| First Quarter Report to Shareholders For the three months ended March 31, 2003 |  www.canadalife.com |
Canada Life Reports First Quarter Results
Financial Highlights —Unaudited
| As at and for the three months ended March 31 | ||||||||||||
| (in millions of Canadian dollars except per share and percentage amounts) | 2003 | 2002 | % Change | |||||||||
PERFORMANCE MEASURES | ||||||||||||
| Common shareholders’ net income | $ | 128 | $ | 120 | 7 | |||||||
| Basic and diluted earnings per common share | $ | 0.80 | $ | 0.75 | 7 | |||||||
| Book value per common share | $ | 22.53 | $ | 20.59 | 9 | |||||||
| Embedded value of new business | $ | 53 | $ | 33 | 61 | |||||||
12 month return on common shareholders’ equity(1) | 14.4 | % | 11.5 | % | ||||||||
MCCSR ratio(2) | 198 | % | 213 | % | ||||||||
PREMIUMS, PREMIUM EQUIVALENTS AND NEW DEPOSITS | ||||||||||||
| General fund premiums | $ | 1,590 | $ | 1,317 | 21 | |||||||
| Segregated funds deposits | 888 | 905 | (2 | ) | ||||||||
ASO premium equivalents and other deposits(3) | 388 | 614 | (37 | ) | ||||||||
| $ | 2,866 | $ | 2,836 | 1 | ||||||||
ASSETS UNDER ADMINISTRATION | ||||||||||||
| General fund | $ | 36,751 | $ | 34,849 | 5 | |||||||
| Segregated funds | 20,476 | 23,005 | (11 | ) | ||||||||
| 57,227 | 57,854 | (1 | ) | |||||||||
Other assets(3) | 7,601 | 8,669 | (12 | ) | ||||||||
| $ | 64,828 | $ | 66,523 | (3 | ) | |||||||
| Notes: | ||
| (1) | Return on common shareholders’ equity is calculated by dividing common shareholders’ net income for the 12 months ended March 31 by the average shareholders’ equity for the last 12 months ended March 31. | |
| (2) | Minimum Continuing Capital and Surplus Requirements (MCCSR) is calculated inaccordance with capital standards set by the Company’s primary regulator, theOffice of the Superintendent of Financial Institutions, Canada. | |
| (3) | Other deposits are included in other assets administered by the Company on behalf of third parties and are not included in general or segregated funds of the Company. | |
May 1, 2003 (Toronto, Canada) —Canada Life Financial Corporation (“the Company”) reported common shareholders’ net income of $128 million or $0.80 per share for the first quarter of 2003, up 7% over the comparable period in 2002. Excluding the impact of $4 million for costs incurred to defend against an unsolicited offer to shareholders, net income of $132 million was up 10% over the first quarter of 2002. This growth in net income was achieved despite global political and economic uncertainties and continued decreases in equity markets worldwide. The growth in net income was due to business acquisitions, higher expected profit from in-force business, improved operational efficiencies and an overall lower effective tax rate.
Key stock market indices in Canada, the United States and the United Kingdom, as at March 31, 2003, were on average 26% lower than March 31, 2002 and 5% lower than December 31, 2002. These stock market declines adversely impacted net income by $13 million relative to the first quarter of last year.
Return on common shareholders’ equity was 14.4% for the 12 months ended March 31, 2003, up from 11.5% for the 12 months ended March 31, 2002 and ahead of 14% reported at December 31, 2002.
At its meeting today, the Board of Directors approved a quarterly dividend of $0.20 per common share, payable July 15, 2003 to shareholders of record at the close of business on June 16, 2003.
Canada Life Financial Corporation — First Quarter Report 2003 1
The Board of Directors also declared a dividend of $0.390625 on each outstanding Class B Preferred Share, payable June 30, 2003 to shareholders of record at the close of business on May 23, 2003.
ACQUISITION AND INTEGRATION ACTIVITIES
On January 1, 2003, we completed the previously announced acquisition of the German life operations of a significant international insurer. This acquisition adds scale to our existing business in Germany and makes Canada Life Europe one of the top five companies in the German broker unit linked market and the German market leader in critical illness insurance. During the quarter, we concentrated on the integration of these two businesses, particularly the two sales forces. For the rest of the year, our focus will be continued sales growth, retention of the business and broker relationships, and the completion of back office and systems integration.
During the quarter, we also made significant progress in integrating the group insurance acquisition we completed in the United Kingdom late in 2002. This acquisition, together with our existing group business, has made us the U.K. market leader in the group protection business, ranking first in group life and second in group income protection.
I am pleased with the progress made on integrating these new businesses into the Canada Life portfolio of products and services, and with the sales growth and business retention experienced this quarter.
OTHER PERFORMANCE MEASURES FOR THE QUARTER
In the first quarter, financial results and performance measures have remained strong.
Premium, premium equivalents and new deposits of $2,866 millionwere up 1% over the prior year. General fund premiums of $1,590 million were up $273 million or 21% over the prior year, primarily due to strong growth in guaranteed and payout annuities and individual non-participating life insurance in Canada, and as a result of our group insurance acquisition in the United Kingdom. Despite $45 million of new segregated fund deposits from our German acquisition and a slight benefit of increases in average foreign currency translation rates, the overall level of segregated funds deposits decreased $17 million or 2% from the prior year as a result of the impact of global stock market declines. ASO premium equivalents and other deposits of $388 million for the first quarter decreased $226 million compared to the prior year, primarily due to the timing of a large group deposit in the prior year.
Embedded Value of new business for the quarter was $53 million,up 61% from $33 million in 2002. This increase reflected the growth in new premiums and deposits as well as growth in new business profitability.
The quality of the Company’s $34,775 million general fund invested asset portfolio remained highthroughout the quarter, maintaining the bond portfolio at an A+ rating overall. Reflecting the more challenging credit environment, specific investment provisions net of recoveries and write-offs in the quarter were $7 million, up slightly from $6 million in the first quarter of 2002.
Assets under administration were $64,828 million as at March 31, 2003, a decrease of $1,695 million or 3% from the same date last year. General fund assets grew by $1,902 million reflecting the growth in our business and our U.K. group insurance acquisition. This was offset by declines in segregated funds of $2,529 million and other assets of $1,068 million, primarily a result of the significant decline in global stock markets. The overall impact of changes in foreign currency rates was minimal.
The Company’s measure of capital adequacy for regulatory purposes, as quantified by its Minimum Continuing Capital and Surplus Requirements (MCCSR) ratio, was 198% at the end of the first quarter compared to the 202% reported at the end of the fourth quarter of 2002. The Company’s MCCSR ratio was down from 2002, primarily as a result of the German business acquisition noted above.
Canada Life Financial Corporation — First Quarter Report 2003 2
GREAT-WEST LIFECO PROPOSED TRANSACTION
On February 17, 2003, Canada Life’s Board of Directors announced a proposed agreement with Great-West Lifeco Inc. (Great-West) whereby Great-West would acquire all of the outstanding common shares of Canada Life for a combination of cash and securities of Great-West valued as at February 14, 2003 at $44.50 per Canada Life common share. The Board of Directors has recommended that Canada Life shareholders vote in favour of the transaction at the special meeting of shareholders scheduled for May 5, 2003.
A Management Proxy Circular, dated March 22, 2003, provides details of the proposed transaction to assist shareholders in making an informed choice. We urge you to cast your vote either in person at the meeting or by proxy, which must be submitted by 6:00 p.m. (Toronto time) May 2, 2003.
Canada Life’s primary goal since demutualization more than three years ago has been to maximize shareholder value. Our Board of Directors believes combining our operations with those of Great-West meets this objective.
