(designated held for
trading) (2,565) - (73) - 102 (2,536)
-----------------------------------------------
(2,564) - (73) - 102 (2,535)
-----------------------------------------------
Net investment income $ (517) $ 477 $ 50 $ 97 $ 358 $ 465
-----------------------------------------------
-----------------------------------------------
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.
June 30, December 31, June 30,
2009 2008 2008
------------------------------------
Cash and cash equivalents $ 3,357 $ 2,850 $ 3,267
Bonds
Held for trading 52,628 51,201 51,805
Available for sale 5,233 5,645 4,113
Amortized cost 9,515 9,708 8,693
Mortgage loans 17,349 17,444 16,903
Loans to policyholders 7,416 7,622 6,618
Other financial assets 15,139 15,004 16,941
Derivative assets 450 677 871
-----------------------------------
Total balance sheet maximum
credit exposure $ 111,087 $ 110,151 $ 109,211
-----------------------------------
-----------------------------------
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:
June 30, December 31, June 30,
2009 2008 2008
------------------------------------
Bonds issued or guaranteed by:
Canadian federal government $ 1,941 $ 1,867 $ 1,503
Canadian provincial and
municipal governments 6,097 6,029 5,755
U.S. Treasury and other
U.S. agencies 4,248 4,968 4,252
Other foreign governments 6,647 6,854 6,840
Government related 2,173 1,563 2,155
Sovereign 1,645 1,739 1,991
Asset-backed securities 7,055 7,243 7,430
Residential mortgage
backed securities 1,118 1,156 1,005
Banks 5,014 5,070 6,249
Other financial institutions 3,770 3,602 4,246
Basic materials 966 870 713
Communications 1,377 1,220 1,266
Consumer products 4,533 4,104 4,013
Industrial products/services 1,513 1,985 1,534
Natural resources 2,227 1,813 1,827
Real estate 1,832 1,645 1,684
Transportations 2,675 2,497 2,489
Utilities 7,927 7,068 6,472
Miscellaneous 2,125 1,866 1,410
------------------------------------
Total long term bonds 64,883 63,159 62,834
Short term bonds 2,493 3,395 1,777
------------------------------------
$ 67,376 $ 66,554 $ 64,611
------------------------------------
------------------------------------
Canada $ 26,438 $ 26,231 $ 24,410
United States 17,827 17,703 15,927
Europe/Reinsurance 23,111 22,620 24,274
------------------------------------
$ 67,376 $ 66,554 $ 64,611
------------------------------------
------------------------------------
The following table provides details of the carrying value of mortgage
loans by geographic location:
June 30, 2009
---------------------------------------------------
Single Multi-
family family
residential residential Commercial Total
---------------------------------------------------
Canada $ 1,784 $ 4,301 $ 6,189 $ 12,274
United States - 542 1,594 2,136
Europe/Reinsurance - 32 2,907 2,939
---------------------------------------------------
Total mortgage loans $ 1,784 $ 4,875 $ 10,690 $ 17,349
---------------------------------------------------
---------------------------------------------------
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
---------------------------------------------------
---------------------------------------------------
June 30, 2008
---------------------------------------------------
Single Multi-
family family
residential residential Commercial Total
---------------------------------------------------
Canada $ 1,823 $ 4,634 $ 5,880 $ 12,337
United States - 502 1,211 1,713
Europe/Reinsurance - 30 2,823 2,853
---------------------------------------------------
Total mortgage loans $ 1,823 $ 5,166 $ 9,914 $ 16,903
---------------------------------------------------
---------------------------------------------------
(iii) Asset Quality
Bond Portfolio Quality
June 30, December 31, June 30,
2009 2008 2008
------------------------------------
AAA $ 23,255 $ 25,138 $ 24,888
AA 10,960 10,765 12,024
A 19,319 18,030 17,676
BBB 10,517 8,809 7,749
BB and lower 832 417 497
------------------------------------
64,883 63,159 62,834
Short term bonds 2,493 3,395 1,777
------------------------------------
Total bonds $ 67,376 $ 66,554 $ 64,611
------------------------------------
------------------------------------
Derivative Portfolio Quality
June 30, December 31, June 30,
2009 2008 2008
------------------------------------
Over-the-counter contracts
(counterparty ratings):
AAA $ 3 $ 19 $ -
AA 219 165 564
A 274 468 307
------------------------------------
Total $ 496 $ 652 $ 871
------------------------------------
------------------------------------
(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:
June 30, December 31, June 30,
2009 2008 2008
------------------------------------
Less than 30 days $ 9 $ 50 $ 108
30 - 90 days 11 4 1
90 days and greater 3 1 1
------------------------------------
Total $ 23 $ 55 $ 110
------------------------------------
------------------------------------
(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, which would be offset by a similar
amount in the supporting assets. A 10% strengthening of the
Canadian dollar against foreign currencies would be expected to
decrease non-participating actuarial liabilities, which would
be offset by a similar amount in 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 liabilitie
- 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 $93.
