Mr. Denis Ricard reports

IA FINANCIAL GROUP REPORTS FIRST QUARTER RESULTS

iA Financial Corp. Inc. has released its record quarterly net income attributed to common shareholders of $270-million, diluted earnings per common share (EPS) of $2.58 and return on common shareholders' equity (ROE) for the trailing 12 months of 9.0 per cent. Core EPS was $2.08, 16 per cent higher than the 2022 first quarter result under IFRS (international financial reporting standards) 4 and core ROE for the trailing 12 months was 14.6 per cent. The solvency ratio of 149 per cent at March 31, 2023, is 23 percentage points higher than at the end of the previous quarter as the company's financial strength is better reflected under the new accounting standards.

"Two thousand twenty-three started with strong sales for individual insurance in Canada and the U.S., Dealer Services Canada and the group business units, as well as with good profitability," commented Denis Ricard, president and chief executive officer of iA Financial Group. "Moreover, with $1.8-billion of deployable capital, our business model is enhanced with much more capital to support our growth strategy. As we continue to invest in our digital transformation and our employee experience, two key enablers for sustainable growth, we are also in a favourable position to return value to our shareholders through a significant 13-per-cent increase in the dividend, in line with our increased core EPS growth target for 2023."

"Our long-term vision and prudent approach have resulted in a smooth transition to the new accounting standards and good performance in the first quarter," added Jacques Potvin, executive vice-president, chief financial officer and chief actuary. "Core earnings per share are 16 per cent higher than the previous year's IFRS 4 result and net income of $270-million is a quarterly record achieved from a solid insurance service result and a strong net investment result. In addition, our solvency ratio, supported by ongoing organic capital generation, is well above target and book value continued to grow strongly, with a 3-per-cent increase in the first quarter."

Unless otherwise indicated, the results presented in this document are in Canadian dollars and are compared with those from the corresponding period last year.

Transition to the new IFRS 17 and IFRS 9 accounting standards

Impacts at transition: The first quarter of 2023 marks the initial disclosure under the new accounting standards. While iA Financial's business model remains unchanged, the way results are analyzed has changed. The transition has had positive impacts on several key metrics, including core EPS and core ROE, and the company's book value was essentially maintained. Additionally, the company's financial strength is better recognized under the new accounting standards and this has resulted in a significant increase in its solvency ratio and capital available for deployment. At transition on Jan. 1, 2022, the application of the new accounting standards had a limited effect on the company's equity, resulting in a $10-million increase in shareholders' equity.

Note regarding 2022 restated results: The company's 2022 annual results have been restated for the adoption of IFRS 17 insurance contracts and the related IFRS 9 financial instruments overlay. Figures for 2022 are not audited and could change. Additionally, the restated 2022 results are not fully representative of the company's future market risk profile and future reported and core earnings profile, as the transition of the company's invested asset portfolio for asset/liability matching purposes under the new accounting standards was not fully completed until 2023. Accordingly, analysis based on 2022 comparative results may not be indicative of future trends and should be interpreted within this context.

Unless otherwise indicated, all figures in this document have been calculated under the new accounting standards.

Virtual investor session: iA Financial Group held a virtual investor session on March 28, 2023. During this public event, under the theme "Building on an even stronger capital position under IFRS 17," an update was given on the company's IFRS 9 and 17 impacts, new opportunities created by the accounting changes and medium-term financial objectives. Presentation materials and a video webcast are available through the company's website.

Analysis of earnings

This section contains measures that have no IFRS equivalents.

Reported and core earnings

First quarter reported earnings, or net income to common shareholders, amounted to $270-million, a quarterly high for the company, while core earnings amounted to $217-million. Core earnings is a non-IFRS measure that represents management's view of the Company's continuing capacity to generate earnings. Core earnings per common share was $2.08 for the first quarter, 7 per cent higher than 2022 first quarter restated results under IFRS 9 and IFRS 17 and 16 per cent higher than 2022 first quarter results under IFRS 4. This result is in line with the company's core EPS growth target for 2023. An analysis of these results is presented in the following sections.

