Great-West Lifeco Inc. · TSX:GWO
Great-West Lifeco — Q1 2023 Earnings Presentation
44 slides from Great-West Lifeco's earnings presentation, May 10, 2023
Slide 1: IFRS 17 Impacts and 2022 Comparative Results
IFRS 17 Impacts and 2022 Comparative Results May 10th, 2023 Note: All figures reflect the adoption of IFRS 17 and IFRS 9, unless otherwise stated. Unaudited comparative results for 2022 are included on a restated basis in alignment with the new standards.
Slide 2: Cautionary Notes
CAUTIONARY NOTES CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION This document contains forward-looking information. Forward-looking information includes statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as "will", "may", "expe
Slide 3: Paul Mahon, President & CEO
Paul Mahon President & CEO Great-West Lifeco
Slide 4: Successful transition to IFRS 17 with limited financial impacts
SUCCESSFUL TRANSITION TO IFRS 17 WITH LIMITED FINANCIAL IMPACTS; CONTINUED PROGRESS ON CURRENT BUSINESS STRATEGIES Successfully reported under IFRS 17 in Q1 2023, including the restatement of 2022 results and continued to advance our business strategies to drive long term value creation Medium-term
Slide 5: Business strategy not impacted by IFRS 17; limited impacts on base earnings
BUSINESS STRATEGY NOT IMPACTED BY IFRS 17 WITH LIMITED IMPACTS ON BASE EARNINGS FOR MOST VALUE DRIVERS Mix of Base Impact on Base Value Drivers Products IFRS 17 Implication Earnings1 Earnings IFRS 17 is not applicable (e.g. defined contribution); Group Retirement2 Limited or No Workplace Solutions 5
Slide 6: Medium-term financial objectives: base EPS growth, ROE, payout ratio
1 MEDIUM-TERM FINANCIAL OBJECTIVES: BASE EPS GROWTH OBJECTIVE AND TARGET DIVIDEND PAYOUT RATIO UNCHANGED; BASE ROE OBJECTIVE INCREASED BY 2% 2 ON TRANSITION target dividend 8-10% base EPS growth p.a 3 . 16-17% base ROE 3 45-55% payout ratio (base earnings)3 • Reduction in 2022 base earnings of • Div
Slide 7: Garry MacNicholas, EVP & CFO
Garry MacNicholas EVP & CFO Great-West Lifeco
Slide 8: Key changes in insurance contract liability on transition
KEY CHANGES IN INSURANCE CONTRACT LIABILITY ON TRANSITION – INTRODUCTION OF THE CONTRACTUAL SERVICE MARGIN AND DE-LINKING OF ASSETS FROM LIABILITY VALUATION IFRS 4 IFRS 17 Liability1 Liability1 Contractual Service Margin3 (CSM) is a new Discount rate is liability that reflects deferred profits. CSM
Slide 9: Excellent financial strength maintained; positive impacts to ROE, leverage and LICAT
EXCELLENT FINANCIAL STRENGTH MAINTAINED; POSITIVE IMPACTS TO ROE, LEVERAGE RATIO AND LICAT RATIO • Increase in ROE of 2% due to reduction in Impact on Shareholders’ Equity and Book Value Per Share1 Base ROE4 shareholders’ equity driven by creation of the CSM Other Provisions no CSM Impact on Shareho
Slide 10: IFRS 17 implications for earnings recognition and ALM
THE TRANSITION TO IFRS 17 HAS IMPLICATIONS FOR EARNINGS RECOGNITION; ASSET LIABILITY MANAGEMENT AND ACCOUNTING POLICIES CHOSEN TO BALANCE EARNINGS AND CAPITAL IMPACT IFRS 17 change Outcome Implications 1 Earnings will flow from Contractual Service Modest change in base earnings for business The intr
