2024 Annual Information Form

Annual Information Form

GREAT-WEST LIFECO INC.

2024 ANNUAL INFORMATION FORM

Dated: February 5, 2025

Annual Information Form

TABLE OF CONTENTS

General

This Annual Information Form ("AIF") is intended to provide material information about Great-West Lifeco Inc. ("Lifeco" or the "Corporation") and its business.

Unless otherwise indicated, all information in this AIF is presented as at December 31, 2024 and all amounts are expressed in Canadian dollars.

Incorporation by Reference

Lifeco's 2024 Management's Discussion and Analysis dated February 5, 2025 (the "MD&A") is hereby incorporated by reference into this AIF and is available for review at www.sedarplus.com.

Cautionary Note Regarding Forward-Looking Information

This AIF and the documents incorporated by reference contain forward-looking information. Forward-looking information includes statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as "will", "may", "expects", "anticipates", "intends", "plans", "believes", "estimates", "objective", "target", "potential" and other similar expressions or negative versions thereof. Forward-looking information includes, without limitation, statements about the Corporation and its operations, business (including business mix), financial condition, expected financial performance (including revenues, earnings or growth rates, medium-term financial objectives and base earnings objectives for the Empower business), strategies and prospects, expected costs and benefits of acquisitions and divestitures (including timing of integration activities and timing and extent of revenue and expense synergies), expected expenditures or investments (including but not limited to investment in technology infrastructure and digital capabilities and solutions and investments in strategic partnerships), value creation and realization and growth opportunities, product and service innovation, expected dividend levels, expected cost reductions and savings, expected capital management activities and use of capital, market position, estimates of risk sensitivities affecting capital adequacy ratios, anticipated global economic conditions, potential impacts of catastrophic events, potential impacts of geopolitical events and conflicts and the impact of regulatory developments on the Corporation's business strategy, growth objectives andcapital.

Forward-looking statements are based on expectations, forecasts, estimates, predictions, projections and conclusions about future events that were current at the time of the statements and are inherently subject to, among other things, risks, uncertainties and assumptions about the Corporation, economic factors and the financial services industry generally, including the insurance, mutual fund and retirement solutions industries. They are not guarantees of future performance, and the reader is cautioned that actual events and results could differ materially from those expressed or implied by forward-looking statements. Many of these assumptions are based on factors and events that are not within the control of the Corporation and there is no assurance that they will prove to be correct. In particular, in setting its objective to achieve base earnings growth in the Empower business in 2025, management has assumed that the performance of equity, interest rate and credit markets during the relevant period is consistent with management's expectations, which take into account current market information and assume no credit impairments, and further that actual sales, client retention and conversion rates, customer behaviour (including contributions, redemptions, withdrawals and lapse rates), expense levels, and mix of business at Empower are consistent with management's estimates. In arriving at our assessment of the Corporation's potential exposure to Global Minimum Tax and our expectation regarding the impact on our effective income tax rate and base earnings, management has relied on its interpretation of the relevant legislation. It has also assumed a starting point of its current mix of business and base earnings growth consistent with management's base earnings objectives disclosed in the MD&A. With respect to possible share repurchases, the amount and timing of actual repurchases will depend on the earnings, cash requirements and financial condition of Lifeco, market conditions, our ability to effect the repurchases on a prudent basis, capital requirements, applicable law and regulations (including applicable securities laws), and other factors deemed relevant by Lifeco, and may be subject to regulatory approval or conditions. In all cases, whether or not actual results differ from forward-looking information may depend on numerous factors, developments and assumptions, including, without limitation, the ability to integrate and leverage acquisitions and achieve anticipated benefits and synergies, the achievement of expense synergies and client retention targets from the acquisition of the Prudential retirement business, the Corporation's ability to execute strategic plans and adapt or recalibrate these plans as needed; the Corporation's reputation, business competition, assumptions around sales, pricing, fee rates, customer behaviour (including contributions, redemptions, withdrawals and lapse rates), mortality and morbidity experience, expense levels; reinsurance arrangements; global equity and capital markets (including continued access to equity and debt markets and credit instruments on economically feasible terms), geopolitical tensions and related economic impacts, interest and foreign exchange rates; inflation levels; liquidity requirements, the timing and extent of dividend and other payments from subsidiaries, investment values and asset breakdowns, hedging activities, financial condition of industry sectors and individual issuers that comprise part of the Corporation's investment portfolio, credit ratings, taxes, impairments of goodwill and other intangible assets; technological changes, breaches or failure of information systems and security (including cyber attacks), assumptions around third-party suppliers, changes in local and international laws and regulations, changes in accounting policies and the effect of applying future accounting policy changes, changes in actuarial standards, unexpected judicial or regulatory proceedings, catastrophic events, continuity and availability of personnel and third party service providers, unplanned changes to the Corporation's facilities, customer and employee relations; levels of administrative and operational efficiencies, and other general economic, political and market factors in NorthAmerica and internationally.

