Mr. Yvon Charest reports
INDUSTRIAL ALLIANCE REPORTS FOURTH QUARTER AND YEAR-END RESULTS - BUSINESS GROWTH DRIVEN BY ORGANIC INITIATIVES, ACQUISITIONS AND STRATEGIC PARTNERSHIPS
For the fourth quarter ended Dec. 31, 2015, Industrial Alliance Insurance and Financial Services Inc. had net income attributed to common shareholders of $4.2-million and diluted earnings per common share of four cents. These results include a net reserve strengthening of $107.9-million or $1.05 EPS (earnings per share) that is in line with the preview provided to the financial markets in November. Excluding the reserve strengthening, EPS amounted to $1.09 and the annualized return on shareholders' equity was 11.8 per cent, both of which are well within the guidance ($1.00 to $1.10 EPS and 11.0 per cent to 12.5 per cent ROE) provided for the fourth quarter. The solvency ratio at quarter-end was 213 per cent.
"During 2015 we continued to strengthen our position as a diversified financial services group through internal growth, acquisitions and strategic partnerships," commented Yvon Charest, president and chief executive officer. "One of the highlights in this regard was our retail insurance and segregated fund businesses, which both delivered outstanding growth. Equally important, we continued to invest in our distribution network with the acquisition of four insurance and wealth management brokerages to serve our retail clientele. In our mutual fund business, we remain focused on our plan to significantly improve gross and net sales.
"On the group side, our dealer services enlarged their car loan offer through the EPS-accretive acquisition of CTL late in the year. Our special risks group maintained their steady growth trend, our wealth operations benefited from the addition of new client groups and our employee benefits division delivered an encouraging year-over-year improvement. At iA Auto and Home, agreements were signed with industry partners that will accelerate future growth. All of these achievements build on our foundation to sustain future earnings growth.
"Despite the drop in equity markets and lack of progress in the long-term interest rate environment, iA Financial Group delivered another solid year of growth," added Rene Chabot, executive vice-president, chief financial officer and chief actuary. "Our fourth quarter earnings, before taking into account our annual assumption review, were at the top of our guidance reflecting a good contribution from our retail insurance business. Our net reserve strengthening relates principally to our lapse assumption to align it with recent industry studies, and was carried out with no impact on our capital position.
"As in previous years, we are introducing our earnings guidance for the next year. We are projecting that 2016 earnings per share will be in the range of $4.20 to $4.60, with key contributions coming from our individual and group insurance sectors. In addition to normal growth of expected profit in our insurance operations and the EPS accretion from CTL, the excellent progress made in managing the cost of writing new business has allowed us to lower our strain guidance from 30 per cent to 15 per cent, which will be an important driver of 2016 earnings and help to offset the weaker contribution expected from our mutual fund business. With respect to our balance sheet, we are in a strong position with capital available to realize our future ambitions, and we have the necessary protection in place to withstand significant market and interest rate events."
HIGHLIGHTS
(in millions of dollars)
Year-to-date at
Fourth quarter Dec. 31,
2015 2014 2015 2014
Net income attributed to shareholders 8.3 123.7 386.4 432.9
Less: preferred share dividends 4.1 7.3 18.0 28.5
Less: premium on preferred share redemption - 4.0 4.0 4.0
Net income attributed to common shareholders 4.2 112.4 364.4 400.4
Earnings per common share (diluted) $0.04 $1.11 $3.57 $3.97
Return on common shareholders' equity (1) 0.4% 13.4% 10.2% 12.4%
Results excluding changes in assumptions
Net income attributed to common shareholders 112.1 115.6 472.3 403.6
Earnings per common share (diluted) $1.09 $1.14 $4.63 $4.00
Return on common shareholders equity (1) 11.8% 13.8% 13.0% 12.5%
(1) Annualized for the quarter. Trailing 12 months for the year to date.
Dec. 31, 2015 Sept. 30, 2015 Dec. 31, 2014
Solvency ratio 213% 225% 209%
Book value per share $36.76 $36.45 $33.83
Assets under management and administration $115.8 B $111.2 B $109.5 B
Net impaired investments as a % of total investments 0.05% 0.10% 0.07%
Fourth quarter highlights
Profitability
-
For the fourth quarter ended Dec. 31, 2015, Industrial Alliance Insurance and Financial Services had net income attributed to common shareholders of $4.2-million and diluted earnings per common share of four cents. These results include a net reserve strengthening of $107.9-million or $1.05 EPS. Excluding the reserve strengthening, EPS amounted to $1.09 and the annualized return on shareholders' equity was 11.8 per cent, both of which are well within the guidance ($1.00 to $1.10 EPS and 11.0 per cent to 12.5 per cent ROE) provided for the fourth quarter.
