2 021 A N N UA L R E P OR T
CONTENTS
Who We Are
Financial Highlights
Delivering On
Our Promises
2021 Directors’ Report
to Shareholders
Advice Centred
Value Creation
Digital Capabilities
Workplace Extensions
Risk and Investment
Expertise
Encouraging
Sustainability
Advancing Focus on
Diversity and Inclusion
Benefitting From
Stable and Effective
Governance
Supporting Our
Communities
1
2
3
4
6
7
8
10
12
14
14
15
Management's
Discussion and Analysis 16
Financial Reporting
Responsibility
Consolidated
Financial Statements
Independent
Auditor’s Report
Sources of Earnings
Five-Year Summary
Directors and
Senior Officers
Shareholder
Information
101
102
183
187
189
190
191
The financial information in this
report is presented in millions of
Canadian dollars for the period
ended December 31, 2021, unless
otherwise indicated.
Readers are referred to the
Cautionary Notes regarding
forward-looking information and
non-GAAP financial measures on
page 17.
Who We Are
OUR MARKET LEADING BRANDS
Great-West Lifeco is well diversified across geographies and businesses, and is well positioned
for growth by leveraging millions of strong customer and advisor relationships across our market
leading brands.
OUR EARNINGS DIVERSIFICATION
Canada
Europe
Capital and
Risk Solutions
United States
38%
Canada
31%
Europe
17%
Capital and
Risk Solutions
16%
United States
OUR CUSTOMERS
33M+
Customer relationships
OUR EMPLOYEES
$47.3B
Net policyholder benefits,
dividends and experience
refunds paid to customers
28,000+
Employees supporting
our customers
170+
Years of delivering
on our promises
Great-West Lifeco Inc. 2021 Annual Report
1
Financial Highlights
MEDIUM-TERM
FINANCIAL OBJECTIVES1
8-10% base EPS growth p.a.
1-YEAR
PERFORMANCE
3-YEAR
PERFORMANCE
BASE2
21.9%
BASE2
13.4%
14-15% base ROE
14.6%
13.6%
Target dividend payout ratio
45-55% of base earnings
51.4%
56.7%
NET FINANCIAL
HIGHLIGHTS
EPS growth p.a.
1-YEAR
PERFORMANCE
3-YEAR
PERFORMANCE
NET3
6.1%
NET3
3.9%
ROE
14.0%
13.3%
Dividend payout ratio
53.6%
58.4%
2021
$3.26B
Base earnings2
$3.13B
Net earnings
124%
LICAT ratio4
EARNINGS PER
COMMON SHARE ($)
RETURN ON COMMON
SHAREHOLDERS’
EQUITY (%)
DIVIDEND
PAYOUT RATIO (%)
EARNINGS
(BILLION $)
3.51
3.37
3.17
2.86
2.88
2.49
14.1
14.6
14.0
13.4
12.8
11.7
66.2
60.9
57.8
55.2
53.6
51.4
3.3
3.1
2.9
2.7
2.7
2.4
2019
2020
2021
2019
2020
2021
2019
2020
2021
2019
2020
2021
(cid:81) Base2 (cid:81) Net
1. Medium-term defined as the next 3-5 years. 2018 base EPS: $2.41; net EPS: $3.00 are used to calculate 3yr compound growth rates.
2. Base earnings per common share (EPS), base return on common shareholders' equity (ROE) and target dividend payout ratio (base) are non-GAAP ratios calculated using base
earnings, a non-GAAP financial measure. These ratios/measures do not have standardized meanings under GAAP and might not be comparable to similar financial measures
disclosed by other issuers. Additional information on these ratios/measures is incorporated by reference and can be found under “Non-GAAP Financial Measures and Ratios”
in our 2021 Annual Management's Discussion and Analysis (MD&A), which can be accessed on SEDAR at www.sedar.com.
3. The description of net ROE and dividend payout ratio (net) is incorporated by reference and can be found under “Glossary” in our 2021 Annual MD&A.
4. LICAT ratio of The Canada Life Assurance Company, calculated in accordance with the OSFI Life Insurance Capital Adequacy Test guideline. For additional information, see
“Capital Management and Adequacy” in our 2021 Annual MD&A.
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Great-West Lifeco Inc. 2021 Annual Report
Delivering On Our Promises
OUR FOUR VALUE-CREATION PRIORITIES
Focused on the customer and leveraging our risk and investment expertise, our four value-
creation priorities will help drive growth across our business' portfolio. The priorities represent
areas of strength where we are committed to investing to create shareholder value.
ADVICE-CENTERED
VALUE
CREATION
DIGITAL
CAPABILITIES
WORKPLACE
EXTENSIONS
RISK &
INVESTMENT
EXPERTISE
OUR PURPOSE
We're driven by our mission and values to promote financial, physical, and mental well-
being; to make positive social and environmental contributions to communities through
investments, sponsorships, donations, and volunteerism; to foster workplace diversity and
inclusion; and to support the transition to a low-carbon economy.
OUR COMMITMENTS
Net Zero
• Net zero for operations
well before 2050
• Net zero for financed
emissions by 2050*
• Our goal is to develop and
set responsible, science-
based targets
• Immediate focus is to
develop long-range plan
with meaningful interim
targets
Diversity,
Equity &
Inclusion
ESG
Investing
• Focus on developing and
promoting DE&I in our
workforce
• Inclusion of ESG
information in investment
analysis and decisions
• Employee Resource
• Established a global
Groups for LGBTQ2+, black
and persons of colour,
Indigenous peoples, persons
with disabilities, young
professionals, and women
in leadership
• Objective for at least 30 per
cent female representation
on our Board and senior
management team
Sustainable Investment
Council in 2019
• Signatories to the
UN-supported Principles for
Responsible Investment
• Recipient of Global Real
Estate Sustainability
Benchmark (GRESB)
“Green Star” ratings
* Scope 3 financed GHG emissions related to Great-West Lifeco's General Account investment portfolio (invested assets)
Great-West Lifeco Inc. 2021 Annual Report
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2021 Directors’ Report to Shareholders
Jeffrey Orr
Chair of the Board
Paul Mahon
President and
Chief Executive
Officer
We believe that to create sustainable value for shareholders, we must be committed
to responding to the needs of all stakeholders. It’s with this mindset that Great-West
Lifeco and its operating companies continued their positive momentum and
delivered strong results in 2021.
As the ongoing global pandemic has continued
to impact the lives of so many people,
the health and safety of our customers,
communities, advisors, and employees has
remained central to everything we do. We’re
proud to have had the opportunity to support
them through the challenges and deliver on
the promises we’ve made.
A COMMITMENT FOR A BETTER FUTURE
Over the past year, Great-West Lifeco has
demonstrated its strength and resilience to
succeed in a rapidly changing world. At the
same time, we recognize that 2021 put a
spotlight on societal challenges that require
our collective actions.
These include the ongoing pandemic
threatening both the health and economic
well-being of so many people, the urgent need
for climate action, and social injustices like the
tragic legacy of residential schools in Canada
and systemic racism present in many institutions
and societies.
We recognize that we have a responsibility
to our stakeholders to help address these
challenges. We also recognize that by
responding to these challenges, we will create
a stronger and more resilient company. This
begins by making values-based decisions on
how we operate and impact our world. As
part of this, we’re thoughtfully developing
and implementing strategies in support of the
environment, diversity, equity & inclusion, and
sustainability across our organization. This work
enabled us to make a commitment to net zero
greenhouse gas emissions by 2050.
OUR DIVERSIFICATION AND VALUE
CREATION STRATEGY FOR GROWTH
During 2021, Great-West Lifeco delivered
strong organic growth and deployed significant
capital to strengthen and extend its diversified
portfolio of companies. This growth and
investment is enhancing our market leadership
positions, strengthening our trusted brands,
and creating greater resilience in support of
future growth.
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Great-West Lifeco Inc. 2021 Annual Report
Core to our strategy are four value-creation
priorities that represent areas of strength
– Advice, Digital Capabilities, Workplace
Relationships, and Risk & Investment Expertise.
It’s in these four areas where we’ve been
investing to create shareholder value.
We believe that effective delivery of advice is
key to creating lifetime value for our millions of
customers. It’s with this focus that we’ve been
strengthening traditional advisor channels and
extending our reach by acquiring and building
new hybrid and digital advice channels.
Digitally enabled platforms, tools, and
processes are core to our ability to meet the
lifetime advice needs of our customers across
all channels. The pandemic has accelerated a
shift to digitally delivered service and digitally
enabled advice across our businesses.
As a leading provider of workplace benefits
and retirement solutions, we regularly connect
with millions of customers through multiple
service channels. Many of these customers
represent under-advised segments of the
market that are seeking more personalized
guidance and advice around their financial,
physical, and mental wellness. It is with this
need in mind that we view the workplace as
a platform to build digitally enabled lifetime
customer relationships.
Core to our ability to deliver lifetime advice
and solutions across multiple channels is
our financial strength and expertise. We’re
employing our expertise in capital, risk, and
investment management to create competitive
and profitable wealth management and
insurance solutions for our customers.
Several acquisitions this year have advanced
these value-creation priorities and accelerated
our growth. These include Empower's
agreement to acquire Prudential Financial’s full-
service retirement business in the U.S., and the
acquisitions of ClaimSecure in Canada through
Canada Life and Ark Life in Ireland through
Irish Life.
SHARING OUR GROWTH OBJECTIVES
In 2021, we announced for the first time
medium-term financial objectives and are
pleased to report our progress against them
in this report.
We believe this approach provides greater
insight into the value we have created and
our growth ambitions as we deliver on our
strategies.
Underpinning these objectives are the
focused investments we’ve made to drive
organic growth across our businesses, and the
significant benefits we expect from capital
deployed in acquisitions over the past
two years.
LOOKING AHEAD
Moving into 2022, we remain focused on
execution of our strategies to create greater
value for all stakeholders. This will include
continued discipline in deployment of capital
and advancing our commitment to making
a positive impact on the world around us,
especially related to the environment, diversity,
equity & inclusion, and sustainability.
Amid challenge and change, Great-West Lifeco
is well-placed to deliver on our commitments
to all stakeholders and create lasting value for
shareholders. In business, and across our world,
we can do more together.
THANK YOU
We’d like to extend our sincere thanks to our
employees and advisors for their dedication,
as well as to our customers and shareholders
for your confidence in us. We’re proud of
the strong relationships we’ve built and look
forward to delivering on our promises.
Jeffrey Orr
Chair of the Board
Paul Mahon
President and
Chief Executive Officer
Great-West Lifeco Inc. 2021 Annual Report
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Advice Centred Value Creation
Capturing value through advice-based wealth and insurance solutions
CONQUEST PLANNING PARTNERSHIP
HELPS CLIENTS MEET GOALS
In 2021, Canada Life introduced new digital
tools to make it easier for advisors to reach
Canadians and provide them with great
advice. We partnered with Conquest Planning
to deliver a financial planning platform
that empowers advisors to streamline
the planning process and efficiently build
plans to meet unique client goals. We also
equipped approximately 3,000 advisors
with CapIntel, an efficient sales enablement
software that streamlines advisors’ compliance
activities, allowing them to maximize their
time with clients. CapIntel is offered through
Quadrus Investment Services Ltd.
EMPOWER RESEARCH DEBUNKS DEBATE
OVER TDFs, MANAGED ACCOUNTS
A new analysis from Empower suggests
investors don’t have to choose between
managed accounts and target date funds –
rather, using the complementary strategies
together can improve retirement savings
outcomes. Study data was drawn from
over two million participants in more than
17,000 workplace retirement plans. Research
indicates including managed accounts in a
plan significantly increases participation using
professionally managed portfolios, which can
lead to better savings outcomes.
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Great-West Lifeco Inc. 2021 Annual Report
FREE FINANCIAL WORKSHOPS AND
RESEARCH EDUCATE CANADIANS
Working with CPA Canada, Canada Life
launched a series of free, online financial
literacy workshops aimed at school children.
The materials developed for parents and
teachers are geared to appeal to different
youth age groups and cover savings and bank
accounts; earning income and goal setting;
credit cards and debt; and pet ownership.
This material is needed, as suggested by a
10-question quiz testing Canadians’ knowledge
of general financial topics like saving, debt,
investing and insurance. Despite two out of
five Canadians claiming high confidence, the
average grade on Canada Life’s adult financial
literacy quiz was 71 per cent.
EMPOWER'S PARTICIPANTS STUDY
SHOWS ADVICE MATTERS FOR BETTER
SAVINGS RATES
A study of 4 million 401(k) plan
participants found people using a
financial advisor feel more confident
they're saving enough in their workplace
retirement plans. Participants who
received advice saw a 7.9 per cent higher
savings rate and possessed more investing
knowledge and comfort, too.
Digital Capabilities
Deliver advice and solutions through multiple digitally enabled channels
EMPOWER, PERSONAL CAPITAL
PERSONALIZE A DIGITAL FINANCIAL
WELLNESS EXPERIENCE
CANADA LIFE GERMANY
DEBUTS CRITICAL ILLNESS
INSURANCE CALCULATOR
A new digital experience combines Empower
and Personal Capital’s technology and
expertise to offer personalized financial
wellness guidance and advice to over 12 million
participants. The app and website illustrate
a person’s unique financial picture through
an easy-to-read snapshot that tracks progress
toward many goals, including saving for
retirement, debt repayment, or establishing
an emergency fund. Ultimately, it helps users
better understand their current situation and
future needs, while increasing their financial
confidence.
Advisors and clients can quickly and easily find
the right critical illness insurance coverage for
their needs thanks to Canada Life Germany’s
new online calculator. Along with the
calculator, a new film educated audiences
about critical illness’ effect on financial well-
being. Brokers also attended Canada Life
Germany’s virtual expert forum on income
protection where they learned more about
broadened coverage spanning more than
50 critical illnesses, in addition to another
25 illnesses.
IRISH LIFE HEALTH LAUNCHES DIGITAL COVERAGE TOOL
Nearly 5,000 Irish Life Health customers have put down the phone and clicked online instead to
check their health insurance coverage. The new ‘Am I Covered?’ tool launched in September to
help customers determine whether they’re covered for a procedure or a medical specialist on
their health insurance policy. It doesn’t just increase customer convenience – it also reduces service
costs, as approximately 40 per cent of inbound calls are related to coverage inquiries.
Great-West Lifeco Inc. 2021 Annual Report
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Workplace Extensions
Extend workplace participant relationships into lifetime customer relationships
EMPOWER AGREES TO ACQUIRE PRUDENTIAL
FINANCIAL’S RETIREMENT BUSINESS
Empower’s agreement to acquire Prudential Financial's
full-service retirement business will help add expertise,
capabilities, and an expanded product portfolio, and is
expected to drive scale to benefit retirement investors
and employer-sponsored workplace savings plans. The
exciting transaction is expected to add over 4 million
participants among thousands of workplace savings
plans, as well as over $300 billion in assets.
CLAIMSECURE: GROWING
DISTRIBUTION CAPABILITIES
Canada Life’s acquisition of
ClaimSecure, a leading health
and dental claim management
services provider, substantially
increases its presence in a
growing market segment. As a
prominent player in the third-
party administrator and third-
party payor space, ClaimSecure
allows Canada Life to extend
products, plans, and solutions
to new customers nationally.
The transaction adds over
$1.25 billion in annual claim
payments and 1.5 million in
total lives to Canada Life.
OFFERING SUPPORT THROUGH
ONLINE THERAPY OPTIONS
Canada Life expanded their virtual health
offering by adding Dialogue's internet-based
cognitive behavioural therapy (iCBT) to all
Canadian Consult+™ users this year. With iCBT,
plan members can access self-led mental health
support for mild to moderate depression and
anxiety where and when they need it. The
company was the first Canadian insurer to
make Dialogue’s Consult+™ virtual health care
a standard benefit for all group health plans
with up to 400 plan sponsors.
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Great-West Lifeco Inc. 2021 Annual Report
CANADA LIFE MAKES
CANADIAN HISTORY
The largest group benefits contract in the
history of the Canadian insurance industry goes
to Canada Life for the Public Service Health
Care Plan (PSHCP). The PSHCP is an important
health care benefits plan for Canada and the
Canadians who provide government services.
Canada Life will care for an additional
1.5 million Canadians for a total of over
10 million group plan benefit participants
under our portfolio. The contract terms span
12 years, and will be implemented July 1, 2023.
CANADA LIFE UK CONTINUES TO EXTEND WECARE
Canada Life UK group income protection customers were welcomed to the
WeCare virtual services platform this year. Employees, whether insured or not,
and their immediate family can access health and wellbeing services including
physician and second opinion consultants, mental health support, and smoking,
diet, and fitness counselling. WeCare supports over 40,000 users.
by Teladoc Health
Great-West Lifeco Inc. 2021 Annual Report
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Risk and Investment Expertise
Leverage capabilities to enable and augment wealth and insurance solutions
PUTNAM GENERATES STRONG
LONG-TERM INVESTMENT RESULTS
Putnam Investments generated strong
long-term investment performance across
asset classes relative to its peers in 2021.
Highlights include:
90% of Putnam fund assets above Lipper
median*
80% of Putnam assets in Lipper top quartile*
28 Putnam funds ranked 4 or 5 stars**
CANADIAN OPEN PAR ACCOUNT
INVESTMENT STRATEGY EVOLVES*
90% of Putnam equity funds assets ranked
4 or 5 star**
*over a 10 year period
**Morningstar industry research and ratings
The Canadian Open par account investment
strategy adjusted the target mix for assets
backing liabilities to 70 per cent fixed income
and 30 per cent non-fixed income, representing
a shift of more than $2 billion dollars of
assets. This includes increasing exposure to
Canadian and U.S. real estate, along with U.S.
public equity and private equity holdings.
These changes help to increase asset class
diversification and provide par policyowners
exposure to alternative assets that are generally
difficult for retail clients to invest in.
* The changes to the investment strategy also apply to Canada Life closed policies
issued prior to demutualization on November 5th 1999
CANADA LIFE’S GLOBAL SEGREGATED
FUNDS SEE PEAK PERFORMANCE
Investment research firm Morningstar
ranked six of nine new Canada Life global
segregated funds in the top two quartiles,
as at the year ending May 31, 2021.
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Great-West Lifeco Inc. 2021 Annual Report
EXPANDING CRS SEGMENT’S
GLOBAL FOOTPRINT
Capital and Risk Solutions’ focus on creating
new solutions for clients, and geographical
diversification, continued with new transactions
in Japan and Israel. The business segment
also provided reinsurance covering mortality,
longevity, health and lapse risks for insurers,
reinsurers, and pension funds across the U.S.,
Europe, and the U.K. This demonstrates Capital
and Risk Solutions’ appeal as a partner for
reinsurance transactions globally, leading to a
continued strong business pipeline.
REINSURANCE DIVISION'S RANKINGS:
TOP 8
TOP 3
TAKING HOME IRISH PENSIONS
AWARDS TROPHIES
For the second
consecutive year,
Irish Life Corporate
Business won the
Excellence in Defined
Contribution award at
the Irish Pensions Awards. Additionally,
Irish Life Investment Managers
took home the prestigious Risk
Management Provider of the
Year award.
CAPITAL AND
RISK SOLUTIONS SUPPORT
The business segment paid over
$800 million in reinsurance mortality
claims to support U.S. families who
have lost loved ones in the last year.
TOP 2
global reinsurer1
life reinsurer1
U.S. structured solutions2
1 AM Best August 31, 2021 – Ranked by gross premium written 2020
2 Financing/fee-based segment, NMG Consulting’s 2021 US Structured Financial Solutions Study,
covering individual and group life, health and annuities (bi-annual) Ranked by business capability index
Great-West Lifeco Inc. 2021 Annual Report
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Encouraging Sustainability
COMMITTING TO NET ZERO
GREENHOUSE GAS EMISSIONS
EXPANDING SUSTAINABLE
INVESTMENT OFFERINGS
Great-West Lifeco is
committed to achieving
net zero greenhouse
gas emissions by 2050
for both operations and
investments. Activities
enabled through our
loans, investments, and insurance underwriting
offer opportunities to address climate change.
That’s why we’ve continuously increased the
proportion of our general account investments
for which we calculate financed emissions,
while our asset management affiliates manage
assets of over $189 billion in ESG-related
strategies. Interim targets to reduce our
emissions in line with climate science as part
of our net zero journey will be announced
in 2022.
2021 saw wealth offering expansions for
Putnam Investments, PanAgora Asset
Management, and Canada Life, respectively.
In the U.S., Putnam launched its first actively
managed ESG exchange-traded funds (ETFs).
The new ETFs attractive features include
intraday liquidity, tax efficiency and a
competitive fee structure, all underpinned by
rigorous fundamental research and advanced
risk management techniques. PanAgora
launched a Defensive Global Equity ESG
Aware Fund. Meanwhile, in the Canadian
marketplace, the new Canada Life Sustainable
Portfolios elevated Canada Life’s wealth
presence and made it easier for customers to
align their values and investments without
sacrificing performance. Canada Life is also
the first company to offer Sustainable Target
Date Funds (TDFs), an important commitment
given TDFs are often the default fund type
under Group Defined Contribution plans. The
three mutual fund portfolios provide access
to investments diversified across asset classes,
regions, and responsible investing strategies.
IRISH LIFE BEES
U.K. HQ RECEIVES FITWEL® 2 STAR RATING
Irish Life’s Dublin
campus welcomed
native Irish black bees,
a subspecies of the
European honeybee,
to our rooftop in
August. The first
harvest produced
almost 50 jars of
honey.
Canada Life UK’s office in Hertfordshire was
recognized for supporting occupant health
and well-being, particularly in air and water
quality, lighting, nature views, access to
quiet spaces and healthy, responsibly sourced
catering. Fitwel’s building criteria includes over
55 evidence-based design and operational
strategies in categories like building access,
outdoor spaces and indoor environment,
cafeterias and food retail, and emergency
procedures.
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Great-West Lifeco Inc. 2021 Annual Report
ENGAGING INDUSTRY
IN SUSTAINABLE FINANCE
PHYSICAL CLIMATE RISK
ASSESSMENT IN ACTION
Great-West Lifeco participated in Canada’s
Sustainable Finance Action Council (SFAC)
plenary meetings and select subgroups in 2021.
The SFAC helps lead the Canadian financial
sector toward integrating sustainable finance
into standard industry practice. SFAC has
prioritized climate-related financial disclosure,
recognizing the Government of Canada’s
commitment to the Task Force on Climate-
Related Financial Disclosures (TCFD).
Canada Life’s subsidiary GWL Realty Advisors
(GWLRA) strengthened its understanding
of physical climate-related risks, which
are expected to increase in frequency and
magnitude over time, via risk exposure
assessments. The review covered 20 natural
and climate-related physical hazards across all
portfolio assets and included climate change
projections for 2045 and 2070 under three
warming scenarios. Overall, GWLRA’s managed
portfolio’s average score is classified as low risk
when measured against its service provider’s
global benchmark.
COMMITTED TO SUSTAINABLE
REAL ESTATE MANAGEMENT
U.N.-SUPPORTED PRINCIPLES FOR
RESPONSIBLE INVESTMENT
• Irish Life Investment Managers
• Putnam Investments
• PanAgora Asset Management
• Setanta Asset Management
In 2021, the Global Real Estate Sustainability
Benchmark 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
• GWL Realty Advisors’ Canadian Real Estate
Investment Fund No. 1 and its managed
portfolio.
Great-West Lifeco Inc. 2021 Annual Report
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Advancing Focus on Diversity and Inclusion
FUNDING INNOVATIVE DIVERSITY
LEADERSHIP INITIATIVES
A $250,000 gift from Canada Life helps Brescia University
College launch diversity in leadership programming to address
unconscious bias, organizational structure barriers for women
and racialized individuals, and leadership challenges. The
gift funds scholarships and bursaries for non-traditional students
and also increases faculty and program development and
research.
CREATING ACCESSIBILITY
THROUGH INCLUSIVE DESIGN
PUTNAM/EMPOWER CFO NAMED AMONG
TOP WOMEN LEADERS IN FINANCE
Canada Life and GWLRA participated in the
Rick Hansen Foundation’s ‘Buildings Without
Barriers Challenge’ to create accessible
spaces for all through inclusive design.
The London, Toronto, and Winnipeg head
offices all attained Rick Hansen Foundation
Accessibility Certification, and further site-level
improvements will use the RHF Accessibility
Certified certification as a guide to inform
capital and operational planning.
Women We Admire named Andra Bolotin,
Putnam Investments' and Empower's Chief
Financial Officer, one of the Top 100 Women
Leaders in Finance in 2021. Andra joins a
group of highly accomplished professionals
recognized for their trailblazing achievements
and determination to advance their industry
and profession. Outstanding individual
leadership, like Andra’s, is a longstanding
business hallmark and helps drive the firms’
daily success.
Benefitting 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 2021
Annual Meeting we announced the retirement of three of our long-standing directors: J. David
A. Jackson, Jerome J. Selitto and James M. Singh. We thank Messrs. Jackson, Selitto and Singh for
their years of dedicated service.
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Great-West Lifeco Inc. 2021 Annual Report
Supporting Our Communities
EMPOWER ASSOCIATES VOLUNTEER TIME
THROUGH COMPANY GIVING PROGRAM
SUPPORTING GERMAN FLOOD EFFORTS &
MAKING CHILDREN’S’ WISHES COME TRUE
Empower’s Associates Community Together
(ACT) program brought employees together,
in person and virtually, to volunteer with 15
non-profit organizations for the Denver Day
of Service. Empower had the largest corporate
participation in the event, which was sponsored
by the Denver Broncos and Mile High United
Way. Volunteer activities included packing
meals, building homes, helping at the Children’s
Hospital Colorado, and serving breakfast to the
unhoused. The ACT program offers employees
16 hours of paid time off to volunteer and
matches donations up to US$5,000.
In July 2021 parts of Germany were
hit by severe flooding. Canada Life
Germany donated €1 million to
victim support, distributed among
aid organizations, while employees
volunteered in relief efforts. Later in
the year, employees helped children's
Christmas wishes come true. Employees
donated €15 per wish and organized nearly
400 presents in support of two children’s
villages, in addition to a special school impacted
by flooding in Germany earlier this year.
BREAKING A COMPANY UNITED WAY
DONATION RECORD
Canada Life’s annual United Way Centraide
workplace campaign brings people together to
help create lasting impact where we live and
work. In just under one month, the workplace
campaign raised over $2 million. Combined
with a corporate donation, the company
contributed more than $3.7 million to United
Ways across Canada – the largest donation in
the company’s history.
INTRODUCING THE NEW CANADA LIFE CENTRE
On July 1 – Canada Day – the home of the NHL team the Winnipeg Jets officially
became the Canada Life Centre. The naming sponsorship strengthens the brand
in the Canadian market and aligns with Canada Life and True North Sports +
Entertainment’s values. Connected by a shared sense of responsibility to give
back and help build stronger communities, both companies are working together
to bring awareness and support to a range of community events and programs.
COMMUNITY DONATIONS
Great-West Lifeco’s companies donated over $14.8 million dollars and thousands of hours of
volunteer work to stand up for local and global causes in 2021.
Great-West Lifeco Inc. 2021 Annual Report
15
The Europe segment is comprised of three distinct business units
serving customers in the United Kingdom (U.K.), Ireland and
Germany, offering protection and wealth management products,
including payout annuity products. The U.K. and Germany
business units operate under the Canada Life brand and the
Ireland business 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. This 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, 2021.
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,
2021 and includes a comparison to the corresponding periods
in 2020, to the three months ended September 30, 2021, and to
the Company’s financial condition as at December 31, 2020, as
applicable. 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.
BUSINESSES OF LIFECO
Lifeco has operations in Canada, the United States (U.S.) 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).
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 to individual customers. These products are distributed
through multiple channels: Advisor Solutions, managing general
agencies (MGAs) and national accounts, and Financial Horizons
Group. Through the Group Customer business unit, the Company
provides life, accidental death and dismemberment, disability,
critical illness, health and dental protection, creditor insurance
as well as retirement savings and income and annuity products
and other specialty products to group clients in Canada. These
products are distributed through an extensive network of
group sales offices located across the country through brokers,
consultants and financial security advisors.
In the U.S., Empower 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. This includes the retirement services business
of Massachusetts Mutual Life Insurance Company (MassMutual)
acquired on December 31, 2020. Personal Capital Corporation is
a hybrid wealth manager that combines a leading-edge digital
experience with personalized advice. Empower’s products and
services are marketed nationwide through its sales force, brokers,
consultants, advisors, third-party administrators and financial
institutions. Putnam provides investment management services
and related 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.
16
Great-West Lifeco Inc. 2021 Annual Report
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, climate-
related goals, 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 but
not limited to the proposed acquisition of the full-service retirement business of Prudential Financial Inc. (Prudential) and the acquisitions of Personal Capital
Corporation (Personal Capital) and the retirement services business of Massachusetts Mutual Life Insurance Company (MassMutual), the timing and completion
of the proposed acquisition of the retirement business of Prudential, expected capital management activities and use of capital, estimates of risk sensitivities
affecting capital adequacy ratios, expected dividend levels, expected cost reductions and savings, expected expenditures or investments (including but not limited
to investment in technology infrastructure and digital capabilities and solutions), the expected benefits of the Company’s strategic relationship with Sagard
Holdings, the timing and completion of the joint venture between Allied Irish Banks plc and Canada Life Irish Holding Company Limited, 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 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 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), the duration of COVID-19 impacts
and the availability and adoption of vaccines, the effectiveness of vaccines, the emergence of COVID-19 variants, 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 and Prudential, the ability to leverage Empower’s, Personal Capital’s and MassMutual’s and Prudential’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), 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,
changes in actuarial standards, 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. In addition, as we work to advance our climate goals, external factors outside of Lifeco’s
reasonable control may act as constraints on their achievement, including varying decarbonization efforts across economies, the need for thoughtful climate
policies around the world, more and better data, reasonably supported methodologies, technological advancements, the evolution of consumer behavior, the
challenges of balancing interim emissions goals with an orderly and just transition, and other significant considerations such as legal and regulatory obligations.
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 9, 2022 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-GAAP FINANCIAL MEASURES AND RATIOS
This MD&A contains some non-GAAP financial measures and non-GAAP ratios as defined in National Instrument 52-112 “Non-GAAP and Other Financial Measures
Disclosure”. Terms by which non-GAAP financial measures are identified include, but are not limited to, “base earnings (loss)”, “base earnings (loss) (US$)”, “core
net earnings (loss)”, “premiums and deposits”, “assets under management” and “assets under administration”. Terms by which non-GAAP ratios are identified
include, but are not limited to, “base earnings per common share (EPS)”, “base return on equity (ROE)”, “base dividend payout ratio”, “effective income tax rate
– base earnings – common shareholders “and “effective income tax rate – base earnings – total Lifeco”. Non-GAAP financial measures and ratios are used to
provide management and investors with additional measures of performance to help assess results where no comparable GAAP (IFRS) measure exists. However,
non-GAAP financial measures and ratios do not have standard meanings prescribed by GAAP (IFRS) and are not directly comparable to similar measures used by
other companies. Refer to the “Non-GAAP Financial Measures and Ratios” section in this MD&A for the appropriate reconciliations of these non-GAAP financial
measures to measures prescribed by GAAP as well as additional details on each measure and ratio.
Great-West Lifeco Inc. 2021 Annual Report
17
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)
Net earnings – common shareholders
Per common share
Basic:
Base earnings (2)
Net earnings
Diluted net earnings
Dividends paid (3)
Book value (4)
Base return on equity (2)
Return on equity (4)
As at or for the three months ended
For the twelve months ended
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
Dec. 31
2021
Dec. 31
2020
$
$
825
765
870
872
$
741
912
$
3,260
3,128
$
2,669
2,943
0.887
0.822
0.820
0.490
24.71
14.6%
14.0%
0.934
0.938
0.936
0.438
24.40
14.5%
14.9%
0.799
0.983
0.983
0.438
22.97
12.8%
14.1%
3.507
3.365
3.360
1.804
2.878
3.173
3.172
1.752
Total net premiums
Total premiums and deposits (1)
Fee and other income
Net policyholder benefits, dividends and experience refunds
$
12,989
47,654
1,885
12,241
$
14,921
39,282
1,858
10,915
$
11,747
40,831
1,569
9,916
$ 52,813
168,803
7,294
47,252
$
43,019
171,345
5,902
38,159
Total assets per financial statements
Proprietary mutual funds and institutional assets (4)
Total assets under management (1)
Other assets under administration (4)
Total assets under administration (1)
Total equity
$ 630,488
377,155
1,007,643
1,271,931
$ 614,962
365,764
$ 600,490
350,943
980,726
1,213,074
951,433
1,024,414
$ 2,279,574
$ 2,193,800
$ 1,975,847
$
30,483
$
30,232
$
27,015
The Canada Life Assurance Company consolidated LICAT Ratio (5)
124%
123%
129%
(1) This metric is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures and Ratios” section of this document for additional details.
(2) This metric is a non-GAAP ratio. Refer to the “Non-GAAP Financial Measures and Ratios” section of this document for additional details.
(3) In 2021, Lifeco made dividend payments to common shareholders on each of March 31, June 30 and September 30 in the amount of $0.438 per share. On November 15, 2021, Lifeco announced an increase to
the quarterly dividend of $0.052 per share. On December 31, 2021, Lifeco made a dividend payment to common shareholders in the amount of $0.490 per share.
(4) Refer to the “Glossary” section of this document for additional details on the composition of this measure.
(5) 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. The LICAT Ratio is
calculated in accordance with the Office of Superintendent of Financial Institutions’ guideline – Life Insurance Capital Adequacy Test. Refer to the “Capital Management and Adequacy” section of this document
for additional details.
18
Great-West Lifeco Inc. 2021 Annual Report
Management’s Discussion and Analysis
LIFECO 2021 HIGHLIGHTS
Financial Performance
• For the twelve months ended December 31, 2021, base earnings
per common share were $3.507 compared to $2.878 a year
ago, an increase of 22%, reflecting the strong performance of
recent acquisitions as well as growth in all segments. For the
twelve months ended December 31, 2021, base earnings of
$3,260 million were up $591 million or 22% compared to 2020
base earnings of $2,669 million.
• For the twelve months ended December 31, 2021, net earnings
per common share were $3.365, compared to $3.173 for the
previous year, primarily reflecting growth in base earnings. In
2021, in addition to base earnings, Lifeco’s net earnings included
transaction costs of $189 million, compared to $78 million in 2020,
related to acquisitions in the United States and Europe segments.
2021 net earnings also included $66 million of restructuring
and integration costs, which is comparable to $67 million
incurred in 2020. In 2020, net earnings also included 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
restructuring and integration costs of $67 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.
• Recent acquisitions made in 2020 in the United States and
Europe have performed well, resulting in pre-tax contingent
consideration provisions of US$80 million and $14 million,
respectively, recorded in 2021. These contingent consideration
provisions are included within transaction costs related to
acquisitions, which are excluded from base earnings.
• In November 2021, Lifeco announced an additional dividend
of $0.052 per share for an increase of 12% to $0.490 per share.
This additional dividend follows the announcement by the
Office of the Superintendent of Financial Institutions (OSFI) on
November 4, 2021 that it has withdrawn its expectation that all
federally regulated financial institutions halt dividend increases.
• The Company maintained
its strong capital position as
evidenced by a Life Insurance Capital Adequacy Test (LICAT)
Ratio at December 31, 2021 of 124% for Canada Life, Lifeco’s
major operating subsidiary, which exceeded
the OSFI
Supervisory Target Total Ratio of 100%, and Supervisory
Minimum Total Ratio of 90%.
• The Company’s financial leverage ratio at December 31, 2021
was 33.2% compared to 33.8% in the previous year. The decrease
was primarily due to retained earnings growth and repayment
on the Company’s committed line of credit related to GWL&A’s
acquisition of the retirement services business of MassMutual,
partially offset by the impact of pre-financing a portion of
planned acquisitions in 2022. As part of Lifeco’s announcement
on July 21, 2021, that its U.S. subsidiary, Empower, had reached
a definitive agreement to acquire Prudential’s full-service
retirement business, Lifeco announced that the transaction was
expected to be funded with a combination of Limited Recourse
Capital Notes (LRCN Series 1), up to US$1.0 billion of short-
term debt and existing resources. On August 16, 2021, Lifeco
issued $1.5 billion (US$1.19 billion) LRCN Series 1.
DEVELOPMENTS
Medium Term Financial Objectives
The Company introduced medium-term financial objectives
during 2021, with medium-term defined as 3 to 5 years. The
Company aims to create value through disciplined capital
deployment to achieve, over the medium-term, 8-10% base EPS
growth per annum, 14-15% base return on equity (ROE) and to
deliver strong cash generation.
The Company has achieved or exceeded the objectives for the year
ended December 31, 2021.
Medium-Term Financial Objectives
8-10% base EPS growth per annum (1)
14-15% base ROE (1)
Target dividend payout ratio
45-55% of base earnings (1)
Net Financial Highlights
Net EPS growth per annum
Net ROE
Dividend payout ratio (2)
1-Year
Base (1)
21.9%
14.6%
51.4%
Net
6.1%
14.0%
53.6%
3-Year
Base (1)
13.4% CAGR
13.6% average
56.7% average
Net
3.9% CAGR
13.3% average
58.4% average
(1) This metric is a non-GAAP ratio. Refer to the “Non-GAAP Financial Measures and Ratios” section of
this document for additional details.
(2) Refer to the “Glossary” section of this document for additional details on the composition of
this measure.
Great-West Lifeco Inc. 2021 Annual Report
19
Management’s Discussion and Analysis
Strategic Highlights and Transactions
LIFECO
On November 19, 2021, the Company completed the sale of its
United States-based subsidiaries, EverWest Real Estate Investors,
LLC and EverWest Advisors, LLC (EverWest) to Sagard Holdings
Inc. (Sagard), a wholly-owned subsidiary of Power Corporation,
in exchange for a minority shareholding in Sagard’s subsidiary,
Sagard Holdings Management Inc. EverWest was a wholly-owned
subsidiary of Canada Life and its principal activity is real estate
investment management services. As part of the transaction,
the Company has made a capital commitment of approximately
US$500 million into certain Sagard strategies. The Company has
also committed to investing a further approximately US$2 billion
in real estate investments to support EverWest’s future growth
within Sagard.
CAPITAL TRANSACTIONS
The Company made payments of US$500 million in the third
quarter of 2021 on its committed line of credit related to GWL&A’s
acquisition of the retirement services business of MassMutual on
December 31, 2020, reducing the balance drawn on this line of
credit to nil.
On August 16, 2021, the Company issued $1.5 billion aggregate
principal amount 3.60% LRCN Series 1 (Subordinated Indebtedness)
at par, maturing on December 31, 2081. The LRCN Series 1 bear
interest at a fixed rate of 3.60% per annum payable semi-annually,
up to but excluding December 31, 2026. On December 31, 2026 and
every five years thereafter until December 31, 2076, the interest
rate on the LRCN Series 1 will be reset at an interest rate equal to
the five-year Government of Canada Yield as defined in the trust
indenture governing the LRCN Series 1, plus 2.641%. Commencing
November 30, 2026, the Company will have the option to redeem
the LRCN Series 1 every five years during the period from November
30 to December 31, in whole or in part at par, together in each case
with accrued and unpaid interest. The Company will be required
to redeem the LRCN Series 1 in whole at par, together with accrued
and unpaid interest, if GWL&A’s acquisition of Prudential’s full-
service retirement business is terminated prior to, or has not closed
on or prior to, May 3, 2022 (or such later date as extended pursuant
to the acquisition agreement).
On October 8, 2021, the Company issued 8,000,000, 4.50% Non-
Cumulative First Preferred Shares, Series Y at $25.00 per share for
gross proceeds of $200 million. The shares are redeemable at the
option of the Company on or after December 31, 2026 for $25.00
per share plus a premium if redeemed prior to December 31, 2030,
in each case together with all declared and unpaid dividends up to
but excluding the date of redemption.
The Company redeemed all of the outstanding 5.90% Non-
Cumulative First Preferred Shares, Series F on December 31, 2021
at a redemption rate of $25.00 per share, for a total of $194 million,
plus an amount equal to all declared and unpaid dividends, less
any tax required to be deducted and withheld by the Company.
The Company announced the following strategic business
transactions in the U.S., Canada and Ireland to add scale and grow
and extend their businesses.
UNITED STATES
On July 21, 2021, a Lifeco subsidiary, Great-West Life & Annuity
Insurance Company (GWL&A), which operates primarily as
‘Empower’, announced a definitive agreement to acquire Prudential
Financial, Inc.’s (Prudential) full-service retirement business. The
acquisition will add significant scale and capabilities and further
solidify Empower’s position as the second largest retirement plan
service provider in the United States and is expected to strengthen
Empower’s overall offering for participants and sponsors through
additional expertise, an expanded product offering and new
technology from Prudential. It also is expected to increase the
synergy potential of Empower’s 2020 acquisition of hybrid wealth
manager, Personal Capital, across a larger combined business.
The total transaction value of US$3.55 billion includes purchase
price consideration of US$1.12 billion, reinsurance ceding
commission of US$0.33 billion and US$2.1 billion of required
capital to support the business. The Company issued $1.5 billion
(US$1.19 billion) of LRCN Series 1 on August 16, 2021 (see Capital
Transactions below) and intends to fund the remaining purchase
price with up to US$1.0 billion short-term debt and existing
internal resources.
In the first quarter of 2021, the Company completed its acquisition
of the retirement services business of Truist Bank, a former private-
label recordkeeping client. This acquisition brings approximately 300
retirement plans, consisting of more than 73,000 plan participants.
