Mr. Yvon Charest reports

INDUSTRIAL ALLIANCE REPORTS FIRST QUARTER RESULTS - STRONG BUSINESS GROWTH TOPPED BY REBOUND IN MUTUAL FUND SALES

For the first quarter ended March 31, 2017, Industrial Alliance Insurance and Financial Services Inc. had net income attributed to common shareholders of $110.3-million, diluted earnings per common share (EPS) of $1.03 and return on shareholders' equity (ROE) of 13.4 per cent for the trailing 12 months, compared with net income of $98.3-million, EPS of 96 cents and ROE of 9.8 per cent a year earlier.

First quarter 2017 highlights:

• Diluted EPS of $1.03;
• Diluted core EPS (1) of $1.07 versus guidance of $1 to $1.10 EPS;
• Net mutual fund sales of $200-million;
• Premiums and deposits of $2.8-billion (up 42 per cent year over year);
• New business strain ratio of 6 per cent (plus four-cent EPS);
• Solvency ratio of 222 per cent (208 per cent post-HollisWealth);
• Book value per share of $41.86 (plus 15 per cent year over year).

"Two thousand seventeen is off to a good start for all our insurance and wealth management operations in both the individual and group sectors," said Yvon Charest, president and chief executive officer of iA Financial Group. "In addition to our mutual funds that delivered outstanding net sales, I want to highlight our group insurance and wealth businesses, where all segments reported superior business growth. The momentum in our individual insurance and seg fund operations carried over into the first quarter, as it did for our auto and home subsidiary. On the strategic front, we look forward to completing the HollisWealth transaction in August and continue to seek opportunities to expand our presence in the U.S. market."

"On a core (1) basis, EPS of $1.07 is at the high end of our guidance," added Rene Chabot, executive vice-president, chief financial officer and chief actuary. "Market gains in the quarter helped to alleviate turbulence experienced in the individual insurance sector after almost two years of strong gains. In that sector, we are pleased to see that strain on new business of 6 per cent came in better than expected because of higher volumes and a better mix in the quarter. Elsewhere, good investment gains in income on capital compensated for the lower results at iA Auto and Home. Finally, our capital and balance sheet continue to be very strong."

                                      EARNINGS HIGHLIGHTS
            (in millions of dollars, except per-share amounts and where otherwise indicated)
                                             
                                                                         First quarter
                                                                 2017             2016
             
Net income attributed to shareholders                          $114.4           $102.4               
Less dividends attributed to preferred shares                    $4.1             $4.1                 
Net income attributed to common shareholders                   $110.3            $98.3                  
Earnings per common share (diluted)                             $1.03            $0.96                
Core earnings per common share (diluted) (1)                    $1.07            $1.04 
                 
                                                       March 31, 2017    Dec. 31, 2016    March 31, 2016

Return on common shareholders' equity (1) (2)                   13.4%            13.2%              9.8%
Core return on common shareholders' equity (1) (2)              12.0%            11.9%             12.0% 

Other financial highlights                             March 31, 2017    Dec. 31, 2016    March 31, 2016

Solvency ratio                                                222% (3)         225% (3)             205%
Book value per share                                           $41.86           $40.97            $36.48 
Assets under management and administration                    $130.2B          $126.2B           $117.7B
     
(1) ROE, core ROE and core EPS are non-international financial reporting standard measures. 
(2) Trailing 12 months.
(3) After giving effect to the previously announced acquisition of HollisWealth in the third quarter of
2017, the solvency ratio would be 208 per cent (211 per cent at Dec. 31, 2016).

First quarter highlights

Profitability: For the first quarter ended March 31, 2017, Industrial Alliance Insurance and Financial Services reports net income to common shareholders of $110.3-million, an increase of 12 per cent over the previous year. Diluted earnings per share of $1.03 represent a year-over-year increase of 7 per cent. Return on common shareholders' equity (1) for the trailing 12 months was 13.4 per cent, compared with 9.8 per cent a year earlier.

Diluted core EPS (1) of $1.07 and core ROE (1) of 12 per cent compare favourably with the previous year. These results are at the high end of EPS guidance of $1 to $1.10 for the first quarter and the ROE (1) guidance of 11 per cent to 12.5 per cent.

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

Expected profit on in-force increased by 13 per cent to $142.8-million pretax over the same quarter last year and reflects growth in all lines of business. Other notable items that had an impact on profitability were market-related gains and lower strain on new business, offset by adverse policyholder experience and a one-time charge related to the tax on premiums that was extended to 2024 in the recent Quebec budget.

Individual insurance reported a net loss of 17 cents per share ($17.5-million) explained by unfavourable mortality and lapse (15-cent EPS, divided equally) and a one-time charge of four cents per share related to the tax on premiums. These were partially offset by a market gain of two cents per share related to universal life policies.

Individual wealth management had a net gain of 12 cents per share ($12.7-million) principally related to the dynamic hedging program for the segregated fund guarantees (nine-cent EPS). The remainder is attributed to favourable longevity and lower expenses (three-cent EPS) and higher fees on assets under management as a result of market growth (one-cent EPS), offset by integration costs (one-cent EPS) for the HollisWealth acquisition.

Group insurance reported an experience loss of one cent per share ($1.3-million) related to higher claims for extended warranties in the dealer services segment. Employee plans, special markets solutions and car loans performed in line with expectations.

Group savings and retirement had a gain of one cent per share ($700,000) related to favourable longevity.

Strain: In the individual insurance sector, strain on new business amounted to $4.4-million pretax, or 6 per cent of sales for the quarter, compared with annual guidance of 0 per cent to 15 per cent. Management estimates that the lower strain ratio, which is attributed mainly to the higher sales volume and a favourable sales mix, represented a gain of four cents per share.

