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2016 Annual Report
This Annual Report is intended to provide shareholders and other interested
persons with selected information concerning Power Financial Corporation.
For further information concerning the Corporation, shareholders and other
interested persons should consult the Corporation’s disclosure documents,
such as its most recent Annual Information Form and Management’s Discussion
and Analysis. Copies of the Corporation’s continuous disclosure documents can
be obtained from its website at www.powerfinancial.com, from www.sedar.com,
or from the Office of the Secretary at the addresses shown at the end
of this report.
Readers should also review the note further in this report, in the section entitled
Review of Financial Performance, concerning the use of Forward-Looking
Statements, which applies to the entirety of this Annual Report.
In addition, selected information concerning the business, operations, financial
condition, financial performance, priorities, ongoing objectives, strategies
and outlook of Power Financial Corporation’s subsidiaries and associates is
derived from public information published by such subsidiaries and associates
and is provided here for the convenience of the shareholders of Power
Financial Corporation. For further information concerning such subsidiaries
and associates, shareholders and other interested persons should consult
the websites of, and other publicly available information published by, such
subsidiaries and associates.
All figures mentioned in this report are in Canadian dollars and as of
December 31, 2016, unless otherwise noted.
NON-IFRS FINANCIAL MEASURES AND PRESENTATION
Net earnings attributable to common shareholders are comprised of:
• adjusted net earnings (previously described as operating earnings)
attributable to common shareholders; and
• other items, which include the after-tax impact of any item that in
management’s judgment would make the period-over-period comparison of
results from operations less meaningful. Other items include the Corporation’s
share of items presented as other items by a subsidiary or a jointly controlled
corporation.
Management uses these financial measures in its presentation and analysis of
the financial performance of Power Financial, and believes that they provide
additional meaningful information to readers in their analysis of the results of
the Corporation. Adjusted net earnings, as defined by the Corporation, assist
the reader in comparing the current period’s results to those of previous
periods, as items that are not considered to be part of ongoing activities are
excluded from this non-IFRS measure.
Adjusted net earnings attributable to common shareholders and adjusted net
earnings per share are non-IFRS financial measures that do not have a standard
meaning and may not be comparable to similar measures used by other
entities. For a reconciliation of these non-IFRS measures to results reported in
accordance with IFRS, see the Results of Power Financial Corporation – Earnings
Summary – Condensed Supplementary Non-Consolidated Statements of
Earnings section further in this report.
ABBREVIATIONS
The following abbreviations are used throughout this report: Power Financial
Corporation (Power Financial or the Corporation); adidas AG (adidas);
China Asset Management Co., Ltd. (China AMC); Euronext Brussels (EBR);
Euronext Paris (EPA); Great-West Life & Annuity Insurance Company
(Great-West Financial or Great-West Life & Annuity); Great-West Lifeco Inc.
(Great-West Lifeco or Lifeco); Groupe Bruxelles Lambert (GBL); IGM Financial Inc.
(IGM Financial or IGM); International Financial Reporting Standards (IFRS);
Investors Group Inc. (Investors Group); Irish Life Group Limited (Irish Life);
Lafarge SA (Lafarge); LafargeHolcim Ltd (LafargeHolcim); London Life
Insurance Company (London Life); Mackenzie Financial Corporation (Mackenzie
Investments or Mackenzie); PanAgora Asset Management, Inc. (PanAgora Asset
Management or PanAgora); Pargesa Holding SA (Pargesa); Parjointco N.V.
(Parjointco); Portag3 Ventures Limited Partnership (Portag3 Ventures or
Portag3); Power Corporation of Canada (Power Corporation); Putnam
Investments, LLC (Putnam Investments or Putnam); SGS SA (SGS); Swiss Stock
Exchange (SIX); The Canada Life Assurance Company (Canada Life);
The Great-West Life Assurance Company (Great-West Life); Total SA (Total);
Umicore, NV/SA (Umicore); Wealthsimple Financial Corp. (Wealthsimple);
XETRA Stock Exchange (XETR).
Table of Contents
GROUP ORGANIZATION CHART 2
DIRECTORS’ REPORT TO SHAREHOLDERS 4
2016 AT A GLANCE 8
GREAT-WEST LIFECO 14
IGM FINANCIAL 16
PARGESA GROUP 18
RESPONSIBLE MANAGEMENT 20
REVIEW OF FINANCIAL PERFORMANCE 22
CONSOLIDATED FINANCIAL STATEMENTS 46
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS 51
FIVE-YEAR FINANCIAL SUMMARY 111
BOARD OF DIRECTORS 112
OFFICERS 113
CORPORATE INFORMATION 114
This is
Power Financial
$1.9 BILLION
of net earnings attributable to common shareholders
12.7%
return on equity [1]
THROUGH GREAT-WEST LIFECO AND IGM FINANCIAL
$792 BILLION
of assets under management
$1.4 TRILLION
of assets under administration
30 MILLION+
customer relationships
26,800
employees and
13,900
financial advisors
THROUGH THE PARGESA GROUP
Significant shareholdings in
[ 1] Return on equity is calculated using adjusted net earnings.
seven leading European-based multinationals
Financial Highlights
FOR THE YEARS ENDED DECEMBER 31
[IN MILLIONS OF DOLLARS, EXCEPT PER SHARE AMOUNTS]
Revenues
Net earnings – attributable to common shareholders
Net earnings – per common share
Adjusted net earnings [1] – attributable to common shareholders
Adjusted net earnings [1] – per common share
Dividends declared – per common share
Consolidated assets
Consolidated assets and assets under management
Shareholders’ equity [2, 3]
Total equity [3, 4]
Book value per common share [3]
Common shares outstanding [in millions]
2016
2015
49,122
36,512
1,919
2.69
2,105
2.95
1.57
418,586
792,353
19,481
32,216
23.69
713.3
2,319
3.25
2,241
3.14
1.49
417,630
779,944
19,473
32,280
23.69
713.2
[ 1] Adjusted net earnings is a non-IFRS financial measure (previously described as operating earnings). Please refer to the reconciliation
of non-IFRS financial measures to financial measures in accordance with IFRS in the Review of Financial Performance.
[ 2] Represents preferred and common shareholders’ equity.
[ 3] Comparative figures have been retrospectively adjusted. Refer to Note 16 of the 2016 Consolidated Financial Statements.
[ 4] Includes non-controlling interests in the equity of subsidiaries.
POWER FINANCIAL CORPOR ATION 2016 ANNUAL REPORT
1
POWER FINANCIAL
CORPORATION
GREAT-WEST LIFECO
67.9%
65%
EQUITY
VOTING
4.0%
2016 net earnings attributable
to common shareholders
$2,641 MILLION
2016 return on shareholders’ equity
13.8%
Consolidated assets under administration
$1.2 TRILLION
GREAT-WEST
FINANCIAL
100%
GREAT-WEST
LIFE
100%
PUTNAM
INVESTMENTS
LONDON LIFE
100%
96.2%
EQUITY
1 00%
VOTING
PANAGORA
ASSET
MANAGEMENT
80%
VOTING
CANADA LIFE
100%
IRISH LIFE
100%
Group
Organization
Chart
2
POWER FINANCIAL CORPOR ATION 2016 ANNUAL REPORT
PUT 3.8%
IGM FINANCIAL
61.5%
2016 net earnings
available to common
shareholders
2016 adjusted net
earnings available to
common shareholders [1]
$771 MILLION
$737 MILLION
2016 return on
shareholders’ equity [2]
Total assets
under management
16.3%
$142 BILLION
INVESTORS
GROUP
100%
MACKENZIE
INVESTMENTS
100%
INVESTMENT
PLANNING
COUNSEL
96.9%
PARGESA
27.8% [5]
2016 net loss
-SF32 MILLION
2016 adjusted net earnings [6]
SF321 MILLION
Net asset value
SF8.9 BILLION
GROUPE
BRUXELLES LAMBERT
50%
EQUITY
51.9%
VOTING
PORTAG3
VENTURES
25% [3]
WEALTHSIMPLE
46.5% [4]
Percentages represent participating equity interest and voting interest
(unless otherwise indicated) at December 31, 2016.
[1] Described as operating earnings by IGM Financial.
[2] Return on shareholders’ equity is calculated using
adjusted net earnings.
[3] Power Financial directly held 25% of Portag3 and both
Great-West Lifeco and IGM Financial held 37.5%.
[4] IGM Financial also held a 22.7% interest in Wealthsimple.
[5] Through its wholly owned subsidiary, Power Financial
Europe B.V., Power Financial held a 50% interest in
Parjointco. Parjointco held a voting interest of 75.4%
and an equity interest of 55.5% in Pargesa.
Adjusted net earnings is a non-IFRS financial measure.
[6] Described as economic operating income by Pargesa.
POWER FINANCIAL CORPOR ATION 2016 ANNUAL REPORT
3
PUT Directors’ Report
to Shareholders
Power Financial reported solid earnings
in 2016 in the face of a number of external
challenges. Weak equity markets during the
first half of the year and currency
headwinds impacted results. Across the
group, our companies are investing heavily
to transform their business models to better
serve the needs of their customers.
The financial services industry is going through a period
At IGM Financial, investment, change and momentum are
of rapid change, driven by heightened client expectations,
evident across the company. In 2016, Jeff Carney was
the rapid pace of technological development and growing
appointed President and CEO of IGM Financial and
regulatory expectations. In this environment, investing in
Investors Group and Barry McInerney was named
the development of our people is essential, and remains
President and CEO of Mackenzie. Investors Group
a key focus across the group. Our companies are
announced significant changes to its pricing structure and
investing in change, secure in the belief that by continuing
its advisor recruiting strategy, while Mackenzie continued
to put the interests of our clients at the centre of our
to bring innovation and product excellence to the
decision making, we will build upon our leading franchises
Canadian market through a much-enhanced distribution
and add to the 30 million individuals whose needs
organization. Strong sales momentum was experienced at
we already serve.
Great-West Lifeco is investing strategically to drive
future growth and productivity while maintaining a
strong risk and expense discipline to deliver long-term
value to its customers and shareholders. The company’s
net earnings attributable to common shareholders were
down four per cent in 2016 compared to 2015. While net
both companies in the latter part of 2016 and into the new
year's RRSP season. IGM also invested in various leading
fintech companies and, early in 2017, announced a
significant investment in China in addition to Power
Corporation's own additional investment. Earnings were
affected by lower equity levels in early 2016 and ongoing
investments in technology and transformation.
earnings in the Canadian and European segments
As in the previous four years, 2016 was characterized by
finished the year higher than in 2015, currency
portfolio changes at Pargesa. A total of €1.6 billion was
movement – particularly the weakening of the British
invested, primarily in existing shareholdings, and there
pound – had a negative impact on earnings, coupled
were disposals of €2.5 billion. GBL continued in 2016 to
with lower earnings in the U.S. segment.
increase its stake in adidas and, at December 31, 2016,
Great-West Lifeco’s operations in Canada were
reorganized around individual and group customers to
provide even greater client focus. In the United States,
work is ongoing in streamlining back office processes to
support Empower Retirement's growth, cost savings, and
enhancements to customer experience. Investment in
digital opportunities will remain a focal point to grow the
company’s market-leading U.K. group risk business.
held 7.5 per cent of adidas’ capital, representing a market
value of €2.4 billion. GBL also continued during the year
to gradually reduce its stake in Total. This disposal had
a significant impact on Total’s contribution to Pargesa’s
earnings. However, the proceeds from the sale will be
used over time to make investments that will gradually
contribute to earnings.
POWER FINANCIAL CORPOR ATION 2016 ANNUAL REPORT
5
Rapid Change in Financial Services
Many of the initiatives taken in 2016, and those that will continue to unfold during the course of 2017,
were in direct response to several waves of change that are impacting the financial services industry
around the globe.
The first wave of change is on the customer front.
and Personal Capital Corporation. While the investments
Customers are demanding greater transparency
Power Financial and its subsidiaries have made in fintech
regarding what they are paying and the value they are
to date have been relatively small in the context of our
receiving. They also want to have access to information,
overall businesses and asset mix, they are significant in
be able to transact or seek advice at the time and by the
that they give us visibility and an early position in this
means that best suit their needs. Digital delivery is a
quickly developing market.
critical component of the service model which will
permanently change the way we do business and how
we, and the financial advisors we work with, interact
with our customers.
The third wave of change is on the regulatory front.
Following the financial crisis, regulators focused primarily
on prudential factors – imposing stress tests, for example,
to determine if a financial institution is and will remain
The second change we are witnessing is the emergence
solvent. Regulatory focus has now increasingly shifted to
of new business models based upon the applications of
client outcomes. Such regulation is consistent with the
technology. This has most notably taken the form of what
client-first mindset of Power Financial’s group companies.
is known as fintech, which encompasses the approach
Positive client outcomes are the foundation of our
and activities taken by companies such as Wealthsimple
companies' future success.
Seizing Business Opportunities
Consistent with past practices, our group invested in
Also in 2016, IGM Financial invested US$75 million in
select markets and seized business opportunities in 2016.
Personal Capital Corporation, a market-leading digital
Power Financial, in partnership with its subsidiaries
IGM Financial and Great-West Lifeco, launched
Portag3 Ventures. This new fund invests in promising
wealth advisor for mass-affluent investors, enabling the
company to participate in the emerging digital wealth
management industry in the United States.
Canadian fintech companies that have the potential for
In late 2016 and early 2017, Mackenzie entered into
innovative change and global impact. Portag3 is
agreements to acquire a total 13.9 per cent interest
committed to finding and supporting creative, ambitious
in China AMC, one of China’s first and largest fund
entrepreneurs who will help reshape the Canadian fintech
companies, for a total investment of approximately
sector for the benefit of all consumers.
$647 million. The ownership interest in China AMC will
Power Financial and IGM Financial have also invested in
Toronto-based Wealthsimple, Canada’s largest and
fastest-growing technology-driven investment manager.
Since its launch, Wealthsimple has attracted 30,000
clients and has $1 billion in assets under administration.
diversify Mackenzie’s business outside of Canada, giving
the company the opportunity to participate in a rapidly
growing asset management industry in the world’s
second largest economy. This investment, coupled with
Power Corporation’s, will bring the Power group’s
combined interest in China AMC to 27.8 per cent.
Financial Results
Power Financial’s net earnings attributable to common
Other items represented a net charge of $186 million,
shareholders were $1,919 million or $2.69 per share
compared with a net contribution of $78 million in 2015.
for the year ended December 31, 2016, compared with
$2,319 million or $3.25 per share in 2015.
Adjusted net earnings attributable to common
shareholders were $2,105 million or $2.95 per share,
compared with $2,241 million or $3.14 per share in 2015.
Dividends declared by Power Financial totalled $1.57 per
common share, compared with $1.49 per share in 2015.
In March of 2017, the Board of Directors announced a 5.1 per
cent increase in the quarterly dividend on the Corporation’s
common shares, from $0.3925 to $0.4125 per share.
6
POWER FINANCIAL CORPOR ATION 2016 ANNUAL REPORT
Results of Group Companies
GREAT-WEST LIFECO
Total assets under management at December 31, 2016
Great-West Lifeco’s net earnings attributable to common
were $141.8 billion, compared with $133.6 billion
shareholders were $2.6 billion or $2.668 per share in 2016,
at December 31, 2015.
compared with $2.8 billion or $2.774 per share in 2015.
Great-West Lifeco reported return on equity of 13.8 per cent.
Consolidated assets under administration at
PARGESA
Pargesa reported a net loss of SF32 million in 2016,
compared with net earnings of SF638 million in 2015.
December 31, 2016 were over $1.2 trillion, an increase
The loss in 2016 is mainly due to an impairment charge
of $36 billion from December 31, 2015.
In February of 2017, Great-West Lifeco announced
a 6 per cent increase in its quarterly dividend, to
recorded on the LafargeHolcim investment as a result of
a decline in the share price to €37.10 at June 30, 2016.
At December 31, 2016, the share price of LafargeHolcim
$0.3670 per common share.
was €49.92.
IGM FINANCIAL
IGM Financial’s net earnings available to common
Pargesa’s adjusted net earnings in 2016 were SF321 million,
compared with SF308 million in 2015.
shareholders were $771 million or $3.19 per share in 2016,
At its annual general meeting, GBL is expected to
compared with $772 million or $3.11 per share in 2015.
propose that its dividend be increased by 2.4 per cent,
Return on average common equity based on operating
earnings for the year ended December 31, 2016 was
16.3 per cent.
to €2.93 per share. In addition, at its upcoming annual
meeting in May, the board of directors of Pargesa is
expected to propose a 2016 dividend of SF2.44 per
bearer share, an increase of 2.5 per cent.
The Power Financial Group
Our group companies provide financial security and peace of mind to millions of people through
various investment, retirement and insurance solutions. Such solutions are provided to our clients
through one-on-one relationships with their financial advisors and through workplace programs.
Critical factors in meeting customer needs include
Together with its subsidiaries, Power Financial is
product and service innovation, and the delivery of value
committed to creating long-term value for shareholders
to the customer. Financial strength and the ability to
predicated on the success of our clients, our employees
honour long-term commitments are likewise important.
and our business partners, while contributing positively
Consistent with the long-time practices of the group,
to the communities in which we operate.
the principles of responsible management guide the
Your Directors wish to express gratitude, on behalf
actions of Power Financial and its portfolio companies.
of all shareholders, for the important contribution of
We have included a section later in this report that
the management and employees of our Corporation
outlines our commitments under the Corporation’s
and its associated companies to the successful results
responsible management philosophy. Additional
achieved in 2016.
information on our corporate social responsibility
policies, programs and performance is further detailed
on www.PowerFinancialCSR.com.
On behalf of the Board of Directors,
Signed,
Signed,
Signed,
R. Jeffrey Orr
President and
Chief Executive Officer
March 24, 2017
Paul Desmarais, Jr., o.c., o.q.
Executive Co-Chairman
of the Board
André Desmarais, o.c., o.q.
Executive Co-Chairman
of the Board
POWER FINANCIAL CORPOR ATION 2016 ANNUAL REPORT
7
2016 AT A GLANCE
Whether improving customer service, being honoured for product
excellence, giving back to their communities or expanding markets
and portfolios, Power Financial companies distinguished themselves
on many fronts during 2016. This is but a small sampling.
Investing in China’s premier
asset manager
IGM Financial entered into agreements to acquire a
total 13.9 per cent interest in China AMC, the premier
asset manager in China. Together with a further
investment by Power Corporation, the two companies
will hold a combined 27.8 per cent interest in China
AMC. Mackenzie’s global fixed income mandate,
At the forefront of fintech
In 2016, Power Financial, with its subsidiaries IGM
distributed through China AMC, and other synergies
Financial and Great-West Lifeco, launched Portag3
will enable IGM Financial to grow its retail and
Ventures. This new fund invests in promising Canadian
institutional business in both geographic regions.
financial tech companies that have the potential for
innovative change and global impact. Portag3 is
committed to finding and supporting creative, ambitious
entrepreneurs who will help reshape the Canadian fintech
sector to benefit all consumers.
Power Financial and IGM Financial have also invested in
Toronto-based Wealthsimple, Canada’s largest and
fastest-growing technology-driven investment manager.
Since its launch, Wealthsimple has attracted 30,000
clients and has $1 billion in assets under administration.
8
POWER FINANCIAL CORPOR ATION 2016 ANNUAL REPORT
Industry-leading
fund performance
Mackenzie Investments was recognized for industry-
leading fund performance at the prestigious Fundata
FundGrade A+ Awards. These awards are presented
annually to Canadian investment funds that achieve
consistently high FundGrade scores through an
entire calendar year. Mackenzie Canadian Growth
Balanced Fund, Mackenzie Canadian Growth Fund,
Mackenzie Ivy European Class and Mackenzie Ivy
Foreign Equity Fund won for top-performing funds
in their respective categories.
The new world of
Irish Life Health
The new Irish Life Health business leverages creative
digital technology and traditional advisor relationships
to give customers flexibility in meeting their health
insurance needs. In addition to the convenience of online
self-service for their health insurance claims, customers
can access a Digital Doctor service including face-to-
face video consultations, telephone and messaging
services with Irish-registered physicians.
Responding
to a changing world
Consumers have more options than ever to seek
information and advice, make decisions and purchase
products. In 2016, Great-West Life expanded how it
digitally interacts with customers.
Great-West Life's Canadian group retirement and savings
plan member education program, SmartPATH, provides
engaging, easy-to-understand information for all financial
planning stages: Getting started, Getting serious, Getting
close and in Retirement. The publicly available SmartPATH
site, www.smartpathnow.com, features award-winning
videos, interactive tools, games and articles that are
building Canadians' financial confidence and helping them
take action towards their savings goals.
It has never been easier for plan members to access their
Great-West Life group benefits information. Either
through the GroupNet for Plan Members website, or on
the go using GroupNet Text or with the GroupNet Mobile
or GroupNet for Apple Watch apps, more than one million
plan members connect with Great-West Life online. With
secure and user-friendly access, plan members submit
claims, get information about benefits, coverage balances
and claims payments, search out drug coverage details
and even locate the nearest health care provider through
a built-in GPS mapping tool.
POWER FINANCIAL CORPOR ATION 2016 ANNUAL REPORT
9
Dynamic innovation
at the onset
Launched in early 2016, Great-West Investments broke
new ground with the establishment of a creative
solution to help improve how U.S. investors save and
receive advice for retirement. The new group is
committed to launching solutions and enhancements
across a range of product areas – managed accounts,
retirement income, target-date, general account and
stable value – to better serve investors with a variety
of different needs.
Continued trajectory
of strong growth
PanAgora Asset Management exhibited another
year of strong growth in 2016, as the firm’s diverse
set of investment solutions in alternatives, risk
Committed to excellence
Recent recognition given to Putnam demonstrated
parity and active strategies – driven by innovative
how the company consistently delivers value to its
research – continues to attract a broad set of
clients. Barron’s/Lipper ranked the firm No. 5 out of
investors worldwide. In a key development,
54 companies in their Best Fund Families report for
PanAgora and China AMC – one of China’s biggest
five-year investment performance across asset
fund management companies – forged a strategic
classes. Putnam also received accolades for service
relationship to bring risk-parity strategies to
quality from DALBAR, which honoured the firm for
institutional and retail investors in China. This
the 27th consecutive year. Additionally, Putnam was
collaborative relationship will offer these investors
highlighted as the leading asset manager for digital
better diversification using strategies not currently
engagement by DST kasina, and was named the
available to them.
inaugural Social Media Leader of the Year at the
annual Mutual Fund Industry Awards.
10 POWER FINANCIAL CORPOR ATION 2016 ANNUAL REPORT
Retirement
leader
of the year
Empower Retirement, the second-largest retirement
services provider in the United States, was named
Retirement Leader of the Year at the annual Mutual
Fund Industry Awards. Through new sales, along with
growing brand recognition, Empower grew at three
times the industry average. It also retained its top
ranking as the “best value for the money” in a survey
of industry advisors.
125,000 ways to say
thank you
Many of Great-West Life’s efforts to build
stronger communities begin with its people,
who share their time, resources and expertise
to improve the lives of those around them,
and the company supports and encourages
those efforts. For example, in 2016, in
celebration of its 125th anniversary, Great-West
Life made 125 donations of $1,000 each to
registered charities that their employees
Committed to
financial literacy
The Canadian Foundation for Economic Education
(CFEE) presented Investors Group with the Financial
Literacy Leadership Award for the company’s leadership
in and commitment to improving financial literacy and
education in Canada.
With Investors Group’s support, CFEE’s Money and Youth
program has thrived, with over 430,000 copies of its
publication being provided free of charge to schools and
homes across Canada. The company also supported
CFEE’s Building Futures program, which works with
provinces to integrate financial education into the
compulsory core curriculum in grades 4-10.
New digital tool
for U.S. investors
IGM Financial made an investment in Personal Capital,
volunteer with across Canada.
a market-leading digital wealth advisor for mass-affluent
investors, enabling the company to participate in the
emerging digital wealth management industry in the
United States. Consistent with IGM Financial’s belief in
the value of advice in growing investors’ wealth over time,
Personal Capital provides online tools for investors
looking for a different way to invest along with personal
financial advice through a team of licensed advisors.
POWER FINANCIAL CORPOR ATION 2016 ANNUAL REPORT
11
Celebrating diversity
and inclusion
An important part of IGM Financial’s commitment
Expansion in
North America
Irish Life Investment Managers Limited (ILIM), Ireland's
largest investment management firm, continues to
expand its business relationships in North America. ILIM
now provides active equity management services to
Great-West Lifeco’s operating companies in Canada,
to corporate responsibility is fostering diversity and
as well as affiliates Investors Group and Mackenzie
inclusiveness in the workplace. In 2016, the
Investments. In the United States, ILIM manages assets for
company engaged its leaders, employees and
Empower Retirement and, in 2016, was appointed to
advisors in furthering its diverse and inclusive
manage a number of large indexation mandates on behalf
culture through communication, surveys and
of Great-West Financial. ILIM also continues to work with
training, including the Taking the Stage® leadership
Putnam to build new distribution opportunities in the Irish
communication program for women.
market. Putnam is now managing significant credit and
By recognizing and celebrating its diversity,
alternate strategies within multi-asset portfolios modelled
IGM Financial seeks to better serve existing and
and manufactured by ILIM for both its retail and its
potential clients in the context of a growing and
institutional client base.
more diverse Canadian population.
New investments
During the course of 2016, Pargesa added two investments to its strategic portfolio
through its subsidiary Groupe Bruxelles Lambert. At December 31, 2016, GBL held a
7.5 per cent interest in adidas, the European leader in sports equipment. At that same
date, GBL held a 17 per cent interest in Umicore, a group specialized in materials
technology and the recycling of precious metals. GBL has representation on the
boards of both adidas and Umicore.
12
POWER FINANCIAL CORPOR ATION 2016 ANNUAL REPORT
When you
pay yourself,
you make
the rules.
GLC Asset Management
signs the PRI
In February of 2016, Great-West Lifeco’s Canadian
investment management subsidiary, GLC Asset
Management Group Ltd. (GLC) became a signatory
to the United Nations-supported Principles for
Responsible Investment (PRI). GLC formally includes
environmental, social, and governance (ESG) factors
in the disciplined investment processes in place across
its businesses. Putnam Investments and Irish Life
Investment Managers are also signatories to the PRI,
which aims to contribute to the development of a more
sustainable global financial system.
Giving back… together
Great-West Financial kicked off a new community
Helping customers
retire seamlessly
The award-winning HelloLife retirement planner
supports the customer and the advisor working
together to build a secure, flexible retirement income
program. This unique approach allows the customer
to be involved every step of the way. Bringing
together the customer’s aspirations and lifestyle with
involvement program called ACT – Associates.
the advisor’s financial planning advice helps generate
Community. Together. – which is aimed at
a realistic plan that can provide predictable income
encouraging associates to support causes of their
for life along with opportunities for growth.
choosing. The firm amplifies associates’ community
impact through corporate support, including
matching funds and paid volunteer hours. Activities
range from local events to large-scale efforts such as
the Giving Together Campaign to benefit communities
across the United States.
POWER FINANCIAL CORPOR ATION 2016 ANNUAL REPORT
13
Great-West
Lifeco
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. Great-West Lifeco has
operations in Canada, the United States, Europe
and Asia through Great-West Life, London Life,
Canada Life, Irish Life, Great-West Financial,
Putnam Investments and PanAgora. Great-West
Lifeco and its companies have over $1.2 trillion in
consolidated assets under administration.
Net earnings
attributable to common shareholders
[in millions of dollars]
Adjusted net earnings [1]
attributable to common shareholders
[in millions of dollars]
Consolidated assets
under administration
[in billions of dollars]
1,806
2,278
2,546
2,762
2,641
1,946
2,052
2,546
2,762
2,641
546
758
1,063
1,213
1,248
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
2012
2013
2014
2015
2016
[1] Described as operating earnings by Great-West Lifeco.
Canada
Europe
United States
United States • Europe • Asia
Great-West Life is a leading
Canadian insurer, with interests in
life insurance, health insurance,
investment, savings and retirement
income and reinsurance businesses,
primarily in Canada and Europe.
In Canada, Great-West Life and its
subsidiaries, London Life and
Canada Life, offer a broad portfolio
of financial and benefit plan
solutions and serve the financial
security needs of more than
13 million people.
$175 billion
Total assets under administration
$12.9 billion 2016 sales
Canada Life and its Irish Life
subsidiary in Europe provide a
broad range of protection and
wealth management products,
including: payout annuities,
investments and group insurance in
the United Kingdom; investments
and individual insurance in the Isle
of Man; insurance, pension and
investment products in Ireland; and
pensions, critical illness and
disability insurance in Germany.
$232 billion
Total assets under administration
$19.2 billion
2016 insurance and annuities sales
$1,218 million 2016 net earnings
13+ million people served
27,000+ advisor relationships
$1,200 million
2016 net earnings
Top 3 provider of payout
annuities in the U.K.
No. 1 pension, investment and
insurance provider in Ireland
Great-West Financial provides life
insurance, annuities and executive
benefits products. Its Great-West
Investments unit offers fund
management, investment and
advisory services. Its Empower
Retirement arm serves all
segments of the employer-
sponsored retirement plan market:
small, mid-size and large corporate
clients, government plans,
non-profit entities and private-label
record-keeping clients. Empower
also offers individual retirement
accounts.
Putnam Investments is a U.S.-based
global asset manager, offering
investment management services
across a range of asset classes:
fixed income, equity, global asset
allocation and alternatives,
including absolute return,
risk parity and hedge funds.
The firm’s affiliate PanAgora is a
premier provider of institutional
investment solutions, including
alternatives, risk premia – including
risk parity – and active strategies,
spanning all major asset classes
and risk ranges.
US$476 billion
Total assets under administration
8.5 million retirement,
insurance and annuity customers
No. 1 in government deferred-
compensation market by assets
and participants
No. 2 defined contribution record
keeper in the U.S. by participants
US$152 billion
Assets under management
185+ investment professionals
100+ mutual funds available
Nearly 80 years of
investment experience
150+ institutional mandates
157,500 advisors distribute
Putnam products
2016 consolidated assets under administration
$1.2 TRILLION
2016 net earnings
attributable to common shareholders
$2,641 MILLION
2016 return on shareholders’ equity
13.8%
GREAT-WEST LIFECO
GREAT-WEST
LIFE
100%
GREAT-WEST
FINANCIAL
100%
PUTNAM
INVESTMENTS
96.2%
LONDON LIFE
100%
CANADA LIFE
100%
IRISH LIFE
100%
PANAGORA
80% [1]
[1] Denotes voting interest.
POWER FINANCIAL CORPOR ATION 2016 ANNUAL REPORT
15
IGM Financial
IGM Financial Inc. is one of Canada’s premier
personal financial services companies with
$142 billion in total assets under management.
The company serves the financial needs of
Canadians through multiple businesses, each
operating distinctly within the advice segment
of the financial services market. The company
is committed to building on its record of
delivering long-term growth and value to
its clients and shareholders.
Net earnings
available to common shareholders
[in millions of dollars]
Adjusted net earnings [1]
available to common shareholders
[in millions of dollars]
Total assets under management
[in billions of dollars]
759
762
753
772
2012
2013
2014
2015
771
2016
746
764
826
796
2012
2013
2014
2015
737
2016
121
132
142
134
2012
2013
2014
2015
142
2016
[1] Described as operating earnings by IGM Financial.
Investors Group is committed
to comprehensive planning
delivered through long-term
client and consultant relationships.
The company provides advice
and services to approximately
one million Canadians through a
network of consultants located
across Canada.
$81.2 billion
Total assets under management
$7.8 billion
Mutual fund sales
2,300 consultant practices*
advise on 95% of assets under
management
1,553 consultants hold
Certified Financial Planner (CFP)
or Financial Planner (F.Pl.)
designations, with another
1,193 enrolled in the programs
* Consultant practices are teams led
by consultants with greater than four
years' experience.
Mackenzie Investments provides
investment management and
related services through diversified
investment solutions, using
proprietary investment research
and experienced investment
professionals to deliver its various
product offerings. The company
distributes its investment services
through multiple distribution
channels to both retail and
institutional investors.
$64.0 billion
Total assets under management
$6.9 billion
Mutual fund sales
Investment products offered
through 30,000 independent
financial advisors
73% of Mackenzie mutual fund
assets rated 3, 4 or 5 Star by
Morningstar
Investment Planning Counsel is an
integrated financial services
company focused on providing
Canadians with high-quality
financial products, services and
advice. The company is dedicated
to providing independent financial
advisors with the tools, products
and support they need to build a
successful business and serve a
wide range of clients.
$4.5 billion
Assets under management
in Counsel Portfolio Services
$26.1 billion
Assets under administration
Partners with over
800 advisors across the country
Total assets under management
$142 BILLION
2016 adjusted net earnings [1]
available to common shareholders
$737 MILLION
2016 return on shareholders’ equity [2]
16.3%
IGM FINANCIAL
INVESTORS
GROUP
100%
MACKENZIE
INVESTMENTS
100%
INVESTMENT
PLANNING
COUNSEL
96.9%
[1] Described as operating earnings by IGM Financial.
[2] Return on shareholders’ equity is calculated using adjusted net earnings.
POWER FINANCIAL CORPOR ATION 2016 ANNUAL REPORT
17
Pargesa
Group
Power Financial, through its wholly owned
subsidiary, Power Financial Europe B.V., and the
Frère family group of Belgium each hold a 50 per
cent interest in Parjointco, a Netherlands-based
company. Parjointco holds a 55.5 per cent equity
interest (75.4 per cent of the voting rights) in
Pargesa Holding SA, the Pargesa group’s parent
company based in Geneva, Switzerland.
Pargesa, through its affiliated Belgian holding
company, Groupe Bruxelles Lambert, has holdings
in major global companies based in Europe.
2016 adjusted net earnings [1]
SF321 MILLION
Net asset value
SF8.9 BILLION
PARGESA
50.0% [2]
GROUPE
BRUXELLES LAMBERT
IMERYS
53.9%
LAFARGE
HOLCIM
9.4%
SGS
16.2%
ADIDAS
7.5%
PERNOD
RICARD
7.5%
UMICORE
17.0%
TOTAL
0.7%
[1] Described as economic operating income by Pargesa.
[2] Representing 51.9% of the voting rights.
retouche photo pour le ciel Imerys is the world leader
in speciality minerals
with almost 260 sites in
54 countries.
Value of investment
€3,088 million
Capital/voting rights
53.9% / 69.7%
Key 2016 financial data
Market capitalization
Turnover
Current operating income (EBIT)
5,734
4,165
582
LafargeHolcim is the
world leader in
construction materials:
cement, aggregates
and concrete.
Value of investment
€2,857 million
Capital/voting rights
9.4% / 9.4%
Key 2016 financial data [SF million]
Market capitalization
Turnover
Gross operating income (EBITDA)
32,561
26,904
5,242
SGS is the world leader
in inspection, verification,
testing and certification.
Value of investment
€2,445 million
Capital/voting rights
16.2% / 16.2%
Key 2016 financial data [SF million]
Market capitalization
Turnover
Adjusted operating income (EBIT)
16,208
5,985
919
adidas is the European
leader in sports
equipment.
Value of investment
€2,356 million
Capital/voting rights
7.5% / 7.5%
Key 2016 financial data
Market capitalization
Turnover
Operating income (EBIT)
31,414
19,291
1,491
Pernod Ricard is the
world’s co-leader in wines
and spirits, holding
a leading position on
all continents.
Value of investment
€2,048 million
Capital/voting rights
7.5% / 6.8%
Key 2016 financial data
Market capitalization
Turnover
Current operating income
[1] June 30, 2016 year-end
[1]
[1]
26,569
8,682
2,277
[1]
Umicore is a group
specialized in materials
technology and the
recycling of precious
metals.
Value of investment
€1,032 million
Capital/voting rights
17.0% / 17.0%
Key 2016 financial data
Market capitalization
Turnover (excluding metal)
Recurring EBIT
6,065
2,668
351
Key 2016 financial
data in millions
of euros, unless
otherwise indicated.
Total is an integrated
global oil and gas
group with a presence
in chemicals.
Value of investment
€789 million
Capital/voting rights
0.7% /1.3%
Key 2016 financial data
Market capitalization
Turnover [US$ million]
Adjusted net operating income
118,376
149,743
from business segments [US$ million] 9,420
POWER FINANCIAL CORPOR ATION 2016 ANNUAL REPORT
19
Anchored by our responsible management
philosophy, our commitment to creating long-term
sustainable value remains as strong as ever.
A careful consideration of environmental, social and
governance (ESG) factors in our business decisions
is an integral part of our long-term success. It
not only drives sustainable value in our operating
businesses and investments, but also leads to
economic and social prosperity for society at large.
Responsible Management
Reinforcing our Corporate Social Responsibility Commitments
As a signatory to the United Nations Global Compact (UNGC),
We are also committed to working closely with our suppliers
we remain committed to supporting the UNGC’s ten principles
to ensure good ethical practices and business integrity, while
on human rights, labour, the environment and the fight against
managing potential ESG risks to our business. In 2016, as part
corruption. In 2016, we strengthened our reporting to an
of our Third Party Code of Conduct deployment, we reached out
“Advanced Level” Communication on Progress, providing
to our key suppliers, consultants, advisors and other business
information on our management policies and procedures and on
partners. To date, the majority of them have attested their
the alignment of our programs to the United Nations’ Sustainable
compliance to the requirements of our Code.
Development Goals.
Visit our dedicated website, www.PowerFinancialCSR.com, for
We maintained our support for the Principles for Responsible
more information on our Corporate Social Responsibility (CSR)
Investment (PRI) through the signatory status of our group
commitments, programs and initiatives.
companies, namely Great-West Lifeco subsidiaries GLC Asset
Management Group Ltd., Putnam Investments and Irish Life
Investment Managers Limited, and IGM Financial subsidiaries
Investors Group and Mackenzie Investments.
Responsibly Managing our Investments
By integrating ESG factors in our investment analysis, we ensure
We conduct ongoing engagements with a broad cross-section
we are investing in quality companies with attractive long-term
of other stakeholders, including employees, suppliers, local
prospects that are managed in a responsible manner. We continue
communities and responsible investment organizations. Over
to meet regularly with our major operating subsidiaries to align
the past year, our CSR efforts continued to be recognized by
our commitments and share knowledge on our CSR initiatives.
our stakeholders.
20 POWER FINANCIAL CORPOR ATION 2016 ANNUAL REPORT
Recognized for
Our Commitment
to Sustainability
In 2016, Power Financial and its group companies were recognized by a number of organizations for
their long-standing commitment to sustainability.
Power Financial, Power
On the environmental front,
Great-West Lifeco's subsidiary
Corporation and IGM Financial
Great-West Lifeco earned a
GWL Realty Advisors Inc.
gained listing status on the
position on the CDP’s Climate
maintained its Green Star
FTSE4Good Global Index – one
A List, placing it in the top 10
ranking status on the Global
of the most important indices
per cent of companies globally,
Real Estate Sustainability
that measures the performance
the only Canadian financial
Benchmark (GRESB). IGM
of companies demonstrating
services company to do so.
Financial also maintained its
strong ESG practices.
This is the CDP’s highest
listing status on the
ranking, indicating a global
Sustainalytics’ Jantzi Social
leadership position in
Index and was named one of
greenhouse gas emissions
the 2016 Best 50 Corporate
disclosure and management.
Citizens in Canada by
Corporate Knights.
Contributing to Economic and Social Progress
As an investor, employer and contributor to the communities where we operate, we recognize the unique position we are in to promote
sustainable economic progress while making a meaningful difference in society.
PROMOTING PERSONAL EMPLOYEE DEVELOPMENT
AND WELL-BEING
Our employees are the foundation of our success. We want them
to feel proud of the work they do, the company they work for, and
the difference they make. This is why we take every opportunity to
programs, and investment products, thus helping them prepare
for retirement and other life-changing events. Our group
companies also actively support a suite of financial literacy
initiatives for community organizations, underserved groups,
post-secondary students and individuals of all ages.
invest in our people so that they can learn new skills and gain new
Both Great-West Lifeco and IGM Financial continue to provide
experiences to support their personal ambitions and drive the
responsible investment offerings, helping clients ensure their
business forward.
Our companies are actively engaging their employees on
investments promote environmental sustainability, social
responsibility and sound corporate governance.
leadership and talent development, health and well-being and
ADDRESSING CLIMATE CHANGE
performance recognition programs. In 2016 and 2017, Great-West
Life was again selected as one of Canada’s Top 100 Employers,
one of Manitoba’s Top Employers and one of Canada’s Top
Employers for Young People.
We remain committed to doing our part to tackle climate change
with a strategy focused on helping to finance the transition
to a low-carbon economy and reducing the direct environmental
footprint of our operations. In 2016, Great-West Lifeco’s
In 2016, Power Financial and its group companies employed
Canadian bond group continued to grow its investments in
26,800 individuals and contributed $3.6 billion in employee
green energy projects, including investments in solar, wind
salaries and benefits. These funds flow through the economy,
and hydro energy projects.
impacting the hundreds of communities in which our employees
live and work.
MEETING CUSTOMER NEEDS FOR FINANCIAL
SECURITY, WELL-BEING AND RESPONSIBLE
INVESTMENTS
Despite our limited environmental impact as a holding company,
together with our major operating subsidiaries, we implemented
innovative environmental initiatives in our buildings, many of
which now meet both BOMA BESt® designations and Leadership
in Energy and Environmental Design (LEED) certifications.
Our group companies contribute to fostering the financial health
In 2016, Power Financial, our parent company Power Corporation,
and well-being of the communities they serve by developing
as well as our subsidiaries Great-West Lifeco and IGM Financial,
innovative products and services that are positively influencing
once again participated in the annual CDP Climate Change
financial and health outcomes in society. Our more than 13,900
program, supporting the organization’s endeavours to increase
financial consultants and advisors focus on each customer’s
transparency and disclosure on climate change.
unique needs for life and health insurance, retirement savings
POWER FINANCIAL CORPOR ATION 2016 ANNUAL REPORT
21
Review of Financial Performance
ALL TABUL AR AMOUNTS ARE IN MILLIONS OF CANADIAN DOLL ARS, UNLESS OTHERWISE NOTED.
MARCH 24, 2017
This Annual Report is intended to provide interested shareholders and others with selected information concerning Power Financial Corporation. For further
information concerning the Corporation, shareholders and other interested persons should consult the Corporation’s disclosure documents, such as its Annual
Information Form and Management’s Discussion and Analysis (MD&A). Copies of the Corporation’s continuous disclosure documents can be obtained on the
Corpo ration’s website at www.powerfinancial.com, at www.sedar.com, or from the office of the Secretary at the addresses shown at the end of this report.
