Palantir a high-risk investment with ’a one-of-a-kind growth and margin model’
Introduction & Market Context
Great-West Lifeco (TSX:GWO) reported solid first-quarter 2025 results on May 8, with base earnings rising 5% year-over-year to $1.03 billion despite challenging market conditions. The financial services giant demonstrated resilience through its diversified business model, with particularly strong performance in its Retirement and Wealth segments.
The company’s shares closed at $51.14 on May 7, down 2.63% ahead of the earnings release, but have shown strength over the past year, trading near their 52-week high of $57.61.
Quarterly Performance Highlights
Great-West Lifeco delivered base earnings per share of $1.11 in Q1 2025, up 6% from the same period last year, while net earnings reached $860 million. The company’s base return on equity improved slightly to 17.2%, up 0.2 percentage points year-over-year.
As shown in the following financial highlights chart, total client assets grew to $3.0 trillion, representing a 13% increase in constant currency compared to Q1 2024:
"Our Q1 results were driven by double-digit growth across Wealth and Retirement," said Paul Mahon, President & CEO. However, these positive results were partially offset by a $21 million post-tax provision for California wildfires, $45 million in mortgage impairments, and unfavorable mortality experience across regions.
The company’s efficiency ratio improved to 56.7% in Q1 2025, down 1.2 percentage points from Q1 2024, primarily driven by further scale at Empower, its U.S. retirement business.
Business Segment Analysis
The Retirement segment was the standout performer, with base earnings increasing by 24% (18% in constant currency) to C$316 million. This growth was driven by Empower’s strong net plan inflows and an improved pre-tax base operating margin, which expanded by more than 400 basis points to 30.1%.
The Wealth segment also showed impressive results, with base earnings rising 13% (8% in constant currency) to C$166 million, benefiting from buoyant European markets that drove higher fee income.
As illustrated in the following chart, both segments demonstrated strong year-over-year growth:
Empower, Great-West Lifeco’s U.S. business, continued its strong performance with base earnings of $237 million, up 13% year-over-year. The growth was driven by net new retirement plans, participant growth, higher equity markets, and operating leverage. The division reported $7.8 billion in net plan flows, reflecting notable wins and strong retention.
The following chart shows Empower’s performance metrics:
The company’s insurance businesses showed mixed results. Group Benefits base earnings increased by 4% (3% in constant currency) to C$204 million, while Insurance & Risk Solutions base earnings decreased by 2% (7% in constant currency) to C$344 million, primarily due to unfavorable mortality experience and the California wildfires claims provision.
Capital Position and Resilience
Great-West Lifeco maintained a strong capital position, with a LICAT ratio of 130% unchanged from the previous quarter. The company’s financial leverage improved to 28%, down from 30% a year ago, while Lifeco cash increased to $2.5 billion, up from $0.9 billion in Q1 2024.
The following chart illustrates the company’s strong capital position:
Free cash flow for Q1 2025 was $998 million, with remittances elevated from optimization initiatives. The company noted that over the long run, free cash flow and base capital generation are expected to be similar.
Great-West Lifeco emphasized its resilience to market volatility through its diversified business model. The company’s non-participating investment portfolio is 93% fixed income and 99% investment-grade, providing significant downside protection.
The following chart shows how earnings are diversified across operating segments and lines of business:
Strategic Outlook and Leadership Transition
Great-West Lifeco has revised its medium-term objectives, targeting base EPS growth of 8-10%, base capital generation of over 80%, and base ROE of 19%+, up from the previous target of 16-17%.
The company also announced a leadership transition, with David Harney, currently President and COO of Europe and Capital and Risk Solutions, set to take over as President & CEO. This change comes as Great-West Lifeco continues to shift its business mix toward more capital-efficient businesses.
As outlined in the key messages slide, the company is focused on:
Competitive Industry Position
Great-West Lifeco’s presentation highlighted its strong competitive position, particularly in the retirement and wealth management sectors. The company’s $3.0 trillion in client assets and $1.0 trillion in assets under management and administration demonstrate its significant scale in the industry.
The company’s investment portfolio remains well-diversified, with a focus on high-quality assets. The bond portfolio is predominantly invested in government, utility, and financial sectors, with 99% rated as investment grade.
Great-West Lifeco’s strong performance in Q1 2025 builds on the momentum seen in previous quarters. In its Q3 2024 results, the company reported record base earnings for the fifth consecutive quarter, with particularly strong growth in its US segment, which grew by 35% to become the company’s largest business segment.
The continued strong performance in the US market, primarily driven by Empower, aligns with the company’s strategic focus on growing its capital-efficient businesses and expanding its presence in the world’s largest retirement market.
Full presentation:
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