Great-West Lifeco Inc. · TSX:GWO
Great-West Lifeco — Q2 2020 Earnings Presentation
39 slides from Great-West Lifeco's earnings presentation, 2020
Slide 1: Quarterly Results Presentation Q2 2020
Quarterly Results Presentation Q2 2020
Slide 2: Cautionary notes
Cautionary notes CAUTIONARY NOTE REGARDING FORWARD-LOOKING INFORMATION This document may contain forward-looking information. Forward-looking information includes statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as "expects", "antic
Slide 3: Summary of Results
SUMMARY OF RESULTS Paul Mahon President & CEO Great-West Lifeco 3
Slide 4: A strong second quarter driven by a resilient business model
A strong second quarter driven by a resilient business model Effectively navigating the COVID-19 crisis Successfully advancing strategic initiatives to drive growth 4
Slide 5: Earnings
EARNINGS Earnings per Share (EPS) Earnings (C$m) 831 863 0.93 730 706 0.90 677 0.79 627 0.73 0.76 0.67 513 543 0.59 459 0.55 0.49 342 0.37 Base1 Base1 Net Net Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Base Earnings and EPS Net Earnings and EPS • Base EPS up 13%
Slide 6: COVID-19: Business Impacts
COVID-19: BUSINESS IMPACTS Q2 2020 IMPACTS NEAR-TERM OUTLOOK • Lower health and dental claims during “lock-down” period; premium reductions • Claims levels approaching normal across Canada in June; premium reductions for certain plans, and lower expense recoveries for ASO plans phased out in July •
Slide 7: COVID-19: Business Impacts
COVID-19: BUSINESS IMPACTS Q2 2020 IMPACTS NEAR-TERM OUTLOOK • Slowdown in sales activity for wealth management in U.K. and Ireland as well as • Financial advisers adapting to remote environment U.K. bulk annuities, but strong growth of pension sales in Ireland and Germany • Activity resuming in the
Slide 8: Invested Assets Portfolio
INVESTED ASSETS PORTFOLIO Q2 2020 IMPACTS NEAR-TERM OUTLOOK • Bond portfolio of $126.6B, 79% of bonds rated A or higher; 99% • Downgrade cycle expected to continue over the medium-term rated BBB or higher; BBB holdings of $25.3B are primarily higher • High grade issuers have taken advantage of robus
Slide 9: Sales
SALES Sales1,2 (C$b) Sales By Segment (C$b)1,2 Canada U.S. Europe Lifeco 66.5 Q2 2020 2.4 28.2 7.1 37.8 41.9 42.0 Q1 2020 3.6 53.2 9.7 66.5 34.3 37.8 Q2 2019 2.9 24.2 7.1 34.3 YOY (19%) 17% 0% 10% Constant Currency 3 (19%) 12% (2%) 7% Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Muted sales activity due
Slide 10: Fee and Other Income
FEE AND OTHER INCOME Fee and Other Income (C$m) Fee and Other Income By Segment (C$m) 1,511 1,515 1,496 Canada U.S.2 Europe CRS Lifeco2 1,441 Q2 2020 410 654 340 2 1,406 1,406 Q1 2020 440 665 333 3 1,441 Q2 2019 440 684 385 2 1,511 YOY (7%) (4%) (12%) 0% (7%) Constant Currency 1 (7%) (8%) (13%) 6% (
Slide 11: Expenses
EXPENSES Operating Expenses1,2 (C$m) Operating Expenses By Segment (C$m)1,2 1,333 Canada U.S.2 Europe CRS Lifeco 1 1,290 1,285 Q2 2020 411 560 283 24 1,285 1,247 1,253 Q1 2020 453 570 283 23 1,333 Q2 2019 417 539 262 21 1,247 YOY (1%) 4% 8% 14% 3% Constant Currency 3 (1%) 0% 6% 12% 1% Q2 2019 Q3 201
Slide 12: Financial Highlights
FINANCIAL HIGHLIGHTS Garry MacNicholas EVP & CFO Great-West Lifeco 12
Slide 13: Earnings
EARNINGS Earnings per Share (C$m) Base Earnings1 (C$m) (Base)1,2 (Net)2 0.90 0.93 Canada U.S. Europe CRS Lifeco Lifeco 0.79 0.76 0.73 Q2 2020 315 83 179 137 706 863 0.67 0.55 0.59 0.49 Q1 2020 273 17 132 119 543 342 0.37 292 101 155 84 627 459 Base1 Q2 2019 Net YOY 8% (18%) 15% 63% 13% 88% Constant
Slide 14: Earnings Reconciliation
EARNINGS RECONCILIATION Q2 2020 Q1 2020 For the three months ended (C$m) Post-Tax (m) Per Share Post-Tax (m) Per Share • Base and net earnings reflect recovery in markets Base earnings1 706 0.76 543 0.59 in Q2 2020 • Base earnings reflect Items excluded from base earnings improvements in seed Actuar
