Great-West Lifeco Inc.

Thank you for standing by. This is the conference operator. Welcome to the Great West Life Co. Third Quarter 2023 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. To join the question queue, you may press star, then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then 0. I would now like to turn the conference over to Mr. Paul Mann, President and CEO of Great West Life Co. Please go ahead.

Thank you, Ashya. Good morning and welcome to Great West Life Co.' 's third quarter 2023 conference call. Joining me on today's call is Gary McNicholas, Executive Vice President and Chief Financial Officer, and together we will deliver today's formal presentation. Also joining us on the call and available to answer your questions are David Harney, President and COO of Europe, Arshil Jamal, President and Group Head Strategy Investments, Reinsurance and Corporate Development, Jeff McCowan, President and COO of Canada, Ed Murphy, President and CEO of Empower, and Bob Reynolds, President and CEO, Putnam Investments. I'd also like to take this opportunity to formally introduce John Nielsen, who joined LifeCo in September. John was appointed CFO designate and will assume the CFO role when Gary retires next year. Welcome, John. Before we turn to the business of the day, I want to acknowledge the terrible loss of life and hardship related to current geopolitical conflicts. Our companies have made a donation for humanitarian aid, and our hearts go out to all of the people, families, and communities impacted. I'll now draw your attention to our cautionary notes regarding forward-looking information and non-GAAP financial measures and ratios on slide two. These cautionary notes apply to the information we will discuss during the call. Please turn to slide four. The company delivered excellent financial performance in the third quarter of 2023 with base earnings per share of $1.02, up 17% from last year. This represents a record quarter for base earnings base EPS, and the first time LIFCO reported base earnings above a dollar per share. These results reflect solid contributions across all segments and continue the company's strong earnings growth trajectory this year. We remain focused on disciplined capital allocation and execution of our growth strategies. Our earnings reflect the benefits of recent strategic transactions as well as operational improvements across our businesses. These results also reflect the smooth transition to IFRS 17 and are supported by disciplined expense management as we focus on efficiency and effectiveness. During the quarter, we continue to advance our well-focused strategies. In Canada, we completed the acquisition of Value Partners and are on track to complete the acquisition of IPC by the end of the year. In the U.S., we're on track to complete the sale of Putnam, and we continue to unlock value from the Prudential integration. In late October, 1.4 million Prudential clients and 100 billion of assets were successfully migrated to the Empower platform in our largest integration wave to date. Net earnings per share from continuing operations were $1.01. Unlike last quarter, there was no significant difference between base and net EPS. Given IFRS 17 dynamics and current economic conditions, market experience relative to expectations was positive, with some offsetting reduction in UK real estate asset valuations. We've expanded our disclosures on property-related investments in the appendix to include greater detail on our exposure to office and UK mortgages given heightened interest in these asset classes. These disclosures highlight the diversified and high-quality nature of our portfolio. We've taken steps to reduce risk over the past few years in our real estate portfolio, and it remains resilient to stresses in property markets. Our exposure to direct office properties is relatively low, and these holdings remain high-quality. Gary will unpack these and other items excluded from base, including changes in assumptions, later in his remarks. On a year-to-date basis, the company performed strongly against our medium-term financial objectives. Base EPS exceeded our target, and base ROE and dividend payout ratios were within our target ranges. Finally, our LICAT ratio remained strong, growing to 128% on the back of strong earnings in the quarter and up two points relative to last quarter. Please turn to slide 5. In Canada, our workplace businesses remain on an area of particular strength. Group life and health premiums were up by 23% year-over-year due to strong new sales, organic growth in the existing book, and the addition of the public service health care plan. We've enrolled over 1.68 million of the 1.7 million individuals covered under this public sector health plan, and a large majority are accessing their benefits without issue. That being said, you may have seen reports about others who've experienced challenges receiving timely service. The underlying cause of these service disruptions relates to the public sector's requirement that each member re-enroll, as well as changes they made to benefits coverage for their plan members. Regardless of the cause of these disruptions, we're working hard to resolve the remaining challenges for these important customers. We're working with the government to make excellent progress towards our target service levels. Moving on to group retirement, we saw solid growth over last year with some softness in sales this quarter. We remain focused on strategies to enable capital-light growth, including continued improvement in plan member rollover asset retention. In our individual wealth business, mutual fund net flows were positive, but we continued to experience seg fund outflows. While this is consistent with industry experience, We believe that this fund execution of our recently communicated wealth strategy will position these businesses for stronger growth and performance going forward. As noted, we completed the value partners acquisition in the quarter, and IPC is on track to close before the end of the year. These two strategic transactions are advancing our goal to be the leading full-service wealth and insurance platform for independent advisors in Canada. Finally, our CSM in Canada declined year over year, largely due to amortization of insurance experience. As we previously noted, we continue to approach non-participating insurance with a focus on customer value balanced with pricing discipline. CSM is not a key growth metric at LifeCode. Capital generation from our enforced business is a better indicator, and we plan to share