Great-West Lifeco Inc. ($GWO)

Okay. Welcome to day 2 of the 24th National Bank Financial Services Conference. And for your math folks, that means next year is 25. I'd like to welcome to the stage, David Harney, the Chief Executive Officer of Great-West Lifeco, and he's been in that position since July of last year. So we're glad to have you here and looking forward for this discussion.

Thanks very much.

I do have a list of questions that I prepared ahead of time, but I do want to ask about the global macro. Obviously, it's on everybody's minds. And what -- as the CEO of Great-West Life, what describe to me the reaction and then what you start thinking of from a business standpoint?

Like, obviously, these events have big impacts on economies, the big impacts on customer confidence. Like all of our businesses operate within their economy. So it's all sort of secondary effects for us. So the main thing we're finding in the business is just a lot of coaching with customers. They have long-term investments with us they shouldn't get overly worried about markets or volatile situations. So most of our efforts now are coaching customers, believe in the products we have and stay the course. We don't have influence over global events. So we focus on the day-to-day business.

Right. So I guess the indirect impact is, of course, more relevant to you. And I'll do the dotted line to the Empower business, which has been an inorganic success story, and an organic success story, and the messaging on growth following a very strong 2025 is still quite optimistic. My question is if markets aren't as frothy, does that growth outlook -- what does that growth outlook look like in a flatter market environment perhaps?

Yes. No, the growth outlook for Empower is -- continues to be very strong. We expect double-digit growth from that business over the next number of years. Ed Murphy and the team have built a fantastic business there and took a lot of care in integrating the various acquisitions. So like our double-digit growth expectation for Empower is built on normal market growth assumptions. So that might be, say, 8% before taxes for equity-type returns, and maybe 3% or 4% for fixed income returns. And actually, last year, even though markets were strong, is just a great year to look at the performance of the Empower business. It's the first year, sort of post all of the integration activities. And even though markets did well last year, we had elevated credit losses in the U.S. business. We had a reduction in the spread income from '24 to '25. So if you view, sort of, strong markets, credit losses and that spread income adjustment as, sort of, external economic impacts on the Empower business, the aggregate of the 3 of those was actually neutral in 2025. So that's what I mean. That's why I say it was a great year to look at the performance of the business. And what we saw for Empower last year was 11% growth, and 25% growth in the Wealth business and 7% growth in the Retirement Workplace business. And that's the type of growth we expect to see from Empower over the next number of years.

And the -- I guess, the elements within your control, one of them, and a big part of the Empower outlook this year and beyond is the rollover strategy Retirement into Wealth. First question is -- and because you stated an objective of 20% capture rate, or however you describe it, of that rollover money, or money motion. How are you progressing against that target?

Yes, very well. Like we said out at Investor Day last year that we explained that we had seen a 30% improvement in that rollover, or capture rate, and we expected a similar improvement over the next planning period, and we're very much on track for that. So what that meant for 2025 was $12.5 billion in net inflows into the Wealth business, USD 12.5 billion into the Wealth business in the U.S. last year. And that was -- just to give some context on that $12.5 billion, that was $12.5 billion on an opening and asset base of USD 87 billion. So to have a business net inflows at 14%, and of your opening balance is just a phenomenal position to be in. And that's something we will continue to build on over the next number of years. Like we're investing a lot in the Empower brand. That does an awful lot to build confidence among our customers. Golfers in the room might have seen Cameron Young won The Players. People who watch American Football will have seen Empower Field hosting the AFC final. People who watch Formula 1 will see Empower at the Miami Grand Prix. We're doing a huge amount on product extension as well. We've added health savings accounts. We'll be adding educational savings accounts this year. We continue to develop out our brokerage offering. We work very hard on our managed fund coverage. So all of these things build our relationships, and with customers, and during the lifetime. And that makes us much more likely to retain customers then as they progress into retirement. And then I suppose if I go back to the fantastic job that Ed and the team did integrating the acquisitions that we did, like that was building the Workplace Retirement business. We bought Personal Capital then, which was the foundation of the Wealth business. But Ed is doing a big job this year now as well, just sort of reorganizing our advisers, our customer service operations into one Empower engine. So we're sort of moving from, if you like, people coming up to Retirement and then trying to persuade them to stay with Empower through our Wealth business post Retirement into sort of getting people to add Wealth products while they're actually in the workplace and saving with us. And again, that just strengthens the relationship. And once we have that Wealth relationship with them before they get to Retirement, they're much more likely to stay with us. So through all of that work, we will see more and more customers staying with Empower for all of their saving and spending lives in Retirement.

