Great-West Lifeco reports second quarter 2010 results

Readers are referred to the cautionary notes regarding Forward-Looking Information and Non-GAAP Financial Measures at the end of this release. All figures are expressed in Canadian dollars.

TSX:GWO

WINNIPEG, Aug. 4, 2010 /CNW/ - Great-West Lifeco Inc. (Lifeco) has reported net earnings attributable to common shareholders of $433 million for the three months ended June 30, 2010, compared to $413 million in the second quarter of 2009. On a per common share basis, this represents $0.457 per common share for the three months ended June 30, 2010, compared to $0.437 per common share for the same period in 2009.

For the six months ended June 30, 2010, net earnings attributable to common shareholders were $874 million, compared to $739 million a year ago. This represents $0.923 per common share for the six months ended June 30, 2010, compared to $0.783 per common share for the same period in 2009.

The Company experienced solid earnings growth in the local currencies of all regions in which it operates, with in quarter net earnings on a constant currency basis up 13% year over year. The continued strengthening of the Canadian dollar against the US dollar, the British pound and the euro had a negative currency impact on Lifeco's net earnings of $33 million or $0.035 per common share in the second quarter of 2010 compared to the same period in 2009. For the six months ended June 30, 2010, negative currency impact on earnings was $64 million or $0.067 per common share compared to 2009.

Consolidated assets under administration at June 30, 2010 were $460.2 billion, up $1.6 billion from December 31, 2009.

    
    Highlights
    -  Sales in Canada continue to be very strong, with individual life
       insurance sales 26% higher and Individual Retirement and Investment
       Services sales 27% higher than the second quarter of 2009.
    -  Sales in the U.S. Financial Services business increased 48% on a
       constant currency basis in the quarter compared to the same quarter in
       2009.
    -  Putnam sales are 19% higher than the second quarter of 2009 on a
       constant currency basis and the Putnam suite of absolute return mutual
       funds reached US$2.1 billion in assets under management.
    -  Sales of single premium savings products in the Isle of Man increased
       by 226% in local currency in the quarter.
    -  Premiums and deposits overall were up 12% in quarter on a constant
       currency basis and up 17% when excluding the impact of the acquisition
       of the group retirement assets from Fidelity Investments Canada in
       second quarter of 2009.
    -  The Company achieved a 15.2% return on common shareholders' equity,
       consistent with its long-term objective.
    -  The Company declared a quarterly common dividend of $0.3075 per common
       share payable September 30, 2010, unchanged from the previous quarter.
    -  The Company's capital position remains very strong. Lifeco's Canadian
       operating subsidiary, Great-West Life, reported a Minimum Continuing
       Capital and Surplus (MCCSR) ratio of 202% at June 30, 2010. At
       June 30, 2010 Lifeco held, at the holding company level, approximately
       $1.0 billion in liquid assets derived from capital raising initiatives
       since the fourth quarter of 2008.
    

Although equity markets fell during the second quarter to below December 31, 2009 levels, average equity market levels during 2010 have remained significantly higher than the same period in 2009. Higher average equity markets, as well as strong investment performance and sales growth, were the major contributors to an 8% increase in fee income year to date as compared to 2009, including the negative impact of currency movement. On a constant currency basis fee income was up 19% year to date as compared to 2009.

Credit market conditions were stable during the second quarter and interest rates generally declined. This contributed to an overall increase in the fair value of bonds in the quarter. The Company's gross unrealized bond losses decreased to $1.7 billion from $3.1 billion at year end 2009 and $5.7 billion at June 30, 2009.

For the three months ended June 30, 2010, the Company recognized a net recovery in investment impairment charges of $10 million after tax. Changes in bond credit ratings for the quarter positively impacted net earnings attributable to common shareholders by an additional $1 million after tax.

OPERATING RESULTS

Consolidated net earnings for Lifeco are comprised of the net earnings of The Great-West Life Assurance Company (Great-West Life), Canada Life Financial Corporation (CLFC), London Life Insurance Company (London Life), Great-West Life & Annuity Insurance Company (GWL&A), and Putnam Investments, LLC (Putnam), together with Lifeco's corporate results.

CANADA

Net earnings attributable to common shareholders for the second quarter of 2010 were up 9% to $237 million compared to $217 million in the second quarter of 2009. For the six months ended June 30, 2010, net earnings attributable to common shareholders were $470 million compared to $425 million in 2009.

Total sales for the six months ended June 30, 2010 were up 38% to $5.0 billion compared to $3.6 billion after adjusting the 2009 six month period for the impact of the group retirement assets acquired from Fidelity Investments Canada. The growth in sales was driven by strong proprietary retail investment funds which were up 49%, payout annuity products were up 122% and individual life product sales increased 32% compared to the same six month period in 2009.

Total assets under administration at June 30, 2010 were $116.6 billion, compared to $114.6 billion at December 31, 2009.

UNITED STATES

Net earnings attributable to common shareholders for the second quarter of 2010 were $54 million compared to $49 million in the second quarter of 2009. For the six months ended June 30, 2010, net earnings attributable to common shareholders were $122 million compared to $124 million in 2009.

As a result of currency movement, net earnings were negatively impacted by $7 million compared to the second quarter of 2009 and by $21 million compared to the first six months of 2009. On a constant currency basis net earnings grew by 26% in the second quarter of 2010 and by 16% for the first six months of 2010 when compared to the same periods in 2009.

Total sales for the six months ended June 30, 2010 were $18.4 billion compared to $14.4 billion in 2009.

Total assets under administration at June 30, 2010 were $279.3 billion compared to $277.8 billion at December 31, 2009. Included in assets under administration at June 30, 2010 were $116.2 billion of mutual fund and institutional account assets managed by Putnam.

EUROPE

Net earnings attributable to common shareholders for the second quarter of 2010 were $142 million compared to $149 million in the second quarter of 2009. For the six months ended June 30, 2010, net earnings attributable to common shareholders were $282 million compared to $197 million in 2009.

As a result of currency movement, net earnings were negatively impacted by $26 million when compared to the second quarter of 2009 and by $43 million when compared to the first six months of 2009. On a constant currency basis net earnings grew 13% in the second quarter of 2010 and by 65% for the first six months of 2010 when compared to the same periods in 2009.

Total sales for the six months ended June 30, 2010 were $2.2 billion, level in comparison to 2009. Sales increased by 16% in local currency, however, this was largely offset by adverse currency movement.

Total assets under administration at June 30, 2010 were $64.3 billion, compared to $66.2 billion at December 31, 2009.

CORPORATE

Corporate net earnings for Lifeco attributable to common shareholders were nil for both the second quarter and the six months ended June 30, 2010 compared to a net loss of $2 million in the second quarter of 2009 and a net loss of $7 million for the six months ended June 30, 2009.

QUARTERLY DIVIDENDS

At its meeting today, the Board of Directors approved a quarterly dividend of $0.3075 per share on the common shares of the Company payable September 30, 2010 to shareholders of record at the close of business September 2, 2010.

In addition, the Directors approved quarterly dividends on:

- Series F First Preferred Shares of $0.36875 per share;

- Series G First Preferred Shares of $0.3250 per share;

- Series H First Preferred Shares of $0.30313 per share;

- Series I First Preferred Shares of $0.28125 per share;

- Series J First Preferred Shares of $0.3750 per share;

- Series L First Preferred Shares of $0.353125 per share; and

- Series M First Preferred Shares of $0.36250 per share

all payable September 30, 2010 to shareholders of record at the close of business September 2, 2010.

For purposes of the Income Tax Act (Canada), and any similar provincial legislation, the dividends referred to above are eligible dividends.

GREAT-WEST LIFECO

Great-West Lifeco Inc. (TSX:GWO) is a financial services holding company with interests in the life insurance, health insurance, retirement savings, investment management and reinsurance businesses. The Company has operations in Canada, the United States, Europe and Asia through The Great-West Life Assurance Company, London Life Insurance Company, The Canada Life Assurance Company, Great-West Life & Annuity Insurance Company and Putnam Investments, LLC. Lifeco and its companies have over $460 billion in assets under administration and are members of the Power Financial Corporation group of companies.

