Ia Financial Corporation Inc. · TSX:IAG
Ia Financial — Q3 2020 Earnings Presentation
43 slides from Ia Financial's earnings presentation, Nov 4, 2020
Slide 1: Third Quarter 2020 Conference Call
Third Quarter 2020 Conference Call Presenters: Denis Ricard, President and CEO Michael L. Stickney, EVP and CGO Jacques Potvin, EVP, CFO and Chief Actuary November 4, 2020
Slide 2: Table of contents
Table of contents 3 Q3 highlights 18 Dividend 31 AUM/AUA 4 Q3 sales 19 Macro impact on earnings 32 Individual Insurance 5 Q3 sales (cont.) 20 Hedging 33 Individual Wealth Management 6 Q3 results 21 Strain 34 Group Insurance 7 Q3 items of note 22 Income on capital 35 Group Savings and Retirement 8 Po
Slide 3: Q3/2020 highlights – Strong fundamentals
Q3/2020 highlights – Strong fundamentals Robust business growth, continued strong capital position and EPS growth • Reported EPS of $2.031 (+18% YoY) and trailing-12-month ROE of 10.9% • Core EPS of $1.83 (+5% YoY) and trailing-12-month core ROE of 12.3% • Many positive items, such as: Profit Policy
Slide 4: Q3/2020 sales
Q3/2020 sales Solid results across all lines of business Third quarter ($Million, unless otherwise indicated) 2020 2019 Variation Continued momentum from: ► Individual Insurance 53.4 47.0 14% ▪ Strong and diversified distribution networks ▪ High-performance digital tools ▪ New products in 2020, name
Slide 5: Q3/2020 sales (cont.)
Q3/2020 sales (cont.) Solid results across all lines of business Third quarter ($Million, unless otherwise indicated) 2020 2019 Variation ► Individual Wealth Management General fund - sales 208.2 162.0 29% Sales continue to be excellent #1 in the industry Segregated funds - net sales 375.9 167.8 208
Slide 6: Q3/2020 results
Q3/2020 results Reported EPS above $2 and up 18% YoY Q3/2020 results 2020 YTD results Reported: $2.03 +18% YoY Reported: $4.10 -15% YoY EPS Core2: $1.83 +5% YoY Core1: $4.81 +4% YoY Reported: 10.9% ROE --- (trailing 12 months) 2 Core : 12.3% Strain 2% 8% Effective tax rate 16.9% 17.5% Solvency ratio
Slide 7: Q3 items of note
Q3 items of note Strong positive impact from policyholder experience, macroeconomics and taxes Q3/2020 Impact on EPS (cents) Core Non-core Total Favourable results at iAAH, in Individual Insurance and in Group sectors Policyholder experience1 8 7 15 . (see slide 8) Among others, hedging program repo
Slide 8: Policyholder experience (excluding market impact)
Policyholder experience (excluding market impact) Momentum continues: Favourable Q3 results with strong result at iAAH 2020 2019 2018 EPS impact 2020 20191 2018 in cents Q3 Q2 Q1 Q41 Q3 Q2 Q1 Q4 Q3 Q2 Q1 YTD annual annual Individual Insurance2 4 0 (8) 3 4 6 (6) (8) 2 10 4 (4) (4) 8 Individual Wealth
Slide 9: Management’s view on EPS
Management’s view on EPS Core EPS1 of $1.83 for Q3 (+5% YoY) and $4.81 for the first 9 months (+4% YoY) Q3 reported EPS Q3 core EPS1 Q3 reported EPS $2.03 Adjusted for: $2.03 Specific items: $1.83 Sale of res. mortgage portfolio ($0.06) Acquisition and integration costs +$0.02 $1.59 $1.58 Software a
Slide 10: Capital position
Capital position 125% solvency ratio – Comfortably above iA’s target level Solvency ratio iA Financial Corporation Inc. (%, end of period) 137 Key change during the quarter 134 133 126 127 125 122 124 124 120 119 110%-116% target ► +1.0% Organic capital generation Q1/18 Q2/18 Q3/18 Q4/18 Q1/19 Q2/19
Slide 11: Distinctive market protection embedded in reserving process
Distinctive market protection embedded in reserving process This margin supports a lower solvency ratio target and is equal to 7+ percentage points • Distinctive market protection for private and public equity matching long-term liabilities iA • This protection in the form of a margin increases/decr
Slide 12: Flexible balance sheet
Flexible balance sheet Ratios • Leverage ratio of 25.1% (Sept. 30, 2020) • Coverage ratio of 12.0x Capital Organic capital generation of ~$70M during Q3/2020 and ~$175M after 9 months in 2020 generation Capital Low sensitivity to macroeconomic variations sensitivity Capital Potential capital deploym
Slide 13: 2020 actuarial review and risk management strategy
2020 actuarial review and risk management strategy Well positioned: Expecting global neutral to positive impact on net income Annual year-end assumption review ◦ Annual actuarial assumption reviews and model refinement (--) Expected impact: ◦ Interest rates: 10-15 bps URR decrease (--) Near-neutral
