Ia Financial Corporation Inc. · TSX:IAG
Ia Financial — Q2 2020 Earnings Presentation
41 slides from Ia Financial's earnings presentation, Jul 30, 2020
Slide 1: Second Quarter 2020 Conference Call
Second Quarter 2020 Conference Call Presenters: Denis Ricard, President and CEO Michael L. Stickney, EVP and CGO Jacques Potvin, EVP, CFO and Chief Actuary July 30, 2020
Slide 2: Table of contents
Table of contents 3 Q2 highlights 16 Bond portfolio by category 29 AUM/AUA 4 IAS acquisition 17 Car loans 30 Individual Insurance 5 Q1 sales 18 Book value 31 Individual Wealth Management 6 Pandemic impacts on sales 19 Dividend 32 Group Insurance 7 Q2 results 20 Macro impact on earnings 33 Group Savi
Slide 3: Q2/2020 highlights – Strong, resilient results
Q2/2020 highlights – Strong, resilient results Solid EPS, strong business growth and robust capital position amid pandemic • Reported EPS of $1.71 (+1% YoY) and trailing-12-month ROE of 10.5% • Core EPS of $1.57 (-2% YoY) and trailing-12-month core ROE of 12.4% • Many positive items: Policyholder ex
Slide 4: Acquisition of US company IAS Parent Holdings, Inc.
Acquisition of US company IAS Parent Holdings, Inc. Ongoing integration, with a view to supporting our long-term growth strategy Consistent with iA’s growth strategy and capitalizing on Parent Holdings positive growth trends within the vehicle warranty market • One of the largest providers of soluti
Slide 5: Q2/2020 sales
Q2/2020 sales Solid results for Individual Insurance, iAAH and seg and mutual fund inflows Second quarter Year-to-date at June 30 ($Million, unless otherwise indicated) 2020 2019 Variation 2020 2019 Variation ► Individual Insurance 52.9 48.0 10% 98.1 89.2 10% ► Individual Wealth Management General f
Slide 6: Pandemic-related impacts on sales in H2/2020
Pandemic-related impacts on sales in H2/2020 Better outlook than initially expected: Sales strategy shows resiliency Sales before Sales for the remainder of 2020 Comments the pandemic Initial assessment Current assessment1 Distribution networks fully operate virtually Individual Insurance Strong Low
Slide 7: Solid Q2/2020 results
Solid Q2/2020 results Core EPS for the first half of 2020 up 3% YoY Q2/2020 results 2020 YTD results Reported: $1.71 +1% YoY Reported: $2.07 -33% YoY EPS Core2: $1.57 -2% YoY Core1: $2.98 +3% YoY ROE Reported: 10.5% --- (trailing twelve months) 2 Core : 12.4% Strain 10% 11% Effective tax rate 21.8%
Slide 8: Q2 items of note
Q2 items of note Positive outcome for policyholder experience, macroeconomics and taxes Q2/2020 Impact on EPS (cents) Core Non-core Total Favourable results at iAAH and in Group sectors Policyholder experience1 11 4 15 (see slide 9) Among others, hedging program reacted well through April market Mac
Slide 9: Policyholder experience (excluding market impact)
Policyholder experience (excluding market impact) Favourable Q2 results: Strong result at iAAH and for Dealer Services in Canada 2020 2019 2018 EPS impact 2020 20191 2018 in cents Q2 Q1 Q41 Q3 Q2 Q1 Q4 Q3 Q2 Q1 YTD annual annual Individual Insurance2 0 (8) 3 4 6 (6) (8) 2 10 4 (8) (4) 8 Individual W
Slide 10: Management’s view on EPS
Management’s view on EPS Core EPS1 of $1.57 for Q2 (-2% YoY) and $2.98 for H1 (+3% YoY) Q2 reported EPS Q2 core EPS1 Q2 reported EPS $1.71 $1.71 Adjusted for: $1.57 Specific items: $1.41 $1.39 Sale of iA Investment Counsel ($0.08) Acquisition and integration costs +$0.06 Market-related gains and los
Slide 11: Capital position
