iA Financial Group Reports Fourth Quarter Results and Announces a 7% Increase in Its Common Dividend

Robust capital position, continued strong business growth and good profitability

FOURTH QUARTER HIGHLIGHTS – iA Financial Corporation

Core EPS† of $2.34 and trailing-12-month core ROE† of 14.4%, aligned with medium-term target of 15%+
Reported EPS of $2.46 compared to $1.71 in Q4 20221 and trailing-12-month ROE† of 11.6%
7% increase in common dividend to $0.8200 per share, payable in Q1 2024
Strong business growth, leading to solid 11% YoY increase in assets (AUM and AUA)† and 8% YoY increase in premiums and deposits
Robust solvency ratio† of 145%, with organic capital generation of $160M in Q4, and $1.6B of deployable capital† at December 31, 2023
Book value per common share reaching $66.90 at December 31, 2023, up 8% over 12 months (excluding share buyback impact)

QUEBEC CITY, Feb. 20, 2024 /CNW/ – For the fourth quarter ended December 31, 2023, iA Financial Corporation (TSX:IAG) recorded core diluted earnings per common share (EPS)† of $2.34, compared to $2.40 in the fourth quarter of 2022.1 Core return on common shareholders’ equity (ROE)† for the trailing twelve months was 14.4%, aligned with the Company’s medium-term target of 15%+. On a reported basis, which includes the impact of volatile items (primarily short-term macroeconomic variations and the impact of assumption changes and management actions), the result was higher than core earnings, with quarterly net income attributed to common shareholders of $248 million, EPS of $2.46 and ROE† for the trailing twelve months of 11.6%. The solvency ratio† of 145% at December 31, 2023 is well above the Company’s operating target of 120%.

“We concluded 2023 with very good performance in almost all business units, both in sales and earnings. The solid increase in assets under management and administration, as well as in premiums and deposits, testifies to our continued strong business growth, including for individual insurance in Canada and the U.S.,” commented Denis Ricard, President and CEO of iA Financial Group. “Looking ahead, our solid capital position supports our growth ambition to create value towards our medium-term core ROE target of 15%+, notably through organic investment in our client-centric digital transformation. We look forward to 2024 with confidence, and accordingly, today we are pleased to announce a 7% dividend increase for our shareholders.”

“In view of our growth-oriented capital deployment strategy, we are particularly proud to have achieved our annual organic capital generation target, reflecting sustained generation throughout the year and demonstrating the value created by our operations,” added Éric Jobin, Executive Vice‑President, CFO and Chief Actuary. “Q4 and 2023 profitability was supported, among other things, by favourable core insurance experience, which was also recognized in the annual assumption review process, resulting in a small global impact that attests to the soundness of our long-term management approach.”

Unless otherwise indicated, the results presented in this document are in Canadian dollars and are compared with those from the corresponding period last year.

ANALYSIS OF EARNINGS

This section contains measures that have no IFRS equivalents. See “Non-IFRS Financial Information” in the Management’s Discussion and Analysis as at December 31, 2023 for more information and an explanation of the adjustments applied in the Company’s core earnings† calculation.

Reported and core earnings

The Company recorded core earnings† of $236 million in the fourth quarter of 2023, which compares to the restated result under IFRS 17 and IFRS 9 of $254 million for the same period in 2022.[3][4] Note that the result for the fourth quarter of 2022 includes $22 million (post-tax) of mostly unusual gains due to adjustments related to the restatement of 2022 results.3,4 Core diluted earnings per common share (EPS)† of $2.34 in the fourth quarter compares to $2.40 (or $2.18 excluding the previously mentioned unusual gain) during the same quarter of 2022.3,4 Core return on common shareholders’ equity (ROE)† for 2023 was 14.4%, which is aligned with the Company’s medium‑term target of 15%+. Core earnings is a non-IFRS measure that represents management’s view of the Company’s ongoing capacity to generate earnings.

On a reported basis, which includes the impact of volatile items (primarily short-term macroeconomic variations and the impact of assumption changes and management actions), fourth quarter net income attributed to common shareholders was $248 million, compared with $181 million in the fourth quarter of 2022.3 EPS was $2.46 and ROE for 2023 was 11.6%.

An analysis of these results is presented in the following sections.

Reported earnings and core earnings reconciliation

The following table presents the adjustments that account for the $12 million difference between the net income to common shareholders of $248 million and core earnings of $236 million. These adjustments are divided into the following six categories:

The favourable market-related impacts totalling $89 million. More specifically, returns were more favourable relative to management’s expectations for equity market (+$93 million) and interest rate and credit spreads (+$30 million), while investment property adjustments totalled –$24 million and the impact of the tax-exempt investment income from the Company’s multinational insurer status (CIF) was below expectations (-$10 million).5
The year-end assumption review and management actions which totalled a charge of $56 million (see below for more details).
The impact of acquisition-related intangible assets of $17 million.
$4 million for the costs related to the Vericity acquisition and the charge for the Surex minority shareholders’ sell option.
The impact of non-core pension expense of $2 million.
$2 million for other non-core items, namely an unusual income tax gain, which was mostly offset by operational efficiency initiatives and unusual legal expenses.

Core earnings by business segment

The fourth quarter core earnings result of $236 million is described in the following paragraphs by business segment.

