Solid Fundamentals Yvon Charest, President and CEO Ren Chabot, - - PowerPoint PPT Presentation

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Solid Fundamentals

Yvon Charest,

President and CEO

René Chabot,

EVP, CFO and Chief Actuary

Fixed Income Presentation Montreal, September 27, 2017

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Table of Contents

3 Solid fundamentals 12 Premiums and deposits 4 H1 results 13 Mutual fund net sales 5 Strain management 14 AUM/AUA 6 Other profit improvement 15 Acquisitions 7 Lapse rate assumption 16 Balance sheet 8 Lapse assumption review 17 Macroeconomic protections 9 EPS growth 18 Dividend growth 10 Competitive position 19 Book value 11 H1 growth by line of business

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Solid Fundamentals

• Delivering on our short- and long-term earnings targets
• Robust business growth across all lines of business + HollisWealth acquisition
• Strong capital management to sustain long-term value creation

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Half-time Earnings Solidly on Track

Guidance H1/2017 results

Reported Core

EPS

(diluted)

$2.15 to $2.35

$2.22 $2.26

ROE

(trailing twelve months)

11.0% to 12.5%

12.9% 11.8%

Strain

Annual target of 6%

5%

Solvency ratio

175% to 200%

206% post-HollisWealth

This slide presents non-IFRS and core financial measures. See "Non-IFRS Financial Information" at the end of this document for further information.

Meeting our short-term objectives

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Strain Management Improves Profit at Issue of New Business

Strain ($M) (impact on earnings)

• 111
• 96
• 49
• 59
• 66
• 35

target

Strain

(% sales)

This slide presents non-IFRS financial measures. See "Non-IFRS Financial Information" at the end of this document for further information.

Without reducing future earnings

53% 38% 21% 27% 26% 11% 6% 2011 2012 2013 2014 2015 2016 2017

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Other Profit Improvement

Employee Plans back on track, iA Auto and Home being addressed

► Two premium increases in 2017; traction expected in 2018 ► White-labeling initiatives : 3-year investment with breakeven expected in 2018

iA Auto and Home

► Overall profit better than expected in 2016, and 2017 is off to a good start ► Next target: Back to pre-crisis profit levels ($15-20M/year) and above-guidance ROE

Employee Plans

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Lapse Rate Assumption

• Very high interest rates
• Drives the price of life

insurance contracts down

• Policy churning is the

reality

• Industry innovates with

T100 products

Emergence of industry/iA experience gives rise to assumption repositioning

1980-1990s 2000s 2017

• iA uses industry rates for

credibility (+10X exposure)

• iA aligns its lapse

assumption with 2007 and 2015 industry studies that demonstrate lower rate

2007

• Dramatic decrease in

interest rates

• Drives the price of life

insurance contracts up

• Policy churning drops

(no incentive to lapse)

• T100 key assumption (lapse

rate) is rapidly decreased

• iA studies still have low

credibility but most recent experience shows rates lower than last industry study

• iA will position its lapse

assumption below last industry study at the end

• f 2017

Ultimate lapse rate assumption for attained age 80+

~3% 1.4%1 0.5%2 <0.5%

1 Study 2002-2004 (published in 2007) 2 Study 2005-2012 (published in 2015)

Traditional products

~10%

Lapse supported products…

~6%

2015

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Update of Lapse Assumption is Manageable

+ = + +

Near-neutral impact on bottom line New CIA mortality improvement table Interest rate assumptions:

• URR is 10 bps ahead of the curve at 3.1% (vs. 3.2% prescribed)
• IRR is comfortably positioned and any rate increase would be favourable

Reserve strengthening for lapse assumption Investment gains from actively managed asset portfolio

• (based on information at June 30, 2017)

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2012 2013 2014 2015 2016 2017 2018 2019

EPS Guidance

($, diluted)

10%

annual

EPS

growth 3.80 3.40 3.10 2.50 4.20 3.80 3.40 3.00 4.60 4.20

Achieving Our Long-term Growth Aspirations

5.05 4.65

Core EPS consistently within or above guidance

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A Strong Competitive Position

In our largest business segments Adjustable disability (sales)

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Mutual fund distribution (non-bank)

Top 2

Car dealer services (creditor insurance sales and non bank auto loans)

Top 2

Individual insurance policies (total of life, critical illness and disability policies sold)

1

Segregated funds (net sales)

• 3rd for assets

1

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Top-line Trend Is Robust For Both Insurance and Wealth

H1/17 Sales YoY

INSURANCE

► Retail Life Insurance

• Canada

$95M +5%

Continued growth in both Canadian and US operations

• US

$50M +5%

► Group Insurance

• Employee plans

$65M

+85% Strongest H1 sales for Employee Plans in the last 5 years

• Dealer Services

$300M

+13% Strong growth in extended warranties

• Special Markets Solutions

$98M +7%

Steady growth

► iA Auto and Home

$162M +12%

Strategic partnerships continue to fuel top-line

WEALTH

► Retail Wealth Management

• Seg funds (net sales)

$295M +$99M

Industry leader for net sales

• Mutual funds (net sales)

$277M +$689M

Turning the corner

► Group Savings & Retirement

$901M +37%

Strong growth in accumulation products

This slide presents non-IFRS financial measures. See "Non-IFRS Financial Information" at the end of this document for further information.

