Great-West Lifeco reports second quarter results and dividend increase

“Developments” in Canada

“Developments” in USA

Winnipeg, July 24, 2001 — Great-West Lifeco Inc. has reported net income attributable to common shareholders of $366 million or $0.983 per share for the first six months of 2001, an increase of 21% over 2000. This result is before a non-recurring charge of $132 million and operating losses of $32 million, both associated with Alta Health & Life Insurance Company, which in total represents $0.440 per common share.

For the first six months of 2001, total net income attributable to common shareholders, after the Alta charges, was $202 million or $0.543 per share, compared to $305 million or $0.814 per share in 2000. For the second quarter, net income attributable to common shareholders after the Alta charges was $36 million, compared to $164 million in 2000.

Highlights

  • Total premiums and deposits were up 6%.

  • Lifeco’s subsidiary, Great-West Life & Annuity Insurance Company, announced its decision to discontinue writing new business through Alta Health & Life Insurance Company.

  • Return on common shareholders’ equity, on an adjusted basis, was 19.3% for the twelve months ended June 30, 2001.

  • Quarterly dividends declared were increased by 10.8% or $0.02 to $0.205 per common share for September 28, 2001. Dividends paid on common shares in the first half of 2001 were 19% higher than a year ago.

Consolidated net earnings for Lifeco are the net operating earnings of The Great-West Life Assurance Company (Great-West) in Canada and Great-West Life & Annuity (GWL&A) in the United States, together with Lifeco’s corporate results.

For the first six months of 2001, Canadian consolidated net earnings of Lifeco were up 25% to $155 million, compared to $124 million a year ago.

In the United States for the first six months of 2001 GWL&A’s net operating earnings, before Alta charges, increased 20% to US $143 million. Translated to equivalent Canadian dollars, Lifeco’s United States consolidated net earnings before Alta charges were $211 million, compared to $181 million a year ago, an increase of 17%.

The above results do not include a non-recurring charge of $132 million after tax or operating losses of $32 million, both associated with Alta Health & Life Insurance Company (Alta), a wholly-owned subsidiary of GWL&A. Alta was acquired by GWL&A on July 8, 1998. During 1999 and 2000, the Alta business continued to be run as a free-standing unit, but was converted to GWL&A systems and accounting processes. This conversion program resulted in significant issues related to the pricing, underwriting and administration of the business. GWL&A has decided to discontinue writing new Alta business and all Alta customers will be moved to GWL&A contracts over time. All Alta sales and administration staff have become GWL&A employees and the underwriting function will be conducted by the underwriting staff of GWL&A.

GWL&A’s net operating earnings, including Alta charges, were US $36 million for the six months ended June 30, 2001. Translated to equivalent Canadian dollars Lifeco’s United States consolidated net earnings were $47 million.

The Great-West Life Assurance Company

Developments

Great-West enhanced its critical illness insurance product – Oasis™
– to respond to the growing number of Canadians interested in this type of protection. Oasis is one of the most flexible, competitive and affordable products of its kind on the market. As well, Great-West expanded its distribution network for this product through an agreement with another leading Canadian life insurer.

The Company’s Group Retirement Services division was among seven Canadian companies recognized by the National Post for excellence in e-commerce.

London Life Insurance Company, a subsidiary of Great-West, launched its freedom55financial.com
Web site in June. The site introduces visitors to financial planning concepts and how to work with a financial advisor, and enables them to contact a financial security advisor in their region.

In 2000, London Life acquired the Canadian rights to The Legacy Planning System for exclusive use by Freedom 55 Financial’s Wealth & Estate Planning Group financial security advisors. Legacy is an integrated values-based approach to wealth planning, management and transfer for families. Financial security advisors completed their second quarterly training session and have begun to use Legacy’s in-depth process with high-net-worth clients.

Results

“Great-West has recorded very strong operating results across all major lines of business, and we are pleased with the quality of our earnings during the quarter,” says Raymond L. McFeetors, President & Chief Executive Officer, Great-West Life. “While sales reflect a soft market, we’ve seen exceptional persistency in our business, which speaks to the value of our advice distribution channels. That, along with continued improvement in reinsurance operations and another strong quarter for our group operations, is indicative of the strong strategic position we hold in our markets.”

Total premiums and deposits for the first six months of 2001 were down 4% overall from 2000 levels. Risk-based product premiums were up 10% including a 22% increase in reinsurance and specialty general premiums. Self-funded premium equivalents (ASO contracts) were up 13%, while segregated funds deposits were down 6% for individual products and down 53% for group products, mainly due to the incidence of large case sales.

Fee income increased 11% in the first six months of 2001 compared to 2000, mainly due to the increase in segregated fund related fees.