CANADA
On September 1, 2021, a Lifeco subsidiary, The Canada Life
Assurance Company (Canada Life) completed the acquisition of
ClaimSecure Inc., an industry-leading healthcare management
firm that provides health and dental claim management services
to private and public businesses in Canada.
EUROPE
In the second quarter of 2021, a 50:50 joint venture agreement
was reached by Allied Irish Banks plc (AIB) and Canada Life Irish
Holding Company Limited to form a new life assurance company.
The new life assurance company, which is expected to launch over
the next twelve months, will offer AIB customers a range of life
protection, pensions, savings and investment options enhanced
by integrated digital solutions with continued access to qualified
financial advisors. Once established, the existing distribution
agreement between AIB and Irish Life will cease. The joint venture
agreement is subject to customary regulatory approval and
authorization processes.
On November 1, 2021, a Lifeco subsidiary, Irish Life Group Limited
(Irish Life), completed the acquisition of Ark Life Assurance
Company dac (Ark Life) from Phoenix Group Holdings plc for a total
cash consideration of (cid:192)230 million. The acquisition adds scale to
Irish Life’s retail division and enhances Irish Life’s ability to provide
customers with market-leading wealth and insurance solutions.
20
Great-West Lifeco Inc. 2021 Annual Report
• In Canada, the Company will continue to leverage the strength
of the Canada Life brand to develop innovative products and
services, broaden and deepen its distribution channels and
ultimately, better serve its customers. Specifically, in its Group
Customer business, Canada Life will continue to invest in new
digital capabilities and innovative benefits solutions, driving
enhanced personalization and insights for its clients and their
plan members. In its Individual Customer business, Canada Life
will continue to advance on its strong advisor value proposition
across all channels, ensuring the best tools and strategies are
in place to drive long-term financial security for its customers.
Operational resiliency and disciplined expense management
will also be key to delivering strong financial results in 2022.
• In the U.S., the Company will focus on the successful closing
of the acquisition of the full-service retirement business of
Prudential Financial, Inc., which will add significant expertise,
a broader set of capabilities and an expanded product portfolio
to Empower and further solidify its position as the second
largest player in the U.S. retirement market. The Company will
also focus on the continued integration of Personal Capital and
MassMutual, which are expected to generate further synergies
in 2022 and provide new capabilities to better serve customers’
financial needs and goals. At Putnam, efforts will continue to
drive growth and market share through innovative product and
service offerings, strong investment performance and enhanced
brand recognition.
• In the U.K., the Company is focusing on the growing retirement
market by developing solutions for individuals who require
additional pension flexibility and expanding its presence
in the bulk annuity market. In Ireland, the focus will be on
strengthening positions in the wealth and employee benefits
consulting markets following recent acquisitions in 2020
and 2021. In Germany, the Company plans to grow its assets
under management and market share through the continued
investment and innovation in product development, service
enhancement and distribution.
• In Capital and Risk Solutions, the Reinsurance business unit will
continue to explore opportunities in new geographies where the
Company’s innovative reinsurance solutions can be deployed to
support clients’ evolving needs.
Management’s Discussion and Analysis
COVID-19 PANDEMIC IMPACTS
The COVID-19 pandemic continues to cause material disruption
to businesses globally,
in continued economic
resulting
pressures. While governments in different regions have moved
to ease restrictions put in place, many factors continue to extend
economic uncertainty, including but not limited to: the availability,
adoption and uncertainty around the effectiveness of vaccines;
the emergence of COVID-19 variants; and the extent and timing of
related government and central bank actions.
The Company’s financial outlook for 2022 will depend in part on
the duration and intensity of the COVID-19 pandemic impacts
as discussed above. The impact of the pandemic on mortality,
longevity, disability and other claims experience in future periods
remains uncertain and may differ by region and business line. The
Company is actively monitoring and, to date, net impacts have
been modest, reflecting the Company’s diversified business. The
Company continues to manage risks of changes to mortality and
longevity rates by issuing a diversified range of insurance, annuity
and fee income products along with using reinsurance and capital
market solutions where appropriate.
The Company’s well-diversified businesses, 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.
Outlook for 2022
Refer to Cautionary Note regarding Forward-looking Information
and Cautionary Note regarding Non-GAAP Financial Measures and
Ratios at the beginning of this document.
• Lifeco is continuing to focus on its core strategies: delivering
the workplace,
financial security and wellness
providing advice-centered wealth management, delivering
strong investment and asset management and leveraging risk
and capital management expertise. The Company intends to
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.
through
• With the acquisitions announced and completed in 2020 and
2021, the Company will continue to focus on completing and
integrating acquisitions to enhance the customer experience
and realize target synergies to maximize contributions to base
and net earnings in 2022. This includes GWL&A’s acquisition of
Prudential’s full-service retirement business expected to close
in the first half of 2022.
• The Company will remain focused on future regulatory changes,
including the implementation of accounting changes related to
IFRS 17, Insurance Contracts and IFRS 9, Financial Instruments. The
Company will continue executing on its global implementation
plan during 2022 and will be compliant with these standards,
which are effective on January 1, 2023 for the Company.
Great-West Lifeco Inc. 2021 Annual Report
21
Management’s Discussion and Analysis
NET EARNINGS
Consolidated base earnings and net earnings of Lifeco include the base earnings and net earnings of Canada Life and its operating
subsidiaries, GWL&A and Putnam, together with Lifeco’s Corporate operating results.
Base earnings (1) and Net earnings – common shareholders
For the three months ended
For the twelve months ended
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
Dec. 31
2021
Dec. 31
2020
Base earnings (loss) (1)
Canada
United States
Europe
Capital and Risk Solutions
Lifeco Corporate
Lifeco base earnings (1)
$
$
317
156
213
145
(6)
$
825
$
Items excluded from base earnings
Actuarial assumption changes and other management actions (2)
Market-related impacts on liabilities (2)
Transaction costs related to acquisitions (3)
Restructuring and integration costs
Tax legislative changes impact on liabilities
Net gain/charge on business dispositions (4)
Revaluation of deferred tax asset
Items excluded from Lifeco base earnings
Net earnings (loss) – common shareholders
Canada
United States
Europe
Capital and Risk Solutions
Lifeco Corporate
$
$
$
23
20
(74)
(15)
–
(14)
–
(60)
307
92
239
133
(6)
$
$
Lifeco net earnings – common shareholders
$
765
$
$
$
$
312
221
232
107
(2)
870
69
47
(90)
(24)
–
–
–
305
168
357
102
(60)
872
$
$
348
90
195
124
(16)
741
(23)
(31)
(47)
(67)
–
143
196
171
300
208
253
167
(16)
912
$
$
1,220
671
830
547
(8)
1,206
273
688
536
(34)
$
3,260
$
2,669
$
$
134
24
(189)
(66)
(21)
(14)
–
$
(132)
$
$
$
1,187
499
976
532
(66)
113
(127)
(78)
(67)
–
237
196
274
1,070
380
913
614
(34)
$
3,128
$
2,943
$
2
$
(1) This metric is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures and Ratios” section of this document for additional details.
(2) Refer to the “Glossary” section of this document for additional details on the composition of this measure.
(3) The transaction costs relate to acquisitions in the U.S. segment (the full-service retirement business of Prudential, Personal Capital and the retirement services business of MassMutual) as well as acquisitions in
the Europe segment. In addition, the twelve months ended December 31, 2021 included a provision for payments relating to the Company’s acquisition of Canada Life.
(4) For the three and twelve months ended December 31, 2021, net gain/charge on business dispositions includes a $14 million net charge on business disposition in the Europe Corporate business unit. Included in
the three and twelve months ended December 31, 2020 is a net gain of $143 million on the sale of GLC in the Canada Corporate business unit. Included in the twelve months ended December 31, 2020 is a net
gain of $94 million related to the sale of IPSI in the Europe Ireland business unit.
The information in the table above is a summary of results for base and net earnings of the Company. Additional commentary regarding
base and net earnings is included in the “Segmented Operating Results” section.
Base earnings
Base earnings for the fourth quarter of 2021 of $825 million
($0.887 per common share) increased by $84 million or 11%
from $741 million ($0.799 per common share) a year ago. The
increase was primarily due to MassMutual business related base
earnings of $55 million (US$44 million), the impact of higher
equity markets across all jurisdictions and business growth in
the Capital and Risk Solutions segment. The Company acquired
the retirement services business of MassMutual on December 31,
2020. The Company also had less adverse claims experience in the
life business in the Capital and Risk Solutions segment as well as
favourable morbidity experience in the Europe segment. These
items were partially offset by less favourable morbidity experience
in the Canada segment.
For the twelve months ended December 31, 2021, Lifeco’s base
earnings were $3,260 million ($3.507 per common share) compared
to $2,669 million ($2.878 per common share) a year ago. The 22%
increase was primarily due to MassMutual business related base
earnings of $234 million (US$188 million) as well as the impact
of higher equity markets across all jurisdictions and business
growth in the Capital and Risk Solutions segment. The Company
also had favourable investment and morbidity experience and
a pension settlement gain in the Europe segment as well as
favourable morbidity experience in the Canada segment. These
items were partially offset by higher life mortality claims and a
net loss estimate of $61 million after-tax primarily for estimated
claims resulting from the impact of recent major weather events
recorded in the third quarter of 2021 in the Capital and Risk
Solutions segment.
Net earnings
Lifeco’s net earnings for the three month period ended December 31,
2021 of $765 million ($0.822 per common share) decreased by
$147 million or 16% compared to $912 million ($0.983 per common
22
Great-West Lifeco Inc. 2021 Annual Report
Management’s Discussion and Analysis
share) a year ago. The decrease 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 recorded in the fourth quarter of 2020. The decrease was
partially offset by an increase in base earnings, lower restructuring
and integration costs in the Canada and U.S. segments as well as
favourable market-related impacts on liabilities.
EURO STOXX 50) and 17% in the U.K. (as measured by FTSE 100)
compared to the same period in 2020. The major equity indices
finished the fourth quarter of 2021 up 11% in the U.S., 6% in
Canada, 6% in broader Europe and 4% in the U.K. compared to
September 30, 2021. For the twelve months ended December 31,
2021, average equity market levels were higher in the U.S., Canada,
the U.K. and broader Europe compared to the same period in 2020.
For the twelve months ended December 31, 2021, Lifeco’s net
earnings were $3,128 million ($3.365 per common share) compared
to $2,943 million ($3.173 per common share) a year ago. The 6%
increase was primarily due to an increase in base earnings and
favourable market-related impacts on liabilities. The increase was
partially offset by the positive impact in 2020 of the revaluation of
a deferred tax asset and the net gain on the sale of GLC discussed in
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. In addition, the Company
had higher transaction costs related to the MassMutual and Personal
Capital acquisitions and a provision for payments relating to the
Company’s acquisition of The Canada Life Assurance Company.
Lifeco’s net earnings for the three months period ended
December 31, 2021 of $765 million ($0.822 per common share)
decreased by $107 million or 12% compared to $872 million
($0.938 per common share) in the previous quarter. The decrease
in net earnings was primarily due to less favourable actuarial
assumption changes, higher expenses in the U.S. segment and less
favourable market-related impacts on liabilities.
Actuarial Assumption Changes and Other Management
Actions
For the three months ended December 31, 2021, actuarial
assumption changes and other management actions resulted in
a positive net earnings impact of $23 million. This compares to a
negative impact of $23 million for the same quarter last year and a
positive impact of $69 million for the previous quarter.
In Europe, net earnings were positively impacted by $46 million,
primarily due to updated economic assumptions. In Canada, net
earnings were negatively impacted by $13 million, primarily due
to mortality updates. In Capital and Risk Solutions, net earnings
were negatively impacted by $12 million, primarily due to updated
assumptions for expenses. In the U.S., net earnings were positively
impacted by $2 million, due to updated longevity assumptions.
For the twelve months ended December 31, 2021, actuarial
assumption changes and other management actions resulted in a
positive net earnings impact of $134 million, compared to positive
$113 million for the same period in 2020. Effective October 15,
2021, the Canadian Actuarial Standards Board published revised
standards for the valuation of insurance contract liabilities. The
revised standards include decreases to ultimate reinvestment
rates, revised calibration criteria for stochastic risk-free interest
rates and an increase to the maximum net credit spread on
reinvestment over the long term. The Company adopted these
standard changes in the third quarter of 2021, which resulted in a
negative net earnings impact of $33 million, which is included in
the actuarial assumption changes and other management action
for the twelve months ended December 31, 2021.
Market-Related Impacts
In the regions where the Company operates, average equity market
indices for the three months ended December 31, 2021 were up
by 29% in the U.S. (as measured by S&P 500), 25% in Canada (as
measured by S&P TSX), 23% in broader Europe (as measured by
Market-related impacts on liabilities positively impacted net
earnings by $20 million in the fourth quarter of 2021 (negative
impact of $31 million in the fourth quarter of 2020), primarily
reflecting updated cash flow projections for real estate which
support insurance contract liabilities in Europe.
For the twelve months ended December 31, 2021, market-
related impacts on liabilities positively impacted net earnings
by $24 million (negative impact of $127 million in 2020). The
2021 year-to-date positive impact was primarily due to the same
reasons discussed for the in-quarter results. While equity markets
rebounded during the second to fourth quarters of 2020, the 2020
year-to-date negative impact reflects the significant decline and
volatility in equity markets and interest rates in the first quarter
of 2020, driven by the onset of the COVID-19 pandemic. This
impacted the value of segregated fund and variable annuity
guarantees, including related hedging ineffectiveness and was
only partially recovered during 2020.
In countries where the Company operates, interest rates increased
during 2021, which had an immaterial impact on net earnings.
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 to the
Company’s consolidated financial statements for the period ended
December 31, 2021.
Foreign Currency
The average currency translation rate for the fourth quarter of
2021 decreased for the U.S. dollar, the British pound and the euro
compared to the fourth quarter of 2020. The overall impact of
currency movement on the Company’s net earnings for the three
months ended December 31, 2021 was a decrease of $18 million
(decrease of $68 million year-to-date) compared to translation
rates a year ago.
From September 30, 2021 to December 31, 2021, the market rates
at the end of the reporting period used to translate euro assets
and liabilities to the Canadian dollar decreased, while the U.S.
dollar and British pound were comparable. The movements in
end-of-period exchange rates impact the translation of foreign
operations, including related hedge activities, resulting in post-
tax unrealized foreign exchange gains of $15 million in-quarter
($286 million net unrealized loss year-to-date) recorded in other
comprehensive income.
Translation rates for the reporting period and comparative periods
are detailed in the “Translation of Foreign Currency” section.
Great-West Lifeco Inc. 2021 Annual Report
23
Management’s Discussion and Analysis
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, 2021
For the twelve months ended December 31, 2021
$
$
(2)
–
–
–
$
(2)
$
–
–
3
–
3
$
$
(2)
–
3
–
1
$
$
(11)
–
(3)
–
$
(1)
(1)
(3)
(1)
$
(14)
$
(6)
$
(12)
(1)
(6)
(1)
(20)
For the three months ended December 31, 2020
For the twelve months ended December 31, 2020
$
(3)
$
–
$
(3)
$
(13)
$
(66)
$
(79)
(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. However,
since March 2020, credit spreads narrowed significantly. Some
downgrades have been 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 smaller negative impact from
rating changes during 2021 compared to a larger negative impact
from downgrades in 2020. There could be a negative impact from
downgrades in future periods if economies that are currently open
are shut down or restricted due to a resurgence of COVID-19 cases.
In the fourth quarter of 2021, the Company experienced net
charges on impaired investments, including dispositions, which
negatively impacted common shareholders’ net earnings by
$2 million ($3 million net negative impact in the fourth quarter of
2020). 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. Separately, related to non-impaired invested assets,
changes in credit ratings in the Company’s fixed income portfolio
resulted in a net decrease to provisions for future credit losses in
insurance contract liabilities, which positively impacted common
shareholders’ net earnings by $3 million (negligible impact in
the fourth quarter of 2020), primarily due to upgrades of various
corporate and government bond holdings.
For the twelve months ended December 31, 2021, the Company
experienced net charges on impaired investments, including
dispositions, which negatively impacted common shareholders’
net earnings by $14 million ($13 million net negative impact in
2020), primarily due to a commercial mortgage impairment.
Separately, related to non-impaired invested assets, changes in
credit ratings in the Company’s fixed income portfolio resulted in
a net increase in provisions for future credit losses in insurance
impacted common
contract
shareholders’ net earnings by $6 million year-to-date ($66 million
net negative impact in 2020), primarily due to net downgrades of
various corporate bond holdings.
liabilities, which negatively
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.
Effective income tax rate
Base earnings – Common shareholders (1)
Net earnings – Common shareholders
Base earnings – Total Lifeco (1)
Net earnings – Total Lifeco
For the three months ended
For the twelve months ended
Dec. 31
2021
Sept. 30
2021
9.4%
9.8%
3.7%
3.8%
9.6%
8.4%
10.9%
9.8%
Dec. 31
2020
13.3%
(20.4)%
11.0%
(24.4)%
Dec. 31
2021
Dec. 31
2020
9.5%
9.9%
7.6%
7.9%
10.1%
(0.9)%
8.7%
(2.7)%
(1) This metric is a non-GAAP ratio. Refer to the “Non-GAAP Financial Measures and Ratios” section of this document for additional details.
24
Great-West Lifeco Inc. 2021 Annual Report
Management’s Discussion and Analysis
In the fourth quarter of 2021, the effective income tax rate on
base earnings for the shareholder account of 9.4% was down from
13.3% in the fourth quarter of 2020, primarily due to changes
in certain tax estimates. The effective income tax rate on base
earnings for the total Company of 3.7%, was lower than 9.4% for
the shareholder account, primarily due to non-taxable investment
income attributable to the participating account.
In the fourth quarter of 2021, the Company had an overall effective
income tax rate on net earnings of 3.8%, up from negative 24.4%
in the fourth quarter of 2020. The increase was primarily due
to the revaluation of a deferred tax asset related to losses in a
U.S. subsidiary and non-taxable gains on the sale of shares of
GLC in the fourth quarter of 2020, which resulted in a decrease
in the effective income tax rate in the fourth quarter of 2020 by
31.7 points. Excluding the impact of these two items, the overall
effective income tax rate for the fourth quarter of 2021 of 3.8% was
down from 7.3% in the fourth quarter of 2020, primarily due to
changes in certain tax estimates.
TOTAL NET PREMIUMS, PREMIUMS AND DEPOSITS AND SALES
Total net premiums
Canada
United States
Europe
Capital and Risk Solutions
Total net premiums
Premiums and deposits (1)
Canada
United States
Europe
Capital and Risk Solutions
Total premiums and deposits (1)
Sales (2) (3)
Canada
United States
Europe
Total sales (3)
The Company had an effective income tax rate on base earnings
of 7.6% for the twelve months ended December 31, 2021, down
from 8.7% for the same period last year, primarily due to changes
in certain tax estimates.
The Company had an overall effective income tax rate on net
earnings of 7.9% for the twelve months ended December 31, 2021,
up from negative 2.7% for the same period last year. The increase
was primarily due to the impact in 2020 of the revaluation of the
deferred tax asset discussed for the in-quarter results and the
non-taxable gains on the sale of the shares of GLC and IPSI, which
decreased the 2020 overall effective income tax rate by 8.5 points.
Excluding the impact of these 2020 items, the overall effective
income tax rate for the twelve months ended December 31, 2021
of 7.9% was up from 5.8% for the same period last year, primarily
due to jurisdictional mix of earnings.
Refer to note 26 to the Company’s consolidated financial statements
for the period ended December 31, 2021 for further details.
For the three months ended
For the twelve months ended
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
Dec. 31
2021
Dec. 31
2020
$
4,114
611
1,042
7,222
$
3,300
1,116
1,942
8,563
$
3,628
1,386
1,397
5,336
$ 13,900
4,518
4,862
29,533
$
13,188
6,773
3,651
19,407
$ 12,989
$
14,921
$
11,747
$ 52,813
$
43,019
For the three months ended
For the twelve months ended
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
Dec. 31
2021
Dec. 31
2020
$
7,918
24,932
7,582
7,222
$
6,945
16,269
7,505
8,563
$
7,017
20,582
7,896
5,336
$ 29,357
79,896
30,017
29,533
$
25,838
93,479
32,621
19,407
$ 47,654
$
39,282
$
40,831
$ 168,803
$ 171,345
For the three months ended
For the twelve months ended
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
Dec. 31
2021
Dec. 31
2020
$
4,881
40,104
6,493
$
3,466
29,173
6,968
$
3,729
27,439
6,874
$ 16,425
204,584
26,613
$
12,271
136,884
28,996
$ 51,478
$
39,607
$
38,042
$ 247,622
$ 178,151
(1) This metric is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures and Ratios” section of this document for additional details.
(2) Sales is not a relevant measure for the Capital and Risk Solutions segment due to the nature of operations.
(3) Refer to the “Glossary” section of this document for additional details on the composition of this measure.
The information in the table above is a summary of results for the Company’s total net premiums, premiums and deposits and sales.
Additional commentary regarding total net premiums and sales is included, as applicable, in the “Segmented Operating Results” section.
Great-West Lifeco Inc. 2021 Annual Report
25
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 (losses)
Regular investment income
Investment expenses
Regular net investment income
Changes in fair value through profit or loss
Total net investment income
For the three months ended
For the twelve months ended
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
Dec. 31
2021
Dec. 31
2020
$
$
$
1,647
(2)
42
1,687
(50)
1,637
1,611
1,610
4
32
1,646
(57)
1,589
(936)
$
1,380
(6)
220
1,594
(34)
1,560
1,984
$
6,481
(30)
139
6,590
(197)
6,393
(2,083)
5,664
(16)
466
6,114
(151)
5,963
5,699
$
3,248
$
653
$
3,544
$
4,310
$
11,662
Total net investment income in the fourth quarter of 2021 decreased
by $296 million compared to the same quarter last year. The
changes in fair value in the fourth quarter of 2021 were an increase
of $1,611 million compared to $1,984 million for the fourth quarter
of 2020. In the fourth quarter of 2021, the net increase to fair values
was primarily due to an increase in Canadian equity markets and
a decline in long duration Canadian bond yields. 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.
Regular net investment income in the fourth quarter of 2021 of
$1,637 million increased by $77 million compared to the same
quarter last year. The increase was primarily due to income earned
on bonds and mortgages acquired through the MassMutual
transaction on December 31, 2020, partially offset by lower net
realized gains. Net realized gains include gains on available-
for-sale securities of $8 million for the fourth quarter of 2021
compared to $13 million for the same quarter last year.
For the twelve months ended December 31, 2021, total net
investment income decreased by $7,352 million compared to the
same period last year. The changes in fair value for the twelve
month period in 2021 were a decrease of $2,083 million compared
to an increase of $5,699 million during the same period in 2020.
The changes in fair value were primarily due to an increase in
bond yields across all geographies, partially offset by an increase
in Canadian equity markets in 2021, compared to a decline in
bond yields across all geographies in 2020.
Regular net investment income for the twelve months ended
December 31, 2021 of $6,393 million increased by $430 million
compared to the same period last year. The increase was primarily
due to the same reasons discussed for the in-quarter results.
Net realized gains include gains on available-for-sale securities
of $27 million for the twelve months ended December 31, 2021
compared to $141 million for the same period last year.
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
Canada
Segregated funds, mutual funds and other
Administrative services only (ASO) contracts
United States
Segregated funds, mutual funds and other
Europe
Segregated funds, mutual funds and other
Capital and Risk Solutions
Reinsurance and other
Total fee and other income
For the three months ended
For the twelve months ended
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
Dec. 31
2021
Dec. 31
2020
$
$
452
69
521
998
364
2
$
457
52
509
995
352
2
407
54
461
754
351
3
$
1,765
226
1,991
3,880
$
1,568
188
1,756
2,769
1,415
1,366
8
11
$
1,885
$
1,858
$
1,569
$
7,294
$
5,902
The information in the table above is a summary of gross fee and other income for the Company. Additional commentary regarding fee
and other income is included, as applicable, in the “Segmented Operating Results” section.
26
Great-West Lifeco Inc. 2021 Annual Report
Management’s Discussion and Analysis
NET POLICYHOLDER BENEFITS, DIVIDENDS AND EXPERIENCE REFUNDS
OTHER BENEFITS AND EXPENSES
Net policyholder benefits, dividends and experience refunds
Other benefits and expenses
For the three
months ended
For the twelve
months ended
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
Dec. 31
2021
Dec. 31
2020
For the three
months ended
For the twelve
months ended
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
Dec. 31
2021
Dec. 31
2020
Canada
$ 2,522
United States
1,654
1,000
Europe
Capital and Risk Solutions 7,065
$ 2,486
1,344
947
6,138
$ 2,556
1,072
1,003
5,285
$ 10,171
7,310
3,909
25,862
$ 9,276
5,028
3,948
19,907
Total
$ 12,241 $ 10,915
$ 9,916
$ 47,252
$ 38,159
Operating and
administrative
expenses
Commissions
Premium taxes
Amortization of finite
$ 1,688
717
134
$ 1,557
631
122
$ 1,498
657
124
$ 6,337
2,664
500
$ 5,492
2,396
480
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 payments for ASO contracts, segregated
funds or mutual funds.
For the three months ended December 31, 2021, net policyholder
benefits, dividends and experience refunds were $12.2 billion,
an increase of $2.3 billion from the same period in 2020 driven
by higher net policyholder benefits. The increase in benefit
payments was primarily due to new reinsurance agreements as
well as volume changes relating to existing business in the Capital
and Risk Solutions segment as well as higher surrender benefits
in the U.S segment, driven by the acquisition of the MassMutual
retirement services business.
For the twelve months ended December 31, 2021, net policyholder
benefits, dividends and experience refunds were $47.3 billion,
an increase of $9.1 billion from the same period in 2020 driven
by higher net policyholder benefits. The increase in benefit
payments was primarily due to the same reasons discussed for
the in-quarter results as well as higher group insurance claims in
the Canada segment.
life intangible assets
and impairment reversal
Financing charges
Restructuring and
integration expenses
89
89
21
82
83
32
63
79
336
328
238
284
134
90
134
Total
$ 2,738
$ 2,507
$ 2,555
$ 10,255 $ 9,024
Other benefits and expenses for the fourth quarter of 2021
of $2,738 million increased by $183 million compared to the
fourth quarter of 2020. The increase was primarily due to higher
operating and administrative expenses, driven by transaction
costs related to acquisitions in the U.S. and Europe segments as
well as MassMutual related expenses and higher commissions,
driven by higher sales in the U.S. and Canada segments. The
increase was partially offset by lower restructuring and integration
expenses in the Canada and U.S. segments, driven by the after-
tax impact of $68 million of a restructuring provision for strategic
activities in Canada included in the fourth quarter of 2020 as well
as lower restructuring and integration expenses related to the
acquisitions of Personal Capital and MassMutual compared to the
same quarter last year.
For the twelve months ended December 31, 2021, other benefits
and expenses increased by $1,231 million to $10,255 million
compared to the same period last year, primarily due to higher
operating and administrative expenses driven by MassMutual and
Personal Capital related expenses and by transaction costs related
to acquisitions in the U.S. and Europe segments. In addition,
commissions were higher compared to the same period last year
driven by the same reasons discussed for the in-quarter results.
Restructuring and integration expenses decreased compared
to the same period last year, primarily due to the same reasons
discussed for the in-quarter results.
Great-West Lifeco Inc. 2021 Annual Report
27
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 assets (2)
Total assets under management (1)
Other assets under administration (2)
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 assets (2)
Total assets under management (1)
Other assets under administration (2)
Total assets under administration (1)
Canada
United States
Europe Capital and Risk Solutions
Total
December 31, 2021
$ 92,400
5,722
4,323
101,537
203,982
5,742
209,724
17,597
$
55,376
5,826
30,090
116,919
208,211
310,933
519,144
1,241,974
$ 48,669
3,047
10,220
138,963
200,899
60,480
261,379
12,360
$
9,359
–
8,037
–
17,396
–
17,396
–
$ 205,804
14,595
52,670
357,419
630,488
377,155
1,007,643
1,271,931
$ 227,321
$ 1,761,118
$ 273,739
$ 17,396
$ 2,279,574
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
(1) This metric is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures and Ratios” section of this document for additional details.
(2) Refer to the “Glossary” section of this document for additional details on the composition of this measure.
Total assets under administration (AUA) at December 31,
2021 increased by $303.7 billion to $2.3 trillion compared to
December 31, 2020, primarily due to the impact of equity market
movement and new business growth primarily with respect to
other assets under administration, partially offset by the impact
of currency movement.
During the fourth quarter of 2021, the Company completed its
comprehensive valuation of the fair value of the net assets acquired
from MassMutual and the purchase price allocation. For additional
details on assets acquired through business acquisitions, refer
to “Business Acquisitions and Other Transactions”, note 3 in the
Company’s consolidated financial statements for the period ended
December 31, 2021.
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’s investment
policies are designed to be prudent and conservative, so that
assets are not unduly exposed to concentration, credit or market
risks. Within the framework of the Company’s policies, the
Company implements strategies and reviews and adjusts them
on an ongoing basis considering liability cash flows and capital
market conditions. The majority of investments of the general fund
are in medium-term and long-term fixed-income investments,
primarily bonds and mortgages, reflecting the characteristics of
the Company’s liabilities.
28
Great-West Lifeco Inc. 2021 Annual Report
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, 2021
$ 21,863
31,409
$
53,272
16,703
13,036
4,913
87,924
1,392
3,084
4,313
36,515
40,828
6,170
673
8
47,679
2,581
5,116
$ 19,411
18,265
$
37,676
5,891
474
2,842
46,883
1,784
2
5,289
3,547
8,836
88
–
–
8,924
318
117
$ 50,876
89,736
140,612
28,852
14,183
7,763
191,410
6,075
8,319
25%
43
68
14
7
4
93
3
4
$ 92,400
$ 55,376
$ 48,669
$
9,359
$ 205,804
100%
Canada
United States
Europe
Capital and Risk Solutions
Total
December 31, 2020
$
23,014
30,926
53,940
16,036
10,125
3,626
83,727
962
3,043
$
4,006
34,332
38,338
5,957
448
6
44,749
4,544
5,229
$
20,300
19,648
39,948
5,746
427
2,638
48,759
2,032
2
$
2,069
3,297
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%
At December 31, 2021, total invested assets were $205.8 billion, an
increase of $6.8 billion from December 31, 2020. The increase in
invested assets was primarily due to stock market value increases
and net purchases of bonds and stocks. The 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
$140.6 billion or 68% of invested assets at December 31, 2021
compared to $137.6 billion or 69% at December 31, 2020. The
increase in the bond portfolio was primarily due to net purchases,
partially offset by a decline in fair values resulting from an increase
in bond yields across all geographies. The increase in the Capital
and Risk Solutions bond portfolio was primarily driven by new
reinsurance agreements. The overall quality of the bond portfolio
remained high, with 99% of the portfolio rated investment grade
and 74% rated A or higher.
Bond credit ratings reflect bond rating agency activity up to
December 31, 2021. Management continues to closely monitor
bond rating agency activity and general market conditions as
economies emerge from the pandemic.
Bond portfolio quality
AAA
AA
A
BBB
BB or lower
Total
December 31, 2021
December 31, 2020
$ 20,254
35,460
48,764
35,098
1,036
$ 140,612
$
14%
25
35
25
1
21,820
35,530
45,673
33,382
1,187
16%
26
33
24
1
100%
$ 137,592
100%
At December 31, 2021, non-investment grade bonds were $1.0 billion or 0.7% of the bond portfolio compared to $1.2 billion or 0.9% of
the bond portfolio at December 31, 2020.
Great-West Lifeco Inc. 2021 Annual Report
29
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
Insured (1)
Non-insured
Total
December 31, 2021
December 31, 2020
Total
$
476
2,930
–
218
$
1,503
4,671
2,609
16,445
$
1,979
7,601
2,609
16,663
7%
$
26
9
58
2,063
7,353
2,020
16,367
7%
27
7
59
$
3,624
$ 25,228
$ 28,852
100%
$
27,803
100%
(1) Insured mortgages include mortgages where insurance is provided by a third party and protects the Company in the event that the borrower is unable to fulfill their mortgage obligations.
The total mortgage portfolio was $28.9 billion or 14% of invested
assets at December 31, 2021, compared to $27.8 billion or 14% of
invested assets at December 31, 2020. The increase in the mortgage
portfolio was primarily due to originations of equity release
mortgages. Total insured loans were $3.6 billion or 13% of the
mortgage portfolio. The equity release mortgages had a weighted
average loan-to-value, calculated as the weighted average of
the total outstanding loan balance divided by the appraised
value of the properties, of 31% (26% at December 31, 2020).
Commercial mortgages
Retail & shopping centres
Industrial
Office buildings
Other
Total
Retail & shopping centres
Industrial
Office buildings
Other
Total
December 31, 2021
Canada
U.S.
Europe Capital and Risk Solutions
Total
$
3,770
3,126
2,088
380
$
521
1,430
1,282
463
$
991 $
617
1,209
736
$
9,364
$
3,696
$
3,553
$
2
30
18
–
50
$
5,284
5,203
4,597
1,579
$ 16,663
December 31, 2020
Canada
U.S.
Europe
Capital and Risk Solutions
Total
$
3,799
2,516
2,252
316
$
731
1,097
1,327
505
$
$
1,116
774
1,369
542
$
8,883
$
3,660
$
3,801
$
3
1
19
–
23
$
5,649
4,388
4,967
1,363
$
16,367
Equity portfolio – The total equity portfolio was $21.9 billion or
11% of invested assets at December 31, 2021 compared to
$17.3 billion or 9% of invested assets at December 31, 2020. The
equity portfolio consists of publicly traded stocks, privately held
stocks and investment properties. The increase in publicly traded
stocks of $2.2 billion and the increase in privately held stocks
of $1.0 billion were primarily due to purchases and market value
increases. The increase in investment properties of $1.5 billion
was mainly the result of property acquisitions and market
value increases.
30
Great-West Lifeco Inc. 2021 Annual Report
Management’s Discussion and Analysis
Equity portfolio
Equity portfolio by type
Publicly traded stocks
Privately held stocks
Sub-total
Investment properties
Total
Investment properties (1)
December 31, 2021
December 31, 2020
$ 12,424
1,759
14,183
7,763
57 %
8
65
35
$
10,208
792
11,000
6,270
59%
5
64
36
$ 21,946
100%
$
17,270
100%
December 31, 2021
December 31, 2020
Canada
U.S.
Europe
Total
Canada
U.S.
Europe
Total
Industrial
Office buildings
Retail
Other
Total
$
$
1,740
1,384
227
1,562
$
4,913
$
–
–
–
8
8
$
1,009
626
848
359
$
2,749
2,010
1,075
1,929
$
861
1,328
198
1,239
$
$
2,842
$
7,763
$
3,626
$
–
–
–
6
6
$
812
637
814
375
$
1,673
1,965
1,012
1,620
$
2,638
$
6,270
(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, 2021
December 31, 2020
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
$
$
18
6
99
Total
$
123
$
1
1
–
2
$
$
(5)
–
(28)
(33)
$
$
14
7
71
92
$
$
23
16
80
$
119
$
2
1
–
3
$
$
(5)
–
(57)
(62)
$
$
20
17
23
60
The gross amount of impaired investments totaled $123 million
or 0.1% of invested assets at December 31, 2021 compared to
$119 million or 0.1% at December 31, 2020, a net increase of
$4 million. The increase in impaired investments was primarily
due to the impairment of a commercial mortgage, partly offset by
the disposal of previously impaired commercial mortgages.
The impairment recovery at December 31, 2021 was $2 million,
which reflects the improvement in market values of certain
investments from the date at which they became impaired. The
impairment provision at December 31, 2021 was $33 million
compared to $62 million at December 31, 2020. The decrease was
primarily due to the disposal of previously impaired commercial
mortgages, partially offset by a commercial mortgage impairment.
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, 2021 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, 2021, the total actuarial provision for future
credit losses in insurance contract liabilities was $3,271 million
compared to $3,368 million at December 31, 2020, a decrease of
$97 million, primarily due to interest rate movements, partially
offset by normal business activity.
The aggregate of impairment provisions of $33 million ($62 million
at December 31, 2020) and actuarial provisions for future
credit losses in insurance contract liabilities of $3,271 million
($3,368 million at December 31, 2020) represents 1.8% of bond
and mortgage assets, including funds held by ceding insurers, at
December 31, 2021 (1.9% at December 31, 2020).
Great-West Lifeco Inc. 2021 Annual Report
31
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 2021. 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, 2021, total financial collateral, including initial
margin and overcollateralization, received on derivative assets
was $318 million ($211 million at December 31, 2020) and
pledged on derivative liabilities was $480 million ($560 million
at December 31, 2020). Collateral received on derivatives assets
increased and collateral pledged on derivative liabilities decreased,
primarily driven by the impact of the U.S. dollar strengthening
against the British pound and euro on cross-currency swaps that
pay British pounds and euros and receive U.S. dollars.
During the twelve month period ended December 31, 2021, the
outstanding notional amount of derivative contracts increased
by $6.5 billion to $36.6 billion, primarily due to regular hedging
activities and increases to net investment hedges. During the
twelve month period, the Company entered into net investment
hedges, with notional amounts of (cid:192)1 billion and £0.5 billion,
to reduce the volatility of its Canadian dollar exposure to net
investments in foreign operations in the Europe segment.
The Company’s exposure to derivative counterparty credit risk,
which reflects the current fair value of those instruments in a gain
position, increased to $967 million at December 31, 2021 from
$829 million at December 31, 2020. The increase was primarily
driven by the impact of the U.S. dollar strengthening against the
British pound and euro on cross-currency swaps that pay British
pounds and euros and receive U.S. dollars. There were no changes to
derivative counterparty ratings during the fourth quarter of 2021 and
all had investment grade ratings as of December 31, 2021. Refer to
“Financial Instruments Risk Management”, note 8 in the Company’s
December 31, 2021 annual consolidated financial statements for
details of the Company’s derivative counterparties’ ratings.
GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets
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 $14.6 billion at December 31, 2021 were comparable to
December 31, 2020. Goodwill decreased by $1.0 billion and finite
life intangible assets increased by $1.2 billion, primarily due to
the recognition and measurement of finite life intangible assets
related to the completion of the comprehensive evaluation of the
fair value of the net assets acquired from MassMutual and the
purchase price allocation.
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 2021, the Company conducted
its annual impairment testing of goodwill and intangible assets
based on September 30, 2021 asset balances. It was determined that
the recoverable amounts of cash generating unit (CGU) groupings
for goodwill and CGUs for intangible assets were in excess of
their carrying values and there was no evidence of impairment.
Recoverable amount is based on fair value less cost of disposal.
Refer to note 10 in the Company’s December 31, 2021 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
Reinsurance assets
Funds held by ceding insurers
Premiums in course of collection,
accounts and interest receivable
Other assets
Deferred tax assets
Derivative financial instruments
Owner occupied properties
Fixed assets
Current income taxes
Total
December 31
2021
2020
$ 21,138 $ 22,121
18,383
17,194
6,366
4,522
1,057
967
736
422
268
6,102
3,347
975
829
741
426
145
$ 52,670 $ 53,069
Goodwill
Indefinite life intangible assets
Finite life intangible assets
Total
32
Great-West Lifeco Inc. 2021 Annual Report
December 31
2021
2020
$ 9,081
2,786
2,728
$ 10,106
2,798
1,487
$ 14,595
$ 14,391
Total other general fund assets at December 31, 2021 were
$52.7 billion, a decrease of $0.4 billion from December 31, 2020.
The decrease was primarily due to a decrease of $1.2 billion in
funds held by ceding insurers and a decrease of $1.0 billion in
reinsurance assets. The decrease was partially offset by an increase
of $1.2 billion in other assets, driven by an increase in Putnam
trading account assets.
Other assets comprise several items including prepaid expenses
and accounts receivable. Refer to note 12 in the Company’s
December 31, 2021 annual consolidated financial statements for
a breakdown of other assets.
Management’s Discussion and Analysis
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
2021
2020
$ 134,568 $ 112,675
127,577
133,916
65,338
60,647
12,430
12,776
11,836
10,010
2,686
2,377
$ 354,294 $ 332,542
1,490
3,125
$ 357,419 $ 334,032
Investments on account of segregated fund policyholders,
which are measured at fair value, increased by $23.4 billion to
$357.4 billion at December 31, 2021 compared to December 31,
2020. The increase was primarily due to the combined impact of
market value gains and investment income of $36.7 billion and
$2.8 billion related to the Ark Life acquisition. The increase was
partially offset by net withdrawals of $10.7 billion and the impact
of currency movement of $7.1 billion.
PROPRIETARY MUTUAL FUNDS AND INSTITUTIONAL ASSETS (1)
Proprietary mutual funds and institutional assets
Mutual funds
Blend equity
Growth equity
Equity value
Fixed-income
Exchange Traded Funds
Money market
Empower Funds (2)
Sub-total
Institutional assets
Equity
Fixed-income
Other
Sub-total
Total proprietary mutual funds
and institutional assets
December 31
2021
2020
$ 22,334 $ 23,478
23,523
26,605
24,341
30,479
52,009
46,246
–
58
317
199
42,514
57,749
$ 183,670 $ 166,182
$ 126,064 $ 112,439
63,681
60,681
8,641
6,740
$ 193,485 $ 184,761
$ 377,155 $ 350,943
(1) Refer to the “Glossary” section of this document for additional details on the composition of this
measure.
(2) At December 31, 2021, Empower funds exclude $24.9 billion of Putnam managed funds ($21.3 billion
at December 31, 2020), which are included in the categories above.
