Great-West Lifeco Inc

Good afternoon. And welcome to Great-West Lifeco’s fourth quarter 2014 conference call.

Joining me today is Bill Lovatt, Executive Vice President and Chief Financial Officer, Lifeco; Garry MacNicholas, Executive Vice President, Actuarial and Risk, Lifeco; Mark Corbett, Executive Vice President and Chief Investment Officer, Lifeco; Dave Johnston, President and Chief Operating Officer, Canada; Bob Reynolds, President and Chief Executive Officer, Great-West Lifeco U.S.; Arshil Jamal, President and Chief Operating Officer, Europe; Clare Richer, Chief Financial Officer, Putnam Investments; and Louis Mannello, Chief Financial Officer, Great-West Financial. Before I start, I'll draw your attention to our cautionary notes regarding forward-looking information and non-IFRS financial measures on slide two.

These cautionary notes will apply to the discussion you will hear this afternoon, as well as to the presentation material that you have been provided with. Earlier today, Lifeco reported its fourth quarter earnings and also declared a quarterly dividend on its common shares of $0.3260 per share, a 6% increase from last quarter.

This is the first dividend increase since 2008 and it speaks to the confidence we have in our business and strength of our financial position. Now turning to slide four, Lifeco’s fourth quarter operating earnings attributable to common shareholders reached $657 million or $0.66 per share, compared with $491 million or $0.49 per share for the same period in 2013.

Backing out the impact of restructuring and acquisition charges related to the acquisitions of Irish Life and J.P. Morgan Retirement Plan Services, year-over-year growth in net earnings was 30%.

These earnings were driven by strong fee income. In addition, expected profit on in-force business was up across all geographies, growing by 10% overall.

Irish Life contributed $70 million to Lifeco’s earnings, its second strongest quarter since the acquisition. Moving to slide five, Lifeco’s premiums and deposits grew by 4% year-over-year, driven mainly by Canada and Great-West Financial.

In Canada, premiums and deposits were up 9% reflecting strong sales and persistency results in its individual and group wealth management businesses. At Great-West Financial premiums and deposits in individual markets were up 15% due to higher sales of IRAs and individual annuities.

I would note that Putnam’s sales reached US$9.2 billion, which is the strongest quarter since the acquisition in 2008. Overall, Lifeco sales saw 1% decline, mainly due to weaker U.K.

payout annuity sales and lower Great-West Financial public non-profit sales, which can be quite lumpy. Assets under administration were up 40% from one year ago and up $41 billion from the previous quarter, ending the year at $1.63 trillion.

Organic growth in assets under administration was 19% in the U.S., 9% in Europe and 8% in Canada. The acquisition of J.P.

Morgan Retirement Plan Services in Q3 2014 added $196 billion in AUA growing to $207 billion by year end in 2014. On slide six, you will note that Lifeco repaid $353 million of debt in quarter, which improved its financial leverage ratio to less that 30%.

This is further increased our financial flexibility to invest in organic growth and acquisition strategies. Great-West Life MCCSR ratio was 224% at December 31.

This ratio does reflect the debt repayment that I just mentioned, but does not include the approximate $700 million of cash hold at Lifeco. Our book value per share continue decline reaching $16.80, up 11% year-over-year.

Also Lifeco renewed its Normal Course Issuer Bid on December 9th for one year with capacity to purchase and cancel up to $8 million of its common shares. I would now like to mention some organizational development.

In January Putnam appointed Jeffrey L. Gould as Head of Putnam Global Institutional Management business.

Jeffrey is well regarded -- a well regarded industry leader in the U.S. asset management sector.

In Q4, we announced that Grace Palombo will join Lifeco as the newly -- in the newly created role of Chief Human Resources Officer. Grace has over 25 years experience and is a leading HR professional in North America.

Finally, you will recall that in December -- on December 11th we announced the upcoming retirement of Bill Lovatt in mid-2015. Garry MacNicholas, who is currently Executive Vice President Actuarial and Risk will be taking over as CFO effective March 31, 2015.

While Bill will be supporting Garry transition to CFO post-March 31, this will be his analyst call where he takes the lead as CFO. While I know we all miss Bill’s presence and insights, I am also very pleased that he was here to guide through the financial crisis to our position of strength today.

Now, continuing to slide seven. 2014 was a great year for us, a year of strong double-digit earnings growth and industry leading ROE.

Lifeco’s reported net earnings were $2.5 billion in 2014 or $2.55 per common share. Excluding the impact of the litigation recovery in 2013, operating earnings were up 24% in 2014.

Adjusting for Irish Life and J.P. Morgan RPS acquisition and restructuring costs earnings were $2.6 million or up 20% year-over-year.

Lifeco’s earnings remain of high quality as demonstrated by the source of earnings display and are driven by strong increase and expected profit from in-force business. .

Expected profit on in-force business reached $2.6 billion in 2015, up 18% from last year. Turning to slide eight, earnings in 2014 were driven by $261 million contribution from Irish Life continuing the strong -- with continued strong investment performance and robust growth in underlying core income.

The integration of Irish Life has been a great success story, which achieved synergies of €40.8 million. Lifeco expect to exceed the original €40 million synergy target by at least 10%.

While focused on integration, Irish Life exceeded their sales target and increase market share. Arshil Jamal will provide more color on this.

As part of the J.P. Morgan RPS acquisition, Lifeco launched a new combined brand Empower Retirement to consolidate and support the retirement services business of Great-West Financial, the acquired J.P.

Morgan Retirement Plan Services business and the retirement business of -- the group retirement business of Putnam Investments. Moving to slide nine, I would like to highlight our strategic focus for 2015.

Lifeco will be making a significant investment in new products, technology and capabilities. These investments will allow us to continue delivering long-term value to our customers and shareholders.

