Ia Financial Corporation Inc. · TSX:IAG
Ia Financial — Q4 2021 Earnings Presentation
65 slides from Ia Financial's earnings presentation, Feb 17, 2022
Slide 1: Fourth Quarter 2021 Conference Call
Fourth Quarter 2021 Conference Call Presenters: Denis Ricard, President and CEO Michael L. Stickney, EVP and CGO Jacques Potvin, EVP, CFO and Chief Actuary February 17, 2022 PRESENT AND STRONG. More than ever.
Slide 2: Forward-looking statements
Forward-looking statements – This document may contain statements relating to strategies used by iA Financial Group or statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “may”, “will”, “could”, “should”, “would”, “suspect
Slide 3: Non-IFRS and Additional Financial Measures
Non-IFRS and Additional Financial Measures iA Financial Corporation and iA Insurance report their financial results and statements in accordance with International Financial Reporting Standards (“IFRS”). They also publish certain financial measures or ratios that are not based on IFRS (“non-IFRS”).
Slide 4: Table of contents
Table of contents 2 Forward-looking statements APPENDICES 3 Non-IFRS and add. measures 27 IFRS 17 – CSM evolution 44 S&P/TSX thresholds for Q1/22 7 Q4/21 key results 28 IFRS 17 – CSM evolution (cont.) 45 Premiums and deposits 8 Outlook 29 Book value 46 Assets (AUM/AUA) 10 Sales 30 Dividend 47 Indivi
Slide 5: Denis Ricard
Denis Ricard President and CEO 5
Slide 6: Denis Ricard, Renée Laflamme, Jacques Potvin and team
Denis Ricard Renée Laflamme President and CEO EVP, Individual Insurance, Savings and Retirement Jacques Potvin Sean O’Brien EVP, Chief Financial Officer EVP, Wealth Management and Chief Actuary François Blais Mike Stickney EVP, Dealer Services EVP, Chief Growth Officer and Special Risks Éric Jobin A
Slide 7: Q4/2021 Key Results
Q4/2021 Sustained growth momentum Solid profitability, continued very strong sales momentum, KEY RESULTS robust financial position and value creation for shareholders Core EPS¤ Core ROE¤ P&D¤ $2.01 Within 14.2% Above $4.2B +6% YoY guidance guidance AUM/AUA¤ Solvency ratio¤ Book value1 $221.2B 134% $
Slide 8: 2021 – One of the strongest years in IAG history
2021 – One of the strongest years in IAG history ▪ Very strong sales momentum – iA sold 1 in 4 ind. insurance policies in Canada ▪ Core EPS and core ROE above guidance and robust 134% solvency ratio ▪ Shareholder value creation: Book value up 12%, dividend up 29% and NCIB Superior employee, client a
Slide 9: Michael L. Stickney
Michael L. Stickney EVP and CGO 9
Slide 10: Q4/2021: Solid sales results
Q4/2021: Solid sales results Continuing the momentum to end a very strong year Fourth quarter ($M, unless otherwise indicated) 2021 2020 Variation Continued momentum and leading position in the mass/mid market from: ▪ Strong and diversified distribution networks ► Individual Insurance 87 72 21% ▪ Hi
Slide 11: Q4/2021: Solid sales results (cont.)
