Earnings call transcript: Great-West Lifeco misses Q1 2025 EPS forecast

Great-West Lifeco Inc., a prominent insurance industry player with a market capitalization of $33.7 billion, reported its Q1 2025 earnings, missing analyst expectations with an earnings per share (EPS) of $1.11 compared to the forecast of $1.18. The company’s stock reacted with a 1.82% decline in after-hours trading, reflecting investor disappointment despite solid year-over-year growth in other financial metrics. According to InvestingPro data, the company maintains strong financial health with an overall score of 2.78 (GOOD), supported by robust cash flow and profitability metrics.

Key Takeaways

• EPS of $1.11 missed the forecast by $0.07.
• Stock price fell by 1.82% post-earnings announcement.
• Base earnings increased 5% year-over-year, surpassing $1 billion.
• Total client assets grew by 13% to reach $3 trillion.
• Strong market positions in Canada and the U.S. were highlighted.

Company Performance

Great-West Lifeco demonstrated robust performance in several areas, with base earnings rising by 5% year-over-year to exceed $1 billion. The company also reported a 6% increase in base EPS and a 13% growth in total client assets, reaching $3 trillion. These results underscore the company’s strong position in the financial services industry, particularly in Canada and the U.S. The company’s revenue grew by 11.19% in the last twelve months, while maintaining an attractive dividend yield of 4.77% - part of its impressive 40-year streak of consistent dividend payments.

Financial Highlights

• Revenue: Not specified
• Earnings per share: $1.11, a 6% increase year-over-year
• Base ROE: 17.2%, up 20 basis points
• Cash position: $2.5 billion
• LICAT ratio: 130%

Earnings vs. Forecast

Great-West Lifeco’s reported EPS of $1.11 fell short of the projected $1.18, marking a $0.07 miss. This shortfall contrasts with the company’s usual trend of meeting or exceeding expectations, suggesting potential challenges faced during the quarter.

Market Reaction

The company’s stock experienced a 1.82% decline in after-hours trading following the earnings release. This drop reflects investor concerns over the earnings miss, despite the company’s strong performance in other areas. InvestingPro analysis suggests the stock is currently undervalued, trading at an attractive P/E ratio of 11.65 relative to its growth potential. The stock is currently trading below its 52-week high of $57.61, potentially presenting an opportunity for value investors. For more undervalued opportunities, visit our Most Undervalued Stocks list.

Outlook & Guidance

Executives expressed confidence in achieving medium-term objectives and anticipated continued growth across retirement, wealth, and insurance segments. The company is prepared to navigate market volatility with its diversified business model, aiming for net plan sales growth for the full year.

Executive Commentary

"Our strategy is playing out as expected," stated Paul Mann, CEO, emphasizing the company’s strategic direction. David Harney, the incoming CEO, reinforced this by saying, "We have clear strategies and the financial strength to grow." This confidence is supported by the company’s solid fundamentals, including a strong current ratio of 29.02 and an Altman Z-Score of 5.16, indicating robust financial stability. For comprehensive analysis and additional insights, access the full Pro Research Report available on InvestingPro, which covers over 1,400 top stocks with detailed metrics and expert analysis.

Risks and Challenges

• Market volatility could impact future performance.
• Potential for increased competition in the financial services sector.
• Economic uncertainties may affect client asset growth.
• Regulatory changes in key markets could pose challenges.

Q&A

During the earnings call, analysts focused on the volatility of mortality experience and the idiosyncratic nature of mortgage impairments. Executives also detailed strategies for rollover sales and net plan growth, addressing concerns over expense and revenue seasonality.

Full transcript - Great-West Lifeco Inc. (GWO) Q1 2025:

Conference Operator: Thank you for standing by. This is the conference operator. Welcome to the Great West Lifeco First Quarter twenty twenty five Results Conference Call. As a reminder, all participants are in listen only mode and the conference is being recorded. After the presentation, there will be an opportunity for analysts to ask questions.

I would now like to turn the conference over to Mr. Shubha Khan, Vice President sorry, Senior Vice President and Head of Investor Relations at Great West Lifeco. Please go ahead.

Shubha Khan, Senior Vice President and Head of Investor Relations, Great West Lifeco: Thank you, operator. Hello, everyone, and thank you for joining the call to discuss our first quarter financial results. Before we start, please note that a link to our live webcast and materials for this call have been posted on our website at greatwestlifeco.com under the Investor Relations tab. Turning to slide two, I’d like to draw your attention to the cautionary language regarding the use of forward looking statements, which form part of today’s remarks. And please refer to the appendix for a note on the use of non IFRS financial measures and important notes on adjustments, terms, and definitions used in this presentation.

And turning to slide three, I’d like to introduce today’s call participants. Joining us on the call today are Paul Mann, our President and CEO John Nielsen, our Group CFO David Harney, President and COO, Europe and Capital and Risk Solutions Fabrice Moray, President and COO, Canada Ed Murphy, President and CEO of Empower Linda Kerrigan, Senior Vice President and Appointed Actuary and Jeff Goulain, Executive Vice President, Reinsurance. We’ll begin with prepared remarks followed by Q and A. And with that, I’ll turn the call over to Paul.

Paul Mann, President and CEO, Great West Lifeco: Thanks, Shuba. Please turn to slide four. Before turning to our results, I wanted to take a moment to acknowledge last week’s announcement regarding my retirement. This transition comes at a time of strength for both our business and our team. We’ve sharpened our focus with each of our operating segments executing clear strategies to drive growth.

This has fueled record performance and continues to create lasting value for our shareholders. It also speaks to the strength of our talent and our deliberate succession planning and leadership development. Over time, we’ve built a deep and capable leadership bench, drawing on talented leaders from across Lifeco and our operating companies who share a deep commitment to our success. I’m very pleased the board has appointed David Harney as our next President and CEO. He is an outstanding leader with more than thirty five years of experience across our organizations beginning at Irish Life.

