##### 



Exhibit 99.2

Responsibilities for Financial Reporting

The Consolidated Financial Statements of Canada Life Financial Corporation
(the Company), are the responsibility of management. The Consolidated
Financial Statements for the Company have been reviewed by the Audit and Risk
Management Committee and approved by the Board of Directors.

The Consolidated Financial Statements for the Company have been prepared in
accordance with Canadian generally accepted accounting principles, including
the accounting requirements of the Office of the Superintendent of Financial
Institutions, Canada (OSFI). The Consolidated Financial Statements contain some
items that reflect managements best estimates and judgements. Where
alternative accounting methods exist, management has chosen those deemed most
appropriate in the circumstances to ensure the Consolidated Financial
Statements are presented fairly, in all material respects.

The Company maintains a system of internal accounting and administrative
controls in accordance with OSFIs Standards of Sound Business and Financial
Practices and the Quebec Guideline for Sound Risk Governance. Such systems are
designed to provide reasonable assurance that the financial information is
relevant, reliable and accurate and forms a proper basis for the preparation of
the Consolidated Financial Statements. The Companys internal audit department
assesses the systems of internal control on an ongoing basis.

The Board of Directors of the Company is responsible for ensuring that
management fulfills its responsibilities for financial reporting and is
responsible for reviewing the Consolidated Financial Statements of the Company.
The Board carries out this responsibility principally through its Audit and
Risk Management Committee of independent Directors. The Audit and Risk
Management Committee meets periodically with management and the internal and
external auditors to discuss auditing matters and financial reporting issues,
to satisfy itself that each party is properly discharging its responsibilities
and to review the Consolidated Financial Statements and the reports of the
external auditors and the Appointed Actuary.

The Appointed Actuary is appointed by the Board of Directors and is required to
provide an opinion regarding the appropriateness of the policy liabilities at
the balance sheet date to meet all policyholder obligations. The Appointed
Actuary is responsible for ensuring that the assumptions and methods used in
the valuation of policy liabilities are in accordance with accepted actuarial
practice, applicable legislation and associated regulations or directives.
Examination of supporting data for accuracy and completeness and analysis of
Company assets for their ability to support the amount of policy liabilities
are important elements of the work required to form the opinion. The Appointed
Actuary makes use of the internal and external auditors work in respect of the
accuracy of the policy data used in the valuation. The Appointed Actuary is
required each year to analyze the financial condition of the Company and to
prepare a report for the Board of Directors. For 2002, this analysis tested
the capital adequacy of the Company until December 31, 2006 under adverse
economic and business conditions.

Ernst & Young LLP have been appointed the external auditors for the Company. It
is the external auditors responsibility to report to the shareholders of the
Company on the fairness of presentation of the Companys Consolidated Financial
Statements. The external auditors make use of the Appointed Actuarys work in
their audit of the Company. The Auditors Report for the Company outlines the
scope of their audit and their opinion. The external auditors have full and
unrestricted access to the Audit and Risk Management Committee of the Company.

February 4, 2003

|                                                                       |  |                                                                            
|---------------------------------------------------------------------- |  | ---------------------------------------------------------------------------
|(Signed) D. A. Nield
Chairman of the Board and
Chief Executive Officer |  | (Signed) P. G. Crowley
Executive Vice-President
and Chief Financial Officer





---



##### 



APPOINTED ACTUARYS REPORT

To the Policyholders, Shareholders and Directors of Canada Life Financial Corporation:

I have valued the policy liabilities of Canada Life Financial Corporation for
its Consolidated Balance Sheets as at December 31, 2002 and their change in its
Consolidated Statements of Net Income and the Consolidated Statements of Equity
for the year then ended in accordance with accepted actuarial practice,
including selection of appropriate assumptions and methods.

In my opinion, the amount of policy liabilities makes appropriate provision for
all policyholder obligations and the Consolidated Financial Statements fairly
present the results of the valuation.

|                                 |  |                                                            
|-------------------------------- |  | -----------------------------------------------------------
|Toronto, Canada
February 4, 2003 |  | (Signed) D. A. LoneyFellow, Canadian Institute of Actuaries





---



##### 



AUDITORS REPORT

To the Shareholders of Canada Life Financial Corporation:

We have audited the Consolidated Balance Sheets of Canada Life Financial
Corporation and the Consolidated Statements of Net Assets of its Segregated
Funds as at December 31, 2002 and 2001 and the Consolidated Statements of Net
Income, Equity, Cash Flows, and Changes in Segregated Funds for each of the
years in the three-year period ended December 31, 2002. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.

In our opinion, these Consolidated Financial Statements present fairly, in all
material respects, the financial position of the Company and of the Segregated
Funds as at December 31, 2002 and 2001 and the results of its operations and
its cash flows and changes in Segregated Funds for each of the years in the
three-year period ended December 31, 2002 in accordance with Canadian generally
accepted accounting principles including the accounting requirements of the
Superintendent of Financial Institutions Canada.

As disclosed in note 2(a) to the Consolidated Financial Statements, new
Canadian generally accepted accounting principles required the Company to
change its method of accounting for goodwill and other intangible assets, and
stock-based compensation and other stock-based payments. As well, as disclosed
in note 23(e)(viii) to the Consolidated Financial Statements, new United States
generally accepted accounting principles required the Company to change its
method of accounting for goodwill and other intangible assets.

|                                 |  |                                                
|-------------------------------- |  | -----------------------------------------------
|Toronto, Canada
February 4, 2003 |  | (Signed) Ernst & Young LLPChartered Accountants





---



##### 



Canada Life Financial Corporation
Consolidated Statements of Net Income

|                                                                                            |                                          |      |       |       |  |      |       |       |  |   |       |       | 
|------------------------------------------------------------------------------------------- | ---------------------------------------- | ---- | ----- | ----- |  | ---- | ----- | ----- |  | - | ----- | ----- | 
|For the
years ended December 31 (in millions of Canadian dollars, except per share amounts) |                                          | 2002 |       | 2001  |  | 2000
|                                                                                            |                                          |      |       |       |  |     
|Revenues                                                                                    |                                          |      |       |       |  |      |       |       |  |   |       |      
|Premiums                                                                                    |                                          |      |       |       |  |      |       |       |  |   |       |      
|                                                                                            | Annuities                                |      | $     | 2,474 |  |      | $     | 2,272 |  |   | $     | 1,746 | 
|                                                                                            | Individual life and health insurance     |      |       | 1,510 |  |      |       | 1,428 |  |   |       | 1,384 | 
|                                                                                            | Group life and health insurance          |      |       | 1,931 |  |      |       | 1,658 |  |   |       | 1,546 | 
|                                                                                            |                                          |      |       |       |  |      |       |       |  |   |       |       | 
|                                                                                            |                                          |      | 5,915 |       |  |      | 5,358 |       |  |   | 4,676 |      
|                                                                                            |                                          |      |       |       |  |      |       |       |  |   |       |       | 
|Net investment income (note 7(c))                                                           |                                          |      | 2,154 |       |  |      | 2,241 |       |  |   | 2,306 |      
|Fee and other income (note 2(o))                                                            |                                          |      | 529   |       |  |      | 465   |       |  |   | 479   |      
|                                                                                            |                                          |      |       |       |  |      |       |       |  |   |       |       | 
|                                                                                            |                                          |      | 8,598 |       |  |      | 8,064 |       |  |   | 7,461 |      
|                                                                                            |                                          |      |       |       |  |      |       |       |  |   |       |       | 
|Expenditures                                                                                |                                          |      |       |       |  |      |       |       |  |   |       |      
|Payments to policyholders and beneficiaries                                                 |                                          |      |       |       |  |      |       |       |  |   |       |      
|                                                                                            | Annuity payments                         |      |       | 1,352 |  |      |       | 1,246 |  |   |       | 1,128 | 
|                                                                                            | Life, health and general benefits        |      |       | 2,193 |  |      |       | 1,987 |  |   |       | 1,670 | 
|                                                                                            | Maturities, surrender payments and other |      |       | 1,512 |  |      |       | 1,680 |  |   |       | 1,837 | 
|                                                                                            | Participating policyholder dividends     |      |       | 295   |  |      |       | 305   |  |   |       | 289   | 
|                                                                                            |                                          |      |       |       |  |      |       |       |  |   |       |       | 
|                                                                                            |                                          |      | 5,352 |       |  |      | 5,218 |       |  |   | 4,924 |      
|Increase in actuarial liabilities (notes 3 and 9(a))                                        |                                          |      | 1,129 |       |  |      | 972   |       |  |   | 707   |      
|General operating expenses                                                                  |                                          |      | 814   |       |  |      | 794   |       |  |   | 743   |      
|Commissions                                                                                 |                                          |      | 539   |       |  |      | 461   |       |  |   | 409   |      
|Premium and other taxes                                                                     |                                          |      | 66    |       |  |      | 64    |       |  |   | 68    |      
|Interest expense (note 11)                                                                  |                                          |      | 38    |       |  |      | 39    |       |  |   | 39    |      
|Non-controlling interest in subsidiary                                                      |                                          |      | 25    |       |  |      |      |       |  |   |      |      
|Goodwill amortization (notes 2(a)(i) and 2(m))                                              |                                          |      |      |       |  |      | 25    |       |  |   | 24    |      
|                                                                                            |                                          |      |       |       |  |      |       |       |  |   |       |       | 
|                                                                                            |                                          |      | 7,963 |       |  |      | 7,573 |       |  |   | 6,914 |      
|                                                                                            |                                          |      |       |       |  |      |       |       |  |   |       |       | 
|Net income before income tax provision                                                      |                                          |      | 635   |       |  |      | 491   |       |  |   | 547   |      
|Income tax provision (note 13)                                                              |                                          |      | 133   |       |  |      | 153   |       |  |   | 195   |      
|                                                                                            |                                          |      |       |       |  |      |       |       |  |   |       |       | 
|Net income including participating policyholders net income (loss)                         |                                          |      | 502   |       |  |      | 338   |       |  |   | 352   |      
|Participating policyholders net income (loss)                                              |                                          |      | 3     |       |  |      | (4    | )     |  |   | (4    | )    
|                                                                                            |                                          |      |       |       |  |      |       |       |  |   |       |       | 
|Shareholders net income                                                                    |                                          |      | 499   |       |  |      | 342   |       |  |   | 356   |      
|Preferred share dividends                                                                   |                                          |      | 9     |       |  |      |      |       |  |   |      |      
|                                                                                            |                                          |      |       |       |  |      |       |       |  |   |       |       | 
|Common shareholders net income                                                             |                                          | $    | 490   |       |  | $    | 342   |       |  | $ | 356   |      
|                                                                                            |                                          |      |       |       |  |      |       |       |  |   |       |       | 
|Average number of common shares outstanding(millions)                                       |                                          |      |       |       |  |      |       |       |  |   |       |      
|                                                                                            | Basic                                    |      |       | 160.4 |  |      |       | 160.4 |  |   |       | 160.4 | 
|                                                                                            | Diluted                                  |      |       | 160.4 |  |      |       | 160.6 |  |   |       | 160.4 | 
|                                                                                            |                                          |      |       |       |  |      |       |       |  |   |       |       | 
|Earnings per common share(note 15)                                                          |                                          |      |       |       |  |      |       |       |  |   |       |      
|                                                                                            | Basic and diluted                        |      | $     | 3.05  |  |      | $     | 2.13  |  |   | $     | 2.22  | 
|                                                                                            |                                          |      |       |       |  |      |       |       |  |   |       |       | 

(see accompanying notes)





---



##### 



Canada Life Financial Corporation
Consolidated Balance Sheets

|                                                    |                                                               |      |        |        |  |   |        |        | 
|--------------------------------------------------- | ------------------------------------------------------------- | ---- | ------ | ------ |  | - | ------ | ------ | 
|As at December 31 (in millions of Canadian dollars) |                                                               | 2002 |        | 2001  
|                                                    |                                                               |      |        |       
|Assets                                              |                                                               |      |        |        |  |   |        |       
|Invested assets (note 7(a))                         |                                                               |      |        |        |  |   |        |       
|                                                    | Bonds                                                         |      | $      | 22,317 |  |   | $      | 19,046 | 
|                                                    | Mortgages                                                     |      |        | 7,622  |  |   |        | 7,996  | 
|                                                    | Common and preferred stocks                                   |      |        | 2,073  |  |   |        | 2,475  | 
|                                                    | Real estate                                                   |      |        | 1,066  |  |   |        | 941    | 
|                                                    | Policy loans                                                  |      |        | 1,113  |  |   |        | 1,070  | 
|                                                    | Cash, cash equivalents and short-term investments (note 2(p)) |      |        | 1,159  |  |   |        | 1,142  | 
|                                                    | Other                                                         |      |        | 1,124  |  |   |        | 775    | 
|                                                    |                                                               |      |        |        |  |   |        |        | 
|Total invested assets                               |                                                               |      | 36,474 |        |  |   | 33,445 |       
|Other assets (note 8)                               |                                                               |      | 1,717  |        |  |   | 1,506  |       
|                                                    |                                                               |      |        |        |  |   |        |        | 
|Total general fund assets                           |                                                               | $    | 38,191 |        |  | $ | 34,951 |       
|                                                    |                                                               |      |        |        |  |   |        |        | 
|Segregated funds net assets                         |                                                               | $    | 21,899 |        |  | $ | 22,090 |       
|                                                    |                                                               |      |        |        |  |   |        |        | 
|Liabilities and Equity                              |                                                               |      |        |        |  |   |        |       
|Policy liabilities                                  |                                                               |      |        |        |  |   |        |       
|                                                    | Actuarial liabilities (notes 3 and 9)                         |      | $      | 29,050 |  |   | $      | 27,169 | 
|                                                    | Other policy liabilities                                      |      |        | 1,059  |  |   |        | 1,017  | 
|                                                    | Policyholders amounts left on deposit                        |      |        | 453    |  |   |        | 426    | 
|                                                    |                                                               |      |        |        |  |   |        |        | 
|Total policy liabilities                            |                                                               |      | 30,562 |        |  |   | 28,612 |       
|Net deferred gains (note 7(d))                      |                                                               |      | 1,472  |        |  |   | 1,491  |       
|Other liabilities (note 10)                         |                                                               |      | 1,190  |        |  |   | 875    |       
|                                                    |                                                               |      |        |        |  |   |        |        | 
|                                                    |                                                               |      | 33,224 |        |  |   | 30,978 |       
|                                                    |                                                               |      |        |        |  |   |        |        | 
|Subordinated debentures (note 11)                   |                                                               |      | 550    |        |  |   | 550    |       
|                                                    |                                                               |      |        |        |  |   |        |        | 
|Non-controlling interest in subsidiary (note 12)    |                                                               |      | 450    |        |  |   |       |       
|                                                    |                                                               |      |        |        |  |   |        |        | 
|Total equity                                        |                                                               |      | 3,967  |        |  |   | 3,423  |       
|                                                    |                                                               |      |        |        |  |   |        |        | 
|Total general fund liabilities and equity           |                                                               | $    | 38,191 |        |  | $ | 34,951 |       
|                                                    |                                                               |      |        |        |  |   |        |        | 
|Segregated funds net liabilities                    |                                                               | $    | 21,899 |        |  | $ | 22,090 |       
|                                                    |                                                               |      |        |        |  |   |        |        | 

Commitments and contingencies(note 21)

(see accompanying notes)

On behalf of the Board:

|                                                                       |  |                                                                           
|---------------------------------------------------------------------- |  | --------------------------------------------------------------------------
|(Signed) D. A. Nield
Chairman of the Board and
Chief Executive Officer |  | (Signed) T. Iain RonaldChairman of the Audit and
Risk Management Committee





---



##### 



Canada Life Financial Corporation
Consolidated Statements of Equity

|                                                                  |                                                                                    |      |       |       |   |      |       |       |   |   |       |       |  
|----------------------------------------------------------------- | ---------------------------------------------------------------------------------- | ---- | ----- | ----- | - | ---- | ----- | ----- | - | - | ----- | ----- | -
|For the years ended December 31 (in millions of Canadian dollars) |                                                                                    | 2002 |       | 2001  |   | 2000
|                                                                  |                                                                                    |      |       |       |   |     
|Participating policyholders equity                               |                                                                                    |      |       |       |   |      |       |       |   |   |       |      
|                                                                  | Balance, beginning of year                                                         |      | $     | 41    |   |      | $     | 45    |   |   | $     | 49    |  
|                                                                  | Participating policyholders net income (loss)                                     |      |       | 3     |   |      |       | (4    | ) |   |       | (4    | )
|                                                                  |                                                                                    |      |       |       |   |      |       |       |   |   |       |       |  
|                                                                  | Balance, end of year                                                               |      |       | 44    |   |      |       | 41    |   |   |       | 45    |  
|                                                                  |                                                                                    |      |       |       |   |      |       |       |   |   |       |       |  
|Currency translation                                              |                                                                                    |      |       |       |   |      |       |       |   |   |       |      
|                                                                  | Balance, beginning of year                                                         |      |       | (1    | ) |      |       | (1    | ) |   |       | (2    | )
|                                                                  | Net unrealized gain on translation of net
investments in foreign operations        |      |       | 5     |   |      |       |      |   |   |       | 1     |  
|                                                                  |                                                                                    |      |       |       |   |      |       |       |   |   |       |       |  
|                                                                  | Balance, end of year                                                               |      |       | 4     |   |      |       | (1    | ) |   |       | (1    | )
|                                                                  |                                                                                    |      |       |       |   |      |       |       |   |   |       |       |  
|Total participating policyholders equity                         |                                                                                    | $    | 48    |       |   | $    | 40    |       |   | $ | 44    |      
|                                                                  |                                                                                    |      |       |       |   |      |       |       |   |   |       |       |  
|Shareholders equity                                              |                                                                                    |      |       |       |   |      |       |       |   |   |       |      
|Share capital                                                     |                                                                                    |      |       |       |   |      |       |       |   |   |       |      
|Preferred shares (note 14)                                        |                                                                                    |      |       |       |   |      |       |       |   |   |       |      
|                                                                  | Balance, beginning of year                                                         |      | $     | 145   |   |      | $     |      |   |   | $     |      |  
|                                                                  | Issue of preferred shares                                                          |      |       |      |   |      |       | 145   |   |   |       |      |  
|                                                                  |                                                                                    |      |       |       |   |      |       |       |   |   |       |       |  
|                                                                  | Balance, end of year                                                               |      |       | 145   |   |      |       | 145   |   |   |       |      |  
|                                                                  |                                                                                    |      |       |       |   |      |       |       |   |   |       |       |  
|Common shares (note 14)                                           |                                                                                    |      |       |       |   |      |       |       |   |   |       |      
|                                                                  | Balance, beginning and end of year                                                 |      | $     | 317   |   |      | $     | 317   |   |   | $     | 317   |  
|                                                                  |                                                                                    |      |       |       |   |      |       |       |   |   |       |       |  
|Retained earnings                                                 |                                                                                    |      |       |       |   |      |       |       |   |   |       |      
|                                                                  | Balance, beginning of year                                                         |      | $     | 2,910 |   |      | $     | 2,652 |   |   | $     | 2,373 |  
|                                                                  | Shareholders net income                                                           |      |       | 499   |   |      |       | 342   |   |   |       | 356   |  
|                                                                  | Dividends paid to preferred shareholders                                           |      |       | (9    | ) |      |       |      |   |   |       |      |  
|                                                                  | Dividends paid to common shareholders                                              |      |       | (96   | ) |      |       | (84   | ) |   |       | (77   | )
|                                                                  | Canada Life Capital Securities (CLiCS) issuance
costs                            |      |       | (5    | ) |      |       |      |   |   |       |      |  
|                                                                  |                                                                                    |      |       |       |   |      |       |       |   |   |       |       |  
|Balance, end of year                                              |                                                                                    |      | 3,299 |       |   |      | 2,910 |       |   |   | 2,652 |      
|                                                                  |                                                                                    |      |       |       |   |      |       |       |   |   |       |       |  
|Currency translation account                                      |                                                                                    |      |       |       |   |      |       |       |   |   |       |      
|                                                                  | Balance, beginning of year                                                         |      |       | 11    |   |      |       | (77   | ) |   |       | (52   | )
|                                                                  | Net unrealized gain (loss) on translation of net
investments in foreign operations |      |       | 147   |   |      |       | 88    |   |   |       | (25   | )
|                                                                  |                                                                                    |      |       |       |   |      |       |       |   |   |       |       |  
|                                                                  | Balance, end of year                                                               |      |       | 158   |   |      |       | 11    |   |   |       | (77   | )
|                                                                  |                                                                                    |      |       |       |   |      |       |       |   |   |       |       |  
|Total retained earnings                                           |                                                                                    | $    | 3,457 |       |   | $    | 2,921 |       |   | $ | 2,575 |      
|                                                                  |                                                                                    |      |       |       |   |      |       |       |   |   |       |       |  
|Total shareholders equity                                        |                                                                                    | $    | 3,919 |       |   | $    | 3,383 |       |   | $ | 2,892 |      
|                                                                  |                                                                                    |      |       |       |   |      |       |       |   |   |       |       |  
|Total equity                                                      |                                                                                    | $    | 3,967 |       |   | $    | 3,423 |       |   | $ | 2,936 |      
|                                                                  |                                                                                    |      |       |       |   |      |       |       |   |   |       |       |  

(see accompanying notes)





---



##### 



Canada Life Financial Corporation
Consolidated Statements of Cash Flows

|                                                                    |                                                                                                |      |        |         |   |      |        |         |   |   |       |         |  
|------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------- | ---- | ------ | ------- | - | ---- | ------ | ------- | - | - | ----- | ------- | -
|For the years ended December 31 (in millions of Canadian dollars)   |                                                                                                | 2002 |        | 2001    |   | 2000
|                                                                    |                                                                                                |      |        |         |   |     
|Cash flows from operating activities                                |                                                                                                |      |        |         |   |      |        |         |   |   |       |        
|Net income including participating policyholders net income (loss) |                                                                                                | $    | 502    |         |   | $    | 338    |         |   | $ | 352   |        
|Items not affecting cash and cash equivalents:                      |                                                                                                |      |        |         |   |      |        |         |   |   |       |        
|                                                                    | Increase in actuarial liabilities and other policy liabilities                                 |      |        | 453     |   |      |        | 1,167   |   |   |       | 708     |  
|                                                                    | Amortization of net deferred gains and amortization of
net discounts on bonds and mortgages    |      |        | (206    | ) |      |        | (282    | ) |   |       | (336    | )
|                                                                    | Other, including future income taxes                                                           |      |        | 2       |   |      |        | 68      |   |   |       | 64      |  
|                                                                    | Net change in other operating assets and liabilities                                           |      |        | 269     |   |      |        | (130    | ) |   |       | (9      | )
|                                                                    |                                                                                                |      |        |         |   |      |        |         |   |   |       |        
|Increase due to operating activities                                |                                                                                                |      | 1,020  |         |   |      | 1,161  |         |   |   | 779   |        
|                                                                    |                                                                                                |      |        |         |   |      |        |         |   |   |       |        
|Cash flows from investing activities                                |                                                                                                |      |        |         |   |      |        |         |   |   |       |        
|Sales, maturities and scheduled redemptions of:                     |                                                                                                |      |        |         |   |      |        |         |   |   |       |        
|                                                                    | Bonds                                                                                          |      |        | 14,196  |   |      |        | 21,570  |   |   |       | 9,836   |  
|                                                                    | Mortgages                                                                                      |      |        | 2,380   |   |      |        | 2,672   |   |   |       | 3,460   |  
|                                                                    | Common and preferred stocks                                                                    |      |        | 1,278   |   |      |        | 869     |   |   |       | 1,223   |  
|                                                                    | Real estate                                                                                    |      |        | 49      |   |      |        | 66      |   |   |       | 394     |  
|                                                                    | Other investments                                                                              |      |        | 409     |   |      |        | 119     |   |   |       | 174     |  
|Purchases of:                                                       |                                                                                                |      |        |         |   |      |        |         |   |   |       |        
|                                                                    | Bonds                                                                                          |      |        | (16,365 | ) |      |        | (22,248 | ) |   |       | (10,384 | )
|                                                                    | Mortgages                                                                                      |      |        | (1,947  | ) |      |        | (2,852  | ) |   |       | (3,781  | )
|                                                                    | Common and preferred stocks                                                                    |      |        | (861    | ) |      |        | (1,278  | ) |   |       | (1,116  | )
|                                                                    | Real estate                                                                                    |      |        | (89     | ) |      |        | (111    | ) |   |       | (156    | )
|                                                                    | Other investments                                                                              |      |        | (708    | ) |      |        | (294    | ) |   |       | (105    | )
|Net short-term investments                                          |                                                                                                |      | 57     |         |   |      | 227    |         |   |   | (251  | )      
|Net policy loans                                                    |                                                                                                |      | (43    | )       |   |      | (45    | )       |   |   | (27   | )      
|Acquisitions, net of cash paid (note 4)                             |                                                                                                |      | 302    |         |   |      |       |         |   |   | 176   |        
|                                                                    |                                                                                                |      |        |         |   |      |        |         |   |   |       |        
|Decrease due to investing activities                                |                                                                                                |      | (1,342 | )       |   |      | (1,305 | )       |   |   | (557  | )      
|                                                                    |                                                                                                |      |        |         |   |      |        |         |   |   |       |        
|Cash flows from financing activities                                |                                                                                                |      |        |         |   |      |        |         |   |   |       |        
|Issue of preferred shares (note 14)                                 |                                                                                                |      |       |         |   |      | 145    |         |   |   |      |        
|Issue of CLiCS (note 12)                                            |                                                                                                |      | 445    |         |   |      |       |         |   |   |      |        
|Dividends paid to common shareholders                               |                                                                                                |      | (96    | )       |   |      | (84    | )       |   |   | (77   | )      
|Dividends paid to preferred shareholders                            |                                                                                                |      | (9     | )       |   |      |       |         |   |   |      |        
|                                                                    |                                                                                                |      |        |         |   |      |        |         |   |   |       |        
|Increase (decrease) due to financing activities                     |                                                                                                |      | 340    |         |   |      | 61     |         |   |   | (77   | )      
|                                                                    |                                                                                                |      |        |         |   |      |        |         |   |   |       |        
|Effect of changes in exchange rates on cash and cash equivalents    |                                                                                                |      | 56     |         |   |      | 25     |         |   |   | (8    | )      
|                                                                    |                                                                                                |      |        |         |   |      |        |         |   |   |       |        
|Net increase (decrease) in cash and cash equivalents for the year   |                                                                                                |      | 74     |         |   |      | (58    | )       |   |   | 137   |        
|Cash and cash equivalents, beginning of year                        |                                                                                                |      | 993    |         |   |      | 1,051  |         |   |   | 914   |        
|                                                                    |                                                                                                |      |        |         |   |      |        |         |   |   |       |        
|Cash and cash equivalents, end of year                              |                                                                                                |      | 1,067  |         |   |      | 993    |         |   |   | 1,051 |        
|Short-term investments, end of year                                 |                                                                                                |      | 92     |         |   |      | 149    |         |   |   | 373   |        
|                                                                    |                                                                                                |      |        |         |   |      |        |         |   |   |       |        
|Cash, cash equivalents and short-term investments, end of year      |                                                                                                | $    | 1,159  |         |   | $    | 1,142  |         |   | $ | 1,424 |        
|                                                                    |                                                                                                |      |        |         |   |      |        |         |   |   |       |        
|Supplementary disclosure of cash flow information:                  |                                                                                                |      |        |         |   |      |        |         |   |   |       |        
|                                                                    | Interest paid on subordinated debentures, other liabilities and
Canada Life Capital Securities |      | $      | 63      |   |      | $      | 39      |   |   | $     | 39      |  
|                                                                    | Income taxes paid, net of refunds                                                              |      | $      | 13      |   |      | $      | 172     |   |   | $     | 97      |  
|                                                                    |                                                                                                |      |        |         |   |      |        |         |   |   |       |        

