Thank you very much. So we'll start the next session with Great-West Life. Delighted to have Paul Mahon here, the CEO of Great-West Life. Thank you for joining us, and thanks for being-
Glad to be here. Great to spend some time.
So, well, lots to cover. I think, you know, we recently had your fourth quarter results, but I think, I'd really like to zone in on a few things that we'd heard, and think about things more a little bit longer term strategically. And I think one of the things that has always caught my eye, and we were just chatting about it a little bit just now, is your presence in the U.S. has really evolved, over the last five years. It's pretty significant. And you went from three lines of insurance, essentially, life insurance, asset management, retirement, to basically being a significant player in retirement and growing the wealth. So I wondered if we can just maybe, if you could provide a little bit of context around that.
Yeah.
-and maybe bring in some of your, your growth expectations as well, and your targets for this year.
Sure. Yeah.
If you could.
You make a good point. So if you go back just five years ago, we were in three businesses, and I would argue that good management teams, you know, good, solid businesses, but all of them were subscale. So we actually made a conscious decision that we were going to double down in the business that we could create a market-leading franchise, and that was retirement. That kind of is a bit of our mindset when we're in markets. If we don't see a path to leadership, do you really want to be there as your or is your capital better deployed elsewhere? So the retirement was the chosen space, and that manifests itself in us divesting our individual insurance business.
And that was a good, you know, that was a good solid transaction for us, and I like that. And that kind of unlocked the capacity, I would say, both from the standpoint of capital, but also mindset, to get into consolidating the retirement market. And as you know, we transacted on the MassMutual retirement business. You know, interestingly, back in 2015, we had actually transacted on J.P. Morgan's retirement plan services business. That was kind of foundational because we invested a lot in the platform at the time. So when MassMutual came along, we were well-positioned to transact on that.
I remember being in the middle of, you know, we're in the middle of executing on that, and the Pru retirement business comes along, and you kind of roll your eyes going, "Oh, my God, I don't think we can do two at once." But we turned our attention to it and said, "We fundamentally believe that the Mass book, the Pru book, and our installed base together could create a really strong platform." And you fast forward to today, 18 million participants on the platform, $1.5 trillion of AUA, and that was a very conscious decision to build that, you know, profitable business. We like it.
Interestingly, the other transaction we did, which was sort of, sort of at the same time as MassMutual, was acquiring Personal Capital's business, which was a hybrid wealth manager, and we acquired Personal Capital because we thought that business, in and of itself, had a path to profitability. But we also thought if you could apply the tools and capabilities within Personal Capital against a retirement book of 18 million participants while in plan, but also at rollover, you could have significant opportunity to build a wealth business. So that was the play, and if you think about that, it was disposition of individual markets, set up those three transactions, and then the last transaction, which we just closed on in, you know, essentially at January 1, was the disposition of Putnam. And Putnam, you know, the reality is it unlocked value for us.
We had an asset manager that was performing well for clients, but we were really not getting great value for it from the standpoint of earning income or really value in the stock price. So it unlocked value. It also set us up with a partnership, though, with Franklin Templeton, which I think is gonna be very valuable if you think about their strengths in alternatives and the like. So all of those things drive us to a point where, you know, we reiterated at the end of Q4 our medium-term growth objectives of 8%-10%, but we also reiterated that we saw Putnam, pardon me, Empower on the back of the retirement business and Empower Personal Wealth, delivering high teen growth in terms of earnings growth in the coming year. That's our expectation.
We view this engine in the U.S. as a big growth driver for us for Lifeco.
Considering all that, I mean, you, you mentioned, you know, J.P. Morgan, the MassMutual, the Pru, you know, you've got a big position now, you said 18 million participants. So do you - how do we think about further consolidation, and further roll-ups, and how far could it go?
Yeah. So if you go back to sort of the principle of us wanting leadership positions that we leverage, you know, to sort of maximize scale and capabilities, I see greater opportunity for further consolidation, for sure. And think about it, we're in a very cash-generative base business. So, you know, we've brought our, you know, our leverage ratios down into our normal, normalized range. You would have seen us report on a fair bit of capital that we're, you know, consolidating at this point. So I see significant opportunity for additional, you know, inorganic growth, and I think the U.S. is a great place for us. I think other, value-creating transactions, like a Mass or Pru, we could see, and we want to be very disciplined and make sure they're the right ones.
