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Edited Transcript of GWO.TO gain discussion call or display 9-Feb-17 8:30pm GMT

Turning to slip 5. Earnings this entertain were CAD676 million or CAD0.686 per share. These title total are in line with final entertain yet down year over year. On a constant-currency basis, Q4 2016 advantage were adult 4% from final year’s formula and 7% incompatible a restructuring charge.

In Canada we saw good advantage pick-up with organisation morbidity formula resilient as a outcome of supervision pricing actions. Canada’s advantage formula enclosed a clever grant from investment gains. Results in Europe were solid, benefiting from softened knowledge gains, nonetheless a weaker bruise Sterling impacted stating advantage in Canadian dollars by CAD30 million year over year.

US shred advantage were down by CAD70 million compared to Q4 of 2015. Putnam’s advantage were down CAD45 million on revoke revenues and supervision took transformation in response to these marketplace pressures. In Nov Putnam announced a realignment of a business that is entrance to outcome in a $65 million annual responsibility reduction. The compared restructuring assign reduced Lifeco’s Q4 2016 advantage by CAD20 million. Garry will cover these advantage equipment in some-more fact in his section.

Lifeco confirmed a clever collateral position with Great-West Life’s MCCSR ratio adult 13 points to 240%. Reinforcing a financial coherence that we remarkable earlier, we have roughly CAD1.1 billion of Lifeco income during year-end that is not enclosed in a MCCSR ratio.

Moving to slip 6. Our Canadian sales augmenting by 11% year over year, with strength opposite all lines. Individual life sales were adult some-more than 161% year over year and this was driven by a swell in business as a outcome of a change in taxation manners on income value life insurance. Our Canadian organisation business led a marketplace in sales, both in a entertain and for a full year 2016.

US sales were down 42%, driven radically by variability in vast devise sales during Empower. In Q4 2015 that was final year, vast devise sales represented over CAD9 billion of US sales and these were not solid in Q4 2016. As I’ve remarkable in past quarters, these sales can be utterly lumpy during Empower. But Empower continues to have a unequivocally clever tube opposite all segments.

Putnam sales were aloft year over year driven by $4.6 billion of mutual account sales. In Europe, sales were adult 13% year over year with clever account supervision sales in Ireland, a good sell grant deteriorate in both Ireland and Germany and aloft UK payout payments sales.

I’ll now impute to slip 7. we would note that responsibility numbers on this slip embody a series of one-time and well-developed items. These embody new business-related waste from a towering life word sales in Canada in Q4, a serve of a new health business in a European expenses, and that’s in Ireland, a restructuring assign during Putnam and final year there was a one-time recover in both a US and Europe. When we bar these items, altogether a underlying handling responsibility expansion during Lifeco was good managed and in line with ancestral norms.

Turning to slip 8. Fee income was 1% aloft year over year, opposite a generally certain backdrop of aloft equity markets in Canada, a US and a UK, nonetheless a Euro stock’s 50 index was lower. we would note that a cost income formula in any business shred are impacted by their brew of assets. Equity contra bound income, sell contra institutional and also formed on their geographic placement of assets.

As we demeanour during a segment’s results, Canada’s cost income augmenting 5% due to an boost in object volume and aloft equity marketplace levels. Canada gifted certain net income flows in both sold and organisation retirement services in a quarter. Participant levels pushed toward CAD8.1 million during Empower with compared fees increasing, equivalent by revoke mutual account AUM and opening fees during Putnam. This resulted in altogether revoke cost income in a US segment.

Fees and other income were adult 4% in a European segment, driven by expansion in resources underneath supervision and expansion in other income from a Irish Life Health business. I’ll now spin a call over to Garry who can produce some-more discernment into Lifeco’s financial results. Garry?

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Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [3]

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Thank you, Paul. Starting with slip 10, handling advantage in a fourth entertain were CAD676 million or CAD0.686 per share. As Paul remarkable advantage this entertain embody CAD20 million of Putnam restructuring charges. Excluding those charges, advantage were CAD696 million or CAD0.707 per share, an boost of 3% year over year and tie to 7% expansion during consistent currency. Currency was a CAD33 million drag on advantage compared to Q4 2015, radically due to Sterling.

Canada’s advantage augmenting on auspicious mankind and softened organisation long-term incapacity experience, clever produce encouragement and aloft cost income. This was rather equivalent by a revoke grant from basement change and waste on policyholder function experience. In a US, advantage were down from a before year quarter, radically due to revoke cost income in Putnam and a CAD20 million restructuring charge.

Europe’s handling advantage of CAD307 million were strong, adult 11% on a constant-currency basis, reflecting aloft contributions from new business gains, new sales and from produce enhancement. The disastrous impact from a diminution in bruise Sterling compared to Q4 final year was CAD30 million, as interpretation rates a year ago were CAD2.03 compared to CAD1.66 this quarter.

Turning to slip 11. As a reminder, a source of advantage categories above a line are shown pretax. Lifeco’s year-over-year entrance distinction decreased CAD27 million or 4% from a same entertain in 2015, generally due to inauspicious banking transformation and revoke cost income during Putnam.

New business streams decreased to CAD43 million in Q4 2016, revoke than before periods, mostly due to essential payments sales in Canada, a UK and a reinsurance division. Experience gains of CAD88 million were aloft this entertain than a before entertain and prior-year quarter. Yield encouragement was clever opposite all segments, contributing CAD115 million. This was partially equivalent by rebate CAD27 million of other knowledge items.

