Industrial Alliance Reports First Quarter Results - Strong business growth topped by rebound in mutual fund sales

(TSX: IAG)

Q1-2017 Highlights

  • Diluted EPS of $1.03
  • Diluted core EPS1 of $1.07 vs. guidance of $1.00-$1.10 EPS
  • Net mutual fund sales of $200 million
  • Premiums and deposits of $2.8 billion (up 42% YoY)
  • New business strain ratio of 6% (+$0.04 EPS)
  • Solvency ratio of 222% (208% post-HollisWealth)
  • Book value per share of $41.86 (+15% YoY)

QUEBEC CITY, May 11, 2017 /CNW Telbec/ - For the first quarter ended March 31, 2017, Industrial Alliance Insurance and Financial Services Inc. (TSX: IAG) reports net income attributed to common shareholders of $110.3 million, diluted earnings per common share (EPS) of $1.03 and return on shareholders' equity (ROE)1 of 13.4% for the trailing twelve months, compared with net income of $98.3 million, EPS of $0.96 and ROE1 of 9.8% a year earlier.

"2017 is off to a good start for all our insurance and wealth management operations in both the individual and group sectors," said Yvon Charest, President and CEO of iA Financial Group. "In addition to our mutual funds that delivered outstanding net sales, I want to highlight our group insurance and wealth businesses, where all segments reported superior business growth. The momentum in our individual insurance and seg fund operations carried over into the first quarter, as it did for our auto and home subsidiary. On the strategic front, we look forward to completing the HollisWealth transaction in August and continue to seek opportunities to expand our presence in the US market."

"On a core1 basis, EPS of $1.07 is at the high end of our guidance," added René Chabot, Executive Vice-President, CFO and Chief Actuary. "Market gains in the quarter helped to alleviate turbulence experienced in the individual insurance sector after almost two years of strong gains. In that sector, we are pleased to see that strain on new business of 6% came in better than expected because of higher volumes and a better mix in the quarter. Elsewhere, good investment gains in income on capital compensated for the lower results at iA Auto and Home. Finally, our capital and balance sheet continue to be very strong."

 

____________________

1 ROE, core ROE and core EPS are non-IFRS measures. See "Non-IFRS Financial Information" below for the definition of core methodology. 2 Trailing twelve months.

 


Earnings highlights


First quarter

2017

2016

Variation

Net income attributed to shareholders (in millions)

$114.4

$102.4

12%

Less: dividends attributed to preferred shares (in millions)

$4.1

$4.1

Net income attributed to common shareholders (in millions)

$110.3

$98.3

12%

Weighted average number of common shares (in millions)

107.2

102.9

4%

Earnings per common share (diluted)

$1.03

$0.96

7%

Core earnings per common share (diluted)1

$1.07

$1.04

3%


March 31, 2017

December 31, 2016

March 31, 2016

Return on common shareholders' equity1,2

13.4%

13.2%

9.8%

Core return on common shareholders' equity1,2

12.0%

11.9%

12.0%





Other financial highlights

March 31, 2017

December 31, 2016

March 31, 2016

Solvency ratio

222%1

225%1

205%

Book value per share

$41.86

$40.97

$36.48

Assets under management and administration

$130.2B

$126.2B

$117.7B





1 After giving effect to the previously announced acquisition of HollisWealth in the third quarter of 2017, the solvency ratio would be 208% (211% at December 31, 2016).

 

FIRST QUARTER HIGHLIGHTS

Profitability - For the first quarter ended March 31, 2017, Industrial Alliance Insurance and Financial Services Inc. reports net income to common shareholders of $110.3 million, an increase of 12% over the previous year. Diluted earnings per share (EPS) of $1.03 represents a year over year increase of 7%. Return on common shareholders' equity (ROE)1 for the trailing twelve months was 13.4% compared with 9.8% a year earlier.

Diluted core EPS1 of $1.07 and core ROE1 of 12.0% compare favourably with the previous year. These results are at the high end of EPS guidance of $1.00 to $1.10 for the first quarter and the ROE1 guidance of 11.0% to 12.5%. The following table reconciles reported and core EPS1 for the first quarter.