David A. Nield
Chairman and Chief Executive Officer
(As reported on May 1, 2003)
This report provides management with the opportunity to discuss the financial performance and condition of the Company and, as such, may contain forward-looking statements about the Company, including its business operations, strategy and expected financial performance and condition. Statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates” or negative versions thereof and similar expressions are forward-looking statements. In addition, any statement that may be made concerning future financial performance (including revenues, earnings or growth rates), ongoing business strategies or prospects, and possible future Company action, is also a forward-looking statement. Forward-looking statements are based on current expectations and projections about future events and are subject to, among other things, risks, uncertainties and assumptions about the Company, economic factors and the insurance industry generally. They are not guarantees of future performance and the Company has no specific intentions to update these statements whether as a result of new information, future events or otherwise. Accordingly, the reader is cautioned against undue reliance on these forward-looking statements. Actual events and results could differ materially from those expressed or implied by the forward-looking statements made by the Company due to, but not limited to, important factors such as general economic and market factors, interest rates, equity markets, business competition and changes in government regulations.
Canada Life Financial Corporation — First Quarter Report 2003 3
REVIEW OF OPERATING PERFORMANCE
Common shareholders’ net incomefor the first quarter of 2003 was $128 million, up $8 million or 7% over the comparable quarter last year.Earnings per common sharewere $0.80 for the quarter compared to $0.75 for the prior year. The return on common shareholders’ equity for the 12 months ended March 31, 2003 was 14.4% compared to 14% for the year ended December 31, 2002 and 11.5% for the 12 months ended March 31, 2002.
The year-over-year increase in common shareholders’ net income was primarily the result of:
| VARIANCE TO PRIOR YEAR | ||||
| (in millions of Canadian dollars) | First Quarter | |||
| Growth in in-force business and tax savings less investments in new business, mortality and morbidity experience and expenses | $ | 25 | ||
| Impact of declines in global stock markets | (13 | ) | ||
| Increase in common shareholders’ net income before the following: | 12 | |||
| Unsolicited offer, defense costs (after-tax) | (4 | ) | ||
Increase in common shareholders’ net income | $ | 8 | ||
Excluding the impact of $4 million (after-tax) in costs incurred to defend against an unsolicited offer for the Company’s common shares, net income of $132 million was up $12 million or 10% over the first quarter of 2002. This year-over-year growth in net income was due to business acquisitions, higher expected profit from in-force business, favourable experience in accident and health and life reinsurance, improved operational efficiencies and favourable mortality experience in Canada, and a lower effective tax rate. Quarterly results have been favourably impacted by the use of previously unrecognized tax losses relating to the U.K. pension business, reduction of statutory tax rates in Canada and the Republic of Ireland and continuing benefit from restructuring activities completed in the fourth quarter of 2002. The estimated sustainable tax rate continues to be between 24% and 26%. Adverse mortality experience in the United States and the Republic of Ireland and adverse morbidity experience in the United Kingdom dampened year-over-year growth in net income. Stock market declines adversely impacted net income by $13 million relative to the first quarter of last year.
Premiums, premium equivalents and new deposits of $2,866 millionwere up 1% over the prior year. General fund premiums of $1,590 million were up $273 million or 21% over the prior year, primarily due to strong growth in guaranteed and payout annuities and individual non-participating life insurance in Canada, and as a result of our group insurance acquisition in the United Kingdom. Despite $45 million of new segregated fund deposits from our German acquisition and a slight benefit of increases in average foreign currency translation rates, the overall level of segregated funds deposits decreased $17 million or 2% from the prior year as a result of the effect of global stock market declines. ASO premium equivalents and other deposits of $388 million for the first quarter decreased $226 million compared to the prior year, primarily due to the timing of a large group contribution.
Net investment incomeof $563 million for the first quarter was down $17 million or 3% from the comparable period in 2002. This was largely as a result of the decline in global stock markets over the quarter that resulted in losses primarily on investments supporting certain equity based insurance products, which were offset by a corresponding decrease in actuarial liabilities.
General operating expensesof $220 million increased $37 million or 20% as compared to the same quarter last year. Expenses were $15 million higher than the same quarter last year as a result of the business acquisitions in the United Kingdom and Ireland. In addition, one-time defense costs incurred with respect to an unsolicited bid to Canada Life common shareholders added $5 million pre-tax in the quarter. Excluding these items, general expenses were $200 million, up $17 million or 9% over the first quarter of 2002. Systems implementation and conversion costs in Canada accounted for half of this increase.
Assets under administrationwere $64,828 million as at March 31, 2003, a decrease of $1,695 million or 3% from the same date last year and down $3,175 million from December 31, 2002. General fund assets of $36,751 million increased by $1,902 million from the first quarter last year as a result of general business growth and our U.K. group insurance acquisition. Segregated funds assets of $20,476 million were down $2,529 million from the same date last year and other assets of $7,601 million were also down $1,068 million mainly due to the decline in global stock markets. The decline in assets under administration from December 31, 2002 was primarily due to strengthening of the Canadian dollar in the quarter.
Asset quality— The quality of the Company’s general fund invested asset portfolio remained high throughout the quarter. The average rating for our $21,701 million bond portfolio was A+ at quarter end, unchanged from that at March 2002. Net carrying value in airline holdings amounted to $154 million in general fund assets at quarter end, all of which is secured by aircraft. The three largest airline holdings together with their carrying values are Air Canada at $46 million, American Airlines at $31 million and Delta Airlines at $25 million. The net carrying value of impaired investments at March 31, 2003 was $181 million, an increase of $44 million or 32% compared to March 31, 2002, reflecting the more challenging credit environment. Total losses on impaired investments reported in the consolidated statement of net income for the quarter was $7 million, up slightly from $6 million in the first quarter of 2002. Losses on impaired investments include write-offs and realized losses net
Canada Life Financial Corporation — First Quarter Report 2003 4
of recoveries, together with changes in specific investment provisions for current asset impairments. In addition to specific investment provisions, the Company continues to provide for potential future asset defaults through the reduction of the assumed investment yields used in the calculation of actuarial liabilities. The provision included in the actuarial liabilities for potential losses for any possible future asset defaults was $550 million at March 31, 2003.
Capital management —The Company’s measure of capital adequacy for regulatory purposes, as quantified by its MCCSR ratio, decreased to 198% from 202% reported at December 31, 2002 primarily as a result of the German business acquisition on January 1, 2003.
PERFORMANCE BY BUSINESS SEGMENT
CANADIAN DIVISION
| For the quarter ended | |||||||||||||
| March 31 | December 31 | March 31 | |||||||||||
| (in millions of Canadian dollars) | 2003 | 2002 | 2002 | ||||||||||
Shareholders’ net income | $ | 53 | $ | 52 | $ | 45 | |||||||
Premiums, premium equivalents and new deposits | |||||||||||||
| General fund premiums | $ | 640 | $ | 625 | $ | 456 | |||||||
| Segregated funds deposits | 335 | 264 | 427 | ||||||||||
| ASO premium equivalents and other deposits | 381 | 756 | 600 | ||||||||||
| $ | 1,356 | $ | 1,645 | $ | 1,483 | ||||||||
Assets under administration | |||||||||||||
| General fund | $ | 14,149 | $ | 14,119 | $ | 13,996 | |||||||
| Segregated funds | 7,067 | 7,397 | 8,288 | ||||||||||
| Other assets | 7,112 | 7,346 | 8,032 | ||||||||||
| $ | 28,328 | $ | 28,862 | $ | 30,316 | ||||||||
Shareholders’ net incomeof $53 million for the first quarter increased by $8 million over the comparable quarter in 2002. The impact of strong premium revenue growth in general funds, improved operational efficiencies, favourable mortality experience in payout annuities and conversion experience in individual insurance term products, and the reduction in the statutory tax rate contributed to the growth in net income this quarter. The increase was partially offset by systems implementation and conversion costs, adverse morbidity experience and a reduction in investment income.
