Q4 2009 vs Q4 2008
Net income decreased by $2 million in 2009. The results reflect lower investment gains mainly due to lower trading gains partly offset by higher gains from non-credit related actuarial reserve basis changes.
Q4 2009 vs Q4 2008 (twelve months)
Net income increased by 1% in 2009. The results reflect improved group health experience on long term disability cases particularly in the small and mid-size market, partly offset by weaker group health experience in the medical and dental sublines and lower investment gains.
Q4 2009 vs Q3 2009
Net income decreased 8% from the third quarter. The results reflect weaker group health experience on long term disability cases particularly in the mid-size market and a decrease in group life mortality experience from deteriorated claims experience, partly offset by higher gains from non-credit related actuarial reserve basis changes.
O
UTLOOK– G
ROUPI
NSURANCERefer to Cautionary Note regarding Forward-looking Information and Cautionary Note regarding Non-GAAP Financial Measures at the beginning of this document.
The Company is well positioned within the Canadian group insurance business with leading market shares in many case size, regional and benefit market segments. The Company believes that this market share position, together with its low cost position and extensive distribution capability will facilitate continued growth in revenue premium. Through the effective investment in technologies, the Company expects to achieve continued reductions in administration and claims adjudication costs, thereby enhancing its competitive position.
As the costs of employee benefits continue to gain the attention of plan sponsors, the Company is developing an array of enhanced products and services for plan members, plan sponsors and their advisors. A particular focus in 2010 will be the development of new and innovative electronic claims adjudication capabilities, as well as a continued focus on absence and disability management services, many of which will support earlier return to work capabilities. The Company will also continue its efforts to improve process effectiveness, and therefore unit costs and customer service.
Given the challenging economic environment, expense management will be critically important to delivering strong financial results. This will be achieved through disciplined operational expense controls and focused investment in only the highest priority business initiatives.
C A N A D A C O R P O R AT E
Canada Corporate consists of items not associated directly with, or allocated to the Canadian business units.
Net Income
Q4 2009 vs Q4 2008
Net income in 2009 was $13 million compared to $12 million in 2008, mainly due to a reversal of a provision relating to litigation for certain Canadian retirement plans of $29 million after-tax in 2009. This increase was offset by fair value adjustments, including a decrease of $26 million of the mark-to-market adjustment in
Q4 2009 vs Q4 2008 (twelve months)
Net income in 2009 was a loss of $84 million compared to a loss of $61 million in 2008. The decrease is primarily due to fair value adjustments, including a decrease of $63 million of the mark-to- market adjustment in connection with two series of Lifeco Preferred Shares, Series D and Series E compared to 2008 including a $15 million gain recognized on the redemption of Lifeco Preferred Shares, Series E in 2009. The decrease is partly offset by a reversal of a provision relating to litigation for certain Canadian retirement plans of $29 million after-tax.
Q4 2009 vs Q3 2009
Net income increased by $49 million from a loss of $36 million in the third quarter of 2009. The increase is primarily a result of reversal of a provision relating to litigation for certain Canadian retirement plans and the mark-to-market adjustment in connection with Lifeco Preferred Shares, Series D and a gain recognized on the redemption of Lifeco Preferred Shares, Series E. These increases were partly offset by the impact of an income tax rate change in Ontario.
The United States operating results for Lifeco include the results of GWL&A, Putnam, and the results of the insurance businesses in the United States branches of Great-West Life and Canada Life, together with an allocation of a portion of Lifeco’s corporate results.
T
RANSLATION OFF
OREIGNC
URRENCYForeign currency assets and liabilities are translated into Canadian dollars at the market rate at the end of the financial period. All income and expense items are translated at an average rate for the period.
Currency translation impact is a non-GAAP financial measure which attempts to remove the impact of changed currency translation rates on GAAP results. Refer to Cautionary Note regarding Non-GAAP Financial Measures at the beginning of this report.
B
USINESSP
ROFILEF
INANCIALS
ERVICESGWL&A provides an array of financial security products, including employer-sponsored defined contribution retirement plans and defined benefit plans for certain market segments. Through relationships with government plan sponsors, the Company is one of the largest providers of services to state defined contribution plans, with 14 state clients as well as the government of Guam. It also provides annuity and life insurance products for individuals, families and corporate executives. Through its FASCore subsidiary, it offers private-label recordkeeping and administrative services for other providers of defined contribution plans.
A
SSETM
ANAGEMENTPutnam provides investment management, certain administrative functions, distribution, and related services through a broad range of investment products, including the Putnam Funds, its own family of mutual funds which are offered to individual and institutional investors. Revenue is derived from the value and composition of assets under management, which includes domestic and international equity and debt portfolios. Accordingly, fluctuations in financial markets and in the composition of assets under management affect revenues and results of operations.