(see accompanying notes)





---



##### 



Canada Life Financial Corporation
Consolidated Statements of Changes in Segregated Funds

|                                                                   |  |      |        |      |  |      |        |   |  |   |        |  
|------------------------------------------------------------------ |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|For the years ended December 31 (in millions of Canadian dollars)  |  | 2002 |        | 2001 |  | 2000
|                                                                   |  |      |        |      |  |     
|Additions to segregated funds                                      |  |      |        |      |  |      |        |   |  |   |        |  
|Deposits and transfers from the general fund                       |  | $    | 3,721  |      |  | $    | 3,828  |   |  | $ | 3,692  |  
|Reclassifications from the general fund and
transfer of seed money |  |      | 664    |      |  |      |       |   |  |   |       |  
|Net investment income                                              |  |      | 532    |      |  |      | 438    |   |  |   | 636    |  
|Currency translation adjustment                                    |  |      | 1,375  |      |  |      | 359    |   |  |   | (301   | )
|Tax recovery                                                       |  |      | 10     |      |  |      | 60     |   |  |   | 32     |  
|                                                                   |  |      |        |      |  |      |        |   |  |   |        |  
|                                                                   |  |      | 6,302  |      |  |      | 4,685  |   |  |   | 4,059  |  
|                                                                   |  |      |        |      |  |      |        |   |  |   |        |  
|Deductions from segregated funds                                   |  |      |        |      |  |      |        |   |  |   |        |  
|Withdrawals, benefit payments and transfers to the general fund    |  |      | 2,362  |      |  |      | 2,033  |   |  |   | 2,690  |  
|Operating expenses                                                 |  |      | 393    |      |  |      | 353    |   |  |   | 379    |  
|Net decrease in fair value of investments                          |  |      | 3,738  |      |  |      | 2,592  |   |  |   | 482    |  
|                                                                   |  |      |        |      |  |      |        |   |  |   |        |  
|                                                                   |  |      | 6,493  |      |  |      | 4,978  |   |  |   | 3,551  |  
|                                                                   |  |      |        |      |  |      |        |   |  |   |        |  
|                                                                   |  |      |        |      |  |      |        |   |  |   |        |  
|Net additions (deductions) to segregated funds for the year        |  |      | (191   | )    |  |      | (293   | ) |  |   | 508    |  
|Segregated funds net assets, beginning of year                     |  |      | 22,090 |      |  |      | 22,383 |   |  |   | 21,875 |  
|                                                                   |  |      |        |      |  |      |        |   |  |   |        |  
|Segregated funds net assets, end of year                           |  | $    | 21,899 |      |  | $    | 22,090 |   |  | $ | 22,383 |  
|                                                                   |  |      |        |      |  |      |        |   |  |   |        |  

(see accompanying notes)

Consolidated Statements of Segregated Funds Net Assets

|                                                    |  |      |        |      |  |   |        |  
|--------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | -
|As at December 31 (in millions of Canadian dollars) |  | 2002 |        | 2001
|                                                    |  |      |        |     
|Common and preferred stocks                         |  | $    | 16,214 |      |  | $ | 17,769 |  
|Bonds                                               |  |      | 2,455  |      |  |   | 2,219  |  
|Cash, cash equivalents and short-term investments   |  |      | 2,291  |      |  |   | 1,536  |  
|Real estate                                         |  |      | 944    |      |  |   | 788    |  
|Mortgages                                           |  |      | 9      |      |  |   | 8      |  
|Investment income due and accrued                   |  |      | 242    |      |  |   | 20     |  
|Tax liability                                       |  |      | (49    | )    |  |   | (61    | )
|Due to brokers and others                           |  |      | (207   | )    |  |   | (189   | )
|                                                    |  |      |        |      |  |   |        |  
|                                                    |  | $    | 21,899 |      |  | $ | 22,090 |  
|                                                    |  |      |        |      |  |   |        |  

(see accompanying notes)





---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|1.  |  | NATURE OF OPERATIONS AND BUSINESS ACTIVITIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Canada Life Financial Corporation (the Company), incorporated on June
21, 1999, was formed for the purpose of becoming a publicly traded holding
company of The Canada Life Assurance Company (CLA), which demutualized
on November 4, 1999. Both companies are registered under the Insurance
Companies Act (ICA), Canada, which is administered by the Office of the
Superintendent of Financial Institutions (OSFI), Canada. The Company
offers insurance and other protection and wealth management products and
services to individuals and groups, including reinsurance services,
primarily in Canada, the United Kingdom, the United States and the
Republic of Ireland, and in several other jurisdictions.
|   
|    |  | The 2001 and 2000 comparative figures have been reclassified to conform to
presentation changes adopted in 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|2.  |  | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | The Company prepares its Consolidated Financial Statements in accordance
with Canadian generally accepted accounting principles (GAAP) for life
insurance enterprises, including the accounting requirements of OSFI.
There are no differences between GAAP and OSFI accounting requirements.
See note 23 for a description and reconciliation of differences between
GAAP in Canada and the United States.                                                                                                                                                                                                                                                                                                             
|   
|    |  | The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities as at the date of the Consolidated
Financial Statements and income and expenses during the reporting period.
Actual results could differ from these estimates. The most significant
estimates are related to the determination of actuarial liabilities which
are discussed in note 3.                                                                                                                                                                                                                                                  
|   
|    |  | The significant accounting policies followed in the preparation of these
Consolidated Financial Statements are summarized as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(a) |  | Accounting policy changes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               



| | (i) |  | Goodwill and other intangible assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Effective January 1, 2002, the Company adopted prospectively the new
recommendations for Goodwill and Other Intangible Assets issued by the
Canadian Institute of Chartered Accountants (CICA). Under the new
recommendations, all goodwill and intangible assets with indefinite
lives ceased to be amortized to shareholders net income. Goodwill and
intangible assets with indefinite lives are subject to an annual impairment review to test
whether the fair value remains greater than, or equal to, book value.
Any excess of book value over fair value is charged to

1



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



| |      |  | general
operating expenses on the Consolidated Statements of Net Income in the
period in which the impairment has been determined. The Company has
completed its required transitional impairment testing on the goodwill
balance as at December 31, 2001 and determined that goodwill is not
impaired. In addition, the Company has completed the required annual
impairment test for 2002 and determined that goodwill is not impaired.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii) |  | Stock-based compensation and other stock-based payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |      |  | Effective January 1, 2002, the Company adopted the CICAs new
recommendation for Stock-Based Compensation and Other Stock-Based
Payments, which allows for the use of either the fair value or
intrinsic value methods to account for certain stock-based
compensation agreements. The Company has adopted this recommendation
retroactively without restatement of prior periods as the restatements
were not material to the Consolidated Financial Statements. The
Company uses the intrinsic value method of accounting for such awards,
under which no compensation expense is recognized for stock options
where the exercise price is equivalent to the closing market price of
the Companys shares on the Toronto Stock Exchange (TSX) the day prior
to the option grant date. The new recommendation also requires that
stock appreciation rights (SARs) that can be settled in cash be
recorded as liabilities for the excess of the market value of the
shares over the exercise price. Refer to Note 2(s) for future changes
to this accounting policy.



|(b) |  | Other changes
|--- |  | -------------



| | (i) |  | Valuation of invested assets held for the general fund                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | In the third quarter of 2002, the Company changed the application of
the rate used for the moving average market method for stocks and real
estate portfolios in accordance with the requirements of OSFI. The
fair value adjustment of the difference between the carrying value and
period-end fair value and the amortization of net realized gains and
losses have been changed to 5% per quarter from 15% per annum for
stocks and 3% per quarter from 10% per annum for real estate. The
Company adopted this change in estimate in the third quarter on a
prospective basis. The impact of this change on these Consolidated
Financial Statements was not material.



|(c) |  | Basis of consolidation                                                                                                                                                  
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | These financial statements consolidate the operating results and financial
position of the Company and its subsidiaries. All intercompany balances
have been eliminated.

2



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|(d) |  | Participating account                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The ICA requires the Company to maintain two accounts within its general
fund: one for its participating policies (the participating account) and
one for all of its other business (the shareholders account). Through
its participating account, the assets, liabilities, income and equity
relating to the Companys participating policies are recorded separately.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | The participating account is comprised of two main subdivisions. The
liabilities for participating policies issued or assumed by the Company
prior to demutualization are held in closed block sub-accounts. These
liabilities for guaranteed and other non-guaranteed benefits are
determined using best estimate assumptions. If at any time the value of
the assets allocated to these policies were, in the opinion of the
Appointed Actuary, less than the assets required in the long term to
support the liabilities of these policies and the future reasonable net
income expectations of the policyholders, assets having a sufficient value
to rectify the situation would be transferred first from the additional
ancillary sub-accounts maintained in the participating account for this
purpose and then, if the deficiency is expected to be permanent, from the
shareholders account. Any such transfers from the shareholders account
would be recorded as a charge to shareholders net income.                 
|   
|    |  | The second main subdivision comprises the open block sub-accounts
containing all liabilities in respect of new participating policies issued
on or after demutualization. On demutualization, $50 million of seed
capital was transferred from retained earnings of the shareholders
account to the participating account. Subject to approval by OSFI, the
seed capital amount, together with a reasonable rate of return, may be
transferred to the shareholders account if the seed capital is no longer
required to support the new participating policies. Transfers of seed
capital to the shareholders account would be returns of capital and would
be recorded as adjustments to shareholders retained earnings. A
reasonable rate of return on seed capital is recognized as income in the
shareholders account and an expense in the participating account. In
addition, a percentage of the net income of the new participating policies
may be transferred to the shareholders account as permitted by
regulation.
|   
|(e) |  | Valuation of invested assets held for the general fund                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               



| | (i) |  | Bonds and mortgages                                                                                                                                             
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Bonds, including asset-backed fixed term securities, and mortgages
are carried at amortized cost, net of allowances for specific
losses (refer to note 2(e)(v)).

3



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



| |       |  | The difference between the proceeds on the sale of a bond or mortgage
prior to maturity and its carrying value is considered to be an
adjustment of future portfolio yield. This difference is deferred on
the Consolidated Balance Sheets and amortized to net income over the
remaining term to maturity.                                                                                                                                                                                                                                                                                                                                                                                                  
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ii)  |  | Stocks and real estate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |       |  | Portfolio investments in stocks and real estate, which include
Company-occupied premises, are carried at a value that is adjusted
toward fair value each year. Prior to the adoption on July 1, 2002 of
the new OSFI requirement, the adjustment for stocks was 15% per annum
of the difference between carrying value and year-end fair value. The
fair value adjustment for real estate was 10% per annum of the
difference between carrying value and appraised value. Appraised
value is determined annually based on a combination of internal
appraisals established by the Company and independent appraisals. All
real estate properties are independently appraised at least once
every three years.
|
| |       |  | Net realized gains and losses on the disposal of stocks and real
estate are deferred on the Consolidated Balance Sheets and were
amortized to net income on a declining balance basis at 15% per annum
for stocks and at 10% per annum for real estate.                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |       |  | Refer to note 2(b)(i) for a description of the change to this policy
that was adopted prospectively in the third quarter of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| | (iii) |  | Policy loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |       |  | Policy loans are carried at their unpaid balance and are fully
secured by the cash surrender value of the policies on which the
respective loans are made.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | (iv)  |  | Other invested assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |       |  | Other invested assets generally include the Companys investment in
equipment leases, limited partnerships and equity investments in
which the Company has the ability to exercise significant influence.
Equipment leases are carried at cost less accumulated amortization.
Equity investments and limited partnerships are carried at cost plus
the Companys pro rata share of the investees net income (loss),
less any distributions paid to the Company during the year.                                                                                                                                                                                                                             

4



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



| | (v) |  | Impaired investments and provisions for losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | Impaired investments include all loans with payments of 90 days or
more in arrears unless their repayment has been insured by a
government authority or representative thereof. Impaired investments
also include loans that are not in arrears but where management has
determined that an impairment in value exists.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |     |  | The carrying value of the Companys investment in a bond or mortgage
is reduced by a specific provision for loss to the extent an
impairment in value is deemed to exist. A specific provision for loss is established whenever there is a decline in the
value of a bond, which is other than temporary, or when the recovery
of the principal and accrued interest on a mortgage is in doubt and
the value of the underlying security is also impaired. A specific
provision for loss is only reduced as a result of a write-off or sale
of the impaired investment, or if the conditions that caused the
impairment no longer exist. Accrual of interest is discontinued and
previously accrued interest is reversed on impaired bonds and
impaired mortgages where payments are 90 days or more in arrears.
|
| |     |  | Property that is acquired due to a mortgage foreclosure and held for
resale is classified as real estate and is valued at the lower of the
amortized cost of the mortgage at the time of foreclosure and the net
realizable value of the property. Any losses on foreclosure and
subsequent adjustments to net realizable value are recognized in net
income immediately.                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |     |  | The carrying value of the stock portfolio or the real estate
portfolio is written down to fair value immediately if there is an
other than temporary decline in the value of either portfolio. The
Company treats the stock and real estate portfolios as separate
portfolios for the purpose of assessing whether permanent impairment
exists.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |     |  | In addition to specific provisions noted above for existing asset
impairments, the Company provides for potential future asset defaults
through the reduction of the assumed investment yields used in the
calculation of the actuarial liabilities as disclosed in note 3 and
as required by the Canadian Institute of Actuaries (CIA) and OSFI.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|



|(f) |  | Fair value
|--- |  | ----------



| | (i) |  | Bonds and mortgages                                                                                                                                                                                                                                                                                     
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | The fair value of publicly traded bonds and asset-backed fixed term
securities is determined using quoted market prices. The fair value
of bonds and mortgages that are not publicly traded is determined by
discounting the expected future cash flows related to these loans at
market interest rates.

5



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



| | (ii)  |  | Common and preferred stocks                                                                                                                                                                                                                                 
| | ----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |       |  | The fair value of common and preferred stocks is determined using
quoted market prices. The fair value of common and preferred stocks
that are not publicly traded is determined by discounting expected
future cash flows at risk-adjusted rates of return.
|
| | (iii) |  | Real estate                                                                                                                                                                                                                                                 
|
| |       |  | The fair value of real estate is determined based on the appraised
value as described in note 2(e)(ii).                                                                                                                                                     
|
| | (iv)  |  | Other invested assets and policy loans                                                                                                                                                                                                                      
|
| |       |  | The fair value of other invested assets and policy loans is generally
estimated to equal carrying value.                                                                                                                                                    
|
| | (v)   |  | Subordinated debentures                                                                                                                                                                                                                                     
|
| |       |  | The fair value of the Companys subordinated debentures is determined
based on the value in the market for equivalently rated securities of
similar terms.                                                                                                  



|(g) |  | Segregated funds                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company manages certain funds that are segregated from the general
fund of the Company. This business includes Canadian segregated annuity
funds; unit-linked life insurance and annuity business in the United
Kingdom and the Republic of Ireland; and variable annuity separate account
business in the United States. The net assets of these funds are carried
at fair value, and a corresponding amount is reported as a liability. Fair
value is determined using quoted market values or, where quoted market
values are not available, estimated fair values as determined by the
Company. Income earned from fund management fees is included in fee and
other income in the general fund. Certain individual contracts have
guarantees from the Company. In these cases, a separate actuarial
liability is established in the general fund to provide for any unexpected
losses resulting from the guarantee.
|   
|(h) |  | Foreign currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | Foreign currency assets and liabilities are translated into Canadian
dollars using the rates of exchange in effect at the balance sheet dates.
Revenues and expenditures are translated into Canadian dollars at average
rates of exchange during the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | The Companys currency translation account (CTA) arises from the
translation of its self-sustaining foreign operations. Unrealized foreign
currency gains and losses arising on the translation of the accounts of
the Companys foreign operations and on forward foreign exchange
agreements that are                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

6



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|    |  | used to hedge the exposure of the Companys
investments in foreign operations are recorded as a direct adjustment to
the CTA. The CTA is presented as a separate component of equity on the
Consolidated Statements of Equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(i) |  | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | The Company uses the liability method of tax allocation. Future income tax
assets and liabilities reflect the net tax effects of temporary
differences between the value of assets and liabilities reported for
financial statement purposes and those reported for income tax purposes.
Future income tax assets and liabilities are calculated based on income
tax rates and laws that are expected to apply when the asset or liability
is realized, which are those that are enacted or substantively enacted at
the Consolidated Balance Sheet dates. Future income tax assets are
recognized only to the extent that it is more likely than not that the
income tax benefit will be realized.
|   
|(j) |  | Employee future benefit liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | The Company maintains defined benefit pension plans and provides other
post-retirement benefits such as post-retirement life, health and dental
insurance benefits for its employees and agents. The assets supporting the
trusteed pension plans of the Company are held in separate trusteed
pension funds. The remaining benefits are included in other liabilities
and are supported by general fund assets of the Company. The accrued
benefit is determined using a market rate of interest.                                                                                                                                                                                                 
|   
|    |  | The actuarial valuations of the pension obligations are determined using
the projected benefit method prorated on service, based on managements
best estimate assumptions. Pension and other post-retirement benefit costs
for the year are based on the estimated benefits earned by the employees
and agents during the year. Pension plan surplus or deficit, changes in
assumptions and plan amendments, as well as experience gains and losses,
are amortized to income over the expected average remaining service life
of plan members.                                                                                                                                                    
|   
|(k) |  | Derivative financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | The Company utilizes derivative financial instruments, including swaps,
forward contracts, futures and options, when appropriate, to manage its
asset/liability positions and to hedge against fluctuations in interest
rates, foreign exchange rates and stock market indices. Realized and
unrealized gains and losses resulting from the use of these derivative
financial instruments are included in income on a basis consistent with
the underlying positions being hedged.                                                                                                                                                                                                                 

7



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|(l) |  | Reinsurance                                                                                                                                                                                                                                                                                                                                                                                                         
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Companys premium income, payments to policyholders and beneficiaries,
actuarial liabilities and increase in actuarial liabilities are all shown
net of amounts ceded to, or including amounts assumed from, other
insurers.                                                                                                                                                                                    
|   
|(m) |  | Goodwill and other intangible assets                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | Goodwill represents the excess of cost over the estimated fair value of
the net assets acquired as at the date of acquisition. Prior to 2002,
goodwill resulting from acquisitions before July 1, 2001 was generally
amortized to income on a straight-line basis over 10 years. Refer to note
2(a)(i) for a description of changes to this policy that were effective
January 1, 2002.                             
|   
|(n) |  | Gross premiums                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | Gross premiums for all types of insurance contracts, and contracts with
limited mortality or morbidity risk, are generally recognized as revenue
when due. When premiums are recognized, actuarial liabilities are
computed, with the result that benefits and expenses are matched with such
revenue.                                                                                                              
|   
|(o) |  | Fee and other income                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | Fee and other income primarily includes fees earned from the management of
the Companys segregated funds assets, third party assets and fees earned
from investment management services provided by subsidiary companies.                                                                                                                                                                                          
|   
|(p) |  | Cash, cash equivalents and short-term investments                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | Cash equivalents consist of investments with original maturities at
acquisition of three months or less. Short-term investments consist of
investments with original maturities at acquisition exceeding three
months, but less than twelve months.                                                                                                                                                                 
|   
|(q) |  | Software costs                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | For those costs that meet specific criteria, the Company capitalizes and
amortizes software acquisition and development costs over a period not
exceeding five years.                                                                                                                                                                                                                                               
|   
|(r) |  | Repurchase agreements                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | The Company enters into repurchase agreements that involve sales of
securities under agreements to repurchase the securities at a later date
at an agreed-upon price. These agreements are treated as collateralized
borrowing transactions and are included in other liabilities at the
amounts at which the securities were sold. Interest incurred on repurchase
agreements is included in net investment income.

8



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|(s) |  | Future changes in accounting policy
|--- |  | -----------------------------------



| | (i)  |  | Stock-based compensation and other stock-based payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |      |  | For fiscal 2003, the Company has elected to adopt the fair value
method of accounting for stock options as encouraged in the CICAs
recommendations for Stock-Based Compensation and Other Stock-Based
Payments. The Company will recognize prospectively the compensation
expense for stock option awards granted after January 1, 2003. The
amount of the additional compensation expense depends on the number of options
granted and their fair value at the date of grant. Refer to Note 17
for pro forma disclosure on options granted in fiscal 2002.        
|
| | (ii) |  | Hedging                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |      |  | During the year, the CICA issued a new accounting guideline on
hedging relationships that will be effective for the Company
beginning January 1, 2004. The guideline establishes the criteria
that must be met in order to apply hedge accounting for derivatives.
Changes in the fair value of derivatives that do not qualify for
hedge accounting will be recorded in the Consolidated Statements of
Net Income. The impact of implementing this guideline on the
Companys future results will depend on the Companys hedging
strategies and market volatility.



|3. |  | SIGNIFICANT ACTUARIAL POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Actuarial liabilities represent the amounts required, in addition to
future premiums and investment income, to provide for future benefit
payments, policyholder dividends, commissions and policy administrative
expenses for all insurance and annuity policies in force with the Company.
The Companys Appointed Actuary is responsible for determining the amount
of the actuarial liabilities such that sufficient funds will be available
in the future to meet the Companys obligations. The valuation methods
used by the Appointed Actuary are determined using generally accepted
actuarial practices, according to standards established by the CIA. The
valuation methods used by the Company were changed in 2001 to adopt
retroactively the Standards of Practice for the Valuation of Policy
Liabilities of Life Insurers (Life SOP) as required by the CIA. In
addition, the determination of the actuarial liabilities includes the
discounting effect of future income taxes relating directly to items
included in the computation of these liabilities.
|  
|   |  | The valuation methodology under Life SOP is the Canadian Asset Liability
Method (CALM). This method involves the projection of future events in
order to determine the amount of assets that must be set aside currently
to provide for all future obligations. The method consists of four basic
steps:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     



| | 1. |  | Determination of the period over which these projections are
performed.
| | -- |  | -----------------------------------------------------------------------
|
| | 2. |  | Projection of liability cash flows.                                    

9



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##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



| | 3. |  | Projection of asset cash flows.                                                           
| | -- |  | ------------------------------------------------------------------------------------------
|
| | 4. |  | Performance of economic scenario testing under a variety of
plausible economic conditions.



|    |  | The Company maintains specific asset funds to back each major line of
business. The projection of liability and asset cash flows recognizes
these specific asset funds.                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(a) |  | Selecting the projection period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    |  | The projection period is chosen so as to include all insured events in the
valuation process. The projection period is long enough to encompass all
material policy-related obligations arising from commitments the insurer
has made on, or before, the valuation date. For example, the projection
period for a traditional non-participating individual life policy is the
maturity date of the contract.                                                                                                                                               
|   
|    |  | For certain segregated funds products without significant insurable
events, Life SOP requires a method for determining general fund actuarial
liabilities which involves a projection of future policy expense margins
and a comparison of these amounts to expenses associated with the
acquisition of these policies that have not yet been recovered. To the
extent these future margins will allow for the future recovery of these
unrecovered expenses, the unrecovered expenses are a reduction to
actuarial liabilities otherwise computed.        
|   
|    |  | For certain group life and health insurance products, Life SOP allows for
the amortization and recovery of acquisition expenses from policy expense
margins that are expected to be received in the future. To the extent
these future margins will allow for the future recovery of these
unrecovered expenses, the unrecovered expenses are a reduction to
actuarial liabilities otherwise computed.                                                                                                                                                     
|   
|(b) |  | Projecting liability cash flows                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    |  | Projecting liability cash flows involves the use of best estimates for the
following assumptions: mortality, morbidity, administrative expenses,
policyholder dividends, and policy lapses and surrenders. Actual
experience is monitored against these assumptions to ensure they remain
reasonable.                                                                                                                                                                                                                                                      
|   
|    |  | The process of projecting liability cash flows involves the estimation of
the occurrence of events (e.g., a policyholders death or surrender) that
may or may not happen until many years in the future. Due to the
uncertainties involved in this process, best estimate assumptions are
adjusted by margins for adverse deviations, which provide for possible
unfavourable deviations from expected experience. These margins increase
actuarial liabilities and reduce the net income that otherwise would be
recognized at the inception of a policy.