In a US cost income was revoke than entrance and waste were aloft for both Empower and sold markets. In Canada, while mankind was clever and organisation long-term incapacity was some-more auspicious than final year, policyholder function gifted in sold life was adverse this quarter. This was mostly associated to acclimatisation activity into new policies in a run-up to a introduction of a new taxation manners in Jan this year.

Assumption updates and other supervision actions resulted in a recover of CAD141 million this entertain compared to CAD223 million final entertain and CAD149 million this entertain final year. The categorical contributors were updates to mercantile and annuitant mankind assumptions.

CAD33million enclosed in other is a pretax volume of Putnam’s restructuring costs with a smaller residue a Empower formation costs. The advantage on over-abundance of rebate CAD12 million is CAD45 million revoke than final year, reflecting revoke net investment income and a series of one-off equipment in before periods.

All this comes together in a net income before taxation line shown in a center of a page. Year over year this is adult 7% and a slight alleviation in a quarter-over-quarter result, adult CAD6 million or 1%. I’d also note here a effective taxation rate on shareholder advantage is 15% this quarter, adult from 7% rate final year, due to fewer one-time taxation benefits. And it is unvaried from final quarter.

Turning to slip 12. Slide 12 is a full-year viewpoint of a source of advantage that we embody for Q4 reporting. So on a year-to-date basement Lifeco’s entrance distinction of CAD2.642 billion in 2016 was 4% revoke than 2015. The diminution year over year, identical to a quarter, is radically a outcome of revoke responsibility cost income during Putnam and banking impacts.

The aria on new sales of CAD232 million in 2016 is rather aloft than 2015, radically a outcome of a change in sales brew in a US, pushing an boost in non-deferrable merger expenses, partially equivalent by aloft volumes of essential UK payments business. Experience gains of CAD186 million in 2016 were CAD109 million revoke than in 2015. The gains in 2016 radically a outcome of produce encouragement in all segments and longevity formula in Europe. The gains were partially equivalent by revoke fees and aloft waste in a US and bad organisation incapacity formula progressing in this year and policyholder function knowledge in Canada, as remarkable earlier.

Management actions and changes in assumptions contributed CAD547 million to pretax advantage in 2016 compared to CAD464 million in 2015. The many element updates were to mercantile assumptions, responsibility assumptions, and annuitant longevity assumptions.

Earning on over-abundance of CAD58 million in 2016 were CAD21 million revoke than 2015, radically due to revoke investment income and genuine estate mark-to-market. Other of rebate CAD68 million is a restructuring costs that we remarkable progressing associated to Putnam and a acquisitions of a Irish Health Company that we’ve rebranded into Irish Life Health.

Turning to slip 13. Lifeco’s uncommitted income position remained clever during over CAD1.1 billion. This includes approximately CAD400 million of deduction from a euro bond emanate that were kept during a Lifeco level.

Our book value per share was CAD19.76, rather aloft than a before quarter, yet revoke than a prior-year entertain reflecting sell rate impacts seen during 2016. And a impact of share buy-backs. During 2016 we bought behind and canceled 8 million shares underneath a normal march issuer bid.

Return on equity stays solid during 13.8%. The ROEs continue to be clever in Canada and Europe, during or above a long-term altogether Lifeco targets. The revoke lapse in a US reflects a mixed of a ongoing investments during Empower, as good as a vigour on margins from revoke mutual account resources and miss of scale during Putnam. Management is unequivocally focused on improving margins and ROE in a US shred and bringing Lifeco behind towards a longer-term targets.

Finally, branch to slip 14. We uncover resources underneath administration are during CAD1.2 trillion, adult CAD35 billion or 7% on a constant-currency basis, driven by marketplace opening and altogether business growth. Paul, that concludes my remarks.

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Paul Mahon, Great-West Lifeco Inc. — President CEO [4]

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Thanks unequivocally much, Garry. Before we open adult a line to questions, I’d like to plead a opinion for 2017. On slip 15 you’ll note there’s some records there. Notwithstanding doubt in a geopolitical and mercantile environment, we are committed to pushing brazen with a devise that includes organic expansion by investments in a businesses and executing targeted acquisitions.

In Canada, a investment in record will broach an softened knowledge for a customer. In a US, with formation roughly complete, Empower will be of relocating to a singular complement and pushing cost reductions and efficiencies. At Putnam, efforts continue to build a scalable, essential object supervision franchise. Putnam’s proclamation of CAD65million in responsibility reductions behind in Nov is justification of a fasten to this goal.

In Europe we have some good opportunities. These embody building out a Irish Health business and fluctuating a position in a UK sell and bulk payments markets. Canada life products continue to fit unequivocally good into a post Solvency II German grant marketplace and there are a series of engaging reinsurance opportunities underneath examination during this time.

At a same time, responsibility fortify will sojourn a Company-wide concentration as we change investing in a businesses with potency improvements. Finally, a collateral deployment priorities sojourn unchanged, organic expansion complemented by targeted acquisitions. That concludes my grave comments so I’ll spin a call over to a user so we can get orderly for questions. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Steve Theiault, Dundee Capital Partners.