Cautionary note regarding Forward-Looking Information

This release contains some forward-looking statements about the Company, including its business operations, strategy and expected financial performance and condition. Forward-looking statements include statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as "expects", "anticipates", "intends", "plans", "believes", "estimates" or negative versions thereof and similar expressions. In addition, any statement that may be made concerning future financial performance (including revenues, earnings or growth rates), ongoing business strategies or prospects, possible future action by the Company including statements made by the Company with respect to the expected benefits of acquisitions or divestitures are also forward-looking statements. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to, among other things, risks, uncertainties and assumptions about the Company, economic factors and the financial services industry generally, including the insurance and mutual fund industries. They are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied by forward-looking statements made by the Company due to, but not limited to, important factors such as sales levels, premium income, fee income, expense levels, mortality experience, morbidity experience, policy lapse rates and taxes, as well as general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, catastrophic events, and the Company's ability to complete strategic transactions and integrate acquisitions. The reader is cautioned that the foregoing list of important factors is not exhaustive, and there may be other factors, including factors set out under "Risk Management and Control Practices" in the Company's 2009 Annual Management's Discussion and Analysis and any listed in other filings with securities regulators, which are available for review at www.sedar.com. The reader is also cautioned to consider these and other factors carefully and to not place undue reliance on forward-looking statements. Other than as specifically required by applicable law, the Company has no intention to update any forward-looking statements whether as a result of new information, future events or otherwise.

Cautionary note regarding Non-GAAP Financial Measures

This release contains some non-GAAP financial measures. Terms by which non-GAAP financial measures are identified include but are not limited to "operating earnings", "constant currency basis", "premiums and deposits", "sales", and other similar expressions. Non-GAAP financial measures are used to provide management and investors with additional measures of performance. However, non-GAAP financial measures do not have standard meanings prescribed by GAAP and are not directly comparable to similar measures used by other companies. Please refer to the appropriate reconciliations of these non-GAAP financial measures to measures prescribed by GAAP.

Further information

Selected financial information is attached.

Great-West Lifeco's second quarter conference call and audio webcast will be held Thursday, August 5, 2010 at 9:00 a.m. (EDT). The call and webcast can be accessed through www.greatwestlifeco.com or by phone at:

- Participants in the Toronto area: 416-340-8018

- Participants from North America: 1-866-223-7781

- Participants from Overseas: Dial international access code first, then 800-6578-9898

A replay of the call will be available from August 5 to August 12, 2010, and can be accessed by calling 1-800-408-3053 or 416-695-5800 in Toronto (passcode: 5040650 followed by the number sign). The archived webcast will be available on www.greatwestlifeco.com from approximately 1:00 p.m. (EDT) on August 5, 2010 until August 5, 2011.

Additional information relating to Lifeco, including the most recent interim unaudited financial statements, interim Management's Discussion and Analysis (MD&A), and CEO/CFO certificates will be filed on SEDAR at www.sedar.com.

    
                       FINANCIAL HIGHLIGHTS (unaudited)
                   (in $ millions except per share amounts)

                               As at or for the                For the
                              three months ended           six months ended
                       ------------------------------------------------------
                         June 30   March 31    June 30    June 30    June 30
                           2010       2010       2009       2010       2009
    -------------------------------------------------------------------------
    Premiums and deposits:
    Life insurance,
     guaranteed
     annuities and
     insured health
     products          $   4,215  $   4,610  $   4,664  $   8,825  $   9,373
    Self-funded
     premium
     equivalents
     (ASO contracts)         657        645        639      1,302      1,257
    Segregated funds
     deposits:
      Individual
       products            1,633      1,790      1,699      3,423      2,957
      Group products       2,335      1,730      1,823      4,065      4,519
    Proprietary mutual
     funds and
     institutional
     deposits              5,389      6,191      5,140     11,580     10,420
                       ------------------------------------------------------
    Total premiums
     and deposits         14,229     14,966     13,965     29,195     28,526
                       ------------------------------------------------------

    Fee and other
     income                  718        736        666      1,454      1,346
    Paid or credited
     to policyholders      5,622      6,571      7,473     12,193     10,839

    Net earnings -
     common
     shareholders            433        441        413        874        739
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Per common share
      Basic earnings   $   0.457  $   0.466  $   0.437  $   0.923  $   0.783
      Dividends paid      0.3075     0.3075     0.3075      0.615      0.615
      Book value           12.30      11.88      12.65
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Return on common
     shareholders'
     equity (12 months):
      Net earnings         15.2%      15.0%       2.3%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
      Total assets     $ 131,320  $ 126,842  $ 131,644
      Segregated funds
       net assets         87,023     87,349     83,192
      Proprietary
       mutual funds and
       institutional
       net assets        119,069    123,665    121,729
                       -------------------------------
      Total assets
       under
       management        337,412    337,856    336,565
      Other assets
       under
       administration    122,778    125,329    105,341
                       -------------------------------
      Total assets
       under
       administration  $ 460,190  $ 463,185  $ 441,906
                       -------------------------------
                       -------------------------------
      Share capital
       and surplus     $  13,309  $  12,907  $  13,270
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



               SUMMARIES OF CONSOLIDATED OPERATIONS (unaudited)
                   (in $ millions except per share amounts)

                                    For the                     For the
                              three months ended           six months ended
                       ------------------------------------------------------
                         June 30   March 31    June 30    June 30    June 30
                           2010       2010       2009       2010       2009
    -------------------------------------------------------------------------
    Income
      Premium income   $   4,215  $   4,610  $   4,664  $   8,825  $   9,373
      Net investment
       income (note 2)
        Regular net
         investment
         income            1,342      1,422      1,616      2,764      3,127
        Changes in
         fair value on
         held for
         trading assets    1,091      1,502      2,272      2,593        305
                       ------------------------------------------------------
      Total net
       investment
       income              2,433      2,924      3,888      5,357      3,432
      Fee and other
       income                718        736        666      1,454      1,346
                       ------------------------------------------------------
                           7,366      8,270      9,218     15,636     14,151
                       ------------------------------------------------------
    Benefits and
     expenses
      Policyholder
       benefits            3,861      3,888      4,126      7,749      8,735
      Policyholder
       dividends and
       experience
       refunds               351        383        371        734        769
      Change in
       actuarial
       liabilities         1,410      2,300      2,976      3,710      1,335
                       ------------------------------------------------------
      Total paid or
       credited to
       policyholders       5,622      6,571      7,473     12,193     10,839


      Commissions            364        363        353        727        660
      Operating
       expenses              629        630        628      1,259      1,291
      Premium taxes           61         65         68        126        123
      Financing charges
     (note 4)                 70         69        106        139        181
      Amortization of
       finite life
       intangible assets      24         23         25         47         47
                       ------------------------------------------------------

    Earnings before
     income taxes            596        549        565      1,145      1,010
    Income taxes
     - current               (19)         1         21        (18)       103
     - future                134         85        101        219         97
                       ------------------------------------------------------
    Net earnings before
     non-controlling
     interests               481        463        443        944        810
    Non-controlling
     interests                26          2         12         28         36
                       ------------------------------------------------------
    Net earnings             455        461        431        916        774
    Perpetual preferred
     share dividends          22         20         18         42         35
                       ------------------------------------------------------
    Net earnings -
     common
     shareholders      $     433  $     441  $     413  $     874  $     739
                       ------------------------------------------------------
                       ------------------------------------------------------

    Earnings per
     common share
     (note 9)
      Basic            $   0.457  $   0.466  $   0.437  $   0.923  $   0.783
                       ------------------------------------------------------
                       ------------------------------------------------------
      Diluted          $   0.457  $   0.465  $   0.437  $   0.922  $   0.782
                       ------------------------------------------------------
                       ------------------------------------------------------



                   CONSOLIDATED BALANCE SHEETS (unaudited)
                               (in $ millions)

                                               June 30  December 31  June 30
                                                2010       2009       2009
                                             --------------------------------
    Assets
    Bonds (note 2)                           $  69,944   $ 66,147   $ 67,376
    Mortgage loans (note 2)                     16,536     16,684     17,349
    Stocks (note 2)                              6,563      6,442      6,093
    Real estate (note 2)                         3,108      3,099      3,378
    Loans to policyholders                       7,052      6,957      7,416
    Cash and cash equivalents                    2,918      3,427      3,357
    Funds held by ceding insurers               10,345     10,839     11,761
    Goodwill                                     5,405      5,406      5,418
    Intangible assets                            3,226      3,238      3,426
    Other assets                                 6,223      6,130      6,070
                                             --------------------------------
    Total assets                             $ 131,320  $ 128,369  $ 131,644
                                             --------------------------------
                                             --------------------------------

    Liabilities
    Policy liabilities
      Actuarial liabilities                  $ 100,072  $  98,059  $ 100,127
      Provision for claims                       1,242      1,308      1,352
      Provision for policyholder dividends         619        606        636
      Provision for experience rating refunds      279        317        286
      Policyholder funds                         2,470      2,361      2,409
                                             --------------------------------
                                               104,682    102,651    104,810