more on these measures in future quarters. Please turn to slide six. Across Europe, our businesses maintain solid momentum in the quarter despite economic uncertainty. As I've noted in the past, much of our business in Europe is tied to financial necessities like benefits and retirement savings. These products have actually seen a lift in revenue driven by strong employment and wage inflation. In workplace, we experience strong organic growth in group life and health in both UK and Ireland and strong pension sales at Irish Life. We achieve steady growth in wealth, which is reflected in positive net flows for the quarter. This is in part driven by the successful execution of our wealth strategy in Ireland under the Unio brand. We're also advancing our wealth-focused joint venture with Allied Irish Bank. This includes the November 1st portfolio transfer of SEG funds with a carrying value of almost €2 billion from Irish Life into that business. We expect to recognize a gain related to this transaction in the fourth quarter of 2023. Within insurance and risk solutions, we saw strong bulk and individual annuity sales in the UK supported by higher interest rates. These sales helped drive growth in CSM in Europe. While recognized in sales in a prior quarter, Irish Life completed the onboarding of a €133 million bulk annuity transaction, the largest bulk annuity deal to take place in the Irish market so far this year. Please turn to slide 7. Empower delivered another strong quarter as we advanced our strategy, focused on workplace retirement and personal wealth. In workplace solutions, we achieved strong organic growth with DC plan participants up 4% year-over-year and DC assets under administration up 14%. In-quarter net outflows reflect seasonality as well as a modest impact from prudential deconversions. Empower's execution of the prudential integration program is going well with client retention ahead of target and annualized run rate synergies of US $66 million achieved to date. In-quarter net outflows reflect fewer large plan sales, rollover of assets to empower retail, and normal seasonality, as well as a modest impact from prudential deconversions. I would also note that on a year-to-date basis, the DC business has achieved net inflows. Empower's execution of the prudential integration program is going well, with client retention ahead of target and annualized run rate synergies of U.S. $66 million achieved to date. Empower Personal Wealth is also maintaining excellent momentum, with AUA up 30% year-over-year, supported by strong growth in sales and higher markets. Sales effectiveness and a powerful digital dashboard are generating money-in-motion opportunities and increased new asset inflows from the DC business by over 50% relative to last year. Lastly, with the previously announced sale of Putnam Investments to Franklin Resources, The results of Putnam Investments are now classified as discontinued operations. As I mentioned earlier, this transaction remains on track to close by the end of the year. Please turn to slide 8. Our capital and risk solutions business continues to play an important role in diversification of risk across the portfolio while also delivering growth and cash generation. Earnings on short-term business increased 23% year-over-year, reflecting growth in structured business. Note this business is accounted for on the PAA basis, which does not involve CSM. Sales on longer-term business were relatively soft this quarter, reflecting the bespoke nature of these transactions and our disciplined approach to underwriting and pricing. While the third quarter is seasonally slower, CRS continues to see solid new business momentum and will maintain discipline as we leverage our strong capabilities for the remainder of the year. With that, I'll now turn the call over to Gary to review the financial results.

Thank you, Paul. Please turn to slide 10. Base earnings per share of $1.02 was up 17% from Q3 2022, driven by strong performance across all segments, particularly the U.S., which was up over 20%. As shown by the top two rows in the chart on the right, this balanced performance across segments was a continuation of what we saw in Q2. Quarter over quarter, the base earnings increase was 3%, primarily a result of more favorable insurance experience partially offset by lower trading activity contribution in the investment results. The comparative period from 2022 had a number of larger items, both positive and negative, in Canada, Europe, and capital and risk solutions, which makes the year-over-year comparisons by segment a bit more challenging. In Canada, base earnings of $296 million were down 13%, primarily due to beneficial tax impacts that occurred in Q3 2022. Base earnings before tax actually showed an increase of 3% as a result of higher earnings on surplus driven by higher interest rates and continued growth within the group life and health business, including favorable mortality and morbidity experience. In the U.S., base earnings of $262 million were up $48 million, or 22%, primarily due to strong organic growth at Empower. on the revenue side there was growth in asset-based fee income from higher average equity markets and increases in other participant and transaction-based fee income based on growth and volume on the expense side results now include the full mass mutual synergies and we remain on track to deliver the targeted synergies on the prudential business by the end of q1 2024. this strong expense discipline and effective execution of our mass mutual and prudential acquisitions has allowed us to strategically invest in the business to continue Empower's strong organic growth trajectory. In Europe, base earnings were comparable to last year, although down 9% in constant currency. Improvements in insurance experience and the benefits from FX were largely offset by lower trading gains than the prior year. Q3 2022 benefited from above-average trading gains in the investment results, whereas this quarter, newly sourced spread assets were deployed against strong individual and bulk annuity sales. This new business contributes to CSM growth in Europe, which Paul noted earlier, and the CSM growth is amortized into earnings over time rather than an earnings gain in quarter. The capital risk solution segment had another strong quarter. The year-over-year growth is distorted by a charge related to hurricane claims in Q3 2022. However, excluding this, base earnings are still up a strong 8% due to organic business growth, particularly in the structured reinsurance portfolio. Overall, looking at