With Great-West Life, you Trade growth for income

Great-West Life is a leading international financial services powerhouse providing life and health insurance, investment and retirement services, asset management, and reinsurance business.

It is also an industry leader in group benefits in Canada. Great-West Life is a leading provider of individual life insurance with nearly three million individual life insurance policies in force and more than 31 million customer relationships worldwide.

The U.S. is its largest market accounting for more than 75% of total sales last year. Its reportable segments are Canada (accounting for 32% of Q3 2020 earnings), the U.S. (10%), and Europe (38%), Capital and Risk Solutions (20%), and Lifeco Corporate.

In Canada, Great-West Life offers a broad portfolio of financial and benefit plan solutions for individuals, families, businesses, and organizations, through a network of multi-channel distribution network consisting of brokers, advisors, and agencies.

Great-West Life operates through its brands like Canada Life, Empower Retirement, Putnam Investments, and Irish Life. The company has over $1.7 trillion in total assets under administration.

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Key Investment Data

 

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Revenue Growth & Market Exposure

With a history dating back 125 years, Great-West Life has nurtured deep relationships with its clients and distributors and is well-positioned to address the diverse needs of its customers, at different stages of their lives. The company is investing in newer technologies to help customers connect better and meet the evolving needs of diverse customer segments.

Lifeco continues to introduce new digital capabilities to increase group member engagement and support the advisor community. Great-West Life has compounded its revenue at more than 3.8% CAGR in the last decade. Other than providing traditional risk-based insurance products, the company also earns investment management fees on assets managed, ASO contracts, and other fees.

Premium income accounts for 80% of Lifeco’s total income while fee and other income constitute over 10%. The company’s portfolio is highly diversified by geography, channel, and type. Its wide range of products and services has made it a preferred partner of choice for millions.

Lifeco has sold substantially all of its individual life insurance and annuity business in the U.S. to focus on the defined contribution retirement and asset management markets. The company has re-established itself under one brand – Canada Life which is expected to drive efficiencies from the simplification of its business model in Canada. Its Canada life segregated fund shelf brings together the best funds from its three legacy platforms. It also launched an employer-sponsored Registered Education Savings Program (RESP) in Canada. 

Lifeco’s financial results have started to improve quarter-on-quarter driven by market recoveries. The company announced the proposed sale of GLC Asset Management Group Ltd. and completed the sale of Irish Progressive Services International. It also completed the acquisition of Personal Capital Corporation which is a rapidly growing, digitally oriented personal wealth management platform.

Lifeco entered into an agreement to purchase the retirement services business of Massachusetts Mutual Life Insurance, strengthening Empower Retirement’s position as the second-largest player in the U.S. retirement market. Lifeco maintained its temporary suspension of contributions, redemptions, and transfers from its real estate segregated funds in Canada and Europe as a result of the COVID-19 impact, during the third quarter of 2020.

The base earnings for the nine months ended September 2020, however, improved due to business growth in the Capital and Risk Solutions segment. All of Lifeco’s brands enjoy strong customer connections in each of their markets and are known for providing trusted products and advice.

Dividends

Great-West Life is a dividend aristocrat and has a consistent record of increasing dividends. It has an attractive dividend yield of 5.6% and a payout ratio of 64%. The company last raised its dividend by more than 6% marking the seventh consecutive year of dividend increases and has also compounded them at 6% in the last five years.

It also issued a new NCIB in January 2020 to purchase up to 20,000,000 common shares through January 2021. However, it did not repurchase any shares during the nine months ended in September 2020.

Great-West Life is a leading provider of individual and group customer insurance products. It enjoys a market share of more than 20% each in individual segregated funds and employee benefit plans. The company’s reputation for prudent business practices as well as the depth and breadth of its products and distribution positions it well for the future. Great-West Life has demonstrated sustained earnings growth driven by innovation and disciplined capital deployment. 

The company’s capital position remained strong with a LICAT ratio of 131% for Canada Life. Lifeco’s strong capital position and financial flexibility have helped the company increase its dividend payouts consistently. The company continues to invest strategically in both organic as well as acquisition opportunities to drive growth and productivity.

Great-West Life’s business fundamentals, as well as strong capital position, bodes well under a low-interest-rate environment. A majority of its income comes from investment management fees and others that are not very interest rate-sensitive.

Great-West Life (GWO) historical Yield
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Competition

Individual insurance, group life, and health benefits, savings, and investment marketplaces are highly competitive. Great-West Life’s main competitors include mutual fund companies, insurance companies, banks, and investment advisors as well as other service and professional organizations. Focus on digital initiatives, strong capital position, and financial flexibility are the company’s key competitive advantages.

The company competes with large and small, national as well as international companies. New FinTech competitors have also increased competition. Great-West Lifeco maintains a strong competitive position in the Canadian group market with a leading market share position and manages the largest portfolio of life insurance in Canada as measured by premium. It also continues to receive strong ratings relative to its North American peer group.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYieldYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:RYRYRoyal BankFinancial ServicesBanks - Diversified0.67126.18179.8212.8212.829.980.033.420.439044.320.102867Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:TDTDTD BankFinancial ServicesBanks - Diversified0.7782.95150.8410.6810.686.720.043.810.406043.160.130478Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:BNSBNSScotia BankFinancial ServicesBanks - Diversified0.7277.8794.3412.5512.556.270.054.620.572043.600.103168Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:BMOBMOBank of MontrealFinancial ServicesBanks - Diversified0.63123.5379.9213.5613.5610.450.033.430.465044.240.076757Tollbooth - UnregulatedNONOYESNOCanada1
TSE:CMCMCIBCFinancial ServicesBanks - Diversified0.62145.0764.5812.2312.2312.670.044.030.491045.840.086668Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:NANANational BankFinancial ServicesBanks - Diversified0.6395.4932.2312.8612.867.750.032.970.380042.840.098267Tollbooth - UnregulatedNOYESYESNOCanada1
TSE:CWBCWBCanadian Western BankFinancial ServicesBanks - Regional0.6934.012.9610.7110.713.260.033.410.365041.160.093977Tollbooth - UnregulatedYESYESYESNOCanada1
TSE:LBLBLaurentian BankFinancial ServicesBanks - Regional0.4242.401.8411.5611.564.190.043.770.435041.600.037715Tollbooth - UnregulatedNONONONOCanada1

Bottom Line

Great-West Life is well-positioned to serve an increasingly dynamic marketplace through its innovative products and digital enhancements. Though global markets continue to rebound, Lifeco might still feel challenges in the Canadian and European markets. Low-interest rates and rating agency downgrades across industries could be a cause of concern for the company.

However, Lifeco’s diversification strategies into key markets and capital deployment should support future growth.

Great-West Life (GWO) historical PE
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DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk – see my full disclaimer for more details.