    Debentures and other debt instruments        4,282      4,142      3,903
    Funds held under reinsurance contracts         359        186        169
    Other liabilities                            4,747      4,608      5,202
    Repurchase agreements                          867        532        203
    Deferred net realized gains                    119        133        150
                                             --------------------------------
                                               115,056    112,252    114,437

    Preferred shares (note 5)                        -        203        779
    Capital trust securities and debentures        535        540        786
    Non-controlling interests
      Participating account surplus in
       subsidiaries                              2,041      2,004      2,018
      Preferred shares issued by
       subsidiaries                                157        157        157
      Perpetual preferred shares issued by
       subsidiaries                                146        147        149
      Non-controlling interests in capital
       stock and surplus                            76         63         48

    Share capital and surplus
    Share capital (note 5)
      Perpetual preferred shares                 1,647      1,497      1,327
      Common shares                              5,790      5,751      5,741
    Accumulated surplus                          7,655      7,367      7,064
    Accumulated other comprehensive loss        (1,837)    (1,664)      (911)
    Contributed surplus                             54         52         49
                                             --------------------------------
                                                13,309     13,003     13,270
                                             --------------------------------
    Total liabilities, share capital and
     surplus                                 $ 131,320  $ 128,369  $ 131,644
                                             --------------------------------
                                             --------------------------------



               CONSOLIDATED STATEMENTS OF SURPLUS (unaudited)
                               (in $ millions)

                                                         For the six months
                                                            ended June 30
                                                        ---------------------
                                                           2010       2009
                                                        ---------------------
    Accumulated surplus
    Balance, beginning of year                          $   7,367  $   6,906
    Net earnings                                              916        774
    Share issue costs                                          (3)         -
    Dividends to shareholders
      Perpetual preferred shareholders                        (42)       (35)
      Common shareholders                                    (583)      (581)
                                                        ---------------------
    Balance, end of period                              $   7,655  $   7,064
                                                        ---------------------
                                                        ---------------------

    Accumulated other comprehensive loss,
     net of income taxes
    Balance, beginning of year                          $  (1,664) $    (787)
    Other comprehensive loss                                 (173)      (124)
                                                        ---------------------
    Balance, end of period                              $  (1,837) $    (911)
                                                        ---------------------
                                                        ---------------------
    Contributed surplus
    Balance, beginning of year                          $      52  $      44
    Stock option expense
      Current period expense (note 7)                           3          5
      Exercised                                                (1)         -
                                                        ---------------------
    Balance, end of period                              $      54  $      49
                                                        ---------------------
                                                        ---------------------



         SUMMARIES OF CONSOLIDATED COMPREHENSIVE INCOME (unaudited)
                               (in $ millions)

                                  For the three months   For the six months
                                      ended June 30         ended June 30
                                  -------------------------------------------
                                     2010       2009       2010       2009
                                  -------------------------------------------
    Net earnings                  $     455  $     431  $     916  $     774

    Other comprehensive income
     (loss)
      Unrealized foreign exchange
       gains (losses) on
       translation of foreign
       operations                       246       (311)      (233)      (129)
        Income tax (expense)
         benefit                          -         (1)         -         (1)
      Unrealized gains (losses) on
       available for sale assets        109        104        163        (23)
        Income tax (expense)
         benefit                        (25)       (33)       (40)        (6)
      Realized (gains) losses on
       available for sale assets          4        (20)        (9)       (35)
        Income tax (expense)
         benefit                          1          3          4          6
      Unrealized gains (losses) on
       cash flow hedges                (100)       171        (66)        89
        Income tax (expense)
         benefit                         35        (60)        23        (31)
      Realized (gains) losses on
       cash flow hedges                   -        (34)         -        (15)
        Income tax (expense)
         benefit                          -         12          -          5
      Non-controlling interests         (18)        12        (15)        16
                                  -------------------------------------------
                                        252       (157)      (173)      (124)
                                  -------------------------------------------
    Comprehensive income          $     707  $     274  $     743  $     650
                                  -------------------------------------------
                                  -------------------------------------------




              CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
                               (in $ millions)

                                  For the three months   For the six months
                                      ended June 30         ended June 30
                                  -------------------------------------------
                                     2010       2009       2010       2009
                                  -------------------------------------------
    Operations
      Net earnings                $     455  $     431  $     916  $     774
      Adjustments:
        Change in policy
         liabilities                  1,430      2,817      3,753      1,228
        Change in funds held by
         ceding insurers                212         66        275        210
        Change in funds held
         under reinsurance
         contracts                       13         (3)       166        (11)
        Change in current
         income taxes payable            89       (100)        25       (207)
        Future income tax expense       134        101        219         97
        Changes in fair value of
         financial instruments       (1,091)    (2,241)    (2,595)      (273)
        Other                            75         (4)      (245)         4
                                  -------------------------------------------
      Cash flows from operations      1,317      1,067      2,514      1,822

    Financing Activities
      Issue of common shares              8          4         39          5
      Issue of preferred shares           -          -        150          -
      Redemption of preferred
       shares                             -          -       (200)         -
      Increase in line of credit
       in subsidiary                      5         82        125        182
      Repayment of debentures and
       other debt instruments             4        (30)         1        (32)
      Share issue costs                   -          -         (3)         -
      Dividends paid                   (314)      (308)      (625)      (616)
                                  -------------------------------------------
                                       (297)      (252)      (513)      (461)

    Investment Activities
      Bond sales and maturities       4,556      5,440      9,140     10,437
      Mortgage loan repayments          572        374        966        793
      Stock sales                       356        655        805      1,277
      Real estate sales                   9          1          9          8
      Change in loans to
       policyholders                    (54)        (9)       (54)       (55)
      Change in repurchase
       agreements                       104       (257)       325        (73)
      Investment in bonds            (5,636)    (5,501)   (11,250)   (11,080)
      Investment in mortgage loans     (684)      (491)      (974)      (681)
      Investment in stocks             (526)      (643)    (1,148)    (1,436)
      Investment in real estate         (86)       (20)      (143)       (85)
                                  -------------------------------------------
                                     (1,389)      (451)    (2,324)      (895)

    Effect of changes in exchange
     rates on cash and
     cash equivalents                    50         14       (186)        41

    Increase (decrease) in cash
     and cash equivalents              (319)       378       (509)       507

    Cash and cash equivalents,
     beginning of period              3,237      2,979      3,427      2,850
                                  -------------------------------------------

    Cash and cash equivalents,
     end of period                $   2,918  $   3,357  $   2,918  $   3,357
                                  -------------------------------------------
                                  -------------------------------------------



    Notes to Consolidated Financial Statements (unaudited)

    (in $ millions except per share amounts)

    1.  Basis of Presentation and Summary of Accounting Policies

        The interim unaudited consolidated financial statements of Great-West
        Lifeco Inc. (Lifeco or the Company) at June 30, 2010 have been
        prepared in accordance with Canadian generally accepted accounting
        principles, using the same accounting policies and methods of
        computation followed in the consolidated financial statements for the
        year ended December 31, 2009. During the six months ended June 30,
        2010 the Company did not adopt any changes in accounting policy that
        resulted in a material impact to the financial statements of the
        Company. These interim consolidated financial statements should be
        read in conjunction with the consolidated financial statements and
        notes thereto in the Company's annual report dated December 31, 2009.

        The preparation of financial statements in conformity with Canadian
        generally accepted accounting principles requires management to make
        estimates and assumptions that affect the reported amounts of assets
        and liabilities and disclosure of contingent assets and liabilities
        at the balance sheet date and the reported amounts of revenues and
        expenses during the reporting period. The valuation of policy
        liabilities, certain financial assets and liabilities, goodwill and
        indefinite life intangible assets, income taxes and pension plans and
        other post-retirement benefits are the most significant components of
        the Company's financial statements subject to management estimates.

        The year to date results of the Company reflect management's
        judgments regarding the impact of prevailing global credit, equity
        and foreign exchange market conditions. Financial instrument carrying
        values currently reflect the illiquidity of the markets and the
        liquidity premiums embedded in the market pricing methods the Company
        relies upon.

        The estimation of policy liabilities relies upon investment credit
        ratings. The Company's practice is to use third party independent
        credit ratings where available. Credit rating changes may lag
        developments in the current environment. Subsequent credit rating
        adjustments will impact policy liabilities.

    (a) Future Accounting Policies

        International Financial Reporting Standards (IFRS)
        --------------------------------------------------

        The Canadian Accounting Standards Board has mandated that all
        Canadian publicly accountable entities are required to transition
        from Canadian generally accepted accounting principles (GAAP) to IFRS
        for fiscal years beginning on or after January 1, 2011. Consequently,
        the Company will adopt IFRS in its quarterly and annual reports
        starting with the first quarter of 2011 and will provide
        corresponding comparative information for 2010.

