CEO.CA Chairman's Briefing

Strong delivery on objectives for the quarter and the full year

Q4/2018 Highlights

• Reported EPS of $1.36 (+10% YoY)
• Core EPS¹ of $1.39 (+9% YoY)
• Solvency ratio of 126% (up from 119%² in Q3)
• Year-end assumption review neutral to earnings
• Share buybacks initiated in November 2018
• Creation of holding company effective January 1, 2019

This News Release presents non-IFRS measures. See "Non-IFRS Financial Information" at the end of this document for further information.

QUEBEC CITY, Feb. 14, 2019 /CNW Telbec/ - For the fourth quarter ended December 31, 2018, iA Financial Group (TSX: IAG) reports net income attributed to common shareholders of $149.5 million, diluted earnings per common share (EPS) of $1.36 and return on shareholders' equity (ROE)¹ for the last twelve months of 12.5%.

For the full year, net income attributed to common shareholders increased by 19% to $612.7 million and EPS increased by 16% to $5.59. A full discussion of our 2018 results is provided in the Management's Discussion and Analysis filed on SEDAR today.

"Our 2018 results demonstrate strong progress on the objectives we presented at our Investor Day in June", commented Denis Ricard, President and CEO of iA Financial Group. "First, earnings per share are up by a strong 16% over the previous year. Second, I am very pleased with the improved profitability at iA Auto and Home and Employee Plans, both of which made a good contribution to our 2018 results. Third, both our insurance and P&C businesses in the U.S. are delivering above expectations which bodes well for the future."

"Sales were generally satisfactory for the year, except in our mutual fund business that is operating in a difficult business environment," continued Mr. Ricard. "With the HollisWealth integration behind us, we are now focused on executing our strategy to leverage our affiliated distribution networks and to increase our share of their business. We are making real progress on this front and will be working closely with our affiliates in 2019 to build upon those valuable relationships."

Commenting on the fourth quarter results, Jacques Potvin, EVP, CFO and Chief Actuary continued, "Our earnings per share were well within guidance. While there were some fluctuations in experience in retail insurance, we delivered strong core earnings overall that speak to the underlying fundamentals of our business. In addition, as part of our year-end assumption review, we reduced our ultimate reinvestment rate, which in conjunction with some minor model refinements, resulted in a neutral impact on earnings."

"Our solvency ratio at year-end finished well above our guidance. Among other items, we are extremely pleased to announce that we received the credit for our segregated fund hedging program that not only increased our capital, but further reduces the sensitivity of our solvency ratio to the macroeconomic environment."

"We are introducing our earnings guidance for 2019 that we expect to be in the range of $5.75-$6.15, which represents an increase of 10% over last year's guidance at the midpoint," concluded Mr. Potvin. "In addition, we have changed the guidance for our solvency ratio to reflect our reduced macroeconomic sensitivity, resulting from the new capital regime that recognizes our good risk management strategies, including our hedging program for our segregated fund portfolio and other initiatives to reduce the sensitivity of our solvency ratio to equity markets and interest rates."

______________________

FOURTH QUARTER HIGHLIGHTS

Creation of holding company - Industrial Alliance Insurance and Financial Services Inc. (iA Insurance) has become a subsidiary of iA Financial Corporation Inc. (iA Financial Corporation) effective January 1, 2019, as per the plan of arrangement described in the 2018 Circular and approved by common shareholders at the annual general meeting held on May 10, 2018. Under this arrangement, iA Financial Corporation becomes the successor issuer and the financial results of iA Insurance for the year ended December 31, 2018 constitute the results of iA Financial Corporation. Consistent with this arrangement, the Normal Course Issuer Bid initiated by iA Insurance on November 12, 2018 to purchase up to 5% of its outstanding common shares has been transferred to iA Financial Corporation as of January 1, 2019.

It should be noted that the 2019 guidance provided in this news release and in all other fourth quarter and year-end financial disclosure documents relates to the successor issuer, iA Financial Corporation Inc.