At December 31, 2021, total proprietary mutual funds and
institutional assets include $310.9 billion at Putnam and GWL&A,
$60.5 billion at Irish Life and $5.7 billion at Canada Life Investment
Management Ltd. (CLIML). Proprietary mutual
funds and
institutional assets under management increased by $26.2 billion,
primarily due to market movement, partially offset by net cash
outflows and the impact of currency movement. GWL&A includes
proprietary mutual funds related to Empower 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
2021
2020
$ 220,833 $ 218,047
21,396
21,753
357,419
334,032
$ 600,005 $ 573,475
Total liabilities increased by $26.5 billion to $600.0 billion at
December 31, 2021 from December 31, 2020.
Investment and insurance contracts on account of segregated
fund policyholders increased by $23.4 billion, primarily due to the
combined impact of market value gains and investment income
of $36.7 billion and $2.8 billion related to the Ark Life acquisition,
partially offset by net withdrawals of $10.7 billion and the impact
of currency movement of $7.1 billion. Insurance and investment
contract liabilities increased by $2.8 billion, primarily due to the
impact of new business and the acquisition of Ark Life, partially
offset by fair value adjustments, the impact of currency movement
and normal business movements.
Insurance and investment contract
liabilities represent the
amounts that, together with estimated future premiums and
investment income, will be sufficient to pay estimated future
benefits, dividends and expenses on policies in-force. Insurance
and investment contract liabilities are determined using generally
accepted actuarial practices, according to standards established
by the Canadian Institute of Actuaries. Also, refer to the “Summary
of Critical Accounting Estimates” section of this document for
further details.
Great-West Lifeco Inc. 2021 Annual Report
33
Management’s Discussion and Analysis
Assets supporting insurance and investment contract liabilities
December 31, 2021
Bonds
Mortgage loans
Stocks
Investment properties
Other assets (1)
Total
Participating
Account
Canada
United States
Europe
Capital and
Risk Solutions
Total
Non-Participating
$ 26,978
11,781
8,665
4,021
10,325
$ 23,620
4,661
3,116
579
2,804
$ 32,302
4,641
211
–
26,784
$ 33,208
5,891
391
2,743
4,982
$
6,394
80
–
–
6,656
$ 122,502
27,054
12,383
7,343
51,551
$ 61,770
$ 34,780
$ 63,938
$ 47,215
$ 13,130
$ 220,833
Total insurance and investment contract liabilities
$ 61,770
$ 34,780
$ 63,938
$ 47,215
$ 13,130
$ 220,833
December 31, 2020
Bonds
Mortgage loans
Stocks
Investment properties
Other assets (1)
Total
Total insurance and investment contract liabilities
$
$
$
27,768
11,150
6,227
2,992
10,127
58,264
58,264
$
$
$
23,898
4,498
2,789
360
3,904
35,449
35,449
$
$
$
31,631
4,586
46
–
29,440
65,703
65,703
$
$
$
34,941
5,746
332
2,536
4,533
48,088
48,088
$
$
$
2,365
52
–
–
8,126
$ 120,603
26,032
9,394
5,888
56,130
10,543
$ 218,047
10,543
$ 218,047
(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 Insurance Company (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
Funds held under reinsurance contracts
Deferred tax liabilities
Derivative financial instruments
Current income taxes
Total
December 31
2021
2020
$ 8,804 $ 9,693
5,147
2,698
1,648
646
1,221
343
6,063
3,032
1,542
1,089
1,030
193
$ 21,753
$ 21,396
Total other general fund liabilities at December 31, 2021 were
$21.8 billion, an increase of $0.4 billion from December 31, 2020.
The increase was primarily due to an increase of $0.9 billion in
other liabilities and an increase of $0.4 billion in deferred tax
liabilities, partially offset by a decrease of $0.9 billion in debentures
and other debt instruments. The Company made payments of
US$500 million in the third quarter of 2021 on its committed line
of credit related to GWL&A’s acquisition of the retirement services
business of MassMutual on December 31, 2020, reducing the
balance drawn on this line of credit to nil.
Other liabilities of $6.1 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, 2021 annual consolidated financial
statements for a breakdown of the other liabilities balance and
note 15 in the Company’s December 31, 2021 annual consolidated
financial statements for details of the debentures and other debt
instruments.
34
Great-West Lifeco Inc. 2021 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. These products provide guaranteed
minimum death benefits (GMDB) and guaranteed minimum
accumulation on maturity benefits (GMAB).
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, which are similar to
segregated fund products but include minimum credited interest
rates and pooling of policyholders’ funds, as well as a GMWB
product in Germany.
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.
London Reinsurance Group Inc. (LRG) 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.
Management’s Discussion and Analysis
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 a
portion of the market and interest rate risk associated with options
embedded in its GMWB products. The program methodology
quantifies both the embedded option value and its sensitivity
to movements in equity markets, currency markets and interest
rates. Equity derivative
instruments, currency derivative
instruments and interest rate derivative instruments are used
to mitigate changes in the embedded option value attributable
to movements in equity markets, currency markets and interest
rates respectively. The hedging program, by its nature, requires
continuous monitoring and rebalancing to avoid over or under
hedged positions. Periods of heightened market volatility will
increase the frequency of hedge rebalancing.
Segregated fund and variable annuity guarantee exposure
Canada
United States
Europe
Capital and Risk Solutions (2)
Total
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, 2021, the amount
of GMWB product in-force in Canada, the U.S., Ireland and
Germany was $3,316 million ($3,375 million at December 31, 2020).
December 31, 2021
Investment deficiency by benefit type
Market Value
Income
Maturity
Death
Total (1)
$
$
36,808
21,521
11,645
908
$
–
2
2
189
$ 70,882
$
193
$
9
–
–
–
9
$
$
18
21
732
–
$
771
$
18
23
732
189
962
(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, 2021.
(2) Capital and Risk Solutions exposure is to markets in Canada and the U.S.
Investment deficiency at December 31, 2021 decreased by
$355 million to $962 million compared to December 31, 2020,
primarily due to increases in market values. 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, 2021 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 $3 million in-quarter
(nil for the fourth quarter of 2020) and $10 million year-to-date
($20 million year-to-date for 2020), with the majority arising in
the Capital and Risk Solutions segment related to a legacy block
of business. The market value increased by $5,592 million to
$70,882 million compared to December 31, 2020, primarily due to
the year-to-date increase in equity markets.
Great-West Lifeco Inc. 2021 Annual Report
35
Management’s Discussion and Analysis
LIFECO CAPITAL STRUCTURE
Common shares
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.
At December 31, 2021, the Company had 930,620,338 common
shares outstanding with a stated value of $5,748 million compared
to 927,853,106 common shares with a stated value of $5,651 million
at December 31, 2020.
The Company renewed its normal course issuer bid (NCIB)
effective January 27, 2021 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, 2021,
the Company did not purchase any common shares under the
current NCIB (nil for the twelve months ended December 31, 2020,
under the previous NCIB).
Subsequent to December 31, 2021, in order to mitigate the dilutive
effect of stock options granted under the Company’s Stock Option
Plan and for other capital management purposes, the Company
announced a new NCIB commencing January 27, 2022 and
terminating January 26, 2023 to purchase for cancellation up to but
not more than 20,000,000 of its common shares at market prices.
Preferred shares
At December 31, 2021, 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 $2,470 million
and $250 million, respectively.
On October 8, 2021, the Company issued 8,000,000 4.50% Non-
Cumulative First Preferred Shares, Series Y at $25.00 per share for
gross proceeds of $200 million. The shares are redeemable at the
option of the Company on or after December 31, 2026 for $25.00
per share plus a premium if redeemed prior to December 31, 2030,
in each case together with all declared and unpaid dividends up to
but excluding the date of redemption.
On December 31, 2021, the Company redeemed all of its issued
and outstanding 5.90% Non-Cumulative First Preferred Shares,
Series F for $25.00 per share for a total of $194 million.
DEBENTURES AND OTHER DEBT INSTRUMENTS
At December 31, 2021, debentures and other debt instruments
decreased by $889 million to $8,804 million compared to
December 31, 2020.
During 2021, the Company made payments of US$500 million
on its committed line of credit related to GWL&A’s acquisition of
the retirement services business of MassMutual on December 31,
2020, reducing the balance drawn on its line of credit to nil.
Refer to note 15 in the Company’s December 31, 2021 annual
consolidated financial statements for further details of the
Company’s debentures and other debt instruments.
CAPITAL TRUST SECURITIES
At December 31, 2021, 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, 2021 were CLiCS – Series B with a fair value
of $53 million and principal value of $37 million (fair value of
$55 million at December 31, 2020).
Each holder of the CLiCS – Series B is entitled to receive a semi-
annual non-cumulative fixed cash distribution of $37.645 per
CLiCS – Series B, representing an annual yield of 7.529% payable
out of Canada Life Capital Trust’s (CLCT) distributable funds.
Subject to regulatory approval, CLCT may redeem the CLiCS –
Series B, in whole or in part, at any time and the CLiCS – Series B
are callable at par on June 30, 2032.
EQUITY
Share capital outstanding at December 31, 2021 was $9,968 million,
which comprises $5,748 million of common shares and
$2,720 million of preferred shares and $1,500 million LRCN Series
1 discussed below. Preferred shares included $2,470 million of
non-cumulative First Preferred Shares and $250 million of 5-year
rate reset First Preferred Shares.
On August 16, 2021, the Company issued $1.5 billion aggregate
principal amount 3.60% LRCN Series 1 (Subordinated Indebtedness)
at par, maturing on December 31, 2081. The LRCN Series 1 bear
interest at a fixed rate of 3.60% per annum payable semi-annually,
up to but excluding December 31, 2026. On December, 2026, and
every five years thereafter until December 31, 2076, the interest
rate on the LRCN Series 1 will be reset at an interest rate equal to
the five-year Government of Canada Yield as defined in the trust
indenture governing the LRCN Series 1, plus 2.641%. Commencing
November 30, 2026, the Company will have the option to redeem
the LRCN Series 1 every five years during the period from November
30 to December 31, in whole or in part at par, together in each case
with accrued and unpaid interest. The Company will be required
to redeem the LRCN Series 1 in whole at par, together with accrued
and unpaid interest, if GWL&A’s acquisition of Prudential’s full-
service retirement business is terminated prior to, or has not closed
on or prior to, May 3, 2022 (or such later date as extended pursuant
to the acquisition agreement).
36
Great-West Lifeco Inc. 2021 Annual Report
Management’s Discussion and Analysis
The terms and conditions of the outstanding First Preferred Shares are set out in the table below:
Series G
Series H
Series I
Great-West Lifeco Inc.
Series L
Series M
Series N
Series P
General Type
Cumulative/Non-Cumulative
Date Issued
Shares Outstanding
Amount Outstanding (Par)
Yield
Earliest Issuer Redemption Date
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
Fixed Rate
Non-cumulative
Feb 22, 2012
10,000,000
$250,000,000
5.40%
March 31, 2017
Series Q
Series R
Series S
Great-West Lifeco Inc.
Series T
General Type
Cumulative/Non-Cumulative
Date Issued
Shares Outstanding
Amount Outstanding (Par)
Yield
Earliest Issuer Redemption Date
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
Series Y
Fixed Rate
Non-cumulative
Oct 8, 2021
8,000,000
$200,000,000
4.50%
Dec 31, 2026
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, 2021
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
December 31
2021
2020
$ 3,126
12
$ 2,858
13
$ 3,138
$ 2,871
Non-controlling interests in subsidiaries
$ 129
$
116
At December 31, 2021, the carrying value of non-controlling
interests increased by $280 million to $3,267 million compared to
December 31, 2020. For the twelve months ended December 31,
2021, net earnings attributable to participating account before
policyholder dividends were $1,708 million and policyholder
dividends were $1,406 million.
Great-West Lifeco Inc. 2021 Annual Report
37
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
Total Liquid Assets
Cash and cash equivalents (1)
Short-term bonds (2)
Cash, cash equivalents and short-term bonds
Government bonds (2)
Corporate bonds (2)
Stocks (1)
Mortgage loans (1)
Other assets and marketable securities
Total assets
Cash and cash equivalents (1)
Short-term bonds (2)
Cash, cash equivalents and short-term bonds
Government bonds (2)
Corporate bonds (2)
Stocks (1)
Mortgage loans (1)
Other assets and marketable securities
Total assets
December 31, 2021
On-balance
sheet assets
Non-liquid/
Pledged
Net
liquid assets
$
6,075
5,671
$
32
1,923
$
6,043
3,748
$ 11,746
$
1,955
$
9,791
$ 47,126
87,815
14,183
28,852
$ 11,795
37,324
1,759
25,446
$ 35,331
50,491
12,424
3,406
$ 177,976
$ 76,324
$ 101,652
$ 189,722
$ 78,279
$ 111,443
December 31, 2020
On-balance
sheet assets
Non-liquid/
Pledged
Net
liquid assets
$
$
$
7,946
4,402
12,348
46,099
87,091
11,000
27,803
$ 171,993
$ 184,341
$
$
$
$
$
27
1,124
1,151
12,464
34,508
792
24,018
$
$
$
7,919
3,278
11,197
33,635
52,583
10,208
3,785
71,782
$ 100,211
72,933
$ 111,408
(1) Refer to the consolidated balance sheet in the Company’s December 31, 2021 annual consolidated financial statements for on-balance sheet amounts.
(2) Refer to note 8(ii) in the Company’s December 31, 2021 annual consolidated financial statements for on-balance sheet amounts.
The Company does not have a formal common shareholder
dividend policy. The Company maintains a target dividend payout
ratio range of 45% to 55% of base earnings that is considered in
dividend decisions. 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.
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, 2021, the Company and its operating subsidiaries
held liquid cash, cash equivalents and short-term bonds of
$9.8 billion ($11.2 billion at December 31, 2020) and other liquid
assets and marketable securities of $101.7 billion ($100.2 billion
at December 31, 2020). Included in the cash, cash equivalents
and short-term bonds at December 31, 2021 was $0.6 billion
($0.9 billion at December 31, 2020) held at the Lifeco holding
company level which includes cash at Great-West Lifeco U.S. LLC,
the Company’s U.S. holding company. In addition, the Company
maintains committed lines of credit with Canadian chartered
banks for potential unanticipated liquidity needs, if required.
38
Great-West Lifeco Inc. 2021 Annual Report
Management’s Discussion and Analysis
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. On November 4, 2021, OSFI withdrew
its guidance provided in March 2020 at the outset of the COVID-19
pandemic that Canadian banks and insurers should suspend
share buybacks and not increase dividend payments. In the U.K.
and Ireland, where some of the Company’s regulated subsidiaries
operate, the regulatory authorities have maintained their guidance
that insurance companies should exercise prudence in respect of
dividend distributions, share buybacks and similar transactions,
but at the end of the third quarter of 2021 the Irish regulator
removed the temporary cap that it had also been applying to
significant insurance companies such as Irish Life Assurance plc.
Refer to “Risk Management – COVID-19 Pandemic Impact” section
for additional discussion of the impact of the current environment.
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
For the three months ended
December 31
For the twelve months ended
December 31
2021
2020
2021
2020
$
$
1,829
(425)
(2,201)
(797)
(18)
(815)
6,890
1,896
381
464
2,741
(167)
2,574
5,372
$
$ 10,373
(992)
(11,212)
(1,831)
(40)
(1,871)
7,946
9,610
2,010
(8,202)
3,418
(100)
3,318
4,628
Cash and cash equivalents, end of period
$
6,075
$
7,946
$
6,075
$
7,946
The principal source of funds for the Company on a consolidated
basis is cash provided by operating activities, including premium
income, net investment income and fee income. These funds
are used primarily to pay policy benefits, policyholder dividends
and claims, as well as operating expenses and commissions.
Cash flows generated by operations are mainly invested to
support future liability cash requirements. Cash flows related to
financing activities include the issuance and repayment of capital
instruments and associated dividends and interest payments.
In the fourth quarter of 2021, cash and cash equivalents decreased
by $815 million from September 30, 2021. Cash flows provided
by operations during the fourth quarter of 2021 of $1,829 million
were comparable to the fourth quarter of 2020. Cash flows used
in financing were $425 million, primarily used for the payment of
dividends to common and preferred shareholders of $491 million.
For the three months ended December 31, 2021, cash flows were
used by the Company to acquire an additional $2,201 million of
investment assets.
For the twelve months ended December 31, 2021, cash and cash
equivalents decreased by $1,871 million from December 31,
2020. Cash flows provided by operations were $10,373 million, an
increase of $763 million compared to the same period in 2020. Cash
flows used in financing of $992 million were primarily used for the
payment of dividends to common and preferred shareholders of
$1,811 million and a decrease in the line of credit of a subsidiary of
$764 million, partially offset by the issuance of the LRCN Series 1 of
$1,500 million. For the twelve months ended December 31, 2021,
cash flows were used by the Company to acquire an additional
$11,212 million of investment assets.
Great-West Lifeco Inc. 2021 Annual Report
39
Management’s Discussion and Analysis
COMMITMENTS/CONTRACTUAL OBLIGATIONS
Commitments/contractual obligations
Payments due by period
At December 31, 2021
Total
1 year
2 years
3 years
4 years
5 years
1) Debentures and other debt instruments
2) Lease obligations
3) Purchase obligations
4) Credit-related arrangements
(a) Contractual commitments
(b) Letters of credit
5) Pension contributions
$
$
8,529
664
436
$
–
83
192
4,027
see note 4(b) below
306
3,831
306
$
720
71
85
188
–
$
$
–
63
44
2
–
635
55
35
–
–
720
52
15
–
–
Over
5 years
$
6,454
340
65
6
–
Total contractual obligations
$ 13,962
$
4,412
$
1,064
$
109
$
725
$
787
$
6,865
(1) Refer to note 15 in the Company’s December 31, 2021 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, 2021 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$1,904 million of which US$1,599 million were issued as of December 31, 2021. There are six primary
facilities within Lifeco.
The Reinsurance business unit periodically uses LC 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$1,313 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$217 million has been issued to external parties. Clients residing in the United States are required pursuant to their insurance regulations 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 2022 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). The
LICAT Ratio is calculated in accordance with the OSFI Guideline –
Life Insurance Capital Adequacy Test.
The LICAT Ratio compares the regulatory capital resources of a
company to its required capital. The required capital is calibrated
so that a life insurer can both withstand severe stress events and
support the continuity of existing business. The LICAT guideline
uses a risk-based approach for measuring specific life insurer risks
and for aggregating the results to calculate the amount of a life
insurer’s capital requirements.
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, 2021 was
124% (129% at December 31, 2020). The LICAT Ratio does not
take into account any impact from $0.6 billion of liquidity at the
Lifeco holding company level at December 31, 2021 ($0.9 billion at
December 31, 2020).
40
Great-West Lifeco Inc. 2021 Annual Report
Management’s Discussion and Analysis
The following provides a summary of the LICAT information and
ratios for Canada Life:
LICAT SENSITIVITIES
Caution Related to Sensitivities
LICAT Ratio
Tier 1 Capital
Tier 2 Capital
Total Available Capital
Surplus Allowance & Eligible Deposits
Total Capital Resources
Dec. 31
2021
Dec. 31
2020
$ 12,584
4,417
$ 11,593
4,568
17,001
13,225
16,161
14,226
$ 30,226
$ 30,387
This section includes estimates of Canada Life consolidated
LICAT Ratio 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;
• Changes in actuarial, investment return and future investment
activity assumptions;
Required Capital
$ 24,323
$ 23,607
• Actual experience differing from the assumptions;
Total Ratio (OSFI Supervisory Target = 100%) (1)
124%
129%
• Changes in business mix, effective income tax rates and other
market factors;
(1) Total Ratio (%) = (Total Capital Resources / Required Capital)
• Interactions among these factors and assumptions when more
The LICAT Ratio increased one point in the quarter but decreased
five points year-to-date. The phasing in of the impact of the LICAT
interest rate scenario shifts in North America which occurred
during 2020 and 2021 (described below) contributed three points
of the year-to-date ratio decrease. The remainder of the year-to-
date decrease in the LICAT Ratio was due to additional capital
requirements arising from market movements and new business
growth, partly offset by the favourable impact of net earnings.
GWL&A, Lifeco’s regulated U.S. operating company, has established
an internal target Risk-Based Capital (RBC) ratio of 400-425%
of the Company Action Level set by the National Association of
Insurance Commissioners, based upon an assessment of the risks
within its businesses as well as business needs to support future
growth. Accordingly, GWL&A’s target RBC ratio may change as
future risks and business needs change. 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.
At December 31, 2021, GWL&A’s RBC ratio is estimated to be well
in excess of 400% as it includes prefunded capital consideration
for the Prudential full-service retirement business acquisition
expected to close in the first half of 2022.
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.
LICAT sensitivities are rounded to the nearest full point.
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,
2021. 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, 2021
20%
increase
10%
increase
10%
decrease
20%
decrease
Potential increase
(decrease) on LICAT Ratio
(1 point)
0 points
1 point
(1 point)
Great-West Lifeco Inc. 2021 Annual Report
41
OSFI REGULATORY CAPITAL INITIATIVES
OSFI issued an Advisory effective for January 1, 2021, which
confirmed the
interest rate risk smoothing calculation on
participating insurance, and provided clarification of available
capital for certain participating insurance blocks. The Advisory will
remain in effect until January 1, 2023, when it will be subsequently
incorporated into the LICAT guideline.
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 from insurance contracts 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.
During the quarter, the Company participated in the OSFI public
consultation of its OSFI Quantitative Impact Study for IFRS 17,
Insurance Contracts and IFRS 9, Financial Instruments. The
Company will continue to work with OSFI, the Canadian Institute
of Actuaries, and other industry participants, as OSFI finalizes
the adaptations related to the IFRS 17 and IFRS 9 accounting
standards for the 2023 LICAT Guideline. The Company will also
work with OSFI in its developments relating to future Segregated
Fund Guarantee Risk requirements.
Management’s Discussion and Analysis
Interest Rates
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. Sensitivity to interest rates is dependent
on many factors and may result in non-linear impacts to the
LICAT Ratio. 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 or the impact of a LICAT interest rate risk scenario shift.
Immediate parallel shift in yield curve
December 31, 2021
Potential increase (decrease) on LICAT Ratio
(3 points)
50 bps
increase
50 bps
decrease
3 points
LICAT Interest Rate Scenario Shift
The LICAT interest rate risk capital 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. OSFI prescribes
a smoothing calculation to address potential volatility in the
interest rate risk capital requirement for participating insurance
products. The smoothing calculation averages the participating
interest rate risk requirements over the trailing six quarters,
thereby reducing unwarranted volatility.
In the third quarter of 2020, the Company experienced a shift in
the most adverse interest rate scenario in North America. The
cumulative impact of the third quarter of 2020 scenario change
was a decrease of approximately 5.5 points to the LICAT Ratio.
The six quarter smoothing period is now complete. The Company
experienced another shift in the interest rate scenario in North
America during the current quarter. The net impact to the LICAT
Ratio during the quarter for smoothing in the impact of this
scenario shift and the third quarter of 2020 interest rate scenario
shift was immaterial.
As a result of the scenario change this quarter, a smoothing of the
impact of reduced requirements for participating interest rate risk
will occur over the next five quarters. The Canada Life LICAT Ratio
is expected to increase by approximately one point per quarter
as a result of the smoothing calculation assuming the Company
remains on the now current scenario.
42
Great-West Lifeco Inc. 2021 Annual Report
Management’s Discussion and Analysis
RETURN ON EQUITY (ROE) (1)
Base Return on Equity (2)
Canada
U.S. Financial Services
U.S. Asset Management (Putnam)
Europe
Capital and Risk Solutions
Total Lifeco Base Earnings Basis (2)
Return on Equity (1)
Canada
U.S. Financial Services
U.S. Asset Management (Putnam)
Europe
Capital and Risk Solutions
Total Lifeco Net Earnings Basis (1)
Dec. 31
2021
17.2%
12.2%
5.3%
14.6%
33.7%
Sept. 30
2021
17.3%
11.6%
4.7%
13.2%
33.9%
Dec. 31
2020
18.5%
8.6%
0.7%
11.8%
38.8%
14.6%
14.5%
12.8%
Dec. 31
2021
16.7%
8.7%
5.0%
17.2%
32.8%
Sept. 30
2021
16.3%
7.7%
15.6%
16.1%
36.5%
Dec. 31
2020
16.4%
5.6%
11.6%
15.7%
44.4%
14.0%
14.9%
14.1%
(1) Refer to the “Glossary” section of this document for additional details on the composition of this measure.
(2) This metric is a non-GAAP ratio. Refer to the “Non-GAAP Financial Measures and Ratios” section of this document for additional details.
The Company reported base return on equity of 14.6% at
December 31, 2021, compared to 14.5% at September 30, 2021
and 12.8% at December 31, 2020. The Company reported return
on equity of 14.0% at December 31, 2021, compared to 14.9% at
September 30, 2021 and 14.1% at December 31, 2020.
The Company has a capital allocation methodology, which
allocates financing costs in proportion to allocated capital. For
the Canada, Europe 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 consistent with the consolidated Company.
Great-West Lifeco Inc. 2021 Annual Report
43
Management’s Discussion and Analysis
RATINGS
Lifeco maintains ratings from five independent ratings companies.
Credit ratings are intended to provide investors with an independent
measure of the credit quality of a corporation and 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 2021, the existing credit ratings for Lifeco and its major operating
subsidiaries were unchanged. Lifeco also obtained three new
subordinated debt ratings from DBRS Morningstar, Fitch Ratings,
and S&P Global Ratings, for its LRCN Series 1 issued on August 16,
2021 (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 2021.
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 Lifeco’s announcement on July 21, 2021, that its U.S.
subsidiary, Empower, had reached a definitive agreement to
acquire Prudential’s full-service retirement business, Lifeco
announced that the transaction was expected to be funded
with a combination of Limited Recourse Capital Notes, up to
US$1.0 billion of short-term debt and existing resources. On
August 16, 2021, Lifeco issued $1.5 billion (US$1.19 billion) LRCN
Series 1. In addition, Lifeco noted that the short-term financing
would facilitate leverage ratio reduction as the business generates
meaningful earnings and cash.
A (high)
A (high)
A (low)
A
BBB+
A+
A-
A+
AA
AA
AA (low)
AA
A+
Aa3
AA
AA-
AA
A+
NR
AA
Aa3
AA
Following the July 21, 2021 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 affirmed the rating outlook as stable; Fitch’s
rating outlook remains negative.
44
Great-West Lifeco Inc. 2021 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 subsidiaries, GWL&A
(Financial Services) and Putnam (Asset Management), together
with Lifeco’s corporate results. The following sections analyze the
performance of Lifeco’s four major reportable segments: Canada,
United States (U.S.), Europe and Capital and Risk Solutions.
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, disability, critical illness,
health and dental protection, creditor insurance as well as
retirement savings and income and annuity 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: Advisor
Solutions, 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.
TRANSLATION OF FOREIGN CURRENCY
For the United States, Europe and Capital and Risk Solutions
segments, 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.
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 benefits 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 focus. Traditional group products are generally
offered on an insured or an ASO basis, where clients self-insure
the products and Group Customer administers on their behalf.
With the acquisition of ClaimSecure, Group Customer’s ASO
capabilities have been significantly enhanced.
insurance
The Company’s creditor business offers creditor
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. 2021 Annual Report
45
Management’s Discussion and Analysis
MARKET OVERVIEW
PRODUCTS AND SERVICES
INDIVIDUAL CUSTOMER
The Company provides an array of individual insurance and
individual wealth management products that are distributed
through multiple sales channels.
MARKET POSITION
GROUP CUSTOMER
The Company provides an array of life, health and creditor
insurance as well as retirement and investment products that
are distributed primarily through Group sales offices across
the country.
MARKET POSITION
• Employee benefits to over 27,800 plan sponsors (1)
• 21% market share for employee benefit plans (2)
• A leader in individual life insurance sales measured by new annualized
• Leading market share for creditor products with coverage provided to
premium with 17.3% market share (1)
7.0 million plan members (1)
• A significant provider of individual disability and critical illness
• 19% market share of group capital accumulation plans (2)
insurance with 13.9% market share of new sales (1)
• An industry leader with 25.5% 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) (4)
PRODUCTS AND SERVICES
Group Life & 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
Advisor Solutions
• 4,306 financial security advisors
Affiliated Partnerships
• 7,090 independent brokers associated with 32 MGAs
•
Investment management services only plans
Invested in:
• Segregated funds
• Guaranteed investment options
• 1,214 advisors associated with 14 national accounts
• Securities
• 1,616 IG Wealth Management consultants who actively sell Canada Life
products
• 84 direct brokers and producer groups
Financial Horizons Group (5)
• 5,300 independent brokers selling products from across the insurance
industry, including Canada Life
Quadrus Investment Services Ltd.
(also included in Advisor Solutions advisor counts):
• 3,049 investment representatives
(1) Nine months ended September 30, 2021.
(2) As at November 30, 2021.
(3) As at December 31, 2021.
(4) Advisor Solutions includes all contracted advisors. Affiliated Partnerships and Financial Horizons
Group include advisors who placed new business in 2021.
(5) Financial Horizons Group advisors that placed Canada Life business in 2021 are also included in the
MGA independent broker count.
46
Great-West Lifeco Inc. 2021 Annual Report
Specialty Products and Services
• Dialogue™
• Best Doctors™
• Contact
• Individual Health
DISTRIBUTION
• Group Life and Health Benefits and Group Retirement and Investment
Services are distributed through brokers, consultants, third party
administrators/payers and financial security advisors. Sales and service
support are provided by an integrated team of over 610 employees, located
in 24 offices across the country, including 112 account executives (1).
• 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, 2021.
(2) As at December 31, 2020.
Management’s Discussion and Analysis
COMPETITIVE CONDITIONS
INDIVIDUAL CUSTOMER
Competition in the Canadian individual insurance market 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 financial technology (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.
GROUP CUSTOMER
The group life and health benefits market in Canada mainly
comprises 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.
2021 DEVELOPMENTS
• On December 1, 2021, Canada Life was awarded the Public Service
Health Care Plan (PSHCP) in the largest sale in the history of the
Canadian group benefit market. As a result, effective July 1, 2023,
Group Customer will support the well-being of 1.5 million more
Canadians, covering eligible public servants and their dependents
from coast to coast. The Company expects to administer an estimated
$26 billion in claims on behalf of the PSHCP over a 12-year contract.
The PSHCP represents over 3% of the group benefit market.
• On September 1, 2021, Canada Life completed the acquisition of
ClaimSecure Inc., an industry-leading healthcare management
firm that provides health and dental claim management services to
private and public businesses in Canada. The acquisition increases
the number of plan members served by Canada Life by 1.25 million
individuals, with annual claims payments of more than $1.2 billion.
• During 2021, Canada Life launched new funds that seek to
invest in companies that demonstrate strong environmental,
social and governance (ESG) practices:
º
º
Canada Life Sustainable Portfolios launched on September 20,
2021, gives investors access to investments diversified across
asset classes, regions and responsible investing strategies.
Canada Life Sustainable Target Date Funds launched on
December 7, 2021, gives plan sponsors and members sustainable
investing options to help members meet their retirement savings
goals. The funds are the first of their kind in the Canadian group
plan marketplace and exclusive to Canada Life.
• During 2021, Canada Life launched new products and services
to improve customer experience and help customers meet their
financial and wellness objectives:
º
º
º
On December 2, 2021, Dialogue’s internet-based cognitive
behavioural therapy (iCBT) program was made available to
all Consult+ users across Canada, allowing access to timely
mental health support.
Canada Life began providing HumanisRx’s MedCheckUp
program to its customers who are receiving disability benefits
and have complex or unique medication needs. Canada Life is
the first national insurer to offer medication reviews for disability.
My Term launched on April 5, 2021, a new customizable
product allowing customers to choose the coverage option
that works for them.
• During 2021, Canada Life delivered new platforms to support
advisors to build better businesses and serve more Canadians:
º
º
An innovative, digital financial planning platform, through a
partnership with Conquest Planning Inc., which empowers its
Advisor Solutions network to streamline the planning process
and efficiently build plans to meet unique client goals.
An intuitive digital sales platform, through a partnership
with CapIntel, which helps streamline advisors’ compliance
activities, allowing them to maximize their time with clients.
• On July 1, 2021, the home of the Winnipeg Jets and Manitoba
Moose was officially renamed Canada Life CentreTM. The 10-year
sponsorship agreement with True North Sports + Entertainment
gives Canada Life national brand and media exposure, as the
arena typically hosts more than 140 events each year and is
recognized as one of the premier sports and entertainment
venues in North America.
Great-West Lifeco Inc. 2021 Annual Report
47
Management’s Discussion and Analysis
Selected Financial Information – Canada
Base earnings (loss) (1)
Individual Customer
Group Customer
Canada Corporate
Base earnings (loss) (1)
Items excluded from base earnings
Actuarial assumption changes and other management actions (2)
Market-related impacts on liabilities (2)
Net gain/charge on business dispositions (3)
Restructuring costs (3)
Net earnings
Sales (2)
Individual Insurance
Individual Wealth
Group Insurance
Group Wealth
Sales (2)
Wealth Management net cash flows (2)
Individual Customer
Group Customer
Wealth Management net cash flows (2)
Fee and other income
Individual Customer
Group Customer
Canada Corporate
Fee and other income
Total assets (4)
Proprietary mutual funds and institutional assets (2) (4)
Total assets under management (1)
Other assets under administration (2)
Total assets under administration (1)
For the three months ended
For the twelve months ended
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
Dec. 31
2021
Dec. 31
2020
$
$
140
194
(17)
$
317
$
$
$
(13)
3
–
–
$
$
$
140
168
4
312
(11)
4
–
–
132
205
11
348
(147)
(10)
143
(34)
$
$
580
705
(65)
552
677
(23)
$
1,220
$
1,206
$
$
(43)
10
–
–
(194)
(51)
143
(34)
$
307
$
305
$
300
$
1,187
$
1,070
$
120
3,274
189
1,298
$
93
2,402
101
870
$
116
2,818
111
684
$
421
11,468
667
3,869
$
408
9,133
414
2,316
$
4,881
$
3,466
$
3,729
$ 16,425
$
12,271
$
$
332
(509)
$
(177)
$
$
$
292
217
12
521
$
$
447
(241)
206
296
197
16
509
$
$
$
$
75
(76)
$
1,324
(1,252)
$
(1)
$
72
$
$
$
1,138
794
59
251
195
15
461
$
1,991
$
1,756
295
68
363
981
716
59
$ 203,982
5,742
$ 197,244
5,534
$ 187,698
7,311
209,724
17,597
202,778
21,162
195,009
18,554
$ 227,321
$ 223,940
$ 213,563
(1) This metric is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures and Ratios” section of this document for additional details.
(2) Refer to the “Glossary” section of this document for additional details on the composition of this measure.
(3) The net gain on the sale of GLC and restructuring costs are included in the Canada Corporate business unit.
(4) At December 31, 2021, proprietary mutual funds excluded $2.4 billion in funds accounted for as investments on account of segregated fund policyholders ($0.5 billion at December 31, 2020).
48
Great-West Lifeco Inc. 2021 Annual Report
Management’s Discussion and Analysis
Base and net earnings
Sales
Sales for the fourth quarter of 2021 of $4.9 billion increased by
$1.2 billion compared to the same quarter last year, primarily due
to higher single premium group annuities, individual and group
segregated fund sales as well as higher individual third party
mutual fund sales.
For the twelve months ended December 31, 2021, sales increased
by $4.2 billion to $16.4 billion compared to the same period last
year, primarily due to higher individual and group segregated
fund sales, large case group wealth and insurance sales in the first
quarter of this year as well as higher individual mutual fund sales.
In the fourth quarter of 2021, wealth management net cash
outflows were $177 million compared to $1 million for the same
quarter last year. Net cash inflows for the twelve months ended
December 31, 2021 were $72 million compared to $363 million for
the same period last year.
Fee and other income
Fee and other income for the fourth quarter of 2021 of $521 million
increased by $60 million compared to the same quarter last year.
The increase was primarily due to higher Individual Customer and
Group Customer fee income as a result of higher average assets
under administration driven by higher average equity market levels.
For the twelve months ended December 31, 2021, fee and other
income increased by $235 million to $1,991 million compared
to the same period last year, primarily due to the same reason
discussed for the in-quarter results.
In the fourth quarter of 2021, Canada segment’s net earnings
of $307 million increased by $7 million compared to the same
quarter last year. Base earnings of $317 million decreased by
$31 million compared to the same quarter last year, primarily due
to less favourable morbidity experience in Group Customer and
the impact of changes to certain tax estimates.
Items excluded from base earnings were negative $10 million
compared to negative $48 million for the same quarter last year.
Actuarial assumption changes and management actions were
negative $13 million compared to negative $147 million for the
same quarter last year, which reflected the unfavourable impact
of insurance contract liability basis changes in the fourth quarter
of 2020. Market-related impacts were positive $3 million in the
fourth quarter of 2021 compared to negative $10 million in the
same quarter last year.
For the twelve months ended December 31, 2021, net earnings
increased by $117 million to $1,187 million compared to the same
period last year. Base earnings of $1,220 million increased by
$14 million compared to the same period last year, primarily due
to favourable morbidity experience in Group Customer, higher
impact of new business and fee income. The increase was partially
offset by the impact of lower surplus investment income on seed
money and changes in certain tax estimates.
For the twelve months ended December 31, 2021, items excluded
from base earnings were negative $33 million compared to
negative $136 million for the same period last year. Actuarial
assumption changes and management actions were negative
$43 million compared to negative $194 million for the same
period last year, primarily due to the same reason discussed for in-
quarter results. Market-related impacts were positive $10 million
compared to negative $51 million for the same period last year,
which was impacted by equity market declines and volatility in
the first quarter of 2020 on segregated fund guarantees and their
related hedging ineffectiveness.
For the fourth quarter of 2021, the net loss attributable to the
participating account was $25 million compared to net earnings
of $9 million for the same quarter last year, primarily due to
unfavourable contributions from insurance contract liability basis
changes. The decrease was partially offset by restructuring costs of
$18 million related to strategic initiatives included in participating
account earnings for the fourth quarter of 2020.
For the twelve months ended December 31, 2021, net earnings
attributable to the participating account were $304 million
compared to $76 million for the same period last year, primarily
due to favourable contributions from insurance contract liability
basis changes, favourable impact of new business driven by
higher insurance sales and the restructuring costs discussed for
the in-quarter results. The increase was partially offset by lower
contributions from
investment experience on participating
account surplus assets.
Great-West Lifeco Inc. 2021 Annual Report
49
Management’s Discussion and Analysis
OUTLOOK
GROUP CUSTOMER
Refer to Cautionary Note regarding Forward-looking Information
and Cautionary Note regarding Non-GAAP Financial Measures and
Ratios at the beginning of this document.
INDIVIDUAL CUSTOMER
The Individual Customer business unit delivered strong core
business results in 2021. 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 2022 and beyond.
In 2022, 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.
During 2021, Group Customer delivered strong business results
and maintained its 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.
The COVID-19 pandemic has impacted the overall Canada
employment rate and this may impact employee attrition in
existing Group plans; however, the 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.
In 2022, Group Customer will continue to advance its core
strategies to drive growth in the business. Group Customer
plans to enhance its competitive position in the marketplace
by focusing on improving its operational resilience. Group
Customer will enhance its productivity as well as customer and
employee experience by making further investments in workflow,
automation, digital and artificial intelligence. Group Customer
also plans to take advantage of being awarded the PSHCP by
building additional digital capabilities that will be leveraged by
the rest of the business improving efficiency and customer service.
The focus on operational resilience combined with a strong
expense management culture will be key to delivering strong
financial results in 2022 and beyond. While maintaining focus on
all areas of the business, Group Customer plans to put increased
focus and investment in its disability offering, improving the
efficiency and effectiveness of disability operations to support
growth and profitability in this business.
Group Customer will also focus on expanding its distribution
footprint and take advantage of its member base by offering
enhanced products that will be more readily available to its
members. Group Customer plans to capitalize on its recent
acquisition of ClaimSecure and
leverage newly acquired
capabilities to offer an enhanced product shelf as well as grow in
the third party administrator business segment.
50
Great-West Lifeco Inc. 2021 Annual Report
MARKET OVERVIEW
PRODUCTS AND SERVICES
FINANCIAL SERVICES
The Company provides a focused product offering that is
distributed through a variety of channels.
MARKET POSITION
• Second largest defined contribution service provider in the country (1)
by participants providing services for 13.0 million participant accounts
and approximately 67,000 plans (2)
• 19.9% market share in state and local government deferred
compensation plans, based on number of participant accounts (3)
• Great-West Lifetime Funds are the 16th largest target date fund offering
in the U.S.(2)
PRODUCTS AND SERVICES
• Employer-sponsored defined contribution plans, enrollment services,
communication materials, investment options and education services
• Administrative and recordkeeping services for financial institutions
and employer-sponsored defined contribution plans and associated
defined benefit plans
• Fund management, investment and advisory services
• Individual retirement accounts (IRAs) and taxable brokerage accounts
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, 2021.
(2) As at December 31, 2021.
(3) As at September 30, 2020.
Management’s Discussion and Analysis
U N I T E D S TAT E S
The United States segment operating results for Lifeco include
the results of GWL&A (which operates primarily as ‘Empower’),
Putnam Investments (Putnam) and the results of the insurance
businesses in the U.S. 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 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. This includes the retirement
services business acquired from MassMutual on December 31,
2020. 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. In addition, 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 are also included in
the Financial Services business unit.
Through its Asset Management business unit, and specifically the
Putnam brand, the Company provides investment management
services and related administrative functions and distribution
services, through a broad range of investment products.