Income on capital: Total income on capital of $15.8-million pretax represents a net gain of one cent per share attributed to higher income on investments (four-cent EPS), offset by lower results at iA Auto and Home (three-cent EPS).

Income taxes: The effective tax rate of 21 per cent was in line with the company's guidance of 20 per cent to 22 per cent.

Business growth: Premiums and deposits reached an all-time high of $2.8-billion (plus 42 per cent) as a result of strong inflows in both the individual and group wealth management sectors. Assets under management and administration of $130.2-billion were up 3 per cent over the previous quarter-end, reflecting market growth and strong fund inflows. Year over year, assets were up 11 per cent.

The retail insurance sector reported strong sales of $69.8-million (plus 7 per cent), representing an increase of 11 per cent in Canada and modest growth in the United States. The company's adjustable disability business in Canada continues to maintain good momentum with growth of 30 per cent in the quarter. Total sales in Canada amounted to $46.5-million (including $4.9-million for adjustable disability) and the United States accounted for $23.3-million.

In retail wealth management, the company reports a third quarter of positive net fund sales attributed to the year-over-year improvement in its mutual fund business. Gross sales of mutual funds increased by 175 per cent to $783.8-million in the first quarter, with net inflows of $200-million compared with net outflows of $291.2-million in the same quarter a year earlier. This growth is attributed to the success of the company's two-track marketing strategy targeting affiliated distributors and independent advisers, both of which delivered good growth in the quarter.

The company's segregated funds continue to perform well with gross sales of $554.5-million (plus 22 per cent) in the first quarter and net sales of $164.7-million, compared with $142.6-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 $212.6-million, a year-over-year increase of 22 per cent. Employee plans had an excellent quarter with sales of $35.9-million (plus 99 per cent). Special markets solutions reported sales of $54.5-million (plus 7 per cent). In dealer services, creditor insurance reported sales of $75.7-million (plus 14 per cent), property and casualty products had sales of $46.5-million (plus 18 per cent), and car loan originations amounted to $85.9-million (plus 6 per cent).

In the group wealth sector, total sales amounted to $475.2-million (plus 42 per cent) in the first quarter with strong growth in accumulation products.

At iA Auto and Home, written premiums in the first quarter grew by 13 per cent to $59.4-million. Most of this growth came from new business initiatives.

Capital: At March 31, 2017, the solvency ratio was 222 per cent, compared with 225 per cent at the end of the fourth quarter of 2016. The decrease is primarily related to the macroeconomic environment. The completion of the HollisWealth acquisition in the third quarter of 2017 is expected to reduce the ratio by 14 percentage points.

Dividend: The board of directors approved a dividend of 35 cents per share on the company's outstanding common shares. This dividend is payable on June 15, 2017, to shareholders of record at May 26, 2017.

Dividend reinvestment and share purchase plan (DRIP): 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 June 15, 2017, must ensure that the duly completed form is delivered to Computershare no later than 4 p.m. on May 19, 2017. 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.

Macroeconomic protection: The company continues to maintain significant protection against declines in equity markets and long-term interest rates. At March 31, 2017:

• It can absorb a decrease of about 27 per cent in the S&P/TSX index before having to strengthen reserves for future policyholder benefits.
• It can absorb a decrease of 50 per cent in the S&P/TSX index before the solvency ratio drops below 175 per cent and a decrease of 63 per cent before the solvency ratio drops below 150 per cent.
• The full-year impact on net income attributed to common shareholders of a sudden 10-per-cent decrease in the stock markets would be $29-million.
• The impact on net income attributed to common shareholders of a 10-basis-point decrease in the initial reinvestment rate (IRR) would be $23-million; the impact of a similar decrease in the ultimate reinvestment rate (URR) would be $62-million. As disclosed at year-end, both the IRR and URR are currently well protected in the actuarial reserves, which could help to absorb potential movements in these rates.

Market guidance for 2017:

• Earnings per common share -- target range of $4.65 to $5.05 ($4.20 to $4.60 in 2016);
• Return on common shareholders' 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 20 per cent to 22 per cent (18 per cent to 20 per cent in 2016);
• Strain on new business -- annual target of 6 per cent of individual insurance sales, with quarterly range of 0 per cent to 15 per cent (15 per cent plus or minus 5 per cent in 2016).

Guidance for ROE and earnings per common share excludes any potential reserve strengthening in 2017.

Conference call

Management will hold a conference call to present the company's results on Thursday, May 11, 2017, at 11:30 a.m. ET. The toll-free dial-in number is 1-800-699-0623. A replay of the conference call will be available for a one-week period, starting at 2 p.m. on Thursday, May 11, 2017. To access the conference call replay, dial 1-800-558-5253 (toll-free) and enter access code 21848671. A webcast of the conference call (listen-only mode) will also be available on the company's website.

Annual meeting

iA Financial Group is holding its annual meeting at 2 p.m. ET on Thursday, May 11, 2017, at the Quebec City Convention Centre located at 1000 Rene-Levesque Blvd. East in Quebec City. A video and audio webcast of the meeting as well as a copy of management's presentation will be available on the company's website under about iA in the investor relations/events and presentations section.

About Industrial Alliance Insurance and Financial Services Inc.

Founded in 1892, iA Financial Group celebrates its 125th anniversary this year. iA Financial Group offers life and health insurance products, mutual and segregated funds, savings and retirement plans, securities, auto and home insurance, mortgages and car loans, and other financial products and services for both individuals and groups. It is one of the four largest life and health insurance companies in Canada and among the largest publicly traded companies in the country.

(1) ROE, core ROE and core EPS are non-international financial reporting standard measures.

(2) Trailing 12 months.

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