Third quarter 2015 Conference Call Presenters: Yvon Charest, - - PowerPoint PPT Presentation

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Third quarter 2015

Conference Call Presenters: Yvon Charest, President and CEO René Chabot, EVP, CFO and Chief Actuary

November 4, 2015

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Q3 Highlights

Profit Business Growth Financial Strength

► Expected profit up 14% YoY to $136.4 million ► Net income attributed to common shareholders of $113.1 million, up 24% YoY ► Q3 reported EPS of $1.11 ► Above guidance [$1.00-$1.10] ► Core EPS of $1.10 driven by favourable policyholder experience ► Strain at 24% of sales (better than 30% guidance) ► Strong: Individual Insurance, seg funds and iA Auto and Home ► Good: Dealer Services and Special Market Solutions ► Mutual funds remain a challenge ► Small QoQ decline in AUA/AUM due to market decline and lower fund inflows

► Solvency ratio of 225% ► Book value per share of $36.45, up 10% YoY ► Post Q3 acquisitions: CTL Corporation and FIN‐XO Securities

A solid quarter despite challenging equity markets

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Sales Highlights

Retail insurance has been gaining momentum

($Million, unless otherwise indicated)

Third quarter Year-to-date at September 30 2015 2014 Variation 2015 2014 Variation ► Individual Insurance Canada 43.1 37.0 16% 124.7 113.8 10% United States 20.7 14.1 47% 55.9 40.1 39% Total 63.8 51.1 25% 180.6 153.9 17% ► Individual Wealth Management Segregated funds - net sales 80.5 68.5 +12.0 340.1 200.0 +140.1 Mutual funds - net sales (315.7) (11.1)

• 304.6

(747.8) (51.3)

• 696.5

Total - net sales (235.2) 57.4

• 292.6

(407.7) 148.7

• 556.4

► Group Insurance Employee Plans 12.9 45.6 (72%) 53.5 62.7 (15%) Dealer Services 165.5 155.7 6% 422.2 407.7 4% Special Markets Solutions 41.9 40.6 3% 131.2 126.3 4% Total 220.3 241.9 (9%) 606.9 596.7 2% ► Group Savings and Retirement 246.0 258.2 (5%) 839.2 758.6 11% ► IA Auto and Home 66.7 63.1 6% 195.1 185.3 5%

1 Excess premiums for Q1-2014 were revised downwards by $9.5M due to a correction related to large policies.

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Asset Growth

Slower due to market decline and lower fund inflows

Assets Under Management and Administration

($Billion, unless

• therwise indicated)

September 30, 2015 YoY Assets under management General fund 32.6 7% Segregated funds 19.1 3% Mutual funds 10.5 (12%) Other 15.0 3% Subtotal 77.2 2% Assets under administration 34.0 8% Total 111.2 4%

AUM/AUA

(assets under management and administration, in $B)

2011 2012 2013 2014 Q3/2015 51.7 59.6 69.5 76.8 77.2 21.9

73.6

23.9

83.5

29.3

98.8

32.7

109.5

34.0

111.2

AUA AUM

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Premiums and Deposits

Net premiums, premium equivalents and deposits (in $B)

Q3/2015 $Million YoY

Individual Insurance 395.8 7% Individual Wealth Management 699.9 (8%) Group Insurance 353.6 (1%) Group Savings and Retirement 240.3 (5%) General Insurance 73.2 (2%) TOTAL 1,762.8 (3%)

Note: The figures do not always add up exactly due to rounding differences.

2011 2012 2013 2014 2015 2.0 1.9 2.1 2.1 2.0 1.7 1.6 1.9 1.7 1.9 1.6 1.7 1.6 1.8 1.8

5.7

1.7

7.0

1.7

6.9

1.8

7.4

1.8

7.4

Q4 Q3 Q2 Q1

Reflect weaker inflows in wealth sectors

7.5

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($Million, unless

• therwise indicated)

Third quarter Year-to-date at September 30 2015 2014 Variation 2015 2014 Variation Net income attributed to shareholders 117.6 98.5 +19% 378.1 309.2 +22% Less: preferred shareholder dividends 4.5 7.0

• 36%

13.9 21.2

• 34%

Less: premium on the redemption of preferred shares — — — 4.0 — — Net income attributed to common shareholders 113.1 91.5 +24% 360.2 288.0 +25% Earnings per common share (EPS) (diluted) $ 1.11 $ 0.91 +$ 0.20 $ 3.54 $ 2.86 +$ 0.68 Return on common shareholders' equity (ROE)1 12.3% 11.2% +110 bps 13.5% 12.1% +140 bps Book value per share $36.45 $33.00 +10% $36.45 $33.00 +10%