The reader is cautioned that the foregoing list of assumptions and factors is not exhaustive, and there may be other factors, including those set out herein under "Risk Factors", and any listed in other filings with securities regulators, including factors set out in the "Risk Management and Control Practices" and "Summary of Critical Accounting Estimates" sections of the MD&A, which, along with other filings, is available for review at www.sedarplus.com. The reader is also cautioned to consider these and other factors, uncertainties and potential events carefullyand not to place undue reliance onforward-lookinginformation.

Other than as specifically required by applicable law, Lifeco does not intend to update any forward-looking information whether as a result ofnew information, future events or otherwise.

Important Note Regarding Sustainability Disclosure

Certain forward-looking statements in this AIF or the documents incorporated by reference in this AIF relate to the Corporation's climate- related and diversity-related measures, ambitions, goals, objectives, priorities, strategies and commitments or actions that will be taken to achieve them. The climate-related statements include statements with respect to the Corporation's ambition to achieve net-zero GHG emissions for its operating and financing activities by 2050, the Corporation's initial interim net zero goals for operations and investments, the Corporation's plan to review and revise initial interim net zero goals as appropriate, the causes and potential impacts of climate change globally, and the Corporation's approach to identifying and managing climate-related risks and opportunities. The diversity-related statements include statements with respect to growing representation of women and underrepresented groups in management. The forward-looking information in this AIF is presented for the purpose of assisting our stakeholders in understanding how we currently intend to address climate-related and diversity-related governance, strategy, risks, opportunities, and objectives, and is not for the purpose of promoting anybusiness or business interest or for other purposes.

Any goals, objectives, goals, ambitions, commitments or targets discussed in this AIF or the documents incorporated by reference in this AIF, including but not limited to the Corporation's net-zero related goals (including interim net zero goals) and diversity-related measures, are aspirational. They may need to change or be recalibrated as data improve and as climate science, regulatory requirements and market practices regarding standards, methodologies, metrics and measurements evolve. Our climate risk analysis and net-zero strategy remain under development, and the data underlying our analysis and strategy remain subject to evolution over time and the scope of assets to be included in our 2050 net zero related goals, remains under review. The Corporation does not currently have a comprehensive transition plan in place to achieve its netzero-relatedgoals and ambitions and the timing for developing such a plan and its scope and achievability remain uncertain. Moreover, the data needed to define the Corporation's plan to achieve those goals and ambitions is limited in quality and availability and is inconsistent across the sectors the Corporation chooses to focus on. We are also continuing to develop our diversity-related data. There is a strong possibility that our expectations, forecasts, estimates, predictions and conclusions may not prove to be accurate and our assumptions may prove to be incorrect, and there is a material risk we will not achieve our climate- related and diversity-related goals, objectives, ambitions, strategies and commitments. In addition, many of the assumptions, standards, metrics and measurements used in preparing these forward-lookingstatements are not audited or independently verified, have limited comparability and continue to evolve.

