The creation of one of the largest health insurers in Ireland is set to lift the Canadian company’s 2017 earnings.
GREAT-WEST LIFECO INC. (Toronto symbol GWO; www.greatwestlifeco.com) is Canada’s second-largest insurance company, after Manulife Financial (Toronto symbol MFC). It also offers mutual funds, retirement planning and wealth management services. Power Financial (Toronto symbol PWF) owns 67.6% of Great-West.
As of September 30, 2016, the company had $1.2 trillion of assets under administration; that’s up 1.3% from the start of the year.
Great-West gets 43% of its earnings from Canada, where it operates under well-known brands Great-West Life, Canada Life and Freedom 55. Its European operations (42% of earnings) mainly sell group insurance and annuity products in the U.K., Ireland and Germany. In the U.S. (15% of earnings), Great-West is a leading provider of employer-sponsored retirement savings plans. It also owns mutual fund firm Putnam Investments.
Great-West’s revenue rose 2.3%, from $29.9 billion in 2011 to $30.6 billion in 2012. Insurance companies invest the premiums they receive in stocks, bonds and other securities. They use the funds from these investments to cover future claims and other liabilities.
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Due to a $3.0 million loss for its investment portfolio, the company’s revenue fell to $26.4 billion in 2013. Revenue then improved to $39.2 billion in 2014, mainly due to Great- West’s $1.75 billion acquisition of Irish Life; that’s Ireland’s largest pension manager and life insurance provider. Investment losses again cut revenue in 2015, to $33.8 billion.
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Earnings fell 25.3%, from $2.13 a share (or a total of $2.0 billion) in 2011 to $1.90 a share (or $1.8 billion) in 2012. Earnings recovered to $2.34 a share (or $2.3 billion) in 2013, and reached $2.77 a share (or $2.8 billion) in 2015.
The company continues to expand in Ireland. It recently bought Ireland’s Aviva Health and increased its stake in GloHealth from 49% to 100%. Aviva and GloHealth have now merged to become one of the biggest health insurers in Ireland. By 2018, that move should cut 16 million euros (about $24 million Cdn.) from Great-West’s annual costs.
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Partly due to higher claims, the company’s earnings in the three months ended September 30, 2016, declined 6.4%, to $674 million from $720 million a year earlier. Earnings per share fell 5.6%, to $0.68 from $0.72, on fewer shares outstanding. Revenue jumped 56.0%, to $13.4 billion from $8.6 billion, mainly due to gains on its investment portfolio.
Great-West’s recent acquisitions should push up its earnings, from a projected $2.68 a share in 2016 to $3.00 in 2017; the stock trades at 11.0 times the 2017 forecast. Great-West’s portfolio also stands to gain when interest rates move up: a 1.0% increase in rates would add $168 million to yearly earnings. The $1.38 dividend yields 4.2% and seems secure.
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