Reported earnings and core earnings reconciliation

An attached table presents net income to common shareholders and the adjustments, divided into six categories, that account for the difference between reported and core earnings.

Core earnings for the first quarter are $53-million lower than net income to common shareholders. The main adjustment for the first quarter relates to the impact of market variations. Favourable market variations that are excluded from core results include the impact of interest rate and credit spread variations ($54-million), mainly resulting from the good performance of the fixed income portfolio in a quarter of volatile interest rates, and the impact of equity and investment property market variations ($16-million). Other adjustments include the amortization of acquisition-related intangible assets ($16-million) and a charge for the Surex minor shareholders' sell option ($1-million).

Core earnings by business segment

The increase in first quarter core earnings compared with the same period of 2022 is attributable to the insurance, Canada business segment, and the wealth management and investment business segments, as described in the following paragraphs.

Insurance, Canada: This operating business segment includes all Canadian insurance activities offering a wide range of life, health, auto and home insurance coverage, as well as vehicle warranties, to individuals and groups. First quarter core earnings for this business segment were $74-million, which is 17 per cent higher than the same period in 2022. The strong earnings growth is mainly the result of growth in expected insurance earnings from the CSM recognized for services provided and the risk adjustment release due to strong business growth in the last 12 months. Insurance experience was favourable for disability and iA Auto and Home recorded lower claims than expected. These gains were more than offset by higher mortality claims, contributing to a $6-million net insurance experience loss for the sector. Note that this mortality loss triggered a corresponding reserve-related gain in the CSM.

Wealth management: This operating business segment includes all the company's wealth management activities offering a wide range of savings and retirement solutions to individuals and groups. In this business segment, core earnings of $65-million for the first quarter were 10 per cent higher than a year earlier. This performance is essentially due to good results from the distribution affiliates, arising mainly from better margins amid the higher interest rate environment, higher results from group savings and good growth in expected insurance earnings for segregated funds. These are very good results given that equity market levels are lower than a year ago and a $4-million loss was recorded due to higher expenses and other various small items. For the most part, the loss due to expenses is expected to reverse in the coming quarters.

United States operations: This operating business segment includes all the company's U.S. activities offering individuals a range of life insurance and vehicle warranty products. First quarter core earnings for this business segment were $17-million, which compares with $36-million for the same period in 2022. Results in the individual insurance divisions were good. The result for non-insurance activities was lower due to an unfavourable business mix and lower sales in the U.S. dealers segment, a consequence of reduced affordability and persistent inventory issues. Also, this segment's results were impacted by higher expenses, mainly attributable to digital investments to improve efficiency and client experience, as well as employee experience enhancement initiatives.

Investment: This accounting business segment includes the company's investment and financing activities, except for the investment activities of wealth distribution affiliates. In this business segment, core earnings of $108-million for the first quarter were 29 per cent higher than a year earlier. This performance was achieved in spite of lower equity markets compared with a year ago and is essentially the result of the investment portfolio optimization and the higher interest rate environment.

Corporate: This accounting business segment reports all expenses that are not allocated to other segments, such as expenses for certain corporate functions. First quarter core earnings for this business segment correspond to a loss of $47-million, compared with a loss of $32-million a year earlier. The increase is mainly the result of the accelerated digital transformation, the enhanced employee experience to support talent retention and regulatory compliance projects, primarily with regard to IFRS 17 and Quebec's Law 25 on privacy.

CSM (contractual service margin)

The contractual service margin, or CSM, is an IFRS 17 metric that gives an indication of future profits and that is factored as available capital in the calculation of the solvency ratio. However, this metric is not comprehensive as it does not consider required capital, as well as non-insurance and PAA (premium allocation approach) insurance businesses. Organic CSM growth is a component of organic capital generation, a more comprehensive metric. In the first quarter of 2023, the CSM increased by $182-million to reach nearly $5.8-billion at March 31, 2023. The organic CSM movement represents the continuing CSM value creation calculated before the impact of items that add undue volatility to the total CSM, such as macroeconomic variations. In the first quarter, the CSM increased organically by $74-million. This result was mainly supported by the impact of new insurance business of $168-million in the first quarter.