- 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 $52.
(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
$21. A 10% decrease in equity markets would be expected to
additionally increase non-participating actuarial liabilities by
approximately $193.
6. Financing Charges
Financing charges consist of the following:
For the three months For the six months
ended June 30, ended June 30,
-------------------------------------------
2009 2008 2009 2008
-------------------------------------------
Operating charges:
Interest on long-term
debentures and other
debt instruments $ 1 $ 1 $ 2 $ 3
Financial charges:
Interest on long-term
debentures and other
debt instruments 52 53 104 126
Dividends on preferred
shares classified as
liabilities 9 9 18 18
Unrealized losses (gains)
on preferred shares
classified as held for
trading 31 (3) 32 8
Subordinated debenture
issue costs - 5 - 5
Other 2 2 4 4
Interest on capital
trust debentures 12 12 24 24
Distributions on capital
trust securities held
by consolidated group as
temporary investments (1) (2) (3) (5)
-------------------------------------------
105 76 179 180
-------------------------------------------
Total $ 106 $ 77 $ 181 $ 183
-------------------------------------------
-------------------------------------------
7. Debentures and Other Debt Instruments
On June 22, 2009, Putnam LLC executed a new revolving credit facility
agreement with a Canadian chartered bank for $500, an increase of
$300 from the previous agreement. At June 30, 2009, a subsidiary of
Putnam LLC had drawn US $270 (US $120 at December 31, 2008) on this
credit facility.
8. Capital Trust Securities and Debentures
During the six months ended June 30, 2009, the Company disposed of
$138 principal amount of capital trust securities held by the
consolidated group as temporary investments.
9. 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 $2
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 six months ended June 30,
2009 the Company recognized unrealized gains (losses) of $(6)
for Series D and $(26) for Series E (for the six months ended
June 30, 2008, $1 for Series D and $(9) for Series E). The
redemption price at maturity is $25 per share plus accrued
dividends.
(b) Common Shares
Issued and outstanding
June 30, 2009 December 31, 2008 June 30, 2008
--------------------------------------------------------------
Carrying Carrying Carrying
Number value Number value Number value
--------------------------------------------------------------
Common
shares:
Balance,
beginning
of year 943,882,505 $5,736 893,761,639 $4,709 893,761,639 $4,709
Issued from
treasury - - 48,200,000 1,000 - -
Issued under
stock
option plan 410,951 5 1,920,866 27 659,660 9
--------------------------------------------------------------
Balance,
end of
period 944,293,456 $5,741 943,882,505 $5,736 894,421,299 $4,718
--------------------------------------------------------------
--------------------------------------------------------------
10. 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 The Great-West Life Assurance Company
(Great-West Life):
June 30, December 31, June 30,
2009 2008 2008
------------------------------------
Capital Available:
Tier 1 Capital
Common shares(1) $ 6,116 $ 6,116 $ 6,116
Shareholder surplus 5,740 5,604 5,211
Qualifying non-controlling
interests 148 150 151
Innovative instruments 779 648 636
Other Tier 1 Capital Elements 1,519 1,513 1,597
------------------------------------
Gross Tier 1 Capital 14,302 14,031 13,711
Deductions from Tier 1:
Goodwill & intangible assets in
excess of limit 5,666 5,673 5,702
Other deductions 1,528 1,697 1,321
------------------------------------
Net Tier 1 Capital 7,108 6,661 6,688
Adjustment to Net Tier 1 Capital (44) - -
------------------------------------
Net Tier 1 Capital 7,064 6,661 6,688
------------------------------------
Tier 2 Capital
Tier 2A 356 345 310
Tier 2B allowed 300 300 501
Tier 2C 1,476 1,550 1,285
Tier 2 Deductions (44) - -
------------------------------------
Tier 2 Capital Allowed 2,088 2,195 2,096
------------------------------------
Total Tier 1 and Tier 2 Capital 9,152 8,856 8,784
Less: Deductions/Adjustments - 124 120
------------------------------------
