Ia Financial Corporation Inc. · TSX:IAG
Ia Financial — Q4 2019 Earnings Presentation
43 slides from Ia Financial's earnings presentation, Feb 13, 2020
Slide 1: Fourth Quarter 2019 Conference Call
Fourth Quarter 2019 Conference Call Presenters: Denis Ricard, President and CEO Jacques Potvin, EVP, CFO and Chief Actuary February 13, 2020
Slide 2: Table of contents
Table of contents 3 Highlights 17 2020 guidance 31 Individual Insurance 4 2019 in a nutshell 18 ESG 32 Individual Wealth Management 5 Sales 19 Book value 33 Group Insurance 6 Acquisitions 20 Taxes 34 Group Savings and Retirement 7 Q4 results 21 Income on capital 35 US Operations 8 Q4 items of note 2
Slide 3: Q4/2019 highlights – Ending a very good year on a high note
Q4/2019 highlights – Ending a very good year on a high note EPS at top of guidance – Strong business growth – Solid capital position • Reported EPS of $1.59 and trailing-12-month ROE of 12.9% • Core EPS of $1.62, up 17% YoY and above guidance of $1.50-$1.60 • Several positive items: Strain, taxes, m
Slide 4: 2019 in a nutshell
2019 in a nutshell Very strong year – Boding well for 2020 Profit above guidance Strong balance sheet: Reserves well positioned ROE is expanding and ongoing organic capital generation Capital deployment announced: Effective investment strategies to manage risks Establishing a leading position Target
Slide 5: Q4/2019 sales – Positive results for almost all business units
Q4/2019 sales – Positive results for almost all business units Strong finish to the year for Individual Insurance – Mutual funds are improving Fourth quarter Year-to-date at December 31 ($Million, unless otherwise indicated) 2019 2018 Variation 2019 2018 Variation ► Individual Insurance 51.3 47.3 8%
Slide 6: Acquisitions in Dealer Services
Acquistions in Dealer Services Accelerating iA’s growth strategy through capital deployment • Expected to close in H1/2020 Acquisition of • Accretion1: Neutral to earnings in 2020 and +0.17 EPS in 2021 American company • Creates a leading US vehicle warranty platform of scale with significant synerg
Slide 7: Q4/2019 results vs. guidance
Q4/2019 results vs. guidance Favourable results for all metrics 2019 guidance Q4/2019 results 2019 results Q4: $1.50 to $1.60 Reported: $1.59 Reported: $6.40 EPS 12M: $5.75 to $6.15 Core1: $1.62 Core1: $6.26 ROE Reported: 12.9% 11.0% to 12.5% --- (trailing twelve months) Core: 12.6% Quarterly range
Slide 8: Q4 items of note
Q4 items of note Reported EPS near expectations as all items sum up to +1¢ EPS EPS impact +13¢ +7¢ +2¢ +2¢ -2¢ -7¢ -14¢ Litigation Software Policyholder Strain Year-end Taxes Market- provision writedowns experience assumption related 1 review 1 Including iA Auto and Home, see details on following sl
Slide 9: Policyholder experience (excluding market impact)
Policyholder experience (excluding market impact) Favourable overall experience in 2019 2019 2018 EPS impact 2019 1 2018 in cents Q4 1 Q3 Q2 Q1 Q4 Q3 Q2 Q1 annual annual 2 2 Individual Insurance 3 4 6 (6) (8) 2 10 4 7 8 Individual Wealth 3 (6) 0 (3) (1) 03 3 (1) 2 (10) 4 Management Group Insurance (
Slide 10: 2019 year-end assumption review
2019 year-end assumption review Total impact is slightly positive Impact on net income Pre-tax After-tax ($Million, non-PAR business) Mortality & Morbidity (17) (12) - Annual mortality and morbidity assumption review Policyholder behaviour (8) (6) - Annual P/H behaviour assumption review +++ Investm
Slide 11: Management’s view on EPS
Management’s view on EPS Core EPS1 of $1.62, up 17% YoY and above $1.50-$1.60 guidance Q4 reported EPS $1.59 Q4 reported EPS Q4 core EPS1 Adjusted for: $1.61 $1.62 $1.59 $1.60 Specific items: Changes in assumptions and -$0.02 management actions Unusual income tax gain and loss -$0.08 Software writed
Slide 12: Capital position
Capital position 110% to 116% solvency ratio target, appropriate to iA’s risk profile Solvency ratio Key changes during the quarter iA Financial Corporation Inc. (%, end of period) 134 133 ► -2.5% Deployment of capital into higher-yielding assets 126 127 122 124 120 119 ► +1.0% Investment strategies
Slide 13: Solvency ratio macroeconomic sensitivity
Solvency ratio macroeconomic sensitivity Sensitivity continues to be low ► Equity market variation1 (30%) (20%) (10%) +10% +20% +30% ► Impact on solvency ratio Dec. 31, 2019 +1% +2% +1% (1%) (1%) (1%) (in percentage points) ► Interest rate variation2 (50 bps) (25 bps) +25 bps +50 bps ► Impact on sol