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Steve Theriault, BofA Merrill Lynch — Analyst [2]

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Thanks unequivocally much. A integrate questions, substantially for Garry. So Garry, entrance profit’s been down year on year any of a final few quarters. So as we demeanour to 2017 with, we cruise a bruise Sterling’s been a headwind there, Putnam’s been a headwind. But now with a comps removing easier with Putnam restructuring underneath way, with a aloft rates we saw in Q4, and maybe we can criticism on that as a driver, how assured are we into subsequent year we’ll start to see — get behind to entrance distinction expansion contra entrance distinction decrease over a infancy of 2016?

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Paul Mahon, Great-West Lifeco Inc. — President CEO [3]

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I’m going to give we that question, Garry (laughter).

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Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [4]

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Thank you. Steve, indeed we cruise we have indeed strike on many of a certain factors. The comparables will get easier as a currencies have been comparatively spin starting in Q3 of 2016 as we go into 2017. Certainly currency, all else being equal, is staying during these levels will be rebate of a factor.

We should see an softened position during Putnam given of a revoke expenses. At this indicate substantially during CAD9 million to CAD10 million pretax in run rate synergies and we demeanour for that to get adult towards a CAD65 million by a after partial of a year. Those things will assistance a profit. we couldn’t beam to any sold number, yet those are all certain factors for us. And definitely a arise in markets, a peaceful arise in seductiveness rates, those will be useful as well.

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Steve Theriault, BofA Merrill Lynch — Analyst [5]

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We don’t have to cruise of Great-West as precedence to rates yet would that be — a aloft Q4 rates, a arise we saw in rates, a steeper produce curve, would that be high on a pecking sequence in terms of factors that will assistance subsequent year? Or is it some-more a bruise Sterling, a Putnam and some of a other things we talked about?

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Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [6]

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I cruise it’s a ubiquitous equity marketplace levels will be some-more of a factor. Certainly a (inaudible) mentioned. The seductiveness rates, we’re not — many comes into play will be in a US operations. It helps with a widespread compression. And it also helps a tiny bit in Canada as well, where revoke rates we do tend to find your spreads compressed. Having a tiny some-more respirating room there will help. It’s not a outrageous cause for us.

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Paul Mahon, Great-West Lifeco Inc. — President CEO [7]

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The other factor, Steve, apparently is rising rates is going to assistance make products some-more rival for customers. And that’s going to build improved values, possibly it’s in annuities or potentially pricing some of a word products. There’s intensity for lift there, yet that’s arrange of a longer-term view.

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Steve Theriault, BofA Merrill Lynch — Analyst [8]

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Okay, interjection for that. The second thing was a impact from knowledge gained, supervision actions, assumptions changes. On a final integrate of quarters, so both in Q3 and Q4, that’s been towering to entrance 30%. So for Paul or for Garry, after observant a integrate buliding like that, and a numbers have been trending adult and maybe it’s usually some corpulent produce encouragement during a behind finish of a year, yet are we starting to see — we have that good draft in a rug that shows, we think, a 21% grant over a prolonged term.

Is that still where we cruise a numbers will shake out over a middle tenure Or usually for whatever reason, maybe it’s produce enhancement, maybe it’s something else, is that structurally trending a tiny higher? Not in any sold entertain yet meditative over a subsequent adult integrate years.

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Paul Mahon, Great-West Lifeco Inc. — President CEO [9]

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We tend to viewpoint that over a prolonged tenure as where it will be a healthy flow-off of a business. While we competence have seen in a final integrate of buliding a bit of betterment there, if we indeed demeanour during it on a four-quarter rolling basis, there’s not a remarkable change. Garry, anything you’d add?

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Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [10]

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I think, Steve, we referenced a right slides in a deck, there’s 24. If we demeanour during a final 2014, 24%, 2015, 23%, 2016, 23%, it’s flattering solid on an annual basis. Those were all a tiny aloft that a long-term normal of 21%. Although during a predicament there were a integrate yields revoke years in there.

Again, these things are notoriously formidable to envision in advance. Certainly we’ll continue to be looking for produce encouragement opportunities to expostulate a knowledge gains on that side. And yes, we have a clever lane record yet it’s unequivocally formidable to envision forward.

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Steve Theriault, BofA Merrill Lynch — Analyst [11]

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Can we refurbish us fast on a distance of a sovereign, a gilts or a US Treasuries that we have that are, as we think, authorised for produce enhancement?

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Paul Mahon, Great-West Lifeco Inc. — President CEO [12]

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Mark competence be means to criticism on a relations distance of a US Treasuries. And Arshil, maybe we can pronounce a tiny to a distance of a gilt. Mark, any discernment on US Treasuries? Or is that something we have to come behind on?

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Mark Corbett, Great-West Lifeco Inc. — CIO [13]

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If we spin to slip 27 we produce a combination of a bond portfolio. There’s a mainstay there entitled government, government-related, gives we some clarity for a scale of opportunities in a change sheet. Still have lots of opportunity.

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Steve Theriault, BofA Merrill Lynch — Analyst [14]

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Okay. I’ll take a demeanour during that. Just one final thing. Probably, Paul, we mentioned that Allianz Ireland transaction. Will we see any advantage subsequent entertain on a behind of that when it closes?

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Paul Mahon, Great-West Lifeco Inc. — President CEO [15]

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I’m going to spin that one to Arshil.