BUSINESS PROFILE
FINANCIAL SERVICES
Empower offers employer-sponsored defined contribution plans,
investment
enrollment services, communication materials,
options, education services, individual retirement accounts and
taxable brokerage accounts. 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. Personal Capital is a hybrid wealth manager
that combines a leading-edge digital experience with personalized
advice delivered by dedicated advisors.
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 Exchange Traded Funds (ETF), Putnam
World Trust Funds, institutional portfolios (including hedge fund
and other alternative strategies), model-based separately managed
accounts (SMAs) and model portfolios. Revenue is derived
from the value and composition of assets under management
and performance fees as well as service and distribution fees.
Accordingly, fluctuations in the financial markets and changes in
the composition of assets or accounts affect revenues and results
of operations.
Great-West Lifeco Inc. 2021 Annual Report
51
Management’s Discussion and Analysis
ASSET MANAGEMENT
MARKET POSITION
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.
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.
• A global investment manager with assets under management of
US$202.5 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, a line of actively-managed semi-transparent ETFs,
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
six multi-asset model portfolios
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 135,000 advisors (1)
• Sub-advisory relationships and Putnam-labeled funds as investment
options for insurance companies and non-U.S. residents
• Retail distribution channels are supported by Putnam’s sales and
relationship management team
• Retirement plan sponsors and participants are supported by Putnam’s
dedicated defined contribution investment only professionals and
through a relationship with Empower and other recordkeeping firms
Institutional Investors
• Supported by Putnam’s dedicated account management, product
management and client service professionals
(1) As at December 31, 2021.
52
Great-West Lifeco Inc. 2021 Annual Report
Management’s Discussion and Analysis
2021 DEVELOPMENTS
FINANCIAL SERVICES DEVELOPMENTS
• On July 21, 2021, Empower announced a definitive agreement
to acquire the retirement services business of Prudential
Financial, Inc. (Prudential), further strengthening Empower’s
leadership position as the second largest retirement plan
service provider
in the U.S. Empower will acquire the
retirement services business of Prudential for a total value of
approximately US$3.55 billion. The value includes purchase
price consideration of US$1.12 billion, reinsurance ceding
commission of US$0.33 billion and US$2.1 billion of required
capital to support the business. The transaction is expected to
close in the first half of 2022, subject to regulatory approval and
other customary closing conditions.
Empower anticipates realizing cost synergies through the
migration of Prudential’s retirement services business onto
Empower’s recordkeeping platform. Estimated run-rate cost
synergies of US$180 million are expected to be phased in over
24 months. Revenue synergies of US$20 million are expected on
a run-rate basis by the end of 2023 and are expected to grow to
US$50 million by 2025.
to
incur one-time
Empower expects
integration and
restructuring expenses of US$170 million pre-tax and
transaction costs of approximately US$55 million pre-tax,
US$1 million and US$7 million pre-tax of which were incurred
in the fourth quarter of 2021 and in the twelve months ended
December 31, 2021, respectively. The integration is expected to
be completed 24 months following closing.
For the three
months ended
Dec. 31
2021
Sept. 30
2021
For the
twelve
months
ended
Dec. 31
2021
Total
incurred
to date
Dec. 31
2021
(in US$ millions)
Transaction costs (pre-tax)
Transaction costs (post-tax)
$
$
1
1
$
6
5
$
7
6
7
6
• At December 31, 2021, GWL&A’s RBC ratio is estimated to be well
in excess of 400% as it includes prefunded capital consideration
for the Prudential full-service retirement business acquisition
expected to close in the first half of 2022.
• As of December 31, 2021, US$80 million of pre-tax run rate cost
synergies have been achieved related to Empower’s acquisition
of MassMutual’s retirement services business compared to
US$60 million pre-tax as of September 30, 2021.
Empower remains on track to achieve run rate cost synergies of
US$160 million pre-tax at the end of integration in 2022 and to
achieve run rate revenue synergies of US$30 million in 2022 and
continue to grow beyond 2022.
Empower expects to incur restructuring and integration expenses
of US$125 million pre-tax related to the MassMutual transaction.
The integration is expected to be completed in the second half
of 2022.
For the three
months ended
Dec. 31
2021
Sept. 30
2021
For the
twelve
months
ended
Dec. 31
2021
Total
incurred
to date
Dec. 31
2021
(in US$ millions)
Restructuring and integration
(pre-tax)
$
10
$
19
$
45
$
74
Restructuring and integration
(post-tax)
Transaction costs (pre-tax)
Transaction costs (post-tax)
6
–
–
15
–
–
33
4
4
56
55
44
• As a result of the acquisition of Personal Capital in the third
quarter of 2020, Empower expects to incur total integration
expenses of US$57 million pre-tax. The integration remains
on track to be completed in the first half of 2022. Empower
transaction
recognized pre-tax contingent consideration
expense of US$41 million in the fourth quarter of 2021 and
US$80 million for the twelve months ended December 31, 2021
for a total contingent consideration provision of US$100 million,
based on a higher best estimate of net new assets above
the amount assumed in the purchase price. The maximum
amount of contingent consideration related to this transaction
is US$175 million
For the three
months ended
Dec. 31
2021
Sept. 30
2021
For the
twelve
months
ended
Dec. 31
2021
Total
incurred
to date
Dec. 31
2021
(in US$ millions)
Restructuring and integration
(pre-tax)
$
7
$
7
$
23
$
26
Restructuring and integration
(post-tax)
Transaction costs (pre-tax)
Transaction costs (post-tax)
6
41
39
5
22
20
17
80
76
19
102
96
Great-West Lifeco Inc. 2021 Annual Report
53
Management’s Discussion and Analysis
• Empower assets under administration (AUA) were US$1.1 trillion
at December 31, 2021, up from US$958 billion at December 31,
2020. Empower participant accounts have grown to 13.0 million
at December 31, 2021, up from 11.9 million at December 31,
2020. The increases in AUA and participants since December 31,
2020 were primarily driven by strong equity markets and large
plan sales, including one sale with approximately 316,000
participants and US$49 billion in AUA in the first quarter of 2021.
• During 2021, the Company completed its acquisition of
the retirement services business of Truist Bank, a former
private-label recordkeeping client. This acquisition brings
approximately 300 retirement plans consisting of more than
73,000 plan participants.
• During 2021, the Company received the following awards and
rankings:
º
º
Empower led the defined contribution plan recordkeeper
industry in growth by both participants and assets, based
on a survey published by Pensions & Investments in April
2021. The Company solidified its position as the second
largest defined contribution recordkeeper in the country,
improving its market share to 12% by participants and 11%
by assets.
On September 29, 2021, Financial Advisor IQ released their
2021 Service Awards in which more than 900 financial
advisors were surveyed to identify the firms they consider
to be leaders in the investment management business.
Empower received the Gold Medal
for best overall
recordkeeper, best reporting, best client service, best price
and best participant tools.
• Subsequent to the fourth quarter of 2021, on February 1,
2022, the Company announced a fresh brand identity aimed
at simplifying how the organization connects with customers.
The name “Empower” replaced “Empower Retirement” as U.S.
Financial Services’ public-facing brand name. The new mark
is a positive development reflecting Empower’s broadening
stature and rapid growth.
ASSET MANAGEMENT DEVELOPMENTS
(AUM) at
• Putnam’s ending assets under management
December 31, 2021 of US$202.5 billion
increased by
US$11.0 billion compared to the same period last year, while
average AUM for the twelve months ended December 31, 2021
of US$198.1 billion increased by US$24.4 billion compared to
the same period last year.
• Putnam continues to sustain strong investment performance
relative to its peers. As of December 31, 2021, approximately
84% and 83% of Putnam’s fund assets performed at levels
above the Lipper median on a three-year and five-year basis,
respectively. In addition, 50% and 37% of Putnam’s fund assets
were in the Lipper top quartile on a three-year and five-year
basis, respectively. Putnam has 25 funds currently rated 4 or 5
stars by Morningstar Ratings.
• In March 2021, Putnam International Value Fund received a
2021 Refinitiv Lipper Fund Award for Best International Large-
Cap Value Fund in the five-year and ten-year performance
categories, recognizing the fund’s superior risk-adjusted long-
term investment results compared to its peers.
• On May 26, 2021, Putnam launched its first actively managed
ETFs, which are based on four of its leading equity strategies.
The new offerings represent Putnam’s first ETF products, in
addition to an array of current offerings including retail mutual
funds, separately managed accounts, collective investment
trusts, private funds and non-U.S. funds.
• In February 2021, Putnam hired an experienced team to build
Putnam’s collateralized loan obligation (CLO) business under the 37
Capital brand, which is applied to Putnam’s alternative investment
strategies. On November 18, 2021, Putnam closed its first CLO fund
called 37 Capital CLO 1, a US$400+ million transaction. Putnam is
actively investing for its second CLO transaction.
• For the 32nd consecutive year, Putnam has been recognized by
DALBAR Inc. for mutual fund service quality. This recognition
includes Putnam being named as a DALBAR Mutual Fund
Service Award winner for 30 of those years. Additionally, Putnam
has been named the sole recipient of DALBAR’s Total Client
Experience Award recognizing overall mutual fund customer
service quality for the past eleven years.
54
Great-West Lifeco Inc. 2021 Annual Report
Management’s Discussion and Analysis
Selected Financial Information – United States
Base earnings (US$) (1)
Financial services
Asset Management (Putnam) Core (1)
Asset Management (Putnam) Non-core (1)
Total Asset Management (Putnam)
U.S. Corporate
Base earnings (US$) (1)
Items excluded from base earnings (US$)
Actuarial assumption changes and other management actions (2)
Market-related impact on liabilities (2)
Transaction costs related to acquisitions
Restructuring and integration costs
Revaluation of a deferred tax asset
Net earnings – common shareholders (US$)
Net earnings – common shareholders (C$)
Sales (US$) (2)
Financial Services
Asset Management (Putnam)
Sales (US$) (2)
Sales (C$) (2)
Fee and other income (US$)
Financial Services
Asset Management (Putnam)
Investment management fees
Performance fees
Service fees
Underwriting & distribution fees
Total Asset Management (Putnam)
Fee and other income (US$)
Fee and other income (C$)
For the three months ended
For the twelve months ended
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
Dec. 31
2021
Dec. 31
2020
$
$
$
$
110
20
15
35
(20)
$
$
149
24
3
27
(2)
$
125
$
174
$
$
$
$
1
(1)
(40)
(12)
–
73
92
$ 17,994
13,835
$ 31,829
$ 40,104
$
$
$
$
$
$
4
(1)
(25)
(20)
–
132
168
14,363
8,790
23,153
29,173
$
$
$
$
$
534
$
539
175
9
29
45
258
792
998
$
$
$
$
175
1
29
45
250
789
995
$
$
$
$
$
$
$
$
$
$
$
49
37
(11)
26
(7)
68
2
(1)
(36)
(25)
151
159
208
$
$
$
$
482
74
2
76
(23)
200
51
(37)
14
(9)
$
535
$
205
$
$
$
5
(3)
(86)
(54)
–
397
499
$
$
$
$
31
(15)
(60)
(25)
151
287
380
45,641
56,541
8,151
12,957
$ 117,036
45,419
21,108
$ 162,455
$ 102,182
27,439
$ 204,584
$ 136,884
329
$
2,103
$
1,171
157
25
28
42
252
581
754
$
$
$
$
682
12
116
179
989
3,092
3,880
$
$
$
$
599
23
111
166
899
2,070
2,769
Total assets (US$)
Proprietary mutual funds and institutional assets (2)
Total assets under management (1)
Other assets under administration (2)
Total assets under administration (US$) (1)
Total assets under administration (C$) (1)
$ 163,946
244,829
$ 163,878
235,067
$ 164,236
223,820
408,775
977,932
398,945
929,041
388,056
783,456
$ 1,386,707
$ 1,327,986
$ 1,171,512
$ 1,761,118
$ 1,686,542
$ 1,487,820
(1) This metric is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures and Ratios” section of this document for additional details.
(2) Refer to the “Glossary” section of this document for additional details on the composition of this measure.
Great-West Lifeco Inc. 2021 Annual Report
55
Management’s Discussion and Analysis
Base and net earnings
Sales
In the fourth quarter of 2021, the U.S. segment’s net earnings of
US$73 million decreased by US$86 million compared to the same
quarter last year. Base earnings of US$125 million increased by
US$57 million compared to the same quarter last year, primarily
due to an increase of US$61 million in Financial Services and an
increase of US$9 million in Putnam. The increase in Financial
Services was primarily due to MassMutual related base earnings of
US$44 million, growth in the legacy Empower business attributable
to higher average equity markets, an increase in participants, as
well as higher contributions from investment experience. The
increase in Financial Services was partially offset by a Personal
Capital related base loss of US$6 million. The increase in Putnam’s
results was primarily due to the favourable impact of certain tax
items and higher AUM-based fee revenue, partially offset by lower
net investment income and performance fee revenue as well as
higher operating expenses.
Items excluded from base earnings for the fourth quarter of 2021
were negative US$52 million compared to positive US$91 million
for the same quarter last year. The decrease was primarily related
to the revaluation of a deferred tax asset of US$151 million in
the fourth quarter of 2020 which had been de-recognized in the
fourth quarter of 2019. Transaction costs related to acquisitions
were US$40 million in the fourth quarter of 2021 and included
US$39 million of additional contingent consideration expense
related to the acquisition of Personal Capital based on a higher
best estimate of net new assets above the amount assumed in the
purchase price.
For the twelve months ended December 31, 2021, net earnings
increased by US$110 million to US$397 million compared to the
same period last year. Base earnings of US$535 million increased
by US$330 million compared to the same period last year, primarily
due to an increase of US$282 million in Financial Services and an
increase of US$62 million in Putnam. The increase in Financial
Services was primarily due to MassMutual related base earnings of
US$188 million and the same reasons discussed for the in-quarter
results, partially offset by a Personal Capital related base loss of
US$28 million. The increase in Putnam’s results was primarily due
to higher AUM-based fee income and the favourable impact of
certain tax items, partially offset by higher operating expenses as
well as lower net investment income and performance fee revenue.
For the twelve months ended December 31, 2021, items excluded
from base earnings decreased to negative US$138 million
compared to positive US$82 million for the same period last
year. The decrease was primarily related to the revaluation of a
deferred tax asset in the prior year as discussed in the in-quarter
results, higher restructuring and integration costs as well as lower
contributions from insurance contract liability basis changes.
Transaction costs related to acquisitions were US$86 million
for the twelve months ended December 31, 2021 and included
US$76 million of additional contingent consideration expense
related to the acquisition of Personal Capital based on a higher
best estimate of net new assets above the amount assumed in the
purchase price.
56
Great-West Lifeco Inc. 2021 Annual Report
Sales in the fourth quarter of 2021 of US$31.8 billion increased
by US$10.7 billion compared to the same quarter last year. The
increase was primarily due to an increase in Empower sales across
all plan sizes, Personal Capital related sales and higher Putnam
institutional sales, partially offset by lower Putnam mutual funds
sales. Large plan sales can be highly variable from period to period
and tend to be lower margin; however, contribute to covering fixed
overhead costs.
For the twelve months ended December 31, 2021, sales increased
by US$60.3 billion to US$162.5 billion compared to the same
period last year, primarily due to an increase in Empower sales
across all plan sizes and Personal Capital related sales, partially
offset by lower Putnam mutual and institutional sales. Empower
large plan sales for the first quarter of 2021 included one new
client with approximately 316,000 participants.
Empower – assets under administration (US$)
General account – fixed options
Segregated funds – variable options
Proprietary mutual funds (1)
Unaffiliated retail investment options &
administrative services only
December 31
2021
2020
$ 37,329 $ 36,590
86,181 87,578
42,058 50,232
977,932
783,456
$ 1,143,500 $ 957,856
(1) At December 31, 2021, proprietary mutual funds included US$19.6 billion in Putnam managed funds
(US$16.8 billion at December 31, 2020).
Empower customer account values at December 31, 2021 of
US$1.1 trillion increased by US$185.6 billion compared with
December 31, 2020, primarily due to favourable equity market
impacts and net cash inflows from unaffiliated retail investment
options and administrative services only accounts.
Fee and other income
Fee income is derived primarily from assets under management,
assets under administration,
fees,
administration and recordkeeping services, investment advisory
fees,
services,
transfer agency and other service fees, as well as underwriting
and distribution fees. Performance fee income for the Asset
Management business varies based on seasonality.
investment management
fees, performance
shareholder
servicing
Fee and other income for the fourth quarter of 2021 of
US$792 million increased by US$211 million compared to the same
quarter last year. The increase was primarily due to MassMutual
related fee income of US$147 million as well as Empower higher
average equity markets and growth in participants. Putnam fee
and other income also increased by US$6 million, primarily due
to higher investment management fees, partially offset by lower
performance fee revenue.
For the twelve months ended December 31, 2021, fee and other
income increased by US$1.0 billion to US$3.1 billion compared
to the same period last year. The increase was primarily due to
MassMutual related fee income of US$615 million and an increase
in Personal Capital related fee income of US$104 million. In
addition, Empower fee income and Putnam fee and other income
increased compared to the same period last year driven by higher
average equity markets.
Management’s Discussion and Analysis
ASSETS UNDER MANAGEMENT – PUTNAM
Assets under management (US$) (1)
Beginning assets
$ 196,887
$ 198,571
$ 179,018
$ 191,554
$ 181,724
For the three months ended
For the twelve months ended
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
Dec. 31
2021
Dec. 31
2020
Sales – Mutual funds (1)
Redemptions – Mutual funds
Net asset flows – Mutual funds (1)
Sales – Institutional (1)
Redemptions – Institutional
Net asset flows – Institutional (1)
Net asset flows – Total (1)
5,206
(6,812)
(1,606)
8,629
(7,063)
1,566
4,743
(5,687)
(944)
4,047
(4,699)
(652)
6,389
(7,155)
(766)
6,568
(6,791)
(223)
22,343
(26,605)
(4,262)
23,076
(26,109)
(3,033)
29,509
(33,492)
(3,983)
27,032
(29,735)
(2,703)
(40)
(1,596)
(989)
(7,295)
(6,686)
Impact of market/performance
5,685
(88)
13,525
18,273
16,516
Ending assets
Average AUM (1)
Mutual funds
Institutional assets
Total average AUM (1)
$ 202,532
$ 196,887
$ 191,554
$ 202,532
$ 191,554
98,425
102,090
98,584
102,021
90,164
95,261
97,155
100,968
85,687
88,065
$ 200,515
$ 200,605
$ 185,425
$ 198,123
$ 173,752
(1) Refer to the “Glossary” section of this document for additional details on the composition of this measure.
Putnam’s average proprietary mutual funds and institutional
assets for the three months ended December 31, 2021 were
US$200.5 billion, an increase of US$15.1 billion or 8% compared to
the same quarter last year, primarily due to strong equity markets.
In-quarter mutual fund net asset outflows of US$1.6 billion were
mostly offset by institutional net asset inflows of US$1.6 billion,
compared to net asset outflows of US$1.0 billion for the same
quarter last year.
Average proprietary mutual funds and institutional assets for
the twelve months ended December 31, 2021 increased by
US$24.4 billion to US$198.1 billion compared to the same period
last year, primarily due to the same reason discussed for the in-
quarter results. Net asset outflows for the twelve months ended
December 31, 2021 were US$7.3 billion compared to US$6.7 billion
for the same period last year.
Great-West Lifeco Inc. 2021 Annual Report
57
Management’s Discussion and Analysis
OUTLOOK
Refer to Cautionary Note regarding Forward-looking Information
and Cautionary Note regarding Non-GAAP Financial Measures
and Ratios at the beginning of this document.
FINANCIAL SERVICES
Empower is positioned for significant growth opportunities with
expertise and diversification across all plan types, company
sizes and market segments. The closing of the acquisition of the
full-service retirement business of Prudential Financial, Inc.,
expected to occur in the first half of 2022, will add significant
expertise, a broader set of capabilities and an expanded product
portfolio to Empower. Additionally, the acquisition further
solidifies Empower’s position as the second largest player in the
U.S. retirement market. The Financial Services business unit
continues to examine opportunities to structure products and
develop strategies to stimulate growth in AUM.
In 2022, Empower’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 2021, significant progress was made on the integration of
Personal Capital and MassMutual, which are expected to be
completed in the first and second half of 2022, respectively. It
is anticipated that Empower will realize further cost synergies
through the continued migration of MassMutual’s retirement
services business onto Empower’s recordkeeping platform. The
Company also expects to begin realizing cost synergies related
to the migration of Prudential’s retirement services business in
the second half of 2022.
E U R O P E
The Europe segment is comprised of three distinct business units
serving customers in the U.K., Ireland and Germany and offers
protection and wealth management products, including payout
annuity products. The U.K. and Germany business units operate
under the Canada Life brand and the Ireland business unit
operates under the Irish Life brand.
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.
58
Great-West Lifeco Inc. 2021 Annual Report
In addition to the aforementioned business integrations, it is
expected that continued investments in improving customer
web experience, including adding innovative capabilities and
ease of service products, will be made in 2022. These efforts are
expected to increase customer retention and ultimately increase
participant retirement savings. Leveraging new capabilities from
the acquisition of Personal Capital will allow Empower to better
integrate Prudential’s existing business of helping customers
better understand their current financial needs through financial
advice and goal setting.
ASSET MANAGEMENT
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 2022, 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 2022 as Putnam
further develops and refines its product offerings, service
features and operational functions, while bolstering its corporate
and brand image with a broad range of constituents. Putnam
technology
continues
throughout its business to drive greater efficiencies and create
business opportunities.
incorporate digital
increasingly
to
Putnam will remain focused on growth of revenues and assets in
2022, while also managing firm-wide expenses, as it seeks to further
build a scalable and profitable asset management franchise.
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
clients including pension schemes, insurance companies, wealth
managers, fiduciary managers and sovereign wealth funds
across Europe and North America. Setanta Asset Management,
a subsidiary of the Company, manages assets for third-party
institutional clients and a number of companies in the Lifeco
group. The Company also owns a number of employee benefits
and wealth consultancy businesses in Ireland.
GERMANY
The core products offered by the Germany business unit are
individual and group pensions and life insurance products. These
products are distributed through independent brokers and multi-
tied tied agents.
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 16% (1)
• Payout annuities market share 16% (Advisor only) (2)
• A market leading international life company selling into the U.K.
market, with over 15% market share (3)
• Among the top five in the onshore unit-linked single premium bond
market, with 8% market share (Advisor only) (3)
• An award winning competitor in the equity release market, with 12%
market share (4)
Ireland
• Life assurance company market share 34% (5)
• Retail life and pensions market share 26% (6)
• Group pensions, group risk and corporate annuities market share 45% (6)
• ILIM is one of the largest institutional fund managers in Ireland with
(cid:192)103 billion assets under management (7)
• Third largest health insurance business through Irish Life Health with a
market share of 21% (8)
Germany
• 4% share of the broker market (7)
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
EUROPE (CONT’D)
DISTRIBUTION
U.K.
• Financial advisors
• Private banks
• Employee benefit consultants
Ireland
• Independent brokers
• Pensions and investment consultants
• Direct sales force made up of primarily self employed tied agents and a
smaller employed sales team
• Tied bank branch distribution with various Irish banks
Germany
• Independent brokers
• Multi-tied agents
(1) As at December 31, 2020.
(2) Market share based on second quarter 2021 data through financial advisors, restricted whole market
advisors and non-advised distributor.
(3) Market share position is based on sales for the twelve month period ended September 30, 2021.
(4) Equity Release Council market statistics for the fourth quarter of 2020 to the third quarter of 2021.
(5) As at October 31, 2021.
(6) As at June 30, 2021.
(7) As at December 31, 2021.
(8) As at September 30, 2021.
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
investment bond providers in the U.K.
For individual annuities, the Company has benefited over recent
years from an increase in the proportion of customers seeking
the best price in the open market, increasing 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 is well positioned for
further growth in the retirement retail market, supported by its
equity release mortgage expertise, which is an important part of
the retirement market. 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 its bulk annuity new business.
In international wealth management operations, the Company
continued to focus efforts on increasing sales within the retail
market while maintaining its strong presence in the institutional
sector. 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.
Great-West Lifeco Inc. 2021 Annual Report
59
Management’s Discussion and Analysis
IRELAND
2021 DEVELOPMENTS
The Company is the largest life assurance company in Ireland
with a market share of ILA at 34% as at October 31, 2021. 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. It is expected that two of the smaller
banks will exit from the Irish market in 2022.
Irish Life Investment Managers (ILIM) is one of Ireland’s largest
institutional fund managers with approximately (cid:192)103 billion of
assets under management, as at December 31, 2021. As a market
leader in the domestic market, ILIM focuses on sustainability,
specifically in the area of climate change, with the expansion of its
sustainable solution range, the introduction of its Climate Action
Pledge and becoming one of the first asset managers in Ireland
to report in line with the Task Force on Climate-related Financial
Disclosures (TCFD). ILIM’s proprietary solutions all meet the new
sustainability criteria including the Irish Life flagship product
Multi Asset Portfolios (MAPS) which became the first flagship
offering in Ireland to meet this new standard. ILIM continued to
expand its real estate offerings and evolve its asset and liability
liability-driven investments and bulk annuity
management,
services to large defined benefit pension schemes.
Setanta Asset Management had approximately (cid:192)15 billion of
assets under management as at December 31, 2021.
Irish Life Health brand has a top three position in the Irish market.
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 hybrid and lighter guarantee product
categories that Canada Life offers.
• In the second quarter of 2021, a 50:50 joint venture agreement
was reached by Allied Irish Banks plc (AIB) and Canada Life
Irish Holding Company Limited to form a new life assurance
company. The new life assurance company, which is expected
to launch over the next twelve months, will offer AIB customers
a range of life protection, pensions, savings and investment
options enhanced by integrated digital solutions with continued
access to qualified financial advisors. In the fourth quarter of
2021, the Company incurred transaction costs of $3 million
related to this agreement. Once established, the existing
distribution agreement between AIB and Irish Life will cease.
The joint venture agreement is subject to customary regulatory
approval and authorization processes.
• On November 1, 2021, Irish Life completed the previously
announced acquisition of Ark Life Assurance Company dac
(Ark Life) from Phoenix Group Holdings plc. for a total cash
consideration of (cid:192)230 million. Ark Life is closed to new business
and manages a range of pensions, savings and protection
policies for its customers in the Irish market.
• In the third quarter of 2021, Irish Life Investment Managers
(ILIM) released a TCFD Report. The report illustrates ILIM’s
sustainable
investment commitment, providing greater
transparency to its stakeholders on key sustainability issues.
• During the fourth quarter of 2021, recurring annual premiums
in the defined contribution (DC) group pension business line
exceeded the (cid:192)1 billion mark. In the same period, Irish Life won
the Excellence in DC award for the second consecutive year at
the 2021 Irish Pensions Awards.
• During the year, the Company’s U.K. International Wealth
business won the Best International Life Group – U.K. at the
Global Financial Services Awards 2021 for the Company’s
commitment to the industry and a wide product range as well
as recognition for quality and service.
60
Great-West Lifeco Inc. 2021 Annual Report
Management’s Discussion and Analysis
Selected Financial Information – Europe
Base earnings (loss) (1)
United Kingdom
Ireland
Germany
Europe Corporate
Base earnings (loss) (1)
Items excluded from base earnings
Actuarial assumption changes and other management actions (2)
Market-related impacts on liabilities (2)
Transaction costs related to acquisitions
Tax legislative changes impact on liabilities
Net gain/charge on business dispositions
For the three months ended
For the twelve months ended
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
Dec. 31
2021
Dec. 31
2020
$
$
110
67
41
(5)
$
213
$
$
$
46
18
(24)
–
(14)
83
110
43
(4)
232
81
44
–
–
–
$
$
96
62
41
(4)
$
366
288
196
(20)
$
195
$
830
$
$
$
78
(20)
–
–
–
$
186
19
(24)
(21)
(14)
334
212
155
(13)
688
188
(57)
–
–
94
913
Net earnings – common shareholders
$
239
$
357
$
253
$
976
$
Sales (2)
Insurance
Wealth Management
Sales (2)
Wealth and investment only net cash flows (2)
United Kingdom
Ireland
Germany
$
909
5,584
$
1,930
5,038
$
1,078
5,796
$
4,202
22,411
$
2,651
26,345
$
6,493
$
6,968
$
6,874
$ 26,613
$
28,996
$
42
1,354
266
$
109
1,133
226
$
(108)
(1,282)
232
$
348
3,085
925
$
178
140
849
Wealth and investment only net cash flows (2)
$
1,662
$
1,468
$
(1,158)
$
4,358
$
1,167
Fee and other income
United Kingdom
Ireland
Germany
Fee and other income
Total assets
Proprietary mutual funds and institutional assets (2)
Total assets under management (1)
Other assets under administration (2) (3)
Total assets under administration (2)
$
$
42
200
122
364
$
$
48
189
115
352
$
$
43
189
119
351
$
$
175
772
468
168
752
446
$
1,415
$
1,366
$ 200,899
60,480
$ 191,878
61,695
$ 189,351
59,381
261,379
12,360
253,573
12,030
248,732
10,871
$ 273,739
$ 265,603
$ 259,603
(1) This metric is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures and Ratios” section of this document for additional details.
(2) Refer to the “Glossary” section of this document for additional details on the composition of this measure.
(3) At December 31, 2021, other assets under administration excludes $10.8 billion of assets managed for other business units within the Lifeco group of companies ($9.4 billion at September 30, 2021 and
$7.4 billion at December 31, 2020).
Great-West Lifeco Inc. 2021 Annual Report
61
Management’s Discussion and Analysis
Base and net earnings
Sales
In the fourth quarter of 2021, the Europe segment’s net earnings
of $239 million decreased by $14 million compared to the same
quarter last year. Base earnings of $213 million increased by
$18 million compared to the same quarter last year, primarily
due to favourable morbidity experience and changes to certain
tax estimates in the U.K. as well as fee income growth in Ireland.
These items were partially offset by lower annuitant experience
in the U.K., unfavourable mortality experience in Ireland and the
impact of currency movement.
Items excluded from base earnings for the fourth quarter of
2021 were positive $26 million compared to positive $58 million
for the same quarter last year. The decrease was primarily due
to transaction costs and contingent consideration provisions
related to recent acquisitions in Ireland, a net charge on business
disposition in Corporate and lower contributions from actuarial
assumption changes. These items were partially offset by growth in
property market values.
For the twelve months ended December 31, 2021, net earnings
increased by $63 million to $976 million compared to the same
period last year. Base earnings of $830 million increased by
$142 million compared to the same period last year. In the U.K.,
favourable
investment and morbidity experience positively
contributed to base earnings, partially offset by unfavourable
changes to certain tax estimates. In Ireland, fee income growth,
favourable morbidity experience and a pension settlement gain
positively contributed to base earnings. The favourable impact of
changes to certain tax estimates in Germany, resulting from the
resolution of an outstanding issue with a foreign tax authority.
For the twelve months ended December 31, 2021, items excluded
from base earnings decreased by $79 million to $146 million,
primarily due to the same reasons discussed for the in-quarter
results as well as the unfavourable impact of tax legislative changes
on deferred tax liabilities in the second quarter of 2021 and a net
gain on the sale of IPSI in the third quarter of 2020.
Sales for the fourth quarter of 2021 decreased by $0.4 billion to
$6.5 billion compared to the same quarter last year, primarily due
to lower fund management sales in Ireland, lower annuity sales in
the U.K. and the impact of currency movement. These items were
partially offset by growth in equity release mortgage sales in the
U.K. and higher wealth management sales across all business units.
For the twelve months ended December 31, 2021, sales decreased
by $2.4 billion to $26.6 billion compared to the same period
last year, primarily due to lower fund management and wealth
management sales in Ireland, and the impact of currency
movement. These items were partially offset by higher annuity
sales and growth in equity release mortgage sales in the U.K. as
well as wealth management sales in both the U.K. and Germany.
In the fourth quarter of 2021, wealth and investment only net
cash inflows were $1,662 million compared to net outflows of
$1,158 million for the same quarter last year. The increase was
primarily due to lower fund management outflows in Ireland. For
the twelve months ended December 31, 2021, net cash inflows were
$4,358 million compared to $1,167 million for the same period last
year, primarily due to higher wealth management sales in the U.K.
and Germany as well as lower Ireland outflows, partially offset by
lower fund management sales in Ireland.
Fee and other income
Fee and other income for the fourth quarter of 2021 increased
by $13 million to $364 million compared to the same quarter last
year. The increase was primarily due to higher management fees
on segregated fund assets in Ireland and Germany, partially offset
by the impact of currency movement.
For the twelve months ended December 31, 2021, fee and other
income increased by $49 million to $1,415 million compared to the
same period last year, primarily due to the same reasons discussed
for the in-quarter results.
62
Great-West Lifeco Inc. 2021 Annual Report
Management’s Discussion and Analysis
OUTLOOK
IRELAND
Refer to Cautionary Note regarding Forward-looking Information
and Cautionary Note regarding Non-GAAP Financial Measures and
Ratios at the beginning of this document.
UNITED KINGDOM
The retail payout annuities market is expected to show modest
growth in the medium to long-term. 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 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 the COVID-19
pandemic 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.
The Group protection business maintained its position as a market
leader and the Company believes that this market share position
will facilitate continued growth in premium income. 2021 continued
to see increased mortality claims from the COVID-19 pandemic,
which were broadly balanced by increased annuitant mortality
experience. That balance is expected to continue into 2022. In 2021,
the Company did not see the anticipated levels of employment
contraction arising from COVID-19 impact on the U.K. economy.
The benefits covered in the group risk portfolio are expected to
achieve moderate growth in 2022 with increased wage inflation.
The Irish economy has performed extremely well during the
pandemic, being one of only a handful of countries to experience
positive GDP growth in 2021. Household net worth and deposits
are at record levels and consumer confidence is recovering.
Business sentiment readings have also risen sharply and are high
in absolute and relative terms against global and European peers
and are consistent with strong growth in the Irish economy. The
multinational sector performed strongly, with record levels of
employment creation.
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. In 2022
the Company aims to consolidate its position in the wealth and
employee benefits consulting markets following the acquisitions
during 2020 and 2021. 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. In 2021 it has again actively reviewed
and amended its strategy to accelerate developments that help
its customers and advisers face the challenges presented by the
current economic climate. The relaunch of the Irish Life website
and launch of WorkLife, a corporate wellness platform, has allowed
Irish Life to further expand its well-being offering in line with the
Company’s commitment to support its customers, employees and
wider community in managing their mental, physical as well as
financial well-being. 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 the upturn in the Irish economy
post-crisis.
GERMANY
The outlook for the German business continues to be positive
and the Company expects growth in assets under management
and its share of the market during 2022. Unit-linked products are
expected to grow their market share, particularly as traditional
guaranteed products become less attractive due to the increasing
cost of guarantees and the impact of Solvency II on traditional
insurance products. The Company has positioned itself to
further strengthen its presence in the unit-linked market through
continued investments in product development, distribution
technology and service improvements.
The Company will focus on the independent intermediary
distribution channel and has a strong distribution technology
platform in Germany, which offers considerable service flexibility.
The Company is also focused on ensuring that its strong record of
legal and regulatory compliance continues, including response to
new regulatory requirements in respect of corporate governance
standards, risk management and consumer protection.
Great-West Lifeco Inc. 2021 Annual Report
63
Management’s Discussion and Analysis
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 includes the results for the segment’s
legacy international businesses.
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.
includes both
The Company’s business
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,
surety and property
health, annuity/longevity, mortgage
catastrophe reinsurance, provided on both a proportional and
non-proportional basis.
In addition to providing reinsurance products to third parties, the
Company also utilizes internal reinsurance transactions between
companies in the Lifeco group. These transactions are undertaken
to better manage insurance risks relating to retention, volatility
and concentration; and to facilitate capital management for the
Company, its subsidiaries and branch operations. These internal
reinsurance transactions produce benefits that are reflected in
one or more of the Company’s other business units.
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Great-West Lifeco Inc. 2021 Annual Report
MARKET OVERVIEW
PRODUCTS AND SERVICES
REINSURANCE
MARKET POSITION
• 8th largest reinsurer worldwide by premium volume (1)
• 3rd largest life reinsurer worldwide by premium volume (1)
• Leading provider of structured reinsurance solutions in the U.S. and
Europe market
• Leading provider of U.K. and European longevity reinsurance
• Ranked 7th for traditional mortality reinsurance in the U.S. (1)
• Long-standing provider of a range of property and casualty catastrophe
retrocession coverages
PRODUCTS AND SERVICES
Life, Health and Annuity
• Yearly renewable term
• Co-insurance
• Modified co-insurance
• Risk & capital management solutions
Longevity
• Longevity swaps
• Capital management solutions
Mortgage and Surety Reinsurance
• Stop loss and quota share
Property and Casualty
• Catastrophe retrocession
• Capital management solutions
Funded reinsurance
• Coinsurance of life and annuity blocks with assets
DISTRIBUTION
• Independent reinsurance brokers
• Direct placements
(1) As at December 31, 2020.
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. Nevertheless, a
biennial independent industry survey released in October 2021
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.
Management’s Discussion and Analysis
2021 DEVELOPMENTS
• The Company offers property catastrophe coverage
to
reinsurance companies and as a result the Company is
exposed to claims arising from major weather events and other
catastrophic events. The Company has been closely following a
number of such events which have caused a high level of insured
losses. Included in the Company’s net earnings for the third
quarter of 2021 were net losses of $61 million, primarily relating
to estimated claims net of reinstatement premiums on these
coverages. The Company’s loss estimate is based on currently
available information and the exercise of judgment. The
Company’s loss estimate may change as additional information
becomes available.
Selected Financial Information – Capital and Risk Solutions
• During 2021, the Company entered into the following long-term
reinsurance agreements:
º
º
º
Two long-term reinsurance agreements in Japan, which
cover blocks of in-force whole life policies. In exchange for
a single upfront premium payment, Canada Life will pay
the actual benefit obligations incurred under the respective
agreements.
A longevity reinsurance agreement with an insurance
company in the Netherlands, which covers approximately
€4.7 billion of pension liabilities and approximately 104,500
in-payment and deferred policies. In exchange for ongoing
premium payments, Canada Life will pay the actual benefit
obligations incurred by the insurance company.
Two longevity reinsurance agreements with insurance
companies in the U.K, which cover over £600 million of
pension liabilities and over 3,000 in-payment and deferred
policies. In exchange for ongoing premium payments,
Canada Life will pay the actual benefit obligations incurred
by the insurance companies.
For the three months ended
For the twelve months ended
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
Dec. 31
2021
Dec. 31
2020
Base earnings (loss) (1)
Reinsurance
Capital and Risk Solutions Corporate
Base earnings (loss) (1)
Items excluded from base earnings
$
$
147
(2)
$
145
$
108
(1)
107
$
$
Actuarial assumption changes and other management actions (2)
(12)
(5)
Net earnings – common shareholders
$
133
$
102
$
124
–
124
43
167
$
$
552
(5)
$
547
$
(15)
$
532
$
539
(3)
536
78
614
Total net premiums
Reinsurance
Capital and Risk Solutions Corporate
Total net premiums
$
7,216
6
$
8,558
5
$
5,330
6
$ 29,514
19
$
19,385
22
$
7,222
$
8,563
$
5,336
$ 29,533
$
19,407
Total assets (3)
$ 17,396
$
17,715
$
14,861
(1) This metric is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures and Ratios” section of this document for additional details.
(2) Refer to the “Glossary” section of this document for additional details on the composition of this measure.
(3) The Capital and Risk Solutions segment does not have assets under management or other assets under administration.
Great-West Lifeco Inc. 2021 Annual Report
65
Management’s Discussion and Analysis
Base and net earnings
In the fourth quarter of 2021, the Capital and Risk Solutions
segment’s net earnings of $133 million decreased by $34 million
compared to the same quarter last year. Base earnings of
$145 million increased by $21 million compared to the same quarter
last year, primarily due to growth in business in-force, changes in
certain tax estimates and less adverse claims experience in the
life business. The increase was partially offset by less favourable
longevity experience.
Items excluded from base earnings were negative $12 million
compared to positive $43 million for the same quarter last year.
The fourth quarter of 2020 included positive contributions from
insurance contract liability basis changes.
For the twelve months ended December 31, 2021, net earnings
decreased by $82 million to $532 million compared to the same
period last year. Base earnings of $547 million increased by
$11 million compared to the same period last year. Base earnings
for the twelve months ended December 31, 2021 included a loss
estimate of $61 million after-tax for estimated claims resulting
from the impact of recent major weather events recorded in the
third quarter of 2021. Excluding this estimated loss, base earnings
increased by $72 million compared to the same period last year,
primarily due to favourable impacts from new business, higher
business volumes and changes in certain tax estimates. The
increase was partially offset by unfavourable claims experience in
the U.S. life business and less favourable longevity experience.
For the twelve months ended December 31, 2021, items excluded
from base earnings decreased by $93 million to negative
$15 million compared to the same period last year, primarily due
to the same reasons discussed for the in-quarter results.
Total net premiums
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.
Total net premiums for the fourth quarter of 2021 of $7.2 billion
increased by $1.9 billion compared to the same quarter last year,
primarily due to new and restructured reinsurance agreements.
For the twelve months ended December 31, 2021, total net
premiums increased by $10.1 billion to $29.5 billion compared
to the same period last year, primarily due to the same reasons
discussed for in-quarter results. The reinsurance agreements
entered into in Japan contributed $4.3 billion to the increase.
OUTLOOK
Refer to Cautionary Note regarding Forward-looking Information
and Cautionary Note regarding Non-GAAP Financial Measures and
Ratios at the beginning of this document.
