Conference Call Transcript (ia q3 2024 transcript)

FINAL TRANSCRIPT

Industrial Alliance Insurance and Financial Services Inc.

2024 Third Quarter Results

Event Date/Time: November 6, 2024 - 9:30 a.m. E.T.

Length: 55 minutes

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CORPORATE PARTICIPANTS

Marie-Annick Bonneau

Industrial Alliance Insurance and Financial Services Inc. - Head of Investor Relations

Denis Ricard

Industrial Alliance Insurance and Financial Services Inc. - President and Chief Executive Officer

Éric Jobin

Industrial Alliance Insurance and Financial Services Inc. - Executive Vice President, Chief Financial Officer, and Chief Actuary

Sean O'Brien

Industrial Alliance Insurance and Financial Services Inc. - Executive Vice-President and Chief Growth Officer US Operations

Alain Bergeron

Industrial Alliance Insurance and Financial Services Inc. -Chief Investment Officer

Renée Laflamme

Industrial Alliance Insurance and Financial Services Inc. - Executive Vice President, Individual Insurance, Savings, and Retirement

Stephan Bourbonnais

Industrial Alliance Insurance and Financial Services Inc. - Executive Vice President, iA Wealth

Louis-Philippe Pouliot

Industrial Alliance Insurance and Financial Services Inc. - Executive Vice-President, Group Benefits and Retirement Solutions

Pierre Miron

Industrial Alliance Insurance and Financial Services Inc. - Executive Vice-President and Chief Growth Officer Canadian Operations

CONFERENCE CALL PARTICIPANTS

Meny Grauman

Scotiabank - Analyst

Gabriel Dechaine

National Bank Financial - Analyst

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Doug Young

Desjardins Capital Markets - Analyst

Paul Holden

CIBC Capital Markets - Analyst

Mario Mendonca

TD Securities - Analyst

Lemar Persaud

Cormark Securities - Analyst

Tom MacKinnon

BMO Capital Markets - Analyst

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PRESENTATION

Operator

Good morning, ladies and gentlemen, and welcome to the Industrial Alliance Insurance and Financial Services Incorporated 2024 Third Quarter Results.

At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the Operator.

This call is being recorded on Wednesday, November 6, 2024.

I would now like to tuthe conference over to Marie-Annick Bonneau, Head of Investor Relations. Please go ahead.

Marie-AnnickBonneau - Head of Investor Relations, Industrial Alliance Insurance and Financial Services

Inc.

Good morning, and welcome to our 2024 third quarter conference call.

All our Q3 documents, including press release, slides for this conference call, supplementary information package and quarterly MD&A are posted in the Investor Relations section of our website at ia.ca. This conference call is open to the financial community, the media and the public. I remind you that the question period is reserved for financial analysts.

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A recording of this call will be available for one week starting this evening. The archive webcast will be available for 90 days and a transcript will be available on our website in the next week.

I draw your attention to the forward looking statements information on Slide 2 as well as the non- IFRS and additional financial measures information on Slide 3. Also please note that a detailed discussion of the Company's risk is provided in our 2023 MD&A available on SEDAR and on our website with an update in our Q3 2024 MD&A release yesterday.

I will now tuthe call over to Denis Ricard, President and CEO.

Denis Ricard - President and Chief Executive Officer, Industrial Alliance Insurance and Financial Services

Inc.

Good morning, everyone, and thank you for being with us on the call today.

As usual, I will start by introducing everyone attending on behalf of iA. First, Éric Jobin, Chief Financial Officer and Chief Actuary; Alain Bergeron, Chief Investment Officer; Stéphan Bourbonnais, responsible for our Wealth Management Operations; Renée Laflamme, in charge of Individual Insurance Savings and Retirement; Pierre Miron, Chief Growth Officer of our Canadian Operations and responsible for Dealer Services Canada and iA Auto and Home; Sean O'Brien, Chief Growth Officer of our U.S. Operations; and finally, Louis-Philippe Pouliot, in charge of Group Benefits and Retirement Solutions.

I am very pleased with our solid results for the third quarter, both in terms of profitability and business growth. This strong performance, consistent with our year-to-date results, reflects the

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disciplined execution of our growth-oriented strategy and underscores the strength of all our distribution networks.

Starting with Slide 8 for an overview of Q3 2024 key results. Core EPS increased by 17 percent year- over-year to a record $2.93 per share, while EPS was higher at $2.99. Trailing 12 month core ROE of 15.3 percent supported by a Q3 annualized core ROE of 16.6 percent, exceeded the threshold of our midterm target. Robust sales growth and capital deployment initiatives were instrumental in achieving this strong result.

In the third quarter, nearly all business units delivered robust sales growth with continued momentum on both sides of the border. This translated into year-over-year increases of 25 percent in premiums and deposits and 22 percent in assets under management and administration. Our solvency ratio of 140 percent illustrates the robustness of our capital position, supported in Q3 by organic capital generation of $180 million. Our book value per share, which stood at $71.63 at September 30, increased by 10 percent over 12 months, or more than 12 percent, excluding the impact of share buybacks.

Now turning to Slide 9 to look at Q3 business growth for Insurance Canada. Once again, this segment recorded a solid performance with all business units posting strong sales results. In individual insurance, we further strengthened our leading position in the number of policies sold in Canada with strong sales of $103 million during the quarter, up 7 percent over last year. This growth was driven by the high performance of our distribution networks, our distinctive digital tools, and our comprehensive range of products.