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Arshil Jamal, Great-West Lifeco Inc. — President COO for European and Reinsurance Operations [16]

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The squeeze cost is EUR145 million and that’s a medium advantage relations to a carrying value. But it will count on a opening during a entertain given we design a transaction to tie during a finish of a quarter. So if we get a good quarter, a underlying opening it will be a smaller gain. If we get rebate of a performance, afterwards we’ll get a bigger gain.

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Steve Theriault, BofA Merrill Lynch — Analyst [17]

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Sounds like utterly small, though.

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Arshil Jamal, Great-West Lifeco Inc. — President COO for European and Reinsurance Operations [18]

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Yes, in a handful of millions of euros, not 20 or 30.

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Paul Mahon, Great-West Lifeco Inc. — President CEO [19]

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The approach we impersonate that business, that was an investment we picked adult as partial of a Irish Life acquisition. It was not core business, it was investment. We’re focusing on expansion of things like Irish Life Health. So it was timely that a infancy shareholder wanted to take that behind and it was good timing for us too.

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Steve Theriault, BofA Merrill Lynch — Analyst [20]

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Thanks unequivocally much.

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Operator [21]

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Thank you. Mr. Mahon, before we go to a subsequent questioner, I’d usually like to discuss there are some sound issues entrance over your phone line. Sounds as if someone is respirating to tie to a microphones there.

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Paul Mahon, Great-West Lifeco Inc. — President CEO [22]

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We’ll reason a breath. Thank you, operator.

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Operator [23]

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Very good. Doug Young, Desjardins Capital.

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Doug Young, Desjardins Securities — Analyst [24]

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Hi, good afternoon. we guarantee not to breathe tie to a mic here (laughter). Provisions for destiny credit losses, it looked, and scold me if I’m wrong, given we had a discerning demeanour by a MDA, it looked like they were down CAD484 million in Q4. It’s about a 14% decline. It doesn’t demeanour like a lot of that would have been FX-related if we have my numbers right.

Wondering if we can — do we have a numbers right? What would that be associated to? Is that around — apparently that would go by a supervision transformation and arrogance change line. And have we altered your we views on credit loss? Is that given there would have been such a vast decline? And I’ve got a few follow-ups.

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Paul Mahon, Great-West Lifeco Inc. — President CEO [25]

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I’ll let Garry start on that. And Mark Corbett will supplement a tiny bit of color. Garry, we wish to start on that?

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Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [26]

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Sure. First off, there was a banking impact. We do have a lot of prolonged tailed business in (inaudible) in a European operations. Most of that is in a UK. So there is a satisfactory bit of remeasurement from a UK.

The other — there was a [taxes] basement change in a period. The basement change was not that poignant for that sold item. The infancy of a basement change is indeed in a participating accounts. So it wouldn’t upsurge by a shareholder earnings.

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Paul Mahon, Great-West Lifeco Inc. — President CEO [27]

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So broadly, Garry, you’re observant a infancy of this was currency-impact related.

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Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [28]

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It’s banking impact and participating (multiple speakers). I’m not signalling an altogether change in a views on credit. It’s some-more — it was an refurbish to a models, sold in Canada and in a US. We had an refurbish to a Basel II, some-more closely reflects a informal knowledge in those rather than usually regulating a general tellurian model. We are some-more privately noticing a auspicious credit knowledge we’ve had in both Canada and a US, so a bit of that advantage went through. we cruise it was in a sequence of CAD30 million or CAD40 million of basement change amount. we have a series here, I’ll collect it adult in a bit, yet it was in that arrange of order.

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Doug Young, Desjardins Securities — Analyst [29]

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Okay, so it wasn’t a full number. Of that change, we figured maybe a vast chunks was from par, yet of that CAD484 million, do we usually take a CAD30 million to CAD40 million, rebate a CAD484 million and a disproportion is unequivocally associated to par? Is that a approach to cruise of it?

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Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [30]

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What we competence do is we’ll he get a information for you, in a follow-up, on a separate between a currency. we did endorse that a basement change that went by a source of advantage on a pretax basement was indeed CAD39 million. So CAD40 million, we was ball-parking there. The infancy of a rest is indeed standard and currency, yet we don’t have a separate of those dual elements.

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Doug Young, Desjardins Securities — Analyst [31]

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Okay, we can follow adult on that. The second doubt is — if we review your slip series 10 correctly, it shows that there was $40 million of a $65 million cost saves in Putnam indeed came by in Q4. That’s an annualized series so we assume it’s $10 million. Is that right? The full $10 million came by in a quarter? Or was it by a finish of a entertain that was a run rate that we were seeing?

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Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [32]

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No, that would have come by in a quarter. It was $9 million to $10 million pretax.

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Doug Young, Desjardins Securities — Analyst [33]

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The incremental that left unequivocally to come by per entertain pretax, on a US dollar basement would be another, what, $6 million? So a good cube of a resources has already been realized? Is that a approach to cruise of it?

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Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [34]

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That’s right. You’re correct. A reasonable apportionment has been satisfied and that’s given a staff are no longer during a organization. There was an evident rebate there. There are some businessman negotiations underway to expostulate out some of a remaining benefits.

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Doug Young, Desjardins Securities — Analyst [35]

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Okay, so a numbers we had are correct?

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Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [36]

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Yes, they sound correct.

