Ia Financial Corporation Inc. · TSX:IAG
Ia Financial — Q4 2020 Earnings Presentation
58 slides from Ia Financial's earnings presentation, Feb 11, 2021
Slide 1: Fourth Quarter 2020 Conference Call
Fourth Quarter 2020 Conference Call Presenters: Denis Ricard, President and CEO Michael L. Stickney, EVP and CGO Jacques Potvin, EVP, CFO and Chief Actuary February 11, 2021
Slide 2: Table of contents
Table of contents 4 Q4 highlights APPENDICES 5 2021 outlook 25 Book value 42 Core EPS reconciliation 8 Q4 sales 26 Intangible assets 43 Premiums and deposits 9 Q4 sales (cont.) 27 Dividend 44 AUM/AUA 10 2020 sales 28 Policyholder experience 45 Individual Insurance 12 Q4 results 29 Market-related imp
Slide 3: Denis Ricard
Denis Ricard President and CEO
Slide 4: Q4/2020 highlights – Solid capital position and strong sales
Q4/2020 highlights – Solid capital position and strong sales Strengthened capital and reserves as a foundation for earnings growth in 2021 • Reported EPS of $1.60 (+1% YoY) and trailing-12-month ROE of 10.6% • Core EPS of $1.60 (-1% YoY) and trailing-12-month core ROE of 11.9% • Net impact of +$0.04
Slide 5: 2021 outlook
2021 outlook Solid foundation ENTERING 2021 • 130% solvency ratio, with low market sensitivity ◦ Distinctive market protection (additional 10 percentage points) WITH CONFIDENCE • Strengthened actuarial reserves ◦ ~$100M additional pandemic protection in reserves • resilient business model ◦ URR alre
Slide 6: Investor Event
SAVE THE DATE Investor Event March 10, 2021
Slide 7: Michael L. Stickney
Michael L. Stickney EVP and CGO
Slide 8: Q4/2020: Solid sales results
Q4/2020: Solid sales results Solid results across all lines of business Fourth quarter ($Million, unless otherwise indicated) 2020 2019 Variation Continued momentum from: ► Individual Insurance 71.7 51.3 40% ▪ Strong and diversified distribution networks ▪ High-performance digital tools ▪ New produc
Slide 9: Q4/2020: Solid sales results (cont.)
Q4/2020: Solid sales results (cont.) Solid results across all lines of business Fourth quarter ($Million, unless otherwise indicated) 2020 2019 Variation ► Individual Wealth Management General fund - sales 247.3 176.7 40% Sales continue to be excellent #1 in the industry Segregated funds - net sales
Slide 10: A very strong year for sales
A very strong year for sales Increased sales momentum despite the pandemic Sales before YoY the pandemic 2020 result growth Q4/2019 and Q1/2020 full year Individual Insurance Strong Very strong 19% Individual Wealth - Seg funds Very strong Very strong 30% Individual Wealth - Mutual funds Very strong
Slide 11: Jacques Potvin
Jacques Potvin EVP, CFO and Chief Actuary
Slide 12: Q4/2020 Results – Reported and core EPS of $1.60
Q4/2020 Results – Reported and core EPS of $1.60 Reported EPS Core EPS1 $1.62 $1.60 $1.59 $1.60 $1.39 $1.27 $1.14 11% 5-year CAGR $0.96 Q4/19 Q4/20 Q4/15 Q4/16 Q4/17 Q4/18 Q4/19 Q4/20 12 This slide presents non-IFRS financial measures. See “Non-IFRS Financial Information” at the end of this document
Slide 13: Q4 items of note
Q4 items of note Positive impact from iAAH, markets, actuarial review, risk management initiatives and taxes Q4/2020 -8¢: Sales commissions and bonuses higher-than- Impact on EPS (cents) expected due to much higher-than-expected sales Core Non-core Total Favourable results at iAAH offset by higher e
Slide 14: IAS contribution – 2020 results close to expectations set in Q2
IAS contribution – 2020 results close to expectations set in Q2 Actual results1 9M/2020 Q4/2020 2020 • Seasonality: (CAD$Million) Profitability higher Operating profit (before tax) in Q2 & Q3 Expected profit on in-force 13.0 11.5 24.5 • Accelerated Expected profit on in-force excluding integration c
Slide 15: 2020 actuarial review and risk management initiatives
2020 actuarial review and risk management initiatives Favourable management actions allowing reserve strengthening Impact on net income After-tax ($Million, non-PAR business) Addresses emerging deviations from industry table at later durations. Mortality & morbidity (122) Result from annual mortalit
Slide 16: Additional protections for pandemic uncertainty
Additional protections for pandemic uncertainty Protecting future earnings from potential adverse impacts of pandemic • Objective: Cover potential excess mortality for the next 5 years from direct and indirect COVID impacts • Provision will act as a downside protection absorbing excess mortality up
Slide 17: Capital position
Capital position 130% solvency ratio – Comfortably above iA’s target level Solvency ratio Key changes during the quarter iA Financial Corporation Inc. (%, end of period) 137 134 133 130 126 127 125 122 124 124 ► +5.0% Actuarial review and 120 12 0 119 risk management initiatives 110%-116% target ► +
Slide 18: Strong balance sheet