        The Company continues to evaluate the financial statement impact of
        transitioning from Canadian GAAP to IFRS and the related effect on
        its information systems and processes. Until this effort is complete,
        the impact of adopting IFRS and the related effects on the Company's
        consolidated financial statements cannot be reasonably determined.

        The IFRS standard that deals with the measurement of insurance
        contracts, also referred to as Phase II Insurance Contracts, is
        currently being developed and a final accounting standard is not
        expected to be implemented for several years. As a result, the
        Company will continue to measure insurance liabilities using the
        Canadian Asset Liability Method (CALM) until such time when a new
        IFRS standard for insurance contract measurement is issued.
        Consequently, the evolving nature of IFRS will likely result in
        additional accounting changes, some of which may be significant, in
        the years following the Company's initial transition to IFRS.

    2.  Portfolio Investments

    (a) Carrying values and estimated market values of portfolio
        investments are as follows:

                                         June 30, 2010
                 ------------------------------------------------------------
                                         Loans
                               Avail-      and               Total     Total
                  Held-for-     able-   receiv-           carrying      fair
                   trading  for sale     ables     Other     value     value
                 ------------------------------------------------------------
        Bonds     $ 54,658  $  6,059  $  9,227  $      -  $ 69,944  $ 70,580

        Mortgage
         loans           -         -    16,536         -    16,536    17,336

        Stocks       5,167     1,068         -       328     6,563     6,577

        Real
         estate          -         -         -     3,108     3,108     3,193
                 ------------------------------------------------------------
                  $ 59,825  $  7,127  $ 25,763  $  3,436  $ 96,151  $ 97,686
                 ------------------------------------------------------------
                 ------------------------------------------------------------

                                       December 31, 2009
                 ------------------------------------------------------------
                                         Loans
                               Avail-      and               Total     Total
                  Held-for-     able-   receiv-           carrying      fair
                   trading  for sale     ables     Other     value     value
                 ------------------------------------------------------------
        Bonds     $ 52,362  $  4,620  $  9,165  $      -  $ 66,147  $ 66,403

        Mortgage
         loans           -         -    16,684         -    16,684    16,891

        Stocks       4,928     1,186         -       328     6,442     6,503

        Real
         estate          -         -         -     3,099     3,099     3,053
                 ------------------------------------------------------------
                  $ 57,290  $  5,806  $ 25,849  $  3,427  $ 92,372  $ 92,850
                 ------------------------------------------------------------
                 ------------------------------------------------------------

                                         June 30, 2009
                 ------------------------------------------------------------
                                         Loans
                               Avail-      and               Total     Total
                  Held-for-     able-   receiv-           carrying      fair
                   trading  for sale     ables     Other     value     value
                 ------------------------------------------------------------
        Bonds     $ 52,628  $  5,233  $  9,515  $      -  $ 67,376  $ 67,398

        Mortgage
         loans           -         -    17,349         -    17,349    17,095

        Stocks       4,373     1,391         -       329     6,093     6,142

        Real
         estate          -         -         -     3,378     3,378     3,044
                 ------------------------------------------------------------
                  $ 57,001  $  6,624  $ 26,864  $  3,707  $ 94,196  $ 93,679
                 ------------------------------------------------------------
                 ------------------------------------------------------------

    (b) Included in portfolio investments are the following:

        (i) Impaired investments

                                                      June 30, 2010
                                             --------------------------------
                                               Gross                Carrying
                                               amount   Impairment   amount
                                             --------------------------------
        Impaired amounts by type(1)
          Held for trading                   $     568  $    (254) $     314
          Available for sale                        57        (33)        24
          Loans and receivables                    152        (80)        72
                                             --------------------------------
        Total                                $     777  $    (367) $     410
                                             --------------------------------
                                             --------------------------------

                                                    December 31, 2009
                                             --------------------------------
                                               Gross                Carrying
                                               amount   Impairment   amount
                                             --------------------------------
        Impaired amounts by type(1)
          Held for trading                   $     517  $    (278) $     239
          Available for sale                        55        (36)        19
          Loans and receivables                    151        (81)        70
                                             --------------------------------
        Total                                $     723  $    (395) $     328
                                             --------------------------------
                                             --------------------------------

                                                      June 30, 2009
                                             --------------------------------
                                               Gross                Carrying
                                               amount   Impairment   amount
                                             --------------------------------
        Impaired amounts by type(1)
          Held for trading                   $     164  $    (142) $      22
          Available for sale                        16        (16)         -
          Loans and receivables                    158        (85)        73
                                             --------------------------------
        Total                                $     338  $    (243) $      95
                                             --------------------------------
                                             --------------------------------

        Impaired investments include $30 gross amount of capital securities
        that have deferred coupons on a non-cumulative basis.

        (1) Excludes amounts in funds held by ceding insurers of $9 and
            impairment of $(3) at June 30, 2010 and $10 and $(4) at December
            31, 2009 and $16 and $(13) at June 30, 2009.

    (ii)  The Company holds investments with restructured terms or which have
          been exchanged for securities with amended terms. These investments
          are performing according to their new terms. Their carrying value
          is as follows:

                                               June 30  December 31  June 30
                                                2010       2009       2009
                                             --------------------------------
        Bonds                                $      25   $     36   $     33
        Bonds with equity conversion
         features                                  152        169          -
        Mortgages                                    1          1          1
                                             --------------------------------
                                             $     178   $    206   $     34
                                             --------------------------------
                                             --------------------------------


    (iii) Included in net earnings is the impact of other than temporary
          impairment (OTTI) as follows:

                                For the three months ended June 30, 2010
                           --------------------------------------------------
                                                   Loans
                                         Avail-      and
                            Held-for-     able-   receiv-
                             trading  for sale     ables     Other     Total
                           --------------------------------------------------
        Impact on OTTI
          - Assets carried
            at market
            value           $     (8) $      -  $      -  $      -  $     (8)
          - Transfer from
            other
            comprehensive
            income                 -        (6)        -         -        (6)
          - Assets carried
            at amortized
            cost                   -         -        (1)        -        (1)
                           --------------------------------------------------
        Gross impairment
         charges                  (8)       (6)       (1)        -       (15)
        Release of
         actuarial default
         provision and
         other                    29         -         -         -        29
                           --------------------------------------------------
        Net impairment
         (charges)
         recovery before
         income taxes       $     21  $     (6) $     (1) $      -  $     14
                           --------------------------------------------------
                           --------------------------------------------------

        Net impairment
         (charges)
         recovery after
         income taxes                                               $     10
                                                                   ----------
                                                                   ----------


                                For the three months ended June 30, 2009
                           --------------------------------------------------
                                                   Loans
                                         Avail-      and
                            Held-for-     able-   receiv-
                             trading  for sale     ables     Other     Total
                           --------------------------------------------------
        Impact on OTTI
          - Assets carried
            at market
            value           $      4  $      -  $      -  $      -  $      4
          - Assets carried
            at amortized
            cost                   -         -       (11)         -      (11)
                           --------------------------------------------------
        Gross impairment
         charges                   4         -       (11)         -       (7)
        Release of
         actuarial default
         provision and
         other                     -         -         -          -        -
                           --------------------------------------------------
        Net impairment
         (charges)
         recovery before
         income taxes       $      4  $      -  $    (11) $       -  $    (7)
                           --------------------------------------------------
                           --------------------------------------------------

        Net impairment
         (charges)
         recovery after
         income taxes                                                $    (4)
                                                                    ---------
                                                                    ---------



                                 For the six months ended June 30, 2010
                           --------------------------------------------------
                                                   Loans
                                         Avail-      and
                            Held-for-     able-   receiv-
                             trading  for sale     ables     Other     Total
                           --------------------------------------------------
        Impact on OTTI
          - Assets carried
            at market
            value           $    (52) $      -  $      -  $      -  $    (52)
          - Transfer from
            other
            comprehensive
            income                 -       (10)        -         -       (10)
          - Assets carried
            at amortized
            cost                   -         -        (1)        -        (1)
                           --------------------------------------------------
        Gross impairment
         charges                 (52)      (10)       (1)        -       (63)
        Release of
         actuarial default
         provision and
         other                    88         -         -         -        88
                           --------------------------------------------------
        Net impairment
         (charges)
         recovery before
         income taxes       $     36  $    (10) $     (1) $      -  $     25
                           --------------------------------------------------
                           --------------------------------------------------

