iA Financial Group Reports Second Quarter Results

Strong growth in EPS for a 2nd consecutive quarter, dividend to common shareholders increased by 9%

Q2/2018 Highlights

• Reported EPS of $1.44 (+21% YoY)
• Core EPS ¹ of $1.38 (+16% YoY)
• Favourable policyholder experience of $0.20 EPS ($0.31 EPS year to date)
• Solvency ratio of 122% (target of 112-116%)
• Dividend on common shares raised to 41.5 cents per share (+9%)

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

QUEBEC CITY, Aug. 2, 2018 /CNW Telbec/ - For the second quarter ended June 30, 2018, iA Financial Group (TSX: IAG) reports net income attributed to common shareholders of $159.1 million, diluted earnings per common share (EPS) of $1.44 and return on shareholders' equity (ROE) for the last twelve months of 12.0%. Earnings guidance for the second quarter was $1.30 to $1.40 per share.

"The momentum in our operations continued to be solid in the second quarter," commented Denis Ricard, Incoming President and CEO of iA Financial Group. "In the US, we had our first full-quarter contribution from the DAC acquisition and in Canada, our Employee Plans and Special Markets segments delivered outstanding organic growth. In addition, our retail  insurance and wealth operations in Canada continue to deliver solid top-line results while adapting their strategies to benefit from technological and regulatory changes in the industry."

"Acquisitions have played an important role in our growth strategy to expand our geographic footprint, enter new lines of business or simply grow existing ones," continued Mr. Ricard. "Whether organically or through acquisitions, we remain steadfast in our commitment to maintain the long-term growth and shareholder value creation delivered under the leadership of Yvon Charest."

"Our second quarter earnings exceeded management expectations," added Jacques Potvin, EVP, CFO and Chief Actuary. "Along with solid growth in expected profit, we benefitted from very favourable policyholder experience in our individual and group insurance operations. We also note the good results from our auto and home subsidiary this quarter. Capital remains well positioned and, in line with our target payout ratio, we are increasing our dividend to common shareholders by 9%."

SECOND QUARTER HIGHLIGHTS

CEO succession - On June 12, 2018, Yvon Charest, President and Chief Executive Officer of iA Financial Group, announced his retirement after almost 40 years of service, including 18 years as CEO. Concurrently, the Board of Directors confirmed the appointment of Denis Ricard as the incoming President and Chief Executive Officer, effective September 1, 2018. Mr. Charest shall assure the transition of the CEO role until his departure on January 1, 2019.

Profitability - For the second quarter ended June 30, 2018, iA Financial Group reports diluted earnings per share (EPS) of $1.44, an increase of 21% from $1.19 in the same quarter of 2017. Core EPS for the same period was $1.38, an increase of 16%. The strong results in the second quarter of 2018 reflect favourable policyholder experience and the positive impact of equity markets.

The following table reconciles reported and core EPS for the second 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 June 30, 2018. All figures are after tax unless otherwise indicated. This information contains non-IFRS measures.

Expected profit on in-force increased by 9% to $172.3 million pre-tax over the same quarter last year and reflects growth in Individual Wealth, Group Insurance and US Operations. Expected profit in 2018 includes the results of the US car dealer acquisition (DAC). The results of PPI Management Inc. (PPI) acquired late in the first quarter are expressed as an experience gain.

In addition, the Company reports a net market-related and policyholder experience gain of $0.25 EPS ($26.1 million) in the second quarter of 2018 versus management expectations. Details follow by line of business.

Individual Insurance reported an experience gain of $0.15 EPS ($15.4 million) from favourable mortality and lapse ($0.08 EPS), the positive impact of markets on universal life policies ($0.05 EPS) and PPI ($0.02 EPS).

Individual Wealth Management reported a loss of $0.01 EPS ($1.5 million) from higher than expected expenses.

Group Insurance had a gain of $0.05 EPS ($5.3 million) related primarily to long-term disability in Employee Plans.

Group Savings and Retirement reported a longevity gain of $0.01 EPS ($1.0 million).

US Operations had a gain of $0.05 EPS ($5.9 million) from favourable mortality and lower expenses in its insurance business ($0.03 EPS) and better than expected results in its car dealer business ($0.02 EPS).

