Canada Life Financial Corporation
Sources of Earnings
For the year 2016
SOURCES OF EARNINGS
The following is provided in accordance with the OSFI guideline requiring Sources of
Earnings (SOE) disclosure. SOE is not an International Financial Reporting
Standards (IFRS) measure. There is no standard SOE methodology. The calculation
of SOE is dependent on, and sensitive to, the methodology, estimates and
assumptions used.
SOE identifies various sources of IFRS net earnings. It provides an analysis of the
difference between actual net income and expected net income based on
assumptions made at the beginning of the reporting period. The terminology used in
the discussion of sources of earnings is described below:
Expected Profit on In-Force Business
This component represents the portion of the consolidated net income on
business in-force at the start of the reporting period that was expected to be
realized based on the achievement of the best-estimate assumptions. It
includes releases of provisions for adverse deviations, expected net earnings
on deposits, and expected net management fees.
Impact of New Business
This component represents the point-of-sale impact on net income of writing
new business during the reporting period. This is the difference between the
premium received and the sum of the expenses incurred as a result of the sale
and the new liabilities established at the point of sale.
Experience Gains and Losses
This component represents gains and losses that are due to differences
between the actual experience during the reporting period and the bestestimate assumptions at the start of the reporting period.
Management Actions and Changes in Assumptions
This component represents the impact on net income resulting from
management actions, changes in actuarial assumptions or methodology,
changes in margins for adverse deviations, and correction of errors.
Other
This component represents the amounts not included in any other line of the
sources of earnings.
Earnings on Surplus
This component represents the earnings on the Company’s surplus funds.
Canada Life Financial Corporation’s sources of earnings are shown below for 2016 and 2015.
SOURCES OF EARNINGS ($MILLIONS) FOR YEAR TO DATE AT DECEMBER 31, 2016
SHAREHOLDER NET EARNINGS
Expected profit on in-force business
Group
Individual
Wealth
Europe/
Insurance
Insurance
Management
Reinsurance
Corporate
States
$
$
$
$
$
$
54
138
101
United
887
(6)
9
Total
$
1,183
Impact of new business
-
(23)
(24)
(79)
-
-
(126)
Experience gains and losses
3
182
(25)
17
5
(6)
176
13
8
13
364
-
(1)
397
Other
-
-
-
(17)
-
-
(17)
Earnings on surplus
-
-
-
129
29
8
166
1,301
1,779
Management actions and changes in assumptions
Net earnings before tax
Taxes
Net earnings before non-controlling interests
70
305
65
(14)
(52)
(8)
56
253
57
Non-controlling interests
Net earnings - shareholders
-
-
-
-
253
57
1,159
10
(2)
15
8
(9)
-
6
8
-
-
-
-
(14)
-
253
57
1,159
(8)
8
$
28
(13)
56
Adjustments after tax
Net earnings - common shareholder
1,159
56
Preferred share dividends
Net earnings - common shareholder before adjustments
(142)
56
$
253
$
57
$
1,159
$
(8)
(231)
1,548
(9)
1,539
(14)
1,525
$
8
$
1,525
SOURCES OF EARNINGS ($MILLIONS) FOR YEAR TO DATE AT DECEMBER 31, 2015
SHAREHOLDER NET EARNINGS
Expected profit on in-force business
Group
Individual
Wealth
Europe/
Insurance
Insurance
Management
Reinsurance
Corporate
States
$
$
$
$
$
$
Impact of new business
67
-
126
98
United
862
(6)
18
Total
$
1,165
(10)
(24)
(121)
-
-
(155)
Experience gains and losses
10
82
20
51
5
(3)
165
Management actions and changes in assumptions
21
46
13
357
-
5
442
Other
-
-
-
(23)
-
-
Earnings on surplus
-
-
-
148
19
11
178
1,274
18
31
1,772
7
(3)
25
28
Net earnings before tax
Taxes
Net earnings before non-controlling interests
Non-controlling interests
Net earnings - shareholders
Preferred share dividends
Net earnings - common shareholder before adjustments
Adjustments after tax
Net earnings - common shareholder
98
244
107
(13)
(28)
(19)
85
216
88
1,165
-
-
-
-
85
216
88
1,165
-
-
-
-
85
216
88
1,165
$
(109)
85
$
216
$
88
(1)
1,165
1,606
-
10
(14)
28
10
(1)
28
(14)
$
(165)
1,607
-
24
$
(23)
1,592
$
28
$
1,592
Analysis of Results
Expected profit on in-force business is the major driver of earnings and accounted
for 67% of pre-tax earnings in 2016. The expected profit on in-force business of
$1,183 in 2016 was $18 higher than the 2015 level. The improvement year-overyear is primarily due to higher net fee income in Reinsurance and higher expected
margins in Individual Insurance, partially offset by lower expected margins in Group
Insurance.
The strain on new sales of $126 in 2016 was $29 lower than 2015 primarily as a
result of higher volumes and sales of annuity business written in the U.K., partially
offset by higher strain in Individual Insurance.
Experience gains of $176 in 2016 were $11 higher than 2015. The gains in 2016
were primarily due to investment experience in all segments and longevity results in
Europe and Reinsurance. These gains were partially offset by mortality results in
Reinsurance and expenses in Europe. The gains in 2015 were primarily due to
investment experience in Canada and morbidity and longevity results in all
segments. These gains were partially offset by expenses in all segments and life
mortality results in Europe and Reinsurance.
Management actions and changes in assumptions contributed $397 to pre-tax
earnings in 2016 compared to $442 in 2015. The most significant contributors in
2016 were updated longevity assumptions, economic assumption updates, updated
morbidity assumptions, and modeling refinements, partially offset by expense and
tax assumption updates and life mortality assumption updates.
Other of $(17) in 2016 is primarily due to restructuring and acquisition costs related
to Aviva Health and GloHealth.
Pre-tax earnings on surplus decreased by $12 in 2016 compared to 2015 mainly as
a result of lower OCI gains and a property sale in Europe in 2015 which did not
repeat, partially offset by higher investment income in Canada.