Slide 11: IFRS 17 liability discount rates set using own assets as reference portfolios
IFRS 17 LIABILITY DISCOUNT RATES ARE GENERALLY SET USING YIELDS DERIVED BY DESIGNATING OUR OWN ASSETS AS THE REFERENCE PORTFOLIOS Liability portfolios where The yields on our own fixed income assets1 are used to set the IFRS 17 liability supporting assets reflect the discount rate for these portfoli
Slide 12: ALM strategy and accounting choices set to maintain stable LICAT ratio
ALM STRATEGY AND ACCOUNTING CHOICES WERE SET TO MAINTAIN A STABLE LICAT RATIO Balance Sheet Management Decisions IFRS 17 Supporting IFRS 9 Outcome ALM Strategy Liability1 Assets Designation Surplus Fixed income assets FVOCI3 Strong liquidity position Mix of Fixed Income CSM Maximize risk-adjusted re
Slide 13: LICAT ratio more stable despite 2022 volatility
DESPITE THE HEIGHTENED INTEREST RATE AND MARKET VOLATILITY IN 2022, OUR LICAT RATIO WAS MORE STABLE DUE TO OUR ALM AND ACCOUNTING CHOICES Net Earnings (in $m, CAD) 1,500 1,334 1,250 1,026 Change in net 987 1,000 earnings 823 770 735 volatility was 750 688 IFRS 4 largely driven by IFRS 17 500 452 mar
Slide 14: IFRS 17 base earnings less impacted by market volatility
IFRS 17 BASE EARNINGS LESS IMPACTED BY MARKET VOLATILITY, SHOWING MODEST VARIATIONS QUARTER TO QUARTER Base Earnings1 (in $m, CAD) 1,000 (97) +66 +123 (23) 896 892 869 750 809 830 811 712 688 500 IFRS 4 IFRS 17 250 0 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Q1 2022 Q2 2022 Q3 2022 Q4 2022 Decrease largely dr
Slide 15: Base earnings decreased by 1.8% in 2022 comparative period
BASE EARNINGS1 DECREASED BY 1.8% DURING THE 2022 COMPARATIVE PERIOD DUE TO IMPACTS RELATED TO IFRS 17 1 2 The introduction of the CSM will lead to more stable The delinking of assets and liabilities will lead to a insurance results as deferral of new business profit and portion of trading activity b
Slide 16: Operating segments experienced limited to modest base earnings impacts
OPERATING SEGMENTS EXPERIENCED LIMITED TO MODEST BASE EARNINGS IMPACTS Business with modest Business with limited to no Base Earnings1 Mix FY 2022 Base Earnings1 impact due to IFRS 17 impacts due to IFRS 17 by IFRS 17 Impact 1,146 1,164 Increase driven by inforce transition CSM run-off and deferral
Slide 17: Conclusion
CONCLUSION Successful transition to IFRS17 and continuing to advance business strategies Expanded disclosures for IFRS17, including Drivers of Earnings analysis and business Value Drivers Low impact on base earnings; Medium-term financial objectives reconfirmed LICAT improvement on transition; Finan
Slide 18: Q1 2023 Results Presentation
We will now start the Q1 2023 Results Presentation
Slide 19: Quarterly Results Presentation Q1 2023
Quarterly Results Presentation Q1 2023 Note: All figures reflect the adoption of IFRS 17 and IFRS 9, unless otherwise stated. Unaudited comparative results for 2022 are included on a restated basis in alignment with the new standards.