Q3 Profit

Strong growth in earnings and book value per share

1 Annualized for the quarter and trailing 12 months for the year to date.

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Q3 Results vs. Guidance

All metrics compare favourably

Guidance Reported Comments EPS

$1.00 to $1.10

$1.11 Above guidance

ROE

11.0% to 12.5%

12.3% Top of guidance

Strain

30%

24% Better than expected

Effective tax rate

18% to 20%

19% Middle of guidance

Solvency ratio

175% to 200%

225% 221% after CTL Corp. acquisition

Payout ratio

25% to 35%

27% Within guidance

(mid-range)

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Q3 items of note

(gains and losses)

+2¢ +2¢ +3¢

Q3 EPS is $1.11 (Consensus1 is $0.95)

Market impact more than offset by favourable experience

1 Consensus as of October 27, 2015.

Market impact -11¢

Market

• 8¢

(UL -7¢ & MERs -1¢) Dealer Services Special Markets Strain +2¢ Individual Wealth -4¢ Group Savings Hedging

• 3¢

Individual Insurance +9¢

Favourable experience +12¢

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Management's view of core is $1.10

$1.04 $1.10

1 Core consensus, adjusted for market impact, as of October 27, 2015.

Q3 Adjusted EPS

Q3 EPS

iA ADJUSTED CONSENSUS1 (core) Q3 Reported EPS $1.11

Items greater than ±4¢

► Market loss

+$0.04

► Individual Insurance

($0.05)

Q3 Adjusted EPS $1.10

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Target

Strong Capital Position

CTL acquisition will decrease ratio by 4 percentage points

Solvency Ratio

(%, end of period)

Key changes during the quarter

►

+1%

Profit ►

+1%

Interest rates

2012 2013 2014 Q1/15 Q2/15 Q3/15

217 217 209 211 223 225 200% 175%

11 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Shareholder Value Creation: +10% LTM

Book Value Per Share

(end of period)

$9.36 Q3/15 $36.45 CAGR 1-year +10% 5-year +8% Since 2000 +10%

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Balance Sheet Flexibility

Significant capital to support growth initiatives

September 30 June 30 December 31 September 30 2015 2015 2014 2014

Solvency ratio

225% 223% 209% 215%

Leverage ratio

24.5% 24.7% 23.7% 25.9%

Coverage ratio

9.5x 8.9x 7.9x 8.1x

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Individual Wealth Management

OPERATING PROFIT

YTD Sept. 30, 2015

ASSETS

as of Sept. 30, 2015

$M %

• f total

$B YoY growth Profit margin

Segregated & general funds

67.4 18% 13.1 2% 51 bps

Mutual funds

42.9 12% 14.1 (9%) 30 bps

Distribution affiliates (AUA)

16.4 4% 34.0 8% 5 bps

Individual Wealth Management

126.7 34% 61.2 2% 21 bps

TOTAL

367.7 100% 111.2 4%

• Operating profit and margin by segment

1 Includes other AUM of 3.6 billion (please refer to the Rolling nine quarters financial information package)

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CTL Corporation Acquisition

About CTL

► Largest privately‐owned consumer vehicle finance company in Canada ► Non traditional credit lender with a loan portfolio of more than $100 million ► Distribution through a network of car dealers located across Canada.

What we like

► Relatively few national non-prime operators in Canada (only two Canadian banks) ► Provides iA with immediate national platform in non-prime auto finance ► Diversified portfolio by product and geography ► Immediately accretive; expected to contribute full-year earnings of $0.04 per share ► Provides more robust systems for our prime loan business ► Funding for new loan origination will come from iA ► Immediate synergies and cross-selling opportunities

Risks

► Credit risk: earnout period and design are a hedge because based on profitability ► Portfolio represents less than 0.3% of iA's total invested assets

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CTL Corporation Acquisition

Already the leader Still high growth potential Referral program NEW Full spectrum

• f credit-risk
• ffering

Creditor insurance P&C Car insurance Car financing

Full-service offer to car dealers

Builds on our service offer for car dealers

High growth potential

Dealer Services division

IA Auto and Home

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Individual Insurance Strain on New Business

Better than 30% guidance due to sales level and product mix

($Million,unless

• therwise indicated)

2015 2014 2013 2012 Q3 Q2 Q1 Q4 Q3 Q2 Q11 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1

Sales

63.8 61.7 55.1 62.1 51.1 55.5 47.3 57.2 54.1 57.2 65.8 69.2 58.5 62.2 53.4

Strain

15.2 15.2 21.3 16.0 17.3 12.7 12.7 6.1 10.7 12.4 20.0 15.7 21.9 27.6 30.4

Strain (%)

24% 25% 39% 26% 34% 23% 27% 11% 20% 22% 30% 23% 37% 44% 57%

Annual total

29% 27% 21% 39%

1 Excess premiums for January and February 2014 were revised downwards by $9.5M due to a correction related to large policies.

