Solid growth in top line and core earnings

Q4-2017 Highlights

• Reported EPS of $1.24
• Core EPS¹ of $1.27 (+11% YoY)
• Net reserve strengthening of $0.10 EPS
• AUM/AUA of $169.5B (+34% YoY)
• Book value per share of $44.20 (+8% YoY)
• Solvency ratio of 209% (201% post-DAC closing)

QUEBEC CITY, Feb. 15, 2018 /CNW Telbec/ - For the fourth quarter ended December 31, 2017, Industrial Alliance Insurance and Financial Services Inc. (TSX: IAG) reports net income attributed to common shareholders of $132.8 million, diluted earnings per common share (EPS) of $1.24 and return on shareholders' equity (ROE) for the last twelve months of 11.4%. These results include the net impact of the year-end assumption review that reduced earnings by $0.10 per share. A discussion of our full-year 2017 results is provided in the Management Discussion and Analysis filed on SEDAR today.

"Our 2017 results reflect our strategy to grow our organization organically and through acquisitions," said Yvon Charest, President and Chief Executive Officer. "As well as maintaining leading market shares in key business segments, we completed two important acquisitions – HollisWealth and DAC² – that added significant distribution capacity, increased our footprint in the Canadian and U.S. markets and beginning in 2018 are expected to make a sizeable contribution to our bottom line. In addition, last week we announced our intention to create a corporate structure that will give us the flexibility to support our future growth ambitions."

"All lines of business reported favourable results in the fourth quarter, particularly Employee Plans that delivered a solid performance throughout the year," commented René Chabot, EVP, CFO and Chief Actuary. "Market growth provided gains in our retail wealth and insurance operations, which were mostly offset by adverse lapse in our Individual Insurance business and HollisWealth integration costs. Considering our unfavourable lapse experience throughout the year, we repositioned our lapse assumption at year-end. This was completed with minimal impact on fourth-quarter EPS because of positive contributions from the update of other assumptions. On a core basis, our Q4 EPS was up by 11% over the same quarter last year and within the EPS range given to the financial markets for the quarter. For the full year, core earnings of $4.88 per share finished in the middle of our guidance.

"We are introducing our EPS guidance for 2018 that we expect to be in the range of $5.20 to $5.60 per share representing a year‑over‑year increase of 11% at the midpoint," added Mr. Chabot. "Organic growth continues to be an important driver along with profit improvement initiatives in both our insurance and wealth operations. In 2018, we are expecting improved results from our auto and home insurance operations and a significant contribution from our HollisWealth and DAC acquisitions. At year‑end our solvency ratio was 201% post-DAC, and our balance sheet is well‑positioned to execute on future growth opportunities."

FOURTH QUARTER HIGHLIGHTS

Profitability - For the fourth quarter ended December 31, 2017, Industrial Alliance Insurance and Financial Services Inc. reports diluted earnings per share (EPS) of $1.24 compared with $1.48 in the same quarter of 2016. The fourth quarter of 2016 benefitted from a favourable year-end assumption review that contributed an additional $0.22 EPS.

On a core basis, diluted EPS increased by 11% to $1.27 in the fourth quarter of 2017 from $1.14 in the same quarter a year earlier. The following table reconciles reported and core EPS for the fourth 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".

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 December 31, 2017. All figures are after tax unless otherwise indicated. This information contains non-IFRS measures.

Expected profit on in-force increased by 16% to $168.6 million pre-tax over the same quarter last year and reflects growth in all sectors, particularly in the wealth management businesses.

The Company had a net market-related and policyholder experience gain of $0.06 per share in the fourth quarter versus management expectations. Details follow by line of business.

Individual Insurance reported an experience gain of $0.01 EPS ($1.2 million). The favourable impact of markets on universal life policies ($0.05 EPS) was mostly offset by adverse policyholder behaviour (-$0.04 EPS).

Individual Wealth Management reported favourable experience of $0.01 EPS ($1.1 million). Gains related to the dynamic hedging program ($0.03 EPS) and the impact of market growth on assets under management ($0.01 EPS) were offset by adverse longevity (‑$0.01 EPS) and HollisWealth integration costs (-$0.02 EPS).

Group Insurance had an experience gain of $0.03 EPS ($3.3 million) explained by lower claims in both Employee Plans ($0.02 EPS) and the Special Markets Solutions segment ($0.01 EPS).

Group Savings and Retirement reported favourable experience of $0.01 EPS ($1.2 million) from investment gains.