FORWARD-LOOKING STATEMENTS › Certain statements in this document,
changes in accounting policies and methods used to report financial condition
other than statements of historical fact, are forward-looking statements based
(including uncertainties associated with critical accounting assumptions and
on certain assumptions and reflect the Corporation’s current expectations, or
estimates), the effect of applying future accounting changes, business competition,
with respect to disclosure regarding the Corporation’s public subsidiaries, reflect
operational and reputational risks, technological change, changes in government
such subsidiaries’ disclosed current expectations. Forward-looking statements
regulation and legislation, changes in tax laws, unexpected judicial or regulatory
are provided for the purposes of assisting the reader in understanding the
proceedings, catastrophic events, the Corporation’s and its subsidiaries’ ability
Corporation’s financial performance, financial position and cash flows as at
to complete strategic transactions, integrate acquisitions and implement other
and for the periods ended on certain dates and to present information about
growth strategies, and the Corporation’s and its subsidiaries’ success in anticipating
management’s current expectations and plans relating to the future and the reader
and managing the foregoing factors.
is cautioned that such statements may not be appropriate for other purposes.
These statements may include, without limitation, statements regarding the
operations, business, financial condition, expected financial results, performance,
prospects, opportunities, priorities, targets, goals, ongoing objectives, strategies
and outlook of the Corporation and its subsidiaries, as well as the outlook for North
American and international economies for the current fiscal year and subsequent
periods. Forward-looking statements include statements that are predictive in
nature, depend upon or refer to future events or conditions, or include words such
as “expects”, “anticipates”, “plans”, “believes”, “estimates”, “seeks”, “intends”, “targets”,
“projects”, “forecasts” or negative versions thereof and other similar expressions,
or future or conditional verbs such as “may”, “will”, “should”, “would” and “could”.
By its nature, this information is subject to inherent risks and uncertainties that
may be general or specific and which give rise to the possibility that expectations,
forecasts, predictions, projections or conclusions will not prove to be accurate,
that assumptions may not be correct and that objectives, strategic goals and
priorities will not be achieved. A variety of factors, many of which are beyond the
Corporation’s and its subsidiaries’ control, affect the operations, performance
and results of the Corporation and its subsidiaries and their businesses, and could
cause actual results to differ materially from current expectations of estimated
or anticipated events or results. These factors include, but are not limited to: the
impact or unanticipated impact of general economic, political and market factors
in North America and internationally, interest and foreign exchange rates, global
equity and capital markets, management of market liquidity and funding risks,
The reader is cautioned to consider these and other factors, uncertainties and
potential events carefully and not to put undue reliance on forward-looking
statements. Information contained in forward-looking statements is based
upon certain material assumptions that were applied in drawing a conclusion or
making a forecast or projection, including management’s perceptions of historical
trends, current conditions and expected future developments, as well as other
considerations that are believed to be appropriate in the circumstances, including
that the list of factors in the previous paragraph, collectively, are not expected
to have a material impact on the Corporation and its subsidiaries. While the
Corporation considers these assumptions to be reasonable based on information
currently available to management, they may prove to be incorrect.
Other than as specifically required by applicable Canadian law, the Corporation
undertakes no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement is made, or
to reflect the occurrence of unanticipated events, whether as a result of new
information, future events or results, or otherwise.
Additional information about the risks and uncertainties of the Corporation’s
business and material factors or assumptions on which information contained
in forward-looking statements is based is provided in its disclosure materials,
including its most recent Management’s Discussion and Analysis and its most
recent Annual Information Form, filed with the securities regulatory authorities
in Canada and available at www.sedar.com.
Readers are reminded that a list of the abbreviations used throughout can be found on the inside front cover of this Annual Report. In addition, the following
abbreviations are used in the Review of Financial Performance and in the Financial Statements and Notes thereto: Audited Consolidated Financial
Statements of Power Financial and Notes thereto for the year ended December 31, 2016 (the 2016 Consolidated Financial Statements or the
Financial Statements); International Financial Reporting Standards (IFRS).
22
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
Overview
Power Financial, a subsidiar y of Power Corporation, is a diversified
Pargesa is a holding company, which, at December 31, 2016, held a 50% interest
management and holding company with substantial operations in the
in GBL, which represents 51.9% of the voting rights. GBL, a Belgian holding
financial services sector in Canada, the United States and Europe, through
company, is listed on the Brussels Stock Exchange (EBR: GBLB).
its controlling interests in Lifeco and IGM. Power Financial also holds jointly
with the Frère Group of Belgium a controlling interest in Pargesa, a holding
company which, through its subsidiary GBL, focuses on a limited number of
significant holdings, as well as incubator and financial pillar investments.
Lifeco (TSX: GWO) and IGM (TSX: IGM) are public companies listed on the
Toronto Stock Exchange. Pargesa is a public company listed on the Swiss
Stock Exchange (SIX: PARG).
LIFECO
Lifeco is an international financial services holding company with interests
At December 31, 2016, GBL’s portfolio was mainly comprised of investments
in: Imer ys – mineral-based specialty solutions for industr y (EPA: NK);
LafargeHolcim – cement, aggregates and concrete (SIX: HOLN and EPA: LHN);
SGS – testing, inspection and certification (SIX: SGSN); adidas – design
and distribution of sportswear (XETR: ADS); Pernod Ricard – wines and
spirits (EPA: RI); Umicore – materials technology and recycling (EBR: UMI);
and Total – oil, gas and alternative energies (EPA: FP).
In addition to these holdings, representing 88% of its portfolio based on
market value, GBL invests in:
in life insurance, health insurance, retirement and investment services, asset
▪ “Incubator” investments, made up of a limited selection of smaller listed and
management and reinsurance businesses.
unlisted holdings that have the potential to become strategic assets over
At December 31, 2016, Power Financial and IGM held 67.9% and 4.0%, respectively,
of Lifeco’s common shares, representing approximately 65% of the voting rights
time. GBL aims to become a core shareholder and, for mid-sized companies,
to possibly hold a majority stake; and
attached to all outstanding Lifeco voting shares. The Insurance Companies Act
▪ The “financial pillar”, comprising major stakes in private equity funds,
limits ownership in life insurance companies to 65%.
debt funds and theme-based funds.
IGM FINANCIAL
IGM is a financial services company which serves the financial needs of
Canadians through its principal subsidiaries, each operating distinctly
primarily within the advice segment of the financial services market.
At December 31, 2016, Power Financial and Great-West Life, a subsidiary of Lifeco,
held 61.5% and 3.8%, respectively, of IGM’s common shares. Power Financial’s
equity interest in IGM increased by 1.1%, from 60.4% at December 31, 2015 to
61.5% at December 31, 2016, as a result of IGM’s repurchases and subsequent
cancellation of its common shares.
In 2016, GBL sold 43.5 million shares of Total, representing a 1.8% in Total
interest and 42.7 million shares of Engie, representing a 1.8% interest in Engie.
GBL’s net gain resulting from these sales was €721 million.
At December 31, 2016, Pargesa’s net asset value was SF8,884 million, compared
with SF7,970 million at December 31, 2015.
PORTAG3
In October 2016, Power Financial, together with Lifeco and IGM, announced
the formation of a new investment fund, Portag3 Ventures Limited
Partnership, dedicated primarily to backing early-stage innovative financial
On December 29, 2016 and January 5, 2017, Mackenzie Investments, a
services companies.
subsidiary of IGM, entered into agreements to acquire, in two separate
transactions, a 13.9 % interest in China Asset Management Co., Ltd., a
fund management company in China, for an aggregate consideration of
approximately $647 million (RMB¥3.3 billion). In accordance with the terms
of these agreements, Mackenzie Investments made a deposit of $193 million
(RMB¥1.0 billion). On January 5, 2017, Power Financial’s parent company,
Power Corporation, also entered into an agreement to acquire an additional
3.9 % interest in China AMC for $179 million (RMB¥936 million). Upon closing,
In the fourth quarter of 2016, Portag3 invested in Diagram, a launchpad for
technology-based ventures in insurance, financial services and healthcare.
In 2016, Portag3 also invested in a number of select portfolio investments.
At December 31, 2016, the fair value of the Corporation’s direct investment in
Portag3 was $10 million.
WEALTHSIMPLE
In 2016, Power Financial invested a further $16 million in Wealthsimple,
Power Corporation and Mackenzie Investments will hold a combined 27.8 %
a technology-driven investment manager, bringing its investment
interest in China AMC. The transactions are expected to close in the first half
to $33 million at year end. In the fourth quarter of 2016, IGM made an
of 2017 and are subject to customary closing conditions, including Chinese
initial investment of $20 million in Wealthsimple. At December 31, 2016,
regulatory approvals.
PARGESA AND GBL
Power Financial Europe B.V., a wholly owned subsidiary of Power Financial,
and the Frère Group each hold a 50% interest in Parjointco. At December 31,
2016, Parjointco held a 55.5% interest in Pargesa, representing 75.4% of the
voting rights.
Power Financial’s and IGM’s equity interests in Wealthsimple were 46.5%
and 22.7%, respectively. At December 31, 2016, Wealthsimple’s assets under
administration were $795 million.
In the first quarter of 2017, Power Financial and IGM made advances of
$20 million and $15 million, respectively, to Wealthsimple.
Basis of Presentation
The 2016 Consolidated Financial Statements of the Corporation have been
statements present the financial results of Power Financial (parent) and
prepared in accordance with IFRS and are presented in Canadian dollars.
Lifeco and IGM (operating subsidiaries) after the elimination of intercompany
Consolidated financial statements present, as a single economic entity,
balances and transactions.
the assets, liabilities, revenues, expenses and cash flows of the parent
Lifeco and IGM are controlled by Power Financial and their financial
company and its operating subsidiaries. The consolidated financial
statements are consolidated with those of Power Financial.
23
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
Power Financial’s investment in Pargesa is held through Parjointco. Parjointco is a holding company jointly controlled by Power Financial and the Frère
Group. Parjointco’s only investment is its interest in Pargesa. Power Financial’s investment in Parjointco is accounted for using the equity method, in which:
▪ The investment is initially recognized at cost and adjusted thereafter
▪ Power Financial’s net earnings or loss includes its share of Pargesa’s net
for changes in Power Financial’s share of Pargesa’s net assets
earnings or loss; and
(shareholders’ equity);
▪ Power Financial’s other comprehensive income includes its share
of Pargesa’s other comprehensive income.
The following table summarizes the accounting presentation for the Corporation’s holdings:
CONTROL
ACCOUNTING METHOD
EARNINGS AND OTHER
COMPREHENSIVE INCOME
IMPAIRMENT TESTING
IMPAIRMENT REVERSAL
Controlling interest
in the entity
▪ Consolidation
▪ Consolidated with
non-controlling interests
▪ Goodwill and indefinite life
intangible assets are tested
annually for impairment
▪ Impairment of goodwill cannot
be reversed
▪ Impairment of intangible assets
is reversed if there is evidence of
recovery of value
Significant influence
or joint control
▪ Equity method
▪ Corporation’s share
▪ Entire investment is tested
▪ Reversed if there is evidence
of earnings and other
comprehensive income
for impairment
the investment has recovered
its value
Non-controlled portfolio
investments
▪ Available for sale (AFS)
▪ Earnings consist of dividends
received and gains or losses
on disposals
▪ The investments are marked
to market through other
comprehensive income
▪ Impairment testing is done at
the individual investment level
▪ A subsequent recovery of value
does not result in a reversal
▪ A significant or prolonged
decline in the value of the
investment results in an
impairment charge
▪ Earnings are reduced by
▪ A share price decrease
impairment charges, if any
subsequent to an impairment
charge leads to a further
impairment
At December 31, 2016, the Corporation’s holdings were as follows:
HOLDINGS
Lifeco [1]
IGM [2]
Pargesa [3]
Wealthsimple [4]
% ECONOMIC INTEREST
NATURE OF INVESTMENT
ACCOUNTING METHOD
67.9
61.5
27.8
46.5
Controlling interest
Controlling interest
Joint control
Joint control
Consolidation
Consolidation
Equity method
Equity method
[1] IGM also holds a 4.0% interest in Lifeco.
[2] Great-West Life also holds a 3.8% interest in IGM.
[3] Held through Parjointco, a jointly controlled corporation (50%).
[4] IGM also holds a 22.7% interest in Wealthsimple.
At December 31, 2016, Pargesa’s holdings were as follows:
HOLDINGS
GBL
Imerys
LafargeHolcim
SGS
adidas
Pernod Ricard
Umicore
Total
% ECONOMIC INTEREST
NATURE OF INVESTMENT
ACCOUNTING METHOD
50.0
53.9
9.4
16.2
7.5
7.5
17.0
0.7
Controlling interest
Controlling interest
Portfolio investment
Portfolio investment
Portfolio investment
Portfolio investment
Portfolio investment
Portfolio investment
Consolidation
Consolidation
Available for sale
Available for sale
Available for sale
Available for sale
Available for sale
Available for sale
This summary of accounting presentation should be read in conjunction with the following notes to the Corporation’s 2016 Consolidated Financial Statements:
▪ Basis of presentation and summary of significant accounting policies (Note 2);
▪ Investments (Note 5);
▪ Investments in jointly controlled corporations and associates (Note 7);
▪ Goodwill and intangible assets (Note 10); and
▪ Non-controlling interests (Note 19).
24
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
NON-IFRS FINANCIAL MEASURES AND PRESENTATION
Net earnings attributable to common shareholders are comprised of:
▪ adjusted net earnings attributable to common shareholders; and
▪ other items, which include the after-tax impact of any item that in
management’s judgment would make the period-over-period comparison
of results from operations less meaningful. Other items include the
Corporation’s share of items presented as other items by a subsidiary
or a jointly controlled corporation. Other items are listed and described in
a separate section below in this review of financial performance.
Management uses these financial measures in its presentation and analysis of
the financial performance of Power Financial, and believes that they provide
additional meaningful information to readers in their analysis of the results
of the Corporation. Adjusted net earnings, as defined by the Corporation,
assist the reader in comparing the current period’s results to those of previous
periods as items that are not considered to be part of ongoing activities are
excluded from this non-IFRS measure.
Adjusted net earnings attributable to common shareholders and adjusted
net earnings per share are non-IFRS financial measures that do not have
a standard meaning and may not be comparable to similar measures used
by other entities. For a reconciliation of these non-IFRS measures to results
reported in accordance with IFRS, see the “Results of Power Financial
Corporation – Earnings Summar y – Condensed Supplementar y Non-
Consolidated Statements of Earnings” section below.
In this review of financial per formance, a non-consolidated basis of
presentation is also used by the Corporation to present and analyze its
results, financial position and cash flows. In this basis of presentation,
Power Financial’s interests in Lifeco and IGM are accounted for using the
equity method. Presentation on a non-consolidated basis is a non-IFRS
presentation. However, it is useful to the reader as it presents the holding
company’s (parent) results separately from the results of its operating
subsidiaries. Reconciliations of the non-IFRS basis of presentation with the
presentation in accordance with IFRS are included elsewhere in this review
of financial performance.
Results of Power Financial Corporation
EARNINGS SUMMARY – CONDENSED SUPPLEMENTARY NON- CONSOLIDATED STATEMENTS OF EARNINGS
The following table is a reconciliation of non-IFRS financial measures: adjusted net earnings, other items, adjusted net earnings per share and other items
per share with financial measures presented in accordance with IFRS: net earnings and net earnings per share. In this section, the contributions from Lifeco
and IGM to the net earnings attributable to common shareholders of Power Financial are accounted for using the equity method.
T WELVE MONTHS ENDED DECEMBER 31
Adjusted net earnings [1]
Lifeco
IGM
Pargesa
Corporate operations
Dividends on perpetual preferred shares
Adjusted net earnings [2]
Other items [3]
IGM
Pargesa
Net earnings [2]
Earnings per share – basic [2]
Adjusted net earnings
Other items
Net earnings
2016
2015
1,790
452
119
2,361
(132)
(124)
2,105
21
(207)
(186)
1,919
2.95
(0.26)
2.69
1,862
474
112
2,448
(77)
(130)
2,241
(15)
93
78
2,319
3.14
0.11
3.25
[1] Previously described as “Operating earnings”. For a reconciliation of each component’s non-IFRS adjusted net earnings to their net earnings, refer to the
“Contribution to adjusted net earnings” section below.
[2] Attributable to common shareholders.
[3] See “Other items” below.
NET EARNINGS
(attributable to common shareholders)
ADJUSTED NET EARNINGS
(attributable to common shareholders)
Net earnings attributable to common shareholders for the twelve-month
Adjusted net earnings attributable to common shareholders for the twelve-
period ended December 31, 2016 were $1,919 million or $2.69 per share,
month period ended December 31, 2016 were $2,105 million or $2.95 per share,
compared with $2,319 million or $3.25 per share in the corresponding period
compared with $2,241 million or $3.14 per share in the corresponding period
in 2015, a decrease of 17.2% on a per share basis.
in 2015, a decrease of 6.1% on a per share basis.
A discussion of the results of the Corporation is provided in the sections
“Contribution to adjusted net earnings”, “Corporate operations of
Power Financial”, and “Other items” below.
25
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
CONTRIBUTION TO ADJUSTED NET EARNINGS — LIFECO, IGM AND PARGESA
Power Financial’s share of adjusted net earnings from Lifeco, IGM and Pargesa decreased by 3.6% for the twelve-month period ended December 31, 2016,
compared with the same period in 2015, from $2,448 million to $2,361 million.
Lifeco
Lifeco’s contribution to Power Financial’s adjusted net earnings for the twelve-month period ended December 31, 2016 was $1,790 million, compared with
$1,862 million for the corresponding period in 2015.
▪ Lifeco’s net earnings attributable to Lifeco common shareholders were $2,641 million or $2.668 per share for the twelve-month period ended December 31,
2016, compared with $2,762 million or $2.774 per share in the corresponding period in 2015, a decrease of 3.8% on a per share basis. While net earnings in
Canada and Europe operations finished the year up from 2015, earnings were negatively impacted by currency movement, particularly the weakening of
the British pound, and lower earnings in the U.S. segment.
▪ Summary of Lifeco’s net earnings by segment:
T WELVE MONTHS ENDED DECEMBER 31
2016
2015
CANADA
Individual Insurance
Wealth Management
Group Insurance
Canada Corporate
UNITED STATES
Financial Services
Asset Management
U.S. Corporate
EUROPE
Insurance and Annuities
Reinsurance
Europe Corporate
LIFECO CORPORATE
Net earnings [1]
[1] Attributable to Lifeco common shareholders.
Lifeco’s contribution to Power Financial:
T WELVE MONTHS ENDED DECEMBER 31
Average direct ownership [%]
Contribution to Power Financial’s adjusted net earnings and net earnings
345
436
400
37
1,218
333
(52)
(32)
249
927
277
(4)
1,200
(26)
2,641
2016
67.6
1,790
307
479
432
(23)
1,195
384
32
(7)
409
886
313
(25)
1,174
(16)
2,762
2015
67.3
1,862
C A N A DA
unit. Excluding these restructuring costs, net earnings decreased
Net earnings for the twelve-month period ended December 31, 2016 were
US$115 million (C$140 million). The decrease was primarily due to lower
$1,218 million, compared with $1,195 million for the corresponding period
contributions from investment experience and lower net fee income in Lifeco’s
in 2015. The increase was primarily due to higher contributions from
Asset Management business unit. These items were partially offset by higher
investment experience and lower income taxes, partially offset by lower
contributions from contract liability basis changes and lower income taxes,
contributions from insurance contract liability basis changes and less
driven by a management election to claim foreign tax credits.
favourable morbidity experience.
U N ITED S TATE S
EU RO P E
Net earnings for the twelve-month period ended December 31, 2016 were
Net earnings for the twelve-month period ended December 31, 2016
$1,200 million, compared with $1,174 million for the corresponding period in
were US$188 million (C$249 million), compared with US$318 million
2015. The increase was primarily due to higher contributions from insurance
(C$409 million) for the corresponding period in 2015. Included in net
contract liability basis changes and investment experience, partially offset by
earnings in the fourth quarter of 2016 were restructuring costs of
less favourable morbidity experience and the impact of currency movement.
US$15 million (C$20 million) relating to the Asset Management business
26
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
IGM Financial
IGM’s contribution to Power Financial’s adjusted net earnings was $452 million for the twelve-month period ended December 31, 2016, compared with
$474 million for the corresponding period in 2015.
▪ IGM’s adjusted net earnings available to IGM common shareholders were $737 million or $3.05 per share for the twelve-month period ended December 31, 2016,
compared with $796 million or $3.21 per share in the corresponding period in 2015, a decrease of 5.0% on a per share basis due to a decrease in contributions
from each of IGM’s segments.
▪ Adjusted net earnings before interest and taxes of IGM’s segments and adjusted net earnings (non-IFRS measures described by IGM as “Earnings before
interest and taxes” and “Operating earnings”, respectively), and net earnings available to IGM common shareholders were as follows:
T WELVE MONTHS ENDED DECEMBER 31
Investors Group
Mackenzie
Corporate and other
Adjusted net earnings (before interest, income taxes, preferred share dividends and other)
Interest expense, income taxes, preferred share dividends and other
Adjusted net earnings [1]
Other items
Net earnings [1]
[1] Available to IGM common shareholders.
IGM’s contribution to Power Financial:
T WELVE MONTHS ENDED DECEMBER 31
Average direct ownership [%]
Contribution to Power Financial’s:
Adjusted net earnings
Other items
2016
736
171
132
1,039
(302)
737
34
771
2016
61.3
452
21
473
2015
761
216
140
1,117
(321)
796
(24)
772
2015
59.6
474
(15)
459
I N V E S TO RS G RO U P
M AC K ENZI E
Adjusted net earnings decreased in the twelve-month period ended
Adjusted net earnings decreased in the twelve-month period ended
December 31, 2016, compared to the same period in 2015, due to:
December 31, 2016, compared to the same period in 2015, due to:
▪ An increase in non-commission expenses, resulting largely from
▪ A decrease in management fee revenues, primarily resulting from
Consultant network support and other business development efforts,
the decrease in average assets under management of 8.3% when
and an increase in commission expenses;
compared with the corresponding period in 2015, offset, in part,
▪ Partially offset by an increase in fee revenue primarily reflecting the
increase in average daily mutual fund assets of 1.5% and the increase
by an increase in the average management fee rate and an increase
in non-commission expenses;
in fee revenue from insurance products.
▪ Partially offset by a decrease in commission expenses, primarily due to
the decrease in average mutual fund assets for the period and the lower
amount of deferred sales commissions paid in recent years.
Total assets under management were as follows:
DECEMBER 31
[IN BILLIONS OF DOLL ARS]
Investors Group
Mackenzie
Corporate and other [1]
Total
2016
81.2
64.0
(3.4)
141.8
2015
74.9
61.7
(3.0)
133.6
[1] Includes Investment Planning Counsel’s assets under management less an adjustment for assets sub-advised by Mackenzie on behalf of Investors Group and
Investment Planning Counsel.
27
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
Total average daily mutual fund assets under management were as follows:
[IN BILLIONS OF DOLL ARS]
Investors Group
Mackenzie
Corporate and other [1]
Total
Q4
79.7
50.5
4.5
Q3
78.1
49.6
4.5
Q2
75.8
47.8
4.3
2016
Q1
73.5
46.7
4.2
Q4
75.3
48.5
4.0
Q3
75.4
49.2
4.0
Q2
76.8
50.6
4.0
2015
Q1
75.5
50.5
3.9
134.7
132.2
127.9
124.4
127.8
128.6
131.4
129.9
[1] Includes Investment Planning Counsel’s assets under management less an adjustment for assets sub-advised by Mackenzie on behalf of Investors Group and
Investment Planning Counsel.
Pargesa
Pargesa’s contribution to Power Financial’s adjusted net earnings was $119 million for the twelve-month period ended December 31, 2016, compared with
$112 million in the corresponding period in 2015.
The components of Pargesa’s adjusted net earnings (described by Pargesa as “operating earnings”) and net earnings were:
2016
2015
T WELVE MONTHS ENDED DECEMBER 31
[IN MILLIONS OF SWISS FRANCS]
Contribution from principal holdings
Share of earnings of:
Imerys
Lafarge [1]
Dividends from:
LafargeHolcim [1]
SGS
Total
Engie
Pernod Ricard
Umicore
adidas
Contribution from private equity activities and other investment funds
Net financing charges
Other operating income from holding company activities
General expenses and taxes
Adjusted net earnings
Other items
Net earnings (loss)
[1] Lafarge contributed to Pargesa’s earnings until June 30, 2015. LafargeHolcim started contributing to Pargesa’s earnings in the second quarter of 2016.
2016
27.8
119
(207)
(88)
Pargesa’s contribution to Power Financial:
T WELVE MONTHS ENDED DECEMBER 31
[IN MILLIONS OF CANADIAN DOLL ARS]
Average direct ownership [%]
Contribution to Power Financial’s:
Adjusted net earnings
Other items
28
112
−
45
41
28
26
21
14
11
298
38
8
6
(29)
321
(353)
(32)
102
13
−
37
85
26
20
8
2
293
14
34
−
(33)
308
330
638
2015
27.8
112
93
205
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
The average exchange rates for the twelve-month periods ended December 31, 2016 and 2015 were as follows:
Euro/SF
SF/CAD
2016
1.09
1.35
2015
1.07
1.33
CHANGE %
1.9
1.5
A significant portion of Pargesa’s earnings is composed of dividends from
The change in Pargesa’s adjusted net earnings for the twelve-month period
its investments:
ended December 31, 2016 was primarily due to:
▪ LafargeHolcim (first dividend declared in the second quarter of 2016);
▪ The LafargeHolcim merger, which became effective on July 10, 2015. Starting
▪ SGS (declared in the first quarter);
▪ Total (declared in the second, third and fourth quarters);
▪ Engie (declared in the second and third quarters);
on that date, the investment in LafargeHolcim is accounted for as available
for sale. In the second quarter of 2016, Pargesa’s share of a dividend from
LafargeHolcim was SF45 million. In the twelve-month period of 2015,
Pargesa recorded a share of earnings from Lafarge of SF13 million.
▪ Pernod Ricard (declared in the second and fourth quarters);
▪ A decrease in dividends from Total resulting from disposals of Total.
▪ Umicore (declared in the second and third quarters); and
▪ adidas (declared in the second quarter).
▪ Non-cash gains of SF31 million included in net financing charges due to the
mark to market of derivative financial instruments related to convertible
and exchangeable debentures issued by GBL, compared with non-cash
gains of SF56 million in the corresponding period of 2015.
▪ An increase of SF24 million in the contribution from private equity activities
and other investment funds.
CORPORATE OPERATIONS
Corporate operations include income (loss) from investments, operating expenses, financing charges, depreciation and income taxes.
T WELVE MONTHS ENDED DECEMBER 31
Income (loss) from investments
Portag3 and Wealthsimple
Interest on cash and cash equivalents, foreign exchange gains (losses) and other
Operating and other expenses
Operating expenses
Financing charges
Depreciation
Income taxes [1]
Corporate operations
2016
(21)
3
(18)
(77)
(18)
(2)
(17)
(114)
(132)
[1] Consists mainly of withholding taxes payable on the repatriation of cash held by Power Financial Europe B.V. to Power Financial.
2015
(3)
24
21
(70)
(17)
(2)
(9)
(98)
(77)
29
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
OTHER ITEMS
The following table presents the Corporation’s Other items:
T WELVE MONTHS ENDED DECEMBER 31
IGM
Reduction of income tax estimates
Restructuring charges
Pargesa
Total – Gains on partial disposal
LafargeHolcim – Impairment charges
Lafarge – Reversal of impairment charges
Lafarge – Impairment and restructuring charges
Imerys – Impairment and restructuring charges
Engie – Impairment charges and loss on partial disposal
Other (charge) income
2016
21
−
175
(360)
−
−
−
(15)
(7)
(186)
2015
−
(15)
57
−
88
(23)
(26)
−
(3)
78
Other items in 2016 were mainly comprised of the Corporation’s share of:
Other items in 2015 were mainly comprised of the Corporation’s share of:
IGM Financial
FO U RTH Q UA RTER
IGM Financial
FO U RTH Q UA RTER
▪ Reduction of income tax estimates of $21 million: consisting of a reduction
▪ Restructuring charges of $15 million: reflecting severance and payments to
in income tax estimates related to certain tax filings.
third parties related to exiting certain investment management activities
and third-party back office relationships associated with Mackenzie and
Pargesa
FI RS T Q UA RTER
▪ Total – Gain on partial disposal of $101 million: GBL disposed of a 1.1% equity
interest in Total.
▪ LafargeHolcim – Impairment charge of $308 million: a non-cash charge
of €1,443 million at GBL due to the significant decrease of the share price
of LafargeHolcim.
Investors Group.
Pargesa
FI RS T Q UA RTER
▪ Total – Gain on partial disposal of $9 million: GBL disposed of a 0.1% equity
interest in Total.
S ECO N D Q UA RTER
▪ Engie – Impairment charge of $9 million: a non-cash charge at GBL.
▪ Lafarge – Reversal of impairment charges of $80 million: representing the
S ECO N D Q UA RTER
▪ LafargeHolcim – Impairment charge of $52 million: a non-cash charge
of €239 million at GBL as a result of a further decline in the share price
of LafargeHolcim, from €41.28 at March 31, 2016 to €37.10 at June 30, 2016.
partial reversal of previous impairment charges recorded by GBL on its
investment in Lafarge, in connection with the merger with Holcim.
▪ L afarge – Impairment and restructuring charges of $2 3 million:
representing other items recorded by Lafarge, comprised of impairment
charges and charges recorded in connection with the merger with Holcim.
FO U RTH Q UA RTER
▪ Total – Gain on partial disposal of $74 million: GBL disposed of an additional
TH I R D Q UA RTER
0.7% equity interest in Total.
▪ Lafarge – Reversal of impairment charges of $8 million: as described above
▪ Engie – Impairment charge and loss on partial disposal of $6 million: net
for the second quarter.
impact recorded by GBL of a non-cash charge and a loss on partial disposal
FO U RTH Q UA RTER
of a 1.8% equity interest in Engie.
▪ Total – Gain on partial disposal of $48 million: GBL disposed of an additional
0.4% equity interest in Total.
▪ Imerys – Impairment and restructuring charges of $26 million: a charge
representing other items recorded by Imerys, comprised of the impairment
charge on its Oilfield Solutions division and restructuring charges relating
to the integration of S&B’s activities (S&B is a global provider of mineral-
based specialties).
30
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
Financial Position
CONSOLIDATED BALANCE SHEETS (condensed)
The condensed balance sheet of Lifeco and IGM, and Power Financial’s non-consolidated balance sheet are presented below. This table reconciles the non-
consolidated balance sheet, which is not in accordance with IFRS, with the condensed consolidated balance sheet of the Corporation at December 31, 2016.
ASSETS
Cash and cash equivalents
Investments
Investment in Lifeco
Investment in IGM
Investment in Parjointco
Investments in jointly controlled corporations and associates
Funds held by ceding insurers
Reinsurance assets
Other assets
Intangible assets
Goodwill
Interest on account of segregated fund policyholders
Total assets
LIABILITIES
Insurance and investment contract liabilities
Obligations to securitization entities
Debentures and other debt instruments
Other liabilities
Insurance and investment contracts on account
of segregated fund policyholders
Total liabilities
EQUITY
Perpetual preferred shares
Common shareholders’ equity
Non-controlling interests [3, 4]
Total equity
Total liabilities and equity
POWER FINANCIAL
CONSOLIDATED BAL ANCE SHEETS
LIFECO
IGM
AND OTHER [1]
CONSOLIDATION
ADJUSTMENTS
DECEMBER 31,
2016
DECEMBER 31,
2015 [2]
3,259
159,276
−
361
−
259
10,781
5,627
9,997
3,972
5,977
200,403
399,912
157,949
−
5,980
10,572
611
8,208
889
−
−
−
−
−
1,263
1,994
2,660
−
(316)
184
(14,425)
(3,227)
−
33
−
−
(90)
−
637
−
4,396
4,188
167,744
166,012
−
−
2,811
292
10,781
5,627
11,292
5,966
9,274
200,403
−
−
2,610
295
15,512
5,131
10,495
5,983
9,210
198,194
417,630
15,625
(17,204)
418,586
−
7,721
1,325
1,832
−
−
(42)
(142)
157,949
160,745
7,721
7,513
7,092
6,927
12,784
12,392
200,403
374,904
−
10,878
−
200,403
(184)
386,370
198,194
385,350
POWER
FINANCIAL
842
76
13,536
2,866
2,811
−
−
−
122
−
−
−
20,253
−
−
250
522
−
772
2,580
16,901
−
19,481
20,253
2,514
19,488
3,006
25,008
399,912
150
4,597
−
4,747
15,625
(2,664)
(24,085)
9,729
(17,020)
2,580
16,901
12,735
32,216
2,580
16,893
12,807
32,280
(17,204)
418,586
417,630
[1] Consolidation adjustments and other include eliminations and reclassifications.
[2] Comparative figures have been retrospectively adjusted as described in Note 16 to the Corporation’s 2016 Consolidated Financial Statements.
[3] Non-controlling interests for Lifeco includes the Participating Account surplus in subsidiaries.
[4] Non-controlling interests for consolidation adjustments represents non-controlling interests in the equity of Lifeco and IGM.
Total assets of the Corporation increased to $418.6 billion at December 31, 2016,
▪ Insurance and investment contract liabilities decreased by $2.8 billion,
compared with $417.6 billion at December 31, 2015, mainly due to the impact of
primarily due to the strengthening of the Canadian dollar against the
positive market movement and new business growth, mostly offset by the
British pound, euro and U.S. dollar, partially offset by the impact of new
impact of currency movement.
business and fair value adjustments.
Liabilities increased to $386.4 billion at December 31, 2016, compared with
▪ Insurance and investment contract liabilities on account of segregated
$385.4 billion at December 31, 2015, mainly due to the following, as disclosed
fund policyholders increased by $2.2 billion, primarily due to the combined
by Lifeco:
▪ Debentures and other debt instruments increased by $0.6 billion, to
$7,513 million, primarily due to the issuance of a €500 million 10-year senior
bond by Lifeco.
impact of market value gains and investment income of $13.0 billion,
mostly offset by the impact of currency movement of $10.6 billion, and net
withdrawals of $0.5 billion.
31
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
NON- CONSOLIDATED BALANCE SHEETS
In the non-consolidated basis of presentation shown below, Lifeco and IGM are presented by the Corporation using the equity method. These non-
consolidated balance sheets, which are not in accordance with IFRS, enhance the information provided in this review of financial performance and assist
the reader by identifying changes in Power Financial’s non-consolidated balance sheets, which include its investments in Lifeco and IGM accounted for using
the equity method.
DECEMBER 31
ASSETS
Cash and cash equivalents [2]
Investment in Lifeco
Investment in IGM
Investment in Parjointco
Investments (including investments in Portag3 and Wealthsimple)
Other assets
Total assets
LIABILITIES
Debentures
Other liabilities
Total liabilities
EQUITY
Perpetual preferred shares
Common shareholders’ equity
Total equity
Total liabilities and equity
2016
2015 [1]
842
13,536
2,866
2,811
76
122
20,253
250
522
772
2,580
16,901
19,481
20,253
870
13,746
2,808
2,610
55
123
20,212
250
489
739
2,580
16,893
19,473
20,212
[1] Comparative figures have been retrospectively adjusted as described in Note 16 to the Corporation’s 2016 Consolidated Financial Statements.
[2] In these non-consolidated balance sheets, cash equivalents include $341 million ($478 million at December 31, 2015) of fixed income securities with maturities of
more than three months. In accordance with IFRS, these are classified in investments in the 2016 Consolidated Financial Statements.
Cash and cash equivalents
Cash and cash equivalents held by Power Financial amounted to $842 million
Dividends declared in the fourth quarter by IGM and received by the
at December 31, 2016, compared with $870 million at the end of December 2015.
Corporation on January 31, 2017 are included in other assets and amounted
The fourth quarter dividends declared by the Corporation and paid on
to $83 million (see “Non-consolidated Statements of Cash Flows” below
February 1, 2017 are included in other liabilities and amounted to $311 million.
for details).
Investments in Lifeco, IGM and Parjointco
The carrying value of Power Financial’s investments in Lifeco, IGM and Parjointco, accounted for using the equity method, increased to $19,213 million at
December 31, 2016, compared with $19,164 million at December 31, 2015:
Carrying value, at the beginning of the year
Share of adjusted net earnings
Share of other items
Share of other comprehensive income (loss)
Dividends
Other, mainly related to effects of changes in ownership
Carrying value, at December 31, 2016
EQUITY
LIFECO
IGM
PARJOINTCO
TOTAL
13,746
1,790
−
(990)
(926)
(84)
2,808
2,610
452
21
(35)
(333)
(47)
119
(207)
379
(75)
(15)
19,164
2,361
(186)
(646)
(1,334)
(146)
13,536
2,866
2,811
19,213
Preferred shares
Preferred shares of the Corporation consist of 10 series of Non-Cumulative
On February 1, 2016, 2,234,515 of the Corporation’s outstanding 11,200,000 Non-
Fixed Rate First Preferred Shares, two series of Non-Cumulative 5-Year Rate
Cumulative 5-Year Rate Reset First Preferred Shares, Series P were converted,
Reset First Preferred Shares, and two series of Non-Cumulative Floating
on a one-for-one basis, into Non-Cumulative Floating Rate First Preferred
Rate First Preferred Shares, with an aggregate stated capital of $2,580 million
Shares, Series Q.
at December 31, 2016 (same as at December 31, 2015). All series are perpetual
preferred shares and are redeemable in whole or in part solely at the
The terms and conditions of the outstanding First Preferred Shares are described
in Note 17 to the Corporation’s 2016 Consolidated Financial Statements.
Corporation’s option from specified dates.
32
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
Common shareholders’ equity
Common shareholders’ equity was $16,901 million at December 31, 2016, compared with $16,893 million at December 31, 2015:
T WELVE MONTHS ENDED DECEMBER 31
Common shareholders’ equity, at the beginning of the year
Changes in retained earnings
Net earnings before dividends on perpetual preferred shares
Dividends declared
Effects of changes in ownership in subsidiaries and other
Changes in reserves
Other comprehensive income (loss)
Foreign currency translation adjustments
Investment revaluation and cash flow hedges
Actuarial gains (losses) on defined benefit plans
Share of Pargesa’s and other associates
Share-based compensation
Issuance of common shares (30,980 shares in 2016 and 1,515,000 shares in 2015)
under the Corporation’s Employee Stock Option Plan [1]
Common shareholders’ equity at December 31
2016
16,893
2,043
(1,244)
(156)
643
(1,004)
93
(127)
387
15
(636)
1
16,901
2015
14,362
2,449
(1,193)
(137)
1,119
1,370
(184)
105
60
−
1,351
61
16,893
[1] Issued for $49 million in 2015 and including an amount of $12 million representing the cumulative expenses related to these options.
The book value per common share of the Corporation was $23.69 at December 31, 2016, same as at December 31, 2015.
Outstanding number of common shares
As of the date hereof, there were 7 13,288,699 common shares of the
The Corporation filed a short-form base shelf prospectus dated December 7,
Corporation outstanding, compared with 713,238,680 at December 31, 2015. As
2016, pursuant to which, for a period of 25 months thereafter, the Corporation
of the date hereof, options were outstanding to purchase up to an aggregate
may issue up to an aggregate of $3 billion of First Preferred Shares, common
of 10,390,609 common shares of the Corporation under the Corporation’s
shares, subscription receipts and unsecured debt securities, or any
Employee Stock Option Plan.
combination thereof. This filing provides the Corporation with the flexibility
to access debt and equity markets on a timely basis.
Cash Flows
CONSOLIDATED STATEMENTS OF CASH FLOWS (condensed)
The condensed cash flows of Lifeco and IGM, and Power Financial’s non-consolidated cash flows, are presented below. This table reconciles the non-
consolidated statement of cash flows, which is not in accordance with IFRS, to the condensed consolidated statement of cash flows of the Corporation for
the twelve-month period ended December 31, 2016.
T WELVE MONTHS ENDED DECEMBER 31
Cash flows from:
Operating activities
Financing activities
Investing activities
Effect of changes in exchange rates on cash and cash equivalents
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, at the beginning of the year
Cash and cash equivalents, at December 31
POWER FINANCIAL
CONSOLIDATED CASH FLOWS
LIFECO
IGM
CONSOLIDATION
ADJUSTMENTS
AND OTHER
2016
2015
6,254
(1,045)
(4,565)
(198)
446
2,813
3,259
737
(75)
(1,034)
−
(372)
983
611
(1,336)
1,335
163
−
162
(478)
(316)
6,900
(1,015)
(5,479)
(198)
208
4,188
4,396
5,783
(2,039)
(3,844)
299
199
3,989
4,188
POWER
FINANCIAL
1,245
(1,230)
(43)
−
(28)
870
842
Consolidated cash and cash equivalents increased by $208 million in the twelve-month period ended December 31, 2016, compared with an increase of
$199 million in the corresponding period of 2015.
33
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
Operating activities produced a net inflow of $6,900 million in the twelve-
Cash flows from investing activities resulted in a net outflow of $5,479 million
month period ended December 31, 2016, compared with a net inflow
in the twelve-month period ended December 31, 2016, compared with a net
of $5,783 million in the corresponding period of 2015.
outflow of $3,844 million in the corresponding period of 2015.
Cash flows from financing activities, which include dividends paid on the
The Corporation decreased its level of fixed income securities with maturities
common and preferred shares of the Corporation and dividends paid by
of more than three months, resulting in a net inflow of $137 million in the
subsidiaries to non-controlling interests, represented a net outflow of
twelve-month period ended December 31, 2016, compared with a net inflow
$1,015 million in the twelve-month period ended December 31, 2016, compared
of $33 million in the corresponding period of 2015.
with a net outflow of $2,039 million in the corresponding period of 2015.
NON- CONSOLIDATED STATEMENTS OF CASH FLOWS
As Power Financial is a holding company, corporate cash flows are primarily comprised of dividends received from Lifeco, IGM and Parjointco and income (loss)
from cash and cash equivalents, less operating expenses, financing charges, income taxes, and preferred and common share dividends.
The following non-consolidated statement of cash flows of the Corporation, which is not presented in accordance with IFRS, has been prepared to assist the
reader as it isolates the cash flows of Power Financial, the parent company.
T WELVE MONTHS ENDED DECEMBER 31
OPERATING ACTIVITIES
Net earnings before dividends on perpetual preferred shares
Adjusting items
Earnings from Lifeco, IGM and Parjointco not received in cash
Loss from investments in Portag3 and Wealthsimple
Other
FINANCING ACTIVITIES
Dividends paid on preferred shares
Dividends paid on common shares
Issuance of common shares
INVESTING ACTIVITIES
Investments in Portag3 and Wealthsimple
Purchase of other investments and other
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents, at the beginning of the year
Cash and cash equivalents, at December 31
2016
2015
2,043
(841)
21
22
1,245
(125)
(1,106)
1
(1,230)
(27)
(16)
(43)
(28)
870
842
2,449
(1,251)
3
28
1,229
(130)
(1,046)
49
(1,127)
(17)
(1)
(18)
84
786
870
On a non-consolidated basis, cash and cash equivalents decreased by
▪ Pargesa declares and pays an annual dividend in the second quarter ending
$28 million in the twelve-month period ended December 31, 2016, compared
June 30. The dividend paid by Pargesa to Parjointco in 2016 amounted to
with an increase of $84 million in the corresponding period in 2015.