And that rollover strategy is not -- doesn't seem like it would be necessarily impacted by market fluctuations. It's more of a -- people retire, leave their employer in normal course and as long as you're able to identify and pitch properly and...

No, absolutely. Like I think the markets always have an impact. Like obviously, we're trying to build more wealth relationships with people during retirement, people have a little less confidence when there's market disruption and maybe less willing to make new decisions. So you probably see that dampened a little bit. No. But you're right, like the core force is still people saving coming to a Retirement point and having to make a decision. And people are going to age differently what's going on in the world. Yes.

So I mentioned earlier both an organic growth story that's been good, but it has been influenced by inorganic acquisitions of MassMutual, Prudential. And you've been very transparent in your strategy that if and when another asset of that -- in that business becomes available, you'll look at it and possibly be active. When we look at potential targets because there's some information out there, is there a particular business mix that's ideal to you? Because you can look at MassMutual and Prudential we're pretty different. You have one with fewer participants, bigger accounts and then vice versa. Is there any -- are you ambivalent? Or is there a preference?

No, like the big acquisitions we did in the U.S. were JPMorgan going back, and then MassMutual and Prudential. And the fantastic thing about all of those acquisitions were -- they were basically defined contribution book acquisitions, which sort of no other business lines alongside it. Now there was different mixes within that, say, a different level of managed accounts, which are a big thing for us, or they're coming off different systems and there's different integration channels. So that will cause the price points to vary. But generally, any clean book we see like that, that we can get at an attractive price. We've proven we can integrate these businesses and add to the scale. So we'd be very interested in any of those at the right price point. But probably targets that we will need to consider going forward will have those defined contribution books, but maybe other lines alongside it as well. Some of those we may be interested in, some not. So they're the type of things that...

These three, plus what other lines...

Well, businesses will have general accounts alongside it. So how big the general account, what's in the general account will matter. Other companies might have group benefit businesses alongside it. They may have other insurance that we're not interested in. So different businesses will have different mixes. I think the core point though is Empower, like obviously, it's been built through acquisition and inorganic. But the organic performance of the business is extremely strong. All of the big players, well us, in particular, are winning market share every year. I expect by the end of this year, if we look back over the last 5 years, we'll have written USD 200 billion in new plan acquisition. And just to put that in scale, like that new business acquisition over a 5-year period is of the same size as the 10th biggest player in the U.S. market. So even absent acquisition, we will continue to grow our U.S. business. And all of the targets that we set out to the market, the double-digit growth in the U.S. and the growth in our other segments are not dependent on acquisition activity. So we have a fantastic portfolio across the segments. We have scale positions in all of our markets. And so we will hit our 8% to 10% earnings per share growth absent acquisition activity. And I think the real strength of that position then is it means we're very disciplined in looking at acquisition targets. If they add strategically, or at scale in our existing segments, and they're at a right price point, we're good to go. But if they're not, that's fine.

And then just to wrap up on this particular business, not that it's a unique risk to this one, but AI is on everybody's minds.

Yes.

How does it play into your management of your existing business and then evaluating future acquisitions? Like capital deployment towards a large acquisition in an industry that may be disrupted, or in a worst-case scenario, obsolete. I mean it's just to be dramatic, but it's stuff we have to think about that we didn't previously, right?