        Net impairment
         (charges)
         recovery after
         income taxes                                               $     19
                                                                    ---------
                                                                    ---------

                                 For the six months ended June 30, 2009
                           --------------------------------------------------
                                                   Loans
                                         Avail-      and
                            Held-for-     able-   receiv-
                             trading  for sale     ables     Other     Total
                           --------------------------------------------------
        Impact on OTTI
          - Assets carried
            at market
            value           $     (3) $      -  $      -  $      -  $     (3)
          - Assets carried
            at amortized
            cost                   -         -       (30)        -       (30)
                           --------------------------------------------------
        Gross impairment
         charges                  (3)        -       (30)        -       (33)
        Release of
         actuarial default
         provision and
         other                     -         -         -         -         -
                           --------------------------------------------------
        Net impairment
         (charges)
         recovery before
         income taxes       $     (3) $      -  $    (30) $      -  $    (33)
                           --------------------------------------------------
                           --------------------------------------------------

        Net impairment
         (charges)
         recovery after
         income taxes                                               $    (23)
                                                                    ---------
                                                                    ---------

    (c) Net investment income is comprised of the following:

        For the three
         months ended                Mortgage          Real
         June 30, 2010         Bonds   loans  Stocks  estate   Other   Total
        ---------------------------------------------------------------------

        Regular net investment
         income:
          Investment income
           earned             $  941  $  215  $   47  $   55  $   98  $1,356
          Net realized gains
           (losses) (available
           for sale)              (7)      -       4       -       -      (3)
          Net realized gains
           (losses) (other
           classifications)        -       5       -       -       -       5
          Amortization of net
           realized/unrealized
           gains (non financial
           instruments)            -       -       -       5       -       5
          Net (provision)
           recovery for credit
           losses (loans and
           receivables)            -      (1)      -       -       -      (1)
          Other income and
           expenses                -       -       -       -     (20)    (20)
                              -----------------------------------------------
                                 934     219      51      60      78   1,342
        Changes in fair value
         on held for trading
         assets:
          Net realized/
           unrealized gains
           (losses) (classified
           held for trading)      34       -       -       -       -      34

          Net realized/
           unrealized gains
           (losses) (designated
           held for trading)   1,525       -    (295)      -    (173)  1,057
                              -----------------------------------------------
                               1,559       -    (295)      -    (173)  1,091
                              -----------------------------------------------
        Net investment income $2,493  $  219  $ (244) $   60  $  (95) $2,433
                              -----------------------------------------------
                              -----------------------------------------------

        For the three
         months ended                Mortgage          Real
         June 30, 2009         Bonds   loans  Stocks  estate   Other   Total
        ---------------------------------------------------------------------
        Regular net investment
         income:
          Investment income
           earned             $1,043  $  228  $   44  $   48  $  254  $1,617
          Net realized gains
           (losses) (available
           for sale)              19       -       1       -       -      20
          Net realized gains
           (losses) (other
           classifications)        4       2       7       -       -      13
          Amortization of net
           realized/unrealized
           gains (non financial
           instruments)            -       -       -      (6)      -      (6)
          Net (provision)
           recovery for credit
           losses (loans and
           receivables)           (4)     (7)      -       -       -     (11)
          Other income and
           expenses                -       -       -       -     (17)    (17)
        ---------------------------------------------------------------------
                               1,062     223      52      42     237   1,616
        Changes in fair value
         on held for trading
         assets:
          Net realized/
           unrealized gains
           (losses) (classified
           held for trading)      (9)      -       -       -       -      (9)
          Net realized/
           unrealized gains
           (losses) (designated
           held for trading)   1,749       -     627       -     (95)  2,281
        ---------------------------------------------------------------------
                               1,740       -     627       -     (95)  2,272
        ---------------------------------------------------------------------
        Net investment income $2,802  $  223  $  679  $   42  $  142  $3,888
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        For the six
         months ended                Mortgage          Real
         June 30, 2010         Bonds   loans  Stocks  estate   Other   Total
        ---------------------------------------------------------------------
        Regular net
         investment income:
          Investment income
           earned             $1,878  $  436  $   90  $  100  $  264  $2,768
          Net realized gains
           (losses) (available
           for sale)              (3)      -      12       -       -       9
          Net realized gains
           (losses) (other
           classifications)       10       8       -       -       -      18
          Amortization of net
           realized/unrealized
           gains (non financial
           instruments)            -       -       -       7       -       7
          Net (provision)
           recovery for credit
           losses (loans and
           receivables)            -      (1)      -       -       -      (1)
          Other income and
           expenses                -       -       -       -     (37)    (37)
        ---------------------------------------------------------------------
                               1,885     443     102     107     227   2,764
        Changes in fair value
         on held for trading
         assets:
          Net realized/
           unrealized gains
           (losses) (classified
           held for trading)      49       -       -       -       -      49
          Net realized/
           unrealized gains
           (losses) (designated
           held for trading)   2,860       -    (137)      -    (179)  2,544
        ---------------------------------------------------------------------
                               2,909       -    (137)      -    (179)  2,593
        ---------------------------------------------------------------------
        Net investment income $4,794  $  443  $  (35) $  107  $   48  $5,357
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        For the six
         months ended                Mortgage          Real
         June 30, 2009         Bonds   loans  Stocks  estate   Other   Total
        ---------------------------------------------------------------------
        Regular net investment
         income:
          Investment income
           earned             $2,107  $  463  $   88  $   93  $  324  $3,075
          Net realized gains
           (losses) (available
           for sale)              35       -       -       -       -      35
          Net realized gains
           (losses) (other
           classifications)        1       6      83       -       -      90
          Amortization of net
           realized/unrealized
           gains (non financial
           instruments)            -       -       -     (10)      -     (10)
          Net (provision)
           recovery for credit
           losses (loans and
           receivables)          (16)    (14)      -       -       -     (30)
          Other income and
           expenses                -       -       -       -     (33)    (33)
        ---------------------------------------------------------------------
                               2,127     455     171      83     291   3,127
        Changes in fair value
         on held for trading
         assets:
          Net realized/
           unrealized gains
           (losses) (classified
           held for trading)       -       -       -       -       -       -
          Net realized/
           unrealized gains
           (losses) (designated
           held for trading)     (45)      -     452       -    (102)    305
        ---------------------------------------------------------------------
                                 (45)      -     452       -    (102)    305
        ---------------------------------------------------------------------
        Net investment income $2,082  $  455  $  623  $   83  $  189  $3,432
        ---------------------------------------------------------------------
        ---------------------------------------------------------------------

        Investment income earned is comprised of income from investments that
        are classified or designated as held for trading, classified as
        available for sale and classified as loans and receivables.

    3.  Risk Management

        The Company has policies relating to the identification, measurement,
        monitoring, mitigating, and controlling of risks associated with
        financial instruments.  The key risks related to financial
        instruments are credit risk, liquidity risk and market risk
        (currency, interest rate and equity). Our risk governance structure
        and risk management approach have not substantially changed from that
        described in our 2009 Annual Report. Certain risks have been outlined
        below. For a complete discussion of our risk governance structure and
        our risk management approach, see the "Financial Instrument Risk
        Management" note in the Company's consolidated financial statements
        dated December 31, 2009.

        The Company has also established policies and procedures designed to
        identify, measure and report all material risks. Management is
        responsible for establishing capital management procedures for
        implementing and monitoring the capital plan. The Board of Directors
        reviews and approves all capital transactions undertaken by
        management.

    (a) Credit Risk

        Credit risk is the risk of financial loss resulting from the failure
        of debtors making payments when due.


    (i)   Concentration of Credit Risk

          Concentrations of credit risk arise from exposures to a single
          debtor, a group of related debtors or groups of debtors that have
          similar credit risk characteristics in that they operate in the
          same geographic region or in similar industries.

