Mr. Yvon Charest reports

INDUSTRIAL ALLIANCE REPORTS ITS SECOND QUARTER RESULTS - VERY STRONG EARNINGS ANCHORED BY FAVOURABLE POLICYHOLDER EXPERIENCE IN ALL LINES OF BUSINESS

Industrial Alliance Insurance and Financial Services Inc. has released its results for the second quarter of 2016.

2016 second quarter highlights

• Diluted earnings per share of $1.35, 17 per cent above top of second quarter guidance ($1.05 to $1.15);
• Annualized return on equity of 14.7 per cent (guidance of 11 per cent to 12.5 per cent);
• Favourable policyholder experience of 10-cent earnings per share (19-cent earnings per share year to date);
• New business strain ratio of 13 per cent versus guidance of 15 per cent;
• Continued strong sales growth for retail insurance in Canada and the United States (plus 18 per cent);
• No. 1 position maintained for net sales of segregated funds in Canada;
• Solvency ratio of 199 per cent reflects second quarter macroeconomics (guidance of 175 per cent to 200 per cent).

"Our excellent second quarter results clearly demonstrate the underlying strength of our operations," commented Yvon Charest, president and chief executive officer. "Our two largest business segments continue to perform extremely well, with retail insurance maintaining strong momentum in both Canada and the United States and our segregated funds still leading the industry in terms of net sales. Among our subsidiaries, Excellence continues the successful rollout of its adjustable disability product across Canada, iA Auto and Home is starting to generate sales from new partnerships concluded in the last year, and our wealth management distribution affiliates benefited from the market growth this quarter. Despite recent turbulence in the macroeconomic environment, our investment portfolio remains healthy and our solvency ratio is well within our comfort zone."

"We are extremely encouraged by the quality of our earnings in the second quarter," added Rene Chabot, executive vice-president, chief financial officer and chief actuary. "In addition to delivering on the cornerstone of our 2016 plan, which is to lower strain on new sales and improve profit in employee plans and our U.S. operations, policyholder experience was favourable in all lines of business. As a result of our very strong financial performance during the first half of the year, with earnings ahead of our guidance, we are well positioned to achieve our 2016 plan."

                                   HIGHLIGHTS  
               (in millions of dollars, unless otherwise indicated)

                                                        Second quarter    Year to date at June 30, 
                                                     2016         2015           2016        2015

Net income attributed to shareholders            $  143.6     $  146.1       $  246.0      $260.5
Less preferred share dividends                        4.1          3.9            8.2         9.4
Less redemption premium on preferred shares             -            -              -         4.0
Net income attributed to common shareholders        139.5        142.2          237.8       247.1
Earnings per common share (diluted)              $   1.35     $1.40 (2)        $ 2.31    $2.43 (2)
Return on common shareholder equity (1)             14.7%        15.8%           9.4%       13.1%

                                  June 30, 2016   March 31, 2016    Dec. 31, 2015   June 30, 2015

Solvency ratio                             199%             205%             213%            223%
Book value per share                     $37.60           $36.48           $36.76          $36.11
Assets under management
and administration                      $121.9B          $117.7B          $115.8B         $112.9B
Net impaired investments
as a percentage of total
investments                               0.04%            0.04%            0.05%           0.07%

(1) Annualized for the quarter; trailing 12 months for year-to-date figures.
(2) 2015 results include a tax recovery of 17 cents per share.

Second quarter highlights

Profitability

For the second quarter ended June 30, 2016, Industrial Alliance Insurance and Financial Services reports net income attributed to common shareholders of $139.5-million, diluted earnings per common share (EPS) of $1.35, and annualized return on shareholder equity (ROE) of 14.7 per cent, all surpassing the company's guidance for the quarter. This compares with net income to common shareholders of $142.2-million, EPS of $1.40 and ROE of 15.8 per cent a year earlier. Notably, last year's second quarter results included a tax recovery of 17 cents per share.

The key elements that explain profitability follow. All figures are after taxes unless otherwise indicated.

Expected profit on in-force contracts increased by 6 per cent to $140.4-million pretax over the same quarter last year and is attributed mainly to the retail and group insurance sectors. In addition, the company reported gains of 26 cents per share, of which 10 cents is attributed to favourable policyholder experience across all lines of business, 11 cents per share to market-related items, and five cents per share to strain, income taxes and income on capital. A detailed analysis of gains and losses follows.

Individual insurance reported an experience gain of four cents per share ($4.4-million), mainly for favourable morbidity.

Individual wealth management reported an experience gain of 14 cents per share ($14.4-million) attributed to the dynamic hedging program for the segregated fund guarantee (EPS of 10 cents), mortality on single-premium immediate annuities (EPS of two cents), lower expenses (EPS of one cent) and higher fees on assets under management (EPS of one cent).

