Industrial Alliance Reports Excellent Third Quarter Results

Quarterly dividend to common shareholders increased by 9%

Q3-2017 Highlights

• Reported EPS and core EPS¹ of $1.35 at top of guidance ($1.25 to $1.35 EPS)
• Book value per share of $43.27 (+12% YoY)
• Dividend increased to $0.38 per common share (+$0.03)
• Addition of HollisWealth creates leading wealth distribution platform across Canada
• Acquisition of car warranty business (DAC) expands U.S. footprint
• Solvency ratio of 213% (205% post-DAC closing)

QUEBEC CITY, Nov. 8, 2017 /CNW Telbec/ - For the third quarter ended September 30, 2017, Industrial Alliance Insurance and Financial Services Inc. (TSX: IAG) reports net income attributed to common shareholders of $144.9 million, diluted earnings per common share (EPS) of $1.35 and return on shareholders' equity (ROE) for the last twelve months of 12.5%.

"This quarter marked some important milestones in the expansion of our financial services network," said Yvon Charest, President and CEO of iA Financial Group. "We completed our acquisition of HollisWealth that firmly establishes iA Financial Group among the largest independent wealth management advisory firms in Canada. In the U.S., we expanded our geographic footprint and entered a second business segment by acquiring a manufacturer and distributor of extended warranties for vehicles. With these strategic initiatives and the momentum in our existing insurance and wealth management operations, we are laying a strong foundation for continued value creation in terms of book value and dividend growth."

"I am pleased with our third quarter that finished at the top of our EPS guidance," added René Chabot, Executive Vice‑President, CFO and Chief Actuary. "With the exception of specific items like the HollisWealth integration costs and the hedging gain, all lines of business delivered close to expectations. In addition, we had a strong contribution from  income on capital,  especially iA Auto and Home that had a strong quarter after a challenging start to the year."

Earnings and Other Financial Highlights
	Third quarter			Year-to-date at September 30
	2017	2016	Variation	2017	2016	Variation
Net income attributed to shareholders (in millions)	$148.7	$148.5	—	$394.8	$394.5	—
Less: dividends attributed to preferred shares (in millions)	$3.8	$4.1	(7%)	$12.1	$12.3	(2%)
Net income attributed to common shareholders (in millions)	$144.9	$144.4	—	$382.7	$382.2	—
Weighted average number of common shares (in millions)	107.3	103.3	4%	107.2	103.1	4%
Earnings per common share (diluted)	$1.35	$1.40	(4%)	$3.57	$3.71	(4%)
Core earnings per common share (diluted)^1	$1.35	$1.28	5%	$3.61	$3.53	2%
	September 30, 2017		June 30, 2017	December 31, 2016		September 30, 2016
Return on common shareholders' equity^2	12.5%		12.9%	13.2%		10.1%
Core return on common shareholders' equity^2	11.8%		11.8%	11.9%		12.0%
Solvency ratio	213%		220%	225%		218%
Book value per share	$43.27		$42.26	$40.97		$38.63
Assets under management and administration	$164.8B		$132.2B	$126.2B		$126.2B

___________________________________________
¹ See "Reported EPS and Core EPS Reconciliation" in this document.
² Trailing twelve months.

THIRD QUARTER HIGHLIGHTS

Profitability - For the third quarter ended September 30, 2017, Industrial Alliance Insurance and Financial Services Inc. reports net income to common shareholders of $144.9 million versus $144.4 million for the same period in 2016 and diluted earnings per share (EPS) of $1.35 versus $1.40 in the third quarter of 2016. In the third quarter of 2016, the Company benefited from market-related and policyholder experience gains that contributed $0.21 to earnings per share.

Diluted core EPS of $1.35 for the third quarter represents an increase of 5% over the same period a year earlier. The table below reconciles reported and core EPS for the third quarter and the year to date. 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
			Third quarter			Year-to-date at September 30
(On a diluted basis)			2017	2016	Variation	2017	2016	Variation
Reported EPS			$1.35	$1.40	(4%)	$3.57	$3.71	(4%)
Adjusted for:
	Specific items:
		Tax on premiums	—	—		$0.04	—
		HollisWealth integration	$0.03	—		$0.06	—
		Income tax gains and losses	—	—		—	($0.03)
	Market-related gains and losses		($0.03)	($0.09)		($0.17)	($0.09)
	Policyholder experience gains and losses in excess of $0.04 EPS		—	($0.03)		$0.11	($0.06)
Core EPS			$1.35	$1.28	5%	$3.61	$3.53	2%

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, 2017. All figures are after tax unless otherwise indicated. This information contains non-IFRS measures.

Expected profit on in-force increased by 16% to $170.0 million pre-tax over the same quarter last year and reflects strong growth particularly in the individual and group wealth management businesses.

In the third quarter of 2017, the Company had a net market-related and policyholder experience loss of $0.02 per share versus management expectations. Details follow by line of business.

Individual Insurance experience was in line with expectations. Adverse lapse (-$0.04 EPS) and the unfavourable impact of markets on universal life policies (-$0.01 EPS) were completely offset by favourable mortality and morbidity ($0.03 EPS) and various other gains ($0.02 EPS).

Individual Wealth Management experience was mostly in line with expectations, excluding the HollisWealth integration costs (‑$0.03 EPS) and the hedging gain related to the dynamic hedging program ($0.05 EPS). Adverse longevity and the impact of lower market growth on assets under management each accounted for a loss of $0.01 per share.

Group Insurance reported an experience loss of $0.01 per share (-$1.1 million) related principally to higher claims in the Special Markets Solutions segment.

Group Savings and Retirement had an experience loss of $0.01 per share (-$1.2 million) related to adverse longevity.

