Industrial Alliance Reports Second Quarter Results

Strong execution on fundamental business drivers

Q2-2017 Highlights

• Reported EPS and core EPS¹ of $1.19 vs. guidance of $1.15 to $1.25 EPS
• QoQ improvement in policyholder experience (-$0.02 EPS vs. -$0.12 EPS in Q1)
• New business strain ratio of 3% (+$0.02 EPS)
• Premiums and deposits of $2.4 billion (+26% YoY)
• Solvency ratio of 220% (206% post-HollisWealth)
• Book value per share of $42.26 (+12% YoY)

QUEBEC CITY, Aug. 3, 2017 /CNW Telbec/ - For the second quarter ended June 30, 2017, Industrial Alliance Insurance and Financial Services Inc. (TSX: IAG) reports net income attributed to common shareholders of $127.5 million, diluted earnings per common share (EPS) of $1.19 and return on shareholders' equity (ROE) for the last twelve months of 12.9%. Core¹ EPS of $1.19 is near the middle of guidance ($1.15 to $1.25 EPS) provided by management to the financial markets.

"Our top line continues to grow with premiums and deposits up 26% during the second quarter," said Yvon Charest, President and CEO of iA Financial Group. "Wealth management, a key area of growth for us, is showing sustained momentum, and HollisWealth will be a very good addition. We are also pleased to note the strong growth in our group operations, which is in line with our aim for them to become a more meaningful contributor to iA Financial Group."

"Overall our second quarter is in line with management's expectations and the guidance we provided to the financial markets," added René Chabot, Executive Vice-President, CFO and Chief Actuary. "In addition to the significant improvement in policyholder experience this quarter, I want to highlight the 12% growth in expected profit on our in-force business and the lower strain on new business, both of which speak to the strong execution on our fundamental business drivers."

Earnings and Other Financial Highlights
	Second quarter			Year-to-date at June 30
	2017	2016	Variation	2017	2016	Variation
Net income attributed to shareholders (in millions)	$131.7	$143.6	(8%)	$246.1	$246.0	—
Less: dividends attributed to preferred shares (in millions)	$4.2	$4.1	2%	$8.3	$8.2	1%
Net income attributed to common shareholders (in millions)	$127.5	$139.5	(9%)	$237.8	$237.8	—
Weighted average number of common shares (in millions)	107.2	103.0	4%	107.2	102.9	4%
Earnings per common share (diluted)	$1.19	$1.35	(12%)	$2.22	$2.31	(4%)
Core earnings per common share (diluted)^1	$1.19	$1.21	(2%)	$2.26	$2.25	—
	June 30, 2017		March 31, 2017	December 31, 2016		June 30, 2016
Return on common shareholders' equity^2	12.9%		13.4%	13.2%		9.4%
Core return on common shareholders' equity^2	11.8%		12.0%	11.9%		11.9%
Solvency ratio	220%		222%	225%		199%
Book value per share	$42.26		$41.86	$40.97		$37.60
Assets under management and administration	$132.2B		$130.2B	$126.2B		$121.9B

_________________________________________

¹ See "Reported EPS and Core EPS Reconciliation" in this document.

² Trailing twelve months.

SECOND QUARTER HIGHLIGHTS

Profitability - For the second quarter ended June 30, 2017, Industrial Alliance Insurance and Financial Services Inc. reports net income to common shareholders of $127.5 million versus $139.5 million in 2016 and diluted earnings per share (EPS) of $1.19 versus $1.35 in the second quarter of 2016. In the second quarter of 2016, the Company benefited from significant market-related and policyholder experience gains.

Return on common shareholders' equity (ROE) for the trailing twelve months was 12.9% in the second quarter of 2017 compared with 9.4% a year earlier. The prior period includes the impact of the reserve strengthening in the fourth quarter of 2015.

Diluted core EPS of $1.19 is in line with EPS guidance of $1.15 to $1.25. The table below reconciles reported and core EPS for the second 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
			Second quarter			Year-to-date at June 30
(On a diluted basis)			2017	2016	Variation	2017	2016	Variation
Reported EPS			$1.19	$1.35	(12%)	$2.22	$2.31	(4 %)
Adjusted for:
	Specific items:
		Tax on premiums	—	—		$0.04	—
		HollisWealth integration	$0.02	—		$0.03	—
		Income tax gain	—	($0.03)		—	($0.03)
	Market-related gains and losses		($0.02)	($0.11)		($0.14)	—
	Policyholder experience gains and losses in excess of $0.04 EPS		—	—		$0.11	($0.03)
Core EPS			$1.19	$1.21	(2%)	$2.26	$2.25	—

As presented in the Sources of Earnings by Line of Business section of the Company's Financial Information Package, the following items explain the differences between management's expectations and reported earnings for the three-month period ended June 30, 2017. All figures are after tax unless otherwise indicated.

Expected profit on in-force increased by 12% to $157.9 million pre-tax over the same quarter last year and reflects growth in all lines of business.

Experience gains and losses by line of business follow.