SF2.38 per bearer share, compared with SF2.27 in 2015. The Corporation
Operating activities produced a net inflow of $1,245 million in the twelve-
month period ended December 31, 2016, compared with a net inflow of
$1,229 million in the corresponding period in 2015.
▪ Dividends declared by Lifeco on its common shares during the twelve-
month period ended December 31, 2016 were $1.3840 per share, compared
with $1.3040 in the corresponding period of 2015. In the twelve-month
received dividends of $75 million (SF56 million) from Parjointco in 2016,
compared with $69 million (SF53 million) in the corresponding period
of 2015.
The Corporation’s financing activities during the twelve-month period ended
December 31, 2016 were a net outflow of $1,230 million, compared with a net
outflow of $1,127 million in the corresponding period in 2015, and included:
period ended December 31, 2016, the Corporation recorded dividends from
▪ Dividends paid on preferred and common shares by the Corporation of
Lifeco of $926 million, compared with $873 million in the corresponding
$1,231 million, compared with $1,176 million in the corresponding period
period of December 31, 2015. On February 9, 2017, Lifeco announced a 6%
of 2015. In the twelve-month period ended December 31, 2016, dividends
increase in the quarterly dividend on its common shares, from $0.3460 to
declared on the Corporation’s common shares were $1.57 per share,
$0.3670 per share, payable March 31, 2017.
compared with $1.49 per share in the corresponding period of 2015.
▪ Dividends declared by IGM on its common shares during the twelve-
▪ Issuance of common shares of the Corporation for $1 million pursuant to
month period ended December 31, 2016 were $2.25 per share, the same
the Corporation’s Employee Stock Option Plan, compared with an issuance
as in the corresponding period of 2015. In the twelve-month period
for an amount of $49 million in the corresponding period of 2015.
ended December 31, 2016, the Corporation received dividends from IGM
of $333 million, the same as in the corresponding period of 2015.
The Corporation’s investing activities during the twelve-month period ended
December 31, 2016 represented a net outflow of $43 million, compared with
a net outflow of $18 million in the corresponding period of 2015.
34
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
Capital Management
As a holding company, Power Financial’s objectives in managing its capital
capital plans. The Board of Directors of the Corporation reviews and approves
are to:
▪ provide attractive long-term returns to shareholders of the Corporation;
▪ provide sufficient financial flexibility to pursue its growth strategy to invest
on a timely basis in its operating companies and other investments as
opportunities present; and
▪ maintain an appropriate credit rating to ensure stable access to
capital markets.
The Corporation manages its capital taking into consideration the risk
characteristics and liquidity of its holdings. In order to maintain or adjust its
capital structure, the Corporation may adjust the amount of dividends paid
to shareholders, return capital to shareholders or issue capital.
capital transactions such as the issuance, redemption and repurchase of
common shares, perpetual preferred shares and debentures. The boards of
directors of the Corporation’s subsidiaries, as well as those of Pargesa and
GBL, are responsible for their respective company’s capital management.
The Corporation has positions in long-term investments as well as cash
and fixed income securities for liquidity purposes. With the exception
of debentures and other debt instruments, the Corporation’s capital
is permanent, matching the long-term nature of its investments. The capital
structure of the Corporation consists of perpetual preferred shares,
debentures, common shareholders’ equity, and non-controlling interests.
The Corporation views perpetual preferred shares as a permanent and
cost-effective source of capital consistent with its strategy of maintaining
The Board of Directors of the Corporation is responsible for capital
a relatively low level of debt.
management. Management of the Corporation is responsible for establishing
capital management procedures and for implementing and monitoring its
In the following table, consolidated capitalization reflects the consolidation of the Corporation’s subsidiaries. The Corporation’s consolidated capitalization
includes the debentures and other debt instruments of its consolidated subsidiaries. Debentures and other debt instruments issued by Lifeco and IGM are
non-recourse to the Corporation. Perpetual preferred shares and total equity accounted for 81% of consolidated capitalization at December 31, 2016.
DECEMBER 31
2016
2015
DEBENTURES AND OTHER DEBT INSTRUMENTS
Power Financial
Lifeco
IGM
Consolidation adjustments
PREFERRED SHARES
Power Financial
Lifeco
IGM
EQUITY
Common shareholders’ equity
Non-controlling interests [1]
250
5,980
1,325
(42)
7,513
2,580
2,514
150
5,244
16,901
10,071
26,972
39,729
250
5,395
1,325
(43)
6,927
2,580
2,514
150
5,244
16,893
10,143
27,036
39,207
[1] Represents the non-controlling equity interests of the Corporation’s subsidiaries excluding Lifeco and IGM’s preferred shares, which are shown in this table as
preferred shares.
In January 2017, IGM issued $400 million of 10-year 3.44% debentures and
$200 million of 30-year 4.56% debentures. The net proceeds will be used
RATINGS
The current rating by Standard & Poor’s (S&P) of the Corporation’s debentures
by IGM to assist its subsidiary, Mackenzie Investments, in financing a
is “A+” with a stable outlook. Dominion Bond Rating Service’s (DBRS) current
substantial portion of the acquisitions of a 13.9% interest in China AMC,
rating on the Corporation’s debentures is “A (High)” with a stable rating trend.
a fund management company in China, and for general corporate purposes.
Credit ratings are intended to provide investors with an independent measure
On February 8, 2017, Irish Life Assurance, a subsidiary of Lifeco, redeemed its
of the credit quality of the securities of a corporation and are indicators
5.25% €200 million subordinated debenture notes at their principal amount
of the likelihood of payment and the capacity of a corporation to meet its
together with accrued interest.
The Corporation is not subject to externally imposed regulatory capital
requirements; however, Lifeco and certain of its main subsidiaries and IGM’s
subsidiaries are subject to regulatory capital requirements.
obligations in accordance with the terms of each obligation. Descriptions
of the rating categories for each of the agencies set forth below have been
obtained from the respective rating agencies’ websites. These ratings are not
a recommendation to buy, sell or hold the securities of the Corporation 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 organization.
35
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
The “A+” rating assigned to the Corporation’s debentures by S&P is the fifth
The “A (High)” rating assigned to the Corporation’s debentures by DBRS is the
highest of the 22 ratings used for long-term debt. A long-term debenture
fifth highest of the 26 ratings used for long-term debt. A long-term debenture
rated “A+” is somewhat more susceptible to the adverse effects of changes
rated “A (High)” implies that the capacity for the repayment is substantial,
in circumstances and economic conditions than obligations in higher-rated
but of lesser credit quality than AA, and may be vulnerable to future events,
categories; however, the obligor’s capacity to meet its financial commitment
although qualifying negative factors are considered manageable.
on the obligation is still strong.
Risk Management
Power Financial is a holding company that holds substantial interests in the
have often been unrelated to the operating performance, underlying asset
financial services sector through its controlling interest in each of Lifeco
values or prospects of such companies. These factors may cause decreases
and IGM. As a result, the Corporation bears the risks associated with being
in asset values that are deemed to be significant or prolonged, which may
a significant shareholder of these operating companies. The respective
result in impairment charges. In periods of increased levels of volatility and
boards of directors of Lifeco, IGM, Pargesa and GBL are responsible for the risk
related market turmoil, Power Financial subsidiaries’ operations could be
oversight function at their respective companies. The risk committee of the
adversely impacted and the trading price of Power Financial’s securities may
board of directors of Lifeco is responsible for its risk oversight, and the board
be adversely affected.
of directors of IGM provides oversight and carries out its risk management
mandate through various committees. Certain officers of the Corporation are
members of these boards and committees of these boards and, consequently,
in their role as directors, they participate in the risk oversight function at the
operating companies. Pargesa, a holding company, is also subject to risks
due to the nature of its activities and also those of its direct subsidiary GBL.
These risks relate to credit, liquidity and market risk as described in Pargesa’s
consolidated financial statements for the year ended December 31, 2016.
The Corporation believes that a prudent approach to risk is achieved through
a governance model that focuses on the active oversight of its investments.
The Board of Directors of the Corporation has overall responsibility for
operational risks associated with financial instruments and for monitoring
management’s implementation and maintenance of policies and controls to
manage risks associated with the Corporation’s business as a holding company.
LAWS, RULES AND REGULATIONS
There are many laws, governmental rules and regulations, and stock exchange
rules that apply to the Corporation. Changes in these laws, rules and
regulations, or their interpretation by governmental agencies or the courts,
could have a significant effect on the business and the financial condition of
the Corporation. The Corporation, in addition to complying with these laws,
rules and regulations, must also monitor them closely so that changes therein
are taken into account in the management of its activities.
CYBERSECURITY
The Corporation is exposed to risks relating to cybersecurity, in particular
cyber threats, which include cyber-attacks such as, but not limited to,
hacking, computer viruses, unauthorized access to confidential, proprietary or
sensitive information or other breaches of network or Information Technology
The Board of Directors provides oversight and carries out its risk management
(“IT”) security, which are constantly evolving. The Corporation continues to
mandate primarily through the following committees:
▪ The Audit Committee addresses risks related to financial reporting
and cybersecurity.
▪ The Compensation Committee considers risks associated with the
Corporation’s compensation policies and practices.
▪ The Governance and Nominating Committee oversees the Corporation’s
approach to appropriately address potential risks related to governance
matters.
▪ The Related Party and Conduct Review Committee considers the risks
related to transactions with related parties of the Corporation.
There are certain risks inherent in an investment in the securities of the
Corporation and in the activities of the Corporation, including the following
monitor and enhance its defences and procedures to prevent, detect, respond
to and manage cybersecurity threats. Consequently, the Corporation’s IT
defences are continuously monitored and adapted to both prevent and detect
cyber-attacks, and then recover and remediate. Unavailability or breaches
could result in a negative impact on the Corporation’s financial results or
result in reputational damage.
FINANCIAL INSTRUMENTS RISK
Power Financial has established policies, guidelines and procedures designed
to identify, measure, monitor and mitigate material risks associated with
financial instruments. The key risks related to financial instruments are
liquidity risk, credit risk and market risk.
▪ Liquidity risk is the risk that the Corporation will not be able to meet all
risks and others discussed elsewhere in this review of financial performance,
cash outflow obligations as they come due.
which investors should carefully consider before investing in securities of the
▪ Credit risk is the potential for financial loss to the Corporation if a
Corporation. The following is a review of certain risks that could impact the
counterparty in a transaction fails to meet its obligations.
financial condition and financial performance, and the value of the equity of
the Corporation. This description of risks does not include all possible risks,
and there may be other risks of which the Corporation is not currently aware.
▪ Market risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate as a result of changes in market factors. Market
factors include three types of risks: currency risk, interest rate risk and
OWNERSHIP OF COMMON AND PREFERRED SHARES
The share price of Power Financial and its subsidiaries may be volatile
and subject to fluctuations in response to numerous factors beyond
Power Financial’s and such subsidiaries’ control. Economic conditions may
equity price risk.
▪ Currency risk relates to the Corporation operating in different currencies
and converting non-Canadian earnings at different points in time at
different foreign exchange levels when adverse changes in foreign
adversely affect Power Financial and its subsidiaries, including fluctuations
currency exchange rates occur.
in foreign exchange, inflation and interest rates, as well as monetary policies,
▪ Interest rate risk is the risk that the fair value of future cash flows of a
business investment and the health of capital markets in Canada, the United
financial instrument will fluctuate because of changes in the market
States and Europe. In recent years, financial markets have experienced
interest rates.
significant price and volume fluctuations that have affected the market prices
of equity securities held by the Corporation and its subsidiaries and that
▪ Equity price risk is the uncertainty associated with the valuation of
assets arising from changes in equity markets.
36
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
Liquidity Risk
As a holding company, Power Financial’s ability to meet its obligations,
Fixed income securities, which are included in investments and in cash
and cash equivalents, consist primarily of bonds, bankers’ acceptances and
including payment of interest, other operating expenses and dividends,
highly liquid temporary deposits with Canadian chartered banks and banks
and to complete current or desirable future enhancement opportunities or
in jurisdictions where Power Financial operates as well as bonds and short-
acquisitions generally depends upon dividends from its principal subsidiaries
term securities of, or guaranteed by, the Canadian or U.S. governments.
(Lifeco and IGM) and Pargesa, and its ability to raise additional capital.
Power Financial regularly reviews the credit ratings of its counterparties.
Dividends to shareholders of Power Financial will be dependent on the
The maximum exposure to credit risk on these financial instruments is their
operating performance, profitability, financial position and creditworthiness
carrying value.
of the subsidiaries of Power Financial and on their ability to pay dividends
to Power Financial. The ability of Lifeco and IGM, which are also holding
companies, to meet their obligations and pay dividends is dependent upon
receipt of dividends from their subsidiaries. The payment of interest and
dividends by Lifeco’s principal subsidiaries is subject to restrictions set out
in relevant corporate and insurance laws and regulations, which require
Derivatives continue to be used on a basis consistent with the risk
management guidelines of Power Financial and are monitored by the
Corporation for effectiveness as economic hedges even if specific hedge
accounting requirements are not met. Power Financial regularly reviews the
credit ratings of derivative financial instrument counterparties. Derivative
contracts are over-the-counter with counterparties that are highly rated
that solvency and capital ratios be maintained. The payment of interest and
financial institutions.
dividends by IGM’s principal subsidiaries is subject to corporate laws and
regulations which require that solvency standards be maintained. In addition,
certain subsidiaries of IGM must also comply with capital and liquidity
requirements established by regulatory authorities.
Power Financial’s exposure to and management of credit risk related to
cash and cash equivalents, fixed income securities and derivatives have not
changed materially since December 31, 2015.
Power Financial regularly reviews its liquidity requirements and seeks
to maintain a sufficient level of liquidity to meet its operating expenses,
Market Risk
Power Financial’s financial instruments are comprised of cash and cash
financing charges and payment of preferred share dividends for a reasonable
equivalents, fixed income securities, derivatives and debentures.
period of time. The ability of Power Financial to arrange additional financing
in the future will depend in part upon prevailing market conditions as well as
C U R R EN C Y R I S K
the business performance of Power Financial and its subsidiaries. Although
the Corporation has been able to access capital on financial markets in the
past, there can be no assurance this will be possible in the future. The inability
of Power Financial to access sufficient capital on acceptable terms could
have a material adverse effect on Power Financial’s business, prospects,
dividend paying capability and financial condition, and further enhancement
opportunities or acquisitions.
In managing its own cash and cash equivalents and fixed income securities,
Power Financial may hold cash balances denominated in foreign currencies
and thus be exposed to fluctuations in exchange rates. In order to protect
against such fluctuations, Power Financial may from time to time enter
into currency-hedging transactions with highly rated financial institutions.
As at December 31, 2016, approximately 90% of Power Financial’s cash
and cash equivalents and fixed income securities were denominated in
Power Financial’s management of liquidity risk has not changed materially
Canadian dollars.
since December 31, 2015.
Credit Risk
Fixed income securities and derivatives are subject to credit risk. Power Financial
mitigates credit risk on its fixed income securities by adhering to an
investment policy that establishes guidelines which provide exposure limits
by defining admissible securities, minimum rating and concentration limits.
Power Financial is exposed through Parjointco to foreign exchange risk as
a result of Parjointco’s investment in Pargesa, a company whose functional
currency is the Swiss franc. Foreign currency translation gains and losses from
Pargesa are recorded in other comprehensive income.
I NTER E S T R ATE R I S K
Power Financial’s financial instruments do not have significant exposure to
interest rate risk.
EQ U IT Y P R I C E R I S K
Power Financial’s financial instruments do not have significant exposure to
equity price risk.
Power Financial’s management of financial instruments risk has not changed materially since December 31, 2015. Lifeco’s and IGM’s management of financial
instruments risk has also not changed materially since December 31, 2015. For a further discussion of Power Financial’s, Lifeco’s and IGM’s financial instruments
risk management, refer to Note 21 to the Corporation’s 2016 Consolidated Financial Statements.
Financial Instruments and Other Instruments
FAIR VALUE MEASUREMENT
Fair value represents the amount that would be exchanged in an arm’s-length
▪ Level 1 inputs utilize observable, unadjusted quoted prices in active
transaction between willing parties and is best evidenced by a quoted market
markets for identical assets or liabilities that the Corporation has the
price, if one exists. Fair values represent management’s estimates and are
ability to access.
generally calculated using market information and at a specific point in time
and may not reflect future fair values. The calculations are subjective in nature,
involve uncertainties and matters of significant judgment.
The Corporation’s assets and liabilities recorded at fair value and those for
which fair value is disclosed have been categorized based upon the following
▪ 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.
fair value hierarchy:
37
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
In certain cases, the inputs used to measure fair value may fall into
The following table presents the carrying amounts and fair value of the
different levels of the fair value hierarchy. In such cases, the level in the fair
Corporation and its subsidiaries’ assets and liabilities recorded or disclosed at
value hierarchy within which the fair value measurement falls has been
fair value. The table distinguishes between assets and liabilities recorded on a
determined based on the lowest level input that is significant to the fair
recurring basis and those for which fair value is disclosed. The table excludes
value measurement. The Corporation and its subsidiaries’ assessment of
fair value information for financial assets and financial liabilities not measured
the significance of a particular input to the fair value measurement requires
at fair value if the carrying amount is a reasonable approximation of the fair
judgment and considers factors specific to the asset or liability.
value. Items excluded are: cash and cash equivalents, dividends, interest
AT DECEMBER 31
ASSETS
Assets recorded at fair value
Bonds
Fair value through profit or loss
Available for sale
Mortgage loans
Fair value through profit or loss
Shares
Fair value through profit or loss
Available for sale
Investment properties
Funds held by ceding insurers
Derivative instruments
Other assets
Assets disclosed at fair value
Bonds
Loans and receivables
Mortgage loans
Loans and receivables
Shares
Available for sale [1]
Total assets recorded or disclosed at fair value
LIABILITIES
Liabilities recorded at fair value
Investment contract liabilities
Derivative instruments
Other liabilities
Liabilities disclosed at fair value
Obligations to securitization entities
Debentures and other debt instruments
Capital trust debentures
Deposits and certificates
Total liabilities recorded or disclosed at fair value
and accounts receivable, loans to policyholders, certain other financial
assets, accounts payable, dividends and interest payable and certain other
financial liabilities.
CARRYING
VALUE
2016
FAIR
VALUE
CARRYING
VALUE
2015
FAIR
VALUE
88,283
11,819
88,283
11,819
86,460
12,014
86,460
12,014
339
339
384
384
7,673
182
4,340
8,605
572
516
7,673
182
4,340
8,605
572
516
6,692
63
5,237
13,652
520
599
6,692
63
5,237
13,652
520
599
122,329
122,329
125,621
125,621
16,970
18,484
16,905
18,253
29,295
30,418
29,029
30,712
376
376
534
534
46,641
49,278
46,468
49,499
168,970
171,607
172,089
175,120
2,009
2,050
10
4,069
7,721
7,513
161
471
15,866
19,935
2,009
2,050
10
4,069
7,873
8,313
212
472
16,870
20,939
2,253
2,682
4
2,253
2,682
4
4,939
4,939
7,092
6,927
161
310
14,490
19,429
7,272
7,964
215
312
15,763
20,702
[1] Fair value of certain shares available for sale cannot be reliably measured, therefore these investments are recorded at cost.
See Note 26 to the Corporation’s 2016 Consolidated Financial Statements for additional disclosure of the Corporation’s fair value measurement
at December 31, 2016.
38
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
DERIVATIVE FINANCIAL INSTRUMENTS
In the course of their activities, the Corporation and its subsidiaries use
operating policies, guidelines and procedures relating to the use of derivative
derivative financial instruments. When using such derivatives, they only act
financial instruments, which in particular focus on:
as limited end-users and not as market makers in such derivatives.
▪ prohibiting the use of derivative instruments for speculative purposes;
The use of derivatives is monitored and reviewed on a regular basis by
senior management of the Corporation and by senior management of its
subsidiaries. The Corporation and its subsidiaries have each established
▪ documenting transactions and ensuring their consistency with risk
management policies;
▪ demonstrating the effectiveness of the hedging relationships; and
▪ monitoring the hedging relationships.
There were no major changes to the Corporation and its subsidiaries’ policies and procedures with respect to the use of derivative instruments in the twelve-
month period ended December 31, 2016. The following table provides a summary of the Corporation and its subsidiaries’ derivatives portfolio:
DECEMBER 31
Power Financial
Lifeco
IGM
2016
2015
NOTIONAL
14
17,229
4,094
21,337
MA XIMUM
CREDIT RISK
TOTAL
FAIR VALUE
1
528
43
572
1
(1,484)
5
(1,478)
NOTIONAL
11
16,712
2,702
19,425
MA XIMUM
CREDIT RISK
TOTAL
FAIR VALUE
1
461
58
520
1
(2,163)
−
(2,162)
In 2016, there was an increase of $1.9 billion in the notional amount outstanding and an increase in the maximum credit risk (this represents the market
value of instruments in a gain position), primarily as a result of regular hedging activities, partially offset by the impact of currency movement for foreign-
denominated derivatives as the Canadian dollar strengthened against the British pound, euro and U.S. dollar.
See Note 25 to the Corporation’s 2016 Consolidated Financial Statements for additional information.
Off-Balance Sheet Arrangements
GUARANTEES
In the normal course of their operations, the Corporation and its subsidiaries
LETTERS OF CREDIT
In the normal course of its reinsurance business, Lifeco provides letters
may enter into certain agreements, the nature of which precludes the
of credit to other parties or beneficiaries. A beneficiary will typically hold
possibility of making a reasonable estimate of the maximum potential
a letter of credit as collateral in order to secure statutory credit for insurance
amount the Corporation or subsidiary could be required to pay third parties,
and investment contract liabilities ceded to or amounts due from Lifeco.
as some of these agreements do not specify a maximum amount and
Lifeco may be required to seek collateral alternatives if it is unable to renew
the amounts are dependent on the outcome of future contingent events,
existing letters of credit on maturity. See Note 31 to the Corporation’s 2016
the nature and likelihood of which cannot be determined.
Consolidated Financial Statements.
Contingent Liabilities
The Corporation and its subsidiaries are from time to time subject to legal actions, including arbitrations and class actions, arising in the normal course
of business. 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 Corporation. 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 Corporation.
39
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
Commitments and Contractual Obligations
PAYMENTS DUE BY PERIOD
Debentures and other debt instruments [1]
Obligations to securitization entities
Capital trust debentures
Deposits and certificates
Operating leases [2]
Purchase obligations [3]
Pension contributions [4]
Contractual commitments [5]
Total
Power Financial [6]
Lifeco
IGM [7]
Total
LESS THAN
1 YEAR
1–5 YEARS
MORE THAN
5 YEARS
712
1,340
−
462
147
108
324
1,084
4,177
7
2,292
1,878
4,177
1,225
6,311
−
7
383
172
−
88
5,609
70
150
2
317
3
−
−
8,186
6,151
6
1,252
6,928
8,186
251
5,028
872
6,151
TOTAL
7,546
7,721
150
471
847
283
324
1,172
18,514
264
8,572
9,678
18,514
[1] Please refer to Note 14 to the Corporation’s 2016 Consolidated Financial Statements for further information.
[2] Includes office space and equipment used in the normal course of business. Lease payments are charged to operations over the period of use.
[3] Purchase obligations are commitments of Lifeco to acquire goods and services, primarily related to information services.
[4] Pension contributions include post-retirement benefits and 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 one year are excluded due to variability
on the assumptions required to project the timing of future contributions.
[5] Represents commitments by Lifeco. These contractual commitments are essentially commitments to investment transactions made in the normal course
of operations, in accordance with its policies and guidelines, which are to be disbursed upon fulfilment of certain contract conditions.
[6] Includes debentures of the Corporation of $250 million.
[7] Subsequent to year-end, IGM issued $400 million of 10-year 3.44% debentures and $200 million of 30-year 4.56% debentures.
Income Taxes (Non-Consolidated Basis)
The Corporation had, at December 31, 2016, non-capital losses of $99 million available to reduce future taxable income (including capital gains). These losses
expire from 2028 to 2036. In addition, the Corporation has capital losses of $84 million that can be used indefinitely. Capital losses can only be used to reduce
future capital gains. See also “Transactions with Related Parties” below.
Transactions with Related Parties
Power Financial has a Related Party and Conduct Review Committee
IGM enters into transactions with subsidiaries of Lifeco. These transactions
composed entirely of Directors who are independent of management and
are in the normal course of operations and include (i) providing certain
independent of the Corporation’s controlling shareholder. The mandate
administrative services, (ii) distributing insurance products and (iii) the sale of
of this Committee is to review proposed transactions with related parties of
residential mortgages to Great-West Life and London Life. These transactions
the Corporation, including its controlling shareholder, and to approve only
are at market terms and conditions and are reviewed by the appropriate
those transactions that it deems appropriate and that are done at market
related party and conduct review committee.
terms and conditions.
In 2013, the Board of Directors of the Corporation approved a tax loss
In the normal course of business, Great-West Life and Putnam enter into
consolidation program with IGM. This program allows Power Financial to
various transactions with related companies which include providing group
generate sufficient taxable income to use its non-capital losses which would
insurance benefits and sub-advisory services to other companies within the
otherwise expire, while IGM receives tax deductions which are used to reduce
Power Financial group of companies. Such transactions are at market terms
its taxable income.
and conditions. These transactions are reviewed by the appropriate related
party and conduct review committee.
As of December 31, 2016, under this program, the Corporation owned $2 billion
of 4.50% secured debentures of IGM. These debentures represent the
Lifeco provides asset management and administrative services for employee
consideration obtained from the sale to IGM of $2 billion of 4.51% preferred
benefit plans relating to pension and other post-employment benefits
shares issued to Power Financial from a wholly owned subsidiary. The
for employees of Power Financial, and Lifeco and its subsidiaries. These
Corporation has legally enforceable rights to settle these financial instruments
transactions are at market terms and conditions and are reviewed by the
on a net basis and the Corporation intends to exercise these rights.
appropriate related party and conduct review committee.
See Note 29 to the Corporation’s 2016 Consolidated Financial Statements for
more information.
40
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
Summary of Critical Accounting Estimates and Judgments
In the preparation of the financial statements, management of the
Corporation and the managements of its subsidiaries – Lifeco and IGM – are
FAIR VALUE MEASUREMENT
The carrying values of financial assets necessarily reflect the prevailing market
required to make significant judgments, estimates and assumptions that
liquidity and the liquidity premiums embedded in the market pricing methods
affect the reported amounts of assets, liabilities, net earnings, comprehensive
that the Corporation and its subsidiaries rely upon.
income and related disclosures. Key sources of estimation uncertainty and
areas where significant judgments are made by the management of the
Corporation and the managements of its subsidiaries include: the entities
to be consolidated, insurance and investment contract liabilities, fair value
measurements, investment impairment, goodwill and intangible assets,
income taxes and employee future benefits. These are described in the Notes
to the Corporation’s 2016 Consolidated Financial Statements.
CONSOLIDATION
Management of the Corporation consolidates all subsidiaries and entities in
which it has determined that the Corporation has control. Control is evaluated
according to the ability of the Corporation to direct the relevant activities of
the subsidiaries or other structured entities in order to derive variable returns.
Management of the Corporation and of each of its subsidiaries exercise
judgment in determining whether control exists. Judgment is exercised in the
evaluation of the variable returns and in determining the extent to which
the Corporation or its subsidiaries have the ability to exercise their power
to affect variable returns.
INSURANCE AND INVESTMENT
CONTRACT LIABILITIES
Insurance contract liabilities represent the amounts required, in addition
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 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 determine
fair value.
Bonds at fair value through profit or loss
and available for sale
Fair values for bonds recorded at 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. The Corporation and
its subsidiaries maximize the use of observable inputs and minimize the
use of unobservable inputs when measuring fair value. The Corporation
and its subsidiaries obtain quoted prices in active markets, when available,
for identical assets at the balance sheet dates to measure bonds at fair value
in its fair value through profit or loss and available-for-sale portfolios. Where
prices are not quoted in a normally active market, fair values are determined
by valuation models.
to future premiums and investment income, to provide for future benefit
The Corporation and its subsidiaries estimate the fair value of bonds not
payments, policyholder dividends, commission and policy administrative
traded in active markets by referring to actively traded securities with similar
expenses for all insurance and annuity policies in force with Lifeco. The
attributes, dealer quotations, matrix pricing methodology, discounted cash
Appointed Actuaries of Lifeco’s subsidiaries are responsible for determining
flow analyses and/or internal valuation models. This methodology considers
the amount of the liabilities in order to make appropriate provisions for Lifeco’s
factors such as the issuer’s industry, the security’s rating, term, coupon rate
obligations to policyholders. The Appointed Actuaries determine the liabilities
and position in the capital structure of the issuer, as well as yield curves, credit
for insurance and investment contracts using generally accepted actuarial
curves, prepayment rates and other relevant factors. For bonds that are not
practices, according to the standards established by the Canadian Institute
traded in active markets, valuations are adjusted to reflect illiquidity, and such
of Actuaries. The valuation uses the Canadian Asset Liability Method (CALM).
adjustments are generally based on available market evidence. In the absence
This method involves the projection of future events in order to determine
of such evidence, management’s best estimate is used.
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 and 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.
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.
Additional details regarding these estimates can be found in Note 12 to the
Corporation’s 2016 Consolidated Financial Statements.
Shares at fair value through profit or loss
and available for sale
Fair values for publicly traded shares are generally determined by the last
bid price for the security from the exchange where it is principally traded.
Fair values for shares for which there is no active market are 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 Corporation and its
subsidiaries maximize the use of observable inputs and minimize the use
of unobservable inputs when measuring fair value. The Corporation and
its subsidiaries obtain quoted prices in active markets, when available,
for identical assets at the balance sheet dates to measure shares at fair value
in its fair value through profit or loss and available-for-sale portfolios.
Mortgage loans and bonds classified as loans and receivables
The fair values disclosed for bonds and mortgage loans, 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.
41
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
Investment properties
Fair values for investment properties are determined using independent
qualified appraisal services and include adjustments by Lifeco management
PENSION PLANS AND OTHER
POST-EMPLOYMENT BENEFITS
The Corporation and its subsidiaries maintain funded defined benefit
for material changes in proper ty cash flows, capital expenditures
pension plans for certain employees and advisors, unfunded supplementary
or general market conditions in the interim period between appraisals.
employee retirement plans (SERP) for certain employees, and unfunded post-
The determination of the fair value of investment properties requires the use
employment health, dental and life insurance benefits to eligible employees,
of estimates including future cash flows (such as future leasing assumptions,
advisors and their dependants. The Corporation’s subsidiaries also maintain
rental rates, capital and operating expenditures) and discount, reversionary
defined contribution pension plans for eligible employees and advisors.
and overall capitalization rates applicable to the asset based on current
market conditions. Investment properties under construction are valued
at fair value if such values can be reliably determined; otherwise, they are
recorded at cost.
INVESTMENT IMPAIRMENT
Investments are reviewed regularly on an individual basis at the end of each
reporting period to determine whether there is any objective evidence that
the investment is impaired. The Corporation and its subsidiaries consider
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 collection. 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.
The defined benefit pension plans provide pensions based on length of
service and final average earnings. Expenses for defined benefit plans are
actuarially determined using the projected unit credit method prorated on
service based upon management of the Corporation and of its subsidiaries’
assumptions about discount rates, compensation increases, retirement ages
of employees, mortality and expected health care costs. Any changes in these
assumptions will impact the carrying amount of defined benefit obligations.
The Corporation and its subsidiaries’ accrued benefit liability in respect of
defined benefit plans is calculated separately for each plan by discounting the
amount of the benefit that employees have earned in return for their service
in current and prior periods and deducting the fair value of any plan assets.
▪ The Corporation and its subsidiaries determine the net interest component
of the pension expense for the period by applying the discount rate used to
measure the accrued benefit liability at the beginning of the annual period
to the net accrued benefit liability. The discount rate used to value liabilities
is determined by reference to market yields on high-quality corporate bonds.
▪ If the plan benefits are changed, or a plan is curtailed, any past service costs
or curtailment gains or losses are recognized immediately in net earnings.
For impaired mortgage loans and bonds classified as loans and receivables,
provisions are established or impairments recorded to adjust the carrying
▪ Net interest costs, current service costs, past service costs and curtailment
gains or losses are included in operating and administrative expenses.
value to the net realizable amount. Wherever possible the fair value of
▪ Remeasurements arising from defined benefit plans represent actuarial
collateral underlying the loans or observable market price is used to establish
gains and losses, and the actual return on plan assets, less interest calculated
net realizable value. For impaired available-for-sale bonds, the accumulated
at the discount rate and changes in the asset ceiling. Remeasurements are
loss recorded in other comprehensive income is reclassified to net investment
recognized immediately through other comprehensive income and are not
income. Impairments on available-for-sale debt instruments are reversed if
reclassified to net earnings.
there is objective evidence that a permanent recovery has occurred. As well,
when determined to be impaired, interest is no longer accrued and previous
interest accruals are reversed to net investment income.
▪ The accrued benefit asset (liability) represents the plan surplus (deficit).
▪ Payments to the defined contribution plans are expensed as incurred.
Impairment losses on available-for-sale shares are recorded to net investment
INCOME TAXES
income if the loss is significant or prolonged. Subsequent losses are also
recorded directly in net investment income.
GOODWILL AND INDEFINITE LIFE
INTANGIBLES IMPAIRMENT TESTING
Goodwill and indefinite life intangible assets are tested for impairment
Current income tax
Current income tax is based on taxable income for the year. Current 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 rates that have been enacted or substantively enacted at the
annually or more frequently if events indicate that impairment may have
balance sheet date. Current tax assets and current tax liabilities are offset if
occurred. Indefinite life intangible assets that were previously impaired are
a legally enforceable right exists to offset the recognized amounts and the
reviewed at each reporting date for evidence of reversal.
entity intends either to settle on a net basis or to realize the assets and settle
Goodwill and indefinite life intangible assets have been allocated to cash
the liabilities simultaneously.
generating units or to groups of cash generating units (CGU), representing
A provision for tax uncertainties which meets the probable threshold for
the lowest level that the assets are monitored for internal reporting purposes.
recognition is measured based on the probability-weighted average approach.
Goodwill and indefinite life intangible assets are tested for impairment
by comparing the carrying value of the CGU to the recoverable amount
of the CGU to which the goodwill and indefinite life intangible assets have
been allocated.
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 cost of disposal or value in use, which is
calculated using the present value of estimated future cash flows expected
to be generated.
42
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
Deferred income tax
Deferred income tax is the tax expected to be payable or recoverable on
Deferred 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
differences arising between the carrying amounts of assets and liabilities
tax rates and tax laws that have been enacted or substantively enacted at the
in the financial statements and the corresponding tax basis used in the
balance sheet date. Deferred tax assets and deferred tax liabilities are offset
computation of taxable income and on unused tax attributes, and is
if a legally enforceable right exists to net current tax assets against current
accounted for using the balance sheet liability method. Deferred tax liabilities
tax liabilities and the deferred taxes relate to the same taxable entity and the
are generally recognized for all taxable temporary differences and deferred
same taxation authority.
tax assets are recognized to the extent that it is probable that future taxable
profits will be available against which deductible temporary differences and
unused tax attributes can be utilized.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
future taxable profits will be available to allow all or part of the deferred
Recognition of a deferred tax asset is based on the fact that it is probable
tax asset to be utilized. Unrecognized deferred tax assets are reassessed
that the entity will have taxable profits and/or tax planning opportunities
at each balance sheet date and are recognized to the extent that it has
available to allow the deferred income tax asset to be utilized. Changes in
become probable that future taxable profits will allow the deferred tax asset
circumstances in future periods may adversely impact the assessment of
to be recovered.
the recoverability. The uncertainty of the recoverability is taken into account
in establishing the deferred income tax assets. The Corporation and its
subsidiaries’ financial planning process provides a significant basis for the
measurement of deferred income tax assets.
Deferred tax liabilities are recognized for taxable temporary differences
arising on investments in subsidiaries, jointly controlled corporations and
associates, except where the group controls the timing of the reversal of the
temporary differences and it is probable that the temporary differences will
not reverse in the foreseeable future.
There were no changes to the Corporation’s accounting policies for the year ended December 31, 2016.
Changes in Accounting Policies
Future Accounting Changes
The Corporation and its subsidiaries continuously monitor the potential changes proposed by the International Accounting Standards Board (IASB) and analyze
the effect that changes in the standards may have on their consolidated financial statements when they become effective.
IFRS 17 – INSURANCE CONTRACTS (Exposure Draft)
In June 2013, the IASB issued a revised IFRS 4, Insurance Contracts exposure
IFRS 4 – INSURANCE CONTRACTS
In September 2016, the IASB issued an amendment to the existing IFRS 4.
draft proposing changes to the accounting standard for insurance contracts.
The amendment “Applying IFRS 9, Financial Instruments with IFRS 4, Insurance
The intent of the revised standard is to eliminate inconsistencies by providing
Contracts” provides qualifying insurance companies with two options to
a single principle-based framework to account for all types of insurance
address the potential volatility associated with implementing IFRS 9 before
contracts, including reinsurance. The new standard will also provide
the new proposed insurance contract standard is effective. The two options
requirements for presentation and disclosure items to enhance comparability
are as follows:
between entities. IFRS 17 will replace IFRS 4 in its entirety and is expected to be
issued in the first half of 2017 with a proposed effective date of January 1, 2021.
▪ Deferral Approach: provides the option to defer implementation of IFRS 9
until the year 2021 or the effective date of the new insurance contract
During 2016, at the request of the IASB, Lifeco participated in additional
standard, whichever is earlier; or
field testing of the exposure draft to address potential interpretation and
operational challenges. The proposed standard differs significantly from
Lifeco’s current accounting and actuarial practices under the Canadian Asset
Liability Method (CALM). Lifeco has disclosed that it is actively monitoring
developments in this area and that it will continue to measure insurance
contract liabilities under current accounting and actuarial policies, including
CALM, until a new IFRS for insurance contract measurement is issued
and effective.
▪ 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 Corporation and Lifeco qualify for the amendment and will be applying
the deferral approach to adopt both IFRS 9 and the new insurance contract
standard simultaneously on January 1, 2021.
43
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
IFRS 9 – FINANCIAL INSTRUMENTS
The IASB issued IFRS 9, Financial Instruments, which replaces IAS 39, Financial
Instruments: Recognition and Measurement, the current standard for accounting for
IFRS 15 – REVENUE FROM CONTRACTS
WITH CUSTOMERS
The IASB issued IFRS 15, Revenue from Contracts with Customers, which provides
financial instruments. The standard was completed in three separate phases:
a single model for entities to use in accounting for revenue arising from
▪ Classification and measurement: this phase requires that financial assets
be classified at either amortized cost or fair value on the basis of the entity’s
business model for managing the financial assets and the contractual cash
flow characteristics of the financial assets.
▪ Impairment methodology: this phase replaces the current incurred loss
model for impairment of financial assets with an expected loss model.
▪ Hedge accounting: this phase replaces the current rule-based hedge
accounting requirements in IAS 39 with guidance that more closely aligns
the accounting with an entity’s risk management activities.
As the Corporation will apply the deferral approach as noted above,
the standard will be effective for the Corporation on January 1, 2021.
contracts with customers. The model requires an entity to recognize revenue
as the goods or services are transferred to customers in an amount that
reflects the expected consideration. The revenue recognition requirements
in IFRS 15 do not apply to the revenue arising from insurance contracts, leases
and financial instruments.
The standard will be effective January 1, 2018. The Corporation and its
subsidiaries are evaluating the impact of the adoption of this standard. The
Corporation and its subsidiaries do not anticipate the adoption of this standard
will have a significant impact; however, it is not possible as yet to provide a
reliable estimate of the impact on the Corporation’s financial statements.
IFRS 16 – LEASES
The IASB issued IFRS 16, Leases, which requires a lessee to recognize a right-
of-use asset representing its right to use the underlying leased asset
and a corresponding lease liability representing its obligation to make
lease payments for all leases. A lessee recognizes the related expense as
depreciation on the right-of-use asset and interest on the lease liability.
Short-term (less than 12 months) and low-value asset leases are exempt from
these requirements.
The standard will be effective January 1, 2019. The Corporation and its
subsidiaries are evaluating the impact of the adoption of this standard.
Disclosure Controls and Procedures
Based on their evaluations as at December 31, 2016, the Chief Executive Officer and Chief Financial Officer have concluded that the Corporation’s disclosure
controls and procedures were effective as at December 31, 2016.
Internal Control Over Financial Reporting
The Corporation’s internal control over financial reporting is designed to
The Corporation’s management, under the supervision of the Chief Executive
provide reasonable assurance regarding the reliability of financial reporting
Officer and the Chief Financial Officer, has evaluated the effectiveness of the
and that the preparation of financial statements for external purposes is
Corporation’s internal control over financial reporting as at December 31, 2016,
in accordance with IFRS. The Corporation’s management is responsible
based on the Internal Control – Integrated Framework (COSO 2013
for establishing and maintaining effective internal control over financial
Framework) published by The Committee of Sponsoring Organizations of
reporting. All internal control systems have inherent limitations and may
the Treadway Commission. Based on such evaluation, the Chief Executive
become ineffective because of changes in conditions. Therefore, even those
Officer and the Chief Financial Officer have concluded that the Corporation’s
systems determined to be effective can provide only reasonable assurance
internal control over financial reporting was effective as at December 31, 2016.
with respect to financial statement preparation and presentation.
There have been no changes in the Corporation’s internal control over financial
reporting during the year ended December 31, 2016 which have materially
affected, or are reasonably likely to materially affect, the Corporation’s
internal control over financial reporting.
44
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Review of Financial Performance
Selected Annual Information
FOR THE YEARS ENDED DECEMBER 31
Total revenues
Adjusted net earnings (attributable to common shareholders) [1]
per share – basic
Net earnings (attributable to common shareholders)
per share – basic
per share – diluted
Consolidated assets
Total financial liabilities
Debentures and other debt instruments
Shareholders’ equity [2]
Book value per common share [2]
Number of common shares outstanding [millions]
Dividends per share [declared]
Common shares
First preferred shares
Series A [3]
Series D
Series E
Series F
Series H
Series I
Series K
Series L
Series O
Series P [4]
Series Q [4]
Series R
Series S
Series T [5]
2016
49,122
2,105
2.95
1,919
2.69
2.68
418,586
23,229
7,513
19,481
23.69
713.3
1.5700
0.4725
1.3750
1.3125
1.4750
1.4375
1.5000
1.2375
1.2750
1.4500
0.5765
0.5252
1.3750
1.2000
1.0500
2015
36,512
2,241
3.14
2,319
3.25
3.24
417,630
22,400
6,927
19,473
23.69
713.2
1.4900
0.4887
1.3750
1.3125
1.4750
1.4375
1.5000
1.2375
1.2750
1.4500
1.1000
−
1.3750
1.2000
1.0500
2014
41,775
2,105
2.96
2,136
3.00
3.00
373,843
18,800
6,887
16,942
20.19
711.7
1.4000
0.5250
1.3750
1.3125
1.4750
1.4375
1.5000
1.2375
1.2750
1.4500
1.1000
−
1.3750
1.2000
1.1902
[1] Adjusted net earnings and adjusted net earnings per share are non-IFRS financial measures. For a definition of these non-IFRS financial measures, please refer to
the “Basis of Presentation – Non-IFRS Financial Measures and Presentation” section of this review of financial performance.
