iA Financial Group Reports a Third Consecutive Quarter of Strong Results in 2018

Favourable policyholder experience continues to drive earnings growth

Q3/2018 Highlights

• Reported EPS of $1.50 (+11% YoY)
• Core EPS¹ of $1.46 (+8% YoY)
• Favourable policyholder experience of $0.07 EPS ($0.38 EPS year to date)
• Solvency ratio of 120% (target of 112%-116%)
• Announcement of share buyback program

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

QUEBEC CITY, Nov. 7, 2018 /CNW Telbec/ - For the third quarter ended September 30, 2018, iA Financial Group (TSX: IAG) reports net income attributed to common shareholders of $164.9 million, diluted earnings per common share (EPS) of $1.50 and return on shareholders' equity (ROE)¹ for the last twelve months of 12.2%. Earnings guidance for the third quarter was $1.40 to $1.50 per share.

"Our results this quarter and indeed for the year to date show that the fundamentals of our business are solid," commented Denis Ricard, President and CEO of iA Financial Group. "All lines of business are focused on executing their business strategies while delivering on their commitments to EPS growth.

"While continuing to invest in internal and external opportunities to sustain our earnings growth, our strong balance sheet and cash flow enable us to return value to shareholders," added Mr. Ricard. "The Board of Directors and management team believe that the Company's shares are an attractive investment opportunity at this time and repurchasing shares is an effective component of our capital allocation strategy."

"Policyholder experience continued to show a favourable trend in the third quarter with all lines of business including iA Auto and Home performing in line with or above expectations," added Jacques Potvin, EVP, CFO and Chief Actuary. "Organic capital generation also continues to deliver as expected and our solvency ratio remains above our target range."

Earnings Highlights
	Third quarter			Year-to-date at September 30
	2018	2017	Variation	2018	2017	Variation
Net income attributed to shareholders (in millions)	$170.5	$148.7	15%	$478.7	$394.8	21%
Less: dividends attributed to preferred shares (in millions)	$5.6	$3.8	47%	$15.5	$12.1	28%
Net income attributed to common shareholders (in millions)	$164.9	$144.9	14%	$463.2	$382.7	21%
Weighted average number of common shares (in millions)	110.2	107.3	3%	109.6	107.2	2%
Earnings per common share (diluted)	$1.50	$1.35	11%	$4.23	$3.57	18%
Core earnings per common share (diluted)^1	$1.46	$1.35	8%	$4.16	$3.59^2	16%
Other Financial Highlights
	September 30, 2018		December 31, 2017		September 30, 2017
Return on common shareholders' equity^1,3	12.2%		11.4%		12.5%
Core return on common shareholders' equity^1,2,3	12.1%		11.5%		11.8%
Solvency ratio^4	120%		120^5%		—
Book value per share	$47.18		$44.20		$43.27
Assets under management and administration	$177.0B		$169.5B		$164.8B

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^1	ROE, core ROE and core EPS are non-IFRS measures. See "Reported EPS and Core EPS Reconciliation" in this document.
^2	Adjusted following the addition of a fifth line of business (US Operations).
^3	Trailing twelve months.
^4	Beginning in 2018, the Company reports its solvency ratio under the new capital regime that took effect January 1, 2018. Under the new regime, the Company's solvency ratio was 120% at January 1, 2018.
^5	As at January 1, 2018.

THIRD QUARTER HIGHLIGHTS

Profitability - For the third quarter ended September 30, 2018, iA Financial Group reports diluted earnings per share (EPS) of $1.50, an increase of 11% from $1.35 in the same quarter of 2017. Core EPS for the same period was $1.46, an increase of 8%. The strong results in the third quarter of 2018 reflect favourable policyholder experience and the positive impact of equity markets.

This table reconciles reported and core EPS for the third quarter. Adjustments applied in the Company's core EPS calculation are explained in the section titled "Non-IFRS Financial Information".

Reported EPS and Core EPS Reconciliation
(On a diluted basis)	Third quarter			Year-to-date at September 30
	2018	2017	Variation	2018	2017^6	Variation
Reported EPS	$1.50	$1.35	11%	$4.23	$3.57	18%
Adjusted for:
Specific items:
Tax on premiums	—	—		—	$0.04
HollisWealth integration	—	$0.03		—	$0.06
Income tax gains and losses	—	—		$0.07	—
Market-related gains and losses	($0.04)	($0.03)		($0.05)	($0.17)
Policyholder experience gains and losses in excess of $0.04 EPS	—	—		($0.09)	$0.09
Core EPS	$1.46	$1.35	8%	$4.16	$3.59	16%

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^6	Adjusted following the addition of a fifth line of business (US Operations) beginning with the first quarter of 2018.

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 September 30, 2018. All figures are after tax unless otherwise indicated. This information contains non-IFRS measures.

Expected profit on in-force increased by 6% to $180.8 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) while the contribution from PPI Management Inc. (PPI) that was acquired late in the first quarter is expressed as an experience gain.

In addition, the Company reports a net market-related and policyholder experience gain of $0.11 EPS ($11.5 million) in the third quarter of 2018 versus management expectations. Details follow by line of business.

Individual Insurance reported an experience gain of $0.04 EPS ($3.8 million) from the positive impact of markets on universal life policies ($0.02 EPS) and from the PPI acquisition ($0.02 EPS).