Q4/2021: Solid sales results (cont.) Continuing the momentum to end a very strong year Fourth quarter ($M, unless otherwise indicated) 2021 2020 Variation ► Individual Wealth Management General fund - sales 228 247 (8%) Momentum continued with sales reaching $891M in 2021 Record $3.3B net sales in 2
Slide 12: Diversified business mix – Q4 highlights
Diversified business mix – Q4 highlights Foundation Expansion Long-established businesses High-growth distinctive in which iA excels and is businesses in which iA already a leader seeks to become a leader Individual Retail Insurance distribution ▪ Strong quarter in Individual (Canada) ▪ Good contrib
Slide 13: Jacques Potvin
Jacques Potvin EVP, Chief Financial Officer and Chief Actuary 13
Slide 14: Q4/2021 results vs. guidance
Q4/2021 results vs. guidance Results compare favourably with guidance – Core ROE above guidance in 2021 2021 guidance Q4/2021 result 2021 result $1.95 to $2.10 in Q4 Core EPS1¤ $2.01 $8.31 $7.60 to $8.20 in 2021 Core ROE1¤ (trailing 12 months) 12.5% to 14.0% 14.2% Impact of new business¤ (strain) -5
Slide 15: Reported and core earnings reconciliation
Reported and core earnings reconciliation $M $M EPS PRE-TAX POST-TAX Reported earnings 209 $1.94 Core earnings remove from reported earnings the impacts of the following items: UL (10¢ EPS gain), assets backing LT liabilities (2¢ EPS loss), Market-related impacts (11) (8) ($0.08) MERs (2¢ EPS gain)
Slide 16: Core SOE and items of note
Core SOE and items of note Core expected profit on in-force up 15% YoY Source of earnings Q4/2021 items of note Q4/2021 on a core basis¤ ($M) (difference vs. expectations) Operating profit $M $M EPS Higher expenses than expected Expected profit on in-force 258 PRE-TAX POST-TAX Favourable policyholde
Slide 17: Additional protections in reserves for pandemic uncertainty
Additional protections in reserves for pandemic uncertainty xxx Q4 additional mortality claims were lower than expected in Canada, while higher claims in the U.S. were offset by the carry-forward provision. Provisions adjusted at year-end to reflect management expectations of future claims. Intitial
Slide 18: 2021 actuarial review and additional protections for pandemic
2021 actuarial review and additional protections for pandemic Minimal net impact on earnings Impact on net income of annual year-end assumption review After-tax ($M, non-PAR business) – Relatively small reserve increase, reflecting assumption adjustments from annual mortality study outcome Mortality
Slide 19: Capital position
Capital position 134% solvency ratio¤ – Comfortably above iA’s target level Solvency ratio Key changes during the quarter iA Financial Corporation Inc. (%, end of period) 137 134 133 134 ► +3.0% Management actions and 130 128 130 131 investment strategies 126 124 127 124 125 120 122 119 ► +2.0% Orga
Slide 20: Strong balance sheet
Strong balance sheet Distinctive Embedded in reserving process, iA’s distinctive macroeconomic protections decrease net income and solvency ratio¤ macroeconomic volatility and support iA’s 110% to 116% solvency ratio target. Protections that are not recognized in regulatory protections capital formu
Slide 21: IFRS 17 and IFRS 9 – Transition
IFRS 17 and IFRS 9 – Transition Opportunity for investment portfolio IFRS 17 ▪ Elimination of IFRS 4 constraints and IFRS 17 regime getting closer to the economic regime presents ▪ Current investment portfolio had flexibility to seize opportunity opportunities for iA ▪ Right timing to realize the fu
Slide 22: IFRS 17 and IFRS 9 – Transition outlook (2023)
IFRS 17 and IFRS 9 – Transition outlook (2023) iA is in a favourable position, mostly thanks to a strong and flexible balance sheet under IFRS 4 From near-neutral to favourable ▪ Core EPS¤ level ▪ Book value impacts expected1 on following KPIs ▪ Core EPS¤ growth ▪ Solvency ratio¤ at IFRS 9 and IFRS
Slide 23: IFRS 17 – Contractual Service Margin (CSM) is a key metric
IFRS 17 – Contractual Service Margin (CSM) is a key metric CSM is not all “free profit” and should be considered with Risk Adjustment (RA) Balance Sheet1 IFRS 17 CONCEPTUAL CONSTRUCT Equity Equity Expected future revenues to cover non-attributable expenses (Similar to IFRS 17 Current Estimate) Expec
Slide 24: 2022 guidance