In Europe, we will respond the recent changes in U.K. Pension Legislation by developing a wide range of innovative retirement income products.

In U.S. we will continue to invest in Empower Retirement to unite three well-established retirement businesses and to further build their respective strengths into a strong leading player.

In Canada, we are investing in digital technology, product development and service enhancements to facilitate our multiyear organic growth strategy. That would conclude my comments and I will now turn it over to Bill Lovatt.

Bill?

Thanks, Paul. Turning to slide 11, adjusted operating earnings.

In Q4 operating earnings reached $657 million or $0.658 a share. We’ve been adjusting the operating earnings for the impact of the Irish Life related restructuring costs, of which there were $6 million in the fourth quarter.

In addition, this quarters earnings were impacted by $3 million of restructuring charges related to the acquisition of the J.P. Morgan Retirement business.

This is all detailed in footnote two on slide 11. Excluding these items then, adjusted operating earnings were $666 million or $0.668 a share.

Year-over-year growth in adjusted operating earnings was 30%. On slide 12, we present the annual earnings per share and dividend per share history since 2006.

The first time since the financial crisis, our dividend payout ratio fell below 50% for all of 2014. I would like to restate, company does not have a target dividend payout ratios.

The Board’s decision to increase the dividend this quarter is based on several considerations. Including, the prospect for our businesses are favorable and the Irish Life integration is significantly advanced.

Company’s regulatory capital ratios are strong in all of our operating jurisdictions. Our leverage ratio was reduced by debt repayment in the quarter and as Paul indicated, the leverage ratio was now less than 30%.

And finally, the liquidity positions both the holding company and the operating companies are very strong. Lifeco ended the year with over $700 million in holding company liquidity.

Turning to slide 13, we present our adjusted operating earnings return on common shareholders’ equity on a trailing four quarter basis. Adjusted ROE was 15.9%, up from 15.2% in Q3.

Over the last 12 months, operating earnings have included $30 million of restructuring and acquisition charges related to both the Irish Life and J.P. Morgan acquisitions.

Based upon these operating earnings in the quarter ROE was 15.7%. On the left hand side of slide 14, year-over-year sales marginally declined in Q4, mainly due to lower sales in Europe.

On the right hand side of the page, premiums and deposits were up 4%, a strong sale at Putnam and in Canada combined with good persistency were offset by lower year-over-year contribution from Europe. I will refer to the business leaders to provide additional detail.

Turning to slide 15, fee income was up 16% year-over-year and up 12% on a constant currency basis driven by strong growth across all geographies. Fee income grew by 42% in the Great-West Financial, 25% at Putnam, 6% in Canada and 5% in Europe.

Growth at Great-West Financial was primarily due to higher administrative fees resulting from the RPS acquisition. From the date of acquisition, August 29 to year end, RPS has contributed $62 million in revenue and incurred a loss of $4 million.

On slide 16, operating expenses were $989 million in the fourth quarter, up 7% from last year. The increase in expense at Great-West Financial reflects the inclusion of RPS.

At Putnam, expenses were down 6% year-over-year. These results include an expense recovery related to the settlement of the legal matter of US$20 million.

Adjusting quarter’s impact and the fair value adjustment of share-based compensations, operating expenses are around 18% or 8% in U.S. dollar terms.

Operating expenses in Europe were up 2% or flat in constant currency, reflecting the cost synergies realized to Irish Life, partly offset by higher project spending mainly related to preparation for Solvency II. On Slide 17, total assets under administration end the year over $1 trillion, reflecting the third quarter omission of approximately $200 billion from the JP Morgan RPS transaction or $1.63 trillion of assets under administration splits down $697 billion in the United States which includes both Great-West Financial and Putnam; $205 billion in Europe including Irish Life; and $161 billion in Canada.

Book value per share on slide 18 rose 11% during the year to $16.80. It increased by $1.6 billion.

Of that $1.6 billion, currency accounted for just over $500 million.

Thanks very much Bill. I’ll now turn it over to Garry MacNicholas who will deal with capital and other matter.

Thanks Paul. Starting on Slide 20, at December 31, 2014 Great-West Life’s consolidated MCCSR is 224%, a 9 point decrease from September 30th.

Great-West Life’s insurance company paid additional dividend to Lifeco during the fourth quarter, Rich has noted earlier. We’re deploying to reduce that and improve financial leverage.

In addition, notwithstanding the strong earnings performance, the general decline in interest rates with downward pressure on the ratio as portions of the required capital are determined by factors apply to the fair value of assets and liabilities. And this reverses the uplift we’ve seen in 2013 as rates were then rising.

The IAS19R pension accounting days in headwind of one point per quarter is now complete. Over the past four years, the various IFRS accounting related phase-in have resulted in a cumulative headwind of over 20 points and it’s great to have this behind us as we go into 2015.

The MCCSR ratio shown here do not include holding company cash which at December 31st would add approximately 12 point for this ratio. Turning to the sources of earnings display on slide 21, under pre-tax that is shown on the upper part of the table, expected profit is out $60 million this quarter over the fourth quarter of 2013, representing a 10% increase year-over-year, with growth in all regions.

The increase was driven by higher expected fee income on the larger wealth management asset base as well as favorable currency movement partly offset by lower expected profit in Canadian group long-term disability business. New business impacted primarily in Europe and is noted in the earlier quarters is largely earning strain from the non-deferrable sales cost on wealth management business mostly at Irish Life.

Experience gains were small negative $3 million this quarterly, unusually low compared to an average of $118 million per quarter over the prior seven quarters. In keeping with past experience, solid investment trading results were realized across all regions.

However, these were offset by negative experience against other assumptions. For example, Canada experienced increased expenses in unfavorable long-term disability in policyholder behavior results.

