2019 Annual Report
CORPORATE PROFILE
Great-West Lifeco is an international financial services holding company with interests in life insurance,
health insurance, retirement and investment services, asset management and reinsurance businesses.
We operate in Canada, the United States and Europe under the brands Canada Life, Empower Retirement,
Putnam Investments and Irish Life. At the end of 2019, our companies had approximately 24,000
employees, 197,000 advisor relationships, and thousands of distribution partners – all serving our
more than 31 million customer relationships across these regions. Great-West Lifeco and its companies
have over $1.6 trillion in consolidated assets under administration as at December 31, 2019, and are
members of the Power Corporation group of companies. Great-West Lifeco trades on the Toronto Stock
Exchange (TSX) under the ticker symbol GWO. To learn more, visit greatwestlifeco.com.
2019 AT A GLANCE
24,000+
Employees supporting our customers
31+M
Customer relationships
170+
More than 170 years of delivering
on the promises we have made
$37+B
$2,359B
Benefits paid to customers
Earnings
$17+M
$2,785B
Contributed to communities
Adjusted earnings*
197,000+
Advisor relationships supporting
our customers
greatwestlifeco.com
Visit our website to get a digital copy
of our annual report and access more
information, such as our current
credit ratings.
* Presented on an adjusted basis, a non-IFRS measure.
Contents
Our Brands . . . . . . . . . . . . . . . . . . . . . 1
Financial Highlights . . . . . . . . . . . . . . . 2
Directors’ Report
to Shareholders . . . . . . . . . . . . . . . . . . 4
Business Highlights:
Risk and Capital Solutions . . . . . . . . . . 7
Business Highlights:
Workplace . . . . . . . . . . . . . . . . . . . . . 8
Business Highlights:
Advice and Wealth Solutions. . . . . . . 10
Business Highlights:
Investment and Asset Management . 12
Sustainability and
Community Highlights . . . . . . . . . . . 14
Management’s Discussion
and Analysis . . . . . . . . . . . . . . . . . . . 16
Financial Reporting Responsibility . . . 93
Consolidated Financial Statements . . 94
Independent Auditor’s Report . . . . . 169
Sources of Earnings. . . . . . . . . . . . . 171
Five-Year Summary . . . . . . . . . . . . . 173
Directors and Senior Officers. . . . . . 174
Shareholder Information . . . . . . . . . 175
Organizational Chart . . . . . . . . . . . . IBC
The financial information in this report is presented
in millions of Canadian dollars for the period ended
December 31, 2019, unless otherwise indicated.
Readers are referred to the Cautionary Notes regarding
forward-looking information and non-IFRS financial
measures on page 16.
Our Brands
Great-West Lifeco operates in Canada, the United States and Europe through Canada Life,
Empower Retirement, Putnam Investments and Irish Life.
Canada
Effective January 1, 2020, The
Great-West Life Assurance Company,
London Life Insurance Company and
The Canada Life Assurance Company,
and their holding companies, Canada
Life Financial Corporation and London
Insurance Group Inc., became one
company – The Canada Life
Assurance Company.
As a leading Canadian insurer with
interests in life insurance, health
insurance, retirement savings,
investment management and
reinsurance businesses, primarily in
Canada and Europe, Canada Life
serves the financial security needs of
more than 13 million people.
United States
Empower Retirement serves all
segments of the employer-sponsored
retirement plan market. Empower
also offers individual retirement
accounts. Putnam is a U.S.-based
global asset manager offering a range
of investment management strategies,
including fixed income, equity,
environmental, social and governance
(ESG), global asset allocation and
alternatives, such as absolute return,
risk parity and hedge funds. The
firm’s affiliate, PanAgora, is a premier
provider of institutional investment
solutions, including alternatives, risk
premia – including risk parity – and
active strategies, spanning all major
asset classes and risk ranges.
Europe and Reinsurance
In Europe, Canada Life and Irish
Life provide insurance and wealth
management products and
services, including payout annuities,
investments and group insurance in
the United Kingdom; investments and
individual insurance in the Isle of Man;
pensions, critical illness and disability
insurance in Germany; and, in Ireland,
life and health insurance, pension and
investment products.
The Europe segment comprises two
distinct business units: Insurance &
Annuities, which offers protection
and wealth management products,
including payout annuity products,
through subsidiaries of Canada Life in
the United Kingdom (U.K.), the Isle of
Man and Germany as well as through
Irish Life in Ireland; and Reinsurance,
which provides capital and risk
solutions, and operates primarily in
the U.S., Barbados and Ireland.
Effective January 1, 2020, following
the amalgamation of Great-West Life,
London Life and Canada Life, the
Reinsurance business will be operated
through the Canada Life branches,
subsidiaries of Canada Life and an
indirect subsidiary of Great-West
Life & Annuity Insurance Company
(GWL&A).
Great-West Lifeco Inc. 2019 Annual Report
1
FINANCIAL HIGHLIGHTS
Solid Performance Across Our Businesses
Great-West Lifeco’s solid financial performance is evidenced by its strong capital
position and financial flexibility, backed by strategies to drive growth through innovation
and disciplined capital deployment.
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2.77
2.71
2.68
3.05
2.94
$2.94
2015
2016
2017
2018
2019
Earnings Per Common Share
3.05
2.94
2.77
2.71
2.68
14.7
14.1
13.4
13.8%
14.3
13.8
Return on Common
Shareholders’ Equity
14.7
14.1
14.3
13.8
13.4
20.06
19.76
20.11
22.08
21.53
$21.53
Book Value Per Common Share
20.06
19.76
20.11
22.08
21.53
2015
2016* 2017* 2018* 2019*
2015
2016* 2017* 2018* 2019*
2015
2016
2017
2018
2019
Diversified Earnings by Geography **
0.0
0.2
0.4
0
2
0.8
0.6
37%
Canada
3
6
1.0
50%
0
9
Europe and
12
Reinsurance
5
15
* Presented on an adjusted basis, a non-IFRS measure.
** Based on 2019 adjusted net earnings.
0.4
Great-West Lifeco Inc. 2019 Annual Report
0.0
0.2
13%
15
10
20
25
United States
0.6
0.0
0.8
0.2
1.0
0.4
0.6
0.8
1.0
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
Dividends Paid
We have a clear purpose to meet the diverse and changing needs of our customers and
advisors. This purpose, combined with strong risk and expense discipline, is key to
delivering long-term shareholder value.
Common shares had an
annual dividend yield of
5.3%in 2019
6.08%
5-Year Compound
Annual Growth Rate
$1.384
$1.468
$1.556
$1.652
$1.304
2015
1.213
1.248
1.350
2.0
1.399
$1.630T
1.63
2016
2017
2018
2019
105.0
117.50
123.1
139.3
$150.6B
150.6
Total Assets Under Administration
(in Trillions)
Premiums and Deposits
(in Billions)
Life Insurance
Capital Adequacy Test
1.630
1.399
1.350
1.213
1.248
150.6
139.3
123.1
117.5
105.0
1.5
1.0
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
135%
Great-West Lifeco Inc. 2019 Annual Report
3
0
50
100
150
200
DIRECTORS’ REPORT TO SHAREHOLDERS
Jeffrey Orr
Chair of the Board
Paul Mahon
President and
Chief Executive Officer
Great-West Lifeco has a long history of building value for
its shareholders. Our market leadership is founded on strong
brands, a diversified portfolio, and strategies to meet the
diverse needs of our customers today and into the future.
Across the regions where we operate, the company has
been positioning its business for future growth and value
creation, while navigating the challenges presented by
low interest rates, technological disruption and rapidly
changing consumer preferences.
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Great-West Lifeco Inc. 2019 Annual Report
Evolving our core strategies
As we capitalize on opportunities and address
challenges, we’ve continued to evolve our core
strategies: delivering financial security and
wellness through the workplace, providing
advice-centred wealth management, delivering
strong investment and asset management, and
leveraging risk and capital management expertise.
With a regional focus, we deliver financial
security and wellness by reaching a broad range
of customers with workplace-delivered advice
and solutions. This strategy complements our
capabilities in advice and wealth management,
which allows us to serve a wide range of customer
needs through our strong affiliations with advisor
networks across all regions.
Our approach to investment and asset
management helps drive globally diversified and
regionally delivered solutions to meet the needs of
our individual customers and institutional clients.
And, our success in bulk annuities and reinsurance
solutions for institutional clients is a testament to
our risk and capital expertise.
Deploying capital to create value
Deploying capital to create shareholder value
is a priority for our companies. We create value
organically by investing in the capabilities needed
to grow market share and extend our franchises
in a constantly evolving market.
We also deploy capital through targeted mergers
and acquisitions (M&A) to drive value creation
by delivering scale-driven synergies, revenue
expansion and business diversification. The
acquisition of Retirement Advantage provided
those benefits, including a new capability for
our U.K. business – equity release mortgages.
As persistent low interest rates have put a strain
on retirement savings, innovative equity release
mortgage solutions have helped our customers
unlock equity in their homes as a source of stable
income through retirement.
The disposition of our individual insurance
business in the U.S. freed up low performing
capital, creating an opportunity to deliver value
to shareholders. The proceeds of that disposition
provided capacity to return capital to shareholders
through the $2.0 billion substantial issuer bid we
executed in the second quarter.
Strengthening and leveraging
our brands
A core part of our strategy is how we position
ourselves in the marketplace through branding
and performance. In 2019, Great-West Lifeco took
several decisive actions to further crystalize what
our brands mean to our customers.
In Canada, where our roots date back more than
170 years, we amalgamated our three Canadian
life insurance companies under one strong brand:
Canada Life. Operating under one brand will allow
us to sharpen our focus on growth, innovation
and efficiency, while communicating more
effectively with one strong voice.
Canada Life has also operated in Germany for
almost 20 years. As markets have changed, this
company has been investing in technology to
be more responsive to customers. It recently
adopted the same modern logo as our Canadian
operations, allowing us to leverage investments in
sponsorships that span national borders.
Empower Retirement, headquartered in Denver,
Colorado, is the second-largest retirement services
provider in the U.S., serving more than 38,000
plans and over nine million participants. This high
growth business is building brand awareness
in a number of ways, including a new 21-year
agreement for the naming rights to the Denver
Broncos’ stadium, now known as “Empower Field
at Mile High.”
Putnam Investments made strong progress in 2019
with a focus on improving business economics
while maintaining excellence in fund performance,
distribution and digital capabilities.
In 2019, Irish Life Investment Managers was
named Investment Manager of the Year at the
prestigious Irish Investment Awards. This kind of
brand recognition contributes to Irish Life’s already
strong foundation for organic growth in that market.
For over 115 years, Canada Life in the U.K.
has been a leader in retirement, investment
and protection solutions. Canada Life’s recent
Great-West Lifeco Inc. 2019 Annual Report
5
launch of a broader suite of retirement products
and services is strengthening its reputation as a
solutions provider for advisors and customers.
we live and work, our goal is to make a positive
impact by supporting initiatives that matter
through donations and volunteerism.
All of our brands – Canada Life, Empower
Retirement, Irish Life and Putnam Investments – in
each of their markets, enjoy strong connections
with their customers and are recognized as leaders
in providing trusted products and advice.
Building on talent
The dedication and expertise of our almost 25,000
employees and over 250,000 distribution partners
around the world are key to our ongoing success.
Our leaders are focused on growth, innovation
and ensuring their teams have the training and
resources to get the job done. Supported by digital
capabilities and expertise, our teams are working
hard every day to meet the changing needs and
expectations of customers and distribution partners.
Supporting sustainability and
strengthening communities
Great-West Lifeco believes that having a positive
impact on the world around us through our
operating model is essential to creating sustainable
and long-term value for our customers and
shareholders. Similarly, in the communities where
Looking ahead
We have a solid foundation based on outstanding
products and services, market leading brands and
exceptional people matched with a disciplined
approach to growth. In 2020, we will diligently
pursue opportunities to further define our brands,
enhance and expand our offerings and focus on
the strategies that will increase shareholder value.
Thank you
We thank our shareholders for their confidence
in us. We also thank our employees and advisors
for their commitment to meeting our customers’
needs. Finally, we want to thank our customers.
On behalf of our colleagues, we look forward to
continuing to deliver on our promises to them.
Jeffrey Orr
Chair of the Board
Paul Mahon
President and
Chief Executive Officer
Strong governance
Good corporate governance is important – to Great-West Lifeco, our shareholders and policyholders, our employees, and
the communities in which we operate. We believe it is essential to creating consistently strong long-term performance
and positive outcomes for all of our stakeholders. Good corporate governance starts with our Board of Directors, which is
responsible for the stewardship of Great-West Lifeco and the oversight of its management. We thank our Directors for their
valuable contribution to the governance and affairs of our companies. At our 2019 Annual Meeting we announced changes
to the membership of our Board. Ms. Heather Conway, who most recently served as Executive Vice President, English
Services of CBC/Radio-Canada until her retirement in December 2018, was elected as a Director. Ms. Chaviva M. Hošek,
who joined the Board in May 2008 serving on the Audit and Conduct Review Committees, including five years as Chair
of the Conduct Review Committee, retired from the Board. In addition, Mr. Donald M. Raymond, who joined the Board in
May 2017 serving on the Investment and Risk Committees, including one year as Chair of the Investment Committee,
retired from the Board on January 1, 2020. We thank Ms. Hošek and Mr. Raymond for their years of dedicated service.
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Great-West Lifeco Inc. 2019 Annual Report
RISK AND CAPITAL SOLUTIONS
Great-West Lifeco’s businesses are market leaders in capital and risk
solutions globally, leveraging decades of expertise and scale in providing
longevity and capital solutions. We have a consistent record of strong
earnings, are a top 10 global reinsurer based on all gross reinsurance
premiums written and a top six in life reinsurance based on life-focused
gross reinsurance premiums written.*
We are also one of the top two life reinsurance providers of risk and
capital management solutions in the U.S. market.
We will continue our focus on expanding diversification strategies
into other key markets and deploying capital to improve the quality of
portfolios to advance growth.
Bulk annuities
The U.K. has an active market in bulk
annuities, which are transactions through
which defined benefit pension schemes
insure their liabilities. During 2019,
Canada Life secured a number of repeat
transactions in the U.K., in part as a result
of successful initial implementations, and
a testament to the service the company
provides within this growing market.
Canada Life also secured its first trade
with a firm specifically supporting smaller
bulk annuity transactions, an area of the
market that can be more challenging for
small- and medium-size pension schemes
and one that presents a real opportunity
for growth. In Canada, where the bulk
annuity market is still relatively young,
Canada Life was one of four insurers to
jointly insure a large pension annuity buy-
in with a combined valued at $885 million,
securing the largest share.
Reinsurance agreement helps
more than 150,000 in-payment
and deferred pensioners
Canada Life Reinsurance offers a range of
innovative risk and capital management
solutions covering mortality, longevity, health
and lapse risks for insurers, reinsurers and
pension funds across the U.S. and Europe,
including the Netherlands, the U.K., France,
Germany, Italy, Spain, Portugal, Sweden,
Belgium and Ireland.
In 2019, Canada Life Reinsurance announced
two major long-term longevity reinsurance
agreements with $17.6 billion of in-force
liabilities combined. Altogether, close
to 350,000 of in-payment and deferred
pensioners will be reinsured by Canada
Life Reinsurance under these agreements.
These transactions highlight Canada Life
Reinsurance’s strength as a partner for
reinsurance longevity transactions globally.
* A.M. Best’s 2019 Rankings: top 50 World’s Largest Reinsurer Groups.
Great-West Lifeco Inc. 2019 Annual Report
7
WORKPLACE
Across every geographic region where we operate, Great-West Lifeco’s
businesses are leaders in the group benefits markets. Our success
comes from our proactive approach to meeting customer needs and
our ability to grow market share even in challenging environments.
We make continued investments in new, innovative products that
help us to broaden the range of customers we reach with workplace-
delivered advice and solutions.
Supporting mental health
in the workplace with
Mental Health Navigator
For more than two decades, Canada Life
has championed mental health issues in
the workplace. In 2019, it became the first
Canadian insurer to offer Best Doctors®
Mental Health Navigator services from
Teledoc Health to group customers, who
may be seeking a mental health diagnosis
or looking for a second opinion on their
current treatment plan. The service draws
on a team of clinicians, psychologists,
psychiatrists and expert physicians
to help get the right diagnosis, and
offers guidance navigating the mental
health system.
Helping employees pay down student debt and save
Through partnerships and digital connections, Empower Retirement is offering products and services
to help workers secure their best retirement. In 2019, it launched a turnkey student debt solution that
employers can provide employees, helping them pay student debt faster and focus on other financial
goals. Delivered by CommonBond for BusinessTM, this digital, one-stop student loan benefits platform
offers educational tools and financial guidance to help employees understand and manage their unique
financial needs while enabling employers to make direct payments to their student loans or retirement
savings accounts.
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Great-West Lifeco Inc. 2019 Annual Report
Expanding customer relationships
Canada Life is applying technology to deepen relationships
with customers at every stage of their careers, whether through
e-enrolment, for early onboarding of new members to workplace
group benefits plans, to delivering online financial education
with smartPATH, to making it even easier for current plan
members to maintain the benefits of a group savings plan when
changing careers or retiring. For example, NextStep enables
members to keep their group retirement investments in place,
generally paying lower fees and earning higher interest rates
due to group purchasing power.
MyLife – Irish Life’s rewarding way
to embrace healthier lifestyles
MyLife is a health and well-being app aimed at inspiring
people to lead healthier, more active lifestyles. It can
measure health with a single real-time scientifically
calculated Health Score based on body, mind and
lifestyle data. A highly personalized artificial intelligence
(AI) Health Coach helps keep users engaged and
motivated, for great prizes from MyLife rewards store.
Irish Life successfully launched MyLife to group and
individual customers in Ireland in mid-2019, with
80,000 downloads to date.
Leaders in group markets
9.4M
Empower Retirement is the second-
largest U.S. retirement services
provider with $673 billion assets under
administration (AUA) for 9.4 million
pension plan members.
36,000
Canada Life has over 36,000 employer
and association plan customers. It is the
organization Canadian businesses turn to
more than any other insurer, and it fulfills
the financial security and protection needs
of over nine million Canadians.
2.9M
Canada Life is the largest provider of
group insurance in the U.K., providing
workplace protection through its policies
to over 25,000 employers, covering
2.9 million employees.
$1B+
Irish Life Assurance is Ireland’s leading
group pension provider, with pension
payments of more than €1 billion in the
last three years and managing pensions
for employees of 8 of the 10 biggest Irish
companies (ISEQ) and 6 of the 10 biggest
U.S. companies operating in Ireland
(S&P500).
Great-West Lifeco Inc. 2019 Annual Report
9
ADVICE AND WEALTH SOLUTIONS
Our purpose is clear: to meet the diverse and changing needs of our
customers and advisors with innovative insurance and wealth solutions.
By offering a broad suite of products and services through multiple
distribution channels, we provide advice and product solutions
to meet the needs of our customers at all phases of their lives.
The Retirement Account
In the U.K., Canada Life redesigned The Retirement
Account, its flagship retirement product. Built on a
new IT platform, it enables the business to enter the
pension savings and consolidation market, which
is a major strategic growth opportunity. Informed
by feedback from the market, the new solution
gives advisors access to platform-style investment
choice with a new quote system and dashboard –
all supported by a new fund research centre.
New custom-managed
account service for advisors
Empower Retirement collaborated closely
with advisors to design Advisor Managed
Accounts (AMA) – a new way for Advisor Asset
Group, LLC (AAG) and its partner advisors
to deliver customized advisory services to
help workers achieve retirement readiness.
With AMA, advisor firms can leverage AAG’s
cutting-edge technology to offer their own
managed account services directly to Empower
Retirement recordkeeping clients.
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Great-West Lifeco Inc. 2019 Annual Report
Simplifying insurance applications
SimpleProtect, our digital insurance application
tool, launched to all advisors for term, critical
illness and par insurance. SimpleProtect delivers
a fast and easy application process, with a
streamlined number of applicant questions and
the use of electronic contacts. More than half of
all policies processed through SimpleProtect are
placed in one day or less, and the app has earned
a 90%+ satisfaction rate amongst advisors.
FundVisualizer
facilitates fund
selection
for financial
advisors
Putnam Investments’
FundVisualizer is
an award-winning
resource that helps
advisors navigate over
30,000 mutual funds,
ETFs and indexes in
the marketplace. In
2019, Putnam unveiled
its latest version,
designed to further
elevate the overall user
experience. Among
the key enhancements
is the introduction of
a new voice-enabled
intelligent assistant
using machine
learning and artificial
intelligence technology.
Digitally enabled customers –
from 1 hour to 2 minutes!
Working with its banking partners in Ireland,
Irish Life launched an app that significantly
reduces the time it takes to buy mandatory life
insurance for mortgages – from an hour, down to
mere minutes. Customer data held by the bank
simplifies the process so the customer isn’t asked
the same questions twice. The app will continue
to roll out across bank branches in 2020.
Canada Life expands goals-based investing
and harmonizes product shelves
Canada Life’s Constellation Managed Portfolios launched to
Canadian advisors in 2019 to help their clients build portfolios
that directly link their investments to their personal and lifestyle
goals. Constellation includes a digital customer portal for
real-time investment performance reporting, an auto-rebalance
feature and access to Pathways fund families. The organization
also harmonized its product shelves, streamlining its segregated
fund shelf and simplifying participating and non-par
insurance products on one new Canada Life shelf. The sale
of Great-West Life and London Life products for new business
ceased on December 31, 2019.
Great-West Lifeco Inc. 2019 Annual Report
11
INVESTMENT AND ASSET MANAGEMENT
Great-West Lifeco has built a diverse array of investments and assets,
laying a strong foundation that fuels other strategic areas of focus.
With an aggregate of over $1.6 trillion in AUA including $772 billion in
assets under management (AUM), we have a proven track record of
disciplined investing for our insurance general account and third-party
clients, with processes designed to prudently weather market cycles.
Continuing this purposeful approach, combined with environmental,
social and governance (ESG) considerations, forms our blueprint for
ongoing growth and enhanced revenue opportunities.
Global real estate platform
One strategic area of focus is our global real estate platform,
which we are building to service investors’ need for allocation
and diversification into alternative assets. Combined, we
are managing more than $28 billion in real estate globally
as at December 31, 2019, with an additional $1.2 billion in
developments underway.
Putnam launches new SMAs
and multi-asset model portfolios
In keeping with its commitment to provide financial advisors
with a broad range of investment solutions to meet the
changing needs of clients, in 2019, Putnam launched seven
equity model-based separately managed accounts (SMAs) and
six multi-asset model portfolios. Demand for strategies in the
model delivery structure continues to increase as advisors seek
products that are fee-efficient and tailored to meet their clients’
individual needs.
GLC Asset Management Group’s
Tactical Bond (Portico)
Launched in 2019, the Tactical Bond fund was built for investors
looking for more from their core bond fund. The deep bench
strength of GLC’s Portico Investment Management team
is leveraged across traditional fixed income assets, illiquid
alternatives, and derivatives in foreign and domestic markets
to deliver strong returns in changing market conditions and
capitalize on market opportunities when present.
Putnam Investments delivers
strong investment performance
Putnam Investments continues to deliver strong investment
performance across asset classes. As of December 31, 2019,
approximately 82% of Putnam’s fund assets performed above
the Lipper median on a three-year basis and 86% performed
above median for the five-year period. Additionally, 22 Putnam
mutual funds were ranked four or five stars by Morningstar,
an industry research and rating company.
FundGrade A+ portfolio strategies
GLC Asset Management was recognized for its leading portfolio investment strategies at the annual Fundata
FundGrade A+® Awards, which acknowledges Canadian funds that maintained an exceptional performance rating
in 2019. GLC’s award-winning portfolio strategies include: Canadian Low Volatility Equity (London Capital), U.S. Mid Cap
(London Capital), Commercial Mortgage (Portico), Mid Cap Canadian Equity (GWLIM) and the Corporate Bond (Portico).
Achieving FundGrade A+ ratings demonstrates the strength of GLC’s fund performances as only 4% of investment fund
products available in Canada receive such recognition.
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Great-West Lifeco Inc. 2019 Annual Report
Strong investment performances
In the U.K., Canada Life’s Real Estate Finance team originated their
largest ever volume of new commercial mortgages, at £765 million by
year end, with an additional €56 million secured against property in
Eurozone countries.
Canada Life’s multi-asset product range grew with two new fund launches,
and its Sterling Liquidity Fund was ranked first in its universe, growing to
£568 million in December 2019. The company’s Short Duration Corporate
Bond Fund celebrated its three-year anniversary on September 30, 2019,
finishing the year as the fund with the lowest volatility in the entire
IA Sterling Corporate Bond sector, at just 0.44%.
Canada Life’s Home Finance team continues to innovate, launching new
products to meet funding mandates.
Winning approaches to
responsible investment
Irish Life Investment Managers (ILIM) converted its entire
discretionary book of client assets to a ‘responsible investing
approach’ which explicitly considers ESG criteria. This move
solidifies Irish Life as a leader in the European investment
industry.
ILIM was also named Property Investment/Fund Manager
of the Year at the 2019 KPMG Irish Independent Property
Industry Excellence Awards, and Investment Manager of the
Year at the 2019 Irish Pension Awards.
Setanta Asset Management won Equities Manager of the
Year for the second year running. A boutique investment
manager based in Dublin, Ireland, Setanta has developed a
strong investment performance track record over 20 years
specializing in global and international equity strategies.
Setanta has expanded its institutional client base in
recent years by entering the U.S. market, with continued
institutional growth in Canada.
Assets under Management
across our regions
$183B
Canada
$246B
Europe
$343B
U.S.
Great-West Lifeco Inc. 2019 Annual Report
13
SUSTAINABILITY AND COMMUNITY HIGHLIGHTS
Great-West Lifeco is committed to incorporating environmental, social
and governance (ESG) into our investment, business and community
initiatives. From charitable giving and volunteering to making socially
and environmentally responsible choices at work, our goal is to make
a positive impact where we live and work.
Keeping teens moving
one step at a time
The Irish Life Health Schools’
Fitness Challenge is a national
health research initiative
designed to assess and improve
fitness levels among secondary
students in Ireland. Participants
increased their fitness levels
on average by 10%, simply by
taking small steps throughout
the six-week program. Over
200,000 students have
participated since its inception,
making it the largest national
multi-year surveillance study on
the fitness of secondary school
children in Ireland, and the
third largest study of its kind
in the world.
Canada Life goes the distance with
marathon sponsorships
Canada Life supports some of the largest running events in Germany,
including the acclaimed RheinEnergie Marathon in Cologne. The company
has enjoyed strong and enthusiastic participation for the marathon from
its employees and business partners since 2013. In 2019, 48 Canada Life
employees and 30 business partners ran together in the Cologne marathon
in support of the KinderHerz foundation, which supports children in
Germany with heart conditions.
14
Great-West Lifeco Inc. 2019 Annual Report
Balanced Approach
Great-West Lifeco is committed to respecting the
environment and taking a balanced, sustainable
approach to everything we do.
Proud signatories
to the United Nations-
supported Principles
for Responsible Investing
Sustainable investment
in action
In 2019, our general account had
over $2 billion in renewable energy
investments in Canada, the U.S.
and Europe, and we continue
to explore new opportunities to
expand these portfolios. Our asset
management affiliates continue
to expand their ESG investment
products, managing over
$17 billion in funds with ESG-
related strategies.
Global Real Estate
Sustainability
Benchmark
The 2019 Global Real Estate
Sustainability Benchmark (GRESB)
awarded ‘Green Star’ ratings to
all four of Great-West Lifeco’s
real estate asset management
subsidiaries’ submissions. These
included submissions from Canada
Life’s Property ACS in the U.K.,
Irish Life Investment Managers
(ILIM) Irish Property Fund, and
two submissions from GWL Realty
Advisors Inc. (GWLRA), one on
behalf of its Canadian managed
portfolio and one on behalf of
the GWL Canadian Real Estate
Investment Fund No. 1 (CREIF).
Carbon Disclosure
Project ranking
Great-West Lifeco earned an
A- rating on CDP’s 2019 Climate
Change Questionnaire for the
company’s management of carbon,
climate-change risks and low-
carbon opportunities. With this
rating, Great-West Lifeco is ranked
first among all Canadian insurance
companies, and among the top
Canadian companies.
Great-West Lifeco’s newly
established Sustainable
Investments Council supports its
growing responsible investment
activities and reporting processes.
The purpose of the council,
which is chaired by the Global
Chief Investment Officer, is to
harmonize responsible investment
policies and practices across the
companies and affiliates and
to share best practices in
responsible investing.
Irish Life Investment Managers
(since 2010)
Putnam Investments
(since 2011)
PanAgora Asset Management
(since 2011)
GLC Asset Management
(since 2016)
Celebrating the Legacy of
James W. Burns
The Board, management and employees
of Great-West Lifeco were deeply saddened
to learn of the passing of the late James
William Burns early in 2019. The company
was fortunate to have “Jim” at the
helm, as former president and CEO
of Great-West Life and President of
Power Financial. He was also dedicated to
his community and to making a positive
impact on the well-being of Canadians
from coast to coast to coast.
To celebrate his life and accomplishments,
Canada Life is proudly carrying on his
legacy through significant donations to
CancerCare Manitoba, the Manitoba
Museum and the University of Manitoba,
through the Jim Burns Leadership Institute,
totalling more than $1 million.
Great-West Lifeco Inc. 2019 Annual Report
15
Management’s Discussion and Analysis
This Management’s Discussion and Analysis (MD&A) presents
management’s view of the financial condition, financial performance
and cash flows of Great-West Lifeco Inc. (Lifeco or the Company) for
the three and twelve months ended December 31, 2019 and includes
a comparison to the corresponding periods in 2018, to the three
months ended September 30, 2019, and to the Company’s financial
condition as at December 31, 2018. This MD&A provides an overall
discussion, followed by analysis of the performance of Lifeco’s three
major reportable segments: Canada, United States (U.S.) and Europe.
Businesses of Lifeco
Lifeco has operations in Canada, the United States and Europe
through The Canada Life Assurance Company (Canada Life),
Great-West Life & Annuity Insurance Company (GWL&A), Putnam
Investments, LLC (Putnam) and Irish Life Group Limited (Irish Life).
On April 3, 2019, Lifeco announced that its three Canadian life
insurance companies, The Great-West Life Assurance Company
(Great-West Life), London Life Insurance Company (London Life)
and Canada Life, were moving to one brand in Canada: Canada Life.
Canada Life became the brand under which the organization creates,
delivers and communicates products and services in Canada across
all of its lines of business. On January 1, 2020, Great-West Life, London
Life, Canada Life and their holding companies, Canada Life Financial
Corporation and London Insurance Group Inc. amalgamated into a
single life insurance company, The Canada Life Assurance Company.
In Canada, Canada Life offers a broad portfolio of financial and benefit
plan solutions for individuals, families, businesses and organizations
through two primary business units: Individual Customer and
Group Customer. Through the Individual Customer business unit,
the Company provides life, disability and critical illness insurance
products as well as wealth savings and income products and services to
individual customers. Through the Group Customer business unit, the
Company provides life, accidental death and dismemberment, critical
illness, disability, health and dental protection, creditor insurance as
well as retirement savings and annuity products and other specialty
products to group customers in Canada. The products are distributed
through a multi-channel network of brokers, advisors, managing
general agencies and financial institutions including Freedom 55
FinancialTM and Wealth and Insurance Solutions Enterprise.
In the U.S., Empower Retirement is a leading provider of employer-
sponsored retirement savings plans in the public/non-profit and
corporate sectors that offers employer-sponsored defined contribution
plans, administrative and recordkeeping services, individual retirement
accounts, fund management, as well as investment and advisory
services. Its products and services are marketed nationwide through its
sales force, brokers, consultants, advisors, third-party administrators and
financial institutions. Putnam provides investment management, certain
administrative functions and distribution services through a broad range
of investment products, including the Putnam Funds, its own family of
mutual funds, which are offered to individual and institutional investors.
The Europe segment comprises two distinct business units:
Insurance & Annuities, which offers protection and wealth
management products, including payout annuity products, through
subsidiaries of Canada Life in the United Kingdom (U.K.), the Isle
of Man and Germany as well as through Irish Life in Ireland; and
Reinsurance, which operates primarily in the U.S., Barbados and
Ireland. Reinsurance products are provided through Canada Life,
London Life and their subsidiaries.
Lifeco currently has no other material holdings and carries on no
business or activities unrelated to its holdings in Great-West Life,
London Life, Canada Life, GWL&A, Putnam, Irish Life and their
subsidiaries. However, Lifeco is not restricted to investing in those
companies and may make other investments in the future.
Basis of Presentation and summary of accounting PoLicies
The consolidated financial statements of Lifeco, which are the
basis for data presented in this report, have been prepared in
accordance with International Financial Reporting Standards (IFRS)
unless otherwise noted and are presented in millions of Canadian
dollars unless otherwise indicated. This MD&A should be read in
conjunction with the Company’s consolidated financial statements
for the period ended December 31, 2019.
cautionary note regarding forward-Looking information
This MD&A may contain forward-looking information. Forward-looking information includes statements that are predictive in nature, depend upon or refer to future events or conditions, or include words
such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates” and other similar expressions or negative versions thereof. These statements include, without limitation, statements about the
Company’s operations, business, financial condition, expected financial performance (including revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future actions
by the Company, including statements made with respect to the expected benefits of acquisitions and divestitures, expected capital management activities and use of capital, expected cost reductions and
savings and the impact of regulatory developments on the Company’s business strategy and growth objectives. Forward-looking statements are based on expectations, forecasts, estimates, predictions,
projections and conclusions about future events that were current at the time of the statements and are inherently subject to, among other things, risks, uncertainties and assumptions about the Company,
economic factors and the financial services industry generally, including the insurance and mutual fund industries. They are not guarantees of future performance, and the reader is cautioned that actual
events and results could differ materially from those expressed or implied by forward-looking statements. Material factors and assumptions that were applied in formulating the forward-looking information
contained herein include the assumption that the business and economic conditions affecting the Company’s operations will continue substantially in their current state, including, without limitation, with
respect to customer behaviour, the Company’s reputation, market prices for products provided, sales levels, premium income, fee income, expense levels, mortality experience, morbidity experience, policy
lapse rates, reinsurance arrangements, liquidity requirements, capital requirements, credit ratings, taxes, inflation, interest and foreign exchange rates, investment values, hedging activities, global equity and
capital markets, business competition and other general economic, political and market factors in North America and internationally. Many of these assumptions are based on factors and events that are
not within the control of the Company and there is no assurance that they will prove to be correct. Other important factors and assumptions that could cause actual results to differ materially from those
contained in forward-looking statements include customer responses to new products, impairments of goodwill and other intangible assets, the Company’s ability to execute strategic plans and changes to
strategic plans, technological changes, breaches or failure of information systems and security (including cyber attacks), payments required under investment products, changes in local and international laws
and regulations, changes in accounting policies and the effect of applying future accounting policy changes, unexpected judicial or regulatory proceedings, catastrophic events, continuity and availability of
personnel and third party service providers, the Company’s ability to complete strategic transactions and integrate acquisitions and unplanned material changes to the Company’s facilities, customer and
employee relations or credit arrangements. The reader is cautioned that the foregoing list of assumptions and factors is not exhaustive, and there may be other factors listed in other filings with securities
regulators, including factors set out in this MD&A under “Risk Management and Control Practices” and “Summary of Critical Accounting Estimates”, which, along with other filings, is available for review
at www.sedar.com. The reader is also cautioned to consider these and other factors, uncertainties and potential events carefully and not to place undue reliance on forward-looking information. Other than
as specifically required by applicable law, the Company does not intend to update any forward-looking information whether as a result of new information, future events or otherwise.
cautionary note regarding non-ifrs financiaL measures
This MD&A contains some non-IFRS financial measures. Terms by which non-IFRS financial measures are identified include, but are not limited to, “adjusted net earnings”, “return on common
shareholder’s equity”, “adjusted return on common shareholder’s equity”, “core net earnings”, “constant currency basis”, “impact of currency movement”, “premiums and deposits”, “sales”,
“assets under management” and “assets under administration”. Non-IFRS financial measures are used to provide management and investors with additional measures of performance to help
assess results where no comparable IFRS measure exists. However, non-IFRS financial measures do not have standard meanings prescribed by IFRS and are not directly comparable to similar
measures used by other companies. Refer to the “Non-IFRS Financial Measures” section in this MD&A for the appropriate reconciliations of these non-IFRS financial measures to measures
prescribed by IFRS as well as additional details on each measure.
16
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
C o n s o l i d at e d o p e r at i n g r e s u lt s
Selected consolidated financial information
(in Canadian $ millions, except for per share amounts)
Earnings
Net earnings – common shareholders
Adjustments (1) (4)
Adjusted net earnings – common shareholders (1) (4)
Per common share
Basic earnings
Adjusted basic earnings (1) (4)
Dividends paid
Book value
Return on common shareholders’ equity (2)
Adjusted return on common shareholders’ equity (1) (2) (4)
As at or for the three months ended
For the twelve months ended
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
Dec. 31
2019
Dec. 31
2018
$
513
227
740
0.552
0.797
0.413
21.53
11.7%
13.8%
$
730
–
730
0.786
0.786
0.413
21.02
12.4%
13.4%
$
710
–
710
0.719
0.719
0.389
22.08
14.0%
14.3%
$
2,359
426
2,785
2.494
2.944
1.652
$
2,961
56
3,017
2.996
3.052
1.556
Total premiums and deposits (1)
Fee and other income
Net policyholder benefits, dividends and experience refunds
$
39,096
1,515
10,003
$
36,417
1,496
8,468
$
37,583
1,420
8,496
$ 150,638
7,081
36,415
$ 139,262
5,819
31,566
Total assets per financial statements
Proprietary mutual funds and institutional assets (1)
Total assets under management (1)
Other assets under administration (1)
Total assets under administration (1)
Total equity
$ 451,167
320,548
771,715
857,966
$ 446,626
308,425
$ 427,689
281,664
755,051
841,700
709,353
689,520
$ 1,629,681
$ 1,596,751
$ 1,398,873
$
25,543
$
25,157
$
27,398
The Great-West Life Assurance Company consolidated
Life Insurance Capital Adequacy Test Ratio (3)
135%
139%
140%
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
(2) Refer to the “Return on Equity” section of this document for additional details.
(3) The Life Insurance Capital Adequacy Test (LICAT) ratio is based on the consolidated results of The Great-West Life Assurance Company, Lifeco’s major Canadian operating subsidiary. Refer to the “Capital
Management and Adequacy” section for additional details.
(4) In 2018, adjustments were $56 million of restructuring costs relating to the Company’s U.K. operations. The following adjustments were made for the twelve months ended December 31, 2019:
2019 Adjustments
Q2 Net charge on sale, via reinsurance, of a U.S. business
Q4 Revaluation of a deferred tax asset
Q4 Restructuring costs
Q4 Net gain on Scottish Friendly transaction
Total Q4 2019 Adjustments
Total 2019 Adjustments
Segment
United States
Europe
Total
EPS Impact
Annual Financial
Statement
Note Reference
$
$
199
199
36
–
235
434
$
$
–
–
–
(8)
(8)
(8)
$
$
199
199
36
(8)
227
426
$
0.212
Note 3
Note 27
Note 5
Note 4
0.215
0.039
(0.009)
0.245
0.450
$
Great-West Lifeco Inc. 2019 Annual Report
17
Management’s Discussion and Analysis
Lifeco 2019 HigHLigHts
Financial Performance
• The Company maintained
its strong capital position as
evidenced by a Life Insurance Capital Adequacy Test (LICAT)
ratio at December 31, 2019 of 135% for Great-West Life, Lifeco’s
major Canadian operating subsidiary, which exceeded the
Office of the Superintendent of Financial Institutions’ (OSFI)
Supervisory Target Total Ratio of 100%, and Supervisory
Minimum Total Ratio of 90%.
• For the twelve months ended December 31, 2019, net earnings
attributable to common shareholders (net earnings) were
$2,359 million, compared to $2,961 million for the previous
year. In 2019, Lifeco’s net earnings include a net charge of
$199 million relating to the sale, via indemnity reinsurance,
of the U.S. individual life insurance and annuity business to
Protective Life Insurance Company (Protective Life), the impact
of the revaluation of a deferred tax asset of $199 million and
restructuring costs of $36 million, both related to Putnam,
and a gain of $8 million related to the completion of the sale
of a heritage block of policies to Scottish Friendly. In 2018, net
earnings were impacted by restructuring costs of $56 million
related to the Company’s U.K. operations.
• Excluding these items, 2019 adjusted net earnings of $2,785
million were down $232 million or 8% compared to 2018
adjusted net earnings of $3,017 million, reflecting growth in
the Europe and U.S. segments offset by lower earnings in the
Canada segment. On a per share basis, this represents $2.944
per common share compared to $3.052 per common share a
year ago, a decrease of 4%.
• In the first half of 2019, the Company completed the sale of the
U.S. individual life business. As a result, the U.S. individual life
business contributed $63 million in 2019 to Lifeco’s adjusted
net earnings for the twelve months ended December 31, 2019
down from $157 million in 2018 which included a full year of
earnings. Recognizing capital capacity arising from this sale and
in order to manage earnings dilution, the Company completed
a substantial issuer bid, purchasing and subsequently canceling
59,700,974 common shares for an aggregate purchase price of $2
billion in the second quarter of 2019. While the U.S. transaction
reduced net earnings in the second half of 2019, the substantial
issuer bid reduced the number of shares outstanding and
contributed to growth in adjusted earnings per share.
• In 2019, Lifeco’s quarterly common share dividend increased 6%
to $0.413 per share.
• The Company’s financial leverage ratio at December 31, 2019
was 27.6%, comparable to the prior year, providing financial
flexibility to invest in organic growth and acquisition strategies.
18
Great-West Lifeco Inc. 2019 Annual Report
Strategic Highlights
• In Canada, the Company announced its three Canadian life
insurance companies, The Great-West Life Assurance Company,
London Life Insurance Company and The Canada Life Assurance
Company, were moving to one brand in Canada: Canada Life.
Following the required approvals, the Company also proceeded
with the amalgamation of Great-West Life, London Life and
Canada Life, and their holding companies, Canada Life
Financial Corporation and London Insurance Group Inc., into
a single life insurance company, The Canada Life Assurance
Company. This amalgamation was effective January 1, 2020 and
will create operating efficiencies and simplify the Company’s
capital structure to allow for more efficient use of capital.
• Effective June 1, 2019, the Company completed the sale, via
indemnity reinsurance, of substantially all of its U.S. individual
life insurance and annuity business to Protective Life who now
assumes the economics and risks associated with the reinsured
business. The transaction resulted in an after-tax transaction
value of approximately $1.6 billion (US$1.2 billion), excluding
one-time expenses. The transaction value included a ceding
commission of $1,080 million (US$806 million) and a capital
release of approximately $530 million (US$400 million). The
business transferred included bank-owned and corporate-
owned life insurance, single premium life insurance, individual
annuities as well as closed block life insurance and annuities.
The Company recognized a loss related to this transaction of
$199 million (US$148 million). The liabilities transferred and
ceding commission received at the closing of this transaction
are subject to future adjustments and are currently under review.
GWL&A has retained a block of life insurance, predominately
participating policies, which are now administered by Protective
Life, as well as a closed retrocession block of life insurance.
In the U.S. segment, the Company continues to focus on
the defined contribution retirement and asset management
markets. Empower Retirement participants grew 7% to 9.4
million at December 31, 2019 compared to December 31, 2018.
The assets under administration grew 30% over the year to
US$673 billion on December 31, 2019.
During 2019, Putnam undertook actions to realign its resources
to better position itself for current and future opportunities.
These actions included technology modernization, product
consolidation, a reduction in staff and facilities reorganization
and resulted in restructuring charges which reduced net
earnings by $36 million (US$28 million). The Company expects
to realize US$33 million in pre-tax annual operating expense
savings as a result of the restructuring activities by the end of the
fourth quarter of 2020. As of December 31, 2019, approximately
US$24 million in pre-tax annual operating expense savings have
been achieved.
• In Europe, the Company continued to expand its business with
several tuck-in acquisitions. Subsequent to December 31, 2019,
on February 3, 2020, Irish Life Group Limited, a subsidiary of the
Company, through its subsidiary Invesco Limited, completed
the acquisition of Acumen & Trust DAC, an Irish financial
services consultancy firm expanding into the areas of employee
benefits consulting and individual financial advice. On October
21, 2019, the Company’s German business completed its
acquisition of an interest in Jung DMS & Cie AG (JDC), one of
the leading broker pools in Germany expanding the Company’s
footprint in the German market.
Management’s Discussion and Analysis
Effective November 1, 2019, the Company completed the previously
announced sale of a heritage block of policies to Scottish Friendly.
The Company advanced restructuring initiatives in its U.K.
operations, that were announced in the prior year, relating to the
integration of Retirement Advantage as well as the sale to Scottish
Friendly. On December 18, 2019, the Company received regulatory
approval to transfer legal ownership of all insurance policies from
Retirement Advantage to Canada Life Limited, a subsidiary of the
Company, which will facilitate the achievement of a portion of these
expected savings. Subsequent to December 31, 2019, on February
10, 2020, Irish Life announced the sale of Irish Progressive Services
International Limited, a wholly owned subsidiary whose principal
activity is the provision of outsourced administration services for life
assurance companies, to a member of the FNZ group of companies.
The proposed transaction will be subject to customary closing
conditions including receipt of required regulatory approvals and is
expected to be completed in the second half of 2020. The Company
expects to recognize a gain related to this transaction. This business
did not have a material impact on the Company’s net earnings for
the twelve months ended December 31, 2019.
The Reinsurance business unit continued to build its presence
in the longevity market, signing several new European long-term
longevity contracts including a transaction in the fourth quarter
of 2019 covering approximately €12 billion of pension liabilities,
while simultaneously expanding its structured solutions portfolio
and product offering.
Outlook for 2020
Refer to Cautionary Note regarding Forward-looking Information
and Cautionary Note regarding non-IFRS Financial Measures at
the beginning of this document.
• Lifeco is continuing to focus on its core strategies: delivering
financial security and wellness through the workplace, providing
advice-centered wealth management, delivering strong investment
and asset management and leveraging risk and capital management
expertise. The Company will invest strategically – both organically
and through acquisitions – to drive growth and productivity,
while maintaining strong risk and expense discipline, to deliver
sustainable long-term value to its customers and shareholders.
In 2020, the Company will remain focused on future regulatory
changes, including preparing for the implementation of accounting
changes related to IFRS 17, Insurance Contracts, which is currently
proposed to be effective on January 1, 2022. The Company will
be investing in updating processes and systems throughout the
implementation period.
• In Canada, with the move to one brand, Canada Life, the Company
will continue to invest in innovative technologies, focus on strategies
to enhance growth and its competitive position and identify ways to
further streamline its products, marketing, operations and structure
as it delivers its products. Specifically, in its Group business,
Canada Life will continue to invest in innovative member service
tools and coverage solutions, allowing for greater personalization
of experience and to support its customers financial security and
wellness in the workplace. In its Individual business, Canada Life
will continue the roll-out of market-leading solutions and digital
tools that improve the client and advisor experience and provide
personalized wealth solutions.
• In the U.S., focus will continue on the defined contribution
retirement market and building awareness for the Empower
Retirement brand. Empower Retirement is expected to grow, gain
efficiencies and enhance the overall customer experience through
continued focus on investment in innovation. At Putnam, the focus
will continue to be on driving growth and market share through
strong investment performance, service excellence and digital
capabilities while optimizing business economics.
• In Europe, the Company has taken the necessary steps to prepare
for the potential immediate impacts of Brexit. Contingency plans
are in place and ongoing market uncertainty is being closely
monitored. The Company does not currently anticipate a material
impact to its Europe businesses.
The Company intends to invest in additional system functionality
and digital capacities and will expand the range of products
offered in the U.K. in both the group and individual marketplace.
In Ireland, deepening and broadening the market leading retail,
corporate and investment management businesses, including
products to support customers’ financial security and wellness, will
continue to be the focus. In Germany, investments will continue
to implement technology to drive a better customer offering and
processing efficiencies as well as lay the foundation for enhanced
future growth capabilities.
Through its leading market position, the reinsurance business
unit will continue to focus on expanding strategies into other key
markets and deploying capital to build on its diversified multi-
niche base to grow and continue to meet client needs.
net earnings
Consolidated net earnings of Lifeco include the net earnings of Great-
West Life and its operating subsidiaries, London Life, Canada Life
and Irish Life; GWL&A and Putnam; together with Lifeco’s Corporate
operating results. Effective January 1, 2020, Great-West Life, London
Life, Canada Life and their holding companies, Canada Life Financial
Corporation and London Insurance Group Inc., amalgamated into a
single life insurance company, The Canada Life Assurance Company.
Lifeco’s net earnings for the three month period ended December 31,
2019 were $513 million compared to $710 million a year ago and $730
million in the previous quarter. On a per share basis, this represents
$0.552 per common share ($0.552 diluted) for the fourth quarter of
2019 compared to $0.719 per common share ($0.719 diluted) a year
ago and $0.786 per common share ($0.785 diluted) in the previous
quarter. Excluding the impact of the revaluation of a deferred tax
asset, restructuring costs and the net gain on the Scottish Friendly
transaction, which totalled $227 million, adjusted net earnings for the
fourth quarter of 2019 were $740 million or $0.797 per common share.
For the twelve months ended December 31, 2019, Lifeco’s net earnings
were $2,359 million compared to $2,961 million a year ago. On a per
share basis, this represents $2.494 per common share ($2.493 diluted)
for 2019 compared to $2.996 per common share ($2.994 diluted) a
year ago.
Included in Lifeco’s net earnings for the twelve months ended
December 31, 2019 were adjustments of $426 million related to items
discussed for the in-quarter results as well as a net charge relating
to the sale, via indemnity reinsurance, of the U.S. individual life
insurance and annuity business to Protective Life. Net earnings in 2018
included restructuring costs of $56 million related to the Company’s
U.K. operations. Excluding the impact of these items, adjusted net
earnings for the twelve months ended December 31, 2019 were $2,785
million or $2.944 per common share, compared to $3,017 million or
$3.052 per common share a year ago.
Great-West Lifeco Inc. 2019 Annual Report
19
Management’s Discussion and Analysis
Net earnings – common shareholders
Canada
Individual Customer
Group Customer
Canada Corporate
United States
Financial Services (1)
Asset Management
U.S. Corporate (2) (3)
Reinsured Insurance & Annuity Business (1) (3)
Europe
Insurance & Annuities
Reinsurance
Europe Corporate (3)
Lifeco Corporate
Net earnings – common shareholders
Adjustments (3) (4)
Revaluation of a deferred tax asset
Restructuring costs
Net gain on Scottish Friendly transaction
Net charge on sale, via reinsurance, of a U.S. business
Adjusted net earnings – common shareholders (4)
For the three months ended
For the twelve months ended
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
Dec. 31
2019
Dec. 31
2018
$
$
$
87
114
(13)
188
100
18
(239)
–
(121)
334
124
(6)
452
(6)
513
199
36
(8)
–
740
$
$
$
$
85
206
9
300
63
13
1
–
77
306
55
(4)
357
(4)
730
–
–
–
–
171
144
(5)
310
48
(29)
–
36
55
271
89
(11)
349
(4)
710
–
–
–
–
$
$
431
632
(12)
685
630
(40)
1,051
1,275
278
33
(236)
(136)
(61)
1,050
353
(13)
1,390
(21)
240
(61)
52
157
388
1,036
377
(102)
1,311
(13)
$
2,359
$
2,961
199
36
(8)
199
–
56
–
–
$
730
$
710
$
2,785
$
3,017
(1) Reinsured Insurance & Annuity Business reflects business transferred to Protective Life under an indemnity reinsurance agreement effective June 1, 2019. Comparative figures have been adjusted to reflect
current presentation.
(2) U.S. Corporate net earnings for the second quarter of 2018 included a net positive impact of $60 million arising from refinancing in the U.S. segment completed in the second quarter of 2018.
(3) Adjustments to net earnings are included in Corporate business units of the U.S. and Europe segments as well as the Reinsured Insurance & Annuity Business unit.
(4) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
The information in the table above is a summary of results for net earnings of the Company. Additional commentary regarding net
earnings is included in the “Segmented Operating Results” section.
market imPacts
Interest Rate Environment
Interest rates in countries where the Company operates decreased
during 2019. The net change in interest rates did not impact the
range of interest rate scenarios tested through the valuation process
and had no material impact on net earnings. The net change
in interest rates for the quarter and year-to-date did not have a
material impact on Great-West Life’s consolidated LICAT ratio.
In order to mitigate the Company’s exposure to interest rate
fluctuations, the Company follows disciplined processes for
matching asset and liability cash flows. As a result, the impact
of changes in fair values of bonds backing insurance contract
liabilities recorded through profit or loss is mostly offset by a
corresponding change in the insurance contract liabilities. The
Company also regularly updates pricing for new products to
reflect the interest environment.
The Company’s sensitivity to interest rate fluctuations is detailed
in the “Accounting Policies – Summary of Critical Accounting
Estimates” section.
Equity Markets
In the regions where the Company operates, average equity market
levels in the fourth quarter of 2019 were higher compared to the
same period in 2018 and ended the quarter at higher market levels
compared to September 30, 2019. Comparing the fourth quarter
of 2019 to the fourth quarter of 2018, average equity market levels
were up by 12% in Canada (as measured by S&P TSX), 15% in the
U.S. (as measured by S&P 500), 5% in the U.K. (as measured by
FTSE 100) and 15% in broader Europe (as measured by Eurostoxx
50). The major equity indices finished the fourth quarter up 2% in
Canada, 9% in the U.S., 2% in the U.K. and 5% in broader Europe,
compared to September 30, 2019.
Relative to the Company’s expectation, the change in average
market levels and market volatility had a negligible impact on
net earnings during the fourth quarter of 2019 and a $11 million
positive impact year-to-date in 2019 (negative impact of $50
million in the fourth quarter of 2018 and $47 million year-to-date
in 2018), related to asset-based fee income and the costs related
to guarantees of death, maturity or income benefits within certain
wealth management products offered by the Company.
20
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
In addition, the impact on net earnings was positive $5 million in
the fourth quarter of 2019 and $46 million year-to-date in 2019
(negative impact of $14 million in the fourth quarter of 2018 and
$4 million year-to-date in 2018), primarily related to seed money
investments held in the U.S. Asset Management and Canada
Corporate business units.
The change in equity markets negatively impacted the fourth
quarter 2019 net earnings by $9 million and $36 million year-to-
date (negative impact of $8 million in the fourth quarter of 2018
and $2 million year-to-date in 2018), primarily as a result of an
unfavourable tax related item in the Europe segment in 2019.
Included in 2018 was the impact of actuarial assumption changes
and annuity reserve strengthening, partly offset by a favourable
tax related item in the Europe segment.
Foreign Currency
Throughout this document a number of terms are used to highlight
the impact of foreign exchange on results, such as: “constant
currency basis”, “impact of currency movement”, and “effect of
currency translation fluctuations”. These measures have been
calculated using the average or period end rates, as appropriate,
Credit Markets
Credit markets impact on common shareholders’ net earnings (after-tax)
in effect at the date of the comparative period. This measure
provides useful information as it facilitates the comparability of
results between periods.
The average currency translation rate for the fourth quarter of
2019 was comparable for the U.S. dollar and British pound and
decreased for the euro compared to the fourth quarter of 2018.
The overall impact of currency movement on the Company’s net
earnings for the three month period ended December 31, 2019 was
a decrease of $6 million ($26 million year-to-date) compared to
translation rates a year ago.
From September 30, 2019 to December 31, 2019, the market rate at
the end of the reporting period used to translate U.S. dollar assets
and liabilities to the Canadian dollar decreased, while the euro
and British pound increased. The movements in end-of-period
market rates resulted in unrealized foreign exchange gains from
the translation of foreign operations, including related hedging
activities, of $284 million in-quarter ($475 million net unrealized
loss year-to-date) recorded in other comprehensive income.
Translation rates for the reporting period and comparative periods
are detailed in the “Translation of Foreign Currency” section.
Changes in
provisions
for future
credit losses
in insurance
contract
liabilities
Impairment
(charges) /
recoveries
Changes in
provisions
for future
credit losses
in insurance
contract
liabilities
Total
Impairment
(charges) /
recoveries
Total
For the three months ended December 31, 2019
For the twelve months ended December 31, 2019
$
$
$
–
5
–
5
$
$
1
(3)
(11)
$
1
2
(11)
$
–
6
(20)
$
(13)
$
(8)
$
(14)
$
(7)
(3)
9
(1)
$
$
(7)
3
(11)
(15)
For the three months ended December 31, 2018
For the twelve months ended December 31, 2018
(2)
$
(15)
$
(17)
$
3
$
(40)
$
(37)
Canada
United States
Europe
Total
Total
In the fourth quarter of 2019, the Company experienced net
recoveries on impaired investments, including dispositions,
which positively impacted common shareholders’ net earnings by
$5 million ($2 million net charge in the fourth quarter of 2018).
Changes in credit ratings in the Company’s fixed income portfolio
resulted in a net increase in provisions for future credit losses in
insurance contract liabilities, which negatively impacted common
shareholders’ net earnings by $13 million ($15 million negative
impact in the fourth quarter of 2018), primarily due to downgrades
of various corporate bond holdings.
For the twelve months ended December 31, 2019, the Company
experienced net charges on impaired investments, including
dispositions, which negatively impacted common shareholders’
net earnings by $14 million ($3 million net recovery in 2018).
Net charges on impaired investments reflect net allowances
for credit losses included in net investment income and the
associated release of actuarial provisions for future credit losses,
as applicable. Charges for the twelve months ended December 31,
2019 were primarily driven by impairment charges on mortgage
loans as a result of a U.K. retail tenant entering a prepackaged
administration, which was followed by a Company Voluntary
Arrangement (CVA). Changes in credit ratings in the Company’s
fixed income portfolio resulted in a net increase in provisions
for future credit losses in insurance contract liabilities, which
negatively impacted common shareholders’ net earnings by $1
million year-to-date ($40 million net negative impact in 2018).
The $40 million net negative impact for the twelve months ended
December 31, 2018 included $16 million related to downgrades to
mortgages on certain U.K. retail properties.
These credit impacts do not reflect the impact to insurance
contract liabilities related to the decline in the expected cash
flows relating to the mortgage loans and investment properties
where certain U.K. retailers occupying the properties continued
to experience financial difficulties as recorded in the results of the
second quarter of 2019. The related negative impact to common
shareholders’ net earnings was $68 million and is discussed as part
of the United Kingdom property related exposures in the “Invested
Assets” section.
Great-West Lifeco Inc. 2019 Annual Report
21
Management’s Discussion and Analysis
actuariaL assumPtion cHanges and management actions
During the fourth quarter of 2019, the negative impact of actuarial
assumption updates and management actions on adjusted net
earnings was $78 million, compared to positive impacts of $83
million for the same quarter last year and positive impacts of $81
million for the previous quarter.
In Canada, net earnings were negatively impacted by $82 million,
primarily due to updated policyholder behaviour, annuitant
mortality and morbidity assumptions. In Europe, adjusted net
earnings were negatively impacted by $21 million, primarily due
to updated expense and morbidity assumptions, partially offset
by updated annuitant mortality assumptions. In the U.S., adjusted
net earnings were positively impacted by $25 million, primarily
due to the impact of a partial settlement of an employee pension
plan and an update to economic assumptions, partially offset by
updated life mortality assumptions.
For the twelve months ended December 31, 2019, actuarial
assumption changes and management actions resulted in a
positive adjusted net earnings impact of $170 million, compared
to $616 million for the same period in 2018. Including the impact of
management actions and actuarial assumption changes relating to
the Scottish Friendly transaction and the reinsurance transaction
with Protective Life discussed for Q2 2019, management actions
and actuarial assumption changes resulted in a positive adjusted
net earnings impact of $142 million for 2019. Year-to-date 2019
actuarial assumption changes include the impact of the Canadian
Actuarial Standards Board’s revised standards for the valuation
of insurance contract liabilities, which were effective October
15, 2019. The revised standards include decreases to ultimate
reinvestment rates and revised calibration criteria for stochastic
risk-free interest rates and resulted in a negative adjusted net
earnings impact of $48 million in the Canada and U.S. segments in
the third quarter of 2019.
Premiums and dePosits and saLes
Premiums and deposits (1)
Canada
Individual Customer
Group Customer
United States
Financial Services (2)
Asset Management
Reinsured Insurance & Annuity Business (2)
Europe
Insurance & Annuities
Reinsurance
For the three months ended
For the twelve months ended
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
Dec. 31
2019
Dec. 31
2018
$
3,110
4,119
7,229
3,150
15,983
347
19,480
7,931
4,456
12,387
$
2,490
4,563
7,053
3,071
14,360
239
17,670
7,596
4,098
11,694
$
2,862
3,776
6,638
2,595
17,483
510
20,588
6,485
3,872
10,357
$
$ 10,619
16,727
27,346
11,783
57,299
1,393
70,475
35,374
17,443
52,817
10,461
15,837
26,298
10,375
59,848
2,252
72,475
26,985
13,504
40,489
Total premiums and deposits
$ 39,096
$
36,417
$
37,583
$ 150,638
$ 139,262
Sales (1)
Canada
United States
Europe – Insurance & Annuities
Total sales
For the three months ended
For the twelve months ended
Dec. 31
2019
$
3,609
31,781
6,566
Sept. 30
2019
$
3,520
31,245
7,098
Dec. 31
2018
$
3,447
32,080
5,972
Dec. 31
2019
$ 13,249
163,087
31,976
Dec. 31
2018
$
13,186
105,948
24,481
$ 41,956
$
41,863
$
41,499
$ 208,312
$ 143,615
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
(2) Reinsured Insurance & Annuity Business reflects business transferred to Protective Life under an indemnity reinsurance agreement effective June 1, 2019. For the twelve months ended December 31, 2019,
premiums and deposits exclude the initial ceded premium of $13,889 million related to the transfer. Comparative figures have been adjusted to reflect current presentation.
The information in the table above is a summary of results for the Company’s total premiums and deposits and sales. Additional
commentary regarding premiums and deposits and sales is included in the “Segmented Operating Results” section.
22
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
net investment income
Net investment income
Investment income earned (net of investment properties expenses)
Allowances for credit losses on loans and receivables
Net realized gains
Regular investment income
Investment expenses
Regular net investment income
Changes in fair value through profit or loss
Net investment income
Net investment income in the fourth quarter of 2019, which
includes changes in fair value through profit or loss, decreased
by $1,538 million compared to the same quarter last year. The
changes in fair value in the fourth quarter of 2019 were a decrease
of $1,766 million compared to $398 million for the fourth quarter
of 2018. In the fourth quarter of 2019, the net decrease to fair
values was primarily due to an increase in bond yields across all
geographies. In the fourth quarter of 2018, the net decrease to fair
values was primarily due to a decline in Canadian equity markets,
partially offset by a decline in bond yields across all geographies.
Regular net investment income in the fourth quarter of 2019 of
$1,462 million, which excludes changes in fair value through
profit or loss, decreased by $170 million compared to the same
quarter last year. The decrease was primarily due to lower interest
on bond and mortgage investments relating to U.S. segment
assets transferred under the indemnity reinsurance agreement
with Protective Life in the second quarter of 2019, partially offset
by higher net realized gains primarily driven by early mortgage
redemptions. Net realized gains include gains on available-for-sale
securities of $24 million for the fourth quarter of 2019 compared to
$1 million for the same quarter last year.
For the twelve months ended December 31, 2019, net investment
income increased by $10,355 million compared to the same period
last year. The changes in fair value for the twelve month period in
2019 were an increase of $6,946 million compared to a decrease of
$3,606 million during the same period in 2018. The changes in fair
value were primarily due to a decrease in bond yields across all
geographies and an increase in Canadian equity markets in 2019.
In 2018, there was an increase in bond yields across all geographies
and a decrease in Canadian equity markets.
For the three months ended
For the twelve months ended
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
Dec. 31
2019
Dec. 31
2018
$
1,388
(2)
119
1,505
(43)
1,462
(1,766)
$
1,470
–
28
1,498
(46)
1,452
2,102
$
1,653
–
13
1,666
(34)
1,632
(398)
$
5,965
(50)
412
6,327
(166)
6,161
6,946
$
6,377
(4)
113
6,486
(128)
6,358
(3,606)
$
(304)
$
3,554
$
1,234
$ 13,107
$
2,752
Regular net investment income for the twelve months ended
December 31, 2019 of $6,161 million decreased by $197 million
compared to the same period last year. The decrease was primarily
due to lower interest on bond and mortgage investments relating
to the transaction with Protective Life discussed for the in-quarter
results and higher net allowances for credit losses, partially
offset by higher net realized gains. For the twelve months ended
December 31, 2019, net allowances for credit losses on loans
and receivables of $50 million primarily reflect the impact of an
increase to net allowances for mortgage loans, primarily related to
a U.K. retail tenant entering a prepackaged administration in the
second quarter of 2019. Higher net realized gains for the twelve
months ended December 31, 2019 were primarily driven by U.S.
segment assets transferred under the transaction with Protective
Life in the second quarter of 2019, which were offset by changes in
insurance contract liabilities and subsequently ceded to Protective
Life as part of the transaction. Net realized gains include gains on
available-for-sale securities of $76 million for the twelve months
ended December 31, 2019 compared to net realized losses of $4
million for the same period last year.
Net investment income in the fourth quarter of 2019 decreased by
$3,858 million compared to the previous quarter, primarily due to
net decreases in fair values of $1,766 million in the fourth quarter
of 2019 compared to net increases in fair values of $2,102 million
in the previous quarter. The net change in fair value was primarily
due to an increase in bond yields across all geographies during
the fourth quarter of 2019 compared to a decrease in bond yields
across all geographies in the third quarter of 2019.
Great-West Lifeco Inc. 2019 Annual Report
23
net PoLicyHoLder Benefits, dividends and exPerience refunds
Net policyholder benefits, dividends and experience refunds
For the three
months ended
For the twelve
months ended
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
Dec. 31
2019
Dec. 31
2018
Canada
United States
Europe
Total
$ 2,514 $ 2,328 $ 2,272 $ 9,684 $ 9,324
4,592
1,172
1,187
17,650
5,052
6,302
4,412
22,319
933
5,207
$ 10,003 $ 8,468 $ 8,496 $ 36,415 $ 31,566
Net policyholder benefits, dividends and experience refunds
include life and health claims, policy surrenders, maturities,
annuity payments, segregated
fund guarantee payments,
policyholder dividends and experience refund payments. The
amounts do not include benefit payments for ASO contracts,
segregated funds or mutual funds.
For the three months ended December 31, 2019, net policyholder
benefits, dividends and experience refunds were $10.0 billion, an
increase of $1.5 billion from the same period in 2018 driven by
higher net policyholder benefits. The increase in benefit payments
was primarily due to new reinsurance agreements and higher
volumes relating to existing business in Europe.
For the twelve months ended December 31, 2019, net policyholder
benefits, dividends and experience refunds were $36.4 billion, an
increase of $4.8 billion from the same period in 2018 driven by
higher net policyholder benefits. The increase in benefit payments
was primarily due to new reinsurance agreements and higher
volumes relating to existing business in Europe, partially offset by
higher ceded policyholder benefits in the U.S. as a result of the
sale, via indemnity reinsurance, on June 1, 2019 to Protective Life.
Compared to the previous quarter, net policyholder benefits,
dividends and experience refunds increased by $1.5 billion, primarily
due to the same reasons discussed for the in-quarter results.
Management’s Discussion and Analysis
fee and otHer income
In addition to providing traditional risk-based insurance products,
the Company also provides certain products on a fee-for-service
basis. The most significant of these products are segregated funds
and mutual funds, for which the Company earns investment
management fees on assets managed and other fees, as well as
administrative services only (ASO) contracts, under which the
Company provides group benefit plan administration on a cost-
plus basis.
Fee and other income
For the three
months ended
For the twelve
months ended
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
Dec. 31
2019
Dec. 31
2018
Canada
Segregated funds,
mutual funds
and other
ASO contracts
United States
Segregated funds,
mutual funds
and other
Life insurance and
$ 404 $
53
396 $
51
378 $ 1,561 $ 1,540
196
205
50
457
447
428
1,766
1,736
679
665
644
2,687
2,603
annuity reinsurance
ceding commission (1)
–
679
–
665
–
1,080
–
644
3,767
2,603
Europe
Segregated funds,
mutual funds
and other
Total fee and
other income
379
384
348
1,548
1,480
$ 1,515 $ 1,496 $ 1,420 $ 7,081 $ 5,819
(1) For the twelve months ended December 31, 2019, fee and other income includes a ceding commission
of $1,080 million related to the Protective Life transaction.
The information in the table above is a summary of gross fee and
other income for the Company. Excluding the ceding commission
related to the Protective Life transaction, fee and other income
for the twelve months ended December 31, 2019 was $6,001
million. Additional commentary regarding fee and other income is
included in the “Segmented Operating Results” section.
24
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
otHer Benefits and exPenses
Other benefits and expenses (1)
For the three
months ended
For the twelve
months ended
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
Dec. 31
2019
Dec. 31
2018
Operating and
administrative
expenses
Commissions
Premium taxes
Financing charges
Amortization of finite
$ 1,298 $ 1,258 $ 1,311 $ 5,231 $ 5,033
2,474
495
221
2,429
506
285
650
128
71
673
128
70
571
123
70
life intangible assets
and impairment reversal
Restructuring expenses
60
52
57
–
59
–
224
52
212
67
Total
$ 2,259 $ 2,079 $ 2,241 $ 8,727 $ 8,502
(1) For the twelve months ended December 31, 2019, operating and administrative expenses include
$120 million related to the Protective Life transaction. Refer to the “Segmented Operating Results –
United States” section of this document for additional details.
Other benefits and expenses for the fourth quarter of 2019 of
$2,259 million increased by $18 million compared to the fourth
quarter of 2018, primarily due to restructuring expenses in the
U.S. segment.
For the twelve months ended December 31, 2019, other benefits
and expenses increased by $225 million to $8,727 million
compared to the same period last year, primarily due to higher
operating and administrative expenses, driven by a net charge
on the sale, via indemnity reinsurance, of a U.S. business and
higher financing charges. In the second quarter of 2018, financing
charges were reduced by a gain of $65 million pre-tax ($51 million
post-tax) recognized on the termination of an interest rate hedge
as part of a debt refinancing transaction.
Other benefits and expenses for the fourth quarter of 2019
increased by $180 million compared to the previous quarter,
primarily due to an increase in restructuring expenses discussed
for the in-quarter results and higher commissions driven by higher
sales in the U.S. segment.
income taxes
The Company’s effective income tax rate is generally lower than
the statutory income tax rate of 27% due to benefits related to
non-taxable investment income and lower income tax in foreign
jurisdictions.
In the fourth quarter of 2019, the Company had an effective income
tax rate of 22%, up from 6% in the fourth quarter of 2018. During
the fourth quarter of 2019, management determined that a $199
million revaluation of a deferred income tax asset pertaining to
one of its subsidiaries was appropriate due to timing uncertainty
in projected taxable income available to utilize certain restricted
net operating losses generated in the earliest loss years. Also, in
the fourth quarter of 2019, the Company resolved an outstanding
issue with a foreign tax authority. The net impact of these items
was an increase in the effective tax rate for the fourth quarter of
2019 by 15 points. Excluding the impact of these two items, the
effective income tax rate for the fourth quarter of 2019 was 7%,
comparable to the prior year.
The Company had an effective income tax rate of 13% for the
twelve months ended December 31, 2019 compared to 11% for the
same period last year. Excluding the impact of the revaluation of
a deferred tax asset and the tax issue resolution discussed for the
in-quarter results, the Company’s effective tax rate was 10% for the
twelve months ended December 31, 2019, comparable to the same
period last year.
In the fourth quarter of 2019, the Company had an effective
income tax rate of 22%, up from 6% in the third quarter of 2019.
Excluding the impact of the revaluation of a deferred tax asset and
the tax issue resolution discussed for the in-quarter results, the
Company’s effective income tax rate for the fourth quarter of 2019
was 7%, comparable to the third quarter of 2019.