[2] 2015 and 2014 figures have been retrospectively adjusted as described in Note 16 to the Corporation’s 2016 Consolidated Financial Statements.
[3] The Series A First Preferred Shares are entitled to a quarterly cumulative dividend at a floating rate equal to one quarter of 70% of the average prime rates quoted
by two major Canadian chartered banks.
[4] On February 1, 2016, 2,234,515 of its outstanding 11,200,000 Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series P were converted, on a one-
for-one basis, into Non-Cumulative Floating Rate First Preferred Shares, Series Q. The Series Q First Preferred shares are entitled to an annual non-cumulative
dividend, payable quarterly at a floating rate equal to the 3-month Government of Canada Treasury Bill rate plus 1.60%. The dividend rate for the remaining
8,965,485 Series P shares was reset to an annual fixed rate of 2.31% or $0.144125 per share in cash dividends payable quarterly.
[5] Issued in December 2013. The first dividend payment was made on April 30, 2014 in the amount of $0.4027 per share.
45
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT 2016
2015
[NOTE 16]
4,396
4,188
117,072
29,634
8,231
4,340
8,467
167,744
10,781
5,627
3,103
1,128
572
7,685
1,907
5,966
9,274
200,403
418,586
115,379
29,413
7,289
5,237
8,694
166,012
15,512
5,131
2,905
1,106
520
6,908
1,961
5,983
9,210
198,194
417,630
155,940
158,492
2,009
7,721
7,513
2,050
8,636
2,098
200,403
386,370
2,580
805
14,849
1,247
19,481
12,735
32,216
418,586
2,253
7,092
6,927
2,682
7,686
2,024
198,194
385,350
2,580
804
14,206
1,883
19,473
12,807
32,280
417,630
Consolidated Financial Statements
Consolidated Balance Sheets
DECEMBER 31
[IN MILLIONS OF CANADIAN DOLL ARS]
ASSETS
Cash and cash equivalents [Note 4]
Investments [Note 5]
Bonds
Mortgage loans
Shares
Investment properties
Loans to policyholders
Funds held by ceding insurers [Note 6]
Reinsurance assets [Note 12]
Investments in jointly controlled corporations and associates [Note 7]
Owner-occupied properties and capital assets [Note 8]
Derivative financial instruments [Note 25]
Other assets [Note 9]
Deferred tax assets [Note 16]
Intangible assets [Note 10]
Goodwill [Note 10]
Investments on account of segregated fund policyholders [Note 11]
Total assets
LIABILITIES
Insurance contract liabilities [Note 12]
Investment contract liabilities [Note 12]
Obligations to securitization entities [Note 13]
Debentures and other debt instruments [Note 14]
Derivative financial instruments [Note 25]
Other liabilities [Note 15]
Deferred tax liabilities [Note 16]
Insurance and investment contracts on account of segregated fund policyholders [Note 11]
Total liabilities
EQUITY
Stated capital [Note 17]
Perpetual preferred shares
Common shares
Retained earnings
Reserves
Total shareholders’ equity
Non-controlling interests [Note 19]
Total equity
Total liabilities and equity
Approved by the Board of Directors
Signed,
Raymond Royer
Director
46
Signed,
R. Jeffrey Orr
Director
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Consolidated Financial Statements
Consolidated Statements of Earnings
FOR THE YEARS ENDED DECEMBER 31
[IN MILLIONS OF CANADIAN DOLL ARS, EXCEPT PER SHARE AMOUNTS]
2016
2015
REVENUES
Premium income
Gross premiums written
Ceded premiums
Premium income, net
Net investment income [Note 5]
Regular net investment income
Change in fair value through profit or loss
Net investment income
Fee income
Total revenues
EXPENSES
Policyholder benefits
Insurance and investment contracts
Gross
Ceded
Total net policyholder benefits
Policyholder dividends and experience refunds
Change in insurance and investment contract liabilities
Total paid or credited to policyholders
Commissions
Operating and administrative expenses [Note 22]
Financing charges [Note 23]
Total expenses
Earnings before investments in jointly controlled corporations and associates, and income taxes
Share of earnings (losses) of investments in jointly controlled corporations and associates [Note 7]
Earnings before income taxes
Income taxes [Note 16]
Net earnings
ATTRIBUTABLE TO
Non-controlling interests [Note 19]
Perpetual preferred shareholders
Common shareholders
EARNINGS PER COMMON SHARE [Note 28]
Net earnings attributable to common shareholders
– Basic
– Diluted
35,050
(3,925)
31,125
6,297
3,906
10,203
7,794
49,122
28,315
(2,103)
26,212
1,502
6,961
34,675
3,590
6,380
412
45,057
4,065
(98)
3,967
581
3,386
1,343
124
1,919
3,386
2.69
2.68
28,129
(3,628)
24,501
6,332
(2,013)
4,319
7,692
36,512
22,553
(2,000)
20,553
1,477
812
22,842
3,133
5,883
413
32,271
4,241
224
4,465
679
3,786
1,337
130
2,319
3,786
3.25
3.24
POWER FINANCIAL CORPOR ATION 2016 ANNUAL REPORT
47
Consolidated Financial Statements
Consolidated Statements of Comprehensive Income
FOR THE YEARS ENDED DECEMBER 31
[IN MILLIONS OF CANADIAN DOLL ARS]
Net earnings
Other comprehensive income (loss)
Items that may be reclassified subsequently to net earnings
Net unrealized gains (losses) on available-for-sale assets
Unrealized gains (losses)
Income tax (expense) benefit
Realized (gains) losses transferred to net earnings
Income tax expense (benefit)
Net unrealized gains (losses) on cash flow hedges
Unrealized gains (losses)
Income tax (expense) benefit
Realized (gains) losses transferred to net earnings
Income tax expense (benefit)
Net unrealized foreign exchange gains (losses) on translation of foreign operations
Unrealized gains (losses) on translation
Unrealized gains (losses) on euro debt designated as hedge of net investments
in foreign operations
Income tax (expense) benefit
Share of other comprehensive income of jointly controlled corporations and associates
Total – items that may be reclassified
Items that will not be reclassified subsequently to net earnings
Actuarial gains (losses) on defined benefit plans [Note 24]
Income tax (expense) benefit
Share of other comprehensive income of jointly controlled corporations and associates
Total – items that will not be reclassified
Other comprehensive income (loss)
Comprehensive income
ATTRIBUTABLE TO
Non-controlling interests
Perpetual preferred shareholders
Common shareholders
2016
3,386
117
(11)
(81)
12
37
107
(40)
2
(1)
68
(1,471)
42
(6)
(1,435)
367
(963)
(237)
60
1
(176)
(1,139)
2,247
855
124
1,268
2,247
2015
3,786
(15)
6
(106)
18
(97)
(253)
95
2
(1)
(157)
2,038
(50)
9
1,997
45
1,788
194
(36)
1
159
1,947
5,733
1,953
130
3,650
5,733
48
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Consolidated Financial Statements
Consolidated Statements of Changes in Equity
FOR THE YEAR ENDED DECEMBER 31, 2016
[IN MILLIONS OF CANADIAN DOLL ARS]
PERPETUAL
PREFERRED
SHARES
COMMON
SHARES
RETAINED
EARNINGS
SHARE-BASED
COMPENSATION
OTHER
COMPREHENSIVE
INCOME
[NOTE 27]
NON-
CONTROLLING
INTERESTS
TOTAL
TOTAL
EQUIT Y
STATED CAPITAL
RESERVES
Balance, beginning of year
2,580
804
14,206
142
1,741
1,883
12,807
32,280
Net earnings
Other comprehensive income (loss)
Comprehensive income (loss)
Dividends to shareholders
Perpetual preferred shares
Common shares
Dividends to non-controlling interests
Share-based compensation [Note 18]
Stock options exercised
Effects of changes in ownership of
subsidiaries, capital and other
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1
–
2,043
–
2,043
(124)
(1,120)
–
–
–
(156)
Balance, end of year
2,580
805
14,849
–
–
–
–
–
–
59
(44)
–
157
–
(651)
(651)
–
–
–
–
–
–
–
(651)
(651)
–
–
–
59
(44)
1,343
(488)
855
–
–
(708)
22
44
3,386
(1,139)
2,247
(124)
(1,120)
(708)
81
1
–
(285)
(441)
1,090
1,247
12,735
32,216
FOR THE YEAR ENDED DECEMBER 31, 2015
[IN MILLIONS OF CANADIAN DOLL ARS]
Balance, beginning of year
As previously reported
Adjustment [Note 16]
Restated balance
Net earnings
Other comprehensive income
Comprehensive income
Dividends to shareholders
Perpetual preferred shares
Common shares
Dividends to non-controlling interests
Share-based compensation [Note 18]
Stock options exercised
Effects of changes in ownership of
subsidiaries, capital and other
PERPETUAL
PREFERRED
SHARES
2,580
–
2,580
–
–
–
–
–
–
–
–
–
Balance, end of year
2,580
STATED CAPITAL
RESERVES
COMMON
SHARES
RETAINED
EARNINGS
SHARE-BASED
COMPENSATION
OTHER
COMPREHENSIVE
INCOME
[NOTE 27]
NON-
CONTROLLING
INTERESTS
TOTAL
TOTAL
EQUIT Y
743
–
743
–
–
–
–
–
–
–
61
–
804
13,164
(77)
13,087
2,449
–
2,449
(130)
(1,063)
–
–
–
(137)
14,206
142
–
142
–
–
–
–
–
–
48
(48)
–
142
390
–
390
–
1,331
1,331
–
–
–
–
–
532
–
532
–
1,331
1,331
–
–
–
48
(48)
11,883
28,902
(45)
(122)
11,838
28,780
1,337
616
1,953
–
–
(711)
19
36
3,786
1,947
5,733
(130)
(1,063)
(711)
67
49
20
1,741
20
(328)
(445)
1,883
12,807
32,280
49
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Consolidated Financial Statements
Consolidated Statements of Cash Flows
FOR THE YEARS ENDED DECEMBER 31
[IN MILLIONS OF CANADIAN DOLL ARS]
OPERATING ACTIVITIES
Earnings before income taxes
Income tax paid, net of refunds received
Adjusting items
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
Change in fair value through profit or loss
Other
FINANCING ACTIVITIES
Dividends paid
By subsidiaries to non-controlling interests
Perpetual preferred shares
Common shares
Issue of common shares by the Corporation [Note 17]
Issue of common shares by subsidiaries
Repurchase of common shares by subsidiaries
Issue of euro-denominated debt [Note 14]
Changes in other debt instruments
Change in obligations to securitization entities
INVESTMENT ACTIVITIES
Bond sales and maturities
Mortgage loan repayments
Sale of shares
Investment property sales
Change in loans to policyholders
Business acquisitions, net of cash and cash equivalents acquired
Investment in bonds
Investment in mortgage loans
Investment in shares
Deposit for investment in China AMC [Note 9]
Investment in investment properties and other
Effect of changes in exchange rates on cash and cash equivalents
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
NET CASH FROM OPERATING ACTIVITIES INCLUDES
Interest and dividends received
Interest paid
2016
3,967
(442)
7,128
505
18
(567)
(3,906)
197
6,900
(710)
(125)
(1,106)
(1,941)
1
34
(423)
706
(23)
631
2015
4,465
(543)
(1,088)
821
28
367
2,013
(280)
5,783
(715)
(130)
(1,046)
(1,891)
49
113
(509)
–
(137)
336
(1,015)
(2,039)
30,406
2,616
2,797
427
48
(33)
(34,506)
(3,847)
(2,969)
(193)
(225)
(5,479)
(198)
208
4,188
4,396
5,817
521
29,591
2,926
2,274
206
8
(4)
(32,491)
(3,394)
(2,551)
–
(409)
(3,844)
299
199
3,989
4,188
5,881
533
50
POWER FINANCIAL CORPOR ATION 2016 ANNUAL REPORT
Notes to the Consolidated Financial Statements
ALL TABULAR AMOUNTS ARE IN MILLIONS OF CANADIAN DOLLARS, UNLESS OTHERWISE NOTED.
Note 1 Corporate Information
Power Financial Corporation (Power Financial or the Corporation) is a publicly
The Consolidated Financial Statements (f inancial statements) of
listed company (TSX: PWF) incorporated and domiciled in Canada whose
Power Financial as at and for the year ended December 31, 2016 were approved
registered address is 751 Victoria Square, Montréal, Québec, Canada, H2Y 2J3.
by its Board of Directors on March 24, 2017. The Corporation is controlled by
Power Financial is a diversified international management and holding
company that holds interests, directly or indirectly, in companies in the
financial services sector in Canada, the United States and Europe. Through
its investment in Pargesa Holding SA, Power Financial also has substantial
holdings based in Europe.
Power Corporation of Canada.
Note 2 Basis of Presentation and Summary of Significant Accounting Policies
The financial statements of Power Financial as at December 31, 2016 have been
The Corporation holds a 50% (50% at December 31, 2015) interest in Parjointco,
prepared in accordance with International Financial Reporting Standards.
a jointly controlled corporation that is considered to be a joint venture.
BASIS OF PRESENTATION
The financial statements include the accounts of Power Financial and all
its subsidiaries on a consolidated basis after elimination of intercompany
Parjointco holds a 55.5% (55.5% at December 31, 2015) equity interest in Pargesa.
Accordingly, the Corporation accounts for its investment in Parjointco using
the equity method.
transactions and balances. Subsidiaries are entities the Corporation controls,
when the Corporation has power over the entity, it is exposed, or has
rights, to variable returns from its involvement and has the ability to affect
USE OF SIGNIFICANT JUDGMENTS,
ESTIMATES AND ASSUMPTIONS
In the preparation of the financial statements, management of the
those returns through its use of power over the entity. Subsidiaries of the
Corporation and management of its subsidiaries are required to make
Corporation are consolidated from the date of acquisition, being the date on
significant judgments, estimates and assumptions that affect the reported
which the Corporation obtains control, and continue to be consolidated until
amounts of assets, liabilities, net earnings, comprehensive income and
the date that such control ceases. The Corporation will reassess whether or
related disclosures. Key sources of estimation uncertainty and areas where
not it controls an entity if facts and circumstances indicate there are changes
significant judgments have been made are listed below and are discussed
to one or more of the elements of control listed above.
throughout the notes in these financial statements, including:
The operating subsidiaries of the Corporation are:
▪ Management consolidates all subsidiaries and entities in which it has
▪ Lifeco, a public company in which the Corporation and IGM Financial
hold 67.9% and 4.0% of the common shares, respectively (67.4% and 4.0%,
respectively at December 31, 2015). Lifeco’s major operating subsidiary
companies are Great-West Life, Great-West Life & Annuity, London Life,
Canada Life, Irish Life and Putnam.
▪ IGM Financial, a public company in which the Corporation and Great-West
Life hold 61.5% and 3.8% of the common shares, respectively (60.4% and
3.8%, respectively at December 31, 2015). IGM’s major operating subsidiary
companies are Investors Group and Mackenzie.
These financial statements of Power Financial include the results of
Lifeco and IGM Financial on a consolidated basis; the amounts shown in
the consolidated balance sheets, consolidated statements of earnings,
consolidated statements of comprehensive income, consolidated statements
of changes in equity and consolidated statements of cash flows are derived
from the publicly disclosed consolidated financial statements of Lifeco and
IGM Financial, all as at and for the year ended December 31, 2016. The notes
to Power Financial’s financial statements are derived from the notes to the
determined that the Corporation has control. Control is evaluated
according to the ability of the Corporation to direct the relevant activities
of the subsidiaries or other structured entities in order to derive variable
returns. Management of the Corporation and each of its subsidiaries
exercise judgment in determining whether control exists. Judgment is
exercised in the evaluation of the variable returns and in determining
the extent to which the Corporation or its subsidiaries have the ability to
exercise their power to affect variable returns.
▪ The actuarial assumptions made by management of Lifeco, such as
interest rates, inflation, policyholder behaviour, mortality and morbidity
of policyholders, used in the valuation of insurance and certain investment
contract liabilities in accordance with the Canadian Asset Liability Method
(CALM), require significant judgment and estimation (Note 12).
▪ Management of Lifeco 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.
financial statements of Lifeco and IGM Financial.
▪ In the determination of the fair value of financial instruments, management
Jointly controlled corporations are entities in which unanimous consent is
required for decisions relating to relevant activities. Associates are entities in
which the Corporation exercises significant influence over the entity’s operating
of the Corporation and of its subsidiaries exercise judgment in the
determination of fair value inputs, particularly those items categorized
within Level 3 of the fair value hierarchy (Note 26).
and financial policies, without having control or joint control. Investments in
▪ Management of the Corporation and of its subsidiaries evaluate the
jointly controlled corporations and associates are accounted for using the
synergies and future benefits for initial recognition and measurement
equity method. Under the equity method, the share of net earnings (losses),
of goodwill and intangible assets, as well as testing for impairment. The
other comprehensive income (loss) and the changes in equity of the jointly
determination of the recoverable amount of the cash generating units (to
controlled corporations and associates are recognized in the consolidated
which goodwill and intangible assets are assigned) relies upon valuation
statements of earnings, consolidated statements of comprehensive income
methodologies that require the use of estimates (Note 10).
and consolidated statements of changes in equity, respectively.
POWER FINANCIAL CORPOR ATION 2016 ANNUAL REPORT
51
Notes to the Consolidated Financial Statements
Note 2 Basis of Presentation and Summary of Significant Accounting Policies (continued)
▪ Cash generating units for which goodwill and indefinite life intangible
assets have been determined by management of the Corporation and of
Lifeco
Premiums for all types of insurance contracts and contracts with limited
its subsidiaries as the lowest level at which the assets are monitored for
mortality or morbidity risk are generally recognized as revenue when due
internal reporting purposes. Management of the Corporation and of its
and collection is reasonably assured.
subsidiaries use judgment in determining the lowest level of monitoring
(Note 10).
Investment property income includes rents earned from tenants under lease
agreements and property tax and operating cost recoveries. Rental income
▪ The actuarial assumptions used in determining the expense and defined
leases with contractual rent increases and rent-free periods are recognized on
benefit obligation for the Corporation and its subsidiaries’ pension plans
a straight-line basis over the term of the lease. Investment property income is
and other post-employment benefits require significant judgment and
included in net investment income in the statement of earnings.
estimation. Management of the Corporation and of its subsidiaries review
the previous experience of its plan members and market conditions,
including interest rates and inflation rates, in evaluating the assumptions
used in determining the expense for the current year (Note 24).
Fee income primarily includes fees earned from the management of
segregated fund assets, proprietary mutual fund assets, fees earned on
administrative services only for Group health contracts, commissions and fees
earned from management services. Fee income is recognized when the service
▪ The Corporation and its subsidiaries operate within various tax jurisdictions
is performed, the amount is collectible and can be reasonably estimated.
where significant management judgments and estimates are required
when interpreting the relevant tax laws, regulations and legislation in the
determination of the Corporation and of its subsidiaries’ tax provisions and
the carrying amounts of its tax assets and liabilities (Note 16).
▪ Management of the Corporation and of its subsidiaries assess the
Lifeco has sub-advisor arrangements where Lifeco 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.
recoverability of the deferred income tax asset carrying values based on
future years’ taxable income projections and believe the carrying values
IGM Financial
Management fees are based on the net asset value of the investment fund or
of the deferred income tax assets as of December 31, 2016 are recoverable
other assets under management and are recognized on an accrual basis as the
(Note 16).
▪ Legal and other provisions are recognized resulting from a past event which,
in the judgment of management of the Corporation and of its subsidiaries,
has resulted in a probable outflow of economic resources which would
be passed onto a third party to settle the obligation. Management of the
Corporation and of its subsidiaries use judgment to evaluate the possible
outcomes and risks to determine the best estimate of the provision at the
balance sheet date (Note 30).
service is performed. Administration fees are also recognized on an accrual basis
as the service is performed. Distribution fees derived from investment fund and
securities transactions are recognized on a trade-date basis. Distribution fees
derived from insurance and other financial services transactions are recognized
on an accrual basis. These management, administration and distribution fees
are included in fee income in the statements of earnings.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash, current operating accounts,
▪ Management of Lifeco uses independent qualified appraisal services
overnight bank and term deposits and fixed income securities with an original
to determine the fair value of investment properties, which include
term to maturity of three months or less.
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 5).
▪ The determination by IGM’s management as to whether securitized
mortgages are derecognized is based on the extent to which the risks and
rewards of ownership are transferred (Note 13).
▪ In the consolidated statements of cash flows, purchases and sales of
portfolio investments are recorded within investment activities due to
Lifeco management’s judgment that these investing activities are long
term in nature.
▪ Management of Lifeco uses judgments to determine whether Lifeco retains
the primary obligation with a client in sub-advisor arrangements. Where
Lifeco retains the risks and benefits, revenues and expenses are recorded
on a gross basis.
▪ The provision for future credit losses within Lifeco’s insurance contract
liabilities is based on investment credit ratings. Lifeco’s practice is to
use third-party independent credit ratings where available. Lifeco
management’s judgment is required when setting credit ratings for
instruments that do not have a third-party rating.
INVESTMENTS
Investments include bonds, mortgage loans, shares, investment properties,
and loans to policyholders of Lifeco. Investments are classified as either
fair value through profit or loss, available for sale, held to maturity, loans
and receivables, or as non-financial instruments based on management’s
intention relating to the purpose and nature of the instruments or the
characteristics of the investments. The Corporation and its subsidiaries
currently have not classified any investments as held to maturity.
Investments in bonds (including fixed income securities), mortgage loans
and shares 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 and are recorded on
a trade-date basis.
A financial asset is designated as fair value through profit or loss on initial
recognition if it eliminates or significantly reduces an accounting mismatch.
For Lifeco, 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.
REVENUE RECOGNITION
Interest income is accounted for on an accrual basis using the effective interest
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
method for bonds and mortgage loans. Dividend income is recognized
earning investment income.
when the right to receive payment is established. This is the ex-dividend
date for listed shares and usually the notification date or date when the
shareholders have approved the dividend for private equity instruments.
Interest income and dividend income are recorded in net investment income
in the Consolidated Statements of Earnings (statements of earnings).
52
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 2 Basis of Presentation and Summary of Significant Accounting Policies (continued)
Fair value through profit or loss investments are recorded at fair value on the
S H A R E S AT FAI R VA LU E TH RO U G H P RO FIT
Consolidated Balance Sheets (balance sheets) with realized and unrealized
O R LOS S A N D AVAI L A B LE FO R SA LE
gains and losses reported in the statements of earnings. Available-for-sale
Fair values for publicly traded shares are generally determined by the last bid
investments are recorded at fair value on the balance sheets with unrealized
price for the security from the exchange where it is principally traded. Fair
gains and losses recorded in other comprehensive income. Realized gains and
values for shares for which there is no active market are typically based upon
losses are reclassified from other comprehensive income and recorded to net
alternative valuation techniques such as discounted cash flow analysis, review
investment income in the statements of earnings when the available-for-sale
of price movements relative to the market and utilization of information
investment is sold or impaired.
Investments in mortgage loans 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. Impairments and realized
gains and losses on the sale of investments classified as loans and receivables
are recorded in net investment income in the statements of earnings.
provided by the underlying investment manager. The Corporation and its
subsidiaries maximize the use of observable inputs and minimize the use
of unobservable inputs when measuring fair value. The Corporation and
its subsidiaries obtain quoted prices in active markets, when available, for
identical assets at the balance sheet dates to measure shares at fair value in
its fair value through profit or loss and available-for-sale portfolios.
Investment properties are real estate held to earn rental income or for
M O RTGAG E LOA N S A N D B O N DS C L A S S I FI ED
capital appreciation. Investment properties are initially measured at cost
A S LOA N S A N D R EC EIVA B LE S
and subsequently carried at fair value on the balance sheets. Changes in fair
The fair values disclosed for bonds and mortgage loans, classified as loans
value are recorded as net investment income in the statements of earnings.
and receivables, are determined by discounting expected future cash flows
Properties held to earn rental income or for capital appreciation that have
using current market rates for similar instruments. Valuation inputs typically
an insignificant portion that is owner occupied or where there is no intent to
include benchmark yields and risk-adjusted spreads based on current lending
occupy on a long-term basis are classified as investment properties. Properties
activities and market activity.
that do not meet these criteria are classified as owner-occupied properties.
Loans to policyholders of Lifeco 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. The carrying value of loans to policyholders approximates fair value.
Fair value measurement
The carrying values of financial assets necessarily reflect the prevailing market
liquidity and the liquidity premiums embedded in the market pricing methods
the Corporation and its subsidiaries rely 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 contract liabilities are largely offset by
corresponding changes in the fair value of these liabilities, except when the
bond has been deemed impaired.
I N V E S TM ENT P RO P ERTI E S
Fair values for investment properties are determined using independent
qualified appraisal services and include adjustments by Lifeco management
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 properties 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 properties under construction are 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 at the end of each
reporting period to determine whether there is any objective evidence that
The following is a description of the methodologies used to determine
the investment is impaired. The Corporation and its subsidiaries consider
fair value.
B O N DS AT FAI R VA LU E TH RO U G H P RO FIT
O R LOS S A N D AVAI L A B LE FO R SA LE
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
Fair values for bonds recorded at fair value through profit or loss or available
or principal.
for sale are determined with reference to quoted market bid prices primarily
provided by third-party independent pricing sources. The Corporation and
its subsidiaries maximize the use of observable inputs and minimize the use
of unobservable inputs when measuring fair value. The Corporation and
its subsidiaries obtain quoted prices in active markets, when available, for
identical assets at the balance sheet dates to measure bonds at fair value in
its fair value through profit or loss and available-for-sale portfolios. Where
prices are not quoted in a normally active market, fair values are determined
by valuation models.
The Corporation and its subsidiaries estimate the fair value of bonds not
traded in active markets by referring to actively traded securities with similar
attributes, dealer quotations, matrix pricing methodologies, discounted cash
flow analyses and/or internal valuation models. These methodologies consider
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 are generally based on available market evidence.
Investments are deemed to be impaired when there is no longer reasonable
assurance of collection. 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 mortgage loans and bonds classified as loans and receivables,
provisions are established or impairments recorded 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
net realizable value. For impaired available-for-sale bonds, the accumulated
loss recorded in 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. As well,
when determined to be impaired, interest is no longer accrued and previous
interest accruals are reversed to net investment income.
Impairment losses on available-for-sale shares are recorded to net investment
income if the loss is significant or prolonged. Subsequent losses are also
In the absence of such evidence, management’s best estimate is used.
recorded directly in net investment income.
53
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 2 Basis of Presentation and Summary of Significant Accounting Policies (continued)
Securities lending
Lifeco engages in securities lending through its securities custodians as
assets on these contracts do not have fixed maturity dates, their release
generally being dependent on the run-off of the corresponding insurance
lending agents. Loaned securities are not derecognized, and continue to be
contract liabilities.
reported within investments, as Lifeco retains substantial risks and rewards
and economic benefits related to the loaned securities.
TRANSACTION COSTS
Transaction costs are expensed as incurred for financial instruments classified
or designated 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 rate method for those allocated to
loans and receivables. Transaction costs for financial liabilities classified as
other than fair value through profit or loss are deducted from the value of the
instrument issued and taken into net earnings using the effective interest
rate method.
REINSURANCE CONTRACTS
Lifeco, 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 Lifeco underwritten by another company. Ceded
reinsurance refers to the transfer of insurance risk, along with the respective
On the liability side, funds held under reinsurance contracts consist mainly of
amounts retained by Lifeco from ceded business written on a funds-withheld
basis. Lifeco withholds assets related to ceded insurance contract liabilities
in order to reduce credit risk.
OWNER- OCCUPIED PROPERTIES
AND CAPITAL ASSETS
Owner-occupied properties and capital assets are carried at cost less
accumulated depreciation and impairments. Capital assets include
equipment, furniture and fixtures. Depreciation is charged to write off the
cost of assets, using the straight-line method, over their estimated useful
lives, on the following bases:
▪ Owner-occupied properties
▪ Capital assets
10–50 years
3–17 years
Depreciation methods, useful lives and residual values are reviewed at
least annually and adjusted if necessary. Owner-occupied properties and
capital assets are tested for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
premiums, to one or more reinsurers who will share the risks. To the extent
that assuming reinsurers are unable to meet their obligations, Lifeco remains
OTHER ASSETS
Other assets include premiums in course of collection, accounts receivable,
liable to its policyholders for the portion reinsured. Consequently, allowances
prepaid expenses, deferred acquisition costs and miscellaneous other assets
are made for reinsurance contracts which are deemed uncollectible.
which are measured at amortized cost. Deferred acquisition costs relating to
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
investment contracts are recognized as assets if the costs are incremental
and incurred due to the contract being issued. Deferred acquisition costs are
amortized on a straight-line basis over the term of the policy, not exceeding
settlements, as well as the reinsurance assets associated with insurance
20 years.
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. Lifeco 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 statements of earnings.
Any gains or losses on buying reinsurance are recognized in the statement of
earnings immediately at the date of purchase in accordance with the CALM.
Assets and liabilities related to reinsurance are reported on a gross basis in
the balance sheets. The amount of liabilities ceded to reinsurers is estimated
in a manner consistent with the claim liability associated with reinsured risks.
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 Lifeco but are retained 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 Lifeco, the credit risk is retained
by Lifeco. The funds-withheld balance where Lifeco 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 6 for funds
held by ceding insurers that are managed by Lifeco. 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
BUSINESS COMBINATIONS, GOODWILL
AND INTANGIBLE ASSETS
Business combinations are accounted for using the acquisition method.
Goodwill represents the excess of purchase consideration over the fair value
of net assets acquired. Following initial recognition, goodwill is measured at
cost less any accumulated impairment losses.
Intangible assets comprise finite life and indefinite life intangible assets. Finite
life intangible assets include the value of technology and software, certain
customer contracts and deferred selling commissions. Finite life intangible
assets are reviewed at least annually to determine if there are indicators of
impairment and assessed as to whether the amortization period and method
are appropriate. Intangible assets with finite lives are amortized on a straight-
line basis over their estimated useful lives on the following basis: i) technology
and software (3 to 10 years); and ii) customer contract-related (9 to 30 years).
Commissions paid by IGM on the sale of certain investment funds are deferred
and amortized over their estimated useful lives, not exceeding a period of
7 years. Commissions paid on the sale of deposits are deferred and amortized
over their estimated useful lives, not exceeding a period of 5 years. When
a client redeems units or shares in investment funds that are subject to a
deferred sales charge, a redemption fee is paid by the client and is recorded
as revenue by IGM. Any unamortized deferred selling commission asset
recognized on the initial sale of these investment fund units or shares is
recorded as a disposal. IGM regularly reviews the carrying value of deferred
selling commissions with respect to any events or circumstances that indicate
impairment. Among the tests performed by IGM to assess recoverability is
the comparison of the future economic benefits derived from the deferred
selling commission asset in relation to its carrying value.
54
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 2 Basis of Presentation and Summary of Significant Accounting Policies (continued)
Indefinite life intangible assets include brands, trademarks and trade
Investment contracts are contracts that carry financial risk, which is the
names, certain customer contracts, mutual fund management contracts
risk of a possible future change in one or more of the following: interest rate,
and the shareholders’ portion of acquired future participating account
commodity price, foreign exchange rate, or credit rating. Refer to Note 21 for
profit. Amounts are classified as indefinite life intangible assets based on
a discussion on risk management.
an analysis of all the relevant factors, and when there is no foreseeable limit
to the period over which the asset is expected to generate net cash inflows.
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.
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 Lifeco. The
Appointed Actuaries of Lifeco’s subsidiary companies are responsible for
Impairment testing
Goodwill and indefinite life intangible assets are tested for impairment
determining the amount of the liabilities in order to make appropriate
provisions for Lifeco’s obligations to policyholders. The Appointed Actuaries
annually or more frequently if events indicate that impairment may have
determine the liabilities for insurance and investment contracts using
occurred. Indefinite life intangible assets that were previously impaired are
generally accepted actuarial practices, according to the standards established
reviewed at each reporting date for evidence of reversal.
by the Canadian Institute of Actuaries. The valuation uses the CALM. This
Goodwill and indefinite life intangible assets have been allocated to cash
generating units or to groups of cash generating units (CGU), representing
the lowest level that the assets are monitored for internal reporting purposes.
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.
Goodwill and indefinite life intangible assets are tested for impairment by
In the computation of insurance contract liabilities, valuation assumptions
comparing the carrying value of the CGU to the recoverable amount of the CGU
have been made regarding rates of mortality and morbidity, investment
to which the goodwill and indefinite life intangible assets have been allocated.
returns, levels of operating expenses, rates of policy termination and rates of
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 cost of disposal or value in use, which is
calculated using the present value of estimated future cash flows expected
to be generated.
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
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 for future deterioration in the best estimate assumptions
and provide reasonable assurance that insurance contract liabilities cover a
range of possible outcomes. Margins are reviewed periodically for continued
appropriateness.
Investment contract liabilities are measured at fair value determined using
discounted cash flows utilizing the yield curves of financial instruments with
presented separately in the balance sheets. The assets and liabilities are
similar cash flow characteristics.
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
corresponding changes in the segregated fund liabilities.
INSURANCE AND INVESTMENT
CONTRACT LIABILITIES
DERECOGNITION OF SECURITIZED MORTGAGES
IGM enters into transactions where it transfers financial assets recognized
on its balance sheets. The determination of whether the financial assets
are derecognized is based on the extent to which the risks and rewards of
ownership are transferred.
Contract classification
When significant insurance risk exists, Lifeco’s products are classified
If substantially all of the risks and rewards of a financial asset are not retained,
IGM derecognizes the financial asset. The gains or losses and the servicing
at contract inception as insurance contracts, in accordance with IFRS 4,
fee revenue for financial assets that are derecognized are reported in net
Insurance Contracts (IFRS 4). Significant insurance risk exists when Lifeco
investment income in the statements of earnings.
agrees to compensate policyholders or beneficiaries of the contract for
specified uncertain future events that adversely affect the policyholder and
If all or substantially all risks and rewards are retained, the financial assets
are not derecognized and the transactions are accounted for as secured
whose amount and timing is unknown. Refer to Note 12 for a discussion of
financing transactions.
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
and Measurement. Lifeco has not classified any contracts as investment
OTHER FINANCIAL LIABILITIES
Debentures and other debt instruments, and capital trust debentures are
initially recorded on the balance sheets at fair value and subsequently carried
at amortized cost using the effective interest rate method with amortization
expense recorded in financing charges in the statements of earnings. These
liabilities are derecognized when the obligation is cancelled or redeemed.
contracts with discretionary participating features.
Accounts payable, dividends and interest payable, and deferred income
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.
reserves are measured at amortized cost. Deferred income reserves related
to investment contracts are amortized on a straight-line basis to recognize
the initial policy fees over the policy term, not exceeding 20 years.
55
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 2 Basis of Presentation and Summary of Significant Accounting Policies (continued)
PENSION PLANS AND OTHER
POST-EMPLOYMENT BENEFITS
The Corporation and its subsidiaries maintain funded defined benefit
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
pension plans for certain employees and advisors, unfunded supplementary
in the financial statements and the corresponding tax basis used in the
employee retirement plans (SERP) for certain employees, and unfunded post-
computation of taxable income and on unused tax attributes, and is
employment health, dental and life insurance benefits to eligible employees,
accounted for using the balance sheet liability method. Deferred tax liabilities
advisors and their dependants. The Corporation’s subsidiaries also maintain
are generally recognized for all taxable temporary differences and deferred
defined contribution pension plans for eligible employees and advisors.
tax assets are recognized to the extent that it is probable that future taxable
The defined benefit pension plans provide pensions based on length of
service and final average earnings. Expenses for defined benefit plans are
profits will be available against which deductible temporary differences and
unused tax attributes can be utilized.
actuarially determined using the projected unit credit method prorated on
Recognition of deferred tax assets is based on the fact that it is probable
service, based upon management of the Corporation and of its subsidiaries’
that the entity will have taxable profits and/or tax planning opportunities
assumptions about discount rates, compensation increases, retirement ages
available to allow the deferred income tax asset to be utilized. Changes in
of employees, mortality and expected health care costs. Any changes in these
circumstances in future periods may adversely impact the assessment of
assumptions will impact the carrying amount of defined benefit obligations.
the recoverability. The uncertainty of the recoverability is taken into account
The Corporation and its subsidiaries’ accrued benefit liability in respect of
in establishing the deferred income tax assets. The Corporation and its
defined benefit plans is calculated separately for each plan by discounting the
subsidiaries’ financial planning process provides a significant basis for the
amount of the benefit that employees have earned in return for their service
measurement of deferred income tax assets.
in current and prior periods and deducting the fair value of any plan assets.
Deferred tax assets and liabilities are measured at the tax rates expected to
The Corporation and its subsidiaries determine the net interest component
apply in the year when the asset is realized or the liability is settled, based on
of the pension expense for the period by applying the discount rate used to
tax rates and tax laws that have been enacted or substantively enacted at the
measure the accrued benefit liability at the beginning of the annual period
balance sheet date. Deferred tax assets and deferred tax liabilities are offset,
to the net accrued benefit liability. The discount rate used to value liabilities
if a legally enforceable right exists to net current tax assets against current
is determined by reference to market yields on high-quality corporate bonds.
tax liabilities and the deferred taxes relate to the same taxable entity and the
If the plan benefits are changed, or a plan is curtailed, any past service costs
same taxation authority.
or curtailment gains or losses are recognized immediately in net earnings.
The carrying amount of deferred tax assets is reviewed at each balance sheet
Net interest costs, current service costs, past service costs and curtailment
gains or losses are included in operating and administrative expenses.
Remeasurements arising from defined benefit plans represent actuarial
gains and losses, and the actual return on plan assets, less interest calculated
at the discount rate and changes in the asset ceiling. Remeasurements are
recognized immediately through other comprehensive income and are not
reclassified to net earnings.
The accrued benefit asset (liability) represents the plan surplus (deficit) and
is included in other assets (other liabilities).
Payments to the defined contribution plans are expensed as incurred.
date and reduced to the extent that it is no longer probable that sufficient future
taxable profits will be available to allow all or part of the deferred tax asset to
be utilized. Unrecognized deferred tax assets are reassessed at each balance
sheet date and are recognized to the extent that it has become probable
that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax liabilities are recognized for taxable temporary differences
arising on investments in subsidiaries, jointly controlled corporations and
associates, except where the group controls the timing of the reversal of the
temporary differences and it is probable that the temporary differences will
not reverse in the foreseeable future.
INCOME TAXES
The income tax expense for the period represents the sum of current income
DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation and its subsidiaries use derivative products as risk
management instruments to hedge or manage asset, liability and capital
tax and deferred income tax. Income tax is recognized as an expense or
positions, including revenues. The Corporation and its subsidiaries’ policy
recovery in the statements of earnings, except to the extent that it relates
guidelines prohibit the use of derivative instruments for speculative
to items that are not recognized in the statements of earnings (whether in
trading purposes.
other comprehensive income or directly in equity), in which case the income
tax is also recognized in other comprehensive income or directly in equity.
Current income tax
Current income tax is based on taxable income for the year. Current 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 rates that have been enacted or substantively enacted at the balance
sheet date. Current tax assets and current tax liabilities are offset, if a legally
Derivatives are recorded at fair value on the 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 on the
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.
enforceable right exists to offset the recognized amounts and the entity
Derivatives are valued using market transactions and other market evidence
intends either to settle on a net basis, or to realize the assets and settle the
whenever possible, including market-based inputs to models, broker or dealer
liabilities simultaneously.
A provision for tax uncertainties which meets the probable threshold for
recognition is measured based on the probability-weighted average approach.
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
56
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 2 Basis of Presentation and Summary of Significant Accounting Policies (continued)
in the market. The Corporation and its subsidiaries generally use similar
models to value similar instruments. Valuation models require a variety of
EMBEDDED DERIVATIVES
An embedded derivative is a component of a host contract that modifies
inputs, including contractual terms, market prices and rates, yield curves,
the cash flows of the host contract in a manner similar to a derivative,
credit curves, measures of volatility, prepayment rates and correlations of
according to a specified interest rate, financial instrument price, foreign
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, then the relationship
does not qualify for hedge accounting treatment and both the hedged item
and the hedging instrument are reported independently, as if there was no
hedging relationship.
Where a hedging relationship exists, the Corporation and its subsidiaries
document 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 balance
sheets or to specific firm commitments or forecasted transactions. The
Corporation and its subsidiaries also assess, 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 hedge no longer qualifies
for hedge accounting.
Fair value hedges
Fair value hedges are used to manage the exposure to changes in fair value
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 statement
of earnings. Embedded derivatives that meet the definition of an insurance
contract are accounted for and measured as an insurance contract.
EQUITY
Preferred shares are classified as equity if they are non-redeemable, or
retractable only at the Corporation’s option and any dividends are
discretionary. Costs that are directly attributable to the issue of share capital
are recognized as a reduction from retained earnings, net of income tax.
Reser ves are composed of share-based compensation and other
comprehensive income. Share-based compensation reserve represents
the vesting of options less options exercised. Other comprehensive income
represents the total of the unrealized foreign exchange gains (losses) on
translation of foreign operations, the actuarial gains (losses) on benefit plans,
the unrealized gains (losses) on available-for-sale assets, the unrealized gains
(losses) on cash flow hedges, and the share of other comprehensive income
of jointly controlled corporations and associates.
Non-controlling interests represent the proportion of equity that is
attributable to minority shareholders of subsidiaries.
of a recognized asset or liability or an unrecognized firm commitment, or
an identified portion of such an asset, liability or firm commitment, that is
SHARE-BASED PAYMENTS
The fair value-based method of accounting is used for the valuation of
attributable to a particular risk and could affect profit or loss. For fair value
compensation expense for options granted to employees of the Corporation
hedges, changes in fair value of both the hedging instrument and the hedged
and its subsidiaries. Compensation expense is recognized as an increase to
item are recorded in net investment income and consequently any ineffective
operating and administrative expenses in the statements of earnings over
portion of the hedge is recorded immediately in net investment income.
the vesting period of the granted options, with a corresponding increase in
Cash flow hedges
Cash flow hedges are used to manage the exposure to variability in cash
the proceeds received, together with the amount recorded in share-based
compensation reserve, are added to the stated capital of the entity issuing
flows that is attributable to a particular risk associated with a recognized
the corresponding shares.
share-based compensation reserve. When the stock options are exercised,
asset or liability or a highly probable forecast transaction and could affect
profit or loss. For cash flow hedges, the effective portion of the change in fair
value of the hedging instrument is recorded in other comprehensive income,
while the ineffective portion is recognized immediately in net investment
income. Gains and losses on cash flow hedges 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.