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Paul Mahon, Great-West Lifeco Inc. — President CEO [37]

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Your painting is close.

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Doug Young, Desjardins Securities — Analyst [38]

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Perfect. Lastly, Paul, buy-backs is mentioned in slip 15. we always cruise of Great-West and a attribute with [power] and we don’t apparently cruise of we being overly assertive on buy-backs. Has that changed? Or is this during a margins? Trying to get a clarity of how your viewpoint is on buy-backs.

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Paul Mahon, Great-West Lifeco Inc. — President CEO [39]

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I’d start off, as we cruise about a collateral deployment priorities, we’re investing in a businesses, possibly it’s post acquisition, perplexing to expostulate out aloft value. We’re looking for targeted acquisitions, as remarkable on a page.

I would contend buy-backs are always in a frame. If we’re going by a period, a cycle, and we’re not anticipating those choice ways to muster capital, giving behind capital, possibly it’s in a form of dividends, as we did this quarter, or in terms of buy-backs, we’ll cruise that. we wouldn’t contend it’s a sea change or a change in philosophy. we would usually contend we do have a clever collateral position now and it’s something that’s in a caring set.

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Doug Young, Desjardins Securities — Analyst [40]

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Okay, satisfactory enough. All right, appreciate you.

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Paul Mahon, Great-West Lifeco Inc. — President CEO [41]

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Thanks.

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Operator [42]

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Tom MacKinnon, BMO Capital.

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Tom MacKinnon, BMO Capital Markets — Analyst [43]

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Question with honour to Putnam and afterwards a follow-up. The initial is given have we waited so prolonged in terms of holding this restructuring assign during Putnam in terms of perplexing to right-size a business? Give us some of a suspicion routine behind that and given this wasn’t finished years ago. And we have follow-ups.

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Paul Mahon, Great-West Lifeco Inc. — President CEO [44]

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Okay, thanks, Tom. I’ll take that. It’s Paul. we competence spin over to Bob. I’ll give we a tiny bit of a background. When we acquired Putnam behind in 2007, we famous that there was a need for a elemental restructuring there, that enclosed some poignant cost take-out that came in a integrate of years following. But also rebuilding a investment supervision emporium and in sold a performance.

And one of a hurdles there, we cruise during a time Putnam was series 62 out of 63 families. That wasn’t on a high finish of a 62, it was nearby a bottom in terms of performance. And a marketplace expects, wants and needs to see long-term opening as totalled by 3-, 5-, 10-year performance. So as we got into restructuring that business by 2009, 2010, 2011, 2012, we were building out a shelf with a expectancy of growing, flourishing a business. It was expansion play, not a synergy play by any stretch.

So started to grow a shelf, apparently extended a capabilities on a investment supervision side, and by 2014 we were starting to see flattering clever flows entrance in. At that indicate in time we, like many active managers in a states, started to knowledge a impact of a thespian change to pacifist investments. We’ve seen that means itself given a latter partial of 2014 by 2015 and 2016. We’re indeed observant a bit of a spin now.

One of a questions during that indicate in time is, do we pierce off of your devise of focusing on expansion and perplexing to get during synergies? Or do we stay a march by a cycle? And we finished a preference to stay a march by a cycle. But during a same time we also reflected on this. It was unequivocally underneath Bob Reynolds’ leadership, who pronounced we’ve got to tie things down here. We’ve got to get out some of a costs.

But a cost takeout has not private a viewpoint from wanting this to be a expansion engine as partial of a broader object supervision capabilities globally. So we took costs out yet we took costs out on a basement that we were not going to repairs a investment management, object supervision capability and repairs a event for growth.

So we cruise if markets had not incited to pacifist behind in 2014, we competence not have taken this decision. But we did take a preference given we cruise a impact of pacifist for a integrate of years has been tough. And Bob came brazen with a recommendation to do that and a Board upheld it. Bob, anything you’d supplement to that?

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Bob Reynolds, Great-West Lifeco Inc. — President CEO of Great-West Lifeco US [45]

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I wouldn’t supplement many to it. we cruise primarily we cut 30% of headcount from 2008 over a subsequent integrate of years. We suspicion we were set adult to do very, unequivocally good in a form of marketplace we were in. And as we overwhelmed upon, we did do that.

And we cruise it is usually — generally a final integrate years, a pierce to pacifist has accelerated. Historically this has been a cyclical materialisation where pacifist does well, afterwards active does well. So we went into 2016 with a thought that this is about prepared to turn.

And if we remember a initial quarter, a marketplace was down 10% in a initial month and afterwards was adult 11%, 12% a rest of a quarter. So we were adult 1% for a entertain yet that sensitivity again pushed people out of active. And that’s when we pronounced we need to do something about a cost structure given run rate’s your rivalry and we finished a changes.

And usually so happens a marketplace finished adult a year adult 9%. But from that indicate in February, a market’s adult — by a marketplace we meant a SP 500’s adult 22%. So we cruise we’re starting to see a rally. The index has depressed given Jun 30 until now is in a 30th percentile. In other words, 70% of active managers are outperforming it. It’s a short-term trend yet we like a trend line during this point.

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Tom MacKinnon, BMO Capital Markets — Analyst [46]

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And maybe usually a follow-up. With honour to Putnam, we beheld it didn’t like there was any financing charges taken in a quarter. If we can elaborate on that, what is generally a run rate in terms of financing charges?