Effective January 1, 2019, the Company applied International
Financial Reporting Interpretations Committee (IFRIC) 23,
Uncertainty over Income Tax Treatments (IFRIC 23). Refer to
the “Accounting Policies – International Financial Reporting
Standards” section for further details.
Refer to note 27 in the Company’s December 31, 2019 consolidated
financial statements for further details.
Great-West Lifeco Inc. 2019 Annual Report
25
Management’s Discussion and Analysis
C o n s o l i d at e d F i n a n C i a l p o s i t i o n
assets
Assets under administration
Assets
Invested assets
Goodwill and intangible assets
Other assets
Investments on account of segregated fund policyholders
Total assets
Proprietary mutual funds and institutional net assets (1)
Total assets under management (1)
Other assets under administration (1)
Total assets under administration (1)
Assets
Invested assets
Assets held for sale
Goodwill and intangible assets
Other assets
Investments on account of segregated fund policyholders
Investments on account of segregated fund policyholders held for sale
Total assets
Proprietary mutual funds and institutional net assets (1)
Total assets under management (1)
Other assets under administration (1)
Total assets under administration (1)
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
Canada
United States
Europe
Total
December 31, 2019
$ 81,179
5,560
3,953
85,612
176,304
6,986
183,290
17,118
$
32,768
1,990
19,421
31,433
85,612
257,301
342,913
792,110
$ 54,840
2,834
17,600
113,977
189,251
56,261
245,512
48,738
$ 168,787
10,384
40,974
231,022
451,167
320,548
771,715
857,966
$ 200,408
$ 1,135,023
$ 294,250
$ 1,629,681
Canada
United States
Europe
Total
December 31, 2018
$
75,647
–
5,516
3,110
76,633
–
160,906
6,214
167,120
13,615
$
47,500
–
2,130
4,495
31,816
–
85,941
235,075
321,016
630,881
$
54,334
897
2,878
18,336
101,078
3,319
180,842
40,375
221,217
45,024
$
177,481
897
10,524
25,941
209,527
3,319
427,689
281,664
709,353
689,520
$ 180,735
$ 951,897
$ 266,241
$ 1,398,873
Assets held for sale of $0.9 billion and investments on account
of segregated fund policyholders held for sale of $3.3 billion at
December 31, 2018 relate to the sale of a heritage block of policies
to Scottish Friendly, which was completed in the fourth quarter
of 2019. Refer to note 4 of the Company’s December 31, 2019
consolidated financial statements for further information on
assets classified as held for sale.
Total assets under administration at December 31, 2019 increased
by $230.8 billion to $1.6 trillion compared to December 31, 2018,
primarily due to the impact of market movement and new business
growth, partially offset by the impact of currency movement. As
a result of the indemnity reinsurance agreement with Protective
Life, effective June 1, 2019, the U.S. segment’s invested assets
decreased, as $15.5 billion of invested assets were transferred to
Protective Life, offset by $1.0 billion of cash received, while other
assets increased as a result of the recognition of $15.2 billion of
reinsurance assets. The increase of $161.2 billion in the U.S.
segment’s other assets under administration includes the impact
of large plan sales in the first quarter of 2019. The increase of $3.5
billion in the Canada segment’s other assets under administration
includes the acquisition of Guggenheim Real Estate LLC during
the first quarter of 2019.
26
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
invested assets
The Company manages its general fund assets to support the cash
flow, liquidity and profitability requirements of the Company’s
insurance and investment products. The Company follows prudent
and conservative investment policies, so that assets are not unduly
exposed to concentration, credit or market risks. Within the
framework of the Company’s policies, the Company implements
strategies and reviews and adjusts them on an ongoing basis
considering liability cash flows and capital market conditions. The
majority of investments of the general fund are in medium-term
and long-term fixed-income investments, primarily bonds and
mortgages, reflecting the characteristics of the Company’s liabilities.
Invested asset distribution
Bonds
Government & related
Corporate & other
Sub-total bonds
Mortgages
Stocks
Investment properties
Sub-total portfolio investments
Cash and cash equivalents
Loans to policyholders
Total invested assets
Bonds
Government & related
Corporate & other
Sub-total bonds
Mortgages
Stocks
Investment properties
Sub-total portfolio investments
Cash and cash equivalents
Loans to policyholders
Total invested assets
At December 31, 2019, total invested assets were $168.8 billion, a
decrease of $8.7 billion from December 31, 2018. The decrease in
invested assets was primarily related to $15.5 billion of invested
assets transferred, offset by $1.0 billion of cash received, to support
the indemnity reinsurance agreement with Protective Life. The
decrease was partially offset by the impact of market movement.
The distribution of assets has not changed significantly and
remains heavily weighted to bonds and mortgages.
Bond portfolio quality
AAA
AA
A
BBB
BB or lower
Total
Canada
United States
Europe
Total
December 31, 2019
$ 22,237
27,797
$
50,034
14,810
9,675
3,130
77,649
558
2,972
3,698
17,808
21,506
3,996
301
6
25,809
1,445
5,514
$ 21,214
22,274
43,488
5,462
399
2,751
52,100
2,625
115
$ 47,149
67,879
115,028
24,268
10,375
5,887
155,558
4,628
8,601
28%
40
68
14
6
4
92
3
5
$ 81,179
$ 32,768
$ 54,840
$ 168,787
100%
Canada
United States
Europe
Total
December 31, 2018
$
21,091
26,174
47,265
14,039
8,724
2,330
72,358
455
2,834
$
5,291
28,266
33,557
6,440
187
7
40,191
1,330
5,979
$
22,405
21,635
44,040
4,535
379
2,881
51,835
2,383
116
$
48,787
76,075
124,862
25,014
9,290
5,218
164,384
4,168
8,929
28%
43
71
14
5
3
93
2
5
$
75,647
$
47,500
$
54,334
$ 177,481
100%
Bond portfolio – It is the Company’s policy to acquire primarily
investment grade bonds subject to prudent and well-defined
investment policies. Modest investments in below investment grade
rated securities may occur while not changing the overall discipline
and conservative approach to the investment strategy. The total
bond portfolio, including short-term investments, was $115.0 billion
or 68% of invested assets at December 31, 2019 compared to $124.9
billion or 71% at December 31, 2018. The decrease in the bond
portfolio was primarily related to $13.6 billion of assets transferred to
support the indemnity reinsurance agreement with Protective Life.
The overall quality of the bond portfolio remained high, with 99%
of the portfolio rated investment grade and 80% rated A or higher.
December 31, 2019
December 31, 2018
$ 22,083
33,272
37,233
21,922
518
$ 115,028
19%
29
32
19
1
$
23,558
33,793
41,008
25,553
950
19%
27
33
20
1
100%
$ 124,862
100%
At December 31, 2019, non-investment grade bonds were $0.5 billion or 0.5% of the bond portfolio compared to $1.0 billion or 0.8% of
the bond portfolio at December 31, 2018. The decrease in non-investment grade bonds was primarily due to upgrades to investment
grade and disposals in the year.
Great-West Lifeco Inc. 2019 Annual Report
27
Management’s Discussion and Analysis
Mortgage portfolio – It is the Company’s practice to acquire
high quality commercial mortgages meeting strict underwriting
standards and diversification criteria. The Company has a well-
defined risk-rating system, which it uses in its underwriting and
credit monitoring processes for commercial loans. Residential
loans are originated by the Company’s mortgage specialists in
accordance with well-established underwriting standards and are
well diversified across each geographic region, including specific
diversification requirements for non-insured mortgages. Equity
release mortgages are originated in the Europe segment following
well-defined lending criteria and held in both the Canada and
Europe segments. Equity release mortgages are loans provided
to seniors who want to continue living in their homes while
accessing some of the underlying equity value in their homes.
Loans are typically repaid when the borrower dies or moves into
long-term care.
Mortgage portfolio
December 31, 2019
December 31, 2018
Mortgage loans by type
Insured
Non-insured
Total
Single family residential
Multi-family residential
Equity release
Commercial
Total
$
572
3,569
–
267
$
1,497
3,435
1,314
13,614
$
2,069
7,004
1,314
13,881
9%
$
29
5
57
Total
2,104
7,617
813
14,480
8%
31
3
58
$
4,408
$ 19,860
$ 24,268
100%
$
25,014
100%
The total mortgage portfolio was $24.3 billion or 14% of invested
assets at December 31, 2019, compared to $25.0 billion or
14% of invested assets at December 31, 2018. The decrease in
the mortgage portfolio was primarily related to $1.8 billion of
commercial mortgage assets transferred to support the indemnity
reinsurance agreement with Protective Life. Total insured loans
were $4.4 billion or 18% of the mortgage portfolio. The equity
release mortgages had a weighted average loan-to-value of 26%
(23% at December 31, 2018).
Commercial mortgages
December 31, 2019
December 31, 2018
Canada
U.S.
Europe
Total
Canada
U.S.
Europe
Total
Retail & shopping centres
Office buildings
Industrial
Other
$
3,668
2,011
1,816
376
$
480
656
787
275
$
1,245
1,273
779
515
$
5,393
3,940
3,382
1,166
$
3,616
1,795
1,418
394
$
656
1,043
1,859
448
$
1,341
614
800
496
$
5,613
3,452
4,077
1,338
Total
$
7,871
$
2,198
$
3,812
$ 13,881
$
7,223
$
4,006
$
3,251
$
14,480
Single family residential mortgages
Region
Ontario
Quebec
Alberta
Newfoundland
British Columbia
Saskatchewan
Nova Scotia
New Brunswick
Manitoba
Other
Total
December 31, 2019
December 31, 2018
$
1,073
432
118
98
94
90
58
53
48
5
52%
21
6
5
4
4
3
3
2
–
$
1,055
445
126
108
112
90
62
54
47
5
51%
21
6
5
5
4
3
3
2
–
$
2,069
100%
$
2,104
100%
During the twelve months ended December 31, 2019, single family
mortgage originations, including renewals, were $482 million, of
which 28% were insured ($577 million and 25% at December 31, 2018).
Insured mortgages include mortgages where insurance is provided by
a third party and protects the Company in the event that the borrower
is unable to fulfill their mortgage obligations. Loans that are insured
are subject to the requirements of the mortgage default insurance
provider. For new originations of non-insured residential mortgages,
the Company’s investment policies limit the amortization period to
a maximum of 25 years and the loan-to-value to a maximum of 80%
of the purchase price or current appraised value of the property. The
weighted average remaining amortization period for the single family
residential mortgage portfolio was 21 years as at December 31, 2019
(21 years at December 31, 2018).
Equity portfolio – The total equity portfolio was $16.3 billion or 10% of
invested assets at December 31, 2019 compared to $14.5 billion or 8%
of invested assets at December 31, 2018. The equity portfolio consists
of publicly traded stocks, privately held stocks and investment
properties. The increase in publicly traded stocks of $0.9 billion was
primarily due to an increase in Canadian equity markets and the
increase in privately held stocks of $0.2 billion was primarily due
to acquisitions in the Canada segment. The increase in investment
properties of $0.7 billion was mainly the result of purchases in the
Canada segment.
28
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
Equity portfolio
Equity portfolio by type
Publicly traded stocks
Privately held stocks
Sub-total
Investment properties
Total
Investment properties
December 31, 2019
December 31, 2018
$
9,766
609
10,375
5,887
60%
4
64
36
$
8,873
417
9,290
5,218
61%
3
64
36
$ 16,262
100%
$
14,508
100%
December 31, 2019
December 31, 2018
Canada
U.S.
Europe
Total
Canada
U.S.
Europe
Total
Office buildings
Industrial
Retail
Other
Total
$
$
1,523
519
215
873
$
3,130
$
–
–
–
6
6
$
664
773
945
369
$
2,187
1,292
1,160
1,248
$
1,015
363
210
742
$
$
2,751
$
5,887
$
2,330
$
–
–
–
7
7
$
673
783
1,045
380
$
1,688
1,146
1,255
1,129
$
2,881
$
5,218
Impaired investments – Impaired investments include bonds
in default, mortgages in default or in the process of foreclosure,
investment properties acquired by foreclosure and other assets
where management no longer has reasonable assurance that all
contractual cash flows will be received.
Impaired investments
December 31, 2019
December 31, 2018
Gross
amount
Impairment
recovery
Impairment
provision
Carrying
amount
Gross
amount
Impairment
recovery
Impairment
provision
Carrying
amount
Fair value through profit or loss $
Available-for-sale
Loans and receivables
$
19
16
80
Total
$
115
$
2
–
–
2
$
$
–
–
(51)
(51)
$
$
21
16
29
66
$
$
164
31
48
243
$
$
15
1
–
16
$
$
(1)
(2)
(20)
(23)
$
$
178
30
28
236
The gross amount of impaired investments totalled $115 million
or 0.1% of invested assets at December 31, 2019 compared to
$243 million or 0.1% at December 31, 2018, a net decrease of $128
million. The decrease in impaired investments was primarily due
to ratings upgrades and dispositions, partially offset by mortgage
loans impaired in 2019 as a result of a U.K. retail tenant entering
a prepackaged administration, which was followed by a Company
Voluntary Arrangement (CVA).
The impairment recovery at December 31, 2019 was $2 million, which
reflects the improvement in market values of certain investments
from the date at which they became impaired. The impairment
provision at December 31, 2019 was $51 million compared to $23
million at December 31, 2018. The increase was primarily due to
mortgage provisions related to the U.K. mortgages impaired in 2019.
While the fair values have improved on certain impaired assets,
these assets remain impaired based on other impairment factors as
described in the “Summary of Critical Accounting Estimates” section
of this document and in note 2 of the Company’s December 31, 2019
annual consolidated financial statements.
Provision for future credit losses
As a component of insurance contract liabilities, the total actuarial
provision for future credit losses is determined consistent with the
Canadian Institute of Actuaries’ Standards of Practice and includes
provisions for adverse deviation.
At December 31, 2019, the total actuarial provision for future
credit losses in insurance contract liabilities was $2,575 million
compared to $2,595 million at December 31, 2018, a decrease
of $20 million. The decrease was primarily due to the sale, via
indemnity reinsurance, of substantially all of GWL&A’s individual
life insurance and annuity business in its U.S. segment, basis
changes and the impact of impairments on U.K. mortgage loans,
partially offset by normal business activity.
The aggregate of impairment provisions of $51 million ($23
million at December 31, 2018) and actuarial provisions for future
credit losses in insurance contract liabilities of $2,575 million
($2,595 million at December 31, 2018) represents 1.8% of bond
and mortgage assets, including funds held by ceding insurers, at
December 31, 2019 (1.7% at December 31, 2018).
Great-West Lifeco Inc. 2019 Annual Report
29
Management’s Discussion and Analysis
United Kingdom Property Related Exposures
Holdings of United Kingdom Mortgages and Investment Properties
Multi-family
residential
Retail &
shopping centres
Office
buildings
Industrial
Equity
release
December 31, 2019
Mortgages
Investment properties
Total
$
$
677
–
677
$
1,563
928
$
1,264
664
$
870
773
$
1,314
–
$
2,491
$
1,928
$
1,643
$
1,314
December 31,
2018
Other
Total
Total
$
$
535
361
896
$
6,223
2,726
$
8,949
$
$
4,925
2,850
7,775
At December 31, 2019, the Company’s holdings of property related
investments in the U.K. were $8.9 billion, or 5.3% of invested assets
compared to $7.8 billion at December 31, 2018. The increase from
December 31, 2018 was primarily due to originations of commercial
and equity release mortgages. Holdings in Central London were $2.8
billion or 1.7% of invested assets compared to $2.3 billion or 1.3%
at December 31, 2018, while holdings in other regions of the U.K.
were $6.1 billion or 3.6% of invested assets compared to $5.5 billion
or 3.1% at December 31, 2018. These holdings were well diversified
across property type – Retail (28%), Industrial/Other (28%), Office
(21%), Equity release (15%) and Multi-family (8%). Of the Retail
sector holdings, 49% relate to warehouse/distribution and other
retail, 29% relate to shopping centres and department stores and
22% relate to grocery retail sub-categories. The weighted average
loan-to-value ratio of the mortgages was 51% (51% at December 31,
2018) and the weighted average debt-service coverage ratio was 2.7
at December 31, 2019 (2.5 at December 31, 2018). At December 31,
2019, the weighted average mortgage and property lease term
exceeded 11 years (11 years at December 31, 2018).
In the second quarter of 2019, a number of the Company’s U.K.
mortgage loans and investment properties were impacted as
certain U.K. retailers occupying the properties continued to
experience financial difficulties. For these mortgage loans and
investment properties, a decline in the expected cash flows from
the properties resulted in an increase in insurance contract
liabilities, which negatively impacted common shareholders’ net
earnings by $68 million and was primarily related to a U.K. retail
tenant that entered a prepackaged administration, which was
followed by a CVA during the second quarter of 2019.
derivative financiaL instruments
There were no major changes to the Company’s policies and
procedures with respect to the use of derivative financial
instruments in 2019. The Company’s derivative transactions
are generally governed by International Swaps and Derivatives
Association, Inc. (ISDA) Master Agreements, which provide for
legally enforceable set-off and close-out netting of exposure to
specific counterparties in the event of an early termination of a
transaction, which includes, but is not limited to, events of default
and bankruptcy. In the event of an early termination, the Company
is permitted to set off receivables from a counterparty against
payables to the same counterparty, in the same legal entity, arising
out of all included transactions. The Company’s ISDA Master
Agreements may include Credit Support Annex provisions, which
require both the pledging and accepting of collateral in connection
with its derivative transactions.
At December 31, 2019, total financial collateral, including initial
margin and overcollateralization, received on derivative assets
was $156 million ($113 million at December 31, 2018) and
pledged on derivative liabilities was $634 million ($691 million
30
Great-West Lifeco Inc. 2019 Annual Report
at December 31, 2018). Collateral received on derivative assets
increased and collateral pledged on derivative liabilities decreased
in 2019, primarily driven by the impact of the Canadian dollar
strengthening against the U.S. dollar on cross-currency swaps that
pay U.S. and receive Canadian dollars.
During the twelve month period ended December 31, 2019, the
outstanding notional amount of derivative contracts increased
by $2.0 billion to $21.6 billion, primarily due to an increase in
forward settling mortgage backed security transactions (“to-be-
announced-securities”) and regular hedging activities.
The Company’s exposure to derivative counterparty credit risk,
which reflects the current fair value of those instruments in a gain
position, increased to $451 million at December 31, 2019 from
$417 million at December 31, 2018. The increase was primarily
driven by the impact of the Canadian dollar strengthening against
the U.S. dollar on cross-currency swaps that pay U.S. and receive
Canadian dollars.
goodwiLL and intangiBLe assets
Goodwill and intangible assets
Goodwill
Indefinite life intangible assets
Finite life intangible assets
Total
December 31
2019
2018
$ 6,505 $ 6,548
2,784
2,704
1,192
1,175
$ 10,384 $ 10,524
The Company’s goodwill and intangible assets relate primarily to
its acquisitions of London Life, Canada Life, Putnam and Irish Life.
Goodwill and intangible assets of $10.4 billion at December 31,
2019 decreased by $140 million compared to December 31, 2018.
Goodwill decreased by $43 million and indefinite life intangible
assets decreased by $80 million primarily due to impairments and
the impact of currency movement. During the second quarter of
2019, goodwill of $19 million was impaired as a result of the sale, via
indemnity reinsurance, of the individual life insurance and annuity
business to Protective Life. Finite life intangible assets decreased
by $17 million primarily due to the impact of currency movement.
IFRS principles require the Company to assess at the end of each
reporting period whether there is any indication that an asset
may be impaired and to perform an impairment test on goodwill
and indefinite life intangible assets at least annually or more
frequently if events indicate that impairment may have occurred.
Intangible assets that were previously impaired are reviewed at
each reporting date for evidence of reversal. Finite life intangible
assets are reviewed annually to determine if there are indications
of impairment and assess whether the amortization periods
and methods are appropriate. In the fourth quarter of 2019, the
Company conducted its annual impairment testing of goodwill
Management’s Discussion and Analysis
and intangible assets based on September 30, 2019 asset balances.
It was determined that the recoverable amounts of cash generating
unit groupings were in excess of their carrying values and there
was no evidence of impairment. Recoverable amount is based on
fair value less cost of disposal.
Refer to note 11 in the Company’s December 31, 2019 consolidated
financial statements for further details of the Company’s goodwill
and intangible assets. Also, refer to the “Summary of Critical
Accounting Estimates” section of this document for details on
impairment testing of these assets.
Investments on account of segregated fund policyholders, which
are measured at fair value, increased by $21.5 billion to $231.0
billion at December 31, 2019 compared to December 31, 2018.
The increase was primarily due to the combined impact of market
value gains and investment income of $27.3 billion, partially offset
by the impact of currency movement of $6.5 billion.
ProPrietary mutuaL funds
Proprietary mutual funds and institutional assets(1)
December 31
2019
2018
$ 23,945 $ 23,489
15,642
19,405
22,003
24,732
46,227
53,613
185
187
18,463
22,362
$ 144,244 $ 126,009
$ 108,229 $ 94,494
52,586
59,112
8,575
8,963
$ 176,304 $ 155,655
$ 320,548 $ 281,664
otHer generaL fund assets
Other general fund assets
Reinsurance assets
Funds held by ceding insurers
Premiums in course of collection,
accounts and interest receivable
Other assets
Owner occupied properties
Deferred tax assets
Fixed assets
Derivative financial instruments
Current income taxes
December 31
2019
2018
$ 20,707 $ 6,126
9,251
8,714
5,881
3,110
727
693
455
451
236
5,202
2,567
731
981
448
417
218
Mutual funds (1)
Blend equity
Growth equity
Equity value
Fixed-income
Money market
Empower Funds (2)
Sub-total
Institutional assets (1)
Equity
Fixed-income
Other
Sub-total
Total
$ 40,974 $ 25,941
Total other general fund assets at December 31, 2019 were $41.0
billion, an increase of $15.0 billion from December 31, 2018.
The increase was primarily due to an increase of $14.6 billion in
reinsurance assets, primarily due to $15.2 billion of reinsurance
assets received as a result of the sale, via indemnity reinsurance, to
Protective Life and an increase of $0.7 billion in premiums in course
of collection, accounts and interest receivable. The increase was
partially offset by a decrease of $0.5 billion in funds held by ceding
insurers and a decrease of $0.3 billion in deferred tax assets mainly
due to the revaluation of a deferred tax asset in the U.S. segment.
Other assets comprise several items including prepaid expenses
and accounts receivable. Refer to note 13 in the Company’s
December 31, 2019 consolidated financial statements for a
breakdown of other assets.
investments on Account of Segregated Fund PoLicyHoLders
Segregated funds
Stock and units in unit trusts
Mutual funds
Bonds
Investment properties
Cash and other
Mortgage loans
Sub-total
Non-controlling mutual funds interest
Total
December 31
2019
2018
$ 104,330 $ 89,853
50,956
55,779
42,142
44,973
12,319
12,986
10,647
9,137
2,746
2,670
$ 229,875 $ 208,663
864
1,147
$ 231,022 $ 209,527
Total proprietary mutual funds
and institutional assets (1)
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this
document for additional details.
(2) At December 31, 2019, Empower funds exclude $17.9 billion of Putnam managed funds ($14.4
billion at December 31, 2018), which are included in the categories above.
At December 31, 2019, total proprietary mutual funds and institutional
assets include $257.3 billion at Putnam and GWL&A, $50.5 billion
at Irish Life and $6.8 billion at Quadrus Investment Services Ltd
(Quadrus). Proprietary mutual funds and institutional assets under
management increased by $38.9 billion, primarily due to the impact
of market movement and the impact of currency movement.
LiaBiLities
Total liabilities
Insurance and investment contract liabilities
Liabilities held for sale
Other general fund liabilities
Investment and insurance contracts on
account of segregated fund policyholders
Investment and insurance contracts on account of
segregated fund policyholders held for sale
Total
December 31
2019
2018
$ 176,177 $ 168,431
897
–
18,117
18,425
231,022
209,527
–
3,319
$ 425,624 $ 400,291
Total liabilities increased by $25.3 billion to $425.6 billion at
December 31, 2019 from December 31, 2018.
Great-West Lifeco Inc. 2019 Annual Report
31
Management’s Discussion and Analysis
Insurance and investment contract liabilities increased by $7.7
billion, primarily due to fair value adjustments and the impact of
new business, partially offset by the weakening of the euro, British
pound, and U.S. dollar against the Canadian dollar. Investment and
insurance contracts on account of segregated fund policyholders
increased by $21.5 billion, primarily due to the combined impact
of market value gains and investment income of $27.3 billion,
partially offset by the impact of currency movement of $6.5 billion.
Liabilities held for sale of $0.9 billion and investment and
insurance contracts on account of segregated fund policyholders
held for sale of $3.3 billion at December 31, 2018 relate to the
sale of a heritage block of policies to Scottish Friendly, which was
completed in the fourth quarter of 2019. Refer to note 4 of the
Company’s December 31, 2019 consolidated financial statements
for further information on assets classified as held for sale.
Insurance and investment contract
liabilities represent the
amounts that, together with estimated future premiums and
investment income, will be sufficient to pay estimated future
benefits, dividends and expenses on policies in-force. Insurance
and investment contract liabilities are determined using generally
accepted actuarial practices, according to standards established
by the Canadian Institute of Actuaries. Also, refer to the “Summary
of Critical Accounting Estimates” section of this document for
further details.
Assets supporting insurance and investment contract liabilities
December 31, 2019
Bonds
Mortgage loans
Stocks
Investment properties
Other assets (1)
Total assets
Participating
Account
$ 25,328
10,301
6,205
2,484
10,301
Non-Participating
Canada
United States
Europe
Total
$ 20,270
4,111
2,237
407
5,643
$ 14,311
2,678
–
–
15,371
$ 35,546
5,442
299
2,672
12,571
$ 95,455
22,532
8,741
5,563
43,886
$ 54,619
$ 32,668
$ 32,360
$ 56,530
$ 176,177
Total insurance and investment contract liabilities
$ 54,619
$ 32,668
$ 32,360
$ 56,530
$ 176,177
December 31, 2018
Bonds
Mortgage loans
Stocks
Investment properties
Other assets (1)
Total assets
$
23,892
9,918
5,465
1,926
9,726
$
19,204
3,845
1,916
196
5,013
$
25,324
4,993
–
–
725
$
35,174
4,511
191
2,795
13,617
$ 103,594
23,267
7,572
4,917
29,081
$
50,927
$
30,174
$
31,042
$
56,288
$ 168,431
Total insurance and investment contract liabilities
$
50,927
$
30,174
$
31,042
$
56,288
$ 168,431
(1) Other assets include reinsurance assets, premiums in the course of collection, interest due and accrued, other investment receivables, deferred acquisition costs, accounts receivable, current income taxes and
prepaid expenses. Reinsurance assets include assets recognized as a result of the indemnity reinsurance agreement with Protective Life.
Asset and liability cash flows are matched within established limits to minimize the financial effects of a shift in interest rates and
mitigate the changes in the Company’s financial position due to interest rate volatility.
otHer generaL fund LiaBiLities
Other general fund liabilities
Debentures and other debt instruments
Other liabilities
Accounts payable
Derivative financial instruments
Funds held under reinsurance contracts
Deferred tax liabilities
Current income taxes
Total
32
Great-West Lifeco Inc. 2019 Annual Report
December 31
2019
2018
$ 5,993 $ 6,459
3,855
3,262
1,562
1,367
1,210
402
4,689
3,352
1,381
1,433
1,116
461
$ 18,425 $ 18,117
Total other general fund liabilities at December 31, 2019 were
$18.4 billion, an increase of $0.3 billion from December 31, 2018,
primarily due to an increase of $0.8 billion in other liabilities
related to the recognition of $0.5 billion of lease liabilities related
to the adoption of IFRS 16, Leases, effective January 1, 2019. The
increase was partially offset by a decrease in debentures and other
debt instruments driven by net redemptions and the impact of
currency movement.
Other liabilities of $4.7 billion include pension and other post-
employment benefits, lease liabilities, deferred income reserve,
bank overdraft and other liability balances. Refer to note 18 in the
Company’s December 31, 2019 consolidated financial statements
for a breakdown of the other liabilities balance and note 16 in the
Company’s December 31, 2019 consolidated financial statements
for details of the debentures and other debt instruments.
Management’s Discussion and Analysis
Segregated Fund and Variable Annuity Guarantees
The Company offers retail segregated fund products, unitized
with profits (UWP) products and variable annuity products that
provide for certain guarantees that are tied to the market values of
the investment funds.
The Company utilizes internal reinsurance treaties to aggregate the
business as a risk-mitigating tool. Aggregation enables the Company
to benefit from diversification of segregated fund risks within one
legal entity, a more efficient and cost effective hedging process, and
better management of the liquidity risk associated with hedging.
It also results in the Company holding lower required capital and
insurance contract liabilities, as aggregation of different risk profiles
allows the Company to reflect offsets at a consolidated level.
In Canada, the Company offers individual segregated fund
products through Great-West Life, London Life and Canada Life.
These products provide guaranteed minimum death benefits
(GMDB) and guaranteed minimum accumulation on maturity
benefits (GMAB). In 2009, Great-West Life, London Life and
Canada Life launched individual segregated fund products, which
offer three levels of death and maturity guarantees, guarantee
reset riders and lifetime guaranteed minimum withdrawal benefits
(GMWB). Effective January 1, 2020, following the amalgamation of
Great-West Life, London Life and Canada Life, the products are
offered under the Canada Life brand.
For a certain generation of products, the guarantees in connection
with the Canadian individual segregated fund businesses of Great-
West Life, London Life and Canada Life have been reinsured to
London Reinsurance Group Inc. (LRG), a subsidiary of London Life.
This does not include the guarantees on newer Canadian products,
which have been reinsured to London Life. In addition to the
guarantees reinsured from Great-West Life, London Life and Canada
Life, LRG also has a closed portfolio of, GMAB and guaranteed
minimum income benefits (GMIB) that it has reinsured from other
U.S. and Canadian life insurance and reinsurance companies.
In Europe, the Company offers UWP products through Canada
Life and unit-linked products with investment guarantees through
Irish Life. These products are similar to segregated fund products
but include pooling of policyholders’ funds and minimum
credited interest rates. The Company also offers a GMWB product
in Germany through Canada Life.
In the U.S., the Company offers group variable annuities with
GMDB and GMWB through GWL&A. For the standalone GMDB
business, most are a return of premium on death with the
guarantee expiring at age 70.
The GMWB products offered by the Company in Canada, the
Segregated fund and variable annuity guarantee exposure
Canada
United States
Europe
Insurance & Annuities
Reinsurance (2)
Total Europe
Total
U.S. and Germany, and previously offered in Ireland, provide the
policyholder with a guaranteed minimum level of annual income
for life. The minimum level of income may increase depending
upon the level of growth in the market value of the policyholder’s
funds. Where the market value of the policyholder’s funds is
ultimately insufficient to meet the level of guarantee purchased by
the policyholder, the Company is obligated to make up the shortfall.
These products involve cash flows of which the magnitude and
timing are uncertain and are dependent on the level of equity and
fixed-income market returns, interest rates, currency markets,
market volatility, policyholder behaviour and policyholder longevity.
The Company has a hedging program in place to manage certain
risks associated with options embedded in its GMWB products.
The program methodology quantifies both the embedded option
value and its sensitivity to movements in equity markets, currency
markets and interest rates. Equity derivative instruments, currency
derivative instruments and interest rate derivative instruments
are used to mitigate changes in the embedded option value
attributable to movements in equity markets, currency markets
and interest rates respectively. The hedging program, by its nature,
requires continuous monitoring and rebalancing to avoid over or
under hedged positions. Periods of heightened market volatility
will increase the frequency of hedge rebalancing.
By their nature, certain risks associated with the GMWB product
either cannot be hedged or cannot be hedged on a cost effective
basis. These risks include policyholder behaviour, policyholder
longevity and basis risk and market volatility. Consequently,
the hedging program will not mitigate all risks to the Company
associated with the GMWB products and may expose the Company
to additional risks including the operational risk associated with
the reliance upon sophisticated models, and counterparty credit
risk associated with the use of derivative instruments.
in place aimed at
Other risk management processes are
appropriately limiting the Company’s exposure to the risks it is not
hedging or are otherwise inherent in its GMWB hedging program.
In particular, the GMWB product has been designed with specific
regard to limiting policyholder anti-selection, and the array of
investment funds available to policyholders has been determined
with a view to minimizing underlying basis risk.
Certain GMWB products offered by the Company offer levels
of death and maturity guarantees. At December 31, 2019, the
amount of GMWB product in-force in Canada, the U.S., Ireland
and Germany was $3,332 million ($4,169 million at December 31,
2018). The decrease was primarily due to U.S. business related
to individual GMWB transferred to Protective Life under an
indemnity reinsurance agreement effective June 1, 2019.
Market Value
Income
Maturity
Death
Total (1)
December 31, 2019
Investment deficiency by benefit type
$
32,489
10,395
$
$
–
3
10,045
877
10,922
$ 53,806
$
3
285
288
291
$
13
–
–
–
–
35
5
657
–
657
697
$
$
35
8
657
285
942
985
$
13
$
(1) A policy can only receive a payout from one of the three trigger events (income election, maturity or death). Total deficiency measures the point-in-time exposure assuming the most costly trigger event for each
policy occurred on December 31, 2019.
(2) Reinsurance exposure is to markets in Canada and the U.S.
Great-West Lifeco Inc. 2019 Annual Report
33
Management’s Discussion and Analysis
The investment deficiency measures the point-in-time exposure to
a trigger event (i.e., income election, maturity or death) assuming
it occurred on December 31, 2019 and does not include the impact
of the Company’s hedging program for GMWB products. The
actual cost to the Company will depend on the trigger event having
occurred and the market values at that time. The actual claims
before tax associated with these guarantees were $6 million in-
quarter ($2 million for the fourth quarter of 2018) and $21 million
year-to-date ($14 million year-to-date for 2018), with the majority
arising in the Reinsurance business unit in the Europe segment.
liFeCo Capital struCture
In establishing the appropriate mix of capital required to support the
operations of the Company and its subsidiaries, management utilizes
a variety of debt, equity and other hybrid instruments considering
both the short and long-term capital needs of the Company.
deBentures and otHer deBt instruments
At December 31, 2019, debentures and other debt instruments
decreased by $466 million to $5,993 million compared to December
31, 2018, primarily due to debt redemptions as well as the impact
of currency movement.
On December 10, 2019, GWL&A redeemed all $232 million
(US$175 million) aggregate principal amount 6.625% deferrable
debentures due November 15, 2034 at a redemption price equal to
100% of the principal amount of the debentures, plus accrued and
unpaid interest up to but excluding the redemption date. A portion
of the $1.0 billion cash received from the indemnity reinsurance
agreement with Protective Life was used for the redemption.
Refer to note 16 in the Company’s December 31, 2019 consolidated
financial statements for further details of the Company’s
debentures and other debt instruments.
caPitaL trust securities
At December 31, 2019, the Company had $150 million principal
outstanding of Canada Life Capital Trust Securities – Series B
(CLiCS – Series B). Included in the Company’s invested assets at
December 31, 2019 were CLiCS – Series B with a fair value of $53
million and principal value of $37 million (fair value of $51 million
at December 31, 2018).
Each holder of the CLiCS – Series B is entitled to receive a semi-
annual non-cumulative fixed cash distribution of $37.645 per
CLiCS – Series B, representing an annual yield of 7.529% payable
out of Canada Life Capital Trust’s (CLCT) distributable funds.
Subject to regulatory approval, CLCT may redeem the CLiCS –
Series B, in whole or in part, at any time and the CLiCS – Series B
are callable at par on June 30, 2032.
equity
Share capital outstanding at December 31, 2019 was $8,347
million, which comprises $5,633 million of common shares,
$2,464 million of fixed rate First Preferred Shares, $213 million of
5-year rate reset First Preferred Shares and $37 million of floating
rate First Preferred Shares.
Common shares
At December 31, 2019, the Company had 927,281,186 common
shares outstanding with a stated value of $5,633 million compared
to 987,739,408 common shares with a stated value of $7,283
million at December 31, 2018.
The Company commenced a normal course issuer bid (NCIB)
on February 1, 2019 for one year to purchase and cancel up to
20,000,000 of its common shares at market prices in order to
mitigate the dilutive effect of stock options granted under the
Company’s Stock Option Plan and for other capital management
purposes. During the twelve months ended December 31, 2019,
the Company repurchased and subsequently cancelled 2,000,000
common shares (2018 – 2,127,300) under its NCIB at an average
cost per share of $32.91 (2018 – $32.25).
Subsequent to December 31, 2019, in order to mitigate the dilutive
effect of stock options granted under the Company’s Stock Option
Plan and for other capital management purposes, the Company
announced a new NCIB commencing January 22, 2020 and
terminating January 21, 2021 to purchase for cancellation up to but
not more than 20,000,000 of its common shares at market prices.
On March 4, 2019, the Company announced a substantial
issuer bid (the Offer) pursuant to which the Company offered
to purchase for cancellation up to $2 billion of its common
shares from shareholders for cash. The Offer commenced on
March 8, 2019 and expired on April 12, 2019. On April 17, 2019,
the Company purchased and subsequently cancelled 59,700,974
common shares under the Offer at a price of $33.50 per share for
an aggregate purchase price of $2 billion. The excess paid over the
average carrying value under the Offer was $1,628 million and was
recognized as a reduction to accumulated surplus. Transaction
costs of $3 million were incurred in connection with the Offer and
charged to accumulated surplus.
34
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
Preferred shares
At December 31, 2019, the Company had 11 series of fixed rate
First Preferred Shares, one series of 5-year rate reset First Preferred
Shares and one series of floating rate First Preferred Shares
outstanding with aggregate stated values of $2,464 million, $213
million and $37 million, respectively.
The terms and conditions of the outstanding First Preferred Shares
are set out in the table below:
Series F
Series G
Series H
Great-West Lifeco Inc.
Series I
Series L
Series M
Series N (1)
General Type
Cumulative/Non-Cumulative
Date Issued
Shares Outstanding
Amount Outstanding (Par)
Yield
Earliest Issuer Redemption Date
Fixed Rate
Non-cumulative
Jul 10, 2003
7,740,032
$193,500,800
5.90%
Sep 30, 2008
Fixed Rate
Non-cumulative
Sep 14, 2004
12,000,000
$300,000,000
5.20%
Dec 31, 2009
Fixed Rate
Non-cumulative
Aug 12, 2005
12,000,000
$300,000,000
4.85%
Sep 30, 2010
Fixed Rate
Non-cumulative
Apr 12, 2006
12,000,000
$300,000,000
4.50%
Jun 30, 2011
Fixed Rate
Non-cumulative
Oct 2, 2009
6,800,000
$170,000,000
5.65%
Dec 31, 2014
Fixed Rate
Non-cumulative
Mar 4, 2010
6,000,000
$150,000,000
5.80%
Mar 31, 2015
5-Year Rate Reset
Non-cumulative
Nov 23, 2010
8,524,422
$213,110,550
2.176%
Dec 31, 2020
Series O (2)
Series P
Series Q
Great-West Lifeco Inc.
Series R
Series S
Series T
General Type
Cumulative/Non-Cumulative
Date Issued
Shares Outstanding
Amount Outstanding (Par)
Yield
Earliest Issuer Redemption Date
Floating Rate
Non-cumulative
Dec 31, 2015
1,475,578
$36,889,450
Floating
Dec 31, 2015
Fixed Rate
Non-cumulative
Feb 22, 2012
10,000,000
$250,000,000
5.40%
March 31, 2017
Fixed Rate
Non-cumulative
Jul 6, 2012
8,000,000
$200,000,000
5.15%
Sep 30, 2017
Fixed Rate
Non-cumulative
Oct 11, 2012
8,000,000
$200,000,000
4.80%
Dec 31, 2017
Fixed Rate
Non-cumulative
May 22, 2014
8,000,000
$200,000,000
5.25%
Jun 30, 2019
Fixed Rate
Non-cumulative
May 18, 2017
8,000,000
$200,000,000
5.15%
Jun 30, 2022
(1) The Series N, Non-Cumulative 5-Year Rate Reset First Preferred Shares carry an annual fixed non-cumulative dividend rate of 2.176% up to but excluding December 31, 2020 and are redeemable at the option
of the Company on December 31, 2020 and on December 31 every five years thereafter for $25.00 per share plus all declared and unpaid dividends up to but excluding the date of redemption. Subject to the
Company’s right of redemption and certain other restrictions on conversion described in the Series N share conditions, each Series N share is convertible into one Series O share at the option of the holders on
December 31, 2020 and on December 31 every five years thereafter.
(2) The Series O, Non-Cumulative Floating Rate First Preferred Shares carry a floating non-cumulative dividend rate equal to the relevant Government of Canada Treasury Bill rate plus 1.30% and are redeemable at
the option of the Company for $25.50 per share, unless the shares are redeemed on December 31, 2020 or on December 31 in each fifth year thereafter in which case the redemption price will be $25.00 per
share, plus in each case all declared and unpaid dividends up to but excluding the date of redemption. Subject to the Company’s right of redemption and certain other restrictions on conversion described in the
Series O share conditions, each Series O share is convertible into one Series N share at the option of the holders on December 31, 2020 and on December 31 every five years thereafter.
The terms and conditions of the First Preferred Shares do not
allow the holder to convert to common shares of the Company or
to otherwise cause the Company to redeem the shares. Preferred
shares issued by the Company are commonly referred to as
perpetual and represent a form of financing that does not have a
fixed term.
non-controLLing interests
The Company’s non-controlling interests include participating
account surplus in subsidiaries and non-controlling interests
in subsidiaries. Refer to note 19 in the Company’s December 31,
2019 consolidated financial statements for further details of the
Company’s non-controlling interests.
Non-controlling interests
Participating account surplus in subsidiaries:
Great-West Life
London Life
Canada Life
GWL&A
December 31
2019
2018
$ 595 $
1,866
284
14
608
1,827
288
14
$ 2,759 $ 2,737
Non-controlling interests in subsidiaries
$ 107 $
138
At December 31, 2019, the carrying value of non-controlling
interests decreased by $9 million to $2,866 million compared to
December 31, 2018. For the twelve months ended December 31,
2019, net earnings attributable to participating account before
policyholder dividends were $1,374 million and policyholder
dividends were $1,364 million.
Effective January 1, 2020,
following the amalgamation of
Great-West Life, London Life and Canada Life, non-controlling
interests attributable to participating account surplus previously
recorded in the Great-West Life, London Life, and Canada Life
will be recorded in the amalgamated company, The Canada Life
Assurance Company.
Great-West Lifeco Inc. 2019 Annual Report
35
Management’s Discussion and Analysis
l i q u i d i t y a n d C a p i ta l M a n a g e M e n t a n d a d e q u a C y
Liquidity
The Company’s liquidity requirements are largely self-funded, with
short-term obligations being met by internal funds and maintaining
levels of liquid investments adequate to meet anticipated liquidity
needs. The Company holds cash, cash equivalents and short-term
bonds at the Lifeco holding company level and with the Lifeco
consolidated subsidiary companies. At December 31, 2019, the
Company and its operating subsidiaries held cash, cash equivalents
and short-term bonds of $8.9 billion ($7.8 billion at December 31,
2018) and other liquid assets and marketable securities of $86.6
billion ($93.2 billion at December 31, 2018). Included in the cash,
cash equivalents and short-term bonds at December 31, 2019 was
$0.7 billion ($1.0 billion at December 31, 2018) at the Lifeco holding
company level which includes cash at Great-West Lifeco U.S. LLC,
the Company’s U.S. holding company. The decrease of $0.3 billion
at the Lifeco holding company level was primarily due to the
settlement of the substantial issuer bid on April 17, 2019, partially
offset by the proceeds of the sale, via indemnity reinsurance, of
the U.S. individual life insurance business to Protective Life. In
addition, the Company maintains committed lines of credit with
Canadian chartered banks for potential unanticipated liquidity
needs, if required.
casH fLows
Cash flows
Cash flows relating to the following activities:
Operations
Financing
Investment
Effects of changes in exchange rates on cash and cash equivalents
Increase (decrease) in cash and cash equivalents in the period
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
The principal source of funds for the Company on a consolidated
basis is cash provided by operating activities, including premium
income, net investment income and fee income. These funds
are used primarily to pay policy benefits, policyholder dividends
and claims, as well as operating expenses and commissions.
Cash flows generated by operations are mainly invested to
support future liability cash requirements. Cash flows related to
financing activities include the issuance and repayment of capital
instruments and associated dividends and interest payments.
In the fourth quarter of 2019, cash and cash equivalents increased
by $0.8 billion from September 30, 2019. Cash flows provided by
operations during the fourth quarter of 2019 were $1.3 billion, a
decrease of $0.3 billion compared to the fourth quarter of 2018.
Cash flows used in financing were $0.8 billion, primarily used for
the payments of dividends to common and preferred shareholders
of $0.4 billion and net debt redemptions of $0.3 billion. For the three
months ended December 31, 2019, cash inflows from investment
activities related to net disposals of $0.2 billion of investment assets.
36
Great-West Lifeco Inc. 2019 Annual Report
The Company does not have a formal common shareholder
dividend policy. Dividends on outstanding common shares of the
Company are declared and paid at the sole discretion of the Board
of Directors of the Company. The decision to declare a dividend on
the common shares of the Company takes into account a variety
of factors including the level of earnings, adequacy of capital and
availability of cash resources.
As a holding company, the Company’s ability to pay dividends
and, in part, its ability to deploy capital is dependent upon the
Company receiving dividends from its operating subsidiaries.
The Company’s operating subsidiaries are subject to regulation
in a number of jurisdictions, each of which maintains its own
regime for determining the amount of capital that must be
held in connection with the different businesses carried on by
the operating subsidiaries. The requirements imposed by the
regulators in any jurisdiction may change from time to time, and
thereby impact the ability of the operating subsidiaries to pay
dividends to the Company.
For the three months ended
December 31
For the twelve months ended
December 31
2019
2018
2019
2018
$
1,291
(781)
224
734
41
775
3,853
$
1,565
(260)
(1,170)
135
151
286
3,882
$
6,110
(3,981)
(1,539)
590
(130)
460
4,168
$
6,494
(1,267)
(4,776)
451
166
617
3,551
$
4,628
$
4,168
$
4,628
$
4,168
For the twelve months ended December 31, 2019, cash and cash
equivalents increased by $0.5 billion from December 31, 2018.
Cash flows provided by operations were $6.1 billion, a decrease of
$0.4 billion compared to the same period in 2018, which included
$1.0 billion of cash received during the second quarter of 2019 as
a result of the indemnity reinsurance agreement with Protective
Life. Cash flows used in financing were $4.0 billion, primarily used
for the purchase and cancellation of common shares of $2.0 billion
relating to the Company’s substantial issuer bid, the payment of
dividends to common and preferred shareholders of $1.7 billion
and net debt redemptions of $0.3 billion. In the first quarter of
2019, the Company increased the quarterly dividend to common
shareholders from $0.389 per common share to $0.413 per
common share. For the twelve months ended December 31, 2019,
cash flows were used by the Company to acquire an additional
$1.5 billion of investment assets.
Management’s Discussion and Analysis
commitments/contractuaL oBLigations
Commitments/contractual obligations
Payments due by period
At December 31, 2019
Total
1 year
2 years
3 years
4 years
5 years
1) Debentures and other debt instruments
2) Lease obligations
3) Purchase obligations
4) Credit-related arrangements
(a) Contractual commitments
(b) Letters of credit
5) Pension contributions
$
$
5,454
753
316
$
500
83
125
1,042
see note 4(b) below
280
1,006
280
$
–
78
57
19
–
$
–
66
29
17
–
$
730
56
13
–
–
–
53
8
–
–
Over
5 years
$
4,224
417
84
–
–
Total contractual obligations
$
7,845
$
1,994
$
154
$
112
$
799
$
61
$
4,725
1) Refer to note 16 in the Company’s December 31, 2019 consolidated financial statements. Excluded from debentures and other debt instruments are unamortized transaction costs.
2) For a further description of the Company’s lease obligations, refer to note 18 in the Company’s December 31, 2019 consolidated financial statements.
3) Purchase obligations are commitments to acquire goods and services, essentially related to information services.
4) (a) Contractual commitments are essentially commitments of investment transactions made in the normal course of operations in accordance with policies and guidelines that are to be disbursed upon fulfillment
of certain contract conditions.
(b) Letters of credit (LC) are written commitments provided by a bank. The total amount of LC facilities is US$2.3 billion of which US$1.8 billion were issued as of December 31, 2019.
The Reinsurance business unit periodically uses letters of credit as collateral under certain reinsurance contracts for on-balance sheet policy liabilities. The Company may be required to seek collateral
alternatives if it is unable to renew existing LCs on maturity. Various Lifeco subsidiaries have provided LCs as follows:
To external parties
Clients residing in the United States are required pursuant to their insurance laws to obtain LCs issued on the Company’s behalf from approved banks in order to further secure the Company’s obligations under
certain reinsurance contracts.
Great-West Life has two LC facilities for US$1,100 million, which can be used by Great-West Life and its subsidiaries. As of December 31, 2019, Great-West Life subsidiaries have issued US$197 million to
external parties.
Certain London Reinsurance Group subsidiaries and London Life have provided LCs totaling US$7 million to external parties. Additionally, Great-West Life & Annuity Insurance Company has provided LCs
totaling US$9 million to external parties. The LCs are renewable annually for an indefinite period of time.
To internal parties
Great-West Life has three LC facility for US$900 million for use by Great-West Life and its subsidiaries. As of December 31, 2019, US$722 million has been issued to the Company’s U.S. Branch.
GWL&A also has a US$70 million LC facility in place. As of December 31, 2019, US$70 million has been issued to Great-West Life & Annuity Insurance Company of South Carolina as beneficiary, to allow it to
receive statutory capital credit.
Canada Life has a £117 million LC issued to Canada Life Limited (CLL) as beneficiary, to allow CLL to receive statutory capital credit in the United Kingdom for a loan made from Canada Life.
In addition, using capacity from the facilities listed above, Great-West Life subsidiaries have issued US$612 million to other subsidiaries and the Company’s U.S. Branch.
5) Pension contributions include funding estimates for defined benefit pension plans, defined contribution pension plans and other post-employment plans. These contributions are subject to change, as contribution
decisions are affected by many factors including market performance, regulatory requirements and management’s ability to change funding policy. Funding estimates beyond 2020 are excluded due to the
significant variability in the assumptions required to project the timing of future contributions.
caPitaL management and adequacy
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. 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. The capitalization
decisions of the Company and its operating subsidiaries also give
consideration to the impact such actions may have on the opinions
expressed by various credit rating agencies that provide financial
strength and other ratings to the Company.
The Board of Directors reviews and approves an annual capital
plan as well as capital transactions undertaken by management
pursuant to the plan. The capital plan is designed to ensure that
the Company maintains adequate capital, taking into account the
Company’s strategy, risk profile and business plans. The Company
has 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. In addition to undertaking capital
transactions, the Company uses and provides traditional and
structured reinsurance to support capital and risk management.
In Canada, OSFI has established a capital adequacy measurement
for life insurance companies incorporated under the Insurance
Companies Act (Canada) and their subsidiaries, known as the Life
Insurance Capital Adequacy Test (LICAT).
The LICAT ratio compares the regulatory capital resources of
a company to its Base Solvency Buffer or required capital. The
Base Solvency Buffer is calibrated so that a life insurer can both
withstand severe stress events and have assets remaining to allow
continued support of its existing business. The total Base Solvency
Buffer is the aggregate of all OSFI defined capital requirements
multiplied by a fixed scalar of 1.05. The total capital resources
include equity items such as common shares, retained earnings
and participating policyholders’ surplus. There are deductions for
goodwill, intangibles and some deferred tax assets. Assets backing
certain provisions for adverse deviation within the insurance
contract liabilities reported on the financial statements are also
included in total capital resources.
OSFI has established a Supervisory Target Total Ratio of 100%, and
a Supervisory Minimum Total Ratio of 90%. The internal target
range of the LICAT ratio for Lifeco’s major Canadian operating
subsidiaries is 110% to 120% (on a consolidated basis).
Great-West Life’s consolidated LICAT ratio at December 31, 2019
was 135% (140% at December 31, 2018). The LICAT ratio does not
take into account any impact from $0.7 billion of liquidity at the
Lifeco holding company level at December 31, 2019 ($1.0 billion at
December 31, 2018).
Great-West Lifeco Inc. 2019 Annual Report
37
Management’s Discussion and Analysis
the
second quarter,
During
repurchased
and subsequently cancelled common shares for aggregate
consideration of $2.0 billion. The dividends paid by Great-West
Life to Lifeco to support this transaction decreased Great-West
Life’s consolidated LICAT ratio by approximately 6 points.
the Company
During the fourth quarter, the Company entered into a long-term
reinsurance agreement to accept longevity risk. The impact of the
transaction decreased the LICAT ratio by approximately 3.5 points
at Great-West Life.
Effective January 1, 2020, following the amalgamation of Great-
West Life, London Life and Canada Life and their holding
companies, Canada Life Financial Corporation and London
Insurance Group Inc., into a single life insurance company, The
Canada Life Assurance Company, The Canada Life Assurance
Company’s consolidated LICAT is equivalent to Great-West Life’s
consolidated LICAT ratio.
LICAT Ratio
Tier 1 Capital
Tier 2 Capital
Total Available Capital
Surplus Allowance & Eligible Deposits
Total Capital Resources
Dec. 31
2019
Dec. 31
2018
$ 11,952 $ 12,455
3,686
3,637
15,589
12,625
16,141
10,665
$ 28,214 $ 26,806
Base Solvency Buffer (includes OSFI scalar 1.05)
$ 20,911 $ 19,165
Total Ratio (OSFI Supervisory Target = 100%) (1)
135%
140%
(1) Total Ratio (%) = Total Capital Resources / Base Solvency Buffer (after 1.05 scalar)
return on equity
Return on Equity (1)
Canada
U.S. Financial Services
U.S. Asset Management (Putnam)
Europe
Total Lifeco Net Earnings Basis
Adjusted Return on Equity (1)
Canada
U.S. Financial Services
U.S. Asset Management (Putnam)
Europe
At December 31, 2019, the Risk-Based Capital (RBC) ratio of
GWL&A, Lifeco’s regulated U.S. operating company, is estimated
to be 627% of the Company Action Level set by the National
Association of Insurance Commissioners. GWL&A reports its
RBC ratio annually to U.S. Insurance Regulators. The RBC ratio is
included for information only and is not intended as a means to
rank insurers generally or for any other purposes.
OSFI Regulatory Capital Initiatives
The Company will continue to work with OSFI, the Canadian
Institute of Actuaries, and other industry participants, as the
LICAT guideline further evolves to allow for any future development
including adaptations relating to the IFRS 17 accounting standard
and developments relating to Segregated Fund Guarantee
Risk requirements.
The International Accounting Standards Board (IASB) has issued
IFRS 17, Insurance Contracts, which will replace IFRS 4, Insurance
Contracts with a current proposed effective date of January 1,
2022. IFRS 17 includes, among other things, new requirements
for the recognition, measurement, presentation and disclosures
of insurance contracts the Company issues and reinsurance
contracts it holds. The new standard is expected to have a
significant impact for insurers related to the timing of earnings
recognition and on the presentation and disclosure of results.
Adoption of the standard is expected to lead to further review
and possible amendments to the OSFI LICAT Guideline. Refer
to the “Accounting Policies – International Financial Reporting
Standards” section for further details.
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
15.0%
5.1%
(9.7)%
19.1%
16.3%
4.5%
(0.7)%
17.4%
19.4%
12.1%
(2.5)%
15.9%
11.7%
12.4%
14.0%
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
15.0%
12.3%
1.2%
18.9%
16.3%
11.6%
(0.7)%
17.4%
19.4%
12.1%
(2.5)%
16.6%
13.8%
13.4%
14.3%
Total Lifeco Adjusted Net Earnings Basis
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
The Company reported ROE of 11.7% at December 31, 2019, compared to 14.0% at December 31, 2018. The Company reported adjusted
ROE based on adjusted net earnings of 13.8% at December 31, 2019, compared to 14.3% at December 31, 2018.
38
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
ratings
The Company’s financial leverage ratio has been maintained at
a level consistent with credit rating agencies’ targets for highly
rated entities and provides the Company with financial flexibility
to invest in organic growth and acquisition strategies. Refer to
the “Non-IFRS Financial Measures” section in this MD&A for
additional details.
ratings
from five
independent
Lifeco maintains
ratings
companies. Credit ratings are intended to provide investors with
an independent measure of the credit quality of the securities of
a corporation and are indicators of the likelihood of payment and
the capacity of a corporation to meet its obligations in accordance
with the terms of each obligation. In 2019, the credit ratings for
Lifeco and its major operating subsidiaries were unchanged (set
out in table below). The Company continued to receive strong
ratings relative to its North American peer group resulting from
its conservative risk profile, stable net earnings and consistent
dividend track record. These ratings are not a recommendation to
buy, sell or hold the securities of the Company or its subsidiaries
and do not address market price or other factors that might
determine suitability of a specific security for a particular investor.
The ratings also may not reflect the potential impact of all risks on
the value of securities and are subject to revision or withdrawal at
any time by the rating agency.
Lifeco’s operating companies are assigned a group rating from each
rating agency. This group rating is predominantly supported by
the Company’s leading position in the Canadian insurance market
and competitive positions in the U.S. and European markets. Each
of Lifeco’s operating companies benefits from the strong implicit
financial support and collective ownership by Lifeco. There were
no changes to the Company’s group credit ratings in 2019.
Following Lifeco’s announcement on January 24, 2019 that
its subsidiary, GWL&A, had reached an agreement to sell, via
indemnity reinsurance, substantially all of its individual life
insurance and annuity business, Moody’s Investors Service
(Moody’s) placed the Aa3 insurance financial strength (IFS) ratings
of GWL&A and its subsidiary, Great-West Life & Annuity Insurance
Company of New York, on review for downgrade. Subsequently, on
June 4, 2019, Moody’s announced it had concluded its review and
confirmed the Aa3 IFS ratings of GWL&A and its subsidiary, Great-
West Life & Annuity Insurance Company of New York. The A3
issuer rating of GWL&A’s U.S. holding company, GWL&A Financial,
Inc., and the Baa1(hybrid) senior debt rating of debentures issued
by an affiliate, Great-West Life & Annuity Insurance Capital, LP,
were also confirmed. The outlook for GWL&A Financial, Inc., and
its subsidiaries that were under review, is now stable.
Rating agency
Measurement
Lifeco
Great-West
Life
London Life
Canada Life
Irish Life
GWL&A
A.M. Best Company
DBRS Limited
Fitch Ratings
Financial Strength
Issuer Rating
Financial Strength
Senior Debt
Subordinated Debt
Insurer Financial Strength
Senior Debt
Subordinated Debt
Moody’s Investors Service
Insurance Financial Strength
Standard & Poor’s Ratings Services
Insurer Financial Strength
Senior Debt
Subordinated Debt
A+
AA
AA
AA
Aa3
AA
A (high)
A (high)
A
A+
A+
AA
AA
Aa3
AA
A+
AA
AA (low)
AA
A+
Aa3
AA
AA-
AA
A+
NR
AA
Aa3
AA
Effective January 1, 2020, Great-West Life, London Life, Canada Life and their holding companies, Canada Life Financial Corporation
and London Insurance Group Inc., amalgamated into a single life insurance company, The Canada Life Assurance Company. The ratings
of the affected companies were updated to reflect the Company’s current corporate structure and are consistent with existing ratings.
Great-West Lifeco Inc. 2019 Annual Report
39
Management’s Discussion and Analysis
SEGMENTED OPERATING RESULTS
The consolidated operating results of Lifeco, including the
comparative figures, are presented on an IFRS basis after capital
allocation. Consolidated operating results for Lifeco comprise
the net earnings of Great-West Life and its operating subsidiaries,
London Life and Canada Life; GWL&A and Putnam; together with
Lifeco’s Corporate results.
For reporting purposes, the consolidated operating results are
grouped into four reportable segments – Canada, United States,
Europe and Lifeco Corporate – reflecting geographic lines as well
as the management and corporate structure of the companies.
Effective January 1, 2020, Great-West Life, London Life and Canada
Life and their holding companies, Canada Life Financial Corporation
and London Insurance Group Inc. amalgamated into a single life
insurance company, The Canada Life Assurance Company.
C a n a d a
The Canada segment of Lifeco includes the operating results of
the Canadian businesses operated by Great-West Life, London Life
and Canada Life, together with an allocation of a portion of Lifeco’s
Corporate results. There are two primary business units included
in this segment. Through the Individual Customer business unit,
the Company provides life, disability and critical illness insurance
products as well as wealth savings and income products to
individual clients. Through the Group Customer business unit,
the Company provides life, accidental death and dismemberment,
critical illness, health and dental protection, creditor insurance
as well as retirement savings and income products and other
specialty products to group clients in Canada.
Business proFile
individuaL customer
Individual Customer comprises both insurance and wealth
management product lines sold to individual customers.
Individual insurance includes individual life, disability and
critical illness insurance products and services. Individual wealth
management includes individual wealth savings and income
products and services. The Company is a leader in Canada for all
insurance and wealth management products and services and
utilizes diverse, complementary distribution channels: Freedom
55 FinancialTM (Freedom), Wealth and Insurance Solutions
Enterprise (WISE), managing general agencies (MGAs) and
national accounts, including IG Wealth Management, a member
of the Power Financial Corporation group of companies. Through
Financial Horizons Group, the Company participates in the MGA
channel, distributing products from across the insurance industry.
The individual lines of business accessed the various distribution
channels under distinct product brands offered by Great-West
Life, London Life, Canada Life and Quadrus. Effective January
1, 2020, following the amalgamation of Great-West Life, London
Life and Canada Life, products are offered under the Canada Life
and Quadrus brands. By offering this broad suite of products and
services through multiple distribution channels, the Company is
able to provide advice and product solutions to meet the needs of
Canadians at all phases of their lives.
grouP customer
Group Customer includes group life and health benefits, group
creditor, and group retirement and investment product lines.
Through its group life and health benefit product lines, the
Company offers effective benefit solutions for small, medium
and large plan sponsors. The Company offers a wide range of
traditional group products and services including life, accidental
death and dismemberment, critical illness, disability, health and
dental as well as specialty products. In addition, specialty product
development has been a focus over the past several years as the
Company seeks to provide customized solutions to increasingly
unique customer needs. Products to address the needs of mental
health in the workplace, high cost medications, optional products
purchased by plan members directly and wellness programs are
examples of this.
The Company’s creditor business, conducted through its Canada
Life subsidiary, offers creditor insurance products through large
financial institutions and credit card companies. Canada Life is a
leader in the creditor insurance business in Canada.
Group retirement and investment product lines include group
Registered Retirement Savings Plans (RRSP), Tax-Free Savings
Accounts (TFSA), group retirement
income products, and
institutional investment services. The Company is focused on
innovation within its savings and investment product lines and
will be focused on launching Registered Education Savings Plans
for members in 2020.
Through the Company’s extensive network of Group sales offices
located across the country, it distributes its products through
brokers, consultants and financial security advisors.
40
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
Market overview
Products and services
individuaL customer
grouP customer
The Company provides an array of life, health and creditor
insurance products that are distributed primarily through Group
sales offices across the country.
The Company provides an array of individual insurance and
individual wealth management products that are distributed
through multiple sales channels.
market Position
• Employee benefits to over 30,000 plan sponsors (1)
• 21% market share for employee benefit plans (1)
market Position
• Leading market share for creditor products with coverage provided to
• A leader in individual life insurance sales measured by new annualized
over 7.2 million plan members (3)
premium with 21.7% market share (1)
• 20% market share of group capital accumulation plans (1)
• A significant provider of individual disability and critical illness
• 20% new sales market share of single premium group annuities (2)
insurance with 13.5% market share of new sales (1)
• An industry leader with 27.1% market share of individual segregated
fund assets (2)
Products and services
Individual Life Insurance
• Term Life
• Universal Life
• Participating Life
Living Benefits
• Disability
• Critical Illness
Individual Wealth Management
• Savings plans
• RRSPs
• Non-registered savings programs
• TFSAs
Invested in:
• Segregated funds
• Mutual funds
• Guaranteed investment options
• Retirement Income Plans
• Segregated funds with GMWB rider
• Retirement income funds
• Life income funds
• Payout annuities
• Deferred annuities
• Residential mortgages
• Banking products
distriBution (3)
Wealth and Insurance Solutions Enterprise
• 2,147 financial security advisors
Freedom 55 FinancialTM
• 2,392 financial security advisors
Affiliated Partnerships
• 7,311 independent brokers associated with 32 MGAs
• 1,692 advisors associated with 14 national accounts
Products and services
Group Life and Health Benefits
• Life
• Disability
• Critical illness
• Accidental death & dismemberment
• Dental
• Expatriate coverage
• Extended health care
Group Creditor
• Life
• Disability
• Job loss
• Critical illness
Group Retirement & Investment Services
• Group Capital Accumulation Plans including:
• Defined contribution pension plans
• Group RRSPs & TFSAs
• Deferred profit sharing plans
• Non-registered savings programs
Invested in:
• Segregated funds
• Guaranteed investment options
• Single company stock
• Retirement Income Plans
• Payout annuities
• Deferred annuities
• Retirement income funds
• Life income funds
•
Investment management services only plans
Invested in:
• Segregated funds
• Guaranteed investment options
• Securities
Specialty Products and Services
• Dialogue™
• 1,828 IG Wealth Management consultants who actively sell Canada Life
products
• 109 direct brokers and producer groups
Financial Horizons Group
• 3,680 independent brokers selling products from across the insurance
• Best Doctors™
• Contact
• Individual Health
distriBution
industry, including Canada Life
Quadrus Investment Services Ltd.
(also included in WISE & Freedom advisor counts):
• 3,514 investment representatives
(1) Nine months ended September 30, 2019
(2) As at November 30, 2019
(3) WISE & Freedom includes all contracted advisors. Affiliated Partnerships and Financial Horizons Group
include advisors who placed new business in 2019.
• Group Life and Health and Group Retirement and Investment Services
are distributed through brokers, consultants, and financial security
advisors. Sales and service support are provided by an integrated
team of over 635 employees, located in 28 offices across the country,
including 115 account executives (3).
• Group Creditor products and services are distributed primarily though
large financial institutions and serviced through a dedicated sales and
service organization.
(1) As at December 31, 2018
(2) As at September 30, 2019
(3) As at November 30, 2019
Great-West Lifeco Inc. 2019 Annual Report
41
Management’s Discussion and Analysis
comPetitive conditions
individuaL customer
The individual insurance marketplace is highly competitive.
Competition focuses on service, technology, product features, price
and financial strength, as indicated by ratings issued by nationally
recognized agencies. The Company’s broad spectrum of distribution
associates, including exclusive and independent channels, provide
important strategic advantages within the Canadian market.
The individual wealth management marketplace is also very
competitive. The Company’s main competitors include mutual
fund companies, insurance companies, banks and investment
advisors as well as other service and professional organizations.
New FinTech competitors have entered the marketplace leading
to increased competition. Competition focuses on ease of doing
business through technology, service, variety of investment
options, investment performance, product features, price (fees)
and financial strength. Individual wealth management’s broad
spectrum of distribution associates, including exclusive and
independent channels, provide important strategic advantages
within the Canadian market.
Selected consolidated financial information – Canada
Premiums and deposits (1)
Sales (1)
Fee and other income
Net earnings – common shareholders
Total assets
Proprietary mutual funds and institutional assets (1)
Total assets under management (1)
Other assets under administration (1)
Total assets under administration (1)
grouP customer
The group life and health benefits market in Canada is highly
competitive. There are three large group insurance carriers with
significant market positions, a number of smaller companies
operating nationally and several regional and niche competitors.
The Company has a significant market share of 21%, which is
supported by an extensive distribution network who have access
to a wide range of products and services. This strong market share
position is a distinct advantage for competing successfully in the
Canadian group insurance market.
The group capital accumulation plan market is also very
competitive. Three major insurance companies hold a significant
market share while several smaller insurance companies have an
important market presence.
The pension risk transfer business continues to grow in the
Canadian marketplace as more companies with defined benefit
pension plans (open or closed) look to transfer the investment
and longevity risk to insurance companies. Helping the market
with the capacity to meet this demand, existing companies have
increased their presence in the marketplace, including major
independent and bank-owned insurance companies with strong
balance sheets and new entrants.
For the three months ended
For the twelve months ended
Dec. 31
2019
$ 27,346
13,249
1,766
1,051
$
Dec. 31
2018
26,298
13,186
1,736
1,275
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
$
7,229
3,609
457
188
$ 176,304
6,986
183,290
17,118
$
7,053
3,520
447
300
$
6,638
3,447
428
310
$ 174,149
6,853
$ 160,906
6,214
181,002
17,210
167,120
13,615
$ 200,408
$ 198,212
$ 180,735
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
Net earnings – common shareholders
Individual Customer
Group Customer
Corporate
Net earnings – common shareholders
For the three months ended
For the twelve months ended
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
Dec. 31
2019
Dec. 31
2018
$
$
87
114
(13)
188
$
$
85
206
9
300
$
$
171
144
(5)
310
$
$
431
632
(12)
685
630
(40)
$
1,051
$
1,275
42
Great-West Lifeco Inc. 2019 Annual Report
• During 2019, the Company completed the following acquisitions
to help position for growth:
º
º
On January 31, 2019, Great-West Life Realty Advisors Inc.
(GWLRA), a wholly owned subsidiary of the Company,
completed its acquisition of Guggenheim Real Estate LLC
(GRE), the real estate private equity platform of Guggenheim
Investments. The transaction is not expected to have a
material impact on the Company’s financial results.
On August 1, 2019, Financial Horizons Group (FHG), a
managing general agency and wholly owned subsidiary
of the Company, completed its acquisitions of TORCE
Financial Group Inc. and VANCE Financial Group Inc. These
acquisitions give FHG a significant presence to serve a diverse
customer base in the Toronto and Vancouver markets. These
transactions are not expected to have a material impact on
the Company’s financial results.
• The Company earned an A- (‘Leadership’) rating on CDP’s
2019 Climate Change Questionnaire, a rating which identifies
the global leaders in the management of carbon, climate
change risks and low carbon opportunities. The Company once
again achieved the highest rating among Canadian insurance
companies for the fifth consecutive year.
Management’s Discussion and Analysis
2019 developMents
• On April 3, 2019, the Company announced its three Canadian
life insurance companies, The Great-West Life Assurance
Company, London Life Insurance Company and The Canada
Life Assurance Company, are moving to one brand
in
Canada: Canada Life. Following the required approvals, the
Company also proceeded with the amalgamation of Great-
West Life, London Life and Canada Life, and their holding
companies, Canada Life Financial Corporation and London
Insurance Group Inc., into a single life insurance company,
The Canada Life Assurance Company. This amalgamation was
effective January 1, 2020 and will create operating efficiencies
and simplify the Company’s capital structure to allow for more
efficient use of capital, although it is not expected to have a
material financial impact.
• During the fourth quarter of 2019, as part of the move to the
Canada Life brand and amalgamation to one company, new
advisor initiatives were announced. The Company launched
its new Canada Life segregated funds shelf, bringing together
the best funds from its three legacy shelves and removing
duplication of mandates creating a simpler and better
performing fund shelf for advisors in all channels. Additionally,
the Company launched preview illustrations for its new Canada
Life participating life insurance product, which were available
for sales effective January 2, 2020. This new product is available
to advisors in all channels and supported by the amalgamated
Canada Life participating account.
• During the year the Company launched other new tools and
products to improve customer experience and help them meet
their financial and wellness objectives, including:
º
º
º
º
A new goals-based asset management program; Constellation
Managed Portfolios, to help
individuals manage their
individual retirement and savings plans to achieve financial
goals.
Introduced new term 30 and term to age 65 life insurance
products, available through SimpleProtect, the company’s
digital insurance application.
Rolled out “Flexbox”; a product designed to provide insurance
and wealth solutions to small businesses with up to 10 plan
participants.
Enhanced Group life and health customer experience,
including:
º
º
The introduction of the HealthConnected portal, which
features engagement elements
like wearable device
integration, team challenges and wellness strategy games.