He’s held a wide range of roles, most recently as President and Chief Operating Officer for Europe and for Capital and Risk Solutions. He has also been leading our global investment organization as Interim Global Chief Investment Officer over the past few months. His business building mindset, strategic vision, and strong track record of execution make him ideally suited to lead Lifecore going forward. David, congratulations on your appointment, and I look forward to working closely with you to ensure a smooth transition. Please turn to Slide five and moving on to our results.

Our strategy is playing out as expected, and this quarter demonstrates the progress we’re making. Apart from the impacts of market volatility and seasonally impacted insurance experience, our businesses delivered strong underlying performance this quarter. Our wealth businesses are driving both strong top line and bottom line growth. Our group retirement and benefits businesses continue to see strong organic growth, benefiting from scale and differentiation. And our insurance and risk businesses continue to provide solid diversification and growth opportunities.

John will dive deeper into the key drivers behind these results in his section of the presentation. I’m pleased to report that once again we exceeded $1,000,000,000 in base earnings this quarter, marking a 5% increase year over year. Base EPS rose 6% to $1.11 and base ROE reached 17.2%, up 20 basis points over the prior year. We continue to earn the trust of millions of customers and advisors. Today, reach spans more than $3,000,000,000,000 of total client assets, an increase of 13% over the prior year.

Of that, dollars 1,000,000,000,000 represents assets and advice solutions are under management, further underscoring the strength and scale of our retirement and wealth platforms. Our financial position remains strong, backed by a solid balance sheet, a healthy LICAT ratio, and a comfortable leverage ratio. As we shared at our recent Investor Day, one of the key strengths of our business is cash and capital generation. Lifesco’s cash position has grown to $2,500,000,000 and is supported by a solid capital base. This gives us the flexibility to deploy capital confidently and in line with our strategic priorities.

Please turn to slide six. We’ve introduced a new way of looking at performance that cuts across our four core businesses: retirement, wealth, group benefits, and insurance and risk solutions. This view brings together results from across geographies, offering a clearer picture of how each of these four businesses contributes to our results. You’ll see this reflected on the next two pages, and John will provide additional insights at a country level. Retirement and wealth remains strong growth engines, both delivering double digit increases in base earnings this quarter.

In retirement, our scale and leadership are driving profitable growth with base earnings up 24% year over year. This is supported by margin expansion, notably at Empower, where operating margins rose nearly 400 basis points to roughly 30%. Note flows at Empower also improved, indicating continued momentum in this business. Recognizing the connection between health related benefits and retirement solutions, Empower introduced the new customer directed healthcare savings offering to help individuals better manage their healthcare finances. This strategic move enhances Empower’s value proposition and supports long term growth by creating financial wellness solutions that meet the evolving needs of their customers.

In wealth, we continue to unlock value through strategic extensions and are seeing strong flows across our platforms. In Canada, our independent wealth platform is gaining momentum, marked by a major milestone with the launch of Advice Canada, a leading joint wealth and insurance destination for entrepreneurial advisors. I’m pleased to report our wealth business in Canada delivered an improvement in net inflows of over $300,000,000 year over year. At Empower, we’re building on our leadership in retirement as we continue to advance Empower personal wealth, with a focus on the underserved mass affluent market segments. This is also driving strong net flows and asset growth.

And in Europe, we’ve remained focused on scaling our Unio wealth business in Ireland to capture organic growth. Strong market conditions contributed to higher fee income and earnings this quarter. Please turn to slide seven. Group Benefits and Insurance and Risk Solutions delivered solid performance and continue to be key contributors to Lifeco’s growth and diversification. Group Benefits base earnings rose by 4% year over year.

In Europe, we saw strong premium growth driven by both in force business and new sales in Ireland. Canada had strong long term disability results this quarter and is continuing to improve service for workplace customers. This includes the rollout of the Canada Life Commitment, a service guarantee for group benefits and retirement plan sponsors. Insurance and Risk Solutions delivered solid results considering the impact of mortality experience. Our disciplined approach to underwriting and pricing continues to support our long term success in these businesses.

In Capital and Risk Solutions, we established a claims revision related to the impacts of the tragic wildfires in California this January. Our thoughts remain with those affected and we’re continuing to support impacted clients during this difficult time. Annuity sales moderated this quarter, reflecting the typical seasonality in these businesses. We remain confident in the long term outlook as demand for secure retirement income solutions continues to grow, particularly in The UK pension risk transfer market, where companies are increasingly looking for ways to manage their pension risk. Please turn to slide eight.

Despite ongoing macroeconomic uncertainty, we remain well positioned for the future, supported by resilient businesses and a strong financial foundation. Our well diversified portfolio includes businesses operating in mature domestic markets, delivering essential financial services like retirement savings and financial advice. Our retirement and wealth platforms continue demonstrate both resilience and growth. In The US, for example, a significant portion of Empower’s earnings are driven by factors other than equity markets, underscoring the strength and diversification of our business model. Empower continues to expand its offerings and diversify revenue streams by launching new products designed to meet a wider range of customer needs, supporting growth in any market environment.

Our strong financial position is the result of years of disciplined risk management and a prudent investment approach. Today, 93% of our non participating portfolio is in fixed income and 99% is investment grade. This same discipline guides our capital allocation, enabling us to preserve financial flexibility, manage risk, and drive long term value for our stakeholders and shareholders. Now, before John takes us through the details of the quarter’s financial performance, I’d like

David Harney, Incoming President and CEO, Great West Lifeco: to invite David Harney to share a few words as he joins us as our new CEO in July. Good morning, everyone, and thank you, Paul. I’d like to start by recognizing Paul for the incredible leadership and care he has shown in guiding Lifeco over the past twelve years. All leaders have the challenges of their time, and for Paul, he responded to the global financial crisis by strengthening our discipline and capabilities. He provided steady reassuring leadership through the uncertainty of the pandemic and he guided us through new LICAT regime and the implementation of IFRS 17.