this on a net earnings basis, the net EPS from continuing operations was $1.01, almost the same as the base earnings per share. Net EPS was down 5% last year as higher base earnings were offset by the year-over-year change in items excluded from base, which I'll cover on the next slide. So turning to slide 11, this table shows the reconciliation from base to net earnings. Net earnings from continuing operations were $936 million, or $1.01 a share. While overall excluded items have a small impact this quarter, there are two items I'd like to highlight. The first is market experience. As noted on our Q2 2023 call, these are typically items that we would expect to oscillate around zero over longer periods, although they will vary quarter to quarter. This quarter, the positive market experience is primarily driven by increases in interest rates in Canada, partially offset by lower non-fixed income returns, primarily lower real estate valuations in the UK property portfolio. The positive earnings impact from interest rates helped offset pressure on LICAT capital that comes from higher rates. This offset is given our ALM approach. The second item relates to assumption changes. The annual review of actuarial assumptions led to an overall positive impact to the balance sheet and LICAT ratio as a result of updating mortality and longevity assumptions to begin to recognize pandemic impacts. There is an important presentational point to note within IFRS 17, as basis change impacts appear in two places. The impact on the CSM is calculated at original locked-in discount rates. This is the amount that's being amortized into earnings in future periods. But given that rates have risen so much since the opening balance sheet transition on January 1, 2022, the CSM amounts are larger than the current fair value of the basis change. The difference goes into earnings in the period when the change is made, and that was a negative this period, even though the assumption change overall is a favorable impact. Also recall that certain basis changes for financial assumptions or where there is no CSM go straight into earnings, positive or negative. Given the CSM and earnings impacts are both included in LICAT capital, the presentational approach has little impact. We still get the positive impact on LICAT and on future earnings. The remaining items excluded for base are predominantly related to integration costs, which will continue for a few more quarters, and the amortization of acquisition-related finite life intangibles, which will continue over a longer period. Turning to slide 12, as noted on our Q2 2023 call, we improved the drivers of earnings view of earnings to improve the articulation of our results and align us with our peers. One change was to provide a clearer view of the insurance result by differentiating between expected versus experienced impacts. The expected provides insight into the underlying growth of the business, whereas we typically see period-to-period swings in the experienced results. In the top row of the table, you can see the expected insurance earnings of $732 million, or up 8% year-over-year, due to business growth, particularly in the shorter-duration renewable contracts like group insurance, plus some currency tailwind in Europe. The overall insurance result of $786 million was up 26% year-over-year, driven by the non-recurrence of the charge related to hurricane claims in Q3 2022, which was the driver of last year's experience loss. This quarter, we had favorable insurance experience, driven mostly by mortality and morbidity gains in Canada, which contributed to this overall result. The net investment result of $222 million was up 6% year-over-year, This was mainly driven by higher earnings on surplus due to increases in interest rates, partially offset by lower trading activity impacts, particularly in Europe. This is an area where we plan to expand disclosure further in future periods. Similar to insurance, this would benefit from separating the expected investment earnings, as the label says, from the in-period investment experience. Net fee and spread income related to our non-insurance businesses were up 13% year-over-year. Most of this result is driven by our Empower business. As noted earlier, we benefited from our asset-based and transaction-based fee streams for this business while also benefiting from the realization of acquisition-related synergies through strong expense management. Non-directly attributable and other expenses were up 5% relative to prior year due to business growth and the currency impacts in Europe. The effective tax rate this quarter was 13% on base shareholder earnings, reflecting the jurisdictional mix of earnings, including the growing U.S. contribution and the limited impact of one-time tax items. Overall, we had record base earnings of $950 million, a reflection of the strong results across all the segments. Turning to slide 13. The book value, LICAT ratio, return on equity, and financial leverage numbers are shown on IFRS 17 basis, unless specifically stated otherwise. The Q3 2023 book value per share is back above $24 at 24.01. This was up 5% year-over-year and 3% from last quarter, driven by the growth in retained earnings plus currency translation gains in other comprehensive income. It is worth noting that the book value per share is well on the way to reaching the $24.71 level pre-transition to IFRS 17. And at the same time, ROE has risen from the mid-14% in 2021 to 16.4% currently, better than fitting from higher base earnings that we are now reporting. The LICAP ratio of 128% was comparable to the prior year and up from the prior quarter results. The two-point increase from Q2 2023 was primarily driven by lower capital requirements. And as a reminder, the IPC transaction that's expected to close in Q4, as Paul mentioned, will reduce the ratio by about three points. The base return on equity figures shown on this slide are all IFRS 17 basis. The result for Q1 2023 is shown rather than Q3 last year, since this is a rolling four-quarter average, and we did not have all the information for Q3 2022 on an IFRS 17 basis. The base ROE began the year at around 16%, but has improved to 16.4% this quarter, reflecting the strong earnings results recently. Financial leverage remained at 31%. We made $100 million repayment on the short-term debt used as part of financial funding, which leaves a remaining balance on this debt facility of $100 million, which we expect to pay down in Q4, which should lower the leverage to about 30%. And with that, I'll turn the call back to Paul.