Capital position 124% solvency ratio – Comfortably above iA’s target level Solvency ratio iA Financial Corporation Inc. (%, end of period) 137 Key changes during the quarter 134 133 126 127 122 124 124 120 119 Acquisition of US company IAS Parent ► (17.0%) Holdings, Inc. 110%-116% target Macroeconom
Slide 12: Flexible balance sheet
Flexible balance sheet • Leverage ratio of 25.6% Ratios (June 30, 2020) • Coverage ratio of 12.4x Capital • Q2/2020: Organic capital generation of ~$70M (~$105M YTD) generation • H2/2020: Potential impact of pandemic on organic capital generation in the event of a second wave Capital • Low sensitivi
Slide 13: Pandemic-related impacts on reported earnings in H2/2020
Pandemic-related impacts on reported earnings in H2/2020 2020 results could be better than initially assessed, depending on pandemic evolution For the remainder of 2020 Initial Current Comments assessment assessment1 See sensitivities provided on slides 24 to 26 Macroeconomics – – – to + + – – to +
Slide 14: Hedging program – Experience
Hedging program – Experience The program has reacted well, only 7¢ EPS loss in Q2 despite high market volatility in April Hedging impact on EPS (¢) Cumulative gains of 13¢ EPS since program inception (since hedging program inception) 11 10 9 8 7 6 6 6 5 5 5 4 4 4 4 4 4 3 3 1 0 0 0 2 2 0 2 0 2 0 (1)
Slide 15: Investment portfolio
Investment portfolio High-quality, diversified portfolio Bonds - Corporates - BB and lower: 0.6% Bond portfolio: 69.2% of total portfolio Real estate: 4.6% • Only 0.8% of bond portfolio rated BB or lower • 48.2% of bond portfolio are corporate bonds Bonds - Corporates - Mortgages - Insured: 4.9% BBB
Slide 16: Bond portfolio by category
Bond portfolio by category High-quality, conservative portfolio Bond oil & gas exposure = 2.8% of total portfolio • Direct exposure is 0.8% of total portfolio Utilities: 14.0% • Almost all exposure is in corporate bonds Bond pandemic-affected sectors1 • 0.55% Consumer cyclical (retailers, autos and
Slide 17: Car loan credit experience
Car loan credit experience Provision well positioned to navigate through the economic slowdown Average credit loss rate (non-prime)1 Trailing 12 months since acquisition of CTL in Q3/15 Temporary decrease in Q2/20 due to relief 8.3% 8.0% measures to clients and changes in client spending and payment
Slide 18: Book value per share
Book value per share P/BV ratio of 0.85 at June 30, 2020 June 30, 2020 CAGR $53.23 1-year +7% 5-year +8% 10-year +8% Since 2000 +10% March 31, 20001 $8.44 IPO 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2.17 2.22 1.72 1.61 1.80 1.74 1.94 2
Slide 19: Dividend to common shareholders
Dividend to common shareholders $0.50 Dividend of 48.5¢ per share $0.45 payable in Q3/20 $0.40 $0.35 $0.30 $0.25 Steady increases every 3rd quarter $0.20 $0.15 First lifeco in Canada to resume dividend $0.10 increases after the financial crisis $0.05 $0.00 2005 2006 2007 2008 2009 2010 2011 2012 201
Slide 20: Macro-related impact on earnings: +10¢ total in Q2
Macro-related impact on earnings: +10¢ total in Q2 Hedging program reacted well during April high market volatility Approximate after-tax impact of macroeconomic 2020 2019 2018 variations, in millions of dollars, as compared to the expected net earnings that the Company would have earned under norma
Slide 21: Strain on new business
Strain on new business -5¢ EPS from unfavourable sales mix and Q1 drop in interest rates Reported strain includes Individual Insurance in Canada and the US 2020 2019 2018 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Sales ($M) 98.4 84.6 90.0 81.3 81.1 66.6 75.5 76.9 75.1 68.5 Strain ($M) (9.8) (10.4) 0.8 (1.7) (1.
