Winnipeg-based Great-West Lifeco Inc. has reported net income of $413 million for the three months ended June 30, down 27% from $564 million in the same period a year earlier. For the six months ended June 30, net income also dropped, to $739 million vs $1.1 billion a year ago.

The net income of $564 million for the three months ended June 30, 2008 and $1.1 billion for the six months ended June 30, 2008 represents adjusted net income from continuing operations and, as such, excludes certain items from its U.S. operations, such as the gain on sale of Great-West Life & Annuity Insurance Co.’s health-care business of $649 million, income from discontinued operations of $43 millionm as well as two non-recurring items that contributed $118 million to earnings during the first quarter of 2008

Although conditions have generally improved in 2009, the 2009 results compared to 2008 reflect the weaker global equity and credit market environment that has existed since 2007. A decline in the value of publicly traded and other investment securities through June 30, compared with 2008, has lowered the market value of assets invested in the GWL’s segregated and mutual funds.

Accordingly, GWL realized lower investment-management fee income. In the quarter, compared with 2008, this negatively impacted net income by $64 million, and additionally, by $12 million as a result of increased actuarial liabilities. However, as was also the case at March 31, GWL did not need to establish actuarial reserves with respect to seg fund guarantees at June 30.

GWL also increased provisions for future credit losses in actuarial liabilities by $506 million, both as a result of credit-rating downgrade activity in the quarter as well as for basis changes pertaining to the methodology used by the company to calculate the provisions. These basis changes were generally conforming in nature in order to harmonize practices across GWL’s three operating segments.

The total increase in provisions of $506 million negatively impacted net income by $250 million after adjusting for pass-through features and minority interests. GWL also recorded investment impairment charges in connection with certain holdings. These impairment charges totaled $6 million, which negatively impacted net income by $4 million.

In the quarter, a reduction in excess interest rate mismatch reserves contributed $203 million to net income and a mark-to-market adjustment on two series of preferred shares negatively impacted net income by $30 million.
GWL’s consolidated invested assets were $105 billion as of June 30. The gross book value of impaired investments at that date was $354 million,
against which the company had recorded cumulative impairment provisions of $256 million. In addition, the total provision for future credit losses in actuarial liabilities was in excess of $2.5 billion.

Consolidated assets under administration at June 30 were $441.9 billion, unchanged from Dec. 31, 2008.

Additionally, GWL’s capital position remains very strong. Its Canadian operating subsidiary reported a minimum continuing capital and surplus ratio of 205% at June 30, which did not include any benefit from the $1.2 billion of common and preferred share capital that GWL raised in the fourth quarter of 2008.

Although the company has increased its provisions for future credit losses, actual investment impairment charges for the quarter, at $4 million after-tax, were nominal. Adjusted return on common shareholders’ equity was 14.2% for the 12 months ended June 30.

GWL also announced that it has maintained its quarterly common dividend at $0.3075 per common share payable Sept. 30. Dividends paid on common shares for the six months ended June 30 were 5% higher than a year ago.