Ia Financial Corporation Inc. · TSX:IAG
Ia Financial — Q1 2020 Earnings Presentation
43 slides from Ia Financial's earnings presentation, May 7, 2020
Slide 1: First Quarter 2020 Conference Call
First Quarter 2020 Conference Call Presenters: Denis Ricard, President and CEO Michael L. Stickney, EVP and CGO Jacques Potvin, EVP, CFO and Chief Actuary Alain Bergeron, EVP and CIO May 7, 2020
Slide 2: Table of contents
Table of contents 3 In a nutshell 17 Pandemic impacts on earnings 31 Individual Insurance 4 Q1 highlights 18 Equity market sensitivity 32 Individual Wealth Management 5 Q1 sales 19 Interest rate sensitivity 33 Group Insurance 6 Pandemic impacts on sales 20 S&P/TSX thresholds for Q1/2020 34 Group Sav
Slide 3: In a nutshell
In a nutshell PRIORITIES AGILITY Focus on health and safety of employees and advisors Fully operational very quickly, a real success story Provide support to clients and communities High-performance distance selling tools for advisors EARNINGS SALES Q1: Reported earnings affected by pandemic and mac
Slide 4: Q1/2020 highlights – Reported EPS impacted by pandemic
Q1/2020 highlights – Reported EPS impacted by pandemic Core EPS up 10% YoY – Strong business growth – Stable capital position • Reported EPS of $0.36 and trailing-12-month ROE of 10.7% • Core EPS of $1.41, up 10% YoY and compares to guidance of $1.40-$1.55 (see slide 10) • $1.12 negative impact from
Slide 5: Q1/2020 sales – Strong results for most business units
Q1/2020 sales – Strong results for most business units Mutual funds net sales were positive before the pandemic in March First quarter ($Million, unless otherwise indicated) 2020 2019 Variation ► Individual Insurance 45.2 41.2 10% ► Individual Wealth Management General fund - sales 205.7 109.2 88% S
Slide 6: Pandemic-related impacts on sales in coming quarters
Pandemic-related impacts on sales in coming quarters Proven strategy unaffected – Positioning the Company for opportunities Sales before Sales for the Comments the pandemic remainder of 2020 Individual Insurance Strong Lower Distribution networks fully operate virtually Individual Wealth - Seg funds
Slide 7: Q1/2020 results vs. guidance
Q1/2020 results vs. guidance Core EPS and core ROE within guidance 2020 guidance1 Q1/2020 results Reported: $0.36 EPS Q1: $1.40 to $1.55 Core2: $1.41 ROE Reported: 10.7% 11.5% to 13.0% (trailing twelve months) Core2: 12.7% Quarterly range from -5% to 10% Strain 12% 3% annual target Effective tax rat
Slide 8: Q1 items of note
Q1 items of note Pandemic impacted Q1 earnings by $1.12 EPS PANDEMIC-RELATED NON-PANDEMIC-RELATED Impact on EPS (cents) TOTAL Core Non-core Subtotal Core Non-core Subtotal Policyholder experience1 (see slide 9) 1 (5) (4) (4) 2 (2) (6) Macroeconomic-related (see slide 24) 0 (80) (80) 0 0 0 (80) Strai
Slide 9: Policyholder experience (excluding market impact)
Policyholder experience (excluding market impact) Strong result at iAAH: +10¢ non-pandemic-related and +1¢ pandemic-related 2020 2019 2018 EPS impact 2019 1 2018 in cents Q1 Q4 1 Q3 Q2 Q1 Q4 Q3 Q2 Q1 annual annual 2 2 Individual Insurance (8) 2 3 4 6 (6) (8) 2 10 4 7 8 Individual Wealth 0 (6) 0 (3)
Slide 10: Management’s view on EPS
Management’s view on EPS Core EPS1 of $1.41, up 10% YoY and within $1.40-$1.55 guidance Q1 reported EPS $0.36 Q1 reported EPS Q1 core EPS1 Adjusted for: $1.41 Specific item: $1.32 PPI goodwill impairment +$0.22 Market-related gains and losses +$0.80 $1.03 Policyholder experience gains and +$0.10 los
Slide 11: Hedging program – Experience
Hedging program – Experience Q1/20: 57¢ EPS loss = 31¢ from extreme market volatility and 26¢ from basis risk and others Hedging impact on EPS (¢) Cumulative gains of 77¢ EPS before 2020 (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) (3) (4) (5) (
Slide 12: Hedging program – Risks
Hedging program – Risks An effective and robust long-term program Historical Volatility2 Impact on earnings • March was the most probability3 volatile month in the history of the S&P/TSX. 1 0% to 17% 75% Small gains Volatility risk • Equity market volatility2 was: 17% to 45% 22% From 0 to $7M/month
Slide 13: Car loan credit experience
