On behalf of Great-West Lifeco, thank you
to all frontline health care and essential
workers. Your commitment and dedication
is an inspiration to us all.
100 Osborne Street North
Winnipeg Manitoba Canada R3C 1V3
greatwestlifeco.com
A member of the Power Corporation Group of Companies®
E987(20LIFECO)-3/21
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2020
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 2020, our companies had more than
24,500 employees, 205,000 advisor relationships,
and thousands of distribution partners – all
serving our more than 30 million customer
relationships across these regions. Great-West
Lifeco and its companies have approximately
$2.0 trillion in consolidated assets under
administration as at December 31, 2020,
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.
OUR BRANDS
Great-West Lifeco Inc. 2020 Annual Report
201
OUR BUSINESSES
Great-West Lifeco operates in Canada, the United
CONTENTS
States and Europe through Canada Life, Empower
Retirement, Putnam Investments and Irish Life.
CANADA
EUROPE
Canada Life is a leading
insurer with interests in life
insurance, health insurance,
retirement savings, and
investment management.
We proudly serve nearly one
in three Canadians from coast
to coast to coast. Canada Life
serves its customers through
over 23,000 advisors, and
serves group plan members
through approximately 27,000
employers across the country.
U.S.
Empower Retirement
serves all segments of the
U.S. employer-sponsored
retirement plan market and
offers individual retirement
accounts. Putnam is a U.S.-
based global asset manager
with a range of investment
management strategies
including fixed income,
equity, environmental,
social and governance (ESG),
and global asset allocation
and alternatives. The firm’s
affiliate, PanAgora provides
institutional investment
solutions including alternatives,
risk premia and active
strategies, spanning all major
asset classes and risk ranges.
European subsidiaries of
Canada Life and Irish Life
provide insurance and wealth
management products
including pensions, home
finance, payout annuities,
investments and group
and indivdual insurance in
the U.K.; investments, and
group insurance in the U.K.;
investments, and group and
individual insurance in the Isle
of Man; pensions, critical illness,
disability and life insurance
in Germany; and life and
health insurance, pension and
investment products in Ireland.
CAPITAL AND RISK
SOLUTIONS
The Capital and Risk Solutions
business unit provides
reinsurance covering mortality,
longevity, health and lapse
risks for insurers, reinsurers
and pension funds and
operates primarily in the
U.S., Barbados, Bermuda,
and Ireland. Its reinsurance
business is conducted through
branches and subsidiaries of
Canada Life.
Financial Highlights
Directors’ Report
to Shareholders
Encouraging
Sustainability
3
4
7
Benefiting from Stable
and Effective Governance 8
Advancing Focus on
Diversity and Inclusion
Supporting our
Communities
9
9
Elevating the Workplace
Benefits Experience
10
Equipping Customers
with Advice and
Wealth Solutions
12
Providing Investment
and Asset
Management Expertise 14
Offering Capital
and Risk Solutions
16
Management's
Discussion and Analysis 17
Financial Reporting
Responsibility
Consolidated
Financial Statements
Independent
Auditor’s Report
Sources of Earnings
Five-Year Summary
Directors and
Senior Officers
Shareholder
Information
Our Brands
107
108
191
195
197
198
199
201
The financial information in this
report is presented in millions of
Canadian dollars for the period
ended December 31, 2020, unless
otherwise indicated.
Readers are referred to the
Cautionary Notes regarding
forward-looking information
and non-IFRS financial
measures on page 18.
Great-West Lifeco Inc. 2020 Annual Report
1
Year at
a glance
30M+
Customer
relationships
$39B+
Benefits paid
to customers
$17.5M+
Contributed
to communities
205,000+
Advisor relationships
supporting our customers
24,500+
Employees supporting
our customers
170+
Years of delivering on
our promises
$2.943B
Net earnings
$2.669B
Base earnings*
greatwestlifeco.com
Visit our website to get a digital copy of our annual report and access
more information, such as our current credit ratings.
*Base earnings is a non-IFRS measure.
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.
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.
Earnings Per
Common Share
$3.17
2020
Annual Dividend Yield
of Common Shares
5-Year Compound
Annual Growth Rate
6.4% 6.08%
2020
$2.67
$2.17
$3.00
$2.49
$1.384
$1.468
$1.556
2016
2017
2018
2019
2016
2017
2018
Return on Common Shareholders' Equity
14.1%
2020
13.8%
10.9%
14.0%
11.7%
$1.652
$1.752
2019
2020
Total Assets Under Administration (in Trillions)
$1.976T
2016
2017
2018
2019
2020
DIVERSIFIED EARNINGS
BY GEOGRAPHY*
$1.248
$1.350
$1.399
$1.630
2016
2017
2018
2019
Premiums and Deposits (in Billions)
$171.3B
2020
$117.5
$123.1
$139.3
$150.6
2016
2017
2018
2019
Canada
Europe
Capital and
Risk Solutions
United States
45%
Canada
25%
Europe
20%
Capital
and Risk
Solutions
10%
United
States
*Reflects 2020 base earnings – a non-IFRS measure.
Great-West Lifeco Inc. 2020 Annual Report
3
DIRECTORS’ REPORT TO SHAREHOLDERS
Jeffrey Orr
Chair of
the Board
Paul Mahon
President and
Chief Executive
Officer
At the heart of Great-West Lifeco’s trusted market leadership are strong brands,
a diversified portfolio, and strategies to meet customers’ evolving needs.
Significant investments over
recent years have positioned
our businesses for growth
and resiliency in support
of increasing shareholder
value. Despite the challenges
stemming from the COVID-19
pandemic, 2020 was a year
of significant progress as we
advanced our strategies.
As we look to the future,
we remain confident in our
ability to grow and deliver
for all our stakeholders.
RESPONSE TO THE COVID-19
PANDEMIC
Our top priority during the
pandemic has been the health
and safety of our employees,
advisors, customers, and
communities. To achieve this,
we quickly transitioned to
98% of our more than 24,500
employees working from
home with a focus on seamless
customer and advisor service
and support. Further, we quickly
responded to those in need and
ensured our actions aligned
with government policies
to help support individuals,
businesses, and economies.
While the past year created
volatile market conditions,
our diversified businesses
remained stable and resilient,
supported by financial
strength and discipline, and
underpinned by trusted
customer relationships built
over 170 years. We pivoted
to remote operations thanks
to important technology
investments, supported by
robust risk and expense
management practices.
While the COVID-19 pandemic
has created significant
hardship for many, it also
created opportunities to
innovate and position
ourselves for tomorrow.
LEVERAGING EXISTING
STRENGTHS
In Canada, we’ve seen a
marked increase in digital
adoption as a majority of
customers and advisors
used tools like our
SimpleProtect online life
insurance application.
Investment in technology
has been key to delivering
a secure, seamless advisor
and customer experience.
At Empower, our U.S.
retirement market leadership
position was recognized by
financial advisors, as their top
choice of recordkeeper across
five of six categories in the
4
Great-West Lifeco Inc. 2020 Annual Report
Financial Advisor IQ Service
Awards survey.
At Putnam Investments,
our unwavering focus on
generating strong, risk-
adjusted investment returns
through active management
led to strong performance
relative to peers, as evidenced
by the firm’s 26 four- or
five-star rated funds by
Morningstar at the end of
December 2020.
In Ireland, the One Irish Life
program delivers an integrated
customer experience across
products, while our U.K.
transformation program
continues to build out a
differentiated retirement-
focused wealth offering
to better meet customer
needs as they transition to
retirement. And in Germany,
we’re nearing completion of
our future technology system
implementation to support
our growth in the growing
group pension savings market.
Our performance during
the pandemic has deepened
customer connections and
aligned with our efforts to
strengthen brand affinity
and awareness. Canada Life’s
“For Life as You Know It”
Canadian campaign received
strong positive feedback and
Empower Retirement’s first
consumer marketing campaign
strengthened its positive,
growing U.S. brand perception.
Moreover, these advances
bolstered our reputation
as a choice employer,
strengthening our talent
attraction and retention, as
reflected by our best ever
employee engagement scores.
CREATING VALUE
THROUGH MERGERS
AND ACQUISITIONS
Over the past year, we’ve
deployed capital through
targeted mergers and
acquisitions to support both
near- and long-term growth
and value creation.
In Canada, we’ve elevated our
wealth management strategies
through the combination of
GLC Asset Management with
Mackenzie Investments and
the establishment of our new
mutual fund manager, Canada
Life Investment Management
Ltd. This transaction provides
us with access to greater
scale and more diversified
investment capabilities and
allows us to directly control
our mutual fund product
shelf. During 2020, we
launched 18 new mutual
funds to provide advisors and
customers with more choices
to meet their investment
goals. In addition, our
ownership stake in Northleaf
Capital provides us with access
to differentiated alternative
asset solutions to support
more competitive product
and balance sheet solutions.
In the U.S., Empower
Retirement’s acquisition of
MassMutual’s retirement
services business expands
our reach to over 12 million
Americans and is expected to
be highly accretive to Lifeco’s
earnings. Empower also
acquired Personal Capital,
a hybrid wealth manager
combining a vanguard digital
experience with personalized
advice from human advisors.
Together, these transactions
accelerate Empower’s strategy
to deliver digital retail advice
and strengthen our number
two position in the U.S.
retirement market.
SUPPORTING
SUSTAINABILITY
AND DIVERSITY IN
OUR COMMUNITIES
Today’s decisions have lasting
implications – that’s why
we’re refining our corporate
social responsibility priorities
to respond to challenges and
opportunities. Our goal is to
deliver meaningful, positive
impacts on our business,
stakeholders, the environment
and society.
We’re committed to
promoting financial, physical,
and mental well-being;
making positive social and
environmental contributions
to communities through
investments, sponsorships,
donations and volunteerism;
fostering workplace
diversity and inclusion; and
supporting the transition
to a paperless workplace
and a low-carbon economy.
We’re proud of the diversity
and inclusion initiatives and
Great-West Lifeco Inc. 2020 Annual Report
5
strides we’ve taken, including
Canada Life’s becoming a
signatory of the BlackNorth
Initiative in Canada. We’re
also pleased our wide-
ranging national and regional
charitable donations and
volunteerism have helped
communities better navigate
pandemic-related challenges.
to focus on employee and
customer safety. And we’ll
continue to drive forward with
a focused, strategic approach
to growth and value creation
from a strong foundation of
trusted products and services,
market-leading brands, and
exceptional people.
THANK YOU
LOOKING TO THE FUTURE
As our world transitions to a
more stable post-pandemic
environment, we’ll continue
Thank you to our employees
and advisors for their
commitment to customers,
and to our customers and
shareholders for your
continued confidence in us.
We look forward to continuing
to deliver on our promises.
Jeffrey Orr
Chair of the Board
Paul Mahon
President and
Chief Executive Officer
RESPONDING TO CLIENT AND COMMUNITY NEEDS IN 2020
Transitioned to remote
valuations for equity
release mortgages if
traditional approach
was not feasible.
Waived fees on new U.S.
retirement plan loans and
hardship withdrawals.
Purchased six oxygen
concentrators for Queen
Elizabeth Hospital
in Barbados.
Invested in placing
community defibrillators
in Dublin.
Extended call centre
hours to handle higher
call volumes.
Extended grace
periods for life
insurance premiums.
Provided mortgage
payment deferrals.
Enabled customers to
connect with healthcare
professionals safely, via
virtual health care apps.
Reduced employer health
insurance premiums to
reflect reduced usage
of health and dental
services due to mandated
closures and business
interruptions.
Rebated individual health
insurance premiums
following temporary
nationalization of private
hospitals in Ireland.
Provided apartments for
Irish healthcare workers
to safely isolate and
supported Irish Life's
medically qualified staff
to temporarily return to
working on the front line.
Donated over $2M
to relief efforts in
communities across
Canada, the U.S.,
the U.K., and Ireland
to support food banks,
frontline workers, those
most vulnerable and
small businesses.
6
Great-West Lifeco Inc. 2020 Annual Report
ENCOURAGING
SUSTAINABILITY
Great-West Lifeco is committed to incorporating
environmental, social and governance (ESG)
considerations into our investment, business
and community initiatives. From making socially
and environmentally responsible choices at
work, to charitable giving and volunteering,
our goal is to make a positive impact where we
live and work.
SIGNATORIES TO U.N.-SUPPORTED PRINCIPLES FOR RESPONSIBLE INVESTMENT
•
Irish Life Investment Managers (2010)
• Putnam Investments (2011)
• PanAgora Asset Management (2011)
• Setanta Asset Management Ltd (2020)
SUPPORTING CLIMATE-RELATED
FINANCIAL DISCLOSURES
Great-West Lifeco respects the environment
and takes a balanced, sustainable approach
to everything we do. In 2020, we re-affirmed
our commitment to these values by becoming
an official supporter of the Financial Stability
Board’s Taskforce on Climate-related Financial
Disclosures recommendations.
COMMITTED TO SUSTAINABLE
REAL ESTATE INVESTMENT MANAGEMENT
AND PERFORMANCE
In 2020, the Global Real Estate Sustainability
Benchmark (GRESB) awarded ‘Green Star’
ratings to Canada Life Asset Management’s
(U.K.), Property ACS and IA Funds; Irish Life
Investment Manager’s, Irish Life Pension Fund
and Irish Residential Property Fund; and,
GWL Realty Advisors’, GWL Canadian Real
Estate Investment Fund No. 1 (CREIF) and
its managed portfolio.
Great-West Lifeco Inc. 2020 Annual Report
7
DEMONSTRATING LEADERSHIP IN
CLIMATE-RELATED DISCLOSURES
The non-profit CDP (formerly the Carbon
Disclosure Project) rates companies on
their management of carbon and climate
change risk. Great-West Lifeco is pleased
to have ranked on their prestigious ‘A-List’,
both as the highest rated Canadian
insurance company for a sixth year running,
and amongst the top five per cent of
companies globally.
INVESTING IN RENEWABLE ENERGY
In 2020, our general account had over $4 billion
in renewable energy investments through our
private debt group. We’re always exploring
portfolio expansion opportunities, and our
asset management affiliates continue to
broaden their ESG investment capabilities and
product offerings, managing assets of over
$75 billion in ESG-related strategies.
BENEFITING FROM STABLE AND EFFECTIVE GOVERNANCE
EFFECTIVE GOVERNANCE KEY
TO CREATING VALUE
We understand that good corporate
governance is important. Effective governance
is key to creating consistently strong long-
term performance and for developing positive
outcomes for our shareholders, policyholders,
customers, employees and for the communities
in which we operate. Our Board of Directors,
through its decision-making and oversight
of management, leads our companies. Our
sincere thanks go out to our Directors for their
valuable contributions. At our 2020 Annual
Meeting Ms. Robin Bienfait, Chief Executive
Officer of Emnovate and a Director of Putnam
Investments and Empower Retirement, was
elected as a Director of Great-West Lifeco.
8
Great-West Lifeco Inc. 2020 Annual Report
ADVANCING FOCUS ON DIVERSITY AND INCLUSION
CANADA LIFE SIGNS ON TO NATIONAL
BLACKNORTH INITIATIVE
PUTNAM HELPS FOSTER LITERACY,
DIVERSITY IN FINANCIAL SERVICES
Canada Life joined 200 major Canadian
companies in pledging its support for the
Canada-wide BlackNorth Initiative (BNI), led
by The Canadian Council of Business Leaders
Against Anti-Black Systemic Racism. As a first
step, Canada Life formed a new employee
resource group (ERG) for Black and Persons
of Colour, alongside its ERGs for Women in
Leadership, LGBTQ2+, Indigenous Peoples,
Persons with Disabilities and Young Professionals.
A signatory of the Winnipeg Indigenous Accord,
Canada Life also continues to focus on the equity
and advancement of Indigenous peoples across
Canada, including through a contribution to
Circles for Reconciliation.
Giving back is
a central tenet
of Putnam's
philosophy.
Putnam's new
community
partnerships with Invest in Girls, BLK Capital
and The Toigo Foundation are focused on
strengthening financial literacy and diversity
in financial services through donations and
employee volunteerism. The partnerships span
across high school to university students, along
with women, people of color and those who
are financially disadvantaged.
SUPPORTING OUR COMMUNITIES
EMPOWER SUPPORTS PUERTO RICO
DISASTER RELIEF
According to reports, more than 1,000
earthquakes hit Puerto Rico in 2020, including
a 6.4 magnitude tremor. As a demonstration of
care for Empower associates and clients living
in the U.S. territory, Empower pledged financial
support to the American Red Cross’ disaster
relief efforts to help rebuild the island.
FUNDRAISER MARKS 20 YEAR MILESTONE
IN GERMANY
To celebrate two decades of success, Canada
Life expanded its annual #MACHSMOEGLICH
(“Make it happen”) fundraiser. Since 2017, the
public has voted for the top winning charities
based on goals for health, education and
humanitarian efforts, among others. This year,
the campaign raised funds for 120 initiatives.
Great-West Lifeco Inc. 2020 Annual Report
9
ELEVATING THE WORKPLACE
BENEFITS EXPERIENCE
Great-West Lifeco’s businesses are leaders in
group benefits markets in every region where we
operate. Our success comes from our proactive
approach to meeting customer needs and our
ability to grow market share even in challenging
environments. Our continued investments in new, innovative products broadens
the range of customers we reach with workplace-delivered advice and solutions.
EMPOWER RETIREMENT
CANADA LIFE U.K.
• 12M+ retirement
plan participants
• Second largest U.S.
retirement services provider
CANADA LIFE
• Approximately 27,000
employer and association
customers
• Serves over 12 million Canadians
• 2.9M employees covered
• Largest U.K. group insurance
provider
IRISH LIFE
• A leading Irish group
pension provider
• €1B+ in pension benefits paid
over last 5 years.
Serves employees at:
• 8 of the 10 biggest Irish companies (ISEQ)
• 9 of the 10 biggest U.S. companies
operating in Ireland (S&P500).
U.S. RETIREMENT BUSINESS ACQUISITIONS DRIVE U.S. GROWTH
In 2020, Empower announced it would acquire
MassMutual’s retirement services business. The
acquisition capitalizes on both firms' retirement
expertise, technological excellence and product
capabilities. The move creates scale to better
serve more American savers, and employers
who sponsor retirement plans. MassMutual’s
retirement business comprises 26,000 clients
with approximately 2.5 million participants
and $245 million in assets.
Empower also acquired the retirement plan
recordkeeping businesses of Fifth Third Bank
of Cincinnati and Trust Bank in Charlotte,
following decades of long-standing support
for these former clients. Combined, they
represent approximately $14 billion in assets
held in more than 800 retirement plans on
behalf of 171,000 participants.
10
Great-West Lifeco Inc. 2020 Annual Report
CANADA LIFE RESP A FIRST
FOR WORKPLACE BENEFITS
Canada’s first fully digital employer-sponsored
registered education savings plan (RESP) by
Canada Life allows employers to help their
employees save for children’s post-secondary
education. Not only do employees gain access
to traditional RESP advantages like applicable
Canadian government education grants and
tax-sheltered earnings on contributions, they
also enjoy Canada Life’s low investment fees,
convenient payroll deduction and ease of a
fully digital experience.
EMPOWER NAMED RETIREMENT LEADER
OF THE YEAR
The Mutual Fund Industry Retirement Leader
of the Year Award recognizes outstanding
business leaders, the best creative minds and
the top performers across the financial services
industry. Empower was chosen for its significant
public policy advocacy, as well as for making
a key impact on growing retirement assets
with unique retirement solutions, marketing
campaigns and significant contributions to the
retirement industry at large.
PERSONALIZED ADVICE TAILORED
TO CUSTOMERS’ NEEDS
Canada Life’s new plan member guidance
and solution team offers personalized
guidance to help plan members navigate
their benefit plans and advice in selecting
personal group insurance benefits to address
gaps in protection. Voluntary protection
solutions include optional life, critical illness,
and accidental death and dismemberment
insurance and are available to individual plan
members at no extra cost or administrative
work for their plan sponsor. Best of all,
coverage can remain in place even if they
leave their group benefits plan or the
plan terminates.
CANADA LIFE PARTNERS WITH DWERK
Employees in Germany can now access Canada
Life occupational pension advice and guidance
through dWERK, an online consultation
platform with multiple associated pension
providers. Digital video consulting makes it
easier for advisers to serve employees in plans of
all sizes, and a virtual moderator provides legally
compliant advice on occupational pensions.
Employees can asses individual offers and
conclude their pension contract directly online.
CLASS CUSTOMERS KNOW WECARE
WITH VIRTUAL SERVICES
In 2020, Canada Life U.K. made its WeCare
virtual health and well-being services
permanently available to all customers on
CLASS, its online group insurance platform.
Whether they are insured under a policy or
not, employees and their families on CLASS
can access a range of support such as physician
and second medical opinion consultations,
and mental health, smoking, diet and fitness
counseling and programs.
Great-West Lifeco Inc. 2020 Annual Report
11
EQUIPPING CUSTOMERS WITH
ADVICE AND WEALTH SOLUTIONS
Our purpose is clear: to meet customers and advisors’ diverse, changing needs with
innovative insurance and wealth solutions. By offering a broad suite of products
and services available through multiple distribution channels, we provide advice
and product solutions that meet our customers’ needs in all stages of life.
ACQUIRING PERSONAL CAPITAL
EXPANDS ADVICE, WEALTH
SUPPORTING ADVISORS' USE
OF SOCIAL MEDIA
To better serve individual investors and
retirement plan participants, Empower acquired
Personal Capital, an industry-leading registered
investment adviser and digital wealth manager.
The June transaction combines Empower’s
leading retirement plan services and integrated
financial tools with Personal Capital’s rapidly
growing, digitally oriented personal wealth
management platform. Through this, Empower
adds a best-in-class hybrid digital wealth
management platform through a direct-to-
consumer wealth management business focused
on the large mass affluent market.
Putnam frequently incorporates research
findings in practice management seminars
to help their associated financial advisors
build their businesses. Putnam examined
financial advisors’ use of social media during
the 2020 pandemic to help clients weather
the financial and emotional impact of the
crisis. Putnam found social media outreach
was critical to advisors’ success, not only
in communicating with prospects but in
advancing client relationships.
ENHANCING ADVISORS’ BUSINESS TO
BETTER SERVE CANADIANS
STRENGTHENING OUR CANADIAN
WEALTH STRATEGY
Advisory Network is changing the way Canada
Life does business, and giving advisors the
expertise and resources to grow and give
Canadians valuable advice. Its new Advisor
Workspace platform provides Freedom and
WISE advisors with easy access to digital tools
to support client engagement and book
management. Additionally, its centralized new
financial solutions center team manages smaller
client accounts, giving advisors more time to
meet compliance and customer expectations.
In 2020, Canada Life established Canada Life
Investment Management Ltd., alongside its
sale of subsidiary, GLC Asset Management,
to affiliate, Mackenzie Investments. The
transaction will provide access to the increased
scale and investment capabilities of both GLC
and Mackenzie combined. Canada Life will also
leverage Mackenzie's administration expertise
going forward.
The new Canada Life Mutual Fund shelf was also
launched, featuring 18 new mutual funds and
nine new global offerings added to the Canada
Life Segregated Fund shelf. Across its wealth
business, Canada Life has new, curated selection
of competitive investment strategies across a
range of managers and asset classes and styles.
12
Great-West Lifeco Inc. 2020 Annual Report
OLIVIA DELIVERS PERSONALIZED
AI-POWERED ADVICE
INTRODUCING EXCLUSIVE CANLIFE
BREWIN DOLPHIN FUNDS
Artificial Intelligence (AI), and particularly
machine learning, is a key focus to help enhance
Irish Life’s customer experience and efficiency.
The Olivia personal financial assistant uses AI
and open banking protocols to provide advice,
identifying financial opportunities through
customer bank transaction data. The pilot app
saw a 40 per cent activation rate post-download
with a 50 per cent monthly active usage and
40 per cent retention rate. Early experiments
linking conversations to Irish Life product
offerings like its investing app showed promise,
enabling the business to better understand and
engage with current and potential customers.
The 2020 launch of 'CanLife Brewin Dolphin' Funds,
an exclusive range of 14 U.K. pension funds, is the
first time a retirement provider has partnered
with Brewin Dolphin’s managed portfolio service
outside a fund platform. The new range gives
advisers flexible access to insured funds aligned
to Brewin Dolphin’s industry-leading managed
portfolio service, including seven respective
active and passive focused multi-asset options,
adjusted for different risk profiles. The funds
are available only in the Canada Life Retirement
Account, the unique standalone pension savings
and drawdown product which also offers a
guaranteed income.
YOUNG CLIENTS LEARN TO “RELAX…”
WITH RISK SOLUTIONS CAMPAIGN
In Germany, Canada Life created a vibrant
campaign to help brokers connect with
young clients who may not understand the
importance of income protection. This risk
solution campaign helps break through the
noise and clutter to capture their attention
with a set of colourful and simple visuals
and materials that can be personalized, and
that explain the topic in a relaxed and simple
manner, through items like e-cards.
BUILDING BETTER
FUTURES WITH MY
LIFE PLANNER
My Life Planner is Irish
Life’s first digital tool
to help customers
assess their insurance,
retirement and
investment needs all
in one place. The interactive
tool has helped thousands of customers
and potential customers plan for a better
financial future by identifying their needs
and connecting them with financial advisors
to discuss product solutions.
Great-West Lifeco Inc. 2020 Annual Report
13
PROVIDING INVESTMENT AND
ASSET MANAGEMENT EXPERTISE
Great-West Lifeco’s strong foundation of a diverse array
of investments and assets help fuel other strategic focus
areas. With an aggregate of approximately $2.0 trillion
in assets under administration (AUA) including approximately $952 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 prudent processes designed to weather market
cycles. Combined with environmental, social and governance (ESG) considerations, this
purposeful approach is our blueprint for enhanced growth and revenue opportunities.
AUM BY REGION
$195B
$249B
$493B
Canada
Europe
U.S.
$15B
Capital and
Risk Solutions
BUILDING OUT A GLOBAL
REAL ESTATE PLATFORM
One strategic focus is our global real estate
platform, which we are building to service
investors needs for allocation and diversification
into alternative assets. Combined, we are
managing more than $27.4 billion in real estate
globally as at December 31, 2020, with an
additional $1.2 billion in developments underway.
DELIVERING STRONG PERFORMANCE
Putnam Investments continued to generate strong
long-term investment performance across asset
classes relative to its peers in 2020. Over 90 per
cent of Putnam's fund assets performed above
the Lipper median on a five- and ten-year basis.
Additionally, more than 75 per cent of Putnam’s
fund assets performed in the Lipper top quartile
over ten years. Further, 26 Putnam mutual funds
were ranked four or five-stars by Morningstar, an
industry research and rating company.
*As at December 31, 2020.
INCREASING OUR PRESENCE IN PRIVATE
MARKETS INVESTMENT INDUSTRY
Another area of strategic focus is the
growing private markets investment industry.
In 2020, together with Mackenzie Financial
Corporation, we closed the acquisition of
an interest in Northleaf Capital Partners
Ltd., an independent global private markets
investments firm with $17 billion in private
equity, private credit and infrastructure
commitments under management.
Northleaf's portfolio includes more than
400 active investments in 35 countries, with
a focus on mid-market companies and assets.
14
Great-West Lifeco Inc. 2020 Annual Report
RESPONDING TO DEMAND:
LF CANLIFE DIVERSIFIED
MONTHLY INCOME FUND
IRISH LIFE GROUP
SWEEPS 2020 IRISH
PENSION AWARDS
In the U.K., Canada Life manages £40
billion in fixed income, equities,
U.K. property and multi-asset solutions.
Despite unprecedented conditions, its
newest multi-asset fund, the LF Canlife
Diversified Monthly Income Fund,
finished the year firmly in the first
quartile compared to other monthly
paying funds in the IA Mixed Investment
20%–60% Shares Sector.
Built on a diversified portfolio of income-
generating assets, the fund includes global
company shares, international government
and corporate bonds, and property. It was
developed in response to rising demand
for income drawdown choices as people
increasingly control their retirement
savings, while traditional income strategies
become more challenging partly because
of low interest rates.
INTRODUCING CANADA LIFE’S
NEW INVESTMENT
MANAGEMENT COMPANY
At over $125 billion in assets managed,
Canada Life's disciplined, purposeful
long-term investments support economic
growth while helping Canadians
reach their financial goals. In 2020,
the company launched Canada Life
Investment Management Ltd. Together
with GWL Realty Advisors, the new firm
manages a spectrum of fixed income,
equity, real estate, asset-allocation and
specialty investment funds.
Irish Life was delighted to pick up several top
honours at the 10th annual Irish Pension Awards.
Recognizing excellence and professionalism in the
pension industry, across funds, providers, advisers
and pension professionals, the Irish Life Group
won in four key categories:
•
Investment Manager of the Year to Irish
Life Investment Managers for the sixth time
in the last eight years.
• Excellence in Defined Contribution to Irish
Life Corporate Business for outstanding
provision of DC services.
• Equities Manager of the Year to Setanta
Asset Management for third consecutive year.
• Pension Broker of the Year to Invesco
Wealth Management.
AWARD WINNING
INVESTMENT PERFORMANCE
PanAgora Asset Management continues to
deliver competitive investment performance
across asset classes relative to its peers.
PanAgora’s Stock Selector Emerging Markets
Equity was the winner of the 2020 Pension
Bridge Institutional Asset Management award
in the Emerging Markets Equity Strategy of
the Year category.
Great-West Lifeco Inc. 2020 Annual Report
15
OFFERING CAPITAL
AND RISK SOLUTIONS
Our businesses are global market leaders with
decades of expertise and scale in providing
longevity and capital solutions, and a consistent
record of strong earnings. Our focus remains
on expanding diversification strategies in key
markets and deploying capital to improve
portfolio quality to advance growth.
OUR RANKINGS:
TOP 10
global reinsurer*
TOP 6
life reinsurer*
TOP 2
U.S. life structured solutions
*Based on all gross reinsurance/life-focused reinsurance premiums written per A.M. Best’s 2019 Rankings: top 50 World’s Largest Reinsurer Groups.
NEW CAPITAL AND RISK SOLUTIONS
BUREAU OPENS IN BERMUDA
In 2020, the Canada Life International
Reinsurance Corporation Ltd. was established
in Bermuda to help improve efficiency for
certain types of reinsurance transactions.
The Canada Life Capital and Risk Solutions
business unit sells reinsurance covering
mortality, longevity, health and lapse risks for
insurers, reinsurers and pension funds across
the U.S. and Europe, including Belgium, France,
Germany, Ireland, Italy, the Netherlands,
Portugal, Spain, Sweden and the U.K., as well
as Barbados and now Bermuda. It continues
to have a strong new business pipeline.
16
Great-West Lifeco Inc. 2020 Annual Report
REINSURANCE AGREEMENTS HELP
MORE THAN 90,000 IN-PAYMENT
AND DEFERRED PENSIONERS
In 2020, the Capital and Risk Solutions business
segment secured three major European
long-term longevity reinsurance agreements
with over $15 billion of in-force liabilities
combined. Altogether, over 92,000 in-payment
and deferred pensioners will be reinsured
by Capital and Risk Solutions under these
agreements. The transactions highlight Capital
and Risk Solutions' strength as a partner for
reinsurance longevity transactions globally.
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,
2020 and includes a comparison to the corresponding periods
in 2019, to the three months ended September 30, 2020, and to
the Company’s financial condition as at December 31, 2019. This
MD&A provides an overall discussion, followed by analysis of the
performance of Lifeco’s four major reportable segments: Canada,
United States (U.S.), Europe and Capital and Risk Solutions.
Effective January 1, 2020, as a result of strategic operational
changes, the Company has divided the previously reported
Europe segment into two separate reporting segments – Europe
and Capital and Risk Solutions.
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 January 1, 2020, The Great-West Life Assurance Company
(Great-West Life), London Life Insurance Company (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.
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. Personal Capital Corporation,
acquired in 2020, is a hybrid wealth manager that combines a
leading-edge digital experience with personalized advice. Its
products and services are marketed nationwide through its sales
force, brokers, consultants, advisors, third-party administrators
and financial
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.
institutions. Putnam provides
The Europe segment is comprised of three distinct business units
serving customers in the United Kingdom, Ireland and Germany
respectively and offering protection and wealth management
products, including payout annuity products. The UK and German
units operate under the Canada Life brand and Irish unit operates
under the Irish Life brand.
The Capital and Risk Solutions segment includes the Reinsurance
business unit, which operates primarily in the U.S., Barbados,
Bermuda and Ireland. Reinsurance products are provided through
Canada Life and its subsidiaries. The Company’s business includes
both reinsurance and retrocession business transacted directly
with clients or through reinsurance brokers. As a retrocessionaire,
the Company provides reinsurance to other reinsurers to enable
those companies to manage their insurance risk.
Lifeco currently has no other material holdings and carries on
no business or activities unrelated to its holdings in 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 annual consolidated
financial statements for the period ended December 31, 2020.
Great-West Lifeco Inc. 2020 Annual Report
17
Management’s Discussion and Analysis
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 “will”, “may”, “expects”, “anticipates”, “intends”, “plans”, “believes”, “estimates”,
“objective”, “target”, “potential” 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, anticipated global economic conditions and possible future actions by the Company, including statements
made with respect to the expected cost (including deferred consideration), benefits, timing of integration activities and revenue and expense
synergies of acquisitions and divestitures, including the recent acquisitions of Personal Capital Corporation (Personal Capital) and the retirement
services business of Massachusetts Mutual Life Insurance Company (MassMutual), expected capital management activities and use of capital,
expected dividend levels, expected cost reductions and savings, expected expenditures or investments (including but not limited to investment in
technology infrastructure and digital capabilities), the impact of regulatory developments on the Company’s business strategy and growth objectives,
the expected impact of the current pandemic health event resulting from the novel coronavirus (“COVID-19”) and related economic and market
impacts on the Company’s business operations, financial results and financial condition.
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, mutual fund and retirement solutions 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. 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. Whether or not actual results differ from forward-looking information may depend
on numerous factors, developments and assumptions, including, without limitation, the severity, magnitude and impact of the novel coronavirus
(COVID-19) pandemic (including the effects of the COVID-19 pandemic and the effects of governments’ and other businesses’ responses to the
COVID-19 pandemic on the economy and the Company’s financial results, financial condition and operations), assumptions around sales, fee rates,
asset breakdowns, lapses, plan contributions, redemptions and market returns, the ability to integrate the acquisitions of Personal Capital and the
retirement services business of MassMutual, the ability to leverage Empower Retirement’s, Personal Capital’s and MassMutual’s retirement services
businesses and achieve anticipated synergies, customer behaviour (including customer response to new products), the Company’s reputation, market
prices for products provided, sales levels, premium income, fee income, expense levels, mortality experience, morbidity experience, policy and plan
lapse rates, participant net contribution, reinsurance arrangements, liquidity requirements, capital requirements, credit ratings, taxes, inflation,
interest and foreign exchange rates, investment values, hedging activities, global equity and capital markets (including continued access to equity
and debt markets), industry sector and individual debt issuers’ financial conditions (including developments and volatility arising from the COVID-19
pandemic, particularly in certain industries that may comprise part of the Company’s investment portfolio), the United Kingdom’s exit (“Brexit”)
from the European Union, business competition, 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, unplanned material
changes to the Company’s facilities, customer and employee relations or credit arrangements, levels of administrative and operational efficiencies,
changes in trade organizations, and other general economic, political and market factors in North America and internationally.
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” and in the Company’s annual information form dated February 10, 2021 under “Risk Factors”, 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, “base earnings (loss)”, “base earnings (loss)(US$)”, “base earnings per common share”, “return on equity”, “base return on equity”, “core
net earnings (loss)”, “constant currency basis”, “impact of currency movement”, “premiums and deposits”, “pre-tax operating margin”, “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.
18
Great-West Lifeco Inc. 2020 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
Base earnings (1) (2)
Net earnings – common shareholders
Per common share
Basic:
Base earnings (1) (2)
Net earnings
Diluted net earnings
Dividends paid
Book value
Base return on equity (1) (2) (3)
Return on equity (1) (3)
As at or for the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
$
$
741
912
$
$
679
826
$
$
831
513
$
$
2,669
2,943
$
$
2,704
2,359
0.799
0.983
0.983
0.438
22.97
12.8%
14.1%
0.732
0.891
0.891
0.438
22.57
13.5%
12.4%
0.895
0.552
0.552
0.413
21.53
13.4%
11.7%
2.878
3.173
3.172
1.752
2.859
2.494
2.493
1.652
Total premiums and deposits (1) (5)
Fee and other income
Net policyholder benefits, dividends and experience refunds
$
40,831
1,569
9,916
$
40,903
1,486
9,155
$
39,096
1,515
10,003
$ 171,345
5,902
38,159
$ 150,638
7,081
36,415
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
The Canada Life Assurance Company
consolidated LICAT Ratio (4)
$ 600,490
350,943
$ 473,737
341,436
$ 451,167
320,548
951,433
1,024,414
815,173
845,862
771,715
857,966
$ 1,975,847
$ 1,661,035
$ 1,629,681
$
27,015
$
26,648
$
25,543
129%
131%
135%
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
(2) Effective the first quarter of 2020, the Company introduced an enhanced non-IFRS earnings measure. Base earnings (loss) are defined as net earnings excluding the impact of actuarial assumption changes and
other management actions, direct equity and interest rate market impacts on insurance and investment contract liabilities, net of hedging, and related deferred tax liabilities, and items that management believes
are not indicative of the Company’s underlying business results. These items would include restructuring and integration costs, material legal settlements, material impairment charges related to goodwill and
intangible assets, legislative tax changes and other tax impairments, and gains or losses related to the disposition of a business.
(3) Refer to the “Return on Equity” section of this document for additional details.
(4) The Life Insurance Capital Adequacy Test (LICAT) ratio is based on the consolidated results of The Canada Life Assurance Company (Canada Life), Lifeco’s major Canadian operating subsidiary. Refer to the
“Capital Management and Adequacy” section of this document for additional details.
(5) Comparative figures have been reclassified to reflect presentation adjustments.
Great-West Lifeco Inc. 2020 Annual Report
19
Management’s Discussion and Analysis
Lifeco 2020 HigHLigHts
Financial Performance
• The Company maintained
its strong capital position as
evidenced by a Life Insurance Capital Adequacy Test (LICAT)
ratio at December 31, 2020 of 129% for Canada 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, 2020, base earnings
per common share were $2.878 compared to $2.859 a year ago,
an increase of 1%, reflecting resilient earnings in all segments
during the COVID-19 pandemic. For the twelve months ended
December 31, 2020, base earnings of $2,669 million were
down $35 million or 1% compared to 2019 base earnings of
$2,704 million. 2019 base earnings included the impact of the
resolution of an issue with a tax authority which positively
impacted Europe segment base earnings and $63 million of
earnings related to the U.S. individual life insurance and annuity
business prior to its disposal in the second quarter of 2019.
• For the twelve months ended December 31, 2020, net earnings
attributable to common shareholders (net earnings) were
$2,943 million, compared to $2,359 million for the previous
year, primarily reflecting the net positive impact from a
number of strategic initiatives undertaken during the year. In
2020, Lifeco’s net earnings include a net gain of $94 million
related to the sale of Irish Progressive Services International
Limited (IPSI), a net gain of $143 million related to the sale
of GLC Asset Management Group Ltd. (GLC) and transaction,
restructuring and integrations costs of $145 million related
to the acquisitions of Personal Capital Corporation (Personal
Capital) and the retirement services business of Massachusetts
Mutual Life Insurance Company (MassMutual or MassMutual
transaction) as well as strategic initiatives in the Canadian
segment. In addition, 2020 net earnings include the positive
impact of the revaluation of a deferred tax asset of $196 million
as a result of higher expected U.S. segment earnings due to
2020 acquisitions. This deferred tax asset was de-recognized
in the prior year and had a negative impact of $199 million on
2019 net earnings. In 2019, net earnings were also impacted by
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), restructuring costs of $36 million at Putnam, and a gain
of $8 million related to the completion of the sale of a heritage
block of policies to Scottish Friendly.
• In February 2020, Lifeco’s quarterly common share dividend
increased 6% to $0.438 per share. On March 13, 2020, the Office
of the Superintendent of Financial Institutions (OSFI) set the
expectation that Canadian banks and insurers to suspend share
buybacks and not to increase dividend payments. The Company
does not currently intend to increase dividends or engage in
share repurchases.
• The Company’s financial leverage ratio at December 31, 2020
was 33.8%, compared to 27.6% the prior year. The leverage ratio
was impacted by debt issuances in 2020, mainly in support
of strategic acquisitions. Lifeco issued $600 million 10-year
debentures in May 2020 and $500 million 30-year debentures
in July 2020. Proceeds were used to redeem $500 million of
20
Great-West Lifeco Inc. 2020 Annual Report
debentures which matured in August 2020 as well as for general
corporate purposes. Great-West Lifeco U.S. Finance 2020, LP, a
subsidiary of the Company, issued $663 million (US$500 million)
5-year senior notes in August 2020 to fund the acquisition of
Personal Capital. In September 2020, Empower Finance 2020,
LP, a subsidiary of the Company, issued three tranches of senior
notes totaling $1,973 million (US$1,500 million) to fund the
MassMutual transaction.
Strategic Highlights
• Following the amalgamation of its three Canadian life insurance
companies, which was effective January 1, 2020, the Canada
segment has focused on leveraging the Canada Life brand,
launching new digital platforms for both Group and Individual
customers as well as continued focus on operational efficiencies
and core strategies.
On December 31, 2020, the Company completed the sale of GLC
to Mackenzie Financial Corporation (Mackenzie), an affiliate of
the Company. GLC was a wholly-owned subsidiary of Canada
Life whose principal activity was the provision of investment
management services to Canada Life. The Company recorded a
net gain on disposal of $143 million after-tax, net of restructuring
costs of $16 million after-tax. This transaction provides the
Company with access to greater scale and more investment
capabilities. As a result of this transaction, the Company
also established its own mutual fund manager, Canada Life
Investment Management Ltd. (CLIML), which assumed fund
management responsibilities for the Canada Life Mutual Funds,
offered by Quadrus Investment Services Ltd., a subsidiary of
Canada Life, and other Canada Life branded investment funds
offered in Canada.
Also in the fourth quarter of 2020, two initiatives impacting the
Canada segment operations were announced. The Company
announced changes to its Canadian distribution strategy and
vision for advisor based distribution, and IGM Financial, an
affiliate of the Company, notified the Company of its intent
to terminate its long-term technology infrastructure related
sharing agreement with the Company in the first quarter of 2021.
These initiatives, together with the sale of GLC will result in staff
reductions, exit costs for certain facilities lease agreements and
decommissioning activities related to technology and other
assets. As a result, the Company has recorded a restructuring
provision of $92 million, which includes the restructuring
costs associated with the GLC disposition ($68 million in the
shareholder account and $24 million in the participating
account). The after-tax impact of the restructuring provision
on net earnings is $68 million ($50 million in the shareholder
account, or $34 million excluding the GLC disposition related
restructuring expenses, and $18 million in the participating
account). Changes relating to these initiatives are expected to
be fully implemented by the end of 2022.
• In the U.S. segment, the Company completed a number of
strategic acquisitions to expand and enhance its retirement
and retail wealth management business, operating under the
Empower Retirement brand.
Effective December 31, 2020, the Company acquired the
retirement services business of MassMutual for US$2.3 billion
of ceding commission, net of adjustments
for working
capital, which fortified its position as the second largest
retirement services provider in the U.S. based on assets under
Management’s Discussion and Analysis
administration and number of retirement plan participants.
This transaction is expected to be accretive to Lifeco’s earnings.
In August of 2020, the Company completed the acquisition
of Personal Capital, a hybrid wealth manager that combines
a leading-edge digital experience with personalized advice
delivered by human advisors. Under the terms of the agreement,
the Company acquired 100% of the equity of Personal Capital for
US$813 million on closing and deferred consideration subject
to achievement of target growth objectives.
In the fourth quarter of 2020, the Company completed its
acquisition of the retirement services business of Fifth Third
Bank and subsequent to December 31, 2020, on January 6,
2021, the Company announced a definitive agreement to
acquire the retirement services business of Truist Bank. Both
are former private-label recordkeeping clients, and together
these acquisitions bring approximately US$11 billion in assets,
approximately 800 retirement plans and approximately 173,000
participants on to the Empower Retirement platform.
Empower Retirement participants of 11.9 million at
December 31, 2020 grew 27% from 9.4 million participants at
December 31, 2019. Assets under administration grew 42% over
the year to US$958 billion on December 31, 2020. The increases
include the addition of the MassMutual retirement business
which contributed 2.5 million participants and US$190 billion
in assets under administration.
At Putnam, restructuring activities were mostly completed in
2020 resulting in approximately US$28 million in pre-tax annual
operating expense savings as it realigned 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 in 2019 by
$36 million (US$28 million).
• In Europe, the Company has substantially completed the multi-
year U.K. restructuring program which began in 2018 following
the acquisition of Retirement Advantage. The program is
enhancing the efficiency of the U.K. business operating model
across all product lines and includes the modernization of
its technology platforms, thereby underpinning sustainable
earnings growth and supporting strategic expansion. The
technology modernization is accompanied by complementary
enhancement of investment, finance and risk capabilities.
As Irish Life continues to focus on its core business, effective
August 4, 2020, Irish Life completed the sale of IPSI, a wholly-
owned subsidiary, whose principal activity is the provision of
outsourced administration services for life assurance companies.
The net gain resulting from the transaction was $94 million. In
addition, Irish Life continued to build its distribution and wealth
management capability through a number of acquisitions.
While these business will largely remain autonomous, they have
been grouped into a new division (“Intermediary Business”)
which will serve 3 core markets – the public sector, employee
benefit consulting and wealth management. Individually these
transactions are not expected to have a material impact on the
Company’s financial position but collectively they expand Irish
Life’s reach into these 3 strategically important markets.
The U.K. and the European Union (EU) agreed on a
comprehensive trade agreement in December 2020 effective
January 1, 2021 to replace the transitional arrangements that
were in place since the U.K. left the EU on January 31, 2020.
The Company’s European businesses will continue to trade as
normal within their respective domestic markets.
• During 2020, in Capital and Risk Solutions, the Reinsurance
business unit completed three major
longevity
reinsurance agreements with over $15 billion of in-force liabilities
combined. Over 92,000 in-payment and deferred pensioners will
be reinsured by Canada Life Reinsurance under these agreements.
These transactions highlight the Company’s strength as a partner
for reinsurance longevity transactions globally.
long-term
The Reinsurance business unit also established a new subsidiary
in Bermuda to help improve its efficiency for certain types of
reinsurance transactions.
COVID-19 Pandemic Impacts
Beginning in January 2020, the outbreak of a virus known as
COVID-19 and ensuing global pandemic resulted in travel and
border restrictions, self-imposed quarantine periods and physical
distancing, supply chain disruptions, reduced consumer demand
and significant market uncertainty. This has caused material
disruption to businesses globally, resulting in an economic
slowdown. In the first quarter of 2020, global financial markets
experienced material and rapid declines and significant volatility;
however, during the remainder of 2020, the markets experienced
recoveries. Governments and central banks have reacted with
significant monetary and fiscal interventions designed to stabilize
economic conditions. In addition, the Company has provided
support to communities through financial donations across the
geographic regions in which the Company operates.
While equity and fixed income markets have improved since March
31, 2020, interest rates remain low and COVID-19 challenges have
begun to manifest through investment credit rating downgrades
and real estate value declines, although modest in 2020. The
Company experienced modest downgrades in the year, however,
depending on the length of the shutdowns and recovery of the
economy there could be a larger impact from downgrades in future
periods. The Company’s asset liability management strategy is
designed to mitigate interest rate risk; however, while the Company
has limited sensitivity to fluctuations in interest rates, a prolonged
period of low interest rates may adversely impact the profitability
of certain products the Company provides, and repricing actions
have been, and will continue to be, undertaken as necessary.
Premium and investment related deferrals were limited, partially
as a result of continued government support in many jurisdictions.
The Company expects to see continued reduced sales opportunities
for certain products given client and prospect concerns about the
breadth and severity of the pandemic and its longer-term effect on
businesses. Sales teams and financial advisors have been adapting
to the new remote environment and are adjusting processes going
forward. While the Company experienced lower sales in certain
areas of its business, customer retention remained high. If lower
sales persist it could adversely impact asset, premiums and fee
income levels.
In March 2020, the Company announced a temporary suspension of
contributions to and redemptions and transfers from its real estate
segregated funds in Canada and Europe as the economic conditions
Great-West Lifeco Inc. 2020 Annual Report
21
Management’s Discussion and Analysis
caused by the COVID-19 situation led to valuation uncertainty in
the real estate industry. Management determined the need to
temporarily suspend withdrawals and transfers-out from the funds
in order to protect the long term interest of the unitholders.
