Great-West Earnings: Solid Performance by Empower as It Benefits From Prior Acquisitions

No-moat-rated Great-West Life’s GWO first-quarter results highlight the benefits of the prior strategic acquisitions made in the Empower business that increased the scale and the competitive positioning of its U.S. business. The results were also impacted by favorable group insurance disability experience in the Canada segment that was partially offset by unfavorable mortality experience in Canada, Europe, and capital and risk solutions segments. The company reported base earnings of CAD 808 million or CAD 0.87 per share in the first quarter versus CAD 595 million or CAD 0.64 per share in the first quarter of the previous year. The first-quarter results equated to an adjusted return on equity of 15.8%. The company paid a quarterly dividend of CAD 0.52 per share starting from the first quarter of 2023, which represents a 5.5% dividend yield as per the current stock price. We are maintaining our CAD 37 fair value estimate for Great-West Life after incorporating the first-quarter results.

The base earnings in the Canadian business were reported at CAD 278 million, up 24% compared with CAD 224 million in the same quarter of the previous year, primarily due to more favorable disability and morbidity experience in group insurance and higher pricing actions. The Empower business in the U.S. recorded base earnings of CAD 251 million, up from CAD 152 million in the first quarter of 2022. The substantial year-over-year increase was primarily related to the Prudential acquisition, higher contributions from investment experience, and realized synergies from the MassMutual acquisition. These items were partially offset by lower fee income driven by lower valuations in the equity markets. The Putnam investment management business reported a loss of CAD 27 million in the current quarter compared with a CAD 2 million loss in the previous year as AUM declined by 12% on a year-over-year basis.