This earnings news release for
TSX: GWO
"Our strong results this quarter reflect our disciplined and resilient business model, robust balance sheet, effective risk framework and high-quality investment portfolio," said
Net earnings attributable to common shareholders (net earnings) were
Common Shareholders | Q2 2020 | Q2 2019 |
Base earnings(1) | ||
83 | 101 | |
179 | 155 | |
Capital and Risk Solutions | 137 | 84 |
Lifeco Corporate | (8) | (5) |
Total base earnings(1) | ||
Items excluded from base earnings(2) | 157 | (168) |
Net earnings | ||
Base EPS(1) | ||
Net EPS | ||
Base return on equity(1)(3) | 13.7% | 11.1% |
Return on equity(3) | 12.1% | 12.0% |
(1) | Represents a non-IFRS measure. Refer to the "Non-IFRS Financial Measures" section of the Company's second quarter of 2020 interim MD&A for additional details. | ||
(2) | Items excluded from base earnings are actuarial assumption changes and management actions, market-related impacts and the net charge on sale of the | ||
(3) | Base return on equity and return on equity are calculated using the trailing four quarters of applicable earnings and common shareholders' equity. |
Base EPS for the second quarter of 2020 of
Highlights –
COVID-19 Pandemic Impacts
- The Company's second quarter 2020 financial results were positively impacted by market recoveries as markets rebounded from the significant declines in the first quarter of 2020 at the onset of the COVID-19 pandemic. The Company also experienced positive net cash inflows, particularly at
Putnam during the second quarter. While equity and fixed income markets have improved sinceMarch 31, 2020 , interest rates remain low and COVID-19 challenges had an impact on investment credit rating downgrades and real estate values, although modest in the second quarter of 2020. Investment related and premium deferrals were limited, partially as a result of continued government support in many jurisdictions. While the Company experienced lower sales in certain areas of its business, customer retention remained high. - Assets under administration of
$1.7 trillion atJune 30, 2020 increased compared toMarch 31, 2020 due to in-period market improvements and were comparable toDecember 31, 2019 .
Capital strength and financial flexibility maintained
- The Company's capital position remains strong at
June 30, 2020 , with a LICAT Ratio for Canada Life, Lifeco's major Canadian operating subsidiary, of 132% which is well above the Company's internal target range and the supervisory target. - During the second quarter of 2020, in preparation for a
$500 million debt maturity in August, the Company issued$600 million of debentures maturing inMay 2030 . Subsequent to the quarter, inJuly 2020 , the Company issued an additional$500 million of debentures maturing inJuly 2050 .
SEGMENTED OPERATING RESULTS
For reporting purposes, Lifeco's consolidated operating results are grouped into five reportable segments –
- Q2
Canada segment base earnings of$315 million and net earnings of$353 million – Base earnings for the second quarter of 2020 were$315 million compared to$292 million in the second quarter of 2019, an increase of 8%. The increase was primarily due to higher contributions from investment experience, changes in certain income tax estimates and strong underlying business results. Net earnings for the second quarter of 2020 were$353 million , up from$280 million in the second quarter of 2019, primarily due to an increase in contributions from insurance contract liabilities changes reflecting equity market recoveries during the quarter. - Delivering strong commercial results while supporting employees, customers, advisors and business partners – The
Canada segment continued to support employees, customers, advisors and business partners impacted by COVID-19 during the second quarter of 2020. Individual insurance sales remained as strong as the prior year. Other lines of businesses experienced net growth or only limited attrition despite lower sales. Expenses in the second quarter of 2020 were lower than the prior year while remaining focused on strategic investments, including a new capability allowing Group Customer members to submit any type of claim digitally and enhancements to improve non face-to-face capabilities for Individual Customer introduced in the second quarter of 2020.
Q2 U.S. Financial Services base earnings ofUS$53 million and net earnings ofUS$49 million –U.S. Financial Services (primarily Empower Retirement) base earnings for the second quarter of 2020 wereUS$53 million , up fromUS$46 million in the second quarter of 2019. The increase was primarily due to higher contributions from investment experience and net business growth, partially offset by waived fee income on retirement plan loans. Net earnings for the second quarter of 2020 wereUS$49 million , up fromUS$46 million in the second quarter of 2019, primarily due to the same reasons discussed for base earnings, partially offset by market volatility creating hedge ineffectiveness losses.- Q2
Putnam net earnings ofUS$9 million –Putnam net earnings for the second quarter of 2020 wereUS$9 million compared toUS$5 million in the second quarter of 2019. The increase in net earnings was primarily due to higher net investment income on seed capital investments and lower volume-related expenses. For Putnam, there were no differences between net and base earnings. - Q2
Putnam sales up 63% – Sales in the second quarter of 2020 wereUS$15.1 billion compared toUS$9.3 billion for the same quarter last year, an increase of 63%, reflecting strong investment performance driving mutual fund and institutional sales. As ofJune 30, 2020 , approximately 83% and 72% ofPutnam's fund assets performed at levels above the Lipper median on a three-year and five-year basis, respectively. - Acquisition of
Personal Capital Corporation – OnJune 29, 2020 , Empower Retirement announced it has entered into an agreement to purchasePersonal Capital Corporation (Personal Capital ), a hybrid wealth manager that combines a leading-edge digital experience with personalized advice delivered by human advisors. The combination will bring together Empower Retirement's leading retirement plan services and integrated financial tools, andPersonal Capital's rapidly growing, digitally oriented personal wealth management platform. The transaction is expected to close in the second half of 2020, subject to required regulatory approvals and customary closing conditions.