Yes. Look, again, going back, like we're very focused on the markets that we're in. We like to build scale acquisitions in all of our markets. And I think scale is just so important in so many ways, like I talk about the brand building earlier and you can only do that type of thing where you have scale. And it's going to be the same with AI. Like I think to really leverage AI scale is very important as well. And I think that's probably going to lead to even more consolidation within the market. So the big prize for AI is obviously around productivity and efficiency. But the bigger prize is really what it can do for our interactions with our customers. We all know in different markets, the more people engage with financial services and the more they get financial advice, the better they are at building wealth and their lives are better in the long run. When we engage with customers, we're engaging on time frames of usually hours, sometimes days. We never engage with customers at a speed that's minutes and seconds. So AI is going to allow us to transform to that. So I think AI gives us the opportunity to become a much more intuitive, easy to interact with business. We say AI can allow us to become a more human business. And hopefully, that will extend our reach. Now to do that, you have to put in the right infrastructure of data and context to let AI work and make good agents. That takes scale to do that properly. Even as you transform the organization, like there's hundreds and thousands of different tasks within our organization. You can't sort of flick a switch and turn them all on to AI. You need to resource up, you need to transform all of those tasks while you're running your business as usual operations as well, and that takes scale to do. So we have 20 million participants in the U.S. We have 14 million Canadian customers here in Canada. We have the largest scale position in Ireland. There are 3 core Wealth and Retirement markets. So we have the scale to do that work over the next number of years, and we're very excited about that potential.

Okay. Well, let's move into the Canadian business. The growth was not as strong as it was in the U.S. in the past year. What were some of the primary headwinds? Like I think maybe the morbidity, the disability claims experience might still have been positive, but less positive than it was the prior year. I also think about just the top line growth perhaps, because the employment conditions in Canada are especially strong right now. Is that playing into the performance of the business?

A little bit because like our performance of the Canada business is very strong. Like the U.S. is our leading segment, and it's ahead of Canada, it's ahead of Europe and it's ahead of the U.S. So I wouldn't just benchmark the Canadian business against the U.S. So what we've seen in the last couple of years in Canada is 7% growth in 2024, and we had 3% growth last year, but a portion of the growth in all of the segments is the earning of the surplus assets. We had lower interest rates in Canada if -- so the real growth in the underlying business in Canada was 6% in 2025. So 7% growth in 2024, 6% growth in 2025. That's really good performance in a very mature position in Canada. So as we look forward in Canada, our core product line in Canada is our group benefits business. So health and dental that so many Canadians have coverage and then life insurance and disability insurance alongside that. That's a very mature market position. If we continue to grow that at 4%, 5%, that's very good performance. But as I look forward, where I really see the growth potential in Canada is in our Wealth business. We believe we obviously specialize in the independent adviser space. We think there's a lot of growth potential there. As we look at other markets around the world, the independent advisers have a much higher segment than they have in Canada. We think we can lead out growth in that. And then the Retirement group, Workplace Retirement business in Canada as well. Like we have a lower share there versus what we have in Ireland and the U.S., and it's our ambition to build out. So I see a very strong platform on the group benefits insurance business with very good growth potential in Wealth and Retirement.

The Wealth business in Canada, is that -- like is the tip of the spear, the seg fund business?

It's the seg fund business. It's -- I wouldn't describe it as the tip of the spear. Like it's a very important part for product setup. There's particularly very -- some very attractive features for seg funds for inheritance and state planning, and then there's underlying guarantees there as well that there in the mutual funds. So that's going to be a very important part of our product offering. But I think where we expect to see much stronger growth on the Wealth side is just in the normal mutual fund business.

Right. Now moving on to Europe. A couple of years ago, the message was we needed to make some changes to improve the performance, and that actually improved faster than I expected, the growth rebounded faster rather. But the U.K. looks still a little bit weaker than some of the other markets, especially Ireland. What's going on in the U.K. that's kind of impeding?

Yes. Like our 3 businesses in Europe are performing very well. So Ireland and the U.K., we have a smaller business in Germany, but both U.K. and Ireland performing very well. The one line that was quieter last year in Europe and within the U.K. was the bulk annuity market. So there were, sort of, some legislative changes and it was more for defined benefit schemes potentially bringing those liabilities to the insurance market, and some rule changes around how employers might be able to capture surplus within defined benefit schemes. So that led to a slowdown in that pension risk transfer market last year. So the market from '24 to '25 was down 20%. Our performance was down 20% as well on that product line. So that was a sort of external market impact. So that slowed growth a little bit in the U.K. But outside of that, like top line growth in all of our different product areas in Europe was very strong last year. I think the other area where we've been working really hard on Europe is just the capital efficiency of the business. So there's been fantastic capital return, and capital generation and cash payback from the European business to Great-West, and that's been a very important driver to our very strong cash position overall. So again, when you -- yes, yes. So when you adjust again those surplus earnings within Europe, we had 7% growth overall in Europe last year. So, yes.