REINSURANCE
In the U.S. traditional life reinsurance market, the COVID-19
pandemic remains a significant headwind and the Company is
taking a cautious approach to new business and reviewing the
pricing of existing business.
The U.S. health individual market has grown in the last few years
with the implementation of the Affordable Care Act, which has
created additional opportunities for reinsurance.
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 2022.
Internationally, Canada Life continued to explore opportunities
where the Company’s reinsurance solutions can support clients
in new geographies and executed a number of value generating
transactions. Measured international expansion will remain a
focus in 2022.
2021 was the fifth consecutive year of significant hurricane and
flood events. The Company expects 2022 retrocessional pricing
to continue to increase. Insurance linked securities capacity has
decreased due to trapped collateral from 2017 to 2021 events,
together with a lower appetite for these risks. The Company’s
primary focus in the property catastrophe market for 2022 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.
In the fourth quarter of 2021, Lifeco Corporate had a net loss
of $6 million compared to $16 million for the same period last
year, primarily due to higher investment income as well as lower
operating expenses. There were no differences between net
earnings (loss) and base earnings (loss) for the fourth quarter of
2021 and 2020.
For the twelve months ended December 31, 2021, Lifeco
Corporate’s net loss was $66 million compared to $34 million for
the same period last year. The base loss of $8 million decreased by
$26 million compared to the same period last year, primarily due
to changes in certain tax estimates, partially offset by lower net
investment income as well as higher operating expenses driven by
variable compensation related expenses. Items excluded from base
earnings (loss) were negative $58 million compared to nil for the
same period last year, primarily due to a provision for payments
relating to the Company’s 2003 acquisition of Canada Life.
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Great-West Lifeco Inc. 2021 Annual Report
Management’s Discussion and Analysis
R I S K M A N A G E M E N T
COVID-19 PANDEMIC IMPACT
ENTERPRISE RISK MANAGEMENT FRAMEWORK
The COVID-19 pandemic continues to cause disruption to
businesses globally, resulting in continued economic pressures.
The impact of the pandemic on mortality, longevity, disability and
other claims experience in future periods remains uncertain and
may differ by region and business line, to date, net impacts have
been modest. The Company continues to monitor evolving trends
and information regarding COVID-19, factors that may affect
the length of the pandemic, and potential impacts on mortality
improvement. Vaccination programs are well advanced, with
many countries having a significant portion of the population
vaccinated; however, vaccine hesitancy has slowed progress.
New COVID-19 variants are more transmissible and may lead
to impacts on vaccine efficacy and higher mortality rates. The
Company continues to manage risks of changes to mortality and
longevity rates by issuing a diversified range of insurance, annuity
and fee income products, along with using reinsurance and capital
market solutions where appropriate.
OVERVIEW
As a diverse financial services company, the effective management
of risk is integral to the success of the Company’s business. The
Company is committed to a comprehensive system of risk
management, which is embedded across all business activities,
operated through a three lines of defence organization and
overseen by the Board of Directors. The Company’s three lines of
defence include business unit and support functions, oversight
functions including 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 developing and
maintaining 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.
The Company’s Board and Management Committees provide
oversight of the ERM Framework which is comprised of five
components: Risk Culture, Risk Governance, RAF, Risk Processes
and Risk Infrastructure & Policies.
Risk
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
• Board Committees
• Senior Management
Committees
• 3 Lines of Defence
• Risk Policies
• Risk systems
• Operating standards
and guidelines
RISK CULTURE
Risk culture is defined as the system of norms, values, attitudes
and behaviours that influences and informs risk decision-
making. Our risk culture reflects the Company’s collective sense
of responsibility to fulfill our commitments and promises to our
stakeholders. Our risk culture is guided by our corporate purpose
and core values with a customer first approach. We safeguard our
financial strength and strong reputation while growing shareholder
value in a manner that balances the interests of all stakeholders.
This culture is instilled through a mindset of risk awareness as
demonstrated by:
• Consistent tone from the Board, senior management and
throughout the organization in respect of behavioural and ethical
expectations, and alignment of business decisions with business
strategies, corporate purpose, core values and risk appetite
• Recognition that risk is inherent in our business success and
reflects opportunity when appropriately managed
• Individual and shared commitment to the importance of
continuous management of risk, including clear accountability
for and ownership of specific risks and risk areas
• Rewarding of positive risk taking and management behaviours
while challenging and remediating those that are inconsistent
with corporate purpose, core values or risk appetite
• Encouragement of risk event reporting and the presence of
robust whistleblowing processes, actively seeking to learn from
mistakes and near misses
• Accountability to all stakeholders
• Recognition that risk management is a responsibility for all of
us, both individually and collectively, across all three lines of
defence; risk management skills and knowledge are developed
and core to our ongoing success; objective challenge is expected
and respected across all business operations and all three lines
of defence. Oversight and Assurance Functions are valued and
appropriately resourced throughout the organization
Great-West Lifeco Inc. 2021 Annual Report
67
Management’s Discussion and Analysis
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,
including actions taken or planned to mitigate those risks where
appropriate;
• Review relevant reports including stress testing and Financial
Condition Testing;
• Review and approval of the Own Risk and Solvency Assessment
(ORSA) Report;
• Periodically approve the recovery plan playbook;
• Review of the risk impact of business strategies, capital plans,
financial plans and new business initiatives;
• Review and approve the mandate for 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;
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Great-West Lifeco Inc. 2021 Annual Report
• 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.
The Risk Committee meets with the Investment Committee as
appropriate. 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,
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.
Management’s Discussion and Analysis
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 global investment strategy
includes climate-related transition risks and opportunities such as
cleaner energy sectors that could impact our investment growth
strategies. 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 Company’s reinsurance
transactions. The mandate also includes reviewing and approving
to policies
management’s
applicable to reinsurance.
recommendations with
respect
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 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 Board Risk Committee delegates authority for the
approval and management of lower level risk limits to the ERMC.
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 Defence model
to clearly segregate risk management and risk oversight
responsibilities and applies the ERM Framework rigorously
across the enterprise:
• First Line: Business units and business support functions,
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
and effective challenge of risk-taking and risk management of
the first line of defence. In this role, the Risk Function receives
support from other oversight functions including Actuarial,
Compliance and Finance; and
• Third Line: Internal Audit is responsible for independent
assurance of the adequacy of the design and operational
effectiveness of the Company’s ERM Framework.
The Company’s CRO reports directly, both to the President and
Chief Executive Officer and to the Board Risk Committee. The CRO
is responsible for ensuring that the Risk Function is appropriately
resourced and effective in executing its responsibilities. The
accountabilities of the CRO include reporting on compliance
with the ERM Policy and RAF as well as for escalating matters that
require attention.
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. 2021 Annual Report
69
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 all stakeholders including 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
by comprehensive
limit approval and excess management
processes to ensure effective governance and oversight of the RAF.
The Company and its subsidiaries are subject to various regulatory
regimes. The capital requirements under these regulatory capital
regimes are reflected in the development of risk limits. Business
units are responsible for operating within the risk appetite and the
risk limit framework and satisfying local needs as required.
RISK PROCESSES
Risk processes follow a cycle of identification, measurement,
management, monitoring and reporting and are designed to ensure
both current and emerging risks are assessed against the RAF.
Risk Identification, Measurement and Management
Risk identification requires the structured analysis of the current
and emerging risks facing the Company, so that they are understood
and appropriately controlled. Processes are designed to ensure
risks are considered, assessed, prioritized and addressed in all
business initiatives and changes, including investment strategies,
product design, significant transactions, annual planning and
budgeting as well as potential business acquisitions and disposals.
Risk measurement provides the means to quantify and assess the
Company’s risk profile and monitor the profile against the risk
limits. Any material new business development or change in
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Great-West Lifeco Inc. 2021 Annual Report
strategy warrants an independent assessment of risk and potential
impact on reputation, in addition to measurement of the impact
on capital, earnings and liquidity. Stress and scenario testing is
used to evaluate risk exposures against the risk appetite. Sensitivity
testing of key risks is used to evaluate the impact of risk exposures
independent of other risks. Scenario testing is used to evaluate the
combined impact of multiple risk exposures.
The Company has processes in place to identify risk exposures
on an ongoing basis and, where appropriate, develops mitigation
strategies to proactively manage these risks. Effective risk
management requires the selection and implementation of
approaches to accept, reject, transfer, avoid or control risk,
including mitigation plans. It is based on a control framework
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. The Risk
Function provides ongoing and independent challenge to the first
line of defense. In addition, in the event of a significant internal
or external change that could introduce new risks or heighten
existing risks that could materially impact the business, the Risk
Function provides a formal Risk Opinion or thematic review.
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 and monitored 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
RISK MANAGEMENT AND CONTROL PRACTICES
The Company’s risk profile is impacted by a variety of risks and its
risk management and independent oversight processes are tailored
to the type, volatility and magnitude of each risk. The Company
has defined specific risk management and oversight processes for
risks, broadly grouped in the following categories:
1. Market and Liquidity Risk
2. Credit Risk
3. Insurance Risk
4. Operational Risk
5. Conduct Risk
6. Strategic Risk
MARKET AND LIQUIDITY RISK
RISK DESCRIPTION
Market risk is the risk of loss resulting from potential changes in
market rates and prices 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 & Liquidity Risk Policy sets out the market
and liquidity risk management framework and principles. This
policy is supported by other policies and guidelines that provide
detailed guidance.
implemented
A governance structure has been
for the
management of market and liquidity risk. The business units,
including Investment Management, are the ultimate owners of
market and liquidity risk and as such have primary responsibility
for the identification, measurement, management, monitoring and
reporting. The Company has established a senior management
committee to provide oversight of market and liquidity risk, which
includes completing reviews and making recommendations
regarding risk limits, the risk policy and associated compliance,
excess management and mitigation pertaining to market and
liquidity risk. Each business segment has established oversight
committees and operating committees to help manage market
and liquidity risk within the segment. The Company has developed
risk limits, RFIs and other 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 and
liquidity risks and take appropriate action, if required.
The Company is willing to accept market and liquidity risk in certain
circumstances as a consequence of its business model and seeks
to mitigate the risks wherever practical. To reduce market risk, the
Company has established a framework using dynamic hedging
programs associated with segregated fund and variable annuity
guarantees. Hedging programs are grouped by product-level hedging,
tactical portfolio hedging and macro-hedging. 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. To reduce liquidity risk, the
Company seeks to maintain a high quality, diversified investment
portfolio with sufficient liquidity to meet demands of policyholders
and financing obligations under normal and stress conditions.
Risks and risk management activities associated with the broad
market and liquidity risk categories are detailed below.
Interest Rate Risk
Interest rate risk is the risk of loss resulting from the effect of the
volatility and uncertainty of future interest rates on asset cash
flows relative to liability cash flows and on assets backing surplus.
This also includes changes in the amount and timing of cash flows
related to asset and liability optionality, including interest rate
guarantees and book value surrender benefits in the liabilities.
The Company’s principal exposure to interest rate risk arises from
certain general fund and segregated fund products. The Company’s
Asset Liability Management (ALM) strategy has been designed
to mitigate interest rate risks associated with general fund
products, with close matching of asset cash flows and insurance
and
investment contract obligations. Products with similar
risk characteristics are grouped together to ensure an effective
aggregation and management of the Company’s ALM positions.
Asset portfolios supporting insurance and investment contract
liabilities are segmented to align with the duration and other
characteristics (e.g. liquidity) of the associated liabilities.
A prolonged period of low interest rates may adversely impact
the Company’s earnings and regulatory capital and could impact
the Company’s business strategy. During periods of prolonged
low interest rates, investment earnings may be lower because
the interest earned on new fixed income investments will likely
have declined with the market interest rates, and hedging costs
may increase. Also, early repayment on investments held such as
mortgage-backed securities, asset-backed securities, and callable
bonds, may be experienced and proceeds forced to be reinvested
at lower yields, which will reduce investment margins.
Crediting rates within general fund products are set prudently and
a significant proportion of the Company’s portfolio of crediting rate
products includes pass-through features, which allow for the risk
and returns to be shared with policyholders. Asset management
and related products permit redemptions; however, the Company
attempts to mitigate this risk by establishing long-term customer
relationships, built on a strategic customer focus and an emphasis
on delivering strong fund performance.
The Company has established dynamic hedging programs to
hedge interest rate risk sensitivity associated with segregated
fund and variable annuity guarantees. These hedging programs
are designed to offset changes in the economic value of liabilities
using derivative instruments. The Company’s approach to dynamic
hedging of interest rate risk principally involves transacting in
interest rate swaps. The hedge asset portfolios are dynamically
rebalanced within approved thresholds and rebalancing criteria.
Where the Company’s insurance and investment products have
benefit or expense payments that are dependent on inflation (e.g.
inflation-indexed annuities, pensions and disability claims), the
Company generally invests in real return instruments to mitigate
changes in the real dollar liability cash flows. Some protection
against changes in the inflation index can be achieved, as any
related change in the fair value of the assets will be largely offset by
a similar change in the fair value of the liabilities.
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71
Management’s Discussion and Analysis
Equity Risk
Foreign Exchange 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. Hedging programs are grouped
by product-level hedging, tactical portfolio hedging and macro-
hedging. 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.
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 Empower 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 Europe and
Capital and Risk Solutions 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 decrease (increase) net earnings in 2021 by
$37 million, $33 million and $34 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 $445 million, $214 million and $84 million,
respectively, as at December 31, 2021.
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-GAAP
financial measures such as constant currency calculations to assist
in communicating the effect of currency translation fluctuation on
financial results.
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Great-West Lifeco Inc. 2021 Annual Report
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 (1)
December 31
2021
2020
Cash, cash equivalents and short-term bonds
$ 9,791 $ 11,197
Other liquid assets and marketable securities
Government bonds
Corporate bonds (2)
Stocks
Mortgage loans
Total
Cashable liability characteristics
35,331
50,491
12,424
3,406
33,635
52,583
10,208
3,785
$ 101,652 $ 100,211
$ 111,443 $ 111,408
December 31
2021
2020
Surrenderable insurance and investment contract liabilities (1) (3)
At market value
At book value
Total
$ 48,767 $ 50,855
49,981
54,232
$ 102,999 $ 100,836
(1) Amounts presented exclude non-liquid and pledged assets. Refer to the Liquidity table on page 38 for
additional details regarding the composition of these metrics.
(2) Includes public short-term bonds and public long-term bonds that are rated BBB or higher.
(3) Cashable liabilities include insurance and investment contract liabilities classified as held for sale.
The carrying value of the Company’s liquid assets and marketable
securities is approximately $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.
Approximately 48% (approximately 48% in 2020) of insurance and
investment contract liabilities are non-cashable prior to maturity
or claim, with a further 24% approximately (26% in 2020) 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, 2021 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 results 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 assessment of potential changes in the risk profile under
stress scenarios.
for
the
implemented
A governance structure has been
management of credit risk. The business units,
including
Investment Management, are the ultimate owner of credit risk
and as such have primary responsibility for the identification,
measurement, management, monitoring and reporting. The
Company has established a senior management committee to
provide oversight of credit risk, which includes completing reviews
and making recommendations regarding risk limits, the risk policy
and associated compliance, excess management and mitigation
pertaining to credit risk. Each business segment has established
oversight committees and operating committees to help manage
credit risk within the segment. The Company has developed risk
limits, RFIs and measures to support the management of credit
risk in compliance with the Company’s RAF.
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73
Management’s Discussion and Analysis
The Company has established business-segment specific
Investment and Lending Policies, including investment limits for
each asset class. These policies and limits are complemented by
the Credit Risk Policy which sets out the credit risk management
framework and principles. This policy is supported by other
policies and guidelines that provide detailed guidance.
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.
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.
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Great-West Lifeco Inc. 2021 Annual Report
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
from
insurance contracts.
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 risk
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.
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.
Management’s Discussion and Analysis
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
pertaining to
insurance risk. Each business segment has
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.
• 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.
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75
Management’s Discussion and Analysis
Longevity Risk
Property Catastrophe 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.
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.
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Great-West Lifeco Inc. 2021 Annual Report
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, and to maintain operational
resilience. Ongoing engagement of businesses and support
functions across the enterprise through robust training and
communications is regularly undertaken for identifying, assessing
and mitigating operational risk issues.
Operational
risk management governance and oversight
reflects a combined effort between business units and oversight
functions. The Risk Function is responsible for the development
of operational risk management policies and operating standards
as well as overseeing operational risk management activities
performed in the first line of defence. The Operational Risk
Committee has the primary mandate to provide risk oversight for
operational risk across the enterprise. In addition, each business
segment has established committees to oversee operational risk
management within their business.
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 and cybersecurity
risk management and risk data aggregation & risk reporting.
The Company implements controls to manage operational risk
through integrated policies, procedures and processes, 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.
Management’s Discussion and Analysis
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 Compliance 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 defence functions. The Company
records, manages and monitors the regulatory compliance
environment closely, using the subject matter expertise of both
local and enterprise-wide Compliance and Legal stakeholders
and reporting on emerging changes that could have a significant
impact on the Company’s operations or business.
The Company is subject to the risk of litigation 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.
Technology Risk
Technology risk is the risk of loss from improper system or control
design, improper operation, delivery of or unauthorized access
to information and technology resources that can significantly
impact the Company’s ability to operate efficiently, to stay
compliant with regulations, and to maintain its financial integrity
and reputation. More specifically, Technology Risk includes
Information and Cybersecurity Risk, Technology Operations Risk
and Technology Delivery Risk.
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.
The Company continues to implement 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 defence; and
• regular cyber security awareness sessions and mandatory cyber
security training for all employees.
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77
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 advisors. 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 risk by focusing on its governance,
assessment, prevention, detection, investigation and response.
integrity,
The Company promotes a culture of honesty,
transparency and fairness in its operations and outlines roles
and responsibilities in 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 protocol is in place to deal with events through a
coordinated investigative strategy designed to protect stakeholders
and the interests of the Company.
Supplier Risk
Supplier risk is the risk of loss resulting from the failure to establish
and manage adequate supplier arrangements, 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.
Management’s Discussion and Analysis
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 workplace, workforce,
technology and supply chain outages and disruptions.
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 technology resilience
which includes disaster recovery planning.
Poor operational resiliency in the face of natural, technological, or
human caused events could prevent the Company from carrying
out important business services, with potential for lost revenue,
regulatory sanctions and damage to reputation.
Process & Infrastructure Risk
Process and infrastructure risk is the risk of loss resulting from
inadequate or failed business processes that deliver products and
services and grow shareholder value, or the risk of loss resulting
from the reduction or non-availability of corporate facilities,
physical assets, or physical security. 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, financial modelling and financial
management. The inadequacy can arise in transaction processing,
governance, communication or general process management.
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.
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Great-West Lifeco Inc. 2021 Annual Report
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’s carefully aligns
business strategies with the Risk Appetite.
In respect of new strategic 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.
Management’s Discussion and Analysis
CONDUCT RISK
RISK DESCRIPTION
Conduct risk is the risk of unfair outcomes for customers as a result
of inadequate or failed processes and/or inappropriate behaviours,
offerings or interactions by the Company or its agents. A failure to
identify and mitigate conduct risk impacts not only the Company’s
customers but can also have adverse reputational and financial
consequences for the Company due to the cost of customer
remediation, damage to reputation and/or regulatory fines.
CONDUCT RISK MANAGEMENT
The Company manages conduct risk through various processes
which include:
• providing appropriate and clear customer disclosures and
communications;
• applying product design, complaint, claims management
and sales and advice processes that consider outcomes to
customers; and
• conducting risk based advisor assessments and suitability
reviews, maintaining controls and adhering to Board-approved
policies and processes, including the Conduct Risk Policy and
the Code of Conduct.
Conduct Risk is incorporated in risk management and compliance
activities, including risk and control assessments, internal events
reporting, emerging risk assessments, and other measurement,
monitoring and reporting activities.
STRATEGIC RISK
RISK DESCRIPTION
Strategic risk is the risk of 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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79
Management’s Discussion and Analysis
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. Integration risk can emerge also due to external risks
that are difficult to anticipate resulting in reduced synergies and
negative impact on value capture.
To mitigate these risks, due diligence reviews are undertaken and
risks are assessed in the context of our Risk Appetite. The Company
recognizes that integration risk can emerge due to external risks
that are difficult to anticipate resulting in reduced synergies and
negative impact on value capture. For each transaction, a robust
integration strategy is established that considers the values, norms,
and culture of the acquired companies, including monitoring of
new and emerging risks that may impede efficiency and delay
the consolidation process. 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.
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Great-West Lifeco Inc. 2021 Annual Report
Tax Regime Risk
The Company operates in a number of countries each with its own
distinct tax regime, encompassing various levels of government
and a range of tax mechanisms, such as income taxes, capital
taxes, payroll taxes, value add taxes, sales taxes, etc. and further,
may provide tax incentives for certain types of products (examples
include support for pensions, retirement savings and life & health
insurance). These jurisdictions periodically review and amend
various aspects of the tax regime that can have an impact on the
business of the Company.
There is a risk that changes to tax rates may increase the tax
expense to the Company, adversely impacting earnings. There
is also a risk that a reduction or elimination in the level of tax
incentives on products offered by the Company may adversely
impact demand for those products.
Management actively monitors changes in tax regimes in countries
where it has operations and proactively responds to tax changes
that may have potential impacts on its business.
Recently, the Organization for Economic Co-operation and
Development (OECD) published a
framework outlining a
structure for a new global minimum tax regime to be implemented
by all participating countries at an agreed future date, currently
expected to be 2023 or 2024. The countries where the Company
currently operates have all indicated their participation; however,
none have developed implementing legislation at this point. A
number of these countries currently operate at a lower tax rate
than the proposed minimum and if legislation is introduced, the
Company’s tax expense could be negatively impacted.
Product Distribution Risk
Product distribution risk is the risk of loss resulting from the
Company’s inability to market its products through its network of
distribution channels and intermediaries. These intermediaries
generally offer their clients products in addition to, and in
competition with, the Company’s products, and are not obligated
to continue working with the Company. In addition, certain
investors rely on consultants to advise them on the choice
of provider and the consultants may not always consider or
recommend the Company. The loss of access to a distribution
channel, the failure to maintain effective relationships with
intermediaries or the failure to respond to changes in distribution
channels could have a significant impact on the Company’s ability
to generate sales.
Product distribution risk is managed by maintaining a broad
network of distribution relationships, with products distributed
through numerous broker-dealers, managing general agencies,
financial planners, banks and other financial institutions.
Sustainability Risk
Sustainability is the risk that the interests of the Company’s
customers and other stakeholders are not protected or that business
operations and business growth are not sustained due to failure to
meet societal expectation related to corporate social responsibilities.
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.
Management’s Discussion and Analysis
formally reflected
Sustainability considerations are
in the
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.
The Company has established and made available on its website, an
Environmental Social Governance (ESG) scorecard that contains
standardized ESG disclosures for its global operating companies.
The scorecard is in alignment with the Global Reporting Initiative
(GRI) Sustainability Reporting Guidelines. The GRI Standards
are the most widely adopted global standards for sustainability
reporting, providing a globally recognized
for
companies to measure and communicate their environmental,
economic, social and governance performance.
framework
The Financial Stability Board (FSB) established the Task Force
on Climate-related Financial Disclosures (TCFD) to develop
recommendations for climate-related disclosure that could
encourage more informed investment, credit, and insurance
underwriting decisions and allow for a better understanding of
carbon-related assets in the financial sector and the financial
system’s exposures to climate risks. In 2020, the Company became
an official TCFD supporter of the recommendations of the FSB’s
task Force on Climate-related Financial Disclosures. The Company
is also an active participant in the UN-sponsored “Capital as a
Force for Good” project, and a member of the Canada Sustainable
Finance Action Council.
Also, the Company has committed to achieve net zero greenhouse
gas (GHG) emissions by 2050 for both operations and investments
(Scope 3 financed GHG emissions related to the General Account
investment portfolio (invested assets)), with interim science-
based targets to be announced in 2022.
EXPOSURES AND SENSITIVITIES
INSURANCE AND INVESTMENT CONTRACT LIABILITIES
In determining the Company’s insurance contract liabilities,
valuation assumptions are made regarding rates of mortality/
morbidity, investment returns, levels of operating expenses,
rates of policy termination and rates of utilization of elective
policy options or provisions. When the assumptions are revised
to reflect emerging experience or change in outlook, the result
is a change in the value of liabilities which in turn affects the
Company’s earnings.
The following table illustrates the approximate impact to the
Company’s earnings that would arise as a result of changes to
management’s best estimate of certain assumptions. For changes
in asset related assumptions, the sensitivity is shown net of the
corresponding impact on earnings of the change in the value of
the assets supporting liabilities.
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
2021
2020
$
$
$
(276) $
(722) $
(262) $
(288)
(756)
(279)
$
$
–
–
$
$
–
–
$ 197
$
$
(555) $
224
(920)
$
$
$
$
$
$
$
$
$
21
13
$
(19) $
(66) $
28
15
(51)
(208)
$
79
39
$
(30) $
(112) $
34
6
(69)
(108)
$
(649) $
(207) $
556
$ 567
(682)
$
(165)
$
$ (1,002) $ (1,017)
Refer to the “Accounting Policies – Summary of Critical Accounting
Estimates” section of this document for additional information on
earnings sensitivities.
Great-West Lifeco Inc. 2021 Annual Report
81
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:
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, 2021 annual
consolidated financial statements for disclosure of the Company’s
financial instruments fair value measurement by hierarchy level as
at December 31, 2021.
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.
Fair Value Measurement
Investment impairment
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.
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.
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Great-West Lifeco Inc. 2021 Annual Report
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 CGU 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 CGU 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 CGUs, 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
liabilities are measured at fair value
determined using discounted cash flows utilizing the yield curves
of financial instruments with similar cash flow characteristics.
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 $276 million.
• A 2% decrease in the best estimate annuitant assumption would
cause a decrease in net earnings of approximately $722 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 $262 million.
Great-West Lifeco Inc. 2021 Annual Report
83
Management’s Discussion and Analysis
Property and casualty reinsurance – Insurance contract liabilities
for property and casualty reinsurance written by Capital and Risk
Solutions 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. Capital
and Risk Solutions 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
because the Company’s sensitivity to interest rate movements
varies at different terms.
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 provision is set in
consideration of long-term historical results and is monitored
quarterly with a full review annually. The impact to the value of
liabilities from an immediate parallel 1% increase or 1% decrease
in the interest rates would be largely offset by changes in the
value of assets supporting the liabilities. The following is the
impact to the value of liabilities net of changes in the value of
assets supporting liabilities of an immediate parallel 1% increase
or 1% decrease in the interest rates as well as a corresponding
parallel shift in the ultimate reinvestment rates, as defined in
the actuarial standards.
• 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 $219 million causing an increase in
net earnings of approximately $197 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 $678 million causing a decrease in
net earnings of approximately $555 million.
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 below would have a greater impact on net earnings, relative
to the change in equity values.
The following shows the expected 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
$16 million, causing an increase in net earnings of approximately
$13 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
$22 million, causing a decrease in net earnings of approximately
$19 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
$26 million, causing an increase in net earnings of approximately
$21 million.
• A 20% decrease in publicly traded common stock values
would be expected to additionally increase non-participating
insurance and investment contract liabilities by approximately
$76 million, causing a decrease in net earnings of approximately
$66 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 $46 million,
causing an increase in net earnings of approximately $39 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 $38 million,
causing a decrease in net earnings of approximately $30 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 $92 million,
causing an increase in net earnings of approximately $79 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 $144 million,
causing a decrease in net earnings of approximately $112 million.
84
Great-West Lifeco Inc. 2021 Annual Report
Management’s Discussion and Analysis
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. 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 $715 million causing an increase in
net earnings of approximately $567 million.
• A 1% decrease in the best estimate assumption would be
expected to increase non-participating insurance contract
liabilities by approximately $829 million causing a decrease in
net earnings of approximately $649 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, 2021.
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. 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 $207 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 $1,002 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.
Tax planning strategies to obtain tax efficiencies are used. The
Company continually assesses the uncertainty associated with
these strategies and holds an appropriate level of provisions for
uncertain income tax positions. Accordingly, the provision for
income taxes represents management’s interpretation of the
relevant income tax laws and its estimate of current and deferred
income tax balances for the period. Deferred income tax assets
and liabilities are recorded based on expected future income tax
rates and management’s assumptions regarding the expected
timing of the reversal of temporary differences. The Company has
substantial deferred income tax assets. The recognition of deferred
income tax assets depends on management’s assumption that
future earnings will be sufficient to realize the deferred benefit.
The amount of the asset recorded is based on management’s best
estimate of the realization of the asset.
The audit and review activities of tax authorities may affect the
ultimate determination of the amounts of income taxes payable or
receivable, deferred income tax assets or liabilities and income tax
expense. Therefore, there can be no assurance that income taxes
will be payable as anticipated and/or the amount and timing of
receipt or use of the income tax related assets will be as currently
expected. Management’s experience
taxation
authorities are more aggressively pursuing perceived income tax
issues and have increased the resources they put to these efforts.
indicates
the
Great-West Lifeco Inc. 2021 Annual Report
85
Management’s Discussion and Analysis
Employee future benefits
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
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, 2021 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.
Actuarial assumptions – employee future benefits
At December 31
Actuarial assumptions used to determine benefit cost
Discount rate – past service liabilities
Discount rate – future service liabilities
Rate of compensation increase
Future pension increases (1)
Actuarial assumptions used to determine defined benefit obligation
Discount rate – past service liabilities
Rate of compensation increase
Future pension increases (1)
Medical cost trend rates
Initial medical cost trend rate
Ultimate medical cost trend rate
Year ultimate trend rate is reached
(1) Represents the weighted average of plans subject to future pension increases.
Defined benefit pension plans
Other post-employment benefits
2021
2020
2021
2020
2.2%
2.8%
3.0%
1.2%
2.6%
3.1%
1.7%
2.6%
3.2%
2.9%
1.3%
2.1%
2.9%
1.0%
2.5%
2.6%
–
–
3.1%
–
–
4.7%
4.1%
2039
3.1%
3.3%
–
–
2.5%
–
–
4.7%
4.1%
2039
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Great-West Lifeco Inc. 2021 Annual Report
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
2021
2020
2021
2020
(1,199)
299
578
$
(1,350)
329
662
$
1,568
(269)
(507)
$
1,784
(291)
(569)
$
24
(36)
$
31
(44)
$
(21)
44
(26)
53
$
$
(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 $299 million ($309 million in 2020) to the pension
plans and made benefit payments of $19 million ($17 million in
2020) for post-employment benefits. The Company’s subsidiaries
expect to contribute $284 million to the pension plans and make
benefit payments of $22 million for post-employment benefits
in 2022.
Great-West Lifeco Inc. 2021 Annual Report
87
Management’s Discussion and Analysis
INTERNATIONAL FINANCIAL REPORTING STANDARDS
Due to the evolving nature of IFRS, there are a number of IFRS
changes impacting the Company in 2021, 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 Interest Rate Benchmark Reform –
Phase 2 amendments to IFRS for IAS 39, Financial Instruments:
Recognition and Measurement, IFRS 7, Financial Instruments:
STANDARD
SUMMARY OF FUTURE CHANGES
Disclosures, IFRS 4, Insurance Contracts and IFRS 16, Leases,
effective January 1, 2021. The adoption of these amendments
did not have a significant impact on the Company’s consolidated
financial statements.
For a further description of the impact of the accounting policy
change, refer to note 2 of the Company’s December 31, 2021
annual consolidated financial statements.
IFRS that have changed or may change subsequent to 2021 and
could impact the Company in future reporting periods, are set out
in the following table:
IFRS 17 – Insurance Contracts
In May 2017, the IASB issued IFRS 17, Insurance Contracts (IFRS 17), which will replace IFRS 4, Insurance Contracts. In
June 2020, the IASB issued amendments to IFRS 17. The amended confirmed effective date for the standard is 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 near final as well as significant progression 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. 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. Specifically, the recognition of the contractual service margin liabilities will also have the effect of reducing
accumulated surplus.
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. OSFI has stated that it intends to maintain capital frameworks consistent with current capital policies
and minimizing potential industry-wide capital impacts. The Company continues to assess all these impacts through
its global implementation plan, however the change will not impact the economics of the affected businesses or our
business model.
88
Great-West Lifeco Inc. 2021 Annual Report
Management’s Discussion and Analysis
STANDARD
SUMMARY OF FUTURE CHANGES
IFRS 9 – Financial Instruments
In July 2014, the IASB issued a final version of IFRS 9, Financial Instruments (IFRS 9) to replace IAS 39, Financial
Instruments: Recognition and Measurement. The 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. Upon adoption, the Company does not expect a material change in the level of invested
assets, nor a material increase in earnings volatility, however the Company continues to evaluate the impact of the
adoption of this standard with the adoption of IFRS 17.
In December 2021, the IASB issued a narrow-scope amendment to the transition requirements of IFRS 17. The Amendment,
Initial Application of IFRS 17 and IFRS 9 — Comparative Information (Amendment to IFRS 17), provides entities that first
apply IFRS 17 and IFRS 9 at the same time with the option to present comparative information about a financial asset as
if the classification and measurement requirements of IFRS 9 had been applied to that financial asset before. The option
is available on an instrument-by-instrument basis. In applying this option, entity is not required to apply the impairment
requirements of IFRS 9.
IAS 1 – Presentation of
Financial Statements
In February 2021, the IASB published Disclosure of Accounting Policies, amendments to IAS 1, Presentation of Financial
Statements. The amendments clarify how an entity determines whether accounting policy information is material.
These amendments are effective for annual reporting periods beginning on or after January 1, 2023, with earlier application
permitted. The Company is evaluating the impact of the adoption of these amendments.
IAS 8 – Accounting Policies,
Changes in Accounting
Estimates and Errors
In February 2021, the IASB published Definition of Accounting Estimates, amendments to IAS 8, Accounting Policies,
Changes in Accounting Estimates and Errors. The amendments clarify the difference between an accounting policy and
an accounting estimate.
IAS 12 – Income Taxes
IAS 37 – Provisions,
Contingent Liabilities and
Contingent Assets
Annual Improvements
2018-2020 Cycle
These amendments are effective for annual reporting periods beginning on or after January 1, 2023, with earlier application
permitted. The Company is evaluating the impact of the adoption of these amendments.
In May 2021, the IASB published Deferred Tax Related to Assets and Liabilities from a Single Transaction, amendments
to IAS 12, Income Taxes. The amendments clarify that for transactions in which both deductible and taxable temporary
differences arise on initial recognition that result in deferred tax assets and liabilities of the same amount, deferred tax
assets and liabilities are to be recognized.
These amendments are effective for annual reporting periods beginning on or after January 1, 2023, with earlier application
permitted. The Company is evaluating the impact of the adoption of these amendments.
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 early adoption
permitted. The Company does not anticipate a significant impact on its consolidated financial statements as a result of
these amendments.
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 does not anticipate a significant impact on its consolidated
financial statements as a result of the amendment to IFRS 16, Leases.
The Company continues to evaluate the impact for the adoption of the amendment to IFRS 9, Financial Instruments along
with the adoption of IFRS 17 on January 1, 2023.
Great-West Lifeco Inc. 2021 Annual Report
89
Management’s Discussion and Analysis
O T H E R I N F O R M AT I O N
NON-GAAP FINANCIAL MEASURES AND RATIOS
The Company uses several non-GAAP financial measures to
measure overall performance of the Company and to assess each
of its business units. A financial measure is considered a non-GAAP
measure for Canadian securities law purposes if it is presented
other than in accordance with generally accepted accounting
principles (GAAP) 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-GAAP financial measures do not have a standardized meaning
under GAAP and may not be comparable to similar financial
measures presented by other issuers. Investors may find these
financial measures useful in understanding how management
views the underlying business performance of the Company.
Base earnings (loss)
Base earnings (loss) 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 the
following items:
Lifeco
• 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
º
º
º
the impact of hedge ineffectiveness related to segregated
fund guarantee
the
performance of the related hedge assets;
that are hedged and
liabilities
the impact on segregated fund guarantee liabilities not hedged;
the impact on general fund equity and investment properties
supporting insurance contract liabilities;
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, when removed, assist in explaining the
including
Company’s underlying business performance
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
2021
Sept. 30
2021
Dec. 31
2020
Dec. 31
2021
Dec. 31
2020
Base earnings
$
825
$
870
$
741
$
3,260
$
2,669
Items excluded from Lifeco base earnings
Actuarial assumption changes and other management actions (pre-tax)
$
Income tax (expense) benefit
Market-related impact on liabilities (pre-tax)
Income tax (expense) benefit
Transaction costs related to acquisitions (pre-tax)
Income tax (expense) benefit
Restructuring and integration costs (pre-tax)
Income tax (expense) benefit
Tax legislative changes impact on liabilities
Net gain/charge on business dispositions (pre-tax)
Income tax (expense) benefit
Revaluation of a deferred tax asset
Total pre-tax items excluded from base earnings
$
Impact of items excluded from base earnings on income taxes
$
$
28
(5)
22
(2)
(76)
2
(21)
6
–
(14)
–
–
(61)
1
74
(5)
52
(5)
(104)
14
(32)
8
–
–
–
–
(10)
12
$
$
(71)
48
(21)
(10)
(59)
12
(88)
21
–
137
6
196
$
$
(102)
273
$
$
148
(14)
35
(11)
(207)
18
(90)
24
(21)
(14)
–
–
(128)
(4)
61
52
(178)
51
(95)
17
(88)
21
–
232
5
196
(68)
342
Net earnings – common shareholders
$
765
$
872
$
912
$
3,128
$
2,943
90
Great-West Lifeco Inc. 2021 Annual Report
Management’s Discussion and Analysis
Canada
Base earnings
Items excluded from base earnings
For the three months ended
For the twelve months ended
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
Dec. 31
2021
Dec. 31
2020
$
317
$
312
$
348
$
1,220
$
1,206
Actuarial assumption changes and other management actions (pre-tax)
$
Income tax (expense) benefit
Market-related impacts on liabilities (pre-tax)
Income tax (expense) benefit
Net gain/charge on business dispositions (pre-tax)
Income tax (expense) benefit
Restructuring costs (pre-tax)
Income tax (expense) benefit
$
(18)
5
4
(1)
–
–
–
–
$
$
(15)
4
6
(2)
–
–
–
–
(199)
52
(14)
4
137
6
(46)
12
$
(58)
15
13
(3)
–
–
–
–
(265)
71
(71)
20
137
6
(46)
12
Net earnings – common shareholders
$
307
$
305
$
300
$
1,187
$
1,070
United States
Base earnings
Items excluded from base earnings
For the three months ended
For the twelve months ended
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
Dec. 31
2021
Dec. 31
2020
$
156
$
221
$
90
$
671
$
273
Actuarial assumption changes and other management actions (pre-tax)
$
Income tax (expense) benefit
Market-related impact on liabilities (pre-tax)
Income tax (expense) benefit
Transaction costs related to acquisitions (pre-tax)
Income tax (expense) benefit
Revaluation of a deferred tax asset
Restructuring and integration costs (pre-tax)
Income tax (expense) benefit
$
2
–
(1)
–
(52)
2
–
(21)
6
$
5
(1)
(1)
–
(36)
4
–
(32)
8
Net earnings – common shareholders
$
92
$
168
$
3
–
(2)
1
(59)
12
196
(42)
9
208
$
$
7
(1)
(5)
–
(115)
8
–
(90)
24
$
499
$
52
(11)
(26)
7
(95)
17
196
(42)
9
380
Europe
Base earnings
Items excluded from base earnings
For the three months ended
For the twelve months ended
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
Dec. 31
2021
Dec. 31
2020
$
213
$
232
$
195
$
830
$
688
Actuarial assumption changes and other management actions (pre-tax)
$
Income tax (expense) benefit
Market-related impact on liabilities (pre-tax)
Income tax (expense) benefit
Transaction costs related to acquisitions (pre-tax)
Income tax (expense) benefit
Tax legislative changes impact on liabilities
Net gain/charge on business dispositions (pre-tax)
Income tax (expense) benefit
Net earnings – common shareholders
$
59
(13)
19
(1)
(24)
–
–
(14)
–
$
90
(9)
47
(3)
–
–
–
–
–
$
83
(5)
(5)
(15)
–
–
–
–
–
$
219
(33)
27
(8)
(24)
–
(21)
(14)
–
$
239
$
357
$
253
$
976
$
209
(21)
(81)
24
–
–
–
95
(1)
913
Great-West Lifeco Inc. 2021 Annual Report
91
Management’s Discussion and Analysis
Capital and Risk Solutions
Base earnings
Items excluded from base earnings
For the three months ended
For the twelve months ended
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
Dec. 31
2021
Dec. 31
2020
$
145
$
107
$
124
$
547
$
536
Actuarial assumption changes and other management actions (pre-tax)
$
$
(15)
3
$
(6)
1
$
42
1
$
(20)
5
65
13
$
133
$
102
$
167
$
532
$
614
Income tax (expense) benefit
Net earnings – common shareholder
Lifeco Corporate
Base earnings (loss)
Items excluded from base earnings (loss)
Transaction costs related to acquisitions (pre-tax)
Income tax (expense) benefit
Net earnings (loss) – common shareholder
$
$
$
For the three months ended
For the twelve months ended
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
Dec. 31
2021
Dec. 31
2020
(6)
$
(2)
$
(16)
$
(8)
$
(34)
$
–
–
(6)
$
(68)
10
(60)
$
$
$
–
–
(16)
$
(68)
10
(66)
$
$
–
–
(34)
Assets under management (AUM) and assets under
administration (AUA)
Assets under management and assets under administration are
non-GAAP measures that provide an indicator of the size and
volume of the Company’s overall business.