Any goals, objectives, priorities, ambitions, commitments or targets discussed in this AIF or the documents incorporated by reference in this AIF may also need to change or be recalibrated to meet our other strategic objectives and the reasonable expectations of our stakeholders, including expectations around financial performance. As a financial services company, our primary purpose is to provide our clients and customers with solutions to meet their financial security needs and to deliver on the promises we make to them. Our ability to fulfil this corporate purpose depends in large part on effective and responsible capital allocation and the ability to create value within the boundaries of our stakeholders' expectations, including expectations around financial performance. The path to achieving net zero and our climate-related goals will require significant investment, resources, systems and technologies by third parties we do not control. Faced with a wide range of stakeholder interests, we will need to effectively manage trade-offs and make choices about how to deploy financial and human capital. These choices could include prioritizing other strategic objectives over our climate-related goals in pursuit of fulfilling our primary purpose, delivering value to our stakeholders and meeting expectations around financial performance. As our business, our industry and climate science evolve over time, we may need to adjust our climate-related ambitions and goals and our approach to meeting them. We will also need to remain thoughtful about the regulatory and business environment of the jurisdictions in which we operate, as our ability to achieve ourclimate goals is contingent on the success of our partners and communities.

We caution readers that numerous factors (many of which are beyond the control of the Corporation) may cause actual results to differ materially and impact the Corporation's ability to achieve its climate-related and diversity-related goals, objectives, priorities, ambitions, strategies and targets. These factors include, without limitation, the transition to a low-carbon economy, the need for more and better climate data and standardization of climate-related measurement methodologies, our ability to gather and verify data, our ability to develop indicators to effectively monitor our advancements and assess and manage climate-related risks, the need for active and continued action by stakeholders (including governmental and non-governmental organizations, our counterparties and other businesses and individuals), trade-offs and choices we make that prioritize other strategic objectives and financial performance over our climate-related goals, the ability of clients, regulators and suppliers to meet and report on their publicly stated emissions and commitments, the viability of third-party decarbonization scenarios, the availability of carbon offset and renewable energy instruments on economically feasible terms, compliance with our policies and procedures, our ability to recruit and retain key personnel in a competitive environment for talent, technological advancements, the evolution of consumer behaviour, varying decarbonization efforts across economies, the challenges of balancing emission reduction goals with an orderly, just and inclusive transition and geopolitical factors that impact global energy needs, the legal and regulatory environment, and regulatory compliance considerations. In relation to our climate-related ambitions, goals, objectives, priorities, strategies and targets, there are limitations and uncertainties inherent in climate science, climate risk analysis and reporting. The Corporation has made good faith approximations and assumptions in establishing its interim Scope 1 and 2 reduction goals and initial reduction goals for Scope 3 financed emissions. However, there are many factors that are the subject of ongoing climate science and that we cannot foresee or accurately predictwhich will impact our ability to achieve those goals.

Cautionary Note Regarding Non-GAAP Financial Measures and Ratios

This AIF and the documents incorporated by reference contain some non-Generally Accepted Accounting Principles (GAAP) financial measures and non-GAAP ratios as defined in National Instrument 52-112 "Non-GAAP and Other Financial Measures Disclosure". Terms by which non-GAAP financial measures are identified include, but are not limited to, "base earnings (loss)", "base earnings (loss) (US$)", "base earnings: insurance service result", "base earnings: net investment result", "assets under management" and "assets under administration". Terms by which non-GAAP ratios are identified include, but are not limited to, "base earnings per common share (EPS)", "base retuon equity (ROE)", "base dividend payout ratio" and "effective income tax rate - base earnings - common shareholders". Non-GAAP financial measures and ratios are used to provide management and investors with additional measures of performance to help assess results where no comparable GAAP (IFRS) measure exists. However, non-GAAP financial measures and ratios do not have standard meanings prescribed by GAAP (IFRS) and are not directly comparable to similar measures used by other companies. Refer to the "Non-GAAP Financial Measures and Ratios" section in the MD&A for the appropriate reconciliations of these non-GAAP financial measures to measures prescribed by GAAP aswell as additional details on each measure and ratio, which are incorporated by reference in this AIF.

