Industrial Alliance Delivers Excellent Fourth Quarter and 2016 Results - Quarterly dividend to common shareholders increased by 9%

(TSX: IAG)

Q4-2016 Highlights

• Diluted EPS of $1.48 exceeds Q4 guidance ($1.10-$1.20 EPS)
• Favourable impact of year-end assumption review (+$0.22 EPS)
• Continued favourable policyholder experience (+$0.05 EPS)
• New business strain ratio at all-time low of 5% (+$0.01 EPS)
• Retail insurance continues to deliver strong growth (+27% YoY)
• Net mutual fund flows become positive in Q4
• Solvency ratio of 225% (211% post-HollisWealth acquisition)
• Book value per share up 6% (11% YoY)
• Quarterly dividend increased by 3 cents to $0.35 per common share

QUEBEC CITY, Feb. 16, 2017 /CNW Telbec/ - For the fourth quarter ended December 31, 2016, Industrial Alliance Insurance and Financial Services Inc. (TSX:IAG) reports net income attributed to common shareholders of $155.0 million and diluted earnings per common share (EPS) of $1.48. These results compare with net income of $4.2 million and EPS of $0.04 in the same quarter of 2015 that included a reserve strengthening of $1.05 per share. A discussion of the twelve-month 2016 results is provided in the Management's Discussion and Analysis filed on SEDAR today.

"2016 was clearly an excellent year for Industrial Alliance and for our shareholders," commented Yvon Charest, President and Chief Executive Officer. "I want to highlight the outstanding results of our retail insurance operations both in Canada and the US, the industry-leading growth of our segregated fund business, and the successful turnaround in gross and net sales by our mutual fund business. Aside from organic growth, we are also excited by the expansion of our wealth management platform through the acquisition of HollisWealth in early December. The combination of the two groups propels us to the top of non-bank mutual fund distribution in Canada in terms of geographic footprint and assets under administration."

"As for shareholder value creation, I am pleased to report that book value per share grew by 11% in 2016 and that we are announcing an increase in our dividend on common shares. As we celebrate our 125th anniversary this year, we are extremely enthusiastic about the opportunities for continued growth and development as a leading financial services organization."

"Our earnings in 2016 reflect another year of strong policyholder experience, a significant turnaround in profit from Employee Plans and, like the last four years, lower strain on new business in our retail insurance operations in both Canada and the US," commented René Chabot, Executive Vice-President, CFO and Chief Actuary. "As part of our year-end assumption review, we have strengthened our URR assumption by 20 basis points and maintained significant protection against potential declines in equity markets and long-term interest rates."

"It is is our custom at this time to introduce our earnings guidance for the next year. In 2017, we are expecting to deliver EPS in the range of $4.65 to $5.05. Along with the usual organic growth, we are anticipating strain of 6% for the full year, continued improvement from Employee Plans, profit growth from mutual funds and a better performance in Dealer Services especially for car loans. At year-end our solvency ratio was 225% and our balance sheet retains ample flexibility to support our growth."

FOURTH QUARTER HIGHLIGHTS

Profitability - For the fourth quarter ended December 31, 2016, Industrial Alliance Insurance and Financial Services Inc. reports net income attributed to common shareholders of $155.0 million, diluted earnings per common share (EPS) of $1.48, and annualized return on shareholders' equity (ROE) of 14.9% , all of which exceed management's guidance for the quarter. This compares with net income attributed to common shareholders of $4.2 million, EPS of $0.04 and annualized ROE of 0.4% in the same quarter a year ago. The 2015 results include a reserve strengthening of $1.05.

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

Expected profit on in-force increased by 13% to $145.8 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 $0.36 per share, of which $0.22 is related to its year-end assumption review, $0.05 to favourable policyholder experience, $0.02 to market-related items, $0.01 to lower strain and $0.06 to income taxes. A detailed analysis of gains and losses follows.

Year-end assumption review - The Company released a net amount of $23.2 million or $0.22 per share from its actuarial reserves. Favourable results from the annual mortality update and actions taken during the year to improve investment yields and asset‑liability matching were used primarily to strengthen interest rate reinvestment assumptions. The initial reinvestment rate (IRR), based on the long-term rate at December 31, 2016, is set at 2.35% to which a protection of 75 basis points is added. The ultimate reinvestment rate (URR) was strengthened by 20 basis points and is set at 3.10%. The URR currently prescribed by the Canadian Institute of Actuaries is 3.30%.

Individual Insurance reported a total experience gain of $0.19 per share ($19.0 million) explained by favourable mortality and morbidity ($0.08 EPS), higher excess-premium deposits ($0.06 EPS) and market appreciation ($0.03 EPS) related to Universal Life policies, and miscellaneous items ($0.02 EPS).

Individual Wealth Management had an experience loss of $0.01 per share ($1.2 million) related to the dynamic hedging program for segregated fund guarantees.

Group Insurance reported an experience loss of $0.09 per share ($9.0 million). Employee Plans experienced a higher incidence of long-term disability and dental claims ($0.06 EPS). Dealer Services had higher claims for creditor insurance ($0.01 EPS), as well as lower interest income on car loan originations together with losses on older car loans in the portfolio ($0.02 EPS).

Group Savings and Retirement reported a loss of $0.02 per share ($2.0 million) related to unfavourable longevity and higher expenses.

