Industrial Alliance Reports Excellent First Quarter Results

Year-over-year increase in EPS of 25% and favourable impact of new capital regime

Q1-2018 Highlights

• Reported EPS of $1.29 (+25% YoY)
• Core EPS ¹ of $1.32 (+26% YoY)
• AUM/AUA of $169.7B (+30% YoY)
• Three acquisitions since January 2018
• Book value per share of $45.05 (+8% YoY)
• Solvency ratio of 121% under new capital regime
• Dividend to common shareholders of $0.38 per share

This News Release presents non-IFRS measures. See "Non-IFRS Financial Information" at the end of this document for further information.

QUEBEC CITY, May 10, 2018 /CNW Telbec/ - For the first quarter ended March 31, 2018, Industrial Alliance Insurance and Financial Services Inc. (TSX: IAG) reports net income attributed to common shareholders of $139.2 million, diluted earnings per common share (EPS) of $1.29 and return on shareholders' equity (ROE) for the last twelve months of 11.6%. Earnings guidance for the first quarter was $1.15 to $1.25 per share.

"The first quarter of 2018 was excellent with EPS exceeding both our guidance and same-quarter results a year ago," commented Yvon Charest, President and CEO of iA Financial Group. "In addition to favourable policyholder experience, we had a strong contribution from HollisWealth in our retail wealth operations, which is consistent with our strategy to develop distribution as a business. We look forward to similar success from three other acquisitions completed since the beginning of 2018 — PPI and ABEX in Canada and DAC in the US — that are immediately accretive to earnings."

"This quarter marks the transition to a new capital regime that is more robust," continued Mr. Charest. "With our solvency ratio positioned at 121% at quarter-end, the overall impact of the new formula has been favourable for iA Financial Group and speaks to the strength of our risk management. Backed by our balance sheet flexibility, we remain focused on seeking opportunities to grow our franchise in North America, while maintaining our track record of value creation for all our stakeholders."

FIRST QUARTER HIGHLIGHTS

Profitability - For the first quarter ended March 31, 2018, Industrial Alliance Insurance and Financial Services Inc. reports diluted earnings per share (EPS) of $1.29 compared with $1.03 in the same quarter of 2017, representing an increase of 25%. The first quarter results of 2018 reflect the additional contribution from acquisitions as well as favourable policyholder experience.

On a core basis, diluted EPS increased by 26% to $1.32 in the first quarter of 2018 from $1.05 ⁵ in the same quarter a year earlier. The following table reconciles reported and core EPS for the first quarter. Adjustments applied in the Company's core EPS calculation are explained in the section titled "Non-IFRS Financial Information".

The following items presented in the Sources of Earnings section of the Company's Financial Information Package explain the differences between management's expectations and reported earnings for the three-month period ended March 31, 2018. All figures are after tax unless otherwise indicated. This information contains non-IFRS measures.

Beginning this quarter, the results of the Company's US operations comprising individual life insurance contracts and extended warranties for vehicles are disclosed in a line of business entitled US Operations.

Expected profit on in-force increased by 11% to $159.1 million pre-tax over the same quarter last year and reflects growth in Individual Wealth, Group Insurance and US Operations.

The Company had a net market-related and policyholder experience gain of $0.07 EPS ($7.8 million) in the first quarter of 2018 versus management expectations. Details follow by line of business.

Individual Insurance reported a loss of $0.01 EPS (-$1.2 million). Favourable mortality and lapse experience ($0.04 EPS) was completely offset by the negative impact of markets on universal life policies (-$0.05 EPS).

Individual Wealth Management reported a gain of $0.03 EPS ($3.4 million). Gains related to the dynamic hedging program ($0.02 EPS) and lower expenses ($0.02 EPS) were partially offset by the impact of negative market growth on assets under management (-$0.01).

Group Insurance had a gain of $0.05 EPS ($5.4 million) explained by favourable experience for long-term disability and health claims in Employee Plans ($0.03 EPS), for creditor insurance in Dealer Services ($0.01 EPS) and for travel and health claims in Special Markets Solutions ($0.01 EPS).

Group Savings and Retirement reported favourable experience of $0.01 EPS ($1.2 million) from investment gains.

US Operations reported a loss of $0.01 EPS (-$1.0 million) explained by adverse mortality experience.