Car loan credit experience 7¢ EPS ($10.3M) increased provision for future credit losses due to economy slowdown Average credit loss rate (non-prime)1 Trailing 12 months since acquisition of CTL in Q3/15 Expecting provisioned losses to occur over the next 8.3% 18 months with small impact to average c
Slide 14: Capital position
Capital position 110% to 116% solvency ratio target, appropriate to iA’s risk profile Key changes during the quarter Solvency ratio iA Financial Corporation Inc. (%, end of period) 137 ► +6.0% $400M subordinated debt issuance 134 133 126 127 ► +0.5% Organic capital generation 122 124 120 119 ► (2.0%
Slide 15: Solvency ratio sensitivity
Solvency ratio sensitivity Sensitivity continues to be low Capital • Q1/2020: Organic capital generation of $35M generation • Q2-Q3-Q4/2020: Expecting the pandemic to have an impact on organic capital generation ► Equity market variation1 (30%) (20%) (10%) +10% +20% +30% ► Impact on solvency ratio M
Slide 16: Flexible balance sheet
Flexible balance sheet Ratios • Leverage ratio of 25.9% (March 31, 2020) • Coverage ratio of 13.3x Capital • Potential capital deployment of ~$500M pro forma following IAS acquisition to be closed flexibility in coming weeks and sale of iA Investment Counsel to be closed in coming months (March 31,
Slide 17: Pandemic-related impacts on reported earnings in 2020
Pandemic-related impacts on reported earnings in 2020 No permanent damage to businesses expected post-COVID-19 See sensitivities provided on slides 18 to 21 Macroeconomics – – – to + + Hedging may still be impacted by volatility (see slide 12) NON-CORE IRR and URR: No impact expected Reserves N/A To
Slide 18: Equity market sensitivity
Equity market sensitivity (End of period) Q1/2020 Q4/2019 Q1/2019 S&P/TSX closing value 13,379 pts 17,063 pts 16,102 pts iA Financial Corporation solvency ratio 137% 133% 124% Sensitivities S&P/TSX1 level at which provisions for future policy benefits would have to be strengthened 11,700 pts 13,000
Slide 19: Interest rate sensitivity
Interest rate sensitivity (End of period) Q1/2020 Q4/2019 Q1/2019 ► 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 $0M $2M ($13M) ► URR = Ultimate Reinvestment Rate ► Maximum assumption is promulgated by CI
Slide 20: S&P/TSX thresholds for Q2/2020 gain or loss
S&P/TSX thresholds for Q2/2020 gain or loss Potential impact on TSX threshold Threshold Q2/2020 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 13,563 ±$7.9M UL policy funds Q2
Slide 21: Stress testing on capital and liquidity
Stress testing on capital and liquidity Good positioning even under severe scenarios Q1 solvency ratio pro forma post-acquisitions is 121% Solvency ratio Under a comprehensive scenario shocking income, sales and assumptions: TSX could decrease to 9,000 points and ratio would still be above 110-116%
Slide 22: Investment portfolio
Investment portfolio High-quality and diversified portfolio As at March 31, 2020 Bonds - Corporates - BB Bond portfolio: 66.7% of total portfolio and lower: 0.5% • Only 0.5% of total portfolio rated BB or lower Real estate: 4.9% • 48.5% of total bonds are corporate bonds Oil & Gas and other sectors:
Slide 23: Book value per share
Book value per share P/BV ratio of 0.85 at March 31, 2020 March 31, 2020 CAGR $52.29 1-year +7% 5-year +8% 10-year +8% Since 2000 +10% March 31, 20001 $8.44 IPO 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2.17 2.22 1.72 1.61 1.80 1.74 1.94
Slide 24: Macro-related impact on earnings
Macro-related impact on earnings -80¢ EPS impact in Q1, all pandemic-related Approximate after-tax impact of macroeconomic 2020 2019 2018 variations, in millions of dollars, as compared to the expected net earnings that the Company would have earned under normal macroeconomic conditions. Q1 Q4 Q3 Q2
Slide 25: Strain on new business
Strain on new business Factoring in Q1 drop in rates in new business calculation (-3¢ EPS) Reported strain includes Individual Insurance in Canada and the US 2020 2019 2018 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Sales ($M) 84.6 90.0 81.3 81.1 66.6 75.5 76.9 75.1 68.5 Strain ($M) (10.4) 0.8 (1.7) (1.4) (6.2) (3.