The key elements that explain profitability follow. All figures are after taxes unless otherwise indicated.
Expected profit on in-force
increased by 11 per cent to $129.4-million pretax over the same quarter last year, and is attributed mainly to the retail insurance sector. In addition, Industrial Alliance realized a net experience gain of $14.6-million pretax ($0.10 EPS) related to favourable policyholder and market-related experience. A detailed analysis of gains and losses follows.
Year-end assumption review
-
The company's actuarial reserves were strengthened by a net amount of $107.9-million or $1.05 EPS. This strengthening relates principally to the lapse assumption in order to align it with recent industry studies.
Individual insurance
reported a net experience gain of 15 cents per share ($14.9-million). Of this amount, six-cent EPS is explained by market gains on universal life policies and the remainder is mostly related to better than expected mortality.
Individual wealth management
had a net experience loss of two cents per share (negative $1.8-million). While the dynamic hedging program for the segregated fund guarantee contributed a gain of four-cent EPS and higher fees on assets under management added one-cent EPS, these were more than offset by lower profitability in iA affiliates and typically higher year-end expenses.
Group insurance
reported an experience loss of two cents per share ($1.5-million) related to higher death claims for employee plans. Long-term disability experience was in line with expectations.
Group savings and retirement
reported an investment loss of one cent per share ($900,000) in the fourth quarter.
Strain
-
In the individual insurance sector, strain on new business amounted to $14.4-million pretax, or 20 per cent of sales, lower than the fourth quarter guidance of 25 per cent. Management estimates that the lower strain ratio, which is attributed to sales growth, improvements in U.S. underwriting and changes to some reinsurance agreements, represented a gain of one cent per share.
Income on capital
-
Total income on capital of $20.2-million pretax compares with $23.5-million in the previous quarter. The decrease in the fourth quarter is attributed equally to higher property claims as well as investments in a new subsidiary at iA Auto and Home.
Income taxes
-
The effective tax rate excluding the impact of the year-end assumption review was 21 per cent.
Business growth
-
Premiums and deposits of $2.0-billion were up 11 per cent over the previous year principally because of higher inflows in the group wealth management sector. Assets under management and administration of $115.8-billion grew by 4 per cent in the fourth quarter and 6 per cent over the last 12 months, with good inflows from the company's segregated funds and iA distribution affiliates.
In retail insurance, business growth continued to maintain good momentum for the fifth quarter in a row. Total sales of $73.7-million (plus 19 per cent) reflect growth in Canada (plus 8 per cent) and the U.S. (plus 55 per cent). Sales in the company's adjustable disability business, which is continuing its cross-Canada rollout, were up by 21 per cent.
In retail wealth management, gross sales of segregated funds increased to $366.8-million (plus 8 per cent) reflecting the continuing success of the company's cross-Canada distribution strategy; net inflows amounted to $82.3-million (minus 7 per cent) in the quarter. Gross sales of mutual funds amounted to $296.1-million (minus 30 per cent) while net outflows were $247.5-million for the quarter.
The group insurance sector reported total sales of $212.0-million (plus 12 per cent). Special markets solutions had sales of $59.1-million (plus 10 per cent). In dealer services, sales amounted to $49.1-million (plus 31 per cent) in property and casualty products and $89.3-million (minus 1 per cent) in creditor insurance for an overall increase of 8 per cent. In the employee plans segment, sales amounted to $14.5-million (plus 93 per cent).
In group savings and retirement, sales were $477.0-million, 108 per cent higher than the previous year, reflecting inflows from the addition of new client groups.
Capital
-
At Dec. 31, 2015, the solvency ratio was 213 per cent compared with 225 per cent at the end of the previous quarter. The decrease is principally related to the update of macroeconomic assumptions for segregated funds (minus 5 per cent) and recent acquisitions (minus 7 per cent).
Dividend
-
The board of directors approved a dividend of 30 cents per share on the company's outstanding common shares. This dividend is payable on March 15, 2016, to shareholders of record at Feb. 26, 2016.