Strain - In the Individual Insurance sector, strain on new business amounted to $5.1 million pre-tax, or 5% of sales for the quarter, compared with annual guidance of 15%. Management estimates that the lower strain ratio, which is attributed mainly to the higher sales volume in the quarter, represented a gain of $0.01 per share. Strain can vary on a quarterly basis because of seasonality as well as sales mix and volume.

Income on Capital - Total income on capital of $12.2 million pre-tax represents a decrease of $0.06 per share. The decrease is explained by higher financing expenses related to the debt issue in September and lower results at iA Auto and Home.

Income Taxes - The Company realized a gain of $0.06 per share related principally to tax-exempt investment income. The effective tax rate was 17% compared with the Company's guidance of 18%-20%.

Business Growth - Premiums and deposits reached an all-time high of $2.3 billion (+12%) as a result of strong inflows in both the individual insurance and wealth management sectors. Assets under management and administration of $126.2 billion were comparable to the previous quarter-end, reflecting the increase in long-term interest rates during the quarter and their negative impact principally on assets in the general fund. Year over year, assets were up  9%.

Sales continue to be robust in the retail insurance sector. Total sales of $93.4 million (+27%) represent an increase of 37% in Canada and 2% in the United States. Our adjustable disability business in Canada continues to show strong momentum with growth of 18% in the quarter. Total sales in Canada amounted to $71.4 million (including $5.0 million for adjustable disability) and the United States accounted for $22.0 million.

In retail wealth management, the Company reports a second 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 81% to $535.4 million in the fourth quarter, with net inflows of $77.2 million in 2016 compared to net outflows of $247.5 million in 2015. Our segregated funds continue to perform well with gross sales of $383.2 million (+4%) in the quarter and net sales of $74.1 million compared with $82.3 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 $212.2 million. Employee Plans had a strong quarter with sales of $23.1 million (+59%). Special Markets Solutions reported sales of $59.8 million (+1%).  In Dealer Services, car loan originations increased to $93.9 million (+61%), with the majority of this growth in prime loans. Sales of creditor insurance ($85.5 million) and P&C products ($43.8 million) were down by 4% and 11%, respectively, reflecting the continuation of soft market conditions in the Western provinces partially offset by more favourable markets in Quebec. During the fourth quarter, the Company completed the acquisition of Groupe PPP Ltée that expands the Dealer Services distribution network in Quebec.

In the group wealth sector, total sales amounted to $367.2 million in the fourth quarter capping a very strong year particularly in Western Canada and Quebec.

At iA Auto and Home, written premiums in the fourth quarter grew by 14% to $59.4 million. Almost three-quarters of the new growth in the quarter was driven by the Company's car dealer distribution network and strategic partnerships.

Capital Issuances and Redemptions - On December 5, 2016, the Company completed an offering of 2.75 million common shares for  gross proceeds of $153 million. The net proceeds were added to the Company's general fund and will be used to fund in part the acquisition of HollisWealth, which is expected to close in the third quarter of 2017.

On December 14, 2016, the Company redeemed its outstanding 4.75%, $250 million subordinated debentures, as previously announced on September 13, 2016 when it completed an offering of 3.30%, $400 million fixed/floating subordinated debentures .

Capital - At December 31, 2016, the solvency ratio was 225% compared with 218% at the end of the third quarter. The increase is related to the rise in long-term interest rates during the quarter, the net impact of capital issuances and redemptions, and the contribution from earnings. The completion of the HollisWealth acquisition 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 represents an increase of 3 cents per share, or 9%, over the dividend paid in the preceding quarter. This dividend is payable on March 15, 2017 to shareholders of record at February 28, 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 March 15, 2017 must ensure that the duly completed form is delivered to Computershare no later than 4:00 p.m. on February 21, 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 at December 31, 2016
The Company continues to maintain significant protection against declines in equity markets and long-term interest rates.

It can absorb a sudden decrease of about 25% in the S&P/TSX index before having to strengthen reserves for future policyholder benefits.

It can absorb a sudden decrease of 52% 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 $28 million. This does not take into consideration any potential reserve strengthening.

The impact on net income attributed to common shareholders of a 10 basis point decrease in the initial reinvestment rate (IRR) would be $24 million; the impact of a similar decrease in the ultimate reinvestment rate (URR) would be $62 million. This does not take into consideration the protection of 75 basis points for the IRR and 20 basis points for the URR in the actuarial reserves.

Market Guidance for 2017

• Earnings per common share: new target range of $4.65 to $5.05 [$4.20-$4.60 in 2016]
• Return on common shareholders' equity (ROE): target range remains at 11.0% to 12.5%
• Solvency ratio: target range remains at 175% to 200%
• Dividend payout ratio: payout range remains at 25% to 35% with the target being the mid-point
• Effective tax rate: target range increased to 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 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, 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 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 fourth quarter and year-end results, investors are invited to consult the Management's Discussion and Analysis for the year ended December 31, 2016, 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, February 16, 2017, at 12:00 p.m. (ET). The toll‑free dial-in number is 1-800-668-4115. A replay of the conference call will be available for a one‑week period, starting at 2:30 p.m. on February 16, 2017. To access the conference call replay, dial 1-800-558-5253 (toll-free) and enter access code 21836698. 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 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.

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