Premiums, premium equivalents and new depositswere $1,356 million for the quarter, 9% below the comparable period last year. General fund premiums of $640 million in the first quarter of 2003 grew $184 million or 40% over 2002 primarily due to strong growth in guaranteed and payout annuities and individual non-participating life insurance. Segregated funds deposits of $335 million in the quarter decreased by $92 million from the same period in 2002, mainly due to fewer cases in the group savings market and customer preferences shifting away from equity based products, consistent with the strong growth seen in our guaranteed products. Other deposits and ASO business of $381 million were $219 million less than the first quarter and $375 million less than the fourth quarter of last year, primarily due to the timing of deposits received from one large client.
Assets under administrationof $28,328 million as at March 31, 2003 decreased by $1,988 million from the same quarter last year as strong growth in general fund assets was offset by declines in market values of segregated funds and other assets. General fund assets of $14,149 million increased $153 million as a result of general business growth. Segregated funds assets declined $1,221 million or 15%, and other assets under administration decreased by $920 million or 11%. This compares favourably to the TSX Composite decline of 19% since March 2002, primarily due to a significant element of fixed income investments in these portfolios.
Canada Life Financial Corporation — First Quarter Report 2003 5
UNITED KINGDOM DIVISION
| For the quarter ended | |||||||||||||
| March 31 | December 31 | March 31 | |||||||||||
| (in millions of Canadian dollars) | 2003 | 2002 | 2002 | ||||||||||
Shareholders’ net income | $ | 40 | $ | 33 | $ | 32 | |||||||
Premiums, premium equivalents and new deposits | |||||||||||||
| General fund premiums | $ | 391 | $ | 428 | $ | 287 | |||||||
| Segregated funds deposits | 316 | 412 | 275 | ||||||||||
| ASO premium equivalents and other deposits | 7 | 14 | 14 | ||||||||||
| $ | 714 | $ | 854 | $ | 576 | ||||||||
Assets under administration | |||||||||||||
| General fund | $ | 9,576 | $ | 10,345 | $ | 7,427 | |||||||
| Segregated funds | 9,653 | 10,671 | 11,108 | ||||||||||
| Other assets | 474 | 553 | 621 | ||||||||||
| $ | 19,703 | $ | 21,569 | $ | 19,156 | ||||||||
Shareholders’ net incomeof $40 million for the first quarter increased by $8 million over last year. Income before tax was down $4 million from the prior year due primarily to adverse claims experience in the group health and individual health lines of business this quarter. However, the quarterly results have been favourably impacted by the utilization of previously unrecognized pension tax losses and, following a review of outstanding tax issues, a tax recovery of $1 million this quarter compared to a tax expense of $11 million in 2002.
Premiums, premium equivalents and new depositsof $714 million for the quarter were up $138 million or 24% over the same quarter last year. General fund premiums of $391 million increased by $104 million from the prior year, primarily due to the group insurance business acquired in October 2002. Segregated funds deposits of $316 million were up $41 million or 15% over 2002. Difficult stock market conditions impacted segregated funds, although subsequent to quarter-end $120 million of deposits were received in the first eight days of April in advance of the U.K. Chancellor’s speech on April 9, 2003, where changes were expected to certain tax benefits for policyholders. Other deposits in the quarter this year decreased by $7 million due to stock market conditions and the closure late last year of the Financial Consultancy sales force.
Assets under administrationof $19,703 million at quarter end, increased $547 million or 3% from the same date in 2002. Total general fund assets grew by $2,149 million or 29% over 2002 as a result of growth in new business for payout annuities and our group insurance business acquisition. The drop of $769 million from December 31, 2002 is entirely due to the 8% strengthening of the Canadian dollar against the British pound in the quarter. Segregated funds assets fell by $1,455 million or 13% from March 31, 2002 as increases in business written through Canada Life International were not sufficient to offset the impact of the fall in the U.K. stock market. The U.K. FTSE 100 Index at quarter end dropped by 32% since the end of the first quarter of 2002 and 8% since December 31, 2002. Other assets, including unit trusts, have fallen by 24% due to the cessation of sales of these products following the closure of the Financial Consultancy sales force late last year.
Integration of Group Business Acquisition —The group insurance business acquired in 2002 was legally transferred to Canada Life on April 1, 2003. This has been achieved six months after this business acquisition was completed on October 1, 2002, representing a significant milestone in our overall integration plans and ahead of our expected date. Our remaining integration plans are on schedule with completion still expected by the end of this year.
Canada Life Financial Corporation — First Quarter Report 2003 6
UNITED STATES DIVISION
| For the quarter ended | |||||||||||||
| March 31 | December 31 | March 31 | |||||||||||
| (in millions of Canadian dollars) | 2003 | 2002 | 2002 | ||||||||||
Shareholders’ net income | $ | 20 | $ | 27 | $ | 27 | |||||||
Premiums, premium equivalents and new deposits | |||||||||||||
| General fund premiums | $ | 430 | $ | 433 | $ | 457 | |||||||
| Segregated funds deposits | 23 | 84 | 38 | ||||||||||
| $ | 453 | $ | 517 | $ | 495 | ||||||||
Assets under administration | |||||||||||||
| General fund | $ | 10,314 | $ | 10,990 | $ | 11,082 | |||||||
| Segregated funds | 594 | 698 | 823 | ||||||||||
| $ | 10,908 | $ | 11,688 | $ | 11,905 | ||||||||
Shareholders’ net incomeof $20 million for the first quarter decreased by $7 million or 26% from the first quarter of 2002. The decrease was primarily attributable to lower mortality gains in individual protection, in addition to the strengthening of the Canadian dollar relative to the U.S. dollar.
Premiums, premium equivalents and new depositsof $453 million for the first quarter were $42 million or 8% less than the comparable period last year. General fund premiums of $430 million decreased by $27 million or 6% from the first quarter of 2002. Strong fixed annuity premium growth was offset by a decline in non-core GIC product sales and the strengthening of the Canadian dollar. GIC sales were impacted by the uncertainty in the first quarter relating to the possibility of change in control of the Company. Segregated funds deposits of $23 million declined by $15 million from the first quarter of 2002 as a result of customer reaction to the poor performance of the stock market.
Assets under administrationdecreased by $997 million to $10,908 million as at March 31, 2003 from the comparable date last year. Total general fund assets of $10,314 million as at March 31, 2003 decreased by $768 million as organic business growth was offset by the strengthening of the Canadian dollar. Segregated funds assets of $594 million as at March 31, 2003 decreased by $229 million from the same date last year due to stock market and exchange rate declines. At March 31, 2003, the S&P’s 500 Index had declined 26% compared to March 31, 2002. Assets under administration decreased by $780 million from December 31, 2002 as a result of the strengthening of the Canadian dollar.
Canada Life Financial Corporation — First Quarter Report 2003 7
REPUBLIC OF IRELAND DIVISION
| For the quarter ended | |||||||||||||
| March 31 | December 31 | March 31 | |||||||||||
| (in millions of Canadian dollars) | 2003 | 2002 | 2002 | ||||||||||
Shareholders’ net income | $ | 15 | $ | 6 | $ | 10 | |||||||
Premiums, premium equivalents and new deposits | |||||||||||||
| General fund premiums | $ | 31 | $ | 34 | $ | 34 | |||||||
| Segregated funds deposits | 214 | 165 | 165 | ||||||||||
| $ | 245 | $ | 199 | $ | 199 | ||||||||
Assets under administration | |||||||||||||
| General fund | $ | 1,369 | $ | 1,401 | $ | 910 | |||||||
| Segregated funds | 3,157 | 3,128 | 2,782 | ||||||||||
| $ | 4,526 | $ | 4,529 | $ | 3,692 | ||||||||
Business Acquisition —On January 1, 2003, we completed the acquisition of the German life operations of a significant international insurer. The purchase price was $188 million, which was partly funded by reinsurance of $107 million.