Valuation certainty is selectively returning to certain sectors and
geographies of the real estate market. In the fourth quarter of 2020,
the temporary suspension was lifted from the Company’s U.K.
real estate fund and certain Irish property funds as the material
valuation uncertainty clauses that had been in effect across those
funds’ main asset classes were lifted by the independent third party
appraisers. The Company’s Irish Property Modules fund continues
to operate with a 6 month redemption deferral. As of January
11, 2021, Canada has partially lifted the suspension, allowing
contributions and transfers into the fund. As well, requests for
redemptions and transfers out of the fund are being accepted for a
limited period and will be processed, subject to available liquidity,
on pre-specified dates; however, redemptions and transfers out of
the fund otherwise remain suspended.
Outlook for 2021
Refer to Cautionary Note regarding Forward-looking Information
and Cautionary Note regarding non-IFRS Financial Measures at
the beginning of this document.
through
• Lifeco is continuing to focus on its core strategies: delivering
financial security and wellness
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.
including preparing for the
In 2021, the Company will remain focused on future regulatory
changes,
implementation of
accounting changes related to IFRS 17, Insurance Contracts,
which is effective on January 1, 2023. The Company will continue
to invest in updating processes and systems throughout the
implementation period.
• In Canada, 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 to help drive organic retail and business-to-
business growth. The Company will focus on integrating 2020
acquisitions and realizing target synergies while enhancing
the overall customer experience through innovation and
service excellence. 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.
22
Great-West Lifeco Inc. 2020 Annual Report
• The Company
to
invest
intends
in additional system
functionality and digital capability in the U.K. in both the
group and individual marketplace. In Ireland, deepening and
broadening the market leading retail, corporate and investment
to support
management businesses,
customers’ financial security and wellness, will continue to
be the focus. In Germany, the Company plans to continue to
expand its presence in the pension and protection markets
by focusing on the introduction of innovative products and
services whilst enhancing its systems capabilities.
including products
• In Capital and Risk Solutions, through its leading market
positions, the Reinsurance business unit will strategically focus
on expanding into other key markets. Building on its diversified
multi-niche base, Capital and Risk Solutions will deploy its
capital to meet clients’ evolving needs.
• The Company’s financial outlook for 2021 will depend in part on
the duration and intensity of the COVID-19 pandemic impacts
and the availability and adoption of vaccines. Service continuity
plans will continue to be in operation across the Company
as the majority of employees continue to work remotely to
provide service to customers and maintain operations and
technology functions. The impact of the pandemic on mortality
and disability and other claims experience in future periods is
uncertain. Mitigating these uncertain impacts is the Company’s
well-diversified businesses. This diversity, combined with
business strength, resilience and experience, puts the Company
in a strong position to manage the current environment and
leverage opportunities for the future. Lifeco’s strategies are
equally resilient and flexible, positioning the Company to
manage through the recovery and continue to identify and
pursue opportunities, including organic growth and acquisition
activities, while supporting customers and employees in a new
environment.
net earnings
Consolidated base earnings and net earnings of Lifeco include the
base earnings and net earnings of Canada Life and its operating
subsidiary, Irish Life; GWL&A and Putnam; together with Lifeco’s
Corporate operating results.
Effective January 1, 2020, as a result of strategic operational
changes, the Company has divided the previously reported
Europe segment into two separate reporting segments – Europe
and Capital and Risk Solutions. The Company’s other reportable
segments – Canada, United States and Lifeco Corporate – are
unchanged. Comparative figures have been reclassified to reflect
the new composition of the reportable segments.
Effective the first quarter of 2020, the Company introduced an
enhanced non-IFRS earnings measure to reflect management’s
view of the underlying business performance of the Company.
The measure – base earnings (loss) – is being adopted to
enhance comparability of results between reporting periods and
in anticipation of the implementation of accounting changes
related to IFRS 17, Insurance Contracts, on January 1, 2023. Refer
to the “Non-IFRS Financial Measures” section in this MD&A for
additional details.
Management’s Discussion and Analysis
Base earnings (1) and Net earnings – common shareholders
For the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
Base earnings (loss) (1)
Canada
United States
Europe
Capital and Risk Solutions
Lifeco Corporate
Lifeco base earnings (1)
Items excluded from base earnings (2)
$
$
Actuarial assumption changes and other management actions (2)
Market-related impacts on liabilities (2)
Net gain/charge on business dispositions (2)
Transaction costs related to the acquisitions of Personal Capital and MassMutual (2)
Revaluation of a deferred tax asset (2)
Restructuring and integration costs (2)
$
Items excluded from Lifeco base earnings (2)
Net earnings (loss) – common shareholders
Canada
United States
Europe
Capital and Risk Solutions
Lifeco Corporate
Lifeco net earnings – common shareholders
$
$
$
348
90
195
124
(16)
741
(23)
(31)
143
(47)
196
(67)
171
300
208
253
167
(16)
912
$
$
$
$
$
$
270
83
182
156
(12)
679
66
18
94
(31)
–
–
274
89
317
157
(6)
831
(78)
(13)
8
–
(199)
(36)
$
1,206
273
688
536
(34)
$
1,178
350
796
401
(21)
$
2,669
$
2,704
$
$
113
(127)
237
(78)
196
(67)
$
147
$
(318)
$
274
$
$
$
266
89
316
167
(12)
826
$
$
188
(121)
335
117
(6)
$
1,070
380
913
614
(34)
$
513
$
2,943
$
2,359
170
(89)
(191)
–
(199)
(36)
(345)
1,051
(61)
1,004
386
(21)
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
(2) Items excluded from base earnings, a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional information.
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.
Base earnings
Net earnings
Base earnings for the fourth quarter of 2020 of $741 million ($0.799
per common share) decreased by $90 million from $831 million
($0.895 per common share) a year ago. The decrease was primarily
due to the positive impact of a resolution of an outstanding issue
with a foreign tax authority in 2019 in the Europe segment which
did not recur, unfavourable group mortality in the Europe segment
as well as new business strain in the Capital and Risk Solutions
segment. These items were mostly offset by favourable morbidity
and mortality experience in the Canada segment.
For the twelve months ended December 31, 2020, Lifeco’s
base earnings were $2,669 million ($2.878 per common share)
compared to $2,704 million ($2.859 per common share) a year ago.
The decrease was primarily due to the resolution of an outstanding
issue with a foreign tax authority in 2019 discussed for the in-
quarter results as well as lower base earnings in the U.S. segment.
The decrease was partially offset by business growth in the Capital
and Risk Solutions segment. Base earnings for the twelve months
ended December 31, 2019 included $63 million of earnings
related to the U.S. individual life insurance and annuity business
(“Reinsured Insurance & Annuity” business unit) prior to its sale on
June 1, 2019, to Protective Life.
for the three month period ended
Lifeco’s net earnings
December 31, 2020 of $912 million ($0.983 per common share)
increased by $399 million or 78% compared to $513 million
($0.552 per common share) a year ago. The increase was primarily
due to the positive impact of the revaluation of a deferred tax asset
of $196 million in the U.S. segment and a net gain of $143 million
related to the sale of GLC. The increase was partially offset by
transaction, restructuring and integration costs of $114 million
related to the acquisition of Personal Capital and the retirement
services business of MassMutual as well as strategic initiatives in
the Canadian segment. Net earnings in the fourth quarter of 2019
included the negative impact of the de-recognition of a deferred
tax asset of $199 million in the U.S. segment.
For the twelve months ended December 31, 2020, Lifeco’s
net earnings were $2,943 million ($3.173 per common share)
compared to $2,359 million ($2.494 per common share) a year
ago. The increase was primarily due to the positive impact of the
revaluation of a deferred tax asset and the net gain on the sale of
GLC discussed for the in-quarter results as well as a net gain of
$94 million related to the sale of IPSI in the third quarter of 2020.
The increase was partially offset by the transaction, restructuring
and integration costs incurred to date discussed for the in-quarter
results and lower contributions from insurance contract liability
basis changes and market-related impacts on liabilities due to
significant market declines in the first quarter of 2020 driven by
Great-West Lifeco Inc. 2020 Annual Report
23
Management’s Discussion and Analysis
the COVID-19 pandemic. In addition, Lifeco’s net earnings for the
twelve months ended December 31, 2019 included 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 to Protective Life and the negative impact of the de-
recognition of a deferred tax asset of $199 million.
Actuarial Assumption Changes and Other Management
Actions
For the three months ended December 31, 2020, actuarial
assumption changes and other management actions, excluding
the gain on sale of GLC and the transaction costs related to the
acquisition of MassMutual’s retirement services business, resulted
in a negative net earnings impact of $23 million compared to a
negative impact of $78 million for the same quarter last year and a
positive impact of $66 million for the previous quarter.
In Canada, net earnings were negatively impacted by $147 million
primarily due to updated policyholder behaviour and economic
and asset related assumptions, partially offset by updated life
mortality assumptions. In Europe, net earnings were positively
impacted by $78 million, primarily due to updated annuitant
mortality assumptions, partially offset by updated economic
and asset related assumptions. In Capital and Risk Solutions, net
earnings were positively impacted by $43 million primarily due to
updated economic and annuitant mortality assumptions, partially
offset by updated expense assumptions. In the U.S., net earnings
were positively impacted by $3 million, due to updated annuitant
mortality assumptions.
Excluding the net gain on sale of IPSI of $94 million, the gain on
sale of GLC and the negative impact of $78 million due to the
transaction costs related to the acquisitions of Personal Capital
and MassMutual’s retirement services business, assumption
changes and other management actions for the twelve months
ended December 31, 2020, resulted in a positive net earnings
impact of $113 million. For the twelve months ended December
31, 2019, actuarial assumption changes and other management
actions resulted in a positive net earnings impact of $170 million
excluding the impact of the Scottish Friendly transaction and the
reinsurance transaction with Protective Life.
Market-Related Impacts
In the regions where the Company operates, average equity
market levels in the fourth quarter of 2020 were higher in the U.S.,
remained consistent in Canada and were lower in the U.K. and
broader Europe compared to the same period in 2019; however,
markets ended the quarter higher for the U.S., Canada, the U.K.
and broader Europe compared to September 30, 2020. For the
twelve months ended December 31, 2020, average equity market
levels were higher in the U.S. and lower in Canada, the U.K. and
broader Europe compared to the same period in 2019.
Comparing the fourth quarter of 2020 to the fourth quarter of 2019,
average equity market levels were up by less than 1% in Canada
(as measured by S&P TSX), up 15% in the U.S. (as measured by
S&P 500), down 15% in the U.K. (as measured by FTSE 100) and
down 6% in broader Europe (as measured by Eurostoxx 50). The
major equity indices finished the fourth quarter of 2020 up 8% in
Canada, up 12% in the U.S., up 10% in the U.K. and up 11% in
broader Europe, compared to September 30, 2020.
24
Great-West Lifeco Inc. 2020 Annual Report
In countries where the Company operates, government treasury
rates for the most part decreased, while credit spreads for the most
part narrowed during 2020.
Market-related impacts on liabilities negatively impacted net
earnings by $31 million in the fourth quarter of 2020 (negative impact
of $13 million in the fourth quarter of 2019), primarily related to an
unfavourable impact of changes to certain tax estimates driven by
equity market recovery in the fourth quarter of 2020 as well as the
valuation of insurance contract liabilities which are supported by
equities and real estate driven by lower markets earlier in the year.
Included in the total negative impact of $31 million in the fourth
quarter of 2020 was a positive impact of $7 million related to legacy
block segregated fund guarantee business.
For the twelve months ended December 31, 2020, market-
related impacts on liabilities negatively impacted net earnings by
$127 million (negative impact of $89 million in 2019). While equity
markets rebounded during the second to fourth quarters of 2020,
the year-to-date negative impact reflects the significant decline
and volatility in equity markets and interest rates in the first quarter
of 2020 which impacted the value of segregated fund and variable
annuity guarantees, including related hedging ineffectiveness and
was only partially recovered during the remainder of the year.
Included in the total negative impact of $127 million in 2020 was
a negative impact of $3 million related to legacy block segregated
fund guarantee business.
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
changing interest rates is mostly mitigated in the current period,
including the impact of changes in fair values of bonds backing
insurance contract liabilities recorded through profit or loss which
was mostly offset by a corresponding change in the insurance
contract liabilities.
interest rate fluctuations,
For a further description of the Company’s sensitivity to equity
market and
including expanded
sensitivity disclosure as a result of current market conditions,
refer to “Financial Instruments Risk Management”, note 8 in the
Company’s consolidated financial statements for the period ended
December 31, 2020.
Foreign Currency
The average currency translation rate for the fourth quarter of 2020
decreased for the U.S. dollar and increased for the British pound
and the euro compared to the fourth quarter of 2019. The overall
impact of currency movement on the Company’s net earnings for
the three month period ended December 31, 2020 was an increase
of $10 million (increase of $43 million year-to-date) compared to
translation rates a year ago.
From September 30, 2020 to December 31, 2020, the market rate
at the end of the reporting period used to translate U.S. dollar and
euro assets and liabilities to the Canadian dollar decreased, while
the British pound increased. The movements in end-of-period
exchange rates resulted in unrealized foreign exchange losses from
the translation of foreign operations, including related hedging
activities, of $272 million in-quarter ($25 million net unrealized
gains year-to-date) recorded in other comprehensive income.
Throughout this document a number of terms are used to highlight
the impact of foreign exchange on results, such as: “constant
currency basis” and “impact of currency movement”. These non-
Management’s Discussion and Analysis
IFRS measures have been calculated using the average or period-
end rates, as appropriate, in effect at the date of the comparative
period. These non-IFRS measures provide useful information as
they facilitate the comparability of results between periods. Refer
to the “Non-IFRS Financial Measures” section of this document
for additional details.
Translation rates for the reporting period and comparative periods
are detailed in the “Translation of Foreign Currency” section.
Credit Markets
Credit markets impact on common shareholders’ net earnings (after-tax)
Canada
United States
Europe
Capital and Risk Solutions
Total
Total
Impairment
(charges) /
recoveries
Changes in
provisions
for future
credit losses (1)
Total
Impairment
(charges) /
recoveries
Changes in
provisions
for future
credit losses (1)
Total
For the three months ended December 31, 2020
For the twelve months ended December 31, 2020
$
$
$
$
–
–
(3)
–
(3)
$
(2)
2
1
(1)
–
$
$
(2)
2
(2)
(1)
$
–
(5)
(8)
–
$
(7)
(5)
(45)
(9)
$
(3)
$
(13)
$
(66)
$
(7)
(10)
(53)
(9)
(79)
For the three months ended December 31, 2019
For the twelve months ended December 31, 2019
5
$
(13)
$
(8)
$
(14)
$
(1)
$
(15)
(1) Impact of changes in credit ratings in the Company’s fixed income portfolio on provisions for future credit losses in insurance contract liabilities.
As a result of the COVID-19 pandemic, many areas of the credit
markets exhibited extreme volatility in March of 2020 with spreads
widening in investment grade and high yield markets. Since March
2020, credit spreads narrowed significantly and some downgrades
were seen across industries from the rating agencies, particularly
to issuers in sectors most affected by economic shutdowns or
perceived deterioration in future business models. The Company
experienced a higher impact from downgrades during 2020
compared to 2019. Depending on the length of the shutdowns
and recovery of the economy there could be a larger impact from
downgrades in future periods.
In the fourth quarter of 2020, the Company experienced net charges
on impaired investments, including dispositions, which negatively
impacted common shareholders’ net earnings by $3 million
($5 million net recovery in the fourth quarter of 2019). Changes
in credit ratings in the Company’s fixed income portfolio had a
negligible impact on common shareholders’ net earnings in the
quarter ($13 million negative impact in the fourth quarter of 2019).
Effective income tax rate
Base earnings – Common shareholders
Net earnings – Common shareholders
Base earnings – Total Lifeco
Net earnings – Total Lifeco
For the twelve months ended December 31, 2020, the Company
experienced net charges on impaired investments, including
dispositions, which negatively impacted common shareholders’
net earnings by $13 million ($14 million net charge in 2019).
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,
2020 were primarily driven by impairment charges on mortgage
loans in the U.K. 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 $66 million year-
to-date ($1 million net negative impact in 2019), primarily due to
downgrades of bonds and mortgages in the U.K.
income taxes
The Company’s effective income tax rate is generally lower than
the statutory income tax rate of 26.50% due to benefits related
to non-taxable investment income and lower income tax in
foreign jurisdictions.
For the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
13.3%
(20.4)%
11.0%
(24.4)%
5.7%
4.8%
3.8%
2.1%
–%
23.5%
(3.2)%
21.6%
10.1%
(0.9)%
8.7%
(2.7)%
10.1%
15.7%
7.4%
13.0%
Great-West Lifeco Inc. 2020 Annual Report
25
Management’s Discussion and Analysis
In the fourth quarter of 2020, the Company had an effective
income tax rate on base earnings of 11.0% up from negative 3.2%
in the fourth quarter of 2019, primarily as a result of the resolution
of an outstanding issue with a foreign tax authority in the fourth
quarter of 2019 which decreased the 2019 effective income tax rate
by 12.5 points.
In the fourth quarter of 2020, the Company had an effective
income tax rate of negative 24.4%, down from 21.6% in the fourth
quarter of 2019 primarily due to the revaluation of a deferred tax
asset related to losses in a U.S. subsidiary. As a result of the U.S.
acquisitions of the retirement services business of MassMutual
and Personal Capital in 2020, management revised its estimates of
future taxable profits and recognized a deferred tax asset that had
previously been de-recognized in the fourth quarter of 2019. The
deferred income tax asset revaluation resulted in a $196 million
recovery to income tax expense in 2020 compared to a $199 million
charge in 2019. This resulted in a decrease in the effective income
tax rate in 2020 by 26.1 points compared to an increase to the
effective income tax rate in 2019 by 30.1 points. Also, in the fourth
quarter of 2020, non-taxable gains on the sale of the shares of GLC
decreased the effective income tax rate by 5.6 points; while in the
fourth quarter of 2019 the resolution of the outstanding issue with
a foreign tax authority decreased the effective income tax rate by
15 points.
The Company had an effective income tax rate on base earnings of
8.7% for the twelve months ended December 31, 2020, which was
comparable to 7.4% for the same period last year.
The Company had an effective income tax rate of negative 2.7%
for the twelve months ended December 31, 2020 compared to
Premiums and dePosits and saLes
Premiums and deposits (1)
Canada (5)
United States (2)
Europe
Capital and Risk Solutions (3)
13.0% for the same period last year. The decrease was primarily
due to the revaluation of the deferred tax asset discussed for the
in-quarter results, which reduced the 2020 effective income tax
rate by 6.4 points and increased the 2019 effective income tax rate
by 6.9 points, as well as, the non-taxable gains on the sale of the
shares of GLC and IPSI, which decreased the 2020 effective income
tax rate by 2.1 points.
In the fourth quarter of 2020, the Company had an effective
income tax rate on base earnings of 11.0%, up from 3.8% in the
third quarter of 2020, primarily due to changes in certain tax
estimates and jurisdictional mix of earnings.
In the fourth quarter of 2020, the Company had an effective
income tax rate of negative 24.4%, down from 2.1% in the third
quarter of 2020, primarily due to the revaluation of the deferred
tax asset discussed for the in-quarter results.
The Company recognizes deferred income tax assets based on
the probability that the entity will have taxable profits and/or tax
planning opportunities available to allow the deferred income
tax asset to be utilized. As at December 31, 2020, the Company
has recognized a deferred income tax asset of $1,411 million
on tax loss carryforwards. While $344 million pertains to losses
with no expiry, $454 million pertains to losses expiring between
2026 and 2030, $413 million to losses expiring between 2031 and
2035 and $200 million to losses expiring between 2036 and 2040.
Included in the deferred income tax asset balance is $879 million
(US$692 million) from a U.S. subsidiary with a history of losses,
$496 million (US$391 million) of which relates to certain restricted
losses with an expiry between 2027 and 2034.
For the three months ended
For the twelve months ended
Dec. 31
2020
$
7,017
20,582
7,896
5,336
Sept. 30
2020
Dec. 31
2019
$
6,161
24,138
6,114
4,490
$
7,229
19,480
7,925
4,462
Dec. 31
2020
$ 25,838
93,479
32,621
19,407
Dec. 31
2019
$
27,346
70,475
35,351
17,466
Total premiums and deposits (1) (5)
$ 40,831
$
40,903
$
39,096
$ 171,345
$ 150,638
Sales (1) (3)
Canada
United States (4)
Europe
Total sales (1)
For the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
$
3,729
27,439
6,874
$
2,520
27,987
5,313
$
3,609
31,781
6,566
$ 12,271
136,884
28,996
$
13,249
163,087
31,976
$ 38,042
$
35,820
$
41,956
$ 178,151
$ 208,312
(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 exclude the initial ceded premium of $13,889 million related to the business transferred to Protective Life under an indemnity reinsurance
agreement effective June 1, 2019.
(3) Sales is not a relevant measure for the Capital and Risk Solutions segment due to the nature of operations.
(4) For the twelve months ended December 31, 2019, sales for the United States reflect $0.4 billion related to the Reinsured Insurance & Annuity business unit.
(5) Comparative figures have been reclassified to reflect presentation adjustments.
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.
26
Great-West Lifeco Inc. 2020 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 2020, which
includes changes in fair value through profit or loss, increased
by $3,848 million compared to the same quarter last year. The
changes in fair value in the fourth quarter of 2020 were an increase
of $1,984 million compared to a decrease of $1,766 million for
the fourth quarter of 2019. In the fourth quarter of 2020, the net
increase to fair values was primarily due to a decline in bond yields
across all geographies and an increase in Canadian equity markets.
In the fourth quarter of 2019, the net decrease to fair values was
primarily due to an increase in bond yields across all geographies.
Regular net investment income in the fourth quarter of 2020 of
$1,560 million, which excludes changes in fair value through profit
or loss, increased by $98 million compared to the same quarter
last year. The increase was primarily due to higher net realized
gains related to the sale of GLC. Net realized gains include gains on
available-for-sale securities of $13 million for the fourth quarter of
2020 compared to $24 million for the same quarter last year.
For the twelve months ended December 31, 2020, net investment
income decreased by $1,445 million compared to the same period
last year. The changes in fair value for the twelve month period in
2020 were an increase of $5,699 million compared to $6,946 million
during the same period in 2019. The changes in fair value were
primarily due to a smaller decline in U.K. and U.S. bond yields and
a smaller increase in Canadian equity markets in 2020 compared
to 2019.
Regular net investment income for the twelve months ended
December 31, 2020 of $5,963 million decreased by $198 million
compared to the same period last year. The decrease was primarily
due to lower interest on bond and mortgage investments, primarily
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. Net realized
gains include gains on available-for-sale securities of $141 million
for the twelve months ended December 31, 2020 compared to net
realized gains of $76 million for the same period last year.
Net investment income in the fourth quarter of 2020 increased by
$1,266 million compared to the previous quarter, primarily due to
net increases in fair values of $1,984 million in the fourth quarter
of 2020 compared to net increases in fair values of $785 million in
the previous quarter. The changes in fair value were primarily due
to a larger decline in U.K. bond yields in the fourth quarter of 2020,
compared to the third quarter of 2020, and a larger increase in
Canadian equity markets in the fourth quarter of 2020, compared
to the third quarter of 2020.
For the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
$
1,380
(6)
220
1,594
(34)
1,560
1,984
$
1,420
(1)
106
1,525
(32)
1,493
785
$
1,388
(2)
119
1,505
(43)
1,462
(1,766)
$
5,664
(16)
466
6,114
(151)
5,963
5,699
$
5,965
(50)
412
6,327
(166)
6,161
6,946
$
3,544
$
2,278
$
(304)
$ 11,662
$
13,107
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
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
Canada
Segregated funds,
mutual funds
and other
ASO contracts
$ 407 $
54
397 $
48
404 $ 1,568 $ 1,561
205
188
53
461
445
457
1,756
1,766
United States
Segregated funds,
mutual funds
and other
Life insurance and
annuity reinsurance
ceding commission (1)
Europe
Segregated funds,
mutual funds
and other
Capital and Risk Solutions
Reinsurance and Other
754
696
679
2,769
2,687
–
754
–
696
–
–
1,080
679
2,769
3,767
351
342
377
1,366
1,539
3
3
2
11
9
Total fee and
other income
$ 1,569 $ 1,486 $ 1,515 $ 5,902 $ 7,081
(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.
Great-West Lifeco Inc. 2020 Annual Report
27
Management’s Discussion and Analysis
net PoLicyHoLder Benefits, dividends and exPerience refunds
otHer Benefits and exPenses
Other benefits and expenses (1)
For the three
months ended
For the twelve
months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
Operating and
administrative
expenses
Commissions
Premium taxes
Financing charges
Amortization of finite
$ 1,498 $ 1,365 $ 1,298 $ 5,492 $ 5,231
2,429
506
285
2,396
480
284
657
124
79
549
119
71
650
128
71
life intangible assets
and impairment reversal
Restructuring and
63
integration expenses
134
58
–
60
52
238
224
134
52
Total
$ 2,555 $ 2,162 $ 2,259 $ 9,024 $ 8,727
(1) For the twelve months ended December 31, 2019, operating and administrative expenses include
$120 million related to the U.S. individual life and annuity business sold to Protective Life June 1,
2019. Refer to the “Segmented Operating Results – United States” section of this document for
additional details.
Other benefits and expenses for the fourth quarter of 2020 of
$2,555 million increased by $296 million compared to the fourth
quarter of 2019, primarily due to restructuring and integration
expenses in the Canada and U.S. segments, as well as higher
operating and administrative expenses primarily driven by the
acquisition of Personal Capital and business growth in the Capital
and Risk Solutions segment.
For the twelve months ended December 31, 2020, other benefits
and expenses increased by $297 million to $9,024 million
compared to the same period last year, primarily due to same
reasons discussed for the in-quarter results.
Other benefits and expenses for the fourth quarter of 2020 increased
by $393 million compared to the previous quarter, primarily due to
same reasons discussed for the in-quarter results, as well as higher
commissions in the Canada and Europe segments.
Net policyholder benefits, dividends and experience refunds
For the three
months ended
For the twelve
months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
$ 2,556 $ 2,224 $ 2,514 $ 9,276 $ 9,684
Canada
4,412
1,187
1,072
United States
4,277
1,546
1,003
Europe
18,042
4,756
Capital and Risk Solutions 5,285
5,028
3,948
19,907
1,197
1,015
4,719
Total
$ 9,916 $ 9,155 $ 10,003 $ 38,159 $ 36,415
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, 2020, net policyholder
benefits, dividends and experience refunds were $9.9 billion, a
decrease of $0.1 billion from the same period in 2019 driven by
lower net policyholder benefits. The decrease in benefit payments
was primarily due to lower surrender benefits in the Europe
segment as a result of the sale of a heritage block of individual
policies to Scottish Friendly in the fourth quarter of 2019. The
decrease was partially offset by new reinsurance agreements and
volume changes relating to existing business in the Capital and
Risk Solutions segment.
For the twelve months ended December 31, 2020, net policyholder
benefits, dividends and experience refunds were $38.2 billion, an
increase of $1.7 billion from the same period in 2019 driven by
higher net policyholder benefits. The increase in benefit payments
was primarily due to new reinsurance agreements and volume
changes relating to existing business in the Capital and Risk
Solutions segment as well as higher surrender benefits, partially
offset by higher ceded policyholder benefits in the U.S. segment.
Compared to the previous quarter, net policyholder benefits,
dividends and experience refunds increased by $0.8 billion,
driven by higher net policyholder benefits. The increase in benefit
payments was primarily due to new reinsurance agreements and
volume changes relating to existing business in the Capital and
Risk Solutions segment as well as higher surrender benefits in the
Canada segment, partially offset by lower death benefits in the
U.S. segment.
28
Great-West Lifeco Inc. 2020 Annual Report
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 (1)
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
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)
Canada
United States
Europe Capital and Risk Solutions
Total
December 31, 2020
$ 87,732
5,625
3,661
90,680
187,698
7,311
195,009
18,554
$
54,522
5,729
30,347
117,982
208,580
284,251
492,831
994,989
$ 50,793
3,037
10,151
125,370
189,351
59,381
248,732
10,871
$
5,951
–
8,910
–
14,861
–
14,861
–
$ 198,998
14,391
53,069
334,032
600,490
350,943
951,433
1,024,414
$ 213,563
$ 1,487,820
$ 259,603
$ 14,861
$ 1,975,847
Canada
United States
Europe
Capital and Risk Solutions
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
$
48,845
2,834
8,465
113,977
174,121
56,261
230,382
48,738
$
5,995
–
9,135
–
15,130
–
15,130
–
$ 168,787
10,384
40,974
231,022
451,167
320,548
771,715
857,966
$ 200,408
$ 1,135,023
$ 279,120
$
15,130
$ 1,629,681
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
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
investments,
in medium-term and
primarily bonds and mortgages, reflecting the characteristics of
the Company’s liabilities.
long-term fixed-income
Total assets under administration at December 31, 2020 increased
by $346.2 billion to $2.0 trillion compared to December 31, 2019,
primarily due to the MassMutual and Personal Capital acquisitions
during 2020 as well as market movement, partially offset by the
sale of IPSI in the Europe segment and currency movement.
The MassMutual transaction added $115 billion of total assets,
$132 billion in other assets under administration and $0.5 billion
in proprietary mutual funds and institutional net assets to the U.S.
segment at December 31, 2020. The acquisition of Personal Capital
added $21 billion of assets to the U.S. segment’s proprietary mutual
funds and institutional net assets at December 31, 2020. IPSI’s
assets as of December 31, 2019 were approximately $44 billion and
were primarily included in other assets under administration. The
impact of the sale of IPSI on the Europe segment’s other assets under
administration was partially offset by the acquisitions of Conexim
Advisors Limited and Acumen & Trust DAC during the first quarter
of 2020 as well as APT Workplace Pensions Limited and APT Wealth
Management Limited during the second quarter of 2020.
For additional details on assets acquired through business
to “Business Acquisitions and Other
acquisitions,
Transactions”, note 3 in the Company’s consolidated financial
statements for the period ended December 31, 2020.
refer
Great-West Lifeco Inc. 2020 Annual Report
29
Management’s Discussion and Analysis
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
Canada
United States
Europe Capital and Risk Solutions
Total
December 31, 2020
$ 23,014
30,926
$
4,006
34,332
$ 20,300
19,648
$
2,069
3,297
53,940
16,036
10,125
3,626
83,727
962
3,043
38,338
5,957
448
6
44,749
4,544
5,229
39,948
5,746
427
2,638
48,759
2,032
2
5,366
64
–
–
5,430
408
113
$ 49,389
88,203
137,592
27,803
11,000
6,270
182,665
7,946
8,387
25%
44
69
14
6
3
92
4
4
$ 87,732
$ 54,522
$ 50,793
$
5,951
$ 198,998
100%
Canada
United States
Europe
Capital and Risk Solutions
Total
December 31, 2019
$
22,237
27,797
$
3,698
17,808
$
19,482
18,871
$
1,732
3,403
$
47,149
67,879
50,034
14,810
9,675
3,130
77,649
558
2,972
21,506
3,996
301
6
25,809
1,445
5,514
38,353
5,388
399
2,751
46,891
1,952
2
5,135
74
–
–
5,209
673
113
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
$
48,845
$
5,995
$ 168,787
100%
At December 31, 2020, total invested assets were $199.0 billion, an
increase of $30.2 billion from December 31, 2019. The increase in
invested assets was primarily related to an increase in corporate
bonds from the MassMutual transaction. The overall distribution
of assets has not changed significantly and remains heavily
weighted to bonds and mortgages.
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
$137.6 billion or 69% of invested assets at December 31, 2020
compared to $115.0 billion or 68% at December 31, 2019. The
increase in the bond portfolio, and increase in BBB rated bonds,
was primarily related to the MassMutual transaction. Bond fair
values also increased due to a decline in bond yields across all
geographies during the year. The overall quality of the bond
portfolio remained high, with 99% of the portfolio rated investment
grade and 75% rated A or higher. There was a comprehensive
review and selection process to determine the assets accepted as
part of the MassMutual transaction.
Bond credit ratings reflect bond rating agency activity up to
December 31, 2020. Management continues to closely monitor
bond rating agency activity and general market conditions as the
pandemic continues.
Bond portfolio quality
AAA
AA
A
BBB
BB or lower
Total
December 31, 2020
December 31, 2019
$ 21,820
35,530
45,673
33,382
1,187
$ 137,592
16%
26
33
24
1
$
22,083
33,272
37,233
21,922
518
19%
29
32
19
1
100%
$ 115,028
100%
At December 31, 2020, non-investment grade bonds were $1.2 billion or 0.9% of the bond portfolio compared to $0.5 billion or 0.5% of
the bond portfolio at December 31, 2019. The increase in non-investment grade bonds was primarily due to bonds acquired through the
MassMutual transaction.
30
Great-West Lifeco Inc. 2020 Annual Report
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 people 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
Mortgage loans by type
Single family residential
Multi-family residential
Equity release
Commercial
Total
December 31, 2020
December 31, 2019
Insured
Non-insured
Total
$
530
3,255
–
236
$
1,533
4,098
2,020
16,131
$
2,063
7,353
2,020
16,367
7%
$
27
7
59
Total
2,069
7,004
1,314
13,881
9%
29
5
57
$
4,021
$ 23,782
$ 27,803
100%
$
24,268
100%
The total mortgage portfolio was $27.8 billion or 14% of invested
assets at December 31, 2020, compared to $24.3 billion or 14% of
invested assets at December 31, 2019. The increase in the mortgage
portfolio was primarily related to mortgages acquired through
the MassMutual transaction and originations of equity release
mortgages. Total insured loans were $4.0 billion or 14% of the
mortgage portfolio. The equity release mortgages had a weighted
average loan-to-value of 26% (26% at December 31, 2019).
The current market environment has led to a small number
of mortgage deferral requests during the year. Management
is closely monitoring and evaluating these requests which are
currently not material but may impact the Company’s performance
going forward.
Commercial mortgages
Retail & shopping centres
Office buildings
Industrial
Other
Total
Retail & shopping centres
Office buildings
Industrial
Other
Total
December 31, 2020
Canada
U.S.
Europe Capital and Risk Solutions
Total
$
3,799
2,252
2,516
316
$
731
1,327
1,097
505
$
1,116
1,369
774
542
$
$
8,883
$
3,660
$
3,801
$
3
19
1
–
23
$
5,649
4,967
4,388
1,363
$ 16,367
December 31, 2019
Canada
U.S.
Europe
Capital and Risk Solutions
Total
$
$
3,668
2,011
1,816
376
480
656
787
275
$
1,242
1,253
777
515
$
$
7,871
$
2,198
$
3,787
$
3
20
2
–
25
$
5,393
3,940
3,382
1,166
$
13,881
Equity portfolio – The total equity portfolio was $17.3 billion
or 9% of invested assets at December 31, 2020 compared to
$16.3 billion or 10% of invested assets at December 31, 2019. The
equity portfolio consists of publicly traded stocks, privately held
stocks and investment properties. The increase in publicly traded
stocks of $0.4 billion and the increase in privately held stocks of
$0.2 billion were primarily due to purchases. The increase
in investment properties of $0.4 billion was mainly the result of
property acquisitions. During the year, economic conditions
caused by the COVID-19 pandemic impacted the global property
market and made it difficult to value the properties with the same
degree of certainty as usual. As of the fourth quarter of 2020,
valuation certainty is selectively returning to certain sectors and
geographies of the real estate market.
Great-West Lifeco Inc. 2020 Annual Report
31
Management’s Discussion and Analysis
Equity portfolio
Equity portfolio by type
Publicly traded stocks
Privately held stocks
Sub-total
Investment properties
Total
Investment properties (1)
Office buildings
Industrial
Retail
Other
Total
December 31, 2020
December 31, 2019
$ 10,208
792
11,000
6,270
$
59%
5
64
36
9,766
609
10,375
5,887
60%
4
64
36
$ 17,270
100%
$
16,262
100%
December 31, 2020
December 31, 2019
Canada
U.S.
Europe
Total
Canada
U.S.
Europe
Total
$
$
1,328
861
198
1,239
$
3,626
$
–
–
–
6
6
$
637
812
814
375
$
1,965
1,673
1,012
1,620
$
1,523
519
215
873
$
$
2,638
$
6,270
$
3,130
$
–
–
–
6
6
$
664
773
945
369
$
2,187
1,292
1,160
1,248
$
2,751
$
5,887
(1) The Capital and Risk Solutions segment does not hold any investment properties.
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, 2020
December 31, 2019
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
$
$
23
16
80
Total
$
119
$
2
1
–
3
$
$
(5)
–
(57)
$
(62)
$
20
17
23
60
$
$
19
16
80
$
115
$
2
–
–
2
$
$
$
–
–
(51)
(51)
$
21
16
29
66
The gross amount of impaired investments totaled $119 million or
0.1% of invested assets at December 31, 2020 compared to $115 million
or 0.1% at December 31, 2019, a net increase of $4 million.
The impairment recovery at December 31, 2020 was $3 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, 2020 was $62 million
compared to $51 million at December 31, 2019. The increase was
primarily due to impairment charges on U.K. mortgages during
the year. 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, 2020 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. The provisions reflect
the current credit ratings and potential future rating migration. No
provision is held for government or government related debt rated
A+ or higher where the issuer is monetarily sovereign.
At December 31, 2020, the total actuarial provision for future
credit losses in insurance contract liabilities was $3,368 million
compared to $2,575 million at December 31, 2019, an increase of
$793 million. The increase was primarily due to the acquisition of
the MassMutual retirement services business.
The aggregate of impairment provisions of $62 million ($51 million
at December 31, 2019) and actuarial provisions for future
credit losses in insurance contract liabilities of $3,368 million
($2,575 million at December 31, 2019) represents 1.9% of bond
and mortgage assets, including funds held by ceding insurers, at
December 31, 2020 (1.8% at December 31, 2019).
32
Great-West Lifeco Inc. 2020 Annual Report
Management’s Discussion and Analysis
Oil and Gas Sector Related Exposures
Holdings of Bonds, Mortgages and Investment Properties in the Oil and Gas Sector (1)
Bonds (1) (2) (3)
Mortgages (4)
Investment properties
Total
December 31, 2020
December 31,
2019
Canada
U.S.
Europe Capital and Risk Solutions
Total
Total
$
2,453
1,808
447
$
2,822
463
–
$
$
4,708
$
3,285
$
734
37
–
771
$
$
521
–
–
521
$
6,530
2,308
447
$
4,407
2,389
456
$
9,285
$
7,252
(1) Oil and Gas sector bond holdings are a sub-category of certain industry sectors presented in note 8(a)(ii) in the Company’s December 31, 2020 Annual consolidated financial statements.
(2) Amortized cost of these bonds is $6,047 million at December 31, 2020 and $4,133 million at December 31, 2019.
(3) Includes certain funds held by ceding insurers with a carrying value of $595 million and an amortized cost of $539 million at December 31, 2020.
(4) Includes $554 million of insured mortgages at December 31, 2020 and $615 million at December 31, 2019.
At December 31, 2020, the Company’s holdings of oil and gas sector
related investments, including funds held by ceding insurers, were
$9.3 billion ($7.3 billion at December 31, 2019). The increase of
$2.0 billion from December 31, 2019 was primarily due to bonds
acquired through the MassMutual transaction and net bond
purchases. Holdings include direct exposure of bond holdings of
$6.5 billion ($4.4 billion at December 31, 2019), or 3.0% of invested
assets including funds held by ceding insurers, and indirect
exposure of commercial mortgages and investment properties of
$2.8 billion ($2.9 billion at December 31, 2019), or 1.3% of invested
assets including funds held by ceding insurers.
At December 31, 2020, the Company’s oil and gas sector related
bond holdings were well diversified across multiple sub-sectors and
were high quality with approximately 99% rated investment grade
(100% at December 31, 2019). 61% of the portfolio was invested in
Midstream and Refining entities and 39% in Integrated, Independent
and Oil Field Services and Government Agency entities.
In addition, the Company’s indirect exposure to oil and gas sector
related commercial mortgages and investment properties were
concentrated in certain geographic regions where the economy
is more dependent upon the oil and gas sector and were well
diversified across property type – Multi-family (37%), Industrial/
Other (27%), Office (17%) and Retail (19%). 82% of the total
portfolio was concentrated in the province of Alberta, with the
remainder primarily in the state of Texas. The weighted average
loan-to-value ratio of the commercial mortgages was 71% at
December 31, 2020 (66% at December 31, 2019).
In March 2020, Moody’s Investors Service and S&P Global Ratings
revised their forecasts for crude oil downward for the remainder
of 2020, due to decreased demand resulting from the COVID-19
pandemic. In June 2020, Moody’s Investors Service further reduced
its short and medium-term forecasts for crude oil downward
due to potential longer lasting impacts to global demand for oil.
Hydrocarbon price assumptions are a key input into cash flow
forecasts and the resulting issuer and sector credit risk profile,
particularly for the Integrated, Independent and Oil Field Services
sub-sectors. Increases to provisions for future credit losses as a
result of ratings downgrades and impairment charges specific to
energy sector holdings were negligible in the fourth quarter of 2020.
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, 2020
Mortgages
Investment properties
Total
$
$
719
–
719
$
1,433
801
$
1,449
637
$
940
812
$
2,020
–
$
2,234
$
2,086
$
1,752
$
2,020
December 31,
2019
Other
Total
Total
$
$
541
339
880
$
7,102
2,589
$
9,691
$
$
6,223
2,726
8,949
At December 31, 2020, the Company’s holdings of property related
investments in the U.K. were $9.7 billion, or 4.9% of invested assets
compared to $8.9 billion at December 31, 2019. The increase from
December 31, 2019 was primarily due to originations of equity
release mortgages. Holdings in Central London were $3.1 billion
($2.8 billion at December 31, 2019) or 1.6% of invested assets,
while holdings in other regions of the U.K. were $6.6 billion
($6.1 billion at December 31, 2019) or 3.3% of invested assets.
These holdings were well diversified across property type – Retail
(23%), Industrial/Other (27%), Office (22%), Equity release (21%)
and Multi-family (7%). Of the Retail sector holdings, 55% relate to
warehouse/distribution and other retail, 23% 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, 2019) and the weighted
average debt-service coverage ratio was 2.6 at December 31, 2020
(2.7 at December 31, 2019). At December 31, 2020, the weighted
average mortgage and property lease term exceeded 11 years (11
years at December 31, 2019).
Great-West Lifeco Inc. 2020 Annual Report
33
Management’s Discussion and Analysis
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 2020. 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, 2020, total financial collateral, including initial
margin and overcollateralization, received on derivative assets
was $211 million ($156 million at December 31, 2019) and
pledged on derivative liabilities was $560 million ($634 million
at December 31, 2019). Collateral received on derivative assets
increased and collateral pledged on derivative liabilities decreased
in 2020, 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, 2020, the
outstanding notional amount of derivative contracts increased
by $8.5 billion to $30.1 billion, primarily due to regular hedging
activities, an increase in forward settling mortgage backed security
transactions (“to-be-announced-securities”) and an increase in
foreign exchange forwards related to the MassMutual transaction.
The Company’s exposure to derivative counterparty credit risk,
which reflects the current fair value of those instruments in a gain
position, increased to $829 million at December 31, 2020 from
$451 million at December 31, 2019. 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. There were no changes to derivative
counterparty ratings during the fourth quarter of 2020 and all
had investment grade ratings as of December 31, 2020. Refer to
“Financial Instruments Risk Management”, note 8 in the Company’s
December 31, 2020 annual consolidated financial statements for
details of the Company’s derivative counterparties’ ratings.
The Company’s goodwill and intangible assets relate primarily to
its acquisitions of London Life, Canada Life, Putnam, Irish Life,
Personal Capital and MassMutual. Goodwill and intangible assets
of $14.4 billion at December 31, 2020 increased by $4.0 billion
compared to December 31, 2019. Goodwill increased by $3.6 billion,
indefinite life intangible assets increased by $0.1 billion and finite
life intangible assets increased by $0.3 billion primarily due to
the acquisitions of Personal Capital and the retirement services
business of MassMutual. As at December 31, 2020, the accounting
for the acquisition is not finalized pending completion of a
comprehensive valuation of the net assets acquired. The December
31, 2020 balances reflect management’s current best estimate of the
purchase price allocation. Final valuation of the assets acquired
and liabilities assumed and the completion of the purchase price
allocation are expected to occur during 2021. As at December 31,
2020, provisional amounts for intangible assets have not been
separately identified and valued within the assets of the purchase
price allocation pending completion of the valuation exercise.
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
2020, the Company conducted its annual impairment testing of
goodwill and intangible assets based on September 30, 2020 asset
balances. It was determined that the recoverable amounts of cash
generating unit groupings for goodwill and cash generating units
for intangible assets were in excess of their carrying values and
there was no evidence of significant impairment. Recoverable
amount is based on fair value less cost of disposal.
Refer to note 10 in the Company’s December 31, 2020 annual
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.
otHer generaL fund assets
Other general fund assets
December 31
2020
2019
$ 10,106 $ 6,505
2,704
2,798
1,175
1,487
$ 14,391 $ 10,384
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
Total
December 31
2020
2019
$ 22,121 $ 20,707
8,714
18,383
6,102
3,347
741
975
426
829
145
5,881
3,110
727
693
455
451
236
$ 53,069 $ 40,974
goodwiLL and intangiBLe assets
Goodwill and intangible assets
Goodwill
Indefinite life intangible assets
Finite life intangible assets
Total
34
Great-West Lifeco Inc. 2020 Annual Report
At December 31, 2020, total proprietary mutual funds and
institutional assets include $284.3 billion at Putnam and GWL&A,
$53.8 billion at Irish Life and $7.3 billion at Quadrus Investment
Services Ltd (Quadrus). Proprietary mutual funds and institutional
assets under management increased by $30.4 billion, primarily
due to market movement and net cash inflows, partially offset by
the impact of currency movement. GWL&A includes proprietary
mutual funds related to Empower Retirement including assets
acquired in the Personal Capital and MassMutual transactions.
LiaBiLities
Total liabilities
Insurance and investment contract liabilities
Other general fund liabilities
Investment and insurance contracts on
account of segregated fund policyholders
Total
December 31
2020
2019
$ 218,047 $ 176,177
18,425
21,396
334,032
231,022
$ 573,475 $ 425,624
Total liabilities increased by $147.9 billion to $573.5 billion at
December 31, 2020 from December 31, 2019.
liabilities
investment contract
Insurance and
increased by
$41.9 billion, primarily due to an increase of $27.3 billion from the
acquisition of the MassMutual retirement services business, the
impact of new business and fair value adjustments. Investment and
insurance contracts on account of segregated fund policyholders
increased by $103.0 billion, primarily due to an increase of
$84.8 billion from the acquisition of the MassMutual retirement
services business, the combined impact of market value gains and
investment income of $12.1 billion and the impact of currency
movement of $3.9 billion. Other general fund liabilities increased
by $3.0 billion, primarily due to the net issuance of debentures of
$3.7 billion, partially offset by a decrease in accounts payable and
deferred tax liabilities.
liabilities represent the
Insurance and investment contract
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.
Management’s Discussion and Analysis
Total other general fund assets at December 31, 2020 were
$53.1 billion, an increase of $12.1 billion from December 31, 2019.
The increase was primarily due to an increase of $9.7 billion in
funds held by ceding insurers, primarily due to the acquisition of
the MassMutual retirement services business and an increase of
$1.4 billion in reinsurance assets.
Other assets comprise several items including prepaid expenses
and accounts receivable. Refer to note 12 in the Company’s
December 31, 2020 annual 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
2020
2019
$ 112,675 $ 104,330
55,779
127,577
44,973
65,338
12,986
12,430
9,137
11,836
2,670
2,686
$ 332,542 $ 229,875
1,147
1,490
$ 334,032 $ 231,022
Investments on account of segregated fund policyholders,
which are measured at fair value, increased by $103.0 billion to
$334.0 billion at December 31, 2020 compared to December 31,
2019. The increase was primarily due to an increase of $84.8 billion
related to the acquisition of the MassMutual retirement services
business, the combined impact of market value gains and
investment income of $12.1 billion and the impact of currency
movement of $3.9 billion.
ProPrietary mutuaL funds
Proprietary mutual funds and institutional assets (1)
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 proprietary mutual funds
and institutional assets (1)
December 31
2020
2019
$ 23,478 $ 23,945
19,405
23,523
24,732
24,341
53,613
52,009
187
317
22,362
42,514
$ 166,182 $ 144,244
$ 112,439 $ 108,229
59,112
63,681
8,963
8,641
$ 184,761 $ 176,304
$ 350,943 $ 320,548
(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, 2020, Empower funds exclude $21.8 billion of Putnam managed funds ($17.9 billion
at December 31, 2019), which are included in the categories above.