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Paul Mahon, Great-West Lifeco Inc. — President CEO [47]

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Tom, I’m not — Garry, maybe we can answer that one.

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Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [48]

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Yes, we would have had a unchanging financing charges, would have left by in a quarter. we cruise they’re in a behind of a statements, financial statements. They competence have been masked rather by a — there was a taxation advantage in a entertain that competence have equivalent some of that. Maybe that’s what you’re seeing, it’s a net of a two.

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Tom MacKinnon, BMO Capital Markets — Analyst [49]

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Okay. So what was that —.

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Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [50]

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We can definitely do a follow-up with you.

———————————————————————————

Tom MacKinnon, BMO Capital Markets — Analyst [51]

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What was that taxation benefit? Was that in Putnam?

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Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [52]

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That was rising in Putnam and we trust it was CAD11 million in a quarter, CAD11 million.

———————————————————————————

Tom MacKinnon, BMO Capital Markets — Analyst [53]

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Okay. And was there any satisfactory value adjustments during Putnam as well? Or were they flattering immaterial?

———————————————————————————

Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [54]

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Trying to — sorry, Tom, do we meant on a investments on a seed capital?

———————————————————————————

Tom MacKinnon, BMO Capital Markets — Analyst [55]

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Yes.

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Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [56]

———————————————————————————

The mark-to-market on a seed capital? Yes, we cruise it was rebate than CAD1 million of a loss, it was immaterial.

———————————————————————————

Tom MacKinnon, BMO Capital Markets — Analyst [57]

———————————————————————————

Okay. Or usually satisfactory value adjustments associated to stock-based comp during Putnam.

———————————————————————————

Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [58]

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We don’t hoop a comp that way. That was a aged method.

———————————————————————————

Tom MacKinnon, BMO Capital Markets — Analyst [59]

———————————————————————————

Okay. And afterwards a final one is with honour to Empower. So advantage are down entertain over entertain again. The participants are prosaic entertain over quarter. Earnings are down entertain over entertain notwithstanding a fact that a investment spend is significant, is a lot rebate this entertain than it was final quarter, it was about half a level. Maybe we can assistance us know when are we going to see a advantage during Empower start to turn?

———————————————————————————

Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [60]

———————————————————————————

I’ll start with usually a integrate of ones here. First, definitely this quarter, and we cruise we competence see some of this in Q1, in terms of — there is a genuine final pull during Empower, in removing by a formation work and removing off a aged JPMorgan systems that we design to do during a second quarter. So we are creation that final pull on a integration. we know there’s — there was a satisfactory — there was a bump-up in waste on a knowledge gains and losses, that there was aloft expenses. So that was definitely one of a factors compared to a prior.

Also, on a responsibility side, in Q4 2015 there was a one-time responsibility gain, or a sustenance gain, and this was associated to a strange JPMorgan transaction where there was a settling adult formed on a series of participants relocating over. So that was a advantage in 2015 that didn’t recur. we cruise that was in a CAD15 million range. Yes, there’s a satisfactory bit of responsibility vigour during a moment, yet we are definitely looking to see a advantages of these waste entrance into 2017 and for a integrate years beyond.

———————————————————————————

Paul Mahon, Great-West Lifeco Inc. — President CEO [61]

———————————————————————————

Tom, we would criticism on — as we cruise about this transaction, maybe comparing it to maybe some of a Canadian organisation life and health sell where we shuttered a business, stopped selling, we’re not perplexing to lift a business in any way. You’re holding — possibly it was holding a loan and life business and putting it on a Great-West complement and focusing singularly on transition synergies.

In this transaction we were unequivocally many focused on fighting it out in a marketplace to keep all these clients. It was all about building a base, removing it to a 8.1 million, a customer retention. And by this whole duration we’ve been progressing dual back-office systems, a JPMorgan one and essential for that and a Empower complement that is a strange Great-West life system, augmenting that complement to support a Empower customer bottom and also traffic with mixed front ends until you’ve got all a business off that.

We will have this behind us as we get by a finish of this quarter. We’ve got a advantages of now being means to get during synergies, get during automation. we would contend for context, Empower sales, 2014, CAD15 billion; CAD43billion in 2015; CAD39 billion in 2016. So we did not shiver this business like we competence have in past transactions. We’ve been perplexing to grow this bottom and now it’s all about synergies and automation. It has always been a view, we always talked about synergies entrance after a transaction. So that’s where we’re at.

———————————————————————————

Tom MacKinnon, BMO Capital Markets — Analyst [62]

———————————————————————————

Okay. Thanks for a color.

———————————————————————————

Operator [63]

———————————————————————————

Sumit Malhotra, Scotia Capital.

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Sumit Malhotra, Scotiabank — Analyst [64]

———————————————————————————

Thanks, good afternoon. First doubt is around capital. And apparently your MCCSR ratio is unequivocally strong, we cruise it’s during a top levels in a organisation to finish 2016. When we demeanour during a denominator, a compulsory capital, it’s indeed been prosaic year-over-year. we cruise we have to go behind some ways to see that occurring. You contend somewhere in one of your slides that there’s satisfactory value decreases. Is this quite some of a unfamiliar sell movements that we’ve had associated to European business? Or is there something that a Company is doing to conduct — or business shifts that are requiring a revoke spin of capital?