M
ARKETO
VERVIEWP
RODUCTS ANDS
ERVICESThe Company provides a focused product offering that is distributed through a variety of channels.
U
NITEDS
TATESFINANCIALSERVICES
MARKETPOSITION
• Fourth largest defined contribution record-keeper in the country, providing services for 4,200,735 participant accounts
• Significant market share in state and government deferred compensation plans
• 30% market share in business-owned life insurance (BOLI) purchased by financial institutions
PRODUCTS ANDSERVICES
• Employer-sponsored defined contribution plans, enrollment services, communication materials, investment options and education services • Administrative and record-keeping services for financial institutions and
employer-sponsored defined contribution plans and associated defined benefit plans
• Fund management, investment and advisory services • Individual term and single premium whole life insurance, and
individual annuity products
• Business-owned life insurance and executive benefit products
DISTRIBUTION
• Retirement services products distributed through brokers, consultants, advisors and third-party administrators to plan sponsors
• FASCore record-keeping and administrative services distributed through institutional clients
• Individual life and annuity products distributed through financial institutions
• Business-owned life insurance and executive benefits products distributed through specialized consultants and through Great-West Retirement Services (Retirement Services)
C
OMPETITIVEC
ONDITIONSFinancial Services
The life insurance, savings, and investments marketplace is competitive. The Company’s competitors include mutual fund companies, insurance companies, banks, investment advisors, and certain service and professional organizations. No one competitor or small number of competitors is dominant. Competition focuses on service, technology, cost, variety of investment options, investment performance, product features, price, and financial strength as indicated by ratings issued by nationally recognized agencies. Asset Management
Putnam’s investment management business is highly competitive. Putnam competes with other providers of investment products and services primarily on the basis of the range of investment products offered, investment performance, distribution, scope and quality of shareholder and other services, and general reputation in the marketplace. Putnam’s investment management business is also influenced by general securities market conditions, government regulations, global economic conditions and advertising and sales promotional efforts. Putnam competes with other mutual fund firms and institutional asset managers that offer investment products similar to Putnam’s as well as products which Putnam does not offer. Putnam also competes with a number of mutual fund sponsors that offer their funds directly to the public, conversely, Putnam offers its funds only through intermediaries.
G
OODWILL ANDI
NTANGIBLEA
SSETSI
MPAIRMENTIn the fourth quarter of 2008, the Company recorded a non-cash, after-tax impairment charge of US$1,118 million ($1,353 million) in connection with goodwill and intangible assets related to the acquisition of Putnam. The after-tax results are net of Putnam’s non-controlling interests portion of the charges of US$6 million. In conjunction with the goodwill and intangible assets charge, the Company also wrote off a future tax asset with regards to State taxes in the amount of US$28 million ($34 million) after-tax in the fourth quarter of 2008. These changes are presented as other adjustments to net income.
ASSETMANAGEMENT
MARKETPOSITION
• A Global asset manager with assets under management of US$114.9 billion as of December 31, 2009
• International distribution includes sales teams that are focused on major institutional markets in Europe, the Middle East, Southeast Asia and Australia and through a strategic distribution relationship in Japan
PRODUCTS ANDSERVICES
Investment Management Products & Services
• Individual retail investors – a family of open-end and closed-end mutual funds, college savings plans and variable annuity products
• Institutional investors – defined benefit and defined contribution retirement plans sponsored by corporations, state, municipal and other governmental authorities, university endowment funds, charitable foundations, and collective investment vehicles (both U.S. and non-U.S.) • Alternative investment products across the fixed income, currency,
quantitative and equity groups
Administrative Services
• Transfer agency, underwriting, distribution, shareholder services, trustee and other fiduciary services
DISTRIBUTION
Individual Retail Investors
• A broad network of distribution relationships with unaffiliated broker- dealers, financial planners, registered investment advisers and other financial institutions that distribute the Putnam Funds to their customers, which, in total, includes more than 150,000 advisors in over 2,000 firms
• Sub-advisory relationships and Putnam-labeled funds as investment options for insurance companies and non-U.S. residents
• Retail distribution channels are supported by Putnam’s sales and relationship management team
Institutional Investors
• Supported by Putnam’s dedicated account management, product management, and client service professionals
• Strategic relationships with several investment management firms outside of the United States
Selected consolidated financial information – United States
As at or for the three months ended For the twelve months ended Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31
2009 2009 2008 2009 2008
Premiums and deposits $ 7,777 $ 6,679 $ 8,243 $ 28,618 $ 35,764
Sales 9,489 8,509 8,397 32,383 42,734
Fee and other income 358 308 335 1,240 1,442
Net income – continuing operations
– common shareholders 36 68 (1,350) 228 (1,005)
Net income – continuing operations
– common shareholders (US$) 33 62 (1,116) 197 (774)
Total assets $ 29,262 $ 29,794 $ 31,923
Segregated funds net assets 19,690 19,646 17,824
Proprietary mutual funds and institutional net assets 120,693 121,548 128,950
Total assets under management 169,645 170,988 178,697
Other assets under administration (1)
108,192 103,143 92,389
Total assets under administration $ 277,837 $ 274,131 $ 271,086
(1) Other assets under administration includes both retail and institutional assets in which the Company only performs administrative or recordkeeping type services for the end client. In general, fee income is based on the type of services performed per client and does not fluctuate in direct proportion with asset levels.
