Industrial Alliance Reports Outstanding Third Quarter Results - Business growth and earnings reflect strong execution on 2016 plan

QUEBEC CITY, Nov. 2, 2016 /CNW Telbec/ -

(TSX: IAG)

Q3-2016 Highlights

• Diluted EPS of $1.40 exceeds Q3 guidance ($1.15-$1.25 EPS)
• Annualized return on equity of 14.7% is above guidance (11.0% to 12.5%)
• Favourable policyholder experience of $0.12 EPS ($0.31 EPS year to date)
• New business strain ratio of 12% beats guidance of 15%
• Retail insurance sales in Canada and the US maintain strong growth (+18%)
• Positive net fund sales in retail wealth management
• Solvency ratio of 218% (207% after debt redemption)

"2016 is proving to be a truly outstanding year for iA Financial Group," commented Yvon Charest, President and Chief Executive Officer. "Top-line growth has been robust in virtually all lines of business, profit from  Employee Plans has been solid  and fund flows from our mutual fund business continue to improve. In addition to building and developing profitable businesses organically, we remain focused on identifying opportunities that will enhance our competitive position in both Canada and the US."

"Our Q3 earnings are well above guidance provided to the market and policyholder experience continues to show a favourable trend," commented René Chabot, Executive Vice-President, CFO and Chief Actuary. "In addition, strain on new retail insurance business is even lower than expected because of the strong sales in both Canada and the US. As we enter the last stretch of the year, we are very well positioned to achieve our 2016 plan."

THIRD QUARTER HIGHLIGHTS

Profitability - For the third quarter ended September 30, 2016, Industrial Alliance Insurance and Financial Services Inc. reports very strong results. Net income attributed to common shareholders increased year over year to $144.4 million (+28%), diluted earnings per common share (EPS) to $1.40 (+$0.29 EPS), and annualized return on shareholders' equity (ROE) to 14.7% (+240 bps), all surpassing management's guidance to the financial market for the quarter. This compares with net income attributed to common shareholders of $113.1 million, EPS of $1.11 and ROE of 12.3% a year earlier.

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

Expected profit on in-force increased by 7% to $146.5 million pre-tax over the same quarter last year and is attributed mainly to the retail and group insurance sectors. In addition, the Company reported gains of $0.20 per share, of which $0.12 is attributed to favourable policyholder experience, $0.09 per share to market-related items and $0.01 per share to a lower strain ratio. A detailed analysis of gains and losses follows.

Individual Insurance reported a total experience gain of $0.11 per share ($11.3 million) attributed to favourable mortality and morbidity ($0.06 EPS), a market gain on Universal Life policies ($0.04 EPS) and the remainder ($0.01 EPS) to miscellaneous items.

Individual Wealth Management had a total experience gain of $0.09 per share ($9.1 million) explained by the dynamic hedging program for the segregated fund guarantee ($0.04 EPS), lower expenses ($0.03 EPS), favourable longevity on single‑premium immediate annuities ($0.01 EPS), and higher fees on assets under management ($0.01 EPS) as a result of market growth during the quarter.

Group Insurance reported a net experience loss of $0.4 million. Employee Plans reported favourable claims experience representing a gain of $0.03 per share. Dealer Services reported a total experience loss of $0.03 per share related to three different items: higher claims in creditor insurance (-$0.01 EPS); lower interest income on car loan originations as they shift to a lower‑risk profile (-$0.01 EPS); and slightly higher losses on older car loans in the portfolio (-$0.01 EPS).

Group Savings and Retirement contributed an additional $0.01 per share ($1.1 million) related to investment gains.

Strain - In the Individual Insurance sector, strain on new business amounted to $8.8 million pre-tax, or 12% of sales, compared with annual guidance of 15%. Management estimates that the lower strain ratio, which is attributed mainly to the higher sales volume as well as lower expenses, represented a gain of $0.01 per share.

Income on Capital - Total income on capital of $20.6 million pre-tax represents a decrease of  $0.02 per share relative to the previous year. Higher investment income was offset by increased financing expenses related to the debt issue in September and lower results at iA Auto and Home because of a significant weather event in July.

Income Taxes - The effective tax rate of 20% is in line with the Company's guidance of 18%-20%.

Business Growth - Assets under management and administration of $126.2 billion progressed by 4% in the third quarter (14% year over year), attributed primarily to strong inflows for segregated funds as well as market growth. Premiums and deposits of $2.1 billion were up 18% over the previous year, reflecting good inflows during the quarter in the individual and group wealth sectors.