Individual Insurance reported a net loss of $0.03 per share ($3.2 million) related to adverse lapse experience ($0.03 EPS) and the unfavourable impact of markets on universal life policies ($0.02 EPS), partially offset by gains principally in the US ($0.02 EPS).

Individual Wealth Management had a net gain of $0.04 per share ($3.8 million) attributed to the dynamic hedging program for segregated fund guarantees ($0.04 EPS), favourable longevity ($0.01 EPS) and lower expenses ($0.01 EPS), offset by integration costs ($0.02 EPS) for the HollisWealth acquisition.

Group Insurance reported a total experience loss of $0.04 per share ($4.3 million) related principally to higher travel and accidental death & dismemberment claims in the Special Markets Solutions segment ($0.03 EPS), as well as higher short-term disability claims in Employee Plans ($0.01 EPS). The results of Dealer Services, including the car loans business, are in line with expectations.

Group Savings and Retirement had an investment gain of $0.01 per share ($0.6 million) related to insured annuities.

Strain - In the Individual Insurance sector, strain on new business amounted to $2.5 million pre-tax, or 3% of sales for the quarter compared with full-year guidance of 6%. Management estimates that the lower strain ratio, which is attributed mainly to a favourable sales mix, represented a gain of $0.02 per share.

Income on Capital - Income on capital of $16.3 million pre-tax represents a loss of $0.02 per share explained by higher weather‑related and other claims at iA Auto and Home ($0.04 EPS) partially offset by higher investment  income ($0.02 EPS).

Income Taxes - The company realized a net gain of $0.01 per share on true-ups relating to 2016. The effective tax rate of 20% is in line with the Company's guidance of 20% to 22%.

Business Growth - Premiums and deposits  amounted to $2.4 billion (+26%) reflecting the year-over-year improvement in mutual fund inflows. Assets under management and administration of $132.2 billion were up almost 2% for the quarter attributed mainly to a strong contribution from retail distribution affiliates. Total assets were up 8% over the last twelve months.

The retail insurance sector including activities in both Canada and the US reported sales of $74.8 million (+3%). Total sales in Canada amounted to $48.0 million (including $5.1 million for adjustable disability) and the United States accounted for $26.8 million.

In retail wealth management, the Company reports a fourth consecutive quarter of positive net fund sales attributed to the improvement in its mutual fund business. Gross sales of mutual funds increased by 77% to $560.1 million in the second quarter, and net sales of $76.9 million compared with net outflows of $121.3 million in the same quarter a year earlier.

Gross sales of segregated funds amounted to $453.8 million (+29%) in the second quarter, while net sales more than doubled to $130.0 million from $53.4 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 $250.6 million, a year-over-year increase of 15%. Employee Plans had a third consecutive strong quarter with sales of $28.9 million (+69%). Special Markets Solutions reported sales of $43.5 million (+7%). In Dealer Services, creditor insurance had sales of $106.4 million (+5%) and P&C products had sales of $71.8 million (+24%).  Car loan originations decreased to $65.6 million (-43%), reflecting the Company's recent decision to exit the prime car loan market and to focus on non-prime loans where competition is less intense and expected returns are better. Year over year, non-prime loan originations were up 40%.

In the group wealth sector, total sales amounted to $426.0 million (+31%) with strong growth continuing in accumulation products.

At iA Auto and Home, written premiums in the second quarter grew by 12% to $102.7 million. Growth continues to be generated by new business initiatives.

Capital - At June 30, 2017, the solvency ratio was 220% compared with 222% at the end of the first quarter of 2017. The decrease is primarily related to the macroeconomic environment. The completion of the HollisWealth acquisition in the third quarter of 2017 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 dividend is payable on September 15, 2017 to shareholders of record at August 25, 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 September 15, 2017 must ensure that the duly completed form is delivered to Computershare no later than 4:00 p.m. on August 18, 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 - The Company continues to maintain significant protection against declines in equity markets and long‑term interest rates. At June 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 49% in the S&P/TSX index before the solvency ratio drops below 175%, and a decrease of 62% 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 $29 million.
• The impact on net income attributed to common shareholders of a 10 basis point decrease in the initial reinvestment rate (IRR) would be $23 million; the impact of a similar decrease in the ultimate reinvestment rate (URR) would be $65 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 [$4.20 to $4.60 in 2016]
• 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% [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 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. This disclosure 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 Six-Month Periods Ended June 30, 2017 and 2016" section of the Management's Discussion and Analysis.

Diluted 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) certain items, including but not limited to year-end assumption changes and 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) 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 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 second quarter results, investors are invited to consult the Management's Discussion and Analysis for the quarter ended June 30, 2017, 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, August 3, 2017, at 2:00 p.m. (ET). The toll‑free dial-in number is 1-888-612-1052. A replay of the conference call will be available for a one‑week period, starting at 4:30 p.m. on Thursday, August 3, 2017. To access the conference call replay, dial 1-800-558-5253 (toll-free) and enter access code 21853715. 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.

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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