And then I guess, with regards to the bulk and annuities business, what's the outlook for that one?

Yes. We expect that market to return to normal growth this year. So we'll see that over the year. Like the outlook -- the expectation for the pension risk transfer market in the U.K. is like $50 billion of liabilities to transfer from the sort of corporate world to the insurance world over the next decade. So that's a huge market. There are a number of new players in the market, but it's a very, sort of, well-regulated controlled market. That's why it's one that we like to operate in. It sort of fits very well with our, sort of, risk posture. And we like our position there, and we expect to do well.

Okay. The Irish business, which you're very familiar with.

Yes.

What is the potential there? It's been a great growth story, but it's a market of only 5 million people. So it's easy to, kind of, look at it.

It's a very fast-growing economy, one of the fastest population growth in Europe as well. So it is small, but I think it's already 5.5 million, and higher than that. So it's on a path to 6 million, 7 million, but it's always going to be of that size. But it's a very dynamic economy. It's a very fast-growing economy. We have an incredible position there. In some of the product lines, we have 50% market share, like -- I think our lowest sort of market share position there is mid-20%. But most of them are 30%, 40%, 50% market share. So we have an incredible position there. So -- and again, I think the interesting thing about Ireland is just the transformation that's happened over 40 years. We've gone from being one of the poorest economies in Europe to one of the richest. That means Wealth assets and the Wealth sort of population, if you like, is very young in Ireland. So again, that gives a great -- an even higher growth opportunity for a business like ours than the growth you would expect in the economy. So yes, it's -- Ireland is never going to be as big as Canada or the U.S., but the growth prospects there are very good.

Yes. I know you just had an Investor Day, but might be a good idea to have the next one in Dublin.

Yes, yes. Gabriel was saying to me beforehand, possible family trip to Dublin. So,yes.

Yes. I always have an ulterior motive. I want to wrap up on a couple of capital allocation decisions. The one of the -- I was talking to you earlier and something that I'm guilty of is you pay attention to the stock for a long time, and a company, and how it behaves for a long time, and you get accustomed to -- that's what they usually do and then all of a sudden, something changes. And wait a second, this actually happened. Buybacks were pretty notable from Great-West last year. And just -- the appetite is still there? What changed in the attitude to make you so active, I guess, on buybacks?

Yes. I don't think we're alone in this. I think there's been a maturing in the insurance industry around the importance of capital. It's effectively your stock within the business. You have to manage it very, very efficiently. We're a very flat organization. Great-West sits at the top. We have our 4 segments. Most of our profits -- practically all of our profits are cash. It flows very easily back up to the top. We invest about 20% of that back into new business on our capital support to businesses. The next 50% odd goes on dividends, and then that leaves 30% in spare amounts. So it's not our intention to build up a large cash stockpile. Like obviously, if there's acquisition activities, it will get diverted towards that. But that leaves at, say, $5.5 billion earnings, or $5 billion earnings, that leaves a good chunk of money every year. So we bought back, I think it was $1.6 billion last year, and we have the facility set up to our normal issuer course bid to do a similar amount this year.

And I guess that you did mention the -- use the acquisition word. And we talked about this earlier, but I just want to go back to it because on the Q4 call, and I take my notes, and I'm like, he's talking a lot about acquisitions. It was -- was there an intent to signal something there, or just...

No, it wasn't an intent to signal something. So like we're very open to acquisition activity. But when I say that, don't interpret that as there's an imminent acquisition. So go back, clearly my earlier comments, like acquisitions have to be relatively clean for us. They have to be a good strategic fit. They have to meet all of our hurdle rates. And our day-to-day focus is really building the organic capability within the business. So -- like we've lots of firepower if the opportunity comes up. Even with the buybacks, we're sitting on $2.1 billion in cash. And our leverage ratio is much lower than it has been the last number of years at 28%. Our LICAT ratio is 128%. It's above our, sort of, operating range. So if we do a similar level of buybacks this year than we did last year, all of those, sort of, cash positions, ratios stayed the same. So we have lots of firepower, but that does not mean there's an imminent acquisition.

All right. Well, David, thanks for coming to Montreal, and I hope to see you again next year.

Okay. Thanks a lot. Yes.