Total Available Capital $ 9,152 $ 8,732 $ 8,664
------------------------------------
------------------------------------
Capital Required:
Assets Default & market risk $ 1,757 $ 1,510 $ 1,549
Insurance Risks 1,861 1,800 1,707
Interest Rate Risks 832 803 1,008
Other 14 50 (38)
------------------------------------
Total Capital Required $ 4,464 $ 4,163 $ 4,226
------------------------------------
------------------------------------
MCCSR ratios:
Tier 1 158% 160% 158%
------------------------------------
------------------------------------
Total 205% 210% 205%
------------------------------------
------------------------------------
(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 June 30, 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 June 30, 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.
11. Stock Based Compensation
No options were granted under the Company's stock option plan during
the first and second quarter of 2009 (110,000 options were granted
during the first quarter of 2008, and 3,115,000 options were granted
during the second quarter of 2008). The weighted average fair value
of options granted was $3.27 per option during the six months ended
June 30, 2008. Compensation expense of $5 after-tax has been
recognized in the Summaries of Consolidated Operations for the six
months ended June 30, 2009 ($6 after-tax for the six months ended
June 30, 2008).
12. Pension Plans and Other Post-Retirement Benefits
The total benefit costs included in operating expenses are as
follows:
For the three months For the six months
ended June 30, ended June 30,
-------------------------------------------
2009 2008 2009 2008
-------------------------------------------
Pension benefits $ 20 $ 22 $ 36 $ 34
Other benefits 3 4 6 7
-------------------------------------------
Total $ 23 $ 26 $ 42 $ 41
-------------------------------------------
-------------------------------------------
13. Earnings per Common Share
The following table provides the reconciliation between basic and
diluted earnings per common share:
For the three months For the six months
ended June 30, ended June 30,
---------------------------------------------------
2009 2008 2009 2008
---------------------------------------------------
Earnings
Net income from
continuing
operations $ 431 $ 578 $ 774 $ 1,203
Net income from
discontinued
operations - 649 - 692
---------------------------------------------------
Net income $ 431 $ 1,227 $ 774 $ 1,895
Perpetual preferred
share dividends 18 14 35 28
---------------------------------------------------
Net income - common
shareholders $ 413 $ 1,213 $ 739 $ 1,867
---------------------------------------------------
---------------------------------------------------
Number of common shares
Average number of
common shares
outstanding 944,194,975 894,282,925 944,056,508 894,072,570
Add:
- Potential
exercise of
outstanding
stock options 1,332,473 4,279,498 812,929 4,458,404
---------------------------------------------------
Average number of
common shares
outstanding -
diluted basis 945,527,448 898,562,423 944,869,437 898,530,974
---------------------------------------------------
---------------------------------------------------
Basic earnings per
common share
From continuing
operations $ 0.437 $ 0.630 $ 0.783 $ 1.314
From discontinued
operations - 0.726 - 0.774
---------------------------------------------------
$ 0.437 $ 1.356 $ 0.783 $ 2.088
---------------------------------------------------
---------------------------------------------------
Diluted earnings
per common share
From continuing
operations $ 0.437 $ 0.627 $ 0.782 $ 1.308
From discontinuing
operations - 0.723 - 0.770
---------------------------------------------------
$ 0.437 $ 1.350 $ 0.782 $ 2.078
---------------------------------------------------
---------------------------------------------------
14. Accumulated Other Comprehensive Loss
For the six months ended June 30, 2009
-------------------------------------------------------------
Unrealized
foreign Unreal-
exchange ized Unreal-
gains gains ized
(losses) (losses) gains
on trans- on (losses) Non-
lation of available on cash contr-
foreign for sale flow olling Share-
operations assets hedges Total interest holder