    	      The following table provides details of the carrying value of
          bonds by industry sector and geographic distribution:

                                             June 30, 2010
                          ---------------------------------------------------
                                            United
                               Canada       States       Europe        Total
                          ---------------------------------------------------
          Bonds issued or
           guaranteed by:
            Canadian
             federal
             government   $     2,890  $         -  $        13  $     2,903
            Provincial,
             state and
             municipal
             governments        5,443        1,806           49        7,298
            U.S. Treasury
             and other U.S.
             agencies             363        2,759          943        4,065
            Other foreign
             governments          133            -        6,272        6,405
            Government
             related              803            -        1,357        2,160
            Sovereign             719            4          666        1,389
            Asset backed
             securities         2,807        3,572          868        7,247
            Residential
             mortgage backed
             securities            47          846          102          995
            Banks               2,470          474        2,234        5,178
            Other financial
             institutions       1,089        1,471        1,480        4,040
            Basic materials       161          552          211          924
            Communications        598          269          502        1,369
            Consumer
             products           1,529        1,573        1,597        4,699
            Industrial
             products/
             services             567          706          177        1,450
            Natural
             resources          1,075          701          493        2,269
            Real estate           591            -        1,378        1,969
            Transportations     1,501          591          593        2,685
            Utilities           3,202        2,367        2,811        8,380
            Miscellaneous       1,666          616          189        2,471
                          ---------------------------------------------------
            Total long term
             bonds             27,654       18,307       21,935       67,896
            Short term
             bonds              1,176          683          189        2,048
                          ---------------------------------------------------
                          $    28,830  $    18,990  $    22,124  $    69,944
                          ---------------------------------------------------
                          ---------------------------------------------------


                                           December 31, 2009
                          ---------------------------------------------------
                                            United
                               Canada       States       Europe        Total
                          ---------------------------------------------------
          Bonds issued or
           guaranteed by:
            Canadian
             federal
             government   $     2,264  $         1  $        14  $     2,279
            Provincial,
             state and
             municipal
             governments        4,917        1,333           55        6,305
    	        U.S. Treasury
             and other U.S.
             agencies             240        2,620          758        3,618
            Other foreign
             governments          104            -        5,773        5,877
            Government
             related              778            -        1,372        2,150
            Sovereign             783            4          762        1,549
            Asset backed
             securities         2,636        3,306          851        6,793
            Residential
             mortgage backed
             securities            46          842           60          948
            Banks               2,201          453        2,299        4,953
            Other financial
             institutions       1,021        1,336        1,507        3,864
            Basic materials       151          571          198          920
            Communications        598          276          473        1,347
            Consumer
             products           1,384        1,351        1,664        4,399
            Industrial
             products/
             services             516          651          206        1,373
            Natural
             resources          1,000          710          581        2,291
            Real estate           559            -        1,216        1,775
            Transportations     1,414          585          594        2,593
            Utilities           3,008        2,172        2,702        7,882
            Miscellaneous       1,489          562          182        2,233
                          ---------------------------------------------------
            Total long term
             bonds             25,109       16,773       21,267       63,149
            Short term
             bonds              2,406          455          137        2,998
                          ---------------------------------------------------
                          $    27,515  $    17,228  $    21,404  $    66,147
                          ---------------------------------------------------
                          ---------------------------------------------------


                                             June 30, 2009
                          ---------------------------------------------------
                                            United
                               Canada       States       Europe        Total
                          ---------------------------------------------------
          Bonds issued or
           guaranteed by:
            Canadian
             federal
             government   $     1,930  $         1  $        10  $     1,941
            Provincial,
             state and
             municipal
             governments        4,630        1,394           73        6,097
            U.S. Treasury
             and other U.S.
             agencies             270        3,201          777        4,248
            Other foreign
             governments          148            -        6,499        6,647
            Government
             related              816            -        1,357        2,173
            Sovereign             731            6          908        1,645
            Asset-backed
             securities         2,707        3,447          901        7,055
            Residential
             mortgage backed
             securities            75          979           64        1,118
            Banks               2,164          425        2,425        5,014
            Other financial
             institutions       1,046        1,154        1,570        3,770
            Basic materials       140          609          217          966
            Communications        594          338          445        1,377
            Consumer
             products           1,401        1,326        1,806        4,533
            Industrial
             products/
             services             590          680          243        1,513
            Natural
             resources            974          625          628        2,227
            Real estate           557            -        1,275        1,832
            Transportations     1,338          642          695        2,675
            Utilities           2,989        2,075        2,863        7,927
            Miscellaneous       1,391          544          190        2,125
                          ---------------------------------------------------
            Total long
             term bonds        24,491       17,446       22,946       64,883
            Short term
             bonds              1,947          381          165        2,493
                          ---------------------------------------------------
                          $    26,438  $    17,827  $    23,111  $    67,376
                          ---------------------------------------------------
                          ---------------------------------------------------


    (ii)  Asset Quality

          Bond Portfolio Quality
                                           June 30  December 31      June 30
                                              2010         2009         2009
                                         ------------------------------------
          AAA                            $  24,007    $  21,754    $  23,255
          AA                                11,382       10,585       10,960
          A                                 20,786       19,332       19,319
          BBB                               10,468       10,113       10,517
          BB and lower                       1,253        1,365          832
                                         ------------------------------------
                                            67,896       63,149       64,883
          Short term bonds                   2,048        2,998        2,493
                                         ------------------------------------
          Total bonds                    $  69,944    $  66,147    $  67,376
                                         ------------------------------------
                                         ------------------------------------

          Derivative Portfolio Quality
                                           June 30  December 31      June 30
                                              2010         2009         2009
                                         ------------------------------------
    	     Over-the-counter contracts
          (counterparty ratings):
          AAA                            $       7    $       5    $       3
          AA                                   332          338          219
          A                                    346          374          274
                                         ------------------------------------
          Total                          $     685    $     717    $     496
                                         ------------------------------------
                                         ------------------------------------

    (iii) Loans Past Due, But Not Impaired

          Loans that are past due but not considered impaired are loans for
          which scheduled payments have not been received, but management has
          reasonable assurance of collection of the full amount of principal
          and interest due. The following table provides carrying values of
          the loans past due, but not impaired:

                                           June 30  December 31      June 30
                                              2010         2009         2009
                                         ------------------------------------
          Less than 30 days              $       4    $      45    $       9
          30 - 90 days                          12            6           11
          90 days and greater                    1            9            3
                                         ------------------------------------
          Total                          $      17    $      60    $      23
                                         ------------------------------------
                                         ------------------------------------

    (iv)  Performing Securities Subject to Deferred Coupons

                                                Payment Resumption Date
                                         ------------------------------------
                                         less than       1 to 2  greater than
                                            1 year        years     2 years
                                         ------------------------------------
          Coupon payment receivable      $       -    $       2    $       -

    (b) Liquidity Risk

        Liquidity risk is the risk that the Company will not be able to meet
        all cash outflow obligations as they come due. The following policies
        and procedures are in place to manage this risk:

        -  The Company closely manages operating liquidity through cash flow
           matching of assets and liabilities and forecasting earned and
           required yields, to ensure consistency between policyholder
           requirements and the yield of assets.
        -  Management closely monitors the solvency and capital positions of
           its principal subsidiaries opposite liquidity requirements at the
           holding company. Additional liquidity is available through
           established lines of credit or the capital markets.

    (c) Market Risk

        Market risk is the risk that the fair value or future cash flows of a
        financial instrument will fluctuate as a result of changes in market
        factors which include three types: currency risk, interest rate
        (including related inflation) risk and equity risk.

    (i)   Currency Risk

          Currency risk relates to the Company operating in different
          currencies and converting non-Canadian earnings at different points
          in time at different foreign exchange levels when adverse changes
          in foreign currency exchange rates occur. If the assets backing
          policy liabilities are not matched by currency, changes in foreign
          exchange rates can expose the Company to the risk of foreign
          exchange losses not offset by liability decreases.
          -  A 10% weakening of the Canadian dollar against foreign
             currencies would be expected to increase non-participating
             policy liabilities and their supporting assets by approximately
             the same amount resulting in an immaterial change to net
             earnings. A 10% strengthening of the Canadian dollar against
             foreign currencies would be expected to decrease
             non-participating policy liabilities and their supporting assets
             by approximately the same amount resulting in an immaterial
             change in net earnings.

    (ii)  Interest Rate Risk

          Interest rate risk exists if asset and liability cash flows are not
          closely matched and interest rates change causing a difference in
          value between the asset and liability.

          Projected cash flows from the current assets and liabilities are
          used in CALM to determine policy liabilities. Valuation assumptions
          have been made regarding rates of returns on supporting assets,
          fixed income, equity and inflation. The valuation assumptions use
          best estimates of future reinvestment rates and inflation
          assumptions with an assumed correlation together with margins for
          adverse deviation set in accordance with professional standards.
          These margins are necessary to provide for possibilities of
          misestimation and/or future deterioration in the best estimate
          assumptions and provide reasonable assurance that policy
          liabilities cover a range of possible outcomes. Margins are
          reviewed periodically for continued appropriateness.

          Testing under several interest rate scenarios (including increasing
          and decreasing rates) is done to assess reinvestment risk.