———————————————————————————

Paul Mahon, Great-West Lifeco Inc. — President CEO [65]

———————————————————————————

I’m going to spin that one to Garry. He competence have Dervla Tomlin, a Chief Actuary, also import in. Garry?

———————————————————————————

Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [66]

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I cruise there’s a integrate of factors that have been assisting keep a mandate down. First of all, we mentioned a vast retard of non-participating long-tail business in a UK, and so banking is definitely a factor, bringing a mandate down. Doesn’t have as many of an impact as a altogether ratio, accessible and compulsory to move, yet definitely it has been bringing a mandate down.

And also in a fourth quarter, towards a behind finish as we saw a arise in rates, that arise in seductiveness rates substantially was value 5 points to a ratio. These are finished during — we do satisfactory value during a finish of a period. So it’s a rates right during a finish of a entertain would have led to that. You’ve got both a currency, a bruise descending and rising rates in Q4 helped keep that flat.

———————————————————————————

Sumit Malhotra, Scotiabank — Analyst [67]

———————————————————————————

So a rising rates revoke a collateral required.

———————————————————————————

Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [68]

———————————————————————————

That’s right. A lot of a collateral is driven off factors times possibly a resources or a liabilities. And as a rates rise, given we’re on a satisfactory value system, both a object values and a guilt values fall. So a factors are double by smaller numbers and a mandate go down.

———————————————————————————

Sumit Malhotra, Scotiabank — Analyst [69]

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And for a macro things we cruise I’m excellent with. There’s zero unequivocally from a business brew viewpoint that you’ve done, given as we pronounced we cruise it’s unvaried on a year-over-year basis. There’s zero from a business brew viewpoint that’s unequivocally reduced a collateral compulsory in a altogether business. Is that satisfactory or is there something during work there as well?

———————————————————————————

Paul Mahon, Great-West Lifeco Inc. — President CEO [70]

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Sumit, there’s no element change in a business mix. Obviously a brew is always changeable yet no element change would have had that impact. Garry, there’s was a bit of a lift yet due to a additional collateral associated to Irish Life.

———————————————————————————

Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [71]

———————————————————————————

Yes, we should indicate that out that we paid an Irish LIfe note yesterday, actually, that’s EUR200 million. That was partial of a euro bond refinancing was used for that, a euro bond emanate we did. That was value about 4 points. We had already down-streamed a income into a European operations before to year finish so it gave us a bit of an synthetic additional 4 points during a finish of a year. So we should adjust for that.

———————————————————————————

Paul Mahon, Great-West Lifeco Inc. — President CEO [72]

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Yes, we cruise it was 236.

———————————————————————————

Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [73]

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Still unequivocally strong.

———————————————————————————

Sumit Malhotra, Scotiabank — Analyst [74]

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Still unequivocally strong. That leads me to my second question. We’ve talked a lot in a final — going behind to your Investor Day now about intensity merger appetite. And we usually spend some time, Paul, walking us by some of a moves you’re creation to revoke a cost bottom during Putnam.

When we cruise about that business, though, you’ve got a slip in here that we showed us on a constant-currency basement income was down 18% year over year. You talked about a hurdles that all object managers are confronting in a US in a change towards passive.

Is active object supervision still a business that Great-West life wants to get materially bigger in? we cruise we all know a economies of scale that would come from an merger and layering on serve AUM to that business. But is it something that helps we brief tenure yet you’re usually left with a bigger business that’s confronting a same constructional problems? Where does object supervision in a US arrange in your pecking order?

———————————————————————————

Paul Mahon, Great-West Lifeco Inc. — President CEO [75]

———————————————————————————

I would contend where we continue to be definitely likely to object supervision in a US and honestly globally. We would viewpoint a pierce to pacifist — to put it into context, closer to 90% rather than 80% of resources are managed actively globally. The change to pacifist has been apparently an issue. Some of it’s systemic yet some of it also cyclical. If we cruise where we’re during right now with usually 30 — a index is usually outperforming — there’s 70% of active managers outperforming a index.

We could find ourselves into a cycle like that and during a finish of a day there’s been a lot of conditions that have had investors on a sidelines. we cruise a conditions are such that investors could good get actively behind in a diversion on active and you’ll hear lots of attention commentators observant a same. We cruise it’s an critical partial of an altogether solution, possibly it’s a retirement devise solution, possibly it’s accumulating for a family’s accumulation plans.

There’s no doubt that if we cruise about a products, a attention is changeable divided from plain vanilla equity and bound income. And we see relocating into alternatives, relocating into some-more specialized products, yet that’s been a vast pierce in what Putnam’s doing, non-core products. Bob, we competence supplement a tiny some-more tone on that. But we sojourn committed and meddlesome in object supervision being an critical partial of all of a businesses given it’s partial of a domain and partial of a event to grow your business. Bob, anything you’d add?

———————————————————————————

Bob Reynolds, Great-West Lifeco Inc. — President CEO of Great-West Lifeco US [76]

———————————————————————————

I would supplement usually that we trust that there is cyclicality to a active contra pacifist and we’ve been in a duration where pacifist has been tough to beat. As we mentioned before, we’re starting to come out of it. But a genuine change has been to demeanour to investment strategies that are non-correlated to benchmarks. And this is an area that Putnam has had good product growth in.