-------------------------------------------------------------
Balance,
beginning of
year $ (605) $ (36) $ (197) $ (838) $ 51 $ (787)
Other
comprehensive
loss (129) (58) 74 (113) 16 (97)
Income tax (1) - (26) (27) - (27)
-------------------------------------------------------------
(130) (58) 48 (140) 16 (124)
-------------------------------------------------------------
Balance, end
of period $ (735) $ (94) $ (149) $ (978) $ 67 $ (911)
-------------------------------------------------------------
-------------------------------------------------------------
For the six months ended June 30, 2008
-------------------------------------------------------------
Unrealized
foreign Unreal-
exchange ized Unreal-
gains gains ized
(losses) (losses) gains
on trans- on (losses) Non-
lation of available on cash contr-
foreign for sale flow olling Share-
operations assets hedges Total interest holder
-------------------------------------------------------------
Balance,
beginning
of year $ (1,801) $ 174 $ 13 $ (1,614) $ 81 $ (1,533)
Other
comprehensive
loss 362 (250) (16) 96 (1) 95
Income tax - 65 6 71 - 71
-------------------------------------------------------------
362 (185) (10) 167 (1) 166
-------------------------------------------------------------
Balance,
end of
period $ (1,439) $ (11) $ 3 $ (1,447) $ 80 $ (1,367)
-------------------------------------------------------------
-------------------------------------------------------------
15. Contingent Liabilities (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.
The trial of the class proceedings in Ontario regarding the
participation of the London Life Insurance Company and The Great-West
Life Assurance Company (Great-West Life) participating accounts in
the financing of the acquisition of London Insurance Group Inc. in
1997 by Great-West Life is currently set to commence in September
2009.
16. Segmented Information
Consolidated Operations
For the three months ended June 30, 2009
United Lifeco
Canada States Europe Corporate Total
------------------------------------------------------
Income:
Premium income $ 2,243 $ 609 $ 1,812 $ - $ 4,664
Net investment
income
Regular net
investment
income 741 357 512 6 1,616
Changes in fair
value on held
for trading
assets 805 546 921 - 2,272
------------------------------------------------------
Total net
investment
income 1,546 903 1,433 6 3,888
Fee and other
income 229 291 146 - 666
------------------------------------------------------
Total income 4,018 1,803 3,391 6 9,218
------------------------------------------------------
Benefits and
expenses:
Paid or credited
to policyholders 3,085 1,363 3,025 - 7,473
Other 585 367 199 4 1,155
Amortization of
finite life
intangible assets 8 15 2 - 25
------------------------------------------------------
Net income from
continuing operations
before income taxes 340 58 165 2 565
Income taxes 101 8 13 - 122
------------------------------------------------------
Net income before
non-controlling
interests 239 50 152 2 443
Non-controlling
interests 12 1 (1) - 12
------------------------------------------------------
Net Income 227 49 153 2 431
Perpetual
preferred share
dividends 10 - 4 4 18
------------------------------------------------------
Net income -
common
shareholders $ 217 $ 49 $ 149 $ (2) $ 413
------------------------------------------------------
------------------------------------------------------
For the three months ended June 30, 2008
United Lifeco
Canada States Europe Corporate Total
------------------------------------------------------
Income:
Premium income $ 2,072 $ 473 $ 1,978 $ - $ 4,523
Net investment
income
Regular net
investment
income 640 330 676 2 1,648
Changes in fair
value on held for
trading assets (80) (387) (1,128) - (1,595)
------------------------------------------------------
Total net
investment income 560 (57) (452) 2 53
Fee and other income 277 376 153 - 806
------------------------------------------------------
Total income 2,909 792 1,679 2 5,382
------------------------------------------------------
Benefits and
expenses:
Paid or credited
to policyholders 1,922 276 1,292 - 3,490
Other 575 358 143 7 1,083
Amortization of
finite life
intangible assets 7 14 1 - 22