Net investment hedges
Net investment hedges are used to manage the exposure to changes in
the reporting entity’s share in the net share of a foreign operation. For net
investment hedges, the effective portion of changes in the fair value of the
hedging instrument is 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 other comprehensive income and will be reclassified into net earnings
when the instruments are derecognized.
The Corporation and its subsidiaries recognize a liability for cash-settled
awards, including those granted under Performance Share Unit plans and
Deferred Share Unit plans. Compensation expense is recognized as an
increase to operating and administrative expenses in the statements of
earnings, net of related hedges, and a liability is recognized on the balance
sheets over the vesting period. The liability is remeasured at fair value at each
reporting period with the change in the liability recorded in operating and
administrative expenses.
FOREIGN CURRENCY TRANSLATION
The Corporation and its subsidiaries operate with multiple functional
currencies. The Corporation’s financial statements are prepared in Canadian
dollars, which is the functional and presentation currency of the Corporation.
Assets and liabilities denominated in foreign currencies are translated
into each entity’s functional currency at exchange rates prevailing at the
balance sheet dates for monetary items and at exchange rates prevailing
at the transaction date for non-monetary items. Revenues and expenses
denominated in foreign currencies are translated into each entity’s functional
currency at an average of daily rates. Realized and unrealized exchange gains
and losses are included in net investment income.
57
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 2 Basis of Presentation and Summary of Significant Accounting Policies (continued)
Translation of net investment in foreign operations
Foreign operations are subsidiaries, jointly controlled corporations,
IFRS 4 – Insurance Contracts
In September 2016, the IASB issued an amendment to IFRS 4, Insurance
associates and/or business units with functional currencies other than the
Contracts. The amendment “Applying IFRS 9, Financial Instruments (IFRS 9) with
Canadian dollar. Assets and liabilities are translated into Canadian dollars at
IFRS 4, Insurance Contracts” provides qualifying insurance companies with two
the rate of exchange prevailing at the balance sheet dates and all revenues
options to address the potential volatility associated with implementing
and expenses are translated at an average of daily rates. Unrealized foreign
IFRS 9 before the new proposed insurance contract standard is effective. The
currency translation gains and losses on the Corporation’s net investment in
two options are as follows:
its foreign operations are presented as a component of other comprehensive
income. Unrealized foreign currency translation gains and losses are
recognized proportionately in net earnings when there has been a disposal
of a foreign operation.
POLICYHOLDER BENEFITS
Policyholder benefits include benefits and claims on life insurance contracts,
▪ Deferral approach: provides the option to defer implementation of IFRS 9
until the year 2021 or the effective date of the new insurance contract
standard, whichever is earlier, or
▪ Overlay approach: provides the option to recognize the volatility that could
arise when IFRS 9 is applied within other comprehensive income, rather
than profit or loss.
maturity payments, annuity payments and surrenders. Gross benefits and
The Corporation qualifies for the amendment and will be applying the deferral
claims for life insurance contracts include the cost of all claims arising during
approach to adopt both IFRS 9 and the new insurance contract standard
the year and settlement of claims. Death claims and surrenders are recorded
simultaneously on January 1, 2021.
on the basis of notifications received. Maturities and annuity payments are
recorded when due.
LEASES
Leases that do not transfer substantially all the risks and rewards of ownership
are classified as operating leases. Payments made under operating leases,
where the Corporation and its subsidiaries are the lessee, are charged to net
earnings over the period of use.
IFRS 9 – Financial Instruments
The IASB issued IFRS 9 which replaces IAS 39, Financial Instruments: Recognition
and Measurement, the current standard for accounting for financial
instruments. The standard was completed in three separate phases:
▪ Classification and measurement: this phase requires that financial assets
be classified at either amortized cost or fair value on the basis of the entity’s
business model for managing the financial assets and the contractual cash
Where the Corporation and its subsidiaries are the lessor under an operating
flow characteristics of the financial assets.
lease for its investment property, the assets subject to the lease arrangement
are presented within the balance sheets. Income from these leases is
recognized in the statements of earnings on a straight-line basis over the
lease term.
Leases that transfer substantially all the risks and rewards of ownership to
the lessee are classified as finance leases. Where the Corporation and its
subsidiaries are the lessor under a finance lease, 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 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 statements of earnings at a constant
periodic rate of return on net investment in the finance lease.
EARNINGS PER COMMON SHARE
Basic earnings per common share is determined by dividing net earnings
available to common shareholders by the weighted average number of
common shares outstanding for the year. Diluted earnings per common share
is determined using the same method as basic earnings per common share,
except that net earnings available to common shareholders and the weighted
average number of common shares outstanding are adjusted to include
▪ Impairment methodology: this phase replaces the current incurred loss
model for impairment of financial assets with an expected loss model.
▪ Hedge accounting: this phase replaces the current rule-based hedge
accounting requirements in IAS 39 with guidance that more closely aligns
the accounting with an entity’s risk management activities.
As the Corporation will apply the deferral approach as noted above, the
standard will be effective for the Corporation on January 1, 2021.
IFRS 15 – Revenue from Contracts with Customers
The IASB issued IFRS 15, Revenue from Contracts with Customers, which provides
a single model for entities to use in accounting for revenue arising from
contracts with customers. The model requires an entity to recognize revenue
as the goods or services are transferred to customers in an amount that
reflects the expected consideration. The revenue recognition requirements
in IFRS 15 do not apply to the revenue arising from insurance contracts, leases
and financial instruments.
The standard will be effective January 1, 2018. The Corporation and its
subsidiaries are evaluating the impact of the adoption of this standard.
The Corporation and its subsidiaries do not anticipate the adoption of this
standard will have a significant impact, however it is not yet possible to
provide a reliable estimate of the impact on the Corporation’s financial
the potential dilutive effect of outstanding stock options granted by the
statements.
Corporation and its subsidiaries, as determined by the treasury stock method.
FUTURE ACCOUNTING CHANGES
The Corporation and its subsidiaries continuously monitor the potential
changes proposed by the International Accounting Standards Board (IASB)
and analyze the effect that changes in the standards may have on their
consolidated financial statements when they become effective.
IFRS 16 – Leases
The IASB issued IFRS 16, Leases, which requires a lessee to recognize a
right-of-use asset representing its right to use the underlying leased asset
and a corresponding lease liability representing its obligation to make
lease payments for all leases. A lessee recognizes the related expense as
depreciation on the right-of-use asset and interest on the lease liability.
Short-term (less than 12 months) and low-value asset leases are exempt from
these requirements.
The standard will be effective January 1, 2019. The Corporation and its
subsidiaries are evaluating the impact of the adoption of this standard.
58
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 3 Business Acquisitions
LIFECO
On August 1, 2016, Lifeco, through its indirect wholly owned Irish subsidiary,
During the fourth quarter of 2016, Lifeco completed its comprehensive
Irish Life, completed the acquisition of Aviva Health Insurance Ireland Limited
evaluation of the fair value of the net assets acquired from both Aviva Health
(Aviva Health), an Irish health insurance company, and assumed control of
and GloHealth and the purchase price allocation. As a result, initial goodwill
GloHealth Financial Services Limited (GloHealth), where Irish Life previously
presented in the September 30, 2016 unaudited interim financial statements
held 49%. The fair value of the 49% equity interest in GloHealth at acquisition
in the amount of $126 million has been adjusted in the fourth quarter of 2016.
was $32 million, which includes a fair value increase of $24 million recorded
in net investment income for the period ended December 31, 2016. Lifeco now
holds 100% of the equity interest of GloHealth.
The amounts assigned to the assets acquired, goodwill, liabilities assumed and contingent consideration for both Aviva Health and GloHealth are as follows:
Assets acquired and goodwill
Cash and cash equivalents
Investments
Reinsurance assets
Other assets
Intangible assets
Goodwill
Liabilities assumed and contingent consideration
Insurance contract liabilities
Other liabilities
Contingent consideration
85
123
242
292
35
95
872
360
318
37
715
The goodwill represents the excess of the purchase price over the fair value
Aviva Health was rebranded as Irish Life Health; the combined operations of
of the net assets acquired, representing the synergies or future economic
Aviva Health and GloHealth contributed $117 million in revenues and incurred
benefits arising from other assets acquired that are not individually identified
net losses of $8 million, which included acquisition and restructuring expenses
and separately recognized in the acquisition. The goodwill is not deductible
of $13 million, from the date of acquisition to December 31, 2016. These amounts
for tax purposes.
are included in the statements of earnings and comprehensive income.
Note 4 Cash and Cash Equivalents
DECEMBER 31
Cash
Cash equivalents
Cash and cash equivalents
2016
1,658
2,738
4,396
2015
1,900
2,288
4,188
At December 31, 2016, cash amounting to $185 million was restricted for use by subsidiaries ($159 million at December 31, 2015).
59
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 5 Investments
CARRYING VALUES AND FAIR VALUES
Carrying values and estimated fair values of investments are as follows:
DECEMBER 31
Bonds
[1]
Designated as fair value through profit or loss
Classified as fair value through profit or loss [1]
Available for sale
Loans and receivables
Mortgage loans
Loans and receivables
Classified as fair value through profit or loss [1]
Shares
Designated as fair value through profit or loss [1]
Available for sale [2]
Investment properties
Loans to policyholders
CARRYING
VALUE
85,697
2,586
11,819
16,970
2016
FAIR
VALUE
85,697
2,586
11,819
18,484
CARRYING
VALUE
83,645
2,815
12,014
16,905
2015
FAIR
VALUE
83,645
2,815
12,014
18,253
117,072
118,586
115,379
116,727
29,295
30,418
29,029
30,712
339
339
384
384
29,634
30,757
29,413
31,096
7,673
558
8,231
4,340
8,467
7,673
558
8,231
4,340
8,467
6,692
597
7,289
5,237
8,694
6,692
597
7,289
5,237
8,694
167,744
170,381
166,012
169,043
[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. For Lifeco,
changes in the fair value of financial assets designated as fair value through profit or loss are generally offset by changes in insurance contract liabilities, since the
measurement of insurance contract liabilities is determined with reference to the assets supporting the liabilities.
A financial asset is classified as fair value through profit or loss on initial recognition if it is part of a portfolio that is actively traded for the purpose of earning
investment income.
[2] Fair value of certain shares available for sale cannot be reliably measured, therefore these investments are held at cost.
BONDS AND MORTGAGES
Carrying value of bonds and mortgages due over the current and non-current term is as follows:
DECEMBER 31, 2016
Bonds
Mortgage loans
DECEMBER 31, 2015
Bonds
Mortgage loans
1 YEAR OR LESS
1-5 YEARS
OVER 5 YEARS
TOTAL
TERM TO MATURIT Y
CARRYING VALUE
12,021
2,836
14,857
26,762
13,162
39,924
77,974
13,576
91,550
116,757
29,574
146,331
CARRYING VALUE
1 YEAR OR LESS
1-5 YEARS
OVER 5 YEARS
TOTAL
TERM TO MATURIT Y
12,041
2,906
14,947
25,901
11,875
37,776
77,070
14,600
91,670
115,012
29,381
144,393
The table shown above excludes the carrying value of impaired bonds and mortgages, as the ultimate timing of collectability is uncertain.
60
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 5 Investments (continued)
IMPAIRED INVESTMENTS AND ALLOWANCE FOR CREDIT LOSSES
Carrying amount of impaired investments is as follows:
DECEMBER 31
Impaired amounts by classification
Fair value through profit or loss
Available for sale
Loans and receivables
Total
2016
283
10
82
375
2015
355
11
33
399
The carrying amount of impaired investments includes bonds and mortgages loans. The above carrying values for loans and receivables are net of allowances
for credit losses of $44 million as at December 31, 2016 ($21 million as at December 31, 2015). The allowance for credit losses is supplemented by the provision
for future credit losses included in insurance contract liabilities.
NET INVESTMENT INCOME
YEAR ENDED DECEMBER 31, 2016
Regular net investment income
Investment income earned
Net realized gains
Net allowances for credit losses on loans and receivables
Other income (expenses)
Changes in fair value through profit or loss
Net investment income
YEAR ENDED DECEMBER 31, 2015
Regular net investment income
Investment income earned
Net realized gains
Other income (expenses)
Changes in fair value through profit or loss
Net investment income
BONDS
MORTGAGE
LOANS
SHARES
INVESTMENT
PROPERTIES
OTHER
TOTAL
4,236
110
(7)
–
4,339
3,182
7,521
985
67
(28)
(9)
1,015
(2)
267
5
–
–
272
959
1,013
1,231
325
–
–
(84)
241
61
302
543
6,356
–
–
(113)
430
(294)
136
182
(35)
(206)
6,297
3,906
10,203
BONDS
MORTGAGE
LOANS
SHARES
INVESTMENT
PROPERTIES
OTHER
TOTAL
4,259
1,021
114
–
4,373
(1,987)
2,386
118
(11)
1,128
4
1,132
280
10
–
290
(412)
(122)
356
–
(100)
256
249
505
398
–
(113)
285
133
418
6,314
242
(224)
6,332
(2,013)
4,319
Investment income earned comprises income from investments that
properties income includes rental income earned on investment properties,
are classified as available for sale, loans and receivables and classified or
ground rent income earned on leased and sub-leased land, fee recoveries,
designated as fair value through profit or loss net of impairment charges.
lease cancellation income, and interest and other investment income earned
Investment income from bonds and mortgage loans includes interest income
on investment properties. Other income includes policyholder loan income,
and premium and discount amortization. Income from shares includes
foreign exchange gains and losses, income earned from derivative financial
dividends and distributions from equity investment funds. Investment
instruments and other miscellaneous income.
INVESTMENT PROPERTIES
The carrying value of investment properties and changes in the carrying value of investment properties are as follows:
DECEMBER 31
Balance, beginning of year
Additions
Changes in fair value through profit or loss
Disposals
Foreign exchange rate changes and other
Balance, end of year
2016
5,237
102
61
(427)
(633)
4,340
2015
4,613
278
249
(282)
379
5,237
61
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 5 Investments (continued)
TRANSFERRED FINANCIAL ASSETS
Lifeco engages in securities lending to generate additional income. Lifeco’s
cash collateral included in the collateral deposited with Lifeco’s lending agent
securities custodians are used as lending agents. Collateral, which exceeds the
as at December 31, 2016 and December 31, 2015. In addition, the securities
fair value of the loaned securities, is deposited by the borrower with Lifeco’s
lending agent indemnifies Lifeco against borrower risk, meaning that the
lending agent and maintained by the lending agent until the underlying
lending agent agrees contractually to replace securities not returned due to a
security has been returned. The fair value of the loaned securities is monitored
borrower default. As at December 31, 2016, Lifeco had loaned securities (which
on a daily basis by the lending agent, who obtains or refunds additional
are included in investments) with a fair value of $7,520 million ($6,593 million
collateral as the fair value of the loaned securities fluctuates. There was no
at December 31, 2015).
Note 6 Funds Held by Ceding Insurers
At December 31, 2016, Lifeco had amounts on deposit of $10,781 million
In 2016, a subsidiary of Lifeco completed a portfolio transfer of approximately
($15,512 million at December 31, 2015) for funds held by ceding insurers on
$1,300 million whereby investment contract liabilities and supporting bonds
the balance sheets. Income and expenses arising from the agreements are
and cash were acquired. The portfolio of investment contract liabilities had
included in net investment income on the statements of earnings.
been previously reinsured by Lifeco on a funds-withheld basis. As a result, the
In 2016, Lifeco completed the transfer of approximately $1,600 million of
annuity policies from The Equitable Life Assurance Company (Equitable
Life) acquired during 2015. As a result, the related assets presented as funds
held by ceding insurers at December 31, 2015 are recorded in investments at
December 31, 2016.
related assets presented in funds held by ceding insurers at December 31, 2015
are recorded in investments at December 31, 2016.
The details of the funds on deposit for certain agreements where Lifeco has credit risk are as follows:
CARRYING VALUES AND ESTIMATED FAIR VALUES
CARRYING
VALUE
214
8,391
118
8,723
8,218
505
8,723
2016
FAIR
VALUE
214
8,391
118
8,723
8,218
505
8,723
2016
618
3,792
3,300
476
205
8,391
CARRYING
VALUE
180
2015
FAIR
VALUE
180
13,472
13,472
178
178
13,830
13,830
13,222
13,222
608
608
13,830
13,830
2015
3,697
3,405
5,186
798
386
13,472
DECEMBER 31
Cash and cash equivalents
Bonds
Other assets
Supporting:
Reinsurance liabilities
Surplus
ASSET QUALITY
The following table provides details of the carrying value of the bond portfolio by credit rating:
BOND PORTFOLIO BY CREDIT RATING
DECEMBER 31
AAA
AA
A
BBB
BB and lower
Total bonds
62
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 7 Investments in Jointly Controlled Corporations and Associates
Investments in jointly controlled corporations and associates are composed
Investments in jointly controlled corporations and associates also include
principally of the Corporation’s 50% interest in Parjointco. As at December 31,
Lifeco’s 30.4% investment in Allianz Ireland, an unlisted general insurance
2016, Parjointco held a 55.5% equity interest in Pargesa (same as December 31,
company operating in Ireland (same as December 31, 2015), held through its
2015), representing 75.4% of the voting rights.
wholly owned subsidiary Irish Life.
The carrying values of the investments in jointly controlled corporations and associates are as follows:
DECEMBER 31
PARJOINTCO
OTHER
TOTAL
PARJOINTCO
OTHER
2016
2015
TOTAL
Carrying value, beginning of year
Investments
Share of earnings (losses)
Share of other comprehensive income (loss)
Dividends
Other
Carrying value, end of year
2,610
–
(88)
379
(75)
(15)
2,811
295
36
(10)
(11)
(18)
–
292
2,905
2,440
237
2,677
36
(98)
368
(93)
(15)
–
205
24
(69)
10
18
19
22
(4)
3
18
224
46
(73)
13
3,103
2,610
295
2,905
In 2016, Groupe Bruxelles Lambert, a subsidiary of Pargesa, recorded
The net asset value of the Corporation’s indirect interest in Pargesa is
impairment charges of €1,682 million on its investment in LafargeHolcim Ltd
approximately $3,260 million as at December 31, 2016. The carrying value
due to a significant decline in the share price. The Corporation’s share of
of the investment in Pargesa is $2,811 million, or $1,981 million excluding
this charge is $360 million and is included in share of earnings (losses) of
the unrealized net gains of its underlying investments. Pargesa’s financial
investments in jointly controlled corporations and associates.
information as at and for the year ended December 31, 2016 can be obtained
from its publicly available information.
Note 8 Owner-Occupied Properties and Capital Assets
The carrying value and the changes in the carrying value of owner-occupied properties and capital assets are as follows:
DECEMBER 31
Cost, beginning of year
Additions
Disposal/retirements
Changes in foreign exchange rates
Cost, end of year
Accumulated amortization, beginning of year
Amortization
Disposal/retirements
Changes in foreign exchange rates
Accumulated amortization, end of year
Carrying value, end of year
OWNER-
OCCUPIED
PROPERTIES
CAPITAL
ASSETS
2016
TOTAL
OWNER-
OCCUPIED
PROPERTIES
CAPITAL
ASSETS
2015
TOTAL
776
26
(2)
(13)
787
(72)
(12)
–
–
(84)
703
1,240
2,016
732
1,062
1,794
137
(49)
1
163
(51)
(12)
11
(2)
35
159
(13)
32
170
(15)
67
1,329
2,116
776
1,240
2,016
(838)
(97)
46
(15)
(904)
425
(910)
(109)
46
(15)
(988)
1,128
(61)
(12)
1
–
(72)
704
(747)
(88)
8
(11)
(838)
402
The following table provides details of the carrying value of owner-occupied properties and capital assets by geographic location:
DECEMBER 31
Canada
United States
Europe
2016
717
270
141
1,128
(808)
(100)
9
(11)
(910)
1,106
2015
680
277
149
1,106
63
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 9 Other Assets
DECEMBER 31
Premiums in course of collection, accounts receivable and interest receivable
Deferred acquisition costs
Pension benefits [Note 24]
Income taxes receivable
Trading account assets
Finance leases receivable
Prepaid expenses
Deposit for investment in China AMC [1]
Other
2016
5,056
597
214
111
516
273
155
193
570
2015
4,120
704
250
79
590
293
146
–
726
[1] On December 29, 2016 and January 5, 2017, Mackenzie Investments, a subsidiary of IGM, entered into agreements to acquire, in two separate transactions, a
13.9% interest in China AMC, a fund management company in China for an aggregate consideration of approximately $647 million. In accordance with the terms
of these agreements, Mackenzie Investments made a deposit of $193 million. The transactions are expected to close in the first half of 2017 and are subject to
customary closing conditions, including Chinese regulatory approvals.
7,685
6,908
Total other assets of $6,390 million as at December 31, 2016 ($5,636 million as at December 31, 2015) are to be realized within 12 months.
Note 10 Goodwill and Intangible Assets
GOODWILL
The carrying value and changes in the carrying value of goodwill are as follows:
DECEMBER 31
Balance, beginning of year
Business acquisitions [Note 3]
Changes in foreign exchange rates
Balance, end of year
2016
2015
COST
ACCUMUL ATED
IMPAIRMENT
CARRYING
VALUE
COST
ACCUMUL ATED
IMPAIRMENT
CARRYING
VALUE
10,451
(1,241)
9,210
10,192
(1,043)
9,149
95
(67)
–
36
95
(31)
3
256
–
(198)
3
58
10,479
(1,205)
9,274
10,451
(1,241)
9,210
INTANGIBLE ASSETS
The carrying value and changes in the carrying value of the intangible assets are as follows:
Indefinite life intangible assets
BRANDS,
TRADEMARKS
AND TRADE
NAMES
CUSTOMER
CONTRAC T-
REL ATED
MUTUAL FUND
MANAGEMENT
CONTRAC TS
1,305
(41)
1,264
3,019
(81)
2,938
(162)
(1,116)
5
32
(157)
(1,084)
741
–
741
–
–
–
SHAREHOLDERS’
PORTION OF
ACQUIRED
FUTURE
PARTICIPATING
ACCOUNT
PROFIT
354
–
354
–
–
–
1,107
1,854
741
354
TOTAL
5,419
(122)
5,297
(1,278)
37
(1,241)
4,056
DECEMBER 31, 2016
Cost, beginning of year
Changes in foreign exchange rates
Cost, end of year
Accumulated impairment, beginning of year
Changes in foreign exchange rates
Accumulated impairment, end of year
Carrying value, end of year
64
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 10 Goodwill and Intangible Assets (continued)
DECEMBER 31, 2015
Cost, beginning of year
Additions
Changes in foreign exchange rates
Cost, end of year
Accumulated impairment, beginning of year
Changes in foreign exchange rates
Accumulated impairment, end of year
Carrying value, end of year
Finite life intangible assets
DECEMBER 31, 2016
Cost, beginning of year
Additions
Disposal/redemption
Changes in foreign exchange rates
Other, including write-off of assets fully amortized
Cost, end of year
Accumulated amortization, beginning of year
Amortization
Disposal/redemption
Changes in foreign exchange rates
Other, including write-off of assets fully amortized
Accumulated amortization, end of year
Carrying value, end of year
DECEMBER 31, 2015
Cost, beginning of year
Additions
Disposal/redemption
Changes in foreign exchange rates
Other, including write-off of assets fully amortized
BRANDS,
TRADEMARKS
AND TRADE
NAMES
CUSTOMER
CONTRAC T-
REL ATED
MUTUAL FUND
MANAGEMENT
CONTRAC TS
1,206
2,592
–
99
3
424
1,305
3,019
(140)
(22)
(162)
1,143
(939)
(177)
(1,116)
1,903
741
–
–
741
–
–
–
SHAREHOLDERS’
PORTION OF
ACQUIRED
FUTURE
PARTICIPATING
ACCOUNT
PROFIT
TOTAL
354
4,893
–
–
3
523
354
5,419
–
–
–
(1,079)
(199)
(1,278)
4,141
741
354
TECHNOLOGY
AND
SOFT WARE
CUSTOMER
CONTRAC T-
REL ATED
DEFERRED
SELLING
COMMISSIONS
OTHER
TOTAL
1,331
247
–
(25)
–
1,553
(727)
(132)
–
18
–
(841)
712
810
42
–
(21)
–
831
(418)
(50)
–
8
–
(460)
371
1,356
231
3,728
235
(68)
–
(149)
1,374
(629)
(205)
37
–
149
(648)
726
1
(4)
(12)
–
216
(112)
(11)
3
5
–
525
(72)
(58)
(149)
3,974
(1,886)
(398)
40
31
149
(115)
101
(2,064)
1,910
TECHNOLOGY
AND
SOFT WARE
CUSTOMER
CONTRAC T-
REL ATED
DEFERRED
SELLING
COMMISSIONS
OTHER
TOTAL
1,017
233
–
81
–
745
1,347
221
3,330
–
–
65
–
250
(64)
–
(177)
2
(1)
9
–
485
(65)
155
(177)
Cost, end of year
1,331
810
1,356
231
3,728
Accumulated amortization, beginning of year
Amortization
Impairment
Disposal/redemption
Changes in foreign exchange rates
Other, including write-off of assets fully amortized
Accumulated amortization, end of year
Carrying value, end of year
(574)
(101)
(2)
–
(50)
–
(727)
604
(338)
(49)
–
–
(31)
–
(418)
392
(637)
(203)
–
34
–
177
(629)
727
(98)
(11)
–
–
(3)
–
(112)
119
(1,647)
(364)
(2)
34
(84)
177
(1,886)
1,842
65
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 10 Goodwill and Intangible Assets (continued)
ALLOCATION TO CASH GENERATING UNITS
Goodwill and indefinite life intangible assets have been assigned to CGUs as follows:
DECEMBER 31
LIFECO
Canada
Group
Individual insurance / wealth management
Europe
Insurance and annuities
Reinsurance
United States
Financial services
Asset management
IGM
Investors Group
Mackenzie
Other and corporate
RECOVERABLE AMOUNT
GOODWILL
INTANGIBLE
ASSETS
TOTAL
GOODWILL
INTANGIBLE
ASSETS
2016
2015
TOTAL
1,156
3,028
2,047
1
205
–
1,443
1,251
143
9,274
–
973
1,156
4,001
1,156
3,028
–
973
1,156
4,001
216
2,263
1,978
246
2,224
–
–
1,841
–
1,003
23
1
205
1,841
1,443
2,254
166
4,056
13,330
1
210
–
1,443
1,251
143
9,210
–
–
1,896
–
1,003
23
1
210
1,896
1,443
2,254
166
4,141
13,351
Lifeco
For purposes of annual impairment testing, Lifeco allocates goodwill and
IGM Financial
IGM tests whether goodwill and indefinite life intangible assets are impaired
indefinite life intangible assets to its CGUs. Any potential impairment of
by assessing the carrying amounts with the recoverable amounts. The
goodwill or indefinite life intangible assets is identified by comparing the
recoverable amount of IGM’s CGUs is based on the best available evidence of
recoverable amount to its carrying value. Recoverable amount is based on
fair value less cost of disposal. Fair value is initially assessed with reference
fair value less cost of disposal.
Fair value is initially assessed with reference to valuation multiples of
comparable publicly traded financial institutions and previous business
acquisition transactions. These valuation multiples may include price-to-
earnings or price-to-book measures for life insurers and asset managers. This
assessment may give regard to a variety of relevant considerations, including
expected growth, risk and capital market conditions, among other factors.
The valuation multiples used in assessing fair value represent Level 2 inputs.
In the fourth quarter of 2016, Lifeco conducted its annual impairment testing
of goodwill and indefinite life intangible assets based on September 30, 2016
asset balances. It was determined that the recoverable amounts of cash
generating unit groupings were in excess of their carrying values and there
was no evidence of impairment.
Any reasonable changes in assumptions and estimates used in determining
the recoverable amounts of the CGUs are unlikely to cause the carrying values
to exceed their recoverable amounts.
to valuation multiples of comparable publicly traded financial institutions
and previous business acquisition transactions. These valuation multiples
may include price-to-earnings or other conventionally used measures for
investment managers or other financial service providers (multiples of value
to assets under management, revenues, or other measures of profitability).
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 fair value inputs.
The fair value less cost of disposal of IGM’s CGUs was compared with the
carrying amount and it was determined there was no impairment. Any
reasonable changes in assumptions and estimates used in determining the
recoverable amounts of the CGUs are unlikely to cause the carrying values to
exceed their recoverable amounts.
66
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 11 Segregated Funds and Other Structured Entities
Lifeco offers segregated fund products in Canada, the U.S. and Europe that
are referred to as segregated funds, separate accounts and unit-linked funds
SEGREGATED FUNDS AND GUARANTEE EXPOSURE
Lifeco offers retail segregated fund products, variable annuity products and
in the respective markets. These funds are contracts issued by insurers
unitized with profits products that provide for certain guarantees that are
to segregated fund policyholders where the benefit is directly linked to
tied to the fair values of the investment funds. While these products are
the performance of the investments, the risks or rewards of the fair value
similar to mutual funds, there is a key difference from mutual funds as the
movements and net investment income is realized by the segregated fund
segregated funds have certain guarantee features that protect the segregated
policyholders. The segregated fund policyholders are required to select the
fund policyholder from market declines in the underlying investments. These
segregated funds that hold a range of underlying investments. While Lifeco
guarantees are Lifeco’s primary exposure on these funds. Lifeco accounts
has legal title to the investments, there is a contractual obligation to pass
for these guarantees within insurance and investment contract liabilities in
along the investment results to the segregated fund policyholder and Lifeco
the financial statements. In addition to Lifeco’s exposure on the guarantees,
segregates these investments from those of the corporation itself.
the fees earned by Lifeco on these products are impacted by the fair value
In Canada and the U.S., the segregated fund and separate account assets are
of these funds.
legally separated from the general assets of Lifeco under the terms of the
In Canada, Lifeco offers retail segregated fund products through Great-West
policyholder agreement and cannot be used to settle obligations of Lifeco. In
Life, London Life and Canada Life. These products provide guaranteed
Europe, the assets of the funds are functionally and constructively segregated
minimum death benefits and guaranteed minimum accumulation on
from those of Lifeco. As a result of the legal and constructive arrangements
maturity benefits.
of these funds, the assets and liabilities of these funds are presented as line
items within the balance sheets titled investments on account of segregated
fund policyholders and with an equal liability titled insurance and investment
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, Lifeco has presented the non-
controlling ownership interest within the segregated funds for the risk of
policyholders as equal and offsetting amounts in the assets and liabilities.
The amounts presented within are $1,547 million at December 31, 2016
($1,390 million at December 31, 2015).
Within the 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 balance sheets. As these
amounts do not directly impact the revenues and expenses of Lifeco, these
amounts are not included separately in the statements of earnings.
In the U.S., Lifeco offers variable annuities with guaranteed minimum death
benefits through Great-West Financial. Most are a return of premium on
death with the guarantee expiring at age 70.
In Europe, Lifeco offers unitized with profits products through Canada Life
and unit-linked products with investment guarantees through Irish Life.
These products are similar to segregated fund products, but include pooling
of policyholders’ funds and minimum credited interest rates.
Lifeco also offers guaranteed minimum withdrawal benefits products in
Canada, the U.S., Ireland and Germany. Certain guaranteed minimum
withdrawal benefits products offered by Lifeco offer levels of death and
maturity guarantees. At December 31, 2016, the amount of guaranteed
minimum withdrawal benefits products in force in Canada, the U.S., Ireland
and Germany was $3,917 million ($3,488 million at December 31, 2015).
For further details on Lifeco’s risk and guarantee exposure and the
management of these risks, refer to the “Risk Management and Control
Practices” section of Lifeco’s 2016 annual report.
The following presents further details of the investments, determined in accordance with the relevant statutory reporting requirements of each region of
Lifeco’s operations, on account of segregated fund policyholders:
INVESTMENTS ON ACCOUNT OF SEGREGATED FUND POLICYHOLDERS
DECEMBER 31
Cash and cash equivalents
Bonds
Mortgage loans
Shares and units in unit trusts
Mutual funds
Investment properties
Accrued income
Other liabilities
Non-controlling mutual fund interest
2016
12,487
41,619
2,622
81,033
51,726
11,019
200,506
359
(2,009)
1,547
200,403
2015
11,656
42,160
2,596
80,829
50,101
10,839
198,181
382
(1,759)
1,390
198,194
67
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 11 Segregated Funds and Other Structured Entities (continued)
INSURANCE AND INVESTMENT CONTRACTS ON ACCOUNT OF SEGREGATED FUND POLICYHOLDERS
YEARS ENDED DECEMBER 31
Balance, beginning of year
Additions (deductions):
Policyholder deposits
Net investment income
Net realized capital gains on investments
Net unrealized capital gains (losses) on investments
Unrealized gains (losses) due to changes in foreign exchange rates
Policyholder withdrawals
Business and other acquisition
Segregated fund investment in General Fund
General Fund investment in segregated fund
Net transfer from General Fund
Non-controlling mutual fund interest
Balance, end of year
INVESTMENT INCOME ON ACCOUNT OF SEGREGATED FUND POLICYHOLDERS
YEARS ENDED DECEMBER 31
Net investment income
Net realized capital gains on investments
Net unrealized capital gains (losses) on investments
Unrealized gains (losses) due to changes in foreign exchange rates
Total
Change in insurance and investment contract liabilities
on account of segregated fund policyholders
Net
2016
198,194
21,358
2,379
4,275
6,311
(10,584)
(21,895)
193
8
(13)
20
157
2,209
200,403
2016
2,379
4,275
6,311
(10,584)
2,381
2,381
–
2015
174,966
21,592
2,855
4,780
(2,938)
12,933
(21,934)
5,465
43
(11)
65
378
23,228
198,194
2015
2,855
4,780
(2,938)
12,933
17,630
17,630
–
INVESTMENTS ON ACCOUNT OF SEGREGATED FUND POLICYHOLDERS (by fair value hierarchy level)
DECEMBER 31, 2016
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
Investments on account of segregated fund policyholders [1]
125,829
63,804
12,045
201,678
[1] Excludes other liabilities, net of other assets, of $1,275 million.
DECEMBER 31, 2015
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
Investments on account of segregated fund policyholders [1]
120,283
67,333
11,765
199,381
[1] Excludes other liabilities, net of other assets, of $1,187 million.
In 2016 certain foreign equity holdings valued at $18 million have been
As at December 31, 2016, $6,726 million ($5,925 million at December 31, 2015)
transferred from Level 2 to Level 1 ($412 million were transferred from Level
of the segregated funds were invested in funds managed by related parties
1 to Level 2 at December 31, 2015), based on Lifeco’s ability to utilize observable,
Investors Group and Mackenzie Investments, subsidiaries of IGM.
quoted prices in active markets. Level 2 assets include those assets where fair
value is not available from normal market pricing sources and where Lifeco
does not have visibility through to the underlying assets.
68
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 11 Segregated Funds and Other Structured Entities (continued)
The following presents additional information about Lifeco’s investments on account of segregated fund policyholders for which Lifeco has utilized Level 3
inputs to determine fair value for the years ended:
DECEMBER 31
Balance, beginning of year
Total gains (losses) included in segregated fund investment income
Purchases
Sales
Transfers into Level 3
Transfers out of Level 3
Balance, end of year
2016
11,765
(109)
584
(370)
175
–
2015
10,390
1,039
944
(607)
–
(1)
12,045
11,765
Transfers into Level 3 are due primarily to decreased observability of inputs
Factors that could cause assets under management and fees to decrease
in valuation methodologies. Transfers out of Level 3 are due primarily to
include declines in equity markets, changes in fixed income markets,
increased observability of inputs in valuation methodologies as evidenced
changes in interest rates and defaults, redemptions and other withdrawals,
by corroboration of market prices with multiple pricing vendors.
political and other economic risks, changing investment trends and relative
In addition to the segregated funds, Lifeco 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 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.
investment strategies for its unit holders based on the directive of each
Fee and other income earned by Lifeco resulting from Lifeco’s interests in these
individual fund.
structured entities was $4,323 million for the year ended December 31, 2016
Some of these funds are managed by related parties of Lifeco and Lifeco
($4,399 million in 2015).
receives management fees related to these services. Management fees
Included within other assets (Note 9) at December 31, 2016 is $435 million
can be variable due to the performance of factors – such as markets or
($501 million at December 31, 2015) of investments by Lifeco in bonds and shares
industries – in which the fund invests. Fee income derived in connection
of Putnam-sponsored funds and $81 million ($89 million at December 31, 2015)
with the management of investment funds generally increases or decreases
of investments in shares of sponsored unit trusts in Europe.
in direct relationship with changes of assets under management, which
is affected by prevailing market conditions, and the inflow and outflow of
client assets.
Note 12 Insurance and Investment Contract Liabilities
INSURANCE AND INVESTMENT CONTRACT LIABILITIES
DECEMBER 31
Insurance contract liabilities
Investment contract liabilities [1]
GROSS
LIABILIT Y
REINSURANCE
ASSETS
2016
NET
GROSS
LIABILIT Y
REINSURANCE
ASSETS
2015
NET
155,940
2,009
157,949
5,627
150,313
158,492
5,131
153,361
–
2,009
2,253
–
2,253
5,627
152,322
160,745
5,131
155,614
[1] Lifeco corrected the classification of $73 million of deferred tax liabilities to investment contract liabilities at December 31, 2015, to conform to the current period
presentation. The reclassification had no impact on the net earnings of the Corporation (refer to Note 16).
69
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 12 Insurance and Investment Contract Liabilities (continued)
COMPOSITION OF INSURANCE AND INVESTMENT CONTRACT LIABILITIES AND RELATED SUPPORTING ASSETS
The composition of insurance and investment contract liabilities of Lifeco is as follows:
DECEMBER 31
Participating
Canada
United States
Europe
Non-participating
Canada
United States
Europe
GROSS
LIABILIT Y
REINSURANCE
ASSETS
34,019
11,790
1,385
29,125
29,081
52,549
157,949
(443)
14
–
923
309
4,824
5,627
The composition of the assets supporting liabilities and equity of Lifeco is as follows:
GROSS
LIABILIT Y
REINSURANCE
ASSETS
2016
NET
34,462
11,776
1,385
28,202
28,772
47,725
32,072
12,278
1,519
28,162
27,625
59,089
152,322
160,745
2015
NET
32,491
12,262
1,519
27,368
27,286
54,688
155,614
34,019
11,790
1,385
29,125
29,081
52,549
(419)
16
–
794
339
4,401
5,131
3,199
5,742
186
5,970
1,256
BONDS
MORTGAGE
LOANS
SHARES [1]
INVESTMENT
PROPERTIES
OTHER
TOTAL
8,327
4,828
1,354
–
56
13
–
–
71
7
–
16,311
5,597
988
17,464
23,820
31,550
14,996
6,047
451
32
3,699
4,005
3,557
952
628
116,773
21,651
–
123
1,979
–
236
–
1,499
8,665
–
154
1,732
–
226
–
1,649
7,873
2,679
14,527
59
179
200,948
216,955
16,655
25,008
4,340
248,483
399,912
118,287
22,550
8,655
4,340
248,483
402,315
BONDS
MORTGAGE
LOANS
SHARES [1]
INVESTMENT
PROPERTIES
OTHER
TOTAL
15,332
5,887
1,087
18,848
23,023
31,982
13,048
5,736
7,816
485
40
3,839
3,813
4,358
941
729
114,943
22,021
4,112
1,341
3,471
5,906
167
3,736
789
32,072
12,278
1,519
28,162
27,625
59,089
3,342
19,181
65
411
199,876
213,930
16,735
25,260
5,237
249,861
399,935
116,291
23,446
7,839
5,237
249,861
402,674
DECEMBER 31, 2016
Participating liabilities
Canada
United States
Europe
Non-participating liabilities
Canada
United States
Europe
Other, including segregated funds
Total equity
Total carrying value
Fair value
DECEMBER 31, 2015
Participating liabilities
Canada
United States
Europe
Non-participating liabilities
Canada
United States
Europe
Other, including segregated funds
Total equity
Total carrying value
Fair value
[1] Includes Lifeco’s investments in jointly controlled corporations and associates.
Cash flows of assets supporting insurance and investment contract liabilities
Changes in the fair values of assets backing capital and surplus, less related
are matched within reasonable limits. Changes in the fair values of these
income taxes, would result in a corresponding change in surplus over time in
assets are essentially offset by changes in the fair value of insurance and
accordance with investment accounting policies.
investment contract liabilities.
70
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 12 Insurance and Investment Contract Liabilities (continued)
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:
DECEMBER 31, 2016
Balance, beginning of year
Impact of new business
Normal change in in-force business
Management actions and changes in assumptions
Business movement from/to external parties
Impact of foreign exchange rate changes
PARTICIPATING
NON-PARTICIPATING
GROSS
LIABILIT Y
REINSURANCE
ASSETS
NET
GROSS
LIABILIT Y
REINSURANCE
ASSETS
NET
TOTAL NET
45,844
(403)
46,247
112,648
5,534
107,114
153,361
35
2,009
(229)
–
(483)
–
(26)
2
–
(2)
35
2,035
(231)
–
(481)
5,396
(326)
5,722
966
(135)
(113)
824
335
–
142
(470)
(113)
5,757
2,177
(701)
(113)
(9,998)
(311)
(9,687)
(10,168)
Balance, end of year
47,176
(429)
47,605
108,764
6,056
102,708
150,313
PARTICIPATING
NON-PARTICIPATING
GROSS
LIABILIT Y
REINSURANCE
ASSETS
NET
GROSS
LIABILIT Y
REINSURANCE
ASSETS
NET
TOTAL NET
DECEMBER 31, 2015
Balance, beginning of year
Impact of new business
Normal change in in-force business
Management actions and changes in assumptions
Business movement from/to external parties
Impact of foreign exchange rate changes
Balance, end of year
23
1,046
(276)
–
2,158
45,844
42,893
(144)
43,037
102,305
5,295
–
(70)
(192)
–
3
23
1,116
(84)
–
2,155
4,380
(5,711)
(489)
1,588
10,575
126
(178)
(78)
(2)
371
97,010
4,254
(5,533)
(411)
1,590
10,204
140,047
4,277
(4,417)
(495)
1,590
12,359
(403)
46,247
112,648
5,534
107,114
153,361
Under fair value accounting, movement in the fair value of the supporting
The decrease in the United States was primarily due to updated economic
assets is a major factor in the movement of insurance contract liabilities.
assumptions of $27 million, updated longevity assumptions of $19 million,
Changes in the fair value of assets are largely offset by corresponding changes
updated life mortality assumptions of $17 million and modelling refinements
in the fair value of liabilities. The change in the value of the insurance contract
of $3 million.
liabilities associated with the change in the value of the supporting assets is
included in the normal change in the in-force business above.