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In Group Insurance, the 21 percent increase in sales year-over-year, combined with good retention, resulted in premiums and deposits of $508 million, which is 10 percent higher than a year ago. In Dealer Services, third quarter sales of $197 million were up 2 percent year-over-year. This is a good result given the challenging macroeconomic environment that continues to impact vehicle affordability in Canada.

Finally, iA Auto and Home also recorded very strong sales, with direct written premiums in the third quarter reaching $164 million, a robust increase of 15 percent over the same period last year. This is attributable to our success in generating new sales and to the impact of recent premium increases.

Turning to Slide 10, to comment on sales results for Wealth Management, which were again very solid, notably with net fund inflows of more than $600 million. iA continued to rank first in gross and net seg fund sales. During the third quarter, gross sales of seg funds amounted to more than $1.3 billion, a significant increase of 51 percent year-over-year, and net inflows of $781 million were generated during the same period. This robust performance once again demonstrated the strength of our distribution networks.

Mutual fund sales of $385 million were up 33 percent year-over-year, although inflows were lower than outflows. As for sales of insured annuities and other savings products, they remained high, reaching $483 million during the quarter. This is a very good result, especially considering investors' increased optimism toward financial markets and the appeal of riskier asset classes offering potential higher returns.

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Finally, in Group Savings and Retirement, both insured annuities and accumulation products performed well, resulting in solid sales of $900 million, up 62 percent year-over-year.

Now looking at Slide 11 regarding our sales results in the U.S. In individual Insurance, we achieved record sales of US$68 million. This strong 55 percent year-over-year increase reflects a solid overall performance, as well as the addition of sales from Vericity. The continued strong business growth of this business unit, along with the recent acquisition of Vericity and of two blocks of business from Prosperity Life Group, demonstrate our ability to grow in the U.S. life insurance market, both organically and through acquisitions.

In Dealer Services, third quarter sales amounted to US$286 million, up 15 percent over the same quarter last year. Dealers continue to place greater emphasis on F&I product sales in the context of improved consumer profitability resulting from lower interest rates and reduced vehicle prices.

Moving to Slide 12, where year-to-date key financial KPIs compare favorably with all our midterm targets. Among these, in addition to core ROE exceeding 15 percent, I want to highlight core EPS, which is

16.5 percent higher year-over-year after nine months, well above the targeted 10 percent annual average growth. This good profitability contributed to the generation of $485 million in organic capital since the start of the year, which is on track to reach our 2024 target of over $600 million.

Turning to Slide 13 to discuss our capital deployment priorities and recent initiatives. At September 30, 2024, we had $1 billion in capital available for deployment following another active quarter of capital deployment initiatives, which included acquisitions, dividends, share buybacks, and IT

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investments. In September 2024, the AMF published a draft revised capital formula, the CARLI guideline, which would become effective January 1, 2025.

If the guideline is adopted as published, we expect our capital available for deployment to increase by around $700 million on January 1, 2025. This positive impact on our financial flexibility will increase our ability to deploy capital, a top priority in delivering our growth strategy. Indeed, capital deployment is a key catalyst for increasing our ROE and creating long-term value for our shareholders.

To this end, we continue to prioritize investing in our growth, both organically through sales with ROE above our 15 percent target and through acquisitions. Our acquisition strategy focuses on accretive acquisitions that fit well with our culture and business model and rapidly contribute to ROE expansion. In Q3 alone, we strengthened our footprint in the U.S. live market with the integration of Vericity acquired at the end of June 2024, and the acquisition of two blocks of business from Prosperity Live Group. We also completed the acquisition of assets from Laurentian Bank Securities in the Wealth Management sector in Canada.

To conclude, I want to highlight that we renewed our NCIB program to buy back up to 5 percent of outstanding shares and announced a 10 percent increase in our dividend to common shareholders. These decisions reflect the high priority we place on returning value to our shareholders through dividends and share buyback while actively investing in organic growth and pursuing acquisition opportunities.

I will now hand it over to Éric, who will comment on the third quarter profitability and capital strength. Following Éric's comment, we will take questions.

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Éric Jobin - Executive Vice President, Chief Financial Officer, and Chief Actuary, Industrial Alliance Insurance and Financial Services Inc.

Thank you, Denis, and good morning, everyone.

Starting with Slide 15, which highlights our solid performance in the third quarter with favorable results across all key financial indicators of profitability and financial strength. The strong profitability recorded in the first half of 2024 continued into the third quarter. Our strong earnings combined with our capital deployment initiatives contributed to the expansion in ROE. In fact, Q3 annualized ROE of 16.9 percent and core quarter annualized ROE of 16.6 percent, well exceeded our mid-term guidance of 15 percent plus, resulting in a trailing 12-month core ROE of 15.3 percent.

Core EPS for the quarter was up 17 percent year-over-year, reaching $2.93, while the reported EPS was even higher at $2.99. This solid growth is mainly due to the strong increase in the insurance service results driven by a substantial increase in premiums and deposits, and in assets achieved both organically and through recent acquisitions.

Our capital position is robust with a solvency ratio well above our operating target and strong ongoing organic capital generation. Thanks to our favorable financial situation and sustained profitability, as announced yesterday, we are raising our dividend by 10 percent and renewing our share buyback program for the coming year.

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