------------------------------------------------------
Net income from
continuing operations
before income taxes 405 144 243 (5) 787
Income taxes 95 36 50 1 182
------------------------------------------------------
Net income before
non-controlling
interests 310 108 193 (6) 605
Non-controlling
interests 25 - 2 - 27
------------------------------------------------------
Net income from
continuing
operations 285 108 191 (6) 578
Net income from
discontinued
operations - 649 - - 649
------------------------------------------------------
Net Income 285 757 191 (6) 1,227
Perpetual
preferred share
dividends 10 - 4 - 14
------------------------------------------------------
Net income -
common
shareholders $ 275 $ 757 $ 187 $ (6) $ 1,213
------------------------------------------------------
------------------------------------------------------
For the six months ended June 30, 2009
United Lifeco
Canada States Europe Corporate Total
------------------------------------------------------
Income:
Premium income $ 4,317 $ 1,564 $ 3,492 $ - $ 9,373
Net investment
income
Regular net
investment
income 1,288 799 1,033 7 3,127
Changes in fair
value on held for
trading assets 483 325 (503) - 305
------------------------------------------------------
Total net
investment
income 1,771 1,124 530 7 3,432
Fee and other income 451 574 321 - 1,346
------------------------------------------------------
Total income 6,539 3,262 4,343 7 14,151
------------------------------------------------------
Benefits and
expenses:
Paid or credited
to policyholders 4,768 2,307 3,764 - 10,839
Other 1,116 756 376 7 2,255
Amortization of
finite life
intangible assets 15 29 3 - 47
------------------------------------------------------
Net income from
continuing operations
before income taxes 640 170 200 - 1,010
Income taxes 163 40 (3) - 200
------------------------------------------------------
Net income before
non-controlling
interests 477 130 203 - 810
Non-controlling
interests 31 6 (1) - 36
------------------------------------------------------
Net income from
continuing operations 446 124 204 - 774
Net income from
discontinued
operations - - - - -
------------------------------------------------------
Net Income 446 124 204 - 774
Perpetual preferred
share dividends 21 - 7 7 35
------------------------------------------------------
Net income -
common
shareholders $ 425 $ 124 $ 197 $ (7) $ 739
------------------------------------------------------
------------------------------------------------------
For the six months ended June 30, 2008
United Lifeco
Canada States Europe Corporate Total
------------------------------------------------------
Income:
Premium income $ 4,049 $ 1,326 $ 15,938 $ - $ 21,313
Net investment
income
Regular net
investment
income 1,264 646 1,095 (5) 3,000
Changes in fair
value on held for
trading assets (168) (607) (1,760) - (2,535)
------------------------------------------------------
Total net
investment income 1,096 39 (665) (5) 465
Fee and other
income 542 754 307 - 1,603
------------------------------------------------------
Total income 5,687 2,119 15,580 (5) 23,381
------------------------------------------------------
Benefits and
expenses:
Paid or credited
to policyholders 3,802 1,190 14,794 - 19,786
Other 1,118 746 328 8 2,200
Amortization of
finite life
intangible assets 14 27 2 - 43
------------------------------------------------------
Net income from
continuing
operations
before income
taxes 753 156 456 (13) 1,352
Income taxes 164 29 86 - 279
------------------------------------------------------
Net income before
non-controlling
interests 589 127 370 (13) 1,073
Non-controlling
interests 44 (175) 1 - (130)
------------------------------------------------------
Net income from
continuing
operations 545 302 369 (13) 1,203
Net income from
discontinued
operations - 692 - - 692
------------------------------------------------------
Net Income 545 994 369 (13) 1,895
Perpetual preferred
share dividends 21 - 7 - 28
------------------------------------------------------
Net income - common
shareholders $ 524 $ 994 $ 362 $ (13) $ 1,867
------------------------------------------------------
------------------------------------------------------