But Paul’s legacy will be the portfolio of businesses he has built for Great West Lifeco. Under his leadership, we have built a leading global reinsurance business and a strong growing European business. We have consolidated our businesses in Canada under Canada Life, creating one of the best financial brands in our home markets and built Empower through acquisition and investment, creating one of the best retirement and wealth businesses in The US. And these results speak for themselves. We have achieved an impressive track record of performance and delivered lasting value to our shareholders.

Paul, on behalf of the team, I want to thank you for your contributions. We wish you and your family well and a future of success and happiness. Looking ahead, the team and I are very excited about the opportunity to further build on this success. We are very proud of the important role we play in the lives of our customers and that’s what energizes us as an organization. We have clear strategies and the financial strength to grow.

These are grounded in the strategic playbook we shared at Investor Day and are supported by strong secular trends, which gives us confidence in our outlook and confidence in our ability to meet our enhanced financial objectives. I look forward to relocating to Toronto from July 1 and to analysts and investors on the call, I look forward to connecting with you in the months ahead. With that, I’ll hand over to John, who

John Nielsen, Group CFO, Great West Lifeco: will take you through this quarter’s results in more detail. Thanks, David. I look forward to working with you in your new role. Now, please turn to slide 11. We delivered strong underlying performance in the first quarter with base earnings increasing on the back of double digit growth in our wealth and retirement businesses.

Empower had an excellent start to 2025. Base ROE exceeded 17% and is set to move higher over time as a result of our higher growth in the capital efficient businesses. I’m particularly pleased that we’re able to deliver solid earnings growth despite some discrete items in the quarter. This includes unfavorable mortality experience across our business totaling approximately $30,000,000 before tax. This was impacted by seasonal impacts as well as heightened claims volatility.

Our results were also impacted by a claims provision of $21,000,000 after tax related to the California wildfires that we previously highlighted. There were also write downs of three U. S. Commercial mortgage loans in our investment portfolio totaling $45,000,000 after tax, most of which was related to a single property. I would add that these write downs are asset specific and do not reflect the change in the economic environment.

While those items were unusual, our first quarter results also reflect a degree of seasonality. As you’re aware, ’24 was a leap year. This impacted our reporting earnings growth, both quarterly as well as annually. This quarter had one less day than compared to a year ago and two less days compared with the fourth quarter of twenty twenty four. Compared to the first quarter of twenty twenty four, this reduced year over year growth in base earnings by $01 to $02 per share.

Further, in the first quarter of each year, we typically launch marketing campaigns in our wealth businesses, resulting in higher spend and we see the spend moderate over the remainder of the year. Going forward, we plan to address seasonality between quarters in ongoing earnings calls. Now, as it was expected, earnings on surplus moved lower in the first quarter, principally due to the falling short term interest rates in Canada. That said, I’m quite comfortable characterizing our first quarter results as strong since the majority of the items that I mentioned are unlikely to persist. Turning to slide 12.

As I mentioned on the previous slide, insurance experience gains and base earnings moderated from the prior year due to unfavorable mortality experience in the quarter. However, there were experience gains related to longevity in the quarter, reflecting the diversification of risk in our business. Under IFRS 17, these gains were recorded as realized within CSM rather than base earnings. So while we had an economic hedge and saw unusual experience in both mortality and longevity, the accounting treatment under IFRS 17 did not provide an immediate offset. Despite the volatility we experienced in the quarter, insurance experience was favorable in aggregate.

Now turning to slide 13, in The US, Empower got off to a great start to 2025 and contributed double digit base earnings growth. This reflected strong business growth and higher markets, as well as the synergies related to the integration of the Prudential business. Base earnings growth in the quarter was partially offset by the mortgage write downs I mentioned earlier. Empower had a great quarter from a flows perspective. Net inflows of 5,200,000,000.0 in our retirement business were driven by new plan wins and strong plan retention, while wealth net flows more than doubled year over year to $2,800,000,000 driven by continued strength in our rollover sales.

Our outlook for 2025 based upon our committed sales and pipeline will result in net plan growth and market share gain. However, net plan growth will be volatile quarter to quarter. Turning to slide 14. In light of the recent market volatility, I wanted to remind everyone about Empower’s revenue diversification and the resulting earnings stability. Approximately one quarter of Empower’s net fee and spread income is participant fee driven and not tied to markets.

A further one quarter is derived from higher margin capital preservation products, the demand for which tends to increase during periods of market volatility, resulting in only approximately 50% of our revenue tied to AUM driven fees. Our AUM driven fees also provide diversification across asset types. Turning to slide 15. In Canada, base earnings were down seven percent year over year due to last year’s assumption changes, lower experience gains from exceptionally high levels a year ago, as well as lower earnings on surplus. This offset the benefit of higher markets on retirement and wealth assets in the quarter.

Turning to slide 16. In Europe, base earnings increased 6% year over year with strong results across all lines of business. Excluding the impact of lower earnings on surplus, which declined mainly due to higher remittances, earnings would have grown at a double digit pace. Turning to slide 17. Within capital and risk solutions, base earnings were down 4%, up 4% year over year, but down 2% in constant currency.

The results this quarter were impacted by the provision for California wildfires, as well as unfavorable mortality experience and the positive impact of a provision release. However, the underlying growth remains strong, driven by new business volumes in capital solutions. Turning to slide 18, as Paul noted in his remarks, market volatility has been elevated since March amid concerns of a deterioration in the global economic outlook. This will inevitably raise concerns about our earnings outlook, especially across our retirement wealth businesses. Despite the negative headlines, both fixed income and equity markets remain above levels seen a year ago, especially in Canadian dollar terms.