A new paperless claims experience, which allows members
to submit all claim types from their desktop or mobile
device.
Great-West Lifeco Inc. 2019 Annual Report
43
Management’s Discussion and Analysis
Business units – Canada
individuaL customer
oPerating resuLts
Premiums and deposits (1)
Sales (1)
Fee and other income
Net earnings
For the three months ended
For the twelve months ended
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
$
3,110
2,718
258
87
$
2,490
2,020
252
85
$
2,862
2,479
242
171
Dec. 31
2019
$ 10,619
9,318
995
431
$
Dec. 31
2018
10,461
9,287
997
685
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
Premiums and deposits
Assets under administration – Individual Wealth
Premiums and deposits for the fourth quarter of 2019 increased
by $0.2 billion to $3.1 billion compared to the same quarter last
year, primarily due to an increase in segregated fund deposits.
The increase in segregated fund deposits was primarily due to an
increase in transfers of business from Great-West Life and London
Life to Canada Life due to the move to a single brand and the
launch of the new Canada Life segregated fund shelf on November
4, 2019.
For the twelve months ended December 31, 2019, premiums and
deposits increased by $0.2 billion to $10.6 billion compared to the
same period last year, primarily due to an increase in participating
life insurance premiums.
Premiums and deposits for the fourth quarter of 2019 increased
by $0.6 billion compared to the previous quarter, primarily due
to an increase in segregated fund deposits and participating life
insurance premiums.
Sales
Sales for the fourth quarter of 2019 increased by $0.2 billion to $2.7
billion compared to the same quarter last year, primarily due to
higher segregated fund and third party mutual fund sales.
For the twelve months ended December 31, 2019, sales of $9.3
billion were comparable to the same period last year as higher
third party mutual fund sales were mostly offset by a decrease in
segregated fund sales.
Sales for the fourth quarter of 2019 increased by $0.7 billion
compared to the previous quarter, primarily due to the same
reasons discussed for the in-quarter results.
For the individual wealth investment fund business, net cash
outflows for the fourth quarter of 2019 were $299 million compared
to $216 million for the same quarter last year and $291 million for
the previous quarter. Net cash outflows for the twelve months
ended December 31, 2019 were $1,386 million compared to $789
million for the same period last year.
Assets under management (1)
Risk-based products
Segregated funds
Proprietary Mutual Funds
Total assets under management (1)
December 31
2019
2018
$ 4,920 $ 5,002
30,925
32,915
6,037
6,803
$ 44,638 $ 41,964
Other assets under administration (1) (2)
$ 9,996 $ 8,397
Total assets under administration – Individual Wealth (1) $ 54,634 $ 50,361
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this
document for additional details.
(2) Includes third party mutual funds distributed by Quadrus.
Fee and other income
Fee and other income for the fourth quarter of 2019 increased by
$16 million to $258 million compared to the same quarter last year,
primarily due to higher average assets under management and an
increase in other income related to Financial Horizons Group.
For the twelve months ended December 31, 2019, fee and other
income of $995 million was comparable to the same period last year.
Fee and other income for the fourth quarter of 2019 increased by
$6 million compared to the previous quarter, primarily due to the
same reasons discussed for the in-quarter results.
Net earnings
Net earnings for the fourth quarter of 2019 decreased by $84
million to $87 million compared to the same quarter last year. The
decrease was primarily due to unfavourable contributions from
insurance contract liability basis changes and less favourable
impact of new business, partially offset by higher contributions
from investment experience. Insurance contract liability basis
changes in the fourth quarter of 2019 include the strengthening
of actuarial reserves driven by impact of updates to policyholder
behaviour assumptions, updates to morbidity assumptions and
refinements to certain investment-related assumptions.
For the twelve months ended December 31, 2019, net earnings
decreased by $254 million to $431 million compared to the same
period last year. The decrease was primarily due to unfavourable
contributions from insurance contract liability basis changes,
lower net fee income and less favourable policyholder behaviour
experience, partially offset by higher contributions
from
investment experience.
44
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
Net earnings for the fourth quarter of 2019 of $87 million were
comparable to the previous quarter, primarily due to less favourable
impact of new business and unfavourable contributions from
investment experience, partially offset by higher contributions
from insurance contract liability basis changes.
For the fourth quarter of 2019, the net loss attributable to the
participating account was $30 million compared to $19 million for
the same quarter last year, primarily due to lower contributions
from insurance contract liability basis changes, partially offset by
a more favourable impact of new business.
For the twelve months ended December 31, 2019, net earnings
attributable to the participating account were $13 million
compared to a net loss of $21 million for the same period last year,
primarily due to higher contributions from insurance contract
liability basis changes.
The net loss attributable to the participating account for the
fourth quarter of 2019 was $30 million compared to net earnings
of $47 million for the previous quarter, primarily due to lower
contributions from insurance contract liability basis changes.
outLook – individuaL customer
Refer to Cautionary Note regarding Forward-looking Information
and Cautionary Note regarding non-IFRS Financial Measures at
the beginning of this document.
The Individual Customer business unit delivered solid business
results in 2019, notwithstanding actuarial reserve strengthening,
while launching the new Canada Life brand and preparing to
amalgamate the companies. The new single brand will bring
efficiencies and focus that when added to the Company’s reputation
for strength and stability, combined with prudent business
practices as well as the depth and breadth of its distribution
channels, positions the Company well for 2020 and beyond.
grouP customer
oPerating resuLts
Premiums and deposits (1)
Sales (1)
Fee and other income
Net earnings
In 2020, Individual Customer will continue to advance on
strategies to position for growth. The Company will further
establish the value propositions for advisors in all channels,
providing them with strategies and tools for helping customers
focus on achieving long-term financial security regardless of life
stage and market fluctuations. This commitment to advice is
beneficial to strong customer retention as well as helping advisors
attract new customers to the Company. A key distribution strategy
will be to maximize the use of common tools, processes and
support, while tailoring support to specific segments of advisors
where appropriate.
The Company will continue to competitively develop, price and
market its comprehensive range of individual insurance and
individual wealth management products while maintaining its
focus on sales and service support to customers and advisors
in all channels. The Company will also continue to monitor and
respond to the impacts of long-term interest rates and fee income
compression.
Operational expense management continues to be critically
important to delivering strong financial results. The Company
will seek to achieve this through disciplined expense controls
and effective development and implementation of strategic
investments. Management has identified a number of areas of
focus for these investments to facilitate the objective of organic
growth, including continuing to invest in digital solutions to
support advisors and customers and addressing its legacy of
administration systems and processes to unlock the potential for
future growth.
For the three months ended
For the twelve months ended
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
$
4,119
891
184
114
$
4,563
1,500
179
206
$
3,776
968
172
144
Dec. 31
2019
$ 16,727
3,931
708
632
$
Dec. 31
2018
15,837
3,899
685
630
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
Premiums and deposits
Premiums and deposits for the fourth quarter of 2019 increased by
$0.3 billion to $4.1 billion compared to the same quarter last year,
primarily due to higher segregated fund deposits.
For the twelve months ended December 31, 2019, premiums and
deposits increased by $0.9 billion to $16.7 billion compared to
the same period last year. The increase was primarily due to ASO
deposits for group insurance, higher segregated fund deposits and
higher group insurance premiums.
Premiums and deposits for the fourth quarter of 2019 decreased
by $0.4 billion to $4.1 billion compared to the previous quarter,
primarily due to lower segregated fund deposits and lower
premiums from single premium group annuities (SPGAs).
Great-West Lifeco Inc. 2019 Annual Report
45
Management’s Discussion and Analysis
Sales
Net earnings
Sales for the fourth quarter of 2019 decreased by $0.1 billion to
$0.9 billion compared to the same quarter last year, primarily due
to lower sales of SPGAs.
For the twelve months ended December 31, 2019, sales of $3.9
billion were comparable to the same period last year.
Sales for the fourth quarter of 2019 decreased by $0.6 billion
compared to the previous quarter, primarily due to lower SPGA
sales, lower segregated fund sales for group wealth and lower
large case sales for group insurance. Sales of large cases can be
highly variable from quarter to quarter.
For the group wealth segregated fund business, net cash inflows
for the fourth quarter of 2019 were $122 million, compared to net
cash outflows of $73 million for the same quarter last year and
net cash inflows of $242 million for the previous quarter. For the
twelve months ended December 31, 2019, net cash inflows were
$529 million compared to net cash outflows of $50 million for the
same period last year.
Assets under administration – Group Retirement & Investment Services
Assets under management (1)
Risk-based products
Segregated funds
Institutional assets
Total assets under management (1)
December 31
2019
2018
$ 8,532 $ 8,207
45,708
52,697
177
183
$ 61,412 $ 54,092
Other assets under administration (1) (2)
$ 472 $
400
Total assets under administration –
Group Retirement & Investment Services (1)
$ 61,884 $ 54,492
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this
document for additional details.
(2) Includes mutual funds distributed by Quadrus, stock purchase plans administered by London Life and
portfolio assets managed by GLC Asset Management Group.
Fee and other income
Fee and other income for the fourth quarter of 2019 increased
by $12 million to $184 million compared to the same quarter last
year, primarily due to higher average assets under management
driven by higher average equity market levels.
For the twelve months ended December 31, 2019, fee and other
income increased by $23 million to $708 million compared to
the same period last year, primarily due to higher average assets
under management driven by higher average equity market levels
and higher ASO fee income.
Fee and other income for the fourth quarter of 2019 increased by
$5 million compared to the previous quarter, primarily due to the
same reason discussed for the year-to-date results.
Net earnings for the fourth quarter of 2019 decreased by $30
million to $114 million compared to the same quarter last year.
The decrease was primarily due to lower contributions from
insurance contract liability basis changes and less favourable
morbidity experience, partially offset by higher contributions
from investment experience. Insurance contract liability basis
changes in the fourth quarter of 2019 include the impact of
updates to mortality assumptions and refinements to certain
investment related assumptions.
For the twelve months ended December 31, 2019, net earnings
increased by $2 million to $632 million compared to the same
period last year. The increase was primarily due to higher
contributions from investment experience, partially offset by lower
contributions from insurance contract liability basis changes.
Net earnings for the fourth quarter of 2019 decreased by $92
million compared to the previous quarter, primarily due to lower
contributions from insurance contract liability basis changes and
investment experience.
outLook – grouP customer
Refer to Cautionary Note regarding Forward-looking Information
and Cautionary Note regarding non-IFRS Financial Measures at
the beginning of this document.
During 2019, the Company maintained its strong competitive
position in the Canadian group market with leading or strong
market share in all case size, regional and benefit market
segments. The Company believes that this market share position,
together with its distribution capacity, will facilitate continued
growth in net premium income.
Additionally, through ongoing investment in digital technologies
and innovative benefit solutions, the Company expects to
continue to enhance its competitive position in the marketplace.
For example, in 2020 the Company will be launching an
integrated plan member digital platform to service customers of
Group Benefits and Group Savings products. This platform will
facilitate a more streamlined experience for both members and
plan sponsors.
The Canadian distribution landscape continues to evolve and
the Company is working closely with all distribution partners to
demonstrate how it can help build on the value of their advice.
canada corPorate
Canada Corporate consists of items not associated directly with
or allocated to the Canadian business units.
For the fourth quarter of 2019, Canada Corporate had a net loss of
$13 million compared to $5 million for the same quarter last year,
primarily due to lower net investment income on seed capital.
The net loss for the twelve months ended December 31, 2019 was
$12 million compared to $40 million for the same period last year,
primarily due to changes in certain income tax estimates and higher
net investment income on seed capital. These items were partially
offset by higher expenses related to expenses in preparation for the
amalgamation of the Canadian life insurance companies.
In the fourth quarter of 2019, the net loss was $13 million compared
to net earnings of $9 million in the previous quarter, primarily due
to the less favourable impact of changes to certain income tax
estimates and lower net investment income on seed capital.
46
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
u n i t e d s tat e s
The United States operating results for Lifeco include the results
of GWL&A (which operates primarily as ‘Empower Retirement’),
Putnam and the results of the insurance businesses in the United
States branches of Great-West Life and Canada Life, together with
an allocation of a portion of Lifeco’s corporate results.
Through its Financial Services business unit, and specifically
the Empower Retirement brand, the Company provides an array
of financial security products, including employer-sponsored
defined contribution plans, administrative and recordkeeping
services, individual retirement accounts, fund management as
well as investment and advisory services. Following the close of the
reinsurance transaction with Protective Life in the second quarter
of 2019, Financial Services also includes a retained block of life
insurance, predominately participating policies, which are now
administered by Protective Life, as well as a closed retrocession
block of life insurance.
Following the close of the reinsurance transaction with Protective
Life in the second quarter of 2019, the Reinsured Insurance &
Annuity Business, which was previously reflected in Financial
Services, is being reported as a separate business unit. The
Reinsured Insurance & Annuity Business unit reflects substantially
all of the individual life insurance and annuity business which
has been sold, through indemnity reinsurance, to Protective Life
effective June 1, 2019. These products include life insurance,
annuity and executive benefits, which are no longer offered by the
U.S. segment.
Through its Asset Management business unit, the Company
provides
investment management, certain administrative
functions, distribution and related services, through a broad range
of investment products.
transLation of foreign currency
Foreign currency assets and liabilities are translated into Canadian
dollars at the market rate at the end of the financial period. All income
and expense items are translated at an average rate for the period.
Impact of currency movement is a non-IFRS financial measure.
Refer to the “Non-IFRS Financial Measures” section of this
document for additional details.
Business proFile
financiaL services
Empower Retirement offers
employer-sponsored defined
contribution plans, individual retirement accounts, enrollment
services, communication materials, investment options and
education services. The Great-West Investments brand offers fund
management, investment and advisory services. The Empower
Institutional brand,
label
recordkeeping and administrative services for other providers of
defined contribution plans. Empower Retirement is the second
largest defined contribution recordkeeper in the U.S. and the
largest provider of services to state defined contribution plans.
formerly FASCore, offers private
asset management
Putnam provides investment management, certain administrative
functions and distribution services. Putnam offers a broad
range of investment products, including equity, fixed-income,
absolute return and alternative strategies, through Putnam
Funds, Putnam World Trust Funds and institutional portfolios
(including hedge fund and other alternative strategies), model-
based separately managed accounts (SMAs) and model portfolios.
Revenue is derived from the value and composition of assets
under management and performance fees as well as service
and distribution fees. Accordingly, fluctuations in the financial
markets and changes in the composition of assets or accounts
affect revenues and results of operations.
Great-West Lifeco Inc. 2019 Annual Report
47
Management’s Discussion and Analysis
Market overview
Products and services
The Company provides a focused product offering that is
distributed through a variety of channels.
financiaL services
market Position
• Second largest defined contribution recordkeeper in the country (1) by
participants providing services for 9.4 million participant accounts and
39,634 plans (2)
• 22% market share in state and local government deferred
compensation plans, based on number of participant accounts (3)
• Great-West Lifetime Funds are the 15th largest target date fund offering
in the U.S. (2)
Products and services
• Employer-sponsored defined contribution plans, enrollment services,
communication materials, investment options and education services
• Administrative and recordkeeping services for financial institutions
and employer-sponsored defined contribution plans and associated
defined benefit plans
• Fund management, investment and advisory services
• Individual retirement accounts (IRAs)
distriBution
• Retirement services products distributed to plan sponsors through
asset management
market Position
• A global asset manager with assets under management of US$181.7
billion (1)
• Global distribution includes sales teams that are focused on major
institutional markets in the U.S., Europe, the Middle East, Asia
and Australia and through a long-standing strategic distribution
relationship in Japan
Products and services
Investment Management Products & Services
• Individual retail investors – a family of open-end and closed-end
mutual funds, college savings plans and variable annuity products
• Institutional investors – defined benefit and defined contribution
investment only plans sponsored by corporations, state, municipal
and other governmental authorities, university endowment funds,
charitable foundations, and collective investment vehicles (both U.S.
and non-U.S.)
• Investment services for defined contribution investment only plans
• Alternative investment products across the fixed-income, quantitative
and equity groups
• Seven equity model-based separately managed accounts (SMAs) and
six multi-asset model portfolios
Administrative Services
• Transfer agency, underwriting, distribution, shareholder services,
trustee and other fiduciary services
brokers, consultants, advisors, third-party administrators and banks
distriBution
• Empower Institutional recordkeeping and administrative services
distributed through institutional clients
• IRAs available to individuals through the Retirement Solutions Group
(1) As at July 18, 2019
(2) As at December 31, 2019
(3) As at December 31, 2018
Individual Retail Investors
• A broad network of distribution relationships with unaffiliated broker
dealers, financial planners, registered investment advisors and other
financial institutions that distribute the Putnam Funds and defined
contribution investment only services to their customers, which, in
total, includes approximately 136,000 advisors (1)
• Sub-advisory relationships and Putnam-labeled funds as investment
options for insurance companies and non-U.S. residents
• Retail distribution channels are supported by Putnam’s sales and
relationship management team
• Retirement plan sponsors and participants are supported by Putnam’s
dedicated defined contribution investment only professionals and
through a relationship with Empower Retirement
Institutional Investors
• Supported by Putnam’s dedicated account management, product
management and client service professionals
(1) As at December 31, 2019
comPetitive conditions
financiaL services
The retirement and investment marketplaces are competitive.
The Company’s competitors include mutual fund companies,
insurance companies, banks, investment advisors and certain
service and professional organizations. No one competitor or
small number of competitors is dominant. Competition focuses on
name recognition, service, technology, cost, variety of investment
options, investment performance, product features, price and
financial strength as indicated by ratings issued by nationally
recognized agencies.
48
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
asset management
The investment management business is competitive. Putnam
competes with other providers of investment products and
services, primarily based on the range of investment products
offered, investment performance, distribution, scope and quality
of shareholder and other services as well as general reputation
in the marketplace. Putnam’s investment management business
is also influenced by general securities market conditions,
government regulations, global economic conditions as well as
advertising and sales promotional efforts. Putnam competes with
other mutual fund firms and institutional asset managers that offer
investment products similar to Putnam as well as products that
Putnam does not offer. Putnam also competes with a number of
mutual fund sponsors that offer their funds directly to the public.
Conversely, Putnam offers its funds only through intermediaries.
Selected consolidated financial information – United States
Premiums and deposits (1) (2) (5)
Sales (1)
Fee and other income (3) (5)
Net earnings – common shareholders (5)
Net earnings (US$) – common shareholders (4) (5)
Adjusted net earnings – common shareholders (1) (5)
Adjusted net earnings (US$) – common shareholders (1) (4) (5)
Total assets
Proprietary mutual funds and institutional assets (1)
Total assets under management (1)
Other assets under administration (1)
Total assets under administration (1)
For the three months ended
For the twelve months ended
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
Dec. 31
2019
$ 70,475
163,087
3,767
(61)
(45)
373
282
$
$
19,480
31,781
679
(121)
(92)
114
87
$
85,612
257,301
$
342,913
792,110
17,670
31,245
665
77
59
77
59
87,090
250,183
337,273
778,450
$
20,588
32,080
644
55
41
55
41
$
85,941
235,075
321,016
630,881
$ 1,135,023
$ 1,115,723
$ 951,897
$
Dec. 31
2018
72,475
105,948
2,603
388
292
388
292
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
(2) For the twelve months ended December 31, 2019, premiums and deposits excluded the initial ceded premium of $13,889 million (US$10,365 million) related to the sale, via indemnity reinsurance, of the U.S.
individual life insurance and annuity business.
(3) For the twelve months ended December 31, 2019, fee and other income included a ceding commission of $1,080 million (US$806 million) related to the sale, via indemnity reinsurance, of the U.S. individual life
insurance and annuity business.
(4) Net earnings (US$) – common shareholders and adjusted net earnings (US$) – common shareholders do not include $9 million of net foreign currency exchange gains for the twelve months ended December 31,
2018 as they do not have a US$ equivalent. These amounts are only included in Canadian dollar net earnings.
(5) Following the sale, via indemnity reinsurance, of the U.S. individual life insurance and annuity business to Protective Life on June 1, 2019, the Company recorded a net loss of $199 million (US$148 million) related
to the transaction in the Reinsured Insurance & Annuity Business results. For the twelve months ended December 31, 2019, the impacts to the Consolidated Statements of Earnings are outlined in the table below:
Impact on Consolidated Statements of Earnings of reinsurance of U.S. individual life insurance and annuity business:
Net premiums (initial ceded premiums)
Fee and other income (initial ceding commission)
Net investment income
Total paid or credited to policyholders
Operating, administrative and other expenses
Total pre-tax net loss per note 3 in the Company’s December 31, 2019 consolidated financial statements
Income taxes
Total after-tax net loss
$
$
(13,889)
1,080
219
12,463
(120)
(247)
48
(199)
Great-West Lifeco Inc. 2019 Annual Report
49
Management’s Discussion and Analysis
Net earnings – common shareholders
Financial Services (1)
Asset Management
Corporate
Reinsured Insurance & Annuity Business (1) (2)
Net earnings – common shareholders
Adjustments (2)
Revaluation of a deferred tax asset (3)
Restructuring costs (3)
Net charge on sale, via reinsurance, of a U.S. business
Adjusted net earnings – common shareholders (2)
Financial Services (US$) (1)
Asset Management (US$)
Corporate (US$)
Reinsured Insurance & Annuity Business (1) (2)
For the three months ended
For the twelve months ended
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
Dec. 31
2019
Dec. 31
2018
$
$
100
18
(239)
–
$
(121)
$
$
$
199
36
–
114
76
13
(181)
–
$
$
$
$
$
$
$
63
13
1
–
77
–
–
–
77
49
9
1
–
59
–
–
–
48
(29)
–
36
55
–
–
–
55
36
(22)
–
27
41
–
–
–
$
$
278
33
(236)
(136)
$
(61)
$
$
$
199
36
199
373
211
24
(179)
(101)
$
$
$
(45)
$
151
28
148
282
240
(61)
52
157
388
–
–
–
388
184
(47)
33
122
292
–
–
–
$
59
$
41
$
$
292
Net earnings (US$) – common shareholders
$
(92)
$
Adjustments (2)
Revaluation of a deferred tax asset (US$) (3)
Restructuring costs (US$) (3)
Net charge on sale, via reinsurance, of a U.S. business (US$)
Adjusted net earnings (US$) – common shareholders (2)
$
151
28
–
87
(1) Reinsured Insurance & Annuity Business reflects business transferred to Protective Life Insurance on June 1, 2019 and includes the net charge on sale, via reinsurance, of a U.S. business of $199 million (US$148
million). Comparative figures have been adjusted to reflect current presentation.
(2) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
(3) The revaluation of a deferred tax asset of $199 million (US$151 million) and restructuring costs of $36 million (US$28 million) are included in the Corporate results.
• During the fourth quarter of 2019, management determined that
a revaluation of the deferred income tax asset pertaining to the
Asset Management business unit was appropriate due to timing
uncertainty in projected taxable income available to utilize
certain restricted net operating losses generated in the earliest
loss years. The impact was a charge to net earnings of $199 million
(US$151 million) and is included in the U.S. Corporate results.
2019 developMents
• On June 5, 2019, the Securities and Exchange Commission
adopted and released Regulation Best Interest (the Rule). The
Rule establishes a new standard of conduct requiring broker-
dealers to satisfy a higher standard of care and disclosure when
recommending securities and investment strategies, including
rollovers and account recommendations, to retail clients
and retirement plan participants. The Rule does not apply to
discussions with plan sponsors. The Rule is effective June 30,
2020 and the Company intends to fully comply with the Rule
by that date. Management does not expect that the Rule will
prevent the Company from executing on its overall business
strategy and growth objectives.
• During 2019, Putnam undertook actions to realign its resources
to better position itself for current and future opportunities.
These actions included technology modernization, product
consolidation, a reduction in staff and facilities reorganization.
During the fourth quarter of 2019, the Company recorded
restructuring costs which reduced net earnings by $36 million
(US$28 million) relating to these initiatives. The Company
expects to realize US$33 million in pre-tax annual operating
expense savings as a result of the restructuring activities mostly
by the end of the fourth quarter of 2020. As of December 31,
2019, approximately US$24 million in pre-tax annual operating
expense savings have been achieved. These restructuring costs
are included in the U.S. Corporate results.
50
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
Business units – united states
financiaL services
2019 developMents
• Effective June 1, 2019, GWL&A, a subsidiary of the Company,
completed the sale, via indemnity reinsurance, of substantially all
of its individual life insurance and annuity business to Protective
Life who now assumes the economics and risks associated with
the reinsured business. The transaction resulted in an after-
tax transaction value of approximately $1.6 billion (US$1.2
billion), excluding one-time expenses. The transaction value
included a ceding commission of $1,080 million (US$806 million)
and a capital release of approximately $530 million (US$400
million). The business transferred included bank-owned and
corporate-owned life insurance, single premium life insurance,
individual annuities as well as closed block life insurance and
annuities. Because the transaction is structured as a reinsurance
agreement, the Company will hold both the liability and offsetting
reinsurance asset. Protective Life will assume the economics and
risks associated with the reinsured business.
In the second quarter of 2019, the Company recognized a loss
related to this transaction of $199 million (US$148 million),
which included transaction costs of $63 million (US$47 million)
and $36 million (US$27 million) due to updated expense
assumptions primarily related to stranded overhead. The
liabilities transferred and ceding commission received at the
closing of this transaction are subject to future adjustments.
In October 2019, Protective Life provided the Company with its
listing of proposed adjustments with respect to the liabilities
transferred. In December 2019, the Company formally objected
to these proposed adjustments. The Master Transaction
Agreement requires the parties to attempt to resolve these
differences in an informal manner and that process is ongoing.
Based on the information presently known, it is difficult to
predict the outcome of this matter with certainty, but this matter
is not expected to materially impact the consolidated financial
position of the Company.
GWL&A has retained a block of life insurance, predominately
participating policies, which are now administered by Protective
Life, as well as a closed retrocession block of life insurance.
• Empower Retirement participant accounts have grown to 9.4
million at December 31, 2019 from 8.8 million at December 31,
2018.
• Empower Retirement assets under administration were US$673
billion at December 31, 2019, up from US$516 billion at
December 31, 2018.
• During the third quarter of 2019, Empower Retirement
announced it entered into a 21-year agreement with the Denver
Broncos Football Club and Metropolitan Football Stadium
District for the naming rights to the Denver Broncos’ stadium,
which will now be known as “Empower Field at Mile High.”
The agreement gives Empower Retirement national brand and
media exposure, serving as the home for the Broncos and more
than 300 other events annually.
• During 2019, the Company received the following awards and
rankings:
º In a PLANADVISER Retirement Plan Adviser Survey, Empower
Retirement was rated the overall most favourable plan provider
and number 1 by retirement professionals in seven categories.
º In a Newsweek list of “America’s Best Companies for Customer
Service 2019”, Empower Retirement was in the top three ranked
companies with which to save for retirement by U.S. customers
who have used the services.
º In a PLANSPONSOR survey, Empower Retirement received 50
best-in-class awards.
oPerating resuLts
Premiums and deposits (1) (2) (3)
Sales (1) (2) (4)
Fee and other income (2)
Net earnings (2) (5)
Premiums and deposits (US$) (1) (2) (3)
Sales (US$) (1) (2) (4)
Fee and other income (US$) (2)
Net earnings (US$) (2) (5)
For the three months ended
For the twelve months ended
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
$
$
3,150
15,798
376
100
2,386
11,968
285
76
$
$
3,071
16,885
369
63
2,327
12,792
280
49
$
$
2,595
14,234
318
48
1,967
10,783
241
36
Dec. 31
2019
$ 11,783
105,380
1,428
278
$
8,877
79,353
1,076
211
$
$
Dec. 31
2018
10,375
44,447
1,270
240
8,014
34,301
981
184
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
(2) The operating results of Financial Services have been restated for comparative periods to reflect the impact of the reinsurance transaction with Protective Life, which closed on June 1, 2019. Following the close of
the reinsurance transaction, and included in Financial Services results, the Company will retain a block of life insurance, predominately participating policies, which are now administered by Protective Life, as well
as a closed retrocession block of life insurance.
(3) For the three months and twelve months ended December 31, 2019, premiums and deposits included US$54 million and US$166 million, respectively, relating to the retained policies (US$54 million and US$192
million for the three and twelve months ended December 31, 2018, US$34 million for the three months ended September 30, 2019).
(4) For the three months and twelve months ended December 31, 2019, sales included US$0.3 billion and US$1.1 billion, respectively, relating to Putnam managed funds sold on the Empower Retirement platform
(US$0.3 billion and US$1.1 billion for the three and twelve months ended December 31, 2018, and US$0.3 billion for the three months ended September 30, 2019).
(5) For the three months and twelve months ended December 31, 2019, net earnings included a net loss of US$19 million and net earnings of US$6 million, respectively, relating to the retained policies (US$4 million
and US$31 million for the three and twelve months ended December 31, 2018, and US$6 million for the three months ended September 30, 2019).
Great-West Lifeco Inc. 2019 Annual Report
51
Management’s Discussion and Analysis
Premiums and deposits
Fee and other income
Fee income is derived primarily from assets under management,
assets under administration, shareholder servicing
fees,
administration and recordkeeping services and investment
advisory services. Generally, fees are earned based on assets
under management, assets under administration or the number
of plans and participants for which services are provided.
Fee and other income for the fourth quarter of 2019 of
US$285 million increased by US$44 million compared to the
same quarter last year and by US$5 million compared to the
previous quarter, primarily due to higher average equity
markets and growth in participants.
For the twelve months ended December 31, 2019, fee and
other income increased by US$95 million to US$1,076 million
compared to the same period last year, primarily due to the same
reasons discussed for the in-quarter results.
Net earnings
Net earnings for the fourth quarter of 2019 of US$76 million
increased by US$40 million compared to the same quarter last
year. The increase was primarily due to the impact of a partial
settlement of an employee pension plan, higher contributions
from investment experience and net business growth, partially
offset by higher operating expenses.
For the twelve months ended December 31, 2019, net earnings
increased by US$27 million to US$211 million compared to the
same period last year. The increase was primarily due to the impact
of a valuation adjustment on an employee pension plan, higher
contributions from investment experience and net business
growth, partially offset by lower contributions from insurance
contract liability basis changes and higher operating expenses.
Net earnings for the fourth quarter of 2019 of US$76 million
increased by US$27 million compared to the previous quarter,
primarily due to the impact of a valuation adjustment on an
employee pension plan and higher contributions from investment
experience, partially offset by higher operating expenses.
Premiums and deposits for the fourth quarter of 2019 of US$2.4
billion increased by US$0.4 billion compared to the same
quarter last year and by US$0.1 billion compared to the previous
quarter, primarily due to higher deposits from existing Empower
Retirement participants.
Premium and deposits for the twelve months ended December 31,
2019 increased by US$0.9 billion to US$8.9 billion compared to the
same period last year, primarily due to the same reasons discussed
for the in-quarter results.
Sales
Sales in the fourth quarter of 2019 increased by US$1.2 billion to
US$12.0 billion compared to the same quarter last year, primarily
due to higher Empower Retirement mid and small sized plans,
partially offset by lower Empower Retirement large plan sales.
Large plan sales can be highly variable from period to period and
tend to be lower margin; however, contribute to covering fixed
overhead costs.
For the twelve months ended December 31, 2019, sales increased
by US$45.1 billion to US$79.4 billion compared to the same period
last year, primarily due to higher Empower Retirement sales across
all products lines, including several large plan sales.
Sales in the fourth quarter of 2019 decreased by US$0.8 billion
compared to the previous quarter, primarily due to lower Empower
Retirement large plan sales, partially offset by higher small and
mid-sized plan sales.
Empower Retirement – assets under administration (US$)
General account – fixed options
Segregated funds – variable options
Proprietary mutual funds (1)
Unaffiliated retail investment options &
administrative services only
December 31
2019
2018
$ 13,532 $ 12,979
14,966
24,098
19,504
30,949
609,316
463,883
$ 673,301 $ 515,926
(1) At December 31, 2019, proprietary mutual funds included US$13.7 billion in Putnam managed funds
(US$10.6 billion at December 31, 2018).
Empower Retirement customer account values at December 31,
2019 increased by US$157.4 billion compared with December 31,
2018, primarily due higher equity market levels and net cash
inflows across investment categories, primarily within unaffiliated
retail investment options & administrative services only.
52
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
outLook – financiaL services
Refer to Cautionary Note regarding Forward-looking Information
and Cautionary Note regarding non-IFRS Financial Measures at
the beginning of this document.
As the second largest recordkeeping provider in the U.S., Empower
Retirement is positioned for significant growth opportunities
with expertise and diversification across all plan types, company
sizes and market segments. The Financial Services business unit
continually examines opportunities to structure products and
develop strategies to stimulate growth in assets under management.
In 2020, Empower Retirement’s strategies to drive sales growth will
continue to include active marketing of the brand, investing in
product differentiation and offering a best-in-class service model.
In 2019, service enhancements were made to this model including
improving client-facing tools, optimizing
standardizing and
advisor relationship management and client alignment as well as
adopting best practices for participant communications. In 2020,
investments will continue to be made to improve the customer web
experiences, including adding innovative capabilities and ease of
service products. These efforts are expected to increase customer
retention and ultimately increase participant retirement savings.
asset management
2019 developMents
• Putnam’s ending assets under management
(AUM) at
December 31, 2019 of US$181.7 billion increased by US$21.5
billion compared to the same period last year, while average
AUM for the twelve months ended December 31, 2019 of
US$173.2 billion increased by US$0.6 billion compared to the
same period last year. For the three and twelve months ended
December 31, 2019, mutual fund net inflows were US$1.5 billion
and US$2.4 billion, respectively.
• Putnam continues to sustain strong investment performance
relative to its peers. As of December 31, 2019, approximately
82% of Putnam’s fund assets performed at levels above the
Lipper median on a three-year basis, and approximately 86% on
a five-year basis.
• During the fourth quarter of 2019, Putnam began offering seven
equity model-based separately managed accounts and six
multi-asset model portfolios. These offerings will help to satisfy
emerging preferences among investors for strategies that are
generally cost-effective, tax efficient and provide opportunities
for customization, enabling investors to screen for certain
investments that are in conflict with their personal values.
• For the 30th consecutive year, Putnam has been recognized by
DALBAR Inc. for mutual fund service quality. This recognition
includes Putnam being named as a DALBAR Mutual Fund
Service Award winner for 28 of those years. Additionally, Putnam
has been named the sole recipient of DALBAR’s Total Client
Experience Award recognizing overall mutual fund customer
service quality for the past nine years.
Great-West Lifeco Inc. 2019 Annual Report
53
Management’s Discussion and Analysis
oPerating resuLts
Sales (1)
Fee income
Investment management fees
Performance fees
Service fees
Underwriting & distribution fees
Fee income
Core net earnings (1)
Less: Financing and other expenses (after-tax) (1)
Reported net earnings (loss)
Sales (US$) (1)
Fee income (US$)
Investment management fees (US$)
Performance fees (US$)
Service fees (US$)
Underwriting & distribution fees (US$)
Fee income (US$)
Core net earnings (US$) (1)
Less: Financing and other expenses (after-tax) (US$) (1)
Reported net earnings (loss) (US$)
For the three months ended
For the twelve months ended
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
Dec. 31
2019
Dec. 31
2018
$ 15,983
$
14,360
$
17,483
$ 57,299
$
59,848
206
2
37
58
303
28
(10)
18
205
(3)
37
57
296
22
(9)
13
199
(8)
37
57
285
(18)
(11)
(29)
813
(10)
149
230
821
(38)
148
241
1,182
1,172
78
(45)
33
(11)
(50)
(61)
$ 12,108
$
10,879
$
13,245
$ 43,185
$
46,164
155
2
28
44
229
21
(8)
13
155
(2)
28
43
224
17
(8)
9
151
(6)
28
43
216
(14)
(8)
(22)
611
(6)
112
173
890
59
(35)
24
634
(30)
115
186
905
(8)
(39)
(47)
Pre-tax operating margin (1)
7.2%
9.5%
(10.8)%
8.1%
(1.5)%
Average assets under management (US$) (1)
$ 178,023
$ 174,268
$ 168,743
$ 173,159
$ 172,579
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
Sales
Fee income
Sales in the fourth quarter of 2019 decreased by US$1.1 billion to
US$12.1 billion compared to the same quarter last year, primarily
due to a decrease in mutual fund sales of US$1.0 billion.
For the twelve months ended December 31, 2019, sales decreased
by US$3.0 billion to US$43.2 billion compared to the same period
last year, primarily due to a decrease in mutual fund sales of US$2.0
billion and a decrease in institutional sales of US$1.0 billion.
Sales in the fourth quarter of 2019 increased by US$1.2 billion
compared to the previous quarter, primarily due to a US$1.1
billion increase in mutual fund sales.
Fee income is derived primarily from investment management
fees, performance fees, transfer agency and other service fees,
as well as underwriting and distribution fees. Generally, fees are
earned based on AUM and may depend on financial markets, the
relative performance of Putnam’s investment products, the number
of retail accounts and sales. Performance fees are generated on
certain mutual funds and institutional portfolios and are generally
based on a rolling 36-month performance period for mutual funds
and a 12-month performance period for institutional portfolios.
Performance fees on mutual funds are symmetric, and as a result,
can be positive or negative.
Fee income for the fourth quarter of 2019 increased by US$13
million to US$229 million compared to the same quarter last year.
The increase was primarily due to higher investment management
fees, driven by higher average AUM and higher institutional and
mutual fund performance fees.
For the twelve months ended December 31, 2019, fee income
decreased by US$15 million to US$890 million compared to the
same period last year. The decrease was primarily due to lower
investment management fees, driven by a change in asset mix, as
well as lower underwriting and distribution fees, partially offset by
improved mutual fund performance fees.
Fee income for the fourth quarter of 2019 increased by US$5
million compared to the previous quarter, primarily due to higher
institutional performance fees.
54
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
Net earnings
Core net earnings for the fourth quarter of 2019 were US$21
million compared to a core net loss of US$14 million for the same
quarter last year. Core net earnings increased by US$35 million
primarily due to higher net investment income on seed capital
and higher net fee income. In the fourth quarter of 2019, reported
net earnings, including financing and other expenses, were US$13
million compared to a reported net loss of US$22 million for the
same quarter last year. Financing and other expenses for the
fourth quarter of 2019 of US$8 million were comparable to the
same quarter last year.
For the twelve months ended December 31, 2019, core net
earnings were US$59 million, compared to a core net loss of US$8
million for the same period last year, primarily due to higher net
investment income on seed capital and lower operating expenses,
which included the impact of expense reduction initiatives,
partially offset by lower net fee income. For the twelve months
ended December 31, 2019, reported net earnings, including
financing and other expenses, were US$24 million compared to a
reported net loss of US$47 million for the same period last year.
Financing and other expenses for the twelve month period ended
December 31, 2019 decreased by US$4 million to US$35 million
compared to the same period last year, primarily due to lower net
financing costs as a result of debt refinancing during the prior year.
Core net earnings for the fourth quarter of 2019 were US$21
million compared to core net earnings of US$17 million for the
previous quarter. Core net earnings increased by US$4 million,
primarily due to higher fee income, higher net investment income
and additional tax benefits, partially offset by higher operating
expenses. Reported net earnings, including financing and other
expenses, for the fourth quarter of 2019, were US$13 million
compared to reported net earnings of US$9 million for the previous
quarter. Financing and other expenses for the fourth quarter of
2019 of US$8 million were comparable to the previous quarter.
assets under management
Assets under management (US$) (1)
Beginning assets
$ 174,191
$ 174,661
$ 177,199
$ 160,200
$ 171,458
For the three months ended
For the twelve months ended
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
Dec. 31
2019
Dec. 31
2018
Sales – Mutual funds
Redemptions – Mutual funds
Net asset flows – Mutual funds
Sales – Institutional
Redemptions – Institutional
Net asset flows – Institutional
Net asset flows – Total
7,798
(6,316)
1,482
4,310
(5,587)
(1,277)
6,703
(5,642)
1,061
4,176
(6,784)
(2,608)
8,817
(8,341)
476
4,428
(6,055)
(1,627)
27,474
(25,031)
2,443
15,711
(22,081)
(6,370)
29,454
(27,036)
2,418
16,710
(18,712)
(2,002)
205
(1,547)
(1,151)
(3,927)
416
Impact of market/performance
7,328
1,077
(15,848)
25,451
(11,674)
Ending assets
$ 181,724
$ 174,191
$ 160,200
$ 181,724
$ 160,200
Average assets under management
Mutual funds
Institutional assets
86,824
91,199
83,937
90,331
79,198
89,545
83,096
90,063
79,780
92,799
Total average assets under management
$ 178,023
$ 174,268
$ 168,743
$ 173,159
$ 172,579
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
Average AUM for the three months ended December 31, 2019 were
US$178.0 billion, an increase of US$9.3 billion or 5% compared to
the same quarter last year, primarily due to the impact of markets
and cumulative mutual fund net asset inflows, partially offset by
cumulative institutional net asset outflows. Net asset inflows for
the fourth quarter of 2019 were US$0.2 billion compared to net
assets outflows of US$1.2 billion for the same quarter last year.
In-quarter mutual fund net asset inflows were US$1.5 billion and
institutional net asset outflows were US$1.3 billion.
Average AUM for the twelve months ended December 31, 2019
increased by US$0.6 billion to US$173.2 billion compared to the
same period last year, primarily due to the same reasons discussed
for the in-quarter results. Net asset outflows for the twelve months
ended December 31, 2019 were US$3.9 billion compared to net
assets inflows of US$0.4 billion for the same period last year. Year-
to-date mutual fund net asset inflows of US$2.4 billion were more
than offset by institutional net asset outflows of US$6.4 billion.
Average AUM for the three months ended December 31, 2019
increased by US$3.8 billion compared to the previous quarter,
primarily due to the impact of markets.
Great-West Lifeco Inc. 2019 Annual Report
55
Management’s Discussion and Analysis
outLook – asset management
Refer to Cautionary Note regarding Forward-looking Information
and Cautionary Note regarding non-IFRS Financial Measures at
the beginning of this document.
united states corPorate
U.S. Corporate consists of items not associated directly with or
allocated to the United States business units, including the impact
of certain non-continuing items related to the U.S. segment.
Putnam remains committed to providing strong, long-term
investment performance across asset classes for its clients
and investors in the mutual fund, institutional and retirement
marketplaces.
In 2020, Putnam will continue to focus efforts on driving growth
and market share through new sales and asset retention in
all markets it serves including Global Institutional, PanAgora
(Putnam’s quantitative institutional manager), U.S. Retail and
Defined Contribution Investment Only, while maintaining its
industry recognized reputation for service excellence.
Innovation will remain a key differentiator in 2020, as Putnam
further develops its product offerings, service features and
operational functions, while bolstering its corporate and business/
product brand image with a wide range of key constituents.
Putnam continues to increasingly incorporate digital technology
throughout its business to drive greater efficiencies and create
business opportunities.
Putnam will continue to focus on growth of revenues and assets in
2020, while at the same time managing firm-wide expenses, as the
firm seeks to build a scalable, profitable asset management franchise.
reinsured insurance & annuity Business
Operating Results
Premiums and deposits (1) (2)
Sales (1)
Fee and other income (3)
Net earnings
Adjusted net earnings (1)
Premiums and deposits (US$) (1) (2)
Sales (US$) (1)
Fee and other income (US$) (3)
Net earnings (US$)
Adjusted net earnings (US$) (1)
In the fourth quarter of 2019, the net loss was US$181 million
compared to net earnings of nil for the same period in 2018,
which includes the impact of a revaluation of a deferred tax asset
of US$151 million and restructuring costs of US$28 million both
related to the Asset Management business unit. Excluding these
items, the adjusted net loss increased by US$2 million primarily
due to higher operating expenses, partially offset by higher net
investment income.
Excluding the revaluation of a deferred tax asset and restructuring
costs related to the Asset Management business unit discussed for
the in-quarter results, net earnings for the twelve months ended
December 31, 2019 were nil compared to net earnings of US$33
million in the same period in 2018. The decrease was primarily
due to a gain in the prior year which resulted from the termination
of an interest rate hedge as part of a debt refinancing transaction.
Excluding a revaluation of a deferred tax asset and restructuring
costs related to the Asset Management business unit discussed for
the in-quarter results, the net loss in the fourth quarter of 2019,
was US$2 million comparable to net earnings of US$1 million in
the previous quarter.
The 2018 year-to-date U.S. Corporate U.S. dollar net earnings
do not include $9 million of net foreign currency exchange gains
which occurred in the second quarter of 2018 as a result of debt
redemptions as they do not have a U.S. dollar equivalent. These
amounts are only included in Canadian dollar net earnings.
For the three months ended
For the twelve months ended
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
Dec. 31
2019
Dec. 31
2018
$
$
$
$
347
–
–
–
–
262
–
–
–
–
$
$
239
–
–
–
–
181
–
–
–
–
510
363
41
36
36
386
275
31
27
27
$
$
1,393
408
1,157
(136)
63
1,049
306
864
(101)
47
$
$
2,252
1,653
161
157
157
1,739
1,277
124
122
122
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
(2) For the twelve months ended December 31, 2019, premiums and deposits excluded the initial ceded premium of $13,889 million (US$10,365 million) related to the sale, via indemnity reinsurance, of the U.S.
individual life insurance and annuity business.
(3) For the twelve months ended December 31, 2019, fee and other income included a ceding commission of $1,080 million (US$806 million) related to the sale, via indemnity reinsurance, of the U.S. individual life
insurance and annuity business.
The Reinsured Insurance & Annuity Business unit results reflect sales, fee and other income and net earnings up to June 1, 2019.
Following the sale, via indemnity reinsurance, on June 1, 2019 to Protective Life, there were no additional sales, fee and other income
and net earnings related to this business unit. Premiums and deposits for the three months ended December 31, 2019 of US$262 million
and for the three months ended September 30, 2019 of US$181 million primarily related to deposits received on separate accounts, with
the economics ceded to Protective Life, resulting in no net earnings impact.
56
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
e u r o p e
The Europe segment comprises two distinct business units:
Insurance & Annuities and Reinsurance, together with an
allocation of a portion of Lifeco’s corporate results. Insurance &
Annuities provides protection and wealth management products,
including payout annuity products, through subsidiaries of
Canada Life in the U.K., the Isle of Man and Germany, as well as
through Irish Life in Ireland. Reinsurance operates primarily in
the U.S., Barbados and Ireland, and is conducted through Canada
Life, London Life and their subsidiaries.
transLation of foreign currency
Foreign currency assets and
into
Canadian dollars at the market rate at the end of the financial
period. All income and expense items are translated at an average
rate for the period.
liabilities are translated
Impact of currency movement is a non-IFRS financial measure.
Refer to the “Non-IFRS Financial Measures” section of this
document for additional details.
Business proFile
insurance & annuities
The core products offered in the U.K. are bulk and individual payout
annuities, equity release mortgages, investments (including life
bonds, retirement drawdown and pension), individual protection
and group insurance. These products are distributed through
independent financial advisors and employee benefit consultants.
The U.K.’s international operations based in the Isle of Man and
Dublin, Ireland offer investment, savings and individual protection
products that are sold through independent financial advisors and
private banks in the U.K. and in other selected territories.
On June 21, 2018, Canada Life Limited, an indirect wholly-owned
subsidiary of the Company, announced an agreement to sell a
heritage block of individual policies to Scottish Friendly which
were a mainly closed block. The transfer to Scottish Friendly
completed on November 1, 2019. Canada Life Investments
will continue to manage a portion of unit-linked assets which
transferred to Scottish Friendly.
The core products offered by Irish Life in Ireland are savings and
investments, individual and group life insurance, health insurance
and pension products. These products are distributed through
independent brokers, a direct sales force and tied agent bank
branches. Irish Life Health offers individual and corporate health
plans, distributed through independent brokers and direct channels.
Irish Life Investment Managers (ILIM) is one of the Company’s fund
management operations in Ireland with approximately €85 billion
of assets under management. In addition to managing assets on
behalf of companies in the Lifeco group, ILIM also manages assets
for a wide range of institutional and retail clients, occupational
defined benefit and defined contribution pension schemes, large
multinational corporations, charities and domestic companies.
The German operation focuses on pension, lifetime GMWB and
individual protection products that are distributed through
independent brokers and multi-tied agents.
Insurance & Annuities continues to expand its presence in
its defined market segments by focusing on the introduction
of innovative products and services, the quality of its service
offerings as well as the enhancement of distribution capabilities
and intermediary relationships.
reinsurance
Reinsurance provides capital and risk solutions and operates
primarily in the U.S., Barbados and Ireland. In the U.S., the
reinsurance business operates through branches of Canada Life,
London Life, subsidiaries of London Life and an indirect subsidiary
of GWL&A. In Barbados, the reinsurance business operates
primarily through branches of Canada Life, London Life and
subsidiaries of London Life. In Ireland, the reinsurance business
operates through a subsidiary of Canada Life. Effective January
1, 2020, following the amalgamation of Great-West Life, London
Life and Canada Life, the Reinsurance business will be operated
through the Canada Life branches, subsidiaries of Canada Life and
an indirect subsidiary of GWL&A.
includes both
reinsurance and
The Company’s business
retrocession business transacted directly with clients or through
reinsurance brokers. As a retrocessionaire, the Company provides
reinsurance to other reinsurers to allow those companies to
manage their insurance risk.
The product portfolio offered by the Company includes life,
annuity/longevity, mortgage and property catastrophe reinsurance,
provided on both a proportional and non-proportional basis.
In addition to providing reinsurance products to third parties, the
Company also utilizes internal reinsurance transactions between
companies in the Lifeco group. These transactions are undertaken
to better manage insurance risks relating to retention, volatility
and concentration; and to facilitate capital management for the
Company, its subsidiaries and branch operations. These internal
reinsurance transactions produce benefits that are reflected in
one or more of the Company’s other business units.
Great-West Lifeco Inc. 2019 Annual Report
57
Management’s Discussion and Analysis
Market overview
Products and services
insurance & annuities
market Position
U.K.
• Group life market share 25% (1)
• Group income protection market share 17% (1)
insurance & annuities (cont’d)
distriBution
U.K.
• Financial advisors
• Private banks
• Employee benefit consultants
Ireland
• Independent brokers
• Payout annuities market share 17% (Advisor only) (2)
• Pensions and investment consultants
• A market leading international life company selling into the U.K.
• Direct sales force
market, with over 30% market share (3)
• Tied bank branch distribution with various Irish banks
• Among the top five in the onshore unit-linked single premium bond
market, with 19% market share (Advisor only) (3)
• An award winning competitor in the equity release market with a
market share of 8.4% (6)
Ireland
• Life assurance company market share 34% (4)
• Retail life and pensions market share 31% (4)
Germany
• Independent brokers
• Multi-tied agents
(1) As at December 31, 2018
(2) Market share based on annualized first quarter to third quarter 2019 data through financial
advisors, restricted whole market advisors and non-advised distributor.
(3) Based on annualized first quarter to third quarter 2019 data
• Group pensions, group risk and corporate annuities market share 39% (4)
• ILIM is one of the largest institutional fund managers in Ireland with
(4) As at June 30, 2019
(5) As at December 31, 2019
€85 billion assets under management (5)
• Third largest health insurance business through Irish Life Health (1)
(6) Equity Release Council market statistics for fourth quarter 2018 to third quarter 2019
Germany
• 5% share of the broker market (3)
Products and services
U.K.
• Individual and bulk payout annuities
• Fixed term annuities
• Individual savings and investments (retirement drawdown & pension,
onshore & international bonds and collective investment funds)
• Group and individual life insurance
• Group income protection (disability)
• Group and individual critical illness
• Equity release mortgages
Ireland
• Individual and group risk & pensions
• Individual and bulk payout annuities
• Health insurance
• Wealth management services
• Individual savings and investment
• Institutional investment management
Germany
• Pensions
• Income protection (disability)
• Critical illness
• Variable annuities (GMWB)
• Individual life insurance
reinsurance
market Position
• Among the top two life reinsurers in the U.S. for assumed structured
life reinsurance (1)
• Leading player in the evolving European structured life reinsurance
market
• Ranked 6th for traditional mortality reinsurance in the U.S.
• Leading provider of U.K. and other European annuity/longevity
reinsurance
• Long-standing provider of a range of property and casualty catastrophe
retrocession coverages
Products and services
Life
• Yearly renewable term
• Co-insurance
• Modified co-insurance
• Capital relief solutions
Mortgage Reinsurance
• Stop loss
Annuity / Longevity
• Payout annuity
• Longevity protection
• Fixed annuity
Property & Casualty
• Catastrophe retrocession
distriBution
• Independent reinsurance brokers
• Direct placements
(1) As at November 30, 2019
58
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
comPetitive conditions
united kingdom
In the U.K., the Company has strong market positions for payout
annuities, wealth management and group risk, where it is a market
leader. Combined sales from the onshore and international wealth
management businesses put Canada Life as one of the top single
investment premium bond providers in the U.K.
The market for payout annuities continued to grow in 2019. Due to
a regulatory initiative, the Company has benefited from an increase
in the proportion of customers seeking the best price in the open
market. This has increased the proportion of customers buying
annuities through financial advisors, which are the Company’s
primary distribution channel. The Company continues to offer
both standard and enhanced annuities as well as investment
based pension and drawdown products for customers wanting
to take advantage of the greater pension flexibility introduced
in recent years. The Company expects further growth in the
retirement retail market and is well placed to continue to grow
in this market, supported by the expertise and addition of equity
release mortgages gained through the Retirement Advantage
purchase in 2018. The equity release mortgage sector is becoming
an increasingly important part of the retirement retail market and
is expected to be an area of growth. The Company also offers bulk
annuities aimed at trustees of defined benefits plans who want to
insure pension annuities in payment. This is a large market and
demand from trustees remains strong. The market is expected
to grow as pension plan funding improves and trustees consider
ways to reduce risk. With expertise and experience in longevity
and investment products, the Company is well placed to continue
to grow bulk annuity new business.
In international wealth management operations, there was market
growth of 7% during the year. Continued efforts to increase
sales within the retail market along with strong sales from the
institutional sector of the market resulted in total sales of £1.4
billion for 2019. Future estate planning continues to be an area of
focus for U.K. advisors and Canada Life International remains one
of the leading companies in this sector of the market.
ireLand
The Company continues to be the largest life assurance company
in Ireland with a market share of 34% as at June 30, 2019. Irish
Life follows a multi-channel distribution strategy with the largest
broker distribution network, the largest direct sales force and
the largest Bancassurance distribution network where it has tied
relationships with five banks.
Irish Life Investment Managers is one of Ireland’s
largest
institutional fund managers with approximately €85 billion of
assets under management, including funds managed for other
companies within the Lifeco group, as at December 31, 2019.
During 2019, in addition to maintaining its market leading
position in Ireland, ILIM continued to expand its global footprint
with international assets under management growth through new
institutional relationships and mandates.
Setanta Asset Management, a subsidiary of the Company,
manages assets for a number of institutional clients, both third-
party institutions as well as for companies in the Lifeco group and
has approximately €12 billion of assets under management as at
December 31, 2019.
The Company operates its Irish health insurance business under
the Irish Life Health brand, where it has a top three position.
germany
The Company has established a leading position among providers
of products to the German independent intermediary market.
The Company is among the top six providers in the independent
intermediary market through continuous product, technology
and service improvements and sales have grown 9% in 2019.
The market for traditional German insurance products has been
challenging following the introduction of Solvency II in 2016
combined with the continued low interest rate environment. This
new environment is moving German insurance providers to offer
hybrid and lighter guarantee products which provides increased
competition in the Canada Life product categories.
reinsurance
In the U.S. life reinsurance market, insurers continue to view
reinsurance as an important tool for risk and capital management.
Several competitors are now focusing on growing their market
share, which resulted
increased competition. However,
an independent industry survey released in November 2019
confirmed that the Company remains one of the top two providers
of risk and capital management solutions in the U.S. market.
in
The Company has also had success in traditional life reinsurance
as the number of remaining life reinsurers is declining due to
consolidation and clients valuing diversification of reinsurers. The
Company’s financial strength and ability to offer risk and capital
solutions and traditional mortality reinsurance continues to be a
competitive advantage.
In Europe, Solvency II dominates the regulatory landscape and
interest in capital relief transactions that produce capital benefits
continues to grow. Demand for longevity reinsurance remains very
strong in the U.K., the Netherlands in particular and some other
continental European countries. As a result, there are now more
reinsurers participating in this market, but even so, demand for
longevity coverage continues to be strong.
Great-West Lifeco Inc. 2019 Annual Report
59
Management’s Discussion and Analysis
Selected consolidated financial information – Europe
Premiums and deposits (1)
Fee and other income
Net earnings – common shareholders
Adjusted net earnings – common shareholders (1)
Total assets
Proprietary mutual funds and institutional assets (1)
Total assets under management (1)
Other assets under administration (1)
Total assets under administration (1) (2)
For the three months ended
For the twelve months ended
Dec. 31
2019
$ 52,817
1,548
1,390
1,382
$
Dec. 31
2018
40,489
1,480
1,311
1,367
Dec. 31
2019
$ 12,387
379
452
444
$ 189,251
56,261
245,512
48,738
Sept. 30
2019
Dec. 31
2018
$
11,694
384
357
357
$
10,357
348
349
349
$ 185,387
51,389
$ 180,842
40,375
236,776
46,040
221,217
45,024
$ 294,250
$ 282,816
$ 266,241
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
(2) At December 31, 2019, total assets under administration excludes $8.4 billion of assets managed for other business units within the Lifeco group of companies ($8.2 billion at September 30, 2019 and $7.8 billion
at December 31, 2018).
Net earnings – common shareholders
Insurance & Annuities
Reinsurance
Europe Corporate (1)
Net earnings – common shareholders
Adjustments (1)
Net gain on Scottish Friendly transaction
Restructuring costs
For the three months ended
For the twelve months ended
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
Dec. 31
2019
Dec. 31
2018
$
$
$
$
334
124
(6)
452
(8)
–
$
$
306
55
(4)
357
–
–
271
89
(11)
349
–
–
$
1,050
353
(13)
$
1,036
377
(102)
$
1,390
$
1,311
(8)
–
–
56
Adjusted net earnings – common shareholders (1)
$
444
$
357
$
349
$
1,382
$
1,367
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
2019 developMents
• On January 31, 2020, the U.K. left the European Union (EU) and
entered a transition arrangement that will last until the end of
2020. The Company’s U.K. and other European businesses have
taken the necessary steps to handle the immediate impacts
of Brexit and will continue to monitor any further steps that
may become necessary as the U.K. and Europe negotiate their
future relationship. While market volatility continues, it is not
expected to have a material impact on the Company’s financial
results as the Company’s businesses are principally domestic to
the countries where they are based.
• In 2018, Canada Life Limited, an indirect wholly-owned U.K.
subsidiary of the Company, announced an agreement to sell
a heritage block of individual policies to Scottish Friendly,
comprised of unit-linked policies and non unit-linked policies.
On October 22, 2019, the required court approval for the transfer
of these policies was received and this transfer occurred,
effective November 1, 2019. In the fourth quarter of 2019, the
Company recognized a gain of $8 million after-tax related to this
transaction which is included in the Europe Corporate results.
• As of December 31, 2019, £14 million of pre-tax annualized
expense reductions have been achieved relating to the U.K.
restructuring program compared to £11 million at September 30,
2019. The Company remains on track to achieve targeted annual
expense reductions of £20 million pre-tax by the end of the
fourth quarter of 2020 from various sources including systems
and process improvements and a reduction in headcount.
60
Great-West Lifeco Inc. 2019 Annual Report
• Subsequent to December 31, 2019, on February 3, 2020, Irish
Life, through its subsidiary Invesco Limited, completed the
acquisition of Acumen & Trust DAC, an Irish financial services
consultancy firm expanding into the areas of employee benefits
consulting and individual financial advice.
• Subsequent to December 31, 2019, on February 10, 2020, Irish Life
announced the sale of Irish Progressive Services International
Limited, a wholly owned subsidiary whose principal activity is the
provision of outsourced administration services for life assurance
companies, to a member of the FNZ group of companies. The
proposed transaction will be subject to customary closing
conditions including receipt of required regulatory approvals
and is expected to be completed in the second half of 2020. The
Company expects to recognize a gain related to this transaction.
This business did not have a material impact on the Company’s
net earnings for the twelve months ended December 31, 2019.
• On October 21, 2019, the Company’s German business
completed its acquisition of an interest in Jung DMS & Cie AG
(JDC), one of the leading broker pools in Germany. While the
transaction is not expected to have a material impact on the
Company’s financial results, it expands the Company’s footprint
in the German market.
Management’s Discussion and Analysis
• During the fourth quarter of 2019, Irish Life Investment Managers
announced the conversion of their entire discretionary book
of assets under management (€15 billion) to a responsible
investment approach, which explicitly considers Environmental,
Social and Governance (ESG) factors in the investment approach,
the first investment manager in Europe to do so.
• In October 2018, the Company rebranded Retirement Advantage
(the trading name of MGM Advantage Life Limited) as Canada
Life and announced the intention to transfer the legal ownership
of all insurance policies written by MGM Advantage Life Limited
to Canada Life Limited. The Part VII transfer was approved on
December 18, 2019, and the legal transfer of the Retirement
Advantage business took place on January 1, 2020.
• On December 18, 2019, the Reinsurance business unit entered
into a long-term longevity reinsurance agreement with an
insurance company in the Netherlands. The agreement covers
approximately €12 billion of pension liabilities and close
to 200,000 pensioners. In exchange for ongoing premium
payments, the Company will pay the actual benefit obligations
incurred by the insurance company.
• During the fourth quarter of 2019, the Company received the
following awards:
º At the International Investment Awards, Canada Life
International received Best International Life Group (U.K.),
Best International Portfolio Bond for the Premiere Account,
Best International Trust and Estate Planning for the Wealth
Preservation Account and Best International Savings Plan for
the Offshore Savings Account.
º At the 2019 Irish Pensions Awards, Irish Life Investment
Managers won “Investment Manager of the Year” for the fifth
time in eight years, while Setanta Asset Management won
“Equities Manager of the Year” for the second consecutive
year. Additionally, Irish Life Investment Managers won
“Property Investment/Fund Managers of the Year” at the
2019 KPMG Irish Independent Property Industry Excellence
Awards.
º Focus Money awarded the best insurer’s financial strength
rating to Canada Life Assurance Europe plc and best
available Product Rating (FFF+) from Franke & Bornberg for
the Company’s German Essential ability product Premium
Grundfähigkeitsschutz.
Business units – europe
insurance & annuities
oPerating resuLts
Premiums and deposits (1) (2)
Sales (1) (2)
Fee and other income
Net earnings
For the three months ended
For the twelve months ended
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
$
7,931
6,566
377
334
$
7,596
7,098
382
306
$
6,485
5,972
345
271
Dec. 31
2019
$ 35,374
31,976
1,539
1,050
$
Dec. 31
2018
26,985
24,481
1,467
1,036
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
(2) For the three and twelve months ended December 31, 2019, premiums and deposits and sales exclude $0.1 billion and $0.8 billion, respectively, of assets managed for other business units within the Lifeco group
of companies ($0.4 billion and $0.9 billion for the three and twelve months ended December 31, 2018 and $0.3 billion for the three months ended September 30, 2019).
Premiums and deposits
Sales
Premiums and deposits for the fourth quarter of 2019 increased
by $1.4 billion to $7.9 billion compared to the same quarter last
year, primarily due to higher fund management sales in Ireland,
partially offset by lower pension sales in Ireland.
Sales for the fourth quarter of 2019 increased by $0.6 billion to $6.6
billion compared to the same quarter last year, primarily due to
higher fund management sales in Ireland, partially offset by lower
pension sales in Ireland.
For the twelve months ended December 31, 2019, premiums and
deposits increased by $8.4 billion to $35.4 billion compared to the
same period last year, primarily due to higher fund management sales
in Ireland, partially offset by lower bulk annuity sales in the U.K., lower
pension sales in Ireland and the impact of currency movement.
Premiums and deposits for the fourth quarter of 2019 increased
by $0.3 billion compared to the previous quarter, primarily due to
an increase in fund management sales and higher pension sales
in Ireland, partially offset by lower bulk annuity sales in the U.K.
For the twelve months ended December 31, 2019, sales increased
by $7.5 billion to $32.0 billion compared to the same period last
year, primarily due to higher fund management sales in Ireland
and higher wealth management sales in the U.K. These items were
partially offset by lower bulk annuity sales in the U.K., lower retail
and pension sales in Ireland and the impact of currency movement.
Sales for the fourth quarter of 2019 decreased by $0.5 billion
compared to the previous quarter, primarily due to lower fund
management sales in Ireland and lower bulk annuity sales in the
U.K., partially offset by higher Ireland retail sales.
Great-West Lifeco Inc. 2019 Annual Report
61
Management’s Discussion and Analysis
Fee and other income
Fee and other income for the fourth quarter of 2019 increased by
$32 million to $377 million compared to the same quarter last year,
primarily due to higher management fees in Ireland and Germany
and higher investment related fee income in Ireland partially offset
by lower management fees in the U.K. resulting from the policies
sold to Scottish Friendly and the impact of currency movement.
For the twelve months ended December 31, 2019, fee and other
income increased by $72 million to $1,539 million compared to
the same period last year. The increase was primarily due to higher
management fees in Ireland and Germany and higher investment
related fee income in Ireland, partially offset by lower other
income in Ireland, lower management fees in the U.K., and the
impact of currency movement.
Fee and other income for fourth quarter of 2019 decreased by
$5 million compared to the previous quarter, primarily due to
lower management fees in the U.K., partially offset by higher
management fee income in Germany.
Net earnings
Net earnings for the fourth quarter of 2019 increased by $63
million to $334 million compared to the same quarter last year.
The increase was primarily due to the resolution of an outstanding
issue with a foreign tax authority and higher contributions from
investment experience, partially offset by adverse morbidity
experience in Ireland. To address the evidence of an adverse trend
in claims in Ireland, pricing action has been taken during 2019,
which will take effect in 2020, and the Company will continue to
monitor its progress.
Net earnings for the twelve months ended December 31, 2019
increased by $14 million to $1,050 million compared to the
same period last year. The increase was primarily due to higher
contributions from investment experience, which included the
impact of bond and mortgage upgrades in 2019, higher realized
gains on surplus assets, favourable impact of new business,
favourable mortality experience in the U.K. and the impact of
changes to certain tax estimates, including the resolution of an
outstanding issue with a foreign tax authority. The increase was
partially offset by the impact of impairment charges on mortgage
loans and reductions in expected property cash flows primarily
associated with a U.K. retail tenant entering a prepackaged
administration, lower contributions from insurance contract
liability basis changes and adverse morbidity experience in Ireland.
Net earnings for the fourth quarter of 2019 increased by $28
million compared to the previous quarter, primarily due to the
resolution of an outstanding tax issue with a foreign tax authority
and higher contributions from investment experience, partially
offset by lower contributions from insurance contract liability
basis changes.
62
Great-West Lifeco Inc. 2019 Annual Report
outLook – insurance & annuities
Refer to Cautionary Note regarding Forward-looking Information
and Cautionary Note regarding non-IFRS Financial Measures at
the beginning of this document.
United Kingdom – The outlook for the retail payout annuities
market in 2020 is for modest growth. Since April 2015, individuals
in
have had greater flexibility for accessing their savings
retirement. As expected, some individuals have chosen to remain
invested in the market while drawing a pension income rather than
buying a payout annuity. However, the Company expects that the
attractiveness of guaranteed income from annuities will remain a
key part of customers’ retirement planning in the future and the
Company sees the opportunity to grow its payout annuity business
in line with the expected growth in the overall retirement market.
The Retirement Advantage acquisition in early 2018 created a
strong platform for growth in the U.K.’s growing equity release
and retirement income markets. The Company will continue to
develop products for individuals who require additional pension
flexibility. The overall size of the retirement market continues to
grow as more employers transition from defined benefit to defined
contribution pension plans, with significant growth expected in
equity release, pension consolidation and income drawdown. The
Company will also look to further develop its presence in the bulk
annuity market where trustees of defined benefit schemes want to
remove longevity risk by insuring its pension liabilities near to or
already in payment.
Canada Life continues to be a key player in the single premium
investment bond marketplace. It will continue to develop
its presence in both the international and onshore market
segments. The Company’s distribution strategy for onshore
will remain focused on financial advisors. In the international
wealth management segment, the outlook for 2020 is cautiously
optimistic with an expectation that the market will continue to
grow. The majority of the Company’s business growth is expected
to be through discretionary fund management wealth advisors,
the retail market and through tax and estate planning products.
The outlook for the group risk operation remains positive and
has benefited from additional risk business as a result of the U.K.
Government’s Pensions Auto Enrollment initiative in the workplace,
which commenced in October 2012 and completed in 2018. Larger
Canada Life plans have grown, as the pension legislation increased
the membership of the associated group plans. The Company
expects the expansion of the existing customer base experienced
in recent years will moderate as employers have implemented
the changes required by the legislation. The Company’s group
operations will continue to maintain new pricing discipline,
reflecting the current low interest rate environment.
The Prudential Regulation Authority (PRA) granted approval for
Canada Life to use an internally designed, Partial Internal Model
(PIM) to calculate its capital requirement under the Solvency
II regulatory regime with effect from December 31, 2019. This
replaces the industry-standard, Standard Formula approach, and
results in a more risk sensitive and appropriate Solvency II capital
treatment to support the growth of the businesses going forward.
Following the acquisition of U.K. financial services provider
Retirement Advantage in 2018, final court approval for the legal
transfer of the insurance business into Canada Life Limited
was granted in December 2019. Going forward this will deliver
further synergies and savings, as well as continuing to provide an
enhanced product offering to customers.
Management’s Discussion and Analysis
Ireland – The Irish economy continues to perform positively with
expected gross domestic product (GDP) growth of 5% in 2019,
and projected to trend at 3% in 2020. Economic forecasts for 2020
remain impacted by Brexit, though the reduced risk of a disorderly
transition has eased concerns. Unemployment rates at 5% are the
lowest since January 2007. Consumer sentiment remains cautious,
but improved notably in the later months of 2019. Attitudes of
Irish households towards savings and investment declined in the
fourth quarter of 2019, reflecting the low interest rate environment
for savings and uncertainty in the investment outlook.
Irish Life’s vision is to be “Ireland’s home of Health and Wealth”,
strengthening and expanding its position as the largest assurance
company in Ireland and accelerating growth profitability across its
retail, corporate, health and investment management businesses
its multi-channel distribution strategy within a
following
competitive market. Supporting this is Irish Life’s ExO Innovation
Hub (ExO) with a mission to secure and further the evolution of
technology and digital solutions at the heart of the organization.
The collaborative and symbiotic influence of ExO in Irish Life
ensures all products, digital and offline, better match actual needs
and wants of the customer.
Germany – The outlook for the German business continues to
be positive and the Company expects continued growth in assets
under management and its share of the market during 2020. The
Company is positioning itself to further strengthen its presence
in product development,
through continued
distribution technology and service improvements. 2019 saw
the roll-out of a new administration platform that will allow the
business to support its customers more effectively and to expand
the Company’s share of the group pensions market.
investments
reinsurance
oPerating resuLts
Premiums and deposits (1)
Fee and other income
Net earnings
For the three months ended
For the twelve months ended
Dec. 31
2019
$
4,456
2
124
Sept. 30
2019
Dec. 31
2018
$
4,098
2
55
$
3,872
3
89
Dec. 31
2019
$ 17,443
9
353
Dec. 31
2018
$
13,504
13
377
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
Premiums and deposits
Net earnings
Reinsurance premiums can vary significantly from period to
period depending on the terms of underlying treaties. For certain
life reinsurance transactions, premiums will vary based on
the form of the transaction. Treaties where insurance contract
liabilities are assumed on a proportionate basis will typically have
significantly higher premiums than treaties where claims are not
incurred by the reinsurer until a threshold is exceeded. Earnings
are not directly correlated to premiums received.
Net earnings for the fourth quarter of 2019 increased by $35
million to $124 million compared to the same quarter last year.
The increase was primarily due to favourable impacts from new
business, which included the initial impact of the new €12 billion
long-term longevity reinsurance agreement, and higher business
volumes, partially offset by lower contributions from insurance
contract liability basis changes and less favourable claims
experience in the life and annuity business.