Strain in the Individual Insurance and US Operations sectors - Strain on new business amounted to $6.6 million pre-tax, or 9% of sales for the quarter, representing a loss of $0.02 EPS mainly attributed to an unfavourable sales mix. Guidance for 2018 ranges from 0% to 15% per quarter, with an annual target of 6%.

Income on Capital - Income on capital of $23.0 million pre-tax represents a gain of $0.01 EPS. Favourable experience at iAAH (+$0.02 EPS) was slightly offset by higher intangibles related to the acquisition of PPI in February (-$0.01 EPS).

Income Taxes - The effective tax rate of 26% versus the Company's guidance of 21% to 23% resulted in a loss of $0.07 EPS that was related to true-ups for current and previous taxation periods.

Business Growth - Premiums and deposits increased to $2.4 billion (+1%) reflecting growth in the insurance operations. Assets under management and administration of $172.9 billion grew by 2% during the second quarter. Year over year growth of 31% reflects the transfer of assets from the HollisWealth acquisition completed in August 2017.

The retail insurance sector in Canada reported total sales of $47.4 million, comparable to the same quarter of 2017. Minimum premiums of $44.3 million grew by 3% but excess premiums, or savings, were down.

In retail wealth management, gross sales of segregated funds amounted to $445.9 million (+2%), and net sales of $63.4 million compared with $130.0 million a year earlier. These results reflect general market conditions and consumer preference for guaranteed products during the quarter. According to the latest industry data, 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 $543.9 million compared with $560.1 million a year ago, and net outflows of $3.2 million compared with inflows of $76.9 million a year earlier. During the second quarter, the mutual fund industry in Canada was in net redemptions.

The group insurance sector reported total sales of $291.2 million, up 16% over the same quarter a year ago. Employee Plans reported sales of $56.4 million (+95%) and Special Markets Solutions had sales of $56.8 million (+31%). In Dealer Services, sales of P&C products and creditor insurance amounted to $71.4 million and  $106.6 million, respectively, both comparable to the previous year. Non-prime loan originations of $82.6 million were up 41%.

In the group wealth sector, total sales amounted to $370.0 million (-13%). For the year to date, sales are comparable to the previous year.

In the US, individual insurance sales grew by 8% to US$21.5 million while the contribution from the car dealer business (DAC) acquired on January 23, 2018 was US$102.9 million.

At iA Auto and Home, written premiums in the second quarter grew by 2% to $104.8 million.

Capital - At June 30, 2018, the solvency ratio was 122% compared with 121% at March 31, 2018. The increase is the net result of organic capital generation (+1%) and the reduction of interest rate risk (+0.5%), offset by the impact of equity markets and other (-0.5%). Since the new capital regime took effect on January 1, 2018, the Company has generated additional capital of approximately $200 million through a combination of organic capital generation and capital relief from the reduction of interest rate sensitivity.

Dividend - The Board of Directors approved an increase in the quarterly dividend to 41.5 cents per share on the Company's outstanding common shares. This represents an increase of 3.5 cents per share, or 9%, over the dividend paid in the preceding quarter. This dividend is payable on September 17, 2018 to shareholders of record at August 24, 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 September 17, 2018 must ensure that the duly completed form is delivered to Computershare no later than 4:00 p.m. on August 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 of $5.20 to $5.60
• Return on common shareholders' equity (ROE): target range of 11.0% to 12.5%
• Solvency ratio: target range of 112% to 116%
• Dividend payout ratio: payout range of 25% to 35% with the target being the midpoint
• Effective tax rate: target range of 21% to 23%
• Strain on new business: annual target of 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 second quarter results, investors are invited to consult the Management's Discussion and Analysis for the quarter ended June 30, 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, August 2, 2018, at 1:30 p.m. (ET). The toll‑free dial-in number is 1-800-381-7839. A replay of the conference call will be available for a one-week period, starting at 4:00 p.m. on Thursday, August 2, 2018. To access the conference call replay, dial 1-800-558-5253 (toll-free) and enter access code 21891360. A webcast of the conference call (listen-only mode) will also be available on the Company's website at ia.ca.

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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