Great-West Lifeco Inc. 2020 Annual Report
35
Management’s Discussion and Analysis
Assets supporting insurance and investment contract liabilities
December 31, 2020
Bonds
Mortgage loans
Stocks
Investment properties
Other assets (1)
Total assets
Participating
Account
Canada
United States
Europe
Capital and
Risk Solutions
Total
Non-Participating
$ 27,768
11,150
6,227
2,992
10,127
$ 21,511
4,498
2,789
360
6,291
$ 31,631
4,586
46
–
29,440
$ 34,941
5,746
332
2,536
4,533
$
2,365
52
–
–
8,126
$ 118,216
26,032
9,394
5,888
58,517
$ 58,264
$ 35,449
$ 65,703
$ 48,088
$ 10,543
$ 218,047
Total insurance and investment contract liabilities
$ 58,264
$ 35,449
$ 65,703
$ 48,088
$ 10,543
$ 218,047
December 31, 2019
Bonds
Mortgage loans
Stocks
Investment properties
Other assets (1)
Total assets
$
25,328
10,301
6,205
2,484
10,301
$
20,270
4,111
2,237
407
5,643
$
14,311
2,678
–
–
15,371
$
33,062
5,387
299
2,672
4,069
$
2,484
55
–
–
8,502
$
95,455
22,532
8,741
5,563
43,886
$
54,619
$
32,668
$
32,360
$
45,489
$
11,041
$ 176,177
Total insurance and investment contract liabilities
$
54,619
$
32,668
$
32,360
$
45,489
$
11,041
$ 176,177
(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
December 31
2020
2019
$ 9,693 $ 5,993
4,689
3,352
1,381
1,433
1,116
461
5,147
2,698
1,221
1,648
646
343
$ 21,396 $ 18,425
Total other general fund liabilities at December 31, 2020 were
$21.4 billion, an increase of $3.0 billion from December 31, 2019,
primarily due to an increase of $3.7 billion in debentures and
other debt instruments driven by net issuances. The increase was
partially offset by a decrease of $0.7 billion in accounts payable,
and a decrease of $0.5 billion in deferred tax liabilities.
Other liabilities of $5.1 billion include pension and other post-
employment benefits, lease liabilities, deferred income reserve,
bank overdraft and other liability balances. Refer to note 17 in
the Company’s December 31, 2020 annual consolidated financial
statements for a breakdown of the other liabilities balance and
note 15 in the Company’s December 31, 2020 annual consolidated
financial statements for details of the debentures and other
debt instruments.
36
Great-West Lifeco Inc. 2020 Annual Report
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.
In Canada, the Company offers individual segregated fund
products through Canada Life (offered through Great-West
Life, London Life and Canada Life prior to amalgamation on
January 1, 2020). These products provide guaranteed minimum
death benefits (GMDB) and guaranteed minimum accumulation
on maturity benefits (GMAB). Prior to November 4, 2020, the
Company also offered lifetime guaranteed minimum withdrawal
benefits (GMWB) products in Canada.
For a certain generation of products, the guarantees in connection
with the Canadian individual segregated fund businesses are
reinsured to London Reinsurance Group Inc. (LRG), a subsidiary
of Canada Life. This does not include the guarantees on newer
Canadian products. 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 in Germany and
unit-linked products with investment guarantees in Ireland. These
products are similar to segregated fund products but include
minimum credited interest rates and pooling of policyholders’
funds. The Company also offers a GMWB product in Germany.
In the U.S., the Company offers group variable annuities with
GMWB and group standalone GMDB products which mainly
provide return of premium on death.
Management’s Discussion and Analysis
The GMWB products offered by the Company in the U.S. and
Germany, and previously offered in Canada and 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
Segregated fund and variable annuity guarantee exposure
Canada
United States
Europe
Capital and Risk Solutions (2)
Total
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, 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.
Other risk management processes are
in place aimed at
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, 2020, the amount
of GMWB product in-force in Canada, the U.S., Ireland and
Germany was $3,375 million ($3,332 million at December 31, 2019).
December 31, 2020
Investment deficiency by benefit type
Market Value
Income
Maturity
Death
Total (1)
$
$
33,429
20,232
10,770
859
3
1
7
339
$
$ 65,290
$
350
$
14
–
–
–
14
$
$
36
22
919
–
36
23
919
339
$
977
$
1,317
(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, 2020.
(2) Capital and Risk Solutions exposure is to markets in Canada and the U.S.
Investment deficiency at December 31, 2020 increased by
$332 million to $1,317 million compared to December 31, 2019.
The increase was primarily due to a year-to-date decrease in
Germany UWP asset market values relative to the guarantees and
a higher value of LRG GMIB annuitization benefit guarantees. 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, 2020 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 nil in-
quarter ($6 million for the fourth quarter of 2019) and $20 million
year-to-date ($21 million year-to-date for 2019), with the majority
arising in the Capital and Risk Solutions segment related to the
LRG GMIB legacy block of business. The market value increased by
$11,484 million to $65,290 million compared to December 31, 2019.
The increase was primarily due to the MassMutual transaction
in the fourth quarter of 2020 and the year-to-date increase in
equity markets.
Great-West Lifeco Inc. 2020 Annual Report
37
Management’s Discussion and Analysis
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, 2020, debentures and other debt instruments
increased by $3,700 million to $9,693 million compared to
December 31, 2019.
On May 14, 2020, the Company issued $600 million aggregate principal
amount 2.379% debentures at par, maturing on May 14, 2030.
On July 8, 2020, the Company issued $250 million aggregate principal
amount 2.981% debentures at par, maturing on July 8, 2050.
On July 13, 2020, the Company announced the reopening of the
offering of 2.981% debentures due July 8, 2050 and on July 15, 2020
issued an additional $250 million aggregate principal amount. Upon
issuance of the July 15, 2020 debentures, $500 million aggregate
principal amount of 2050 debentures were issued and outstanding.
On August 12, 2020, Great-West Lifeco U.S. Finance 2020, LP, a
subsidiary of the Company, issued $663 million (US$500 million)
aggregate principal amount of 0.904% senior notes due August
12, 2025.
On August 13, 2020, the Company repaid the principal amount
of its maturing 4.65% $500 million debentures, together with
accrued interest.
On September 17, 2020, Empower Finance 2020, LP, a subsidiary
of the Company, issued $526 million (US$400 million) aggregate
principal amount of 1.357% senior notes due September 17,
2027, $526 million (US$400 million) aggregate principal amount
of 1.776% senior notes due March 17, 2031 and $921 million
(US$700 million) aggregate principal amount of 3.075% senior
notes due September 17, 2051.
On November 2, 2020, Great-West Lifeco U.S. LLC, a subsidiary of
the Company, established a 1-year $635 million (US$500 million)
revolving credit facility with interest on the drawn balance equal
to the LIBOR rate plus 1.0%. The facility was fully drawn as at
December 31, 2020 as part of the MassMutual retirement services
business acquisition financing plan. The Company intends to pay
down the drawn amount during 2021.
Refer to note 15 in the Company’s December 31, 2020 annual
consolidated financial statements for further details of the
Company’s debentures and other debt instruments.
caPitaL trust securities
At December 31, 2020, 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, 2020 were CLiCS – Series B with a fair value
of $55 million and principal value of $37 million (fair value of
$53 million at December 31, 2019).
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.
38
Great-West Lifeco Inc. 2020 Annual Report
equity
Share capital outstanding at December 31, 2020 was $8,365 million,
which comprises $5,651 million of common shares, $2,464 million
of fixed rate First Preferred Shares and $250 million of 5-year rate
reset First Preferred Shares.
Common shares
At December 31, 2020, the Company had 927,853,106 common
shares outstanding with a stated value of $5,651 million compared
to 927,281,186 common shares with a stated value of $5,633 million
at December 31, 2019.
The Company commenced a normal course issuer bid (NCIB) on
January 22, 2020 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, 2020, the Company did
not purchase any common shares under the current NCIB (2019
- 2,000,000). As a result of the COVID-19 pandemic impacts on
markets, on March 13, 2020, OSFI set expectations that Canadian
banks and insurers should suspend share buybacks until further
notice. Subsequent to December 31, 2020, on January 25, 2021,
the Company announced a normal course issuer bid (NCIB)
commencing January 27, 2021 and terminating January 26, 2022 to
purchase for cancellation up to but not more than 20,000,000 of its
common shares at market prices. The Company does not currently
intend to engage in share repurchases that reduce its outstanding
shares while OSFI maintains its expectation that the institutions
it regulates suspend share buybacks. However, the Company may
use the renewed NCIB for other purposes permitted by the Toronto
Stock Exchange or, when OSFI no longer maintains its expectation
or circumstances otherwise change, to acquire common shares to
mitigate the dilutive effect of issuing shares under the Company’s
Stock Option Plan and for other capital management purposes.
Preferred shares
At December 31, 2020, the Company had 11 series of fixed rate First
Preferred Shares and one series of 5-year rate reset First Preferred
Shares outstanding with aggregate stated values of $2,464 million
and $250 million, respectively.
On December 17, 2020, the Company announced that holders of
59,830 Series N Shares elected to convert their shares into Series
O Shares, and that holders of 547,303 Series O Shares elected to
convert their shares into Series N Shares. After taking into account
all shares tendered for conversion, the Company determined that
there would be less than 1,000,000 Series O Shares outstanding on
December 31, 2020. As a result and in accordance with the terms
and conditions attached to the shares, no Series N Shares were
converted into Series O Shares and all remaining Series O Shares
were automatically converted into Series N Shares on a one-for-one
basis on December 31, 2020. Following the automatic conversion,
Lifeco has 10,000,000 Series N Shares and no Series O Shares issued
and outstanding. The Series N Shares carry an annual fixed non-
cumulative dividend rate of 1.749% up to but excluding December
31, 2025 (2.176% up to but excluding December 31, 2020) and are
redeemable at the option of the Company on December 31, 2025
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. Prior to conversion, the Series O Shares
carried a floating non-cumulative dividend rate equal to the
relevant Government of Canada Treasury Bill rate plus 1.30%.
Management’s Discussion and Analysis
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
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
10,000,000
$250,000,000
1.749%
Dec 31, 2020
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
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
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 18 in the Company’s December 31, 2020
annual consolidated financial statements for further details of the
Company’s non-controlling interests.
Non-controlling interests
Participating account surplus in subsidiaries:
Canada Life
GWL&A
Great-West Life
London Life
December 31
2020
2019
$ 2,858 $
13
–
–
284
14
595
1,866
$ 2,871 $ 2,759
Non-controlling interests in subsidiaries
$ 116 $
107
At December 31, 2020, the carrying value of non-controlling
interests increased by $121 million to $2,987 million compared to
December 31, 2019. For the twelve months ended December 31,
2020, net earnings attributable to participating account before
policyholder dividends were $1,430 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 are recorded
in the amalgamated company, Canada Life.
Great-West Lifeco Inc. 2020 Annual Report
39
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, 2020, the
Company and its operating subsidiaries held cash, cash equivalents
and short-term bonds of $11.2 billion ($8.9 billion at December
31, 2019) and other liquid assets and marketable securities of
$100.2 billion ($86.6 billion at December 31, 2019). Included in
the cash, cash equivalents and short-term bonds at December 31,
2020 was $0.9 billion ($0.7 billion at December 31, 2019) held at
the Lifeco holding company level which includes cash at Great-
West Lifeco U.S. LLC, the Company’s U.S. holding company. Cash
and cash equivalents and short-term bonds held increased as a
result of debenture issuances totaling $1.1 billion and $2.6 billion
(US$2 billion) of senior notes, partially offset by the acquisitions
of Personal Capital and MassMutual’s retirement services business
and the repayment of $500 million of debentures that matured on
August 13, 2020. 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.
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. Refer to “Risk Management – COVID-19
Pandemic Impact, Government and Regulatory Responses” section
for additional discussion of the impact of the current environment.
For the three months ended
December 31
For the twelve months ended
December 31
2020
2019
2020
2019
$
1,896
381
464
2,741
(167)
2,574
5,372
$
1,291
(781)
224
734
41
775
3,853
$
9,610
2,010
(8,202)
3,418
(100)
3,318
4,628
$
6,110
(3,981)
(1,539)
590
(130)
460
4,168
$
7,946
$
4,628
$
7,946
$
4,628
In the fourth quarter of 2020, cash and cash equivalents increased
by $2.6 billion from September 30, 2020. Cash flows provided by
operations during the fourth quarter of 2020 were $1.9 billion,
an increase of $0.6 billion compared to the fourth quarter of
2019. Cash flows used in financing were $0.4 billion, primarily
used for the payment of dividends to common and preferred
shareholders of $0.4 billion, partially offset by an increase in
line of credit of subsidiary of $0.8 billion. For the three months
ended December 31, 2020, cash inflows from investment activities
related to net disposals of $0.5 billion, primarily reflecting the net
proceeds from the sale of GLC and net dispositions of investment
assets, partially offset by the acquisition of the retirement services
business of MassMutual.
40
Great-West Lifeco Inc. 2020 Annual Report
Management’s Discussion and Analysis
For the twelve months ended December 31, 2020, cash and cash
equivalents increased by $3.3 billion from December 31, 2019.
Cash flows provided by operations were $9.6 billion, an increase
of $3.5 billion compared to the same period in 2019. Included
in the cash flows provided by operations for the twelve months
ended December 31, 2019 was $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 of $2.0 billion were primarily provided by a net issuance
of debentures and senior notes of $3.2 billion and an increase in
line of credit of subsidiary of $0.5 billion, partially offset by the
payment of dividends to common and preferred shareholders of
$1.8 billion. In the first quarter of 2020, the Company increased
the quarterly dividend to common shareholders from $0.413
per common share to $0.438 per common share. For the twelve
months ended December 31, 2020, cash outflows of $8.2 billion
were used by the Company to acquire investment assets and for
the acquisitions of Personal Capital and the retirement services
business of MassMutual, partially offset by the net proceeds from
the sale of GLC in the fourth quarter and the sale of IPSI in the
third quarter of 2020.
commitments/contractuaL oBLigations
Commitments/contractual obligations
Payments due by period
At December 31, 2020
Total
1 year
2 years
3 years
4 years
5 years
Over
5 years
1) Debentures and other debt instruments
2) Lease obligations
3) Purchase obligations
4) Credit-related arrangements
$
$
8,639
734
261
$
–
88
113
(a) Contractual commitments
(b) Letters of credit
5) Pension contributions
1,990
1,874
see note 4(b) below
316
316
$
–
78
65
95
–
$
775
67
23
21
–
–
60
13
–
–
$
635
54
10
$
7,229
387
37
–
–
–
–
Total contractual obligations
$ 11,940
$
2,391
$
238
$
886
$
73
$
699
$
7,653
(1) Refer to note 15 in the Company’s December 31, 2020 annual 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 17 in the Company’s December 31, 2020 annual 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$2,107 million of which US$1,791 million were issued as of December 31, 2020. There are seven primary
facilities within Lifeco.
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.
A total of US$1,493 million has been issued to subsidiaries or branches of Canada Life and the additional US$70 million has been issued to Great-West Life & Annuity Insurance Company of South Carolina.
The remaining US$228 million has been issued 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.
(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 2021 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 regulatory 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).
Great-West Lifeco Inc. 2020 Annual Report
41
Management’s Discussion and Analysis
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).
Canada Life’s consolidated LICAT Ratio at December 31, 2020 was
129% (135% at December 31, 2019). The LICAT Ratio does not
take into account any impact from $0.9 billion of liquidity at the
Lifeco holding company level at December 31, 2020 ($0.7 billion
at December 31, 2019). The decrease in the LICAT Ratio from
December 31, 2019 is primarily due to the growth in capital
requirements from new business written in the year, market
movements and the switch in the LICAT interest rate scenario for
North America midway through the year.
The following provides a summary of the LICAT information and
ratios for Canada Life:
LICAT Ratio
Tier 1 Capital
Tier 2 Capital
Total Available Capital
Surplus Allowance & Eligible Deposits
Total Capital Resources
Required Capital
Dec. 31
2020
Dec. 31
2019
$ 11,593 $ 11,952
3,637
4,568
16,161
14,226
15,589
12,625
$ 30,387 $ 28,214
$ 23,607 $ 20,911
Licat sensitivities
Caution Related to Sensitivities
This section includes estimates of sensitivities for certain risks.
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;
• 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. Given the nature of these calculations, the
Company cannot provide assurance that the actual impact on the
Canada Life consolidated LICAT Ratio will be as indicated.
Publicly Traded Common Stocks
The following table sets out the estimated immediate impact to
Canada Life’s consolidated LICAT Ratio of certain instantaneous
changes in publicly traded common stock values as at December
31, 2020. These sensitivity estimates assume instantaneous
shocks, followed by a return to historical average growth levels for
broader equity markets. The sensitivity estimates relate to publicly
traded common stocks and do not cover other non-fixed income
assets. These estimates are illustrative as actual equity exposures
may vary due to active management of the public stock portfolios.
Immediate change in publicly traded common stock values
December 31, 2020
20%
increase
10%
increase
10%
decrease
20%
decrease
Potential increase
(decrease) on LICAT Ratio
1 point
1 point
0 points
(1 point)
Total Ratio (OSFI Supervisory Target = 100%) (1)
129%
135%
Interest Rates
(1) Total Ratio (%) = Total Capital Resources / Base Solvency Buffer (after 1.05 scalar)
At December 31, 2020, the Risk-Based Capital (RBC) ratio of
GWL&A, Lifeco’s regulated U.S. operating company, is estimated
to be 409% of the Company Action Level set by the National
Association of Insurance Commissioners. The estimated RBC
ratio reflects acquisitions completed during 2020 including the
MassMutual transaction. 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.
Sensitivity to interest rates is dependent on many factors and
may result in non-linear impacts to the LICAT Ratio. Canada Life’s
consolidated LICAT Ratio will generally increase in an environment
of declining interest rates and vice-versa. Lower interest rates
will increase the value of the Company’s surplus assets and other
regulatory capital resources. These sensitivity estimates are
illustrative. Actual movement in credit spreads or government
treasury rates may produce different movements in Canada Life’s
consolidated LICAT Ratio. These sensitivities do not include a
change in the ultimate interest rates outlined in Actuarial Standards.
Immediate parallel shift in yield curve
December 31, 2020
Potential increase (decrease) on LICAT Ratio
(2 points)
50 bps
increase
50 bps
decrease
3 points
Impact of a LICAT interest rate risk scenario shift is not included in
the sensitivity estimates.
42
Great-West Lifeco Inc. 2020 Annual Report
Management’s Discussion and Analysis
LICAT Interest Rate Scenario Shift
OSFI Regulatory Capital Initiatives
The LICAT interest rate requirements are based on the results
of the most adverse of four scenarios. The determination of the
most adverse scenario is dependent on government treasury
rates and credit spreads, as well as the position of the Company’s
assets and liabilities. A change in the level and term structure of
interest rates used can cause a shift in the interest rate scenario
applied in the LICAT calculation. This results in a discontinuity
where capital requirements can change materially. During the
first quarter of 2020, OSFI introduced a smoothing calculation
to address potential volatility in the interest rate requirement
for participating insurance products. The smoothing calculation
averages the participating interest rate risk requirements over the
trailing six quarters, thereby reducing unwarranted volatility.
During the third quarter of 2020, the Company experienced a shift
to a new most adverse interest rate scenario in North America.
The Company previously communicated that a shift to a different
adverse scenario was estimated to decrease the Company’s
consolidated LICAT Ratio by approximately 5.5 points. This impact
is spread over a six quarter period resulting in less than a 1 point
decrease in the current quarter ratio with the remaining decrease
of approximately 4 points being reflected over the next 4 quarters,
if the Company remains on the current scenario.
COVID-19 OSFI Regulatory Measures
OSFI is providing capital relief for insurance companies due to
the COVID-19 economic environment. During the fourth quarter
of 2020, OSFI updated its relief measures announced earlier in
the year to phase out the special capital treatment for payment
deferrals. The capital relief provided by this temporary measure is
not material to the Company.
During the fourth quarter of 2020, OSFI issued an Advisory
which confirmed the interest rate risk smoothing calculation on
participating insurance, and provided clarification of available
insurance blocks, effective
capital for certain participating
January 1, 2021. The Advisory will remain in effect until January 1,
2023, when it will be subsequently incorporated into the LICAT
guideline. The noted clarification is not expected to be material
to the Company.
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 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 an effective date of January 1, 2023. IFRS 17
includes new requirements for the recognition, measurement,
presentation and disclosure 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.
return on equity (roe) (1)
Base Return on Equity (1)
Canada
U.S. Financial Services
U.S. Asset Management (Putnam)
Europe
Capital Risk and Solutions
Total Lifeco Base Earnings Basis (1)
Return on Equity (1)
Canada
U.S. Financial Services
U.S. Asset Management (Putnam)
Europe
Capital and Risk Solutions
Total Lifeco Net Earnings Basis
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
18.5%
8.6%
0.7%
11.8%
38.8%
12.8%
Dec. 31
2020
16.4%
5.6%
11.6%
15.7%
44.4%
14.1%
16.5%
10.1%
(0.3)%
13.0%
38.5%
13.5%
Sept. 30
2020
14.0%
10.5%
(11.7)%
15.9%
38.2%
12.4%
16.8%
11.4%
1.2%
13.1%
33.2%
13.4%
Dec. 31
2019
15.0%
5.1%
(9.7)%
16.5%
31.9%
11.7%
(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 base return on equity of 12.8% at December 31, 2020, compared to 13.4% at December 31, 2019. The Company
reported return on equity of 14.1% at December 31, 2020, compared to 11.7% at December 31, 2019.
Great-West Lifeco Inc. 2020 Annual Report
43
Management’s Discussion and Analysis
ratings
The Company’s intention is to maintain its financial leverage
ratio in line with credit rating agencies’ targets for highly rated
entities. At December 31, 2020, the Company’s leverage ratio was
slightly in excess of target levels following debt issuances relating
to U.S acquisitions and the Company’s desire to maintain a higher
liquidity balance through the COVID pandemic. The Company
intends to reduce leverage back in line with targets during 2021.
Refer to the “Non-IFRS Financial Measures” section in this MD&A
for additional details.
Lifeco maintains ratings from five independent 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 2020, 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 strong capitalization. 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 2020.
Rating agency
Measurement
Lifeco
Canada Life
Irish Life
GWL&A
A.M. Best Company
DBRS Morningstar
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
S&P Global Ratings
Insurer Financial Strength
Senior Debt
Subordinated Debt
As part of its announcement on September 8, 2020 that its
subsidiary, GWL&A, through its Empower Retirement business,
had reached an agreement to acquire the retirement services
business of MassMutual, Lifeco announced that the transaction
was expected to be funded by US$1.5 billion of new long-term
debt and US$0.5 billion of short-term financing, as well as existing
cash. In addition, Lifeco noted that the short-term financing allows
for leverage ratio reduction once the acquired business generates
meaningful earnings and cash flow.
A (high)
A (high)
A
A+
A+
AA
AA
AA (low)
AA
A+
Aa3
AA
AA-
AA
A+
NR
AA
Aa3
AA
Following the announcement, and having regard to the financing
plan and its impact on leverage in the near term, all five rating
agencies affirmed the ratings as set out above. Four of the five
agencies also affirmed the ratings outlook as stable while Fitch
Ratings revised its outlook to negative from stable.
44
Great-West Lifeco Inc. 2020 Annual Report
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 Canada Life and its operating subsidiary, Irish Life;
GWL&A (Financial Services) and Putnam (Asset Management);
together with Lifeco’s Corporate results.
Effective January 1, 2020, as a result of strategic operational
changes, the Company has divided the previously reported
Europe segment into two separate reporting segments – Europe
and Capital and Risk Solutions. The Company’s other reportable
segments – Canada, United States and Lifeco Corporate – are
unchanged. Comparative figures have been reclassified to reflect
the new composition of the reportable segments.
C a n a d a
The Canada segment of Lifeco includes the operating results of
the Canadian businesses operated by 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.
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 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), Registered Education Savings Plans (RESP),
group retirement income products, and institutional investment
services. The Company is focused on innovation within its savings
and investment product lines.
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.
Great-West Lifeco Inc. 2020 Annual Report
45
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 29,700 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 7.4 million plan members (2)
premium with 21.9% market share (1)
• 19% market share of group capital accumulation plans (1)
• A significant provider of individual disability and critical illness
insurance with 12.1% market share of new sales (1)
• An industry leader with 26.3% 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
• RESPs
Invested in:
• Segregated funds
• Mutual funds
• Guaranteed investment options
• Retirement Income Plans
• Retirement income funds
• Life income funds
• Payout annuities
• Deferred annuities
• Residential mortgages
• Banking products
distriBution (3)
Wealth and Insurance Solutions Enterprise
• 2,150 financial security advisors
Freedom 55 FinancialTM
• 2,252 financial security advisors
Affiliated Partnerships
• 7,092 independent brokers associated with 31 MGAs
• 1,395 advisors associated with 14 national accounts
• 1,629 IG Wealth Management consultants who actively sell Canada Life
products
• 90 direct brokers and producer groups
Financial Horizons Group (4)
• 5,175 independent brokers selling products from across the insurance
industry, including Canada Life
Quadrus Investment Services Ltd.
(also included in WISE & Freedom advisor counts):
• 3,217 investment representatives
(1) Nine months ended September 30, 2020.
(2) As at November 30, 2020.
(3) WISE & Freedom includes all contracted advisors. Affiliated Partnerships and Financial Horizons Group
include advisors who placed new business in 2020.
(4) FHG advisors that placed Canada Life business in 2020 are also included in the MGA independent
broker count.
46
Great-West Lifeco Inc. 2020 Annual Report
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, RESPs & 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™
• Best Doctors™
• Contact
• Individual Health
distriBution
• 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 619 employees, located in 26 offices across the country,
including 114 account executives. (2)
• 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, 2019
(2) As at November 30, 2020
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) (4)
Sales(1)
Fee and other income
Base earnings (1)
Items excluded from base earnings (2)
Actuarial assumption changes and other management actions (2)
Market-related impacts on liabilities (2)
Net gain/charge on business dispositions (2) (3)
Restructuring costs (2) (3)
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
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
$
7,017
3,729
461
$
6,161
2,520
445
$
7,229
3,609
457
$ 25,838
12,271
1,756
$
27,346
13,249
1,766
$
348
$
270
$
274
$
1,206
$
1,178
(147)
(10)
143
(34)
4
(8)
–
–
(82)
(4)
–
–
(194)
(51)
143
(34)
(121)
(6)
–
–
Net earnings
$
300
$
266
$
188
$
1,070
$
1,051
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)
$ 187,698
7,311
$ 181,727
6,979
$ 176,304
6,986
195,009
18,554
188,706
17,749
183,290
17,118
$ 213,563
$ 206,455
$ 200,408
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
(2) Items excluded from base earnings, a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional information.
(3) The net gain on the sale of GLC and restructuring costs are included in the Canada Corporate business unit.
(4) Comparative figures have been reclassified to reflect presentation adjustments.
Base earnings (1) and Net earnings – common shareholders
Individual Customer
Group Customer
Canada Corporate
Base earnings (1)
Individual Customer
Group Customer
Canada Corporate
Net earnings – common shareholders
For the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
$
$
$
$
132
205
11
348
(9)
189
120
300
$
$
$
$
123
134
13
270
119
134
13
266
$
$
$
$
143
144
(13)
274
87
114
(13)
188
$
$
$
552
677
(23)
1,206
317
667
86
$
$
$
580
610
(12)
1,178
431
632
(12)
$
1,070
$
1,051
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
Great-West Lifeco Inc. 2020 Annual Report
47
Management’s Discussion and Analysis
2020 developMents
• COVID-19 Pandemic Impacts – The results of the Canada
segment for the twelve months ended December 31, 2020 reflect
the continued positive impact of market recoveries but also the
impact of the economic slowdown caused by the COVID-19
pandemic on new business growth and lower contributions
from investment experience. The impact of lower sales due to
the economic slowdown was mostly offset by lower redemptions
or lower business attrition. Many new product launches and
digital capabilities are helping to build sales momentum.
Experience was positive with limited impact on mortality and
lower claims experience and morbidity improvement offsetting
pressures on expense recoveries. Insurance premium deferrals
for customers were limited in 2020.
ASO expense recoveries are temporarily affected by lower claim
volumes driven by restrictions on provider activity, but results
are expected to improve as the economy re-opens and as services
become accessible. Physical distancing and self-isolation
requirements as well as the restrictions on business and social
activities and the adverse economic environment resulting from
the pandemic may cause unfavourable disability experience in
future periods. Pricing of disability coverage will be adjusted
over time as experience emerges. Paramedical services started
to return early in the third quarter of 2020; insurance sales were
affected for a period of time due to the absence of these services
but have shown improvement in the fourth quarter.
The Canada segment remains focused on supporting customers,
communities and employees by providing Canadians with
protection and wealth management solutions for their financial,
physical and mental well-being during this unprecedented time.
Products, services and support are being delivered digitally to
promote physical distancing and help keep customers, advisors
and employees safe. The Company has been supporting
customers through digital solutions such as SimpleProtect,
which provides online
insurance policy application and
approval, Consult+, which provides group customers virtual
health care access, a digital context based messaging feature
in the GroupNet for Plan Members mobile application that
allows members to receive personalized notifications and offers
directly to their device. This service has been used to connect
members with some of the supports and measures that were
introduced as a result of COVID-19. Financial assistance is
being provided to plan sponsors and members to help maintain
and extend coverage for employees, and to the communities
through donations.
The Canadian business is maintaining a cautious approach to
employees returning to the office, in line with the Company’s
principles and local government guidelines. During the fourth
quarter of 2020, confirmed COVID-19 cases began to rise in the
jurisdictions in Canada in which the Company operates. The
Company estimates that maximum occupancy will not exceed
the current level of 15% to 20% by the end of the first quarter of
2021 with health and safety protocols recommended by public
health authorities in place.
48
Great-West Lifeco Inc. 2020 Annual Report
its
temporary
Canada Life continued
suspension of
contributions, redemptions and transfers for its real estate
segregated funds, as the economic conditions caused by the
COVID-19 situation continue to lead to valuation uncertainty in
the real estate industry. As of January 11, 2021, the suspension
has been partially lifted, allowing contributions and transfers
into the fund. As well, requests for redemptions and transfers
out of the fund are being accepted for a limited period and will
be processed, subject to available liquidity, on pre-specified
dates; however, redemptions and transfers out of the funds
otherwise remain suspended.
• On January 1, 2020, the Company amalgamated its three
life insurance companies, The Great-West Life
Canadian
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., into a single life insurance company, The Canada
Life Assurance Company. This amalgamation creates operating
efficiencies and simplifies the Company’s capital structure to
allow for more efficient use of capital, although it is not expected
to have a material financial impact.
• On October 29, 2020, the Company entered into a strategic
relationship with Mackenzie and Northleaf Capital Partners Ltd.
(Northleaf ) to expand and enhance the private markets product
capabilities across distribution channels. Mackenzie and
Lifeco jointly acquired a non-controlling interest in Northleaf
through an acquisition vehicle 80% owned by Mackenzie and
20% owned by Lifeco, providing a significant presence in the
large and rapidly growing private markets investments industry,
with an obligation and right to purchase the remaining equity
and voting interests in the firm commencing in approximately
five years and extending into future periods. Lifeco has also
committed, as part of the transaction, to make a minimum
investment of its balance sheet through 2022 in Northleaf’s
product offerings.
• On December 31, 2020, the Company completed the sale of GLC
Asset Management Group Ltd. (GLC) to Mackenzie Financial
Corporation (Mackenzie), an affiliate of the Company. GLC
was a wholly-owned subsidiary of Canada Life whose principal
activity was the provision of investment management services to
Canada Life. The Company recognized a net gain on disposal of
$143 million, net of restructuring costs of $16 million after-tax.
The carrying value and earnings of the business are immaterial
to the Company. Refer to the “Transactions with Related Parties”
section of this document for additional information regarding
the sale.
Canada Life also established its own fund management
company, Canada Life Investment Management Ltd. (CLIML),
and on December 31, 2020, CLIML assumed fund management
responsibilities for the Canada Life Mutual Funds, offered by
Quadrus Investment Services Ltd., a subsidiary of Canada Life,
and other Canada Life branded investment funds. CLIML entered
into a long-term administration agreement with Mackenzie and
Canada Life, and CLIML and Canada Life entered into a long-
term distribution agreement with Mackenzie to provide them
with access to Mackenzie’s investment management services at
preferred rates.
• During the year, the Company received the following awards
and rankings:
º
º
The Company earned an A (‘Leadership’) rating on CDP’s
2020 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 sixth consecutive year.
The Company won the CNA Canada Award for Excellence
in Philanthropy and Community Service at the 2020
Insurance Business Canada Awards for the Company’s
major philanthropic and community service initiatives,
impact on local and national causes and strong presence in
the insurance space in Canada.
Management’s Discussion and Analysis
• In the fourth quarter of 2020, two initiatives impacting the
Canada segment operations were announced. The Company
announced changes to its Canadian distribution strategy
and vision for advisor based distribution, and IGM Financial,
an affiliate of the Company, has notified the Company of its
intent to terminate its long-term technology infrastructure
related sharing agreement in the first quarter of 2021. These
initiatives, together with the sale of GLC, will result in staff
reductions, exit costs for certain facilities lease agreements
and decommissioning activities related to technology and
other assets. As a result of these transactions, the Company
has recorded a restructuring provision of $92 million, including
the restructuring costs associated with the GLC disposition,
($68 million in the shareholder account and $24 million
in the participating account). The after-tax impact of the
restructuring provision is $68 million in-quarter ($50 million
in the shareholder account, $34 million excluding restructuring
costs related to the GLC disposition, and $18 million in the
participating account). Changes relating to these initiatives
are expected to be implemented by the end of 2022 and are not
expected to have a material impact on the Company’s ongoing
financial results.
• During the year, the Company launched other new tools and
products to improve customer experience and help them meet
their financial and wellness objectives:
º
º
º
º
º
Canada Life launched a new participating life insurance
product available to advisors in all channels and supported
by the amalgamated Canada Life participating account.
Canada Life launched the newly rebranded Canada Life
mutual fund shelf, Canada Life Mutual Funds. The shelf
features 18 new mutual funds, which were available for
sale starting September 9, 2020, and rebrands the existing
Quadrus Group of Funds shelf, creating a curated selection
of competitive investment strategies across a range of
managers, asset classes and styles. Canada Life Mutual
Funds are managed by CLIML and are exclusively available
through Quadrus Investment Services Ltd.
Canada Life updated its target risk asset allocation funds
and also launched new Risk-Managed Portfolios to help
protect clients from the unexpected while still helping them
reach their goals.
Rolled out the new Advisor Workspace to all Freedom 55
Financial and WISE advisors, approximately 93% of whom have
registered to use the platform as of December 31, 2020. Advisor
Workspace allows advisors to view their clients’ complete
book of business with Canada Life as well as to complete some
simple non-financial transactions. Advisor Workspace will
become the platform for all advisor information and activity
with Canada Life as it continues to evolve.
Group Customer became the first Group provider in Canada
to launch an employer sponsored Registered Education
Savings Program (RESP). This digital RESP simplifies the
enrollment process and forms, offers lower fees and an easy
to use portal.
Great-West Lifeco Inc. 2020 Annual Report
49
Management’s Discussion and Analysis
Business units – Canada
individuaL customer
oPerating resuLts
Premiums and deposits (1) (3)
Sales (1)
Fee and other income
Base earnings (1)
Items excluded from base earnings (2)
For the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
$
3,049
2,934
251
$
2,503
1,928
251
$
3,110
2,718
258
$ 10,626
9,541
981
$
10,619
9,318
995
$
132
$
123
$
143
$
552
$
580
Actuarial assumption changes and other management actions (2)
Market-related impacts on liabilities (2)
(131)
(10)
4
(8)
Net earnings
$
(9)
$
119
$
(52)
(4)
87
(184)
(51)
$
317
$
(143)
(6)
431
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
(2) Items excluded from base earnings, a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional information.
(3) Comparative figures have been reclassified to reflect presentation adjustments.
Premiums and deposits
Assets under administration – Individual Wealth
Premiums and deposits for the fourth quarter of 2020 decreased by
$0.1 billion to $3.0 billion compared to the same quarter last year,
primarily due to lower segregated fund deposits, partially offset by
higher proprietary mutual fund deposits and higher participating
life insurance premiums.
For the twelve months ended December 31, 2020, premiums and
deposits were comparable to the same period last year.
Premiums and deposits for the fourth quarter of 2020 increased by
$0.5 billion compared to the previous quarter, primarily due to an
increase in participating life insurance premiums.
Sales
Sales for the fourth quarter of 2020 increased by $0.2 billion to
$2.9 billion compared to the same quarter last year, primarily due
to higher mutual fund sales.
For the twelve months ended December 31, 2020, sales of
$9.5 billion increased by $0.2 billion compared to the same period
last year, primarily due to the same reasons discussed for the in-
quarter results.
Sales for the fourth quarter of 2020 increased by $1.0 billion
compared to the previous quarter, primarily due to higher
segregated fund and mutual fund sales.
For the individual wealth investment fund business, net cash
outflows for the fourth quarter of 2020 were $99 million compared
to $299 million for the same quarter last year and $125 million
for the previous quarter. Net cash outflows for the twelve months
ended December 31, 2020 were $464 million compared to
$1,386 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
2020
2019
$ 4,899 $ 4,920
32,915
33,866
6,803
7,311
$ 46,076 $ 44,638
Other assets under administration (1) (2)
$ 11,597 $ 9,996
Total assets under administration – Individual Wealth (1) $ 57,673 $ 54,634
(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 2020 decreased by
$7 million to $251 million compared to the same quarter last year,
primarily due to lower margins, partially offset by higher average
assets under administration.
For the twelve months ended December 31, 2020, fee and other
income of $981 million decreased by $14 million compared to the
same period last year, primarily due to lower margins.
Fee and other income for the fourth quarter of 2020 were
comparable to the previous quarter.
50
Great-West Lifeco Inc. 2020 Annual Report
Management’s Discussion and Analysis
Base earnings
Base earnings for the fourth quarter of 2020 decreased by
$11 million to $132 million compared to the same quarter last
year. The decrease was primarily due to lower net fee income and
the impact of changes to certain tax estimates, partially offset by
favourable policyholder behaviour experience.
For the twelve months ended December 31, 2020, base earnings
decreased by $28 million to $552 million compared to the same
period last year. The decrease was primarily due to lower net fee
income, lower impact of new business driven by lower interest
rates and unfavourable morbidity experience, partially offset by
favourable mortality and policyholder behaviour experience.
Base earnings for the fourth quarter of 2020 increased by $9 million
compared to the previous quarter, primarily due to higher
contributions from investment experience and higher impact of
new business, partially offset by the impact of changes to certain
tax estimates, unfavourable policyholder behaviour experience
and lower net fee income.
Net earnings
Net earnings for the fourth quarter of 2020 decreased by $96 million
to negative $9 million compared to the same quarter last year. The
decrease was primarily due to unfavourable impact of insurance
contract liability basis changes, unfavourable market-related
impacts and the reasons discussed for base earnings for the same
period. Insurance contract liability basis changes in 2020 include
the unfavourable impact of updates to policyholder behaviour
assumptions and certain
investment-related assumptions,
partially offset by the favourable impact of updates to mortality
assumptions.
impacts of
For the twelve months ended December 31, 2020, net earnings
decreased by $114 million to $317 million compared to the
same period last year. The decrease was primarily due to higher
unfavourable
liability basis
changes, unfavourable market-related impacts, and the reasons
discussed for base earnings for the same period. The unfavourable
market-related impacts were primarily driven by the impact
of the equity market declines and volatility in the first quarter
of 2020 on segregated fund guarantees and their related
hedging ineffectiveness.
insurance contract
Net earnings for the fourth quarter of 2020 decreased by
$128 million compared to the previous quarter, primarily due
to unfavourable impacts of insurance contract liability basis
changes, partially offset by the reasons discussed for base earnings
for the same period.
For the fourth quarter of 2020, net earnings attributable to the
participating account was $9 million compared to a net loss
of $30 million for the same quarter last year, primarily due to
higher impact of new business. Included in participating account
earnings for the fourth quarter of 2020 were restructuring costs
of $18 million related to strategic initiatives as discussed in the
“2020 Developments” section. In addition, participating account
earnings for the fourth quarter of 2019 included unfavourable
impacts of insurance contract liability basis changes.
For the twelve months ended December 31, 2020, net earnings
attributable to the participating account were $76 million
compared to net earnings of $13 million for the same period last
year, primarily due to higher impact of new business, partially
offset by lower contributions from insurance contract liability
basis changes and the restructuring costs discussed for the in-
quarter results.
For the fourth quarter of 2020, net earnings attributable to the
participating account were $9 million compared to net earnings
of $23 million for the previous quarter, primarily due to the
restructuring costs discussed for the in-quarter results, partially
offset by higher impact of new business. Participating account
earnings for the third quarter of 2020 included unfavourable
impacts of 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 strong core
business results in 2020. The new single brand and company
provides efficiencies and focus that when added to the Company’s
reputation for strength and stability, prudent business practices
and the depth and breadth of its distribution channels, positions
the Company well for 2021 and beyond.
COVID-19 impacted Individual Customer sales as a result of slower
market activity and paramedical services closing for part of 2020.
Individual Insurance application activity has returned to close to
pre-COVID-19 levels and paramedical services have re-opened,
but it is unclear what impact COVID-19 will have on future period
results. Continued focus on providing customers and advisors with
digital solutions for sales and service will remain a key priority.
In 2021, 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 initiatives.
Management has identified a number of areas of focus for these
initiatives 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.
Great-West Lifeco Inc. 2020 Annual Report
51
Management’s Discussion and Analysis
grouP customer
oPerating resuLts
Premiums and deposits (1)
Sales (1)
Fee and other income
Base earnings (1)
Items excluded from base earnings (2)
For the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
$
3,968
795
195
$
3,658
592
179
$
4,119
891
184
$ 15,212
2,730
716
$
16,727
3,931
708
$
205
$
134
$
144
$
677
$
610
Actuarial assumption changes and other management actions (2)
(16)
–
Net earnings
$
189
$
134
$
(30)
114
(10)
$
667
$
22
632
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
(2) Items excluded from base earnings, a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional information.
Premiums and deposits
Assets under administration – Group Retirement & Investment Services
Premiums and deposits for the fourth quarter of 2020 decreased by
$0.2 billion to $4.0 billion compared to the same quarter last year,
primarily due to lower segregated fund deposits.
For the twelve months ended December 31, 2020, premiums and
deposits decreased by $1.5 billion to $15.2 billion compared to the
same period last year. The decrease was primarily due to lower
administrative services only (ASO) deposits for group insurance,
lower segregated fund deposits and lower premiums from single
premium group annuities (SPGAs). Lower ASO deposits were
primarily related to the impact of the COVID-19 pandemic service
restrictions resulting in lower claims of approximately $0.3 billion.
Premiums and deposits for the fourth quarter of 2020 increased
by $0.3 billion to $4.0 billion compared to the previous quarter,
primarily due to higher ASO deposits for group insurance, higher
segregated fund deposits and higher premiums from SPGAs.
Sales
Sales for the fourth quarter of 2020 decreased by $0.1 billion to
$0.8 billion compared to the same quarter last year, primarily due
to lower segregated fund deposits.
For the twelve months ended December 31, 2020, sales of
$2.7 billion decreased by $1.2 billion compared to the same
period last year, primarily due to lower large case sales. There has
been low market activity as a result of the COVID-19 pandemic,
resulting in lower sales.
Sales for the fourth quarter of 2020 increased by $0.2 billion
compared to the previous quarter, primarily due to higher SPGA
sales and higher segregated fund deposits.
For the group wealth segregated fund business, net cash outflows
for the fourth quarter of 2020 were $76 million, compared to net
cash inflows of $122 million for the same quarter last year and
net cash outflows of $117 million for the previous quarter. For
the twelve months ended December 31, 2020, net cash inflows
were $68 million compared to $529 million for the same period
last year.
Assets under management (1)
Risk-based products
Segregated funds
Institutional assets
Total assets under management (1)
December 31
2020
2019
$ 8,693 $ 8,532
52,697
56,814
183
–
$ 65,507 $ 61,412
Other assets under administration (1) (2)
$ 481 $
472
Total assets under administration –
Group Retirement & Investment Services (1)
$ 65,988 $ 61,884
(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 Canada Life and
portfolio assets managed by GLC Asset Management Group.
Fee and other income
Fee and other income for the fourth quarter of 2020 of $195 million
increased by $11 million compared to the same quarter last year
and by $16 million compared to the previous quarter, primarily
due to higher ASO fee income and higher fee income for group
wealth products primarily due to higher average assets under
management.
For the twelve months ended December 31, 2020, fee and other
income increased by $8 million to $716 million compared to the
same period last year, primarily due to higher fee income for
group wealth products primarily due to higher average assets
under management. The increase was partially offset by lower ASO
fee income.
52
Great-West Lifeco Inc. 2020 Annual Report
Management’s Discussion and Analysis
Base earnings
Base earnings for the fourth quarter of 2020 increased by
$61 million to $205 million compared to the same quarter last
year, primarily due to favourable morbidity experience, partially
offset by lower contributions from investment experience.
For the twelve months ended December 31, 2020, base earnings
increased by $67 million to $677 million compared to the same
period last year. The increase was primarily due to favourable
morbidity experience and higher tax benefits, partially offset by
lower contributions from investment experience.
Base earnings for the fourth quarter of 2020 increased by
$71 million compared to the previous quarter, primarily due to
favourable morbidity experience.
Net earnings
Net earnings for the fourth quarter of 2020 increased by $75 million
to $189 million compared to the same quarter last year. The
increase was primarily due to the same reasons discussed for
base earnings for the same period as well as lower unfavourable
impacts of insurance contract liability basis changes.
For the twelve months ended December 31, 2020, net earnings
increased by $35 million to $667 million compared to the same
period last year. The increase was primarily due to the same
reasons discussed for base earnings for the same period, partially
offset by unfavourable impacts of insurance contract liability
basis changes.
Net earnings for the fourth quarter of 2020 increased by $55 million
compared to the previous quarter, primarily due to the same
reason discussed for base earnings for the same period, partially
offset by unfavourable impacts of insurance contract liability
basis changes.
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 2020, 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.
COVID-19 has impacted the overall Canada employment rate
and this may impact employee attrition in existing Group plans,
however impact to date has been limited. While uncertainty
remains about the future of the economy, the supports that
employers and Canada Life have put in place have helped
preserve the critical benefits and savings programs for those on
reduced working hours, temporary layoffs, or leaves of absences.
Federal and Provincial governments have also stepped in to define
emergency leaves that support members in the continuation of
their benefit programs. These have all helped allow Canada Life to
continue to offer critical Group Benefits and Savings programs to
Canadians throughout the pandemic.
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 and continuing into 2021, Group Customer
is launching an integrated plan member digital platform to
service customers of Group Benefits and Group Savings products.
This new portal, My Canada Life at Work, will facilitate a more
streamlined experience for both members and plan sponsors,
bringing together the great digital experiences from GroupNet and
GRS Access.
For customers that have both group benefits and pension
business with Canada Life, this provides an integrated view into
both benefits and pensions and makes it easier for members
to interact and do business with Canada Life. It will also allow
Group Customer to more effectively and efficiently service these
customers through a singular experience, allow members to easily
purchase additional services from Canada Life with an integrated
view into their health and savings, and improve our digital market
leadership in the Group Benefits and Savings space.
Group Customer also rolled out Portable Benefits, a fully digital
optional benefits offering that provides members with additional
flexibility in purchasing Life, Critical Illness or Accidental Death
& Dismemberment coverages. This coverage is unique in that it
requires no additional administration on the Group Sponsors’
behalf, and quick and easy approval for members online, advancing
our ability to provide financial protection to our members. In
2021, we will continue to offer Portable Benefits to more sponsors
and more members, leveraging innovative new digital methods for
surfacing and fulfilling this innovative solution. This product helps
deepen our relationship with Group Customer plan members, and
helps fulfil our purpose of improving the physical, financial and
mental well-being of our customers.
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 2020, Canada Corporate had net earnings
of $120 million compared to a net loss of $13 million for the same
quarter last year, primarily due to the net gain on the sale of GLC
of $143 million and more favourable changes in certain tax items,
partially offset by a restructuring provision for strategic activities
discussed in the “2020 Developments” section.
Net earnings for the twelve months ended December 31, 2020
were $86 million compared to a net loss of $12 million for the same
period last year, primarily due to the same reasons discussed for
the in-quarter results.
In the fourth quarter of 2020, net earnings were $120 million
compared to $13 million in the previous quarter, primarily due
to a gain on the sale of GLC of $143 million and more favourable
changes in certain tax items, partially offset by a restructuring
provision discussed for the in-quarter results.