Slide 20: Cautionary Notes
CAUTIONARY NOTES CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION This document contains forward-looking information. Forward-looking information includes statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as "will", "may", "expe
Slide 21: Summary of Results
SUMMARY OF RESULTS Paul Mahon President & CEO Great-West Lifeco
Slide 22: Highlights
HIGHLIGHTS Canada Life to acquire Successful transition to IFRS 17 Investment Planning Counsel Base EPS1 of $0.87 Empower Personal Wealth Up 14% YoY Net EPS of $0.64 launched LICAT ratio2 of 127% Unio Wealth Management Up 7 points QoQ introduced by Irish Life 1. Base EPS is a non-GAAP financial rati
Slide 23: Value Drivers
VALUE DRIVERS Operating Segments1 Capital and Risk Value Drivers Canada U.S. Europe Solutions Group Life & Health Empower Defined Group Life & Health Workplace Solutions Contribution Group Retirement Group Retirement Empower Personal Wealth & Asset Individual Wealth Wealth Individual Wealth & Manage
Slide 24: Canada
CANADA Group Life & Health Group Retirement • Workplace Solutions Net Book Premium4 (C$m) AUA1,2 and Flows3 (C$m) 451 12,583 • Group Life & Health book premium up 8% YoY, 4% QoQ, 11,645 12,155 178 61,419 2,053 2,430 61,665 58,817 due to general market growth and increased utilization of (201) (1,635
Slide 25: Europe
EUROPE Group Life & Health Wealth (Ex-IO) • Workplace Solutions Net Book Premium4 (C$m) AUA1,2 and Flows3 (C$m) 32 2,230 2,128 2,125 18 ( 26 ) 23 • Group Life & Health book premium up 5% YoY 26 ( 37 ) 49 129,482 127,792 4,233 1,983 1,818 133,095 20 1,035 (2,731) • Strong persistency and pricing disc
Slide 26: U.S. – Empower
U.S. – EMPOWER Empower Defined Contribution AUA1 and Flows2 (US$b) • Workplace Solutions 1,086 1,256 50 62 1,325 • Empower DC AUA of $1.3T, up 22% YoY, with addition (43) of Prudential and positive organic net cash flows partly offset by lower equity markets Q1 2022 Q4 2022 Inflows Outflows Market/O
Slide 27: U.S. – Putnam
U.S. – PUTNAM Putnam • US$23B decrease in ending AUM year-over-year AUM1 and Flows2 (US$b) • Net outflows of $1.7B. 192.3 164.7 3.2 ( 4.5 ) 3.4 169.1 • A $0.7B improvement compared to Q1’22 5.2 ( 5.6 ) 2.7 100.6 • Outflows are primarily in lower-fee fixed income 86.5 88.6 products • Higher-earning f
Slide 28: Capital & Risk Solutions (CRS)
CAPITAL & RISK SOLUTIONS (CRS) Run-Rate Reinsurance • Strong pipeline and business expansion Earnings Drivers1 ▪ Solid new business margins on transactions covering 194 193 183 savings, health and non-life businesses in core 51 48 markets 59 41 39 ▪ Good developments in new markets and new 36 produc
Slide 29: Performance against medium-term objectives
PERFORMANCE AGAINST MEDIUM-TERM1 OBJECTIVES 4 4 5-Year 5-Year Q1 2023 (2017 - 2022) IFRS 17 (2017 - 2022) IFRS 4 Medium-Term Financial Objectives Base 2 Base 2 Base 2 8-10% base EPS growth p.a 2 14% 8.8% CAGR 8.8% CAGR 16-17% base ROE 2 (IFRS 17) 15.8% 13.6% average - 14-15% base ROE 2 (IFRS 4) - -
Slide 30: Financial Highlights
FINANCIAL HIGHLIGHTS Garry MacNicholas EVP & CFO Great-West Lifeco
Slide 31: EPS and earnings by reporting segment
EPS AND EARNINGS BY REPORTING SEGMENT Earnings per Share (C$m) Earnings (C$m) (Base)1,2 (Net)2 1.43 Canada U.S. Europe CRS Lifeco Lifeco Q1 2023 278 200 178 157 808 595 0.93 0.87 0.76 Q4 2022 260 190 256 181 869 452 0.64 Net 0.48 Q1 2022 224 144 176 171 712 1,334 Base1 YOY 24% 39% 1% (8%) 13% (55%)
Slide 32: Earnings reconciliation
EARNINGS RECONCILIATION Q1 2023 Q4 2022 Q1 2022 Post-Tax Post-Tax Post-Tax Per Share (C$) Per Share (C$) Per Share (C$) (C$m) (C$m) (C$m) Base earnings1 808 0.87 869 0.93 712 0.76 Items excluded from base earnings Market experience gains and losses (168) (0.18) (386) (0.41) 686 0.74 Assumption chang