10



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|    |  | The range for these margins is set out in guidelines issued by the CIA.
Given the diversity and size of the Companys portfolio, the risk of
deviations being significantly different than expected is relatively low,
so that margins at the low end of the permissible range are often
justifiable. However, the Company often follows a more prudent practice of
establishing margins close to the middle of the range.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(c) |  | Key assumptions for projecting liability cash flows                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | The following is a description of the methods used to calculate the best
estimates for the significant non-economic assumptions used in the
projection of liability cash flows.                                                                                                                                                                                                                                           



| | (i)  |  | Mortality                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |      |  | Mortality relates to the incidence of death. For life insurance, the
Company conducts annual mortality studies for each country and line
of business. The Companys assumptions are derived by expressing its
own average experience over the last five years as a percentage of
the most recent industry experience tables.                                                                                                                                  
|
| |      |  | For major payout annuity blocks of business, the Company conducts
annual mortality studies and the rates used are based on the average
experience over the last five years. In the case of smaller blocks
of annuity business where the experience is too small to be
reliable, intercompany pension experience tables are used. Suitable
projection factors reflecting industry experience are used in all
cases to allow for the improving mortality trends.
|
| | (ii) |  | Morbidity                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |      |  | Morbidity generally refers to the incidence of sickness and accident
claims, and to the rate of recovery of such claimants.                                                                                                                                                                                                                                                                                                                                   
|
| |      |  | For people who are not currently disabled, the morbidity assumptions
for individual policies are based on recent internal studies
translated into various factors applied to standard industry
morbidity tables. For group policies, the premium can be changed
each year due to changing claims experience and, therefore, the
liability is set equal to a portion of the premiums paid in advance.                                                          
|
| |      |  | For people who are disabled, the termination assumptions are based
on recent internal studies and translated into factors applied to
standard industry tables.                                                                                                                                                                                                                                                                                                

11



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##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



| | (iii) |  | Administrative expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |       |  | Actuarial liabilities include amounts to provide for the costs of
administering policies in force such as the cost of collecting
premiums, processing and adjudicating claims, periodic
communications with policyholders, related indirect expenses and a
share of overhead costs. Allowances for expenses are based on the
Companys most recent internal cost analysis, with adjustments to
the current valuation year. The internal cost analysis is reviewed
and updated annually. These expenses are projected into the future
with allowances for inflation.                                                          
|
| | (iv)  |  | Policyholder dividends                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |       |  | Policy liabilities include the present value of the estimated future
payments of participating policyholder dividends, including terminal
bonus dividends for policies issued in the United Kingdom and the
Republic of Ireland. Dividends paid to participating policyholders
are calculated in accordance with the dividend policy established by
the Board of Directors (the Board).                                                                                                                                                                                                                                    
|
| | (v)   |  | Policy lapses and surrenders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |       |  | Although a policy contract may call for the payment of premiums over
the full term of the policy, policyholders may choose not to
continue to pay premiums, thereby allowing their policy to lapse.
Policyholders may also choose to surrender their policy in return
for the policys cash surrender value. Policy termination rate
assumptions are based on the Companys recent experience by country
and line of business. For certain products, the actuarial liability
decreases as policy termination rates increase. On such products,
very low policy termination rates are assumed in establishing the
liabilities.



|(d) |  | Projecting asset cash flows                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Asset cash flow projections reflect future scheduled events (e.g., coupon
payments and maturities on bonds) as well as the use of best estimates for
the following assumptions: investment expenses, asset defaults and
pre-payments. These best estimate assumptions are adjusted by margins for
adverse deviations, which provide for possible unfavourable deviations
from expected experience. Assumptions are also made about
reinvestment/disinvestment strategies for net cash flows.
|   
|(e) |  | Economic scenario testing                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | A variety of economic scenarios are tested for most products. Scenarios
include increases or decreases in interest rates, as well as changing
patterns of these rates. The level of actuarial liabilities is determined
by considering the amount of assets that must be set aside currently to
provide for all future obligations under the more adverse economic
scenarios tested.                                                                                                        

12



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|4. |  | ACQUISITIONS AND DISPOSITIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | On October 1, 2002, the Company completed an agreement to acquire a
substantial block of group life and long term disability insurance
business in the United Kingdom, reinsuring these risks on that date.
Formal transfer of the business will occur after court approval, expected
in mid-2003. Results are included in the Consolidated Statements of Income
since the date of acquisition. The acquisition had a purchase price of
approximately $53 million, including transaction costs, net of tax, of $3
million.
|  
|   |  | The purchase price allocation is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  

|                          |                                 |   |      |     | 
|------------------------- | ------------------------------- | - | ---- | --- | 
|Net liabilities acquired: |                                 |   |      |    
|                          | Cash                            |   | $    | 410 | 
|                          | Bonds                           |   |      | 292 | 
|                          | Other assets                    |   |      | 120 | 
|                          |                                 |   |      |     | 
|                          |                                 |   | 822  |    
|                          |                                 |   |      |     | 
|                          | Policy liabilities              |   |      | 866 | 
|                          | Other liabilities               |   |      | 80  | 
|                          |                                 |   |      |     | 
|                          |                                 |   | 946  |    
|                          |                                 |   |      |     | 
|                          |                                 | $ | (124 | )  
|                          |                                 |   |      |     | 
|Consideration paid:       |                                 |   |      |    
|                          | Cash consideration              |   | $    | 50  | 
|                          | Transaction costs, net of taxes |   |      | 3   | 
|                          |                                 |   |      |     | 
|                          |                                 | $ | 53   |    
|                          |                                 |   |      |     | 
|Goodwill on acquisition   |                                 | $ | 177  |    
|                          |                                 |   |      |     | 



|    |  | On October 31, 2002, the Company completed a transaction to acquire a
Canadian provider of preferred term life insurance products in Canada. The
acquisition had a purchase price of $58 million, including transaction
costs of $1 million. The Company acquired $26 million of assets including
$3 million of cash, $24 million of negative actuarial liabilities, and $7
million of other liabilities and recorded goodwill on the acquisition of
$15 million.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | In 2000, the Company sold its 100% interest in its general insurance
subsidiary, Canada Life Casualty Insurance Company. Included in the
December 31, 2000 Consolidated Statement of Net Income was revenue of $132
million and net income of $10 million relating to the general insurance
subsidiary, and included in fee and other income, a gain of $18 million,
net of tax from the disposition of this subsidiary.                                         
|   
|5.  |  | INTEREST RATE, FOREIGN CURRENCY, CREDIT AND LIQUIDITY RISK                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|(a) |  | Interest rate risk                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | Interest rate risk is the risk that the economic value of the Company is
adversely impacted by changes in interest rates. The interest rate risk
associated with the Companys annuity and pension products is                                                                                                                                                                                                                                                   

13



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



| |  | of
particular importance because these products constitute approximately 59%
(58% in 2001) of the Companys general fund actuarial liabilities. The
timing and amount of the Companys obligations under annuity and pension
products can be determined with reasonable certainty and the mismatch
positions of the assets supporting these liabilities is monitored
quarterly to measure compliance with the limits set out in the Companys
Investment Policy.                             
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The following table shows the estimated amount of the future asset and
liability cash flows associated with the Companys annuity and pension
products that were in force at December 31 and reflects the appropriate
repricing or maturity date. The cash flow gap between the assets and the
liabilities is also noted. These cash flows include the effect of any off-balance sheet
derivative financial instruments the Company has entered into for
asset/liability management purposes.
|
| |  | For the years ended December 31:                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|                                  |  |                            |       |              |  |               |       |                |  |               |       |   |  |   |       |  |  |   |       |  
|--------------------------------- |  | -------------------------- | ----- | ------------ |  | ------------- | ----- | -------------- |  | ------------- | ----- | - |  | - | ----- |  |  | - | ----- | -
|                                  |  | Repricing or maturity date
|                                  |  |                           
|(in millions of Canadian dollars) |  | Less than 1 year           |       | 1 to 5 years |  | 5 to 10 years |       | 10 to 20 years |  | Over 20 years
|                                  |  |                            |       |              |  |               |       |                |  |               |      
|2002                              |  |                            |       |              |  |               |       |                |  |               |       |   |  |   |       |  |  |   |       |  
|Assets                            |  | $                          | 2,459 |              |  | $             | 8,877 |                |  | $             | 5,762 |   |  | $ | 8,567 |  |  | $ | 6,244 |  
|Liabilities                       |  |                            | 2,395 |              |  |               | 8,813 |                |  |               | 5,893 |   |  |   | 7,931 |  |  |   | 6,832 |  
|                                  |  |                            |       |              |  |               |       |                |  |               |       |   |  |   |       |  |  |   |       |  
|Cash flow gap                     |  | $                          | 64    |              |  | $             | 64    |                |  | $             | (131  | ) |  | $ | 636   |  |  | $ | (588  | )
|                                  |  |                            |       |              |  |               |       |                |  |               |       |   |  |   |       |  |  |   |       |  
|2001                              |  |                            |       |              |  |               |       |                |  |               |       |   |  |   |       |  |  |   |       |  
|Assets                            |  | $                          | 2,740 |              |  | $             | 8,423 |                |  | $             | 5,669 |   |  | $ | 7,679 |  |  | $ | 5,655 |  
|Liabilities                       |  |                            | 2,827 |              |  |               | 8,331 |                |  |               | 5,470 |   |  |   | 7,065 |  |  |   | 6,445 |  
|                                  |  |                            |       |              |  |               |       |                |  |               |       |   |  |   |       |  |  |   |       |  
|Cash flow gap                     |  | $                          | (87   | )            |  | $             | 92    |                |  | $             | 199   |   |  | $ | 614   |  |  | $ | (790  | )
|                                  |  |                            |       |              |  |               |       |                |  |               |       |   |  |   |       |  |  |   |       |  



| |  | Two related methods are used by the Company to measure and to monitor the
interest rate risk associated with the Companys annuity and pension
products.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|



| | (i) |  | Duration mismatch
| | --- |  | -----------------



| |  | The following table indicates, in years, the duration mismatch that
is associated with the Companys annuity and pension products as at
December 31:
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

|                   |  |      |      |      |  |  |      | 
|------------------ |  | ---- | ---- | ---- |  |  | ---- | 
|(in years)         |  | 2002 |      | 2001
|                   |  |      |      |     
|Asset duration     |  |      | 7.73 |      |  |  | 7.01 | 
|Liability duration |  |      | 7.67 |      |  |  | 6.99 | 
|                   |  |      |      |      |  |  |      | 
|Duration mismatch  |  |      | 0.06 |      |  |  | 0.02 | 
|                   |  |      |      |      |  |  |      | 

14



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##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



| | (ii) |  | Net present value                                                                                                                                                                     
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |      |  | The impact on the net present value (NPV) of the Companys annuity
and pension products of a 1% parallel change in interest rates, as at
December 31, is shown in the following table:

|                                           |  |      |     |      |  |   |     |  
|------------------------------------------ |  | ---- | --- | ---- |  | - | --- | -
|(in millions of Canadian dollars)          |  | 2002 |     | 2001
|                                           |  |      |     |     
|NPV                                        |  | $    | 321 |      |  | $ | 366 |  
|Impact on NPV if interest rate changed +1% |  |      | (50 | )    |  |   | (53 | )
|Impact on NPV if interest rate changed 1% |  |      | 34  |      |  |   | 44  |  
|                                           |  |      |     |      |  |   |     |  



| |  |  | The margins for adverse deviations set aside in the actuarial
liabilities, as described in note 3, take into account adverse
interest rate movements that are significantly more adverse than the
parallel 1% change shown above.
| |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) |  | Foreign currency risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Foreign currency risk is the risk of loss due to adverse movements in
foreign currency rates as compared to the Canadian dollar. A 1%
strengthening of the Canadian dollar relative to the currencies in the
foreign jurisdictions in which the Company operates would reduce
shareholders retained earnings by $33 million ($24 million in 2001) and
net income by $3 million ($3 million in both 2001 and 2000) after taking
into account the effect of any off-balance sheet derivative financial
instruments that the Company has entered into for purposes of hedging
against adverse changes in foreign exchange rates.                                                                                                                           
|   
|(c) |  | Credit risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | Credit risk is the risk of financial loss due to the failure of a debtor
to honour its obligations to the Company. Potential areas of significant
concentration of credit risk include non-investment grade bonds and
non-insured mortgages, which in 2002 amounted to carrying values of $864
million and $6,654 million, respectively (in 2001, $818 million and $7,121
million, respectively) and represented 21% of the total invested asset
portfolio (24% in 2001). The carrying values of impaired non-investment
grade bonds and non-insured mortgages in 2002 were $65 million and $6
million, respectively (in 2001, $138 million and $15 million,
respectively) and represented 0.19% of the invested asset portfolio in
2002 (0.46% in 2001).
|   
|    |  | Credit risk associated with an individual counterparty is indicated by the
Companys largest exposure to any one corporate entitys fixed term
investments, including term preferred shares. The Companys largest
exposure to any one corporate entity in 2002 was $191 million ($192
million in 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | The Companys exposure to credit risk relating to its off-balance sheet
investments in derivative financial instruments is disclosed in note 20.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

15



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|(d) |  | Liquidity risk                                                                                                              
|--- |  | ----------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Liquidity risk refers to the ability of the Company to meet its
obligations to policyholders and creditors as they fall due.
|   
|    |  | The sources of liquidity are as follows:                                                                                    

|                                                  |  |      |        |      |  |   |        | 
|------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|(in millions of Canadian dollars)                 |  | 2002 |        | 2001
|                                                  |  |      |        |     
|Cash, cash equivalents and short-term investments |  | $    | 1,159  |      |  | $ | 1,142  | 
|Senior government securities                      |  |      | 6,938  |      |  |   | 5,283  | 
|Other government securities and corporate bonds   |  |      | 8,591  |      |  |   | 7,353  | 
|Insured mortgages                                 |  |      | 968    |      |  |   | 875    | 
|                                                  |  |      |        |      |  |   |        | 
|Total                                             |  | $    | 17,656 |      |  | $ | 14,653 | 
|                                                  |  |      |        |      |  |   |        | 



|   |  | At December 31, 2002, the Company had $431 million ($472 million in 2001)
available from the unused portion of revolving lines of credit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Liquidity must be maintained, in particular, to provide for life insurance
policies, which permit policyholders to surrender their policies for a
guaranteed surrender value at any time. Some annuity policies may also be
surrendered prior to the end of the stated maturity dates for a value
determined by the terms of the policy. The aggregate amount of outstanding
cash surrender values if all policies had been surrendered as at December
31, 2002 was $12,593 million ($12,977 million in 2001). Actual cash
surrenders during the year amounted to $1,446 million ($1,500 million in
2001). Policyholder dividends left on deposit with the Company can be
withdrawn on demand at any time, and as at December 31, 2002 totalled $306
million ($301 million in 2001). Policyholder dividends withdrawn during
the year totalled $34 million ($31 million in 2001).
|  
|6. |  | REINSURANCE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|a) |  | Reinsurance                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | The Company has a variety of reinsurance business arrangements in place
whereby the Company accepts reinsurance from other insurers and reinsurers
and, as well, uses reinsurance to manage underwriting and liability risk
in the normal course of business. Reinsurance arrangements do not relieve
the Company of its liability as the primary insurer. Therefore, the
Company may be exposed to credit risk relating to its reinsurers and
retrocessionaires.                                                                                                                                                                                                                                                                                                                                                                                                                

16



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##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



| |  | The following summarizes the gross and net impacts of reinsurance on
certain financial statement line items:
| |  | ------------------------------------------------------------------------------------------------------------

|                                                                                  |  |      |        |      |  |      |        |   |  |   |        |  
|--------------------------------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|(in millions of Canadian dollars)                                                 |  | 2002 |        | 2001 |  | 2000
|                                                                                  |  |      |        |      |  |     
|Premiums                                                                          |  |      |        |      |  |      |        |   |  |   |        |  
|Direct written                                                                    |  | $    | 6,618  |      |  | $    | 5,976  |   |  | $ | 5,007  |  
|Reinsurance assumed                                                               |  |      | 569    |      |  |      | 436    |   |  |   | 387    |  
|Reinsurance ceded                                                                 |  |      | (1,272 | )    |  |      | (1,054 | ) |  |   | (718   | )
|                                                                                  |  |      |        |      |  |      |        |   |  |   |        |  
|Net premiums                                                                      |  | $    | 5,915  |      |  | $    | 5,358  |   |  | $ | 4,676  |  
|                                                                                  |  |      |        |      |  |      |        |   |  |   |        |  
|Payments to policyholders and
beneficiaries and increase in
actuarial liabilities |  |      |        |      |  |      |        |   |  |   |        |  
|Gross expense                                                                     |  | $    | 7,151  |      |  | $    | 7,262  |   |  | $ | 6,040  |  
|Reinsurance ceded                                                                 |  |      | (670   | )    |  |      | (1,072 | ) |  |   | (409   | )
|                                                                                  |  |      |        |      |  |      |        |   |  |   |        |  
|Net expense                                                                       |  | $    | 6,481  |      |  | $    | 6,190  |   |  | $ | 5,631  |  
|                                                                                  |  |      |        |      |  |      |        |   |  |   |        |  
|Policy liabilities                                                                |  |      |        |      |  |      |        |   |  |   |        |  
|Gross policy liabilities                                                          |  | $    | 31,993 |      |  | $    | 29,835 |   |  | $ | 27,177 |  
|Reinsurance ceded                                                                 |  |      | (1,431 | )    |  |      | (1,223 | ) |  |   | (491   | )
|                                                                                  |  |      |        |      |  |      |        |   |  |   |        |  
|Net policy liabilities                                                            |  | $    | 30,562 |      |  | $    | 28,612 |   |  | $ | 26,686 |  
|                                                                                  |  |      |        |      |  |      |        |   |  |   |        |  



|b) |  | Impact of September 11, 2001                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | As part of its reinsurance business, the Company has special risk
reinsurance (including workers compensation and catastrophe coverage)
contracts with other insurers and reinsurers on which it has incurred
losses as a result of the terrorist attack of September 11, 2001. During
2002, the Company paid claims and updated its estimate as appropriate for
experience, reducing the overall net provision to $122 million pre-tax as
at December 31, 2002 ($131 million pre-tax in 2001). The Company believes
its current estimates of gross and net losses incurred are sufficient, but
they may be subject to adjustment as additional information is received.
|  
|   |  | The total provision is comprised as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|                                                |  |                |     |            |  |             |      |                      |  |              |     |                      |  |                 |      |   |  |   |     |   |  |   |    |   |  |   |     |  
|----------------------------------------------- |  | -------------- | --- | ---------- |  | ----------- | ---- | -------------------- |  | ------------ | --- | -------------------- |  | --------------- | ---- | - |  | - | --- | - |  | - | -- | - |  | - | --- | -
|Impact of September 11, 2001                    |  |                |     |            |  | Reinsurance |      | Exposure net of      |  |              |     |                      |  |                 |      |   |  |   |     |   |  |   |    |  
|(in millions of Canadian dollars)               |  | Gross exposure |     | recoveries |  | recoveries  |      | Catastrophe coverage |  | Net exposure |     | Additional provision |  | Total provision
|                                                |  |                |     |            |  |             |      |                      |  |              |     |                      |  |                
|Total provision, beginning of
year(1)           |  | $              | 606 |            |  | $           | (415 | )                    |  | $            | 191 |                      |  | $               | (100 | ) |  | $ | 91  |   |  | $ | 40 |   |  | $ | 131 |  
|Paid claims                                     |  |                | (44 | )          |  |             | 34   |                      |  |              | (10 | )                    |  |                 |     |   |  |   | (10 | ) |  |   |   |   |  |   | (10 | )
|Change in estimate                              |  |                | (69 | )          |  |             | 43   |                      |  |              | (26 | )                    |  |                 |     |   |  |   | (26 | ) |  |   | 27 |   |  |   | 1   |  
|Paid expenses                                   |  |                |    |            |  |             |     |                      |  |              |    |                      |  |                 |     |   |  |   |    |   |  |   | (6 | ) |  |   | (6  | )
|Effect of changes in currency
translation rates |  |                | 11  |            |  |             | (6   | )                    |  |              | 5   |                      |  |                 |     |   |  |   | 5   |   |  |   | 1  |   |  |   | 6   |  
|                                                |  |                |     |            |  |             |      |                      |  |              |     |                      |  |                 |      |   |  |   |     |   |  |   |    |   |  |   |     |  
|Total provision, end of year(1)                 |  | $              | 504 |            |  | $           | (344 | )                    |  | $            | 160 |                      |  | $               | (100 | ) |  | $ | 60  |   |  | $ | 62 |   |  | $ | 122 |  
|                                                |  |                |     |            |  |             |      |                      |  |              |     |                      |  |                 |      |   |  |   |     |   |  |   |    |   |  |   |     |  



---

|(1) |  | All amounts included in the table in note 6(a).
|--- |  | -----------------------------------------------



| |  | The reinsurance recoveries at December 31, 2002 relate to over 20
reinsurance relationships. Of the reinsurance recoverable amount at
December 31, 2002, according to A.M. Best, 34% (58% in 2001) is
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

17



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



| |  | with
companies rated A+ or better, 56% (34% in 2001) is with companies rated A
and 10% (8% in 2001) is with companies rated A-.                                                                                                                                                                                                                                                                      
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company has entered into, and may in the future enter into,
negotiations, arbitration proceedings or litigation with certain of its
retrocessionaires in the process of collecting all amounts owed by such
parties. Based on the information that the Company has to date, the
Company believes that it will succeed in enforcing its rights in respect
of each of its reinsurance arrangements.



|7.  |  | GENERAL FUND INVESTMENTS AND NET INVESTMENT INCOME
|--- |  | --------------------------------------------------
|   
|(a) |  | Invested assets                                   

|                                              |                      |             |            |             |          |             |          |       |            |        |            |             |               |   |       |       |  |   |      |      |   |   |        |        | 
|--------------------------------------------- | -------------------- | ----------- | ---------- | ----------- | -------- | ----------- | -------- | ----- | ---------- | ------ | ---------- | ----------- | ------------- | - | ----- | ----- |  | - | ---- | ---- | - | - | ------ | ------ | 
|                                              |                      |             | Carrying   |             | Carrying |             | Total    |       |            |        |            |             |               |   |       |       |  |   |     
|                                              |                      |             | value of   |             | value of |             | carrying |       |            |        |            |             |               |   |       |       |  |   |     
|                                              |                      |             | unimpaired |             | impaired |             | value of |       | Unrealized |        | Unrealized |             | Fair value of
|(in millions of Canadian dollars)             |                      | investments |            | investments |          | investments |          | gains |            | losses |            | investments
|                                              |                      |             |            |             |          |             |          |       |            |        |            |            
|2002                                          |                      |             |            |             |          |             |          |       |            |        |            |             |               |   |       |       |  |   |      |      |   |   |        |       
|Bonds                                         |                      |             |            |             |          |             |          |       |            |        |            |             |               |   |       |       |  |   |      |      |   |   |        |       
|                                              | Government  Canada  |             | $          | 2,972       |          |             | $        |      |            |        | $          | 2,972       |               |   | $     | 249   |  |   | $    | (2   | ) |   | $      | 3,219  | 
|                                              | Government  foreign |             |            | 5,296       |          |             |          |      |            |        |            | 5,296       |               |   |       | 337   |  |   |      | (1   | ) |   |        | 5,632  | 
|                                              | Corporate and other  |             |            | 13,966      |          |             |          | 83    |            |        |            | 14,049      |               |   |       | 1,244 |  |   |      | (162 | ) |   |        | 15,131 | 
|Mortgages                                     |                      |             |            |             |          |             |          |       |            |        |            |             |               |   |       |       |  |   |      |      |   |   |        |       
|                                              | Residential          |             |            | 2,890       |          |             |          |      |            |        |            | 2,890       |               |   |       | 347   |  |   |      | (36  | ) |   |        | 3,201  | 
|                                              | Non-residential      |             |            | 4,726       |          |             |          | 6     |            |        |            | 4,732       |               |   |       | 514   |  |   |      | (30  | ) |   |        | 5,216  | 
|Common and preferred stocks                   |                      |             | 2,072      |             |          |             | 1        |       |            |        | 2,073      |             |               |   | 124   |       |  |   | (316 | )    |   |   | 1,881  |       
|Real estate (including
foreclosed properties) |                      |             | 1,063      |             |          |             | 3        |       |            |        | 1,066      |             |               |   | 145   |       |  |   | (15  | )    |   |   | 1,196  |       
|Other invested assets                         |                      |             | 3,380      |             |          |             | 16       |       |            |        | 3,396      |             |               |   |      |       |  |   |     |      |   |   | 3,396  |       
|                                              |                      |             |            |             |          |             |          |       |            |        |            |             |               |   |       |       |  |   |      |      |   |   |        |        | 
|Total                                         |                      | $           | 36,365     |             |          | $           | 109      |       |            | $      | 36,474     |             |               | $ | 2,960 |       |  | $ | (562 | )    |   | $ | 38,872 |       
|                                              |                      |             |            |             |          |             |          |       |            |        |            |             |               |   |       |       |  |   |      |      |   |   |        |        | 
|2001                                          |                      |             |            |             |          |             |          |       |            |        |            |             |               |   |       |       |  |   |      |      |   |   |        |       
|Bonds                                         |                      |             |            |             |          |             |          |       |            |        |            |             |               |   |       |       |  |   |      |      |   |   |        |       
|                                              | Government  Canada  |             | $          | 2,873       |          |             | $        |      |            |        | $          | 2,873       |               |   | $     | 143   |  |   | $    | (21  | ) |   | $      | 2,995  | 
|                                              | Government  foreign |             |            | 3,501       |          |             |          |      |            |        |            | 3,501       |               |   |       | 175   |  |   |      | (27  | ) |   |        | 3,649  | 
|                                              | Corporate and other  |             |            | 12,534      |          |             |          | 138   |            |        |            | 12,672      |               |   |       | 732   |  |   |      | (182 | ) |   |        | 13,222 | 
|Mortgages                                     |                      |             |            |             |          |             |          |       |            |        |            |             |               |   |       |       |  |   |      |      |   |   |        |       
|                                              | Residential          |             |            | 2,907       |          |             |          |      |            |        |            | 2,907       |               |   |       | 212   |  |   |      | (7   | ) |   |        | 3,112  | 
|                                              | Non-residential      |             |            | 5,074       |          |             |          | 15    |            |        |            | 5,089       |               |   |       | 328   |  |   |      | (15  | ) |   |        | 5,402  | 
|Common and preferred stocks                   |                      |             | 2,475      |             |          |             |         |       |            |        | 2,475      |             |               |   | 275   |       |  |   | (179 | )    |   |   | 2,571  |       
|Real estate (including
foreclosed properties) |                      |             | 938        |             |          |             | 3        |       |            |        | 941        |             |               |   | 124   |       |  |   | (42  | )    |   |   | 1,023  |       
|Other invested assets                         |                      |             | 2,968      |             |          |             | 19       |       |            |        | 2,987      |             |               |   | 15    |       |  |   |     |      |   |   | 3,002  |       
|                                              |                      |             |            |             |          |             |          |       |            |        |            |             |               |   |       |       |  |   |      |      |   |   |        |        | 
|Total                                         |                      | $           | 33,270     |             |          | $           | 175      |       |            | $      | 33,445     |             |               | $ | 2,004 |       |  | $ | (473 | )    |   | $ | 34,976 |       
|                                              |                      |             |            |             |          |             |          |       |            |        |            |             |               |   |       |       |  |   |      |      |   |   |        |        | 

18



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##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



| |  | Invested assets of the Company with a carrying value of $31,555 million
($29,671 million in 2001) and a fair value totalling $34,019 million
($31,174 million in 2001), as well as the cash flows derived therefrom,
support the actuarial and other liabilities of the operating funds,
participating policyholders equity and the non-operating fund liabilities
disclosed in note 9(c). Changes in the fair value of these assets
generally will not cause a corresponding change in equity, as they would
be offset by changes in actuarial liabilities. For the methods and
assumptions used to estimate fair values, refer to note 2(f).                                                                                                                                      
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Invested assets with a carrying value of $4,919 million ($3,774 million in
2001) and a fair value totalling $4,853 million ($3,802 million in 2001)
support the shareholders equity, subordinated debentures and other
liabilities of the Company. Changes in the fair value of these assets
would result in unrealized gains or losses, which would ultimately cause a
corresponding change in shareholders equity. In addition, the Company has
recorded net deferred realized gains relating to the sale of assets
supporting shareholders equity of $257 million ($332 million in 2001).
These net deferred realized gains and the unrealized gains or losses will
be amortized to net income in the future in accordance with the accounting
policies described in note 2(e).
|
| |  | The carrying value and fair value of bonds, by contractual maturity, are
as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

|                                   |  |                |        |            |  |                |        |            |  |   |        |  |  |   |        | 
|---------------------------------- |  | -------------- | ------ | ---------- |  | -------------- | ------ | ---------- |  | - | ------ |  |  | - | ------ | 
|                                   |  | 2002           |        | 2001      
|                                   |  |                |        |           
|(in millions of Canadian dollars)  |  | Carrying value |        | Fair value |  | Carrying value |        | Fair value
|                                   |  |                |        |            |  |                |        |           
|Due in 1 year or less              |  | $              | 1,522  |            |  | $              | 1,531  |            |  | $ | 663    |  |  | $ | 665    | 
|Due after 1 year through 5 years   |  |                | 5,024  |            |  |                | 5,260  |            |  |   | 4,146  |  |  |   | 4,279  | 
|Due after 5 years through 10 years |  |                | 3,175  |            |  |                | 3,362  |            |  |   | 3,502  |  |  |   | 3,603  | 
|Due after 10 years                 |  |                | 12,596 |            |  |                | 13,829 |            |  |   | 10,735 |  |  |   | 11,319 | 
|                                   |  |                |        |            |  |                |        |            |  |   |        |  |  |   |        | 
|Total                              |  | $              | 22,317 |            |  | $              | 23,982 |            |  | $ | 19,046 |  |  | $ | 19,866 | 
|                                   |  |                |        |            |  |                |        |            |  |   |        |  |  |   |        | 