Net participating insurance contract liabilities decreased by $231 million
in 2016 due to Lifeco’s management actions and assumption changes. The
In 2016, the major contributors to the decrease in net insurance contract
decrease was primarily due to updated expense and tax assumptions of
liabilities were the impact of foreign exchange rate changes of $10,168 million
$153 million, higher investment returns of $102 million, provisions for future
primarily due to the lower British pound and Lifeco’s management actions
policyholder dividends of $19 million, updated mortality assumptions of
and changes in assumptions of $701 million. This was partially offset by
$13 million and updated morbidity assumptions of $2 million, partially offset by
increases due to the impact of new business of $5,757 million and the normal
increases due to updated policyholder behaviour assumptions of $29 million
changes in the in-force business of $2,177 million, which was primarily due to
and modelling refinements of $29 million.
the change in fair value.
In 2015, the major contributors to the increase in net insurance contract
Net non-participating insurance contract liabilities decreased by $470 million
liabilities were the impact of foreign exchange rate changes of $12,359 million,
in 2016 due to Lifeco’s management actions and assumption changes including
the impact of new business of $4,277 million, and business movement from/to
a $56 million decrease in Canada, a $348 million decrease in Europe and a
external parties of $1,590 million, which was primarily due to the acquisition
$66 million decrease in the United States.
of Equitable Life’s annuity business during the first quarter of 2015, partially
The decrease in Canada was primarily due to updated morbidity assumptions
of $86 million, updated provision for claims of $61 million largely as a result
of a decreased lag in reporting of Group health claims, updated longevity
offset by decreases due to the normal changes in the in-force business of
$4,417 million, which were primarily due to the change in fair value, and
management actions and assumption changes of $495 million.
assumptions of $20 million and modelling refinements of $8 million, partially
Net non-participating insurance contract liabilities decreased by $411 million
offset by increases due to updated expense and tax assumptions of $91 million,
in 2015 due to Lifeco’s management actions and assumption changes including
updated economic assumptions of $20 million and updated life mortality
a $50 million decrease in Canada, a $331 million decrease in Europe and a
assumptions of $8 million.
$30 million decrease in the United States.
The decrease in Europe was primarily due to updated longevity assumptions
The decrease in Canada was primarily due to updated mortality assumptions
of $207 million, updated economic assumptions of $165 million, modelling
of $159 million, updated economic assumptions of $15 million and updated
refinements of $30 million, updated morbidity assumptions of $17 million and
expense and tax assumptions of $12 million, partially offset by increases due
updated policyholder behaviour assumptions of $9 million, partially offset
to updated policyholder behaviour assumptions of $85 million, and modelling
by increases due to updated life mortality assumptions of $43 million and
refinements of $49 million.
updated expense and tax assumptions of $40 million.
The decrease in Europe was primarily due to updated longevity assumptions
The discount rate for valuing the reinsurance asset was updated in Ireland.
of $292 million, updated economic assumptions of $184 million, updated
This change in accounting estimate increased gross liabilities and reinsurance
morbidity assumptions of $12 million and updates to other provisions of
assets by $360 million and had no impact on net liabilities or net earnings.
$10 million, partially offset by increases due to updated mortality assumptions
71
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 12 Insurance and Investment Contract Liabilities (continued)
of $64 million, updated expense and tax assumptions of $55 million, modelling
Net participating insurance contract liabilities decreased by $84 million
refinements of $37 million and updated policyholder behaviour assumptions
in 2015 due to Lifeco’s management actions and assumption changes. The
of $11 million.
The decrease in the United States was primarily due to updated economic
assumptions of $30 million and updated mortality assumptions of $8 million,
partially offset by increases due to updated policyholder behaviour
assumptions of $6 million.
decrease was primarily due to provisions for future policyholder dividends
of $4,991 million, updated expense and tax assumptions of $545 million and
updated mortality assumptions of $412 million, partially offset by increases
due to lower investment returns of $5,527 million, updated policyholder
behaviour assumptions of $188 million, and modelling refinements of
$149 million.
CHANGE IN INVESTMENT CONTRACT LIABILITIES MEASURED AT FAIR VALUE
DECEMBER 31
Balance, beginning of year
Normal change in in-force business
Investment experience
Management actions and changes in assumptions
Business movement from/to external parties
Impact of foreign exchange rate changes
Balance, end of year
2016
2,253
(220)
93
(46)
–
(71)
2,009
2015
922
(89)
18
7
1,330
65
2,253
The carrying value of investment contract liabilities approximates their fair value. No investment contract liabilities have been reinsured.
In 2015, business movement from/to external parties was primarily due to a retrocession agreement to assume a block of investment contract liabilities in
the form of structured settlements with fixed terms and amount.
PREMIUM INCOME
DECEMBER 31
Direct premiums
Assumed reinsurance premiums
Total
POLICYHOLDER BENEFITS
DECEMBER 31
Direct
Assumed reinsurance
Total
2016
23,772
11,278
35,050
2016
16,721
11,594
28,315
2015
22,120
6,009
28,129
2015
15,880
6,673
22,553
ACTUARIAL ASSUMPTIONS
In the computation of insurance contract liabilities, valuation assumptions
Annuitant mortality is also studied regularly and the results are used to
modify established industr y experience annuitant mortality tables.
have been made regarding rates of mortality/morbidity, investment returns,
Mortality improvement has been projected to occur throughout future
levels of operating expenses, rates of policy termination and rates of
years for annuitants.
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 Lifeco’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. Mortality improvement has been
projected to occur for the next 25 years. In addition, appropriate provisions
have been made for future mortality deterioration on term insurance.
Morbidity
Lifeco uses industry-developed experience tables modified to reflect emerging
Lifeco experience. Both claim incidence and termination are monitored
regularly and emerging experience is factored into the current valuation.
Property and casualty reinsurance
Insurance contract liabilities for property and casualty reinsurance written
by London Reinsurance Group Inc. (LRG), a subsidiary of London Life, are
determined using accepted actuarial practices for property and casualty
insurers in Canada. The insurance contract liabilities have been established
using cash flow valuation techniques, including discounting. The insurance
contract liabilities are based on cession statements provided by ceding
companies. In addition, insurance contract liabilities also include an amount
for incurred but not reported losses which may differ significantly from the
ultimate loss development. The estimates and underlying methodology
are continually reviewed and updated, and adjustments to estimates are
reflected in net earnings. LRG analyzes the emergence of claims experience
72
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 12 Insurance and Investment Contract Liabilities (continued)
against expected assumptions for each reinsurance contract separately and
at the end of term for renewable term policies in Canada and Reinsurance.
at the portfolio level. If necessary, a more in-depth analysis is undertaken of
Industry experience has guided Lifeco’s assumptions for these products as
the cedant experience.
Lifeco’s own experience is very limited.
Investment returns
The assets which correspond to the different liability categories are
Utilization of elective policy options
There are a wide range of elective options embedded in the policies issued
segmented. For each segment, projected cash flows from the current assets
by Lifeco. Examples include term renewals, conversion to whole life
and liabilities are used in the CALM to determine insurance contract liabilities.
insurance (term insurance), settlement annuity purchase at guaranteed
Cash flows from assets are reduced to provide for asset default losses. Testing
rates (deposit annuities) and guarantee resets (segregated fund maturity
under several interest rate and equity scenarios (including increasing and
guarantees). The assumed rates of utilization are based on Lifeco or industry
decreasing rates) is done to provide for reinvestment risk (refer to Note 21).
experience when it exists and, when not, on judgment considering incentives
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
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
future operating expenses for the liability type being valued. Improvements
in the determination of insurance contract liabilities with the assumption
in unit operating expenses are not projected. An inflation assumption is
that policyholder dividends or adjustable benefits will change in the future
incorporated in the estimate of future operating expenses consistent with
in response to the relevant experience. The dividend and policy adjustments
the interest rate scenarios projected under the CALM as inflation is assumed
are determined consistent with policyholders’ reasonable expectations, such
to be correlated with new money interest rates.
expectations being influenced by the participating policyholder dividend
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 Lifeco has no experience with specific types of policies or its exposure
is limited. Lifeco has significant exposures in respect of the T-100 and Level
Cost of Insurance Universal Life products in Canada and policy renewal rates
policies and/or policyholder communications, marketing material and past
practice. It is Lifeco’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.
RISK MANAGEMENT
Insurance risk
Insurance risk is the risk that the insured event occurs and that there are
Lifeco is in the business of accepting risk associated with insurance contract
liabilities. Lifeco’s objective is to mitigate its exposure to risk arising from these
large deviations between expected and actual actuarial assumptions,
contracts through product design, product and geographical diversification,
including mortality, persistency, longevity, morbidity, expense variations
the implementation of its underwriting strategy guidelines, and through the
and investment returns.
use of reinsurance arrangements.
The following table provides information about Lifeco’s insurance contract liabilities’ sensitivities to its management’s best estimate of the approximate
impact as a result of changes in assumptions used to determine Lifeco’s liability associated with these contracts.
INCREASE (DECREASE) IN NET EARNINGS
Mortality – 2% increase
Annuitant mortality – 2% decrease
Morbidity – 5% adverse change
Investment returns
Parallel shift in yield curve
1% increase
1% decrease
Change in range of interest rates
1% increase
1% decrease
Change in equity markets
10% increase
10% decrease
Change in best estimate returns for equities
1% increase
1% decrease
Expenses – 5% increase
Policy termination and renewal – 10% adverse change
2016
(281)
(384)
(242)
–
–
149
(491)
43
(50)
407
(438)
(117)
(608)
2015
(282)
(314)
(225)
–
–
109
(430)
45
(108)
433
(457)
(108)
(602)
73
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 12 Insurance and Investment Contract Liabilities (continued)
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.
DECEMBER 31
Canada
United States
Europe
GROSS
LIABILIT Y
REINSURANCE
ASSETS
63,144
40,871
53,934
157,949
480
323
4,824
5,627
2016
NET
62,664
40,548
49,110
GROSS
LIABILIT Y
REINSURANCE
ASSETS
60,234
39,903
60,608
375
355
4,401
5,131
2015
NET
59,859
39,548
56,207
155,614
152,322
160,745
Reinsurance risk
Maximum limits per insured life benefit amount (which vary by line of
Reinsurance contracts do not relieve Lifeco from its obligations to
policyholders. Failure of reinsurers to honour their obligations could result
business) are established for life and health insurance and reinsurance is
in losses to Lifeco. Lifeco evaluates the financial condition of its reinsurers
purchased for amounts in excess of those limits.
to minimize its exposure to significant losses from reinsurer insolvencies.
Reinsurance costs and recoveries as defined by the reinsurance agreement are
Certain of the reinsurance contracts are on a funds-withheld basis where
reflected in the valuation with these costs and recoveries being appropriately
Lifeco retains the assets supporting the reinsured insurance contract
calibrated to the direct assumptions.
liabilities, thus minimizing the exposure to significant losses from reinsurer
insolvency on those contracts.
Note 13 Obligations to Securitization Entities
IGM securitizes residential mortgages through the Canada Mortgage and
coupons and receive investment returns on repaid mortgage principal,
Housing Corporation (CMHC)-sponsored National Housing Act Mortgage-
is recorded as a derivative and had a negative fair value of $23 million at
Backed Securities (NHA MBS) Program and Canada Mortgage Bond (CMB)
December 31, 2016 (a negative fair value of $47 million in 2015).
Program and through Canadian bank-sponsored asset-backed commercial
paper (ABCP) programs. These transactions do not meet the requirements for
derecognition as IGM retains prepayment risk and certain elements of credit
risk. Accordingly, IGM has retained these mortgages on its balance sheets and
has recorded offsetting liabilities for the net proceeds received as obligations
to securitization entities which are carried at amortized cost.
Under the NHA MBS and CMB Programs, IGM has an obligation to make
timely payments to security holders regardless of whether amounts are
received from mortgagors. All mortgages securitized under the NHA MBS and
CMB Programs are insured by CMHC or another approved insurer under the
program. As part of the ABCP transactions, IGM has provided cash reserves
for credit enhancement which are carried at cost. Credit risk is limited to
IGM earns interest on the mortgages and pays interest on the obligations
these cash reserves and future net interest income as the ABCP Trusts have no
to securitization entities. As part of the CMB transactions, IGM enters
recourse to IGM’s other assets for failure to make payments when due. Credit
into a swap transaction whereby IGM pays coupons on CMBs and receives
risk is further limited to the extent these mortgages are insured.
investment returns on the NHA MBS and the reinvestment of repaid mortgage
principal. A component of this swap, related to the obligation to pay CMB
DECEMBER 31
Carrying value
NHA MBS and CMB Programs
Bank-sponsored ABCP
Total
Fair value
2016
SECURITIZED
MORTGAGES
OBLIGATIONS TO
SECURI TIZATION
ENTITIES
NET
SECURITIZED
MORTGAGES
OBLIGATIONS TO
SECURITIZATION
ENTITIES
4,942
2,673
7,615
4,987
2,734
7,721
(45)
(61)
(106)
4,612
2,369
6,981
4,670
2,422
7,092
7,838
7,873
(35)
7,238
7,272
2015
NET
(58)
(53)
(111)
(34)
The carrying value of obligations to securitization entities, which is recorded net of issue costs, includes principal payments received on securitized mortgages
that are not due to be settled until after the reporting period. Issue costs are amortized over the life of the obligation on an effective interest rate basis.
74
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 14 Debentures and Other Debt Instruments
CARRYING
VALUE
2016
FAIR
VALUE
CARRYING
VALUE
2015
FAIR
VALUE
DECEMBER 31
DEBENTURES
POWER FINANCIAL
6.90% debentures, due March 11, 2033, unsecured
250
328
250
328
LIFECO
5.25% subordinated debentures callable February 8, 2017 (€200 million),
including associated fixed to floating swap, unsecured
6.14% debentures due March 21, 2018, unsecured
4.65% debentures due August 13, 2020, unsecured
2.50% debentures due April 18, 2023 (€500 million), unsecured
1.75% debentures due December 7, 2026 (€500 million), unsecured
6.40% subordinated debentures due December 11, 2028, unsecured
6.74% debentures due November 24, 2031, unsecured
6.67% debentures due March 21, 2033, unsecured
6.625% deferrable debentures due November 15, 2034 (US$175 million), unsecured
5.998% debentures due November 16, 2039, unsecured
Subordinated debentures due May 16, 2046, bearing an interest rate of 2.538%
plus the 3-month LIBOR rate (US$300 million), with an interest rate swap
to pay fixed interest of 4.68%, unsecured
Subordinated debentures due June 21, 2067, bearing an interest rate of 5.691% until first call
par date of June 21, 2017 and, thereafter, at a rate equal to the Canadian 90-day bankers’
acceptance rate plus 1.49%, unsecured
Subordinated debentures due June 26, 2068, bearing an interest rate of 7.127% until first call
par date of June 26, 2018 and, thereafter, at a rate equal to the Canadian 90-day bankers’
acceptance rate plus 3.78%, unsecured
IGM FINANCIAL
6.58% debentures 2003 Series, due March 7, 2018, unsecured
7.35% debentures 2009 Series, due April 8, 2019, unsecured
6.65% debentures 1997 Series, due December 13, 2027, unsecured
7.45% debentures 2001 Series, due May 9, 2031, unsecured
7.00% debentures 2002 Series, due December 31, 2032, unsecured
7.11% debentures 2003 Series, due March 7, 2033, unsecured
6.00% debentures 2010 Series, due December 10, 2040, unsecured
Debentures held by Lifeco as investments
Total debentures
OTHER DEBT INSTRUMENTS
LIFECO
Commercial paper and other short-term debt instruments with interest rates from 0.670%
to 0.792% (0.213% to 0.223% at December 31, 2015), unsecured
Revolving credit facility with interest equal to LIBOR rate plus 0.70% or U.S. prime rate loan
(US$220 million; US$245 million at December 31, 2015), unsecured
Total other debt instruments
285
200
499
706
704
100
193
392
231
342
277
211
549
778
718
128
261
523
240
441
311
200
499
745
–
100
192
391
238
342
324
220
561
798
–
127
264
527
282
438
402
345
414
412
999
994
998
1,052
499
150
375
125
150
175
150
200
536
159
421
156
203
229
199
244
498
150
375
125
150
175
150
200
560
166
439
160
207
234
202
253
(42)
7,085
(55)
(43)
7,885
6,460
(57)
7,497
133
295
428
133
295
428
129
338
467
129
338
467
7,513
8,313
6,927
7,964
75
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 14 Debentures and Other Debt Instruments (continued)
LIFECO
In 2016, Great-West Life & Annuity Insurance Capital, LP II, a subsidiary
Subsequent event
On February 8, 2017, Irish Life Assurance, a subsidiary of Lifeco, redeemed its
of Lifeco, elected to not call its US$300 million 7.153% junior subordinated
5.25% €200 million subordinated debenture notes at their principal amount
debentures with a first par call date of May 16, 2016 and a final maturity date
together with accrued interest.
of May 16, 2046. Beginning May 16, 2016, the debentures pay a floating rate of
interest set at 3-month LIBOR plus 2.538%. Great-West Financial also entered
IGM FINANCIAL
into an external 30-year interest rate swap transaction to 2046 whereby it will
pay a fixed 4.68% rate of interest and will receive a floating 3-month LIBOR
plus 2.538% rate of interest on the notional principal amount.
Subsequent event
On December 29, 2016 and January 5, 2017, Mackenzie Investments entered
into agreements to acquire, in two separate transactions, a 13.9% interest
On December 7, 2016, Lifeco issued €500 million of 10-year senior bonds
in China AMC for an aggregate consideration of approximately $64 7 million.
with an annual coupon rate of 1.75%. The bonds are listed on the Irish Stock
On January 26, 2017, IGM issued $400 million of 10-year 3.44% debentures
Exchange. The euro-denominated debt has been designated as a hedge
priced to provide a yield to maturity of 3.448% and $200 million of 30-year
against Lifeco’s net investment in euro-denominated foreign operations
4.56% debentures priced to provide a yield to maturity of 4.56%. The net
with changes in foreign exchange on the debt instrument recorded in other
proceeds will be used by IGM to assist its subsidiary, Mackenzie Investments,
comprehensive income.
in financing a substantial portion of these acquisitions and for general
corporate purposes.
The principal repayments on debentures and other debt instruments in each of the next five years and thereafter are as follows:
2017
2018
2019
2020
2021
Thereafter
Note 15 Other Liabilities
DECEMBER 31
Bank overdraft
Accounts payable
Dividends and interest payable
Income taxes payable
Deferred income reserve
Capital trust debentures
Deposits and certificates
Funds held under reinsurance contracts
Pension and other post-employment benefits [Note 24]
Other
712
350
375
500
–
5,609
2015
479
2,072
420
545
437
161
310
356
1,607
1,299
7,686
2016
447
2,412
435
553
309
161
471
320
1,802
1,726
8,636
Total other liabilities of $6,001 million as at December 31, 2016 ($5,067 million as at December 31, 2015) are expected to be settled within 12 months.
76
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 15 Other Liabilities (continued)
CAPITAL TRUST DEBENTURES
DECEMBER 31
CANADA LIFE CAPITAL TRUST (CLCT)
7.529% capital trust debentures due June 30, 2052, unsecured
Acquisition-related fair value adjustment
CARRYING
VALUE
150
11
161
2016
FAIR
VALUE
212
–
212
CARRYING
VALUE
150
11
161
2015
FAIR
VALUE
215
–
215
CLCT, a trust established by Canada Life, had issued $150 million of Canada
Distributions and interest on the capital trust debentures are classified as
Life Capital Securities – Series B (CLiCS – Series B), the proceeds of which
financing charges on the statements of earnings (see Note 23). The fair value
were used by CLCT to purchase Canada Life senior debentures in the amount
for capital trust securities is determined by the bid-ask price.
of $150 million.
Subject to regulatory approval, CLCT may redeem the CLiCS – Series B,
in whole or in part, at any time.
Note 16 Income Taxes
EFFECTIVE INCOME TAX RATE
The Corporation’s effective income tax rate is derived as follows:
YEARS ENDED DECEMBER 31
PERCENTAGE [%]
Combined statutory Canadian federal and provincial tax rates
Increase (decrease) in the income tax rate resulting from:
Non-taxable investment income
Lower effective tax rates on income not subject to tax in Canada
Share of (earnings) losses of investments in jointly controlled corporations and associates
Other
Effective income tax rate
INCOME TAXES
The components of income tax expense recognized in the statements of earnings are:
YEARS ENDED DECEMBER 31
Current taxes
In respect of the current year
Recognition of previously unrecognized tax losses, tax credits or temporary differences
Adjustments in respect of prior years
Deferred taxes
Origination and reversal of temporary differences
Effect of change in tax rates or imposition of new taxes
Recognition of previously unrecognized tax losses, tax credits or temporary differences
Other
2016
26.8
(5.0)
(5.4)
0.7
(2.5)
14.6
2015
26.7
(4.9)
(5.1)
(1.3)
(0.2)
15.2
2016
2015
521
(32)
(37)
452
122
4
(7)
10
129
581
513
–
(4)
509
160
7
(4)
7
170
679
77
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 16 Income Taxes (continued)
The following table shows current and deferred taxes relating to items not recognized in the statements of earnings:
DECEMBER 31
Current taxes (recovery)
Deferred taxes (recovery)
DEFERRED TAXES
Deferred taxes are attributable to the following items:
DECEMBER 31
Loss carry forwards
Investments
Insurance and investment contract liabilities
Intangible assets [1]
Other
Presented on the balance sheets as follows:
Deferred tax assets
Deferred tax liabilities [1, 2]
2016
OTHER
COMPREHENSIVE
INCOME
OTHER
COMPREHENSIVE
INCOME
EQUITY
(9)
(5)
(14)
–
(1)
(1)
(2)
(89)
(91)
2016
1,889
(647)
(1,210)
(895)
672
(191)
1,907
(2,098)
(191)
2015
EQUITY
–
(2)
(2)
2015
1,794
(674)
(1,097)
(770)
684
(63)
1,961
(2,024)
(63)
[1] In 2016, IGM Financial retrospectively adjusted the rate of tax used for deferred tax measurement of indefinite life intangible assets to reflect the expected
manner of recovery of such assets acquired through business combinations that occurred prior to the conversion to IFRS. As a result, the deferred tax liabilities
have increased by $122 million and the equity decreased by $122 million at January 1, 2015 (decrease of $77 million in retained earnings and $45 million in
non-controlling interests). This adjustment had no impact on net earnings or earnings per share for the periods presented within these financial statements.
[2] Lifeco corrected the classification of $73 million of deferred tax liabilities to investment contract liabilities at December 31, 2015, to conform to the current period
presentation. The reclassification had no impact on the net earnings of the Corporation (refer to Note 11).
Management of the Corporation and of its subsidiaries assess the recoverability
As at December 31, 2016, the Corporation and its subsidiaries have non-capital
of the deferred tax asset carrying values based on future years’ taxable income
losses of $99 million ($150 million in 2015) available to reduce future taxable
projections and believes the carrying values of the deferred tax assets as of
income for which the benefits have not been recognized. These losses expire
December 31, 2016 are recoverable.
At December 31, 2016, Lifeco has recognized a deferred tax asset of $1,885 million
($1,784 million at December 31, 2015) on tax loss carry forwards totalling
$6,874 million ($4,951 million in 2015). Of this amount, $6,748 million expires
from 2028 to 2036. In addition, the Corporation and its subsidiaries have
capital loss carry forwards of $185 million ($167 million in 2015) that can be
used indefinitely to offset future capital gains for which the benefits have
not been recognized.
between 2017 and 2036, while $126 million has no expiry date. Lifeco will realize
As at December 31, 2016, a deferred tax liability of $12 million ($7 million
this benefit in future years through a reduction in current income taxes payable.
in 2015) has been recognized with respect to a portion of the temporary
One of Lifeco’s subsidiaries has had a history of recent losses. The subsidiary
has a net deferred tax asset balance of $1,262 million (US$942 million) as at
December 31, 2016 composed principally of net operating losses and future
deductions related to goodwill which has been previously impaired for
accounting purposes. Management of Lifeco has concluded that it is probable
that the subsidiary and other historically profitable subsidiaries with which
it files or intends to file a consolidated United States income tax return will
generate sufficient taxable income against which the unused United States
losses and deductions will be utilized.
difference associated with the investment in a subsidiary. No other deferred
tax liability has been recognized in respect of the remaining temporary
differences associated with investments in subsidiaries and jointly controlled
corporations as the Corporation and its subsidiaries are 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.
78
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 17 Stated Capital
AUTHORIZED
The authorized capital of Power Financial consists of an unlimited number of First Preferred Shares, issuable in series; an unlimited number of Second Preferred
Shares, issuable in series; and an unlimited number of common shares.
ISSUED AND OUTSTANDING
DECEMBER 31
FIRST PREFERRED SHARES (PERPETUAL)
Series A [i]
Series D [ii]
Series E [ii]
Series F [ii]
Series H [ii]
Series I [ii]
Series K [ii]
Series L [ii]
Series O [ii]
Series P [ii] [iii]
Series Q [iii] [iv]
Series R [ii]
Series S [ii]
Series T [ii]
COMMON SHARES
Balance, beginning of year
Issued under Stock Option Plan
Balance, end of year
NUMBER
OF SHARES
4,000,000
6,000,000
8,000,000
6,000,000
6,000,000
8,000,000
10,000,000
8,000,000
6,000,000
8,965,485
2,234,515
10,000,000
12,000,000
8,000,000
2016
STATED
CAPITAL
$
100
150
200
150
150
200
250
200
150
224
56
250
300
200
2,580
NUMBER
OF SHARES
4,000,000
6,000,000
8,000,000
6,000,000
6,000,000
8,000,000
10,000,000
8,000,000
6,000,000
11,200,000
–
10,000,000
12,000,000
8,000,000
713,238,680
30,980
713,269,660
804
1
805
711,723,680
1,515,000
713,238,680
2015
STATED
CAPITAL
$
100
150
200
150
150
200
250
200
150
280
–
250
300
200
2,580
743
61
804
First Preferred Shares
[i] The Series A First Preferred Shares are entitled to a quarterly cumulative dividend, at a floating rate equal to one quarter of 70% of the average prime
rates quoted by two major Canadian chartered banks and are redeemable, at the Corporation’s option, at $25.00 per share, together with all declared
and unpaid dividends to, but excluding, the date of redemption.
[ii] The following First Preferred Shares series are entitled to fixed non-cumulative preferential cash dividends payable quarterly. The Corporation may
redeem for cash the First Preferred Shares in whole or in part, at the Corporation’s option, with all declared and unpaid dividends to, but excluding, the
date of redemption.
The dividends and redemption terms are as follows:
FIRST PREFERRED SHARES
Non-cumulative, fixed rate
Series D,
5.50%
Series E,
Series F,
Series H,
Series I,
Series K,
Series L,
Series O,
Series R,
Series S,
5.25%
5.90%
5.75%
6.00%
4.95%
5.10%
5.80%
5.50%
4.80%
Non-cumulative, 5-year rate reset [1]
Series P,
2.31% [iii]
Series T,
4.20%
CASH DIVIDENDS
PAYABLE QUARTERLY
EARLIEST ISSUER
REDEMPTION DATE
[$/SHARE]
0.343750
0.328125
0.368750
0.359375
0.375000
0.309375
0.318750
0.362500
0.343750
0.300000
0.144125
0.262500
Currently redeemable
Currently redeemable
Currently redeemable
Currently redeemable
Currently redeemable
Currently redeemable
Currently redeemable
Currently redeemable
April 30, 2017
April 30, 2018
Currently redeemable
January 31, 2019
REDEMPTION
PRICE
[$/SHARE]
25.00
25.00
25.00
25.00
25.00
25.00
25.00
25.50
26.00
26.00
25.00
25.00
[1] The dividend rate will reset on the earliest issuer redemption date and every fifth year thereafter at a rate equal to the 5-year Government of Canada bond
yield plus a reset spread (1.60% for Series P and 2.37% for Series T). The holders have the option to convert their shares into non-cumulative floating rate First
Preferred Shares subject to certain conditions on the earliest redemption date and every fifth year thereafter at a rate equal to the 3-month Government of
Canada Treasury Bill rate plus the reset spread indicated.
79
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 17 Stated Capital (continued)
[iii] On February 1, 2016, 2,234,515 of the Corporation’s outstanding 11,200,000 Non-Cumulative 5-Year Rate Reset First Preferred Shares, Series P were converted,
on a one-for-one basis, into Non-Cumulative Floating Rate First Preferred Shares, Series Q.
The dividend rate for the remaining 8,965,485 Series P shares was reset to an annual fixed rate of 2.31% or $0.144125 per share in cash dividends payable quarterly.
[iv] The Series Q First Preferred Shares are entitled to a quarterly non-cumulative dividend at an annual floating rate equal to the 3-month Government of
Canada Treasury Bill rate plus 1.60% and are redeemable: (i) for $25.00 per share plus declared and unpaid dividends to the date fixed for redemption on
January 31, 2021 and on January 31 every five years thereafter or (ii) for $25.50 together with all declared and unpaid dividends to the date fixed for redemption
in the case of redemptions on any other date after January 31, 2016 that is not a date on which Series Q First Preferred Shares can be converted. Subject to
the Corporation’s right to redeem all the Series Q First Preferred Shares, the holders of Series Q First Preferred Shares will have the right, at their option,
to convert their Series Q First Preferred Shares into Series P First Preferred Shares, subject to certain conditions, on January 31, 2021 and on January 31 every
five years thereafter.
Common Shares
During the year 2016, 30,980 common shares (1,515,000 in 2015) were issued under the Corporation’s Employee Stock Option Plan for a consideration of $1 million
($49 million in 2015).
Dividends declared on the Corporation’s common shares in 2016 amounted to $1.57 per share ($1.49 per share in 2015).
Note 18 Share-Based Compensation
STOCK OPTION PLAN
Under Power Financial’s Employee Stock Option Plan, 12,325,620 common shares are reserved for issuance. The plan requires that the exercise price of the
option must not be less than the market value of a share on the date of the grant of the option. Generally, options granted vest on a delayed basis over periods
beginning no earlier than one year from the date of grant and no later than five years from the date of grant. Outstanding options, which are not fully vested,
have the following vesting conditions:
YEAR OF GRANT
OPTIONS
VESTING CONDITIONS
2012
2013
2013
2014
2014
2015
2015
2016
2016
119,665
281,085
26,737
338,327
1,092,062
588,449
925,044
577,526
1,089,170
Vest equally over a period of five years
Vest equally over a period of five years
Vest 50% after three years and 50% after four years
Vest equally over a period of five years
Vest 50% after three years and 50% after four years
Vest equally over a period of five years
Vest 50% after three years and 50% after four years
Vest equally over a period of five years
Vest 50% after three years and 50% after four years
A summary of the status of Power Financial’s Employee Stock Option Plan as at December 31, 2016 and 2015, and changes during the years ended on those
dates is as follows:
2016
2015
OPTIONS
WEIGHTED-AVERAGE
EXERCISE PRICE
OPTIONS
WEIGHTED-AVERAGE
EXERCISE PRICE
8,773,932
1,666,696
(30,980)
–
$
32.06
31.85
29.05
–
8,630,477
1,662,585
(1,515,000)
(4,130)
10,409,648
32.04
8,773,932
5,371,583
30.28
4,671,985
$
31.18
36.83
32.24
36.09
32.06
30.23
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at end of year
Options exercisable at end of year
80
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 18 Share-Based Compensation (continued)
The following table summarizes information about stock options outstanding at December 31, 2016:
RANGE OF EXERCISE PRICES
OPTIONS
WEIGHTED-AVERAGE
REMAINING LIFE
WEIGHTED-AVERAGE
EXERCISE PRICE
OPTIONS
WEIGHTED-AVERAGE
EXERCISE PRICE
OPTIONS OUTSTANDING
OPTIONS EXERCISABLE
$
25.07 – 26.37
28.13 – 29.95
30.18 – 31.59
32.32 – 32.58
33.37 – 34.42
34.46
37.12
37.13
38.35
1,525,467
1,501,899
1,517,259
1,492,826
2,088,390
914,236
303,112
141,415
925,044
10,409,648
[YRS]
4.8
2.5
6.4
7.8
7.7
1.2
8.2
1.1
8.2
5.8
$
25.84
28.95
31.44
32.44
33.99
34.46
37.12
37.13
38.35
32.04
1,405,802
1,501,899
575,646
459,921
312,042
914,236
60,622
141,415
–
5,371,583
$
25.90
28.95
31.46
32.57
34.13
34.46
37.12
37.13
–
30.28
Compensation expense
During the year ended December 31, 2016, Power Financial granted 1,666,696 options (1,662,585 options in 2015) under its Employee Stock Option Plan. The fair
value of these options was estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:
Dividend yield
Expected volatility
Risk-free interest rate
Expected life [years]
Fair value per stock option [$/option]
Weighted-average exercise price [$/option]
2016
4.2%
20.2%
1.1%
9
3.12
31.85
2015
4.5%
19.8%
1.2%
9
3.30
36.83
Expected volatility has been estimated based on the historical volatility of the Corporation’s share price over nine years, which is reflective of the expected
option life.
Lifeco and IGM have also established stock option plans pursuant to which
options may be granted to certain officers and employees. In addition, other
DEFERRED SHARE UNIT PLAN
Power Financial established a Deferred Share Unit Plan for its Directors to
subsidiaries of the Corporation have established share-based compensation
promote a greater alignment of interests between Directors and shareholders
plans. Compensation expense is recorded based on the fair value of the options
of the Corporation. Under this Plan, each Director participating in the Plan
or the fair value of the equity investments at the grant date, amortized over
will receive half of his annual retainer in the form of deferred share units and
the vesting period. Total compensation expense relating to the stock options
may elect to receive the remainder of his annual retainer and attendance
granted by the Corporation and its subsidiaries amounted to $81 million in 2016
fees entirely in the form of deferred share units, entirely in cash, or equally in
($67 million in 2015) and is recorded in operating and administrative expenses
cash and deferred share units. The number of deferred share units granted is
in the statements of earnings.
PERFORMANCE SHARE UNIT PLAN
Power Financial established a Performance Share Unit (PSU) Plan for selected
employees and officers (participants) to assist in retaining and further aligning
the interests of participants with those of the shareholders. Under the terms
of the Plan, PSUs may be awarded annually and are subject to time and
performance vesting conditions. The value of each PSU is based on the share
price of the Corporation’s common shares. The PSUs are cash settled and vest
over a three-year period. Participants can elect at the time of grant to receive
a portion of their PSUs in the form of performance deferred share units (PDSU)
which also vest over a three-year period. PDSUs are redeemable when a
participant is no longer an employee of the Corporation or any of its affiliates,
determined by dividing the amount of remuneration payable by the five-day-
average closing price on the Toronto Stock Exchange of the common shares
of the Corporation on the last five days of the fiscal quarter (the value of a
deferred share unit). A Director will receive additional deferred share units
in respect of dividends payable on the common shares, based on the value
of a deferred share unit on the date on which the dividends were paid on the
common shares. A deferred share unit is payable, at the time a Director’s
membership on the Board is terminated (provided the Director is not then a
director, officer or employee of an affiliate of the Corporation), or in the event
of the death of a Director, by a lump-sum cash payment, based on the value
of a deferred share unit at that time. At December 31, 2016, the value of the
deferred share units outstanding was $18 million ($17 million in 2015) and is
recorded within other liabilities. Alternatively, Directors may participate in
or in the event of the death of the participant, by a lump-sum payment based
the Share Purchase Plan for Directors.
on the value of the PDSU at that time. Additional PSUs and PDSUs are issued in
respect of dividends payable on common shares based on the value of the PSU
or PDSU at the dividend payment date. The carrying value of the PSU liability is
$10 million ($7 million in 2015) recorded within other liabilities.
81
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 18 Share-Based Compensation (continued)
EMPLOYEE SHARE PURCHASE PROGRAM
Power Financial established an Employee Share Purchase Program, giving
OTHER SHARE-BASED AWARDS OF SUBSIDIARIES
The subsidiaries of the Corporation have also established other share-based
employees the opportunity to subscribe for up to 6% of their gross salary to
awards for their directors, management and employees. Some of these
purchase Subordinate Voting Shares of Power Corporation of Canada on the
share-based awards are cash settled and included within other liabilities on
open market and to have Power Financial invest, on the employee’s behalf,
the balance sheets. The compensation expense related to these subsidiary
up to an equal amount.
share-based awards is recorded in operating and administrative expenses on
the statements of earnings.
Note 19 Non-Controlling Interests
The Corporation has controlling equity interests in Lifeco and IGM as at December 31, 2016 and December 31, 2015. The non-controlling interests of Lifeco and
IGM and their subsidiaries reflected in the balance sheets are as follows:
DECEMBER 31
LIFECO
IGM
2016
TOTAL
LIFECO
IGM
2015
TOTAL
Non-controlling interests, beginning of year
11,011
1,796
12,807
Adjustment [Note 16]
Restated balance
Net earnings attributable to non-controlling interests
Other comprehensive income (loss) attributable to
non-controlling interests
Dividends
Change in ownership interest and other [1]
–
11,011
1,060
(486)
(510)
(91)
–
1,796
283
(2)
(198)
(128)
–
12,807
1,343
(488)
(708)
(219)
9,973
–
9,973
1,039
611
(500)
(112)
1,910
11,883
(45)
1,865
298
5
(211)
(161)
(45)
11,838
1,337
616
(711)
(273)
Non-controlling interests, end of year
10,984
1,751
12,735
11,011
1,796
12,807
[1] Change in ownership interest and other includes mainly the repurchase and issuance of common shares by subsidiaries.
The carrying value of non-controlling interests consists of the following:
DECEMBER 31
Common shareholders
Preferred shareholders
Participating account surplus
LIFECO
IGM
5,688
2,514
2,782
1,601
150
–
2016
TOTAL
7,289
2,664
2,782
LIFECO
IGM
5,886
2,514
2,611
1,646
150
–
2015
TOTAL
7,532
2,664
2,611
10,984
1,751
12,735
11,011
1,796
12,807
As at December 31, 2016, Power Financial and IGM held 67.9% and 4.0%, respectively, of Lifeco’s common shares, representing approximately 65.0% of the
voting rights attached to the outstanding Lifeco voting shares.
Lifeco and IGM’s financial information as at and for the year ended December 31, 2016 can be obtained from their publicly available financial statements.
Summarized financial information for Lifeco and IGM is as follows:
BALANCE SHEET
Assets
Liabilities
Equity
COMPREHENSIVE INCOME
Net earnings
Other comprehensive income (loss)
CASH FLOWS
Operating activities
Financing activities
Investing activities
82
2016
LIFECO
IGM
LIFECO
2015
IGM
399,912
374,904
25,008
15,625
10,878
4,747
399,935
374,675
25,260
14,831
10,105
4,726
2,956
(1,515)
6,254
(1,045)
(4,565)
779
(50)
3,011
1,897
737
(75)
(1,034)
5,123
(1,683)
(3,424)
781
78
710
(508)
(434)
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 20 Capital Management
As a holding company, Power Financial’s objectives in managing its capital
and cost-effective source of capital. The Corporation is a long-term investor
are to:
and as such holds positions in long-term investments as well as cash and fixed
▪ provide attractive long-term returns to shareholders of the Corporation;
income securities for liquidity purposes.
▪ provide sufficient financial flexibility to pursue its growth strategy to invest
on a timely basis in its operating companies and other investments as
opportunities present; and
▪ maintain an appropriate credit rating to ensure stable access to the
capital markets.
The Corporation manages its capital taking into consideration the risk
characteristics and liquidity of its holdings. In order to maintain or adjust its
The Board of Directors of the Corporation is responsible for capital
management. Management of the Corporation is responsible for establishing
capital management procedures and for implementing and monitoring its
capital plans. The Board of Directors of the Corporation reviews and approves
capital transactions such as the issuance, redemption and repurchase of
common shares, perpetual preferred shares and debentures. The boards of
directors of the Corporation’s subsidiaries, as well as those of Pargesa and
Groupe Bruxelles Lambert, are responsible for their respective companies’
capital structure, the Corporation may adjust the amount of dividends paid
capital management.
to shareholders, return capital to shareholders or issue capital.
The capital structure of the Corporation consists of perpetual preferred
shares, debentures, common shareholders’ equity and non-controlling
The Corporation itself is not subject to externally imposed regulatory capital
requirements. However, Lifeco and certain of its main subsidiaries and IGM’s
subsidiaries are subject to regulatory capital requirements and they manage
interests. The Corporation views perpetual preferred shares as a permanent
their capital as described below.
LIFECO
Lifeco manages its capital on both a consolidated basis as well as at the
▪ In Canada, the Office of the Superintendent of Financial Institutions
individual operating subsidiary level. The primary objectives of Lifeco’s capital
(OSFI) has established a capital adequacy measurement for life insurance
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 Lifeco ensuring
stable access to capital markets; and
▪ to provide an efficient capital structure to maximize shareholder value in
the context of Lifeco’s operational risks and strategic plans.
Lifeco has established policies and procedures designed to identify,
measure and report all material risks. Management of Lifeco is responsible
for establishing capital management procedures for implementing and
monitoring the capital plan.
The target level of capitalization for Lifeco 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 Lifeco, and the desire to hold sufficient
capital to be able to honour all policyholder and other obligations of Lifeco
with a high degree of confidence.
companies incorporated under the Insurance Companies Act (Canada) and
their subsidiaries, known as the Minimum Continuing Capital and Surplus
Requirements (MCCSR). As at December 31, 2016, the MCCSR ratio for
Great-West Life was 240% (238% at December 31, 2015).
▪ At December 31, 2016, the Risk-Based Capital ratio (RBC) of Great-West
Life & Annuity, Lifeco’s regulated U.S. operating company, was estimated
to be 455% of the Company Action Level set by the National Association of
Insurance Commissioners. Great-West Life & Annuity reports its RBC ratio
annually to U.S. insurance regulators.
▪ For entities based in Europe, the local solvency capital regime has changed
to the Solvency II basis, effective January 1, 2016. During 2016, Lifeco’s
regulated European insurance and reinsurance businesses were developing
internal risk models and undertook steps to manage the potential capital
volatility under the new regulations in co-operation with the European
regulators. At the end of 2016 all European-regulated entities met all capital
and solvency requirements as prescribed under Solvency II.
▪ Other foreign operations and foreign subsidiaries of Lifeco are required
to comply with local capital or solvency requirements in their respective
jurisdictions. At December 31, 2016 and 2015, Lifeco maintained capital
levels above the minimum local regulatory requirements in each of its
Lifeco’s subsidiaries Great-West Life, Great-West Financial and entities based
other foreign operations.
in Europe are subject to minimum regulatory capital requirements.