Great-West Lifeco Inc. 2020 Annual Report
53
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 offers private
label recordkeeping and
administrative services for other providers of defined contribution
plans. Empower Retirement
largest defined
contribution recordkeeper in the U.S. and the largest provider
of services to state defined contribution plans. Personal Capital
is a hybrid wealth manager that combines a leading-edge digital
experience with personalized advice delivered by human advisors.
is the second
asset management
Putnam provides investment management services and related
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.
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 Investments and the results of the insurance businesses
in the United States branch of 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. The Financial Services business unit also
includes the results of Personal Capital, a hybrid wealth manager
that provides financial tools and advice to individuals, following
the completion of its acquisition in the third quarter of 2020. On
December 31, 2020, Empower Retirement acquired the retirement
services business of MassMutual, strengthening Empower
Retirement’s position as the second largest player in the U.S
retirement market.
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
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.
54
Great-West Lifeco Inc. 2020 Annual Report
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
41,000 plans (2). In addition, Empower added 2.5 million participant
accounts and 26,000 plans(3) in the MassMutual transaction
• 21.0% market share in state and local government deferred
compensation plans, based on number of participant accounts (4)
• 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
asset management
market Position
• A global investment manager with assets under management of
US$191.6 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 mutual funds and
closed-end funds, college savings plans, mutual funds underlying
variable annuity products, and model-only separately managed
accounts and model portfolios for clients of third party financial firms
• Institutional investors – defined benefit plans sponsored by
corporations, state, municipal and other governmental authorities,
university endowment funds, charitable foundations, sovereign wealth
funds and collective investment vehicles (both U.S. and non-U.S.)
• Investment offerings for defined contribution plans
• Alternative investment products across the fixed-income and
equity groups as well as PanAgora Asset Management Inc., a Putnam
subsidiary offering quantitative strategies
• Seven equity model-based separately managed accounts (SMAs) and
• Individual retirement accounts (IRAs) and taxable brokerage accounts
six multi-asset model portfolios
distriBution
• Retirement services products distributed to plan sponsors through
brokers, consultants, advisors, third-party administrators and banks
• Empower Institutional recordkeeping and administrative services
distributed through institutional clients
• IRAs and taxable brokerage accounts available to individuals through
the Retirement Solutions Group as well as distributed directly to
consumers
(1) As at June 30, 2020
(2) As at December 31, 2020
(3) As at November 30, 2020
(4) As at September 30, 2019
Administrative Services
• Transfer agency, underwriting, distribution, shareholder services, and
trustee and other fiduciary services
distriBution
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 offerings to their customers, which, in
total, includes approximately 140,500 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 and other
recordkeeping firms
Institutional Investors
• Supported by Putnam’s dedicated account management, product
management and client service professionals
(1) As at December 31, 2020
Great-West Lifeco Inc. 2020 Annual Report
55
Management’s Discussion and Analysis
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.
Selected consolidated financial information – United States
Premiums and deposits (1) (4)
Sales (1) (4)
Fee and other income (4)
Base earnings (1) (4)
Items excluded from base earnings (2)
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 generally offers its funds only
through intermediaries.
For the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
$
$
20,582
27,439
754
$
24,138
27,987
696
$
19,480
31,781
679
$ 93,479
136,884
2,769
$
70,475
163,087
3,767
90
$
83
$
89
$
273
$
350
Actuarial assumption changes and other management actions (2)
Market-related impact on liabilities (2)
Net gain/charge on business dispositions (2)
Transaction costs related to the acquisitions of Personal Capital and MassMutual (2) (3)
Revaluation of a deferred tax asset (2) (6)
Restructuring and integration costs (2) (6)
Net earnings (loss) – common shareholders (4)
$
3
(1)
–
(47)
196
(33)
208
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)
38
(1)
–
(31)
–
–
89
97,104
276,401
373,505
817,693
$
$
$
$
25
–
–
–
(199)
(36)
(121)
$
41
(19)
–
(78)
196
(33)
380
$
23
–
(199)
–
(199)
(36)
(61)
85,612
257,301
342,913
792,110
$ 208,580
284,251
492,831
994,989
$ 1,487,820
$ 1,191,198
$ 1,135,023
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
(2) Items excluded from base earnings, a non-IFRS measure. Refer to the ”Non-IFRS Financial Measures” section of this document for additional information.
(3) The transaction costs incurred to date related to the acquisitions of Personal Capital and the retirement services business of MassMutual are included in the U.S. Corporate business unit.
(4) 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.
(5) 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.
(6) Included in the U.S. segment are the results of the Reinsured Insurance & Annuity business unit, which reflects substantially all of the individual life insurance and annuity business which was sold, through
indemnity reinsurance, to Protective Life effective June 1, 2019. Following the sale there were no additional sales, fee and other income and net earnings related to this business unit and premiums and deposits
primarily relate to deposits received on separate accounts, with the economics ceded to Protective Life, resulting in no net earnings impact. Premiums and deposits for the three and twelve months ended
December 31, 2020 were $234 million and $636 million respectively ($107 million and $347 million for the three months ended September 30, 2020 and December 31, 2019 respectively). The following table
includes the results for the Reinsured Insurance & Annuity business unit for the twelve months ended December 31, 2019:
Premiums and deposits
Sales
Fee and other income
Base earnings
Net earnings (loss) – common shareholders
Base earnings (US$)
Net earnings (loss) – common shareholders (US$)
56
Great-West Lifeco Inc. 2020 Annual Report
For the twelve months ended
Dec. 31 2019
$
1,393
408
1,157
63
(136)
47
(101)
Management’s Discussion and Analysis
Base earnings (1) and Net earnings – common shareholders
Base earnings (loss) (1)
Financial Services
Asset Management
U.S. Corporate
Reinsured Insurance & Annuity Business
Base earnings (loss) (1)
Items excluded from base earnings (loss) (2)
$
$
Actuarial assumption changes and other management actions (2)
Market-related impact on liabilities (2)
Net gain/charge on business dispositions (2)
Transaction costs related to the acquisitions of Personal Capital and MassMutual (2) (3)
Revaluation of a deferred tax asset (2) (4)
Restructuring and integration costs (2) (4)
$
Net earnings (loss) – common shareholders
Base earnings (loss) (US$) (1)
Financial Services (US$)
Asset Management (US$)
U.S. Corporate (US$)
Reinsured Insurance & Annuity Business (US$)
Base earnings (loss) (US$) (1)
Items excluded from base earnings (loss) (2)
Actuarial assumption changes and other management actions (US$) (2)
Market-related impact on liabilities (US$) (2)
Net gain/charge on business dispositions (2)
Transaction costs related to the acquisition of
Personal Capital and MassMutual (US$) (2) (3)
Revaluation of a deferred tax asset (2) (4)
Restructuring and integration costs (2) (4)
Net earnings (loss) (US$) – common shareholders
$
$
$
$
$
For the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
64
35
(9)
–
90
3
(1)
–
(47)
196
(33)
208
49
26
(7)
–
68
2
(1)
–
(36)
151
(25)
159
$
$
$
$
$
$
$
$
75
13
(5)
–
83
38
(1)
–
(31)
–
–
89
56
10
(3)
–
63
29
(1)
–
(24)
–
–
67
$
$
$
$
$
$
$
$
$
$
75
18
(4)
–
89
25
–
–
–
(199)
(36)
(121)
$
$
$
$
57
13
(2)
–
68
19
–
–
–
(151)
(28)
$
(92)
$
268
18
(13)
–
273
41
(19)
–
(78)
196
(33)
380
200
14
(9)
–
205
31
(15)
–
(60)
151
(25)
287
$
$
$
$
$
$
$
$
255
33
(1)
63
350
23
–
(199)
–
(199)
(36)
(61)
193
24
–
47
264
18
–
(148)
–
(151)
(28)
(45)
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
(2) Items excluded from base earnings, a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional information.
(3) The transaction costs incurred to date related to the acquisitions of Personal Capital and the retirement services business of MassMutual are included in the U.S. Corporate business unit.
(4) For the twelve months ended December 31, 2020, the revaluation of a deferred tax asset of $196 million (US$151 million) and restructuring costs of $29 million (US$22 million) are included in the U.S. Corporate
results. For the twelve months ended December 31, 2019, $199 million (US$151 million) and restructuring costs of $36 million (US$28 million) are included in the U.S. Corporate results.
• During 2020, Putnam restructuring activities were mostly
completed resulting in approximately US$28 million in pre-
tax annual operating expense savings 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 in 2019 by $36 million (US$28 million). This charge was
recorded in the U.S. Corporate business unit.
2020 developMents
• COVID-19 Pandemic Impacts – The Coronavirus Aid, Relief and
Economic Security Act (the CARES Act) was enacted on March
27, 2020. Under the CARES Act, the U.S. Federal government
authorized broad based economic relief and support for
individuals and businesses, including changes to distribution
and loan rules from employer retirement plans and Individual
Retirement Accounts (IRAs) which are similar to the relief
offered in prior disaster relief laws. The Company implemented
the distribution and loan changes. The Internal Revenue Service
(IRS) and the U.S. Department of Labor (DOL) subsequently
issued an interpretive guidance on the CARES Act and the
Company updated its CARES Act distribution and loan processes
and procedures accordingly. The CARES Act distributions were
allowed through December 31, 2020 and loans were allowed
through September 22, 2020. The CARES Act did not prevent the
Company from executing on its overall business strategy and
growth objectives.
Great-West Lifeco Inc. 2020 Annual Report
57
Management’s Discussion and Analysis
• During the fourth quarter of 2020, management revalued the
deferred income tax asset pertaining to the Asset Management
business unit as a result of Empower Retirement’s acquisitions
of MassMutual’s retirement services business and Personal
Capital. The acquisitions are expected to increase consolidated
U.S. tax group income and thereby the ability to utilize the
deferred income tax asset that was previously de-recognized.
As a result, net earnings includes a recovery of the deferred
tax asset of $196 million (US$151 million) in U.S. Corporate
results. The deferred income tax asset de-recognition was
originally reported in U.S. Corporate in the fourth quarter of
2019. The Empower Retirement acquisitions will also impact
the allocation of state taxes between Empower Retirement to
Putnam beginning in 2021, but with no net change to the total
U.S. segment state taxes.
Business units – united states
financiaL services
2020 developMents
• COVID-19 Pandemic Impacts – During the fourth quarter
of 2020, Empower Retirement operations and technology
functions maintained full execution as the market disruption
created by the COVID-19 pandemic subsided. The Company
maintained a nearly full work-at-home status across the entire
enterprise throughout the quarter, including associates in
North America and India. Call volumes and web traffic returned
to normal levels. For the most part, retirement investors have
not engaged in reactive selling with a significant majority of
Empower Retirement plan participants making no change to
their investments. The Company continued to see increased
levels of interest in advisory and financial wellness offerings.
Empower Retirement and others in the retirement industry
lobbied for, and received, relief from federal government
regulators to help individuals who needed to access their
in the event of financial hardships.
retirement savings
Following the passage of the CARES Act, Empower Retirement
implemented new processes and waived fees on all new
retirement plan loans and hardship withdrawals to support
these needs. Empower Retirement did not charge origination
fees on any new plans and suspended charges for all hardship
withdrawals. These changes covered all tax-qualified workplace
retirement plans administered by Empower Retirement that
permit such distributions, and include new provisions allowed
for under the CARES Act. Beginning in the third quarter of 2020,
Empower Retirement reinstated fees on certain new retirement
plan loans and hardship withdrawals.
• On August 17, 2020, Empower Retirement completed the
acquisition of Personal Capital, a hybrid wealth manager that
combines a leading-edge digital experience with personalized
advice delivered by human advisors. Under the terms of the
agreement, Empower Retirement acquired 100% of the equity
of Personal Capital for net consideration of US$813 million on
closing and deferred consideration of US$20 million, which
represents management’s best estimate and could increase
up to US$175 million subject to achievement of target growth
objectives. The upfront consideration was funded with cash on
hand and US$500 million in debt financing. Financial Services’
2020 year-to-date results include the results of Personal Capital
from the August 17, 2020 acquisition date.
58
Great-West Lifeco Inc. 2020 Annual Report
Empower Retirement expects to incur integration expenses of
US$57 million pre-tax, of which US$3 million were incurred to date
(US$2 million post-tax), with the integration of Personal Capital
expected to be completed in the first quarter of 2022. During the
twelve months ended December 31, 2020, the Company incurred
transaction expenses of US$22 million pre-tax (US$20 million
post-tax) related to the Personal Capital acquisition, which are
included in the U.S. Corporate business unit.
Refer to the “Transactions with Related Parties” section of this
document for additional information regarding the acquisition.
• On December 31, 2020, Empower Retirement acquired the
retirement services business of MassMutual, via indemnity
reinsurance, strengthening Empower Retirement’s position as the
second largest player in the U.S. retirement market. Concurrent
to the acquisition of the MassMutual retirement services
business, Empower Retirement is serving as recordkeeper for
MassMutual’s defined contribution plan. The Company paid
a ceding commission of US$2.3 billion, net of working capital
adjustments, to MassMutual, and funded the transaction with
existing cash, short-term debt and US$1.5 billion in long-term
debt issued on September 17, 2020.
This transaction increases the synergy potential of Empower
Retirement’s acquisition of Personal Capital across a larger
combined business. In addition, Empower Retirement and
MassMutual intends to enter into a strategic partnership
through which digital insurance products offered by Haven Life
Insurance Agency, LLC and MassMutual’s voluntary insurance
and lifetime income products will be made available to
customers of Empower Retirement and Personal Capital.
Empower Retirement anticipates realizing cost synergies
through the migration of the MassMutual’s retirement services
business onto Empower Retirement’s recordkeeping platform.
Run rate cost synergies are expected to be US$160 million pre-
tax at the end of integration in 2022. Revenue synergies in 2022
are expected to be US$30 million pre-tax and continue to grow
beyond 2022.
to
incur
Empower Retirement expects
integration and
restructuring expenses of US$125 million pre-tax, of which
US$29 million pre-tax (US$23 million post-tax), were recognized
in the fourth quarter of 2020. Empower Retirement incurred
transaction expenses of US$46 million pre-tax (US$36 million
post-tax) in the fourth quarter of 2020 (US$51 million pre-
tax and US$40 million post-tax for the twelve months ended
December 31, 2020) related to the MassMutual transaction.
These costs are included in the U.S. Corporate business unit.
The integration is expected to be completed within 18 months
following closing.
• On November 27, 2020, Empower Retirement acquired the
retirement business of Fifth Third Bank. The transaction is not
expected to have a material impact on Empower Retirement’s
financial results.
• Subsequent to the fourth quarter of 2020, on January 6, 2021,
Empower Retirement announced an intent to acquire the
retirement business of Truist Bank. The transaction, which is
expected to close in the first quarter of 2021, is not expected
to have a material impact on Empower Retirement’s financial
results.
Management’s Discussion and Analysis
• Empower Retirement participant accounts were 11.9 million at
December 31, 2020, including 2.5 million participant accounts
from the MassMutual transaction, up from 9.4 million at
December 31, 2019.
• Empower Retirement assets under administration were
US$958 billion at December 31, 2020, up from US$673 billion at
December 31, 2019, primarily due to the acquisitions of Personal
Capital and the retirement services business of MassMutual
as well as higher average equity markets. Assets under
administration related to MassMutual were US$190 billion and
Personal Capital assets under management were US$16 billion
at December 31, 2020.
• During 2020, the Company received the following awards and
rankings:
º In July 2020, Empower Retirement was named the 2020
Retirement Leader of the Year in the annual Mutual Fund
Industry Awards, organized by Pageant Media. Retirement
Leader of the Year is awarded to a firm that has made a
key impact on growing retirement assets through unique
retirement solutions, marketing campaigns and significant
contributions to the retirement industry at large.
º In October 2020, PLANADVISER named Empower Retirement
the best in the country among recordkeepers for the ninth
consecutive year on “Value for Price”.
º In PlanSponsor’s annual recordkeeping survey, Empower
Retirement ranked 2nd nationally in Total 401(k) Assets,
with $493.6 billion as of July 15th, 2020. In the same survey,
Empower ranked 3rd in Total 457 Plan Assets with $76.1 billion.
º In September 2020, Empower Retirement was awarded “gold
medals” from Financial Advisor IQ in six categories, including
“Best Client Service” and “Best Price”.
º In September 2020, Investment News selected Empower
Retirement as a finalist for its 2020 Excellence in Diversity and
Inclusion Awards.
º In July 2020, Empower Retirement was named “Best Place to
Work for Disability Inclusion” using the Disability Equality
Index, sponsored by the American Association of People
with Disabilities.
oPerating resuLts
Premiums and deposits (1) (2)
Sales (1) (3)
Fee and other income
Base earnings (1)
Items excluded from base earnings (4)
Actuarial assumption changes and other management actions (4)
Market-related impacts on liabilities (4)
Integration costs (4)
Net earnings – common shareholders (5)
Premiums and deposits (US$) (1) (2)
Sales (US$) (1) (3)
Fee and other income (US$)
Base earnings (US$) (1)
Items excluded from base earnings (US$) (4)
For the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
3,505
10,596
428
$
5,665
9,621
395
$
3,150
15,798
376
$ 16,979
61,020
1,567
$
11,783
105,380
1,428
64
$
75
$
75
$
268
$
255
3
(1)
(4)
62
2,696
8,151
329
38
(1)
–
112
4,260
7,234
297
$
$
$
$
25
–
–
41
(19)
(4)
100
$
286
2,386
11,968
285
$ 12,701
45,641
1,171
23
–
–
278
8,877
79,353
1,076
$
$
49
$
56
$
57
$
200
$
193
$
$
$
$
$
Actuarial assumption changes and other management actions (US$) (4)
Market-related impacts on liabilities (US$) (4)
Integration costs (US$) (4)
2
(1)
(3)
Net earnings – common shareholders (US$) (5)
$
47
$
29
(1)
–
84
19
–
–
31
(15)
(3)
18
–
–
$
76
$
213
$
211
(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 months and twelve months ended December 31, 2020, premiums and deposits included US$46 million and US$148 million, respectively, relating to the retained policies (US$54 million and
US$166 million for the three and twelve months ended December 31, 2019, US$31 million for the three months ended September 30, 2020).
(3) For the three months and twelve months ended December 31, 2020, sales included US$0.2 billion and US$1.3 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, 2019, and US$0.2 billion for the three months ended September 30, 2020).
(4) Items excluded from base earnings, a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional information.
(5) For the three months and twelve months ended December 31, 2020, net earnings included US$3 million and US$15 million, respectively, relating to the retained policies (US$19 million net loss and US$6 million
net earnings for the three and twelve months ended December 31, 2019, and US$3 million for the three months ended September 30, 2020).
Great-West Lifeco Inc. 2020 Annual Report
59
Management’s Discussion and Analysis
Premiums and deposits
Fee and other income
Premiums and deposits for the fourth quarter of 2020 of
US$2.7 billion increased by US$0.3 billion compared to the same
quarter last year, primarily due to higher premiums from existing
Empower Retirement participants.
Premiums and deposits for the twelve months ended December 31,
2020 increased by US$3.8 billion to US$12.7 billion compared to
the same period last year, primarily due to higher premiums and
deposits transferred in from assets under administration and
existing Empower Retirement participants.
Premiums and deposits in the fourth quarter of 2020 decreased
by US$1.6 billion compared to the previous quarter, primarily
due to the higher deposits transferred in from assets under
administration and existing Empower Retirement participants.
Sales
Sales in the fourth quarter of 2020 decreased by US$3.8 billion to
US$8.2 billion compared to the same quarter last year, primarily
due to a decrease in Empower Retirement sales across all plan
sizes, partially offset by Personal Capital related sales.
For the twelve months ended December 31, 2020, sales decreased
by US$33.7 billion to US$45.6 billion compared to the same
period last year. Included in the sales for the twelve months ended
December 31, 2019 was one large sale relating to a new client with
approximately 200,000 participants. Excluding the impact of this
sale, Empower Retirement large plan sales and Personal Capital
related sales increased, partially offset by decreases in Empower
Retirement mid and small sized 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.
Sales in the fourth quarter of 2020 increased by US$0.9 billion
compared to the previous quarter, primarily due to increases in
Personal Capital related sales and Empower Retirement small plan
sales, partially offset by a decrease in Empower Retirement mid-
sized plans.
Empower Retirement – assets under administration (US$)
General account – fixed options
Segregated funds – variable options
Proprietary mutual funds (1)
Unaffiliated retail investment options &
administrative services only
December 31
2020
2019
$ 36,590 $ 13,532
87,578 19,504
50,232 30,949
783,456
609,316
$ 957,856 $ 673,301
(1) At December 31, 2020, proprietary mutual funds included US$16.8 billion in Putnam managed funds
(US$13.7 billion at December 31, 2019).
Empower Retirement customer account values at December 31,
2020 increased by US$284.6 billion compared with December 31,
2019, primarily due
the acquisitions of MassMutual’s
retirement services business and Personal Capital, which
added US$190.1 billion and US$16.3 billion of assets under
administration. Favourable
impacts also
contributed to the increase.
equity market
to
60
Great-West Lifeco Inc. 2020 Annual Report
Fee income is derived primarily from assets under management,
fees,
assets under administration,
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.
shareholder
servicing
Fee and other income for the fourth quarter of 2020 of
US$329 million increased by US$44 million compared to the same
quarter last year, primarily due to Personal Capital related fee
income of US$28 million and higher average equity markets.
For the twelve months ended December 31, 2020, fee and other
income increased by US$95 million to US$1,171 million compared
to the same period last year, primarily due to Personal Capital
related fee income of US$41 million, growth in participants and
higher average equity markets.
Fee and other income for the fourth quarter of 2020 increased by
US$32 million compared to the previous quarter, primarily due to
the same reasons discussed for the in-quarter results.
Base earnings
Base earnings for the fourth quarter of 2020 of US$49 million
decreased by US$8 million compared to the same quarter last
year. The decrease was primarily due to Personal Capital related
net loss of US$7 million and lower contributions from investment
experience, partially offset by net business growth.
For the twelve months ended December 31, 2020, base earnings
increased by US$7 million to US$200 million compared to the
same period last year. The increase was primarily due to higher
contributions from investment experience and net business
growth, partially offset by the Personal Capital related net loss of
US$12 million and less favorable mortality experience.
Base earnings for the fourth quarter of 2020 decreased by
US$7 million compared to the previous quarter, primarily due to
higher operating expenses and an increase in the Personal Capital
related net loss, partially offset by higher contributions from
investment experience and net business growth.
Net earnings
Net earnings for the fourth quarter of 2020 of US$47 million
decreased by US$29 million compared to the same quarter
last year. The decrease was primarily due to the same reasons
discussed for base earnings and integration costs. In addition,
included in the fourth quarter of 2019 was the positive impact of a
partial settlement of an employee pension plan.
For the twelve months ended December 31, 2020, net earnings
increased by US$2 million to US$213 million compared to the
same period last year. The increase was primarily due to the same
reasons discussed for base earnings and higher contributions from
insurance contract liability basis changes, partially offset by market
volatility creating hedge ineffectiveness losses related to guaranteed
lifetime withdrawal benefits and integration costs. Included in the
twelve months ended December 31, 2019 was the positive impact of
a partial settlement of an employee pension plan.
Net earnings for the fourth quarter of 2020 decreased by
US$37 million compared to the previous quarter, primarily
due to the same reasons as discussed for base earnings, lower
contributions from insurance contract liability basis changes and
integration costs.
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 acquisition of MassMutual’s retirement
services business strengthens Empower Retirement’s position as
the second largest player in the U.S. retirement market and makes
Empower Retirement first in the core marketplace. Financial
Services business unit continually examines opportunities to
structure products and develop strategies to stimulate growth in
assets under management.
The acquisition of Personal Capital, a hybrid wealth manager that
combines a leading-edge digital experience with personalized
advice delivered by human advisors, brings together Empower
Retirement’s leading retirement plan services and integrated
financial tools, and Personal Capital’s rapidly growing, digitally
oriented personal wealth management platform.
Empower Retirement anticipates realizing cost synergies through
the migration of MassMutual’s retirement services business
onto Empower Retirement’s recordkeeping platform. Further,
the MassMutual acquisition increases the synergy potential of
Empower Retirement’s acquisition of Personal Capital across a
larger combined business.
In 2021, 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 2020, 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 2021,
investments will be made in integrating the previously referenced
businesses as well as continue investment 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
2020 developMents
• COVID-19 Pandemic Impacts – At Putnam and across the
broader asset management industry during the first quarter
of 2020, client channels experienced reduced gross sales and
elevated redemptions given concerns about the breadth and
severity of the pandemic and its longer-term effect on an array
of economic factors, including corporate earnings. On the
investment management front, Putnam’s work on risk profiles
and portfolio construction has led to solid relative performance
across asset classes. Early in the second quarter of 2020,
redemptions slowed and turned back into positive net flows,
which positioned the Company well for the market recovery
that occurred throughout the remainder of 2020.
(AUM) at
• Putnam’s ending assets under management
December 31, 2020 of US$191.6 billion
increased by
US$9.8 billion compared to the same period last year, while
average AUM for the twelve months ended December 31, 2020
of US$173.8 billion increased by US$0.6 billion compared to the
same period last year. For the twelve months ended December
31, 2020, mutual fund sales increased by US$2.0 billion
compared to the same period last year.
• Putnam continues to sustain strong investment performance
relative to its peers. As of December 31, 2020, approximately
76% of Putnam’s fund assets performed at levels above the
Lipper median on a three-year basis, and approximately 91%
on a five-year basis. In addition, 36% and 41% of Putnam’s fund
assets were in the Lipper top quartile on a three- and five-year
basis, respectively. Putnam has 26 funds currently rated 4-5
stars by Morningstar.
• For the 31st consecutive year, Putnam has been recognized by
DALBAR Inc. for mutual fund service quality. This recognition
includes Putnam being named as a DALBAR Mutual Fund
Service Award winner for 29 of those years. Additionally, Putnam
has been named the sole recipient of DALBAR’s Total Client
Experience Award recognizing overall mutual fund customer
service quality for the past ten years.
Great-West Lifeco Inc. 2020 Annual Report
61
Management’s Discussion and Analysis
oPerating resuLts
Sales (1)
Fee income
Investment management fees
Performance fees
Service fees
Underwriting & distribution fees
Fee income
Core net earnings (loss) (1)
Less: Financing and other expenses (1)
Net earnings (loss) (2)
Sales (US$) (1)
Fee income (US$)
Investment management fees (US$)
Performance fees (US$)
Service fees (US$)
Underwriting & distribution fees (US$)
Fee income (US$)
Core net earnings (loss) (US$) (1)
Less: Financing and other expenses (US$) (1)
Net earnings (loss) (US$) (2)
Pre-tax operating margin (1)
For the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
$ 16,843
$
18,366
$
15,983
$ 75,864
$
57,299
$
$
$
$
203
32
36
55
326
49
(14)
35
$
$
$
$
206
2
37
56
301
25
(12)
13
$
$
$
$
$
206
2
37
58
801
30
148
223
303
$
1,202
28
(10)
18
$
$
68
(50)
18
$
$
$
$
813
(10)
149
230
1,182
78
(45)
33
$ 12,957
$
13,809
$
12,108
$ 56,541
$
43,185
$
$
$
$
157
25
28
42
252
37
(11)
26
$
$
$
$
155
1
28
42
226
19
(9)
10
$
$
$
$
155
2
28
44
229
21
(8)
13
$
$
$
$
599
23
111
166
899
51
(37)
14
$
$
$
$
611
(6)
112
173
890
59
(35)
24
20.6%
11.9%
7.2%
8.6%
8.1%
Average assets under management (US$) (1)
$ 185,425
$ 176,726
$ 178,023
$ 173,752
$ 173,159
(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 Asset Management business unit, there were no differences between net earnings (loss) and base earnings (loss) in the periods presented.
Sales
Fee income
Sales in the fourth quarter of 2020 increased by US$0.8 billion to
US$13.0 billion compared to the same quarter last year, primarily
due to an increase in institutional sales of US$2.3 billion offset by
a decrease in mutual fund sales of US$1.4 billion.
For the twelve months ended December 31, 2020, sales increased
by US$13.4 billion to US$56.5 billion compared to the same
period last year, primarily due to an increase in mutual fund
sales of US$2.0 billion and an increase in institutional sales of
US$11.3 billion.
Sales in the fourth quarter of 2020 decreased by US$0.9 billion
compared to the previous quarter, primarily due to a US$0.5 billion
decrease in mutual fund sales and US$0.3 billion decrease in
institutional 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.
income for the fourth quarter of 2020
Fee
increased by
US$23 million to US$252 million compared to the same quarter
last year, primarily due to higher performance fees.
For the twelve months ended December 31, 2020, fee income
increased by US$9 million to US$899 million compared to
the same period last year. The increase was primarily due to
higher performance fees, partially offset by lower investment
management and underwriting and distribution fees.
income for the fourth quarter of 2020
Fee
increased by
US$26 million compared to the previous quarter, primarily due to
higher performance fees.
62
Great-West Lifeco Inc. 2020 Annual Report
Management’s Discussion and Analysis
Core net earnings and net earnings
Core net earnings for the fourth quarter of 2020 increased by
US$16 million to US$37 million compared to the same quarter
last year, primarily due to higher performance fee income and net
investment income. In the fourth quarter of 2020, net earnings,
including financing and other expenses, were US$26 million
compared to US$13 million for the same quarter last year. Financing
and other expenses for the fourth quarter of 2020 increased by
US$3 million to US$11 million compared to the same quarter last
year, primarily due to allocated expenses from affiliates.
For the twelve months ended December 31, 2020, core net
earnings were US$51 million compared to a core net earnings of
US$59 million for the same period last year. Core net earnings
decreased by US$8 million primarily due to higher sales and
compensation related expenses, partially offset by higher
performance fee income. Net earnings, including financing and
other expenses, for the twelve months ended December 31, 2020,
assets under management
Assets under management (US$) (1)
were US$14 million compared to US$24 million for the same
period last year. Financing and other expenses for the twelve
months ended December 31, 2020 increased by US$2 million to
US$37 million compared to the same period last year, primarily
due to allocated expenses from affiliates, partially offset by lower
financing costs.
for
the
Core net earnings
fourth quarter of 2020 were
US$37 million compared to core net earnings of US$19 million
for the previous quarter, an increase of US$18 million, primarily
due to higher performance fee income and higher net investment
income, partially offset by higher sales and compensation related
expenses. Net earnings, including financing and other expenses,
for the fourth quarter of 2020, were US$26 million compared to
US$10 million for the previous quarter. Financing and other
expenses for the fourth quarter of 2020 increased by US$2 million
compared to the previous quarter, primarily due to allocated
expenses from affiliates and higher taxes.
Beginning assets
$ 179,018
$ 168,526
$ 174,191
$ 181,724
$ 160,200
For the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
Sales – Mutual funds
Redemptions – Mutual funds
Net asset flows – Mutual funds
Sales – Institutional
Redemptions – Institutional
Net asset flows – Institutional
Net asset flows – Total
6,389
(7,155)
(766)
6,568
(6,791)
(223)
6,897
(6,210)
687
6,912
(5,542)
1,370
7,798
(6,316)
1,482
4,310
(5,587)
(1,277)
29,509
(33,492)
(3,983)
27,032
(29,735)
(2,703)
27,474
(25,031)
2,443
15,711
(22,081)
(6,370)
(989)
2,057
205
(6,686)
(3,927)
Impact of market/performance
13,525
8,435
7,328
16,516
25,451
Ending assets
$ 191,554
$ 179,018
$ 181,724
$ 191,554
$ 181,724
Average assets under management
Mutual funds
Institutional assets
90,164
95,261
86,808
89,918
86,824
91,199
85,687
88,065
83,096
90,063
Total average assets under management
$ 185,425
$ 176,726
$ 178,023
$ 173,752
$ 173,159
(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, 2020 were
US$185.4 billion, an increase of US$7.4 billion or 4% compared to
the same quarter last year, primarily due to the impact of markets
and cumulative assets inflows. Net asset outflows for the fourth
quarter of 2020 were US$1.0 billion compared to net assets inflows
of US$0.2 billion for the same quarter last year. In-quarter mutual
fund net asset outflows were US$0.8 billion and institutional net
asset outflows were US$0.2 billion.
Average AUM for the twelve months ended December 31, 2020
increased by US$0.6 billion to US$173.8 billion compared to the
same period last year, primarily due to cumulative assets inflows
in mutual funds, partially offset by cumulative assets outflows in
institutional funds. Net asset outflows for the twelve months ended
December 31, 2020 were US$6.7 billion compared to US$3.9 billion
for the same period last year. Year-to-date mutual fund net asset
outflows of US$4.0 billion and institutional net asset outflows
were US$2.7 billion. Within the institutional category, Putnam’s
valuation oriented quantitative manager has been experiencing
outflows for several quarters. While their performance in this
category has been comparable to peers, this style of investing
has been in outflows across the industry. During these same time
periods, Putnam’s active institutional mandates have experienced
positive flows.
Average AUM for the three months ended December 31, 2020
increased by US$8.7 billion compared to the previous quarter,
primarily due to impact of market movements.
Great-West Lifeco Inc. 2020 Annual Report
63
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
risk-adjusted investment performance across asset classes for
its clients and investors in the mutual fund, institutional and
retirement marketplaces.
In 2021, 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 2021, as Putnam
further develops and refines its product offerings, service features
and operational functions, while bolstering its corporate and
business/product brand image with a broad range of constituents.
Putnam continues to increasingly incorporate digital technology
throughout its business to drive greater efficiencies and create
business opportunities.
Putnam will remain focused on growth of revenues and assets in
2021, while at the same time managing firm-wide expenses, as the
firm seeks to further build a scalable, profitable asset management
franchise.
In the fourth quarter of 2020, net earnings were US$86 million
compared to a net loss of US$181 million for the same period in
2019. Net earnings increased by US$267 million primarily due
to a revaluation of a deferred tax asset of US$151 million which
was de-recognized in the fourth quarter of 2019, partially offset
by transaction costs of US$36 million and restructuring costs of
US$22 million related to the acquisitions of Personal Capital and
the retirement services business of MassMutual. In addition,
included in the fourth quarter of 2019 were restructuring costs of
US$28 million related to the Asset Management business unit.
For the twelve months ended December 31, 2020, net earnings
of US$60 million increased by US$239 million compared to the
same period in 2019. The increase was primarily due to the same
reasons discussed for the in-quarter results.
In the fourth quarter of 2020, net earnings were US$86 million
compared to a net loss of US$27 million in the previous quarter.
Net earnings increased by US$113 million primarily due to
revaluation of a previously de-recognized deferred tax asset,
partially offset by transaction and restructuring costs related to
the acquisitions of Personal Capital and the retirement services
business of MassMutual.
e u r o p e
The Europe segment is comprised of three distinct business units
serving customers in the United Kingdom, Ireland and Germany
and offers protection and wealth management products, including
payout annuity products. The U.K. and German business units
operate under the Canada Life brand and Irish business unit
operates under the Irish Life brand.
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
united kingdom
The core products offered by the U.K. business unit 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 in the U.K. and Isle of Man.
ireLand
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. 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.
germany
The German operation focuses on Company and Individual
pension, and individual protection products that are distributed
through independent brokers and multi-tied agents.
The Company continues to expand its presence in its business
units 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.
64
Great-West Lifeco Inc. 2020 Annual Report
Management’s Discussion and Analysis
Market overview
Products and services
euroPe
market Position
U.K.
• Group life market share 24% (1)
• Group income protection market share 17% (1)
• Payout annuities market share 12% (Advisor only) (2)
• A market leading international life company selling into the U.K.
market, with over 30% market share (3)
euroPe (cont’d)
distriBution
U.K.
• Financial advisors
• Private banks
• Employee benefit consultants
Ireland
• Independent brokers
• Among the top five in the onshore unit-linked single premium bond
• Pensions and investment consultants
market, with 13% market share (Advisor only) (3)
• Direct sales force
• An award winning competitor in the equity release market with a
• Tied bank branch distribution with various Irish banks
Germany
• Independent brokers
• Multi-tied agents
(1) As at December 31, 2019
(2) Market share based on second quarter 2020 data through financial advisors, restricted whole market
advisors and non-advised distributor.
(3) Market share shows a year-to-date position based on year-to-date sales at September 30, 2020.
(4) As at June 30, 2020
(5) As at December 31, 2020
(6) Equity Release Council market statistics for first quarter 2020 to third quarter 2020.
market share of 11% (6)
Ireland
• Life assurance company market share 43% (4)
• Retail life and pensions market share 27% (4)
• Group pensions, group risk and corporate annuities market share 59% (4)
• ILIM is one of the largest institutional fund managers in Ireland with
€87 billion assets under management (5)
• Third largest health insurance business through Irish Life Health (1)
Germany
• 3% 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
Great-West Lifeco Inc. 2020 Annual Report
65
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 Company has benefited over recent years 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 its equity release mortgage expertise which is an
important part of the retirement market and 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, the Company
continued to focus efforts on increasing sales within the retail
market while maintaining our strong presence in the institutional
sector of the market. 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 43% as at June 30, 2020. Irish
Life follows a multi-channel distribution strategy with a large
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 (ILIM) is one of Ireland’s largest
institutional fund managers with approximately €87 billion of
assets under management, including funds managed for other
companies within the Lifeco group, as at December 31, 2020. As
market leader in the domestic market ILIM continued to expand
its capabilities and solutions for Responsible Investments with
multiple awards and ratings both in public markets and in its
Real Estate offerings. It has also continued to evolve its Asset and
Liability Management, Liability-Driven Investments and Bulk
Annuity services to large defined benefit pension schemes.
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, 2020.
The Company operates its Irish health insurance business under
the Irish Life Health brand, where it has a top three position.
The Company also owns a number of employee benefits and
wealth consultancy businesses in Ireland.
germany
The Company has 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. The low interest rate environment for traditional
German insurance products has been challenging leading to
increased competition in the Canada Life hybrid and lighter
guarantee product categories.
66
Great-West Lifeco Inc. 2020 Annual Report
Management’s Discussion and Analysis
Selected consolidated financial information – Europe
Premiums and deposits (1)
Sales (1)
Fee and other income
Base earnings (1)
Items excluded from base earnings (2)
For the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
$
7,896
6,874
351
$
6,114
5,313
342
$
7,925
6,566
377
$ 32,621
28,996
1,366
$
35,351
31,976
1,539
$
195
$
182
$
317
$
688
$
796
Actuarial assumption changes and other management actions (2)
Market-related impacts on liabilities (2)
Net gain/charge on business dispositions (2)
78
(20)
–
22
18
94
19
(9)
8
Net earnings – common shareholders
$
253
$
316
$
335
$
188
(57)
94
913
283
(83)
8
$
1,004
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) (3)
$ 189,351
59,381
248,732
10,871
$ 180,091
58,056
$ 174,121
56,261
238,147
10,420
230,382
48,738
$ 259,603
$ 248,567
$ 279,120
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
(2) Items excluded from base earnings, a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional information.
(3) At December 31, 2020, total assets under administration excludes $7.4 billion of assets managed for other business units within the Lifeco group of companies ($7.3 billion at September 30, 2020 and $8.4 billion
at December 31, 2019).
Base earnings (1) and Net earnings – common shareholders
United Kingdom
Ireland
Germany
Europe Corporate
Base earnings (1)
United Kingdom
Ireland
Germany
Europe Corporate
Net earnings – common Shareholders
For the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
$
$
$
$
96
62
41
(4)
195
156
54
47
(4)
253
$
$
$
$
78
70
37
(3)
182
67
196
56
(3)
316
$
$
$
$
233
52
34
(2)
317
206
88
35
6
335
$
$
$
$
334
212
155
(13)
688
423
335
168
(13)
913
$
$
$
503
166
136
(9)
796
566
279
160
(1)
$
1,004
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
Great-West Lifeco Inc. 2020 Annual Report
67
Management’s Discussion and Analysis
2020 developMents
• COVID-19 Pandemic Impacts – The European businesses in the
U.K., Ireland and Germany focused on supporting customers,
communities and employees by providing pensions, protection
and wealth management solutions for their financial, physical
and mental well-being during this unprecedented time.
Products, services and support are being delivered digitally to
promote physical distancing and help keep customers, advisors
and employees safe.
On October 8, 2020, Canada Life U.K. reopened its real estate
fund following a period of valuation uncertainty in the real
estate industry caused by COVID-19. The suspension period
was introduced in March following advice from the independent
valuers that it was not possible to provide accurate and reliable
valuations. On October 20, 2020, Irish Life removed deferral
periods from its small U.K. and European property funds. The
deferral period for redemptions and transfers for Irish Life’s
pension property fund is under review following the removal of
third party appraisal uncertainty clauses in the Irish property
market. The deferral period remains in place for the smaller
fund focused on individual clients. Processes remain in place to
facilitate hardship, death claims and certain other withdrawals
as required for these funds.
• On January 31, 2020, the U.K. left the European Union (EU) and
was in a transition period that ended on December 31, 2020.
During December of 2020, a comprehensive trading agreement
was made between the EU and U.K. which is now in force.
• On August 4, 2020, Irish Life completed the previously
announced sale of Irish Progressive Services International
Limited (IPSI), 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 net gain resulting from the transaction was
$94 million post-tax.
• As of December 31, 2020, the Company has largely completed
the Canada Life U.K. restructuring program with £18 million
achieved to date, compared to targeted reductions of £20 million
pre-tax. The expense reductions have come from various
sources including systems and process improvements and a
reduction in headcount.
• During 2020, the Company completed a number of acquisitions
listed below. While individually the acquisitions are not material
to the Company’s financial results, they position the Europe
segment for growth.
º 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.
º On March 2, 2020, Irish Life acquired Conexim Advisors
Limited (Conexim), which provides access to funds, equities,
bonds and exchange traded funds across all major markets
through an independent platform. Conexim provides its
services through financial advisors who provide financial and
investment advice to individual and corporate clients.
º On May 1, 2020, Irish Life completed the acquisition of APT
Workplace Pensions Limited, which specializes in corporate
pension consultancy for multi-national and indigenous
corporate clients, and APT Wealth Management Limited,
which provides private wealth management to individuals.
º On July 1, 2020, Irish Life completed the acquisition of
Clearview Investments & Pensions Limited, which provides
private wealth management to individuals.
º On December 7, 2020, Irish Life announced it had entered into
an agreement to acquire Harvest Financial Services Limited
and Harvest Trustees Limited. Harvest Financial Services is
one of Ireland’s largest privately-owned wealth management
firms. The transaction is subject to regulatory approval and is
expected to close during the first half of 2021.
68
Great-West Lifeco Inc. 2020 Annual Report
Management’s Discussion and Analysis
Business units – europe
United Kingdom
operating resUlts
Premiums and deposits (1)
Sales (1)
Fee and other income
Base earnings (1)
Items excluded from base earnings (2)
For the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
$
$
1,361
1,469
43
677
672
42
$
957
1,027
63
$
4,191
4,302
168
$
5,144
5,229
225
$
96
$
78
$
233
$
334
$
503
Actuarial assumption changes and other management actions (2)
Market-related impacts on liabilities (2)
Net earnings
80
(20)
$
156
$
(27)
16
67
(9)
(18)
$
206
$
114
(25)
423
$
150
(87)
566
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
(2) Items excluded from base earnings, a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional information.
Premiums and deposits
Fee and other income
Premiums and deposits for the fourth quarter of 2020 increased by
$0.4 billion to $1.4 billion compared to the same quarter last year,
primarily due to higher bulk and individual annuity sales, partially
offset by lower wealth management sales.
Fee and other income for the fourth quarter of 2020 decreased by
$20 million to $43 million compared to the same quarter last year,
primarily due to lower management fees as a result of the unit-
linked policies sold to Scottish Friendly in the fourth quarter of 2019.
For the twelve months ended December 31, 2020, premiums and
deposits decreased by $1.0 billion to $4.2 billion compared to the
same period last year, primarily due to lower wealth management
and individual annuity sales, partially offset by higher bulk annuity
sales and the impact of currency movement.
Premiums and deposits for the fourth quarter of 2020 increased
by $0.7 billion compared to the previous quarter, primarily due to
higher bulk and individual annuity sales.
Sales
Sales for the fourth quarter of 2020 increased by $0.4 billion to
$1.5 billion compared to the same quarter last year, primarily due
to the same reasons discussed for premiums and deposits for the
same period.
For the twelve months ended December 31, 2020, sales decreased
by $0.9 billion to $4.3 billion compared to the same period last
year, primarily due to lower wealth management and individual
annuity sales, partially offset by higher bulk annuity sales and the
impact of currency movement.
Sales for the fourth quarter of 2020 increased by $0.8 billion
compared to the previous quarter, primarily due to higher bulk
and individual annuity sales.
For the twelve months ended December 31, 2020, fee and other
income decreased by $57 million to $168 million compared to the
same period last year, primarily due to the same reasons discussed
for the in-quarter results.
Fee and other income for fourth quarter of 2020 of $43 million was
comparable to the previous quarter.
Base earnings
Base earnings for the fourth quarter of 2020 decreased by
$137 million to $96 million compared to the same quarter last
year. The decrease was primarily due to the positive impact of the
resolution of an outstanding issue with a foreign tax authority in
the fourth quarter of 2019 as well as unfavourable group mortality
experience. These items were partially offset by higher impact
of new business and favourable group morbidity and longevity
experience.
Base earnings for the twelve months ended December 31, 2020
decreased by $169 million to $334 million compared to the same
period last year. The decrease was primarily due to lower impact of
new business, unfavourable group mortality experience and lower
contributions from investment experience, partially offset by
favourable group morbidity and longevity experience. In addition,
the twelve months ended December 31, 2019 included the positive
impact of the resolution of an outstanding issue with a foreign
tax authority.
Base earnings for the fourth quarter of 2020 increased by
$18 million compared to the previous quarter, primarily due
to higher impact of new business and favourable investment
experience, partially offset by unfavourable mortality experience.
Great-West Lifeco Inc. 2020 Annual Report
69
Management’s Discussion and Analysis
Net earnings
Net earnings for the fourth quarter of 2020 decreased by
$50 million to $156 million compared to the same quarter last year.
The decrease was primarily due to the same reasons discussed
for base earnings for the same period, partially offset by higher
contributions from insurance contract liability basis changes.
Net earnings for the twelve months ended December 31, 2020
decreased by $143 million to $423 million compared to the
same period last year. The decrease was primarily due to lower
contributions from insurance contract liability basis changes as
well as the same reasons discussed for base earnings for the same
period, partially offset by lower unfavourable market-related
impacts related to changes to certain tax estimates driven by
equity market declines in 2020.
Net earnings for the fourth quarter of 2020 increased by $89 million
compared to the previous quarter, primarily due to higher
contributions from insurance contract liability basis changes and
the same reasons discussed for base earnings for the same period.
These items were partially offset by the unfavourable market-
related impacts relating to changes to certain tax estimates driven
by equity market recovery in the fourth quarter of 2020 and a
positive contribution from property valuations in the third quarter
not repeated in fourth quarter of 2020. Included in the third
quarter of 2020 was a positive impact from property valuations.
outLook – united kingdom
Refer to Cautionary Note regarding Forward-looking Information
and Cautionary Note regarding non-IFRS Financial Measures at
the beginning of this document.
The short-term outlook for the retail payout annuities market is
negative due to the COVID-19 pandemic. Over the medium to
long-term, management expects the market will continue to show
modest growth. Individuals continue to have flexibility in accessing
their savings in 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 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 continue to develop products for individuals who
require additional pension flexibility and will 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 is cautiously optimistic with
an expectation that the market will recover from COVID-19 and
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.
2020 has seen increased mortality claims from COVID-19, which
have broadly been balanced by increased annuitant mortality
experience and that is expected to continue in 2021. The Company
expects a reduction in the existing group customer base in 2021
with a contraction of employment arising from COVID-19 impact
on the U.K. economy. This is expected to return to moderate
growth in 2021 now that employers have implemented the changes
required by the Auto Enrollment legislation. The Company’s group
operations will continue to maintain pricing discipline, reflecting
the current low interest rate environment and the outlook for the
group risk operation remains positive.
The Company’s bulk annuity capability has been enhanced
by an outsourcing agreement in 2020, which will allow the
administration of deferred annuities in the future. The increased
capability in the expanding equity release mortgage market allows
improved annuity market competitiveness as well as providing an
enhanced product offering to customers.
ireLand
oPerating resuLts
Premiums and deposits (1) (2)
Sales (1) (2)
Fee and other income
Base earnings (1)
Items excluded from base earnings (3)
For the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
$
6,161
5,270
189
$
5,136
4,561
189
$
6,602
5,393
229
$ 27,168
24,312
752
$
29,011
26,378
927
$
62
$
70
$
52
$
212
$
166
Actuarial assumption changes and other management actions (3)
Market-related impacts on liabilities (3)
Net gain on IPSI sale (3)
(6)
(2)
–
31
1
94
27
9
–
52
(23)
94
Net earnings
$
54
$
196
$
88
$
335
$
114
(1)
–
279
(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, 2020, premiums and deposits and sales exclude $29 million and $0.6 billion, respectively, of assets managed for other business units within the Lifeco group
of companies ($0.1 billion and $0.8 billion for the three and twelve months ended December 31, 2019 and $0.1 billion for the three months ended September 30, 2020).