But those transactions unlock not only a larger client base but also a lot of synergies. You think about the Pru transaction, $160 million in synergies, and that's really taking business off of that platform and put on our platform, and that is the efficiency of our platform because of the automation and the like. So further transactions that can unlock those sort of synergies, broaden the client base, that's value-creating. Then if you think of additional potential wealth management transactions, so, you know, the Personal Capital toolkit is a great toolkit. It's helping us reach a lot of the client base. It's the early innings of that one.... but maybe there's other wealth transactions, or are there other things we can do to round out the overall solution set for clients?
I think the U.S., continues to be an area of focus for us in terms of growing, you know, a meaningful business here in the U.S.
And what does it take to get it inorganically? I mean, are there willing sellers now in the marketplace, and what is it that-
Yeah
to get a deal across the table?
So, yeah, I think the question would be, why do people sell, for example, a retirement business? The retirement business has become one where you've got to be really committed to scale, to technology, to automation, because it's all about driving down your cost per participant relative to the revenue per participant. And there are players out there who don't have the scale. Perhaps they're reliant on, you know, proprietary asset flows, you know, to sustain that business. And the reason why people exit is because they don't see a path to success. Perhaps they're, you know, sitting on a shrinking ice, you know, melting ice cube. So I think there's gonna be lots of additional consolidation. It's still a pretty fragmented market. You know, we're at 18 million. We'd be number two in the marketplace.
You go a long way down to sort of 10 million, then you fall into the 3s and the 2s and the 1s. A lot of those businesses probably aren't sustainable, so we think that that fragmentation will result in more consolidation.
What about the revenue side? The fee side. We've heard of fee pressure in the business.
Yeah.
How do you combat the fee pressure, and how do you think about it? I mean, I've had people come at me and say: "You know, fee pressure is very significant there." How do you see it playing out over the next few years?
Yeah. I think fee compression is the nature of any competitive market, right? And if you think about what drives it, it's driven by competition, but it's also driven by automation. If someone can automate their business, drive down their costs, and have a winning hand. So the way I think about it is, what you have to do is focus on the cost side. So how do you take your scale, greater automation? And the beauty of greater automation is you end up with a better client experience, more straight-through processing, more quicker turnaround, you know, easier to do business with. And so our view is we can manage the revenue compression by compressing our costs, by leveraging our operations in India, by leveraging capabilities in the Philippines, but probably more importantly than anything, automation, the leveraging AI.
So those are the things that I think build a winning hand. And if you view the business as one that is gonna... it'll be scale that matters, I think we've got a good hand to play in this space. The fee compression is gonna be very painful for those who don't have the scale to try and get at the cost side.
And so maybe, just, just going back to Personal Capital, and the launch of, of Empower Personal Wealth, maybe you can talk a little bit about that growth potential and how I should think about it a bit more because it, as you say, it was sort of a, it was sort of added on, and now you've got some growth.
Yeah.
I just want to understand, where can you take it, and what can you do with it?
Yeah. Well, it's interesting. We really didn't have a concerted focus on the, you know, retirement rollover, any of those things. It was sort of a, oh, yeah, we're, we're in that space. Fast-forward to today, and we've got $770 billion of assets on the platform. That business really, which was nascent, if you go back to 2019, delivered $200 million in earnings, and we added $8.5 billion in net flows into that business in 2023. Now, where does it come from? Well, the Empower platform has $1.5 trillion in assets on it. About 6% of those assets roll off the platform, and, and so that is $80 billion of money in motion every year. So that's not one time. That's $80 billion of money in motion.
Some of that will obviously be people who are switching employers. Some of it maybe is going to buy a house or a boat or whatever, but the majority is funding people's retirement in the form of their IRAs. And so if we think of Empower Personal Wealth, it's all about that rollover capture, and we're in the early innings of that. So when I talk about the growth we've had in sales and the growth in assets, that was applying tools that we're just implementing into the business. They haven't even reached the majority of the Pru participants that we brought onto it. So if you think about, you know, how do we increase the hit rate, the number of people we reach? How do we increase the asset capture?