Gain of 2 cents EPS in Q3/15

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Income On Capital

A better quarter for iAAH

($Million, pre-tax)

2015 2014 2013 2012 Q3 Q2 Q11 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1

Investment income

27.7 28.4 32.6 29.8 29.3 27.2 26.7 26.0 29.9 37.3 32.1 39.3 23.7 31.9 31.0

Financing & Intangibles2 (10.0) (9.9)

(8.8) (6.8) (6.7) (7.4) (7.1) (7.0) (5.9) (17.8) (10.4) (9.4) (9.6) (9.5) (9.5)

Sub Total

17.7 18.5 23.8 23.0 22.6 19.8 19.6 19.0 24.0 19.5 21.7 29.9 14.1 22.4 21.5

IA Auto and Home

5.8 1.7 (10.2) 5.1 4.7 0.1 (3.5) (1.5) 0.8 3.5 (3.1) 1.6 4.0 3.7 1.7

Total

23.5 20.2 13.6 28.1 27.3 19.9 16.1 17.5 24.8 23.0 18.6 31.5 18.1 26.1 23.2

Annual total 57.3 91.4 83.9 98.9

1 Q1/2015: ($1.4M) has been reallocated from Investment income to Financing & Intangibles, starting in Q1/15 2 Starting in Q1/15, includes higher financing costs related to debt issuance, offset by preferred share redemption in Q1/15 3 Includes debt buyback penalty of $9.3M in Q2/13

3 3

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Effective Tax Rate (ETR)

Within guidance

($Million,unless

• therwise

indicated)

2015 2014 2013 2012 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1

Operating income

122.5 142.5 102.7 78.8 92.2 109.2 93.2 104.9 124.5 82.8 90.3 56.8 72.8 53.8 55.5

Income on capital

23.5 20.2 13.6 28.1 27.3 19.9 16.1 17.5 24.8 23.0 18.6 31.5 18.1 26.1 23.2

Pre-tax income

146.0 162.7 116.3 106.9 119.5 129.1 109.3 122.4 149.3 105.8 108.9 88.3 90.9 79.9 78.7

Income taxes

28.4 16.6 1.9 (16.8) 21.0 8.4 19.3 22.6 34.9 23.9 20.5 7.6 16.0 7.4 10.5

ETR

19% 10% 2% (16%) 18% 7% 18% 18% 23% 23% 19% 9% 18% 9% 13%

ETR is within 18% to 20% guidance

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Market Sensitivity

(end of period)

Q3/2015 Q2/2015 Q3/2014

S&P/TSX composite index 13,307 14,553 14,961 IAG solvency ratio 225% 223% 215%

Sensitivities

Stock matching long-term liabilities

Level of S&P/TSX before provisions require strengthening for future policy benefits

10,100 pts 10,100 pts 11,100 pts ( -24% ) ( -31% ) ( -26% ) Solvency ratio

Level of S&P/TSX at which solvency ratio is 175%

6,900 pts 7,800 pts 8,800 pts ( -48% ) ( -46% ) ( -41% )

Level of S&P/TSX at which solvency ratio is 150%

5,400 pts 6,100 pts 6,900 pts ( -59% ) ( -58% ) ( -54% ) Net income

Full year impact of a sudden 10% decrease in stock markets

($28 million) ($29 million) ($28 million)

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Interest Rate Sensitivity

(end of period)

Q3/2015 Q2/2015 Q3/2014 IRR

After-tax impact on reserves of a 10 bps decrease in IRR ($32 million) ($31 million) ($25 million)

URR

After-tax impact on reserves of a 10 bps decrease in URR ($57 million) ($58 million) ($66 million)

Total

After-tax impact on reserves of a 10 bps decrease in URR and IRR ($89 million) ($89 million) ($91 million)

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S&P/TSX Thresholds for Q4/15 Gain/Loss

Earning driver: TSX threshold for gain or loss: Threshold is compared to: Impact on Q4/15 net income of a ±10% variation

• vs. threshold:

Revenues on UL policy funds 13,490 Actual TSX value at the end of ±$8.2 million Q4/15 MERs collected on investment funds 13,399 Actual average value3

• f TSX during

±$4.9 million Q4/15

1 Expected closing value of TSX at the end of Q4/15. 2 Expected average value of TSX during Q4/15. Since 2014, expected profit on in-force for the wealth management businesses is updated on a quarterly basis to reflect market growth and net fund inflows. 3 Average of all trading day closing values.

