Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Great-West Lifeco Inc (GWLIF, Financial) reported a fourth consecutive quarter of record base earnings, with both base and net earnings exceeding $1 billion for the first time.
- The company achieved a 13% increase in base earnings and base EPS over the prior year, with base ROE increasing to 17.2%.
- The U.S. segment reported double-digit earnings growth, driving a nearly 200 basis point increase in ROE over the past 12 months.
- Great-West Lifeco Inc (GWLIF) maintained a strong regulatory capital position with a 1% increase in the LICAT ratio over the previous quarter.
- The Europe segment delivered its sixth consecutive quarter of growth across all value drivers, supported by targeted strategies and focused actions.
Negative Points
- The company faced headwinds from regulatory and policy changes, inflationary pressures, and shifting interest rates.
- Net flows in the Empower segment were negative this quarter, largely due to anticipated terminations from the Prudential Retirement business acquired in 2022.
- The Capital and Risk Solutions segment was adversely impacted by the global minimum tax, reducing base earnings by $28 million.
- Commercial mortgage impairments in the U.S. office portfolio totaled $40 million, impacting net investment results.
- The insurance and annuities CSM in Canada declined due to insurance experience losses, and the company does not consider CSM a key growth metric in Canada.
Q & A Highlights
Q: On Empower defined contribution, participants have flatlined over the last several quarters. Does this relate to the terminations from Prudential, or if not, what's going on there? When can we expect growth to resume within the number of participants?
A: (Edmund Murphy, President and CEO of Empower) The flatlining is partly due to lapses related to Prudential. However, the growth trajectory of the DC business remains strong, with participant growth consistently at twice the market rate. Sales in the defined contribution business are up 47% year-over-year, and the small market segment is up 35%. We expect continued growth across all segments.
Q: With the strength in your leverage ratio and capital position, do you expect to pursue additional acquisitions in Empower, or are organic growth numbers sufficient?
A: (Edmund Murphy, President and CEO of Empower) We are confident in our ability to capture a fair share of plans in motion and continue to see solid organic growth. However, we will remain opportunistic regarding acquisitions, looking for scale benefits, capabilities to extend our reach, and valuable human capital.
Q: Can you explain the significant increase in net fee and spread income from Q1 to Q2?
A: (Jon Nielsen, CFO) The increase was driven by a one-time fee adjustment from Prudential, strong market performance, and realized expense synergies. Excluding the one-time adjustment, the run rate for net fee and spread income is expected to be stable, reflecting ongoing business growth and cost management.
Q: What drove the elevated non-directly attributable expenses in Canada this quarter?
A: (Jon Nielsen, CFO) The elevated expenses were due to one-time items amounting to around $15 million. A more representative run rate would be the average of the four quarters in 2023, with modest growth due to inflation and business volumes.
Q: How should we think about the impact of lower interest rates on base earnings?
A: (Jon Nielsen, CFO) A 50 basis point decrease in rates would have about a 1% negative impact on base earnings. This includes effects on surplus earnings, group insurance experience, and net fee and spread income from wealth and retirement businesses.
Q: Can you provide more detail on the negative insurance experience in the CSM related to longevity business in Europe and CRS?
A: (Linda Kerrigan, Senior VP, Appointed Actuary) The negative experience was largely due to volatility in longevity claims. We maintain a disciplined approach to underwriting and pricing longevity risk, and this quarter's results reflect typical volatility rather than a systemic issue.
Q: How far along are you in the path of profitability improvement in Europe?
A: (David Harney, President and COO, Europe) We have seen good top-line growth and the actions taken at the end of last year have translated into bottom-line earnings growth. The expense actions will continue to moderate expense growth, and the quarter's results are a good indication of future potential.
Q: Can you elaborate on the competitive pricing dynamics in the individual insurance business in Canada?
A: (Fabrice Morin, President and COO, Canada) The market is competitive, especially in participating whole life insurance. We remain disciplined in pricing and risk management, focusing on sustainable growth. We have adjusted product structures to limit long-term risks and maintain a balanced approach to growth and pricing discipline.
Q: What is the outlook for insurance experience in Canada, given the favorable results this quarter?
A: (Fabrice Morin, President and COO, Canada) We are pleased with the results, driven by workplace long-term disability and health experience, as well as improved individual mortality experience. We manage our book cautiously, considering macro factors and maintaining strong underwriting and claims management practices.
Q: Can you explain the commercial mortgage impairments and how you manage the risk of such events?
A: (Raman Srivastava, EVP and Global CIO) The impairments were due to tenant-related idiosyncratic events. We maintain a diversified portfolio with good LTV cushions and debt service coverage ratios. We expect the impact of such events to be modest over the balance of the year, based on our current visibility.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