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Net premiums, premium equivalents and deposits ($Billion)

A Recent Growth Spurt for Premiums and Deposits

H1/2017 $M YoY

Individual Insurance 881.1 7% Individual Wealth Management 2,523.4 63% Group Insurance 760.8 5% Group Savings and Retirement 887.9 37% General Insurance 135.6 12% TOTAL 5,188.8 34%

This slide presents non-IFRS financial measures. See "Non-IFRS Financial Information" at the end of this document for further information.

7.4 7.5 7.7 8.2 5.2 2013 2014 2015 2016 H1/2017

With strong contributions from individual and group wealth

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Mutual Fund Net Sales Turning the Corner

This slide presents non-IFRS financial measures. See "Non-IFRS Financial Information" at the end of this document for further information.

($ Million)

2014 2015 2016 2017

(98) (11) (68) (267) (165) (316) (248) (291) (121) (69) 58 77 200 77

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

And building scale in distribution

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44 77

iA iA + HW

Assets Reflect Expansion of iA Distribution Network

AUM/AUA

(assets under management and administration at end of period, $Billion) AUA AUM

This slide presents non-IFRS financial measures. See "Non-IFRS Financial Information" at the end of this document for further information.

AUA

($Billion, at June 30, 2017)

HollisWealth will support momentum in wealth management

69.5 76.8 78.9 84.8 88.2 29.3 32.7 36.9 41.4 44.0

2013 2014 2015 2016 Q2/2017 115.8 126.2 132.2 98.8 109.5

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Acquisition Wish List

A specific desire to expand our footprint in the US market

► Dealer Services ► Auto and home insurance ► Group businesses ► Life insurance ► Institutional wealth management

Other

► US ► Retail distribution ► Retail wealth management

Top priorities

16 7.9 8.2 12.8 12.5 2014 2015 2016 Q2/17

A Strong and Flexible Balance Sheet

To support long-term value creation

Coverage Ratio

(number of times)

23.7 24.3 23.8 23.2 2014 2015 2016 Q2/17

Debt Ratio

(Debentures and pref. shares/capital, %, end of period)

209 213 225 206 2014 2015 2016 Q2/17

Solvency Ratio

(%, end of period)

Above 175%-200% target

This slide presents non-IFRS financial measures. See "Non-IFRS Financial Information" at the end of this document for further information.

Better than 25%-35% target Above 6x minimum

Post HollisWealth acquisition

~

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Protection Gives Management Time to React

Protection at end of period (drop in TSX absorbed before reserves need strengthening) Protection against LT interest rate decrease at year-end 2.28% 1.97% 2.87% 1.91% 1.74% 1.60%

2011 2012 2013 2014 2015 2016

12% 14% 23% 32% 27% 25%

2011 2012 2013 2014 2015 2016

43 bps 2.34% 2.17% 2.35% 2.37% 2.51% Canadian LT rate iA protection Minimum LT rate 3.27% 75 bps 43 bps 40 bps 40 bps 23 bps Sudden Trump effect

• n rates raised

protection temporarily

Interest rate protection and stock market protection doubled over the last 5 years

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Dividend to Common Shareholders

43% increase since 2013

Payout ratio guidance is 25% to 35% Payout ratio guidance is 25% to 35%

$0.05 $0.10 $0.15 $0.20 $0.25 $0.30 $0.35 $0.40

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

35¢/share paid in Q2/17 First lifeco in Canada to increase dividend after the financial crisis

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Shareholder Value Creation

1.80 1.74 1.94 2.03 1.15 1.41 1.49 1.00 1.14 1.53 1.31 1.20 1.30 1.33 IAG Price / Book value per share

iA +275%

Book Value Per Share and Dividends Paid

(end of period)

June 30, 2004

0%

Peers +163%

BVPS CAGR

1-year +12% 5-year +10% 10-year +8% Since 2000 +10%

Q2/17

Understated in current price-to-book valuation

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

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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 (listed below), 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

• ut 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

• f 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) specific 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.

Non-IFRS Financial Information

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Forward-Looking Statements

This presentation 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”, “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 iA Financial Group’s 2016 Management’s Discussion and Analysis, 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 presentation reflect the Company’s expectations as of the date of this presentation. 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 presentation or to reflect the occurrence of unanticipated events, except as required by law.

No Offer or Solicitation to Purchase

This presentation does not, and is not intended to, constitute or form part of, and should not be construed as, an offer or invitation for the sale or purchase of, or a solicitation of an offer to purchase, subscribe for or otherwise acquire, any securities, businesses and/or assets of any entity, nor shall it or any part of it be relied upon in connection with or act as any inducement to enter into any contract or commitment or investment decision whatsoever.

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iA Financial Group is turning

Investor Relations Contact: Grace Pollock – Tel.: 418-780-5945 – grace.pollock@ia.ca Next Reporting Dates: Q3/2017 - November 8, 2017 Q4/2017 - February 15, 2018 For information on our earnings releases, conference calls and related disclosure documents, consult the Investor Relations section of our website at ia.ca.