Strain - In the Individual Insurance sector, strain on new business amounted to $4.7 million pre-tax, or 6% of sales for the quarter, representing a loss of $0.02 per share attributed to the lower sales volume. For the full year, the strain ratio was 5%, comparing favourably with the target of 6%.

Income on Capital - Income on capital amounted to $20.1 million pre-tax. Both investment income and iAAH results were in line with expectations.

Income Taxes - The effective tax rate of 22% was within the Company's guidance of 20% to 22%. The impact of the U.S. corporate tax reform on the Company's 2017 results is immaterial, but the Company estimates that the lower corporate tax rate will benefit results by approximately $0.05 EPS per year starting in 2018.

Year-end Assumption Review - Consistent with previous communications to the financial markets and in light of the adverse lapse experience in every quarter of 2017, the Company carried out an update of its lapse assumption in the fourth quarter for an after-tax reserve strengthening of $494.4 million. The mortality and economic assumptions were also updated and their positive contribution resulted in an after-tax net reserve strengthening of -$0.10 per share.

Business Growth - Premiums and deposits increased to $2.4 billion (+7%) reflecting strong inflows in the individual wealth and group insurance sectors. Assets under management and administration reached a new high of $169.5 billion (+34% year over year), benefitting primarily from the transfer of assets from the HollisWealth acquisition completed in August 2017.

The retail insurance sector in Canada and the U.S. reported total sales of $74.9 million (-20%). Sales in Canada amounted to $52.8 million (including $5.5 million for adjustable disability) and the United States accounted for $22.1 million. In Canada, results reflect the impact of the new tax legislation effective January 1, 2017 that stimulated sales in the fourth quarter of 2016. In the U.S., sales were slowed by changes to a temporary life product, pricing updates as well as the impact of hurricanes. For the full year, total retail insurance sales in Canada and the U.S. amounted to $288.1 million (-6%).

In retail wealth management, gross sales of mutual funds increased 5% year over year to $559.7 million, and net sales of $30.7 million compared with $77.2 million a year earlier. For the full year in 2017, net sales were $329.2 million compared with outflows of $404.4 million the previous year.

Gross sales of segregated funds grew by 18% over the previous year to $451.9 million, with  net sales increasing to $101.9 million from $74.1 million in 2016. For the full year, net sales were $509.9 million compared with $341.7 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 $234.4 million, a year-over-year increase of 10%. Special Markets Solutions reported sales of $79.1 million (+32%). In Dealer Services, creditor insurance had sales of $99.0 million (+16%), P&C products reported sales of $49.0 million (+12%) and non-prime loan originations of $62.2 million were up 21%. Employee Plans reported sales of $7.3 million (-68%) in the fourth quarter. For the full year, total group insurance sales amounted to $973.6 million (+18%).

In the group wealth sector, total sales amounted to $334.7 million (-9%) in the fourth quarter. Full year sales of $1,545.1 million were up by 4%.

At iA Auto and Home, written premiums in the fourth quarter grew by 8% to $64.2 million and full-year written premiums of $308.8 million were up by 11%.

Acquisitions - On January 23, 2018, the Company completed the acquisition of 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 December 31, 2017, the solvency ratio was 209% compared with 213% at the end of the third quarter of 2017. The difference is explained primarily by the decrease in long-term interest rates during the quarter partially offset by the contribution from earnings. Completion of the DAC acquisition 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 dividend is payable on March 15, 2018 to shareholders of record at March 2, 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 March 15, 2018 must ensure that the duly completed form is delivered to Computershare no later than 4:00 p.m. on February 23, 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 increased to $5.20 to $5.60
• Return on common shareholders' equity (ROE): target range of 11.0% to 12.5%
• Dividend payout ratio: payout range of 25% to 35% with the target being the midpoint
• Effective tax rate: target range increased to 21% to 23%
• Strain on new business: annual target maintained at 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 2017 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 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 fourth quarter and year-end results, investors are invited to consult the Management's Discussion and Analysis for the period ended December 31, 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 Thursday, February 15, 2018, at 2:00 p.m. (ET). The toll‑free dial-in number is 1-800-410-5148. A replay of the conference call will be available for a one-week period, starting at 4:30 p.m. on Thursday, February 15, 2018. To access the conference call replay, dial 1-800-558-5253 (toll-free) and enter access code 21876244. A webcast of the conference call (listen-only mode) will also be available on the Company's website at ia.ca.

Investor Day
iA Financial Group will hold an investor day on Friday, June 22, 2018, in Toronto, from 8:30 a.m. to 1:30 p.m. (ET). Further information will be provided at a later date.

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.

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