Strain in the Individual Insurance and US Operations sectors - Strain on new business amounted to $9.9 million pre-tax, or 14% of sales for the quarter, representing a loss of $0.01 EPS mainly attributed to an unfavourable sales mix in the Individual Insurance sector in Canada. Guidance for 2018 ranges from 0% to 15% per quarter, with an annual target of 6%.

Income on Capital - Income on capital of $17.9 million pre-tax represents a gain of $0.03 EPS. Higher investment income reflects the sale of a property in the US. The results of iAAH were in line with expectations.

Income Taxes - The effective tax rate of 20% versus the Company's guidance of 21% to 23% resulted in a gain of $0.03 EPS related principally to tax-exempt investment income.

Business Growth - Premiums and deposits increased to $2.9 billion (+5%) reflecting strong inflows primarily  in the group insurance and wealth sectors. Assets under management and administration of $169.7 billion were slowed by unfavourable equity markets during the quarter but benefitted year over year (+30%) from the transfer of assets from the HollisWealth acquisition completed in August 2017.

The retail insurance sector in Canada reported total sales of $46.7 million (including $5.0 million for adjustable disability), comparable to the same quarter of 2017. Note that sales in the first quarter of 2017 were  stimulated by the introduction of new tax legislation effective January 1, 2017.

In retail wealth management, gross sales of segregated funds grew by 11% over the previous year to $617.6 million, with net sales increasing to $219.7 million from $164.7 million in 2017. The Company continues to hold first position for net segregated fund sales in Canada and third position for assets.

Gross sales of mutual funds of $670.1 million compared with $783.8 million a year ago, and net sales of $45.8 million compared with $200.0 million a year earlier.

The group insurance sector reported total sales of $206.7 million compared with $212.5 million a year earlier. Special Markets Solutions reported sales of $65.0 million (+19%). In Dealer Services, P&C products reported sales of $49.9 million (+7%), creditor insurance had sales of $72.3 million (-4%) and non-prime loan originations of $74.4 million were up 46%. Employee Plans reported sales of $19.5 million (-46%).

In the group wealth sector, total sales amounted to $535.3 million (+13%).

In the US sector, individual insurance sales accounted for US$17.3 million (-2%) while the contribution from the car dealer business (DAC) acquired on January 23, 2018 was US$88.1 million.

At iA Auto and Home, written premiums in the first quarter grew by 5% to $62.2 million.

Acquisitions - On January 23, 2018, the Company completed the acquisition of the shares of privately-owned, US-based Dealers Assurance Company and Southwest Reinsure, Inc. (collectively DAC). DAC manufactures and distributes vehicle service contracts, or extended warranties, through a cross-country network of new and used car dealers in the US.

On February 26, 2018, the Company acquired the shares of PPI Management Inc. (PPI), a leading Canadian insurance marketing organization supporting independent advisors in Canada. PPI operates 15 offices across Canada and has a national distribution network of over 3,000 advisors.

Subsequent to quarter-end, on April 10, 2018, the Company announced the acquisition of ABEX Brokerage Services Inc. and its subsidiary ABEX National Brokerage. ABEX is a managing general agency supporting independent advisors in Western Canada.

Capital - At March 31, 2018, the solvency ratio was 121% compared with 120% at January 1, 2018. The variation is the net result of new issuances of common and preferred shares (+4%), the reduction of interest rate risk (+1%) and the contribution from earnings (+1%), offset by the acquisition of DAC and PPI (-5%). Beginning with the first quarter of 2018, the Company reports its solvency ratio under the new capital regime that took effect January 1, 2018. More detailed information is provided in the Management's Discussion and Analysis and the Financial Information Package for the first quarter ended March 31, 2018.

Capital Issuances - During the first quarter of 2018, the Company completed two capital issuances, comprising 6 million preferred shares (Series I) for gross proceeds of $150 million and 2.75 million common shares at a price of $54.10 per common share for a total of $148.8 million. The common share offering had a dilutive impact of $0.01 EPS in the first quarter.

Dividend - The Board of Directors approved a quarterly dividend of 38 cents per share on the Company's outstanding common shares. This dividend is payable on June 15, 2018 to shareholders of record at May 25, 2018.