Slide 14: Question & Answer Session
Question & Answer Session Responsible IAS Choices
Slide 15: APPENDIX
APPENDIX Ag
Slide 16: Car loan credit experience
Car loan credit experience Well-positioned provisions • The effect of government relief measures, as well Average credit loss rate1 (trailing 12 months) as changes in client spending and payment patterns, continue to be favourable to the credit experience. • Loan deferrals have decreased from a high
Slide 17: Book value per share
Book value per share P/BV ratio of 0.85 at September 30, 2020 September 30, 2020 CAGR $54.50 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 18: 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 48.5¢ per share $0.35 payable in Q4/20 $0.30 $0.25 Steady increases every 3 quarters $0.20 $0.15 First lifeco in Canada to resume dividend $0.10 increases
Slide 19: Macro-related impact on earnings: 12¢ EPS gain
Macro-related impact on earnings: 12¢ EPS gain From gains on: Hedging (+3¢), MERs (+2¢), UL (+5¢) and assets backing LT liabilities (+2¢) Approximate after-tax impact of macroeconomic 2020 2019 2018 variations, in millions of dollars, as compared to the expected net earnings that the Company would h
Slide 20: Hedging program for segregated funds
Hedging program for segregated funds The hedging program is primarily meant to mitigate risks of high capital guaranteed segregated fund The program has reacted well in Q3, with costs lower than expected, driven by favourable market conditions. products arising from interest rate and equity market f
Slide 21: Strain on new business: As expected
Strain on new business: As expected Impact from premium increases (+3¢ EPS) offset by Q1 drop in interest rates (-3¢ EPS) Reported strain includes Individual Insurance in Canada and the US 2020 2019 2018 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Sales ($M) 98.4 98.4 84.6 90.0 81.3 81.1 66.6 75.5 76.9 75.1 68
Slide 22: Income on capital: 2¢ EPS gain
Income on capital: 2¢ EPS gain Mainly from: iAAH, software writedown, mortgage portfolio sale and lower income Quarterly 2020 2019 2018 Run Rate ($Million, pre-tax) 2020 2020 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 pre-IAS post-IAS Investment 44.5 38.5 26.9 36.2 41.1 35.8 38.8 42.0 41.6 59.3 38.6 income Financin
Slide 23: Effective tax rate (ETR) of 16.9%: 12¢ EPS gain
Effective tax rate (ETR) of 16.9%: 12¢ EPS gain Mainly from Company’s status as a multinational insurer 2020 2019 2018 ($Million, unless otherwise indicated) Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Operating income 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 19.3 30.8
Slide 24: Investment portfolio
Investment portfolio High-quality, diversified portfolio Bond portfolio = 72.3% of total portfolio Bonds - Corporates - BB Low direct exposure to equity market and lower: 0.6% • $3.1B of stocks in investment portfolio Bonds - Corporates - Real estate: 4.4% ◦ 45% private equity BBB and higher: 34.0%
Slide 25: Bond portfolio by category
Bond portfolio by category High-quality, conservative portfolio Corporate bonds = 47.9% of bond portfolio Utilities: 14% Bond pandemic-affected sectors1 • 0.77% Consumer cyclical (retailers, autos and hotels) • 0.80% Industrial • 0.06% Materials Financial: 11% • 1.63% of bond portfolio Governments &
Slide 26: Equity market sensitivity
Equity market sensitivity (End of period) Q3/2020 Q2/2020 Q4/2019 Q3/2019 S&P/TSX closing value 16,121 pts 15,515 pts 17,063 pts 16,659 pts iA Financial Corporation solvency ratio 125% 124% 133% 134% Sensitivities Market protection S&P/TSX1 level at which provisions for future policy benefits would
Slide 27: Interest rate sensitivity
Interest rate sensitivity (End of period) Q3/2020 Q2/2020 Q4/2019 Q3/2019 ► 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 $3M $2M ($12M) ► URR = Ultimate Reinvestment Rate ► Maximum assumption is promu
Slide 28: S&P/TSX thresholds for Q4/2020 gain or loss
S&P/TSX thresholds for Q4/2020 gain or loss Potential impact on TSX threshold Threshold Q4/2020 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 16,343 , ±$9.4M UL policy funds
Slide 29: Reported EPS and core EPS reconciliation
1 Reported EPS and core EPS reconciliation Third quarter Year-to-date at September 30 (On a diluted basis) 2020 2019 Variation 2020 2019 Variation EPS $2.03 $1.72 18% $4.10 $4.81 (15%) Adjusted for: Specific items: PPI goodwill impairment — — $0.22 — PPI purchase price and goodwill adjustments — $0.