Slide 15: Source of Earnings
SOURCE OF EARNINGS Q2/20 Q1/20 Q2/19 (C$m) Canada U.S. Europe CRS Corp. Total Total Total Expected profit on in-force business1 303 90 189 155 (5) 732 729 734 Impact of new business (12) (32) (29) 4 - (69) (86) (17) Experience gains and losses2 69 5 33 (7) (2) 98 (195) 37 Management actions and chan
Slide 16: Source of Earnings – Additional Detail
SOURCE OF EARNINGS – ADDITIONAL DETAIL Experience gains and losses Management actions and changes in assumptions For the three months ended June 30/20 For the three months ended June 30/20 Pre-Tax Post-Tax Pre-Tax Post-Tax (C$m) (C$m) Updated equity and real estate return Yield enhancement 104 75 89
Slide 17: Book Value per Share and LICAT
BOOK VALUE PER SHARE AND LICAT Book Value per Share (C$) LICAT 22.34 21.98 139% 21.53 136% 21.02 135% 20.84 133% 132% Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 • Book value up 5% YoY, primarily due to retained • LICAT at 132%, down 1 point from Q1 2020 earnings
Slide 18: Transaction with Mackenzie Financial to Strengthen Canada Life's Wealth Management Business
TRANSACTION WITH MACKENZIE FINANCIAL TO STRENGTHEN CANADA LIFE’S WEALTH MANAGEMENT BUSINESS Great-West Lifeco has reached an agreement to sell its Canadian subsidiary, GLC Asset Management Group (GLC), to Mackenzie Financial (Mackenzie). Canada Life will retain control of its overall Canada wealth m
Slide 19: Personal Capital Acquisition to Accelerate Empower's Growth
PERSONAL CAPITAL ACQUISITION TO ACCELERATE EMPOWER’S GROWTH Add best-in-class hybrid digital wealth management platform to Empower • High growth direct-to-consumer wealth management business focused on large mass affluent market • Profitable core business model with attractive new customer Lifetime
Slide 20: Looking ahead: protecting, adapting and growing our business
Looking ahead…a focus on protecting, adapting and growing our business Supporting employees and customers Leveraging digital platforms Advancing strategic priorities 20
Slide 21: Questions
QUESTIONS 21
Slide 22: Appendix
APPENDIX 22
Slide 23: Canada
CANADA (In C$m) Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 YoY Sales Individual Insurance 98 102 128 118 98 0% Individual Wealth 2,125 1,918 2,590 2,784 1,679 (21%) Individual Total 2,223 2,020 2,718 2,902 1,777 (20%) Group Insurance 109 237 102 119 75 (31%) Group Wealth 608 1,263 789 611 538 (12%) Gro
Slide 24: Canada
CANADA (In C$m) Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 YoY Individual Customer Base Earnings 147 165 143 138 159 8% Items excluded from Base Earnings (12) (80) (56) (126) 36 Net Earnings 135 85 87 12 195 44% Group Customer Base Earnings 161 181 144 143 195 21% Items excluded from Base Earnings - 25
Slide 25: United States
UNITED STATES1 (In US$m) Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 YoY Sales Empower Retirement 8,746 12,792 11,968 25,060 5,196 (41%) Reinsured Insurance & Annuity Business 65 - - - - Total 8,811 12,792 11,968 25,060 5,196 (41%) Putnam Sales 9,258 10,879 12,108 14,664 15,111 63% Fee and Other Income
Slide 26: United States
UNITED STATES1 (In US$m) Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 YoY Empower Retirement Base Earnings 43 46 54 40 48 12% Items excluded from Base Earnings - (1) 23 (9) (4) Net Earnings 43 45 77 31 44 2% Reinsured Insurance & Annuity Business Base Earnings 22 - - - - 2 Items excluded from Base Earnin
Slide 27: Europe
EUROPE (In C$m) Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 YoY Sales U.K 1,748 1,238 1,027 1,102 1,059 (39%) Ireland 5,313 5,784 5,393 8,480 6,001 13% Germany 70 76 146 86 81 16% Total 7,131 7,098 6,566 9,668 7,141 0% Fee and Other Income U.K 52 54 63 39 44 (15%) Ireland 225 238 229 189 185 (18%) Germa
Slide 28: Europe