19



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|(b) |  | Provisions for losses                                                                                
|--- |  | -----------------------------------------------------------------------------------------------------
|   
|    |  | The carrying values of impaired investments have been reduced by the
following provisions for losses:

|                                              |  |      |    |      |  |      |    |  |  |   |    | 
|--------------------------------------------- |  | ---- | -- | ---- |  | ---- | -- |  |  | - | -- | 
|(in millions of Canadian dollars)             |  | 2002 |    | 2001 |  | 2000
|                                              |  |      |    |      |  |     
|Bonds                                         |  | $    | 53 |      |  | $    | 48 |  |  | $ | 20 | 
|Mortgages                                     |  |      | 2  |      |  |      | 17 |  |  |   | 25 | 
|Common and preferred stocks                   |  |      |   |      |  |      |   |  |  |   | 3  | 
|Real estate (including foreclosed properties) |  |      | 1  |      |  |      | 1  |  |  |   | 2  | 
|Other invested assets                         |  |      | 3  |      |  |      | 5  |  |  |   | 2  | 
|                                              |  |      |    |      |  |      |    |  |  |   |    | 
|Total                                         |  | $    | 59 |      |  | $    | 71 |  |  | $ | 52 | 
|                                              |  |      |    |      |  |      |    |  |  |   |    | 



| |  | The change in the provisions for losses for
the year is as follows:
| |  | -------------------------------------------------------------------

|                                                                                     |  |   |     |   |  |   |    |  |  |   |     |  
|------------------------------------------------------------------------------------ |  | - | --- | - |  | - | -- |  |  | - | --- | -
|Provisions for losses, beginning of year                                             |  | $ | 71  |   |  | $ | 52 |  |  | $ | 70  |  
|Net increase (decrease) in provisions for
losses on impaired investments (note 7(c)) |  |   | (12 | ) |  |   | 17 |  |  |   | (17 | )
|                                                                                     |  |   |     |   |  |   |    |  |  |   |     |  
|                                                                                     |  |   | 59  |   |  |   | 69 |  |  |   | 53  |  
|Effect of changes in currency translation rates                                      |  |   |    |   |  |   | 2  |  |  |   | (1  | )
|                                                                                     |  |   |     |   |  |   |    |  |  |   |     |  
|Provisions for losses, end of year                                                   |  | $ | 59  |   |  | $ | 71 |  |  | $ | 52  |  
|                                                                                     |  |   |     |   |  |   |    |  |  |   |     |  



|    |  | In addition to the above specific provisions, actuarial liabilities as at
December 31, 2002 include $569 million ($514 million in 2001) to provide
for potential future asset defaults.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(c) |  | Net investment income                                                                                                                                                                  

|                                  |                                                                                      |      |       |      |   |      |       |     |   |   |       |     |  
|--------------------------------- | ------------------------------------------------------------------------------------ | ---- | ----- | ---- | - | ---- | ----- | --- | - | - | ----- | --- | -
|(in millions of Canadian dollars) |                                                                                      | 2002 |       | 2001 |   | 2000
|                                  |                                                                                      |      |       |      |   |     
|Interest                          |                                                                                      | $    | 2,079 |      |   | $    | 2,063 |     |   | $ | 1,978 |    
|Dividends                         |                                                                                      |      | 40    |      |   |      | 59    |     |   |   | 49    |    
|Net rents                         |                                                                                      |      | 76    |      |   |      | 61    |     |   |   | 62    |    
|Amortized net gains from:         |                                                                                      |      |       |      |   |      |       |     |   |   |       |    
|                                  | Bonds                                                                                |      |       | 100  |   |      |       | 102 |   |   |       | 63  |  
|                                  | Mortgages                                                                            |      |       | 12   |   |      |       | 11  |   |   |       | 10  |  
|                                  | Common and preferred stocks                                                          |      |       | 27   |   |      |       | 78  |   |   |       | 153 |  
|                                  | Real estate                                                                          |      |       | 22   |   |      |       | 20  |   |   |       | 20  |  
|Sundry                            |                                                                                      |      | (112  | )    |   |      | (70   | )   |   |   | 22    |    
|Losses on impaired investments:   |                                                                                      |      |       |      |   |      |       |     |   |   |       |    
|                                  | Net (increase) decrease in
provisions for losses on
impaired investments (note 7(b)) |      |       | 12   |   |      |       | (17 | ) |   |       | 17  |  
|                                  | Write-offs and net realized
losses on sale of impaired
investments                   |      |       | (43  | ) |      |       | (13 | ) |   |       | (22 | )
|                                  |                                                                                      |      |       |      |   |      |       |     |   |   |       |    
|Total investment income           |                                                                                      | $    | 2,213 |      |   | $    | 2,294 |     |   | $ | 2,352 |    
|Less: investment expenses         |                                                                                      |      | 59    |      |   |      | 53    |     |   |   | 46    |    
|                                  |                                                                                      |      |       |      |   |      |       |     |   |   |       |    
|Total                             |                                                                                      | $    | 2,154 |      |   | $    | 2,241 |     |   | $ | 2,306 |    
|                                  |                                                                                      |      |       |      |   |      |       |     |   |   |       |    



|(d) |  | Net deferred gains                                                                                                                                                    
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Net deferred gains are calculated in accordance with note 2(e) and include
deferred realized gains and losses on the sale of investments. The
balances are as follows:

20



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements

|                                  |  |      |       |      |  |   |       | 
|--------------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|(in millions of Canadian dollars) |  | 2002 |       | 2001
|                                  |  |      |       |     
|Bonds                             |  | $    | 1,044 |      |  | $ | 951   | 
|Mortgages                         |  |      | 73    |      |  |   | 56    | 
|Common and preferred stocks       |  |      | 258   |      |  |   | 388   | 
|Real estate                       |  |      | 97    |      |  |   | 96    | 
|                                  |  |      |       |      |  |   |       | 
|Total                             |  | $    | 1,472 |      |  | $ | 1,491 | 
|                                  |  |      |       |      |  |   |       | 



|8. |  | OTHER ASSETS                          
|-- |  | --------------------------------------
|  
|   |  | Other assets consist of the following:

|                                  |  |      |       |      |  |   |       | 
|--------------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|(in millions of Canadian dollars) |  | 2002 |       | 2001
|                                  |  |      |       |     
|Future income taxes (note 13)     |  | $    | 303   |      |  | $ | 394   | 
|Investment income due and accrued |  |      | 435   |      |  |   | 369   | 
|Accounts receivable               |  |      | 271   |      |  |   | 285   | 
|Capital assets                    |  |      | 206   |      |  |   | 140   | 
|Goodwill                          |  |      | 331   |      |  |   | 137   | 
|Premiums receivable               |  |      | 157   |      |  |   | 123   | 
|Prepaid expenses and other assets |  |      | 14    |      |  |   | 58    | 
|                                  |  |      |       |      |  |   |       | 
|Total                             |  | $    | 1,717 |      |  | $ | 1,506 | 
|                                  |  |      |       |      |  |   |       | 



|9.  |  | ACTUARIAL LIABILITIES           
|--- |  | --------------------------------
|   
|(a) |  | Changes in actuarial liabilities

|                                                                                                         |  |               |       |                   |  |       |        |               |  |                   |        |       |  |   |       |   |  |   |        |   |  |   |        |  
|-------------------------------------------------------------------------------------------------------- |  | ------------- | ----- | ----------------- |  | ----- | ------ | ------------- |  | ----------------- | ------ | ----- |  | - | ----- | - |  | - | ------ | - |  | - | ------ | -
|                                                                                                         |  | 2002          |       | 2001             
|                                                                                                         |  |               |       |                  
|(in millions of Canadian dollars)                                                                        |  | Participating |       | Non-participating |  | Total |        | Participating |  | Non-participating |        | Total
|                                                                                                         |  |               |       |                   |  |       |        |               |  |                   |        |      
|Balance, beginning of year                                                                               |  | $             | 5,680 |                   |  | $     | 21,489 |               |  | $                 | 27,169 |       |  | $ | 5,215 |   |  | $ | 20,266 |   |  | $ | 25,481 |  
|Set aside on new and existing
business                                                                   |  |               | 375   |                   |  |       | 779    |               |  |                   | 1,154  |       |  |   | 341   |   |  |   | 658    |   |  |   | 999    |  
|Reclassification from
non-participating to
participating                                                 |  |               | 38    |                   |  |       | (38    | )             |  |                   |       |       |  |   |      |   |  |   |       |   |  |   |       |  
|Net change resulting from
revised assumptions and
refinements used in calculating
certain liabilities(1) |  |               | (9    | )                 |  |       | (16    | )             |  |                   | (25    | )     |  |   | (6    | ) |  |   | (21    | ) |  |   | (27    | )
|                                                                                                         |  |               |       |                   |  |       |        |               |  |                   |        |       |  |   |       |   |  |   |        |   |  |   |        |  
|                                                                                                         |  |               | 404   |                   |  |       | 725    |               |  |                   | 1,129  |       |  |   | 335   |   |  |   | 637    |   |  |   | 972    |  
|                                                                                                         |  |               |       |                   |  |       |        |               |  |                   |        |       |  |   |       |   |  |   |        |   |  |   |        |  
|Acquisitions                                                                                             |  |               |      |                   |  |       | 842    |               |  |                   | 842    |       |  |   |      |   |  |   |       |   |  |   |       |  
|Reclassification from the
general fund to the segregated
funds                                           |  |               |      |                   |  |       | (642   | )             |  |                   | (642   | )     |  |   |      |   |  |   |       |   |  |   |       |  
|Effect of changes in currency
translation rates                                                          |  |               | 170   |                   |  |       | 382    |               |  |                   | 552    |       |  |   | 130   |   |  |   | 586    |   |  |   | 716    |  
|                                                                                                         |  |               |       |                   |  |       |        |               |  |                   |        |       |  |   |       |   |  |   |        |   |  |   |        |  
|Balance, end of year                                                                                     |  | $             | 6,254 |                   |  | $     | 22,796 |               |  | $                 | 29,050 |       |  | $ | 5,680 |   |  | $ | 21,489 |   |  | $ | 27,169 |  
|                                                                                                         |  |               |       |                   |  |       |        |               |  |                   |        |       |  |   |       |   |  |   |        |   |  |   |        |  



|(1) |  | Included in actuarial liability releases for 2002 were
releases for maintenance expenses of $34 million, releases for
individual insurance mortality of $48 million, a net strengthening
of $55 million in the U.K. for annuitant mortality and guaranteed
annuity options, and miscellaneous other changes netting to a
strengthening of $2 million.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Included in actuarial liability releases for 2001 were reductions of
$14 million in U.S. individual insurance on account of mortality and
expenses and $11 million in U.K. and Irish unit-linked insurance on
account of mortality. Additionally, there was a further net release of
$2 million in respect of a variety of other items.              

21



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|(b) |  | Distribution of actuarial liabilities                                                             
|--- |  | --------------------------------------------------------------------------------------------------
|   
|    |  | The actuarial liabilities, by line of business and geographic territory,
consist of the following:

|                                  |  |               |       |                   |  |           |        |           |  |            |       |       |  |   |       |  |  |   |        | 
|--------------------------------- |  | ------------- | ----- | ----------------- |  | --------- | ------ | --------- |  | ---------- | ----- | ----- |  | - | ----- |  |  | - | ------ | 
|                                  |  | Participating |       | Non-participating |  |           |        |          
|                                  |  |               |       |                   |  |           |        |          
|                                  |  |               |       |                   |  |           |        |           |  | Individual |       | Group |  |   |       | 
|                                  |  | Insurance     |       |                   |  |           |        | life and  |  | life and   |       |       |  |  
|                                  |  | and           |       |                   |  |           |        | health    |  | health     |       |       |  |  
|(in millions of Canadian dollars) |  | annuities     |       | Annuities         |  | insurance |        | insurance |  | Total     
|                                  |  |               |       |                   |  |           |        |           |  |           
|2002                              |  |               |       |                   |  |           |        |           |  |            |       |       |  |   |       |  |  |   |        | 
|Canada                            |  | $             | 2,733 |                   |  | $         | 6,607  |           |  | $          | 988   |       |  | $ | 1,173 |  |  | $ | 11,501 | 
|United Kingdom                    |  |               | 1,256 |                   |  |           | 4,580  |           |  |            | 311   |       |  |   | 1,309 |  |  |   | 7,456  | 
|United States                     |  |               | 1,433 |                   |  |           | 5,290  |           |  |            | 1,829 |       |  |   | 435   |  |  |   | 8,987  | 
|Republic of Ireland               |  |               | 454   |                   |  |           | 156    |           |  |            | (97   | )     |  |   | 16    |  |  |   | 529    | 
|International and Reinsurance     |  |               | 378   |                   |  |           | 29     |           |  |            | 103   |       |  |   | 67    |  |  |   | 577    | 
|                                  |  |               |       |                   |  |           |        |           |  |            |       |       |  |   |       |  |  |   |        | 
|Total                             |  | $             | 6,254 |                   |  | $         | 16,662 |           |  | $          | 3,134 |       |  | $ | 3,000 |  |  | $ | 29,050 | 
|                                  |  |               |       |                   |  |           |        |           |  |            |       |       |  |   |       |  |  |   |        | 
|2001                              |  |               |       |                   |  |           |        |           |  |            |       |       |  |   |       |  |  |   |        | 
|Canada                            |  | $             | 2,521 |                   |  | $         | 6,570  |           |  | $          | 1,048 |       |  | $ | 1,137 |  |  | $ | 11,276 | 
|United Kingdom                    |  |               | 1,196 |                   |  |           | 3,630  |           |  |            | 289   |       |  |   | 347   |  |  |   | 5,462  | 
|United States                     |  |               | 1,268 |                   |  |           | 5,214  |           |  |            | 1,919 |       |  |   | 387   |  |  |   | 8,788  | 
|Republic of Ireland               |  |               | 343   |                   |  |           | 318    |           |  |            | 413   |       |  |   | 15    |  |  |   | 1,089  | 
|International and Reinsurance     |  |               | 352   |                   |  |           | 39     |           |  |            | 104   |       |  |   | 59    |  |  |   | 554    | 
|                                  |  |               |       |                   |  |           |        |           |  |            |       |       |  |   |       |  |  |   |        | 
|Total                             |  | $             | 5,680 |                   |  | $         | 15,771 |           |  | $          | 3,773 |       |  | $ | 1,945 |  |  | $ | 27,169 | 
|                                  |  |               |       |                   |  |           |        |           |  |            |       |       |  |   |       |  |  |   |        | 



| |  | Actuarial liabilities have been reduced by reinsurance ceded as follows:
| |  | ------------------------------------------------------------------------

|                                  |  |      |     |      |  |   |     | 
|--------------------------------- |  | ---- | --- | ---- |  | - | --- | 
|(in millions of Canadian dollars) |  | 2002 |     | 2001
|                                  |  |      |     |     
|Canada                            |  | $    | 551 |      |  | $ | 327 | 
|United Kingdom                    |  |      | 134 |      |  |   | 113 | 
|United States                     |  |      | 46  |      |  |   | 47  | 
|Republic of Ireland               |  |      | 18  |      |  |   | 19  | 
|International and Reinsurance     |  |      | 117 |      |  |   | 97  | 
|                                  |  |      |     |      |  |   |     | 
|Total                             |  | $    | 866 |      |  | $ | 603 | 
|                                  |  |      |     |      |  |   |     | 

22



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|c) |  | Carrying value of assets supporting each product line                                                        
|-- |  | -------------------------------------------------------------------------------------------------------------
|  
|   |  | The carrying value of total assets backing actuarial liabilities, other
liabilities and equity is as follows:

|                                                 |  |                 |       |                   |  |              |        |                           |  |                |       |       |  |      |       |  |  |   |       |  |  |   |        |  |  |   |        |  
|------------------------------------------------ |  | --------------- | ----- | ----------------- |  | ------------ | ------ | ------------------------- |  | -------------- | ----- | ----- |  | ---- | ----- |  |  | - | ----- |  |  | - | ------ |  |  | - | ------ | -
|                                                 |  | Operating funds |       |                   |  |              |        |                           |  |                |       |       |  |     
|                                                 |  |                 |       | Equity,           |  |              |        |                           |  |                |       |      
|                                                 |  | Participating   |       | Non-participating |  | subordinated |        |                           |  |                |       |       |  |     
|                                                 |  |                 |       |                   |  | debentures,  |        |                           |  |                |       |       |  |     
|                                                 |  |                 |       |                   |  |              |        | Life and health insurance |  | non-operating  |       | Total
|                                                 |  | Insurance and   |       |                   |  |              |        | fund and other            |  |               
|(in millions of Canadian dollars)                |  | annuities       |       | Annuities         |  | Individual   |        | Group                     |  | liabilities(1) |       | 2002  |  | 2001
|                                                 |  |                 |       |                   |  |              |        |                           |  |                |       |       |  |     
|Canada                                           |  |                 |       |                   |  |              |        |                           |  |                |       |       |  |      |       |  |  |   |       |  |  |   |        |  |  |   |        |  
|Bonds                                            |  | $               | 1,938 |                   |  | $            | 4,201  |                           |  | $              | 924   |       |  | $    | 876   |  |  | $ | 208   |  |  | $ | 8,147  |  |  | $ | 7,621  |  
|Mortgages                                        |  |                 | 569   |                   |  |              | 2,294  |                           |  |                | 250   |       |  |      | 402   |  |  |   | 75    |  |  |   | 3,590  |  |  |   | 3,886  |  
|Common and preferred stocks                      |  |                 | 217   |                   |  |              | 24     |                           |  |                | 2     |       |  |      |      |  |  |   | 275   |  |  |   | 518    |  |  |   | 543    |  
|Real estate (including
foreclosed    properties) |  |                 | 51    |                   |  |              |       |                           |  |                |      |       |  |      |      |  |  |   | 236   |  |  |   | 287    |  |  |   | 282    |  
|Other invested assets                            |  |                 | 373   |                   |  |              | 419    |                           |  |                | (29   | )     |  |      | 138   |  |  |   | 76    |  |  |   | 977    |  |  |   | 1,194  |  
|All other assets                                 |  |                 | 41    |                   |  |              | 95     |                           |  |                | 38    |       |  |      | 115   |  |  |   | 311   |  |  |   | 600    |  |  |   | 505    |  
|                                                 |  |                 |       |                   |  |              |        |                           |  |                |       |       |  |      |       |  |  |   |       |  |  |   |        |  |  |   |        |  
|                                                 |  | $               | 3,189 |                   |  | $            | 7,033  |                           |  | $              | 1,185 |       |  | $    | 1,531 |  |  | $ | 1,181 |  |  | $ | 14,119 |  |  | $ | 14,031 |  
|                                                 |  |                 |       |                   |  |              |        |                           |  |                |       |       |  |      |       |  |  |   |       |  |  |   |        |  |  |   |        |  
|United Kingdom                                   |  |                 |       |                   |  |              |        |                           |  |                |       |       |  |      |       |  |  |   |       |  |  |   |        |  |  |   |        |  
|Bonds                                            |  | $               | 848   |                   |  | $            | 3,567  |                           |  | $              | 114   |       |  | $    | 585   |  |  | $ | 1,332 |  |  | $ | 6,446  |  |  | $ | 4,508  |  
|Mortgages                                        |  |                 | 1     |                   |  |              | 521    |                           |  |                | 6     |       |  |      |      |  |  |   |      |  |  |   | 528    |  |  |   | 509    |  
|Common and preferred stocks                      |  |                 | 419   |                   |  |              | 171    |                           |  |                | 5     |       |  |      | 5     |  |  |   | 347   |  |  |   | 947    |  |  |   | 763    |  
|Real estate (including
foreclosed    properties) |  |                 | 143   |                   |  |              | 472    |                           |  |                | 1     |       |  |      |      |  |  |   | 66    |  |  |   | 682    |  |  |   | 573    |  
|Other invested assets                            |  |                 | 150   |                   |  |              | 5      |                           |  |                | 280   |       |  |      | 324   |  |  |   | 381   |  |  |   | 1,140  |  |  |   | 581    |  
|All other assets                                 |  |                 | 82    |                   |  |              | 136    |                           |  |                | 13    |       |  |      | 36    |  |  |   | 335   |  |  |   | 602    |  |  |   | 487    |  
|                                                 |  |                 |       |                   |  |              |        |                           |  |                |       |       |  |      |       |  |  |   |       |  |  |   |        |  |  |   |        |  
|                                                 |  | $               | 1,643 |                   |  | $            | 4,872  |                           |  | $              | 419   |       |  | $    | 950   |  |  | $ | 2,461 |  |  | $ | 10,345 |  |  | $ | 7,421  |  
|                                                 |  |                 |       |                   |  |              |        |                           |  |                |       |       |  |      |       |  |  |   |       |  |  |   |        |  |  |   |        |  
|United States                                    |  |                 |       |                   |  |              |        |                           |  |                |       |       |  |      |       |  |  |   |       |  |  |   |        |  |  |   |        |  
|Bonds                                            |  | $               | 822   |                   |  | $            | 3,115  |                           |  | $              | 985   |       |  | $    | 296   |  |  | $ | 921   |  |  | $ | 6,139  |  |  | $ | 5,768  |  
|Mortgages                                        |  |                 | 406   |                   |  |              | 2,145  |                           |  |                | 487   |       |  |      | 191   |  |  |   | 15    |  |  |   | 3,244  |  |  |   | 3,352  |  
|Common and preferred stocks                      |  |                 | 56    |                   |  |              | 1      |                           |  |                | 1     |       |  |      |      |  |  |   | 353   |  |  |   | 411    |  |  |   | 457    |  
|Real estate (including
foreclosed    properties) |  |                 |      |                   |  |              | 2      |                           |  |                |      |       |  |      |      |  |  |   | 38    |  |  |   | 40     |  |  |   | 40     |  
|Other invested assets                            |  |                 | 238   |                   |  |              | 13     |                           |  |                | 379   |       |  |      | 37    |  |  |   | 111   |  |  |   | 778    |  |  |   | 872    |  
|All other assets                                 |  |                 | 61    |                   |  |              | 129    |                           |  |                | 48    |       |  |      | 32    |  |  |   | 108   |  |  |   | 378    |  |  |   | 453    |  
|                                                 |  |                 |       |                   |  |              |        |                           |  |                |       |       |  |      |       |  |  |   |       |  |  |   |        |  |  |   |        |  
|                                                 |  | $               | 1,583 |                   |  | $            | 5,405  |                           |  | $              | 1,900 |       |  | $    | 556   |  |  | $ | 1,546 |  |  | $ | 10,990 |  |  | $ | 10,942 |  
|                                                 |  |                 |       |                   |  |              |        |                           |  |                |       |       |  |      |       |  |  |   |       |  |  |   |        |  |  |   |        |  
|Republic of Ireland                              |  |                 |       |                   |  |              |        |                           |  |                |       |       |  |      |       |  |  |   |       |  |  |   |        |  |  |   |        |  
|Bonds                                            |  | $               | 386   |                   |  | $            | 223    |                           |  | $              | 293   |       |  | $    | 17    |  |  | $ | 18    |  |  | $ | 937    |  |  | $ | 739    |  
|Common and preferred stocks                      |  |                 | 112   |                   |  |              | 5      |                           |  |                | 35    |       |  |      |      |  |  |   |      |  |  |   | 152    |  |  |   | 710    |  
|Real estate (including
foreclosed    properties) |  |                 | 39    |                   |  |              | 9      |                           |  |                |      |       |  |      |      |  |  |   | 5     |  |  |   | 53     |  |  |   | 41     |  
|Other invested assets                            |  |                 | 18    |                   |  |              |       |                           |  |                |      |       |  |      |      |  |  |   | 208   |  |  |   | 226    |  |  |   | 159    |  
|All other assets                                 |  |                 | 13    |                   |  |              | 5      |                           |  |                |      |       |  |      | 5     |  |  |   | 10    |  |  |   | 33     |  |  |   | (40    | )
|                                                 |  |                 |       |                   |  |              |        |                           |  |                |       |       |  |      |       |  |  |   |       |  |  |   |        |  |  |   |        |  
|                                                 |  | $               | 568   |                   |  | $            | 242    |                           |  | $              | 328   |       |  | $    | 22    |  |  | $ | 241   |  |  | $ | 1,401  |  |  | $ | 1,609  |  
|                                                 |  |                 |       |                   |  |              |        |                           |  |                |       |       |  |      |       |  |  |   |       |  |  |   |        |  |  |   |        |  
|International and Reinsurance                    |  |                 |       |                   |  |              |        |                           |  |                |       |       |  |      |       |  |  |   |       |  |  |   |        |  |  |   |        |  
|Bonds                                            |  | $               | 182   |                   |  | $            | 10     |                           |  | $              | 84    |       |  | $    | 143   |  |  | $ | 229   |  |  | $ | 648    |  |  | $ | 410    |  
|Mortgages                                        |  |                 | 138   |                   |  |              | 8      |                           |  |                | 67    |       |  |      | 47    |  |  |   |      |  |  |   | 260    |  |  |   | 249    |  
|Common and preferred stocks                      |  |                 |      |                   |  |              | 20     |                           |  |                |      |       |  |      |      |  |  |   | 25    |  |  |   | 45     |  |  |   | 2      |  
|Real estate (including
foreclosed    properties) |  |                 |      |                   |  |              |       |                           |  |                | 4     |       |  |      |      |  |  |   |      |  |  |   | 4      |  |  |   | 5      |  
|Other invested assets                            |  |                 | 108   |                   |  |              | 2      |                           |  |                | 35    |       |  |      | 130   |  |  |   |      |  |  |   | 275    |  |  |   | 181    |  
|All other assets                                 |  |                 | 5     |                   |  |              | 5      |                           |  |                | 7     |       |  |      |      |  |  |   | 87    |  |  |   | 104    |  |  |   | 101    |  
|                                                 |  |                 |       |                   |  |              |        |                           |  |                |       |       |  |      |       |  |  |   |       |  |  |   |        |  |  |   |        |  
|                                                 |  | $               | 433   |                   |  | $            | 45     |                           |  | $              | 197   |       |  | $    | 320   |  |  | $ | 341   |  |  | $ | 1,336  |  |  | $ | 948    |  
|                                                 |  |                 |       |                   |  |              |        |                           |  |                |       |       |  |      |       |  |  |   |       |  |  |   |        |  |  |   |        |  
|Total                                            |  | $               | 7,416 |                   |  | $            | 17,597 |                           |  | $              | 4,029 |       |  | $    | 3,379 |  |  | $ | 5,770 |  |  | $ | 38,191 |  |  | $ | 34,951 |  
|                                                 |  |                 |       |                   |  |              |        |                           |  |                |       |       |  |      |       |  |  |   |       |  |  |   |        |  |  |   |        |  



| |  | (1) Non-operating fund liabilities include employee and agent retirement benefit liabilities and other miscellaneous liabilities of the Company.
Other liabilities include non-controlling interest in the Canada Life Capital
Securities.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