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, 2018 must ensure that the duly completed form is delivered to Computershare no later than 4:00 p.m. on May 17, 2018. Enrolment information is provided on the Company's website at 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 2018

• Earnings per common share: target range increased to $5.20 to $5.60
• Return on common shareholders' equity (ROE): target range of 11.0% to 12.5%
• Solvency ratio under the new capital regime: 112% to 116%
• Dividend payout ratio: payout range of 25% to 35% with the target being the midpoint
• Effective tax rate: target range increased to 21% to 23%
• Strain on new business: annual target maintained at 6% of Individual Insurance sales with quarterly range of 0% to 15%

Guidance for EPS and ROE excludes any potential impact of the year-end assumption review.

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, interest rate and equity market sensitivities, loan originations, finance receivables and average credit loss rate on car loans.

The analysis of profitability according to the sources of earnings presents sources of income in compliance with the guideline issued by the Office of the Superintendent of Financial Institutions and developed in co-operation with the Canadian Institute of Actuaries. This analysis is intended to be a supplement to the disclosure required by IFRS and to facilitate the understanding of the Company's financial position by both existing and prospective stakeholders to better form a view as to the quality, potential volatility and sustainability of earnings. It provides an analysis of the difference between actual income and the income that would have been reported had all assumptions at the start of the reporting period materialized during the reporting period. It sets out the following measures: expected profit on in‑force business (representing the portion of the consolidated net income on business in force at the start of the reporting period that was expected to be realized based on the achievement of best‑estimate assumptions); experience gains and losses (representing gains and losses that are due to differences between the actual experience during the reporting period and the best-estimate assumptions at the start of the reporting period); new business strain (representing the point-of-sale impact on net income of writing new business during the period); changes in assumptions, management actions and income on capital (representing the net income earned on the Company's surplus funds).

Sales is a non-IFRS measure used to assess the Company's ability to generate new business. They are defined as fund entries on new business written during the period. Net premiums, which are part of the revenues presented in the financial statements, include both fund entries from new business written and in-force contracts. Assets under management and administration is a non‑IFRS measure used to assess the Company's ability to generate fees, particularly for investment funds and funds under administration. An analysis of revenues by sector is presented in the Analysis According to the Financial Statements section of the Management's Discussion and Analysis.

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) specific items, including but not limited to year‑end assumption changes and unusual income tax gains and losses; 2) market gains and losses related to universal life policies, investment funds (MERs) and the dynamic hedging program for segregated fund guarantees; 3) gains and losses in excess of $0.04 per share, on a quarterly basis, for strain on Individual Insurance sales, for policyholder experience by business segment (Individual Insurance, Individual Wealth Management, Group Insurance, Group Savings and Retirement, US Operations and iA Auto and Home Insurance), for usual income tax gains and losses 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 Management's Discussion and Analysis for the year 2017 and in the "Management of Risks Associated with Financial Instruments" note to iA Financial Group's audited consolidated financial statements for the year ended December 31, 2017, and elsewhere in iA Financial Group's filings with Canadian securities regulators, which are available for review at 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, 2018, the related consolidated financial statements and accompanying notes and the Financial Information Package, all of which are available on the iA Financial Group website at ia.ca under About iA, in the Investor Relations/Financial Reports section and on SEDAR at sedar.com.

Conference Call
Management will hold a conference call to present the Company's results on Thursday, May 10, 2018, at 11:30 a.m. (ET). The toll‑free dial-in number is 1-800-954-0651. A replay of the conference call will be available for a one-week period, starting at 2:00 p.m. on Thursday, May 10, 2018. To access the conference call replay, dial 1-800-558-5253 (toll-free) and enter access code 21886626. A webcast of the conference call (listen-only mode) will also be available on the Company's website at ia.ca.

Annual and Special Meeting
iA Financial Group is holding its Annual and Special Meeting at 2:00 p.m. on Thursday, May 10, 2018 at the Quebec City Convention Centre located at 1000 René-Lévesque Boulevard East in Quebec City. Media will have the opportunity to meet with President and Chief Executive Officer Yvon Charest, and Chief Operating Officer Denis Ricard, immediately after the meeting at approximately 3:30 p.m. A webcast and a videoconference of the meeting as well as a copy of the presentation will be available on the Company's website at ia.ca under About iA, in the Investor Relations/Events and Presentations section.

Investor Day
iA Financial Group will hold an investor day on Friday, June 22, 2018, in Toronto, from 8:30 a.m. to 1:30 p.m. (ET). Further information will be provided at a later date.

About iA Financial Group
Founded in 1892, iA Financial Group is one of the largest insurance and wealth management companies in Canada, with operations in the United States. It 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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