And you do that through client experience, but not just at rollover, the client experience while they're in plan. So we're leveraging that technology, those tools, where you're in plan, you get used to working with Empower as providing more than just retirement record-keeping advice. Advice while you're in plan, such that when you roll over, you will naturally want to work with Empower as your wealth advisor. And that's really the play for us, and that's why, you know, we really like those tools. That's why we love that business. And I think we're sort of in the first, maybe second inning of a nine-inning game in terms of as we build that business.
Would it require more add-on capabilities?
I think there will be opportunities to add more capabilities. Having said that, you know, we acquired the Personal Capital business. It's a great toolkit. We've now embedded it into the Empower environment, and we now have 1,000 licensed advisors, so it's a hybrid digital advice solution, so you can get pure digital, you can get digital plus, including advisory services. So it's a real wealth management business that we're building.
So, I do wanna move on to other-- but lastly, that, you know, is there anything else that you can do in the U.S., or is this really the bulk of the-
You know, it's a, I'd say the anything else is first and foremost, I would say, retirement income. So there's been regulatory change, which is gonna make it easier to deliver retirement income solutions, you know, when you're part of a 401 or at a rollover. And when you think about, you know, Americans looking out and sort of saying: How am I going to secure my retirement? You wanna save up a lot, but how do you actually secure your future, whether that's a deferred life annuity or other solutions that could be embedded? We are a player in the retirement income space. We're actually, you know, we have a meaningful position in the UK, where we're in the payout annuity space. We deal with equity release mortgages, which is sort of home equity, but highly regulated.
We're involved in pension risk transfer as well. But, we're minded to saying: How do you think about the person's entire lifetime in terms of the accumulation, decumulation, and securing their retirement? So I think that's one space. I think there's other complementary things. We're already involved in things like, you know, health savings accounts and the like. We're already involved in, with budgeting tools, with sort of near banking services. So I would view this platform as something that has lots of opportunity for us to think about adjacencies that actually, where we can serve those clients even more fully. But in particular, retirement income will be, something that is gonna be very meaningful to a lot of Americans.
Okay, great. Interesting. So maybe we can switch over and think about, you know, geographically thinking about-
Yep
... Europe.
Right.
So, you know, one of the questions that I often get asked a lot is, you know, you think about Europe, the companies that I cover don't have a spot in Europe, right? So maybe you can speak to the opportunities in Europe and sort of the diversification that it gives you and really how we should think about it because we've been so trained to look at other life goals-
Yeah
... that don't have Europe.
For sure. So, I mean, if you take our profit picture from 2023, Canada was our largest, you know, producer of earnings, and Empower was second, having come from fourth or fifth, but it's, you know, through that growth. Europe, just over 20%, and then in our reinsurance business is just over 20. So it is certainly it's meaningful in the context of the total. And the business, interestingly, it's really three geographic businesses, and I would characterize Irish Life as a bit different than the U.K. and Germany. So I'll start off with U.K. and Germany, and then I'll go to what, why Irish Life is different. Germany, we have more of a niche position in pension savings, both retail pension savings, and we're getting involved in sort of DC-type pension savings there.
We're very focused on the broker market, and it's a business that's been growing quite nicely, but it's not gonna sort of make a massive difference on a Life Co. scale. But we like the business. We continue to operate it. I would argue that we have reasonable leadership in the context of how we define the market that where we play. The UK, we tend to be operating sort of kind of in two niches, where we like the cash-generative nature of the business, we like the strong ROEs, and we like our market position, and that would be in the group life insurance and group income protection, where we're sort of number one. We're always neck and neck with Unum in that market, and we get strong returns, good returns on capital, solid business. We like that.
And the other spaces in this retirement provision of retirement income, whether it's payout annuities, equity release mortgages, so people can use the equity in their home to fund retirement or pension risk transfer. We have expertise there. We're not, I wouldn't call this a market leader, but I would say that business is one where, if we see strong returns, we will deploy capital from the standpoint of providing good cash generation and good, stable earning stream over the long term. So if you think about a business like that, it's not a growth engine for us, but it's a nice stabilizer, it's a nice diversifier.