Individual Wealth Management reported a gain of $0.05 EPS ($6.0 million) as follows: $0.02 EPS from the dynamic hedging program; $0.02 EPS from a retroactive accounting adjustment related to commissions under IFRS-15 effective January 1, 2018; and $0.01 EPS from lower than expected expenses.

Group Insurance had a gain of $0.01 EPS ($1.0 million) from favourable experience in Employee Plans and better than expected results in the car loans business of Dealer Services.

Group Savings and Retirement results were in line with expectations.

US Operations reported a gain of $0.01 EPS ($0.7 million) from better than expected results in its car dealer business.

Strain in the Individual Insurance and US Operations sectors - Strain on new business amounted to $7.1 million pre-tax, or 9% of sales for the quarter, representing a loss of $0.02 EPS mainly attributed to 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 $30.5 million pre-tax represents a net gain of $0.01 EPS. Higher investment income (+ $0.02 EPS) was partially offset by intangibles related to the PPI acquisition (-$0.01 EPS). Experience at iA Auto and Home was in line with expectations.

Income Taxes - The effective tax rate of 22% was in line with the Company's guidance of 21% to 23%.

Actuarial Assumption Review - The annual review of actuarial assumptions has begun and will be finalized in the coming weeks. The final results will be reported on February 14, 2019, with the fourth quarter 2018 results disclosure. The Company believes that the total impact of this review on the fourth quarter 2018 results will be immaterial.

Business Growth - Premiums and deposits increased to $2.4 billion (+9%) reflecting growth in all sectors, particularly US Operations as a result of the acquisition of the car dealer business. Assets under management and administration of $177.0 billion grew by 7% over the previous year mainly attributable to the increase in general and segregated funds, but were comparable to the previous quarter due to lower market returns and fund entries in the third quarter.

The retail insurance sector in Canada reported total sales of $49.4 million, an increase of 6% over the same quarter of 2017. Minimum premiums of $43.7 million were up by 8% while excess premiums of $5.7 million were down year over year.

In retail wealth management, gross sales of segregated funds amounted to $464.4 million (+10%), and net sales of $63.1 million compared with $113.3 million a year earlier. These results reflect general market conditions and the current preference of consumers for guaranteed products. 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 $442.1 million compared with $461.8 million a year ago, and net outflows of $82.3 million compared with net inflows of $21.6 million a year earlier. During the third quarter, the mutual fund industry in Canada was in net redemptions for the second quarter in a row.

The group insurance sector reported total sales of $241.4 million compared with $275.9 million in the same quarter a year ago. Special Markets Solutions had sales of $57.6 million (+6%). In Dealer Services, non-prime loan originations of $90.5 million were up 39%; P&C sales of $66.1 million compared favourably with the previous year; and creditor sales amounted to $108.3 million (-10%). Employee Plans sales, which can vary widely because of the nature of the business, amounted to $9.4 million (-73%).

In the group wealth sector, total sales amounted to $323.3 million (+5%).

In the US, individual insurance sales grew by 19% to US$21.0 million while the contribution from the car dealer business (DAC) acquired on January 23, 2018 was US$104.8 million.

At iA Auto and Home, written premiums in the third quarter grew by 6% to $87.3 million.

Capital - At September 30, 2018, the solvency ratio was 120% compared with 122% at June 30, 2018. The change is the net result of organic capital generation (+1%) offset by a private debenture redemption in August (-1.5%) and the deployment of capital into higher-yielding assets (-1.5%).

Normal Course Issuer Bid - With the approval of the Toronto Stock Exchange, the Company has the intention to purchase, in the normal course of its activities, between November 12, 2018 and November 11, 2019, up to 5,482,768 common shares, representing approximately 5% of its 109,655,360 common shares issued and outstanding as at November 1, 2018, all subject to the prior approval of the Autorité des marchés financiers. Upon the coming into force of the arrangement previously announced by the Company under which iA Financial Corporation Inc. will become a holding company holding all outstanding common shares of the Company, the normal course issuer bid program will be transferred to iA Financial Corporation Inc.

Pursuant to these authorizations, the purchases will be made through the facilities of the Toronto Stock Exchange or an alternative Canadian trading system, in accordance with market rules and policies at market price at the time of purchase. The common shares purchased will be cancelled.

Dividend - The Board of Directors approved a quarterly dividend of 41.5 cents per share on the Company's outstanding common shares. This dividend is payable on December 17, 2018 to shareholders of record at November 23, 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 December 17, 2018 must ensure that the duly completed form is delivered to Computershare no later than 4:00 p.m. on November 16, 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 third quarter results, investors are invited to consult the Management's Discussion and Analysis for the quarter ended September 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 Wednesday, November 7, 2018, at 2:00 p.m. (ET). The toll‑free dial-in number is 1-800-909-4164. A replay of the conference call will be available for a one-week period, starting at 4:30 p.m. on Wednesday, November 7, 2018. To access the conference call replay, dial 1-800-558-5253 (toll-free) and enter access code 21896620. 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.

Investor Relations, Grace Pollock, Office: 418-780-5945, Email: [email protected]; Media Relations, Pierre Picard, Office: 418-684-5000, ext. 101660, Email: [email protected]

Related Links

www.iaah.ca