Group insurance reported a net experience gain of one cent per share ($600,000) explained principally by favourable long-term disability for employee plans (EPS of two cents), offset by higher claims for special markets solutions (EPS of one cent).

Group savings and retirement reported an experience gain of two cents per share ($1.4-million) related to investment and expense gains.

Strain

In the individual insurance sector, strain on new business amounted to $9.3-million pretax, or 13 per cent of sales, compared with guidance of 15 per cent. Management estimates that the lower strain ratio, which is attributed mainly to the higher sales volume in both Canada and the United States, represented a gain of one cent per share.

Income on capital

Total income on capital amounted to $17.5-million pretax, which is in line with the company's quarterly run rate. Higher investment income was partially offset by seasonally lower results at iA Auto and Home, giving rise to a gain of EPS of one cent.

Income taxes

The company realized a net tax gain of EPS of three cents on true-ups relating to 2015.

Business growth

Assets under management and administration of $121.9-billion progressed by 4 per cent in the second quarter (8 per cent year over year), principally due to market growth. Premiums and deposits of $1.9-billion were stable year over year, reflecting strong results in the insurance sectors, offset by the decrease in gross mutual fund sales.

The retail insurance sector continues to experience strong sales growth across all segments. Total sales of $72.9-million (plus 18 per cent) progressed by 11 per cent in Canada and 35 per cent in the United States. Sales in the company's adjustable disability business, which continues its cross-Canada expansion, were up by 37 per cent. Sales in Canada amounted to $48.4-million (including $5.2-million for adjustable disability) and the United States accounted for $24.5-million.

In retail wealth management, the company recorded its 10th consecutive quarter of positive net segregated fund sales while the industry as a whole in Canada is in net redemptions. The company, which holds first position for net sales and third for assets, had gross segregated fund sales of $352.1-million ($366.5-million in 2015) and net segregated fund inflows of $53.4-million ($88.8-million in 2015). In the mutual fund business, gross sales amounted to $316.7-million ($383-million in 2015) while net outflows slowed to $121.3-million from $165.1-million in the same quarter a year ago.

The group insurance sector reported total sales of $217.3-million (minus 2 per cent). In dealer services, sales of P&C (property and casualty) products and creditor insurance amounted to $58-million (plus 3 per cent) and $101.6-million (plus 2 per cent), respectively, for an overall increase of 3 per cent. In the remaining two segments, special markets solutions had sales of $40.6-million (minus 3 per cent) and employee plans had sales of $17.1-million (minus 32 per cent).

In group savings and retirement, total sales were $325.2-million, 5 per cent lower than the previous year.

At iA Auto and Home, written premiums in the second quarter grew by 12 per cent to $91.6-million, attributed to organic growth and new partnerships.

Capital

At June 30, 2016, the solvency ratio was 199 per cent, compared with 205 per cent at the end of the previous quarter. Most of the decrease is related to changes in the macroeconomic environment.

Dividend

The board of directors approved a dividend of 32 cents per share on the company's outstanding common shares. This dividend is payable on Sept. 15, 2016, to shareholders of record at Aug. 19, 2016.

Dividend reinvestment and share purchase plan

Registered shareholders wishing to enroll in the company's dividend reinvestment and share purchase plan (DRIP) so as to be eligible to reinvest the next dividend payable on Sept. 15, 2016, must ensure that the duly completed form is delivered to Computershare no later than 4 p.m. on Aug. 12, 2016. Enrolment information is provided on the company's website 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 2016

• Earnings per common share -- target range of $4.20 to $4.60;
• Return on common shareholder equity -- target range of 11 per cent to 12.5 per cent;
• Solvency ratio -- target range of 175 per cent to 200 per cent;
• Dividend payout ratio -- payout range of 25 per cent to 35 per cent with the target being the midpoint;
• Effective tax rate -- target range of 18 per cent to 20 per cent;
• Strain on new business -- target of 15 per cent (plus or minus 5 per cent) of sales in individual insurance.

Guidance for return on common shareholder equity and earnings per common share excludes any potential reserve strengthening in 2016.

Documents related to the financial results

For a detailed discussion of the company's second quarter results, investors are invited to consult the management discussion and analysis for the quarter ended June 30, 2016, related consolidated financial statements and accompanying notes, as well as the company's supplemental information package, all of which are available on the iA Financial Group website under about iA, in the investor relations/financial reports section, and on SEDAR.

Conference call

Management will hold a conference call to present the company's results on Thursday, Aug. 4, 2016, at 5 p.m. (ET). The toll-free dial-in number is 1-888-225-7896. A replay of the conference call will be available for a one-week period, starting at 7:30 p.m. on Aug. 4, 2016. To access the conference call replay, dial 1-800-558-5253 (toll-free) and enter access code 21812614. A webcast of the conference call (listen-only mode) will also be available on the company's website.

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