For the twelve months ended December 31, 2019, net earnings
decreased by $24 million to $353 million compared to the same
period last year, primarily due to less favourable claims experience
in the life and annuity business and lower contributions from
insurance contract liability basis changes, partially offset by higher
business volumes and favourable initial impacts from new business.
Net earnings for the fourth quarter of 2019 increased by $69 million
compared to the previous quarter, primarily due to favourable
initial impacts from new business and higher business volumes.
Premiums and deposits for the fourth quarter of 2019 increased
from $3.9 billion to $4.5 billion compared to the same quarter
last year. The increase was primarily due to new reinsurance
agreements and higher volumes relating to existing business.
For the twelve months ended December 31, 2019, premiums and
deposits increased by $3.9 billion to $17.4 billion compared to the
same period last year, primarily due to the same reasons discussed
for the in-quarter results.
Premiums and deposits for the fourth quarter of 2019 increased by
$0.4 billion compared to the previous quarter, primarily due to the
same reasons discussed for the in-quarter results.
Fee and other income
Fee and other income for the fourth quarter of 2019 of $2 million
was comparable to the previous quarter and the prior year.
For the twelve months ended December 31, 2019, fee and other income
decreased by $4 million to $9 million compared to the same period
last year, primarily due to restructured reinsurance agreements.
Great-West Lifeco Inc. 2019 Annual Report
63
Management’s Discussion and Analysis
outLook – reinsurance
Refer to Cautionary Note regarding Forward-looking Information
and Cautionary Note regarding non-IFRS Financial Measures at
the beginning of this document.
euroPe corPorate
The Europe Corporate account includes financing charges and the
impact of certain non-continuing items as well as the results for
the legacy international businesses.
The U.S. life reinsurance industry is focused on accessing certain
demographics, including the low to middle income families
market. If the industry is successful, this could create renewed
growth, otherwise expected sales and volume will remain stable.
In Europe, low interest rates and the associated financial impact
on reserve and capital positions under Solvency II is a key market
dynamic. The Company’s reinsurance business unit continues to
help European clients and other affiliated companies meet these
capital challenges through innovative reinsurance solutions.
Demand for longevity reinsurance remains very strong and will
remain a focus for 2020.
2019 was the third consecutive year of significant hurricane and
typhoon events. The Company expects 2020 retrocessional pricing
to continue to increase. Insurance linked securities capacity is
expected to be slightly down due to trapped collateral from 2017
to 2019 events. The Company’s primary focus for 2020 will be to
continue to support the core client base with prudent attachment
levels and risk adjusted premiums.
In the fourth quarter of 2019, Europe Corporate had a net loss
of $6 million compared to a net loss of $11 million for the same
period last year. Excluding the net gain on the Scottish Friendly
transaction of $8 million, the adjusted net loss of $14 million was
comparable to the same quarter last year.
For the twelve months ended December 31, 2019, Europe
Corporate had a net loss of $13 million compared to $102 million
for the same period last year. Included in the 2018 year-to-date
results were $56 million of restructuring costs related to the U.K.
operations. Excluding this item and the net gain on the Scottish
Friendly transaction discussed for the in-quarter results, the
adjusted net loss decreased by $25 million primarily due to lower
strategic and business development expenses.
For the three months ended December 31, 2019, Europe Corporate
had a net loss of $6 million compared to $4 million for the
previous quarter. Excluding the net gain on the Scottish Friendly
transaction discussed for the in-quarter results, the adjusted net
loss increased by $10 million primarily to negative contributions
from insurance contract liability basis changes associated with the
legacy international business.
l i F e C o C o r p o r at e o p e r at i n g r e s u lt s
The Lifeco Corporate segment includes operating results for
activities of Lifeco that are not associated with the major business
units of the Company.
The net loss for the twelve months ended December 31, 2019 was
$21 million compared to a net loss of $13 million for the same
period last year, primarily due to lower net investment income.
The net loss for the three months ended December 31, 2019 was
$6 million compared to a net loss of $4 million for the same period
last year, primarily due to lower net investment income, partially
offset by lower operating expenses.
The net loss for the three months ended December 31, 2019 was
$6 million compared to a net loss of $4 million for the previous
quarter, primarily due to higher operating expenses.
64
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
r i s k M a n a g e M e n t
overview
As a diverse financial services company, the effective management
of risk is integral to the success of the Company’s business.
The Company is committed to a comprehensive system of risk
management, which is embedded across all business activities,
operated through a three lines of defence organization and
overseen by the Board of Directors. The Company’s three lines of
defence include business unit and support functions, oversight
functions including the risk function and the Company’s internal
audit function. The Company has a prudent and measured
approach to risk management. This approach is built on a
strong risk culture and is guided by an integrated Enterprise Risk
Management (ERM) Framework.
The Company’s ERM Framework facilitates the alignment of
business strategy with risk appetite, informs and improves the
deployment of capital; and supports the identification, mitigation
and management of exposure to possible losses and risks. The
Company’s Risk Function is responsible for the Risk Appetite
Framework (RAF), the supporting risk policies and risk limit
structure, and provides independent risk oversight across the
Company’s operations.
There are three main sections to this Risk Management disclosure:
ERM Framework, Risk Management and Control Practices and
Exposures and Sensitivities.
enterprise risk ManageMent FraMework
The Company’s Board and Management Committees provide
oversight of the ERM Framework which is comprised of five
components: Risk Culture, Risk Governance, RAF, Risk Processes
and Risk Infrastructure & Policies.
risk cuLture
Risk culture is defined as the system of values and behaviours
which reflect the Company’s collective sense of responsibility
to fulfill its promises and safeguard the Company’s financial
strength and reputation while growing shareholder value. This
culture reflects the Company’s commitment to treat customers
fairly and support open communication and ethical behaviour.
This culture is instilled through a mindset of risk awareness as
demonstrated by:
• Consistent tone from the Board of Directors and senior
management in respect of behavioural and ethical expectations;
• Recognition that risk is inherent in the Company’s business
success and reflects opportunity when appropriately managed;
• Common commitment throughout the Company to the
importance of continuous management of risk, including clear
accountability for and ownership of specific risks and risk areas;
• Rewarding positive risk taking and management behaviours
while challenging and remediating those that are inappropriate;
• Encouragement of risk event reporting and the presence of
robust whistleblowing processes, actively seeking to learn from
mistakes; and
• Recognition that risk management skills and knowledge are
valued, encouraged and developed, throughout the Company
and supported by an appropriately resourced Risk Function.
risk governance
Risk governance sets out the roles and responsibilities for the
Board of Directors (Board) and Board Committees.
Board of Directors
The mandate of the Board, which it discharges directly or through
one of its Committees, is to supervise the management of the
business and affairs of the Company. The Board is ultimately
accountable and responsible for the governance and oversight
of risk throughout the Company. The Board annually approves
the strategic goals, objectives, plans and initiatives for Lifeco
and in so doing reviews the risks associated with Lifeco’s diverse
business, strategic goals and high priority initiatives. Key risk
responsibilities include:
• Approving the RAF and ERM Policy;
• Monitoring
the
implementation and maintenance by
management of appropriate systems, policies, procedures and
controls to manage the risks associated with the Company’s
businesses and operations;
• Annually approving Lifeco’s business, financial and capital
plans and monitoring the implementation by management
thereof;
• Upon the recommendation of the Risk Committee, adopting
a Code of Conduct applicable to Directors, officers and
employees of the Company; and
• Periodically
support
approving policies designed
independence of the Internal Audit, Risk, Finance, Actuarial
and Compliance oversight functions.
to
Great-West Lifeco Inc. 2019 Annual Report
65
Governance and Nominating Committee – The primary mandate
of the Governance and Nominating Committee is to oversee the
Company’s approach to governance matters, to recommend to the
Board effective corporate governance policies and processes, to
assess the effectiveness of the Board, Board Committees and the
Directors and to recommend to the Board candidates for election
as Directors and candidates for appointment to Board Committees.
Human Resources Committee – The primary mandate of the Human
Resources Committee is to support the Board in its oversight of
compensation, talent management and succession planning. This
includes the responsibility to approve compensation policies, to
review the designs of major compensation programs, to approve
compensation arrangements and any benefit or perquisite plan
for senior executives of the Company and to recommend to the
Board compensation arrangements for the Directors and for the
President and Chief Executive Officer. The mandate also includes
the responsibility to review succession plans for the President
and Chief Executive Officer and other senior executives, to review
talent management programs and initiatives and to review the
leadership capabilities required to support the advancement
of the Company’s strategic objectives. The Human Resources
Committee is also responsible for considering the implications of
the risks associated with the Company’s compensation policies,
plans and practices and in doing so meets annually with the Chief
Risk Officer. The Human Resources Committee also meets with
the Risk Committee on an as needed basis.
Investment Committee – The primary mandate of the Investment
Committee is to oversee the Company’s global investment strategy
and activities, including approving the Company’s Investment
Policy and monitoring the Company’s compliance with the
Investment Policy. The mandate also includes reviewing the
Company’s annual investment plan and monitoring emerging
risks, market trends and performance, investment regulatory
issues and any other matters relevant to the oversight of the
Company’s global investment function.
Management’s Discussion and Analysis
Risk Committee
The Risk Committee of the Board of Directors is responsible
for assisting the Board with risk management oversight and
governance throughout the Company. The Risk Committee’s
responsibilities include:
• Review and oversight of the ERM Policy and RAF;
• Review, approval and oversight of the credit, market, insurance,
operational, conduct, strategic and other risk policies;
• Approval of the risk limit framework, associated risk limits and
monitoring adherence to those limits;
• Approval of the organizational structure and resources of the
risk management and compliance functions;
• Evaluation of the Company’s risk culture;
• Discussion of the risks in aggregate and by type of risk;
• Review relevant reports including stress testing and financial
condition testing;
• Review and approval of the Own Risk and Solvency Assessment
(ORSA) Report;
• Periodically approve the recovery plan playbook;
• Review of the risk impact of business strategies, capital plans,
financial plans and the new business initiatives;
• Review and assessment of the performance of the Company’s
Chief Risk Officer (CRO) and Chief Compliance Officer (CCO);
• Monitoring compliance with the Company’s Code of Conduct;
• Periodic consideration and input regarding the relationships
between risk and compensation; and
• Review and assessment of the effectiveness of risk management
across the Company including processes to ensure effective
identification, measurement, management, monitoring and
reporting on significant current and emerging risks.
The Risk Committee is required to meet, at least annually, with the
Audit Committee and with the Company’s Chief Internal Auditor.
Members of the Risk Committee are independent of management.
Audit Committee – The primary mandate of the Audit Committee
is to review the financial statements of the Company and public
disclosure documents containing financial information and to report
on such review to the Board, to be satisfied that adequate procedures
are in place for the review of the Company’s public disclosure
documents that contain financial information and to oversee the
work and review the independence of the external auditor. The
Audit Committee is also responsible for reviewing, evaluating and
approving the internal control procedures that are implemented
and maintained by management. The Audit Committee is required
to meet, at least annually, with the Risk Committee.
Conduct Review Committee – The primary mandate of the
Conduct Review Committee is to require management to establish
satisfactory procedures for the consideration and approval of
transactions with related parties and to review and, if deemed
appropriate, to approve related party transactions in accordance
with such procedures.
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Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
Senior Management Risk Committees
The Executive Risk Management Committee (ERMC) is the
primary senior management committee that oversees all forms of
risk and the implementation of the ERM Framework. The members
are the CEO, the heads of each major Business Segment, the
heads of key oversight functions and heads of support functions
as appropriate. The Board Risk Committee delegates authority
for the approval and management of lower level risk limits to the
ERMC. The Company’s CRO leads the Risk Function and chairs the
ERMC. Its responsibilities include reviewing compliance with the
RAF, risk policies and risk standards. It also assesses the risk impact
of business strategies, capital and financial plans, and material
initiatives. The following three enterprise-wide sub-committees,
chaired by the Risk Function, report to the ERMC to provide advice
and recommendations on each of the key risk categories:
• Market and Credit Risk Committee
• Insurance Risk Committee
• Operational Risk Committee
The oversight responsibilities of the above committees include
identification, measurement, management, monitoring and
reporting of their respective risks.
Accountabilities
The Company has adopted a Three Lines of Defence model to clearly
segregate risk management and risk oversight responsibilities and
applies the ERM Framework rigorously across the enterprise:
• First Line: Business units and business support functions,
Investment Management, Human Resources,
including
Information Services and Legal, are the ultimate owners of
the risk and have primary risk management as well as risk-
taking responsibility and accountability through day-to-day
operations within ongoing business process;
• Second Line: The Risk Function has the primary and overall
responsibility and accountability for independent oversight of
risk-taking and risk management of the first line of defence. In
this role, the Risk Function receives support from other oversight
functions including Actuarial, Compliance and Finance; and
• Third Line: Internal Audit is responsible for independent
assurance of the adequacy of the design and operational
effectiveness of the Company’s ERM Framework.
The Company’s CRO reports directly, both to the President and
Chief Executive Officer and to the Board Risk Committee. The CRO
is responsible for ensuring that the Risk Function is appropriately
resourced and effective in executing its responsibilities. The
accountabilities of the CRO include reporting on compliance
with the ERM Policy and RAF as well as for escalating matters that
require attention.
Regional ERMCs monitor all risk categories for businesses and
operations within their respective business segments. Risk
resources and capabilities are aligned with the Company’s business
segments and operating units. Further support is provided by
centrally based risk areas of expertise.
Although the Company takes steps to anticipate and minimize
risks in general, no risk management framework can guarantee
that all risks will be identified, appreciated or mitigated effectively.
Unforeseen future events may have a negative impact on the
Company’s business, financial condition and results of operations.
risk aPPetite framework
The Company has an articulated Risk Appetite Framework (RAF)
that includes the following elements along with the associated
governance structure:
• Risk Strategy: Risk philosophy of the Company that links to the
business strategy
• Risk Appetite Statement: Qualitative reflection of the aggregate
level of risk and types of risk that the Company is willing to
accept to achieve its business objective
• Risk Preference: Qualitative description of risk tolerances
• Risk Limit Framework: Quantitative components of the RAF
including breach and escalation process
Risk Strategy
The Company’s business strategy is aligned with its risk strategy
and risk appetite. The risk strategy supports the Company’s main
objectives to keep its commitments while growing shareholder
value. The risk strategy requires:
• diversification of products and services, customers, distribution
channels and geographies;
• a prudent and measured approach to risk-taking,
• resilience of business operations and sustainable growth,
• conducting business to safeguard the Company’s reputation
and deliver fair customer outcomes through maintaining high
standards of integrity based on the Code of Conduct and sound
sales and marketing practices, and
• generating returns to grow shareholder value through profitable
and growing operations while maintaining a strong balance
sheet.
Risk Appetite Statement
The Company’s Risk Appetite Statement has four key components:
• Strong Capital Position: The Company intends to maintain a
strong balance sheet and not take risks that would jeopardize its
financial strength;
• Mitigated Earnings Volatility: The Company seeks
to
avoid substantial earnings volatility through appropriate
diversification and limiting exposure to more volatile lines of
business;
• Strong Liquidity: The Company intends to maintain a high
quality, diversified investment portfolio with sufficient liquidity
to meet the demands of policyholder and financing obligations
under normal and stressed conditions; and
• Treating Customers Fairly and Maintaining the Company’s
Reputation: The Company considers, across all business
activities and operations, the potential impact on its reputation.
This includes building and maintaining trust with the Company’s
customers and other stakeholders.
Risk Preference
The Company has established qualitative risk preferences for each
risk type. Each risk is assigned a risk preference level, in the context
of understanding and managing these risk. The current level of
exposure is regularly measured and risk tolerances are expressed
quantitatively through actual constraints to the Company’s
risk profile within pre-agreed limits. Maximum guidelines are
established to monitor risk concentration and inform the risk limit
setting process.
Great-West Lifeco Inc. 2019 Annual Report
67
Management’s Discussion and Analysis
Risk Limit Framework
Risk Monitoring, Reporting and Escalation
Risk monitoring relates to ongoing oversight and tracking of the
Company’s risk exposures, ensuring that the risk management
approaches in place remain effective. Monitoring may also identify
risk-taking opportunities.
Risk reporting presents an accurate and timely picture of existing
and emerging risk issues and exposures as well as their potential
impact on business activities. Reporting highlights the risk profile
relative to the risk appetite and associated risk limits.
A clearly defined escalation protocol has been established in respect
of breaches of the RAF, risk policies, operating standards and
guidelines. Remediation plans are reviewed by the Risk Function
and escalated to designated management and Board committees.
risk infrastructure and PoLicies
The Company’s organization and infrastructure is established
to provide resources and risk systems to support adequate and
appropriate risk policies, operating standards and guidelines
and processes. The Company takes a consistent approach to risk
management is taken across key risk types.
The Company has codified its procedures and operations related
to risk management and oversight requirements in a set of guiding
documents composed of risk policies, operating standards and
associated guidelines. This comprehensive documentation
framework provides detailed and effective guidance across all risk
management processes. These documents enable a consistent
approach to risk management and oversight across the Company’s
businesses and are reviewed and approved regularly, in accordance
with an established authority hierarchy, by the Board of Directors,
the Board Risk Committee or a senior management committee.
Similar policy structures have been developed and are maintained
by each region.
A comprehensive structure of risk limits and controls is in place
across the Company. Enterprise risk limits are further broken down
by business unit and risk type. The limit structure is accompanied
by comprehensive
limit approval and breach management
processes to ensure effective governance and oversight of the RAF.
The Company and its subsidiaries are subject to various regulatory
regimes. The capital requirements under these regulatory capital
regimes are reflected in the development of risk limits. Business
units are responsible for operating within the risk appetite and the
risk limit framework and satisfying local needs as required.
risk Processes
Risk processes follow a cycle of identification, measurement,
management, monitoring and reporting and are designed to ensure
both current and emerging risks are assessed against the RAF.
Risk Identification, Measurement and Management
Risk identification requires the structured analysis of the current
and emerging risks facing the Company, so that they are understood
and appropriately controlled. Processes are designed to ensure
risks are considered, assessed, prioritized and addressed in all
business initiatives and changes, including investment strategies,
product design, significant transactions, annual planning and
budgeting as well as potential business acquisitions and disposals.
Risk measurement provides the means to quantify and assess
the Company’s risk profile and monitor the profile against the
risk limits. Any material new business development or change in
strategy warrants an independent assessment of risk and potential
impact on reputation, in addition to measurement of the impact
on capital, earnings and liquidity. Stress and scenario testing is
used to evaluate risk exposures against the risk appetite. Sensitivity
testing of key risks is used to evaluate the impact of risk exposures
independent of other risks. Scenario testing is used to evaluate the
combined impact of multiple risk exposures.
The Company has processes in place to identify risk exposures
on an ongoing basis and, where appropriate, develops mitigation
strategies to proactively manage these risks. Effective risk
management requires the selection and implementation of
approaches to accept, reject, transfer, avoid or control risk,
including mitigation plans. It is based on a control framework
that includes risk limits, Key Risk Indicators (KRIs) and stress and
scenario testing to ensure appropriate escalation and resolution of
potential issues in a timely manner.
A key responsibility of the Risk Function is to ensure that the risk
appetite is applied consistently across the Company and that
limits are established to ensure that risk exposures comply with
the risk appetite and Company-wide risk policies.
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Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
r i s k M a n a g e M e n t a n d C o n t r o l p r a C t i C e s
The Company’s risk profile is impacted by a variety of risks and
its risk management and independent oversight processes are
tailored to the type, volatility and magnitude of each risk. The
Company has defined specific risk management and oversight
processes for risks, broadly grouped in the following categories:
1. Market and Liquidity Risk
2. Credit Risk
3. Insurance Risk
4. Operational Risk
5. Conduct Risk
6. Strategic Risk
Market and liquidity risk
risk descriPtion
Market risk is the risk of loss resulting from potential changes
in market rates, prices or liquidity in various markets such as
for interest rates, real estate, currency, common shares and
commodities. Exposure to this risk results from business activities
including investment transactions which create on-balance sheet
and off-balance sheet positions.
Liquidity risk is the risk of the Company’s inability to generate
the necessary funds to meet its obligations as they come due,
including off-balance sheet commitments and obligations.
market and Liquidity risk management
The Company’s Market Risk Policy sets out the market risk
management framework and provides the principles for market
risk management. This policy is supported by other policies and
guidelines that provide detailed guidance.
A governance structure has been implemented for the management
of market risk. The business units,
including Investment
Management, are the ultimate owners of market risk and as such
have primary responsibility for the identification, measurement,
management, monitoring and reporting of market risk. The
Company has established a senior management committee to
provide oversight of market risk, which includes completing
reviews and making recommendations regarding risk limits, the
risk policy and associated compliance, breach management and
mitigation pertaining to market risk. Each region has established
oversight committees and operating committees to help manage
market risk within the region. The Company has developed risk
limits, KRIs and measures to support the management of market
and liquidity risk in compliance with the Company’s RAF. The
Risk Function works with the business units and other oversight
functions to identify current and emerging market risks and take
appropriate action, if required.
The Company is willing to accept market risk and liquidity risk
in certain circumstances as a consequence of its business model
and seeks to mitigate the risk wherever practical. To reduce market
risk, the Company uses a dynamic hedging program associated
with segregated fund and variable annuity guarantees. This is
supplemented by a general macro equity hedging program.
Risks and risk management activities associated with the broad
market and liquidity risk categories are detailed below.
Interest Rate Risk
Interest rate risk is the risk of loss resulting from the effect of the
volatility and uncertainty of future interest rates on asset cash
flows relative to liability cash flows and on assets backing surplus.
This also includes changes in the amount and timing of cash flows
related to asset and liability optionality, including interest rate
guarantees and book value surrender benefits in the liabilities.
The Company’s principal exposure to interest rate risk arises
from certain general fund and segregated fund products. The
Company’s Asset Liability Management (ALM) strategy has been
designed to mitigate interest rate risks associated with general
fund products, with close matching of asset cash flows and
insurance and investment contract obligations. Products with
similar risk characteristics are grouped together to ensure an
effective aggregation and management of the Company’s ALM
positions. Asset portfolios supporting insurance and investment
contract liabilities are segmented to align with the duration and
other characteristics (e.g. liquidity) of the associated liabilities.
A prolonged period of low interest rates may adversely impact
the Company’s earnings and regulatory capital and could impact
the Company’s business strategy. During periods of prolonged
low interest rates, investment earnings may be lower because
the interest earned on new fixed income investments will likely
have declined with the market interest rates, and hedging costs
may increase. Also, early repayment on investments held such as
mortgage-backed securities, asset-backed securities, and callable
bonds, may be experienced and proceeds forced to be reinvested
at lower yields, which will reduce investment margins.
Crediting rates within general fund products are set prudently and
a significant proportion of the Company’s portfolio of crediting rate
products includes pass-through features, which allow for the risk
and returns to be shared with policyholders. Asset management
and related products permit redemptions; however, the Company
attempts to mitigate this risk by establishing long-term customer
relationships, built on a strategic customer focus and an emphasis
on delivering strong fund performance.
The Company has established dynamic hedging programs to
hedge interest rate risk sensitivity associated with segregated
fund and variable annuity guarantees. These hedging programs
are designed to offset changes in the economic value of liabilities
using derivative instruments. The Company’s approach to dynamic
hedging of interest rate risk principally involves transacting in
interest rate swaps. The hedge asset portfolios are dynamically
rebalanced within approved thresholds and rebalancing criteria.
Where the Company’s insurance and investment products have
benefit or expense payments that are dependent on inflation (e.g.
inflation-indexed annuities, pensions and disability claims), the
Company generally invests in real return instruments to mitigate
changes in the real dollar liability cash flows. Some protection
against changes in the inflation index can be achieved, as any
related change in the fair value of the assets will be largely offset
by a similar change in the fair value of the liabilities.
Great-West Lifeco Inc. 2019 Annual Report
69
the Europe segment; and to the British pound and the euro resulting
from operations of business units within the Europe segment
operating in the U.K., the Isle of Man, Ireland and Germany.
In accordance with IFRS, foreign currency translation gains and
losses from net investments in foreign operations, net of related
hedging activities and tax effects, are recorded in accumulated
other comprehensive income (loss). Strengthening or weakening
of the Canadian dollar end-of-period market rate compared to
the U.S. dollar, British pound and euro end-of-period market
rates impacts the Company’s total share capital and surplus.
Correspondingly, the Company’s book value per share and capital
ratios monitored by rating agencies are also impacted.
• A 5% appreciation (depreciation) of the average exchange rate
of the Canadian dollar to each of the British pound, euro and
U.S. dollar would increase (decrease) net earnings in 2019 by
$41 million, $26 million and $3 million, respectively.
• A 5% appreciation (depreciation) of the Canadian dollar end-of-
period market rate compared to each of the U.S. dollar, British
pound and euro end-of-period market rates would decrease
(increase) the unrealized foreign currency translation gains,
including the impact of instruments designated as hedges
of net investments on foreign operations, in accumulated
other comprehensive income (loss) of shareholders’ equity by
approximately $311 million, $324 million and $135 million,
respectively, as at December 31, 2019.
Management may use forward foreign currency contracts and
foreign denominated debt to mitigate the volatility arising from
the movement of rates as they impact the translation of net
investments in foreign operations. The Company uses non-IFRS
financial measures such as constant currency calculations to assist
in communicating the effect of currency translation fluctuation on
financial results.
Liquidity Risk
The Company’s
liquidity risk management framework and
associated limits are designed to ensure that the Company can
meet cash and collateral commitments as they fall due, both on an
expected basis and under a severe liquidity stress.
In the normal course of certain reinsurance business, the Company
provides letters of credit (LCs) to other parties, or beneficiaries. A
beneficiary will typically hold a LC as collateral to secure statutory
credit for insurance and investment contract liabilities ceded to or
amounts due from the Company.
The Company may be required to seek collateral alternatives
if it is unable to renew existing LCs at maturity. The Company
monitors its use of LCs on a regular basis and assesses the ongoing
availability of these and alternative forms of operating credit.
The Company has contractual rights to reduce the amount of LCs
issued to the LC beneficiaries for certain reinsurance treaties. The
Company staggers the maturities of LCs to reduce the renewal risk.
Management’s Discussion and Analysis
Equity Risk
Equity risk is the risk of loss resulting from the sensitivity of the
value of assets, liabilities, financial instruments and fee revenue to
changes in the level or in the volatility of market prices of common
shares and real estate. This includes the equity risk associated with
the Company’s general fund assets and investments on account of
segregated fund policyholders.
The Company’s principal exposure to equity risk arises from
segregated funds and fee income associated with the Company’s
assets under management. Approved investment and risk policies
also provide for general fund investments in equity markets within
defined limits.
The Company has established dynamic hedging programs to
hedge equity risk sensitivity associated with segregated fund
and variable annuity guarantees. The hedging programs are
designed to mitigate exposure to changes in the economic value
of these liabilities using derivative instruments. The Company’s
approach to dynamic hedging of equity risk principally involves
the short selling of equity index futures. The hedge asset portfolios
are dynamically rebalanced within approved thresholds and
rebalancing criteria. The Company’s product-level hedging
programs are supplemented by a general macro hedging strategy.
For certain very long-dated liabilities it is not practical or
efficient to closely match liability cash flows with fixed-income
investments. Therefore, certain long-dated asset portfolios target
an investment return sufficient to meet liability cash flows over the
longer term. These liabilities are partially backed by a diversified
portfolio of non-fixed income investments, including equity and
real estate investments, in addition to long dated fixed-income
instruments. Real estate losses can arise from fluctuations in the
value of or future cash flows from the Company’s investments in
real estate.
The Company has established a macro equity hedging program.
The objective of the program is to reduce the Company’s exposure
to equity tail-risk and to maintain overall capital sensitivity to
equity market movements within Board approved risk appetite
limits. The program is designed to hedge a portion of the
Company’s capital sensitivity due to movements in equity markets
arising from sources outside of dynamically hedged segregated
fund and variable annuity exposures.
Foreign Exchange Risk
Foreign exchange risk is the risk of loss resulting from changes
in currency exchange rates against the reporting currency. The
Company’s foreign exchange investment and risk management
policies and practices are to match the currency of the Company’s
general fund investments with the currency of the underlying
insurance and
liabilities. To enhance
portfolio diversification and improve asset liability matching,
the Company may use foreign exchange derivatives to mitigate
currency exchange risk to the extent this is practical using forward
contracts and swaps.
investment contract
The Company has net investments in foreign operations. As a
result, the Company’s revenue, expenses and income denominated
in currencies other than the Canadian dollar are subject to
fluctuations due to the movement of the Canadian dollar against
these currencies. Such fluctuations affect the Company’s financial
results. The Company has exposures to the U.S. dollar resulting
from the operations of Great-West Financial and Putnam in the
United States segment and the Reinsurance business unit within
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Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
Liquidity
Cash, cash equivalents and short-term bonds
$ 8,852 $ 7,795
December 31
2019
2018
Other liquid assets and marketable securities
Government bonds
Corporate bonds
Common/Preferred shares (public)
Residential mortgages – insured
Total
Cashable liability characteristics
30,865
41,792
9,766
4,141
33,443
46,378
8,873
4,530
$ 86,564 $ 93,224
$ 95,416 $ 101,019
December 31
2019
2018
Surrenderable insurance and investment contract liabilities (1)
At market value
At book value
Total
$ 21,606 $ 21,202
54,798
44,829
$ 66,435 $ 76,000
(1) Cashable liabilities include insurance and investment contract liabilities classified as held for sale.
The carrying value of the Company’s liquid assets and marketable
securities is approximately $95.4 billion or 1.4 times the Company’s
surrenderable insurance and investment contract liabilities. The
Company believes that it holds adequate and appropriate liquid
assets to meet anticipated cash flow requirements as well as to
meet cash flow needs under a severe liquidity stress.
Approximately 57% (approximately 53% in 2018) of insurance and
investment contract liabilities are non-cashable prior to maturity
or claim, with a further 14% approximately (13% in 2018) of
insurance and investment contract liabilities subject to fair value
adjustments under certain conditions.
The majority of liquid assets and other marketable securities
comprise fixed-income securities whose value is inversely related
to interest rates. Consequently, a significant rise in prevailing
interest rates would result in a decrease in the value of this pool of
liquid assets. Also, a high interest rate environment may encourage
holders of certain types of policies to terminate their policies,
thereby placing demands on the Company’s liquidity position.
For a further description of the Company’s financial instrument
risk management policies, refer to note 9 in the Company’s
December 31, 2019 consolidated financial statements.
Credit risk
risk descriPtion
Credit risk is the risk of loss resulting from an obligor’s potential
inability or unwillingness to fully meet its contractual obligations.
Exposure to this risk occurs any time funds are extended, committed
or invested through actual or implied contractual agreements.
Components of credit risk include: loan loss/principal risk, pre-
settlement/replacement risk and settlement risk. Obligors include
issuers, debtors, borrowers, brokers, policyholders, reinsurers,
derivative counterparties and guarantors.
Credit exposure resulting from the purchase of fixed-income
securities, which are primarily used to support policyholder
liabilities, is a core business risk that is appropriately factored
into the Company’s risk appetite. The Company also manages
financial contracts with counterparties. Such contracts may be
used to mitigate insurance and market risks (reinsurance ceded
agreements and derivative contracts) or they may arise from the
Company’s direct business operations (Reinsurance business unit)
and may result in counterparty risk. The risk arising from these
types of arrangements is included in the Company’s measurement
of its risk profile.
credit risk management
The Company’s credit risk management framework focuses
on minimizing undue concentration to
issuers, connected
companies, industries or individual geographies by emphasizing
diversification. Diversification
the
establishment of appropriate concentration limits and transaction
approval authority protocols. The Company’s approach to credit
risk management includes the continuous review of its existing
risk profile relative to the RAF as well as to the projection of
potential changes in the risk profile under stress scenarios.
achieved
through
is
Effective governance of credit risk management requires the
involvement of dedicated senior management committees,
experienced credit risk personnel, and with the guidance of
appropriate credit risk policies, standards and processes. For credit
risk, the Investment Committee is responsible for the approval of
investment decisions of significant size or level of complexity, and
oversight of the Company’s global investment strategy, including
compliance with investment limits and policies as well as breach
management. Additionally, the Investment Committee reviews
the Company’s investment policies, procedures, guidelines, and
corresponding limits to ensure that investment decisions are
in compliance with the Company’s RAF. The Risk Committee
advises the Board of Directors on credit risk oversight matters and
approves and monitors compliance with credit risk policies and
limits. The Risk Committee also provides oversight of the Credit
Risk Policy and related processes and is responsible for ensuring
compliance with the Company’s RAF.
The Investment Committee and Risk Committee are supported
by senior management committees. The Global Management
Investment Review Committee (GMIRC) and the Management
Investment Review Committees (MIRCs) for each regional
business segment review and approve new investments above
the transaction approval authority delegated to management and
manage credit risk across invested assets and counterparties. The
Market and Credit Risk Committee (MCRC), is the ERMC sub-
committee responsible for providing global oversight of market
and credit risk management activities, including credit risk limit
approval and breach of management processes, and market and
credit risk policy compliance.
The Company has established business-segment specific
Investment and Lending Policies, including investment limits for
each asset class, which are approved by the Investment Committee.
These policies and limits are complemented by the Credit Risk
Policy which describes credit risk management processes and
describes the role of the Risk Function in the oversight of credit risk,
including the setting and monitoring of aggregate concentration
risk limits, and the approval and escalation of exceptions.
Great-West Lifeco Inc. 2019 Annual Report
71
Management’s Discussion and Analysis
The Company identifies credit risk through an internal credit risk
rating system which includes a detailed assessment of an obligor’s
creditworthiness based on a thorough and objective analysis of
business risk, financial profile, structural considerations and
security characteristics including seniority and covenants. Credit
risk ratings are expressed using a 22-point scale that is consistent
with those used by external rating agencies. In accordance with
the Company’s policies, internal credit risk ratings cannot be
higher than the highest rating provided by certain independent
ratings companies. The Risk Function reviews and approves the
credit risk ratings assigned by Investment Management for all new
investments and reviews the appropriateness of ratings assigned
to outstanding exposures.
The Risk Function assigns credit risk parameters (probabilities
of default, rating transition rates, loss given default, exposures at
default) to all credit exposures to measure the Company’s aggregate
credit risk profile. In addition, the Risk Function establishes
limits and processes, performs stress and scenario testing (using
stochastically generated and deterministic scenarios) and
assesses compliance with the limits established in the RAF. It
regularly reports on the Company’s credit risk profile to executive
management, the Board of Directors and various committees at
enterprise, regional and legal entity levels.
Investment Management and the Risk Function are independently
responsible for the monitoring of exposures relative to limits as
well as for the management and escalation of risk limit breaches
as they occur. The Investment Management Function is also
responsible for the continuous monitoring of its portfolios for
changes in credit outlook, and performs regular credit reviews of
all relevant obligors and counterparties, based on a combination
of bottom-up credit analysis and top-down views on the economy
and assessment of industry and sub-sector outlooks. Watch Lists
are also used at the regional business segment levels to plan and
execute the relevant risk mitigation strategies.
The Risk Function oversees monitoring, breach management and
escalation activities, and has developed risk limits, KRIs and risk
budgets to act as early warnings against unacceptable levels of
concentration and to support the management of credit risk limits
in compliance with the Company’s RAF.
Counterparty Risk
Counterparties include both reinsurers and derivative counterparties.
The Company uses reinsurance to mitigate insurance risks.
This mitigation results in increased credit risk to reinsurance
counterparties from the potential failure to collect reinsurance
recoveries due to either the inability, or an unwillingness to fulfill
their contractual obligation.
Counterparties providing reinsurance to the Company are reviewed
for financial soundness as part of an ongoing monitoring process.
The minimum financial strength of reinsurers is outlined in the
Reinsurance Risk Management Policy. The Company seeks to
minimize reinsurance credit risk by setting rating-based limits on net
ceded exposure by counterparty as well as seeking protection in the
form of collateral or funds withheld arrangements where possible.
The Company enters into derivative contracts primarily to
mitigate market risks. Derivative counterparty risk is the risk of loss
resulting from the potential failure of the derivative counterparty
to meet their financial obligations under the contract. Derivative
products are traded through exchanges or with counterparties
approved by the Board of Directors or the Investment Committee.
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Great-West Lifeco Inc. 2019 Annual Report
The Company seeks to mitigate derivative credit risk by setting
rating-based counterparty limits in its investment policies and
through collateral arrangements where possible. In addition, the
Company includes potential future exposure of derivatives in its
measure of total exposure against single name limits.
insuranCe risk
risk descriPtion
Insurance risk is the risk of loss resulting from adverse changes in
experience associated with contractual promises and obligations
includes
arising
uncertainties around the ultimate amount of net cash flows
(premiums, commissions, claims, payouts and related settlement
expenses), the timing of the receipt and payment of these cash
flows, as well as the impact of policyholder behaviour (e.g. lapses).
insurance contracts.
Insurance risk
from
The Company identifies six broad categories of insurance
risk, which may contribute to financial losses: mortality risk,
morbidity risk, longevity risk, lapse risk, expense risk and property
catastrophe risk. Mortality risk, morbidity risk and longevity risk
are core business risks and the exchange of these risks into value
is a core business activity. Lapse risk and expense risk associated
with offering core products are accepted as a consequence of
the business model and mitigated where appropriate. Property
catastrophe risk is a selectively accepted business risk which is
constrained, actively managed and controlled within risk limits.
insurance risk management
Insurance products involve commitments by the insurer to provide
services and financial obligations with coverage for extended
periods of time. To provide insurance protection effectively, the
insurer must design and price products so that the premiums
received, and the investment income earned on those premiums,
will be sufficient to pay future claims and expenses associated
with the product. This requires the insurer, in pricing products and
establishing insurance contract liabilities, to make assumptions
regarding expected levels of income, claims and expenses and
how policyholder behaviours and market risks might impact these
assumptions. As a result, the Company is exposed to product
design and pricing risk which is the risk of financial loss resulting
from transacting business where the costs and liabilities arising in
respect of a product line exceed the pricing expectations.
Insurance contract liabilities are established to fund future claims
and include a provision for adverse deviation, set in accordance
with professional actuarial standards. Insurance contract liability
valuation requires regular updating of assumptions to reflect
emerging experience.
for
implemented
A governance structure has been
the
management of insurance risk. Business units are the ultimate
owners of insurance risk and as such have primary responsibility
for the identification, measurement, management, monitoring
and reporting of insurance risk. The Risk function, supported
by Corporate Actuarial, is primarily responsible for oversight of
the insurance risk management framework. The Company has
established an Insurance Risk Committee to provide oversight of
insurance risk, which includes completing reviews and making
recommendations regarding risk limits, the risk policy and
associated compliance, breach management and mitigation
pertaining to insurance risk. Each region has established oversight
committees and operating committees to help manage insurance
risk within the region.
Management’s Discussion and Analysis
The Company’s Insurance Risk Policy sets out the insurance risk
management framework and provides the principles for insurance
risk management. This policy is supported by several other policies
and guidelines that provide detailed guidance, including:
• Underwriting limits, practices and policies control the amount of
risk exposure, the selection of risks insured for consistency with
claims expectations and support the long-term sustainability of
the Company.
• Product Design and Pricing Risk Management Policy and
Reinsurance Risk Management Policy, which provide
guidelines and standards for the product design and pricing
risk management processes and reinsurance ceded risk
management practices;
• Corporate Actuarial Valuation Policy, which provides
documentation and control standards consistent with the
valuation standards of the Canadian Institute of Actuaries; and
• Participating Account Management Policies and Participating
Policyholder Dividend Policies, which govern the management
of participating accounts and provide for the distribution
of a portion of the earnings in the participating account as
participating policyholder dividends.
The Risk Function, in conjunction with Corporate Actuarial,
implements a number of processes to carry out its responsibility
for oversight of insurance risk. It reviews the Insurance Risk Policy
relative to current risk exposures and updates it as required.
It reviews insurance risk management processes carried out
by the business units, including product design and pricing,
underwriting, claims adjudication, and reinsurance ceding, and
provides challenge as required.
The Risk Function works with the business units and other
oversight functions to identify current and emerging insurance
risks and take appropriate action, if required. Insurance risk
limits, risk budgets and KRIs are set to keep the insurance risk
profile within the Company’s appetite for insurance risk and
the Risk Function regularly monitors the insurance risk profile
relative to these measures. Any breaches are required to be
escalated so that appropriate remediation may be implemented.
The Risk Function performs stress testing and does analysis of
insurance risks, including review of experience studies. It provides
regular reporting on these activities to the business units, senior
management, and risk oversight committees.
Risks and risk management activities associated with the broad
insurance risk categories are detailed below.
Mortality and Morbidity Risk
Mortality risk is the risk of loss resulting from adverse changes in
the level, trend, or volatility of mortality rates, where an increase
in the mortality rate leads to an increase in the value of insurance
contract liabilities.
Morbidity risk is the risk of loss resulting from adverse changes
in the level, trend, or volatility of disability, health, dental, critical
illness and other sickness rates, where an increase in the incidence
rate or a decrease in the disability recovery rate leads to an increase
in the value of insurance contract liabilities.
There is a risk that the Company will mis-estimate the level of
mortality or morbidity, or accept customers who generate worse
mortality and morbidity experience than expected.
The Company employs the following practices to manage its
mortality and morbidity risk:
• Research and analysis is done regularly to provide the basis
for pricing and valuation assumptions to properly reflect the
insurance and reinsurance risks in markets where the Company
is active.
• The insurance contract liabilities established to fund future
claims include a provision for adverse deviation, set in
is
accordance with professional standards. This margin
required to provide for the possibilities of mis-estimation of the
best estimate and/or future deterioration in the best estimate
assumptions.
• The Company sets retention limits for mortality and morbidity
risks. Aggregate risk is managed through a combination of
reinsurance and capital market solutions to transfer the risk
where appropriate.
• For Group life products, exposure to a concentrated mortality
event due to concentration of risk in specific locations for
example, could have an impact on financial results. To manage
the risk, concentrations are monitored for new business and
renewals. The Company may impose single-event limits on
some group plans and declines to quote in localized areas where
the aggregate risk is deemed excessive.
• Effective plan design and claims adjudication practices, for both
morbidity and mortality risks are critical to the management of
the risk. As an example, for Group healthcare products, inflation
and utilization will influence the level of claims costs, which
can be difficult to predict. The Company manages the impact
of these and similar factors through plan designs that limit new
costs and long-term price guarantees and include the ability to
regularly re-price for emerging experience.
• The Company manages large blocks of business, which, in
aggregate, are expected to result in relatively low statistical
fluctuations in any given period. For some policies, these risks
are shared with the policyholder through adjustments to future
policyholder charges or in the case of participating policies
through future changes in policyholder dividends.
Longevity Risk
Longevity risk is the risk of loss resulting from adverse changes in
the level, trend, or volatility of mortality rates, where a decrease
in the mortality rate leads to an increase in the value of insurance
contract liabilities. Annuities, some segregated fund products
with Guaranteed Minimum Withdrawal Benefits and longevity
reinsurance are priced and valued to reflect the life expectancy
of the annuitant. There is a risk that annuitants could live longer
than was estimated by the Company, which would increase the
value of the associated insurance contract liabilities.
Business is priced using mortality assumptions which consider
recent Company and industry experience and the latest research
on expected future trends in mortality.
Aggregate risk is managed through a combination of reinsurance
and capital market solutions to transfer the risk as appropriate. The
Company has processes in place to verify annuitants’ eligibility
for continued income benefits. These processes are designed to
ensure annuity payments accrue to those contractually entitled
to receive them and help ensure mortality data used to develop
pricing and valuation assumptions is as complete as possible.
Great-West Lifeco Inc. 2019 Annual Report
73
Management’s Discussion and Analysis
Lapse Risk
Lapse risk is the risk of loss resulting from adverse changes in
the level or volatility of the rates of policy lapses, terminations,
renewals and/or surrenders.
Many products are priced and valued to reflect the expected
duration of contracts. There is a risk that the contract may be
terminated before expenses can be recovered, to the extent that
higher costs are incurred in early contract years. Risk also exists
where the contract is terminated later than assumed, on certain
long-term level premium products where costs increase by age.
Business is priced using policy termination assumptions which
consider product designs and policyholder options, recent
Company and industry experience and the latest research on
expected future trends. Assumptions are reviewed regularly and
are updated for new policies as necessary.
The Company also incorporates early surrender charges into
certain contracts and incorporates commission chargebacks in its
distribution agreements to reduce unrecovered expenses.
Policyholder taxation rules in many jurisdictions help encourage
the retention of insurance coverage.
Expense Risk
Expense risk is the risk of loss resulting from adverse variability
of expenses incurred with fee-for-service business or in servicing
and maintaining insurance, savings or reinsurance contracts,
including direct expenses and allocations of overhead costs.
Expense management programs are regularly monitored to control
unit costs while maintaining effective service delivery.
Property Catastrophe Risk
Property catastrophe risk is the risk of loss resulting from adverse
changes in property damage experience and is mainly related to
extreme or catastrophic events.
The reinsurance business in particular has exposure to extreme
or catastrophic events that result in property damage. As a
retrocessionaire for property catastrophe risk, the Company
generally participates at more remote event-loss exposures than
primary carriers and reinsurers. Generally, an event of significant
size must occur prior to the Company incurring a claim. The
Company limits the total maximum claim amount under all
property catastrophe contracts. The Company monitors cedant
companies’ claims experience and research from third party expert
risk models on an ongoing basis and incorporates this information
in pricing models to ensure that the premium is adequate for the
risk undertaken.
operational risk
risk descriPtion
Operational Risk is the risk of loss arising from potential problems
relating to internal processes, people and systems or from external
events. Operational risk can result from either normal day-to-day
operations or a specific unanticipated event. Operational risks
include legal and regulatory, human resources, infrastructure,
technology and cyber, business continuity, process, change, fraud
and supplier risks. In addition to operational risks, the Company
also manages reputational risk, which can emerge across many
businesses and risk types; therefore, reputational considerations
are incorporated within each aspect of the Company’s business
and risk management practices.
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Great-West Lifeco Inc. 2019 Annual Report
oPerationaL risk management
While operational risks can be mitigated and managed, they
remain an inherent feature of the business model, as multiple
processes, systems, and stakeholders are required to interact
across the enterprise on an ongoing basis. The Company actively
manages operational risk across the enterprise to maintain a
strong reputation, standing and financial strength and to protect
customers and the Company’s value. Ongoing engagement of
businesses and support functions across the enterprise through
robust training and communications is regularly undertaken for
identifying, assessing and mitigating operational risk issues.
Operational risk management governance and oversight reflects a
combined effort between business units and oversight functions.
The Risk Function is responsible for the development of operational
risk management policies and operating standards as well as
overseeing operational risk management activities performed
in the first line of defence. The Operational Risk Committee has
the primary mandate to provide risk oversight for operational
risk across the enterprise. In addition, each regional business
segment has established committees to oversee operational risk
management within their business.
information
The Company has an Operational Risk Policy that is supported
by standards and guidelines that relate to specialized functions
including detailed practices related to stress testing, modeling,
fraud, regulatory compliance,
technology risk
management and risk data aggregation & risk reporting. The
Company implements controls to manage operational risk
through integrated policies, procedures, processes and practices,
with consideration given to the cost/benefit trade-off. Processes
and controls are monitored and refined by the business areas and
periodically reviewed by the Company’s Internal Audit department.
Financial reporting processes and controls are further examined
by external auditors.
The Company also manages operational risks through the
corporate insurance program which mitigates a portion of the
operational risk exposure by purchasing insurance coverage
that provides protection against unexpected material losses
resulting from events such as property loss or damage and liability
exposures. The nature and amount of insurance protection
purchased is assessed with regard to the Company’s risk profile,
risk appetite and tolerance for the associated risks, as well as legal
requirements and contractual obligations.
The Company employs a combination of operational risk
management methods including risk and control assessments,
internal control factors and risk events analyses. For the
identification of operational risks, the Company utilizes risk and
control assessments which systematically identify and assess
potential operational risks and associated controls. Internal and
external operational risk events are analyzed to identify root
causes and provide insights into potential new operational risks
that could impact the Company. In addition, scenario analysis is
employed to identify and quantify potential severe operational
risk exposures, while KRIs, risk appetite preferences, and other
processes are
leveraged to measure, manage and monitor
operational risks.
Management’s Discussion and Analysis
The Risk Function monitors the status of actions being undertaken
to remediate risks to ensure that risk exposures are mitigated in
a timely manner. Processes are in place to escalate significant
matters to senior management to inform and enable management
to take appropriate action when needed. The Risk Function
regularly reports on the Company’s operational risk profile to
executive management, the Board of Directors and various
committees at enterprise, regional and legal entity levels.
Key operational risks and the Company’s approach to managing
them are outlined below.
Legal and Regulatory Risk
Legal and regulatory risk is the risk of loss resulting from non-
compliance with specific local or international rules, laws, and
regulations, prescribed practices, or ethical standards as well as
civil or criminal litigation involving the Company. As a multi-
national company, the Company and certain of its subsidiaries are
subject to extensive legal and regulatory requirements in Canada,
the U.S., the U.K., Ireland, Germany and other jurisdictions. These
requirements cover most aspects of the Company’s operations
including capital adequacy, privacy, liquidity and solvency,
investments, the sale and marketing of insurance and wealth
products, the business conduct of insurers, asset managers and
investment advisors as well as reinsurance processes. Material
changes in the legal or regulatory framework or the failure to
comply with legal and regulatory requirements could have a
material adverse effect on the Company. An increase in the pace
of regulatory change could lead to increased operational costs to
implement changes and ensure ongoing compliance.
Legal and regulatory risk is managed through coordination
between first and second line of defence functions. The Company
records, manages and monitors the regulatory compliance
environment closely, using the subject matter expertise of both
local and enterprise-wide Compliance and Legal stakeholders
and reporting on emerging changes that could have a significant
impact on the Company’s operations or business.
The Company is subject to the risk of litigation relating to its
business, operations, products, securities and contractual
relationships and it establishes contingency reserves for litigation
that it determines are appropriate.
Human Resources Risk
Human Resources risk is the risk of loss resulting from the
Company’s inability to attract, retain, train and develop the
right talent from inadequate recruitment, talent management
and succession planning programs and practices, ineffective
governance practices or legal action related to discrimination,
and can impact the ability of the Company to meet its business
objectives. The Company has compensation programs, succession
planning,
talent management and employee engagement
processes that are designed to manage these risks, support a
high performance culture and maintain a highly skilled workforce
that is reflective of the diverse cultures and practices of the
countries in which the Company operates. The Company’s ability
to recognize and accommodate changing trends with respect to
human resources in the industry is important to execute upon
business strategies.
Infrastructure Risk
Infrastructure risk is the risk of loss resulting from the reduction
or non-availability of any aspect of a fully functioning business
environment. This includes corporate facilities, physical assets,
human resources and/or technology (technology assets, systems,
applications, cloud computing), security (logical, physical and
cyber), failures in license management and insufficient software/
application support.
The ability to consistently and reliably obtain securities pricing
information, accurately process client transactions and provide
reports and other customer services is essential to the Company’s
operations. A failure of any of these services could have an adverse
effect on the Company’s results of operations and financial condition
and could lead to loss of customer confidence, breach of regulatory
requirements, harm to the Company’s reputation, exposure to
disciplinary action and liability to the Company’s customers.
The Company invests in and manages infrastructure that is
designed to be sustainable and effective in meeting the Company’s
needs for a fully functioning and secure business operation
that protects assets and stakeholder value. Infrastructure risk
management programs
include strong business continuity
capabilities across the enterprise to manage incidents or outages
and the recovery of critical functions in the event of a disaster. In
addition, security measures are designed to deny unauthorized
access to facilities, equipment and resources, and to protect
personnel and property from damage or harm (such as espionage,
theft or terrorist attacks) and events that could cause serious
losses or damage.
Technology and Cyber Risk
Technology and cyber risk is the risk of loss resulting from a
purposeful or accidental event related to the use of technology. It
includes the risk of cyber-attack that leads to unplanned outages,
unauthorized access, or unplanned disclosure of confidential or
restricted information resulting in a potential privacy breach.
Technology risk also includes the risk of a deterioration in the
reliability and availability of internal, customer-facing, or vendor-
supported applications, infrastructure systems and/or services.
These risks can arise as a result of the Company’s use of its own
technology or as a result of the use of third party technology
providers and other service providers.
introduces additional
The nature of advancing technology
uncertainty as to how the insurance industry will evolve. Cloud
services, which are being adopted by the Company to improve
systems flexibility and information security, require scrutiny as
digital supply chains grow in complexity.
Technology is a critical component of the Company’s business
operations and is also central to the Company’s customer-focused
digital strategy. The Company continues to face technology and
cyber risks stemming from legacy technology constraints and the
advancement of techniques used in cyber-attacks.
Great-West Lifeco Inc. 2019 Annual Report
75
Management’s Discussion and Analysis
The Company has been implementing new risk management
processes and practices designed to allow it to better identify,
measure and mitigate this risk, but those processes and practices
continue to require further development as well as ongoing
updates as technology and business needs evolve. The Company’s
strategy and approach to managing technology and cyber risks
includes policies that govern the technology environment and
set standards related to information security and the use of
technology, including:
• the use of multiple layers of technologies that are designed to
prevent unauthorized access, ransomware attacks, distributed
denial of service and other cyber-attacks;
• coordinated global and regional information security offices
that gather threat intelligence, detect, monitor and respond to
security events and conduct regular threat and vulnerability risk
assessments;
• independent oversight and assessment of the approach taken to
mitigate technology and cyber risks by the Information Services
Risk Management team, an independent group that acts as the
second line of defence; and
• regular cyber security awareness sessions and mandatory cyber
security training for all employees.
The Company also manages operational risks through the
corporate insurance program which mitigates a portion of the
operational risk exposure by purchasing insurance coverage that
provides protection against unexpected material losses resulting
from events such as property loss, cyber-attack or damage and
liability exposures. The nature and amount of insurance protection
purchased is assessed with regard to the Company’s risk profile,
risk appetite and tolerance for the associated risks, as well as legal
requirements and contractual obligations.
Business Continuity Risk
Business continuity risk is the risk of loss because of the
failure to provide for the continuity of business processes and
operations under adverse conditions that may arise from natural,
technological or human caused events.
A business continuity management
framework has been
implemented to manage business continuity risks and impacts
through the development, testing, training and maintenance
in four key areas: emergency response planning
incident
management planning, business recovery planning and disaster
recovery planning.
Poor business resiliency in the face of natural, technological, or
human caused events could prevent the Company from carrying
out mission-critical business processes, with potential for lost
revenue, regulatory sanctions and damage to reputation.
Process Risk
Process risk is the risk of loss resulting from inadequate or failed
business processes which can adversely impact the Company’s
financial results, relationships with customers and reputation.
Process risk includes risks arising from significant change
initiatives such as business operations changes, major systems
leadership
implementation, new product introductions and
changes. Process risk also includes risk associated with data
aggregation and reporting, and model development and use.
Risk management seeks strategic alignment and congruency
across all of the Company’s business activities, including change
76
Great-West Lifeco Inc. 2019 Annual Report
initiatives and business-as-usual activities, with the Company’s
operational risk appetite and considers the potential impact on the
Company’s reputation. The Company monitors change initiatives
to mitigate risks and realize benefits. Core business operational
activities have quality control measures in place.
One of the processes relates to model risk and use of models.
The Company uses models in many functions and processes
that support business decisions and reporting. Model risk is the
risk of loss from decisions based on incorrect models or misused
model outputs and reports. Robust processes are in place for the
management and oversight of model risk as outlined in the Model
Risk Management and Validation Standard.
Further, the Company seeks to control processes across the
value chain through automation, standardization and process
improvements to prevent or reduce operational losses.
Fraud Risk
Fraud risk is the risk of loss resulting from fraudulent activity
including misappropriation of assets, identity theft or other breach
of civil or criminal law by customers, contractors or other third
parties and by employees or distribution associates. The external
fraud environment continues to intensify for financial institutions,
as increasingly sophisticated methods of organized fraud and
cyber fraud are employed. Fraud can result in a financial loss or
reputational impact to the Company and have other impacts that
are detrimental to customers and other stakeholders.
The Company manages fraud through a combined focus on
assessment, prevention, detection, investigation and response.
The Company promotes a culture of honesty, integrity,
transparency and fairness in its internal operations and further
manages fiduciary responsibilities through the Company’s
Fraud Risk Management Policy and Code of Conduct. The
Company has processes and controls in place to prevent fraud
and employs various methods to detect fraud. A fraud response
framework is in place to deal with events through a coordinated
investigative strategy designed to protect stakeholders and the
interests of the Company.
Supplier Risk
Supplier risk is the risk of loss resulting from the failure to establish
and manage adequate supplier arrangement transactions or
other interactions to meet the expected or contracted service
level both within the Company and with external parties such
as independent brokers, fund managers, reinsurers and other
parties. The Company strategically engages suppliers to maintain
cost efficiency, to optimize internal resources and capital and
to utilize skills, expertise and resources not otherwise available
to the Company. Suppliers that do not meet the Company’s
standards for performance can have a negative impact on the
Company’s financial results and reputation. To minimize this risk,
the Company applies a supplier risk management framework to
oversee and monitor interactions with suppliers throughout the
entire supplier relationship, including how they meet standards
for quality of service and protect stakeholders and the interests of
the Company.
Management’s Discussion and Analysis
ConduCt risk
risk descriPtion
Conduct risk is the risk of unfair outcomes for customers as a result
of inadequate or failed processes and/or inappropriate behaviours,
offerings or interactions by the Company or its agents. A failure to
identify and mitigate conduct risk impacts not only the Company’s
customers but can also have adverse reputational and financial
consequences for the Company due to the cost of customer
remediation, damage to reputation and/or regulatory fines.
conduct risk management
The Company manages conduct risk through various processes
which include:
• providing appropriate and clear customer disclosures and
communications;
• applying product design, complaint, claims management
and sales and advice processes that consider outcomes to
customers; and
• conducting risk based advisor assessments and suitability
reviews, maintaining controls and adhering to Board-approved
policies and processes, including the Conduct Risk Policy and
the Code of Conduct.
Conduct Risk is incorporated in risk management and compliance
activities, including risk and control assessments, internal events
reporting, emerging risk assessments, and other measurement,
monitoring and reporting activities.
strategiC risk
risk descriPtion
Strategic risk is the risk of loss if the Company is unable to meet its
key strategic goals resulting in current or prospective impact on the
Company’s earnings, capital, reputation or standing. Strategic risk
may arise from changes in the environment we operate in, lack of
responsiveness to industry, economic, regulatory, technological,
environmental or other external changes, or from adverse strategic
decisions, inadequate consideration of resources and capabilities
needed to deliver the strategy, or poor strategy execution.
The Company’s ability to maintain leadership positions in
today’s highly competitive environment is dependent on many
factors, including scale, price and yields offered, distribution
channels, digital capabilities, financial strength ratings, range of
product lines and product quality, brand strength, investment
performance, historical dividend levels to provide value added
services to distributors and customers and the ability to innovate
and deploy innovations rapidly. Competitors and new entrants
have significant potential to disrupt the Company’s business
through targeted strategies to reduce the Company’s market share
which may include targeting key people and other distributors
or aggressively pricing their products. The Company’s ability
to achieve strategic objectives depends significantly upon the
Company’s capacity to anticipate and respond quickly to these
competitive pressures.
The Company has placed strategic focus on improving technology
infrastructure and capabilities. Not adapting effectively to changes in
the technological environment or to evolving customer expectations
could impact the Company’s ability to remain competitive.
There are significant uncertainties relating to the political
environment. Increasing geopolitical tensions may result in
reduced trade and investment opportunities, failures of national,
regional or global governance, interstate conflict or terrorism
which may impact the Company’s business.
strategic risk management
Inadequate strategic planning or ineffective implementation
of strategies may expose the Company to significant business
and financial losses and may also have a flow-through effect on
reputation and market standing.
The Company manages strategic risk through a formal strategic
planning process, industry representation and activities driven by
regular assessment and challenge of the existing business model
within the context of its operating environment and scanning of
the internal and external environment for risks and opportunities.
The Risk Function is engaged in the business planning cycle to
align business strategies with the Company’s Risk Appetite. The
Company’s strategic plan is reviewed with the Board of Directors
and senior management, with the Risk Function providing objective
assessment of enterprise strategic risks and risk mitigation plans.
Significant risks and opportunities are identified, and a review of
the alignment with risk strategy and qualitative risk preferences
is completed. Initiatives, including those related to new markets,
distribution channels, product design and investments, are also
subject to independent risk review.
Holding Company Structure Risk
As a holding company, the Company’s ability to pay interest,
dividends and other operating expenses and to meet its obligations
generally depends upon receipt of sufficient funds from its
principal subsidiaries and its ability to raise additional capital.
In the event of bankruptcy, liquidation or reorganization of any
of these subsidiaries, insurance and investment contract liabilities
of these subsidiaries will be completely provided for before any
assets of such subsidiaries are made available for distribution to
the Company. In addition, the other creditors of these subsidiaries
will generally be entitled to the payment of their claims before any
assets are made available for distribution to the Company except
to the extent that the Company is recognized as a creditor of the
relevant subsidiaries.
Any payment (including payment of interest and dividends) by the
principal subsidiaries is subject to restrictions set forth in relevant
insurance, securities, corporate and other laws and regulations,
which require that solvency and capital standards be maintained
by Canada Life, GWL&A, and their subsidiaries and certain
subsidiaries of Putnam. There are considerable risks and benefits
related to this structure.
Management monitors the solvency and capital positions of its
principal subsidiaries opposite liquidity requirements at the
holding company level. Management also establishes lines of
credit for additional liquidity and may also access capital markets
for funds. Management monitors compliance with the regulatory
laws and regulations at both the holding company and operating
company levels.
Great-West Lifeco Inc. 2019 Annual Report
77
Management’s Discussion and Analysis
Mergers and Acquisitions Risk
exposures and sensitivities
insurance and investment contract LiaBiLities
In determining the Company’s insurance contract liabilities,
valuation assumptions are made regarding rates of mortality/
morbidity, investment returns, levels of operating expenses, rates
of policy termination and rates of utilization of elective policy
options or provisions. When the assumptions are revised to reflect
emerging experience or change in outlook, the result is a change in
the value of liabilities which in turn affects the Company’s earnings.
The following table illustrates the approximate impact to the
Company’s earnings that would arise as a result of changes to
management’s best estimate of certain assumptions. For changes
in asset related assumptions, the sensitivity is shown net of the
corresponding impact on earnings of the change in the value of
the assets supporting liabilities.
Increase (decrease) in net earnings
Mortality – 2% increase
Annuitant mortality – 2% decrease
Morbidity – 5% adverse change
Investment returns
Parallel shift in yield curve
1% increase
1% decrease
Change in interest rates
1% increase
1% decrease
Change in equity values
10% increase
10% decrease
Change in best estimate return assumptions for equities
1% increase
1% decrease
Expenses – 5% increase
Policy termination and renewal – 10% adverse change
2019
2018
(279) $
(601) $
(253) $
(270)
(457)
(271)
– $
– $
–
–
$
$
$
$
$
$ 175 $
(619) $
$
115
(465)
$
$
87 $
(129) $
73
(266)
$ 509 $
(585) $
$
(125) $
$
(813) $
$
476
(539)
(128)
(649)
Refer to the “Accounting Policies – Summary of Critical Accounting
Estimates” section of this document for additional information on
earnings sensitivities.
From time-to-time, the Company and its subsidiaries evaluate
existing companies, businesses, assets, products and services,
and such review could result in the Company or its subsidiaries
acquiring or disposing of businesses or assets. In the ordinary
course of business, the Company considers and discusses the
purchase or sale of companies, businesses segments or assets. If
effected, such transactions could be material to the Company in
size or scope, could result in risks and contingencies, including
integration risks, relating to companies, businesses or assets that
the Company acquires or expose it to the risk of claims relating to
those it has disposed of, could result in changes in the value of the
securities of the Company, including the common shares of the
Company, and could result in the Company holding additional
capital for contingencies that may arise after the transaction is
completed. The Company mitigates these risks by conducting
due diligence reviews before acquiring or disposing of companies,
businesses or business segments or assets, by negotiating terms
and conditions for the transaction and putting in place systems and
processes to manage the risks after the transaction is completed.
Product Distribution Risk
Product distribution risk is the risk of loss resulting from the
Company’s inability to market its products through its network of
distribution channels and intermediaries. These intermediaries
generally offer their clients products in addition to, and in
competition with, the Company’s products, and are not obligated to
continue working with the Company. In addition, certain investors
rely on consultants to advise them on the choice of provider and
the consultants may not always consider or recommend the
Company. The loss of access to a distribution channel, the failure
to maintain effective relationships with intermediaries or the
failure to respond to changes in distribution channels could have
a significant impact on the Company’s ability to generate sales.
Product distribution risk is managed by maintaining a broad
network of distribution relationships, with products distributed
through numerous broker-dealers, managing general agencies,
financial planners, banks and other financial institutions.
Sustainability Risk
Sustainability risk is the risk of loss arising from the inability
to maintain business operations and sustain the growth of the
Company due to negative externalities such as environmental
degradation, social risk issues and climate change.
The Company may experience direct or indirect financial,
operational or reputational impact stemming from environmental
risk events, which include environmental issues, regulatory
enforcement or costs associated with changes in environmental
laws and regulations. The Company endeavors to respect the
environment and to take a balanced and sustainable approach to
conducting business. The Company has established environmental
policies and guidelines pertaining to the acquisition and ongoing
management of investment properties, loans secured by real
property and investments in equity and fixed-income securities.
These policies are approved by the Board of Directors and are
reviewed annually.
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Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
a C C o u n t i n g p o l i C i e s
summary of criticaL accounting estimates
The preparation of financial statements in accordance with
IFRS requires management to make estimates, judgments and
assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the
reporting date, and the reported amounts of revenue and expenses
during the reporting period. The results of the Company reflect
management’s judgments regarding the impact of prevailing
global credit, equity and foreign exchange market conditions. The
estimation of insurance contract liabilities relies upon investment
credit ratings. The Company’s practice is to use third-party
independent credit ratings where available.
The significant accounting estimates include the following:
Fair Value Measurement
Financial and other instruments held by the Company include
portfolio investments, various derivative financial instruments,
debentures and other debt instruments.
Financial instrument carrying values reflect the liquidity of the
markets and the liquidity premiums embedded in the market
pricing methods the Company relies upon.
The Company’s assets and liabilities recorded at fair value have
been categorized based upon the following fair value hierarchy:
Level 1 inputs utilize observable, quoted prices (unadjusted) in
active markets for identical assets or liabilities that the Company
has the ability to access.
Level 2 inputs utilize other than quoted prices included in Level 1 that
are observable for the asset or liability, either directly or indirectly.
Level 3 inputs utilize one or more significant inputs that are not
based on observable market inputs and include situations where
there is little, if any, market activity for the asset or liability.
In certain cases, the inputs used to measure fair value may fall into
different levels of the fair value hierarchy. In such cases, the level in
the fair value hierarchy within which the fair value measurement
in its entirety falls has been determined based on the lowest level
input that is significant to the fair value measurement in its entirety.
The Company’s assessment of the significance of a particular input
to the fair value measurement in its entirety requires judgment and
considers factors specific to the asset or liability.
Refer to note 10 in the Company’s December 31, 2019 consolidated
financial statements for disclosure of the Company’s financial
instruments fair value measurement by hierarchy level as at
December 31, 2019.
Fair values for bonds classified as fair value through profit or loss
or available-for-sale are determined using quoted market prices.
Where prices are not quoted in an active market, fair values are
determined by valuation models primarily using observable
market data inputs. Market values for bonds and mortgages
classified as loans and receivables are determined by discounting
expected future cash flows using current market rates.
Fair values for equity release mortgages classified as fair value
through profit or loss are determined by an internal valuation
model that uses discounted future cash flows. Inputs to the model
include marketable observable and non-market observable inputs.
Fair values for public stocks are generally determined by the
last bid price for the security from the exchange where it is
principally traded. Fair values for stocks for which there is no
active market are determined by discounting expected future
cash flows based on expected dividends and where market value
cannot be measured reliably, fair value is estimated to be equal
to cost. Fair values for investment properties are determined
using independent appraisal services and include management
adjustments for material changes in property cash flows, capital
expenditures or general market conditions in the interim period
between appraisals.
Investment impairment
Investments are reviewed regularly on an individual basis to
determine impairment status. The Company considers various
factors in the impairment evaluation process, including, but not
limited to, the financial condition of the issuer, specific adverse
conditions affecting an industry or region, decline in fair value not
related to interest rates, bankruptcy or defaults and delinquency
in payments of interest or principal. Investments are deemed
to be impaired when there is no longer reasonable assurance of
timely collection of the full amount of the principal and interest
due. The fair value of an investment is not a definitive indicator
of impairment, as it may be significantly influenced by other
factors including the remaining term to maturity and liquidity of
the asset; however, market price is taken into consideration when
evaluating impairment.
For impaired mortgages and bonds classified as loans and
receivables, provisions are established or write-offs made to adjust
the carrying value to the net realizable amount. Wherever possible
the fair value of collateral underlying the loans or observable
market price is used to establish the estimated realizable value.
For impaired available-for-sale bonds recorded at fair value, the
accumulated loss recorded in accumulated other comprehensive
income
income.
Impairments on available-for-sale debt instruments are reversed
if there is objective evidence that a permanent recovery has
occurred. All gains and losses on bonds classified or designated
as fair value through profit or loss are already recorded in net
investment income; therefore, in the event of an impairment,
the reduction will be recorded in net investment income. As well,
when determined to be impaired, interest is no longer accrued
and previous interest accruals are reversed.
investment
reclassified
to net
(loss)
is
Great-West Lifeco Inc. 2019 Annual Report
79
The methods for arriving at these valuation assumptions are
outlined below:
Mortality – A life insurance mortality study is carried out annually
for each major block of insurance business. The results of each study
are used to update the Company’s experience valuation mortality
tables for that business. Annuitant mortality is also studied
regularly, and the results used to modify established annuitant
mortality tables. When there is insufficient data, use is made of
the latest industry experience to derive an appropriate valuation
mortality assumption. Improvement scales for life insurance and
annuitant mortality are updated periodically based on population
and industry studies, product specific considerations, as well as
professional guidance. In addition, appropriate provisions are
made for future mortality deterioration on term insurance.
• A 2% increase in the best estimate life insurance mortality
assumption would cause a decrease in net earnings of
approximately $279 million.
• A 2% decrease in the best estimate annuitant assumption would
cause a decrease in net earnings of approximately $601 million.
Morbidity – The Company uses industry developed experience
tables modified to reflect emerging Company experience. Both
claim incidence and termination are monitored regularly, and
emerging experience is factored into the current valuation.
For products for which morbidity is a significant assumption,
a 5% decrease in best estimate termination assumptions for
claim liabilities and a 5% increase in best-estimate incidence
assumptions for active life liabilities would cause a decrease in net
earnings of approximately $253 million.
Property and casualty reinsurance – Insurance contract liabilities
for property and casualty reinsurance written by London
Reinsurance Group Inc. (LRG) are determined using accepted
actuarial practices for property and casualty insurers in Canada.
The insurance contract liabilities are based on cession statements
provided by ceding companies. In addition, insurance contract
liabilities also include an amount for incurred but not reported
losses, which may differ significantly from the ultimate loss
development. The estimates and underlying methodology are
continually reviewed and updated and adjustments to estimates
are reflected in net earnings. LRG analyzes the emergence of claims
experience against expected assumptions for each reinsurance
contract separately and at the portfolio level. If necessary, a more
in depth analysis is undertaken of the cedant experience.
Management’s Discussion and Analysis
Goodwill and intangibles impairment testing
Goodwill and indefinite life intangible assets are tested for
impairment annually or more frequently if events indicate that
impairment may have occurred. Intangible assets that were
previously impaired are reviewed at each reporting date for
evidence of reversal. In the event that certain conditions have been
met, the Company would be required to reverse the impairment
charge or a portion thereof.