2022 guidance Significant target increases for EPS, ROE and organic capital generation Core EPS¤ Core ROE¤ 13.0% to 15.0% ↑ Q1 $1.85 to $2.00 Q2 $2.20 to $2.35 Impact of new 0% annual target Q3 $2.30 to $2.45 improvement business (strain) (quarterly range from -5% to 10%) ¤ Q4 $2.35 to $2.50 ↑ +14%
Slide 25: Question & Answer Session
Question & Answer Session PRESENT AND STRONG. More than ever. 25
Slide 26: APPENDICES
APPENDICES PRESENT AND STRONG. More than ever. 26
Slide 27: IFRS 17 – Contractual Service Margin (CSM) is a key metric
IFRS 17 – Contractual Service Margin (CSM) is a key metric Core earnings¤ to be aligned with IFRS 17 reported earnings Not part of reported Included in reported CSM evolution or core earnings and core earnings over a period1 + Interest accretion +/– Changes – in estimates Amortization to P&L + New b
Slide 28: IFRS 17 – Contractual Service Margin (CSM) is a key metric
IFRS 17 – Contractual Service Margin (CSM) is a key metric CSM creation from new business: an important component of organic capital generation¤ Impacting No impact on CSM evolution capital generation capital generation2 over a period1 + Interest accretion +/– Changes – in estimates Amortization to
Slide 29: Book value per share
Book value per share 12% increase in 2021 and P/BV ratio of 1.17 at December 31, 2021 $62.01 at December 31, 2021 CAGR 1-year +12% 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 2020
Slide 30: Dividend to common shareholders
Dividend to common shareholders Dividend of 62.5¢ per share $0.65 payable in Q1/2022 $0.60 $0.55 $0.50 $0.45 $0.40 Largest dividend increase (+29%) $0.35 among Canadian lifecos following $0.30 the lifting of regulatory restrictions in November 2021 $0.25 Steady increases $0.20 every 3 quarters $0.15
Slide 31: Policyholder experience (excl. market-related impacts)
Policyholder experience (excl. market-related impacts) Very favourable in 2021 (53¢ gain¤) – Favourable in Q4, with the exception of higher expenses 2021 2020 2019 EPS impact 2021 2020 20192 in cents¤ Q4 Q3 Q2 Q1 Q41 Q3 Q2 Q1 Q42 annual annual annual Individual Insurance3 9 5 6 (6) 3 4 0 (8) 3 14 (1
Slide 32: Impact of new business (strain)
Impact of new business (strain): 4¢ EPS loss¤ in Q4 Higher-than-expected sales volume (+2¢ EPS) and higher expenses (-6¢ EPS) Reported strain includes Individual Insurance in Canada and the U.S. 2021 2020 2019 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Sales¤ ($M) 129 110 118 98 112 98 98 85 90 Strain¤ ($M) (8) (3)
Slide 33: Income on capital
Income on capital¤: 2¢ EPS gain¤ in Q4 Favourable experience at iAAH (+4¢), higher investment income (+3¢), software writedown at iAAH (-3¢), higher amortization of intangible assets (-1¢) and increase in value of Surex minor shareholders’ sell option (-1¢) Quarterly Quarterly 2021 2020 2019 ($M, pr
Slide 34: Effective tax rate (ETR) of 22.7% in Q4
Effective tax rate (ETR) of 22.7% in Q4 4¢ EPS loss¤ in Q4, essentially due to tax adjustments related to prior years 2021 2020 2019 ($M, unless otherwise indicated) Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Operating income¤ 252 249 276 206 190 249 210 9 184 Income on capital¤ 25 37 29 34 21 19 31 34 27 Pre-tax i
Slide 35: Market-related impacts on earnings
Market-related impacts on earnings¤: 8¢ EPS gain¤ in Q4 UL policies (+10¢), MERs (+2¢), hedging (-2¢) and level of assets backing reserves (-2¢) Approximate after-tax impact of market-related 2021 2020 2019 variations as compared to the expected net earnings that the Company would have earned under
Slide 36: Car loans: 5¢ EPS gain in Q4
Car loans: 5¢ EPS gain¤ in Q4 and continued better credit experience Strong portfolio performance from release of the remaining pandemic-related provisions set during Q1/2020 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% 3.0% Temporary credit loss
Slide 37: Investment portfolio
Investment portfolio High-quality, diversified portfolio Investment portfolio Bonds - Corporates - BB Bond portfolio = 72% of total portfolio and lower: 1% Real estate: 4% Low direct exposure to equity market Bonds - Corporates - Mortgages - Insured: 3% • $3.9B of stocks in investment portfolio BBB
Slide 38: Bond portfolio by category
Bond portfolio by category High-quality, conservative portfolio Utilities: 17% Corporate bonds = 56% of bond portfolio Financial: 13% Total bond portfolio by credit rating • 5% AAA • 41% AA $32.9B • 34% A Governments & • 19% BBB Municipalities: 44% Consumer - Non-cyclical: 8% • 1% BB and lower No ex
