Great-West’s earnings up despite downturn in the U.S.

By Hubert Roy | June 27 2007 08:35PM

For the 2006 fiscal year, Great-West Lifeco saw its total net earnings climb 7.6%, from $1.742 billion to $1.875 billion. In contrast with its U.S. operations, where net earnings declined for the second consecutive year, earnings in Canada rose significantly, explains the company’s annual reports.

Total net earnings of Great-West Lifeco include the net earnings of Great West Life, Canada Life Financial, London Life, Great-West Life and Annuity (GWL&A) and the “corporate” results of Great-West Lifeco itself.

Total sales rose considerably, as each division reported substantial growth between 2005 and 2006. In Canada, sales surged by 27% in 2006 compared with 2005, to reach $8.3 billion. In Europe, total sales reported in 2006 advanced by 24% compared with 2005, to reach $10.1 billion. In the U.S, sales stood at $2.3 billion, equal to a 15% increase since 2005.

In the U.S., net earnings were $511 million in 2006, down from $606 million in 2005, for a decrease of $95 million, or 18% compared with 2005. This profitability indicator had already declined by 5.0% between 2004 and 2005. The United States accounted for over 27% of Great-West’s total net earnings in 2006.

Also in 2006, health products sustained the largest net drop in profitability in the United Sates; at $18 million earnings slid 10% from 2005. Great-West explains this decrease by the deterioration of its health insurance results, in which it incurred losses in all sectors except in specialized markets.

In Europe, net earnings increased by 34% to reach $486 million, amounting to nearly 26% of total net earnings. This growth is powered by the contribution of the blocks of business of large payout annuities acquired in the United Kingdom in 2005 and 2006, along with vigorous wealth management activities in the U.K. and the improvement of results in the reinsurance sector.

In Canada, net earnings increased by 15.5% to reach $893 million, versus $773 million in 2005. Great-West links this heightened profitability to the growth of purchases and scrupulous expense management. Canadian net earnings correspond to slightly more than 47% of the net earnings of Great-West Lifeco.

The group insurance, individual life insurance and investment product sectors were the profitability drivers in Canada in 2006. The group insurance sector generated net earnings of $335 million in 2006 compared to $294 million in 2005, an increase of 14%.

Net earnings in the individual insurance and investment product sectors recorded net earnings of $583 million in 2006 compared to $514 million in 2005, for a 13% increase.