Slide 30: Premiums and deposits
Premiums and deposits Net premiums, premium equivalents and deposits 11.4 Q3/2020 $Million YoY ($Billion) 10.3 10.4 10.1 9.8 Individual Insurance 412.0 4% 3.1 2.6 8.2 2.4 Individual Wealth Management 1,477.8 23% 7.7 3.9 2.3 2.7 Q4 2.0 Group Insurance 450.0 (1%) 2.4 2.2 Group Savings and Retirement 1
Slide 31: Asset growth
Asset growth AUM/AUA (assets under management and Assets under management and administration administration, end of period, $Billion) 189.5 185.8 ($Billion, unless September 30 otherwise indicated) QoQ YoY 169.5 168.8 2020 Assets under management 89.2 88.7 126.2 80.8 79.7 General fund 52.7 2% 16% 11
Slide 32: Individual Insurance (Canada)
Individual Insurance (Canada) Third quarter Year-to-date at September 30 ($Million, unless otherwise indicated) 2020 2019 Variation 2020 2019 Variation Sales1 Minimum premiums2 51.6 45.8 13% 138.4 127.9 8% Excess premiums3 1.8 1.2 50% 13.1 8.3 58% Total 53.4 47.0 14% 151.5 136.2 11% Premiums 412.0 3
Slide 33: Individual Wealth Management
Individual Wealth Management Third quarter Year-to-date at September 30 ($Million, unless otherwise indicated) 2020 2019 Variation 2020 2019 Variation Sales1 General fund 208.2 162.0 29% 588.8 369.1 60% Segregated funds 724.9 576.4 26% 2,196.5 1,732.1 27% Mutual funds 544.7 465.2 17% 1,742.3 1,497.4
Slide 34: Group Insurance
Group Insurance Third quarter Year-to-date at September 30 ($Million, unless otherwise indicated) 2020 2019 Variation 2020 2019 Variation Sales1 Employee Plans 26.1 12.9 102% 106.1 42.9 147% Dealer Services - Creditor Insurance2 90.1 97.6 (8%) 195.4 253.7 (23%) P&C Insurance 87.0 70.6 23% 203.1 197.
Slide 35: Group Savings and Retirement
Group Savings and Retirement Third quarter Year-to-date at September 30 ($Million, unless otherwise indicated) 2020 2019 Variation 2020 2019 Variation Sales1 Accumulation products 525.8 340.5 54% 1,468.3 1,017.3 44% Insured annuities 648.2 95.0 582% 706.6 430.3 64% Deposits2 6.0 11.0 (45%) 29.0 32.8
Slide 36: US Operations
US Operations Third quarter Year-to-date at September 30 ($Million, unless otherwise indicated) 2020 2019 Variation 2020 2019 Variation Sales ($US)1 Individual Insurance 33.7 25.9 30% 96.0 69.8 38% Dealer Services (P&C) 249.1 117.4 112% 473.2 341.6 39% Premiums and equivalents 310.9 160.6 94% 677.4
Slide 37: Quality of investment portfolio
Quality of investment portfolio September 30 June 30 December 31 September 30 2020 2020 2019 2019 IMPAIRED INVESTMENTS AND PROVISIONS Gross impaired investments $45.4M $44.5M $21.5M $24.0M Provisions for impaired investments $8.0M $8.1M $10.5M $11.1M Net impaired investments $37.4M $36.4M $10.9M $12
Slide 38: 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 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 Q4/2020 - February 11, 2021 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
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 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.