- Q2
Europe segment base earnings of$179 million and net earnings of$253 million – Base earnings for the second quarter of 2020 were$179 million , up 15% compared to$155 million in the second quarter of 2019. The increase was primarily due to higher contributions from investment experience due to prior year impairment charges and reductions in expected property cash flows primarily associated with aU.K. retail tenant entering a prepackaged administration and the impact of changes to certain tax estimates. The increase was partially offset by lower impact of new business. Net earnings for the second quarter of 2020 were$253 million , up from$193 million in the second quarter of 2019, primarily due to the same reasons discussed for base earnings as well as favourable market impacts, primarily associated with the impact of market recoveries on investment guarantees, and the favourable contribution from longevity actuarial assumption changes. - Sale of IPSI completed – On
August 4, 2020 ,Irish Life completed the previously announced sale ofIrish Progressive Services International Limited (IPSI), a wholly owned subsidiary whose principal activity is the provision of outsourced administration services for life assurance companies, to a member of the FNZ group of companies. The Company expects to recognize a gain on this transaction in the third quarter of 2020. The carrying value and earnings of the business are not material to the Company.
CAPITAL AND RISK SOLUTIONS
Q2 Capital and Risk Solutions segment base earnings of$137 million and net earnings of$187 million – Base earnings for the second quarter of 2020 were$137 million , up 63% compared to$84 million in the second quarter of 2019. The increase was primarily due to new business growth and favourable claims experience in the longevity business, partially offset by less favourable claims in the life business. Net earnings for the second quarter of 2020 were$187 million , up from$89 million in the second quarter of 2019, primarily due to the same reasons discussed for base earnings, the market-related impact on a legacy block of business as well as higher contributions from longevity actuarial assumption changes.- €5.3 billion long-term longevity reinsurance agreement – On
May 20, 2020 , Canada Life announced it had entered into long-term longevity reinsurance agreement with an insurance company inthe Netherlands . The agreement covers approximately €5.3 billion of pension liabilities and close to 82,000 in-payment pensioners. In exchange for ongoing premium payments, the Company will pay the actual benefit obligations incurred by the insurance company.
QUARTERLY DIVIDENDS
The Board of Directors approved a quarterly dividend of
In addition, the Directors approved quarterly dividends on Lifeco's preferred shares, as follows:
First Preferred Shares | Record Date | Payment Date | Amount, per share |
Series F | |||
Series G | |||
Series H | |||
Series I | |||
Series L | |||
Series M | |||
Series N | |||
Series O | |||
Series P | |||
Series Q | |||
Series R | |||
Series S | |||
Series T |
For purposes of the Income Tax Act (
Selected financial information is attached.
Basis of presentation
The condensed consolidated interim unaudited financial statements of Lifeco have been prepared in accordance with International Financial Reporting Standards (IFRS) unless otherwise noted and are the basis for the figures presented in this release, unless otherwise noted.
Cautionary note regarding Forward-Looking Information
This release 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", "anticipates", "intends", "plans", "believes", "estimates" and other similar expressions or negative versions thereof. These statements include, without limitation, statements about the Company's operations, business, financial condition, expected financial performance (including revenues, earnings or growth rates), estimates of capital adequacy risk sensitivities, ongoing business strategies or prospects, the timing, cost (including deferred consideration) and expected benefits of the acquisition of
Cautionary note regarding Non-IFRS Financial Measures
This release contains some non-IFRS financial measures. Terms by which non-IFRS financial measures are identified include, but are not limited to, "base earnings", "base earnings (US$)", "base earnings per common share", "return on equity", "base return on equity", "core net earnings", "constant currency basis", "impact of currency movement", "premiums and deposits", "pre-tax operating margin", "sales", "assets under management" and "assets under administration". Non-IFRS financial measures are used to provide management and investors with additional measures of performance to help assess results where no comparable IFRS measure exists. However, non-IFRS financial measures do not have standard meanings prescribed by IFRS and are not directly comparable to similar measures used by other companies. Refer to the "Non-IFRS Financial Measures" section in the Company's second quarter of 2020 interim MD&A for the appropriate reconciliations of these non-IFRS financial measures to measures prescribed by IFRS as well as additional details on each measure.