If I think about it in the context of, you know, during COVID, that business opposite a very large group benefits business, whether it's in the U.K. or Canada, or our traditional life, was a really good diversifier against life mortality because we saw COVID impacts of mortality, and we saw this great diversification. So I like the U.K. for what, where it fits in. I don't see it in and of itself, as it sits today, being up something we would want to grow, but I like its diversification benefits. If I go to Irish Life, it's different. Irish Life is a market leader. I just wish Ireland had 50 million people versus five million people. We've got, you know, sort of leading market shares in insurance, leading market shares in pensions, leading market shares in benefits.
We would be top three in the health space. The only space where we haven't participated significantly in Ireland is in the wealth space. The wealth market is pretty immature in Ireland, and it's developing, so we've made a concerted decision to grow in the wealth space. So we're rolling up smaller wealth managers into a platform called Unio. And then we also made a decision to build a joint venture business with Allied Irish Bank in Ireland, and it's the largest bank in Ireland, significant client base, and we are jointly building and developing insurance and wealth products for that banking client base. So if you think about it, in Ireland, we're sort of leading in everything, and we're minded to build a leadership stake there.
So Ireland, view it as a very diversified business, much like our business in Canada, where you can lead by being a leader in every aspect. More focused in the U.K. and Germany, U.K. being a really good diversifier from a risk perspective, and then U.S., a very focused business in a very large market opportunity. And I like to think of the overall portfolio as one that has good diversification benefits. So you've got some stable, you know, cash-generative insurance businesses that are broadly, you know, the smallest part of the portfolio. You've got things like benefits and retirement, retirement businesses that are capital light and have organic growth potential, and then wealth businesses like our Empower Personal Wealth, our wealth business in Canada, and wealth businesses in Ireland, which are real growth drivers for us. So we like that diversification.
And there isn't much synergy between these different operations, is there? And so you went through and did some reinsurance transactions and cost work. Maybe you can talk a little bit about that, too.
Yeah. So, interestingly, you get synergies in intellectual property. So if you think about the benefits of what Empower Personal Wealth does, which is including aggregating people's wealth information so that they can make better decisions, we're applying those same models in Canada. We're applying those same models in Europe. So you learn from that. Interestingly, if you looked at Empower's retirement client list and Irish Life retirement client list, they'd look a lot alike because all of those U.S., you know, large firms tend to have, be domiciled in Ireland for their European base, and so we leverage off of that. So there's elements of leverage.
When you go to the reinsurance transaction, I would characterize that one as opportunistic, but we do have a strong reinsurance business with a lot of technical expertise. We call it Capital and Risk Solutions for a reason, because it is so much centered on providing capital solutions to third parties, but also helping on our own. We made a decision to reinsure a pretty meaningful book of annuitant liabilities. And we did that opportunistically, actually. We looked at pricing in the annuity market, and we saw some people who were sort of locking in on the higher mortality rates that existed during COVID. And we looked at that.
Our view wasn't quite there, and we said, "This is a great transaction now to take some risk off the table to recover some capital, because we actually have not bought into the fact that mortality will remain elevated at this level for the long term." We would rather be a bit more passive in those markets right now, waiting for it to settle out. I mean, any actuary will tell you that one year, two years, three years is not a trend. A trend is longer than that. So we would rather be disciplined and think about deploying capital only if we really see you know, a path to it being long-term profitable. Because when you think about it, when you're writing these large pension risk transfer deals, you're making a bet.
You're making a fundamental bet on mortality long term, and we would rather be a bit more cautious, waiting for things to settle out, and then we'll participate. And we do participate. We wrote a bulk transaction, what's called bulk annuities, but the pension risk transfer in the U.K. But we tend to participate in the smaller end of the market, where it's a little less competitive and where we can get the pricing we need opposite our views on mortality right now.
Interesting. Okay. So when I look at many of the players, they have reserves that are built for better mortality. So we always have to get this backwards-
Yeah, yeah
in the annuities business.
Yeah, yeah.
You know, they, they're assuming better mortality, and mortality's been coming down.
Yeah.
So presumably your reserves would also be built on better mortality. So this would have released reserves for you-
Yeah
this transaction.