Strong balance sheet Distinctive Embedded in reserving process, iA’s distinctive market protection decreases net income and market solvency ratio volatility and supports iA’s 110-116% solvency ratio target. protection Current protection is worth more than 10 percentage points of solvency ratio (As a
Slide 19: New core earnings definition starting in 2021
New core earnings definition starting in 2021 Straightforward definition to better compare recurring operating performance Core earnings excludes: a. market-related impacts New adjustment Amortization of acquisition-related finite life b. assumption changes and management actions intangible assets r
Slide 20: Core earnings – New adjustment related to iA's DB pension plan
Core earnings – New adjustment related to iA’s DB pension plan To properly reflect the performance of our pension plan asset portfolio iA’S DEFINED BENEFIT PENSION PLAN The impact of the accounting standards for discounting cashflows has been exacerbated in recent years as the Actual return 19.0% lo
Slide 21: 2021 guidance
2021 guidance Ongoing capital generation and improved targets for ROE, EPS and strain Core EPS1 Core ROE1 12.5% to 14.0% Q1 $1.70 to $1.85 Q2 $1.95 to $2.10 2% annual target Strain Q3 $2.00 to $2.15 (quarterly range from -5% to 10%) Q4 $1.95 to $2.10 Solvency 110% to 116% 2021 $7.60 to $8.20 ratio C
Slide 22: Core earnings
Core earnings Core EPS growth of 9% YoY in 2020 and expecting +11% for 2021 CORE DEFINITION NEW CORE DEFINITION BEFORE 2021 FOR 2021+ 2019 2020 2019 2020 2021 (MID- GUIDANCE) REPORTED EPS $6.40 $5.70 $6.40 $5.70 $7.08 Exclusions: Market-related impacts ($0.38) $0.49 ($0.38) $0.49 $0.00 Gains and los
Slide 23: Question & Answer Session
Question & Answer Session Responsible IAS Choices
Slide 24: APPENDIX
APPENDIX Ag
Slide 25: Book value per share
Book value per share P/BV ratio of 0.99 at December 31, 2020 December 31, 2020 CAGR $55.52 1-year +7% 5-year +9% 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.
Slide 26: Amortization of acquisition-related finite life intangible assets
Amortization of acquisition-related finite life intangible assets 2020 2021 estimate Number of years Acquisition % of total % of total remaining IAS 14½ 30% 39% Many small tuck-in acquisitions to grow Distribution <5 16% 19% our distribution networks PPI 17 13% 11% HollisWealth 11½ 12% 10% Lubrico/W
Slide 27: Dividend to common shareholders
Dividend to common shareholders Dividend increases temporarily on hold, in accordance with regulators’ instructions $0.50 $0.45 $0.40 Dividend of $0.35 48.5¢ per share payable in Q1/21 $0.30 $0.25 Steady increases every 3 quarters $0.20 $0.15 First lifeco in Canada to resume dividend increases after
Slide 28: Policyholder experience (excluding market-related impacts)
Policyholder experience (excluding market-related impacts) Higher expenses mostly due to very strong sales and less favourable experience in Q4 2020 2019 2018 EPS impact 2020 20192 2018 in cents Q41 Q3 Q2 Q1 Q42 Q3 Q2 Q1 Q4 Q3 Q2 Q1 annual annual annual Individual Insurance3 3 4 0 (8) 3 4 6 (6) (8)
Slide 29: Market-related impacts on earnings: 9¢ EPS gain
Market-related impacts on earnings: 9¢ EPS gain From: UL (+7¢), assets backing LT liabilities (+2¢), MERs (+1¢) and hedging (-1¢) Approximate after-tax impact of market-related 2020 2019 2018 variations, in millions of dollars, as compared to the expected net earnings that the Company would have ear
Slide 30: Hedging program for segregated funds
Hedging program for segregated funds The hedging program is primarily meant to mitigate risks of high capital guaranteed segregated fund products arising from interest rate and equity market The program has reacted near expectations in Q4 fluctuations. The proportion of high capital guaranteed seg f
Slide 31: Strain on new business: 5¢ EPS loss
Strain on new business: 5¢ EPS loss Loss from bonus and commissions due to high sales volume and Q1 drop in interest rates Reported strain includes Individual Insurance in Canada and the US 2020 2019 2018 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Sales ($M) 112.3 98.4 98.4 84.6 90.0 81.3 81.1 66.6 75.5 76
Slide 32: Income on capital: 1¢ EPS gain
Income on capital: 1¢ EPS gain Mainly1 from: iAAH (+11¢), software writedown (-4¢) and provision for asset default (-4¢) Quarterly 2020 2019 2018 Run Rate ($Million, pre-tax) 2020 2020 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 pre-IAS post-IAS Investment 44.5 38.5 23.9 26.9 36.2 41.1 35.8 38.8 42.0 41.6 59.3 38
Slide 33: Effective tax rate (ETR) of 15.9%
Effective tax rate (ETR) of 15.9% 8¢ EPS gain from tax adjustment for prior years 2020 2019 2018 ($Million, unless otherwise indicated) Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Operating income 190.0 249.2 209.9 8.8 184.7 201.1 208.7 184.6 137.1 189.1 201.5 159.9 Income on capital 21.2 19.3 30.8 34.3 27.