(3) Items excluded from base earnings, a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional information.
70
Great-West Lifeco Inc. 2020 Annual Report
Management’s Discussion and Analysis
Premiums and deposits
Premiums and deposits for the fourth quarter of 2020 decreased by
$0.4 billion to $6.2 billion compared to the same quarter last year,
primarily due to lower fund management and retail sales, partially
offset by the renewal of health premiums and higher pension sales
as well as the impact of currency movement.
For the twelve months ended December 31, 2020, premiums and
deposits decreased by $1.8 billion to $27.2 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 2020 increased
by $1.0 billion compared to the previous quarter, primarily due to
higher fund management and the renewal of health premiums.
Sales
Sales for the fourth quarter of 2020 decreased by $0.1 billion to
$5.3 billion compared to the same quarter last year, primarily due to
lower fund management and retail sales, partially offset by higher
corporate pension sales and the impact of currency movement.
For the twelve months ended December 31, 2020, sales decreased
by $2.1 billion to $24.3 billion compared to the same period last
year, primarily due to the same reasons discussed for the in-
quarter results.
Sales for the fourth quarter of 2020 increased by $0.7 billion
compared to the previous quarter, primarily due to higher fund
management.
For the fund management businesses, net cash outflows in the
fourth quarter of 2020 were $1.5 billion compared to net cash inflows
of $1.5 billion for the same period last year and net cash outflows of
$1.4 billion for the previous quarter. Net cash outflows for the twelve
months ended December 31, 2020 were $1.1 billion compared to net
cash inflows of $10.3 billion for the same period last year.
Fee and other income
Fee and other income for the fourth quarter of 2020 decreased by
$40 million to $189 million compared to the same quarter last year,
primarily due to a new reinsurance treaty and lower management
fees as a result of the sale of IPSI, partially offset by the impact of
currency movement.
For the twelve months ended December 31, 2020, fee and other
income decreased by $175 million to $752 million compared to the
same period last year, primarily due to the same reasons discussed
for the in-quarter results.
Fee and other income for fourth quarter of 2020 was comparable
to the previous quarter.
Base earnings
Base earnings for the fourth quarter of 2020 increased by
$10 million to $62 million compared to the same quarter last
year. The increase was primarily due to favourable morbidity
experience, partially offset by lower contributions from investment
experience, less favourable mortality and expense experience and
lower impact of new business.
Base earnings for the twelve months ended December 31, 2020
increased by $46 million to $212 million compared to the same
period last year. The increase was primarily due to favourable
mortality and morbidity experience, partially offset by lower
impact of new business and higher expenses.
Base earnings for the fourth quarter of 2020 decreased by
$8 million compared to the previous quarter, primarily due to less
favourable morbidity experience.
Net earnings
Net earnings for the fourth quarter of 2020 decreased by
$34 million to $54 million compared to the same quarter last
year, primarily due to unfavourable contributions from insurance
contract liability basis changes, partially offset by the same reasons
discussed for base earnings.
Net earnings for the twelve months ended December 31, 2020
increased by $56 million to $335 million compared to the same
period last year. The increase was primarily due to the same
reasons discussed for base earnings for the same period as well
as the net gain on the sale of IPSI. The increase was partially offset
by less favourable contributions from insurance contract liability
basis changes and unfavourable market-related impacts related to
unhedged market movements in the first quarter of 2020. Market
impacts were primarily driven by the impact of the equity market
declines and volatility and lower interest rates in the first quarter
of 2020 on segregated fund guarantees.
Net earnings for the fourth quarter of 2020 decreased by
$142 million compared to the previous quarter, primarily due
to the net gain on the sale of IPSI. Excluding the IPSI gain, the
decrease is primarily due to unfavourable contributions from
insurance contract liability basis changes and the same reasons
discussed for base earnings for the same period.
outLook – ireLand
Refer to Cautionary Note regarding Forward-looking Information
and Cautionary Note regarding non-IFRS Financial Measures at
the beginning of this document.
Although the pandemic crisis continues to have a substantial
impact, economic growth, measured by gross domestic product
(GDP), is forecasted to be 3% in 2021, comparable to 2020.
This reflects strong multinational Pharma and Information
and Communication Technology exports, offset by significant
pandemic control measures. A range of government Pandemic
Unemployment Payments (PUP) were put in place in 2020, and
while the unadjusted measure for unemployment was 7.2% at
December 2020, the adjusted rate for those in receipt of PUP was
20.4%. While consumer confidence has been negatively impacted
by the crisis, household savings levels have increased to record
levels, presenting an opportunity as households turn to investments
as a way to maximize returns in the low interest rate environment,
possibly influenced by strong returns in equity markets.
Irish Life’s vision to be “Ireland’s home of Health and Wealth”
continues to drive mergers and acquisitions, innovation and
transformation initiatives in the Irish business unit. Society’s
transition to mobile and virtual working was the backdrop to the
Company’s digital developments in 2020 which saw the successful
roll out of digital workplace and virtual financial advice models.
The Company is accruing benefits from being a collaborative,
centrally connected, inquisitive and digitally enabled organization
that embraces technology for the benefit of all its stakeholders.
The Company’s broadly diversified product portfolio, distribution
channels and target market segments have helped it to adapt
successfully to the challenges of the pandemic, and position it to
benefit from any upturn in the Irish economy post-crisis.
Great-West Lifeco Inc. 2020 Annual Report
71
Management’s Discussion and Analysis
germany
oPerating resuLts
Premiums and deposits (1)
Sales (1)
Fee and other income
Base earnings (1)
Items excluded from base earnings (2)
For the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
$
$
$
374
135
119
$
301
80
111
366
146
109
$
1,262
382
446
$
1,196
369
411
41
$
37
$
34
$
155
$
136
Actuarial assumption changes and other management actions (2)
Market-related impacts on liabilities (2)
Net earnings
4
2
$
47
$
18
1
56
1
–
22
(9)
$
35
$
168
$
19
5
160
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
(2) Items excluded from base earnings, a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional information.
Premiums and deposits
Base earnings
Premiums and deposits for the fourth quarter of 2020 increased by
$8 million to $374 million compared to the same quarter last year,
primarily due to the impact of currency movement, partially offset
by lower pension sales.
Base earnings for the fourth quarter of 2020 increased by $7 million
to $41 million compared to the same quarter last year and increased
by $4 million compared to the previous quarter, primarily due to
higher impact of new business and lower expenses.
For the twelve months ended December 31, 2020, premiums and
deposits increased by $66 million to $1,262 million compared to
the same period last year, primarily due to higher segregated fund
premiums and the impact of currency movement.
Base earnings for the twelve months ended December 31, 2020
increased by $19 million to $155 million compared to the same
period last year, primarily due to the impact of changes to certain
tax estimates and higher impact of new business.
Premiums and deposits for the fourth quarter of 2020 increased
by $73 million compared to the previous quarter, primarily due to
higher pension sales.
Sales
Sales for the fourth quarter of 2020 decreased by $11 million to
$135 million compared to the same quarter last year, primarily due
to lower pension sales, partially offset by the impact of currency
movement.
For the twelve months ended December 31, 2020, sales increased
by $13 million to $382 million compared to the same period last
year, primarily due to the impact of currency movement.
Sales for the fourth quarter of 2020 increased by $55 million compared
to the previous quarter, primarily due to higher pension sales.
Fee and other income
Fee and other income for the fourth quarter of 2020 increased
by $10 million to $119 million compared to the same quarter last
year, primarily due to higher management fees on segregated fund
assets and the impact of currency movement.
For the twelve months ended December 31, 2020, fee and other
income increased by $35 million to $446 million compared to the
same period last year, primarily due to the same reasons discussed
for the in-quarter results.
Fee and other income for fourth quarter of 2020 increased by
$8 million compared to the previous quarter, primarily due to
higher management fees on segregated fund assets.
Net earnings
Net earnings for the fourth quarter of 2020 increased by $12 million
to $47 million compared to the same quarter last year. The increase
was primarily due to favourable contributions from insurance
contract liability basis changes and the same reasons discussed
for base earnings for the same period.
Net earnings for the twelve months ended December 31, 2020
increased by $8 million to $168 million compared to the same
period last year. The increase was primarily due to the same
reasons discussed for base earnings for the same period, partially
offset by the unfavourable equity market impacts related to
variable annuity guarantees and related hedge ineffectiveness.
Net earnings for the fourth quarter of 2020 decreased by $9 million
compared to the previous quarter, primarily due to lower
contributions from insurance contract liability basis changes,
partially offset by the same reasons discussed for base earnings
for the same period.
outLook – germany
Refer to Cautionary Note regarding Forward-looking Information
and Cautionary Note regarding non-IFRS Financial Measures at
the beginning of this document.
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 2021. The
Company is positioning itself to further strengthen its presence
through continued
in product development,
distribution technology and service improvements.
investments
72
Great-West Lifeco Inc. 2020 Annual Report
Management’s Discussion and Analysis
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.
In the fourth quarter of 2020, Europe Corporate had a net loss of
$4 million compared to net earnings of $6 million for the same period
last year. The fourth quarter of 2019 results included a net gain on
the Scottish Friendly transaction of $8 million. Excluding this item,
the net loss increased by $2 million, primarily due to lower expenses.
C a p i ta l a n d r i s k s o l u t i o n s
The Capital and Risk Solutions segment of Lifeco includes the
operating results of the Reinsurance business unit which operates
primarily in the U.S., Barbados, Bermuda and Ireland, together
with an allocation of a portion of Lifeco’s corporate results. Capital
and Risk Solutions Corporate consists of items not associated
directly with or allocated to the Reinsurance business unit as well
as the results for the legacy international businesses.
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
reinsUranCe
Reinsurance provides capital and risk solutions and operates
primarily in the U.S., Barbados, Bermuda and Ireland. In the U.S.,
the reinsurance business operates through a branch of Canada
Life, subsidiaries of Canada Life and a subsidiary of GWL&A. In
Barbados, the reinsurance business operates primarily through
a branch of Canada Life and subsidiaries of Canada Life. In
Bermuda and Ireland, the reinsurance business operates through
a subsidiary of Canada Life. In the third quarter of 2020, Capital
and Risk Solutions established a subsidiary in Bermuda. The
subsidiary, Canada Life International Reinsurance Corporation
Limited, has been approved as a Certified Reinsurer by the
Michigan Department of Insurance and Financial Services.
The Company’s business
includes both reinsurance and
retrocession business transacted directly with clients or through
reinsurance brokers. As a retrocessionaire, the Company provides
reinsurance to other reinsurers to enable those companies to
manage their insurance risk.
The product portfolio offered by the Company includes
life, annuity/longevity, mortgage,
surety and property
catastrophe reinsurance, provided on both a proportional and
non-proportional basis.
For the twelve months ended December 31, 2020, Europe
Corporate had a net loss of $13 million compared to $1 million
for the same period last year, primarily due to the same reasons
discussed for the in-quarter results.
For the three months ended December 31, 2020, Europe Corporate
had a net loss of $4 million compared to a net loss of $3 million for
the previous quarter, primarily due to higher expenses.
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.
Market overview
prodUCts and serviCes
reinsUranCe
marKet position
• Among the top two life reinsurers in the U.S. for assumed structured
life reinsurance (1)
• Leading provider 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 management solutions
Mortgage and Surety Reinsurance
• Stop loss
Annuity / Longevity
• Longevity protection
• Payout annuity
• Fixed annuity
Property & Casualty
• Catastrophe retrocession
• Capital management solutions
distribUtion
• Independent reinsurance brokers
• Direct placements
(1) As at November 30, 2019 (biennial survey)
Great-West Lifeco Inc. 2020 Annual Report
73
Management’s Discussion and Analysis
Competitive Conditions
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 in increased competition. However, a biennial
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.
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 management transactions that produce capital
benefits continues to grow. Demand for longevity reinsurance
remains strong in the U.K., the Netherlands and some other
continental European countries. As a result, there are now more
reinsurers participating in this market.
Selected consolidated financial information – Capital and Risk Solutions
Premiums and deposits (1)
Fee and other income
Base earnings (1)
Items excluded from base earnings (2)
Actuarial assumption changes and other management actions (2)
Market-related impact on liabilities (2)
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)
For the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
$
$
5,336
3
124
43
–
$
167
$ 14,861
–
14,861
–
$
$
$
$
4,490
3
156
2
9
167
14,815
–
14,815
–
$
$
$
$
4,462
2
$ 19,407
11
157
$
536
$
$
17,466
9
401
(40)
–
78
–
117
$
614
$
(15)
–
386
15,130
–
15,130
–
$ 14,861
$
14,815
$
15,130
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
(2) Items excluded from base earnings, a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional information.
Base earnings (1) and Net earnings – common shareholders
Reinsurance
Capital and Risk Solutions Corporate
Base earnings (1)
Reinsurance
Capital and Risk Solutions Corporate
Net earnings – common shareholders
For the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
$
$
$
124
–
124
171
(4)
167
$
$
$
157
(1)
156
168
(1)
167
$
$
$
162
(5)
157
128
(11)
117
$
$
$
539
(3)
536
621
(7)
614
$
$
$
405
(4)
401
397
(11)
386
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
2020 developMents
• COVID-19 Pandemic Impacts – The Capital and Risk Solutions
segment continues to have a strong new business pipeline
and has not seen a material impact as a result of the COVID-19
pandemic in 2020. Capital and Risk Solutions will continue to
focus on meeting market demand for life reinsurance involving
capital solutions in the U.S. and Europe.
• The Company offers property catastrophe coverage
to
reinsurance companies. Current preliminary estimates of
industry losses arising from catastrophe events in 2020 do not
reach the level where any claims would be anticipated. As any
precautionary claim notifications are unlikely to be received for
some period of time, the Company will continue to monitor
events and will update any estimates as required.
• On May 20, 2020, the Company announced it had entered
into a long-term longevity reinsurance agreement with an
insurance company
covers approximately €5.3 billion of pension
in the Netherlands. The agreement
liabilities
74
Great-West Lifeco Inc. 2020 Annual Report
and close to 82,000 in-payment pensioners. In exchange
for ongoing premium payments, the Company will pay the
actual benefit obligations incurred by the insurance company.
• On July 7, 2020, the Company announced it had entered into a
long-term longevity reinsurance agreement with an insurance
company in the U.K. The agreement covers approximately
£1.4 billion of pension liabilities and approximately 2,700
in-payment pensioners. In exchange for ongoing premium
payments, the Company will pay the actual benefit obligations
incurred by the insurance company.
• On December 15, 2020, the Company announced it had entered
into a long-term longevity reinsurance agreement with an
insurance company
in the U.K. The agreement covers
approximately £3 billion of pension liabilities and approximately
7,500 in-payment pensioners. In exchange for ongoing premium
payments, Canada Life will pay the actual benefit obligations
incurred by the insurance company.
Management’s Discussion and Analysis
Business units – Capital and risk solutions
reinsurance
oPerating resuLts
Premiums and deposits (1)
Fee and other income
Base earnings (1)
Items excluded from base earnings (2)
For the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
$
$
5,330
3
124
$
$
4,484
3
157
$
$
4,455
2
$ 19,385
11
162
$
539
$
$
17,443
9
405
Actuarial assumption changes and other management actions (2)
Market-related impact on liabilities (2)
47
–
2
9
(34)
–
82
–
(8)
–
Net earnings
$
171
$
168
$
128
$
621
$
397
(1) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
(2) Items excluded from base earnings, a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional information.
Premiums and deposits
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.
Premiums and deposits for the fourth quarter of 2020 of $5.3 billion
increased by $0.9 billion compared to the same quarter last year,
primarily due to new reinsurance agreements and volumes
relating to existing business.
For the twelve months ended December 31, 2020, premiums
and deposits increased by $1.9 billion to $19.4 billion compared
to the same period last year, primarily due to new reinsurance
agreements and higher volumes relating to existing business.
Premiums and deposits for the fourth quarter of 2020 increased
by $0.8 billion compared to the previous quarter, primarily due
to new reinsurance agreements and higher volumes relating to
existing business.
Fee and other income
Fee and other income for the fourth quarter of 2020 of $3 million
was comparable to the previous quarter and to the same quarter
last year.
For the twelve months ended December 31, 2020, fee and other
income of $11 million was comparable to the same period last year.
Base earnings
Base earnings for the fourth quarter of 2020 decreased by
$38 million to $124 million compared to the same quarter last
year. The decrease primarily reflects new business strain in the
fourth quarter of 2020 compared to new business gains in the
fourth quarter of 2019. The results in the fourth quarter of 2020
also reflect unfavourable claims experience in the life business,
partially offset by favourable longevity experience.
Base earnings for the twelve months ended December 31, 2020
increased by $134 million to $539 million compared to the same
period last year, primarily due to favourable longevity experience
and higher business volumes partially offset by new business
strain and less favourable claims experience in the life business.
Base earnings for the fourth quarter of 2020 decreased by
$33 million compared to the previous quarter. The decrease was
primarily due to new business strain in the fourth quarter of 2020
compared to new business gains in the previous quarter and less
favourable claims experience in the life business partially offset
by higher business volumes and favourable longevity experience.
Net earnings
Net earnings for the fourth quarter of 2020 increased by $43 million
to $171 million compared to the same quarter last year. The
increase was primarily due to the same reasons discussed for base
earnings, as well as higher contributions from insurance contract
liability basis changes.
For the twelve months ended December 31, 2020, net earnings
increased by $224 million to $621 million compared to the same
period last year, primarily due to the same reasons discussed for
base earnings and higher contributions from insurance contract
liability basis changes.
Net earnings for the fourth quarter of 2020 increased by $3 million
compared to the previous quarter, primarily due to higher
contributions from insurance contract liability basis changes,
partially offset by the base earnings impacts and a decrease in
actuarial liabilities on a legacy block of business with investment
performance guarantees reflecting market recoveries in the third
quarter of 2020.
Great-West Lifeco Inc. 2020 Annual Report
75
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.
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 strong and will remain
a focus for 2021.
2020 was the fourth consecutive year of significant hurricane and
typhoon events. The Company expects 2021 retrocessional pricing
to continue to increase. Insurance linked securities capacity is
expected to decrease due to trapped collateral from 2017 to 2020
events. However, capital raising has also been evident in the
market. The Company’s primary focus in the property catastrophe
market for 2021, will be to continue to support the core client base
with prudent attachment levels and risk adjusted premiums.
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 three months ended December 31, 2020 was
$16 million compared to a net loss of $6 million for the same
period last year and a net loss of $12 million for the previous
quarter, primarily due to higher operating expenses and lower net
investment income.
caPitaL and risk soLutions corPorate
In the fourth quarter of 2020, Capital and Risk Solutions Corporate
had a net loss of $4 million compared to a net loss of $11 million
for the same period last year, primarily due to unfavourable
contributions from insurance contract liability basis associated
with the legacy international business.
For the twelve months ended December 31, 2020, Capital and Risk
Solutions Corporate had a net loss of $7 million compared to a net
loss of $11 million for the same period last year, primarily due to
the same reasons discussed for the in-quarter results.
For the three months ended December 31, 2020, Capital and Risk
Solutions Corporate had a net loss of $4 million compared to a net
loss of $1 million for the previous quarter, primarily due to the
same reasons discussed for the in-quarter results.
The net loss for the twelve months ended December 31, 2020 was
$34 million compared to a net loss of $21 million for the same
period last year, primarily due to higher operating expenses,
partially offset by higher net investment income.
76
Great-West Lifeco Inc. 2020 Annual Report
Management’s Discussion and Analysis
r i s k M a n a g e M e n t
Covid-19 pandeMiC – governMent and regulatory
responses
While conditions have become more stable, governments and
central banks in the jurisdictions in which the Company’s
subsidiaries operate have implemented and extended many of
the measures introduced earlier in 2020 to deal with the economic
impacts of the COVID-19 pandemic, including emergency
spending, interest rate cuts, wage subsidies and other supports
for individuals and businesses.
The overall level of regulatory engagement with the Company’s
regulated subsidiaries has moderated somewhat to reflect the
more stable conditions. However, regulators continue to monitor
the impact of the pandemic to ensure that regulated companies
maintain sufficient capital and liquidity. Regulators in Canada,
the U.K. and Ireland, where some of the Company’s regulated
subsidiaries operate, have maintained the guidance they provided
earlier in 2020 on the payment of dividends and other shareholder
distributions during the crisis.
On March 13, 2020, the Office of the Superintendent of Financial
Institutions (OSFI) set expectations that Canadian banks and
insurers should suspend share buybacks and not to increase
dividend payments. The Company does not currently intend to
increase dividends or engage in share repurchases.
In the U.K., the Prudential Regulatory Authority (PRA) wrote to
all insurance companies in March and April 2020 to remind them
to manage their financial resources prudently to ensure they are
able to meet their commitments to policyholders and maintain
safety and soundness and to satisfy themselves that any dividends
are prudent, consistent with their risk appetite and informed by
a range of scenarios including very severe ones. The Company’s
subsidiaries that are supervised by the PRA paid dividends in July,
September and November 2020.
In Ireland, the position of the Central Bank of Ireland (CBI) is
that, as the impact of COVID-19 remains uncertain, insurance
firms should, at this time, postpone any dividend payment
distribution or similar transactions until they can forecast their
costs and future revenues with a greater degree of certainty. The
CBI has indicated that it will continue to review its position in
conjunction with ongoing guidance from the European Insurance
and Occupational Pension Authority and the European Systematic
Risk Board.
The declaration and payment of dividends by the Company in
future periods remains at the discretion of its directors and will
depend, among other things, on the Company’s financial position,
which will in turn depend on the duration of the COVID-19
pandemic and the severity and duration of the financial impacts.
Although there can be no assurance, to the extent that the
pandemic abates and the actions taken by governments lead to a
sustained global financial recovery within a reasonable time, the
Company expects that its ability to pay dividends at current levels
will not be adversely impacted.
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 defense organization and
overseen by the Board of Directors. The Company’s three lines of
defense include business unit and support functions, oversight
functions including actuarial, finance, risk and compliance,
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.
• Board Committees
• Senior Management
Committees
• 3 Lines of Defence
• Risk Policies
• Risk systems
• Operating standards
and guidelines
Risk
Governance
Risk Appetite
Framework
Risk Culture
Risk
Infrastucture
and Policies
Risk
Processes
• Risk Strategy
• Risk Appetite
Statement
• Risk Preferences
• Risk Limit
Framework
• Identification
• Measurement
• Management
• Monitoring
• Reporting
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;
Great-West Lifeco Inc. 2020 Annual Report
77
Management’s Discussion and Analysis
• 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 ERM Policy and RAF;
• 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
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;
78
Great-West Lifeco Inc. 2020 Annual Report
• Periodically approve the recovery plan playbook;
• Review of the risk impact of business strategies, capital plans,
financial plans and 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 meets as often as necessary to discharge its duties
and responsibilities and meets at least annually, with the Risk
Committee. Members of the Audit Committee are independent
of management.
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
material transactions with related parties and to review and,
if deemed appropriate, to approve related party transactions
in accordance with such procedures. Members of the Conduct
Review Committee are independent of management.
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,
Management’s Discussion and Analysis
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. The Investment Committee meets as
often as necessary to discharge its duties and responsibilities and
meets with the Risk Committee as appropriate.
Reinsurance Committee – The primary mandate of
the
Reinsurance Committee
is to advise on the Corporation’s
reinsurance transactions. The mandate also includes reviewing
and approving management’s recommendations with respect to
policies applicable to reinsurance.
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. In addition, each business
segment has established its own executive risk management
committee providing oversight for all forms of risk and the
implementation of the ERM Framework.
Accountabilities
The Company has adopted a Three Lines of Defense 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,
including
Investment Management, Human Resources,
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 defense. 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.
Business Segment 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 and 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 excess 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, taking
into consideration corporate social responsibility;
• 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.
Great-West Lifeco Inc. 2020 Annual Report
79
Management’s Discussion and Analysis
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 seeks to maintain a high standing
and positive reputation with its customers, counterparties,
creditors and other stakeholders. This includes building and
maintaining trust, fair treatment of the customers, consideration
of corporate social responsibility, and effective management of
sustainability and reputational risk.
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 risks. 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.
Risk Limit Framework
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
limit approval and excess management
by comprehensive
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
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Great-West Lifeco Inc. 2020 Annual Report
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
for financial and non-financial risks that includes risk limits,
Risk Function Indicators (RFIs) 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.
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 is in place to address
any excesses against thresholds or limits established by 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 endeavours to take a consistent
approach to risk management 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 business segment.
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
covid-19 Pandemic
The global pandemic is elevating disruption themes, amplifying
introducing new
existing financial and nonfinancial risks,
uncertainties,
and
accentuating risk correlations.
interdependencies
highlighting
and
Many factors still remain unknown, such as the depth and
length of the recession, rollout and efficacy of vaccines, ongoing
effectiveness of monetary and fiscal stimulus, and impacts from
the cross-accumulation of risks. Near and longer term implications
of COVID-19 pandemic raise several unique challenges that may
affect Lifeco’s business strategy.
The Company is monitoring the situation closely, including
carrying out stress and scenario testing, and has implemented
processes for the continuation of operations and to support the
well-being of customers, employees and broader communities.
The risks associated with the COVID-19 pandemic (financial,
operational, regulatory and other risks) are being managed within
the Company’s existing risk management framework.
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
including Investment
of market risk. The business units,
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, excess management and
mitigation pertaining to market risk. Each business segment has
established oversight committees and operating committees
to help manage market risk within the segment. The Company
has developed risk limits, RFIs 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 that has
been established to execute hedge transactions in circumstances
and at levels that have been determined by the Company.
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
Great-West Lifeco Inc. 2020 Annual Report
81
Management’s Discussion and Analysis
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.
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 that has been established to execute hedge transactions
in circumstances and at levels that have been determined by
the Company.
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
to execute hedge transactions in circumstances and at levels
that have been determined by the Company. 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.
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Great-West Lifeco Inc. 2020 Annual Report
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
the Capital and Risk Solutions segment; and to the British pound
and the euro resulting from operations of business units within
the Capital and Risk Solutions and Europe segments 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 2020 by
$43 million, $34 million and $26 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 $347 million, $306 million and $170 million,
respectively, as at December 31, 2020.
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.
Management’s Discussion and Analysis
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.
Liquidity
December 31
2020
2019
Cash, cash equivalents and short-term bonds
$ 11,197 $ 8,852
Other liquid assets and marketable securities
Government bonds
Corporate bonds
Common/Preferred shares (public)
Residential mortgages – insured
Total
Cashable liability characteristics
33,635
52,583
10,208
3,785
30,865
41,792
9,766
4,141
$ 100,211 $ 86,564
$ 111,408 $ 95,416
December 31
2020
2019
Surrenderable insurance and investment contract liabilities (1)
At market value
At book value
Total
$ 50,855 $ 21,606
44,829
49,981
$ 100,836 $ 66,435
(1) Cashable liabilities include insurance and investment contract liabilities classified as held for sale.
the Company’s
The carrying value of
liquid assets and
marketable securities is approximately $111.4 billion or 1.1
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. Surrenderable insurance and investment contract
liabilities at December 31, 2020 increased $34.4 billion compared
to December 31, 2019 primarily due to the acquisition of the
retirement services business of MassMutual.
Approximately 48% (approximately 57% in 2019) of insurance and
investment contract liabilities are non-cashable prior to maturity
or claim, with a further 26% approximately (14% in 2019) 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 decrease when interest rates
rise. 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 8 in the Company’s
December 31, 2020 annual 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. 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 of assets, in-house credit
analysis to identify and measure risks, continuous monitoring,
and proactive management. Diversification is achieved through
the establishment of appropriate concentration limits (by asset
class, issuers, credit rating, industries, and individual geographies)
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.
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 excess
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.
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83
Management’s Discussion and Analysis
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 business
investments above the
segment review and approve new
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 oversight of market and
credit risk management activities, which includes completing
reviews and making recommendations regarding risk limits, the
risk policy and associated compliance, excess management and
mitigation pertaining to credit risk.
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.
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, business segment 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 excesses
as they occur. Investment Management 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 business segment levels to plan and execute the relevant risk
mitigation strategies for obligors experiencing heightened credit
stress.
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Great-West Lifeco Inc. 2020 Annual Report
The Risk Function oversees monitoring, management of excesses
and escalation activities, and has developed risk limits, RFIs 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
counterparties.
include both
reinsurers
and derivative
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 through diversification 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. The Company
seeks to mitigate derivative credit risk through diversification 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
arising
includes
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, policyholder behaviour 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. Policyholder behaviour
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.
Management’s Discussion and Analysis
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, excess management and mitigation
insurance risk. Each business segment has
pertaining to
established oversight committees and operating committees to
help manage insurance risk within the segment.
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:
• 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 RFIs 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 excesses 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. The Risk Function
performs thematic reviews and/or enhances the monitoring and
reporting of associated exposures to these risks.
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 write business which generates 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.
• 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.
• The insurance contract liabilities established to fund future
claims include a provision for adverse deviation, set in
accordance with actuarial standards. This margin is 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.
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85
Management’s Discussion and Analysis
• 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 reinsurance to transfer the risk
as appropriate, as well as consideration of capital market solutions
if deemed necessary. 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.
Policyholder Behaviour Risk
Policyholder behaviour risk is the risk of loss resulting from adverse
changes in the level or volatility of the rates of policy lapses,
terminations, renewals, surrenders, or exercise of embedded
policy options.
Many products are priced and valued to reflect the expected
duration of contracts and the exercising of options embedded in
those contracts. There is a risk that contracts may be terminated
earlier or later than assumed in pricing and plan design. To the
extent that higher costs are incurred in early contract years, there
is a risk that contracts are terminated before higher early expenses
can be recovered. Conversely, on certain long-term level premium
products where costs increase by age, there is risk that contracts
are terminated later than assumed.
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 as necessary for both pricing of new policies and
valuation of in-force policies.
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Great-West Lifeco Inc. 2020 Annual Report
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 resulting from potential problems
relating to internal processes, people and systems or from external
events. Exposure to Operational risk results from either normal
day-to-day operations or a specific unanticipated event, and can
have material financial and/or reputational consequences.
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 defense. The Operational Risk
Committee has the primary mandate to provide risk oversight for
operational risk across the enterprise. In addition, each business
segment has established committees to oversee operational risk
management within their business.
Management’s Discussion and Analysis
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 RFIs, risk appetite preferences, and other processes are
leveraged to measure, manage and monitor operational risks.
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, business segment 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, regulations,
or prescribed practices, as well as civil or criminal litigation engaged
in/by 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 an 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 defense 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 and regulatory
action relating to its business, operations, products, securities and
contractual relationships and it establishes contingency reserves
for litigation that it determines are appropriate.
People Risk
People 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
including corporate facilities, physical assets,
environment,
human resources and/or technology (technology assets, systems,
applications, cloud computing and virtualization), 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, non-
compliance 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
intended 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
include strong business continuity
management programs
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 intended 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.
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87
Management’s Discussion and Analysis
Physical Security Risk – Physical security risk is the risk of
damage to physical assets, physical data, corporate facilities
or human resources.
Physical security risk management entails safeguarding people,
facilities, hardware and software assets, network infrastructure,
and digital data from physical incidents which can cause significant
loss to the organization. Physical security threats can be natural,
such as weather events and floods, man-made, such as theft or
workplace violence or inadvertent, such as industrial or motor
vehicle accidents. Physical security strategies also complement
the cybersecurity protocols, structures and technology that
protect our digital assets.
The objective of physical security risk management is to identify,
assess, and mitigate the impact of security risks to the Company,
and utilize physical security measures which allow the Company to
advance its overall objectives. Physical security risk management
is a strategic approach that links the Company’s physical security
measures to its operations using established and acceptable risk
management strategies.
IT and Cyber Risk – IT and cyber risk is the risk of loss resulting
from events such as failures, faults or incompleteness in computer
operations, or illegal or unauthorized use of computer systems. 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 non-
compliance. IT risk includes not only the risk of existing failures,
faults or incompleteness in computer operations but also 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 implementation or use of its own technology or as
a result of the implementation or use of third party technology
providers and other service providers.
The nature of advancing technology
introduces additional
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.
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Great-West Lifeco Inc. 2020 Annual Report
The Company has been implementing new risk management
processes and practices designed to allow it to better identify,
measure, mitigate, and report 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 Technology Risk
Management team, an independent group that acts as the
second line of defense; 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 as a result 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
involving the loss of sites, workforce disruptions, technology and
supply chain outages.
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 continuity planning and disaster recovery planning.
Poor operational 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 that deliver products and services and grow
shareholder value. These processes include change management,
data aggregation and reporting, product development, product
introduction, new business (including the distribution and
sales process) and renewal (including underwriting process),
investment activities, client administration, claims and benefit
payments, risk and financial modelling and financial management.
The inadequacy can arise in transaction processing, governance,
communication or general process management.
Management’s Discussion and Analysis
Risk management seeks strategic alignment and congruency
across all of the Company’s business activities, including change
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 arises from the potential
for adverse consequences 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 acts or activities that are
intended to defraud, misappropriate assets, or circumvent laws
or regulations by customers, contractors or other third parties,
directors, officers, 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
its governance framework, assessment, prevention, detection,
investigation and response. The Company promotes a culture of
honesty, integrity, transparency and fairness in its operations and
further manages fiduciary responsibilities through the Company’s
Fraud Risk Management Policy, Fraud Risk Operating Standard
and Code of Conduct. The Company has processes and controls
in place that are intended 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 financial loss, adverse operational
impacts and reputational damage resulting from the failure to
establish and manage adequate supplier arrangement transactions
or other interactions to meet the expected or contracted service
level. Supplier risk is applicable to both external and internal
suppliers. 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 are engaged based on our
prescribed supplier risk management principles in our Supplier
Risk Management Policy. The Company applies a supplier risk
management framework to oversee and monitor interactions with
suppliers throughout the entire supplier lifecycle, including how
they meet standards for quality of service and protect stakeholders
and the interests of the Company.
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 failing to set or meet appropriate
strategic objectives in the context of the internal and external
operating environment resulting in a material impact on business
performance (e.g. earnings, capital, reputation or standing).
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.
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89
Management’s Discussion and Analysis
There are significant uncertainties relating to the political and
economic environment. Increasing geopolitical tensions and
slower global economic recovery 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.
The Company evaluates and optimizes strategy through a
combined lens to meet strategic objectives. It assesses market
attractiveness and the ability to drive leadership in the markets,
sectors, and regions where the Company chooses to participate,
evaluates portfolio and businesses from the lens of shareholder
value creation and embeds resilience in strategies and operations
to anticipate and respond quickly to external environment and
competitive pressures. This enables the Company to dynamically
manage tactical initiatives that ensure strategies will be both
achievable in the short term and sustainable over the long term.
strategic risk management
Strategic risk-taking is inherent to achieving strategic objectives
and arises from the fundamental decisions made and actions
taken concerning an organization’s objectives. It may relate to
or stem from the design and development of strategy, including
the formulation, evaluation and ongoing validation of strategy, or
execution of corporate and business strategies, and management
of associated risks stemming from the same.
Strategic risk may reflect intentional risk-taking in anticipation
or response to industry forces or it may emerge as unintended
consequences from changes to strategy, execution of strategy,
or from lack of responsiveness to external forces. The Company
aligns business strategies with its Risk Appetite and mitigates
exposure to strategic risk through strategic planning and value-
based decision making, establishing appropriate performance
indicators, reporting of strategy execution and implementation
against strategic goals and ongoing monitoring, together with
robust oversight and challenge. The Company carefully aligns
business strategies with the Risk Appetite.
In respect initiatives, a review of the alignment with risk strategy
and qualitative risk preferences is completed. Material change
initiatives, including those related to new markets, mergers
and acquisitions, distribution channels, product design and
investments, are also subject to independent risk review.
other risks
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.
Mergers and Acquisitions Risk
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.
To mitigate these risks, due diligence reviews are undertaken and
risks are assessed in the context of our Risk Appetite. Before acquiring
or disposing of companies, businesses, business segments, or assets,
businesses assess and provide assurance that systems and processes
are in place to manage the risks after the transaction is completed.
90
Great-West Lifeco Inc. 2020 Annual Report
Management’s Discussion and Analysis
Product Distribution Risk
exposures and sensitivities
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.
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.
Sustainability Risk
Increase (decrease) in net earnings
Sustainability risk is the risk that business operations and
business growth are not sustained due to failure to meet societal
expectations related to corporate social responsibility.
Dynamics and attitudes towards societal issues have solidified and
been further amplified during COVID-19. Factors such as diversity
and inclusion and climate change are now a significant focus on the
Company’s strategic agenda. The Company may experience direct or
indirect financial, operational or reputational impact stemming from
societal related events, which include climate change, regulatory
enforcement or costs associated with changes in environmental laws
and regulations as well as diversity and inclusion related matters.
formally reflected
in the
Sustainability considerations are
Company’s risk management principles and associated policies.
The Company recognizes that sustainability risk impacts both
financial risks (market, credit, insurance) as well as non-financial
risks (operational, conduct, strategic). Sustainability risk is not
a stand-alone risk type, but underlies all risk types (e.g. credit,
market, insurance, operational and strategic risk). As a result, the
processes for managing sustainability risk are embedded in the
processes for managing each risk type.
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.
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 publicly traded common stock values
20% increase
10% increase
10% decrease
20% decrease
Change in other non-fixed income asset values
10% increase
5% increase
5% decrease
10% decrease
Change in best estimate return assumptions for equities
1% increase
1% decrease
Expenses – 5% increase
Policy termination and renewal – 10% adverse change
2020
2019
(288) $
(756) $
(279) $
(279)
(601)
(253)
– $
– $
–
–
$
$
$
$
$
$ 224 $
(920) $
$
175
(619)
$
$
$
$
$
$
$
$
28 $
15 $
(51) $
(208) $
54
27
(39)
(182)
34 $
6 $
(69) $
(108) $
60
25
(28)
(90)
$ 556 $
(682) $
$
(165) $
$
$ (1,017) $
509
(585)
(125)
(813)
Refer to the “Accounting Policies – Summary of Critical Accounting
Estimates” section of this document for additional information on
earnings sensitivities.
Great-West Lifeco Inc. 2020 Annual Report
91
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
market conditions related to global credit, equities, investment
properties and foreign exchange and prevailing health and mortality
experience. These estimates and judgments are more challenging in
a period of uncertainty as is currently being experienced as a result
of the COVID-19 pandemic. The fair value of portfolio investments,
the valuation of goodwill and other intangible assets, the valuation
of insurance contract liabilities and the recoverability of deferred
tax asset carrying values reflect management’s judgement based
on current expectations but could be impacted in the future
depending on current market developments.
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 independent third-party credit
ratings where available as an input to its internal credit rating
process. Investment properties, which are primarily held in the
U.K. and Canada, rely upon independent third-party appraisals
for their valuation which impact the estimation of insurance
contract liabilities. Independent appraisals for the portfolio occur
over the year with management adjustments for material changes
in the interim periods. Credit rating changes for fixed income
investments and market values for investment properties may
lag developments in the current environment. Subsequent credit
rating adjustments and market value adjustments on investment
properties will impact actuarial liabilities.
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.
92
Great-West Lifeco Inc. 2020 Annual Report
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 9 in the Company’s December 31, 2020 annual
consolidated financial statements for disclosure of the Company’s
financial instruments fair value measurement by hierarchy level as
at December 31, 2020.
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.
Management’s Discussion and Analysis
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
Goodwill and intangibles impairment testing
Goodwill and indefinite life intangible assets, including those
resulting from an acquisition during the year, 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 has been allocated to cash generating unit groupings,
representing the lowest level that the assets are monitored for
internal reporting purposes. Goodwill is tested for impairment
by comparing the carrying value of each cash generating unit
grouping to its recoverable amount. An impairment loss is
recognized for the amount by which the asset’s carrying amount
exceeds its recoverable amount.
Intangible assets have been allocated to cash generating units,
representing the lowest level that the assets are monitored for
internal reporting purposes.
Intangible assets with an indefinite useful life are reviewed annually
to determine if there are indicators of impairment. If indicators
of impairment have been identified, a test for impairment is
performed and recognized as necessary. Impairment is assessed
by comparing the carrying values of the assets to their recoverable
amounts. 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.
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.
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
The methods for arriving at these valuation assumptions are
outlined below:
Mortality – A life insurance mortality study is carried out regularly
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 are 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 $288 million.
• A 2% decrease in the best estimate annuitant assumption would
cause a decrease in net earnings of approximately $756 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 $279 million.
Great-West Lifeco Inc. 2020 Annual Report
93
Management’s Discussion and Analysis
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.
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 a
number of interest rate scenarios (including increasing, decreasing
and fluctuating 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.
The total provision for interest rate 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 following is the impact to the value of
liabilities net of changes in the value of assets supporting liabilities
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. For some products, interest rate risk is modelled
stochastically in determining the insurance contract liabilities,
and for those products, the sensitivities reflect the estimated
impact of an immediate 1% increase and 1% decrease in interest
rates on the liability.
94
Great-West Lifeco Inc. 2020 Annual Report
• 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 $289 million causing an increase in
net earnings of approximately $224 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 $1,185 million causing a decrease in
net earnings of approximately $920 million.
As at December 31, 2020, the accounting for the acquisition
of MassMutual is not finalized pending completion of a
comprehensive valuation of the net assets acquired. As such, the
impact of the acquired business included in the sensitivities above
reflects management’s current best estimate of the sensitivities.
In addition to interest rates, the Company is also exposed to
movements in equity markets.
Some insurance and investment contract liabilities with long-
tail cash-flows are supported by publicly traded common stocks
and investments in other non-fixed income assets, primarily
comprised of investment properties, real estate funds, private
stocks, and equity release mortgages. The value of the liabilities
may fluctuate with changes in the value of the supporting assets.
The liabilities for other products such as segregated fund products
with guarantees also fluctuate with equity values.
There may be additional market and liability impacts as a result of
changes in the value of publicly traded common stocks and other
non-fixed income assets that will cause the liabilities to fluctuate
differently than the equity values. This means that there is a greater
impact on net earnings from larger falls in equity values, relative
to the change in equity values. Falls in equity values beyond those
shown in the table below would have a greater impact on net
earnings, relative to the change in equity values. The following
provides information on the expected impacts of an immediate
10% or 20% increase or decrease in the value of publicly traded
common stocks on insurance and investment contract liabilities
and on the shareholders’ net earnings of the Company. The
expected impacts take into account the expected changes in the
value of assets supporting liabilities and hedge assets.
The following shows the impact of an immediate 10% or 20%
increase or decrease in the value of publicly traded common
stocks on insurance and investment contract liabilities and on the
shareholders’ net earnings of the Company. The expected impacts
take into account the expected changes in the value of assets
supporting liabilities and hedge assets:
• A 10% increase in publicly traded common stock values would be
expected to additionally decrease non-participating insurance
and investment contract liabilities by approximately $18 million,
causing an increase in net earnings of approximately $15 million.
• A 10% decrease in publicly traded common stock values would
be expected to additionally increase non-participating insurance
and investment contract liabilities by approximately $62 million,
causing a decrease in net earnings of approximately $51 million.
• A 20% increase in publicly traded common stock values would be
expected to additionally decrease non-participating insurance
and investment contract liabilities by approximately $34 million,
causing an increase in net earnings of approximately $28 million.
Management’s Discussion and Analysis
• A 20% decrease in publicly traded common stock values would
be expected to additionally increase non-participating insurance
and investment contract liabilities by approximately $264 million,
causing a decrease in net earnings of approximately $208 million.
The following provides information on the expected impacts of an
immediate 5% or 10% increase or decrease in the value of other
non-fixed income assets on insurance and investment contract
liabilities and on the shareholders’ net earnings of the Company.
The expected impacts take into account the expected changes in
the value of assets supporting liabilities:
• A 5% increase in other non-fixed income asset values would
be expected to decrease non-participating insurance and
investment contract liabilities by approximately $8 million,
causing an increase in net earnings of approximately $6 million.
• A 5% decrease in other non-fixed income asset values would
be expected to increase non-participating insurance and
investment contract liabilities by approximately $88 million,
causing a decrease in net earnings of approximately $69 million.
• A 10% increase in other non-fixed income asset values would
be expected to decrease non-participating insurance and
investment contract liabilities by approximately $41 million,
causing an increase in net earnings of approximately $34 million.
• A 10% decrease in other non-fixed income asset values would
be expected to increase non-participating insurance and
investment contract liabilities by approximately $138 million,
causing a decrease in net earnings of approximately $108 million.
The best-estimate return assumptions for publicly traded common
stocks, and other non-fixed income assets 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 $691 million causing an increase in
net earnings of approximately $556 million.
• A 1% decrease in the best estimate assumption would be
expected to increase non-participating insurance contract
liabilities by approximately $861 million causing a decrease in
net earnings of approximately $682 million.
For a further description of the Company’s sensitivity to
equity market and interest rate fluctuations, refer to “Financial
Instruments Risk Management:, note 8 in the Company’s
annual consolidated financial statements for the period ended
December 31, 2020.
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 $165 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 Capital and
Risk Solutions. 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 $1,017 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.
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 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.
Great-West Lifeco Inc. 2020 Annual Report
95
Management’s Discussion and Analysis
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.
Employee future benefits
indicates
the
The Company’s subsidiaries maintain contributory and non-
contributory defined benefit and defined contribution pension
plans for eligible employees and advisors. The defined benefit
pension plans provide pensions based on length of service and final
average pay; however, these plans are closed to new entrants. Many
of the subsidiaries’ defined benefit pension plans also no longer
provide future defined benefit accruals. The Company’s defined
benefit plan exposure is expected to reduce in future years. Where
defined benefit pension accruals continue, active plan participants
share in the cost of benefits through employee contributions in
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.
96
Great-West Lifeco Inc. 2020 Annual Report
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. Assets supporting the
funded pension plans are held in separate trusteed pension funds.
Obligations for the wholly unfunded plans are included in other
liabilities and are supported by general assets. New hires and active
plan participants in defined benefit plans closed to future defined
benefit accruals are eligible for defined contribution benefits.
The defined contribution pension plans provide pension benefits
based on accumulated employee and employer 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 pension plans and
other post-employment benefits refer to note 23 in the Company’s
December 31, 2020 annual consolidated financial statements.
For the defined benefit plans, 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.
Defined benefit pension plans
Other post-employment benefits
2020
2019
2020
2019
2.6%
3.2%
2.9%
1.3%
2.1%
2.9%
1.0%
3.4%
3.8%
3.0%
1.4%
2.6%
2.9%
1.3%
3.1%
3.3%
–
–
2.5%
–
–
4.7%
4.1%
2039
3.8%
4.4%
–
–
3.1%
–
–
4.7%
4.1%
2039
Management’s Discussion and Analysis
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.
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 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.
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
2020
2019
2020
2019
$
(1,350)
329
662
$
(1,242)
311
598
$
1,784
(291)
(569)
$
1,630
(284)
(541)
31
(44)
27
(41)
(26)
53
(23)
50
(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 $309 million ($294 million in 2019) to the pension plans
and made benefit payments of $17 million ($20 million in 2019) for
post-employment benefits. The Company’s subsidiaries expect
to contribute $294 million to the pension plans and make benefit
payments of $22 million for post-employment benefits in 2021.
internationaL financiaL rePorting standards
Due to the evolving nature of IFRS, there are a number of IFRS
changes impacting the Company in 2020, 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.
The Company adopted the narrow scope amendments to
International Financial Reporting Standards (IFRS) for IFRS 3,
Business Combinations; IAS 1, Presentation of Financial Statements
and IAS 8, Accounting Policies, Changes in Accounting Estimates
and Errors; and IAS 39, Financial Instruments: Recognition and
Measurement and IFRS 7, Financial Instruments: Disclosures,
effective January 1, 2020. 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, 2020
annual consolidated financial statements.
IFRS that have changed or may change subsequent to 2020 and
could impact the Company in future reporting periods, are set out
in the following table:
Great-West Lifeco Inc. 2020 Annual Report
97
Management’s Discussion and Analysis
standard
summary of future cHanges
IFRS 17 – Insurance Contracts
In May 2017, the IASB issued IFRS 17, Insurance Contracts (IFRS 17), 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. In June 2020, the IASB finalized the amendments to IFRS 17, which
included confirmation of the effective date for the standard of January 1, 2023. In addition, the IASB confirmed the extension
to January 1, 2023 of the exemption for insurers to apply the financial instruments standard, IFRS 9, Financial Instruments
(IFRS 9), keeping the alignment of the effective dates for IFRS 9 and IFRS 17.