In fact, over a final several years we substantially rolled out 25 new products that dealt with what we would call alternatives. And we feel there’s a genuine marketplace for those. And along with a fact that active supervision will come back. It’s a cyclical thing and we’re vast believers in it.

———————————————————————————

Sumit Malhotra, Scotiabank — Analyst [77]

———————————————————————————

Thanks for your time, guys.

———————————————————————————

Paul Mahon, Great-West Lifeco Inc. — President CEO [78]

———————————————————————————

Thank you.

———————————————————————————

Operator [79]

———————————————————————————

Mario Mendonca, TD securities.

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Mario Mendonca, TD Securities — Analyst [80]

———————————————————————————

Good afternoon. we wish to hold on a precedence ratio. It’s a bit aloft than I’ve seen it in some time. we cruise we have to go behind to Q1 2015. What I’m meddlesome in is possibly a goal is to have that precedence ratio deposit behind revoke this year. we know there is a — we cruise there’s a euro bond deal. Or actually, no I’m sorry, there’s a HoldCo maturity, a CAD1 billion HoldCo majority in June. What are your intentions there? Have we radically pre-funded that or is that something you’d let hurl off?

———————————————————————————

Paul Mahon, Great-West Lifeco Inc. — President CEO [81]

———————————————————————————

I’d start out by observant that we’ve got good collateral coherence now for whatever a priorities are. As we cruise about that maturity, I’m going to let Garry pronounce to that. We’ve got a trained approach as a approach we cruise about those. Garry, given don’t we share your thoughts.

———————————————————————————

Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [82]

———————————————————————————

Certainly we’re not in any position during all to criticism on skeleton per that maturity. We demeanour during any one of those things on a case-by-case basis. We saw an event when we were looking during a euro bond market. We’d finished a non-deal highway uncover a before year. We saw rates unequivocally utterly appealing in Europe, so being means to lift EUR500 million during a 1.75% coupon, given that we are looking to expand.

That did strike adult a precedence ratio. And of march we would be — we haven’t factored in a fact we usually paid off a EUR200 million yesterday. So you’re observant a year-end picture, where a full EUR500 million is factoring in.

I cruise where we go with precedence ratio will count on a merger opportunities. We’ve pronounced in a past that we would be open to lifting that precedence ratio if a right opportunities came along. We’ve finished it in a past and we would cruise that. So it gives us some merger glow power.

But it’s right in a aim form of operation and it will pierce around as it does over a subsequent few years. We still feel we have ability for acquisitions, that’s unequivocally how we viewpoint that.

———————————————————————————

Mario Mendonca, TD Securities — Analyst [83]

———————————————————————————

All right. Slightly a opposite form of question. Strain’s been a tiny harder to get a hoop on over a final tiny while. It’s been a bit some-more volatile. we know what your reason was, a aloft payments sales in a entertain helped expostulate a aria revoke yet are margins payments sales. Anything we can offer on aria going forward?

———————————————————————————

Garry MacNicholas, Great-West Lifeco Inc. — EVP CFO [84]

———————————————————————————

Well, a business brew is, again, we don’t have a foresee of it that we’d share, yet a business brew is — we’re looking to do a same forms of things we’ve finished this past entertain that is write essential payments business in Canada, in UK, in reinsurance, in Ireland for that matter. We like that form of business and we’ve been utterly good during it.

The US business, again, there are — as that brew has shifted to some businesses where we can’t defer a full border of a merger costs, it is straining. But again, to a border that business is profitable, that we trust it is, afterwards that aria comes behind in improved income down a road. No elemental change other than we’re looking to grow a businesses.

———————————————————————————

Paul Mahon, Great-West Lifeco Inc. — President CEO [85]

———————————————————————————

I’d contend grow a businesses, yet also we cruise a pricing discipline’s important. As we went by a descending seductiveness sourroundings in final year, we would have seen some-more aria on a concept life sales in Canada. And apparently a arise in rates is useful yet we’re also looking to repricing concept life as good as a vital advantages products.

Those were put on a behind burner as we were traffic with a taxation free changes and redesign a products. Pricing fortify is always going to be critical relations to aria and we’ll contend that discipline.

———————————————————————————

Mario Mendonca, TD Securities — Analyst [86]

———————————————————————————

And usually for ideal clarity, when we contend that you’re considering cost changes, it’s to a upside. Is that right?

———————————————————————————

Paul Mahon, Great-West Lifeco Inc. — President CEO [87]

———————————————————————————

That would be — yes, that would be usually creation certain we’ve got a pricing in line with a seductiveness environment. So yes, we would design an upside.

———————————————————————————

Mario Mendonca, TD Securities — Analyst [88]

———————————————————————————

Okay. Thank you.

———————————————————————————

Operator [89]

———————————————————————————

Thank you. This is a finish of a question-and-answer session. we would now like to spin a assembly behind over to Mr. Mahon.

———————————————————————————

Paul Mahon, Great-West Lifeco Inc. — President CEO [90]

———————————————————————————

Thanks unequivocally much, Michael. we wish to appreciate everybody for participating and quite a analysts for your courteous questions. We demeanour brazen to fasten with we again during a finish of Q1 and have a good Thursday. Take care.

———————————————————————————

Operator [91]

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Thank you. Ladies and gentlemen, your discussion is now ended. All callers are asked to hang adult their lines during this time and appreciate we for fasten today’s call.

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