David Harney, president and CEO of Great-West Lifeco Inc., says the long-term disability (LTD) experience affecting the company and its competitors is something which needs to be monitored and worked through for a few more quarters.
The comments were part of the CEO’s discussion for the benefit of investors and asset managers gathered for the Scotiabank Financials Summit on Sept. 10.
During the presentation, it was noted that the overall insurance experience in Canada remains a positive number. “What we’re seeing is a pullback in the long-term disability experience and there’s evidence that it’s not just us; it’s there in the broader market, as well,” he told those gathered. “That line had seen very good experience post COVID. It’s possible that there is a pullback in that experience now.”
Interestingly, he notes the possibility that return-to-work mandates are the culprit, or at least colouring the picture somewhat. “There’s a suspicion,” he says, “that we’re in a slightly different period.” He says the company will continue to judge pricing, saying the contracts are re-priceable, but he adds that it may be early to be forming pricing decisions around the thesis that return-to-work is to blame.
“There’s no real dynamic that should drive higher levels of new claims, but we could be in an environment where the return-to-work experience is not as good as it can be,” he says. “We’re in a post-COVID experience now. There’s more pressure on people to work in the office and that actually has a dynamic on disability experience.”
Artificial intelligence update
In answering questions about artificial intelligence (AI), Harney says there is strong demand for the company’s products. “The easier we can make them for people, the more we’re going to drive growth. That investment in experience will then drive efficiency,” he says.
The company was noted as being tight-lipped about its investments in AI as, unlike some of its competitors, Great-West has not published an official investment target.
In a separate summit presentation held later the same day, the parent company’s CEO, James O'Sullivan of the Power Corporation of Canada, explained the larger company’s approach, one it modelled after the same plan it used for investing in fintech.
In May, Power Corporation announced the launch of an AI fund, the Sagard AI Fund LP, which O’Sullivan says will address the AI challenge very directly.
In short, the fund is expected to invest in AI companies. The investments are expected to generate attractive returns and, once the companies mature, Great-West intends to then build commercial partnerships with those which emerge in the space.
“We start by investing in a fund, we get financial return, then we seek commercial partnerships to strengthen the core business,” O’Sullivan adds, noting that the company’s subsidiaries are already stronger businesses because of this approach.
“What we sought to do in fintech, through this strategy, was at least modestly, maybe moderately reshape our culture. Solve for the problem of incumbency. Why is it that old, legacy companies often have the technology, tomorrow’s technology, sitting in a back office or back room, but they can’t deploy it? The case studies are numerous,” he says. The reshaping of Power Corporation’s mindset, he adds, has tooled it to have a more external view and approach. “In fintech, this is exactly what we achieved,” he adds. “In AI, that’s exactly what we’re going to do.”
The $150-million fund was created with $50-million contributions each from Power Corporation, Great-West and from IGM Financial Inc.
Back at Great-West, Harney notes that a large proportion of the company’s costs come from the back office, both to run the business and to manage financial reporting. “AI is going to be of huge assistance there, as well,” he says. “I do talk to my team about turning us into a minutes and seconds organization. The sort of irony about it is that it’s going to take us a couple of years to be a minutes and seconds organization. But we’re firmly on that journey now.”
Buybacks continue
For shareholders, Harney notes that the company continues to have no desire to build up long-term cash on its balance sheet. “Buybacks will continue to be one of our capital deployment tools,” he says. “The share price has done spectacularly well over the last year; buybacks continue to be aggressive. They will continue to be a tool.”
He adds that the company has signalled that it will complete $1.6 billion in buybacks in 2026. “I think we’ve done $925 million of buybacks in the first half of this year,” he says. “The right M&A (mergers and acquisitions) can be very good and accretive, but buybacks will continue.”
With a recorded return on equity (ROE) which exceeded the company’s 19 per cent target set in April last year, Harney was also asked if that target would in turn be reset going forward. “It’s probably just a little bit quick, or nearly bad luck if we reset the target so quickly,” he joked.