Yeah. It released reserves and, and that, you know, we have seen mortality. The interesting thing, up until COVID, there was a general theme to mortality improvement, right? So you're pricing, and you're getting that. COVID changed everything, right? And then suddenly, mortality started to spike. It was a great. You know, it actually even improved. You know, if you thought about it from the standpoint of, you know, the life book, you know, you're taking on some water, but it was good on the annuity side. I don't think it's played out quite yet. So right now, caution, I think, is the way we approach that.
Maybe just really briefly on Solvency II changes.
Yeah.
Is there any impact for you on that front?
You know, there's been some Solvency II changes that have allowed us to free up a bit of capital. So some of the... You know, we operate obviously in different markets. We operate with RBC capital here. We operate with LICAT capital. We operate with Solvency II capital. You've always got to be minded to what is the true economic risk in the business, what's the economic capital? And then think about your capital management around the Solvency II or the LICAT or the RBC regime. Solvency II had some weightiness in terms of the expectations around interest rates. There's been some moderation and modification. I don't think it totally changes the thesis on the business, but I think part of that has been, you know, a reflection of was the solvency ratio appropriate relative to the true economic risk?
And then secondly, a lot of that business was finding its way offshore, and I think, frankly, the U.K. is trying to have more of that business remain, you know, domestic. So, it's made the business continue to be a sound business for us, but it'll only be one where we participate when we fundamentally believe in the, risk that we're taking on.
And can you touch... So then just shifting back to Ireland then, where it's essentially like a little Canada.
Yeah. Yeah.
I just wanted to... I mean, there were some interesting remarks about, you know, your JV with Allied Irish Bank-
Yeah
And the Unio brand. Can you just touch on that a little bit, and why is it that it, it's continuing? Like, I think about Ireland, it's benefiting from being in its unique position in the European Union, and how do you see this playing out specifically-
Yeah
F or the JV?
Well, Ireland is a, if you thought about immigration, it's a net immigration winner in Europe from the standpoint of not only is it attracting more people. Now, you know, all of these places can be boom and bust, right? You know, you think about the financial crisis, there was a bit of bust there, but there's a current boom. You see immigration a little bit from the U.K., but, you know, from European Union and alike, and it tends to be people with wealth, right? So when you see Google growing their client base there, when you see Apple growing their client base, when you see, you know, banks growing their client base there, people with wealth, and the wealth market is not that matured. So what we see is growing wealth management opportunities there.
There's a lot of small wealth players, but there's not a good, solid platform. So if you thought of, like, the best, you know, RIA in the U.S., that would have a really good digitally enabled technology to allow independent advisors to really succeed in the market—we're minded to building that sort of platform for independent advisors, rolling them onto that platform and growing it, much like you might roll up an RIA. And I think that can work for us because we already, you know, Irish Life Investment Managers is the largest asset manager in Ireland, so we've kind of got all the tools for it. But that's really a focus on the affluent and reaching into the high net worth market. And we like that.
Then you go to the mass and mass affluent market and say: How are we gonna reach them for wealth? So we do that through our own, you know, advisory services through Irish Life. But the banks have a significant share of, you know, client wealth and client mindshare. So out of AIB, we used to do a distribution agreement there, where we would sell our products through their branches. But how committed are you when you're a, you know, when it's a distribution agreement as opposed to a joint venture? So we got into discussions with them, and they said they fundamentally believe that they can secure their clients better if they have all of the tools in the toolkit.
So we said joint venture between AIB and ourselves that will allow us to attack their significant client base and serve their significant client base with insurance and wealth products, which are things that the bank doesn't manufacture on its own. So it's a joint venture play. So think about it as Unio is about affluent, high net worth, and AIB is about the mass affluent and the mass market, reaching that in a market where wealth is probably the biggest growth opportunity for Irish Life because it's sort of at scale in almost every other business.
Okay, I do wanna switch back to Canada.
Yep.
At some point.
Yep.
- because it's a big, meaningful part of your business too.
Yep.
So, I laugh when I think of this, but my father had a policy with London Life, and now I have to call Canada Life. So maybe we could talk a little bit about how you made that. It's a pretty big change to go under one brand.
Yep.
Maybe you can provide an overview of that?