Total assets under administration includes total assets per
financial statements, proprietary mutual funds and institutional
assets and other assets under administration. Please refer to
the “Glossary” section for additional information regarding
proprietary mutual funds and institutional assets and other assets
under administration.
Assets under management and assets under administration
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
$ 630,488
377,155
$ 1,007,643
1,271,931
$ 614,962
365,764
$ 600,490
350,943
$ 980,726
1,213,074
$ 951,433
1,024,414
$ 2,279,574
$ 2,193,800
$ 1,975,847
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
$ 101,537
5,742
15,322
$
97,769
5,534
14,132
$
90,680
7,311
12,078
$ 122,601
$ 117,435
$ 110,069
$ 102,445
2,275
$
99,475
7,030
$
97,018
6,476
$ 203,982
5,742
17,597
$ 197,244
5,534
21,162
$ 187,698
7,311
18,554
$ 227,321
$ 223,940
$ 213,563
Total assets per financial statements
Proprietary mutual funds and institutional assets
Assets under management
Other assets under administration
Assets under administration
Canada
Canada wealth fee business assets under administration
Segregated fund assets
Mutual funds and institutional assets
Wealth fee business other assets under administration
Total Canada wealth fee business assets under administration
Add: Other balance sheet assets
Add: Other assets under administration
Consolidated Canada balance sheet assets
Consolidated Canada proprietary mutual funds and institutional assets
Consolidated Canada other assets under administration
Total Canada assets under administration
92
Great-West Lifeco Inc. 2021 Annual Report
Management’s Discussion and Analysis
United States
Financial Services
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
Personal Capital mutual funds and institutional assets
$
29,231
$
26,355
$
20,665
Empower assets under administration
General account
Segregated funds
Proprietary mutual funds
Other assets under administration
Empower assets under administration
Putnam proprietary mutual funds and institutional assets
Subtotal
Less: Mutual fund and institutional asset consolidation adjustment
Add: Other balance sheet assets
Consolidated United States balance sheet assets
Consolidated United States proprietary mutual funds and institutional assets
Consolidated United States other assets under administration
Total United States assets under administration
Europe
Europe wealth and investment only assets under administration
Segregated fund assets
Mutual funds and institutional assets
Wealth fee business other assets under administration
Total Europe wealth and investment only assets under administration
Add: Other balance sheet assets
Consolidated Europe balance sheet assets
Consolidated Europe proprietary mutual funds and institutional assets
Consolidated Europe other assets under administration
Total Europe assets under administration
Premiums and deposits
Total premiums and deposits include premiums on risk-based
insurance and annuity products net of ceded reinsurance (as
defined under IFRS as net premium income), premium equivalents
on self-funded group insurance ASO contracts, deposits on
individual and group segregated fund products as well as deposits
Premiums and deposits
Total net premiums
Policyholder deposits (segregated funds) (1)
Self-funded premium equivalents (ASO contracts) and other
Proprietary mutual funds and institutional deposits
47,408
109,450
53,413
1,241,974
46,098
109,395
49,862
1,179,882
46,469
111,223
43,130
994,989
$ 1,452,245
$ 1,385,237
$ 1,195,811
$ 257,216
$ 250,046
$ 243,273
$ 1,738,692
$ 1,661,638
$ 1,459,749
$
(28,927)
51,353
$
(27,728)
52,632
$
(22,817)
50,888
$ 208,211
310,933
1,241,974
$ 208,125
298,535
1,179,882
$ 208,580
284,251
994,989
$ 1,761,118
$ 1,686,542
$ 1,487,820
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
$ 138,963
60,480
12,360
$ 131,284
61,695
12,030
$ 125,370
59,381
10,871
$ 211,803
$ 205,009
$ 195,622
$
61,936
$
60,594
$
63,981
$ 200,899
60,480
12,360
$ 191,878
61,695
12,030
$ 189,351
59,381
10,871
$ 273,739
$ 265,603
$ 259,603
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.
For the three months ended
For the twelve months ended
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
Dec. 31
2021
$ 12,989
8,337
4,556
21,772
$
14,921
6,733
2,828
14,800
$
11,747
5,641
1,687
21,756
$ 52,813
29,657
11,108
75,225
$
Dec. 31
2020
43,019
21,916
6,123
100,287
Total premiums and deposits
$ 47,654
$
39,282
$
40,831
$ 168,803
$ 171,345
(1) For additional details, refer to note 14(b) to the Company’s consolidated financial statements for the period ended December 31, 2021.
Great-West Lifeco Inc. 2021 Annual Report
93
Management’s Discussion and Analysis
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.
Core net earnings (1)
Fee and net investment income (US$)
Less: Expenses (US$)
Core earnings (US$)
Less: Income taxes (US$)
Core net earnings (loss) (US$)
Non-core net earnings (loss) (US$)
Net earnings (loss) (US$)
Net earnings (loss) (C$)
For the three months ended
For the twelve months ended
Dec. 31
2021
Sept. 30
2021
Dec. 31
2020
Dec. 31
2021
Dec. 31
2020
$
$
$
$
$
254
225
29
9
20
15
35
43
$
$
$
$
$
250
219
31
7
24
3
27
34
$
$
$
$
$
271
215
56
19
37
(11)
26
35
$
$
$
$
$
990
890
100
26
74
2
76
95
$
$
$
$
$
926
846
80
29
51
(37)
14
18
(1) For the Asset Management business unit, there were no differences between net earnings (loss) and base earnings (loss) in the periods presented.
• Cost of management ratio – Compares the amount paid by the
Company to compensate its Named Executive Officers (NEOs)
relative to the Company’s base earnings for the same period.
Calculated by dividing total annual compensation paid to NEOs
(as disclosed in the Executive Compensation section of the
Company’s management proxy circular) by base earnings for
the year.
• Effective income tax rate – base earnings – common
shareholders – Calculated by adjusting the Company’s reported
income taxes and net earnings before income taxes attributable
to common shareholders to remove the impact of items
excluded from base earnings, to calculate the effective tax rates
for common shareholders.
• Effective income tax rate – base earnings – total Lifeco –
Calculated by adjusting the Company’s reported income taxes
and net earnings before income taxes to remove the impact of
items excluded from base earnings, to calculate the effective tax
rates for total Lifeco.
Non-GAAP Ratios
A non-GAAP ratio is a financial measure in the form of a ratio,
fraction, percentage or similar representation that is not disclosed
in the financial statements of the Company and has a non-GAAP
financial measure as one or more of its components. These
financial measures do not have a standardized definition under
IFRS and might not be comparable to similar financial measures
disclosed by other issuers.
The non-GAAP ratios disclosed by the Company each use base
earnings (loss) as the non-GAAP component. Base earnings
(loss) 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 dividend payout ratio – Dividends paid to common
shareholders are divided by base earnings (loss).
• Base earnings per share – Base earnings (loss) for the period is
divided by the number of average common shares outstanding
for the period.
• Base earnings per share (diluted) – Base earnings (loss) for
the period is divided by the number of average common shares
outstanding on a diluted basis for the period.
• Base return on equity – Base 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.
• Core margin (pre-tax) – The metrics relates to the Asset
Management line of business within the United States segment
and is calculated by dividing core earnings by fee and net
investment income.
94
Great-West Lifeco Inc. 2021 Annual Report
Management’s Discussion and Analysis
GLOSSARY
• Actuarial assumption changes and other management
actions – In accordance with the OSFI “Source of Earnings
Disclosure (Life Insurance Company)” Guideline D-9, actuarial
assumption changes and management actions represent 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. Within
the Source of Earnings Disclosure, management actions include
the net gain or charge on business dispositions and transactions
costs related to acquisition. The reconciliation between net
earnings – common shareholders and base earnings (loss)
presents the net gain or charge on business dispositions and
transactions costs related to acquisition separately from
actuarial assumption changes and other management actions.
• Book value per common share – Measure is calculated by
dividing Lifeco’s common shareholder’s equity by the number
of common shares outstanding at the end of the period.
• Common shareholder’s equity – A financial measure comprised
of the following items from Lifeco’s balance sheet: share capital
– common shares, accumulated surplus, accumulated other
comprehensive income and contributed surplus.
• Dividend payout ratio – Dividends paid to common shareholders
are divided by net earnings – common shareholders.
• Financial leverage ratio – Defined as debt, hybrid securities, and
preferred shares divided by total consolidated capitalization.
• Impact of currency movement (constant currency basis) –
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. These measures highlight the impact of changes
in currency translation rates on Canadian dollar equivalent
IFRS results and have been calculated using the average rates,
as shown below, in effect at the date of the comparative period.
These measures provide useful information as it facilitates the
comparability of results between periods.
Period ended
United States dollar
British pound
Euro
December 31
2021
2020
1.26
1.70
1.44
1.30
1.72
1.55
• Market-related impacts on liabilities – 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
º
º
º
the impact of hedge ineffectiveness related to segregated
liabilities that are hedged and the
fund guarantee
performance of the related hedge assets;
the impact on segregated fund guarantee
not hedged;
liabilities
the impact on general fund equity and investment properties
supporting insurance contract liabilities;
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.
• Office of the Superintendent of Financial Institutions Canada
(OSFI) – Is an independent Canadian federal government agency
that regulates and supervises federally regulated financial
institutions and pension plans to determine whether they are
in sound financial condition and meeting their requirements.
• Return on common shareholder’s equity (ROE) – 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.
• Sales – Sales are measured according to product type:
º
º
º
º
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.
• Segmented common shareholder’s equity – The Company has
a capital allocation methodology, which allocates financing
costs in proportion to allocated capital. For the Canada, Europe
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.
• Proprietary mutual funds and institutional assets – Includes
external client funds where the Company has oversight of the
investment policies. Services provided in respect of proprietary
mutual funds and institutional assets 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.
Great-West Lifeco Inc. 2021 Annual Report
95
Management’s Discussion and Analysis
• Net cash flows and net asset flows – Indicator of the Company’s
ability to attract and retain business. Net cash flows and net
asset flows are measured by the following:
º
º
Canada wealth management net cash flows include cash
inflows and outflows related to segregated fund assets and
proprietary and non-proprietary mutual funds.
Europe wealth and investment only net cash flows include
cash inflows and outflows related to segregated fund assets,
proprietary mutual funds and institutional assets as well as
other assets under administration.
SELECTED ANNUAL INFORMATION
º
º
Empower net cash flows include cash inflows and outflows
related to segregated fund assets, general fund assets,
proprietary and non-proprietary mutual funds as well as
other assets under management.
Putnam net asset flows include mutual fund and institutional
sales and redemptions.
(in $ millions, except per share amounts)
Total revenue
Earnings – common shareholders
Net earnings
Base earnings (1)
Net earnings per common share
Basic – net earnings
Diluted – net earnings
Basic – base earnings (2)
Diluted – base earnings (2)
Total assets under administration
Total assets
Proprietary mutual funds and institutional assets (3)
Total assets under management (1)
Other assets under administration (3)
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 (4)
Series O First Preferred (5)
Series P First Preferred
Series Q First Preferred
Series R First Preferred
Series S First Preferred
Series T First Preferred
Series Y First Preferred (6)
Common (7)
Years ended December 31
2021
2020
2019
$
64,417
$
60,583
$
44,698
3,128
3,260
3.365
3.360
3.507
3.502
2,943
2,669
3.173
3.172
2.878
2.877
2,359
2,704
2.494
2.493
2.859
2.857
$ 630,488
377,155
$ 600,490
350,943
$ 451,167
320,548
1,007,643
1,271,931
951,433
1,024,414
771,715
857,966
$ 2,279,574
$ 1,975,847
$ 1,629,681
$ 600,005
$ 573,475
$ 425,624
1.4750
1.3000
1.21252
1.1250
1.41250
1.450
0.437252
–
1.350
1.2875
1.200
1.312500
1.2875
0.2589
1.804
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) This metric is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures and Ratios” section of this document for additional details.
(2) This metric is a non-GAAP ratio. Refer to the “Non-GAAP Financial Measures and Ratios” section of this document for additional details.
(3) Refer to the “Glossary” section of this document for additional details on the composition of this measure.
(4) The Series N First Preferred Share dividend was reset to a five year fixed dividend rate of 1.749% per annum which applies until December 30, 2025.
(5) Floating dividend rate which is reset quarterly to the three month Government of Canada Treasury Bill yield plus 1.30%. On December 31, 2020, all Series O Shares were automatically converted into Series N
Shares on an on-for-one basis.
(6) On October 8, 2021, the Company issued 8,000,000, 4.50% Non-Cumulative First Preferred Shares, Series Y. Please refer to the “Lifeco Capital Structure” section of this document for additional details on the issuance.
(7) In 2021, Lifeco made dividend payments to common shareholders on each of March 31, June 30 and September 30 in the amount of $0.438 per share. On November 15, 2021, Lifeco announced an increase to
the quarterly dividend of $0.052 per share. On December 31, 2021, Lifeco made a dividend payment to common shareholders in the amount of $0.490 per share.
96
Great-West Lifeco Inc. 2021 Annual Report
Management’s Discussion and Analysis
QUARTERLY FINANCIAL INFORMATION
(in $ millions,
except per share amounts)
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
2021
2020
Total revenue
$ 18,122
$
17,432
$
17,955
$
10,908
$
16,860
$
13,740
$
19,710
$
10,273
Common shareholders
Base earnings
Total (2)
Basic – per share (1)
Diluted – per share (1)
Net earnings
Total
Basic – per share
Diluted – per share
$
$
825
0.887
0.885
765
0.822
0.820
$
$
870
0.934
0.932
872
0.938
0.936
$
$
826
0.889
0.888
784
0.844
0.842
$
$
739
0.796
0.796
707
0.762
0.761
$
$
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
(1) This metric is a non-GAAP ratio. Refer to the “Non-GAAP Financial Measures and Ratios” section of this document for additional details.
(2) This metric is a non-GAAP financial measure. The following items were excluded from base earnings in each quarter:
Items excluded from base earnings
Actuarial assumption changes
and other management
actions (pre-tax)
Income tax (expense) benefit
Market-related impact
on liabilities (pre-tax)
Income tax (expense) benefit
Transaction costs related
to acquisitions (pre-tax)
Income tax (expense) benefit
Restructuring and integration
costs (pre-tax)
Income tax (expense) benefit
Net gain/charge on business
dispositions (pre-tax)
Income tax (expense) benefit
Tax legislative changes
impact on liabilities
Income tax (expense) benefit
Revaluation of deferred tax asset
Income tax (expense) benefit
Total post-tax items excluded
from base earnings
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
2021
2020
$
$
28
(5)
22
(2)
(76)
2
(21)
6
(14)
–
–
–
–
–
$
(60)
$
74
(5)
52
(5)
(105)
15
(32)
8
–
–
–
–
–
–
2
$
$
42
(5)
(14)
(5)
(25)
1
(21)
6
–
–
–
(21)
–
–
$
4
1
(25)
1
(2)
1
(16)
4
–
–
–
–
–
–
$
(71)
48
(21)
(10)
(59)
12
(88)
21
137
6
–
–
–
196
73
(7)
13
5
(36)
5
–
–
95
(1)
–
–
–
–
$
$
140
(18)
43
(8)
(81)
29
(213)
64
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$
(42)
$
(32)
$
171
$
147
$
157
$
(201)
Lifeco’s consolidated net earnings attributable to common
shareholders were $765 million for the fourth quarter of 2021
compared to $912 million reported a year ago. On a per share
basis, this represents $0.822 per common share ($0.820 diluted)
for the fourth quarter of 2021 compared to $0.983 per common
share ($0.983 diluted) a year ago.
Total revenue for the fourth quarter of 2021 was $18,122 million
and comprises premium income of $12,989 million, regular net
investment income of $1,637 million, a positive change in fair
value through profit or loss on investment assets of $1,611 million
and fee and other income of $1,885 million.
Great-West Lifeco Inc. 2021 Annual Report
97
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), Sagard Holdings Inc.
(Sagard), a multi-strategy alternative asset manager, 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, Sagard, 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.
Management’s Discussion and Analysis
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,
2021 and, based on such evaluation, the President and Chief
Executive Officer and the Executive Vice-President and Chief
Financial Officer have concluded that the Company’s disclosure
controls and procedures are effective.
INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company’s internal control over financial reporting is designed
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with IFRS. The Company’s management
is responsible for establishing and maintaining effective internal
control over financial reporting. All internal control systems have
inherent limitations and may become ineffective because of
changes in conditions. Therefore, even those systems determined
to be effective can provide only reasonable assurance with respect
to financial statement preparation and presentation.
The Company’s management, under the supervision of the President
and Chief Executive Officer and the Executive Vice-President and
Chief Financial Officer, has evaluated the effectiveness of the
Company’s internal control over financial reporting based on the
2013 Internal Control – Integrated Framework (COSO Framework)
published by the Committee of Sponsoring Organizations of the
Treadway Commission. The Company’s management adopted the
revised 2013 COSO Framework in 2015 as the basis to evaluate the
effectiveness of the Lifeco’s internal control over financial reporting.
During the twelve months ended December 31, 2021, 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, 2021 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.
98
Great-West Lifeco Inc. 2021 Annual Report
Management’s Discussion and Analysis
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, Canada Life and IGM
executed a termination agreement covering the transition of
shared information technology services from Canada Life to
alternate providers over a number of years. 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.
Segregated funds of the Company were invested in funds
managed by IG Wealth Management and Mackenzie Investments.
Mackenzie Investments also manages certain of the Company’s
portfolio 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.
During the fourth quarter of 2021, the Company completed an
agreement for a long-term strategic relationship with Sagard,
which included the sale of its United States-based subsidiaries,
EverWest Real Estate Investors, LLC and EverWest Advisors, LLC
(EverWest) to Sagard, in exchange for a minority shareholding in
Sagard’s subsidiary, Sagard Holdings Management Inc. EverWest
was a wholly-owned subsidiary of Canada Life and Sagard is a
wholly-owned subsidiary of Power Corporation. As part of the
strategic relationship with Sagard, the Company has made a
capital commitment of up to approximately US$500 million into
certain Sagard strategies. The Company has also committed to
investing a further approximately US$2.0 billion in real estate
investments to support EverWest’s future growth within Sagard.
The related party transaction was reviewed and approved by
the Company’s Conduct Review Committee and certain aspects
involving Canada Life were reviewed and approved by its Conduct
Review Committee. The carrying value and proceeds from sale of
EverWest are immaterial to the Company.
During the year ended December 31, 2020, the Company
completed the sale of GLC to Mackenzie Financial Corporation.
The Company recorded a gain on disposal of $143 million after-
tax, net of restructuring and other one-time costs of $16 million
after-tax ($22 million pre-tax) in 2020.
During the year ended December 31, 2020, 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.
At December 31, 2021, the Company held $105 million ($110 million
in 2020) of debentures issued by IGM.
During the normal course of business in 2021, the Company
purchased residential mortgages of $12 million from IGM
($21 million in 2020).
The Company owns 9,200,448 shares representing 3.85%
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 2021, the Company earned equity income
of $33 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, Sagard
Holdings Management Inc., Northleaf Capital Partners Ltd.,
and other entities which invest in the FinTech sector. These
investments were made in partnership with Power Corporation,
IGM and, in certain cases, 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 2021. There were no significant outstanding
loans or guarantees with related parties at December 31, 2021.
There were no provisions for uncollectible amounts with related
parties at December 31, 2021.
Great-West Lifeco Inc. 2021 Annual Report
99
Management’s Discussion and Analysis
TRANSLATION OF FOREIGN CURRENCY
Through its operating subsidiaries, Lifeco conducts business in multiple currencies. The four primary currencies are the Canadian
dollar, the U.S. dollar, the British pound and the euro. Throughout this document, foreign currency assets and liabilities are translated
into Canadian dollars at the market rate at the end of the reporting period. All income and expense items are translated at an average
rate for the period. The rates employed are:
Translation of foreign currency
Period ended
United States dollar
Balance sheet
Income and expenses
British pound
Balance sheet
Income and expenses
Euro
Balance sheet
Income and expenses
Dec. 31
Sept. 30
June 30
Mar. 31
Dec. 31
Sept. 30
June 30
Mar. 31
2021
2020
$
$
$
$
$
$
1.27
1.26
1.71
1.70
1.44
1.44
$
$
$
$
$
$
1.27
1.26
1.71
1.74
1.47
1.48
$
$
$
$
$
$
1.24
1.23
1.71
1.72
1.47
1.48
$
$
$
$
$
$
1.26
1.27
1.73
1.75
1.47
1.53
$
$
$
$
$
$
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
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.
100 Great-West Lifeco Inc. 2021 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 either a Fellow of the Canadian Institute of Actuaries or a Fellow of the Society 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 9, 2022
Great-West Lifeco Inc. 2021 Annual Report
101
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
102 Great-West Lifeco Inc. 2021 Annual Report
2021
2020
$ 57,397
(4,584)
$
52,813
6,393
(2,083)
4,310
7,294
64,417
49,355
(3,544)
45,811
1,152
1,891
3,043
1,441
50,295
2,664
6,337
500
328
336
90
3,867
304
3,563
301
3,262
134
47,754
(4,735)
43,019
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
$
3,128
$
2,943
$
$
3.365
3.360
$
$
3.173
3.172
Consolidated Statements of Comprehensive Income
(in Canadian $ millions)
For the years ended December 31
Net earnings
Other comprehensive income (loss)
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 gains (losses) on 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
2021
2020
$
3,262
$
3,076
(391)
–
117
(12)
(131)
35
(28)
3
60
(16)
(48)
13
107
(30)
(321)
705
(190)
–
–
(67)
18
466
145
105
(2)
(90)
12
287
(49)
(141)
15
36
(10)
(21)
6
(69)
21
100
(169)
40
11
(1)
15
(4)
(108)
(8)
$
3,407
$
3,068
Great-West Lifeco Inc. 2021 Annual Report
103
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)
Limited recourse capital notes
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
104 Great-West Lifeco Inc. 2021 Annual Report
2021
2020
6,075
$
140,612
28,852
14,183
7,763
8,319
205,804
17,194
21,138
9,081
5,514
967
736
422
4,522
6,366
268
1,057
357,419
$
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
$ 630,488
$ 600,490
$ 208,378
12,455
8,804
1,542
1,030
3,032
6,063
193
1,089
357,419
$ 208,902
9,145
9,693
1,648
1,221
2,698
5,147
343
646
334,032
600,005
573,475
3,138
129
2,871
116
1,500
2,720
5,748
16,424
632
192
30,483
–
2,714
5,651
14,990
487
186
27,015
$ 630,488
$ 600,490
Consolidated Statements of Changes in Equity
(in Canadian $ millions)
December 31, 2021
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
Issuance of limited recourse capital notes (note 19)
Limited recourse capital notes issue costs (note 19)
Issuance of preferred shares (note 19)
Redemption of preferred shares (note 19)
Share issue costs (note 19)
Dilution loss on non-controlling interests
Share
capital
Contributed
surplus
$
8,365
–
–
8,365
–
–
97
–
–
–
1,500
–
200
(194)
–
–
186
–
–
186
–
–
(59)
63
–
2
–
–
–
–
–
–
Accumulated
surplus
$ 14,990
3,262
–
18,252
(134)
(1,677)
–
–
–
–
–
(13)
–
–
(3)
(1)
Accumulated
other
comprehensive
income
$
487
–
145
632
Non-
controlling
interests
$
2,987
301
(28)
3,260
Total
equity
$ 27,015
3,563
117
30,695
–
–
–
–
–
–
–
–
–
–
–
–
–
–
46
–
(38)
(2)
–
–
–
–
–
1
(134)
(1,677)
84
63
(38)
–
1,500
(13)
200
(194)
(3)
–
Balance, end of year
$
9,968
$
192
$ 16,424
$
632
$
3,267
$ 30,483
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
December 31, 2020
Share
capital
Contributed
surplus
Accumulated
surplus
$
$
8,347
–
–
8,347
–
–
18
–
–
–
–
175
–
–
175
–
–
(50)
54
–
7
–
$
13,660
3,076
–
16,736
(133)
(1,626)
–
–
–
–
13
Accumulated
other
comprehensive
income
$
495
–
(8)
487
Non-
controlling
interests
$
2,866
78
37
2,981
–
–
–
–
–
–
–
–
–
49
–
(15)
(15)
(13)
$
Total
equity
25,543
3,154
29
28,726
(133)
(1,626)
17
54
(15)
(8)
–
Balance, end of year
$
8,365
$
186
$
14,990
$
487
$
2,987
$
27,015
Great-West Lifeco Inc. 2021 Annual Report
105
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)
Issue of preferred shares (note 19)
Redemption of preferred shares (note 19)
Issue of limited recourse capital notes (note 19)
Limited recourse capital notes issue costs (note 19)
Issue of debentures and senior notes (note 15)
Repayment of debentures
Increase (decrease) in line of credit of subsidiaries
Decrease in debentures and other debt instruments
Share issue costs (note 19)
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
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 (decrease) 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
106 Great-West Lifeco Inc. 2021 Annual Report
2021
2020
$
3,867
(351)
$
3,072
(367)
1,819
845
(84)
1,915
2,083
279
10,373
97
200
(194)
1,500
(13)
–
–
(764)
(4)
(3)
(1,677)
(134)
(992)
27,288
3,276
6,286
40
64
(380)
–
(35,169)
(4,574)
(7,073)
(970)
(11,212)
(40)
(1,871)
7,946
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
$
6,075
$
7,946
$
4,965
348
382
$
4,589
286
333
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, 2021 were
approved by the Board of Directors on February 9, 2022.
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 Interest Rate Benchmark Reform – Phase 2 amendments to IFRS for IAS 39, Financial Instruments: Recognition
and Measurement, IFRS 7, Financial Instruments: Disclosures, IFRS 4, Insurance Contracts and IFRS 16, Leases, effective January 1, 2021.
The adoption of these amendments did not have a significant impact on the Company’s consolidated financial statements.
Basis of Consolidation
The consolidated financial statements of the Company were prepared as at and for the year ended December 31, 2021 with comparative
information as at and for the year ended December 31, 2020. 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
The COVID-19 pandemic has continued to result in uncertainty in global financial markets and the economic environment in which the
Company operates. The duration and impact of the COVID-19 pandemic continues to be unknown at this time, as is the efficacy of the
associated fiscal and monetary interventions by governments and central banks.
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. In addition
to its own credit assessments, 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. 2021 Annual Report
107
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.
108 Great-West Lifeco Inc. 2021 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. 2021 Annual Report
109
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.
110 Great-West Lifeco Inc. 2021 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. 2021 Annual Report
111
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 cross-currency swaps, 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.
112 Great-West Lifeco Inc. 2021 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. 2021 Annual Report
113
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.
114 Great-West Lifeco Inc. 2021 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. 2021 Annual Report
115
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.
Limited recourse capital notes are classified as share capital as the Company has the sole discretion to settle the obligation to
noteholders through the issuance of a fixed number of the Company’s own equity instruments. Interest incurred on these
instruments is expensed within financing charges in the Consolidated Statements of Earnings.
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 gains (losses) on hedges of the net investment in 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.
116 Great-West Lifeco Inc. 2021 Annual Report
Notes to Consolidated Financial Statements
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.
(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. 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 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. 2021 Annual Report
117
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. In June 2020, the IASB issued
amendments to IFRS 17. The amended confirmed effective date for the standard is 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 near final as well as significant progression 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. 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. Specifically, the recognition of the
contractual service margin liabilities will also have the effect of reducing accumulated surplus.
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. OSFI has
stated that it intends to maintain capital frameworks consistent with current capital policies and minimizing potential industry-wide capital impacts. The
Company continues to assess all these impacts through its global implementation plan, however the change will not impact the economics of the affected
businesses or our business model.
IFRS 9 – Financial
Instruments
In July 2014, the IASB issued a final version of IFRS 9, Financial Instruments (IFRS 9) to replace IAS 39, Financial Instruments: Recognition and
Measurement. The standard provides changes to financial instruments accounting for the following:
• classification and measurement of financial instruments based on a business model approach for managing financial assets and the contractual cash
flow characteristics of the financial asset;
•
impairment based on an expected loss model; and
• hedge accounting that incorporates the risk management practices of an entity.
In September 2016, the IASB issued an amendment to IFRS 4, Insurance Contracts (IFRS 4). The amendment “Applying IFRS 9, Financial Instruments with
IFRS 4, Insurance Contracts” provides qualifying insurance companies with two options to address the potential volatility associated with implementing
the IFRS 9 standard before the new proposed insurance contract standard is effective. The two options are as follows:
• Deferral Approach – provides the option to defer implementation of IFRS 9 until the 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. Upon
adoption, the Company does not expect a material change in the level of invested assets, nor a material increase in earnings volatility, however the
Company continues to evaluate the impact of the adoption of this standard with the adoption of IFRS 17.
In December 2021, the IASB issued a narrow-scope amendment to the transition requirements of IFRS 17. The Amendment, Initial Application of IFRS 17 and
IFRS 9 – Comparative Information (Amendment to IFRS 17), provides entities that first apply IFRS 17 and IFRS 9 at the same time with the option to
present comparative information about a financial asset as if the classification and measurement requirements of IFRS 9 had been applied to that financial
asset before. The option is available on an instrument-by-instrument basis. In applying this option, an entity is not required to apply the impairment
requirements of IFRS 9.
IAS 1 – Presentation of
Financial Statements
In February 2021, the IASB published Disclosure of Accounting Policies, amendments to IAS 1, Presentation of Financial Statements. The amendments
clarify how an entity determines whether accounting policy information is material.
These amendments are effective for annual reporting periods beginning on or after January 1, 2023, with earlier application permitted. The Company is
evaluating the impact of the adoption of these amendments.
118 Great-West Lifeco Inc. 2021 Annual Report
Notes to Consolidated Financial Statements
Standard
Summary of Future Changes
IAS 8 – Accounting
Policies, Changes in
Accounting Estimates
and Errors
IAS 12 – Income Taxes
In February 2021, the IASB published Definition of Accounting Estimates, amendments to IAS 8, Accounting Policies, Changes in Accounting Estimates
and Errors. The amendments clarify the difference between an accounting policy and an accounting estimate.
These amendments are effective for annual reporting periods beginning on or after January 1, 2023, with earlier application permitted. The Company is
evaluating the impact of the adoption of these amendments.
In May 2021, the IASB published Deferred Tax Related to Assets and Liabilities from a Single Transaction, amendments to IAS 12, Income Taxes. The
amendments clarify that for transactions in which both deductible and taxable temporary differences arise on initial recognition that result in deferred tax
assets and liabilities of the same amount, deferred tax assets and liabilities are to be recognized.
These amendments are effective for annual reporting periods beginning on or after January 1, 2023, with earlier application permitted. The Company is
evaluating the impact of the adoption of these amendments.
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 early adoption permitted. The Company does not
anticipate a significant impact on its consolidated financial statements as a result of this amendment.
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 does not anticipate a significant impact on its consolidated financial statements as a result
of the amendment to IFRS 16, Leases.
The Company continues to evaluate the impact of the adoption of the amendment to IFRS 9, Financial Instruments along with the adoption of IFRS 17 on
January 1, 2023.
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) and assumed the economics and risks associated with the reinsured
business. 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 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.
During the fourth quarter of 2021, the Company completed its comprehensive valuation of the fair value of the net assets acquired
from MassMutual, and the purchase price allocation.
The ceding commission net of working capital adjustments was adjusted from $2,937 to $2,738 (U.S. $2,312 to U.S. $2,156).
Initial goodwill presented in the Company’s December 31, 2020 consolidated financial statements of $2,827 (U.S. $2,226),
was adjusted to $1,807 (U.S. $1,423). Adjustments were made to the provisional amounts disclosed in the Company’s
December 31, 2020 consolidated financial statements for the recognition and measurement of intangible assets, assets acquired
and liabilities assumed. Intangible assets recognized include customer contracts of $844 (U.S. $665) and proprietary mutual fund
contracts of $337 (U.S. $265), which are net of $73 (U.S. $58) of amortization at December 31, 2021.
Comparative information in the Company’s consolidated financial statements has not been restated.
The Company determined the fair value of the intangible assets and insurance contract liabilities acquired, using valuation
techniques that incorporate projections of cashflows and discount rates. The valuation of intangible assets acquired is determined
by applying judgments and estimates for forecasted revenues and earnings, and discount rates. Further, the valuation of the
actuarial liabilities assumed are determined by applying judgments and assumptions to determine appropriate valuation models,
and projections of cash inflows and outflows using the best estimate of future experience, specifically policyholder behaviour,
together with the discount rates.
Great-West Lifeco Inc. 2021 Annual Report
119
Notes to Consolidated Financial Statements
3. Business Acquisitions and Other Transactions (cont’d)
The amounts assigned to the assets acquired, goodwill, and liabilities assumed on December 31, 2020, and reported as at December
31, 2021 are as follows:
Assets acquired and goodwill
Cash and cash equivalents
Bonds
Mortgage Loans
Funds held by ceding insurers
Goodwill
Intangible assets
Other assets
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
$
2,669
12,084
2,287
9,981
1,807
1,181
124
300
84,785
$ 115,218
$ 22,317
5,001
31
346
84,785
$ 112,480
The following provides the change in the carrying value from December 31, 2020 to December 31, 2021 of the goodwill on acquisition:
Goodwill previously reported at December 31, 2020
Recognition and measurement of intangible assets
Other measurement period adjustments
Goodwill reported at December 31, 2021
$
2,827
(1,181)
161
$
1,807
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. $533 (U.S. $420) of the goodwill is deductible for tax purposes.
During the year ended December 31, 2021, MassMutual contributed revenue of $2,861 (U.S. $2,262) and net earnings of $199 (U.S.
$158). These amounts are included in the Consolidated Statements of Earnings and Comprehensive Income for the year ended
December 31, 2021.
(b) Acquisition of Personal Capital Corporation
On August 17, 2020, GWL&A completed the acquisition of 100% of the equity of Personal Capital Corporation. Upon completion
of the purchase price allocation in the fourth quarter of 2020, a contingent consideration earn-out provision of $26 (U.S. $20)
was recognized, representing management’s best estimate of growth in assets under management metrics defined in the Merger
Agreement. The contingent consideration provision was increased by $101 (U.S. $80) in 2021 for a total contingent consideration
provision of $127 (U.S. $100) at December 31, 2021. The increases in 2021 were due to growth in net new assets above the amount
assumed at the date of acquisition.
The Merger Agreement allows for contingent consideration of up to $222 (U.S. $175) based on the achievement of growth in assets
under management metrics, payable following measurements through December 31, 2021 and December 31, 2022. Changes in the
fair value of the contingent consideration measured in accordance with the Merger Agreement subsequent to the completion of
the purchase price allocation are recognized in operating and administrative expenses in the Consolidated Statements of Earnings.
(c) Acquisition of Prudential Retirement Services Business
On July 21, 2021, GWL&A announced that it had entered into an agreement to purchase, through a share purchase and a reinsurance
transaction, the full-service retirement business of Prudential Financial, Inc. (Prudential). The acquisition further solidifies the Company’s
position as a leader in the U.S. retirement market. The Company will assume the economics and risks associated with the business, while
Prudential will continue to retain the obligation to the contract holders of the reinsured portion. The Company will pay a total transaction
value of approximately U.S. $3,550, and will fund the transaction with $1,500 (U.S. $1,193) of limited recourse capital notes (note 19) and
up to U.S. $1,000 of short-term debt, in addition to existing resources. The transaction is expected to close in the first half of 2022, subject
to regulatory and customary closing conditions. During the year ended December 31, 2021, the Company incurred transaction expenses
of $9 (U.S. $7) which are included within operating and administrative expenses in the Consolidated Statements of Earnings.
120 Great-West Lifeco Inc. 2021 Annual Report
Notes to Consolidated Financial Statements
(d) Acquisition of Ark Life Assurance Company
On November 1, 2021, Irish Life Group Limited (Irish Life), an indirect wholly-owned subsidiary of the Company, completed the
acquisition of Ark Life Assurance Company dac (Ark Life) from Phoenix Group Holdings plc for total cash consideration of $332 ((cid:192)230).
Ark Life is closed to new business and manages a range of pensions, savings and protection policies for its customers in the Irish market.
The initial amounts assigned to the assets acquired, goodwill and liabilities assumed on November 1, 2021, reported as at December
31, 2021 are as follows:
Assets acquired and goodwill
Cash and cash equivalents
Bonds
Goodwill
Reinsurance assets
Premiums in the course of collection, accounts and interest receivable
Investments on account of segregated fund policyholders
Total assets acquired and goodwill
Liabilities assumed
Insurance contract liabilities
Investment contract liabilities
Other liabilities
Investment and insurance contracts on account of segregated fund policyholders
Total liabilities assumed
$
17
333
21
1,238
89
2,844
$
4,542
$
1,257
43
66
2,844
$
4,210
As at December 31, 2021, 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, 2021 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 the second half of 2022. As at December 31, 2021, 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 $21 ((cid:192)15) 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.
These synergies represent meaningful expense and revenue opportunities which are expected to be accretive to earnings.
Revenue and net earnings of Ark Life were not significant to the 2021 results of the Company.
(e) Acquisition of ClaimSecure Inc.
On September 1, 2021, Canada Life completed the acquisition of 100% of the equity of ClaimSecure Inc., a healthcare management
firm that provides health and dental claim management services to private and public businesses in Canada.
During the fourth quarter of 2021, the comprehensive valuation of the fair value of the net assets acquired including intangible assets and
the final purchase price allocation was substantially completed. As a result, initial goodwill presented in the September 30, 2021 interim
unaudited financial statements of $93 recognized upon the acquisition was adjusted to $52, due to the recognition and measurement of
intangible assets. Revenue and net earnings of ClaimSecure Inc. were not significant to the 2021 results of the Company.
(f ) Strategic Relationship with Sagard Holdings
During the fourth quarter of 2021, the Company completed an agreement for a long-term strategic relationship with Sagard Holdings
Inc. (Sagard), a wholly-owned subsidiary of Power Corporation, which includes the sale of its United States-based subsidiaries,
EverWest Real Estate Investors, LLC and EverWest Advisors, LLC (EverWest) to Sagard, in exchange for a minority shareholding in
Sagard’s subsidiary, Sagard Holdings Management Inc. EverWest was a wholly-owned subsidiary of Canada Life and its principal
activity is real estate investment management. Sagard is a related party. Therefore, the transaction was reviewed and approved by
the Company’s Conduct Review Committee and certain aspects involving Canada Life were reviewed and approved by its Conduct
Review Committee. The carrying value, earnings and proceeds from sale of EverWest are immaterial to the Company.
As part of the strategic relationship with Sagard, the Company has made a capital commitment of up to approximately U.S. $500
into certain Sagard strategies. The Company has also committed to investing a further approximately U.S. $2,000 in real estate
investments to support EverWest’s future growth within Sagard. The strategic relationship with Sagard is intended to advance the
Company’s strategy to further broaden its access to alternative investment options.
Great-West Lifeco Inc. 2021 Annual Report
121
Notes to Consolidated Financial Statements
4. Restructuring and Integration Expenses
(a) Canada Restructuring
In 2020, the Company recorded a restructuring provision of $92 pre-tax ($68 in the shareholder account and $24 in the participating
account) within restructuring and integration expenses in the Consolidated Statements of Earnings. The after-tax impact of
the restructuring provision was $68 ($50 in the shareholder account and $18 in the participating account). The restructuring is
associated with the 2020 sale of GLC Asset Management Group Ltd. (GLC) (formerly a wholly-owned subsidiary of Canada Life) to
Mackenzie Financial Corporation, changes to the Company’s distribution strategy and vision for advisor-based distribution, and
termination of the long-term technology infrastructure related sharing agreement with IGM.
At December 31, 2021, the Company has a restructuring provision of $56 ($86 at December 31, 2020) remaining in other liabilities.
The Company expects to pay out substantially all of these amounts by December 31, 2022. The change in the restructuring provision
for the Canada restructuring is set out below:
Balance, beginning of year
Restructuring expenses
Amounts used
Balance, end of year
(b) GWL&A Restructuring
2021
2020
$
$
86
–
(30)
$
56
$
–
92
(6)
86
The Company recorded integration expenses of $74 ($5 in 2020) and restructuring expenses of $10 ($37 in 2020) in the Consolidated
Statements of Earnings during year ended December 31, 2021. The restructuring is primarily attributable to additional staff
reductions and other exit costs related to the Company’s acquisition of the MassMutual retirement services business (note 3).
At December 31, 2021, the Company has a restructuring provision of $19 ($37 at December 31, 2020) remaining in other liabilities.
The change in the restructuring provision for the GWL&A restructuring is set out below:
Balance, beginning of year
Restructuring expenses
Amounts used
Balance, end of year
2021
2020
$
$
37
10
(28)
$
19
$
–
37
–
37
The Company expects to pay out a significant portion of these amounts during 2022. The Company expects to incur further
restructuring and integration expenses associated with the MassMutual acquisition (note 3) in 2022.
122 Great-West Lifeco Inc. 2021 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
2021
2020
$
3,202
2,873
$
6,075
$
$
2,978
4,968
7,946
At December 31, 2021, cash and short-term deposits of $1,303 were restricted for use by the Company ($2,886 at December 31, 2020) 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 (2)
Available-for-sale, at cost (2)(3)
Equity method
Investment properties
Total
2021
2020
Carrying
value
Fair
value
Carrying
value
Fair
value
$ 103,645
168
12,123
24,676
$ 103,645
168
12,123
26,717
$ 100,839
2,053
11,352
23,348
$ 100,839
2,053
11,352
26,545
140,612
142,653
137,592
140,789
2,609
9,580
12,189
16,663
28,852
13,269
209
124
581
14,183
7,763
2,609
9,860
12,469
17,189
29,658
13,269
209
124
633
14,235
7,763
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
$ 191,410
$ 194,309
$ 182,665
$ 187,655
(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) During 2021, reliable measure of fair value was identified for certain stocks previously classified as available-for-sale, at cost. These stocks had a carrying value of $40 and were remeasured at a fair value
of $147. The difference between the carrying value and fair value of $107 was recognized as an unrealized gain on available-for-sale assets in the Consolidated Statements of Comprehensive Income.