An analysis of results according to the financial statements, an analysis of results according to the drivers of earnings and an analysis of CSM movement are presented in the management's discussion and analysis as at March 31, 2023. They supplement the information presented above by providing additional indicators for assessing financial performance.

Business growth: In the insurance, Canada business segment, first quarter sales were particularly strong for employee plans and special markets, as well as dealer services. iA Auto and Home also recorded good sales. In individual insurance, the company posted solid sales, while continuing to lead the Canadian market in number of policies sold. For the wealth management sector, the company recorded total net inflows of $280-million in individual wealth management, continuing to rank No. 1 in gross and net segregated fund sales. Group Savings and Retirement also had strong sales of $787-million. In the U.S. operations segment, the individual insurance division recorded strong sales growth from overall good performance in all of its niche target markets, while the dealer services division showed slower growth largely from reduced affordability resulting from higher consumer financing costs and continued inventory constraints. Premiums and deposits reached a record high of nearly $4.5-billion in the first quarter and total assets under management and administration increased by 5 per cent, amounting to $207.8-billion at March 31, 2023.

Insurance, Canada:

• In individual insurance, first quarter sales totalled $89-million, which compares with a particularly strong quarter of $101-million a year earlier. This year's result is 53 per cent higher than the total sales achieved in the first quarter of 2021. This solid level of sales is attributable in part to the company's comprehensive and competitive range of products, the strength of its distribution networks, as well as the excellent performance of its digital tools. Sales were notably strong for participating, term and living benefit products. The company continues to lead the Canadian market in terms of the number of policies issued, according to the latest industry data.
• Group insurance is made up of two business units: employee plans and special markets. Employee Plans sales totalled $21-million and were up 91 per cent compared with the same period last year. These strong sales results combined with a high retention rate resulted in a 10-per-cent growth in premiums. Note that sales in this division vary considerably from one quarter to another based on the size of the contracts sold. Special markets first quarter sales reached $91-million and were up 23 per cent year over year. This growth was mainly driven by accidental death and dismemberment and critical illness product sales.
• In the dealer services division, total sales amounted to $143-million, up 19 per cent over the same period last year. Sales of P&C products (including extended warranties and replacement insurance) were up 31 per cent from the same period in 2022, while creditor insurance sales of $42-million compare with $43-million a year ago.
• At iA Auto and Home, good business growth continued, with direct written premiums increasing 11 per cent year over year to $98-million in the first quarter.

Wealth management:

• In individual wealth management, segregated fund gross sales amounted to $1,032-million in the first quarter compared with $1,500-million for the same period last year, and net sales resulted in inflows of $368-million for the quarter. The company continued to rank first in gross and net segregated fund sales for the first three months of 2023 (according to the latest industry data). Mutual fund gross sales totalled $479-million and net sales resulted in outflows of $88-million during the quarter. Total net fund entries amounted to $280-million in the first quarter. These results are very good in the context of volatile market conditions. Insured annuities and other savings product sales in the first quarter reached an all-time high of $716-million and were triple last year's results as customers tend to turn to cash equivalent products in periods of uncertain markets.
• In group savings and retirement, sales for the first quarter totalled $787-million and were up 26 per cent compared with the same period last year. Sales were driven by insured annuities thanks to a large transaction recorded during the quarter. Note that sales in this division vary considerably from one quarter to another based on the size of the contracts sold.

U.S. operations:

• Individual insurance sales in the first quarter totalled $42-million (U.S.), up 27 per cent from a year earlier. This strong growth was driven by overall good performance in all of the company's niche target markets.
• Dealer services sales for the first quarter amounted to $230-million (U.S.) compared with $243-million (U.S.) a year earlier, a decrease largely attributable to reduced affordability resulting from higher financing costs for consumers and persisting inventory constraints, although the latter has begun to show signs of improvement.

Assets under management and administration ended the first quarter at $207.8-billion, down 1 per cent from the previous year but up 5 per cent during the quarter. Favourable equity market conditions mostly explained the increase in assets under management and administration during the first three months of 2023. General fund assets increased by 4 per cent during the same period as a result of increased bond values from lower interest rates.