IGM FINANCIAL
IGM’s capital management objective is to maximize shareholder returns
IGM’s capital is primarily used in its ongoing business operations to support
while ensuring that IGM is capitalized in a manner which appropriately
working capital requirements, long-term investments made by IGM, business
supports regulatory capital requirements, working capital needs and business
expansion and other strategic objectives.
expansion. IGM’s capital management practices are focused on preserving the
quality of its financial position by maintaining a solid capital base and a strong
balance sheet. IGM regularly assesses its capital management practices in
response to changing economic conditions.
The IGM subsidiaries that are subject to regulatory capital requirements
include investment dealers, mutual fund dealers, exempt market dealers,
portfolio managers, investment fund managers and a trust company. These
IGM subsidiaries are required to maintain minimum levels of capital based
on either working capital, liquidity or shareholders’ equity. IGM subsidiaries
have complied with all regulatory capital requirements.
83
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 21 Risk Management
The Corporation and its subsidiaries have established policies, guidelines
This note to the financial statements includes estimates of sensitivities and
and procedures designed to identify, measure, monitor and mitigate risks
risk exposure measures for certain risks, such as the sensitivity due to specific
associated with financial instruments. The key risks related to financial
changes in interest rate levels projected and market prices as at the valuation
instruments are liquidity risk, credit risk and market risk.
date. Actual results can differ significantly from these estimates for a variety
▪ Liquidity risk is the risk that the Corporation and its subsidiaries will not be
of reasons, including:
able to meet all cash outflow obligations as they come due.
▪ assessment of the circumstances that led to the scenario may lead to changes
▪ Credit risk is the potential for financial loss to the Corporation and its
in (re)investment approaches and interest rate scenarios considered;
subsidiaries if a counterparty in a transaction fails to meet its obligations.
▪ changes in actuarial, investment return and future investment activity
▪ Market risk is the risk that the fair value or future cash flows of a financial
assumptions;
instrument will fluctuate as a result of changes in market factors. Market
▪ actual experience differing from the assumptions;
factors include three types of risks: currency risk, interest rate risk and
▪ changes in business mix, effective tax rates and other market factors;
equity price risk.
▪ interactions among these factors and assumptions when more than one
▪ Currency risk relates to the Corporation, its subsidiaries and its jointly
changes; and
controlled corporations and associates operating in different currencies
and converting non-Canadian earnings at different points in time at
different foreign exchange levels when adverse changes in foreign
currency exchange rates occur.
▪ Interest rate risk is the risk that the fair value of future cash flows of a
financial instrument will fluctuate because of changes in the market
interest rates.
▪ Equity price risk is the uncertainty associated with the valuation of
assets arising from changes in equity markets.
POWER FINANCIAL
▪ the general limitations of 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
Corporation cannot provide assurance that the actual impact on net earnings
will be as indicated.
Liquidity risk, credit risk and market risk of Power Financial are disclosed in the first section of this note. In subsequent sections, risk related to Lifeco and
IGM are discussed.
LIQUIDITY RISK
Power Financial is a holding company. As such, corporate cash flows are
banks in jurisdictions where Power Financial operates as well as bonds and
short-term securities of, or guaranteed by, the Canadian or U.S. governments.
principally made up of dividends received from its subsidiaries and a jointly
The Corporation regularly reviews the credit ratings of its counterparties.
controlled corporation, and income from investments, less operating
The maximum exposure to credit risk on these financial instruments is their
expenses, financing charges, income taxes and payment of dividends to its
carrying value.
common and preferred shareholders. The ability of Lifeco, IGM and Parjointco,
which are also holding companies, to meet their obligations and pay dividends
is dependent upon receipt of dividends from their own subsidiaries.
Derivatives continue to be used on a basis consistent with the risk
management guidelines of the Corporation and are monitored by the
Corporation for effectiveness as economic hedges even if specific hedge
The Corporation regularly reviews its liquidity requirements and seeks
accounting requirements are not met. The Corporation regularly reviews the
to maintain a sufficient level of liquidity to meet its operating expenses,
credit ratings of derivative financial instrument counterparties. Derivative
financing charges and payment of preferred share dividends for a reasonable
contracts are over-the-counter with counterparties that are highly rated
period of time. The ability of Power Financial to arrange additional financing
financial institutions.
in the future will depend in part upon prevailing market conditions as well as
the business performance of Power Financial and its subsidiaries.
Power Financial’s exposure to and management of credit risk related to
cash and cash equivalents, fixed income securities and derivatives have not
Principal repayments on debentures (other than those of Lifeco and IGM
changed materially since December 31, 2015.
discussed below) of $250 million due after five years represent the only
significant contractual liquidity requirement of Power Financial.
Power Financial’s management of liquidity risk has not changed materially
since December 31, 2015.
MARKET RISK
Power Financial’s financial instruments are comprised of cash and cash
equivalents, fixed income securities, derivatives and debentures.
CREDIT RISK
Fixed income securities and derivatives are subject to credit risk. The
Corporation mitigates credit risk on its fixed income securities by adhering to
an investment policy that establishes guidelines which provide exposure limits
by defining admissible securities, minimum rating and concentration limits.
Fixed income securities, which are included in investments and in cash
and cash equivalents, consist primarily of bonds, bankers’ acceptances
and highly liquid temporary deposits with Canadian chartered banks and
Currency risk
In managing its own cash and cash equivalents as well as fixed income
securities Power Financial may hold cash balances denominated in foreign
currencies and thus be exposed to fluctuations in exchange rates. In order
to protect against such fluctuations, Power Financial may from time to
time enter into currency-hedging transactions with highly rated financial
institutions. As at December 31, 2016, approximately 90% of Power Financial’s
cash and cash equivalents and fixed income securities were denominated in
Canadian dollars.
84
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 21 Risk Management (continued)
Power Financial is exposed through Parjointco to foreign exchange
risk as a result of Parjointco’s investment in Pargesa, a company whose
Equity price risk
Power Financial’s financial instruments do not have significant exposure to
functional currency is the Swiss franc. Pargesa itself is exposed to currency
equity price risk.
risk through its subsidiary whose functional currency is the euro. Foreign
currency translation gains and losses from Pargesa are recorded in other
comprehensive income.
Interest rate risk
Power Financial’s financial instruments do not have significant exposure to
Pargesa indirectly holds substantial investments classified as available
for sale; unrealized gains and losses on these investments are recorded
in other comprehensive income until realized. These investments are
reviewed periodically to determine whether there is objective evidence of
an impairment in value.
interest rate risk.
LIFECO
The risk committee of the board of directors of Lifeco is responsible for the oversight of Lifeco’s key risks.
LIQUIDITY RISK
The following policies and procedures are in place to manage liquidity risk:
▪ Lifeco 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 67% (approximately 69% in 2015) of insurance
and investment contract liabilities are non-cashable prior to maturity or
subject to fair value adjustments.
▪ Management of Lifeco 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. Lifeco maintains $350 million
of liquidity at its level through committed lines of credit with Canadian
chartered banks. As well, Lifeco maintains a $150 million liquidity facility
at Great-West Life, a US$500 million revolving credit agreement with a
syndicate of banks for use by Putnam, and a US$50 million line of credit at
Great-West Financial.
In the normal course of business, Lifeco enters into contracts that give rise to commitments of future minimum payments that impact short-term and
long-term liquidity. The following table summarizes the principal repayment schedule of certain of Lifeco’s financial liabilities.
DECEMBER 31, 2016
1 YEAR
2 YEARS
3 YEARS
4 YEARS
5 YEARS
AFTER 5 YEARS
TOTAL
PAYMENTS DUE BY PERIOD
Debentures and other debt instruments
Capital trust debentures [1]
Purchase obligations
Pension contributions
712
–
108
273
1,093
200
–
53
–
253
–
–
62
–
62
500
–
42
–
542
–
–
15
–
15
4,601
150
3
–
6,013
150
283
273
4,754
6,719
[1] Payments due have not been reduced to reflect that Lifeco held capital trust securities of $37 million principal amount ($50 million carrying value).
CREDIT RISK
The following policies and procedures are in place to manage credit risk:
▪ Investment policies are in place that require only the purchase of
investment-grade assets and minimize undue concentration within issuers,
connected companies, industries or individual geographies.
▪ Investment limits specify minimum and maximum limits for each
asset class.
▪ Identification of credit risk through an internal credit risk rating system
which includes a detailed assessment of an obligor’s creditworthiness.
Internal credit risk ratings cannot be higher than the highest rating
provided by certain independent ratings companies.
▪ 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.
Lifeco seeks to mitigate derivative credit risk by setting rating-based
counterparty limits in investment policies and through collateral
arrangements where possible.
▪ Counterparties providing reinsurance to Lifeco are reviewed for financial
soundness as part of an ongoing monitoring process. The minimum
financial strength of reinsurers is outlined in Lifeco’s Corporate Reinsurance
Ceded Risk Management Policy. Lifeco 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
▪ Portfolios are monitored continuously, and reviewed regularly with the
arrangements where possible.
risk committee and the investment committee of the board of directors
of Lifeco.
▪ Investment guidelines also specify collateral requirements.
85
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 21 Risk Management (continued)
Maximum exposure to credit risk for Lifeco
The following table summarizes Lifeco’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.
DECEMBER 31
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 financial assets [2]
Derivative assets
2016
3,259
88,325
11,478
16,970
21,651
8,467
10,781
5,627
1,310
1,835
1,166
516
273
648
528
2015
2,813
86,503
11,535
16,905
22,021
8,694
15,512
5,131
1,430
1,420
703
590
293
772
461
Total balance sheet maximum credit exposure
172,834
174,783
[1] Includes $8,723 million as at December 31, 2016 ($13,830 million as at December 31, 2015) of funds held by ceding insurers where Lifeco retains the credit risk
of the assets supporting the liabilities ceded (see Note 6).
[2] Includes items such as current income taxes receivable and miscellaneous other assets of Lifeco.
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
Concentration of credit risk for Lifeco
Concentrations of credit risk arise from exposures to a single debtor, a
counterparty. Guidelines have been implemented regarding the acceptability
group of related debtors or groups of debtors that have similar credit risk
of types of collateral and the valuation parameters. Management of Lifeco
characteristics in that they operate in the same geographic region or in
monitors the value of the collateral, requests additional collateral when needed
similar industries. The characteristics of such debtors are similar in that
and performs an impairment valuation when applicable. Lifeco has $149 million
changes in economic or political environments may impact their ability to
of collateral received from counterparties as at December 31, 2016 ($107 million
meet obligations as they come due.
as at December 31, 2015) relating to derivative assets.
86
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 21 Risk Management (continued)
The following table provides details of the carrying value of bonds of Lifeco by issuer, industry sector and geographic distribution:
DECEMBER 31, 2016
Bonds issued or guaranteed by:
Treasuries
Government-related
Agency securitized
Non-agency securitized
Financials
Communications
Consumer products
Energy
Industrials
Technology
Transportation
Utilities
Short-term bonds
DECEMBER 31, 2015
Bonds issued or guaranteed by:
Treasuries
Government-related
Agency securitized
Non-agency securitized
Financials
Communications
Consumer products
Energy
Industrials
Technology
Transportation
Utilities
Short-term bonds
CANADA
UNITED STATES
EUROPE
TOTAL
1,422
18,379
100
2,392
3,167
634
2,799
1,618
1,358
506
2,246
6,226
3,871
786
3,903
3,685
4,293
3,268
1,336
3,305
2,102
3,951
1,054
826
4,454
10
10,880
6,765
158
1,875
5,245
970
3,224
986
1,634
471
1,095
4,259
1,520
13,088
29,047
3,943
8,560
11,680
2,940
9,328
4,706
6,943
2,031
4,167
14,939
5,401
44,718
32,973
39,082
116,773
CANADA
UNITED STATES
EUROPE
TOTAL
1,376
17,171
105
2,851
3,467
652
2,689
1,565
1,432
513
2,160
5,898
3,241
1,064
3,972
4,161
3,790
2,970
1,204
2,935
2,047
3,706
877
802
4,307
216
10,974
7,095
218
2,131
5,916
1,028
3,075
928
1,635
247
912
4,277
1,336
13,414
28,238
4,484
8,772
12,353
2,884
8,699
4,540
6,773
1,637
3,874
14,482
4,793
43,120
32,051
39,772
114,943
87
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 21 Risk Management (continued)
The following table provides details of the carrying value of mortgage loans of Lifeco by geographic location:
DECEMBER 31, 2016
Canada
United States
Europe
DECEMBER 31, 2015
Canada
United States
Europe
Asset quality
BOND PORTFOLIO QUALIT Y
DECEMBER 31
AAA
AA
A
BBB
BB and lower
Total bonds
DERIVATIVE PORTFOLIO QUALIT Y
DECEMBER 31
Over-the-counter contracts (counterparty credit ratings):
AA
A
BBB
Exchange-traded
Total
SINGLE-FAMILY
RESIDENTIAL
MULTI-FAMILY
RESIDENTIAL
COMMERCIAL
TOTAL
2,075
–
–
2,075
3,709
1,895
383
5,987
7,108
3,274
3,207
12,892
5,169
3,590
13,589
21,651
SINGLE-FAMILY
RESIDENTIAL
MULTI-FAMILY
RESIDENTIAL
COMMERCIAL
TOTAL
1,962
–
–
1,962
3,674
1,770
377
5,821
7,055
3,162
4,021
12,691
4,932
4,398
14,238
22,021
2016
27,762
29,816
37,787
20,116
1,292
116,773
2016
221
288
16
3
528
2015
36,434
20,364
35,623
20,984
1,538
114,943
2015
209
248
–
4
461
Loans of Lifeco past due, but not impaired
Loans that are past due but not considered impaired are loans for which scheduled payments have not been received, but management of Lifeco has reasonable
assurance of collection of the full amount of principal and interest due. The following table provides carrying values of the loans past due, but not impaired:
DECEMBER 31
Less than 30 days
30–90 days
Greater than 90 days
Total
2016
54
–
2
56
2015
33
2
3
38
Future asset credit losses
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:
DECEMBER 31
Participating
Non-participating
88
2016
1,155
1,791
2,946
2015
1,395
2,163
3,558
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 21 Risk Management (continued)
MARKET RISK
Currency risk
If the assets backing insurance and investment contract liabilities are not
matched by currency, changes in foreign exchange rates can expose Lifeco
to the risk of foreign exchange losses not offset by liability decreases. Lifeco
has net investments in foreign operations. Lifeco’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 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 Lifeco’s total equity. Correspondingly, Lifeco’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 Lifeco’s exposure
to currency risk:
▪ Lifeco 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 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 risks 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
CALM 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
▪ For assets backing liabilities not matched by currency, Lifeco normally
of future reinvestment rates and inflation assumptions with an assumed
converts the assets back to the currency of the liability using foreign
correlation together with margins for adverse deviation set in accordance
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,
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
resulting in an immaterial change to net earnings.
periodically for continued appropriateness.
▪ 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.
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 0.14% (0.18% in 2015). The calculation for future credit
losses on assets is based on the credit quality of the underlying asset portfolio.
Interest rate risk
The following policies and procedures are in place to mitigate Lifeco’s exposure
to interest rate risk:
Testing under a number of interest rate scenarios (including increasing,
decreasing and fluctuating rates) is done to assess reinvestment risk. The
total provision for interest rates is sufficient to cover a broader or more severe
set of risks than the minimum arising from the current Canadian Institute of
▪ Lifeco uses a formal process for managing the matching of assets and
Actuaries-prescribed scenarios.
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.
The range of interest rates covered by these provisions is set in consideration
of long-term historical results and is monitored quarterly with a full review
annually. An immediate 1% parallel shift in the yield curve would not have a
▪ Interest rate risk is managed by investing in assets that are suitable for
material impact on Lifeco’s view of the range of interest rates to be covered
the products sold.
by the provisions. If sustained however, the parallel shift could impact Lifeco’s
▪ Where these products have benefit or expense payments that are
range of scenarios covered.
dependent on inflation (inflation-indexed annuities, pensions and disability
The total provision for interest rates also considers the impact of the Canadian
claims), Lifeco generally invests in real return instruments to hedge its real
Institute of Actuaries-prescribed scenarios:
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.
▪ The effect of an immediate 1% parallel increase in the yield curve on the
prescribed scenarios would not change the total provision for interest rates.
▪ The effect of an immediate 1% parallel decrease in the yield curve on the
prescribed scenarios would not change the total provision for interest rates.
89
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 21 Risk Management (continued)
Another way of measuring the interest rate risk associated with this
The following provides information on the effect of an immediate 1% increase
assumption is to determine the effect on the insurance and investment
or 1% decrease in the interest rates at both the low and high end of the range
contract liabilities impacting the shareholders’ earnings of a 1% change in
of interest rates recognized in the provisions:
Lifeco’s view of the range of interest rates to be covered by these provisions.
DECEMBER 31
Change in interest rates
2016
2015
1% INCREASE
1% DECREASE
1% INCREASE
1% DECREASE
Increase (decrease) in insurance and investment contract liabilities
Increase (decrease) in net earnings
(202)
149
677
(491)
(163)
109
614
(430)
Equity price risk
Lifeco has investment policy guidelines in place that provide for prudent
Some insurance and investment contract liabilities are supported by
investment properties, common stocks and private equities, for example,
investment in equity markets with clearly defined limits to mitigate price risk.
segregated fund products and products with long-tail cash flows. Generally
The risks associated with segregated fund guarantees have been mitigated
through a hedging program for lifetime Guaranteed Minimum Withdrawal
Benefit guarantees using equity futures, currency forwards, and interest rate
derivatives. For policies with segregated fund guarantees, Lifeco generally
determines insurance contract liabilities at a conditional tail expectation
of 75 (CTE75) level. In other words, Lifeco determines insurance contract
liabilities at a level that covers the average loss in the worst 25% part of the
these liabilities will fluctuate in line with equity fair values. There will be
additional impacts on these liabilities as equity values fluctuate. The following
provides information on the expected impacts of a 10% increase or 10%
decrease in equity values:
loss distribution.
DECEMBER 31
Change in equity values
2016
2015
10% INCREASE
10% DECREASE
10% INCREASE
10% DECREASE
Increase (decrease) in non-participating insurance and investment contract liabilities
Increase (decrease) in net earnings
(51)
43
61
(50)
(53)
45
139
(108)
The best estimate return assumptions for equities are primarily based on long-term historical averages. Changes in the current market could result in changes
to these assumptions and will impact both asset and liability cash flows. The following provides information on the expected impacts of a 1% increase or 1%
decrease in the best estimate assumptions:
DECEMBER 31
Change in best estimate return assumptions
Increase (decrease) in non-participating insurance contract liabilities
Increase (decrease) in net earnings
IGM FINANCIAL
2016
2015
1% INCREASE
1% DECREASE
1% INCREASE
1% DECREASE
(504)
407
552
(438)
(534)
433
573
(457)
The board of directors of IGM provides oversight and carries out its risk management mandate through various committees.
LIQUIDITY RISK
IGM’s liquidity management practices include:
▪ Maintaining liquid assets and lines of credit to satisfy near-term liquidity needs.
▪ Ensuring effective controls over liquidity management processes.
▪ Performing regular cash forecasts and stress testing.
IGM also maintains sufficient liquidity to fund and temporarily hold mortgages
pending sale or securitization to long-term funding sources. Through its
mortgage banking operations, residential mortgages are sold to third parties
including certain mutual funds, institutional investors through private
placements, Canadian bank-sponsored securitization trusts, and by issuance
and sale of National Housing Act Mortgage-Backed Securities (NHA MBS),
▪ Regular assessment of capital market conditions and IGM’s ability to access
including sales to Canada Housing Trust under the Canada Mortgage Bond
bank and capital market funding.
Program (CMB Program).
▪ Ongoing efforts to diversify and expand long-term mortgage funding sources.
Certain subsidiaries of IGM are approved issuers of NHA MBS and are approved
▪ Oversight of liquidity by management and by committees of the board of
directors of IGM.
A key liquidity requirement for IGM is the funding of commissions paid on
the sale of investment funds. Commissions on the sale of investment funds
continue to be paid from operating cash flows.
sellers into the CMB Program. Capacity for sales under the CMB Program
consists of participation in new CMB issues and reinvestment of principal
repayments held in principal reinvestment accounts.
IGM maintains committed capacity within certain Canadian bank-sponsored
securitization trusts.
90
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 21 Risk Management (continued)
IGM’s contractual maturities of certain liabilities were as follows:
DECEMBER 31, 2016
Derivative financial instruments
Deposits and certificates
Obligations to securitization entities
Debentures
Pension contributions
Total contractual maturities
DEMAND
LESS THAN
1 YEAR
1–5 YEARS
AFTER
5 YEARS
PAYMENTS DUE BY PERIOD
–
453
–
–
–
18
8
20
8
1,340
6,310
–
38
525
–
453
1,404
6,863
–
2
71
800
–
873
TOTAL
38
471
7,721
1,325
38
9,593
In addition to IGM’s current balance of cash and cash equivalents, liquidity
In certain instances, credit risk is also limited by the terms and nature of
is available through IGM’s lines of credit. IGM’s lines of credit with various
securitization transactions as described below:
Schedule I Canadian chartered banks totalled $825 million as at December 31,
2016, compared to $525 million at December 31, 2015. The lines of credit as at
December 31, 2016 consisted of committed lines of $650 million ($350 million
in 2015) and uncommitted lines of $175 million ($175 million in 2015). IGM
has accessed its uncommitted lines of credit in the past; however, any
advances made by the banks under the uncommitted lines are at the banks’
sole discretion. As at December 31, 2016 and 2015, IGM was not utilizing its
committed lines of credit or its uncommitted lines of credit.
IGM’s liquidity position and its management of liquidity and funding risk have
not changed materially since December 31, 2015.
CREDIT RISK
IGM’s cash and cash equivalents, securities holdings, mortgage portfolios and
derivatives are subject to credit risk. IGM monitors its credit risk management
practices on an ongoing basis to evaluate their effectiveness.
At December 31, 2016, IGM’s cash and cash equivalents of $611 million
($983 million in 2015) consisted of cash balances of $85 million ($105 million
in 2015) on deposit with Canadian chartered banks and cash equivalents
of $526 million ($878 million in 2015). Cash equivalents are composed of
Government of Canada treasury bills totalling $44 million ($132 million in 2015),
provincial government treasury bills and promissory notes of $197 million
($447 million in 2015), bankers’ acceptances and other short-term notes issued
by Canadian chartered banks of $247 million ($299 million in 2015), and highly
rated corporate commercial paper of $39 million (nil in 2015). IGM manages
credit risk related to cash and cash equivalents by adhering to its investment
policy that outlines credit risk parameters and concentration limits. IGM
regularly reviews the credit ratings of its counterparties. The maximum
▪ Under the NHA MBS program totalling $4.9 billion ($4.6 billion in 2015), IGM
is obligated to make timely payment of principal and coupons irrespective
of whether such payments were received from the mortgage borrower.
However, as required by the NHA MBS program, 100% of the loans are
insured by an approved insurer.
▪ Credit risk for mortgages securitized by transfer to bank-sponsored
securitization trusts totalling $2.7 billion ($2.4 billion in 2015) is limited to
amounts held in cash reserve accounts and future net interest income, the
fair values of which were $55 million ($48 million in 2015) and $45 million
($39 million in 2015), respectively, at December 31, 2016. Cash reserve
accounts are reflected on the balance sheets, whereas rights to future
net interest income are not reflected on the balance sheets and will be
recorded over the life of the mortgages. This risk is further mitigated
by insurance with 29.1% of mortgages held in ABCP Trusts insured at
December 31, 2016 (36.6% in 2015).
At December 31, 2016, residential mortgages recorded on the balance sheet
were 73.9% insured (76.8% in 2015). At December 31, 2016, impaired mortgages
on these portfolios were $3 million ($3 million in 2015). Uninsured non-
performing mortgages over 90 days on these portfolios were $1 million at
December 31, 2016 ($1 million in 2015).
IGM also retains certain elements of credit risk on mortgage loans sold to
the Investors Mortgage and Short Term Income Fund and to the Investors
Canadian Corporate Bond Fund through an agreement to repurchase
mortgages in certain circumstances benefiting the funds. These loans are
not recorded on IGM’s balance sheet as IGM has transferred substantially all
of the risks and rewards of ownership associated with these loans.
exposure to credit risk on these financial instruments is their carrying value.
IGM regularly reviews the credit quality of the mortgages and the adequacy
As at December 31, 2016, residential mortgages, recorded on IGM’s balance
of the collective allowance for credit losses.
sheet, of $8.0 billion ($7.4 billion in 2015) consisted of $7.6 billion sold to
IGM’s collective allowance for credit losses was $1 million at December 31, 2016
securitization programs ($7.0 billion in 2015), $340 million held pending
($1 million in 2015), and is considered adequate by management to absorb all
sale or securitization ($384 million in 2015) and $29 million related to IGM’s
credit-related losses in the mortgage portfolios based on: i) historical credit
intermediary operations ($28 million in 2015).
performance experience and recent trends, ii) current portfolio credit metrics
IGM manages credit risk related to residential mortgages through:
▪ adhering to its lending policy and underwriting standards;
▪ its loan servicing capabilities;
and other relevant characteristics, and iii) regular stress testing of losses
under adverse real estate market conditions.
IGM’s exposure to and management of credit risk related to cash and cash
equivalents, fixed income securities and mortgage portfolios have not
▪ use of client-insured mortgage default insurance and mortgage portfolio
changed materially since December 31, 2015.
default insurance held by IGM; and
▪ its practice of originating its mortgages exclusively through its own
network of Mortgage Planning Specialists and Investors Group Consultants
as part of a client’s comprehensive financial plan.
IGM is exposed to credit risk through the derivative contracts it utilizes to
hedge interest rate risk, to facilitate securitization transactions, to hedge
market risk related to certain share-based compensation arrangements and
to hedge foreign exchange risk on payments due on the closing of the China
AMC transaction (Note 9). These derivatives are discussed more fully under
the market risk section below.
91
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 21 Risk Management (continued)
To the extent that the fair value of the derivatives is in a gain position, IGM is
$47 million in 2015) and an outstanding notional value of $1.0 billion at
exposed to the credit risk that its counterparties fail to fulfill their obligations
December 31, 2016 ($740 million in 2015). IGM enters into interest rate
under these arrangements.
IGM’s derivative activities are managed in accordance with its investment
policy, which includes counterparty limits and other parameters to manage
counterparty risk. The aggregate credit risk exposure related to derivatives
that are in a gain position of $43 million ($58 million in 2015) does not give
effect to any netting agreements or collateral arrangements. The exposure
to credit risk, considering netting agreements and collateral arrangements
and including rights to future net interest income, was $3 million at
swaps with Canadian Schedule I chartered banks to hedge the risk that the
interest rates earned on floating rate mortgages and reinvestment returns
decline. The fair value of these swaps totalled $30 million ($54 million in
2015), on an outstanding notional amount of $2.1 billion at December 31, 2016
($1.8 billion in 2015). The net fair value of these swaps of $7 million at
December 31, 2016 ($7 million in 2015) is recorded on the balance sheet and
has an outstanding notional amount of $3.1 billion at December 31, 2016
($2.6 billion in 2015).
December 31, 2016 ($1 million in 2015). Counterparties are all Canadian
▪ IGM is exposed to the impact that changes in interest rates may have on
Schedule I chartered banks and, as a result, management has determined
the value of mortgages committed to or held pending sale or securitization
that IGM’s overall credit risk related to derivatives was not significant at
to long-term funding sources. IGM enters into interest rate swaps to
December 31, 2016. Management of credit risk related to derivatives has not
hedge the interest rate risk related to funding costs for mortgages held
changed materially since December 31, 2015.
by IGM pending sale or securitization. The fair value of these swaps
MARKET RISK
was nil (nil in 2015) on an outstanding notional amount of $123 million at
December 31, 2016 ($88 million in 2015).
Currency risk
IGM is exposed to foreign exchange risk on its investments in Personal
As at December 31, 2016, the impact to annual net earnings of a 100-basis-
point increase in interest rates would have been an increase of approximately
Capital and China AMC. IGM has hedged its exposure to the final payments
$0.2 million (a decrease of $0.7 million in 2015). IGM’s exposure to and
due on the closing of the China AMC transaction through the use of forward
management of interest rate risk have not changed materially since
currency contracts.
December 31, 2015.
Interest rate risk
IGM is exposed to interest rate risk on its loan portfolio and on certain of the
Equity price risk
IGM is exposed to equity price risk on its equity securities which are classified
derivative financial instruments used in IGM’s mortgage banking operations.
as either available for sale or fair value through profit or loss.
IGM manages interest rate risk associated with its mortgage banking
IGM sponsors a number of deferred compensation arrangements for
operations by entering into interest rate swaps with Canadian Schedule I
employees where payments to participants are deferred and linked to the
chartered banks as follows:
▪ IGM has in certain instances funded floating rate mortgages with fixed rate
Canada Mortgage Bonds as part of the securitization transactions under
the CMB Program. As previously discussed, as part of the CMB Program,
IGM is party to a swap whereby it is entitled to receive investment returns
on reinvested mortgage principal and is obligated to pay Canada Mortgage
Bond coupons. This swap had a negative fair value of $23 million (negative
performance of the common shares of IGM Financial Inc. IGM hedges this risk
through the use of forward agreements and total return swaps.
RISKS RELATED TO ASSETS UNDER MANAGEMENT
Risks related to the performance of the equity markets, changes in interest
rates and changes in foreign currencies relative to the Canadian dollar can
have a significant impact on the level and mix of assets under management.
These changes in assets under management directly impact earnings of IGM.
Note 22 Operating and Administrative Expenses
YEARS ENDED DECEMBER 31
Salaries and other employee benefits
General and administrative expenses
Amortization, depreciation and impairment
Premium taxes
Restructuring and acquisition expenses
2016
3,581
2,023
302
411
63
6,380
2015
3,352
1,863
263
339
66
5,883
92
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 23 Financing Charges
YEARS ENDED DECEMBER 31
Interest on debentures and other debt instruments
Interest on capital trust debentures
Other
2016
68
11
33
412
2015
370
11
32
413
Note 24 Pension Plans and Other Post-Employment Benefits
CHARACTERISTICS, FUNDING AND RISK
The Corporation and its subsidiaries maintain funded defined benefit pension
The Corporation and its subsidiaries also provide unfunded post-employment
health, dental and life insurance benefits to eligible employees, advisors and
plans for certain employees and advisors as well as unfunded supplementary
their dependents. The obligations for these benefits are supported by assets
employee retirement plans (SERP) for certain employees. The Corporation’s
of the Corporation and its subsidiaries.
subsidiaries also maintain defined contribution pension plans for eligible
employees and advisors.
The Corporation and its subsidiaries have pension and benefit committees
or a trusteed arrangement that provides oversight for the benefit plans.
The defined benefit pension plans provide pensions based on length of service
The benefit plans are monitored on an ongoing basis to assess the benefit,
and final average earnings. For most plans, active plan participants share
funding and investment policies, financial status, and funding requirements.
in the cost by making contributions in respect of current service. Certain
Significant changes to benefit plans require approval.
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, and assuming the plans
are not terminated. The assets supporting the funded pension plans are held
in separate trusteed pension funds. The obligations for the wholly unfunded
plans are supported by assets of the Corporation and its subsidiaries.
The Corporation and its subsidiaries’ funding policy for the funded pension
plans is to make 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 asset, the
Corporation and its subsidiaries determine if an economic benefit exists in
the form of potential reductions in future contributions, the present value of
The significant defined benefit plans of Lifeco’s subsidiaries and IGM are
future expenses to be paid from the plan and in the form of surplus refunds,
closed to new entrants. New hires are only eligible for defined contribution
where permitted by applicable regulation and plan provisions.
benefits. As a result, defined benefit plan exposure will continue to be reduced
in future years.
By their design, the defined benefit plans expose the Corporation and
its subsidiaries to the typical risks faced by defined benefit plans, such
The defined contribution pension plans provide pension benefits based on
as investment performance, changes to the discount rates used to value
accumulated employee and employer contributions. Contributions to these
the obligations, longevity of plan members, and future inflation. Pension
plans are a set percentage of employees’ annual income and may be subject
and benefit risk is managed by regular monitoring of the plans, applicable
to certain vesting requirements.
regulations and other factors that could impact the expenses and cash flows
of the Corporation and its subsidiaries.
93
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 24 Pension Plans and Other Post-Employment Benefits (continued)
PLAN ASSETS, BENEFIT OBLIGATION AND FUNDED STATUS
DECEMBER 31
CHANGE IN FAIR VALUE OF PLAN ASSETS
Fair value of plan assets, beginning of year
Interest income
Employee contributions
Employer contributions
Actual return on assets greater than interest income
Benefits paid
Settlement
Administrative expenses
Foreign exchange and other
Fair value of plan assets, end of year
CHANGE IN DEFINED BENEFIT OBLIGATION
Defined benefit obligation, beginning of year
Current service cost
Employee contributions
Interest cost
Actuarial (gains) losses on:
Financial assumption changes
Demographic assumption changes
Arising from member experience
Benefits paid
Past service cost and plan amendments
Settlement
Curtailment
Foreign exchange and other
Defined benefit obligation, end of year
FUNDED STATUS
Fund deficit
Unrecognized amount due to asset ceiling (see below)
Accrued benefit liability
The aggregate defined benefit obligation of pension plans is as follows:
YEARS ENDED DECEMBER 31
Wholly or partly funded plans
Wholly unfunded plans
2016
2015
OTHER POST-
EMPLOYMENT
BENEFITS
DEFINED
BENEFIT
PENSION
PL ANS
OTHER POST-
EMPLOYMENT
BENEFITS
DEFINED
BENEFIT
PENSION
PL ANS
6,452
237
23
153
248
(258)
(19)
(13)
(220)
6,603
–
–
–
21
–
(21)
–
–
–
–
5,960
214
25
130
86
(231)
–
(7)
275
6,452
7,272
454
6,866
158
23
267
520
(13)
(30)
(258)
3
(19)
(14)
(259)
7,650
(1,047)
(91)
(1,138)
167
25
246
(150)
(5)
1
(231)
15
–
–
338
7,272
(820)
(83)
(903)
3
–
19
12
(8)
(1)
(21)
–
–
(7)
(1)
450
(450)
–
(450)
2016
7,147
503
–
–
–
21
–
(21)
–
–
–
–
457
3
–
18
(5)
(9)
4
(21)
2
–
–
5
454
(454)
–
(454)
2015
6,803
469
2015
TOTAL
250
(1,607)
(1,357)
The net accrued benefit asset (liability) shown above is presented in these financial statements as follows:
DECEMBER 31
Pension benefit assets [Note 9]
Pension and other post-employment benefit liabilities [Note 15]
Accrued benefit asset (liability)
DEFINED
BENEFIT
PENSION
PL ANS
214
(1,352)
(1,138)
OTHER POST-
EMPLOYMENT
BENEFITS
–
(450)
(450)
2016
TOTAL
214
(1,802)
(1,588)
DEFINED
BENEFIT
PENSION
PL ANS
250
(1,153)
(903)
OTHER POST-
EMPLOYMENT
BENEFITS
–
(454)
(454)
94
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 24 Pension Plans and Other Post-Employment Benefits (continued)
Under International Financial Reporting Interpretations Committee (IFRIC) 14,
through future contribution reductions, the present value of future expenses
The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their
to be paid from the plan, or surplus refunds; in the event the Corporation and
Interaction, the Corporation and its subsidiaries must assess whether the
its subsidiaries are not entitled to a benefit, a limit or “asset ceiling” is required
pension asset has economic benefit to the Corporation and its subsidiaries
on the balance sheet. The following provides a breakdown of the changes in
the asset ceiling.
DECEMBER 31
Asset ceiling, beginning of year
Interest on beginning-of-period asset ceiling
Change in asset ceiling
Asset ceiling, end of year
PENSION AND OTHER POST-EMPLOYMENT BENEFIT EXPENSE
DECEMBER 31
Defined benefit current service cost
Net interest cost
Past service cost, plan amendments and curtailments
Administration fees
Defined contribution current service cost
Expense recognized in net earnings
Actuarial (gains) losses recognized
Return on assets greater than interest income
Change in asset ceiling
Expense (income) recognized in other comprehensive income
Total expense
2016
83
3
5
91
2015
23
4
56
83
2016
2015
PENSION
PL ANS
OTHER POST-
EMPLOYMENT
BENEFITS
PENSION
PL ANS
OTHER POST-
EMPLOYMENT
BENEFITS
158
33
(11)
13
68
261
477
(248)
5
234
495
3
19
(7)
–
–
15
3
–
–
3
18
167
36
15
7
54
279
(154)
(86)
56
(184)
95
3
18
2
–
–
23
(10)
–
–
(10)
13
In 2016, the Corporation and its subsidiaries incurred $1 million of actuarial gains ($1 million of actuarial gains in 2015) for pension plan remeasurements not
included in the table shown above. This relates to the share of actuarial gains (losses) for investments in jointly controlled corporations and associates.
ASSET ALLOCATION BY MAJOR CATEGORY WEIGHTED BY PLAN ASSETS
DECEMBER 31
PERCENTAGE [%]
Equity securities
Debt securities
All other assets
DEFINED BENEFIT PENSION PL ANS
2015
52
36
12
100
2016
48
41
11
100
No plan assets are directly invested in the Corporation’s or subsidiaries’
at December 31, 2015) are included in the balance sheets. Plan assets do not
securities. Lifeco’s plan assets include investments in segregated and other
include any property occupied or other assets used by Lifeco. IGM’s plan assets
funds managed by subsidiaries of Lifeco of $5,241 million at December 31, 2016
are invested in IGM’s mutual funds. A portion of Power Financial’s plan assets
($5,207 million at December 31, 2015) of which $5,176 million ($5,143 million
are invested in segregated funds managed by a subsidiary of Lifeco.
95
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 24 Pension Plans and Other Post-Employment Benefits (continued)
DETAILS OF DEFINED BENEFIT OBLIGATION
Portion of defined benefit obligation subject to future salary increases
DECEMBER 31
Benefit obligation without future salary increases
Effect of assumed future salary increases
Defined benefit obligation
Allocation of defined benefit obligation by membership
DECEMBER 31
PERCENTAGE [%]
Actives
Deferred vesteds
Retirees
Total
Weighted average duration of defined benefit obligation [in years]
CASH FLOW INFORMATION
The expected employer contributions for the year 2017 are as follows:
Funded (wholly or partly) defined benefit plans
Unfunded defined benefit plans
Defined contribution plans
Total
ACTUARIAL ASSUMPTIONS AND SENSITIVITIES
Actuarial assumptions
DECEMBER 31
PERCENTAGE [%]
RANGE OF DISCOUNT RATES
To determine benefit cost
To determine accrued benefit obligation at year-end
WEIGHTED AVERAGE ASSUMPTIONS USED TO DETERMINE BENEFIT COST [1]
Discount rate
Rate of compensation increase
WEIGHTED AVERAGE ASSUMPTIONS USED TO DETERMINE
ACCRUED BENEFIT OBLIGATION AT YEAR-END [1]
Discount rate
Rate of compensation increase
WEIGHTED AVERAGE HEALTHCARE TREND RATES [1]
Initial healthcare trend rate
Ultimate healthcare trend rate
Year ultimate trend rate is reached
[1] Weighted based on the obligations of each plan.
96
2016
2015
DEFINED
BENEFIT
PENSION
PL ANS
6,901
749
7,650
OTHER POST-
EMPLOYMENT
BENEFITS
450
–
450
DEFINED
BENEFIT
PENSION
PL ANS
6,530
742
7,272
OTHER POST-
EMPLOYMENT
BENEFITS
454
–
454
2016
2015
DEFINED
BENEFIT
PENSION
PL ANS
OTHER POST-
EMPLOYMENT
BENEFITS
DEFINED
BENEFIT
PENSION
PL ANS
OTHER POST-
EMPLOYMENT
BENEFITS
46
18
36
100
18.9
25
–
75
100
12.9
PENSION
PL ANS
203
22
78
303
47
16
37
100
18.7
27
–
73
100
12.5
OTHER POST-
EMPLOYMENT
BENEFITS
–
21
–
21
2016
2015
DEFINED
BENEFIT
PENSION
PL ANS
OTHER POST-
EMPLOYMENT
BENEFITS
DEFINED
BENEFIT
PENSION
PL ANS
OTHER POST-
EMPLOYMENT
BENEFITS
3.8 – 4.3
3.2 – 4.1
3.9 – 4.3
3.7 – 4.1
3.1 – 4.1
3.8 – 4.3
3.9 – 4.1
3.9 – 4.3
3.8
3.3
3.3
3.3
4.1
–
3.8
–
5.2
4.5
2029
3.5
3.3
3.8
3.3
3.9
–
4.1
–
5.3
4.5
2029
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 24 Pension Plans and Other Post-Employment Benefits (continued)
Sample life expectancies based on mortality assumptions
DECEMBER 31
Weighted average life expectancies based on mortality assumptions [1]:
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
[1] Weighted based on the obligations of each plan.
2016
2015
DEFINED
BENEFIT
PENSION
PL ANS
OTHER POST-
EMPLOYMENT
BENEFITS
DEFINED
BENEFIT
PENSION
PL ANS
OTHER POST-
EMPLOYMENT
BENEFITS
22.8
25.0
24.7
26.7
22.3
23.9
24.6
26.1
22.8
25.1
24.7
26.8
22.2
23.9
24.7
26.2
Mortality assumptions are significant in measuring the defined benefit
its subsidiaries take into consideration average life expectancy, including
obligation for defined benefit plans. The period of time over which benefits
allowances for future longevity improvements as appropriate, and reflect
are assumed to be paid is based on best estimates of future mortality,
variations in such factors as age, gender and geographic location.
including allowances for mortality improvements. This estimate is subject
to considerable uncertainty and judgment is required in establishing this
assumption. The mortality assumptions applied by the Corporation and
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.
Impact of changes to assumptions on defined benefit obligation
DECEMBER 31, 2016
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 the discount rate
Impact of a change to assumed medical cost trend rates
1% INCREASE
1% DECREASE
(1,245)
337
620
(53)
43
1,574
(298)
(557)
63
(37)
To measure the impact of a change in an assumption, all other assumptions were held constant. It would be expected that there would be interaction
between at least some of the assumptions and therefore the sensitivity analysis presented may not be representative of the actual change.
97
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 25 Derivative Financial Instruments
In the normal course of managing exposure to fluctuations in interest and foreign exchange rates, and to market risks, the Corporation and its subsidiaries are
end-users of various derivative financial instruments. Contracts are either exchange traded or over-the-counter with counterparties that are credit-worthy
financial intermediaries.