23



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|10. |  | OTHER LIABILITIES                                      
|--- |  | -------------------------------------------------------
|   
|    |  | Other liabilities are comprised of the following items:

|                                  |  |      |       |      |  |   |     | 
|--------------------------------- |  | ---- | ----- | ---- |  | - | --- | 
|(in millions of Canadian dollars) |  | 2002 |       | 2001
|                                  |  |      |       |     
|Accounts payable                  |  | $    | 770   |      |  | $ | 548 | 
|Current income taxes              |  |      | 92    |      |  |   | 69  | 
|Future income taxes (note 13)     |  |      | 53    |      |  |   |    | 
|Security repurchase transactions  |  |      | 53    |      |  |   |    | 
|Premium and other taxes payable   |  |      | 19    |      |  |   | 18  | 
|Other                             |  |      | 203   |      |  |   | 240 | 
|                                  |  |      |       |      |  |   |     | 
|Total                             |  | $    | 1,190 |      |  | $ | 875 | 
|                                  |  |      |       |      |  |   |     | 



|11. |  | SUBORDINATED DEBENTURES
|--- |  | -----------------------

|                                                                                                                                                                              |  |          |      |      |  |      |     |  |  |   |     | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | ---- | ---- |  | ---- | --- |  |  | - | --- | 
|(in millions of Canadian dollars)                                                                                                                                             |  | Maturity |      | 2002 |  | 2001
|                                                                                                                                                                              |  |          |      |      |  |     
|Subordinated debentures bearing interest at
a fixed rate of 8% until 2006 and,
thereafter, at a rate equal to the Canadian
90-day Bankers Acceptance Rate plus 1%            |  |          | 2011 |      |  | $    | 250 |  |  | $ | 250 | 
|Series 1 subordinated debentures bearing
interest at a fixed rate of 5.8% until 2008
and, thereafter, at a rate equal to the
Canadian 90-day Bankers Acceptance Rate
plus 1% |  |          | 2013 |      |  |      | 200 |  |  |   | 200 | 
|Series 2 subordinated debentures bearing
interest at a fixed rate of 6.4%                                                                                                     |  |          | 2028 |      |  |      | 100 |  |  |   | 100 | 
|                                                                                                                                                                              |  |          |      |      |  |      |     |  |  |   |     | 
|Total                                                                                                                                                                         |  |          |      |      |  | $    | 550 |  |  | $ | 550 | 
|                                                                                                                                                                              |  |          |      |      |  |      |     |  |  |   |     | 



|    |  | At December 31, 2002, the fair value of the subordinated debentures was
$599 million ($580 million in 2001).                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Subordinated debentures were issued by CLA. All of the above debentures
constitute direct, unsecured and subordinated obligations of CLA and are
redeemable at the option of CLA with the prior approval of OSFI. The
subordinated debentures qualify as Tier 2B capital for Canadian regulatory
purposes.                                                                                                                                                                                            
|   
|    |  | Interest expense relating to the subordinated debentures was $38 million
($38 million in both 2001 and 2000) and is included as part of interest
expense in the Consolidated Statements of Net Income, along with other
interest of nil ($1 million in both 2001 and 2000).                                                                                                                                                                                                                           
|   
|12. |  | NON-CONTROLLING INTEREST IN SUBSIDIARY                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | On March 14, 2002, Canada Life Capital Trust (CLCT), a trust established
under the laws of Ontario by The Canada Trust Company and administered by
CLA, issued $450 million of non-voting Canada Life Capital Securities
(CLiCS). CLCT issued $300 million of non-voting
CLiCS  Series A and
$150 million of non-voting CLiCS  Series B which qualify as Tier 1
capital for Canadian regulatory purposes. Holders of the CLiCS  Series A
and CLiCS  Series B will be entitled to receive semi-

24



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##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|    |  | annual, non-cumulative fixed cash distributions of $33.395 and $37.645 per $1,000
of CLiCS respectively, representing respective annual yields of 6.679% and
7.529% of the one thousand dollars initial issue price, payable out of
CLCTs net distributable funds. Subject to regulatory approval, CLCT may redeem any series of CLiCS, in whole or in part, at any
time on or after June 30, 2007, and in certain limited circumstances, may
also redeem all but not less than all of the CLiCS prior to June 30, 2007.
The holders of the CLiCS will have the right at any time to surrender each
one thousand dollars face amount of CLiCS and to receive from CLCT in
exchange, in the case of CLiCS  Series A, 40 newly issued CLA Class A
Shares Series 2, or in the case of CLiCS  Series B, 40 newly issued CLA
Class A Shares Series 4, subject to compliance with the declaration of
trust governing CLCT.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Pursuant to the share exchange agreement, the Company and CLA agreed that
if CLCT fails to pay on any regular distribution date the required cash
distributions on the CLiCS in full, CLA would not pay dividends on any of
its public preferred shares that may be outstanding. If there are no
public preferred shares of CLA outstanding, the Company will not pay
dividends on any of its preferred and common shares. As at December 31,
2002, CLA did not have any public preferred shares outstanding. In each
case, the ability to restart distributions on the CLiCS and dividend
payments to the public depends on the resumption of dividend payments on
the CLA Class A Shares Series 1.                                                                                                                                                                                                                   
|   
|    |  | In addition, as long as any CLiCS are outstanding, and provided that CLA
does not have outstanding public preferred shares, the Company will not
declare or pay dividends on outstanding preferred and common shares unless
CLA has declared and paid a dividend on the CLA Class A Shares Series 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | The non-controlling interest in subsidiary on the Consolidated Balance
Sheets consists of $450 million in CLiCS issued by CLCT.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|13. |  | INCOME TAXES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(a) |  | Income tax provision                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

|                                                        |  |      |     |      |  |      |     |  |  |   |     | 
|------------------------------------------------------- |  | ---- | --- | ---- |  | ---- | --- |  |  | - | --- | 
|(in millions of Canadian dollars)                       |  | 2002 |     | 2001 |  | 2000
|                                                        |  |      |     |      |  |     
|Current income tax provision                            |  | $    | (33 | )    |  | $    | 55  |  |  | $ | 107 | 
|Future income taxes relating to temporary differences   |  |      | 166 |      |  |      | 81  |  |  |   | 57  | 
|Future income taxes resulting from changes in tax rates |  |      |    |      |  |      | 17  |  |  |   | 31  | 
|                                                        |  |      |     |      |  |      |     |  |  |   |     | 
|Total                                                   |  | $    | 133 |      |  | $    | 153 |  |  | $ | 195 | 
|                                                        |  |      |     |      |  |      |     |  |  |   |     | 

25



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##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|(b) |  | Reconciliation of income tax provision
|--- |  | --------------------------------------

|                                                                                                                                                 |                                                       |      |     |      |   |      |     |     |   |   |     |     |  
|------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------- | ---- | --- | ---- | - | ---- | --- | --- | - | - | --- | --- | -
|(in millions of Canadian dollars)                                                                                                                |                                                       | 2002 |     | 2001 |   | 2000
|                                                                                                                                                 |                                                       |      |     |      |   |     
|Net income before income tax provision                                                                                                           |                                                       | $    | 635 |      |   | $    | 491 |     |   | $ | 547 |    
|                                                                                                                                                 |                                                       |      |     |      |   |      |     |     |   |   |     |    
|Expected provision for income taxes at the combined
Canadian federal and provincial statutory rate of
39.00% (42.25% in 2001 and 44.25% in 2000) |                                                       |      | 247 |      |   |      | 207 |     |   |   | 242 |    
|Adjusted for:                                                                                                                                    |                                                       |      |     |      |   |      |     |     |   |   |     |    
|                                                                                                                                                 | Federal and provincial statutory rate changes         |      |     |     |   |      |     | 17  |   |   |     | 31  |  
|                                                                                                                                                 | Tax-exempt investment income                          |      |     | (15  | ) |      |     | (18 | ) |   |     | (21 | )
|                                                                                                                                                 | Foreign operations taxed at different rates and bases |      |     | (73  | ) |      |     | (51 | ) |   |     | (45 | )
|                                                                                                                                                 | Large corporations and other capital taxes            |      |     | 4    |   |      |     | 3   |   |   |     | 3   |  
|                                                                                                                                                 | Recognition of tax losses of prior years              |      |     | (15  | ) |      |     | (1  | ) |   |     | (9  | )
|                                                                                                                                                 | Other                                                 |      |     | (15  | ) |      |     | (4  | ) |   |     | (6  | )
|                                                                                                                                                 |                                                       |      |     |      |   |      |     |     |   |   |     |    
|Income tax provision                                                                                                                             |                                                       | $    | 133 |      |   | $    | 153 |     |   | $ | 195 |    
|                                                                                                                                                 |                                                       |      |     |      |   |      |     |     |   |   |     |    



|(c) |  | Future income taxes                                                                               
|--- |  | --------------------------------------------------------------------------------------------------
|   
|    |  | The net future tax assets of $250 million arise from temporary differences
on the following items:

|                                  |  |            |     |             |  |     |     |        |  |             |     |            |  |   |     |  |  |   |     |  |  |   |     |  
|--------------------------------- |  | ---------- | --- | ----------- |  | --- | --- | ------ |  | ----------- | --- | ---------- |  | - | --- |  |  | - | --- |  |  | - | --- | -
|                                  |  | 2002       |     | 2001       
|                                  |  |            |     |            
|                                  |  | Future tax |     | Future tax  |  |     |     |        |  | Future tax  |     | Future tax |  |   |     | 
|(in millions of Canadian dollars) |  | assets     |     | liabilities |  | Net |     | assets |  | liabilities |     | Net       
|                                  |  |            |     |             |  |     |     |        |  |             |     |           
|Investments                       |  | $          | 81  |             |  | $   | 6   |        |  | $           | 75  |            |  | $ | 151 |  |  | $ | 1   |  |  | $ | 150 |  
|Actuarial liabilities             |  |            | 170 |             |  |     | 171 |        |  |             | (1  | )          |  |   | 184 |  |  |   | 100 |  |  |   | 84  |  
|Employee future benefits          |  |            |    |             |  |     | 26  |        |  |             | (26 | )          |  |   |    |  |  |   | 16  |  |  |   | (16 | )
|Deferred acquisition
costs        |  |            | 133 |             |  |     |    |        |  |             | 133 |            |  |   | 128 |  |  |   |    |  |  |   | 128 |  
|Other                             |  |            | 104 |             |  |     | 35  |        |  |             | 69  |            |  |   | 50  |  |  |   | 2   |  |  |   | 48  |  
|                                  |  |            |     |             |  |     |     |        |  |             |     |            |  |   |     |  |  |   |     |  |  |   |     |  
|Total                             |  | $          | 488 |             |  | $   | 238 |        |  | $           | 250 |            |  | $ | 513 |  |  | $ | 119 |  |  | $ | 394 |  
|                                  |  |            |     |             |  |     |     |        |  |             |     |            |  |   |     |  |  |   |     |  |  |   |     |  



| |  | Net future income taxes of $250 million ($394 million in 2001) are
reflected in the Consolidated Balance Sheets as future income tax assets
of $303 million ($394 million in 2001) and future income tax liabilities
of $53 million (nil in 2001).                                                                                                                                                                                                                                                                                                                                                             
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | A portion of the undistributed net income of non-Canadian subsidiaries
will be taxed in Canada upon repatriation. The Company will recognize the
future tax liability on the undistributed net income at the time when
management determines that they will be repatriated in the foreseeable
future.                                                                                                                                                                                                                                                                                                          
|
| |  | As at December 31, 2002, the Company has tax loss carryforwards, primarily
in Canada, totalling $675 million ($329 million in 2001). The future tax
benefit of these tax loss carryforwards has been recognized, to the extent
that they are more likely than not to be realized, in the amount of $187
million ($120 million in 2001) in future tax assets. The Company will
realize this benefit in future years through a reduction in current income
taxes payable. In addition, an accumulated tax loss carryforward of $139
million ($178 million in 2001) has not been recognized as a future tax
asset.

26



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##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|14. |  | SHARE CAPITAL
|--- |  | -------------
|   
|(a) |  | Authorized:  



| | (i)  |  | Preferred shares                                                                                                                                                                                                                                                                                                                                                                                              
| | ---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |      |  | There is an unlimited number of authorized non-voting preferred
shares without nominal or par value, issuable in series. The
Companys by-laws authorize the Board, prior to the issue of any
series of preferred shares, to fix the number of shares in, and to
designate the rights, privileges, restrictions and conditions of each
series, subject to the provisions of the Companys by-laws and the
ICA.
|
| | (ii) |  | Common shares                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |      |  | There is an unlimited number of authorized voting common shares
without nominal or par value.                                                                                                                                                                                                                                                                                                                 



|(b) |  | Issued and outstanding:
|--- |  | -----------------------

|                                       |  |           |       |       |  |           |     |       |  |  |       |  |  |   |     | 
|-------------------------------------- |  | --------- | ----- | ----- |  | --------- | --- | ----- |  |  | ----- |  |  | - | --- | 
|                                       |  | 2002      |       | 2001 
|                                       |  |           |       |      
|                                       |  | Number of |       | Share |  | Number of |     | Share
|(in millions)                          |  | shares    |       | value |  | shares    |     | value
|                                       |  |           |       |       |  |           |     |      
|Preferred shares                       |  |           |       |       |  |           |     |       |  |  |       |  |  |   |     | 
|Balance, beginning of year             |  |           | 6.0   |       |  | $         | 145 |       |  |  |      |  |  | $ |    | 
|Series B shares issued(1)              |  |           |      |       |  |           |    |       |  |  | 4.0   |  |  |   | 95  | 
|Series B shares issued to underwriters |  |           |      |       |  |           |    |       |  |  | 2.0   |  |  |   | 50  | 
|                                       |  |           |       |       |  |           |     |       |  |  |       |  |  |   |     | 
|Balance, end of year                   |  |           | 6.0   |       |  | $         | 145 |       |  |  | 6.0   |  |  | $ | 145 | 
|                                       |  |           |       |       |  |           |     |       |  |  |       |  |  |   |     | 
|Common
shares                          | 
|Balance, beginning and end of year     |  |           | 160.4 |       |  | $         | 317 |       |  |  | 160.4 |  |  | $ | 317 | 
|                                       |  |           |       |       |  |           |     |       |  |  |       |  |  |   |     | 



|(1) |  | On December 28, 2001, the Company issued 6 million
non-cumulative redeemable Series B preferred shares at $25.00 per
share for net proceeds of $145 million after deducting total issue
expenses and underwriting fees of $5 million.                                                                                                                                                                          
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Series B non-cumulative preferred shares are entitled to
non-cumulative preferential cash dividends of $1.5625 per share,
payable quarterly. The redemption price if the shares are redeemed
prior to December 31, 2007 is $26.00 per Series B share. Beginning on
December 31, 2007, the redemption price declines $0.25 annually until
after 2010 at which time the redemption price is $25.00 per share.

27



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##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|15. |  | EARNINGS PER COMMON SHARE
|--- |  | -------------------------

|                                                                   |  |      |       |      |  |      |       |  |  |   |       | 
|------------------------------------------------------------------ |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|(in millions, except per share amounts)                            |  | 2002 |       | 2001 |  | 2000
|                                                                   |  |      |       |      |  |     
|Basic earnings per common share                                    |  |      |       |      |  |      |       |  |  |   |       | 
|Common shareholders net income                                    |  | $    | 490   |      |  | $    | 342   |  |  | $ | 356   | 
|Goodwill expense                                                   |  |      |      |      |  |      | 25    |  |  |   | 24    | 
|                                                                   |  |      |       |      |  |      |       |  |  |   |       | 
|Common shareholders net income excluding goodwill expense         |  | $    | 490   |      |  | $    | 367   |  |  | $ | 380   | 
|                                                                   |  |      |       |      |  |      |       |  |  |   |       | 
|Weighted daily average number of common shares outstanding         |  |      | 160.4 |      |  |      | 160.4 |  |  |   | 160.4 | 
|                                                                   |  |      |       |      |  |      |       |  |  |   |       | 
|Basic earnings per common share                                    |  | $    | 3.05  |      |  | $    | 2.13  |  |  | $ | 2.22  | 
|Basic earnings per common share excluding goodwill expense         |  | $    | 3.05  |      |  | $    | 2.29  |  |  | $ | 2.37  | 
|                                                                   |  |      |       |      |  |      |       |  |  |   |       | 
|Diluted earnings per common share                                  |  |      |       |      |  |      |       |  |  |   |       | 
|Common shareholders net income                                    |  | $    | 490   |      |  | $    | 342   |  |  | $ | 356   | 
|Goodwill expense                                                   |  |      |      |      |  |      | 25    |  |  |   | 24    | 
|                                                                   |  |      |       |      |  |      |       |  |  |   |       | 
|Common shareholders net income excluding goodwill expense         |  | $    | 490   |      |  | $    | 367   |  |  | $ | 380   | 
|                                                                   |  |      |       |      |  |      |       |  |  |   |       | 
|Weighted daily average number of common shares outstanding         |  |      | 160.4 |      |  |      | 160.4 |  |  |   | 160.4 | 
|Dilutive effect of stock options granted and outstanding           |  |      |      |      |  |      | 0.2   |  |  |   |      | 
|                                                                   |  |      |       |      |  |      |       |  |  |   |       | 
|Weighted daily average diluted number of common shares
outstanding |  |      | 160.4 |      |  |      | 160.6 |  |  |   | 160.4 | 
|                                                                   |  |      |       |      |  |      |       |  |  |   |       | 
|Diluted earnings per common share                                  |  | $    | 3.05  |      |  | $    | 2.13  |  |  | $ | 2.22  | 
|Diluted earnings per common share excluding goodwill expense       |  | $    | 3.05  |      |  | $    | 2.29  |  |  | $ | 2.37  | 
|                                                                   |  |      |       |      |  |      |       |  |  |   |       | 



|16. |  | MINIMUM CAPITAL REQUIREMENTS AND SHAREHOLDER DIVIDEND RESTRICTIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company is regulated by OSFI as a Canadian insurance company. OSFI
requires Canadian insurance companies to maintain minimum levels of
capital and surplus with respect to their worldwide insurance operations
in order to provide additional assurance with respect to future solvency.
These minimum levels are calculated in accordance with the Minimum
Continuing Capital and Surplus Requirements (MCCSR) issued by OSFI. The
Companys policy is to maintain an MCCSR ratio well in excess of the
minimum required level. At the end of 2002, the ratio was 202% (191% in
2001). This ratio represents an excess of available capital of $1,214
million ($857 million in 2001) over OSFIs minimum capital requirements.
|   
|    |  | The Companys ability to meet its cash requirements and pay dividends on
the common and preferred shares will depend on the receipt of dividends
and other payments from CLA. CLAs insurance subsidiaries and branches are
required to maintain minimum solvency and capital standards in the
jurisdictions in which they operate. These regulatory standards may
effectively restrict the amount of dividends, distributions or other
payments that may be made by such subsidiaries and branches to CLA and to
the Company.                                                                                                                                                                                                      
|   
|    |  | In 2002, the Company distributed $105 million ($84 million in 2001) of
cash dividends to shareholders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

28



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Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|17. |  | STOCK-BASED COMPENSATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(a) |  | Stock option plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | Under the Companys stock option plan, stock options are periodically
granted to selected employees and non-employee Directors at an exercise
price not less than the closing price of the common shares on the TSX on
the last trading day prior to the date the option was granted. The number
of options granted, the exercise price, the expiry date and the vesting
period are determined by the Board. Options granted to Directors vest on
the date of grant. Options granted to employees vest 25% each year over a
four-year period, commencing on the one year anniversary of the grant
date, and expire 10 years after the date of grant.
|   
|    |  | At the discretion of the Board, options awarded in 2000 and 2001 were
granted with SARs in tandem. The SARs have the same vesting, expiry and
exercise terms and conditions as the options to which they are attached.
The SARs give the option-holder the choice to either exercise the option
or forfeit the option and receive a cash payment equal to the difference
between the market value of the shares on the date of exercise and the
exercise price.                                                                                                                                                                                     
|   
|    |  | The following table summarizes activity under the Companys stock option
plan:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

|                               |  |                 |           |                |  |                 |       |                |  |  |           |          |  |   |       | 
|------------------------------ |  | --------------- | --------- | -------------- |  | --------------- | ----- | -------------- |  |  | --------- | -------- |  | - | ----- | 
|                               |  | 2002            |           | 2001          
|                               |  |                 |           |               
|                               |  |                 |           |                |  | Weighted        |       |                |  |  |           | Weighted
|                               |  | Number of stock |           | average        |  | Number of stock |       | average       
|                               |  | options         |           | exercise price |  | options         |       | exercise price
|                               |  |                 |           |                |  |                 |       |               
|Outstanding, beginning of year |  |                 | 2,046,410 |                |  | $               | 39.86 |                |  |  | 962,046   |          |  | $ | 36.95 | 
|Granted(1)                     |  |                 | 1,167,916 |                |  |                 | 41.88 |                |  |  | 1,161,079 |          |  |   | 42.25 | 
|Exercised                      |  |                 | (9,679    | )              |  |                 | 36.95 |                |  |  |          |          |  |   |      | 
|Forfeited(2)                   |  |                 | (138,618  | )              |  |                 | 40.44 |                |  |  | (76,715   | )        |  |   | 39.46 | 
|                               |  |                 |           |                |  |                 |       |                |  |  |           |          |  |   |       | 
|Outstanding, end of year       |  |                 | 3,066,029 |                |  | $               | 40.62 |                |  |  | 2,046,410 |          |  | $ | 39.86 | 
|                               |  |                 |           |                |  |                 |       |                |  |  |           |          |  |   |       | 
|Exercisable, end of year       |  |                 | 787,317   |                |  | $               | 38.59 |                |  |  | 308,330   |          |  | $ | 37.78 | 
|                               |  |                 |           |                |  |                 |       |                |  |  |           |          |  |   |       | 
|Available for grant            |  |                 | 4,924,292 |                |  |                 |       |                |  |  | 5,953,590 |          |  |   |       | 
|                               |  |                 |           |                |  |                 |       |                |  |  |           |          |  |   |       | 



| |  | (1)In 2002 no options were granted with SARs attached (1,139,593
options were granted with SARs attached in 2001).
| |  | ------------------------------------------------------------------------------------------------------------------
|
| |  | (2)2002 includes 343 options forfeited due to the exercise of SARs during
the year (4,209 in 2001).               



| |  | The stock options outstanding and exercisable as at December 31, 2002, by
exercise price, were as follows:
| |  | ----------------------------------------------------------------------------------------------------------

29



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##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements

|                    |  |                     |           |                  |  |                  |      |          |  |                |       |          |  |  |         |  |  |   |       | 
|------------------- |  | ------------------- | --------- | ---------------- |  | ---------------- | ---- | -------- |  | -------------- | ----- | -------- |  |  | ------- |  |  | - | ----- | 
|Options outstanding |  | Options exercisable
|                    |  |                    
|                    |  |                     |           |                  |  | Weighted average |      |          |  |                |       |          |  |  |         |  |  |  
|                    |  |                     |           |                  |  | remaining        |      | Weighted |  | Number of      |       | Weighted
|Range of exercise   |  | Number of stock     |           | contractual life |  | average          |      | stock    |  | average       
|prices              |  | options             |           | (years)          |  | exercise price   |      | options  |  | exercise price
|                    |  |                     |           |                  |  |                  |      |          |  |               
|$30.52 to $36.95    |  |                     | 979,140   |                  |  |                  | 8.10 |          |  | $              | 36.20 |          |  |  | 492,357 |  |  | $ | 36.36 | 
|$42.20 to $44.62    |  |                     | 2,086,889 |                  |  |                  | 8.62 |          |  | $              | 42.69 |          |  |  | 294,960 |  |  | $ | 42.30 | 
|                    |  |                     |           |                  |  |                  |      |          |  |                |       |          |  |  |         |  |  |   |       | 
|                    |  |                     | 3,066,029 |                  |  |                  |      |          |  | $              | 40.62 |          |  |  | 787,317 |  |  | $ | 38.59 | 
|                    |  |                     |           |                  |  |                  |      |          |  |                |       |          |  |  |         |  |  |   |       | 



|    |  | Under the fair value method of accounting for stock options, the fair
value is estimated at the grant date and the total fair value of the stock
options is amortized over the vesting periods as compensation expense. The
weighted average fair value of stock options at the grant date for the
year ended December 31, 2002 was estimated to be $13.52 per stock option
using the Black-Scholes options pricing model. The pricing model assumes
the following weighted average information: risk-free interest rate of 5%,
an expected life of seven years, an expected common share volatility of
24.4% and an expected dividend yield of 1.3%. Had the Company used the
fair value method to measure option-based compensation, the common
shareholders net income, earnings per common share and diluted earnings
per common share for the year ended December 31, 2002 would have been
reduced by $4 million, $0.02 and $0.02, respectively.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company recognizes compensation expense for those stock options that
have been awarded SARs in tandem based on the excess of the market value
over the exercise price. The Company expects the SARs to be settled in
cash and therefore accrues compensation expense on SARs over the vesting
period equal to the excess of quoted market price at the balance sheet
date over the exercise price. Compensation expense related to this plan is
included in general expenses on the Consolidated Statements of Net Income
and was not material for the years ended December 31, 2002 and 2001.                                                                                                                                                                                                                                                                                                                                                    
|   
|(b) |  | Directors share purchase plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | In 2001 the Company introduced a Directors share purchase plan (DSPP).
Under this plan, each Director may choose to receive all or a percentage
of his/her annual fees in the form of Company shares. This election to
participate must be made on an annual basis and terminates once the plan
member ceases to be a Director. The shares are purchased on the TSX
quarterly by a plan administrator based on the amounts allocated by each
Director. The plan allows the Directors to sell all or a portion of the
accumulated shares and withdraw funds from their account at any time,
subject to applicable securities laws and the Companys Insider Trading
Policy. Compensation expense for DSPPs is recorded under general expenses
in the Consolidated Statements of Net Income.                                                                                                                                                          

30



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##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|    |  | Compensation expense related
to this plan was not material for the years ended December 31, 2002 and
2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(c) |  | Deferred stock unit plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | In 2001 the Company introduced a deferred stock unit (DSU) plan. The
plan is offered to senior executive officers and non-employee Directors
of the Company. Under this plan, each member may choose to receive all or
a percentage of his/her annual incentive bonus or Directors fee in the
form of deferred stock units. This election to participate must be made
on an annual basis prior to receiving the compensation. The initial and
redemption values of each unit are based on the closing price of the Companys common shares on the TSX on the date of converting
cash amounts to or from units, as applicable. DSUs attract dividends in
the form of additional DSUs at the same rate as dividends on the common
shares. Units are redeemable only when a plan member ceases to be a
Company employee or Director. Compensation expense for the DSUs is
recorded under general expenses in the Consolidated Statements of Net
Income. Compensation expense related to this plan was not material for
the years ended December 31, 2002 and 2001.
|   
|(d) |  | Employee share purchase plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | In 2001 the Company introduced an employee share purchase plan (ESPP)
with Company matching, in Canada and in the United Kingdom. In Canada,
qualifying employees can choose to contribute up to 10% of their annual
base salary to purchase the Companys common shares. Shares are purchased
on the TSX by a plan administrator. The Company matches up to 50% of the
employee contribution amount to a maximum of the lesser of $1,500 per year
or 2.5% of eligible annual earnings. The U.K. plan is the same as the plan
in Canada except that the Company matches 10% of the employee contribution
amount to a maximum of £150. In each case, the Companys contributions
vest after the first year of continuous participation in the plan, and all
subsequent contributions vest immediately. Matching contributions made by
the Company on the purchase of shares are expensed over the vesting
period. Compensation expense related to this plan was not material for the
years ended December 31, 2002 and 2001.                                     