Sales continued to be robust in the retail insurance sector across all segments. Total sales of $75.0 million (+18%) reflect an increase of 17% in Canada and 19% in the United States. Sales in our adjustable disability business, which continues to grow across Canada, were up by 35%. Total sales in Canada amounted to $50.3 million (including $5.1 million for adjustable disability) and the United States accounted for $24.7 million.

In retail wealth management, after six quarters of negative net fund sales, the Company reports positive net fund sales attributed to the year-over-year improvement in its mutual fund business. Gross sales of mutual funds increased by 7% to $336.9 million, while net outflows improved for the second consecutive quarter, dropping to $69.1 million from $315.7 million in 2015. Gross sales of segregated funds increased by 3% to $370.2 million in the third quarter while net sales were $71.6 million compared with $80.5 million in 2015. 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 $221.4 million. Special Markets Solutions had sales of $42.9 million (+2%) and Employee Plans had sales of $13.2 million (+2%). In Dealer Services, sales of P&C products ($55.6 million) and creditor insurance ($109.7 million) were comparable to the previous year reflecting soft market conditions in the Western provinces. Car loan originations amounted to $100.6 million.

In the group wealth sector, total sales were $455.1 million, an increase of 85% resulting from new mandates awarded during the quarter.

At iA Auto and Home, written premiums in the third quarter grew by 12% to $74.9 million, attributed to organic growth and new partnerships.

Issuance of Subordinated Debentures - On September 16, 2016, the Company completed an offering of $400 million of 3.30% fixed/floating subordinated debentures due September 15, 2028. The net proceeds were added to the Company's general fund and are being used for general corporate purposes including the redemption on December 14, 2016 of its outstanding 4.75%, $250 million subordinated debentures.

Capital - At September 30, 2016, the solvency ratio was 218% compared with 199% at the end of the previous quarter. The increase is related to the capital issuance during the quarter, the contribution from earnings and the writedown of the CTL earnout, partially offset by higher capital requirements related to changes in the macroeconomic environment during the quarter.

During the third quarter, the Company conducted an evaluation of its obligation to pay the earnout on the acquisition of the CTL car loan portfolio. The earnout, which depended on meeting short-term results, was written down to reflect changes in the portfolio's cash flows, including the revision of credit losses. Concurrently, goodwill was also reviewed and written down. These two events had no material impact on earnings.

Dividend - The Board of Directors approved a dividend of 32 cents per share on the Company's outstanding common shares. This dividend is payable on December 15, 2016 to shareholders of record at November 18, 2016.

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 December 15, 2016 must ensure that the duly completed form is delivered to Computershare no later than 4:00 p.m. on November 11, 2016. 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.

Market Guidance for 2016

• Earnings per common share: target range of $4.20 to $4.60
• 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 18% to 20%
• Strain on new business: target of 15% (±5%) of sales in Individual Insurance

Guidance for ROE and earnings per common share excludes any potential reserve strengthening in 2016.

GENERAL INFORMATION

Non-IFRS Financial Information
iA Financial Group reports its financial results in accordance with International Financial Reporting Standards (IFRS). It also publishes certain non-IFRS financial measures that do not have an IFRS equivalent, including sales, value of new business, solvency ratio, average credit loss rate on car loans, loan originations and finance receivables, or which have an IFRS equivalent such as data on operating profit and income taxes on earnings presented in the sources of earnings table. The Company also uses non‑IFRS adjusted data in relation to net income, earnings per share and return on equity. These non-IFRS financial measures are often accompanied by and reconciled with IFRS financial measures. The Company believes that these non-IFRS financial measures provide investors and analysts with additional information to better understand the Company's financial results as well as assess its growth and earnings potential. Since non-IFRS financial measures do not have a standardized definition, they may differ from the non-IFRS financial measures used by other institutions. 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.

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 2015 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 third quarter results, investors are invited to consult the MD&A for the quarter ended September 30, 2016, related consolidated financial statements and accompanying notes as well as 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, November 2, 2016, at 2:00 p.m. (ET). The toll‑free dial-in number is 1-800-272-6255. A replay of the conference call will be available for a one‑week period, starting at 4:30 p.m. on November 2, 2016. To access the conference call replay, dial 1‑800‑558‑5253 (toll-free) and enter access code 21816816. A webcast of the conference call ( listen-only mode) will also be available on the company's website at www.ia.ca.

About iA Financial Group

Founded in 1892, iA Financial Group offers life and health insurance products, mutual and segregated funds, savings and retirement plans, RRSPs, 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.