Goodwill and indefinite life intangible assets have been allocated to
cash generating unit groupings, representing the lowest level that
the assets are monitored for internal reporting purposes. Goodwill
and indefinite life intangible assets are tested for impairment
by comparing the carrying value of each cash generating unit
grouping containing the assets to its recoverable amount. The
recoverable amount is the higher of the asset’s fair value less costs
of disposal and value-in-use, which is calculated using the present
value of estimated future cash flows expected to be generated. An
impairment loss is recognized for the amount by which the asset’s
carrying amount exceeds its recoverable amount.
Insurance and investment contract liabilities
Insurance and investment contract
liabilities represent the
amounts required, in addition to future premiums and investment
income, to provide for future benefit payments, policyholder
dividends, commission and policy administrative expenses for all
insurance and annuity policies in-force with the Company. The
Appointed Actuaries of the Company’s subsidiaries are responsible
for determining the amount of the liabilities to make appropriate
provisions for the Company’s obligations to policyholders. The
Appointed Actuaries determine the liabilities for insurance
contracts using generally accepted actuarial practices, according
to the standards established by the Canadian Institute of Actuaries.
The valuation uses the Canadian Asset Liability Method (CALM).
This method involves the projection of future events in order to
determine the amount of assets that must be set aside currently to
provide for all future obligations and involves a significant amount
of judgment.
In the computation of insurance contract liabilities, valuation
assumptions have been made regarding rates of mortality/
morbidity, investment returns, levels of operating expenses,
rates of policy termination and rates of utilization of elective
policy options or provisions. The valuation assumptions use best
estimates of future experience together with a margin for adverse
deviation. These margins are necessary to provide for possibilities
of mis-estimation and/or future deterioration in the best-estimate
assumptions and provide reasonable assurance that insurance
contract liabilities cover a range of possible outcomes. Margins are
reviewed periodically for continued appropriateness.
Investment contract
fair value
determined using discounted cash flows utilizing the yield curves
of financial instruments with similar cash flow characteristics.
liabilities are measured at
80
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
Investment returns – The assets which correspond to the different
liability categories are segmented. For each segment, projected
cash flows from the current assets and liabilities are used in CALM
to determine insurance contract liabilities. Cash flows from assets
are reduced to provide for asset default losses. Testing under
several interest rate scenarios (including increasing and decreasing
rates) is done to provide for reinvestment risk. The total provision
for interest rates is sufficient to cover a broader or more severe
set of risks than the minimum arising from the current Canadian
Institute of Actuaries’ prescribed scenarios.
The range of interest rates covered by these provisions is set in
consideration of long-term historical results and is monitored
quarterly with a full review annually. An immediate 1% parallel
shift in the yield curve would not have a material impact on the
Company’s view of the range of interest rates to be covered by the
provisions. If sustained, however, the parallel shift could impact
the Company’s range of scenarios covered.
The total provision for interest rates also considers the impact of
the Canadian Institute of Actuaries’ prescribed scenarios.
• The effect of an immediate 1% parallel increase in the yield
curve on the prescribed scenarios resulted in interest rate
changes to assets and liabilities that will offset each other with
no impact to net earnings.
• The effect of an immediate 1% parallel decrease in the yield
curve on the prescribed scenarios resulted in interest rate
changes to assets and liabilities that will offset each other with
no impact to net earnings.
Another way of measuring the interest rate risk associated with
this assumption is to determine the effect on the insurance and
investment contract liabilities impacting the shareholders’ net
earnings of the Company of a 1% change in the Company’s view of
the range of interest rates to be covered by these provisions.
• The effect of an immediate 1% increase in the low and high
end of the range of interest rates recognized in the provisions
would be to decrease these insurance and investment contract
liabilities by approximately $230 million causing an increase in
net earnings of approximately $175 million.
• The effect of an immediate 1% decrease in the low and high
end of the range of interest rates recognized in the provisions
would be to increase these insurance and investment contract
liabilities by approximately $811 million causing a decrease in
net earnings of approximately $619 million.
In addition to interest rates, the Company is also exposed to
movements in equity markets.
Some insurance and investment contract liabilities are supported
by investment properties, common stocks and private equities;
for example, segregated fund products and products with long-
tail cash flows. Generally, these liabilities will fluctuate in line
with equity values. However, there may be additional market and
liability impacts as a result of changes in the equity values that will
cause the liabilities to fluctuate differently than the equity values.
• A 10% increase in equity values would be expected to additionally
decrease non-participating insurance and investment contract
liabilities by approximately $107 million, causing an increase in
net earnings of approximately $87 million.
• A 10% decrease in equity values would be expected to additionally
increase non-participating insurance and investment contract
liabilities by approximately $162 million, causing a decrease in
net earnings of approximately $129 million.
The best-estimate return assumptions for equities are primarily
based on long-term historical averages. Changes in the current
market could result in changes to these assumptions and will
impact both asset and liability cash flows.
• A 1% increase in the best estimate assumption would be
expected to decrease non-participating insurance contract
liabilities by approximately $645 million causing an increase in
net earnings of approximately $509 million.
• A 1% decrease in the best estimate assumption would be
expected to increase non-participating insurance contract
liabilities by approximately $752 million causing a decrease in
net earnings of approximately $585 million.
Expenses – Contractual policy expenses (e.g. sales commissions)
and tax expenses are reflected on a best estimate basis. Expense
studies for indirect operating expenses are updated regularly
to determine an appropriate estimate of future operating
expenses for the liability type being valued. Improvements in unit
operating expenses are not projected. An inflation assumption
is incorporated in the estimate of future operating expenses
consistent with the interest rate scenarios projected under
CALM as inflation is assumed to be correlated with new money
interest rates. A 5% increase in the best estimate maintenance unit
expense assumption would cause a decrease in net earnings of
approximately $125 million.
Policy termination – Studies to determine rates of policy
termination are updated regularly to form the basis of this
estimate. Industry data is also available and is useful where the
Company has no experience with specific types of policies or its
exposure is limited. The Company’s most significant exposures
are in respect of the T-100 and Level Cost of Insurance Universal
Life products in Canada and policy renewal rates at the end of
the term for renewable term policies in Canada and Reinsurance.
Industry experience has guided the Company’s assumptions
for these products as its own experience is very limited. A 10%
adverse change in the best-estimate policy termination and
renewal assumptions would cause a decrease in net earnings of
approximately $813 million.
Utilization of elective policy options – There are a wide range
of elective options embedded in the policies issued by the
Company. Examples include term renewals, conversion to whole
life insurance (term insurance), settlement annuity purchase
at guaranteed rates (deposit annuities) and guarantee re-sets
(segregated fund maturity guarantees). The assumed rates of
utilization are based on Company or industry experience when it
exists and otherwise based on judgement considering incentives
to utilize the option. Generally, whenever it is clearly in the best
interests of an informed policyholder to utilize an option, then it
is assumed to be elected.
Great-West Lifeco Inc. 2019 Annual Report
81
Employee future benefits
The Company’s subsidiaries maintain contributory and non-
contributory defined benefit and defined contribution pension
plans for certain employees and advisors. The defined benefit
pension plans provide pensions based on length of service and
final average pay. For most plans, active plan participants share
in the cost of benefits through employee contributions in respect
of current service. Certain pension payments are indexed on
either an ad hoc basis or a guaranteed basis. The determination
of the defined benefit obligation reflects pension benefits in
accordance with the terms of the plans. The assets supporting the
funded pension plans are held in separate trusteed pension funds.
The obligations for the wholly unfunded plans are included in
other liabilities and are supported by general assets. The defined
benefit plans of the Company’s subsidiaries are closed to new
entrants with plans in several geographies also closed to future
defined benefit accruals. New hires are eligible only for defined
contribution benefits. Active plan participants in defined benefit
plans closed to future defined benefit accruals are eligible to
accrue defined contribution benefits. The Company’s defined
benefit plan exposure will continue to be reduced in future years.
The defined contribution pension plans provide pension benefits
based on accumulated employee and subsidiary Company
contributions. The Company’s subsidiaries also provide post-
employment health, dental and life insurance benefits to eligible
employees, advisors and their dependents. These plans are also
closed to new entrants. For further information on the Company’s
pension plans and other post-employment benefits refer to note
24 in the Company’s December 31, 2019 consolidated financial
statements.
For the defined benefit plans of the Company’s subsidiaries, service
costs and net interest costs are recognized in the Consolidated
Statements of Earnings. Service costs include current service
cost, administration expenses, past service costs and the impact
of curtailments and settlements. Re-measurements of the defined
benefit liability (asset) due to asset returns less (greater) than
interest income, actuarial losses (gains) and changes in the asset
ceiling are recognized immediately in the Consolidated Statements
of Comprehensive Income.
Accounting for defined benefit pension and other post-employment
benefits requires estimates of expected increases in compensation
levels, indexation of certain pension payments, trends in health-
care costs, the period of time over which benefits will be paid, as
well as the appropriate discount rates for past and future service
liabilities. These assumptions are determined by management
using actuarial methods, and are reviewed and approved annually.
Emerging experience that differs from the assumptions will be
revealed in future valuations and will affect the future financial
position of the plans and net periodic benefit costs.
Management’s Discussion and Analysis
Policyholder dividends and adjustable policy features – Future
policyholder dividends and other adjustable policy features are
included in the determination of insurance contract liabilities with
the assumption that policyholder dividends or adjustable benefits
will change in the future in response to the relevant experience. The
dividend and policy adjustments are determined consistent with
policyholders’ reasonable expectations, such expectations being
influenced by the participating policyholder dividend policies
and/or policyholder communications, marketing material and
past practice. It is the Company’s expectation that changes will
occur in policyholder dividend scales or adjustable benefits for
participating or adjustable business respectively, corresponding
to changes in the best estimate assumptions, resulting in an
immaterial net change in insurance contract liabilities. Where
underlying guarantees may limit the ability to pass all of this
experience back to the policyholder, the impact of this non-
adjustability impacting shareholders’ net earnings is reflected in
the impacts of changes in best estimate assumptions above.
Income taxes
The Company is subject to income tax laws in various jurisdictions.
The Company’s operations are complex and related income tax
interpretations, regulations and legislation that pertain to its
activities are subject to continual change. As multinational life
insurance companies, the Company’s primary Canadian operating
subsidiaries are subject to a regime of specialized rules prescribed
under the Income Tax Act (Canada) for purposes of determining
the amount of the Companies’ income that will be subject to tax
in Canada.
Tax planning strategies to obtain tax efficiencies are used. The
Company continually assesses the uncertainty associated with
these strategies and holds an appropriate level of provisions for
uncertain income tax positions. Accordingly, the provision for
income taxes represents management’s interpretation of the
relevant income tax laws and its estimate of current and deferred
income tax balances for the period. Deferred income tax assets
and liabilities are recorded based on expected future income tax
rates and management’s assumptions regarding the expected
timing of the reversal of temporary differences. The Company has
substantial deferred income tax assets. The recognition of deferred
income tax assets depends on management’s assumption that
future earnings will be sufficient to realize the deferred benefit.
The amount of the asset recorded is based on management’s best
estimate of the realization of the asset.
The audit and review activities of tax authorities may affect the
ultimate determination of the amounts of income taxes payable or
receivable, deferred income tax assets or liabilities and income tax
expense. Therefore, there can be no assurance that income taxes
will be payable as anticipated and/or the amount and timing of
receipt or use of the income tax related assets will be as currently
expected. Management’s experience
taxation
authorities are more aggressively pursuing perceived income tax
issues and have increased the resources they put to these efforts.
indicates
the
82
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
Actuarial assumptions – employee future benefits
At December 31
Actuarial assumptions used to determine benefit cost
Discount rate – past service liabilities
Discount rate – future service liabilities
Rate of compensation increase
Future pension increases (1)
Actuarial assumptions used to determine defined benefit obligation
Discount rate – past service liabilities
Rate of compensation increase
Future pension increases (1)
Medical cost trend rates:
Initial medical cost trend rate
Ultimate medical cost trend rate
Year ultimate trend rate is reached
(1) Represents the weighted average of plans subject to future pension increases.
Defined benefit pension plans
Other post-employment benefits
2019
2018
2019
2018
3.4%
3.8%
3.0%
1.4%
2.6%
2.9%
1.3%
3.1%
3.4%
3.1%
1.3%
3.4%
3.0%
1.4%
3.8%
4.4%
–
–
3.1%
–
–
4.7%
4.1%
2039
3.5%
3.8%
–
–
3.8%
–
–
4.8%
4.1%
2040
Actuarial assumptions – The period of time over which benefits are
assumed to be paid is based on best estimates of future mortality,
including allowances for mortality improvements. This estimate
is subject to considerable uncertainty, and judgment is required
in establishing this assumption. As mortality assumptions
are significant in measuring the defined benefit obligation,
the mortality assumptions applied by the Company take into
consideration such factors as age, gender and geographic location,
in addition to an estimation of future improvements in longevity.
The mortality tables are reviewed at least annually, and assumptions
are in accordance with accepted actuarial practices. Emerging
plan experience is reviewed and considered in establishing the
best estimate for future mortality.
As these assumptions relate to factors that are long-term in nature,
they are subject to a degree of uncertainty. Differences between
actual experience and the assumptions, as well as changes in the
assumptions resulting from changes in future expectations, result
in increases or decreases in the pension and post-employment
benefits expense and defined benefit obligation in future years.
There is no assurance that the plans will be able to earn assumed
rates of return, and market driven changes to assumptions could
impact future contributions and expenses.
The following table indicates the impact of changes to certain key assumptions related to pension and post-employment benefits.
Impact of a change of 1.0% in actuarial assumptions on defined benefit obligation (1)
Defined benefit pension plans:
Impact of a change to the discount rate
Impact of a change to the rate of compensation increase
Impact of a change to the rate of inflation
Other post-employment benefits:
Impact of a change to assumed medical cost trend rates
Impact of a change to the discount rate
1% increase
1% decrease
2019
2018
2019
2018
$
(1,242)
311
598
$
(1,109)
277
526
$
1,630
(284)
(541)
$
1,444
(252)
(477)
27
(41)
26
(38)
(23)
50
(23)
46
(1) To measure the impact of a change in an assumption, all other assumptions were held constant. It is expected that there would be interaction between at least some of the assumptions.
Funding – The Company’s subsidiaries have both funded and
unfunded pension plans as well as other post-employment benefit
plans that are unfunded. The Company’s subsidiaries’ funded
pension plans are funded to or above the amounts required by
relevant legislation. During the year, the Company’s subsidiaries
contributed $294 million ($280 million in 2018) to the pension
plans and made benefit payments of $20 million ($19 million in
2018) for post-employment benefits. The Company’s subsidiaries
expect to contribute $259 million to the pension plans and make
benefit payments of $21 million for post-employment benefits
in 2020.
Great-West Lifeco Inc. 2019 Annual Report
83
Management’s Discussion and Analysis
internationaL financiaL rePorting standards
Due to the evolving nature of IFRS, there are a number of IFRS
changes impacting the Company in 2019, as well as standards
that could impact the Company in future reporting periods. The
Company actively monitors future IFRS changes proposed by the
International Accounting Standards Board (IASB) to assess if the
changes to the standards may have an impact on the Company’s
results or operations.
Effective January 1, 2019, the Company applied International
Financial Reporting Interpretations Committee (IFRIC) 23,
Uncertainty over Income Tax Treatments (IFRIC 23). The interpretation
clarifies how to apply the recognition and measurement requirements
in International Accounting Standards (IAS) 12, Income Taxes, when
there is uncertainty over income tax treatments. The application of
the interpretation of the standard resulted in a decrease of $109 million
to opening accumulated surplus at January 1, 2019 reflecting $52
million for Canada and $57 million for Europe.
Effective January 1, 2019, the Company adopted IFRS 16, Leases
(IFRS 16) which replaces IAS 17, Leases (IAS 17). The standard
prescribes new guidance for identifying leases as well as the
accounting, measurement and presentation of leases by the
lessee. The Company has elected to adopt IFRS 16 using a
modified retrospective approach and accordingly the information
presented for 2018 has not been restated.
The Company adopted the narrow scope amendments to IFRS
for IAS 28, Investments in Associates and Joint Ventures, IAS 19,
Employee Benefits, and Annual Improvements 2015 – 2017 Cycle for
the amendments to IFRS 3, Business Combinations, IFRS 11, Joint
Arrangements, IAS 12, Income Taxes and IAS 23, Borrowing Costs,
effective January 1, 2019. The adoption of these narrow scope
amendments did not have a significant impact on the Company’s
financial statements.
For a further description of the impact of the accounting policy
change, refer to note 2 of the Company’s December 31, 2019
consolidated financial statements.
IFRS that have changed or may change subsequent to 2019 and
could impact the Company in future reporting periods, are set out
in the following table:
standard
summary of future cHanges
IFRS 17 – Insurance Contracts
In May 2017, the IASB issued IFRS 17, Insurance Contracts, which will replace IFRS 4, Insurance Contracts. On June 26, 2019
the IASB issued an exposure draft covering targeted amendments to the IFRS 17 standard, including a proposed amendment
to defer the effective date of the standard by one year to January 1, 2022. In addition, the IASB extended to January 1,
2022 the exemption for insurers to apply the financial instruments standard, IFRS 9 – Financial Instruments, keeping the
alignment of the effective dates for IFRS 9 and IFRS 17. The IASB is currently in the process of considering the feedback
received on the exposure draft and is planning to issue the final amendments in mid-2020. Due to the responses received
from stakeholders during the comment period on the exposure draft, the IASB is considering a deferral beyond January 1,
2022 for the effective date of IFRS 17. The IASB has confirmed certain amendments proposed in the exposure draft – namely
the amendment on the expected recovery of insurance acquisition cash flows and has also agreed to extend the scope of the
amendment related to the recovery of losses on reinsurance contracts to apply to all reinsurance held contracts.
The adoption of IFRS 17 is a significant initiative for the Company supported by a formal governance framework and project
plan, for which substantial resources are being dedicated. The Company has assembled a project team that is working on the
implementation which involves preparing the financial reporting systems and processes for reporting under IFRS 17, policy
development and operational change management. These groups are also monitoring developments from the IASB, and
various industry groups that the Company has representation on. The Company has made progress in implementing its project
plan, with key policy decisions well-advanced as well as progression on the implementation of the technology solution. The
Company continues to evaluate the readiness of technology vendors and their ability to deliver for IFRS 17 implementation.
IFRS 17 sets out the requirements for the recognition, measurement, presentation and disclosures of insurance contracts a
company issues and reinsurance contracts it holds. IFRS 17 introduces three new measurement models depending on the
nature of the insurance contracts: the General Measurement Model, the Premium Allocation Approach and the Variable Fee
Approach. IFRS 17 requires entities to measure insurance contract liabilities on the balance sheet as the total of:
(a) the fulfilment cash flows – the current estimates of amounts that a company expects to collect from premiums and pay
out for claims, benefits and expenses, including an adjustment for the timing and risk of those amounts; and
(a) the contractual service margin – the future profit for providing insurance coverage.
Under IFRS 17, the discount rate used to reflect the time value of money in the fulfillment cash flows must be based on the
characteristics of the liability. This is a significant change from IFRS 4 and the Canadian Asset Liability Method, where the
discount rate was based on the yield curves of the assets supporting those liabilities.
The future profit for providing insurance coverage is recognized in profit or loss over time as the insurance coverage is
provided. In 2019, the Company recognized approximately $108 million of net new business losses (losses of approximately
$195 million in 2018). IFRS 17 also requires the Company to distinguish between groups of contracts expected to be profit
making and groups of contracts expected to be onerous. The Company is required to update the fulfilment cash flows at
each reporting date, using current estimates of the amount, timing and uncertainty of cash flows and discount rates. As a
result of the new valuation methodologies required under IFRS 17, the Company expects its insurance contract liabilities
to increase upon adoption.
IFRS 17 will affect how the Company accounts for its insurance contracts and how it reports financial performance in
the Consolidated Statements of Earnings in particular, the timing of earnings recognition for insurance contracts. The
adoption of IFRS 17 will also have a significant impact on how insurance contract results are presented and disclosed in the
consolidated financial statements and on regulatory and tax regimes that are dependent upon IFRS accounting values. The
Company is also actively monitoring potential impacts on regulatory capital and the associated ratios and disclosures. The
Company continues to assess all these impacts through its global implementation plan.
84
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
standard
summary of future cHanges
IFRS 9 – Financial Instruments
In July 2014, the IASB issued a final version of IFRS 9, Financial Instruments (IFRS 9) to replace IAS 39, Financial Instruments:
Recognition and Measurement. The effective date for IFRS 9 has been deferred to align with the effective date for IFRS 17 of
January 1, 2022. The standard provides changes to financial instruments accounting for the following:
• classification and measurement of financial instruments based on a business model approach for managing financial
assets and the contractual cash flow characteristics of the financial asset;
•
impairment based on an expected loss model; and
• hedge accounting that incorporates the risk management practices of an entity.
In September 2016, the IASB issued an amendment to IFRS 4, Insurance Contracts (IFRS 4). The amendment “Applying
IFRS 9, Financial Instruments with IFRS 4, Insurance Contracts” provides qualifying insurance companies with two options
to address the potential volatility associated with implementing the IFRS 9 standard before the new proposed insurance
contract standard is effective. The two options are as follows:
• Deferral Approach – provides the option to defer implementation of IFRS 9 until the year 2022 or the effective date of
the new insurance contract standard, whichever is earlier; or
• Overlay Approach – provides the option to recognize the volatility that could arise when IFRS 9 is applied within other
comprehensive income, rather than profit or loss.
The Company qualifies for the amendment and is applying the deferral approach to allow adoption of both IFRS 9 and IFRS
17 simultaneously.
The disclosure for the measurement and classification of the Company’s portfolio investments provides most of the
information required by IFRS 9. The Company continues to evaluate the impact for the adoption of this standard with the
adoption of IFRS 17.
IFRS 3 – Business
Combinations
In October 2018, the IASB issued amendments to IFRS 3, Business Combinations. The amendments provide additional
guidance as to whether a company acquired a business or a group of assets.
IAS 1 – Presentation of
Financial Statements and
IAS 8 – Accounting Policies,
Changes in Accounting
Estimates and Errors
IFRS 9 – Financial Instruments,
IAS 39 – Financial
Instruments: Recognition and
Measurement and
IFRS 7 – Financial Instruments:
Disclosures
The amendments will be applied prospectively to all business combinations and asset acquisitions for which the acquisition
date is on or after January 1, 2020.
In October 2018, the IASB issued amendments to IAS 1, Presentation of Financial Statements and IAS 8, Accounting Policies,
Changes in Accounting Estimates and Errors. The amendments are to clarify the definition of ‘material’ and to align the
definition used in the Conceptual Framework and the standards themselves.
The amendments will be applied prospectively for annual periods beginning on or after January 1, 2020, with earlier
application permitted.
In September 2019, the IASB issued amendments to IFRS 9, Financial Instruments, IAS 39, Financial Instruments:
Recognition and Measurement and IFRS 7, Financial Instruments: Disclosures. The amendments modify specific hedge
accounting requirements so that entities would apply those hedge accounting requirements assuming that the interest rate
benchmark on which the hedged cash flows and cash flows from the hedging instrument are based will not be altered as a
result of interest rate benchmark reform.
The amendments are effective January 1, 2020. Although adoption of these amendments will not have a significant impact
on the Company’s consolidated financial statements, additional disclosures will be required.
Great-West Lifeco Inc. 2019 Annual Report
85
Management’s Discussion and Analysis
o t h e r i n F o r M at i o n
non-ifrs financiaL measures
The Company uses several non-IFRS measures to measure overall
performance of the Company and to assess each of its business
units. A financial measure is considered a non-IFRS measure for
Canadian securities law purposes if it is presented other than
in accordance with generally accepted accounting principles
used for the Company’s consolidated financial statements. The
consolidated financial statements of the Company have been
prepared in compliance with IFRS as issued by the IASB. Non-IFRS
measures do not have a standardized meaning under IFRS and
may not be comparable to similar financial measures presented
by other issuers.
Adjusted net earnings – common shareholders
Net earnings – common shareholders
Adjustments
Revaluation of a deferred tax asset (1)
Restructuring costs (2)
Net gain on Scottish Friendly transaction (3)
Net charge on the sale, via indemnity reinsurance, of the
U.S. individual life insurance and annuity business (4)
Adjusted net earnings – common shareholders
Net earnings per common share – basic
Adjustments
Revaluation of a deferred tax asset (1)
Restructuring costs (2)
Net gain on Scottish Friendly transaction (3)
Net charge on the sale, via indemnity reinsurance, of the
U.S. individual life insurance and annuity business (4)
Adjusted net earnings and adjusted earnings per share
Adjusted net earnings (loss) and financial measures based on
adjusted net earnings (loss), including adjusted earnings per
common share and adjusted return on equity, are non-IFRS
financial measures. Adjusted net earnings (loss) remove the impact
of certain non-routine and/or material items that create volatility
in the Company’s results under IFRS and assist in explaining the
Company’s results from period to period.
For the three months ended
For the twelve months ended
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
Dec. 31
2019
Dec. 31
2018
$
513
$
730
$
710
$
2,359
$
2,961
199
36
(8)
–
740
0.552
$
$
0.215
0.039
(0.009)
–
–
–
–
–
–
–
–
–
$
$
730
0.786
$
$
710
0.719
$
$
–
–
–
–
–
–
–
–
199
36
(8)
199
2,785
2.494
0.210
0.039
(0.009)
0.210
$
$
–
56
–
–
3,017
2.996
–
0.056
–
–
Adjusted net earnings per common share – basic
$
0.797
$
0.786
$
0.719
$
2.944
$
3.052
(1) Adjustment to net earnings for the three and twelve months ended December 31, 2019 was the impact of the revaluation of a deferred tax of $199 million (US$151 million) related to the Asset Management
business unit and is included in Corporate business unit of the U.S. segment.
(2) Adjustment to net earnings for the three and twelve months ended December 31, 2019 was $36 million (US$28 million) of restructuring costs relating to the Asset Management business unit and is included in
Corporate business unit of the U.S. segment. Adjustment to net earnings for the twelve months ending December 31, 2018 was $56 million of restructuring costs relating to the Company’s U.K. operations and is
included in the Corporate business unit of the Europe segment.
(3) Adjustment to net earnings for the three and twelve months ended December 31, 2019 was a net gain of $8 million on the sale of Scottish Friendly and is included in the Corporate business unit of the Europe
segment.
(4) Adjustment to net earnings for the twelve months ended December 31, 2019 was a net charge of $199 million (US$148 million) relating to the sale, via indemnity reinsurance, of the U.S. individual life insurance
and annuity business and is included in the Reinsured Insurance & Annuity Business unit of the U.S. segment.
86
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
Return on equity (ROE)
The Company has a capital allocation methodology, which
allocates financing costs in proportion to allocated capital. For the
Canadian and European segments (essentially Great-West Life),
this allocation method generally tracks the regulatory capital
requirements, while for U.S. Financial Services and U.S. Asset
Management (Putnam), it tracks the financial statement carrying
value of the business units. Total leverage capital is consistently
allocated across all business units in proportion to total capital
resulting in a debt-to-equity ratio in each business unit mirroring
the consolidated Company.
The capital allocation methodology allows the Company to
calculate comparable ROE for each business unit. These ROEs are
therefore based on the capital the business unit has been allocated
and the financing charges associated with that capital. IFRS does
not prescribe the calculation of ROE and therefore a comparable
measure under IFRS is not available. To determine ROE and
adjusted ROE, respectively, net earnings (loss) and adjusted
net earnings (loss) for the trailing four quarters are divided by
the average common shareholders’ equity over the trailing four
quarters. This measure provides an indicator of business unit
profitability.
Premiums and deposits
Total premiums and deposits include premiums on risk-based
insurance and annuity products net of ceded reinsurance (as
defined under IFRS), premium equivalents on self-funded group
insurance ASO contracts, deposits on individual and group
segregated fund products as well as deposits on proprietary mutual
funds and institutional accounts. Total premiums and deposits
exclude the initial ceded premium related to the sale, via indemnity
reinsurance, of the U.S. individual life insurance and annuity
business. This measure provides an indicator of top-line growth.
Premiums and deposits
Amounts reported in the financial statements
Net premium income (Life insurance, guaranteed annuities and
insured health products)
Policyholder deposits (segregated funds):
Individual products
Group products
For the three months ended
For the twelve months ended
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
Dec. 31
2019
Dec. 31
2018
$
9,478
$
9,324
$
9,045
$ 24,510
$
35,461
5,446
1,913
4,146
1,999
4,705
1,641
16,947
7,738
16,668
7,807
Premiums and deposits reported in the financial statements
$ 16,837
$
15,469
$
15,391
$ 49,195
$
59,936
Self-funded premium equivalents (administrative services only contracts)
Proprietary mutual funds and institutional deposits
Add back: U.S. Individual Life Insurance & Annuity Business
841
21,418
813
20,135
802
21,390
3,295
84,259
3,068
76,258
– initial reinsurance ceded premiums
Total premiums and deposits
–
–
–
13,889
–
$ 39,096
$
36,417
$
37,583
$ 150,638
$ 139,262
Assets under management (AUM) and assets under
administration (AUA)
Assets under management and assets under administration are
non-IFRS measures that provide an indicator of the size and
volume of the Company’s overall business.
Assets under management include internally and externally
managed funds where the Company has oversight of the
investment policies. Services provided in respect of assets under
management include the selection of investments, the provision
of investment advice and discretionary portfolio management on
behalf of clients.
Assets under administration
Total assets per financial statements
Proprietary mutual funds and institutional net assets
Total assets under management
Other assets under administration
Total assets under administration
Other assets under administration includes assets where the
Company only provides administration services for which
the Company earns fees and other income. These assets are
beneficially owned by the clients and the Company does not direct
the investing activities. Services provided relating to assets under
administration include recordkeeping, safekeeping, collecting
investment income, settling of transactions or other administrative
services. Administrative services are an important aspect of the
overall business of the Company and should be considered when
comparing volumes, size and trends.
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
$ 451,167
320,548
771,715
857,966
$ 446,626
308,425
$ 427,689
281,664
755,051
841,700
709,353
689,520
$ 1,629,681
$ 1,596,751
$ 1,398,873
Great-West Lifeco Inc. 2019 Annual Report
87
Management’s Discussion and Analysis
Financial leverage ratio
Impact of currency movement
The consolidated financial leverage ratio for the Company is
defined as debt, hybrid securities and preferred shares divided by
total consolidated capitalization.
Sales
Sales is a non-IFRS measure for which there is no comparable
measure in IFRS and is an indicator of new business growth. Sales
are measured according to product type:
• For risk-based insurance and annuity products, sales include
100% of single premium and annualized premiums expected in
the first twelve months of the plan.
• Group insurance and ASO sales reflect annualized premiums
and premium equivalents for new policies and new benefits
covered or expansion of coverage on existing policies.
• For individual wealth management products, sales include
deposits on segregated fund products, proprietary mutual
funds and institutional accounts as well as deposits on non-
proprietary mutual funds.
• For group wealth management products, sales include assets
transferred from previous plan providers and the expected
annual contributions from the new plan.
Core net earnings
Core net earnings
Less: Financing and other expenses (after-tax)
Reported net earnings (loss)
Core net earnings (US$)
Less: Financing and other expenses (after-tax) (US$)
Reported net earnings (loss) (US$)
Items impacting the Company’s Consolidated Statements of
Earnings, such as income and benefits and expenses and net
earnings, are translated into Canadian dollars at an average rate
for the period. For items impacting the Company’s Consolidated
Balance Sheets, such as assets and liabilities, period end rates are
used for currency translation purposes.
Throughout this document a number of terms are used to highlight
the impact of foreign exchange on results, such as: “constant
currency basis”, “impact of currency movement”, and “effect of
currency translation fluctuations”. These measures highlight the
impact of changes in currency translation rates on Canadian dollar
equivalent IFRS results and have been calculated using the average
or period end rates, as appropriate, in effect at the date of the
comparative period. These measures provide useful information as
it facilitates the comparability of results between periods.
Core net earnings (loss)
For its Asset Management business unit in the U.S segment, the
Company discloses core net earnings (loss), which is a measure of
the business unit’s performance. Core net earnings (loss) includes
the impact of dealer commissions and software amortization
and excludes the impact of certain corporate financing charges
and allocations, certain tax adjustments and other non-recurring
transactions. There is no directly comparable IFRS measure.
For the three months ended
For the twelve months ended
Dec. 31
2019
Sept. 30
2019
Dec. 31
2018
Dec. 31
2019
Dec. 31
2018
$
$
$
$
28
(10)
18
21
(8)
13
$
$
$
$
22
(9)
13
17
(8)
9
$
$
$
$
(18)
(11)
(29)
(14)
(8)
(22)
$
$
$
$
78
(45)
33
59
(35)
24
$
$
$
$
(11)
(50)
(61)
(8)
(39)
(47)
Pre-tax operating margin
For the Company’s Asset Management business unit in the U.S.
segment, this ratio provides measure of the profitability of the
business unit. It is based on the business unit’s pre-tax core net
earnings (loss) divided by the sum of fee income and net investment
income. There is no directly comparable IFRS measure.
88
Great-West Lifeco Inc. 2019 Annual Report
Management’s Discussion and Analysis
seLected annuaL information
(in $ millions, except per share amounts)
Total revenue (1)
Net earnings – common shareholders
Net earnings
Net earnings per common share
Basic
Diluted
Total assets
Total assets
Proprietary mutual funds and institutional assets (2)
Total assets under management (2)
Other assets under administration (2)
Total assets under administration (2)
Total liabilities
Dividends paid per share
Series F First Preferred
Series G First Preferred
Series H First Preferred
Series I First Preferred
Series L First Preferred
Series M First Preferred
Series N First Preferred (3)
Series O First Preferred (4)
Series P First Preferred
Series Q First Preferred
Series R First Preferred
Series S First Preferred
Series T First Preferred (5)
Common
Years ended December 31
2019
2018
2017 (1)
$
44,698
$
44,032
$
47,117
2,359
2,961
2.494
2.493
2.996
2.994
2,149
2.173
2.170
$ 451,167
320,548
$ 427,689
281,664
$ 419,838
278,954
771,715
857,966
709,353
689,520
698,792
651,121
$ 1,629,681
$ 1,398,873
$ 1,349,913
$ 425,624
$ 400,291
$ 394,302
1.4750
1.3000
1.21252
1.1250
1.41250
1.450
0.544000
0.744956
1.350
1.2875
1.200
1.312500
1.2875
1.652
1.4750
1.3000
1.21252
1.1250
1.41250
1.450
0.544000
0.628745
1.350
1.2875
1.200
1.312500
1.2875
1.556
1.4750
1.3000
1.21252
1.1250
1.41250
1.450
0.544000
0.466386
1.350
1.2875
1.200
1.312500
0.7981
1.468
(1) Comparative figures have been reclassified to reflect presentation adjustments relating to the adoption of IFRS 15, Revenue from Contracts with Customers, as described in the “International Financial Reporting
Standards” section and in note 2 to the Company’s December 31, 2018 annual consolidated financial statements.
(2) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
(3) The Series N First Preferred Share dividend was reset to a five year fixed dividend rate of 2.176% per annum on December 30, 2015 which applies until December 30, 2020, at which time the dividend rate becomes
equal to the five year Government of Canada Treasury Bill yield plus 1.30%.
(4) The Series O First Preferred Share dividend was reset to 3 month floating dividend rate on December 30, 2015. The floating dividend rate is reset quarterly to the three month Government of Canada Treasury Bill
yield plus 1.30%.
(5) The Series T First Preferred Shares were issued on May 18, 2017. The first dividend payment was made on September 29, 2017 in the amount of $0.476200 per share. Regular quarterly dividends are $0.321875
per share.
Great-West Lifeco Inc. 2019 Annual Report
89
Management’s Discussion and Analysis
quarterLy financiaL information
(in $ millions,
except per share amounts)
Q4
2019
2018
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Total revenue (1)
$ 10,689
$
14,374
$
2,746
$
16,889
$
11,699
$
12,027
$
10,613
$
9,693
Common shareholders
Net earnings
Total
Basic – per share
Diluted – per share
Adjusted net earnings (2)
Total
Basic – per share
Diluted – per share
$
$
513
0.552
0.552
740
0.797
0.796
$
$
730
0.786
0.785
730
0.786
0.785
$
$
459
0.489
0.489
658
0.701
0.700
$
$
657
0.665
0.665
657
0.665
0.665
$
$
710
0.719
0.719
710
0.719
0.719
$
$
689
0.697
0.697
745
0.754
0.753
$
$
831
0.839
0.839
831
0.839
0.839
$
$
731
0.740
0.739
731
0.740
0.739
(1) Revenue includes the changes in fair value through profit or loss on investment assets.
(2) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
Lifeco’s consolidated net earnings attributable to common
shareholders were $513 million for the fourth quarter of 2019
compared to $710 million reported a year ago. On a per share
basis, this represents $0.552 per common share ($0.552 diluted)
for the fourth quarter of 2019 compared to $0.719 per common
share ($0.719 diluted) a year ago.
Total revenue for the fourth quarter of 2019 was $10,689 million
and comprises premium income of $9,478 million, regular net
investment income of $1,462 million, a negative change in fair
value through profit or loss on investment assets of $1,766 million
and fee and other income of $1,515 million.
discLosure controLs and Procedures
The Company’s disclosure controls and procedures are designed
to provide reasonable assurance that information required to be
disclosed by the Company in reports filed or submitted by it under
provincial and territorial securities legislation is: (a) recorded,
processed, summarized and reported within the time periods
specified in the provincial and territorial securities legislation,
and (b) accumulated and communicated to the Company’s senior
management, including the President and Chief Executive Officer
and the Executive Vice-President and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required
disclosure. Management evaluated the effectiveness of the
Company’s disclosure controls and procedures as at December
31, 2019 and, based on such evaluation, the President and Chief
Executive Officer and the Executive Vice-President and Chief
Financial Officer have concluded that the Company’s disclosure
controls and procedures are effective.
internaL controL over financiaL rePorting
The Company’s internal control over financial reporting is designed
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with IFRS. The Company’s management
is responsible for establishing and maintaining effective internal
control over financial reporting. All internal control systems have
inherent limitations and may become ineffective because of
changes in conditions. Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect
to financial statement preparation and presentation.
The Company’s management, under the supervision of the President
and Chief Executive Officer and the Executive Vice-President and
Chief Financial Officer, has evaluated the effectiveness of the
Company’s internal control over financial reporting based on the
2013 Internal Control – Integrated Framework (COSO Framework)
published by the Committee of Sponsoring Organizations of the
Treadway Commission. The Company’s management adopted the
revised 2013 COSO Framework in 2015 as the basis to evaluate the
effectiveness of the Lifeco’s internal control over financial reporting.
During the twelve months ended December 31, 2019, there
have been no changes in the Company’s internal control over
financial reporting that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over
financial reporting. Management evaluated the effectiveness
of the Company’s internal control over financial reporting as at
December 31, 2019 and, based on such evaluation, the President
and Chief Executive Officer and the Executive Vice-President
and Chief Financial Officer have concluded that the Company’s
internal control over financial reporting is effective and that there
are no material weaknesses in the Company’s internal control over
financial reporting.
90
Great-West Lifeco Inc. 2019 Annual Report
During the year, Great-West Life provided to and received from
IGM and its subsidiaries certain administrative and information
technology services. Great-West Life also provided life insurance,
annuity and disability insurance products under a distribution
agreement with IGM. London Life provided distribution services to
IGM. All transactions were provided at market terms and conditions.
Segregated funds of the Company were invested in funds
managed by IG Wealth Management and Mackenzie Investments.
The Company also has interests in mutual funds, open-ended
investment companies and unit trusts. Some of these funds are
managed by related parties of the Company and the Company
receives management fees related to these services. All transactions
were provided at market terms and conditions.
At December 31, 2019, the Company held $101 million ($86 million
in 2018) of debentures issued by IGM. During 2019, the Company
purchased debentures from IGM with a total market value at
December 31, 2019 of $10 million ($14 million in 2018).
During the normal course of business in 2019, the Company
purchased residential mortgages of $11 million from IGM ($61
million in 2018).
The Company holds investments in Portag3 Ventures Limited
Partnership, Portag3 Ventures II Limited Partnership, Wealthsimple
Europe S.a.r.l. and other entities which invest in the FinTech
sector. These investments were made in partnership with Power
Financial, IGM and, in certain circumstances, outside investors.
The Company provides asset management, employee benefits
and administrative services for employee benefit plans relating to
pension and other post-employment benefits for employees of the
Company and its subsidiaries. These transactions were provided
at market terms and conditions.
As at December 31, 2019 and December 31, 2018, there were no
significant outstanding loans or guarantees and no material loans
or guarantees issued during 2019 or 2018 with related parties.
There were no provisions for uncollectible amounts from related
parties during 2019 or 2018.
Management’s Discussion and Analysis
reLationsHiP witH Power corPoration grouP of comPanies
Lifeco’s controlling shareholder is Power Financial Corporation
(Power Financial), which is controlled by Power Corporation of
Canada (Power Corporation) and, ultimately, by the Desmarais
Family Residuary Trust. Power Corporation also controls IGM
Financial Inc. and its subsidiaries (IGM), as well as Portag3 Ventures
II Limited Partnership (Portag3), which invests in the FinTech
sector and in which both Lifeco and IGM are investors. Some of
these related entities operate in similar or related sectors to those
in which Lifeco’s subsidiaries operate. A number of the Company’s
directors are also directors or officers of Power Corporation or one
of its affiliates.
Lifeco’s relationship with Power Financial, Power Corporation,
IGM, Portag3 and other members of the Power Corporation group
of companies enables Lifeco to access expertise and industry
knowledge, achieve economies of scale and access investment
opportunities. As a result of these relationships, Lifeco and other
members of the Power Corporation group of companies may
become aware of opportunities that are also of potential interest to
other members of the group and Lifeco may share information for
that purpose. Power Corporation and Power Financial from time to
time also assist Lifeco to identify and analyze strategic corporate
opportunities that may be of potential interest to it. However,
Power Corporation and Power Financial have no commitment to
Lifeco that would require them or their respective subsidiaries,
directors or officers to offer any particular opportunity to Lifeco.
The Company has related party procedures that require, among
other things, transactions between the Company and its subsidiaries
and any member of the Power Corporation group of companies to
be on terms no less favourable than market terms or where there
is no open market, on terms that would reasonably be expected
to provide at least fair value to the Company. Under the related
party procedures, any material related party transactions must be
reviewed and approved by a conduct review committee composed
entirely of directors who are independent of management and
Power Corporation and its affiliates.
transactions witH reLated Parties
As part of the substantial issuer bid, Power Financial and
IGM participated in the Offer. IGM tendered its Lifeco shares
proportionately. Power Financial tendered a portion of its Lifeco
common shares on a proportionate basis and all remaining
Lifeco common shares on a non-proportionate basis and this
did not impact Power Financial’s voting control of the Company.
Power Financial and IGM effected their tender offers through a
Qualifying Holdco Alternative, which the Company also offered to
other shareholders, to assist them in achieving certain Canadian
tax objectives.
In the normal course of business, Great-West Life and Putnam
enter into various transactions with related companies, which
include providing insurance benefits and sub-advisory services to
other companies within the Power Financial group of companies
enabling each organization to take advantage of economies of
scale and areas of expertise. In all cases, transactions were at
market terms and conditions.
Great-West Lifeco Inc. 2019 Annual Report
91
Management’s Discussion and Analysis
transLation of foreign currency
Through its operating subsidiaries, Lifeco conducts business in multiple currencies. The four primary currencies are the Canadian
dollar, the U.S. dollar, the British pound and the euro. Throughout this document, foreign currency assets and liabilities are translated
into Canadian dollars at the market rate at the end of the reporting period. All income and expense items are translated at an average
rate for the period. The rates employed are:
Translation of foreign currency
Period ended
United States dollar
Balance sheet
Income and expenses
British pound
Balance sheet
Income and expenses
Euro
Balance sheet
Income and expenses
Dec. 31
Sept. 30
June 30
Mar. 31
Dec. 31
Sept. 30
June 30
Mar. 31
2019
2018
$
$
$
$
$
$
1.30
1.32
1.72
1.70
1.46
1.46
$
$
$
$
$
$
1.32
1.32
1.63
1.63
1.44
1.47
$
$
$
$
$
$
1.31
1.34
1.66
1.72
1.49
1.50
$
$
$
$
$
$
1.34
1.33
1.74
1.73
1.50
1.51
$
$
$
$
$
$
1.36
1.32
1.74
1.70
1.56
1.51
$
$
$
$
$
$
1.29
1.31
1.69
1.70
1.50
1.52
$
$
$
$
$
$
1.31
1.29
1.73
1.76
1.53
1.54
$
$
$
$
$
$
1.29
1.26
1.81
1.76
1.59
1.55
Additional information relating to Lifeco, including Lifeco’s most recent consolidated financial statements, CEO/CFO certification and
Annual Information Form are available at www.sedar.com.
92
Great-West Lifeco Inc. 2019 Annual Report
Financial Reporting Responsibility
The consolidated financial statements are the responsibility of management and are prepared in accordance with International
Financial Reporting Standards (IFRS). The financial information contained elsewhere in the annual report is consistent with that in the
consolidated financial statements. The consolidated financial statements necessarily include amounts that are based on management’s
best estimates. These estimates are based on careful judgments and have been properly reflected in the consolidated financial
statements. In the opinion of management, the accounting practices utilized are appropriate in the circumstances and the consolidated
financial statements present fairly, in all material respects, the financial position of the Company and the results of its operations and
its cash flows in accordance with IFRS.
In carrying out its responsibilities, management maintains appropriate internal control over financial reporting designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with IFRS.
The consolidated financial statements were approved by the Board of Directors, which has oversight responsibilities with respect to
financial reporting. The Board of Directors carries out this responsibility principally through the Audit Committee, which comprises
independent directors. The Audit Committee is charged with, among other things, the responsibility to:
• Review the interim and annual consolidated financial statements and report thereon to the Board of Directors.
• Review internal control procedures.
• Review the independence of the external auditors and the terms of their engagement and recommend the appointment and
compensation of the external auditors to the Board of Directors.
• Review other audit, accounting and financial reporting matters as required.
In carrying out the above responsibilities, this Committee meets regularly with management, and with both the Company’s external
and internal auditors to review their respective audit plans and to review their audit findings. The Committee is readily accessible to the
external and internal auditors.
The Board of Directors of each of The Great-West Life Assurance Company and Great-West Life & Annuity Insurance Company appoints
an Actuary who is a Fellow of the Canadian Institute of Actuaries. The Actuary:
• Ensures that the assumptions and methods used in the valuation of policy liabilities are in accordance with accepted actuarial
practice, applicable legislation and associated regulations and directives.
• Provides an opinion regarding the appropriateness of the policy liabilities at the balance sheet date to meet all policyholder obligations.
Examination of supporting data for accuracy and completeness and analysis of assets for their ability to support the policy liabilities
are important elements of the work required to form this opinion.
Deloitte LLP Chartered Professional Accountants, as the Company’s external auditors, have audited the consolidated financial
statements. The Independent Auditor’s Report to the Shareholders is presented following the consolidated financial statements. Their
opinion is based upon an examination conducted in accordance with Canadian generally accepted auditing standards, performing
such tests and other procedures as they consider necessary in order to obtain reasonable assurance that the consolidated financial
statements present fairly, in all material respects, the financial position of the Company and the results of its operations and its cash
flows in accordance with IFRS.
Paul Mahon
Garry MacNicholas
President and
Chief Executive Officer
Executive Vice-President and
Chief Financial Officer
February 12, 2020
Great-West Lifeco Inc. 2019 Annual Report
93
Consolidated Statements of Earnings
(in Canadian $ millions except per share amounts)
For the years ended December 31
Income
Premium income
Gross premiums written
Ceded premiums
Total net premiums
Net investment income (note 7)
Regular net investment income
Changes in fair value through profit or loss
Total net investment income
Fee and other income
Benefits and expenses
Policyholder benefits
Gross
Ceded
Total net policyholder benefits
Changes in insurance and investment contract liabilities
Gross
Ceded
Total net changes in insurance and investment contract liabilities
Policyholder dividends and experience refunds
Total paid or credited to policyholders
Commissions
Operating and administrative expenses (note 28)
Premium taxes
Financing charges (note 17)
Amortization of finite life intangible assets (note 11)
Restructuring expenses (note 5)
Earnings before income taxes
Income taxes (note 27)
Net earnings before non-controlling interests
Attributable to non-controlling interests (note 19)
Net earnings
Preferred share dividends (note 21)
Net earnings – common shareholders
Earnings per common share (note 21)
Basic
Diluted
94
Great-West Lifeco Inc. 2019 Annual Report
2019
2018
$ 43,266
(18,756)
$
24,510
6,161
6,946
13,107
7,081
44,698
37,769
(2,916)
34,853
10,155
(13,479)
(3,324)
1,562
33,091
2,429
5,231
506
285
224
52
2,880
373
2,507
15
2,492
133
39,984
(4,523)
35,461
6,358
(3,606)
2,752
5,819
44,032
32,357
(2,445)
29,912
441
61
502
1,654
32,068
2,474
5,033
495
221
212
67
3,462
387
3,075
(19)
3,094
133
$
2,359
$
2,961
$
$
2.494
2.493
$
$
2.996
2.994
Consolidated Statements of Comprehensive Income
(in Canadian $ millions)
For the years ended December 31
Net earnings
Other comprehensive income
Items that may be reclassified subsequently to Consolidated Statements of Earnings
Unrealized foreign exchange gains (losses) on translation of foreign operations
Unrealized foreign exchange gains (losses) on euro debt designated as hedges of the net investment in foreign operations
Income tax (expense) benefit
Unrealized gains (losses) on available-for-sale assets
Income tax (expense) benefit
Realized (gains) losses on available-for-sale assets
Income tax expense (benefit)
Unrealized gains (losses) on cash flow hedges
Income tax (expense) benefit
Realized (gains) losses on cash flow hedges
Income tax expense (benefit)
Non-controlling interests
Income tax (expense) benefit
Total items that may be reclassified
Items that will not be reclassified to Consolidated Statements of Earnings
Re-measurements on defined benefit pension and other post-employment benefit plans (note 24)
Income tax (expense) benefit
Non-controlling interests
Income tax (expense) benefit
Total items that will not be reclassified
Total other comprehensive income (loss)
Comprehensive income
2019
2018
$
2,492
$
3,094
(561)
100
(14)
232
(37)
(69)
6
2
–
–
–
(46)
7
(380)
(226)
47
13
(4)
(170)
(550)
766
(50)
7
(114)
22
6
(1)
23
(4)
(69)
17
30
(5)
628
34
(5)
2
–
31
659
$
1,942
$
3,753
Great-West Lifeco Inc. 2019 Annual Report
95
Consolidated Balance Sheets
(in Canadian $ millions)
December 31
Assets
Cash and cash equivalents (note 6)
Bonds (note 7)
Mortgage loans (note 7)
Stocks (note 7)
Investment properties (note 7)
Loans to policyholders
Assets held for sale (note 4)
Funds held by ceding insurers (note 8)
Reinsurance assets (note 14)
Goodwill (note 11)
Intangible assets (note 11)
Derivative financial instruments (note 29)
Owner occupied properties (note 12)
Fixed assets (note 12)
Other assets (note 13)
Premiums in course of collection, accounts and interest receivable
Current income taxes
Deferred tax assets (note 27)
Investments on account of segregated fund policyholders (note 15)
Investments on account of segregated fund policyholders held for sale (note 4)
Total assets
Liabilities
Insurance contract liabilities (note 14)
Investment contract liabilities (note 14)
Liabilities held for sale (note 4)
Debentures and other debt instruments (note 16)
Funds held under reinsurance contracts
Derivative financial instruments (note 29)
Accounts payable
Other liabilities (note 18)
Current income taxes
Deferred tax liabilities (note 27)
Investment and insurance contracts on account of segregated fund policyholders (note 15)
Investment and insurance contracts on account of segregated fund policyholders held for sale (note 4)
Total liabilities
Equity
Non-controlling interests (note 19)
Participating account surplus in subsidiaries
Non-controlling interests in subsidiaries
Shareholders’ equity
Share capital (note 20)
Preferred shares
Common shares
Accumulated surplus
Accumulated other comprehensive income (note 25)
Contributed surplus
Total equity
Total liabilities and equity
Approved by the Board of Directors:
Jeffrey Orr
Chair of the Board
Paul Mahon
President and Chief Executive Officer
96
Great-West Lifeco Inc. 2019 Annual Report
2019
2018
$
4,628
115,028
24,268
10,375
5,887
8,601
168,787
–
8,714
20,707
6,505
3,879
451
727
455
3,110
5,881
236
693
231,022
–
$
4,168
124,862
25,014
9,290
5,218
8,929
177,481
897
9,251
6,126
6,548
3,976
417
731
448
2,567
5,202
218
981
209,527
3,319
$ 451,167
$ 427,689
$ 174,521
1,656
–
5,993
1,433
1,381
3,352
4,689
461
1,116
231,022
–
$ 166,720
1,711
897
6,459
1,367
1,562
3,262
3,855
402
1,210
209,527
3,319
425,624
400,291
2,759
107
2,714
5,633
13,660
495
175
25,543
2,737
138
2,714
7,283
13,342
1,045
139
27,398
$ 451,167
$ 427,689
Consolidated Statements of Changes in Equity
(in Canadian $ millions)
Balance, beginning of year
Change in accounting policy (note 2)
Revised balance, beginning of year
Net earnings
Other comprehensive income (loss)
Dividends to shareholders
Preferred shareholders (note 21)
Common shareholders
Shares exercised and issued under
share-based payment plans (note 20)
Share-based payment plans expense
Equity settlement of Putnam share-based plans
Shares purchased and cancelled under
Substantial Issuer Bid (note 20)
Excess of redemption proceeds over stated capital per
Substantial Issuer Bid (note 20)
Common share carrying value adjustment per
Substantial Issuer Bid (note 20)
Substantial Issuer Bid transaction costs (note 20)
Shares purchased and cancelled under
Normal Course Issuer Bid (note 20)
Excess of redemption proceeds over stated capital per
Normal Course Issuer Bid (note 20)
Shares cancelled under Putnam share-based plans
Dilution gain on non-controlling interests
December 31, 2019
Share
capital
Contributed
surplus
Accumulated
surplus
Accumulated
other
comprehensive
income (loss)
Non-
controlling
interests
$
$
9,997
–
9,997
–
–
9,997
–
–
39
–
–
(2,000)
1,628
(1,304)
–
(66)
53
–
–
139
–
139
–
–
139
–
–
(36)
37
–
–
–
–
–
–
–
35
–
$ 13,342
(109)
$
13,233
2,492
–
15,725
(133)
(1,559)
–
–
–
–
(1,628)
1,304
(3)
–
(53)
–
7
1,045
–
1,045
–
(550)
495
$
2,875
–
2,875
15
30
2,920
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31
–
(33)
–
–
–
–
–
–
(45)
(7)
Total
equity
$ 27,398
(109)
27,289
2,507
(520)
29,276
(133)
(1,559)
34
37
(33)
(2,000)
–
–
(3)
(66)
–
(10)
–
Balance, end of year
$
8,347
$
175
$ 13,660
$
495
$
2,866
$ 25,543
Balance, beginning of year
Change in accounting policy
Revised balance, beginning of year
Net earnings (loss)
Other comprehensive income (loss)
Dividends to shareholders
Preferred shareholders (note 21)
Common shareholders
Shares exercised and issued under share-based
payment plans (note 20)
Share-based payment plans expense
Equity settlement of Putnam share-based plans
Shares purchased and cancelled under
Normal Course Issuer Bid (note 20)
Excess of redemption proceeds over stated capital per
Normal Course Issuer Bid (note 20)
Acquisition of PanAgora non-controlling interest
Acquisition of Invesco non-controlling interest
Dilution loss on non-controlling interests
December 31, 2018
Share
capital
Contributed
surplus
Accumulated
surplus
Accumulated
other
comprehensive
income (loss)
Non-
controlling
interests
$
$
9,974
–
9,974
–
–
9,974
–
–
39
–
–
(69)
53
–
–
–
143
–
143
–
–
143
–
–
(42)
38
–
–
–
–
–
–
$
12,098
(64)
$
12,034
3,094
–
15,128
(133)
(1,538)
–
–
–
–
(53)
(54)
–
(8)
386
–
386
–
659
1,045
$
2,935
–
2,935
(19)
(27)
2,889
–
–
–
–
–
–
–
–
–
–
–
–
37
–
(58)
–
–
(21)
20
8
Total
equity
$
25,536
(64)
25,472
3,075
632
29,179
(133)
(1,538)
34
38
(58)
(69)
–
(75)
20
–
Balance, end of year
$
9,997
$
139
$
13,342
$
1,045
$
2,875
$
27,398
Great-West Lifeco Inc. 2019 Annual Report
97
Consolidated Statements of Cash Flows
(in Canadian $ millions)
For the years ended December 31
Operations
Earnings before income taxes
Income taxes paid, net of refunds received
Adjustments:
Change in insurance and investment contract liabilities
Change in funds held by ceding insurers
Change in funds held under reinsurance contracts
Change in reinsurance assets
Changes in fair value through profit or loss
Other
Financing Activities
Issue of common shares (note 20)
Purchased and cancelled common shares (note 20)
Substantial issuer bid transaction costs (note 20)
Issue of debentures and senior notes (note 16)
Repayment of debentures (note 16)
Increase (decrease) in line of credit of subsidiary
Increase (decrease) in debentures and other debt instruments
Dividends paid on common shares
Dividends paid on preferred shares
Investment Activities
Bond sales and maturities
Mortgage loan repayments
Stock sales
Investment property sales
Change in loans to policyholders
Proceeds from assets held for sale
Business acquisitions, net of cash and cash equivalents acquired
Cash and cash equivalents related to transfer of business (note 4)
Cash and cash equivalents classified as held for sale (note 4)
Investment in bonds
Investment in mortgage loans
Investment in stocks
Investment in investment properties
Effect of changes in exchange rates on cash and cash equivalents
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
Supplementary cash flow information
Interest income received
Interest paid
Dividend income received
98
Great-West Lifeco Inc. 2019 Annual Report
2019
2018
$
2,880
(235)
$
10,412
570
81
(900)
(6,946)
248
6,110
39
(2,066)
(3)
–
(232)
(28)
1
(1,559)
(133)
(3,981)
25,155
2,532
2,814
5
16
–
–
(4)
–
(25,087)
(3,816)
(2,510)
(644)
(1,539)
(130)
460
4,168
3,462
(428)
(379)
663
(37)
51
3,606
(444)
6,494
39
(69)
–
1,512
(1,096)
19
(1)
(1,538)
(133)
(1,267)
25,001
2,808
2,939
63
(208)
169
(279)
–
(112)
(26,453)
(4,246)
(4,102)
(356)
(4,776)
166
617
3,551
$
4,628
$
4,168
$
5,112
301
299
$
5,345
282
266
Notes to Consolidated Financial Statements
(in Canadian $ millions except per share amounts)
1. Corporate Information
Great-West Lifeco Inc. (Lifeco or the Company) is a publicly listed company (Toronto Stock Exchange: GWO), incorporated and domiciled
in Canada. The registered address of the Company is 100 Osborne Street North, Winnipeg, Manitoba, Canada, R3C 1V3. Lifeco is a
member of the Power Corporation of Canada group of companies and its direct parent is Power Financial Corporation (Power Financial).
Lifeco is a financial services holding company with interests in the life insurance, health insurance, retirement savings, investment
management and reinsurance businesses, primarily in Canada, the United States and Europe through its operating subsidiaries
including The Great-West Life Assurance Company (Great-West Life), London Life Insurance Company (London Life), The Canada Life
Assurance Company (Canada Life), Great-West Life & Annuity Insurance Company (GWL&A) and Putnam Investments, LLC (Putnam).
The consolidated financial statements (financial statements) of the Company as at and for the year ended December 31, 2019 were
approved by the Board of Directors on February 12, 2020.
Subsequent Event
Effective January 1, 2020, Great-West Life, London Insurance Group Inc. (LIG), the direct parent of London Life, London Life, Canada Life
Financial Corporation (CLFC), the direct parent of Canada Life, and Canada Life amalgamated (the Amalgamation) into one company:
The Canada Life Assurance Company (the Amalgamated Company). The Amalgamated Company is a wholly-owned operating subsidiary
of Lifeco (note 33).
2. Basis of Presentation and Summary of Accounting Policies
The consolidated financial statements of the Company have been prepared in compliance with International Financial Reporting
Standards (IFRS), as issued by the International Accounting Standards Board (IASB). Consistent accounting policies were applied in the
preparation of the consolidated financial statements of the subsidiaries of the Company.
Changes in Accounting Policies
Effective January 1, 2019, the Company applied International Financial Reporting Interpretations Committee (IFRIC) 23, Uncertainty
over Income Tax Treatments (IFRIC 23). The interpretation clarifies how to apply the recognition and measurement requirements in
International Accounting Standards (IAS) 12, Income Taxes, when there is uncertainty over income tax treatments. Under IFRIC 23, a
provision for tax uncertainties which meet the probable threshold for recognition is measured based on the amount most likely to occur.
The provision for tax uncertainties will be classified as current or deferred based on how a disallowance of the underlying uncertain
tax treatment would impact the tax provision accrual as of the balance sheet date. The application of the interpretation of the standard
resulted in a decrease of $109 to opening accumulated surplus at January 1, 2019.
Effective January 1, 2019, the Company adopted IFRS 16, Leases (IFRS 16) which replaces IAS 17, Leases (IAS 17). The standard prescribes
new guidance for identifying leases as well as the accounting, measurement and presentation of leases by the lessee. Under IFRS 16,
the Company recognizes a right-of-use asset and a lease liability at the lease commencement date on the Consolidated Balance Sheets.
The Company has elected to adopt IFRS 16 using a modified retrospective approach and accordingly the information presented for 2018
has not been restated. The comparative information remains as previously reported under IAS 17 and related interpretations.
On initial application, the Company has elected to measure right-of-use assets at an amount equal to the lease liability, adjusted by the
amount of any lease related balances relating to that lease recognized on the Consolidated Balance Sheets immediately before the date
of initial application. At January 1, 2019, right-of-use assets of $551 were recognized ($522 within other assets and $29 within investment
properties) and lease liabilities of $551 were recognized within other liabilities. Lease related balances included within accounts payable
on the Consolidated Balance Sheets at December 31, 2018 of $62 were reclassified to decrease right-of-use assets recognized to $489 at
January 1, 2019. When measuring lease liabilities, the Company discounted lease payments using the lessee’s incremental borrowing
rate at January 1, 2019. The weighted-average rate applied is 3.82%.
The following table reconciles the Company’s operating lease obligations at December 31, 2018, as previously disclosed in the Company’s
consolidated financial statements, to the lease liabilities recognized on initial application of IFRS 16 at January 1, 2019:
Operating lease commitments at December 31, 2018
Discounting using the incremental borrowing rate at January 1, 2019
Non-lease components included in operating lease commitments
Leases not yet commenced at January 1, 2019 included in operating lease commitments
Short-term leases included in operating lease commitments
Low-value leases included in operating lease commitments
Lease liabilities recognized at January 1, 2019
$
900
(170)
(110)
(57)
(6)
(6)
$
551
The Company adopted the narrow scope amendments to IFRS for IAS 28, Investments in Associates and Joint Ventures, IAS 19, Employee
Benefits, and Annual Improvements 2015 – 2017 Cycle for the amendments to IFRS 3, Business Combinations, IFRS 11, Joint Arrangements,
IAS 12, Income Taxes and IAS 23, Borrowing Costs, effective January 1, 2019. The adoption of these narrow scope amendments did not
have a significant impact on the Company’s financial statements.
Great-West Lifeco Inc. 2019 Annual Report
99
Notes to Consolidated Financial Statements
2. Basis of Presentation and Summary of Accounting Policies (cont’d)
Basis of Consolidation
The consolidated financial statements of the Company were prepared as at and for the year ended December 31, 2019 with comparative
information as at and for the year ended December 31, 2018. Subsidiaries are fully consolidated from the date of acquisition, being the
date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. The Company has
control when it has the power to direct the relevant activities, has significant exposure to variable returns from these activities and has
the ability to use its power to affect the variable returns. All intercompany balances, transactions, income and expenses and profits or
losses, including dividends resulting from intercompany transactions, are eliminated on consolidation.
Use of Significant Judgments, Estimates and Assumptions
In preparation of these consolidated financial statements, management is required to make significant judgments, estimates and
assumptions that affect the reported amounts of assets, liabilities, net earnings and related disclosures. Although some uncertainty is
inherent in these judgments and estimates, management believes that the amounts recorded are reasonable. Key sources of estimation
uncertainty and areas where significant judgments have been made are listed below and discussed throughout the notes to these
consolidated financial statements including:
• Management uses judgment in determining the assets and liabilities to be included in a disposal group. The Company uses estimates
in the determination of the fair value for disposal groups (note 4).
• Management uses independent qualified appraisal services to determine the fair value of investment properties, which utilize
judgments and estimates. These appraisals are adjusted by applying management judgments and estimates for material changes in
property cash flows, capital expenditures or general market conditions (note 7).
• Management uses internal valuation models which utilize judgments and estimates to determine the fair value of equity release
mortgages. These valuations are adjusted by applying management judgments and estimates for material changes in projected asset
cash flows, and discount rates (note 7).
• In the determination of the fair value of financial instruments, the Company’s management exercises judgment in the determination
of fair value inputs, particularly those items categorized within level 3 of the fair value hierarchy (note 10).
• Cash generating unit groupings for goodwill and indefinite life intangible assets have been determined by management as the lowest
level that the assets are monitored for internal reporting purposes, which requires management judgment in the determination of the
lowest level of monitoring (note 11).
• Management evaluates the future benefit for initial recognition and measurement of goodwill and intangible assets as well as testing
the recoverable amounts. The determination of the carrying value and recoverable amounts of the cash generating unit groupings for
goodwill and intangible assets relies upon the determination of fair value or value-in-use using valuation methodologies (note 11).
• Judgments are used by management in determining whether deferred acquisition costs and deferred income reserves can be
recognized on the Consolidated Balance Sheets. Deferred acquisition costs are recognized if management determines the costs meet
the definition of an asset and are incremental and related to the issuance of the investment contract. Deferred income reserves are
amortized on a straight-line basis over the term of the policy (notes 13 and 18).
• Management uses judgment to evaluate the classification of insurance and reinsurance contracts to determine whether these
arrangements should be accounted for as insurance, investment or service contracts.
• The actuarial assumptions, such as interest rates, inflation, policyholder behaviour, mortality and morbidity of policyholders, used in
the valuation of insurance and certain investment contract liabilities under the Canadian Asset Liability Method require significant
judgment and estimation (note 14).
• The actuarial assumptions used in determining the expense and benefit obligations for the Company’s defined benefit pension plans
and other post-employment benefits requires significant judgment and estimation. Management reviews previous experience of its
plan members and market conditions including interest rates and inflation rates in evaluating the assumptions used in determining
the expense for the current year (note 24).
• The Company operates within various tax jurisdictions where significant management judgments and estimates are required when
interpreting the relevant tax laws, regulations and legislation in the determination of the Company’s tax provisions and the carrying
amounts of its tax assets and liabilities (note 27).
• Management applies judgment in assessing the recoverability of the deferred income tax asset carrying values based on future years’
taxable income projections (note 27).
• Legal and other provisions are recognized resulting from a past event which, in the judgment of management, has resulted in a
probable outflow of economic resources which would be passed to a third-party to settle the obligation. Management uses judgment
to evaluate the possible outcomes and risks in determining the best estimate of the provision at the balance sheet date (note 30).
• The operating segments of the Company, which are the segments reviewed by the Company’s Chief Executive Officer to assess
performance and allocate resources within the Company, are aligned with the Company’s geographic operations. Management
applies judgment in the aggregation of the business units into the Company’s operating segments (note 32).
• The Company consolidates all subsidiaries and entities which management determines that the Company controls. Control is
evaluated on the ability of the Company to direct the activities of the subsidiary or entity to derive variable returns and management
uses judgment in determining whether control exists. Judgment is exercised in the evaluation of the variable returns and in determining
the extent to which the Company has the ability to exercise its power to generate variable returns.
100 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
• Management uses judgments, such as the determination of whether the Company retains the primary obligation with a client in sub-
advisor arrangements. Where the Company retains the primary obligation to the client, revenue and expenses are recorded on a gross basis.
• Within the Consolidated Statements of Cash Flows, purchases and sales of portfolio investments are recorded within investment
activities due to management’s judgment that these investing activities are long-term in nature.
• The results of the Company reflect management’s judgments regarding the impact of prevailing global credit, equity and foreign
exchange market conditions. The provision for future credit losses within the Company’s insurance contract liabilities relies upon
investment credit ratings. The Company’s practice is to use third-party independent credit ratings where available. Management
judgment is required when setting credit ratings for instruments that do not have a third-party rating.
The significant accounting policies are as follows:
(a) Portfolio Investments
Portfolio investments include bonds, mortgage loans, stocks and investment properties. Portfolio investments are classified as
fair value through profit or loss, available-for-sale, held-to-maturity, loans and receivables, equity-method investments or as non-
financial instruments based on management’s intention relating to the purpose and nature of the instrument or characteristics of
the investment. The Company has not classified any investments as held-to-maturity.
Investments in bonds and stocks normally actively traded on a public market or where fair value can be reliably measured are
either designated or classified as fair value through profit or loss or classified as available-for-sale on a trade date basis. Equity
release mortgages are designated as fair value through profit or loss. A financial asset is designated as fair value through profit or
loss on initial recognition if it eliminates or significantly reduces an accounting mismatch. Changes in the fair value of financial
assets designated as fair value through profit or loss are generally offset by changes in insurance contract liabilities, since the
measurement of insurance contract liabilities is determined with reference to the assets supporting the liabilities. A financial asset
is classified as fair value through profit or loss on initial recognition if it is part of a portfolio that is actively traded for the purpose of
earning investment income. Fair value through profit or loss investments are recognized at fair value on the Consolidated Balance
Sheets with realized and unrealized gains and losses reported in the Consolidated Statements of Earnings. Available-for-sale
investments are recognized at fair value on the Consolidated Balance Sheets with unrealized gains and losses recorded in other
comprehensive income. Realized gains and losses on available-for-sale investments are reclassified from other comprehensive
income and recorded in the Consolidated Statements of Earnings when the investment is sold. Interest income earned on both fair
value through profit or loss and available-for-sale bonds is calculated using the effective interest method and is recorded as net
investment income in the Consolidated Statements of Earnings.
Investments in stocks where a fair value cannot be measured reliably are classified as available-for-sale and carried at cost.
Investments in stocks for which the Company exerts significant influence over but does not control are accounted for using the
equity method of accounting. Investments in stocks over which the Company exerts significant influence but does not control
include the Company’s investment in an affiliated company, IGM Financial Inc. (IGM), a member of the Power Financial group
of companies.
Investments in mortgages and bonds not normally actively traded on a public market are classified as loans and receivables and
are carried at amortized cost net of any allowance for credit losses. Interest income earned and realized gains and losses on the
sale of investments classified as loans and receivables are recorded in the Consolidated Statements of Earnings and included in net
investment income.
Investment properties are real estate held to earn rental income or for capital appreciation. Investment properties are initially
measured at cost and subsequently carried at fair value on the Consolidated Balance Sheets. All changes in fair value are recorded as
net investment income in the Consolidated Statements of Earnings. Properties held to earn rental income or for capital appreciation
that have an insignificant portion that is owner occupied or where there is no intent to occupy on a long-term basis are classified as
investment properties. Properties that do not meet these criteria are classified as owner occupied properties. Property that is leased
that would otherwise be classified as investment property if owned by the Company is also included within investment properties.
Fair Value Measurement
Financial instrument carrying values necessarily reflect the prevailing market liquidity and the liquidity premiums embedded
within the market pricing methods that the Company relies upon.
Fair value movement on the assets supporting insurance contract liabilities is a major factor in the movement of insurance contract
liabilities. Changes in the fair value of bonds designated or classified as fair value through profit or loss that support insurance and
investment contract liabilities are largely offset by corresponding changes in the fair value of liabilities except when the bond has
been deemed impaired.