Premiums and deposits reached a record high of nearly $4.5-billion in the first quarter, an increase compared with a strong quarter a year earlier. Several business units contributed to this performance, in particular group savings and retirement, group insurance, dealer services in Canada, and individual insurance in the U.S.

Financial position: At March 31, 2023, the solvency ratio was 149 per cent, compared with 126 per cent at the end of the previous quarter and 132 per cent a year earlier. This result is well above the company's operating target of 120 per cent. The 23-percentage-point increase in the first quarter is explained by the impact of the transition to IFRS 17 and IFRS 9 and, to a lesser extent, to the contribution of organic capital generation. These favourable items were partly offset by the $150-million preferred share redemption, the $111-million in share buybacks (NCIB), unfavourable macroeconomic variations and the impacts of adjustments to the investment portfolio. Part of these impacts are expected to reverse in the second quarter. The company's financial leverage ratio including posttax CSM at March 31, 2023, was 14.7 per cent.

Organic capital generation: The company organically generated $125-million in additional capital during the first quarter. As disclosed at the investor session held on March 28, 2023, the company's organic capital generation target for 2023 is $600-plus-million.

Preferred share redemption: On March 31, 2023, Industrial Alliance Insurance and Financial Services Inc. (iA Insurance) completed the redemption of all its issued and outstanding non-cumulative five-year rate reset Class A preferred shares Series I for a total redemption price of $150-million (less any taxes required to be withheld or deducted).

Book value: The book value per common share was $64.69 at March 31, 2023, up 5 per cent over 12 months and up 3 per cent from the previous quarter.

Dividend: The company paid a quarterly dividend of 67.5 cents to common shareholders in the first quarter of 2023. The board of directors approved a quarterly dividend of 76.5 cents per share for the second quarter of 2023, an increase of 13 per cent, or nine cents, from the previous dividend paid, on the outstanding common shares of iA Financial. This dividend is payable on June 15, 2023, to the shareholders of record at May 26, 2023.

Normal course issuer bid: In the first quarter of 2023, the company redeemed and cancelled 1,344,066 outstanding common shares. Under the NCIB regime, the company can redeem up to 5,265,045 common shares, representing approximately 5 per cent of the outstanding common shares, between Nov. 14, 2022, and Nov. 13, 2023. A total of 1,900,954 shares were redeemed between Nov. 14, 2022, and March 31, 2023.

Dividend reinvestment and share purchase plan: Registered shareholders wishing to enroll in iA Financial's dividend reinvestment and share purchase plan (DRIP) so as to be eligible to reinvest the next dividend payable on June 15, 2023, must ensure that the duly completed form is delivered to Computershare no later than 4 p.m. on May 18, 2023. Enrolment information is provided on iA Financial Group's website. Common shares issued under iA Financial's DRIP will be purchased on the secondary market and no discount will be applicable.

2022 sustainability report: On March 29, 2023, iA Financial Group released its 2022 sustainability report, which outlines, among other things, the company's environmental, social and governance initiatives and achievements for 2022 and projects and objectives for the years to come. Highlights of the 87-page report include:

• Disclosure of greenhouse gas emissions from the company's general funds and carbon offsets for scope 1 and 2;
• Details regarding the issue of the company's first sustainability bond totalling $300-million;
• Commitment to obtain the progressive aboriginal relations (PAR) certification of the Canadian Council for Aboriginal Business;
• Information about the creation of a centre of expertise to further develop the company's equity, diversity and inclusion program;
• Contributions totalling $8.5-million to various aid organizations in Canada and the United States.

Awards and distinctions: On Feb. 13, 2023, Denis Ricard was honoured for the second year in a row as the overall winner in the life and health insurers category in the Top of Quebec's Financial Industry Leaders awards organized annually by the newspaper Finance et Investissement. In addition to this award granted to the company's chief executive officer, iA Financial Group was named as a finalist in the training and work force development (large company) category of the prestigious business competition Les Mercuriades. This honour is due in large part to its flexible work from anywhere approach. This was the company's first year in the competition and the winners will be revealed on May 23, 2023.