2 1

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Individual Insurance

Sales1

($Million, unless otherwise indicated)

Third quarter Year-to-date at September 30

2015 2014 Variation 2015 2014 Variation

Canada - Minimum premiums2

37.8 32.6 16% 112.0 100.3 12%

Canada - Excess premiums3,4

5.3 4.4 20% 12.7 13.5 (6%)

Canada - Total Canada

43.1 37.0 16% 124.7 113.8 10%

US - Premiums

20.7 14.1 47% 55.9 40.1 39%

Total

63.8 51.1 25% 180.6 153.9 17%

Premiums

395.8 371.5 7% 1,167.7 1,112.8 5%

Number of policies (Canada)

27,088 24,329 11% 79,889 72,846 10%

1 First-year annualized premiums. 2 Insurance component. 3 Savings component. 4 Excess premiums for January and February 2014 were revised downwards by $9.5M due to a correction related to large policies.

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Individual Wealth Management

Sales

($Million, unless otherwise indicated)

Third quarter Year-to-date at September 30 2015 2014 Variation 2015 2014 Variation

Gross sales1 General fund 28.0 25.1 12% 101.1 87.7 15% Segregated funds 358.2 320.3 12% 1,214.4 1,013.7 20% Mutual funds 313.7 411.4 (24%) 1,132.4 1,476.5 (23%) Total 699.9 756.8 (8%) 2,447.9 2,577.9 (5%) Net sales Segregated funds 80.5 68.5 +12.0 340.1 200.0 +140.1 Mutual funds (315.7) (11.1)

• 304.6

(747.8) (51.3)

• 696.5

Total (235.2) 57.4

• 292.6

(407.7) 148.7

• 556.4

($Million, unless otherwise indicated)

September 30 Third quarter 1-year 2015 variation variation

Assets under management General fund 1,108.2 —% (6%) Segregated funds 11,991.2 (3%) 3% Mutual funds 10,539.2 (8%) (12%) Other (T.E., Leon Frazer and Forstrong (Hahn)) 3,580.8 (2%) 2% Total 27,219.4 (5%) (4%) Assets under administration 33,943.9 (2%) 8% Total AUM/AUA 61,163.3 (3%) 2%

1 Defined as net premiums for general and segregated funds, and deposits for mutual funds

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Group Insurance

($Million, unless otherwise indicated)

Third quarter Year-to-date at September 30

2015 2014 Variation 2015 2014 Variation Sales1 Employee Plans 12.9 45.6 (72%) 53.5 62.7 (15%) Dealer Services - Creditor Insurance 109.1 112.5 (3%) 273.7 288.1 (5%) Dealer Services - P&C Insurance 56.4 43.2 31% 148.5 119.6 24% Dealer Services - Total 165.5 155.7 6% 422.2 407.7 4% Special Markets Solutions 41.9 40.6 3% 131.2 126.3 4% Total Group Insurance 220.3 241.9 (9%) 606.9 596.7 2% Premiums and equivalents Premiums 324.7 329.6 (1%) 922.7 948.6 (3%) Service contracts (ASO) 9.9 9.4 5% 32.2 31.8 1% Investment contracts 19.0 17.0 12% 54.4 52.8 3% Total 353.6 356.0 (1%) 1,009.3 1,033.2 (2%)

1 Employee Plans: first-year annualized premiums (including premium equivalents), Dealer Services (Creditor): gross premiums (before

reinsurance and cancellations), Dealer Services (P&C): direct written premiums, Special Markets Solutions: premiums before reinsurance.