The following table summarizes the portfolio of derivative financial instruments of the Corporation and its subsidiaries at December 31:
DECEMBER 31, 2016
1 YEAR
OR LESS
1–5
YEARS
OVER
5 YEARS
TOTAL
MA XIMUM
CREDIT RISK
TOTAL
FAIR VALUE
NOTIONAL AMOUNT
DERIVATIVES NOT DESIGNATED AS ACCOUNTING HEDGES
2,151
39
2
70
2,256
194
9
28
1,737
85
–
–
6,144
318
11
98
2,262
2,487
1,822
6,571
1,089
428
467
–
1,987
–
–
7,199
–
1,089
9,614
467
1,984
1,987
7,199
11,170
81
11
609
103
804
–
–
–
–
–
–
–
–
–
–
81
11
609
103
804
211
49
–
–
260
3
228
–
231
2
–
2
–
4
133
49
–
–
182
(7)
(1,265)
–
(1,272)
2
–
1
–
3
5,050
4,474
9,021
18,545
495
(1,087)
–
318
1,000
13
1,331
–
–
500
30
530
432
432
–
–
–
432
318
1,500
43
2,293
42
–
–
3
45
42
(4)
(436)
1
(397)
450
6,831
49
5,053
–
499
9,453
21,337
32
572
6
(1,478)
Interest rate contracts
Swaps
Options purchased
Futures – long
Futures – short
Foreign exchange contracts
Forward contracts
Cross-currency swaps
Options purchased
Other derivative contracts
Equity contracts
Futures – long
Futures – short
Other forward contracts
CASH FLOW HEDGES
Interest rate contracts
Swaps
Foreign exchange contracts
Forward contracts
Cross-currency swaps
Other derivative contracts
Forward contracts and total return swaps
NET INVESTMENT HEDGES
Foreign exchange contracts
Forward contracts
98
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 25 Derivative Financial Instruments (continued)
DECEMBER 31, 2015
1 YEAR
OR LESS
1–5
YEARS
OVER
5 YEARS
TOTAL
MA XIMUM
CREDIT RISK
TOTAL
FAIR VALUE
NOTIONAL AMOUNT
DERIVATIVES NOT DESIGNATED AS ACCOUNTING HEDGES
Interest rate contracts
Swaps
Options purchased
Futures – long
Futures – short
Foreign exchange contracts
Forward contracts
Cross-currency swaps
Other derivative contracts
Equity contracts
Futures – long
Futures – short
Other forward contracts
CASH FLOW HEDGES
Interest rate contracts
Swaps
Foreign exchange contracts
Cross-currency swaps
Other derivative contracts
Forward contracts and total return swaps
NET INVESTMENT HEDGES
Foreign exchange contracts
Forward contracts
1,362
49
2
79
2,776
190
–
80
1,592
103
–
–
5,730
342
2
159
1,492
3,046
1,695
6,233
948
426
1,374
68
13
606
131
818
–
2,138
2,138
–
6,740
6,740
948
9,304
10,252
–
–
–
–
–
–
–
–
–
–
68
13
606
131
818
225
49
–
–
274
4
143
147
2
–
4
–
6
135
49
–
–
184
(28)
(1,885)
(1,913)
2
–
1
–
3
3,684
5,184
8,435
17,303
427
(1,726)
–
–
10
10
–
1,500
28
1,528
31
–
–
31
31
1,500
38
1,569
12
–
1
13
12
(524)
(4)
(516)
–
3,694
553
7,265
–
553
8,466
19,425
80
520
80
(2,162)
The amount subject to maximum credit risk is limited to the current fair
Call options grant the Corporation and its subsidiaries the right to enter into
value of the instruments which are in a gain position. The maximum credit
a swap with predetermined fixed-rate payments over a predetermined time
risk represents the total cost of all derivative contracts with positive values
period on the exercise date. Call options are used to manage the variability
and does not reflect actual or expected losses. The total fair value represents
in future interest payments due to a change in credited interest rates and the
the total amount that the Corporation and its subsidiaries would receive
related potential change in cash flows due to surrenders. Call options are also
(or pay) to terminate all agreements at year-end. However, this would not
used to hedge minimum rate guarantees.
result in a gain or loss to the Corporation and its subsidiaries as the derivative
instruments which correlate to certain assets and liabilities provide offsetting
gains or losses.
As at December 31, 2016, Lifeco received assets of $159 million ($107 million in
2015) as collateral for derivative contracts from counterparties.
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 and to reduce the impact
of fluctuating interest rates on the mortgage banking operations and
intermediary operations. Interest rate swap agreements require the periodic
exchange of payments without the exchange of the notional principal amount
on which payments are based.
FOREIGN EXCHANGE CONTRACTS
Cross-currency swaps are used in combination with other investments to
manage foreign currency risk associated with investment activities, and
insurance and investment contract liabilities. Under these swaps, principal
amounts and fixed or floating interest payments may be exchanged in
different currencies. The Corporation and its subsidiaries may also enter
into certain foreign exchange forward contracts to hedge certain product
liabilities, cash and cash equivalents and cash flows.
99
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 25 Derivative Financial Instruments (continued)
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
ENFORCEABLE MASTER NETTING
AGREEMENTS OR SIMILAR AGREEMENTS
The Corporation and its subsidiaries enter into the International Swaps and
and are used to periodically hedge the market risk associated with certain
Derivative Association’s master agreements for transacting over-the-counter
fee income. Equity put options are used to manage the potential credit risk
derivatives. The Corporation and its subsidiaries receive and pledge collateral
impact of significant declines in certain equity markets.
according to the related International Swaps and Derivative Association’s
Forward agreements and total return swaps are used to manage exposure
to fluctuations in the total return of common shares related to deferred
compensation arrangements. Forward agreements and total return swaps
require the exchange of net contractual payments periodically or at maturity
Credit Support Annexes. The International Swaps and Derivative Association’s
master agreements do not meet the criteria for offsetting on the balance
sheets because they create a right of set-off that is enforceable only in the
event of default, insolvency, or bankruptcy.
without the exchange of the notional principal amounts on which the
For exchange-traded derivatives subject to derivative clearing agreements
payments are based. Certain of these instruments are not designated as
with exchanges and clearing houses, there is no provision for set-off at default.
hedges. Changes in fair value are recorded in operating and administrative
Initial margin is excluded from the table below as it would become part of a
expenses in the statements of earnings for those instruments not designated
pooled settlement process.
as hedges.
Lifeco’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 Lifeco and its counterparties in the event of default.
The following disclosure shows the potential effect on the 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 balance sheets.
DECEMBER 31, 2016
FINANCIAL INSTRUMENTS (ASSETS)
Derivative financial instruments
FINANCIAL INSTRUMENTS (LIABILITIES)
Derivative financial instruments
DECEMBER 31, 2015
FINANCIAL INSTRUMENTS (ASSETS)
Derivative financial instruments
Reverse repurchase agreements [3]
FINANCIAL INSTRUMENTS (LIABILITIES)
Derivative financial instruments
REL ATED AMOUNTS NOT SET OFF IN THE BAL ANCE SHEET
GROSS AMOUNT
OF FINANCIAL
INSTRUMENTS
PRESENTED IN
THE BALANCE
SHEET
OFFSETTING
COUNTERPARTY
POSITION [1]
FINANCIAL
COLLATERAL
RECEIVED/
PLEDGED [2]
NET
EXPOSURE
572
572
2,050
2,050
(379)
(379)
(379)
(379)
(131)
(131)
(403)
(403)
62
62
1,268
1,268
REL ATED AMOUNTS NOT SET OFF IN THE BAL ANCE SHEET
GROSS AMOUNT
OF FINANCIAL
INSTRUMENTS
PRESENTED IN
THE BAL ANCE
SHEET
OFFSET TING
COUNTERPART Y
FINANCIAL
COLL ATERAL
RECEIVED/
POSITION [1]
PLEDGED [2]
NET
EXPOSURE
520
43
563
2,682
2,682
(358)
–
(358)
(358)
(358)
(104)
(43)
(147)
(586)
(586)
58
–
58
1,738
1,738
[1] Includes counterparty amounts recognized on the balance sheets where the Corporation and its subsidiaries have a potential offsetting position (as described
above) but does not meet the criteria for offsetting on the balance sheets, excluding collateral.
[2] Financial collateral presented above excludes overcollateralization and, for exchange-traded derivatives, initial margin. Financial collateral received on reverse
repurchase agreements is held by a third party. Total financial collateral, including initial margin and overcollateralization, received on derivative assets was
$159 million ($107 million at December 31, 2015), received on reverse repurchase agreements was nil ($44 million at December 31, 2015), and pledged on
derivative liabilities was $475 million ($671 million at December 31, 2015).
[3] Assets related to reverse repurchase agreements are included in bonds in the balance sheets.
100
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 26 Fair Value Measurement
The following table presents the carrying amounts and fair value of the
The table excludes fair value information for financial assets and financial
Corporation’s assets and liabilities recorded or disclosed at fair vaule, including
liabilities not measured at fair value if the carrying amount is a reasonable
their levels in the fair value hierarchy using the valuation methods and
approximation of the fair value. Items excluded are: cash and cash equivalents,
assumptions described in the summary of significant accounting policies and
dividends, interest and accounts receivable, loans to policyholders, certain
below. Fair values are management’s estimates and are generally calculated
other financial assets, accounts payable, dividends and interest payable and
using market conditions at a specific point in time and may not reflect future
certain other financial liabilities.
fair values. The calculations are subjective in nature, involve uncertainties
and matters of significant judgment. The table distinguishes between assets
and liabilities recorded at fair value on a recurring basis of those for which fair
value is disclosed.
DECEMBER 31, 2016
ASSETS
Assets recorded at fair value
Bonds
Fair value through profit or loss
Available for sale
Mortgage loans
Fair value through profit or loss
Shares
Fair value through profit or loss
Available for sale
Investment properties
Funds held by ceding insurers
Derivative instruments
Other assets
Assets disclosed at fair value
Bonds
Loans and receivables
Mortgage loans
Loans and receivables
Shares
Available for sale [1]
Total
LIABILITIES
Liabilities recorded at fair value
Investment contract liabilities
Derivative instruments
Other liabilities
Liabilities disclosed at fair value
Obligations to securitization entities
Debentures and other debt instruments
Capital trust debentures
Deposits and certificates
Total
CARRYING
VALUE
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
FAIR VALUE
88,283
11,819
339
7,673
182
4,340
8,605
572
516
–
–
–
7,583
53
–
214
3
302
88,282
11,819
339
9
–
–
8,391
566
213
1
–
–
81
129
4,340
–
3
1
88,283
11,819
339
7,673
182
4,340
8,605
572
516
122,329
8,155
109,619
4,555
122,329
16,970
29,295
376
46,641
168,970
2,009
2,050
10
4,069
7,721
7,513
161
471
15,866
19,935
–
–
–
–
18,355
129
18,484
22,580
7,838
30,418
–
40,935
376
8,343
376
49,278
8,155
150,554
12,898
171,607
–
1
10
11
–
428
–
–
428
439
1,989
2,023
–
4,012
–
7,885
212
472
8,569
12,581
20
26
–
46
7,873
–
–
–
7,873
7,919
2,009
2,050
10
4,069
7,873
8,313
212
472
16,870
20,939
[1] Fair value of certain shares available for sale cannot be reliably measured, therefore these investments are recorded at cost.
101
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 26 Fair Value Measurement (continued)
DECEMBER 31, 2015
ASSETS
Assets recorded at fair value
Bonds
Fair value through profit or loss
Available for sale
Mortgage loans
Fair value through profit or loss
Shares
Fair value through profit or loss
Available for sale
Investment properties
Funds held by ceding insurers
Derivative instruments
Other assets
Assets disclosed at fair value
Bonds
Loans and receivables
Mortgage loans
Loans and receivables
Shares
Available for sale [1]
Total
LIABILITIES
Liabilities recorded at fair value
Investment contract liabilities
Derivative instruments
Other liabilities
Liabilities disclosed at fair value
Obligations to securitization entities
Debentures and other debt instruments
Capital trust debentures
Deposits and certificates
Total
CARRYING
VALUE
LEVEL 1
LEVEL 2
LEVEL 3
TOTAL
FAIR VALUE
86,460
12,014
384
6,692
63
5,237
13,652
520
599
–
–
–
6,615
62
–
180
4
381
86,450
12,013
384
10
–
–
13,472
516
204
10
1
–
67
1
5,237
–
–
14
86,460
12,014
384
6,692
63
5,237
13,652
520
599
125,621
7,242
113,049
5,330
125,621
16,905
29,029
534
46,468
172,089
2,253
2,682
4
4,939
7,092
6,927
161
310
14,490
19,429
–
–
–
–
18,145
108
18,253
23,474
7,238
30,712
–
41,619
534
7,880
534
49,499
7,242
154,668
13,210
175,120
–
3
4
7
–
467
–
–
467
474
2,226
2,632
–
4,858
–
7,497
215
312
8,024
12,882
27
47
–
74
7,272
–
–
–
7,272
7,346
2,253
2,682
4
4,939
7,272
7,964
215
312
15,763
20,702
[1] Fair value of certain shares available for sale cannot be reliably measured, therefore these investments are recorded at cost.
There were no significant transfers between Level 1 and Level 2 in 2016 and 2015.
102
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 26 Fair Value Measurement (continued)
The Corporation’s assets and liabilities recorded at fair value and those for
quotes, issuer spreads, two-sided markets, benchmark securities, offers
which fair value is disclosed have been categorized based upon the following
and reference data. Level 2 assets and liabilities include those priced using
fair value hierarchy:
▪ Level 1 inputs utilize observable, unadjusted quoted prices in active
markets for identical assets or liabilities that the Corporation 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 1 assets also include open-end
a matrix which is based on credit quality and average life, government and
agency securities, restricted stock, some private bonds and equities, most
investment-grade and high-yield corporate bonds, most asset-backed
securities, most over-the-counter derivatives, mortgage loans, deposits
and certificates, and most debentures and other debt instruments.
Investment contracts that are measured at fair value through profit or
loss are mostly included in the Level 2 category.
investment fund units and other liabilities in instances where there are
▪ Level 3 inputs utilize one or more significant inputs that are not based on
quoted prices available from active markets.
observable market inputs and include situations where there is little, if
▪ 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
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
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, external appraisers or by discounting projected cash flows.
Assets and liabilities utilizing Level 3 inputs include certain bonds, certain
asset-backed securities, some private equities, some mortgage loans,
investments in mutual and segregated funds where there are redemption
restrictions, certain over-the-counter derivatives, investment properties,
obligations to securitization entities, and certain other debt instruments.
The following table presents additional information about assets and liabilities measured at fair value on a recurring basis for which the Corporation and its
subsidiaries have utilized Level 3 inputs to determine fair value for the year ended December 31, 2016.
DECEMBER 31, 2016
FAIR VALUE
THROUGH
PROFIT OR LOSS
AVAILABLE
FOR SALE
FAIR VALUE
THROUGH
PROFIT OR LOSS
AVAILABLE
FOR SALE
INVESTMENT
PROPERTIES
DERIVATIVES,
NET
OTHER ASSETS
(LIABILITIES)
INVESTMENT
CONTRACT
LIABILITIES
TOTAL
BONDS
SHARES
5,237
(47)
14
(27)
5,256
Balance, beginning of year
10
Total gains (losses)
In net earnings
In other comprehensive
income [1]
Purchases
Sales
Settlements
Other
Transfers out of Level 3
Balance, end of year
–
–
–
–
–
–
(9)
1
1
–
–
–
–
–
–
(1)
–
67
2
–
50
(38)
–
–
–
81
1
–
3
116
–
–
9
–
61
(633)
102
(427)
–
–
–
11
–
(4)
–
17
–
–
129
4,340
(23)
–
–
–
(5)
–
(8)
–
1
–
–
–
–
–
7
–
74
(630)
264
(470)
17
8
(10)
(20)
4,509
[1] Amount of other comprehensive income for investment properties represents the unrealized gains on foreign exchange.
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 funds and segregated funds.
103
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 26 Fair Value Measurement (continued)
The following table sets out information about significant unobservable inputs used at year-end in measuring assets and liabilities categorized as Level 3 in
the fair value hierarchy.
T YPE OF ASSET
VALUATION APPROACH
SIGNIFICANT
UNOBSERVABLE INPUT
INPUT VALUE
Investment properties
Investment property valuations
are 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 2.9% – 10.3%
Reversionary rate
Range of 5.0% – 8.3%
Vacancy rate
Weighted average of 3.1%
INTER-RELATIONSHIP BETWEEN
KEY UNOBSERVABLE INPUTS AND
FAIR VALUE MEASUREMENT
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.
Note 27 Other Comprehensive Income
ITEMS THAT MAY BE RECL ASSIFIED
SUBSEQUENTLY TO NET EARNINGS
ITEMS THAT WILL NOT BE
RECL ASSIFIED TO NET EARNINGS
INVESTMENT
REVALUATION
AND CASH
FLOW HEDGES
FOREIGN
CURRENCY
TRANSL ATION
SHARE OF
JOINTLY
CONTROLLED
CORPORATIONS
AND ASSOCIATES
AC TUARIAL
GAINS (LOSSES)
ON DEFINED
BENEFIT
PENSION PL ANS
SHARE OF
JOINTLY
CONTROLLED
CORPORATIONS
AND ASSOCIATES
(172)
93
(79)
2,036
(988)
1,048
278
370
648
(374)
(127)
(501)
(27)
1
(26)
ITEMS THAT MAY BE RECL ASSIFIED
SUBSEQUENTLY TO NET EARNINGS
ITEMS THAT WILL NOT BE
RECL ASSIFIED TO NET EARNINGS
INVESTMENT
REVALUATION
AND CASH
FLOW HEDGES
FOREIGN
CURRENCY
TRANSL ATION
SHARE OF
JOINTLY
CONTROLLED
CORPORATIONS
AND ASSOCIATES
AC TUARIAL
GAINS (LOSSES)
ON DEFINED
BENEFIT
PENSION PL ANS
SHARE OF
JOINTLY
CONTROLLED
CORPORATIONS
AND ASSOCIATES
12
(184)
–
666
1,370
–
(172)
2,036
241
37
–
278
(479)
105
–
(374)
(50)
3
20
(27)
TOTAL
1,741
(651)
1,090
TOTAL
390
1,331
20
1,741
YEAR ENDED DECEMBER 31, 2016
Balance, beginning of year
Other comprehensive income (loss)
Balance, end of year
YEAR ENDED DECEMBER 31, 2015
Balance, beginning of year
Other comprehensive income (loss)
Other
Balance, end of year
104
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 28 Earnings per Share
The following is a reconciliation of the numerators and the denominators used in the computations of earnings per share:
YEARS ENDED DECEMBER 31
EARNINGS
Net earnings attributable to shareholders
Dividends on perpetual preferred shares
Net earnings attributable to common shareholders
Dilutive effect of subsidiaries
Net earnings adjusted for dilutive effect
NUMBER OF COMMON SHARES [millions]
Weighted average number of common shares outstanding – Basic
Potential exercise of outstanding stock options
Weighted average number of common shares outstanding – Diluted
NET EARNINGS PER COMMON SHARE
Basic
Diluted
2016
2015
2,043
(124)
1,919
(4)
1,915
713.2
0.4
713.6
2.69
2.68
2,449
(130)
2,319
(4)
2,315
713.0
0.7
713.7
3.25
3.24
For 2016, 7,294,383 stock options (3,457,961 in 2015) have been excluded from the computation of diluted earnings per share as they were anti-dilutive.
Note 29 Related Parties
PRINCIPAL SUBSIDIARIES AND JOINTLY CONTROLLED CORPORATIONS
The financial statements of Power Financial include the operations of the following subsidiaries, indirect subsidiaries and jointly controlled corporations:
CORPORATIONS
INCORPORATED IN
PRIMARY BUSINESS OPERATION
Great-West Lifeco Inc.
The Great-West Life Assurance Company [1]
London Life Insurance Company
The Canada Life Assurance Company
Irish Life Group Limited
Canada
Canada
Canada
Canada
Ireland
Financial services holding company
Insurance and wealth management
Insurance and wealth management
Insurance and wealth management
Insurance and wealth management
Great-West Life & Annuity Insurance Company
United States
Insurance and wealth management
Putnam Investments, LLC [2]
United States
IGM Financial Inc. [3]
Investors Group Inc.
Mackenzie Financial Corporation
Parjointco N.V.
Pargesa Holding SA
Wealthsimple Financial Corp. [4]
Canada
Canada
Canada
Netherlands
Switzerland
Canada
Financial services
Financial services
Financial services
Financial services
Holding company
Holding company
Financial services
[1] Great-West Life Assurance Company holds a 3.8% equity interest in IGM Financial.
[2] Lifeco holds 100% of the voting shares and 96.2% of the total outstanding shares.
[3] IGM Financial holds a 4.0% equity interest in Lifeco and a 22.7% equity interest in Wealthsimple Financial Corp.
[4] Together with IGM Financial, Power Financial holds a 69.2% equity interest.
% EQUIT Y INTEREST
2016
2015
67.9
100
100
100
100
100
96.2
61.5
100
100
50
55.5
46.5
67.4
100
100
100
100
100
95.7
60.4
100
100
50
55.5
33.2
105
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 29 Related Parties (continued)
TRANSACTIONS WITH RELATED PARTIES
In the normal course of business, Power Financial and its subsidiaries
In 2014 and 2015, the Corporation entered into tax loss consolidation
transactions with IGM. A wholly owned subsidiary of Power Financial issued
enter into various transactions; subsidiaries provide insurance benefits,
$2.0 billion of 4.51% preferred shares to Power Financial. Power Financial then
sub-advisory services, distribution of insurance products and/or other
sold these preferred shares to IGM for $2.0 billion of IGM’s 4.50% secured
administrative services to other subsidiaries of the group and to the
debentures. The Corporation has legally enforceable rights to settle these
Corporation. In all cases, these transactions are in the normal course of
financial instruments on a net basis and the Corporation intends to exercise
operations and have been recorded at fair value. Balances and transactions
these rights.
between the Corporation and its subsidiaries have been eliminated on
consolidation and are not disclosed in this note. Details of other transactions
between the Corporation and related parties are disclosed below.
Lifeco provides asset management and administrative services for employee
benefit plans relating to pension and other post-employment benefits for
employees of Power Corporation, Power Financial and Lifeco and its subsidiaries.
In 2016, IGM sold residential mortgage loans to Great-West Life, London Life
and segregated funds maintained by London Life for $184 million ($206 million
in 2015).
In October 2016, Power Financial, together with Lifeco and IGM, announced
the formation of a new investment fund, Portag3 Ventures Limited
Partnership, dedicated to primarily backing early-stage innovative financial
services companies.
KEY MANAGEMENT COMPENSATION
Key management personnel are those persons having authority and
responsibility for planning, directing and controlling the activities of
the Corporation, directly or indirectly. The persons included in the key
management personnel are the members of the Board of Directors of the
Corporation, as well as certain management executives of the Corporation
and its subsidiaries.
The following table describes all compensation paid to, awarded to, or earned by each of the key management personnel for services rendered in all capacities
to the Corporation and its subsidiaries:
YEARS ENDED DECEMBER 31
Compensation and employee benefits
Post-employment benefits
Share-based payments
2016
21
10
17
48
2015
18
6
14
38
Note 30 Contingent Liabilities
The Corporation and its subsidiaries are from time to time subject to legal
A subsidiary of Lifeco, Putnam Advisory Company, LLC, is a defendant in an
actions, including arbitrations and class actions, arising in the normal course
action in relation to its role as collateral manager of a collateralized debt
of business. It is inherently difficult to predict the outcome of any of these
obligation brought by an institution involved in the collateralized debt
proceedings with certainty, and it is possible that an adverse resolution
obligation. On April 28, 2014, the matter was dismissed. On July 2, 2014, the
could have a material adverse effect on the consolidated financial position of
complainant filed an appeal of the dismissal and on April 15, 2015 the United
the Corporation. However, based on information presently known, it is not
States Court of Appeals for the Second Circuit issued its decision overturning
expected that any of the existing legal actions, either individually or in the
the dismissal of the action and remanding the matter for further proceedings,
aggregate, will have a material adverse effect on the consolidated financial
which are ongoing.
position of the Corporation. Actual results could differ from the best estimates
of the Corporation’s and its subsidiaries’ management.
LIFECO
During the year, a subsidiary of Lifeco, Canada Life, received the required
regulatory approvals and is now in the final stages of implementing the
settlement of the class action related to the four partial declared wind-ups
in respect of an Ontario defined benefit pension plan.
Subsidiaries of Lifeco in the United States are defendants in proposed class
actions relating to the administration of their staff retirement plans, or
to the costs and features of certain of their retirement or fund products.
Management of Lifeco believes the claims are without merit and will be
aggressively defending these actions.
IGM FINANCIAL
IGM is currently in discussions with the Ontario Securities Commission
regarding potential distributions to Investment Planning Counsel clients,
related to clients who may have been eligible for lower fees in certain
circumstances. At December 31, 2016, no reliable estimate of a possible
payment was determinable.
106
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 31 Commitments and Guarantees
GUARANTEES
In the normal course of operations, the Corporation and its subsidiaries
INVESTMENT COMMITMENTS
With respect to Lifeco, commitments of investment transactions made in the
execute agreements that provide for indemnifications to third parties in
normal course of operations in accordance with policies and guidelines and
transactions such as business dispositions, business acquisitions, loans and
that are to be disbursed upon fulfilment of certain contract conditions were
securitization transactions. The Corporation and its subsidiaries have also
$1,172 million as at December 31, 2016, with $1,084 milion maturing within one
agreed to indemnify their directors and certain of their officers. The nature of
year and $88 million maturing within two years.
these agreements precludes the possibility of making a reasonable estimate
of the maximum potential amount the Corporation and its subsidiaries
could be required to pay third parties as the agreements often do not specify
a maximum amount and the amounts are dependent on the outcome of
PLEDGING OF ASSETS FOR
REINSURANCE AGREEMENTS
In addition to the assets pledged by Lifeco disclosed elsewhere in the financial
future contingent events, the nature and likelihood of which cannot be
statements:
determined. Historically, the Corporation has not made any payments under
[i] The amount of assets included in the Corporation’s balance sheet which
such indemnification agreements. No provisions have been recognized
have a security interest by way of pledging is $1,709 million ($645 million
related to these agreements.
at December 31, 2015) in respect to reinsurance agreements.
LETTERS OF CREDIT
Letters of credit are written commitments provided by a bank. The total
amount of letter of credit facilities at Lifeco is US$2.9 billion, of which
US$2.7 billion were issued as of December 31, 2016.
The Reinsurance operation also periodically uses letters of credit as collateral
under certain reinsurance contracts for on-balance sheet policy liabilities.
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] Lifeco has pledged, in the normal course of business, $62 million
($70 million at December 31, 2015) of its assets for the purpose of providing
collateral for the counterparty.
COMMITMENTS
The Corporation and its subsidiaries enter into operating leases for office space and certain equipment used in the normal course of operations. Lease payments
are charged to operations over the period of use. The future minimum lease payments in aggregate and by year are as follows:
Future lease payments
147
133
102
2017
2018
2019
2020
82
2021
66
2022 AND
THEREAFTER
317
TOTAL
847
Note 32 Segmented Information
The Corporation’s reportable operating segments are Lifeco, IGM Financial
▪ Pargesa is held through Parjointco. Pargesa is a holding company with
and Pargesa. These repor table segments reflect Power Financial’s
diversified interests in Europe-based companies active in various sectors:
management structure and internal financial reporting. The Corporation
minerals-based specialty solutions for industry; cement, aggregates and
evaluates the performance based on the operating segment’s contribution
concrete; testing, inspection and certification; design and distribution of
to earnings. The following provides a brief description of the three reportable
sportswear; wines and spirits; materials technology and recycling; and oil,
operating segments:
gas and alternative energies.
▪ Lifeco is a financial services holding company with interests in life insurance,
The column entitled “Corporate” is comprised of corporate activities of
health insurance, retirement and investment management services, asset
Power Financial and also includes consolidation elimination entries.
management and reinsurance businesses primarily in Canada, the United
States and Europe.
Revenues and assets are attributed to geographic areas based on the point
of origin of revenues and the location of assets. The contribution to earnings
▪ IGM Financial is a financial services company operating in Canada primarily
of each segment includes the share of net earnings resulting from the
within the advice segment of the financial services market. IGM earns
investments that Lifeco and IGM have in each other.
revenues from a range of sources, but primarily from management
fees, which are charged to its mutual funds for investment advisory and
management services. IGM also earns revenues from fees charged to its
mutual funds for administrative services.
107
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT
Notes to the Consolidated Financial Statements
Note 32 Segmented Information (continued)
CONSOLIDATED NET EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 2016
LIFECO
IGM
PARGESA
CORPORATE
TOTAL
REVENUES
Premium income, net
Net investment income
Fee income
Total revenues
EXPENSES
Total paid or credited to policyholders
Commissions
Operating and administrative expenses
Financing charges
Total expenses
Earnings before investments in jointly controlled corporations and associates,
and income taxes
Share of earnings (losses) of investments in jointly controlled corporations
and associates
Earnings before income taxes
Income taxes
Net earnings
ATTRIBUTABLE TO
Non-controlling interests
Perpetual preferred shareholders
Common shareholders
TOTAL ASSETS AND LIABILITIES
31,125
10,145
5,101
46,371
34,675
2,602
5,450
302
–
188
2,857
3,045
–
1,090
916
92
43,029
2,098
3,342
10
3,352
396
2,956
1,166
–
1,790
2,956
947
–
947
168
779
306
–
473
779
–
–
–
–
–
–
–
–
–
–
(88)
(88)
–
(88)
–
–
(88)
(88)
–
(130)
(164)
(294)
31,125
10,203
7,794
49,122
–
34,675
(102)
14
18
3,590
6,380
412
(70)
45,057
(224)
4,065
(20)
(244)
17
(261)
(129)
124
(256)
(261)
(98)
3,967
581
3,386
1,343
124
1,919
3,386
DECEMBER 31, 2016
LIFECO
IGM
PARGESA
CORPORATE
TOTAL
Invested assets (including cash and cash equivalents)
162,535
8,819
–
786
172,140
Investments in jointly controlled corporations and associates
Other assets
Goodwill and intangible assets
Investments on account of segregated fund policyholders
Total assets [1]
Total liabilities
259
26,405
10,409
200,403
400,011
–
2,811
1,263
4,831
–
–
–
–
33
32
–
–
3,103
27,700
15,240
200,403
14,913
2,811
851
418,586
374,904
10,878
–
588
386,370
[1] Total assets of Lifeco and IGM operating segments include the allocation of goodwill and certain consolidation adjustments.
TOTAL ASSETS AND TOTAL REVENUES BY GEOGRAPHIC LOCATION
DECEMBER 31, 2016
CANADA
UNITED STATES
EUROPE
TOTAL
Invested assets (including cash and cash equivalents)
Investments in jointly controlled corporations and associates
Other assets
Goodwill and intangible assets
Investments on account of segregated fund policyholders
Total assets
Total revenues
108
79,317
44,904
33
4,459
10,361
74,909
–
4,537
2,388
47,919
3,070
18,704
2,491
172,140
3,103
27,700
15,240
35,414
90,080
200,403
169,079
87,243
162,264
418,586
20,078
9,448
19,596
49,122
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Notes to the Consolidated Financial Statements
Note 32 Segmented Information (continued)
CONSOLIDATED NET EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 2015
LIFECO
IGM
PARGESA
CORPORATE
TOTAL
REVENUES
Premium income, net
Net investment income
Fee income
Total revenues
EXPENSES
Total paid or credited to policyholders
Commissions
Operating and administrative expenses
Financing charges
Total expenses
Earnings before investments in jointly controlled corporations and associates,
and income taxes
Share of earnings (losses) of investments in jointly controlled corporations
and associates
Earnings before income taxes
Income taxes
Net earnings
ATTRIBUTABLE TO
Non-controlling interests
Perpetual preferred shareholders
Common shareholders
TOTAL ASSETS AND LIABILITIES
24,501
4,240
5,058
33,799
22,842
2,218
4,986
303
–
195
2,833
3,028
–
1,062
883
92
30,349
2,037
3,450
21
3,471
460
3,011
1,149
–
1,862
3,011
991
–
991
210
781
322
–
459
781
–
–
–
–
–
–
–
–
–
–
205
205
–
205
–
–
205
205
–
24,501
(116)
(199)
(315)
4,319
7,692
36,512
–
22,842
(147)
14
18
3,133
5,883
413
(115)
32,271
(200)
4,241
(2)
(202)
9
(211)
(134)
130
(207)
(211)
224
4,465
679
3,786
1,337
130
2,319
3,786
DECEMBER 31, 2015
LIFECO
IGM
PARGESA
CORPORATE
TOTAL
Invested assets (including cash and cash equivalents)
160,903
8,426
Investments in jointly controlled corporations and associates
Other assets
Goodwill and intangible assets
Investments on account of segregated fund policyholders
Total assets [1]
Total liabilities
277
30,211
10,409
198,194
399,994
–
894
4,784
–
–
2,610
–
–
–
871
170,200
18
33
–
–
2,905
31,138
15,193
198,194
14,104
2,610
922
417,630
374,675
10,105
–
570
385,350
[1] Total assets of Lifeco and IGM operating segments include the allocation of goodwill and certain consolidation adjustments.
TOTAL ASSETS AND TOTAL REVENUES BY GEOGRAPHIC LOCATION
DECEMBER 31, 2015
CANADA
UNITED STATES
EUROPE
TOTAL
Invested assets (including cash and cash equivalents)
Investments in jointly controlled corporations and associates
Other assets
Goodwill and intangible assets
Investments on account of segregated fund policyholders
Total assets
Total revenues
76,300
43,809
50,091
170,200
18
3,713
10,313
70,269
–
4,535
2,465
2,887
22,890
2,415
2,905
31,138
15,193
35,966
91,959
198,194
160,613
86,775
170,242
417,630
17,631
7,380
11,501
36,512
109
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Independent Auditor’s Report
To the Shareholders of Power Financial Corporation
We have audited the accompanying consolidated financial statements of Power Financial Corporation, which comprise the consolidated balance sheets as
at December 31, 2016 and December 31, 2015, and the consolidated statements of earnings, statements of comprehensive income, statements of changes in
equity and statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.
MANAGEMENT’S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial
Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.
AUDITOR’S RESPONSIBILITY
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with
Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures
selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of
the consolidated financial statements 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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
OPINION
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Power Financial Corporation as at
December 31, 2016 and December 31, 2015, and its financial performance and its cash flows for the years then ended in accordance with International Financial
Reporting Standards.
Signed,
Deloitte LLP 1
March 24, 2017
Montréal, Québec
1 CPA auditor, CA, public accountancy permit No. A104630
110
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Power Financial Corporation
Five-Year Financial Summary
DECEMBER 31
[IN MILLIONS OF CANADIAN DOLL ARS, EXCEPT PER SHARE AMOUNTS] (UNAUDITED)
2016
2015 [1]
2014 [1]
2013 [1]
2012 [1]
CONSOLIDATED BALANCE SHEETS
Cash and cash equivalents
Total assets
Shareholders’ equity
CONSOLIDATED STATEMENTS OF EARNINGS
REVENUES
Premium income, net
Net investment income
Fee income
Total revenues
EXPENSES
Total paid or credited to policyholders
Commissions
Operating and administrative expenses
Financing charges
Total expenses
4,396
418,586
19,481
4,188
417,630
19,473
3,989
4,344
3,313
373,843
341,682
268,428
16,942
15,916
13,374
31,125
10,203
7,794
49,122
24,501
4,319
7,692
36,512
21,222
13,563
6,990
41,775
20,236
19,257
2,661
5,933
8,375
5,302
28,830
32,934
34,675
22,842
29,160
17,811
22,875
3,590
6,380
412
3,133
5,883
413
2,901
5,162
413
2,590
4,474
400
2,487
3,806
409
45,057
32,271
37,636
25,275
29,577
Earnings before investments in jointly controlled corporations and associates,
and income taxes
4,065
4,241
4,139
3,555
3,357
Share of earnings (losses) of investments in jointly controlled corporations
and associates
Earnings before income taxes
Income taxes
Net earnings
ATTRIBUTABLE TO
Non-controlling interests
Perpetual preferred shareholders
Common shareholders
PER SHARE
Net earnings attributable to common shareholders
Adjusted net earnings attributable to common shareholders
Dividends declared on common shares
Book value per common share
MARKET PRICE (Common shares)
High
Low
Year-end
[1] Restated – refer to Note 16 of the 2016 Consolidated Financial Statements.
(98)
3,967
581
3,386
1,343
124
1,919
3,386
2.69
2.95
1.57
224
4,465
679
3,786
1,337
130
2,319
3,786
3.25
3.14
1.49
211
4,350
834
3,516
1,248
132
2,136
3,516
3.00
2.96
1.40
23.69
23.69
20.18
34.70
29.02
33.56
38.78
30.28
31.81
36.70
30.14
36.18
134
3,689
678
3,011
984
131
1,896
3,011
2.67
2.40
1.40
18.51
36.79
27.02
36.00
130
3,487
559
2,928
1,193
117
1,618
2,928
2.29
2.37
1.40
15.68
30.15
24.06
27.24
Quarterly Financial Information
[IN MILLIONS OF CANADIAN DOLL ARS, EXCEPT PER SHARE AMOUNTS]
(UNAUDITED)
TOTAL
REVENUES
NET
EARNINGS
NET EARNINGS
AT TRIBUTABLE
TO COMMON
SHAREHOLDERS
EARNINGS
PER SHARE
AT TRIBUTABLE
TO COMMON
SHAREHOLDERS
– BASIC
EARNINGS
PER SHARE
AT TRIBUTABLE
TO COMMON
SHAREHOLDERS
– DILUTED
2016
First quarter
Second quarter
Third quarter
Fourth quarter
2015
First quarter
Second quarter
Third quarter
Fourth quarter
12,970
13,470
14,106
8,576
13,369
4,901
9,281
8,961
564
834
860
1,128
956
963
975
892
259
505
539
616
573
616
602
528
0.36
0.71
0.76
0.86
0.80
0.87
0.84
0.74
0.36
0.71
0.76
0.86
0.80
0.86
0.84
0.74
111
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT R. JEFFREY ORR
President and Chief Executive Officer of the Corporation
LOUISE ROY, O.C., O.Q.
Invited Fellow and Chair of the Board,
Centre interuniversitaire de recherche en analyse des organisations
RAYMOND ROYER, O.C., O.Q., FCPA, FCA [1, 2, 3, 4]
Company Director
T. TIMOTHY RYAN, JR. [1, 3]
Company Director
EMŐKE J.E. SZATHMÁRY, C.M., O.M., PH.D., FRSC [1]
President Emeritus,
University of Manitoba
Directors Emeritus
JAMES W. BURNS, O.C., O.M.
THE HONOURABLE P. MICHAEL PITFIELD, P.C., Q.C.
[1] M EMBER OF THE AUDIT COMMIT TEE
[2] MEMBER OF THE COMPENSATION COMMIT TEE
[3] MEMBER OF THE REL ATED PART Y AND
CONDUC T RE VIE W COMMIT TEE
[4] MEMBER OF THE GOVERNANCE AND
NOMINATING COMMIT TEE
Board of Directors
MARC A. BIBEAU [1]
President and Chief Executive Officer,
Beauward Shopping Centres Ltd.
ANDRÉ DESMARAIS, O.C., O.Q. [4]
Executive Co-Chairman of the Corporation
and Deputy Chairman, President and
Co-Chief Executive Officer,
Power Corporation of Canada
PAUL DESMARAIS, JR., O.C., O.Q. [4]
Executive Co-Chairman of the Corporation
and Chairman and Co-Chief Executive Officer,
Power Corporation of Canada
GARY A. DOER, O.M. [1, 2, 3]
Senior Business Advisor,
Dentons Canada LLP
GÉRALD FRÈRE [2]
Managing Director,
Frère-Bourgeois S.A.
ANTHONY R. GRAHAM, LL.D. [4]
Vice-Chairman,
Wittington Investments, Limited
J. DAVID A. JACKSON, LL.B.
Senior Counsel,
Blake, Cassels & Graydon LLP
112
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Officers
PAUL DESMARAIS, JR., O.C., O.Q.
ANDRÉ DESMARAIS, O.C., O.Q.
R. JEFFREY ORR
Executive Co-Chairman
Executive Co-Chairman
President and Chief Executive Officer
MICHEL PLESSIS-BÉLAIR, FCPA, FCA
HENRI-PAUL ROUSSEAU, PH.D.
AMAURY DE SEZE
Vice-Chairman
Vice-Chairman
Vice-Chairman
GREGORY D. TRETIAK, FCPA, FCA
CLAUDE GÉNÉREUX
Executive Vice-President
and Chief Financial Officer
Executive Vice-President
OLIVIER DESMARAIS
Senior Vice-President
PAUL DESMARAIS III
Senior Vice-President
PAUL C. GENEST
Senior Vice-President
ARNAUD VIAL
Senior Vice-President
JOCELYN LEFEBVRE, CPA, C.A.
DENIS LE VASSEUR, CPA, C.A.
STÉPHANE LEMAY
Managing Director,
Power Financial Europe B.V.
Vice-President and Controller
Vice-President,
General Counsel and Secretary
FABRICE MORIN
Vice-President
RICHARD PAN
Vice-President
EOIN Ó HÓGÁIN, CFA
Vice-President
LUC RENY, CFA
Vice-President
113
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT Corporate Information
POWER FINANCIAL CORPORATION
751 Victoria Square
Montréal, Québec, Canada H2Y 2J3
514-286-7430
1-800-890-7440
161 Bay Street, Suite 5000
Toronto, Ontario, Canada M5J 2S1
416-607-2250
www.powerfinancial.com
This document is also available on the Corporation’s website
and on SEDAR at www.sedar.com.
Transfer Agent and Registrar
Stock Listings
Computershare Investor Services Inc.
Offices in:
Montréal, Québec; Toronto, Ontario
Shares of Power Financial Corporation are listed on the
www.investorcentre.com
Toronto Stock Exchange:
COMMON SHARES: PWF
FIRST PREFERRED SHARES:
Series A: PWF.PR.A
Series D: PWF.PR.E
Series E: PWF.PR.F
Series F: PWF.PR.G
Series H: PWF.PR.H
Series I: PWF.PR.I
Series K: PWF.PR.K
Series L: PWF.PR.L
Series O: PWF.PR.O
Series P: PWF.PR.P
Series Q: PWF.PR.Q
Series R: PWF.PR.R
Series S: PWF.PR.S
Series T: PWF.PR.T
Shareholder Services
Shareholders with questions relating to the payment of dividends,
change of address, share certificates, direct registration and estate
transfers should contact the Transfer Agent:
Computershare Investor Services Inc.
Shareholder Services
100 University Avenue, 8th Floor
Toronto, Ontario, Canada M5J 2Y1
Telephone: 1-800-564-6253 (toll-free in Canada and the U.S.)
or 514-982-7555
www.computershare.com
The trademarks contained in this repor t are owned by
Power Financial Corporation or a member of the Power Corporation
Group of Companies™. Trademarks that are not owned by
Power F inancial Corporation are used with permission.
114
POWER FINANCIAL CORPORATION 2016 ANNUAL REPORT DE SIG N: A R D O ISE.COM
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