Slide 34: Car loan credit experience
Car loan credit experience Well-positioned provisions to absorb potential adverse economic conditions in 2021 Average credit loss rate1 (trailing 12 months) 5.4% 5.4% 5.5% 5.2% 5.2% 5.3% 5.3% 5.0% 4.3% 3.6% Current temporary decline in credit loss rate trend is attributed to government programs and
Slide 35: Investment portfolio
Investment portfolio High-quality, diversified portfolio Bond portfolio = 71% of total portfolio Bonds - Corporates - BB and lower: 0.7% Low direct exposure to equity market Bonds - Corporates - Real estate: 4.2% • $3.3B of stocks in investment portfolio BBB and higher: 33.3% Mortgages - Insured: 3.
Slide 36: Bond portfolio by category
Bond portfolio by category High-quality, conservative portfolio Corporate bonds = 47.8% of bond portfolio Utilities: 14% Bonds in pandemic-affected sectors1 • 0.65% Consumer cyclical (retailers, autos and hotels) • 0.76% Industrial • 0.05% Materials Financial: 11% • 1.46% of bond portfolio Governmen
Slide 37: Equity market sensitivity
Equity market sensitivity (End of period) Q4/2020 Q3/2020 Q4/2019 S&P/TSX closing value 17,433 pts 16,121 pts 17,063 pts iA Financial Corporation solvency ratio 130% 125% 133% Sensitivities S&P/TSX1 level at which provisions for future policy benefits Market protection for would have to be strengthe
Slide 38: Interest rate sensitivity
Interest rate sensitivity (End of period) Q4/2020 Q3/2020 Q4/2019 ► 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 $4M $0M $2M ► URR = Ultimate Reinvestment Rate ► Maximum assumption is promulgated by CIA a
Slide 39: Solvency ratio market-related sensitivity
Solvency ratio market-related sensitivity Sensitivity continues to be low Equity market variation1 (30%) (20%) (10%) +10% +20% +30% ► Impact on solvency ratio Dec. 31, 2020 +1% +2% +1% 0% 0% +2% (in percentage points) Interest rate variation2 (50 bps) (25 bps) +25 bps +50 bps ► Impact on solvency ra
Slide 40: S&P/TSX thresholds for Q1/2021 gain or loss
S&P/TSX thresholds for Q1/2021 gain or loss Potential impact on TSX threshold Threshold Q1/2021 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 17,673 ±$10.3M UL policy funds Q
Slide 41: Q4/2020 results
Q4/2020 results Core and reported EPS of $1.60 Q4/2020 results 2020 results Reported: $1.60 +1% YoY Reported: $5.70 (11%) YoY EPS Core2: $1.60 (1%) YoY Core1: $6.41 +2% YoY Reported: 10.6% ROE --- (trailing 12 months) 2 Core : 11.9% Strain 5% 7% Effective tax rate 15.9% 17.0% Solvency ratio 130% ---
Slide 42: 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) 2020 2019 Variation 2020 2019 Variation EPS $1.60 $1.59 1% $5.70 $6.40 (11%) Adjusted for: Specific items: Changes in assumptions and management actions ($0.04) ($0.02) ($0.04) ($0.02) Provisio
Slide 43: Premiums and deposits
Premiums and deposits Net premiums, premium 14.1 Q4/2020 $Million YoY equivalents and deposits 14.0 ($Billion) Individual Insurance 421.8 3% 11.4 3.9 Q4 10.3 10.4 Individual Wealth Management 1,890.1 37% 9.8 3.1 2.6 8.2 2.4 Group Insurance 438.9 (2%) 7.7 3.9 Q3 2.3 2.7 2.0 2.4 Group Savings and Reti
Slide 44: Asset growth
Asset growth AUM/AUA (assets under management and Assets under management and administration administration, end of period, $Billion) 197.5 189.5 ($Billion, unless December 31 otherwise indicated) QoQ YoY 169.5 168.8 2020 Assets under management 95.8 89.2 126.2 80.8 79.7 General fund 53.7 2% 19% 115
Slide 45: Individual Insurance (Canada)
Individual Insurance (Canada) Fourth quarter Year-to-date at December 31 ($Million, unless otherwise indicated) 2020 2019 Variation 2020 2019 Variation Sales1 Minimum premiums2 64.0 48.5 32% 202.4 176.4 15% Excess premiums3 7.7 2.8 175% 20.8 11.1 87% Total 71.7 51.3 40% 223.2 187.5 19% Premiums 421.