In the U.S., traded gains were more than offset by investments being made into the business to reposition or rebrand retirement business across entities. In Europe, traded gains were largely offset by ratings downgrades and Solvency II project expenses.

During the quarter, we impacted the change to actuarial standards contributed $64 million pretax, $60 million post tax close to our post-tax estimate of $50 million disclosed in prior quarters. Other management actions in assumption changes added $157 million pretax in the quarter.

Notable contributions arose from changes in respect to life insurance mortality in the U.S. and future longevity improvements in Europe payout annuities.

Turning to the annual SOE displayed on slide 22, expected profit is up $390 million this year over 2013, representing an increase of 18% year-over-year driven by Irish Life contributing for the full year, higher expected fee income, currency movements and good business growth. The new business loss of $89 million in 2014 was $115 million lower than in 2013 primarily result of Irish Life and its wealth management sales earnings strain.

We included for full year along with lower volumes of annuity business written by U.K. due to the change in pension legislation.

Experience gains of $380 million for the full year in 2014 were $64 million lower than 2013 primarily due to the lower contribution this quarter which offset the underlying trend of consistent investment yield enhancement gains. In addition to the impact of the escrow standard change, other managing actions and changes in assumptions contributed $358 million to pretax severance in 2014 compared to $138 million in 2013.

While there were numerous updates during the year, the most significant contributors for longevity, improvement updates for European annuities, improved life mortality subs in the U.S. and lower provisions for asset default partially offset by a move to a new mortality vehicle in Canada.

And other just as a reminder, it reflects the restructuring and other cost related to the Irish Life and J.P. Morgan Retirement Plan Services acquisitions.

Back to you, Paul.

Thanks very much Gary. I’ll now turn it over to Mark Corbett who will speak to the invested assets update.

Mark?

Thank you, Paul. Turning to Slide 24, the net impact from credit and rating activity was a negative $19 million in the quarter.

The results in the quarter was impacted by the rating downgrade of a large retailer in the U.K. On a full year basis, impairment activity contributed positive $22 million, reflecting disposals and mark-to-market recovery on certain impaired maturities.

The full year impact of rating activity was a negative $36 million. Slide 25 highlights the diversification in our invested assets portfolio.

Lifeco’s total invested assets were $156.8 billion at 12/31/14. The portfolio remains heavily weighted toward fixed income, with bonds comprising 73% and mortgages further 13%.

The quality of the bond portfolio remains very high, with 83% rated A or higher and 98% rated investment grade. Bonds rated below investment grade represent only 1.1% of invested assets and we're pricing around $1 at the end of December.

The mortgage portfolio is predominantly conventional commercial mortgages, which represents 10% of invested assets. The Canadian portfolio includes the component of insured single and multifamily residential and conventional residential.

The portfolio is well diversified and well seasoned. Stocks and investment properties comprised 5% and 3% respectively as we consolidated investment asset portfolio.

The stock portfolio is mostly Canadian publicly traded stock. The investment property portfolio is un-levered and focused on the Canadian and U.K.

markets. Slide 26 details our total Lifeco bond holding by sector and domicile of issuer.

The portfolio is heavily weighted to the four countries where we get significant business operations and is otherwise very well diversified by geography. Our exposure to peripheral Eurozone countries remains small.

Within the broader Eurozone, Germany, France and Netherlands represent our largest holding. We do not have any exposure to Greece.

On Slide 27, you can see that our portfolio of corporate bonds represents about 38% of investment assets and is well diversified across industry sectors with no sector comprising more than 5%. The corporate bond portfolio includes exposure to the oil and gas sector which represented 2.8% of invested assets.

On Slide 28, we break down our oil and gas holdings by sub-sector. Our exposures to companies that are focused on independent expiration and production and oilfield services represent 26% of invested asset, a small subset of our total oil and gas exposure.

Our oil and gas exposure is virtually all investment grade at current oil prices we could experience from selected downgrade with our investment grade. At this point, we are not expecting any material rating activities or credit impairment impact.

Paul?

Thanks, Mark. I'll now turn it over to Dave Johnston who will take us through the Canadian results.

Thank you, Paul. Looking first to the left-hand side of slide 30, insurance sales were $238 million, down 8% from the fourth quarter of 2013.

Individual insurance sales including living benefit sales were $117 million and 19% lower than a year ago. During the fourth quarter, we continued to experience some service issues with the processing of new individual insurance business which did have an impact on sales.

This has created a backlog of applications which we are working in process and these service issues will be addressed in 2015. Group insurance sales of $121 million were up 4% compared to the fourth quarter of 2013 and these reflected very good growth rate in the small and midsized market segments which increased 17% year-over-year.

The right hand chart illustrates total insurance premiums and deposits were up $3.1 billion which were 5% higher than the fourth quarter of 2013. Individual had strong growth of 8% while group was somewhat muted at 2% due to the termination of one large client during the quarter.

Turning to slide 31, we see a continuation of very strong wealth management growth. Sales were $3.1 billion for the fourth quarter, up 19% over 2013.

Individual wealth sales were up 11% reflecting strong segregated and mutual fund sales which increased 12% and 22% respectively compared to the fourth quarter last year. Fourth quarter 2014 sales of Group Retirement Services products were $816 million, an increase of 46% compared to the fourth quarter of 2013 and this reflects higher group capital accumulation plan sales and higher single premium group annuity sales.

These single premium group annuity sales can be quite volatile quarter-to-quarter. I would also note that our total Wealth Management Investment funds experienced strong net cash flows of $264 million for the quarter.

Premiums and deposits for wealth grew 16%, compared to the fourth quarter of 2013, reflecting strong persistency sales. Both individual wealth and group retirement businesses generated strong growth of 14% and 17% respectively.