The acquisition increased the number of our protection policies in Germany from 4,000 to 40,000 and wealth management policies from 8,000 to 80,000. These acquired policies were initially reinsured to Canada Life, and court approval of the transfer of the legal ownership of the policies to Canada Life is expected in July.
An integration project is underway to combine this acquisition with our existing business in Germany. During the first quarter of 2003, we completed the sales force integration. We now have close to 7,000 broker contacts. Sales in the quarter were very strong, with 7,000 new policies sold for new annualized premiums of $20 million compared to $3 million in the same period last year. A unified product range will be launched in June and the product offerings with the most opportunity for success from each of the acquired and existing products will be sold under the Canada Life brand.
With the acquisition, 65 staff were transferred to Canada Life. The complete integration of administration systems and processes is underway and is scheduled to be completed by September 2003.
Shareholders’ net incomeof $15 million for the first quarter of 2003 was $5 million higher than the first quarter last year and $9 million higher than last quarter. Net income from the domestic Irish business was $11 million, in line with the same period last year and ahead of last quarter’s net income, despite lower fee income as a result of declining stock markets. Net income from the German business was $4 million, $5 million higher than the same quarter last year.
Premiums, premium equivalents and new depositsof $245 million for the first quarter of 2003 have increased from $199 million in 2002. Premiums of $188 million in the Irish business fell 8% due to lower single premium sales as a result of weak stock markets. Premiums in the German business, which was primarily segregated funds deposits, have increased to $57 million compared to $3 million in the first quarter of 2002.
Assets under administrationgrew to $4,526 million, up $834 million from the comparable date last year. Of this increase, general fund assets grew by $459 million and segregated fund assets by $375 million. These increases were principally due to the strengthening of the Euro relative to the Canadian dollar and general business growth, partially offset by adverse movements in the stock market. The acquired German business added approximately $90 million to general fund assets and $130 million to segregated funds assets. The business written in this Division is impacted by movements in global stock markets, notably, those of the United States, United Kingdom, Canada, Ireland and other European countries.
Canada Life Financial Corporation — First Quarter Report 2003 8
INTERNATIONAL AND REINSURANCE DIVISION
| For the quarter ended | |||||||||||||
| March 31 | December 31 | March 31 | |||||||||||
| (in millions of Canadian dollars) | 2003 | 2002 | 2002 | ||||||||||
Shareholders’ net income | $ | 8 | $ | 10 | $ | 6 | |||||||
Premiums, premium equivalents and new deposits | |||||||||||||
| General fund premiums | $ | 98 | $ | 104 | $ | 83 | |||||||
| Segregated funds deposits | — | 1 | — | ||||||||||
| ASO premium equivalents and other deposits | — | 1 | — | ||||||||||
| $ | 98 | $ | 106 | $ | 83 | ||||||||
Assets under administration | |||||||||||||
| General fund | $ | 1,343 | $ | 1,336 | $ | 984 | |||||||
| Segregated funds | 5 | 5 | 4 | ||||||||||
| Other assets | 15 | 14 | 16 | ||||||||||
| $ | 1,363 | $ | 1,355 | $ | 1,004 | ||||||||
Shareholders’ net incomeof $8 million for the first quarter was $2 million or 33% more than the first quarter of 2002. Exceptional mortality experience in life reinsurance and positive morbidity experience in the run-off accident and health reinsurance line were more than sufficient to offset poor morbidity experience in our Caribbean group health business.
Premiums, premium equivalents and new depositsof $98 million for the first quarter were up $15 million or 18% from the prior year. The increase resulted from strong growth in the life reinsurance line of business, partially offset by a decrease in premiums from the run-off of accident and health reinsurance business.
Assets under administrationof $1,363 million increased $359 million or 36% over the comparable date last year.
Canada Life Financial Corporation — First Quarter Report 2003 9
Consolidated Statements of Net Income –Unaudited
| For the three months ended March 31 | |||||||||
| (in millions of Canadian dollars, except per share amounts) | 2003 | 2002 | |||||||
Revenues | |||||||||
| Premiums | |||||||||
| Annuities | $ | 596 | $ | 463 | |||||
| Individual life and health insurance | 410 | 398 | |||||||
| Group life and health insurance | 584 | 456 | |||||||
| 1,590 | 1,317 | ||||||||
| Net investment income | 563 | 580 | |||||||
| Fee and other income | 123 | 141 | |||||||
| 2,276 | 2,038 | ||||||||
Expenditures | |||||||||
| Payments to policyholders and beneficiaries | |||||||||
| Annuity payments | 372 | 331 | |||||||
| Life and health benefits | 593 | 486 | |||||||
| Maturities, surrender payments and other | 415 | 351 | |||||||
| Participating policyholder dividends | 67 | 75 | |||||||
| 1,447 | 1,243 | ||||||||
| Increase in actuarial liabilities | 248 | 283 | |||||||
| General operating expenses | 220 | 183 | |||||||
| Commissions | 156 | 117 | |||||||
| Premium and other taxes | 21 | 17 | |||||||
| Interest expense | 10 | 11 | |||||||
| Non-controlling interest in subsidiary | 8 | — | |||||||
| 2,110 | 1,854 | ||||||||
Net income before income tax provision | 166 | 184 | |||||||
| Income tax provision | 37 | 59 | |||||||
Net income including participating policyholders’ net income (loss) | 129 | 125 | |||||||
| Participating policyholders’ net income (loss) | (1 | ) | 3 | ||||||
Shareholders’ net income | 130 | 122 | |||||||
| Preferred share dividends | 2 | 2 | |||||||
Common shareholders’ net income | $ | 128 | $ | 120 | |||||
Average number of common shares outstanding(millions) | |||||||||
| Basic | 160.4 | 160.4 | |||||||
| Diluted | 160.5 | 160.6 | |||||||
Earnings per common share | |||||||||
| Basic and diluted | $ | 0.80 | $ | 0.75 | |||||
(see accompanying notes)
Canada Life Financial Corporation — First Quarter Report 2003 10
Consolidated Balance Sheets –Unaudited
| March 31 | December 31 | March 31 | |||||||||||
| (in millions of Canadian dollars) | 2003 | 2002 | 2002 | ||||||||||
Assets | |||||||||||||
| Invested assets | |||||||||||||
| Bonds | $ | 21,701 | $ | 22,317 | $ | 19,516 | |||||||
| Mortgages | 7,281 | 7,622 | 7,900 | ||||||||||
| Common and preferred stocks | 1,867 | 2,073 | 1,935 | ||||||||||
| Real estate | 1,048 | 1,066 | 922 | ||||||||||
| Policy loans | 1,107 | 1,113 | 1,076 | ||||||||||
| Cash, cash equivalents and short-term investments | 1,334 | 1,159 | 1,082 | ||||||||||
| Other | 437 | 1,124 | 760 | ||||||||||
| Total invested assets | 34,775 | 36,474 | 33,191 | ||||||||||
| Other assets | 1,976 | 1,717 | 1,658 | ||||||||||
Total general fund assets | $ | 36,751 | $ | 38,191 | $ | 34,849 | |||||||