Slide 22: Income on capital
Income on capital Strong non-pandemic result at iAAH (+7¢), bond provision (-4¢) and lower income (-1¢) Quarterly 2020 2019 2018 Run Rate ($Million, pre-tax) 2020 2020 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 pre-IAS post-IAS Investment 44.5 38.5 36.2 41.1 35.8 38.8 42.0 41.6 59.3 38.6 34.9 40.4 income Financi
Slide 23: Effective tax rate (ETR) of 21.8%
Effective tax rate (ETR) of 21.8% +4¢ EPS from adjustment related to 2019 (true-up) and other items 2020 2019 2018 ($Million, unless otherwise indicated) Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Operating income 209.9 8.8 184.7 201.1 208.7 184.6 137.1 189.1 201.5 159.9 Income on capital 30.8 34.3 27.0 40.1 32.
Slide 24: Equity market sensitivity
Equity market sensitivity (End of period) Q2/2020 Q1/2020 Q4/2019 Q2/2019 S&P/TSX closing value 15,515 pts 13,379 pts 17,063 pts 16,382 pts iA Financial Corporation solvency ratio 124% 137% 133% 127% Sensitivities S&P/TSX1 level at which provisions for future policy benefits would have to be strengt
Slide 25: Interest rate sensitivity
Interest rate sensitivity (End of period) Q2/2020 Q1/2020 Q4/2019 Q2/2019 ► IRR = Initial Reinvestment Rate ► Key element is long-term Canadian rate at year-end IRR ► Impact on net income1 of a 10 bps decrease in IRR $3M $0M $2M ($12M) ► URR = Ultimate Reinvestment Rate ► Maximum assumption is promu
Slide 26: S&P/TSX thresholds for Q3/2020 gain or loss
S&P/TSX thresholds for Q3/2020 gain or loss Potential impact on TSX threshold Threshold Q3/2020 Earnings driver net income attributed to for gain or loss compared with: common shareholders of a ±10% variation vs. threshold Actual TSX value Revenues on 1 at the end of 15,729 ±$8.9M UL policy funds Q3
Slide 27: Reported EPS and core EPS reconciliation
1 Reported EPS and core EPS reconciliation Second quarter Year-to-date at June 30 (On a diluted basis) 2020 2019 Variation 2020 2019 Variation EPS $1.71 $1.69 1% $2.07 $3.09 (33%) Adjusted for: Specific items: PPI goodwill impairment — — $0.22 — Sale of iA Investment Counsel ($0.08) — ($0.08) — Unus
Slide 28: Premiums and deposits
Premiums and deposits Net premiums, premium equivalents and deposits Q2/2020 $Million YoY ($Billion) 11.4 10.3 10.4 Individual Insurance 393.5 1% 9.8 3.1 2.6 Individual Wealth Management 1,278.8 13% 8.2 2.4 7.7 Group Insurance 393.3 (12%) 2.3 2.7 Q4 2.0 2.4 6.2 2.2 Group Savings and Retirement 358.2
Slide 29: Asset growth
Asset growth AUM/AUA (assets under management and Assets under management and administration administration, end of period, $Billion) 189.5 181.0 169.6 ($Billion, unless June 30 169.5 168.8 QoQ YoY otherwise indicated) 2020 89.2 Assets under management 85.7 126.2 80.8 79.7 115.8 General fund 51.5 8%
Slide 30: Individual Insurance (Canada)
Individual Insurance (Canada) Second quarter Year-to-date at June 30 ($Million, unless otherwise indicated) 2020 2019 Variation 2020 2019 Variation Sales1 Minimum premiums2 43.5 43.1 1% 86.8 82.1 6% Excess premiums3 9.4 4.9 92% 11.3 7.1 59% Total 52.9 48.0 10% 98.1 89.2 10% Premiums 393.5 391.3 1% 7
Slide 31: Individual Wealth Management