Fee income is noted on slide 32 and for the quarter was up 6%. The 4% growth in segregated fund fees was driven by positive cash flows and higher market levels, partially offset by provision for fee income.

Excluding this provision, segregated fund fee income would have increased 9%, compared to the fourth quarter of 2013. ASO fees are up 10% compared to last year and 8% growth in the other fee income category reflects higher mutual fund fees and higher real estate asset management fees, which were up 9% and 12% respectively.

Moving to slide 33, expenses in Canada were $336 million for the quarter, 1% higher than last year. This results, however, does include lower pension cost.

Excluding these lower pension costs, our operating expenses increased by 3.3%, reflecting strong expense management in all the lines. Our macro unit costs continued to reduce on a year-over-year basis.

Turning to slide 34, operating earnings in Canada for the fourth quarter were $300 million, up 11%, compared to fourth quarter of ’13. For the full year of 2014, earnings are up 7%.

The fourth quarter results for Canada reflect strong performance in our core business operations, primarily from higher fee income and higher investment gains. The linked quarter results also reflect the net impact from insurance contract liability basis changes, including the impact of the new actuarial standard discussed earlier by Garry.

Starting at the bottom of the graph, group insurance reported operated earnings of $96 million, consistent with the fourth quarter of last year. During the quarter, our long-term disability morbidity results were below expectations as last year, however, was still positive.

This reflects the continuation of increased claims, incidence and declining interest rates, both of which the industry is being affected by. We continue to re-price our long-term disability coverage and have implemented price increase in December of last year and more recently an increase was put into effect in February of this year.

Individual insurance operating earnings increased 64% to $120 million, reflecting higher net insurance contract liability basis changes, primarily relating to the new actuarial standard, partially offset by lower investment and expense fees, compared to the same quarter in 2013. Wealth Management operating earnings were down 26% and this decrease primarily reflects the impact of the lower basis changes, again primarily related to the new actuarial standard and lower fee income growth due to the inclusion of the fee income provision noted previously.

Corporate earnings in the quarter were slightly higher. So to summarize, quarter-over-quarter, we had some positive net basis changes and management actions.

However, these were largely offset by the fee income provision and lower expense gains as a result of the lower individual insurance sales. As Gary referenced, a moment ago in the source of earnings analysis, expected profit on in-force business in Canada grew 11% in the quarter.

So, all-in-all, we felt this was a solid result and a very strong full year with earnings up 7% and expected profit on in-force business up 8% for the full year. And those conclude my comments for Canada.

Thanks, Dave. Now, I will ask Bob Reynolds to speak to both the Great-West Financial and the Putnam results.

Bob?

Thank you, Paul. I will start with Great-West U.S.

During the fourth quarter, there were significant strides made in the integration efforts of the Empower, the bringing together of retirement businesses to Great-West Financial, J.P. Morgan Retirement Plan Services and Putnam Investments.

In 2015, there will be significant additional resources spend on integration, as well as strategic and business initiatives that will help to position Empower as the premier DC provider in the industry well into the future. Empower will deploy the three sources, expertise and scale and provide the marketplace and millions of working Americans a different framework for planning and preparing for retirement, all geared toward more successful outcomes of the aggregate retirement plan at persistent levels.

The pipeline for Empower is strong, very strong. And there are over $30 billion of committed assets for 2015 and many more prospects out there.

I will be starting with the Great-West Financial results for the quarter. On the left side of the slide 36, sales in quarter were $4 billion compared to 2013 levels of $5.3 billion.

The decrease is primarily in the public non-profit segment where sales were $1.5 billion. This decrease was primarily due to one large government plan sale in the prior year.

The increase in public non-profit is partially offset by strong individual market sales. In individual markets, the total sales were $716 million, up 69% from 213, driven by increases in retail bank and IRA sales.

Moving to the right side of the slide, premiums and deposits in the quarter were $2 billion, down 6% from 2013, primarily due to a decrease in 401(k) sales. Individual market is up 15%, primarily due to the higher sales in the financial institution products.

Turning to slide 37, fee income in the quarter was $215 million, up 30% from 2013. Variable fees in total, the bottom two parts of the bar, were up $22 million or 22%.

Q4 of 2014 includes $7 million of variable fees attributable to the RPS business. Excluding RPS, the variable fees would have been up $15 million or 15%, primarily due to the higher equity markets and higher asset levels from net cash flow from the last 12 months of sales.

Administrative fees were up $28 million year-over-year. This increase was primarily due to the contribution of $33 million from the RPS business.

This was offset by the elimination of fees between Putnam and Great-West leading services. Individual market fees were flat year-over-year.

Turning to slide 38, operating expenses in quarter were $192 million, up $70 million from 2013. Within retirement services, there were increases of $40 million for the ongoing RPS operating expenses, $2 million in Empower transition expenses as well as $4 million in other one-time expenses.

The acquisition and integration expense is related to the RPS transaction of $16 million total in quarter and are included in the acquisition expenses in white bars between the chart. Moving to slide 35, operating earnings in quarter were $80 million, up $3 million from the 2013 level of $77 million.

The increase is driven by growth in the business as well as positive mortality experienced in the insurance segments. These gains were offset by the inclusion of acquisition and integration expenses in the current year.

In retirement services, earnings were $46 million, up $2 million or 5% from the 2013. The increase is primarily due to strong growth in the business, as well as one-time items related to basis changes and yield enhancement transactions.

In individual markets, earnings of $41 million were up $9 million from last year’s level of $32 million, primarily due to federal mortality basis change and yield enhancement transactions. The corporate area had a loss of $7 million compared to a gain of $1 million in 2013.

The decrease in earnings is due to the inclusion of approximately $10 million in acquisition and integration items in the current period. I will now switch over to Putnam Investments.