Segregated funds net assets | $ | 20,476 | $ | 21,899 | $ | 23,005 | |||||||
Liabilities and equity | |||||||||||||
| Policy liabilities | |||||||||||||
| Actuarial liabilities | $ | 28,012 | $ | 29,050 | $ | 26,650 | |||||||
| Other policy liabilities | 1,058 | 1,059 | 1,040 | ||||||||||
| Policyholders’ amounts left on deposit | 447 | 453 | 430 | ||||||||||
| Total policy liabilities | 29,517 | 30,562 | 28,120 | ||||||||||
| Net deferred gains | 1,423 | 1,472 | 1,453 | ||||||||||
| Other liabilities | 1,006 | 1,190 | 786 | ||||||||||
| 31,946 | 33,224 | 30,359 | |||||||||||
| Subordinated debentures | 550 | 550 | 550 | ||||||||||
| Non-controlling interest in subsidiary | 450 | 450 | 450 | ||||||||||
Total equity | 3,805 | 3,967 | 3,490 | ||||||||||
Total general fund liabilities and equity | $ | 36,751 | $ | 38,191 | $ | 34,849 | |||||||
Segregated funds net liabilities | $ | 20,476 | $ | 21,899 | $ | 23,005 | |||||||
(see accompanying notes)
Canada Life Financial Corporation — First Quarter Report 2003 11
Consolidated Statements of Equity– Unaudited
| For the three months ended March 31 | |||||||||
| (in millions of Canadian dollars) | 2003 | 2002 | |||||||
Participating policyholders’ equity | |||||||||
| Balance, beginning of period | $ | 44 | $ | 41 | |||||
| Participating policyholders’ net income (loss) | (1 | ) | 3 | ||||||
| Balance, end of period | 43 | 44 | |||||||
Currency translation | |||||||||
| Balance, beginning of period | 4 | (1 | ) | ||||||
| Net unrealized loss on translation of net investments in foreign operations | (1 | ) | (1 | ) | |||||
| Balance, end of period | 3 | (2 | ) | ||||||
Total participating policyholders’ equity | $ | 46 | $ | 42 | |||||
Shareholders’ equity | |||||||||
Share capital | |||||||||
| Preferred shares | |||||||||
| Balance, beginning and end of period | $ | 145 | $ | 145 | |||||
| Common shares | |||||||||
| Balance, beginning and end of period | $ | 317 | $ | 317 | |||||
Retained earnings | |||||||||
| Balance, beginning of period | $ | 3,299 | $ | 2,910 | |||||
| Shareholders’ net income | 130 | 122 | |||||||
| Dividends paid to common shareholders | (32 | ) | (24 | ) | |||||
| Dividends paid to preferred shareholders | (2 | ) | (2 | ) | |||||
| Canada Life Capital Securities (“CLiCS”) issuance costs | — | (5 | ) | ||||||
| Balance, end of period | 3,395 | 3,001 | |||||||
Currency translation account | |||||||||
| Balance, beginning of period | 158 | 11 | |||||||
| Net unrealized loss on translation of net investments in foreign operations | (256 | ) | (26 | ) | |||||
| Balance, end of period | (98 | ) | (15 | ) | |||||
Total retained earnings | $ | 3,297 | $ | 2,986 | |||||
Total shareholders’ equity | $ | 3,759 | $ | 3,448 | |||||
Total equity | $ | 3,805 | $ | 3,490 | |||||
(see accompanying notes)
Canada Life Financial Corporation — First Quarter Report 2003 12
Consolidated Statements of Cash Flows– Unaudited
| For the three months ended March 31 | |||||||||
| (in millions of Canadian dollars) | 2003 | 2002 | |||||||
Cash flows from operating activities | |||||||||
| Net income including participating policyholders’ net income (loss) | $ | 129 | $ | 125 | |||||
| Items not affecting cash and cash equivalents: | |||||||||
| Increase in actuarial liabilities and other policy liabilities | 265 | 295 | |||||||
| Amortization of net deferred gains and amortization of net discounts on bonds and mortgages | (49 | ) | (64 | ) | |||||
| Other, including future income taxes | 24 | 12 | |||||||
| Net change in other operating assets and liabilities | (168 | ) | (256 | ) | |||||
| Increase due to operating activities | 201 | 112 | |||||||
Cash flows from investing activities | |||||||||
| Sales, maturities and scheduled redemptions of: | |||||||||
| Bonds | 4,319 | 2,789 | |||||||
| Mortgages | 1,335 | 583 | |||||||
| Common and preferred stocks | 553 | 126 | |||||||
| Real estate | 65 | 12 | |||||||
| Other investments | 630 | 23 | |||||||
| Purchases of: | |||||||||
| Bonds | (4,748 | ) | (3,486 | ) | |||||
| Mortgages | (1,316 | ) | (497 | ) | |||||
| Common and preferred stocks | (452 | ) | (105 | ) | |||||
| Real estate | (119 | ) | (4 | ) | |||||
| Other investments | (17 | ) | (18 | ) | |||||
| Net short-term investments | (643 | ) | 30 | ||||||
| Net policy loans | (46 | ) | (7 | ) | |||||
| Acquisition, net of cash received (note 2) | (122 | ) | — | ||||||
| Decrease due to investing activities | (561 | ) | (554 | ) | |||||
Cash flows from financing activities | |||||||||
| Issue of CLiCS | — | 445 | |||||||
| Dividends paid to common shareholders | (32 | ) | (24 | ) | |||||
| Dividends paid to preferred shareholders | (2 | ) | (2 | ) | |||||
| Increase (decrease) due to financing activities | (34 | ) | 419 | ||||||
| Effect of changes in exchange rates on cash and cash equivalents | (63 | ) | (6 | ) | |||||
Net decrease in cash and cash equivalents for the period | (457 | ) | (29 | ) | |||||
| Cash and cash equivalents, beginning of period | 1,066 | 993 | |||||||
| Cash and cash equivalents, end of period | 609 | 964 | |||||||
| Short-term investments, end of period | 725 | 118 | |||||||
Cash, cash equivalents and short-term investments, end of period | $ | 1,334 | $ | 1,082 | |||||
| Supplementary disclosure of cash flow information: | |||||||||
| Interest paid on subordinated debentures, other liabilities and Canada Life Capital Securities | $ | 10 | $ | 11 | |||||
| Income taxes paid, net of refunds | $ | 48 | $ | 3 | |||||
(see accompanying notes)
Canada Life Financial Corporation — First Quarter Report 2003 13
Consolidated Statements of Changes in Segregated Funds —Unaudited
| For the three months ended March 31 | ||||||||
| (in millions of Canadian dollars) | 2003 | 2002 | ||||||
Additions to segregated funds | ||||||||
| Deposits and transfers from the general fund | $ | 888 | $ | 905 | ||||
Assets added by business acquisition(note 2) | 130 | — | ||||||
| Reclassifications from the general fund and transfer of seed money | — | 656 | ||||||
| Net investment income | 102 | 93 | ||||||
| Tax recovery | — | 5 | ||||||
| 1,120 | 1,659 | |||||||
Deductions from segregated funds | ||||||||
| Withdrawals, benefit payments and transfers to the general fund | 602 | 538 | ||||||
| Operating expenses | 116 | 106 | ||||||
| Currency translation adjustment | 1,033 | 304 | ||||||
| Net decrease (increase) in fair value of investments | 792 | (204 | ) | |||||
| 2,543 | 744 | |||||||
Net additions to (deductions from) segregated funds for the period | (1,423 | ) | 915 | |||||
| Segregated funds net assets, beginning of period | 21,899 | 22,090 | ||||||
Segregated funds net assets, end of period | $ | 20,476 | $ | 23,005 | ||||
(see accompanying notes)
Consolidated Statements of Segregated Funds Net Assets —Unaudited
| As at | ||||||||||||
| March 31 | December 31 | March 31 | ||||||||||
| (in millions of Canadian dollars) | 2003 | 2002 | 2002 | |||||||||
| Common and preferred stocks | $ | 15,192 | $ | 16,214 | $ | 18,794 | ||||||
| Bonds | 2,403 | 2,455 | 2,305 | |||||||||
| Cash, cash equivalents and short-term investments | 1,866 | 2,291 | 1,397 | |||||||||
| Real estate | 855 | 944 | 756 | |||||||||