Profitability - For the fourth quarter ended December 31, 2018, iA Financial Group reports diluted earnings per share (EPS) of $1.36, an increase of 10% from $1.24 in the same quarter of 2017. Core EPS for the same period increased 9% to $1.39 and is in line with guidance of $1.35 to $1.45 per share.

This table reconciles reported and core EPS for the fourth quarter. Adjustments applied in the Company's core EPS calculation are explained in the section titled "Non-IFRS Financial Information".

^{_______________________________}

The following items presented in the Sources of Earnings section of the Company's Financial Information Package explain the differences between management's expectations and reported earnings for the three-month period ended December 31, 2018. All figures are after tax unless otherwise indicated. This information contains non-IFRS measures.

Expected profit on in-force increased by 5% to $177.3 million pre-tax over the same quarter last year, reflecting growth in Individual Wealth, Group Insurance and US Operations. Expected profit in 2018 included the results of the U.S. car dealer acquisition (DAC). The results of PPI Management Inc. (PPI) that was acquired late in the first quarter of 2018 is expressed as an experience gain.

The Company reports a net market-related and policyholder experience loss of $0.28 EPS ($29.9 million) in the fourth quarter of 2018 versus management expectations. Details follow by line of business.

Individual Insurance reported an experience loss of $0.24 EPS ($25.9 million) explained by the unfavourable impact of equity markets on universal life policies (-$0.16 EPS); higher death claims (-$0.03 EPS); higher expenses (-$0.03 EPS); lower investment returns (-$0.01 EPS); and an increase in the provision for a non-performing asset (-$0.01 EPS).

Individual Wealth Management reported a net loss of $0.02 EPS ($2.4 million). A gain of $0.10 EPS on the adjustment of the final purchase price for the HollisWealth acquisition was eradicated by the loss from the dynamic hedging program (-$0.09 EPS) and the adverse impact of equity markets on assets under management (-$0.03 EPS).

Group Insurance had a net gain of $0.04 EPS ($4.5 million) attributed to favourable experience in Employee Plans.

Group Savings and Retirement had a loss of $0.02 EPS ($2.5 million) shared equally by adverse longevity and higher expenses.

US Operations reported a loss of $0.01 EPS ($0.5 million) for higher death claims.

Strain in the Individual Insurance and US Operations sectors - Strain on new business amounted to $3.0 million pre-tax, or 4% of sales for the quarter, representing a loss of $0.01 EPS mainly because of lower sales volume in the Canadian operations.

Income on Capital - Income on capital of $54.6 million pre-tax represents a gain of $0.18 EPS. The sale of real estate offset by the realization of losses on available-for-sale securities generated a net gain of $0.14 EPS. Additional investment income (+ $0.02 EPS) and an adjustment to amortization (+$0.03 EPS) of the DAC acquisition in the U.S., were partially offset by intangibles related to the PPI acquisition (-$0.01 EPS). Experience at iA Auto and Home was slightly better than expectations.

Income Taxes - The effective tax rate of 19% represents a gain of $0.05 EPS attributed to the previously mentioned sale of real estate that is not fully taxable.

Actuarial Assumption Review - The year-end review of actuarial assumptions was neutral to earnings. Details are provided in the 2018 Management's Discussion and Analysis.

Business Growth - Premiums and deposits increased to $2.6 billion (+6%) reflecting growth in all sectors, with the exception of retail wealth management. Assets under management and administration of $168.8 billion in the fourth quarter were down slightly over the previous quarter due to the weak market conditions and lower fund flows.

The retail insurance sector in Canada reported total sales of $47.3 million compared with $52.8 million in the like quarter of 2017 (-10%).

In retail wealth management, guaranteed product sales of $104.8 million were up 25% over the previous year reflecting the current preference of consumers for guaranteed products. Gross sales of segregated funds amounted to $460.0 million (+2%), and net sales were $76.1 million (-25%). Gross sales of mutual funds were $481.8 million (-14%), and net outflows of $117.9 million compared with net inflows of $30.7 million a year earlier.