For the 25th consecutive year, Putnam has been recognized by DALBAR, a mutual fund service quality. Turning to slide 40, ending assets under management of $158 billion increased 5% from Q4 2013 due to the impact of favorable market conditions, investment performance and net asset inflows.

Average assets for the quarter were $157 billion, an increase of 8% from the same period a year ago. With respect to Putnam’s investment performance, for the five years ended December 31, 2014, 89% of Putnam’s funded assets are above the Lipper median compared to just 36% for the five years ended December 31, 2008.

Putnam has been ranked sixth out of 56 mutual fund families in the 2014 Barron's Lipper rankings among all other families assessed during the past five years. Mutual fund gross sales in the quarter were $6.2 billion, which is an improvement of 10% from the same period a year ago and near their highest levels since 2002.

Linked quarter net inflows were $700 million, a decline of $1.1 billion from the year ago. Inflows in the same period the year ago were near their highest levels since 2001.

The strong sales inflows continue to be driven by results in our retail advisory sold channel, which includes warehouses, regional broker dealers and registered investment advisors, as well as an improvement in the Defined Contribution Investment Only channel. 2014 net flows of $5.9 billion outpaced 2013 results of $3.7 million.

The institutional channels experienced solid gross sales of $3 billion. However, one-time reductions from two lower fee institutional mandates contribute to net outflows of $1.9 billion in the quarter versus inflows of $200 million in the previous quarter.

The institutional pipeline at Putnam remains quite strong and as Paul said in his earlier remarks, we are very excited about having Jeff Orr joined us. Turning to slide 41, Putnam’s fee income in the quarter was $243 million, an improvement of 15% from the same period a year ago due to the impact of higher average assets under management and mix on Putnam’s investment management fees, increased performance fees, services and sales based fess also drove growth in the period, Turning to slide 42, Putnam’s after-tax core earnings was $12 million, a $4 million improvement in the same period a year ago.

The higher fee income noted earlier was partially offset by decrease in investment income. Operating expenses include an expense recovery related to the net settlement of a legal matter of $20 million partially offset by higher operating expenses, including volume related expenses.

The income tax reflects the impact of the change in U.S. state tax rates of $7 million.

As part of the initiative, consolidate the U.S. retirement services business into a single brand, Empower Retirement.

Putnam transitioned its full-service retirement business unit to Great-West Financial effective January 1, 2015. During 2014 that unit reported a net loss of approximately $20 million after-tax primarily due to business development expenses and building out the platform for future growth.

Integrating it into the Empower Retirement will provide the greater scale and synergies going forward. Turning to slide 43, Putnam’s contribution to Lifeco is a loss of $1 million in the quarter, an improvement of $23 million from the same period a year ago.

This improvement is primarily due to the modification of certain Putnam-based share comp plans to equity settle which lowered the compensation expense by $21 million and the improvement in after-tax core earnings. Paul?

Thanks, Bob. We will close with Arshil Jamal taking us through the European results.

Thank you, Paul. Turning to page 45, Q4 sales in Europe were $3.2 billion, a decrease of 34% from the fourth quarter of 2013.

U.K. payout annuity sales fell by 72% compared to the same quarter a year ago, reflecting the continuing impact of the pension changes that were announced in the 2014 U.K.

budget. These changes will take full effect from the 5th of April 2015.

U.K. payout annuity sales in Q4 fell by 15% compared to the third quarter of 2014.

We had another strong sales result in Ireland across each of our retail, corporate, and fund management businesses, and again reported over €1 billion of gross fund management sales in Ireland during the quarter. Despite the strong performance, Irish sales decreased by 32%, as we benefited from an exceptionally high levels of institutional clients gross fund management sales last year.

Compared to the third quarter, sales in Europe increased by $242 million and sales in Ireland increased by almost $500 million due to strong fund management sales and a seasonal pickup in Irish pension sales during the fourth quarter. Our German business also benefited from seasonal pickup in pension sales and in the U.K., sales decreased by 38% due to lower levels of offshore investment bond sales.

Q4 premiums and deposits were $5.3 billion, $1.4 billion lower than the fourth quarter of 2013. Premiums and reinsurance decreased by 5% due to the commutation of a health reinsurance treaty earlier this year, while the lower level of premiums and deposits in Ireland and the U.K.

were largely driven by the lower sales result. Premiums in reinsurance increased by $925 million from the third quarter, as we concluded a number of reinsurance transactions during the fourth quarter.

Turning to page 46, Q4 fee income was $290 million, up 5% from the $276 million level that we reported in the fourth quarter of 2013. Assets management fees increased in Ireland from the level a year ago due to strong growth in assets under management, while reinsurance fee income decreased as older business that was recorded on a fee income basis is replaced by newer business where we report revenue through the premium income line.

Fee income was largely unchanged from the level that we reported in the third quarter as higher fee income in Ireland offset lower fee income in reinsurance. On page 47, we show Q4 operating expenses were $206 million compared to $223 million in the same quarter of 2013.

Included in Q4 2013 operating expenses were $27 million of restructuring and acquisition related costs related to Irish Life, while Q4 2014 expenses include $7 million of Irish Life restructuring costs. Excluding these items, underlying operating expenses were $199 million, up 2% from Q4 2013 reflecting changes in currency exchange rates.

On a constant currency basis, operating expenses were flat year-over-year with lower expenses at Irish Life being offset by higher levels of project spend, including our Solvency II initiatives. Compared to the third quarter of this year, underlying operating expenses, excluding restructuring costs, increased by $13 million, but more than half of this increase reflected the release of an expense accrual in Q3, while the balance reflects the higher level of project in our expect.

The Irish Life integration continues to progress extremely well. To-date we have achieved almost $41 million of expense synergies on an annualized basis, exceeding the initial expense savings target of €40 million that we set for ourselves when the acquisition was first announced.