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. The project team is also monitoring developments from
the IASB and various industry groups that the Company has representation on. The Company continues to make progress
in implementing its project plan, with key policy decisions well advanced as well as significant progress on the technology
solutions.
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. For the General Measurement Model and 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.
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 services are 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.
98
Great-West Lifeco Inc. 2020 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 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 effective date of the new insurance
contract standard; 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 of the adoption of this standard with the
adoption of IFRS 17.
IAS 37 – Provisions,
Contingent Liabilities and
Contingent Assets
In May 2020, the IASB issued amendments to IAS 37, Provisions, Contingent Liabilities, and Contingent Assets. The
amendments specify which costs should be included when assessing whether a contract will be loss-making.
These amendments are effective for annual reporting periods beginning on or after January 1, 2022, with earlier application
permitted. The Company is evaluating the impact of the adoption of these amendments.
Annual Improvements 2018-
2020 Cycle
In May 2020, the IASB issued Annual Improvements 2018-2020 Cycle as part of its ongoing process to efficiently deal with
non-urgent narrow scope amendments to IFRS. Two amendments were included in this issue that are applicable for the
Company relating to IFRS 9, Financial Instruments and IFRS 16, Leases.
The amendments are effective January 1, 2022. The Company is evaluating the impact of the adoption of these amendments.
IFRS 16 – Leases
In May 2020, the IASB published amendments to IFRS 16, Leases amending the standard to provide lessees with an optional
exemption from assessing whether a COVID-19-related rent concession is a lease modification.
The amendments are effective for annual reporting periods beginning on or after June 1, 2020, with earlier application
permitted. The Company does not anticipate a significant impact on its consolidated financial statements as a result of this
amendment.
IFRS 9 – Financial Instruments
IAS 39 – Financial
Instruments: Recognition and
Measurement
IFRS 7 – Financial Instruments:
Disclosures
IFRS 4 – Insurance Contracts and
IFRS 16 – Leases
In August 2020, the IASB published Interest Rate Benchmark Reform – Phase 2 which issued amendments to IFRS 9, IAS 39,
IFRS 7, IFRS 4 and IFRS 16. The amendments provide relief from remeasurement impacts on financial instruments, and
discontinuation of hedging relationships arising from reform of interest rate benchmarks, including its replacement with
alternative benchmark rates.
The amendments are effective for annual periods beginning on or after January 1, 2021, with earlier application permitted.
The Company is monitoring the interest rate benchmark reform process and has established an internal program to fully
transition to alternative reference rates by the end of 2021. The transition to alternative reference rates is not expected to
impact the Company’s risk management strategy. The adoption of these amendments is not expected to have a significant
impact on the consolidated financial statements.
Great-West Lifeco Inc. 2020 Annual Report
99
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.
Base earnings and base earnings per share
Base earnings (loss) and financial measures based on base earnings
(loss), including base earnings per common share and base return
on equity, are non-IFRS financial measures. Base earnings reflect
management’s view of the underlying business performance of the
Company and provides an alternate measure to understand the
underlying business performance compared to IFRS net earnings.
Base earnings (loss) exclude:
Base earnings
Base earnings
Items excluded from Lifeco base earnings:
Actuarial assumption changes and other management actions
Market-related impact on liabilities
Net gain/charge on business dispositions (1)
Transaction costs related to the acquisitions of Personal Capital
and MassMutual
Revaluation of a deferred tax asset
Restructuring and integration costs
Net earnings – common shareholders
Base earnings per common share – basic
Items excluded from Lifeco base earnings:
Actuarial assumption changes and other management actions
Market-related impact on liabilities
Net gain/charge on business dispositions (1)
Transaction costs related to the acquisitions of Personal Capital
and MassMutual
Revaluation of a deferred tax asset
Restructuring and integration costs
• The
impact of actuarial assumption changes and other
management actions;
• The net earnings impact related to the direct equity and interest
rate market impacts on insurance and investment contract
liabilities, net of hedging, and related deferred tax liabilities,
which includes:
º the impact of hedge ineffectiveness related to segregated fund
guarantee liabilities that are hedged and the performance of
the related hedge assets;
º the impact on segregated fund guarantee liabilities not hedged;
º the impact on general fund equity and investment properties
supporting insurance contract liabilities;
º other market impacts on insurance and investment contract
liabilities and deferred tax liabilities, including those arising
from the difference between actual and expected market
movements; and
• Certain items that management believes are not indicative of the
Company’s underlying business results including restructuring
costs, integration costs related to business acquisitions, material
legal settlements, material impairment charges related to
goodwill and intangible assets, impact of substantially enacted
income tax rate changes and other tax impairments and net
gains, losses or costs related to the disposition or acquisition
of a business.
For the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
$
741
$
679
$
831
$
2,669
$
2,704
(23)
(31)
143
(47)
196
(67)
912
$
66
18
94
(31)
–
–
(78)
(13)
8
–
(199)
(36)
113
(127)
237
(78)
196
(67)
170
(89)
(191)
–
(199)
(36)
$
826
$
513
$
2,943
$
2,359
$
0.799
$
0.732
$
0.895
$
2.878
$
2.859
(0.025)
(0.033)
0.154
(0.051)
0.211
(0.072)
0.071
0.020
0.101
(0.033)
–
–
(0.084)
(0.014)
0.009
–
(0.215)
(0.039)
0.122
(0.137)
0.255
(0.084)
0.211
(0.072)
0.179
(0.095)
(0.201)
–
(0.210)
(0.038)
Net earnings per common share – basic
$
0.983
$
0.891
$
0.552
$
3.173
$
2.494
(1) Net gain/charge on business dispositions includes:
• for the three and twelve months ended December 31, 2020 a net gain of $143 million on the sale of GLC Asset Management Group Ltd. included in the Canada Corporate business unit;
• for the three months ended September 30, 2020 and twelve months ended December 31, 2020 a net gain of $94 million on the sale of IPSI included in Europe Ireland business unit;
• for the three and twelve months ended December 31, 2019 a net gain of $8 million on the sale of heritage block of individual policies to Scottish Friendly included in the Europe Corporate business unit; and
• for the twelve months ended December 31, 2019 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 included
in the U.S. Reinsured Insurance & Annuity Business unit.
100 Great-West Lifeco Inc. 2020 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, European and Capital and Risk Solutions segments
(essentially Canada 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 base
ROE, respectively, net earnings (loss) and base 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
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
$ 11,747
$
9,976
$
9,478
$ 43,019
$
24,510
3,962
1,679
3,578
1,538
5,446
1,913
15,034
6,882
16,947
7,738
Premiums and deposits reported in the financial statements
$ 17,388
$
15,092
$
16,837
$ 64,935
$
49,195
Self-funded premium equivalents (ASO contracts) and other
Proprietary mutual funds and institutional deposits
Add back: U.S. Individual Life Insurance & Annuity Business
– initial reinsurance ceded premiums
Total premiums and deposits
1,687
21,756
3,104
22,707
841
21,418
6,123
100,287
3,295
84,259
–
–
–
–
13,889
$ 40,831
$
40,903
$
39,096
$ 171,345
$ 150,638
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.
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.
Total assets under administration includes total assets per
financial statements, proprietary mutual funds and institutional
net assets and other assets under administration.
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
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
$ 600,490
350,943
951,433
1,024,414
$ 473,737
341,436
$ 451,167
320,548
815,173
845,862
771,715
857,966
$ 1,975,847
$ 1,661,035
$ 1,629,681
Great-West Lifeco Inc. 2020 Annual Report
101
Management’s Discussion and Analysis
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.
Impact of currency movement
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.
Core net earnings (1)
Core net earnings
Less: Financing and other expenses
Net earnings (loss)
Core net earnings (US$)
Less: Financing and other expenses (US$)
Net earnings (loss) (US$)
Throughout this document a number of terms are used to highlight
the impact of foreign exchange on results, such as: “constant
currency basis” and “impact of currency movement”. 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.
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.
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.
For the three months ended
For the twelve months ended
Dec. 31
2020
Sept. 30
2020
Dec. 31
2019
Dec. 31
2020
Dec. 31
2019
$
$
$
$
49
(14)
35
37
(11)
26
$
$
$
$
25
(12)
13
19
(9)
10
$
$
$
$
28
(10)
18
21
(8)
13
$
$
$
$
68
(50)
18
51
(37)
14
$
$
$
$
78
(45)
33
59
(35)
24
(1) For the Asset Management business unit, there were no differences between net earnings (loss) and base earnings (loss) in the periods presented.
102 Great-West Lifeco Inc. 2020 Annual Report
Management’s Discussion and Analysis
seLected annuaL information
(in $ millions, except per share amounts)
Total revenue
Earnings – common shareholders
Net earnings
Base earnings
Net earnings per common share
Basic – net earnings
Diluted – net earnings
Basic – base earnings
Diluted – base earnings
Total assets
Total assets
Proprietary mutual funds and institutional assets (1)
Total assets under management (1)
Other assets under administration (1)
Total assets under administration (1)
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 (2)
Series O First Preferred (3)
Series P First Preferred
Series Q First Preferred
Series R First Preferred
Series S First Preferred
Series T First Preferred
Common
Years ended December 31
2020
2019
2018
$
60,583
$
44,698
$
44,032
2,943
2,669
3.173
3.172
2.878
2.877
2,359
2,704
2.494
2.493
2.859
2.857
2,961
2,380
2.996
2.994
2.408
2.406
$ 600,490
350,943
$ 451,167
320,548
$ 427,689
281,664
951,433
1,024,414
771,715
857,966
709,353
689,520
$ 1,975,847
$ 1,629,681
$ 1,398,873
$ 573,475
$ 425,624
$ 400,291
1.4750
1.3000
1.21252
1.1250
1.41250
1.450
0.544000
0.556412
1.350
1.2875
1.200
1.312500
1.2875
1.752
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) This metric is a non-IFRS measure. Refer to the “Non-IFRS Financial Measures” section of this document for additional details.
(2) 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. On December 31, 2020, the dividend was reset to a five year fixed dividend
rate of 1.749% per annum which applies until December 30, 2025.
(3) 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%. Please refer to the “Lifeco Capital Structure” section of this document for additional details on the conversion.
Great-West Lifeco Inc. 2020 Annual Report
103
Management’s Discussion and Analysis
quarterLy financiaL information
(in $ millions,
except per share amounts)
Q4
2020
2019
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Total revenue (1)
$ 16,860
$
13,740
$
19,710
$
10,273
$
10,689
$
14,374
$
2,746
$
16,889
Common shareholders
Base earnings (2)
Total
Basic – per share
Diluted – per share
Net earnings
Total
Basic – per share
Diluted – per share
$
$
741
0.799
0.799
912
0.983
0.983
$
$
679
0.732
0.732
826
0.891
0.891
$
$
706
0.761
0.761
863
0.930
0.930
$
$
543
0.585
0.585
342
0.369
0.369
$
$
831
0.895
0.894
513
0.552
0.552
$
$
677
0.729
0.728
730
0.786
0.785
$
$
627
0.668
0.667
459
0.489
0.489
$
$
569
0.576
0.576
657
0.665
0.665
(1) Revenue includes the changes in fair value through profit or loss on investment assets, an initial premium ceded to Protective Life ($13,889 million for the three months ended June 30, 2019) and a ceding
commission received from Protective Life ($1,080 million for the three months ended June 30, 2019) related to the sale, via indemnity reinsurance, of the individual life insurance and annuity business.
(2) Base earnings attributable to common shareholders and base earnings per common share are non-IFRS measures of earnings performance. The following items were excluded from base earnings in each quarter:
Items excluded from base earnings
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
2020
2019
$
Actuarial assumption changes and
other management actions
Market-related impact
on liabilities
Net gain/charge on
business dispositions
Transaction costs related
to the acquisitions of
Personal Capital and
MassMutual
Revaluation of a deferred tax asset
Restructuring and integration costs
Total
$
(23)
$
66
$
122
$
(52)
$
(78)
$
81
$
38
$
129
(31)
143
(47)
196
(67)
171
18
94
(31)
–
–
35
–
–
–
–
(149)
–
–
–
–
(13)
8
–
(199)
(36)
(28)
–
–
–
–
(7)
(199)
–
–
–
$
147
$
157
$
(201)
$
(318)
$
53
$
(168)
$
(41)
–
–
–
–
88
Lifeco’s consolidated net earnings attributable to common
shareholders were $912 million for the fourth quarter of 2020
compared to $513 million reported a year ago. On a per share
basis, this represents $0.983 per common share ($0.983 diluted)
for the fourth quarter of 2020 compared to $0.552 per common
share ($0.552 diluted) a year ago.
Total revenue for the fourth quarter of 2020 was $16,860 million
and comprises premium income of $11,747 million, regular net
investment income of $1,560 million, a positive change in fair
value through profit or loss on investment assets of $1,984 million
and fee and other income of $1,569 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, 2020 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.
104 Great-West Lifeco Inc. 2020 Annual Report
Management’s Discussion and Analysis
Management’s Discussion and Analysis
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, 2020, 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. Internal controls over financial reporting have been
adapted for the remote work environment that has resulted
from the COVID-19 pandemic, as necessary, and were effective.
Management evaluated the effectiveness of the Company’s
internal control over financial reporting as at December 31, 2020
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.
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.
Limitation on Disclosure Controls and Procedures &
Internal Control Over Financial Reporting
As permitted by securities legislation, for the period ended
December 31, 2020, the Company’s management has limited
the scope of its design of the Company’s disclosure controls and
procedures and the Company’s internal control over financial
reporting to exclude controls, policies and procedures of
MassMutual, which the Company acquired on December 31, 2020.
During the year ended December 31, 2020, the Company incurred
acquisition expenses of $52 million post-tax (US$40 million post-
tax) which are included within operating and administrative
expenses in the Consolidated Statements of Earnings. As the
acquisition occurred on December 31, 2020, the reinsured business
did not contribute to 2020 earnings. At December 31, 2020, the
estimated total assets and goodwill acquired was $115,169 million.
Total estimated liabilities were $112,232 million with the final
valuation of the assets acquired and liabilities assumed expected
to occur during 2021.
transactions witH reLated Parties
In the normal course of business, Canada 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.
During the year, Canada 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. During the year, IGM notified the Company that it
intends to terminate its long-term technology infrastructure
related sharing agreement in the first quarter of 2021. In addition,
Canada Life also provided life insurance, annuity and disability
insurance products under a distribution agreement with IGM. In
addition, Canada Life provided distribution services to IGM. All
transactions were provided at market terms and conditions.
Great-West Lifeco Inc. 2020 Annual Report
105
Management’s Discussion and Analysis
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.
On December 31, 2020, the Company completed the sale of GLC
to Mackenzie, an affiliate of the Company. This is a related party
transaction and board of directors of each of the Company and
its subsidiary, Canada Life, established a committee of directors
independent of management and Mackenzie to assess, review
and consider the proposed terms of the transaction and to make
recommendations regarding the transaction to its board of directors.
On August 17, 2020, Empower Retirement, Lifeco’s U.S. retirement
services business, acquired Personal Capital. Prior to completion
of the Personal Capital acquisition, IGM Financial Inc., an affiliated
company controlled by Power Corporation, held a 24.8% interest
in Personal Capital (approximately 21.7% after giving effect
to dilution). The transaction resulted from an auction process
conducted by Personal Capital and shareholders other than IGM.
During 2020, the Company and Mackenzie jointly acquired a non-
controlling interest in Northleaf, a premier global private equity,
private credit and infrastructure fund manager.
At December 31, 2020, the Company held $110 million ($101 million
in 2019) of debentures issued by IGM.
During the normal course of business in 2020, the Company
purchased residential mortgages of $21 million from IGM
($11 million in 2019).
The Company owns 9,200,518 shares representing 3.86%
ownership interest, held through Canada Life, in IGM an affiliated
company controlled by Power Corporation. The Company uses the
equity method to account for its investment in IGM as it exercises
significant influence. In 2020, the Company earned equity income
of $25 million and received dividends of $21 million from the
investment in IGM.
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
Corporation, 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 material loans or guarantees issued to or from
related parties during 2020 or 2019. There were no significant
outstanding loans or guarantees with related parties at December
31, 2020 or December 31, 2019. There were no provisions for
uncollectible amounts with related parties at December 31, 2020
or December 31, 2019.
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
2020
2019
$
$
$
$
$
$
1.27
1.30
1.74
1.72
1.55
1.55
$
$
$
$
$
$
1.33
1.33
1.72
1.72
1.56
1.56
$
$
$
$
$
$
1.36
1.39
1.68
1.72
1.52
1.53
$
$
$
$
$
$
1.40
1.34
1.74
1.72
1.55
1.48
$
$
$
$
$
$
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
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.
106 Great-West Lifeco Inc. 2020 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 Canada 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 10, 2021
Great-West Lifeco Inc. 2020 Annual Report
107
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 6)
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 27)
Premium taxes
Financing charges (note 16)
Amortization of finite life intangible assets (note 10)
Restructuring and integration expenses (note 4)
Earnings before income taxes
Income taxes (note 26)
Net earnings before non-controlling interests
Attributable to non-controlling interests (note 18)
Net earnings
Preferred share dividends (note 20)
Net earnings – common shareholders
Earnings per common share (note 20)
Basic
Diluted
108 Great-West Lifeco Inc. 2020 Annual Report
2020
2019
$ 47,754
(4,735)
$ 43,266
(18,756)
43,019
24,510
5,963
5,699
11,662
5,902
60,583
39,605
(2,946)
36,659
12,079
(1,751)
10,328
1,500
48,487
2,396
5,492
480
284
238
134
3,072
(82)
3,154
78
3,076
133
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
$
2,943
$
2,359
$
$
3.173
3.172
$
$
2.494
2.493
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
Income tax (expense) benefit
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 23)
Income tax (expense) benefit
Revaluation surplus on transfer to investment properties (note 9)
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
2020
2019
$
3,076
$
2,492
105
(2)
(90)
12
287
(49)
(141)
15
36
(10)
(21)
6
(69)
21
100
(169)
40
11
(1)
15
(4)
(108)
(8)
(561)
–
100
(14)
232
(37)
(69)
6
2
–
–
–
(46)
7
(380)
(226)
47
–
–
13
(4)
(170)
(550)
$
3,068
$
1,942
Great-West Lifeco Inc. 2020 Annual Report
109
Consolidated Balance Sheets
(in Canadian $ millions)
December 31
Assets
Cash and cash equivalents (note 5)
Bonds (note 6)
Mortgage loans (note 6)
Stocks (note 6)
Investment properties (note 6)
Loans to policyholders
Funds held by ceding insurers (note 7)
Reinsurance assets (note 13)
Goodwill (note 10)
Intangible assets (note 10)
Derivative financial instruments (note 28)
Owner occupied properties (note 11)
Fixed assets (note 11)
Other assets (note 12)
Premiums in course of collection, accounts and interest receivable
Current income taxes
Deferred tax assets (note 26)
Investments on account of segregated fund policyholders (note 14)
Total assets
Liabilities
Insurance contract liabilities (note 13)
Investment contract liabilities (note 13)
Debentures and other debt instruments (note 15)
Funds held under reinsurance contracts
Derivative financial instruments (note 28)
Accounts payable
Other liabilities (note 17)
Current income taxes
Deferred tax liabilities (note 26)
Investment and insurance contracts on account of segregated fund policyholders (note 14)
Total liabilities
Equity
Non-controlling interests (note 18)
Participating account surplus in subsidiaries
Non-controlling interests in subsidiaries
Shareholders’ equity
Share capital (note 19)
Preferred shares
Common shares
Accumulated surplus
Accumulated other comprehensive income (note 24)
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
110 Great-West Lifeco Inc. 2020 Annual Report
2020
2019
$
7,946
137,592
27,803
11,000
6,270
8,387
198,998
18,383
22,121
10,106
4,285
829
741
426
3,347
6,102
145
975
334,032
$
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
$ 600,490
$ 451,167
$ 208,902
9,145
9,693
1,648
1,221
2,698
5,147
343
646
334,032
$ 174,521
1,656
5,993
1,433
1,381
3,352
4,689
461
1,116
231,022
573,475
425,624
2,871
116
2,759
107
2,714
5,651
14,990
487
186
27,015
2,714
5,633
13,660
495
175
25,543
$ 600,490
$ 451,167
Consolidated Statements of Changes in Equity
(in Canadian $ millions)
December 31, 2020
Share
capital
Contributed
surplus
Accumulated
surplus
Accumulated
other
comprehensive
income (loss)
Balance, beginning of year
Net earnings
Other comprehensive income (loss)
Dividends to shareholders
Preferred shareholders (note 20)
Common shareholders
Shares exercised and issued under
share-based payment plans (note 19)
Share-based payment plans expense
Equity settlement of Putnam share-based plans
Shares cancelled under Putnam share-based plans
Dilution gain on non-controlling interests
$
$
8,347
–
–
8,347
–
–
18
–
–
–
–
175
–
–
175
–
–
(50)
54
–
7
–
$
$ 13,660
3,076
–
16,736
495
–
(8)
487
Non-
controlling
interests
$
2,866
78
37
2,981
Total
equity
$ 25,543
3,154
29
28,726
(133)
(1,626)
–
–
–
–
13
–
–
–
–
–
–
–
–
–
49
–
(15)
(15)
(13)
(133)
(1,626)
17
54
(15)
(8)
–
Balance, end of year
$
8,365
$
186
$ 14,990
$
487
$
2,987
$ 27,015
Balance, beginning of year
Change in accounting policy
Revised balance, beginning of year
Net earnings
Other comprehensive income (loss)
Dividends to shareholders
Preferred shareholders (note 20)
Common shareholders
Shares exercised and issued under
share-based payment plans (note 19)
Share-based payment plans expense
Equity settlement of Putnam share-based plans
Shares purchased and cancelled under
Substantial Issuer Bid (note 19)
Excess of redemption proceeds over stated capital per
Substantial Issuer Bid (note 19)
Common share carrying value adjustment per
Substantial Issuer Bid (note 19)
Substantial Issuer Bid transaction costs (note 19)
Shares purchased and cancelled under
Normal Course Issuer Bid (note 19)
Excess of redemption proceeds over stated capital per
Normal Course Issuer Bid (note 19)
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
Great-West Lifeco Inc. 2020 Annual Report
111
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 19)
Purchased and cancelled common shares (note 19)
Substantial issuer bid transaction costs (note 19)
Issue of debentures and senior notes (note 15)
Repayment of debentures (note 15)
Increase (decrease) in line of credit of subsidiaries
Increase (decrease) in debentures and other debt instruments
Dividends paid on common shares
Dividends paid on preferred shares (note 20)
Investment Activities
Bond sales and maturities
Mortgage loan repayments
Stock sales
Investment property sales
Change in loans to policyholders
Business acquisitions, net of cash and cash equivalents acquired (note 3)
Sale of businesses, net of cash and cash equivalents in subsidiaries (note 3)
Cash and cash equivalents related to transfer of business
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
112 Great-West Lifeco Inc. 2020 Annual Report
2020
2019
$
3,072
(367)
$
2,880
(235)
14,476
467
201
(1,629)
(5,699)
(911)
9,610
18
–
–
3,713
(500)
539
(1)
(1,626)
(133)
2,010
22,650
2,339
3,859
73
84
(1,403)
281
–
(27,942)
(3,377)
(4,285)
(481)
(8,202)
(100)
3,318
4,628
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
$
7,946
$
4,628
$
4,589
286
333
$
5,112
301
299
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 (Power Corporation) group of companies and is a subsidiary of Power Corporation.
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 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, 2020 were
approved by the Board of Directors on February 10, 2021.
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
The Company adopted the narrow scope amendments to International Financial Reporting Standards (IFRS) for IFRS 3, Business
Combinations; IAS 1, Presentation of Financial Statements and IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors;
and IAS 39, Financial Instruments: Recognition and Measurement and IFRS 7, Financial Instruments: Disclosures, effective January 1,
2020. The adoption of these narrow scope amendments did not have a significant impact on the Company’s financial statements.
Basis of Consolidation
The consolidated financial statements of the Company were prepared as at and for the year ended December 31, 2020 with comparative
information as at and for the year ended December 31, 2019. 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 and transactions, including income and expenses,
profits or losses and dividends, are eliminated on consolidation.
Impact of COVID-19 on Significant Judgments, Estimates and Assumptions
Beginning in January 2020, the outbreak of a virus known as COVID-19 and ensuing global pandemic have resulted in travel and border
restrictions, quarantines, supply chain disruptions, lower consumer demand and significant market uncertainty. In the first quarter of
2020, global financial markets experienced material and rapid declines and significant volatility; however, following March 31, 2020, the
markets have experienced recoveries. Governments and central banks have reacted with significant monetary and fiscal interventions
designed to stabilize economic conditions. The duration and impact of the COVID-19 pandemic continues to be unknown at this time,
as is the efficacy of the government and central bank interventions.
The results of the Company reflect management’s judgments regarding the impact of prevailing market conditions related to global
credit, equities, investment properties and foreign exchange, as well as prevailing health and mortality experience.
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 credit rating. Given rapid market changes, third party credit rating changes
may lag developments in the current environment.
The fair value of portfolio investments (note 6), the valuation of goodwill and other intangible assets (note 10), the valuation of insurance
contract liabilities (note 13) and the recoverability of deferred tax asset carrying values (note 26) reflect management’s judgment.
Given the uncertainty surrounding the current environment, the actual financial results could differ from the estimates made in
preparation of these financial statements.
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 to determine the fair value of assets acquired and liabilities assumed in a business combination.
• 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 6).
Great-West Lifeco Inc. 2020 Annual Report
113
Notes to Consolidated Financial Statements
2. Basis of Presentation and Summary of Accounting Policies (cont’d)
• 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 6).
• 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 9).
• Cash generating units for indefinite life intangible assets and cash generating unit groupings for goodwill 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 10).
• 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 cash generating units for intangible assets relies upon the determination of fair value or value-in-use using valuation
methodologies (note 10).
• 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 12 and 17).
• 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 13).
• 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 23).
• 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 26).
• Management applies judgment in assessing the recoverability of the deferred income tax asset carrying values based on future years’
taxable income projections (note 26).
• 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 29).
• The operating segments of the Company are the segments reviewed by the Company’s Chief Executive Officer to assess performance
and allocate resources within the Company. Management applies judgment in the aggregation of the business units into the Company’s
operating segments (note 31).
• 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.
• 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.
114 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
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 Corporation 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.
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.
Great-West Lifeco Inc. 2020 Annual Report
115
Notes to Consolidated Financial Statements
2. Basis of Presentation and Summary of Accounting Policies (cont’d)
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.
(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.
116 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
(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 28 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.
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.
Great-West Lifeco Inc. 2020 Annual Report
117
Notes to Consolidated Financial Statements
2. Basis of Presentation and Summary of Accounting Policies (cont’d)
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 and equity total return 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.
118 Great-West Lifeco Inc. 2020 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 7 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, including those resulting from an acquisition during the year, 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 has been allocated to cash generating unit groupings, representing the lowest level that the assets are monitored for
internal reporting purposes. Goodwill is tested for impairment by comparing the carrying value of each cash generating unit
grouping to its recoverable amount. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds
its recoverable amount.
Intangible assets have been allocated to cash generating units, representing the lowest level that the assets are monitored for
internal reporting purposes.
Great-West Lifeco Inc. 2020 Annual Report
119
Notes to Consolidated Financial Statements
2. Basis of Presentation and Summary of Accounting Policies (cont’d)
Intangible assets with an indefinite useful life are reviewed annually to determine if there are indicators of impairment. If indicators
of impairment have been identified, a test for impairment is performed and recognized as necessary. Impairment is assessed by
comparing the carrying values of the assets to their recoverable amounts. 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.
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 related to investment contracts and service 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 term of the contract, not to exceed 20 years.
(r) Segregated Funds
Segregated fund 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 13 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 8 for discussion of Financial
Instruments Risk Management.
120 Great-West Lifeco Inc. 2020 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/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 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. 2020 Annual Report
121
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 eligible 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 23). 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 eligible 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, the
re-measurements on defined benefit pension and other post-employment benefit plans net of tax and the revaluation surplus on
transfer to investment properties, 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 22). 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 Deferred Share Unit Plans (DSU Plans) in which the Directors and certain
employees of the Company participate. Units issued to Directors under the DSU Plans vest when granted. Units issued to certain
employees under the DSU Plans primarily vest over a three year period. 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 remeasured 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
PSU 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, net of related hedges. The liability is remeasured at fair value at each reporting period.
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.
122 Great-West Lifeco Inc. 2020 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
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.
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 and for which discrete financial information is available. The
Company’s operating segments include Canada, United States, Europe, Capital and Risk Solutions, and Lifeco Corporate. Effective
January 1, 2020, as a result of strategic operational changes, the Company has divided the Europe segment into two separate
reporting segments – Europe and Capital and Risk Solutions. The realignment resulted in a change to comparative figures within
these operating segments (note 31). The Company’s other reportable segments – Canada, United States and Lifeco Corporate –
are unchanged. The Canada segment comprises the Individual Customer and Group Customer business units. GWL&A (financial
services) and Putnam (asset management) are included in the United States segment. The Europe segment comprises United
Kingdom, Ireland, and Germany. Reinsurance, which had previously been reported as part of the Europe segment, is reported in
the Capital and Risk Solutions segment. 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. 2020 Annual Report
123
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 (IFRS 17), 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. In June 2020, the
IASB finalized the amendments to IFRS 17, which included confirmation of the effective date for the standard of January 1, 2023. In addition, the IASB confirmed
the extension to January 1, 2023 of the exemption for insurers to apply the financial instruments standard, IFRS 9, Financial Instruments (IFRS 9), keeping the
alignment of the effective dates for IFRS 9 and IFRS 17.
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. The project team is also monitoring developments from the
IASB and various industry groups that the Company has representation on. The Company continues to make progress in implementing its project plan, with key
policy decisions well advanced as well as significant progress on the technology solution.
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. For the General Measurement Model and 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 services are 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 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 effective date of the new insurance contract standard; 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 of the adoption of this standard with the adoption of IFRS 17.
IAS 37 – Provisions,
Contingent Liabilities,
and Contingent Assets
In May 2020, the IASB issued amendments to IAS 37, Provisions, Contingent Liabilities, and Contingent Assets. The amendments specify which costs should be
included when assessing whether a contract will be loss-making.
These amendments are effective for annual reporting periods beginning on or after January 1, 2022, with earlier application permitted. The Company is evaluating
the impact of the adoption of these amendments.
Annual Improvements
2018-2020 Cycle
In May 2020, the IASB issued Annual Improvements 2018-2020 Cycle as part of its ongoing process to efficiently deal with non-urgent narrow scope amendments
to IFRS. Two amendments were included in this issue that are applicable for the Company relating to IFRS 9, Financial Instruments and IFRS 16, Leases.
The amendments are effective January 1, 2022. The Company is evaluating the impact of the adoption of these amendments.
IFRS 16 – Leases
In May 2020, the IASB published amendments to IFRS 16, Leases amending the standard to provide lessees with an optional exemption from assessing whether
a COVID-19-related rent concession is a lease modification.
The amendments are effective for annual reporting periods beginning on or after June 1, 2020, with earlier application permitted. The Company does not anticipate
a significant impact on its consolidated financial statements as a result of this amendment.
124 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
Standard
Summary of Future Changes
IFRS 9 – Financial
Instruments, IAS 39 –
Financial Instruments:
Recognition and
Measurement, IFRS 7 –
Financial Instruments:
Disclosures, IFRS 4 –
Insurance Contracts and
IFRS 16 – Leases
In August 2020, the IASB published Interest Rate Benchmark Reform – Phase 2 which issued amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16. The
amendments provide relief from remeasurement impacts on financial instruments, and discontinuation of hedge relationships arising from reform of an interest
rate benchmark, including its replacement with alternative benchmark rates.
The amendments are effective for annual periods beginning on or after January 1, 2021, with earlier application permitted. The Company is monitoring the interest
rate benchmark reform process and has established an internal program to fully transition to alternative reference rates by the end of 2021. The transition to
alternative reference rates is not expected to impact the Company’s risk management strategy. The adoption of these amendments is not expected to have a
significant impact on the consolidated financial statements.
3. Business Acquisitions and Other Transactions
(a) Acquisition of MassMutual Retirement Services Business
On December 31, 2020, GWL&A completed the purchase, via indemnity reinsurance, of the retirement services business of
Massachusetts Mutual Life Insurance Company (MassMutual). The acquisition strengthens the Company’s position as a leader in
the U.S. retirement market. The Company anticipates realizing cost synergies through the migration of MassMutual’s retirement
services business onto the Company’s recordkeeping platform. The Company assumed the economics and risks associated with
the reinsured business.
The Company paid a ceding commission of $2,937 (U.S. $2,312) net of working capital adjustments to MassMutual, and funded
the transaction with existing cash, short-term debt and $1,973 (U.S. $1,500) in long-term debt issued on September 17, 2020 (note
15). The assets acquired, liabilities assumed and ceding commission paid at the closing of this transaction are subject to future
adjustments.
The initial amounts assigned to the assets acquired, goodwill, and liabilities assumed and reported as at December 31, 2020 are as
follows:
Assets acquired and goodwill
Cash and cash equivalents
Bonds
Mortgage Loans
Funds held by ceding insurers
Goodwill
Other assets
Premiums in the course of collection, accounts and interest receivable
Deferred tax assets
Investments on account of segregated fund policyholders
Total assets acquired and goodwill
Liabilities assumed
Insurance contract liabilities
Investment contract liabilities
Accounts payable
Other liabilities
Investment and insurance contracts on account of segregated fund policyholders
Total liabilities assumed
$
2,594
12,006
2,326
9,928
2,827
231
172
300
84,785
$ 115,169
$ 22,316
4,984
31
116
84,785
$ 112,232
As at December 31, 2020, the accounting for the acquisition is not finalized pending completion of a comprehensive valuation of
the net assets acquired. The financial statements at December 31, 2020 reflect management’s current best estimate of the purchase
price allocation. Final valuation of the assets acquired and liabilities assumed and the completion of the purchase price allocation
are expected to occur during 2021. As at December 31, 2020, provisional amounts for intangible assets have not been separately
identified and valued within the assets of the purchase price allocation pending completion of the valuation exercise.
As a result, the excess of the purchase price over the fair value of net assets acquired, representing goodwill of $2,827 (U.S. $2,226)
on the date of acquisition, will be adjusted in future periods.
The goodwill represents the excess of the purchase price over the fair value of the net assets, representing the synergies or future
economic benefits arising from other assets acquired that are not individually identified and separately recognized in the acquisition
of the MassMutual retirement services business. These synergies represent meaningful expense and revenue opportunities which
are expected to be accretive to earnings.
During the year ended December 31, 2020, the Company incurred acquisition expenses of $66 (U.S. $51) which are included within
operating and administrative expenses in the Consolidated Statements of Earnings.
Great-West Lifeco Inc. 2020 Annual Report
125
Notes to Consolidated Financial Statements
3. Business Acquisitions and Other Transactions (cont’d)
As the acquisition occurred on December 31, 2020, the reinsured business did not contribute to 2020 earnings.
Supplemental pro-forma revenue and net earnings for the combined entity, as though the acquisition date for this business
combination had been as of the beginning of the annual reporting period, has not been included as it is impracticable as MassMutual
had a different financial reporting basis than the Company.
(b) Acquisition of Personal Capital Corporation
On August 17, 2020, GWL&A completed the acquisition of 100% of the equity of Personal Capital Corporation (Personal Capital),
a hybrid wealth manager that combines a digital experience with personalized advice delivered by human advisors. Prior to the
completion of the acquisition, IGM, an affiliated company controlled by Power Corporation, held a 24.8% interest in Personal
Capital (approximately 21.7% after giving effect to dilution). The transaction resulted from an auction process conducted by
Personal Capital and shareholders other than IGM (note 25).
The amounts assigned to the assets acquired, goodwill, and liabilities assumed on August 17, 2020, reported as at December 31,
2020 are as follows:
Assets acquired and goodwill
Cash and cash equivalents
Goodwill
Intangible assets
Deferred tax assets
Other assets
Total assets acquired and goodwill
Liabilities assumed and contingent consideration
Other liabilities
Contingent consideration
Total liabilities assumed and contingent consideration
$
36
718
294
43
40
$
1,131
$
$
33
26
59
During the fourth quarter of 2020, the Company completed its comprehensive evaluation of the fair value of the net assets acquired
from Personal Capital and the purchase price allocation. As a result, initial goodwill of $954 recognized upon the acquisition of
Personal Capital on August 17, 2020 and presented in the September 30, 2020 consolidated interim unaudited financial statements
has been adjusted in the fourth quarter of 2020. Adjustments were made to the provisional amounts disclosed in the September
30, 2020 consolidated interim unaudited financial statements primarily for the recognition and measurement of intangible assets,
contingent consideration and adjustments to the deferred tax assets acquired.
The following provides the change in carrying value from September 30, 2020 to December 31, 2020 of the goodwill on acquisition:
Goodwill previously reported at September 30, 2020
Recognition and measurement of intangible assets
Recognition and measurement of contingent consideration
Adjustment to deferred tax assets and other adjustments
Goodwill reported at December 31, 2020
$
954
(294)
26
32
$
718
The goodwill represents the excess of the purchase price over the fair value of the net assets, representing the synergies of future
economic benefits arising from other assets acquired that are not individually identified and separately recognized in the acquisition
of Personal Capital. The goodwill is not deductible for tax purposes.
Intangible assets include customer relationships, brand name and internally developed software (note 10).
The purchase consideration was adjusted from $1,097 to $1,072 (U.S. $825 to U.S. $813). The contingent consideration earn-
out value of $26 (U.S. $20) represents management’s best estimate, which could increase up to $231 (U.S. $175) based on the
achievement of growth in assets under management metrics defined in the Merger Agreement, payable following measurements
through December 31, 2021 and December 31, 2022. Future changes in the fair value of the contingent consideration measured in
accordance with the Merger Agreement will be recognized in the Consolidated Statements of Earnings.
Supplemental pro-forma revenue and net earnings for the combined entity, as though the acquisition date for this business
combination had been as of the beginning of the annual reporting period, have not been included as the results were not significant
to the results of the Company.
During the year ended December 31, 2020, the Company incurred transaction expenses of $29 (U.S. $22) which are included within
operating and administrative expenses in the Consolidated Statements of Earnings.
126 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
(c) 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 liabilities transferred and ceding commission received at the closing of this transaction were subject to future adjustments.
In October 2019, Protective Life provided the Company with its listing of proposed adjustments with respect to the liabilities
transferred, which the Company formally objected to in December 2019. In November 2020, the parties reached resolution and
settled cash for adjustments which did not have a material effect on the consolidated financial position of the Company and no
further adjustments are expected.
(d) Sale of Irish Progressive Services International Limited
On August 4, 2020, Irish Life Group Limited (Irish Life), an indirect wholly-owned subsidiary of the Company, completed the sale
of Irish Progressive Services International Limited (IPSI), 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 Company
recognized a net gain of $94 after-tax in the Consolidated Statements of Earnings that includes a curtailment gain and other
restructuring and transaction costs. The carrying value and earnings of the business are immaterial to the Company.
(e) Sale of GLC Asset Management Group Ltd.
During the fourth quarter of 2020, the Company completed the sale of GLC Asset Management Group Ltd. (GLC) to Mackenzie
Financial Corporation (Mackenzie), an affiliate of the Company. GLC was a wholly-owned subsidiary of Canada Life whose principal
activity is the provision of investment management services to Canada Life.
The Company recorded a gain on disposal of $143 after-tax, net of restructuring and other one-time costs of $16 after-tax ($22 pre-
tax) (note 4). The carrying value and earnings of the business are immaterial to the Company. This is a related party transaction
(note 25), and the board of directors of each of the Company and Canada Life established a committee of directors independent of
management and Mackenzie to assess, review and consider the proposed terms of the transaction and to make recommendations
regarding the transaction to its board of directors.
(f ) Northleaf Capital Partners Ltd.
On October 29, 2020, the Company and Mackenzie jointly acquired a non-controlling interest in Northleaf Capital Partners Ltd.
(Northleaf ), a premier global private equity, private credit and infrastructure fund manager, through an acquisition vehicle 80%
owned by Mackenzie and 20% owned by Lifeco. The Company and Mackenzie acquired a 49.9% non-controlling interest and a 70%
economic interest in Northleaf for consideration that includes a payment on closing of $245 as well as contingent consideration
at the end of five years. The Company has also committed as part of the transaction to make a minimum investment through 2022
in Northleaf’s product offerings. Mackenzie and Lifeco have an obligation and right to purchase an additional equity and voting
interest in the firm commencing in approximately five years and extending into future periods. The revenue and net earnings of
Northleaf are not expected to be significant to the results of the Company.
Great-West Lifeco Inc. 2020 Annual Report
127
Notes to Consolidated Financial Statements
4. Restructuring and Integration Expenses
(a) Canada Restructuring
In addition to the sale of GLC by the Company (note 3), two initiatives impacting the Company’s operations were announced in the
fourth quarter of 2020:
1. The Company announced changes to its Canadian distribution strategy and vision for advisor-based distribution, and
2. IGM has notified the Company that it intends to terminate its long-term technology infrastructure related sharing agreement
in the first quarter of 2021.
These initiatives, together with the sale of GLC will result in staff reductions, exit costs for certain facilities lease agreements and
decommit activities related to technology and other assets.
As a result, the Company has recorded a restructuring provision of $92, which includes the restructuring costs associated with the
GLC disposition ($68 in the shareholder account and $24 in the participating account). The after-tax impact of the restructuring
provision is $68 ($50 in the shareholder account and $18 in the participating account). Changes relating to these initiatives are
expected to be implemented by the end of 2022 and are not expected to have a significant impact on the Company’s financial results.
At December 31, 2020, the Company has a restructuring provision of $86 remaining in other liabilities. The Company expects to pay
out substantially all of these amounts by December 31, 2022.
Balance, beginning of year
Restructuring expenses
Amounts used
Balance, end of year
(b) GWL&A Restructuring
2020
$
$
–
92
(6)
86
Upon acquisition of MassMutual, GWL&A recorded restructuring expenses of $42 pre-tax ($33 after-tax) associated with the
acquisition of the MassMutual retirement services business. These expenses are recorded in restructuring and integration expenses
in the Consolidated Statement of Earnings and include a restructuring provision of $37 and integration costs of $5.
This restructuring is primarily attributed to the reduction of MassMutual staff not retained. In addition, expenses were incurred
for the early termination of certain MassMutual vendor contracts. The Company expects to pay out a significant portion of these
amounts during 2021. The Company expects to incur further restructuring and integration expenses associated with the acquisition
over the following 18 months.
At December 31, 2020, the Company has a restructuring provision of $37 remaining in other liabilities.
(c) United Kingdom Business Transformation
In 2018, the Company recorded a restructuring provision in the European segment in respect of activities aimed at achieving
planned expense reductions and an organizational realignment. Despite delays due to COVID-19, the Company had achieved most
of the planned benefits by December 31, 2020 and the restructuring has been substantially completed. At December 31, 2020, the
Company has a restructuring provision of $23 ($39 at December 31, 2019) remaining in other liabilities.
(d) 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 Putnam restructuring activities are substantially completed. At December 31, 2020, the Company has a restructuring provision
of $4 ($37 at December 31, 2019) remaining in other liabilities.
128 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
5. 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
2020
2019
$
2,978
4,968
$
2,860
1,768
$
7,946
$
4,628
At December 31, 2020, cash of $508 was restricted for use by the Company ($574 at December 31, 2019) 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.
6. 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
2020
2019
Carrying
value
Fair
value
Carrying
value
Fair
value
$ 100,839
2,053
11,352
23,348
$ 100,839
2,053
11,352
26,545
$ 84,229
1,717
11,710
17,372
$ 84,229
1,717
11,710
19,344
137,592
140,789
115,028
117,000
2,020
9,416
11,436
16,367
27,803
10,335
20
163
482
11,000
6,270
2,020
10,024
12,044
17,589
29,633
10,335
20
163
445
10,963
6,270
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
$ 182,665
$ 187,655
$ 155,558
$ 158,400
(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.
Great-West Lifeco Inc. 2020 Annual Report
129
Notes to Consolidated Financial Statements
6. Portfolio Investments (cont’d)
(b) Carrying value of bonds and mortgages by term to maturity are as follows:
Bonds (1)
Mortgage loans (2)
Total
Bonds (1)
Mortgage loans (2)
Total
2020
1 year
or less
$ 10,690
1,727
Term to maturity
Over 1 year
to 5 years
$ 28,312
9,523
Over
5 years
Total
$ 98,555
16,530
$ 137,557
27,780
$ 12,417
$ 37,835
$ 115,085
$ 165,337
2019
1 year
or less
Term to maturity
Over 1 year
to 5 years
Over
5 years
Total
$
12,142
941
$
25,989
8,180
$
76,860
15,118
$ 114,991
24,239
$
13,083
$
34,169
$
91,978
$ 139,230
(1) Excludes the carrying value of impaired bonds as the ultimate timing of collectability is uncertain.
(2) Excludes the carrying value of impaired mortgage loans as the ultimate timing of collectability is uncertain. 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.
(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 Canada Life, in an
affiliated company, IGM, a member of the Power Corporation 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 9,200,518 shares of IGM at December 31, 2020 (9,200,505 at December 31, 2019)
representing a 3.86% ownership interest (3.86% at December 31, 2019). 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 Corporation, 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
Dividends received
Carrying value, end of year
Share of equity, end of year
Fair value, end of year
2020
2019
$
$
$
$
350
25
(21)
354
190
317
$
$
$
$
346
25
(21)
350
171
342
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, 2020 can be obtained in its publicly available information.
At December 31, 2020, IGM owned 37,337,133 (37,337,133 at December 31, 2019) common shares of the Company.
130 Great-West Lifeco Inc. 2020 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
2020
2019
$
$
20
17
23
60
$
$
21
16
29
66
The carrying amount of impaired investments includes $35 bonds, $23 mortgage loans and $2 stocks at December 31, 2020
($37 bonds and $29 mortgage loans at December 31, 2019). The above carrying values for loans and receivables are net of
allowances of $57 at December 31, 2020 and $51 at December 31, 2019.
(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:
Balance, beginning of year
Net provision for credit losses – in year
Write-offs, net of recoveries
Balance, end of year
2020
Mortgage
loans
Bonds
Total
Bonds
$
$
–
–
–
–
$
$
51
16
(10)
$
51
16
(10)
$
57
$
57
$
–
–
–
–
2019
Mortgage
loans
$
20
50
(19)
Total
$
$
51
$
20
50
(19)
51
The allowance for credit losses is supplemented by the provision for future credit losses included in insurance contract liabilities.
(e) Net investment income comprises the following:
Regular net investment income:
Investment income earned
Net realized gains (losses)
Available-for-sale
Other classifications (1)
Net allowances for credit losses on loans and receivables
Other income (expenses)
Changes in 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
2020
$
3,589
$
877
$
357
$
397
$
571
$
5,791
146
33
–
–
3,768
78
5,154
–
5,232
–
47
(16)
–
908
–
157
–
157
(5)
245
–
–
597
–
77
–
77
–
–
–
(127)
270
–
–
(74)
(74)
–
–
–
(151)
420
–
307
–
307
727
141
325
(16)
(278)
5,963
78
5,695
(74)
5,699
$ 11,662
Total
$
9,000
$
1,065
$
674
$
196
$
(1) Includes the realized gains on the sale of the shares of GLC and IPSI (note 3).
Great-West Lifeco Inc. 2020 Annual Report
131
Notes to Consolidated Financial Statements
6. Portfolio Investments (cont’d)
Regular net investment income:
Investment income earned
Net realized gains
Available-for-sale
Other classifications
Net allowances for credit losses on loans and receivables
Other income (expenses)
Changes in 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
2019
Investment
properties
Other
Total
$
3,948
$
906
$
301
$
374
$
553
$
6,082
57
164
–
–
4,169
45
5,740
–
5,785
–
172
(50)
–
1,028
–
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
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 $267 at December 31, 2020
($398 at December 31, 2019). 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, 2020,
the Company had loaned securities (which are included in invested assets) with a fair value of $8,921 ($7,023 at December 31, 2019).
132 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
7.
Funds Held by Ceding Insurers
At December 31, 2020, the Company had amounts on deposit of $18,383 ($8,714 at December 31, 2019) 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.
As part of the MassMutual acquisition (note 3), GWL&A assumed, by way of indemnity reinsurance, a block of retirement plan service
contracts from a previous reinsurance agreement held by MassMutual. Under the agreement, GWL&A is required to put amounts in trust
with MassMutual and GWL&A retains the credit risk on the portfolio of assets included in the amounts on deposit.