Slide 39: Distinctive market protection
Distinctive market protection ¤ Robust protection – Increase mainly due to strong asset portfolio performance Decrease in index requiring a strengthening of provisions for future policy benefits for stocks matching long-term liabilities1¤ (end of period) 35% 32%32% 32% 31% 30% 30% 30% 29% 28% 28% 27
Slide 40: 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 4 years from direct and indirect COVID impacts • Provision will act as a downside protection absorbing excess mortality up
Slide 41: Equity market sensitivity
Equity market sensitivity (End of period) Q4/2021 Q3/2021 Q4/2020 S&P/TSX closing value 21,223 pts 20,070 pts 17,433 pts iA Financial Corporation solvency ratio 134% 131% 130% Sensitivities S&P/TSX1 level at which provisions for future policy benefits Market protection for would have to be strengthe
Slide 42: Interest rate sensitivity
Interest rate sensitivity¤ As at December 31, 2021 10 bps 10 bps increase decrease Combined metric better reflects economic view of change in interest rates URR + IRR ► Impact on net income1 of a 10 bps parallel variation +$43M ($43M) Ultimate Reinvestment Rate – Maximum assumption promulgated by CI
Slide 43: 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, 2021 +3% +2% +1% (1%) +1% +2% (in percentage points) Interest rate variation2 (50 bps) (25 bps) +25 bps +50 bps ► Impact on solvenc
Slide 44: S&P/TSX thresholds for Q1/2022 gain or loss
S&P/TSX thresholds for Q1/2022 gain or loss Potential impact on TSX threshold Threshold Q1/2022 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 21,515 ±$12.1M UL policy funds
Slide 45: Premiums and deposits
Premiums and deposits Net premiums, premium 16.6 equivalents and deposits¤ Q4/2021 $M YoY ($B) 14.0 4.2 Q4 Individual Insurance 461 9% 11.4 3.9 Individual Wealth Management 2,193 16% 10.4 9.8 4.1 Q3 3.1 Group Insurance 505 15% 2.6 8.2 2.4 3.9 Group Savings and Retirement 614 (30%) 2.3 2.7 2.2 2.4 3.
Slide 46: Asset growth
Asset growth AUM/AUA (assets under management and Assets under management and administration administration¤, end of period, $B) 221.2 December 31 197.5 ($B, unless otherwise indicated) QoQ YoY 189.5 2021 169.5 168.8 109.7 Assets under management¤ 95.8 89.2 General fund1 55.1 2% 3% 126.2 80.8 79.7 S
Slide 47: Individual Insurance (Canada)
Individual Insurance (Canada) Fourth quarter Year-to-date at December 31 ($M, unless otherwise indicated) 2021 2020 Variation 2021 2020 Variation Sales1 Minimum premiums2¤ 81 64 27% 263 202 30% Excess premiums3¤ 6 8 (25%) 23 21 10% Total 87 72 21% 286 223 28% Premiums 461 422 9% 1,758 1,625 8% Numbe
Slide 48: Individual Wealth Management
Individual Wealth Management Fourth quarter Year-to-date at December 31 ($M, unless otherwise indicated) 2021 2020 Variation 2021 2020 Variation Sales1 General fund 228 247 (8%) 891 836 7% Segregated funds 1,250 884 41% 4,818 3,080 56% Mutual funds¤ 715 759 (6%) 3,066 2,502 23% Total 2,193 1,890 16%
Slide 49: Group Insurance
Group Insurance Fourth quarter Year-to-date at December 31 ($M, unless otherwise indicated) 2021 2020 Variation 2021 2020 Variation Sales1 Employee Plans¤ 15 30 (50%) 135 136 (1%) Dealer Services - Creditor Insurance2¤ 58 65 (11%) 244 261 (7%) P&C Insurance¤ 78 67 16% 331 271 22% Car loan originatio
Slide 50: Group Savings and Retirement
Group Savings and Retirement Fourth quarter Year-to-date at December 31 ($M, unless otherwise indicated) 2021 2020 Variation 2021 2020 Variation Sales1 Accumulation products¤ 549 869 (37%) 2,167 2,338 (7%) Insured annuities¤ 71 1 7,000% 604 707 (15%) Deposits2 — 9 (100%) 27 38 (29%) Total 620 879 (2
Slide 51: US Operations
US Operations Fourth quarter Year-to-date at December 31 ($M, unless otherwise indicated) 2021 2020 Variation 2021 2020 Variation Sales ($US)1 Individual Insurance¤ 33 31 6% 135 127 6% Dealer Services (P&C)¤ 255 246 4% 1,068 719 49% Premiums and equivalents¤ 294 219 34% 1,039 896 16% ($CAN) 1 Sales
Slide 52: Quality of investment portfolio
Quality of investment portfolio December 31 September 30 December 31 2021 2021 2020 IMPAIRED INVESTMENTS AND PROVISIONS Gross impaired investments $23M $23M $45M Provisions for impaired investments $6M $6M $14M Net impaired investments $17M $17M $31M Net impaired investments as a % of investment por