Large parts of the integration efforts are now compete and we expect to exceed our original expense synergy target by at least 10%, as we complete the final elements of our integration program in the coming months. We have also incurred just over $41 million of restructuring costs as part of our integration program.

Irish Life contributed strongly to this quarter’s earnings and for the full year, Irish Life contributed $261 million of operating earnings, well ahead of the targets that we set for ourselves at the time of the acquisition. And finally on page 49, Q4 earnings for European reinsurance were $274 million, up $72 million from the level that we reported during the fourth quarter of 2013.

This result includes $6 million after-tax charge for Irish Life restructuring costs, which compares to $23 million after-tax restructuring and acquisition costs that were incurred in the fourth quarter of 2013 and $6 million of after-tax restructuring costs that we reported in the third quarter of 2014. Excluding these restructuring costs, operating earnings during the quarter were $280 million, up $55 million from the $225 million level that we reported during the fourth quarter of 2013.

Earnings were up $34 million in Ireland reflecting favorable contributions from actuarial liability basis changes, higher fee income and expense reductions. U.K.

earnings increased by $12 million as the favorable impact of basis changes and currency exchange rate movements more than offset a lower contribution from morbidity experience and lower contribution from payout annuity business. U.K.

earnings during the quarter were also adversely impacted by rating downgrade activity. Reinsurance division earnings increased by $8 million.

The reinsurance division also benefited from the impact of actuarial liability basis changes and favorable currency movement and this was partially offset by higher level of mortality gains and modest increase in the effective tax rate. Compared to the third quarter, operating earnings increased in the U.K.

and reinsurance, but fell at Irish Life following an exceptionally strong contribution in third quarter. For the full year, net earnings increased by 48% to $1.38 billion, topping the $1 billion mark for the first time and reflecting a full year’s contribution from Irish Life and strong contributions from each of the U.K.

reinsurance and German business. Those conclude my remarks.

Paul?

Thanks, Arshil. I am knowing that we’ve gone a little bit longer than usual here so we will again open up the line to questions from analysts and we are quite prepared to go past 5 PM schedule than point if there is questions to continue on.

So operator over to you.

Good afternoon. Just want to talk about first the payout annuity sales.

Do you expect them to go down more in post April in the U.K.? And if that’s the case, do you expect strain to take another leg move up in 2015, because there was a $100 million increase in strain in the Europe that was written, 2014?

So certainly I will answer the sales question. So in Q4 2013, we had 298 million pounds of payout annuity sales and that has fallen down to 97.8 million at Q3 and then fell further to 83.5 million in Q4.

And we really think Q4 and Q1 will be the low watermarks for sales as people sit on the sidelines and wait for the changes to get fully implemented. We have an expectation of modest recovery in the [Technical Difficulty] of the year.

So we don’t think for the full year 2015 that we will see a further drop. We think over the quarters result in Q4 that we should be able to see some modest growth in sales of payout annuity through the 2015 period.

And with that increased sales activity we will see some improvement in the impact of new business as we typically expect to get new business positive contribution from the payout annuity business. And as we get further expected synergies in Ireland, we’ll see some moderation in the new business straight impact off of our Irish results for some of our protection products.

So I think from both of those outlines we expect to see slightly better results in 2015.

Okay. Thanks.

And just my last one here on the group business in Canada, economic outlooks not so great, employment growth probably going to slow, wage growth as well. You’re trying to push new pricing increases.

But are we going to see that offset by weaker sales growth and then how do you expect claims to develop if the people take -- make more claims when they expect to loose their jobs or is that something we might see in the coming year?

Well, generally, when we do see a downturn in economic conditions, there is a modest impact on claims incident, so there is some of that, but I would say it’s not material in any way. On the issue of rate increases, our approach has been to have modest rate increases on a more regular basis.

We expect that the industry is facing the same pressures that we are in terms of incidents and certainly in terms of interest rate. So we expect that the industry will be taking some pricing action as well.

So relative to competitive position probably won’t alter that much. So we think rate increases are appropriate.

There are modest rate increases and we’ll continue to watch the interest rates. But the incidence rate, the number of claims has been just on a slightly upward trend for sometime now and pricing sometimes takes a little time to catch up with that.

Thank you.

Thanks very much. Arshil, Paul talked about new investments products in the U.K.

Can you talk to us a little bit about timing of any potential launches, some of the products you’re considering? And how quickly could this become material to your European operations?

Certainly, I could speak to timing a little bit from -- without we have sort of launches that we’ll have in the marketplace. We’re working really hard on our systems infrastructure and on our asset management off grade.

And so we’re expecting to have soft launches [Technical Difficulty] income product into the IH channel sometime in April and then we’ll se how they’ll receive and then we expect to support that up with some technology initiative that will come to market in the later part of the year and possibly late Q3 early Q4. And I think that the end of the year that we will give you a better sense of how material that might be in the out year.

So it’s still very early in that transition in the marketplace. And we’re not going to be sort of guidance on how material we expect that to be as we report on progress we will highlight that at the quarterly meeting and then we’ll give you a better sense as we turn the corner into 2016.

Okay. Okay.

That’s fair. Sticking with you, Arshil, if I could.

Irish Life talked a lot about exceeding sales and synergy targets. I’d be interested in some comments on earnings.

I think last quarter just over $80 million, this quarter $70 million. I can’t remember if I ask last quarter, but is $70 million a reasonable run rate to grow off of or is it somewhat lower than that?

The $70 million is certainly fair bit higher I think than what you’d targeted run rate quarterly for ’14?

Yeah. I mean, it’s not our target to get forecast or guidance related to earnings.