31



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|18. |  | EMPLOYEE FUTURE BENEFITS                                                                                                                                                      
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company provides pension and other post-retirement life, health and
dental insurance benefits, as well as post-employment benefits, for its
eligible employees and agents.
|   
|    |  | Information about the Companys defined benefit pension and other
arrangements, in aggregate, is as follows:                                                                  

|                                            |                                              |      |                  |       |                |      |       |       |   |   |      |     |   |   |      |     |  
|------------------------------------------- | -------------------------------------------- | ---- | ---------------- | ----- | -------------- | ---- | ----- | ----- | - | - | ---- | --- | - | - | ---- | --- | -
|                                            |                                              |      | Pension benefits |       | Other benefits
|                                            |                                              |      |                  |       |               
|(in millions of Canadian dollars)           |                                              | 2002 |                  | 2001  |                | 2002 |       | 2001 
|                                            |                                              |      |                  |       |                |      |       |      
|Accrued benefit obligation                  |                                              |      |                  |       |                |      |       |       |   |   |      |     |   |   |      |    
|                                            | Balance, beginning of year                   |      | $                | 925   |                |      | $     | 826   |   |   | $    | 134 |   |   | $    | 125 |  
|                                            | Service cost                                 |      |                  | 44    |                |      |       | 43    |   |   |      | 4   |   |   |      | 4   |  
|                                            | Employee contributions                       |      |                  | 6     |                |      |       | 6     |   |   |      |    |   |   |      |    |  
|                                            | Interest cost                                |      |                  | 64    |                |      |       | 60    |   |   |      | 9   |   |   |      | 9   |  
|                                            | Benefits paid                                |      |                  | (44   | )              |      |       | (42   | ) |   |      | (5  | ) |   |      | (6  | )
|                                            | Actuarial losses (gains)                     |      |                  | 11    |                |      |       | 16    |   |   |      | 4   |   |   |      | 1   |  
|                                            | Other                                        |      |                  |      |                |      |       | 7     |   |   |      | (1  | ) |   |      |    |  
|                                            | Effect of changes in currency exchange rates |      |                  | 21    |                |      |       | 9     |   |   |      |    |   |   |      | 1   |  
|                                            |                                              |      |                  |       |                |      |       |       |   |   |      |     |   |   |      |     |  
|Balance, end of year                        |                                              | $    | 1,027            |       |                | $    | 925   |       |   | $ | 145  |     |   | $ | 134  |    
|                                            |                                              |      |                  |       |                |      |       |       |   |   |      |     |   |   |      |     |  
|Funded plan assets                          |                                              |      |                  |       |                |      |       |       |   |   |      |     |   |   |      |    
|                                            | Fair value, beginning of year                |      | $                | 1,156 |                |      | $     | 1,257 |   |   | $    |    |   |   | $    |    |  
|                                            | Actual return on plan assets                 |      |                  | (70   | )              |      |       | (244  | ) |   |      |    |   |   |      |    |  
|                                            | Employer contributions                       |      |                  | 19    |                |      |       | 162   |   |   |      |    |   |   |      |    |  
|                                            | Employee contributions                       |      |                  | 6     |                |      |       | 6     |   |   |      |    |   |   |      |    |  
|                                            | Benefits paid                                |      |                  | (44   | )              |      |       | (42   | ) |   |      |    |   |   |      |    |  
|                                            | Other                                        |      |                  |      |                |      |       | 7     |   |   |      |    |   |   |      |    |  
|                                            | Effect of changes in currency exchange rates |      |                  | 16    |                |      |       | 10    |   |   |      |    |   |   |      |    |  
|                                            |                                              |      |                  |       |                |      |       |       |   |   |      |     |   |   |      |     |  
|Fair value, end of year                     |                                              | $    | 1,083            |       |                | $    | 1,156 |       |   |   |     |     |   | $ |     |    
|                                            |                                              |      |                  |       |                |      |       |       |   |   |      |     |   |   |      |     |  
|Net funded status, end of year              |                                              | $    | 56               |       |                | $    | 231   |       |   | $ | (145 | )   |   | $ | (134 | )  
|Unamortized net actuarial losses (gains)    |                                              |      | 409              |       |                |      | 209   |       |   |   | 6    |     |   |   | 3    |    
|Unamortized transitional obligation (asset) |                                              |      | (252             | )     |                |      | (268  | )     |   |   |     |     |   |   |     |    
|                                            |                                              |      |                  |       |                |      |       |       |   |   |      |     |   |   |      |     |  
|Prepaid (accrued) benefit asset (liability) |                                              | $    | 213              |       |                | $    | 172   |       |   | $ | (139 | )   |   | $ | (131 | )  
|                                            |                                              |      |                  |       |                |      |       |       |   |   |      |     |   |   |      |     |  



| |  | Included in the above aggregate of pension benefits plans are several
individual plans that are in a net unfunded status. For these net
unfunded plans, the accrued benefit obligations at the end of 2002 total
$320 million ($114 million in 2001) and the fair value of plan assets
total $201 million ($41 million in 2001). The other benefits obligations
are supported by assets held within the Companys general fund.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

32



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



| |  | The Companys net expense for defined benefit pension and post-retirement
benefit plans is as follows:
| |  | ------------------------------------------------------------------------------------------------------

|                                               |  |                  |      |                |  |      |      |      |  |      |     |      |  |   |    |  |  |   |    |  |  |   |    | 
|---------------------------------------------- |  | ---------------- | ---- | -------------- |  | ---- | ---- | ---- |  | ---- | --- | ---- |  | - | -- |  |  | - | -- |  |  | - | -- | 
|                                               |  | Pension benefits |      | Other benefits
|                                               |  |                  |      |               
|(in millions of Canadian dollars)              |  | 2002             |      | 2001           |  | 2000 |      | 2002 |  | 2001 |     | 2000
|                                               |  |                  |      |                |  |      |      |      |  |      |     |     
|Service cost                                   |  | $                | 44   |                |  | $    | 43   |      |  | $    | 34  |      |  | $ | 4  |  |  | $ | 4  |  |  | $ | 5  | 
|Expected interest cost                         |  |                  | 64   |                |  |      | 60   |      |  |      | 54  |      |  |   | 9  |  |  |   | 9  |  |  |   | 8  | 
|Expected return on plan assets                 |  |                  | (102 | )              |  |      | (102 | )    |  |      | (80 | )    |  |   |   |  |  |   |   |  |  |   |   | 
|Amortization of net actuarial losses (gains)   |  |                  | (5   | )              |  |      | (10  | )    |  |      |    |      |  |   | 1  |  |  |   |   |  |  |   | 1  | 
|Amortization of transitional liability (asset) |  |                  | (21  | )              |  |      | (21  | )    |  |      | (21 | )    |  |   |   |  |  |   |   |  |  |   |   | 
|                                               |  |                  |      |                |  |      |      |      |  |      |     |      |  |   |    |  |  |   |    |  |  |   |    | 
|Net benefit plan expense (recovery)            |  | $                | (20  | )              |  | $    | (30  | )    |  | $    | (13 | )    |  | $ | 14 |  |  | $ | 13 |  |  | $ | 14 | 
|                                               |  |                  |      |                |  |      |      |      |  |      |     |      |  |   |    |  |  |   |    |  |  |   |    | 



| |  | The Companys net expense for defined contribution pensions is $1 million
($1 million in 2001 and $2 million in 2000).                               
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The significant assumptions adopted in measuring the Companys end-of-year
accrued benefit obligations are as follows (weighted average assumptions):

|                                                 |  |                  |      |                |  |      |      |      |  |  |      |   |  |  |      |  
|------------------------------------------------ |  | ---------------- | ---- | -------------- |  | ---- | ---- | ---- |  |  | ---- | - |  |  | ---- | -
|                                                 |  | Pension benefits |      | Other benefits
|                                                 |  |                  |      |               
|                                                 |  | 2002             |      | 2001           |  | 2002 |      | 2001
|                                                 |  |                  |      |                |  |      |      |     
|Discount rate                                    |  |                  | 6.48 | %              |  |      | 6.65 | %    |  |  | 6.97 | % |  |  | 7.02 | %
|Expected long-term rate of return on plan assets |  |                  | 7.10 | %              |  |      | 7.69 | %    |  |  |     |   |  |  |     |  
|Rate of compensation increase                    |  |                  | 4.63 | %              |  |      | 4.98 | %    |  |  | 5.38 | % |  |  | 5.45 | %



| |  | The effect of a 1% increase or decrease in the weighted average expected
long-term rate of return on plan assets on the 2002 pension expense would
be a $13 million decrease or increase, respectively.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Assumed health care cost trends have a significant effect on the amounts
reported for the health care plan. The impact of a 1% change in the assumed
health care cost trend rates would be as follows: 

|                                                               |  |            |    |            |  |   |     |  
|-------------------------------------------------------------- |  | ---------- | -- | ---------- |  | - | --- | -
|(in millions of Canadian dollars)                              |  | 1%increase |    | 1%decrease
|                                                               |  |            |    |           
|Effect on total of service and interest costs for 2002         |  | $          | 2  |            |  | $ | (2  | )
|Effect on year-end post-retirement benefit obligation for 2002 |  | $          | 15 |            |  | $ | (15 | )



| |  | The assumed weighted average increase in health care costs for 2002 is
7.1%, gradually decreasing to 5.5% by 2007 and remaining at that level
thereafter.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

33



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|19. |  | SEGMENTED INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(a) |  | Basis of segmentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | The Company manages its business and distributes its general fund and
segregated funds insurance and annuity products through operating divisions
in Canada, the United Kingdom, the United States and the Republic of
Ireland, as well as an International and Reinsurance Division and a
Corporate Division. Each operating division includes branch operations
and/or subsidiary companies, is organized to meet the needs of local
markets and is responsible for its own product functions. The Corporate
Division manages invested assets, provides certain administrative services
and is responsible for capital management.
|   
|    |  | The operating divisions are charged overhead costs for head office
corporate functions using cost allocations based on services provided. In
addition, the operating divisions share in the net income from the assets
backing equity. The total net income on the assets backing equity is
allocated to the divisions based on the level of required capital deployed
in each division. The level of capital deployed is based on the MCCSR for
branch operations and on the actual equity held for subsidiary companies.                                                                                                          
|   
|(b) |  | Reportable information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | The Companys primary sources of revenue are:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       



| |  |  | premium income derived from life and health insurance products
that provide protection against mortality and morbidity risks, and
annuity products that provide asset accumulation or wealth management
benefits;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | net investment income (which is detailed in note 7(c)); and                                                                                                                                                      
|
| |  |  | fee and other income derived primarily from investment management services.                                                                                                                                      
|
| |   |  |                                                                                                                                                                                                                  

34



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|(c) |  | Segmented information
|--- |  | ---------------------

|                                                                    |  |        |        |         |  |        |        |            |  |             |        |           |  |       |       |   |  |               |       |  |  |   |     |   |  |   |        | 
|------------------------------------------------------------------- |  | ------ | ------ | ------- |  | ------ | ------ | ---------- |  | ----------- | ------ | --------- |  | ----- | ----- | - |  | ------------- | ----- |  |  | - | --- | - |  | - | ------ | 
|                                                                    |  |        |        |         |  |        |        |            |  |             |        |           |  |       |       |   |  | International |       |  |  |   |     |   |  |  
|                                                                    |  |        |        |         |  | United |        | United     |  | Republic    |        | and       |  |       |       |   |  |               |       | 
|(in millions of Canadian dollars)                                   |  | Canada |        | Kingdom |  | States |        | of Ireland |  | Reinsurance |        | Corporate |  | Total
|                                                                    |  |        |        |         |  |        |        |            |  |             |        |           |  |      
|2002                                                                |  |        |        |         |  |        |        |            |  |             |        |           |  |       |       |   |  |               |       |  |  |   |     |   |  |   |        | 
|Revenues                                                            |  |        |        |         |  |        |        |            |  |             |        |           |  |       |       |   |  |               |       |  |  |   |     |   |  |   |        | 
|Premiums                                                            |  |        |        |         |  |        |        |            |  |             |        |           |  |       |       |   |  |               |       |  |  |   |     |   |  |   |        | 
|Annuities                                                           |  | $      | 600    |         |  | $      | 1,009  |            |  | $           | 805    |           |  | $     | 42    |   |  | $             | 18    |  |  | $ |    |   |  | $ | 2,474  | 
|Individual life and health insurance                                |  |        | 595    |         |  |        | 144    |            |  |             | 427    |           |  |       | 93    |   |  |               | 251   |  |  |   |    |   |  |   | 1,510  | 
|Group life and health insurance                                     |  |        | 908    |         |  |        | 355    |            |  |             | 552    |           |  |       | 4     |   |  |               | 112   |  |  |   |    |   |  |   | 1,931  | 
|                                                                    |  |        |        |         |  |        |        |            |  |             |        |           |  |       |       |   |  |               |       |  |  |   |     |   |  |   |        | 
|                                                                    |  |        | 2,103  |         |  |        | 1,508  |            |  |             | 1,784  |           |  |       | 139   |   |  |               | 381   |  |  |   |    |   |  |   | 5,915  | 
|                                                                    |  |        |        |         |  |        |        |            |  |             |        |           |  |       |       |   |  |               |       |  |  |   |     |   |  |   |        | 
|Net investment income                                               |  |        | 897    |         |  |        | 384    |            |  |             | 705    |           |  |       | 55    |   |  |               | 67    |  |  |   | 46  |   |  |   | 2,154  | 
|Fee and other income                                                |  |        | 182    |         |  |        | 225    |            |  |             | 21     |           |  |       | 95    |   |  |               | 5     |  |  |   | 1   |   |  |   | 529    | 
|                                                                    |  |        |        |         |  |        |        |            |  |             |        |           |  |       |       |   |  |               |       |  |  |   |     |   |  |   |        | 
|                                                                    |  |        | 3,182  |         |  |        | 2,117  |            |  |             | 2,510  |           |  |       | 289   |   |  |               | 453   |  |  |   | 47  |   |  |   | 8,598  | 
|                                                                    |  |        |        |         |  |        |        |            |  |             |        |           |  |       |       |   |  |               |       |  |  |   |     |   |  |   |        | 
|Expenditures                                                        | 
|Payments to policyholders and beneficiaries                         |  |        | 2,068  |         |  |        | 1,130  |            |  |             | 1,822  |           |  |       | 76    |   |  |               | 256   |  |  |   |    |   |  |   | 5,352  | 
|Increase in actuarial liabilities                                   |  |        | 249    |         |  |        | 568    |            |  |             | 252    |           |  |       | 25    |   |  |               | 35    |  |  |   |    |   |  |   | 1,129  | 
|General operating expenses                                          |  |        | 328    |         |  |        | 216    |            |  |             | 150    |           |  |       | 88    |   |  |               | 33    |  |  |   | (1  | ) |  |   | 814    | 
|Commissions                                                         |  |        | 173    |         |  |        | 81     |            |  |             | 119    |           |  |       | 70    |   |  |               | 96    |  |  |   |    |   |  |   | 539    | 
|Premium and other taxes (recovery)                                  |  |        | 58     |         |  |        |       |            |  |             | 18     |           |  |       | (12   | ) |  |               | 2     |  |  |   |    |   |  |   | 66     | 
|Interest expense                                                    |  |        |       |         |  |        | 4      |            |  |             |       |           |  |       |      |   |  |               | 1     |  |  |   | 33  |   |  |   | 38     | 
|Goodwill amortization                                               |  |        |       |         |  |        |       |            |  |             |       |           |  |       |      |   |  |               |      |  |  |   |    |   |  |   |       | 
|Non-controlling interest in subsidiary                              |  |        |       |         |  |        |       |            |  |             |       |           |  |       |      |   |  |               |      |  |  |   | 25  |   |  |   | 25     | 
|Income tax provision (recovery)                                     |  |        | 113    |         |  |        | (30    | )          |  |             | 51     |           |  |       | 7     |   |  |               | 6     |  |  |   | (14 | ) |  |   | 133    | 
|                                                                    |  |        |        |         |  |        |        |            |  |             |        |           |  |       |       |   |  |               |       |  |  |   |     |   |  |   |        | 
|                                                                    |  |        | 2,989  |         |  |        | 1,969  |            |  |             | 2,412  |           |  |       | 254   |   |  |               | 429   |  |  |   | 43  |   |  |   | 8,096  | 
|                                                                    |  |        |        |         |  |        |        |            |  |             |        |           |  |       |       |   |  |               |       |  |  |   |     |   |  |   |        | 
|Net income including participating
policyholders net income (loss) |  |        | 193    |         |  |        | 148    |            |  |             | 98     |           |  |       | 35    |   |  |               | 24    |  |  |   | 4   |   |  |   | 502    | 
|Participating policyholders net income
(loss)                      |  |        | 1      |         |  |        |       |            |  |             | (3     | )         |  |       | 5     |   |  |               |      |  |  |   |    |   |  |   | 3      | 
|                                                                    |  |        |        |         |  |        |        |            |  |             |        |           |  |       |       |   |  |               |       |  |  |   |     |   |  |   |        | 
|Shareholders net income                                            |  | $      | 192    |         |  | $      | 148    |            |  | $           | 101    |           |  | $     | 30    |   |  | $             | 24    |  |  | $ | 4   |   |  | $ | 499    | 
|Preferred share dividends                                           |  |        |       |         |  |        |       |            |  |             |       |           |  |       |      |   |  |               |      |  |  |   | 9   |   |  |   | 9      | 
|                                                                    |  |        |        |         |  |        |        |            |  |             |        |           |  |       |       |   |  |               |       |  |  |   |     |   |  |   |        | 
|Common shareholders net income                                     |  | $      | 192    |         |  | $      | 148    |            |  | $           | 101    |           |  | $     | 30    |   |  | $             | 24    |  |  | $ | (5  | ) |  | $ | 490    | 
|                                                                    |  |        |        |         |  |        |        |            |  |             |        |           |  |       |       |   |  |               |       |  |  |   |     |   |  |   |        | 
|General fund assets                                                 |  | $      | 14,119 |         |  | $      | 10,345 |            |  | $           | 10,990 |           |  | $     | 1,401 |   |  | $             | 1,336 |  |  | $ |    |   |  | $ | 38,191 | 
|                                                                    |  |        |        |         |  |        |        |            |  |             |        |           |  |       |       |   |  |               |       |  |  |   |     |   |  |   |        | 
|Segregated
funds                                                    | 
|Deposits                                                            |  | $      | 1,283  |         |  | $      | 1,554  |            |  | $           | 222    |           |  | $     | 660   |   |  | $             | 2     |  |  | $ |    |   |  | $ | 3,721  | 
|Total assets                                                        |  | $      | 7,397  |         |  | $      | 10,671 |            |  | $           | 698    |           |  | $     | 3,128 |   |  | $             | 5     |  |  | $ |    |   |  | $ | 21,899 | 
|                                                                    |  |        |        |         |  |        |        |            |  |             |        |           |  |       |       |   |  |               |       |  |  |   |     |   |  |   |        | 

35



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|(c) |  | Segmented information
|--- |  | ---------------------

|                                                                           |                                      |        |        |         |  |        |        |            |        |             |          |           |     |       |       |     |  |   |               |     |  |   |    |   |  |   |        |       | 
|-------------------------------------------------------------------------- | ------------------------------------ | ------ | ------ | ------- |  | ------ | ------ | ---------- | ------ | ----------- | -------- | --------- | --- | ----- | ----- | --- |  | - | ------------- | --- |  | - | -- | - |  | - | ------ | ----- | 
|                                                                           |                                      |        |        |         |  |        |        |            |        |             |          |           |     |       |       |     |  |   | International |     |  |   |    |   |  |   |       
|                                                                           |                                      |        |        |         |  |        | United |            | United |             | Republic |           | and |       |       |     |  |   |               |     | 
|(in millions of Canadian dollars)                                          |                                      | Canada |        | Kingdom |  | States |        | of Ireland |        | Reinsurance |          | Corporate |     | Total
|                                                                           |                                      |        |        |         |  |        |        |            |        |             |          |           |     |      
|2001                                                                       |                                      |        |        |         |  |        |        |            |        |             |          |           |     |       |       |     |  |   |               |     |  |   |    |   |  |   |        |      
|Revenues                                                                   |                                      |        |        |         |  |        |        |            |        |             |          |           |     |       |       |     |  |   |               |     |  |   |    |   |  |   |        |      
|Premiums                                                                   |                                      |        |        |         |  |        |        |            |        |             |          |           |     |       |       |     |  |   |               |     |  |   |    |   |  |   |        |      
|                                                                           | Annuities                            |        | $      | 499     |  |        | $      | 674        |        |             | $        | 790       |     |       | $     | 286 |  |   | $             | 23  |  |   |    |  |  |   | $      | 2,272 | 
|                                                                           | Individual life and health insurance |        |        | 548     |  |        |        | 159        |        |             |          | 433       |     |       |       | 98  |  |   |               | 190 |  |   |    |  |  |   |        | 1,428 | 
|                                                                           | Group life and health insurance      |        |        | 846     |  |        |        | 246        |        |             |          | 448       |     |       |       | 7   |  |   |               | 111 |  |   |    |  |  |   |        | 1,658 | 
|                                                                           |                                      |        |        |         |  |        |        |            |        |             |          |           |     |       |       |     |  |   |               |     |  |   |    |   |  |   |        |       | 
|                                                                           |                                      |        | 1,893  |         |  |        | 1,079  |            |        |             | 1,671    |           |     |       | 391   |     |  |   | 324           |     |  |   |   |   |  |   | 5,358  |      
|                                                                           |                                      |        |        |         |  |        |        |            |        |             |          |           |     |       |       |     |  |   |               |     |  |   |    |   |  |   |        |       | 
|Net investment income                                                      |                                      |        | 951    |         |  |        | 422    |            |        |             | 692      |           |     |       | 65    |     |  |   | 66            |     |  |   | 45 |   |  |   | 2,241  |      
|Fee and other income                                                       |                                      |        | 177    |         |  |        | 208    |            |        |             | 16       |           |     |       | 58    |     |  |   | 5             |     |  |   | 1  |   |  |   | 465    |      
|                                                                           |                                      |        |        |         |  |        |        |            |        |             |          |           |     |       |       |     |  |   |               |     |  |   |    |   |  |   |        |       | 
|                                                                           |                                      |        | 3,021  |         |  |        | 1,709  |            |        |             | 2,379    |           |     |       | 514   |     |  |   | 395           |     |  |   | 46 |   |  |   | 8,064  |      
|                                                                           |                                      |        |        |         |  |        |        |            |        |             |          |           |     |       |       |     |  |   |               |     |  |   |    |   |  |   |        |       | 
|Expenditures                                                               |                                      |        |        |         |  |        |        |            |        |             |          |           |     |       |       |     |  |   |               |     |  |   |    |   |  |   |        |      
|Payments to policyholders
and beneficiaries                                |                                      |        | 2,069  |         |  |        | 927    |            |        |             | 1,758    |           |     |       | 94    |     |  |   | 370           |     |  |   |   |   |  |   | 5,218  |      
|Increase in actuarial liabilities                                          |                                      |        | 114    |         |  |        | 343    |            |        |             | 234      |           |     |       | 250   |     |  |   | 31            |     |  |   |   |   |  |   | 972    |      
|General operating expenses                                                 |                                      |        | 323    |         |  |        | 206    |            |        |             | 155      |           |     |       | 74    |     |  |   | 35            |     |  |   | 1  |   |  |   | 794    |      
|Commissions                                                                |                                      |        | 175    |         |  |        | 66     |            |        |             | 106      |           |     |       | 54    |     |  |   | 60            |     |  |   |   |   |  |   | 461    |      
|Premium and other taxes (recovery)                                         |                                      |        | 53     |         |  |        |       |            |        |             | 16       |           |     |       | (9    | )   |  |   | 4             |     |  |   |   |   |  |   | 64     |      
|Interest expense                                                           |                                      |        |       |         |  |        |       |            |        |             |         |           |     |       |      |     |  |   | 4             |     |  |   | 35 |   |  |   | 39     |      
|Goodwill amortization                                                      |                                      |        | 2      |         |  |        | 20     |            |        |             | 2        |           |     |       |      |     |  |   | 1             |     |  |   |   |   |  |   | 25     |      
|Income tax provision (recovery)                                            |                                      |        | 123    |         |  |        | 25     |            |        |             | 30       |           |     |       | 13    |     |  |   | (42           | )   |  |   | 4  |   |  |   | 153    |      
|                                                                           |                                      |        |        |         |  |        |        |            |        |             |          |           |     |       |       |     |  |   |               |     |  |   |    |   |  |   |        |       | 
|                                                                           |                                      |        | 2,859  |         |  |        | 1,587  |            |        |             | 2,301    |           |     |       | 476   |     |  |   | 463           |     |  |   | 40 |   |  |   | 7,726  |      
|                                                                           |                                      |        |        |         |  |        |        |            |        |             |          |           |     |       |       |     |  |   |               |     |  |   |    |   |  |   |        |       | 
|Net income (loss) including participating
policyholders net income (loss) |                                      |        | 162    |         |  |        | 122    |            |        |             | 78       |           |     |       | 38    |     |  |   | (68           | )   |  |   | 6  |   |  |   | 338    |      
|Participating policyholders net income
(loss)                             |                                      |        | 1      |         |  |        |       |            |        |             | (9       | )         |     |       | 4     |     |  |   |              |     |  |   |   |   |  |   | (4     | )    
|                                                                           |                                      |        |        |         |  |        |        |            |        |             |          |           |     |       |       |     |  |   |               |     |  |   |    |   |  |   |        |       | 
|Common shareholders net income (loss)                                     |                                      | $      | 161    |         |  | $      | 122    |            |        | $           | 87       |           |     | $     | 34    |     |  | $ | (68           | )   |  | $ | 6  |   |  | $ | 342    |      
|                                                                           |                                      |        |        |         |  |        |        |            |        |             |          |           |     |       |       |     |  |   |               |     |  |   |    |   |  |   |        |       | 
|General fund assets                                                        |                                      | $      | 14,031 |         |  | $      | 7,421  |            |        | $           | 10,942   |           |     | $     | 1,609 |     |  | $ | 948           |     |  | $ |   |   |  | $ | 34,951 |      
|                                                                           |                                      |        |        |         |  |        |        |            |        |             |          |           |     |       |       |     |  |   |               |     |  |   |    |   |  |   |        |       | 
|Segregated funds                                                           |                                      |        |        |         |  |        |        |            |        |             |          |           |     |       |       |     |  |   |               |     |  |   |    |   |  |   |        |      
|Deposits                                                                   |                                      | $      | 1,395  |         |  | $      | 1,888  |            |        | $           | 102      |           |     | $     | 442   |     |  | $ | 1             |     |  | $ |   |   |  | $ | 3,828  |      
|Total assets                                                               |                                      | $      | 8,118  |         |  | $      | 11,053 |            |        | $           | 825      |           |     | $     | 2,090 |     |  | $ | 4             |     |  | $ |   |   |  | $ | 22,090 |      
|                                                                           |                                      |        |        |         |  |        |        |            |        |             |          |           |     |       |       |     |  |   |               |     |  |   |    |   |  |   |        |       | 