Strain - In the individual insurance sector, strain on new business amounted to $3.3 million pre-tax, or 5% of sales for the quarter. Management estimates that the higher-than-expected strain ratio, attributed mainly to the lower sales volume in the quarter, represented a loss of $0.01 per share.

Income on Capital - Income on capital of $31.8 million pre-tax represents a gain of $0.05 per share. In addition to the gain on disposition of real estate ($0.04 EPS), iA Auto and Home reported favourable results ($0.01 EPS).

Income Taxes - The effective tax rate of 23% in the third quarter is slightly above the Company's guidance of 20% to 22%, representing a loss of $0.02 per share.

Year-end Preview - As previously communicated to the financial markets, the Company reiterates its intention to reposition its lapse assumption as part of its year-end actuarial review. The Company believes that the update is expected to have minimal impact on fourth quarter earnings because of the following positive elements:  the introduction of a new mortality improvement table in 2017; confirmation of the new prescribed ultimate reinvestment rate that is higher than currently used in the valuation of the Company's reserves; and investment gains realized during 2017 from the active management of its asset portfolio. The final results, which are subject to completion of the Company's year-end review, will be reported on February 15, 2018 as part of the fourth quarter disclosure.

Business Growth - Premiums and deposits amounted to $2.2 billion (+5%) reflecting strong inflows in the individual wealth sector. Assets under management and administration of $164.8 billion (+25% over the second quarter) benefited primarily from the transfer of assets following completion of the HollisWealth acquisition in August.

The retail insurance sector including activities in both Canada and the U.S. reported sales of $68.6 million (-9%). Total sales in Canada amounted to $46.7 million (including $4.8 million for adjustable disability) and the United States accounted for $21.9 million.

In retail wealth management, gross sales of mutual funds increased by 37% to $461.8 million year over year, and net sales of $21.6 million compared with net outflows of $69.1 million in the same quarter a year earlier.

Gross sales of segregated funds grew by 14% over the previous year to $423.2 million, with  net sales moving up to $113.3 million from $71.6 million in 2016. 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 $276.0 million, a year-over-year increase of 25%, with good results in all segments.  Employee Plans had a fourth consecutive strong quarter with sales of $35.5 million (+169%). Special Markets Solutions reported sales of $54.1 million (+26%). In Dealer Services, creditor insurance had sales of $120.3 million (+10%) and P&C products reported sales of $66.1 million (+19%). Total car loan originations decreased to $64.9 million (-35%) reflecting the Company's decision in the second quarter of 2017 to exit the prime car loan market. Year over year, non-prime loan originations were up 54%.

In the group wealth sector, total sales amounted to $309.2 million (-32%). For the year to date, sales are up 9% reflecting strong growth in accumulation plans in the first six months of 2017.

At iA Auto and Home, written premiums in the third quarter grew by 10% to $82.5 million with new business initiatives continuing to generate the growth.

Acquisitions - On August 4, 2017, the Company completed the acquisition of HollisWealth, a Canadian financial network, making iA Financial Group one of the largest non-bank wealth management advisory firms in Canada.

Then, on September 21, 2017, the Company announced an agreement to acquire the shares of privately-owned, U.S. based Dealers Assurance Company and Southwest Reinsure, Inc. (collectively DAC) for a purchase price of US$135 million. Founded in 1985 and based primarily in the Southwest U.S., DAC manufactures and distributes vehicle service contracts, or extended warranties, through a cross-country network of new and used car dealers in the U.S.

Capital - At September 30, 2017, the solvency ratio was 213% compared with 220% at the end of the second quarter of 2017. The decrease is explained primarily by the completion of the HollisWealth acquisition that reduced the ratio by 13 percentage points, partially offset by the favourable impact of the macroeconomic environment and the contribution from earnings. The completion of the acquisition of DAC in the first quarter of 2018 is expected to reduce the ratio by 8 percentage points.

Dividend - The Board of Directors approved a quarterly dividend of 38 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 December 15, 2017 to shareholders of record at November 24, 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 December 15, 2017 must ensure that the duly completed form is delivered to Computershare no later than 4:00 p.m. on November 17, 2017. 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.

Macroeconomic Protection - The Company continues to maintain significant protection against declines in equity markets and long‑term interest rates. At September 30, 2017:

• It can absorb a decrease of 25% in the S&P/TSX index before having to strengthen reserves for future policyholder benefits.
• It can absorb a decrease of 46% in the S&P/TSX index before the solvency ratio drops below 175%, and a decrease of 59% 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 $30 million.
• The impact on net income attributed to common shareholders of a 10 basis point decrease in the initial reinvestment rate (IRR) would be $15 million; the impact of a similar decrease in the ultimate reinvestment rate (URR) would be $61 million. As disclosed at year-end, both the IRR and URR are currently well protected in the actuarial reserves which could help to absorb potential movements in these rates.

Market Guidance for 2017

• Earnings per common share: target range of $4.65 to $5.05
• 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 20% to 22%
• Strain on new business: annual target of 6% of Individual Insurance sales with quarterly range of 0% to 15%

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 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 IFRS 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 financial position of the Company 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); impact of new business (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. A detailed analysis of revenues by sector is presented in the "Results According to the Company's Unaudited Interim Condensed Consolidated Financial Statements for the Three- and Nine-Month Periods Ended September 30, 2017 and 2016" 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 and iA Auto and Home), for current 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 2016 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, 2016, 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, 2017, 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 8, 2017, at 2:00 p.m. (ET). The toll‑free dial-in number is 1-800-708-3128. A replay of the conference call will be available for a one-week period, starting at 4:30 p.m. on Wednesday, November 8, 2017. To access the conference call replay, dial 1-800-558-5253 (toll-free) and enter access code 21858133. 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.

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

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

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