I would note that full year Irish Life contribution was $261 million to Lifeco’s earnings and we are trying to grow the earnings contribution from all of our businesses, so I don’t intend to that to be specific items around Irish Life. So instead of looking at any particular quarter, I think if you look at the full year number and then off of that number we’re trying to go all of our businesses.

Okay. So take the $261 for the full year, is it reasonable starting point of baseline?

I think, Arshil, nodded.

I couldn’t quite hear that. If I could Paul, I’ll try this on you, you’ve -- I don’t think you’ve ever given us a payout ratio target?

Can I take in anyway from slide 12 that somewhere in and around 50 or slightly below 50 is the sort of range you feel comfortable with?

I don’t think, no, I don’t think you should take that from slide 12, because we actually don’t have a payout ratio target. We actually don’t have the dividend policy.

Every quarter we look at the overall situation, we take into account a number of financial ratios, the trajectories of the business, the strength of our capital position and we then take forward an appropriate recommendation. So you shouldn’t view that as any particular trigger point.

Okay. Worth a try.

Thanks very much.

Hi. Just a few questions on Putnam.

The first one, just to clarify the Putnam’s retirement business in the fourth quarter was in Great-West financial, is that correct?

No, it did move over to January 1, 2015.

Okay. So the last presumably is in that core earnings number of 12 this quarter, is that correct?

It was moved to January 1, 2015.

Okay. So that number all is equal be higher in 2015?

Yeah. I think just that number won’t include the retirement business that it has in 2014.

Okay. I notice and I just want to clarify again, the legal settlement, the gain on the legal settlement that is in the 12, and so if you move it, would it be a core earnings loss?

The legal settlement on a pre-tax basis is 20 and then after-tax is 12 and then don’t forget that it was also pointed out that there was a state tax adjustment as well.

So if you correct for those one-timers is Putnam on a core earnings basis at breakeven or…?

The state tax adjustment was a $7 million expense.

Okay. So it would be comfortably above breakeven.

Yes.

Next year, I guess, I think you said the last $20 million in the retirement business and that was due to spending to build the business, making -- it was an investment. Should we impute you probably have a similar loss next year and that loss will affect Great-West Financials result?

You cannot infer that because of reorganization of the business, we are in the process of moving from two back-ends to one back-end, three front-end interfaces for participants to one, so you cannot infer that.

So that will have that expense benefit down the line. Okay.

That’s it, Bill. Congratulations and thanks for everything these past many years.

Thank you, Peter.

Yeah. Thank you very much.

And maybe Garry, just some questions with respect to slides 20 and 21. Just first of all dealing with the MCCSR decline as a result of the debt, how much was that an impact on the MCCSR?

And then what was the impact of anything else in the quarter?

Yeah. If I was to look at the 9-point decrease, I’d say about 3 points was the interest rate decline, the fair value adjustments and so the other 6 was largely the additional dividends paid up.

Okay. And then, can you elaborate as to what the long-term disability experience hits were for Canada in the quarter?

The long-term disability in the Canadian Group business would have contributed -- I believe it was about 25 million as a pre-tax in the quarter.

In terms of the experience loss?

In terms of hitting and we show up in the experience gains on. So it’s one of the items that would have subtracted from the otherwise strong investment yield enhancement training activity to bring it back down towards the 11 figure showed on slide 21.

Okay. And then Dave, I think there were something mentioned about a fee income provision.

I’m not sure if I understood what that was, if you could elaborate on that, is that earnings impact somehow?

I’ll try to. In the fourth quarter, regulators indicated a change in what we would think their expectations around disclosure on high net worth products, mutual fund high net worth products, as well as we think it would apply to our safe fund.

So we’re evaluating what that change in expectation is what it means to the business, to our products and the provision reflects potential cost that might rise from those changed expectations.

David, well, I would outline that sort of a one-time expectation that we’re looking at there. So this is really setting a provision up and kind of waiting to get a better sense of the impact.

And what was the size of that?

It was 13 million.

Okay. And then maybe, I just want to elaborate on this Empower thing, what you’re trying to do here?

Are you guys trying to consolidate all these operations to build out in the retirement services business so what -- who is going to be, what are you targeting here. I think as I understood it Great-West financials is probably more of a small case 401k target, how and as well as some 457 or 403(b), how are you -- what are you looking to build out with this Empower?

Are you looking to build away from the Great-West Life’s financial capabilities here, maybe its little bit about what the business plan is with -- for Empower?

Yeah when you combine the three providers, you are now the second largest record keeper in U.S. [indiscernible] and you are right on each of the three companies of those specifically in the fine contribution market, Great-West financial was come under storm and they are the market leader in the government market and they did not profit.

Conversely J.P. Morgan RPS had a mega market business.

And then when you look at Putnam, it was in the large mega areas. So now we have total market coverage we are bring them together as one company as I stated.

We’ll have a secondary backend as Great-West financial backend which is industrial leading. We want to have one participant interface to the business and sponsor the pace.

Also we want to have same service growth for the levels across the business. So Empower to retirement in this stage means high quality, scalable and obviously all good factors you want to grow long term.

We take it as tremendous growth potential.

Now, if AUA, how do you end up on working in with Putnam to become AUM associated with some of this business as well is that -- are you just going to continue with Empower as being a AUA thing and then have Putnam really be -- how does it work in with Putnam’s institutional business?

Yeah. It would probably compete just like any other asset management on the platform.

And I would say also request as mutual fund family. And obviously we provide stable value, general account in that book of business.

So there is opportunity but the structure of Empower is a record key provider open platform and then our investment products have to compete just like any other product because of the new shared responsibility from the clients sponsoring us.

Now whether the spends that $20 million in terms of the expenses to build this, I’m wondering most of those, were they in the fourth quarter or were they just throughout 2014?

What was that…?