Slide 53: ESG ambition
ESG ambition To contribute to sustainable growth and wellbeing for ENVI Reduction of our GHG emissions RON our clients, employees, partners, investors and communities MENT by 20% per employee by 2025 Now and in the future, achieve gender equity of SO between 40% and60% CIAL in iA Financial Group sen
Slide 54: ESG — A cohesive, mobilizing vision
ESG — A cohesive, mobilizing vision • Carbon neutral since the beginning of 2020 ENVI • Focused on initiatives aimed at reducing our GHG emissions RON • $80.5 million of new investments in renewable energy in 2020 MENT • Majority of our 40+ properties in Canada are BOMA BEST or LEED certified • Part
Slide 55: Credit ratings
Credit ratings iA Financial Industrial Alliance Insurance Corporation Inc. and Financial Services Inc. Credit rating agency Outlook Issuer rating Financial strength Standard & Poor’s A AA- Stable DBRS Morningstar A AA (low) Stable A.M. Best N/A A+ (Superior) Stable 55
Slide 56: 2021 guidance
2021 guidance Core EPS¤ Core ROE¤ 12.5% to 14.0% Q1 $1.70 to $1.85 Q2 $1.95 to $2.10 Impact of new 2% annual target Q3 $2.00 to $2.15 business (strain)¤ (quarterly range from -5% to 10%) Q4 $1.95 to $2.10 Solvency 110% to 116% 2021 $7.60 to $8.20 ratio¤ Capital $275M to $325M generation¤ Non-core it
Slide 57: Investor Relations
Investor Relations Contact Marie-Annick Bonneau Tel.: 418-684-5000, ext. 104287 Marie-Annick.Bonneau@ia.ca Next Reporting Dates Q1/2022 - May 12, 2022 Q2/2022 - July 28, 2022 Q3/2022 - November 8, 2022 Q4/2022 - February 14, 2023 Q1/2023 - May 10, 2023 Q2/2023 - August 1, 2023 Q3/2023 - November 7,
Slide 58: Non-IFRS and Additional Financial Measures
Non-IFRS and Additional Financial Measures iA Financial Corporation and iA Insurance report their financial results and statements in accordance with International Financial Reporting Standards (“IFRS”). They also publish certain financial measures or ratios that are not based on IFRS (“non-IFRS”).
Slide 59: Non-IFRS and Additional Financial Measures (cont.)
Non-IFRS and Additional Financial Measures (cont.) • Core earnings: ◦ Category under Regulation 52-112: Non-IFRS financial measures that constitute historical information. ◦ Definition: Removes from reported earnings (loss) the impacts of the following items that create volatility in the Company’s r
Slide 60: Non-IFRS and Additional Financial Measures (cont.)
Non-IFRS and Additional Financial Measures (cont.) • Core return on common shareholders’ equity (core ROE): ◦ Category under Regulation 52-112: Non-IFRS ratio. ◦ Definition: A ratio, expressed as a percentage, obtained by dividing the consolidated core earnings by the average common shareholders’ eq
Slide 61: Non-IFRS and Additional Financial Measures (cont.)
Non-IFRS and Additional Financial Measures (cont.) • Car loan measure – Loan originations: ◦ Category under Regulation 52-112: Supplementary financial measures. ◦ Definition: New car loans disbursed during a period. ◦ Purpose: Used to assess the Company’s ability to generate new business in the car
Slide 62: Non-IFRS and Additional Financial Measures (cont.)
Non-IFRS and Additional Financial Measures (cont.) • Organic capital generation: ◦ Category under Regulation 52-112: Supplementary financial measure. ◦ Definition: Excess capital generated in the normal course of business, excluding the impact of the macroeconomic environment, where excess capital i
Slide 63: Non-IFRS and Additional Financial Measures (cont.)
Non-IFRS and Additional Financial Measures (cont.) • Individual Wealth Management mutual funds deposits, Group Savings and Retirement deposits, US Operations Dealer Services premium equivalents and Group Insurance Employee Plans ASO, Investment contracts and premium equivalents and deposits: ◦ Categ
Slide 64: Non-IFRS and Additional Financial Measures (cont.)
Non-IFRS and Additional Financial Measures (cont.) • Financial leverage measure – Debentures + Preferred Shares issued by a subsidiary/Capital: ◦ Category under Regulation 52-112: Supplementary financial measures. ◦ Definition: Calculated by dividing the total debentures plus preferred shares issued
Slide 65: 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.