 


Reported EPS and Core EPS1 Reconciliation

(On a diluted basis)

First quarter

2017

2016

Variation

Reported EPS

$1.03

$0.96

7%

Adjusted for:





Exceptional items





Tax on premiums

$0.04



HollisWealth integration

$0.01


Market-related gains and losses

($0.12)

$0.11


Policyholder experience gains and losses in excess of $0.04 EPS

$0.11

($0.03)

Core EPS

$1.07

$1.04

3%


1 ROE, core ROE and core EPS are non-IFRS measures. See "Non-IFRS Financial Information" below for the definition of core methodology. 2016 core EPS is adjusted to reflect the new core methodology presented in February 2017.

 

The key elements that explain profitability follow. All figures are after tax unless otherwise indicated.

Expected profit on in-force increased by 13% to $142.8 million pre-tax over the same quarter last year and reflects growth in all lines of business. Other notable items that had an impact on profitability were market-related gains and lower strain on new business offset by adverse policyholder experience and a one-time charge related to the tax on premiums that was extended to 2024 in the recent Quebec budget.

Individual Insurance reported a net loss of $0.17 per share ($17.5 million) explained by unfavourable mortality and lapse ($0.15 EPS, divided equally) and a one-time charge of $0.04 per share related to the tax on premiums. These were partially offset by a market gain of $0.02 per share related to universal life policies.

Individual Wealth Management had a net gain of $0.12 per share ($12.7 million) principally related to the dynamic hedging program for the segregated fund guarantees ($0.09 EPS). The remainder is attributed to favourable longevity and lower expenses ($0.03 EPS) and higher fees on assets under management as a result of market growth ($0.01 EPS), offset by integration costs ($0.01 EPS) for the HollisWealth acquisition.

Group Insurance reported an experience loss of $0.01 per share ($1.3 million) related to higher claims for extended warranties in the Dealer Services segment. Employee Plans, Special Markets Solutions and car loans performed in line with expectations.

Group Savings and Retirement had a gain of $0.01 per share ($0.7 million) related to favourable longevity.

Strain - In the Individual Insurance sector, strain on new business amounted to $4.4 million pre-tax, or 6% of sales for the quarter compared with annual guidance of 0% to 15%. Management estimates that the lower strain ratio, which is attributed mainly to the higher sales volume and a favourable sales mix, represented a gain of $0.04 per share.

Income on Capital - Total income on capital of $15.8 million pre-tax represents a net gain of $0.01 per share attributed to higher income on investments ($0.04 EPS) offset by lower results at iA Auto and Home ($0.03 EPS).

Income Taxes - The effective tax rate of 21% was in line with the Company's guidance of 20%-22%.

Business Growth - Premiums and deposits reached an all-time high of $2.8 billion (+42%) as a result of strong inflows in both the individual and group wealth management sectors. Assets under management and administration of $130.2 billion were up 3% over the previous quarter-end, reflecting market growth and strong fund inflows. Year over year, assets were up 11%.

The retail insurance sector reported strong sales of $69.8 million (+7%) representing an increase of 11% in Canada and modest growth in the United States. Our adjustable disability business in Canada continues to maintain good momentum with growth of 30% in the quarter. Total sales in Canada amounted to $46.5 million (including $4.9 million for adjustable disability) and the United States accounted for $23.3 million.

In retail wealth management, the Company reports a third quarter of positive net fund sales attributed to the year‑over‑year improvement in its mutual fund business. Gross sales of mutual funds increased by 175% to $783.8 million in the first quarter, with net inflows of $200.0 million compared to net outflows of $291.2 million in the same quarter a year earlier. This growth is attributed to the success of the Company's two-track marketing strategy targeting affiliated distributors and independent advisors, both of which delivered good growth in the quarter.

Our segregated funds continue to perform well with gross sales of $554.5 million (+22%) in the first quarter and net sales of $164.7 million compared with $142.6 million in 2016. The Company continues to hold first position for net segregated fund sales in Canada and third position for assets.

The group insurance sector reported total sales of $212.6 million, a year over year increase of 22%. Employee Plans had an excellent quarter with sales of $35.9 million (+99%). Special Markets Solutions reported sales of $54.5 million (+7%). In Dealer Services, creditor insurance reported sales of $75.7 million (+14%), P&C products had sales of $46.5 million (+18%) and car loan originations amounted to $85.9 million (+6%).

