Great-West Lifeco reported net earnings of $595 million for the first quarter ended March 31, 2023.
In the same quarter of 2022, the company posted net income of $770 million, as reported by The Insurance Portal.
It is important to note that all of the major life and health insurance companies in Canada are now required to change their reporting under the new IFRS 17 accounting standards.
Based on these changes, net income attributable to shareholders for the first quarter of 2022 was recalculated to be $1.3 billion. The year-over-year difference is $739 million, equal to a 55 per cent decrease.
The decrease is attributed to unfavourable experience on non-fixed income assets and declining risk-free interest rates in the first quarter, compared to positive contributions in Q1 2022 due to higher interest rates.
"Our strong results reflect the successful execution of our integration programs in the U.S. and continued focus on delivering consistent performance in each of our core businesses,” says Paul Mahon, President and CEO of Great-West Lifeco.
“With the strategic acquisitions in the U.S. and of IPC in Canada, we are positioning our portfolio to deliver even greater value for clients, advisors, and shareholders,” he adds.
“The successful implementation of IFRS 17 is the culmination of a significant multi-year enterprise-wide initiative. Under this new reporting standard, we’re seeing strong base earnings growth, alongside expected increased net earnings volatility,” says Garry MacNicholas, Executive Vice President and CFO of Great-West Lifeco.
“This volatility is driven by the de-linking of asset and liability measurement and accounting policy decisions that were made to maintain regulatory capital (LICAT) stability,” he continues.
Under IFRS 17, the positive benefits of longevity gains mainly flow through the Contractual Service Margin (CSM) and no longer immediately offset the impact of unfavourable mortality in earnings in the period.
The way in which the financial statements are presented makes it impossible to compare premiums and deposits or sales from one year to the next.
Net income from insurance and investments
Insurance results for all divisions were $700 million in the first quarter of 2023, compared to $681 million in Q1 2022 on an adjusted basis.
Net income from investment activities for all divisions was $320 million in the first quarter of 2023, versus $1.15 billion in Q1 2022 on an adjusted basis. This represents a decrease of $827 million.
The company explains this discrepancy by “market experience losses,” whereas market experience gains were recorded in Q1 2022, driven by “material increases in interest rates and strong non-fixed income asset returns.”
New value drivers
The company has also reorganized the presentation of its business under three headings to better represent its value: Workplace Solutions, Wealth & Asset Management and Insurance & Risk Solutions.
For the Canadian operations, Workplace Solutions includes group life and health insurance products and group retirement services.
For the U.S. operations, Workplace Solutions corresponds to the defined contribution plans of the Empower subsidiary.
For the Canadian segment, which includes the insurer Canada Life, net income was $233 million in the first quarter of 2023, compared to $443 million in Q1 2022, adjusted for recalculation.
The Canadian insurance segment reported income of $341 million in the first quarter of 2023, compared to $307 million in Q1 2022 on an adjusted basis.
In the United States
The U.S. segment recorded net income of $151 million in Q1 2023, compared to $112 million in Q1 2022, recalculated under IFRS 17.
The U.S. operations earned $17 million in insurance income in the first quarter of 2022, compared to $7 million in Q1 2022 on an adjusted basis.
For the European segment, net income was $40 million in Q1 2023, versus $544 million in the same quarter of 2022, adjusted according to the new calculations.
The European insurance business reported earnings of $182 million in the first quarter of 2022, compared to $175 million in Q1 2022 on an adjusted basis.
Capital and Risk Solutions
Finally, for the Capital and Risk Solutions segment, net income was $184 million in the first quarter of 2023, compared to $234 million in Q1 2022, after recalculation.
Insurance income in this segment was $160 million in the first quarter of 2023, versus $192 million in Q1 2022 on an adjusted basis.