These stocks are now classified as available-for-sale.
(3) Fair value cannot be reliably measured, therefore the investments are held at cost.
Great-West Lifeco Inc. 2021 Annual Report
123
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
2021
1 year
or less
$ 11,118
1,698
Term to maturity
Over 1 year
to 5 years
$ 28,207
11,281
Over
5 years
Total
$ 101,269
15,802
$ 140,594
28,781
$ 12,816
$ 39,488
$ 117,071
$ 169,375
2020
1 year
or less
Term to maturity
Over 1 year
to 5 years
Over
5 years
Total
$
10,690
1,727
$
28,312
9,523
$
98,555
16,530
$ 137,557
27,780
$
12,417
$
37,835
$ 115,085
$ 165,337
(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:
A significant amount 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 9,200,448 shares of IGM at December 31, 2021 (9,200,518 at December 31, 2020)
representing a 3.85% ownership interest (3.86% at December 31, 2020). 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
2021
2020
$
$
$
$
354
33
(21)
366
243
418
$
$
$
$
350
25
(21)
354
190
317
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, 2021 can be obtained in its publicly available information.
At December 31, 2021, IGM owned 37,337,133 (37,337,133 at December 31, 2020) common shares of the Company.
124 Great-West Lifeco Inc. 2021 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
2021
2020
$
$
14
7
71
92
$
$
20
17
23
60
The carrying amount of impaired investments includes $18 bonds, $71 mortgage loans and $3 stocks at December 31, 2021
($35 bonds, $23 mortgage loans and $2 stocks at December 31, 2020). The above carrying values for loans and receivables are
net of allowances of $28 at December 31, 2021 and $57 at December 31, 2020.
(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:
2021
Mortgage
loans
Bonds
Total
Bonds
2020
Mortgage
loans
Balance, beginning of year
Net provision for credit losses – in year
Write-offs, net of recoveries
Balance, end of year
$
$
–
–
–
–
$
$
57
30
(59)
$
57
30
(59)
$
28
$
28
$
–
–
–
–
$
$
51
16
(10)
57
$
$
Total
51
16
(10)
57
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
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
Investment
properties
Other
Total
2021
$
4,262
$
916
$
391
$
422
$
636
$
6,627
13
12
–
–
4,287
(104)
(4,693)
–
(4,797)
–
59
(30)
–
945
–
(121)
–
(121)
14
7
–
–
412
–
2,150
–
2,150
–
–
–
(146)
276
–
–
615
615
891
–
34
–
(197)
473
–
70
–
70
27
112
(30)
(343)
6,393
(104)
(2,594)
615
(2,083)
$
543
$
4,310
Total
$
(510)
$
824
$
2,562
$
Great-West Lifeco Inc. 2021 Annual Report
125
Notes to Consolidated Financial Statements
6. Portfolio Investments (cont’d)
Regular net investment income:
Investment income earned
Net realized gains (losses)
Available-for-sale
Other classifications
Net allowances for credit losses on loans and receivables
Other income (expenses)
Changes in fair value 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
2020
Investment
properties
Other
Total
$
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
$
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 $169 at December 31, 2021
($267 at December 31, 2020). 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, 2021, the
Company had loaned securities (which are included in invested assets) with a fair value of $10,525 ($8,921 at December 31, 2020).
126 Great-West Lifeco Inc. 2021 Annual Report
Notes to Consolidated Financial Statements
7.
Funds Held by Ceding Insurers
At December 31, 2021, the Company had amounts on deposit of $17,194 ($18,383 at December 31, 2020) for funds held by ceding
insurers on the Consolidated Balance Sheets. Income and expenses arising from the agreements are included in net investment income
in the Consolidated Statements of Earnings.
The details of the funds on deposit for certain agreements where the Company has credit risk are as follows:
(a) Carrying values and estimated fair values:
Cash and cash equivalents
Bonds
Mortgages
Other assets
Total
Supporting:
Reinsurance liabilities
Surplus
Total
2021
2020
Carrying
value
$
336
14,105
558
126
$
Fair
value
336
14,105
558
126
Carrying
value
$
245
15,365
578
137
$
Fair
value
245
15,365
578
137
$ 15,125
$ 15,125
$
16,325
$
16,325
$ 14,907
218
$ 14,907
218
$
16,094
231
$
16,094
231
$ 15,125
$ 15,125
$
16,325
$
16,325
(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
2021
2020
$
1,032
1,463
183
1,660
2,628
427
2,031
644
1,243
498
404
1,892
$
843
1,760
287
1,870
2,989
503
2,141
589
1,420
344
466
2,101
14,105
–
15,313
52
$ 14,105
$
15,365
(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
$
$
$
2021
2020
126
432
558
$
$
122
456
578
2021
2020
1,251
3,721
5,222
3,749
162
$
1,508
3,848
5,597
4,165
247
$ 14,105
$
15,365
Great-West Lifeco Inc. 2021 Annual Report
127
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 and risk policies aim to minimize undue concentration within issuers, connected companies, industries or individual
geographies.
• Investment and risk 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
2021
2020
$
6,075
$
7,946
103,813
12,123
24,676
28,852
8,319
17,194
21,138
1,239
3,183
1,944
1,671
433
1,196
967
102,892
11,352
23,348
27,803
8,387
18,383
22,121
1,320
3,080
1,702
713
404
965
829
$ 232,823
$ 231,245
(1) Includes $15,125 ($16,325 at December 31, 2020) 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 $318 of collateral received from counterparties as
at December 31, 2021 ($211 at December 31, 2020) relating to derivative assets.
As at December 31, 2021, $14,512 of the $21,138 of reinsurance assets are ceded to Protective ($15,690 of $22,121 at December
31, 2020). This concentration risk is mitigated by funds held in trust and other arrangements of $15,963 as at December 31,
2021 ($16,389 at December 31, 2020).
128 Great-West Lifeco Inc. 2021 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
Canada
United
States
$
529
19,501
178
2,215
3,794
1,104
4,029
2,602
2,092
729
3,674
9,971
50,418
2,854
$
109
2,183
497
7,788
6,251
1,235
5,461
2,634
4,707
1,732
1,227
5,028
38,852
1,976
2021
Europe
$ 10,334
8,694
–
1,149
5,748
1,032
2,412
482
1,393
411
897
4,480
37,032
644
Capital and
Risk Solutions
Total
$
4,735
349
17
165
886
113
736
330
348
319
135
506
8,639
197
$ 15,707
30,727
692
11,317
16,679
3,484
12,638
6,048
8,540
3,191
5,933
19,985
134,941
5,671
$ 53,272
$ 40,828
$ 37,676
$
8,836
$ 140,612
Canada
United
States
2020
Europe
Capital and
Risk Solutions
Total
$
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
$
10,282
9,287
–
1,402
5,880
1,124
2,816
675
1,329
299
977
4,811
38,882
1,066
$
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
Great-West Lifeco Inc. 2021 Annual Report
129
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
(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
1,979
4,297
1,063
9,364
$
United
States
–
2,474
–
3,696
2021
Europe
$
–
792
1,546
3,553
$ 16,703
$
6,170
$
5,891
$
Capital and
Risk Solutions
$
$
Canada
2,063
4,331
759
8,883
$
United
States
–
2,297
–
3,660
2020
Europe
$
–
684
1,261
3,801
$
16,036
$
5,957
$
5,746
$
Capital and
Risk Solutions
$
–
38
–
50
88
–
41
–
23
64
$
Total
1,979
7,601
2,609
16,663
$ 28,852
$
Total
2,063
7,353
2,020
16,367
$
27,803
2021
2020
$ 20,254
35,460
48,764
35,098
1,036
$
21,820
35,530
45,673
33,382
1,187
$ 140,612
$ 137,592
2021
2020
$
$
662
304
–
1
967
$
$
424
369
35
1
829
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
2021
2020
$
$
164
34
141
339
$
$
17
28
10
55
(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
130 Great-West Lifeco Inc. 2021 Annual Report
2021
2020
$
1,376
1,895
$
3,271
$
$
1,183
2,185
3,368
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 48% in 2020) of insurance and investment contract liabilities are non-cashable prior to maturity or claim, with a
further 24% approximately (26% in 2020) 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, 2021, the Company maintains $950 of liquidity at the Lifeco level through committed lines of credit with Canadian
chartered banks. As well, the Company maintains a U.S. $500 revolving credit agreement at Great-West Lifeco U.S. LLC, a U.S.
$300 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
$
8,529
150
436
306
$
$
$
–
–
192
306
720
–
85
–
Total
$
9,421
$
498
$
805
$
–
–
44
–
44
(1) Payments due have not been reduced to reflect that the Company held capital trust securities of $37 principal amount ($53 carrying value).
$
$
635
–
35
–
720
–
15
–
Over
5 years
$
6,454
150
65
–
$
670
$
735
$
6,669
(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. 2021 Annual Report
131
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 2021 (0.11% in 2020). The calculation for future credit losses on
assets is based on the credit quality of the underlying asset portfolio.
Testing under a number of interest rate scenarios (including increasing, decreasing and fluctuating rates) is done to assess
reinvestment risk because the Company’s sensitivity to interest rate movements varies at different terms.
132 Great-West Lifeco Inc. 2021 Annual Report
Notes to Consolidated Financial Statements
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.
The impact to the value of liabilities from an immediate parallel 1% increase or 1% decrease in the interest rates would be
largely offset by changes in the value of assets supporting the liabilities.
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 parallel 1% increase or 1% decrease in the interest rates as well as a corresponding parallel shift in
the ultimate reinvestment rates, as defined in the actuarial standards.
2021
2020
1% increase
1% decrease (1)
1% increase
1% decrease (1)
Change in interest rates
Increase (decrease) in non-participating insurance and investment contract liabilities
Increase (decrease) in net earnings
$
$
(219)
197
$
$
678
(555)
$
$
(289)
224
$
$
1,185
(920)
(1) For the 1% decrease, initial risk-free yields are floored at zero, wherever risk-free yields are not currently negative.
(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. 2021 Annual Report
133
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.
2021
2020
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
$
$
(26)
21
$
$
(16)
13
$
$
22
(19)
$
$
76
(66)
$
$
(34)
28
(18)
$
$ 15
$
$
62
(51)
$ 264
$ (208)
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.
2021
2020
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
$
$
(92)
79
$
$
(46)
39
$
$
38
(30)
$ 144
$ (112)
$
$
(41)
34
$
$
(8)
6
$
$
88
(69)
$ 138
(108)
$
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
2021
2020
1% increase
1% decrease
1% increase
1% decrease
$
$
(715)
567
$
$
829
(649)
$
$
(691)
556
$
$
861
(682)
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.
134 Great-West Lifeco Inc. 2021 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
2021
Related amounts not set-off
in the Balance Sheet
Offsetting
counterparty
position (1)
Financial
collateral
received/
pledged (2)
Net
exposure
$
$
$
$
(527)
–
(527)
(527)
(527)
$
$
$
$
(293)
–
(293)
(279)
(279)
2020
Related amounts not set-off
in the Balance Sheet
Offsetting
counterparty
position (1)
Financial
collateral
received/
pledged (2)
$
$
$
$
(596)
–
(596)
(596)
(596)
$
$
$
$
(154)
(4)
(158)
(361)
(361)
$
$
$
$
$
$
$
$
147
–
147
224
224
Net
exposure
79
–
79
264
264
Gross amount
of financial
instruments
presented in
the Balance
Sheet
$
$
$
$
967
–
967
1,030
1,030
Gross amount
of financial
instruments
presented in
the Balance
Sheet
$
$
$
$
829
4
833
1,221
1,221
(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, 2021, total financial collateral, including initial margin and overcollateralization, received on derivative assets was $318 ($211 at December 31, 2020), received on reverse repurchase
agreements was nil ($4 at December 31, 2020), and pledged on derivative liabilities was $480 ($560 at December 31, 2020).
(3) Assets related to reverse repurchase agreements are included in bonds, on the Consolidated Balance Sheets.
Great-West Lifeco Inc. 2021 Annual Report
135
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
2021
$
6,075
$
–
$
–
$
6,075
–
–
11,577
103,713
–
12
11,577
103,725
–
4
4
–
336
1
–
307
76
12,123
1
12,124
–
14,663
966
106
833
93
100
2,609
1,680
4,389
–
204
204
7,763
–
–
–
531
–
103,813
2,609
13,269
119,691
12,123
209
12,332
7,763
14,999
967
106
1,671
169
Total assets measured at fair value
$ 18,376
$ 132,510
$ 12,887
$ 163,773
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 $317.
(2) Includes collateral received under securities lending arrangements.
(3) Excludes collateral pledged to counterparties of $370.
$
$
3
–
76
79
$
$
1,027
12,455
93
$ 13,575
$
–
–
–
–
$
1,030
12,455
169
$ 13,654
There were no transfers of the Company’s assets and liabilities between Level 1 and Level 2 in the year.
136 Great-West Lifeco Inc. 2021 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 $210.
(2) Includes collateral received under securities lending arrangements.
(3) Excludes collateral pledged to counterparties of $442.
Level 1
Level 2
Level 3
Total
2020
$
7,946
$
–
$
–
$
7,946
–
–
8,773
8,773
–
3
3
–
245
1
–
302
79
102,819
–
188
103,007
11,352
1
11,353
–
15,943
828
130
353
188
73
2,020
1,374
3,467
–
16
16
6,270
–
–
–
58
–
102,892
2,020
10,335
115,247
11,352
20
11,372
6,270
16,188
829
130
713
267
$
17,349
$ 131,802
$
9,811
$ 158,962
$
$
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.
Great-West Lifeco Inc. 2021 Annual Report
137
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) (2)
Purchases
Issues
Sales
Settlements
Transfers into Level 3 (2) (3)
Transfers out of Level 3 (3)
Balance, end of year
2021
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
$
73 $ 2,020 $ 1,374 $
16 $ 6,270 $
58 $ 9,811
4
(5)
28
–
–
–
–
–
(121)
(21)
–
896
–
(165)
–
–
164
–
798
–
(199)
–
–
(457)
7
117
31
–
(7)
–
40
–
615
(52)
970
–
(40)
–
–
–
16
–
597
–
(140)
–
–
–
685
39
2,424
896
(386)
(165)
40
(457)
$
100 $ 2,609 $ 1,680 $
204 $ 7,763 $
531 $ 12,887
Total gains (losses) for the year included in net investment income
$
4 $
(121) $
164 $
7 $
615 $
16 $
685
Change in unrealized gains (losses) for the year
included in earnings for assets held at December 31, 2021
$
4 $
(115) $
161 $
– $
621 $
16 $
687
(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) During 2021, certain stocks previously classified as available-for-sale, at cost were remeasured at a fair value of $147, are now classified as available-for-sale, and have been transferred into Level 3 as reliable
measure of fair value was identified during the period. The carrying value of $40 was transferred into Level 3 and the difference between the carrying value and fair value of $107 was recognized as an unrealized
gain on available-for-sale assets with an income tax expense of $15 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.
138 Great-West Lifeco Inc. 2021 Annual Report
Notes to Consolidated Financial Statements
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)
Balance, end of year
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
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
–
73
$ 2,020
$ 1,374
$
–
1
11
–
–
–
–
–
–
16
(74)
21
481
–
(73)
–
28
–
–
$ 6,270
$
–
–
–
–
–
–
–
58
–
58
100
41
898
622
(156)
(87)
28
415
–
$ 9,811
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 Irish Progressive Services International Limited (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
investment 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.
On March 20, 2020, Canada Life 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 pandemic 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.
On January 11, 2021, Canada Life lifted the temporary suspension on contributions to and transfers into its Canadian real estate
investment funds, and on April 19, 2021, the temporary suspension on redemptions and transfers out was fully lifted, as confidence over
the valuation of the underlying properties returned as a result of increased market activity. As a result of the lifting of these temporary
suspensions, the Company’s investment in these funds with a fair value of $457 was transferred on April 19, 2021 from Level 3 to Level 1.
Great-West Lifeco Inc. 2021 Annual Report
139
Notes to Consolidated Financial Statements
9. Fair Value Measurement (cont’d)
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.
Discount rate
Range of 3.3% – 12.4%
Reversionary rate
Range of 3.5% – 7.0%
Vacancy rate
Weighted average of 2.5%
Discount rate
Range of 3.5% – 4.7%
A decrease in the discount rate would result in an increase
in fair value. An increase in the discount rate would result
in a decrease in fair value.
A decrease in the reversionary rate would result in an
increase in fair value. An increase in the reversionary rate
would result in a decrease in fair value.
A decrease in the expected vacancy rate would generally
result in an increase in fair value. An increase in the
expected vacancy rate would generally result in a
decrease in fair value.
A decrease in the discount rate would result in an increase
in fair value. An increase in the discount rate would result
in a decrease in fair value.
Mortgage
loans – equity
release
mortgages
(fair value
through profit
or loss)
The valuation approach for equity release mortgages
is to use an internal valuation model to determine the
projected asset cash flows, including the stochastically
calculated cost of the no negative equity guarantee for
each individual loan, to aggregate these across all loans
and to discount those cash flows back to the valuation
date. The projection is done monthly until expected
redemption of the loan either voluntarily or on the
death/entering into long term care of the loanholders.
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 and equity disclosed at fair value
Debentures and other debt instruments
Limited recourse capital notes
Total liabilities and equity disclosed at fair value
2021
Level 1
Level 2
Level 3
Other assets/
liabilities not
held at fair
value
Total
$
$
$
$
–
–
–
–
–
418
–
418
186
–
186
$
$ 26,668
27,049
8,319
62,036
–
–
–
$
49
–
–
49
–
–
–
$ 62,036
$
49
$
–
–
–
–
124
215
126
465
$ 26,717
27,049
8,319
62,085
124
633
126
$ 62,968
$
9,569
1,475
$ 11,044
$
$
–
–
–
$
$
–
–
–
$
9,755
1,475
$ 11,230
(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.
140 Great-West Lifeco Inc. 2021 Annual Report
Notes to Consolidated Financial Statements
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
970
970
$
$
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
$
$
10,207
10,207
$
$
–
–
$
$
–
–
$
$
11,177
11,177
(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.
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 and dispositions
Purchase price allocation adjustments
Allocated to 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
2021
2020
$ 11,283
46
161
(1,181)
(51)
$
7,693
3,621
–
(12)
(19)
$ 10,258
$
11,283
$
$
$
(1,177)
–
–
(1,177)
9,081
$
$
$
(1,188)
(16)
27
(1,177)
10,106
(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:
2021
2020
Canada
Group Customer
Individual Customer
Europe
United States
Financial Services
Total
$
1,479
2,549
2,379
2,674
$
1,464
2,553
2,395
3,694
$
9,081
$
10,106
Great-West Lifeco Inc. 2021 Annual Report
141
Notes to Consolidated Financial Statements
10. Goodwill and Intangible Assets (cont’d)
(b) Intangible Assets
Intangible assets of $5,514 ($4,285 as at December 31, 2020) 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:
2021
Brands and
trademarks
Customer
contract related
$
1,063
(15)
$
2,542
–
$
1,048
$
2,542
$
$
$
(133)
3
(130)
918
$
$
$
(1,028)
–
(1,028)
1,514
2020
Brands and
trademarks
Customer
contract related
$
972
92
(1)
$
2,562
30
(50)
$
$
1,063
$
2,542
$
$
$
$
(133)
–
(133)
930
$
$
$
(1,051)
23
(1,028)
1,514
Shareholders’
portion of
acquired future
participating
account profit
$
$
$
$
$
354
–
354
–
–
–
354
Shareholders’
portion of
acquired future
participating
account profit
354
–
–
354
–
–
–
354
$
$
$
$
Total
$
3,959
(15)
$
3,944
$
$
$
(1,161)
3
(1,158)
2,786
Total
$
3,888
122
(51)
$
3,959
$
$
$
(1,184)
23
(1,161)
2,798
2021
2020
354
649
221
1,473
89
$
354
649
233
1,473
89
$
2,786
$
2,798
Cost
Balance, beginning of year
Changes in foreign exchange rates
Balance, end of year
Accumulated impairment
Balance, beginning of year
Changes in foreign exchange rates
Balance, end of year
Net carrying amount
Cost
Balance, beginning of year
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
(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
142 Great-West Lifeco Inc. 2021 Annual Report
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
2021
Customer
contract
related
Distribution
channels
Technology/
Software
Total
7 – 30 years
30 years 3 – 10 years
Straight-line Straight-line Straight-line
$
$
1,248
1,261
(15)
–
$
2,494
$
$
$
$
(688)
4
–
(137)
(821)
1,673
$
$
$
111
–
(4)
–
107
(65)
3
–
(4)
(66)
41
$
2,185
340
(21)
(16)
$
3,544
1,601
(40)
(16)
$
2,488
$
5,089
$
$
$
(1,304)
11
14
(195)
(1,474)
1,014
$
$
$
(2,057)
18
14
(336)
(2,361)
2,728
2020
Customer
contract
related
Distribution
channels
Technology/
Software
Total
7 – 30 years
Straight-line
30 years
Straight-line
3 – 10 years
Straight-line
$
$
1,031
214
3
–
$
1,248
$
$
$
$
(630)
(3)
–
(55)
(688)
560
$
$
$
108
–
3
–
111
(60)
(1)
–
(4)
(65)
46
$
1,885
341
(6)
(35)
$
3,024
555
–
(35)
$
2,185
$
3,544
$
$
$
(1,159)
5
29
(179)
(1,304)
881
$
$
$
(1,849)
1
29
(238)
(2,057)
1,487
The weighted average remaining amortization period of the customer contract related and distribution channels are 15 and 12
years respectively (14 and 13 years respectively at December 31, 2020).
Great-West Lifeco Inc. 2021 Annual Report
143
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. The calculations utilize earnings and cash flow projections based on financial budgets
approved by management. 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 2021, the Company conducted its annual impairment testing of intangible assets and goodwill based on
September 30, 2021 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 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
Transferred to investment properties (1)
Depreciation
Foreign exchange
Net carrying value, end of year
2021
2020
$
$
871
(130)
741
21
(1)
–
(16)
(9)
736
$
$
842
(115)
727
42
–
(17)
(15)
4
741
(1) As a result of the sale of IPSI in 2020, 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 $422 at December 31, 2021 ($426 at December 31, 2020).
The following provides details of the net carrying value of owner occupied properties and fixed assets by operating segment:
Canada
United States
Europe
Capital and Risk Solutions
Total
2021
2020
$
$
652
317
188
1
640
321
205
1
$
1,158
$
1,167
There are no restrictions on the title of the owner occupied properties and fixed assets, nor are they pledged as security for debt.
144 Great-West Lifeco Inc. 2021 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
2021
2020
$
$
615
389
1,671
433
363
123
928
618
437
713
404
240
115
820
$
4,522
$
3,347
(1) Includes bonds of $1,322 and stocks of $349 at December 31, 2021 (bonds of $386 and stocks of $327 at December 31, 2020).
Total other assets of $2,752 ($1,678 at December 31, 2020) 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
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
Modifications
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
Changes in foreign exchange rates
Accumulated amortization, end of year
Carrying amount, end of year
2021
2020
$
$
618
113
(55)
(34)
(27)
615
$
$
2021
595
93
(55)
26
(41)
618
Property
Equipment
Total
$
$
$
$
$
$
$
$
$
$
568
21
(10)
(1)
578
(134)
(66)
7
(1)
(194)
384
$
$
$
$
$
8
5
(1)
–
12
(5)
(2)
–
–
(7)
5
$
$
$
$
$
576
26
(11)
(1)
590
(139)
(68)
7
(1)
(201)
389
2020
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
Great-West Lifeco Inc. 2021 Annual Report
145
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 six 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
2021
2020
$
$
$
30
31
32
33
33
717
876
443
433
27
$
$
$
30
30
30
30
30
662
812
408
404
26
146 Great-West Lifeco Inc. 2021 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
$ 208,378
12,455
2021
Reinsurance
assets
$ 21,032
106
Net
$ 187,346
12,349
$ 220,833
$ 21,138
$ 199,695
Gross
liability
2020
Reinsurance
assets
Net
$ 208,902
9,145
$
21,991
130
$ 186,911
9,015
$ 218,047
$
22,121
$ 195,926
(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
Capital and Risk Solutions
Non-Participating
Canada
United States
Europe
Capital and Risk Solutions
Total
Gross
liability
2021
Reinsurance
assets
Net
$ 50,049
10,694
141
886
$
(115)
13
–
–
$ 50,164
10,681
141
886
34,780
63,938
47,215
13,130
207
14,708
6,197
128
34,573
49,230
41,018
13,002
$ 220,833
$ 21,138
$ 199,695
Gross
liability
2020
Reinsurance
assets
$
46,107
11,090
155
912
35,449
65,703
48,088
10,543
$
$
(199)
13
–
–
638
15,908
5,622
139
Net
46,306
11,077
155
912
34,811
49,795
42,466
10,404
$ 218,047
$
22,121
$ 195,926
Great-West Lifeco Inc. 2021 Annual Report
147
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
Capital and Risk Solutions
Non-participating liabilities
Canada
United States
Europe
Capital and Risk Solutions
Other
Total equity
Total carrying value
Fair value
Bonds
Mortgage
loans
Stocks
Investment
properties
Other
Total
2021
$ 21,370
4,876
66
666
$ 11,166
607
–
8
$
23,620
32,302
33,208
6,394
7,257
10,853
4,661
4,641
5,891
80
1,202
596
$
8,522
76
67
–
3,116
211
391
–
873
927
$ 140,612
$ 28,852
$ 14,183
$ 142,653
$ 29,658
$ 14,235
$
$
2020
4,013
–
8
–
579
–
2,743
–
157
263
7,763
7,763
$
4,978
5,135
–
212
2,804
26,784
4,982
6,656
369,683
17,844
$ 50,049
10,694
141
886
34,780
63,938
47,215
13,130
379,172
30,483
$ 439,078
$ 630,488
$ 439,078
$ 633,387
Bonds
Mortgage
loans
Stocks
Investment
properties
Other
Total
$
21,803
5,193
84
688
23,898
31,631
34,941
2,365
5,367
11,622
$
$
10,545
593
–
12
4,498
4,586
5,746
52
1,135
636
$
6,152
13
62
–
2,789
46
332
–
754
852
$ 137,592
$ 140,789
$
$
27,803
29,633
$
$
11,000
10,963
$
$
2,983
–
9
–
360
–
2,536
–
141
241
6,270
6,270
$
$
4,624
5,291
–
212
3,904
29,440
4,533
8,126
348,031
13,664
46,107
11,090
155
912
35,449
65,703
48,088
10,543
355,428
27,015
$ 417,825
$ 600,490
$ 417,825
$ 605,480
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.
148 Great-West Lifeco Inc. 2021 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
Ark Life 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
MassMutual acquisition (note 3)
Impact of foreign exchange rate changes
Balance, end of year
2021
Participating
Reinsurance
assets
$
(186)
–
27
57
–
Gross
liability
$ 58,264
(78)
3,819
(223)
(12)
Net
$ 58,450
(78)
3,792
(280)
(12)
$ 61,770
$
(102)
$ 61,872
Gross
liability
$ 150,638
10,559
(12,920)
(673)
(613)
1,257
(1,640)
Non-participating
Reinsurance
assets
$ 22,177
84
(1,472)
(540)
(37)
1,238
(316)
Net
Total Net
$ 128,461
10,475
(11,448)
(133)
(576)
19
(1,324)
$ 186,911
10,397
(7,656)
(413)
(576)
19
(1,336)
$ 146,608
$ 21,134
$ 125,474
$ 187,346
2020
Participating
Reinsurance
assets
$
$
Gross
liability
54,619
(7)
3,883
55
(286)
$
58,264
$
$
Net
54,854
(39)
3,874
47
(286)
$
58,450
(235)
32
9
8
–
(186)
Gross
liability
$ 119,902
7,028
1,296
161
(48)
22,316
(17)
Non-participating
Reinsurance
assets
$
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
Great-West Lifeco Inc. 2021 Annual Report
149
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.
Effective October 15, 2021, the Canadian Actuarial Standards Board published revised standards for the valuation of insurance
contract liabilities. The revised standards include decreases to ultimate reinvestment rates, revised calibration criteria for stochastic
risk-free interest rates and an increase to the maximum net credit spread on reinvestment over the long term.
In 2021, the major contributor to the increase in net insurance contract liabilities was the impact of new business of $10,397.
This was partially offset by decreases due to normal change in the in force business of $7,656 and foreign exchange rate changes
of $1,336.
Net non-participating insurance contract liabilities decreased by $133 due to management actions and changes in assumptions
including a $219 decrease in Europe and $7 decrease in the U.S., partially offset by increases of $75 in Canada and $18 in Capital
and Risk Solutions.
The decrease in Europe was primarily due to updated economic and asset related assumptions of $165, updated longevity
assumptions of $29, and updated policyholder behaviour assumptions of $22.
The decrease in the U.S. was primarily due to updated economic assumptions, which includes the net impact of the new standards,
of $5.
The increase in Canada was primarily due to updated policyholder behaviour assumptions of $172, mortality updates of $44,
and updated morbidity assumptions of $37. This was partially offset by decreases due to updated economic and asset related
assumptions, which includes the net impact of the new standards, of $146, and modeling refinements of $29.
The increase in Capital and Risk Solutions was primarily due to updated expense assumptions of $11, and updated life mortality
and longevity assumptions of $6.
Net participating insurance contract liabilities decreased by $280 in 2021 due to management actions and changes in assumptions.
In 2020, the major contributors to the increase in net insurance contract liabilities was the MassMutual acquisition 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.
150 Great-West Lifeco Inc. 2021 Annual Report
Notes to Consolidated Financial Statements
(d) Change in investment contract liabilities measured at fair value
2021
Gross
liability
Reinsurance
assets
Net
Gross
liability
2020
Reinsurance
assets
Balance, beginning of year
Normal change in force business
Investment experience
Management action and changes in assumptions
MassMutual acquisition (note 3)
Ark Life acquisition (note 3)
Impact of foreign exchange rate changes
$
$
9,145
3,497
(242)
–
–
43
12
Balance, end of year
$ 12,455
$
130
38
(62)
–
–
–
–
106
$
$
9,015
3,459
(180)
–
–
43
12
$
1,656
2,489
147
(4)
4,984
–
(127)
$ 12,349
$
9,145
$
127
(20)
26
–
–
–
(3)
130
$
Net
1,529
2,509
121
(4)
4,984
–
(124)
$
9,015
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
2021
2020
$ 26,219
31,178
$
28,102
19,652
$ 57,397
$
47,754
2021
2020
$ 20,903
28,452
$
19,538
20,067
$ 49,355
$
39,605
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. 2021 Annual Report
151
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 entities within the Capital and Risk Solutions operating
segment 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. Capital and
Risk Solutions 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. 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.
152 Great-West Lifeco Inc. 2021 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
2021
2020
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(276)
(722)
(262)
–
–
197
(555)
21
13
(19)
(66)
79
39
(30)
(112)
567
(649)
(207)
(1,002)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
(288)
(756)
(279)
–
–
224
(920)
28
15
(51)
(208)
34
6
(69)
(108)
556
(682)
(165)
(1,017)
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
Capital and Risk Solutions
Total
Gross
liability
$ 84,829
74,632
47,356
14,016
2021
Reinsurance
assets
$
92
14,721
6,197
128
Net
$ 84,737
59,911
41,159
13,888
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
$ 220,833
$ 21,138
$ 199,695
$ 218,047
$
22,121
$ 195,926
Great-West Lifeco Inc. 2021 Annual Report
153
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 $3,125 at December 31, 2021 ($1,490 at December 31, 2020).
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, 2021, the amount of
GMWB product in-force in Canada, the U.S., Ireland and Germany was $3,316 ($3,375 at December 31, 2020).
154 Great-West Lifeco Inc. 2021 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)
2021
2020
$ 12,500
60,647
2,377
134,568
133,916
12,776
356,784
442
(2,932)
3,125
$
15,558
65,338
2,686
112,675
127,577
12,430
336,264
463
(4,185)
1,490
$ 357,419
$ 334,032
(1) At December 31, 2021, $83,754 of investments on account of segregated fund policyholders are reinsured by the Company on a modified coinsurance basis ($84,785 at December 31, 2020). Included in
this amount are $301 of cash and cash equivalents, $13,557 of bonds, $26 of stocks and units in unit trusts, $69,852 of mutual funds, $78 of accrued income and $(60) 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 acquisitions (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
Total
Balance, end of year
2021
2020
$ 334,032
$ 231,022
29,657
9,442
15,799
11,473
(7,109)
(40,324)
2,844
(30)
(22)
22
1,635
21,916
2,695
8,954
474
3,920
(20,371)
84,785
51
234
9
343
23,387
103,010
$ 357,419
$ 334,032
(1) Investment and insurance contracts on account of segregated fund policyholders acquired through the acquisition of Ark Life in 2021 and the MassMutual acquisition in 2020 (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
2021
2020
$
9,442
15,799
11,473
(7,109)
29,605
29,605
$
2,695
8,954
474
3,920
16,043
16,043
$
–
$
–
Great-West Lifeco Inc. 2021 Annual Report
155
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)
Level 1
Level 2
Level 3
Total
2021
Investments on account of segregated fund policyholders (1)
$ 249,543
$ 96,575
$ 13,822
$ 359,940
(1) Excludes other liabilities, net of other assets, of $2,521.
Level 1
Level 2
Level 3
Total
2020
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.
During 2021, certain foreign stock holdings valued at $2,137 have been transferred from Level 2 to Level 1 ($3,190 were transferred
from Level 1 to Level 2 at December 31, 2020) 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, 2021, $5,394 ($9,770 at December 31, 2020) 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:
Balance, beginning of year
Total gains included in segregated fund investment income
Purchases
Sales
Transfers into Level 3
Transfers out of Level 3
Balance, end of year
2021
2020
$ 13,556
415
333
(482)
5
(5)
$
13,988
78
167
(712)
35
–
$ 13,822
$
13,556
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 2021, fee and other income earned by the Company resulting from the Company’s interests in segregated funds and other
structured entities was $6,194 ($5,034 during 2020).
Included within other assets (note 12) at December 31, 2021 is $1,525 ($557 at December 31, 2020) of investments by the Company in
bonds and stocks of Putnam sponsored funds and $146 ($156 at December 31, 2020) of investments in stocks of sponsored unit trusts
in Europe.
156 Great-West Lifeco Inc. 2021 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
0.172% to 0.203% (0.223% to 0.274% at December 31, 2020), unsecured
$
122
$
122
$
125
$
125
2021
2020
Carrying value
Fair value
Carrying value
Fair value
Revolving credit facility with interest equal to LIBOR plus 0.70%
(U.S. $50; U.S. $165 at December 31, 2020), unsecured
Revolving credit facility with interest equal to LIBOR plus 1.00%
(U.S. $0; U.S. $500 at December 31, 2020), unsecured
Total short-term
Capital:
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, ((cid:192)500) (1)
2.379% Debentures due May 14, 2030, unsecured
1.75% Debentures due December 7, 2026, unsecured, ((cid:192)500) (1)
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
(1) Designated as hedges of the net investment in foreign operations.
64
–
186
195
394
342
498
493
720
597
717
64
–
186
270
549
478
533
479
743
602
768
210
635
970
195
394
342
498
493
774
597
771
210
635
970
287
575
504
566
514
825
637
857
3,956
4,422
4,064
4,765
100
157
629
379
125
215
820
431
100
158
628
379
1,008
1,251
1,007
874
632
879
506
506
1,891
8,618
1,057
617
899
490
493
1,882
9,569
874
631
879
505
505
1,889
8,723
135
222
867
446
1,313
1,117
638
984
521
512
2,017
10,207
$
8,804
$
9,755
$
9,693
$
11,177
The Company made payments of U.S. $400 on July 2, 2021 and U.S. $100 on September 29, 2021 on its committed line of credit related to
GWL&A’s acquisition of the retirement services business from MassMutual on December 31, 2020. As at December 31, 2021 the balance
drawn on this line of credit is nil ($635 as at December 31, 2020).
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.
Great-West Lifeco Inc. 2021 Annual Report
157
Notes to Consolidated Financial Statements
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 limited recourse capital notes
Interest on capital trust securities
Other
Total
2021
2020
$
7
$
5
275
20
11
15
321
328
$
251
–
11
17
279
284
$
158 Great-West Lifeco Inc. 2021 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
2021
2020
$
989
522
407
314
3,831
$
1,630
568
444
345
2,160
$
6,063
$
5,147
Total other liabilities of $4,238 ($2,604 at December 31, 2020) 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
2021
2020
$
$
345
70
(71)
(14)
(16)
314
$
$
380
51
(78)
12
(20)
345
2021
Property
Equipment
Total
$
$
$
$
565
21
(2)
(86)
(2)
21
517
$
$
3
5
–
(3)
–
–
5
$
$
568
26
(2)
(89)
(2)
21
522
2020
Property
Equipment
Total
580
56
(4)
(85)
(4)
22
565
$
$
$
$
5
1
–
(3)
–
–
3
$
$
585
57
(4)
(88)
(4)
22
568
2021
2020
83
71
63
55
52
340
664
$
$
88
78
67
60
54
387
734
Great-West Lifeco Inc. 2021 Annual Report
159
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, 2021 and December 31, 2020.
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
Policyholder dividends
Canada Life
GWL&A
Net earnings – participating account
Non-controlling interests in subsidiaries
Total
2021
2020
$
1,708
–
1,708
(1,405)
(1)
(1,406)
302
(1)
301
$
$
$
1,429
1
1,430
(1,362)
(2)
(1,364)
66
12
78
The non-controlling interests recorded in other comprehensive income (loss) for the year ended December 31, 2021 was $(28) ($37
for the year ended December 31, 2020).
(b) The carrying value of non-controlling interests consists of the following:
Participating account surplus in subsidiaries:
Canada Life
GWL&A
Total
Non-controlling interests in subsidiaries
2021
2020
$
$
$
3,126
12
3,138
129
$
$
$
2,858
13
2,871
116
160 Great-West Lifeco Inc. 2021 Annual Report
Notes to Consolidated Financial Statements
19. Share Capital
(a) Limited Recourse Capital Notes
On August 16, 2021, the Company issued $1,500 aggregate principal amount 3.60% Limited Recourse Capital Notes Series 1
(Subordinated Indebtedness) at par, maturing on December 31, 2081 (LRCN Series 1). The LRCN Series 1 bear interest at a fixed
rate of 3.60% per annum payable semi-annually, up to but excluding December 31, 2026. On December 31, 2026 and every five
years thereafter until December 31, 2076, the interest rate on the LRCN Series 1 will be reset at an interest rate equal to the five-year
Government of Canada Yield, plus 2.641%. Commencing November 30, 2026, the Company will have the option to redeem the LRCN
Series 1 every five years during the period from November 30 to December 31, in whole or in part at par, together in each case with
accrued and unpaid interest. The Company will be required to redeem the LRCN Series 1 in whole at par, together with accrued and
unpaid interest, if GWL&A’s acquisition of Prudential’s full-service retirement business is terminated prior to, or has not closed on
or prior to, May 3, 2022 (or such later date as extended pursuant to the acquisition agreement). The LRCN Series 1 are presented
within equity on the Consolidated Balance Sheets. Transaction costs incurred in connection with the LRCN Series 1 issue of $17 ($13
after-tax) were charged to accumulated surplus. Interest expense of $20 for the year ended December 31, 2021 was recognized in
financing charges in the Consolidated Statements of Earnings. The LRCN Series 1 had a fair value of $1,475 at December 31, 2021.
Non-payment of interest or principal when due on the LRCN Series 1 will result in a recourse event, with the noteholders’ sole
remedy being receipt of their proportionate share of Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series U (Series
U Preferred Shares) held in a newly formed consolidated trust (Limited Recourse Trust). All claims of the holders of LRCN Series
1 against the Company will be extinguished upon receipt of the corresponding trust assets. The Series U Preferred Shares are
eliminated on the Company’s Consolidated Balance Sheets while being held within the Limited Recourse Trust.
(b) Preferred Shares
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, 1.749% Non-Cumulative Rate Reset
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
Series Y, 4.50% Non-Cumulative
Total
Common shares
Balance, beginning of year
Exercised and issued under stock option plan
Balance, end of year
2021
2020
Number
Carrying
value
Number
Carrying
value
$
–
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
8,000,000
$
–
300
300
300
170
150
250
250
200
200
200
200
200
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
–
108,800,000
$
2,720
108,540,032
927,853,106
2,767,232
$
5,651
97
927,281,186
571,920
930,620,338
$
5,748
927,853,106
$
$
$
2,714
5,633
18
5,651
On October 8, 2021, the Company issued 8,000,000, 4.50% Non-Cumulative First Preferred Shares, Series Y at $25.00 per share for
gross proceeds of $200. The shares are redeemable at the option of the Company on or after December 31, 2026 for $25.00 per share
plus a premium if redeemed prior to December 31, 2030, in each case together with all declared and unpaid dividends up to but
excluding the date of redemption. Transaction costs incurred in connection with the preferred share issue of $4 ($3 after-tax) were
charged to accumulated surplus.
On December 31, 2021 the Company redeemed all of its issued and outstanding, 5.90% Non-Cumulative First Preferred Shares,
Series F for $25.00 per share plus an amount equal to all declared and unpaid dividends, less any tax required to be deducted and
withheld by the Company.