The 20 million that was there -- the $20 million net loss sorry, was that just -- that was only with Putnam’s?

That was Putnam’s business standing by itself.

Okay. All right.

So that would have been in the Putnam results before and that’s okay.

That is correct.

All right.

That goes away.

Yeah and are there any expenses that we would anticipate you’d have to take on to as you build out Empower is the additional kind of startup thing, the integration expenses how should we be looking at that?

Yeah. I mentioned the lack of maturity, significant expenditures to do this integration which will take place over the next two plus years.

We were bringing over the JP Morgan RPS clients in different ways. The first way starts next month and it will take place over the next two years and there are costs associated with that.

Yeah, Paul, I would just add the fact that I wouldn’t view this as a traditional two companies brought together and then -- we invest into build this up. So some of the difficult restructuring integration caused to larger extent were talking about real strategic investment in growth that’s what we are focused on.

That’s all.

Okay. Well thank you very much for that.

Welcome.

Good afternoon on page nine of your presentation, you referred to 2015 being your continued investment in future growth in volume. It sounds like you are referring to more than just your normal growth and expenses.

First, could you confirm that for me this is not just your normal growth in expenses and if you can quantify this like how big in increase are we talking about?

Yeah I’m not -- again we don’t provide guidance on earnings -- or expenses going forward either. But I would say that we are looking at greater investments in our systems, in product development and in innovation.

One other things that we see is where we got really strong foundation right now, we‘ve come through the financial crisis. We are in a good strong capital position and we want to grow.

We made important capital through acquisition as we always were looking at our acquisitions. We also wanted to deploy capital by investing in the business, investing in where we see the high growth, high profit potential areas.

So we’ll see higher level expense growth but it’s one other things, we built into our plan and we are quite comfortable with.

Are we talking about 10s of million or 100s of millions of additional expenses?

Again, I’m not going to tell you that number but even from a stand point of that number, we are looking at technology spend. Lots of that stuff is amortized over time.

So this is really just talking more about the fact that we are very focused on growth.

So the -- just my next question, in terms of capitalization of expenses, would most of these be capitalized or a portion capitalized?

No, just some portion, just like anything else like when you look at any work that you do, you decide on useful life of assets. You’ve got to take into account what the investment is, whether it’s technology, whether it’s planning.

So it will be some portion but I’m just talking about we are in a strong position to invest in our businesses right now.

And then finally, where any of these expenses previously reserved for, or this just going to flow through P&L as you incur the expenses?

We’re just going to flow through.

Thank you. And, Bill, enjoy your retirement.

It’s well deserved.

Thanks, Mario.

Thanks. Good afternoon.

I was also going to ask about slide nine. When you flag the expense initiatives or the project initiatives in each of the three geographic regions, is there an order of magnitude, Paul that you think it’s unlike with the conversations of U.S.

or that maybe the largest expense you are looking at? Is that appropriate or how would you break it down geographically in terms of magnitude expenses?

Yeah. I think if you put in that context, we probably see the biggest investments in the Empower opportunity….

Right.

….is the place that wants it. And probably, the most modest expense uptick would be in Europe.

But at the same time, we are very much focused on the opportunities. We don’t really think about geographically.

We say, where are the businesses where we can really drive future growth. So we are focused in that region.

And then for Robert Reynolds, I may have missed part of your answer. I know the sales or redemption trends in the institutional business can be lumpy at the best of times.

It did seem to be an uptick for Putnam this quarter institutionally. Could you just refresh me as to what the key factors there and whether that’s a one-off or something that you are more concerned about as a trend?

So, I think on the institutional businesses especially, we are looking for longevity of managements and going to track records of three to five years and when you look at it generally versus our equity track record of 93% of our equity strategies are in a top quartile over the last few years and our actual bonds of 7% are in the top quartile. So the track record is starting to take hold and in five years, 82% or up at the most levels.

So it’s one that the track records are starting to take hold. The pipeline is as big as it’s ever been institutionally.

And again, I think bringing Jeffrey Hall Brock with his 30-plus years experience in the institutional business in the U.S. would be a tremendous help to us in that.

We look forward to that being a high growth area for us.

And it’s Paul. As Bob said in his comments, the mandates that we lost for low margin mandates.

So, we view those as situational in that particular quarter. We are bullish on institutional into the future.

Thanks for your time.

My follow-up question was actually asked and answered. Thanks.

Thank you.

Yeah. Just before I forget, congratulations Bill Lovatt and all the best as you move on.

And just maybe one other question here would be with respect to -- again, Gary had mentioned in the source of earnings that there was some U.S. hitting the experienced gains and losses was U.S.

investments made in U.S. to reposition the business.

Now, I am wondering if you might be able to quantify some of those items.

Yeah. Tom, in the quarter, we would’ve had additional expenses in the U.S., which is not the combined business as far as [indiscernible].

Okay.

….coming over. But we did have expenses that were up by about $12 million, $20 million in the quarter.

Okay.

That would have been the business contributions that -- which is actually most of the source of earnings experienced loss in the quarter with that expense and the other fact is we plus or minus or so plus $20 million.

And what were they -- what were those related to?

That would have been across -- it would’ve been a lot of the integration in some of related activities around bringing on the JP Morgan RPS but it didn’t meet the -- we didn’t call them out in the other line, the way we have done with some of the pure restructuring costs. So there would’ve been a lot of those costs in that quarter as well as several other business costs and some seasonality in expenses.

Okay. Thanks very much.

Okay. To the analysts, I want to thank you and I also want to again recognize Bill.

He will likely be in the room next quarter but he’ll be in support of Garry during that phase. But very pleased with his contribution here.

And thank you all for your patience. We got a little bit over time.

We’ll try and tighten it up a bit next quarter and look forward to talking to you at the end of the first quarter. Thanks.