Second quarter Conference Call
Lifeco's second quarter conference call and audio webcast will be held
- Participants in the
Toronto area: 416-915-3239 - Participants from
North America : 1-800-319-4610
A replay of the call will be available from
FINANCIAL HIGHLIGHTS (unaudited)
(in Canadian $ millions except per share amounts)
As at or for the three months ended | For the six months ended | |||||||||||||
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Earnings | ||||||||||||||
Base earnings(1)(2) | $ | 706 | $ | 543 | $ | 627 | $ | 1,249 | $ | 1,196 | ||||
Net earnings - common shareholders | 863 | 342 | 459 | 1,205 | 1,116 | |||||||||
Per common share | ||||||||||||||
Basic: | ||||||||||||||
Base earnings(1)(2) | 0.761 | 0.585 | 0.668 | 1.347 | 1.241 | |||||||||
Net earnings | 0.930 | 0.369 | 0.489 | 1.299 | 1.159 | |||||||||
Diluted net earnings | 0.930 | 0.369 | 0.489 | 1.299 | 1.158 | |||||||||
Dividends paid | 0.438 | 0.438 | 0.413 | 0.876 | 0.826 | |||||||||
Book value | 21.98 | 22.34 | 20.84 | |||||||||||
Base return on equity(1)(2)(3) | 13.7% | 13.5% | 11.1% | |||||||||||
Return on equity(1)(3) | 12.1% | 10.3% | 12.0% | |||||||||||
Total premiums and deposits(1) | $ | 43,076 | $ | 46,365 | $ | 34,280 | $ | 89,441 | $ | 75,125 | ||||
Fee and other income | 1,406 | 1,441 | 2,591 | 2,847 | 4,070 | |||||||||
Net policyholder benefits, dividends and experience refunds | 9,659 | 9,429 | 8,957 | 19,088 | 17,944 | |||||||||
Total assets | $ | 457,996 | $ | 436,903 | $ | 441,897 | ||||||||
Proprietary mutual funds and institutional net assets(1) | 315,326 | 288,309 | 305,252 | |||||||||||
Total assets under management(1) | 773,322 | 725,212 | 747,149 | |||||||||||
Other assets under administration(1) | 889,929 | 798,847 | 820,808 | |||||||||||
Total assets under administration(1) | $ | 1,663,251 | $ | 1,524,059 | $ | 1,567,957 | ||||||||
Total equity | $ | 26,109 | $ | 26,441 | $ | 24,955 | ||||||||
132% | 133% | 136% | ||||||||||||
(1) | This metric is a non-IFRS measure. Refer to the "Non-IFRS Financial Measures" section of the Company's |
(2) | Effective the first quarter of 2020, the Company introduced an enhanced non-IFRS earnings measure. Base earnings (loss) are defined as net earnings excluding the impact of actuarial assumption changes and management actions, direct equity and interest rate market impacts on insurance and investment contract liabilities, net of hedging, and related deferred tax liabilities, and items that management believes are not indicative of the Company's underlying business results. These items would include restructuring costs, material legal settlements, material impairment charges related to goodwill and intangible assets, legislative tax changes and other tax impairments, and gains or losses related to the disposition of a business. |
(3) | Refer to the "Return on Equity" section of the Company's |
(4) | The Life Insurance Capital Adequacy Test (LICAT) ratio is based on the consolidated results of |
Base earnings(1) and Net earnings - common shareholders (unaudited) | |||||||||||
For the three months ended | For the six months ended | ||||||||||
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Base earnings (loss)(1) | |||||||||||
$ | 315 | $ | 273 | $ | 292 | $ | 588 | $ | 549 | ||
83 | 17 | 101 | 100 | 182 | |||||||
179 | 132 | 155 | 311 | 318 | |||||||
Capital and Risk Solutions | 137 | 119 | 84 | 256 | 158 | ||||||
Lifeco Corporate | (8) | 2 | (5) | (6) | (11) | ||||||
Lifeco base earnings(1) | $ | 706 | $ | 543 | $ | 627 | $ | 1,249 | $ | 1,196 | |
Items excluded from base earnings(2) | |||||||||||
Actuarial assumption changes and management actions(2) | $ | 122 | $ | (52) | $ | 38 | $ | 70 | $ | 167 | |
Market-related impacts on liabilities(2) | 35 | (149) | (7) | (114) | (48) | ||||||
Net charge on sale, via reinsurance, of a | — | — | (199) | — | (199) | ||||||
Items excluded from Lifeco base earnings(2) | $ | 157 | $ | (201) | $ | (168) | $ | (44) | $ | (80) | |
Net earnings (loss) - common shareholders | |||||||||||
$ | 353 | $ | 151 | $ | 280 | $ | 504 | $ | 563 | ||
78 | 5 | (98) | 83 | (17) | |||||||
253 | 91 | 193 | 344 | 387 | |||||||
Capital and Risk Solutions | 187 | 93 | 89 | 280 | 194 | ||||||
Lifeco Corporate | (8) | 2 | (5) | (6) | (11) | ||||||
Lifeco net earnings - common shareholders | $ | 863 | $ | 342 | $ | 459 | $ | 1,205 | $ | 1,116 | |
(1) | This metric is a non-IFRS measure. Refer to the "Non-IFRS Financial Measures" section of the Company's |
(2) | Items excluded from base earnings, a non-IFRS measure. Refer to the "Non-IFRS Financial Measures" section of the Company's |
SOURCE
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