36



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##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|(c) |  | Segmented information
|--- |  | ---------------------

|                                                                    |                                      |        |        |         |  |        |        |            |        |             |          |       |     |   |       |     |  |   |               |     |  |   |        |       | 
|------------------------------------------------------------------- | ------------------------------------ | ------ | ------ | ------- |  | ------ | ------ | ---------- | ------ | ----------- | -------- | ----- | --- | - | ----- | --- |  | - | ------------- | --- |  | - | ------ | ----- | 
|                                                                    |                                      |        |        |         |  |        |        |            |        |             |          |       |     |   |       |     |  |   | International |     |  |   |       
|                                                                    |                                      |        |        |         |  |        | United |            | United |             | Republic |       | and |   |       |     | 
|(in millions of Canadian dollars)                                   |                                      | Canada |        | Kingdom |  | States |        | of Ireland |        | Reinsurance |          | Total
|                                                                    |                                      |        |        |         |  |        |        |            |        |             |          |      
|2000                                                                |                                      |        |        |         |  |        |        |            |        |             |          |       |     |   |       |     |  |   |               |     |  |   |        |      
|Revenues                                                            |                                      |        |        |         |  |        |        |            |        |             |          |       |     |   |       |     |  |   |               |     |  |   |        |      
|Premiums                                                            |                                      |        |        |         |  |        |        |            |        |             |          |       |     |   |       |     |  |   |               |     |  |   |        |      
|                                                                    | Annuities                            |        | $      | 312     |  |        | $      | 589        |        |             | $        | 580   |     |   | $     | 254 |  |   | $             | 11  |  |   | $      | 1,746 | 
|                                                                    | Individual life and health insurance |        |        | 547     |  |        |        | 160        |        |             |          | 428   |     |   |       | 82  |  |   |               | 167 |  |   |        | 1,384 | 
|                                                                    | Group life and health insurance      |        |        | 890     |  |        |        | 206        |        |             |          | 343   |     |   |       | 8   |  |   |               | 99  |  |   |        | 1,546 | 
|                                                                    |                                      |        |        |         |  |        |        |            |        |             |          |       |     |   |       |     |  |   |               |     |  |   |        |       | 
|                                                                    |                                      |        | 1,749  |         |  |        | 955    |            |        |             | 1,351    |       |     |   | 344   |     |  |   | 277           |     |  |   | 4,676  |      
|                                                                    |                                      |        |        |         |  |        |        |            |        |             |          |       |     |   |       |     |  |   |               |     |  |   |        |       | 
|Net investment income                                               |                                      |        | 995    |         |  |        | 475    |            |        |             | 698      |       |     |   | 77    |     |  |   | 61            |     |  |   | 2,306  |      
|Fee and other income                                                |                                      |        | 177    |         |  |        | 221    |            |        |             | 21       |       |     |   | 57    |     |  |   | 3             |     |  |   | 479    |      
|                                                                    |                                      |        |        |         |  |        |        |            |        |             |          |       |     |   |       |     |  |   |               |     |  |   |        |       | 
|                                                                    |                                      |        | 2,921  |         |  |        | 1,651  |            |        |             | 2,070    |       |     |   | 478   |     |  |   | 341           |     |  |   | 7,461  |      
|                                                                    |                                      |        |        |         |  |        |        |            |        |             |          |       |     |   |       |     |  |   |               |     |  |   |        |       | 
|Expenditures                                                        |                                      |        |        |         |  |        |        |            |        |             |          |       |     |   |       |     |  |   |               |     |  |   |        |      
|Payments to policyholders and beneficiaries                         |                                      |        | 2,231  |         |  |        | 704    |            |        |             | 1,679    |       |     |   | 112   |     |  |   | 198           |     |  |   | 4,924  |      
|Increase (decrease) in actuarial liabilities                        |                                      |        | (135   | )       |  |        | 539    |            |        |             | 51       |       |     |   | 222   |     |  |   | 30            |     |  |   | 707    |      
|General operating expenses                                          |                                      |        | 348    |         |  |        | 172    |            |        |             | 128      |       |     |   | 68    |     |  |   | 27            |     |  |   | 743    |      
|Commissions                                                         |                                      |        | 155    |         |  |        | 73     |            |        |             | 86       |       |     |   | 42    |     |  |   | 53            |     |  |   | 409    |      
|Premium and other taxes (recovery)                                  |                                      |        | 53     |         |  |        |       |            |        |             | 13       |       |     |   | (2    | )   |  |   | 4             |     |  |   | 68     |      
|Interest expense                                                    |                                      |        | 23     |         |  |        |       |            |        |             | 12       |       |     |   |      |     |  |   | 4             |     |  |   | 39     |      
|Goodwill amortization                                               |                                      |        | 1      |         |  |        | 20     |            |        |             | 2        |       |     |   |      |     |  |   | 1             |     |  |   | 24     |      
|Income tax provision                                                |                                      |        | 122    |         |  |        | 31     |            |        |             | 25       |       |     |   | 11    |     |  |   | 6             |     |  |   | 195    |      
|                                                                    |                                      |        |        |         |  |        |        |            |        |             |          |       |     |   |       |     |  |   |               |     |  |   |        |       | 
|                                                                    |                                      |        | 2,798  |         |  |        | 1,539  |            |        |             | 1,996    |       |     |   | 453   |     |  |   | 323           |     |  |   | 7,109  |      
|                                                                    |                                      |        |        |         |  |        |        |            |        |             |          |       |     |   |       |     |  |   |               |     |  |   |        |       | 
|Net income including participating policyholders
net income (loss) |                                      |        | 123    |         |  |        | 112    |            |        |             | 74       |       |     |   | 25    |     |  |   | 18            |     |  |   | 352    |      
|Participating policyholders net income (loss)                      |                                      |        |       |         |  |        |       |            |        |             | (8       | )     |     |   | 3     |     |  |   | 1             |     |  |   | (4     | )    
|                                                                    |                                      |        |        |         |  |        |        |            |        |             |          |       |     |   |       |     |  |   |               |     |  |   |        |       | 
|Common shareholders net income                                     |                                      | $      | 123    |         |  | $      | 112    |            |        | $           | 82       |       |     | $ | 22    |     |  | $ | 17            |     |  | $ | 356    |      
|                                                                    |                                      |        |        |         |  |        |        |            |        |             |          |       |     |   |       |     |  |   |               |     |  |   |        |       | 
|General fund assets                                                 |                                      | $      | 13,970 |         |  | $      | 6,855  |            |        | $           | 9,870    |       |     | $ | 1,300 |     |  | $ | 741           |     |  | $ | 32,736 |      
|                                                                    |                                      |        |        |         |  |        |        |            |        |             |          |       |     |   |       |     |  |   |               |     |  |   |        |       | 
|Segregated funds                                                    |                                      |        |        |         |  |        |        |            |        |             |          |       |     |   |       |     |  |   |               |     |  |   |        |      
|Deposits                                                            |                                      | $      | 1,909  |         |  | $      | 1,258  |            |        | $           | 115      |       |     | $ | 407   |     |  | $ | 3             |     |  | $ | 3,692  |      
|Total assets                                                        |                                      | $      | 8,326  |         |  | $      | 11,219 |            |        | $           | 854      |       |     | $ | 1,980 |     |  | $ | 4             |     |  | $ | 22,383 |      
|                                                                    |                                      |        |        |         |  |        |        |            |        |             |          |       |     |   |       |     |  |   |               |     |  |   |        |       | 

37



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|20. |  | DERIVATIVE FINANCIAL INSTRUMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company utilizes derivative financial instruments, including futures,
forwards, options and swaps, when appropriate, to manage its
asset/liability positions and to hedge against fluctuations in interest
rates, foreign exchange rates and stock market indices. The Company does
not enter into these financial instruments for trading or speculative
purposes. Realized and unrealized gains and losses on these derivatives
are included in net investment income or the currency translation account
on a basis consistent with the underlying positions being hedged.
Derivative assets are included with the underlying assets being hedged,
and derivative liabilities are included with other liabilities.
|   
|    |  | Derivative financial instruments are either negotiated over-the-counter
between two counterparties or traded on a regulated exchange. The notional
amounts of the over-the-counter and exchange-traded contracts are $4,319
million ($3,485 million in 2001) and $814 million ($674 million in 2001),
respectively.                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | The following table summarizes the Companys outstanding derivative
financial instruments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

|                                  |                   |      |                              |       |            |       |        |       |  |          |       |          |  |     |       |        |  |        |     |    |  |   |      |      |            |   |          |      |   |   |        |    |       |   |    |    | 
|--------------------------------- | ----------------- | ---- | ---------------------------- | ----- | ---------- | ----- | ------ | ----- |  | -------- | ----- | -------- |  | --- | ----- | ------ |  | ------ | --- | -- |  | - | ---- | ---- | ---------- | - | -------- | ---- | - | - | ------ | -- | ----- | - | -- | -- | 
|                                  |                   |      | Notional amount by remaining |       |            |       |        |       |  |          |       |          |  |     |       |        |  |        |     |    |  |   |     
|                                  |                   |      | term to maturity             |       | Fair Value |       |        |       |  |          |       |          | 
|                                  |                   |      |                              |       |            |       |        |       |  |          |       |          | 
|                                  |                   |      |                              |       |            |       |        |       |  |          |       |          |  |     |       |        |  |        |     |    |  |   |      |      |            |   |          |      |   |   | Credit |    | Risk-
|                                  |                   |      | Under 1                      |       | 1 to 5     |       | Over 5 |       |  |          |       |          |  |     |       |        |  |        |     |    |  |   |      |      | Equivalent |   | Weighted
|(in millions of Canadian dollars) |                   | year |                              | years |            | years |        | Total |  | Positive |       | Negative |  | Net |       | Amount |  | Amount
|                                  |                   |      |                              |       |            |       |        |       |  |          |       |          |  |     |       |        |  |       
|2002                              |                   |      |                              |       |            |       |        |       |  |          |       |          |  |     |       |        |  |        |     |    |  |   |      |      |            |   |          |      |   |   |        |    |       |   |    |   
|Interest
rate contracts:          |                   |      |                              |       |            |       |        |       |  |          |       |          |  |     |       |        |  |        |     |    |  |   |      |      |            |   |          |      |   |   |        |    |       |   |    |   
|                                  | Swap contracts    |      | $                            | 29    |            |       | $      | 242   |  |          | $     | 314      |  |     | $     | 585    |  |        | $   | 12 |  |   | $    | (19  | )          |   | $        | (7   | ) |   | $      | 18 |       |   | $  | 7  | 
|                                  | Futures contracts |      |                              | 522   |            |       |        |      |  |          |       |         |  |     |       | 522    |  |        |     |   |  |   |      |     |            |   |          |     |   |   |        |   |       |   |    |   | 
|                                  | Options purchased |      |                              | 55    |            |       |        |      |  |          |       | 792      |  |     |       | 847    |  |        |     | 64 |  |   |      |     |            |   |          | 64   |   |   |        | 76 |       |   |    | 20 | 
|                                  |                   |      |                              |       |            |       |        |       |  |          |       |          |  |     |       |        |  |        |     |    |  |   |      |      |            |   |          |      |   |   |        |    |       |   |    |    | 
|Sub-total                         |                   | $    | 606                          |       |            | $     | 242    |       |  | $        | 1,106 |          |  | $   | 1,954 |        |  | $      | 76  |    |  | $ | (19  | )    |            | $ | 57       |      |   | $ | 94     |    |       | $ | 27 |   
|Foreign exchange contracts:       |                   |      |                              |       |            |       |        |       |  |          |       |          |  |     |       |        |  |        |     |    |  |   |      |      |            |   |          |      |   |   |        |    |       |   |    |   
|                                  | Swap contracts    |      |                              | 71    |            |       |        | 98    |  |          |       | 867      |  |     |       | 1,036  |  |        |     | 3  |  |   |      | (187 | )          |   |          | (184 | ) |   |        | 73 |       |   |    | 28 | 
|                                  | Forward contracts |      |                              | 1,728 |            |       |        |      |  |          |       |         |  |     |       | 1,728  |  |        |     | 11 |  |   |      | (47  | )          |   |          | (36  | ) |   |        | 29 |       |   |    | 6  | 
|                                  |                   |      |                              |       |            |       |        |       |  |          |       |          |  |     |       |        |  |        |     |    |  |   |      |      |            |   |          |      |   |   |        |    |       |   |    |    | 
|Sub-total                         |                   | $    | 1,799                        |       |            | $     | 98     |       |  | $        | 867   |          |  | $   | 2,764 |        |  | $      | 14  |    |  | $ | (234 | )    |            | $ | (220     | )    |   | $ | 102    |    |       | $ | 34 |   
|Equity contracts                  |                   |      | 415                          |       |            |       |       |       |  |          |      |          |  |     | 415   |        |  |        | 14  |    |  |   | (14  | )    |            |   |         |      |   |   | 25     |    |       |   | 5  |   
|                                  |                   |      |                              |       |            |       |        |       |  |          |       |          |  |     |       |        |  |        |     |    |  |   |      |      |            |   |          |      |   |   |        |    |       |   |    |    | 
|Total                             |                   | $    | 2,820                        |       |            | $     | 340    |       |  | $        | 1,973 |          |  | $   | 5,133 |        |  | $      | 104 |    |  | $ | (267 | )    |            | $ | (163     | )    |   | $ | 221    |    |       | $ | 66 |   
|                                  |                   |      |                              |       |            |       |        |       |  |          |       |          |  |     |       |        |  |        |     |    |  |   |      |      |            |   |          |      |   |   |        |    |       |   |    |    | 
|2001                              |                   |      |                              |       |            |       |        |       |  |          |       |          |  |     |       |        |  |        |     |    |  |   |      |      |            |   |          |      |   |   |        |    |       |   |    |   
|Interest rate contracts:          |                   |      |                              |       |            |       |        |       |  |          |       |          |  |     |       |        |  |        |     |    |  |   |      |      |            |   |          |      |   |   |        |    |       |   |    |   
|                                  | Swap contracts    |      | $                            | 163   |            |       | $      | 170   |  |          | $     | 344      |  |     | $     | 677    |  |        | $   | 6  |  |   | $    | (39  | )          |   | $        | (33  | ) |   | $      | 13 |       |   | $  | 5  | 
|                                  | Futures contracts |      |                              | 633   |            |       |        |      |  |          |       |         |  |     |       | 633    |  |        |     |   |  |   |      |     |            |   |          |     |   |   |        |   |       |   |    |   | 
|                                  | Options purchased |      |                              | 43    |            |       |        | 50    |  |          |       | 721      |  |     |       | 814    |  |        |     | 64 |  |   |      |     |            |   |          | 64   |   |   |        | 74 |       |   |    | 20 | 
|                                  |                   |      |                              |       |            |       |        |       |  |          |       |          |  |     |       |        |  |        |     |    |  |   |      |      |            |   |          |      |   |   |        |    |       |   |    |    | 
|Sub-total                         |                   | $    | 839                          |       |            | $     | 220    |       |  | $        | 1,065 |          |  | $   | 2,124 |        |  | $      | 70  |    |  | $ | (39  | )    |            | $ | 31       |      |   | $ | 87     |    |       | $ | 25 |   
|Foreign exchange contracts:       |                   |      |                              |       |            |       |        |       |  |          |       |          |  |     |       |        |  |        |     |    |  |   |      |      |            |   |          |      |   |   |        |    |       |   |    |   
|                                  | Swap contracts    |      |                              | 39    |            |       |        | 119   |  |          |       | 880      |  |     |       | 1,038  |  |        |     | 2  |  |   |      | (129 | )          |   |          | (127 | ) |   |        | 74 |       |   |    | 29 | 
|                                  | Forward contracts |      |                              | 840   |            |       |        |      |  |          |       |         |  |     |       | 840    |  |        |     | 1  |  |   |      | (14  | )          |   |          | (13  | ) |   |        | 10 |       |   |    | 2  | 
|                                  |                   |      |                              |       |            |       |        |       |  |          |       |          |  |     |       |        |  |        |     |    |  |   |      |      |            |   |          |      |   |   |        |    |       |   |    |    | 
|Sub-total                         |                   | $    | 879                          |       |            | $     | 119    |       |  | $        | 880   |          |  | $   | 1,878 |        |  | $      | 3   |    |  | $ | (143 | )    |            | $ | (140     | )    |   | $ | 84     |    |       | $ | 31 |   
|Equity contracts                  |                   |      | 157                          |       |            |       |       |       |  |          |      |          |  |     | 157   |        |  |        | 4   |    |  |   | (2   | )    |            |   | 2        |      |   |   | 11     |    |       |   | 2  |   
|                                  |                   |      |                              |       |            |       |        |       |  |          |       |          |  |     |       |        |  |        |     |    |  |   |      |      |            |   |          |      |   |   |        |    |       |   |    |    | 
|Total                             |                   | $    | 1,875                        |       |            | $     | 339    |       |  | $        | 1,945 |          |  | $   | 4,159 |        |  | $      | 77  |    |  | $ | (184 | )    |            | $ | (107     | )    |   | $ | 182    |    |       | $ | 58 |   
|                                  |                   |      |                              |       |            |       |        |       |  |          |       |          |  |     |       |        |  |        |     |    |  |   |      |      |            |   |          |      |   |   |        |    |       |   |    |    | 

38



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|    |  | Notional amount represents the face amount of derivative financial instruments
to which a rate or price is applied to determine the amount of cash flows to be
exchanged. It represents the volume of outstanding derivative financial
instruments and does not represent the potential gain or loss associated with
market risk or credit risk of such instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Fair value of a derivative financial instrument is equivalent to the
replacement cost. When available, quoted market prices are used. In all other
cases, fair values are based on present value estimates of the future cash
flows.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | Positive fair value, representing an unrealized gain to the Company, is the
maximum credit risk measured as of the balance sheet date if the counterparties
were to default on their obligations to the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | Credit equivalent amount is the sum of maximum credit risk and the potential
future credit exposure. The potential future credit exposure, which is
calculated based on a formula prescribed by OSFI, represents the potential for
future losses that may result from future changes in fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | Risk-weighted amount estimates actual credit risk for a derivative financial
instrument based on the creditworthiness of the counterparty. OSFI prescribes a
measure of counterparty credit risk to be applied to the credit equivalent
amount to arrive at the risk-weighted amount.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|21. |  | COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|(a) |  | Legal proceedings and other matters                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | The Company has, in the normal course of business, a number of outstanding
lawsuits. The aggregate liability, which may result from these lawsuits,
is not considered to be a material amount.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | In the United Kingdom, life insurance companies are required by the U.K.
regulators to review and compensate policyholders who previously acquired
personal pension and free-standing additional voluntary contribution
products offered by such companies in situations in which they could
otherwise have remained in or joined employer-sponsored pension plans and
who suffered a financial loss as a result. The Company carried a provision
of $25 million at December 31, 2002 ($111 million in December 31, 2001).
During 2002, the provision was reduced by $86 million, primarily for
payments to policyholders during the year and for the costs for the review
process. The respective provision and payments are net of estimated and
actual recoveries from vendors of the businesses acquired by the Company
in the United Kingdom. This provision is based on managements current
estimate, and the amount of the actual compensation to policyholders is
not expected to exceed this amount.
|   
|(b) |  | Securities Lending                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

39



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|    |  | The Company lends its own securities for periods of time to other
institutions on a fully collateralized basis in order to generate
additional income. Collateral, which exceeds the market value of the
loaned securities, is deposited by the borrower with the Companys
custodian and retained by the custodian until the underlying security has
been returned to the Company. The market value of the loaned securities is
monitored on a daily basis with additional collateral obtained or refunded
as the market values fluctuate. Loaned securities (included in invested
assets) at December 31, 2002 had a carrying value and market value of $620
million and $691 million, respectively ($1,264 million and $1,353 million,
respectively, in 2001).                                                                           
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(c) |  | Crown acquisition arrangements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | As part of the 1999 acquisition of the majority of Crown Lifes insurance
operations, the Company has the option, or may be required, to acquire the
common shares of Crown Life and, through assumption reinsurance, the
remaining insurance business of Crown Life at any time after January 1,
2004, in which case Canada Life would receive assets with a value equal to
the liabilities assumed. The purchase price for the shares would be the
fair value of the assets backing Crown Lifes common shareholders equity.                                                                                                                                                                                                                                                                                                             
|   
|(d) |  | Operating lease commitments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | The Company leases offices and certain equipment, which are operating
leases with rents charged to operations in the year to which they relate.
Total future rental payments are $324 million, with annual payments of $64
million for 2003, $55 million for 2004, $46 million for 2005, $33 million
for 2006, $24 million for 2007 and $102 million thereafter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    |  | Rent expense incurred for the year ended December 31, 2002 was $43 million
($45 million in 2001 and $44 million in 2000).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|22. |  | SUBSEQUENT EVENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(a) |  | Acquisition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | On January 1, 2003, the Company completed the acquisition of the
Irish-based German life operations of a significant international insurer
for $205 million. The transaction involved the transfer of a block of
business to the Company for $158 million, primarily consisting of
liabilities for unit-linked and critical illness products. This transfer
will require High Court approval in Ireland, which is expected to be
received in 2003. In the interim, the business will be reinsured by the
Company. Additionally, the Company acquired a Germany-based sales and
marketing company for $40 million, and an Irish-based life company for $7
million. Immediately following the acquisition, the Company entered into
assumed reassurance arrangements on the transferred block of business, for
which it received $107 million.

40



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|(b) |  | Recommendation to common shareholders                                                                                                                                                                                                                                                                                                                                                    
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | On January 13, 2003, the Companys Board of Directors issued a
recommendation to the Companys common shareholders to reject an offer
made on December 27, 2002 by Manulife Financial Corporation to acquire all
of the outstanding common shares of the Company. It is not possible to
project the outcome of the offer nor the impact on the Companys future
results.                 
|   
|23. |  | MATERIAL DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY
ACCEPTED ACCOUNTING PRINCIPLES                                                                                                                                                                                                                                                                                         
|   
|    |  | The Consolidated Financial Statements of the Company are presented in
accordance with Canadian GAAP. Canadian GAAP differs in certain material
respects from United States generally accepted accounting principles
(U.S. GAAP).                                                                                                                                                       
|   
|    |  | The 2001 U.S. GAAP condensed consolidated statements of net income and
condensed balance sheets have been revised due to computation adjustments
and as a result, actuarial liabilities have decreased by $30 million and
future income tax liabilities have increased by $30 million. There was
no impact on 2001 net income.                                                           
|   
|(a) |  | Condensed consolidated statements of net income and comprehensive income                                                                                                                                                                                                                                                                                                                 
|   
|    |  | U.S. GAAP includes comprehensive income, which is a measure of changes in
the equity of the Company during the year. It is comprised of both net
income and other comprehensive income, which includes changes to deferred
acquisition costs and other liabilities and the income tax effect arising
from the unrealized gains and losses on securities classified as available
for sale.

41



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements

(i) Condensed consolidated statements of net income

|                                                                                         |  |           |       |      |  |      |       |   |  |   |       | 
|---------------------------------------------------------------------------------------- |  | --------- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | 
|                                                                                         |  | U.S. GAAP
|                                                                                         |  |          
|For the years ended December 31 (in millions of Canadian dollars, except per share data) |  | 2002      |       | 2001 |  | 2000
|                                                                                         |  |           |       |      |  |     
|Revenues                                                                                 |  |           |       |      |  |      |       |   |  |   |       | 
|Premiums                                                                                 |  | $         | 4,616 |      |  | $    | 3,851 |   |  | $ | 3,569 | 
|Net investment income                                                                    |  |           | 1,960 |      |  |      | 1,918 |   |  |   | 2,046 | 
|Net realized investment gains                                                            |  |           | 26    |      |  |      | 60    |   |  |   | 749   | 
|Fee and other income                                                                     |  |           | 626   |      |  |      | 603   |   |  |   | 707   | 
|                                                                                         |  |           |       |      |  |      |       |   |  |   |       | 
|                                                                                         |  |           | 7,228 |      |  |      | 6,432 |   |  |   | 7,071 | 
|                                                                                         |  |           |       |      |  |      |       |   |  |   |       | 
|Expenditures                                                                             |  |           |       |      |  |      |       |   |  |   |       | 
|Payments to policyholders and beneficiaries                                              |  |           | 4,442 |      |  |      | 4,128 |   |  |   | 3,892 | 
|Increase in actuarial liabilities                                                        |  |           | 942   |      |  |      | 780   |   |  |   | 1,180 | 
|Expenses, including commissions, interest and premium taxes                              |  |           | 1,672 |      |  |      | 1,347 |   |  |   | 1,142 | 
|                                                                                         |  |           |       |      |  |      |       |   |  |   |       | 
|                                                                                         |  |           | 7,056 |      |  |      | 6,255 |   |  |   | 6,214 | 
|                                                                                         |  |           |       |      |  |      |       |   |  |   |       | 
|Net income before income tax provision                                                   |  |           | 172   |      |  |      | 177   |   |  |   | 857   | 
|Income tax provision                                                                     |  |           | 4     |      |  |      | 133   |   |  |   | 353   | 
|                                                                                         |  |           |       |      |  |      |       |   |  |   |       | 
|Net income including participating policyholders net income (loss)                      |  |           | 168   |      |  |      | 44    |   |  |   | 504   | 
|Participating policyholders net income (loss)                                           |  |           | (38   | )    |  |      | (7    | ) |  |   | 6     | 
|                                                                                         |  |           |       |      |  |      |       |   |  |   |       | 
|Shareholders net income                                                                 |  | $         | 206   |      |  | $    | 51    |   |  | $ | 498   | 
|Preferred share dividends                                                                |  |           | (9    | )    |  |      |      |   |  |   |      | 
|                                                                                         |  |           |       |      |  |      |       |   |  |   |       | 
|Common shareholders net income                                                          |  | $         | 197   |      |  | $    | 51    |   |  | $ | 498   | 
|                                                                                         |  |           |       |      |  |      |       |   |  |   |       | 
|Earnings per common share                                                                |  |           |       |      |  |      |       |   |  |   |       | 
|Common shareholders net income                                                          |  | $         | 197   |      |  | $    | 51    |   |  | $ | 498   | 
|Weighted daily average number of common shares outstanding                               |  |           | 160.4 |      |  |      | 160.4 |   |  |   | 160.4 | 
|Add: dilutive effect of stock options granted and outstanding                            |  |           |      |      |  |      | 0.2   |   |  |   |      | 
|                                                                                         |  |           |       |      |  |      |       |   |  |   |       | 
|Weighted daily average diluted number of common shares outstanding                       |  |           | 160.4 |      |  |      | 160.6 |   |  |   | 160.4 | 
|Basic and diluted earnings per common share                                              |  | $         | 1.23  |      |  | $    | 0.32  |   |  | $ | 3.10  | 
|                                                                                         |  |           |       |      |  |      |       |   |  |   |       | 

(ii) Condensed consolidated statements of comprehensive income

|                                                                  |                                                     |                             |     |           |      |      |     |      |      |   |      |      |      |  
|----------------------------------------------------------------- | --------------------------------------------------- | --------------------------- | --- | --------- | ---- | ---- | --- | ---- | ---- | - | ---- | ---- | ---- | -
|                                                                  |                                                     |                             |     | U.S. GAAP
|                                                                  |                                                     |                             |     |          
|For the years ended December 31 (in millions of Canadian dollars) |                                                     | 2002                        |     | 2001      |      | 2000
|                                                                  |                                                     |                             |     |           |      |     
|Common shareholders net income                                   |                                                     | $                           | 197 |           |      | $    | 51  |      |      | $ | 498  |     
|                                                                  |                                                     |                             |     |           |      |      |     |      |      |   |      |     
|Other comprehensive income (loss), net of tax:                    |                                                     |                             |     |           |      |      |     |      |      |   |      |     
|                                                                  | Currency translation account movement for the year1 |                             | $   | 88        |      |      | $   | 76   |      |   | $    | (7   | )   
|                                                                  | Net unrealized gains (losses):                      |                             |     |           |      |      |     |      |      |   |      |      |     
|                                                                  |                                                     | Bonds                       |     |           | 761  |      |     |      | 118  |   |      |      | 495  |  
|                                                                  |                                                     | Derivatives                 |     |           | (47  | )    |     |      | 5    |   |      |      |     |  
|                                                                  |                                                     | Common and preferred stocks |     |           | (162 | )    |     |      | (175 | ) |      |      | (320 | )
|                                                                  | Deferred acquisition costs                          |                             |     | (73       | )    |      |     | (9   | )    |   |      | (126 | )   
|                                                                  | Actuarial liabilities                               |                             |     | (260      | )    |      |     | 342  |      |   |      | (293 | )   
|                                                                  | Policyholder dividend obligation                    |                             |     | (63       | )    |      |     | (126 | )    |   |      |     |     
|                                                                  | Value of business acquired                          |                             |     | (9        | )    |      |     | (10  | )    |   |      |     |     
|                                                                  | Minimum pension liability                           |                             |     | (108      | )    |      |     |     |      |   |      |     |     
|                                                                  | Future income taxes                                 |                             |     | (142      | )    |      |     | (105 | )    |   |      | 98   |     
|                                                                  |                                                     |                             |     |           |      |      |     |      |      |   |      |     
|Other comprehensive income (loss)                                 |                                                     | $                           | (15 | )         |      | $    | 116 |      |      | $ | (153 | )   
|                                                                  |                                                     |                             |     |           |      |      |     |      |      |   |      |     
|Total
comprehensive income                                        |                                                     | $                           | 182 |           |      | $    | 167 |      |      | $ | 345  |     
|                                                                  |                                                     |                             |     |           |      |      |     |      |      |   |      |     



|1 |  | Fiscal 2001 includes $33 million of after-tax losses arising from hedges of the Companys investment positions in foreign operations.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------