| Mortgages | 10 | 9 | 8 | |||||||||
| Investment income due and accrued | 280 | 242 | 50 | |||||||||
| Tax liability | (56 | ) | (49 | ) | (56 | ) | ||||||
| Due to brokers and others | (74 | ) | (207 | ) | (249 | ) | ||||||
| $ | 20,476 | $ | 21,899 | $ | 23,005 | |||||||
(see accompanying notes)
Canada Life Financial Corporation — First Quarter Report 2003 14
Notes to the Interim Consolidated Financial Statements —Unaudited
For the three months ended March 31, 2003
| 1. | SIGNIFICANT ACCOUNTING POLICIES | |
| The interim Consolidated Financial Statements for Canada Life Financial Corporation (the “Company”) are prepared according to Canadian generally accepted accounting principles, including the accounting requirements of the Office of the Superintendent of Financial Institutions, Canada. These interim Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements for the year ended December 31, 2002. The significant accounting policies followed in the preparation of these interim Consolidated Financial Statements are consistent with those found in the 2002 Consolidated Financial Statements except as described below. | ||
| (a) | Accounting Policy Changes | |
| (i) | Stock-based Compensation and Other Stock-based Payments | |
| Effective January 1, 2003, the Company changed its accounting policy for stock options granted to employees on or after that date from the intrinsic value method to the fair value method on a prospective basis. Under the fair value method, the fair value of the stock options is estimated at the grant date using the Black-Scholes option pricing model. The total fair value of the options is amortized over the vesting period as compensation expense with an offset to share capital. For options that are forfeited prior to vesting, the compensation expense previously recognized in general operating expenses and share capital is reversed. When the options are exercised, the proceeds received by the Company are credited to share capital. | ||
| (ii) | Disclosure of Guarantees | |
| Effective January 1, 2003, the Company adopted the new guideline for Disclosure of Guarantees issued by the Canadian Institute of Chartered Accountants (CICA). Under the guideline, a guarantor must disclose significant information about guarantees it has provided, regardless of whether it will have to make any payments under the guarantee. The guideline does not address the recognition and measurement of guarantees. Guarantees issued by insurance companies and subject to specialized insurance accounting, including guarantees embedded in insurance or investment contracts, are excluded from the scope of this new guideline. | ||
| The Company issues letters of credit in the normal course of business. Letters of credit in the amount of $3 million were issued but not drawn against at March 31, 2003. | ||
| (iii) | Impaired Loans – Foreclosed Assets | |
| Effective January 1, 2003, the Company adopted the amendments made to CICA Handbook Section 3025, Impaired Loans. Under the amendments, a long-lived foreclosed asset classified as held for sale is carried at fair value less cost to sell, whereas foreclosed assets other than long-lived foreclosed assets classified as held for sale are initially carried at fair value. Any gains or losses on foreclosure and subsequent adjustments to the carrying value of the foreclosed asset are recognized in income immediately. The impact of this change on these interim Consolidated Financial Statements was not material. | ||
| 2. | ACQUISITION | |
| On January 1, 2003, the Company completed the acquisition of the Irish-based German life operations of a significant international insurer. The transaction involved the transfer of a block of business to the Company for $147 million, primarily consisting of liabilities for unit-linked and critical illness products. This transfer requires High Court approval in Ireland, which is expected to be received in July 2003. In the interim, the business is being reinsured by the Company. Additionally, as part of the acquisition, the Company acquired a Germany-based sales and marketing company for $35 million, and an Irish-based life insurance company for $6 million. Results are included in the Consolidated Statement of Income from the date of acquisition. The aggregate acquisition had a purchase price of approximately $188 million. |
Canada Life Financial Corporation — First Quarter Report 2003 15
| Details of the aggregate consideration given and the fair value of net assets acquired are as follows: | ||
| Fair value of net assets acquired: |
| (in million of Canadian dollars) | |||||
| Cash | $ | 6 | |||
| Intangible assets | 33 | ||||
| Goodwill | 46 | ||||
| Other assets | 9 | ||||
| 94 | |||||
| Actuarial liabilities | (135 | ) | |||
| Other liabilities | 41 | ||||
| (94 | ) | ||||
| Net assets acquired | $ | 188 | |||
Aggregate consideration: | |||||
| Cash consideration | $ | 124 | |||
| Satisfaction of vendor liabilities | 80 | ||||
| Consideration adjustments receivable | (20 | ) | |||
| Transaction costs | 4 | ||||
| $ | 188 | ||||
| Segregated funds assets and liabilities acquired | $ | 130 | |||
| The purchase price allocation is subject to change pending the finalization of certain consideration adjustments and the determination of fair values of assets and liabilities acquired. | ||
| Intangible assets consist of broker contracts which are not subject to amortization. | ||
| Immediately following the acquisition, the Company entered into assumed reinsurance arrangements on the transferred block of business, for which it received $107 million. | ||
| 3. | STOCK-BASED COMPENSATION | |
| The Company has a directors share purchase plan, a deferred stock unit plan, and an employee stock purchase plan. Information concerning these plans, in addition to the stock option plan, is included in note 17 to the Consolidated Financial Statements for the year ended December 31, 2002. | ||
| The Company adopted the fair value method of accounting for stock options effective January 1, 2003 on a prospective basis. As at March 31, 2003, no compensation expense was recorded as no stock options were granted in the quarter. | ||
| No compensation expense is recognized for stock options granted prior to January 1, 2003. When these stock options are exercised, the amount of proceeds is included in shareholders’ equity. Had the Company used the fair value method to measure compensation for all outstanding stock options granted before January 1, 2003 but after January 1, 2002, the common shareholders’ net income, earnings per common share and diluted earnings per common share for the three months ended March 31, 2003 would have been reduced by $1 million, $0.01 and $0.01, respectively (March 31, 2002 — $1 million, $0.01 and $0.01, respectively). | ||
| The Company recognizes compensation expense for those stock options that have been awarded stock appreciation rights in tandem based on the excess of the market value over the exercise price. The Company expects stock appreciation rights to be settled in cash and, therefore, accrues compensation expense on them over the vesting period equal to the excess of quoted market price at the balance sheet date over the exercise price. Total compensation expense, included in general operating expenses on the Consolidated Statements of Net Income, for the three months ended March 31, 2003 and March 31, 2002 was not material. |