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
Mortgages
Other assets
Total
Supporting:
Reinsurance liabilities
Surplus
Total
2020
2019
Carrying
value
$
245
15,365
578
137
$
Fair
value
245
15,365
578
137
Carrying
value
Fair
value
$
216
6,445
–
80
$
216
6,445
–
80
$ 16,325
$ 16,325
$
6,741
$
6,741
$ 16,094
231
$ 16,094
231
$
6,537
204
$
6,537
204
$ 16,325
$ 16,325
$
6,741
$
6,741
(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
Agency securitized
Non-agency securitized
Financials
Communications
Consumer products
Energy
Industrials
Technology
Transportation
Utilities
Total long-term bonds
Short-term bonds
Total
2020
2019
$
843
1,760
287
1,870
2,989
503
2,141
589
1,420
344
466
2,101
15,313
52
$
624
1,275
–
763
1,412
154
438
176
234
72
170
1,127
6,445
–
$ 15,365
$
6,445
(c) The following provides details of the carrying value of mortgages included in the funds on deposit by property type:
Multi-family residential
Commercial
Total
(d) Asset quality
Bond Portfolio By Credit Rating
AAA
AA
A
BBB
BB and lower
Total
$
$
$
2020
2019
122
456
578
$
$
–
–
–
2020
2019
1,508
3,848
5,597
4,165
247
$
601
2,670
2,264
822
88
$ 15,365
$
6,445
Great-West Lifeco Inc. 2020 Annual Report
133
Notes to Consolidated Financial Statements
8.
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
2020
2019
$
7,946
$
4,628
102,892
11,352
23,348
27,803
8,387
18,383
22,121
1,320
3,080
1,702
713
404
965
829
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
$ 231,245
$ 190,219
(1) Includes $16,325 ($6,741 at December 31, 2019) of funds held by ceding insurers where the Company retains the credit risk of the assets supporting the liabilities ceded (note 7).
(2) Includes items such as current income taxes receivable and miscellaneous other assets of the Company (note 12).
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 $211 of collateral received from counterparties as
at December 31, 2020 ($156 at December 31, 2019) relating to derivative assets.
As at December 31, 2020, $15,690 of the $22,121 of reinsurance assets are ceded to Protective ($14,848 of $20,707 at December 31,
2019). This concentration risk is mitigated by funds held in trust of $16,389 as at December 31, 2020 ($15,948 at December 31, 2019).
134 Great-West Lifeco Inc. 2020 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
(1) See comparative figures (note 32).
Canada
United
States
$
586
20,555
178
2,057
4,361
1,142
4,197
2,453
2,022
557
3,409
10,091
51,608
2,332
$
272
2,308
926
6,550
6,022
1,338
6,127
2,450
4,585
1,324
1,394
4,485
37,781
557
2020
Europe
$ 10,282
9,287
–
1,402
5,880
1,124
2,816
675
1,329
299
977
4,811
38,882
1,066
Capital and
Risk Solutions
Total
$
1,372
316
17
136
572
98
762
270
406
263
154
553
4,919
447
$ 12,512
32,466
1,121
10,145
16,835
3,702
13,902
5,848
8,342
2,443
5,934
19,940
133,190
4,402
$ 53,940
$ 38,338
$ 39,948
$
5,366
$ 137,592
Canada
United
States
$
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
2019
Europe (1)
$ 10,118
8,521
–
1,573
5,786
991
2,649
640
1,281
302
1,017
4,426
37,304
1,049
Capital and
Risk Solutions (1)
Total
$
1,068
293
10
165
560
129
855
266
454
265
180
527
4,772
363
$ 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
$ 38,353
$
5,135
$ 115,028
Great-West Lifeco Inc. 2020 Annual Report
135
Notes to Consolidated Financial Statements
8. 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
(1) See comparative figures (note 32).
(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
$
Canada
2,063
4,331
759
8,883
$
United
States
–
2,297
–
3,660
2020
Europe
$
–
684
1,261
3,801
Capital and
Risk Solutions
$
$ 16,036
$
5,957
$
5,746
$
$
Canada
2,069
4,496
374
7,871
$
United
States
–
1,798
–
2,198
2019
Europe (1)
$
–
661
940
3,787
$
14,810
$
3,996
$
5,388
$
Capital and
Risk Solutions (1)
$
$
Total
2,063
7,353
2,020
16,367
$ 27,803
$
Total
2,069
7,004
1,314
13,881
$ 24,268
–
41
–
23
64
–
49
–
25
74
2020
2019
$ 21,820
35,530
45,673
33,382
1,187
$ 22,083
33,272
37,233
21,922
518
$ 137,592
$ 115,028
2020
2019
$
$
424
369
35
1
829
$
$
271
146
34
–
451
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
2020
2019
$
$
17
28
10
55
$
$
28
1
4
33
(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
136 Great-West Lifeco Inc. 2020 Annual Report
2020
2019
$
1,183
2,185
$
1,175
1,400
$
3,368
$
2,575
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 48%
(approximately 57% in 2019) of insurance and investment contract liabilities are non-cashable prior to maturity or claim, with a
further 26% approximately (14% in 2019) 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. At
December 31, 2020, 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 Canada Life, a U.S. $500 revolving credit agreement
at Great-West Lifeco U.S. LLC, 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
$
8,639
150
261
316
$
$
$
–
–
113
316
–
–
65
–
$
775
–
23
–
Total
$
9,366
$
429
$
65
$
798
$
–
–
13
–
13
(1) Payments due have not been reduced to reflect that the Company held capital trust securities of $37 principal amount ($55 carrying value).
$
Over
5 years
7,229
150
37
–
$
635
–
10
–
$
645
$
7,416
(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. 2020 Annual Report
137
Notes to Consolidated Financial Statements
8. 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 0.11% in 2020 (0.10% in 2019). The calculation for future credit losses on
assets is based on the credit quality of the underlying asset portfolio.
138 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
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.
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, 2020 and December 31, 2019, 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, 2020 and December 31, 2019, 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.
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 following table provides
information on the impact to the value of liabilities net of changes in the value of assets supporting liabilities 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. For some products, interest rate risk is modelled stochastically in determining the insurance contract liabilities,
and for those products, the sensitivities reflect the estimated impact of an immediate 1% increase and 1% decrease in interest
rates on the liability.
The sensitivities in the table include the impact of a parallel shift in ultimate interest rates outlined in actuarial standards.
2020
2019
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
$
$
(289)
224
$
$
1,185
(920)
$
$
(230)
175
$
$
811
(619)
As at December 31, 2020, the accounting for the acquisition of MassMutual is not finalized pending completion of a
comprehensive valuation of the net assets acquired (note 3). As such, the impact of the acquired business included in the
sensitivities above reflects management’s current best estimate of the sensitivities.
(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 on lifetime
Guaranteed Minimum Withdrawal Benefits have been mitigated through a hedging program using equity futures, currency
forwards, and interest rate derivatives.
Some insurance and investment contract liabilities with long-tail cash-flows are supported by publicly traded common stocks
and investments in other non-fixed income assets, primarily comprised of investment properties, real estate funds, private
stocks, and equity release mortgages. The value of the liabilities may fluctuate with changes in the value of the supporting
assets. The liabilities for other products such as segregated fund products with guarantees also fluctuate with equity values.
There may be additional market and liability impacts as a result of changes in the value of publicly traded common stocks and
other non-fixed income assets that will cause the liabilities to fluctuate differently than the equity values. This means that there
is a greater impact on net earnings from larger falls in equity values, relative to the change in equity values. Falls in equity values
beyond those shown in the table below would have a greater impact on net earnings, relative to the change in equity values.
Great-West Lifeco Inc. 2020 Annual Report
139
Notes to Consolidated Financial Statements
8. Financial Instruments Risk Management (cont’d)
The following table provides information on the expected impacts of an immediate 10% or 20% increase or decrease in the
value of publicly traded common stocks on insurance and investment contract liabilities and on the shareholders’ net earnings
of the Company. The expected impacts take into account the expected changes in the value of assets supporting liabilities and
hedge assets.
2020
2019
20%
increase
10%
increase
10%
decrease
20%
decrease
20%
increase
10%
increase
10%
decrease
20%
decrease
Change in publicly traded
common stock values
Increase (decrease) in
non-participating insurance
and investment contract liabilities
Increase (decrease) in net earnings
$
$
(34)
28
$ (18)
$ 15
$ 62
(51)
$
264
$
$ (208)
$ (63)
$ 54
$ (33)
$ 27
$ 45
(39)
$
$ 223
$ (182)
The following table provides information on the expected impacts of an immediate 5% or 10% increase or decrease in the value
of other non-fixed income assets on insurance and investment contract liabilities and on the shareholders’ net earnings of the
Company. The expected impacts take into account the expected changes in the value of assets supporting liabilities.
2020
2019
10%
increase
5%
increase
5%
decrease
10%
decrease
10%
increase
5%
increase
5%
decrease
10%
decrease
Change in other non-fixed
income asset values
Increase (decrease) in
non-participating insurance
and investment contract liabilities
Increase (decrease) in net earnings
$
$
(41)
34
$
$
(8)
6
$ 88
(69)
$
$ 138
$ (108)
$ (74)
$ 60
$ (32)
$ 25
$ 35
(28)
$
$ 117
(90)
$
The Canadian Institute of Actuaries Standards of Practice for the valuation of insurance contract liabilities establish limits on
the investment return assumptions for publicly traded common stocks and other non-fixed income assets which are generally
based on historical returns on market indices. The sensitivities shown in the tables above allow for the impact of changes in
these limits following market falls.
The best estimate return assumptions for publicly traded common stocks and other non-fixed income assets are primarily
based on long-term historical averages. 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
Increase (decrease) in non-participating insurance contract liabilities
Increase (decrease) in net earnings
2020
2019
1% increase
1% decrease
1% increase
1% decrease
$
$
(691)
556
$
$
861
(682)
$
$
(645)
509
$
$
752
(585)
The Company sponsors a number of deferred compensation arrangements for employees where payments to participants are
deferred and linked to the performance of the common shares of Lifeco. The Company hedges its exposure to the equity risk
associated with its PSU Plan through the use of total return swaps.
140 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
(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
2020
Related amounts not set-off
in the Balance Sheet
Gross amount
of financial
instruments
presented in
the Balance
Sheet
Offsetting
counterparty
position (1)
Financial
collateral
received/
pledged (2)
Net
exposure
$
$
$
$
829
4
833
$
$
(596)
–
$
(154)
(4)
$
(596)
$
(158)
$
79
–
79
1,221
1,221
$
$
(596)
(596)
$
$
(361)
(361)
$
$
264
264
2019
Related amounts not set-off
in the Balance Sheet
Gross amount
of financial
instruments
presented in
the Balance
Sheet
Offsetting
counterparty
position (1)
Financial
collateral
received/
pledged (2)
Net
exposure
$
$
$
$
451
4
455
$
$
(309)
–
(107)
(4)
$
$
(309)
$
(111)
$
35
–
35
1,381
1,381
$
$
(309)
(309)
$
$
(556)
(556)
$
$
516
516
(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.
At December 31, 2020, total financial collateral, including initial margin and overcollateralization, received on derivative assets was $211 ($156 at December 31, 2019), received on reverse repurchase
agreements was $4 ($4 at December 31, 2019), and pledged on derivative liabilities was $560 ($634 at December 31, 2019).
(3) Assets related to reverse repurchase agreements are included in bonds, on the Consolidated Balance Sheets.
Great-West Lifeco Inc. 2020 Annual Report
141
Notes to Consolidated Financial Statements
9.
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
2020
$
7,946
$
–
$
–
$
7,946
–
–
8,773
8,773
102,819
–
188
103,007
73
2,020
1,374
3,467
102,892
2,020
10,335
115,247
–
3
3
–
245
1
–
302
79
11,352
1
11,353
–
15,943
828
130
353
188
–
16
16
6,270
–
–
–
58
–
11,352
20
11,372
6,270
16,188
829
130
713
267
Total assets measured at fair value
$ 17,349
$ 131,802
$
9,811
$ 158,962
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 $210.
(2) Includes collateral received under securities lending arrangements.
(3) Excludes collateral pledged to counterparties of $442.
$
$
5
–
79
84
$
$
1,216
9,145
188
$ 10,549
$
–
–
–
–
$
1,221
9,145
267
$ 10,633
There were no transfers of the Company’s assets and liabilities between Level 1 and Level 2 in the year.
142 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
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)
Total assets measured at fair value
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.
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
$
14,187
$ 105,845
$
7,950
$ 127,982
$
$
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. 2020 Annual Report
143
Notes to Consolidated Financial Statements
9. Fair Value Measurement (cont’d)
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:
Balance, beginning of year
Total gains (losses)
Included in net earnings
Included in other comprehensive income (1)
Purchases
Issues
Sales
Settlements
Transferred from owner occupied properties (2)
Transfers into Level 3 (3)
Transfers out of Level 3 (3)
2020
Fair value
through
profit or
loss bonds
Fair value
through
profit or loss
mortgage
loans
Fair value
through
profit or
loss stocks (4)
Available
for-sale
stocks
Investment
properties
Trading
accounts
assets
Total
Level 3
assets
$
67
$ 1,314
$
678
$
4
$ 5,887
$
–
$ 7,950
2
4
–
–
–
–
–
–
–
156
15
–
622
–
(87)
–
–
–
16
–
406
–
(83)
–
–
357
–
–
1
11
–
–
–
–
–
–
(74)
21
481
–
(73)
–
28
–
–
–
–
–
–
–
–
–
58
–
100
41
898
622
(156)
(87)
28
415
–
Balance, end of year
$
73
$ 2,020
$ 1,374
$
16
$ 6,270
$
58
$ 9,811
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 December 31, 2020
$
2
$
156
$
16
$
–
$
(74) $
–
$
100
$
2
$
145
$
17
$
–
$
(73) $
–
$
91
(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) As a result of the sale of IPSI, a property with a fair value of $28 was reclassified from owner occupied properties to investment properties. The reclassification resulted in the recognition of revaluation surplus on
the transfer to investment properties of $11 and income tax expense of $(1) in the Consolidated Statements of Comprehensive Income.
(3) Transfers into Level 3 are due primarily to decreased observability of inputs in valuation methodologies or the placement of redemption restrictions on investments in mutual and segregated funds. 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.
(4) Includes investments in mutual and segregated funds where there are redemption restrictions. The fair value is based on observable, quoted prices.
Since March 20, 2020, Canada Life has temporarily suspended contributions to and transfers into, as well as redemptions and transfers
out of, its Canadian real estate investment funds as the COVID-19 virus has impacted the global property market and made it difficult
to value the properties with the same degree of certainty as usual. As a result of these restrictions, the Company’s investment in these
funds with a fair value of $357 was transferred on March 20, 2020 from Level 1 to Level 3.
Subsequent event
On January 11, 2021, Canada Life lifted the temporary suspension on contributions to and transfers into its Canadian real estate
investment funds as confidence over the valuation of the underlying properties has returned as a result of increased market activity.
While the temporary suspension on redemptions and transfers out of the Canadian real estate funds remains, the funds are accepting
initial redemption requests for a limited period which will be processed, subject to available liquidity, on pre-specified dates.
144 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
Balance, beginning of year
Change in accounting policy
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)
Balance, end of year
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
$
$
67
–
67
4
(4)
–
–
–
–
–
–
–
$
$
813
–
813
109
(5)
–
469
–
(72)
–
–
–
404
–
404
40
–
299
–
(65)
–
–
–
–
$
67
$ 1,314
$
678
$
2
–
2
–
–
2
–
–
–
–
–
–
4
2019
Investment
properties
Assets held
for sale
$ 5,218
29
$
5,247
29
–
29
Total
Level 3
assets
Liabilities
held
for sale
Total
Level 3
liabilities
$ 6,533
29
$
6,562
$
26
–
26
–
–
–
–
–
–
(26)
–
–
26
–
26
–
–
–
–
–
–
(26)
–
–
37
(2)
188
(36)
644
–
(5)
–
–
–
–
(1)
–
–
(26)
–
–
–
–
(46)
945
469
(96)
(72)
–
–
–
$ 5,887
$
–
$ 7,950
$
–
$
–
Total gains (losses) for the year included
in net investment income
$
4
$
109
$
40
$
–
$
37
$
(2) $
188
$
–
$
–
Change in unrealized gains for the year
included in earnings for assets
held 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 or the placement of redemption restrictions on investments in mutual and segregated funds. 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
investment 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 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
Investment
generally
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.
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.
Discount rate
Range of 2.9% – 12.0%
Reversionary rate
Range of 3.9% – 6.8%
Vacancy rate
Weighted average of 3.0%
Discount rate
Range of 3.2% – 4.4%
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.
Great-West Lifeco Inc. 2020 Annual Report
145
Notes to Consolidated Financial Statements
9. Fair Value Measurement (cont’d)
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
2020
Level 1
Level 2
Level 3
Other assets/
liabilities not
held at fair
value
Total
$
$
$
$
–
–
–
–
–
317
–
317
$
$ 26,488
27,613
8,387
62,488
–
–
–
$
57
–
–
57
–
–
–
$ 62,488
$
57
$
–
–
–
–
163
128
137
428
$ 26,545
27,613
8,387
62,545
163
445
137
$ 63,290
970
970
$
$
9,899
9,899
$
$
–
–
$
$
–
–
$ 10,869
$ 10,869
(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 investment in IGM.
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 investment in IGM.
146 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
10. 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
Finite life intangible assets
Changes in foreign exchange rates
Balance, end of year
Accumulated impairment
Balance, beginning of year
Impairment
Changes in foreign exchange rates
Balance, end of year
Net carrying amount
2020
2019
$
7,693
3,621
(12)
(19)
$
7,771
33
(6)
(105)
$ 11,283
$
7,693
$
$
(1,188)
(16)
27
$
(1,177)
$ 10,106
$
$
(1,223)
(19)
54
(1,188)
6,505
(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 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:
2020
2019
Canada
Group Customer
Individual Customer
Europe
United States
Financial Services
Total
$
1,464
2,553
2,395
3,694
$
1,481
2,562
2,282
180
$ 10,106
$
6,505
Great-West Lifeco Inc. 2020 Annual Report
147
Notes to Consolidated Financial Statements
10. Goodwill and Intangible Assets (cont’d)
(b) Intangible Assets
Intangible assets of $4,285 ($3,879 as at December 31, 2019) 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:
Cost
Balance, beginning of year
Additions
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
2020
Brands and
trademarks
Customer
contract related
Shareholders’
portion of
acquired future
participating
account profit
Total
$
972
92
(1)
$
2,562
30
(50)
$
$
1,063
$
2,542
$
354
–
–
354
$
3,888
122
(51)
$
3,959
$
$
$
(133)
–
$
(1,051)
23
(133)
$
(1,028)
930
$
1,514
$
$
$
–
–
–
$
(1,184)
23
$
(1,161)
354
$
2,798
2019
Brands and
trademarks
Customer
contract related
Shareholders’
portion of
acquired future
participating
account profit
Total
$
$
$
$
$
1,006
(34)
$
2,665
(103)
$
972
$
2,562
$
354
–
354
$
4,025
(137)
$
3,888
(140)
7
(133)
839
$
$
$
(1,101)
50
(1,051)
1,511
$
$
$
–
–
–
354
$
$
$
(1,241)
57
(1,184)
2,704
(ii) Indefinite life intangible assets have been assigned to cash generating unit groupings as follows:
Canada
Group Customer
Individual Customer
Europe
United States
Asset Management
Financial Services
Total
148 Great-West Lifeco Inc. 2020 Annual Report
2020
2019
$
354
649
233
1,473
89
$
354
619
223
1,508
–
$
2,798
$
2,704
Notes to Consolidated Financial Statements
(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
2020
Customer
contract
related
Distribution
channels
Technology/
Software
Total
30 years 3 – 10 years
7 – 30 years
Straight-line Straight-line Straight-line
$
$
1,031
214
3
–
$
1,248
$
108
–
3
–
111
$
1,885
341
(6)
(35)
$
3,024
555
–
(35)
$
2,185
$
3,544
$
$
$
(630)
(3)
–
(55)
(688)
560
$
$
$
(60)
(1)
–
(4)
(65)
$
(1,159)
5
29
(179)
$
(1,849)
1
29
(238)
$
(1,304)
$
(2,057)
46
$
881
$
1,487
2019
Customer
contract
related
Distribution
channels
Technology/
Software
Total
7 – 30 years
Straight-line
30 years
Straight-line
3 – 10 years
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
The weighted average remaining amortization period of the customer contract related and distribution channels are 14 and 13
years respectively (13 and 14 years respectively at December 31, 2019).
Great-West Lifeco Inc. 2020 Annual Report
149
Notes to Consolidated Financial Statements
10. Goodwill and Intangible Assets (cont’d)
(c) Recoverable Amount
For the purposes of annual impairment testing, the Company allocates indefinite life intangibles to cash generating units and
goodwill to cash generating unit groupings. Any potential impairment of indefinite life intangible assets is identified by comparing
the recoverable amount of a cash generating unit to its carrying value. Any potential impairment of goodwill is identified by
comparing the recoverable amount of a cash generating unit grouping to its carrying value.
Fair value is initially assessed with reference to valuation multiples of comparable publicly-traded financial institutions and
precedent business acquisition 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 2020, the Company conducted its annual impairment testing of intangible assets and goodwill based on
September 30, 2020 asset balances. It was determined that the recoverable amounts of cash generating units for intangible assets and
cash generating unit groupings for goodwill 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 units or cash
generating unit groupings is unlikely to cause carrying values to exceed recoverable amounts.
11. 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
Transferred to investment properties (1)
Depreciation
Foreign exchange
Net carrying value, end of year
2020
2019
$
$
842
(115)
727
42
–
–
(17)
(15)
4
$
741
$
835
(104)
731
34
(10)
2
–
(13)
(17)
727
(1) As a result of the sale of IPSI, a property with a carrying value of $17 was reclassified from owner occupied properties to investment properties.
The net carrying value of fixed assets is $426 at December 31, 2020 ($455 at December 31, 2019).
The following provides details of the net carrying value of owner occupied properties and fixed assets by operating segment:
Canada
United States
Europe (1)
Capital and Risk Solutions (1)
Total
(1) See comparative figures (note 32).
2020
2019
$
$
640
321
205
1
650
334
196
2
$
1,167
$
1,182
There are no restrictions on the title of the owner occupied properties and fixed assets, nor are they pledged as security for debt.
150 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
12. Other Assets
Deferred acquisition costs
Right-of-use assets
Trading account assets (1)
Finance leases receivable
Defined benefit pension plan assets (note 23)
Prepaid expenses
Miscellaneous other assets
Total
$
2020
2019
618
437
713
404
240
115
820
$
595
466
1,092
405
231
113
208
$
3,347
$
3,110
(1) Includes bonds of $386 and stocks of $327 at December 31, 2020 (bonds of $726 and stocks of $366 at December 31, 2019).
Total other assets of $1,678 ($1,443 at December 31, 2019) 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
Additions
Amortization
Changes in foreign exchange rates
Disposals
Write-off
Balance, end of year
Right-of-use assets
Cost, beginning of year
Additions
Modifications
Changes in foreign exchange rates
Cost, end of year
Accumulated amortization, beginning of year
Amortization
Changes in foreign exchange rates
Accumulated amortization, end of year
Carrying amount, end of year
Cost, beginning of year
Additions
Modifications
Changes in foreign exchange rates
Cost, end of year
Accumulated amortization, beginning of year
Amortization
Impairment
Changes in foreign exchange rates
Accumulated amortization, end of year
Carrying amount, end of year
2020
2019
$
$
595
93
(55)
26
(41)
–
$
618
$
2020
597
118
(51)
(32)
(36)
(1)
595
Property
Equipment
Total
$
$
$
$
$
$
$
$
$
$
$
530
47
(5)
(4)
568
$
(69)
(68)
3
(134)
434
$
$
$
7
1
–
–
8
(2)
(3)
–
(5)
3
$
$
$
$
$
537
48
(5)
(4)
576
(71)
(71)
3
(139)
437
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
Great-West Lifeco Inc. 2020 Annual Report
151
Notes to Consolidated Financial Statements
12. Other Assets (cont’d)
Finance leases receivable
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
2020
2019
$
$
$
30
30
30
30
30
662
812
408
404
26
$
$
$
30
30
30
30
30
686
836
431
405
26
152 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
13. 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
2020
Reinsurance
assets
Net
$ 208,902
9,145
$ 21,991
130
$ 186,911
9,015
$ 218,047
$ 22,121
$ 195,926
Gross
liability
2019
Reinsurance
assets
Net
$ 174,521
1,656
$ 20,580
127
$ 153,941
1,529
$ 176,177
$ 20,707
$ 155,470
(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
Capital and Risk Solutions
Non-Participating
Canada
United States
Europe
Capital and Risk Solutions
Total
Participating
Canada
United States
Europe (1)
Capital and Risk Solutions (1)
Non-Participating
Canada
United States
Europe (1)
Capital and Risk Solutions (1)
Total
(1) See comparative figures (note 32).
Gross
liability
2020
Reinsurance
assets
Net
$ 46,107
11,090
155
912
$
(199)
13
–
–
$ 46,306
11,077
155
912
35,449
65,703
48,088
10,543
638
15,908
5,622
139
34,811
49,795
42,466
10,404
$ 218,047
$ 22,121
$ 195,926
Gross
liability
2019
Reinsurance
assets
Net
$
42,271
11,329
173
846
32,668
32,360
45,489
11,041
$
(247)
12
–
–
$ 42,518
11,317
173
846
498
15,091
5,230
123
32,170
17,269
40,259
10,918
$ 176,177
$ 20,707
$ 155,470
Great-West Lifeco Inc. 2020 Annual Report
153
Notes to Consolidated Financial Statements
13. 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
Capital and Risk Solutions
Non-participating liabilities
Canada
United States
Europe
Capital and Risk Solutions
Other
Total equity
Total carrying value
Fair value
Carrying value
Participating liabilities
Canada
United States
Europe (1)
Capital and Risk Solutions (1)
Non-participating liabilities
Canada
United States
Europe (1)
Capital and Risk Solutions (1)
Other
Total equity
Total carrying value
Fair value
(1) See comparative figures (note 32).
Bonds
Mortgage
loans
Stocks
Investment
properties
Other
Total
2020
$ 21,803
5,193
84
688
$ 10,545
593
–
12
$
21,511
31,631
34,941
2,365
15,285
4,091
4,498
4,586
5,746
52
1,135
636
$
6,152
13
62
–
2,789
46
332
–
754
852
$ 137,592
$ 27,803
$ 11,000
$ 140,789
$ 29,633
$ 10,963
$
$
2019
2,983
–
9
–
360
–
2,536
–
141
241
$
4,624
5,291
–
212
$ 46,107
11,090
155
912
6,291
29,440
4,533
8,126
338,113
21,195
35,449
65,703
48,088
10,543
355,428
27,015
6,270
$ 417,825
$ 600,490
6,270
$ 417,825
$ 605,480
Bonds
Mortgage
loans
Stocks
Investment
properties
Other
Total
$
19,484
5,128
97
619
20,270
14,311
33,062
2,484
15,630
3,943
$
9,655
626
–
20
4,111
2,678
5,387
55
902
834
$
6,142
–
63
–
2,237
–
299
–
902
732
$
2,472
–
12
–
407
–
2,672
–
119
205
$
4,518
5,575
1
207
$ 42,271
11,329
173
846
5,643
15,371
4,069
8,502
231,894
19,829
32,668
32,360
45,489
11,041
249,447
25,543
$ 115,028
$ 24,268
$ 10,375
$ 117,000
$ 25,146
$ 10,367
$
$
5,887
$ 295,609
$ 451,167
5,887
$ 295,609
$ 454,009
Cash flows of assets supporting insurance and investment contract liabilities are matched within reasonable limits. Changes
in the fair values of these assets are largely 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.
154 Great-West Lifeco Inc. 2020 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
MassMutual acquisition (note 3)
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
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
2020
Participating
Reinsurance
assets
$
(235)
32
9
8
–
Gross
liability
$ 54,619
(7)
3,883
55
(286)
Net
$ 54,854
(39)
3,874
47
(286)
$ 58,264
$
(186)
$ 58,450
Non-participating
Gross
liability
Reinsurance
assets
$ 119,902
7,028
1,296
161
(48)
22,316
(17)
$ 20,815
706
750
109
–
–
(203)
Net
Total Net
$ 99,087
6,322
546
52
(48)
22,316
186
$ 153,941
6,283
4,420
99
(48)
22,316
(100)
$ 150,638
$ 22,177
$ 128,461
$ 186,911
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
Gross
liability
$ 115,793
5,339
1,784
(117)
(176)
(2,721)
Non-participating
Reinsurance
assets
Net
Total Net
$
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
Great-West Lifeco Inc. 2020 Annual Report
155
Notes to Consolidated Financial Statements
13. 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 2020, the major contributors to the increase in net insurance contract liabilities was the acquisition of MassMutual of $22,316,
the impact of new business of $6,283, and the normal change in the in force business of $4,420.
Net non-participating insurance contract liabilities increased by $52 due to management actions and changes in assumptions
including a $377 increase in Canada, partially offset by decreases of $212 in Europe, $59 in Capital & Risk Solutions, and $54 in the
United States.
The increase in Canada was primarily due to updated policyholder behaviour assumptions of $269, updated morbidity assumptions
of $140, of which $114 is offset by an increase in other assets, and updated economic and asset related assumptions of $98. This was
partially offset by decreases due to updated life mortality assumptions of $129.
The decrease in Europe was primarily due to updated longevity assumptions of $138, modeling refinements of $28, updated
morbidity assumptions of $24, updated policyholder behaviour assumptions of $19, and updated economic and asset related
assumptions of $10. This was partially offset by an increase due to updated expense and tax assumptions of $6.
The decrease in Capital and Risk Solutions was primarily due to updated longevity assumptions of $135, updated economic
assumptions of $41, and modeling refinements of $37. This was partially offset by increases due to updated life mortality assumptions
of $107, updated expense and tax assumptions of $28, and updated policyholder behaviour assumptions of $14.
The decrease in the United States was primarily due to updated economic assumptions of $50.
Net participating insurance contract liabilities increased by $47 in 2020 due to management actions and changes in assumptions.
The increase was primarily due to updated economic assumptions of $2,358, and updated policyholder behaviour assumptions of
$34. This was partially offset by decreases due to provisions for future policyholder dividends of $1,899, updated expense and tax
assumptions of $446, and modeling refinements of $5.
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 $272 decrease in Europe, partially offset by a $145 increase in Canada, a $52 increase in the United States, and a $31
increase in Capital and Risk Solutions.
The decrease in Europe was primarily due to updated longevity assumptions of $187, updated economic assumptions of $98, which
includes the net impact of new standards, and updated life mortality assumptions of $7, partially offset by increases due to updated
expense and tax assumptions of $25.
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 increase in the United States was primarily due to updated expense 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.
The increase in Capital and Risk Solutions was primarily due to updated life mortality assumptions of $87, and updated expense
and tax assumptions of $34, partially offset by decreases due to updated longevity assumptions of $112 and updated economic
assumptions of $3, 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 $2,232, updated expense 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.
156 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
(d) Change in investment contract liabilities measured at fair value
2020
Gross
liability
Reinsurance
assets
Net
Gross
liability
2019
Reinsurance
assets
Balance, beginning of year
Normal change in force business
Investment experience
Management action and changes in assumptions
Business movement from/to external parties
MassMutual acquisition (note 3)
Impact of foreign exchange rate changes
$
$
1,656
2,489
147
(4)
–
4,984
(127)
$
127
(20)
26
–
–
–
(3)
$
1,529
2,509
121
(4)
–
4,984
(124)
$
1,711
(87)
103
(4)
–
–
(67)
Balance, end of year
$
9,145
$
130
$
9,015
$
1,656
$
–
38
(23)
–
116
–
(4)
127
$
Net
1,711
(125)
126
(4)
(116)
–
(63)
$
1,529
The carrying value of investment contract liabilities approximates their fair value.
(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
2020
2019
$ 28,102
19,652
$ 25,419
17,847
$ 47,754
$ 43,266
2020
2019
$ 19,538
20,067
$ 19,643
18,126
$ 39,605
$ 37,769
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 are used to modify established 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.
Great-West Lifeco Inc. 2020 Annual Report
157
Notes to Consolidated Financial Statements
13. Insurance and Investment Contract Liabilities (cont’d)
Property and casualty reinsurance
Insurance contract liabilities for property and casualty reinsurance written by London Reinsurance Group (LRG), a subsidiary of
Canada 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.
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 8(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 Capital and Risk Solutions. 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.
158 Great-West Lifeco Inc. 2020 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 publicly traded common stock values
20% increase
10% increase
10% decrease
20% decrease
Change in other non-fixed income asset values
10% increase
5% increase
5% decrease
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
2020
2019
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(288)
(756)
(279)
–
–
224
(920)
28
15
(51)
(208)
34
6
(69)
(108)
556
(682)
(165)
(1,017)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(279)
(601)
(253)
–
–
175
(619)
54
27
(39)
(182)
60
25
(28)
(90)
509
(585)
(125)
(813)
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 (1)
Capital and Risk Solutions (1)
Total
(1) See comparative figures (note 32).
Gross
liability
$ 81,556
76,793
48,243
11,455
2020
Reinsurance
assets
$
439
15,921
5,622
139
Net
$ 81,117
60,872
42,621
11,316
Gross
liability
$ 74,939
43,689
45,662
11,887
2019
Reinsurance
assets
$
251
15,103
5,230
123
Net
$ 74,688
28,586
40,432
11,764
$ 218,047
$ 22,121
$ 195,926
$ 176,177
$ 20,707
$ 155,470
Great-West Lifeco Inc. 2020 Annual Report
159
Notes to Consolidated Financial Statements
13. Insurance and Investment Contract Liabilities (cont’d)
(ii) Reinsurance risk
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.
14. 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 $1,490 at December 31, 2020 ($1,147 at December 31, 2019).
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 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 guaranteed minimum withdrawal benefits (GMWB) and group standalone
GMDB products which mainly provide return of premium on death.
In Europe, the Company offers UWP products in Germany and unit-linked products with investment guarantees in Ireland. These
products are similar to segregated fund products but include minimum credited interest rates and pooling of policyholders’ funds.
The Company also offers a GMWB product in the U.S., and Germany, and previously offered GMWB product in Canada and Ireland.
Certain GMWB products offered by the Company offer levels of death and maturity guarantees. At December 31, 2020, the amount of
GMWB product in-force in Canada, the U.S., Ireland and Germany was $3,375 ($3,332 at December 31, 2019).
160 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
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 (1)
2020
2019
$ 15,558
65,338
2,686
112,675
127,577
12,430
336,264
463
(4,185)
1,490
$ 12,501
44,973
2,670
104,330
55,779
12,986
233,239
373
(3,737)
1,147
$ 334,032
$ 231,022
(1) At December 31, 2020, $84,785 of investments on account of segregated fund policyholders are reinsured by the Company on a modified coinsurance basis (nil at December 31, 2019) (note 3). Included
in this amount are $87 of cash and cash equivalents, $15,320 of bonds, $23 of stocks and units in unit trusts, $69,259 of mutual funds, $100 of accrued income and $(4) of other liabilities.
(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 on investments
Unrealized gains (losses) due to changes in foreign exchange rates
Policyholder withdrawals
Business acquisition (1)
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
Total
Balance, end of year
(1) Investment and insurance contracts on account of segregated fund policyholders acquired through the acquisition of MassMutual (note 3).
(c) Investment income on account of segregated fund policyholders
Net investment income
Net realized capital gains on investments
Net unrealized capital gains 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
2020
2019
$ 231,022
$ 209,527
21,916
2,695
8,954
474
3,920
(20,371)
84,785
51
234
9
343
–
103,010
24,685
3,331
4,265
19,658
(6,539)
(24,721)
–
(4)
105
23
283
409
21,495
$ 334,032
$ 231,022
2020
2019
$
2,695
8,954
474
3,920
16,043
16,043
$
3,331
4,265
19,658
(6,539)
20,715
20,715
$
–
$
–
Great-West Lifeco Inc. 2020 Annual Report
161
Notes to Consolidated Financial Statements
14. Segregated Funds and Other Structured Entities (cont’d)
(d) Investments on account of segregated fund policyholders by fair value hierarchy level (note 9)
Investments on account of segregated fund policyholders (1)
$ 224,831
$ 98,424
$ 13,556
$ 336,811
(1) Excludes other liabilities, net of other assets, of $2,779.
Level 1
Level 2
Level 3
Total
2020
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.
During 2020, certain foreign stock holdings valued at $3,190 have been transferred from Level 1 to Level 2 ($153 were transferred
from Level 1 to Level 2 at December 31, 2019) 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, 2020, $9,770 ($8,471 at December 31, 2019) of the segregated funds were invested in funds managed by related
parties IG Wealth Management and Mackenzie Investments, members of the Power Corporation group of companies (note 25).
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:
2020
Total (1)
2019
Investments
on account of
segregated fund
policyholders
held for sale
Investments
on account of
segregated fund
policyholders
Balance, beginning of year
Change in accounting policy
Revised balance, beginning of year
Total gains (losses) included in segregated fund investment income
Purchases
Sales
Transfers into Level 3
Transfers out of Level 3
$ 13,988
–
$ 13,235
136
$
13,988
78
167
(712)
35
–
13,371
141
760
(284)
–
–
Balance, end of year
$ 13,556
$ 13,988
$
(1) At December 31, 2020, there were no investments on account of segregated fund policyholders held for sale.
9
–
9
(1)
–
(8)
–
–
–
Total
$ 13,244
136
13,380
140
760
(292)
–
–
$ 13,988
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 2020, fee and other income earned by the Company resulting from the Company’s interests in segregated funds and other
structured entities was $5,034 ($4,919 during 2019).
Included within other assets (note 12) at December 31, 2020 is $557 ($957 at December 31, 2019) of investments by the Company in bonds
and stocks of Putnam sponsored funds and $156 ($135 at December 31, 2019) of investments in stocks of sponsored unit trusts in Europe.
162 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
15. Debentures and Other Debt Instruments
Short-term
Commercial paper and other short-term debt instruments with interest rates from
0.223% to 0.274% (1.828% to 2.089% at December 31, 2019), unsecured
$
125
$
125
$
130
$
130
2020
2019
Carrying value
Fair value
Carrying value
Fair value
Revolving credit facility with interest equal to LIBOR plus 0.70%
(U.S. $165; U.S. $230 at December 31, 2019), unsecured
Revolving credit facility with interest equal to LIBOR plus 1.00% (U.S. $500), unsecured
Total short-term
Capital:
Current
Lifeco
210
635
970
210
635
970
299
–
429
299
–
429
4.65% Debentures due August 13, 2020, unsecured, repaid during the year
–
–
500
508
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
2.981% Debentures due July 8, 2050, unsecured
2.50% Debentures due April 18, 2023, unsecured, (500 euro)
2.379% Debentures due May 14, 2030, unsecured
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 Lifeco Finance 2018, LP
4.581% Senior notes due May 17, 2048, unsecured, (U.S. $500)
4.047% Senior notes due May 17, 2028, unsecured, (U.S. $300)
Great-West Lifeco Finance (Delaware) LP
4.15% Senior notes due June 3, 2047, unsecured, (U.S. $700)
Great-West Lifeco U.S. Finance 2020, LP
0.904% Senior notes due August 12, 2025, unsecured, (U.S. $500)
Empower Finance 2020, LP
3.075% Senior notes due September 17, 2051, unsecured, (U.S. $700)
1.776% Senior notes due March 17, 2031, unsecured, (U.S. $400)
1.357% Senior notes due September 17, 2027, unsecured, (U.S. $400)
Total long-term
Total
195
394
342
498
493
774
597
771
287
575
504
566
514
825
637
857
194
393
342
498
–
728
–
725
278
557
487
526
–
788
–
785
4,064
4,765
2,880
3,421
100
158
628
379
135
222
732
420
100
159
643
388
128
221
749
430
1,007
1,152
1,031
1,179
874
631
879
505
505
1,889
8,723
970
638
984
521
512
2,017
9,899
894
993
–
–
–
–
–
–
–
–
–
–
5,564
6,450
$
9,693
$ 10,869
$
5,993
$
6,879
On May 14, 2020, the Company issued $600 aggregate principal amount 2.379% debentures at par, maturing on May 14, 2030. Interest
on the debentures is payable semi-annually in arrears on May 14 and November 14 in each year, commencing November 14, 2020 until
the date on which the debentures are repaid. The debentures are redeemable at any time prior to February 14, 2030 in whole or in part
at the greater of the Canada Yield Price (as defined in the trust indenture governing the debentures) and par, and on or after February 14,
2030 in whole or in part at par, together in each case with accrued and unpaid interest.
On July 8, 2020, the Company issued $250 aggregate principal amount 2.981% debentures at par, maturing on July 8, 2050. Interest on
the debentures is payable semi-annually in arrears on January 8 and July 8 in each year, commencing January 8, 2021 until the date on
which the debentures are repaid. The debentures are redeemable at any time prior to January 8, 2050 in whole or in part at the greater
of the Canada Yield Price (as defined in the trust indenture governing the debentures) and par, and on or after January 8, 2050 in whole
or in part at par, together in each case with accrued and unpaid interest.
Great-West Lifeco Inc. 2020 Annual Report
163
Notes to Consolidated Financial Statements
15. Debentures and Other Debt Instruments (cont’d)
On July 13, 2020, the Company announced the re-opening of the offering of 2.981% debentures due July 8, 2050, and on July 15, 2020
issued an additional $250 aggregate principal amount. The July 15, 2020 debentures were issued at a price of $986.31 per $1,000 par value
for an effective yield of 3.051%. Upon issuance of the July 15, 2020 debentures, $500 aggregate principal amount of 2050 debentures
was issued and outstanding. The July 15, 2020 debentures form a single series with, are issued under the same Committee on Uniform
Securities Identification Procedures (CUSIP) number as, and have the same terms as to status, redemption or otherwise as, the initial
debentures issued on July 8, 2020.
On August 12, 2020, Great-West Lifeco U.S. Finance 2020, LP, a subsidiary of the Company, issued $663 (U.S. $500) aggregate principal
amount of 0.904% senior notes due August 12, 2025. The senior notes are fully and unconditionally guaranteed by the Company.
On August 13, 2020, the Company repaid the principal amount of its maturing 4.65% $500 debentures, together with accrued interest.
On September 17, 2020, Empower Finance 2020, LP, a subsidiary of the Company, issued $526 (U.S. $400) aggregate principal amount
of 1.357% senior notes due September 17, 2027, $526 (U.S. $400) aggregate principal amount of 1.776% senior notes due March 17,
2031 and $921 (U.S. $700) aggregate principal amount of 3.075% senior notes due September 17, 2051. The senior notes are fully and
unconditionally guaranteed by the Company.
On November 2, 2020, Great-West Lifeco U.S. LLC, a subsidiary of the Company, established a 1-year $635 (U.S. $500) revolving credit
facility with interest on the drawn balance equal to the LIBOR rate plus 1.00%. The facility is fully and unconditionally guaranteed by
the Company. The facility was fully drawn as at December 31, 2020, with the proceeds used to finance a portion of the MassMutual
retirement services business acquisition (note 3).
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 16). The fair value for capital trust securities is determined by the bid-ask price. Refer to note 8 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.
16. 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
2020
2019
$
5
$
12
251
11
17
279
284
$
243
11
19
273
285
$
164 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
17. Other Liabilities
Pension and other post-employment benefits (note 23)
Lease liabilities
Bank overdraft
Deferred income reserves
Other
Total
2020
2019
$
1,630
568
444
345
2,160
$
1,520
585
379
380
1,825
$
5,147
$
4,689
Total other liabilities of $2,604 ($2,204 at December 31, 2019) 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
Amortization
Changes in foreign exchange
Disposals
Balance, end of year
Lease liabilities
Balance, beginning of year
Additions
Modifications
Lease payments
Changes in foreign exchange rates
Interest
Balance, end of year
Balance, beginning of year
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
2020
2019
$
$
380
51
(78)
12
(20)
$
345
$
441
70
(81)
(15)
(35)
380
2020
Property
Equipment
Total
$
$
580
56
(4)
(85)
(4)
22
$
565
$
5
1
–
(3)
–
–
3
$
$
585
57
(4)
(88)
(4)
22
568
2019
Property
Equipment
Total
$
$
545
124
(22)
(72)
(17)
22
580
$
$
$
$
6
1
–
(2)
–
–
5
$
$
551
125
(22)
(74)
(17)
22
585
2020
2019
88
78
67
60
54
387
734
$
$
83
78
66
56
53
417
753
Great-West Lifeco Inc. 2020 Annual Report
165
Notes to Consolidated Financial Statements
18. Non-Controlling Interests
The Company has a controlling equity interest in Canada Life, GWL&A, and Putnam at December 31, 2020. The Company had a
controlling equity interest in Canada Life, GWL&A, The Great-West Life Assurance Company (Great-West Life), London Life Insurance
Company (London Life) and Putnam at December 31, 2019. The non-controlling interests previously attributable to Great-West Life and
London Life are now included in the non-controlling interests of Canada Life as part of the Canada Life amalgamation.
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 non-controlling interests for the issued and outstanding shares of Putnam and
PanAgora held by employees of the respective companies, and non-controlling interests through Irish Life’s controlling interest in
Invesco Ltd. (Ireland).
(a) The non-controlling interests recorded in the Consolidated Statements of Earnings and other comprehensive income are
as follows:
Net earnings attributable to participating account before policyholder dividends
Canada Life
GWL&A
Great-West Life
London Life
Policyholder dividends
Canada Life
GWL&A
Great-West Life
London Life
Net earnings – participating account
Non-controlling interests in subsidiaries
Total
2020
2019
$
$
1,429
1
–
–
1,430
(1,362)
(2)
–
–
(1,364)
66
12
78
$
$
302
3
150
919
1,374
(315)
(3)
(166)
(880)
(1,364)
10
5
15
The non-controlling interests recorded in other comprehensive income (loss) for the year ended December 31, 2020 was $37 ($30
for the year ended December 31, 2019).
(b) The carrying value of non-controlling interests consists of the following:
Participating account surplus in subsidiaries:
Canada Life
GWL&A
Great-West Life
London Life
Total
Non-controlling interests in subsidiaries
2020
2019
$
$
$
2,858
13
–
–
2,871
116
$
$
$
284
14
595
1,866
2,759
107
166 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
19. 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
2020
2019
Number
Carrying
value
Number
Carrying
value
$
7,740,032
12,000,000
12,000,000
12,000,000
6,800,000
6,000,000
10,000,000
–
10,000,000
8,000,000
8,000,000
8,000,000
8,000,000
$
194
300
300
300
170
150
250
–
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
194
300
300
300
170
150
213
37
250
200
200
200
200
108,540,032
$
2,714
108,540,032
$
2,714
927,281,186
–
–
–
–
–
–
571,920
$
5,633
–
–
–
–
–
–
18
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
927,853,106
$
5,651 927,281,186
$
5,633
On November 4, 2020, the Company announced that it did not intend to exercise its rights to redeem the 8,524,422 then outstanding
Series N, Non-Cumulative 5-Year Rate Reset First Preferred Shares (Series N Shares) and the 1,475,578 then outstanding Series O, Non-
Cumulative Floating Rate First Preferred Shares (Series O Shares) on December 31, 2020. As a result and subject to certain conditions
set out in the terms and conditions attached to the shares, holders of Series N Shares had the right to convert all or any of their Series N
Shares into Series O Shares, and holders of Series O Shares had the right to convert all or any of their Series O Shares into Series N Shares,
on a one-for-one basis on December 31, 2020.
On December 17, 2020, the Company announced that holders of 59,830 Series N Shares elected to convert their shares into Series O
Shares, and that holders of 547,303 Series O Shares elected to convert their shares into Series N Shares. After taking into account all shares
tendered for conversion, the Company determined that there would be less than 1,000,000 Series O Shares outstanding on December 31,
2020. As a result and in accordance with the terms and conditions attached to the shares, no Series N Shares were converted into Series
O Shares and all remaining Series O Shares were automatically converted into Series N Shares on a one-for-one basis on December 31,
2020. Following the automatic conversion, Lifeco has 10,000,000 Series N Shares and no Series O Shares issued and outstanding. The
Series N Shares carry an annual fixed non-cumulative dividend rate of 1.749% up to but excluding December 31, 2025 (2.176% up to
but excluding December 31, 2020) and are redeemable at the option of the Company on December 31, 2025 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. Prior to
conversion, the Series O Shares carried a floating non-cumulative dividend rate equal to the relevant Government of Canada Treasury
Bill rate plus 1.30%.
Great-West Lifeco Inc. 2020 Annual Report
167
Notes to Consolidated Financial Statements
19. Share Capital (cont’d)
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 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 17, 2020, the Company announced a 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.