          One way of measuring the interest rate risk associated with this
          assumption is to determine the effect on the policy liabilities
          impacting the shareholder earnings of the Company of a 1% immediate
          parallel shift in the yield curve. These interest rate changes will
          impact the projected cash flows.
          -  The effect of an immediate 1% parallel increase in the yield
             curve would be to increase these policy liabilities by
             approximately $174 causing a decrease in net earnings of
             approximately $121.
          -  The effect of an immediate 1% parallel decrease in the yield
             curve would be to increase these policy liabilities by
             approximately $43 causing a decrease in net earnings of
             approximately $29.

          In addition to above, if this change in the yield curve persisted
          for an extended period the range of the tested scenarios might
          change. The effect of an immediate 1% parallel decrease or increase
          in the yield curve persisting for a year would have immaterial
          additional effects on the reported policy liability.

    (iii) Equity Risk

          Equity risk is the uncertainty associated with the valuation of
          assets arising from changes in equity markets. To mitigate price
          risk, the Company has investment policy guidelines in place that
          provide for prudent investment in equity markets within clearly
          defined limits. The risks associated with segregated fund
          guarantees have been mitigated through a hedging program for
          lifetime Guaranteed Minimum Withdrawal Benefit guarantees
          consisting of purchasing equity futures, currency forwards, and
          interest rate swaps. For policies with segregated fund guarantees,
          the Company generally determines policy liabilities at a CTE75
          (conditional tail expectation of 75) level.

          Some policy liabilities are supported by real estate, common stocks
          and private equities, for example segregated fund products and
          products with long-tail cash flows. Generally these liabilities
          will fluctuate in line with equity market values. There will be
          additional impacts on these liabilities as equity market values
          fluctuate. A 10% increase in equity markets would be expected to
          additionally decrease non-participating policy liabilities by
          approximately $31 causing an increase in net earnings of
          approximately $23. A 10% decrease in equity markets would be
          expected to additionally increase non-participating policy
          liabilities by approximately $114 causing a decrease in net
          earnings of approximately $81.

          The best estimate return assumptions for equities are primarily
          based on long term historical averages. Changes in the current
          market could result in changes to these assumptions and will impact
          both asset and liability cash flows. A 1% increase in the best
          estimate assumption would be expected to decrease non-participating
          policy liabilities by approximately $307 causing an increase in net
          earnings of approximately $224. A 1% decrease in the best estimate
          assumption would be expected to increase non-participating policy
          liabilities by approximately $361 causing a decrease in net
          earnings of approximately $261.

    4.  Financing Charges

        Financing charges consist of the following:

                              For the three months        For the six months
                                     ended June 30             ended June 30
                          ---------------------------------------------------
                                 2010         2009         2010         2009
                          ---------------------------------------------------
        Operating charges:
          Interest on
           operating lines
           and short-term
           debt
           instruments    $         3  $         1  $         6  $         2

        Financial charges:
          Interest on
           long-term
           debentures and
           other debt
           instruments             56           52          110          104
          Dividends on
           preferred shares
           classified as
           liabilities              -            9            2           18
          Net realized/
           unrealized
           losses (gains)
           on preferred
           shares
           classified as
           held for trading         -           31           (2)          32
          Other                     3            2            7            4
          Net interest on
           capital trust
           debentures and
           securities               8           11           16           21
                          ---------------------------------------------------
                                   67          105          133          179
                          ---------------------------------------------------
        Total             $        70  $       106  $       139  $       181
                          ---------------------------------------------------
                          ---------------------------------------------------


    5.  Share Capital

    (a) Preferred Shares

        On March 4, 2010 the Company issued 6,000,000 Series M, 5.80%
        Non-Cumulative First Preferred Shares at $25 per share. The shares
        are redeemable at the option of the Company on or after March 31,
        2015 for $25 per share plus a premium if redeemed prior to March 31,
        2019, in each case with all declared and unpaid dividends to but
        excluding the date of redemption.

        On March 31, 2010 the Company redeemed all of the remaining
        outstanding Series D First Preferred shares at a redemption price of
        $25.25 per share. The Company had designated outstanding Preferred
        Shares Series D as held for trading on the Consolidated Balance
        Sheets with changes in fair value reported in the Summaries of
        Consolidated Operations. In connection with the transaction the
        Company recognized unrealized gains of $2 in the Summaries of
        Consolidated Operations. As a result the Company no longer has any
        outstanding preferred shares classified as liabilities.

    (b) Common Shares

        Issued and outstanding

                 June 30, 2010       December 31, 2009      June 30, 2009
             ----------------------------------------------------------------
                          Carrying              Carrying             Carrying
              Number        value   Number        value   Number       value
             ----------------------------------------------------------------
    Common
     shares:
    Balance,
    beginning
    of year  945,040,476  $ 5,751  943,882,505  $ 5,736  943,882,505  $ 5,736
    Issued
     under
     stock
     option
     plan (ex-
      ercised) 2,826,925       39    1,157,971       15      410,951        5
             ----------------------------------------------------------------
    Balance,
     end of
     period  947,867,401  $ 5,790  945,040,476  $ 5,751  944,293,456  $ 5,741
             ----------------------------------------------------------------
             ----------------------------------------------------------------

    6.  Capital Management

        At the holding company level, the Company monitors the amount of
        consolidated capital available, and the amounts deployed in its
        various operating subsidiaries. The amount of capital deployed in any
        particular company or country is dependent upon local regulatory
        requirements as well as the Company's internal assessment of capital
        requirements in the context of its operational risks and
        requirements, and strategic plans.

        Since the timing of available funds cannot always be matched
        precisely to commitments, imbalances may arise when demands for funds
        exceed those on hand. Also, a demand for funds may arise as a result
        of the Company taking advantage of current investment opportunities.
        The sources of the funds that may be required in such situations
        include bank financing and the issuance of debentures and equity
        securities.

        The Company's practice is to maintain the capitalization of its
        regulated operating subsidiaries at a level that will exceed the
        relevant minimum regulatory capital requirements in the jurisdictions
        in which they operate.

        The capitalization of the Company and its operating subsidiaries will
        also take into account the views expressed by the various credit
        rating agencies that provide financial strength and other ratings to
        the Company.

        In Canada, The Office of the Superintendent of Financial Institutions
        Canada (OSFI) has established a capital adequacy measurement for life
        insurance companies incorporated under the Insurance Companies Act
        (Canada) and their subsidiaries, known as the Minimum Continuing
        Capital and Surplus Requirements (MCCSR).


        For Canadian regulatory reporting purposes, capital is defined by
        OSFI in its MCCSR guideline. The following table provides the MCCSR
        information and ratios for The Great-West Life Assurance Company
        (Great-West Life):
                                           June 30  December 31      June 30
                                              2010         2009         2009
                                         ------------------------------------
        Capital Available:
        Net Tier 1 Capital               $   7,187    $   7,014    $   7,064
                                         ------------------------------------

        Tier 2 Capital Allowed               1,663        1,856        2,088
                                         ------------------------------------

        Total Available Capital          $   8,850    $   8,870    $   9,152
                                         ------------------------------------
                                         ------------------------------------

        Capital Required:
        Total Capital Required           $   4,385    $   4,354    $   4,464
                                         ------------------------------------
                                         ------------------------------------
        MCCSR ratios:
        Tier 1                                164%         161%         158%
                                         ------------------------------------
                                         ------------------------------------
        Total                                 202%         204%         205%
                                         ------------------------------------
                                         ------------------------------------

        In the United States, Great-West Life & Annuity Insurance Company
        (GWL&A) is subject to comprehensive state and federal regulation and
        supervision. The National Association of Insurance Commissioners
        (NAIC) has adopted risk-based capital rules and other financial
        ratios for U.S. life insurance companies. At December 31, 2009, the
        Risk-Based Capital (RBC) ratio for GWL&A was 476% of the Company
        Action Level.

        As at June 30, 2010 and 2009 the Company maintained capital levels
        above the minimum local requirements in its other foreign operations.

        The Company is both a user and a provider of reinsurance, including
        both traditional reinsurance, which is undertaken primarily to
        mitigate against assumed insurance risks, and financial or finite
        reinsurance, under which the amount of insurance risk passed to the
        reinsurer or its reinsureds may be more limited. The Company is
        required to put amounts on deposit for certain reinsurance
        transactions. These amounts on deposit are presented in funds held by
        ceding insurers on the Consolidated Balance Sheets. Some of these
        amounts on deposit support surplus.

    7.  Stock Based Compensation

        No options were granted under the Company's stock option plan during
        the second quarter and 863,000 options were granted during the first
        quarter of 2010 (no options were granted under the Company's stock
        option plan during the first and second quarter of 2009). The
        weighted average fair value of options granted was $4.34 per option
        during the six months ended June 30, 2010. Compensation expense
        relating to the Company's stock option plan of $3 after-tax has been
        recognized in the Summaries of Consolidated Operations for the six
        months ended June 30, 2010 ($5 after-tax for the six months ended
        June 30, 2009).

