Great-West Lifeco has released its 4Q08 Results. They consider their results to be so shameful that they have put anti-copying protection on the PDF on their site; thus, I have had to copy-paste from the MarketLink version:
Lifeco’s Canadian operating subsidiary, Great-West Life, reported a Minimum Continuing Capital and Surplus (MCCSR) ratio of 210% at December 31, 2008, which did not include any benefit from the $1,230 million of common and preferred share capital that was raised by Lifeco in the fourth quarter.
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Gross unrealized bond losses were $6.1 billion at December 31, 2008. These unrealized losses reflect the mark-to-market values at December 31st, the magnitude of which is significantly impacted by the duration of the bonds. These bonds are typically held in support of long-term policyholder liabilities.
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In the fourth quarter, the Company recorded a non-cash impairment charge in connection with Putnam goodwill and intangible assets of $(1,353) million after-tax. In addition, the Company recorded a valuation allowance against a Putnam deferred tax asset of $(34) million after-tax, and a Putnam restructuring charge of $(45) million after-tax. The impairment charge primarily reflects the significant deterioration in financial markets since the acquisition by Lifeco in August 2007. This charge did not impact the regulatory capital ratios of Lifeco’s operating subsidiaries, and it is not expected to impact the credit ratings of the Company.
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A replay of the call will be available from February 12 to February 19, 2009, and can be accessed by calling 1-800-408-3053 or 416-695-5800 in Toronto (passcode: 3280920 followed by the number sign).
Their Management Discussion and Analysis (similarly copy-protected) states that:
The held for trading bonds are held primarily in support of actuarial liabilities with changes in the fair value of these assets, excluding changes on other-than-temporarily impaired assets, offset by a corresponding change in the value of the actuarial liabilities
This appears to imply that they have held their default estimates constant and ascribed every single bp of spread widening to liquidity. Page 20 of the copy-protected PDF contains the delicious line:
Actuarial liabilities in Canada decreased $1.4 billion due mainly to changes in the fair value of assets backing actuarial liabilities since January 1, 2008
That’s certainly a convenient way to keep the balance sheet pristine!
James,
During the conference call they indicated that as long as the the premiums on the long term debt obligations were being paid on a timely basis Canadian GAAP did not require them to be written down since they were not for sale. I was interrupted during the conference call so I may not of heard all of properly.
They did take a significant hit with Putnam!
they indicated that as long as the the premiums on the long term debt obligations were being paid on a timely basis Canadian GAAP did not require them to be written down since they were not for sale.
This doesn’t strike me as being a very reasonable defence. It implies that the risk of default is “zero” until suddenly it’s “one”.
For PAR account holders, GWL’s liabilities cannot be be reduced because the Cash Surrender Value of the policy cannot be reduced nor can the Guaranteed Values only future policy dividends can be reduced. The value of the PAR account did not decrease. The PAR account has a lot of Bonds in it.
This doesn’t strike me as being a very reasonable defence. It implies that the risk of default is “zero” until suddenly it’s “one”.
I agree with you!