EUROPE (In C$m) Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 YoY U.K. Base Earnings 69 105 233 72 88 28% Items excluded from Base Earnings 2 62 (27) 19 21 Net Earnings 71 167 206 91 109 54% Ireland Base Earnings 54 29 52 27 53 (2%) Items excluded from Base Earnings 21 54 36 (43) 48 Net Earnings 75 83 88
Slide 29: Capital and Risk Solutions
Capital and Risk Solutions (In C$m) Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 YoY Fee and Other Income Reinsurance 2 2 2 3 2 0% Operating Expenses Reinsurance 20 20 21 21 22 10% Corporate & Par 1 1 1 2 2 Total 21 21 22 23 24 14% Reinsurance Base Earnings 84 85 162 120 138 64% Items excluded from Base
Slide 30: Putnam – AUM and Flows
PUTNAM – AUM AND FLOWS (US$b) 181.7 174.7 174.2 168.5 8.1 ( 5.7 ) 7.6 148.9 7.0 ( 6.0 ) 8.6 92.2 91.4 89.5 85.3 75.3 83.3 84.7 89.5 83.2 73.6 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Sales Redemptions Market Q2 2020 In-Qtr Avg. AUM: 172.0 174.3 178.0 172.4 160.2 Mutual Funds Institutional 30
Slide 31: Putnam – Core Net Earnings
PUTNAM – CORE NET EARNINGS (US$m) 226 235 226 229 190 11.7% 9.1% 9.5% 7.2% Expenses Fee & Net Investment Income Income Taxes Core Margin (Pre-tax) -16.1% (208) (204) (200) (218) (221) Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Core Net Earnings: $15 $17 $21 ($24) $19 Note: Core net earnings (loss) (a n
Slide 32: Invested Assets
INVESTED ASSETS1 Loans to Cash and CD's Policyholders 3% Investment Properties 5% 3% Gov't, Gov't Related and Agency Securitized Bonds Stocks 27% Invested assets of $182.3 billion 6% Insured Residential and Multi-family Diversified high quality portfolio: Mortgages 2% Bonds represent 69%: • 99% are
Slide 33: Lifeco Consolidated Bond Portfolio
LIFECO CONSOLIDATED BOND PORTFOLIO* % of Invested Assets Gov't, Gov't Related and Agency Corporate and Non-Agency Country of Domicile Securitized Bonds Securitized Bonds Total Bonds Canada 11.8% 10.8% 22.6% U.S. 2.9% 17.3% 20.2% U.K. 8.3% 8.2% 16.5% Germany 1.4% 1.0% 2.4% Ireland 0.3% 0.2% 0.5% 24.7
Slide 34: Lifeco Consolidated Bond Portfolio – By Rating
LIFECO CONSOLIDATED BOND PORTFOLIO – BY RATING* Rating Carrying Value (C$m) % of Total AAA 22,120 17.5% AA 36,841 29.1% A 41,447 32.8% BBB 25,330 20.0% BB or Lower 812 0.6% Total 126,550 100.0% • Bond portfolio quality remains high, with 99% rated investment grade and 79% rated A or higher. *Include
Slide 35: 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 7.2% CMBS 1.5% Consumer Products 5.3% RMBS 0.2% Banks 3.5% Other ABS 3.4% Industrial Products 3.5% Total Non-Agency Securitized 5.1% Fin
Slide 36: United Kingdom Property Related Exposures
UNITED KINGDOM PROPERTY RELATED EXPOSURES Mortgages (C$m) Carrying Value Property Type City/Region Multi Family Retail Office Industrial Other Equity Release Total % of Lifeco IA Central London 388 932 944 34 78 221 2,597 1.4% Other United Kingdom 290 531 415 813 465 1,487 4,001 2.2% Total United Ki
Slide 37: United Kingdom Property Related Exposures
UNITED KINGDOM PROPERTY RELATED EXPOSURES Investment Properties (C$m) Carrying Value Property Type City/Region Multi Family Retail Office Industrial Other Total % of Lifeco IA Central London - 28 296 - 41 365 0.2% Other United Kingdom - 755 325 749 285 2,114 1.2% Total United Kingdom - 783 621 749 3
Slide 38: United Kingdom Property Related Exposures
UNITED KINGDOM PROPERTY RELATED EXPOSURES Retail Mortgages and Investment Properties (C$m) Carrying Value Retail Property Category Warehouse, Distribution, and Shopping Centres and Invested Asset Type Grocery Total % of Lifeco IA Retail LTV Other Department Stores Pre-2009 Mortgages 138 99 122 359 0
Slide 39: Currency (Relative to C$)
CURRENCY (RELATIVE TO C$) Income & Expenses Balance Sheet US$ £ € US$ £ € Q2 2020 1.39 1.72 1.53 1.36 1.68 1.52 Q1 2020 1.34 1.72 1.48 1.40 1.74 1.55 Q4 2019 1.32 1.70 1.46 1.30 1.72 1.46 Q3 2019 1.32 1.63 1.47 1.32 1.63 1.44 Q2 2019 1.34 1.72 1.50 1.31 1.66 1.49 39