Slide 14: Flexible balance sheet
Flexible balance sheet Strong capital generation in 2019 is expected to continue in 2020 • 2019: ◦ ~$280M in organic generation within $250M to $300M target Capital ◦ ~$420M in capital relief from investment strategies to manage macroeconomic risks generation • 2020: ◦ Keeping $250M to $300M target
Slide 15: Dividend to common shareholders
Dividend to common shareholders Increased by 8% $0.50 Dividend of 48.5¢ per share $0.45 payable in Q1/20 $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 20
Slide 16: EPS guidance
EPS guidance Committed to minimum 10% annual EPS growth $6.90 EPS Guidance (diluted) $6.15 $6.30 $5.60 $5.75 $5.05 $4.60 $5.20 $4.20 $4.65 $3.80 $4.20 +11% $3.40 $3.80 Target range $3.40 $3.00 2013 2014 2015 2016 2017 2018 2019 2020 2 Reported EPS $3.57 $3.97 $3.57 $5.19 $4.81 $5.59 $6.40 Core1 EPS
Slide 17: 2020 guidance
2020 guidance Improved targets for ROE, EPS and strain EPS1 ROE1 11.5% to 13.0% 3% annual target Q1 $1.40 to $1.55 Strain (quarterly range from -5% to 10%) Q2 $1.55 to $1.70 Solvency 110% to 116% ratio Q3 $1.70 to $1.85 Q4 $1.65 to $1.80 Effective 20% to 22% tax rate 2020 $6.30 to $6.90 Payout 25% t
Slide 18: Building for the long term
Building for the long term iA Financial Group becomes carbon neutral in 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 ◦ Signatory of United Nations Principles for Responsi
Slide 19: Book value per share
Book value per share December 31, 2019 CAGR $51.99 1-year +10% 5-year +9% 10-year +9% Since 2000 +10% March 31, 20001 $8.44 IPO 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2.17 2.22 1.72 1.61 1.80 1.74 1.94 2.03 1.15 1.41 1.49 1.00 1.14 1.53 1.
Slide 20: Effective tax rate (ETR) of 16.6%, below 20%-22% target
Effective tax rate (ETR) of 16.6%, below 20%-22% target (+7¢ EPS) +8¢ from impact on previous years of tax optimization work done in Q3 2019 2018 2017 ($Million, unless otherwise indicated) Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Operating income 184.7 201.1 208.7 184.6 137.1 189.1 201.5 159.9 155.8 162
Slide 21: Income on capital – iAAH finishes a great year with a 1¢ EPS gain
Income on capital – iAAH finishes a great year with a 1¢ EPS gain Also: Higher income (+2¢), software write-off (-3¢) and PAR account adjustment (-2¢) Quarterly 2019 2018 2017 Run Rate ($Million, pre-tax) 2020 2020 2019 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 pre-IAS post-IAS Investment 44.5 38.5 39.5 3
Slide 22: Strain on new business
Strain on new business Better than expected in Q4 because of favourable sales mix (+2¢ EPS) Reported strain includes Individual Insurance in Canada and the US 2019 2018 2017 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Sales ($M) 90.0 81.3 81.1 66.6 75.5 76.9 75.1 68.5 74.9 68.8 74.9 69.9 Strain ($M) 0.8 (1.
Slide 23: Hedging experience
Hedging experience Generally a win: Average gain of $0.02 EPS/quarter since inception Hedging impact on EPS (¢) (since hedging program inception) 11 10 9 8 7 6 6 6 5 5 5 4 4 4 4 4 4 3 3 1 2 2 2 2 0 0 0 0 (1) 0 0 (3) (4) (5) (6) (9) (12) Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Slide 24: Equity market sensitivity
Equity market sensitivity (End of period) Q4/2019 Q3/2019 Q4/2018 S&P/TSX closing value 17,063 pts 16,659 pts 14,323 pts iA Financial Corporation solvency ratio 133% 134% 126% Sensitivities Stocks matching S&P/TSX1 level at which provisions for future policy benefits would have to be strengthened 13
Slide 25: Interest rate sensitivity
Interest rate sensitivity (End of period) Q4/2019 Q3/2019 Q4/2018 ► 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 $2M ($12M) ($10M) ► URR = Ultimate Reinvestment Rate ► Maximum assumption is promulgated by
Slide 26: Macroeconomic protection
Macroeconomic protection Markets can drop 24% and interest rate protection no longer required Stock market protection Interest rate protection (at end of period) (at end of period) 75 bps 30% 27% 25% 24% 20% 43 bps 43 bps 42 bps no longer Year-end required Canadian rates: 2.17% 2.35% 2.27% 2.20% 201
Slide 27: S&P/TSX thresholds for Q1/2020 gain or loss
S&P/TSX thresholds for Q1/2020 gain or loss Potential impact on TSX threshold Threshold Q1/2020 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 17,298 , ±$9.5M UL policy funds