Canada Life Financial Corporation — First Quarter Report 2003 16
| 4. | SEGMENTED INFORMATION | |
| The Company is a diversified international life insurance enterprise offering a wide range of protection and wealth management products to individuals and groups, through operating divisions in Canada, the United Kingdom, the United States, the Republic of Ireland, and an International and Reinsurance Division. In addition, there is a corporate group that manages invested assets, provides certain administrative services for the operating divisions and is responsible for capital management. |
| International | ||||||||||||||||||||||||||||
| United | United | and | ||||||||||||||||||||||||||
| For the three months ended March 31 | Canadian | Kingdom | States | Irish | Reinsurance | Corporate | ||||||||||||||||||||||
| (in millions of Canadian dollars) | Division | Division | Division | Division | Division | Division | Total | |||||||||||||||||||||
2003 | ||||||||||||||||||||||||||||
GENERAL FUND | ||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||
| Premiums | $ | 640 | $ | 391 | $ | 430 | $ | 31 | $ | 98 | $ | — | $ | 1,590 | ||||||||||||||
| Net investment income | 218 | 135 | 164 | 20 | 17 | 9 | 563 | |||||||||||||||||||||
| Fee and other income | 44 | 49 | 3 | 26 | 1 | — | 123 | |||||||||||||||||||||
| 902 | 575 | 597 | 77 | 116 | 9 | 2,276 | ||||||||||||||||||||||
Expenditures | ||||||||||||||||||||||||||||
| Payments to policyholders and beneficiaries | 549 | 399 | 420 | 19 | 60 | — | 1,447 | |||||||||||||||||||||
| Increase (decrease) in actuarial liabilities | 129 | 67 | 69 | (26 | ) | 9 | — | 248 | ||||||||||||||||||||
| General operating expenses, commissions, premium and other taxes and interest expense | 147 | 70 | 76 | 65 | 38 | 19 | 415 | |||||||||||||||||||||
| 825 | 536 | 565 | 58 | 107 | 19 | 2,110 | ||||||||||||||||||||||
Net income (loss) before income tax provision | 77 | 39 | 32 | 19 | 9 | (10 | ) | 166 | ||||||||||||||||||||
| Income tax provision (recovery) | 25 | (1 | ) | 13 | 3 | 1 | (4 | ) | 37 | |||||||||||||||||||
Net income (loss) including participating policyholders’ net income (loss) | 52 | 40 | 19 | 16 | 8 | (6 | ) | 129 | ||||||||||||||||||||
| Participating policyholders’ net income (loss) | (1 | ) | — | (1 | ) | 1 | — | — | (1 | ) | ||||||||||||||||||
Shareholders’ net income (loss) | $ | 53 | $ | 40 | $ | 20 | $ | 15 | $ | 8 | $ | (6 | ) | $ | 130 | |||||||||||||
| Preferred share dividends | — | — | — | — | — | 2 | 2 | |||||||||||||||||||||
Common shareholders’ net income (loss) | $ | 53 | $ | 40 | $ | 20 | $ | 15 | $ | 8 | $ | (8 | ) | $ | 128 | |||||||||||||
General fund assets | $ | 14,149 | $ | 9,576 | $ | 10,314 | $ | 1,369 | $ | 1,343 | $ | — | $ | 36,751 | ||||||||||||||
Segregated funds | ||||||||||||||||||||||||||||
| Deposits | $ | 335 | $ | 316 | $ | 23 | $ | 214 | $ | — | $ | — | $ | 888 | ||||||||||||||
| Total assets | $ | 7,067 | $ | 9,653 | $ | 594 | $ | 3,157 | $ | 5 | $ | — | $ | 20,476 | ||||||||||||||
2002 | ||||||||||||||||||||||||||||
GENERAL FUND | ||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||
| Premiums | $ | 456 | $ | 287 | $ | 457 | $ | 34 | $ | 83 | $ | — | $ | 1,317 | ||||||||||||||
| Net investment income | 238 | 123 | 180 | 12 | 15 | 12 | 580 | |||||||||||||||||||||
| Fee and other income | 48 | 58 | 4 | 30 | 1 | — | 141 | |||||||||||||||||||||
| 742 | 468 | 641 | 76 | 99 | 12 | 2,038 | ||||||||||||||||||||||
Expenditures | ||||||||||||||||||||||||||||
| Payments to policyholders and beneficiaries | 505 | 209 | 449 | 17 | 63 | — | 1,243 | |||||||||||||||||||||
| Increase in actuarial liabilities | 34 | 159 | 73 | 15 | 2 | — | 283 | |||||||||||||||||||||
| General operating expenses, commissions, premium and other taxes and interest expense | 131 | 57 | 72 | 31 | 26 | 11 | 328 | |||||||||||||||||||||
| 670 | 425 | 594 | 63 | 91 | 11 | 1,854 | ||||||||||||||||||||||
Net income before income tax provision | 72 | 43 | 47 | 13 | 8 | 1 | 184 | |||||||||||||||||||||
| Income tax provision (recovery) | 27 | 11 | 17 | 3 | 2 | (1 | ) | 59 | ||||||||||||||||||||
Net income including participating policyholders’ net income | 45 | 32 | 30 | 10 | 6 | 2 | 125 | |||||||||||||||||||||
| Participating policyholders’ net income | — | — | 3 | — | — | — | 3 | |||||||||||||||||||||
Shareholders’ net income | $ | 45 | $ | 32 | $ | 27 | $ | 10 | $ | 6 | $ | 2 | $ | 122 | ||||||||||||||
| Preferred share dividends | — | — | — | — | — | 2 | 2 | |||||||||||||||||||||
Common shareholders’ net income | $ | 45 | $ | 32 | $ | 27 | $ | 10 | $ | 6 | $ | — | $ | 120 | ||||||||||||||
General fund assets | $ | 13,996 | $ | 7,427 | $ | 11,082 | $ | 910 | $ | 984 | $ | 450 | $ | 34,849 | ||||||||||||||
Segregated funds | ||||||||||||||||||||||||||||
| Deposits | $ | 427 | $ | 275 | $ | 38 | $ | 165 | $ | — | $ | — | $ | 905 | ||||||||||||||
| Total assets | $ | 8,288 | $ | 11,108 | $ | 823 | $ | 2,782 | $ | 4 | $ | — | $ | 23,005 | ||||||||||||||
Canada Life Financial Corporation — First Quarter Report 2003 17
| 5. | GREAT-WEST LIFECO INC. PROPOSED TRANSACTION | |
| On February 17, 2003, Great-West Lifeco Inc. (“Great-West”) and the Company announced that Great-West had agreed to acquire all of the outstanding common shares of the Company for a combination of cash and Great-West securities then valued at $44.50 per common share of the Company. In a management proxy circular dated March 22, 2003 (the “Circular”) mailed to shareholders, the Board of Directors unanimously recommended that shareholders vote to approve the transaction at a special meeting to be held on May 5, 2003. The acquisition is subject to shareholder and regulatory approvals and is expected to close in the third quarter. | ||
| As part of the transaction, the Company agreed to conduct its business in the ordinary course consistent with past practice until the transaction closes or the transaction agreement is terminated, unless Great-West provides written consent. The Company has incurred costs in respect of the proposed transaction and these costs have been capitalized. Under certain circumstances described in the Circular the transaction agreement may be terminated and, depending on the circumstances, the Company will be required to pay to Great-West a termination fee or an amount in respect of expense reimbursement or Great-West will be required to pay to the Company an amount in respect of expense reimbursement. | ||
| The unsolicited offer made by Manulife Financial Corporation on December 27, 2002 to acquire all of the outstanding common shares of the Company expired on February 28, 2003. |
Canada Life Financial Corporation — First Quarter Report 2003 18
Supplementary Financial and Other Information– Unaudited
| As at or for the three months ended | March 31 | December 31 | September 30 | June 30 | March 31 | ||||||||||||||||