Net income – common shareholders
For the three months ended For the twelve months ended Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31
(C$ millions) 2009 2009 2008 2009 2008
Continuing operations – adjusted $ 36 $ 68 $ 82 $ 228 $ 309
Discontinued operations – adjusted – – – – 43
Total – adjusted 36 68 82 228 352
Discontinued – gain on sale – – – – 649
Other adjustments(1)
– – (1,432) – (1,314)
Total adjustments – – (1,432) – (665)
Total $ 36 $ 68 $ (1,350) $ 228 $ (313)
Net income – common shareholders
For the three months ended For the twelve months ended Dec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31
(US$ millions) 2009 2009 2008 2009 2008
Continuing operations – adjusted $ 33 $ 62 $ 68 $ 197 $ 292
Discontinued operations – adjusted – – – – 43
Total – adjusted 33 62 68 197 335
Discontinued – gain on sale – – – – 630
Other adjustments(1)
– – (1,184) – (1,066)
Total adjustments – – (1,184) – (436)
Total $ 33 $ 62 $ (1,116) $ 197 $ (101)
(1) Consists of after-tax items in 2008:
US$ C$
Q1: Gain on termination of reinsurance agreement $ 176 $ 176
Reserve strengthening in GWL&A (58) 118 (58) 118
Q4: Intangible and goodwill impairment (1,118) (1,353)
Valuation allowance, income tax (28) (34)
Restructuring costs (38) (1,184) (45) (1,432)
Premiums and deposits
Q4 2009 vs Q4 2008
Premiums and deposits in 2009 increased by US$178 million from 2008. Retirement Services premiums and deposits increased primarily in the public/non-profit market.
Q4 2009 vs Q4 2008 (twelve months)
Premiums and deposits in 2009 increased by $1,275 million. Retirement Services premiums and deposits have increased due to two large plan sales in the public/non-profit market totaling US$1,504 million, partly offset by lower premiums and deposits in Individual Markets (BOLI product) and in the 401(k) market. Q4 2009 vs Q3 2009
Premiums and deposits increased US$174 million due to higher sales of the BOLI product in the fourth quarter of 2009.
Sales
Q4 2009 vs Q4 2008
Sales in 2009 increased US$1,666 million from 2008. Sales in Retirement Services increased by US$1,754 million from
improved sales in both the public/non-profit and 401(k) markets in 2009. Sales in the Individual Markets single premium whole life product have increased significantly. The increases are partly offset by lower sales of BOLI, primarily due to the uncertain economic conditions.
Q4 2009 vs Q4 2008 (twelve months)
Sales in 2009 decreased US$2,147 million from 2008. The decrease is primarily due to a sale in 2008 relating to a large government plan sale in the public/non-profit market which included a US$4.4 billion rollover and US$0.9 billion in recurring sales premium, as well as sales in 2008 from a converted block in the 401(k) market. These decreases were partly offset by four large plan sales of $4.3 billion in 2009.
Q4 2009 vs Q3 2009
Sales increased US$126 million primarily as a result of a large jumbo plan sale in the Retirement Services 401(k) market of US$823 million and a large BOLI product sale of US$250 million, partly offset by lower sales in the public/non-profit market in the fourth quarter.
O
PERATINGR
ESULTS For the three months ended For the twelve months endedDec. 31 Sept. 30 Dec. 31 Dec. 31 Dec. 31
2009 2009 2008 2009 2008
Premiums and deposits $ 1,875 $ 1,756 $ 1,926 $ 7,676 $ 5,779
Sales 3,587 3,586 2,080 11,441 12,749
Fee and other income 114 108 123 427 446
Net income 78 77 112 320 339
Premiums and deposits (US$) $ 1,770 $ 1,596 $ 1,592 $ 6,667 $ 5,392
Sales (US$) 3,385 3,259 1,719 10,125 12,272
Fee and other income (US$) 107 99 101 375 419
Net income (US$) 73 70 93 279 316