Corporate Structure

Name, Address and Incorporation

Lifeco was incorporated under the Canada Business Corporations Act on November 8, 1979 as 94972 Canada Inc. Its name was changed to Great-West Lifeco Inc. and its capital structure was reorganized by Certificate of Amendment dated May 15, 1986. Its articles, as further amended, were restated by Restated Certificate of Incorporation dated August 7, 1997 and were subsequently amended to create Non- Cumulative First Preferred Shares Series G, Series H, Series I, Series J, Series K, Series L, Series M, Series N, Series O, Series P, Series Q, Series R, Series S, Series T, Series U and Series Y. The registered office and principal place of business of Lifeco is located at 100 Osborne Street North, Winnipeg, Manitoba, Canada R3C 1V3.

Intercorporate Relationships

The following table lists certain subsidiaries of Lifeco, including direct and indirect subsidiaries, at December 31, 2024. Lifeco beneficially owns, or exercises control or direction over, 100% of the voting securities of each subsidiary listed below.

At December 31, 2024, Power Financial Corporation, a wholly-owned subsidiary of Power Corporation of Canada, controlled, directly or indirectly, 70.55% of the outstanding common shares of Lifeco, representing approximately 65% of the voting rights attached to all of the outstanding voting shares of Lifeco.

Description of the Business

General

Lifeco is an international financial services holding company with interests in life insurance, health insurance, retirement and investment services, asset management and reinsurance businesses. Lifeco operates in Canada, the United States and Europe through The Canada Life Assurance Company ("Canada Life"), Empower Annuity Insurance Company of America ("EAICA", which operates primarily as "Empower"), Canada Life Limited and Irish Life Group Limited ("Irish Life"). At December 31, 2024, Lifeco and its subsidiaries had approximately 33,250 employees worldwide. Lifeco currently has no other material holdings, and currently carries on no business or activities unrelated to its holdings in Canada Life, Empower, Canada Life Limited, Irish Life and their subsidiaries. However, Lifeco is not restricted to investing in those companies, and may make other investments in the future.

Lifeco focuses on three key value drivers for its business:

• Workplace Solutions - The Corporation has built millions of trusted relationships with customers through Workplace Solutions. These relationships are based on the consistent delivery of health and wellness benefits, as well as retirement solutions that are delivered at scale through employer sponsored plans as a core part of the business. The Corporation is also building lifetime customer relationships through a focus on deepening the advice and solutions to better meet customers' retirement, investment and wellness needs.

• Wealth & Asset Management - In partnership with over 106,000 advisor relationships globally, the Corporation is delivering targeted and sophisticated solutions supported by personalized advice to meet customers' most complex personal wealth needs. The approach is enabled through investments in technology platforms and in market leading managed solutions to help advisors continue to meet the evolving needs of customers.
• Insurance & Risk Solutions - The Corporation has a strong and stable insurance base which helps produce capital that is invested in areas of opportunity for growth. Additionally, with its sophisticated risk and capital management expertise, the Corporation is helping organizations manage their risks and deliver sustainable customer solutions. By leveraging this expertise, Lifeco is diversifying its portfolio, offsetting or counterbalancing risks and creating value for stakeholders including strong financial performance.

Lifeco's foreign currency denominated operating results were translated to Canadian dollars at prevailing market translation rates. Based on reported results for the twelve months ended December 31, 2024, of the $39.8 billion of total revenue consisting of insurance revenue, net investment income, and fee and other income, approximately $21.7 billion, or 54.6%, was denominated in currencies other than Canadian dollars. Similarly, $2,478 million, or 62.9% of the $3,940 million total net earnings attributable to shareholders, was denominated in foreign currencies. At December 31, 2024, approximately $575.3 billion, or 71.7% of the $802.2 billion of total assets, were denominated in foreign currencies.