| (in millions of Canadian dollars except per share and percentage amounts) | 2003 | 2002 | 2002 | 2002 | 2002 | ||||||||||||||||
PERFORMANCE MEASURES | |||||||||||||||||||||
| Common shareholders’ net income | $ | 128 | $ | 131 | $ | 114 | $ | 125 | $ | 120 | |||||||||||
| Basic earnings per common share | $ | 0.80 | $ | 0.81 | $ | 0.71 | $ | 0.78 | $ | 0.75 | |||||||||||
| Book value per common share | $ | 22.53 | $ | 23.53 | $ | 22.64 | $ | 21.04 | $ | 20.59 | |||||||||||
| Dividend per common share | $ | 0.20 | $ | 0.15 | $ | 0.15 | $ | 0.15 | $ | 0.15 | |||||||||||
| Dividend per preferred share | $ | 0.390625 | $ | 0.390625 | $ | 0.390625 | $ | 0.390625 | $ | 0.398116 | |||||||||||
| Return on common shareholders’ equity — last 12 months | 14.4 | % | 14.0 | % | 11.6 | % | 11.7 | % | 11.5 | % | |||||||||||
| Return on common shareholders’ equity — annualized | 13.9 | % | 14.1 | % | 13.1 | % | 15.0 | % | 14.6 | % | |||||||||||
PREMIUMS, PREMIUM EQUIVALENTS AND NEW DEPOSITS | |||||||||||||||||||||
| General fund premiums | $ | 1,590 | $ | 1,624 | $ | 1,561 | $ | 1,413 | $ | 1,317 | |||||||||||
| Segregated funds deposits | 888 | 926 | 862 | 1,028 | 905 | ||||||||||||||||
| ASO premium equivalents and other deposits | 388 | 771 | 389 | 598 | 614 | ||||||||||||||||
| $ | 2,866 | $ | 3,321 | $ | 2,812 | $ | 3,039 | $ | 2,836 | ||||||||||||
ASSETS UNDER ADMINISTRATION | |||||||||||||||||||||
| General fund | $ | 36,751 | $ | 38,191 | $ | 36,663 | $ | 35,241 | $ | 34,849 | |||||||||||
| Segregated funds | 20,476 | 21,899 | 20,776 | 21,929 | 23,005 | ||||||||||||||||
| 57,227 | 60,090 | 57,439 | 57,170 | 57,854 | |||||||||||||||||
| Other assets | 7,601 | 7,913 | 7,725 | 8,279 | 8,669 | ||||||||||||||||
| $ | 64,828 | $ | 68,003 | $ | 65,164 | $ | 65,449 | $ | 66,523 | ||||||||||||
DEBT AND CAPITALIZATION | |||||||||||||||||||||
| Bank loans | $ | 3 | $ | 3 | $ | 3 | $ | 3 | $ | 3 | |||||||||||
| Subordinated debentures | 550 | 550 | 550 | 550 | 550 | ||||||||||||||||
| Canada Life Capital Securities | 450 | 450 | 450 | 450 | 450 | ||||||||||||||||
| Total debt | 1,003 | 1,003 | 1,003 | 1,003 | 1,003 | ||||||||||||||||
| Participating policyholders’ equity | 46 | 48 | 43 | 41 | 42 | ||||||||||||||||
| Preferred shares | 145 | 145 | 145 | 145 | 145 | ||||||||||||||||
| Common shares | 317 | 317 | 317 | 317 | 317 | ||||||||||||||||
| Retained earnings | 3,297 | 3,457 | 3,314 | 3,058 | 2,986 | ||||||||||||||||
| Total equity | $ | 3,805 | $ | 3,967 | $ | 3,819 | $ | 3,561 | $ | 3,490 | |||||||||||
| Debt and preferred share capital to total capital ratio | 23.9 | % | 23.1 | % | 23.8 | % | 25.2 | % | 25.6 | % | |||||||||||
| MCCSR ratio | 198 | % | 202 | % | 214 | % | 212 | % | 213 | % | |||||||||||
COMMON STOCK PERFORMANCE | |||||||||||||||||||||
| “CL” — Toronto Stock Exchange | |||||||||||||||||||||
| High | $ | 43.75 | $ | 42.00 | $ | 37.40 | $ | 40.89 | $ | 44.64 | |||||||||||
| Low | $ | 38.50 | $ | 28.50 | $ | 30.56 | $ | 35.82 | $ | 37.50 | |||||||||||
| Close | $ | 43.75 | $ | 40.29 | $ | 31.95 | $ | 37.20 | $ | 40.00 | |||||||||||
| “CLU” — New York Stock Exchange (U.S. Dollars) | |||||||||||||||||||||
| High | $ | 29.79 | $ | 26.90 | $ | 24.57 | $ | 26.40 | $ | 27.83 | |||||||||||
| Low | $ | 25.30 | $ | 18.10 | $ | 19.34 | $ | 23.31 | $ | 23.73 | |||||||||||
| Close | $ | 29.54 | $ | 25.51 | $ | 20.19 | $ | 24.57 | $ | 25.15 | |||||||||||
Canada Life Financial Corporation — First Quarter Report 2003 19
SHAREHOLDER AND CORPORATE INFORMATION
Corporate Information
Canada Life Financial Corporation, established in 1999, is the holding company for The Canada Life Assurance Company, founded in 1847, and is traded on the Toronto Stock Exchange under the symbol “CL” and the New York Stock Exchange under the symbol “CLU”. Canada Life Financial Corporation has total consolidated assets under administration in excess of $64 billion. Headquartered in Toronto, Canada, the Company operates principally in Canada, the United Kingdom, the United States, the Republic of Ireland, and in numerous other countries.
| Corporate Address: | Investor Relations and Corporate Communications: | |
| Canada Life Financial Corporation 330 University Avenue Toronto, Ontario, Canada M5G 1R8 Phone: 416-597-1456 Website: www.canadalife.com | Brian Lynch Vice-President, Investor Relations and Corporate Communications 330 University Avenue Toronto, Ontario, Canada M5G 1R8 Phone: 416-597-1440 (ext. 6693) or 416-204-2381 E-mail: investor_relations@canadalife.com |
Shareholder Information
Canada Life Financial Corporation hosts a First Quarter Earnings Results Conference Call at 3:30 p.m. May 1, 2003, Toronto time. Members of the media are welcome to audit the call. Toll free, Toronto and North America, the number is 1-888-295-1311. Overseas only the number is 416-695-5801. Participants are asked to provide their name, location and organization to the operator. A playback of this call is available after 5:00 p.m. May 1, 2003 Toronto time until midnight, Toronto time on May 8, 2003 at 416-695-5800 (Passcode: 1386641) or toll free in North America at 1-800-408-3053 (Passcode: 1386641).
The call is also made available to listeners live over the internet through Canada Life’s website. Go to www.canadalife.com/Investor and click on “Presentations”. This web cast is archived and available on the website.
Shareholder Services:
Any inquiries regarding change of address, shareholder dividends, change in registration of shares, or any other shareholder administration issues should be directed to our transfer agent.
Transfer agent:
| Canada Computershare Trust Company of Canada 100 University Ave. 9th Floor Toronto, Ontario M5J 2Y1 Phone: 1-888-284-9137 | United Kingdom Computershare Investor Services PLC The Pavilions, Bridgwater Road, Bristol, England BS99 7NH Phone: 0870-702-0164 | United States Computershare Investor Services, LLC P.O. Box A3504 Chicago, Illinois 60690-3504 Phone: 1-888-284-9137 | Republic of Ireland Computershare Investor Services (Ireland) Ltd. Heron House, Corrig Road, Sandy Ford Industrial Estates, Dublin 18 Phone: 01-216-3100 | |||
| E-mail: canadalife@computershare.com | E-mail: canadalife@computershare.com | E-mail: webqueries@computershare.com | E-mail: canadalife@computershare.com |
Special Shareholders Meeting – May 5, 2003
To be held at 10:30 a.m. Toronto time at the Metro Toronto Convention Centre, North Building, 255 Front Street West, Rooms 105 and 106, Toronto, Ontario, Canada. Shareholders are encouraged to vote FOR the Great-West transaction. Shareholders voting by proxy should ensure their instructions are received by 6:00 p.m. Toronto time on May 2, 2003. Shareholders who otherwise prefer to vote in person at the meeting are welcome to do so.
Questions regarding the proxy solicitation process should be directed to your broker or to Georgeson Shareholder at the following toll free numbers:
Canada and the United States 1-866-802-5796 (English)
Canada and the United States 1-866-860-4550 (French)
Ireland 1-800-300-062
United Kingdom 0-800-018-3047
Other countries 416-642-7084 (call collect)
Canada Life Financial Corporation — First Quarter Report 2003 20