The group insurance sector reported total sales of $324.1 million (+9%). In Dealer Services, non-prime loan originations of $98.9 million were up 59%; P&C sales of $54.8 million compared favourably with the previous year (+12%); and creditor sales amounted to $87.0 million (-12%). Employee Plans sales of $7.2 million were comparable to the previous year. Special Markets Solutions had sales of $76.2 million (-4%).

In the group savings and retirement sector, total sales were $438.3 million (+31%).

In the U.S., individual insurance sales grew by 22% to US$21.4 million while the contribution from the car dealer business (DAC) acquired on January 23, 2018 was US$79.3 million.

At iA Auto and Home, written premiums in the fourth quarter grew by 7% to $68.5 million.

Capital - At December 31, 2018, the solvency ratio was 126% compared with 119%⁸ at September 30, 2018.  The increase is explained as follows: recognition in the fourth quarter of the hedging program for segregated funds (+3%); the year‑end assumption review, particularly the strengthening of the ultimate reinvestment rate (+2%); organic capital generation (+1%); the increase in credit spreads (+1%); and active management of equity market risk (+1%). Capital was deployed to buy back approximately 1.1 million common shares under the Company's Normal Course Issuer Bid (-1%).

Dividend - The Board of Directors approved a quarterly dividend of 41.5 cents per share on the outstanding common shares of iA Financial Corporation. This dividend is payable on March 15, 2019 to shareholders of record at March 1, 2019.

Dividend Reinvestment and Share Purchase Plan - Registered shareholders wishing to enrol in iA Financial Corporation's Dividend Reinvestment and Share Purchase Plan (DRIP) so as to be eligible to reinvest the next dividend payable on March 15, 2019 must ensure that the duly completed form is delivered to Computershare no later than 4:00 p.m. on February 22, 2019. Enrolment information is provided on the Company's website at ia.ca under About iA, in the Investor Relations/Dividends section. Common shares issued under iA Financial Corporation's DRIP will be purchased on the secondary market and no discount will be applicable.

Market Guidance for 2019 for iA Financial Corporation

• Earnings per common share: target range has been increased to $5.75 to $6.15
• Return on common shareholders' equity (ROE): target range remains at 11.0% to 12.5%
• Solvency ratio: target range changed to 110% to 116%
• Dividend payout ratio: payout range remains at 25% to 35% with the target being the midpoint
• Effective tax rate: target range changed to 20% to 22%
• Strain on new business: annual target remains at 6% of sales with quarterly range of 0% to 15%

Guidance for EPS and ROE excludes any potential impact of the year-end assumption review.

________________________

GENERAL INFORMATION

Non-IFRS Financial Information
iA Financial Group reports its financial results and statements in accordance with International Financial Reporting Standards (IFRS). It also publishes certain financial measures that are not based on IFRS (non-IFRS). A financial measure is considered a non-IFRS measure for Canadian securities law purposes if it is presented other than in accordance with the generally accepted accounting principles used for the Company's audited financial statements. These non-IFRS financial measures are often accompanied by and reconciled with IFRS financial measures. For certain non-IFRS financial measures, there are no directly comparable amounts under IFRS. The Company believes that these non-IFRS financial measures provide additional information to better understand the Company's financial results and assess its growth and earnings potential, and that they facilitate comparison of the quarterly and full-year results of the Company's ongoing operations. Since non-IFRS financial measures do not have standardized definitions and meaning, they may differ from the non-IFRS financial measures used by other institutions and should not be viewed as an alternative to measures of financial performance determined in accordance with IFRS. 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.

Non-IFRS financial measures published by the Company include, but are not limited to: return on common shareholders' equity (ROE), core earnings per common share (core EPS), core return on common shareholders' equity (core ROE), sales, net sales, assets under management (AUM), assets under administration (AUA), premium equivalents, deposits, sources of earnings measures (expected profit on in-force, experience gains and losses, strain on sales, changes in assumptions, management actions and income on capital), capital, solvency ratio, interest rate and equity market sensitivities, loan originations, finance receivables and average credit loss rate on car loans.