Slide 28: Reported EPS and core EPS reconciliation
1 Reported EPS and core EPS reconciliation Fourth quarter Year-to-date at December 31 (On a diluted basis) 2019 2018 Variation 20191 2018 Variation EPS $1.59 $1.36 17% $6.40 $5.59 14% Adjusted for: Specific items: Sale of a property, net of losses on AFS investment — ($0.14) — ($0.14) PPI purchase p
Slide 29: Premiums and deposits
Premiums and deposits Net premiums, premium equivalents and deposits Q4/2019 $Million YoY ($Billion) 11.4 10.3 10.4 Individual Insurance 409.9 3% 9.8 3.1 2.6 Individual Wealth Management 1,376.4 32% 8.2 2.4 7.7 2.3 2.7 Group Insurance 449.1 (3%) Q4 2.0 2.4 2.2 Group Savings and Retirement 586.2 36%
Slide 30: Asset growth
Asset growth AUM/AUA (assets under management and Assets under management and administration administration, end of period, $Billion) 189.5 189.4 169.6 ($Billion, unless December 31 169.5 168.8 QoQ YoY otherwise indicated) 2019 89.2 Assets under management 126.2 80.8 79.7 115.8 General fund 45.3 — 1
Slide 31: Individual Insurance (Canada)
Individual Insurance (Canada) Fourth quarter Year-to-date at December 31 ($Million, unless otherwise indicated) 2019 2018 Variation 2019 2018 Variation Sales1 Minimum premiums2 48.5 44.7 9% 176.4 173.7 2% Excess premiums3 2.8 2.6 8% 11.1 17.1 (35%) Total 51.3 47.3 8% 187.5 190.8 (2%) Premiums 409.9
Slide 32: Individual Wealth Management
Individual Wealth Management Fourth quarter Year-to-date at December 31 ($Million, unless otherwise indicated) 2019 2018 Variation 2019 2018 Variation Sales1 General fund 176.7 104.8 69% 545.8 400.6 36% Segregated funds 633.4 460.0 38% 2,365.5 1,987.9 19% Mutual funds 566.3 481.8 18% 2,063.7 2,137.9
Slide 33: Group Insurance
Group Insurance Fourth quarter Year-to-date at December 31 ($Million, unless otherwise indicated) 2019 2018 Variation 2019 2018 Variation Sales1 Employee Plans 6.2 7.2 (14%) 49.1 92.5 (47%) Dealer Services - Creditor Insurance2 75.0 87.0 (14%) 328.7 374.2 (12%) P&C Insurance 55.9 54.8 2% 253.4 242.2
Slide 34: Group Savings and Retirement
Group Savings and Retirement Fourth quarter Year-to-date at December 31 ($Million, unless otherwise indicated) 2019 2018 Variation 2019 2018 Variation Sales1 Accumulation products 382.7 411.8 (7%) 1,400.0 1,401.4 0% Insured annuities 197.3 9.8 1,913% 627.6 218.4 187% Deposits2 13.2 16.7 (21%) 46.0 4
Slide 35: US Operations
US Operations Fourth quarter Year-to-date at December 31 ($Million, unless otherwise indicated) 2019 2018 Variation 2019 2018 Variation Sales ($US)1 Individual Insurance 29.4 21.5 37% 99.2 81.3 22% Dealer Services (P&C) 107.6 79.3 36% 449.2 375.1 20% Premiums and equivalents 175.8 132.8 32% 651.1 53
Slide 36: Quality of investment portfolio
Quality of investment portfolio December 31 September 30 December 31 2019 2019 2018 IMPAIRED INVESTMENTS AND PROVISIONS Gross impaired investments $21.4M $24.0M $24.5M Provisions for impaired investments $10.5M $11.1M $8.6M Net impaired investments $10.9M $12.9M $15.9M Net impaired investments as a
Slide 37: Car loan credit experience
Car loan credit experience Long-term trend is in line with management expectations Average credit loss rate (non-prime)1 Trailing 12 months since acquisition of CTL during Q3/15 8.3% 8.0% 7.4% 6.7% 6.1% 5.9% 5.7% 5.4% 5.2% 5.2% 5.3% 5.4% 5.3% 5.4% Q3/16 Q4/16 Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/1
Slide 38: 2019 guidance
2019 guidance iA Financial Corporation EPS1 ROE1 11.0% to 12.5% 6% annual target Q1 $1.25 to $1.35 Strain (quarterly range from 0% to 15%) Q2 $1.45 to $1.55 Solvency 110% to 116% ratio Q3 $1.55 to $1.65 Q4 $1.50 to $1.60 Effective 20% to 22% tax rate 2019 $5.75 to $6.15 Payout 25% to 35% ratio (mid-
Slide 39: 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) 39
Slide 40: Investor Relations
Investor Relations Contact Marie-Annick Bonneau Tel.: 418-684-5000, ext. 104287 Marie-Annick.Bonneau@ia.ca Next Reporting Dates Q1/2020 - May 7, 2020 Q2/2020 - July 30, 2020 Q3/2020 - November 4, 2020 Next Investor Day June 5, 2020 For information on our earnings releases, conference calls and relat
Slide 41: 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 42: 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 43: TaN cal
TaN cal Financial Group