Overall, the second quarter financial markets continue to be favorable against the same quarter of 2024. Turning to slide 19, we have significant resilience to market volatility. Thanks in part to our diversified business. In addition to be well positioned to absorb impacts on items excluded from base earnings, we have provided additional detail on the impact of sustained interest rate and equity market shocks to base earnings. We estimate that a sustained 10% decrease in equity markets would have a manageable impact on base earnings of $200,000,000 over the course of an entire year.

Turning to slide 20. Strong capital generation gives us additional confidence in our ability to absorb elevated economic uncertainty and market volatility. Our base capital generation exceeded 80% of base earnings during the quarter. On a trailing twelve month basis, remittances have averaged over $900,000,000 Our remittances are seasonal to an extent and we anticipate second quarter to be lower than what we delivered in the first quarter, as we plan for the upcoming maturity of the bond in the third quarter. Now turning to slide 21, we continue to maintain a strong balance sheet to ensure that we are resilient through market cycles and can deploy capital as opportunities emerge.

Despite the recent market volatility, the capital priorities I shared at our recent Investor Day have not changed. In the quarter, our LICAT ratio was steady at 130%, flat from the prior quarter. This follows our decision late last year to increase dividends to Lifeco, while maintaining capital levels well above regulatory minimums within our operating companies. Our leverage ratio declined one point from the fourth quarter to 28% and remains on a downward trajectory given our strong earnings growth. Our cash balance of $2,500,000,000 reflects continued upstreaming of capital to Lifeco and adds further to our resiliency and optionality.

With that, I’ll turn it back over to Paul for his concluding remarks.

Paul Mann, President and CEO, Great West Lifeco: Thanks, John. Please turn to slide 22. Our core strategies are delivering strong momentum, reinforcing our confidence in achieving our medium term objectives. Our wealth and retirement businesses remain key drivers of base earnings growth, focused on markets where advisor and customer demand remains high. At the same time, our disciplined approach to capital deployment and deliberate portfolio choices are generating strong returns for shareholders.

Solid cash and capital generation continue to provide the financial flexibility to thrive across all market conditions, invest in our businesses, and pursue growth opportunities with confidence. Looking ahead, we remain focused on executing our strategy, creating value for our customers and sustaining the momentum we’ve built for our shareholders. With continued momentum, well diversified earnings across our operating segments and strong cash generation, we’re well positioned to drive continued growth. On a personal note, this marks over 70 analyst calls I participated in with Great West Lifeco. As I reflect on my twelve years as CEO, I’m incredibly proud of the progress we’ve made together.

Most of all, I’m proud of the exceptional team behind the success, and I’m deeply grateful for their dedication and support. To analysts on the line, thank you. Your thoughtful questions and engagement have challenged us and helped us to constantly improve our strategy. I’ve valued your insights, curiosity, and partnership over the past decade. I look forward to watching Letco continue to grow under David’s leadership as the company builds on its success and delivers on its strategies going forward.

Thank you all. And with that, I’ll turn it over to Shuba to start the Q and A portion of the call. Shuba?

Shubha Khan, Senior Vice President and Head of Investor Relations, Great West Lifeco: Thank you, Paul. In order to give everyone a chance to participate in the Q and A, we would ask that you limit yourselves to two questions per person. You can certainly re queue for follow ups, and we will do our best to accommodate if there’s time at the end. Operator, we are ready to take questions.

Conference Operator: Certainly. Our first question is from Meny Grauman with Deutsche Bank. Please go ahead.

Meny Grauman, Analyst, Deutsche Bank: I’d switch banks, I guess, but good morning. That’s news to me, but just a question on something you were talking about. You highlighted the temporary factors impacting the results this quarter. And one factor that you highlighted was unfavorable mortality experience. Just want to better understand why you believe that is a temporary factor.

And then I have a follow-up.

Paul Mann, President and CEO, Great West Lifeco: Thanks, Minnie. I’m going to turn that one over to John and then I suspect he’ll call

John Nielsen, Group CFO, Great West Lifeco: on a couple of his colleagues. Yeah. So Minnie, what we saw across the portfolio, and this was across all of our segments, also across both our group and individual business and our annuity business was heightened mortality and impacts from that. Part of it is seasonal. Over the last couple of years, we’ve started to see a seasonal impact in the first quarter.

The rest we would attribute just a heightened volatility. Now, let me give you a little perspective across the longer period of time in terms of mortality. In terms of the last ten years, if you take out COVID, we’ve had six quarters of impacts larger than thirty million, half of them positive, half of them negative. This happened to be a negative quarter. So we see this from time to time.

Over that period, the aggregate impact on mortality has been a slight negative, equivalent to what we saw this quarter. So we’ve seen volatility quarter to quarter and over time, but it’s over the period of time, it’s been positive and negative. So, that’s what we distribute most of it to that volatility. I’d also say I’d point out that we saw the same thing in our longevity portfolios. And as we articulated before in a quarter of heightened mortality, we saw obviously increased longevity.

And unfortunately, there’s an accounting mismatch in how you deal with this experience. Overall, if you add CSM impacts and P and L, it was a positive for us. But just due to the accounting treatment, we got the volatility in earnings from mortality. And obviously, we saw an increase in CSM that we’ll recognize over a period of time. We think in the volume, don’t see anything in the underlying trends that would give us a cause of concern that it’s assumption related issue.

We attribute it to just specific to the quarter.

Meny Grauman, Analyst, Deutsche Bank: Understood. And similar question just on the mortgage impairment. What gives you confidence that this is idiosyncratic and not a sign of something that might be more persistent in your book?

Paul Mann, President and CEO, Great West Lifeco: Thanks, Meny. David Harney is going to take that one. David?

David Harney, Incoming President and CEO, Great West Lifeco: Yes, so I suppose maybe when we look at the invested assets in our non par general accounts, so just maybe overall, that’s a very well diversified portfolio. It’s of very high quality. It goes a long way to the strength of our balance sheet and we’ve been very satisfied with the performance of those assets. The one area of weakness, and it is the one area of weakness we’ve seen in the last while, is just within the mortgage portfolio and particularly within the mortgage portfolio then within commercial office. And then if you further go into that, it’s just in The US.