Yeah
... and sort of what's meant to do.
So, well, interestingly, so I was around for all of that, right? I started with Great-West Life, right? Great-West Life Assurance Company, and that's all we were. We acquired London Life. I moved to London, and we had to figure out: How do you manage two brands in the same market that are doing broadly the same things? And we said the London Life brand will be about an exclusive channel. The Great-West Life brand will be about independent advisors. Then along comes Canada Life. We acquire Canada Life, and we say: What are we gonna do? We said, "We're gonna still maintain... We're gonna have three brands in market now, one for MGAs, one for independent advisors, one for exclusive advisors, with one back shop." So one back shop, one actuarial area, one operations area. And a quick analogy, I used to drive a Coca-Cola truck.
That was my job in the summer, and I would go in, and I would push back the Pepsi and you're all way too young, but RC Cola, and I'd get all the shelf space in for Coca-Cola. We viewed it as having... We had Coca-Cola, Pepsi, and RC Cola in a pre-digital world. We had three brands out there, and we were actually getting great traction. We're the largest insurer in Canada, driven by that. Digitization comes along. You've got to market more. You've got to be more on the internet. Three brands started to fight with that, and we said, "We've got to go to one brand, and if you're gonna choose a brand, choose the flag-carrying brand, Canada Life." And we said, "That will be the winning hand for us." And it's been marvelous.
Like, it's been a fantastic opportunity, allowed us to take cost out of the business, allowed us to get greater focus. We now use the Canada Life brand in Canada. We use it in the U.K., where we've been there since 1902, in Germany, since we've been there since the 1980s. But that brand has really served us well and that focus. I remember my mother was very upset at me on the day we did it, though. You know, she grew up with Great-West Life being there in Winnipeg, and how could you do that? Loved the strategy, and it served us very well, but it was not for the faint of heart at the time, right?
We'd built a business on multiple brands, and to consolidate to a single one was a play that had some risk, but it's had the right payoff for us.
Yeah, I mean, I think about the different channels that are in there.
Yeah.
I think that was also one of the reasons.
Yeah
Why you sort of kept it separate, right?
And so now we market to all those channels under a common brand because digital has become so important and having that brand presence in digital channels, and it's, I don't think it would've been viable under a multi-brand strategy.
Fair enough. Okay, so maybe really quickly, 'cause we're down to our-
Yep
last minute or so. You've been active in Canada, in this... We think about wealth, right?
Yep
I n the U.S. and Ireland. You've been active in Canada, too.
Yep.
A couple of recent acquisitions. You now have over CAD 100 billion of assets under administration.
Yep.
Maybe you could share what your ambitions are in Canada within the wealth space?
Yeah, so our biggest business in Canada is in the group space, group benefits, group retirement. Wealth has always been a solid business, but our view was that the independent advisor market in Canada, much like the RIA market in the U.S., was not well served. No meaningful platforms allowing advisors to really succeed with their clients. And we looked at the acquisitions of IPC and Value Partners, along with our existing wealth business, what we could bring together in the context of tools end-to-end, all the way from mutual funds to securities to more structured products and services. How do you bring that all together on a single platform, digitally enabled to serve advisors? And we took ourselves from, I'd call ourselves a second-tier player to a top-tier player in that market.
The last thing I'll say about that business is that in many markets, there's a lot of independent advisors who are looking for succession solutions, and we wanna be at the center of succession, helping them either find the successor advisor or corporatizing those businesses. So if it's more mass or mass affluent clients who maybe the successor advisor doesn't want, how do we bring them onto a direct service platform where we'd acquire those assets from the individual brokers that we acquire them from? So the play would be to continue to grow the wealth channel through independent advisors but also corporatize those assets, and it's playing out very positively for us.
Would it require further bolt-ons, further-
We will continue to look for opportunities to extend and grow that business. You know, if I sort of think of capital priorities, the U.S. is our biggest opportunity. I see bolt-on opportunities in Canada, and I would never say never in Europe, but I would say that our focus right now today when I look at, you know, the clear and present opportunities is more of a U.S. opportunity right now.
Okay. With that, we have run out of time for our session, so-
Thank you very much.
... thank you very much, Paul. Very good.
Thank you.