Individual Wealth Management Second quarter Year-to-date at June 30 ($Million, unless otherwise indicated) 2020 2019 Variation 2020 2019 Variation Sales1 General fund 174.9 97.9 79% 380.6 207.1 84% Segregated funds 599.3 544.8 10% 1,471.6 1,155.7 27% Mutual funds 504.6 485.9 4% 1,197.6 1,032.2 16% T
Slide 32: Group Insurance
Group Insurance Second quarter Year-to-date at June 30 ($Million, unless otherwise indicated) 2020 2019 Variation 2020 2019 Variation Sales1 Employee Plans 22.9 4.1 459% 80.0 30.0 167% Dealer Services - Creditor Insurance2 46.4 91.3 (49%) 105.3 156.1 (33%) P&C Insurance 54.1 74.3 (27%) 116.1 126.9 (
Slide 33: Group Savings and Retirement
Group Savings and Retirement Second quarter Year-to-date at June 30 ($Million, unless otherwise indicated) 2020 2019 Variation 2020 2019 Variation Sales1 Accumulation products 308.7 328.5 (6%) 942.5 676.8 39% Insured annuities 52.3 17.3 202% 58.4 335.3 (83%) Deposits2 4.0 12.6 (68%) 23.0 21.8 6% Tot
Slide 34: US Operations
US Operations Second quarter Year-to-date at June 30 ($Million, unless otherwise indicated) 2020 2019 Variation 2020 2019 Variation Sales ($US)1 Individual Insurance 32.9 24.7 33% 62.3 43.9 42% Dealer Services (P&C) 106.9 114.5 (7%) 224.1 224.2 — Premiums and equivalents 187.6 163.5 15% 366.5 314.7
Slide 35: Quality of investment portfolio
Quality of investment portfolio June 30 March 31 December 31 June 30 2020 2020 2019 2019 IMPAIRED INVESTMENTS AND PROVISIONS Gross impaired investments $44.5M $5.5M $21.5M $23.9M Provisions for impaired investments $8.1M $2.8M $10.5M $11.1M Net impaired investments $36.4M $2.7M $10.9M $12.8M Net imp
Slide 36: Credit ratings
Credit ratings Industrial Alliance Insurance iA Financial Corporation Inc. and Financial Services Inc. Credit rating agency Issuer rating Credit rating agency Financial strength S&P A S&P AA- DBRS A (low) DBRS A (high) A.M. Best A+ (Superior) 36
Slide 37: Building for the long term
Building for the long term iA Financial Group is carbon neutral as of 2020 ENVIRONMENTAL ◦ Continuing projects and initiatives aimed at reducing GHG emissions at the source ◦ All GHG emissions that cannot be eliminated are calculated and offset ◦ Majority of our 40+ properties in Canada are BOMA BES
Slide 38: Investor Relations
Investor Relations Contact Marie-Annick Bonneau Tel.: 418-684-5000, ext. 104287 Marie-Annick.Bonneau@ia.ca Next Reporting Dates Q3/2020 - November 4, 2020 Q4/2020 - February 11, 2021 For information on our earnings releases, conference calls and related disclosure documents, consult the Investor Rel
Slide 39: Non-IFRS financial information
Non-IFRS financial information iA Financial Corporation reports its financial results and statements in accordance with International Financial Reporting Standards (IFRS). It also publishes certain financial measures that are not based on IFRS (non-IFRS). A financial measure is considered a non-IFRS
Slide 40: Forward-looking statements
Forward-looking statements This presentation may contain statements relating to strategies used by iA Financial Corporation or statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “may,” “could,” “should,” “would,” “suspect
Slide 41: iA Financial Group is a business name and trademark of iA Financial Corporation Inc.
iA Financial Group is a business name and trademark of iA Financial Corporation Inc. and Industrial Alliance Insurance and Financial Services Inc.