And just with some of the properties in The US where we have maybe a large anchor tenant that is leaving and a small number of those properties, we’ve seen situations for one reason or another, the sponsor is unwilling to reinvest to get tenants back into the property. So, we’ve given more information on the overall portfolio just in the slides on ’29 and on ’34. So if you look at The US portfolio, the office portfolio was $2,500,000,000 in total, so less than 2% of the overall account. That’s spread over 70 properties. We know all of these properties individually.

What we’ve seen in this quarter is that type of event was one of the larger properties. So, it would be a little strong to say maybe we’re completely at the end of this on that trend within The US, but we’re pretty confident we’re very close to the end of it. And we’ve no sort of remaining mortgage that would be as large as one of the hits we’ve taken this quarter. So, we’re pretty optimistic on the outlook for the sector.

Meny Grauman, Analyst, Deutsche Bank: Got it. And finally, just all the best in your retirement, Paul, and congrats, David.

Paul Mann, President and CEO, Great West Lifeco: Thank you. Thanks, Manny.

Conference Operator: The next question is from Gabriel Dechaine with National Bank Financial. Please go ahead.

Gabriel Dechaine, Analyst, National Bank Financial: Hi. Good morning. Just wanted to talk about the sales in the retirement business and how those migrated over into the wealth business. You know, first of all, the trend in, plan redemptions improved consistently over the past few quarters and you’re back into net inflows. That’s good.

Then I saw a note about the 30% increase in rollover sales. Just for clarification, those are redemptions whatever the total number is of redemptions, you’ve captured some in the rollover and that number is 30% higher than last year. Right?

Paul Mann, President and CEO, Great West Lifeco: I’ll turn that one over to Ed. Yeah. That’s correct.

Shubha Khan, Senior Vice President and Head of Investor Relations, Great West Lifeco: It’s 30% higher.

Paul Mann, President and CEO, Great West Lifeco: Yep.

Gabriel Dechaine, Analyst, National Bank Financial: Then and then

Paul Mann, President and CEO, Great West Lifeco: Those people who

Shubha Khan, Senior Vice President and Head of Investor Relations, Great West Lifeco: are changing jobs. They’re retiring. Yeah.

Gabriel Dechaine, Analyst, National Bank Financial: Okay. And then I just think of that money as showing up in the new or gross sales of the wealth business. Correct?

Paul Mann, President and CEO, Great West Lifeco: Yeah. That’s correct. Right.

Gabriel Dechaine, Analyst, National Bank Financial: And and is there a dollar amount you can share? Because I mean, 30% sounds good, but it’s still pretty pretty low relative to your ultimate objectives. Correct? The volume of The

Shubha Khan, Senior Vice President and Head of Investor Relations, Great West Lifeco: gross number was 6,600,000,000.0 in gross sales, with the majority of that being rollover. That’s the best quarter we’ve had in the history of the business.

Gabriel Dechaine, Analyst, National Bank Financial: And

Shubha Khan, Senior Vice President and Head of Investor Relations, Great West Lifeco: in terms of our effectiveness and our efficacy, we’re also at the highest level in terms of our ability to successfully capture the money that’s in motion. So I think that’s a work in progress, we expect to see further improvement there. I will say it’s a strong statement about our value proposition, our ability to compete in a very competitive market in The US, that mass affluent market. So we’re pretty pleased about our results. The other thing I would just note, that was a significant contributing factor to our net new assets, is the improvement that we’ve made in asset retention.

We moved from 86% to close to 90% year over year, which again reflects I think the value proposition and some of the steps that we took to kind of shore up and strengthen our service offering.

David Harney, Incoming President and CEO, Great West Lifeco: Okay,

Paul Mann, President and CEO, Great West Lifeco: I was just going to underline that when you think back to the Investor Day where Ed talked about the drivers of growth into the future, the plan is playing out as we expected. As a matter of fact, I think this is a really strong quarter where we’ve made strong positive momentum. So, that 30% increase year over year in rollover capture’s strong performance, we’d like to keep that going.

Gabriel Dechaine, Analyst, National Bank Financial: And then, sorry, the 6,600,000,000.0 number, what is that again? That’s like the total rollover assets retained?

Shubha Khan, Senior Vice President and Head of Investor Relations, Great West Lifeco: That’s our gross sales in the segment. So, sales segment, so for the quarter, 6,600,000,000.0.

Gabriel Dechaine, Analyst, National Bank Financial: Of rollover sales?

Shubha Khan, Senior Vice President and Head of Investor Relations, Great West Lifeco: Well, most of it’s rollover, but we have a direct to consumer channel. So we have what I would call an unaffiliated customer that will open up an account with us. See our advertising, they see some of our performance marketing. So I think that’s another channel of distribution for us.

John Nielsen, Group CFO, Great West Lifeco: And maybe Doug, just to address the, you called out the Netplan sales, we’re really happy.

Gabriel Dechaine, Analyst, National Bank Financial: Yeah.

John Nielsen, Group CFO, Great West Lifeco: Gabe, sorry. Gabe, we’re

Gabriel Dechaine, Analyst, National Bank Financial: really happy with net Deutsche Bank.

John Nielsen, Group CFO, Great West Lifeco: We have the wrong bank and the wrong analyst. We did have net plan sales. As you recall last year, we called out a large loss, single client loss. We’re really happy to get back to net plan sales. As I shared in my opening remarks, we based upon committed sales and pipeline, Ed will deliver net plan sales for the full year as expected and back that trend of taking market share.

But I would say quarter to quarter, there’ll be volatility because sometimes we lose a large client, sometimes we gain a large client. This quarter, obviously, you called out that it was a net positive. But I’ll just call out for the year, we expect not positive, but expect some quarter to quarter sales or losses of clients.