The following is a description of the methodologies used to value instruments carried at fair value:
Bonds – Fair Value Through Profit or Loss and Available-for-Sale
Fair values for bonds classified and designated as fair value through profit or loss or available-for-sale are determined with reference
to quoted market bid prices primarily provided by third-party independent pricing sources. Where prices are not quoted in an active
market, fair values are determined by valuation models. The Company maximizes the use of observable inputs when measuring
fair value. The Company obtains quoted prices in active markets, when available, for identical assets at the balance sheet date to
measure bonds at fair value in its fair value through profit or loss and available-for-sale portfolios.
Great-West Lifeco Inc. 2019 Annual Report
101
Notes to Consolidated Financial Statements
2. Basis of Presentation and Summary of Accounting Policies (cont’d)
The Company estimates the fair value of bonds not traded in active markets by referring to actively traded securities with similar
attributes, dealer quotations, matrix pricing methodology, discounted cash flow analyses and/or internal valuation models. This
methodology considers such factors as the issuer’s industry, the security’s rating, term, coupon rate and position in the capital
structure of the issuer, as well as, yield curves, credit curves, prepayment rates and other relevant factors. For bonds that are not
traded in active markets, valuations are adjusted to reflect illiquidity, and such adjustments generally are based on available market
evidence. In the absence of such evidence, management’s best estimate is used.
Bonds and Mortgages – Loans and Receivables
For disclosure purposes only, fair values for bonds and mortgages classified as loans and receivables are determined by discounting
expected future cash flows using current market rates for similar instruments. Valuation inputs typically include benchmark yields
and risk-adjusted spreads based on current lending activities and market activity.
Equity Release Mortgages – Fair Value Through Profit or Loss
There are no market observable prices for equity release mortgages; therefore an internal valuation model is used discounting
expected future cash flows and includes consideration of the embedded no-negative equity guarantee. Inputs to the model include
market observable inputs such as benchmark yields and risk-adjusted spreads. Non market observable inputs include property
growth and volatility rates, expected rates of voluntary redemptions, death, moving to long term care and interest cessation
assumptions and the value of the no negative equity guarantee.
Stocks – Fair Value Through Profit or Loss and Available-for-Sale
Fair values for stocks traded on an active market are generally determined by the last bid price for the security from the exchange
where it is principally traded. Fair values for stocks for which there is no active market is typically based upon alternative valuation
techniques such as discounted cash flow analysis, review of price movement relative to the market and utilization of information
provided by the underlying investment manager. The Company maximizes the use of observable inputs when measuring fair value.
The Company obtains quoted prices in active markets, when available, for identical assets at the balance sheet date to measure
stocks at fair value in its fair value through profit or loss and available-for-sale portfolios.
Investment Properties
Fair values for investment properties are determined using independent qualified appraisal services and include management
adjustments for material changes in property cash flows, capital expenditures or general market conditions in the interim period
between appraisals. The determination of the fair value of investment property requires the use of estimates including future cash
flows (such as future leasing assumptions, rental rates, capital and operating expenditures) and discount, reversionary and overall
capitalization rates applicable to the asset based on current market conditions. Investment property under construction is valued
at fair value if such values can be reliably determined; otherwise they are recorded at cost.
Impairment
Investments are reviewed regularly on an individual basis to determine impairment status. The Company considers various
factors in the impairment evaluation process, including, but not limited to, the financial condition of the issuer, specific adverse
conditions affecting an industry or region, decline in fair value not related to interest rates, bankruptcy or defaults, and delinquency
in payments of interest or principal.
Investments are deemed to be impaired when there is objective evidence that timely collection of future cash flows can no longer be
reliably estimated. The fair value of an investment is not a definitive indicator of impairment, as it may be significantly influenced by
other factors including the remaining term to maturity and liquidity of the asset; however, market price is taken into consideration
when evaluating impairment.
For impaired mortgages and bonds classified as loans and receivables, provisions are established or write-offs made to adjust the
carrying value to the net realizable amount. Wherever possible, the fair value of collateral underlying the loans or observable market
price is used to establish the net realizable value. For impaired available-for-sale bonds recorded at fair value, the accumulated loss
recorded in accumulated other comprehensive income is reclassified to net investment income. Impairments on available-for-sale
debt instruments are reversed if there is objective evidence that a permanent recovery has occurred. All gains and losses on bonds
classified or designated as fair value through profit or loss are recorded in net investment income, therefore, in the event of an
impairment, the reduction will be recorded in net investment income.
Securities Lending
The Company engages in securities lending through its securities custodians as lending agents. Loaned securities are not
derecognized, and continue to be reported within invested assets, as the Company retains substantial risks and rewards and
economic benefits related to the loaned securities.
(b) Transaction Costs
Transaction costs are expensed as incurred for financial instruments classified as fair value through profit or loss. Transaction costs
for financial assets classified as available-for-sale or loans and receivables are added to the value of the instrument at acquisition
and taken into net earnings using the effective interest method. Transaction costs for financial liabilities classified as other than
fair value through profit or loss are included in the value of the instrument issued and taken into net earnings using the effective
interest method.
102 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
(c) Cash and Cash Equivalents
Cash and cash equivalents comprise cash, current operating accounts, overnight bank and term deposits with maturities of three
months or less held for the purpose of meeting short-term cash requirements. Net payments in transit and overdraft bank balances
are included in other liabilities.
(d) Trading Account Assets
Trading account assets consist of investments in sponsored funds, open ended investment companies and sponsored unit-trusts,
which are carried at fair value based on the net asset value of these funds. Investments in these assets are included in other assets on
the Consolidated Balance Sheets with realized and unrealized gains and losses reported in the Consolidated Statements of Earnings.
(e) Debentures and Other Debt Instruments and Capital Trust Securities
Debentures and other debt instruments and capital trust securities are initially recorded on the Consolidated Balance Sheets at
fair value and subsequently carried at amortized cost using the effective interest method with amortization expense recorded in
financing charges in the Consolidated Statements of Earnings. These liabilities are derecognized when the obligation is cancelled
or redeemed.
(f ) Other Assets and Other Liabilities
Other assets, which include prepaid expenses, deferred acquisition costs, finance leases receivable, right-of-use assets and
miscellaneous other assets, are measured at cost or amortized cost. Other liabilities, which include deferred income reserves, bank
overdraft, lease liabilities and other miscellaneous liabilities are measured at cost or amortized cost.
Provisions are recognized within other liabilities when the Company has a present obligation, either legal or constructive, resulting
from a past event, and in management’s judgment, it is probable that an outflow of economic resources will be required to settle the
obligation and a reliable estimate can be made of the amount. The amount recognized for provisions are management’s best estimate
at the balance sheet date. The Company recognizes a provision for restructuring when a detailed formal plan for the restructuring has
been established and that the plan has raised a valid expectation in those affected that the restructuring will occur.
Pension and other post-employment benefits also included within other assets and other liabilities are measured in accordance
with note 2(x).
(g) Disposal Group Classified As Held For Sale
Disposal groups are classified as held for sale when the carrying amount will be recovered through a sale transaction rather than
continuing use. The fair value of a disposal group is measured at the lower of its carrying amount and fair value less costs to
sell. Individual assets and liabilities in a disposal group not subject to these measurement requirements include financial assets,
investment properties and insurance contract liabilities. These assets and liabilities are measured in accordance with the relevant
accounting policies described for those assets and liabilities included in this note before the disposal group as a whole is measured
to the lower of its carrying amount and fair value less cost to sell. Any impairment loss for the disposal group is recognized as a
reduction to the carrying amount for the portion of the disposal group under the measurement requirements for IFRS 5, Non-
Current Assets Held for Sale and Discontinued Operations.
Disposal group assets and liabilities classified as held for sale are presented separately on the Company’s Consolidated Balance
Sheets. Gains and losses from disposal groups held for sale are presented separately in the Company’s Consolidated Statements
of Earnings.
(h) Derivative Financial Instruments
The Company uses derivative products as risk management instruments to hedge or manage asset, liability and capital positions,
including fee and investment income. The Company’s policy guidelines prohibit the use of derivative instruments for speculative
trading purposes.
The Company includes disclosure of the maximum credit risk, future credit exposure, credit risk equivalent and risk weighted
equivalent in note 29 as prescribed by the Office of the Superintendent of Financial Institutions (OSFI) in Canada.
All derivatives including those that are embedded in financial and non-financial contracts that are not closely related to the
host contracts are recorded at fair value on the Consolidated Balance Sheets. The method of recognizing unrealized and realized
fair value gains and losses depends on whether the derivatives are designated as hedging instruments. For derivatives that are
not designated as hedging instruments, unrealized and realized gains and losses are recorded in net investment income in the
Consolidated Statements of Earnings. For derivatives designated as hedging instruments, unrealized and realized gains and losses
are recognized according to the nature of the hedged item.
Derivatives are valued using market transactions and other market evidence whenever possible, including market based inputs to
models, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. When models are
used, the selection of a particular model to value a derivative depends on the contractual terms of, and specific risks inherent in,
the instrument, as well as the availability of pricing information in the market. The Company generally uses similar models to value
similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices and rates, yield curves,
credit curves, measures of volatility, prepayment rates and correlations of such inputs.
Great-West Lifeco Inc. 2019 Annual Report
103
Notes to Consolidated Financial Statements
2. Basis of Presentation and Summary of Accounting Policies (cont’d)
To qualify for hedge accounting, the relationship between the hedged item and the hedging instrument must meet several strict
conditions on documentation, probability of occurrence, hedge effectiveness and reliability of measurement. If these conditions
are not met, the relationship does not qualify for hedge accounting treatment and both the hedged item and the hedging instrument
are reported independently as if there was no hedging relationship.
Where a hedging relationship exists, the Company documents all relationships between hedging instruments and hedged items,
as well as its risk management objectives and strategy for undertaking various hedge transactions. This process includes linking
derivatives that are used in hedging transactions to specific assets and liabilities on the Consolidated Balance Sheets or to specific
firm commitments or forecasted transactions. The Company also assesses, both at the hedge’s inception and on an ongoing basis,
whether derivatives that are used in hedging transactions are effective in offsetting changes in fair values or cash flows of hedged
items. Hedge effectiveness is reviewed quarterly through correlation testing. Hedge accounting is discontinued when the hedging
no longer qualifies for hedge accounting.
Derivatives not designated as hedges for accounting purposes
For derivative investments not designated as accounting hedges, changes in fair value are recorded in net investment income.
Fair value hedges
For fair value hedges, changes in fair value of both the hedging instrument and the hedged risk are recorded in net investment
income and consequently any ineffective portion of the hedge is recorded immediately in net investment income.
The Company currently uses foreign exchange forward contracts designated as fair value hedges.
Cash flow hedges
For cash flow hedges, the effective portion of the changes in fair value of the hedging instrument is recorded in the same manner
as the hedged item while the ineffective portion is recognized immediately in net investment income. Gains and losses that
accumulate in other comprehensive income are recorded in net investment income in the same period the hedged item affects net
earnings. Gains and losses on cash flow hedges are immediately reclassified from other comprehensive income to net investment
income if and when it is probable that a forecasted transaction is no longer expected to occur.
The Company currently uses interest rate swaps designated as cash flow hedges.
Net investment hedges
For net investment hedges, the effective portion of changes in the fair value of the hedging instrument are recorded in other
comprehensive income while the ineffective portion is recognized immediately in net investment income. The unrealized foreign
exchange gains (losses) on the instruments are recorded within accumulated other comprehensive income and will be reclassified
into net earnings when the Company disposes of the foreign operation.
The Company currently uses foreign exchange forward contracts and debt instruments designated as net investment hedges.
(i) Embedded Derivatives
An embedded derivative is a component of a host contract that modifies the cash flows of the host contract in a manner similar
to a derivative, according to a specified interest rate, financial instrument price, foreign exchange rate, underlying index or other
variable. Embedded derivatives are treated as separate contracts and are recorded at fair value if their economic characteristics
and risks are not closely related to those of the host contract and the host contract is not itself recorded at fair value through the
Consolidated Statements of Earnings. Embedded derivatives that meet the definition of an insurance contract are accounted for
and measured as an insurance contract.
(j) Foreign Currency Translation
The Company operates with multiple functional currencies. The Company’s consolidated financial statements are presented
in Canadian dollars as this presentation is most meaningful to financial statement users. For those subsidiaries with different
functional currencies, exchange rate differences arising from the translation of monetary items that form part of the net investment
in the foreign operation are recorded in unrealized foreign exchange gains (losses) on translation of foreign operations in other
comprehensive income.
For the purpose of presenting consolidated financial statements, assets and liabilities are translated into Canadian dollars at the
rate of exchange prevailing at the balance sheet dates and all income and expense items are translated at an average of daily rates.
Unrealized foreign currency translation gains and losses on translation of the Company’s net investment in its foreign operations
are presented separately as a component of other comprehensive income. Unrealized gains and losses will be recognized
proportionately in net investment income in the Consolidated Statements of Earnings when there has been a disposal of the
investment in the foreign operations.
Foreign currency translation gains and losses on foreign currency transactions of the Company are included in net investment income.
(k) Loans to Policyholders
Loans to policyholders are classified as loans and receivables and measured at amortized cost. Loans to policyholders are shown
at their unpaid principal balance and are fully secured by the cash surrender values of the policies. Carrying value of loans to
policyholders approximates their fair value.
104 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
(l) Reinsurance Contracts
The Company, in the normal course of business, is a user of reinsurance in order to limit the potential for losses arising from certain
exposures and a provider of reinsurance. Assumed reinsurance refers to the acceptance of certain insurance risks by the Company
underwritten by another company. Ceded reinsurance refers to the transfer of insurance risk, along with the respective premiums,
to one or more reinsurers who will share the risks. To the extent that assuming reinsurers are unable to meet their obligations,
the Company remains liable to its policyholders for the portion reinsured. Consequently, allowances are made for reinsurance
contracts which are deemed uncollectible.
Reinsurance contracts are insurance contracts and undergo the classification as described within the Insurance and Investment
Contract Liabilities section of this note. Assumed reinsurance premiums, commissions and claim settlements, as well as the
reinsurance assets associated with insurance and investment contracts, are accounted for in accordance with the terms and
conditions of the underlying reinsurance contract. Reinsurance assets are reviewed for impairment on a regular basis for any events
that may trigger impairment. The Company considers various factors in the impairment evaluation process, including but not
limited to, collectability of amounts due under the terms of the contract. The carrying amount of a reinsurance asset is adjusted
through an allowance account with any impairment loss being recorded in the Consolidated Statements of Earnings.
Any gains or losses on buying reinsurance are recognized in the Consolidated Statements of Earnings immediately at the date of
purchase in accordance with the Canadian Asset Liability Method.
Assets and liabilities related to reinsurance are reported on a gross basis on the Consolidated Balance Sheets. The amount of
liabilities ceded to reinsurers is estimated in a manner consistent with the claim liability associated with reinsured risks.
(m) Funds Held by Ceding Insurers/Funds Held Under Reinsurance Contracts
On the asset side, funds held by ceding insurers are assets that would normally be paid to the Company but are withheld by the
cedant to reduce potential credit risk. Under certain forms of reinsurance contracts it is customary for the cedant to retain amounts
on a funds withheld basis supporting the insurance or investment contract liabilities ceded. For the funds withheld assets where
the underlying asset portfolio is managed by the Company, the credit risk is retained by the Company. The funds withheld balance
where the Company assumes the credit risk is measured at the fair value of the underlying asset portfolio with the change in fair
value recorded in net investment income. See note 8 for funds held by ceding insurers that are managed by the Company. Other
funds held by ceding insurers are general obligations of the cedant and serve as collateral for insurance contract liabilities assumed
from cedants. Funds withheld assets on these contracts do not have fixed maturity dates, their release generally being dependent
on the run-off of the corresponding insurance contract liabilities.
On the liability side, funds held under reinsurance contracts consist mainly of amounts retained by the Company from ceded
business written on a funds withheld basis. The Company withholds assets related to ceded insurance contract liabilities in order
to reduce credit risk.
(n) Business Combinations, Goodwill and Intangible Assets
Business combinations are accounted for using the acquisition method. The Company identifies and classifies, in accordance with
the Company’s accounting policies, all assets acquired and liabilities assumed as at the acquisition date. Goodwill represents the
excess of purchase consideration over the fair value of net assets of the acquired subsidiaries of the Company. Following initial
recognition, goodwill is measured at cost less accumulated impairment losses.
Intangible assets represent finite life and indefinite life intangible assets of acquired subsidiaries of the Company and software
acquired or internally developed by the Company. Finite life intangible assets include the value of technology/software, certain
customer contracts and distribution channels. These finite life intangible assets are amortized over their estimated useful lives,
typically ranging between 3 and 30 years.
Indefinite life intangible assets include brands and trademarks, certain customer contracts and the shareholders’ portion of
acquired future participating account profits. Amounts are classified as indefinite life intangible assets when based on an analysis
of all the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows
for the Company. The identification of indefinite life intangible assets is made by reference to relevant factors such as product life
cycles, potential obsolescence, industry stability and competitive position. Following initial recognition, indefinite life intangible
assets are measured at cost less accumulated impairment losses.
Impairment Testing
Goodwill and indefinite life intangible assets are tested for impairment annually or more frequently if events indicate that
impairment may have occurred. Intangible assets that were previously impaired are reviewed at each reporting date for evidence
of reversal. In the event that certain conditions have been met, the Company would be required to reverse the impairment loss or
a portion thereof.
Goodwill and indefinite life intangible assets have been allocated to cash generating unit groupings, representing the lowest
level that the assets are monitored for internal reporting purposes. Goodwill and indefinite life intangible assets are tested for
impairment by comparing the carrying value of each cash generating unit grouping containing the assets to its recoverable amount.
An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of the asset’s fair value less costs of disposal and value-in-use.
Great-West Lifeco Inc. 2019 Annual Report
105
Notes to Consolidated Financial Statements
2. Basis of Presentation and Summary of Accounting Policies (cont’d)
Finite life intangible assets are reviewed annually to determine if there are indicators of impairment and assess whether the
amortization periods and methods are appropriate. If indicators of impairment have been identified, a test for impairment is
performed and then the amortization of these assets is adjusted or impairment is recognized as necessary.
(o) Revenue Recognition
Premiums for all types of insurance contracts, and contracts with limited mortality or morbidity risk, are generally recognized as
revenue when due and collection is reasonably assured.
Interest income on bonds and mortgages is recognized and accrued using the effective interest method.
Dividend income is recognized when the right to receive payment is established. This is the ex-dividend date for listed stocks, and
usually the notification date or date when the shareholders have approved the dividend for private equity instruments.
Investment property income includes rents earned from tenants under lease agreements and property tax and operating cost
recoveries. Rental income leases with contractual rent increases and rent-free periods are recognized on a straight-line basis over
the term of the lease.
Fee income includes fees earned from management of segregated fund assets, proprietary mutual fund assets, record-keeping, fees
earned on administrative services only Group health contracts, commissions and fees earned from management services. Fee and
other income is recognized on the transfer of services to customers for the amount that reflects the consideration expected to be
received in exchange for those services promised.
The Company has sub-advisor arrangements where the Company retains the primary obligation with the client; as a result, fee
income earned is reported on a gross basis with the corresponding sub-advisor expense recorded in operating and administrative
expenses.
(p) Owner Occupied Properties and Fixed Assets
Property held for own use and fixed assets are carried at cost less accumulated depreciation, disposals and impairments. Depreciation
is expensed to write-off the cost of assets, over their estimated useful lives, using the straight-line method, on the following bases:
Owner occupied properties
Furniture and fixtures
Other fixed assets
15 – 20 years
5 – 10 years
3 – 10 years
Depreciation methods, useful lives and residual values are reviewed at least annually and adjusted if necessary.
(q) Deferred Acquisition Costs
Included in other assets are deferred acquisition costs relating to investment contracts. These are recognized as assets if the costs
are incremental and incurred due to the contract being issued and are primarily amortized on a straight-line basis over the policy
term, not to exceed 20 years.
(r) Segregated Funds
Segregated funds assets and liabilities arise from contracts where all financial risks associated with the related assets are borne by
policyholders and are presented separately on the Consolidated Balance Sheets. The assets and liabilities are set equal to the fair
value of the underlying asset portfolio. Investment income and changes in fair value of the segregated fund assets are offset by a
corresponding change in the segregated fund liabilities.
(s)
Insurance and Investment Contract Liabilities
Contract Classification
When significant insurance risk exists, the Company’s products are classified at contract inception as insurance contracts, in
accordance with IFRS 4, Insurance Contracts (IFRS 4). Significant insurance risk exists when the Company agrees to compensate
policyholders or beneficiaries of the contract for specified uncertain future events that adversely affect the policyholder and whose
amount and timing is unknown. Refer to note 14 for discussion of insurance risk.
In the absence of significant insurance risk, the contract is classified as an investment contract or service contract. Investment
contracts with discretionary participating features are accounted for in accordance with IFRS 4 and investment contracts without
discretionary participating features are accounted for in accordance with IAS 39, Financial Instruments: Recognition & Measurement.
The Company has not classified any contracts as investment contracts with discretionary participating features.
Investment contracts may be reclassified as insurance contracts after inception if insurance risk becomes significant. A contract
that is classified as an insurance contract at contract inception remains as such until all rights and obligations under the contract
are extinguished or expire.
Investment contracts are contracts that carry financial risk, which is the risk of a possible future change in one or more of the
following: interest rate, commodity price, foreign exchange rate, or credit rating. Refer to note 9 for discussion of Financial
Instruments Risk Management.
106 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
Measurement
Insurance contract liabilities represent the amounts required, in addition to future premiums and investment income, to provide
for future benefit payments, policyholder dividends, commission and policy administrative expenses for all insurance and
annuity policies in force with the Company. The Appointed Actuaries of the Company’s subsidiary companies are responsible
for determining the amount of the liabilities to make appropriate provisions for the Company’s obligations to policyholders. The
Appointed Actuaries determine the liabilities for insurance contracts using generally accepted actuarial practices, according to the
standards established by the Canadian Institute of Actuaries. The valuation uses the Canadian Asset Liability Method. This method
involves the projection of future events in order to determine the amount of assets that must be set aside currently to provide for all
future obligations and involves a significant amount of judgment.
In the computation of insurance contract liabilities, valuation assumptions have been made regarding rates of mortality/morbidity,
investment returns, levels of operating expenses, rates of policy termination and rates of utilization of elective policy options or
provisions. The valuation assumptions use best estimates of future experience together with a margin for adverse deviation. These
margins are necessary to provide for possibilities of mis-estimation and/for future deterioration in the best estimate assumptions
and provide reasonable assurance that insurance contract liabilities cover a range of possible outcomes. Margins are reviewed
periodically for continued appropriateness.
Investment contract liabilities are measured at fair value determined using discounted cash flows utilizing the yield curves of
financial instruments with similar cash flow characteristics.
(t) Deferred Income Reserves
Included in other liabilities are deferred income reserves relating to investment contracts. These are amortized on a straight-line
basis to recognize the initial policy fees over the policy term, not to exceed 20 years.
(u) Income Taxes
The income tax expense for the period represents the sum of current income tax and deferred income tax. Income tax is recognized
as an expense or income in profit or loss except to the extent that it relates to items that are recognized outside profit or loss (whether
in other comprehensive income or directly in equity), in which case the income tax is also recognized outside profit or loss.
Current Income Tax
Current income tax is based on taxable income for the year. Current income tax liabilities (assets) for the current and prior periods
are measured at the amount expected to be paid to (recovered from) the taxation authorities using the tax rates that have been
enacted or substantively enacted at the balance sheet date in each respective jurisdiction. Current income tax assets and current
income tax liabilities are offset if a legally enforceable right exists to offset the recognized amounts and the entity intends either to
settle on a net basis, or to realize the assets and settle the liabilities simultaneously.
A provision for tax treatment uncertainties which meet the probable threshold for recognition is measured using either the most likely
amount or the expected value, depending upon which method provides the better prediction of the resolution of the uncertainty.
The provision for tax uncertainties will be classified as current or deferred based on how a disallowance of the underlying uncertain
tax treatment would impact the tax provision accrual as of the balance sheet date.
Deferred Income Tax
Deferred income tax is the tax expected to be payable or recoverable on differences arising between the carrying amounts of assets
and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable income
and is accounted for using the balance sheet liability method. Deferred income tax liabilities are generally recognized for all taxable
temporary differences and deferred income tax assets are recognized to the extent that it is probable that taxable profits will be
available against which deductible temporary differences, unused tax losses and carryforwards can be utilized.
Recognition is based on the fact that it is probable that the entity will have taxable profits and/or tax planning opportunities available
to allow the deferred income tax asset to be utilized. Changes in circumstances in future periods may adversely impact the assessment
of the recoverability. The uncertainty of the recoverability is taken into account in establishing the deferred income tax assets. The
Company’s annual financial planning process provides a significant basis for the measurement of deferred income tax assets.
Deferred income tax assets and liabilities are measured at the tax rates expected to apply in the year when the asset is realized
or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet
date. Deferred income tax assets and deferred income tax liabilities are offset if a legally enforceable right exists to net current
income tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the
same taxation authority.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.
Unrecognized deferred income tax assets are reassessed at each balance sheet date and are recognized to the extent that it has
become probable that future taxable profit will allow the deferred income tax asset to be recovered.
Deferred income tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries and
associates, except where the group controls the timing of the reversal of the temporary difference and it is probable that the
temporary differences will not reverse in the foreseeable future.
Great-West Lifeco Inc. 2019 Annual Report
107
Notes to Consolidated Financial Statements
2. Basis of Presentation and Summary of Accounting Policies (cont’d)
(v) Policyholder Benefits
Policyholder benefits include benefits and claims on life insurance contracts, maturity payments, annuity payments and surrenders.
Gross benefits and claims for life insurance contracts include the cost of all claims arising during the year and settlement of claims.
Death claims and surrenders are recorded on the basis of notifications received. Maturities and annuity payments are recorded
when due.
(w) Repurchase Agreements
The Company accounts for certain forward settling to be announced security transactions as derivatives as the Company does not
regularly accept delivery of such securities when issued.
(x) Pension Plans and Other Post-Employment Benefits
The Company’s subsidiaries maintain contributory and non-contributory defined benefit pension plans for certain employees
and advisors. The Company’s subsidiaries also provide post-employment health, dental and life insurance benefits to eligible
employees, advisors and their dependents.
The present value of the defined benefit obligations and the related current service cost is determined using the projected unit
credit method (note 24). Pension plan assets are recorded at fair value.
For the defined benefit plans of the Company’s subsidiaries, service costs and net interest costs are recognized in the Consolidated
Statements of Earnings. Service costs include current service cost, administration expenses, past service costs and the impact of
curtailments and settlements. To determine the net interest costs (income) recognized in the Consolidated Statements of Earnings,
the Company’s subsidiaries apply a discount rate to the net benefit liability (asset), where the discount rate is determined by
reference to market yields at the beginning of the year on high quality corporate bonds.
For the defined benefit plans of the Company’s subsidiaries, re-measurements of the net defined benefit liability (asset) due to
asset returns less (greater) than interest income, actuarial losses (gains) and changes in the asset ceiling are recognized in the
Consolidated Statements of Comprehensive Income.
The Company’s subsidiaries also maintain defined contribution pension plans for certain employees and advisors. For the defined
contribution plans of the Company’s subsidiaries, the current service costs are recognized in the Consolidated Statements of Earnings.
(y) Equity
Financial instruments issued by the Company are classified as share capital if they represent a residual interest in the assets of the
Company. Preferred share capital is classified as equity if it is non-redeemable, or retractable only at the Company’s option and
any dividends are discretionary. Incremental costs that are directly attributable to the issue of share capital are recognized as a
deduction from equity, net of income tax.
Contributed surplus represents the vesting expense on unexercised equity instruments under share-based payment plans.
Accumulated other comprehensive income (loss) represents the total of the unrealized foreign exchange gains (losses) on translation
of foreign operations, the unrealized foreign exchange gains (losses) on euro debt designated as a hedge of the net investment of
foreign operations, the unrealized gains (losses) on available-for-sale assets, the unrealized gains (losses) on cash flow hedges, and
the re-measurements on defined benefit pension and other post-employment benefit plans net of tax, where applicable.
Non-controlling interests in subsidiaries represents the proportion of equity that is attributable to minority shareholders.
Participating account surplus in subsidiaries represents the proportion of equity attributable to the participating account of the
Company’s subsidiaries.
(z) Share-Based Payments
The Company provides share-based compensation to certain employees and Directors of the Company and its subsidiaries.
The Company follows the fair value based method of accounting for the valuation of compensation expense for shares and share
options granted to employees under its stock option plans (note 23). This share-based payment expense is recognized in operating
and administrative expenses in the Consolidated Statements of Earnings and as an increase to contributed surplus over the vesting
period of the granted options. When options are exercised, the proceeds received, along with the amount in contributed surplus,
are transferred to share capital.
The Company and certain of its subsidiaries have established Deferred Share Unit Plans (DSU Plans) in which the Directors of the
Company participate. Units issued under the DSU Plans vest when granted. The Company recognizes an increase in operating and
administrative expenses for the units granted under the DSU Plans. The Company recognizes a liability for units granted under the
DSU Plans which is re-measured at each reporting period based on the market value of the Company’s common shares.
Certain employees of the Company are entitled to participate in the Performance Share Unit Plan (PSU Plan). Units issued under
the Performance Share Unit Plan vest over a three year period. The Company uses the fair value method to recognize compensation
expense for the units granted under the plan over the vesting period with a corresponding increase in the liability based on the
market value of the Company’s common shares.
The Company has an Employee Share Ownership Program (ESOP) where, subject to certain conditions being met, the Company will
match contributions up to a maximum amount. The Company’s contributions are expensed within operating and administrative
expenses as incurred.
108 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
(aa) Earnings Per Common Share
Earnings per common share is calculated using net earnings after preferred share dividends and the weighted average number of
common shares outstanding. Diluted earnings per share is calculated by adjusting common shareholders’ net earnings and the
weighted average number of common shares outstanding for the effects of all potential dilutive common shares assuming that all
convertible instruments are converted and outstanding options are exercised.
(ab) Leases
Effective January 1, 2019, the Company adopted IFRS 16 which replaces IAS 17. The Company has elected to adopt IFRS 16 using
a modified retrospective approach and accordingly the information presented for 2018 has not been restated. The comparative
information remains as previously reported under IAS 17 and related interpretations.
Where the Company is the lessee, a right-of-use asset and a lease liability are recognized on the Consolidated Balance Sheets as at
the lease commencement date.
Right-of-use assets are initially measured based on the initial amount of lease liability adjusted for any lease payments made at
or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the
underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentive received. Right-of-use
assets are included within other assets with the exception of right-of-use assets which meet the definition of investment property
which are presented within investment properties and subject to the Company’s associated accounting policy. Right-of-use assets
presented within other assets are depreciated to the earlier of the useful life of the right-of-use asset or the lease term using the
straight-line method. Depreciation expense on right-of-use assets is included within operating and administrative expenses.
Lease liabilities are initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company shall use the
lessee’s incremental borrowing rate. Generally, the Company uses the lessee’s incremental borrowing rate as its discount rate. The
lease liability is measured at amortized cost using the effective interest method and is included within other liabilities. Interest
expense on lease liabilities is included within operating and administrative expenses.
The Company has elected to apply a practical expedient not to recognize right-of-use assets and lease liabilities for short-term
leases that have a lease term of 12 months or less and leases of low-value assets.
For the information presented for 2018, leases that do not transfer substantially all the risks and rewards of ownership are classified
as operating leases. Payments made under operating leases, where the Company is the lessee, are charged to net earnings over the
period of use.
Where the Company is the lessor under an operating lease for its investment property, the assets subject to the lease arrangement
are presented within the Consolidated Balance Sheets. Income from these leases is recognized in the Consolidated Statements of
Earnings on a straight-line basis over the lease term.
Investments in a lease that transfers substantially all the risks and rewards of ownership to the lessee are classified as a finance
lease. The Company is the lessor under a finance lease and the investment is recognized as a receivable at an amount equal to the
net investment in the lease, which is represented as the present value of the minimum lease payments due from the lessee and is
presented within the Consolidated Balance Sheets. Payments received from the lessee are apportioned between the recognition
of finance lease income and the reduction of the finance lease receivable. Income from the finance leases is recognized in the
Consolidated Statements of Earnings at a constant periodic rate of return on the Company’s net investment in the finance lease.
(ac) Operating Segments
Operating segments have been identified based on internal reports that are regularly reviewed by the Company’s Chief Executive
Officer to allocate resources and assess performance of segments. The Company’s reportable operating segments are categorized by
geographic region and include Canada, the United States and Europe. The Canada segment comprises the Individual Customer and
Group Customer business units. GWL&A and Putnam are reported in the United States segment. The Europe segment comprises
Insurance & Annuities and Reinsurance. The Lifeco Corporate segment represents activities and transactions that are not directly
attributable to the measurement of the operating segments of the Company.
Great-West Lifeco Inc. 2019 Annual Report
109
Notes to Consolidated Financial Statements
2. Basis of Presentation and Summary of Accounting Policies (cont’d)
(ad) Future Accounting Policies
Standard
Summary of Future Changes
IFRS 17 – Insurance
Contracts
In May 2017, the IASB issued IFRS 17, Insurance Contracts, which will replace IFRS 4, Insurance Contracts. On June 26, 2019 the IASB issued
an exposure draft covering targeted amendments to the IFRS 17 standard, including a proposed amendment to defer the effective date
of the standard by one year to January 1, 2022. In addition, the IASB extended to January 1, 2022 the exemption for insurers to apply
the financial instruments standard, IFRS 9 – Financial Instruments, keeping the alignment of the effective dates for IFRS 9 and IFRS 17. The
IASB is currently in the process of considering the feedback received on the exposure draft and is planning to issue the final amendments
in mid-2020. Due to the responses received from stakeholders during the comment period on the exposure draft, the IASB is considering a
deferral beyond January 1, 2022 for the effective date of IFRS 17. The IASB has confirmed certain amendments proposed in the exposure
draft – namely the amendment on the expected recovery of insurance acquisition cash flows and has also agreed to extend the scope of
the amendment related to the recovery of losses on reinsurance contracts to apply to all reinsurance held contracts.
The adoption of IFRS 17 is a significant initiative for the Company supported by a formal governance framework and project plan, for
which substantial resources are being dedicated. The Company has assembled a project team that is working on implementation which
involves preparing the financial reporting systems and processes for reporting under IFRS 17, policy development and operational and
change management. These groups are also monitoring developments from the IASB and various industry groups that the Company has
representation on. The Company has made progress in implementing its project plan, with key policy decisions well-advanced as well as
progression on the implementation of the technology solution. The Company continues to evaluate the readiness of technology vendors
and their ability to deliver for IFRS 17 implementation.
IFRS 17 sets out the requirements for the recognition, measurement, presentation and disclosures of insurance contracts a company issues
and reinsurance contracts it holds. IFRS 17 introduces three new measurement models depending on the nature of the insurance contracts:
the General Measurement Model, the Premium Allocation Approach and the Variable Fee Approach. IFRS 17 requires entities to measure
insurance contract liabilities on the balance sheet as the total of:
(a) the fulfilment cash flows – the current estimates of amounts that a company expects to collect from premiums and pay out for claims,
benefits and expenses, including an adjustment for the timing and risk of those amounts; and
(b) the contractual service margin – the future profit for providing insurance coverage.
Under IFRS 17, the discount rate used to reflect the time value of money in the fulfillment cash flows must be based on the characteristics
of the liability. This is a significant change from IFRS 4 and the Canadian Asset Liability Method, where the discount rate was based on
the yield curves of the assets supporting those liabilities (refer to the Company’s significant accounting policies in note 2 of these financial
statements).
The future profit for providing insurance coverage (including impacts of new business) is reflected in the initial recognition of insurance
contract liabilities and then recognized into profit or loss over time as the insurance coverage is provided. IFRS 17 also requires the
Company to distinguish between groups of contracts expected to be profit making and groups of contracts expected to be onerous.
The Company is required to update the fulfilment cash flows at each reporting date, using current estimates of the amount, timing and
uncertainty of cash flows and discount rates. As a result of the new valuation methodologies required under IFRS 17, the Company expects
its insurance contract liabilities to increase upon adoption.
IFRS 17 will affect how the Company accounts for its insurance contracts and how it reports financial performance in the Consolidated
Statements of Earnings, in particular the timing of earnings recognition for insurance contracts. The adoption of IFRS 17 will also have
a significant impact on how insurance contract results are presented and disclosed in the consolidated financial statements and on
regulatory and tax regimes that are dependent upon IFRS accounting values. The Company is also actively monitoring potential impacts
on regulatory capital and the associated ratios and disclosures. The Company continues to assess all these impacts through its global
implementation plan.
IFRS 9 – Financial
Instruments
In July 2014, the IASB issued a final version of IFRS 9, Financial Instruments (IFRS 9) to replace IAS 39, Financial Instruments: Recognition and
Measurement. The standard provides changes to financial instruments accounting for the following:
• classification and measurement of financial instruments based on a business model approach for managing financial assets and the
contractual cash flow characteristics of the financial asset;
• impairment based on an expected loss model; and
• hedge accounting that incorporates the risk management practices of an entity.
In September 2016, the IASB issued an amendment to IFRS 4, Insurance Contracts (IFRS 4). The amendment “Applying IFRS 9, Financial
Instruments with IFRS 4, Insurance Contracts” provides qualifying insurance companies with two options to address the potential volatility
associated with implementing the IFRS 9 standard before the new proposed insurance contract standard is effective. The two options are
as follows:
• Deferral Approach – provides the option to defer implementation of IFRS 9 until the year 2022 or the effective date of the new insurance
contract standard, whichever is earlier; or
• Overlay Approach – provides the option to recognize the volatility that could arise when IFRS 9 is applied within other comprehensive
income, rather than profit or loss.
The Company qualifies for the amendment and is applying the deferral approach to allow adoption of both IFRS 9 and IFRS 17
simultaneously.
The disclosure for the measurement and classification of the Company’s portfolio investments provides most of the information required
by IFRS 9. The Company continues to evaluate the impact for the adoption of this standard with the adoption of IFRS 17.
110 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
Standard
Summary of Future Changes
IFRS 3 – Business
Combinations
In October 2018, the IASB issued amendments to IFRS 3, Business Combinations. The amendments provide additional guidance as to
whether a company acquired a business or a group of assets.
The amendments will be applied prospectively to all business combinations and asset acquisitions for which the acquisition date is on or
after January 1, 2020.
IAS 1 – Presentation of
Financial Statements and
IAS 8 – Accounting
Policies, Changes in
Accounting Estimates
and Errors
IFRS 9 – Financial
Instruments,
IAS 39 – Financial
Instruments:
Recognition and
Measurement and
IFRS 7 – Financial
Instruments: Disclosures
In October 2018, the IASB issued amendments to IAS 1, Presentation of Financial Statements and IAS 8, Accounting Policies, Changes in
Accounting Estimates and Errors. The amendments are to clarify the definition of ‘material’ and to align the definition used in the Conceptual
Framework and the standards themselves.
The amendments will be applied prospectively for annual periods beginning on or after January 1, 2020, with earlier application permitted.
In September 2019, the IASB issued amendments to IFRS 9, Financial Instruments, IAS 39, Financial Instruments: Recognition and Measurement
and IFRS 7, Financial Instruments: Disclosures. The amendments modify specific hedge accounting requirements so that entities would apply
those hedge accounting requirements assuming that the interest rate benchmark on which the hedged cash flows and cash flows from
the hedging instrument are based will not be altered as a result of interest rate benchmark reform.
The amendments are effective January 1, 2020. Although adoption of these amendments will not have a significant impact on the
Company’s consolidated financial statements, additional disclosures will be required.
3. Business Acquisitions and Other Transactions
(a) U.S. Individual Life Insurance and Annuity Business Reinsurance Agreement
On January 24, 2019, GWL&A announced that it had entered into an agreement with Protective Life Insurance Company (Protective
Life) to sell, via indemnity reinsurance, substantially all of its individual life insurance and annuity business in its United States
segment. The transaction was completed on June 1, 2019. The Consolidated Balance Sheets were impacted by the transfer of $15,511
of invested assets to Protective Life (note 7), recognition of $15,230 of reinsurance assets (note 14) and $985 of cash received as a
result of the transaction. Within the Consolidated Statements of Earnings, the Company recognized increases of $13,889 to ceded
premiums, $1,080 to fee and other income, $219 to total net investment income (note 7) and $120 to operating and administrative
expenses (note 28), as well as a decrease of $12,463 to total paid or credited to policyholders.
In the second quarter of 2019, the Company recognized a loss related to this transaction of $247 ($199 after-tax) (note 32), which
included transaction costs of $80 ($63 after-tax) and $45 ($36 after-tax) due to updated expense assumptions primarily related to
stranded overhead. The liabilities transferred and ceding commission received at the closing of this transaction are subject to future
adjustments. In October 2019, Protective Life provided the Company with its listing of proposed adjustments with respect to the
liabilities transferred. In December 2019, the Company formally objected to these proposed adjustments. The Master Transaction
Agreement requires the parties to attempt to resolve these differences in an informal manner and that process is ongoing. Based on
the information presently known, it is difficult to predict the outcome of this matter with certainty, but this matter is not expected
to materially impact the consolidated financial position of the Company.
(b) Invesco Ltd. (Ireland)
On August 1, 2018, the Company, through its indirect wholly-owned subsidiary Irish Life Group Limited (Irish Life), completed
its agreement to acquire a controlling interest in Invesco Ltd. (Ireland), an independent financial consultancy firm in Ireland that
specializes in employee benefit consultancy and private wealth management who manages and administers assets on behalf of clients.
During the second quarter of 2019, the comprehensive valuation of the fair value of the net assets acquired, including intangible
assets and completion of the final purchase price allocation, was finalized with no significant adjustment to goodwill. Revenue and
net earnings of Invesco Ltd. (Ireland) were not significant to the results of the Company.
Great-West Lifeco Inc. 2019 Annual Report
111
Notes to Consolidated Financial Statements
4. Assets Held For Sale
Sale of policies to Scottish Friendly
On June 21, 2018, Canada Life Limited, an indirect wholly-owned subsidiary of the Company, announced an agreement to sell a heritage
block of individual policies to Scottish Friendly of $4,216, comprised of unit-linked policies of $3,319 and non unit-linked policies of
$897. The initial composition of the assets and liabilities of the disposal group classified as assets held for sale as at December 31, 2018
are as follows:
Assets
Cash and cash equivalents
Bonds
Stocks
Investment properties
Loans to policyholders
Assets held for sale
Investments on account of segregated fund policyholders
Total assets included in disposal group classified as held for sale
Liabilities
Insurance contract liabilities
Investment contract liabilities
Liabilities held for sale
Investment and insurance contracts on account of segregated fund policyholders
Total liabilities included in disposal group classified as held for sale
$
112
731
22
29
3
897
3,319
$
4,216
$
870
27
897
3,319
$
4,216
On October 22, 2019, the required court approval for the transfer of these policies was received. The transfer of these policies occurred,
effective November 1, 2019, as part of the United Kingdom Business Transformation (note 5).
Net earnings from the disposal of these policies will be finalized in the first half of 2020 and are not expected to be material to the
consolidated financial statements.
5. Restructuring
Putnam Restructuring
In 2019, Putnam recorded a restructuring provision of $52 pre-tax ($36 after-tax), which is recorded in restructuring expenses in the
Consolidated Statements of Earnings. This restructuring is in respect of expense reductions and a realignment of its resources to best
position itself for current and future opportunities. The expense reductions will be achieved through a reduction in staff, consolidation
of certain mutual funds, digital technology modernization and facilities downsizing. The Company expects to pay out a significant
portion of these remaining amounts during 2020.
At December 31, 2019, the Company has a restructuring provision of $37 remaining in other liabilities. The change in the restructuring
provision for the Putnam restructuring is set out below:
Balance, beginning of year
Restructuring expenses
Amounts used
Balance, end of year
United Kingdom Business Transformation
$
$
–
52
(15)
37
In 2018, the Company recorded a restructuring provision in the European segment of $67 pre-tax ($56 after-tax) in the common
shareholder’s account. This restructuring is in respect of activities aimed at achieving planned expense reductions and an organizational
realignment. The expense reductions will be achieved through decommissioning of systems, reduction in staff and other costs as a result
of integrating Retirement Advantage into Canada Life along with the sale of a heritage block of individual policies to Scottish Friendly.
At December 31, 2019, the Company has a restructuring provision of $39 remaining in other liabilities. The change in the restructuring
provision for the United Kingdom Business Transformation is set out below:
Balance, beginning of year
Restructuring expenses
Amounts used
Changes in foreign exchange rates
Balance, end of year
112 Great-West Lifeco Inc. 2019 Annual Report
2019
2018
$
$
61
–
(21)
(1)
$
39
$
–
67
(8)
2
61
Notes to Consolidated Financial Statements
6. Cash and Cash Equivalents
Cash and cash equivalents include amounts held at the Lifeco holding company level and amounts held in Lifeco’s consolidated
subsidiary companies.
Cash
Short-term deposits
Total
2019
2018
$
2,860
1,768
$
4,628
$
$
2,527
1,641
4,168
At December 31, 2019, cash of $574 was restricted for use by the Company ($339 at December 31, 2018) in respect of cash held in trust for
reinsurance agreements or with regulatory authorities, cash held under certain indemnity arrangements, client monies held by brokers
and cash held in escrow.
7. Portfolio Investments
(a) Carrying values and estimated fair values of portfolio investments are as follows:
Bonds
Designated fair value through profit or loss (1)
Classified fair value through profit or loss (1)
Available-for-sale
Loans and receivables
Mortgage loans
Residential
Designated fair value through profit or loss (1)
Loans and receivables
Commercial
Stocks
Designated fair value through profit or loss (1)
Available-for-sale
Available-for-sale, at cost (2)
Equity method
Investment properties
Total (3)
2019
2018
Carrying
value
Fair
value
Carrying
value
Fair
value
$ 84,229
1,717
11,710
17,372
$ 84,229
1,717
11,710
19,344
$
90,015
1,886
13,239
19,722
$
90,015
1,886
13,239
20,619
115,028
117,000
124,862
125,759
1,314
9,073
10,387
13,881
24,268
9,752
16
189
418
10,375
5,887
1,314
9,347
10,661
14,485
25,146
9,752
16
189
410
10,367
5,887
813
9,721
10,534
14,480
25,014
8,658
11
267
354
9,290
5,218
813
9,808
10,621
14,790
25,411
8,658
11
267
293
9,229
5,218
$ 155,558
$ 158,400
$ 164,384
$ 165,617
(1) A financial asset is designated as fair value through profit or loss on initial recognition if it eliminates or significantly reduces an accounting mismatch. Changes in the fair value of financial assets designated
as fair value through profit or loss are generally offset by changes in insurance contract liabilities, since the measurement of insurance contract liabilities is determined with reference to the assets supporting
the liabilities.
A financial asset is classified as fair value through profit or loss on initial recognition if it is part of a portfolio that is actively traded for the purpose of earning investment income.
(2) Fair value cannot be reliably measured, therefore the investments are held at cost.
(3) As a result of the reinsurance transaction with Protective Life (note 3), invested assets were transferred.
Great-West Lifeco Inc. 2019 Annual Report
113
Notes to Consolidated Financial Statements
7. Portfolio Investments (cont’d)
(b) Carrying value of bonds and mortgages by term to maturity are as follows:
Bonds
Mortgage loans (1)
Total
Bonds
Mortgage loans (1)
Total
2019
1 year
or less
$ 12,142
941
Term to maturity
Over 1 year
to 5 years
$ 25,989
8,180
Over
5 years
Total
$ 76,860
15,118
$ 114,991
24,239
$ 13,083
$ 34,169
$ 91,978
$ 139,230
2018
1 year
or less
Term to maturity
Over 1 year
to 5 years
Over
5 years
Total
$
11,642
969
$
28,196
7,928
$
84,822
16,093
$ 124,660
24,990
$
12,611
$
36,124
$ 100,915
$ 149,650
(1) Mortgage loans include equity release mortgages which do not have a fixed redemption date. The maturity profile of the portfolio has therefore been estimated based on previous redemption experience.
The above excludes the carrying value of impaired bonds and mortgage loans, as the ultimate timing of collectability is uncertain.
(c) Certain stocks where equity method earnings are computed are discussed below:
The majority of the Company’s equity method investments relate to the Company’s investment, held through Great-West Life, in
an affiliated company, IGM, a member of the Power Financial group of companies, over which it exerts significant influence but
does not control. The Company’s proportionate share of IGM’s earnings is recorded in net investment income in the Consolidated
Statements of Earnings. The Company owns 9,200,505 shares of IGM at December 31, 2019 (9,200,548 at December 31, 2018)
representing a 3.86% ownership interest (3.82% at December 31, 2018). The Company uses the equity method to account for its
investment in IGM as it exercises significant influence. Significant influence arises from several factors, including, but not limited
to the following: common control of the Company and IGM by Power Financial, shared representation on the Boards of Directors
of the Company and IGM, interchange of managerial personnel, and certain shared strategic alliances, significant intercompany
transactions and service agreements that influence the financial and operating policies of both companies.
Carrying value, beginning of year
Equity method share of IGM net earnings
De-recognition of certain deferred sales commissions
Dividends received
Carrying value, end of year
Share of equity, end of year
Fair value, end of year
2019
2018
$
$
$
$
346
25
–
(21)
350
171
342
$
$
$
$
362
26
(21)
(21)
346
174
285
The Company and IGM both have a year-end date of December 31. The Company’s year-end results are approved and reported
before IGM publicly reports its financial result; therefore, the Company reports IGM’s financial information by estimating the
amount of earnings attributable to the Company, based on prior quarter information as well as other market expectations, to
complete equity method accounting. The difference between actual and estimated results is reflected in the subsequent quarter
and is not material to the Company’s consolidated financial statements.
IGM’s financial information as at December 31, 2019 can be obtained in its publicly available information.
At December 31, 2019, IGM owned 37,337,133 (39,737,388 at December 31, 2018) common shares of the Company.
114 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
(d) Included in portfolio investments are the following:
(i) Carrying amount of impaired investments
Impaired amounts by classification
Fair value through profit or loss
Available-for-sale
Loans and receivables
Total
2019
2018
$
$
21
16
29
66
$
$
178
30
28
236
The carrying amount of impaired investments includes $37 bonds and $29 mortgage loans at December 31, 2019 ($202 bonds,
$24 mortgage loans and $10 stocks at December 31, 2018). The above carrying values for loans and receivables are net of
allowances of $51 at December 31, 2019 and $20 at December 31, 2018.
(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:
2019
Mortgage
loans
Bonds
Total
Bonds
2018
Mortgage
loans
Balance, beginning of year
Net provision for credit losses – in year
Write-offs, net of recoveries
Balance, end of year
$
$
–
–
–
–
$
$
20
50
(19)
$
20
50
(19)
$
51
$
51
$
–
–
–
–
$
$
40
4
(24)
20
$
$
Total
40
4
(24)
20
The allowance for credit losses is supplemented by the provision for future credit losses included in insurance contract liabilities.
Great-West Lifeco Inc. 2019 Annual Report
115
Notes to Consolidated Financial Statements
7. Portfolio Investments (cont’d)
(e) Net investment income comprises the following:
Regular net investment income:
Investment income earned
Net realized gains
Available-for-sale
Other classifications (1)
Net allowances for credit losses on loans and receivables
Other income (expenses)
Changes in fair value on fair value through profit or loss assets:
Classified fair value through profit or loss
Designated fair value through profit or loss
Recorded at fair value through profit or loss
Bonds
Mortgage
loans
Stocks
Investment
properties
Other
Total
2019
$
3,948
$
906
$
301
$
374
$
553
$
6,082
57
164
–
–
–
172
(50)
–
4,169
1,028
45
5,740
–
5,785
–
107
–
107
19
–
–
–
320
–
1,405
–
1,405
–
–
–
(117)
257
–
–
37
37
–
–
–
(166)
387
–
(388)
–
(388)
76
336
(50)
(283)
6,161
45
6,864
37
6,946
Total
$
9,954
$
1,135
$
1,725
$
294
$
(1)
$ 13,107
(1) Includes realized gains from invested assets transferred as a result of the reinsurance transaction with Protective Life (note 3).
Regular net investment income:
Investment income earned
Net realized gains (losses)
Available-for-sale
Other classifications
Net allowances for credit losses on loans and receivables
Other income (expenses)
Changes in fair value on fair value through profit or loss assets:
Classified fair value through profit or loss
Designated fair value through profit or loss
Recorded at fair value through profit or loss
Bonds
Mortgage
loans
Stocks
2018
Investment
properties
Other
Total
$
4,416
$
916
$
271
$
340
$
529
$
6,472
(7)
15
–
–
4,424
(13)
(3,027)
–
(3,040)
–
81
(4)
–
993
–
(24)
–
(24)
3
–
–
–
274
(1)
(775)
–
(776)
(502)
–
–
–
(95)
245
–
–
33
33
$
278
$
–
21
–
(128)
422
–
201
–
201
623
(4)
117
(4)
(223)
6,358
(14)
(3,625)
33
(3,606)
$
2,752
Total
$
1,384
$
969
$
Investment income earned comprises income from investments that are classified as available-for-sale, loans and receivables and
investments classified or designated as fair value through profit or loss. Investment income from bonds and mortgages includes
interest income and premium and discount amortization. Income from stocks includes dividends, distributions from private equity
and equity income from the investment in IGM. Investment properties income includes rental income earned on investment
properties, ground rent income earned on leased and sub-leased land, fee recoveries, lease cancellation income, and interest and
other investment income earned on investment properties. Other income includes policyholder loan income, foreign exchange
gains and losses, income earned from derivative financial instruments and other miscellaneous income.
(f ) Transferred Financial Assets
The Company engages in securities lending to generate additional income. The Company’s securities custodians are used as lending
agents. Collateral, which exceeds the fair value of the loaned securities, is deposited by the borrower with the Company’s lending
agent and maintained by the lending agent until the underlying security has been returned. The fair value of the loaned securities is
monitored on a daily basis by the lending agent who obtains or refunds additional collateral as the fair value of the loaned securities
fluctuates. Included in the collateral deposited with the Company’s lending agent is cash collateral of $398 as of December 31, 2019
($84 at December 31, 2018). In addition, the securities lending agent indemnifies the Company against borrower risk, meaning that
the lending agent agrees contractually to replace securities not returned due to a borrower default. As at December 31, 2019, the
Company had loaned securities (which are included in invested assets) with a fair value of $7,023 ($8,847 at December 31, 2018).
116 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
8.
Funds Held by Ceding Insurers
At December 31, 2019, the Company had amounts on deposit of $8,714 ($9,251 at December 31, 2018) for funds held by ceding insurers
on the Consolidated Balance Sheets. Income and expenses arising from the agreements are included in net investment income in the
Consolidated Statements of Earnings.
The details of the funds on deposit for certain agreements where the Company has credit risk are as follows:
(a) Carrying values and estimated fair values:
Cash and cash equivalents
Bonds
Other assets
Total
Supporting:
Reinsurance liabilities
Surplus
Total
2019
2018
Carrying
value
$
216
6,445
80
Fair
value
$
216
6,445
80
Carrying
value
$
230
6,925
91
Fair
value
$
230
6,925
91
$
6,741
$
6,741
$
7,246
$
7,246
$
6,537
204
$
6,537
204
$
6,741
$
6,741
$
$
6,992
254
7,246
$
$
6,992
254
7,246
(b) The following provides details of the carrying value of bonds included in the funds on deposit by issuer and industry sector:
Bonds issued or guaranteed by:
Treasuries
Government related
Non-agency securitized
Financials
Communications
Consumer products
Energy
Industrials
Technology
Transportation
Utilities
Total
(c) Asset quality
Bond Portfolio By Credit Rating
AAA
AA
A
BBB
BB and lower
Total
2019
2018
$
624
1,275
763
1,412
154
438
176
234
72
170
1,127
$
821
1,349
745
1,607
154
448
206
217
74
168
1,136
$
6,445
$
6,925
2019
2018
$
601
2,670
2,264
822
88
$
609
2,858
2,698
667
93
$
6,445
$
6,925
Great-West Lifeco Inc. 2019 Annual Report
117
Notes to Consolidated Financial Statements
9.
Financial Instruments Risk Management
The Company has policies relating to the identification, measurement, management, monitoring and reporting 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 Risk Committee of the Board of Directors is responsible for the oversight of the Company’s key risks.
The following sections describe how the Company manages each of these risks.
(a) Credit Risk
Credit risk is the risk of loss resulting from an obligor’s potential inability or unwillingness to fully meet its contractual obligations.
The following policies and procedures are in place to manage this risk:
• Investment policies aim to minimize undue concentration within issuers, connected companies, industries or individual
geographies.
• Investment limits specify minimum and maximum limits for each asset class.
• Identification of credit risk through an internal credit risk rating system which includes a detailed assessment of an obligor’s
creditworthiness. Internal credit risk ratings cannot be higher than the highest rating provided by certain independent
ratings companies.
• Portfolios are monitored continuously, and reviewed regularly with the Risk Committee and the Investment Committee of
the Board 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 manages derivative
credit risk by including derivative exposure to aggregate credit exposures measured against rating based obligor limits and
through collateral arrangements where possible.
• Counterparties providing reinsurance to the Company are reviewed for financial soundness as part of an ongoing monitoring
process. The minimum financial strength of reinsurers is outlined in the Reinsurance Risk Management Policy. The Company
seeks to minimize reinsurance credit risk by setting rating based limits on net ceded exposure by counterparty as well as
seeking protection in the form of collateral or funds withheld arrangements where possible.
• Investment guidelines also specify collateral requirements.
(i) Maximum Exposure to Credit Risk
The following 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.
Cash and cash equivalents
Bonds
Fair value through profit or loss
Available-for-sale
Loans and receivables
Mortgage loans
Loans to policyholders
Funds held by ceding insurers (1)
Reinsurance assets
Interest due and accrued
Accounts receivable
Premiums in course of collection
Trading account assets
Finance leases receivable
Other assets (2)
Derivative assets
Total
2019
2018
$
4,628
$
4,168
85,946
11,710
17,372
24,268
8,601
8,714
20,707
1,196
3,256
1,429
1,092
405
444
451
91,901
13,239
19,722
25,014
8,929
9,251
6,126
1,388
2,502
1,312
843
410
672
417
$ 190,219
$ 185,894
(1) Includes $6,741 ($7,246 at December 31, 2018) of funds held by ceding insurers where the Company retains the credit risk of the assets supporting the liabilities ceded (note 8).
(2) Includes items such as current income taxes receivable and miscellaneous other assets of the Company (note 13).
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. The Company has $156 of collateral received from counterparties as
at December 31, 2019 ($109 at December 31, 2018) relating to derivative assets.
118 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
(ii) Concentration of Credit Risk
Concentrations of credit risk arise from exposures to a single obligor, a group of related obligors or groups of obligors that have
similar credit risk characteristics and 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 provides details of the carrying value of bonds by issuer, industry sector and operating segment:
Bonds issued or guaranteed by:
Treasuries
Government related
Agency securitized
Non-agency securitized
Financials
Communications
Consumer products
Energy
Industrials
Technology
Transportation
Utilities
Total long-term bonds
Short-term bonds
Total
Bonds issued or guaranteed by:
Treasuries
Government related
Agency securitized
Non-agency securitized
Financials
Communications
Consumer products
Energy
Industrials
Technology
Transportation
Utilities
Total long-term bonds
Short-term bonds
Total
2019
Canada
United
States
Europe
Total
$
479
19,307
110
2,159
4,119
888
3,761
2,173
1,764
552
2,897
9,145
47,354
2,680
$
72
1,795
1,111
4,664
3,011
617
2,738
1,071
2,057
727
546
2,377
20,786
720
$ 11,186
8,814
10
1,738
6,346
1,120
3,504
906
1,735
567
1,197
4,953
42,076
1,412
$ 11,737
29,916
1,231
8,561
13,476
2,625
10,003
4,150
5,556
1,846
4,640
16,475
110,216
4,812
$ 50,034
$ 21,506
$ 43,488
$ 115,028
2018
$
Canada
United
States
$
654
17,947
80
2,191
3,986
788
3,660
1,805
1,606
611
2,622
8,525
44,475
2,790
$
103
3,605
1,531
5,701
4,666
1,357
4,073
2,241
3,932
1,105
968
4,201
33,483
74
Europe
Total
12,492
8,499
14
1,830
6,068
1,211
3,412
868
1,757
470
1,131
4,686
42,438
1,602
$
13,249
30,051
1,625
9,722
14,720
3,356
11,145
4,914
7,295
2,186
4,721
17,412
120,396
4,466
$
47,265
$
33,557
$
44,040
$ 124,862
Great-West Lifeco Inc. 2019 Annual Report
119
Notes to Consolidated Financial Statements
9. Financial Instruments Risk Management (cont’d)
The following provides details of the carrying value of mortgage loans by operating segment:
Single family residential
Multi-family residential
Equity release
Commercial
Total
Single family residential
Multi-family residential
Equity release
Commercial
Total
(iii) Asset Quality
Bond Portfolio By Credit Rating
AAA
AA
A
BBB
BB and lower
Total
Derivative Portfolio By Credit Rating
Over-the-counter contracts (counterparty ratings):
AA
A
BBB
Exchange-traded
Total
(iv) Loans Past Due, But Not Impaired
2019
$
Canada
2,069
4,496
374
7,871
United
States
$
–
1,798
–
2,198
Europe
Total
$
–
710
940
3,812
$
2,069
7,004
1,314
13,881
$ 14,810
$
3,996
$
5,462
$ 24,268
2018
$
$
United
States
–
2,434
–
4,006
Europe
Total
–
497
787
3,251
$
2,104
7,617
813
14,480
$
Canada
2,104
4,686
26
7,223
$
14,039
$
6,440
$
4,535
$
25,014
2019
2018
$ 22,083
33,272
37,233
21,922
518
$
23,558
33,793
41,008
25,553
950
$ 115,028
$ 124,862
2019
2018
$
$
271
146
34
–
451
$
$
252
110
47
8
417
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 collection of the full amount of principal and interest due. The following provides
carrying values of the loans past due, but not impaired:
Less than 30 days
30 – 90 days
Greater than 90 days
Total
2019
2018
$
$
28
1
4
33
$
$
1
2
–
3
(v)
The following outlines the future asset credit losses provided for in insurance contract liabilities. These amounts are in addition
to the allowance for asset losses included with assets:
Participating
Non-participating
Total
120 Great-West Lifeco Inc. 2019 Annual Report
2019
2018
$
1,175
1,400
$
2,575
$
$
885
1,710
2,595
Notes to Consolidated Financial Statements
(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 and forecasting earned
and required yields, to ensure consistency between policyholder requirements and the yield of assets. Approximately 57%
(approximately 53% in 2018) of insurance and investment contract liabilities are non-cashable prior to maturity or claim, with a
further 14% approximately (13% in 2018) of insurance and investment contract liabilities subject to fair value adjustments under
certain conditions.
• 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 or via capital market transactions. The
Company maintains $350 of liquidity at the Lifeco level through committed lines of credit with Canadian chartered banks. As
well, the Company maintains a $150 liquidity facility at Great-West Life, a U.S. $500 revolving credit agreement with a syndicate
of banks for use by Putnam, and a U.S. $50 line of credit at GWL&A.
In the normal course of business the Company enters into contracts that give rise to commitments of future minimum payments
that impact short-term and long-term liquidity. The following summarizes the principal repayment schedule for certain of the
Company’s financial liabilities.
Payments due by period
Total
1 year
2 years
3 years
4 years
5 years
Debentures and other debt instruments
Capital trust securities (1)
Purchase obligations
Pension contributions
$
5,454
150
316
280
$
500
–
125
280
$
Total
$
6,200
$
905
$
–
–
57
–
57
$
$
–
–
29
–
29
$
$
730
–
13
–
$
743
$
Over
5 years
$
4,224
150
84
–
$
4,458
–
–
8
–
8
(1) Payments due have not been reduced to reflect that the Company held capital trust securities of $37 principal amount ($53 carrying value).
(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 which include three types: currency risk, interest rate (including related inflation) risk and equity risk.
Caution Related to Risk Sensitivities
These consolidated financial statements include estimates of sensitivities and risk exposure measures for certain risks, such as the
sensitivity due to specific changes in interest rate levels projected and market prices as at the valuation date. Actual results can
differ significantly from these estimates for a variety of reasons including:
• Assessment of the circumstances that led to the scenario may lead to changes in (re)investment approaches and interest rate
scenarios considered,
• Changes in actuarial, investment return and future investment activity assumptions,
• Actual experience differing from the assumptions,
• Changes in business mix, effective income tax rates and other market factors,
• Interactions among these factors and assumptions when more than one changes, and
• The general limitations of the Company’s internal models.
For these reasons, the sensitivities should only be viewed as directional estimates of the underlying sensitivities for the respective
factors based on the assumptions outlined above. Given the nature of these calculations, the Company cannot provide assurance
that the actual impact on net earnings attributed to shareholders will be as indicated.
Great-West Lifeco Inc. 2019 Annual Report
121
Notes to Consolidated Financial Statements
9. Financial Instruments Risk Management (cont’d)
(i) Currency Risk
Currency risk relates to the Company operating and holding financial instruments in different currencies. For the assets backing
insurance and investment contract liabilities that are not matched by currency, changes in foreign exchange rates can expose
the Company to the risk of foreign exchange losses not offset by liability decreases. The Company has net investments in foreign
operations. The Company’s debt obligations are denominated in Canadian dollars, euros, and U.S. dollars. In accordance with
IFRS, foreign currency translation gains and losses from net investments in foreign operations, net of related hedging activities
and tax effects, are recorded in accumulated other comprehensive income. Strengthening or weakening of the Canadian dollar
spot rate compared to the U.S. dollar, British pound and euro spot rates impacts the Company’s total equity. Correspondingly,
the Company’s book value per share and capital ratios monitored by rating agencies are also impacted.
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. Segmented
Investment Guidelines include maximum tolerances for unhedged currency mismatch exposures.
• For assets backing liabilities not matched by currency, the Company would normally convert the assets 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
insurance and investment contract liabilities and their supporting assets by approximately the same amount resulting
in an immaterial change to net earnings. A 10% strengthening of the Canadian dollar against foreign currencies would
be expected to decrease non-participating insurance and investment contract liabilities and their supporting assets
by approximately the same amount resulting in an immaterial change in net earnings.
(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.
• Where these products have benefit or expense payments that are dependent on inflation (inflation-indexed annuities,
pensions and disability claims) the Company generally invests in real return instruments to hedge its real dollar liability
cash flows. Some protection against changes in the inflation index is achieved as any related change in the fair value of the
assets will be largely offset by a similar change in the fair value of the liabilities.
• For products with fixed and highly predictable benefit payments, investments are made in fixed income assets or real estate
whose cash flows closely match the liability product cash flows. Where assets are not available to match certain period
cash flows, such as long-tail cash flows, a portion of these are invested in equities and the rest are duration matched.
Hedging instruments are employed where necessary when there is a lack of suitable permanent investments to minimize
loss exposure to interest rate changes. To the extent these cash flows are matched, protection against interest rate change
is achieved and any change in the fair value of the assets will be offset by a similar change in the fair 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 to determine
insurance contract liabilities. Valuation assumptions have been made regarding rates of returns on supporting assets, fixed
income, equity and inflation. The valuation assumptions use best estimates of future reinvestment rates and inflation
assumptions with an assumed correlation together with margins for adverse deviation set in accordance with professional
standards. These margins are necessary to provide for possibilities of misestimation and/or future deterioration in the best
estimate assumptions and provide reasonable assurance that insurance contract liabilities cover a range of possible outcomes.
Margins are reviewed periodically for continued appropriateness.
Projected cash flows from fixed income assets used in actuarial calculations are reduced to provide for potential asset default
losses. The net effective yield rate reduction averaged 0.10% in 2019 (0.10% in 2018). The calculation for future credit losses on
assets is based on the credit quality of the underlying asset portfolio.
Testing under a number of interest rate scenarios (including increasing, decreasing and fluctuating rates) is done to assess
reinvestment risk. The total provision for interest rates is sufficient to cover a broader or more severe set of risks than the
minimum arising from the current Canadian Institute of Actuaries prescribed scenarios.
122 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
The range of interest rates covered by these provisions is set in consideration of long-term historical results and is monitored
quarterly with a full review annually. An immediate 1% parallel shift in the yield curve would not have a material impact on
the Company’s view of the range of interest rates to be covered by the provisions. If sustained however, the parallel shift could
impact the Company’s range of scenarios covered.
The total provision for interest rates also considers the impact of the Canadian Institute of Actuaries prescribed scenarios:
• At December 31, 2019 and December 31, 2018, the effect of an immediate 1% parallel increase in the yield curve on the prescribed
scenarios results in interest rate changes to assets and liabilities that will offset each other with no impact to net earnings.
• At December 31, 2019 and December 31, 2018, the effect of an immediate 1% parallel decrease in the yield curve on the prescribed
scenarios results in interest rate changes to assets and liabilities that will offset each other with no impact to net earnings.
Another way of measuring the interest rate risk associated with this assumption is to determine the effect on the insurance
and investment contract liabilities impacting the shareholders’ net earnings of the Company of a 1% change in the Company’s
view of the range of interest rates to be covered by these provisions. The following provides information on the effect of an
immediate 1% increase or 1% decrease in the interest rates at both the low and high end of the range of interest rates recognized
in the provisions:
2019
2018
1% increase
1% decrease
1% increase
1% decrease
Change in interest rates
Increase (decrease) in non-participating insurance and investment contract liabilities
Increase (decrease) in net earnings
$
$
(230)
175
$
$
811
(619)
$
$
(165)
115
$
$
639
(465)
(iii) Equity Risk
Equity risk is the uncertainty associated with the valuation of assets and liabilities arising from changes in equity markets
and other pricing risk. To mitigate pricing risk, the Company has investment policy guidelines in place that provide for
prudent investment in equity markets within clearly defined limits. The risks associated with segregated fund guarantees have
been mitigated through a hedging program for lifetime Guaranteed Minimum Withdrawal Benefit guarantees using equity
futures, currency forwards, and interest rate derivatives. For policies with segregated fund guarantees, the Company generally
determines insurance contract liabilities at a conditional tail expectation of 75 (CTE75) level.
Some insurance and investment contract liabilities are supported by investment properties, common stocks and private
equities, for example segregated fund products and products with long-tail cash flows. Generally these liabilities will fluctuate
in line with equity values. However, there may be additional market and liability impacts as a result of changes in the equity
values that will cause the liabilities to fluctuate differently than the equity values. The following provides information on the
expected impacts of a 10% increase or 10% decrease in equity values:
2019
2018
10% increase
10% decrease
10% increase
10% decrease
Change in equity values
Increase (decrease) in non-participating insurance and investment contract liabilities
Increase (decrease) in net earnings
$
$
(107)
87
$
$
162
(129)
$
$
(87)
73
$
$
338
(266)
The best estimate return assumptions for equities are primarily based on long-term historical averages. Changes in the current
market could result in changes to these assumptions and will impact both asset and liability cash flows. The following provides
information on the expected impacts of a 1% increase or 1% decrease in the best estimate assumptions:
Change in best estimate return assumptions for equities
Increase (decrease) in non-participating insurance contract liabilities
Increase (decrease) in net earnings
2019
2018
1% increase
1% decrease
1% increase
1% decrease
$
$
(645)
509
$
$
752
(585)
$
$
(591)
476
$
$
680
(539)
Great-West Lifeco Inc. 2019 Annual Report
123
Notes to Consolidated Financial Statements
9. Financial Instruments Risk Management (cont’d)
(d) Enforceable Master Netting Arrangements or Similar Agreements
The Company enters into International Swaps and Derivative Association’s (ISDA’s) master agreements for transacting over-the-
counter derivatives. The Company receives and pledges collateral according to the related ISDA’s Credit Support Annexes. The
ISDA’s master agreements do not meet the criteria for offsetting on the Consolidated Balance Sheets because they create a right of
set-off that is enforceable only in the event of default, insolvency, or bankruptcy.