The analysis of profitability according to the sources of earnings presents sources of income in compliance with the guideline issued by the Office of the Superintendent of Financial Institutions and developed in co-operation with the Canadian Institute of Actuaries. This analysis is intended to be a supplement to the disclosure required by IFRS and to facilitate the understanding of the Company's financial position by both existing and prospective stakeholders to better form a view as to the quality, potential volatility and sustainability of earnings. It provides an analysis of the difference between actual income and the income that would have been reported had all assumptions at the start of the reporting period materialized during the reporting period. It sets out the following measures: expected profit on in-force business (representing the portion of the consolidated net income on business in force at the start of the reporting period that was expected to be realized based on the achievement of best‑estimate assumptions); experience gains and losses (representing gains and losses that are due to differences between the actual experience during the reporting period and the best‑estimate assumptions at the start of the reporting period); new business strain (representing the point-of-sale impact on net income of writing new business during the period); changes in assumptions, management actions and income on capital (representing the net income earned on the Company's surplus funds).

Sales is a non-IFRS measure used to assess the Company's ability to generate new business. They are defined as fund entries on new business written during the period. Net premiums, which are part of the revenues presented in the financial statements, include both fund entries from new business written and in-force contracts. Assets under management and administration is a non-IFRS measure used to assess the Company's ability to generate fees, particularly for investment funds and funds under administration. An analysis of revenues by sector is presented in the Profitability section of the Annual Management's Discussion and Analysis.

Core earnings per common share is a non-IFRS measure used to better understand the capacity of the Company to generate sustainable earnings.

Management's estimate of core earnings per common share excludes: 1) specific items, including but not limited to year‑end assumption changes and unusual income tax gains and losses; 2) market gains and losses related to universal life policies, investment funds (MERs) and the dynamic hedging program for segregated fund guarantees; 3) gains and losses in excess of $0.04 per share, on a quarterly basis, for strain on Individual Insurance sales, for policyholder experience by business segment (Individual Insurance, Individual Wealth Management, Group Insurance, Group Savings and Retirement, US Operations and iA Auto and Home Insurance), for usual income tax gains and losses and for investment income on capital.

Forward-looking Statements
This press release may contain statements relating to strategies used by iA Financial Group or statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as "may", "will", "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 iA Financial Group 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 or assumptions are applied in making forward-looking statements, and actual results may differ materially from those expressed or 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 iA Financial Group 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 iA Financial Group; 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 for the year 2018 and in the "Management of Risks Associated with Financial Instruments" note to iA Financial Group's audited consolidated financial statements for the year ended December 31, 2018, and elsewhere in iA Financial Group's filings with Canadian securities regulators, which are available for review at sedar.com.

The forward-looking statements in this news release reflect the Company's expectations as of the date of this press release. iA Financial Group 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.

Documents Related to the Financial Results
For a detailed discussion of the Company's 2018 fourth quarter results, investors are invited to consult the Management's Discussion and Analysis for the year ended December 31, 2018, the related consolidated financial statements and accompanying notes and the Financial Information Package, all of which are available on the iA Financial Group website at ia.ca under About iA, in the Investor Relations/Financial Reports section and on SEDAR at sedar.com.

Conference Call
Management will hold a conference call to present the Company's results on Thursday, February 14, 2019, at 2:00 p.m. (ET). The toll‑free dial-in number is 1-877-292-6978. A replay of the conference call will be available for a one-week period, starting at 4:30 p.m. on Thursday, February 14, 2019. To access the conference call replay, dial 1-800-558-5253 (toll-free) and enter access code 21911262. A webcast of the conference call (listen-only mode) will also be available on the Company's website at ia.ca.

About iA Financial Group
Founded in 1892, iA Financial Group is one of the largest insurance and wealth management companies in Canada, with operations in the United States. It is listed on the Toronto Stock Exchange under the ticker symbol IAG.

iA Financial Group is a business name and trademark of iA Financial Corporation Inc. and Industrial Alliance Insurance and Financial Services Inc.

SOURCE Industrial Alliance Insurance and Financial Services Inc.

View original content: http://www.newswire.ca/en/releases/archive/February2019/14/c6299.html