Shubha Khan, Senior Vice President and Head of Investor Relations, Great West Lifeco: Yeah, I would just double click on that on two points. One is our retention rate remains very high, close to 98%. But also if you look at our year over year growth and net participant growth is 4%, that’s two times the rate of the market. So this idea that this concept of growing the business organically faster than the market remains true. We’ve talked about that in the past and we continue to see that growth.

So despite John’s point about deconversions from time to time, the business continues to grow faster than the rate of the market. We’re gaining share in our workplace business. And as we’ve shared with you before, that is a significant factor in driving the success of our wealth business.

Gabriel Dechaine, Analyst, National Bank Financial: Okay, great. I’m going to definitely have to reread that transcript because I don’t think I couldn’t write fast enough. Paul, it’s been great talking to you over the years, good luck and enjoy your retirement. And, yeah, that’s it. Thanks.

Paul Mann, President and CEO, Great West Lifeco: Thank you, Gabe.

Conference Operator: The next question is from Doug Young with Desjardins Capital Markets. Please go ahead.

Doug Young, Analyst, Desjardins Capital Markets: Hi, good morning. And you can call

Shubha Khan, Senior Vice President and Head of Investor Relations, Great West Lifeco: me Gabe if you want to consider that.

Doug Young, Analyst, Desjardins Capital Markets: Maybe John, if we can look at the LICAT ratio and just notice the seg fund component to the base solvency buffer went up quite a bit sequentially and I get those new capital rules in place, but I mean this was a big move and I don’t think of Great West and big seg fund risk. I mean, I do the math and I take out the sequential increase in the seg fund ESP bump up, I think I’m getting to a LICAT without that about 144. So it was a big impact on the LICAT ratio, But maybe I’m missing something, there’s a lot going on. So did I get that right? Why such a big impact?

Shubha Khan, Senior Vice President and Head of Investor Relations, Great West Lifeco: Maybe you can just flush that out.

John Nielsen, Group CFO, Great West Lifeco: Yeah. Well, thanks, Doug, for the question. Yeah, so there was an impact from the new OSFI guidance on seg funds. And it impacted us both in terms of the base solvency buffer, but also, there was a CSM impact as well. You’ll see that go through what we call adjusted retained earnings, including CSM.

The overall impact of the transition was about two points to the LICAT ratio in the quarter. So overall, two points. And you’ll see that there were slight changes to our sensitivities as a result of that, but nothing significant in terms of the disclosed sensitivities. So you can two points higher and impacting two lines. Well, since you brought it up, we did have a continued very strong quarter in terms of capital generation across the business.

We indicated for the quarter, it was in excess of 80% in line with our the target, the guide, the objective that we shared. So, but we did bring up, continue to bring up excess capital from our operating divisions and that led to us ending with 130% overall LICAT. And as you’re aware, about 2,500,000,000.0 of cash now at Lifeco.

Paul Mann, President and CEO, Great West Lifeco: Yeah, Doug, I also want to just underline something you said at the outset. You said your perception was that we had a relatively less risky overall seg fund book, and I think that is a good characterization. We’ve had really good discipline over many decades with that book of business. We like the risk profile. I think it’s well managed both from an operational perspective and from an actuarial and financial perspective, so I think you’ve captured that right, and then John provided a little color there.

Doug Young, Analyst, Desjardins Capital Markets: And how much thanks, Paul. John, how much was dividended up from the op code to the hold code this quarter?

John Nielsen, Group CFO, Great West Lifeco: I think we disclosed that in the SIP and the majority of it out of Canada Life Assurance to around 1,000,000,000.

Doug Young, Analyst, Desjardins Capital Markets: Okay, okay. And then second question, just thinking about like this, you mentioned it a few times, the lower earnings on surplus because of lower interest rates. You know, can you kinda it’s it’s kind of a strange thing to try to model, but can you kinda help us think about mapping this earnings on surplus out going forward? Is this kind of a reasonable run rate to be thinking about this? And is there gonna be massive differences by each of the division?

If you can kind of help me think through that.

John Nielsen, Group CFO, Great West Lifeco: Yeah, so as we indicated, in terms of sensitivity to lower rates, it’s about 80,000,000 on an annualized basis. And half of it comes from surplus, from a movement in surplus. And that’s principally impacted in Canada and in Lifeco where our duration is, call it one to two years type of timeframe. The rest of our surplus has a little longer duration across the other segments. So I think that probably gives you the modeling points that you need to model it out.

Doug Young, Analyst, Desjardins Capital Markets: I appreciate the color. And, Paul, thanks for everything, and all the best in retirement.

Paul Mann, President and CEO, Great West Lifeco: Thank you very much, Doug.

Conference Operator: The next question is from Tom MacKinnon with BMO. Please go ahead.

Tom MacKinnon, Analyst, BMO: Yes. Thanks and good morning. Just before I start, just wanna congratulate Paul on a great long career at Great West and all the best to you as you move on to the next stages here.

Paul Mann, President and CEO, Great West Lifeco: Thank you, Tom.

Tom MacKinnon, Analyst, BMO: So I two questions. The first is really with respect to the insurance experience gains in the quarter, 14 positive. Really, if I kinda look into the CRS segment, pre tax negative 10, I mean the wildfire is at 21 after tax, call that 25 pre tax. There seem to be about another 15 help in CRS. Maybe you can flesh that out and just talk about some of the other elements that contributed to that $43,000,000 in help, if you will, positive experience that you note on that one slide.

Thanks.

John Nielsen, Group CFO, Great West Lifeco: Yeah, over to you, John. Yeah, thanks, Tom. So there’s kind of three moving parts there. You called out the wildfire. As you recall, we said our maximum exposure there was about 100,000,000 that came in just over 20.