Credit ratings: During the first quarter, the S&P Global and DBRS Morningstar agencies confirmed, with a stable outlook, all ratings of iA Financial and its related entities, including iA Insurance.

Board of directors: The company's annual meeting will be held virtually on Wednesday, May 10, 2023. At the meeting, 14 directors will be proposed for re-election by shareholders. All of the 14 nominees currently serve on our board and were elected at the company's 2022 meeting.

Subsequent to the first quarter of 2023:

• Progressive aboriginal relations (PAR) program: On April 17, 2023, iA Financial Group announced its commitment to obtain certification from the Canadian Council for Aboriginal Business' progressive aboriginal relations (PAR) program. The company has until the fourth quarter of 2025 to complete the program and become PAR certified.
• Executive committee: On May 10, 2023, the company announced changes to its executive committee.

Outlook

Medium-term guidance for iA Financial, as disclosed on March 28, 2023:

• Core earnings per common share: target of 10-per-cent-plus annual average growth;
• Core return on common shareholders' equity (ROE): target of 15 per cent plus;
• Solvency ratio operating target: target of 120 per cent;
• Organic capital generation: target of $600-plus-million in 2023;
• Dividend payout ratio based on core earnings: target range of 25 per cent to 35 per cent.

First quarter highlights -- iA Insurance

Profitability: In the first quarter of 2023, iA Insurance recorded net income attributed to its sole common shareholder, iA Financial, of $273-million compared with $35-million a year earlier.

Financial position: The solvency ratio of iA Insurance was 145 per cent at March 31, 2023, compared with 118 per cent at the end of the previous quarter and 123 per cent a year earlier. The 27-percentage-point increase in the first quarter is explained by the better recognition of the company's financial strength under IFRS 17 and IFRS 9 and the contribution of organic capital generation. These favourable items were partly offset by the $150-million preferred share redemption, unfavourable macroeconomic variations and the impacts of adjustments to the investment portfolio. Part of these impacts are expected to reverse in the second quarter.

Preferred share redemption: On March 31, 2023, iA Insurance completed the redemption of all its issued and outstanding non-cumulative five-year rate reset Class A preferred shares Series I for a total redemption price of $150-million (less any taxes required to be withheld or deducted).

Dividend: iA Insurance paid no dividend in the first quarter of 2023. For the second quarter of 2023, the board of directors of iA Insurance approved the declaration of a dividend of $200-million to its sole common shareholder, iA Financial.

Credit ratings: During the first quarter, the S&P Global and DBRS Morningstar agencies confirmed, with a stable outlook, all ratings of iA Financial and its related entities, including iA Insurance.

Board of directors: The company's annual meeting will be held virtually on Wednesday, May 10, 2023. At the meeting, 13 directors will be proposed for re-election by shareholders. All of the 13 nominees currently serve on its board and were elected at its 2022 meeting.

Documents related to the financial results

For a detailed discussion of iA Financial's and iA Insurance's first quarter results, investors are invited to consult the management's discussion and analysis for the quarter ended March 31, 2023, the related financial statements and accompanying notes, and the financial information package for each company, all of which are available on the iA Financial Group website and on SEDAR.

Conference call

Management will hold a conference call to present iA Financial Group's first quarter results on Wednesday, May 10, 2023, at 11:30 a.m. ET. The dial-in number is 416-981-9030 or 1-800-908-8370 (toll-free within North America). A replay of the conference call will be available for a one-week period, starting at 2 p.m. on Wednesday, May 10, 2023. To access the conference call replay, dial 1-800-558-5253 (toll-free) and enter access code 22026433. A webcast of the conference call (listen-only mode) will also be available on the iA Financial Group website.

Annual meeting

iA Financial is holding its annual meeting virtually at 2 p.m. ET on Wednesday, May 10, 2023. A webcast of the meeting, as well as a copy of management's presentation, will be available on the company's website.

About iA Financial Corp. Inc.

iA Financial Group is one of the largest insurance and wealth management groups in Canada, with operations in the United States.

We seek Safe Harbor.