Slide 26: Income on capital
Income on capital Lower income (-2¢), higher financing (-1¢) and very low claims at iA Auto and Home (+11¢) Quarterly 2020 2019 2018 Run Rate ($Million, pre-tax) 2020 2020 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 pre-IAS post-IAS Investment 44.5 38.5 41.1 35.8 38.8 42.0 41.6 59.3 38.6 34.9 40.4 income Financing1
Slide 27: Effective tax rate (ETR) of -3.7% vs. target of 20%-22%
Effective tax rate (ETR) of -3.7% vs. target of 20%-22% Tax recovery due to high experience losses and from CIF (+4¢ EPS) 2020 2019 2018 ($Million, unless otherwise indicated) Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Operating income 8.8 184.7 201.1 208.7 184.6 137.1 189.1 201.5 159.9 Income on capital 34.3 27.0
Slide 28: Reported EPS and core EPS reconciliation
1 Reported EPS and core EPS reconciliation First quarter (On a diluted basis) 2020 2019 Variation EPS $0.36 $1.40 (74%) Adjusted for: Specific item: PPI goodwill impairment $0.22 — Market-related gains and losses $0.80 ($0.15) Policyholder experience gains and losses in excess of $0.10 $0.02 $0.04 E
Slide 29: Premiums and deposits
Premiums and deposits Net premiums, premium equivalents and deposits Q1/2020 $Million YoY ($Billion) 11.4 10.3 10.4 Individual Insurance 397.5 3% 9.8 3.1 2.6 Individual Wealth Management 1,771.0 40% 8.2 2.4 7.7 2.3 2.7 Group Insurance 461.3 6% Q4 2.0 2.4 2.2 Group Savings and Retirement 652.0 (3%) Q
Slide 30: Asset growth
Asset growth AUM/AUA (assets under management and Assets under management and administration administration, end of period, $Billion) 189.5 175.7 175.8 March 31 169.6 169.5 168.8 ($Billion, unless otherwise indicated) QoQ YoY 2020 89.2 Assets under management 126.2 78.7 80.8 79.7 115.8 General fund
Slide 31: Individual Insurance (Canada)
Individual Insurance (Canada) First quarter ($Million, unless otherwise indicated) 2020 2019 Variation Sales1 Minimum premiums2 43.3 39.0 11% Excess premiums3 1.9 2.2 (14%) Total 45.2 41.2 10% Premiums 397.5 387.8 3% Number of policies (life insurance only) 28,929 27,713 4% 1 First-year annualized p
Slide 32: Individual Wealth Management
Individual Wealth Management First quarter ($Million, unless otherwise indicated) 2020 2019 Variation Sales1 General fund 205.7 109.2 88% Segregated funds 872.3 610.9 43% Mutual funds 693.0 546.3 27% Total 1,771.0 1,266.4 40% Net sales Segregated funds 423.8 145.2 278.6 Mutual funds (99.2) (88.5) (1
Slide 33: Group Insurance
Group Insurance First quarter ($Million, unless otherwise indicated) 2020 2019 Variation Sales1 Employee Plans 57.1 25.9 120% Dealer Services - Creditor Insurance2 58.9 64.8 (9%) P&C Insurance 62.0 52.6 18% Car loan originations 103.2 92.1 12% Total 224.1 209.5 7% Special Markets Solutions 75.8 73.6
Slide 34: Group Savings and Retirement
Group Savings and Retirement First quarter ($Million, unless otherwise indicated) 2020 2019 Variation Sales1 Accumulation products 633.8 348.3 82% Insured annuities 6.1 318.0 (98%) Deposits2 19.0 9.2 107% Total 658.9 675.5 (2%) Premiums 652.0 669.5 (3%) Q1 1-year Funds under management March 31, 202
Slide 35: US Operations
US Operations First quarter ($Million, unless otherwise indicated) 2020 2019 Variation Sales ($US)1 Individual Insurance 29.4 19.2 53% Dealer Services (P&C) 117.2 109.7 7% Premiums and equivalents 178.9 151.2 18% ($CAN) 1 Sales are defined as first-year annualized premiums for Individual Insurance a
Slide 36: Quality of investment portfolio
Quality of investment portfolio March 31 December 31 March 31 2020 2019 2019 IMPAIRED INVESTMENTS AND PROVISIONS Gross impaired investments $5.5M $21.4M $24.2M Provisions for impaired investments $2.8M $10.5M $8.6M Net impaired investments $2.7M $10.9M $15.6M Net impaired investments as a % of inves
Slide 37: Dividend to common shareholders
Dividend to common shareholders $0.50 Dividend of 48.5¢ per share $0.45 payable in Q2/20 $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 38: 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) 38
Slide 39: 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 40: Investor Relations
Investor Relations Contact Marie-Annick Bonneau Tel.: 418-684-5000, ext. 104287 Marie-Annick.Bonneau@ia.ca Next Reporting Dates Q2/2020 - July 30, 2020 Q3/2020 - November 4, 2020 Q4/2020 - February 11, 2021 For information on our earnings releases, conference calls and related disclosure documents,
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: iA Financial Group is a business name and trademark
iA Financial Group is a business name and trademark of iA Financial Corporation Inc. and Industrial Alliance Insurance and Financial Services Inc.