So we think we’ve got that right. Obviously, there’s some level of lag in reporting and so forth, but we feel very good about the provision there and how we’ve done that. The second thing that we’ve called out is the mortality that we experienced. Now, mentioned that mortality impacted all of our segments, and longevity was also an impact in terms of what we saw across the segments. But a big chunk of that mortality came through CRS in the CRS division, but it did impact Canada and The UK as well.

The third element I mentioned in the script is we did have a provision release and this went to the resolution, positive resolution of contractual discussion with the client that we recorded in 2024. We’re really happy that that’s been resolved amicably and they remain a client with us. So that was a good outcome. So those are the three moving parts within the CRS division in terms of that impact. We also continue to see good group, in terms of insurance experience, we did continue to see good experience in the LTD portfolio in Canada, just as more color on insurance experience during the quarter.

So we’ve continued to see good morbidity in that portfolio. We did have some residual impacts in Canada from the postal strike. It was hard to estimate how many so called letters were in the mail and we saw a little impact from that. So just to give you a little more color on what we experienced during the quarter.

Tom MacKinnon, Analyst, BMO: And have you disclosed what that provision release was? My

John Nielsen, Group CFO, Great West Lifeco: guess is it’s around 20 of something. Little bit little bit bigger than the wildfires.

Tom MacKinnon, Analyst, BMO: Okay. Alright. Thanks.

John Nielsen, Group CFO, Great West Lifeco: And it was recorded it was recorded last year in 2024. Yeah.

Tom MacKinnon, Analyst, BMO: You’re just reversing something from last year. Is that right?

John Nielsen, Group CFO, Great West Lifeco: Yeah. We wanted to, you know, obviously, follow accounting rules, be prudent last year, ongoing discussions. And as I say, we’re really happy to resolve that if the client continues to be a strong client of the firm along long term clients.

Tom MacKinnon, Analyst, BMO: Okay. Then, I mean, you talked about some seasonality in expenses. And if we look into Canada Wealth, the margin was weak. The OpEx was up. It’s negative operating leverage at least in the quarter here.

And even in the retirement, there didn’t I think if we look at Canada Retirement, it was zero operating leverage. So maybe if you can talk about is there anything that we should be thinking about in terms of operating expenses, particularly in both the wealth and in the retirement, especially in the wealth. I mean, the margin here is 18.9%, know, running at something ’22 and a half or something like that in 2024.

Paul Mann, President and CEO, Great West Lifeco: Yeah. For sure, Tom. What I’ll do is I’ll have John start off on with that one, and I know for this one, I want to add a bit of color. Yeah. John?

John Nielsen, Group CFO, Great West Lifeco: Yeah. So so, Tom, I’m gonna start with just we are gonna do a better job at calling out seasonality impacts in our results every quarter. There are seasonal things across the business. First, with first quarter, given our wealth and retirement businesses, is some level of seasonality in the amount of fees that we get given the number of days. And then second, typically, have a fast try to have a fast start to the year by having some marketing campaigns and so forth.

That impacted The US by just about 3,000,000. And that’s pretty usual for first quarter that we would have elevated marketing expenses in The US. And then they kind of flatten off the rest of the year and become more expenses become more aligned with revenue growth. So just to call out that seasonality in terms of Canada specific, I’m going to hand over to Fabrice to give you color on expense management and what you’re seeing in the different lines. Thank you, Tom.

Thank you, John.

Fabrice Moray, President and COO, Canada, Great West Lifeco: And thank you, Tom, for the question. For our individual wealth business in Canada, we’re pleased with the results on expenses. I would say, as John said, there’s a bit of seasonality in expenses, it’s tax season. As you might know, in Canada the tax season was partially complex this year with the back and forth on capital gains inclusion tax and there was complexity in managing that. And as John said, that doesn’t relate to expense, but that will get to the point on margin.

We also see slightly lower revenue in Q1 just given the number of days where we collect fees in Q1, so historically we would see that as that. The other thing I would call out is there’s been a change in allocation. There’s been a change in expense allocation where our wealth business is getting more overhead as we’ve integrated some of our recently acquired businesses like IPC. These businesses now attract corporate overhead. Our overall expense across Canada is growing at low single digit.

We’re very comfortable with the growth of our expense, but the wealth business is attracting more expense since Q4 of twenty twenty four and that’s something that needs to be taken into account in the future. But overall, would say on our wealth business, we’re pleased with our momentum in market. We’ve talked about the net flows improving. We’ve talked about early good results on the partnership with Primerica that we’ve announced in the past quarter. So our business is doing well.

If I turn to retirement, because you also talked about our retirement business, there as well we have a little bit of seasonality in expense given the cycles of reporting and statements, so Q1 would be seasonally higher, but we’re also investing more in the business right now than we have in the past and that will recur in the future, just the geography of investment that we’ve made in our businesses. So that’s something we’re going to see in retirement. We believe in this business, just like in The US, it’s a business where it has strong strategic momentum for us and we are investing in this business. So that explains the expense level in part on retirement.

Paul Mann, President and CEO, Great West Lifeco: Yeah, so just Tom, I was just going to underline the fact that that reallocation, if you think about that, that’s overhead. We now have a larger wealth business attracting more of the overhead, so you should sort of view that taking out some of the seasonality, that’s a new normalized level because of that allocation. You’ll see offsetting reduced expenses on a relative basis to the group and the insurance portfolios. And sort of think of that as the level that we’re operating from, and it’s an allocation issue, it’s not a discipline issue in any way.

Tom MacKinnon, Analyst, BMO: Yeah, and does that mean the margin in Canada, Wells, is going be a little bit lower because you’re allocating more overhead to it? I think

Paul Mann, President and CEO, Great West Lifeco: if you

Fabrice Moray, President and COO, Canada, Great West Lifeco: look at the pretax operating margin we report in our supplementary package, we show around 19%. I think 20% would be a good run rate for the future. We’re a bit lower this quarter again because of seasonality both in revenue and expense.