In the group wealth sector, total sales amounted to $475.2 million (+42%) in the first quarter with strong growth in accumulation products.

At iA Auto and Home, written premiums in the first quarter grew by 13% to $59.4 million. Most of this growth came from new business initiatives.

Capital - At March 31, 2017, the solvency ratio was 222% compared with 225% at the end of the fourth quarter of 2016. The decrease is primarily related to the macroeconomic environment. The completion of the HollisWealth acquisition in the third quarter of 2017 is expected to reduce the ratio by 14 percentage points.

Dividend - The Board of Directors approved a dividend of 35 cents per share on the Company's outstanding common shares. This dividend is payable on June 15, 2017 to shareholders of record at May 26, 2017.

Dividend Reinvestment and Share Purchase Plan - Registered shareholders wishing to enrol in the Company's Dividend Reinvestment and Share Purchase Plan (DRIP) so as to be eligible to reinvest the next dividend payable on June 15, 2017 must ensure that the duly completed form is delivered to Computershare no later than 4:00 p.m. on May 19, 2017. Enrolment information is provided on the Company's website at www.ia.ca under About iA, in the Investor Relations/Dividends section. Common shares issued under the Company's DRIP will be purchased on the secondary market and no discount will be applicable.

Macroeconomic Protection - The Company continues to maintain significant protection against declines in equity markets and long‑term interest rates. At March 31, 2017:

  • It can absorb a decrease of about 27% in the S&P/TSX index before having to strengthen reserves for future policyholder benefits.
  • It can absorb a decrease of 50% in the S&P/TSX index before the solvency ratio drops below 175%, and a decrease of 63% before the solvency ratio drops below 150%.
  • The full-year impact on net income attributed to common shareholders of a sudden 10% decrease in the stock markets would be $29 million.
  • The impact on net income attributed to common shareholders of a 10 basis point decrease in the initial reinvestment rate (IRR) would be $23 million; the impact of a similar decrease in the ultimate reinvestment rate (URR) would be $62 million. As disclosed at year-end, both the IRR and URR are currently well protected in the actuarial reserves which could help to absorb potential movements in these rates.

Market Guidance for 2017

  • Earnings per common share: target range of $4.65 to $5.05 [$4.20 to $4.60 in 2016]
  • Return on common shareholders' equity (ROE): target range of 11.0% to 12.5%
  • Solvency ratio: target range of 175% to 200%
  • Dividend payout ratio: payout range of 25% to 35% with the target being the mid-point
  • Effective tax rate: target range of 20% to 22% [18% to 20% in 2016]
  • Strain on new business: annual target of 6% of Individual Insurance sales with quarterly range of 0% to 15% [15% ± 5% in 2016]

Guidance for ROE and earnings per common share excludes any potential reserve strengthening in 2017.

GENERAL INFORMATION

Non-IFRS Financial Information
iA Financial Group 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 measure for Canadian securities law purposes if it is presented other than in accordance with the generally accepted accounting principles used for the Company's audited financial statements. These non-IFRS financial measures are often accompanied by and reconciled with IFRS financial measures. For certain non-IFRS financial measures, there are no directly comparable amounts under IFRS. The Company believes that these non-IFRS financial measures provide additional information to better understand the Company's financial results and assess its growth and earnings potential, and that they facilitate comparison of the quarterly and full-year results of the Company's ongoing operations. Since non-IFRS financial measures do not have standardized definitions and meaning, they may differ from the non-IFRS financial measures used by other institutions and should not be viewed as an alternative to measures of financial performance determined in accordance with IFRS. The Company strongly encourages investors to review its financial statements and other publicly‑filed reports in their entirety and not to rely on any single financial measure.

Non-IFRS financial measures published by the Company include, but are not limited to: return on common shareholders' equity (ROE), core earnings per common share (core EPS), core return on common shareholders' equity (core ROE), sales, net sales, assets under management (AUM), assets under administration (AUA), premium equivalents, deposits, sources of earnings measures (expected profit on in-force, experience gains and losses, strain on sales, changes in assumptions, management actions and income on capital), capital, solvency ratio, loan originations, finance receivables and average credit loss rate on car loans.