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Group Savings and Retirement

Funds under management

September 30, 2015 Q3 1-year variation variation Accumulation products 8,219.1 (2%) 3% Insured annuities 3,148.3 (1%) —% Total 11,367.4 (1%) 2%

Sales1

($Million, unless otherwise indicated)

Third quarter Year-to-date at September 30 2015 2014 Variation 2015 2014 Variation Accumulation products 226.9 201.1 13% 739.8 601.4 23% Insured annuities 1.8 39.9 (95%) 21.3 120.2 (82%) Deposits2 17.3 17.2 1% 78.1 37.0 111% Total 246.0 258.2 (5%) 839.2 758.6 11%

1 Sales are defined as gross premiums (before reinsurance) and deposits. 2 Deposits include GICs held in trust and institutional management contracts.

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Investment Portfolio

Continues to be of highest quality

September 30 June 30 December 31 September 30 2015 2015 2014 2014 IMPAIRED INVESTMENTS AND PROVISIONS Gross impaired investments $32.3M $25.0M $22.5M $22.0M Provisions for losses $5.3M $4.0M $3.8M $3.5M Net impaired investments $27.0M $21.0M $18.7M $18.5M Net impaired invest. as a % of total invest. 0.10% 0.07% 0.07% 0.07% Provisions as a % of gross impaired invest. 16.4% 16.1% 17.1% 15.9% BONDS Proportion rated BB or lower 0.67% 0.62% 0.74% 0.59% Delinquency rate 0.00% 0.00% 0.00% 0.00% MORTGAGE LOANS – Delinquency rate 0.35% 0.46% 0.41% 0.41% REAL ESTATE – Occup. rate on invest. prop. 90.1% 90.0% 91.0% 90.0%

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Healthy Balance Sheet

Agency Rating Outlook

S&P A+ (Strong) Stable A.M. Best A+ (Superior) Stable DBRS IC-2 Stable

Debt Ratio

(Debentures and preferred shares / Capital structure) (end of period)

2012 2013 2014 Q3/2015 24.5% 35.9% 25.8% 23.7%

With flexibility to support growth initiatives

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Value of New Business

Value of New Business by component

Q3/2014 38.8

Increase (decrease) in sales (0.5) Variation in profit margins 1.1 Changes in economic assumptions (7.5)

Q3/2015 31.9

Value of New Business

($Million)

2011 2012 2013 2014 2015

46.3 36.4 51.3 43.3 31.0 42.7 33.4 44.3 42.6 37.5 38.6 38.4 40.7 38.8 31.9 100.4 36.0 163.6 44.9 153.1 45.2 181.5 39.3 164.0

Q4 Q3 Q2 Q1

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2015 Guidance

EPS1 Q1 $0.85 to $0.95 Q2 $0.95 to $1.05 Q3 $1.00 to $1.10 Q4 $1.00 to $1.10 2015 $3.80 to $4.20 ROE1 11.0% to 12.5% Strain 30% Effective tax rate 18% to 20% Solvency ratio 175% to 200% Payout ratio 25% to 35%

(mid-range)

1 No reserve strengthening considered in EPS and ROE guidance.

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Investor Relations

Contact Grace Pollock

• Tel. 418-780-5945

grace.pollock@ia.ca Next Reporting Date Q4 – February 11, 2016 For information on our earnings releases, conference calls and related disclosure documents, consult the Investor Relations section of our website at www.ia.ca.

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Non-IFRS Financial Information

Industrial Alliance Insurance and Financial Services Inc. reports its financial results in accordance with International Financial Reporting Standards (IFRS). It also publishes certain non-IFRS financial measures that do not have an IFRS equivalent, including sales, value of new business, embedded value and solvency ratio, or which have an IFRS equivalent such as data on operating profit and income taxes on earnings presented in the sources of earnings table. The Company also uses non-IFRS adjusted data in relation to net income, earnings per share and return on equity. These non-IFRS financial measures are always accompanied by and reconciled with IFRS financial measures. The Company believes that these non-IFRS financial measures provide investors and analysts with additional information to better understand the Company’s financial results as well as assess its growth and earnings potential. Since non-IFRS financial measures do not have a standardized definition, they may differ from the non-IFRS financial measures used by other institutions. 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.

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Forward-Looking Statements

This document may contain statements relating to strategies used by Industrial Alliance 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 Industrial Alliance 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

• r assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed
• r 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 Industrial Alliance 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 Industrial Alliance; 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 and in the “Management of Risks Associated with Financial Instruments” note to Industrial Alliance’s consolidated financial statements, and elsewhere in Industrial Alliance’s filings with Canadian securities regulators, which are available for review at www.sedar.com. The forward-looking statements in this document reflect the Company’s expectations as of the date of this document. Industrial Alliance 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.

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