    8.  Pension Plans and Other Post-Retirement Benefits

        The total benefit costs included in operating expenses are as
        follows:

                              For the three months        For the six months
                                     ended June 30             ended June 30
                          ---------------------------------------------------
                                 2010         2009         2010         2009
                          ---------------------------------------------------
        Pension benefits  $        24  $        20  $        40  $        36
        Other benefits              4            3            7            6
                          ---------------------------------------------------
        Total             $        28  $        23  $        47  $        42
                          ---------------------------------------------------
                          ---------------------------------------------------

    9. Earnings per Common Share

    	   The following table provides the reconciliation between basic and
       diluted earnings per common share:

                              For the three months        For the six months
                                     ended June 30             ended June 30
                          ---------------------------------------------------
                                 2010         2009         2010         2009
                          ---------------------------------------------------
        Earnings
        Net earnings      $       455  $       431  $       916  $       774
        Perpetual
         preferred share
         dividends                 22           18           42           35
                          ---------------------------------------------------
        Net earnings -
         common
         shareholders     $       433  $       413  $       874  $       739
                          ---------------------------------------------------
                          ---------------------------------------------------

        Number of common
         shares
        Average number of
         common shares
         outstanding      947,648,873  944,194,975  946,877,593  944,056,508
        Add:
        -  Potential
            exercise of
            outstanding
            stock options     985,134    1,332,473    1,419,075      812,929
                          ---------------------------------------------------
        Average number of
         common shares
         outstanding
         - diluted basis  948,634,007  945,527,448  948,296,668  944,869,437
                          ---------------------------------------------------
                          ---------------------------------------------------

        Basic earnings per
         common share     $     0.457  $     0.437  $     0.923  $     0.783
                          ---------------------------------------------------
                          ---------------------------------------------------

        Diluted earnings
         per common share $     0.457  $     0.437  $     0.922  $     0.782
                          ---------------------------------------------------
                          ---------------------------------------------------


    10. Segmented Information

        Consolidated Operations
        For the three months ended June 30, 2010

                                     United                Lifeco
                          Canada     States     Europe  Corporate      Total
                        -----------------------------------------------------
        Income:
          Premium
          income        $  2,228  $     675  $   1,312  $       -  $   4,215
          Net investment
           income
            Regular net
             investment
             income          589        324        425          4      1,342
            Changes in
             fair value
             on held for
             trading
             assets          187        404        500          -      1,091
                        -----------------------------------------------------
          Total net
           investment
           income            776        728        925          4      2,433
          Fee and other
           income            255        307        156          -        718
                        -----------------------------------------------------
        Total income       3,259      1,710      2,393          4      7,366
                        -----------------------------------------------------

        Benefits and
         expenses:
          Paid or
           credited to
           policyholders   2,278      1,247      2,097          -      5,622
          Other              602        380        140          2      1,124
          Amortization
           of finite
           life intangible
           assets             10         13          1          -         24
                        -----------------------------------------------------

        Earnings before
         income taxes        369         70         155         2        596

        Income taxes          90         16           7         2        115
                        -----------------------------------------------------

        Net earnings
         before non-
         controlling
         interests           279         54         148         -        481

        Non-controlling
         interests            24          -           2         -         26
                        -----------------------------------------------------

        Net earnings         255         54         146         -        455

        Perpetual
         preferred share
         dividends            18          -           4         -         22
                        -----------------------------------------------------

        Net earnings -
         common
         shareholders   $    237  $      54  $      142  $      -  $     433
                        -----------------------------------------------------
                        -----------------------------------------------------


        For the three months ended June 30, 2009

                                     United                Lifeco
                          Canada     States     Europe  Corporate      Total
                        -----------------------------------------------------
        Income:
          Premium
           income       $  2,243  $     609  $   1,812  $       -  $   4,664
          Net investment
           income
            Regular net
             investment
             income          741        357        512          6      1,616
            Changes in
             fair value
             on held for
             trading
             assets          805        546        921          -      2,272
                        -----------------------------------------------------
          Total net
           investment
           income          1,546        903      1,433          6      3,888
          Fee and other
           income            229        291        146          -        666
                        -----------------------------------------------------
        Total income       4,018      1,803      3,391          6      9,218
                        -----------------------------------------------------

        Benefits and
         expenses:
          Paid or
           credited to
           policyholders   3,085      1,363      3,025          -      7,473
          Other              585        367        199          4      1,155
          Amortization
           of finite
           life intangible
           assets              8         15          2          -         25
                        -----------------------------------------------------

        Earnings before
         income taxes        340         58        165          2        565

        Income taxes         101          8         13          -        122
                        -----------------------------------------------------

        Net earnings
         before non-
         controlling
         interests           239         50        152          2        443

        Non-controlling
         interests            12          1         (1)         -         12
                        -----------------------------------------------------

        Net earnings         227         49        153          2        431

        Perpetual
         preferred share
         dividends            10          -          4          4         18
                        -----------------------------------------------------

        Net earnings -
         common
         shareholders   $    217  $      49  $     149  $      (2) $     413
                        -----------------------------------------------------
                        -----------------------------------------------------

        For the six months ended June 30, 2010

                                     United                Lifeco
                          Canada     States     Europe  Corporate      Total
                        -----------------------------------------------------
        Income:
          Premium
           income       $  4,496  $   1,501  $   2,828  $       -  $   8,825
          Net investment
           income
            Regular net
             investment
             income        1,208        658        893          5      2,764
            Changes in
             fair value
             on held for
             trading
             assets          608        696      1,289          -      2,593
                        -----------------------------------------------------
          Total net
           investment
           income          1,816      1,354      2,182          5      5,357
          Fee and other
           income            511        624        319          -      1,454
                        -----------------------------------------------------
        Total income       6,823      3,479      5,329          5     15,636
                        -----------------------------------------------------

        Benefits and
         expenses:
          Paid or
           credited to
           policyholders   4,958      2,537      4,698          -     12,193
          Other            1,189        758        302          2      2,251
          Amortization
           of finite
           life intangible
           assets             19         25          3          -         47
                        -----------------------------------------------------

        Earnings before
         income taxes        657        159        326          3      1,145

        Income taxes         129         36         33          3        201
                        -----------------------------------------------------

        Net earnings
         before non-
         controlling
         interests           528        123        293          -        944

        Non-controlling
         interests            23          1          4          -         28
                        -----------------------------------------------------

        Net earnings         505        122        289          -        916

        Perpetual
         preferred share
         dividends            35          -          7          -         42
                        -----------------------------------------------------

        Net earnings -
         common
         shareholders   $    470  $     122  $     282  $       -  $     874
                        -----------------------------------------------------
                        -----------------------------------------------------


        For the six months ended June 30, 2009

                                     United                Lifeco
                          Canada     States     Europe  Corporate      Total
                        -----------------------------------------------------
        Income:
          Premium
           income       $  4,317  $   1,564  $   3,492  $       -  $   9,373
          Net investment
           income
            Regular net
             investment
             income        1,288        799      1,033          7      3,127
            Changes in
             fair value
             on held for
             trading
             assets          483        325       (503)         -        305
                        -----------------------------------------------------
          Total net
           investment
           income          1,771      1,124        530          7      3,432
          Fee and other
           income            451        574        321          -      1,346
                        -----------------------------------------------------
        Total income       6,539      3,262      4,343          7     14,151
                        -----------------------------------------------------

        Benefits and
         expenses:
          Paid or
           credited to
           policyholders   4,768      2,307      3,764          -     10,839
          Other            1,116        756        376          7      2,255
          Amortization
           of finite
           life intangible
           assets             15         29          3          -         47
                        -----------------------------------------------------

        Earnings before
         income taxes        640        170        200          -      1,010

        Income taxes         163         40         (3)         -        200
                        -----------------------------------------------------

        Net earnings
         before non-
         controlling
         interests           477        130        203          -        810

        Non-controlling
         interests            31          6         (1)         -         36
                        -----------------------------------------------------

        Net earnings         446        124        204          -        774

        Perpetual
         preferred share
         dividends            21          -          7          7         35
                        -----------------------------------------------------

        Net earnings -
         common
         shareholders   $    425  $     124  $     197  $      (7) $     739
                        -----------------------------------------------------
                        -----------------------------------------------------
    

SOURCE Great-West Lifeco Inc.

For further information: For further information: Marlene Klassen, APR, Assistant Vice-President, Communication Services, (204) 946-7705


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