For exchange-traded derivatives subject to derivative clearing agreements with the exchanges and clearinghouses, there is no
provision for set-off at default. Initial margin is excluded from the table within this disclosure as it would become part of a pooled
settlement process.
The Company’s reverse repurchase agreements are also subject to right of set-off in the event of default. These transactions and
agreements include master netting arrangements which provide for the netting of payment obligations between the Company and
its counterparties in the event of default.
The table sets out the potential effect on the Company’s Consolidated Balance Sheets on financial instruments that have been shown
in a gross position where right of set-off exists under certain circumstances that do not qualify for netting on the Consolidated
Balance Sheets.
Financial instruments – assets
Derivative financial instruments
Reverse repurchase agreements (3)
Total financial instruments – assets
Financial instruments – liabilities
Derivative financial instruments
Total financial instruments – liabilities
Financial instruments – assets
Derivative financial instruments
Reverse repurchase agreements (3)
Total financial instruments – assets
Financial instruments – liabilities
Derivative financial instruments
Total financial instruments – liabilities
2019
Related amounts not set-off
in the Balance Sheet
Offsetting
counterparty
position (1)
Financial
collateral
received/
pledged (2)
Net
exposure
$
$
$
$
(309)
–
(309)
(309)
(309)
$
$
$
$
(107)
(4)
(111)
(556)
(556)
2018
Related amounts not set-off
in the Balance Sheet
Offsetting
counterparty
position (1)
Financial
collateral
received/
pledged (2)
$
$
$
$
(276)
–
(276)
(276)
(276)
$
$
$
$
(101)
(15)
(116)
(599)
(599)
$
$
$
$
$
$
$
$
35
–
35
516
516
Net
exposure
40
–
40
687
687
Gross amount
of financial
instruments
presented in
the Balance
Sheet
$
$
$
$
451
4
455
1,381
1,381
Gross amount
of financial
instruments
presented in
the Balance
Sheet
$
$
$
$
417
15
432
1,562
1,562
(1) Includes counterparty amounts recognized on the Consolidated Balance Sheets where the Company has a potential offsetting position (as described above) but does not meet the criteria for offsetting on
the balance sheet, excluding collateral.
(2) Financial collateral presented above excludes overcollateralization and, for exchange-traded derivatives, initial margin. Financial collateral received on reverse repurchase agreements is held by a third party.
Total financial collateral, including initial margin and overcollateralization, received on derivative assets was $156 ($113 at December 31, 2018), received on reverse repurchase agreements was $4 ($15
at December 31, 2018), and pledged on derivative liabilities was $634 ($691 at December 31, 2018).
(3) Assets related to reverse repurchase agreements are included in bonds, on the Consolidated Balance Sheets.
124 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
10. Fair Value Measurement
The Company’s assets and liabilities recorded at fair value have been categorized based upon the following fair value hierarchy:
Level 1: Fair value measurements utilize observable, quoted prices (unadjusted) in active markets for identical assets or liabilities that
the Company has the ability to access. Assets and liabilities utilizing Level 1 inputs include actively exchange-traded equity securities,
exchange-traded futures, and mutual and segregated funds which have available prices in an active market with no redemption restrictions.
Level 2: Fair value measurements utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability,
either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than
quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted
intervals. The fair values for some Level 2 securities were obtained from a pricing service. The pricing service inputs include, but are not
limited to, benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, offers
and reference data. Level 2 assets and liabilities include those priced using a matrix which is based on credit quality and average life,
government and agency securities, restricted stock, some private bonds and investment funds, most investment-grade and high-yield
corporate bonds, most asset-backed securities, most over-the-counter derivatives, and mortgage loans. Investment contracts that are
measured at fair value through profit or loss are mostly included in the Level 2 category.
Level 3: Fair value measurements utilize one or more significant inputs that are not based on observable market inputs and include
situations where there is little, if any, market activity for the asset or liability. The values of the majority of Level 3 securities were obtained
from single broker quotes, internal pricing models, or external appraisers. Assets and liabilities utilizing Level 3 inputs generally include
certain bonds, certain asset-backed securities, some private equities, investments in mutual and segregated funds where there are
redemption restrictions, certain over-the-counter derivatives, investment properties and equity release mortgages.
The following presents the Company’s assets and liabilities measured at fair value on a recurring basis by hierarchy level:
Assets measured at fair value
Cash and cash equivalents
Financial assets at fair value through profit or loss
Bonds
Mortgage loans
Stocks
Total financial assets at fair value through profit or loss
Available-for-sale financial assets
Bonds
Stocks
Total available-for-sale financial assets
Investment properties
Funds held by ceding insurers
Derivatives (1)
Reinsurance assets
Other assets:
Trading account assets
Other (2)
Level 1
Level 2
Level 3
Total
2019
$
4,628
$
–
$
–
$
4,628
–
–
8,956
8,956
–
12
12
–
216
–
–
332
43
85,879
–
118
85,997
11,710
–
11,710
–
6,445
451
127
760
355
67
1,314
678
2,059
–
4
4
5,887
–
–
–
–
–
85,946
1,314
9,752
97,012
11,710
16
11,726
5,887
6,661
451
127
1,092
398
Total assets measured at fair value
$ 14,187
$ 105,845
$
7,950
$ 127,982
Liabilities measured at fair value
Derivatives (3)
Investment contract liabilities
Other liabilities
Total liabilities measured at fair value
(1) Excludes collateral received from counterparties of $155.
(2) Includes collateral received under securities lending arrangements.
(3) Excludes collateral pledged to counterparties of $580.
$
$
3
–
43
46
$
$
1,378
1,656
355
$
3,389
$
–
–
–
–
$
1,381
1,656
398
$
3,435
There were no transfers of the Company’s assets and liabilities between Level 1 and Level 2 in the year.
Great-West Lifeco Inc. 2019 Annual Report
125
Notes to Consolidated Financial Statements
10. Fair Value Measurement (cont’d)
Assets measured at fair value
Cash and cash equivalents
Financial assets at fair value through profit or loss
Bonds
Mortgage loans
Stocks
Total financial assets at fair value through profit or loss
Available-for-sale financial assets
Bonds
Stocks
Total available-for-sale financial assets
Investment properties
Funds held by ceding insurers
Derivatives (1)
Assets held for sale
Other assets:
Trading account assets
Other (2)
Total assets measured at fair value
Liabilities measured at fair value
Derivatives (3)
Investment contract liabilities
Investment contract liabilities held for sale
Other liabilities
Total liabilities measured at fair value
(1) Excludes collateral received from counterparties of $109.
(2) Includes collateral received under securities lending arrangements.
(3) Excludes collateral pledged to counterparties of $612.
Level 1
Level 2
Level 3
Total
2018
$
4,168
$
–
$
–
$
4,168
–
–
8,254
8,254
–
9
9
–
230
8
134
597
–
91,834
–
–
91,834
13,239
–
13,239
–
6,925
409
731
246
84
67
813
404
91,901
813
8,658
1,284
101,372
–
2
2
5,218
–
–
29
–
–
13,239
11
13,250
5,218
7,155
417
894
843
84
$
13,400
$ 113,468
$
6,533
$ 133,401
$
$
2
–
–
–
2
$
1,560
$
–
$
1,562
1,711
1
84
$
3,356
$
–
26
–
26
1,711
27
84
$
3,384
There were no transfers of the Company’s assets and liabilities between Level 1 and Level 2 in the year.
126 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
The following presents additional information about assets and liabilities measured at fair value on a recurring basis which the Company
classifies as Level 3 in the fair value hierarchy:
Fair value
through
profit or
loss bonds
Fair value
through
profit or loss
mortgage
loans
Fair value
through
profit or
loss stocks (3)
Available
for-sale
stocks
Investment Assets held
properties
for sale
Total
Level 3
assets
Investment
contract
liabilities
Liabilities
held
for sale
Total
Level 3
liabilities
2019
Balance, beginning of year
Change in accounting policy
(note 2)
Revised balance, beginning of year
Total gains (losses)
Included in net earnings
Included in other
comprehensive income (1)
Purchases
Issues
Sales
Settlements
Other
Transfers into Level 3 (2)
Transfers out of Level 3 (2)
Transferred to held for sale
$
67 $
813 $
404 $
2 $ 5,218 $
29 $ 6,533 $
– $
26 $
–
67
4
(4)
–
–
–
–
–
–
–
–
–
813
109
(5)
–
469
–
(72)
–
–
–
–
–
404
40
–
299
–
(65)
–
–
–
–
–
–
2
–
–
2
–
–
–
–
–
–
–
29
5,247
–
29
29
6,562
37
(2)
188
(36)
644
–
(5)
–
–
–
–
–
(1)
–
–
(26)
–
–
–
–
–
(46)
945
469
(96)
(72)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
26
–
–
–
–
–
–
(26)
–
–
–
Balance, end of year
$
67 $ 1,314 $
678 $
4 $ 5,887 $
– $ 7,950 $
– $
– $
Total gains (losses) for the
year included in net
investment income
Change in unrealized gains
(losses) for the year included
in earnings for assets held
$
4 $
109 $
40 $
– $
37 $
(2) $
188 $
– $
– $
26
–
26
–
–
–
–
–
–
(26)
–
–
–
–
–
at December 31, 2019
$
4 $
105 $
38 $
– $
37 $
– $
184 $
– $
– $
–
(1) Amount of other comprehensive income for fair value through profit or loss bonds, mortgage loans and investment properties represents the unrealized gains (losses) on foreign exchange.
(2) Transfers into Level 3 are due primarily to decreased observability of inputs in valuation methodologies. Transfers out of Level 3 are due primarily to increased observability of inputs in valuation methodologies as
evidenced by corroboration of market prices with multiple pricing vendors or the lifting of redemption restrictions on investments in mutual and segregated funds.
(3) Includes investments in mutual and segregated funds where there are redemption restrictions. The fair value is based on observable, quoted prices.
Great-West Lifeco Inc. 2019 Annual Report
127
Notes to Consolidated Financial Statements
10. Fair Value Measurement (cont’d)
Balance, beginning of year
Total gains (losses)
Included in net earnings
Included in other
comprehensive income (1)
Business acquisitions
Purchases
Issues
Sales
Settlements
Other
Transfers into Level 3 (2)
Transfers out of Level 3 (2)
Transferred to held for sale
2018
Fair value
through
profit or
loss bonds
Fair value
through
profit or loss
mortgage
loans
Fair value
through
profit or
loss stocks (3)
Available
for-sale
stocks
Investment
properties
Assets held
for sale
Total
Level 3
assets
Investment
contract
liabilities
Liabilities
held
for sale
Total
Level 3
liabilities
$
65
$
–
$
243
$
1
$ 4,851
$
–
$ 5,160
$
22
$
–
$
22
–
2
–
–
–
–
–
–
–
–
–
(24)
20
20
799
–
76
–
(58)
–
–
–
–
–
–
203
–
(62)
–
–
–
–
–
–
–
–
1
–
–
–
–
–
–
–
2
33
70
–
356
–
(63)
–
–
–
–
(29)
$ 5,218
$
–
–
–
–
–
–
–
–
–
–
29
29
29
92
799
560
76
(125)
(58)
–
–
–
–
–
–
–
–
–
–
–
4
–
–
(26)
$ 6,533
$
–
$
–
–
–
–
–
–
–
–
–
–
26
26
–
–
–
–
–
–
–
4
–
–
–
$
26
Balance, end of year
$
67
$
813
$
404
$
Total gains (losses) for the
year included in net
investment income
Change in unrealized gains
(losses) for the year included
in earnings for assets held at
$
–
$
(24) $
20
$
–
$
33
$
–
$
29
$
–
$
–
$
–
December 31, 2018
$
–
$
(24) $
19
$
–
$
26
$
–
$
21
$
–
$
–
$
–
(1) Amount of other comprehensive income for fair value through profit or loss bonds, mortgage loans and investment properties represents the unrealized gains (losses) on foreign exchange.
(2) Transfers into Level 3 are due primarily to decreased observability of inputs in valuation methodologies. Transfers out of Level 3 are due primarily to increased observability of inputs in valuation methodologies as
evidenced by corroboration of market prices with multiple pricing vendors or the lifting of redemption restrictions on investments in mutual and segregated funds.
(3) Includes investments in mutual and segregated funds where there are redemption restrictions. The fair value is based on observable, quoted prices.
The following sets out information about significant unobservable inputs used at year-end in measuring assets and liabilities categorized
as Level 3 in the fair value hierarchy:
Valuation approach
Input value
Significant
unobservable
input
Inter-relationship between key
unobservable inputs and fair value
measurement
Type of
asset
Investment
properties
are
property
valuations
generally
Investment
determined using property valuation models based on
expected capitalization rates and models that discount
expected future net cash flows. The determination of
the fair value of investment property requires the use
of estimates such as future cash flows (such as future
leasing assumptions, rental rates, capital and operating
expenditures) and discount, reversionary and overall
capitalization rates applicable to the asset based on
current market rates.
Discount rate
Range of 2.6% – 10.3%
Reversionary rate
Range of 4.3% – 6.8%
Vacancy rate
Weighted average of 2.4%
Discount rate
Range of 3.6% – 4.8%
A decrease in the discount rate would result in an increase in
fair value. An increase in the discount rate would result in a
decrease in fair value.
A decrease in the reversionary rate would result in an
increase in fair value. An increase in the reversionary rate
would result in a decrease in fair value.
A decrease in the expected vacancy rate would generally
result in an increase in fair value. An increase in the
expected vacancy rate would generally result in a decrease
in fair value.
A decrease in the discount rate would result in an increase in
fair value. An increase in the discount rate would result in a
decrease in fair value.
Mortgage
loans – equity
release
mortgages
(fair value
through profit
or loss)
The valuation approach for equity release mortgages
is to use an internal valuation model to determine the
projected asset cash flows, including the stochastically
calculated cost of the no negative-equity guarantee for
each individual loan, to aggregate these across all loans
and to discount those cash flows back to the valuation
date. The projection is done monthly until expected
redemption of the loan either voluntarily or on the
death/entering into long term care of the loanholders.
128 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
The following presents the Company’s assets and liabilities disclosed at fair value on a recurring basis by hierarchy level:
Assets disclosed at fair value
Loans and receivables financial assets
Bonds
Mortgage loans
Loans to policyholders
Total loans and receivables financial assets
Available-for-sale financial assets
Stocks (1)
Other stocks (2)
Funds held by ceding insurers
Total assets disclosed at fair value
Liabilities disclosed at fair value
Debentures and other debt instruments
Total liabilities disclosed at fair value
2019
Level 1
Level 2
Level 3
Other assets/
liabilities not
held at fair
value
Total
$
$
$
$
–
–
–
–
–
342
–
342
$
$ 19,281
23,832
8,601
51,714
–
–
–
$
63
–
–
63
–
–
–
$ 51,714
$
63
$
–
–
–
–
189
68
80
337
$ 19,344
23,832
8,601
51,777
189
410
80
$ 52,456
429
429
$
$
6,450
6,450
$
$
–
–
$
$
–
–
$
$
6,879
6,879
(1) Fair value of certain stocks available for sale cannot be reliably measured, therefore, these investments are recorded at cost.
(2) Other stocks include the Company’s investments in an affiliated company, IGM, a member of the Power Financial group of companies.
Assets disclosed at fair value
Loans and receivables financial assets
Bonds
Mortgage loans
Loans to policyholders
Total loans and receivables financial assets
Available-for-sale financial assets
Stocks (1)
Other stocks (2)
Assets held for sale
Funds held by ceding insurers
Total assets disclosed at fair value
Liabilities disclosed at fair value
Debentures and other debt instruments
Total liabilities disclosed at fair value
2018
Level 1
Level 2
Level 3
Other assets/
liabilities not
held at fair
value
–
–
–
–
–
285
–
–
285
$
$
20,524
24,598
8,929
54,051
–
–
3
–
$
95
–
–
95
–
–
–
–
$
54,054
$
95
$
–
–
–
–
267
8
–
91
366
Total
$
20,619
24,598
8,929
54,146
267
293
3
91
$
54,800
475
475
$
$
6,450
6,450
$
$
–
–
$
$
–
–
$
$
6,925
6,925
$
$
$
$
(1) Fair value of certain stocks available for sale cannot be reliably measured, therefore, these investments are recorded at cost.
(2) Other stocks include the Company’s investments in an affiliated company, IGM, a member of the Power Financial group of companies.
Great-West Lifeco Inc. 2019 Annual Report
129
Notes to Consolidated Financial Statements
11. Goodwill and Intangible Assets
(a) Goodwill
(i) The carrying value and changes in the carrying value of goodwill are as follows:
Cost
Balance, beginning of year
Business acquisitions
Invesco purchase price allocation to finite life intangible assets
Changes in foreign exchange rates
Balance, end of year
Accumulated impairment
Balance, beginning of year
Impairment (1)
Changes in foreign exchange rates
Balance, end of year
Net carrying amount
2019
2018
$
7,771
33
(6)
(105)
$
7,312
331
–
128
$
7,693
$
7,771
$
$
$
(1,223)
(19)
54
(1,188)
6,505
$
$
$
(1,133)
–
(90)
(1,223)
6,548
(1) During 2019, $19 of the goodwill in the Financial Services cash generating unit grouping was impaired as a result of the reinsurance transaction with Protective Life (note 3).
(ii)
Within each of the three operating segments, goodwill has been assigned to cash generating unit groupings, representing the
lowest level in which goodwill is monitored for internal reporting purposes. Lifeco does not allocate insignificant amounts of
goodwill and indefinite life intangible assets across multiple cash generating unit groupings. Goodwill is tested for impairment
by comparing the carrying value of each cash generating unit grouping to which goodwill has been assigned to its recoverable
amount as follows:
Canada
Group Customer
Individual Customer
Europe
Insurance and Annuities
United States
Financial Services (1)
Total
2019
2018
$
1,481
2,562
$
2,282
180
1,470
2,545
2,325
208
$
6,505
$
6,548
(1) During 2019, $19 of the goodwill in the Financial Services cash generating unit grouping was impaired as a result of the reinsurance transaction with Protective Life (note 3).
130 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
(b) Intangible Assets
Intangible assets of $3,879 ($3,976 as at December 31, 2018) include indefinite life and finite life intangible assets. The carrying
value and changes in the carrying value of these intangible assets are as follows:
(i)
Indefinite life intangible assets:
2019
Brands and
trademarks
Customer
contract related
Shareholders’
portion of
acquired future
participating
account profit
Cost
Balance, beginning of year
Changes in foreign exchange rates
Balance, end of year
Accumulated impairment
Balance, beginning of year
Changes in foreign exchange rates
Balance, end of year
Net carrying amount
Cost
Balance, beginning of year
Changes in foreign exchange rates
Balance, end of year
Accumulated impairment
Balance, beginning of year
Changes in foreign exchange rates
Balance, end of year
Net carrying amount
$
$
$
$
$
1,006
(34)
$
2,665
(103)
972
$
2,562
(140)
7
(133)
839
$
$
$
(1,101)
50
(1,051)
1,511
2018
Brands and
trademarks
Customer
contract related
$
$
$
$
$
964
42
1,006
(132)
(8)
(140)
866
$
$
$
$
$
2,495
170
2,665
(1,019)
(82)
(1,101)
1,564
(ii) Indefinite life intangible assets have been assigned to the cash generating unit groupings as follows:
Canada
Group Customer
Individual Customer
Europe
Insurance and Annuities
United States
Asset Management
Total
Total
$
4,025
(137)
$
3,888
$
$
$
(1,241)
57
(1,184)
2,704
Total
3,813
212
4,025
(1,151)
(90)
(1,241)
2,784
$
$
$
$
$
$
$
$
$
$
354
–
354
–
–
–
354
Shareholders’
portion of
acquired future
participating
account profit
354
–
354
–
–
–
354
$
$
$
$
$
$
2019
2018
$
354
619
223
354
619
233
1,508
1,578
$
2,704
$
2,784
Great-West Lifeco Inc. 2019 Annual Report
131
Notes to Consolidated Financial Statements
11. Goodwill and Intangible Assets (cont’d)
(iii) Finite life intangible assets:
Amortization period range
Amortization method
Cost
Balance, beginning of year
Additions
Changes in foreign exchange rates
Disposals
Balance, end of year
Accumulated amortization and impairment
Balance, beginning of year
Changes in foreign exchange rates
Disposals
Amortization
Balance, end of year
Net carrying amount
Amortization period range
Amortization method
Cost
Balance, beginning of year
Additions
Changes in foreign exchange rates
Disposals
Balance, end of year
Accumulated amortization and impairment
Balance, beginning of year
Changes in foreign exchange rates
Disposals
Amortization
Balance, end of year
Net carrying amount
2019
Customer
contract
related
Distribution
channels
Technology/
Software
Total
30 years 3 – 10 years
7 – 30 years
Straight-line Straight-line Straight-line
$
$
1,047
11
(27)
–
$
1,031
$
$
$
$
(586)
11
–
(55)
(630)
401
$
$
$
111
–
(3)
–
108
(57)
1
–
(4)
(60)
48
$
1,717
247
(54)
(25)
$
2,875
258
(84)
(25)
$
1,885
$
3,024
$
$
$
(1,040)
41
5
(165)
(1,159)
726
$
$
$
(1,683)
53
5
(224)
(1,849)
1,175
2018
Customer
contract
related
Distribution
channels
Technology/
Software
Total
7 – 30 years
Straight-line
30 years
Straight-line
3 – 10 years
Straight-line
$
$
975
34
38
–
$
1,047
$
$
$
$
(505)
(24)
–
(57)
(586)
461
$
$
$
108
–
3
–
111
(52)
(1)
–
(4)
(57)
54
$
1,390
270
70
(13)
$
2,473
304
111
(13)
$
1,717
$
2,875
$
(846)
(49)
6
(151)
$
$
(1,040)
677
$
$
$
(1,403)
(74)
6
(212)
(1,683)
1,192
The weighted average remaining amortization period of the customer contract related and distribution channels are 13 and 14
years respectively (13 and 15 years respectively at December 31, 2018).
132 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
(c) Recoverable Amount
For the purposes of annual impairment testing, the Company allocates goodwill and indefinite life intangible assets to cash generating
unit groupings. Any potential impairment of goodwill or indefinite life intangible assets is identified by comparing the recoverable
amount of a cash generating unit grouping to its carrying value. Recoverable amount is based on fair value less cost of disposal.
Fair value is initially assessed with reference to valuation multiples of comparable publicly-traded financial institutions and
precedent business acquisitions transactions. These valuation multiples may include price-to-earnings or price-to-book measures
for life insurers and asset managers. This assessment may give regard to a variety of relevant considerations, including expected
growth, risk and capital market conditions, among other factors. The valuation multiples used in assessing fair value represent
Level 2 inputs.
In the fourth quarter of 2019, the Company conducted its annual impairment testing of goodwill and indefinite life intangible assets
based on September 30, 2019 asset balances. It was determined that the recoverable amounts of cash generating unit groupings
were in excess of their carrying values and there was no evidence of significant impairment.
Any reasonable changes in assumptions and estimates used in determining recoverable amounts of cash generating unit groupings
is unlikely to cause carrying values to exceed recoverable amounts.
12. Owner Occupied Properties and Fixed Assets
The carrying value of owner occupied properties and the changes in the carrying value of owner occupied properties are as follows:
Carrying value, beginning of year
Less: accumulated depreciation/impairments
Net carrying value, beginning of year
Additions
Disposals
Impairment recovery (charge)
Depreciation
Foreign exchange
Net carrying value, end of year
2019
2018
$
$
835
(104)
731
34
(10)
2
(13)
(17)
727
$
$
789
(83)
706
28
–
(9)
(12)
18
731
The net carrying value of fixed assets is $455 at December 31, 2019 ($448 at December 31, 2018).
The following provides details of the net carrying value of owner occupied properties and fixed assets by operating segment:
Canada
United States
Europe
Total
2019
2018
$
$
650
334
198
612
357
210
$
1,182
$
1,179
There are no restrictions on the title of the owner occupied properties and fixed assets, nor are they pledged as security for debt.
Great-West Lifeco Inc. 2019 Annual Report
133
Notes to Consolidated Financial Statements
13. Other Assets
Deferred acquisition costs
Right-of-use assets
Trading account assets (1)
Finance leases receivable
Defined benefit pension plan assets (note 24)
Prepaid expenses
Miscellaneous other assets
Total
2019
2018
$
$
595
466
1,092
405
231
113
208
597
–
843
410
148
115
454
$
3,110
$
2,567
(1) Includes bonds of $726 and stocks of $366 at December 31, 2019 (bonds of $215 and stocks of $628 at December 31, 2018).
Total other assets of $1,443 ($1,441 at December 31, 2018) are expected to be realized within 12 months from the reporting date. This
amount excludes deferred acquisition costs, the changes in which are noted below.
Deferred acquisition costs
Balance, beginning of year
Change in accounting policy
Revised balance, beginning of year
Additions
Amortization
Changes in foreign exchange rates
Disposals
Write-off
Balance, end of year
Right-of-use assets
Opening balance, January 1, 2019 (note 2)
Additions
Modifications
Changes in foreign exchange rates
Cost, end of year
Accumulated amortization, January 1, 2019
Amortization
Impairment
Changes in foreign exchange rates
Accumulated amortization, end of year
Carrying amount, end of year
Finance leases receivable
2019
2018
$
$
597
–
597
118
(51)
(32)
(36)
(1)
595
$
$
633
(59)
574
86
(46)
18
(35)
–
597
2019
Property
Equipment
Total
$
$
$
$
$
454
113
(21)
(16)
530
–
(67)
(3)
1
(69)
461
$
$
$
$
$
6
1
–
–
7
–
(2)
–
–
(2)
5
$
$
$
$
$
460
114
(21)
(16)
537
–
(69)
(3)
1
(71)
466
The Company has a finance lease on one property in Canada which has been leased for a 25-year term. The Company has five finance
leases on properties in Europe. These properties have been leased for terms ranging between 27 and 40 years.
The terms to maturity of the lease payments receivable are as follows:
One year or less
Over one year to two years
Over two years to three years
Over three years to four years
Over four years to five years
Over five years
Total undiscounted lease payments
Less: unearned finance lease income
Total finance leases receivable
Finance income on the net investment in the leases
134 Great-West Lifeco Inc. 2019 Annual Report
2019
2018
$
$
$
30
30
30
30
30
686
836
431
405
26
$
$
$
29
30
30
30
30
733
882
472
410
26
Notes to Consolidated Financial Statements
14. Insurance and Investment Contract Liabilities
(a) Insurance and investment contract liabilities
Insurance contract liabilities
Investment contract liabilities
Total
Insurance contract liabilities
Investment contract liabilities
Total
Gross
liability
$ 174,521
1,656
2019
Reinsurance
assets (1)
$ 20,580
127
Net
$ 153,941
1,529
$ 176,177
$ 20,707
$ 155,470
Gross
liability
$ 166,720
1,711
$ 168,431
2018
Reinsurance
assets
$
$
6,126
–
6,126
Net
$ 160,594
1,711
$ 162,305
(1) Includes reinsurance assets recognized upon the completion of the reinsurance transaction with Protective Life (note 3).
(b) Composition of insurance and investment contract liabilities and related supporting assets
(i) The composition of insurance and investment contract liabilities is as follows:
Participating
Canada
United States
Europe
Non-Participating
Canada
United States
Europe
Total
Participating
Canada
United States
Europe
Non-Participating
Canada
United States
Europe
Total
Gross
liability
2019
Reinsurance
assets
Net
$ 42,271
11,329
1,019
$
(247)
12
–
$ 42,518
11,317
1,019
32,668
32,360
56,530
498
15,091
5,353
32,170
17,269
51,177
$ 176,177
$ 20,707
$ 155,470
Gross
liability
2018
Reinsurance
assets
$
38,078
11,871
978
30,174
31,042
56,288
$
(351)
14
–
500
271
5,692
$
Net
38,429
11,857
978
29,674
30,771
50,596
$ 168,431
$
6,126
$ 162,305
Great-West Lifeco Inc. 2019 Annual Report
135
Notes to Consolidated Financial Statements
14. Insurance and Investment Contract Liabilities (cont’d)
(ii) The composition of the assets supporting liabilities and equity is as follows:
Carrying value
Participating liabilities
Canada
United States
Europe
Non-participating liabilities
Canada
United States
Europe
Other
Total equity
Total carrying value
Fair value
Carrying value
Participating liabilities
Canada
United States
Europe
Non-participating liabilities
Canada
United States
Europe
Other
Total equity
Total carrying value
Fair value
Bonds
Mortgage
loans
Stocks
Investment
properties
Other
Total
2019
$
$ 19,484
5,128
716
20,270
14,311
35,546
15,630
3,943
9,655
626
20
4,111
2,678
5,442
902
834
$
6,142
–
63
2,237
–
299
902
732
$ 115,028
$ 24,268
$ 10,375
$ 117,000
$ 25,146
$ 10,367
$
$
$
2,472
–
12
407
–
2,672
119
205
5,887
5,887
$
4,518
5,575
208
$ 42,271
11,329
1,019
5,643
15,371
12,571
231,894
19,829
32,668
32,360
56,530
249,447
25,543
$ 295,609
$ 451,167
$ 295,609
$ 454,009
Bonds
Mortgage
loans
Stocks
Investment
properties
Other
Total
2018
$
$
18,044
5,140
708
19,204
25,324
35,174
15,504
5,764
$
9,145
749
24
3,845
4,993
4,511
1,038
709
$ 124,862
$ 125,759
$
$
25,014
25,411
$
$
5,397
–
68
1,916
–
191
940
778
9,290
9,229
$
$
$
1,908
–
18
196
–
2,795
99
202
5,218
5,218
$
3,584
5,982
160
$
38,078
11,871
978
5,013
725
13,617
214,279
19,945
30,174
31,042
56,288
231,860
27,398
$ 263,305
$ 427,689
$ 263,305
$ 428,922
Cash flows of assets supporting insurance and investment contract liabilities are matched within reasonable limits. Changes in
the fair values of these assets are essentially offset by changes in the fair value of insurance and investment contract liabilities.
Changes in the fair values of assets backing capital and surplus, less related income taxes, would result in a corresponding
change in surplus over time in accordance with investment accounting policies.
136 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
(c) Change in insurance contract liabilities
The change in insurance contract liabilities during the year was the result of the following business activities and changes in
actuarial estimates:
Balance, beginning of year
Impact of new business
Normal change in force
Management action and changes in assumptions
Impact of foreign exchange rate changes
Balance, end of year
Balance, beginning of year
Impact of new business
Normal change in force
Management action and changes in assumptions
Business movement from/to external parties
Impact of foreign exchange rate changes
Balance, end of year
Balance, beginning of year
Impact of new business
Normal change in force
Management action and changes in assumptions
Transfer of liabilities to held for sale (note 4)
Impact of foreign exchange rate changes
Balance, end of year
Balance, beginning of year
Impact of new business
Normal change in force
Management action and changes in assumptions
Business movement from/to external parties
Retirement Advantage acquisition
Transfer of liabilities to held for sale (note 4)
Impact of foreign exchange rate changes
Balance, end of year
2019
Participating
Reinsurance
assets
$
(337)
–
25
77
–
Gross
liability
$ 50,927
59
4,138
67
(572)
Net
$ 51,264
59
4,113
(10)
(572)
$ 54,619
$
(235)
$ 54,854
Non-participating
Gross
liability
Reinsurance
assets
Net
Total Net
$ 115,793
5,339
1,784
(117)
(176)
(2,721)
$
6,463
(266)
645
(73)
14,802
(756)
$ 109,330
5,605
1,139
(44)
(14,978)
(1,965)
$ 160,594
5,664
5,252
(54)
(14,978)
(2,537)
$ 119,902
$ 20,815
$ 99,087
$ 153,941
2018
Participating
Reinsurance
assets
$
$
Gross
liability
48,856
24
1,413
(29)
(281)
944
$
50,927
$
$
Net
49,197
24
1,406
(24)
(281)
942
$
51,264
(341)
–
7
(5)
–
2
(337)
Gross
liability
$ 110,668
6,680
(6,553)
(700)
(134)
2,572
(589)
3,849
Non-participating
Reinsurance
assets
$
5,386
169
(243)
25
(2)
931
–
197
Net
Total Net
$ 105,282
6,511
(6,310)
(725)
(132)
1,641
(589)
3,652
$ 154,479
6,535
(4,904)
(749)
(132)
1,641
(870)
4,594
$ 115,793
$
6,463
$ 109,330
$ 160,594
Great-West Lifeco Inc. 2019 Annual Report
137
Notes to Consolidated Financial Statements
14. Insurance and Investment Contract Liabilities (cont’d)
Under IFRS, movement in the fair value of the supporting assets is a major factor in the movement of insurance contract liabilities.
Changes in the fair value of assets are largely offset by corresponding changes in the fair value of liabilities. The change in the
value of the insurance contract liabilities associated with the change in the value of the supporting assets is included in the normal
change in force above.
In July 2019, the Canadian Actuarial Standards Board published revised standards for the valuation of insurance contract liabilities,
with an effective date of October 15, 2019. The revised standards include decreases to ultimate reinvestment rates and revised
calibration criteria for stochastic risk-free interest rates.
In 2019, the major contributor to the decrease in net insurance contract liabilities was the business movement to external parties
of $14,978, which includes the transfer to Protective Life, and the net impact of foreign exchange rate changes of $2,537. This was
partially offset by increases due to the impact of new business of $5,664, and normal change in force of $5,252.
Net non-participating insurance contract liabilities decreased by $44 in 2019 due to management actions and assumption changes
including a $241 decrease in Europe and Reinsurance, partially offset by a $145 increase in Canada and a $52 increase in the
United States.
The increase in Canada was primarily due to updated policyholder behaviour assumptions of $254, and updated longevity
assumptions of $54, partially offset by decreases due to updated morbidity assumptions of $169 and updated economic assumptions
of $6, which includes the net impact of the new standards.
The decrease in Europe was primarily due to updated longevity assumptions of $299, and updated economic assumptions of $101,
which includes the net impact of new standards, partially offset by increases due to updated life mortality assumptions of $80, and
updated expenses and tax assumptions of $59.
The increase in the United States was primarily due to updated expenses and tax assumptions of $45, and updated mortality
assumptions of $43 partially offset by decreases due to updated economic assumptions of $34, which includes the net impact of
new standards.
Net participating insurance contract liabilities decreased by $10 in 2019 due to management actions and assumption changes. The
decrease was primarily due to updated provisions for future policyholder dividends of $2,232, updated expenses and tax assumptions
of $535, and modeling refinements of $198. This was partially offset by increases due to updated economic assumptions of $1,884,
updated policyholder behaviour assumptions of $935 and updated mortality assumptions of $153.
In 2018, the major contributors to the increase in net insurance contract liabilities were the impact of new business of $6,535, the
acquisition of Retirement Advantage of $1,641 and the net impact of foreign exchange rate changes of $4,594. This was partially
offset by decrease due to normal change in force of $4,904, the expected transfer of UK heritage business to Scottish Friendly of $870
and management action and changes in assumptions of $749.
Net non-participating insurance contract liabilities decreased by $725 in 2018 due to management actions and assumption changes
including a $562 decrease in Europe and Reinsurance, a $107 decrease in Canada and a $56 decrease in the United States.
The decrease in Canada was primarily due to updated economic assumptions of $197, updated provision for claims of $19 and
updated provision for experience rating refunds of $10, partially offset by increases due to updated morbidity assumptions of $62,
updated policyholder behaviour assumptions of $46 and updated life mortality assumptions of $10.
The decrease in Europe was primarily due to updated longevity assumptions of $372, updated life mortality assumptions of $129,
modeling refinements of $41, updated economic assumptions of $39, updated morbidity assumptions of $25, and updated expense
and tax assumptions of $21, partially offset by increases due to updated policyholder behaviour assumptions of $65.
The decrease in the United States was primarily due to updated policyholder behaviour assumptions of $63, updated life mortality
assumptions of $16 and updated longevity assumptions of $15, partially offset by increases due to modeling refinements of $21 and
updated economic assumptions of $13.
Net participating insurance contract liabilities decreased by $24 in 2018 due to management actions and assumption changes.
The decrease was primarily due to modeling refinements of $229, expense and tax assumptions of $133 and updated mortality
assumptions of $5, partially offset by increases due to updated provisions for future policyholder dividends of $232, lower investment
returns of $101 and updated policyholder behaviour assumptions of $8.
138 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
(d) Change in investment contract liabilities measured at fair value
2019
Gross liability Reinsurance assets
Net
Balance, beginning of year
Normal change in force business
Investment experience
Management action and changes in assumptions
Business movement from/to external parties
Transfer of liabilities to held for sale (note 4)
Impact of foreign exchange rate changes
Balance, end of year
$
$
1,711
(87)
103
(4)
–
–
(67)
$
1,656
$
–
38
(23)
–
116
–
(4)
127
$
1,711
(125)
126
(4)
(116)
–
(63)
$
1,529
$
1,711
$
2018
Net
1,841
(190)
(26)
15
–
(27)
98
The carrying value of investment contract liabilities approximates their fair value. No investment contract liabilities were reinsured
in 2018.
(e) Gross premiums written and gross policyholder benefits
(i) Premium Income
Direct premiums
Assumed reinsurance premiums
Total
(ii) Policyholder Benefits
Direct
Assumed reinsurance
Total
(f ) Actuarial Assumptions
2019
2018
$ 25,419
17,847
$
26,083
13,901
$ 43,266
$
39,984
2019
2018
$ 19,643
18,126
$
17,830
14,527
$ 37,769
$
32,357
In the computation of insurance contract liabilities, valuation assumptions have been made regarding rates of mortality/morbidity,
investment returns, levels of operating expenses, rates of policy termination and rates of utilization of elective policy options or
provisions. The valuation assumptions use best estimates of future experience together with a margin for adverse deviation. These
margins are necessary to provide for possibilities of misestimation and/or future deterioration in the best estimate assumptions
and provide reasonable assurance that insurance contract liabilities cover a range of possible outcomes. Margins are reviewed
periodically for continued appropriateness.
The methods for arriving at these valuation assumptions are outlined below:
Mortality
A life insurance mortality study is carried out annually for each major block of insurance business. The results of each study are used
to update the Company’s experience valuation mortality tables for that business. When there is insufficient data, use is made of
the latest industry experience to derive an appropriate valuation mortality assumption. Improvement scales for life insurance and
annuitant mortality are updated periodically based on population and industry studies, product specific considerations, as well as
professional guidance. In addition, appropriate provisions have been made for future mortality deterioration on term insurance.
Annuitant mortality is also studied regularly and the results used to modify established industry experience annuitant mortality tables.
Morbidity
The Company uses industry developed experience tables modified to reflect emerging Company experience. Both claim incidence
and termination are monitored regularly and emerging experience is factored into the current valuation.
Property and casualty reinsurance
Insurance contract liabilities for property and casualty reinsurance written by London Reinsurance Group (LRG), a subsidiary
of London Life, are determined using accepted actuarial practices for property and casualty insurers in Canada. The insurance
contract liabilities are based on cession statements provided by ceding companies. In addition, insurance contract liabilities
also include an amount for incurred but not reported losses which may differ significantly from the ultimate loss development.
The estimates and underlying methodology are continually reviewed and updated, and adjustments to estimates are reflected in
earnings. LRG analyzes the emergence of claims experience against expected assumptions for each reinsurance contract separately
and at the portfolio level. If necessary, a more in-depth analysis is undertaken of the cedant experience.
Great-West Lifeco Inc. 2019 Annual Report
139
Notes to Consolidated Financial Statements
14. Insurance and Investment Contract Liabilities (cont’d)
Investment returns
The assets which correspond to the different liability categories are segmented. For each segment, projected cash flows from the
current assets and liabilities are used in the Canadian Asset Liability Method to determine insurance contract liabilities. Cash
flows from assets are reduced to provide for asset default losses. Testing under several interest rate and equity scenarios (including
increasing and decreasing rates) is done to provide for reinvestment risk (note 9(c)).
Expenses
Contractual policy expenses (e.g. sales commissions) and tax expenses are reflected on a best estimate basis. Expense studies
for indirect operating expenses are updated regularly to determine an appropriate estimate of future operating expenses for the
liability type being valued. Improvements in unit operating expenses are not projected. An inflation assumption is incorporated in
the estimate of future operating expenses consistent with the interest rate scenarios projected under the Canadian Asset Liability
Method as inflation is assumed to be correlated with new money interest rates.
Policy termination
Studies to determine rates of policy termination are updated regularly to form the basis of this estimate. Industry data is also available
and is useful where the Company has no experience with specific types of policies or its exposure is limited. The Company’s most
significant exposures are in respect of the T-100 and Level Cost of Insurance Universal Life products in Canada and policy renewal
rates at the end of term for renewable term policies in Canada and Reinsurance. Industry experience has guided the Company’s
assumptions for these products as the Company’s own experience is very limited.
Utilization of elective policy options
There are a wide range of elective options embedded in the policies issued by the Company. Examples include term renewals,
conversion to whole life insurance (term insurance), settlement annuity purchase at guaranteed rates (deposit annuities) and
guarantee re-sets (segregated fund maturity guarantees). The assumed rates of utilization are based on Company or industry
experience when it exists and when not on judgment considering incentives to utilize the option. Generally, whenever it is clearly
in the best interests of an informed policyholder to utilize an option, then it is assumed to be elected.
Policyholder dividends and adjustable policy features
Future policyholder dividends and other adjustable policy features are included in the determination of insurance contract
liabilities with the assumption that policyholder dividends or adjustable benefits will change in the future in response to the relevant
experience. The dividend and policy adjustments are determined consistent with policyholders’ reasonable expectations, such
expectations being influenced by the participating policyholder dividend policies and/or policyholder communications, marketing
material and past practice. It is the Company’s expectation that changes will occur in policyholder dividend scales or adjustable
benefits for participating or adjustable business respectively, corresponding to changes in the best estimate assumptions, resulting
in an immaterial net change in insurance contract liabilities. Where underlying guarantees may limit the ability to pass all of this
experience back to the policyholder, the impact of this non-adjustability on shareholders’ earnings is reflected in the changes in
best estimate assumptions above.
140 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
(g) Risk Management
(i)
Insurance risk
Insurance risk is the risk that the insured event occurs and that there are large deviations between expected and actual actuarial
assumptions including mortality, persistency, longevity, morbidity, expense variations and investment returns.
The Company is in the business of accepting risk associated with insurance contract liabilities. The objective of the Company is
to mitigate its exposure to risk arising from these contracts through product design, product and geographical diversification,
the implementation of the Company’s underwriting strategy guidelines, and through the use of reinsurance arrangements.
The following provides information about the Company’s insurance contract liabilities sensitivities to management’s best
estimate of the approximate impact as a result of changes in assumptions used to determine the Company’s liability associated
with these contracts.
Mortality – 2% increase
Annuitant mortality – 2% decrease
Morbidity – 5% adverse change
Investment returns
Parallel shift in yield curve
1% increase
1% decrease
Change in interest rates
1% increase
1% decrease
Change in equity values
10% increase
10% decrease
Change in best estimate return assumptions for equities
1% increase
1% decrease
Expenses – 5% increase
Policy termination and renewal – 10% adverse change
Increase (decrease)
in net earnings
2019
2018
$
$
$
$
$
$
$
$
$
$
$
$
$
(279)
(601)
(253)
–
–
175
(619)
87
(129)
509
(585)
(125)
(813)
$
$
$
$
$
$
$
$
$
$
$
$
$
(270)
(457)
(271)
–
–
115
(465)
73
(266)
476
(539)
(128)
(649)
Concentration risk may arise from geographic regions, accumulation of risks and market risk. The concentration of insurance
risk before and after reinsurance by geographic region is described below.
Canada
United States
Europe
Total
(ii) Reinsurance risk
Gross
liability
$ 74,939
43,689
57,549
2019
Reinsurance
assets
$
251
15,103
5,353
Net
$ 74,688
28,586
52,196
Gross
liability
$
68,252
42,913
57,266
2018
Reinsurance
assets
$
149
285
5,692
$
Net
68,103
42,628
51,574
$ 176,177
$ 20,707
$ 155,470
$ 168,431
$
6,126
$ 162,305
Maximum limits per insured life benefit amount (which vary by line of business) are established for life and health insurance,
and reinsurance is purchased for amounts in excess of those limits.
Reinsurance costs and recoveries as defined by the reinsurance agreement are reflected in the valuation with these costs and
recoveries being appropriately calibrated to the direct assumptions.
Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honour their
obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers to minimize
its exposure to significant losses from reinsurer insolvencies.
Certain of the reinsurance contracts are on a funds withheld basis where the Company retains the assets supporting the reinsured
insurance contract liabilities, thus minimizing the exposure to significant losses from reinsurer insolvency on those contracts.
Great-West Lifeco Inc. 2019 Annual Report
141
Notes to Consolidated Financial Statements
15. Segregated Funds and Other Structured Entities
The Company offers segregated fund products in Canada, the U.S. and Europe that are referred to as segregated funds, separate
accounts and unit-linked funds in the respective region. These funds are contracts issued by insurers to segregated fund policyholders
where the benefit is directly linked to the performance of the investments, the risks or rewards of the fair value movements and
net investment income is realized by the segregated fund policyholders. The segregated fund policyholders are required to select
the segregated funds that hold a range of underlying investments. While the Company has legal title to the investments, there is a
contractual obligation to pass along the investment results to the segregated fund policyholder and the Company segregates these
investments from those of the Company.
In Canada and the U.S., the segregated fund and separate account assets are legally separated from the general assets of the Company
under the terms of the policyholder agreement and cannot be used to settle obligations of the Company. In Europe, the assets of the funds
are functionally and constructively segregated from those of the Company. As a result of the legal and constructive arrangements of these
funds, the assets and liabilities of these funds are presented as line items within the Consolidated Balance Sheets titled investments on
account of segregated fund policyholders and with an equal liability titled investment and insurance contracts on account of segregated
fund policyholders.
In circumstances where the segregated funds are invested in structured entities and are deemed to control the entity, the Company
has presented the non-controlling ownership interest within the segregated funds for the risk of policyholders as equal and offsetting
amounts in the assets and liabilities. The amounts presented within are $1,147 at December 31, 2019 ($864 at December 31, 2018).
Within the Consolidated Statements of Earnings, all segregated fund policyholders’ income, including fair value changes and net
investment income, is credited to the segregated fund policyholders and reflected in the assets and liabilities on account of segregated
fund policyholders within the Consolidated Balance Sheets. As these amounts do not directly impact the revenues and expenses of the
Company, these amounts are not included separately in the Consolidated Statements of Earnings.
Segregated Funds Guarantee Exposure
The Company offers retail segregated fund products, unitized with profits (UWP) products and variable annuity products that provide
for certain guarantees that are tied to the market values of the investment funds. While these products are similar to mutual funds,
there is a key difference from mutual funds as the segregated funds have certain guarantee features that protect the segregated fund
policyholder from market declines in the underlying investments. These guarantees are the Company’s primary exposure on these funds.
The Company accounts for these guarantees within insurance and investment contract liabilities within the consolidated financial
statements. In addition to the Company’s exposure on the guarantees, the fees earned by the Company on these products are impacted
by the market value of these funds.
In Canada, the Company offers retail segregated fund products through Great-West Life, London Life and Canada Life. These products
provide guaranteed minimum death benefits (GMDB) and guaranteed minimum accumulation on maturity benefits.
In the U.S., the Company offers group variable annuities with GMDB and guaranteed minimum withdrawal benefits (GMWB) through
GWL&A. For the standalone GMDB business, most are a return of premium on death with the guarantee expiring at age 70.
In Europe, the Company offers UWP products through Canada Life and unit-linked products with investment guarantees through
Irish Life. These products are similar to segregated fund products, but include pooling of policyholders’ funds and minimum credited
interest rates.
The Company also offers a GMWB product in Canada, the U.S., and Germany, and previously offered GMWB product in Ireland. Certain
GMWB products offered by the Company offer levels of death and maturity guarantees. At December 31, 2019, the amount of GMWB
product in-force in Canada, the U.S., Ireland and Germany was $3,332 ($4,169 at December 31, 2018). The decrease was primarily due to
U.S. business transferred to Protective Life under an indemnity reinsurance agreement effective June 1, 2019.
The following presents further details of the investments, determined in accordance with the relevant statutory reporting requirements
of each region of the Company’s operations, on account of segregated fund policyholders:
(a) Investments on account of segregated fund policyholders
Cash and cash equivalents
Bonds
Mortgage loans
Stocks and units in unit trusts
Mutual funds
Investment properties
Accrued income
Other liabilities
Non-controlling mutual funds interest
Total
142 Great-West Lifeco Inc. 2019 Annual Report
2019
2018
$ 12,501
44,973
2,670
104,330
55,779
12,986
233,239
373
(3,737)
1,147
$
13,458
42,142
2,746
89,853
50,956
12,319
211,474
380
(3,191)
864
$ 231,022
$ 209,527
Notes to Consolidated Financial Statements
(b) Investment and insurance contracts on account of segregated fund policyholders
Balance, beginning of year
Additions (deductions):
Policyholder deposits
Net investment income
Net realized capital gains on investments
Net unrealized capital gains (losses) on investments
Unrealized gains (losses) due to changes in foreign exchange rates
Policyholder withdrawals
Business acquisition
Change in Segregated Fund investment in General Fund
Change in General Fund investment in Segregated Fund
Net transfer from General Fund
Non-controlling mutual funds interest
Transfer from assets held for sale
Assets held for sale (note 4)
Total
Balance, end of year
(c) Investment income on account of segregated fund policyholders
Net investment income
Net realized capital gains on investments
Net unrealized capital gains (losses) on investments
Unrealized gains (losses) due to changes in foreign exchange rates
Total
Change in investment and insurance contracts liability on account of segregated fund policyholders
Net
2019
2018
$ 209,527
$ 217,357
24,685
3,331
4,265
19,658
(6,539)
(24,721)
–
(4)
105
23
283
409
–
21,495
24,475
3,611
4,876
(16,757)
5,472
(26,271)
950
69
(219)
21
(738)
–
(3,319)
(7,830)
$ 231,022
$ 209,527
2019
2018
$
3,331
4,265
19,658
(6,539)
20,715
20,715
$
3,611
4,876
(16,757)
5,472
(2,798)
(2,798)
$
–
$
–
(d) Investments on account of segregated fund policyholders by fair value hierarchy level (note 10)
Level 1
Level 2
Level 3
Total
2019
Investments on account of segregated fund policyholders (1)
$ 146,861
$ 73,173
$ 13,988
$ 234,022
(1) Excludes other liabilities, net of other assets, of $3,000.
Investments on account of segregated fund policyholders (1)
Investments on account of segregated fund policyholders held for sale (2)
2018
Level 1
Level 2
Level 3
Total
$ 131,603
3,297
$
67,199
5
$
13,235
9
$ 212,037
3,311
Total investments on account of segregated fund policyholders measured at fair value
$ 134,900
$
67,204
$
13,244
$ 215,348
(1) Excludes other liabilities, net of other assets, of $2,510.
(2) Excludes other assets, net of other liabilities, of $8.
During 2019, certain foreign stock holdings valued at $153 have been transferred from Level 1 to Level 2 ($1,842 were transferred
from Level 2 to Level 1 at December 31, 2018) primarily based on the Company’s change in use of inputs in addition to quoted
prices in active markets for certain foreign stock holdings at year end. Level 2 assets include those assets where fair value is not
available from normal market pricing sources, where inputs are utilized in addition to quoted prices in active markets and where
the Company does not have access to the underlying asset details within an investment fund.
As at December 31, 2019, $8,471 ($7,770 at December 31, 2018) of the segregated funds were invested in funds managed by related
parties IG Wealth Management and Mackenzie Investments, members of the Power Financial group of companies (note 26).
Great-West Lifeco Inc. 2019 Annual Report
143
Notes to Consolidated Financial Statements
15. Segregated Funds and Other Structured Entities (cont’d)
The following presents additional information about the Company’s investments on account of segregated fund policyholders for
which the Company has utilized Level 3 inputs to determine fair value:
2019
2018
Investments
on account of
segregated fund
policyholders
Investments
on account of
segregated fund
policyholders
held for sale
Balance, beginning of year
Change in accounting policy (1)
Revised balance, beginning of year
Total gains (losses) included in segregated fund
$
$ 13,235
136
13,371
investment income
Purchases
Sales
Transfers into Level 3
Transfers out of Level 3
Transferred to assets held for sale
Balance, end of year
141
760
(284)
–
–
–
$ 13,988
$
9
–
9
(1)
–
(8)
–
–
–
–
Investments
on account of
segregated fund
policyholders
$
12,572
–
12,572
Total
$ 13,244
136
13,380
140
760
(292)
–
–
–
404
651
(425)
51
(9)
(9)
$ 13,988
$
13,235
$
Investments
on account of
segregated fund
policyholders
held for sale
$
$
Total
12,572
–
12,572
404
651
(425)
51
(9)
–
$
13,244
–
–
–
–
–
–
–
–
9
9
(1) The segregated funds adopted IFRS 16 which resulted in equal and offsetting right-of-use assets and lease liabilities of $136 being recorded in investment properties and other liabilities within investments
on account of segregated fund policyholders as of January 1, 2019. The adoption of IFRS 16 had no net impact on investments on account of segregated fund policyholders as of January 1, 2019.
Transfers into Level 3 are due primarily to decreased observability of inputs in valuation methodologies. Transfers out of Level 3 are
due primarily to increased observability of inputs in valuation methodologies as evidenced by corroboration of market prices with
multiple pricing vendors.
In addition to the segregated funds, the Company has interests in a number of structured unconsolidated entities including mutual
funds, open-ended investment companies, and unit trusts. These entities are created as investment strategies for its unit-holders based
on the directive of each individual fund.
Some of these funds are managed by related parties of the Company and the Company receives management fees related to these
services. Management fees can be variable due to performance of factors – such as markets or industries – in which the fund invests.
Fee income derived in connection with the management of investment funds generally increases or decreases in direct relationship
with changes of assets under management which is affected by prevailing market conditions, and the inflow and outflow of client assets.
Factors that could cause assets under management and fees to decrease include declines in equity markets, changes in fixed income
markets, changes in interest rates and defaults, redemptions and other withdrawals, political and other economic risks, changing
investment trends and relative investment performance. The risk is that fees may vary but expenses and recovery of initial expenses are
relatively fixed, and market conditions may cause a shift in asset mix potentially resulting in a change in revenue.
During 2019, fee and other income earned by the Company resulting from the Company’s interests in segregated funds and other
structured entities was $4,919 ($4,786 during 2018).
Included within other assets (note 13) at December 31, 2019 is $957 ($733 at December 31, 2018) of investments by the Company in
bonds and stocks of Putnam sponsored funds and $135 ($110 at December 31, 2018) of investments in stocks of sponsored unit trusts
in Europe.
144 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
16. Debentures and Other Debt Instruments
Short-term
Commercial paper and other short-term debt instruments with interest rates from
1.828% to 2.089% (2.511% to 2.693% at December 31, 2018), unsecured
$
130
$
130
$
135
$
135
2019
2018
Carrying value
Fair value
Carrying value
Fair value
Revolving credit facility with interest equal to LIBOR plus 0.70%
(U.S. $230; U.S. $250 at December 31, 2018), unsecured
Total short-term
Capital:
Current
Lifeco
299
429
299
429
340
475
4.65% Debentures due August 13, 2020, unsecured
500
508
500
Long-term
Lifeco
6.74% Debentures due November 24, 2031, unsecured
6.67% Debentures due March 21, 2033, unsecured
5.998% Debentures due November 16, 2039, unsecured
3.337% Debentures due February 28, 2028, unsecured
2.50% Debentures due April 18, 2023, unsecured, (500 euro)
1.75% Debentures due December 7, 2026, unsecured, (500 euro)
Canada Life
6.40% subordinated debentures due December 11, 2028, unsecured
Canada Life Capital Trust (CLCT)
7.529% due June 30, 2052, unsecured, face value $150
Great-West Life & Annuity Insurance Capital, LP
6.625% Deferrable debentures due November 15, 2034, unsecured
U.S. $175), redeemed during the year
Great-West Lifeco Finance 2018 LP
Senior notes due May 17, 2028, unsecured (U.S. $300), bearing an interest rate of 4.047%
Senior notes due May 17, 2048, unsecured (U.S. $500), bearing an interest rate of 4.581%
Great-West Lifeco Finance (Delaware) LP
Senior notes due June 3, 2047, unsecured (U.S. $700), bearing an interest rate of 4.15%
Total long-term
Total
194
393
342
498
728
725
278
557
487
526
788
785
194
393
342
497
778
774
2,880
3,421
2,978
3,345
100
159
128
221
–
–
388
643
1,031
894
5,564
430
749
1,179
993
6,450
100
159
235
405
673
1,078
934
5,984
126
209
266
415
685
1,100
888
6,450
$
5,993
$
6,879
$
6,459
$
6,925
340
475
516
261
522
442
502
837
781
On December 10, 2019, Great-West Life & Annuity Insurance Capital, LP redeemed all $232 (U.S. $175) aggregate principal amount
6.625% deferrable debentures due November 15, 2034 at a redemption price equal to 100% of the principal amount of the debentures,
plus accrued and unpaid interest up to but excluding the redemption date.
On February 28, 2018, the Company issued $500 principal amount 3.337% debentures at par, maturing on February 28, 2028. Interest on
the debentures is payable semi-annually in arrears on February 28 and August 28, commencing August 28, 2018 until the date on which the
debentures are repaid. The debentures are redeemable at any time prior to November 28, 2027 in whole or in part at the greater of the Canada
Yield Price and par, and on or after November 28, 2027 in whole or in part at par, together in each case with accrued and unpaid interest.
On May 17, 2018, Great-West Lifeco Finance 2018, LP issued $384 (U.S. $300) aggregate principal amount 4.047% senior notes due May
17, 2028 and $640 (U.S. $500) aggregate principal amount 4.581% senior notes due May 17, 2048. The tranches of senior notes are fully
and unconditionally guaranteed by Lifeco.
Capital Trust Securities
CLCT, a trust established by Canada Life, had issued $150 of Canada Life Capital Securities – Series B (CLiCS – Series B), the proceeds of
which were used by CLCT to purchase Canada Life senior debentures in the amount of $150.
Distributions and interest on the capital trust securities are classified as financing charges in the Consolidated Statements of Earnings
(note 17). The fair value for capital trust securities is determined by the bid-ask price. Refer to note 9 for financial instrument risk
management disclosures.
Subject to regulatory approval, CLCT may redeem the CLiCS – Series B, in whole or in part, at any time.
Great-West Lifeco Inc. 2019 Annual Report
145
Notes to Consolidated Financial Statements
17. Financing Charges
Financing charges consist of the following:
Operating charges:
Interest on operating lines and short-term debt instruments
Financial charges:
Interest on long-term debentures and other debt instruments
Interest on capital trust securities
Other
Total
18. Other Liabilities
Pension and other post-employment benefits (note 24)
Lease liabilities
Bank overdraft
Deferred income reserves
Other
Total
2019
2018
$
12
$
10
243
11
19
273
285
$
182
11
18
211
221
2019
2018
1,520
585
379
380
1,825
$
1,331
–
457
441
1,626
$
$
$
4,689
$
3,855
Total other liabilities of $2,204 ($2,083 at December 31, 2018) are expected to be realized within 12 months from the reporting date. This
amount excludes deferred income reserves, the changes in which are noted below.
Deferred income reserves
Balance, beginning of year
Additions (1)
Amortization
Changes in foreign exchange
Disposals
Balance, end of year
(1) During 2018, a change in estimate of $154 was recognized related to certain single premium contracts.
Lease liabilities
Opening balance, January 1, 2019 (note 2)
Additions
Modifications
Lease payments
Changes in foreign exchange rates
Interest
Balance, end of year
The following table presents the contractual undiscounted cash flows for lease obligations:
One year or less
Over one year to two years
Over two years to three years
Over three years to four years
Over four years to five years
Over five years
Total undiscounted lease obligations
146 Great-West Lifeco Inc. 2019 Annual Report
2019
2018
$
$
441
70
(81)
(15)
(35)
380
$
$
303
200
(61)
11
(12)
441
2019
Property
Equipment
Total
$
$
545
124
(22)
(72)
(17)
22
580
$
$
6
1
–
(2)
–
–
5
$
$
$
$
551
125
(22)
(74)
(17)
22
585
2019
83
78
66
56
53
417
753
Notes to Consolidated Financial Statements
19. Non-Controlling Interests
The Company has a controlling equity interest in Great-West Life, London Life, Canada Life, GWL&A, and Putnam at December 31, 2019
and December 31, 2018.
Non-controlling interests attributable to participating account surplus is the proportion of the equity attributable to the participating
account of the Company’s subsidiaries.
Non-controlling interests in subsidiaries also include Nippon Life Insurance Company’s (Nippon Life) interest in PanAgora, a subsidiary
of Putnam, and non-controlling interests for the issued and outstanding shares of Putnam and PanAgora held by employees of the
respective companies. During 2018, the Company acquired Nippon Life’s interest in PanAgora.
(a) The non-controlling interests of Great-West Life, London Life, Canada Life, GWL&A and Putnam and their subsidiaries
recorded in the Consolidated Statements of Earnings and other comprehensive income are as follows:
Net earnings attributable to participating account before policyholder dividends
Great-West Life
London Life
Canada Life
GWL&A
Policyholder dividends
Great-West Life
London Life
Canada Life
GWL&A
Net earnings (loss) – participating account
Non-controlling interests in subsidiaries
Total
2019
2018
$
$
150
919
302
3
155
902
273
2
1,374
1,332
(166)
(880)
(315)
(3)
(167)
(862)
(320)
(3)
(1,364)
(1,352)
10
5
15
$
(20)
1
(19)
$
The non-controlling interests of Great-West Life, London Life, Canada Life, GWL&A and Putnam and their subsidiaries recorded in
other comprehensive income (loss) for the year ended December 31, 2019 was $30 ($(27) for the year ended December 31, 2018).
(b) The carrying value of non-controlling interests consists of the following:
Participating account surplus in subsidiaries:
Great-West Life
London Life
Canada Life
GWL&A
Total
Non-controlling interests in subsidiaries
2019
2018
$
$
$
595
1,866
284
14
2,759
107
$
$
$
608
1,827
288
14
2,737
138
Great-West Lifeco Inc. 2019 Annual Report
147
Notes to Consolidated Financial Statements
20. Share Capital
Authorized
Unlimited First Preferred Shares, Class A Preferred Shares and Second Preferred Shares
Unlimited Common Shares
Issued and outstanding and fully paid
First Preferred Shares
Series F, 5.90% Non-Cumulative
Series G, 5.20% Non-Cumulative
Series H, 4.85% Non-Cumulative
Series I, 4.50% Non-Cumulative
Series L, 5.65% Non-Cumulative
Series M, 5.80% Non-Cumulative
Series N, Non-Cumulative 5-Year Rate Reset
Series O, Non-Cumulative Floating Rate
Series P, 5.40% Non-Cumulative
Series Q, 5.15% Non-Cumulative
Series R, 4.80% Non-Cumulative
Series S, 5.25% Non-Cumulative
Series T, 5.15% Non-Cumulative
Total
Common shares
Balance, beginning of year
Purchased and cancelled under Substantial Issuer Bid
Excess of redemption proceeds over stated capital per Substantial Issuer Bid
Share issuance – Qualifying Holdco Alternative per Substantial Issuer Bid
Cancellation of Shares – Qualifying Holdco Alternative per Substantial Issuer Bid
Purchased and cancelled under Normal Course Issuer Bid
Excess of redemption proceeds over stated capital per Normal Course Issuer Bid
Exercised and issued under stock option plan
Balance, end of year
Preferred Shares
2019
2018
Number
Carrying
value
Number
Carrying
value
$
7,740,032
12,000,000
12,000,000
12,000,000
6,800,000
6,000,000
8,524,422
1,475,578
10,000,000
8,000,000
8,000,000
8,000,000
8,000,000
194
300
300
300
170
150
213
37
250
200
200
200
200
7,740,032
12,000,000
12,000,000
12,000,000
6,800,000
6,000,000
8,524,422
1,475,578
10,000,000
8,000,000
8,000,000
8,000,000
8,000,000
108,540,032
$
2,714
108,540,032
987,739,408
(59,700,974)
–
595,747,641
(595,747,641)
(2,000,000)
–
1,242,752
$
7,283
(2,000)
1,628
2,306
(3,610)
(66)
53
39
988,722,659
–
–
–
–
(2,127,300)
–
1,144,049
$
$
$
194
300
300
300
170
150
213
37
250
200
200
200
200
2,714
7,260
–
–
–
–
(69)
53
39
927,281,186
$
5,633 987,739,408
$
7,283
The Series F, 5.90% Non-Cumulative First Preferred Shares are currently redeemable at the option of the Company for $25.00 per share,
together with all declared and unpaid dividends up to but excluding the date of redemption.
The Series G, 5.20% Non-Cumulative First Preferred Shares are currently redeemable at the option of the Company for $25.00 per share,
together with all declared and unpaid dividends up to but excluding the date of redemption.
The Series H, 4.85% Non-Cumulative First Preferred Shares are currently redeemable at the option of the Company for $25.00 per share,
together with all declared and unpaid dividends up to but excluding the date of redemption.
The Series I, 4.50% Non-Cumulative First Preferred Shares are currently redeemable at the option of the Company for $25.00 per share,
together with all declared and unpaid dividends up to but excluding the date of redemption.
The Series L, 5.65% Non-Cumulative First Preferred Shares are currently redeemable at the option of the Company for $25.00 per share,
together with all declared and unpaid dividends up to but excluding the date of redemption.
The Series M, 5.80% Non-Cumulative First Preferred Shares are currently redeemable at the option of the Company for $25.00 per share,
together with all declared and unpaid dividends up to but excluding the date of redemption.
The Series N, Non-Cumulative 5-Year Rate Reset First Preferred Shares carry an annual fixed non-cumulative dividend rate of 2.176% up
to but excluding December 31, 2020 and are redeemable at the option of the Company on December 31, 2020 and on December 31 every
five years thereafter for $25.00 per share plus all declared and unpaid dividends up to but excluding the date of redemption. Subject to the
Company’s right of redemption and certain other restrictions on conversion described in the Series N share conditions, each Series N share
is convertible into one Series O share at the option of the holders on December 31, 2020 and on December 31 every five years thereafter.
The Series O, Non-Cumulative Floating Rate First Preferred Shares carry a floating non-cumulative dividend rate equal to the relevant
Government of Canada Treasury Bill rate plus 1.30% and are redeemable at the option of the Company for $25.50 per share, unless the shares
are redeemed on December 31, 2020 or on December 31 in each fifth year thereafter in which case the redemption price will be $25.00 per
share, plus in each case all declared and unpaid dividends up to but excluding the date of redemption. Subject to the Company’s right of
redemption and certain other restrictions on conversion described in the Series O share conditions, each Series O share is convertible into
one Series N share at the option of the holders on December 31, 2020 and on December 31 every five years thereafter.
148 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
The Series P, 5.40% Non-Cumulative First Preferred Shares are currently redeemable at the option of the Company for $25.00 per share plus a
premium if redeemed prior to March 31, 2021, together with all declared and unpaid dividends up to but excluding the date of redemption.
The Series Q, 5.15% Non-Cumulative First Preferred Shares are currently redeemable at the option of the Company for $25.00 per share
plus a premium if redeemed prior to September 30, 2021, together with all declared and unpaid dividends up to but excluding the date
of redemption.
The Series R, 4.80% Non-Cumulative First Preferred Shares are currently redeemable at the option of the Company for $25.00 per share
plus a premium if redeemed prior to December 31, 2021, together with all declared and unpaid dividends up to but excluding the date
of redemption.
The Series S, 5.25% Non-Cumulative First Preferred Shares are redeemable at the option of the Company for $25.00 per share plus a
premium if redeemed prior to June 30, 2023, together with all declared and unpaid dividends up to but excluding the date of redemption.
The Series T, 5.15% Non-Cumulative First Preferred Shares are redeemable at the option of the Company on or after June 30, 2022 for
$25.00 per share plus a premium if redeemed prior to June 30, 2026, together with all declared and unpaid dividends up to but excluding
the date of redemption.
Common Shares
Normal Course Issuer Bid
On January 28, 2019, the Company announced a normal course issuer bid commencing February 1, 2019 and terminating January 31,
2020 to purchase for cancellation up to but not more than 20,000,000 of its common shares at market prices.
On March 4, 2019, the Company announced a substantial issuer bid (the Offer) pursuant to which the Company offered to purchase
for cancellation up to $2,000 of its common shares from shareholders for cash. The Offer commenced on March 8, 2019 and expired on
April 12, 2019. On April 17, 2019, the Company purchased and subsequently cancelled 59,700,974 common shares under the Offer at a
price of $33.50 per share for an aggregate purchase price of $2,000. The excess paid over the average carrying value under the Offer was
$1,628 and was recognized as a reduction to accumulated surplus. Transaction costs of $3 were incurred in connection with the Offer
and charged to accumulated surplus.
As part of the substantial issuer bid, Power Financial and IGM participated in the Offer. IGM tendered its Lifeco shares proportionately.
Power Financial tendered a portion of its Lifeco common shares on a proportionate basis and all remaining Lifeco common shares on
a non-proportionate basis and this did not impact Power Financial’s voting control of the Company. Power Financial and IGM effected
their tender offers through a Qualifying Holdco Alternative, which the Company also offered to other shareholders, to assist them in
achieving certain Canadian tax objectives. Under the Qualifying Holdco Alternative, the Corporation issued and subsequently cancelled
595,747,641 shares which resulted in a net decrease in share capital of $1,304 with a corresponding increase in accumulated surplus.
In December 2019, the Company repurchased and subsequently cancelled 2,000,000 common shares pursuant to its normal course issuer
bid at a cost of $66 (2,127,300 during 2018 under the previous normal course issuer bid at a cost of $69). The Company’s share capital was
reduced by the average carrying value of the shares repurchased for cancellation. The excess paid over the average carrying value of stated
capital was $53 and was recognized as a reduction to equity ($53 during 2018 under the previous normal course issuer bid).
Subsequent Event
On January 17, 2020, the Company terminated its previous normal course issuer bid and announced a new normal course issuer bid
commencing January 22, 2020 and terminating January 21, 2021 to purchase for cancellation up to but not more than 20,000,000 of its
common shares at market prices.
21. Earnings Per Common Share
The following provides the reconciliation between basic and diluted earnings per common share:
Earnings
Net earnings
Preferred share dividends
Net earnings – common shareholders
Number of common shares
Average number of common shares outstanding
Add: Potential exercise of outstanding stock options
Average number of common shares outstanding – diluted basis
Basic earnings per common share
Diluted earnings per common share
Dividends per common share
2019
2018
$
$
$
2,492
(133)
2,359
$
3,094
(133)
2,961
946,003,629
522,755
988,588,610
510,961
946,526,384
989,099,571
$
$
$
2.494
2.493
1.652
$
$
$
2.996
2.994
1.556
Great-West Lifeco Inc. 2019 Annual Report
149
Notes to Consolidated Financial Statements
22. Capital Management
(a) Policies and Objectives
Managing capital is the continual process of establishing and maintaining the quantity and quality of capital appropriate for the
Company and ensuring capital is deployed in a manner consistent with the expectations of the Company’s stakeholders. For these
purposes, the Board considers the key stakeholders to be the Company’s shareholders, policyholders and holders of subordinated
liabilities in addition to the relevant regulators in the various jurisdictions where the Company and its subsidiaries operate.
The Company manages its capital on both a consolidated basis as well as at the individual operating subsidiary level. The primary
objectives of the Company’s capital management strategy are:
• 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;
• to maintain strong credit and financial strength ratings of the Company ensuring stable access to capital markets; and
• to provide an efficient capital structure to maximize shareholders’ value in the context of the Company’s operational risks and
strategic plans.
The Company has 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 capital planning process is the responsibility of the Company’s Chief Financial Officer. The capital plan is approved by the
Company’s Board of Directors on an annual basis. The Board of Directors reviews and approves all capital transactions undertaken
by management.