Canada

In Canada, Canada Life offers a broad portfolio of financial and benefit plan solutions for individuals, families, businesses and organizations through three primary business units: Workplace Solutions, Individual Wealth Management and Insurance & Annuities. Through Workplace Solutions, Canada Life provides life, accidental death and dismemberment, critical illness, disability, health and dental protection, creditor insurance as well as retirement savings and income and annuity products and other specialty products to group clients in Canada. These products are distributed through an extensive network of group sales offices located across the country through brokers, consultants and financial security advisors. Through Individual Wealth Management, Canada Life provides wealth savings and income products and services to individual customers. Through Insurance & Annuities, Canada Life provides individual life, disability and critical illness insurance products and services, as well as individual life annuities, to individual customers. These individual insurance and wealth products are distributed through multiple channels: Advisor Solutions, managing general agencies (MGAs), national accounts and Financial Horizons Group.

United States

In the U.S., Empower is a leading provider of employer-sponsored retirement savings plans in the public/non-profit and corporate sectors. Empower consists of Empower Defined Contribution, which aligns with the Workplace Solutions business value driver, offering saving, investment and advisory services through employer-sponsored plans and Empower Personal Wealth, which operates under the Wealth & Asset Management value driver, offers individual product solutions and provides retail wealth management products and services to individuals, including individual retirement accounts and after-tax investment accounts. Empower's products and services are marketed nationwide through its sales force, brokers, consultants, advisors, third-party administrators and financial institutions.

At the beginning of 2024, Lifeco sold its Putnam Investments asset management business to Franklin Templeton. See "General Development of the Business" for a description of this transaction.

Europe

The Europe segment is comprised of three distinct business units: Workplace Solutions, Individual Wealth & Asset Management and Insurance

• Annuities, and serves customers in the United Kingdom (U.K.), Ireland and Germany, offering individual and group protection and wealth management products, including payout annuity products, equity release mortgages, pensions and investments products. The Corporation operates under the Canada Life brand in the U.K. and Germany and under the Irish Life brand in Ireland along with other acquired brands within the broker market in Ireland.

The core products offered by the U.K. business unit are bulk and individual payout annuities, equity release mortgages, investments (including life bonds, retirement drawdown and pension), and group insurance. These products are distributed primarily through independent financial advisors and employee benefit consultants in the U.K. and Isle of Man.

The core products offered by Irish Life in Ireland are savings and investments, individual and group life insurance, health insurance and pension products. These products are distributed through independent brokers, a direct sales force and tied agent bank branches. Irish Life Health offers individual and corporate health plans, distributed through independent brokers and direct channels. Irish Life Investment Managers ("ILIM") is one of the Corporation's fund management operations in Ireland. In addition to managing assets on behalf of companies in the Lifeco group, ILIM also manages assets for a wide range of institutional clients including pension schemes, insurance companies, wealth managers, fiduciary managers and sovereign wealth funds across Europe and North America. Setanta Asset Management, a subsidiary of the Corporation, manages assets for third-party institutional clients and a number of companies in the Lifeco group. The Corporation also owns a number of employee benefits and wealth consultancy businesses in Ireland.

The core products offered by the Germany business unit are individual and group pensions and life insurance products. These products are distributed through independent brokers and multi-tied agents.

Capital and Risk Solutions

The Capital and Risk Solutions segment includes the Reinsurance business unit under the Insurance & Risk Solutions value driver, which operates primarily in the U.S., Barbados, Bermuda and Ireland. Reinsurance products are provided through Canada Life and its subsidiaries and include both reinsurance and retrocession business transacted directly with clients or through reinsurance brokers.