Slide 46: Individual Wealth Management
Individual Wealth Management Fourth quarter Year-to-date at December 31 ($Million, unless otherwise indicated) 2020 2019 Variation 2020 2019 Variation Sales1 General fund 247.3 176.7 40% 836.1 545.8 53% Segregated funds 883.1 633.4 39% 3,079.6 2,365.5 30% Mutual funds 759.7 566.3 34% 2,502.0 2,063.7
Slide 47: Group Insurance
Group Insurance Fourth quarter Year-to-date at December 31 ($Million, unless otherwise indicated) 2020 2019 Variation 2020 2019 Variation Sales1 Employee Plans 30.1 6.2 385% 136.2 49.1 177% Dealer Services - Creditor Insurance2 65.3 75.0 (13%) 260.7 328.7 (21%) P&C Insurance 67.4 55.9 21% 270.5 253.
Slide 48: Group Savings and Retirement
Group Savings and Retirement Fourth quarter Year-to-date at December 31 ($Million, unless otherwise indicated) 2020 2019 Variation 2020 2019 Variation Sales1 Accumulation products 869.2 382.7 127% 2,337.5 1,400.0 67% Insured annuities 0.8 197.3 (100%) 707.4 627.6 13% Deposits2 9.0 13.2 (32%) 38.0 46
Slide 49: US Operations
US Operations Fourth quarter Year-to-date at December 31 ($Million, unless otherwise indicated) 2020 2019 Variation 2020 2019 Variation Sales ($US)1 Individual Insurance 31.2 29.4 6% 127.2 99.2 28% Dealer Services (P&C) 245.8 107.6 128% 719.0 449.2 60% Premiums and equivalents 218.7 175.8 24% 896.1
Slide 50: Quality of investment portfolio
Quality of investment portfolio December 31 September 30 December 31 2020 2020 2019 IMPAIRED INVESTMENTS AND PROVISIONS Gross impaired investments $45.2M $45.4M $21.5M Provisions for impaired investments $14.1M $8.0M $10.5M Net impaired investments2 $31.1M $37.4M $10.9M Net impaired investments as a
Slide 51: 2020 in a nutshell
2020 in a nutshell Growth and financial strength from our agile and resilient business model Very strong business growth, Reserves well positioned with assumption strengthening supported by distribution network, Strong balance sheet and ongoing capital generation product breadth and digital strategy
Slide 52: ESG – Building for the long term
ESG – Building for the long term ENVIRONMENTAL ◦ iA Financial Group is carbon neutral as of 2020 ◦ 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
Slide 53: 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) 53
Slide 54: Investor Relations
Investor Relations Contact Marie-Annick Bonneau Tel.: 418-684-5000, ext. 104287 Marie-Annick.Bonneau@ia.ca Next Reporting Dates Q1/2021 - May 6, 2021 Q2/2021 - July 29, 2021 Q3/2021 - November 2, 2021 For information on our earnings releases, conference calls and related disclosure documents, consul
Slide 55: 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 56: Non-IFRS financial information (cont.)
Non-IFRS financial information (cont.) Core earnings (loss) and financial measures based on core earnings (loss), including core EPS and core ROE, are non-IFRS financial measures used to better understand the capacity of the Company to generate sustainable earnings. Core earnings (loss) remove from
Slide 57: 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 58: 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.