42



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



|(b) |  | Condensed consolidated balance sheets                                                                                                                                                                   
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The following balance sheet items of the Company as at December 31, 2002
and 2001, reflect the impact of valuation, income recognition and
presentation differences between Canadian GAAP and U.S. GAAP.

|                                                    |                                              |                                        |        |           |       |               |        |           |       |   |        |        |       |   |        |        |       | 
|--------------------------------------------------- | -------------------------------------------- | -------------------------------------- | ------ | --------- | ----- | ------------- | ------ | --------- | ----- | - | ------ | ------ | ----- | - | ------ | ------ | ----- | 
|                                                    |                                              |                                        |        | 2002      |       | 2001         
|                                                    |                                              |                                        |        |           |       |              
|As at December 31 (in millions of Canadian dollars) |                                              | Canadian GAAP                          |        | U.S. GAAP |       | Canadian GAAP |        | U.S. GAAP
|                                                    |                                              |                                        |        |           |       |               |        |          
|Assets                                              |                                              |                                        |        |           |       |               |        |           |       |   |        |        |       |   |        |       
|                                                    | Bonds                                        |                                        | $      | 22,317    |       |               | $      | 23,982    |       |   | $      | 19,046 |       |   | $      | 19,866 |      
|                                                    | Mortgages                                    |                                        |        | 7,622     |       |               |        | 7,569     |       |   |        | 7,996  |       |   |        | 7,993  |      
|                                                    | Common and preferred stocks                  |                                        |        | 2,073     |       |               |        | 1,884     |       |   |        | 2,475  |       |   |        | 2,571  |      
|                                                    | Real estate                                  |                                        |        | 1,066     |       |               |        | 850       |       |   |        | 941    |       |   |        | 779    |      
|                                                    | Other investments                            |                                        |        | 3,396     |       |               |        | 3,398     |       |   |        | 2,987  |       |   |        | 3,162  |      
|                                                    | Deferred acquisition costs                   |                                        |        |          |       |               |        | 1,568     |       |   |        |       |       |   |        | 1,415  |      
|                                                    | Future income taxes                          |                                        |        | 303       |       |               |        | 269       |       |   |        | 394    |       |   |        | 174    |      
|                                                    | Reinsurance deposits and amounts recoverable |                                        |        | 117       |       |               |        | 860       |       |   |        | 155    |       |   |        | 983    |      
|                                                    | Other assets                                 |                                        |        | 1,297     |       |               |        | 1,822     |       |   |        | 957    |       |   |        | 1,333  |      
|                                                    | Segregated funds1                            |                                        |        |          |       |               |        | 21,899    |       |   |        |       |       |   |        | 22,090 |      
|                                                    |                                              |                                        |        |           |       |               |        |           |       |   |        |        |       |   |        |        |      
|Total assets                                        |                                              | $                                      | 38,191 |           |       | $             | 64,101 |           |       | $ | 34,951 |        |       | $ | 60,366 |       
|                                                    |                                              |                                        |        |           |       |               |        |           |       |   |        |        |       |   |        |        |      
|Liabilities and Equity                              |                                              |                                        |        |           |       |               |        |           |       |   |        |        |       |   |        |       
|                                                    | Actuarial liabilities                        |                                        | $      | 29,050    |       |               | $      | 33,633    |       |   | $      | 27,169 |       |   | $      | 30,929 |      
|                                                    | Other policy liabilities                     |                                        |        | 1,512     |       |               |        | 1,822     |       |   |        | 1,443  |       |   |        | 1,808  |      
|                                                    | Net deferred gains                           |                                        |        | 1,472     |       |               |        |          |       |   |        | 1,491  |       |   |        |       |      
|                                                    | Future income taxes                          |                                        |        | 53        |       |               |        | 359       |       |   |        |       |       |   |        | 216    |      
|                                                    | Other liabilities                            |                                        |        | 1,137     |       |               |        | 1,366     |       |   |        | 875    |       |   |        | 794    |      
|                                                    | Subordinated debentures                      |                                        |        | 550       |       |               |        | 550       |       |   |        | 550    |       |   |        | 550    |      
|                                                    | Non-controlling interest in subsidiary       |                                        |        | 450       |       |               |        | 450       |       |   |        |       |       |   |        |       |      
|                                                    | Segregated funds1                            |                                        |        |          |       |               |        | 21,899    |       |   |        |       |       |   |        | 22,090 |      
|                                                    |                                              |                                        |        |           |       |               |        |           |       |   |        |        |       |   |        |        |      
|                                                    |                                              |                                        | 34,224 |           |       |               | 60,079 |           |       |   | 31,528 |        |       |   | 56,387 |       
|                                                    |                                              |                                        |        |           |       |               |        |           |       |   |        |        |       |   |        |        |      
|Equity                                              |                                              |                                        |        |           |       |               |        |           |       |   |        |        |       |   |        |       
|                                                    |                                              | Participating policyholders equity    |        | 48        |       |               |        | 2         |       |   |        | 40     |       |   |        | 40     |      
|                                                    |                                              | Share capital                          |        |           | 462   |               |        |           | 448   |   |        |        | 462   |   |        |        | 448   | 
|                                                    |                                              | Retained earnings                      |        |           | 3,457 |               |        |           | 2,967 |   |        |        | 2,921 |   |        |        | 2,871 | 
|                                                    |                                              | Accumulated other comprehensive income |        |           |      |               |        |           | 605   |   |        |        |      |   |        |        | 620   | 
|                                                    |                                              |                                        |        |           |       |               |        |           |       |   |        |        |       |   |        |        |      
|                                                    |                                              |                                        | 3,967  |           |       |               | 4,022  |           |       |   | 3,423  |        |       |   | 3,979  |       
|                                                    |                                              |                                        |        |           |       |               |        |           |       |   |        |        |       |   |        |        |      
|Total liabilities and equity                        |                                              | $                                      | 38,191 |           |       | $             | 64,101 |           |       | $ | 34,951 |        |       | $ | 60,366 |       
|                                                    |                                              |                                        |        |           |       |               |        |           |       |   |        |        |       |   |        |        |      



|1 |  | U.S. GAAP terminology is Separate accounts. In Canadian GAAP, segregated
funds are included separately from the general funds.
|- |  | ------------------------------------------------------------------------------------------------------------------------------

Changes in retained earnings and accumulated other comprehensive income were as
follows:

|                                                          |                                          |      |           |      |   |      |       |     |   |   |       |      |  
|--------------------------------------------------------- | ---------------------------------------- | ---- | --------- | ---- | - | ---- | ----- | --- | - | - | ----- | ---- | -
|                                                          |                                          |      | U.S. GAAP
|                                                          |                                          |      |          
|As at December 31 (in millions of Canadian dollars)       |                                          | 2002 |           | 2001 |   | 2000
|                                                          |                                          |      |           |      |   |     
|Retained earnings, beginning of year                      |                                          | $    | 2,871     |      |   | $    | 2,904 |     |   | $ | 2,483 |     
|                                                          | Shareholders net income                 |      |           | 206  |   |      |       | 51  |   |   |       | 498  |  
|                                                          | Dividends paid to preferred shareholders |      |           | (9   | ) |      |       |    |   |   |       |     |  
|                                                          | Dividends paid to common shareholders    |      |           | (96  | ) |      |       | (84 | ) |   |       | (77  | )
|                                                          | Issuance costs                           |      |           | (5   | ) |      |       |    |   |   |       |     |  
|                                                          |                                          |      |           |      |   |      |       |     |   |   |       |     
|Retained earnings, end of year                            |                                          | $    | 2,967     |      |   | $    | 2,871 |     |   | $ | 2,904 |     
|                                                          |                                          |      |           |      |   |      |       |     |   |   |       |     
|Accumulated other comprehensive income, beginning of year |                                          | $    | 620       |      |   | $    | 504   |     |   | $ | 657   |     
|                                                          | Other comprehensive income (loss)        |      |           | (15  | ) |      |       | 116 |   |   |       | (153 | )
|                                                          |                                          |      |           |      |   |      |       |     |   |   |       |     
|Accumulated other comprehensive income, end of year       |                                          | $    | 605       |      |   | $    | 620   |     |   | $ | 504   |     
|                                                          |                                          |      |           |      |   |      |       |     |   |   |       |     

43



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements

Reconciliation of total equity from Canadian GAAP to U.S. GAAP:

|                                                                  |                                                                          |      |   |       |   |  |   |       |  
|----------------------------------------------------------------- | ------------------------------------------------------------------------ | ---- | - | ----- | - |  | - | ----- | -
|For the years ended December 31 (in millions of Canadian dollars) |                                                                          | 2002 |   | 2001 
|                                                                  |                                                                          |      |   |      
|Equity                                                            |                                                                          |      |   |       |   |  |   |      
|                                                                  | Canadian GAAP equity                                                     |      | $ | 3,967 |   |  | $ | 3,423 |  
|                                                                  | Current year adjustment to consolidated net income                       |      |   | (334  | ) |  |   | (294  | )
|                                                                  | Current year adjustment to other comprehensive income                    |      |   | (167  | ) |  |   | 28    |  
|                                                                  | Cumulative effect of prior year adjustment to consolidated net income    |      |   | (102  | ) |  |   | 192   |  
|                                                                  | Cumulative effect of prior year adjustment to other comprehensive income |      |   | 658   |   |  |   | 630   |  
|                                                                  |                                                                          |      |   |       |   |  |   |       |  
|                                                                  | U.S. GAAP equity                                                         |      | $ | 4,022 |   |  | $ | 3,979 |  
|                                                                  |                                                                          |      |   |       |   |  |   |       |  



|(c) |  | Reconciliation of selected Canadian GAAP Financial Statement information to
U.S. GAAP
|--- |  | -------------------------------------------------------------------------------------



| | The following table provides a reconciliation of Canadian GAAP
shareholders net income to U.S. GAAP shareholders net income:
| | ------------------------------------------------------------------------------------------------------------------------------

|                                                                     |                                                      |      |     |      |   |      |     |      |   |   |     |      |  
|-------------------------------------------------------------------- | ---------------------------------------------------- | ---- | --- | ---- | - | ---- | --- | ---- | - | - | --- | ---- | -
|For the years ended December 31 (in millions of Canadian dollars)    |                                                      | 2002 |     | 2001 |   | 2000
|                                                                     |                                                      |      |     |      |   |     
|Shareholders net income determined in accordance with Canadian GAAP |                                                      | $    | 499 |      |   | $    | 342 |      |   | $ | 356 |     
|                                                                     | Adjustments in respect of:                           |      |     |      |   |      |     |      |   |   |     |      |  
|                                                                     | Bonds                                                |      |     | 61   |   |      |     | (32  | ) |   |     | 1    |  
|                                                                     | Mortgages                                            |      |     | 12   |   |      |     |     |   |   |     | 3    |  
|                                                                     | Common and preferred stocks                          |      |     | (214 | ) |      |     | (148 | ) |   |     | 164  |  
|                                                                     | Real estate                                          |      |     | (40  | ) |      |     | (4   | ) |   |     | 270  |  
|                                                                     | Cumulative effect of adopting FAS 133                |      |     |     |   |      |     | (25  | ) |   |     |     |  
|                                                                     | Deferred acquisition costs                           |      |     | (70  | ) |      |     | 32   |   |   |     | 209  |  
|                                                                     | Actuarial liabilities                                |      |     | (78  | ) |      |     | (77  | ) |   |     | (313 | )
|                                                                     | Value of business acquired and goodwill amortization |      |     | (98  | ) |      |     | (5   | ) |   |     | (62  | )
|                                                                     | Other items                                          |      |     | 5    |   |      |     | (53  | ) |   |     | 29   |  
|                                                                     | Future income taxes                                  |      |     | 129  |   |      |     | 21   |   |   |     | (159 | )
|                                                                     |                                                      |      |     |      |   |      |     |      |   |   |     |     
|Shareholders net income determined in accordance with U.S. GAAP     |                                                      | $    | 206 |      |   | $    | 51  |      |   | $ | 498 |     
|                                                                     |                                                      |      |     |      |   |      |     |      |   |   |     |     



|(d) |  | Additional information required to be reported under U.S. GAAP
|--- |  | --------------------------------------------------------------



| | (i) |  | Deferred acquisition costs                            
| | --- |  | ------------------------------------------------------
|
| |     |  | Changes in deferred acquisition costs were as follows:

|                                                              |  |      |       |      |  |   |       |  
|------------------------------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | -
|(in millions of Canadian dollars)                             |  | 2002 |       | 2001
|                                                              |  |      |       |     
|Balance, beginning of year                                    |  | $    | 1,415 |      |  | $ | 1,318 |  
|Capitalization                                                |  |      | 326   |      |  |   | 286   |  
|Accretion of interest                                         |  |      | 115   |      |  |   | 80    |  
|Amortization                                                  |  |      | (327  | )    |  |   | (301  | )
|Effect of net unrealized gains and losses on bonds and stocks |  |      | (68   | )    |  |   | (9    | )
|Other                                                         |  |      | 58    |      |  |   |      |  
|Foreign currency translation adjustment                       |  |      | 49    |      |  |   | 41    |  
|                                                              |  |      |       |      |  |   |       |  
|Balance, end of year                                          |  | $    | 1,568 |      |  | $ | 1,415 |  
|                                                              |  |      |       |      |  |   |       |  

44



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##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



| | (ii) |  | Investments                                                                                                                                   
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------
|
| |      |  | The net unrealized investment gains (losses), which are included in
the Consolidated Balance Sheets as a component of equity, were as
follows:

|                                     |  |      |       |      |  |   |       |  
|------------------------------------ |  | ---- | ----- | ---- |  | - | ----- | -
|(in millions of Canadian dollars)    |  | 2002 |       | 2001
|                                     |  |      |       |     
|Gross unrealized gains               |  | $    | 2,224 |      |  | $ | 1,622 |  
|Gross unrealized losses              |  |      | (339  | )    |  |   | (288  | )
|                                     |  |      |       |      |  |   |       |  
|                                     |  |      | 1,885 |      |  |   | 1,334 |  
|                                     |  |      |       |      |  |   |       |  
|Effect on deferred acquisition costs |  |      | (278  | )    |  |   | (201  | )
|Effect on actuarial liabilities      |  |      | (633  | )    |  |   | (314  | )
|Effect on future income taxes        |  |      | (280  | )    |  |   | (139  | )
|Effect on value of business acquired |  |      | (19   | )    |  |   | (10   | )
|                                     |  |      |       |      |  |   |       |  
|Total                                |  | $    | 675   |      |  | $ | 670   |  
|                                     |  |      |       |      |  |   |       |  



|(e) |  | The following provides a general review of the material valuation and
income recognition differences between Canadian GAAP and U.S. GAAP.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  | For a complete description of Canadian GAAP accounting policies, refer to
Note 2.
| |  | ---------------------------------------------------------------------------------



| | (i)   |  | Bonds:Under U.S. GAAP, bonds may be classified as available for
sale, held to maturity or trading securities. All bonds are classified
as available for sale by the Company. Bonds accounted for as available
for sale are carried at fair value. A decline in the value of a
specific bond that is considered other than temporary results in a
write-down of the bond value through a charge to income in the period
of recognition. Realized gains and losses on disposal are immediately
recognized in income. Unrealized gains and losses on bonds classified
as available for sale are excluded from income and are reported net of
tax as other comprehensive income.
| | ----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |       |  | Under Canadian GAAP, bonds are carried at amortized cost, less an
allowance for specific losses, with realized gains and losses on
disposal deferred and brought into income over the remaining term to
maturity.                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| | (ii)  |  | Mortgages:Under U.S. GAAP, mortgages are carried at amortized
cost less repayments and an allowance for specific losses. Realized
gains and losses on disposal are recognized in income immediately.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |       |  | Under Canadian GAAP, mortgages are also carried at amortized cost less
repayments and an allowance for specific losses, however, realized
gains and losses on disposal are deferred and amortized into income
over the remaining term of the mortgage sold.                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | (iii) |  | Stocks:Under U.S. GAAP, stocks may be classified as available
for sale or trading securities. All stocks are classified as available
for sale by the Company and are carried at fair value. Realized gains
and losses on disposal are immediately recognized in income.
Unrealized gains                                                                                                                                                                                                                                                                                                                                                                                    

45



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##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



| |      |  | or losses on stocks classified as available for sale are excluded
from income and are reported net of tax as other comprehensive income.
Other than temporary declines in the value of stocks result in a
write-down of the stock value through a charge to income in the period
of recognition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |      |  | Under Canadian GAAP, stocks are carried at a value that is adjusted
toward fair value each quarter at a rate of 5% of the difference
between the carrying value and period-end fair value, with this
adjustment being reflected in net income. Net realized gains and
losses on disposal are deferred and amortized to net income on a
declining balance basis at 5% per quarter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | (iv) |  | Real estate:Under U.S. GAAP, real estate is carried at cost less
accumulated amortization. Realized gains and losses on disposal are
recognized in income as they occur. Unrealized gains and losses are
not recognized. Specific properties are written down to fair value if
an impairment in the value of the property is considered to be other
than temporary.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |      |  | Under Canadian GAAP, real estate, including Company occupied
premises, is carried at a value that is adjusted toward fair value
each quarter at a rate of 3% of the difference between the carrying
value and period-end appraised value, with this adjustment being
reflected in net income. Net realized gains and losses on disposal
are deferred and amortized to net income on a declining balance basis
at 3% per quarter. Specific properties are written down to fair value
if an impairment in the value of the property is considered to be
other than temporary.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | (v)  |  | Deferred acquisition costs (DAC):Under U.S. GAAP, the
costs of acquiring new business that vary with and are related
primarily to the production of new business are deferred and
recorded as an asset to the extent such costs are deemed recoverable
from future profits. DAC consists principally of commissions, and
policy issue and underwriting expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |      |  | The amortization of the costs is dependent on the type of policy to
which the costs relate. For non-participating traditional life and
annuity policies with life contingencies, DAC is amortized in
proportion to expected future premiums. Assumptions on expected
future premiums are made at the date of policy issue and are
consistently applied over the life of the contracts. For
participating traditional life, universal life and investment-type
contracts, DAC is amortized and charged to
income in proportion to the estimated gross profit margins expected
to be realized over the life of the contract. The assumptions used to
estimate future gross profits change as experience emerges. In
addition, DAC relating to these contracts is adjusted to reflect the
changes that would have been necessary if the unrealized gains and
losses on the bonds and stocks classified as available for sale had
actually been realized. This adjustment is not included in income but
is recognized directly in equity.

46



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



| |      |  | Under Canadian GAAP, Life SOP allows the amortization of acquisition
expenses over a period extending beyond the term of the liability of
certain products, such as segregated funds products without material
insurance components, and group life and health products with short
guaranteed periods, to the extent that these acquisition expenses are
recoverable. The amount of DAC is included as a negative reserve in
the actuarial liabilities.                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (vi) |  | Actuarial liabilities:Under U.S. GAAP, there are three main
standards for valuing actuarial liabilities, depending on the nature
of the insurance contract.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |      |  | For traditional non-participating contracts, disability insurance and
reinsurance contracts, actuarial liabilities are calculated using a
net level premium method, where the liabilities represent the present
value of future benefits to be paid and related expenses less the
present value of future net premiums. The assumptions used are based
on best estimates at the time the policy is issued, with a mild
provision for adverse deviation. The assumptions are not changed
(locked in) for future valuations unless it is determined that future
income is no longer adequate to recover the existing DAC. In this
case, this DAC is reduced or written off, and, if necessary, actuarial
liabilities are increased. The actuarial liabilities may not
subsequently be reduced if the circumstances causing the strengthening
of actuarial liabilities no longer apply.
|
| |      |  | For universal life and investment-type contracts, the actuarial
liabilities are equal to the policyholder account values. The
assumptions used are based on best estimates without any provision for
adverse deviation and are not locked in. If it is determined that the
future income for universal life-type contracts is no longer adequate
to recover the existing DAC, these costs would be reduced or written
off, and actuarial liabilities would increase as necessary. The
actuarial liabilities may not subsequently be reduced if the
circumstances causing the strengthening no longer apply.                                                                                                                                                                                                                                                                         
|
| |      |  | For participating contracts, the actuarial liability is computed using
a net level premium method. The assumptions used are based on best
estimates without any provision for adverse deviation and are not
locked in. If it is determined that future income is no longer
adequate to recover the existing DAC, the DAC is reduced or written
off, and, if necessary, actuarial liabilities are increased. The
actuarial liabilities may not subsequently be reduced if the
circumstances causing the strengthening no longer apply.                                                                                                                                                                                                                                                                                                                                               
|
| |      |  | In addition, U.S. GAAP requires that certain actuarial liabilities be
adjusted to reflect the changes that would have been necessary if the
unrealized gains on stocks and bonds classified as                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

47



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##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



| |        |  | available for sale had been realized. This adjustment is not included
in income but is reported as other comprehensive income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |        |  | Under Canadian GAAP, the Company follows Life SOP issued by the
Canadian Institute of Actuaries for the calculation of actuarial
liabilities. Life SOP allows the amortization of acquisition expenses
over a period extending beyond the term of the liability of certain
products, such as segregated funds products without material insurance
components, and group life and health products with short guaranteed
periods, to the extent that these acquisition expenses are
recoverable. The actuarial liabilities represent the amount required,
in addition to future premiums and investment income, to provide for
future benefit payments, policyholder dividends, commissions, and
policy maintenance expenses for all insurance and annuity policies in
force with the Company. Actuarial liabilities are comprised of a best
estimate reserve and provisions for adverse deviation. Assumptions are
updated regularly, and the effects of any changes in assumptions are
recognized in income immediately.
|
| | (vii)  |  | Deferred revenue:Under U.S. GAAP, for universal life insurance
and investment-type contracts, fees charged to policyholders relating
to future services to be provided are recorded as deferred revenue and
are amortized to income in the same manner as DAC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |        |  | Under Canadian GAAP, all premium income is recorded as revenue when
due and the anticipated costs of future services are included within
actuarial liability calculations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | (viii) |  | Business combinations and goodwill:Under U.S. GAAP, the actuarial
liabilities assumed on acquisition of a business are valued in
accordance with the policies described in the Actuarial Liabilities
discussion using current assumptions as at the date of acquisition.
The present value of future profits on the in force business
acquired is recognized as an intangible asset and is amortized over
future periods, on a basis consistent with the amortization of DAC
as described above. Goodwill represents the excess of cost over the
sum of the estimated fair value of net assets, including the present
value of future profits on the in force business acquired. Effective
January 1, 2002, the Company adopted the new U.S. Financial
Accounting Standards Board (FASB) recommendations for Business
Combinations and Goodwill and Other Intangible Assets, at which time
goodwill was no longer amortized.                                                                                            
|
| |        |  | Under Canadian GAAP, the actuarial liabilities assumed on acquisition
of a business are valued based on accepted actuarial practice
following the CALM, including the use of best estimate assumptions as
at the date of acquisition. Goodwill represents the excess of cost
over the estimated fair value of the net assets acquired as at the
date of acquisition. Effective January 1,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

48



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



| |      |  | 2002, the Company adopted the new CICA recommendations for Business
Combinations and Goodwill and Other Intangible Assets, at which time
goodwill was no longer amortized. Refer to note 2(a)(i) for a
description of changes to this policy.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (ix) |  | Policyholders dividend obligation (PDO):Under U.S. GAAP, in
determining net income attributed to closed participating blocks of
business arising from demutualization, when there is a limit on the
amount of earnings that can be distributed to shareholders, the
excess of cumulative actual closed block earnings over cumulative
expected earnings on a U.S. GAAP basis is set up as a PDO to the
participating policyholders. For open blocks of participating
business, earnings in excess of the shareholder transfer (3.5% of
dividends paid) are set up as PDO. The amount of the PDO as at
December 31, 2002 is $183 million ($134 million for 2001) and is
included in the actuarial liabilities.
|
| |      |  | Under Canadian GAAP, net income attributable to closed blocks of
business arising from demutualization is recognized in the
participating policyholders account as earned.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | (x)  |  | Accounting for derivatives:Under U.S. GAAP, the Company
recognizes all derivatives as assets or liabilities on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted
to fair value through income. Derivatives that qualify as hedges must
be designated as hedging instruments, based on the exposure being
hedged, either as a fair value hedge, a cash flow hedge, or a hedge of
a net investment in a foreign operation.                                                                                                                                                                                                                                                        
|
| |      |  | Under Canadian GAAP, the Company utilizes derivative financial
instruments, including swaps, forward contracts, futures and options,
when appropriate, to manage its asset/liability positions and to
hedge against fluctuations in interest rates, foreign exchange rates
and stock market indices. Realized and unrealized gains and losses
resulting from the use of these derivative financial instruments are
included in income on a basis consistent with the underlying
positions being hedged.                                                                                                                                                                                                         
|
| | (xi) |  | Income tax rates:Under U.S. GAAP, future income tax liabilities
and assets are recognized based on the differences between the
accounting values of assets and liabilities and their related tax
bases using currently enacted income tax rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |      |  | Under Canadian GAAP, future income tax liabilities and assets are
recorded based on substantially enacted income tax rates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

49



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##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



| | (xi) |  | Minimum pension liability:Under U.S. GAAP, the excess of any
unfunded accumulated benefit obligation is required to be reflected as
an additional minimum pension liability in the Consolidated Balance
Sheets with an offsetting adjustment to intangible assets to the
extent of unrecognized prior service costs, with the remainder
recorded in other comprehensive income.
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |      |  | Under Canadian GAAP, there is no requirement to reflect a minimum
pension liability.                                                                                                                                                                                                                                                                                           



|(f) | The following provides a general review of the material presentation
differences between Canadian GAAP and U.S. GAAP.
|--- | ---------------------------------------------------------------------------------------------------------------------



| | (i)   |  | Premium revenue:Under U.S. GAAP, premiums collected on universal
life insurance and investment contracts (such as annuities) are not
reported as revenue in the Consolidated Statements of Net Income but
are recorded as deposits to policyholders account balances. Fees
assessed against the policyholders relating to the contracts are
recognized as revenue.
| | ----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |       |  | Under Canadian GAAP, premium income is reported as revenue when due.
A partially offsetting increase in actuarial liabilities for the
related policies is recorded in the Consolidated Statements of Net
Income.                                                                                                                                                   
|
| | (ii)  |  | Reinsurance:Under U.S. GAAP, reinsurance recoverables are
presented on a gross basis as a separate balance sheet asset, rather
than netted against the related liabilities.                                                                                                                                                                                        
|
| |       |  | Under Canadian GAAP, reinsurance recoverables from ceded contracts
are recorded as an offset against policy liabilities.                                                                                                                                                                                                                                           
|
| | (iii) |  | Segregated funds assets and liabilities:Under U.S. GAAP,
segregated funds assets and liabilities are separately presented in
summary lines on the balance sheet, titled separate accounts.                                                                                                                                                                       
|
| |       |  | Under Canadian GAAP, segregated funds are managed separately from
the general fund of the Company. Therefore, they are reported
separately from the general fund assets and liabilities on the
Consolidated Balance Sheets.                                                                                                                                        

50



---



##### 



Canada Life Financial Corporation
Notes to the Consolidated Financial Statements



| | (iv) |  | Statement of cash flows:Under U.S. GAAP, the cash flows from
investment contracts are disclosed as a financing activity.                               
| | ---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |      |  | Under Canadian GAAP, the cash flows from investment contracts,
including deferred annuities and group pensions, are disclosed as an
operating activity.

51