As a retrocessionaire, the Corporation provides reinsurance to other reinsurers to allow those companies to manage their reinsurance risk. The product portfolio offered by the Corporation includes life, annuity/longevity, mortgage surety and property catastrophe reinsurance, provided on both a proportional and non-proportional basis.

In addition to providing reinsurance products to third parties, Lifeco and its subsidiaries also utilize internal reinsurance transactions between companies in the Lifeco group. These transactions are undertaken to better manage insurance risks relating to retention, volatility and concentration; and to facilitate capital management for Lifeco and its subsidiaries and branch operations. These internal reinsurance transactions may produce benefits that are reflected in one or more of Lifeco and its subsidiaries' business units.

Corporate

The Lifeco Corporate segment includes operating results for activities that are not specifically associated with other business units.

Additional information regarding Lifeco's business is included in the MD&A.

Risk Factors

There are certain risks inherent in an investment in the securities of Lifeco which investors should carefully consider before investing in the securities of Lifeco. As a large international financial services holding company operating in a complex industry, Lifeco encounters a variety of risks. Lifeco's MD&A provides a description of some of the significant risks that could affect Lifeco's business, reputation, financial condition or results and Lifeco's risk management and oversight processes. The risks described in the MD&A and in this AIF do not include all possible risks and there may be other risks of which Lifeco is not currently aware. These risks have been grouped into the following categories:

1. Market and Liquidity Risk
2. Credit Risk
3. Insurance Risk
4. Operational Risk
5. Conduct Risk
6. Strategic Risk

These risks may occur independently or in combinations, and may occur simultaneously or in an environment where one or more risks evolve rapidly. It should be noted that risks included in the fourth, fifth and sixth categories, such as legal, regulatory or reputational risks, may still represent serious risks notwithstanding the expectation that they may be of a lesser magnitude.

Protecting the Corporation's reputation is a fundamental component of our Risk Appetite Framework. Reputation risk is the risk of loss as a result of damage to the Corporation's image, brand and standing in the market due to negative public perception. Reputational impacts are considered when assessing financial and non-financial risk. In addition, any new business development or change in strategy would also warrant an independent assessment of potential impact on reputation.

Additional information regarding our risk factors is included in the MD&A under the heading Principal Risk Categories.

Lifeco's approach to risk management is guided by an integrated Enterprise Risk Management Framework. Each of the five components of that Framework: Risk Culture, Risk Governance, Risk Appetite, Risk Processes and Risk Infrastructure & Policies are described in Lifeco's MD&A. Management of risks, including but not limited to operational, conduct, strategic, legal, regulatory, and financial risks, requires, among other things, policies and procedures to measure, monitor, manage, identify, assess and respond to risks and events.

Our risk management policies and procedures may not be fully effective, which may leave us exposed to risks that could negatively affect our business, results, financial condition or reputation

Lifeco's risk management policies and procedures may not be fully effective and may leave us exposed to unidentified and unanticipated risks. Lifeco may also be subject to disruptions of its operating systems or its ability to conduct business from events that are wholly or partially beyond its control such as a natural catastrophe, act of terrorism, pandemic, or electrical/telecommunications outage.

Macroenvironmental risks may negatively affect our results of operations and financial condition

Many factors contribute to the economic uncertainty in the geographies in which Lifeco operates.

Elevated global financial market volatility is due, in part, to geopolitical tensions and conflicts, which Lifeco actively monitor. Central banks are weighing these factors in consideration of interest rate decisions in many of the countries in which the Corporation operates. The outlook for financial and real estate markets over the short and medium-term remains highly uncertain and Lifeco actively monitors events and information globally.

Throughout 2024, commercial real estate markets in Europe and North America showed signs of slowdown. In particular, the office markets are experiencing dampened demand from a continued lag faced by employers on return-to-office plans, leading to higher vacancy rates and deteriorating operating performance, driven as well by challenging economic and capital market conditions. Along with higher interest rates, this has resulted in valuation reductions for certain investment properties and indirectly for certain commercial mortgages reflecting the current outlook for office properties. As market conditions evolve, Lifeco may be required to apply further valuation reductions.