Great-West Lifeco Inc. 2021 Annual Report
161
Notes to Consolidated Financial Statements
19. Share Capital (cont’d)
The Series G, 5.20% Non-Cumulative First Preferred Shares are currently redeemable at the option of the Company for $25.00 per
share, together with all declared and unpaid dividends up to but excluding the date of redemption.
The Series H, 4.85% Non-Cumulative First Preferred Shares are currently redeemable at the option of the Company for $25.00 per
share, together with all declared and unpaid dividends up to but excluding the date of redemption.
The Series I, 4.50% Non-Cumulative First Preferred Shares are currently redeemable at the option of the Company for $25.00 per
share, together with all declared and unpaid dividends up to but excluding the date of redemption.
The Series L, 5.65% Non-Cumulative First Preferred Shares are currently redeemable at the option of the Company for $25.00 per
share, together with all declared and unpaid dividends up to but excluding the date of redemption.
The Series M, 5.80% Non-Cumulative First Preferred Shares are currently redeemable at the option of the Company for $25.00 per
share, together with all declared and unpaid dividends up to but excluding the date of redemption.
The Series N, Non-Cumulative 5-Year Rate Reset First Preferred Shares carry an annual fixed non-cumulative dividend rate of
1.749% up to but excluding December 31, 2025 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. Subject to the Company’s right of redemption and certain other restrictions on conversion described in the Series
N share conditions, each Series N share is convertible into one Series O, Non-Cumulative Floating Rate First Preferred Share at the
option of the holders on December 31, 2025 and on December 31 every five years thereafter.
The Series P, 5.40% 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 Q, 5.15% 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 R, 4.80% 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 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.
(c) Common Shares
Normal Course Issuer Bid
The Company renewed its normal course issuer bid (NCIB) effective January 27, 2021 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 year ended December 31, 2021, the Company
did not purchase any common shares under the NCIB (nil for the year ended December 31, 2020, under the previous NCIB). On
November 4, 2021, OSFI withdrew its guidance provided in March 2020 at the outset of the COVID-19 pandemic that Canadian
banks and insurers should suspend share buybacks and not increase dividend payments.
Subsequent Event
On January 25, 2022, the Company announced a new NCIB commencing January 27, 2022 and terminating January 26, 2023 to
purchase for cancellation up to but not more than 20,000,000 of its common shares at market prices.
162 Great-West Lifeco Inc. 2021 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 (1)
(1) Includes an additional dividend of $0.052 declared November 14, 2021.
21. Capital Management
(a) Policies and Objectives
2021
2020
$
$
$
3,262
(134)
3,128
$
3,076
(133)
2,943
929,461,348
1,496,586
927,675,108
109,974
930,957,934
927,785,082
$
$
$
3.365
3.360
1.804
$
$
$
3.173
3.172
1.752
Managing capital is the continual process of establishing and maintaining the quantity and quality of capital appropriate for the
Company and ensuring capital is deployed in a manner consistent with the expectations of the Company’s stakeholders. For these
purposes, the Board considers the key stakeholders to be the Company’s shareholders, policyholders and holders of subordinated
liabilities in addition to the relevant regulators in the various jurisdictions where the Company and its subsidiaries operate.
The Company manages its capital on both a consolidated basis as well as at the individual operating subsidiary level. The primary
objectives of the Company’s capital management strategy are:
• to maintain the capitalization of its regulated operating subsidiaries at a level that will exceed the relevant minimum regulatory
capital requirements in the jurisdictions in which they operate;
• to maintain strong credit and financial strength ratings of the Company ensuring stable access to capital markets; and
• to provide an efficient capital structure to maximize shareholders’ value in the context of the Company’s operational risks and
strategic plans.
The Company has established policies and procedures designed to identify, measure and report all material risks. Management is
responsible for establishing capital management procedures for implementing and monitoring the capital plan.
The capital planning process is the responsibility of the Company’s Chief Financial Officer. The capital plan is approved by the
Company’s Board of Directors on an annual basis. The Board of Directors reviews and approves all capital transactions undertaken
by management.
The target level of capitalization for the Company and its subsidiaries is assessed by considering various factors such as the
probability of falling below the minimum regulatory capital requirements in the relevant operating jurisdiction, the views expressed
by various credit rating agencies that provide financial strength and other ratings to the Company, and the desire to hold sufficient
capital to be able to honour all policyholder and other obligations of the Company with a high degree of confidence.
(b) Regulatory Capital
In Canada, OSFI has established a regulatory capital adequacy measurement for life insurance companies incorporated under the
Insurance Companies Act (Canada) and their subsidiaries.
The Life Insurance Capital Adequacy Test (LICAT) Ratio compares the regulatory capital resources of a company to its 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)
2021
2020
$ 12,584
4,417
$
17,001
13,225
11,593
4,568
16,161
14,226
$ 30,226
$
30,387
$ 24,323
$
23,607
124%
129%
Great-West Lifeco Inc. 2021 Annual Report
163
Notes to Consolidated Financial Statements
21. Capital Management (cont’d)
For entities based in Europe, the local solvency capital regime is the Solvency II basis. At December 31, 2021 and December 31, 2020,
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, 2021
and December 31, 2020, the Company maintained capital levels above the minimum local regulatory requirements in each of its
foreign operations.
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 2021, the maximum number of Lifeco common shares issuable
under the Plan was 72,500,000.
During 2021, 2,638,300 common share options were granted (1,932,200 during 2020). The weighted average fair value of common
share options granted during 2021 was $2.60 per option ($1.86 in 2020). 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
2021: dividend yield 5.43% (5.44% in 2020), expected volatility 18.47% (15.75% in 2020), risk-free interest rate 1.18% (1.10% in 2020),
and expected life of eight years (eight in 2020).
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
2021
2020
Options
16,399,279
2,638,300
(2,767,232)
(146,620)
16,123,727
8,522,967
Weighted
average
exercise price
$
$
$
32.69
32.28
30.90
33.39
32.92
33.78
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
The weighted average share price at the date of exercise of stock options for the year ended December 31, 2021 was $36.11 ($32.59
in 2020).
Compensation expense due to the Plan transactions accounted for as equity-settled share-based payments of $5 after-tax in 2021
($4 after-tax in 2020) 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, 2021:
Outstanding
Weighted
average
remaining
contractual life
Weighted
average
exercise price
0.30
1.29
2.32
3.19
4.19
5.16
6.16
7.16
8.16
9.16
28.15
30.35
32.98
35.67
34.32
36.87
34.20
30.33
32.22
32.28
Exercisable
Options
494,580
910,680
1,566,428
1,488,059
2,196,260
925,740
932,820
8,400
–
–
Weighted
average
exercise price
28.12
30.35
32.98
35.67
34.32
36.87
34.20
30.28
–
–
Expiry
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
Options
501,180
910,680
1,566,428
1,488,059
2,196,260
1,153,200
1,560,020
2,400,400
1,809,800
2,537,700
Exercise price ranges
$23.16 – $36.87
$27.13 – $36.87
$30.28 – $36.87
$34.68 – $36.87
$30.28 – $36.87
$36.87 – $36.87
$32.99 – $34.21
$30.28 – $32.50
$32.22 – $32.22
$32.10 – $38.75
164 Great-West Lifeco Inc. 2021 Annual Report
Notes to Consolidated Financial Statements
(b)
To promote greater alignment of interests between the Directors and Lifeco’s shareholders, the Company and certain of its
subsidiaries have mandatory DSU Plans and/or voluntary DSU 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 2021, $6 in Directors’ fees were used to acquire DSUs ($6 in 2020). At
December 31, 2021, the carrying value of the DSU liability is $69 ($49 in 2020) 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, 2021, the Company recognized compensation expense of $16 ($4 in 2020) for the DSU Plans
recorded in operating and administrative expenses in the Consolidated Statements of Earnings. At December 31, 2021, the carrying
value of the DSU liability is $40 ($25 in 2020) 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, 2021, the Company recognized compensation expense, excluding the impact of
hedging, of $102 ($41 in 2020) for the PSU Plan recorded in operating and administrative expenses in the Consolidated Statements
of Earnings. At December 31, 2021, the carrying value of the PSU liability is $156 ($93 in 2020) 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, 2021, the
Company recognized compensation expense of $13 ($13 in 2020) 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 2021, Putnam granted 2,824,156 (3,092,859 in 2020) restricted Class B common shares to certain members of senior
management and key employees.
Compensation expense recorded for the year ended December 31, 2021 related to restricted Class B common shares and Class B stock
options earned was $41 ($31 in 2020) 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, 2021 related to restricted Class C Shares and stock appreciation
rights was $13 in 2021 ($14 in 2020) and is included as a component of operating and administrative expenses in the Consolidated
Statements of Earnings.
Great-West Lifeco Inc. 2021 Annual Report
165
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.
166 Great-West Lifeco Inc. 2021 Annual Report
Notes to Consolidated Financial Statements
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
2021
2020
2021
2020
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
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
Curtailments and termination benefits
Settlements
Actuarial loss (gain) on financial assumption changes
Actuarial loss (gain) on demographic assumption changes
Actuarial loss (gain) arising from member experience
Foreign exchange rate changes
Defined benefit obligation, end of year
$
7,961
$
8,554
$
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
$
$
$
$
$
$
(218)
(41)
(259)
363
(622)
(259)
7,646
315
$
$
$
$
$
$
(952)
(29)
(981)
240
(1,221)
(981)
8,213
341
$
$
$
$
$
$
$
$
7,602
159
498
115
18
(306)
(142)
(8)
(193)
$
6,972
179
453
164
15
(285)
(11)
(8)
123
$
–
–
–
19
–
(19)
–
–
–
$
7,743
$
7,602
$
–
$
$
$
8,554
91
181
18
(306)
(1)
(200)
(150)
(16)
(16)
(194)
$
7,836
88
204
15
(285)
(11)
(14)
599
(9)
18
113
–
–
–
17
–
(17)
–
–
–
–
388
2
12
–
(17)
–
–
28
1
(4)
(1)
409
(409)
–
(409)
–
(409)
(409)
–
409
409
3
10
–
(19)
–
–
(25)
(10)
(1)
–
367
(367)
–
(367)
–
(367)
(367)
–
367
$
$
$
$
$
$
$
$
Great-West Lifeco Inc. 2021 Annual Report
167
Notes to Consolidated Financial Statements
23. Pension Plans and Other Post-Employment Benefits (cont’d)
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
2021
2020
$
$
29
1
11
–
41
$
$
37
1
(11)
2
29
(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:
All pension plans
Other post-employment benefits
2021
2020
2021
2020
Defined benefit current service cost
Defined contribution current service cost
Employee contributions
Employer current service cost
Administrative expense
Curtailments
Settlements
Net interest cost
Expense – profit or loss
Actuarial (gain) loss recognized
Return on assets (greater) less than assumed
Change in the asset ceiling
Re-measurements – other comprehensive (income) loss
$
$
109
184
(18)
275
8
(1)
(58)
23
247
(182)
(498)
11
(669)
Total expense (income) including re-measurements
$
(422)
$
(c) Asset Allocation by Major Category Weighted by Plan Assets
Equity securities
Debt securities
Real estate
Cash and cash equivalents
Total
103
145
(15)
233
8
(11)
(3)
26
253
608
(453)
(11)
144
397
$
$
3
–
–
3
–
–
–
10
13
(36)
–
–
(36)
(23)
$
$
2
–
–
2
–
–
–
12
14
25
–
–
25
39
Defined benefit pension plans
2021
2020
39%
51%
7%
3%
100%
40%
48%
7%
5%
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 $6,980 at December 31, 2021 and $6,871 at December 31, 2020,
of which $6,902 ($6,790 at December 31, 2020) are included on the Consolidated Balance Sheets. Plan assets do not include any
property occupied or other assets used by the Company.
168 Great-West Lifeco Inc. 2021 Annual Report
Notes to Consolidated Financial Statements
(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
2021
2020
2021
2020
$
7,361
600
$
7,961
$
$
7,893
661
8,554
$
$
367
–
367
$
$
409
–
409
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
2021
2020
2021
2020
$
7,137
824
$
7,961
$
$
7,918
636
8,554
$
$
367
–
367
$
$
409
–
409
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
2021
2020
2021
2020
41%
18%
41%
100%
40%
20%
40%
100%
15%
n/a
85%
100%
16%
n/a
84%
100%
Weighted average duration of defined benefit obligation
17.6 years
18.7 years
11.8 years
11.9 years
(e) Cash Flow Information
Expected employer contributions for 2022:
Funded (wholly or partly) defined benefit plans
Unfunded plans
Defined contribution plans
Total
Pension
plans
Other post-
employment
benefits
Total
$
$
80
25
179
284
$
$
–
22
–
22
$
$
80
47
179
306
Great-West Lifeco Inc. 2021 Annual Report
169
Notes to Consolidated Financial Statements
23. Pension Plans and Other Post-Employment Benefits (cont’d)
(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
2021
2020
2021
2020
2.2%
2.8%
3.0%
1.2%
2.6%
3.1%
1.7%
2.6%
3.2%
2.9%
1.3%
2.1%
2.9%
1.0%
2.5%
2.6%
–
–
3.1%
–
–
4.7%
4.1%
2039
3.1%
3.3%
–
–
2.5%
–
–
4.7%
4.1%
2039
Defined benefit pension plans
Other post-employment benefits
2021
2020
2021
2020
22.6
24.5
24.7
26.6
22.7
24.7
24.8
26.7
22.5
24.0
24.9
26.2
22.5
24.0
24.7
26.2
The period of time over which benefits are assumed to be paid is based on best estimates of future mortality, including
allowances for mortality improvements. This estimate is subject to considerable uncertainty, and judgment is required in
establishing this assumption. As mortality assumptions are significant in measuring the defined benefit obligation, the
mortality assumptions applied by the Company take into consideration such factors as age, gender and geographic location,
in addition to an estimation of future improvements in longevity.
The mortality tables are reviewed at least annually, and assumptions are in accordance with accepted actuarial practice.
Emerging plan experience is reviewed and considered in establishing the best estimate for future mortality.
The calculation of the defined benefit obligation is sensitive to the mortality assumptions. The effect of a one-year increase in
life expectancy would be an increase in the defined benefit obligation of $246 for the defined benefit pension plans and $12 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
2021
2020
2021
2020
$
(1,199)
299
578
$
(1,350)
329
662
$
1,568
(269)
(507)
$
1,784
(291)
(569)
24
(36)
31
(44)
(21)
44
(26)
53
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.
170 Great-West Lifeco Inc. 2021 Annual Report
Notes to Consolidated Financial Statements
24. Accumulated Other Comprehensive Income
Balance, beginning
of year
Other comprehensive
income (loss)
Income tax
Balance, end of year
$
948
$
(30)
$
145
$
Unrealized
foreign
exchange
gains (losses)
on translation
of foreign
operations
Unrealized
gains (losses)
on hedges
of the net
investment
in foreign
operations
Unrealized
gains (losses)
on available-
for-sale assets
Unrealized
gains (losses)
on cash flow
hedges
2021
Re-measurements
on defined
benefit pension
and other post-
employment
benefit plans
Revaluation
surplus on
transfer to
investment
properties
Total
Non-controlling
interest
Shareholders
$
1,339
$
(135)
$
266
$
24
$
(978)
$
10
$
526
$
(39)
$
487
(391)
–
(391)
117
(12)
105
(159)
38
(121)
12
(3)
9
33
705
(190)
515
$
(463)
$
2020
–
–
–
10
284
(167)
117
40
(12)
28
324
(179)
145
$
643
$
(11)
$
632
Unrealized
foreign
exchange
gains (losses)
on translation
of foreign
operations
Unrealized
gains (losses)
on hedges
of the net
investment
in foreign
operations
Unrealized
gains (losses)
on available-
for-sale assets
Unrealized
gains (losses)
on cash flow
hedges
Re-measurements
on defined
benefit pension
and other post-
employment
benefit plans
Revaluation
surplus on
transfer to
investment
properties
Total
Non-controlling
interest
Shareholders
$
1,236
$
(57)
$
154
$
13
$
(849)
$
–
$
497
$
(2)
$
495
Balance, beginning
of year
Other comprehensive
income (loss)
Income tax
105
(2)
103
(90)
12
(78)
Balance, end of year
$
1,339
$
(135)
$
146
(34)
112
266
15
(4)
11
24
$
(169)
40
(129)
$
(978)
$
11
(1)
10
10
18
11
29
(54)
17
(37)
(36)
28
(8)
$
526
$
(39)
$
487
Great-West Lifeco Inc. 2021 Annual Report
171
Notes to Consolidated Financial Statements
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 96.19% of the total outstanding shares.
(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, Canada Life and IGM executed a
termination agreement covering the transition of shared information technology services from Canada Life to alternate providers
over a number of years. 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 9,200,448 shares, held through Canada Life, representing a 3.85% ownership interest in IGM. The Company uses
the equity method to account for its investment in IGM as it exercises significant influence. In 2021, the Company recognized $33 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 an agreement for a long-term strategic relationship with Sagard, a wholly-owned subsidiary
of Power Corporation, which includes the sale of EverWest to Sagard, in exchange for a minority shareholding in Sagard’s subsidiary,
Sagard Holdings Management Inc. (note 3).
During the year ended December 31, 2020, the Company completed the sale of GLC Asset Management Group Ltd 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)
in 2020.
During the year ended December 31, 2020, 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.
Segregated funds of the Company were invested in funds managed by IG Wealth Management and Mackenzie Investments.
Mackenzie Investments also manages certain of the Company’s portfolio 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
172 Great-West Lifeco Inc. 2021 Annual Report
$
2021
2020
$
21
16
13
14
24
11
6
22
17
14
14
25
12
6
$
105
$
110
Notes to Consolidated Financial Statements
During 2021, the Company purchased residential mortgages of $12 from IGM ($21 in 2020).
The Company holds investments in Portag3 Ventures Limited Partnership, Portag3 Ventures II Limited Partnership, Sagard Holdings
Management Inc., Northleaf Capital Partners Ltd., and other entities which invest in the FinTech sector. These investments were
made in partnership with Power Corporation, IGM and, in certain cases, 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 2021 or 2020. There were no significant
outstanding loans or guarantees with related parties at December 31, 2021 or December 31, 2020. There were no provisions for
uncollectible amounts with related parties at December 31, 2021 or December 31, 2020.
(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 (recovery)
Deferred income tax expense (recovery)
Total
(iii) Income tax recognized in Consolidated Statements of Changes in Equity
Current income tax recovery
Deferred income tax recovery
Total
2021
2020
$
$
19
17
6
24
(1)
65
$
$
20
17
6
24
1
68
2021
2020
$
148
$
271
2021
2020
$
$
$
$
$
$
$
147
21
(12)
156
304
2021
(38)
205
167
2021
(1)
(6)
(7)
$
$
$
$
$
$
$
(168)
7
(192)
(353)
(82)
2020
28
(39)
(11)
2020
–
–
–
Great-West Lifeco Inc. 2021 Annual Report
173
Notes to Consolidated Financial Statements
26. Income Taxes (cont’d)
(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:
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 of deferred tax assets associated with prior year tax losses
Other
Total income tax expense (recovery) and effective income tax rate
Total income tax expense (recovery) and effective income tax rate
– common shareholders
2021
2020
$
3,867
1,025
26.50%
$
3,072
814
(266)
(374)
21
(15)
(87)
304
(6.88)
(9.66)
0.54
(0.39)
(2.25)
7.86%
358
9.89%
$
$
$
$
(332)
(375)
7
(197)
1
(82)
26.50%
(10.81)
(12.21)
0.23
(6.41)
0.03
(2.67)%
(27)
(0.88)%
(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.
(c) Composition and changes in net deferred income tax assets are as follows:
2021
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
$
(320)
(236)
$
(766)
116
$
1,411
(19)
$
(670)
(125)
$
285
39
$
–
–
–
(19)
8
–
(1)
(1)
–
(2)
1
(3)
–
–
(17)
5
–
–
–
–
$
389
69
(213)
8
(4)
33
Balance, end of year
$
(575)
$
(644)
$
1,388
$
(807)
$
324
$
282
$
329
(156)
(205)
6
(21)
15
(32)
Insurance and
investment
contract liabilities
Portfolio
investments
Losses
carried
forward
2020
Intangible
assets
Tax
credits
Other
Total
$
(423)
353
39
–
341
19
329
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
–
–
300
4
(536)
(237)
(12)
–
–
19
$
1,056
238
$
$
(542)
(63)
$
311
(25)
–
–
107
10
–
–
(73)
8
–
–
–
(1)
287
65
51
–
7
(21)
Balance, end of year
$
(320)
$
(766)
$
1,411
$
(670)
$
285
$
389
$
174 Great-West Lifeco Inc. 2021 Annual Report
Notes to Consolidated Financial Statements
Recorded on Consolidated Balance Sheets:
Deferred tax assets
Deferred tax liabilities
Total
2021
2020
$
$
1,057
(1,089)
(32)
$
$
975
(646)
329
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, 2021 are recoverable.
At December 31, 2021, the Company has recognized a deferred tax asset of $1,388 ($1,411 at December 31, 2020) on tax loss
carryforwards totaling $6,235, of which $4,731 expire between 2022 and 2041 while $1,504 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 $499 (U.S. $393) as
at December 31, 2021, comprised principally of net operating losses and future deductions related to goodwill. 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 $42 ($37 in 2020) on tax loss carryforwards totaling $212 ($188 in 2020).
Of this amount, $104 expire between 2022 and 2041 while $108 have no expiry date. In addition, the Company has not recognized
a deferred tax asset of $20 ($21 in 2020) on other temporary differences of $94 ($99 in 2020) 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
2021
2020
$
4,191
1,938
21
119
68
$
3,716
1,554
22
129
71
$
6,337
$
5,492
Great-West Lifeco Inc. 2021 Annual Report
175
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 $318 as at
December 31, 2021 ($211 at December 31, 2020).
(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.
Notional
amount
Maximum
credit
risk
2021
Future
credit
exposure
Credit
risk
equivalent
Risk
weighted
equivalent
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
$
$
5,075
1
147
11
5,234
22,654
4,455
27,109
2,146
15
578
1,488
4,227
Total
$ 36,570
$
207
–
–
–
207
564
50
614
142
–
1
3
146
967
$
$
59
–
–
–
59
1,424
65
1,489
134
–
–
129
263
$
263
–
–
–
263
1,958
100
2,058
261
–
–
133
394
5
–
–
–
5
36
1
37
1
–
–
1
2
$
1,811
$
2,715
$
44
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
Maximum
Notional
amount
Future
credit
risk
2020
Credit
credit
exposure
Risk
risk
equivalent
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
7
–
–
–
7
25
1
26
1
–
–
3
4
Total
$
30,121
$
829
$
1,560
$
2,185
$
37
176 Great-West Lifeco Inc. 2021 Annual Report
Notes to Consolidated Financial Statements
(b)
The following provides the notional amount, term to maturity and estimated fair value of the Company’s derivative portfolio
by category:
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
Cross-currency swaps
Foreign exchange forward contracts
2021
Notional Amount
1 year
or less
Over 1 year
to 5 years
Over 5
years
Total
Total
estimated
fair value
$
518
1
147
11
677
2,574
2,450
5,024
1,952
15
578
1,488
4,033
78
–
43
43
–
1,409
1,409
$
948
–
–
–
948
4,298
–
4,298
–
–
–
–
–
–
–
58
58
–
518
518
$
$
3,586
–
–
–
3,586
13,462
–
13,462
–
–
–
–
–
–
23
93
116
2,320
–
2,320
5,052
1
147
11
5,211
20,334
2,450
22,784
1,952
15
578
1,488
4,033
78
23
194
217
2,320
1,927
4,247
$
164
–
–
–
164
(420)
(4)
(424)
52
–
(2)
3
53
(1)
8
89
97
–
48
48
Total
$ 11,264
$
5,822
$ 19,484
$ 36,570
$
(63)
Great-West Lifeco Inc. 2021 Annual Report
177
Notes to Consolidated Financial Statements
28. Derivative Financial Instruments (cont’d)
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
Foreign exchange forward contracts
2020
Notional Amount
1 year
or less
Over 1 year
to 5 years
Over 5
years
Total
Total
estimated
fair value
$
325
6
190
41
562
896
3,689
4,585
626
17
682
4,318
5,643
74
–
–
–
786
$
770
3
4
166
943
3,068
–
3,068
–
–
–
–
–
–
–
101
101
530
$
$
2,565
–
–
14
2,579
11,222
–
11,222
–
–
–
–
–
–
28
–
28
–
$
3,660
9
194
221
4,084
15,186
3,689
18,875
626
17
682
4,318
5,643
74
28
101
129
1,316
281
–
–
–
281
(783)
32
(751)
18
–
(4)
8
22
3
14
24
38
15
Total
$
11,650
$
4,642
$
13,829
$
30,121
$
(392)
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. Cross-currency swaps are also used to hedge the Company’s net
investment in foreign operations. 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. These instruments are designated as cash flow hedges.
The ineffective portion of the cash flow hedges during 2021, which includes interest rate contracts, foreign exchange contracts, and equity
total return swap contracts, and the anticipated net gains (losses) expected to be 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 23 years.
178 Great-West Lifeco Inc. 2021 Annual Report
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.
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. $1,904 of which
U.S. $1,599 were issued as of December 31, 2021.
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 $4,027 as at December 31, 2021, with $3,831 maturing
within one year, $188 maturing within two years, $2 maturing within three years and $6 maturing in over 5 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 $1,263
($1,421 at December 31, 2020) 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, $63 ($75 at December 31, 2020) of assets of the Company for the
purpose of providing collateral for the counterparty.
Great-West Lifeco Inc. 2021 Annual Report
179
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
2021
$ 13,900
$
4,518
$
4,862
$ 29,533
$
–
$ 52,813
1,937
(900)
1,037
3,880
9,435
4,797
3,654
159
171
90
564
73
491
(7)
498
–
498
1
499
1,325
(1,375)
(50)
1,415
6,227
3,200
1,736
24
55
–
1,212
140
1,072
4
1,068
18
1,050
(74)
$
976
$
262
(334)
(72)
8
29,469
28,721
212
9
–
–
527
(30)
557
–
557
–
557
(25)
532
$
(9)
4
(5)
–
(5)
–
107
2
–
–
(114)
(61)
(53)
–
(53)
2
(55)
(11)
(66)
6,393
(2,083)
4,310
7,294
64,417
50,295
9,501
328
336
90
3,867
304
3,563
301
3,262
134
3,128
–
$
3,128
Income
Total net premiums
Net investment income
Regular net investment income (loss)
Changes in fair value through profit or loss
Total net investment income (loss)
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
2,878
522
3,400
1,991
19,291
13,577
3,792
134
110
–
1,678
182
1,496
304
1,192
114
1,078
109
Net earnings (loss) – common shareholders
$
1,187
$
(1) Includes commissions, operating and administrative expenses, and premium taxes.
180 Great-West Lifeco Inc. 2021 Annual Report
Notes to Consolidated Financial Statements
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
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)
$
913
$
320
459
779
11
20,197
19,318
239
12
–
–
628
(1)
629
(6)
635
–
635
(21)
614
$
8,413
2,870
110
83
42
240
(158)
398
7
391
–
391
(11)
380
–
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
Net earnings (loss) – common shareholders
$
1,070
$
(1) Includes commissions, operating and administrative expenses, and premium taxes.
The revenue by source currency for Capital and Risk Solutions:
Revenue
United States
United Kingdom
Japan
Other
Total revenue
2021
2020
$ 21,256
1,369
4,297
2,547
$
16,118
1,807
–
2,272
$ 29,469
$
20,197
Great-West Lifeco Inc. 2021 Annual Report
181
Notes to Consolidated Financial Statements
31. Segmented Information (cont’d)
(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
Canada
United
States
2021
Europe
Capital and
Risk Solutions
Total
$ 92,400
5,722
4,323
101,537
$ 55,376
5,826
30,090
116,919
$ 48,669
3,047
10,220
138,963
$
9,359
–
8,037
–
$ 205,804
14,595
52,670
357,419
$ 203,982
$ 208,211
$ 200,899
$ 17,396
$ 630,488
Canada
United
States
2021
Europe
Capital and
Risk Solutions
Total
$ 84,829
7,752
$ 74,632
8,800
$ 47,356
4,309
$ 14,016
892
$ 220,833
21,753
101,537
116,919
138,963
–
357,419
$ 194,118
$ 200,351
$ 190,628
$ 14,908
$ 600,005
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
Insurance and investment contract liabilities
Other liabilities
Investment and insurance contracts on account of
segregated fund policyholders
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
The assets by source currency for Capital and Risk Solutions:
Assets
United Kingdom
United States
Japan
Other
Total assets
32. Comparative Figures
2021
2020
$
6,507
5,902
4,102
885
$
7,572
6,667
–
622
$ 17,396
$
14,861
The Company reclassified and adjusted certain comparative figures for disclosure items to conform to the current year’s presentation.
These reclassifications and adjustments had no impact on the total equity or net earnings of the Company.
182 Great-West Lifeco Inc. 2021 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, 2021 and 2020, 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, 2021 and 2020, 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, 2021. 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. 2021 Annual Report
183
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 – Refer to Note 3(a) to the financial statements
Key Audit Matter Description
On December 31, 2020, the Company purchased the retirement services business of Massachusetts Mutual Life Insurance Company
(“MassMutual”) via indemnity reinsurance and recognized the assets acquired and the liabilities assumed at their acquisition-date fair values,
including customer contract intangible assets (“intangible assets”) and certain insurance contract liabilities (“insurance contract liabilities”).
During the measurement period in 2021, management finalized the purchase price allocation of the MassMutual acquisition.
Management used discounted cash flow models to determine the fair value of the intangible assets. While there are several assumptions and
estimates required, those with the highest degree of subjectivity are the forecasted revenues and earnings and discount rates.
There are many components embedded in the determination of the fair value of the insurance contract liabilities that required management
to make judgments and assumptions relating to (1) the appropriate accounting treatment and (2) appropriateness of valuation models
that incorporate projections of cash inflows and outflows using the best estimate of future experience together with the discount rates. The
judgments and assumptions with the greatest subjectivity are the determination of the appropriate accounting treatment, appropriateness of
the valuation models, policyholder behaviour and discount rates assumptions.
Auditing of these judgments, assumptions and estimates required a high degree of auditor judgment and an increased extent of audit effort,
including the need to involve fair value, actuarial and financial instrument specialists.
How the Key Audit Matter Was Addressed in the Audit
Our audit procedures related to these judgments, assumptions and estimates used to determine the fair value of intangible assets and
insurance contract liabilities included the following, among others:
184 Great-West Lifeco Inc. 2021 Annual Report
Independent Auditor’s Report
Intangible assets:
• Evaluated the reasonableness of forecasted revenue and earnings by comparing the forecasts to:
– Historical results of the acquired entity.
– Actual results of the acquired entity post acquisition.
– Underlying analyses detailing business strategies and growth plans including estimated revenue and cost per participant.
– Third-party reports and comparable company performance.
• 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 rates selected by management.
Insurance contract liabilities:
• With the assistance of financial instrument specialists evaluated management’s assessment related to the accounting treatment of
the insurance contract liabilities by:
– Assessing the executed contracts to understand the nature of the products and to determine whether all key facts and
circumstances were incorporated into management’s assessment.
– Analyzing relevant accounting standards, including various aspects of IFRS, conceptual framework and guidance.
• With the assistance of actuarial specialists, tested the appropriateness of the valuation models used in the estimation process by:
– Testing the valuation models for the incorporation of the key assumptions.
– Recalculating management’s 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.
– Testing experience studies and other inputs used in the determination of the policyholder behaviour assumptions.
– 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.
• With the assistance of fair value specialists, evaluated the reasonableness of the discount rates used by testing the source information
and methodology underlying the determination of the discount rates and compare it to the discount rates 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. 2021 Annual Report
185
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 9, 2022
186 Great-West Lifeco Inc. 2021 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 2021 and 2020.
Sources of Earnings
(in Canadian $ millions)
For the year ended December 31, 2021
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
$
$
1,314
(20)
260
(58)
–
41
1,537
(236)
1,301
–
1,301
(114)
$
895
(241)
128
(8)
(190)
(15)
569
(74)
495
4
499
–
$
889
(37)
152
212
(31)
(48)
1,137
(140)
997
(3)
994
(18)
$
691
(90)
(235)
(20)
–
(24)
502
30
532
–
532
–
(18)
–
(21)
–
(68)
(18)
(125)
61
(64)
–
(64)
(2)
$
3,771
(208)
284
126
(289)
(64)
3,620
(359)
3,261
1
3,262
(134)
Net earnings – common shareholders
$
1,187
$
499
$
976
$
532
$
(66)
$
3,128
Great-West Lifeco Inc. 2021 Annual Report
187
Sources of Earnings (cont’d)
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
Analysis of Results
Expected profit on in-force business is the major driver of earnings. The expected profit on in-force business of $3,771 in 2021 was $665
higher than 2020. The increase year-over-year is primarily a result of the acquisition of MassMutual, higher market levels, business growth
in Capital and Risk Solutions and the impact of 2020 pricing actions, partially offset by the negative impact of currency movements.
The strain on new sales of $208 in 2021 was $99 lower than 2020 primarily due to gains on new sales in Capital and Risk Solutions and
higher sales volume in Europe partially offset by the inclusion of Personal Capital and MassMutual new business expenses.
Experience gains of $284 in 2021 were $252 higher than 2020. The gains in 2021 were primarily a result of positive investment experience,
favourable morbidity experience in Canada and Europe, favourable expense and fee-based experience in the U.S. and favourable
annuitant mortality experience across all regions. These were partially offset by unfavourable life mortality experience in Europe and
Capital and Risk Solutions, unfavourable expense and fee-based experience across Canada, Europe, Capital and Risk Solutions and
Lifeco Corporate, property and casualty losses in Capital and Risk Solutions and unfavourable policyholder behaviour experience in
Canada. The gains in 2020 were primarily a result of positive investment experience, favorable annuitant mortality experience across
Canada, Europe and Capital and Risk Solutions and favourable morbidity experience in Canada and Europe. These were 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.
Management actions and changes in assumptions contributed $126 to pre-tax earnings in 2021 compared to $220 in 2020. Management
actions and changes in assumptions were $(58) in Canada, $(8) in the U.S., $212 in Europe and $(20) in Capital and Risk Solutions.
Effective October 15, 2021, the Canadian Actuarial Standards Board published revised standards for the valuation of insurance contract
liabilities. The revised standards include decreases to ultimate reinvestment rates, revised calibration criteria for stochastic risk-free
interest rates and an increase to the maximum net credit spread on reinvestment over the long term. The impact of the revised standards
is included in changes in assumptions.
In Canada, strengthening of policyholder behaviour, mortality and morbidity assumptions were partially offset by economic and asset
related assumption updates, net of the impact of the new standards.
In the U.S. assumption changes and management actions included transaction costs related to acquisitions and economic and asset
related assumption updates, net of the impact of the new standards.
In Europe, favourable updates to economic and asset related assumptions, longevity and policyholder behaviour assumptions were
partially offset by transaction costs on acquisitions.
In Capital and Risk Solutions assumption changes and management actions included updates to expense, mortality and
longevity assumptions.
Other of $(289) in 2021 was due to restructuring and integration costs in the U.S., transaction costs related to acquisitions in the
U.S. and Europe, the disposition of a European business, and a provision for potential payments related to the 2003 acquisition in
Lifeco Corporate.
Earnings on surplus of $(64) in 2021 was $184 lower than 2020 primarily due to lower other comprehensive income in Europe, Capital
and Risk Solutions and the U.S., lower gains on seed capital in the U.S. and Canada, increased external financing costs in the U.S. and
lower other investment income.
Taxes of $(359) in 2021 included changes to uncertain tax estimates.
188 Great-West Lifeco Inc. 2021 Annual Report
Five-Year Summary
(in Canadian $ millions except per share amounts)
At December 31
Total assets
2021
2020
2019
2018
2017
$ 630,488
$ 600,490
$ 451,167
$ 427,689
$ 419,838
Total assets under administration (1)
$ 2,279,574
$ 1,975,847
$ 1,629,681
$ 1,398,873
$ 1,349,913
For the Year Ended December 31
Premiums and deposits:
Total net premiums
Self-funded premium equivalents (Administrative services only contracts)
Segregated funds deposits
Proprietary mutual funds and institutional deposits
Add back: U.S. Individual Life Insurance & Annuity Business –
$
52,813
11,108
29,657
75,225
$
43,019
6,123
21,916
100,287
$
24,510
3,295
24,685
84,259
$
35,461
3,068
24,475
76,258
$
33,902
2,827
24,885
61,490
initial reinsurance ceded premiums
Total premiums and deposits (1)
–
–
13,889
–
–
$ 168,803
$ 171,345
$ 150,638
$ 139,262
$ 123,104
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 (2)
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 (3)
Book value per common share (3)
Dividends to common shareholders – per share
$
52,813
$
43,019
$
24,510
$
35,461
$
33,902
6,393
(2,083)
4,310
7,294
64,417
50,295
9,829
336
90
–
3,867
304
3,563
301
3,262
134
3,128
3.365
14.0%
24.71
1.804
$
$
$
$
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
$
$
$
$
(1) This metric is a non-GAAP financial measure, does not have standard meanings prescribed by GAAP and is not directly comparable to similar measures used by other companies. Additional information regarding
this non-GAAP financial measure, including a reconciliation of such non-GAAP financial measure to a measure prescribed by GAAP, is incorporated by reference herein and can be found in the Non-GAAP Financial
Measures and Ratios section of the Company’s 2021 Annual MD&A, available for review under the Company’s profile on SEDAR at www.sedar.com.
(2) Includes commissions, operating and administrative expenses, premium taxes and financing charges.
(3) Additional information regarding the composition of this financial measure has been incorporated by reference herein and can be found in the Glossary section of the Company’s 2021 Annual MD&A, available
for review under the Company’s profile on SEDAR at www.sedar.com.
Great-West Lifeco Inc. 2021 Annual Report
189
Gary A. Doer, O.M. 4, 6
Senior Business Advisor,
Dentons Canada LLP
David G. Fuller 2, 5
Corporate Director
Claude Généreux 4, 5
Executive Vice-President,
Power Corporation of Canada
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 3, 4, 5
Co-founder and Executive Chair,
LockDocs Inc.
T. Timothy Ryan 3, 4, 6
Corporate Director
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: Deborah J. Barrett
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
Directors and Senior Officers
As of February 9, 2022
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 2, 6
Chief Digital and Information Officer,
Ford Motor Company
Deborah J. Barrett, FCPA, FCA, ICD.D 1, 2, 5
Corporate Director
Robin A. Bienfait 1, 6
Chief Executive Officer,
Emnovate
Heather E. Conway 1, 4, 6
Co-President and Executive Director,
Hot Docs Canadian International
Documentary Film Festival
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, 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
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
Jeffrey F. Macoun
President and Chief Operating Officer,
Canada
Grace M. Palombo
Executive Vice-President and
Chief Human Resources Officer
Edmund F. Murphy III
President and Chief Executive Officer,
Empower
Steven M. Rullo
Executive Vice-President and
Global Chief Information Officer
Robert L. Reynolds
Chair,
Great-West Lifeco U.S. LLC
President and Chief Executive Officer,
Putnam Investments, LLC
190 Great-West Lifeco Inc. 2021 Annual Report
Nancy D. Russell
Senior Vice-President and
Chief Internal Auditor
David B. Simmonds
Senior Vice-President and
Global Chief Communications and
Sustainability Officer
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
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), Series T (GWO.PR.T) and Series Y (GWO.PR.Y).
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 is Computershare Investor Services Inc.
In Canada, the Common Shares 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, T and Y are only transferable at the Toronto office of
Computershare Investor Services Inc.
Internationally, the Common Shares 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. 2021 Annual Report
191
Shareholder Information (cont’d)
Dividends
Common Shares and First Preferred Shares Series G, H, I, L, M, N, P, Q, R, S, T and Y – 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.
Investment Information for Common Shares (GWO)
2021
2020
2019
2018
2017
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 ($)
High
39.60
35.30
34.38
35.51
37.74
Low
29.20
19.16
27.59
27.10
33.32
Close
37.96
30.35
33.26
28.18
35.10
Dividends
paid ($)
Dividend
payout ratio 1
Dividend
yield 2
1.804
1.752
1.652
1.556
1.468
53.6%
55.2%
66.2%
51.9%
67.6%
5.2%
6.4%
5.3%
5.0%
4.1%
Investor Information
Financial analysts, portfolio managers and other investors requiring information may contact Investor Relations by 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.
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.
192 Great-West Lifeco Inc. 2021 Annual Report
Our Brands
ABOUT US
Great-West Lifeco Inc. is an international financial services holding company with interests in
life insurance, health insurance, retirement and investment services, asset management and
reinsurance businesses. We operate in Canada, the United States and Europe under the brands
Canada Life, Empower, Putnam Investments and Irish Life. At the end of 2021, our companies had
approximately 28,000 employees, 215,000 advisor relationships, and thousands of distribution
partners – all serving over 33 million customer relationships across these regions. Great-West
Lifeco trades on the Toronto Stock Exchange (TSX) under the ticker symbol GWO, and is a member
of the Power Corporation group of companies. To learn more, visit greatwestlifeco.com.
Great-West Lifeco Inc. 2021 Annual Report
1(cid:153)(cid:206)
100 Osborne Street North
Winnipeg Manitoba Canada R3C 1V3
greatwestlifeco.com
A member of the Power Corporation Group of Companies®
E987(21LIFECO)-3/22
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