As a result of the COVID-19 pandemic impact on markets, on March 13, 2020, OSFI set expectations that Canadian banks and insurers
should suspend share buybacks until further notice.
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 Corporation (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.
During the year ended December 31, 2020, the Company did not purchase any common shares under the current normal course issuer
bid (2,000,000 during the year ended December 31, 2019, under the previous normal course issuer bid).
Subsequent Event
On January 25, 2021, the Company announced a normal course issuer bid (NCIB) commencing January 27, 2021 and terminating January
26, 2022 to purchase for cancellation up to but not more than 20,000,000 of its common shares at market prices. The Company does
not currently intend to engage in share repurchases that reduce its outstanding shares while OSFI maintains its expectation that the
institutions it regulates suspend share buybacks. However, the Company may use the renewed NCIB for other purposes permitted by
the Toronto Stock Exchange or, when OSFI no longer maintains its expectation or circumstances otherwise change, to acquire common
shares to mitigate the dilutive effect of issuing shares under the Company’s Stock Option Plan and for other capital management purposes.
168 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
20. 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
21. Capital Management
(a) Policies and Objectives
2020
2019
$
$
$
3,076
(133)
2,943
$
2,492
(133)
2,359
927,675,108
109,974
946,003,629
522,755
927,785,082
946,526,384
$
$
$
3.173
$
3.172
$
1.752
$
2.494
2.493
1.652
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.
Great-West Lifeco Inc. 2020 Annual Report
169
Notes to Consolidated Financial Statements
21. Capital Management (cont’d)
(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 required
capital, defined by OSFI, as the aggregate of all defined capital requirements. 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 Canada Life:
Tier 1 Capital
Tier 2 Capital
Total Available Capital
Surplus Allowance & Eligible Deposits
Total Capital Resources
Required Capital
Total LICAT Ratio (OSFI Supervisory Target = 100%) (1)
(1) Total Ratio (%) = (Total Capital Resources / Required Capital)
2020
2019
$ 11,593
4,568
$ 11,952
3,637
16,161
14,226
15,589
12,625
$ 30,387
$ 28,214
$ 23,607
$ 20,911
129%
135%
For entities based in Europe, the local solvency capital regime is the Solvency II basis. At December 31, 2020 and December 31, 2019,
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, 2020
and December 31, 2019, the Company maintained capital levels above the minimum local regulatory requirements in each of its
foreign operations.
170 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
22. 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. Options granted prior to January 1, 2019 vest over a period of five years. Options granted on or
after January 1, 2019 vest 50% three years after the grant date and 50% four years after the grant date. Options have a maximum
exercise period of ten years from the grant date. Termination of employment may, in certain circumstances, result in forfeiture of
the options, unless otherwise determined by the Committee. In 2020, the maximum number of Lifeco common shares issuable
under the Plan was 65,000,000.
During 2020, 1,932,200 common share options were granted (2,699,500 during 2019). The weighted average fair value of common
share options granted during 2020 was $1.86 per option ($2.86 in 2019). 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
2020: dividend yield 5.44% (5.45% in 2019), expected volatility 15.75% (18.63% in 2019), risk-free interest rate 1.10% (1.86% in 2019),
and expected life of eight years (eight in 2019).
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
2020
2019
Options
15,378,339
1,932,200
(571,920)
(339,340)
16,399,279
10,084,559
Weighted
average
exercise price
$
$
$
32.57
32.22
26.71
34.74
32.69
32.94
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
The weighted average share price at the date of exercise of stock options for the year ended December 31, 2020 was $32.59 ($32.29
in 2019).
Compensation expense due to the Plan transactions accounted for as equity-settled share-based payments of $4 after-tax in 2020
($5 after-tax in 2019) 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, 2020:
Exercise price ranges
$27.16 – $36.87
$23.16 – $36.87
$27.13 – $36.87
$30.28 – $36.87
$34.68 – $36.87
$34.68 – $36.87
$36.87 – $36.87
$32.99 – $34.21
$30.28 – $32.50
$32.22 – $32.22
Outstanding
Weighted
average
remaining
contractual life
Weighted
average
exercise price
0.28
1.28
2.31
3.31
4.18
5.16
6.16
7.16
8.16
9.16
30.37
27.70
31.04
32.86
35.66
34.68
36.87
34.20
30.32
32.22
Exercisable
Options
652,320
1,223,018
1,573,700
1,876,040
1,670,699
1,640,842
755,760
683,780
8,400
–
Weighted
average
exercise price
30.37
27.69
31.04
32.86
35.66
34.68
36.87
34.20
30.28
–
Expiry
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Options
652,320
1,229,618
1,573,700
1,876,040
1,670,699
2,013,822
1,241,000
1,685,780
2,524,100
1,932,200
Great-West Lifeco Inc. 2020 Annual Report
171
Notes to Consolidated Financial Statements
22. Share-Based Payments (cont’d)
(b)
To promote greater alignment of interests between the Directors and Lifeco’s shareholders, the Company and certain of its
subsidiaries have 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 their 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 their 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 2020, $6 in Directors’ fees were
used to acquire DSUs ($6 in 2019). At December 31, 2020, the carrying value of the DSU liability is $49 ($43 in 2019) recorded within
other liabilities.
(c)
(d)
(e)
Certain employees of the Company are entitled to receive DSUs. Under these DSU Plans, certain employees may elect to receive
DSUs as settlement of their annual incentive plan or as settlement of PSUs issued under the Company’s PSU Plan. In both cases
these employees are granted DSUs equivalent to the Company’s common shares. Employees receive additional DSUs in respect of
dividends payable on the common shares based on the value of the DSUs at the time. DSUs are redeemable when an individual
ceases to be an officer or employee of the Company or any of its affiliates, by a lump sum cash payment representing the value of
the DSUs at that date. The Company uses the fair-value based method to account for the DSUs granted to employees under the
plans. For the year ended December 31, 2020, the Company recognized compensation expense of $4 ($7 in 2019) for the DSU Plans
recorded in operating and administrative expenses in the Consolidated Statements of Earnings. At December 31, 2020, the carrying
value of the DSU liability is $25 ($21 in 2019) recorded within other liabilities in the Consolidated Balance Sheets.
Certain employees of the Company are entitled to receive PSUs. Under the PSU Plan, 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, 2020, the Company recognized compensation expense, excluding the impact of
hedging, of $41 ($59 in 2019) for the PSU Plan recorded in operating and administrative expenses in the Consolidated Statements
of Earnings. At December 31, 2020, the carrying value of the PSU liability is $93 ($86 in 2019) 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 Lifeco. 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, 2020, the
Company recognized compensation expense of $13 ($12 in 2019) 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 16,764,705.
During 2020, Putnam granted 3,092,859 (2,544,222 in 2019) restricted Class B common shares to certain members of senior
management and key employees.
Compensation expense recorded for the year ended December 31, 2020 related to restricted Class B common shares and Class B
stock options earned was $31 ($20 in 2019) 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, 2020 related to restricted Class C Shares and stock appreciation
rights was $14 in 2020 ($14 in 2019) and is included as a component of operating and administrative expenses in the Consolidated
Statements of Earnings.
172 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
23. 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 eligible employees and
advisors. The Company’s subsidiaries also maintain defined contribution pension plans for eligible employees and advisors.
The defined benefit pension plans provide pensions based on length of service and final average pay; however, these plans are closed to
new entrants. Many of the defined benefit pension plans also no longer provide future defined benefit accruals. The Company’s defined
benefit plan exposure is expected to reduce in future years. Where defined benefit pension accruals continue, 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. Assets supporting the funded pension plans are held in separate trusteed pension funds. Obligations for the wholly unfunded
plans are included in other liabilities and are supported by general assets.
New hires and active plan participants in defined benefit plans closed to future defined benefit accruals are eligible for defined
contribution pension benefits. The defined contribution pension plans provide pension benefits based on accumulated employee and
employer contributions. Employer 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.
The benefit plans are monitored on an ongoing basis to assess the benefit, funding and investment policies, financial status, and funding
requirements. Significant changes to a subsidiary company’s benefit plans require approval from that company’s Board of Directors.
The funding policies of the Company’s subsidiaries for the funded pension plans require annual 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. 2020 Annual Report
173
Notes to Consolidated Financial Statements
23. Pension Plans and Other Post-Employment Benefits (cont’d)
The following reflects the financial position of the contributory and non-contributory defined benefit plans of the Company’s subsidiaries:
(a) Plan Assets, Benefit Obligation and Funded Status
Defined benefit pension plans
Other post-employment benefits
2020
2019
2020
2019
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 (1)
Settlements
Actuarial loss (gain) on financial assumption changes
Actuarial loss (gain) on demographic assumption changes
Actuarial loss (gain) arising from member experience
Net transfer out
Foreign exchange rate changes
$
$
6,972
179
453
164
15
(285)
(11)
(8)
–
123
$
6,484
210
663
176
20
(266)
(113)
(10)
(13)
(179)
$
–
–
–
17
–
(17)
–
–
–
–
$
7,602
$
6,972
$
–
$
$
$
7,836
88
204
15
(285)
–
(11)
(14)
599
(9)
18
–
113
$
7,189
76
234
20
(266)
(1)
(3)
(150)
942
(20)
14
(13)
(186)
$
388
2
12
–
(17)
–
–
–
28
1
(4)
–
(1)
Defined benefit obligation, end of year
$
8,554
$
7,836
$
409
$
$
(952)
(29)
(864)
(37)
$
$
(409)
–
(981)
$
(901)
$
(409)
$
240
(1,221)
$
231
(1,132)
$
$
–
(409)
(981)
$
(901)
$
(409)
$
8,213
341
$
$
7,513
323
$
$
–
409
$
$
–
388
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 12)
Other liabilities (note 17)
Asset (liability) recognized on the Consolidated Balance Sheets
Analysis of defined benefit obligation
Wholly or partly funded plans
Wholly unfunded plans
(1) Includes a curtailment gain recognized on sale of shares of IPSI (note 3).
$
$
$
$
$
$
174 Great-West Lifeco Inc. 2020 Annual Report
–
–
–
20
–
(20)
–
–
–
–
–
370
2
14
–
(20)
–
–
–
29
(5)
(1)
–
(1)
388
(388)
–
(388)
–
(388)
(388)
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
Foreign exchange rate changes
Asset ceiling, end of year
Defined benefit pension plans
2020
2019
$
$
37
1
(11)
2
$
29
$
103
4
(70)
–
37
(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 (1)
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
$
(1) Includes a curtailment gain recognized on sale of shares of IPSI (note 3).
(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
2020
2019
2020
2019
103
145
(15)
233
8
–
(11)
(3)
26
253
608
(453)
(11)
144
397
$
$
96
118
(20)
194
10
(1)
(3)
(37)
28
191
936
(663)
(70)
203
394
$
$
2
–
–
2
–
–
–
–
12
14
25
–
–
25
39
$
$
2
–
–
2
–
–
–
–
14
16
23
–
–
23
39
Defined benefit pension plans
2020
2019
40%
48%
7%
5%
100%
43%
47%
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 $6,871 at December 31, 2020 and $6,031 at December 31, 2019,
of which $6,790 ($5,961 at December 31, 2019) 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. 2020 Annual Report
175
Notes to Consolidated Financial Statements
23. 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
2020
2019
2020
2019
$
7,893
661
$
7,179
657
$
$
8,554
$
7,836
$
409
–
409
$
$
388
–
388
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
2020
2019
2020
2019
$
7,918
636
$
7,221
615
$
$
8,554
$
7,836
$
409
–
409
$
$
388
–
388
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
2020
2019
2020
2019
40%
20%
40%
100%
40%
19%
41%
100%
16%
n/a
84%
100%
15%
n/a
85%
100%
Weighted average duration of defined benefit obligation
18.7 years
18.5 years
11.9 years
11.7 years
(e) Cash Flow Information
Expected employer contributions for 2021:
Funded (wholly or partly) defined benefit plans
Unfunded plans
Defined contribution plans
Total
Pension
plans
Other post-
employment
benefits
Total
$
$
127
16
151
$
294
$
–
22
–
22
$
$
127
38
151
316
176 Great-West Lifeco Inc. 2020 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
2020
2019
2020
2019
2.6%
3.2%
2.9%
1.3%
2.1%
2.9%
1.0%
3.4%
3.8%
3.0%
1.4%
2.6%
2.9%
1.3%
3.1%
3.3%
–
–
2.5%
–
–
4.7%
4.1%
2039
3.8%
4.4%
–
–
3.1%
–
–
4.7%
4.1%
2039
Defined benefit pension plans
Other post-employment benefits
2020
2019
2020
2019
22.7
24.7
24.8
26.7
22.6
24.6
24.7
26.7
22.5
24.0
24.7
26.2
22.4
23.9
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 $269 for the defined benefit pension plans and $14 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
2020
2019
2020
2019
$
(1,350)
329
662
$
(1,242)
311
598
$
1,784
(291)
(569)
$
1,630
(284)
(541)
31
(44)
27
(41)
(26)
53
(23)
50
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. 2020 Annual Report
177
Notes to Consolidated Financial Statements
24. Accumulated Other Comprehensive Income
Balance, end of year
$
1,339
$
(135)
$
266
$
Unrealized
foreign exchange
gains (losses)
on euro debt
designated as
hedge of the
net investment gains (losses)
on available-
for-sale assets
in foreign
operations
Unrealized
Unrealized
foreign
exchange
gains (losses)
on translation
of foreign
operations
2020
Re-measurements
on defined
benefit pension
and other post-
employment
benefit plans
Revaluation
surplus on
transfer to
investment
properties
Unrealized
gains
on cash flow
hedges
Total
Non-controlling
interest
Shareholders
$
1,236
$
(57)
$
154
$
13
$
(849)
$
–
$ 497
$
(2)
$ 495
105
(2)
103
(90)
12
(78)
146
(34)
112
15
(4)
11
24
(169)
40
(129)
$
(978)
$
2019
11
(1)
10
10
18
11
29
(54)
17
(37)
(36)
28
(8)
$ 526
$
(39)
$ 487
Unrealized
foreign
exchange
gains (losses)
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
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
(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
Balance, beginning
of year
Other comprehensive
income (loss)
Income tax
Balance, beginning
of year
Other comprehensive
income (loss)
Income tax
Balance, end of year
$
1,236
$
(57)
$
25. Related Party Transactions
Power Corporation, 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 Corporation group of companies including IGM, 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
The Canada Life Assurance Company
Great-West Life & Annuity Insurance Company
Putnam Investments, LLC
Incorporated in
Primary business operation
Canada
United States
United States
Insurance and wealth management
Financial services
Asset management
% Held
100.00 %
100.00 %
100.00% (1)
(1) Lifeco holds 100% of the voting shares and 96.31% of the total outstanding shares.
178 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
(b) Transactions with related parties included in the consolidated financial statements
In the normal course of business, Canada 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 Corporation group of companies. In
all cases, transactions were at market terms and conditions.
During the year, Canada Life provided to and received from IGM and its subsidiaries, a member of the Power Corporation group of
companies, certain administrative and information technology services. During the year, IGM notified the Company that it intends
to terminate its long-term technology infrastructure related sharing agreement with the Company in the first quarter of 2021 (note
4). Canada Life also provided life insurance, annuity and disability insurance products under a distribution agreement with IGM.
In addition, Canada Life provided distribution services to IGM. All transactions were provided at market terms and conditions.
The Company owns 9,200,518 shares, held through Canada Life, representing a 3.86% ownership interest in IGM. The Company
uses the equity method to account for its investment in IGM as it exercises significant influence. In 2020, the Company recognized
$25 for the equity method share of IGM net earnings and received dividends of $21 from its investment in IGM (note 6).
During the year, the Company completed the sale of GLC to Mackenzie. The Company recorded a gain on disposal of $143 after-tax,
net of restructuring and other one-time costs of $16 after-tax ($22 pre-tax) (note 3).
During the year, GWL&A completed the acquisition of 100% of the equity of Personal Capital. Prior to the completion of the
acquisition, IGM held a 24.8% interest in Personal Capital (approximately 21.7% after giving effect to dilution). The transaction
resulted from an auction process conducted by Personal Capital and shareholders other than IGM (note 3).
During the year, the Company and Mackenzie jointly acquired a non-controlling interest in Northleaf, a premier global private
equity, private credit and infrastructure fund manager (note 3).
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 14).
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
$
2020
2019
$
22
17
14
14
25
12
6
21
16
14
13
22
10
5
$
110
$
101
During 2020, the Company purchased residential mortgages of $21 from IGM ($11 in 2019).
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
Corporation, 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 material loans or guarantees issued to or from related parties during 2020 or 2019. There were no significant
outstanding loans or guarantees with related parties at December 31, 2020 or December 31, 2019. There were no provisions for
uncollectible amounts with related parties at December 31, 2020 or December 31, 2019.
As part of the substantial issuer bid completed in 2019 (note 19), 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.
Great-West Lifeco Inc. 2020 Annual Report
179
Notes to Consolidated Financial Statements
25. Related Party Transactions (cont’d)
(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
26. 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 (recovery) arising from unrecognized tax losses, tax credits or temporary differences
Total deferred income tax
Total income tax expense (recovery)
(ii) Income tax recognized in other comprehensive income (note 24)
Current income tax expense
Deferred income tax recovery
Total
(iii) Income tax recognized in Consolidated Statements of Changes in Equity
Current income tax expense
Deferred income tax expense
Total
2020
2019
$
$
20
17
6
24
1
68
$
$
20
14
6
24
1
65
2020
2019
$
271
$
196
2020
2019
(168)
7
(192)
(353)
(82)
$
$
$
(29)
(11)
217
177
373
2020
2019
28
(39)
(11)
$
$
7
(9)
(2)
2020
2019
–
–
–
$
78
23
$
101
$
$
$
$
$
$
$
180 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
(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 26.5% for the following items:
Earnings before income taxes
Combined basic Canadian federal and provincial tax rate
Increase (decrease) in the income tax rate resulting from:
2020
2019
$
3,072
814
26.50%
$
2,880
778
Non-taxable investment income (1)
Operations outside of Canada subject to a lower average foreign tax rate
Impact of rate changes on deferred income taxes
(Recognition) de-recognition of deferred tax assets associated with prior year tax losses
Other (2)
Total income tax expense (recovery) and effective income tax rate
$
(332)
(375)
7
(197)
1
(82)
(10.81)
(12.21)
0.23
(6.41)
0.03
(2.67)%
$
(166)
(315)
(11)
199
(112)
373
(1) In 2020, a $64 tax benefit from the non-taxable gains on the sale of the shares of GLC and IPSI reduced the effective income tax rate by 2.08 points (note 3).
(2) In 2019, a $101 tax benefit due to the resolution of an outstanding issue with a foreign tax authority reduced the effective income tax rate by 3.51 points.
27.00%
(5.76)
(10.93)
(0.38)
6.91
(3.89)
12.95%
(c) Composition and changes in net deferred income tax assets are as follows:
2020
Insurance and
investment
contract liabilities
Portfolio
investments
Losses
carried
forward
Intangible
assets
Tax
credits
Other
Total
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
$
$
(999)
375
(536)
(237)
$
1,056
238
$
$
(542)
(63)
$
311
(25)
–
–
300
4
(12)
–
–
19
–
–
107
10
–
–
(73)
8
–
–
–
(1)
287
65
51
–
7
(21)
Balance, end of year
$
(320)
$
(766)
$
1,411
$
(670)
$
285
$
389
$
$
(423)
353
39
–
341
19
329
Insurance and
investment
contract liabilities
Portfolio
investments
Losses
carried
forward
2019 (1)
Intangible
assets
Tax
credits
Other
Total
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
$
(1,379)
352
$
–
(20)
–
48
(350)
(164)
(24)
–
–
2
$
1,357
(245)
$
$
(496)
(59)
364
(45)
$
$
275
(16)
(229)
(177)
–
–
(1)
(55)
–
–
(1)
14
–
–
–
(8)
33
(3)
–
(2)
9
(23)
(2)
(1)
Balance, end of year
$
(999)
$
(536)
$
1,056
$
(542)
$
311
$
287
$
(423)
(1) Due to a change in presentation, the Company reclassified the composition of net deferred income tax assets. The reclassifications had no impact on the equity or net earnings of the Company (note 32).
Great-West Lifeco Inc. 2020 Annual Report
181
Notes to Consolidated Financial Statements
26. Income Taxes (cont’d)
Recorded on Consolidated Balance Sheets:
Deferred tax assets
Deferred tax liabilities
Total
2020
2019
$
$
975
(646)
$
693
(1,116)
329
$
(423)
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, 2020 are recoverable.
At December 31, 2020, the Company has recognized a deferred tax asset of $1,411 ($1,056 at December 31, 2019) on tax loss
carryforwards totaling $8,264, of which $6,579 expire between 2021 and 2040 while $1,685 have no expiry date. The Company will
realize this benefit in future years through a reduction in current income taxes payable.
One U.S. subsidiary has had a history of losses. The subsidiary has a net deferred income tax asset balance of $561 (U.S. $442) as at
December 31, 2020, comprised principally of net operating losses and future deductions related to goodwill. During the year ended
December 31, 2020, management revised its estimates of future taxable profits to reflect the impact of the completion of the U.S.
acquisitions of Personal Capital and MassMutual (note 3) and as a result, recognized a deferred tax asset of $192 (U.S. $151) related
to losses that had previously been de-recognized in 2019. The deferred income tax asset increase resulted in a recovery to income
tax expense of $196 (U.S. $151) in the Consolidated Statements of Earnings. In 2019, the deferred income tax asset decrease resulted
in a charge to income tax expense of $199 (U.S. $151). 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.
The Company has not recognized a deferred tax asset of $37 ($231 in 2019) on tax loss carryforwards totaling $188 ($1,252 in 2019).
Of this amount, $92 expire between 2021 and 2040 while $96 have no expiry date. In addition, the Company has not recognized
a deferred tax asset of $21 ($16 in 2019) on other temporary differences of $99 ($78 in 2019) 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.
27. Operating and Administrative Expenses
Salaries and other employee benefits
General and administrative
Interest expense on leases
Amortization of fixed assets
Depreciation of right-of-use assets
Total
2020
2019
$
3,716
1,554
22
129
71
$
3,474
1,541
22
125
69
$
5,492
$
5,231
182 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
28. 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 8 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 $211 as at December 31, 2020 ($156
at December 31, 2019).
(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
Swaps
Futures – long
Futures – short
Options purchased
Foreign exchange contracts
Cross-currency swaps
Forward contracts
Other derivative contracts
Equity contracts
Futures – long
Futures – short
Other forward contracts
Notional
amount
Maximum
credit
risk
2020
Future
credit
exposure
Credit
risk
equivalent
Risk
weighted
equivalent
$
$
3,688
9
194
221
4,112
15,186
5,079
20,265
727
17
682
4,318
5,744
$
331
–
–
–
331
388
57
445
43
–
1
9
53
$
43
–
–
1
44
1,004
72
1,076
46
–
–
394
440
$
333
–
–
1
334
1,237
125
1,362
86
–
–
403
489
90
–
–
–
90
315
10
325
7
–
–
38
45
Total
$ 30,121
$
829
$
1,560
$
2,185
$
460
Interest rate contracts
Swaps
Futures – long
Futures – short
Options purchased
Foreign exchange contracts
Cross-currency swaps
Forward contracts
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
$
$
3,179
12
17
244
3,452
13,039
2,573
15,612
74
13
774
1,709
2,570
$
$
197
–
–
–
197
209
43
252
–
–
–
2
2
38
–
–
1
39
899
47
946
4
–
–
94
98
$
206
–
–
1
207
997
76
1,073
4
–
–
94
98
60
–
–
–
60
266
7
273
–
–
–
9
9
Total
$
21,634
$
451
$
1,083
$
1,378
$
342
Great-West Lifeco Inc. 2020 Annual Report
183
Notes to Consolidated Financial Statements
28. Derivative Financial Instruments (cont’d)
(b) The following provides the notional amount, term to maturity and estimated fair value of the Company’s derivative portfolio
by category:
2020
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
Swaps
Futures – long
Futures – short
Options purchased
Foreign exchange contracts
Cross-currency swaps
Forward contracts
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
Other derivative contracts
Equity contracts
Net investment hedges
$
325
6
190
41
562
896
3,689
4,585
626
17
682
4,318
5,643
74
–
–
$
770
3
4
166
943
3,068
–
3,068
–
–
–
–
–
–
–
101
Foreign exchange forward contracts
786
530
$
$
2,565
–
–
14
2,579
11,222
–
11,222
–
–
–
–
–
–
28
–
–
3,660
9
194
221
4,084
15,186
3,689
18,875
626
17
682
4,318
5,643
74
28
101
1,316
$
281
–
–
–
281
(783)
32
(751)
18
–
(4)
8
22
3
14
24
15
Total
$ 11,650
$
4,642
$ 13,829
$ 30,121
$
(392)
184 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
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
Swaps
Futures – long
Futures – short
Options purchased
Foreign exchange contracts
Cross-currency swaps
Forward contracts
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
$
185
9
10
35
239
299
1,334
1,633
74
13
774
1,709
2,570
74
–
Total
estimated
fair value
$
161
–
–
–
161
(1,135)
15
(1,120)
–
–
(2)
2
–
2
10
17
3,150
12
17
244
3,423
13,039
1,334
14,373
74
13
774
1,709
2,570
74
29
1,165
$
$
653
3
7
184
847
2,395
–
2,395
$
2,312
–
–
25
2,337
10,345
–
10,345
–
–
–
–
–
–
–
–
–
–
–
–
–
29
–
Foreign exchange forward contracts
641
524
Total
$
5,157
$
3,766
$ 12,711
$ 21,634
$
(930)
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.
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.
Equity total return swaps are used to manage exposure to fluctuations in the total return of common shares related to deferred
compensation arrangements. Total return swaps require the exchange of net contractual payments periodically or at maturity
without the exchange of the notional principal amounts on which the payments are based. Certain of these instruments are not
designated as hedges.
The ineffective portion of the cash flow hedges during 2020, which includes interest rate contracts, foreign exchange contracts,
and equity total return swap 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.
Great-West Lifeco Inc. 2020 Annual Report
185
Notes to Consolidated Financial Statements
29. Legal Provisions and Contingent Liabilities
The Company and its subsidiaries are from time-to-time subject to legal actions, including arbitrations and class actions. 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.
Subsidiaries of the Company in the United States are defendants in legal actions relating to the costs and features of certain of their
retirement or fund products. Management believes the claims are without merit and will be vigorously 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.
30. 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. $2,107 of which
U.S. $1,791 were issued as of December 31, 2020.
The Capital and Risk Solutions segment 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 $1,990 as at December 31, 2020, with $1,874 maturing
within one year, $95 maturing within two years and $21 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 $1,421
($1,456 at December 31, 2019) 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 ($75 at December 31, 2019) of assets of the Company for the
purpose of providing collateral for the counterparty.
186 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
31. Segmented Information
The operating segments of the Company are Canada, United States, Europe, Capital and Risk Solutions and Lifeco Corporate. These
segments reflect the Company’s management structure and internal financial reporting. 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.
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
Europe
Capital and
Risk Solutions
Lifeco
Corporate
Total
2020
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 and integration expenses
Earnings (loss) before income taxes
Income taxes
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
$ 13,188
$
6,773
$
3,651
$ 19,407
$
3,050
2,633
5,683
1,756
1,278
938
2,216
2,769
20,627
11,758
15,572
3,545
127
104
92
1,187
54
1,133
76
1,057
114
943
127
8,413
2,870
110
83
42
240
(158)
398
7
391
–
391
(11)
1,313
1,669
2,982
1,366
7,999
5,184
1,686
25
51
–
1,053
33
1,020
1
1,019
19
1,000
(87)
320
459
779
11
20,197
19,318
239
12
–
–
628
(1)
629
(6)
635
–
635
(21)
Net earnings (loss) – common shareholders
$
1,070
$
380
$
913
$
614
$
(1) Includes commissions, operating and administrative expenses, and premium taxes.
–
2
–
2
–
2
–
28
10
–
–
(36)
(10)
(26)
–
(26)
–
(26)
(8)
(34)
$ 43,019
5,963
5,699
11,662
5,902
60,583
48,487
8,368
284
238
134
3,072
(82)
3,154
78
3,076
133
2,943
–
$
2,943
Great-West Lifeco Inc. 2020 Annual Report
187
Notes to Consolidated Financial Statements
31. Segmented Information (cont’d)
Canada
United
States
Europe (1)
Capital and
Risk Solutions (1)
Lifeco
Corporate
Total
2019
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 (2)
Financing charges
Amortization of finite life intangible assets
Restructuring expenses
Earnings (loss) before income taxes
Income taxes
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)
$
3,198
$ 17,466
$
2,785
3,157
5,942
1,766
1,785
1,371
3,156
3,767
21,213
(2,736)
16,268
3,510
128
92
–
1,215
149
1,066
13
1,053
114
939
112
1,285
1,851
3,136
1,539
7,873
5,026
1,637
24
47
–
1,139
31
1,108
(1)
1,109
19
1,090
(86)
$
1,004
$
306
567
873
9
18,348
17,729
217
12
–
–
390
(6)
396
–
396
–
396
(10)
386
$
(5,932)
2,780
118
85
52
161
205
(44)
3
(47)
–
(47)
(14)
(61)
–
–
–
–
–
–
–
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
Capital and Risk Solutions
2020
2019
$ 16,118
1,807
2,272
$ 16,227
1,376
745
$ 20,197
$ 18,348
Net earnings (loss) – common shareholders
$
1,051
$
(1) See comparative figures (note 32).
(2) Includes commissions, operating and administrative expenses, and premium taxes.
The revenue by source currency for Capital and Risk Solutions:
Revenue
United States
United Kingdom
Other
Total revenue
188 Great-West Lifeco Inc. 2020 Annual Report
Notes to Consolidated Financial Statements
(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
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
(1) See comparative figures (note 32).
The assets by source currency for Capital and Risk Solutions:
Assets
United Kingdom
United States
Other
Total assets
Canada
United
States
2020
Europe
Capital and
Risk Solutions
Total
$ 87,732
5,625
3,661
90,680
$ 54,522
5,729
30,347
117,982
$ 50,793
3,037
10,151
125,370
$
5,951
–
8,910
–
$ 198,998
14,391
53,069
334,032
$ 187,698
$ 208,580
$ 189,351
$ 14,861
$ 600,490
Canada
United
States
2020
Europe
Capital and
Risk Solutions
Total
$ 81,556
7,731
$ 76,793
8,004
$ 48,243
4,767
$ 11,455
894
$ 218,047
21,396
90,680
117,982
125,370
–
334,032
$ 179,967
$ 202,779
$ 178,380
$ 12,349
$ 573,475
Canada
United
States
2019
Europe (1)
Capital and
Risk Solutions (1)
Total
$
81,179
5,560
3,953
85,612
$ 32,768
1,990
19,421
31,433
$ 48,845
2,834
8,465
113,977
$
5,995
–
9,135
–
$ 168,787
10,384
40,974
231,022
$ 176,304
$ 85,612
$ 174,121
$ 15,130
$ 451,167
Canada
United
States
2019
Europe (1)
Capital and
Risk Solutions (1)
Total
$
74,939
8,448
$ 43,689
5,035
$ 45,662
3,653
$ 11,887
1,289
$ 176,177
18,425
85,612
31,433
113,977
–
231,022
$ 168,999
$ 80,157
$ 163,292
$ 13,176
$ 425,624
Capital and Risk Solutions
2020
2019
$
7,572
6,667
622
$
8,261
6,365
504
$ 14,861
$ 15,130
Great-West Lifeco Inc. 2020 Annual Report
189
Notes to Consolidated Financial Statements
32. Comparative Figures
Effective January 1, 2020, the Company divided its Europe operating segment into two operating segments: Europe, and Capital and
Risk Solutions. The adjustment had no impact on the net earnings or cash flows of the Company. The realignment resulted in a change
to comparative figures within these operating segments (notes 8, 11, 13 and 31).
During the year, the Company reclassified certain comparative figures for presentation adjustments (note 26). The reclassifications had
no impact on the equity or net earnings of the Company.
190 Great-West Lifeco Inc. 2020 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, 2020 and 2019, 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, 2020 and 2019, 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.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated
financial statements for the year ended December 31, 2020. These matters were addressed in the context of our audit of the consolidated
financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Insurance Contract Liabilities – Refer to Notes 2 and 13 to the financial statements
Key Audit Matter Description
The Company has insurance contract liabilities representing a significant portion of its total liabilities. Insurance contract liabilities
are determined in accordance with generally accepted actuarial practices established by the Canadian Institute of Actuaries using
the Canadian Asset Liability Method (CALM). This method requires the use of complex valuation models incorporating projections of
cash inflows and outflows using the best estimate of future experience together with a margin for adverse deviation.
While there are many assumptions which management makes, the assumptions with the greatest estimation uncertainty are those
related to mortality, including the impact, if any, of the COVID-19 pandemic, and policyholder behaviour. These assumptions required
significant auditor attention in specific circumstances where (i) there is limited Company and industry experience data, and (ii) the
historical experience may not be a good indicator of the future. Auditing of certain valuation models, mortality and policyholder
behaviour assumptions required a high degree of auditor judgment and an increased extent of audit effort, including the need to
involve actuarial specialists.
How the Key Audit Matter was Addressed in the Audit
Our audit procedures related to certain valuation models, mortality and policyholder behaviour assumptions included the following,
among others:
• With the assistance of actuarial specialists, tested the appropriateness of certain valuation models used in the estimation
process by:
– Calculating an independent estimate of the insurance contract liability for a sample of insurance policies and comparing the
results to the Company’s estimate.
– Testing the accuracy of certain valuation models for changes in key assumptions.
• With the assistance of actuarial specialists, tested the reasonableness of mortality and policyholder behaviour assumptions, by:
– Evaluating whether management’s assumptions were determined in accordance with actuarial principles and practices
under the Canadian actuarial standards of practice.
– Testing experience studies and other inputs used in the determination of the mortality and policyholder behaviour
assumptions.
– Analyzing management’s interpretation and judgment of its experience study results and emerging claims experience,
evaluating triggers and drivers for revisions of assumptions, assessing reasonable possible alternative assumptions, and
considering industry and other external sources of benchmarking where applicable.
Great-West Lifeco Inc. 2020 Annual Report
191
Independent Auditor’s Report (cont’d)
Income Taxes – Refer to Notes 2 and 26 to the financial statements
Key Audit Matter Description
The Company recognizes deferred income taxes for the tax expected to be payable or recoverable on differences arising between the
financial statement and tax basis of assets and liabilities, and is recorded at enacted or substantively enacted tax rates in effect for the
years in which the differences are expected to be realized. The Company applies judgment in assessing the recoverability of the deferred
income tax asset carrying values based on future years’ taxable income projections. Certain of the Company’s subsidiaries have had a
history of losses and have a deferred income tax asset comprised principally of net operating losses. The Company has concluded that
through the use of certain tax planning opportunities, it is probable that sufficient taxable income will be generated to utilize certain of
the unused losses.
The determination of the recoverability of the Company’s deferred tax assets in the Company’s subsidiaries required management to
make judgements related to the assessment of management’s planned implementation of tax strategies. In addition, management makes
significant estimates and assumptions in projecting future taxable income, specifically the revenue growth rates and projected expense
margins and in the determination of whether the deferred tax asset will be realized. Auditing these judgements required a high degree of
auditor judgment as the estimations made by management contain significant measurement uncertainty. This resulted in an increased
extent of audit effort, including the need to involve income tax and other specialists.
How the Key Audit Matter was Addressed in the Audit
Our audit procedures related to the tax strategies, revenue growth rates and projected expense margins, and the determination of whether
the deferred tax assets in the Company’s subsidiaries will be realized included the following, among others:
• With the assistance of income tax specialists, analyzed the reasonableness of management’s projected future taxable income available
to determine whether the models properly factored in the impact of the tax planning strategies.
• Tested the reasonableness of the revenue growth rates and projected expense margins used to project future taxable income that was
available to realize the deferred tax asset by:
– Assessing the key factors influencing management’s revenue growth rates and projected expense margins used in the projections
through both market and internally entity specific driven evidence.
– Performing a retrospective analysis of projected future taxable income against actual results from prior years.
• With the assistance of income tax and other specialists, evaluated the proposed tax planning strategies considered in the recoverability
analysis to assess whether the deferred tax asset will be realized.
Massachusetts Mutual Life Insurance Acquisition - Insurance Contract Liabilities – Refer to Notes 2 and 3 to the financial statements
Key Audit Matter Description
The Company purchased the retirement services business of Massachusetts Mutual Life Insurance Company (“MassMutual”) via indemnity
reinsurance and recognized an estimate of the initial fair value of net assets acquired, including insurance contract liabilities. The estimate
of the assumed insurance contract liabilities required the use of complex valuation models incorporating projections of cash inflows and
outflows using the best estimate of future experience together with a margin for adverse deviation.
While there were a number of estimates and assumptions required to determine the initial fair value of the insurance contract liabilities, the
assumptions with the greatest estimation uncertainty are those related to the policyholder behaviour assumptions. Auditing of the valuation
models and policyholder behaviour assumptions required a high degree of auditor judgment and an increased extent of audit effort, including
the need to involve actuarial specialists.
How the Key Audit Matter Was Addressed in the Audit
Our audit procedures related the valuation models and policyholder behaviour assumptions as it relates to the acquired insurance contract
liabilities included the following, among others:
• With the assistance of actuarial specialists, tested the appropriateness of the valuation models used in the estimation process by
calculating an independent estimate of the insurance contract liability for a sample of insurance policies and comparing the results
to the Company’s estimate.
• With the assistance of actuarial specialists, tested the reasonableness of policyholder behaviour assumptions, by:
– Evaluating whether management’s assumptions were determined in accordance with actuarial principles and practices.
– Analyzing management’s interpretation and judgments based on the relative inputs, considering reasonable possible alternative
assumptions, and considering industry and other external sources of benchmarking where applicable.
– Testing the inputs used in the determination of the policyholder behaviour assumptions, including an assessment of the use of
experience studies and other data from the Company’s comparable lines of business in the determination of the MassMutual
assumptions.
192 Great-West Lifeco Inc. 2020 Annual Report
Independent Auditor’s Report
Personal Capital Corporation Acquisition - Intangible Assets – Refer to Notes 2 and 3 to the financial statements
Key Audit Matter Description
The Company acquired 100% of the equity of Personal Capital Corporation (“Personal Capital”) and recognized the assets acquired and
the liabilities assumed based on the estimated fair value, including customer relationships and brand intangible assets. The transaction
includes a contingent consideration earn-out which is based on the achievement of growth in assets under management (“AUM”).
The determination of the fair value of the customer relationships and brand is based on a discounted cash flow model and required
management to make significant estimates and assumptions related to forecasted future revenue and earnings before interest, taxes,
depreciation and amortization (“EBITDA”) margins, and discount rates.
While there are several estimates and assumptions that are required to determine the fair value of the contingent consideration earn-out
and the customer relationships and brand, the estimates and assumptions with the highest degree of subjectivity are forecasted future
revenue and EBITDA margins, forecasted growth in AUM and discount rates. This required a high degree of auditor judgment and an
increased extent of audit effort, including the need to involve fair value specialists.
How the Key Audit Matter Was Addressed in the Audit
Our audit procedures related to forecasted future revenue and EBITDA margins, forecasted growth in AUM, and discount rates used to
determine the fair value of the contingent consideration and of the customer relationships and brand intangible assets included the
following, among others:
• Evaluated the reasonableness of forecasted revenue and EBITDA margin, and forecasted growth in AUM by comparing the
forecasts to:
– Actual historical results of the acquired entity.
– Actual results of the acquired entity after acquisition.
– Underlying analyses detailing business strategies and growth plans.
• Evaluated the reasonableness of forecasted future revenue and forecasted growth in AUM based on reputable third-party
reports, comparable company performance, internal and external customer data, and comparing those to the estimates used by
management.
• With the assistance of fair value specialists, evaluated the reasonableness of the discount rates used by testing the source
information underlying the determination of the discount rates and developing a range of independent estimates and comparing
those to the discount rate selected by management.
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.
Great-West Lifeco Inc. 2020 Annual Report
193
Independent Auditor’s Report (cont’d)
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.
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.
From the matters communicated with those charged with governance, we determine those matters that were of most significance
in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these
matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so
would reasonably be expected to outweigh the public interest benefits of such communication.
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 10, 2021
194 Great-West Lifeco Inc. 2020 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 2020 and 2019.
Sources of Earnings
(in Canadian $ millions)
For the year ended December 31, 2020
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
Capital and Risk
Solutions
Lifeco
Corporate
Total
$
$
$
1,241
(43)
183
(106)
(68)
86
1,293
(109)
1,184
–
1,184
(114)
$
447
(164)
(5)
(43)
(42)
39
232
157
389
(9)
380
–
$
808
(71)
(59)
304
–
(15)
967
(33)
934
(2)
932
(19)
628
(29)
(77)
65
–
26
613
1
614
–
614
–
(18)
–
(10)
–
–
(16)
(44)
10
(34)
–
(34)
–
$
3,106
(307)
32
220
(110)
120
3,061
26
3,087
(11)
3,076
(133)
Net earnings – common shareholders
$
1,070
$
380
$
913
$
614
$
(34)
$
2,943
Great-West Lifeco Inc. 2020 Annual Report
195
Sources of Earnings (cont’d)
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
Capital and Risk
Solutions
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)
–
$
778
20
(93)
326
–
22
1,053
(28)
1,025
(2)
1,023
(19)
$
512
(20)
(84)
(41)
–
15
382
4
386
–
386
–
(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)
$
1,004
$
386
$
(21)
$
2,359
Analysis of Results
Expected profit on in-force business is the major driver of earnings. The expected profit on in-force business of $3,106 in 2020 was
$154 higher than 2019. The increase year-over-year is primarily a result of business growth in Capital and Risk Solutions and higher
profitability in Ireland.
The strain on new sales of $307 in 2020 was $199 higher than 2019 primarily due to lower gains on UK annuity sales and lower profitability
in Individual Customer Canada arising from lower interest rates.
Experience gains of $32 in 2020 were $76 lower than 2019. The gains in 2020 were primarily a result of positive investment experience,
favorable annuity mortality experience across Canada, Europe and Capital and Risk Solutions and favourable morbidity experience
in Canada and Europe. This was partially offset by unfavorable life mortality and expense and fee-based experience across Canada,
Europe and Capital and Risk Solutions, and unfavourable policyholder behaviour experience across all segments. The gains in 2019
were primarily a result of investment experience in Canada. These gains were partially offset by morbidity results in Canada and Europe,
policyholder behaviour results in Canada and Europe, and expense and fee-based experience in Europe.
Management actions and changes in assumptions contributed $220 to pre-tax earnings in 2020 compared to $104 in 2019.
The assumption changes and management actions were $(106) in Canada, $(43) in the U.S., $304 in Europe and $65 in Capital and
Risk Solutions.
In Canada, strengthening of policyholder behavior, and economic and asset related assumptions were partially offset by the gain on the
sale of GLC, and favourable life mortality assumption updates.
In the U.S., transaction costs related to the acquisitions of MassMutual and Personal Capital were partially offset by favourable economic
assumptions updates.
In Europe, favourable updates to longevity, morbidity, policyholder behaviour, and economic and asset related assumptions, modeling
refinements, and the net gain on the sale of IPSI were partially offset by the strengthening of expense and tax assumptions.
In Capital and Risk Solutions, updates to longevity and economic assumptions and modeling refinements were partially offset by the
strengthening of life mortality, expense and tax, and policyholder behavior assumptions.
Other of $(110) in 2020 were due to restructuring and integration costs in Canada and the U.S.
Earnings on surplus of $120 in 2020 was $39 lower than 2019 primarily due to lower investment income in Europe.
Taxes of $26 in 2020 included the recovery of a deferred tax asset of $196 in the U.S.
196 Great-West Lifeco Inc. 2020 Annual Report
Five-Year Summary
(in Canadian $ millions except per share amounts)
At December 31
2020
2019
2018
2017
2016
Total assets under administration
$ 1,975,847
$ 1,629,681
$ 1,398,873
$ 1,349,913
$ 1,248,239
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:
$ 43,019
6,123
$
24,510
3,295
$
35,461
3,068
$
33,902
2,827
$
31,125
2,751
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
15,034
6,882
100,287
16,947
7,738
84,259
16,668
7,807
76,258
17,037
7,848
61,490
13,512
7,846
62,232
–
13,889
–
–
–
$ 171,345
$ 150,638
$ 139,262
$ 123,104
$ 117,466
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 and integration 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
$ 43,019
$
24,510
$
35,461
$
33,902
$
31,125
5,963
5,699
11,662
5,902
60,583
48,487
8,652
238
134
–
3,072
(82)
3,154
78
3,076
133
$
2,943
$
3.173
14.1%
$
22.97
$
1.752
$
$
$
$
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
$
$
$
$
Great-West Lifeco Inc. 2020 Annual Report
197
Directors and Senior Officers
As of February 11, 2021
Board of Directors
R. Jeffrey Orr 3, 4, 5, 7
Chair of the Board, Lifeco
President and Chief Executive Officer,
Power Corporation of Canada
Michael R. Amend 6
President, Online,
Lowe’s Companies, Inc.
Deborah J. Barrett, CPA, CA, ICD.D 1, 5
Corporate Director
Robin A. Bienfait 1, 6
Chief Executive Officer,
Emnovate
Heather E. Conway 6
Corporate Director
Marcel R. Coutu 3, 4, 5
Corporate Director
André Desmarais, O.C., O.Q. 3, 4, 6
Deputy Chairman,
Power Corporation of Canada
Paul Desmarais, Jr., O.C., O.Q. 3, 4, 5
Chairman,
Power Corporation of Canada
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
Gary A. Doer, O.M. 6
Senior Business Advisor,
Dentons Canada LLP
David G. Fuller 2, 5, 7
Operating Partner,
Searchlight Capital Partners
Claude Généreux 4, 5
Executive Vice-President,
Power Corporation of Canada
J. David A. Jackson, LL.B. 3, 4, 6
Senior Counsel,
Blake, Cassels & Graydon LLP
Elizabeth C. Lempres 1, 2, 6, 7
Corporate Director
Paula B. Madoff 5, 7
Corporate Director
Paul A. Mahon 7
President and Chief Executive Officer,
Lifeco
Susan J. McArthur 4, 5
Corporate Director
T. Timothy Ryan 3, 4, 6
Corporate Director
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
198 Great-West Lifeco Inc. 2020 Annual Report
Jerome J. Selitto 2, 5
President,
Better Mortgage Corporation
James M. Singh, CPA, CMA, FCMA(UK) 1, 2, 6
Chairman of the Advisory Board,
CSM Bakery Solutions Limited
Gregory D. Tretiak, FCPA, FCA 6, 7
Executive Vice-President and
Chief Financial Officer,
Power Corporation of Canada
Siim A. Vanaselja, FCPA, FCA 1, 6
Corporate Director
Brian E. Walsh 3, 4, 5, 7
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
7. Reinsurance 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 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 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
800, 324 8th Avenue S.W., Calgary, Alberta T2P 2Z2
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, 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)
150 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: 353 1 447 5566
3100 Lake Drive, Citywest, Business Campus, Dublin 24, D24 AK82
Shareholders wishing to contact the transfer agent by email can do so at GWO@computershare.com.
Great-West Lifeco Inc. 2020 Annual Report
199
Shareholder Information (cont’d)
Dividends
Common Shares and First Preferred Shares Series F, G, H, I, L, M, N, 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 (GWO) Investment Information
2020
2019
2018
2017
2016
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 ($)
High
35.30
34.38
35.51
37.74
37.03
Low
19.16
27.59
27.10
33.32
31.01
Close
30.35
33.26
28.18
35.10
35.17
Dividends
paid ($)
Dividend
payout ratio 1
Dividend
yield 2
1.752
1.652
1.556
1.468
1.384
55.2%
66.2%
51.9%
67.6%
51.9%
6.4%
5.3%
5.0%
4.1%
4.1%
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.
200 Great-West Lifeco Inc. 2020 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 2020, our companies had more than
24,500 employees, 205,000 advisor relationships,
and thousands of distribution partners – all
serving our more than 30 million customer
relationships across these regions. Great-West
Lifeco and its companies have approximately
$2.0 trillion in consolidated assets under
administration as at December 31, 2020,
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.
OUR BRANDS
Great-West Lifeco Inc. 2020 Annual Report
201
On behalf of Great-West Lifeco, thank you
to all frontline health care and essential
workers. Your commitment and dedication
is an inspiration to us all.
100 Osborne Street North
Winnipeg Manitoba Canada R3C 1V3
greatwestlifeco.com
A member of the Power Corporation Group of Companies®
E987(20LIFECO)-3/21
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