Economic and trade policies (including those of the countries in which Lifeco operates) may have significant implications for the Canadian, US and European economies and may negatively affect Lifeco's business and financial condition. These policies may relate to trade, immigration, fiscal matters, energy deregulation and government efficiency, all of which may create heightened geopolitical and economic instability and increase market volatility. In particular, trade policies (such as tariffs, import restrictions or renegotiated trade agreements) may result in increased interest rates and inflation, changes in currency exchange rates, and lower economic growth and equity prices over the medium- term, which could impact the broader global economy and adversely affect Lifeco's financial results and financial condition.

Any or all of these macroenvironmental risks may negatively affect Lifeco's financial outlook, results and operations.

Inadequate operational resilience in the face of adverse conditions could result in losses, regulatory sanctions or reputational damage

Operational resilience refers to the ability to embed capabilities, processes, and systems to successfully deliver its critical operations, through disruption. Operational resilience emphasizes preparation, response, recovery, learning, and adaptation by assuming disruptions, including simultaneous disruptions, will occur. Poor operational resilience in the face of adverse events could prevent Lifeco from carrying out important business services, with potential for lost revenue, regulatory sanctions and damage to reputation.

1. Market and Liquidity Risk

Market risk is the potential loss due to changes in market rates and prices in various markets such as for interest rates, real estate, currency, and common shares. This risk arises from business activities including investment transactions which create on-balance and off-balance sheet positions. Liquidity risk is the risk that Lifeco will be unable to generate the necessary funds to meet its obligations, including off-balance sheet commitments and obligations, as they come due.

Interest rate fluctuations may materially adversely affect our business, results and financial position

Interest rate risk refers to the potential loss due to changes in future interest rates (risk-free rates and/or credit spreads) that affect cash flows of assets relative to liabilities as well as assets backing surplus. This risk also includes changes in the amount and timing of cash flows related to asset and liability optionality, including interest rate guarantees and book value surrender benefits in the liabilities. Lifeco's main exposure to interest rate risk arises from certain general fund and segregated fund products.

During periods of prolonged low interest rates, investment earnings may be lower because the interest earned on new fixed income investments will likely have declined with market interest rates, and hedging costs may increase. Also, early repayment on investments such as mortgage- backed securities, asset-backed securities, and callable bonds, could force reinvestment at lower yields, which will reduce investment margins. Lower interest rates also impact capital requirements for guaranteed products (for example, Canadian participating products), with non-linear sensitivity to market movements (sensitivity increases as interest rates decrease).

On the other hand, a rapid rise in interest rates may adversely affect the Corporation if it needs to dispose of fixed income securities to meet contractual surrender benefits. Additionally, the value of most liquid assets and marketable securities, which are mainly fixed-income securities, would decrease when interest rates rise. This risk is most material for Canadian participating products and a majority of US general

account products. A large volume of discretionary withdrawals by plan sponsors or plan participants may adversely affect Lifeco's liquidity and financial position. In addition, asset and liability matching strategies may not be sufficient to fund potential exits or reinvest at prevailing rates.

Volatility in equity or real estate markets may materially adversely impact our business, results and financial position

Non-fixed income (NFI) risk refers to the potential loss from changes in the level or the volatility of asset prices such as public and private equity, and real estate. Lifeco's main exposure to equity risk comes from direct equity investments, equity guarantee risk and equity fee income risk associated with Lifeco's assets under management.