Tom MacKinnon, Analyst, BMO: Great. Thanks for the color.

John Nielsen, Group CFO, Great West Lifeco: Thanks, Tom.

Conference Operator: The next question is from Paul Holden with CIBC. Please go ahead.

Shubha Khan, Senior Vice President and Head of Investor Relations, Great West Lifeco0: Yes. Good morning. So first question is related to Capital and Risk Solutions. If I look at sort of the run rate earnings growth trends, so ex wildfires are kind of the breakout you provided in the slide deck, which is helpful, by the way. It actually points to like double digit type earnings growth, which is better than the medium term expectation you set of mid single digits.

Is it possible you get higher growth for the year and what’s kind of driving that?

Paul Mann, President and CEO, Great West Lifeco: I’m going to turn that one over to Jeff Poulain.

Shubha Khan, Senior Vice President and Head of Investor Relations, Great West Lifeco1: Thanks, Paul. Thanks both, Paul. It’s

John Nielsen, Group CFO, Great West Lifeco: a good point.

Shubha Khan, Senior Vice President and Head of Investor Relations, Great West Lifeco1: Think when we plan our business, it’s always difficult to come up with the things you haven’t done yet. So we’re looking at the market the way it is. And the plan is done thinking about the products that we have. We’ve come up with new ideas, new product, and we had a very good sale quarter in the first quarter. So I think the run rate is going very well.

Having said that, some of the older products are renewing at compressed margins. So that’s a little bit of headwinds for us. I would expect that we might end up the year as slightly better than the mid single digit that we said. So it’s been a really good first quarter. So we’re hoping to continue going at the same pace.

So if we do, it should

Paul Mann, President and CEO, Great West Lifeco: look good. Yeah, Paul, one of the things that I think is a feature of that business is innovation, constantly looking for new markets because it is a business that these are solutions and they’re solutions for clients. They’re looking for those, but it’s also discipline. So this was a quarter where it was really attractive business, so we wrote it. Be, you know, that’s not a certainty every quarter, but Jeff’s team is out there constantly looking for opportunity.

Shubha Khan, Senior Vice President and Head of Investor Relations, Great West Lifeco1: It is lumpy too. One or two large transactions can make a big difference.

Shubha Khan, Senior Vice President and Head of Investor Relations, Great West Lifeco0: Got it. Okay, that’s helpful.

Meny Grauman, Analyst, Deutsche Bank: And then my second question,

Shubha Khan, Senior Vice President and Head of Investor Relations, Great West Lifeco0: excuse me, of in a similar vein. When I look at the group premiums in Europe, I think it was 13% year over year. You highlighted some FX benefit to that. But I think if I look over the last year, we’re also seeing really good growth in that business pretty consistently and I feel like maybe there’s a little bit of a positive story that’s not being told there. So I want to drill down on that.

What driving the double digit growth, think consistent double digit growth in European group premiums?

David Harney, Incoming President and CEO, Great West Lifeco: David? Yeah, so yeah, we are very happy with the performance of that book and maybe we should call it out a bit more. There’s three segments to it. So it’s our group risk business in The UK, it’s our group risk business in Ireland, and then it’s the health insurance business in Ireland. And we have very strong market positions in all of those three books.

I’d say over the last couple of years there’s been two different dynamics within that. So if you go back to growth, say maybe twenty four months ago that we were seeing was largely driven by salary inflation in Ireland and The UK and just continued good employment levels. So that drove growth in the premium income. And then more recently, there’s been health insurance increases in Ireland just reflecting claims growth in the book and that’s driven more of the more recent increase. So yeah, we’re very happy with the performance of those books.

There are the factors driving the premium increase. What you need to do to lock that in is have a good retention, and we’ve good sales levels on those books and that’s supporting growth as well.

Paul Mann, President and CEO, Great West Lifeco: Yeah, and when we talk about Canadian leadership in group and we talk about obviously empower leadership in retirement, we don’t underline enough that we are a market leader in those businesses and a meaningful market leader. It’s something that we’re really proud of, and David’s team has done a great job building those businesses, both from a sales and a retention basis, because that’s the key to managing a successful group law.

Shubha Khan, Senior Vice President and Head of Investor Relations, Great West Lifeco0: That point on the health insurance rate increases, that does remind me, I think it was two years ago when there was some negative experience there. Maybe just this quick follow-up you can address that the negative experience hasn’t repeated.

David Harney, Incoming President and CEO, Great West Lifeco: Yeah, so sort of post COVID, like what we’ve seen is an increase in the true cost in private hospitals, like they’ve really worked hard on their efficiency and that drove the increase in claim levels. The contracts behind the policies are one year renewables, so the market then re prices on experience and that’s what’s driven the follow on price increases.

Shubha Khan, Senior Vice President and Head of Investor Relations, Great West Lifeco0: That’s good. That’s helpful. Thank you. And Paul, thanks for everything over the years. And congrats on a very successful career and enjoy a well deserved retirement.

Paul Mann, President and CEO, Great West Lifeco: Thank you very much, Paul.

Conference Operator: This concludes the question and answer session. I’d like to turn the conference back over to Mr. Khan.

Shubha Khan, Senior Vice President and Head of Investor Relations, Great West Lifeco: Thanks everyone for joining us today. Following the call, a telephone replay will be available for one month and the webcast will be archived on our website for one year. Our twenty twenty five second quarter results are scheduled to be released after market close on Tuesday, August 5,

Fabrice Moray, President and COO, Canada, Great West Lifeco: with the earnings call starting at 08:30 a. M. Eastern Time

Shubha Khan, Senior Vice President and Head of Investor Relations, Great West Lifeco: the following day. Thank you again and this concludes our call for today.

Conference Operator: Brings to a close today’s conference call. You may disconnect your lines. Thank you for participating

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