Slide 33: Drivers of earnings (DOE) [base earnings]
DRIVERS OF EARNINGS (DOE) [BASE EARNINGS 1] Q1/23 Q4/22 Q1/22 (C$m) Canada U.S. Europe CRS Corp. Total Total Total Expected insurance earnings (CSM and risk adjustment) 143 18 110 87 - 358 356 361 Impact of new insurance business (1) - - - - (1) (2) (4) Experience gains and losses on medium and long
Slide 34: Book value per share, LICAT, ROE and financial leverage
BOOK VALUE PER SHARE 1, LICAT 2, ROE 1 and FINANCIAL LEVERAGE 6 Book Value per Share1 (C$) LICAT Ratio2 23.28 23.45 127% 130% 127% 21.65 5 5 10% 8% 119% 120% Q1 2022 Q4 2022 Q1 2023 Q1 2022 Q4 2022 Q1 2023 Return on Equity1 Financial Leverage6 17.2% 15.7% 15.8% 14.7% 14.1% 13.4% 33% 33% 33% Base3 Ne
Slide 35: Questions
GREAT-WEST LIFECO QUESTIONS INVESTMENTS
Slide 36: Appendix
GREAT-WEST LIFECO APPENDIX INVESTMENTS
Slide 37: Earnings by value drivers
EARNINGS BY VALUE DRIVERS YoY Canada U.S. Europe CRS LIFECO Value Drivers Base 1 YoY Base 1 YoY Base 1 YoY Base 1 YoY Total 2 Base YoY Workplace Solutions 159 45% 224 58% 58 (16%) - - 441 37% Wealth & Asset Management 61 42% - - 31 (37%) - - 92 (8%) Insurance & Risk Solutions 43 (32%) - - 97 70% 153
Slide 38: Contractual service margin (CSM)
CONTRACTUAL SERVICE MARGIN (CSM) Total CSM ($Cm), Non-Par CSM ($Cm), Non-par and Par excluding segregated funds 132 59 75 40 30 (282) 30 (132) 13,123 13,003 13,043 5,904 5,872 5,829 Beginning Total CSM Impact of new CSM recognized for Expected movements Organic CSM Other impacts Ending Total CSM Beg
Slide 39: Invested assets
INVESTED ASSETS 1 Investment Properties 3% Cash and CD's 3% Gov't, Gov't Related and Invested assets of $226.2 billion Agency Securitized Bonds Stocks 19% 7% Diversified high quality portfolio: Insured Residential and Multi-family Bonds represent 70%: Mortgages • 99% are investment grade 1% • 71% ra
Slide 40: Lifeco consolidated bond portfolio
LIFECO CONSOLIDATED BOND PORTFOLIO * % of Invested Assets Gov't, Gov't Related and Corporate and Non-Agency Country of Domicile Agency Securitized Bonds Securitized Bonds Total Bonds U.S. 2.5% 29.4% 31.9% Canada 7.7% 8.6% 16.3% U.K. 4.8% 5.5% 10.3% Germany 1.1% 1.0% 2.1% Ireland 0.2% 0.3% 0.5% 16.3%
Slide 41: Corporate and non-agency securitized bonds – sector diversification
CORPORATE AND NON-AGENCY SECURITIZED BONDS – SECTOR DIVERSIFICATION * Corporates % of Invested Assets Non-Agency Securitized % of Invested Assets Electric Utilities 7.1% CMBS 2.5% Consumer Products 6.8% RMBS 0.1% Industrial Products 5.4% Other ABS 5.6% Banks 4.1% Total Non-Agency Securitized 8.2% Fi
Slide 42: Lifeco mortgage exposures
LIFECO MORTGAGE EXPOSURES * (C$m) Carrying Value Mortgage Holdings by Segment Property Type Total % of Lifeco IA Canada U.S. Europe CRS Insured Non-insured Single Family 1,705 0.8% 1,705 - - - 383 1,322 Equity Release 3,654 1.6% 1,471 - 1,808 375 - 3,654 Multi Family 9,561 4.2% 4,369 4,241 913 38 2,
Slide 43: Non-GAAP Financial Measures
Non-GAAP Financial Measures The Company uses several non-GAAP financial measures to measure overall performance of the Company and to assess each of its business units. A financial measure is considered a non-GAAP measure for Canadian securities law purposes if it is presented other than in accordan
Slide 44: Footnotes
Footnotes Slide 4 2. The LICAT Ratio is calculated in accordance with OSFI's guideline - Life Insurance Capital Adequacy Test. For additional details, refer to the "Capital Management and Adequacy" section of the Company’s Q1 2023 MD&A, available for review on SEDAR at www.sedar.com Slide 6 2. Indiv