Insurance, Canada – This business segment includes all Canadian insurance activities offering a wide range of life, health, auto and home insurance coverage, as well as vehicle warranties, to individuals and groups. Fourth quarter core earnings for this business segment were $78 million compared to the 2022 fourth quarter restated result of $110 million, which included $22 million (post-tax) of mostly unusual gains due to adjustments related to the restatement of 2022 results under the IFRS 17 and IFRS 9 accounting standards. For the fourth quarter of 2023, the expected insurance earnings recorded were 6% higher than a year ago, supported by the contractual service margin (CSM) recognized for services provided. A –$26 million impact of new insurance business in the Employee Plans business unit was recorded. This impact stems from the renewal period of long-term business for some large groups, which are expected to benefit business growth and future profitability. As for core insurance experience, it was globally as expected as minor variations versus expectations, such as favourable disability experience and higher auto claim severity at iA Auto and Home, offset each other. Also, as mortality experience in the last six months of 2023 was in line with expectations, the higher mortality claims recorded in the first six months of the year now appear to have been a momentary event.

Wealth Management – This business segment includes all the Company’s wealth management activities offering a wide range of savings and retirement solutions to individuals and groups. In this business segment, core earnings of $91 million for the fourth quarter were 30% higher than a year earlier.8 The expected earnings for segregated funds was 20% higher than a year earlier, the insurance experience was favourable and the core non-insurance activities result was 33% higher than in 2022. This performance is the result of good business growth, lower expenses and a solid performance once again from the distribution affiliates, arising mainly from better margins amid the higher interest rate environment.

US Operations – This business segment includes all the Company’s U.S. activities offering individuals a range of life insurance and vehicle warranty products. Fourth quarter core earnings for this business segment were $26 million, which compares to $27 million for the same period in 2022.8 Results in the Individual Insurance divisions were good, as reflected in the core insurance service result, which is 15% higher than last year’s result.8 This performance is the outcome of good business growth in past quarters and favourable mortality experience. The result for non-insurance activities was lower, mostly due to lower sales in the Dealer Services division, a consequence of reduced affordability for clients resulting from higher financing costs and high vehicle prices.

Investment – This segment includes the Company’s investment and financing activities, except for the investment activities of the wealth distribution affiliates. In this business segment, core earnings of $95 million for the fourth quarter were 8% higher than the result of $88 million a year earlier.9 This increase is supported by the core net investment result, which was 18% higher than a year ago as a result of the favourable impacts of the investment portfolio optimization, the bond portfolio credit experience (more credit rating upgrades than downgrades) and higher interest rates at September 30, 2023 (despite the yield curve still having an unfavourable shape). Recall that interest rate impacts on core net investment results for a given quarter are solely dependent on the yield curve at the beginning of the quarter. The fourth quarter result also includes an increase in the allowance for credit losses for the car loans portfolio.

Corporate – This segment reports all expenses that are not allocated to other segments, such as expenses for certain corporate functions. This segment recorded after-tax expenses of $54 million during the fourth quarter, which compares to $41 million for the same period a year ago. These expenses include, among other things, investments for the digital transformation and the enhanced employee experience to support talent retention, more extensive M&A prospecting activities, digital data and security projects and regulatory compliance projects.

Year-end assumption review – The completion of the annual actuarial assumptions review resulted in a slightly negative overall impact of $14 million pre-tax. More specifically, the year-end review had a negative impact of $75 million pre-tax on fourth quarter net income (or $56 million after taxes) and a positive impact of $61 million pre-tax on future profit from the combined impacts on the CSM and the risk adjustment (RA). The result of the process was positive for the morbidity and policyholder behaviour assumptions and slightly negative for the mortality assumptions, while the impact of management actions, expenses and model refinements was unfavourable. More details on the year-end assumption review are provided in the 2023 Management’s Discussion and Analysis.

CSM (contractual service margin)

The contractual service margin, or CSM, is an IFRS 17 metric that gives an indication of future profits and that is factored as available capital in the calculation of the solvency ratio.10 However, this metric is not comprehensive as it does not consider required capital, non‑insurance business, PAA11 insurance business or the risk adjustment, which is also a metric of future profit. The organic CSM movement is a component of organic capital generation, a more comprehensive metric, and represents the ongoing CSM value creation calculated before the impact of items that add undue volatility to the total CSM, such as macroeconomic variations. In the fourth quarter, the CSM increased organically by $72 million. This result was supported by the positive impact of new insurance business of $148 million in the fourth quarter, the organic financial growth of $63 million and an insurance experience gain of $18 million, partially offset by an increase in the CSM recognized in profit for services provided. The experience gain is mainly due to favourable mortality and policyholder behaviour experience. The net favourable non-organic CSM movement of $72 million during the fourth quarter was mainly due to the positive impact of macroeconomic variations, partly offset by the unfavourable impact of the year-end assumption review and management actions mentioned above and the impact of currency variations. As a result, the total CSM increased by $144 million during the quarter to stand at $5,925 million at December 31, 2023, an increase of 6% over the last twelve months.

An analysis of results according to the financial statements and additional analysis on an annual basis are presented in the Management’s Discussion and Analysis as at December 31, 2023. They supplement the information presented above by providing additional indicators for assessing financial performance.

Business growth – Premiums† and deposits totalled nearly …

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