Through its subsidiaries, Lifeco offers segregated funds and variable annuities that provide guaranteed minimum death benefits, lifetime guaranteed minimum withdrawal benefits and guaranteed minimum accumulation on maturity benefits. In addition, Lifeco's subsidiaries have a closed portfolio of guaranteed minimum income benefits that they have reinsured from other U.S. life insurance and reinsurance companies. These products involve cash flows of which the magnitude and timing are uncertain and are dependent on the level of equity and fixed-income market returns, interest rates, currency markets, market volatility, policyholder behaviour and policyholder longevity. When equity markets perform strongly, it is less likely that the Corporation will be required to make payments on certain guaranteed products - the opposite impact is observed in equity downturns. The actual cost to the Corporation will depend on the trigger event (i.e., income election, maturity or death) having occurred and the market values at that time.

Real estate losses can arise from fluctuations in the value of, or future cash flows from, Lifeco's investment in real estate. This risk affects both the Corporation's general fund assets and investments made on behalf of policyholders. The Corporation's investment in real estate arises from direct holdings in real estate and through fixed income holdings backed by real estate (e.g., mortgages, mortgage-backed securities). Real estate risk may arise from external market conditions, inadequate property analysis, inadequate insurance coverage, inappropriate real estate appraisals or from environmental risk exposures. Mortgage loans, which are principally collateralized by commercial and residential properties, face default risk. An increase in the default rate of mortgage loan investments or fluctuations in their performance could have an adverse effect on Lifeco's business, results of operations and financial condition that could be material. Any geographic or property type concentration of mortgage loans may have adverse effects on Lifeco's investment portfolio and consequently on its results of operations or financial condition. Events or developments that have a negative effect on any particular geographic region or sector may have a greater adverse effect on the investment portfolio to the extent that the portfolio is concentrated. The ability to sell related assets may be limited if other market participants are seeking to sell at the same time. In addition, with respect to asset-backed securities ultimately collateralized by real estate, a rise in home prices and an increased availability of housing-related credit could combine to increase expected or actual prepayment speeds, which would likely lower the valuations of these mortgage loan investments.

Foreign exchange fluctuations may adversely impact our financial results

Foreign exchange risk refers to the potential loss from changes in currency exchange rates against Lifeco's reporting currency. Lifeco's financial results are reported in Canadian dollars. Lifeco has exposures to the U.S. dollar resulting from the operations of Empower and our Reinsurance operations within the Capital and Risk Solutions segment in the United States; and to the British pound and the euro resulting from the operations of business units within the Capital and Risk Solutions and Europe segments operating in the U.K., the Isle of Man, Ireland and Germany. In addition, the Capital and Risk Solutions segment may engage in business that exposes Lifeco to fluctuations in other foreign currencies. As a result, Lifeco's revenue, expenses and income denominated in currencies other than the Canadian dollar are subject to fluctuations due to the movement of the Canadian dollar against these currencies. Such fluctuations may adversely affect Lifeco's financial results and financial condition.

External financing may be required if available internal sources of liquidity or capital are insufficient

Liquidity risk is the risk of the Corporation's inability to generate the necessary funds to meet its obligations as they come due. While Lifeco monitors its liquidity and capital position on a regular basis, it may need to seek external financing if available internal levels of liquidity or capital are insufficient. Liquidity demands include but are not limited to the payment of policyholder benefits, collateral posting as required under agreements with counterparties, the payment of operating expenses and taxes, reinsurance obligations, and the servicing of debt. Capital demands could result from the growth of new business, a change in investment strategy, an investment in systems or other infrastructure, a deterioration of capital arising from financial losses or a severe stress. Lifeco's access to capital and cost of capital will depend on a variety of factors such as market conditions, the general availability of credit in financial markets, the overall availability of credit to the financial services industry, the volume of trading activities in financial markets, Lifeco's credit ratings and credit capacity, and the perception of customers or lenders of Lifeco's long or short term financial strength. If Lifeco is unable to secure external financing to meet a liquidity shortfall, it may be required to sell assets or reinsure liabilities, make changes to its investment strategy, or discontinue the use of certain derivatives, which could have an adverse effect on Lifeco's financial condition.