Core earnings per common share is a non-IFRS measure used to better understand the capacity of the Company to generate sustainable earnings. Management's estimate of core earnings per common share excludes: 1) exceptional items, including but not limited to year-end assumption changes and tax gains and losses; 2) market gains and losses related to universal life policies, investment funds and the hedging program for segregated fund guarantees; 3) gains and losses in excess of $0.04 per share for strain on Individual Insurance sales, for policyholder experience by business segment (Individual Insurance, Individual Wealth Management, Group Insurance, Group Savings and Retirement and iA Auto and Home) and for investment income on capital.

Forward-looking Statements
This press release 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", "expect", "anticipate", "intend", "plan", "believe", "estimate", and "continue" (or the negative thereof), as well as words such as "objective" or "goal" or other similar words or expressions. Such statements constitute forward‑looking statements within the meaning of securities laws. Forward-looking statements include, but are not limited to, information concerning the Company's possible or assumed future operating results. These statements are not historical facts; they represent only the Company's expectations, estimates and projections regarding future events.

Although iA Financial Group believes that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed on such statements. Certain material factors or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or implied in such statements. Factors that could cause actual results to differ materially from expectations include, but are not limited to: general business and economic conditions; level of competition and consolidation; changes in laws and regulations including tax laws; liquidity of iA Financial Group including the availability of financing to meet existing financial commitments on their expected maturity dates when required; accuracy of information received from counterparties and the ability of counterparties to meet their obligations; accuracy of accounting policies and actuarial methods used by iA Financial Group; insurance risks including mortality, morbidity, longevity and policyholder behaviour including the occurrence of natural or man‑made disasters, pandemic diseases and acts of terrorism.

Additional information about the material factors that could cause actual results to differ materially from expectations and about material factors or assumptions applied in making forward-looking statements may be found in the "Risk Management" section of the 2016 Management's Discussion and Analysis and in the "Management of Risks Associated with Financial Instruments" note to iA Financial Group's consolidated financial statements, and elsewhere in iA Financial Group's filings with Canadian securities regulators, which are available for review at www.sedar.com.

The forward-looking statements in this news release reflect the Company's expectations as of the date of this press release. iA Financial Group does not undertake to update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, except as required by law.

Documents Related to the Financial Results
For a detailed discussion of the Company's first quarter results, investors are invited to consult the Management's Discussion and Analysis for the quarter ended March 31, 2017, the related consolidated financial statements and accompanying notes, and our supplemental information package, all of which are available on the iA Financial Group website at www.ia.ca under About iA, in the Investor Relations/Financial Reports section and on SEDAR at www.sedar.com.

Conference Call
Management will hold a conference call to present the Company's results on Thursday, May 11, 2017, at 11:30 a.m. (ET). The toll‑free dial-in number is 1-800-699-0623. A replay of the conference call will be available for a one‑week period, starting at 2:00 p.m. on Thursday, May 11, 2017. To access the conference call replay, dial 1-800-558-5253 (toll-free) and enter access code 21848671. A webcast of the conference call (listen-only mode) will also be available on the Company's website at www.ia.ca.

Annual Meeting
iA Financial Group is holding its Annual Meeting at 2:00 p.m. (ET) on Thursday, May 11, 2017 at the Quebec City Convention Centre located at 1000 René-Lévesque Boulevard East in Quebec City. A video and audio webcast of the meeting as well as a copy of management's presentation will be available on the Company's website at www.ia.ca under About iA, in the Investor Relations/Events and Presentations section.

About iA Financial Group
Founded in 1892, iA Financial Group celebrates its 125th anniversary this year. iA Financial Group offers life and health insurance products, mutual and segregated funds, savings and retirement plans, securities, auto and home insurance, mortgages and car loans and other financial products and services for both individuals and groups. It is one of the four largest life and health insurance companies in Canada and among the largest publicly-traded companies in the country. iA Financial Group stock is listed on the Toronto Stock Exchange under the ticker symbol IAG.

iA Financial Group is a business name and trademark of Industrial Alliance Insurance and Financial Services Inc.

 

SOURCE Industrial Alliance Insurance and Financial Services Inc.

For further information: Investor Relations, Grace Pollock, Office: 418-780-5945, Email: grace.pollock@ia.ca; Media Relations, Pierre Picard, Office: 418-684-5000, ext. 1660, Email: pierre.picard@ia.ca

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