The target level of capitalization for the Company and its subsidiaries is assessed by considering various factors such as the
probability of falling below the minimum regulatory capital requirements in the relevant operating jurisdiction, the views expressed
by various credit rating agencies that provide financial strength and other ratings to the Company, and the desire to hold sufficient
capital to be able to honour all policyholder and other obligations of the Company with a high degree of confidence.
(b) Regulatory Capital
In Canada, OSFI has established a regulatory capital adequacy measurement for life insurance companies incorporated under the
Insurance Companies Act (Canada) and their subsidiaries.
The Life Insurance Capital Adequacy Test (LICAT) Ratio compares the regulatory capital resources of a company to its Base Solvency
Buffer or required capital. The Base Solvency Buffer, defined by OSFI, is the aggregate of all defined capital requirements multiplied
by a scalar of 1.05. The total capital resources are provided by the sum of Available Capital, Surplus Allowance and Eligible Deposits.
The following provides a summary of the LICAT information and ratios for Great-West Life:
Tier 1 Capital
Tier 2 Capital
Total Available Capital
Surplus Allowance & Eligible Deposits
Total Capital Resources
Base Solvency Buffer (includes 1.05 scalar)
Total LICAT Ratio (OSFI Supervisory Target = 100%) (1)
(1) Total Ratio (%) = (Total Capital Resources / Base Solvency Buffer (after 1.05 scalar))
2019
2018
$ 11,952
3,637
$
15,589
12,625
12,455
3,686
16,141
10,665
$ 28,214
$
26,806
$ 20,911
$
19,165
135%
140%
For entities based in Europe, the local solvency capital regime is the Solvency II basis. At December 31, 2019 and December 31, 2018,
all European regulated entities met the capital and solvency requirements as prescribed under Solvency II.
GWL&A is subject to the risk-based capital regulatory regime in the U.S. Other foreign operations and foreign subsidiaries of the
Company are required to comply with local capital or solvency requirements in their respective jurisdictions. At December 31, 2019
and December 31, 2018, the Company maintained capital levels above the minimum local regulatory requirements in each of its
foreign operations.
150 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
23. Share-Based Payments
(a)
The Company has a stock option plan (the Plan) pursuant to which options to subscribe for common shares of Lifeco may
be granted to certain officers and employees of Lifeco and its affiliates. The Company’s Human Resources Committee (the
Committee) administers the Plan and, subject to the specific provisions of the Plan, fixes the terms and conditions upon which
options are granted. The exercise price of each option granted under the Plan is fixed by the Committee, but cannot under any
circumstances be less than the weighted average trading price per Lifeco common share on the Toronto Stock Exchange for
the five trading days preceding the date of the grant. Beginning in 2019, new option grants will vest over a period of four years,
and have a maximum exercise period of ten years. Prior to 2019, options generally vested over a period of five years, and had
a maximum exercise period of ten years. Termination of employment may, in certain circumstances, result in forfeiture of the
options, unless otherwise determined by the Committee. The maximum number of Lifeco common shares that may be issued
under the Plan is currently 65,000,000.
During 2019, 2,699,500 common share options were granted (2,127,300 during 2018). The weighted average fair value of common
share options granted during 2019 was $2.86 per option ($1.18 in 2018). The fair value of each common share option was estimated
using the Black-Scholes option-pricing model with the following weighted average assumptions used for those options granted in
2019: dividend yield 5.45% (4.55% in 2018), expected volatility 18.63% (8.75% in 2018), risk-free interest rate 1.86% (2.09% in 2018),
and expected life of eight years (eight in 2018).
The following summarizes the changes in options outstanding and the weighted average exercise price:
Outstanding, beginning of year
Granted
Exercised
Forfeited/expired
Outstanding, end of year
Options exercisable at end of year
2019
2018
Options
14,057,195
2,699,500
(1,242,752)
(135,604)
15,378,339
9,653,016
Weighted
average
exercise price
$
$
$
32.49
30.33
26.71
34.12
32.57
32.32
Options
13,400,064
2,127,300
(1,144,049)
(326,120)
14,057,195
8,680,938
Weighted
average
exercise price
$
$
$
32.10
34.21
30.62
34.02
32.49
30.95
The weighted average share price at the date of exercise of stock options for the year ended December 31, 2019 was $32.29 ($33.46
in 2018).
Compensation expense due to the Plan transactions accounted for as equity-settled share-based payments of $5 after-tax in 2019
($5 after-tax in 2018) has been recognized in the Consolidated Statements of Earnings.
The following summarizes information on the ranges of exercise prices including weighted average remaining contractual life at
December 31, 2019:
Exercise price ranges
$23.16 – $36.87
$27.16 – $36.87
$23.16 – $36.87
$27.13 – $36.87
$30.28 – $36.87
$35.62 – $36.63
$34.68 – $35.52
$36.87 – $36.87
$32.99 – $34.21
$30.28 – $32.50
Outstanding
Weighted
average
remaining
contractual life
Weighted
average
exercise price
0.51
1.25
2.24
3.31
4.31
5.18
6.16
7.16
8.17
9.16
31.63
29.67
26.86
30.87
32.69
35.67
34.68
36.87
34.20
30.32
Exercisable
Options
448,140
770,220
1,258,938
1,677,020
1,862,700
1,420,015
1,322,603
530,980
354,000
8,400
Weighted
average
exercise price
31.63
29.67
26.86
30.87
32.69
35.67
34.68
36.87
34.20
30.28
Expiry
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
Options
449,120
770,220
1,258,938
1,677,020
1,862,700
1,729,479
2,107,562
1,285,600
1,700,400
2,537,300
Great-West Lifeco Inc. 2019 Annual Report
151
Notes to Consolidated Financial Statements
23. Share-Based Payments (cont’d)
(b)
(c)
(d)
(e)
To promote greater alignment of interests between the Directors and Lifeco’s shareholders, the Company and certain of its
subsidiaries have established mandatory Deferred Share Unit Plans and/or voluntary Deferred Share Unit Plans (the “Mandatory
DSU Plans” and the “Voluntary DSU Plans” respectively) in which the Directors of the Company participate. Under the Mandatory
DSU Plans, each Director who is a resident of Canada or the United States must receive 50% of his or her annual Board retainer in
the form of Deferred Share Units (DSUs). Under the Voluntary DSU Plans, each Director may elect to receive the balance of his or
her annual Board retainer and Board Committee fees entirely in the form of DSUs, entirely in cash, or equally in cash and DSUs.
In both cases, the number of DSUs granted is determined by dividing the amount of remuneration payable to the Director by the
weighted average trading price per Lifeco common share on the Toronto Stock Exchange (TSX) for the last five trading days of the
preceding fiscal quarter. Directors receive additional DSUs for dividends payable on the Company’s common shares based on the
value of a DSU at the dividend payment date. DSUs are redeemable when an individual ceases to be a Director, or as applicable, an
officer or employee of the Company or any of its affiliates by a lump sum cash payment, based on the weighted average trading price
per Lifeco common share on the TSX for the last five trading days preceding the date of redemption. In 2019, $6 in Directors’ fees
were used to acquire DSUs ($5 in 2018). At December 31, 2019, the carrying value of the DSU liability is $43 ($34 in 2018) recorded
within other liabilities.
Certain employees of the Company are entitled to receive Performance Share Units (PSUs). Under these PSU plans, these employees
are granted PSUs equivalent to the Company’s common shares vesting over a three-year period. Employees receive additional PSUs
in respect of dividends payable on the common shares based on the value of a PSU at that time. At the maturity date, employees
receive cash representing the value of the PSU at this date. The Company uses the fair-value based method to account for the PSUs
granted to employees under the plan. For the year ended December 31, 2019, the Company recognized compensation expense of
$59 ($29 in 2018) for the PSU plans recorded in operating and administrative expenses in the Consolidated Statements of Earnings.
At December 31, 2019, the carrying value of the PSU liability is $86 ($60 in 2018) recorded within other liabilities.
The Company’s Employee Share Ownership Plan (ESOP) is a voluntary plan where eligible employees can contribute up to 5%
of their previous year’s eligible earnings to purchase common shares of Great-West Lifeco Inc. The Company matches 50% of
the total employee contributions. The contributions from the Company vest immediately and are expensed. For the year ended
December 31, 2019, the Company recognized compensation expense of $12 ($11 in 2018) for the ESOP recorded in operating and
administrative expenses in the Consolidated Statements of Earnings.
Putnam sponsors the Putnam Investments, LLC Equity Incentive Plan. Under the terms of the Equity Incentive Plan, Putnam is
authorized to grant or sell Class B Shares of Putnam (the Putnam Class B Shares), subject to certain restrictions, and to grant
options to purchase Putnam Class B Shares (collectively, the Awards) to certain senior management and key employees of Putnam
at fair value at the time of the award. Fair value is determined under the valuation methodology outlined in the Equity Incentive
Plan. Awards vest over a period of up to five years and are specified in the individual’s award letter. Holders of Putnam Class B
Shares are not entitled to vote other than in respect of certain matters in regards to the Equity Incentive Plan and have no rights to
convert their shares into any other securities. The number of Putnam Class B Shares that may be subject to Awards under the Equity
Incentive Plan is limited to 10,555,555.
During 2019, Putnam granted 2,544,222 (1,159,000 in 2018) restricted Class B common shares to certain members of senior
management and key employees.
Compensation expense recorded for the year ended December 31, 2019 related to restricted Class B common shares and Class B
stock options earned was $20 ($20 in 2018) and is recorded in operating and administrative expenses in the Consolidated Statements
of Earnings.
(f )
Certain employees of PanAgora, a subsidiary of Putnam, are eligible to participate in the PanAgora Management Equity Plan under
which Class C Shares of PanAgora and options and stock appreciation rights on Class C Shares of PanAgora may be issued. Holders
of PanAgora Class C Shares are not entitled to vote and have no rights to convert their shares into any other securities. The number
of PanAgora Class C Shares may not exceed 20% of the equity of PanAgora on a fully exercised and converted basis.
Compensation expense recorded for the year ended December 31, 2019 related to restricted Class C Shares and stock appreciation
rights was $14 in 2019 ($13 in 2018) and is included as a component of operating and administrative expenses in the Consolidated
Statements of Earnings.
152 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
24. Pension Plans and Other Post-Employment Benefits
Characteristics, Funding and Risk
The Company’s subsidiaries maintain contributory and non-contributory defined benefit pension plans for certain employees and
advisors. The Company’s subsidiaries also maintain defined contribution pension plans for certain employees and advisors.
The defined benefit pension plans provide pensions based on length of service and final average pay. For most plans, active plan
participants share in the cost by making contributions in respect of current service. Certain pension payments are indexed either on an
ad hoc basis or a guaranteed basis. The determination of the defined benefit obligation reflects pension benefits in accordance with the
terms of the plans. The assets supporting the funded pension plans are held in separate trusteed pension funds. The obligations for the
wholly unfunded plans are included in other liabilities and are supported by general assets.
The defined benefit plans of the Company’s subsidiaries are closed to new entrants with plans in several geographies also closed to
future defined benefit accruals. New hires are eligible only for defined contribution benefits. Active plan participants in defined benefit
plans closed to future defined benefit accruals are eligible to accrue defined contribution benefits. The Company’s defined benefit plan
exposure will continue to be reduced in future years.
The defined contribution pension plans provide pension benefits based on accumulated employee and subsidiary company
contributions. Subsidiary company contributions to these plans are a set percentage of employees’ annual income and may be subject
to certain vesting requirements.
The Company’s subsidiaries also provide post-employment health, dental and life insurance benefits to eligible employees, advisors and
their dependents. Retirees share in the cost of benefits through deductibles, co-insurance and caps on benefits. These plans are closed to
new hires and were previously amended to limit which employees could become eligible to receive benefits. The amount of some of the
post-employment benefits other than pensions depends on future cost escalation. These post-employment benefits are not pre-funded
and the amount of the obligation for these benefits is included in other liabilities and is supported by general assets.
The Company’s subsidiaries have pension and benefit committees or a trusteed arrangement that provides oversight for the benefit
plans of the Company’s subsidiaries. The benefit plans are monitored on an ongoing basis to assess the benefit, funding and investment
policies, financial status, and funding requirements of the Company’s subsidiaries. Significant changes to the subsidiary company’s
benefit plans require approval from that Company’s Board of Directors.
The Company’s subsidiaries’ funding policy for the funded pension plans is to make contributions equal to or greater than those required
by the applicable regulations and plan provisions that govern the funding of the plans. Where funded plans have a net defined benefit
pension plan asset, the Company determines if an economic benefit exists in the form of potential reductions in future contributions by
the Company, from the payment of expenses from the plan and in the form of surplus refunds, where permitted by applicable regulation
and plan provisions.
By their design, the defined benefit plans expose the Company to the typical risks faced by defined benefit plans such as investment
performance, changes to the discount rates used to value the obligations, longevity of plan members, and future inflation. Pension and
benefit risk is managed by regular monitoring of the plans, applicable regulations and other factors that could impact the expenses and
cash flows of the Company.
Great-West Lifeco Inc. 2019 Annual Report
153
Notes to Consolidated Financial Statements
24. Pension Plans and Other Post-Employment Benefits (cont’d)
The following reflects the financial position of the Company’s subsidiaries contributory and non-contributory defined benefit plans:
(a) Plan Assets, Benefit Obligation and Funded Status
Defined benefit pension plans
Other post-employment benefits
2019
2018
2019
2018
$
$
6,484
210
663
176
20
(266)
(113)
(10)
(13)
(179)
$
6,670
206
(338)
176
13
(350)
(7)
(8)
(8)
130
$
–
–
–
20
–
(20)
–
–
–
–
$
6,972
$
6,484
$
–
$
$
$
7,189
76
234
20
(266)
(1)
(3)
(150)
942
(20)
14
(13)
(186)
$
7,401
110
228
13
(350)
6
(3)
(8)
(292)
(85)
26
(8)
151
$
7,836
$
7,189
$
$
$
$
$
$
$
(864)
(37)
(901)
231
(1,132)
(901)
7,513
323
$
$
$
$
$
$
(710)
(103)
(813)
148
(961)
(813)
6,886
303
$
$
$
$
$
$
370
2
14
–
(20)
–
–
–
29
(5)
(1)
–
(1)
388
(388)
–
(388)
–
(388)
(388)
–
388
$
$
$
$
$
$
$
$
–
–
–
19
–
(19)
–
–
–
–
–
400
2
14
–
(19)
–
–
–
(19)
(9)
(1)
–
2
370
(370)
–
(370)
–
(370)
(370)
–
370
Change in fair value of plan assets
Fair value of plan assets, beginning of year
Interest income
Actual return over (less than) interest income
Employer contributions
Employee contributions
Benefits paid
Settlements
Administrative expenses
Net transfer out
Foreign exchange rate changes
Fair value of plan assets, end of year
Change in defined benefit obligation
Defined benefit obligation, beginning of year
Current service cost
Interest cost
Employee contributions
Benefits paid
Plan amendments
Curtailments and termination benefits
Settlements
Actuarial loss (gain) on financial assumption changes
Actuarial gain on demographic assumption changes
Actuarial loss (gain) arising from member experience
Net transfer out
Foreign exchange rate changes
Defined benefit obligation, end of year
Asset (liability) recognized on the Consolidated Balance Sheets
Funded status of plans – surplus (deficit)
Unrecognized amount due to asset ceiling
Asset (liability) recognized on the Consolidated Balance Sheets
Recorded in:
Other assets (note 13)
Other liabilities (note 18)
Asset (liability) recognized on the Consolidated Balance Sheets
Analysis of defined benefit obligation
Wholly or partly funded plans
Wholly unfunded plans
154 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
Under IFRIC 14, The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, the Company must
assess whether each pension plan’s asset has economic benefit to the Company through future contribution reductions, from the
payment of expenses from the plan, or surplus refunds; in the event the Company is not entitled to a benefit, a limit or ‘asset ceiling’
is required on the balance. The following provides a breakdown of the changes in the asset ceiling:
Change in asset ceiling
Asset ceiling, beginning of year
Interest on asset ceiling
Change in asset ceiling
Asset ceiling, end of year
Defined benefit pension plans
2019
2018
$
$
103
4
(70)
92
3
8
$
37
$
103
(b) Pension and Other Post-Employment Benefits Expense
The total pension and other post-employment benefit expense included in operating expenses and other comprehensive income
are as follows:
$
Defined benefit current service cost
Defined contribution current service cost
Employee contributions
Employer current service cost
Administrative expense
Plan amendments
Curtailments
Settlements
Net interest cost
Expense – profit or loss
Actuarial (gain) loss recognized
Return on assets (greater) less than assumed
Change in the asset ceiling
Re-measurements – other comprehensive (income) loss
Total expense (income) including re-measurements
$
(c) Asset Allocation by Major Category Weighted by Plan Assets
Equity securities
Debt securities
Real estate
Cash and cash equivalents
Total
All pension plans
Other post-employment benefits
2019
2018
2019
2018
96
118
(20)
194
10
(1)
(3)
(37)
28
191
936
(663)
(70)
203
394
$
$
123
104
(13)
214
8
6
(2)
(1)
25
250
(351)
338
8
(5)
$
245
$
2
–
–
2
–
–
–
–
14
16
23
–
–
23
39
$
$
2
–
–
2
–
–
–
–
14
16
(29)
–
–
(29)
(13)
Defined benefit pension plans
2019
2018
43%
47%
8%
2%
100%
41%
49%
8%
2%
100%
No plan assets are directly invested in the Company’s or related parties’ securities. Plan assets include investments in segregated
funds and other funds managed by subsidiaries of the Company of $6,031 at December 31, 2019 and $5,501 at December 31, 2018,
of which $5,961 ($5,431 at December 31, 2018) are included on the Consolidated Balance Sheets. Plan assets do not include any
property occupied or other assets used by the Company.
Great-West Lifeco Inc. 2019 Annual Report
155
Notes to Consolidated Financial Statements
24. Pension Plans and Other Post-Employment Benefits (cont’d)
(d) Details of Defined Benefit Obligation
(i) Portion of Defined Benefit Obligation Subject to Future Salary Increases
Benefit obligation without future salary increases
Effect of assumed future salary increases
Defined benefit obligation
Defined benefit pension plans
Other post-employment benefits
2019
2018
2019
2018
$
7,179
657
$
7,836
$
$
6,581
608
7,189
$
$
388
–
388
$
$
370
–
370
The other post-employment benefits are not subject to future salary increases.
(ii) Portion of Defined Benefit Obligation Without Future Pension Increases
Benefit obligation without future pension increases
Effect of assumed future pension increases
Defined benefit obligation
Defined benefit pension plans
Other post-employment benefits
2019
2018
2019
2018
$
7,221
615
$
7,836
$
$
6,567
622
7,189
$
$
388
–
388
$
$
370
–
370
The other post-employment benefits are not subject to future pension increases.
(iii) Maturity Profile of Plan Membership
Actives
Deferred vesteds
Retirees
Total
Defined benefit pension plans
Other post-employment benefits
2019
2018
2019
2018
40%
19%
41%
100%
38%
23%
39%
100%
15%
n/a
85%
100%
19%
n/a
81%
100%
Weighted average duration of defined benefit obligation
18.5 years
17.9 years
11.7 years
11.4 years
(e) Cash Flow Information
Expected employer contributions for 2020:
Funded (wholly or partly) defined benefit plans
Unfunded plans
Defined contribution plans
Total
Pension
plans
Other post-
employment
benefits
Total
$
$
123
16
120
259
$
$
–
21
–
21
$
$
123
37
120
280
156 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
(f ) Actuarial Assumptions and Sensitivities
(i) Actuarial Assumptions
To determine benefit cost:
Discount rate – past service liabilities
Discount rate – future service liabilities
Rate of compensation increase
Future pension increases (1)
To determine defined benefit obligation:
Discount rate – past service liabilities
Rate of compensation increase
Future pension increases (1)
Medical cost trend rates:
Initial medical cost trend rate
Ultimate medical cost trend rate
Year ultimate trend rate is reached
(1) Represents the weighted average of plans subject to future pension increases.
(ii) Sample Life Expectancies Based on Mortality Assumptions
Sample life expectancies based on mortality assumption:
Male
Age 65 in fiscal year
Age 65 for those age 35 in the fiscal year
Female
Age 65 in fiscal year
Age 65 for those age 35 in the fiscal year
Defined benefit pension plans
Other post-employment benefits
2019
2018
2019
2018
3.4%
3.8%
3.0%
1.4%
2.6%
2.9%
1.3%
3.1%
3.4%
3.1%
1.3%
3.4%
3.0%
1.4%
3.8%
4.4%
–
–
3.1%
–
–
4.7%
4.1%
2039
3.5%
3.8%
–
–
3.8%
–
–
4.8%
4.1%
2040
Defined benefit pension plans
Other post-employment benefits
2019
2018
2019
2018
22.6
24.6
24.7
26.7
22.6
24.7
24.7
26.7
22.4
23.9
24.7
26.2
22.3
24.0
24.7
26.2
The period of time over which benefits are assumed to be paid is based on best estimates of future mortality, including
allowances for mortality improvements. This estimate is subject to considerable uncertainty, and judgment is required in
establishing this assumption. As mortality assumptions are significant in measuring the defined benefit obligation, the
mortality assumptions applied by the Company take into consideration such factors as age, gender and geographic location,
in addition to an estimation of future improvements in longevity.
The mortality tables are reviewed at least annually, and assumptions are in accordance with accepted actuarial practice.
Emerging plan experience is reviewed and considered in establishing the best estimate for future mortality.
The calculation of the defined benefit obligation is sensitive to the mortality assumptions. The effect of a one-year increase in
life expectancy would be an increase in the defined benefit obligation of $264 for the defined benefit pension plans and $15 for
other post-employment benefits.
(iii) Impact of Changes to Assumptions on Defined Benefit Obligation
Defined benefit pension plans:
Impact of a change to the discount rate
Impact of a change to the rate of compensation increase
Impact of a change to the rate of inflation
Other post-employment benefits:
Impact of a change to assumed medical cost trend rates
Impact of a change to the discount rate
1% increase
1% decrease
2019
2018
2019
2018
$
(1,242)
311
598
$
(1,109)
277
526
$
1,630
(284)
(541)
$
1,444
(252)
(477)
27
(41)
26
(38)
(23)
50
(23)
46
To measure the impact of a change in an assumption, all other assumptions were held constant. It is expected that there would
be interaction between at least some of the assumptions.
Great-West Lifeco Inc. 2019 Annual Report
157
Notes to Consolidated Financial Statements
25. Accumulated Other Comprehensive Income
2019
Unrealized
foreign exchange
gains (losses)
on euro debt
designated as
hedge of the
net investment
in foreign
operations
Unrealized
foreign
exchange
gains (losses)
on translation
of foreign
operations
Unrealized
gains (losses)
on available-
for-sale assets
Unrealized
gains (losses)
on cash flow
hedges
Re-measurements
on defined
benefit pension
and other post-
employment
benefit plans
Total
Non-controlling
interest
Shareholders
$
1,797
$
(143)
$
22
$
11
$
(670)
$
1,017
$
28
$
1,045
Balance, beginning of year
Other comprehensive
income (loss)
Income tax
Balance, end of year
$
1,236
$
(57)
$
(561)
–
(561)
100
(14)
86
163
(31)
132
154
2
–
2
(226)
47
(179)
(522)
2
(520)
(33)
3
(30)
(555)
5
(550)
$
13
$
(849)
$
497
$
(2)
$
495
2018
Unrealized
foreign
exchange
gains
on translation
of foreign
operations
Unrealized
foreign exchange
gains (losses)
on euro debt
designated as
hedge of the
net investment
in foreign
operations
Unrealized
gains (losses)
on available-
for-sale assets
Unrealized
gains (losses)
on cash flow
hedges
Re-measurements
on defined
benefit pension
and other post-
employment
benefit plans
Total
Non-controlling
interest
Shareholders
$
1,031
$
(100)
$
109
$
44
$
(699)
$
385
$
1
$
386
766
–
766
(50)
7
(43)
(108)
21
(87)
22
$
(46)
13
(33)
11
34
(5)
29
596
36
632
$
(670)
$
1,017
$
32
(5)
27
28
628
31
659
$
1,045
Balance, beginning of year
Other comprehensive
income (loss)
Income tax
Balance, end of year
$
1,797
$
(143)
$
26. Related Party Transactions
Power Financial, which is incorporated and domiciled in Canada, is the Company’s parent and has voting control of the Company. The
Company is related to other members of the Power Financial group including IGM Financial Inc., a company in the financial services
sector along with its subsidiaries IG Wealth Management, Mackenzie Financial and Investment Planning Council and Pargesa, a holding
company with substantial holdings in a diversified industrial group based in Europe.
(a) Principal subsidiaries
The consolidated financial statements of the Company include the operations of the following subsidiaries and their subsidiaries:
Company
Incorporated in
Primary business operation
The Great-West Life Assurance Company
London Life Insurance Company
The Canada Life Assurance Company
Great-West Life & Annuity Insurance Company
Putnam Investments, LLC
Canada
Canada
Canada
United States
United States
Insurance and wealth management
Insurance and wealth management
Insurance and wealth management
Insurance and wealth management
Financial services
% Held
100.00%
100.00%
100.00%
100.00%
100.00%(1)
(1) Lifeco holds 100% of the voting shares and 96.47% of the total outstanding shares.
158 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
(b) Transactions with related parties included in the consolidated financial statements
As part of the substantial issuer bid, Power Financial and IGM participated in the Offer. IGM tendered its Lifeco shares proportionately.
Power Financial tendered a portion of its Lifeco common shares on a proportionate basis and all remaining Lifeco common shares
on a non-proportionate basis and this did not impact Power Financial’s voting control of the Company. Power Financial and IGM
effected their tender offers through a Qualifying Holdco Alternative, which the Company also offered to other shareholders, to
assist them in achieving certain Canadian tax objectives.
In the normal course of business, Great-West Life and Putnam enter into various transactions with related companies which include
providing insurance benefits and sub-advisory services to other companies within the Power Financial group of companies. In all
cases, transactions were at market terms and conditions.
During the year, Great-West Life provided to and received from IGM and its subsidiaries, a member of the Power Financial group
of companies, certain administrative and information technology services. Great-West Life also provided life insurance, annuity
and disability insurance products under a distribution agreement with IGM. London Life provided distribution services to IGM. All
transactions were provided at market terms and conditions.
Segregated funds of the Company were invested in funds managed by IG Wealth Management and Mackenzie Investments. The
Company also has interests in mutual funds, open-ended investment companies and unit trusts. Some of these funds are managed
by related parties of the Company and the Company receives management fees related to these services. All transactions were
provided at market terms and conditions (note 15).
The Company held debentures issued by IGM; the interest rates and maturity dates are as follows:
3.44%, matures January 26, 2027
6.65%, matures December 13, 2027
7.45%, matures May 9, 2031
7.00%, matures December 31, 2032
4.56%, matures January 25, 2047
4.115%, matures December 9, 2047
4.174%, matures July 13, 2048
Total
2019
2018
$
$
21
16
14
13
22
10
5
$
101
$
10
16
13
13
20
9
5
86
During 2019, the Company purchased debentures from IGM with a total market value at December 31, 2019 of $10 ($14 at
December 31, 2018).
During 2019, the Company purchased residential mortgages of $11 from IGM ($61 in 2018).
The Company holds investments in Portag3 Ventures Limited Partnership, Portag3 Ventures II Limited Partnership, Wealthsimple
Europe S.a.r.l. and other entities which invest in the FinTech sector. These investments were made in partnership with Power
Financial, IGM and, in certain circumstances, outside investors.
The Company provides asset management, employee benefits and administrative services for employee benefit plans relating to
pension and other post-employment benefits for employees of the Company and its subsidiaries. These transactions were provided
at market terms and conditions.
There were no significant outstanding loans or guarantees and no material loans or guarantees issued during 2019 or 2018. There
were no provisions for uncollectible amounts from related parties during 2019 and 2018.
(c) Key management compensation
Key management personnel constitute those individuals that have the authority and responsibility for planning, directing and
controlling the activities of Lifeco, directly or indirectly, including any Director. The individuals that comprise the key management
personnel are the Board of Directors as well as certain key management and officers.
The following describes all compensation paid to, awarded to, or earned by each of the key management personnel for services
rendered in all capacities to the Company and its subsidiaries:
Salary
Share-based awards
Option-based awards
Annual non-equity incentive plan compensation
Pension value
Total
2019
2018
$
$
20
14
6
24
1
65
$
$
17
12
5
23
5
62
Great-West Lifeco Inc. 2019 Annual Report
159
Notes to Consolidated Financial Statements
27. Income Taxes
(a) Components of the income tax expense
(i)
Income tax recognized in Consolidated Statements of Earnings
Current income tax
Total current income tax
Deferred income tax
Origination and reversal of temporary differences
Effect of changes in tax rates or imposition of new income taxes
Tax expense arising from unrecognized tax losses and tax credits
Total deferred income tax
Total income tax expense
(ii) Income tax recognized in other comprehensive income (note 25)
Current income tax expense (recovery)
Deferred income tax recovery
Total
(iii) Income tax recognized in Consolidated Statements of Changes in Equity
Current income tax expense
Deferred income tax expense (recovery)
Total
2019
2018
$
196
$
321
2019
2018
(29)
(11)
217
177
373
$
$
$
52
(2)
16
66
387
2019
2018
7
(9)
(2)
$
$
2019
2018
78
23
101
$
$
(2)
(34)
(36)
–
(16)
(16)
$
$
$
$
$
$
$
(b)
The effective income tax rate reported in the Consolidated Statements of Earnings varies from the combined Canadian federal
and provincial income tax rate of 27% for the following items:
2019
2018
Earnings before income taxes
Combined basic Canadian federal and provincial tax rate
Increase (decrease) in the income tax rate resulting from:
Non-taxable investment income
Lower effective income tax rates on income not subject to tax in Canada
Impact of rate changes on deferred income taxes
Other (1)
$
2,880
778
(166)
(315)
(11)
87
27.00%
(5.76)
(10.93)
(0.38)
3.02
Total income tax expense and effective income tax rate
$
373
12.95%
$
$
3,462
935
(216)
(313)
(2)
(17)
387
27.00%
(6.24)
(9.03)
(0.06)
(0.49)
11.18%
(1) Includes the impact of a decrease in the recognized deferred income tax asset of one of the Company’s subsidiaries due to timing uncertainty in projected taxable income available to utilize certain restricted
net operating losses which resulted in a $199 charge and increased the effective income tax rate by 6.91 points. This was partially offset by a $101 benefit due to the resolution of an outstanding issue
with a foreign tax authority which reduced the effective income tax rate by 3.51 points.
(c) Composition and changes in net deferred income tax assets are as follows:
2019
Balance, beginning of year
Recognized in Statements of Earnings
Recognized in Statements of
Comprehensive Income
Recognized in Statements of
Changes in Equity
Acquired in business acquisitions
Foreign exchange rate changes and other
Insurance and
investment
contract liabilities
Portfolio
investments
Losses
carried
forward
Intangible
assets
Tax
credits
Other
Total
$
(1,387)
362
$
(359)
(171)
$
1,357
(244)
$
(479)
(58)
$
363
(44)
$
$
276
(22)
(229)
(177)
–
(20)
–
62
(25)
–
–
21
–
–
(1)
(47)
–
–
(1)
16
–
–
–
(23)
34
(3)
–
(30)
9
(23)
(2)
(1)
Balance, end of year
$
(983)
$
(534)
$
1,065
$
(522)
$
296
$
255
$
(423)
160 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
Balance, beginning of year
Recognized in Statements of Earnings
Recognized in Statements of
Comprehensive Income
Recognized in Statements of
Changes in Equity
Acquired in business acquisitions
Foreign exchange rate changes and other
Insurance and
investment
contract liabilities
Portfolio
investments
Losses
carried
forward
2018
Intangible
assets
Tax
credits
Other
Total
$
$
(976)
(395)
(602)
227
$
1,132
129
$
$
(401)
(63)
$
391
(44)
192
80
$
(264)
(66)
–
9
41
(66)
40
–
–
(24)
–
–
–
96
–
–
–
(15)
–
–
–
16
(6)
7
(8)
11
34
16
33
18
Balance, end of year
$
(1,387)
$
(359)
$
1,357
$
(479)
$
363
$
276
$
(229)
Recorded on Consolidated Balance Sheets:
Deferred tax assets
Deferred tax liabilities
Total
2019
2018
$
$
693
(1,116)
(423)
$
$
981
(1,210)
(229)
A deferred income tax asset is recognized for deductible temporary differences and unused losses and carryforwards only to the
extent that realization of the related income tax benefit through future taxable profits is probable.
Recognition is based on the fact that it is probable that the entity will have taxable profits and/or tax planning opportunities available
to allow the deferred income tax asset to be utilized. Changes in circumstances in future periods may adversely impact the assessment
of the recoverability. The uncertainty of the recoverability is taken into account in establishing the deferred income tax assets. The
Company’s annual financial planning process provides a significant basis for the measurement of deferred income tax assets.
Management assesses the recoverability of the deferred income tax assets carrying values based on future years’ taxable income
projections and believes the carrying values of the deferred income tax assets as of December 31, 2019 are recoverable.
At December 31, 2019, the Company has recognized a deferred tax asset of $1,065 ($1,357 at December 31, 2018) on tax loss
carryforwards totaling $6,832 ($8,568 in 2018). Of this amount, $5,814 expire between 2020 and 2039 while $1,018 have no expiry
date. The Company will realize this benefit in future years through a reduction in current income taxes payable.
One of the Company’s subsidiaries has had a history of losses. The subsidiary has a net deferred income tax asset balance of $478
(U.S. $367) as at December 31, 2019, comprised principally of net operating losses and future deductions related to goodwill. During
the year ended December 31, 2019, management determined that a $199 (U.S. $151) decrease in the recognized deferred income tax
asset is appropriate due to timing uncertainty in projected taxable income available to utilize certain restricted net operating losses
generated in the earliest loss years. The deferred income tax asset decrease resulted in a charge to income tax expense of $199 (U.S.
$151) in the Consolidated Statements of Earnings. Management has concluded that it is probable that the subsidiary and other
historically profitable subsidiaries with which it files or intends to file a consolidated U.S. income tax return will generate sufficient
taxable income to utilize the unused U.S. losses and deductions for which a deferred tax asset has been recognized.
The Company has not recognized a deferred tax asset of $231 ($37 in 2018) on tax loss carryforwards totaling $1,252 ($179 in 2018).
Of this amount, $1,173 expire between 2020 and 2039 while $79 have no expiry date. In addition, the Company has not recognized a
deferred tax asset of $16 (nil in 2018) on other temporary differences of $78 (nil in 2018) associated with investments in subsidiaries,
branches, and associates.
A deferred income tax liability has not been recognized in respect of the temporary differences associated with investments in
subsidiaries, branches and associates as the Company is able to control the timing of the reversal of the temporary differences, and
it is probable that the temporary differences will not reverse in the foreseeable future.
28. Operating and Administrative Expenses
Salaries and other employee benefits
General and administrative (1)
Interest expense on leases
Amortization of fixed assets
Depreciation of right-of-use assets
Total (2)
(1) Expenses related to short-term leases of $10 and low-value leases of $3 are included within general and administrative expenses.
(2) Includes operating and administrative expenses recognized upon the completion of the reinsurance transaction with Protective Life (note 3).
2019
2018
$
3,474
1,541
22
125
69
$
3,296
1,641
–
96
–
$
5,231
$
5,033
Great-West Lifeco Inc. 2019 Annual Report
161
Notes to Consolidated Financial Statements
29. Derivative Financial Instruments
In the normal course of managing exposure to fluctuations in interest and foreign exchange rates, and to market risks, the Company is an
end-user of various derivative financial instruments. It is the Company’s policy to transact in derivatives only with the most creditworthy
financial intermediaries. Note 9 discloses the credit quality of the Company’s exposure to counterparties. Credit risk equivalent amounts
are presented net of collateral received, including initial margin on exchange-traded derivatives, of $156 as at December 31, 2019 ($113
at December 31, 2018).
(a) The following summarizes the Company’s derivative portfolio and related credit exposure using the following definitions of
risk as prescribed by OSFI:
Maximum Credit Risk
The total replacement cost of all derivative contracts with positive values.
Future Credit Exposure
The potential future credit exposure is calculated based on a formula prescribed by OSFI.
The factors prescribed by OSFI for this calculation are based on derivative type and duration.
Credit Risk Equivalent
The sum of maximum credit risk and the potential future credit exposure less any collateral held.
Risk Weighted Equivalent
Represents the credit risk equivalent, weighted according to the creditworthiness of the counterparty,
as prescribed by OSFI.
Interest rate contracts
Futures – long
Futures – short
Swaps
Options purchased
Foreign exchange contracts
Forward contracts
Cross-currency swaps
Other derivative contracts
Equity contracts
Futures – long
Futures – short
Other forward contracts
Notional
amount
Maximum
credit
risk
2019
Future
credit
exposure
Credit
risk
equivalent
Risk
weighted
equivalent
$
$
12
17
3,179
244
3,452
2,573
13,039
15,612
74
13
774
1,709
2,570
$
$
–
–
197
–
197
43
209
252
–
–
–
2
2
–
–
38
1
39
47
899
946
4
–
–
94
98
$
–
–
206
1
207
76
997
1,073
4
–
–
94
98
–
–
60
–
60
7
266
273
–
–
–
9
9
Total
$ 21,634
$
451
$
1,083
$
1,378
$
342
Notional
amount
Maximum
credit
risk
2018
Future
credit
exposure
Credit
risk
equivalent
Risk
weighted
equivalent
Interest rate contracts
Futures – long
Swaps
Options purchased
Foreign exchange contracts
Forward contracts
Cross-currency swaps
Other derivative contracts
Equity contracts
Futures – long
Futures – short
Other forward contracts
$
$
72
2,716
351
3,139
2,098
11,737
13,835
618
12
1,059
951
2,640
$
–
118
43
161
8
219
227
8
–
8
13
29
Total
$
19,614
$
417
$
162 Great-West Lifeco Inc. 2019 Annual Report
–
34
1
35
42
794
836
6
–
14
91
111
982
$
$
–
143
43
186
49
910
959
6
–
22
98
126
–
42
8
50
5
241
246
–
–
2
10
12
$
1,271
$
308
Notes to Consolidated Financial Statements
(b) The following provides the notional amount, term to maturity and estimated fair value of the Company’s derivative portfolio
by category:
2019
Notional Amount
1 year
or less
Over 1 year
to 5 years
Over 5
years
Total
Derivatives not designated as accounting hedges
Interest rate contracts
Futures – long
Futures – short
Swaps
Options purchased
Foreign exchange contracts
Forward contracts
Cross-currency swaps
Other derivative contracts
Equity contracts
Futures – long
Futures – short
Other forward contracts
Fair value hedges
Foreign exchange forward contracts
Cash flow hedges
Interest rate contracts
Swaps
Net investment hedges
$
9
10
185
35
239
1,334
299
1,633
74
13
774
1,709
2,570
74
–
$
$
3
7
653
184
847
–
2,395
2,395
$
–
–
2,312
25
2,337
–
10,345
10,345
12
17
3,150
244
3,423
1,334
13,039
14,373
74
13
774
1,709
2,570
74
–
–
–
–
–
–
–
–
–
–
–
–
–
29
29
Total
estimated
fair value
$
–
–
161
–
161
15
(1,135)
(1,120)
–
–
(2)
2
–
2
10
17
Foreign exchange forward contracts
641
524
–
1,165
Total
$
5,157
$
3,766
$ 12,711
$ 21,634
$
(930)
Great-West Lifeco Inc. 2019 Annual Report
163
Notes to Consolidated Financial Statements
29. Derivative Financial Instruments (cont’d)
2018
Notional Amount
1 year
or less
Over 1 year
to 5 years
Over 5
years
Total
Total
estimated
fair value
Derivatives not designated as accounting hedges
Interest rate contracts
Futures – long
Swaps
Options purchased
Foreign exchange contracts
Forward contracts
Cross-currency swaps
Other derivative contracts
Equity contracts
Futures – long
Futures – short
Other forward contracts
Cash flow hedges
Interest rate contracts
Swaps
Net investment hedges
$
46
118
47
211
1,058
560
1,618
618
12
1,059
951
2,640
–
$
26
456
225
707
–
1,968
1,968
–
–
–
–
–
–
Foreign exchange forward contracts
524
516
$
–
2,112
79
2,191
–
9,209
9,209
–
–
–
–
–
30
–
$
72
2,686
351
3,109
1,058
11,737
12,795
618
12
1,059
951
2,640
30
$
–
78
43
121
(16)
(1,224)
(1,240)
(8)
–
6
13
11
8
1,040
(45)
Total
$
4,993
$
3,191
$
11,430
$
19,614
$
(1,145)
Futures contracts included in the above are exchange traded contracts; all other contracts are over-the-counter.
(c) Interest Rate Contracts
Interest rate swaps, futures and options are used as part of a portfolio of assets to manage interest rate risk associated with
investment activities and insurance and investment contract liabilities. Interest-rate swap agreements require the periodic
exchange of payments without the exchange of the notional principal amount on which payments are based. Call options grant the
Company the right to enter into a swap with predetermined fixed-rate payments over a predetermined time period on the exercise
date. Call options are used to manage the variability in future interest payments due to a change in credited interest rates and the
related potential change in cash flows due to surrenders. Call options are also used to hedge minimum rate guarantees.
Foreign Exchange Contracts
Cross-currency swaps are used in combination with other investments to manage foreign currency risk associated with investment
activities, and insurance and investment contract liabilities. Under these swaps principal amounts and fixed or floating interest
payments may be exchanged in different currencies. The Company also enters into certain foreign exchange forward contracts to
hedge certain product liabilities.
The ineffective portion of the cash flow hedges during 2019, which includes interest rate contracts and foreign exchange contracts,
and the anticipated net gains (losses) reclassified out of accumulated other comprehensive income within the next twelve months
is nil. The maximum time frame for which variable cash flows are hedged is 50 years.
Other Derivative Contracts
Equity index swaps, futures and options are used to hedge certain product liabilities. Equity index swaps are also used as substitutes
for cash instruments and are used to periodically hedge the market risk associated with certain fee income. Equity put options are
used to manage potential credit risk impact of significant declines in certain equity markets.
164 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
30. Legal Provisions and Contingent Liabilities
The Company and its subsidiaries are from time-to-time subject to legal actions, including arbitrations and class actions, arising in
the normal course of business. Provisions are established if, in management’s judgment, it is probable a payment will be required and
the amount of the payment can be reliably estimated. It is inherently difficult to predict the outcome of any of these proceedings with
certainty, and it is possible that an adverse resolution could have a material adverse effect on the consolidated financial position of the
Company. However, based on information presently known, it is not expected that any of the existing legal actions, either individually
or in the aggregate, will have a material adverse effect on the consolidated financial position of the Company. Actual results could differ
from management’s best estimates.
A subsidiary of the Company in the United States is a defendant in an action in relation to its role as collateral manager of a collateralized
debt obligation brought by an institution involved in the collateralized debt obligation. The resolution of this matter will not have a
material adverse effect on the consolidated financial position of the Company.
Subsidiaries of the Company in the United States are defendants in legal actions, including class actions, relating to the administration
of their staff retirement plans, or to the costs and features of certain of their retirement or fund products. Management believes the
claims are without merit and will be aggressively defending these actions. Based on the information presently known these actions will
not have a material adverse effect on the consolidated financial position of the Company.
A subsidiary of the Company, as reinsurer, is involved in an arbitration relating to the interpretation of certain provisions of a reinsurance
treaty and the alleged underreporting of claims and overpayment of premium. Based on information presently known, it is difficult to
predict the outcome of this matter with certainty, but this matter is not expected to have a material adverse effect on the consolidated
financial position of the Company.
31. Commitments
(a) Letters of Credit
Letters of credit are written commitments provided by a bank. The total amount of letter of credit facilities is U.S. $2,257 of which
U.S. $1,772 were issued as of December 31, 2019.
The Reinsurance operation periodically uses letters of credit as collateral under certain reinsurance contracts for on balance sheet
policy liabilities.
(b) Investment Commitments
Commitments of investment transactions made in the normal course of operations in accordance with policies and guidelines
that are to be disbursed upon fulfillment of certain contract conditions were $1,042 as at December 31, 2019, with $1,006 maturing
within one year, $19 maturing within two years and $17 maturing within three years.
(c) Pledged Assets
In addition to the assets pledged by the Company disclosed elsewhere in the consolidated financial statements:
(i)
The amount of assets included in the Company’s balance sheet which have a security interest by way of pledging is $1,456
($1,464 at December 31, 2018) in respect of reinsurance agreements.
In addition, under certain reinsurance contracts, bonds presented in portfolio investments are held in trust and escrow
accounts. Assets are placed in these accounts pursuant to the requirements of certain legal and contractual obligations to
support contract liabilities assumed.
(ii)
The Company has pledged, in the normal course of business, $75 ($76 at December 31, 2018) of assets of the Company for the
purpose of providing collateral for the counterparty.
Great-West Lifeco Inc. 2019 Annual Report
165
Notes to Consolidated Financial Statements
32. Segmented Information
The operating segments of the Company are Canada, United States, Europe and Lifeco Corporate. These segments reflect the Company’s
management structure and internal financial reporting and are aligned to its geographic operations. Each of these segments operates
in the financial services industry and the revenues from these segments are derived principally from interests in life insurance, health
insurance, retirement and investment services, asset management and reinsurance businesses. Business activities that are not associated
with the specific geographic operations are attributed to the Lifeco Corporate segment.
Transactions between operating segments occur at market terms and conditions and have been eliminated upon consolidation.
The Company has a capital allocation model to measure the performance of the operating segments. The impact of the capital allocation
model is included in the segmented information presented below.
(a) Consolidated Net Earnings
Canada
United
States (2)(3)
2019
Europe
Lifeco
Corporate
Total
Income
Total net premiums
Net investment income
Regular net investment income
Changes in fair value through profit or loss
Total net investment income
Fee and other income
Benefits and expenses
Paid or credited to policyholders
Other (1)
Financing charges
Amortization of finite life intangible assets
Restructuring expenses
Earnings (loss) before income taxes
Income taxes (recovery)
Net earnings (loss) before non-controlling interests
Non-controlling interests
Net earnings (loss)
Preferred share dividends
Net earnings (loss) before capital allocation
Impact of capital allocation
$ 13,505
$
(9,659)
$ 20,664
$
2,785
3,157
5,942
1,766
1,785
1,371
3,156
3,767
1,591
2,418
4,009
1,548
21,213
(2,736)
26,221
16,268
3,510
128
92
–
1,215
149
1,066
13
1,053
114
939
112
(5,932)
2,780
118
85
52
161
205
(44)
3
(47)
–
(47)
(14)
(61)
22,755
1,854
36
47
–
1,529
25
1,504
(1)
1,505
19
1,486
(96)
$
1,390
$
–
–
–
–
–
–
–
22
3
–
–
(25)
(6)
(19)
–
(19)
–
(19)
(2)
(21)
$ 24,510
6,161
6,946
13,107
7,081
44,698
33,091
8,166
285
224
52
2,880
373
2,507
15
2,492
133
2,359
–
$
2,359
Net earnings (loss) – common shareholders
$
1,051
$
(1) Includes commissions, operating and administrative expenses and premium taxes.
(2) Includes the loss on the reinsurance transaction with Protective Life of $247 ($199 after-tax) (note 3).
(3) Includes the impact of the $199 decrease in the deferred income tax asset (note 27).
166 Great-West Lifeco Inc. 2019 Annual Report
Notes to Consolidated Financial Statements
Income
Total net premiums
Net investment income
Regular net investment income
Changes in fair value through profit or loss
Total net investment income
Fee and other income
Benefits and expenses
Paid or credited to policyholders
Other (1)
Financing charges
Amortization of finite life intangible assets
Restructuring expenses
Earnings (loss) before income taxes
Income taxes (recovery)
Net earnings (loss) before non-controlling interests
Non-controlling interests
Net earnings (loss)
Preferred share dividends
Net earnings (loss) before capital allocation
Impact of capital allocation
Net earnings (loss) – common shareholders
Canada
United
States
2018
Europe
Lifeco
Corporate
Total
$
13,093
$
4,250
$
18,118
$
–
$
35,461
2,608
(1,285)
1,323
1,736
16,152
11,024
3,406
128
81
–
1,513
268
1,245
(21)
1,266
114
1,152
123
$
1,275
$
1,836
(890)
946
2,603
7,799
4,447
2,741
55
90
–
466
66
400
2
398
–
398
(10)
388
1,901
(1,431)
470
1,480
20,068
16,597
1,832
37
41
67
1,494
56
1,438
–
1,438
19
1,419
(108)
13
–
13
–
13
–
23
1
–
–
(11)
(3)
(8)
–
(8)
–
(8)
(5)
6,358
(3,606)
2,752
5,819
44,032
32,068
8,002
221
212
67
3,462
387
3,075
(19)
3,094
133
2,961
–
$
1,311
$
(13)
$
2,961
(1) Includes commissions, operating and administrative expenses and premium taxes.
(b) Consolidated Total Assets and Liabilities
Assets
Invested assets
Goodwill and intangible assets
Other assets
Investments on account of segregated fund policyholders
Total
Liabilities
Insurance and investment contract liabilities
Other liabilities
Investment and insurance contracts on account of segregated fund policyholders
Total
2019
Canada
United
States
Europe
Total
$ 81,179
5,560
3,953
85,612
$ 32,768
1,990
19,421
31,433
$ 54,840
2,834
17,600
113,977
$ 168,787
10,384
40,974
231,022
$ 176,304
$ 85,612
$ 189,251
$ 451,167
2019
Canada
United
States
Europe
Total
$ 74,939
8,448
85,612
$ 43,689
5,035
31,433
$ 57,549
4,942
113,977
$ 176,177
18,425
231,022
$ 168,999
$ 80,157
$ 176,468
$ 425,624
Great-West Lifeco Inc. 2019 Annual Report
167
Notes to Consolidated Financial Statements
32. Segmented Information (cont’d)
Assets
Invested assets
Assets held for sale
Goodwill and intangible assets
Other assets
Investments on account of segregated fund policyholders
Investments on account of segregated fund policyholders held for sale
Total
Liabilities
Insurance and investment contract liabilities
Liabilities held for sale
Other liabilities
Investment and insurance contracts on account of segregated fund policyholders
Investment and insurance contracts on account of segregated fund policyholders
held for sale
Total
33. Subsequent Events
(a) Amalgamation
2018
Canada
United
States
Europe
Total
$
75,647
–
5,516
3,110
76,633
–
$
47,500
–
2,130
4,495
31,816
–
$
54,334
897
2,878
18,336
101,078
3,319
$ 177,481
897
10,524
25,941
209,527
3,319
$ 160,906
$
85,941
$ 180,842
$ 427,689
2018
Canada
United
States
Europe
Total
$
68,252
–
7,863
76,633
$
42,913
–
5,100
31,816
$
57,266
897
5,154
101,078
$ 168,431
897
18,117
209,527
–
–
3,319
3,319
$ 152,748
$
79,829
$ 167,714
$ 400,291
As a result of the Amalgamation (note 1), effective January 1, 2020, the consolidated financial statements of the Amalgamated
Company will include the operations of the following previously separate subsidiaries: Great-West Life, LIG, London Life, CLFC,
and Canada Life. The consolidated financial statements of the Company will include the operations of the Amalgamated Company
and its subsidiaries. Non-controlling interests attributable to participating account surplus previously recorded in the Great-West
Life, London Life, and Canada Life Consolidated Statements of Earnings and Other Comprehensive Income will be recorded in the
Amalgamated Company (notes 19, 26(a)).
(b) Sale of Irish Progressive Services International Limited
On February 10, 2020, Irish Life announced the sale of Irish Progressive Services International Limited, a wholly-owned subsidiary
whose principal activity is the provision of outsourced administration services for life assurance companies, to a member of the
FNZ group of companies. The proposed transaction will be subject to customary closing conditions including receipt of required
regulatory approvals and is expected to be completed in the second half of 2020. The Company expects to recognize a gain related
to this transaction. The carrying value and earnings of the business are immaterial to the Company.
34. Comparative Figures
The Company reclassified certain comparative figures for disclosure items to conform to the current year’s presentation. These
reclassifications had no impact on the total equity or net earnings of the Company.
168 Great-West Lifeco Inc. 2019 Annual Report
Independent Auditor’s Report
To the Shareholders of Great-West Lifeco Inc.
Opinion
We have audited the consolidated financial statements of Great-West Lifeco Inc. (the “Company”), which comprise the consolidated
balance sheets as at December 31, 2019 and 2018, and the consolidated statements of earnings, comprehensive income, changes in
equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant
accounting policies (collectively referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company
as at December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended in accordance with
International Financial Reporting Standards (“IFRS”).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards (“Canadian GAAS”). Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our
report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that
the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Information
Management is responsible for the other information. The other information comprises:
• Management’s Discussion and Analysis
• The information, other than the financial statements and our auditor’s report thereon, in the Annual Report.
Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance
conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or
our knowledge obtained in the audit, or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed
on this other information, we conclude that there is a material misstatement of this other information, we are required to report that
fact in this auditor’s report. We have nothing to report in this regard.
The Annual Report is expected to be made available to us after the date of the auditor’s report. If, based on the work we will perform
on this other information, we conclude that there is a material misstatement of this other information, we are required to report that
fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for
such internal control as management determines is necessary to enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management
either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect
a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
Great-West Lifeco Inc. 2019 Annual Report
169
Independent Auditor’s Report (cont’d)
As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism
throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform
audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures
made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s
ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in
our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or
conditions may cause the Company to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the
financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of
the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Paul Stauch.
/s/ Deloitte LLP
Chartered Professional Accountants
Winnipeg, Manitoba
February 12, 2020
170 Great-West Lifeco Inc. 2019 Annual Report
Sources of Earnings
The following is provided in accordance with the OSFI guideline requiring Sources of Earnings (SOE) disclosure. SOE is not an International
Financial Reporting Standards (IFRS) measure. There is no standard SOE methodology. The calculation of SOE is dependent on and
sensitive to the methodology, estimates and assumptions used.
SOE identifies various sources of IFRS net earnings. It provides an analysis of the difference between actual net income and expected
net income based on assumptions made at the beginning of the reporting period. The terminology used in the discussion of sources of
earnings is described below:
Expected Profit on In-Force Business
This component represents the portion of the consolidated net income on business in-force at the start of the reporting period
that was expected to be realized based on the achievement of the best-estimate assumptions. It includes releases of provisions for
adverse deviations, expected net earnings on deposits, and expected net management fees.
Impact of New Business
This component represents the point-of-sale impact on net income of writing new business during the reporting period. This is
the difference between the premium received and the sum of the expenses incurred as a result of the sale and the new liabilities
established at the point of sale.
Experience Gains and Losses
This component represents gains and losses that are due to differences between the actual experience during the reporting period
and the best-estimate assumptions at the start of the reporting period.
Management Actions and Changes in Assumptions
This component represents the impact on net income resulting from management actions, changes in actuarial assumptions or
methodology, changes in margins for adverse deviations, and correction of errors.
Other
This component represents the amounts not included in any other line of the sources of earnings.
Earnings on Surplus
This component represents the earnings on the Company’s surplus funds.
Great-West Lifeco’s sources of earnings are shown below for 2019 and 2018.
Sources of Earnings
(in Canadian $ millions)
For the year ended December 31, 2019
Expected profit on in-force business
Impact of new business
Experience gains and losses
Management actions and changes in assumptions
Other
Earnings on surplus
Net earnings before tax
Taxes
Net earnings before non-controlling interests
Non-controlling interests
Net earnings – shareholders
Preferred share dividends
Shareholders net earnings
Canada
United
States
Europe
Lifeco
Corporate
Total
$
$
$
1,230
29
226
(166)
–
86
1,405
(240)
1,165
–
1,165
(114)
450
(137)
63
(15)
(254)
41
148
(206)
(58)
(3)
(61)
–
$
1,290
–
(177)
285
–
37
1,435
(24)
1,411
(2)
1,409
(19)
(18)
–
(4)
–
–
(5)
(27)
6
(21)
–
(21)
–
$
2,952
(108)
108
104
(254)
159
2,961
(464)
2,497
(5)
2,492
(133)
Net earnings – common shareholders
$
1,051
$
(61)
$
1,390
$
(21)
$
2,359
Great-West Lifeco Inc. 2019 Annual Report
171
Sources of Earnings (cont’d)
Sources of Earnings
(in Canadian $ millions)
For the year ended December 31, 2018
Expected profit on in-force business
Impact of new business
Experience gains and losses
Management actions and changes in assumptions
Other
Earnings on surplus
Net earnings before tax
Taxes
Net earnings before non-controlling interests
Non-controlling interests
Net earnings – shareholders
Preferred share dividends
Shareholders net earnings
Canada
United
States
Europe
Lifeco
Corporate
Total
$
$
1,219
8
212
208
–
84
1,731
(342)
1,389
–
1,389
(114)
500
(129)
(29)
56
(9)
66
455
(66)
389
(1)
388
–
388
$
$
1,215
(74)
(73)
453
(67)
(68)
1,386
(56)
1,330
–
1,330
(19)
(17)
–
(7)
–
–
8
(16)
3
(13)
–
(13)
–
$
2,917
(195)
103
717
(76)
90
3,556
(461)
3,095
(1)
3,094
(133)
$
1,311
$
(13)
$
2,961
Net earnings – common shareholders
$
1,275
$
Analysis of Results
Expected profit on in-force business is the major driver of earnings. The expected profit on in-force business of $2,952 in 2019 was $35
higher than 2018. The increase year-over-year is primarily a result of business growth in Europe. Business growth in the U.S. was more
than offset by impact of the sale of the U.S. individual life insurance and annuity business. Growth in Canada Group Customer was
offset by higher expenses and lower profitability in Individual Customer.
The strain on new sales of $108 in 2019 was $87 lower than 2018 primarily due to a gain on a large longevity swap executed in Q4 2019 in
Reinsurance, annuity sales and improved profitability in Group Customer Canada, and the sale of the U.S. individual life insurance and
annuity business, partially offset by higher sales leading to higher non-deferrable acquisition costs in Empower.
Experience gains of $108 in 2019 were $5 higher than 2018. The gains in 2019 were primarily a result of investment experience in Canada.
These gains were partially offset by unfavourable expense/fee-based experience in Europe, morbidity results in Canada and Europe, and
policyholder behaviour results in Canada and Europe. The gains in 2018 were primarily a result of investment experience in Canada and
the U.S. and morbidity results in Canada and Europe. These gains were partially offset by unfavourable expense/fee-based experience
and policyholder behaviour results in all regions.
Management actions and changes in assumptions contributed $104 to pre-tax earnings in 2019 compared to $717 in 2018.
In July 2019, the Canadian Actuarial Standards Board published revised standards for the valuation of insurance contract liabilities, with
an effective date of October 15, 2019. The revised standards included decreases to ultimate reinvestment rates and revised calibration
criteria for stochastic risk-free interest rates. These impacts are included in management actions and changes in assumptions.
The assumption changes and management actions were $(166) in Canada, $(15) in the U.S. and $285 in Europe.
In Canada, strengthening of policyholder behaviour and longevity assumptions were partially offset by favourable morbidity and
economic assumptions changes, net of the impact of the new standards.
In the U.S., strengthening of expense and tax, and mortality assumptions were offset by a partial settlement of an employee pension plan
and favourable economic assumption updates, net of the impact of the new standards.
In Europe, favourable updates to longevity and economic assumptions were partially offset by strengthening of expense and tax, and
life mortality assumptions.
Other of $(254) in 2019 is due to the sale of the U.S. individual life insurance and annuity business and restructuring costs at Putnam.
Earnings on surplus of $159 in 2019 was $69 higher than 2018 primarily due to higher gains on seed capital in Putnam and Canada
combined with higher investment income in Europe. In 2018, a gain arising from a debt refinancing in the U.S. occurred, which did
not repeat.
Taxes of $(206) in the U.S. in 2019 included the impact of the derecognition of deferred tax assets of $(199) related to Putnam.
172 Great-West Lifeco Inc. 2019 Annual Report
Five-Year Summary
(in Canadian $ millions except per share amounts)
At December 31
2019
2018
2017
2016
2015
Total assets under administration
$ 1,629,681
$ 1,398,873
$ 1,349,913
$ 1,248,239
$ 1,212,517
For the Year Ended December 31
Premiums and deposits:
Net premium income
(Life insurance, guaranteed annuities and insured health products)
Self-funded premium equivalents (Administrative services only contracts)
Segregated funds deposits:
$ 24,510
3,295
$
35,461
3,068
$
33,902
2,827
$
31,125
2,751
$
24,501
2,625
Individual products
Group products
Proprietary mutual funds and institutional deposits
Add back: U.S. Individual Life Insurance & Annuity Business –
initial reinsurance ceded premiums
Total premiums and deposits
16,947
7,738
84,259
13,889
16,668
7,807
76,258
17,037
7,848
61,490
13,512
7,846
62,232
12,983
8,609
56,257
–
–
–
–
$ 150,638
$ 139,262
$ 123,104
$ 117,466
$ 104,975
Condensed Statements of Earnings
Income
Total net premiums
Net investment income
Regular net investment income
Changes in fair value through profit or loss
Total net investment income
Fee and other income
Total income
Benefits and expenses
Paid or credited to policyholders
Other
Amortization of finite life intangible assets
Restructuring expenses
Loss on assets held for sale
Earnings before income taxes
Income taxes
Net earnings before non-controlling interests
Non-controlling interests
Net earnings – shareholders
Preferred share dividends
Net earnings – common shareholders
Earnings per common share
Return on common shareholders’ equity
Book value per common share
Dividends to common shareholders – per share
$ 24,510
$
35,461
$
33,902
$
31,125
$
24,501
6,161
6,946
13,107
7,081
44,698
33,091
8,451
224
52
–
2,880
373
2,507
15
2,492
133
$
2,359
$
2.494
11.7%
$
21.53
$
1.652
$
$
$
$
6,358
(3,606)
2,752
5,819
44,032
32,068
8,223
212
67
–
3,462
387
3,075
(19)
3,094
133
2,961
2.996
14.0%
22.08
1.556
6,141
1,466
7,607
5,608
47,117
35,643
8,115
168
259
202
2,730
422
2,308
30
2,278
129
2,149
2.173
10.9%
20.11
1.468
$
$
$
$
6,252
3,903
10,155
5,101
46,381
34,675
8,114
177
63
–
3,352
396
2,956
192
2,764
123
2,641
2.668
13.8%
19.76
1.384
$
$
$
$
6,271
(2,010)
4,261
5,058
33,820
22,842
7,326
146
35
–
3,471
460
3,011
123
2,888
126
2,762
2.774
14.7%
20.06
1.304
$
$
$
$
Great-West Lifeco Inc. 2019 Annual Report
173
Directors and Senior Officers
As of February 13, 2020
Board of Directors
R. Jeffrey Orr 3, 4, 5, 6
Chair of the Board, Lifeco
President and Chief Executive Officer,
Power Corporation of Canada
Michael R. Amend 5, 6
President, Online,
Lowe’s Companies, Inc.
Deborah J. Barrett, CPA, CA, ICD.D 1, 5, 6
Corporate Director
Heather E. Conway 5, 6
Corporate Director
Marcel R. Coutu 3, 4, 5, 6
Corporate Director
André Desmarais, O.C., O.Q. 3, 4, 5, 6
Deputy Chairman,
Power Corporation of Canada
Paul Desmarais, Jr., O.C., O.Q. 3, 4, 5, 6
Chairman,
Power Corporation of Canada
Gary A. Doer, O.M. 5
Senior Business Advisor,
Dentons Canada LLP
David G. Fuller 2, 5, 6
Corporate Director
Claude Généreux 4, 5, 6
Executive Vice-President,
Power Corporation of Canada
J. David A. Jackson, LL.B. 3, 4, 5, 6
Senior Counsel,
Blake, Cassels & Graydon LLP
Elizabeth C. Lempres 1, 2, 5, 6
Corporate Director
Paula B. Madoff 5, 6
Corporate Director
Paul A. Mahon 5
President and Chief Executive Officer,
Lifeco
Susan J. McArthur 4, 5, 6
Corporate Director
T. Timothy Ryan 3, 4, 5, 6
Corporate Director
Senior Officers
Paul A. Mahon
President and Chief Executive Officer
Arshil Jamal
President and Group Head,
Strategy, Investments, Reinsurance
and Corporate Development
David M. Harney
President and Chief Operating Officer,
Europe
Jeffrey F. Macoun
President and Chief Operating Officer,
Canada
Philip Armstrong
Executive Vice-President and
Global Chief Information Officer
Graham R. Bird
Executive Vice-President and
Chief Risk Officer
Sharon C. Geraghty
Executive Vice-President and
General Counsel
Garry MacNicholas
Executive Vice-President and
Chief Financial Officer
Edmund F. Murphy III
President and Chief Executive Officer,
Empower Retirement
Grace M. Palombo
Executive Vice-President and
Chief Human Resources Officer
Robert L. Reynolds
Chair,
Great-West Lifeco U.S. LLC
President and Chief Executive Officer,
Putnam Investments, LLC
174 Great-West Lifeco Inc. 2019 Annual Report
Jerome J. Selitto 2, 5, 6
President,
Better Mortgage Corporation
James M. Singh, CPA, CMA, FCMA(UK) 1, 2, 5, 6
Executive Chairman,
CSM Bakery Solutions Limited
Gregory D. Tretiak, FCPA, FCA 5, 6
Executive Vice-President and
Chief Financial Officer,
Power Corporation of Canada
Siim A. Vanaselja, FCPA, FCA 1, 5, 6
Corporate Director
Brian E. Walsh 3, 4, 5, 6
Principal and Chief Strategist,
Titan Advisors, LLC
Committees
1. Audit Committee
Chair: Siim A. Vanaselja
2. Conduct Review Committee
Chair: James M. Singh
3. Governance and Nominating Committee
Chair: R. Jeffrey Orr
4. Human Resources Committee
Chair: Claude Généreux
5. Investment Committee
Chair: Paula B. Madoff
6. Risk Committee
Chair: Gregory D. Tretiak
Nancy D. Russell
Senior Vice-President and
Chief Internal Auditor
Anne C. Sonnen
Senior Vice-President and
Chief Compliance Officer
Raman Srivastava
Executive Vice-President and
Global Chief Investment Officer
Dervla M. Tomlin
Executive Vice-President and
Chief Actuary
Jeremy W. Trickett
Senior Vice-President,
Corporate Secretary and
Chief Governance Officer
Shareholder Information
Registered Office
100 Osborne Street North
Winnipeg, Manitoba, Canada R3C 1V3
Phone: 204-946-1190
Website: greatwestlifeco.com
Stock Exchange Listings
Great-West Lifeco Inc. trades on the Toronto Stock Exchange (TSX) under the ticker symbol GWO.
The following shares are listed on the Toronto Stock Exchange: Common Shares (GWO); Non-Cumulative First Preferred Shares Series
F (GWO.PR.F), Series G (GWO.PR.G), Series H (GWO.PR.H), Series I (GWO.PR.I), Series L (GWO.PR.L), Series M (GWO.PR.M), Series N
(GWO.PR.N), Series O (GWO.PR.O),Series P (GWO.PR.P), Series Q (GWO.PR.Q), Series R (GWO.PR.R), Series S (GWO.PR.S) and Series
T (GWO.PR.T).
Shareholder Services
For information or assistance regarding your registered share account, including dividends, changes of address or ownership, share
certificates, direct registration, to eliminate duplicate mailings or to receive shareholder material electronically, please contact our
transfer agent in Canada, the United States, United Kingdom or in Ireland directly. If you hold your shares through a broker, please
contact your broker directly.
Transfer Agent and Registrar
The transfer agent and registrar of Great-West Lifeco Inc. is Computershare Investor Services Inc.
In Canada, the Common Shares and Non-Cumulative First Preferred Shares, Series F are transferable at the following locations:
Canadian Offices
Computershare Investor Services Inc.
Phone: 1-888-284-9137 (toll free in Canada and the United States), 514-982-9557 (direct dial)
100 University Avenue, 8th Floor, Toronto, Ontario M5J 2Y1
600, 530 8th Avenue S.W., Calgary, Alberta T2P 3S8
1500 Robert-Bourassa Boulevard, 7th Floor, Montréal, Québec H3A 3S8
2nd Floor, 510 Burrard Street, Vancouver, British Columbia V6C 3B9
The Non-Cumulative First Preferred Shares, Series G, H, I, L, M, N, O, P, Q, R, S and T are only transferable at the Toronto office of
Computershare Investor Services Inc.
Internationally, the Common Shares and Non-Cumulative First Preferred Shares, Series F are also transferable at the following locations:
United States Offices
Computershare Trust Company, N.A.
Phone: 1-888-284-9137 (toll free in Canada and the United States)
250 Royall Street, Canton MA 02021
480 Washington Boulevard, Jersey City NJ 07310
462 South 4th Street, Louisville KY 40202
United Kingdom Office
Computershare Investor Services PLC
Phone: 0370 702 0003
The Pavilions, Bridgwater Road, Bristol BS99 6ZZ
Ireland Office
Computershare Investor Services (Ireland) Limited
Phone: 216 3100
Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18
Shareholders wishing to contact the transfer agent by email can do so at GWO@computershare.com.
Great-West Lifeco Inc. 2019 Annual Report
175
Shareholder Information (cont’d)
Dividends
Common Shares and First Preferred Shares Series F, G, H, I, L, M, N, O, P, Q, R, S and T – Dividend record dates are usually between the 1st
and 3rd of March, June, September and December. Dividends are usually paid the last business day of each quarter.
Investor Information
Financial analysts, portfolio managers and other investors requiring information may contact Investor Relations by calling
416-552-3208 or emailing investorrelations@canadalife.com. Financial information may also be accessed at greatwestlifeco.com.
For copies of our annual or quarterly reports, visit greatwestlifeco.com or contact the Corporate Secretary’s Office at
corporate.secretary@canadalife.com.
Common Share Investment Data
2019
2018
2017
2016
2015
1 Ratio based on IFRS net earnings
2 Dividends as a percent of average high and low market price for the reporting period
Market price per common share ($)
High
34.38
35.51
37.74
37.03
37.52
Low
27.59
27.10
33.32
31.01
31.31
Close
33.26
28.18
35.10
35.17
34.53
Dividends
paid ($)
Dividend
payout ratio 1, 2
Dividend
yield 2
1.652
1.556
1.468
1.384
1.304
66.2%
51.9%
67.6%
51.9%
47.0%
5.3%
5.0%
4.1%
4.1%
3.8%
Trademarks contained in this report are owned by Great-West Lifeco Inc. or a member of the Power Corporation group of companies. Trademarks not owned by Great-West Lifeco Inc. are used with permission.
176 Great-West Lifeco Inc. 2019 Annual Report
GREAT-WEST LIFECO ORGANIZATIONAL CHART
Power Corporation of Canada
Great-West Lifeco Inc.
70.92%
ownership
The Canada Life Assurance Company
Great-West Lifeco Inc. U.S. LLC
GLC Asset
Management Group
Ltd.
Quadrus
Investment Services
Ltd.
Great-West Life &
Annuity Insurance
Company
Putnam
Investments, LLC
Financial Horizons
Group Inc.
Canada Life
Limited
GWL Realty
Advisors Inc.
Irish Life Assurance
p.l.c.
London Reinsurance
Group Inc.
The organizational chart shows the corporate
relationships between Great-West Lifeco and
certain of its subsidiaries as of January 1, 2020.
Great-West Lifeco beneficially owns, directly or
indirectly, 100% of the voting securities of each
such subsidiary.
Power Corporation of Canada indirectly controlled
70.92% of the outstanding common shares of
Great-West Lifeco, representing approximately
65% of the voting rights attached to all of the
outstanding voting shares of Great-West Lifeco as
of January 1, 2020.
Advised Assets
Group, LLC
Empower
Retirement, LLC
Great-West Capital
Management, LLC
Great-West Financial
Retirement Plan
Services, LLC
Great-West Life &
Annuity Insurance
Company of New York
Great-West Life
Trust Company, LLC
GWFS Equities, Inc.
100 Osborne Street North
Winnipeg Manitoba Canada R3C 1V3
greatwestlifeco.com
E987(19LIFECO)-3/20
A member of the Power Corporation Group of Companies®