Total assets under administration reached $52.0 billion.

Great-West Life & Annuity Insurance Company

Developments

GWL&A introduced online claim status. This popular feature lets plan members quickly check the payment status of medical, dental, and vision claims via the Company’s Web site.

To further simplify 401(k) administration, the Company established an Internet-based Employer Service Center, offering 401(k) sponsors such features as electronic submission of contributions, 24-hour access to information, interactive reports, and toll-free technical support.

GWL&A’s subsidiary, BenefitsCorp, became the first company of its kind to offer retirement plan sponsors and participants wireless access to retirement savings account information via personal digital assistants such as Palm Pilots and iPAQs. The Company also held a series of interactive, web-based seminars for plan sponsors on the impact of the recently enacted Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) on pension plans.

GWL&A’s new subsidiary, Advised Assets Group, Inc. (AAG), established its first web-based investment advice program for participants, in partnership with Financial Engines Advisors, L.L.C. AAG is currently in contract negotiations with six plan sponsor clients, and anticipates several more clients to add this service to their plans by year end.

BenefitsCorp added the State of Tennessee to its defined contribution client base. The Company continues to be the largest provider of such services to state governments.

Results

“Our core businesses posted solid year-over-year growth, with excellent results generated from our core employee benefits business, our General American and Allmerica business acquisitions, our P/NP business and our individual life business,” notes William T. McCallum, President & Chief Executive Officer, GWL&A.

“However, it has become obvious that the right course of action on the Alta business is to fully integrate Alta into GWL&A. Over the next year, as we reprice existing Alta business, we anticipate that it will deliver expected margins.”

The 13% increase in premium income and deposits for the first six months of 2001 was comprised of growth in Employee Benefits of US $483 million and a decrease in Financial Services premium income and deposits of US $60 million. The increase in the Employee Benefits segment is due to the increase in ASO equivalents reflecting higher claims volume, while the decrease in the Financial Services segment is primarily due to increased single premium in the public non-profit business offset by lower Bank-Owned Life Insurance (BOLI) premium.

Fee income is derived from the management of segregated funds assets and the administration of Group health ASO business. The increase in year-to-date fee income in 2001 is a combination of business growth and price increases of ASO business.

Total assets under administration increased 1% to $41.4 billion at June 30, 2001 compared with December 31, 2000, mostly due to the change in foreign exchange rates.

Quarterly Dividends

At its meeting today, the Board of Directors approved a quarterly dividend of $0.205, an increase of $0.02 per share, on the common shares of the Company payable September 28, 2001 to shareholders of record at the close of business September 14, 2001.

In addition, the Directors approved quarterly dividends on the preferred shares of the Company:

Series B First Preferred Shares $0.465625 per share;

Series C First Preferred Shares $0.484375 per share; and

Series D First Preferred Shares $0.293750 per share payable September 30, 2001 to shareholders of record at the close of business September 14, 2001

Class A, Series 1 Preferred Shares $0.3125 per share payable October 31, 2001 to shareholders of record at the close of business October 17, 2001.

Financial highlights and the June 30, 2001 interim unaudited consolidated financial statements are attached.

Great-West Lifeco

Great-West Lifeco Inc. is a financial services holding company with interests in the life insurance, health insurance, retirement savings, reinsurance and specialty general insurance businesses, primarily in Canada and the United States. Lifeco’s subsidiaries – The Great-West Life Assurance Company in Canada and Great-West Life & Annuity Insurance Company in the United States – serve the financial security needs of more than 14 million people. Lifeco and its companies have more than $93 billion in assets under administration. Great-West Lifeco is a member of the Power Financial Corporation group of companies.

Forward-looking statements

This release may contain forward-looking statements about future operations, financial results, objectives and strategies of the Company. Forward-looking statements are typically identified by the words “believe”, “expect”, “anticipate”, “intend”, “estimate” and other similar expressions.

These statements are necessarily based on estimates and assumptions that are subject to risks and uncertainties, many of which are beyond the Company’s control. Actual results may differ materially due to a variety of factors, including legislative or regulatory developments, competition, technological change, global capital market activity, interest rates and general economic conditions in Canada, North America or internationally.

These and other such factors should be taken into consideration when reading the Company’s forward-looking statements.

Great-West Lifeco’s second quarter analyst teleconference will be held July 25, 8:30 a.m. (Eastern), and can be accessed through www.greatwestlifeco.com
or by calling 1-800-408-3053 or 416-695-5800 in Toronto (passcode 843566).

For more information contact:
Marlene Klassen
Director, Media & Public Relations
(204) 946-7705 marlene.klassen@gwl.ca