Dividend reinvestment
and share purchase
-
Registered shareholders wishing to enroll in the company's dividend reinvestment and share purchase plan so as to be eligible to reinvest the next dividend payable on March 15, 2016, must ensure that the duly completed form is delivered to Computershare no later than 4 p.m. on Feb. 19, 2016. Enrolment information is provided on the company's website under about iA, in the investor relations/dividends section. It should be noted that common shares issued under the company's DRIP shall be purchased on the secondary market and no discount will be applicable.
Macroeconomic sensitivity at Dec. 31, 2015
The company can absorb a sudden decrease of about 27 per cent in the S&P/TSX index before having to strengthen reserves for future policyholder benefits (24 per cent at Sept. 30, 2015).
The company can absorb a sudden decrease of 39 per cent in the S&P/TSX index before the solvency ratio drops below 175 per cent (48 per cent at Sept. 30, 2015) and a decrease of 53 per cent before the solvency ratio drops below 150 per cent (59 per cent at Sept. 30, 2015).
The full-year impact on net income attributed to common shareholders of a sudden 10-per-cent decrease in the stock markets is $28-million ($28-million also at Sept. 30, 2015). This does not take into consideration any potential reserve strengthening.
The impact on net income attributed to common shareholders of a 10-basis-point decrease in the initial and ultimate reinvestment rates totals $91-million ($89-million at Sept. 30, 2015).
Market guidance for 2016
Earnings per common share: new target range of $4.20 to $4.60
Return on common shareholders' equity: target range remains at 11.0 per cent to 12.5 per cent
Solvency ratio: target range remains at 175 per cent to 200 per cent
Dividend payout ratio: payout range remains at 25 per cent to 35 per cent with the target being the midpoint
Effective tax rate: target range remains at 18 per cent to 20 per cent
Strain on new business: new target of 15 per cent (plus or minus 5 per cent) of sales in individual insurance
Conference call
Management will hold a conference call to present the company's results on Thursday, Feb. 11, 2016, at 12 p.m. (ET). The toll-free dial-in number is 1-800-695-1004. A replay of the conference call will be available for a one-week period, starting at 2:30 p.m. on Feb. 11, 2016. To access the conference call replay, dial 1-800-558-5253 (toll-free) and enter access code 21794620. A webcast of the conference call (listen-only mode) will also be available on the iA Financial Group website.
CONSOLIDATED INCOME STATEMENTS
(millions of dollars)
Quarters ended 12 months ended
Dec. 31, Dec. 31,
2015 2014 2015 2014
Revenues
Premiums
Gross premiums $1,812 $1,461 $6,564 $5,872
Premiums ceded (142) (115) (523) (446)
------ ------ ------ ------
Net premiums 1,670 1,346 6,041 5,426
Investment income
Interest and other investment income 297 282 1,097 1,007
Change in fair value of investments 116 658 (61) 2,163
------ ------ ------ ------
413 940 1,036 3,170
Other revenues 290 270 1,158 1,084
------ ------ ------ ------
2,373 2,556 8,235 9,680
Policy benefits and expenses
Gross benefits and claims on contracts 1,036 1,151 4,270 4,156
Ceded benefits and claims on contracts (88) (171) (336) (415)
Net transfer to segregated funds 274 69 741 425
Increase (decrease) in insurance contract liabilities 273 660 514 2,572
Increase (decrease) in investment contract liabilities 7 7 21 38
Decrease (increase) in reinsurance assets 253 184 266 317
------ ------ ------ ------
1,755 1,900 5,476 7,093
------ ------ ------ ------
Commissions 315 284 1,197 1,119
General expenses 266 233 973 898
Premium and other taxes 28 18 106 85
Financing charges 17 14 62 50
------ ------ ------ ------
2,381 2,449 7,814 9,245
------ ------ ------ ------
Income before income taxes (8) 107 421 435
Income taxes (11) (18) 39 -
------ ------ ------ ------
Net income $3 $125 $382 $435
Net income attributed to participating policyholders (5) 1 (4) 2
------ ------ ------ ------
Net income attributed to shareholders $8 $124 $386 $433
====== ====== ====== ======
Dividends attributed to preferred shares 4 8 18 29
Redemption premium on preferred shares - 4 4 4
Net income attributed to common shareholders 4 112 364 400
Earnings per common share (in dollars)
Basic 0.04 1.12 3.59 4.01
Diluted 0.04 1.11 3.57 3.97
Dividends per common share (in dollars) 0.30 0.28 1.16 1.06
We seek Safe Harbor.
© 2024 Canjex Publishing Ltd. All rights reserved.